Articles 1226-1229 : Obligations with a Penal

FACTS RULING
Clause

120k loan, with a promissory note "an interest of 15.189% per annum
upon maturity and to pay a PENALTY of 5% every month on the
outstanding principal and interest in case of default"
LIGUTAN V. CA
Petitioners : prayed for the reduction of 5% penalty charge for being
unconscionable
Bank : Computation shall commence from the time of default
PN : "Pay the obligation on its maturity date without necessity of
demand + agree to pay the interest in case of non-payment from their
date of default"
Affirmed the CA's reduction of penalty from 5% to 3% or 36% per
annum
The question of whether a penalty is reasonable or iniquotous can be
partly subjective and partly objective.

PAGCOR's breach was occassioned with real and pressing events,

Setting up of a Casino in Pryce Plaza Hotel in CdO
PAGCOR asked PPC to refund 1,437,582.25 representing the
reimbursable rental deposits and expenses for the permanent
PRYCE CORP V. PAGCOR
improvement of the Hotel's parking lot
RTC : 2% penalty was to be imposed from the date of the promulgation tremendous loss of expected revenues, not to mention the fact that it
of the Decision, not from the date stipulated in the Contract
though not fortuitous according to law.
PAGCOR conducted a series of negotiations and consultations before
entering the Contract.
PAGCOR contested the ordinances + It was advised by OP to stop the
games in CdO
The interruptions and stoppages meant that PAGCOR suffered a
had FULLY OPERATED under the Contract only for a limited time
Petitioner's right to a stipulated PENALTY is AFFIRMED. Claim for
future rentals was reduced for being iniquitous
Penalty at the rate of 2% per month, from the date of the filing of the
Complaint

Florentino was guilty of committing several breaches of contract

FLORENTINO V. SUPERVALUE
DIAMOND BUILDERS V. COUNTRY BANKERS
RIVERA V. SPS. CHUA
Contract of Lease of Empanada Royale Section 5 and 18 is in the nature of a penal clause to ensure petitioner's
Supervalue: Florentino is liable for the amount of 106,474.09 faithful compliance with the terms and conditions of the said contracts
representing the PENALTY for selling a new variety of empanada, The breaches were not in such degree that the respondent was unduly
electricity, and water bills, and rental adjustment, among others prejudiced thereby = EQUITABLE to reduce the penalty to 50% of the
incidental to the lease agreements total amount of security deposits. The forfeiture of the entire sum is
usurious
a performance or surety bond in the equivalent of 370,000.00 - to Rogelio's obligation under the compromise agreement had a penal
ANSWER or INDEMNIFY plaintiff in the event the building is not clause, which is monetary in nature, the writ of execution availed of by
finished on the 75th day Borja, and paid by Country Bankers, strictly complied with the rules on
RTC and CA found the Promissory Note as authentic and valid.
Reduced the interest rate of 60% to 12% per annum (the stipulated
interest rate was illegal because it was inconscionable and the Court is
allowed to temper such when necessary)
Rivera obtained loan (120k) from Sps. Chua, + Issued a promissory note He became liable on January 1, 1996 or upon default
with a STIPULATION: "I agree to pay the sum equivalent to 5% interest THE STIPULATION ON INTEREST WAS NOT A PENAL CLAUSE.
monthly from the date of default until the entire obligation is fully paid Penal clause is generally undertaken to insure performance and works
for." as either, or both, punishment and reparation.
The stipulation in the Promissory Note is designated as payment of
INTEREST, not as a penal clause, and is simply an INDEMNITY FOR
DAMAGES incurred by Sps. Chua because Rivera defaulted in the
payment of the amount of 120k.

But, Metrobank used interest rates, DIFFERENT from those stipulated in

BUENAVENTURA V. METROPOLITAN BANK
the PNs (almost double than that stipulated)
BSP Circular No. 799 Series of 2013 : fixed interst rates to 6% p.a. the
rate of interest for loan or forbearance of any money, goods, or credits,
and the rate allowed in contracts. BUT, applicable only in the absence of
Teresita Buenaventura executed PNs (1.5M each) payable to Metrobank stipulation in the contract
PN No. 232663 - to mature on 1 July 1997 with interest and credit The contractual stipulations on the rates of interest contained in the
evaluation and supervision fee of 17.532% p.a. PNs remained applicable
PN No. 232771 - to mature on 7 April 1998 with interest and credit Metrobank was entitled to recover 1.5M subject to the stipulated interest
evaluation and supervision fee of 14.239% p.a. of 14.239% p.a. from date of default until full payment and 1.2M subject
Both PNs provide for a PENALTY of 18% per annum on the unpaid to the stipulated interest of 17.532% p.a. from date of default until full
principal from date of default until full payment of the obligation payment
Defaulted = RTC ordered payment of 3,553,444.45 including INTEREST ON THE PENALTY
and PENALTY Penalty on delinquent loans may take different forms
The penalty of 18% per annum was warranted for being expressly
stipulated in the PNs
Penalty and Interest reckoned on the unpaid principals computed from
the date of default until fully paid. This is in line with the EXPRESS
agreement between the parties to impose such penalty.
1231-1232 : PAYMENT FACTS RULING

RTC : In favor of Multi-international, ordering Martinez to pay 418,012.78 + interests because

MULTI-INTERNATIONAL V. MARTINEZ
Ruel Martinez had a car loan amounting to 648,288.00
Both parties agreed that the loan was payable through DEDUCTIONS from
responent's bonuses and commissions. If Martinez is terminated, the unpaid
balance would be immediately due and demandable without need of
demand
1998 Letter : Informing Martinez of his OUTSTANDING OBLIGATION of
418,012.78, detailing every bonus, loan or advance obtained and deducted.
Martinez : I already paid my loan through deductions from my
compensation/salaries, bonuses and commissions
Certification of Helen Dy stating that respondent ALREADY PAID 337,650.00
as of 10 September 1996
MARTINEZ FAILED TO PRESENT EVIDENCE OF PAYMENT
CA reversed RTC decision
SC : NO deductions were made in Martinez's monthly salary, it was a mere presumption on his
part. Payment CANNOT BE PRESUMED by a mere inference from surrounding circumstances.
Martinez sufficiently established that there were DEDUCTIONS from his salary with the
witness Aida Valle. No ITEM of car loan since he is the only employee granted such. "No car loan
field"
Certification should be admitted that Martinez paid the car loan in the amount of
337,650.00
On full payment : The receipt of payment is the best evidence of the fact of payment. There is
nothing in the records which shows that FULL PAYMENT has indeed been made.
Martinez: Paid 337,650.00, OBLIGATE TO PAY THE BALANCE OF 310,638.00 with
interest

RTC : In favor of Cinco. Evidence sufficiently established the existence of PNB loan whose
proceeds were available to satisfy Manuel's obligation with MTLC. ESTER UNJUSTIFIABLY
REFUSED TO COLLECT THE AMOUNT.
Creditors cannot unreasonably prevent payment or performance of obligation to the damage and
prejudice of debtors who may stand liable for payment of higher interest rates.
Cinco obtained a commercial loan from MTLC for 700k with PN and secured CA : There was no express agreement to the above.
by a REM over the 4-storey building in Leyte Contract of Loan : D is expected to deliver the sum of money due the creditor. + the rules
To be able to pay the loan in favor of MTLC, Cinco applied for a loan with require the ACCEPTANCE of the payment in order to extinguish the obligation.
PNB and offered as collateral the same properties PREVIOUSLY MORTGAGED The SPA was not the delivery of the sum of money and Ester could not be compelled to
with MTLC. This was CONDITIONED on the cancellation of mortgage in favor accept it as payment based on Article 1233. BUT, it stood as an authority to collect the
of MTLC proceeds of the already-approved PNB loan, that UPON THE RECEIPT OF ESTER, would
CINCO V. CA Cinco: There was money with PNB for the payment of his laon with MTLC. have CONSTITUTED PAYMENT of the MTLC loan
Cinco executed an SPA authorizing Ester (MTLC) to collect the proceeds of There is NOTHING legally objectionable in a mortgagor's act of taking a second or
his PNB loan. PNB required Ester to FIRST SIGN a Deed of subsequent mortgage on a property already mortgaged; a subsequent mortgage is
Release/Cancellation of Mortgage before they could release the proceeds of RECOGNIZED as valid by law and by commercial practice, subject to prior rights of previous
the loan to her. ESTER REFUSED and did not collect the 1.30M. mortgages
Ester instituted foreclosure proceedings Ester could not validly require Cinco to obtain her consent to the PNB loan and
mortgage. Besides, payment of MTLC loan using PNB proceeds WOULD NATURALLY CANCEL
THE MORTGAGE
BUT, the unjust refusal cannot be equated to payment. ESTER directed to accept the
proceeds of Cinco's PNB loan, if till available and to consent to the release of the
mortgage
Ong Bun (after death of Ong) discovered the CCs bought from FEBTC were still Requisites: 1) Identity of the prestation 2) Integrity
ONG BUN V. BPI in the safety vault of his deceased wife and were not surrendered to FEBTC. NO ACKNOWLEDGMENT NOR PROOF OF FULL PAYMENT WAS PRESENTED BY RESPONDENT

Asahi entered into a contract with Jose D. Santos (proprietor of JDS), where
Asahi would pay JDS 5.3M for the construction of roadways and drainage EFFECT OF DEATH ON THE SURETY'S LIABILITY
system within 240 days.
PERFORMANCE BOND of 795,000.00 to guaranteee faithful and
satisfactory performance
JDS executed jointly and severally with SICI (Stronghold Insurance Co.
EFFECT OF DEATH Inc.) PN No. SICI-25849/g(13)9769
STRONGHOLD INSURANCE v. 23 May 1989 : ASAHI paid 795k to JDS as downpayment
REPUBLIC ASAHI Two progress billings = 7.301% of the work
ASAHI extrajudicially rescinded the contract. ASAHI sent a letter to SICI
filing its claim under the bond for not less than 795k. They filed a
Complaint against JDS and SICI
SICI : Asahi's money claims against SICI and JDS have been
EXTINGUISHED by the death of JOSE D. SANTOS Jr.
JDS as PRINCIPAL ; SICI as SURETY
RTC : Dismissed ASAHI's complaint. Their claim DID NOT survive the DEATH of its sole
proprietor JOSE D. SANTOS
MR : Ordered the case, INSOFAR AS SICI is concerned, DISMISSED.
CA : SICI's obligation under the Surety Agreement WAS NOT EXTINGUISHED by the death of
Jose D. Santos Jr. ASAHI could still go after SICI for the bond.
Pursuant to the Contract, SICI is liable for the non-performance of said Contract on the part of JDS
Construction.
Ps contend that the death of SANTOS, the BOND PRINCIPAL, extinguished his liability under the
surety bond, thus, automatically released from any liability under the bond.
GR: DEATH OF CREDITOR/DEBTOR DOES NOT EXTINGUISH OBLIGATIONS. They are
transmissible to heirs, except when transmission is prevented by the law, the stipulation of the
parties, or the nature of the obligation. Only personal obligations are extinguished by death.
In the present case, whatever monetary liabilities or obligations Santos had under his contracts
with respondent were not intransmissible by their nature, by stipulation, or by provision of law.
Hence, his death did not result in the extinguishment of those obligations or liabilities,
which merely passed on to his estate. Death is not a defense that he or his estate can set up
to wipe out the obligations under the performance bond. Consequently, petitioner as surety
cannot use his death to escape its monetary obligation under its performance bond.
SICI's obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the
contract of a surety is in essence secondary only to a valid principal obligation, his liability to the
creditor or promisee of the principal is said to be direct, primary and absolute; in other words,
he is directly and equally bound with the principal.
DESPITE DEATH OF SANTOS, ASAHI MAY STILL SUE SICI, IN ACCORDANCE WITH
THE SOLIDARY NATURE OF SICI's LIABILITY UNDER THE PERFORMANCE BOND
DELIVERY OR SERVICE TO EXTINGUISH
OBLIGATIONS THROUGH
WERR v. HIGHLANDS PRIME
1236-1237 : EFFECTS OF PAYMENT MADE BY
THIRD PERSON
JALANDONI V. ENCOMIENDA
1240 : TO WHOM PAYMENT SHALL BE MADE
PNB V. TAN
CULABA V. CA
ALLIED BAKING V. LIM
DELA CRUZ V. CONCEPCION
1241 : PAYMENT TO AN INCAPACITATED; TO A
THIRD PERSON - EFFECTS AND ITS
EXCEPTIONS
1242 : PAYMENT IN GOOD FAITH
NATIONAL POWER CORP V. IBRAHIM
FACTS
Highlands Prime (project OWNER) and Werr Corporation (CONTRACTOR) executed a General Building Error on CA to immediately dismiss the application of industry practice just because there an existing
Agreement
WERR to complete the project within 210 calendar days
HPI to pay 271,797,900.00 for the completion of the project
Downpayment of 54,359,580.00 = WERR commenced with the construction. Project WAS NOT
completed on the initial completion date. WERR sought assistance from HPI to pay its obligations with COMPLETION RATE IS ONLY AT 93.18% (95% is required to be considered as susbstantial
its suppliers under a DIRECT PAYMENT SCHEME totaling 24,503,500.08, but HPI only approved
18,762,541.67
Last Billing : HPI paid 232,940,265.85 for 93.18% accomplishment. HPI terminated the contract completion of the project at 95% (condition precedent)
which WERR accepted
WERR demanded from HPI to pay the balance of the contract price 36,078,652.90.
Balance of HPI to be collected from WERR 14,834,926.71 (balance of its retention money)
Jalandoni borrowed money from Encomienda
Jalandoni : There were gifts, there was never an agreement of a loan
Art 1236 : Whoever pays for another may demand from the debtor xxx beneficial reimbursement
TAN owned a parcel of land. Expropriation proceedings were instituted.
PNB was required to release 32,480.00, amount which was deposited with it by the government.
PNB issued the check and delivered it to SONIA GONZAGA, without Tan's knowledge. Gonzaga
deposited it with FEBTC and later withdrew the said amount
TAN DEMANDED PAYMENT FROM PNB. PNB refused because it had already paid and delivered the
amount to GONZAGA on the strength of a SPA allegedly executed in her favor by TAN.
Engr. Decena issued the authority to release the funds NOT TO TAN but to Mr. GONZAGA =
TAN failed to recover the amount
LIM SIO WAN deposited with Allied Banking A MONEY MARKET PLACEMENT
A THIRD PERSON claiming to be Lim called Cristina So to preterminate the MONEY MARKET
PLACEMENT, ISSUE a manager's check and to give it to Deborah Dee Santos
SANTOS arrived and signed the appliation form for a manager's check to be issued. It was cross-
checked FOR PAYEE's ACCOUNT ONLY and given to Santos. The Manager's Check was deposited in the
Account of FILIPINAS CEMENT CORPORATION with forged signature of Lim Sio Wan as
INDORSER
SANTOS WAS THE MONEY MARKET TRADER of FCC's account.
The check was sent to Allied through PCHC. Allied FUNDED the check WITHOUT CHECKING the
authenticity of LIM's purported indorsement = amount of the check was credited to FCC's account
1983: Lim deposited a SECOND money market placement.
On the date of maturity of the FIRST MMP, LIM went to Allied to withdraw it and was informed that it
was pre-terminated.
RULING
Laws are deemed written in every contract. Industry practice of considering completion of 96% as
SUBSTANTIAL COMPLETION of the PROJECT = not liable for liquidated damages.
Article 1234. Substantially performed in Good Faith, obligor may recover as if there was
complete fulfillment.
agreement as to liquidated damages. The industry practice MAY supplement any ambiguities or
omissions int eh stipulations of the contract.
Clause 41.5 is silent on when LD will be computed = Industry Agreement shall supply the omission.
WERR CANNOT BENEFIT FROM THE EFFECTS OF SUBSTANTIAL COMPLIANCE SINCE ITS
completion)
A contractor is ONLY relieved from the burden of paying LD IF it ACHIEVED ACTUAL substantial
Purpose: Contractor to be paid, Owner to retain money that it can use to complete the work without
additional cost
LD computed from the period of delay until the termination of the contract or for 33 days,
not only until the projected substantial completion date
LD did not exceed the retention money = HPI did not suffer actual damages of 573,012.81
Granted WERR's claim for the balance of retention money 10,955,899.79 + HPI's claim for
LD 8,969,330.70
Jalandoni GREATLY benefited from the purportedly UNAUTHORIZED PAYMENTS. Even if she claims
that she is prepared to settle her obligations with her own money, she still ACCEPTED the financial
assistance of Encomienda.
Jalandoni canot deny the BENEFITS she reaped from said acts now that the time of
restitution has come.
Encomienda REALLY intended the amounts to be a loan (Extended to a close friend, absence of
acknowledgment receipts is more natural and real) + Encomienda kept the RECEIPTS even for
the smallest amounts she had advanced, repeatedly sent demand letters and immediately
filed the instant case when Jalandoni was starting to avoid her
There can be a VERBAL LOAN. Contracts are binding between parties, whether oral or written.
Barangay conciliation : Jalandoni ADMITTED having borrowed money from Encomienda and that she
would return it.
There would be unjust enrichment would result if Jalandoni keep the amounts she received
from Encomienda
PNB was directed to produce the said SPA.
NO PAYMENT HAD EVER BEEN MADE TO TAN AS THE CHECK WAS NEVER DELIVERED
TO HIM. Article 1233: A debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case may be.
The BURDEN of proof of such payment lies with the DEBTOR. PNB presented neither the SPA nor the
CHECK.
The existence, nature, and extent of SPA must also be proven to determine whether the document
indeed authorized her to receive the payment intended for TAN.
PNB LIABLE TO PAY TAN 32,480.00
Not made to an AGENT of SMC. Sps. Culaba failed to ascertain the identity of the assumed agent
and the extent of the authority.
The basis of agency is representation and it is incumbent upon the person dealing with ang
assumed agent to establish the fact of agency and extent of authority. Failure to do so =
payments did not extinguish their obligation with SMC.
Allied refused to pay the FIRST claiming that the LIM had authorized the pre-termination of
the placement and its subsequent RELASE to Santos.
RTC ordered ALLIED to pay LIM the amount of the FIRST MMP.
CA : ALLIED to pay 60% and METROBANK to pay 40% of the FIRST MMP
ALLIED IS LIABLE TO LIM. Money market (lenders and borrowers do not deal directly with each
other but through a middle man or dealer in open market)
LIM DID NOT AUTHORIZE THE RELEASE OF HER MMP TO SANTOS AND THE BANK HAD
BEEN NEGLIGENT IN DOING SO. The obligation of ALLIED to LIM had not been extinguished
Payment made by the debtor to the WRONG party does not extinguish the obligation as tot
he creditor
NO EFFECTIVE PAYMENT = ALLIED STILL HAS AN OBLIGATION
Valid payment to the HELPER, receipt signed by Petitioner's AGENT = deemed as payment
to petitioner
Valid payment from a court judgment. Article 1242, possessor of Credit who is Mangondato,
the registered owner of the subject land at the time.
NAPOCOR's payment could still validly extinguish their obligation to pay for the same even
as against the Ibrahims and Maruhoms (who turned out to be the real owners of the subject land)
1245 : DATION IN PAYMENT FACTS RULING

RTC : Deed of Assignment and Delivery of heavy equipment EFFECTIVELY EXTINGUISHED

Sps. Estanislao obtained a loan from EW for 3,925,000 as evidenced by e PROMISSORY NOTE SC : The DoA was a PERFECTED AGREEMENT. The Deed explicitly provides that Sps.
and SECURED by TWO deeds of chattel mortgage
Sps. Estanislao defaulted = SUIT FOR REPLEVIN
Deed of Assignment - Estanislao ASSIGN, TRANSFER, CONVEY unto EW those motor
vehicles. EW accepts the assignment in FULL PAYMENT of the debt.
ESTANISLAO V. EAST WEST BANKING
EW's bank's duly authorized representative failed to sign the deed. Estanislao
completed the delivery of the heavy equipment, which EW ACCEPTED without protest or
objection
EW : Filed a complaint for the OUTSTANDING OBLIGATION of Sps. Estanislao + filed a
manifestation for the SEIZURE and DELIVERY of two more heavy equipment
petitioner's TOTAL loan obligation
CA reversed the decision + ordered Sps. Estanislao to pay the loan balance
Estanislao IN FULL PAYMENT shall deliver 3 equipment and EAST WEST ACCEPTS the
assignment in FULL PAYMENT of the above-mentioned debt. Complete delivery = credit
would have been satisfied in FULL and aggregate indebtedness of 7,305,459.52 would be
considered PAID IN FULL AS WELL
THE NATURE OF THE ASSIGNMENT WAS A DATION IN PAYMENT : PROPERTY WAS
ALIENATED TO THE CREDITOR IN SATISFACTION OF A DEBT IN MONEY. GOVERNED BY
LAW ON SALES
There was NO NEED for EW's signature because the agreement was CONSUMMATED by its
acceptance of the heavy equipment. It may be INFERRED from its unqualified acceptance of
the heavy equipment.
SPS. ESTANISLAO ARE DEEMED TO HAVE BEEN RELEASED FROM ALL THEIR
OBLIGATIONS TO RESPONDENT.

With annotation of PD on the total amount of the purchase price = crop DELIVERED and PAID
TAN SHUY V. MAULAWIN by Tan Shuy
Maulawin loaned + claimed that he already paid the loan in FULL. He continuously
VILLARTA filed the complaint for reformation of contracts against TALAVERA
Villarta owned 4 parcels of land, he ventured into hunting activities + secured SEVERAL
LOANS from Talavera
Talavera convinced him to execute a Deed of Sale when the REAL AGREEMENT was the LOT
VILLARTA V. TALAVERA would serve as SECURITY for the loan
Villarta : Their REAL agreement that the property would only serve as collateral. The DoS
was, in reality, and EQUITABLE MORTGAGE
Talavera : the transfer of properties was by virtue of DACION EN PAGO
the TOTAL PURCHASE PRICE for copras that he delivered to TAN SHUY were ALL GIVEN UP
TO ELENA as INSTALLMENTS for the loan he owed
Totality of evidence shows that the parties NEVER INTENDED to make TCTs as mere
COLLATERAL for Petitioner's loans.
NOT AN EQUITABLE MORTGAGE BUT A DACION EN PAGO. Elements:
a) Existence of a money obligation
b) Alienation to the creditor of a property by the debtor with the consent of the
creditor
c) Satisfaction of the money obligation of the debt

The turnover of properies was TANTAMOUNT to delivery or TRADITION which EFFECTIVELY

DALISAY INVESTMENT V. SOCIAL SECURITY transferred the real right of ownership over the properties from DDII to SSS.
Dalisay indebted to SSS SALE VIA DACION EN PAGO. All the requirements for a valid Dacion were present.
SYSTEM

KAREN NUNEZ ET AL. V. PALMA
MTC : In favor of Petitioners. Declared the DEED OF ADJUDICATION and SALE NULL AND
VOID. Ordered the CANCELLATION of TCT + REINSTATEMENT of TCT in the name of
VICENTIC. Declared the right of NORMA to 85.70 square meters with respect to share of
ALDEN
RTC : Declared the DAS as valid
CA : Affirmed RTC Decision
SC : The DAS SEEMS to suggest a Dation in payment BUT the subsequent actions of the
parties NEGATE the same.
1) If the DAS was intended to be Dation in payment, the execution of PN and AOD by Norma
and the CA between Alden and Norma SHOW AN OPPOSITE DECLARATION = THERE WAS
Vicentico borrowed 30,000.00 from ROSITA and as security executed a REM. Since Rosita had NO DATION IN PAYMENT OR OFFSET
money, the funds came from NORMA (Rosita's daugther) 2) It would be out of the ordinary for NORMA to execute PNs two days after the DAS,
Petitioners : The 30K was PAID as evidenced by the AFFIDAVIT AUTHORIZING RELEASE OF acknowledging her indebtedness of 50,000.00
MORTGAGE 3) It would be unlikely for NORMA to execute an AOD acknolwedging her debt.
Vicentico died = TRANSMITTED the lot to his heirs (NUNEZ). Each HEIR had an undivided 4) NORMA SHOULD HAVE INSISTED IN THE CASE FILED AGAINST HER BY ALDEN THAT
share of 1/5 or 85.80 square meters THERE WAS AN OFFSET OF HIS FATHER'S LOAN TO HER.
Placida (V's wife) died = Ps pro-indiviso share became 1/4 or 107.25 square meters AARM : Heirs of Rosita acknowledged that they are RELEASING the REM + absolving
NORMA wa able to have all PETITIONERS, except ALDEN, sign a Deed of Vicentico of any liabilities. Indeed, as claimed by Petitioners, the 30,000.00 loan had
Adjudication and Sale, wherein they purportedly sold to NORMA their pro indiviso shares been paid as duly acknowledged in a registered public instrument by the heirs of
for 50k. The DAS reflected 30k as consideration Rosita, including NORMA.
After DAS = NORMA took possession of the land. Instead of paying cash. NORMA The DAS WAS NOT INTENDED TO BE DATION IN PAYMENT.
executed a PN whereby she obligated herself to pay 50,000.00 as COST OF THE PARCEL OF
ARTICLE 1191 : In a Contract of Sale, as the DAS, the OBLIGATION of the vendee to pay the
LAND = Acknowledgment of Debt : she was indebted of 50k as PP of the land price is a correlative of the obligation of the vendor to deliver the thing sold. Article 1191
DESPITE NON-PAYMENT + ABSENCE OF ALDEN'S SIGNATURE = A NEW TCT WAS provides for the implied or taci resolutory condition even if there is no corresponding
ISSUED TO NORMA agreement between the parties.
ALDEN filed a case for annulment of title = ALDEN and NORMA entered into a COMPROMISE Resolution - can only be availed of by a party to the obligation, can be obtained only on the
AGREEMENT whereby Alden agreed to respect Norma's ownership and possession of 85.80 ground of non-performance, may b refused by the court on valid grounds; primary remedy;
square meters land being claimed by him based on mutuality of parties
2007 : Petitioners FILED a case against NORMA Rescission - may be availed of by third person, may be based on fraud, lesion, may not be
refused by the court if all requisites are present; subsidiary remedy; based on prejudice or
damage suffered
Ps seek to declare DAS null and void ab initio and non-existent since NORMA did
not pay the PP.
The DAS IS NOT VOID FOR LACK OF CONSIDERATION, BUT IT HAS BEEN
EXTINGUISHED BY THE HAPPENING OF THE TACIT RESOLUTORY CONDITION,
WHICH IS JUDICIAL RESOLUTION OR RESCISSION OF THE SALE.

DAS WAS NOT DATION EN PAGO + NORMA IS A CO-OWNER WITH RESPECT TO

ALDEN'S SHARE

PROMISSORY NOTES/BILLS OF
EXCHANGE/OTHER MERCANTILE

CHECK : A bill of exchange drawn on a bank "payable on demand". It is a negotiable

instrument, an undertaking that the drawer will pay the amount indicated thereon.
A check is subject to prescription of actions upon a WRITTEN CONTRACT (must be
Evangelista OBTAINED a loan from Screenex. As SECURITY, Evangelista issued TWO OPEN- brought within 10 years).
DATED CHECKS. They were held in safekeeping by Philip Gotuaco (Respondent side) THE DELIVERY OF THE CHECK PRODUCES THE EFFECT OF PAYMENT WHEN THROUGH THE
FAULT OF THE CREDITOR THEY HAVE BEEN IMPARED. Delivery of Check is NOT, by itself,
2005: Evangelista was charged for violation of BP 22. Evangelista was declared liable for the operate as payment.
CIVIL OBLIGATION
EVANGELISTA V. SCREENEX, INC. If a period of 10 years or more has lapsed, from the date indicated on the check
UNDATED CHECK = CAUSE OF ACTION IS RECKONED FROM THE DATE OF THE
until the date of encashment or presentmen = PAYMENT IS DEEMED EFFECTED
ISSUANCE OF THE CHECK. IT IS PRESUMED DATED AS OF THE TIME OF ITS A check by reason of the creditor's unreasonable or unexplained delay in encashing it.
ISSUANCE. WHILE THE SPACE FOR THE DATE MAY BE FILLED, IT MUST BE FILLED PAYMENT BY WAY OF CHECK IS CONDITIONED ON ITS BEING CASHED, except
WITHIN A REASONABLE TIME. Which YU only did so AFTER more than 10 years.
when through fault of creditor, the instrument is impaired. Negligence = payment
will be deemed effected and obligation extinguished
EVANGELISTA IS DEEMED DISCHARGED FROM HIS OBLIGATION TO PAY AND CAN NO
LONGER BE PRONOUNCED CIVILLY LIABLE

1250 : EXTRAORDINARY
INFLATION/DEFLATION
Escalation clause are not void per se, only those which grant the creditor unbridled
right to adjust the interest independently and upwardly. It cannot be left to the WILL of
RTC invalidated the Escalation Clause because it violated the principle of mutuality one of them.
of contracts. It took judicial notice of the STEEP DEPRECIATION of the peso during the EXTRAORDINARY DEFLATION
intervening period and declared the existence of EXTRAORDINARY DEFLATION 1) That there was an official declaration of extraordinary inflation or deflation from the BSP
EQUITABLE PCI V. NG SHEUNG NGOR 2) That the obligation was contractual in nature
3) That the parties expressly agreed to consider the effects of extraordinary inflation or
Contract of Adhesion - when the dominant party takes advantage of the weakness of the deflation
other party, completely, depriving the latter of the opportunity to bargain on equal footing = Despite the DEVALUATION of PESO, BSP never declared a situation of extraordinary
VOID infalction.
The parties did not agree to recognize the effects of extraordinary inflation or deflation.
Therefore, they shall pay at the rates fixed by the BSP.

ALMEDA V. BATHALA MARKETING
On VAT : They were estopped from shifting to respondent the burden of paying the VAT.
THEY CANNOT LEGITIMATELY DEMAND RENTAL ADJUSTMENT BECAUSE OF
EXTRAORDINARY INFLATION OR DEVALUATION
Contract - Extraordinary inflation or devaluation
Civil Code - Extraordinary inflation or deflation
Contract of Lease between Almeda and Bathala Marketing Industries Inc. Condition 7 should be read in harmony with Civil Code, they did not mean to depart
Sixth - Rental based on the present rate of assessment of the property from Article 1250
Seventh - In case of extraordinary inflation or devaluation of the PhP, THE VALUE OF THE 26 Jan Letter: Petitioners DEMANDED rental adjustments based on Condition 7, with an
PHP AT THE TIME OF THE ESTABLISHMENT OF THE OBLIGATION SHALL BE THE BASIS OF EXPLICIT REFERENCE to Article 1250 of the Civil Code.
PAYMENT
But, the DOWNWARD trend of PhP CANNOT BE CONSIDERED AS THE
EXTRAORDINARY INFLATION/DEFLATION CONTEMPLATED BY ARTICLE 1250 OF
THE CIVIL CODE
Absent an official pronouncement by BSP of the existence of such = effects of
extraordinary infaltion are not to be applied

1251 : PLACE OF PAYMENT

1252 : APPLICATION OF PAYMENT

Central Surety obtained an Industrial and Commercial Loan from Premiere Bank.
Commerical loan had a Deed of Assignment with Pledge representing its properity share
in Wack Wack Golf and Country Club
Overdue loan of 6 Million pesos
20 September: Central Surety issued a check with notation "full payment of loan Wack-
PREMIERE DEV. BANK V. CENTRAL SURETY Wack"
Premiere Bank returned the check and demanded for payment of 6M + 40,898,000.00
APPLICATION OF PAYMENTS: Commercial bank applied the 2 checks to the due
obligations total 8.6M
The 6M check WAS NOT APPLIED to the 6M loan. Central Surety DEMANDED to apply
the check to the 6M loan + RELEASE of the Wack Wack Membership Pledge
Case only involves the the extinguishment of Central Surety's 6M loan secured by
the Wack Wack membership
The DEBTOR's right to apply payment is NOT MANDATORY, but merely DIRECTORY. Article
1252 also grants the right to the CREDITOR to apply such payment in case the DEBTOR FAILS
to direct its application. If neither party exercised the option, the COURT witll apply the
payment according to justice and equity.
CENTRAL SURETY EXPRESSLY AGREED TO GRANT PREMIERE BANK THE
AUTHORITY TO APPLY ANY AND ALL CENTRAL SURETY'S PAYMENTS "empower
to apply without notice and in any manner it sees fit"
All debts were due, thus, the application was warranted.
Intent of the parties for the Wack Wack membership to serve as security also for FUTURE
advancements = a continuing security

ESPINA V. CA
TAN V. CHINA BANKING
SINAMBAN V. CHINA BANKING
1253-1254 : ABSENCE OF STIPULATION
WHERE PAYMENT BE APPLIED
RTC : Ordered Diaz to VACATE + pay 126,000.00 arrears. Espina may REFUND the balance of
400,000.00 after deducting all the total obligations
ON NOVATION : Did the Provisional Deed of Sale novated the existing Contract of Lease?
Espina was the reigstered owner of a condominium NO. The novation must be clearly proved since its existence is not presumed. It must be
Provisional Deed of Sale, whereby ESPINA sold to DIAZ the condominium unit for 100,000.00 proven either by express stipulation or implication derived from the irreconcilable
Diaz sent a Notice of Cancellation of the Provisional Sale incompatibility between old and new obligations or contracts.
After initial payment, all 6 checks bounced and dishonored for the reason that the 1992: Respondent paid 100k that MAY BE applied either to the BACK RENTALS or
bank account was closed. PURCHASE PRICE of the unit
APPLICAITON OF PAYMENT TO THE MOST ONEROUS DEBT WHICH IS THE UNPAID
RENTALS. But since it did not fully settle the unpaid rentals = the action for ejectment
survives
Lorenze Realty obtained loans from Chinabank
Foreclosure for 85M, deficient of 29,258,179.81. Chinabank demanded from Lorenze Realty obligations that were all due the proceeds of the sale should be applied. Its silence = China
for the payment of the balance. Bank's APPLICATION of the payment first to the INTEREST and PENALTIES and the
Chinabank opted to apply the ENTIRE PROCEEDS of the auction simultaneously to
all the three loans. EACH PN WILL ASSUME A PRO RATA PORTION OF THE RESULTING
DEFICIENCY ON THE TOTAL INDEBTEDNESS AS BEARS UPON EACH PN's OUTSTANDING
BALANCE
3 PNs executed by Sps. Sinamban NONE OF THE PNs is MORE ONEROUS THAN THE OTHERS.
Each loan, represented by each PN, was obtain UNDER A SINGLE CREDIT LINE. then EACH PN
is SIMULTANEOUSLY covered by the same mortgage security = the foreclosure of which will
also BENEFIT THEM PROPORTIONATELY
No PN enjoys priority, the only difference is that Sps. Sinamban were solidarily liable only
to the 2 PNs

Article 1253: Provides a heirarchy wherein payments shall FIRST be applied to the
interest, payment shall THEN be applied to the principal ONLY AFTER the interest
has been fully paid
1) debt produces interest
2) principal remains unpaid
MARQUEZ V. ELISAN CREDIT Exception: Article 1176 when creditor waives payment of interest = payment
immediately to the principal
RESPONDENT PROPERLY CREDITED THE DAILY PAYMENTS TO THE INTEREST AND NOT TO
THE PRINCIPAL because
1) the debt produces interest
2) a portion of the second loan remained unpaid upon maturity
3) the respondent DID NOT waive the payment of interest
1255 : PAYMENT BY CESSION OR ASSIGNMENT, FACTS RULING
DISTINGUISHED FROM DATION IN PAYMENT

Issue: Whether the mortgage contract executed by the SUBSTITUTE is VALID and
VILLALUZ executed a SPECIAL POWER OF ATTORNEY for Agbisit to "negotiate for BINDING upon the principal
the sale, mortgage, or other forms of disposition for a parcel of land" and "sign in her The law creates a presumption that an agent has the power to appoint a substitute.
behalf all documents relation to the sale, loan or mortgage, or other disposition of the The substitute becomes the agent of the principal. The principal is BOUND by the acts
property" of the substitute.
SPA : Neither specified conditions under which the SPA may be exercised nor stated IT IS INCUMBENT UPON THE PRINCIPAL TO PROHIBIT THE AGENT FROM
the amounts for which the land may be sold or mortgaged APPOINTING A SUBSTITUTE. The SPA contains no restrictive language.
VILLALUZ V. LANDBANK AGBISIT executed an SPA appointing MILFLORES COOPERATIVE as attorney-in- ASSIGNMENT : for the express purpose of securing the payment of the Line/Loan,
fact in obtaining a loan from LBP interest, and charges thereon. Nowhere in the Deed can it reasonably deduced that the
MILFLORES, in representative capacity, executed a REM. MILFLORES was unable to COLLATERALY assigned by Milflores Cooperative were intended to substitutte the
pay = foreclosure sale payment of sum of money under the loan. It was an accessory obligaiton to secure the
VILLALUZ filed a complaint seeking the annulment of the foreclosure principal loan obligation.
Suspensive Condition: loan proceeds released = obligations under the security Assignment = mere security = DID NOT extinguish the obligation. It was not
contract intended to substitute the payment of money.
Only remedy of Villaluz was is to proceed against the agent and substittue

1256-1261 : TENDER OF PAYMENT AND

CONSIGNATION he claimed that he TWICE tendered to SAJIHWANI 2) the amount was insufficient
PABUGAIS V. SAHIJWANI SAJIHWANI : Received petitioners letter BUT NO CHECK WAS APPENDED THERETO, Pabugais tender
RELATION TO CIVILofCASE
payment in the
No. 310, form
earlier of manager's check is VALID.
dismissed.
BENOS V. LAWILAO twice = became
no Valid TENDER due
OFand demandable
PAYMENT The
Courtamount
CANNOTwas sufficient to extinguish
AUTOMATICALLY the obligation,
apply such sum consignation
in satisfaction is
of the aforesaid
BENOS SON of
receivership paid the bank
PDIC 159,000.00
= Petitioners representing
were unable tothe
payPRINCIPAL and INTEREST.
the loan/consideration Unknown
DEBT.
CACAYORIN V. ARMED FORCES AND POLICE loan with the bank, PNB DID NEITHER
of the property. 1) Rural Bank
the consignation contemplated by law.
PHILIPPINE NATIONAL BANK V. CHAN PNB applied the rental proceeds to outstanding loan. A LAMBERTO CHUA
1266-1267 : DOCTRINE OF UNFORESEEN EVENTS IN OBLIGATIONS claimed to be the new owner of the leased property and requested that the rental be PNB's obligation to pay the subject monthly rentals remained SUBSISTING, as the
TO DO. EFFECTS.REQUISITES

Letter "PNCC considered the PERMIT as INDUSTRIAL CLEARANCE"

Contract of Lease : Lease shall be for 5 years commencing on the date of the
issuance of the INDUSTRIAL CLEARANCE by the Ministry of Human Settlements
Termination : By mutual agreement of the parties + Termination/Expiration
1986: PNCC obtained a TEMPORARY USE PERMIT, valid for 2 years.
PHILIPPINE NATIONAL CONSTRUCTION V. CA
Respondents demanded for the payment of first annual rental. PNCC argued that the
payment of rental would ONLY COMMENCE on the date of the issuance of the
INDUSTRIAL CLEARANCE + expressed its intention to discontinue the rock crushing
project due to financial, as well as, technical difficulties
During Martial Law. LOI of Marcos
MAGAT JR. V. CA Refusal of the Philippine government to issue permit to IMPORT the
transceivers
Developer refused to construct the amenities because the homeowners were not yet
TAGAYTAY REALTY V. GACUTAN
building their homes. They just wanted to save on the maintenance costs.
The suspensive condition has thus been fulfilled
Article 1266 : Rebus Sic Stantibus : The purpose of the contract DID NOT
materialize because of an unforeseen event which is the EDSA REVOLUTION +
financial difficulties
Applies only to obligations TO DO and not to obligations TO GIVE.
TO GIVE : is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient, or for
its simple possession, or in order to return it to its owner
OBLIGATION TO PAY RENTALS is an Obligation to give + unforeseen events are
not the legal or physical impossibilites contemplated in the said article.
Article 1267 : Applies only in exceptional cases/changes/circumstances
Control Board.
Article 167 : Guillermo's inability to secure a letter of credit and to comply with his
obligation was A DIRECT CONSEQUENCE of the denial of the permit to import. He
Article 1267 : The developer DID NOT comply with its legal obligation to complete
the construction of the subdivision project. It unilaterally opted to suspend the
construction of the amenities to avoid incurring maintenance expenses.
IT WAS NOT DRIVEN BY AN EXTREMELY DIFFICULT SITUATION THAT
WOULD PLACE IT IN ANY DISADVANTAGE, but its desire to benefit from cost savings,
which dissuaded the buyers to construct their houses.
REQUISITES: The difficulty of the performance SHOULD BE that one party would be
placed at a disadvantage by the unforeseen event
a) the event or cahnge in circumstances could not have been foreseen at the time of
the execution of the contract
b) it makes the performance of the contract extremely difficult but not impossible
c) it must not be due to the act of any of the parties
d) the contract is for a future prestation
REQUISITES DID NOT CONCUR. Mere inconvenience or unexpected impediments
or increased expenses did not SUFFICE to relieve the debtor from a bad bargain.

Comglasco :1997 ASIAN FINANCIAL CRISIS (Under Article 1267), therefore, it

Santos leased out the space to COMGLASCO. Comglasco preterminated the
COMGLASCO CORP. V. SANTOS lease contract.
Comglasco vacated the property and stopped paying further rentals.
was exempted from its obligation because its business setback is the cause
contemplated under their lease which authorized it to preterminate the same.
ARTICLE 1266 APPLIES IN OBLIGATION TO DO, PAYING RENTALS IS AN
OBLIGATION TO GIVE.
ARTICLE 1267 IS NOT AN ABSOLUTE APPLICATION OF THE PRINCIPLE REBUS SIC
STANTIBUS.
Mere pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific performance.
COMGLASCO cannot be permitted to blame its difficulties on the said regional
economic phenomenon because it entered the lease more than three years after it
began, so it had known the risks.

Issue : May respondent be released from its contractual obligation on the

POON leased a building to PRIME SAVINGS BANK for 10 years
3 years later, BSP placed Prime Savings Bank under the receivership of PDIC
2000: Prime Savings Bank vacated the leasaed premises and surrendered them to
POON. PDIC issued POON a demand letter asking for the RETURN of the unused
POON V. PRIME SAVINGS BANK advance rental amounting to 3,480.00 on the ground that Paragraph 24 of the Contract First and Third elements are lacking (1. The even could not have been forseen and 3.It
became operative because Prime Saving's closure CONSTITUTED a FORCE
MAJEURE.
PDIC : Invoked the principle of rebus sic stantibus under Article 1267 as alternative possibility of a deterioration or loss of Prime Savings Bank (para 4 and 5 of the
basis for demanding refund
ground of Art. 1174 and Art. 1267?
Rebus Sic Stantibus : The parties stipulate in light of certain prevailing conditions,
and the theory can be made to apply when these conditions cease to exist.
Parties are presumed to have assumed the risks of unfavorable developments. It must
only be applied in exceptional cases.
The difficulty of performance should be such that the party seeking to be released
from a contractual obligaiton would be placed at a disadvantage by the unforeseen
event.
The law speaks of SERVICE.
must not be due to the act of any of the parties)
Why? The contract was for 10-years, the parties had ACTUALLY CONSIDERED the
Contract)
- They were worried that the building might be foreclosed since it was under mortgage
- What if the bank will be closed? Mr. Lee said that he will give POON the 6,000,000.00
advances, forfeited in their favor
Closure of bank was not an unforeseen event given that the lease was long-
term.

ILOILO JAR leased a portion of its warehouse building to COMGLASCO's
2001: COMGLASCO requested for a pretermination. Iloilo Jar did not agree but
Comglasco still removed its stuff
ILOILO JAR V. COMGLASCO Comglasco : Article 1267 "the consideration thereof had become so difficult
due to the global and regional economic crisis that had plageued the
economy. It did not fail to pay the rents because the contract is DEEMED
terminated."
ARTICLE 1267 invovles obligations TO DO and not TO GIVE. Obligation to pay
rentals is an obligation TO GIVE.
Rebus sic stantibus also does not fit in.
Financial struggles due to an economic crisis is not enough reason for the courts to
grant reprieve from contractual obligations.
Economic Crisis : NOT an absolute exceptional change of circumstances that equity
demands assistance for the debtor.
1279-1290 : CO FACTS RULING
BPI V. CA
PNB V. CA
EGV REALTY V. CA
METROPOLITAN BANK V. TONDA
PHILTRUST V. ROXAS
MARPHIL EXPORT V. ALLIED BANKING
CALIFORNIA MANUFACTURING V. ADVANCED TECHNOLOGY SYSTEM
NOVATION
LICAROS V. GATMAITAN
GARCIA V. LLAMAS
RICARZE V. CA
LEDONIO V. CAPITOL DEVELOPMENT
BPI V. DOMINGO
INTERPORT RESOURCES V. SECURITIES SPECIALIST
FIGUERA V. ANG
PARADIGM DEVELOPMENT V. BPI
SPOUSES CELONES V. METROPOLITAN BANK (2018)
FOOD FEST, INC. V. ROMUALDO SIAPNO (2019)
VICENTE BENSON V. UCPB INSURANCE (2019)
MODOMO V. SPS. LAYUG (2019)
FACTS
RULING