Super Digest Oblicon

VDA De Villaruel v. Manila Motor Co. Inc.
G.R. No. L-10394| December 13, 1958
REYES, J. B. L., J
TOPIC: Modes of Breach - Delay
THESIS STATEMENT
This is an appeal to the decision of the Court of First Instance ordering Manila Motor Co., Inc. to
pay Villaruel for the first and second cause of action and both the company and its co-
defendant, Arturo Colmenares, jointly and severally, with respect to the third cause of action.
FACTS
 The parties entered into a contract whereby, the former agreed to convey by way of lease
to the latter the building premises for FIVE years with option to renew for additional
five years.
 When the Japanese forces invaded the property leased, the lessee was ousted.
 No rentals were made during that time.
 Upon liberation, the American Forces occupied the same buildings vacated by the
Japanese and paid the rentals when they were in possession the same rate as of the
company.
 When the American Forces left, the company decided to exercise their option to renew
the contract for additional FIVE years.
 The occupation of the American would not be part of the new five-year term.
 Before resuming the collection of rentals, Villaruel consulted Atty. Hilado: whether they
can collect from the company rentals during the Japanese accupation.
 Atty. Hilado affirmed such right, so Villaruel gave notice seeking the rescission of the
contract of lease and the payment of rentals during the Japanese occupation.
 It was rejected by the company.
 On same month, the company through Grey paid the rental and requested for receipt.
 Villaruel accepted the amount without prejudice to their demand for the rescission of
the contract, and for increased rentals until their buildings were returned to them.
 Later, Dr. Villaruel indicated his willingness to limit the condition of his acceptance to be
that "neither the lessee nor the lessors admit the contention of the other by the mere fact of
payment".
 When they can’t reach for agreement, the company stopped payment for FOUR months.
 After which, another payment was made through Colmenares.
 Villaruel issued a receipt stating that it was "without prejudice" to their demand for
rents in arrears and for the rescission of the contract of lease.
 When they could not settle the case, Villaruel commenced an action with the CFI against
the respondents.
 During the pendedncy of the case, a fire completely razed the building.
 Villaruel demanded reimbursement from the respondents, but having been refused,
they filed a supplemental complaint to include as their third cause of action, the
OBLICON – Case Digests Page 1

recovery of the value of the burned buildings.
LOWER COURT DECISION

TRIAL COURT: in favor of Villaruel
ordering the defendant Manila Motor Co., Inc. to pay to Villaruel for the first and second cause
of action and against both the Manila Motor Co., Inc. and its co-defendant, Arturo Colmenares,
jointly and severally, with respect to the third cause of action.
ARGUMENTS/DEFENSES
RESPONDENTS:
 the ouster of the least company by the Japanese occupation forces from 1942 until
liberation, while operating to deprive the lessee of the enjoyment of the thing leased,
was, nevertheless, a mere act of trespass ("perturbacion de mero hecho") that, under the
Spanish Civil Code of 1889 (in force here until 1950), did not exempt the lessee from the
duty to pay rent.
 the military seizure of the property under lease is a case of force majeure or fortuitous
event.
ISSUE/S
1. Whether the petitioners were liable for the payment of rentals during the Japanese
occupation.
RULING
Civil Code of Spain of 1889 provide:
ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter of the contract;
2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable
condition for the purpose for which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract.
ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the
use of the leased property; but the lessee shall have a direct action against the trespasser.
If the third person, be it the Government or a private individual, has acted in reliance upon a
right, such action shall not be deemed a mere act of disturbance.
 mere act of trespass ( perturbacion de mero hecho)

 trespass under color of title ( perturbacion de derecho)
the Japanese acted under the perturbacion de derecho based on generally accepted principles
of international law.
 a belligerent occupant may legitimately billet or quarter its troops in privately owned
land and buildings for the duration of its military operations, or as military necessity
should demand.
the lessors Villaruel were liable (Art. 1560, supra) and for the consequences of which said
lessors must respond, since the result of the disturbance was the deprivation of the lessee of
the peaceful use and enjoyment of the property leased.

NOTE: there was no option to rescind the contract for the lessee during the Japanese
occupation.
The military seizure of the property under lease is a case of force majeure or fortuitous event.
a contract that calls for prestations that are both reciprocal and repetitive (tractum
successivum), the obligations of either party are not discharged at any given moment, but must
be fulfilled all throughout the term of the contract.
 in case of fault, the other party is entitled to rescind the contract in toto, and collect
damages
 casual non-performance it becomes entitled only to a suspension pro tanto of its own
commitments.
NOTE:
 Villaruel agreed to the renewal of contract without making reservation regarding the
alleged breach of the company during the Japanese occupation
 Villaruel accepted payment after the American occupation but reject the next payments
unless the lessee recognized their right to occupation rentals.
Clearly, then, the lessor' insistence upon collecting the occupation rentals was unwarranted in
law. Hence, their refusal to accept the current rentals without qualification placed them in
default (mora creditoris or accipiendi) with the result that thereafter, they had to bear all
supervening risks of accidental injury or destruction of the leased premises.
That the lessee and sublessee did not consign or deposit in court the rentals tendered to and
improperly rejected by the lessors, did not render the debtor liable for default (mora solvendi)
nor answerable for fortuitous events.
The only effect of the failure to consign the rentals in court was that the obligation to pay them
subsisted and the lessee remained liable for the amount of the unpaid contract rent,
corresponding to the period when they stopped payment for four months.
When the commercial buildings were burned, the defendants-appellants have paid the contract
rentals at the rate of P350 per month. But the failure to consign did not eradicate the default
(mora) of the lessors nor the risk of loss that lay upon them.
RATIO

Tengco vs. Court of Appeals
G.R. No. 49852 | October 19, 1989
PADILLA, J
THESIS STATEMENT
PETITION for certiorari to review the decision of the Court of Appeals which dismissed herein
petitioner’s “Appeal by Way of Certiorari” from the judgment of the Court of First Instance of
which affirmed the decision of the Municipal Court ordering the herein petitioner to vacate the
subject premises and to pay the herein private respondent the arrears in rentals and attorney’s
fees
FACTS
Benjamin claimed to be the owner of a premise he had leased to Tengco.
Benjamin filed an action for unlawful detainer with the Municipal Court to evict Tengco, from
the said premises for her alleged failing and refusing to pay the stipulated rentals despite
repeated demands.

MUNICIPAL COURT: in favor of Benjamin
 ordering the herein petitioner to vacate the subject premises and to pay the herein
private respondent the arrears in rentals and attorney’s fees
 Affirmed by CFI and CA.
ARGUMENTS/DEFENSES
Petitioner:
(1) the private respondent Benjamin Cifra, Jr. is not the owner of the leased premises;
(2) the lessor was guilty of mora accipiendi;
(3) the petitioner’s version of the facts is more credible than private respondent’s;
(4) laches had deprived the lessor of the right to eject her; and
(5) the private respondent failed to establish a cause of action against the petitioner.
ISSUE/S
1. Whether or not the lessor was guilty of mora accipiendi;
RULING
the petitioner’s contention that the private respondent is not the owner of the leased premises is
inconsistent with her claim that she had tendered payment of the rentals for the month of
January 1976 to the private respondent.
There is also no merit in the petitioner’s contention that the lessor is guilty of mora accipiendi.
 One time lessor’s collector stopped collecting payments from the residence of Tenco
 She kept the money and waited until the collector comes again and demand for payment

 A sister of Benjamin informed her the she was the owner of the property and was
offering the same
 Benjamin then demanded her to surrender the possession of the premises and claimed
that he is the owner of the said premise.
 Tengco went to another sister of Benjamin to pay but it was refused.
the refusal to accept the proffered rentals is not without justification. The ownership of the
property had been transferred to the private respondent and the person to whom payment was
offered had no authority to accept payment.
NOTE: the contract of lease between the petitioner and Lutgarda Cifra, the former owner of the
land, was not in writing and, hence, unrecorded.
 Contract of lease executed by the vendor, unless recorded, ceases to have effect when the
property is sold, in the absence of a contrary agreement.
 The petitioner cannot claim ignorance of the transfer of ownerhip of the property
because, by her own account, Aurora Recto and the private respondent, at various times,
had informed her of their respective claims to ownership of the property.
NOTE: The petitioner should have tendered payment of the rentals to the private respondent
and if that was not possible, she should have consigned such rentals in court.
RATIO
The lessor is not guilty of mora accipiendi since the payment was tendered to the wrong person.

Central Bank of the Philippines vs. Court of Appeals
G.R. No. L-45710| October 3, 1985
MAKASIAR, C.J.
THESIS STATEMENT
This is a petition for review on certiorari to set aside as null and void the decision of the Court
of Appeals, modifying the decision of the Court of First Instance which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and
damages with preliminary injunction.
FACTS
 Island Savings Bank approved the load of Tolentino with a security (real estate
mortgage, payable within THREE years, semi-annual, P80,000)
 A partial release of P17,000 was made by the bank.
 Tolentino and his wife signed a promissory note for P17,000 (at 12%, payable within
THREE years, semi-annual)
 The bank made an advance interest for the 80K loan covering a 6-month period but was
refunded after being informed by the Bank that there was no fund yet available for the
release of the loan balance
 The bank promised repeatedly the release of the balance.
 The Monetary Board of Central Bank, after finding out that the bank was suffering
liquidity problems, issued a resolution:
- prohibited the bank from making new loans and investments [except investments in
government securities] excluding extensions or prohibited renewals of already
approved loans which is e subject to review by the Superintendent of Banks
 the bank failed to restore its solvency
- the Monetary Board prohibited the bank from doing business in the Philippines
- Acting Superintendent of Banks to take charge of the assets of the bank.
 The bank filed an application for the extra-judicial foreclosure of the real estate mortgage
of Tolentino upon non-payment of the promissory note.
 Tolentino filed a petition with the Court of First Instance for injunction, specific
performance or rescission and damages with preliminary injunction (for failure to
deliver the loan balance)
TRIAL COURT: in favor of the bank
 ordered Tolentino to pay Island Savings Bank the amount of P17,000.00 plus legal
interest and legal charges due thereon
 lifting the restraining order so that the sheriff may proceed with the foreclosure
COURT OF APPEALS: in favor of the bank
 dismissed Tolentino's petition for specific performance
 the Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan

ARGUMENTS/DEFENSES
ISSUE/S
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P1 7,000.00 debt covered by the promissory
note?
3. If Sulpicio M. Tolentino's liability to pay the P1 7,000.00 subsists, can his real estate
mortgage be foreclosed to satisfy said amount?
RULING
The loan agreement constituted a reciprocal obligation.
 In reciprocal obligations, the obligation or promise of each party is the consideration for
that of the other
 when one party has performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code)
In this case:
 The promise of Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the loan.
 Upon execution of a real estate mortgage on (willingness to pay the loan)
 From that, the obligation of Island Savings Bank to furnish the loan accrued.
 Thus, the Bank's delay in furnishing the entire loan lasted 3 years when the bank was
prohibited from doing further business.
 Such prohibition made it legally impossible for Island Savings Bank to furnish the
balance of the loan.
NOTE: The first resolution merely prohibited the bank from making new loans and investments
not from releasing the balance of loan agreements previously contracted.
The mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation
but instead it is taken as a breach of the contract by him.
The fact that Tolentino demanded and accepted the refund of the pre-deducted interest is not a
waiver of his right to collect the balance. (the act of asking advance interest is IMPROPER, A
person cannot be legally charged interest for a non-existing debt.)
Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan
agreement
REMEDIES: Article 1191 of the Civil Code
- specific performance or rescission with damages in either case.
NOTE: only rescission under Art. 1191 plus damages since the bank is prohibited from doing
further business.
HOWEVER, rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the
bank is in default only insofar as such amount is concerned.

Insofar as the promissory note is concerned, Tolentino failed to pay the overdue amortizations
and made him a party in default hence not entitled to rescission.
right to rescind the promissory note shall belong to the aggrieved party Island Savings Bank.
Since both parties were in default in the performance of their respective reciprocal obligations,
they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the
courts.
the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt.
- The liability of Tolentino for interest on his P17,000 debt shall not be included in
offsetting the liabilities of both parties since Tolentino derived some benefit for his
use of the P17,000.
the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his
P17,000.00 debt
When the consideration is subsequent to the mortgage, the mortgage can take effect only when
the debt secured by it is created as a binding contract to pay.
When there is partial failure of consideration, the mortgage becomes unenforceable to the extent
of such failure.
IN THIS CASE: the real estate mortgage covering 100 hectares is unenforceable to the extent of
78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for
the P1 7,000.00 debt.
RATIO
the mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an obligation
but instead it is taken as a breach of the contract by him

Cetus Development, Inc. vs. Court of Appeals
G.R. No. 77645| August 7,1989
MEDIALDEA, J.
THESIS STATEMENT
This is a petition for review on certiorari of the decision of the Court of Appeals affirming the
decision of the RTC which affirmed the decision of the MTC which dismissed the complaints for
ejectment.
FACTS
 Private respondents were lessees of the premises originally owned by the Susana Realty
(pad monthly rentals through a collector)
 Susana Realty sold the leased premises to the petitioner, Cetus Development, Inc.
 the private respondents continued to pay their monthly rentals to a collector sent by the
petitioner.
 After which, for THREE months, respondents failed to pay their monthly individual
rentals as no collector came.
 the petitioner sent a letter to each of the private respondents demanding them to vacate
the subject premises and to pay the arrears of rent
 Immediately, the private respondents paid their respective arrearages in rent which
were accepted by the petitioner subject to the unilateral condition that the acceptance
was without prejudice to the filing of an ejectment suit
 Subsequent monthly rental payments were likewise accepted by the petitioner under the
same condition.
 For failure of the private respondents to vacate the premises as demanded, the petitioner
filed with the Metropolitan Trial Court complaints for ejectment against the private
respondents

METROPOLITAN TRIAL COURT: in favor of the private respondents
 at the time of the filing of this complaint, the rentals had all been paid. Hence, the
plaintiff cannot eject the defendants from the leased premises, because at the time these
cases were instituted, there are no rentals in arrears
 The acceptance of the back rental by the plaintiff before the filing of the complaint
removes its cause of action in an unlawful detainer case, even if the acceptance was
without prejudice
 rentals of the tenants are relatively small to which the ejectment may not lie on grounds
of equity and for humanitarian reasons.
RTC & CA: in favor of private respondents
 dismissed the appeal of petitioner
ARGUMENTS/DEFENSES

PRIVATE RESPONDENTS:
 since the occupancy of the premises they paid their monthly rental regularly through a
collector of the lessor;
 their non-payment of the rentals for the months for 3 months was due to the failure of
the petitioner (as the new owner) to send its collector;
 they were at a loss as to where they should pay their rentals and when they inquired the
office of petitioner, he was told that a collector would be sent to receive the same
PETITIONER:
 Claims that its failure to send a collector to collect the rentals cannot be considered a
valid defense for the reason that sending a collector is not one of the obligations of the
lessor under Article 1654.
ISSUE/S
1. whether or not there exists a cause of action when the complaints for unlawful detainer
were filed considering the fact that upon demand by petitioner from private
respondents for payment of their back rentals, the latter immediately tendered payment
which was accepted by petitioner.
2. Whether or not the private petitioners incurred delay in payment of the three month
rentals
RULING
NO cause of action
for the purpose of bringing an ejectment suit, two requisites must concur, namely:
(1) there must be failure to pay rent or comply with the conditions of the lease and
(2) there must be demand both to pay or to comply and vacate within 15 days in case of lands
and 5 days in case of buildings.
 There was no failure yet on the part of private respondents to pay the rents when no
collector came
 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)
 Without such demand, oral or written, the effects of default do not arise.
 The proof of this demand lies upon the creditor.
 Coupled with the fact that no collector was sent as previously done in the past, the
private respondents cannot be held guilty of mora solvendi or delay in the payment of
rentals.
 When petitioner first demanded the 3-month arrearages, the private respondents
immediately paid which petitioner accepted.
a lessor is not obligated to send a collector but it has been duly established that it has been
customary for private respondents to pay the rentals through a collector.
Article 1257, New Civil Code provides that where no agreement has been designated for the
payment of the rentals, the place of payment is at the domicile of the defendants.

NOTE: there was no unjustified refusal on the part of petitioner or non-acceptance without
reason that would constitute mora accipiendi and warrant consignation. There was simply lack
of demand for payment of the rentals.
RATIO
Article 1169, New Civil Code
GR: NO DEMAND, NO DELAY
XPN:
(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.
Article 1257 (1251), New Civil Code

where no agreement has been designated for the payment of the rentals, it should be the place
of the debtor

Santos Ventura Hocorma Foundation, Inc. vs. Santos
G.R. No. 153004| November 5, 2004
QUISUMBING, J.
THESIS STATEMENT
This is a PETITION for review on certiorari of the decision and resolution of the Court of
Appeals ordering petitioner to pay respondents legal interest and attorney’s fees.
FACTS
 The parties are plaintiff and defendant in several civil cases
 the parties executed a Compromise Agreement which ended all their pending
litigations.
Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:
- 1.5M upon execution
- 13M whether in lump sum or installments, at the discretion of the Foundation within
a period of not more than two (2) years from the execution of this agreement
- Immediately upon the execution of the agreement (and [the] receipt of the P1.5
Million), plaintiff Santos shall cause the dismissal of the civil cases and lifting of the
various notices of lis pendens on the real properties
- Failure of compliance by either or both parties to this agreement shall automatically
entitle the aggrieved party to a writ of execution for the enforcement of this
agreement.
 Santos moved for the dismissal of the aforesaid civil cases and caused the lifting of the
notices of lis pendens on the real properties involved.
 SVHFI, paid P1.5 million to respondent Santos
 SVHFI sold to Development Exchange Livelihood Corporation two real properties,
which were previously subjects of lis pendens.
 Santos sent a demand letter for the remaining balance but was ignored
 Later RTC approved the compromise agreement
 TWO days past due date, Santos sent another letter to petitioner inquiring when it
would pay the balance of P13 million (NO Response)
 Santos applied with the Regional Trial Court for the issuance of a writ of execution of its
compromise judgment which was later granted.
 More than two years later, the real properties were auctioned.
 Riverland, Inc. was the highest bidder and was issued a Certificate of Sale covering the
real properties
 Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging
that there was delay on the part of petitioner in paying the balance
TRIAL COURT: in favor of the petitioner
 ordered respondents to pay attorney’s fees and exemplary damages to petitioner.

COURT OF APPEALS: in favor of respondent
 ordered SVHFI to pay Santos and Riverland, Inc.:
(1) legal interest at the rate of 12% per annum from the date of demand on October 28,
1992 up to the date of actual payment of the whole obligation; and
(2) P20,000 as attorney’s fees and costs of suit.
ARGUMENTS/DEFENSES
RESPONDENTS:
 under the Compromise Agreement, the obligation became due on October 26, 1992, but
payment of the remaining P12 million was effected only more than two years later.
 prayed that petitioner be ordered to pay legal interest on the obligation, penalty,
attorney’s fees and costs of litigation.
 right to damages is based on delay in the payment of the obligation provided in the
Compromise Agreement.
PETITIONER:
 respondents have no cause of action against it since it had fully paid its obligation to the
latter.
 the alleged delay in the payment of the balance was due to its valid exercise of its rights
to protect its interests as provided under the Rules.
 counterclaimed for attorney’s fees and exemplary damages.
 the compromise agreement did not provide for a period within which the obligation
will become due and demandable, it is incumbent upon respondent Santos to ask for
judicial intervention for purposes of fixing the period.
ISSUE/S
1. whether or not petitioner incurred delay in payment
2. whether or not the respondents are entitled to legal interest.
RULING
1. YES
Applying existing jurisprudence, the compromise agreement as a consensual contract became
binding between the parties upon its execution and not upon its court approval.
 The terms provided the balance be paid not more than two years from the execution.
 when respondents wrote a demand two days after due date, it was already due and
demandable.
 When the petitioner failed to pay its due obligation after the demand was made, it
incurred delay.
SEE RATIO
(1) After lapse of two years, the respondents gave a demand letter. (Demandable) The
debtor knows precisely how much he is to pay and when he is to pay it. (Liquidated)
(2) Petitioner delayed in the performance. It only settled the balance more than two years
after the extrajudicial demand.
(3) The demand letter sent to the petitioner on October 28, 1992, was in accordance with an
extrajudicial demand contemplated by law.
2. YES

The petitioner is liable for damages for the delay in the performance of its obligation based on
Article 1170 of the New Civil Code.
 When the debtor knows the amount and period when he is to pay, interest as damages is
generally allowed as a matter of right.
 The goal of compensation requires that the complainant be compensated for the loss of
use of those funds. This compensation is in the form of interest.
 In the absence of agreement, the legal rate of 12% shall prevail.
RATIO
In order for the debtor to be in default, the following requisites be present:
(1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.

Vazques vs. Ayala Corporation
G.R. No. 149734 | November 19, 2004
TINGA, J.
THESIS STATEMENT
This is a petition for review on certiorari of the decision of the Court of Appeals which reversed
the Decision of the Regional Trial Court (RTC) and dismissed their complaint for specific
performance and damages against Ayala Corporation.
FACTS

ARGUMENTS/DEFENSES

ISSUE/S
RULING
RATIO

Abella vs. Francisco
G.R. No. 32336| December 20, 1930
AVANCEÑA, C, J.
THESIS STATEMENT
This is an APPEAL from a judgment of the Court of First Instance which absolved to defendant
from the complaint for specific performance.
FACTS
 Francisco purchased from the Government NINE lots on installments, where some of
which, he was in arrears.
 In an agreement, Francisco received from Abella a sum and the balance be paid on at
least on the end of the year.
 After then, Abella proposed the sale of the lots on a higher price to Sellner and collected
a sum of money.
 Nearing the due date, Francisco authorized Mabanta, through SPA, to sign in behalf of
him the transfer of lots
 - also instructed him that if Abella will fail to pay the balance, the option would be
cancelled and he will return the payment of Abella already delivered.
 Past due date, Mabanta demanded for payment but Abella asked for extension
 But even with the given extension, Abella still failed to pay
 When Abella attempted to pay after the extension given, Mabanta refused to accept it
and returned to him the sum he already delivered and informed him that he regarded
the contract rescinded.
 Abella brought to compel the Francisco to execute the deed of sale of the lots in question,
upon receipt of the, balance of the price, and asks that he be judicially declared the
owner of said lots and that the defendant be ordered to deliver them to him.
THE COURT BELOW: in favor of Francisco
 absolved Francisco from the complaint,
 the court relied on the f act that Abella had failed to pay the price of the lots within the
stipulated time; and that since the contract between plaintiff and defendant was an
option for the purchase of the lots, time was an essential element in it.
ARGUMENTS/DEFENSES
ISSUE/S
RULING
The document signed by Franciso has a fixed date.

In holding that the period was an essential element of the transaction between Abella and
Francisco, the trial court considered that the contract in question was an option for the purchase
that the contract in question was an option for the purchase of the lots, and that in an agreement
of this nature the period is deemed essential.
The Francisco wanted to sell those lots to the Abella in order to pay off certain obligation which
fell due of the same month he gave Abella. The time fixed for the payment of the price was
therefore essential for the Francisco.
But even supposing it was a sale, the court holds that time was an essential element in the
transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain
obligations which fell due in the month of December, 1928. The time fixed for the payment of
the price was therefore essential for the defendant, and this view is borne out by his letter to his
representative Mabanta instructing him to consider the contract rescinded if the price was not
completed in time. In accordance with article 1124 of the Civil Code, the defendant is entitled to
resolve the contract for failure to pay the price within the time specified.
RATIO

Telefast Communications / Philippine Wireless, Inc. vs. Castro, Sr.
G.R. No. L-73867| February 29, 1988
PADILLA, J.
TOPIC: Modes of Breach - Contravention of Tenor
THESIS STATEMENT
This is a petition for certiorari to review the decision of the Intermediate Appellate Court
FACTS
 the mother of a family died in the Philippines while they were in US and only the
daughter Sofia was with her.
 Sofia addressed a telegram to her father announcing the death of her mother.
 The telegram was accepted by Telefast after payment of required fees
 HOWEVER, the telegram did not reach the family in US.
 Her mother was interred with only Sofia in attendance and no one went home even
during the burial.
 When Sofia returned to US, she discovered that the telegram did not reached her family.
 Plaintiffs thereupon brought action for damages arising from defendant's breach of
contract.
COURT OF FIRST INSTANCE: in favor of respondents
 Awarded compensatory, moral and exemplary damages and attorney’s fees in favor of
the family
INTERMEDIATE APPELLATE COURT affirmed the trial court's decision
 Modified the awards for damages
ARGUMENTS/DEFENSES
PETITIONER:
 it was unable to transmit the telegram because of "technical and atmospheric factors
beyond its control."
 ON APPEAL: the award of moral damages should be eliminated as defendant's
negligent act was not motivated by "fraud, malice or recklessness."
No evidence appears on record that defendant ever made any attempt to advise the plaintiff
Sofia C. Crouch as to why it could not transmit the telegram.
ISSUE/S
RULING
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof,
are liable for damages."

Art. 2176 also provides that "whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done."
Petitioner was guilty of contravening its obligation to said private respondent and is thus liable
for damages.
This liability is not limited to actual or quantified damages.

Art. 2217 of the Civil Code states: "Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate results of the defendant's wrongful act or omission."
 petitioner's act or omission, which amounted to gross negligence, was precisely the
cause of the suffering private respondents had to undergo
RATIO

Arrieta vs. National Rice and Corn Corporation
G.R. No. L-15645| January 31, 1964
REGALA, J.
TOPIC: Modes of Breach - Contravention of Tenor
THESIS STATEMENT
This is an APPEAL of NARIC from a decision of the Court of First Instance awarding to
Petitioners damages for breach of contract and dismissing the counterclaim and third party
complaint of NARIC.
FACTS
 Arrieta won the bidding conducted by NARIC for the supply of Burmese rice
 They entered into a contract of sale of rice whereby:
- Arrieta obligated herself to deliver NARIC Burmese Rice, CIF
- NARIC committed itself to pay for the imported rice "by means of an irrevocable,
confirmed and assignable letter of credit in U.S. currency in favor of Arrieta and/or
supplier in Burma, immediately.”
 HOWEVER, it was only after a month from the execution of contract that NARIC
applied to PNB to open a letter of credit
 On same day, Arrieta adviced NARIC the immediate need of the L/C since the
equivalent to 5% of the F.O.B. price will be confiscated if the L/C will not be received by
them on the given date.
 On the due date, the PNB informed NARIC that the L/C in favor of the supplier was
already approved but would only be released on the condition that 50% of the marginal
cash be paid.
 BUT, NARIC was not in any financial position to meet the requirement and Arrieta was
informed about this
 After then, the L/C was only released after more than two months from the execution of
contract.
 The allocation of Arrieta’s supplier was cancelled and the 5% deposit was forfeited (even
if the Burmese authorities gave a 15 day extension)
 Arrieta tried to restore the cancelled Burmese rice allocation but failed.
 She even tried to offer Thailand rice to NARIC as a substitute but it was rejected by the
former.
 Arrieta demanded compensation for the damages cased her in the sum representing her
unrealized profit.
 Having been rejected, she instituted the case.
ARGUMENTS/DEFENSES

NARIC:
 The defense that the delay, if any in opening the letter of credit was due to the failure of
plaintiff to name the supplier, the amount and the bank
Arrieta:
 these facts were known to defendant even before the contract was executed because
these facts were necessarily revealed to the defendant before she could qualify as a
bidder.
 she had given the necessary data immediately after the execution of the contract, both
orally and in writing and that she also pressed for the opening of the letter of credit on
these occasions.
ISSUE/S
RULING
 the sole and principal reason for the cancellation of the allocation contracted by the
appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened
with the contemplated period.
 had it been able to put up the 50% marginal cash deposit demanded by the bank, then
the letter of credit would have been approved, opened and released as early as the due
date for the L/C to the supplier. (since it has been already approved and ready to be
released upon depositing of 50& marginal cash)
Its culpability arises from its willful and deliberate assumption of contractual obligations even
as it was well aware of its financial incapacity to undertake the prestation.
NARIC admitted that it did not have sufficient deposit with the PNB to cover the amount
required to be deposited.
The Court inferred:
 NARIC knew the bank requirements for opening letters of credit
 also knew it could not meet those requirements
 despite this awareness that it was financially incompetent to open a letter of credit
immediately, NARIC agreed to pay immediately "by means of an irrevocable, confirmed
and assignable letter of credit,"
It must be similarly held to have bound itself to answer for all and every consequences that
would result from the representation.
Article 1170 of the Civil Code which provides: "Those who in the performance of their
obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable in damages.”
 in general, every debtor who fails in the performance of his obligations is bound to
indemnify for the losses and damages caused thereby.
 The phrase "in any manner contravene the tenor" of the obligation includes any illicit act
which impairs the strict and faithful fulfillment of the obligation, or every kind or
defective performance.

MOREOVER, the subsequent offer to substitute Thailand rice for the originally contracted
Burmese rice DID NOT amount to a waiver by Arrieta of whatever rights she might have
derived from the breach of the contract.
FINALLY, a minor modification must be effected in the dispositive portion of the decision
appealed from insofar as it expresses the amount of damages in U.S. currency and not in
Philippine Peso.
if there is any agreement to pay an obligation in a currency other than Philippine legal tender,
the same is null and void as contrary to public policy (Republic Act 529), and the most that
could be demanded is to pay said obligation in Philippine currency "to be measured in the
prevailing rate of exchange at the time the obligation was incurred
RATIO

Gonzales vs. Heirs of Thomas and Paula Cruz
G.R. No. 131784| September 16, 1999
PANGANIBAN, J.
TOPIC: Kinds of Obligations – Pure/Conditional
THESIS STATEMENT
This is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals which
ordered Gonzales to surrender possession of the property covered by the Contract of
Lease/Purchase to the respondents, Heirs of Thomas and Paula Cruz, and to pay to them rentals
on arrears, attorney’s fees and cost of suit.
FACTS
 Paula Cruz together with the heirs entered into a Contract of Lease/ Purchase with Felix
L. Gonzales of a half-portion of a parcel of land
 Gonzales paid the annual rental fee in accordance with the second provision of the
Contract
 He took possession of the property and installed his caretaker, Sambrano.
 He did not exercise his option to purchase the property after the expiration of the one-
year lease
 He remained in possession without paying the purchase price and rentals.
 He was informed in a letter by the heirs the decision to rescind the Contract of
Lease/Purchase due to a breach thereof committed by him. It also served as a demand to
vacate the premises within 10 days from receipt of said letter
 He refused and continued in possession
 A final demand letter to vacate the premises was sent by the remaining lessors who are
also the heirs of the deceased lessor which the defendant Gonzales received but did not
heed
 The property subject of the Contract of Lease/Purchase is currently the subject of an
Extra-Judicial Partition. Title to the property remains in the name of the plaintiffs’
predecessors-in-interest, Bernardina Calixto and Severo Cruz
 Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a
complaint for recovery of possession of the property—subject of the contract with
damages, both moral and compensatory and attorney’s fees and litigation expenses
‘9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and
distinct T.C.T. over the herein leased portion to the LESSEE within a reasonable period of time
which shall not in any case exceed four (4) years, after which a new Contract shall be executed by
the herein parties which shall be the same in all respects with this Contract of Lease/Purchase
insofar as the terms and conditions are concerned.
 Alleging breach of paragraph nine of the Contract of Lease/Purchase, and payment of
only P50,000.00 of the P500,000.00 agreed down payment on the purchase price of
P1,000,000.00, the defendant Gonzales filed his answer praying for a dismissal of the
complaint filed against him

TRIAL COURT: in favor of Gonzales
the failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in the
contract, does not entitle them to rescind the contract
 Ordering the dismissal of the case;
 Sentencing the plaintiffs, jointly and severally, the sum of P20,000.00 as moral damages
and the other sum of P10,000.00 as and for attorney’s fees; and
 To pay the costs.”
COURT OF APPEALS: in favor of respondents

 Reversed trial court
 See: thesis statement
ARGUMENTS/DEFENSES

ISSUE/S
1. Whether or not the Court of Appeals has gravely erred and committed grave abuse of
discretion in the interpretation of [the] law between the parties.
2. Whether or not the express stipulation of the contract which is to secure the Transfer
Certificate of Title a condition precedent before the petitioner could exercise his option to
buy the property.
3. Whether the respondents can rescind the contract
RULING
1. YES
Main Issue: Interpretation of Paragraph Nine
 the land in question was still registered in the name of Bernardina Calixto and Severo
Cruz, respondents’ predecessors-in-interest. There is no showing whether respondents
were the only heirs of Severo Cruz or whether the other half of the land in the name of
Bernardina Calixto was adjudicated to them by any means. Extrajudicial proceedings
were still ongoing.
 when the Contract of Lease/Purchase was executed, there was no assurance that the
respondents were indeed the owners of the specific portion of the lot that petitioner
wanted to buy,
 the clear intent of the ninth paragraph was for respondents to obtain a separate and
distinct TCT in their names. This was necessary to enable them to show their ownership
of the stipulated portion of the land and their concomitant right to dispose of it.
 It is a well-settled principle in law that no one can give what one does not have—nemo
dat quod non habet.
 Because the property remained registered in the names of their predecessors-in-interest,
private respondents could validly sell only their undivided interest in the estate of

Severo Cruz, the extent of which was however not shown in the records.
 the respondent could not deliver ownership or title to a specific portion of the yet
undivided property. True, they could have intended to sell their hereditary interest, but
in the context of the Contract of Lease/Purchase, the parties under paragraph nine
wanted the specific portion of the land to be segregated, identified and specifically titled.
Hence, by the said Contract, the respondents as sellers were given a maximum of four
years within which to acquire a separate TCT in their names, preparatory to the
execution of the deed of sale and the payment of the agreed price in the manner
described in paragraph nine.
 the ninth provision was intended to ensure that respondents would have a valid title
over the specific portion they were selling to petitioner. Only after the title is assured
may the obligation to buy the land and to pay the sums stated in the Contract be
enforced within the period stipulated. Petitioner’s obligation to purchase has not yet
ripened and cannot be enforced until and unless respondents can prove their title to the
property subject of the Contract.
2. Ninth Clause Was a Condition Precedent

 Because the ninth clause required respondents to obtain a separate and distinct TCT in
their names and not in the name of petitioner, it logically follows that such undertaking
was a condition precedent to the latter’s obligation to purchase and pay for the land.
 Condition has been defined as “every future and uncertain event upon which an
obligation or provision is made to depend. It is a future and uncertain event upon which
the acquisition or resolution of rights is made to depend by those who execute the
juridical act.” 14 Without it, the sale of the property under the Contract cannot be
perfected, and petitioner cannot be obliged to purchase the property
 “When the consent of a party to a contract is given subject to the fulfillment of a
suspensive condition, the contract is not perfected unless that condition is first
complied with.”
In this case, the obligation of the petitioner to buy the land cannot be enforced unless
respondents comply with the suspensive condition that they acquire first a separate and
distinct TCT in their names. The suspensive condition not having been fulfilled, then the
obligation of the petitioner to purchase the land has not arisen.
3. Respondents Cannot Rescind the Contract

 because they have not caused the transfer of the TCT to their names, which is a
condition precedent to petitioner’s obligation. This Court has held that “there can be no
rescission (or more properly, resolution) of an obligation as yet non-existent, because the
suspensive condition has not happened.”
RATIO
Arictle 1181 of the Civil Code
In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the

condition.
Condition has been defined as “every future and uncertain event upon which an obligation or
provision is made to depend. It is a future and uncertain event upon which the acquisition or
resolution of rights is made to depend by those who execute the juridical act.”

Coronel vs. Court of Appeals
G.R. No. 103577 | October 7, 1996
MELO, J.
THESIS STATEMENT
This is a complaint for specific performance to compel herein petitioners (except the last named,
Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements
entered into by the parties for the price of P1,240,000.00.
FACTS
 Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document
entitled “Receipt of Down Payment” (Exh. “A”) in favor of plaintiff Ramona Patricia
Alcaraz
 - Romulo Coronel, et al bound themselves to effect the transfer in their names from their
deceased father, the transfer certificate of title immediately upon receipt of the down
payment from Ramona
 - Upon the transfer in their names of the subject property, the Coronels will execute the
deed of absolute sale in favor of Ramona and the latter will pay the former the whole
balance
 On the same date, Concepcion, mother of Ramona, paid the downpayment.
 Then, the property originally registered in the name of the Coronel’s father was
transferred in their names
 however, the Coronels sold the property to Catalina B. Mabanag for (P1,580,000.00) after
the latter has paid (P300,000.00)
 Coronels canceled and rescinded the contract with Ramona by depositing the down
payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
 Concepcion, et al., filed a complaint for specific performance against the Coronels
 the Coronels executed a Deed of Absolute Sale over the subject property in favor of
Catalina
 a new title over the subject property was issued in the name of Catalina

the trial court ruled in favor of the Alcazars
which was also affirmed by the CA on appeal.
ARGUMENTS/DEFENSES

ISSUE/S

determination of the legal significance of the document entitled “Receipt of Down Payment”
which was offered in evidence by both parties.
RULING
Contract to Sell Contract of Sale
 first essential element of sale is  If the suspensive condition is not
lacking. fulfilled, the perfection of the contract
 the prospective seller explicitly of sale is completely abated
reserves the transfer of title to the  if the suspensive condition is fulfilled,
prospective buyer, meaning, the the contract of sale is thereby perfected,
prospective seller does not as yet such that if there had already been
agree or consent to transfer previous delivery of the property
ownership of the property subject of subject of the sale to the buyer,
the contract to sell until the happening ownership thereto automatically
of an event, which for present transfers to the buyer by operation of
purposes we shall take as the full law without any further act having to
payment of the purchase price. be performed by the seller.
 What the seller agrees or obliges  upon the fulfillment of the suspensive
himself to do is to fulfill his promise to condition, the sale becomes absolute
sell the subject property when the and this will definitely affect the seller’s
entire amount of the purchase price is title thereto
delivered to him.  Applying Article 1544 of the Civil
 the full payment of the purchase price Code, such second buyer of the
partakes of a suspensive condition, property who may have had actual or
the non-fulfillment of which prevents constructive knowledge of such defect
the obligation to sell from arising and in the seller’s title, or at least was
thus, ownership is retained by the charged with the obligation to discover
prospective seller without further such defect, cannot be a registrant in
remedies by the prospective buyer. good faith.
 upon the fulfillment of the suspensive
condition which is the full payment of
the purchase price, the prospective
seller’s obligation to sell the subject
property by entering into a contract of
sale with the prospective buyer
becomes demandable as provided in
Article 1479 of the Civil Code
 a bilateral contract whereby the
prospective seller, while expressly
reserving the ownership of the subject
property despite delivery thereof to
the prospective buyer, binds himself to
sell the said property exclusively to
the prospective buyer upon fulfillment

of the condition agreed upon.
 may not even be considered as a
conditional contract of sale where the
seller may likewise reserve title to the
property subject of the sale until the
fulfillment of a suspensive condition
 upon the fulfillment of the suspensive
condition which is the full payment of
the purchase price, ownership will
not automatically transfer to the
buyer although the property may have
been previously delivered to him. The
prospective seller still has to convey
title to the prospective buyer by
entering into a contract of absolute
sale.
 a third person buying such property
despite the fulfillment of the
suspensive condition such as the full
payment of the purchase price, for
instance, cannot be deemed a buyer in
bad faith and the prospective buyer
cannot seek the relief of reconveyance
of the property.
 The agreement could not have been a contract to sell because the sellers herein made no
express reservation of owner ship or title to the subject parcel of land.
 They cannot enter into an absolute contract of sale because the title is not in their name.
 when the said “Receipt of Down Payment” was prepared and signed by petitioners
Romulo A. Coronel, et al., the parties had agreed to a conditional contract of sale,
which can only be consummated upon the successful transfer of the certificate of title
from the name of petitioners’ father, Constancio P. Coronel, to their names.
 suspensive condition was, in fact, fulfilled, Thus, on said date, the conditional contract
of sale between petitioners and private respondent Ramona P. Alcaraz became
obligatory, the only act required for the consummation thereof being the delivery of the
property by means of the execution of the deed of absolute sale in a public instrument,
which petitioners unequivocally committed themselves to do
Petitioners themselves recognized, in their petition, that they entered into a contract of sale
subject to a suspensive condition. They also stated that if they failed to complied with the
condition, there could be no perfected contract of sale.
Article 1186 of the Civil Code expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment.

the rights and obligations of the parties with respect to the perfected contract of sale became
mutually due and demandable as of the time of fulfillment or occurrence of the suspensive
condition
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P.
Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the
point their father drew his last breath, petitioners stepped into his shoes insofar as the subject
property is concerned, such that any rights or obligations pertaining thereto became binding
and enforceable upon them.
Mabanag could not have in good faith, registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said
sale sometime in April, 1985.
RATIO
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration distinct
from the price.
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which constitutes
the condition.

Parks vs. Province of Tarlac
G.R. No. 24190| July 13, 1926
AVANCEÑA, C. J.
THESIS STATEMENT
This is an APPEAL from a judgment of the Court of First Instance of
FACTS
 the owners of parcel of land No. 2 donated it perpetually to the municipality of Tarlac,
Province of Tarlac, under certain conditions specified in the public document in which
they made this donation.
 The donation was accepted by Mr. Santiago de Jesus in the same document on behalf of
the municipal council of Tarlac of which he was the municipal president. It was
registered in the name of municipality of Tarlac
 Years later, the owners sold the parcel to Parks
 the municipality of Tarlac transferred the parcel to the Province of Tarlac which, by
reason of this transfer, applied for and obtained the registration thereof in its name, the
corresponding certificate of title having been issued to it.
 Parks alleged that the conditions of the donation had not been complied with
The lower court dismissed the complaint
ARGUMENTS/DEFENSES

ISSUE/S
Whether or not the condition is a condition precedent.
RULING
 the donation might have been revoked for the causes, if any, provided by the law, but
the fact is that it was not revoked when Concepcion Cirer and James Hill made the sale
of this parcel to the plaintiff.
 the appellant contends that a condition precedent having been imposed in the donation
and the same not having been complied with, the donation never became effective.
 The appellant refers to the condition imposed that one of the parcels donated was to be
used absolutely and exclusively for the erection of a central school and the other for a
public park, the work to commence in both cases within the period of six months from
the date of the ratification by the parties of the document evidencing the donation.
 this condition has not been complied with., however, it is not a condition precedent
 The characteristic of a condition precedent is that the acquisition of the right is not
effected while said condition is not complied with or is not deemed complied with.

Meanwhile nothing is acquired and there is only an expectancy of right.
 when a condition is imposed, the compliance of which cannot be effected except when
the right is deemed acquired, such condition cannot be a condition precedent.
 In the present case the condition that a public school be erected and a public park made
of the donated land, work on the same to commence within six months from the date of
the ratification of the donation by the parties, could not be complied with except after
giving effect to the donation. The donee could not do any work on the donated land if
the donation had not really been effected, because it would be an invasion of another's
title, for the land would have continued to belong to the donor so long as the condition
imposed was not complied with.
 even supposing that it was not a condition precedent but subsequent, the
noncompliance thereof is sufficient cause for the revocation of the donation.
 But the period for bringing an action for the revocation of the donation has prescribed.
 Under the laws in force (sec. 43, Code of Civ. Proc.), the period of prescription of this
class of action is ten years. The action for the revocation of the donation for this cause
arose or April 19, 1911, that is, six months after the ratification of the instrument of
donation of October 18, 1910. The complaint in this action was presented July 5, 1924,
more than ten years after this cause accrued.
RATIO
A condition precedent is that the acquisition of the right is not effected while said condition is
not complied with or is not deemed complied with.
Condition in a donation –
When a condition is imposed, the compliance of which cannot be effected except when the right
is deemed acquired, such condition cannot be a condition precedent.

Central Philippine University vs. Court of Appeals
G.R. No. 112127 | July 17, 1995
BELLOSILLO, J.
THESIS STATEMENT
This is a petition for review on certiorari of the decision of the Court of Appeals
FACTS
 the late Ramon Lopez and CPU executed a deed of donation in favor of the latter of a
parcel of land.
1.) The land should be utilized by CPU exclusively for the establishment & use of
medical college;
2.)The said college shall not sell transfer or convey to any 3rd party;
3.) The said land shall be called “Ramon Lopez Campus” and any income from that land
shall be put in the fund to be known as “Ramon Lopez Campus Fund”.
 the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that the latter had not complied with
the conditions of the donation. And that petitioner had in fact negotiated with the
National Housing Authority (NHA) to exchange the donated property with another
land owned by the latter.
the trial court held that petitioner failed to comply with the conditions of the donation and
declared it null and void
the CA ruled that the annotations at the back of petitioner’s certificate of title were resolutory
conditions breach of which should terminate the rights of the donee thus making the donation
revocable. And that until a period was fixed for the fulfillment of the condition, petitioner could
not be considered as having failed to comply with its part of the bargain.
ARGUMENTS/DEFENSES
 petitioner alleged that the right of private respondents to file the action had prescribed;
ISSUE/S
1. Whether or not petitioner failed to comply the resolutely conditions annotated at the back of
petitioner’s certificate of title without a fixed period when to comply with such conditions.
2. Whether or not there is a need to fix the period for compliance of the condition.
RULING
1. where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the donation must be
for an onerous consideration

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well
as the extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition.
Thus, when a person donates land to another on the condition that the latter would build upon
the land a school, the condition imposed was not a condition precedent or a suspensive
condition but a resolutory one.
The donation had to be valid before the fulfillment of the condition. If there was no fulfillment
or compliance with the condition, such as what obtains in the instant case, the donation may
now be revoked and all rights which the donee may have acquired under it shall be deemed lost
and extinguished.
2. Under Art. 1197, when the obligation does not fix a period but from its nature &
circumstance it can be inferred that the period was intended, the court may fix the
duration thereof because the fulfillment of the obligation itself cannot be demanded
until after the court has fixed the period for compliance therewith & such period has
arrived.
However, more than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome,
to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence,
there is no more need to fix the duration of a term of the obligation when such procedure
would be a mere technicality and formality and would serve no purpose than to delay or lead to
an unnecessary and expensive multiplication of suits
Under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is
incumbent upon him, the obligee may seek rescission and the court shall decree the same unless
there is just cause authorizing the fixing of a period. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for the court to
decree the rescission claimed.
since the questioned deed of donation herein is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract should be resolved in favor of the least
transmission of rights and interests. Records are clear and facts are undisputed that since the
execution of the deed of donation up to the time of filing of the instant action, petitioner has
failed to comply with its obligation as donee. Petitioner has slept on its obligation for an
unreasonable length of time.
Hence, it is only just and equitable now to declare the subject donation already ineffective and,
for all purposes, revoked so that petitioner as donee should now return the donated property to
the heirs of the donor, private respondents herein, by means of reconveyance.
RATIO

Onerous donation – when a donation imposes a burden equivalent to the value of the donation
Prescription – Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to
prevent the statute of limitations from barring the action of private respondents upon the
original contract which was the deed of donation.

Lim vs. Court of Appeals
G.R. No. 118347 | October 24, 1996.
MENDOZA, J.
THESIS STATEMENT
FACTS
 private respondent sold a parcel of land to petitioners
 a check for P200,000.00 was given to private respondent as earnest money
 the balance shall be given after the squatters/occupants have totally vacated the
premises
 seller assumes full responsibility to eject the squatters/occupants within a period of sixty
(60) days from the date of receipt of the earnest money
 In case of failure to eject squatters, the the seller shall refund to the buyer the earnest
money.
 Private respondent Luna failed to eject the squatters from the land despite her alleged
efforts to do so.
 Nonetheless, petitioners did not demand the return of their earnest money.
 the parties met to negotiate a price increase to facilitate the ejectment of the squatters.
 After a few days, private respondent tried to return the earnest money alleging her
failure to eject the squatters. She claimed that as a result of her failure to remove the
squatters from the land, the contract of sale ceased to exist and she no longer had the
obligation to sell and deliver her property to petitioners.
 As petitioners had refused to accept the refund of the earnest money, private respondent
deposited it in court by consignation.
 private respondent filed a complaint for consignation against petitioners.
trial court
 rendered a decision holding that there was a perfected contract of sale between the
parties and that pursuant to Art. 1545 of the Civil Code, although the failure of private
respondent to eject the squatters was a breach of warranty, the performance of warranty
could be waived by the buyer, as petitioners did in this case.
 found private respondent to have acted in bad faith by not exerting earnest efforts to
eject the squatters, in order to get out of the contract.
Court of Appeals,
which reversed the trial court and allowed the complaint for consignation. It held that as a
result of the non-fulfillment of the condition of ejecting the squatters, petitioners lost the right to
demand from the private respondent the sale of the land to them.
ARGUMENTS/DEFENSES
PRIVATE RESPONDENT:

 Private respondent alleged that it was her obligation to return the earnest money under
paragraph 3 of the receipt since the condition of ejecting the squatters had not been
fulfilled but petitioners unjustly refused to accept the refund. She claimed that although
she tried her best to eject the squatters, she failed in her efforts
Petitioners,
argued in their answer that the legal requisites for a valid consignation were not present and,
therefore, the consignation was improper. They claimed that private respondent never really
intended to eject the squatters, as evidenced by the absence of a case for ejectment. Petitioners
charged that private respondent had used her own failure as an excuse to get out of her
contract.
ISSUE/S
1. Whether as a result of private respondent’s failure to eject the squatters from the land,
petitioners lost the right to demand that the land be sold to them.
2. whether private respondent is liable for damages to petitioners.
RULING
1. NO
The contract of sale was already perfected.
Upon its perfection, the parties can reciprocally demand performance of their respective
obligations.
Art. 1482 of the Civil Code states, “Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of the perfection of the
contract.”
It is true that private respondent under took to eject the squatters before delivery of the
property within a certain period and that for her failure to carry out her obligation she
could be ordered to refund the P200,000.00 earnest money. But whether she would be
obliged to do so depends on petitioners who can waive the condition and opt to proceed
with the sale instead.
a condition imposed on the perfection of the contract –

Failure to comply results in the failure of a contract
a condition imposed on the performance of an obligation –
failure to comply with the condition only gives the other party the option either to refuse
to proceed with the sale or to waive the condition. (Article 1545, See ratio)
In this case, there is already a perfected contract. The condition was imposed only on the
performance of the obligation. Hence, petitioners have the right to choose whether to
demand the return of P200,000.00 which they have paid as earnest money or to proceed
with the sale. They have chosen to proceed with the sale and private respondent cannot
refuse to do so.
Private respondent is not the injured party. She cannot rescind the contract
2. private respondent guilty of breach of contract and awarding moral damages and

attorney’s fees to petitioners
the evidence shows that private respondent made little more than token effort to seek
the ejectment of squatters from the land, revealing her real intention to be finding a way
of getting out of her contract. Her failure to eject the squatters despite sufficient time and
funds given to her by petitioners, her offer to return the earnest money only a month
after their meeting in which she agreed to proceed with the sale in consideration of
which the purchase price was increased by almost P500,000.00 and her consignation of
the earnest money despite petitioners’ insistence that the sale should go on even if she
had failed to eject the squatters — all these betray private respondent’s failure to comply
with her obligation
Her failure to make use of her resources and her insistence on rescinding the sale shows
quite clearly that she was indeed just looking for a way to get out of her contractual
obligation by pointing to her own abject failure to rid the land of squatters.
RATIO
Art. 1482 of the Civil Code states, “Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection of the contract.”
Herein petitioners can waive the condition and opt to proceed with the sale instead.
ART. 1545. Where the obligation of either party to a contract of sale is subject to any condition
which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised that the condition should happen
or be performed, such first mentioned party may also treat the nonperformance of the condition
as a breach of warranty.
Only the injured party has the right to rescind the contract.

Naga Telephone Co., Inc. vs. Court of Appeals
G.R. No. 107112 | February 24, 1994
NOCON, J.
THESIS STATEMENT
FACTS
 NATELCO and CASURECO II entered into a contract whereby:
 NATELCO will use the electric light posts of CASURECO II in the operation of its
telephone service
 In consideration that NATELCO will install 10 telephone connections in some places for
the use of CASURECO II, for free.
 “(a) That the term or period of this contract shall be as long as the party of the first part
has need for the electric light posts of the party of the second part it being understood
that this contract shall terminate when for any reason whatsoever, the party of the
second part is forced to stop, abandoned [sic] its operation as a public service and it
becomes necessary to remove the electric lightpost;” (prepared by or with the
assistance of the other petitioner, Atty. Luciano M. Maggay, then a member of the Board
of Directors of CASURECO II)
 After the contract had been enforced for over ten (10) years, CASURECO II filed with the
RTC against NATELCO for reformation of the contract with damages,
TRIAL COURT: in favor of the CASURECO II
 “in an action for reformation of contract, it cannot make another contract for the
parties.”
 Ordered the reformation of contract.
 NATELCO to pay CASURECO II compensation for the use of their posts in Naga City,
while CASURECO II should also be ordered to pay the monthly bills for the use of the
telephones also in Naga City.
 There was nothing gin the contract that mentioned about the use by NATELCO of
CASURECO II’s posts outside Naga City. For reason of equity, the contract should be
reformed by including therein the provision that for the use of private respondent’s
posts outside Naga City
CA: affirmed trial court

 Affirmed the decision of the trial court, but based on different grounds to wit: (1) that
Article 1267 of the New Civil Code is applicable and (2) that the contract was subject to a
potestative condition which rendered said condition void.
ARGUMENTS/DEFENSES

PRIVATE RESPONDENTS(CASURECO II):
 The contract is too one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA) which direct that the
reasonable compensation for the use of the posts is P10.00 per post, per month; that after
eleven (11) years of petitioners’ use of the posts, the telephone cables strung by them
thereon have become much heavier with the increase in the volume of their subscribers,
worsened by the fact that their linemen bore holes through the posts at which points
those posts were broken during typhoons, that a post now costs as much as P2,630.00; so
that justice and equity demand that the contract be reformed to abolish the inequities
thereon.
 SECOND CAUSE OF ACTION – starting with the year 1981, petitioners have used 319
posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside
Naga City, without any contract with it, that at the rate of P10.00 per post, petitioners
should pay private respondent for the use thereof the total amount of P267,960.00 from
1981 up to the filing of its complaint; and that petitioners had refused to pay private
respondent said amount despite demands.
 THIRD CAUSE OF ACTION, private respondent complained about the poor servicing
by petitioners of the ten (10) telephone units which had caused it great inconvenience
and damages to the tune of not less than P100,000.00.
PETITIONERS - answer
 FIRST CAUSE OF ACTION, it should be dismissed because (1) it does not sufficiently
state a cause of action for reformation of contract; (2) it is barred by prescription, the
same having been filed more than ten (10) years after the execution of the contract; and
(3) it is barred by estoppel, since private respondent seeks to enforce the contract in the
same action. Petitioners further alleged that their utilization of private respondent’s
posts could not have caused their deterioration because they have already been in use
for eleven (11) years; and that the value of their expenses for the ten (10) telephone lines
long enjoyed by private (1) (2) respondent free of charge are far in excess of the amounts
claimed by the latter for the use of the posts, so that if there was any inequity, it was
suffered by them.
 SECOND CAUSE OF ACTION, private respondent had asked for telephone lines in
areas outside Naga City for which its posts were used by them; and that if petitioners
had refused to comply with private respondent’s demands for payment for the use of
the posts outside Naga City, it was probably because what is due to them from private
respondent is more than its claim against them.
 THIRD CAUSE OF ACTION – their telephone service had been categorized by the
National Telecommunication Corporation (NTC) as “very high” and of “superior
quality.”
ISSUE/S
Whether or not the continued enforcement of the contract between the parties has, through the
years (since 1977), become too inequitous or disadvantageous to the plaintiff and too one-sided
in favor of defendant-appellant, so that a solution must be found to relieve plaintiff from the
continued operation of said agreement and to prevent defendant-appellant from further

unjustly enriching itself at plaintiff’s expense.
RULING
 As time went by, the contract had become iniquitous and one-sided to NATELCO.
NATELCO even used lightposts outside Naga City which was not stipulated in the
contract while the 10 units of telephones never increased for CASURECO II’s use.
Article 1267 speaks of “service” which has become so difficult. Taking into consideration the
rationale behind this provision, the term “service” should be understood as referring to the
“performance” of the obligation.
In the present case, the obligation of private respondent consists in allowing petitioners to use
its posts in Naga City, which is the service contemplated in said article.
It is not a requirement thereunder that the contract be for future service with future unusual
change.
The Court agreed with CA that the allegations in private respondent’s complaint and the
evidence it has presented sufficiently made out a cause of action under Article 1267.
The Court released the parties from their correlative obligations under the contract.
The Court ordered as the trial court, the payment of the use of lightposts and the payment of
the telephone units’ monthly dues.
ISSUE OF PRESCRIPTION:
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract
must be brought within ten (10) years from the time the right of action accrues. Clearly, the ten
(10) year period is to be reckoned from the time the right of action accrues which is not
necessarily the date of execution of the contract.
In the case: when the counsel was asked by CASURECO II to study the said contract as it
already appeared disadvantageous to them. (the 10 years had not yet lapsed.)
CA cited another legal remedy available to CASURECO II: as long as the party of the first part
[herein appellant] has need for the electric light posts of the party of the second part
The provision is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter’s sole and exclusive will as long as
plaintiff is in operation.
“x x x it being understood that this contract shall terminate when for any reason whatsoever, the party of
the second part (private respondent) is forced to stop, abandoned (sic) its operation as a public service and
it becomes necessary to remove the electric light post (sic);”
Which are casual conditions since they depend on chance, hazard, or the will of a third person.
In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of
the debtor and partly on chance, hazard or the will of a third person, which do not invalidate
the aforementioned provision.
RATIO
DOCTRINE OF UNFORESEEN EVENTS

Article 1267: “When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.”
 Article 1267 speaks of “service” which has become so difficult. Taking into consideration
the rationale behind this provision, the term “service” should be understood as referring
to the “performance” of the obligation.
Considering practical needs and the demands of equity and good faith, the disappearance of the
basis of a contract gives rise to a right to relief in favor of the party prejudiced.
In reformation of contracts, what is reformed is not the contract itself, but the instrument
embodying the contract. Whether the contract is disadvantageous or not is irrelevant to
reformation and therefore, cannot be an element in the determination of the period for
prescription of the action to reform.
A potestative condition is a condition, the fulfillment of which depends upon the sole will of
the debtor, in which case, the conditional obligation is void.

Osmeña vs. Rama
G.R. No. 4437| September 9, 1909
JOHNSON, J.
THESIS STATEMENT
This is an APPEAL from a judgment of the Court of First Instance
FACTS
 Rama obtained a load from Osmena in consideration of sugar and as a guarantee, pledge
as security all of her present and future property, and her house as special security.
 After the execution and delivery of the contracts, Osmena died.
 the plaintiff presented the contracts to the defendant for payment and she
acknowledged her responsibility upon said contracts by an indorsement upon them
stating that if her house will be sold, she will pay her debt.
 Rama not having paid the amount due on said contracts, Osmeña, upon the 26th day of
June, 1906, commenced the present action in the Court of First Instance. The complaint
filed in said cause alleged the execution and delivery of the above contracts, the demand
for payment, and the failure to pay on the part of the defendant, and the prayer for a
judgment for the amount due on the said contracts.
 Rama filed a general denial and set up a special defense of prescription

the e Court of First Instance rendered a judgment in favor of the Osmeña.
ARGUMENTS/DEFENSES

ISSUE/S
RULING
The appellant alleges that the proof adduced during the trial of the cause was not sufficient to
support the findings of the lower court. It was suggested during the discussion of the case in
this court that, in the acknowledgment above quoted of the indebtedness made by the
defendant, she imposed the condition that she would pay the obligation if she sold her house. If
that statement found in her acknowledgment of the indebtedness should be regarded as a
condition, it was a condition which depended upon her exclusive will, and is, therefore, void.
(Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of
the obligation and was sufficient to prevent the statute of limitation from barring the action
upon the original contract. We are satisfied, from all of the evidence adduced during the trial,
that the judgment of the lower court should be affirmed.

RATIO
Article 1182 of the Civil Code provides that: “When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions
of this Code.”
The condition presented by the petitioner in the acknowledgement is a void condition being
dependent on the sole will (potestative) of the same. The court ruled that since the said
condition is found on the acknowledgment and not on the original obligation, only the said
condition is void and the acknowledgment thus becomes an absolute recognition of the loans
contracted. There already being prior acknowledgment, the debt is considered to have not
prescribed. Petition is dismissed and lower court’s decision is affirmed.

Hermosa vs. Longora
G.R. No. L-5267 | October 27, 1953
MEDIALDEA, J.
THESIS STATEMENT
This is an appeal by way of certiorari against a decision of the Court of Appeals approving
certain claims presented by Epifanio M. Longara against the testate estate of Fernando
Hermosa, Sr.
FACTS
The claims are credit advances made to the intestate, made to his son Francisco Hermosa and
made to his grandson, Fernando Hermosa Jr. after the death of the intestate, which occurred in
December, 1944. The claims are of three kinds, namely:
 P2,341.41 representing credit advances made to the intestate from 1932 to 1944,
 P12,924.12 made to his son Francisco Hermosa, and
 P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death
of the intestate, which occurred in December, 1944.
Epifanio Longara (P) filed a claim against the estate of Fernando Hermosa, Sr. (D) for money owed to him
by the deceased. He alleged that the advances were made "on condition that their payment should be
made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in
Spain." Upon Hermosa's (D) death, the property was sold and the money sent to the estate in the
Philippines.
Hermosa (D) contended on appeal that the obligation contracted by the intestate was subject to a
condition exclusively dependent upon the will of the debtor (a condicion potestativa) and therefore null
and void, in accordance with Article 1115 of the old Civil Code. The Court of Appeals held that the
condition was not entirely potestative. It further ruled that the payment of the advances did not become
due until the administratrix received the money from the buyer of the property.
the Court of Appeals found, in accordance therewith, that the intestate had asked for the said
credit advances for himself and for the members of his family "on condition that their payment
should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of
his property in Spain.
Claimant had testified without opposition that the credit advances were to be "payable as soon
as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from
the sale."
" The Court of Appeals held that payment of the advances did not become due until the
administratrix received the sum of P20,000 from the buyer of the property. Upon authorization
of the probate court in October, 1947, and the same was paid for subsequently. The Claim was

filed on October 2, 1948.
ARGUMENTS/DEFENSES

ISSUE/S
Whether or not the obligation contracted by the intestate was subject to a condition exclusively
dependent upon the will of the debtor (a condicion potestativa) and therefore null and void, in
accordance with article 1115 of the old Civil Code.
RULING
A careful consideration of the condition upon which payment of the sums advanced was made
to depend, "as soon as he (intestate) receive funds derived from the sale of his property in
Spain," discloses the fact that the condition in question does not depend exclusively upon the
will of the debtor, but also upon other circumstances beyond his power or control.
SOLE WILL OF DEBTOR: If the intestate would prevent or would have prevented the
consummation of the sale voluntarily, the condition would be or would have been deemed or
considered complied with (article 1119, old Civil Code). The will to sell on the part of the
intestate was, therefore, present in fact, or presumed legally to exist, although the price and
other conditions thereof were still within his discretion and final approval.
WILL OF THIRD PERSON: But in addition of the sale to him (the intestate-vendor), there were
still other conditions that had no concur to effect the sale, mainly that of the presence of a buyer,
ready, able and willing to purchase the property under the conditions demanded by the
intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent to
the islands.
The condition of the obligation was not a purely protestative one, depending exclusively upon
the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly
upon chance, i.e., the presence of a buyer of the property for the price and under the conditions
desired by the intestate. The obligation is clearly governed by the second sentence of article 1115
of the old Civil Code (8 Manresa, 126).
The condition is, besides, a suspensive condition, upon the happening of which the obligation
to pay is made dependent. And upon the happening of the condition, the debt became
immediately due and demandable. (Article 1114, old Civil Code; 8 Manresa, 119).
RATIO
the condition would be protestativa, dependent exclusively upon his will or discretion, thus,
void. (Article 1182(1st sentence))
If it is by chance/will of third person, it is valid. (Article 1182(2nd sentence))

Taylor vs. Uy Tieng Piao and Tan Liuan
G.R. No. 16109 October 2, 1922]
STREET, J.
THESIS STATEMENT
This case comes by appeal from the Court of First Instance of the city of Manila, in a case where
the court awarded to the plaintiff the sum of P300, as damages for breach of contract.
FACTS
 Taylor contracted his services to Tan Liuan & Co., as superintendent of an oil factory
which the latter contemplated establishing in this city. The period of the contract
extended over two years
 At the time this agreement was made the machinery for the contemplated f actory had
not been acquired, though ten expellers had been ordered from the United States; and
among the stipulations inserted in the contract with the plaintiff was a provision which
stated that
 “if the machinery to be installed in the said factory fail, for any reason, to arrive in the
city of Manila within a period of six months from date hereof, the contract may be
cancelled by Uy Tieng Piao and Tan Liuan at its option, such cancellation, however, not
to occur before the expiration of such six months.”
 The machinery above referred to did not arrive in the city of Manila within the six
months succeeding the making of the contract; nor was other equipment necessary for
the establishment of the factory at any time provided by the defendants.
 The reason for this does not appear with certainty, but a preponderance of the evidences
is to the effect that the defendants, in the first months of 1919, seeing that the oil
business no longer promised large returns, either cancelled the order for the
machinery from choice or were unable to supply the capital necessary to finance the
project.
 availing themselves in part of the option given in the clause above quoted, the
defendants communicated in writing to the plaintiff the fact that they had decided to
rescind the contract.
 The plaintiff thereupon instituted this action to recover damages in the amount of
P13,000, covering salary and perquisites due and to become due under the contract.

COURT OF FIRST INSTANCE: in favor of the respondents
ARGUMENTS/DEFENSES
THE PLAINTIFF
Relies on article 1256 of the Civil Code, which is to the effect that the validity and fulfillment of
contracts cannot be left to the will of one of the contracting parties, and to article 1119, which

says that a condition shall be deemed fulfilled if the obligor intentionally impedes its
fulfillment.
ISSUE/S
whether in a contract for the prestation of service it is lawful for the parties to insert a provision
giving to the employer the power to cancel the contract in a contingency which may be
dominated by himself
RULING
YES.
that the language used in the stipulation should be given effect in its ordinary sense, without
technicality or circumvention. The right of cancellation upon the defendants is broad enough to
cover any case of the non-arrival of the machinery, due to whatever cause; and the stress in the
expression "for any reason" should evidently fall upon the word "any."
Article 1256 of the Civil Code creates no impediment to the insertion in a contract for personal
service of a resolutory condition permitting the cancellation of the contract by one of the
parties. Such a stipulation, as can be readily seen, does-not make either the validity or the
fulfillment of the contract dependent upon the will of the party to whom is conceded the
privilege of cancellation; for where the contracting parties have agreed that such option shall
exist, the exercise of the option is as much in the fulfillment of the contract as any other act
which may have been the subject of agreement. Indeed, the cancellation of a contract in
accordance with conditions agreed upon beforehand is fulfillment.
If it were apparent, or could be demonstrated, that the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in the
absence of affirmative proof showing that the nonarrival of the machinery was due to some
cause not having its origin in their own act or will. The contract, however, expresses no such
positive obligation, and its existence cannot be implied in the face of stipulation, defining the
conditions under which the defendants can cancel the contract.
RATIO
"It is entirely licit to leave fulfillment to the will of either of the parties in the negative form of
rescission, a case frequent in certain contracts (the letting of service for hire, the supplying of
electrical energy, etc.), for in such supposed case neither is the article infringed, nor is there any
lack of equality between the persons contracting, since they remain with the same faculties in
respect to fulfillment." (Manresa, 2d ed., vol. 8, p. 610.)
A condition at once facultative and resolutory may be valid even though the condition is made
to depend upon the will of the obligor.

Smith, Bell & Co. vs. Sotelo Matti
G.R. No. 16570 | March 9, 1922
ROMUALDEZ, J.
THESIS STATEMENT
This is an APPEAL from a judgment of the Court of First Instance
FACTS
 August 1918, the parties entered into contracts whereby Smith, Bell & Co. obligated itself
to sell, and Sotelo to purchase from it, two steel tanks, to be shipped from New York and
delivered at Manila "within three or four months;" two expellers which were to be
shipped from San Francisco in the month of September 1918 or as soon as possible; and
two electric motors as to the delivery of which stipulation was made, couched in these
words: "Approximate delivery within ninety days.—This is not guaranteed."
 When the goods arrived, the petitioners notified Sotelo but he refused to receive them
and to pay the prices.
 The petitioner filed a suit alleging that it immediately notified Sotelo on the arrival of
goods and that the expellers and the motors were in good condition.
 Respondents denied the allegations and stated that "it was only in May, 1919, that it
notified the intervenor that said tanks had arrived, the motors and the expellers having
arrived incomplete and long after the date stipulated."
 As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's
delay in making delivery of the goods, which the intervenor Manila Oil Refining and By-
Products Co. intended to use in the manufacture of coconut oil, the intervenor suff ered
damages in the sums of one hundred sixteen thousand seven hundred eighty-three
pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and
twenty-one thousand two hundred and fifty pesos (P21,250) on account of the expellers
and the motors not having arrived in due time.

 The lower Court absolved the respondents from the complaint insofar as the tanks and
the electric motors were concerned, but rendered judgment against them, ordering them
to "receive the aforesaid expellers and pay the petitioner the price of the said goods
ARGUMENTS/DEFENSES
 Plaintiff said it immediately notified the defendant of the arrival of the goods, and asked
instructions from him as to the delivery thereof, and that the defendant refused to
receive any of them and to pay their price. The plaintiff, further, alleged that the
expellers and the motors were in good condition.

the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co.,
Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at
Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay
their price, and the good condition of the expellers and the motors, alleging as special defense
that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil
Refining and ByProducts Co., Inc., which fact was known to the plaintiff, and that "it was only
in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and the
expellers having arrived incomplete and long after the date stipulated." As a counterclaim or
set-off, they also allege that, as a consequence of the plaintiff's delay in making delivery of the
goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor
suff ered damages in the sums of one hundred sixteen thousand seven hundred eighty-three
pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos (P21,250) on account of the expellers and the motors not
having arrived in due time.
ISSUE/S
whether or not, under the contracts entered into and the circumstances established in the
record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to
Manila.
RULING
determine what period was fixed for the delivery of the goods.
As regards the tanks, the contracts A and B, the clause was found:
"To be delivered within 3 or 4 months—The promise or indication of shipment carries
with it absolutely no obligation on our part—Government regulations, railroad
embargoes, lack of vessel space, the exigencies of the requirements of the United States
Government, or a number of causes may act to entirely vitiate the indication of shipment
as stated. In other words, the order is accepted on the basis of shipment at Mill's
convenience, time of shipment being merely an indication of what we hope to
accomplish."
In the contract C, with reference to the expellers, the following stipulation appears:
"The following articles, hereinbelow more particularly described, to be shipped at San
Francisco within the month of September /18, or as soon as possible.—Two Anderson
oil expellers * * *."
And in the contract D relative to the motors, the following appears:
"Approximate delivery within ninety days.—This is not guaranteed.—This sale is
subject to our being able to obtain Priority Certificate, subject to the United States
Government requirements and also subject to confirmation of manufacturers."
In all these contracts, there is a final clause as follows:
"The sellers are not responsible for delays caused by fires, riots on land or on the sea,
strikes or other causes known as 'Force Majeure' entirely beyond the control of the
sellers or their representatives."
It cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks,
the agreement was that the delivery was to be made "within 3 or 4 months," but that period was
subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the

contract says "within the month of September, 1918," but to this is added "or as soon as
possible." And with reference to the motors, the contract contains this expression, "Approximate
delivery within ninety days," but right after this, it is noted that "this is not guaranteed."
From the record it appears that these contracts were executed at the time of the world war
when there existed rigid restrictions on the export from the United States of articles like the
machinery in question, and maritime, as well as railroad, transportation was difficult, which
fact was known to the parties
At the time of the execution of the contracts, the parties were not unmindful of the contingency
of the United States Government not allowing the export of the goods, nor of the fact that the
other foreseen circumstances therein stated might prevent it.
Considering the contracts the Court concludes that the term which the parties attempted to fix
is so uncertain that one cannot tell just whether those articles could be brought to Manila or not.
If that is the case, the obligation must be regarded as conditional.
And as the export of the machinery in question was contingent upon the sellers obtaining
certificate of priority and permission of the United States Government, subject to the rules and
regulations, as well as to railroad embargoes,
 then the delivery was subject to a condition the fulfillment of which depended not
only upon the effort of the herein plaintiff, but upon the will of third persons who
could in no way be compelled to fulfill the condition.
In cases like this, which are not expressly provided for, but impliedly covered, by the Civil
Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if
he has done all that was in his power, even if the condition has not been fulfilled in reality
It is sufficiently proven in the record that the plaintiff has made all the efforts it could possibly
be expected to make under the circumstances, to bring the goods in question to Manila, as soon
as possible. And, as a matter of fact, through such efforts, it succeeded in importing them and
placing them at the disposal of the defendant, Mr. Sotelo, in April, 1919. Under the doctrine just
cited, which, as we have seen, is of the same juridical origin as our Civil Code, it is obvious that
the plaintiff has complied with its obligation.
When the contract provides for delivery 'as soon as possible' the seller is entitled to a reasonable
time, in view of all the circumstances, such as the necessities of manufacture, or of putting the
goods in condition for delivery. The term does not mean immediately or that the seller must
stop all his other work and devote himself to that particular order. But the seller must
nevertheless act with all reasonable diligence or without unreasonable delay.
Whether or not the delivery of the machinery in litigation was offered to the defendant within a

reasonable time, is a question to be determined by the court.
The record shows, as we have stated, that the plaintiff did all within its power to have the
machinery arrive at Manila as soon as possible, and immediately upon its arrival it notified the
purchaser of the fact and offered to deliver it to him. Taking these circumstances into account,
we hold that the said machinery was brought to Manila by the plaintiff within a reasonable
time.
Therefore, the plaintiff has not been guilty of any delay in the fulfillment of its obligation, and,
consequently, it could not have incurred any of the liabilities mentioned by the intervenor in its
counterclaim or set-off.
Besides, it does not appear that the intervenor, the Manila Oil Refining and By-Products Co.,
Inc., has in any way taken part in these contracts. These contracts were signed by the defendant,
Mr. Vicente Sotelo, in his individual capacity and own name. If he was then acting as agent of
the intervenor, the latter has no right of action against the herein plaintiff.
RATIO
"Obligations for the performance of which a day certain has been fixed shall be demandable
only when the day arrives. –
"A day certain is understood to be one which must necessarily arrive, even though its date be
unknown. "// the uncertainty should consist in the arrival or non-arrival of the day, the
obligation is conditional and shall be governed by the rules of the next preceding section"
(referring to pure and conditional obligations). (Art. 1125, Civ. Code.)
If the obligation is dependednt on the will of a third person: the obligor will be deemed to
have sufficiently performed his part of the obligation, if he has done all that was in his
power, even if the condition has not been fulfilled in reality
 That when the fulfillment of the condition does not depend on the will of the obligor,
but on that of a third person who can in no way be compelled to carry it out, and it is
found by the lower court that the obligor has done all in his power to comply with the
obligation, the judgment of the said court, ordering the other party to comply with his
part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of
the 'Novísima Recopilación,' or Law 12, Tit. 11, of Partida 5, when in the said finding of
the lower court, no law or precedent is ;alleged to have been violated.
 That when the fulfillment of the condition does not depend on the will of the obligor,
but on that of a third person, who can in no way be compelled to carry it out, the
obligor's part of the contract is complied with if he does all that is in his power, and has
the right to demand performance of the contract by the other party, which is the doctrine
laid down also by the supreme court.

"When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of
the essence of the contract."
 In such cases, the delivery must be made within a reasonable time. "The law implies,
however, that if no time is fixed, delivery shall be made within a reasonable time, in the
absence of anything to show that an immediate delivery is intended."
When an agent acts in his own name, the principal has no right of action against the persons
with whom the agent has contracted, or such persons against the principal. In such case, the
agent is directly liable to the person with whom he has contracted, as if the transaction were his
own. (Art. 1717, Civil Code.)

Romero vs. Court of Appeals
G.R. No. 107207 | November 23, 1995
VITUG, J.
THESIS STATEMENT
FACTS
 Petitioner and his foreign partners decided to put up a central warehouse in Metro
Manila. Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land in
the name of private respondent Enriqueta Chua vda. de Ongsiong.
 Except for the presence of squatters in the area, Romero found the place suitable for a
central warehouse.
 Later, the Flores spouses proposed that should he advance the amount of P50,000.00
which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter.
Petitioner expressed his concurrence. a contract, denominated “Deed of Conditional
Sale,” was executed between petitioner and private respondent.
 It was provided that if after 60 days from the date of the signing of this contract the
VENDOR shall not be able to remove the squatters from the property being purchased,
the downpayment made by the buyer shall be returned/reimbursed by the VENDOR to
the VENDEE.
 Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a
check for P50,000.00 from petitioner.
 A complaint for ejectment was filed, and the judgement was rendered ordering the
defendants of the said case to vacate but it was handed down beyond the 60-day period.
 Private respondent sought to return the P50,000.00 she received from petitioner since,
she said, she could not “get rid of the squatters” on the lot. However, it was refused by
petitioner.
Upon reminder that petitioner was willing to “underwrite the expenses for the execution of the
judgment and ejectment of the occupants:
 The counsel of private respondent advised that the Deed of Conditional Sale had been
rendered null and void by virtue of his client’s failure to evict the squatters from the
premises within the agreed 60-day period. He added that private respondent had
“decided to retain the property.”
 Petitioner’s counsel replied that
- The contract of sale between the parties was perfected
- the contract had already been partially fulfilled and executed upon receipt of the
downpayment

- The right to rescind the contract and to demand the return/reimbursement of the
downpayment is granted to petitioner for his protection. Instead, petitioner had
opted to take it upon himself to eject the squatters from the premises.
 Private respondent filed with the RTC for rescission of the deed of “conditional” sale,
plus damages, and for the consignation of P50,000.00 cash.

The RTC rendered decision holding that private respondent had no right to rescind the contract
since it was she who “violated her obligation to eject the squatters from the subject property”
and that petitioner, being the injured party, was the party who could, under Article 1191 of the
Civil Code, rescind the agreement.
Private respondent appealed to the Court of Appeals which REVERSED and SET ASIDE, and
declared the contract of conditional sale cancelled
that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case private
respondent would fail to eject the squatters within the 60day period was not a penal clause
ARGUMENTS/DEFENSES

ISSUE/S
Whether or not the vendor may demand the rescission of a contract for the sale of a parcel of
land for a cause traceable to his own failure to have the squatters on the subject property evicted
within the contractually stipulated period
RULING
 A perfected contract of sale may either be absolute or conditional depending on
whether the agreement is devoid of, or subject to, any condition imposed on the passing
of title of the thing to be conveyed or on the obligation of a party thereto. When
ownership is retained until the fulfillment of a positive condition the breach of the
condition will simply prevent the duty to convey title from acquiring an obligatory
force. If the condition is imposed on an obligation of a party which is not complied with,
the other party may either refuse to proceed or waive said condition (Art. 1545, Civil
Code)
The term “condition” in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred
to would normally be, in the case of vendee, the payment of the agreed purchase price and, in
the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench
is the timely eviction of the squatters on the property).

A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to
deliver and to transfer ownership of a specified thing or right to another (the buyer) over which
the latter agrees.
IN THE CASE BEFORE US:
 The object of the sale was specifically identified to be a 1,952-square meter lot
The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the
execution of the document of sale and the balance of P1,511,600.00 payable “45 days after the
removal of all squatters from the above described property.”
From the moment the contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law
 The ejectment of the squatters is a condition the operative act of which sets into motion
the period of compliance by petitioner of his own obligation, to pay the balance of the
purchase price. Private respondent’s failure “to remove the squatters from the property”
within the stipulated period gives petitioner the right to either refuse to proceed with
the agreement or waive that condition in consonance with Article 1545 of the Civil Code.
This option clearly belongs to petitioner and not to private respondent.
The undertaking required of private respondent does not constitute a “potestative condition
dependent solely on his will” that might, otherwise, be void in accordance with Article 1182 of
the Civil Code but a “mixed” condition “dependent not on the will of the vendor alone but also
of third persons like the squatters and government agencies and personnel concerned.”
where the so-called “potestative condition” is imposed not on the birth of the obligation but on
its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.
Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between
proceeding with the agreement or waiving the performance of the condition. It is this provision
which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the
performance of the condition imposed on private respondent to free the property from
squatters.
The right of resolution of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them. It
is private respondent who has failed in her obligation under the contract. Petitioner did not
breach the agreement.
RATIO
In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance.

Roman Catholic Archbishop of Manila vs. Court of Appeals
G.R. No. 77425 | June 19, 1991
REGALADO, J.
THESIS STATEMENT
FACTS
 The private respondents filed a complaint for nullification of deed of donation,
rescission of contract and reconveyance of real property with damages against
petitioners
 It alleged that the deceased spouses de Castro and Rieta executed a deed of donation in
favor of Roman Catholic Archbishop of Manila covering a parcel of land. The deed of
donation allegedly provides that the donee shall not dispose or sell the property within
a period of one hundred (100) years from the execution of the deed of donation,
otherwise a violation of such condition would render ipso facto null and void the deed
of donation and the property would revert to the estate of the donors.
 The Roman Catholic Bishop of Imus, which the administration of property was
transferred, executed a deed of absolute sale of the property subject of the donation in
favor of spouses. Ignao in consideration of the sum of P114,000.00.

THE TRIAL COURT issued an order dated January 31, 1985, dismissing the complaint on the
ground that the cause of action has prescribed.
Private respondents thereafter appealed to the Court of Appeals raising the issues on
(1) whether or not the action for rescission of contracts (deed of donation and deed of sale)
has prescribed; and
(2) whether or not the dismissal of the action for rescission of contracts (deed of donation
and deed of sale) on the ground of prescription carries with it the dismissal of the main
action for reconveyance of real property.
The CA held that the action has not yet prescibed, rendered a decision in favor of private
respondents,
ARGUMENTS/DEFENSES
ISSUE/S
Whether or not the action has prescribed.

RULING
NO.
Article 764 of the Civil Code an action for the revocation of a donation must be brought within
four (4) years from the non-compliance of the conditions of the donation, the same is not
applicable in the case at bar.
The deed of donation involved herein expressly provides for automatic reversion of the
property donated in case of violation of the condition therein, hence a judicial declaration
revoking the same is not necessary.
a judicial action for rescission of a contract is not necessary where the contract provides that it
may be revoked and cancelled for violation of any of its terms and conditions.
there is nothing in the law that prohibits the parties from entering into an agreement that a
violation of the terms of the contract would cause its cancellation even without court
intervention,
the doctrine that a judicial action is proper only when there is absence of a special provision
granting the power of cancellation.
While what was the subject of that case was an onerous donation which, under Article 733 of
the Civil Code is governed by the rules on contracts, since the donation in the case at bar is also
subject to the same rules because of its provision on automatic revocation upon the violation of
a resolutory condition, automatic rescission is applicable.
in contracts providing for automatic revocation, judical intervention is necessary not for
purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by
virtue of an agreement providing for rescission even without judicial intervention, but in order
to determine whether or not the rescission was proper.
When a deed of donation, as in this case, expressly provides for automatic revocation and
reversion of the property donated, the rules on contract and the general rules on prescription
should apply, and not Article 764 of the Civil Code.
Article 1306 of said Code authorizes the parties to a contract to establish such stipulations,
clauses, terms and conditions not contrary to law, morals, good customs, public order or public
policy.
Nonetheless, we find that although the action filed by private respondents may not be
dismissed by reason of prescription, the same should be dismissed on the ground that private
respondents have no cause of action against petitioners.
The cause of action of private respondents is based on the alleged breach by petitioners of the
resolutory condition in the deed of donation that the property donated should not be sold

within a period of one hundred (100) years from the date of execution of the deed of
donation. Said condition, in our opinion, constitutes an undue restriction on the rights arising
from ownership of petitioners and is, therefore, contrary to public policy.
Donation, as a mode of acquiring ownership, results in an effective transfer of title over the
property from the donor to the donee. Once a donation is accepted, the donee becomes the
absolute owner of the property donated.
a prohibition against alienation, in order to be valid, must not be perpetual or for an

unreasonable period of time. Under the third paragraph of Article 494, a donor or testator may
prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its part,
declares that the dispositions of the testator declaring all or part of the estate inalienable for
more than twenty (20) years are void.
In the case at bar, we hold that the prohibition in the deed of donation against the alienation of
the property for an entire century, being an unreasonable emasculation and denial of an integral
attribute of ownership, should be declared as an illegal or impossible condition within the
contemplation of Article 727 of the Civil Code.
RATIO

Gregorio Araneta, Inc. vs. Phil. Sugar Estates Development Co., Ltd.
G.R. No. L-22558 | May 31, 1967
REYES, J.B.L., J.
TOPIC: Kinds of Obligations – with a period
THESIS STATEMENT
FACTS
J. M. Tuason & Co., Inc, through Gregorio Araneta, Inc., sold a portion of Sta. Mesa Heights
Subdivision, to Philippine Sugar Estates Development Co., Ltd.
The parties stipulated, among others, in the contract of purchase and sale with mortgage, that
 the buyer will— "Build on the said parcel of land the Sto. Domingo Church and
Convent" while
 the seller for its part will— "Construct streets on the NE and NW and SW sides of the
land herein sold so that the latter will be a block surrounded by streets on all four sides;
and the street on the NE side shall be named 'Sto. Domingo Avenue';"
Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo
Church and Convent, but Gregorio Araneta, Inc., is unable to finish the construction of the
street in the Northeast side (named Sto. Domingo Avenue)
 a certain third-party, by the name of Manuel Abundo, who has been physically
occupying a middle part thereof, refused to vacate the same;
Philippine Sugar Estates Development Co., Ltd. filed its complaint against J. M. Tuason &
Co., Inc. and Gregorio Araneta, Inc., seeking to compel the latter to comply with their
obligation, as stipulated in the abovementioned deed of sale, and/or to pay damages in the
event they failed or refused to perform said obligation. (Specific performance and/or damages)
the action was premature since its obligation to construct the streets in question was without a
definite period which needs to be fixed first by the court in a proper suit for that purpose
before a complaint for specific performance will prosper. (complaint dismissed)
Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period
within which defendants will comply with their obligation to construct the streets in question.

the lower court
 The motion was granted, giving Gregorio Araneta, Inc., a period of two (2) years from
notice hereof, within which to comply with its obligation

ARGUMENTS/DEFENSES
ARANETA
 affirmative defenses contained in its answer which reads—
"7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a
reasonable time within which to comply with its obligations to construct and complete
the streets
ISSUE/S
Whether or not the parties agreed
RULING
The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is
sought to be justified on the basis that petitioner (defendant below) placed the absence of a
period in issue by pleading in its answer that the contract with respondent Philippine Sugar
Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within
which to comply with its obligation to construct and complete the streets.
On the hypothesis stated, what the answer put in issue was not whether the court should fix the
time of performance, but whether or not the parties agreed that the petitioner should have
reasonable time to perform its part of the bargain.
 If the contract so provided, then there was a period fixed, a "reasonable time"; and all
that the court should have done was to determine if that reasonable time had already
elapsed when suit was filed. If it had passed, then the court should declare that
petitioner had breached the contract, as averred in the complaint, and fix the resulting
damages.
 On the other hand, if the reasonable time had not yet elapsed, the court perforce was
bound to dismiss the action for being premature.
The intervention of the court to fix the period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed by the parties.
 the complaint not having sought that the Court should set a period, the court could not
proceed to do so unless the complaint was first amended;
The amended decision is defective in that no basis is stated to support the conclusion that the
period should be set at two years after finality of the judgment.
Article 1197 of the Civil Code involves a two-step process:

 The Court must first determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor)," but from the nature and the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2).
 The second after that is to decide what period was "probably contemplated by the
parties"

the Court cannot fix a period merely because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have intended.
the contract shows that the parties were fully aware that the land described therein was
occupied by squatters.
 They need to resort to legal process in evicting the squetters,
 the parties must have intended to defer the performance of the obligations under the
contract until the squatters were duly evicted
There is no justification in law for the setting the date of performance at any other time than that
of the eviction of the squatters occupying the land in question.
the time for the performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby
fixed at the date that all the squatters on affected areas are finally evicted therefrom.
RATIO
the complaint not having sought that the Court should set a period, the court could not proceed
to do so unless the complaint was first amended
Article 1197 of the Civil Code involves a two-step process:

1. determine if the obligation does not fix a period or if it is depended on the will of the
debtor.
2. If there was no period then the Court is to decide what period was "probably
contemplated by the parties"

Inchausti & Co. vs. Yulo
G.R. No. 7721 | March 25, 1914
ARELLANO, C. J.
TOPIC: Kinds of Obligations – Joint and Solidary
THESIS STATEMENT
This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued
with his widow and children, whose principal representative is Gregorio Yulo.
FACTS
TEODORO YULO: property owner of Iloilo, for exploitation of haciendas in Occidental Negros,
had been borrowing money from Inchausti & Company under specific conditions.
(1) Died and appointed widow and SONS as administrators including GREGORIO YULO.
i. Held conjugal property in common
ii. At the death of widow, Gregoria Regalado, children preserved the
same relations under the name of HIJOS DE T. YULO
1. Continued current account with Inchausti & Company until
balance amounted to P200,000. In for the payment of the
disbursements of money which until that time it had been making
in favor of its debtors, the Yulos.
Children are: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and
Jose Yulo y Regalado.
i. Concepcion and Jose were minors
ii. Teodoro was mentally incompetent.
1908, GREGORIO YULO (representing his brothers Pedro, Manuel and Carme, executed
notarial document whereby all admitted their indebtedness to Inchausti & Company in the sum
of P203,221.27.
i. To secure with 10% interest per annum, they mortgaged an undivided 6/9th of their 38
rural properties, remaining urban properties, lorchas, and family credits which were
listed
1. Obligated themselves to make a formal inventory and to describe all properties,
and to cure all defects which might prevent the inscription of the said contract in
the registry of property and to extend by the necessary formalities the aforesaid
mortgage over the remaining 3/9th of all the property and rights belonging to
their other brothers, the incompetent Teodoro, and the minors Concepcion and
Jose.
1909, GREGPRIO YULO, REPRESENTING HIJOS DE YULO ANSWERED LETTER OF
INCHAUSTI IN THESE TERMS:
i. "With your favor of the 2d inst. we have received an abstract of our current
account with your important firm, closed on the 31st of last December, with
which we desire to express our entire conformity as also with the balance in

your favor of P271,863.12.”
ii. INCHAUSTI informed Hijos de T. Yulo of the reduction of balance to
P253,445.42.
1. HIJOS T. YULO expressed its conformity by means of a letter,
proving that mortgage credit was formalized.
1909, GREGORIO YULO, FOR HIMSELF AND REPRESENTING MANUEL and PEDRO,
FRANCISCO, CARMEN AND CONCEPCION in their OWN BEHALF (now of legal age)
executed affidavit ratifying their admission on their indebtedness to INCHAUSTI:
i. P253,445.42 with 10% interest per annum
ii. To be paid in 5 installments at the rate of P50,000, except last being P53,445.42
iii. Payment beginning June 30, 1910, continuing successively on the 30th of each
June until the last payment on June 30, 1914.
iv. Among other clauses, they expressly stipulated the following:
1. Default in payment of any of the installments or the noncompliance of
any of the other obligations will result in the maturity of all the said
installments
2. INCHAUSTI may exercise at once all the rights and actions to obtain the
immediate and total payment of debt, in same manner that they would
have so done at the maturity of the said installments.
3. All the obligations will be understood as having been contradicted in
solidum by all of us, the Yulos, brothers and sisters.
4. Agreed that this instrument shall be confirmed and ratified in all its parts,
within the present week, by our brother Don Mariano Yulo y Regalado
who resides in Bacolod, otherwise it will not be binding on INCHAUSTI
who can make use of their rights to demand and obtain immediate
payment of their credit without any further extension or delay, in
accordance with what we have agreed.
5. This instrument was neither ratified nor confirmed by Mariano Yulo.
YULOS did not pay the first installment of the obligation.

- INCHAUSTI brought an ordinary action against Gregorio Yulo for the payment of
P253,445.42 with 10% interest per annum on that date aggregating P42,944.76.
1911, FRANCISCO, MANUEL, and CARMEN Yulo executed another affidavit in recognition of
the debt and obligation of payment in the following terms:
1. Debt is reduce for them to P225,000
2. Interest is reduced 6% per annum from March 15, 1911
3. Installments are increase to eight, 1st of P20,000, beginning on June 30, 1911, and the rest
of P30,000 each on the same date of each successive year until the total obligation shall
be finally and satisfactorily paid on June 30, 1919
4. If any of the partial payments specified in the foregoing clause be not paid at its
maturity, the amount of the said partial payment together with its interest shall bear
15% interest per annum from the date of said maturity, without the necessity of demand

until its complete payment
5. If during 2 consecutive years the partial payments agreed upon be not made, they shall
lose the right to make use of the period granted to them for the payment of the debt or
the part thereof which remains unpaid, and INCHAUSTI may consider the total
obligation due and demandable, and proceed to collect the same together with the
interest for the delay above stipulated through all legal means.
6. ADDITION STIPULATION: Inchausti & Co. should include in their suit brought in the
CFI of Iloilo against Gregorio Yulo, his brother and joint co-obligee, Pedro Yulo:
i. FRANCISCO, MANUEL AND CARMEN will procure by all legal means and
in the least time possible a judgment in their favor against the said Don
Gregorio and Don Pedro, sentencing the later to pay the total amount of the
obligation acknowledged by them in August 12, 1909 affidavit
ii. If they should deem it convenient for their interests, Don Francisco, Don
Manuel, and Doña Carmen Yulo may appoint an attorney to cooperate with
the lawyers of Inchausti & Company in the proceedings of the said case.

COURT DECIDED IN FAVOR OF GREGORIO/MARIANO YULO. INCHAUSTI pay with costs.
ARGUMENTS/DEFENSES
GREGORIO YULO ASNWERED THE COMPLAINT:

1. An accumulation of interest had taken place and that compound interest was
asked for the Philippine currency at par with Mexican
2. IN August 21, 1909 affidavit, 2 conditions were agreed (one approved by
Court of First Instance) and the other ratified and confirmed by the other
brother Mariano Yulo, neither of which was complied with
3. With regard to the same debt claims were presented before the
commissioners in the special proceedings over the inheritances of Teodoro
Yulo and Gregoria Regalado, though later they were dismissed, pending the
present suit
4. August 12, 1909 affidavit, was novated by that of May 12, 1911, executed by
Manuel, Francisco and Carmen Yulo.
ISSUE/S
 whether the plaintiff can sue Gregorio Yulo alone, there being other obligors;
- second, if so, whether it lost this right by the fact of its having agreed with the other
obligors in the reduction of the debt, the proroguing of the obligation and the
extension of the time for payment, in accordance with the instrument of May
12,1911;
 third, whether this contract with the said three obligors constitutes a novation of that of
August 12,1909, entered into with the six debtors who assumed the payment of two

hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and
- fourth, if not so, whether it does have any effect at all in the action brought, and in-
this present suit.
RULING
1. With respect to the first it cannot be doubted that, the debtors having obligated
themselves in solidum, the creditor can bring its action in toto against any one of them.
2. this does not lead to the conclusion that the solidarity stipulated in the instrument of
August 12, 1909 is broken
"solidarity may exist even though the debtors are not bound in the same manner and f or the
same periods and under the same conditions."
3. there can also be no doubt that the contract of May 12,1911, does not constitute a
novation of the former one of August 12, 1909, with respect to the other debtors who
executed this contract, or more concretely, with respect to the defendant Gregorio Yulo:
- First, because "in order that an obligation may be extinguished by another which
substitutes it, it is necessary that it should be so expressly declared or that the old
and the new be incompatible in all points" (Civil Code, article 1204)
- There exist no incompatibility between the old and the new obligation as will be
demonstrated in the resolution of the last point, and for the present we will merely
reiterate the legal doctrine that an obligation to pay a sum of money is not novated
in a new instrument wherein the old is ratified, by changing only the term of
payment and adding other obligations not incompatible with the old one.
4. "What effect could this contract have over the rights and obligations of the defendant
Gregorio Yulo with respect to the plaintiff company?
- The obligation being solidary, the remission of any part of the debt made by a
creditor in favor of one or more of the solidary debtors necessarily benefits the others,
and therefore there can be no doubt that, in accordance with the provision of article
1143 of the Civil Code, the defendant has the right to enjoy the benefits of the
partial remission of the debt granted by the creditor."
- in consequence thereof, the amount stated in the contract of August 12, 1909, cannot
be recovered but only that stated in the contract of May 12, 1911, by virtue of the
remission granted to the three of the solidary debtors in this instrument, in
conformity with what is provided in article 1143 of the Civil Code, cited by the
creditor itself.
If the later contract is recognized over the earlier one, should such efficacy not likewise
be recognized concerning the maturity of the same?
- If Francisco, Manuel, and Carmen had been included in the suit, they could have
alleged the defense of the non-maturity of the installments since the first
installment did not mature until June 30, 1912, and without the least doubt the
defense would have prospered, and the three would have been absolved from
the suit.

Cannot this defense of the prematurity of the action, which is implied in the last
special defense set up in the answer of the defendant Gregorio Yulo be made available to him in
this proceeding?
Gregorio Yulo cannot allege “prematurity of contract” as defense.

- When the suit was brought on March 27, 1911, the first installment of the
obligation had already matured of June 30, 1910, and with the maturity of this
installment, the first not having been paid, the whole debt had become mature,
according to the express agreement of the parties, independently of the
resolutory condition which gave the creditor the right to demand the immediate
payment of the whole debt upon the expiration of the stipulated term of one
week allowed to secure from Mariano Yulo the ratification and confirmation of
the contract of August 12, 1909.
RATIO
"when the obligation is constituted as a conjoint and solidary obligation each one of the debtors
is bound to perform in full the undertaking which is the subject matter of such obligation."
(Civil Code, articles 1137 and 1144.)
"solidarity may exist even though the debtors are not bound in the same manner and f or the
same periods and under the same conditions."
"It is always necessary to state that it is the" intention of the contracting parties to extinguish the
former obligation by the new one"
A new instrument, in which a former one containing an obligation to pay a certain sum of
money is ratified, is not renewed by merely altering the period for payment and adding other
obligations not incompatible with the one already covenanted in the old instrument.
Remission. Extinguishment or release of a debt.

Lafarge Cement Philippines, Inc. vs. Continental Cement Corporation
G.R. No. 155173 | November 23, 2004
PANGANIBAN, J.
THESIS STATEMENT
This is a PETITION for review on certiorari of the orders of the Regional Trial Court
FACTS
origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both
parties
- Petitioner Lafarge Cement Philippines, Inc. (Lafarge)—on behalf of its affiliates and
other qualified entities, including Petitioner Luzon Continental Land Corporation
(LCLC)—agreed to purchase the cement business of Respondent Continental Cement
Corporation (CCC).
- both parties entered into a Sale and Purchase Agreement (SPA)
- petitioners were well aware that CCC had a case pending with the Supreme Court (APT
vs. CA and CCC)
- in anticipation of which, the parties allegedly agreed to retain from the purchase price a
portion of the contract price in the amount of P117,020,846.84—the equivalent of
US$2,799,140. This amount was to be deposited in an interest-bearing account in the
First National City Bank of New York (Citibank) for payment to APT, the petitioner
(under Clause 2 (c) of the SPA)
- However, petitioners allegedly refused to apply the sum to the payment to APT, despite
the subsequent finality of the Decision in favor of the latter and the repeated instructions
of Respondent CCC
CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a “Complaint with
Application for Preliminary Attachment” against petitioners.
- prayed, among others, that petitioners be directed to pay the “APT Retained Amount”
referred to in Clause 2 (c) of the SPA.
the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners’ counterclaims.
However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded
Respondents Lim and Mariano, even if it included CCC
ARGUMENTS/DEFENSES
petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial
court
- denied the allegations in the Complaint. They prayed—by way of compulsory
counterclaims against Respondent CCC, its majority stockholder and president Gregory
T. Lim, and its corporate secretary Anthony A. Mariano
CCC moved to dismiss petitioners’ compulsory counterclaims on grounds that essentially
constituted the very issues for resolution in the instant Petition.

ISSUE/S
RULING
First Issue: Counterclaims and Joinder of Causes of Action.
Second Issue: CCC’s Personality to Move to Dismiss the Compulsory Counterclaims

- Petitioners characterized their counterclaim for damages against Respondents CCC, Lim
and Mariano as “joint and solidary,”
- petitioners’ usage of the term “joint and solidary” is confusing and ambiguous.
The ambiguity in petitioners’ counterclaims notwithstanding, respondents’ liability, if proven,

is solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides
that obligations are generally considered joint, except when otherwise expressly stated or when
the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary.
the liability sought against the CCC is for specific performance and tort, while that sought
against the individual respondents is based solely on tort does not negate the solidary nature of
their liability for tortuous acts alleged in the counterclaims.
In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of
the obligation, from circumstances personal to it, or even from those personal to its co-debtors.
(Art. 1222)
“A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are
derived from the nature of the obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to the others, he may avail
himself thereof only as regards that part of the debt for which the latter are responsible.”
- The act of Respondent CCC as a solidary debtor—that of filing a motion to dismiss the
counterclaim on grounds that pertain only to its individual co-debtors—is therefore
allowed.
Respondent CCC filed its Motion to Dismiss the counterclaims on behalf of Co-respondents Lim
and Mariano; it did not pray that the counterclaim against it be dismissed.
- if the issues raised in the compulsory counterclaim are so intertwined with the
allegations in the complaint, such issues are deemed automatically joined.
CCC’s Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not
Allowed
- A corporation has a legal personality entirely separate and distinct from that of its
officers and cannot act for and on their behalf, without being so authorized. Thus, unless
expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory

counterclaim filed by Respondent CCC has no force and effect as to them.
RATIO
“Joint” or “jointly” or “conjoint” means mancum or mancomunada or pro rata obligation;
on the other hand, “solidary obligations” may be used interchangeably with “joint and several”
or “several.”
In a “joint” obligation, each obligor answers only for a part of the whole liability; in a “solidary”
or “joint and several” obligation, the relationship between the active and the passive subjects is
so close that each of them must comply with or demand the fulfillment of the whole obligation.
Article 1211 of the Civil Code is explicit on this point: “Solidarity may exist although the
creditors and the debtors may not be bound in the same manner and by the same periods and
conditions.”
Article 1222 of the Civil Code provides: “The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity.”

Jaucian vs. Querol
G.R. No. 11307 | October 5, 1918
STREET, J.
THESIS STATEMENT
This appeal by bill of exceptions was brought to reverse a judgment of the Court of First
Instance of the Province of Albay whereby said court has refused to allow a claim In favor of the
plaintiff, Roman Jaucian, against the estate of Hermenegilda Rogero
FACTS
Lino Dayandante and Hermenegilda Rogero acknowledged themselves to be indebted to
Roman Jaucian
- "We jointly and severally acknowledge our indebtedness
Hermenegilda Rogero signed this document in the capacity of surety for Lino Dayandaiite; but
as clearly appears from the instrument itself both debtors bound themselves jointly and
severally to the creditor
Herfrienegilda Rogero brought an action in the Court of First Instance of Albay against Jaucian,
asking that the document in question be canceled as to her upon the ground that her signature
was obtained by means of fraud. In his answer to the complaint, Jaucian, by way of cross-
complaint, asked for judgment against the plaintiff for the amount due upon the obligation,
which appears to have matured at that time. Judgment was rendered in the Court of First
Instance in favor of the plaintiff, f rom. which judgment the defendant appealed to the Supreme
Court.
While the case was pending, Herfrienegilda Rogero o died and the administrator of her estate
was substituted
- During the pendency of the appeal, Francisco Querol was named administrator
the Supreme Court rendered its decision reversing the judgment of the trial court and holding
that the disputed claim was valid.
bout a year and a half after the filing of the report of the committee on claims against the Rogero
estate,
- Jaucian entered an appearance in the estate proceedings, and filed with the court a
petition in which he averred the execution of the document because of the failure of co-
debtor to pay (complete insolvency: Execution was issued upon this judgment, but was
returned by the sheriff wholly unsatisfied, no property of the judgment debtor having
been found.)
CFI: in favor of the respondents

- The court regarded Dayandante as the principal debtor, and the deceased as a surety
only liable for such deficiency as might result after the exhaustion of the assets of the
principal coöbligor.
ARGUMENTS/DEFENSES
The petition was again opposed by the administrator of the estate upon the grounds (a) that the
claim was not admitted by the order of April 13, 1914, and that "the statement of the court with
regard to the admissibility of the claim. was mere dictum;" and (b) "that the said claim during
the life and after the death of Hermenegilda Rogero, which occurred on August 2, 1911, was a
mere contingent claim against the property of the said Hermenegilda Rogero, was not reduced
to judgment during the lifetime of said Hermenegilda Rogero, and was not presented to the
commissioners on claims during the period of six months from which they were appointed in
this estate, said commissioners having given due and lawfull notice of their sessions and more
than one year having expired since the report of the said commissioners; and this credit is
outlawed or prescribed, and that this court has no jurisdiction to consider this claim."
ISSUE/S
RULING
the deceased Hermenegilda Rogero, though surety for Lino Dayandante, was nevertheless
bound jointly and severally with him in the obligation, the following provisions of law are here
pertinent.
SEE RATIO:
- The foregoing articles of the Civil Code make it clear that Hermenegilda Rogero was
liable absolutely and unconditionally for the full amount of the obligation without any
right to demand the exhaustion of the property of the principal debtor previous to its
payment. Her position so far as the creditor was concerned was exactly the same as if
she had been the principal debtor.
by the express and incontrovertible provisions both of the Civil Code and the Code of Civil
Procedure, this claim was an absolute claim
The fact that the lower court had declared the document void was not conclusiv'e, as its
judgment was not final, and even assuming that if the claim had been presented to the
committee for allowance, it would have been rejected and that the decision of the committee
would have been sustained by the Court of First Instance, the rights of the creditor could have
been protected by an appeal from that decision.
liability extends unconditionally to the entire amount stated in the obligation, or, in other
words, where the debtor is liable in solidum and without postponement of execution, the
liability is not contingent but absolute.
RATIO
Article 1822 of the Civil Code provides: "By security a person binds himself to pay or perform

for a third person in case the latter should fail to do so. "If the surety binds himself jointly with
the principal debtor, the provisions of section fourth, chapter third, title first, of this book shall
be observed."
Article 1144 of the same code provides: "A creditor may sue any of the joint and several
(solidarios) debtors or all of them simultaneously. The claims instituted against one shall not be
an obstacle for those that may be later presented against the others, as long as it does not appear
that the debt has been collected in full."
Article 1830 of the same code provides: "The surety cannot be compelled to pay a creditor until
application has been previously made of all the property of the debtor."
Article 1831 provides: "This application cannot take place—"(1) * * * (2) If he has jointly bound
himself with the debtor * * *."
section 698 of the Code of Civil Procedure, which provides: "When two or more persons are
indebted on a joint contract, or upon a judgment founded on a joint contract, and either of them
dies, his estate shall be liable therefor, and it shall be allowed by the committee as if the contract
had been with him alone or the judgment against him alone. But the estate shall have the right
to recover contribution from the other joint debtor."
The joint contract of the common law is and always has been a solidary obligation so far as
the extent of the debtor's liability is concerned.

R. F. C. vs. Court of Appeals, et al.
G.R. No. L-5942| May l4, 1954
CONCEPCION, J.
THESIS STATEMENT
This is an appeal by certiorari, taken by the Rehabilitation Finance Corporation, hereinafter
referred to as the Bank, from a decision of the Court of Appeals.
FACTS
On or before October 31, 1951, Anduiza and Cano and severally, promise to pay the
AGRICULTURAL AND INDUSTRIAL BANK,
They failed to pay the yearly amortizations
Estelito Madrid who temporarily lived in the house of Jesus de Anduiza during the Japanese
occupation, learned of the latter's failure to pay the aforesaid amortizations, he went to its
central office in Manila, and offered to pay the indebtedness
He paid a total of 10,000 leaving a balance of P6,425.17 which was likewise paid on October 30th
of the same year
Agricultural and Industrial Bank (now R. F. C.) refused to cancel the mortgage executed by said
Anduiza, Alleging that defendant Jesus de Anduiza has failed to pay the plaintiff in the amount
of F16,425.17 inspite of demands therefor
.
Estelito Madrid instituted the present action on July 3, 1948, in the Court of First Instance of
Manila, praying for judgment
(a) declaring as paid the indebtedness amounting to P16,425.17 of Jesus de Anduiza
to the Agricultural and Industrial Bank;
(b) ordering the Agricultural and Industrial Bank (now R. F. C.) to release the
properties mortgaged to it and to execute the corresponding cancellation of the
mortgage;
(c) condemning defendant Jesus de Anduiza to pay plaintiff the amount of
P16,425.17, with legal interest from the filing of the complaint until completely
paid, declaring such obligation a preferred lien over Anduiza's properties which
plaintiff freed .from the mortgage, and sentencing the def endants to pay the
plaintiff the sum of P2,000.00 as damages and the costs, without prejudice to
conceding him other remedies just and equitable
defendant Agricultural and Industrial Bank alleged that the loan of P13,800.00 had not become
due and demandable in October, 1944, as the same was payable in ten years at P1,874.98
annually
Defendant Jesus de Anduiza alleged that the payment was made without his knowledge and
consent; that the Agricultural and Industrial Bank did not accept the amount of P16,425.17 from

Estelito Madrid as payment of his loan but as mere deposit to be applied later as payment in the
event he would approve the same
the trial court rendered in favor of the plaintiff a judgment which was set aside later on upon
motion of counsel for the Rehabilitation Finance Corporation
the Court of Appeals rendered:

directing the Rehabilitation Finance Corporation, successor in interest of the Agricultural and
Industrial Bank, to cancel the mortgage executed by Jesus de Anduiza and Quintana Cano in
favor of said bank; and ordering Jesus de Anduiza to pay plaintiff Estelito Madrid
ARGUMENTS/DEFENSES
 The Bank assails said decision of the Court of Appeals upon the ground that payments
by respondent Estelito Madrid had been made against the express will of Anduiza and
over the objection of the Bank; that the latter accepted said payments, subject to the
condition that a written instrument, signed by Anduiza, authorizing the same, would be
submitted by Madrid, who has not done so; that the payments in question were made by
Madrid in the name of Anduiza and, therefore, through misrepresentation and without
good faith; that said payments were not beneficial to Anduiza; and that the obligation in
question was not fully due and demandable at the time of the payments
aforementioned.
ISSUE/S
Whether or not the Court of Appeals erred in its decision.
RULING
Being in conformity with law, the decision appealed from is hereby affirmed, therefore, in toto.
At the outset, it should be noted that the makers of the promissory note quoted above promised
to pay the obligation evidenced thereby "on or before October 31, 1951." Although the full
amount of said obligation was not demandable prior to October 31, 1951, in view of the
provision of the note relative to the payment in ten (10) annual installments, it is clear, therefore,
that the makers or debtors were entitled to make a complete settlement of the obligation at any
time before said date. With reference to the other arguments of petitioner herein, Article 1158 of
the Civil Code of Spain, which was in force in the Philippines at the time of the payments under
consideration and of the institution of the present case (July 3, 1943,) reads:
"Payment may be made by any person, whether he has an interest in the performance of the
obligation or not, and whether the payment is known and approved by the debtor or whether
he is unaware of it.
"One who makes a payment for the account of another may recover from the debtor the amount
of the payment, unless it was made against his express will.
"In the latter case he can recover from the debtor only in so far as the payment has been
beneficial to him."
It is clear therefrom that respondent Madrid was entitled to pay the obligation of Anduiza
irrespective of the latter's will or that of the Bank, and even over the objection of either or both.

contrary to petitioner's pretense, the payments in question were not made against the objection
either of Anduiza or of the Bank. And although, later on, the former questioned the validity of
the payments, subsequently, he impliedly, but clearly, acquiesced therein, for he joined Madrid
in his appeal from the decision of the Court of First Instance of Manila, referred to above.
Similarly, the receipts issued by the Bank acknowledging said payments without qualification,
belie its alleged objection thereto. The Bank merely demanded a signed statement of Anduiza
sanctioning said payments, as a condition precedent, not to its acceptance, which had already
been made, but to the execution of the deed of cancellation of the mortgage constituted in favor
of said institution.
Needless to say, this condition was null and void, for, as pointed out above, the Bank, as
creditor, had no other right than to exact payment, after which the obligation in question, as
regards said creditor, and, hence, the latter's status and rights as such, become automatically
extinguished.
(1) The good or bad faith of the payor is immaterial to the issue before us
(2) (2) The Bank can not invoke the provision that the payor "may only
recover from the debtor insofar as the payment has been beneficial to
him," when made against his express will. This is a defense that may be
availed of by the debtor, not by the Bank, for it affects solely the rights of
the former. At any rate, in order that the rights of the payor may be
subject to said limitation, the debtor must oppose the payments before or
at the time the same were made, not subsequently thereto.
it is only fair that the effects of said payment be determined at the time it was made, and that
the rights then acquired by the payor be not dependent upon, or subject to modification by,
subsequent unilateral acts or omissions of the debtor. the theory that Anduiza had not been
benefited by the payments in question is predicated solely upon his original refusal to
acknowledge the validity of said payments. however, the question whether the same were
beneficial or not to Anduiza, depends upon the law, not upon his will. Moreover, his former
animosity towards Madrid sufficed to negate the beneficial effects of the payment under
consideration, the subsequent change of front of Anduiza, would constitute an admission and
proof of said beneficial effects,
RATIO

Quiombing vs. Court of Appeals
G.R. No. 93010| August 30, 1990
CRUZ, J.
THESIS STATEMENT
FACTS
This case stemmed from a “Construction and Service Agreement” whereby Nicencio Tan
Quiombing and Dante Biscocho, as the First Party, jointly and severally bound themselves to
construct a house for private respondents Francisco and Manuelita Saligo, as the Second Party,
for the contract price of P137,940.00, which the latter agreed to pay.
Quiombing and Manuelita Saligo entered into a second written agreement 2 under which the
latter acknowledged the completion of the house and undertook to pay the balance of the
contract price in the manner prescribed in the said second agreement.
Manuelita Saligo signed a promissory note for P125,363.50 representing the amount still due
from her and her husband, payable on or before December 31, 1984, to Nicencio Tan
Quiombing.
Quiombing filed a complaint for recovery of the said amount, plus charges and interests, which
the private respondents had acknowledged and promised to pay—but had not, despite
repeated demands—as the balance of the contract price for the construction of their house.
Instead of filing an answer, the defendants moved to dismiss the complaint on February 4, 1987,
contending that Biscocho was an indispensable party and therefore should have been included
as a co-plaintiff.
The complaint was dismissed, but without prejudice to the filing of an amended complaint to
include the other solidary creditor as a co-plaintiff.
Rather than file the amended complaint, Quiombing chose to appeal the order of dismissal to
the respondent court, where he argued that as a solidary creditor he could act by himself alone
in the enforcement of his claim against the private respondents. Moreover, the amounts due
were payable only to him under the second agreement, where Biscocho was not mentioned at
all.
The respondent court sustained the trial court and held that it was not correct at that point to
assume that Quiombing and Biscocho were solidary obligees only. Refuting the petitioner’s
second contention, the respondent court declared that the “second agreement referred to the
Construction and Service Agreement as its basis and specifically stated that it (was) merely a
‘part of the original agreement.’”

ARGUMENTS/DEFENSES

ISSUE/S
1. May one of the two solidary creditors sue by himself alone for the recovery of amounts
due to both of them without joining the other creditor as a co-plaintiff?
2. In such a case, is the defendant entitled to the dismissal of the complaint on the ground
of non-joinder of the second creditor as an indispensable party?
3. More to the point, is the second solidary creditor an indispensable party?
RULING
the question of who should sue the private respondents was a personal issue between
Quiombing and Biscocho in which the spouses Saligo had no right to interfere. It did not matter
who as between them filed the complaint because the private respondents were liable to either
of the two as a solidary creditor for the full amount of the debt. Full satisfaction of a judgment
obtained against them by Quiombing would discharge their obligation to Biscocho, and vice
versa; hence, it was not necessary for both Quiombing and Biscocho to file the complaint.
Inclusion of Biscocho as a co-plaintiff, when Quiombing was competent to sue by himself alone,
would be a useless formality.
Article 1212 of the Civil Code provides: Each one of the solidary creditors may do whatever
may be useful to the others, but not anything which may be prejudicial to the latter.
Suing for the recovery of the contract price is certainly a useful act that Quiombing could do by
himself alone.
Parenthetically, it must be observed that the complaint having been filed by the petitioner,
whatever amount is awarded against the debtor must be paid exclusively to him, pursuant to
Article 1214. This provision states that “the debtor may pay any of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by any one of them, payment should be
made to him.”
If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may later
claim his share thereof, but that decision is for him alone to make. It will affect only the
petitioner as the other solidary creditor and not the private respondents, who have absolutely
nothing to do with this matter. As far as they are concerned, payment of the judgment debt to
the complainant will be considered payment to the other solidary creditor even if the latter was
not a party to the suit.
the second agreement, which was concluded alone by the petitioner with the private
respondents, was based on the original Construction and Service Agreement.
although he signed the original Construction and Service Agreement, Biscocho need not be
included as a co-plaintiff in the complaint filed by the petitioner against the private

respondents. Quiombing as solidary creditor can by himself alone enforce payment of the
construction costs by the private respondents and as a solidary debtor may by himself alone be
held liable for any possible breach of contract that may be proved by the private respondents. In
either case, the participation of Biscocho is not at all necessary, much less indispensable.
RATIO
A joint obligation is one in which each of the debtors is liable only for a proportionate part of
the debt, and each creditor is entitled only to a proportionate part of the credit. A solidary
obligation is one in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. Hence, in the former, each creditor can recover only
his share of the obligation, and each debtor can be made to pay only his part; whereas, in the
latter, each creditor may enforce the entire obligation, and each debtor may be obliged to pay it
in full.
The essence of active solidarity consists in the authority of each creditor to claim and enforce
the rights of all, with the resulting obligation of paying everyone what belongs to him; there is
no merger, much less a renunciation of rights, but only mutual representation.
Indispensable parties are those with such an interest in the controversy that a final decree
would necessarily affect their rights, so that the court cannot proceed without their presence.
Necessary parties are those whose presence is necessary to adjudicate the whole controversy,
but whose interests are so far separable that a final decree can be made in their absence without
affecting them.

Inciong, Jr. vs. Court of Appeals
G.R. No. 96405 | June 26, 1996
ROMERO, J.
THESIS STATEMENT
FACTS
Petitioner’s liability resulted from the promissory note in the amount of P50,000.00 which he
signed with Rene C. Naybe and Gregorio D. Pantanosas, holding themselves jointly and
severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro
City branch.
due date expired without the promissors having paid their obligation. Consequently, private
respondent sent petitioner telegrams demanding payment thereof.
private respondent also sent by registered mail a final letter of demand to Rene C. Naybe. Since
both obligors did not respond to the demands made, private respondent filed a complaint for
collection of the sum of P50,000.00 against the three obligors.
the lower court dismissed the case against defendant Pantanosas as prayed for by the private
respondent herein. Meanwhile, only the summons addressed to petitioner was served as the
sheriff learned that defendant Naybe had gone to Saudi Arabia.
petitioner alleged that he was approached by his friend, Rudy Campos, who told him that he
was a partner of Pio Tio, the branch manager of private respondent. Campos then persuaded
petitioner to act as a “co-maker” in the said loan. Petitioner allegedly acceded but with the
understanding that he would only be a co-maker for the loan of P5,000.00. further, five (5)
copies of a blank promissory note were brought to him by Campos at his office. He affixed his
signature thereto but in one copy, he indicated that he bound himself only for the amount of
P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the
amount of P50,000.00.
lower court:
 noted that the typewritten figure “—50,000—” clearly appears directly below the
admitted signature of the petitioner in the promissory note. 3 Hence, the latter’s
uncorroborated testimony on his limited liability cannot prevail over the presumed
regularity and fairness of the transaction.
 petitioner have indicated in a copy and not in the original, of the promissory note, his
supposed obligation in the amount of P5,000.00 only.
 also noted that petitioner was a holder of a Bachelor of Laws degree and a labor
consultant who was supposed to take due care of his concerns, and that, on the witness
stand, Pio Tio denied having participated in the alleged business venture although he
knew for a fact that the falcata logs operation was encouraged by the bank for its export

potential.
ARGUMENTS/DEFENSES

ISSUE/S
Whether or not the dismissal of complaint against the principal debtor and co-maker constitutes
a release from obligation of petitioner.
RULING
Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor,
and against Pantanosas, his co-maker, constituted a release of his obligation, especially because
the dismissal of the case against Pantanosas was upon the motion of private respondent itself.
He cites as basis for his argument, Article 2080 of the Civil Code which provides that:
“The guarantors, even though they be solidary, are released from their obligation whenever by
some act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of
the latter.”
However, at petitioner signed the promissory note as a solidary co-maker and not as a
guarantor.
I/we, JOINTLY and SEVERALLY promise to pay
A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation.
Article 2047 of the Civil Code states: “By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a
suretyship.”
While a guarantor may bind himself solidarily with the principal debtor, the liability of a
guarantor is different from that of a solidary debtor.
Article 1207 thereof, when there are two or more debtors in one and the same obligation, the
presumption is that the obligation is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidary liability only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so requires.
Because the promissory note involved in this case expressly states that the three signatories
therein are jointly and severally liable, any one, some or all of them may be proceeded against
for the entire obligation. 20 The choice is left to the solidary creditor to determine against whom
he will enforce collection. 21 Consequently, the dismissal of the case against Judge Pantanosas
may not be deemed as having discharged petitioner from liability as well. As regards Naybe,

suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may
only have recourse against his co-makers, as provided by law.
RATIO
“A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes. There is
a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of
the liability he assumes to pay the debt before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the
fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section
4, Chapter 3, Title I, Book IV of the Civil Code.”
Alipio vs. Court of Appeals
G.R. No. 134100| September 29, 2000
MENDOZA, J.
THESIS STATEMENT
FACTS
Romeo was a lessee of a fishpond for a period of five years. He subleased the fishpond to the
spouses Alipio and spouses Manuel for the remaining period of his lease or more than 3 years.
the stipulated rent is payable in two installments with the second installment falling due on
June 30, 1989. Each of the four sublessees signed the contract.
the second installment, the sublessees only satisfied a portion thereof, leaving an unpaid
balance of P50,600.00. Despite due demand, the sublessees failed to comply with their
obligation
Romeo sued the Alipio and Manuel spouses for the collection of the balance. In the alternative,
he prayed for the rescission of the sublease contract should the defendants fail to pay the
balance.
Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had
passed away based on the 1964 Rules of Court: “when the action is for recovery of money, debt
or interest thereon, and the defendant dies before final judgment in the Court of First Instance,
it shall be dismissed to be prosecuted in the manner especially provided in these rules.”
AMENDED: When the action is for the recovery of money arising from contract, express or
implied, and the defendant dies before entry of final judgment in the court in which the action
was pending at the time of such death, it shall not be dismissed but shall instead be allowed
to continue until entry of final judgment. A favorable judgment obtained by the plaintiff
therein shall be enforced in the manner especially provided in these Rules for prosecuting
claims against the estate of a deceased person.

The trial court denied petitioner’s motion on the ground that since petitioner was herself a party
to the sublease contract, she could be independently impleaded in the suit together with the
Manuel spouses and that the death of her husband merely resulted in his exclusion from the
case. By default, the lower Court rendered judgment in favor of Romeo.
On appeal, the CA ruled that: when the obligation is a solidary one, the creditor may bring his
action in toto against any of the debtors obligated in solidum. Thus, if husband and wife bound
themselves jointly and severally, in case of his death, her liability is independent of and
separate from her husband’s; she may be sued for the whole debt and it would be error to hold
that the claim against her as well as the claim against her husband should be made in the
decedent’s estate.
ARGUMENTS/DEFENSES

ISSUE/S
whether a creditor can sue the surviving spouse for the collection of a debt which is owed by
the conjugal partnership of gains, or whether such claim must be filed in proceedings for the
settlement of the estate of the decedent.
RULING
NO.
The Court held that a creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of a sum of money chargeable against the conjugal partnership
and that the proper remedy is for him to file a claim in the settlement of estate of the decedent.
more than ten months before private respondent filed the collection suit in the trial court, the
petitioner’s husband died.
Under the law, the Alipios’ obligation (and also that of the Manuels) is one which is chargeable
against their conjugal partnership. Under Art. 161(1) of the Civil Code
When petitioner’s husband died, their conjugal partnership was automatically dissolved and
debts chargeable against it are to be paid in the settlement of estate proceedings in accordance
with Rules
As held in Calma v. Tañedo, 10 after the death of either of the spouses, no complaint for the
collection of indebtedness chargeable against the conjugal partnership can be brought against
the surviving spouse. Instead, the claim must be made in the proceedings for the liquidation
and settlement of the conjugal property.
the powers of administration of the surviving spouse ceases and is passed to the
administrator appointed by the court having jurisdiction over the settlement of estate
proceedings.
the surviving spouse is not even a de facto administrator such that conveyances made by him of
any property belonging to the partnership prior to the liquidation of the mass of conjugal
partnership property is void.
for marriages governed by the rules of conjugal partnership of gains, an obligation entered into
by the husband and wife is chargeable against their conjugal partnership and it is the
partnership which is primarily bound for its repayment. 17 Thus, when the spouses are sued for

the enforcement of an obligation entered into by them, they are being impleaded in their
capacity as representatives of the conjugal partnership and not as independent debtors such
that the concept of joint or solidary liability, as between them, does not apply.
his remedy is to file a claim against the Alipios in the proceeding for the settlement of the estate
of petitioner’s husband or, if none has been commenced, he can file a petition either for the
issuance of letters of administration 18 or for the allowance of will, 19 depending on whether
petitioner’s husband died intestate or testate.
Art. 1207 of the Civil Code provides: The concurrence of two or more creditors or of two or
more debtors in one and the same obligation does not imply that each one of the former has a
right to demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so estates, or when
the law or the nature of the obligation requires solidarity.
The trial court ordered petitioner and the Manuel spouses to pay private respondent the unpaid
balance of the agreed rent in the amount of P50,600.00 without specifying whether the amount
is to be paid by them jointly or solidarily.
if from the law or the nature or the wording of the obligation the contrary does not appear, an
obligation is presumed to be only joint, i.e., the debt is divided into as many equal shares as
there are debtors, each debt being considered distinct from one another.
In the contract, it provided that: The said amount shall be paid to the Sub-Lessor by the Sub-
Lessees in the following manner
the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio
spouses is chargeable against their respective conjugal partnerships, the unpaid balance of
P50,600.00 should be divided into two so that each couple is liable to pay the amount of
P25,300.00.
RATIO

Tanguilig vs. Court of Appeals
G.R. No. 117190 | January 2, 1997
BELLOSILLO, J.
TOPIC: Enforcement of Creditor’s Rights – Accion Subrogatoria
THESIS STATEMENT
FACTS
Tanguilig doing business under the name and style J.M.T. Engineering and General
Merchandising
He proposed to Herce to construct a windmill system for him.
they agreed on the construction of the windmill for a consideration of P60,000.00 with a one-
year guaranty from the date of completion and acceptance by respondent Herce, Jr. of the
project.
Pursuant to the agreement respondent paid petitioner a down payment of P30,000.00 and an
installment payment of P15,000.00, leaving a balance of P15,000.00.
due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount.
the trial court
 held that the construction of the deep well was not part of the windmill project as
evidenced clearly by the letter proposals submitted by petitioner to respondent.
 “[i]f the intention of the parties is to include the construction of the deep well in the
project, the same should be stated in the proposals. In the absence of such an agreement,
it could be safely concluded that the construction of the deep well is not a part of the
project undertaken by the plaintiff.”
 “there is no clear and convincing proof that the windmill system fell down due to the
defect of the construction.”
The Court of Appeals

 reversed the trial court. It ruled that the construction of the deep well was included in
the agreement of the parties because the term “deep well” was mentioned in both
proposals. It also gave credence to the testimony of respondent’s witness Guillermo Pili,
the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told
him that the cost of constructing the deep well would be deducted from the contract
price of P60,000.00.
 However, it rejected petitioner’s claim of force majeure and ordered the latter to
reconstruct the windmill in accordance with the stipulated one-year guaranty.
ARGUMENTS/DEFENSES
 respondent denied the claim saying that he had already paid this amount to the San

Pedro General Merchandising, Inc. (SPGMI) which constructed the deep well to which
the windmill system was to be connected.
 since the deep well formed part of the system the payment he tendered to SPGMI
should be credited to his account by petitioner.
 Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be
offset by the defects in the windmill system which caused the structure to collapse after
a strong wind hit their place.
 Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project.
 He also disowned any obligation to repair or reconstruct the system and insisted that he
delivered it in good and working condition to respondent who accepted the same
without protest.
 Besides, its collapse was attributable to a typhoon, a force majeure, which relieved him
of any liability.
ISSUE/S
1. whether the agreement to construct the windmill system included the installation of a
deep well and,
2. whether petitioner is under obligation to reconstruct the windmill after it collapsed.
RULING
1) The preponderance of evidence supports the finding of the trial court that the
installation of a deep well was not included in the proposals of petitioner to construct a
windmill system for respondent.
There were two proposals. The first proposal worth 87,000 but was rejected by Herce. The
second was the one worth 60,000 that was accepted and the construction immediately followed.
While the words “deep well” and “deep well pump” are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely describe the type of deep
well pump for which the proposed windmill would be suitable.
 the words “deep well” preceded by the prepositions “for” and “suitable for” were meant
only to convey the idea that the proposed windmill would be appropriate for a deep
well pump with a diameter of 2 to 3 inches.
the contract for its installation of deep well would have been strictly a matter between Herce
and Guillermo Pili of SPGMI himself with the former assuming the obligation to pay the price.
That it was respondent Herce, Jr. himself who paid for the deep well by handing over to Pili the
amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the
windmill project but a separate agreement between respondent and Pili.
If SPGMI was really commissioned by petitioner to construct the deep well, an agreement
particularly to this effect should have been entered into.

2) In order for a party to claim exemption from liability by reason of fortuitous event under
Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss
or destruction of the object of the contract.
In Nakpil vs. Court of Appeals, four (4) requisites must concur:
(a) the cause of the breach of the obligation must be independent of the will of the
debtor;
(b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation
in a normal manner; and, (
d) the debtor must be free from any participation in or aggravation of the injury to the
creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that there was actually a typhoon on the day the
windmill collapsed. Petitioner merely stated that there was a “strong wind.” But a strong wind
in this case cannot be fortuitous—unforseeable nor unavoidable
The appellate court correctly observed that “given the newly-constructed windmill system, the
same would not have collapsed had there been no inherent defect in it which could only be
attributable to the appellee.
Finally, petitioner’s argument that private respondent was already in default in the payment of
his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. When the windmill failed to
function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of
the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
RATIO

Khe Hong Cheng vs. Court of Appeals
G.R. No. 144169 | March 28, 2001
KAPUNAN, J.
TOPIC: Enforcement of Creditor’s Rights – Accion Pauliana
THESIS STATEMENT
FACTS
the Philippine Agricultural Trading Corporation shipped on board the vessel M/V PRINCE
ERIC, owned by petitioner Khe Hong Cheng, bags of copra for delivery
 The said shipment of copra was covered by a marine insurance policy issued by
American Home Insurance Company (respondent Philam’s assured)
M/V PRINCE ERIC, however, sank resulting in the total loss of the shipment. Because of the
loss, the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.
 Having been subrogated into the rights of the consignee, American Home instituted a
case in the RTC to recover the money paid to the consignee, based on breach of contract
of carriage.
While the case was still pending, or on December 20, 1989, petitioner Khe Hong Cheng executed
deeds of donations of parcels of land in favor of his children, herein co-petitioners Sandra Joy
and Ray Steven.
The trial court rendered judgment against petitioner Khe Hong Cheng, four years after the
donations were made and the TCTs were registered in the donees’ names.
After the frst writ of execution was not served, an alias writ of execution was applied and
granted. Despite earnest efforts, the sheriff found no property under the name of Butuan
Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish for the satisfaction of the
trial court’s decision.
When the sheriff, accompanied by counsel of respondent Philam, went to enforce the alias writ
of execution, they discovered that petitioner Khe Hong Cheng no longer had any property and
that he had conveyed the subject properties to his children.
respondent Philam filed a complaint with the Regional Trial Court of Makati City, Branch 147,
for the rescission of the deeds of donation executed by petitioner Khe Hong Cheng in favor of
his children and for the nullification of their titles
the trial court
 Acting thereon, the trial court denied the motion to dismiss. It held that respondent

Philam’s complaint had not yet prescribed. According to the trial court, the prescriptive
period began to run only from December 29, 1993, the date of the decision of the trial
court in Civil Case No. 13357
the CA affirmed the trial court’s decision in favor of respondent Philam. The CA declared that
the action to rescind the donations had not yet prescribed. Citing Articles 1381 and 1383 of the
Civil Code, the CA basically ruled that the four year period to institute the action for rescission
began to run only when n it first learned that the judgment award could not be satisfied because
the judgment creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior
thereto, respondent Philam had not yet exhausted all legal means for the satisfaction of the
decision in its favor, as prescribed under Article 1383 of the Civil Code.
ARGUMENTS/DEFENSES
 Philam alleged that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of
his creditors, including respondent Philam.
 Petitioners moved for its dismissal on the ground that the action had already prescribed.
 It was already more than four (4) years since the registrationof the deeds to when the
complaint was filed, the action was already barred by prescription.
ISSUE/S
whether or not the action to rescind the donations has already prescribed.
 When did the four (4) year prescriptive period as provided for in Article 1389 of
the Civil Code for respondent Philam to file its action for rescission of the subject
deeds of donation commence to run?
RULING
Article 1389 of the Civil Code simply provides that, “The action to claim rescission must be
commenced within four years.”
 Since this provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e., from the moment the cause of action accrues,
therefore, applies. (Art. 1150)
it is the legal possibility of bringing the action which determines the starting point for the
computation of the prescriptive period for the action.
Article 1383 of the Civil Code provides as follows: An 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.
An accion pauliana accrues only when the creditor discovers that he has no other legal remedy
for the satisfaction of his claim against the debtor other than an accion pauliana
It requires that the creditor has exhausted the property of the debtor. The date of the decision of
the trial court is immaterial. What is important is that the credit of the plaintiff antedates that of
the fraudulent alienation by the debtor of his property.
Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong

Cheng had executed the deeds of donation in favor of his children, the complaint against
Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial
court. Respondent Philam had no inkling, at the time, that the trial court’s judgment would be
in its favor and further, that such judgment would not be satisfied due to the deeds of donation
executed by petitioner Khe Hong Cheng during the pendency of the case. Had respondent
Philam filed his complaint on December 27, 1989, such complaint would have been dismissed
for being premature, Not only were all other legal remedies for the enforcement of respondent
Philam’s claims not yet exhausted at the time the deeds of donation were executed and
registered. Respondent Philam would also not have been able to prove then that petitioner Khe
Hong Cheng had no more property other than those covered by the subject deeds to satisfy a
favorable judgment by the trial court.
Since respondent Philam filed its complaint for accion pauliana against petitioners on February
25, 1997, barely a month from its discovery that petitioner Khe Hong Cheng had no other
property to satisfy the judgment award against him, its action for rescission of the subject deeds
clearly had not yet prescribed.
RATIO
Art. 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.
an action to rescind or an accion pauliana must be of last resort, availed of only after all other
legal remedies have been exhausted and have been proven futile.
For an accion pauliana to accrue, the following requisites must concur:

1) That the plaintiff asking for rescission has a credit prior to the alienation, although
demandable later;
2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third
person;
3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission of the
conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the third person who received the property conveyed, if by onerous title, has been an
accomplice in the fraud.
An accion pauliana thus presupposes the following:

1) A judgment;
2) the issuance by the trial court of a writ of execution for the satisfaction of the judgment; and
3) the failure of the sheriff to enforce and satisfy the judgment of the court.
The following successive measures must be taken by a creditor before he may bring an action
for rescission of an allegedly fraudulent sale:
(1) exhaust the properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt from execution;

(2) exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and
(3) seek rescission of the contracts executed by the debtor in fraud of their rights

Siguan vs. Lim
G.R. No. 134685 | November 19, 1999.
DAVIDE, JR., C.J.
TOPIC: Enforcement of Creditor’s Rights – Accion Pauliana
THESIS STATEMENT
FACTS
, LIM issued two Metrobank checks payable to “cash.”
Upon presentment by petitioner with the drawee bank, the checks were dishonored for the
reason “account closed.”
As a consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal
Cases Nos. 22127-28, were filed by petitioner against LIM
 the court a quo convicted LIM as charged. The case is pending before this Court for
review
LIM was convicted of estafa by the RTC of Quezon City in Criminal Case No. Q-89-2216 2 filed
by a certain Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal,
however, this Court, in a decision 3 promulgated on 7 April 1997, acquitted LIM but held her
civilly liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation 4 conveying the following parcels of land and
purportedly executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and
Neil,
petitioner filed an accion pauliana against LIM and her children before Branch 18 of the RTC of
Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new
transfer certificates of title issued for the lots covered by the questioned Deed.
the trial court ordered the rescission of the questioned deed of donation; (2) declared null and
void the transfer certificates of title issued in the names of private respondents Linde, Ingrid
and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate
the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner,
jointly and severally, the sum of P10,000 as moral damages; P10,000 as attorney’s fees; and
P5,000 as expenses of litigation.
the Court of Appeals, in a decision 7 promulgated on 20 February 1998, reversed the decision of
the trial court and dismissed petitioner’s accion pauliana. It held that two of the requisites for
filing an accion pauliana were absent, namely, (1) there must be a credit existing prior to the
celebration of the contract; and (2) there must be a fraud, or at least the intent to commit fraud,
to the prejudice of the creditor seeking the rescission.

No antedating of the Deed of Donation was made, there being no convincing evidence on
record to indicate that the notary public and the parties did antedate it. Since LIM’s
indebtedness to petitioner was incurred in August 1990, or a year after the execution of the
Deed of Donation, the first requirement for accion pauliana was not met.
ARGUMENTS/DEFENSES
 Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation,
fraudulently transferred all her real property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and confederated with her children in
antedating the questioned Deed of Donation, to petitioner’s and other creditors’
prejudice; and that LIM, at the time of the fraudulent conveyance, left no sufficient
properties to pay her obligations.
 On the other hand, LIM denied any liability to petitioner. She claimed that her
convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the reason why
she appealed said decision to the Court of Appeals. As regards the questioned Deed of
Donation, she maintained that it was not antedated but was made in good faith at a time
when she had sufficient property. Finally, she alleged that the Deed of Donation was
registered only on 2 July 1991 because she was seriously ill.
ISSUE/S
Whether or not the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor
of her children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia
Siguan
RULING
Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them
are “those contracts undertaken in fraud of creditors when the latter cannot in any other
manner collect the claims due them.”
The general rule is that rescission requires the existence of creditors at the time of the alleged
fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract. Without any prior existing debt, there can neither be
injury nor fraud.
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990,
while the deed of donation was purportedly executed on 10 August 1989.
 The Court was not convinced that the question deed was antedated because the deed is
a public document, it having been acknowledged before a notary public. (Sec. 23, Rule
132 xxx All other public documents are evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter.)
 All other public documents are evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter.
 It bears repeating that notarial documents, except last wills and testaments, are public
documents and are evidence of the facts that gave rise to their execution and of their
date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not

enough to overcome the presumption as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioner’s claim against LIM was constituted only
in August 1990, or a year after the questioned alienation. Thus, the first two requisites for the
rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the
contract of donation, still her action for rescission would not fare well because the third
requisite was not met. Under Article 1381 of the Civil Code, contracts entered into in fraud of
creditors may be rescinded only when the creditors cannot in any manner collect the claims due
them.
Also, Article 1383 of the same Code provides that the action for rescission is but a subsidiary
remedy which cannot be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
The fourth requisite for an accion pauliana to prosper is not present either.
 Article 1387, first paragraph, of the Civil Code provides: “All contracts by virtue of
which the debtor alienates property by gratuitous title are presumed to have been
entered into in fraud of creditors when the donor did not reserve sufficient property to
pay all debts contracted before the donation.
 Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve
sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
 It was not sufficiently established that the properties left behind by LIM were not
sufficient to cover her debts existing before the donation was made. Hence, the
presumption of fraud will not come into play.
Under the third paragraph of Article 1387, the design to defraud may be proved in any other
manner recognized by the law of evidence. the Court has laid down specific rules by which the
character of the transaction may be determined. (SEE RATIO) The list is not exclusive.
However, Petitioner failed to discharge the burden of proving any of the circumstances
enumerated or any other circumstance from which fraud can be inferred.
Accordingly, since the four requirements for the rescission of a gratuitous contract are not
present in this case, petitioner’s action must fail.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to
the questioned alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code
provides that rescission shall only be to the extent necessary to cover the damages caused.
Under this Article, only the creditor who brought the action for rescission can benefit from the

rescission; those who are strangers to the action cannot benefit from its effects. 31 And the
revocation is only to the extent of the plaintiff creditor’s unsatisfied credit; as to the excess, the
alienation is maintained. 32 Thus, petitioner cannot invoke the credit of Suarez to justify
rescission of the subject deed of donation.
RATIO
The action to rescind contracts in fraud of creditors is known as accion pauliana.
For this action to prosper, the following requisites must be present:

(1) the plaintiff asking for rescission has a credit prior to the alienation, although demandable
later;
(2) the debtor has made a subsequent contract conveying a patrimonial benefit to a third person;
(3) the creditor has no other legal remedy to satisfy his claim;
(4) the act being impugned is fraudulent;
(5) the third person who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.
The term “subsidiary remedy” has been defined as “the exhaustion of all remedies by the
prejudiced creditor to collect claims due him before rescission is resorted to.”
The following have been denominated by the Court as badges of fraud:

 The fact that the consideration of the conveyance is fictitious or is inadequate;
 A transfer made by a debtor after suit has begun and while it is pending against him;
 A sale upon credit by an insolvent debtor;
 Evidence of large indebtedness or complete insolvency;
 The transfer of all or nearly all of his property by a debtor, especially when he is
insolvent or greatly embarrassed financially;
 The fact that the transfer is made between father and son, when there are present other
of the above circumstances; and
 The failure of the vendee to take exclusive possession of all the property.

National Power Corporation vs. Court of Appeals
G.R. No. 103442-45| May 21, 1993.
DAVIDE, JR., J.
TOPIC: Extinguishment of Liability In Case of Breach due to Fortuitous Event
THESIS STATEMENT
This is a petition for review on certiorari of the decision of the Court of Appeals which reversed
the Decision of Branch 5 of the then Court of First Instance (now Regional Trial Court) of
Bulacan, and held petitioners National Power Corporation (NPC) and Benjamin Chavez jointly
and severally liable to the private respondents for actual and moral damages, litigation
expenses and attorney’s fees.
FACTS
Private respondents filed four (4) separate complaints for damages against the NPC and
Benjamin Chavez before the trial court.
 The private respondents sought to recover actual and other damages for the loss of lives
and the destruction to property caused by the inundation of the town of Norzagaray,
Bulacan
 The flooding was purportedly caused by the negligent release by the defendants of
water through the spillways of the Angat Dam despite the defendants’ knowledge, as
early as 24 October 1978, of the impending entry of typhoon “Kading,” they failed to
exercise due diligence in monitoring the water level at the dam;
 when the said water level went beyond the maximum allowable limit at the height of the
typhoon, the defendants suddenly, negligently and recklessly opened three (3) of the
dam’s spillways, thereby releasing a large amount of water which inundated the banks
of the Angat River; and
 as a consequence, members of the household of the plaintiffs, together with their
animals, drowned, and their properties were washed away
the coming of said super typhoon was bannered by Bulletin Today, a newspaper of national
circulation, on October 25, 1978, as ‘Super Howler to hit R.P.’ The next day, October 26, 1978,
said typhoon once again merited a headline in said newspaper as leading’s Big Blow expected
this afternoon. Apart from the newspapers, defendants-appellees learned of typhoon ‘Kading’
through radio announcements.

The lower court rendered its decision dismissing the complaints “for lack of sufficient and
credible evidence.”
THE COURT OF APPEALS

 reversed the appealed decision and awarded damages in favor of the private

respondents.
 defendants-appellees maintained a reservoir water elevation even beyond its maximum
and safe level, thereby giving no sufficient allowance for the reservoir to contain the rain
water that will inevitably be brought by the coming typhoon.
 The early warning written notice by NPC was rejected by the CA. Said notice is
ineffectual, insufficient and inadequate for purposes of the opening of the spillway gates
at midnight
 It did not prepare or warn the persons so served, for the volume of water to be released,
which turned out to be of such magnitude, that residents near or along the Angat River,
even those one (1) kilometer away, should have been advised to evacuate.
ARGUMENTS/DEFENSES
PETITIONERS, alleged that:
1) the NPC exercised due care, diligence and prudence in the operation and maintenance
of the hydroelectric plant;
2) the NPC exercised the diligence of a good father in the selection of its employees;
3) written notices were sent to the different municipalities of Bulacan warning the residents
therein about the impending release of a large volume of water with the onset of
typhoon “Kading” and advising them to take the necessary precautions;
4) the water released during the typhoon was needed to prevent the collapse of the dam
and avoid greater damage to people and property;
5) in spite of the precautions undertaken and the diligence exercised, they could still not
contain or control the flood that resulted and; 6) the damages incurred by the private
respondents were caused by a fortuitous event or force majeure and are in the nature
and character of damnum absque injuria.
6) NPC cannot be sued because it performs a purely governmental function.

ISSUE/S
RULING
National Power Corporation, et al. vs. Court of Appeals, et al., said case involved the very same
incident subject of the instant petition. In no uncertain terms
We declared therein that the proximate cause of the loss and damage sustained by the plaintiffs
therein—who were similarly situated as the private respondents herein—was the negligence of
the petitioners, and
that the 24 October 1978 “early warning notice” supposedly sent to the affected municipalities,
the same notice involved in the case at bar, was insufficient.
We thus cannot now rule otherwise not only because such a decision binds this Court with
respect to the cause of the inundation of the town of Norzagaray, Bulacan on 26-27 October 1978
which resulted in the loss of lives and the destruction to property in both cases, but also because
of the fact that on the basis of its meticulous analysis and evaluation of the evidence adduced by
the parties in the cases subject of CA-G.R. CV Nos. 27290-93

public respondent found as conclusively established that indeed, the petitioners were guilty of
“patent gross and evident lack of foresight, imprudence and negligence in the management
and operation of Angat Dam,” and the extent of the opening of the spillways, and the
magnitude of the water released, are all but products of defendants-appellees’ headlessness,
slovenliness, and carelessness.
Juan F. Nakpil & Sons vs. Court of Appeals: To exempt the obligor from liability under
Article 1174 of the Civil Code, for a breach of an obligation due to an ‘act of God,’ the
following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the
debtor;
(b) the event must be either unforeseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to
the creditor.
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation as provided for in Article 1170 of the Civil Code, which
results in loss or damage, the obligor cannot escape liability
petitioners cannot be heard to invoke the act of God or force majeure to escape liability for the
loss or damage sustained by the private respondents since they, the petitioners, were guilty of
negligence. The event then was not occasioned exclusively by an act of God or force majeure; a
human factor—negligence or imprudence—had intervened. The effect then of the force majeure
in question may be deemed to have, even if only partly, resulted from the participation of man.
Thus, the whole occurrence was thereby humanized, as it were, and removed from the rules
applicable to acts of God.
RATIO

Almeda vs. Court of Appeals
G.R. No. 113412 | April 17, 1996
KAPUNAN, J.
TOPIC: Extinguishment of Liability In Case of Breach due to Fortuitous Event - Exceptions
THESIS STATEMENT
FACTS
,
ARGUMENTS/DEFENSES


ISSUE/S
RULING
RATIO

Makati Development Corporation vs. Empire Insurance Company
G.R. No. L-21780 | JUNE 30, 1967
CASTRO, J.
TOPIC: Kinds of Obligation – with a penal clause
THESIS STATEMENT
FACTS
the Makati Development Corporation sold to Rodolfo P. Andal a lot
A so-called "special condition" contained in the deed of sale provides that "[T]he VENDEE/S
shall commence the construction and complete at least 50% of his/her/their/ its residence on the
property within two (2) years from March 31, 1959 to the satisfaction of the VENDOR and, in
the event of his/her/their/its failure to do so, the bond which the VENDEE/S has delivered to the
VENDOR in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959
will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply
with this special condition."
Andal gave a surety bond on April 10, 1959 wherein he, as principal, and the Empire Insurance
Company, as surety, jointly and severally, undertook to pay the Makati Development
Corporation the sum of ?12,000 in case Andal failed to comply with his obligation under the
deed of sale
Andal did not build his house; instead he sold the lot to Juan Carlos
As neither Andal nor Juan Carlos built a house on the lot within the stipulated period, the
Makati Development Corporation, three days after the lapse of the two-year period, sent a
notice of claim to the Empire Insurance Co. advising it of Andal's f ailure to comply with his
undertaking.
The demand was refused so the Makati Development Corporation filed a complaint against the
Empire Insurance Co. to recover on the bond in the full amount, plus attorney's fees.
Respondent on its answer asked that in the event of a judgment in favor of the Makati
Development Corporation, that judgment be rendered ordering Andal to pay the Empire
Insurance Co. whatever amount it may be ordered to pay
Andal admitted the execution of the bond but alleged that the "special condition" in the deed of
sale was contrary to law, morals and public policy. He averred that, at any rate, Juan Carlos had
started construction of a house on the lot.

the lower court rendered judgment, sentencing the Empire Insurance Co. to pay the Makati
Development Corporation the amount of P1,500, with interest at the rate of 12% from the time
of the filing of the complaint until the amount was fully paid, and to pay attorney's fees in the
amount of P500, and the proportionate part of the costs.
The court directed that in case the amount of the judgment was paid by the Empire Insurance
Co., Andal should in turn pay the former the sum of P1,500 with interest at 12% from the time

of the filing of the complaint to the time of payment and to pay attorney's fees in the sum of
P500 and proportionate part of the costs.
ARGUMENTS/DEFENSES


ISSUE/S
RULING
"While no building has actually been constructed before the target date which is March 31, 1961,
it is also a fact that even before that date the entire area was already fenced with a stone wall
and building materials were also stocked in the premises which are clear indicia of the owner's
desire to construct his house with the least possible delay. As a matter of fact the
incontrovertible testimony of Juan Carlos is to the effect that by the end of April 1961, he had
finished very much more than the required 50% stipulated in the contract of sale. In short there
was only really a little delay."
To begin with, the so-called "special condition" in the deed of sale is in reality an obligation 1—
to build a house at least 50 per cent of which must be finished within two years. It was to secure
the performance of this obligation that a penal clause was inserted.
While it is true that in obligations with a penal sanction the penalty takes the place of "damages
and the payment of interest in case of non-compliance" 2 and that the obligee is entitled to
recover upon the breach of the obligation without the need of proving damages, 3 it is
nonetheless true that in certain instances a mitigation of the obligor's liability is allowed.
Thus article 1229 of the Civil Code states: "The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.".
it has been held that where there has been partial or irregular compliance with the provisions in
a contract for special indemnification in the event of failure to comply with its terms, courts will
rigidly apply the doctrine of strict construction against the enf orcement in its entirety of the
indemnification, where it is clear from the contract that the amount or character of the
indemnity is fixed without regard to the probable damages which might be anticipated as a
result of a breach of the terms of the contract, or, in other words, where the indemnity provided
f or is essentially a mere penalty having for its object the enforcement of compliance with the
contract. 6 The penal clause in this case was inserted not to indemnify the Makati Development
Corporation for any damage it might suffer as a result of a breach of the contract but rather to
compel performance of the so-called "special condition" and thus encourage home building
among lot owners in the Urdaneta Village.
the stipulation in this case to commence the construction and complete at least 50 per cent of the
vendee's house within two years cannot be construed as imposing a strictly personal obligation
on Andal. To adopt such a construction would be to limit Andal's right to dispose of the lot.
There is nothing in the deed of sale restricting Andal's right to sell the lot at least within the
two-year period and we think it plain that a reading of such a limitation on one of the rights of

ownership must rest on more explicit language in the contract. It cannot be left to mere
inference
RATIO

Tan vs. Court of Appeals
G.R. No. 116285 | October 19, 2001
DE LEON, JR., J.
THESIS STATEMENT
FACTS
Antonio Tan obtained two (2) loans each in the principal amount of Two Million Pesos
(P2,000,000.00) from respondent Cultural Center of the Philippines evidenced by two (2)
promissory notes
Petitioner defaulted but after a few partial payments he had the loans restructured by
respondent CCP, and petitioner accordingly executed a promissory note in the amount of Three
Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two
Centavos (P3,411,421.32) payable in five (5) installments. Petitioner Tan failed to pay any
installment on the said restructured loan.
In a letter, petitioner requested and proposed to respondent CCP a mode of paying the
restructured loan,
1. twenty percent (20%) of the principal amount of the loan upon the respondent giving its
conformity to his proposal; and
2. the balance on the principal obligation payable in thirty-six (36) equal monthly
installments until fully paid.
petitioner again sent a letter to respondent CCP requesting for a moratorium on his loan
obligation until the following year allegedly due to a substantial deduction in the volume of his
business and on account of the peso devaluation. No favorable response was made to said
letters. Instead, respondent CCP in a letter, demanded full payment, within ten (10) days from
receipt of said letter, of the petitioner’s restructured loan
respondent CCP filed in the RTC of Manila a complaint for collection of a sum of money,
against the petitioner after the latter failed to settle his said restructured loan obligation.
The petitioner interposed the defense that he merely accommodated a friend, Wilson Lucmen,
who allegedly asked for his help to obtain a loan from respondent CCP. Petitioner claimed that
he has not been able to locate Wilson Lucmen.
the trial court rendered a decision in favor of CCP
The petitioner appealed the decision of the trial court to the Court of Appeals insofar as it
charged interest, surcharges, attorney’s fees and exemplary damages against the petitioner.

The CA affirmed the decision of the trial court imposing surcharges and interest
ARGUMENTS/DEFENSES


ISSUE/S
whether there are contractual and legal bases for the imposition of the penalty, interest on the
penalty and attorney’s fees.
RULING
YES.
Article 1226 of the New Civil Code provides that:
In obligations with a penal clause, the penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code.
In the case at bar, the promissory note expressly provides for the imposition of both interest and
penalties in case of default on the part of the petitioner in the payment of the subject
restructured loan.
 With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof
until paid PLUS THREE PERCENT (3%) SERVICE CHARGE.
 In case of non-payment of this note at maturity/on demand or upon default of payment
of any portion of it when due, I/We jointly and severally agree to pay additional penalty
charges at the rate of TWO per cent (2%) per month on the total amount due until paid,
payable and computed monthly.
The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil
Code. 7 On the other hand, the stipulated two percent (2%) per month penalty is in the form of
penalty charge which is separate and distinct from the monetary interest on the principal of the
loan.
There is no doubt that the petitioner is liable for both the stipulated monetary interest and the
stipulated penalty charge. The penalty charge is also called penalty or compensatory interest.
the next issue to be resolved is whether interest may accrue on the penalty or compensatory
interest without violating the provisions of Article 1959 of the New Civil Code, which provides
that:
 Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest
due and unpaid, which as added principal, shall earn new interest.

penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding
of the penalty or compensatory interest is sanctioned by and allowed pursuant to the above-
quoted provision of Article 1959 of the New Civil Code
First, there is an express stipulation in the promissory note (Exhibit “A”) permitting the
compounding of interest stating that any penalty interest not paid, when due, shall earn the
legal interest of twelve percent (12%) per annum, in the absence of express stipulation on the
specific rate of interest, as in the case at bar.
Second, Article 2212 of the New Civil Code provides that “Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this point.”
In the instant case, interest likewise began to run on the penalty interest upon the filing of the
complaint in court by respondent CCP on August 29, 1984. Hence, the courts a quo did not err
in ruling that the petitioner is bound to pay the interest on the total amount of the principal, the
monetary interest and the penalty interest.
The petitioner seeks the elimination of the compounded interest imposed on the total amount
based allegedly on the case of National Power Corporation v. National Merchandising
Corporation. In the case at bar, however, equity cannot be considered inasmuch as there is a
contractual stipulation in the promissory note whereby the petitioner expressly agreed to the
compounding of interest in case of failure on his part to pay the loan at maturity. Inasmuch as
the said stipulation on the compounding of interest has the force of law between the parties and
does not appear to be inequitable or unjust, the said written stipulation should be respected.
The petitioner now seeks the reduction of the penalty due to the said partial payments.
Petitioner contends that reduction of the penalty is justifiable pursuant to Article 1229 of the
New Civil Code which provides that: “The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.” Petitioner insists that the penalty should be reduced to ten percent (10%) of
the unpaid debt in accordance with Bachrach Motor Company v. Espiritu.
There appears to be a justification for a reduction of the penalty charge but not necessarily to ten
percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as
petitioner has made partial payments which showed his good faith, a reduction of the penalty
charge from two percent (2%) per month on the total amount due, compounded monthly, until
paid can indeed be justified under the said provision of Article 1229 of the New Civil Code.
the continued monthly accrual of the two percent (2%) penalty charge on the total amount due
to be unconscionable inasmuch as the same appeared to have been compounded monthly
Considering petitioner’s several partial payments and the fact he is liable under the note for the
two percent (2%) penalty charge per month on the total amount due, compounded monthly, for
twenty-one (21) years since his default in 1980, we find it fair and equitable to reduce the
penalty charge to a straight twelve percent (12%) per annum on the total amount due

We also took into consideration the offers of the petitioner to enter into a compromise for the
settlement of his debt by presenting proposed payment schemes to respondent CCP. The said
offers at compromise also showed his good faith despite difficulty in complying with his loan
obligation due to his financial problems. However, we are not unmindful of the respondent’s
long overdue deprivation of the use of its money collectible from the petitioner.
RATIO
In Government Service Insurance System v. Court of Appeals:
The New Civil Code permits an agreement upon a penalty apart from the monetary interest. If
the parties stipulate this kind of agreement, the penalty does not include the monetary interest,
and as such the two are different and distinct from each other and may be demanded
separately.
Quoting Equitable Banking Corp. v. Liwanag: such a stipulation about payment of an additional
interest rate partakes of the nature of a penalty clause which is sanctioned by law, more
particularly under Article 2209 of the New Civil Code which provides that: If the obligation
consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed
upon, and m the absence of stipulation, the legal interest, which is six per cent per annum.
Country Bankers Insurance Corp. vs. Court of Appeals
G.R. No. 85161 | September 9, 1991
MEDIALDEA, J.
THESIS STATEMENT
FACTS
Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the petitioner Enrique F. Sy, as
lessee, entered into a lease agreement over the Avenue, Broadway and Capitol Theaters and the
land on which they are situated including their air-conditioning systems, projectors and
accessories needed for showing the films or motion pictures. The term of the lease was for six
(6) years
After more than two (2) years of operation of the Avenue, Broadway and Capitol Theaters, the
lessor OVEC made demands for the repossession of the said leased properties in view of the
Sy’s arrears in monthly rentals and non-payment of amusement taxes.
OVEC and Sy had a conference and by reason of Sy’s request for reconsideration of OVEC’s
demand for repossession of the three (3) theaters, the former was allowed to continue operating
the leased premises upon his conformity to certain conditions imposed by the latter in a
supplemental agreement

In pursuance of their latter agreement, Sy’s arrears in rental was reduced. However, the accrued
amusement tax liability of the three (3) theaters to the City Government of Cabanatuan City had
accumulated despite the fact that Sy had been deducting the amount of P4,000.00 from his
monthly rental with the obligation to remit the said deductions to the city government. Hence,
letters of demand were sent to Sy demanding payment of the arrears in rentals and amusement
tax delinquency. The latter demand was with warning that OVEC will re-enter and repossess
the Avenue, Broadway and Capital Theaters in pursuance of the pertinent provisions of their
lease contract and their supplemental letter-agreement
But notwithstanding the said demands and warnings Sy failed to pay the abovementioned
amounts in full. Consequently/ OVEC padlocked the gates of the three theaters under lease and
took possession thereof
Sy, through his counsel, filed the present action for reformation of the lease agreement,
damages and injunction
The trial court arrived at the conclusions that Sy is not entitled to the reformation of the lease
agreement; that the repossession of the leased premises by OVEC after the cancellation and
termination of the lease was in accordance with the stipulation of the parties in the said
agreement and the law applicable thereto and that the consequent forfeiture of Sy’s cash deposit
in favor of OVEC was clearly agreed upon by them in the lease agreement. The trial court
further concluded that Sy was not entitled to the writ of preliminary injunction issued in his
favor after the commencement of the action and that the injunction bond filed by Sy is liable for
whatever damages OVEC may have suffered by reason of the injunction.
the trial court found that the said lessor was deprived of the possession and enjoyment of the
leased premises and also suffered damages as a result of the filing of the case by Sy and his
violation of the terms and conditions of the lease agreement. Hence, it held that OVEC is
entitled to recover the said damages in addition to the arrears in rentals and amusement tax
delinquency of Sy and the accrued interest thereon. In addition, it held that Sy was under
obligation to pay P10,000.00 every month from February to November, 1980 or the total amount
of P100,000.00 with interest on each amount of P10,000.00 from the time the same became due.
This P10,000.00 portion of the monthly lease rental was supposed to come from the remaining
cash deposit of Sy but with the consequent forfeiture of the remaining cash deposit of
P290,000.00, there was no more cash deposit from which said amount could be deducted.
Further, it adjudged Sy to pay attorney’s fees equivalent to 10% of the amounts above-
mentioned.
The Court of Appeals held that the cancellation or termination of the agreement prior to its
expiration period is justified as it was brought about by Sy’s own default in his compliance with
the terms of the agreement and not “motivated by fraud or greed.” It also affirmed the award to
OVEC of the amount of P1 00,000.00 chargeable against the injunction bond posted by CBISCO,
which was soundly and amply justified by the trial court

ARGUMENTS/DEFENSES


ISSUE/S
Whether or not the forfeiture clause stipulated in the lease agreement would unjustly enrich the
respondent OVEC at the expense of Sy and CBISCO—contrary to law, morals, good customs,
public order or public policy.
RULING
NO.
A provision which calls for the forfeiture of the remaining deposit still in the possession of the
lessor, without prejudice to any other obligation still owing, in the event of the termination or
cancellation of the agreement by reason of the lessee’s violation of any of the terms and
conditions of the agreement is a penal clause that may be validly entered into.
As a general rule, in obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of non-compliance. This is specifically
provided for in Article 1226, par. 1, New Civil Code. In such case, proof of actual damages
suffered by the creditor is not necessary in order that the penalty may be demanded
However, there are exceptions to the rule that the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance with the principal obligation.
They are first, when there is a stipulation to the contrary; second, when the obligor is sued for
refusal to pay the agreed penalty; and third, when the obligor is guilty of fraud (Article 1226,
par. 1, New Civil Code). It is evident that in all said cases, the purpose of the penalty is to
punish the obligor. Therefore, the obligee can recover from the obligor not only the penalty but
also the damages resulting from the nonfulfillment or defective performance of the principal
obligation.
In the case at bar, inasmuch as the forfeiture clause provides that the deposit shall be deemed
forfeited, without prejudice to any other obligation still owing by the lessee to the lessor. the
penalty cannot substitute for the P100,000.00 supposed damage resulting from the issuance of
the injunction against the P290,000.00 remaining cash deposit. This supposed damage suffered
by OVEC was the alleged P10,000.00 a month increase in rental from P50,000.00 to P60,000.00),
which OVEC failed to realize for ten months. In the case at bar, inasmuch as the forfeiture
clause provides that the deposit shall be deemed forfeited, without prejudice to any other
obligation still owing by the lessee to the lessor. the penalty cannot substitute for the
P100,000.00 supposed damage resulting from the issuance of the injunction against the
P290,000.00 remaining cash deposit. This supposed damage suffered by OVEC was the alleged
P10,000.00 a month increase in rental from P50,000.00 to P60,000.00), which OVEC failed to
realize for ten months
The undertaking assumed by CBISCO under subject injunction refers to “all such damages as
such party may sustain by reason of the injunction if the Court should finally decide that the

Plaintiff was/were not entitleds thereto,”
Thus, the respondent Court correctly sustained the trial court in holding that the bond shall and
may answer only for damages which OVEC may suffer as a result of the injunction. The arrears
in rental, the unmeritted amounts of the amusement tax delinquency, and attorney’s fees which
were all charged against Sy were correctly considered by the respondent Court as damages
which OVEC sustained not as a result of the injunction.
RATIO
A penal clause is an accessory obligation which the parties attach to a principal obligation for
the purpose of insuring the performance thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or
is irregularly or inadequately fulfilled.

Makati Development Corporation vs. Empire Insurance Company
G.R. No. L-21780 | JUNE 30, 1967
CASTRO, J.
TOPIC: Kinds of Obligation – with a period
THESIS STATEMENT
FACTS
ARGUMENTS/DEFENSES


ISSUE/S
RULING
RATIO

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VDA De Villaruel v. Manila Motor Co. Inc.

G.R. No. L-10394| December 13, 1958

TOPIC: Modes of Breach - Delay

OBLICON – Case Digests Page 1

LOWER COURT DECISION

 mere act of trespass ( perturbacion de mero hecho)

OBLICON – Case Digests Page 2

OBLICON – Case Digests Page 3

G.R. No. 49852 | October 19, 1989

TOPIC: Modes of Breach - Delay

LOWER COURT DECISION

OBLICON – Case Digests Page 4

OBLICON – Case Digests Page 5

G.R. No. L-45710| October 3, 1985

TOPIC: Modes of Breach - Delay

OBLICON – Case Digests Page 6

OBLICON – Case Digests Page 7

OBLICON – Case Digests Page 8

G.R. No. 77645| August 7,1989

TOPIC: Modes of Breach - Delay

OBLICON – Case Digests Page 9

OBLICON – Case Digests Page 10

Article 1257 (1251), New Civil Code

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G.R. No. 153004| November 5, 2004

TOPIC: Modes of Breach - Delay

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G.R. No. 149734 | November 19, 2004

TOPIC: Modes of Breach - Delay

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G.R. No. 32336| December 20, 1930

TOPIC: Modes of Breach - Delay

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G.R. No. L-73867| February 29, 1988

TOPIC: Modes of Breach - Contravention of Tenor

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This liability is not limited to actual or quantified damages.

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G.R. No. L-15645| January 31, 1964

TOPIC: Modes of Breach - Contravention of Tenor

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G.R. No. 131784| September 16, 1999

TOPIC: Kinds of Obligations – Pure/Conditional

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COURT OF APPEALS: in favor of respondents

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2. Ninth Clause Was a Condition Precedent

3. Respondents Cannot Rescind the Contract

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G.R. No. 103577 | October 7, 1996

TOPIC: Kinds of Obligations – Pure/Conditional

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Article 1186 of the Civil Code expressly provides that:

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G.R. No. 24190| July 13, 1926