Civ 2

DIGESTS ON OBLIGATIONS
#1 PNCC vs. CA
(Barney)
Facts of the Case
PNCC and the Raymundos entered into a K of lease for 5 years. Monthly rent is P20,000 per month for
the first year; P21,000/month for the 2nd year and so on. The period for the lease will start from the date of
issuance of the industrial clearance by the Ministry of Human Settlements.
On 7 January 1986, PNCC obtained from the Ministry a Temporary Use Permit for their proposed rock
crushing project. Permit is valid for 2 years.
On 16 January 1986, the Raymundos demand the first year payment amounting to P240,000. However,
PNCC told them that they will just pay the 1 month rent since they are terminating the contract for it has
decided to cancel the rock crushing project due to financial and technical difficulties.
The Raymundos went to the RTC. The court ruled that the Raymundos are entitled to rent payments for
two years since the permit was valid for such period. CA affirmed RTC.
PNCC claims that the k was not valid since in the terms of agreement, the lease will start upon the
issuance of permit. PNCC claims that the temporary permit was not the permit being referred in the
agreement and that since no permit was issued, the lease k is not effective and as such, PNCC cannot be
compelled to perform its obligation.
Issue: was the k effective?
Held: K is valid and effective.
PNCC is estopped from claiming that the temporary permit was not the industrial permit contemplated in
the K. PNCC, in their answer to the demand letter said that they will only pay 1 month rent counted from
the date the industrial permit was issued. Thus PNCC itself considered the permit as the one
contemplated in the k.
It can now be deduced that the suspensive condition has already been fulfilled and the lease k has
become operative upon the issuance of the permit.
The principle of rebus sic stantibus cannot be applied here. The claim of PNCC that the k did not
materialize due to unforeseen events and causes beyond its control—the EDSA revolution and financial
difficulties cannot be appreciated here. It is a fundamental rule that k once perfected will bind the
contracting parties and obligations arising therefrom have the force of law between the parties and should
be complied in good faith. The only exception is that when the debtor IN OBLIGATIONS TO DO shall be
released when the prestation becomes legally or physically impossible without the fault of the obligor.
The obligation to pay is not an obligation to do but an obligation to give. “to do” includes all kinds of
services while “to Give” is a prestation to deliver any movable or immovable thing. Moreover, the EDSA
revolution is not one of those contemplated which will make the obligation legally or physically impossible.
The doctrine of unforeseen events (art. 1267 when the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part)
is not an absolute application of rebus sic stantibus. Parties to the k must be presumed to have assumed
the risks of unfavorable developments. It is only in absolutely exceptional changes of circumstances that
equity demands assistance for the debtor. The cause or essential purpose of the k of lease is the use or
enjoyment of a thing. As a general principle, the motive or particular purpose of a party in entering a k
does not affect the validity or existence of the k. the only exception is when the realization of such motive
has been made a condition upon which the k is made to depend.
#2 Tanguilig vs. Court of Appeals

(Bea)
Facts of the Case
Jacinto Tanguilig doing business under the name J.M.T. Engineering and General Merchandising
proposed to Vicente Herce, Jr. to construct a windmill system for him. They agreed on the construction of
the windmill for a consideration of P60,000 with a 1 year guaranty from the date of completion.
Herce paid Tanguilig a down payment of P30,000 and an installment of P15,000, leaving a balance of
P15,000. The remaining balance was not paid by Herce. Tangulig then filed a complaint for the
collection of the amount.
Herce claims:
• He had already paid the amount to the San Pedro General Merchandising, Inc. (SPGMI) which
constructed the deep well to which the windmill was to be connected. Since the deep well formed
part of the windmill system the payment he tendered to SPGMI should be credited to his amount to
Tanguilig.
• Also, assuming that he owed Tanguilig a balance, this should be offset by the defects in the windmill
which caused the structure to collapse after a strong wind hit their place.
Tanguilig:
• Denied that the construction of a deep well was included in the agreement to build the windmill, for
the contract price was solely for the windmill, exclusive of other incidental materials.
• Also, he disowned any obligation to repair or reconstruct the system and insisted that he delivered it
in good working condition. Besides, its collapse was attributable to a typhoon, a force majeure, which
relieved him of any liability.
Trial CourtÎ held that the construction of the deep well was not part of the windmill project as evidenced
by letter proposals by Tanguilig to Herce. The construction of such was absent in the agreement.
With respect to the repair of the windmill, it found that there is no clear and convincing proof that the
windmill fell down due to the defect of the construction.
Court of AppealsÎ reversed the trial court. It ruled that the construction of the deep well was included in
the agreement of the parties because the term “deep well” was mentioned in both proposals of Tanguilig.
It also gave credence to the testimony of Pili, the proprietor of SPGMI which installed the deep well who
said that Tanguilig told him that the cost of constructing the deep well would be deducted from the
contract price of P60,000.
It also rejected Tanguilig’s claim of force majeure and ordered him to reconstruct the windmill in
accordance with the one year warranty.
Issues:
1. Whether the agreement to construct the windmill system included the installation of a deep well.
2. Whether Tanguilig is under obligation to reconstruct the windmill after it collapsed.
Held:
1. No. The installation of a deep well was not included in the proposals of Tanguilig to construct a
windmill for Herce. Nowhere in either proposal is the installation of a deep well mentioned, even
remotely. While the words “deep well” and “deep well pump” are mentioned in both, these do not
indicate that a deep well is part of the windmill system. These words were preceded by the
prepositions “for” and “suitable for.” They merely describe the type of deep well pump for which the
proposed windmill would be suitable. If it was the intention of Tanguilig to include the deep well he
should have place the conjunctions “and” or “with.”
It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be
accorded primordial consideration, and in case of doubt, their contemporaneous and subsequent
acts shall be principally considered.
It also unusual that Pili would readily consent to build a deep well, the payment for which would come
supposedly from the windmill contract price on the mere representation of Tanguilig, whom he had
never met before, without a written commitment at least from the former. For if indeed the deep well
were part of the windmill project, the contract for its installation would have been strictly a matter
between Tanguilig and Pili himself with the former assuming the obligation to pay the price.
Herce cannot claim that Pili accepted his payment on behalf of Tanguilig. The law is clear that
"payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it, " it does not appear from the
record that Pili and/or SPGMI was so authorized.
rd
Herce cannot also claim the benefit of the law concerning payments made by a 3 person. The Civil
Code provisions do not apply in the instant case because no creditor-debtor relationship between
Tanguilig and Guillermo Pili and/or SPGMI has been established regarding the construction of the
deep well. Specifically, Pili did not testify that he entered into a contract with Tanguilig for the
construction of Herce's deep well. If SPGMI was really commissioned by Tanguilig to construct
the deep well, an agreement particularly to this effect should have been entered into.
2. Yes. In order for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract.
3 Requisites must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor,
(b) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner, and,
(d) the debtor must be free from any participation in or aggravation of the injury to the creditor.
Tanguilig failed to show that the collapse of the windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that there was actually a typoon on the day the windmill
collapsed. Tanguilig merely stated that there was a "strong wind" But a strong wind in the case
cannot be fortuitous-unforeseeable nor unavoidable be present in places where windmills are
constructed, otherwise the windmills will not turn.
Given the newly-constructed windmill system, the same would not have collapsed there been no
inherent defect in it. It emphasized that Hercet has in his favor the presumption that "things have
happened according to the ordinary course of nature and the ordinary habits of life." This
presumption has not been rebutted by Tanguilig.
Finally, Tanguilig’s argument that Herce was already in default in the payment of his outstanding
balance of P15,000.00 and hence should bear his own loss, is untenable. In reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.
#3 Go v. CA (1997)
(Benjie)
Topic: Art. 1170
Facts of the Case
Private respondents spouses Hermogenes and Jane Ong were married on June 7, 1981, in Dumaguete
City. The video coverage of the wedding was provided by petitioners at a contract price of P1,650.00.
Three times thereafter, the newlyweds tried to claim the video tape of their wedding, which they planned
to show to their relatives in the United States where they were to spend their honeymoon, and thrice they
failed because the tape was apparently not yet processed. The parties then agreed that the tape would
be ready upon private respondents' return. When private respondents came home from their honeymoon,
however, they found out that the tape had been erased by petitioners and therefore, could no longer be
delivered. Furious at the loss of the tape which was supposed to be the only record of their wedding,
private respondents filed a complaint for specific performance and damages against petitioners before the
Regional Trial Court (RTC). The RTC found defendants (now, petitioners) Alex Go and Nancy Go jointly
and severally liable to plaintiffs. Petitioners elevated the case to the Court of Appeals, which dismissed
the appeal and affirmed the RTC’s decision.
On appeal to the Supreme Court, petitioners contend that the CA erred in not appreciating the evidence
they presented to prove that they acted only as agents of a certain Pablo Lim and, as such, should not
have been held liable. In addition, they aver that there is no evidence to show that the erasure of the tape
was done in bad faith so as to justify the award of damages. Petitioners claim that for the video coverage,
the cameraman was employed by Pablo Lim who also owned the video equipment used. They further
assert that they merely get a commission for all customers solicited for their principal.
Issue: Whether petitioners are liable for damages.
Held:
Yes. Petitioners' argument that since the video equipment used belonged to Lim and thus the contract
was actually entered into between private respondents and Lim is not deserving of any serious
consideration. In the instant case, the contract entered into is one of service, that is, for the video
coverage of the wedding. Consequently, it can hardly be said that the object of the contract was the video
equipment used. The use by petitioners of the video equipment of another person is of no consequence.
It must also be noted that in the course of the protracted trial below, petitioners did not even present Lim
to corroborate their contention that they were mere agents of the latter. It would not be unwarranted to
assume that their failure to present such a vital witness would have had an adverse result on the case.
As regards the award of damages, petitioners would impress upon this Court their lack of malice or
fraudulent intent in the erasure of the tape. They insist that since private respondents did not claim the
tape after the lapse of thirty days, as agreed upon in their contract, the erasure was done in consonance
with consistent business practice to minimize losses. We are not persuaded. As correctly observed by the
Court of Appeals, it is contrary to human nature for any newlywed couple to neglect to claim the video
coverage of their wedding; the fact that private respondents filed a case against petitioners belies such
assertion. Clearly, petitioners are guilty of actionable delay for having failed to process the video tape.
Considering that private respondents were about to leave for the United States, they took care to inform
petitioners that they would just claim the tape upon their return two months later. Thus, the erasure of the
tape after the lapse of thirty days was unjustified. In this regard, Article 1170 of the Civil Code provides
that "those who in the performance of their obligations are guilty of fraud, negligence or delay, and those
who is any manner contravene the tenor thereof, are liable for damages." In the instant case, petitioners
and private respondents entered into a contract whereby, for a fee, the former undertook to cover the
latter's wedding and deliver to them a video copy of said event. For whatever reason, petitioners failed to
provide private respondents with their tape. Clearly, petitioners are guilty of contravening their obligation
to said private respondents and are thus liable for damages.
The grant of actual or compensatory damages in the amount of P450.00 is justified, as reimbursement of
the downpayment paid by private respondents to petitioners. Generally, moral damages cannot be
recovered in an action for breach of contract because this case is not among those enumerated in Article
2219 of the Civil Code. However, it is also accepted in this jurisdiction that liability for a quasi-delict may
still exist despite the presence of contractual relations, that is, the act which violates the contract may also
constitute a quasi-delict. Consequently, moral damages are recoverable for the breach of contract
which was palpably wanton, reckless, malicious or in bad faith, oppressive or abusive. Petitioners' act or
omission in recklessly erasing the video coverage of private respondents' wedding was precisely the
cause of the suffering private respondents had to undergo.
#4 Radio Communications of the Phil. (RCPI), vs. Verchez

(Farrah)
Facts of the Case
• On January 21, 1991, due to an ailment, Editha Hebron Verchez was confined at the Sorsogon
Provincial Hospital. Her daughter Grace Verchez-Infante engaged the service of Radio
Communications of the Philippines, Inc. (RCPI) – Sorsogon Branch to send a telegram to her
sister Zenaida Verchez-Catibog who was residing at 18 Legal St., GSIS Village, Quezon City
• The telegram read as follows “Send check money Mommy hospital.” After three days with no
response from Zenaida, Grace sent a letter again this time thru JRS Delivery Service,
reprimanding her for not sending any financial aid
• Immediately after she received Grace’s letter, Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed
having received any telegram
• In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City
on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City where
she was confined from January 30, 1991 to March 21, 1991.
• The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. Upon
inquiry, RCPI contends that that subject telegram was duly processed in accordance with
standard operating procedure. However, delivery was not immediately effected due because the
radio link connecting the points of communication involved encountered radio noise and
interferences such that subject telegram did not initially registered in the receiving teleprinter
machine.
• On April 17, 1992, Editha died. Thus, on September 8, 1993, Grace and Zenaida Verchez and
their respective spouses, filed a complaint against RCPI before the RTC of Sorsogon for
damages. They alleged that the delay in delivering the telegram contributed to the early demise
of their mother, Editha. Hence, they prayed for the award of moral and exemplary damages and
attorney’s fees.
• Motion to dismiss was filed by RCPI which was denied by RTC.
Contention of RCPI: That except with respect to Grace, the other plaintiffs had no privity of contract
with it; that any delay in the sending of the telegram was due to force majeure, specifically, but not limited
to, radio noise and interferences which adversely affected the transmission and/or reception of the
telegraphic message; That the clause in the Telegram Transmission Form signed by Grace absolved it
from liability for any damage arising from the transmission other than the refund of telegram tolls as it
observed due diligence in the selection and supervision of its employees; and that at all events, any
cause of action had been barred by laches.
TC Ruling: Ruled against RCPI and ordered RCPI to pay moral damages and attorney fees on the basis
of Article 2176 and 1173. It held that although the delayed delivery of the questioned telegram was not
apparently the proximate cause of the death of Editha, the defense of force majeure cannot be
sustained. Respecting the clause in the telegram relied upon by RCPI, the trial court held that it partakes
of the nature of a contract of adhesion.
CA Ruling : Affirmed RTC ruling. Hence, this present petition for review on certiorari
ISSUE: Whether or not RCPI is liable for damages even if the trial court found that there was no direct
connection between the injury and the alleged negligent acts
HELD: Yes. RCPI’s is liable for damages. Its liability is anchored on culpa contractual or breach of
contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-co-respondents.
Accordingly, Article 1170 of the Civil Code provides that “Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages”.
In culpa contractual, the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts,
will not permit a party to be set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured
party a valid cause for recovering that which may have been lost or suffered. The remedy serves to
preserve the interests of the promissee that may include his “expectation interest,” which is his interest
in having the benefit of his bargain by being put in as good a position as he would have been in had the
contract been performed, or his “reliance interest,” which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as good a position as he would have been in had the
contract not been made; or his “restitution interest,” which is his interest in having restored to him any
benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for action. The effect of every infraction is to create
a new duty, that is, to make recompense to the one who has been injured by the failure of another to
observe his contractual obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence or of the attendance of fortuitous event, to excuse him from his ensuing
liability
While the defense of force majeure was invoked by RCPI, the same will not prosper since it is necessary
that one has committed no negligence or misconduct that may have occasioned the loss. Considering the
public utility of RCPI’s business and its contractual obligation to transmit messages, it should have
exercise due diligence to ascertain that messages are delivered to the persons at the given address and
should provide a system whereby in cases of undelivered messages the sender is given notice of non-
delivery. Messages sent by cable or wireless means are usually more important and urgent than those
which can wait for the mail
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the
soonest possible time, it should have at least informed Grace of the non-transmission and the non-
delivery so that she could have taken steps to remedy the situation. But it did not. There lies the fault or
negligence
Thus, an act of God cannot be invoked to protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One’s negligence may have concurred with an act of
God in producing damage and injury to another; nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person’s participation – whether by active intervention,
neglect or failure to act – the whole occurrence is humanized and removed from the rules
applicable to acts of God.
RCPI is liable to Grace’s co-respondents under quasi delict following Article 2176 of the Civil Code.
RCPI’s liability as an employer could of course be avoided if it could prove that it observed the diligence
of a good father of a family to prevent damage. However, RCPI failed, however, to prove that it observed
all the diligence of a good father of a family to prevent damage. In the case at bar, after RCPI’s first
attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for 12
days before trying to deliver it again, knowing – as it should know – that time is of the essence in the
delivery of telegrams. When its second long-delayed attempt to deliver the telegram again failed, it,
again, waited for another 12 days before making a third attempt. Such nonchalance in performing its
urgent obligation indicates gross negligence amounting to bad faith.
WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is
AFFIRMED.
#5 IGNACIO BARZAGA vs. COURT OF APPEALS and ANGELITO ALVIAR

(Pearl)
Facts of the Case
On the 19th of December Ignacio Barzaga's wife died. At her death bed she expressed her wish to be laid
to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the
whole of Christendom celebrate the Nativity of their Redeemer. Barzaga set out to arrange for her
interment on the 24th of December in obedience semper fidelis to her dying wish.
On 21 December 1990, at about 3pm, Barzaga went to the hardware store of Angelito Alviar to inquire
about the availability of certain materials to be used in the construction of a niche for his wife. He also
asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she
had yet to verify if the store had pending deliveries that afternoon because if there were then all
subsequent purchases would have to be delivered the following day. With that reply Barzaga left.
At 7am, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of
construction materials. He told the store employees that the materials he was buying would have to be
delivered at the Memorial Cemetery in Dasmarinas, Cavite, by 8am that morning since his hired workers
were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items
at the designated time, date and place. With this assurance, Barzaga purchased the materials and paid in
full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a
kilometer away, to await the delivery.
The construction materials did not arrive at 8am as promised. At 9am, the delivery was still nowhere in
sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that
although the delivery truck was not yet around it had already left the garage and that as soon as it arrived
the materials would be brought over to the cemetery in no time at all. That left Barzaga no choice but to
rejoin his workers at the memorial park and wait for the materials. By 10am, there was still no delivery.
This prompted Barzaga to return to the store to inquire about the materials. But he received the same
answer from respondent's employees who even cajoled him to go back to the burial place as they would
just follow with his construction materials. After hours of waiting, Barzaga became extremely upset. He
decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby,
and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he
returned again to the store he saw the delivery truck already there but the materials he purchased were
not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his
impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction
materials elsewhere.
In the afternoon of that day, Barzaga was able to buy from another store. But since darkness was already
setting in and his workers had left, he made up his mind to start his project the following morning, 23
December. But he knew that the niche would not be finish in time for the scheduled burial the following
day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the
26th. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it
was two-and-a-half (2-1/2) days behind schedule.
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote
Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently,
Barzaga sued him before the RTC
Alviar’s contention: legal delay could not be validly ascribed to him because no specific time of delivery
was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any
stipulation as to the exact time of delivery and that assuming that the materials were not delivered within
the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the
materials. Besides, his men were ready to make the delivery by 1030am of 22 December but petitioner
refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery
that caused the delay in the construction of the niche and the consequent failure of the family to lay to
rest their loved one on the 24th of December, and that, if at all, it was petitioner and no other who brought
about all his personal woes.
RTC: Alviar incurred in delay in the delivery of the construction materials resulting in undue prejudice to
Barzaga. Thus, he is liable.
CA: Reversed the RTC and ruled that there was no contractual commitment as to the exact time of
delivery since this was not indicated in the invoice receipts covering the sale. The arrangement to deliver
the materials merely implied that delivery should be made within a reasonable time but that the
conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at
that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay,
petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished.
Issue: Whether Alviar incurred in delay and should be held liable
Held: Yes.
Alviar was negligent and incurred in delay in the performance of his contractual obligation. This
sufficiently entitles Barzaga to be indemnified for the damage he suffered as a consequence of delay or a
contractual breach. The law expressly provides that those who in the performance of their obligation are
guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable
for damages.
There was a specific time agreed upon for the delivery of the materials to the cemetery. The argument
that the invoices never indicated a specific delivery time must fall in the face of the positive verbal
commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the
invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper
Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared
invoices.
This case is clearly one of non-performance of a reciprocal obligation. In their contract of purchase and
sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment
of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation
to deliver the goods otherwise delay would attach.
#6 SELEGNA MANAGEMENT & DEV’T CORP.ORATION and Spouses EDGARDO & ZENAIDA
ANGELES vs. UNITED COCONUT PLANTERS BANK
(Karl)
Facts:
Petitioners Selegna Management and Development Corporation and Spouses Edgardo and Zenaida
Angeles were granted a credit facility in the amount of P70 M United Coconut Planters Bank (UCPB). As
security, petitioners executed REMs over several parcels of land located in Muntinlupa, Las Piñas,
Antipolo and Quezon; and over several condominium units in Makati. Petitioners were likewise required to
execute a promissory note (PN) in favor of UCPB every time they availed of the credit facility. As required
in these notes, they paid the interest in monthly amortizations. The parties stipulated in their Credit
Agreement dated September 19, 1995, that failure to pay any availment of the accommodation or
interest, or any sum due shall constitute an event of default, which shall consequently allow UCPB to
declare all outstanding availments as immediately due and payable, along with the interest and other
payables.
In need of more capital, petitioners obtained from UCPB an increase in their credit facility. For this
purpose, they executed a PN for P103,909,710.82, which was to mature on March 26, 1999. In the same
note, they agreed to an interest rate of 21.75% per annum, payable by monthly amortizations. On
December 21, 1998, UCPB sent petitioners a demand letter relating to the outstanding balance of
P103,909,710.82, it appearing that they have failed to pay interest amortizations amounting to
P14,959,525.10 on a PN which was due on May 30, 1998. Accordingly, formal demand was made upon
the petitioners to pay their outstanding obligations in the total amount of P14,959,525.10, which includes
unpaid interest and penalties due as of December 21, 1998, within 8 days from the date of demand.
UCPB decided to invoke the acceleration clause in their Credit Agreement. Accordingly, it sent a letter
stating that, petitioners having failed to pay the monthly interest due on said obligation as well as the
penalty charges, the failure to pay is an event of default. Thus, the whole obligation of P103,909,710.82,
the interest, and all sums payable (amounting to P17,351,478.55) to UCPB shall be immediately due and
payable. Again, formal demand was made for petitioners to pay within 5 days from demand. A letter of
final demand was also made upon the petitioners through another letter. In response, petitioners paid
UCPB the amount of P10,199,473.96 as partial payment of the accrued interests. Apparently unsatisfied,
UCPB applied for extrajudicial foreclosure of petitioners’ mortgaged properties. When petitioners received
the Notice of Extra Judicial Foreclosure Sale, they requested UCPB to give them a period of 60 days to
update their accrued interest charges as well as to restructure their account, which UCPB denied, stating
in a letter that their account has already been referred to an external counsel for appropriate legal action.
To forestall the extrajudicial foreclosure, petitioners filed a Complaint for Damages, Annulment of Interest
Penalty Increase and Accounting with Prayer for a TRO. All subsequent proceedings in the trial court and
in the CA involved only the propriety of issuing a TRO and a writ of preliminary injunction. The case was
re-raffled because the first judge who handled the case inhibited himself; and was again re-raffled
because the second judge who handled the case was dismissed by the SC from service and the
proceedings he conducted were all nullified. The third judge who handled the case eventually granted the
preliminary injunction prayed for, thereby restraining the foreclosure of the mortgaged properties. Upon
appeal to the CA, the injunction was set aside because the CA held that the petitioners were kept in the
dark as to how their obligation ballooned to the current amount of 132 Million. Upon MR of UCPB,
however, the CA set aside its ruling that a pending question on accounting does warrant a restriction on
the foreclosure of the properties. The MR of petitioners having been denied, they went to the SC.
Issues:
WON the petitioners are in default.
Ruling:
Yes, they are. It is a settled rule of law that foreclosure is proper when the debtors are in default of
the payment of their obligation. In fact, the parties stipulated in their credit agreements, mortgage
contracts, and promissory notes that UCPB was authorized to foreclose on the mortgages, in case of a
default by petitioners. Mora solvendi, or debtor’s default, is defined as a delay in the fulfillment of an
obligation, by reason of a cause imputable to the debtor. Its requisites are: (1) the obligation is
demandable and liquidated; (2) the debtor delays performance; and (3) the creditor judicially or
extrajudicially requires the debtor’s performance. Here, the PN expressly states that petitioners had
an obligation to pay monthly interest on the principal obligation. From UCPB’s demand letter, it is clear
and undisputed by petitioners that they failed to meet those monthly payments. Their nonpayment is also
defined as an "event of default" in the Credit Agreement; which situation will justify the application of the
acceleration clause which is also in the said agreement. Considering that the contract is the law between
the parties, UCPB is justified in invoking the acceleration clause declaring the entire obligation
immediately due and payable. That clause obliged petitioners to pay the entire loan on January 29, 1999,
the date fixed by respondent. Thus, if the petitioners fail or refuse to pay, the REM states that UCPB may
foreclose the mortgage to satisfy the obligation secured. As such, UCPB had every right to apply for
extrajudicial foreclosure on the basis of petitioners’ undisputed and continuing default.
As regards the 3 requisites, they say that the 1st requisite -- liquidated debt -- is absent due to lack of
accounting. Allegedly, this violates their right to due process and that their partial payment of P10 Million
averted the maturity of the obligation. UCPB asserts that, apart from the fact that questions of accounting
are not valid reasons for restraining the foreclosure, it has furnished the petitioners with a detailed
monthly statement of account. A debt is liquidated when the amount is known or is determinable by
inspection of the terms and conditions of the relevant promissory notes and related
documentation. Failure to furnish a debtor a detailed statement of account does not ipso facto
result in an unliquidated obligation. Petitioners executed a PN, in which they stated that their principal
obligation was in the amount of P103,909,710.82, subject to an interest rate of 21.75%. From the Credit
Agreement, petitioners likewise know that any delay in the payment of the principal obligation will subject
them to a penalty charge of 1% per month, computed from the due date until the obligation is paid in full.
It is clear that the parties agreed that when the payment is accelerated due to an event of default, the
penalty charge shall be based on the total principal amount outstanding, to be computed from the date of
acceleration until the obligation is paid in full. The Credit Agreement even provides for the application of
payments. It appears from the agreements that the amount of total obligation is known or, at the
very least, determinable.
Moreover, when they made their partial payment, petitioners did not question the principal, interest or
penalties demanded from them. They only sought additional time to update their interest payments or to
negotiate a possible restructuring of their account. Hence, there is no basis for their allegation that a
statement of account was necessary for them to know their obligation. We cannot impair UCPB’s right to
foreclose the properties on the basis of their unsubstantiated allegation of a violation of due process. At
any rate, when there is no genuine controversy as to the amounts due and demandable, the foreclosure
should not be restrained by the unnecessary question of accounting. As to the partial payment, the same
did not extinguish the obligation. The Civil Code states that a debt is not paid unless the thing in
which the obligation consists has been completely delivered. Besides, a late partial payment could
not have possibly forestalled a long-expired maturity date. The only possible legal relevance of the
partial payment was to evidence the UCPB’s amenability to granting the petitioner a grace period, which
cannot be casually presumed. When creditors receive partial payment, they are not ipso facto
deemed to have abandoned their prior demand for full payment. Article 1235 of the Civil Code states
that “[w]hen the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with." Thus,
to imply that creditors accept partial payment as complete performance of their obligation, their
acceptance must be made under circumstances that indicate their intention to consider the
performance complete and to renounce their claim arising from the defect. As there are none in this
case, it cannot be made a basis of the extinguishment of the claim. It should be noted that UCPB
asserted its right even further by foreclosing on the mortgaged properties. UCPB cannot be balemd for
accepting the partial payment for, while Article 1248 of the Civil Code states that creditors cannot be
compelled to accept partial payments, it does not prohibit them from accepting such payments.
WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution AFFIRMED.
Costs against petitioners.
SO ORDERED.
#7 SOLIDBANK CORPORATION / METROPOLITAN BANK and TRUST COMPANY vs. SUSAN and
PETER TAN
(Liz)
Facts of the Case
Respondents’ representative, Remigia Frias, deposited with petitioner ten checks worth P455,962.
Petitioner’s teller no. 8 in its Manila Branch, Grace Neri, received and verified the checks which were
thereafter returned the duplicate to Frias, but kept the original. As the usual pratice of petitioner and
respondents, latter’s passbook was left with petitioner for the recording of the deposits on the bank’s
ledger. Later, respondents discovered that one of the checks, payable to cash was not posted therein.
When respondents notified the bank, the latter showed the list of checks deposited by Frias, which did not
include the missing check and it indicated teller no. 7, instead of 8.
Respondents also learned that the missing check was cleared by the bank after it was deposited by
oneDolores Lagsac in Premier Bank of Laguna. Respondents then demanded that the bank pay the
amount of the check but the latter refused. Thus, respondents filed collection for cum of money before
RTC Manila.
Issues: Whether or not Solidbank is liable for the missing check
Held: Yes. Art. 1173 of the Civil Code states that “the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the person of the time and of the place”; and that “if the law or contract does not state
the diligence which is to be observed in the performance, the same as expected of a good father of a
family shall be required.”
For failure to comply with its obligation, petitioner is presumed to have been at fault or to have acted
negligently unless they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and
1735 of the Civil Code (Art. 1756).
The Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation
laws involving common carriers) to a banking transaction where it adjudged the bank responsible for the
encashment of a forged check. The degree of diligence required of banks is more than that of a good
father of a family in keeping with their responsibility to exercise the necessary care and prudence in
handling their clients’ money. Banking institutions (like petitioner) have the duty to exercise the highest
degree of diligence when transacting with the public. By the nature of their business, they are required to
observe the highest standards of integrity and performance, and utmost assiduousness as well.
#8 JAPAN AIRLINES vs. COURT OF APPEALS

(Majê)
Facts of the Case
Private respondent Miranda boarded JAL in San Francisco, California bound for Manila and so as private
respondents Enrique and Nina Agana and Adelia Francisco left Los Angeles, California for Manila via
JAL. As an incentive for traveling on the said airline, both flights were to make an overnight stopover at
Narita, Japan, at the airlines' expense and proceed to Manila afterwards. Upon arrival at Narita,
respondents were booked at Hotel Nikko Narita for the night. Respondents were supposed to leave for
Manila the following day, but flight was cancelled due to Mt. Pinatubo eruption, which made NAIA
inaccessible to airline traffic. Because of this and at JAL’s expense, the stranded passengers were re-
booked. However, much to the dismay of the private respondents, their long anticipated flight to Manila
was again cancelled due to NAIA's indefinite closure. At this point, JAL informed the private respondents
that it would no longer defray their hotel and accommodation expense during their stay in Narita. Since
NAIA was only reopened to airline only a week after, respondents were forced to pay for their
accommodations and meal expenses from their personal funds for the whole week when they were
stranded. Hence, upon arrival at Manila, they commenced an action for damages against JAL before the
QC RTC claiming that JAL failed to live up to its duty to provide care and comfort to its stranded
passengers when it refused to pay for their hotel and accommodation expenses during the time when
they were stranded at Narita, Japan. On the other hand, JAL denied this allegation and averred that
airline passengers have no vested right to these amenities in case a flight is cancelled due to "force
majeure." TC ruled in favor of respondents and CA affirmed TC’s decision. Hence, the instant petition.
Issue:
WON JAL, as a common carrier has the obligation to shoulder the hotel and meal expenses of its
stranded passengers until they have reached their final destination, even if the delay were caused by
"force majeure."
Held:
NO.
We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract to
transport passengers is quite different in kind, and degree from any other contractual relation. It is safe to
conclude that it is a relationship imbued with public interest. Failure on the part of the common carrier to
live up to the exacting standards of care and diligence renders it liable for any damages that may be
sustained by its passengers. However, this is not to say that common carriers are absolutely responsible
for all injuries or damages even if the same were caused by a fortuitous event. To rule otherwise would
render the defense of "force majeure," as an exception from any liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his obligation because of
"force majeure," the general rule is that he cannot be held liable for damages for non-
performance. Corollarily, when JAL was prevented from resuming its flight to Manila due to the effects of
Mt. Pinatubo eruption, whatever losses or damages in the form of hotel and meal expenses the stranded
passengers incurred, cannot be charged to JAL.
Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for the
private respondents. To be sure, they underwent distress and anxiety during their unanticipated stay in
Narita, but their predicament was not due to the fault or negligence of JAL but the closure of NAIA to
international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for the amenities
of its stranded passengers by reason of a fortuitous event is too much of a burden to assume.
We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be noted
that private respondents bought tickets from the United States with Manila as their final destination. While
JAL was no longer required to defray private respondents' living expenses during their stay in Narita on
account of the fortuitous event, JAL had the duty to make the necessary arrangements to transport
private respondents on the first available connecting flight to Manila. Petitioner JAL reneged on its
obligation to look after the comfort and convenience of its passengers when it declassified private
respondents from "transit passengers" to "new passengers" as a result of which private respondents were
obliged to make the necessary arrangements themselves for the next flight to Manila.
#9 NPC v. CA
(March)
Facts of the Case
This involves the damages caused to the properties of respondents Cruz et al on account of
NPC’s opening of Angat dam’s 3 floodgates (without prior warning ) resulting to the sudden rush of water.
NPC on its part, necessitated the release of the water therein in order to prevent the dam from collapsing
and causing the loss of lives and tremendous damage to livestock and properties.
NPC contends that prior to the time typhoon “Kading” hit Bulacan, it sent written warnings to the
towns concerned. It also claimed that there was no direct causal relationship between the alleged
damages suffered by Cruz et al and the acts and omissions attributed to the NPC. Even assuming that
respondents suffered damages, the cause was due to a fortuitous event and such damages are of the
nature and character of damnum absque injuria, hence, Cruz et al have no cause of action against them.
Issue: WON NPC is free from liability on account of force majeure
Held: Liable
Citing Juan F. Nakpil & Sons, this Court ruled that the obligor cannot escape liability, if upon the
happening of a fortuitous event or an act of God, a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided in Article 1170 of the Civil Code
which results in loss or damage.
NPC is guilty of negligence.
NPC was forewarned by PAGASA that Kading is a powerful typhoon. Despite this, NPC still
maintained its water level in the dam at its maximum until the midnight of the day when Kading came.
Further, contrary to NPC’s claim that the release of the water was gradual, records showed that on the
day of the typhoon, there was very little opening of the spillways, ranging from 1 meter to 2 meters.
However, from midnight or from the first hours of October 27, 1978 the opening of all the three (3)
spillways started at 5 meters and swiftly went as far up as 14 meters. As observed correctly by the trial
court had the opening of all the three (3) spillways been made earlier and gradually, there would have
been no need to open the same suddenly.
What made the situation worse was that the opening of the spillways was made at the unholy
hours when residents were asleep. The plaintiffs all testified that they were never given any warning that
the spillways would be opened to that extent
Neither can petitioners escape liability by invoking force majeure. Act of God or force majeure, by
definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or
which, though foreseen, are inevitable. It is therefore not 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. As
a general rule, no person shall be responsible for those events which could not be foreseen or which
though foreseen, were inevitable.
However, the principle embodied in the act of God doctrine strictly requires that the act must be
occasioned solely by the violence of nature. Human intervention is to be excluded from creating or
entering into the cause of the mischief. When the effect is found to be in part the result of the participation
of man, whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.
So generally it cannot be said that damage, injury or loss is due to an act of God where it was
caused merely by excessive or heavy rainfall, storms and to weather conditions which are not unusual in
character, those which could have been reasonably anticipated or where the injury complained of is due
rather to the negligence or mismanagement of man than to the disturbance of the elements or where
such damage, injury or loss might have been mitigated or prevented by diligence exercised after the
occurrence.
In the case at bar, although the typhoon "Kading" was an act of God, petitioners can not escape
liability because their negligence was the proximate cause of the loss and damage.
It has been held in several cases that when the negligence of a person concurs with an act of
God 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
by which the loss or damage may have been occasioned.
Thus, We cannot give credence to petitioners' third assignment of error that the damage caused
by the opening of the dam was in the nature of damnum absque injuria, which presupposes that although
there was physical damage, there was no legal injury in view of the fortuitous events. There is no
question that petitioners have the right, duty and obligation to operate, maintain and preserve the facilities
of Angat Dam, but their negligence cannot be countenanced, however noble their intention may be. The
end does not justify the means, particularly because they could have done otherwise than simultaneously
opening the spillways to such extent.
#10 BACHELOR EXPRESS V. CA

(Marcus)
Facts of the Case
Bus No. 800 of Bachelor Express stopped to pick up a passenger in Butuan while travelling from Davao
to Cagayan. 15 minutes later, a passenger stabbed another passenger which caused panic among the
other passengers. When the bus stopped, the passengers stampeded out and as a result, Beter died.
Rautraut died later, also from the stampede. The heirs of Beter and Rautraut filed a complaint for “sum of
money” against Bachelor, the owner, and the driver. The TC dismissed the complaint. The CA reversed.
Issues:
1. WON the petitioners were common carriers;

2. WON the accident was caused by force majeure;
Held:
1. YES. There is no question that Bachelor Express, Inc. is a common carrier. From the nature of its
business and for reasons of public policy Bachelor Express, Inc. is bound to carry its passengers
safely as far as human care and foresight can provide using the utmost diligence of very cautious
persons, with a due regard for all the circumstances.
As common carriers, petitioners should have observed extraordinary diligence. The lack of
extraordinary diligence required of common carriers, in exercising vigilance and utmost care of
the safety of its passengers, was exemplified by the driver's belated stop and the reckless
opening of the doors of the bus while the same was travelling at an appreciably fast speed. At the
same time, the common carrier itself acknowledged, through its administrative officer, Granada,
that the bus was commissioned to travel and take on passengers and the public at large, while
equipped with only a solitary door for a bus its size and loading capacity, in contravention of rules
and regulations provided for under the Land Transportation and Traffic Code. Petitioners are
presumed to have acted negligently unless they can prove they observed extraordinary diligence
in accordance with Articles 1733 and 1755 of the CC.
2. YES. There was force majeure which would overcome the presumption of negligence. Force
majeure has the following essential characteristics: (1) The cause of the unforeseen and
unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be
independent of the human will. (2) It must be impossible to foresee the event which constitutes
the caso fortuito, or if it can be foreseen, it must be impossible to avoid. (3) The occurrence must
be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. And
(4) the obligor (debtor) most be free from any participation in the aggravation of the injury
resulting to the creditor. The sudden act of the passenger who stabbed another passenger in the
bus is within the context of force majeure.
However, in order that a common carrier may be absolved from liability in case of force majeure,
it is not enough that the accident was caused by force majeure. The common carrier must still
prove that it was not negligent in causing the injuries resulting from such accident. As stated,
there was no extraordinary diligence observed.
# 11 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION (Philcomsat) vs. GLOBE

TELECOM, INC. (Globe Mackay)
(Marlon)
Facts of the Case
Globe privides for communication services for the US military bases in Clark and Subic for the use of US
Defense Communications Agency. Philcomsat and Globe entered into an Agreement whereby Philcomsat
obligated itself to establish, operate and provide an IBS Standard B earth station within Cubi Point for the
exclusive use of the USDCA. The term of the contract was for 5 years. In turn, Globe promised to pay
Philcomsat monthly rentals for each leased circuit involved. At the time of the execution of the
Agreement, both parties knew that the Military Bases Agreement will soon be terminated unless renewed
by Congress. Philcomsat installed the facility as agreed upon. Subsequently, Congress disapproved the
stay of the military bases. When the stay was disapproved Globe wrote a letter to Philcomsat informing
them that it was terminating the contract citing Sec.8 of their contract which states that:
Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under
this Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either
party is thus precluded from performing its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall mean circumstances beyond the control
of the party involved including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots, national emergencies,
war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts of God.
Philcomsat contends that Sec.7 of their contract should govern the issue and not Sec.8, Sec 7 states that:
Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation,
a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT
for the rental of the actual number of T1 circuits in use, but in no case shall be less than the first two (2)
T1 circuits, for the remaining life of the agreement. However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life of
the agreement shall be at such monthly rate as may be agreed upon by the parties. Philcomsat also
contends the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable and Fortuitous events only apply to unforeseeable event.
Philcomsat filed a case against Globe and the RTC ruled that Globe should pay the rental for Dec.
because that was the last day of the pullout of the US forces. It upheld the contention of Globe that Sec.8
is applicable to the issue. The CA affirmed the RTC.
Issue: Whether the provisions of Sec.8 of the agreement can be considered as a fortuitous event.
Held: Yes!
However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but
inevitable:
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods
or typhoons,24 or an "act of man," such as riots, strikes or wars.
Furthermore, under Article 1306 of the Civil Code, parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law,
morals, good customs, public order or public policy.
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith."28 Courts cannot stipulate for
the parties nor amend their agreement where the same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to alter the real intent of the parties, and would run
contrary to the function of the courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them.30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section
8, the concurrence of the following elements must be established: (1) the event must be independent of
the human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor.The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites
are present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of
the RP-US Military Bases Agreement.
#12 Javier vs CA
(Mike)
Facts of the Case
Leonardo Tiro was a holder of an ordinary timber license covering 2,535 hectares in the town of Medina,
Misamis Oriental. He executed a deed of Assignment (Contract 1) in favor of Jose and Estrella Javier
assigning his shares of stocks in the Timberwealth Corp. in the total amount of P120,000.00. In
exchange, the Javiers were to pay P20k upon the signing of the contract and the remaining P100k would
be paid at P10k installments for every timber shipment actually produced from the concession. At the time
the deed of assignment was executed, Tiro had a pending application for an additional forest concession
covering an area of 2,000 hectares southwest of and adjoining the area of the concession subject of the
deed of assignment. Hence, another agreement (Contract 2) was made transferring whatever rights Tiro
may acquire over the forest concession which was under application. It was further stipulated that the
Javiers would pay Tiro P30k as soon as the additional area was approved and transferred to
Timberwealth Corp.
Soon, the Acting Director of Forestry wrote Tiro that his forest concession was renewed (note that the
concession was merely renewed but the additional area was not actually approved and transferred) but
since the concession consisted of only 2,535 hectares, he was also informed that he had to form an
organization such as a cooperative, partnership or corporation with other adjoining licensees so as to
have a total holding area of not less than 20,000 hectares of contiguous and compact territory otherwise
his license would not be further renewed.
Consequently, the Javiers, now acting as timber license holders by virtue of the deed of assignment,
entered into a Forest Consolidation Agreement with other ordinary timber license holders in Misamis
Oriental and thus met the 20k hectare requirement.
However, the Javiers failed to pay the remaining balances according to the contracts. Thus, Tiro filed an
action against them. In their defense, the Javiers argued for the nullity of the contracts since Tiro failed to
comply with his contractual obligations and, further, that the conditions for the enforceability of the
obligations of the parties failed to materialize. They contended that since Timberwealth Corp. never
materialized, Contract 1 did not have any consideration since there were no shares of stock that could
be assigned. As for Contract 2, since the land was never really transferred, a condition of the contract
was not fulfilled. The RTC ruled against Tiro but the CA reversed the ruling.
Issue: W/N Contracts 1 and 2 are valid and binding on the parties
Held: Contract 1 is binding while contract 2 is not. Although Contract 1 spoke of the transfer of shares of
stock, the true cause or consideration of said deed was the transfer of the forest concession of
Tino to the Javiers for P120,000.00. In ruling this way, the SC noted that:
1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth
Corporation was non-existent.
2. In Contract 2, Tiro conveyed to the Javiers his inchoate right over a forest concession covering an
additional area for his existing forest concession
3. The Javiers, after the execution of the deed of assignment, assumed the operation of the logging
concessions of Tiro
4. The statement of advances to Tiro prepared by the Javiers stated: "P55,186.39 advances to L.A. Tiro
be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every after shipment.
We had only 2 shipments"
5. The Javiers entered into a Forest Consolidation Agreement with other holders of forest concessions on
the strength of the questioned deed of assignment.
These contemporaneous and subsequent acts of the Javiers and Tiro reveal that the cause stated
in the deed of assignment is false. It is settled that the previous and simultaneous and
subsequent acts of the parties are properly cognizable indica of their true intention. Where the
parties to a contract have given it a practical construction by their conduct as by acts in partial
performance, such construction may be considered by the court in construing the contract, determining its
meaning and ascertaining the mutual intention of the parties at the time of contracting.
Contract 1 is a relatively simulated contract which states a false cause or consideration, or one
where the parties conceal their true agreement. A contract with a false consideration is not null
and void per se. Under Article 1346 of the Civil Code, a relatively simulated contract, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs, public
order or public policy binds the parties to their real agreement.
On the other hand, the parties can’t be bound by Contract 2. The efficacy of said deed of
assignment is subject to the condition that the application of Tiro for an additional area for forest
concession be approved by the Bureau of Forestry. Since he did not obtain that approval, said
deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity can
take place only if and when the event which constitutes the condition happens or is fulfilled. If the
suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed. Also, this contract produced a reciprocal obligation. Since Tiro failed to comply with his
obligation to transfer his rights in the forest concession, his right to demand performance from the Javiers
did not arise.
Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a
mere hope or expectancy is deemed subject to the condition that the thing will come into
existence. In this case, since Tiro never acquired any right over the additional area for failure to
secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its
object the transfer of said right to the Javiers, never became effective or enforceable.
#13 Travellers Insurance & Surety Corp. vs. CA

(Nere)
Facts of the Case
At about 5:30 a.m. of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza was
on her way to hear mass at the Tayuman Cathedral. While walking she was bumped by a taxi that was
running fast. Several persons witnessed the accident. She was later on seen sprawled on the pavement.
Right away, the good Samaritan Mavilla ran towards her and inquired what happened. A private jeepney
later on stopped and brought the old woman to the Mary Johnston Hospital in Tondo.
Ernesto Lopez, a driver of a passenger jeepney witnessed the incident. He saw the found the children of
Feliza crying near the scene of the accident. They were told that their mother could be found at the UST
Hospital after instructions from the attending physician of the Mary Johnson Hospital. Feliza passed
away at 9:00 o'clock that same morning caused by "traumatic shock" as a result of the severe injuries she
sustained.
Evidence showed in a separate criminal case that the Lady Love Taxi driven was driven in a careless,
reckless, imprudent manner and at a speed greater than what a reasonable and proper person w/o taking
the necessary precaution to avoid accident. During the investigation, Abellon, the registered owner of the
taxi certified it was Rodrigo Dumlao driving the identified vehicle on the date of the accident. Dumlao
absconded from the hearing of the criminal case that he is now a fugitive from justice.
Mendoza filed against Abellon as Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love
taxicab, and later on amended its complaint by impleading Travellers as compulsory insurer of the said
taxicab. Trial court rendered judgment in favor of the heirs which found all 3 to pay jointly and severally
damages amounting to more than P 50,000 and was affirmed by the CA.
Issue: Whether Travellers is liable to the heirs of Mendoza on a claim filed more than 1 year after the
rd
accident based on a 3 party liability insurance which was not presented to court.
Held:
When the heirs filed their amended complaint to implead Travellers based on the third-party liability
insurer of the Lady Love taxicab, they did not attach a copy of the insurance contract. The right of a third
person to sue the insurer depends on whether the contract of insurance is intended to benefit third
persons also or only the insured. The right of the person injured to sue the insurer of the insured
depends on whether the contract of insurance is intended to benefit third persons also or on the insured.
The test applied has been this: Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity
against actual loss or payment, then third persons cannot proceed against the insurer, the contract being
solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said
third persons' recourse being thus limited to the insured alone.
Since Mendoza failed to attach a copy of the insurance contract to his complaint, the trial court could not
have been able to apprise itself of the real nature and pecuniary limits of Travellers liability because the
trial court never saw nor read the insurance contract and learned of its terms and conditions.
There is no basis for the trial court to have validly found Travellers to be liable jointly and severally with
the owner and the driver of the Lady Love taxicab, for damages accruing to the Mendoza’s.
The court did not distinguish between the cause of action against the owner, which is one of tort and the
driver, which is one for breach of contract. Confusing these two sources of obligations as they arise from
the same act of the taxicab fatally hitting Feliza and in the face of overwhelming evidence of the reckless
imprudence of the driver the court brushed aside its ignorance of the terms and conditions of the
insurance contract and forthwith found all three jointly and severally liable for actual, moral and exemplary
damages as well as attorney's fees and litigation expenses. Clearly a misapplication of the law.
The direct liability of the insurer under indemnity contracts against third-party liability does not mean that
the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability
of the insurer is based on contract; that of the insured is based on tort.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors.
On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event."
Having failed to attach the copy of the insurance contract which will determine the liability of Travellers in
the accident, and having filed the claim way beyond the 1 year period provided for in the insurance code,
the SC reversed the decision of the TC and absolved Travellers from any liability.
#14 Abad Vs. Goldloop Properties

(Niña)
Facts of the Case
Petitioners Abad are owners of 13 parcels of land in Tanza, Cavite. Respondent Goldloop Properties,
through its President Zapanta, entered into a deed of Conditional Sale with petitioners over the said land.
The following are the terms of payment: 1) Earnest money of P1 M will be paid by the buyer to the seller
on June 30, 1997; 2) First Payment of P6, 765, 660 on August 17, 1997; 3) Full payment of the balance of
P27M on or before Dec. 31, 1997. It was stipulated that in the event that the respondent cannot pay the
balance, he should give notice to the sellers one week before Dec. 31, with a request for extension of 30
days, non-extendible. If the buyer still fails to pay the balance within the extension period, the earnest
money of P1M will be forfeited, but the First payment of P6 M will be returned to the buyer. Zapanta
informed the sellers that due to the continuing economic downturn, the transaction would not be
consummated. He then asked that the first payment of P6 M be returned. He then filed a complaint for
collection with Prayer for Writ of Attachment against petitioners, asking that the petitioners be ordered to
refund to him the P6 M representing the first payment. The petitioners argue that three conditions must
first be met before the first payment could be returned: the formal request for extension before Dec. 31,
that the extension shall not exceed 30 days, and that it will be for a one-time basis.
RTC: ruled in favor of Zapanta. The deed reveals that whether the contract was extended or not, the first
payment of P6M shall be returned to the plaintiff. The requirement of forwarding a formal request for
extension of the contract was provided for no other purpose than solely for Goldloop to save the amount
of P1M from being forfeited.
CA: Upheld the lower court, further stating that the terms of the contract are clear, and that the obligation
of the Abads to return the first payment is a pure obligation without a condition or a term or a period,
hence demandable at once pursuant to Art. 1179.
Petitioners insist that the conditions were not met, and that there is no stipulation that the obligation to
return the first payment was a pure obligation, hence the remedy available to respondent is to ask the
court to fix the period within which to return the first payment.
ISSUE: Whether or not the obligation to return the first payment is a pure obligation.
HELD: YES.
Unlike the P1M earnest money which would be forfeited in favor of petitioners in case of respondent’s
failure to deliver the balance of the total consideration, the first payment would be returned to respondent.
The contention of the petitioners that the obligation to return the first payment should be deemed one with
a period cannot be sustained, as in the first place, there is no showing that the parties had intended
such period. This was not raised in the pleadings, nor was evidence offered proving such intent.
The parties to a contract are bound by their agreement, considering that obligations arising from contracts
have the force of law between them and should be complied with in good faith. Likewise, in this case, the
terms of the contract are clear and unambiguous, leaving no room for interpretation, thus, the literal
meaning of the stipulations shall control.
#15 Philippine Commercial International Bank vs. CA

(Inah)
Facts of the Case
PCIB and Manila Banking Corporation were joint bidders in a foreclosure sale held on 20 December 1975
of assorted mining machinery and equipment previously mortgaged to them by the Philippine Iron Mines,
Inc. (PIM). 4 years later, Atlas agreed to purchase some of the properties owned jointly at the time by
PCIB and MBC. Parties agreed to an initial downpayment of P12M and the balance of P18M payable in 6
monthly installments. The contract also contained the following express warranties: 1) full and sufficient
title to properties; 2) freeing the properties from all liens and encumbrances; 3) freeing Atlas from all
claims and incidental actions of NAMAWU; and, 4) full rights and capacity of the seller to convey title to
and effect peaceful delivery of the properties to Atlas. In a letter agreement later, the final purchase price
was adjusted to P29,630,000. The next day, PCIB and MBC wrote Atlas requesting that subsequent
installment payments of the balance be made in the following proportions: PCIB – 63.1579% and MBC –
36.8421%. Atlas, however, paid to NAMAWU in compliance with the writ of garnishment issued to satisfy
the final judgment in favor of NAMAWU and against PIM. PCIB and MBC filed a petition for certiorari
seeking to annul the order of garnishment, but this was dismissed. In the meantime, Atlas made 6
monthly payments in 1979 totaling P13,696,692.22 of which P8,650,543.18 or 63.1579% was received by
PCIB. According to Atlas, apart from the downpayment of P12M and installment payments of
P13,696,692.22, it should be credited with its payment of P4,298,307.77 which it paid to NAMAWU as a
consequence of the garnishment. Thus, Atlas claims to have paid a total of P30M, of which P370,000
was an overpayment. Atlas claims PCIB should reimburse it to the tune of P233,684.23. When PCIB
refused to pay, Atlas sued PCIB to obtain reimbursement of alleged overpayment. PCIB, on the other
hand, contends that Atlast still owed it a total of P908,398.75. It also alleged that even before the writ of
garnishment was served on Atlast, the judgment in NAMAWU had already been partially satisfied in the
amount of P601,260. On account of this earlier payment, PCIB argued that the total payments NAMAWU
had received exceeded what it was entitled to by reason of the final judgment and, therefore, Atlas could
not credit the full amount received by NAMAWU in satisfaction of the Atlas obligation. Trial court upheld
PCIB’s position, which was reversed by CA. Hence, this petition.
Issues:
1) Whether PCIB should settle for only P6,819,766.10 which it received out of the P12M
downpayment or it is entitled to more than that, specifically 63.1579% of the downpayment
2) Whether Atlsat should be fully credited for the amount of P4,298,307.77 it had paid to NAMAWU
Held: Petition granted in part.
1) This case concerns a joint obligation which is defined as an obligation where there is a
concurrence of several creditors, or of several debtors, or of several creditors and debtors, by
virtue of which each of the creditors has a right to demand, and each of the debtors is bound to
render, compliance with his proportionate part of the prestation which constitutes the object of the
obligation. Article 1208 of the Civil Code mandates the equal sharing of creditors in the payment
of debt in the absence of any law or stipulation to the contrary. It is beyond dispute that Atlas
issued HSBC Check in the sum of P12M with PCIB and MBC as joint payees as downpayment of
the purchase price. The check was received by Cabalu, Jr, PCIB Vice President, and was
afterwards deposited in the account of MBC. Therefore, it is reasonable to conclude that the
amount received by PCIB, as evidenced by the receipt, was given to it by MBC. IT was only on
March 8, 1979 that PCIB communicated to Atlas the percentage of payments to be remitted to
PCIB and MBC. Before said date, Atlas could be secure in the thought that the matter of sharing
was best left to the creditors to decide. Whatever deficiency is entitled from the P12M
downpayment had become an internal matter between it and MBC.
2) While the original amount sought to be garnished was P4,298,307.77, the partial payment of
P601,260 naturally reduced it to P3,697,047.77. Clearly, Atlas overpaid NAMAWU. It will be
recalled that upon the writ of garnishment, Atlas immediately paid NAMAWU, without making any
investigation or consultation with PCIB. Article 1236 of the Civil Code applies in this instance. It
provides that whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover only insofar
as the payment has been beneficial to the debtor. Since Atlas readily paid NAMAWU without the
knowledge and consent of PCIB, Atlas may only recover from PCIB or more precisely charge to
PCIB only the amount of payment which has benefited the latter. Generally, the third person who
paid another’s debt is entitled to recover the full amount he had paid. The law, however, limits his
recovery to the amount by which the debtor has been benefited, if the debtor has knowledge of,
or has expressed his opposition to such payment. Where the defenses that could have been set
up by the debtor against the creditor were existing and perfected, a payment by a third person
without the knowledge of the debtor cannot obligate the debtor to such third person to an amount
more than what he could have been compelled by the creditor to pay. Overpayment amounting
to P601,260 should be recovered from NAMAWU.
#16 COUNTRY BANKERS INSURANCE CORPORATION v. CA

(Rhett)
Facts:
Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and Enrique F. Sy, as lessee, entered into a
lease agreement over the Avenue, Broadway and Capitol Theaters and the land on which it stood in
Cabanatuan City, including their air-conditioning systems, projectors and accessories needed for showing
the films or motion pictures. The term was for six (6) years. In addition, the contract contained a
forfeiture clause, which pertains to the forfeiture of the deposit remaining with the lessor without prejudice
to the collection of other obligations.
Sy failed to pay his rentals and amusement taxes, so OVEC demanded repossession of the properties
which it leased. In spite of the fact that it had been granted an extension on the payments, Sy still failed
to pay the same. As such, OVEC padlocked the gates of the three theaters under lease and took
possession thereof by posting its men around the premises of the said movie houses and preventing the
lessee's employees from entering the same.
Sy, through his counsel, subsequently filed an action for reformation of the lease agreement, including
damages and injunction. The injunction having been granted, Sy regained possession and operation of
the Avenue, Broadway and Capital theaters. Sy also posted a bond for the issuance of the injunction.
RTC: Sy is not entitled to the reformation of the lease agreement; that the repossession of the leased
premises by OVEC after the cancellation and termination of the lease was in accordance with the
stipulation of the parties in the said agreement and the law applicable thereto and that the consequent
forfeiture of Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease agreement.
It found that there was no ambiguity in the lease agreement on top of it being reasonable and fair. It
further concluded that Sy was not entitled to the writ of preliminary injunction issued in his favor after the
commencement of the action and that the injunction bond filed by Sy is liable for whatever damages
OVEC may have suffered by reason of the injunction. It also found that OVEC was deprived of the
possession and enjoyment of the leased premises and also suffered damages as a result of the filing of
the case by Sy and his violation of the terms and conditions of the lease agreement. Hence, it held that
OVEC is entitled to recover the damages it prayed for in addition to the arrears in rentals and amusement
tax delinquency of Sy as well as the accrued interest thereon. The injunction bond was the fund from
which reimbursement is to be made.
CA: Affirmed the RTC.
Issue:
Whether or not the payment reimbursed from the injunction bond was valid in spite of the forfeiture
clause.
Ruling:
Yes. SC affirmed the CA. The contention that the payment of damages resulting from the injunction in
spite of the forfeiture of the deposit remaining with the lessor will amount to just enrichment cannot hold
water.
A forfeiture clause is, in effect, a valid penal clause, which is not contrary to law, morals, good customs,
public order or public policy. It is an accessory obligation which the parties attach to a principal obligation
for the purpose of insuring the performance thereof by imposing on the debtor a special prestation in case
the obligation is not fulfilled or is irregularly or inadequately fulfilled. As a general rule, in obligations with
a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in
case of non-compliance. In such a case, proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. However, there are exceptions to the rule that the
penalty shall substitute the indemnity for damages and the payment of interests in case of non-
compliance with the principal obligation. They are first, when there is a stipulation to the contrary; second,
when the obligor is sued for refusal to pay the agreed penalty; and third, when the obligor is guilty of
fraud. It is evident that in all said cases; the purpose of the penalty is to punish the debtor. Therefore, the
creditor can recover from the debtor not only the penalty but also the damages resulting from the non-
fulfillment or defective performance of the principal obligation.
Here, while the forfeiture clause provides that the deposit shall be deemed forfeited, without prejudice to
any other obligation still owing by the lessee to the lessor, the penalty (Php 10,000.00) cannot substitute
for the damage resulting from the issuance of the injunction (Php 290,000.00). This supposed damage
suffered by OVEC was the alleged P10,000.00 a month increase in rental from P50,000.00 to
P60,000.00, which OVEC failed to realize because the possession of the properties was with Sy. This
opportunity cost, which was duly proven before the trial court, was correctly made chargeable by the said
court against the injunction bond posted.
#17 Ramos vs. CA

(Tom)
Topic: Art. 1250, NCC and Rescission of contract
Facts of the Case
Remedios Ramos is the owner of factory space No. 5 located at the corner of Scour Mandrinan
and Scout Torillo Streets, Q.C. In 1988, she entered into a lease contract with the spouses Malapit, which
contained the following stipulations:
th
1(2) the lessees shall, on the 5 year of the lease, shall change the Yakal
posts with concrete posts from the base to the roofing or to the supports of the
main trusses holding the roofing at the expense of the lessees without any cost
to the lessor-owner, and termination of contract upon such failure by lessees to
comply with this condition;
1(3) increase or decrease in the monthly rate of rental in case of inflation or
deflation of the Philippine peso;
12. payment of monthly rental at the first week of every month, with default
resulting in a 20% penalty per annum for every month of delay and termination
of the contract if delay reaches 3 months;
13. replacement of the roofing and the 3 posts at the back of the premises
into concrete posts on the 5th year of the lease, such to be done at lessee’s
costs with no costs on the lessor-owner.
On May 24, 1994, Ramos filed with the MeTC a complaint for ejectment against the spouses
Malapit, alleging that the latter failed to abide by the stipulations in the lease agreement without any valid
or justifiable reason, and that the spouses refused to pay for the increase in rentals in spite of the inflation
of the peso. Respondents contended that the failure to fulfill their obligations under the lease contract was
caused by the refusal of Ramos’ son to let them comply with their obligations. The MeTC granted the
petition, which the spouses appealed to the RTC.
The RTC granted the spouses’ appeal, stating that Ramos and her son were the ones who
prevented the replacement of the posts and roofing, that there had been no official declaration of inflation
that would bring about any increase in rent, and that there was no delay in payment that would cause the
termination of the contract as such was caused by Ramos and her son themselves.
Appeal to the CA resulted in the dismissal of such appeal, and the MR was also denied.
Issue:
W/N Ramos has the right to terminate the contract due to the spouses’ failure to comply with their
obligations under the terms of the lease agreement;
Held:
Yes. It was clear that the spouses failed to fulfill their obligations under the contract, more
specifically their obligation to replace the Yakal posts with concrete posts and the roofing as well. The
RTC relied on a letter sent by the spouses’ counsel to Ramos’ counsel that stated that the replacement of
the wooden posts was not proceeded with as one of Ramos’ sons stated that the replacement of such
posts was not necessary as it might alter the structure. Such was denied by Ramos, and even if it were
true, such would result in a modification of the contract. Paragraph 10 of the agreement provides that any
modification to the contract must be in writing and duly signed by both parties. No such agreement for
modifications was ever agreed upon in the case, nor were there any evidence of such written agreement
on the modifications to the lease agreement. In fact, the obligation to change the posts at the 5th year of
the lease was so important that termination of the lease contract was the consequence of non-compliance
with such obligation.
Also, the spouses were in default in payment of the loan for 3 months. Upon filing of the
complaint on May 20, 1994, the spouses were already in default for 3 months, especially as payment was
required at the 1st week of every month and that the spouses failed to make rent payments for March and
April 1994.
But the allegation of failure to pay the increased rate upon the inflation of deflation of the peso is
wrong. Art. 1250 of the Civil Code requires a declaration of inflation by the Central Bank. Without such
declaration from the Central Bank the creditors cannot demand an increase in rent.
#18 Eternal Gardens Memorial Corp. V. CA

(Tommy)
Topic: Consignation
Facts of the Case
Eternal Gardens Memorial Park Corp. (EGMPC) and National Philippine Union Mission of the Seventh
Day Adventists (NPUM) entered into an agreement to develop a parcel of land owned by NPUM into a
memorial park. Later on two claimants of the parcel of land surfaced namely, the Maysilo Estate and the
Heirs of Vicente Singson Encarnacion. EGMPC thus filed an interpleader against the Maysilo Estate
while the Singons filed an action to quiet title. From these two proceedings several other proceedings
ensured.
In the interpleader case, EGMPC was asked to deposit whatever amounts due from it under the Land
Development Agreement with a reputable bank. The TC then consolidated the interpleader and the
quieting of title case and rendered judgment dismissing the claims of the Maysilo Estate and declaring the
title of NPUM valid and the decision in favor of the Singsons was reversed and set aside.
The Singsons filed a petition for review on certiorari which was denied for failure to comply with Circular
No. 28-91 (not disclosed in the case what this circular is about, and besides remedial to). On the other
hand the petition for review on certiorari filed b the Maysilo estate was denied for failure of petitioner to
raise substantial issues. EGMPC likewise filed a petition for review on certiorari which was also denied
for failure to comply with Circular No. 19-91 (again not disclosed in the case what this is about). The SC
hence held that there is no legal obstacle to carry out the Land Development Agreement and remanded
the case to the CA for determination of the rights of each party and declaring all other actions MOOT and
are noted WITHOUT ACTION.
The CA in compliance with the CA required the parties to appear before them and submit all related
records and books to determine the remaining accrued rights and liabilities of the parties under the Land
Development Agreement. The accounting of the respective parties was referred to Ms. Carmelita Angelo
the CA’s accountant. NPUM submitted a summary of sales and the total amounts due based on several
documents. It appears however that EGMPC did not submit any document to aid the appellate court in its
mandated task hence, the CA in its resolution held that they would therefore proceed with the mutual
accounting required to determine the parties rights and liabilities. Ms. Angelo therefore submitted her
report to which the parties are asked to comment. EGMPC took exception to the appellate court’s having
considered it to have waived its right to present documents. CA set the hearing date for NPUM to present
documents. NPUM asked for a subpoena ad testificandum requirnf Mr. Gabriel O. Vida to produce
certain documents and other documents it had submitted to the court. Mr. Vida denied stating it had no
knowledge of the documents except for the Land Agreement. NPUM reiterated its request that the CA
issue a subpoena duces tecum and subpoeana ad testificandum this time addressed to the Chief of the
Records Division of EGMPC and a request for admissions with regard to the documents.
EGMPC failed to present the documents required by the subpoena and filed a denial and/or objections to
the request for admissions on the ground that no comparison to the originals could be made. The CA
therefore approved the report of Ms. Angelo and ordered EGMPC to pay and turn over to NPUM the
amount of P167,065,195 as principal and P167,235,451 as interest. EGMPC filed an MR which was
denied. EGMPC filed an etension to file petition for review to which the court granted hence this petition.
Issue: Whether or not EGMPC was justified in withholding payment as there was still the unresolved
issue of ownership.
NO!
The SC first discussed the procedural aspect of the case (let’s not go into that).
EGPMC’s claim that it was denied of due process because they were not allowed to cross examine the
American Accountant of NPUM is devoid of merit because several conferences were set by the CA
allowing the parties to discuss with each other and with Ms. Angelo the report and it appears on the
record that EGMPC’s counsel even expressed that it was “amenable to that computation” referring to the
report of Ms. Angelo which stressed that EGMPC did not subit any documents pertaining to the
computation of the 40% share of the NPUM under the Land Development Agreement.
Let us now go into the relevant topic for Obligations. EGMPC claims that it is not liable for interest
because it was justified in withholding payment because the issue of ownership over the property subject
of the Land Development Agreement has not been resolved.
The argument is without merit EGMPC under the agreement had the obligation to remit monthly to NPUM
forty percent (40%) of its net gross collection from the development of a memorial park on property
owned by NPUM. The same agreement provided for the designation of a depository/trustee bank to act
as the depository/trustee for all funds collected by EGMPC. There was no obstacle, legal or otherwise, to
the compliance by EGMPC of this provision in the contract, even on the affectation that it did not know to
whom payment was to be made.
Even disregarding the agreement, EGMPC cannot "suspend" payment on the pretext that it did not
know who among the subject property's claimants was the rightful owner. It had a remedy under
the New Civil Code of the Philippines to give in consignation the amounts due, as these fell due.
Consignation produces the effect of payment.
The rationale for consignation is to avoid the performance of an obligation becoming more
onerous to the debtor by reason of causes not imputable to
him. For its failure to consign the amounts due, Eternal Gardens' obligation to NPUM necessarily
became more onerous as it became liable for interest on the amounts it failed to remit.
#19 People's Indusrial vs. CA

(Barney)
Facts of the Case
People entered into a K with Marick on the sale of several lots in Marick subdivision on an installment
basis.
There is a stipulation in the K that the lots will be payable in 120 monthly installments (or for ten years). It
is also stipulated that (Provision 9) Should People failed to pay any installment within 120 days from
its due date, the mere act of non payment, will have the effect of expiration of the K without the
need of any judicial declaration and all installments paid will be considered as rentals.
After the lapse of ten years, People was only able to pay the down payment and 8 installments. Marick
still gave People 4 months as grace period considering the fire, strike and typhoons that hampered
People's operations. No payment was made.
In 1980, Marick also asked People to remove some of its improvements since they encroached upon
other lots. After series of negotiations, in 1983, the parties decided to cancel the 1961 agreement and
create a new one to avoid litigation considering that People was in the possession of the lots. The new K
provides for a new selling price and that balances to be paid in 48 monthly installments.
But neither of the parties signed the new K. The representative of People however issued 5 checks. They
were received by Marick but the same were never encashed. Instead, Marick filed with the RTC a
complaint for ACCION PUBLICIANA DE POSESION against People’s as represented by Siatianum, the
president. It prayed that People surrender the premises and remove their improvements and pay a
reasonable rental for the use of the land from 1961 to 1983.
RTC ruled in favor of Marick and consider the first or 1961 agreement as already cancelled due to the
failure of buyer to pay the installments. With regard to the new agreement, the court held that no valid
agreement took place sign the draft K was not signed and that the checks were never encashed.
Issue related to obligations: WON there was a perfected and enforceable contract of sale or of contract to
sell entered into in 1983
Held: No perfected K. Although the parties may IDEALLY be considered as having perfected the 1983 K.
The 1961 K was already cancelled as the buyer defaulted in paying. No need for judicial declaration since
they agreed that such is not needed. The law requiring such declaration was passed after 1961 and it
does not provide any retroactive effect.
According to SC, K in general are perfected by MERE CONSENT notwithstanding that they did not affix
their signatures to its written form. Also, the intentional non-encashement of the check cannot serve to
belie the fact of its tender as down payment. But still the K was not deemed perfected because: THE
PARTIES NEVER ARRIVED AT A DEFINITE AGREEMENT. What the parties arrived at during their
meeting was only the price and no definite number of lots were agreed upon. (They are talking about lots
1-7 and the status of lot 2 was not yet resolved due to issues re right of way). The court held that they
were not able to agree on a fundamental provision of the K.
Moreover, the checks given which were not deposited nor consigned by the buyer. A CONTRACT TO
SELL, as in this case, involves the performance of an obligation, not merely the exercise of a privilege or
right (as in the case of an option K or in legal redemption). Consequently, performance or payment may
be effected not by tender of payment alone but by both tender and consignation.
Here, the buyer just made a tender of down payment and never even bothered to pay the installments nor
asked that the true intent be reflected in the K. People made it appear that they were no longer interested
to pursue the deal. On the other hand, Marick, the seller who never encashed the check have taken for
granted the K thinking that again, People ignored opportunities to resuscitate a contract to sell that was
rendered moribund and inoperative by People’s inaction.
Thus, justice and equity will not be served by a positive ruling on the perfection and performance of the
contract to sell.
Difference between contract of sale contract to sell
K of sale: title passes to the vendee upon the delivery of the thing sold; the vendor has lost and cannot
recover ownership until the K is resolved
K to sell: by agreement, the ownership is reserved in the vendor and is not pass until the full payment of
the price; title is retained by the vendor until the full payment of the price, thus failure to pay is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming effective.
#20 Barredo vs. Leano

(Bea)
Facts of the Case
In 1979, Spouses Barredo bought a house and lot with the proceeds of a P50,000 loan from the SSS
which was payable in 25 years and an P88,400 loan from the Apex Mortgage and Loans Corporation
which was payable in 20 years. They secured the mortgage over the house and lot.
In 1987, Spouses Barredo sold their house and lot to Spouses Leano by way of a Conditional Deed of
Sale with Assumption of Mortgage. The Leano spouses would pay P200,000, P100,000 of which would
be payable on July, 15, 1987, while the balance of P100,00 would be paid in 10 equal monthly
installments after the signing of the contract. Leano spouses would also assume the 1st and 2nd
mortgages and pay the monthly amortizations to SSS and Apex until both are fully paid.
Spouses Leano paid the purchase price of P200,000. Yet they failed to pay the mortgage amortizations
to the SSS and Apex since SSS did not accept their payments because Barredo failed to notify SSS of
the assignment of their debt.
Spouses Barredo filed before the RTC a complaint seeking a rescission of the contract on the ground that
the Leano spouses despite repeated demands failed to pay the mortgage amortization t the SSS and
Apex causing the Barredo Spouses great and irreparable damage. Hence, in order to save their
reputation Barredo paid the amortizations to Apex and SSS in full.
RTCÎruled that the assumption of mortgage debts of the Spouses Barredo by the Leano Spouses is a
very substantial condition. It declared the Conditional Deed of Sale with Assumption of Mortgage as
rescinded and therefore null and void.
Court of AppealsÎ reversed and set aside the decision of the trial court on the ground that the payments
of amortizations were mere Collateral matters which do not detract form the condition of paying the
principal consideration.
Issue: Whether Spouses Barredo is entitled to rescission of the Conditional Deed of Sale with
Assumption of Mortgage.
Held:
No. The Recission of contracts will not be permitted for a slight or casual breach thereof.
Even if we consider the payment of the mortgage amortizations to the SSS and Apex as a condition on
which the sale is based on, still rescission would not be available since non-compliance with such
condition would just be a minor or casual breach thereof as it does not defeat the very object of
the parties in entering into the contract.
In Song Fo & Co. v. Hawaiian Philippine Co., the court ruled that a delay in the payment for a small
quantity of molasses for some twenty days is not such a violation of an essential condition of the contract
that warrants rescission due to non-performance.
A careful reading of the pertinent provisions of the agreement readily shows that the principal object of
the contract was the sale of the Barredo house and lot. The assumption of the mortgages by the Leaño
Spouses over the mortgaged property and their payment of amortizations are just collateral matters which
are natural consequences of the sale of the said mortgaged property.
When the language of the contract is clear, it requires no interpretation, and its terms should not
be disturbed. To include the full payment of the obligations with the SSS and Apex as a condition would
be to unnecessarily stretch and put a new meaning to the provisions of the agreement. For, as a general
rule, when the terms of an agreement have been reduced to writing, such written agreement is
deemed to contain all the terms agreed upon and there can be, between the parties and their
successors-in-interest, no evidence of such terms other than the contents of the written agreement.
And, it is a familiar doctrine in obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to, which is the law between them,
the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law,
morals, public order or public policy. Not being repugnant to any legal proscription, the agreement
entered into by the parties must be respected and each is bound to fulfill what has been expressly
stipulated therein
Besides, in ordering rescission, the trial court should have likewise ordered the Barredo Spouses to return
the P200,000.00 they received as purchase price plus interests. Art. 1385 of the Civil Code provides that
"rescission creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest."
#21 BPI v. CA (1996)

(Benjie)
Topic: Art. 1279 - Legal Compensation
Facts of the Case
Private respondent Edvin F. Reyes opened Savings Account No. 3185-0172-56 at petitioner Bank of the
Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR" account with his wife,
Sonia S. Reyes. Private respondent also held a joint "AND/OR" Savings Account No. 3185-0128-82 with
his grandmother, Emeteria M. Fernandez, at the same BPI branch. He regularly deposited in this account
the U.S. Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly pension.
Emeteria M. Fernandez died on December 28, 1989 without the knowledge of the U.S. Treasury
Department. She was still sent U.S. Treasury Warrant No. 21667302 dated January 1, 1990 in the
amount of U.S. $377.00 or P10,556.00. On January 4, 1990, private respondent deposited the said U.S.
treasury check of Fernandez in Savings Account No. 3185-0128-82. The U.S. Veterans Administration
Office in Manila conditionally cleared the check. The check was then sent to the United States for further
clearing. Two months thereafter, private respondent closed Savings Account No. 3185-0128-82 and
transferred its funds amounting to P13,112.91 to Savings Account No. 3185-0172-56, the joint account
with his wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it was discovered that
Fernandez died three (3) days prior to its issuance. The U.S. Department of Treasury requested petitioner
bank for a refund. For the first time petitioner bank came to know of the death of Fernandez. On February
19, 1991, private-respondent received a PT&T urgent telegram from petitioner bank requesting him to
contact Manager Grace S. Romero or Assistant Manager Carmen Bernardo. When he called up the bank,
he was informed that the treasury check was the subject of a claim by Citibank NA, correspondent of
petitioner bank. He assured petitioners that he would drop by the bank to look into the matter. He also
verbally authorized them to debit from his other joint account the amount stated in the dishonored U.S.
Treasury Warrant. On the same day, petitioner bank debited the amount of P10,556.00 from private
respondent's Savings Account No. 3185-0172-56.
On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng visited the petitioner
bank and the refund documents were shown to them. Surprisingly, private respondent demanded from
petitioner bank restitution of the debited amount. He claimed that because of the debit, he failed to
withdraw his money when he needed them. He then filed a suit for Damages against petitioners. By way
of Special and Affirmative Defense, petitioners averred that private respondent gave them his express
verbal authorization to debit the questioned amount. They claimed that private respondent later refused to
execute a written authority. The trial court dismissed the complaint of private respondent for lack of cause
of action. The CA reversed the RTC’s Decision. On appeal to the Supreme Court, the petitioners contend
that the CA erred in not holding that petitioner bank has legal right to apply the deposit of respondent
Reyes to his outstanding obligation to petitioner bank brought about by the return of the U.S. Treasury
Warrant he earlier deposited under the principle of "legal compensation."
Issue:
Whether BPI has the legal right to apply the deposit of respondent to his outstanding obligation to the
Bank.
Held:
Yes. The respondent court erred when it failed to rule that legal compensation is proper. Compensation
shall take place when two persons, in their own right, are creditors and debtors of each other. Article 1290
of the Civil Code provides that "when all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation." Legal compensation operates
even against the will of the interested parties and even without the consent of them. Since this
compensation takes place ipso jure, its effects arise on the very day on which all its requisites concur.
When used as a defense, it retroacts to the date when its requisites are fulfilled.
Article 1279 states that in order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
The elements of legal compensation are all present in the case at bar. The obligors bound principally are
at the same time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a
depositor. At the same time, said bank is the creditor of the private respondent with respect to the
dishonored U.S. Treasury Warrant which the latter illegally transferred to his joint account. The debts
involved consist of a sum of money. They are due, liquidated, and demandable. They are not claimed by
a third person.
It is true that the joint account of private respondent and his wife was debited in the case at bar. We hold
that the presence of private respondent's wife does not negate the element of mutuality of parties, i.e.,
that they must be creditors and debtors of each other in their own right. The wife of private respondent is
not a party in the case at bar. She never asserted any right to the debited U.S. Treasury Warrant. Indeed,
the right of the petitioner bank to make the debit is clear and cannot be doubted. To frustrate the
application of legal compensation on the ground that the parties are not all mutually obligated would result
in unjust enrichment on the part of the private respondent and his wife who herself out of honesty has not
objected to the debit. The rule as to mutuality is strictly applied at law. But not in equity, where to allow
the same would defeat a clear right or permit irremediable injustice.
#22 EMILIA M. URCA, CONCORDIA D. CHING and ONG SENG vs. COURT OF APPEALS, JACINTO
VELEZ JR., CARMEN VELEZ TING, AVENUE MERCHANDISING INC., FELIX TING AND ALFREDO
GO
(Farrah)
Topic: Novation is never presumed; it must be sufficiently established that a valid new agreement
or obligation has extinguished or changed an existing one. The registration of a later sale must be
done in good faith to entitle the registrant to priority in ownership over the vendee in an earlier
sale.
Facts of the Case
• The Velezes, herein private respondents were the owners of the lot and commercial building in
question located at Progreso and M.C. Briones Streets in Cebu City. Herein petitioners were the
lessees of said commercial building.
• On July 8, 1985, the Velezes through Carmen Velez Ting wrote a letter to petitioners offering to
sell the subject property for P1,050,000.00 and at the same time requesting petitioners to reply in
three days.
• On July 10, 1985, petitioners through Atty. Escolastico Daitol sent a reply-letter to the Velezes
accepting the aforesaid offer to sell.
• On July 11, 1985, petitioner, Emilia Uraca went to see Carmen Ting about the offer to sell but she
was told by the latter that the price was P1,400,000.00 in cash or manager's check and not
P1,050,000.00 as erroneously stated in their letter-offer after some haggling.
• Emilia Uraca agreed to the price of P1,400,000.00 but counter-proposed that payment be paid in
installments with a down payment of P1,000,000.00 and the balance of P400,000 to be paid in 30
days. Carmen Velez Ting did not accept the said counter-offer of Emilia Uraca although this fact
is disputed by Uraca. No payment was made by petitioner to the Velezes on July 12, 1985 and
July 13, 1985.
• On July 13, 1985, the Velezes sold the subject lot and commercial building to the Avenue
Merchandising Inc. composed by Felix C. Ting, Manuel Ting and Alfredo Go for P1,050,000.00
net of taxes, registration fees, and expenses of the sale.
• At the time the Avenue Group purchased subject property on July 13, 1985 from the Velezes, the
certificate of title of the said property was clean and free of any annotation of adverse claims or lis
pendens.
• On July 31, 1985, petitioners filed the instant complaint against the Velezes and on August 1,
1985, registered a notice of lis pendens over the property in question with the Office of the
Register of Deeds.
• On October 30, 1985, the Avenue Group filed an ejectment case against petitioners ordering the
latter to vacate the commercial building standing on the lot in question.
• Thereafter, petitioners filed an amended complaint impleading the Avenue Group as new
defendants after about 4 years after the filing of the original complaint.
TC Ruling: In respect to the first sale, due to the unqualified acceptance by the plaintiffs within the period
set by the Velezes, there consequently came about a meeting of the minds of the parties not only as to
the object certain but also as to the definite consideration or cause of the contract." And even assuming
arguendo that the second sale was not perfected, the trial court ruled that the same still constituted a
mere modificatory novation which did not extinguish the first sale. Hence, the trial court held that the
Velezes were not free to sell the properties to the Avenue Group. It also found that the Avenue Group
purchased the property in bad faith.
CA Ruling: Reversed the ruling of the RTC. While there was a perfected contract of sale of the property
for P1,050,000.00 between the Velezes and herein petitioners, the same was subsequently novated.
Thus, it ruled: "Evidence shows that that was the original contract. However, the same was mutually
withdrawn, cancelled and rescinded by novation, and was therefore abandoned by the parties when
Carmen Velez Ting raised the consideration of the contract by P350,000.00, thus making the price
P1,400,000.00 instead of the original price of P1,050,000.00. Since there was no agreement as to the
'second' price offered, there was likewise no meeting of minds between the parties, hence, no contract of
sale was perfected." It also added that, assuming there was agreement as to the price and a second
contract was perfected, the later contract would be unenforceable under the Statute of Frauds. It further
held that such second agreement, if there was one, constituted a mere promise to sell which was not
binding for lack of acceptance or a separate consideration.
ISSUES:
(1) Whether or not the Court of Appeals erred in holding that there was a novation of contract such that
respondent is free to sell the subject property to Avenue Group
(2) Whether or not Avenue Group has a better right over the property than petitioners.
HELD:
(1) Yes. No Extinctive Novation
When the petitioners accepted in writing and without qualification the Velezes' written offer to sell at
P1,050,000.00 within the three-day period stipulated therein, from that moment of acceptance a contract
of sale was perfected. Undisputedly the contractual elements of consent, object certain and cause
concurred. Thus, the only question posed for resolution is, was there a novation of this perfected contract.
Article 1231 of the Civil Code states that novation is one of the ways to wipe out an obligation. Extinctive
novation requires: (1) the existence of a previous valid obligation; (2) the agreement of all the parties to
the new contract; (3) the extinguishment of the old obligation or contract; and (4) the validity of the new
one. The foregoing clearly show that novation is effected only when a new contract has extinguished an
earlier contract between the same parties. In this light, 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 old and new obligations or contracts.
In the case at bar, the petitioners and the Velezes did not reach an agreement on the new price of
P1,400,000.00 demanded by the latter. In this case, the petitioners and the Velezes clearly did not perfect
a new contract because the essential requisite of consent was absent, the parties having failed to agree
on the terms of the payment. True, petitioners made a qualified acceptance of this offer by proposing that
the payment of this higher sale price be made by installment, with P1,000,000.00 as down payment and
the balance of P400,000.00 payable thirty days thereafter. Under Article 1319 of the Civil Code, such
qualified acceptance constitutes a counter-offer and has the ineludible effect of rejecting the Velezes'
offer. Indeed, petitioners' counter-offer was not accepted by the Velezes. It is well-settled that an offer
must be clear and definite, while an acceptance must be unconditional and unbounded, in order that their
concurrence can give rise to a perfected contract. In line with this basic postulate of contract law, a
definite agreement on the manner of payment of the price is an essential element in the formation of a
binding and enforceable contract of sale. Since the parties failed to enter into a new contract that could
have extinguished their previously perfected contract of sale, there can be no novation of the latter.
Consequently, the first sale of the property in controversy, by the Velezes to petitioners for
P1,050,000.00, remained valid and existing.
(2) Petitioner has a better right under the concept of Double Sale of an Immovable
Under Article 1544 of the Civil Code, the prior registration of the disputed property by the second buyer
does not by itself confer ownership or a better right over the property. Article 1544 requires that such
registration must be coupled with good faith. Knowledge gained by the first buyer of the second sale
cannot defeat the first buyer's rights except where the second buyer registers in good faith the second
sale ahead of the first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her
from availing of her rights under the law, among them, to register first her purchase as against the second
buyer. But in converso, knowledge gained by the second buyer of the first sale defeats his rights even if
he is first to register the second sale, since such knowledge taints his prior registration with bad faith. This
is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first
buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good
faith throughout like in ignorance of the first sale and of the first buyer's rights from the time of acquisition
until the title is transferred to him by registration or failing registration, by delivery of possession.
Based on the testimonies and evidences presented in court, Avenue Group’s actual knowledge of the
Velezes' prior sale of the same property to the petitioners made them purchaser in bad faith. The Avenue
Group, whose store is close to the properties in question, had known the plaintiffs to be the lessee-
occupants thereof for quite a time. Felix Ting, admitted to have a talk with Ong Seng, one of petitioners
about the properties. In the cross-examination, Manuel Ting, admitted that about a month after Ester
Borromeo allegedly offered the sale of the properties, Felix Ting went to see Ong Seng again. If these
were so, it can be safely assumed that Ong Seng had consequently told Felix about plaintiffs' offer on
January 11, 1985 to buy the properties for P1,000,000.00 and of their timely acceptance on July 10, 1985
to buy the same at P1,050,000.00.
The two aforesaid admissions by the Tings, considered together with Uraca's positive assertion that Felix
Ting met with her on July 11th and who was told by her that the plaintiffs had transmitted already to the
Velezes their decision to buy the properties at P1,050,000.00, proves that the Avenue Group had prior
knowledge of plaintiffs' interest. Hence, the Avenue Group defendants, earlier forewarned of the plaintiffs'
prior contract with the Velezes, were guilty of bad faith when they proceeded to buy the properties to the
prejudice of the plaintiffs.
We see no reason to disturb the factual finding of the trial court that the Avenue Group, prior to the
registration of the property in the Registry of Property, already knew of the first sale to petitioners.
Therefore, because the registration by the Avenue Group was in bad faith, it amounted to no "inscription"
at all. Hence, the third and not the second paragraph of Article 1544 should be applied to this case. Under
this provision, petitioners are entitled to the ownership of the property because they were first in actual
possession, having been the property's lessees and possessors for decades prior to the sale.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is hereby SET
ASIDE and the dispositive portion of the trial court's decision dated October 19, 1990 is REVIVED with
the following MODIFICATION the consideration to be paid under par. 2 of the disposition is
P1,050,000.00 and not P1,400,000.00. No Costs.

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(3) That the two debts be due;

(4) That they be liquidated and demandable;

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(1) Yes. No Extinctive Novation

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