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Obligations and Contracts page 1

BARREDO V GARCIA BOCOBO; July 8, 1942


FACTS - from CA, holding Fausto Barredo liable for damages for death of Faustino Garcia caused by negligence of Pedro Fontanilla, a taxi driver employed by Fausto Barredo - May 3, 1936 in road between Malabon and Navotas, head-on collision between taxi of Malate Taxicab and carretela guided by Pedro Dimapilis thereby causing overturning of the carretela and the eventual death of Garcia, 16-yo boy and one of the passengers - Fontanilla convicted in CFI and affirmed by CA and separate civil action is reserved - Parents of Garcia filed action against Barredo as sole proprietor of Malate Taxicab as employer of Fontanilla - CFI and CA awarded damages bec Fontanillas negligence apparent as he was driving on the wrong side of the road and at a high speed > no proof he exercised diligence of a good father of the family as Barredo is careless in employing (selection and supervision) Fontanilla who had been caught several times for violation of Automobile Law and speeding > CA applied A1903CC that makes inapplicable civil liability arising from crime bec this is under obligations arising from wrongful act or negligent acts or omissions punishable by law - Barredos defense is that his liability rests on RPC TF liability only subsidiary and bec no civil action against Fontanilla TF he too cannot be held responsible ISSUE WON parents of Garcia may bring separate civil action against Barredo making him primarily liable and directly responsible under A1903CC as employer of Fontanilla HELD Yes. There are two actions available for parents of Garcia. One is under the A100RPC wherein the employer is only subsidiarily liable for the damages arising from the crime thereby first exhausting the properties of Fontanilla. The other action is under A1903CC (quasi-delict or culpa aquiliana) wherein as the negligent employer of Fontanilla, Barredo is held primarily liable subject to proving that he exercising diligence of a good father of the family. The parents simply took the action under the Civil Code as it is more practical to get damages from the employer bec he has more money to give than Fontanilla who is yet to serve his sentence. Obiter Difference bet Crime and Quasi-delict 1) crimes public interest; quasi-delict only private interest 2) Penal code punishes or corrects criminal acts; Civil Code by means of indemnification merely repairs the damage 3) delicts are not as broad as quasi-delicts; crimes are only punished if there is a penal law; quasi-delicts include any kind of fault or negligence intervenes NOTE: not all violations of penal law produce civil responsibility e.g. contravention of ordinances, violation of game laws, infraction of rules of traffic when nobody is hurt 4) crime guilt beyond reasonable doubt; civil mere preponderance of evidence - Presumptions:

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1) injury is caused by servant or employee, there instantly arises presumption of negligence of master or employer in selection, in supervision or both 2) presumption is juris tantum not juris et de jure TF may be rebutted by proving exercise of diligence of a good father of the family - basis of civil law liability: not respondent superior but the relationship of pater familias

SONG FO & CO. V HAWAIIAN- PHILIPPINE CO. MALCOLM; September 16, 1925

FACTS Plaintiff presented a complaint with two causes of action for breach of contract against the defendant in which judgment was asked for P70,369.50, with legal interest and cost. In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the contract. The case was submitted for decision on a stipulation of facts and exhibits. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93 with legal interest from the date of the presentation of the complaint, and with costs. HELD - The written contract between the parties provided for the delivery by the Hawaiian-Philippine Co. to Song Fo & Co. of 300,000 gallons of molasses. The language used in another exhibit with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation. - The terms of contract fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Hawaiian-Philippine Co. had no legal right to rescind the contract of sale because of the failure of Song Fo & Co. to pay for the molasses within the time agreed upon by the parties. The general rule is that the rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches are as so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some 20 days is not such a violation of an essential condition of the contracts as warrants rescission for nonperformance. - The measure of damages for breach of contract in this case is as follows: Song Fo & Co. is allowed P3,000 on account of the greater expense to which it was put in being compelled to secure molasses in the open market. It is allowed nothing for lost profits on account of the breach of the contract, because of failure of proof.

VELARDE V COURT OF APPEALS PANGANIBAN; July 11, 2001


FACTS - David Raymundo (private respondent) is the absolute and registered owner of a parcel of land, together with the house and other improvements. - Gorge Raymundo, Davids father, negotiated with Avelina and Mariano Velarde (plaintiffs) for the sale of Davids property, which was under lease.

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- Aug 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by David Raymundo in favor of Avelina Velarde. It states that David Raymundo sells, cedes, transfers conveys and delivers the property to Avelina Velarde for P800,000 and that Avelina Velarde assumes to pay the mortgage obligations on the property in the amount of P1,800,000 in favor of BPI. - On the same date, Avelina, with the consent of husband Mariano, executed an Undertaking, parts of which as follows: 1. that Avelina Velarde paid David Raymundo P800,000, and assumes the mortgage obligations on the property with BPI in the amount of P1.8M. 2. while Avelinas application for the assumption of the mortgage obligations on the property is not yet approved by BPI, Avelina agreed to pay the mortgage obligations on the property, including interest and charges for late payment. 3. Avelina binds and obligates herself to strictly and faithfully comply with the ff terms and conditions: a. until such time that assumption of mortgage obligations on the property is approved by BPI, Avelina shall continue to pay said loan in accordance with its terms and conditions. b. In the event Avelina violates any of the terms and conditions, her downpayment of P800,000 plus all payments made with BPI on the mortgage loan shall be forfeited in favor of David Raymundo, and that David shall resume total and complete possession and ownership of the property, and the Deed of Sale with Assumption of Mortgage shall be deemed automatically cancelled. - As per agreement, the Velardes paid BPI the monthly interest on the loan for 3 months, (Sept 19, 1986 at P27,225; Oct 20, 1986 at 23,000; Nov 19, 1986 at 23, 925) - Dec. 15, 1986, plaintiffs were advised that their Application for Assumption of Mortgage with BPI was not approved. This prompted the Velardes not to make any further payment. - Jan. 5, 1987, the Raymundos, thru counsel, wrote plaintiffs informing them that their nonpayment to BPI constituted nonperformance of their obligation. - On January 7, 1987, the Velardes responded thru counsel and advised that they are willing to pay the balance in cash not later that Jan 21 1987 provided that: a) respondents deliver actual possession of the property not later that Jan 15, 1987; b) respondents cause the release of title and mortgage from BPI and make the title available and free from any liens and encumbrances; and c) respondents execute an absolute deed of sale in favor of Avelina Velarde not later than Jan 21, 1987. - Jan 8, 1987, defendants sent the Velardes a notarial notice of cancellation/rescission of the intended sale of the property, allegedly due to the plaintiffs failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking. - Feb 9, 1987, the Velardes filed a complaint against respondents for specific performance, nullity of cancellation, writ of possession, and damages. - RTC instructed the parties to proceed with the sale, directing the Velardes to pay the balance of P1.8M and ordered the Raymundos to execute a deed of absolute sale and to surrender possession of property to the Velardes. - CA reversed the ruling and dismissed the Velardes Complaint. ISSUES 1. WON there is a breach of contract 2. WON the rescission by the Raymundos of the contract valid

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3. WON the finding of the CA that the Velardes Jan 7, 1987 letter gave three new conditions constituted an attempt to novate, thus necessitating a new agreement between the parties HELD 1. Yes. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefore a price certain in money or its equivalent. - Private respondents already performed their obligation through the execution of the Deed of Sale, which effectively transferred ownership of property to Velarde through consecutive delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to delivery. - Petitioners did not perform their correlative obligation of paying the contract price in the manner agreed upon. They wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own obligation to pay the full purchase price. 2. Yes. Private respondents right to rescind the contract finds basis in Article 1191 of the Civil Code, which provides: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, of the latter should become impossible. - The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in said provision is the obligors failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. - Private respondents validly exercised their right to rescind the contract, because of the failure of petitioners to comply with their obligation to pay the balance of the purchase price. The Velardes violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to private respondents right to rescind the same in accordance with law. - Mutual restitution required in rescission.

the breach committed by petitioners was a nonperformance of a reciprocal obligation, not a violation of the terms and conditions of the mortgage contract. Thus, the automatic rescission and forfeiture of payment clauses do not apply. Civil Code provisions shall govern. - Since breach herein is under A1191, mutual restitution is required to bring back the parties their original situation prior to the inception of the contract. - Rescission creates an obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. 3. SC did not find it necessary to discuss third issue but said that the three conditions were not part of the original contract, and that petitioners had no right

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to demand preconditions to the fulfillment of their obligation, which had become due. Disposition CA decision affirmed with modification that private respondents are ordered to return to petitioners P874,150 with legal interest. 1. 2. 3.

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accounting of profits and to pay plaintiff 15 % of the profits execution of contract cannot be enforced upon parties fraud wasnt proved ISSUES 1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages 2. WON false representation, if it existed, annuls the agreement to form the partnership HELD 1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the agreement with defendant. The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the representation. defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff. - Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise. 2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages. This Court has held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente) inducement to the making of the contract. The record abounds with circumstances indicative of the fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. - But if plaintiff was guilty of a false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership. - May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date. , The defendant may not be compelled against his

WOODHOUSE V HALILI LABRADOR; July 31, 1953


FACTS - November 29, 1947- plaintiff entered into a written agreement with defendant: 1. that they shall organize a partnership for the bottling and distribution of Mission soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefore 2. that the defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to the operation and development of the bottling plant 3. that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership 4. that the plaintiff was to receive 30 per cent of the net profits of the business - Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, U. S. A., manufacturers of the bases and ingredients of the beverages bearing its name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation - Pursuant to this request, plaintiff was given "a thirty days' option on exclusive bottling and distribution rights for the Philippines" - The contract was finally signed by plaintiff on December 3, 1947. - When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be executed. - Defendant gave excuses and would not execute said agreement, thus the complaint by the plaintiff. - Plaintiff: 1. execution of the contract of partnership 2. and accounting of profits 3. share thereof of 30 per cent 4. damages in the amount of P200,000 - Defendant: 1. the defendants consent to the agreement, was secured by the representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did not secure the franchise but was given to defendant himself 2. that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed 3. that plaintiff agreed to contribute to the exclusive franchise to the partnership, but plaintiff failed to do so 4. counterclaim for P200,00 as damages - CFI ruling:

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will to carry out the agreement nor execute the partnership papers. The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.

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1. NO, the existence of negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence. Ratio An experienced and attentive motorman should have discovered that something was wrong and would have stopped before he had driven the car over the entire distance from the point where the wheels left the track to the place where the post was struck. Reasoning The motorman alleged that he reduced his speed to the point that the car barely entered the switch under its own momentum, and this operation was repeated as he passed out. Upon getting again on the straight track he put the control successively at points one, two, three and lastly at point four. At the moment when the control was placed at point four he perceived that the rear wheels were derailed and applied the brake; but at the same instant the car struck the post, some 40 meters distant from the exit of the switch. However, testimonial evidence alleged that the rate of a car propelled by electricity with the control at point "four" should be about five or 6 miles per hour (around 8 kph) and other evidence showed that the car was behind schedule time and that it was being driven, after leaving the switch, at a higher rate than would ordinarily be indicated by the control at point four. The car was practically empty (so its possible that it could run faster???). The court granted that there is negligence as shown by the distance which the car was allowed to run with the front wheels of the rear truck derailed, aside from the fact that the car was running in an excessive speed. 2. The relation between the parties was of a contractual nature. Ratio The company was bound to convey and deliver the plaintiff safely and securely with reference to the degree of care which, under the circumstances, is required by law and custom applicable to the case. Reasoning The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to convey him for hire. 3. YES, the defendant is liable for the damages Ratio/ Reasoning Upon failure to comply with that obligation arising from the contract, the company incurred the liability defined in articles 1103-1107 of the Civil Code. 4. No, the defendant could not avail of the last paragraph of Art 1903 Ratio/ Reasoning The last paragraph of article 1903 of the civil code refers to liability incurred by negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil law and not to liability incurred by breach of contract; therefore, it is irrelevant to prove that the defendant company had exercised due care in the selection and instruction of the motorman who was in charge of its car and that he was in experienced and reliable servant. 5. The defendant is liable for the damages ordinary recoverable for the breach of contractual obligation, against a person who has acted in good faith, which could be reasonably foreseen at the time the obligation is contracted. Ratio The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties. Reasoning The court has the power to moderate liability according to the circumstances of the case, i.e. when the defendant must answer for the consequences of the negligence of its employees. Also, an employer who has

DE GUIA V MANILA ELECTRIC, RAILROAD & LIGHT CO STREET; January 28, 1920
FACTS -The plaintiff is a physician residing in Caloocan City. -Sept 4, 1915, at about 8pm, the defendant boarded a car at the end of the line with the intention of coming to Caloocan. -At about 30 meters from the starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle of the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track ran for a short distance and hit a concrete post. -the post was shattered: at the time the car struck against the concrete post, the plaintiff was allegedly standing on the rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left part of his chest struck against the door causing him to fall. In the falling, the plaintiff alleged that his head struck one of the seats and he became unconscious. -the plaintiff was taken to his home which was a short distance away from the site of the incident. A physician of the defendant company visited the plaintiff and noted that the plaintiff was walking about and apparently suffering somewhat from bruises on his chest. The plaintiff said nothing about his head being injured and refused to go to a hospital. -The plaintiff consulted other physicians about his condition, and all these physicians testified for the plaintiff in the trial court. -the plaintiff was awarded with P6,100, with interest and costs, as damages incurred by him in consequence of physical injuries sustained. The plaintiff and the defendant company appealed. ISSUES 1. WON the defendant has disproved the existence of negligence 2. What is the nature of the relation between the parties? 3. WON the defendant is liable for the damages 4. If liable for damages, WON the defendant could avail of the last paragraph of Art 1903 on culpa aquiliana (Art 2180) 5. What is the extent of the defendants liability? 5.1 Did the trial judge err in the awarding of the damages for loss of professional earnings (P900)? 5.2 Did the trial judge err in the awarding of the damages for inability to accept a position as a district health officer? 5.3 Did the trial judge err in not awarding damages for the plaintiffs supposed incapacitation for future professional practice (P30,000)? 5.4 Is the plaintiff reasonable in demanding P10,000 for the cost of medical treatment and other expenses incident to his cure? 6. WON the trial judge erred in treating written statements of the physicians who testified as primary evidence? HELD

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displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in good faith (w/n meaning of article 1107, old CC) 5.1. NO, the trial judge was liberal enough to the plaintiff. Reasoning As a result of the incident, the plaintiff was unable to properly attend his professional labors for 3 months and suspend his practice for that period. By testimonial evidence, his customary income, as a physician, was about P300/month. So the trial judge accordingly allowed P900 as damages for loss of earnings. 5.2 YES. The trial judge erred in awarding such damages. Ratio Damage of this character could not, at the time of the accident, have been foreseen by the delinquent party as a probable consequence of the injury inflicted. Reasoning The representative from Negros Occidental has supposedly asked Dr. Montinola to nominate the plaintiff as district health officer of Negros Occidental for two years, with a salary of P1,600 per annum and a possible outside practice worth of P350. However, even if true, the damages were too speculative to be the basis of recovery in a civil action. 5.3 NO. the trial court was fully justified in rejecting the exaggerated estimate of damages allegedly created. Ratio/ Reasoning The plaintiff alleged, even showing testimonial evidences from numerous medical experts, that he developed infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, and these manifestations of disorder rendered him liable to a host of other dangerous diseases, and that restoration to health could only be accomplished after long years of complete repose. -The medical experts introduced by the defendant testified however that the plaintiffs injuries, considered in their physical effects, were trivial and that the attendant nervous derangement, with its complicated train of ailments, was merely simulated. -According to the court, the evidence showed that immediately after the incident the plaintiff, sensing in the situation a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with the aid of his own professional knowledge, supplemented by suggestions obtained from his professional friends and associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true value the symptoms of disorder which he developed. 5.4 No. He is only justified with P200, or the amount actually paid to Dr. Montes (the doctor who treated the plaintiff) which is the obligation supposedly incurred with respect to treatment for said injuries. Ratio In order to constitute a proper element of recovery in an action of this character, the medical service for which reimbursement is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition. Reasoning Dr. Montes, in his testimony, speaks in the most general terms with respect to the times and extent of the services rendered; and it is not clear that those services which were rendered many months, or year, after the incident had in fact any necessary or legitimate relation to the injuries received by the plaintiff. -On the obligation supposedly incurred by the plaintiff to three other physicians: (1) it does not appear that said physicians have in fact made charges for those services with the intention of imposing obligations on the plaintiff to pay them; (2) in employing so many physicians the plaintiff must have had in view the successful promotion of the issue of this lawsuit rather than the bona fide purpose of effecting the cure of his injuries.

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6. YES, certificates or the written statements of the physicians which were referred to in the trial cannot be admitted as primary evidence since it is fundamentally of a hearsay nature Ratio The only legitimate use of certificates could be put, as evidence for plaintiff, was to allow the physician who issued it to refer thereto, to refresh his memory upon details which he might have forgotten Disposition Judgment from the trial court modified by reducing the amount of the recovery to P1,100, with legal interest from Nov. 8, 1916 (all judges 6 (ponente counted) concurred)

CHAVEZ V GONZALES REYES; April 30, 1970


FACTS - Chavez brought his typewriter on July of 1963 to Gonzales to have it fixed. There was no agreement as to when the typewriter should be ready for return to Chavez. - Gonzales was not able to finish the work after a certain time despite repeated reminders from Chavez. - Gonzales asked Chavez for P6.00 for the purchase of spare parts which Chavez gave. - In October 1963 Chavez went to Gonzales house and got the typewriter. It was returned to him with the cover and some essential parts missing. - Chavez formally demanded that the missing parts be returned along with the cover and the sum of P6.00 which Gonzales did. - August 1964 the typewriter was fixed by another person which cost Chavez P89.95 for materials and labor. - The trial court awarded Chavez damages of only P31.10 out of his total claim of P690.00. ISSUE WON Chavez should be entitled to greater damages than what was awarded to him in the trial court HELD YES - Art. 1197 cannot be raised as a defense. a. Art. 1197 states that the petitioner should have first filed for a petition from the Court, fixing the period. b. This is not applicable because the time for compliance has already expired, the defendant not having worked on the typewriter and returning it to the owner unrepaired. - Gonzales is liable under Art. 1165 because of his non-performance.

c.
manner. d.

He is liable for the cost of executing the obligation in the proper He is also liable for the missing parts.

e.

But the moral damages and attorneys fees should not be awarded because they were not alleged in the complaint.

ARRIETA V NATIONAL RICE AND CORN CORP

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REGALA; January 31, 1964
FACTS - On May 19, 1952, plaintiff-appellee participated and won in the public bidding called by the NARIC for the supply of 20,000 metric tons of Burmese rice. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately." - Despite the commitment to pay immediately "by means of an irrevocable, confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation, thru its general manager, took the first step to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter of Credit. On the same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Rangoon, Burma "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952." - It turned out however, the appellant corporation was not in any financial position to meet the condition, which it candidly admitted in a communication with PNB. Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit. As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made of record that although the Burmese authorities had set August 4, 1952 as the deadline for the remittance of the required letter of credit, the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20. 1952, or, a full half month after the expiration of the deadline. And yet, even with that 15-day grace, appellant corporation was unable to make good its commitment to open the disputed letter of credit. - The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of reinstating the same became apparent, she offered to substitute Thailand rice instead to the defendant NARIC, communicating at the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time." This offer for substitution, however, was rejected by the appellant in a resolution dated November 15, 1952. Appellee sent a letter to the appellant, demanding compensation for the damages caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand having been rejected, she instituted this case now on appeal. ISSUE WON the lower court erred in holding NARIC liable for damages for breach of contract

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HELD - YES. We do not think the appellant corporation can refute the fact that had it been able to put up the 50 c/o marginal cash deposit demanded by the bank, then the letter of credit would have been approved, opened and released as early as August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the said date, appellant's it "application for a letter of credit . . . has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment." The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements of the bank. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the presentation. - A number of logical inferences may be drawn from NARICs admission. First, that the appellant knew the bank requirements for opening letters of credit; second, that appellant also knew it could not meet those requirements. When, therefore, despite this awareness that it was financially incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable, confirmed and assignable letter of credit," it must be similarly be held to have bound itself too answer for all and every consequences that would result from the representation. - In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 1170 of the Civil Code which provides: "Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable in damages. - Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations are decreed liable: in general, every debtor who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby. The phrase "in any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.) - The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. We disagree. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting no other reasonable explanation. (Ramirez vs. Court of Appeals, 98 Phil., 225; 52 Off. Gaz. 779). In the case at bar, no such intent to waive has been established. - In the premises, however, a minor modification must be effected in the disposition portion of the decision appealed from insofar as it expresses the amount of damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts." In view of that law, therefore, the award should be converted into and expressed in Philippine Peso. Disposition UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1, 1952 when the contract was executed. The appellee insurance company, in the light of this judgment, is relieved of any liability under this suit. No pronouncement as to costs.

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JUAN NAKPIL & SONS V COURT OF APPEALS PARAS; October 3, 1986
FACTS - Philippine Bar Association (PBA) decided to construct an office building on its 840 square meter lot located at the corner of Aduana and Arzobispo Streets, Intramuros, Manila. The contractor was United Construction Inc. and the architect was Juan F. Nakpil & Sons. The building was completed in June, 1966. In the early morning of August 2, 1968 an unusually strong earthquake (7.3 magnitude) hit Manila and the building in question sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. As a temporary remedial measure, the building was shored up by United Construction at the cost of P13, 661.28. - November 29, 1968 PBA commenced action or the recovery of damages arising from the partial collapse of the building. PBA claims that the collapse was due to defects in the construction, the failure of contractors to follow plans and specifications and violations by the defendants of the terms of the contract. On the other hand, United Construction Inc. filed a third-party complaint against the architects Nakpil alleging that the collapse was due to the defects in the said plans and specifications. A pre-trial was conducted during which, among others, the parties agreed to refer the technical issues involved in the case to a Commissioner, Mr. Andres Hizon. Technical issues involve question regarding the design and construction of the building. - during the pendency of the case, three more earthquakes occurred and with the PBAs request, the building was demolished at their expense. - The Commissioner submitted his report which stated that the damage sustained by the PBA building was directly caused by the earthquake and was also caused by the defects in the plans and specifications prepared by the architects, deviations from said plans and specifications by the contractor and failure of the contractor to observe the requisite workmanship in the construction of the building. The trial court agreed with the findings of the Commissioner. All parties involved appealed and the CA affirmed the decision of the trial court but modified the decision by granting PBA an additional P200,000 to be paid by the contractor and architects jointly. - The parties appealed from the decision of the CA and thus this petition. The United Architects of the Philippines and The Philippine Institute of Architects intervened as amicus curiae and submitted a position paper which said that the plans and specifications of the Nakpils were not defective. When asked by the Court to comment, the Commissioner reiterated his findings and said that there were deficiencies in the design of the architects which contributed to the collapse of the building. Petitioners Nakpil and UCCI on the other hand claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility. ISSUE WON an act of God- an unusually strong earthquake- which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence

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HELD - No. applicable law is Art.1723 of the New Civil Code which holds the architects liable for damages on the building due to defects in the design, and contractors for damages due to defects in the construction. On the other hand, the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen, were inevitable. - An act of God has been defined as an accident, due directly and exclusively to natural causes without human intervention which by no amount of foresight, pains or care, reasonably to have been expected, could have been prevented. To exempt the obligor from liability under art.1174 of the new Civil Code for a breach of obligation due to an act of God, the ff must concur: a) the cause of the breach of obligation must be independent of the will of the debtor; b) the event must be unforeseeable or unavoidable; c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and d) the debtor must be free of any participation in, or aggravation of the injury to the creditor. - Thus if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation which results in loss or damage, the obligor cannot escape liability. Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt, he must be free from any previous negligence or misconduct. - The negligence of the contractor and the architect was established beyond dispute in both the trial court and the CA. UCCI was found to have made substantial deviations from the plans and specifications, and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite amount of supervision. Nakpil on the other hand were found to have defects in the plans and specifications prepared by them. As correctly assessed by both courts, the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake.

REPUBLIC V LUZON STEVEDORING CORPORATION REYES; September 29, 1967


FACTS - In the early afternoon of August 17, 1960, barge L-1892, owned by Luzon Stevedoring Corporation was being towed down the Pasig river by tugboats Bangus and Barbero also belonging to the same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at that time, was swollen and the current swift, on account of the heavy downpour of Manila and the surrounding provinces on August 15 and 16, 1960. - Republic of the Philippines sued for actual and consequential damage caused by the said companys employees amounting to 200,000. Defendant company disclaimed liability on the grounds that it was brought about by force majeure as they exercised due diligence in the selection and supervision of its employees and that the Nagtahan Bailey Bridge is an obstruction to navigation. Defendant claims that got the strongest tugboats, and the more competent and experienced among its patrons. - Trial court found said company liable. It filed before the Supreme Court.

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ISSUES 1. WON the collision of appellants barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure, and 2. WON it was error for the Court to have permitted the plaintiff-appellee to introduce additional evidence of damages after said party had rested its case. HELD 1. No. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability) by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which, though foreseen, were inevitable (Art. 1174,CC). It is not therefore enough that the event should not have been foreseen or anticipated as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. The very measures adopted by said company prove that the possibility of danger was not only foreseeable. But actually foreseen, and was not caso foruito. - Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger. The appellant company, whose barges and tugs travel up and down the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that had been erected and, in place, for years. 2. This is up to the sound discretion of the trial Judge. Disposition AFFIRMED.

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- Defendant/s argue/s: [a] As for defendant Eastern Shipping (carrier) it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability; [b] Metroport (arrastre operator) averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order; [c] Allied Brokerage (broker)alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. - Trial Court ruling: [a] Defendants to pay plaintiff, jointly and severally: 1) The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2) P3,000.00 as attorney's fees, and 3) Costs. [b] Dismissed the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. - CA affirmed the decision of the Trial Court in toto. ISSUES 1. WON a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker 2. WON payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered 3. WON the applicable rate of interest, referred to above, is 12% or 6% HELD 1. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). - When the goods shipped are either lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). - There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 of the Civil Code, are exclusive, not one of which can be applied to this case. - The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455)

EASTERN SHIPPING LINES V CA VITUG; July 12, 1994


FACTS - On Dec. 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. On Dec. 12, 1981, upon arrival of shipment, it was discharged unto the custody of defendant Metro Port Service, Inc. (The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.) On Jan 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On Jan. 8 and 14, 1982 defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake. - Plaintiff argues: [a] due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. (Claims were presented against defendants who failed and refused to pay the same) [b] As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants

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- Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. - We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. - The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). - Accordingly, the liability imposed on Eastern Shipping Lines, Inc., sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. 2, The date of the decision of the court a quo. Notice the Disposition portion of this case which says: The legal interest to be paid is 6% on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof. 3. Art. 2209 CC: If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. (This was upheld in a number of cases. Kindly check original text) - The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance: A. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages B. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: i. 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. ii. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the

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demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. iii. 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 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Disposition Petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is 6% on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A 12% interest, in lieu of 6%, shall be imposed on such amount upon finality of this decision until the payment thereof.

ALMEDA V COURT OF APPEALS KAPUNAN; April 17, 1996


FACTS - in 1981, Philippine National Bank granted to petitioners, spouses Ponciano Almeda and Eufemia Almeda, several loan/credit accommodations totaling P18 Million payable in 6 years at an interest rate of 21% per annum - to secure the loan, spouses executed a Real Estate Mortgage Contract covering a 3.5 K sq.m. parcel of land and the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati - a credit agreement with the ff pertinent terms and conditions: >interest of 21% per annum, payable semi-annually in arrears, the first interest payment to become due and payable 6 months from date of initial release of loan >the Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future...the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase/decrease of the maximum interest rate. - between 1981 and 1984 petitioners made several partial payments on the loan totaling 7,735,004.66, a substantial portion of which was applied to accrued interest - March 31, 1984 the bank, over petitioners protests, raised the interest rate to 28% pursuant to their credit agreement; interest rate increased to a high of 68% between March 1984 to Sept 1986 - before the loan was to mature in March 1988, the spouses filed a petition for declaratory relied with prayer for a writ of preliminary injunction and TROspouses sought clarification as to WON the PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreements escalation clause - lower court issued TRO; by this time the spouses were already in default of their loan obligations---> invoking the law on Mandatory Foreclosure (Act 3135 and PD 385), PNB countered by ordering the extrajudicial foreclosure of petitioners mortgaged properties----> lower court, however, issued a supplemental writ of preliminary injunction

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- PNB posted a counterbond and the trial court dissolved the supplemental writ; PNB once more set a new date for the foreclosure of Marvin Plaza -spouses tendered to PNB the amount of 40,142,518 pesos (interest calculated at 21%); PNB refused to accept---> spouses formally consigned the amount with the RTC which granted the writ of preliminary injunction enjoining the foreclosure of Marvin Plaza - Judge Capulong refused to lift WPI - PNB filed petition for Certiorari, Prohibition and Mandamus with CA - On August 1993 CA rendered its decision setting aside the assailed orders and upholding respondents right to foreclose the mortgaged property pursuant to Act 3135 and PD 385 ISSUES 1. WON PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement 2. WON PNB is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of PD385 HELD Ratio 1. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. 2. In facilitating collection of debts through the automatic foreclosure provisions of PD 385, the government is, however, not exempted from observing basic principles of law, and ordinary fairness and decency under the due process clause of the Constitution. Reasoning 1. the binding effect of any agreement between parties to a contract is premised on two settled principles: that any obligation arising from contract has the force of law between the parties; and that there must be mutuality between the parties based on their essential equality - PNB unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without prior assent of the latter - the manner of agreement is itself explicitly stipulated by the Civil Code in Art.1956 no interest shall be due unless it has been expressly stipulated in writing--- what has been stipulated in writing is that petitioners were bound merely to pay 21% interest, subject to possible escalation or de-escalation when the circumstances warrant it, it is within the limits allowed by law, and upon agreement - in PNB v. CA, PNB was disauthorized from unilaterally raising the interest rate partly because the increase violated the principle of mutuality of contracts expressed in Art.1308 of the CC the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them - increases were arbitrary - escalation clauses in credit agreements are perfectly valid and do not contravene public policy. However, they are still subject to laws and provisions governing agreements between parties, which agreements implicitly incorporate provisions of existing law

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- the credit agreement requires that the increase be within the limits allowed by lawrefers to legislative enactments not admin circulars (PNB relied on CB Circular No. 905) as shown in the credit agreement where there is a distinction made between law or the Monetary Board Circulars -Banco Filipino Savings and Mortgage Bank v. Navarro: distinction between a law and an admin regulation is recognized in the Monetary Board guidelines; guidelines thus presuppose that a Central Bank regulation is not within the term any law - petitioners never agreed in writing to pay the increased interest rates demanded by PNB 2. PD 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the governments development projects by large borrowers who resort to litigation to prevent or delay the governments collection of their debts or loans - the dispute regarding the interest rate increases was never settled so the exact amount of petitioners obligations could not be determined - the foreclosure provisions could be validly invoked by PNB only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination - PNB cannot claim that there was no honest-to-goodness attempt on the part of the spouses to settle their obligations Disposition The unilateral and progressive increases imposed by PNB were null and void. The decision and resolution of the CA is REVERSED AND SET ASIDE. The case is remanded to RTC for further proceedings.

GAITE V FONACIER REYES; July 31, 1961


FACTS - Isabelo Fonacier was the owner and/ or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte - By a "Deed of Assignment" dated September 29, 1952, Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom - On March 19, 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis - Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and extracted what he claimed and estimated to be approximately 24,000 metric tons of iron ore. - For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented subject to certain conditions

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- on December 8, 1954, a document entitled "Revocation of Power of Attorney and Contract" was executed wherein Gaite transferred to Fonacier, for the consideration of P20,000, plus 10% of the royalties that Fonacier would receive from the mining claims > all his rights and interests on all the roads, improvements, and facilities in or outside said claims > the right to use the business name "Larap Iron Mines" and its goodwill > all the records and documents relative to the mines - Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that had been already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the signing of the agreement, and the balance of P65,000 will be paid from and out of the first letter of credit covering the first shipment of iron ores and or the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co, Inc., its assigns, administrators, or successors in interests. - To secure the payment of the balance of P65,000.00, Fonacier executed a surety bond in favor of Gaite dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties - Gaite testified when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", he refused to sign unless another bond underwritten by a bonding company was put up by defendants to secure the payment of the P65,000 balance of the price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 was executed by the same parties to the first bond with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less than P65,000, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. - upon signing, Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its goodwill, in consideration of certain royalties and transferred the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap Mines & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite - Up to December 8, 1955, when the bond expired WRT the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000 balance of the price of said ore been paid to Gaite by Fonacier and his sureties - Gaite demanded from Fonacier and his sureties payment of said amount, on the theory that they had lost every right to make use of the period given them when their bond automatically expired and when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila for the payment of the P65,000 balance of the price of the ore, consequential damages, and attorney's fees. - All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount would be payable out of the first letter of credit, covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines &

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Smelting Co., Inc. and that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled and that consequently, the obligation was not yet due and demandable. - Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000 damages. - lower court held that the obligation of defendants to pay plaintiff the P65,000 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gaite's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil Code - lower court found that plaintiff Gaite did have approximately 24,000 tons of the iron ore at the mining claims in question at the time of the execution of the contract - Judgment of LC was rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000 with interest at 6% per annum from December 9, 1955 until full payment, plus costs ISSUES 1. WON the obligation of Fonacier and his sureties to pay Gaite P65,000 is one with a period or term and not one with suspensive condition 2. If it is an obligation with a term, WON defendants have a right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment or WON they are entitled to take full advantage of the period granted them for making the payment 3. WON the estimated 24,006 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract" HELD 1. YES. Ratio The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000, but was only a suspensive period or term. Reasoning - What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed - That the parties to the contract did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the first letter of credit covering the first shipment of iron ore . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred.

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2) A contract of sale is normally commutative and onerous not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price), but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his rights over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond to guarantee payment of the P65,000, and not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000. 3) To subordinate the obligation to pay the remaining P65,000 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. 4) Assuming that there could be doubt whether by the wording of the contract the parties intended a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000, the rules of interpretation would incline the scales in favor of "the greatest reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides: "if the contract is onerous, the doubt shall be settled in favor of the. greatest reciprocity of interests."; and there can be no question that greater reciprocity obtains if the buyer's obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existent or not binding until the ore was sold. - The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. 2. NO. Ratio Appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000 because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. Reasoning - The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier. - The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: "ART. 1198. The debtor shall lose every right to make use of the period:

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(1) * * * * * (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory." - Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. - no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date - No such waiver could have been intended, for Gaite stood to lose and had nothing to gain thereby; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendantsappellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed 3. YES Ratio No short-delivery as would entitle Fonacier to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation as to the total quantity of ore in the stockpiles of the mining claims in question since Gaite's estimate appears to be substantially correct. Reasoning Important things 1. that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less", stated in the contract being a mere estimate by the parties of the total tonnage weight of the mass 2. evidence shows that neither of the parties had actually measured or weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. - The sale between the parties is a sale of a specific mass of iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000 agreed upon by the parties based upon any such measurement (see Art. 1480, second par., New Civil Code). The subject-matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them - no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in question TF Gaite complied with his promise to deliver, and appellants in turn are bound to pay the lump price - Gaite asserts there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by actual measurement, their witness Cipriano Manlagit found the total volume of ore in the stockpiles to be only 6,609 cubic meters

Obligations and Contracts page 13


- on the average weight in tons per cubic meter, the parties are in disagreement, with Fonacier claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while Gaite claims that the correct tonnage factor is about 3.7. - In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines, who placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report by engineer Nemesio Gamatero, of Bureau of Mines to the mining claim involved at the request of appellant Krakower, precisely to make an official estimate; of the amount of iron ore in Gaite's stockpiles after the dispute arose. - if we multiply it by the, average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by Gaite, considering that actual weighing of each unit of the mass was practically impossible - It must not be forgotten that the contract expressly stated the amount to be 24,000 tons, more or less. Disposition Judgment affirmed

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effective. This condition precedent according to appellant, refers to the condition imposed that one of the parcels donated was to be used absolutely and exclusively for the erection of a central school and the other for a public park, the work to commence in both cases within the period of six months from the date of the ratification by the parties of the document evidencing the donation. b) Appellant also contends that, in any event, the condition not having been complied with, even supposing that it was not a condition precedent but subsequent, the noncompliance thereof is sufficient cause for the revocation of the donation. ISSUE WON plaintiff has right of action HELD - The plaintiff has no right of action. The sale made by Cirer and Hill to Parks cannot have any effect. The parcel having been donated by Cirer and Hill to the municipality of Tarlac, which donation was accepted by the latter, the title to the property was transferred to the municipality of Tarlac. The donation was not revoked when Cirer and Hill made the sale to the plaintiff. In order to consider it revoked, it is necessary either: 1) that the revocation had been consented to by the donee, the municipality of Tarlac, or 2) that it had been judicially decreed. None of these circumstances existed when Cirer and Hill sold the parcel to the plaintiff. Consequently, when the sale was made, Cirer and Hill were no longer the owners of this parcel and could not have sold it to the plaintiff, nor could Parks have acquired it from them. a) With regard to the condition precedent, it is true that the condition has not been complied with. But the allegation that it is a condition precedent is erroneous. The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition precedent. In the present case the condition that a public school be erected and a public park made of the donated land could not be complied with except after giving effect to the donation. b) Although the appellants contention that noncompliance of the condition of the donation is sufficient ground for revocation, the period for bringing an action for the revocation of the donation has prescribed. Under the laws in force (sec. 43, Code of Civ. Proc.), the period of prescription of this class of action is ten years. The action for the revocation of the donation for this cause arose or April 19, 1911, that is, six months after the ratification of the instrument of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten years after this cause accrued. Disposition The judgment appealed from is affirmed, with costs against the appellant.

PARKS V PROVINCE OF TARLAC AVENCENA; July 13, 1926


FACTS - Plaintiff-appelant brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be declared the absolute owner entitled to the possession of the parcel of land, that the transfer of the same by the municipality of Tarlac to the Province of Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac cancelled. - Oct 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions specified in the public document in which they made the donation. - The donation was accepted by Mr. Santiago de Jesus, as municipal president, in the same document on behalf of the municipal council of Tarlac. The parcel thus donated was later registered in the name of the donee, the municipality of Tarlac. - Jan 15, 1921, Concepcion Cirer and James Hill sold this parcel to plaintiff George L. Parks. - Aug 24, 1923, the municipality of Tarlac transferred the parcel to Province of Tarlac. The Province of Tarlac, by reason of the transfer, applied for and obtained the registration of the land in its name, the corresponding certificate of title having been issued to it. - Lower court dismissed the complaint. Petitioners' Claim - The plaintiff alleges that the conditions of the donation had not been complied with, and invokes the sale of the parcel of land made by Concepcion Cirer and James Hill in his favor. a) Appellant contends that a condition precedent having been imposed in the donation and the same not having been complied with, the donation never became

CENTRAL PHILIPPINE UNIVERSITY V COURT OF APPEALS BELLOSILLO; 1995


FACTS

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- in 1939, Don Ramon Lopez, Sr. who was a member of the Board of Trustees of the Central Philippine College (now Central Philippine University) executed a deed of donation in favor of the latter of a parcel of land with the following annotations: 1. the land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum 2. the said college shall not sell, transfer or convey to any third party nor in any way encumber said land 3. the said land shall be called RAMON LOPEZ CAMPUS and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the RAMON LOPEZ CAMPUS FUND to be used for improvements of said campus and erection of a building thereon - on May 31, 1989, the heirs of Don Ramon Lopez, Sr. filed an action for annulment of donation, reconveyance and damages against CPU alleging that: 1. since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation 2. that CPU had in fact negotiated with the National Housing Authority to exchange the donated property with another land owned by the latter - CPU, in its answer alleged that: 1. the right of the private respondents to file the action had prescribed 2. that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended 3. that it did not sell, transfer, or convey it to any third party - the TC held that petitioner failed to comply with the conditions of the donation and declared it null and void. It further directed the petitioner to execute a deed of reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein- the CA ruled that the annotations at the back of petitioners certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable. It also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain, thus, it remanded the case to the court of origin for the determination of the time within which the petitioner should comply with the first condition annotated in the certificate of title ISSUES 1. WON the quoted annotations are onerous obligations and resolutory conditions 2. WON the right of the respondents to initiate an action has already prescribed 3. WON the Court may fix a period within which petitioner would establish a medical college HELD 1. Yes. Don Ramon Lopez, Sr. executed for a valuable consideration which is considered the equivalent of the donation itself. Under Art.1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or

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loss of those already acquired, shall depend upon the happening of the even which constitutes the condition. 2. No. The condition imposed by the donor depended upon the exclusive will of the donee as to when this condition shall be fulfilled. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. In this case, the starting point from which the obligation to comply must be counted from the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor. 3. No. Art. 1197, where the courts may fix the duration for fulfillment, cannot be applied in this case. More than a reasonable period of 50 years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid, hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits.

SEPARATE OPINION DAVIDE [ dissent]


- pointed out an inconsistency in the majority opinions description of the donation in question. In one part, it says that the donation in question is onerous. Yet in the last paragraph it states that the donation is basically a gratuitous one. - the discussion on conditional obligations is unnecessary as there is no conditional obligation to speak of in this case. The conditions imposed by the donor determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed are the very obligations of the donation. - the court should fix the duration for the performance of the conditions/obligations in the donation. The mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible.

OSMEA V RAMA JOHNSON; September 9, 1909


FACTS -15 Nov 1890: Doa Rama executed and delivered to Victoriano Osmea a contract (EXHIBIT A) which stated that she received P200 in cash from Don Osmea which she would pay in sugar in January/February the next year at the price on the day of delivering the sugar into the Dons warehouses + Interest w/ rate of half a cuartillo per month on each peso from Nov 15 to the day of the settlement; if ever the Doa could not pay in full, a balance shall be struck, showing the amount outstanding at the end of each June, including interest, and outstanding balance of the respondent would be considered as capital which the respondent would pay in sugar. The respondent also promised that she would sell to Don Osmea all her sugar that would be harvested, and as security, she pledged all her present and future

Obligations and Contracts page 15


property, and as a special security, she would give her house in Pagina. The contract was signed by 2 witnesses. -27 Oct. 1891: Defendant asked a further loan from the Don of P70, P50 of which would be loaned to Don Peares, and the P70 would be paid in sugar. -Some time after the execution and delivery of the above contracts, Don Osmea died. In the settlement and division of the property of his estate the above contracts became the property of one of his hieirs, Agustina Rafols. Later no date given) the said Agustina Rafols ceded to the present plaintiff all of her right and interest in said contracts. -( my copy is missing some paragraphs, cant find a copy in the internet so just look at your copies for the periods between the death of Don Osmea and March 15) -15 March 1902: Doa Rama recognized her obligations in the said contract with Don Osmea, stating in the contract she executed (EXHIBIT C) that if her house in Pagina would be sold she would use the money to pay for her debts. -26 June 1906: Doa Tomasa did not pay the amount due so the plaintiff commenced this action in CFI Cebu. CFI deci judgment in favor of the plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4 per cent per annum, from the 15th day of November, 1890, and for the sum of P20, with interest at the rate of 181 per cent per annum, from the 27th day of October, 1891, until the said sums were paid. Plaintiffs Claim the execution and delivery of the above contracts, the demand for payment, and the failure to pay on the part of the defendant, and the prayer for a judgment for the amount due on the said contracts. (own testimony I dont know if Agustina is a guy my copy said the plaintiff himself) Defendants defense general denial and setting up the special defense of prescription. (no evidence presented) ISSUE WON the proof presented during the trial in CFI is sufficient for the lower court to recognize the debt of Doa Rama, provided that she imposed the condition that she would pay her debts upon selling her house HELD YES, the proof presented is sufficient. Ratio A condition imposed upon a contract by the promisor, the performance of which depends upon his exclusive will, is void, in accordance with the provisions of article 1115 of the Civil Code. Reasoning It was suggested during the discussion of the case in this court that, in the acknowledgment of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is, therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract. Disposition We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should be affirmed. So ordered.

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FACTS Epifanio Longora had three claims against the intestate estate of Fernando Hermosa, Sr. The first represented credit advances made to the intestate from 1932 to 1944, the second made to his son, and the third made to his grandson from 1945 to 1947 after the death of the intestate, which occurred in December 1944. The claimant presented evidence that the intestate had asked for said credit advances for himself and 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. CA held that the payment did not become due until the administrstrix received the payment from the buyer of the property. Upon authorization of the probate court, the property was sold in November 1947. the claim was filed on Oct. 1948. ISSUES 1. WON the claim was subject to a condition exclusively dependent upon the will of the debtor (condicion potestativa) and therefore null and void 2. WON the action has already prescribed 3. WON claims furnished after the death of the intestate (third claim) should have been allowed HELD 1. NO Ratio The condition in question is not a condicion potestativa since it also depends upon other circumstances beyond the debtors control Reasoning The condition of the obligation was not purely a potestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of the intestate and partly upon chance. The will to sell on the part of the intestate was present in fact, or presumed to legally exist, although the price and other conditions thereof were still within his discretion and final approval. There were still other conditions that had to concur to effect the sale, mainly that a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. 2. NO Ratio As the obligation retroacts to the date of when the contract was entered into, all amounts advanced from the time of the agreement became due, upon the happening of the suspensive condition. Reasoning As the obligation to pay became due and demandable only when the house was sold and the proceeds received in the islands, the action to recover the same only accrued, within the meaning of the statute of limitations, on the date the money became available here, hence the action to recover the advances has not yet prescribed 3. NO Ratio Even if authorization to furnish necessaries to his grandson may have been given, this authorization could not be made to extend after intestates death Reasoning The court gave two reasons: (1) the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support; (2) upon the death of the intestate, his agents authority or authorization is deemed terminated Disposition Judgment appealed from is hereby affirmed in so far as it approves the first and second claims and reversed as to that of the third.

HERMOSA V LONGORA LABRADOR; October 27, 1953

Obligations and Contracts page 16


SEPARATE OPINION PARAS [ concur]
I concur insofar as it reverses the appealed judgment allowing the third claim but dissent therefrom insofar as it affirms the appealed judgment approving other claims. The matter of the sale of the house rested on the sole will of the debtor, unaffected by any outside consideration or influence. The terms are subject to the sole judgmentif not whims and capriceof Fernando Hermosa, Sr. In fact no sale was effected during his lifetime. As the condition above is null and void, the debt resulting from the advances made to Fernando Hermosa, Sr. became either immediately demandable or payable within a term fixed by the court. In both cases, the action has prescribed after the lapse of ten years.

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- A condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the obligor. - If it were apparent, or could be demonstrated that the defendants were under positive obligation to cause the machinery to arrive in Manila, they would of course be liable, in the absence of affirmative proof showing that the non-arrival of the machinery was due to some cause not having its origin in their own act or will. - The contract, however, expresses no such positive obligation, and its existence cannot be implied in the face of the stipulation, defining the conditions under which the defendants can cancel the contract. - CFI no error in rejecting Taylors claim in so far as damages are sought for the period subsequent to the expiration of 6 months, but in assessing the damages due for the six-month period, the trial judge overlooked the item of P60 (commutation of house rent) This amount Taylor is entitled to recover in addition to P300 awarded by CFI.

TAYLOR V UY TIENG PIAO AND TAN LIUAN STREET; October 2, 1922


FACTS - Taylor contracted his services to Tan Liuan & Co as superintendent of an oil factory which the latter contemplated establishing - The contract extended over 2 years and the salary was P600/month during the first year and P700/month during the second with electric, light and water for domestic consumption or in lieu thereof, P60/month - At this time, the machinery for contemplated factory had not been acquired, though ten expellers had been ordered from the US - It was understood that should the machinery to be installed fail, for any reason, to arrive in Manila within the period of 6 months, the contract may be cancelled by the party of the second part at its option, such cancellation not to occur before the expiration of such 6 moujnths - The machinery did not arrive in Manila within the 6 months; the reason does not appear, but a preponderance of evidence show that the defendants seeing that oil business no longer promised large returns, either cancelled the order for machinery from choice or were unable to supply the capital necessary to finance the project. - Defendants communicated to Taylor that they had decided to rescind the contract. - Taylor instituted this action to recover damages in the amount of P13k, covering salary and perks due and to become due ISSUE WON in a contract for the prestation of service, it is lawful for the parties to insert a provision giving the employer the power to cancel the contract in contingency which may be dominated by himself HELD YES. - One of the consequences of the stipulation was that the employers were left in a position where they could dominate the contingency, and the result was about the same as if they had been given an unqualified option to dispense with the services of Taylor at the end of 6 months. But this circumstance does not make the stipulation illegal.

RUSTAN PULP AND PAPER MILLS V IAC MELO; October 19, 1992
FACTS - Rustan established a pulp and paper mill in Lanao del Norte in 1966. - Lluch, a holder of a forest products license, wrote to Rustan and offered to supply raw materials. In response, petitioner Rustan proposed, among other things, in a letter That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose pulp wood." - On April 1968, they executed a contract of sale whereby Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer's plant. - In the bilateral undertaking, they stipulated the following: "That BUYER shall have the option to buy from other SELLERS that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood concession. . . .And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER; (Par 7) That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessary provided, however, that the SELLER is given sufficient notice." - During the test run of the pulp mill, the machinery line had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. - The suppliers were informed to stop deliveries and Rustan sent a letter (dated Sept 1968) to Lluch informing him that the supply of raw materials to us has become sufficient and we will not be needing further delivery from you. As per the terms of our contract, please stop delivery 30 days from today. It was signed by Dr. Romeo Vergara, the resident manager. - Lluch sought to clarify whether stoppage of delivery or termination of the contract of sale was intended, but the query was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Vergara and Lluch.

Obligations and Contracts page 17


- On January 23, 1969, a complaint for contractual breach was filed. The trial court dismissed it. On appeal, the IAC modified the judgment by directing Rustan, Tantoco and Vergara to pay respondents, jointly and severally, the sum of P30,000.00 as moral damages and P15,000.00 as attorney's fees ISSUES 1. WON the contractual provisions mentioned above as regards the stoppage of delivery when there is sufficient supply of raw materials are valid 2. WON Tantoco and Vergara should be personally liable HELD 1. NO - The SCs simple understanding of the literal import of par 7 of the obligation in question is that petitioners can stop delivery of pulp wood from private respondents if supply at the plant is sufficient as ascertained by petitioners, subject to redelivery when the need arises as determined likewise by petitioners. This is a potestative imposition in the contract which must be obliterated for being invalid as it is purely dependent upon the will of one party. - Though it is a legal truism that a condition which is both potestative and resolutory may be valid even though that saving clause is left entirely to the will of the obligor, the same cannot be said to apply in the present case. - Petitioners contend that they are within the right stoppage guaranteed by par 7. There is no doubt that the contract speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the condition attached to it which is dependent exclusively on will of the petitioner for which reason, the SC treated the controversial stipulation as inoperative 2. NO. - The President and Manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the persons composing it. And because of this precept, Vergara's supposed non-participation in the contract of sale although he signed the letter dated Sept 30, 1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting. Disposition The decision appealed from is MODIFIED in the sense that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent Court.

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donation, otherwise a violation of such condition would render ipso facto null and void the deed of donation and the property would revert to the estate of the donors. -On or about June 30, 1980, and while still within the prohibitive period to dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose administration all properties within the province of Cavite owned by the Archdiocese of Manila was allegedly transferred on April 26, 1962, executed a deed of absolute sale of the property subject of the donation in favor of petitioners Florencio and Soledad Ignao in consideration of the sum of P114,000.00. -On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of deed of donation, rescission of contract and reconvoyance of real property with damages against petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila -On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no legal capacity to sue; and (2) the complaint states no cause of action. -On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss on three (3) grounds, the first two (2) grounds of which were identical to that of the motion to dismiss filed by the Ignao spouses, and the third ground being that the cause of action has prescribed. -On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss on the ground that he is not a real party in interest and, therefore, the complaint does not state a cause of action against him. -Trial Court dismissed the case on the ground that the action has prescribed -CA reversed, and remanded the case; MFRs filed separately by the spouses Ignao and the RC Bishop of Imus were denied ISSUES 1. WON the action has already prescribed 2. WON the private respondent has a cause of action against petitioners HELD 1. No. It is the contention of petitioners that the cause of action of herein private respondents has already prescribed, invoking Article 764 of the Civil Code which provides that "When donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter," and that "his action shall prescribe after four years from the noncompliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee's heirs." Reasoning -Said provision does not apply in the case at bar. The deed of donation involved herein expressly provides for automatic reversion of the property donated in case of violation of the condition therein, hence a judicial declaration revoking the same is not necessary - A judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions -The aforesaid rule apply to contracts, but we see no reason why the same should not be applied to the donation in the present case

ROMAN CATHOLIC ARCHBISHOP OF MANILA V. CA REGALADO; June 19, 1991


FACTS - On August 23, 1930, the spouses Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of land at Kawit, Cavite containing an area of 964 sq. meters -The deed of donation provides that the donee shall not dispose or sell the property within a period of one hundred (100) years from the execution of the deed of

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-Article 732 of the Civil Code provides that donations inter vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in Title III, Book III on donations. -Now, said Title III does not have an explicit provision on the matter of a donation with a resolutory condition and which is subject to an express provision that the same shall be considered ipso facto revoked upon the breach of said resolutory condition imposed in the deed therefor, as is the case of the deed presently in question. The suppletory application of the foregoing doctrinal ruling to the present controversy is consequently justified - When a deed of donation, as in this case, expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil Code. -The cause of action of herein private respondents has not yet prescribed since an action to enforce a written contract prescribes in ten (10) years. -Article 764 was intended to provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the situation in the case at bar -The action filed by private respondents may not be dismissed by reason of prescription 2. No. The cause of action of private respondents is based on the alleged breach by petitioners of the resolutory condition in the deed of donation that the property donated should not be sold within a period of one hundred (100) years from the date of execution of the deed of donation. Said condition, in our opinion, constitutes an undue restriction on the rights arising from ownership of petitioners and is, therefore, contrary to public policy. -Donation, as a mode of acquiring ownership, results in an effective transfer of title over the property from the donor to the donee. Once a donation is accepted, the donee becomes the absolute owner of the property donated. Although the donor may impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good customs, public order and public policy. The condition imposed in the deed of donation in the case before us constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated, which right is an indispensable attribute of ownership. Such a prohibition against alienation, in order to be valid, must not be perpetual or for an unreasonable period of time -In the case at bar, we hold that the prohibition in the deed of donation against the alienation of the property for an entire century, being an unreasonable emasculation and denial of an integral attribute of ownership, should be declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said statutory provision, such condition shall be considered as not imposed. No reliance may accordingly be placed on said prohibitory paragraph in the deed of donation -The validity of such prohibitory provision in the deed of donation was not specifically put in issue in the pleadings of the parties. That may be true, but such oversight or inaction does not prevent this Court from passing upon and resolving the same Disposition WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite

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BOYSAW V INTERPHIL PROMOTIONS FERNAN; March 20, 1987
FACTS On May 1, 1961, Boysaw and manager Ketchum signed with Interphil (represented by Sarreal) a contract to engage Flash Elorde in a boxing match at Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days shld a postponement be mutually agreed upon. Boysaw, accdg to contract, shld not engage in other bouts prior to the contest. - Interphil signed Elorde to a similar agreement. - Boysaw fought and defeated Louis Avila in Nevada. - Ketchum assigned to Amado Araneta his managerial rights, who later transferred the rights to Alfredo Yulo. - Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of managers bec they werent notified. - GAB called for conferences and decided to schedule the Elorde-Boysaw bout on Nov 4, 1961. USA National Boxing Assoc approved. - Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable postponement in the contract. Yulo refused. He was willing to approve the fight on Nov 4 provided it will be promoted by a certain Mamerto Besa. - The fight contemplated in the May 1 contract never materialized. Boysaw and Yulo sued Interphil, Sarreal and Nieto. - Boysaw was abroad when he was scheduled to take the witness stand. Lower court reset the trial. Boysaw was still absent on the later date. Court reset. On the third instance, a motion for postponement was denied. - Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal. ISSUES 1. WON 2. WON 3. WON 4. WON 5. WON there was a violation of the May 1 contract and if so, who was guilty there was legal ground for postponement of the fight lower court erred in refusing postponement of the trial for 3rd time lower court erred in denying new trial lower court erred in awarding appellees damages

HELD 1. Boysaw violated the contract when he fought with Avila. Civil Code provides, the power to rescind obligations is implied, in reciprocal ones, (as in this case) in case one of the obligors shld not comply w/ what is incumbent upon him. Another violation was made in the transfers of managerial rights. These were in fact novations which, to be valid, must be consented to by Interphil. When a contract is unlawfully novated, the aggrieved creditor may not deal with the substitute. 2. The appellees could have opted to rescind or refuse to recognize the new manager, but all they wanted was to postpone the fight owing to an injury Elorde sustained. The desire to postpone the fight is lawful and reasonable. The GAB did not act arbitrarily in acceding to the request to reset the date of the fight and Yulo himself agreed to abide by the GAB ruling. The appellees offered to move the fight w/in the 30 day period for postponement but this was refused by the appellants, notwithstanding the fact that by virtue of the

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appellants violations, they have forfeited any right to the enforcement of the contract. 3. The issue of denial of postponement of trial was raised in another petition for certiorari and prohibition. It cant be resurrected in this case. 4. The court was correct in denying new trial. The alleged newly discovered evidence are merely clearances fr clerk of court, which cant alter the result of the trial. 5. Because the appellants willfully refused to participate in the final hearing and refused to present documentary evidence, they prevented themselves fr objecting to or presenting proof contrary to those adduced by the appellees.

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WON UP can treat the contract with ALUMCO as rescinded without any judicial pronouncement HELD Yes, UP can treat the contract with ALUMCO as rescinded without any judicial pronouncement. Ratio The party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. It is only the final judgment of the corresponding court that will and finally settle whether the action taken was or was not correct in law. Reasoning - The Acknowledgement already indicated that should ALUMCO fail to pay its dues on time, the contract would be rescinded. - But since the decision finding UP in contempt is on appeal in the CA, the SC decided not to make any comment.

UP V DE LOS ANGELES REYES; September 29, 1970


FACTS - Nov. 2, 1960 UP entered into a logging agreement with ALUMCO wherein ALUMCO was granted the exclusive authority to cut, collect and remove timber from the Land Grant. The said logging agreement began on the date of agreement to Dec. 31, 1965, extendible for a period of five years. - Dec. 8, 1964 ALUMCO accumulated unpaid dues of P219,362.94 which it failed to pay despite repeated demands. - UP sent a notice to ALUMCO, saying that the former would terminate/rescind the contract. ALUMCO then drew up an Acknowledgment of Debt and Proposed Mariner of Payments dated Dec. 9, 1964 and was approved by the UP president. - ALUMCO should pay its outstanding balance to UP on or before June 30, 1965 - If ALUMCO fails to do that, UP will have the right to rescind the contract without the necessity of a judicial suit and UP shall have the right to P50,000 in damages. - ALUMCO continued the logging concession but once more incurred an outstanding balance of P61,133.74 from Dec. 9, 1964 to July 15, 1965 on top of its existing outstanding obligation. - July 19, 1965 UP rescinded the contract and filed a civil suit against ALUMCO on September 7 of the same year. - Sept. 30, 1965 UP obtained an order which prevented ALUMCO from continuing its logging activities. - Before the preliminary injunction was granted, UP already conducted a bidding and eventually awarded the concession to Sta. Clara Lumber. The contract with Santa Clara was signed on Feb. 16, 1966. - Feb. 25, 1966 ALUMCO obtained an order which enjoined UP from awarding logging rights to a different concessionaire. - April 12, 1966 UP declared in contempt of court and Sta. Clara was told to stop the logging activities. Respondents Comments: - Respondents blame their former manager for their financial turmoil because he did not turn over the company to ALUMCO. - It was unable to comply with the manner of payments stated in the Acknowledgement because the logs they harvested were rotten. - It is only upon a judicial declaration that the contract can be considered rescinded. ISSUE

DE ERQUIAGA V CA GRIO-AQUINO, September 27,1989


FACTS - Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development Corporation (EDC) which owns the Hacienda San Jose in Irosin, Sorsogon. - On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares of EDC for P900,000 payable in installments on definite dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the second and third installments on time, the total price of the sale was later increased to P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest - As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon transferred all his shares (3,100 paid up shares) in EDC to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation. However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the balance of his obligation. Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares in the Erquiaga. Development Corporation. - On September 30 1972, upon the complaint filed by de Erquiaga, the CFI of Sorsogon, rendered judgment in favor of the de Erquiaga, rescinding the sale of 3,100 paid up shares of stock of the EDC to Reynoso, and ordering: a) the defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the EDC which now stand in his name in the books of the corporation; b) the defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up shares of stock of the EDC, as well as to return said fruits received by him to plaintiff ;

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c) the plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from November 4,1968, and the amount of P310,000.00 plus legal interest from December 17, 1968, until paid; d) the defendant to pay the plaintiff as actual damages the amount of P12,000.00; P50,000.00 as attorney's fees; and to pay the costs of this suit and expenses of litigation. - The parties did not appeal therefrom and it became final and executory. - On March 21, 1973, the CFI of Sorsogon issued an Order, stating that, although the decision has become final and executory, the payment to the defendant of the total sum ofP410,000.00 plus the interest, damages and attorneys fees, should be held in abeyance pending rendition of the accounting by the defendant of the fruits received by him on account of the 3,100 shares of the capital stock of EDC. Indeed it is reasonable to suppose that when such accounting is made (not only to the dividends due from the shares of stock but to the products of the hacienda which is the only asset of the EDC) certain sums may be found due to the plaintiff from the defendant which may partially or entirely off set the amount adjudged against him in the decision. - The court also held that the fruits referred to in the decision include not only the dividends received, if any, on the 3,100 shares of stocks but more particularly the products received by the defendant from the hacienda. The hacienda and the products thereon produced constitute the physical assets of the EDC represented by the shares of stock and it would be absurd to suppose that any accounting could be made by the defendant without necessarily taking into account the products received which could be the only basis for determining whether dividends are due or not on account of the investment. The hacienda and its natural fruits as represented by the shares of stock which the defendant received as manager and controlling stockholder of the EDC can not be divorced from the certificates of stock in order to determine whether the defendant has correctly reported the income of the corporation or concealed part of it for his personal advantage. The EDC and defendant Jose Reynoso are one and the same persons as far as the obligation to account for the products of the hacienda is concerned, - In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of P100,000.00 because Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver' in order to preserve the Hacienda which has obviously been mismanaged by the defendant to a point where the amortization of the loan with the DBP has been neglected and the arrears in payments have risen to the amount of P503,510.70 as of October 19,1972, and there is danger that the DBP may institute foreclosure proceedings to the damage and prejudice of the plaintiff. - On April 26, 1973, defendant Reynoso died and he was substituted by his surviving spouse Valdez Vda. de Reynoso and children, who filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the annulment of the aforementioned. - On February 12, 1975, upon motion of Erquiaga, the CFl of Sorsogon issued an order, dissolving the receivership and ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00 conditioned to the payment of whatever may be due to the substituted heirs of deceased defendant Reynoso after the approval of the accounting report submitted by Reynoso. -On March 3, 1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the possession, management and control of the hacienda were

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turned over to Erquiaga. Reynosos filed their motion for reconsideration which the CFI of Sorsogon but was denied - On October 9, 1975, the CFI of Sorsogon issued an order directing defendants to deliver to the plaintiff or his counsel within five (5) days from receipt of this order the 1,600 shares of stock of the EDC which are in their possession. Should the defendants refuse or delay in delivering such shares of stock, as prayed for, the plaintiff is authorized: a) To call and hold a special meeting of the stockholders of the EDC to elect the members of the Board of Directors; b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name but also the 1,600 shares in the name and possession of the defendants; c) The question as to who shall be elected members of the Board of Directors and officers of the board is left to the discretion of the plaintiff; d) The members of the board and the officers who are elected are authorized to execute any and a contracts or agreements under such conditions as may be required by the DBP for the purpose of restructuring the loan of the EDC with the said bank. - Hence, the present petition for certiorari, prohibition and mandamus with the CA instituted by the substitute defendants. - On May 31, 1976, with a view of putting an end to a much protracted litigation and for the best interests of the parties, the CA issued a writ of mandamus, commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the necessary deed of conveyance to effect the transfer of ownership of the entire 3,100 shares of stock of the EDC to Erquiaga in case of failure of petitioners to comply with the Order of October 9, 1975 insofar as the delivery of the 1,600 shares of stock to private respondent is concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of execution ordering private respondent to pay petitioners the amount of P410,000.00 plus interests, setting-off therewith the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners' predecessor-ininterest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. - As of the time the Court of Appeals rendered its decision on May 31, 1976,only the following have been done by the parties in compliance with the final judgment in the main case: 1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety bond of P410,000 in favor of Reynoso; 2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final judgment. - What the parties have not done yet are: 1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a) of the decision; 2. Reynoso has riot rendered a full accounting of the fruits he has received from Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him under the sale, as ordered in paragraph (b) of the decision; 3. Erquiaga. has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from November 4,1968 and P31 0,000 plus legal

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interest from December 17,1968, until paid (total: P410,000) as ordered in paragraph (c) of the decision; 4. Reynoso has not paid the judgment of P12,000 as actual damages in favor of Erquiaga, under paragraph (d) of the judgment; 5. Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the judgment; and 6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the final judgment. ISSUE WON the decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum of P410,000 plus interest, without first awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates Article 1385 of the Civil Code HELD NO. The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the fruits (construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with Art. 1385 of the Civil Code which provides: "ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. "Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. "In this case, indemnity for damages may be demanded from the person causing the loss." - The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the possession of Erquiaga, and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the time the hacienda was delivered to him on November 4, 1968 until it was placed under receivership by the court on March 3, 1975. - However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver to Reynosa the legal interest earned by his money, should await the rendition and approval of his accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned by Reynosa's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3,1975.

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- The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the EDC should be computed up to September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after September 30, 1972, the date of the judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the Court of Appeals in CA is affirmed.

ONG V COURT OF APPEALS YNARES-SANTIAGO; July 6, 1999


FACTS - Petitioner Jaime Ong and respondent spouses Miguel K. Robles and Alejandra Robles, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. - Petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. - Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), in accordance with their stipulation that petitioner pay the loan of respondents with BPI. - To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent spouses. When presented for payment, however, the checks were dishonored due to insufficient funds. - Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which petitioner, should have paid, petitioner only managed to dole out no more than P393,679.60. - When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of petitioner. - Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential purposes. - Respondent spouses, sent petitioner a demand letter asking for the return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed a complaint for rescission of contract and recovery of properties with damages. - Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a writ of preliminary injunction. The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for repairs.

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- The trial court rendered a decision, ordering that the contract entered into by plaintiff spouses and the defendant, Jaime Ong be set aside - Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.

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prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. 2. NO. - Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation. Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. - In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. - The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. Disposition The decision rendered by the Court of Appeals was AFFIRMED with the MODIFICATION that respondent spouses were ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded.

ISSUES 1. WON the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code 2. WON the parties had novated their original contract as to the time and manner of payment HELD 1. NO. - Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. - While Article 1191 uses the term rescission, the original term which was used in the old Civil Code, from which the article was based, was resolution. Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the rescissible contracts. - The contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable. - The "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. - Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. Hence, the agreement of the parties may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which

LACHICA V ARANETA PAREDES; August 19, 1949


FACTS - Early part of July 1943 defendant Araneta Inc. offered for sale a parcel of land with improvements thereon (TCT No. 14841, Land Records of Manila) - First week of July 1943 RICs fieldman Navarro informed Sadang of the offer to sell the property by the defendant - Rizal Investment Corp (RIC; where plaintiff Sadang was at that time the Sales Manager) acted as defendants agent in the sale of such property - July 12, 1943 (morning) Sadang submitted to Jose Araneta (president of defendant corp) a letter of the same date addressed by RIC to the defendant, containing a proposal of the buyer: PROPOSAL I: (Exhibit E; this was rejected by Araneta) 1) to purchase property for P 18,000 2) with a downpayment of P 7,500 3) the balance to be paid anytime bet now and within 90 days after the peace of treaty bet warring nations - July 12, 1943 (afternoon) Sadang submitted another proposalto Jose Araneta addressed by RIC to the defendant, ctg a proposal of the buyer: PROPOSAL II (Exhibit F; Araneta told Sadang to return after 2 days he wanted to consider other offers and to select amongst them, that with a bigger dp and w the fastest mode of settlement) 1) purchase price: P20k 2) dp: P7.5k 3) the balance to be paid anytime bet now and w/in 90 days after the peace of treaty bet warring nations - July 14, 1943- after further negotiations a letter addressed to RIC, signed by Araneta in behalf of the defendant corp (delivered to Sadang, accompanied by Flores, RIC president and mgr)

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RIC letter (Exhibit A; product of negotiations) 1) Purchase price: P20k 2) P8k of purchase price to be paid in cash 3) 12k of purchase price to be paid in installments: 4) 1k on or before Dec. 31, 1943 5) 1k on or before Dec. 31, 1944 6) 10k (balance) on or before Dec. 31, 1945 7) this same property will be mortgaged to us to guarantee the unpaid balance; 8) And the same will bear an interest of 8% per annum; 9) Said interest to be paid in advance - July 15, 1943 pursuant ot par 7 of the provisions of the RIC letter, plaintiffs deposited with defendant corp a sum of P1k as good faith money - July 16, 1943 (noon): DEED OF SALE with MORTGAGE (Exhibit C) 1) parties: a) VENDEEMORTGAGOR: plaintiff Lachica with concurrence of husband Sadang b) VENDOR MORTGAGEE: Gregorio Araneta, Inc 2) conditions: a) form and manner of the payment of the P12k balance (as stated in RIC letter, Exhibit A); b) P12k balance shall bear interest of 8% per annum; c) Interest payable in advance within the first 5 days of each month; d) Interest, while not paid, shall be paid liquidated and accumulated monthly and added to the capital until the vendee has brought payments up-to-date (periods of payment agreed for the benefit of both vendor and vendee) e) Shoud the vendee be in default in payment of any amount due, either for capital or interest, the whole balance shall automatically become due and payable and the vendor shall have the right to foreclose the mortgage in its entrirety - Payments by plaintiff to defendant: P1k July 15, 1943 (deposit) P7k upon execution of deed of sale with mortgage P80 Aug 16 (interest) P80 Sep 16 (interest) P80 Oct 18 (interest) P80 Nov 15 (interest) P80 Dec 16 (interest) P1k Jan 15, 1944 (on account of principal) P73.33 Jan 15 (interest) P73.33 Feb 19 (interest) P73.33 Mar 15 (interest) P5k Apr 10 (on account of principal) P73.33 Apr 13 (interest) P146.66 Jun 17 (interest) P219.99 Aug 31 (interest)

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- Anent the P5k (April 10, 1944) payment, Pres. Araneta wrote to Lachica, returning the check covering the payment because it is not in accord with what was stated in the contract. - Lachica returned said check to defendant (april 12, 1944) stating that she acknowledges her being forced to assume an oblication which I could now very well pay - April 12, 1944 Araneta wrote back to Lachica stating that besides the interest you have to pay us for the balance of P6k at the rate of 8% per annum, we will also charge you the interest in accordance with the terms of the contract, which interest represents P317.80 on P5k (March 16 Dec 30, 1944) and P320 on P4k (Dec 31, 1944 Dec 31, 1945). - April 1944 Lachica wrote Araneta another letter asking for the computations to be made for the period April 15, 1944 Dec 31, 1945 (enclosing PNB check No. 37255-K for P73.33 to cover the payment of interests on P11k for March 16 April 15, 1944) - Defendant corp thereafter applied the P5k sum to the payment of indebtedness of the plaintiff, and received payments on interest charges, so theat as of Sept 15, 1944, plaintiffs account with the defendant under the mortgage contract was P6k unpaid balance of the principal - Sept 5, 1944 plaintiff Sadang went to Araneta to pay the entire balance (including interest) and to ask the cancellation of the mortgage but Araneta refused to accept the tender of the payment then made - Sept 5, 1944 afternoon Sadang said Atty Salazar to intervene in the case but Araneta persisted in his denial - Sept 6, 1944 Atty Quisumbing, in behalf of the plaintiffs, tendered to Araneta the sum of P7,060.03 in satisfaction of the balance of the mortgage indebtedness (including interests not yet due, which the defendant would have earned were the payments made on Dec 31, 1945) but Araneta reasoned that his non-acceptance was due to the payments in accordance with the terns of the deed of sale with mortgage. - Atty Salazar gave notice of plaintiffs intention to consign the sum of P7,060.03 as he did in effect deposit the sum of P7,061 on Sept 6, 1944 with the Manila CFI by way of consignation, and at the same time presented the complaint - Sept 11, 1944 counsel for plaintiffs notified the defendant in writing of the fact of consignation ISSUES 1. WON TC erred in holding that the plaintiffs had a right to pay the remaining principal of P6k (balance of theor obligation) before Dec 31, 1945 (date of maturity) NO 2. WON TC erred in holding that the plaintiffs made a valid tender of payment to defendant NO 3. WON TC erred in dismissing defendants counterclaim NO HELD 1. Plaintiffs did not appeal form the TC findings that the Deed of Sale with Mortgage is the contract that defines the duties and obligations of the parties. - Proposal I (Exhibit E), Proposal II (Exhibit F), verbal negotiations, and RIC Letter (Exhibit A) were merely among the steps taken in the transactions leading to the formulation of the Deed of Sale with Mortgage

Obligations and Contracts page 24


- While the RIC letter may be a skeleton of the contract, it should be reduced into a public document sufficient in form, so that it may be recorded in the corresponding office of the register of deeds, for the purposes of transfer under the Torrens system - Theory of Integration of Jural Acts-a written contract merges all prior and contemporaneous negotiations in connection with the same subject, and all agreements verbal or written, made at, or before the time of the execution of that contract are to be considered as merged and integrated in the same written instrument. -was the RIC letter novated by the formal deed of sale with mortgage?-yes but this is immaterial. - While diligence and erudiation were displayed by plaintiffs counsel in their dissertation on the question of novation, the materiality of this cannot be seen in the present issues - All that may be conceded for the RIC letter is that it may explain the intention of the parties in having entered into the contract of the deed of sale with mortgage -did Sadang and Lachica sign the deed of sale with mortgage without reading the contents thereof?-no. - We believe that the plaintiffs had read the deed of sale with mortgage before signing it, considering that Sadang was a USAFFE captain and that he was a licensed real estate man and manager of RIC. - The testimony of the defendants attorney also attested to the fact that plaintiffs first read the said document before it was signed. - It is by legal presumption that a person takes ordinary care and precaution of his business. - It is however reasonable to conclude that although they read the contents of the Deed of Sale with Mortgage (Ex C) due to the mistaken belief that the RIC letter (Ex A) was reproduced in toto in the Deed of Sale with Mortgage, for in fact, all of the terms of both exhibits are the same except:-the omission of the word or before in the Deed of Sale with Mortgage for the time of the payment; insertion of the equally technical clause these periods of payment have been agreed for the benefit of both vendor and vendee - Plaintiffs might not have noticed the change, or if they had, they might not have attached much importance to it - If to trained legalists, such terms had caused a great divergence of opinions, how much more to an ordinary layman, unassisted by a lawyer in the execution of a contract who had not been apprised of such clause by the attorney who had prepared the Deed of Sale with Mortgage - In the realm of reality, how many persons stamp their signatures on documents because of the representations of people who command great respect, faith and truth in their fellow beings - There is a case where plaintiffs construed the contract according to the way they understood it contrary to the construction made by defendant because it did not make its position clear to the other party on or before December 31, 1943/December 31, 1944/December 31, 1945 - This proposition was accepted by the plaintiffs as shown by the fact that they had deposited the sum of 1k with the defendant corporation as good faith money - The plaintiffs (as revealed by records) understood these terms as conveying the simple meaning which they plainly express that these installments might be paid on or before the due dates

A2010 Prof. Labitag


- As in the RIC letter (Ex A), the plaintiffs did not have intervention in the preparation of the Deed of Sale with Mortgage, and the attorney who prepared it did not explain or call the attention of the plaintiffs to the changes made and effect of such changes - The construction by plaintiffs as to the terms of the agreement should prevail (When the terms of an agreement have been intended in a different sense by the different parties to it, that sense to prevail against either party in which he supposed the other understood it.) Such payment may be made on or before the date specified. - Defendant alleges that the payment must be made on the date specified and not before - Contract does not prohibit if payment is done before due dates - A term is foxed and it is presumed to have been established for the benefit of the creditor as well as that of the debtor, unless from its tenor or other circumstances it should appear that the term was established for the benefit of one or the other. (Art 1127, CC) - Deed of Sale with Mortgage: these periods of payment have been agreed for the benefit of the vendor and vendee - Mutual benefit has been interpreted to consist of the time granted a debtor to find means to comply with his obligation, and the fruits of such interest accruing to the creditor - The only impediment to a debtor making payment before the term is fixed, is the denial of the creditor of the benefits, such as the interests, accruing to the latter by reason of the fixed term (inferred from the SC decision on Villasenor v. Javellana) - To uphold defendants claim would be virtually compelling an obligor to assume an obligation later when he offers to, and could very well, discharge it earlier - The law should not be so interpreted as to compel a debtor to remain so, when he is in a position to release himself - The parties could not have contemplated payments of the last installments on Dec. 31, 1945, in good Philippine currency - Because at the execution of the contract, they did not expect such depreciation of currency as would render the interest on a loan barely sufficient to cover the depreciation of the military notes - If such depreciation occurred and the performance of the obligation had become more burdensome in its operation than was anticipated, then the parties should not complain - The rights of the parties must be measured by the contract which they themselves made, and the courts can not alter them because they work a hardship - The fact that the Americans were already in the Islands on December 31, 1945 and the placing of that date as the maturity date of the last installment of 10k constitutes a mere coincidence - The contentions of the appellant (Araneta et al) are not well-taken - The rule is to the effect that the benefit which would be derived by the creditor from the fixing of a term for the performance of an obligation to pay money is the stipulated interest for the prescribed term, is true under normal circumstances;

Obligations and Contracts page 25


- But Deed of Sale with Mortgage, executed during the Japanese occupation, the benefit which it was to derive consisted of the receipt of the last installment of 10k in good Philippine money and not in Japanese military notes - The real benefit thereto was foreseen and contemplated by the parties - Conditions when Deed was executed (July 16, 1943, when Japanese invaders were lords of the pacific) were comparatively normal (Ballantine schedule: 1 war peso = P.1.40 Japanese military notes) and at the time, few would prophesy in whose favor the world war would end, and when it would end - It would be presumptuous to say that on Dec. 31, 1945 (stipulated date), the American liberation would be here, and the parties fixed purposely this particular date for the payment of the last installment of 10k. - When MacArthur promised return, he did not day when - When Americans landed in Leyte on October 1944, many remarked that it was sooner than expected - Were it not for the great naval battle at the Sibuyan Sea, the wr would have been prolonged for another year more or at least beyond Dec. 31, 1945 - Benefit which defendant (Araneta) wanted to reap by the insertion of the disputed clause, was the payment of the interest, more than anything else in the letter of April 12, 1944 - the defendant meant that besides the interest that would have to be paid for the balance of 6k at the rate of 8% per annum, the defendant shall also charge the interest in accordance with the terms of the contract which interest represents: P317.80 on P5k (March 16-Dec, 30, 1944) P320 on P4k (Dec. 31, 1944-Dec. 1945) - Defendant credited the plaintiffs with the sum of 5k notwithstanding that: 1) the acceptance of the payment was made under protest; and 2) payment was made under protest - The refusal of the defendant to follow this construction on Sept. 5, 1944 (the balance of 6k and the interests of the unexpired period was tendered to it) was because the Japanese notes had been greatly depreciated - While the acceleration clause is a standard one contained in most mortgage deeds, we cannot escape the conclusion derived from the clause itself that the payments may be made by the vendee before the dates stated in the contract - The mortgage loan is payable in several installments - Deed of Sale with Mortgage Acceleration Clause: in the event of defaults in the payment of any amount due, either for capital or interest, the whole balance shall automatically become due and payable, and the vendor shall have the right the foreclosure the mortgage in its entirety - Even if it were true that the appellees could not be sure of their ability to pay during the Japanese occupation, they, as any businessman of ordinary foresight, would not have agreed to a stipulation which would prohibit them from paying, even if they had the money with which to pay the same - Contentions of appellant were not tenable - With the Deed containing an acceleration clause, it could practically be sure that the plaintiffs would pay the installments on time, since failure to do so would have made the balance due and payable - This was one contingency which said plaintiffs would have naturally desired to avoid, since it appears that their income was only P2,500 a month which was not big enough, considering its purchase power during the Japanese occupation - Appellees were precisely looking for investments and not for obligations

A2010 Prof. Labitag


plaintiff Sadang was then engaged in real estate business Sadangs wife was engaged in jewelry business - It could not have been probable that plaintiffs would agree to prohibition of payment - It does not necessarily imply with appellees expectation to receive his back pay as a USAFFE after the liberation of the Philippines that he would have agreed to a prohibition of payment before due dates expected back pay was merely in the nature of a guaranty or inducement that even if the worst should happen, he would still be able to pay the obligation the appellees offers to buy (Proposals I and II) provides for the settlement of the balance: at any time between now and within 90 days after the signing of the peace treaty between the warring nations this indicates the spirit guiding the parties then was the desire to permit the plaintiffs to pay within a specific period, on a specific date 2. Appellant did not refuse payment by check as tendered, for insufficiency of funds in the bank, or on account of the medium in which the payment was made, but because it believed that it could not be forced to accept the payment prior to the date specified in the contract. - General rule: an objection to tender must, to be available to the creditor, be made in good time and that the grounds for objection must be specified, and that an objection to a tender on one ground is waiver of all other objections which could have been made at that time. - To afford the debtor an opportunity to secure the specific money which the law prescribes shall be accepted in payment of debts - Non-observance of this duty would mislead the debtor and might inflict a loss which could be avoided if the creditor had objected to the form and character of the tender - By the mere fact of the drawing of the check, the plaintiffs engaged that on die presentment, they would honor it, or if dishonored, they would pay the amount thereof to the holder - Presumption that they have the sufficient funds in bank to cover the amount of said check, was not rebutted by the appellant upon which the burden of proving that ther were no funds in the bank fails - Where the great bilk of business is transacted through the medium of checks, drafts, and negotiable instruments, it would be a dangerous rule, which could be easily turned into an engine of oppression that a tender of payment especially where it involves the maturing of obligations not then due (as in this case), could not be made by check where no question was raised as to the value of the check tendered - It is ordinarily required of one to whom payment is offered in the form of check that he make his objection at the time, to the offer of a check, instead of an offer of payment - Payment by check has been generally so recognized as acceptable in business transactions that it has been held that omissions to make objection to a check as tender of payment is regarded as waiver of right to demand payment in money - Allegation, that apellees did not introduce to show that the president of the appellant corp to whom the alleged tender was made was not shown so as to have given him the opportunity to object, runs counter to the facts of the case as found by the TC

Obligations and Contracts page 26


- If the president had not seen the check, he could not have refused the tender of payment - And as stated, the president reasoned tat his non-acceptance was due to his opinion that such payment was not in accordance with the terms of the deed of sale. 3) In view of the positive resolution of the second issue, dismissal of counterclaim was fully justified Moreover, as state by the appellant, this assignment of error is made as a mere formality. Disposition The judgment appealed from is affirmed, with costs against the defendant-appellant.

A2010 Prof. Labitag


- During the trial, Ponce de Leon explained that he wanted to settle his obligations because as a member of the guerilla forces he was being hunted by the Japanese and he was afraid of getting caught and killed. - In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with the Clerk of Court P254,880. - On November 4, 1944, Ponce de Leon filed a complaint consigning the amount so deposited to Syjuco. - On May 15, 1946, Ponce de Leon filed a petition for the reconstitution of Transfer Certificates of Title Nos. 17175 and 17176 in the name of the Bank. - The Court ordered the reconstitution of said titles. - On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not exceeding P135,000. - Ponce de Leon executed a mortgage of the two parcels of land covered by the reconstituted Transfer Certificates of Title in favor of the said Bank to secure the payment of any amount, which he may obtain from the Bank under the aforementioned overdraft account. - The overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not being aware of the mortgage which Ponce de Leon had executed in favor of Syjuco and the said Bank believing that the said properties had no lien or encumbrance. - Syjuco claimed that Ponce de Leon had violated the conditions of the mortgage which Ponce de Leon had executed in its favor. - Syjuco prayed that the mortgage executed by Ponce de Leon in favor of the Bank be declared null and void. - The lower court absolved Syjuco from Ponce de Leon's complaint and condemned Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate from May 6, 1949, until fully paid. ISSUES 1. WON the plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of its maturity 2. WON the consignation made by the plaintiff is valid in the light of the law and the stipulations agreed upon in the two promissory notes signed by the plaintiff HELD 1. NO. Ratio - In the 2 promissory notes, it was expressly agreed upon that plaintiff shall pay the loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency of the Government of the Philippines that, at the time of payment above fixed it is the legal tender for public and private debts, with interests at the rate of 6% per annum, payable in advance for the first year, and semi-annually in advance during the succeeding years". - And that, the period above set forth having been established for the mutual benefit of the debtor and creditor, the former binds himself to pay, and the latter not to demand the payment of, the loans except within the period above mentioned. Reasoning - Under the law, in a monetary obligation contracted with a period, the presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other circumstances

PONCE DE LEON V SYJUCO, INC. BAUTISTA; October 31, 1951


FACTS - The appellee, Philippine National Bank, was the owner of 2 parcels of land known as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental. - On March 9, 1936 the Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630 upon the execution of the said deed; and (b) the balance P23,670 in 10 annual amortizations, the first amortization to fall due one year after the execution of the said contract. - On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from May 5, 1948. - It was also provided in said promissory note that the promisor (Ponce de Leon) could not pay, and the payee (Syjuco) could not demand, the payment of said note except within the aforementioned period. - To secure the payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the parcels of land which he agreed to purchase from the Bank. - On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to P23,670 in Japanese Military notes and, on the same date, the Bank executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned parcels of land. - The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds. - On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount of P16,000 in Japanese Military notes and executed in the latter's favor a promissory note of the same tenor as the one had previously executed. - On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in Japanese military notes in full payment of his indebtedness to Syjuco. - The amount tendered included not only the interest up to the time of the tender, but also all the interest up to May 5, 1948. - Ponce de Leon also wrote to Syjuco a letter tendering the payment of his indebtedness, including interests up to May 5, 1948. - Syjuco, however, refused to accept such repeated tenders.

Obligations and Contracts page 27


it appears that the period has been established for the benefit of either one of them (Art. 1127, Civil Code). - Here no such exception or circumstance exists. - It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation because the debtor has offered to pay all the interests up to the date it would become due. - But this argument loses force if we consider that the payment of interests is not the only reason why a creditor cannot be forced to accept payment contrary to the stipulation. - There are other reasons why this cannot be done. One of them is that the creditor may want to keep his money invested safely instead of having it in his hands, or that the creditor by fixing a period protects himself against sudden decline in the purchasing power of the currency loaned specially at a time when there are many factors that influence the fluctuation of the currency. - Unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature tender included an offer to pay principal and interest in full. 2. NO. The consignation is invalid, and, therefore, did not have the effect of relieving him of his obligation. Ratio - In order that consignation may be effective, the debtor must first comply with certain requirements. - In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the requirements have not been complied with. - The plaintiff, before making the consignation with the clerk of the court, failed to give previous notice thereof to the person interested in the performance of the obligation. - More importantly, the obligation was not yet due and demandable when the money was consigned, because the obligation was to be paid within one year after May 5, 1948. - The consignation was made before this period matured. - The failure of these two requirements is enough ground to render the consignation ineffective. Reasoning In order that cogsignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code).

A2010 Prof. Labitag


ARANETA V PHILIPPINE SUGAR ESTATES DEVT. CO. REYES; May 31, 1967
FACTS - On July 28, 1950, J. M. Tuason & Co. sold a portion of its land in Sta. Mesa Heights Subdivision, Q.C. to Philippine Sugar Estates Development (PSED) Co., Ltd., through Gregorio Araneta Inc. (GAI) for P 430, 514. In their contract of purchase and sale, the parties stipulated that the buyer will build the Sto. Domingo Church and the seller will construct streets on the NE and NW and SW sides of the land. - The buyer PSED finished the construction of the church but the seller, GAI, was unable to finish the construction of the street in the NE side because a certain third party, Manuel Abundo, who has been physically occupying a middle part thereof, refused to vacate the same. - On May 7, 1958, PSED filed a complaint against J. M. Tuason & Co, Inc., and GAI in CFI Manila, seeking to compel the latter to comply with their obligation and/or to pay damages in the event they failed or refused to perform the obligation. - Both defendants answered the complaint with GAI setting up the principal defense that the action was premature since its obligation to construct the streets in question was without a definite period which needs to be fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper. - After the lower court dismissed the complaint, PSED moved for a reconsideration praying that the court fix a period within which defendants will comply with their obligation to construct the streets in question. Defendant GAI opposed said motion, maintaining that plaintiff's complaint did not expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that the evidence presented at the trial was insufficient to warrant the fixing of such a period. - On July 16, 1960, the lower court amended its previous decision and, after finding that the proven facts warrant the fixing of such a period, rendered judgment giving defendant GAI, a period of Two (2) Years from notice within which to comply with its obligation under the contract: to construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same would be a block surrounded by streets on all four sides. - The case was brought to the CA by GAI and the same rendered a decision affirming that of the lower courts, setting a period of 2 years from finality of judgment to comply with the obligation. GAI now resorted to the SC, hence this petition for certiorari ISSUE WON the trial court and the CA erred in setting the date for the performance of the contract HELD The decision of the CA, affirming that of the CFI is legally untenable. It does not lie within them to fix the period of the performance of the obligation. Ratio Article 1197 is predicated on the absence of any period fixed by the parties and it involves a two-step process. The court must first determine that the obligation does not fix a period (or that the period is made to depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a

Obligations and Contracts page 28


period was intended. The court must then proceed to the second step, and decide what period was probably contemplated by the parties. Reasoning - In no case can it be logically held that the intervention of the court to fix the period for performance was warranted, for even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (the trial court's amended decision nowhere declared any such fact) still, the complaint not having sought that the court should set a period, the court could not proceed to do so unless the complaint was first amended; for the original decision is clear that the complaint proceeded on the theory that the period for performance had elapsed already, that the contract had been breached and defendant was already answerable in damages. - Granting, however, that it lay within the Court's power to fix the period of performance, still the amended decision is defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. The last paragraph of Article 1197 is clear that the period can not be set arbitrarily. The law expressly prescribes that the courts shall determine such period as may under the circumstance have been probably contemplated by the parties. All that the trial court's amended decision says is that the proven facts precisely warrant the fixing of such a period, which is insufficient to explain how the twoyear period given to petitioner herein was arrived at. The trial court appears to have pulled the two-year period set in its decision out of thin air, no circumstances are mentioned to support it. - The contract shows that the parties were fully aware that the land described was occupied by squatters. As the parties must have known that they could not take the law into their own hands and must resort to legal processes in evicting the squatters, they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted, as contended by the petitioner GAI. - CA objected to this conclusion that it would render the date of performance indefinite. However, this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. It follows that there is no justification in law, for the setting of the date of performance at any other time than that of the eviction of the squatters occupying the land in question; and in not so holding, both the trial court and the CA committed reversible error. In addition, the case against one of the squatters, Abundo, was still pending in the CA when its decision in this case was rendered. Disposition decision appealed from is reversed. The time for the performance of the obligations of petitioner Gregorio Araneta, Inc. fixed at the date that all the squatters on affected areas are finally evicted.

A2010 Prof. Labitag


- On April 9, 1903, Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcin, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors, while Teodoro was mentally incompetent. His widow and children held the conjugal property in common and at the death of Gregoria, these children preserved the same relations under the name of Hijos de T. Yulo continuing their current account with Inchausti & Company until said balance amounted to P200,000 upon which the creditor firm tried to obtain security for the payment of the money. - Gregorio Yulo, for himself and in representation of his brothers Pedro, Francisco, Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document whereby all admitted their indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10% per annum, they especially mortgaged an undivided six-ninth of their 38 rural properties, their remaining urban properties, lorchas, and family credits which were listed, obligating themselves to make a formal inventory and to describe in due form all the said properties, as well as to cure all the defects which might prevent the inscription of the said instrument in the registry of property and finally to extend by the necessary formalities the mortgage over the remaining three-ninths part of all the property and rights belonging to their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose. - On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of our current account with your important firm, closed on the 31st of last December, with which we desire to express our entire conformity as also with the balance in your favor of P271,863.12." On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of the same month and year. Regarding this conformity a new document evidencing the mortgage credit was formalized. - On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at the time, ratified all the contents of the prior document of June 26, 1908, severally and jointly acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of P253,445.42 which they obligated themselves to pay, with interest at 10% per annum, in five installments at the rate of P50,000, except the last, this being P53,445.42, beginning June 30, 1910, continuing successively on the 30th of each June until the last payment on June 30, 1914. - Among other clauses, they expressly stipulated the following: - The default in payment of any of the installments or the noncompliance of any of the other obligations will result in the maturity of all the said installments, and Inchausti & Co. may exercise at once all the rights and actions in order to obtain the immediate and total payment of our debt. - All the obligations will be understood as having been contracted in solidum by all the Yulos, brothers and sisters. - The instrument shall be confirmed and ratified in all its parts, within the present week, by their brother Mariano Yulo y Regalado who resides in Bacolod, otherwise

YNCHAUSTI V YULO ARELLANO; March 25, 1914


FACTS - Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his numerous haciendas in the province of Negros Occidental, had been borrowing money from the firm of Inchausti & Company under specific conditions.

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it will not be binding on Inchausti & Co. who can make use of their rights to demand and obtain the immediate payment of their credit without any further extension or delay. - This instrument was neither ratified nor confirmed by Mariano Yulo. - The Yulos did not pay the first installment of the obligation. - On March 27, 1911, Inchausti & Co. brought an ordinary action in the CFI of Iloilo, against Gregorio Yulo for the payment of the balance of P253,445.42 with interest at 10% per annum, on that date aggregating to P42,944.76. - On May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor of Inchausti & Co. another notarial instrument in recognition of the debt and the obligation of payment in the following terms: "First, the debt is reduced for them to P225,000; second, the interest is likewise reduced for them to 6% per annum, from March 15, 1911; third, the installments are increased to 8, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same date of each successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial payment together with its interest shall bear interest at the rate of 15% per annum from the date of said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive years the partial payments agreed upon be not made, they shall lose the right to make use of the period granted to them for the payment of the debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Co. may consider the total obligation due and demandable, and proceed to collect the same together with the interest for the delay above stipulated through all legal means." - Stipulated in addition: Inchausti & Co. should include in their suit brought in the CFI of Iloilo against Gregorio Yulo, his brother and joint co-obligee, Pedro Yulo, and they will procure by all legal means and in the least time possible a judgment in their favor against Gregorio and Pedro, sentencing the latter to pay the total amount of the obligation acknowledged by them in the instrument of August 12, 1909; with the understanding that if they should deem it convenient for their interests, Francisco, Manuel, and Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti & Co. in the proceedings of the said case. [Traitors!] - On July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses: first, that an accumulation of interest had taken place and that compound interest was asked for in Philippine currency at par with Mexican; second, that in the instrument of August 12, 1909, two conditions were agreed one of which ought to be approved by the CFI, and the other ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third, that with regard to the same debt claims were presented before the commissioners in the special proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were dismissed, pending the present suit; fourth and finally, that the instrument of August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo. - The CFI of Iloilo decided the case "in favor of the defendant without prejudice to the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the plaintiff pay the costs." ISSUES 1. WON the plaintiff can sue Gregorio Yulo alone, there being other obligors

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2. WON plaintiff lost this right by the fact of its having agreed with the other obligors in the reduction of the debt, the proroguing of the obligation and the extension of the time for payment, in accordance with the instrument of May 12, 1911 3. WON the contract with the three obligors constitutes a novation of that of August 12, 1999, entered into with the six debtors who assumed the payment of P253,445.42 4. If in the negative, WON it has any effect in the action brought and in this present suit HELD 1. Yes. Ratio The debtors having obligated themselves in solidum, the creditor can bring its action in toto against any one of them. Reasoning This was surely the purpose in demanding that the obligation contracted should be solidary having in mind the principle of law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation." 2. No. Ratio Solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions. Reasoning Even though the creditor may have stipulated with some of the solidary debtors diverse installments and conditions, as in this case, Inchausti & Co. did with its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the instrument of August 12, 1909 is broken. 3. No. Ratio An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. Reasoning The contract of May 12, 1911, does not constitute a novation of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because in order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points; and the instrument of May 12, 1911, far from expressly declaring that the obligation of the three who executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said obligation of Gregorio Yulo to pay the P253,445.42 sued for exists, stipulating that the suit must continue its course and, if necessary, these three parties would cooperate in order that the action against Gregorio Yulo might prosper. It is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new one. There exist no incompatibility between the old and the new obligation. 4. Yes. [Total amount and amount due and demandable, respectively.] Ratio The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others. Reasoning Although the contract of May 12, 1911, has not novated that of August 12, 1909, it has affected that contract and the outcome of the suit brought against

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Gregorio Yulo alone for the sum of P253,445.42; and in consequence, the amount stated in the contract of August 12, 1909, cannot be recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three of the solidary debtors in this instrument. He cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because he has been benefited by the remission made by the plaintiff to three of his co-debtors. Consequently, the debt is reduced to 225,000 pesos. 5. Ratio Before the performance of the condition, or before the execution of a term which affects one debtor alone, proceedings may be had against him or against any of the others for the remainder which may be already demandable but the conditional obligation or that which has not yet matured cannot be demanded from any one of them. Reasoning If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, should such efficacy not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of the nonmaturity of the installments since the first installment did not mature until June 30, 1912, and without doubt the defense would have prospered. Cannot this defense of the pre-maturity of the action, which is implied in the last special defense set up in the answer of the defendant Gregorio Yulo be made available to him in this proceeding? Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27, 1911, the first installment of the obligation had already matured as of June 30, 1910, and not having been paid, the whole debt had become mature, according to the express agreement of the parties, independently of the resolutory condition which gave the creditor the right to demand the immediate payment of the whole debt upon the expiration of the stipulated term of one week allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12, 1909. Neither could he invoke a like exception for the shares of his solidary co-debtors Pedro and Concepcion Yulo, they being in identical condition as he. But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to that part of the debt for which they were responsible" can be set up by Gregorio Yulo as a partial defense to the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his co-debtors is not yet due, a state of affairs which not only prevents any action against the persons who were granted the term which has not yet matured, but also against the other solidary debtors who being ordered to pay could not now sue for a contribution, and for this reason the action will be only as to the P112,500. Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered which sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the object of the action. Disposition We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Co. P112,500, with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest due, from the

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time that it was claimed, without any special finding as to costs. The judgment appealed from is reversed. So ordered.

JAUCIAN V QUEROL STREET; October 5, 1918


FACTS - In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a private writing in which they acknowledged themselves to be indebted to Roman Jaucian in the sum of P13,332.33. - Hermenegilda Rogero signed this document in the capacity of surety for Lino Dayandante; but as clearly appears from the instrument itself both debtors bound themselves jointly and severally to the creditor - There is nothing in the terms of the obligation itself to show that the relation between the two debtors was that of principal and surety. - In November, 1909, Hermenegilda Rogero brought an action in the Court of First Instance of Albay against Jaucian, asking that the document in question be cancelled as to her upon the ground that her signature was obtained by means of fraud. - In his answer to the complaint, Jaucian, by way of cross-complaint, asked for judgment against the plaintiff for the amount due upon the obligation, which appears to have matured at that time. - While the case was pending in the Supreme Court, Hermenegilda Rogero died and the administrator of her estate was substituted as the party plaintiff and appellee. On November 25, 1913, the Supreme Court rendered its decision reversing the judgment of the trial court and holding that the disputed claim was valid. - During the pendency of the appeal, proceedings were had in the Court of First Instance of Albay for the administration of the estate of Hermenegilda Rogero; Francisco Querol was named administrator; and a committee was appointed to pass upon claims against the estate. - This committee made its report on September 3, 1912. On March 24, 1914, or about a year and a half after the filing of the report of the committee on claims against the Rogero estate, Jaucian entered an appearance in the estate proceedings, and filed with the court a petition in which he averred the execution of the document of October, 1908, by the deceased, the failure of her cobligor Dayandante, to pay any part of the debt, except P100 received from him in March, 1914, and the complete insolvency of Dayandante (note: 1918 pa ito kaya mahal na ang P100). - Upon these facts Jaucian prayed the court for an order directing the administrator of the Rogero estate to pay him the principal sum plus its interest. - CFI held that: "Hermenegilda Rogero having been simply surety for Lino Dayandante, the administrator has a right to require that Roman Jaucian produce a judgment for his claim against Lino Dayandante, in order that the said administrator may be subrogated to the rights of Jaucian against Dayandante. The simple affidavit of the principal debtor that he had no property except P100 worth of property which he has ceded to the creditor is not sufficient for the court to order the surety to pay the debt of the principal. When this action shall have been taken against Lino Dayandante and an execution returned 'no effects,' then the claim of Jaucian against the estate will be ordered paid or any balance that may be due to him."

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- Acting upon the suggestions contained in this order Jaucian brought an action against Dayandante and recovered a judgment against him for the full amount of the obligation evidenced by the document of October 24, 1908. Execution was issued upon this judgment, but was returned by the sheriff wholly unsatisfied, no property of the judgment debtor having been found. - On October 28, 1914, counsel for Jaucian filed another petition in the proceedings upon the estate of Hermenegilda Rogero, in which they averred, upon the grounds last stated, that Dayandante was insolvent, and renewed the prayer of the original petition. It was contended that the court, by, its order of April 13, 1914, had "admitted the claim" of Dayadante that he had no property left. - CFI, after hearing argument, entered an order refusing to grant Jaucian's petition. To this ruling the appellant excepted and moved for a rehearing. On December 11, 1914, the judge a quo entered an order denying the rehearing and setting forth at length, the reasons upon which he based his denial of the petition. - In this court the appellant contends that the trial judge erred (a) in refusing to give effect to the order made by the CFI, dated April 13, 1914; and (b), in refusing to order the administrator of the estate of Hermenegilda, Rogero to pay the appellant the amount demanded by him. The contention with regard to the order of April 13, 1914, is that no appeal from it having been taken, it became final. - An examination of the order in question, however, leads us to conclude that it was not a final order, and therefore it was not appealable. - In effect, it held that whatever rights Jaucian might have against the estate of Rogero were subject to the performance of a condition precedent, namely, that he should first exhaust this remedy against Dayandante. - The court regarded Dayandante as the principal debtor, and the deceased as a surety only liable for such deficiency as might result after the exhaustion of the assets of the principal cobligor. - The pivotal fact upon which the order was based was the failure of appellant to show that he had exhausted his remedy against Dayandante, and this failure the court regarded as a complete bar to the granting of the petition at that time. ISSUES 1. WON the order of April 13, 1914 is final and hence appealable 2. WON Hermenegilda Rogeros liability was that of principal, though she was only a surety for Lino Dayadante YES HELD 1. NO - The court made no order requiring the appellee to make any payment whatever, and that part of the opinion, upon which the order was based, which contained statements of what the court intended to do when the petition should be renewed, was not binding upon him or any other judge by whom he might be succeeded. - It is quite clear from what we have stated that the order of April 13, 1914, required no action by the administrator at that time, was not final, and therefore was not appealable. - We therefore conclude that no rights were conferred by the said order of April 13, 1914, and that it did not preclude the administrator from making opposition to the petition of the appellant when it was renewed. 2. YES

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- Bearing in mind that the deceased Hermenegilda Rogero, though surety for Lino Dayandante, was nevertheless bound jointly and severally with him in the obligation, the following provisions of the Old Civil Code are here pertinent: - Art 1822: By security a person binds himself to pay or perform for a third person in case the latter should fail to do so. If the surety binds himself jointly with the principal debtor, the provisions of section fourth, chapter third, title first, of this book shall be observed." - Art 1144: "A creditor may sue any of the joint and several (solidarios) debtors or all of them simultaneously. The claims instituted against one shall not be an obstacle for those that may be later presented against the others, as long as it does not appear that the debt has been collected in full." - Art 1830: "The surety can not be compelled to pay a creditor until application has been previously made of all the property of the debtor." - Art 1831: "This application can not take place . If he has jointly bound himself with the debtor " - The foregoing articles of the Civil Code make it clear that Hermenegilda Rogero was liable absolutely and unconditionally for the full amount of the obligation without any right to demand the exhaustion of the property of the principal debtor previous to its payment. Her position so far as the creditor was concerned was exactly the same as if she had been the principal debtor. - The absolute character of the claim and the duty of the committee to have allowed it in full as such against the estate of Hermenegilda Rogero had it been opportunely presented and found to be a valid claim is further established by section 698 of the Code of Civil Procedure, which provides: "When two or more persons are indebted on a joint contract, or upon a judgment founded on a joint contract, and either of them dies, his estate shall be liable therefor, and it shall be allowed by the committee as if the contract had been with him alone or the judgment against him alone. But the estate shall have the right to recover contribution from the other joint debtor." - In the official Spanish translation of the Code of Civil Procedure, the sense of the English word "joint," as used in two places in the section above quoted, is rendered by the Spanish word "mancomunadamente." This is incorrect. The sense of the word "joint," as here used, would be more properly translated in Spanish by the word "solidaria," though even this word does not express the meaning of the English with entire fidelity. The section quoted, it should be explained, was originally taken by the author, or compiler, of our Code of Civil Procedure from the statutes of the State of Vermont; and the word "joint" is, therefore, here used in the sense which attaches to it in the common law. - In the common law system there is no conception of obligation corresponding to the divisible joint obligation contemplated in article 1138 of the Civil Code. This article declares in effect that, if not otherwise expressly determined, every obligation in which there are numerous debtors--we here ignore plurality of creditors-shall be considered divided into as many parts as there are debtors, and each part shall be deemed to be the distinct obligation of one of the respective debtors.

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- In other words, the obligation is apportionable among the debtors; and in case of the simple joint contract neither debtor can be required to satisfy more than his aliquot part. - In the common law system every debtor in a joint obligation is liable in solidum for the whole; and the only legal peculiarity worthy of remark concerning the "joint" contract at common law is that the creditor is required to sue all the debtors at once. - To avoid the inconvenience of this procedural requirement and to permit the creditor in a joint contract to do what the creditor in a solidary obligation can do under article 1144 of the Civil Code, it is not unusual for the parties to a common law contract to stipulate that the debtors shall be "jointly and severally" liable. - The force of this expression is to enable the creditor to sue any one of the debtors or all together at pleasure. - The joint contract of the common law is and always has been a solidary obligation so far as the extent of the debtor's liability is concerned. - Hermenegilda Rogero, and her estate after her death, was liable absolutely for the whole obligation, under section 698 of the Code of Civil Procedure; and if the claim had been duly presented to the committee for allowance it should have been allowed, just as if the contract had been with her alone. - There is no force, in our judgment, in the contention that the pendency of the suit was a bar to the presentation of the claim against the estate. The fact that the lower court had declared the document void was not conclusive, as its judgment was not final, and even assuming that if the claim had been presented to the committee for allowance, it would have been rejected and that the decision of the committee would have been sustained by the CFI, the rights of the creditor could have been protected by an appeal from that decision. - Furthermore, even had Jaucian, in his appeal from the decision in the cancellation suit, endeavored to obtain judgment on his crosscomplaint, the death of the debtor would probably have required the discontinuance of the action presented by crosscomplaint or counterclaim, under section 703. - The only concrete illustration of a contingent claim given in section 746 of the Code of Civil Procedure is the case where a person is liable as surety for the deceased, that is, where the principal debtor is dead. In the case before us, it is the surety who is dead. In the illustration put in section 746-where the principal debtor is dead and the surety is the party preferring the claim against the estate of the deceased-it is obvious that the surety has no claim against the estate of the principal debtor, unless he himself satisfies the obligation in whole or in part upon which both are bound. It is at this moment, and not before, that the obligation of the principal to indemnify the surety arises (art. 1838, Civil Code); and by virtue of such payment the surety is subrogated in all the rights which the creditor had against the debtor (art. 1839, same Code). - It is possible that "contingency," in the cases contemplated in section 746, may depend upon other facts than those which relate to the creation or inception of liability. It may be, for instance, that the circumstance that a liability is subsidiary, and the execution has to be postponed after judgment is obtained until the exhaustion of the assets of the person or entity primarily liable, makes a claim contingent within the meaning of said section; but upon this point it is unnecessary to express an opinion. It is enough to say that where, as in the case now before us, liability extends unconditionally to the entire amount stated in the obligation, or, in other words, where the debtor is liable in solidum and without postponement of execution, the liability is not contingent but absolute.

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Disposition For the reasons stated, the decision of the trial court denying appellant's petition and his motion for a new trial was correct and must be affirmed.

RFC V CA CONCEPCION; May 14, 1954


FACTS

On October 31, 1951, Jesus Anduiza and Quintana Cano executed a promissory note binding themselves to jointly and severally pay the Agricultural and Industrial Bank P13800, with an interest rate of 6%. Payments are to be paid in 10 years in annual installments. Anduiza and Cano failed to pay the yearly amortizations that fall due on October 1942 and 1943. When Estelito Madrid, who temporarily lived in Anduizas house during the Japanese occupation, learned this, he offered to pay for Anduizas indebtedness. He paid P10000 on Oct 23, 1944. Alleging that Anduiza failed to pay, the Agricultural and Industrial Bank (now RFC) refused to cancel his mortgage. Madrid then instituted an action with the CFI to declare that Anduizas indebtedness of P16,425.17 has been paid, to release the properties mortgaged to RFC, and condemning Anduiza to pay him P16, 425.17. RFC replied that the loan was not due and demandable in Oct 1944. They also claim that they only held Madrids payment as deposit pending proof of approval by Anduiza and that if Anduiza refused to approve, the deposit will be annulled. Anduiza claims that the payment made by Madrid was without his knowledge or consent and that RFC did not accept such payment. The trial court rendered in favor of RFC, but the CA reversed.

ISSUE WON Madrids payment should be accepted HELD YES. - Art 1158 of the Spanish CC states that payment can be made by any person, whether approved by the debtor or not. One who makes the payment may recover from the debtor, unless it was made against his express will. In the latter case, he can recover only in so far as the payment was beneficial to him. - Madrid then is entitled to pay the obligation irrespective of Anduizas will or the bank.

The payments were not made against the objection of either Anduiza or Madrid. Although Anduiza later on questioned such payments, he impliedly acquiesced therin, for he joined Madrid in his appeal from the decision of the CFI. - Similarly, the receipts issued by the bank acknowledging said payments without qualification belie its alleged objection thereto. The bank as a creditor had no other right than to exact payment. - Two consequences flow from the foregoing: o Good or bad faith is immaterial to the issue.

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o The bank cannot invoke the provision that the payor may only recover from
the debtor insofar as the payment has been beneficial to him. This defense may be availed only by the debtor. For the debtor to avail of this defense he must oppose the payments before or at the time the same were made. Disposition Decision affirmed

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- By alleging fraud in his answer, petitioner was in the right direction towards proving that he agreed to a loan of P5k only. However, fraud must be established by clear and convincing evidence. Mere preponderance of evidence is not adequate - On his argument that since the complaint against Naybe was dismissed, his should be dismissed as well: It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor - 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. - Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation - The choice is left to the solidary creditor to determine against whom he will enforce collection. Ratio - as a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence - (Tolentino) explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary codebtor, and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title 1, Book IV of the Civil Code. - when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.

INCIONG V COURT OF APPEALS ROMERO; June 26, 1996


FACTS - RTC ordered Inciong to pay Phil. Bank of Communications (PBC) P50,000 w/ interest. His liability resulted from the promissory note (P50,000) w/c he signed w/ Rene Naybe and Gregorio Pantanosas on Feb. 3, 1983 holding themselves jointly and severally liable to private respondent PBC. The promissory note was due on May 5, 1983 - The due date expired w/o the promissors having paid their obligation - PBC sent telegrams demanding payment and a final letter demand through registered mail - Since both obligors did not respond, PBC filed a complaint for collection of the money against the 3 obligors. - Only the summon addressed to Inciong was served bec. Naybe was already in Saudi Arabia Petitioners' Claim - In his answer, petitioner Inciong alleged that he was persuaded by Campos to act as a co-maker in the said loan in order to go into the falcate log operations business - Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00. - Annexed to the present petition is a copy of an affidavit executed by Gregorio Pantanosas, who is a co-maker in the promissory note. In the affidavit, he supports the allegation that they were induced to sign the promissory note on the belief that it was only for P5,000. - He also said that the promissory note should be declared bull and void also on the grounds that: o The promissory note was signed outside the premises of the bank o The loan was incurred only for the purpose of buying a chainsaw worth 5thousand; even a new chain saw would cost only P27k o Petitioner and Pantanosas were not present during the time the loan was released ISSUE WON the promissory note should be declared null and void HELD No - The stated points are factual, which should be determined in the lower court not in this court

KALALO V LUZ ZALDIVAR; JULY 31, 1970


FACTS - On November 17, 1959, appellee Kalalo, a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement with appellant Luz, a licensed architect, doing business under the firm name of AJ. Luz and Associates, whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. The services included design computation and sketches, contract drawing and technical specifications of all engineering phases of the project designed by O.A. Kalalo and Associates, bill of quantities and cost estimate, and consultation and advice during construction relative to the work. Pursuant to said agreement, appellee rendered engineering services to appellant in the following projects: (a)Fil-American Life Insurance Building at Legaspi City; (b)Fil-American Life Insurance Building at Iloilo City; (c)General Milling Corporation Flour Mill at Opon, Cebu; (d)Menzi Building at Ayala Blvd., Makati, Rizal;

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(e)International Rice Research Institute, Research Center, Los Baos, Laguna; (f)Aurelia's Building at Mabina, Ermita, Manila; (g)Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral, Ernita, Manila; (h)Arthur Young's residence at Forbes Park, Makati, Rizal; (i) L & S Building at Dewey Blvd., Manila; and (j)Stanvac Refinery Service Building at Limay, Bataan. - On December 11, 1961, appellee sent to appellant a statement of account to which was attached an itemized statement of defendant-appellant's account, according to which the total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant, amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to accept as full payment of the balance of the fees due him. - On August 10, 1962, appellee filed a complaint against appellant, containing four causes of action. In the first cause of action, appellee alleged that for services rendered in connection with the different projects therein mentioned there was due him fees in sums consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second cause of action, appellee claimed P17,000.00 as consequential and moral damages; in the third cause of action he claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; and in the fourth cause of action he claimed P25,000.00 as actual damages, and also for attorney's fees and expenses of litigation. - In his answer, appellant admitted that appellee rendered engineering services, as alleged in the first cause of action, but averred that some of appellee's services were not in accordance with the agreement and appellee's claims were not justified by the services actually rendered, and that the aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. Appellant denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and fourth causes of action. Appellant set up affirmative and special defenses, alleging that appellee had no cause of action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project was premature because appellant had not yet been paid for said project, and that appellee's services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a counterclaim for actual and moral damages for such amount as the court may deem fair to assess, and for attorney's fees of P10,000.00. - Inasmuch as the pleadings showed that the appellee's right to certain fees for services rendered was not denied, the only question being the assessment of the proper fees and the balance due to appellee after deducting the admitted payments made by appellant, the trial court, upon agreement of the parties, authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was 20% of the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less

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the sum of P69,475.46 which was already paid by the appellant. The trial court ruled in favor of Kalalo by ordering Luz to pay him the sum of P51,539.91 and $28,000.00, the latter to be converted into the Philippine currency on the basis of the current rate of exchange at the time of the payment of this judgment, as certified to by the Central Bank of the Philippines. ISSUE WON payment of the amount due to the appellee in dollars is legally permissible, and if not, at what rate of exchange it should be paid in pesos HELD NO. Payment in dollars is prohibited by Republic Act (RA) No. 529 which provides that if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred. RA No. 529 was enacted on June 16, 1950. In the case now before Us the obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of RA No. 529. It follows that the provision of RA No. 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. RA No. 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on the date of defendant's breach. Disposition Therefore, appellant should pay the appellee the equivalent in pesos of the $28,000.00 at the free market rate of exchange at the time of payment. The trial court did not err when it held that herein appellant should pay appellee $28,000.00 to be converted into the Philippine currency on the basis of the current rate of exchange at the time of payment of this judgment, as certified to by the Central Bank of the Philippines.

REPARATIONS COMMISSION V UNIVERSAL DEEP- SEA FISHING CORPORATION CONCEPCION; June 27, 1978
FACTS - Universal was awarded 6 trawl boats by the Reparations Commission as end-user of reparation goods. These were delivered 2 at a time. - The first 2 boats were delivered Nov 20, 1958 and the Contract of Conditional Purchase and Sale of Reparations Goods executed Feb 12, 1960 provided among others, that "the first installment representing 10% of the amount shall be paid within 24 months from the date of complete delivery thereof, the balance shall be paid in the manner herein stated as shown in the Schedule of Payments". To guarantee the compliance with the obligations under said contract, a performance bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila

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Surety & Fidelity Co., Inc., as surety, was executed in favor of the Reparations Commission. A corresponding indemnity agreement was executed to indemnify the surety company for any damage, loss charges, etc., which it may sustain or incur as a consequence of having become a surety upon the performance bond - The next 2 boats were delivered April 20, 1959 with contract dated Nov 25, 1959 provided for a similar stipulation on the schedule of payments. A performance bond in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co., Inc., was also submitted to guarantee the faithful compliance with the obligations set forth in the contract,6 and indemnity agreement was executed in favor of the surety company in consideration of the said bond. - The delivery of the last 2 boats were covered by a contract for the Utilization of Reparation Goods executed by the parties on February 12, 1960 with a similar schedule of 10 equal yearly installments. A performance bond in the amount of P54,500.00 issued by the Manila Surety & Fidelity Co., Inc., was submitted, and an indemnity agreement was executed by UNIVERSAL in favor of the surety company. - On August 10, 1962, the Reparations Commission instituted the present action against UNIVERSAL and the surety company to recover various amounts of money due under these contracts. In answer, UNIVERSAL claimed that the amounts of money sought to be collected are not yet due and demandable. The surety company also contended that the action is premature, but set up a cross-claim against UNIVERSAL for reimbursement of whatever amount of money it may have to pay the plaintiff by reason of the complaint, including interest, and for the collection of accumulated and unpaid premiums on the bonds with interest thereon. With leave of courts first obtained, the surety company filed a third-party complaint against Pablo S. Sarmiento, one of the indemnitors in the indemnity agreements. The third-party defendant Pablo S. Sarmiento denied personal liability claiming that he signed the indemnity agreements in question in his capacity as acting general manager of UNIVERSAL. After appropriate proceedings and upon the preceding facts, the trial court rendered the judgment stated. Hence, this appeal. - UNIVERSAL claims that there is an obscurity in the terms of the contracts in question which were caused by the plaintiff as to the amounts and due dates of the first installments which should have been first fixed before a creditor can demand its payment from the debtor. The Schedule of Payment attached to, and forming a part of, the contract for the purchase and sale of the first 2 boats which states that the amount of first installment is P53,642.84 and the due date of is payment is May 8, 1961. However, the amount of the first of the succeeding itemized installments is P56,597.20 and the due date is May 8, 1962. In the case of the 3rd and 4th boats, the first installments are P68,777.77 and due in July, 1961 and P72,565.68 and due in July, 1962, respectively. In the contract for the purchase and sale of the last 2 boats, the amounts indicated as first installments are P54,500.00 and P57,501.57, and the due dates of payment are October 17, 1961 and October 17, 1962, respectively. ISSUES 1. WON the first installments under the 3 contracts of conditional purchase and sale were already due and demandable when the complaint was filed 2. WON the TC erred in not awarding the surety company premiums on the performance bonds

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3. WON the court erred in not applying the down payment to the guaranteed indebtedness applying Art 12541 4. WON Pablo Sarmiento is liable having executed the indemnity agreements in his capacity as acting general manager of universal HELD 1. YES Ratio The obligation of UNIVERSAL to pay the first installments on the purchase price of the six (6) reparations vessels was already due and demandable when the present action was commenced on August 10, 1962. Also due and demanded from UNIVERSAL were the first of the ten (10) equal yearly installments on the balance of the purchase price of the first 2 boats as well as the second pair of boats. The first accrued on May 8, 1962, while the second fell due on July 31,1962. Reasoning In the contract concerning the first 2 boats, the parties expressly agreed that the first installment representing 10% of the purchase price or P53,642.84 shall be paid within 24 months from the date of complete delivery of the vessel or on May 8, 1961, and the balance to be paid in ten (10) equal yearly installments. The amount of P56,597.20 due on May 8, 1962, which is also claimed to be a "first installment," is but the first of the ten (10) equal yearly installments of the balance of the purchase price. - The 24 months fixed by the law for the payment of the 'first' installment are the very dates stated in the aforementioned schedules for the payment of the respective '1st' installments. What is more, in view of said legal provision, the Commission had no authority to agree that the 1st installment shall be paid on any later date, and the Buyer must have been aware of this fact. 2. YES - Universal should award the premiums to the surety company. Reasoning The payment of premiums on the bonds to the surety company had been expressly undertaken by UNIVERSAL in the indemnity agreements executed by .it in favor of the surety company. The premium is the consideration for furnishing the bonds and the obligation to pay the same subsists for as long as the liability of the surety shall exist. 3. NO - Art 1254 is not applicable. Reasoning The rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several debts of the same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular, which in this case is the full and faithful compliance with the terms of the contract of conditional purchase and sale of reparations goods. 4. YES - He is liable. Reasoning He signed the indemnity agreement twice the first in his capacity as acting general manager and second in his individual capacity. Besides acknowledgment, stated that Pablo Sarmiento for himself and in behalf of Universal personally appeared before the notary and acknowledged that the document is his own free and voluntary act and deed. Disposition WHEREFORE, the judgment appealed from is hereby affirmed with the modification that the UNIVERSAL Deep-Sea Fishing Corporation is further ordered to
1

Where there is no imputation of payment made by either the debtor or creditor, the debt which is the most onerous to the debtor shall be deemed to have been satisfied

Obligations and Contracts page 36


pay the Manila Surety & Fidelity Co., Inc., the amount of P7,251.42 for the premiums and documentary stamps on the performance bonds. Appellants shall pay proportionate costs.

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conditional sale of real property be declared rescinded with forfeiture of all payments as liquidated damages; and b) the court order the payment of P1,000.00 back rentals since June 1980 and the eviction of private respondent. - TC granted the motion for writ of execution. - CA held that the Song Fo v Hawaian Ruling is applicable in the case at bar Recission will not be permitted for slight breach of contract. ISSUES 1. WON contract should be rescinded 2. WON respondent is liable for the P76,059.71 he attempted to pay to the petitioner but the petitioner did not accept (even though the 30-day period provided by R.A. 6552 has not yet expired) HELD 1. NO - SC agrees with the CA that it would be inequitable to cancel the contract of conditional sale and to have the amount of P101,550.00 (P148,126.97 according to private respondent in his brief) already paid by him under said contract, excluding the monthly rentals paid, forfeited in favor of petitioner, particularly after private respondent had tendered the amount of P76,059.71 in full payment of his obligation. - Private respondent had substantially complied with the terms and conditions of the compromise agreement. - Section 4 of RA No. 6552 which took effect on Sept14, 1972 provides as follows: "In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of the cancellation or the demand for rescission of the contract by a notarial act." - Petitioner demanded payment of the balance of P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after 30 days from receipt by private respondent of the notice of cancellation. Considering petitioner's motion for execution filed on November 7, 1980 as a notice of cancellation, petitioner could cancel the contract of conditional sale after 30 days from receipt by private respondent of said motion. Private respondent's tender of payment of the amount of P76,059.71 together with his motion for reconsideration on November 17, 1980 was, therefore, within the thirty-day period granted by R.A.6552. 2. YES - The tender made by private respondent of a certified bank manager's check payable to petitioner was a valid tender of payment. The certified check covered not only the balance of the purchase price in the amount of P69,059.71, but also the arrears in the rental payments from June to December, 1980 (P7,000.00) or a total of P76,059.71. Section 49, Rule 130 of the Revised Rules of Court provides that: "An offer in writing to pay a particular sum of money or to deliver a written instrument or specific property is, if rejected, equivalent to the actual production and tender of the money, instrument, or property." - However, although private respondent had made a valid tender of payment which preserved his rights as a vendee in the contract of conditional sale of real property, respondent did not follow it with a consignation or deposit of the sum due with the

MCLAUGHLIN V COURT OF APPEALS FERIA; October 10, 1986


FACTS - On Feb 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered into a contract of conditional sale of real property. Paragraph 1 of the deed of conditional sale fixed the total purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the execution of the deed; and b) the balance of P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that the balance shall bear interest at the rate of 1% per month to commence from Dec 1, 1976, until the full purchase price was paid. - On June 19, 1979, petitioner filed a complaint for the rescission of the deed of conditional sale due to the failure of Flores to pay the balance due on May 31, 1977. - On Dec 27, 1979, the parties submitted a Compromise Agreement on the basis of which the court rendered a decision on Jan 22, 1980. In said compromise agreement, Flores acknowledged his indebtedness to petitioner under the deed of conditional sale in the amount of P119,050.71, and the parties agreed that said amount would be payable as follows: a) P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in two equal installments on June 30, 1980 and Dec 31, 1980. - As agreed upon, Flores paid P50,000.00 upon the signing of the agreement and he also paid an "escalation cost" of P25,000.00. - Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay P1,000 pesos monthly rental beginning Dec 5, 1979 until the obligation is duly paid, for the use of the said property - Paragraphs 6 and 7 of the Compromise Agreement further state: -"That the parties are agreed that in the event the defendant (Flores) fails to comply with his obligations herein provided, the plaintiff (Mclaughlin) will be entitled to the issuance of a writ of execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality, defendant (Flores) hereby waives his right to appeal to (from) the Order of Rescission and the Writ of Execution which the Court shall render in accordance with the stipulations herein provided for. -"That in the event of execution all payments made by defendant (private respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated damages." - On Oct 15, 1980, McLaughlin wrote to private respondent demanding that he pay the balance of P69,059.71 on or before Oct 31, 1980. This demand included not only the installment due on June 30, 1980 but also the installment due on Dec 31, 1980. - On Oct 30, 1980, Flores sent a letter to petitioner signifying his willingness and intention to pay the full balance of P69,059.71 - On Nov 7, 1980, petitioner filed a Motion for Writ of Execution alleging that Flores failed to pay the installment due on June 1980 and that since June 1980 he had failed to pay the monthly rental of P1,000.00. Petitioner prayed that a) the deed of

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court. The Manager's Check tendered by private respondent on November 17, 1980 was subsequently cancelled and converted into cash, but the cash was not deposited with the court. - According to Article 1256 (Civil Code), if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated therein; Article 1257 provides that in order that the consignation of the thing (or sum) due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation; and Article 1258 provides that consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that the interested parties shall also be notified thereof. - Soco vs. Militante: "Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. - Although private respondent had preserved his rights as a vendee in the contract of conditional sale of real property by a timely valid tender of payment of the balance of his obligation which was not accepted by petitioner, he remains liable for the payment of his obligation because of his failure to deposit the amount due with the court. - Inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private respondent to deposit the same with the court in order to be released from responsibility. Since private respondent did not deposit said amount with the court, his obligation was not paid and he is liable in addition for the payment of the monthly rental of P1,000.00 from January 1, 1981 until said obligation is duly paid, in accordance with paragraph 3 of the Compromise Agreement. Upon full payment of the amount of P76,059.71 and the rentals in arrears, private respondent shall be entitled to a deed of absolute sale in his favor of the real property in question. Disposition. Decision of the CA AFFIRMED w/ the modifications: (a) Petitioner ordered to accept from private respondent the Metrobank Cashier's Check in the amount of P76,059.71 (b) Private respondent ordered to pay petitioner the rentals in arrears of P1,000.00 a month from Jan 1, 1981 until full payment; and (c) Petitioner ordered to execute a deed of absolute sale in favor of private respondent over the real property upon full payment of the amounts .

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were issued. This situation prompted Francisco to write Soco, the letter dated February 7, 1975 which the latter received. - On May 13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch requesting the latter to issue checks to Soco in the amount of Php 840.00 every 10th of the month, obviously for payment of his monthly rentals. This request of Francisco was complied with by Comtrust in its letter dated June 4, 1975. - Pursuant to his letter dated February 7, 1975, Francisco paid his monthly rentals to Soco by issuing checks of the Commercial Bank and Trust Company where he had a checking account. - These payments in checks were received because Soco admitted that prior to May 1977 defendant Francisco had been religiously paying the rental. - Soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than Php 3,000.00 which is much higher than what Francisco was paying to Soco, the latter felt that she was on the losing end so she tried to look for ways and means to terminate the contract. - In view of the alleged non-payment of rental of the leased premises from May, 1977, Soco, through her lawyer, sent a letter dated November 23, 1978 to Francisco serving notice to the latter to vacate the premises leased. - In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu. Despite this explanation, Soco filed this instant case of Illegal Detainer on January 8, 1979. - Soco alleged that she personally demanded form Francisco the May, June, July and August rentals but Francisco did not pay for the reason that he had no funds available at that time. - This allegation of Soco was denied by Francisco because per his instructions, the Commercial Bank and Trust Company issued checks in favor of Soco representing payments for monthly rentals for the months of May, June, July, August, 1977 as shown in Debit Memorandum issued by Comtrust. These payments are further bolstered by the certification issued by Comtrust dated October 29, 1979. - Soco was informed of the deposits made to the Clerk of Court through a letter of Atty. Pampio Abarientos dated June 9, 1977 (requesting Soco to claim the rental payment from Franciscos office otherwise the latter would be constrained to make a consignation) and July 6, 1977 (informing Soco that Francisco has consigned rental payment for May and June, 1977 to the Clerk of Court of City Court of Cebu) as well as in the answer of Francisco in Civil Case R-16261. -She was further notified of these payments by consignation in the letter of Atty. Menchavez dated November 28, 1978 (answer to Socos letter alleging non-payment; the letter proved Franciscos payment for November, 1978 as deposited in the Clerk of Court). - The City Court of Cebu ruled that the consignation was not valid and ordered Francisco to vacate immediately the leased premises, pay the rentals due, pay the plaintiffs attorneys fee, pay for damages and incidental litigation expenses and pay the costs. - The Court of First Instance reversed this judgment and found the consignation to be valid. Hence, this appeal. ISSUES 1. WON the lessee failed to pay the monthly rentals beginning May, 1977 up to the time the complaint for eviction was filed on January 8, 1979. (WON lessee made a valid tender of payment) 2. WON the consignation of the rentals was valid

SOCO V MILITANTE GUERRERO; June 28, 1983


FACTS - Soco and Francisco entered a contract of lease on January 17, 1973 whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of Php 800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. - Sometime later, Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts

Obligations and Contracts page 38


HELD 1 YES (NO) - The June and July, 1977 letters may be proof of tender of payment but only for the months they refer to. They are not proof of tender of payment of other or subsequent monthly rentals. The November, 1978 letter likewise is not a proof of tender of payment for the said month. It merely proves rental deposit for the particular month of November, 1978 and no other. - Furthermore, there is no factual basis for the lower courts finding that the lessee had tendered payment of the monthly rentals, thru his bank, citing the lessees letter requesting the bank to issue checks in favor of Soco in the amount of Php840.00 every 10th of each month and to deduct the full amount and service fee from his current account. It must be noted that the letter also requested said bank to notify them every time the check is ready so they may send somebody to get it. Evidently, it was the lessees duty to send someone to get the cashiers check from the bank and logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee failed to do. - Tender of payment must be made in lawful currency. While payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made the fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash. Thus, tender of a check to pay for an obligation is not a valid tender of payment thereof. 2. NO - For a consignation to be valid, its essential requisites must be complied with fully and strictly in accordance with the law, Articles 1256 to 1261, new Civil Code. That these articles must be accorded a mandatory construction is clearly evident from the very language of the codal provisions themselves which require absolute compliance with the essential requisites therein provided. - Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by laws. The debtor must show, (a) that there was a debt due; (b) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due, Article 1176; (c) that previous notice of the consignation had been given to the person interested in the performance of the obligation, Article 1177; (d) that the amount due was placed at the disposal of the court, Article 1178; (e) that after the consignation had been made the person interested was notified thereof, Article 1178. - Failure in any of these requirements is enough ground to render a consignation ineffective. Furthermore, without notice first announced to the persons interested in the fulfillment of the obligation, the consignation as payment is void. - In the case at bar, respondent Francisco failed to prove the following requisites of a valid consignation, (a) tender of payment of the monthly rentals to the lesser except that indicated in the June, 1977 letter (tender of payment already discussed above);

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(b) respondent lessee failed to prove the first notice to the lessor prior to consignation, except payment referred to in the June, 1977 letter. The lessee must give prior notice of consignation for each monthly rental; (c) respondent lessee likewise failed to prove the second notice, that is after consignation has been made, to the lessor except the consignation referred to in the May and June cashiers check. The lessee should give a notice of consignation of each deposit every monthly rental. The bank did not send notice to Soco that checks will be deposited and have actually been deposited in consignation with the Clerk of Court because no instructions were given by its depositor; (d) the respondent failed to prove actual deposit or consignation of the monthly rentals except the two cashiers checks previously mentioned. Not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case to prove actual deposit or consignation. The official receipts are the best proof of actual consignation. The court also found that the tenant only made the deposits due in court two years later and after the filing of the complaint for illegal detainer. The debit memorandums presented as evidence does not prove payment of rentals or deposits in court. These debit memorandums are merely internal banking practices or office procedures involving the bank and its depositor which is not binding upon a third person such as the lessor. What is important is whether the checks were picked up by the lessee as per the arrangement, wherein the lessee shall pick up the check issued by the bank to tender the same to the lessor. The lessee failed to prove that he complied with the arrangement

OCCEA V COURT OF APPEALS TEEHANKEE; October 29, 1976


FACTS - Tropical Homes filed complaint for modification of terms and conditions of its subdivision contract with petitioners due to increase in price of oil w/c are not w/in control. Accdg to them, it will result in situation where defendants would be unjustly enriched at expense of plaintiff. - They are invoking Art 1267 of Civil Code w/c states that a positive right is created in favor of obligor to be released fr performance when its performance has become so difficult as to be manifestly beyond the contemplation of the parties ISSUE WON the ground cited justifies modification of the subdivision contract HELD NO - Release could have been granted. However, the complaint seeks not release from contract but that the court modify the terms and conditions. - Court does not have authority to remake, modify, revise contract. Modification has no basis in law. Disposition Resolution is reversed and certiorari is granted.

NAGA TELEPHONE V COURT OF APPEALS NOCON; February 24, 1994


FACTS

Obligations and Contracts page 39


- Petitioner, Naga Telephone Co., Inc. (NATELCO), is a telephone company rendering local as well as long distance telephone service in Naga City. On November 1, 1977, it entered into a contract with Camarines Sur II Electric Cooperative, Inc. (CASURECO II), a corporation established for the purpose of operating an electric power service in the same city, for the use by the petitioner in the operation of its telephone service the electric light posts of the respondent. In consideration of such use, NATELCO agreed to provide the respondent with free use of ten telephone connections. - The contract between included, among others, a stipulation to the effect that the contract shall be as long as the party of the first part (NATELCO) has need for the electric post of the second part (CASURECO II) it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is forced to stop, abandoned its operation as a public service and it becomes necessary to remove the electric post. - After over ten years, the respondent filed on January 2, 1989 with the RTC of Naga City action against the petitioner for reformation of the contract on the grounds that it is too one sided in favor of the petitioner. The action also prayed that petitioner be ordered to pay for the use of electric posts which are not covered by the agreement. And finally, that CASURECO be indemnified no less than P100,000 arising out of the poor servicing of the ten telephone units which had caused it great inconvenience and damages. - The trial court found in favor of the respondents and ordered the reformation of the contract in the interest of justice and equity. As part of the ruling, the court ordered NATELCO to pay respondent a monthly rental of P10.00 per electric post being used from the time of the filing of the case. On the other and, CASURECO was ordered by the same trial court to pay NATELCO for the use and transfers of its telephone units at the same rate that the public are paying. - Appeal to the CA was made and the CA affirmed the ruling of the trial court but this time not based on the reformation but rather on the operation of Article 1267 of the Civil Code and on the potestative condition with rendered the condition void. - The CA held that as reformation only lie or may prosper when the contract failed to express the true intentions of the parties due to error or mistake, accident , or fraud and there is no allegation to this effect, the proper basis is the aforementioned Article. - The section on the continued use of the electric post for so long as these are needed by NATELCO was considered as being purely potestative on the part of the petitioner as it leaves the continued effectivity of the contract to NATELCOs sole and exclusive will. As held in previous jurisprudence, there must be mutuality and equality in any contract. - Hence the appeal. ISSUE WON the ruling of the CA is valid HELD Yes. The agreement between the parties has become too one sided in favor of the petitioner to the great disadvantage of the respondent. Continuing with the agreement will result in the petitioners unjust enrichment at the expense of the respondent.

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LAUREL; April 14, 1941
FACTS - Petitioner was a jewel appraiser in the pawnshop of Monte de Piedad from 1913 to May 1933. - On December 1932, he executed a chattel mortgage to secure the payment of deficiencies caused by his erroneous appraisal of jewels pawned to the appellee, amounting to toP14,679.07, with 6% interest from said date (paid by installments of P300/month). - To recover balance of P11,345.75 of aforementioned sum, Monte de Piedad filed a civil case against petitioner. - Petitioner, in his answer, denied all specifications therein and also denied under oath the genuineness of the execution of the alleged chattel mortgage attached thereto. He alleged that 1) the chattel mortgage was part of a scheme by respondent to cover for losses incurred in its pawnshop department; 2) a criminal action had been instituted against him where said chattel mortgage was presented but he was acquitted therein; and 3) the said acquittal was a bar to the civil case. Petitioners' Claim - By way of cross-complaint, the petitioner alleged 1) that the chattel mortgage was entered into by E. Marco for and in behalf of Monte de Piedad, without being authorized to do so by the latter; 2) that he was induced, through false representation, to sign said mortgage against his will; 3) that the chattel mortgage was based upon all nonexisting subject matter and nonexisting consideration; and 4) that the chattel mortgage was null and void ab initio. - By way of counterclaim, the petitioner alleged 1) that the payments made by him were made through deceit and consisted of P300 monthly deductions to his salary; 2) that he received P356.25 a month as expert appraiser and that he was separated arbitrarily at the end of May 1933 from plaintiff entity without lawful cause and one month notice and plaintiff failed to pay him his salaries for May and June 1933, in accordance with law; and 3) that due to the criminal and the present case, he suffered damages and losses both materially and in his reputation in the amount of at least P15,000.00 ISSUE WON the provisions of the chattel mortgage are contrary to law, morals and public policy rendering it ineffective and the principal obligation secured by it void HELD Ratio Courts should not rashly extend the rule which holds that a contract is void as against public policy. Reasoning The term public policy is vague and uncertain in meaning, floating and changeable in connotation. In absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property. The contract at bar does not militate against the public good. Neither does it contravene the policy of the law nor the established interests of the society.

GABRIEL V MONTE DE PIEDAD

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As to petitioners contention that the chattel mortgage lacks consideration, it was already established that it was executed voluntarily by the him to guarantee deficiencies resulting from his erroneous appraisal of the jewels. A preexisting admitted liability is a good consideration for a promise. The fact that the bargain is a hard one will not deprive it of its validity. A contract is to be judged by its character, and courts will look to the substance and not to the mere form of the transaction. The freedom of contract is both a constitutional and statutory right and to uphold this right, courts should move with all the necessary caution and prudence in holding contracts void. Disposition The petition is hereby dismissed and the judgment sought to be reviewed is affirmed, with costs against the petitioner.

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as to the personal friendship which existed between them; and Endencia was accustomed to seek, and was given the advice of Father Sanz and other members of his order - Fr Sanz was aware of the contract of 1902 (1st contract to sell); Sanz and the other members also knew about the 2nd contract executed in 1903 - When the Torrens certificate was finally issued in 1909 in favor of Endencia, she delivered it for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan Labarga - When La Corporation sold the San Jose Estate in 1909, some 2,368 head of cattle were removed to the estate of the corporation immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia - As Teodorica still retained possession of said property Father Sanz entered into an arrangement with her where large numbers of cattle belonging to the defendant corporation were pastured upon said land during a period extending from June 1, 1909, to May 1, 1914 - Daywalt sought to recover from corporation P24,000 as damages for the use and occupation of the land by reason of pasturing the cattle during the said period - TC fixed damages at P2,497 - Plaintiff appealed for higher damages; defendant did not question the fact of awarding damages per se in the first cause of action - Plaintiff, in a 2nd cause of action, also sought to recover from defendant P500,000, as damages on the ground that said corporation, for its own selfish purposes, unlawfully induced Endencia to refrain from the performance of her contract for the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained her in her defense to the action of specific performance which was finally decided in favor of the plaintiff in this court - Plaintiff claimed that in 1911, he, as the owner of the land which he bought from Endencia entered into a contract with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens certificate of title, however, the Torrens title was still in Labargas hands, the latter having refused to turn said title over to Endencia; thus, the contract could not be consummated - Plaintiff alleged that, by interfering in the performance of the contract in question and obstructing the plaintiff in his efforts to secure the certificate of title to the land, the defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said contract ISSUES 1. WON damages in the 1st cause of action should be increased 2. WON La Corporation who is not a party to the contract of sale of land will be liable for the damages by colluding with the vendor and maintaining her in the effort to resist an action for specific performance HELD 1. NO -The trial court estimated the rental value of the land for grazing purposes at 50 centavos per hectare per annum, and roughly adopted the period of four years as the time for which compensation at that rate should be made.

DAYWALT V LA CORP DE LOS PADRES AGUSTINOS RECOLETOS STREET; February 4, 1919


FACTS - In 1902, Teodorica Endencia, an unmarried woman Mindoro, executed a contract where she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, Bulalacaoose, MIndoro - It was agreed that a deed should be executed as soon as the title is perfected in the proceedings of the Court of Land Registration and a Torrens title procured therefore in Endencias name - A decree recognizing the right of Endencia as owner was entered in said court in August 1906, but the Torrens certificate was not issued until later - The parties made a new contract with a view to carrying their original agreement into effect; this new contract was executed in the form of deed of conveyance and is dated 16 Aug 1906 - The price is P4,000 and the area of the land enclosed in the boundaries is 452 hectares and a fraction - The second contract was not immediately carried into effect for the reason that the Torrens certificate was not yet obtainable - On Oct 3 1908, the parties entered into another agreement, replacing the old; said agreement bound Endencia to deliver the land, upon receiving the Torrens title, to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100 - The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings in the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries stated in the contract was about 1,248 hectares instead of 452 hectares as stated in the contract. Due to this, Endencia became reluctant to transfer the whole tract to the purchaser Daywalt; this led to litigation which upon appeal to the SC, Daywalt obtained a decree for specific performance; such decree appears to have become finally effective in early 1914 - The defendant, La Corporacion de los Padres Recoletos, is a religious corporation. The corporation was was at this time the owner of an estate in Mindoro known as the San Jose Estate and also of a property immediately adjacent to the land which Endencia had sold to Daywalt - Its representative, Fr. Sanz, had long been well acquainted with Endencia and exerted over her an influence and ascendency due to his religious character as well

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-The SC is of the opinion that the damages assessed are sufficient to compensate the plaintiff for the use and occupation of the land during the whole time it was used -There is evidence in the record strongly tending to show that the wrongful use of the land by the defendant was not continuous throughout the year but was confined mostly to the season when the forage obtainable on the land of the defendant was not sufficient to maintain its cattle, for which reason it became necessary to allow them to go over to pasture on the land in question 2. NO -To our mind a fair conclusion on this feature of the case is that Fr Juan Labarga and his associates believed in good faith that the contract could not be enforced and that Endencia would be wronged if it should be carried into effect -Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting one of the parties to evade performance, there is one proposition upon which all must agree. This is that the stranger cannot become more extensively liable in damages for the nonperformance of the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be recovered against the immediate party to the contract would lead to results at once grotesque and unjust. -The defendants liability cannot exceed Endencias (the principal of the contract) (Court proceeds to determine Endencias liability-- the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages in question are special damages which were not within contemplation of the parties when the contract was made, and secondly, because said damages are too remote to be the subject of recovery) -Plaintiff relies on English and US decisions which have ruled that a person who is a stranger to a contract may, by an unjustifiable interference in the performance thereof, render himself liable for the damages consequent upon non-performance, as recognized in Gilchrist v Cuddy -Upon the said authorities it is enough if the wrongdoer having knowledge of the existence of the contract relation in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial -If a party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third person with a bona fide purpose of benefiting the one who is under contract to go dissuades him from the step, no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract broken -No question can be made as to the liability of one who interferes with a contract existing between others by means which under known legal canons can be denominated an unlawful means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using such unlawful means is under all the authorities liable for the damage which ensues -Article 1902 of the Civil Code declares that any person who by an act or omission characterized by fault or negligence, causes damage to another shall be liable for the damage so done. The SC takes the rule to mean that a person is liable for damage done to another by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted legal standards. Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a

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somewhat uncongenial field in which to propagate the idea that a stranger to a contract may be sued for the breach thereof -Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of the contract except in the case especially contemplated in the second paragraph of the same article -If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the process must be accomplished by distinguishing clearly between the right of action arising from the improper interference with the contract by a stranger thereto, considered as an independent act generative of civil liability, and the right of action ex- contractu against a party to the contract resulting from the breach thereof

ROSENSTOCK V BURKE AVANCENA; September 26, 1924


FACTS - Burke owned a yacht known as Bronzewing. Elser, the plaintiff, negotiated for the purchase of the yacht. The plan of Elser was to create a yacht club and sell it afterwards for P120,000. P20,00 to be retained by Elser and P100,000 to be paid to Burke. Elser requested that a voyage be down to the south using the said yacht for purposes of advertising and creating opportunities for the sale. However, the yacht needed some repairs for the voyage thus making the plaintiff pay for such repair. Elser never accepted the offer for the purchase rather requested that the engine should replaced thus asking for a loan of P20, 000. After a talk with the bank manager Mr. Avery, they agreed that the yacht was to be sold to Elser for the amount of P80,000. Elser agreed but stated in the letter that he is in a position to entertain the purchase of the said yacht. The case focuses on the recovery of the money used to repair the yacht in the amount of P6,139.28 that is asked by Elser. The trial court ruled in favor of Elser and asked Burke to pay for P6,139.28 with legal interest of 6 percent per annum as well as the Cooper Company the sume of P1,730.84 with legal interest of 6 per cent. The plaintiff is then asked to comply with the conditions stated in the letter, hence, this appeal. ISSUES 1. WON the contract is valid and binding against the plaintiff 2. WON plaintiff is required to pay for the repairs of the yacht HELD 1. NO - The court looked at the intent of the plaintiff in using the language. Instead of using clear and simple words such as I offer to purchase, I want to purchase, or I am in the position to purchase he used the word entertain which implies that he is in a position to deliberate whether or not he would purchase such yacht. It is a mere invitation that is discretionary upon him. 2. YES - The fact that the defendant was to ask for nothing in exchange for the travel thus making the repair the only exchange that is expected. Disposition The petitioner is not obliged to buy the yacht but is ordered to pay for the repairs done.

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MALBAROSA V COURT OF APPEALS CALLEJO; April 30, 2003
FACTS - The petitioner Salvador Malbarosa was the president and general manager of Philtectic Corporation and an officer of other corporations belonging to the SEADC group of companies. SEADC assigned to him a 1982 model Mitsubishi Gallant Super Saloon car and was also issued membership certificates in the Architectural Center, Inc. - On January 8, 1990, Malabarosa tendered his resignation from all his positions in the SEADC group of companies and reiterating his request for the payment of his incentive compensation for 1989 which is approximately P395,000.00 according to him. - SEADC, through its President Louis Da Costa, accepted his resignation and entitled him to an incentive amounting to P251,057.67, which was lower than Malbarosa's expectation. It is to be satisfied by transferring to him the car assigned to him, which estimated fair market value is P220,000.00 and the membership share of SEADC subsidiary, Tradestar International Inc. in the Architectural Center, Inc. amounting to P60,000.00. - The respondent prepared the letter-offer dated march 14, 1990 and required Malbarosa to affix his conformity on the space provided therefor and the date thereof on the right bottom position of the letter. - On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the letter-offer for his consideration but he refused to sign it, instead said that he will review the offer first. More than two weeks have passed and Da Costa never heard feedback from Malbarosa. Thus he decided to finally withdraw his offer on April 3, 1996. However, Malbarosa transmitted the copy of the signed Letter-offer to respondent on April 7, 1996 and he alleged that he has affixed his signature on it since March 28, 1996 but failed to communicate his acceptance immediately. Procedure - Due to petitioner's refusal to return the vehicle after April 3, 1996, the respondent filed a complaint for recovery of personal property with replevin, with damages and atty's fee. - RTC issued a writ of replevin - CA affirmed RTC's decision ISSUES 1. WON there was a valid acceptance on Malbarosa's part of the March 14, 1990 Letter-offer of the respondent 2. WON there was an effective withdrawal by the respondent of said Letter-offer HELD 1. NO. - Article 1318 of CC says that There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract

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(3) cause of the obligation which is established In this case, there is no contract as Malbarosa failed to meet the requirements of a valid acceptance to wit: (a) may be express or implied (b) must be absolute, unconditional and without variance of any sort from the offer must be made known to the offeror (d) must be made in the manner prescribed by the offeror Reasoning Malabarosa communicated his acceptance only after the knowledge of revocation or withdrawal of his offer. He should have transmitted his conformity while the offer was subsisting. The time given to him was long enough. 2. YES - Implicit in the authority given to Philtectic Corporation to demand for and recover from the petitioner the subject car and to institute the appropriate action against him to recover possession of the car is the authority to withdraw the respondent's Letter-offer. Disposition Decision of the CA is AFFIRMED.

COQUIA V FIELDMEN S INSURANCE CO., INC. CONCEPCION; November 29, 1968


FACTS - On Dec. 1, 1961, The Fieldmens Insurance Co. issued in favor of the Manila Yellow Taxicab Co. a common carrier accident insurance policy, covering the period from Dec. 1, 1961 to Dec. 1, 1962. It was stipulated in said policy that the Company will indemnify the Insured in the event of accident against all sums which the Insured will become legally liable to pay for the death or bodily injury to any fare-paying passenger including the driver, conductor and/or inspector who is riding in the motor vehicle insured at the time of accident or injury. On Feb. 10, 1962, as a result of a vehicular accident in Pangasinan, Carlito Coquia, driver of one of the taxi cabs covered by said policy, was killed. The Insured filed therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not accept it. Because of the failure of the Company and the Insured to agree with respect to the amount to be paid to the heirs of the driver, the Insured and the parents of Carlito, the Coquias, finally brought this action against the Company to collect the proceeds of the aforementioned policy. The trial court rendered a decision sentencing the Company to pay to the plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and 2) the Insured has not complied with the provisions of the policy concerning arbitration based on Sec 17 of the policy reading: If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to

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any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained. ISSUE WON the Coquias have cause of action HELD YES Ratio If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. Reasoning Although in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of Art. 1311 of the Civil Code of the Philippines. This is but a restatement of a well-known principle concerning contracts pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. The policy in question provides, inter alia, that the Company will indemnify any authorized driver who is driving the motor vehicle of the Insured and, in the event of death of said driver, the Company shall, likewise, indemnify his personal representatives. Thus, the policy is typical of contracts pour autrui, this characteristic being made more manifest by the fact that the deceased driver, paid fifty percent of the premiums, which were deducted from his weekly commissions. Under these conditions, the Coquias who, admittedly are the sole heirs of the deceased have a direct cause of action against the Company, and, since they could have maintained this action themselves, without the assistance of the Insured, it goes without saying that they could and did properly join the latter in filing the complaint hereon. The second defense cannot stand because none of the parties invoked this section, or made any reference to arbitration, during the negotiations preceding the institution of the present case. Their aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration. The test for determining whether there has been a waiver in a particular case is as follows: "Any conduct of the parties inconsistent with the notion that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and estop the party charged with such conduct from claiming its benefits". Disposition Decision appealed from is affirmed.

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Asiain indicated the tract of land in question, affirming that it contained between 25 and 30 hectares, and that the crop of sugar cane then planted would produce not less than 2,000 piculs of sugar. But as Jalandoni remained doubtful as to the extent of the land and as to the amount of the crop on it, Asiain wrote Jalandoni a letter assuring the latter of the accuracy of his assessment of the area and the amount of sugar it could produce and that in case it turned out to be inaccurate, he would be willing to compensate for it. - Sometime later, in July of the same year, Asiain and Jalandoni having met at Iloilo, they prepared and signed the memorandum-agreement where Asiain spouses promised to sell to Jalandoni parcels of land containing 25 hectares more or less and producing an estimated crop of 2000 piculs. During all of the period of negotiations, Jalandoni remained a doubting Thomas and was continually suggesting that, in his opinion, the amount of the land and of the crop was overestimated. Asiain on his part always gave assurances in conformity with the letter which he had written intended to convince Jalandoni that the latter was in error in his opinion. As a result, the parties executed the another agreement reaffirming their previous agreement and that in case the vendor should withdraw from the contract and desist from signing the document of final sale, the purchaser shall have the right to collect from said vendor all such amount as may have been advanced on account of this sale, with an indemnity of P15,000 as penalty. In case it is the purchaser who should withdraw from the contract of sale, then he will lose all such amount as may have been paid in advance on account of, this transaction. - Once in possession of the land, Jalandoni did two things. He had the sugar cane ground in La Carlota Sugar Central with the result that it gave an output of 800 piculs and 28 cates of centrifugal sugar. When opportunity offered, he secured the certificate of title of Asiain and procured a surveyor to survey the land. According to this survey, the parcel in question contained an area of 18 hectares, 54 ares, and 22 centiares. - Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance unpaid of P25,000. To recover the sum of P25,000 from Jalandoni or to obtain the certificate of title and the rent from him, action was begun by Asiain in the Court of First Instance of Occidental Negros. To the complaint, an answer and a countercomplaint were interposed by the defendant, by which it was asked that he be absolved from the complaint, that the contract be annulled, both parties to return whatever they had received, and that he recover from the plaintiff the sum of P3,600 annually as damages. In a well-reasoned decision, the Honorable Eduardo Gutierrez David, Judge of First Instance, declared null the document of purchase and its related memorandum; absolved Jalandoni from the payment of P25,000; ordered the Asiain to return to the defendant the sum of P30,000 with legal interest from July 12, 1920; ordered the Jalandoni to turn over to the plaintiff the tract of land and the certificate of title No. 468, and absolved the Asiain from the counter-complaint, without special finding as to the costs. It is from said judgment that the plaintiff has appealed. - The plaintiff contends that in the case of Irureta Goyena vs. Tambunting ([1902], 1 Phil., 490), the rule announced in the syllabus is: "An agreement to purchase a certain specified lot of land at a certain specified price is obligatory and enforceable regardless of the fact that its area is less than that mentioned in the contract." ISSUE

ASIAIN V JALANDONI MALCOLM; October 23, 1923


FACTS - Luis Asiain, the plaintiff-appellant in this case, is the owner of the hacienda known as "Maria" situated in the municipality of La Carlota, Province of Occidental Negros, containing about 106 hectares. Benjamin Jalandoni, the defendant-appellee, is the owner of another hacienda adjoining that of Asiain. Asiain and Jalandoni happening to meet on one of the days of May, 1920, Asiain said to Jalandoni that he was willing to sell a portion of his hacienda for the sum of P55,000. With a wave of his hand,

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1. WON the lower court erred in nullifying the document of purchase and its related memorandum on the ground of mutual mistake under the Civil Code and thereafter restoring the parties to their original position. 2. WON the stipulation more or less saves the contract from being declared null and void. HELD 1. NO Ratio Mutual mistake of the contracting parties to a sale in regard to the subjectmatter of the sale which is so material as to go to the essence of the contract, is a ground for relief and rescission. Reasoning A comparative study of the American authorities throws considerable light on the situation. In volume 39 Cyc., page 1250, under the subject "Vendor and Purchaser," is found the following: "If, in a contract of sale the quantity of the realty to be conveyed is indicated by a unit of area, as by the acre, a marked excess or deficiency in the quantity stipulated for is a ground for avoiding the contract. Since it is very difficult, if not impossible, to ascertain the quantity of a tract with perfect accuracy, a slight excess or deficiency does not affect the validity of the contract. "Where, however, the contract is not for the sale of a specific quantity of land, but for the sale of a particular tract, or designated lot or parcel, by name or description, fix a sum in gross, and the transaction is bona fide, a mutual mistake as to quantity, but not as to boundaries, will not generally entitle the purchaser to compensation, and is not ground for rescission. But it is well settled that a purchaser of land, when it is sold in gross, or with the description, 'more-or less,' or 'about,' does not thereby ipso-facto take all risk of quantity in the tract. If the difference between the real and the represented quantity is very great, both parties act obviously under a mistake which it is the duty of a court of equity to correct.' And relief will be granted when the mistake is so material that if the truth had been known to the parties the sale would not have been made." - A mutual mistake as to the quantity of the land sold may afford ground for equitable relief. As has been said, if, through gross and palpable mistake, more or less land should be conveyed than was in the contemplation of the seller to part with or the purchaser to receive, the injured party would be entitled to relief in like manner as he would be for an injury produced by a similar cause in a contract of any other species. And when it is evident that there has been a gross mistake as to quantity, and the complaining party has not been guilty of any fraud or culpable negligence, nor has he otherwise impaired the equity resulting from the mistake, he may be entitled to relief from the technical or legal effect of his contract, whether it be executed or only executory. It has also been held that where there is a very great difference between the actual and the estimated quantity of acres of land sold in gross, relief may be granted on the ground of gross mistake. - EXCEPTION TO MUTUAL MISTAKE. Relief, however, will not be granted as a general rule where it appears that the parties intended a contract of hazard, as where the sale is a sale in gross and not by acreage or quantity as a basis for the price; and it has been held that a mistake on the part of the vendor of a town lot sold by description as to number on the plat, as to its area or dimensions, inducing a sale thereof at a smaller price than he would, have asked had he been cognizant of its size, not in any way occasioned or concealed by conduct of the purchaser, constitutes no ground for the rescission of the contract. The apparent conflict and

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discrepancies in the adjudicated eases involving mistakes as to quantity arise not from a denial of or a failure to recognize the general principle, but from the difficulty of its practical application in particular eases in determining the questions whether the contract was one of hazard as to quantity or not and whether the variance is unreasonable. The relative extent of the surplus or deficit -cannot furnish, per se, an infallible criterion in each caw for its determination, but each case must be considered with reference not only to that but its other peculiar circumstances. The conduct of the parties, the value, extent, and locality of the land, the date of the contract, the price, and other nameless circumstances, are always important, and generally decisive. In other words, each case must depend on its own peculiar circumstances and surroundings. - "The rule denying relief in ease of a deficit or an excess is frequently applied in equity as well as at law, but a court of equity will not interfere on account of either a surplus or a deficiency where it is clear that the parties intend a contract of hazard, and it is said that although this general rule may not carry into effect the real intention of the parties. It is calculated to prevent litigation. From an early date courts of equity under their general jurisdiction to grant relief on the ground of mistake have in case of a mistake in the estimation of the acreage in the tract sold and conveyed interposed their aid to grant relief to the vendor where there was a large surplus over the estimated acreage, and to the purchaser where there was, a large deficit. For the purpose of determining whether relief shall be granted the courts have divided the cases into two general classes: (1) Where the sale is of a specific quantity which is usually denominated a sale by the acre; (2) where the sale is of a specific tract by name or description, which is usually called a sale in gross. * **" "Sales in gross for the purpose of equitable relief may be divided into various subordinate classifications; (1) sales strictly and essentially by the tract, without reference in the negotiation or in the consideration to any designated or estimated quantity of acres; (2) sales of the like in which, though a supposed quantity by estimation is mentioned or referred to in the contract, the reference was made only for the purpose of description, and under such circumstances or in such a manner as to show that the parties intended to risk the contingency of quantity, whatever it might be, or how much it might exceed or fall short of that which was mentioned in the contract; (3) sales in which it is evident, from extraneous circumstances of locality, value, price, time, and the conduct and conversations of the parties, that they did not contemplate or intend to risk more than the usual rates of excess or deficit in similar cases, or than such as might reasonably be calculated on as within the range of ordinary contingency; (4) sales which, though technically deemed and denominated sales in gross, are in fact sales by the acre, and so understood by the parties. Contracts belonging to either of the two first mentioned classes, whether executed or executory, should not be modified by the chancellor when there has been no fraud. But in sales of either the third or fourth kind, an unreasonable surplus or deficit may entitle the injured party to equitable relief, unless he has, by his conduct, waived or forfeited his equity. * * * " - Coordinating more closely the law and the facts in the instant case, we reach the following conclusions: This was not a contract of hazard. It was a sale in gross in which there was a mutual mistake as to the quantity of land sold and as to the amount of the standing crop. The mistake of fact as disclosed not alone by the

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terms of the contract but by the attendant circumstances, which it is proper to consider in order to throw light upon the intention of the parties, is, as it is sometimes expressed, the efficient cause of the concoction. The mistake with reference to the subject-matter of the contract is such that, at the option of the purchaser, it is rescindable. Without such mistake the agreement would not have been made and since this is true, the agreement is inoperative and void. It is not exactly a case of over reaching on the plaintiff's part, or of misrepresentation and deception, or of fraud, but is more nearly akin to a bilateral mistake for which relief should be granted. Specific performance of the contract can therefore not be allowed at the instance of the vendor. 2. NO. Ratio The use of "more or less" or similar, words in designating quantity covers only a reasonable excess or deficiency and that when a vendee of land enters into a contract of sale with the vendor with the description "more or less," he does not thereby ipso facto take all risk of quantity in the land. Reasoning The memorandum-agreement between Asiain and Jalandoni contains the phrase "more or less." It is the general view that this phrase or others of like import, added to a statement of quantity, can only be considered as covering inconsiderable or small differences one way or the other, and do not in themselves determine the character of the sale as one in gross or by the acre. The use of this phrase in designating quantity covers only a reasonable excess or deficiency. Such words may indeed relieve from exactness but not from gross deficiency. - The apparent conflict and discrepancies in the adjudicated cases arise not from a denial of or a failure Ito recognize the general principles. These principles, as commonly agreed to, may be summarized as follows: A vendee of land when it is sold in gross or with the description "more or less" does not thereby ipso facto take all risk of quantity in the land. The use of "more or less" or similar, words in designating quantity covers only a reasonable excess or deficiency. Disposition The ultimate result is to put the parties back in exactly their respective positions before they became involved in the negotiations and before accomplishment of the agreement. This was the decision of the trial judge and we think that decision conforms to the facts, the law, and the principles of equity. Judgment is affirmed, without prejudice to the right of the plaintiff to establish in this action in the lower court the amount of the rent of the land pursuant to the terms of the complaint during the time the land was in the possession of the defendant, and to obtain judgment against the defendant for that amount, with costs against the appellant. So ordered.

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through a deed of absolute sale the said properties. Apparently, the document provided that Dumasug, in exchange of P333.49 received from Modelo, agreed to convey to Modelo the properties. - Dumasug then filed in the CFI a petition to declare null and void and of no effect the document/ contract allegedly entered into by her and Modelo. CFI ruled in her favor, ordering Modelo to restore the animal and the lands, pay any loss and damages to Dumasug, and pay the costs of the suit. Modelo appealed. - Respondent (Modelo): the lands and animal were payment from Dumasug for debts incurred by her on several occasions, in the amounts of P101.87 and P46.77 (money used as attorneys fees and traveling expenses in the earlier suit) ISSUE WON the instrument of purchase of two parcels of land and the work animal is null and void HELD YES, the instrument is null and void for lack of consent Ratio The consent given in this case was a consent given by mistake, thus the document is null and void, as provided in Article 1265 and 1266 of the Civil Code. Reasoning The error (in consent) invalidates the contract, as it goes into the very substance of the thing which is the subject matter of the contract. Had she understood the contents of the said document, she would neither have accepted nor authenticated it by her mark. It is undeniable that she was deceived in order to obtain her consent. The document is of no value whatever for the reason that it is not the one which, of her own free will, she authenticated with her mark. The consent given by plaintiff being null and void, the document is consequently also null, void, and of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which prescribes that: "when the nullity of an obligation has been declared, the contracting parties shall restore to each other the things which have been the object of the contract with their fruits, and the value with its interest." Disposition Judgment affirmed .

MARTINEZ V HSBC MORELAND; February 19, 1910


FACTS - Under the contract, she agreed to a conveyance of several properties to Aldecoa & Co. and the Hongkong and Shanghai Bank as settlement of their claims against her and her husband who in order to escape criminal charges had escaped to Macao, a territory no covered by any extradition treaty. - It was established at the trial that during the period of negotiation, representations were made to her by the defendants and concurred in by her lawyers, that if she assented to the requirements of the defendants, the civil suit against herself and her husband would be dismissed and the criminal charges against the latter withdrawn; but if she refused, her husband must either spend the rest of his life in Macao or be criminally prosecuted. ISSUE WON there was duress, which would invalidate the contract

DUMASUG V MODELO TORRES; March 16, 1916


FACTS - Andrea Dumasug cannot write (no mention if she can read). Modelo persuaded Dumasug to affix her mark (since she didnt know how to write) on a document, falsely and maliciously making her believe that it contained an engagement on the part of Dumasug to pay Modelo a certain sum of money to pay for the expenses of an earlier lawsuit wherein Modelo gave advice to Dumasug . However, 3 months after the execution of the document, Modelo took possession of Dumasugs carabao and two parcels of land, and notified Dumasug that she had conveyed to him

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HELD - In order that this contract can be annulled it must be shown that the plaintiff never gave her consent to the execution thereof. It is however necessary to distinguish between real duress and the motive which is present when one gives his consent reluctantly. A contract is valid even though one of the parties entered into it against his wishes and desired or even against his better judgment. Contracts are also valid even though they are entered into by one of the parties without hope of advantage or profit. - A contract whereby reparation is made by one party for injuries which he has willfully inflicted upon another is one which from its nature is entered into reluctantly by the party making the reparation. He is confronted with a situation in which he finds the necessity of making the reparation or of taking the consequences, civil or criminal, of his unlawful acts. He makes the contract of reparation with extreme reluctance and only by the compelling force of the punishment threatened. Nevertheless, such contract is binding and enforceable. - It is disputed that the attorneys for the plaintiff in this case advised her that, from the facts which they had before them, facts of which she was fully informed, her husband had been guilty of embezzlement and misappropriation in the management of the business of Aldecoa & Co. and that, in their judgment, if prosecuted therefore, he would be convicted. In other words, under the advice of her counsel, the situation was so presented to her that it was evident that in signng the agreement, she had all to gain and nothing tolose, whereas in refusing to sign said agreement, she had all to lose and nothing to gain. In the one case, she would lose her property to save her husband. In the other, she would lose her property and her husband, too. The argument this presented to her by her attorneys addressed itself to judgment and not to fear. If appealed to reason and not to passion. It asked her to be moved by common sense and not by love of family. It spoke to her own interests as much as to those of her husband. The argument went ot her financial interests as well as to those of the defendants. It spoke to her business judgment as well as to her wifely affections. - From the opinions of her attorneys as they were presented to her upon facts assumed by all to be true, the SC did not see how she could reasonably have reached a conclusion other than that which she did reach. It is of no consequence here whether, as a matter of law, she would have been deprived of her alleged interests in the properties mentioned in the manner described and advised by her attorneys. The important thing is that she believed and accepted their judgment and acted upon it. The question is not did she make a mistake; but did she consent; not was she wrongly advised, but was she coerced; not was she wise, but was she under duress. Disposition - From the whole case SC was of the opinion that the finding of the court below that the plaintiff executed the contract in suit of her own free will and choice and not from duress is fully sustained by the evidence. - The judgment of the court below was affirmed with cost against the appellant.

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- The annulment of a deed of sale regarding parcels of land was sought on the ground that the two of the four parties (Domingo Mercado and Josefa Mercado) thereto were minors (under the Civil Code), 18 and 19 years old, respectively on the date the instrument was executed. In the deed of sale, however, these minors stated that they were of legal age at the time they executed and signed it; and they made the same manifestation before the notary public when the document was prepared. ISSUE WON the minors Domingo and Josefa misrepresented themselves in the sale of the real estate thus making the deed of sale valid HELD YES - The courts have laid down the rule that the sale of real estate, effected by minors who have already passed the ages of puberty and adolescence and are near the adult age, when they pretend to have already reached their majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse themselves from compliance with the obligation assumed by them or seek their annulment. This doctrine is entirely in accord with the provisions of our law on estoppel. Disposition CFI ruling affirmed. Petition dismissed.

BRAGANZA V VILLA ABRILLE CONCEPCION; May 14, 1954


FACTS - Rodolfo and Guillermo Braganza, received from Villa Abrille, as a loan, on October 30, 1944 P70,000 in Japanese war notes. They promised to pay him P10,000 "in legal currency of the P. I. two years after the cessation of the present hostilities or as soon as International Exchange has been established in the Philippines", plus 2 % per annum. Payment was not made, thus, Villa Abrille sued them. - Rodolfo and Guillermo claimed to have received P40,000 only. They also claim that they were minors when they signed the promissory note. The trial court ordered them solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 % interest from October 30, 1944 ISSUE WON the minors are liable for the said loan HELD NO - From the minors' failure to disclose their minority in the same promissory note they signed, it does not follow as a legal proposition, that they will not be permitted thereafter to assert it. They had no juridical duty to disclose their inability. - In order to hold infant liable, however, the fraud must be actual and not constructure. It has been held that his mere silence when making a contract as to age does not constitute a fraud which can be made the basis of an action of deceit

MERCADO V ESPIRITU TORRES; December 1, 1917


FACTS

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- However, they are not entirely absolved from monetary responsibility. They shall make restitution to the extent that they have profited by the money they received. (Art. 1340) Disposition Decision reversed

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Reasoning The history and relationship of trust, interdependence and intimacy between the late Rafael and Federico is an unmistakable token of simulation. It has been observed that fraud is generally accompanied by trust. - The late Rafael insisted that the sale to him of his uncle's property was in fact a "dacion en pago" in satisfaction of Federico's unpaid attorney's fees. But such claim cannot prosper. He did not even tell Federico that he considered such to be his fee. Federico was also liquid enough to pay him. - All circumstances point to the conclusion that such was simulated transaction. Ratio A contract of purchase and sale is void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor two veritable legal presumptions: first, that there was sufficient consideration for the contract 45 and, second, that it was the result of a fair and regular private transaction.46 These presumptions if shown to hold, infer prima facie the transaction's validity, except that it must yield to the evidence adduced. Disposition WHEREFORE, the Amended Decision promulgated by the Court of Appeals on December 15, 1993 in CA-G.R. CV No. 08179 is hereby AFFIRMED IN TOTO.

SUNTAY V CA HERMOSISIMA; December 19,1995


FACTS - Federico Suntay is a wealthy land owner and rice miller from Bulacan. He owned a 5,118 square-meter land in Bulacan. On it was a rica mill, a warehouse and other improvements. - Federico applied as a miller-contractor of the then National Rice and Com Corporation (NARIC). His application was prepared by his nephew lawyer Rafael Suntay. But it was disapproved because at that time he was tied up w/ several unpaid loans. - For purposes of circumvention, he had thought of allowing Rafael to make the application for him. Rafael prepared an absolute deed of sale whereby Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel of land with all its existing structures. - Federico claims that the sale was merely fictitious/simulated and has been executed only for purposes of accommodation. - Less than three months after this conveyance, Rafael sold it back to Federico for the same amount of P20,000. It was notarized by Atty. Herminio V. Flores. - However, the said document was not the said deed of sale but a certain "real estate mortgage of a parcel of land to secure a loan of P3,500.00 in favor of the Hagonoy Rural Bank. It could not be found in the notarial register as well - Federico through his new counsel requested that Rafael have TCT No. T-36714 so that he can have the counter deed of sale in favor registered in his . But the request was turned down. - So Federicos counsel filed a case in the CFI. The trial court upheld the validity and genuineness of the deed of sale executed by Federico in favor of Rafael, but it ruled that the counter-deed, executed by Rafael in favor of Federico, was simulated and without consideration, hence, null and void ab initio. (it was not dated, not notarized and above all it has no consideration because plaintiff did not pay defendant the consideration of the sale in the sum of P20,000.00) - CA ruled the same. BUT it then reversed itself upon petition and said that the first Deed of Sale was a mere accommodation arrangement executed without any consideration and therefore a simulated contract of sale. Considering the ff. circumstances: > the 2 instruments were executed closely one after the other > the close relationship bet. the parties >the value and location of the property purportedly sold . (P20,000) > Rafael also never assumed ownership nor did eh gather any benefit. - Rafael Suntay on the other hand insists that the transaction was a veritable sale. ISSUE WON the deed of sale executed in favor of Rafael Suntay was valid HELD NO

SONGCO V SELLNER STREET; December 4, 1917


FACTS - In Dec. 1915, the defendant George Sellner was the owner of a sugar farm at FloridaBlanca, Pampanga adjacent to another sugar farm owned by plaintiff Lamberto Songco. Sellner wished to mill his cane at a sugar central in nearby Dinalupijan but the owners of the mill would not promise to take it. Sellner found out that the central was going to mill Songcos cane and decided to buy it and run his own cane at the same time the latters cane was to be milled. Sellner also desired to get a right of way over Songcos land for converting his own cane to the central. He bought the cane for an agreed sum of P12,000 and executed 3 promissory notes of P4,000, paying for two; an action was instituted to recover the 3rd for which a judgment was rendered in favor of the plaintiff and to which defendant has appealed. - The defendant denied all allegations of the complaint, further asserting by way of special defense that the defendant obtained the note by means of fraudulent representations. The note, on which the action was brought, was admitted in court as evidence. ISSUES 1. WON the court erred in admitting the note as evidence even though its genuineness and due execution were not proven 2. WON plaintiff is guilty of false representation HELD 1. NO - Under Sec 103 of the Code of Civil Procedure, it is necessary that the genuineness and due execution of a written instrument be specifically denied by the defendant under oath before such an issue is raised. The answer to the effect that the note was procured by fraudulent representation is actually an admission of its

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genuineness and due execution since it seeks to avoid the instrument on a ground not affecting either. Furthermore, the defendant admits the notes execution in his answer. 2. NO - Songco estimated that his cane would produce 3,000 piculs of sugar but instead produced 2,017. Although Songco had grossly exaggerated his estimate, the court finds that Sellner is still bound to pay the price stipulated. Matters of opinion, judgment, probability or expectation are not actionable deceits and cannot void a contract. Jurisprudence dictates that one may not rely on a vendors misrepresentations as to the value of his goods if that person is given an ample opportunity to investigate/examine the goods. Using expert knowledge to take advantage of the ignorance of another may be grounds for relief; however, the court finds Sellners relative inexperience lacking. - An incident to the action was that the plaintiffs sued out an attachment against the defendant on the ground that he was disposing of his property in fraud of his creditors. This was refuted upon a showing that defendant had not attempted to convey away his property, and thus damages were awarded to him equal to the cost of procuring the dissolution of the attachment. The defendant assigns error to the courts refusal to award further damages, claiming that the attachment caused a creditor to withhold credit, forcing him to sell sugar at lower prices and losing money. The damages were remote and speculative; the plaintiff cannot be held accountable for such complications leading to said damages. Disposition From what has been said it follows that the judgment of the court below must be affirmed, with costs against the appellant.

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- Sheriff required Gutierrez Hermanos to present a bond for his protection, and proceeded to sell the steamship to the Gutierrez Hermanos. - Oct. 19, 1911- plaintiff began present action: (1) for the issuance of a preliminary injunction to prevent the sale of said steamship, (2) for the declaration that the plaintiff is the owner of the steamship and is that the defendant be required to restore the same to the plaintiff and to pay P10,000 in damages for its detention - Trial court found in favor of defendant. Complaint was dismissed. From that judgment this appeal is taken. ISSUES WON the sale from Oria Hermanos to Manuel Oria y Gonzalez is fraudulent against the creditors of Oria Hermanos, making the transfer of the steamship void as to the creditors, and as to Gutierrez Hermanos in particular HELD YES Ratio A conveyance is fraudulent if it is a trick and contrivance to defeat creditors, or if it conserves to the debtor a special right. If defective in either of these particulars, although good between the parties involved in the conveyance, it is voidable as to creditors. Reasoning The following are some of the circumstances attending sales which have been denominated by the courts badges of fraud: > the fact that the consideration of the conveyance is fictitious/inadequate > a transfer made by a debtor after suit has been begun, and while it is pending against him > a sale upon credit by an insolvent debtor > evidence of large indebtedness or complete insolvency > the transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly embarrassed financially > the fact that the transfer is made between father and son, when there are present other of the above circumstances > the failure of the vendee to take exclusive possession of all the property - The case at bar presents every one of the badges of fraud above enumerated. Tested by the inquiry, does the sale prejudice the rights of creditors, the result is clear. The sale in the form in which it was made leaves the creditors substantially without recourse. The property of the company is gone, its income is gone, the business itself is likely to fail, the property is being dissipated, and is depreciating in value. As a result, even if the claims of the creditors should live twelve years and the creditors themselves wait that long, it is more than likely that nothing would be found to satisfy their claims at the end of the long wait - Since the record shows that there was no property with which the judgment in question could be paid, the defendants were obliged to resort to and levy upon the steamer in suit. The court below was correct in finding the sale fraudulent and void as to Gutierrez Hermanos in so far as was necessary to permit the collection of its judgment. As a corollary, the court below found that the evidence failed to show that the plaintiff was the owner or entitled to the possession of the steamer in question at the time of the levy and sale complained of, or that he was damaged thereby. Defendant had the right to make the levy and test the validity of the sale in that way, without first resorting to a direct action to annul the sale. The creditor may attack the sale by ignoring it and seizing under his execution the property, or any necessary portion thereof, which is the subject of the sale.

ORIA V MCMICKING MORELAND; January 18, 1912


FACTS - Aug. 1909- Gutierrez Hermanos brought action against Oria Hermanos for the recovery of P147,204.28 (CASE NO. 7289) - Mar. 1910- Gutierrez Hermanos began another action against Oria Hermanos for recovery of P12,318.57 (CASE NO. 7719) - Apr. 1910- members of the company of Oria Hermanos dissolved their relations and entered into liquidation - The managing partner in liquidation Tomas Oria y Balbas entered into contract with the plaintiff in this case Manuel Oria Gonzalez - Contract was for the purpose of selling and transferring to the plaintiff all the property owned by Oria Hermanos. - Among goods transferred: Steamship Serantes, the subject of this litigation - Sep. 17, 1910- Case 7719 resolved by CFI in favor of Gutierrez, against Oria. Affirmed by SC. - Sheriff demanded that Tomas Oria y Balbas make payment of the judgment. -Tomas replied there were no funds to pay - Sheriff levied upon Steamship Serantes, took possession, announced it for sale at public auction. - 3 days before the sale, the plaintiff in this action presented to the sheriff a written statement claiming to be the owner of the Steamship, to have the right of possession by reason of the sale to him by Oria Hermanos of all the property of said company, including the steamer Serantes

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Disposition Judgment affirmed.

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ISSUES 1. WON donation was predicated upon an illicit causa 2. WON the in pare delicto rule is applicable to the case 3. WON heirs of Lopez can plead illegality of deed of donation 4. WON Liguez is entitled to the land donated by Lopez HELD 1. YES Ratio The motive may be regarded as causa when it predetermines the purpose of the contract. The cohabitation was an implied condition to the donation, and being unlawful, it necessarily tainted the donation itself. Reasoning Art 1274 is not applicable because liberality of the donor therein is deemed causa in those contracts that are of "pure" beneficence. These are contracts designed solely and exclusively to procure the welfare of the beneficiary, without any intent of producing any satisfaction for the donor. Art 1274 also provides that in remuneratory contracts, the consideration is the service or benefit for which the remuneration is given; causa is not liberality in these cases because the contract or conveyance is not made out of pure beneficence, but "solvendi animo." - In making the donation, the late Lopez was not moved exclusively by the desire to benefit Conchita Liguez, but also to secure her cohabiting with him, so that he could gratify his sexual impulses. This is clear from the confession of Lopez to the witnesses Rodriguez and Ragay, that he was in love with appellant, but her parents would not agree unless he donated the land in question to her. Therefore, the donation was but one part of an onerous transaction (at least with appellant's parents) that must be viewed in its totality. - Appellant sought to differentiate between the alleged liberality of Lopez, as causa for the donation in her favor, and his desire for cohabiting with appellant, as motives that impelled him to make the donation. She quoted from Manresa and the jurisprudence of this Court on the distinction that must be maintained between causa and motives. However, Manresa himself expressly exempted from the rule those contracts that are conditioned upon the attainment of the motives of either party. 2. NO Reasoning It cannot be said that both parties had equal guilt when we consider that as against Lopez, who was a man advanced in years and mature experience, the appellant was a mere minor, 16 years of age, when the donation was made. There is no finding made by the Court of Appeals that she was fully aware of the terms of the bargain entered into by and Lopez and her parents. Her acceptance in the deed of donation did not necessarily imply knowledge of conditions and terms not set forth therein. The facts are of the case are actually more suggestive of seduction than of immoral bargaining on the part of appellant. - Memo auditor propriam turpitudinem allegans. The rule that parties to an illegal contract, if equally guilty, will not be aided by the law but will both be left where it finds them, has been interpreted by this Court as barring the party from pleading the illegality of the bargain either as a cause of action or as a defense. 3. NO Reasoning The deed of donation is regular on its face, and to defeat its effect, the appellees must plead and prove that it is illegal. But such plea on the part of the

LIGUEZ V COURT OF APPEALS REYES; December 18, 1957


FACTS - Conchita LIGUEZ filed a complaint against the widow and heirs of the late Salvador LOPEZ so as to recover a parcel of 51.84 hectares of land, situated in barrio BogacLinot, in Mati, Davao. She claimed to be its legal owner, pursuant to a deed of donation of said land, executed in her favor by the owner, Salvador Lopez, on 18 May 1943. - The defense interposed was that the donation was null and void for having an illicit causa or consideration, which was the plaintiff's entering into marital relations with Salvador Lopez, a married man. Also, the property had already been adjudicated to the appellees as heirs of Lopez. > Findings of the Court of Appeals: - The deed of donation was prepared by the Justice of the Peace of Mati, Davao, before whom it was signed and ratified on the said date. At that time, Liguez was a minor and only 16 years of age. When the donation was made, Lopez had been living with the parents of Liguez for barely a month. The donation was made in view of the desire of Lopez to have sexual relations with Liguez. Lopez had confessed to his love for appellant to the instrumental witnesses, with the remark that her parents would not allow Lopez to live with her unless he first donated the land in question. After the donation, Conchita Liguez and Salvador Lopez lived together in the house that was built upon the latter's orders, until Lopez was killed on July 1, 1943. - The donated land originally belonged to the conjugal partnership of Salvador Lopez and his wife, Maria Ngo. The widow and children of Lopez were in possession of the land and made improvements. The deed of donation was never recorded. Court of Appeals Ruling - The deed of donation was inoperative, and null and void (1) because the husband, Lopez, had no right to donate conjugal property to the plaintiff appellant; and (2) because the donation was tainted with illegal cause or consideration, of which donor and donee were participants. - CA rejected appellant's claim on the basis of "in pari delicto non oritur actio" rule as embodied in Art.1412 of the New Civil Code.2 Petitioners' Claim - CFI and CA erred in holding the donation void for having an illicit cause or consideration. Under Art 1274 of the Civil Code of 1889, "in contracts of pure beneficence the consideration is the liberality of the donor", and that liberality can never be illegal, since it is neither against law or morals or public policy.

ART. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed: (1)When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking; (2)When only one of the contracting parties is at fault, he cannot recover, what he has given by reason of the contract, or ask for fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

Obligations and Contracts page 50


Lopez heirs is not receivable, since Lopez, himself, if living, would be barred from setting up that plea; and his heirs can have no better rights than Lopez himself. 4. YES Ratio The prima facie donation inter vivos and its acceptance by the donees having been proved by means of a public instrument, and the donor having been duly notified of said acceptance, the contract is perfect and obligatory, unless an exception is proved which is based on some legal reason opportunely alleged by the donor or his heirs. (Lopez v. Olbes) - The donation made by the husband in contravention of law is not void in its entirety, but only in so far as it prejudices the interest of the wife, because said property was conjugal in character and the right of the husband to donate community property is strictly limited by law (Civil Code of 1889, Arts. 1409, 1415, 1413)3 Reasoning Only the court of origin that settled the estate of the late Salvador Lopez. has the requisite data to determine whether the donation is inofficious or not. To determine the prejudice to the widow, it must be shown that the value of her share in the property donated can not be paid out of the husband's share of the community profits. - The situation of the children and forced heirs of Lopez approximates that of the widow. As privies of their parent, they are barred from invoking the illegality of the donation. But their right to a legitime out of his estate is not thereby affected, since the legitime is granted them by the law itself. The forced heirs are then entitled to have the donation set aside in so far as in officious: i.e., in excess of the portion of free disposal. In computing the legitimes, the value of the property to Liguez, should be considered part of the donor's estate. - With regard to the improvements in the land in question, the same should be governed by the rules of accession and possession in good faith, it being undisputed that the widow and heirs of Lopez were unaware of the donation in favor of the appellant when the improvements were made. Disposition Decisions appealed from are reversed and set aside, and the appellant Conchita LIGUEZ declared entitled to so much of the donated property as may be found, upon proper liquidation, not to prejudice the share of the widow Maria Ngo in the conjugal partnership with Salvador P. Lopez or the legitimes of the forced heirs of the latter. The records are ordered remanded to the court of origin for further proceedings in accordance with this opinion.

A2010 Prof. Labitag

ART. 1409. The conjugal partnership shall also be chargeable with anything which may have been given or promised by the husband alone to the children born of the marriage in order to obtain employment for them or give then, a profession or by both spouses by common consent, should they not have stipulated that such expenditures should be borne in whole or in part by the separate property of one of them.". ART. 1415. The husband may dispose of the property of the conjugal partnership for the purposes mentioned in Article 1409. ART. 1413. In addition to his powers as manager the husband may for a valuable consideration alienate and encumber the property of the conjugal partnership without the consent of the wife.