1.

Aurelio Alonzo and Teresita Sizon (Petitioner)

Vs. SPS. Jaime and Perlita San Juan (Respondents)

- In their complaint, petitioners allege that they are the registered owners of a parcel of land located
in Quezon City, having an area of 425 sq.m. That at around June 0f 1996, said petitioners discovered
that a portion on the left side of the land was occupied by respondents for more than a year, without
their prior knowledge or consent. Petitioners sent a demand letter for the respondents to vacate
said area but the latter refused to comply. During the pendency of the case, both parties entered
into compromise agreement which the trial court approved.
- However, defendants failed to abide by the provisions of the compromise agreement hence,
petitioners demanded that the former vacate the premises. In said agreement, it was expressly
stipulated that should any two of the installments of the purchase price be not paid by defendants,
the agreement shall be considered null and void. According to petitioners, defendants failed to pay
the installments for July 31, 1997 and August 31, 1997. Petitioners’ motion for execution was
denied by the court.
I. On the issue of payment
- (SC Ruling) The respondents failed to discharge their burden of proving payment. Verily, an
obligation may be extinguished by payment. However, identity of the prestation and its integrity
must concur. The first means that the very thing due must be delivered or released; the second, that
the prestation be fulfilled completely. In this case, the creditor must receive and acknowledge full
payment from the debtor. No such acknowledgement nor proof of payment was shown. The dates,
amounts and the person issuing the checks, which respondents claim were made in their behalf and
were issued in satisfaction of their obligation, do not really reconcile with the dates and amount due
as to convince this Court that the payments were really for the respondents' obligation under the
Compromise Agreement as intended. The checks were all issued by a certain Cirila Cruz whose
identity and relation to them the respondents never explained and each check reflected an amount
so much greater than what was due from the respondents. Respondents never endeavored to
rationalize or explain the disparity.
II. On the enforceability of the compromise agreement
- The SC granted the petition. Compromise agreements are contracts whereby the parties
undertake reciprocal obligations to resolve their differences thus avoiding litigation or put an end
to one already commenced. It is a cardinal rule in contract interpretation that the ascertainment of
the intention of the contracting parties is to be discharged by looking to the words they used to
project that intention in their contracts. Art. 1374 requires that the various stipulations of a
contract shall be interpreted together attributing to the doubtful ones that sense which may result
from all of them taken jointly.
- In the same vein, the principle of autonomy of contracts must be respected. Respondents' contract
with the petitioners have the force of law between them. Respondents are thus bound to fulll what
has been expressly stipulated therein. Items 11 and 12 of the Compromise Agreement provided, in
clear terms, that in case of failure to pay on the part of the respondents, they shall vacate and
surrender possession of the land that they are occupying and the petitioners shall be entitled to
obtain immediately from the trial court the corresponding writ of execution for the ejectment of the
respondents. For failure of the respondents to abide by the judicial compromise, petitioners are
vested with the absolute right under the law and the agreement to enforce it by asking for the
issuance of the writ of execution.
2. Tolomeo Ligutan and Leonidas de la Llana (Petitioners)
v. Hon. Court of Appeals and SEBTC

- Petitioners obtained a loan from respondent bank in the amount of P120,000.00 at 15.189%
interest per annum with a 5% penalty per month in case of default and 10% attorney’s fee if a suit
were instituted for collection. Petitioners defaulted in payment hence, defendant bank sued for
recovery of the amount due. As of May 20, 1982, petitioners debt totaled Php 114,416.10. The trial
 court rendered decision in favor of respondent bank ordering petitioners to pay the amount due
with interest per annum of 15.189%, 2% service charge and 5% per month penalty charge,
commencing on May 20 , 1982 until fully paid, and to pay further the sum equivalent to 10% of the
total amount of indebtedness as attorney’s fees. Petitioners appealed to the CA. The latter decided
to delete the 2% service charge penalty and decreased to 3% penalty per month the previous 5%.
- On November 16, 1998, petitioners filed an omnibus motion for reconsideration with the appellate
court to admit newly discovered evidence, alleging that during the pendency of the case, they
executed a real estate mortgage on 18 January 1984 to secure the existing indebtedness of
petitioners Ligutan and dela Llana with the bank. Petitioners contended that the execution of the
real estate mortgage had the effect of novating the contract between them and the bank. Appellate
court denied said motion hence, this instant petition before the SC.
- (SC RULING) The Court held that they see no cogent reason to modify the ruling of the appellate
court. A penalty clause expressly recognized by law, is an accessory undertaking to assume greater
liability on the part of an obligor in case of breach of an obligation. It functions to strengthen the
coercive force of the obligation. The question of whether a penalty is reasonable or iniquitous can
be partly subjective and partly objective. Its resolution would depend on such factors as, but not
necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the
mode of breach and its consequences, the supervening realities, the standing and relationship of the
parties, and the like, the application of which, by and large, is addressed to the sound discretion of
the court.
- Anent the interest rate, on its face, does not appear as being that excessive. A penalty stipulation is
not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct
concepts which may separately be demanded. What may justify a court in not allowing the creditor
to impose full surcharges and penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the nonpayment or reduction of interest. Indeed, the interest
prescribed in loan financing arrangements is a fundamental part of the banking business and the
core of a bank's existence.
- The subsequent execution of the real estate mortgage as security for the existing loan did not result
in the extinguishment of the original contract of loan because of novation. Extinctive novation
requires, fir s t, a previous valid obligation; s e c o n d, the agreement of all the parties to the new
contract; third, the extinguishment of the obligation; and f o u r t h, the validity of the new one. In
order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligation be on
every point incompatible with each other. Petitioners acknowledged that the real estate mortgage
contract does not contain any express stipulation by the parties intending it to supersede the
existing loan agreement between the petitioners and the bank. Wherefore, the petition was
DENIED.

3. Great Asian Sales Center Corporation and Tan Chong Lin (Petitioners)
Vs. The Court of Appeals and Bancasia Finance and Investment Corporation (Respondents)

- The board of directors of Great Asian Sales Center Corporation approved a resolution authorizing
its Treasurer and General Manager, Arsenio Lim Piat, Jr. to secure a loan from Bancasia and to sign
all documents necessary to secure the loan. After sometime, the board of directors of Great Asian
approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia
and designating Arsenio as the authorized signatory, to sign all documents to secure the discounting
line. Tan Chong Lin signed two surety agreements to guarantee solidarily the debts of Great Asian to
Bancasia. Great Asian, through Arsenio, signed four (4) Deeds of Assignment of Receivables
assigning to Bancasia fteen (15) postdated checks which were dishonored by the drawee banks.
Subsequently, Great Asian led a petition for insolvency. Thereafter, Bancasia led a complaint for
collection of a sum of money against Great Asian and Tan Chong Lin. The trial court decided in favor
 of BancAsia. On appeal, the Court of Appeals sustained the decision of the lower court, deleting only
the award of attorney's fees. Hence, this petition.
- The Supreme Court ruled that Arsenio had all the proper and necessary authority from, the board
of directors of Great Asian to sign the Deeds of Assignment and to endorse the 15 postdated checks.
Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under the
authority expressly granted by its board of directors.
- Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case
the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full
face value of the dishonored checks, including penalty and attorney's fees. The failure of the drawers
to pay the checks is a suspensive condition, the happening of which gives rise to Bancasia's right to
demand payment from Great Asian. This conditional obligation of Great Asian arises from its
written contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil
Code provides that "Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4)
Acts or omissions punished by law; and (5) Quasi-delicts."
- By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay
Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on
wit h r e c o u r s e basis against itself. This is an obligation that Great Asian is bound to faithfully
comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the
Civil Code further provides that — "Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith."
- One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is
completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated
checks were assigned to Bancasia "for valuable consideration." Moreover, Article 1354 of the Civil
Code states that, "Although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary." The record is devoid of any showing on the part of
Great Asian rebutting this presumption.
- Article 1207 of the Civil Code provides, ". . . There is a solidary liability only when the obligation
expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations
in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great
Asian. Moreover, the stipulations in the Surety Agreements are suciently broad, expressly
encompassing " all t h e n o t e s, d r a f t s, b ills o f e x c h a n g e, o v e r d r a f t a n d o t h e r o b lig a
tio n s o f e v e r y k in d w hic h t h e P RI N C I P A L m a y n o w o r m a y h e r e a f t e r o w e t h e C r
e d it o r ". Consequently, Tan Chong Lin must be held solidarily liable with. Great Asian for the
nonpayment of the 15 dishonored checks, including penalty and attorney's fees in accordance with the
Deeds of Assignment.

4. Emma P. Nuguid v. Clarita Nicdao

- In this case, Emma Nuguid assails decision of the Court of Appeals acquitting Clarita Nicdao of
offenses involving violation of BP 22. Nuguid sought a review of the decision with respect to the
alleged lack of civil liability of Nicdao. Records of the case show that Nicdao borrowed from
petitioner the sum of Php 1,150,000.00 in which petitioner released Php 100,000.00 per month. As
security Nicdao gave Nuguid open dated checks with the assurance that if the entire amount is not
paid within one year, petitioner can deposit the check.
- When petitioner deposited the checks after demanding payment from Nicdao, the checks were
returned for being DAIF. Thus, petitioner filed a case against respondent and MCTC rendered
judgement convicting Nicdao for violation of BP 22. Appeal was made to the CA who reversed the
decision.
- (SC Ruling) Extinction of penal action does not carry with it the eradication of civil liability unless
the extinction proceeds from the declaration in the final judgment that the fact from which the civil
liability might arise did not exist. The basic principle in civil liability ex delicto is that every person
criminally liable is also civilly liable, crime being one of the sources of obligations x x x. In order to
 be completely free from civil liability, a person’s acquittal must be based on the fact that he did not
commit the offense charged. If the acquittal is based merely on reasonable doubt, the accused may
still be held civilly liable since this does not mean he did not commit the act complained of.
- Acquittal will not bar a civil action in the following cases: (1) where the acquittal is based on
reasonable doubt as only preponderance of evidence is required in civil cases; (2) where the court
declared the accused's liability is not criminal but only civil in nature and (3) where the civil
liability does not arise from or is not based upon the criminal act of which the accused was
acquitted.
- In this petition, the SC found no reason to ascribe any civil liability to respondent. Her supposed
civil liability had already been fully satisfied and extinguished by payment of Php 6,980,000.00 –
more than respondent’s obligation of Php 1,150,000.00.

5. Philippine Deposit Insurance Corporation (Petitioner) vs. Citibank, and Bank of America

- In 1997, PDIC conducted an examination of the books of account of Citibank and Bank of America.
It discovered that Citibank received from its head office and other foreign branches a total of Php
11, 923, 163, 908.00 in dollars, covered by Certificates of Dollar Time Deposits which were interest
bearing with corresponding maturity dates. These were lodged in Citibank’s books under the
account “Their Account-Head Office / Branches Foreign Currency. These wee not reported to PDIC
as deposit liabilities subject to insurance assessment. As such, PDIC assessed Citibank Php
1,595,08.96 deficiency. In the same way Bank of America was required to remit Php 109, 264.83
deficiency premium assessment for dollar deposits.
- On June 29, 1998, the RTC decided in favor of the two banks ruling that the subject money
placements were not deposits and did not give rise to insurable liabilities and that the deficiency
assessments issued by PDIC were improper and erroneous. Said decision was affirmed by the Court
of Appeals. Hence, PDIC filed the instant petition.
- (SC Ruling) It is apparent that Citibank and Bank of America both did not incorporate a separate
domestic corporation to represent its business interests in the Philippines. Their Philippine
branches are, as the name implies, merely branches, without a separate legal personality from their
parent company. Thus, being one and the same entity, the funds placed by the respondents in their
respective branches in the Philippines should not be treated as deposits made by third parties
subject to deposit insurance under the PDIC Charter.
- It is clear that the head of office of a bank and its branches are considered as one under the eyes of
the law. While branches are treated as separate business units for commercial and financial
reporting purposes, in the end, the head office remains responsible and answerable for the
liabilities of its branches which are under its supervision and control. As such, it is unreasonable for
PDIC to require the Citibank and Bank of America to insure the money placements made by their
home office and other branches.

6. Republic of the Philippines vs. Philippine National Bank, The First National City Bank of New York

- The Republic of the Philippines filed before the CFI of Manila a complaint for escheat of certain
unclaimed bank deposits under the provisions of Act No. 3936 against the First National City Bank
of New Yors. The RP alleged that pursuant to Sec. 2 of said Act, FNB forwarded to the Treasurer of
the Philippines a statement under oath of their respective managing officials of all the credits and
deposits held by them in favor of person known to be dead or who have not made further deposits
or withdrawals during the period of 10 years or more thus praying for said credits and deposits be
escheated to the RP. Meanwhile, FNB claimed that it has inadvertently included in said report
certain items such as telegraphic orders which are not credits or deposits within the contemplation
of Act. No. 3936.
- (SC Ruling) Telegraphic payment order is said to be a transaction for the establishment of a
telegraphic or cable transfer, the agreement to remit creates a contractual obligation and has been
 termed a purchase and sale transaction. The purchase of a telegraphic transfer upon making
payment completes the transaction in so far as he is concerned, though insofar as the remitting
bank is concerned, the contract is executory until the credit is established. With the forgoing, said
telegraphic transfer payment orders should be escheated in favor of the Republic of the Philippines.

7. Buenaventura Angeles, et. Al., v. Ursula Calasanz

- On December 19, 1957, Calasanz and Angeles entered into a contract to sell a piece of land for the
amount of Php 3,920.00 plus 7% interest per annum. Angeles made down-payment of Php392.00
upon the execution of the contract. They promised to pay the balance in monthly installments of
Php 41.20 until fully paid. They paid monthly installment until July 1966 when their aggregate
payment already amounted to Php 4,533.78.
- On December 7, 1966, Calasanz wrote Angeles requesting remittance of past due accounts. On
January 28, 1967 they cancelled the contract for the latter’s failure to meet subsequent payments.
Angeles filed a complaint to compel Calasanz to execute in their favor the final deed of sale alleging
that they have already paid an aggregate amount of Php 4,533.78. In their answer, Calasanz alleged
that the complaint states no cause of action as Angeles violated their contract to sell when they
failed / refused to pay and / or offer to pay the monthly installments corresponding to the month of
August 1966 for more than 5 months, causing them to cancel the contract.
- (SC Ruling) The breach of contract adverted to by the defendants-appellants is so slight and casual
considering that apart from the initial downpayment of Php 392.00 the plaintiff-appellees had
already paid the monthly installments for a period of almost 9 years. X x x The plaintiff-appellees
had already paid an aggregate amount of Php 4,533.38. to sanction rescission made by the
defendants will work injustice to the plaintiffs-appellees. As in fact, the defendants – appellants
were already estopped from rescinding the contract when instead of availing of their alleged right
to rescind, have accepted and received delayed payments of installments, though the plaintiffs-
appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract.
- Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract
upon the failure of the other to perform the obligation assumed thereunder. However, this is not
absolute. "The general rule is that rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental breach as would defeat the very object of the
parties in making the agreement.

8. Reliance Commodities Inc. v. IAC

- Marvin Paez entered into a contract with Samuel Chuason of Reliance Commodities, Inc. whereby
the latter agreed to provide the former with funds and equipment for the operation of the
manganese mining claims in Nueva Ecija. Later, Paez and his wife executed a real estate mortgage
on their property in favor of Reliance as security for more cash advances to sustain the mining
operation. Subsequently, misunderstanding ensued regarding cash advances, and Reliance
foreclosed the mortgage. Consequently, the Provincial Sheriff served notice that the mortgaged
property would be sold at public auction. Respondents then led an action before the then CFI of
Nueva Ecija. Reliance claimed that Paez violated their contract and thus, Paez is not entitled to
rescind the contract or recover damages; and by reason of which, Reliance is entitled to foreclose on
the security constituted.
- (SC Ruling) The SC ruled in favor of Reliance. The latter made cash advances to Paez totaling Php
41, 130.00 and turned over to him three heavy equipment for the mining operation. Paez failed to
make even a single delivery of manganese ores to the stockpile yard at Gabaldon. In reciprocal
obligations, the power to rescind or resolve is given to the injured party. More, the rescission of the
contracts requires the parties to restore to each other what they have received by reason of the
contract.
9. Spouses Manuel and Jocelyn Barredo, Petitioner
Vs. Spouses Eustaquio and Emilda Leano

- On July 10, 1987, the Barredo spouses sold their house and lot to Spouses Leano by way of a
Conditional Deed of Sale with Assumption of Mortgage. The latter would pay the former Php
200,000.00- Php 100,000.00 of which payable on July 15, 1987, while the balance to be paid in equal
10 monthly installments after the signing of the contract. The Leano spouses would also assume the
first and second mortgages and pay the monthly amortizations to SSS and APEX beginning July 1987
until both obligations are fully paid.
- In accordance with the agreements, the Php 200,000.00 was paid to Spouses Barredo who then
turned over possession of the house and lot to the Leanos. Two years later, the Barredos initiated a
complaint before the RTC seeking rescission of the contract on the ground that the Leano spouses
despite repeated demands failed to pay the mortgage amortizations to the SSS and APEX causing
the Barredo spouses great and irreparable damage. The Leanos answered that they were up to date
with their amortization payments to APEX but not with SSS because their payments were refused
upon instruction of the Barredos. They argue that the alleged breach, if any, was only slight or
casual and does not defeat the very object of the parties in entering into the agreement. Moreover,
the Barredo Spouses were not and will never be injured parties since if the amortizations were not
paid, it would be the Leañ o Spouses who would eventually lose the house and lot. As such,
rescission does not obtain.
- (SC Ruling) A careful reading of the pertinent provisions of the agreement readily shows that the
principal object of the contract was the sale of Barredo’s house and lot x x x. The assumption of the
mortgages by the Leano spouses over the mortgaged property and their payment of amortizations
are just collateral matters which are natural consequences of the sale of the said property x x x.
Nowhere in the agreement was it stipulated that the sale was conditioned upon their full payment
of the loans with SSS and APEX. 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. 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. Likewise, 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. Rescission of a contract will
not be permitted for a slight or casual breach, but only such substantial and fundamental breach as
would defeat the very object of the parties in making the agreement.

10. Spouses Guanio v. Makati Shangri- La Hotel

- For their wedding reception on July 28, 2001, Spouses Guanio booked at the Makati Shangri-La
hotel. On July 27, the parties finalized their contact at a price of php 1,150.00 per person.
Petitioners claimed that during the reception, catering director and sales manager of the Hotel did
not show up despite their assurance. Their guests complained of the delay in the service of the
dinner; certain items listed in the menu were unavailable; hotel’s waiters were rude and
unapologetic; and despite Alvarez’s promise that there would be no charge for the extension of the
reception beyond 12 MN, they were billed Php 8,000.00 per hour for the three hour extension.
Petitioners further claimed that they brough wine and liquour in accordance with their open bar
arrangement but these were not served to the guests who were forced to pay for their drinks.
Petitioners thus sent a letter complaint to the Makati Shangri-la Hotel and received and apologetic
reply.
 - In its answer, Makati Shangri-La explained that their representatives were present albeit not
permanently stationed thereat, that the delay in the service of the meals was occasioned by the
sudden increase of guests to 470 from the guaranteed 350 to 380 guests. Respondent attributed
this to petitioner’s insistence that certain guests be served first.
- (SC Ruling) The SC said that Article 1170 is applicable in this case. Article 1170 provides that those
who in the performance of their obligation are guilty of fraud, negligence, or delay, or those who in
any manner contravene the tenor thereof, are liable for damages. Breach of contract is the failure
without legal reason to comply with the terms of a contract. It is also the failure, without legal
excuse, to perform any promise which forms the whole or part of the contract. Petitioners were
remiss in their obligation to inform respondent of the change in the expected number of guests.
This excused respondent from liability for any damage or inconvenience occasioned thereby. The
Court affirms the appellate court’s stance that Svenssons’s letter was not an admission of liability.
However, being held high esteem in the industry, respondent could have managed the situation
better. The delay in service might have been minimized or avoided if respondent exercised
prescience in scheduling events. Under considerations of equity and respondent’s lack of prudence,
nominal damages was awarded to petitioners.

11. Syquia vs. CA and Manila Memorial Park Cemetery

- The Syquias filed a complaint against Manila Memorial Park Cemetery alleging breach of obligation
pursuant to a Deed of Sale and Interment Order dated July 21, 1978. On September 14, 1978,
plaintiffs-appellants with the assistance of licensed morticians and cemetery personnel cause the
opening of the concrete vault where the remains of Vicente Juan Syquia was interred. They
discovered that the interior walls of the concrete vault showed evidence of total flooding, the coffin
was entirely damaged by water, filth, and silt causing the wood parts to warp and separate and
crack the viewing glass panel located directly above the head and torso of the deceased, the entire
lining of the coffin, the clothing of the deceased and exposed parts of the deceased’s remains were
damaged and soiled by the action of the water and silt.
- Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to
deliver a defect-free concrete vault designed to protect the remains of the deceased and the coffin
against the elements which resulted in the desecration of deceased's grave and in the alternative,
because of defendant appellee's gross negligence conformably to Article 2176 of the New Civil Code
in failing to seal the concrete vault, the complaint prayed that judgment be rendered ordering
defendant-appellee to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for
moral damages, exemplary damages in the amount determined by the court, 20% of defendant-
appellee's total liability as attorney's fees, and expenses of litigation and costs of suit.
- (SC Ruling) Negative. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care
and in the Rules and Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be
waterproof. Well settled is the rule that when the terms of the contract are clear and leave no doubt
as to the intention of the contracting parties, then the literal meaning of the stipulation shall control.
Contracts should be interpreted according to their literal meaning and should not be interpreted
beyond their obvious intendment. The meaning of the word sealed given by private respondent
conforms with the cited dictionary and cannot be equated with waterproof.
- Negligence was not apparent. The law defines negligence as the "omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the persons,
of the time and of the place." In the absence of stipulation or legal provision providing the contrary,
the diligence to be observed in the performance of the obligation is that which is expected of a good
father of a family. The circumstances surrounding the commission of the assailed act - boring of the
hole — negate the allegation of negligence.
12. Far East Bank and Trust Company, Petitioner vs. The Honorable Court of Appeals
Luis A. Luna and Clarita S. Luna, Respondents

- On October 6, 1988, Luis tendered a despedida lunch for a close friend and another guest at the
Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the lunch, Luis presented
his FAREASTCARD to the attending waiter who promptly had it verified through a telephone call to
the Credit Card Department. Since the card was not honored, Luis was forced to pay in cash the bill
amounting to Php 588.13. He was embarrassed by the incident.
- Luis Luna demanded from FEBTC the payment of damages. Adrian Festejo, VP of the Bank,
expressed his apologies and revealed that they failed to inform Luis Luna about its security policy.
Still evidently aggrieved, private respondents filed a complaint for damages with the RTC. The latter
ruled ordering FEBTC to pay respondents Php 300,000.00 moral damages, Php 50,000.00
exemplary damages, and Php 20,000.00 attorney’s fees. The CA affirmed the RTC’s decision. FEBTC
came before the SC with a petition for review.
- The SC finds the award of moral damages inordinate and substantially devoid of legal basi. Award
of exemplary damages is similarly arduous. In culpa contractual, moral damages may be recovered
where the defendants is shown to have acted in bad faith or with malice in the breach of the
contract. Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his
own card’s cancellation. Nothing in the findings of the trial court, however can sufficiently indicate
any deliberate intent on the part of FEBTC to cause harm to private respondent. Neither could
FEBTC’s negligence in failing to give personal notice to Luis be considered so gross as to amount to
malice or bad faith. Malice or bad faith implies a conscious and intentional design to a wrongful act
for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that
malice or bad faith contemplates a state of mind affirmatively operating with a furtive design or ill
will.
- The same is true with exemplary damages. The SC said that these can only be imposed in contracts
and quasi-contracts if defendant is found to have acted in wanton, fraudulent, reckless, oppressive,
or malevolent manner. Nevertheless, the bank’s failure even perhaps inadvertent, to honor its
credit card issued to Luis entitles him to recover nominal damages sanctioned under Article 2221 of
the Civil Code.

13. Consolidated cases of Cetus Development Inc. v. CA and Ederlina Navalta,

Cetus Development Inc. v. CA and Ong Teng, Cetus Development Inc. v. CA
And Jose Liwanag

- Private respondents were lessees of the premises owned by Cetus Development Inc. These
individual verbal lessees were on a month-to-month basis at the following rates: Ederlina Navalta at
the rate of Php 80.50, Ong Teng Php 96.10, Jose Liwanag Php 40.35, Leandro Canlas at Php 80.55,
Victoria Sudario at Php 50.45, and Flora Nagbuya at Php 80.55. Their payments were paid to a
collector who went to the premises monthly.
- From April to June 1984, respondents continued to pay their monthly rentals to a collector sent by
petitioner. In the months of July, August, and September 1984, respondents failed to pay their
monthly individual rentals as no collector came. On October 9, 1984, petitioner sent a letter to each
of the respondent demanding that they vacate the premises and to pay the back rentals for the
months of July, August, and September 1984 within 15 days from receipt thereof. Immediately
upon receipt, respondent paid their rentals and accepted by petitioner subject to the unilateral
condition that the acceptance was without prejudice to the filing of an ejectment suit. For their
failure to pay their rentals, petitioner filed an ejectment suit. Respondents aver that their non-
 payment of the said rentals was due to the failure of petitioner to send its collector. The MTC
dismissed the consolidated case. Petitioner appealed to the RTC which again dismissed for lack of
merit. The same happened at the CA.
- (SC Ruling) It is very clear that in the case at bar, that no cause of action for ejectment has accrued.
There was no failure yet on the part of private respondents to pay rents for three consecutive
months. As the terms of the individual verbal leases which were on a month-to-month basis were
not alleged and proved, the general rule on necessity of demand applies, to wit: there is default in
the fulfillment of an obligation when the creditor demands payment at the maturity of the
obligation or at any time thereafter. This is explicit in Article 1169, New Civil Code which provides
that "(t)hose obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation." Petitioner has not shown
that its case falls on any of the following exceptions where demand is not required: (a) when the
obligation or the law so declares; (b) when from the nature and circumstances of the obligation it
can be inferred that time is of the essence of the contract; and (c) when demand would be useless,
as when the obligor has rendered it beyond his power to perform.

14. Polo S. Pantaleon v. American Express International Inc.

- Petitioner was on a European trip together with his family. When they arrived at the Coster
Diamond House, in Amsterdam, 10 minutes before 9:00 AM, petitioner’s wife purchase a diamond
and pendant and chain, totaling US $13,826.00. To pay for this, petitioner used his American
Express Credit Card. This occurred at around 9:15 AM, 15 minutes before the group was slated to
depart from the store. At 9;30 AM, the store clerk informed petitioner that his AmexCard has not
yet been approved. At 9:55 AM, respondent demanded bank references. Coster decided to release
the items even without respondent’s approval. Upon returning to the bus, the spouses were met
with stony silence.
- It later emerged that the approval code for petitioner’s transaction was transmitted to Amex
Amsterdam office at 10:38 AM, 78 minutes from the time the purchases were electronically
transmitted by the jewelry store. Refusing to accede to Pantaleon’s demand for apology, Pantaleon
filed this action for damages.
- (SC Ruling) Moral damages avail in cases of breach of contract where the defendant acted
fraudulently or in bad faith, and the court should find that under the circumstances, such damages
are due. While it is true that the Card membership Agreement, which defendant prepared, is silent
as to the amount of time it should take defendant to grant authorization for a charge purchase,
defendant acknowledged that the normal time for approval should only be three to four seconds x x
x. The delay committed by defendant was clearly attended by unjustified neglect and bad faith,
since it alleges to have consumed more than one hour to simply go over plaintiff's past credit
history with defendant, his payment record and his credit and bank references, when all such data
are already stored and readily available from its computer. It should be emphasized that the reason
why petitioner is entitled to damages is not simply because respondent incurred delay, but because
the delay, for which culpability lies under Article 1170, led to the particular injuries under Article
2217 of the Civil Code for which moral damages are remunerative.

15. Polo S. Pantaleon (Petitioner) vs. American Express International Inc.,

(Resolution of the Motion for Reconsideration)

- In this case, the Supreme Court decided the Motion for Reconsideration filed by American Express
International Inc. seeking to reverse the Court’s decision dated May 8, 2009 where they decided
that AMEX was guilty of culpable delay in fulfilling its obligation to Polo Pantaleon. Based on such,
they held AMEX liable for moral and exemplary damages. In its motion for reconsideration, AMEX
argues that this Court erred when it found AMEX guilty of culpable delay in complying with its
obligation to act with timely dispatch on Pantaleon's purchases. While AMEX admits that it
 normally takes seconds to approve charge purchases, it emphasizes that Pantaleon experienced
delay in Amsterdam because his transaction was not a normal one. The careful review, according to
AMEX, was also in keeping with the extraordinary degree of diligence required of banks in handling
its transactions. AMEX concluded that in these lights, the thorough review of Pantaleon's credit
record was motivated by legitimate concerns and could not be evidence of any ill will, fraud, or
negligence by AMEX.
- (SC Ruling) The Motion for Reconsideration was granted. In this jurisdiction, the contractual
relation between the credit card issuer and credit card holder is governed by the terms and
conditions found in the card membership agreement. It is a contract of adhesion. Further, every
credit card transaction involves three contracts, namely: (a) the sales contract between the credit
card holder and the merchant or the business establishment which accepted the credit card; (b) the
loan agreement loan agreement between the credit card issuer and the credit card holder; and
lastly, (c) the promise to pay between the credit card issuer and the merchant or business
establishment.
- From the loan agreement perspective, the contractual relationship begins to exist only upon the
meeting of the offer and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests that
the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code, which
provides: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
- Significantly, there is no provision in the agreement that obligates AMEX to act on all cardholder
purchase requests within a specifically defined period of time. Since AMEX has no obligation to
approve the purchase requests of its credit cardholders, Pantaleon cannot claim that AMEX
defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites to hold a
debtor guilty of culpable delay, states: Article 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. Without a demandable obligation, there can be no finding of default.

16. Legaspi Oil Co., Inc. v. CA and Bernard Oseraos

- Bernard Oseraos, acting through his authorized agents, had several transactions with appellee
Legaspi Oil Co. for the sale of copra to the latter. The following were the transactions:
 May 27, 1975. Jose Llover concluded a sale of Php 95.00 per 100 kilos of 70 tons of
copra.
 September 23, 1075. Another 30 tons of Php 102.00 per 100 kilos.
 November 6, 1975. 100 tons of copra at Php 79.00 per 100 kilos with the delivery
terms of 25 days effective December 15, 1975.
 February 16, 1976. Contract signed for the sale of 100 tons of copra at Php 82.00
per 100 kilos with delivery terms of 20 days effective March 8, 1976.
- After the period to deliver had elapsed, Oseraos only sold 46,334 kilos of copra thus leaving a
balance of 53, 666 kilos as per running account card. Accordingly, demands were made with a final
warning that failure to deliver will mean cancellation of the contract, the balance to be purchased at
open market and the price differential to be charged against Oseraos. There was no compliance on
the part of appellant thus petitioner exercised its right – purchase the remaining balance at Php
168.00 per 100 kilos or price differential of Php 86.00, a net loss of Php 46, 152.76 chargeable
against appellant.
- (SC Ruling) The SC held that the conduct of private respondent clearly manifested his deliberate
fraudulent intent to evade his contractual obligation for the price of copra had in the meantime
more than doubled from Php 82.00 to Php 168.00 per 100 kilograms. Under Art. 1170 NCC, 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. Pursuant to this, Oseraos is liable
for the amount of Php 46, 152.76 as damages.

17. FCY Construction Group, Inc. and Francis C. Yu v. Court of Appeals

- On June 29, 1993, Ley Construction and Development Corporation filed a complaint for collection of
a sum of money with application of preliminary attachment against FCY Construction Group Inc.
and Francis Yu. Respondents alleged that it had a joint venture agreement with petitioner over the
Tandang Sora Commonwealth Flyover government project for which it had provided funds and
construction materials. In support to their application, respondents alleged that petitioners were
guilty of fraud in incurring the obligation and had fraudulently misapplied or converted the money
paid them, to which it had an equal share. Petitioners moved for the lifting of the writ of
preliminary attachment on the ground that there was no fraud in incurring the obligation.
- (SC Ruling) There was fraud on the part of petitioners in incurring the obligation. Their allegation
that it was DPWH that induced to deliver materials and cash for the project cannot stand for it was
done during the performance of the obligation. The fraud by which petitioners are accused was the
kind committed at the inception of the obligation. That it was DPWH which induced and the
circumstances surrounding the execution of the venture agreement are immaterial as they were not
committed upon contracting the obligation but occurred after its establishment.

18. BPI (successor-in-interest of Commercial and Trust Co.) v. CA

Eastern Plywood Corp. and Benigno D. Lim

- On August 18, 1978, Eastern obtained a loan of Php 73,000.00 from CBTC as Additional Working
Capital. For this, Eastern issued a negotiable promissory note for Php 73,000.00 payable on
demand to CBTC with interest at 14% per annum. In addition, Eastern and Lim, and CBTC signed a
Hold Out Agreement stating that as a security for the loan, Eastern and Lim offered CBTC and the
latter accepts a Hold Out on the joint account of Lim and Velasco to the full extent of their alleged
interests. Meanwhile, the intestate Court granted the urgent motion of the heirs of Velasco to
withdraw the whole balance of Php 331,261.44 under the joint account of Lim and Velasco. In 1980,
CBTC merged with BPI.
- On December 2, 1987, BPI filed with the RTC a complaint against Lim and Eastern demanding
payment of Php73,000.00. The Court dismissed it. They appealed to the CA but the latter likewise
dismissed the complaint.
- BPI alleged in the petition that the Hold Out Agreement was subject to a suspensive condition that
the Php 331, 261.44 shall become a security for respondent and Lim’s promissory note only if Lim
and Eastern’s interests to that amount are established as a result of a final and definitive judicial
action or a settlement between and among the contesting parties thereto.
- (SC Ruling) It was clear in the Hold – Out Agreement that BPI had every right to demand that
Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain
and apply the deposit in Lim and Velasco’s joint account to the payment of the note. What
agreement conferred to CBTC was a power not a duty.
- BPI was still liable to private respondents even after withdrawal by the heirs of Velasco. The real
creditor of such amount was Eastern and BPI had no right to pay to persons other than those in
whose favor the obligation was constituted. As held, payment made by the debtor to the wrong
party does not extinguish the obligation as to the creditor who is without fault or negligence, even if
 the debtor acted in utmost good faith and by mistake as to the person of the creditor or through
error induced by fraud of a third person.

19. BPI Family Bank v. Court of Appeals, Court of Tax Appeals, and Commissioner of Internal Revenue

- From April 28, 1986 to December 19, 1986, petitioner affixed and paid the documentary stamps on
confirmations of sale of T-Bills and Central Bank Bills. On April 6, 1987, the BIR issued Revenue
Memorandum Circular No. 13-87 stating among others that no documentary stamp tax shall be
imposed on documents of conveyance of instruments enumerated in Section 229. Pursuant to this,
petitioner filed with BIR a claim for refund amounting to Php 1,116,612.00 alleging that T-Bills and
Central Bank Bills fall within the purview of the instruments enumerated in Section 180 of the NIRC.
- On April 15, 1988, petitioner filed a petition for review with the Court of Tax Appeals which denied
the claim for refund. On appeal, the CA ruled that the sale and transfer of T-Bill and Central Bank
bills are subject to documentary stamp tax under Section176 of the NIRC. For their part, petitioner
claimed that those cited government securities are deemed as promissory notes or deposit
substitutes enumerated under Section 180 of the NIRC and thus are exempted from documentary
stamp taxes.
- (SC Ruling) T-Bills and Central Bank Bills are subject to documentary stamp tax. Both the
respondent courts correctly held that whether T-bills and Central Bank bills are denominated as
certificates of obligations, certificates of indebtedness or evidence of indebtedness, they bear the
same meaning. Section 225 is clear. On all sales, or agreements to sell, or memoranda of sales, or
deliveries, or transfer of certificates of obligation in any association, company, or corporation; or
transfer of such securities by delivery, or by any paper, or agreement, or memorandum or other
evidences of transfer or sale whether entitling the holder in any manner to the benefit of such
certificates of obligation, there shall be collected a documentary stamp tax. The nomenclatures, i.e.,
evidence of indebtedness, certificate of obligation and certificate of indebtedness, bear the same
meaning and although their various appellations are used interchangeably by law, they all refer to
the subject securities, i.e., T-bills and Central Bank bills.

20. RCPI v. Court of Appeals

- Loreto Dionela allege that the defamatory words on the telegram sent to him through RCPI not only
wounded his feelings but also cause him undue embarrassment and affected adversely his business
as well as because other people have come to know of said defamatory words. RCPI alleged that the
additional words in Tagalog was a private joke between the sending and receiving operators and
that they were not addressed to or intended for plaintiff and therefore did not form part of the
telegram and the Tagalog words are not defamatory.
- (SC Ruling) Petitioner’s contention does not merit consideration. The action for damages was filed
directly against RCPI not as an employer subsidiarily liable. RCPI is a corporation engaged in the
business of receiving and transmitting messages. Every time a person transmits a message through
their facilities, a contract is entered into. Upon receipt of the rate or fee fixed, petitioner undertakes
to transmit the message accurately. The addition of libelous matters in the message sent is a clear
breach of contract. As a corporation, petitioner can act only through its employees. Hence, the acts
of its employees in receiving and transmitting messages are acts of petitioner.

21. Rivera v. Del Rosario

- Respondents Fidela and her children were the registered owners of Lot No. 1083C, a parcel of land
situated at Lolomboy, Bulacan. On May 16, 1983, Fidela’s children authorized her to sell, lease,
mortgage, transfer and convey their rights over Lot No. 1083-C. Subsequently, Fidela borrowed
P250,000 from Mariano Rivera. To secure the loan, she and Mariano Rivera agreed to execute a
deed of real estate mortgage and an agreement to sell the land. Consequently, on March 9, 1987,
 Mariano went to his lawyer, Atty. Efren Barangan, to have three documents drafted: the Deed of
Real Estate Mortgage, a K a s u n d u a n (Agreement to Sell), and a Deed of Absolute Sale.
- The K a s u n d u a n provided that the children of Mariano Rivera, herein petitioners Adelfa, Cynthia
and Jose, would purchase Lot No. 1083-C for a consideration of P2,141,622.50. This purchase price
was to be paid in three installments: P250,000 upon the signing of the K a s u n d u a n, P750,000
on August 31, 1987, and P1,141,622.50 on December 31, 1987. It also provided that the Deed of
Absolute Sale would be executed only after the second installment is paid and a postdated check for
the last installment is deposited with Fidela. As previously stated, however, Mariano had already
caused the drafting of the Deed of Absolute Sale. But unlike the K a s u n d u a n , the said deed
stipulated a purchase price of only P601,160, and covered a certain Lot No. 1083-A in addition to
Lot No. 1083-C. This deed, as well as the K a s u n d u a n and the Deed of Real Estate Mortgage, was
signed by Mariano's children, petitioners Adelfa, Cynthia and Jose, as buyers and mortgagees, on
March 9, 1987.
- In this petition for review, petitioners cite Articles 1383, 1389 and 1391 of the NCC. They submit
that the complaint for rescission of the K a s u n d u a n should have been dismissed, for
respondents' failure to prove that there was no other legal means available to obtain reparation
other a case for rescission, as required by Article 1383. Moreover, petitioners contend that even
assuming respondents had satisfied this requirement, prescription had already set in, the complaint
having been led in 1992 or five years after the execution of the Deed of Absolute Sale in March 10,
1987. Respondents counter that Article 1383 of the New Civil Code applies only to rescissible
contracts enumerated under Article 1381 of the same Code, while the cause of action in this case is
for rescission of a reciprocal obligation, to which Article 1191 of the Code applies. They assert that
their cause of action had not prescribed because the four-year prescriptive period is counted from
the date of discovery of the fraud, which, in this case, was only in 1992.
- (SC Ruling) A careful reading of the Kasunduan reveals that it is in the nature of a contract to sell,
as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the
vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a
contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of
which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. Respondents in this case bound themselves to
deliver a deed of absolute sale and clean title covering Lot No. 1083-C after petitioners have made
the second installment. This promise to sell was subject to the fulfillment of the suspensive
condition that petitioners pay P750,000 on August 31, 1987, and deposit a postdated check for the
third installment of P1,141,622.50. Petitioners, however, failed to complete payment of the second
installment. The non-fulfillment of the condition rendered the contract to sell ineffective and
without force and effect. It must be stressed that the breach contemplated in Article 1191 of the
New Civil Code is the obligor's failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation.
- Anent to prescription, prescription has not yet set in. Article 1391 states that the action for
annulment of void contracts shall be brought within four years. This period shall begin from the
time the fraud or mistake is discovered. Here, the fraud was discovered in 1992 and the complaint
filed in 1993. Thus, the case is well within the prescriptive period.

22. Natividad Gempesaw v. The Honorable Court of Appeals and Philippine Bank of Communications

- To facilitate payment of debts to her suppliers, petitioner draws checks against her checking
account with the respondent bank as drawee. The checks were prepared and filled up as to all
material particulars by her trusted bookkeeper, Alicia Galang. After the bookkeeper prepared the
checks, the completed checks were submitted to the petitioner for her signature, together with the
corresponding invoice receipts which indicate the correct obligations due and payable to her
suppliers. Petitioner signed each and every check without bothering to verify the accuracy of the
 checks against the corresponding invoices because she reposed full and implicit trust and
confidence on her bookkeeper. The issuance and delivery of the checks to the payees named therein
were left to the bookkeeper. Petitioner admitted that she did not make any verification as to
whether or not the checks were actually delivered to their respective payees. Although the
respondent drawee Bank notified her of all checks presented to and paid by the bank, petitioner did
not verify the correctness of the returned checks, much less check if the payees actually received the
checks in payment for the supplies she received. In the course of her business operations covering a
period of two years, petitioner issued a total of eighty-two (82) checks in favor of several suppliers.
It was only after the lapse of more than two (2) years that petitioner found out about the fraudulent
manipulations of her bookkeeper.
- All the eighty-two (82) checks with forged signatures of the payees were brought to Ernest L. Boon,
Chief Accountant of respondent drawee Bank at the Buendia branch, who, without authority
therefor, accepted them all for deposit at the Buendia branch to the credit and/or in the accounts of
Alfredo Y. Romero and Benito Lam. Sixty-three (63) out of the eighty-two (82) checks were
deposited the account of Alfredo Y. Romero at the respondent drawee Bank's Buendia branch, and
four (4) checks in his Savings Account No. 32-81-9 at its Ongpin branch. The rest of the checks were
deposited in Account No. 0443-4, under the name of Benito Lam at the Elcano branch of the
respondent drawee Bank. Under the rules of the respondent drawee Bank, only a Branch Manager,
and no other official of the respondent drawee Bank, may accept a second indorsement on a check
for deposit.
- (SC Ruling) Under Article 1170 of the NCC, the respondent drawee Bank may be held liable for
damages. There is no question that there is a contractual relation between petitioner as depositor
(obligee) and the respondent drawee bank as the obligor. In the performance of its obligation, the
drawee bank is bound by its internal banking rules and regulations which form part of any contract
it enters into with any of its depositors. When it violated its internal rules that second
endorsements are not to be accepted without the approval of its branch managers and it did accept
the same upon the mere approval of Boon, a chief accountant, it contravened the tenor of its
obligation at the very least, if it were not actually guilty of fraud or negligence. Furthermore, the
fact that the respondent drawee Bank did not discover the irregularity with respect to the
acceptance of checks with second indorsement for deposit even without the approval of the branch
manager despite periodic inspection conducted by a team of auditors from the main office
constitutes negligence on the part of the bank in carrying out its obligations to its depositors. Article
1173 provides —
"The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and correspondents with the
circumstance of the persons, of the time and of the place.

23. The Government of the Philippine Islands v. W.O. Bingham,

C.D. Squires, and Albert Bryan

- W.O. Bingham was issued by the government license to purchase and keep firearms. Respondent
paid a bond of 200 US $ with C.D. Squires and Albert Bryan as sureties and that they bound
themselves that they shall deliver said firearms to the Government when demanded by the latter.
However, when the Government demanded, respondents were unable to deliver said firearms and
ammunitions due to the same being lost during a storm while respondents were in the island of
Maripipi engaged in fishing. Thus, the Government demanded payment of the 200$ bond.
- (SC Ruling) The SC affirmed the decision of the trial court. The obligation which the defendants in
their bond assumed was that the said revolver and ammunition should be returned to the plaintiff
upon demand of the plaintiff or its representatives. No demand was made until after the said
revolver and ammunition were lost in about 80 fathoms of water, through no fault of the
defendants. Article 1182 of the Civil Code provides that —
 An obligation, consisting in the delivery of a specified thing, shall be extinguished when
said thing should be lost or destroyed without fault of the debtor and before he should be in
default.
- It would seem that this article was a complete answer to the contention of the plaintiff. Under
article 1183 of said code, the loss shall be presumed to be the negligence of the person upon whom
the obligation rests to return it unless there is proof to the contrary. In the present case it is
expressly admitted that there was no fault on the part of the defendants.
- Article 1105 of said Civil Code provides that —
No one shall be liable for events (speaking of obligations) which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the cases expressly mentioned in
the law or those in which the obligation so declares.

24. Rolito Go Tambunting, petitioner, vs. Court of Appeals

- On 2 July 1991, Eldon Maguan was driving his car along Wilson St., San Juan, Metro Manila, heading
towards P. Guevarra St. Petitioner entered Wilson St., where it is a one-way street and started
travelling in the opposite or "wrong" direction. At the corner of Wilson and J. Abad Santos Sts.,
petitioner's and Maguan's cars nearly bumped each other. Petitioner alighted from his car, walked
over and shot Maguan inside his car. Petitioner then boarded his car and left the scene.
- On 8 July 1991, petitioner presented himself before the San Juan Police Station to verify news
reports that he was being hunted by the police; he was accompanied by two (2) lawyers. The police
forthwith detained him. That same day, the police promptly filed a complaint for frustrated
homicide against petitioner with the Office of the Provincial Prosecutor of Rizal. Prosecutor Dennis
Villa Ignacio informed petitioner, in the Presence of his lawyers, that he could avail himself of his
right to preliminary investigation but that he must first sign a waiver of the provisions of Article
125 of the Revised Penal Code. Petitioner refused to execute any such waiver.
- Accordingly, on 11 July 1991, the Prosecutor, instead of filing an information for frustrated
homicide, filed an information for murder before the RTC. No bail was recommended. Meanwhile,
counsel for petitioner filed with the prosecutor an omnibus motion for immediate release and
proper preliminary investigation, alleging that the warrantless arrest of petitioner was unlawful
and that no preliminary investigation had been conducted before the information was filed.
- Petitioner filed a petition for certiorari, prohibition and mandamus before the Supreme Court
assailing the 17 July 1991 Order, contending that the information was null and void because no
preliminary investigation had been previously conducted, in violation of his right to due process.
The SC remanded the petition to the CA. The latter dismissed the said petition as well as petition for
habeas corpus. Thus, this case before the Supreme Court.
- (SC Ruling) Clearly, the petitioner was not afforded his right to preliminary investigation. To hold
that petitioner's rights to a preliminary investigation and to bail were effectively obliterated by
evidence subsequently admitted into the record would be to legitimize the deprivation of due
process and to permit the Government to benefit from its own wrong or culpable omission and
effectively to dilute important rights of accused persons well-nigh to the vanishing point. It may be
that to require the State to accord petitioner his rights to a preliminary investigation and to bail at
this point, could turn out ultimately to be largely a ceremonial exercise. But the Court is not
compelled to speculate. And, in any case, it would not be idle ceremony; rather it would be a
celebration by the State of the rights and liberties of its own people and a re-affirmation of its
obligation and determination to respect those rights and liberties.

25. Central Bank of the Philippines vs. Spouses Alfonso and Anacleta Bichara

- Respondents SPOUSES ALFONSO and ANACLETA BICHARA were the former registered owners of
Lots 621-C-1 and 621-C-2 situated in Legazpi City. The two properties have an aggregate area of
811 square meters. On July 19, 1983, the respondents sold the two properties to petitioner
 CENTRAL BANK OF THE PHILIPPINES for the sum of P405,500.00, or at P500.00 per square meter.
The deed of sale stipulated that:
The VENDEE by virtue of the sale of real property agreed upon shall pay to the VENDORS
at the rate of FIVE HUNDRED PESOS (P500.00) per square meter or at a total price of FOUR
HUNDRED FIVE THOUSAND FIVE HUNDRED PESOS (P405,500.00), such payment to be effected
only after this Deed of Sale shall have been duly registered and a clean title issued in the name of
VENDEE. It is agreed that all fees and expenses, cost of documentary and science stamps necessary
for the registration of the property with the Registry of Deeds and the transfer of title of the
parcels of the land herein sold to the VENDEE as well as the transfer tax due under this transaction
shall be borne by the VENDORS;
The VENDORS hereby likewise undertake at their expense to fill the parcels of land with an
escombro free from waste materials compacted to the street level upon signing of the Deed of Sale
to suit the ground for the construction of the regional office of the Central Bank of the Philippines
thereat.

- Despite the issuance of the title, petitioner failed to pay respondent. On its part, respondents did not
fill up the lot with escombro despite several demands made by petitioner. Petitioner was thus
constrained to undertake the lling up of the said lots, by contracting the services of BGV
Construction. The filling up of the lots cost petitioner P45,000.00. Petitioner deducted the said
amount from the purchase price payable to respondents. Petitioner, however, still did not pay the
respondents. Thus, the latter filed an action for rescission or specific performance before the trial
court. Respondents alleged that petitioner failed to pay the purchase price despite demand.
Petitioner averred that it was justified in delaying payment of the purchase price in view of
respondents' breach of several conditions in the contract. First, petitioner alleged that respondents
failed to deliver to the former free and legal possession of the two properties, in view of the
encumbrances noted in the title, in addition to the presence of squatters who were not evicted by
respondents. Second, it claimed that respondents did not fill up the lots with escombro free from
waste materials, as agreed upon.
- (SC Ruling) Respondents were guilty of non-performance of their obligation. The deed of sale
expressly stipulated that the vendors were to undertake, at their expense, the filling up of the lots
with escombro free from waste material compacted to the street level. This was to be accomplished
upon the signing of the contract and insofar as petitioner was concerned, respondent’s obligation
was demandable at once. Other than his testimony, Alfonso Bichara offered no proof tending to
show that he had complied in the manner agreed upon. The appellate court erred in decreeing the
rescission, otherwise called resolution, of the subject deed of sale. Respondents should not be
allowed to rescind the contract where they themselves did not perform their essential obligation
thereunder. It should be emphasized that a contract of sale involves reciprocity between the parties.
Since respondents were in bad faith, they may not seek the rescission of the agreement they
themselves breached.

26. Agustina Tan vs. Court of Appeals and Sps. Mariano Singson and Visitacion Singson

- The evidence shows that defendants-appellants spouses (private respondents herein) are the
owners of a house and lot located at No. 34 Easter Road, Baguio City, and covered by T.C.T. No. T-
13826, which were then for sale. On June 14, 1984, plaintiff-appellee together with her agent went
to see said spouses at their residence regarding the property. The parties finally agreed on the price
of Pl,800,000.00, with appellee to advance earnest money of P200,000.00 to enable appellants to
secure the cancellation of the mortgage and lien annotated on the title of the property and the
balance of the price to be paid by appellee on June 21, 1984. Forthwith, appellee handed to
appellants a check for P200,000.00 and thereupon the parties signed a receipt. In turn, appellants
handed to appellee a xerox copy of the title and other papers pertaining to the property as well as
an inventory of the furnishings of the house that are included in the sale. On June 17, 1984, appellee
 returned to appellants' house together with her daughter Corazon and one Ines, to ask for a
reduction of the price to Pl,750,000.00 and appellants spouses agreed.
- The very same day that appellants received the earnest money of P 200,000.00, they started paying
their mortgage loan with the Development Bank of the Philippines (DBP) to clear up the title of the
subject property. On July 9, 1984, DBP executed a cancellation of mortgage. Immediately, upon
execution by the DBP of the deed of cancellation of mortgage of July 9, 1984, appellants tried to
contact appellee and/or her daughter Corazon to come to Baguio City for the formal execution of
the deed of sale, but to no avail. Instead, appellants received a telegram from Atty. Quitoriano
cancelling the sale and demanding the return of the P200,000.00 earnest money. Appellants
countered calling on appellee to perform her part of the contract because "the title to the house and
lot right now suffers no imperfection or doubt. The levy on execution has long been lifted, the
mortgage indebtedness released, the portion of the public land used as driveway has long been
awarded and fully paid for the City of Baguio.
- Petitioners filed the instant petition for review on certiorari assailing the conclusion of the
respondent Court of Appeals that the private respondents had not committed a substantial breach
of their obligation and therefore, there was no legal basis for the judgment ordering rescission of
the contract. Petitioners maintain that since private respondents were not prepared to convey the
title to the subject property on the date agreed upon in view of the various liens and encumbrances
thereon, the former are entitled to rescind the contract pursuant to Article 1191 of the Civil Code.
- (SC Ruling) Petition is devoid of merit. The power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what is incumbent upon him is clear from a
reading of the Civil Code provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a
party's own judgment that the other has committed a breach of the obligation. Where there is
nothing in the contract empowering the petitioner to rescind it without resort to the courts, the
petitioner's action in unilaterally terminating the contract in this case is unjustified. A thorough
review of the records clearly indicates that private respondents had substantially complied with
their undertaking of clearing the title to the property which has a total land area of 886 square
meters. While TCT No. T-13826 was subject to a mortgage in favor of DBP, private respondents,
upon receipt of the earnest money paid by petitioner, utilized the same to settle its obligations with
DBP thus enabling them to secure a cancellation of the existing mortgage, which was duly noted in
the title to the property.
- It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the
contract but only for such breaches as are so substantial and fundamental as to defeat the object of
the parties in making the agreement. Indeed, it took time for DBP to process the cancellation of the
mortgage but, time not being of the essence in the agreement, a slight delay on the part of the private
respondents in the performance of their obligation, is not sufficient ground for the resolution of the
agreement.
- As to the notice of levy and execution annotated on TCT No. T-13826, a request to lift the same had
already been filed with the Register of Deeds and duly noted on the title. The fact that said notice
had not yet been cancelled by the Register of Deeds as of June 25, 1984 cannot prejudice the sellers
who must be deemed to have substantially complied with their obligation. The rule in this
jurisdiction is that where the fulfillment of the condition (in a conditional obligation) does not depend
on the will of the obligor, but on that of a third person, the obligor's part of the contract is complied
with, if he does an that is in his power and it then becomes incumbent upon the other contracting
party to comply with the terms of the contract.
- Inasmuch as the private respondents are ready, willing and able to comply with their obligation to
deliver title to the property subject of the sale and had already demanded that petitioner pay the
full amount of the purchase price, the petitioner must be considered as having incurred in delay.
This conclusion is warranted by the clear provision of Article 1169 of the Civil Code. Hence,
respondents were entitled to their counterclaim for specific performance.
27. Alfonso Iringan vs. The Honorable Court of Appeals

- On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an
undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of
Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed a Deed of
Sale on the same date with the purchase price of P295,000.00, payable as follows:
(a) P10,000.00 - upon the execution of this instrument, and for this purpose, the vendor
acknowledges having received the said amount from the vendee as of this date;
(b) P140,000.00 - on or before April 30, 1985;
(c) P145,000.00 - on or before December 31, 1985.
- When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent a
letter to Iringan stating that he considered the contract as rescinded and that he would not accept any
further payment considering that Iringan failed to comply with his obligation to pay the full amount of
the second installment. Iringan did not oppose but aked reimbursement of fees, interests, and cash he
previously gave. Palao was not amenable. On February 21, 1989, Iringan proposed that the P50,000
which he had already paid Palao be reimbursed or Palao could sell to him, an equivalent portion of the
land. Palao instead wrote Iringan that the latter's standing obligation had reached P61,600,
representing payment of arrears for rentals from October 1985 up to March 1989. The parties failed to
arrive at an agreement.
- Thus, Palao filed before the court a complaint for Judicial Confirmation of Rescission of Contract and
Damages against Iringan. The latter alleged that the contract was consummated hence the remedy was
for collection of the balance of the purchase price. The RTC ruled in favor of Palao. On appeal, the CA
affirmed the decision. Hence, this case before the SC petitioner averring that CA erred in affirming the
rescission of the contract.
- (SC Ruling) Even if Art. 1191 is applicable, petitioner is not entitled to automatic rescission. Under
Art. 1191, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall
fail to comply with what is incumbent upon him. But that right must be invoked judicially. The
obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent
upon him. The party entitled to rescind should apply to the court for a decree of rescission. The right
cannot be exercised solely on a party's own judgment that the other committed a breach of the
obligation. The operative act which produces the resolution of the contract is the decree of the court
and not the mere act of the vendor. Since a judicial or notarial act is required by law for a valid
rescission to take place, the letter written by respondent declaring his intention to rescind did not
operate to validly rescind the contract. However, when respondent (Palao), filed an action for Judicial
Confirmation of Rescission and Damages before the RTC, he complied with the requirement of the law
for judicial decree of rescission.
- Anent petitioner’s contention that even if the filing of the case was considered the judicial act
required, the action should be deemed prescribed based on the provisions of Article 1389 of the Civil
Code. This, the SC held, that it applies to rescissible contracts as enumerated and defined in Articles
1380 and 1381. The Court emphasized that rescission" in Article 1381 is not akin to the term
"rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as enumerated in said article. The prescriptive
period applicable to rescission under Articles 1191 and 1592, is found in Article 1144,37 which
provides that the action upon a written contract should be brought within ten years from the time the
right of action accrues. The suit was brought on July 1, 1991, or six years after the default. It was filed
within the period for rescission. Thus, the contract of sale between the parties as far as the prescriptive
period applies, can still be validly rescinded. Therefore, the Court affirmed the decision of the CA.

28. Suria vs. Intermediate Appellate Court and and Spouses Herminio A. Crispin and Natividad C. Crispin,
respondents.
 - On June 20, 1983, private-respondents filed a complaint before the Regional Trial Court of Laguna,
Branch XXIV, for rescission of contract and damages, alleging that : On March 31, 1975, petitioners
being the owners of a parcel of land situated at Barrio San Antonio, San Pedro, Laguna, entered into
a contract of a DEED OF SALE WITH MORTGAGE, with herein respondents. Respondents violated
the terms and conditions of the contract by failing to pay the stipulated installments and in fact only
one installment due in July 1975 (paid very late in the month of September, 1975) was made all the
others remaining unsettled. Repeated verbal and written demands were made by petitioners upon
respondents for the payment of the installments, some of said written demands having been made
on September 24, 1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12, 1983,
but defendants for no justifiable reason failed to comply with the demands of petitioners.
- Petitioners moved to dismiss the complaint on the ground that respondents are not entitled to the
subsidiary remedy of rescission because of the presence of remedy of foreclosure in the Deed of Sale
with Mortgage. The Court denied the motion to dismiss complaint as well as the motion for
reconsideration. Thus, petitioner raised before the SC as to whether or not the remedy of rescission
is available in the presence of a remedy of foreclosure in the light of the express provision of article.
1383 of the NCC that: “The action for rescission is subsidiary; it cannot be instituted except when
the party suffering damage has no other legal means to obtain reparation for the same. “Likewise,
the petitioner clarified WON the seller may legally demand rescission of the deed of sale with
mortgage without offering to restore to the Buyer what he has paid as required by Art. 1385.
- (SC Ruling) Art. 1191 is not applicable in the foregoing case. There is no dispute that the parties
entered into a contract of sale as distinguished from a contract to sell. By the contract of sale, the
vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the
buyer, who in turn, is obligated to pay a price certain in money or its equivalent (Art. 1458, Civil
Code). Respondents have already fully complied with their part of the obligation. They have
already parted with the title as evidenced by the transfer certificate of title in the petitioners' name
as of June 27, 1975.
- The buyer, in tum, fulfilled his end of the bargain when he executed the deed of mortgage. The
payments on an installment basis secured by the execution of a mortgage took the place of a cash
payment. In other words, the relationship between the parties is no longer one of buyer and seller
because the contract of sale has been perfected and consummated. It is already one of a mortgagor
and a mortgagee. In consideration of the petitioners’ promise to pay on installment basis the sum
they owe the respondents, the latter have accepted the mortgage as security for the obligation. The
petitioners' breach of obligations is not with respect to the perfected contract of sale but in the
obligations created by the mortgage contract. The remedy of rescission is not a principal action
retaliatory in character but becomes a subsidiary one which by law is available only in the absence
of any other legal remedy. (Art. 1384, Civil Code). Foreclosure here is not only a remedy accorded
by law but, as earlier stated, is a specific provision found in the contract between the parties.
- Thus, petitioners were ordered to pay the balance of their indebtedness under the Deed of Absolute
Sale with Mortgage with legal interests from the second installment due on October 24, 1975 until
fully paid, failing which the respondents may resort to foreclosure.

29. Victoria Ong (Petitioner) vs. Ernesto Bognalbal and CA

- On January 2, 1995, [herein respondent] Ernesto Bogñ albal entered into an "Owner-Contractor
Agreement" with Victoria Ong for the construction of a proposed boutique owned by the latter. The
agreement provides that in consideration of the sum of two hundred thousand pesos (P200,000.00),
the contractor agrees to furnish labor, tools and equipment to complete the work on the boutique as
per specification within 45 days excluding Sundays from the date of delivery of the construction
materials. Payment by the owner shall be made by progress billing to be collected every two (2)
weeks based on the accomplishment of work value submitted by the contractor to the owner as
certified for payment by the architect assigned on site. The agreement likewise provides for a
 change order as a result of fluctuation in the cost of labor. Moreover, should the owner require the
contractor to perform work over and above that required, the additional cost shall be added to the
contract amount and if ordered to omit work as required by their agreement, the cost of work
omitted shall be deducted from the contract amount.
- It is with respect to progress billing no. 4 that the present controversy arose. respondent submitted
the fourth progress billing on March 31, 1995 for the period covering March 4 to 18, 1995, in the
sum of P30,950.00 equivalent to 15.47% of the total job petitioner refused to pay the same.
Petitioner contends that her refusal to pay was because the fourth billing was allegedly in excess
and over the value of the work accomplished during the period. To settle the matter, the parties
purportedly met whereby respondent supposedly agreed to finish the kenzo flooring on or before
April 24, 1995 before petitioner would pay the fourth (4th) progress billing. However, instead of
complying with his commitment, respondent abandoned the project on April 24, 1995 when it
became apparent that he could not complete the kenzo flooring on the date agreed upon.
- In a case filed by respondent against petitioner for collection of sum of money, the trial court ruled
in favor of respondent. On appeal to the RTC, the latter rendered judgement in favor of petitioner.
The CA however reinstated the MeTC’s decision. Thus, this instant petition.
- (SC Ruling) 1. Alleged novation of the contract – agreement. The Court of Appeals ruled that
respondent was justified to refuse to continue the project to petitioner’s failure to pay the fourth
progress billing. Such was erroneous. According to the Court, if the parties indeed had a verbal
agreement that collection of said billing will be held on abeyance until after respondent Bogñ albal
finished the work on the Kenzo flooring, there would have been a novation of petitioner Ong's
obligation to pay the price covered by the fourth billing by changing the principal conditions
therefor as espoused under Art. 1291 (1). There is partial novation when there is only a
modification or change in some principal conditions of the obligation. It is total, when the obligation
is completely extinguished. Also, the term principal conditions in Article 1291 should be construed
to include a change in the period to comply with the obligation. Such a change in the period would
only be a partial novation, since the period merely affects the performance, not the creation of the
obligation. Novation is never presumed. Unless it is clearly shown either by express agreement of
the parties or by acts of equivalent import, this defense will never be allowed. The evidence
preponderates in favor of respondent Bogñ albal that there had been no novation of the contract. At
best, what was proven was a grudging accommodation on the part of respondent Bogñ albal to
continue working on the project despite petitioner Ong's failure to pay the fourth progress billing.
- More importantly, assuming that there was indeed a novation of the obligation of petitioner Ong to
pay the fourth billing so as to include as additional condition the completion of the Kenzo ooring,
such new condition would, nevertheless, be deemed fulfilled. This is pursuant to Article 1186 of the
Civil Code. When respondent did not complete the kenzo flooring, petitioner hired the services of
another contractor. The Civil Code indeed provides that, "(i)f a person obliged to do something fails
to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been
poorly done be undone." Petitioner Ong had voluntarily prevented the fulfillment of the condition
which should have given rise to her obligation to pay the amount of the fourth billing. Respondent
Bogñ albal would no longer have the opportunity to finish the Kenzo flooring if another contractor
had already finished the same. Such condition would, hence, be deemed fulfilled under Article 1186
of the Civil Code, and, therefore, petitioner Ong's obligation to pay the amount of the fourth billing
has been converted to a pure obligation.
- 2. Authority of Respondent to Abandon work. In the case at bar, there is nothing in the Owner-
Contractor Agreement empowering either party to rescind it without resort to the courts. Hence,
respondent Bogñ albal's unilateral termination the contract without a court action is unjustified.
The SC held: [T]he powers to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him . . .. However, it is equally settled that,
in the absence of a stipulation to the contrary, this power must be invoked judicially; it cannot be
exercised solely on a party’s own judgment that the other has committed a breach of the obligation.
 Where there is nothing in the contract empowering a party to rescind it without resort to the courts,
such action in unilaterally terminating the contract is unjustified.”
- 3. As to Damages. Considering that both parties committed a breach of their respective
obligations, Article 1192 of the Civil Code is on all fours. However, Art. 1192 presupposes that the
contracting parties are on equal footing. Considering this Court's finding that there had been no
contract novation requiring respondent Bogñ albal to finish the Kenzo flooring before the fourth
progress billing shall be paid, it is crystal clear that it was petitioner Ong who first violated the
contract. As such, it is petitioner Ong who is liable to pay damages, which may, however, be
reduced, depending on what is equitable under the circumstances. On the other hand, since
respondent Bogñ albal is the second infractor, he is not liable for damages in petitioner Ong's
counterclaim. Since both parties are not on equal footing, Petitioner Ong should first be obliged to
pay the value of the accomplished work (P30,950.00 and P13,000.00), before the damage scheme
under Article 1192 of the Civil Code is applied.
- Finally, the SC reinstated the Decision of the MeTC holding petitioner liable for damages. Petition
dismissed.

30. Jaime Ong s. Court of Appeals, Sps. Miguel Robles and Alejandra Robles

- On May 10, 1983, petitioner Jaime Ong on the one hand, and respondent spouses Miguel K. Robles
and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting
two parcels of land situated at Barrio Puri, San Antonio, Quezon. On May 15, 1983, petitioner Ong
took possession of the subject parcels of land together with the piggery, building, rice mill,
residential house and other improvements thereon. Pursuant to the contract they executed,
petitioner paid respondent spouses the sum of P103,499.91 by depositing it with the United
Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of
Philippine Islands (BPI), in accordance with their stipulation that petitioner pay the loan of
respondents with BPI.
- To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks
payable to respondent spouses in the amount of P350,000.00 each. When presented for payment,
however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the
checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent
spouses with BPI which petitioner should have paid, petitioner only managed to dole out no more
than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they
sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation
with said bank, with the knowledge and conformity of petitioner. Petitioner, in return, voluntarily
gave the spouses authority to operate the rice mill. He, however, continued to be in possession of
the two parcels of land while private respondents were forced to use the rice mill for residential
purposes.
- On August 2, 1985, respondent, after petitioner unheeded their demands, filed a complaint for
rescission of contract and recovery of properties with damages. The trial court set aside the
agreement. On appeal, the CA affirmed the trial court’s decision noting that the failure of petitioner
to completely pay the purchase price is a substantial breach of his obligation which entitles the
private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the
instant petition.
- (SC Ruling) 1. Applicability of Art. 1191. Petitioner contends that Article 1191 of the New Civil
Code is not applicable since he has already paid respondent spouses a considerable sum and has
therefore substantially complied with his obligation. He cited Article 1383 instead, to the effect that
where specific performance is available as a remedy, rescission may not be resorted to. The SC
thoroughly distinguished Art. 1191 and 1383 –
Rescission, as contemplated in Articles 1380, of the New Civil Code, is a remedy
granted by law to the contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if this should be valid, by
 restoration of things to their condition at the moment prior to the celebration of the
contract. It implies a contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone.
On the other hand, Article 1191 of the New Civil Code refers to rescission
applicable to reciprocal obligations. Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other.
X
X
X
While Article 1191 uses the term "rescission," the original term which was used in
the old Civil Code, from which the article was based, was "resolution." Resolution is a
principal action which is based on breach of a party, while rescission under Article 1383 is
a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New
Civil Code.
- The SC emphasized that the breach contemplated in Article 1191 is the obligor's failure to comply
with an obligation already extant, not a failure of a condition to render binding that obligation. The
agreement entered into by both parties was contract to sell which the full payment of the purchase
price was a positive suspensive condition, the failure of which was not a breach casual or serious,
but a situation that prevented the obligation of the vendor to convey title from acquiring an
obligatory force.
- 2. As to Novation. Petitioner insisted that there was novation as to the manner and time of
payment. Article 1292 of the New Civil Code states that, "In order that an obligation may be
extinguished by another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point incompatible with
each other." Novation is never presumed, it must be proven as a fact either by express stipulation of
the parties or by implication derived from an irreconcilable incompatibility between the old and the
new obligation.
In order for novation to take place, the concurrence of the following requisites is
indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the
parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and
(4) there must be the validity of the new contract.
The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties
hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of
the new one. While it was agreed that part of the purchase price in the sum of P496,500.00 would be
directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of respondent
spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to foreclose the
properties, petitioner apparently could not even raise the sum needed to forestall any action on the part
of the bank. Consequently, he authorized respondent spouses to sell the three (3) transformers.
However, although the parties agreed to credit the proceeds from the sale of the transformers to
petitioner's obligation, he was supposed to reimburse the same later to respondent spouses. This can
only mean that there was never an intention on the part of either of the parties to novate petitioner's
manner of payment.

31. Chua v. CA
- Petitioners were lessees of a commercial unit at No. 3086 Redemptorist Street in Baclaran,
Parañ aque, Metro Manila. The lease was for a period of five (5) years, from January 1, 1985 to
December 31, 1989. The contract expressly provided for the renewal of the lease at the option of the
lessees "in accordance with the terms of agreement and conditions set by the lessor." Prior to the
expiration of the lease, the parties discussed the possibility of renewing it. They exchanged proposal
and counterproposal, but they failed to reach agreement. On July 24, 1990, private respondent filed
a complaint for unlawful detainer against petitioners. The trial court gave petitioners an extension
 of 2 years to occupy said unit. On appeal to the RTC, the latter ruled that the lease was for a fixed
period of five (5) years and that, upon its expiration on January 1, 1990, petitioners continued stay
in the premises became illegal. The CA affirmed the RTC’s decision. Thus, this petition before the
SC, petitioners claiming that they are entitled to an extension of time to occupy the premises in
question.
- (SC Ruling) The petition is without merit. After the lease terminated on January 1, 1990 and
without the parties thereafter reaching any agreement for its renewal, petitioners became
deforciants subject to ejectment from the premises. The lease contract between the parties has
already expired. As there was no longer any lease to speak of which could be extended, the
Metropolitan Trial Court was in effect making a contract for the parties which it obviously did not
have the power to do. The potestative authority of the courts to fix a longer term for a lease under
Art. 1687 of the Civil Code applies only to cases where there is no period fixed by the parties. In this
case, the contract of lease provided for a fixed period of five (5) years from January 1, 1985 to
December 31, 1989. As the Court held in Bacolod-Murcia Milling Co., Inc. v. Banco Nacional Filipino:
It is not the province of the court to alter a contract by construction or to make a new contract for
the parties; its duty is confined to the interpretation of the one which they have made for
themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations
or read into contract words which it does not contain.
Indeed, Art. 1675 of the Civil Code excludes cases falling under Art. 1673 (which provides among
others, that the lessor may judicially eject the lessee when the period agreed upon or that which is
fixed has expired) from the cases wherein, pursuant to Art. 1687, courts may fix a longer period of
lease.
32. Lo Chua, petitioner, vs. Court of Appeals

- On 19 April 1996, a Complaint for Unlawful Detainer and Damages was led by respondent Eric Chua
against petitioner Eulogio "Eugui" Lo Chua before the Metropolitan Trial Court of Manila.
Respondent Eric Chua alleged that he was the former owner of a parcel of land with a four (4)-
storey commercial building known as National Business Center (NBC) Bldg. situated at 567 G. Puyat
St., Sta. Cruz, Manila. Room No. 308 and Stall No. 561 thereof were both leased by petitioner on a
month-to-month basis for P12,938.20. Subsequently, respondent Eric Chua decided to sell the
property. Through a letter of 6 November 1995, he offered petitioner a right of first refusal to be
exercised within five (5) days from receipt thereof, which was on 7 November 1995. Petitioner
failed to manifest his intention within the period. Thus, on 16 November 1995 respondent Chua
sold the property to respondent MAGICAIRE for P25,000,000.00 subject to the condition stated in
the Deed of Conditional Sale that P5,000,000.00 would be paid after the building was completely
vacated by the tenants.
- On 4 December 1995 respondent informed petitioner about the sale transaction, the termination of
their lease agreement effective 31 March 1996 and demanded that petitioner vacate the premises
after the end of the period, at the same time waiving the rentals for January to March 1996 in
consideration of petitioner's understanding and cooperation. On 23 January 1996 petitioner
tendered payment of the rental for that month but was declined by respondent Chua. He made
consignation of the said amount with the court. Respondent made final demands but petitioner
refused to vacate the property. Petitioner argued that since he has been occupying the premises for
more than thirty (30) years, his lease contract should be understood as one for an indefinite period
entitling him to an extension thereof pursuant to Art. 1687 of the NCC.
- (SC Ruling) Article 1687 is explicit that if the period for the lease has not been fixed, it is
understood to be from month to month if the rent agreed upon is monthly. However, even though a
monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for
the lease after the lessee has occupied the premises for over a year. Thus, the provision contemplates
two (2) situations. One , where the period for the lease has not been fixed but the rent agreed upon
is monthly, in which event the period is understood to be from month to month. In other words, the
law itself fixes the period. Two, where no period for the lease has been set, a monthly rent is paid and
 the lessee has occupied the premises for over a year authorizing the courts to fix a longer period of
lease. It is the second situation which is applicable in the said case. Inasmuch as the existence in the
present case of the circumstances that no period for the lease has been set, rent was being paid
monthly, and petitioner has been occupying the premises for more than thirty (30) years justify
extending the period by the courts, it cannot be said that the period expired on 31 March 1996
when respondent Chua stated this date as the effectivity of the termination of their lease agreement
in his 4 December 1995 letter. The unilateral act of the lessor in terminating the lease should not be
recognized as writing finis to the agreement when the second situation in Art. 1687 is involved. x x
x. The power of the courts to establish a grace period pursuant to Art. 1687 is potestative or
discretionary, to be exercised or not depending on the particular circumstances of the case: a
longer term to be granted where equities come into play demanding extension, to be denied where
none appears, always with due deference to the parties' freedom to contract. Here, even as the
Court has the discretion to fix a longer term for the lease, petitioner's continued possession as lessee of
the premises from the supposed expiration of the lease on 31 March 1996, or for a period now of more
than 5 years, sufficed as an extension of the period. There is no longer need to extend it any further.
Petition was dismissed.

33. Tiu v. CA

- Sometime in March, 1986, plaintiff GEORGE TIU and plaintiff ROSALINA TIU, his mother, negotiated
a loan of P300,000.00 with defendant JUAN GO who then asked for a mortgage of their
condominium units. Respondent Juan Go then prepared, a document denominated as "DEED OF
SALE OF A CONDOMINIUM WITH RIGHT TO REPURCHASE" and another as "CONTRACT OF LEASE",
the former was prepared in favor of respondent spouses JUANITO LIM AND LIM LEE SHOW FONG,
while the latter was prepared in favor of petitioner. Petitioner signed the said document after
which, her mother handed to defendant jewelries with a value of P200,000.00 and PCIB Check No.
51405, drawn to the sum of P200,000.00, signed by her but undated, and another PCIB Check No.
51428, signed by signed by her too but without any stated amount and date, as additional collateral
for the loan just received and which the defendant then required in their agreement. the real
intention of the parties on the transaction covered by the deed being a mortgage, George Tiu tried
to redeem he mortgaged condominiums after the lapse of the lawful period of repurchase. But Juan
Go refused said redemption and the return of the jewelries and checks given by Rosalina Tiu. The
former presented the checks for encashment but were returned.
- As counterclaim, Go alleged that Rosalina Tiu had secured, on different dates, loan advances in the
total amount of P1,060,000.00, which has remained unpaid despite demands. The Tius admitted
receipt by Rosalina Tiu of the money stated in respondent Go's counterclaim, but alleged that the
loans had already been paid for by tobacco delivered to Go. Subsequently, Go led a motion for leave
to admit third party-complaint for a sum of money and damages against Joaquin Tiu, alleging that
on different dates, the latter had, for himself and in behalf of the Tius, received the money as loan or
advances in connection with the latter's tobacco business, in the total amount of P700,000.00, for
which amount Joaquin Tiu should be held jointly and severally liable with the Tius. Go lamented the
failure of the trial court hold George Tiu and Joaquin Tiu jointly and solidarily liable with Rosalina
Tiu on the amount of P1,060,000.00, and for dismissing both his third-party complaint. Thus, this
case before the SC.
- (SC Ruling) George and Joaquin Tiu are not solidary liable with Rosalina Tiu on the amount
of P1,060,000.00. The various receipts clearly showed that the appellant George Tiu never signed
the receipts nor received any money from appellant Go while appellant Joaquin Tiu signed and
received the money for and in behalf of Rosalina. Consequently, they are not liable solidarily for the
said amounts even if the money were used for their tobacco business. And even if they admitted
that they received the money, both are not liable in solidum because there was no express provision
in said receipts that appellants George and Joaquin Tiu should be liable in solidum. There is solidary
 obligation only when the obligation expressly so states or when the law or nature of the obligation
requires solidarity (Article 1207, NCC).

34. Cembrano vs. City of Butuan

- Cembrano was then the marketing manager of CVC who entered into contract with the City of
Butuan. In said contract, CVC deliver to the City of Butuan 757 timber piles at a unit cost of
P1,485.00 or a total of P1,124,145.00 within 60 days from receipt of the order. Butuan City issued
the corresponding purchase order to CVC or Gil Cembrano for the 757 timber piles. To finance the
purchase of timber, petitioner secured a Php 150,000.00 loan from the DBP evidenced by a
promissory note. They executed a real estate mortgage over a parcel of land to secure the loan.
Within the 60-day period, CVC was able to deliver total of 174 timber piles. On November 13, 1991,
the 60-day period for CVC to make deliveries of the timber piles expired. CVC offered to deliver 100
timber piles worth P148,500.00, but respondent refused. On November 19, 1991, petitioner
Cembrano requested for an extension, until December 11, 1991, to complete the delivery of timber
piles. Request was denied.
- The City Legal Officer upheld the validity of CVC’s contract with Butuan. CVC filed a complaint with
the trial court which rendered decision in favor of Butuan City. On appeal, CA ordered Butuan City
to pay petitioner the total sum of P926,845.00 with 6% interest upon finality of the decision. With
this, Cembrano executed Deed of Assignment covering ½ of the monetary award favor of Go.
- However, City of Butuan paid the amount through a check, received by Pag-Ong for CVC. On January
28, 2003, the Court ruled that the payment made by the City of Butuan to Pag-Ong was illegal
because it was made in a motion for writ of execution, and Pag-Ong was not a party to the case and
had no personality. For their part, Go and Cembrano led a motion to compel the DBP to remit the
garnished amount to them. On February 3, 2003, the trial court issued an Order granting the motion
and ordered the DBP to remit P926,845.00 to Cembrano and Go in cash. The DBP complied and
released the amount of P981,219.91 to CVC and Cembrano.
- The CA reversed the decision holding that either respondent Cembrano or Pag-Ong could receive
the award of P926,845.00 for the respondent CVC. Moreover, the City of Butuan acted in good faith
in delivering the check to the President of CVC. Inasmuch as it had already remitted the judgment
debt, the City was released of its obligation under the Decision in CA-G.R. CV No. 55049. Thus, this
case before the SC.
- Petitioners aver that the CA erred in saying that the payment by the respondent City to CVC through
its President Pag-Ong, validly discharged it from its obligation in CA-G.R. CV No. 55049; and likewise
remiss in ruling that the acceptance of P926,845.00 by respondent Pag-Ong released the City of
Butuan from its obligations on the premise that Pag-Ong, as president of CVC, could be considered
as a person in possession of credit.
- (SC Ruling) Article 1240 of the Civil Code provides 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. Payment made by the debtor to the person of the creditor or to one
authorized by him or by the law to receive it extinguishes the obligation. When payment is made to
the wrong party, however, the obligation is not extinguished as to the creditor who is without fault
or negligence even if the debtor acted in utmost good faith and by mistake as to the person of the
creditor or through error induced by fraud of a third person. In this case, petitioner Cembrano and
CVC were the judgement creditors of CA’s decision and thus, each of them is entitled to one-half
(1/2) of the amount of P926,845.00 or P463,422.50 each. Considering that the City of Butuan gave
the full amount to CVC through Pag-ong, its obligation with regard to the company was
extinguished. However, as to Cembrano, the obligation to remit one-half of the amount, or
P463,422.50, to him was not extinguished.
- When there is a concurrence of several creditors or of several debtors or of several creditors and
debtors in one and the same obligation, it is presumed that the obligation is joint and not solidary.
The most fundamental effect of joint divisible obligations is that each creditor can demand only for
 the payment of his proportionate share of the credit, while each debtor can be held liable only for
the payment of his proportionate share of the debt. As a corollary to this rule, the credit or debt
shall be presumed, in the absence of any law or stipulation to the contrary, to be divided into as
many shares as there are creditors and debtors, the credits or debts being considered distinct from
one another. It necessarily follows that a joint creditor cannot act in representation of the others.
Neither can a joint debtor be compelled to answer for the liability of the others. Since respondent
CVC was entitled to only P490,605.955 under the CA decision in CA-G.R. CV No. 55049 but received
P926,845.00, there was, in fine, an overpayment of P490,605.955 made by respondent City. Thus,
respondent CVC is obliged to return the amount of P490,605.955 to respondent City. Since
petitioner Cembrano had already assigned P490,609.955 to petitioner Go, the latter likewise had
the right to receive the P490,609.955 from DBP. Petitioner Cembrano should thus be made to
return the amount of P490,609.955 he received from the DBP to respondent City.

35. PH Credit Corporation v. CA and Carlo M. Farrales

- PH Credit Corp., led a case against Pacific Lloyd Corp., Carlos Farrales, Thomas H. Van Sebille and
Federico C. Lim, for sum of money before the RTC. The RTC rendered in favor of PH Credit
Corporation defendants to pay the sum of Php 118,814.49 with interest of 18% per annum starting
December 20, 1982 until fully paid. After the aforesaid decision has become final and executory, a
Writ of Execution was issued and consequently implemented by the assigned Deputy Sheriff.
Personal and real properties of defendant Carlos M. Farrales were levied and sold at public auction
wherein PH Credit Corp. was the highest bidder. The personal properties were sold on August 2,
1984 at P18,900.00 while the real properties were sold on June 21, 1989 for P1,294,726.00. Writ of
possession was subsequently obtained by petitioner but on January 31, 1991, said writ of
possession was of no force and effect. Petitioner appealed to the CA.
- On appeal, the CA held that pursuant to the January 31, 1984 Decision of the trial court, the liability
of Farrales was merely joint and not solidary. Consequently, there was no legal basis for levying and
selling Farrales' real and personal properties in order to satisfy the whole obligation. Petitioner
now comes to the Court alleging that the CA erred in disregarding the text of the January 31, 1984
Decision of the trial court. In concluding that the obligation was merely joint, the CA was allegedly
mistaken in relying on the failure of the dispositive portion of the Decision to state that the
obligation was solidary.
- (SC Ruling) A solidary obligation is one in which each of the debtors is liable for the entire
obligation, and each of the creditors is entitled to demand the satisfaction of the whole obligation
from any or all of the debtors. On the other hand, a joint obligation is one in which each debtor is
liable only for a proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-entrenched rule is that solidary
obligations cannot be inferred lightly. They must be positively and clearly expressed. A liability is
solidary "only when he obligation expressly so states, when the law so provides or when the nature
of the obligation so requires.
- In the dispositive portion of the January 31, 1984 Decision of the trial court, the word “solidary”
neither appears nor can it be inferred therefrom. The fallo merely stated that the following
respondents were liable: Pacific Lloyd Corporation, Thomas H. Van Sebille, Carlos M. Farrales and
Federico C. Lim. Under the circumstances, the liability is joint as Art. 208 of the NCC provides.

36. Smith, Bell, and Co vs. CA and JOSEPH BENGZON CHUA

- The main issue raised in this case is whether a local claim or settling agent is personally
and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign
principal.
- In July 1982, Chua bought and imported to the Philippines from the firm Chin Gact Co., Ltd. of
Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed Grade F-15% valued at US$13,000.00
 CIF Manila. These were contained in 1,250 bags and shipped from the Port of Kaohsiung, Taiwan on
Board S.S. "GOLDEN WEALTH" for the Port on Manila. On July 27, 1982, this shipment was insured
by the defendant First Insurance Co. "against all risks" at port of departure with the note "Claim, if
any, payable in U.S. currency at Manila and with defendant Smith, Bell, and Co. stamped at the
lower left side of the policy as "Claim Agent."
- The cargo arrived at the Port of Manila on September 1, 1982 landed at port on September 2, 1982.
Thereafter, the entire cargo was discharged to the local arrastre contractor, with a number of the
cargo in apparent bad order condition. On September 27, 1982, Chua secured the services of a
cargo surveyor to survey the damaged. Report showed that of the 1,250 bags of the imported
material, 600 were damaged by tearing at the sides of the container bags and the contents partly
empty. Upon weighing, the contents of the damaged bags were found to be 18,546.0 kg short.
- Accordingly, on October 16 following, the Chua filed with Smith, Bell, and Co., Inc. a formal
statement of claim with proof of loss and a demand for settlement of the corresponding value of the
losses, in the sum of US$7,357.78.00. After purportedly conveying the claim to its principal, Smith,
Bell, and Co., Inc. informed the plaintiff by letter dated February 15, 1983 that its principal offered
only 50% of the claim or US$3,616.17 as redress, on the alleged ground of discrepancy between the
amounts contained in the shipping agent's reply to the claimant of only US$90.48. The offer not
being acceptable to Chua, the latter wrote Smith, Bell, & Co. expressing his refusal to the "redress"
offer. contending that the discrepancy was a result of loss from vessel to arrastre to consignees'
warehouse\which losses were still within the "all risk" insurance cover. No settlement of the claim
having been made, the he then caused the instant case to be filed.
- Defendant-appellant averred in its answer that it is merely a settling or claim agent of defendant
insurance company and as SUCH agent, it is not personally liable under the policy in which it has not
even taken part of. It then alleged that plaintiff-appellee has no cause of action against it. The lower
court ruled in favor of appellee.
- (SC Ruling) Petitioner, as settling agent acting within the scope of its authority, cannot be held
personally and / or solidarily liable for the obligation of its principal (First Insurance Co.). Article
1207 of the Civil Code clearly provides that "(t)here is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity." The well-
entrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and
clearly expressed. That even if in the end it is First Insurance Co. who will be liable, is of no moment
because this would be an injustice on Smith, Bell, and Co. who will be made to advance for its
principal’s obligation. The only "involvement" of petitioner in the subject contract of insurance was
having its name stamped at the bottom left portion of the policy as "Claim Agent." Without anything
else to back it up, such stamp cannot even be deemed by the remotest interpretation to mean that
petitioner participated in the preparation of said contract. Hence, there is no privity of contract, and
correspondingly there can be no obligation or liability, and thus no Cause of action against
petitioner attaches. Under Article 1311 of the Civil Code, contracts are binding only upon the
parties (and their assigns and heirs) who execute them. The subject cargo insurance was between
the First Insurance Company, Ltd. and the Chin Gact Co., Ltd., both of Taiwan, and was signed in
Taipei, Taiwan by the president of the First Insurance Company, Ltd. and the president of the Chin
Gact Co., Ltd. There is absolutely nothing in the contract which mentions the personal liability of
petitioner.

37. Republic Glass vs. Cua

- Petitioners Republic Glass Corporation (“RGC”) and Gervel, Inc. (“Gervel”) together with respondent
Lawrence C. Qua (“Qua”) were stockholders of Ladtek, Inc. (“Ladtek”). Ladtek obtained loans from
Metropolitan Bank and Trust Company (“Metrobank”) and Private Development Corporation of the
Philippines (“PDCP”) with RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and
Qua executed Agreements for Contribution, Indemnity and Pledge of Shares of Stocks
(“Agreements”). The Agreements all state that in case of default in the payment of Ladtek’s loans, the
 parties would reimburse each other the proportionate share of any sum that any might pay to the
creditors. Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General
Milling Corporation (“GMC”) in favor of RGC and Gervel. The pledged shares of stock served as
security for the payment of any sum which RGC and Gervel may be held liable under the
Agreements.
- Ladtek defaulted in its obligations. Thus, Metrobank filed a collection case. During its pendency,
RGC and Gervel paid Metrobank Php 7M. As such, Metrobank dismissed its case for RGC and Gervel.
The latter demanded that Qua pay Php 3,860,646.00 or 42.22% of Php 8,730,543.55 as
reimbursement of the total amount RGC and Gervel paid to Metrobank and PDCP. With the court
denying Qua’s application for restraining order for the foreclosure of his shares, RGC and Gervel
foreclosed all of his pledged shares of stock at public auction. However, on January 12, 1996, the
RTC rendered its decision ruling on the foreclosure ordering RGC and Gervel to return the
foreclosed Qua’s shares. On motion for reconsideration, the trial court set aside the said decision.
On appeal, the CA ruled in favor of Qua.
- RGC and Gervel assailed the Court of Appeals’ ruling that the parties’ liabilities under the
Agreements depend on the full payment of the obligation. RGC and Gervel insist that it is not an
essential condition that the entire obligation must first be paid before they can seek reimbursement
from Qua. RGC and Gervel contend that Qua should pay 42.22% of any amount which they paid or
would pay Metrobank and PDCP.
- (SC Ruling) The contentions were partly meritorious. Payment of the entire obligation by one or
some of the solidary debtors results in a corresponding obligation of the other debtors to reimburse
the paying debtor.x x x The Agreements are contracts of indemnity not only against actual loss but
against liability as well. Therefore, whether the solidary debtor has paid the creditor, the other
solidary debtors should indemnify the former once his liability becomes absolute. However, in this
case, the liability of RGC, Gervel and Qua became absolute simultaneously when Ladtek defaulted in
its loan payment. As a result, RGC, Gervel and Qua all became directly liable at the same time to
Metrobank and PDCP. Thus, RGC and Gervel cannot automatically claim for indemnity from Qua
because Qua himself is liable directly to Metrobank and PDCP.
- Contrary to RGC and Gervel’s claim, payment of any amount will not automatically result in
reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from
the co-debtors only in so far as his payment exceeded his share in the obligation. This is precisely
because if a solidary debtor pays an amount equal to his proportionate share in the obligation, then
he in effect pays only what is due from him. If the debtor pays less than his share in the obligation,
he cannot demand reimbursement because his payment is less than his actual debt. Considering
that RGC and Gervel paid only P7 million out of the total obligation of P14,200,854.37, which
payment was less than RGC and Gervel’s combined shares in the obligation, it was clearly partial
payment. Moreover, if it were full payment, then the obligation would have been extinguished.
Metrobank would have also released Qua from his obligation. Partial payment was also given to
PDCP. Since they only made partial payments, RGC and Gervel should clearly and convincingly
show that their payments to Metrobank and PDCP exceeded their proportionate shares in the
obligations before they can seek reimbursement from Qua. This RGC and Gervel failed to do.
Therefore, they are not entitled to reimbursement by Qua and they cannot validly foreclose the
latter’s shares of stock.

38. Ongkeko vs. BPI Express Card

- On September 13, 1990, Lina Lodovica (Lodovica) applied for a credit card with respondent, with
Vicente Ongkeko (petitioner) acting as surety. Her application was approved and she was originally
given a P3,000.00 credit limit. When Lodovica's card expired in 1991, it was renewed and her
credit limit was increased to P10,000.00. As of May 12, 1996, Lodovica had an outstanding balance
of P22,476.61. On May 28, 1996, respondent brought an action for sum of money against Lodovica
and petitioner. Petitioner led his Answer admitting his undertaking, but he maintained that he can
 only be liable for the original credit limit of P3,000.00, and that the renewal of the credit card
without his consent extinguished his undertaking. The lower courts ruled petitioner liable. This
was likewise affirmed by the Court of Appeals. Thus, petitioner now comes to the SC questioning
the decision of the CA.
- (SC Ruling) Petition denied. Petitioner's undertaking was clear and concise as embodied in the
Surety Undertaking. He solidarily obliged himself to pay respondent all the liabilities incurred
under the credit card account, whether under the principal, renewal, or extension card issued,
regardless of the changes or novation in the terms and conditions in the issuance and use of the
credit card. Petitioner's liability shall be extinguished only when the obligations are fully paid and
satisfied.

39. Stronghold Insurance vs. CA

40. Tiu vs. Metrobank

- Petitioners assailed the decision of the Court of Appeals affirming the lower court’s decision ruling
that petitioners are liable to respondent for the sum of P741,599.64 due on the promissory note and
P830,373.20 representing the value or proceeds of the amount held in trust. Petitioners contend
that they executed the Continuing Surety Agreement not in their personal capacities but as officers
of Sunta. They asserted that none of them personally benefitted from the loan transaction, while
two of them signed the LC as mere officers of Sunta. As culled from the case records, petitioners
applied for a continuing credit facility for and in behalf of themselves and Sunta and executed in
their personal and official capacities a Continuing Surety Agreement. In the said Agreement,
petitioners jointly and severally obligated themselves to pay all loans and credit accommodations
that they and Sunta may incur, supposedly not exceeding three million pesos. It was further
stipulated therein that, in case of default in the payment thereof, notwithstanding Sunta’s
dissolution, failure in business, insolvency, and the filing of a petition for bankruptcy or suspension
of payments in the proceeding related thereto, the whole obligation shall become due and payable
without benefit of demand or notice of payment.
- (SC Ruling) Petitioners are liable for their unpaid obligation of P1,571,972.86. The Continuing
Agreement clearly stated that the petitioners, as sureties, are solidary liable with Sunta for all the
latter loans not exceeding a total of P3M. x x x. The liability of petitioners is joint and several in both
their personal and official capacities. They are not mere guarantors, but sureties. They do not
insure the solvency of the debtor, but rather the debt itself. They obligate themselves “to pay the
debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable
to fulfill his obligation. According to the SC, solidary liability is one of the characteristics of a surety
agreement. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. Thus, Metrobank may proceed against Sunta or some or all of the petitioners.
“Suretyship arises upon the solidary binding of a person—deemed the
surety—with the principal debtor, for the purpose of fulfilling an obligation.
[A] suretyship is merely an accessory x x x to a principal obligation. Although a
surety contract is secondary to the principal obligation, the liability of the
surety is direct, primary and absolute; or equivalent to that of a regular party
to the undertaking.x x x x”

41. Hernandez vs. Dolor

- At about 3:00 p.m. of December 19, 1986, Lorenzo Menard “Boyet” Dolor, Jr. was driving
an owner-type jeepney owned by her mother, Margarita, towards Anilao, Batangas. As
he was traversing the road at Barangay Anilao East, Mabini, Batangas, his vehicle collided
with a passenger jeepney driven by Juan Gonzales and owned by petitioner Francisco
Hernandez, which was travelling towards Batangas City. Boyet Dolor and his passenger,
 Oscar Valmocina, died as a result of the collision. Fred Panopio, Rene Castillo and Joseph
Sandoval, who were also on board the owner-type jeep, which was totally wrecked,
suffered physical injuries. The collision also damaged the passenger jeepney of Francisco
Hernandez and caused physical injuries to its passengers, namely, Virgie Cadavida, Fiscal
Artemio Reyes and Francisca Corona. In a case, the RTC ruled against petitioners
requiring them to jointly and severally pay the victims’ families damages and
reimbursement of expenses incurred for hospitalization and burial.
- On appeal, the CA affirmed the RTC’s decision with modification increasing the amount
for moral damages. In this petition, the Hernandez argued that their absence inside the
passenger jeepney at the time of the collision militates against holding them solidarily
liable with their co-petitioner, Juan Gonzales, invoking Article 2184 of the Civil Code. The
provisions of Article 2180 of the Civil Code, which does not provide for solidary liability
between employers and employees, should then be applied. The Hernandez spouses
maintained that Julian Gonzales is not their employee since their relationship relative to
the use of the jeepney is that of a lessor and a lessee.
- (SC Ruling) Petitioners arguments fail to impress the Court. While the provisions of the
law do not expressly provide for solidary liability, it can be inferred from the wordings of
Art. 2180 which states that the obligation imposed by article 2176 is demandable not
only for one’s own acts or omissions, but also for those of persons for whom one is
responsible.
- Moreover, Article 2180 should be read with Article 2194 of the same Code, which
categorically states that the responsibility of two or more persons who are liable for
quasi-delict is solidary. In other words, the liability of joint tortfeasors is solidary. Verily,
under Article 2180 of the Civil Code, an employer may be held solidarily liable for the
negligent act of his employee. Even if Juan Gonzales and petitioner spouses operates
under a boundary system it cannot be denied, according to the Court, that an employee-
employer relationship exists. To exempt from liability the owner of a public vehicle who
operates it under the “boundary system” on the ground that he is a mere lessor would be
not only to abet flagrant violations of the Public Service Law, but also to place the riding
public at the mercy of reckless and irresponsible drivers—reckless because the measure
of their earnings depends largely upon the number of trips they make and, hence, the
speed at which they drive; and irresponsible because most if not all of them are in no
position to pay the damages they might cause. Petition was dismissed.

42. MWSS vs. Daway

- On February 21, 1997, MWSS granted Maynilad under a Concession Agreement a twenty-
year period to manage, operate, repair, decommission and refurbish the existing MWSS
water delivery and sewerage services in the West Zone Service Area, for which Maynilad
undertook to pay the corresponding concession fees on the dates agreed upon in said
agreement. To secure the concessionaire’s performance of its obligations under the
Concession Agreement, Maynilad was required under Section 6.9 of said contract to put
up a bond, bank guarantee or other security acceptable to MWSS. In compliance with
this, Maynilad arranged on July 14, 2000 for a three-year facility with a number of
foreign banks, led by Citicorp International Limited, for the issuance of an Irrevocable
Standby Letter of Credit for US$120,000,000 in favor of MWSS for the full and prompt
performance of Maynilad’s obligations to MWSS.
- During year 2000, Maynilad requested from MWSS a mechanism to help it cope with
depreciation of Philippine peso. Failing to get what they desired, Maynilad issued a
Force Majeure Notice on March 8, 2001 and unilaterally suspended the payment of the
concession fees. In an effort to salvage the Concession Agreement, the parties entered
into a Memorandum of Agreement (MOA) on June 8, 2001 wherein Maynilad was
 allowed to recover foreign exchange losses under a formula agreed upon between them.
Until on August 2001, Maynilad filed another Force Majeure Notice which MWSS did not
agree. Both were arbitrated and agreed to enter into an amended Concession
Agreement.
- However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of
Termination, claiming that MWSS failed to comply with its obligations under the
Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that
would cover Maynilad’s foreign exchange losses. They filed a Notice of Early Termination
of the concession, which was challenged by MWSS. This matter was eventually brought
before the Appeals Panel and in November 7, 2003, the Appeals Panel ruled that there
was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession
Agreement and that, therefore, Maynilad should pay the concession fees that had fallen
due. With this, MWSS submitted a written notice to CitiCorp to draw on the Irrevocable
Standby Letter of Credit and demanded payment in the amount of US$98,923,640.15.
- Unfortunately, the trial court prohibited MWSS from drawing against CitiCorp stating
that their actions were violative of the Stay Order issued by said court; thereby declaring
void any payment by banks to MWSS. Aggrieved, MWSS filed the instant petition.
- (SC Ruling) Petition granted. Maynilad argued that the banks were not solidarily liable
for the non-performance of their obligation. The SC held that the claim is not one against
the debtor but against an entity that Maynilad procured to answer for its non-
performance of certain terms and conditions of the Concession Agreement, particularly
the payment of concession fees. As the SC held in Feati Bank and Trust Company v. CA, “in
contracts of guarantee, the guarantor’s obligation is merely collateral and it arises only
upon the default of the person primarily liable. On the other hand, in an irrevocable letter
of credit, the bank undertakes a primary obligation.x x x x. What distinguishes letters of
credit from other accessory contracts, is the engagement of the issuing bank to pay the
seller once the draft and other required shipping documents are presented to it. They
are definite undertakings to pay at sight once the documents stipulated therein are
presented.”
- Therefore, the participating banks’ obligation are solidary with respondent Maynilad in
that it is a primary, direct, definite and an absolute undertaking to pay and is not
conditioned on the prior exhaustion of the debtor’s assets. These are the same
characteristics of a surety or solidary obligor. The terms of the Irrevocable Standby
Letter of Credit did not show that the obligations of the banks were not solidary with
those of respondent Maynilad.

43. Ernesto V. Ronquillo vs. CA and Antonio P. So

- Petitioner was one of the four defendants in a complaint for collection of sum of money
worth P117,498.98 filed by respondent Antonio So. On December 13, 1979, the lower
court decided, based on the compromise agreement of the parties that “plaintiff agrees to
reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to
acknowledge the validity of such claim and further bind themselves to initially pay out of
the total indebtedness of P110,000.00 the amount of P55,000.00 on or before December 24,
1979, the balance of P55,000.00, defendants individually and jointly agree to pay within a
period of six months from January 1980, or before June 30, 1980. On December 26,
1979, respondent So filed a Motion for Execution on the ground that defendants failed to
make the initial payment of P55,000.00. Petitioner opposed that his inability to make the
payment was due So’s own act of making himself scarce and inaccessible on the agreed
date. The lower court ordered the issuance of the writ of execution. Petitioner moved
for reconsideration saying that under the decision of the lower court being executed
which has already become final, the liability of the four (4) defendants was not expressly
 declared to be solidary, consequently each defendant is obliged to pay only his own pro-
rata or 1/4 of the amount due and payable. The lower court did not grant his motion and
in his desire to prevent the scheduled sale of his property from commencing, he filed
with the CA, during the pendency of his motion in the lower court, petition for certiorari,
which CA did not grant because it was prematurely filed. Petitioner then filed with this
Court the instant petition raising the issue of whether or not their liability with
respondent was merely joint, or several or solidary.
- (SC Ruling) Clearly, by the express term of the compromise agreement and the decision
based upon it, the defendants obligated themselves to pay their obligation “individually
and jointly”. The term “individually” has the same meaning as “collectively”, “separately”,
“distinctively”, respectively or “severally”. An agreement to be “individually liable”
undoubtedly creates a several obligation, and a “several obligation” is one by which one
individual binds himself to perform the whole obligation as Art. 1207 and 1208 of the
NCC provides. Petition was dismissed.

44. SBTC vs. Cuenca

- SBTC granted SIMC credit line of Php 8M. This was secured by a chattel mortgage
executed by SIMC. As additional security, Cuenca executed an Indemnity Agreement
whereby he made himself solidarily liable with SIMC.
- Four days prior to expiration of the credit line, SIMC made a first drawdown of Php
6,100,000.00. A promissory note was executed. In 1985, Cuenca resigned from the
company and his shares were sold at a public auction. SIMC continued availing of its
credit line obtaining six other loans from SBTC in the aggregate amount of Php
6,369,019.50.
- SIMC, because of financial difficulties, requested SBTC a restructuring of their
indebtedness. The latter agreed and so, they did without the prior consent of respondent
Cuenca. Pursuant to said restructuring, SIMC issued two promissory notes with total
sum of Php 12,200,000.00. Both parties executed a Loan Agreement, the amount
released in two tranches. The first loan, P8,800,000.00 shall be applied to liquidate the
principal portion of SIMC’s previous total outstanding indebtedness. The second loan
shall be applied to liquidate the past due interest and penalty portion of the
indebtedness. SIMC continued paying SBTC until they defaulted in their payment. SBTC
made demands to both SIMC and Cuenca. Both refused to pay their obligation. Thus,
SBTC filed a complaint, the lower court deciding in their favor to them to which Cuenca
appealed.
- In ruling in favor of respondent, the CA said that the Loan Agreement had novated the
credit accommodation granted by SBTC to SIMC. Such extinguished the Indemnity
Agreement, that Cuenca bound himself solidarily liable for payment of the loans secured
by the credit accommodation. In fact, said Loan Agreement was perfected without the
knowledge of Cuenca who was then no longer a stockholder of the corporation. The CA
noted that the credit approval memorandum specified that the credit accommodation
was for a total amount of P8 million, and that its expiry date was November 30, 1981.
Hence, it ruled that Cuenca was liable only for loans obtained prior to November 30,
1981, and only for an amount not exceeding P8 million. The CA also opined that the
surety was entitled to notice, in case the bank and Sta. Ines decided to materially alter or
modify the principal obligation after the expiry date of the credit accommodation. Thus,
SBTC’s recourse to the SC.
- (SC Ruling) Petitioner argued because there was no absolute incompatibility between
the old and new obligations. The Loan agreement did not change the original loan. The
SC disagreed. According to them, there was novation. The 1989 Loan Agreement
extinguished the obligation obtained under the 1980 credit accommodation. This is
 evident from its explicit provision to “liquidate” the principal and the interest of the
earlier indebtedness. There were several incompatibilities observed by the SC, to wit:
1. The Credit Accommodation stipulated that the loan was not to exceed Php
8M whereas the Loan Agreement provided that the loan was Php 12.2M.
Periods of payment were also different.
2. The Loan Agreement contained positive and negative covenants not found
in the earlier obligation (i.e. Sta. Ines undertook “from time to time and
upon request by the Lender, [to] perform such further acts and/or execute
and deliver such additional documents and writings as may be necessary or
proper to effectively carry out the provisions and purposes of this Loan
Agreement.”)
3. SIMC agreed that it would not create any mortgage or encumbrance on any
asset owned or hereafter acquired, nor would it participate in any merger
or consolidation.
Thus, the credit accommodation was validly extinguished by the Loan Agreement
rendering the Indemnity Agreement, an accessory obligation to the former obligation,
extinguished pursuant to Art. 1296 which provides: When the principal obligation is
extinguished in consequence of a novation, accessory obligations may subsist only insofar as
they may benefit third persons who did not give their consent.
- Further, there was no waiver of consent on the part of respondent. The Indemnity
Agreement clearly specified that the respondent shall be liable for any substitution or
extension, among others, with regard only to the Php 8M loan ceiling. Thus, respondent
did not give SIMC or SBTC any license to modify the nature and scope of the original
accommodation, without informing or getting his respondent. A contract of surety
“cannot extend to more than what is stipulated. It is strictly construed against the
creditor; every doubt being resolved against enlarging the liability of the surety.
- Finally, the Indemnity Agreement was never a continuing surety as it was only limited a
total loan of Php 8M and a term of November 30, 1981. Hence, all other obligations
incurred by SMIC after the lapse of said date, Cuenca was no longer liable.
- In view of this, Cuenca’s solidary obligation was already extinguished. Petition DENIED.

45. Spouses Alexander and Julie Lam vs. Kodak Philippines

- On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Kodak Minilab System
22XL6 (Minilab Equipment) in the amount of P1,796,000.00 per unit. This agreement
was put into a contract. On January 15, 1992, Kodak Philippines, Ltd. delivered one (1)
unit of the Minilab Equipment in Tagum, Davao Province. The Lam Spouses issued
postdated checks amounting to P35,000.00 each for 12 months as payment for the first
delivered unit, with the first check due on March 31, 1992. The Lam Spouses requested
that Kodak Philippines, Ltd. not negotiate the check dated March 31, 1992 allegedly due
to insufficiency of funds. The same request was made for the check due on April 30,
1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were
honored by the depository bank. The other checks were subsequently dishonored after
the Lam Spouses ordered the depository bank to stop payment. Kodak Philippines, Ltd.
canceled the sale and demanded that the Lam Spouses return the unit it delivered
together with its accessories. The Lam Spouses ignored the demand but also rescinded
the contract through the letter dated November 18, 1992 on account of Kodak
Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab Equipment units.
- Lam Spouses argued that the Letter Agreement it executed with respondent for three
Minilab Equipment was not severable, divisible and susceptible of partial performance.
The latter’s recovery of the delivered item was unjustified as the agreement was for a
 “package deal” and that petitioners’ payment was intended to be applied to the whole
package of three units. With the obligation being indivisible, petitioners argued that
respondent’s failure to deliver the other two units amounted to a breach.
- For their part, Kodak asserted that the Letter of Agreement contained divisible
obligations susceptible of partial performance emphasizing that it was the intention of
both parties to be bound separately for each individually priced Minilab equipment unit
to be delivered to different outlets. As such, they did not commit a breach since they
delivered one unit to petitioners.
- (SC Ruling) The Letter Agreement contained an indivisible obligation. The parties’
intention was for a single transaction covering all 3 units of Minilab Equipment.
Respondent’s obligation was to deliver all products purchased under a package and, in
turn, petitioners’ obligation was to pay for the total purchase price, payable in
installments. The intention of the parties to bind themselves to an indivisible obligation
can be further discerned through their direct acts in relation to the package deal. There
was only one agreement covering all three (3) units of the Minilab Equipment and their
accessories. The Letter Agreement specified only one purpose for the buyer, which was
to obtain these units for three different outlets. If the intention of the parties were to
have a divisible contract, then separate agreements could have been made for each
Minilab Equipment unit instead of covering all three in one package deal. Furthermore,
the 19% multiple order discount as contained in the Letter Agreement was applied to all
three acquired units. The “no downpayment” term contained in the Letter Agreement
was also applicable to all the Minilab Equipment units. Lastly, the fourth clause of the
Letter Agreement clearly referred to the object of the contract as “Minilab Equipment
Package”.
The intent must prevail consistent with Art. 1225 NCC : An obligation is indivisible when
it cannot be validly performed in parts, whatever may be the nature of the thing which is
the object thereof. The indivisibility refers to the prestation and not to the object thereof x x
x However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties.

46. GSIS vs. CA

- In 1961, the Medinas applied with GSIS a loan of P600,000. GSIS only approved a loan for
P350,000.00 subject to 9% per annum, compounded monthly, payable in 10 years, with
monthly amortization of P4,433.65; unpaid interest or installment shall bear 9% / 12%
interest rate per month. This amount was however reduced by petitioner to
P295,000.00. On April 4, 1962, Medinas accepted the amount and executed a
promissory note and a REM. On May 29, 1962, at the Medina’s request, GSIS approved
the restoration of the amount of P395,000.00 (P295,000.00 + P55,000.00). On July 6,
1962, the Medina’s executed an Amended REM expressly providing that “foregoing
amendments, all other terms and conditions of the said REM dated April 4, 1962 insofar
as they are not inconsistent herewith, are hereby confirmed, ratified and continued in
full force and effect and that the parties thereto agree that this amendment be an integral
part of said real estate mortgage. The Medinas availed of another P230,000.00 loan
secured by same properties and additional ones covered by their respective Transfer
Certificate of Titles.
- When the Medinas defaulted on their payments, the GSIS imposed the 9% / 12% interest
on all installments due and unpaid. The latter notified the spouses of their arrearages of
P575,652.42, otherwise their mortgage shall be foreclosed. On April 25, 1975, the
Medinas made last payment of P209,662.80. GSIS made foreclosure of the spouse’s
 properties. The Medinas filed a complaint before the lower court praying that the
foreclosure be declared null and void. This was granted by the trial court but both
appealed to the CA which ruled that GSIS shall reimburse the Medinas P9,580.00 as
overpayment.
- Thus, this petition filed by GSIS which contends that the amendment of the real estate
mortgage did not supersede the original mortgage contract dated April 4, 1962 which
was being amended only with respect to the amount secured thereby, and the amount of
monthly amortizations. All other provisions of aforesaid mortgage contract including
that on compounding of interest were deemed rewritten and thus binding on and
enforceable against the respondent spouses. The Medinas argued that there was no
express stipulation on compounded interest in the amendment of mortgage contract of
July 6,1962.
- (SC Ruling) The petition is impressed with merit. As correctly pointed out by GSIS, the
Amended REM did not or was not intended to supersede the April 4, 1962 mortgage
contract. First, the Amended REM recognized the effectivity of the previous mortgage.
Second, the parties did not include an intention to supersede previous mortgage. Third,
the Amended REM did not embody an act of conveyancing the subject properties by way
of mortgage. The last provisions of said REM clearly stated that the parties were bound
by the unaffected provisions of the Amended REM. It is a basic and fundamental rule in
the interpretation of contract that if the terms thereof are clear and leave no doubt as to
the intention of the contracting parties, the literal meaning of the stipulations shall control
but when the words appear contrary to the evident intention of the parties, the latter shall
prevail over the former. In order to judge the intention of the parties, their
contemporaneous and subsequent acts shall be principally considered. A review of prior,
contemporaneous, and subsequent acts supports the conclusion that both contracts are
fully subsisting insofar as the latter is not inconsistent with the former.
- Anent to Medinas contention that the interest rate imposed by GSIS was usurious,
the SC held that the Usury Law only applies as compensation for use or forbearance of
money. The SC cited their ruling in the Bahrach case where they said that the “Civil Code
permits the agreement upon a penalty apart from the interest. Should there be such an
agreement the penalty does not include the interest, and as such the two are different
and distinct things which may be demanded separately. Reiterating the same principle
in the latter case of Equitable Banking Corp. (supra), where this Court held that the
stipulation about payment of such additional rate partakes of the nature of a penalty
clause, which is sanctioned by law.” GSIS, clearly had the right to impose the 9% / 12%
penalty interest.

47. NEWTON JISON and SALVACION I. JISON, petitioners, vs. COURT OF APPEALS and ROBERT O.
PHILLIPS & SONS, INC., respondents. Jison vs. Court of Appeals

- Petitioners entered into a Contract to Sell with private respondents whereby the latter
agreed to sell to petitioners a lot for the agreed price of P55,000.00 with interest at 8%
per annum, payable on an installment basis. Petitioners paid respondents a
downpayment of P11,000.00 on October 20, 1961 and from October 27, 1961 to May 8,
1965 a monthly installment of P533.85. Subsequently, petitioners failed to build a house,
the P5.00 / sq.m. penalty was imposed by respondents to the effect that the monthly
amortization was increased to P707.24. Petitioners failed to pay their installments for
October, November, and December 1966. Private respondents reminded them of the
automatic rescission clause of their contract. Petitioners eventually paid on March 1,
1967. Then, petitioners failed to pay their installments for February, March, and April
1967. Thus, private respondents returned petitioner’s check and informed them that
the contract was cancelled when on April 1, 1987 petitioners failed to pay the monthly
 installment due. On April 19, 1967 petitioners tendered payment for their due
installments but respondent refused to accept. Petitioners filed a complaint for specific
performance before the trial court.
- The trial court rendered decision in favor of private respondents and ordered the
contract cancelled and all payments made forfeited. Petitioners appealed to the CA
which affirmed the decision of the lower court. Hence this petition before the Court
petitioners assailing the legality of the rescission and forfeiture of the payment already
made.
- (SC Ruling) Well settled is the rule that judicial action for the rescission of a contract is not
necessary where the contract provides that it may be cancelled for violation of any of its
terms and conditions provided that there is at least a written notice sent to the defaulter
informing him of the said rescission x x x x Resolution of reciprocal contracts may be made
extra judicially unless successfully impugned in Court. If the debtor impugns the declaration
it shall be subject to judicial determination. There is no denying that in the instant case
the resolution or rescission of the Contract to Sell was valid. Neither can it be said that
the cancellation of the contract was ineffective for failure of private respondents to give
petitioners notice thereof as petitioners were informed by private respondent that the
contract was cancelled in the letter dated April 6, 1967.
- Further, according to the SC, the forfeiture of P47,312.64 though it included the fines
incurred by petitioners, was iniquitous considering that the contract price was only
P55,000.00. the forfeiture of 50% of the amount already paid or P23,656.32 was a fairer
settlement. Justifying this, the SC said: “In arriving at this amount the Court gives weight
to the fact that although petitioners have been delinquent in paying their amortizations
several times to the prejudice of private respondent, with the cancellation of the contract
the possession of the lot reverts to private respondent who is free to resell it to another
party x x x. The Code provides that liquidated damages, whether intended as an indemnity
or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. Further, in
obligations with a penal clause, the judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor.”

48. PRIMITIVO ANSAY, ETC., ET AL., plaintiffs and appellants vs. THE BOARD OF DIRECTORS OF
THE NATIONAL DEVELOPMENT COMPANY, ET AL., defendants and appellees Ansay, et al. vs.
Nat'l Development Co., et al.,

- Appellants filed against appellees in the CFI of Manila a complaint praying for a 20%
Christmas bonus for 1954 and 1955. Said court dismissed the complaint ruling that a
bonus is an act of liberality and the court takes it that it is not within their judicial
powers to command appellees to be liberal and petitioners admitted that respondents
were not under legal duty to give such bonus but that they had only ask that such bonus
be given. to them because it is a moral obligation of respondents to give that but as this
Court understands, it has no power to compel a party to comply with a moral obligation.
- Appellants’ motion for reconsideration was dismissed. Thus, this appeal, appellant
contending that there exists a cause of action in their complaint because their claim rests
on moral grounds or what in brief is defined by law as a natural obligation.
- (SC Ruling) Article 1423 of the New Civil Code classifies obligations into civil or natural.
"Civil obligations are a right of action to compel their performance. Natural obligations,
not being based on positive law but on equity and natural law, do not grant a right of
action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof". It is
 thus readily seen that an element of natural obligation before it can be cognizable by the
court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only
after there has been voluntary performance. But here there has been no voluntary
performance. In fact, the court cannot order the performance. Further, the SC cited the
case of Philippine Education Co. vs. CIR and the Union of Philippine Education Co.,
Employees (NUL) where they ruled that: “From the legal point of view a bonus is not a
demandable and enforceable obligation. It is so when it is made a part of the wage or
salary compensation."

49. Azcona vs. Jamandre

- The parties entered into a contract of lease wherein Azcona leased 80 hectares of his 150
hectares pro indivso share in Hacienda Sta. Fe.to Jamandre. The agreed yearly rental was
P7,200.00. The lease was for three agricultural years beginning 1960, extendible at the
lessee’s option to two more agricultural years, up to 1965. Because the property was not
delivered to respondent, petitioner waived the payment for crop year 1960-61.
- For the succeeding agricultural year 1961-62, the respondent paid and petitioner
received the sum of P7,000.00 as acknowledged by a receipt, as “per contract”. Citing the
stipulation in the lease contract for an annual rental of P7,200.00, the petitioner
submitted that there was default in the payment thereof by the respondent because he
was P200.00 short of such rental. That deficiency never having been repaired, the
petitioner concluded, the contract should be deemed cancelled in accordance with its
paragraph 8. For his part, the respondent argued that having unqualifiedly accepted the
amount of P7,000.00 as rental for the agricultural year 1961–62, the petitioner should
not now be heard to argue that the payment was incomplete.
- (SC Ruling) The SC held that P7,000.00 paid to by respondent and received by petitioner
represented full payment of the rental for agricultural year 1961-1962. Art. 1235.
When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with.
The language of the receipt was clear that the P7,000.00 was intended as payment for
crop year 1961-62 due on or before January 30, 1961, as per contract. The “as per
contract” was significant in that the parties were aware of the provisions of the
agreement. The rental stipulated therein was P7,200.00. The payment being
acknowledged in the receipt was P7,000.00 only. Yet no mention was made in the receipt
of the discrepancy and, on the contrary, the payment was acknowledged by petitioner “as
per contract.” There was no protest on his part.

50. Intestate Estate of R. Presbitero vs. CA

- Presbitero entered into contracts with Leonardo Canoso. In the first, Presbitero retained
the services of Canoso to negotiate with LBP and Min. of Agriculture (MAR) for the sale of
his Hacienda. Canoso bound himself to finish the processing and submission of
documents within 120 days. In the second contract, Presbitero bound himself to
compensate Canoso for his services and other related expenses in making the necessary
follow-up of the preparation, production of pertinent documents and to effect the
recovery of the proceed of the land transfer payment from LBP in an amount 25% of the
gross total sales. Before Presbitero’s claim with the LBP was approved, a third
agreement was entered into with Canoso which the latter’s fee was reduced to 17.5%.
Canoso was not given his share as agreed upon.
- Petitioner contends that the CA erred in declaring that the terms and conditions of the
contract were complied with. According to petitioner, the respondent was to submit all
requirements needed by the DAR and LBP for the land transfer to effect payment thereof
 by the LBP. This was to be complied within 120 days to which Canoso failed to follow
thus, he had no right to be compensated. Canoso refuted alleging that petitioner
erroneously interpreted the 120-day stipulation. He said that no promise was ever made
by him to deliver the proceeds of the sale of Presbitero’s property within the 120
days. Respondent prayed that the payment of his claim be made in accordance with what
was originally agreed upon
- (SC Ruling) The CA did not err in concluding that Canoso complied with the terms and
conditions of the contracts. In this case, it was clearly agreed upon by the parties that
respondent would undertake among others the processing, negotiation, and follow-up of
Presbitero’s claim with the LBP within 120 days. The collection of the proceeds from the
LBP was not among the matters contemplated by the parties in the said agreement. All s
documents were needed to effect the recovery of proceeds from the LBP. In the
interpretation of contracts, if the terms thereof are clear as to the intention of the
contracting parties, the literal meaning of the stipulations shall control. Further,
subsequent or contemporaneous acts of the contracting parties shall be considered in
judging their intention.
- From all indications, respondent was able to perform his obligation with the claim being
approved. Under Art. 1234, if the obligation has been substantially performed in good
faith, the obligor (respondent) may recover as though there had been a strict and
complete fulfillment, less damages suffered by the oblige (Presbitero). When the obligee
accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.

51. Philippine Commercial International Bank (PCIB), petitioner

Vs. CA, Atlas Consolidated Mining and Development Corporation

- PCIB and MBC were joint bidders in a foreclosure sale of assorted mining machinery and
equipment previously mortgaged to them by PIM. Atlas agreed to purchase some of
these properties. A Deed of Sale evinced the purchase of which Atlas paid downpayment
of P12,000,000.00 and the balance of P18,000,000 paid in six monthly installments. With
the conformity of Atlas, the final purchase price was adjusted to P29,630,000.00. On
March 8, 1979, PCIB informed Atlas that subsequent payments be made in the following
percentages: PCIB = 63.1579% , MBC = 36.8421%.
- On April 18, 1979, Atlas paid NAMAWU P4,298,307.77 in compliance to a writ of
garnishment. Atlas contends that apart from the down payment of P12,000,000.00 and
installment payments of P13,696,692.22, it should be credited with its payment of
P4,298,307.77 to NAMAWU. It claimed that it had an overpayment of P370,000.00.
Meanwhile, PCIB argued that Atlas still owed P908,398.75 and that even before the writ
of garnishment was served on Atlas, the judgment in favor of NAMAWU has already been
partially satisfied for P601,260.00. To them, NAMAWU received more than what it was
entitled. Atlas could not credit the full amount received by NAMAWU in satisfaction of
his obligation to them.
- The CA ordered PCIB to pay Atlas the sum of P233,654.23 plus interest. Thus, this
petition before the SC with the following core issues: (1.) Whether PCIB should settle for
only P6,819,766.10 it received from the P12,000,000. DP or 63.1579% of it. (2) Whether
Atlas should be fully credited the amount of P4,298,307.77 it paid to NAMAWU.
- (SC Ruling) 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 paid PCIB and MBC on
February 12, 1979 the down payment through a check worth P12,000,000.00. As of that
date, there was no agreement corresponding the share of each creditor. It was only
March 08, 1979 when PCIB communicated to Atlas the percentage of payments to be
remitted to PCIB and MBC. Atlas obligation was deemed fulfilled to the extent of the P12
million.
- 2. Atlas could not be credited for the full amount of P4,298,307.77. The Court said that
Atlas overpaid NAMAWU because the partial payment of P601,260.00 reduced the
amount to P3,697,047.77. Atlas did not exert investigate upon receiving the writ or
made consultation with PCIB. He readily paid NAMAWU. Art. 1236 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. Therefore, Atlas could not
recover the excess from PCIB. Its remedy is to proceed against NAMAWU who was paid
in excess considering the principle that no person can unjustly enrich himself at the
expense of another. The only amount Atlas is entitled is P2,334,977.74.

52. Abacus Securities Corporation vs. Ruben Ampil

- Respondent opened a cash or regular account with petitioner for the purpose of buying
and selling securities as evidenced by the Account Application Form which the terms and
conditions governed the relationship of both parties. Since April 10, respondent actively
traded his account and resulted to an outstanding obligation with petitioner in the
amount of P6,617,036.22 as of April 30,1997. Respondent failed to pay said obligation
despite petitioner’s demands and extensions made. Thus, petitioner sold respondent’s
securities to set off against his unsettled obligations. Respondent still had remaining
obligation of P3,364,313.56. On August 15, 1997, petitioner demanded respondent to
settle his obligation plus agreed penalty charges accrued thereon. Respondent
acknowledged and his request of 60 days to raise funds for the same was granted by
petitioner. Respondent, again failed to make payment.
- For his defense, respondent claimed that all his trades with petitioner were not paid in
full in cash at anytime after purchase or within the T+4 and none of these trades were
cancelled by petitioner. Neither did [petitioner] apply with either the Philippine Stock
Exchange or the SEC for an extension of time for the payment or settlement of his cash
purchases. This was not brought to his attention by his broker and so with the
requirement of collaterals in margin account. Respondent contends that petitioner’s acts
were not in accordance with RSA Rule 25-1 par. C. So, if RSA Rule 25-1, par. C, was
applied, he was limited only to the first transaction. That [petitioner] did not comply with
the T+4 mandated in cash transaction. When [respondent] failed to comply with the T+3,
[petitioner] did not require him to put up a deposit before it executed its subsequent
orders. [Petitioner] did not likewise apply for extension of the T+4 rule.
- The RTC ruled that petitioner violated Sec. 23 and Sec. 25 of Revised Securities Act and
Rule 25-1 of Rules Implementing the RSAwhen it failed to: 1) require the respondent to
pay for his stock purchases within three (T+3) or four days (T+4) from trading; and 2)
request from the appropriate authority an extension of time for the payment of
respondent’s cash purchases. The CA affirmed this Decision. Hence, this petition.
- (SC Ruling) The petition is partly meritorious. Petitioner was remiss in its duty under
the law. Clearly, the law places the burden of compliance with margin requirements
primarily upon the brokers and dealers. Sections 23 and 25 and Rule 25-1, otherwise
known as the “mandatory close-out rule,” vest upon petitioner the obligation, not just the
right, to cancel or otherwise liquidate a customer’s order, if payment is not received
within three days from the date of purchase. For transactions subsequent to an unpaid
 order, the broker should require its customer to deposit funds into the account sufficient
to cover each purchase transaction prior to its execution. These duties are imposed upon
the broker to ensure faithful compliance with the margin requirements of the law, which
forbids a broker from extending undue credit to a customer. An obligation must be
performed, those who do not discharge it prudently must necessarily face the consequence
of their dereliction or omission.
- 2. Nonetheless, the margin requirement was applicable to transactions entered by the
parties subsequent to the initial trades of April 10 and 11, 1997. Art. 1236 provides that
Whoever pays for another may demand from the debtor what he has paid x x x. The right
to collect cannot be denied to petitioner as the initial transactions were entered pursuant
to the instructions of respondent. The obligation of respondent for stock transactions
made and entered into on April 10 and 11, 1997 remained outstanding. These
transactions were valid and the obligations incurred by respondent concerning his stock
purchases on these dates subsist.

53. JOSE ARAÑAS and LUISA QUIJENCIO ARAÑAS, petitioners, vs. HON. EDUARDO C. TUTAAN
Arañas vs. Tutaan and UNIVERSAL TEXTILE MILLS, INC., respondents.

- In a decision rendered by the CFI of Rizal, the court declared that Luisa Quijencio was the
owner of 400 shares of stock of UTEX issued in the names of Gene Manuel and B.R.
Castaneda, including the stock dividends that accrued to said shares and ordering UTEX
to cancel said certificates and issue new ones in the name of petitioner and to deliver to
her all dividends appertaining to the same. Upon UTEX’ motion for partial
reconsideration alleging that the cash dividends of the stocks corresponding to the
period from 1972 to 1979 had already been paid and delivered by it to co-defendants
Castañ eda and Manuel who then still appeared as the registered owners of the said
shares, the lower court issued its order of January 4, 1980 granting said motion of UTEX
and partially reconsidered its order “to the effect that the defendant Universal Textile
Mills, Inc. is absolved from paying the cash dividend corresponding to the stocks in
question to the plaintiffs for the period 1972 to 1979.” Thus, this petition;
petitioners claiming that the said order of respondent judge was without jurisdiction and
compel said judge to perform his ministerial duty of ordering execution of the final and
executory judgment against UTEX according to its terms.
- (SC Ruling) Petition granted. There was no legal nor equitable basis for respondent
judge’s position that it would be most unjust and equitable to require UTEX to pay twice
cash dividends on particular shares of stocks. If UTEX nevertheless chose to pay the
wrong parties, notwithstanding its full knowledge and understanding of the final
judgment, that it was liable to pay all dividends after the trial court’s judgment in 1971 to
petitioners as the lawfully declared owners of the questioned shares of stock (but which
could not be enforced against it pending the outcome of the appeal filed by the co-
defendants Castañ eda and Manuel in the Court of Appeals), it only had itself to blame
therefor.
The burden of recovering the supposed payment of the cash dividends made
by UTEX to the wrong parties Castañ eda and Manuel squarely falls upon itself
by its own action and cannot be passed by it to petitioners as innocent
parties. It is elementary that payment made by a judgment debtor to a wrong
party cannot extinguish the judgment obligation of such debtor to its creditor.
It is equally elementary that once a judgment becomes final and executory,
the court which rendered it cannot change or modify the same in any
material aspect such as what respondent judge has without authority
attempted to do with his questioned order, which would relieve the judgment
debtor UTEX of its acknowledged judgment obligation to pay to petitioners as
 the lawful owners of the questioned shares of stock, the cash dividends that
accrued after the rendition of the judgment recognizing them as the lawful
owners.

54. DBP vs. CA

- Sometime in March 1968, the Development Bank of the Philippines (DBP) granted to
respondents Philippine United Foundry and Machineries Corporation and Philippine
Iron Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000
consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was
evidenced by a promissory note dated June 26, 1968 and secured by a mortgage
executed by respondents over their present and future properties such as buildings,
permanent improvements, various machineries and equipment for manufacture.
- Subsequently, DBP granted to respondents another loan in the form of a five-year
revolving guarantee amounting to P1,700,000 which was reflected in the amended
mortgage contract dated November 20, 1968. According to respondents, the loan
guarantee was extended to them when they encountered difficulty in negotiating the
DBP Progress Bonds. On September 10, 1975, the outstanding accounts of respondents
with DBP were restructured in view of their failure to pay. Thus, the outstanding
principal balance of the loans and advances amounting to P4,655,992.35 were
consolidated into a single account. The restructured loan was evidenced by a new
promissory note dated November 12, 1975. All accrued interest and charges due
amounting to P3.07M were evidenced by another promissory note.
- Notwithstanding the restructuring, respondents were not able to comply. As a result, a
refinancing was done pursuant to which three foreign currency denominated loans
sourced from DBP’s own foreign borrowings were extended to respondents and such
were secured by mortgages on the respondents’ properties.
- Foreclosure proceedings were suspended on 12 separate occasions upon respondents’
representations that a financial rehabilitation fund arising from a contract with the
military was forthcoming. Before DBP could even proceed with the foreclosure,
respondents instituted a suit for injunction. The complaint was amended to include the
annulment of mortgage and to implead the Privatization and Management Office (PMO)
as party defendant.
- PMO claimed that the total outstanding obligation of respondents reached P62.9 Million
on September 30, 1985. This amount was purportedly the peso equivalent of the foreign
currency denominated loans granted to respondents to refinance the original loans they
procured, and is inclusive of interest, penalties and other surcharges incurred from that
date as a result of respondents’ past defaults. Respondents contended, on the other hand,
that DBP grossly misstated the extent of their obligation, and insist that they should be
made liable only for the amount of P6.2 Million which they actually received from DBP.
- RTC ruled in favor of respondents.
- The CA affirmed the RTC decision and agreed that DBP cannot be allowed to foreclose on
the mortgage securing respondents’ loan. The CA surmised that since DBP failed to
adequately explain how it arrived at P62.9 Million, the original loan amount of P6.2
Million could only have been “blatantly enlarged or erroneously computed” by DBP
through the imposition of an “unconscionable rate of interest and charges.” The CA also
agreed with the trial court that there was no consideration for the mortgage contracts
executed by respondents considering the proceeds from the alleged foreign currency
loans were never actually received by the latter.
Ruling:
 The SC ruled that the appellate court’s view is untenable. The original loans alluded to by
respondents had been refinanced and restructured in order to extend their maturity dates.
Refinancing is an exchange of an old debt for a new debt, as by negotiating a different interest rate or
term or by repaying the existing loan with money acquired from a new loan. On the other hand,
restructuring, as applied to a debt, implies not only a postponement of the maturity but also a
modification of the essential terms of the debt (e.g., conversion of debt into bonds or into equity, or a
change in or amendment of collateral security) in order to make the account of the debtor current.
Respondents’ allegation that they had no “choice” but to sign is tantamount to saying that
DBP exerted undue influence upon them. x x x However, the fact that the representatives were
“forced” to sign the promissory notes and mortgage contracts in order to have respondents’ original
loans restructured and to prevent the foreclosure of their properties does not amount to vitiated
consent. The financial condition of respondents may have motivated them to contract with DBP, but
undue influence cannot be attributed to DBP simply because the latter had lent money. The concept
of undue influence is defined as follows:
“There is undue influence when a person takes improper advantage of his power over
the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress.”
While respondents were purportedly financially distressed, there is no clear showing that
those acting on their behalf had been deprived of their free agency when they executed the
promissory notes representing respondents’ refinanced obligations to DBP. For undue influence to
be present, the influence exerted must have so overpowered or subjugated the mind of a contracting
party as to destroy the latter’s free agency, making such party express the will of another rather than
its own. The alleged lingering financial woes of a debtor per se cannot be equated with the presence
of undue influence.
It was emphasized that the second set of promissory notes governed the contractual relation
of the parties for they unequivocally expressed the terms and conditions of the loan agreement, and
such were binding and conclusive upon them. x x x With the signatures of their duly authorized
representatives on the subject notes and mortgage contracts, the genuineness and due execution of
which having been admitted,49 respondents in effect freely and voluntarily affirmed all the
concurrent rights and obligations flowing therefrom. Accordingly, respondents are barred from
claiming the contrary without transgressing the principle of estoppel and mutuality of contracts.
Contracts must bind both contracting parties; their validity or compliance cannot be left to the will of
one of them.
The significance of the promissory notes should not have been overlooked by the trial court
and the CA. By completely disregarding the promissory notes, the lower courts unilaterally modified
the contractual obligations of respondents. x x x As a rule, a court in such a case has no alternative
but to enforce the contractual stipulations in the manner they have been agreed upon and written.
Courts, whether trial or appellate, generally have no power to relieve parties from obligations
voluntarily assumed simply because their contract turned out to be disastrous or unwise
investment.
Thus, respondents cannot be absolved from their loan obligations on the basis of the failure
of the AFP to fulfill its commitment under the manufacturing agreement entered by them allegedly
upon the prompting of certain AFP and DBP officials. While it is true that the DBP representatives
appear to have been aware that the proceeds from the sale to the AFP were supposed to be applied
to the loan, the records are bereft of any proof that would show that DBP was a party to the contract
itself or that DBP would condone respondents’ credit if the contract did not materialize.

On the cancellation of the mortgage

 Incidentally, it was erroneous for the CA to sustain the validity of a loan obligation but
annulled the mortgage securing it on the ground of failure of consideration. A mortgage is a mere
accessory contract and its validity would depend on the validity of the loan secured by it. Hence, the
consideration of the mortgage contract is the same as that of the principal contract from which it
receives life, and without which it cannot exist as an independent contract. The debtor cannot
escape the consequences of the mortgage contract once the validity of the loan is upheld. x x x
Thus, respondents cannot now protest against the fact that the loans were denominated in foreign
currency and were to be paid in its peso equivalent after they had already given their consent to
such terms. There was no legal impediment to having obligations or transactions paid in a foreign
currency as long as the parties agreed to such an arrangement. In fact, obligations in foreign
currency may be discharged in Philippine currency based on the prevailing rate at the time of
payment. For this reason, it was improper for the CA to reject outright DBP’s claim that the
conversion of the remaining balance of the foreign currency loans into peso accounted for the
considerable differential in the total indebtedness of respondents mainly because the exchange rates
at the time of demand had been volatile and led to the depreciation of the peso.

Therefore, petition was partially granted.

55. New Pacific Timber and Supply Company Inc., petitioner vs.
Seneris, and Ex-Officio Sheriff Hakim Abdulwahid, respondents.

- Petitioner was the defendant in a complaint for collection of sum of money filed by
private respondent. In said case, a compromise judgment was rendered by the judge to
which petitioner failed to comply. As such, at the instance of the respondents, the Judge
issued an order for the issuance of writ of execution for the amount of P63,130.00. An
auction sale was conducted. However, prior to January 15, 1975, petitioner deposited
with the Clerk Court the sum of P63,130.00 for payment of the judgment obligation
consisting P50,000.00 Cashier’s Check and P13,130.00 in cash. The private respondent
refused to accept the check as well as the cash deposit and thus requested the scheduled
auction to push through. Petitioner failing to convince respondent to accept said
payment, the auction pushed through, the levied properties sold by the Sheriff.
Petitioner’s ex parte motion was denied by the lower court. Thus, petitioner comes to
the SC questioning the legality of said auction sale contending that there was already a
full satisfaction of the judgment before the auction sale was conducted with the deposit
made to the Ex-officio Sheriff.
- (SC Ruling) The petition was meritorious. The SC said that there is no valid reason for
private respondent not to accept petitioner’s payment. According to them: “It is to be
emphasized in this connection that the check deposited by the petitioner in the amount
of P50,000.00 is not an ordinary check but a Cashier’s Check of the Equitable Banking
Corporation, a bank of good standing and reputation. As testified to by the Ex-Officio
Sheriff with whom it has been deposited, it is a certified crossed check. It is a well-
known and accepted practice in the business sector that a Cashier’s Check is deemed as
cash. Moreover, since the said check had been certified by the drawee bank, by the
certification, the funds represented by the check are transferred from the credit of the
maker to that of the payee or holder, and for all intents and purposes, the latter becomes
the depositor of the drawee bank, with rights and duties of one in such situation. Where
a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance. x x x The object of certifying a check, as regards both parties, is to enable
the holder to use it as money.”” This is an exception to Section 63 of the Central Bank Act.
Therefore, the auction sale was already uncalled for.

56. International Corp. Bank (now Union Bank of the Philippines) vs. CA
- The Gueco spouses obtained a loan from petitioner to purchase a car. In consideration
thereof, the spouses executed promissory notes payable in monthly installments and
chattel mortgage over the car to serve as security for the notes. The spouses defaulted in
payment of installments.
- The Bank filed civil action before MeTC demanding from respondents their payment of
P184,000.00. This amount was lowered to P154,000.00. The non-payment of said
amount caused the detainment of respondent’s car with petitioner. The spouses
negotiated with the bank resulting their obligation reduced to P150,000.00 but the car
was not released because their refusal to sign the motion for Joint Motion to Dismiss
because they had not yet filed their answer. Petitioner insisted in compliance to their
standard operating procedure. After several demands and meetings, the spouses filed
civil action before the MeTC which dismissed the same for lack of merit. On appeal to the
RTC, the decision of the lower court was reversed holding that there was a meeting of the
minds between the parties as to the reduction of the amount of indebtedness and the
release of the car but said agreement did not include the signing of the joint motion to
dismiss as a condition sine qua non for the effectivity of the compromise. The CA
affirmed in toto said RTC decision.
- In this petition, International Corp. contends that the CA erred in holding that there was
no agreement with respect to the execution of the joint motion to dismiss as a condition
of the compromise agreement. The award for moral and exemplary damages were
likewise unwarranted and that the car should have not been ordered return to the
respondents without making any provision for the issuance of the new
manager’s/cashier’s check.
- (SC Ruling) The SC was with respondent in ruling that petitioner failed to prove that the
oral compromise entered into by the parties on August 28, 1995 included the stipulation
that the parties would jointly file a motion to dismiss. As to the award of damages, the SC
was with petitioners. The appellate court erred in basing said claims on the alleged fraud
done by petitioner. According to the SC, “Fraud has been defined as the deliberate
intention to cause damage or prejudice. It is the voluntary execution of a wrongful act, or a
willful omission, knowing and intending the effects which naturally and necessarily arise
from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the
deliberate and intentional evasion of the normal fulfillment of obligation.” True, petitioner
may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss
was a standard operating procedure of petitioner of bank. This cannot have prejudiced
Dr. Gueco. x x x The joint motion to dismiss was but a natural consequence of the
compromise agreement and simply stated that Dr. Gueco had fully settled his obligation,
hence, the dismissal of the case. Petitioner’s act of requiring Dr. Gueco to sign the joint
motion to dismiss cannot be said to be a deliberate attempt on the part of petitioner to
renege on the compromise agreement of the parties. It should, likewise, be noted that in
cases of breach of contract, moral damages may only be awarded when the breach was
attended by fraud or bad faith. The law presumes good faith. Dr. Gueco failed to present
an iota of evidence to overcome this presumption.
- Further, the SC found no bad faith on petitioner’s part in refusing to encash the check
within reasonable time because of the controversy surrounding the signing of the joint
motion to dismiss. A stale check is one which has not been presented for payment within
a reasonable time after its issue. It is valueless and, therefore, should not be paid. x x x
In the case at bar, however, the check involved is not an ordinary bill of exchange but a
manager’s check. A manager’s check is one drawn by the bank’s manager upon the bank
itself. It is similar to a cashier’s check both as to effect and use. A cashier’s check is a
check of the bank’s cashier on his own or another check. In effect, it is a bill of exchange
drawn by the cashier of a bank upon the bank itself, and accepted in advance by the act of
 its issuance. x x x The mere issuance of it is considered an acceptance thereof. If treated
as promissory note, the drawer would be the maker and in which case the holder need
not prove presentment for payment or present the bill to the drawee for acceptance.
Even assuming that presentment is needed, failure to present for payment within a
reasonable time will result to the discharge of the drawer only to the extent of the loss
caused by the delay. Failure to present on time, thus, does not totally wipe out all
liability.
- In this case, the Gueco spouses have not alleged, much less shown that they or the bank
which issued the manager’s check has suffered damage or loss caused by the delay or
non-presentment. Definitely, the original obligation to pay certainly has not been
erased.

57. FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY, INC., respondent.

- Records showed that petitioner bank purchased respondent’s account from PaBC in
December 1986 and that the latter was notified of the transaction on March 23, 1988.
Thereafter, Antonio Diaz, president of said corporation, inquired from petitioner on the
status and amount of its obligation. He was informed that the obligation summed up to
P1,447,142.03. On November 14, 1988, petitioner received from respondent a check
bearing the amount of P1,450,000.00 for the full payment of the obligation. The check
was subsequently cleared and honored by Interbank as evidenced by the Certification it
issued on January 20, 1992. Petitioner resolutely argued that the CA erred in upholding
the validity of the tender of payment made by respondent. According to them, the check
given by respondent could not considered legal tender.
- (SC Ruling) The SC held that “in general, a check does not constitute legal tender, and
that a creditor may validly refuse it. It must be emphasized, however, that this dictum
does not prevent a creditor from accepting a check as payment. In other words, the
creditor has the option and the discretion of refusing or accepting it.” The petitioner did
not refuse the respondent’s check; it accepted said document. “Tender of payment is the
definitive act of offering the creditor what is due him or her together with the demand
that the creditor accepts the same. More important, there must be a fusion of intent,
ability, and capability to make good such offer which must be absolute and must
cover the amount due. Here, after learning the balance of their obligation, respondent
presented to petitioner the check amounting to P1,450,000.00. The latter accepted it.
The check was fully funded and was even honored by the drawee bank. When petitioner
refused to release the mortgage, even if they were in possession of the money,
respondent instituted the present case to compel the bank to acknowledge the tender of
payment, accept payment and cancel the mortgage. These acts demonstrated
respondent’s intent, ability and capability to fully settle and extinguish its obligation to
petitioner.

58. TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI, respondent.

- Pursuant to an “Agreement And Undertaking” dated December 3, 1993, petitioner Teddy

G. Pabugais, in consideration of P15,487,500.00, agreed to sell to respondent a lot
containing 1,239 sq.m. Respondent paid petitioner P600,000.00 as option/reservation
fee and the balance of P14,887,500.00 to be paid within 60 days from the execution of
the contract simultaneous with delivery of the owner’s duplicate Transfer Certificate of
Title in respondent’s name, the Deed of Absolute Sale; the Certificate of Non-Tax
Delinquency on real estate taxes and Clearance on Payment of Association Dues. The
parties further agreed that failure on the part of respondent to pay the balance of the
 purchase price entitles petitioner to forfeit the P600,000.00 option/reservation fee;
while non-delivery by the latter of the necessary documents obliges him to return to
respondent the said option/reservation fee with interest at 18% per annum. Petitioner
failed to perform his obligation thus he returned to respondent his option fee by way of
FEBTC check which, however, was dishonored.
- Petitioner claimed that he twice tendered to respondent, through his counsel, the
amount of P672,900.00 (representing the P600,000.00 option/reservation fee plus 18%
interest per annum computed from December 3, 1993 to August 3, 1994) in check. but
said counsel refused to accept the same. His first attempt to tender payment was
allegedly made on August 3, 1994 through his messenger; while the second one was on
August 8, 1994, when he sent via DHL Worldwide Services, the manager’s check attached
to a letter dated August 5, 1994. On August 11, 1994, petitioner wrote a letter to
respondent saying that he is consigning the amount tendered with the Regional Trial
Court of Makati City. On August 15, 1994, petitioner filed a complaint for consignation.
Respondent refuted alleging that they indeed received the letter but no check was
appended thereto. Hence, there was no valid tender of payment and the computation of
the amount to be tendered was insufficient.
- The trial court declared the consignation invalid for petitioner’s failure to prove that he
tendered payment to respondent and the latter refused to receive the same. It further
held that, assuming respondent refused, it was justified because manager’s check was
not legal tender and thus no valid tender of payment. This was reversed by the CA
upholding the consignation valid. It held that the consignation had the effect of
extinguishing petitioner’s obligation to return the option/reservation fee to respondent.
Thus, petitioner can no longer withdraw the same. Unfazed, petitioner comes to the SC
contending, inter alia, that he can withdraw the amount deposited with the trial court as
a matter of right because at the time he moved for the withdrawal thereof, the Court of
Appeals has yet to rule on the consignation’s validity and the respondent had not yet
accepted the same.
- (SC Ruling) Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment. For it to be effective, the debtor must show
that: (1) there was a debt due; (2) the consignation of the obligation had been made
because the creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons claimed to be
entitled to receive the amount due or because the title to the obligation has been
lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at
the disposal of the court; and (5) after the consignation had been made the person
interested was notified thereof. Failure in any of these requirements is enough ground
to render a consignation ineffective. Worthy to note that respondent’s refusal of the
tender of payment was the alleged insufficiency and not because the said check was
not tendered to respondent or because it was a manager’s check. While it is true
that in general, a manager’s check is not legal tender, the creditor has the option of
refusing or accepting it. Payment in check by the debtor may be acceptable as
valid, if no prompt objection to said payment is made. Consequently, petitioner’s
tender of payment in the form of manager’s check was valid. The said check was
enough to satisfy the obligation and there being a valid tender of payment sufficient to
extinguish the obligation, the consignation was VALID. As regards petitioner’s right to
withdraw the amount consigned, reliance on Article 1260 of the Civil Code is misplaced.
The amount consigned with the trial court can no longer be withdrawn by petitioner
because respondent’s prayer in his answer that the amount consigned be awarded to him
is equivalent to an acceptance of the consignation, which has the effect of extinguishing
 petitioner’s obligation. Moreover, petitioner failed to manifest his intention to comply
with the “Agreement And Undertaking” by delivering the necessary documents and the
lot subject of the sale to respondent in exchange for the amount deposited. Withdrawal
of the money consigned would enrich petitioner and unjustly prejudice respondent.

59. EVELYN J. SANGRADOR, joined by her husband RODRIGO SANGRADOR, SR., petitioners, vs.
SPOUSES FRANCISCO VALDERRAMA and TERESITA M. VALDERRAMA, respondents.

- The pivotal issue to be resolved in this case is whether or not the loan obtained by private
respondents from petitioners was in the amount of P1,400,000.00 or P1,000,000.00 only.
- Spouses Valderrama obtained P500,000.00 loan from Asencio payable on or before Arpil 12,
1984 and secured by a real estate mortgage. Foreseeing that they may be unable to pay said
obligation, they sought the assistance a loan broker to obtain loan for payment. They got a
P1,000,000 loan from Teresita Sangrador evidenced by promissory note. The promissory
provided for an amount of P1,400,000.00 to be paid in eight months.
- The promissory note had an escalation clause stating that should there be an extraordinary
inflation supervening between the day the obligation was established and eight months after
date, the value of the PH peso at the of the establishment of the obligation shall be the
basis of payment pursuant to Art. 1250 of the NCC x x x official exchange rate of PH peso
to US $ at P14.002 to $1.
- The spouses alleged that they only received P1,000,000.00 as itemized by their broker. From
this case’s records, Sangrador issued cashier’s check for P625,000.00 to Asencio to redeem
spouses’ mortgaged properties. The receipt of said check was acknowledged by the
Valderramas. Sangrador gave P307,601.40 to the Valderramas representing full payment for
the obligation dated April 6, 1984.
- The Valderramas failed to pay the alleged P1,400,000.00 loan. Petitioners testified that the
amount was received by respondents. They alleged that besides the expenses of P67,398.69
and check of P625,000.00 for Asencio, and P307,601.40 for respondents. They likewise gave
P400,000.00 in cash to the spouses for which no receipt was issued by them.
- Respondents denied that the loan was P1,400,000.00; that it was only P1,000,000.00 and the
P400,000.00 represented usurious interest. Further, Francisco Valderrama did not notice that
both documents provided for a loan of P1,400,000.00
- The trial court ordered respondents to pay P1,400,000.00 plus P569,716.61 pursuant to the
escalation clause. The CA modified said decision ruling that respondents pay P1,000,000.00
with 12% interest per annum from April 6, 1984 until fully paid.
- (SC Ruling) The SC affirmed the decision of the CA. Indeed, the promissory note and the
REM stated that the loan was P1,400,000.00. However, the other documents executed by the
parties contemporaneously with the noted and REM clearly showed that the actual loan
received by respondents was only P1,000,000.00. The itemization tallied with the breakdown
of the loan proceeds made by the loan broker. Petitioner’s contention that the P400,000.00
was already included in the statement of loan in the promissory note and REM was out of
human experience. Human experience dictates that in delivery such a sum of money, one would
require a receipt or even an acknowledgement from their recipient. x x x The disputed
P400,000.00 was a hidden interest.
- The P1,000,000.00 loan should only earn 12% interest per annum computed from 6 April 1984
when the loan was obtained by the respondents from the petitioners until paid. The escalation
clause cannot be put into effect “since petitioners failed to prove the supervening of
extraordinary inflation between 6 April 1984 and 7 December 1984—no proofs were presented
on how much, for instance, the price index of goods and services had risen during the
intervening period—an extraordinary inflation cannot be assumed; consequently, there is no
reason or basis, legal or factual, for adjusting the value of the Philippine Peso in the settlement
of respondents’ obligation. x x x “Extraordinary inflation exists when ‘there is a decrease or
 increase in the purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such decrease or increase could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of
the establishment of the obligation.”

60. FEDERICO SERRA, petitioner, vs. THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.

- Disputed in the present case is the efficacy of a “Contract of Lease with Option to Buy,” entered
into between petitioner Federico Serra and private respondent Rizal Commercial Banking
Corporation (RCBC). Petitioner was the owner of a 374 sq.m. parcel of land. Respondent bank
negotiated with petitioner for the purchase of the then unregistered property. On May 1975, a
Contract of Lease with Option to Buy was instead forged by the parties, pertinent provisions as
follow:
1. Lessee to hold the property for a period of 25 years from June 1, 1975 to June 1, 2000.
2. Lessee shall have the option to purchase within 10 years from the date of the contract
signing at a price not greater than P210.00 per sq.m. The lessor undertakes within the
10-year period to register said parcel of land under the Torrens System.
3. If for any reason the land is not registered, Lessee shall have the right upon termination
of the lease to be paid by lessor of the market value of the building and other
improvements made.
4. If Lessee fails to exercise its option, said building or improvements on the said property
shall be owned by the Lessor after the expiration of the 25-year lease period.
- Within three years, petitioner registered and placed the property under the Torrens System.
Petitioners alleged that as soon as he was done, he kept on pursuing RCBC’s manager to effect
the sale of the land. It was not until September 4, 1984 when the bank exercised its option and
informed petitioner of their intention to buy the property at the agreed price. Petitioner replied
that he was no longer selling the property.
- RCBC filed complaint for specific performance. According to them, they made it clear to
petitioner that they intend to stay permanently on the property once the office opened.
- The trial court ruled in favor of RCBC and such was affirmed by the CA.
- Petitioner comes to the SC alleging that there was no consideration to support the option
distinct from the price, the court gravely abused its discretion in not granting the adjustment on
already eroded value of the stipulated rentals for 25 years, and that the contract was a contract
of adhesion.
- (SC Ruling) Petition is devoid of merit. There is no dispute that the contract was valid and
existing between the parties. A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his
signature or his “adhesion” thereto. These types of contracts are as binding as ordinary contracts.
Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this
Court will not hesitate to rule out blind adherence to terms where facts and circumstances will
show that it is basically one-sided. Petitioner contends that the he option given to the respondent
bank was not supported by a consideration distinct from the price; and that the stipulated price
of “not greater than P210.00 per square meter” is not certain or definite.
- Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain
period to accept, the offer may be withdrawn at anytime before acceptance by communicating
such withdrawal, except when the option is founded upon consideration, as something paid or
promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if
the promise is supported by a consideration distinct from the price.
- In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
 because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which is
certain. In which case, the parties may then reciprocally demand performance.
- Jurisprudence has taught us that an optional contract is a privilege existing only in one party
—the buyer. For a separate consideration paid, he is given the right to decide to purchase or
not, a certain merchandise or property, at any time within the agreed period, at a fixed price.
This being his prerogative, he may not be compelled to exercise the option to buy before the
time expires. In the present case, the consideration was even more onerous on the part of the
lessee since it entailed, transferring of the building and/or improvements on the property to
petitioner, should respondent bank failed to exercise its option within the period stipulated.
- Finally, there was no legal basis in adjusting the amount of the rent. “The contract is the law
between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the
purchasing power of the Philippine peso from 1983 to the time of the commencement of the
present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary
inflation exists when there is an unimaginable increase or decrease of the purchasing power of the
Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation.”

61. Huibonhoa vs. Court of Appeals

- On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with

siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that
Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at
Ilaya Street, Binondo, Manila.
- On June 30, 1983, the parties inked a contract of lease of the same lots for 15 years commencing
on July 1, 1983, renewable upon agreement of the parties. The contract enabled Huibonhoa to
construct her building in accordance with the approved plan by the City Engineer’s Office. x x x
The lessee undertook to complete construction of the building within 8 months from the
execution of the contract of lease. Further, Huibonhoa was to pay the lessors 15,000.00 each as
monthly rental. x x x Provided, however, that LESSEE’s obligation to pay the rental shall start only
upon completion of the building, but if it is not completed within eight (8) months from date
hereof as provided for in par. 4 above, the monthly rental shall already accrue and shall be paid by
LESSEE to LESSOR. In other words, during the period of construction, no monthly rental shall be
collected from LESSEE.
- During the construction of the building, former Sen. Aquino Jr. was assassinated. The incident
must have affected the country’s political and economic stability. The consequent hoarding of
construction materials and increase in interest rates allegedly affected adversely the
construction of the building such that Huibonhoa failed to complete the same within the
stipulated eight-month period from July 1, 1983. Projected to be finished on February 29, 1984,
the construction was completed only in September 1984 or seven (7) months later.
Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the payment of
rental arrearages and, for her to vacate the leased premises. On December 19, 1984, lessors
sent lessee a final letter of demand to pay the rental arrearages and to vacate the leased
premises. The former also notified the latter of their intention to terminate the contract of lease.
- On January 3, 1985, petitioner brought an action for reformation of contract alleging the
following:
1. Although there was a meeting of the minds between the parties on the lease contract, their
true intention as to when the monthly rental would accrue was not therein expressed due
to mistake or accident. She (lessee) alleged that the Gojoccos had erroneously considered
the first accrual date of the rents to be March 1984 when their true intention was that
 during the entire period of actual construction of the building, no rents would accrue. The
first rent would have been due only in October 1984.
2. The assassination of former Senator Benigno Aquino, Jr., an unforeseen event, caused the
country’s economy to turn from bad to worse and as a result, the prices of commodities
like construction materials so increased that the building worth Six Million pesos
escalated to “something like 11 to 12 million pesos.” However, she averred that by reason
of mistake or accident, the lease contract failed to provide that should an unforeseen event
dramatically increase the cost of construction, the monthly rental would be reduced and
the term of the lease would be extended for such duration as may be fair and equitable to
both the lessors and the lessee.
- On January 31, 1985, Rufina Lim entered into agreement with petitioner to put an end to
petitioner’s case and extending the lease for three more years. It was also agreed that no rent
shall be paid until and unless the building has been completely constructed and took into
consideration the Aquino incident. The RTC dismissed the complaint ordering petitioner to pay
respondents the rent due. The CA modified the ruling of the RTC. Discontent, petitioner comes
before the SC assailing the decision of the CA.
- (SC Ruling) 1. On the action for reformation of their contract. Article 1359 of the Civil Code
provides that “(w)hen, there having been a meeting of the minds of the parties to a contract,
their true intention is not expressed in the instrument purporting to embody the agreement, by
reason of mistake, fraud, inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such intention may be expressed. x x x.” An action
for reformation of instrument under this provision of law may prosper only upon the
concurrence of the following requisites: (1) there must have been a meeting of the minds of
the parties to the contract; (2) the instrument does not express the true intention of the
parties; and (3) the failure of the instrument to express the true intention of the parties is
due to mistake, fraud, inequitable conduct or accident. The lease contract that was later
entered into by the parties qualified the time when the lessee should start paying the monthly
rentals. Paragraph 5 of the lease contract states that the “LESSEE’s” obligation to pay the rental
shall start only upon the completion of the building, but if it is not completed within eight (8)
months from date hereof as provided for in par. 5 (sic) above, the monthly rental shall already
accrue and shall be paid by LESSEE to LESSOR.” That qualification applied even though the next
sentence states that “(I)n other words, during the period of construction, no monthly rentals
shall be collected from LESSEE.” Otherwise, there was no reason for the insertion of that
qualification on the period of construction of the building the termination of which would signal
the accrual of the monthly rentals. Non-inclusion of that qualification would also give the lessee
the unbridled discretion as to the period of construction of the building to the detriment of the
lessor’s right to exercise ownership thereover upon the expiration of the 15-year lease period.
- In actions for reformation of contract, the onus probandi is upon the party who insists that the
contract should be reformed. Huibonhoa having failed to discharge that burden of proving that
the true intention of the parties has not been accurately expressed in the lease contract sought to
be reformed, the trial court correctly held that no clear and convincing proof warrants the
reformation thereof.

- 2. On reducing the amount of rent due to the assassination incident. In the case under
scrutiny, the assassination of Senator Aquino may indeed be considered a fortuitous event.
However, the said incident per se could not have caused the delay in the construction of the
building. What might have caused the delay was the resulting escalation of prices of
commodities including construction materials. Be that as it may, there is no merit in
Huibonhoa’s argument that the inflation borne by the Filipinos in 1983 justified the delayed
accrual of monthly rental, the reduction of its amount and the extension of the lease by three (3)
years. Inflation is the sharp increase of money or credit or both without a corresponding
increase in business transaction. There is inflation when there is an increase in the volume of
 money and credit relative to available goods resulting in a substantial and continuing rise in the
general price level. x x x It is only when an extraordinary inflation supervenes that the law
affords the parties a relief in contractual obligations. “Extraordinary inflation exists when ‘there
is a decrease or increase in the purchasing power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said currency, and such decrease or increase could
not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation.” No decrease in the peso value of such magnitude
having occurred, Huibonhoa has no valid ground to ask the Court to intervene and modify the
lease agreement to suit her purpose. As it is, Huibonhoa even failed to prove by evidence,
documentary or testimonial, that there was an extraordinary inflation from July 1983 to
February 1984. x x x For Huibonhoa to claim exemption from liability by reason of fortuitous
event under Art. 1174 of the Civil Code, she must prove that inflation was the sole and
proximate cause of the loss or destruction of the contract or, in this case, of the delay in the
construction of the building. She failed to do so.

62. Singson vs. Caltex

- The crucial issue in this appeal is whether there existed an extraordinary inflation
during the period 1968 to 1983 that would call for the application of Art. 1250 of the NCC
and justify an adjustment or increase of the rentals between the parties.
- Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of
land in Cubao, Quezon City. The land had an area of 1,400 square meters. The contract of lease
provided that the lease shall run for a period of twenty (20) years and shall abide by the
following rental rates: P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m.
per month from the 11th to 20th years, payable monthly in advance within the 1st 15
days of each month.
- Petitioner contended that the monthly rental of P3.00 per square meter was patently
inequitable. Based on the inflation rates supplied by NEDA, there was an unusual increase in
inflation that could not have been foreseen by the parties; otherwise, they would not have
entered into a relatively long-term contract of lease. She argued that the rentals in this case
should not be regarded by their quantitative or nominal value, but as “debts of value,” that is,
the rental rates should be adjusted to reflect the value of the peso at the time the lease was
contracted. Petitioner argues that the placing of the country under martial rule in 1972, the
OPEC oil price increases in 1973, and the Aquino assassination which triggered the EDSA
revolution, were fortuitous events that drastically affected the Philippine economy and were
beyond the reasonable contemplation of the parties.
- In the herein case, petitioner posited that in pegging the monthly rental rates of P2.50 and
P3.00 per square meter, respectively, the parties were guided by the economic conditions
prevalent in 1968, when the Philippines faced robust economic prospects. Petitioner contended
that between her and respondent, a corporation engaged in high stakes business and employing
economic and business experts, it was the latter who had the unmistakable advantage to
analyze the feasibility of entering into a 20-year lease contract at such meager rates.
- (SC Ruling) The Court said: “We have held extraordinary inflation to exist when there is a
decrease or increase in the purchasing power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said currency, and such increase or decrease
could not have been reasonably foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation. x x x The supervening of extraordinary
inflation is never assumed. The party alleging it must lay down the factual basis for the
application of Article 1250.x x x We hold that there is no legal or factual basis to support
petitioner’s allegation of the existence of extraordinary inflation during this period, or, for that
matter, the entire time frame of 1968 to 1983, to merit the adjustment of the rentals in the lease
contract dated July 16, 1968. Although by petitioner’s evidence there was a decided decline in
 the purchasing power of the Philippine peso throughout this period, we are hard put to treat
this as an “extraordinary inflation” within the meaning and intent of Article 1250.x x x “Erosion”
is indeed an accurate description of the trend of decline in the value of the peso in the past three
to four decades. Unfortunate as this trend may be, it is certainly distinct from the phenomenon
contemplated by Article 1250. Moreover, this Court has held that the effects of extraordinary
inflation are not to be applied without an official declaration thereof by competent authorities. “
Petition DENIED.

63. Caltex (Phils) vs. IAC

- On January 12, 1978, private respondent Asia Pacific Airways Inc. entered into an agreement
with petitioner Caltex (Philippines) Inc., whereby petitioner agreed to supply private
respondent’s aviation fuel requirements for two (2) years, covering the period from January 1,
1978 until December 31, 1979. Pursuant thereto, petitioner supplied private respondent’s fuel
supply requirements. As of June 30, 1980, private respondent had an outstanding obligation to
petitioner in the total amount of P4,072,682.13, representing the unpaid price of the fuel
supplied. To settle this outstanding obligation, private respondent executed a Deed of
Assignment dated July 31, 1980, wherein it assigned to petitioner its receivables or refunds of
Special Fund Import Payments from the National Treasury of the Philippines to be applied as
payment of the amount of P4,072,683.13 which private respondent owed to petitioner.
- The Bureau of Treasury issued to petitioner the treasury warrant for P5,475,294.00. On
February 16, 1981, private respondent requested petitioner to refund the excess amount.
Petitioner did but respondent, again, demanded the remaining amount. Petitioner informed the
latter that the P510,550.13 represented interest and service charges at the rate of 18% per
annum on the unpaid and overdue account of respondent.
- Respondent filed for collection of money at the trial court. The latter dismissed the complaint;
on appeal to the IAC, the Court reversed the decision and ordered petitioner to return the
P510,550.13 to respondent. Thus, petitioner came before the SC.
Issue: Whether or not the Deed of Assignment entered into by the parties on July 31, 1980 constituted
dacion en pago such that the obligation was totally extinguished hence after said date, no interest and
service charges could anymore be imposed on private respondent, so that petitioner was not legally
authorized to deduct the amount of P510,550.63 as interest and service charges on the unpaid and overdue
accounts of private respondent.

Ruling: The Deed of Assignment was not a dation in payment and did not totally extinguish
respondent’s obligation. The Court, in the case of Lopez vs. Court of Appeals, said: “‘The dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.”
Here, it could easily be seen that the Deed of Assignment contained three obligations: 1. The outstanding
obligation of P4,072,682.13 as of June 30, 1980; 2. The applicable interest charges on overdue
accounts; and 3. The other avturbo fuel lifting and deliveries that assignor may from time to time
receive from assignee (petitioner). As aptly argued by petitioner, if it were the intention of the parties to
limit or fix respondent’s obligation to P4,072,682.13; they should have so stated and there would have been
no need for them to qualify the statement of said amount with the clause “as of June 30, 1980 plus any
applicable interest charges on overdue ac-count” and the clause “and other avturbo fuel lifting and
deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE”. The terms of the Deed of
Assignment being clear, the literal meaning of its stipulations should control (Art. 1370, Civil Code). In the
construction of an instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all.
The IAC failed to consider the subsequent acts of the parties which showed that they did not intent
to extinguish the whole obligation such as affter the execution of the Deed of Assignment on July 31, 1980,
petitioner continued to charge respondent with interest on its overdue account up to January 31, 1981.
Said act or acts clearly showed that they did not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent.

64. STATE INVESTMENT HOUSE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, HON. JUDGE
PERLITA J. TRIA TIRONA, Presiding Judge of the Regional Trial Court of Quezon City, Branch CII, and
SPS. RAFAEL and REFUGIO AQUINO, respondents

- On April 5, 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of
stocks to petitioner in order to secure a loan of P120,000.00 designated as Account No. IF-82-
0631-AA. Prior to said execution, spouses as accommodation parties and together with
spouses Jose and Marcelina Aquino signed an agreement (Account No. IF-82-1379-AA) with
petitioner State for the latter’s purchase of receivables amounting to P375,000.00. When
Account No. IF-82-0631-AA fell due, respondent spouses paid the same partly with their own
funds and partly from the proceeds of another loan which they obtained also from
petitioner State designated as Account No. IF-82-0904-AA. This new loan was secured by
the same pledge agreement executed in relation to Account No. IF-82-0631-AA. When the
new loan matured, State demanded payment. Respondents expressed willingness to pay,
requesting that upon payment, the shares of stock pledged be released. Petitioner State denied
the request on the ground that the loan which it had extended to the spouses Jose and
Marcelina Aquino (Account No. IF-82-1379-AA) had remained unpaid.
- Respondents were given notice of notarial sale with regard their pledged shares of stocks. This
prompted them to file a case before the RTC contending that the intended foreclosure sale was
illegal because from the time the obligation under Account No. IF-82-0904-AA became due, they
had been able and willing to pay the same, but petitioner had insisted that respondents pay
even the loan account of Jose and Marcelina Aquino which had not been secured by the pledge.
It was further alleged that their failure to pay their loan (Account No. IF-82-0904-AA) was
excused because the petitioner State itself had prevented the satisfaction of the obligation. The
RTC, in its modified decision, ordered petitioner to return the pledged shares upon full
payment of the loan under Acct. No. IF-82-0904-AA. As clarified, the loan under said code
amounted to P110,000.00.
- CA affirmed the decision of the RTC.
- In this petition, the ultimate question is if Aquino spouses were not in delay, what should
they have been liable for in accordance with law?
- (SC Ruling) The Court held: “We believe and so hold that since respondent Aquino spouses
were held not to have been in delay, they were properly liable only for: (a) the principal of the
loan or P110,000.00; and (b) regular or monetary interest in the amount of seventeen
percent (17%) per annum. x x x The regular or monetary interest continued to accrue under
the terms of the relevant promissory note until actual payment is effected. The payment of
regular interest constitutes the price or cost of the use of money and thus, until the principal
sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount. The relevant rule is set out in Article 1256 of the Civil
Code x x x. Where the creditor unjustly refuses to accept payment, the debtor desirous of being
released from his obligation must comply with two (2) conditions: (a) tender of payment; and
(b) consignation of the sum due. Tender of payment must be accompanied or followed by
consignation in order that the effects of payment may be produced. Thus, in Llamas v. Abaya, the
Supreme Court stressed that a written tender of payment alone, without consignation in court
of the sum due, does not suspend the accruing of regular or monetary interest. In the instant
case, respondent spouses Aquino, while they are properly regarded as having made a written
tender of payment to petitioner State, failed to consign in court the amount due at the time of
the maturity of Account No. IF-82-0904-AA. It follows that their obligation to pay principal-
cum-regular or monetary interest under the terms and conditions of Account No. IF-82-0904-
 AA was not extinguished by such tender of payment alone.” Petition was GRANTED DUE
COURSE; decision of CA reversed and set aside.

65. Mclaughlin vs. CA

- Petitioner and private respondent entered into a conditional sale of real property. Par. 1 of the
Deed fixed the purchase price at P140,000.00 payable as follows: P26,550.00 upon execution
and the balance of P113,450.00 to be paid not later than May 31, 1977. Due to respondent’s
failure to pay the balance, petitioner filed for rescission of the deed of conditional sale.
Subsequently, the parties submitted a Compromise Agreement. In said agreement, respondent
acknowledged his indebtedness for P119,050.71 and both agreed that the amount would be
paid thru P50,000.00 upon signing and the balance in two equal installments. As agreed,
respondent paid the P50,000.00 and an escalation cost of P25,000.00.
- On October 15, 1980, petitioner demanded that respondent pay the balance of P69,059.71 on or
before October 31, 1980. On October 30, 1980, respondent, through letter, expressed his
willingness and intention to pay the full balance. According to respondent, on November 3,
1980, he tendered payment to petitioner but was refused. Consequently, petitioner filed a
Motion for Writ of Execution. The trial court granted the motion.
- On November 17, 1980, private respondent filed a motion for reconsideration tendering at the
same time a Pacific Banking Corporation certified manager’s check in the amount of P76,059.71,
payable to the order of petitioner and covering the entire obligation including the installment
due on December 31, 1980. However, the trial court denied the motion for reconsideration in an
order dated November 21, 1980 and issued the writ of execution on November 25, 1980.
- The Court of Appeals ruled otherwise stating that it would be inequitable to rescind or cancel
the deed of conditional sale. Thus, petitioner comes to the SC questioning the order.
- Petitioner contends that the appellate court erred in not observing the provisions of Article No.
1306 of the Civil Code of the Philippines and in having arbitrarily abused its judicial discretion
by disregarding the penal clause stipulated by the parties in the compromise agreement which
was the basis of the decision of the lower court.
- (SC Ruling) The Court held: “We agree with the appellate court that it would be inequitable to
cancel the contract of conditional sale and to have the amount of P101,550.00 already paid by
him under said contract, excluding the monthly rentals paid, forfeited in favor of petitioner,
particularly after private respondent had tendered the amount of P76,059.71 in full payment of
his obligation. x x x Private respondent’s tender of payment of the amount of P76,059.71
together with his motion for reconsideration on November 17, 1980 was well within the thirty-
day period granted by law. The tender made by private respondent of a certified bank
manager’s check payable to petitioner was a valid tender of payment. The certified check
covered not only the balance of the purchase price in the amount of P69,059.71, but also the
arrears in the rental payments from June to December, 1980 in the amount of P7,000.00, or a
total of P76,059.71. x x x However, inasmuch as petitioner did not accept the aforesaid
amount, it was incumbent on private respondent to deposit the same with the court in
order to be released from responsibility. Since private respondent did not deposit said
amount with the court, his obligation was not paid and he is liable in addition for the payment
of the monthly rental of P1,000.00 from January 1, 1981 until said obligation is duly paid, in
accordance with paragraph 3 of the Compromise Agreement. Upon full payment of the amount
of P76,059.71 and the rentals in arrears, private respondent shall be entitled to a deed of
absolute sale in his favor of the real property in question.”
- According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender
of payment has been made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due, and that consignation alone
shall produce the same effect in the five cases enumerated therein; Article 1257 provides that in
order that the consignation of the thing (or sum) due may release the obligor, it must first be
 announced to the persons interested in the fulfillment of the obligation; and Article 1258
provides that consignation shall be made by depositing the thing (or sum) due at the disposal of
the judicial authority and that the interested parties shall also be notified thereof. In the case at
bar, although as above stated private respondent had preserved his rights as a vendee in the
contract of conditional sale of real property by a timely valid tender of payment of the balance
of his obligation which was not accepted by petitioner, he remains liable for the payment of his
obligation because of his failure to deposit the amount due with the court.

66. BERNARDO B. LEGASPI, petitioner, vs. COURT OF APPEALS and LEONARDO B. SALCEDO,
respondents.

- whether or not the petitioner validly exercised his right to repurchase the properties within the
five-year period as stipulated in the sale with pacto de retro entered into between the petitioner as
vendor a retro and private respondent as vendee a retro.
- The complaint alleged, among others, that Bernardo B. Legaspi is the registered owner of the
aforementioned two parcels of land which he sold to his son-in-law, Leonardo B. Salcedo, on
October 15, 1965 for the sum of P25,000.00 with the right to repurchase the same within five
years from the execution of the deed of sale; ; that before the expiry date of the repurchase
period which was on October 15, 1970, Legaspi offered and tendered to Salcedo the sum of
P25,000.00 for the repurchase of the two parcels of land; that the tender of payment was
refused by Salcedo without justifiable or legal cause; that Salcedo refused to convey the
properties to Legaspi as requested by the latter; that on October 15, 1970, Legaspi deposited in
the Office of the Clerk of Court of First Instance of Cavite City the amount of P25,125.00 as
evidenced by Official Receipt ; that despite earnest efforts towards a compromise after
consignation of the repurchase money had been made, Salcedo refused to re-convey the
properties in question.
- Salcedo denied that petitioner made tender of payment to him. He claimed that Legaspi was no
longer entitled to repurchase the properties in question for failure to exercise his right within
the stipulated period in accordance with Article 1250 of the Civil Code under which Salcedo
maintained he was entitled to the payment of P42,250.00 instead of only P25,000.00. The trial
court ruled in favor of petitioner but the CA reversed said decision and thus, dismissed the
complaint holding that petitioner never made a valid tender of payment that amounted to a
lawful exercise of the right to repurchase the property. Neither was there a valid consignation.
Thus, this appeal of petitioner before the SC.
- (SC Ruling) Tender of payment is the manifestation made by the debtor to the creditor of
his desire to comply with his obligation, with the offer of immediate performance.
Generally, it is an act preparatory to consignation as an attempt to make a private settlement
before proceeding to the solemnities of consignation. Consignation is the act of depositing the
thing due with court or judicial authorities whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior tender of payment. In instances where no debt
is due and owing, consignation is not proper. “Consignation is not required to preserve the right
of repurchase as a mere tender of payment is enough if made on time as a basis for an
action to compel the vendee a retro to resell the property.” Since the case at bar involves
the exercise of the right to repurchase, a showing that petitioner made a valid tender of
payment is sufficient. It is enough that a sincere or genuine tender of payment and not a mock
or deceptive one was made. The fact that he deposited the amount of the repurchase money
with the Clerk of Court was simply an additional security for the petitioner. It was not an
essential act that had to be performed after tender of payment was refused by the private
respondent although it may serve to indicate the veracity of the desire to comply with the
obligation. The right to repurchase was seasonably exercised. The trial court correctly ruled
that there was proper exercise of the right to repurchase within the five-year period not for the
 reason that the deposit of the repurchase money amounted to a tender of payment but for what
the evidence submitted before it proved.

67. Hulganza vs. Court of Appeals

- Lot 161, Pls. 256 is registered in the name of spouse Nicomedez Hulganza and Matilde Collamar
covered by a title issued pursuant to a free patent. Said lot was sold to Gemarino for P10,000.00
by virtue of which the original title was cancelled and a new one issued in the name of
Gemarino. However, on April 13, 1972, petitioners filed a complaint in Court seeking to
repurchase said property from respondent under the provisions of Section 119 of Public Land
Act 141. Petitioners maintained that they have the right of legal redemption of the said
property. On the other hand, Gemarino said that the period for redemption had already lapsed
and if the Court considers it otherwise, she shall be entitled to the cost of land improvements
estimated to be P25,000.00.
- The trial court rendered judgment in favor of petitioners holding that they indeed still have the
legal right of redemption. However, on appeal, the CA favored Gemarino reversing the decision
of the lower court.
- In this petition, the only issue was whether or not it is necessary that the formal offer to redeem
the land in question be accompanied by a bona fide tender of the redemption price, or the
repurchase price be consigned in Court, within the period of redemption even if the right is
exercised through the filing of a judicial action.
- (SC Ruling) The said issue has already been laid down by the SC holding that: ““The formal
offer to redeem, accompanied by a bona fide tender of the redemption price, within the period
of redemption prescribed by law, is only essential to preserve the right of redemption for future
enforcement beyond such period of redemption and within the period prescribed for the action
by the statute of limitations. x x x the formal offer to redeem, accompanied by a bona fide tender
of the redemption price, might be proper, but is is not essential. The filing of the action itself,
within the period of redemption, is equivalent to a formal offer to redeem. Any other
construction, particularly with reference to redemption of homesteads conveyed to third
parties, would work hardships on the poor homesteaders who cannot be expected to know the
subtleties of the law, and would defeat the evident purpose of the Public Land Law—'to give the
homesteader or patentee every chance to preserve for himself and his family the land that the
state granted him as a reward for his labor in cleaning and cultivating it.”

68. Valdellon vs. Tengco

- The petition is against the decision of the lower court in an unlawful detainer case wherein said
court ordered Valdellon to vacate the land in question and for him to pay Tengco all his rentals
in arrears from March 1979 at the rate of P200.00 a month until the possession thereof
surrendered to the spouses Geraldez.
- In a judgment dated March 8, 1976, the Court of Appeals affirmed with modification as follows:
“Consequently, the duration of the lease of the land in dispute is hereby fixed for one (1) year from
the time the suspension of the provisions of paragraph (1) of Article 1673 of the Civil Code of the
Philippines (by Sec. 4 of PD 20) is lifted.” Meanwhile, defendant had been depositing his monthly
rentals of P200.00 with the Court of Appeals during the pendency of the case in that Court and
in the Supreme Court. By reason of the finality of the decision of the Court of Appeals and the
remand of the record of the case to this Court, plaintiffs wrote on February 19, 1979 a letter to
defendant requesting that the monthly rentals starting March, 1979 be paid to them directly at
their residence at No. 20 Apo Street, Quezon City. The letter was acknowledged by petitioner.
Tengco demanded payments from petitioner and to vacate the premises.
- On June 19, 1979, petitioner’s son went to Tengco’s residence and offered to pay the rentals for
April, May, and June 1979 but the latter refused to accept payment because on June 13, 1979,
 petitioners deposited the rentals for April, May and June 1979 with the CA who accepted the
same.
- (SC Ruling) The SC sustained “the ruling of the Court below that the deposits made by the
petitioner in the Court of Appeals, the defendant in the unlawful detainer case, on March 19,
1979 and on June 13, 1979, without notice thereof to the private respondents and despite
petitioner’s receipt of said respondent’s letter of February 19, 1979, cannot be considered as
valid consignation as required and contemplated by law. Under Art. 1257 of our Civil Code,
in order that consigna-tion of the thing due may release the obligor, it must first be announced to
the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it
is not made strictly in consonance with the provisions which regulate payment. In said Article
1258, it is further stated that the consignation having been made, the interested party shall also
be notified thereof. “It is pertinent to further consider that the petitioner’s deposit made in the
Court of Appeals on June 13, 1979 was for his arrears in rentals for four (4) months—March,
April, May and June, 1979, and that said appellate court at that time was no longer the proper
entity which should receive such deposits inasmuch as the case which was appealed to that
court had already been long decided by a judgment decreed as final and executory on January
17, 1977. As a matter of fact, the case records appears to have been already remanded by the
Court of Appeals to the Court of First Instance of Manila since September 19, 1978. Patently,
the consignation alleged by the petitioner under those circumstances would be legally
ineffectual. The claim of petitioner that the deposits he made in the Court of Appeals were mere
continuations of the procedure practiced by him for over ten years can serve him no benefit.
Petitioner was undoubtedly aware of the fact that the case pending between him and
respondents in said appellate court had already been terminated and, therefore, there was no
justifiable cause for him to continue making said deposits in that court as private respondents
had in fact so advised petitioner by letter on February 19, 1970.”

69. Soco vs. Militante

- Soco and Francisco entered into a contract of lease on January 17, 1973 whereby Soco leased
her commercial building and lot to Francisco for a monthly rental of P800.00 for a period of 10
years, renewable for 10 years at the option of the lessee.
- According to the findings of fact made by the City Court, the defendant Francisco had religiously
paid to the plaintiff Soco the corresponding rentals according to the terms of the Lease Contract
while enjoying the leased premises until one day the plaintiff had to demand upon the
defendant for the payment of the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to vacate the premises and from that
time he failed or refused to vacate his possession thereof; that beginning with the month of
May, 1977 until at present, the defendant has not made valid payments of rentals to the plaintiff
who, as a consequence, has not received any rental payment from the defendant or anybody
else; that for the months of May to August, 1977, evidence shows that the plaintiff through her
daughter, Teolita Soco, and salesgirl, Vilma Arong, went to the office or residence of defendant
at Sanciangko St., Cebu City, on various occasions to effect payment of rentals but were unable
to collect on account of the defendant’s refusal to pay; that defendant contended that payments
of rental thru checks for said four months were made to the plaintiff but the latter refused to
accept them; that in 1975, defendant authorized the Commercial Bank and Trust Company to
issue checks to the plaintiff chargeable against his bank account, for the payment of said rentals,
and the delivery of said checks was coursed by the bank thru the messengerial services of the
FAR Corporation, but the plaintiff refused to accept them and because of such refusal, defendant
instructed said bank to make consignation with the Clerk of Court of the City Court of Cebu as
regard said rentals for May to August, 1977 and for subsequent months.
- The City Court further found that there is no showing that the letter allegedly delivered to the
plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR Corporation contained cash
 money, check, money order, or any other form of note of value, hence there could never be any
tender of payment, and even granting that there was, but plaintiff refused to accept it without
any reason, still no consignation for May, 1977 rental could be considered in favor of the
defendant unless evidence is presented to establish that he actually made rental deposit with
the court in cash money and prior and subsequent to such deposit, he notified the plaintiff
thereof. Notwithstanding the contradictory findings of fact and the resulting opposite
conclusions of law by the City Court and the Court of First Instance, both are agreed, however,
that the case presents the issue of whether the lessee failed to pay the monthly rentals
beginning May, 1977 up to the time the complaint for eviction was filed on January 8, 1979.
This issue in turn revolves on whether the consignation of the rentals was valid or not to
discharge effectively the lessee’s obligation to pay the same. The City Court ruled that the
consignation was not valid. The Court of First Instance, on the other hand, held that there was
substantial compliance with the requisites of the law on consignation.
- (SC Ruling) The SC agreed with the ruling of the City of Court of Cebu. The SC found that the
decision of the CFI was erroneous and founded on misapprehension of facts. According to them
the lessee utterly failed to prove the following requisites of a valid consignation:
1. Tender of payment of the monthly rentals to the lessor except that indicated in the June
1977 letter.
2. Respondent failed to prove the first notice to the lessor prior to the consignation, except
that referred in the above letter.
3. Respondent likewise failed to prove the second notice that is after consignation has
been made to the lessor except the consignation of the cashier’s check under an official
receipt.
4. Respondent failed to prove the actual deposit or consignation of the monthly rentals
except for the previously mentioned cashier’s check which were accompanied by official
receipt. Other than these checks, no other receipts were presented for the other
payments deposited by the respondent.
- Therefore, the Court held that the essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That
these Articles must be accorded a mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require absolute compliance with the
essential requisites therein provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the words “shall” and “must” which
are imperative, operating to impose a duty which may be enforced, positively indicate that all
the essential requisites of a valid consignation must be complied with. The Civil Code Articles
expressly and explicitly direct what must be essentially done in order that consignation shall be
valid and effectual. Thus, the law provides:
 “Art. 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment of
the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment.”

“Art. 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be proved, in
a proper case, and the announcement of the consignation in other cases. The
consignation having been made, the interested parties shall also be notified thereof.”

“Art. 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal tender in
the Philippines.
 The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.

70. Paray vs. Rodriguez

- Respondents secured through a pledge of their shares of stock to petitioners the payment of
certain obligations. For the former’s failure to pay, petitioner attempted to foreclose the
pledges. Thus, respondents sought to nullify the pledge agreements before the RTC but the
latter gave due course to petitioner’s action. The CA affirmed the decision.
- Before the scheduled public auction, respondents consigned with the RTC Clerk of Court
various amounts. It was claimed that respondent attempted to tender payments to petitioners
but had been rebuffed. The public auction continued. The pledged shares were bid out. None
of the respondents participated in the auction and instead, sough the declaration of nullity of
the concluded auction. They alleged that their payment and subsequent consignations served
to extinguish their loan obligations and discharged the pledge contracts. Petitioners countered
that the auction sale was conducted pursuant to the final and executory judgment in the civil
case and that said tender of payments and consignations were made long after their obligations
had fallen due.
- RTC dismissed the complaint ruling in favor of petitioners but the CA reversed and sided with
respondents holding that the consignations extinguished the loan obligations and subject
pledge contracts and the auction sale was null and void. The court upheld the sufficiency of the
consignations owing to an imputed policy of the law that favored redemption and mandated a
liberal construction to redemption laws.
- In this petition, the Parays submit that they were authorized to refuse the tender of payment
since they were undertaking the auction sale pursuant to the afore-mentioned final and
executory decisions which did not authorize the payment of the principal obligations by
respondents. The amount consigned could not extinguish the principal obligations of
respondents since they were not sufficient to cover the interests due on the debt.
- Issue: Whether the consignations made by respondents extinguished their respective
contracts in favor of petitioners to enjoin the latter from auctioning the pledged shares.
- (SC RULING) The SC agreed with petitioners. There is no doubt that if the principal
obligation is satisfied, the pledges should be terminated as well. Article 2098 of the Civil
Code provides that the right of the creditor to retain possession of the pledged item exists only
until the debt is paid. Article 2105 of the Civil Code further clarifies that the debtor cannot ask
for the return of the thing pledged against the will of the creditor, unless and until he has paid
the debt and its interest. At the same time, the right of the pledgee to foreclose the pledge is
also established under the Civil Code. When the credit has not been satisfied in due time, the
creditor may proceed with the sale by public auction under the procedure provided under
Article 2112 of the Code. Petitioners point out that while the amounts consigned by
respondents could answer for their respective principal loan obligations, they were not
sufficient to cover the interests due on these loans, which were pegged at the rate of 5% per
month or 60% per annum. x x x The finality of the 1998 decision is a settled fact x x x with that
in mind, there is no reason for the Court to disagree with petitioners that in order that the
consignation could have the effect of extinguishing the pledge contracts, such amounts should
cover not just the principal loans, but also the 5% monthly interests thereon.
71. Reisenbeck vs. Court of Appeals

- On July 25, 1988, Riesenbeck filed before the RTC a complaint for consignation and damages
against Maile. On July 27, 1988 petitioner consigned and deposited with the clerk of court the
sum of P113,750.00. Maile subsequently filed a Manifestation Accepting Consignation and
Motion to Dismiss dated August 1, 1988, wherein he stated, inter alia, that "without
necessarily admitting the correctness of the obligation of plaintiff to defendant, the latter
hereby manifests to accept the said amount of P113,750 which is consigned by plaintiff,
provided that the present complaint be dismissed outright with cost against plaintiff."
- The RTC rendered decision holding that there was a valid consignation “and defendant could
legally accept the payment by consignation with reservation to prove damages and other
claims”. Petitioner moved to reconsider but was denied both by RTC and CA. Thus, the present
petition raising the issue: What is the effect on the petitioner’s obligation to the private
respondent of the latter’s acceptance with reservation of the amount consigned by the
petitioner?
- (SC Ruling) Private respondent's acceptance of the amount consigned by the petitioner-
debtor with a reservation or qualification as to the correctness of the petitioner's
obligation, is legally permissible. There is authority for the view that before a consignation
can be judicially declared proper, the creditor may prevent the withdrawal of the amount
consigned by the debtor, by accepting the consignation, even with reservations.
- A sensu contrario, when the creditor's acceptance of the money consigned is conditional and
with reservations, he is not deemed to have waived the claims he reserved against his
debtor. Thus, when the amount consigned does not cover the entire obligation, the
creditor may accept it, reserving his right to the balance. The same factual milieu obtains
here because the respondent creditor accepted with reservation the amount consigned in court
by the petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as
he did in his answer with special defenses and counterclaim against the petitioner-debtor. As
respondent-creditor's acceptance of the amount consigned was with reservations, it did
not completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite
to note here that consignation is completed at the time the creditor accepts the same without
objections, or, if he objects, at the time the court declares that it has been validly made in
accordance with law.
- The consignation has retroactive effect. The payment is deemed to have been made at the time
of the deposit of the money in court, or when it was placed at the disposal of the judicial
authority, supra. In this case, payment is considered made on July 27, 1988 when petitioner
consigned and deposited with the respondent court the sum of P113,750.

72. E.G.V. Realty vs. CA