OBLICON Case Digests

CIVIL LAW REVIEW 2
Atty. Crisostomo A. Uribe
OBLIGATIONS
The rule that a new promise to pay a prescribed debt must be made by the same obligated
A. In General person or by another legally authorized by him, is not applicable to the present case in
which the fulfillment of the obligation of the obligor originally is not required, but of
1. Definition – Art. 1156 the one who later voluntarily wanted to assume this obligation.
2. Kinds of Obligations as to basis & enforceability – Art. 1423 –
1430; RA 6809 NOTE: Art. 1424. When a right to sue upon a civil obligation has lapsed by extinctive
3. Prescription of Actions – 1139 – 1155
prescription, the obligor who voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered. Re: Prescription — The right
VILLAROEL v. ESTRADA to prescription may be waived or renounced
G.R. No. L – 47362 December 19, 1940 Advance, Pres.
PRIMITIVO ANSAY v. THE BOARD OF DIRECTORS OF THE
DOCTRINE: Natural Obligations; The rule that a new promise to pay a prescribed NATIONAL DEVELOPMENT COMPANY, ET AL.
debt must be made by the same obligated person is not applicable to the present case G.R. No. L – 13667 April 29, 1960 Paras, C.J. (En Banc)
in which the fulfillment of the obligation of the original obligor is not required, but
of the one who later voluntarily wanted to assume this obligation.
DOCTRINE: A bonus is not a demandable and enforceable obligation. It is so when
it is made a part of the wage or salary compensation.
NATURE OF ACTION: Appeal
NATURE OF ACTION: This is an appeal from the decision of the Court of First
FACTS: On May 9, 1912, Alejandra F. Callao, mother of the defendant Juan F.
Instance of Manila which dismissed a complaint praying for a 20% Christmas bonus.
Villarroel, obtained from the spouses Mariano Estrada and Severina a loan of P1,000,
payable after seven years. Alejandra passed away, leaving the defendant as the sole heir.
FACTS: The appellants are employees of the appellee herein, National Development
The spouses Mariano Estrada and Severina also died, leaving the plaintiff Bernardino
Company. Appellants filed against appellees in the CFI of Manila a complaint praying
Estrada as the sole heir. On August 9, 1930, the Villaroel signed a document by which
for a 20% Christmas bonus for the years 1954 and 1955. The court a quo dismissed the
he declares that he owes the Estrada the amount of P1,000, with an interest of 12 percent
complaint, ruling that: Petitioners have no cause of action to secure a bonus because a
per year. Villaroel failed to pay.
bonus is an act of liberality and Petitioners have no power to compel a party to comply
with a moral obligation. Hence this appeal. Appellants contend that there exists a cause
An action was filed in CFI of Laguna for collection of sum of money and the court
of action in their complaint because their claim rests
ordered the defendant to pay the plaintiff the amount with legal interest of 12 percent
on moral grounds or natural obligation.
per year from August 9, 1930 until full payment. The order was appealed
ISSUE: Whether or not appellees are under legal obligation to give such claimed bonus.
ISSUE: Whether or not Villaroel is under an obligation to pay the loan that has already
been prescribed?
RULING: NO, appellees are not under legal obligation to give such claimed bonus.
RULING: YES. This action is not based on the original obligation contracted by the
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil
defendant's mother, which has already prescribed, but on the one contracted by the
obligations are a right of action to compel their performance. Natural obligations, not
defendant on August 9, 1930 upon assuming the fulfillment of that obligation, already
being based on positive law but on equity and natural law, do not grant a right of action
prescribed. Being the defendant the sole heir of the original debtor, with the right to
to enforce their performance, but after voluntary fulfillment by the obligor, they
succeed her in her inheritance, that debt contracted by his mother legally, although it
authorize the retention of what has been delivered or rendered by reason thereof".
lost its effectiveness by prescription, is now, however, for him a moral obligation,
| BACARRO | BARON | BUNAL | CABALANG | CABRAL | CALIUAG | CASTILLO | DE LA PENA | DIZON | EDNALAGA | ESPINOSA | JACINTO | KOK | KUA |
1 | MANGAYA | MERCADER | MUNGCAL | OGENA | PERLEZ | REGENCIA | REYES, E | REYES, S | ROMANO | SAGMON | SALAPARE | SANTOS |TIONGSON |
CIVIL LAW REVIEW 2
RULING: Yes, it is valid. There is no doubt that prescription has set in as to the first
The grant of bonus arises only from a moral obligation or the natural obligation. An promissory note. However, when respondent Confesor executed the second promissory
element of natural obligation before it can be cognizable by the court is voluntary note whereby he promised to pay the amount covered by the previous promissory note,
fulfillment by the obligor. Certainly retention can be ordered but only after there has and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent
been voluntary performance. But here there has been no voluntary performance. In fact, thereby effectively and expressly renounced and waived his right to the prescription of
the court cannot order the performance. the action covering the first promissory note.
DBP v. CONFESSOR There is a new promise to pay the debt. The consideration of the new promissory note
G.R. No. L – 48889 May 11, 1989 Gancayco, J. is the pre-existing obligation under the first promissory note.
DOCTRINE: A new express promise to pay a debt barred will take the case from HEIRS OF ROLDA v. HEIRS OF ROLDAN AND HEIRS OF MAGTULIS
the operation of the statute of limitations as this proceeds upon the ground that as a G.R. No. 202587 September 27, 2017 Sereno, C.J.
statutory limitation merely bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a promise, to wit a – pre- DOCTRINE: Prescription cannot be appreciated against the co-owners of a
existing debt which is a sufficient consideration for the new the new promise; upon property, absent any conclusive act of repudiation made clearly known to the other
this sufficient consideration constitutes, in fact, a new cause of action. co owners.
NATURE OF ACTION: Petition for review on certiorari NATURE OF ACTION: Petition for Review on Certiorari assailing the CA decision
FACTS: On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte FACTS: Natalia Magtulis owned Lot No. 4696, an agricultural land in Kalibo, Aklan,
obtained an agricultural loan from the Agricultural and Industrial Bank (AIB), now the which had an area of 21,739 square meters. Her heirs included Gilberto Roldan and
Development of the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, Silvela Roldan, her two children by her first marriage; and, allegedly, Leopolda Magtulis
as evidenced by a promissory note of said date whereby they bound themselves jointly her child with another man named Juan Aguirre. After her death in 1961, Natalia left the
and severally to pay the account in ten (10) equal yearly amortizations. lot to her children. However, Gilberto and his heirs took possession of the property to
the exclusion of respondents.
As the obligation remained outstanding and unpaid even after the lapse of the aforesaid
ten-year period, Confesor, who was by then a member of the Congress of the On 19 May 2003, respondents filed before the RTC a Complaint for Partition and
Philippines, executed a second promissory note on April 11, 1961 expressly Damages against petitioners. The latter refused to yield the property on these grounds:
acknowledging said loan and promising to pay the same on or before June 15, 1961. (1) respondent heirs of Silvela had already sold her share to Gilberto; and (2) respondent
heirs of Leopolda had no cause of action, given that he was not a child of Natalia.
Said spouses not having paid the obligation on the specified date, the DBP filed a
complaint dated September 11, 1970 in the City Court of Iloilo City against the spouses During trial, petitioners failed to show any document evidencing the sale of Silvela's
for the payment of the loan. share to Gilberto. Thus, in its Decision dated 14 December 2007, the RTC ruled that the
heirs of Silvela remained co-owners of the property they had inherited from Natalia. As
ISSUE: Whether or not the second promissory note which was executed in regards Leopoldo Magtulis, the trial court concluded that he was a son of Natalia based
consideration of a previous promissory note the enforcement of which had been on his Certificate of Baptism and Marriage Contract.
barred by prescription is valid
Petitioners appealed to the CA. They reiterated that Silvela had sold her share of the
property to her brother Gilberta. They also asserted that the RTC could not have
CIVIL LAW REVIEW 2
considered Leopolda the son of Natalia on the mere basis of his Certificate of Baptism for review on certiorari under Rule 45 of the Rules of Court, as in this case, entertain
since the Certificate of Baptism served only as evidence of the administration of the questions of law, petitioners claim of prescription and laches fail.
sacrament.
Second, petitioners have alleged prescription and laches only before this Court. Raising
In its Decision dated 20 December 2011, the CA affirmed the ruling of the RTC that a new ground for the first time on appeal contravenes due process, as that act deprives
Gilberto, Silvela, and Leopoldo remained co-owners of Lot No. 4696. The appellate the adverse party of the opportunity to contest the assertion of the claimant.
court refused to conclude that Silvela had sold her shares to Gilberto without any
document evidencing a sales transaction. It also held that Leopoldo was the son of The assessment of the existence of the sale requires the calibration of the evidence on
Natalia, since his Certificate of Baptism and Marriage Contract indicated her as his record and the probative weight thereof. The RTC, as affirmed by the CA, already
mother. performed its function and found that the heirs of Gilberto had not presented any
document or witness to prove the fact of sale.
Petitioner heirs of Gilberto moved for reconsideration but to no avail. Hence this
(petition for petition for review on certiorari), reiterating their previous arguments with 2. No. The factual determination of courts, when adopted and confirmed by the
an additional contention that prescription and laches already preclude the heirs of Silvela CA, is final and conclusive on this Court except if unsupported by the evidence
and the heirs of Leopoldo from claiming co-ownership over Lot No. 4696. Petitioners on record. In this case, the exception does not apply, as petitioners merely
claim that respondents lost their rights over the property since the action for partition alleged that Silvela "sold, transferred and conveyed her share in the land in
was lodged before the RTC only in 2003, or 42 years since Gilberto occupied the question to Gilberto Roldan for a valuable consideration" without
property in 1961. particularizing the details or referring to any proof of the transaction.
ISSUES: 3. No. Jurisprudence has already assessed the probative value of baptismal
1. Whether or not prescription and laches had already set in barring respondents certificates. In Fernandez v. Court of Appeals, which referred to our earlier
from claiming coownership over Lot No. 4696? (CIV2 Related Issue) rulings in Berciles v. Government Service Insurance System and
2. Whether or not the CA erred in affirming the RTC’s finding that Silvela did Macadangdang v. Court of Appeals, the Court explained that because the
not sell her share of the property? putative parent has no hand in the preparation of a baptismal certificate, that
3. Whether the courts a quo were correct in holding that Leopoldo was the son of document has scant evidentiary value.
Natalia based on his baptismal and marriage certificates?
But in Makati Shangri-La Hotel and Resort, Inc. v. Harper, this Court clarified that a
RULINGS: baptismal certificate has evidentiary value to prove kinship "if considered alongside
1. No. Prescription cannot be appreciated against the co-owners of a property, other evidence of filiation.” Therefore, to resolve one's lineage, courts must peruse other
absent any conclusive act of repudiation made clearly known to the other pieces of evidence instead of relying only on a canonical record. By way of example,
co-owners. Two grounds deter them from successfully claiming the existence we have considered the combination of testimonial evidence family pictures, as well as
of prescription and laches. family books or charts, alongside the baptismal certificates of the claimants, in proving
kinship.
First, as demanded by the repudiation requisite for prescription to be appreciated, there
is a need to determine the veracity of factual matters such as the date when the period to The only other document considered by the RTC and the CA was the Marriage Contract
bring the action commenced to run. In Macababbad, Jr. v. Masirag, we considered that of Leopoldo. But, like his baptismal certificate, his Marriage Contract also lacks
determination as factual in nature. The same is true in relation to finding the existence probative value as the latter was prepared without the participation of Natalia. Moreover,
of laches. We held in Crisostomo v. Garcia, Jr. that matters like estoppel, laches, and by virtue of these documents alone, the RTC and the CA could not have justly concluded
fraud require the presentation of evidence and the determination of facts. Since petitions that Leopoldo and his successors-in-interest were entitled to a one-third share of the
CIVIL LAW REVIEW 2
property left by Natalia, equal to that of each of her undisputed legitimate children RULING: NO. NACOCO is not guilty of any offense at all, because it entered the
Gilberto and Silvela. premises and occupied it with the permission of the entity which had the legal control
and administration thereof, the APC. Neither was there any negligence on its part. There
4. Elements of Obligations was also no privity (of contract or obligation) between the APC and the Taiwan
Tekkosho, which had secured the possession of the property from the plaintiff-appellee
B. Sources of Civil Obligations – Art 1157 by the use of duress, such that the APC or its permittee (defendant-appellant) may be
held responsible for the supposed illegality of the occupation of the property by the said
SAGRADA ORDEN v. NACOCO Taiwan Tekkosho. The Alien Property Administration had the control and
G.R. No. L – 3756 June 30, 1952 Labrador, J. administration of the property not as successor to the interests of the enemy holder of
the title, the Taiwan Tekkosho, but by express provision of law. Neither is it a trustee of
DOCTRINE: If the defendant-appellant is liable at all, its obligations must arise the former owner, the plaintiff-appellee herein, but a trustee of the US Government in
from any of the four sources of obligations, namely, law, contract or quasi-contract, its own right, to the exclusion of, and against the claim or title of, the enemy owner.
crime, or negligence. From August, 1946, when defendant-appellant took possession, to the late of judgment
on February 28, 1948, Alien Property Administration had the absolute control of the
NATURE OF ACTION: An action to recover the possession of a piece of real property property as trustee of the Government of the United States, with power to dispose of it
and rentals for the use and possession. by sale or otherwise, as though it were the absolute owner. Therefore, even if defendant-
appellant were liable to the Alien Property Administration for rentals, these would not
FACTS: The land in question belongs to plaintiff Sagrada Orden in whose name the accrue to the benefit of the plaintiff-appellee, the owner, but to the United States
title was registered before the war. During the Japanese military occupation, the land Government.
was acquired by a Japanese corporation by the name of Taiwan Tekkosho.
There was no agreement between the APC and the defendant-appellant for the latter to
pay rentals on the property. The existence of an implied agreement to that effect is
After liberation, the Alien Property Custodian of the United States of America took
possession, control, and custody of the property pursuant to the Trading with the Enemy contrary to the circumstances. The copra Export Management Company, which
Act. The property was occupied by the Copra Export Management Company under a preceded the defendant-appellant, in the possession and use of the property, does not
custodian agreement with US APC. When it vacated the property, it was occupied by appear to have paid rentals therefor, as it occupied it by what the parties denominated a
"custodianship agreement," and there is no provision therein for the payment of rentals
defendant National Coconut Corporation.
or of any compensation for its custody and or occupation and the use. The Trading with
Sagrada Orden made a claim to the said property before the APC which denied such a the Enemy Act, as originally enacted, was purely a measure of conversation, hence, it is
claim. It bought an action in court which resulted to the cancellation of the title issued very unlikely that rentals were demanded for the use of the property.
in the name of Taiwan Tekkosho which was executed under threats, duress, and
intimidation; reissuance of the title in favor of the plaintiff; cancellation of the claims, THE METROBANK v. ROSALES AND YO YUK TO
rights, title, interest of the Alien property Custodian; and occupant National Coconut G.R. No. 183204 January 13, 2014 Del Castillo, J.
Corporation’s ejection from the property. A right was also vested to the plaintiff to
recover from the NACOCO rentals for its occupation of the land from the date it vacated. DOCTRINE: The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in Article 1157
NACOCO contested the rental claims before it occupied the land in question. on the of the Civil Code.
defense that it occupied the property in good faith and under no obligation to pay rentals.
Right to protect oneself from fraud should not be done in bad faith or in a wanton
ISSUE: Whether NACOCO is liable to pay for the rentals claimed by Sagrada? disregard of its contractual obligation to respondents.
CIVIL LAW REVIEW 2
complaint. Because of this reversal, respondent Rosales was charged with Estafa before
NATURE OF ACTION: Petition for Review on Certiorari Branch 14 of the RTC of Manila.
FACTS: Petitioner Metrobank is a domestic banking corporation which issued a “hold On February 15, 2007, RTC found petitioner liable for damages for breach of contract
out” order against the bank account of respondent Rosales, hence the latter cannot since “it is the duty of petitioner to release the deposit to respondents as the act of
withdraw funds from her account, due to an alleged fraudulent and unauthorized withdrawal of a bank deposit is an act of demand by the creditor; the recourse of
withdrawal from the bank account of one Liu Chiu Fang. petitioner is against its negligent employees and not against respondents.”
Respondent Ana Grace Rosales is the owner of China Golden Bridge Travel Services, a Court of Appeals: Petitioner appealed to the Court of Appeals and the CA affirmed the
travel agency and Yo Yuk To’s daughter. Respondent opened a bank account with RTC Decision but deleted the award of damages. On May 30, 2008, the Court of Appeals
Metrobank Pritil-Tondo Branch (2000). Respondent accompanied her client Liu Chiu issued a resolution denying petitioner’s reconsideration.
Fang, a Taiwanese applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings Metrobank argues that the hold-out order was proper since respondent violated rules and
account, as required by the PLRA and acted as interpreter for Liu Chiu Fang who could committed unlawful acts.
speak only in Mandarin (2002).
Rosales argues that there was breach of contract since Metrobank failed to perform its
In 2000, respondents Rosales and Yo Yuk To opened a joint pesos account with obligation when it denied the respondents to withdraw from their bank account due to
Metrobank Pritil-Tondo branch with a balance of P 2,515,693.52 as of August 4, 2004. the hold-out order.
In May 2002, respondent Rosales accompanied Liu Chiu Fang, a Taiwanese client to
open a savings account. On March 3, respondent opened a joint dollar account in ISSUE: Whether or not the Hold-Out provision properly applies in the case at bar.
petitioner’s Pritil-Tondo Branch with an initial deposit of $ 14,000.00. On July 31,
petitioner issued a “Hold Out” order against respondent’s accounts. On September 3, RULING: NO. The Supreme Court held that Metrobank’s reliance on the “Hold Out”
2003, Petitioner through its Special Audit Department Head Antonio Ivan Aguirre, filed clause in the Application and Agreement for Deposit Account is misplaced.
a criminal case of Estafa through False Pretences, Misrepresentation, Deceit, and Use of
Falsified Documents against respondent Rosales. Rosales denied taking part in the The “Hold Out” Clause applies only if there is a valid and existing obligation arising
fraudulent and unauthorized withdrawal from the dollar account of Liu Chiu Fang. On from any of the sources of obligation enumerated in Article 1157 of the Civil Code, to
December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution wit, law, contracts, quasi-contracts, delict, and quasi-delict. In this case, petitioner failed
dismissing the criminal case for lack of probable cause to show that respondents have an obligation to it under any law, contract, quasi-contract,
delict, or quasi-delict.
Regional Trial Court: On September 10, 2004, Respondents filed a Complaint for
Breach of Obligation and Contract with Damages against Petitioner, alleging that they Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon
attempted several times to withdraw their deposits but were unable to because petitioner demand by the depositor and although a criminal case was filed by petitioner against
had placed their accounts under "Hold Out" status. No explanation, was given by respondent Rosales, this is not enough reason for petitioner to issue a “Hold Out” order
petitioner as to why it issued the "Hold Out" order hence they prayed that the "Hold as the case is still pending and no final judgment of conviction has been rendered against
Out" order be lifted and that they be allowed to withdraw their deposits and for damages. respondent Rosales. In fact, it is significant to note that at the time the petitioner issued
Petitioner alleged that respondents have no cause of action. the “Hold Out” order, the criminal complaint had not been filed. Thus, considering that
respondent Rosales is not liable under any of the five sources of obligation, there was
On February 18, 2005, while the case for breach of contract was being tried, the City no legal basis for petitioner to issue the “Hold Out” order.
Prosecutor of Manila issued a resolution reversing the dismissal of the criminal
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Furthermore, the Supreme Court also said that the right to protect oneself from fraud
should not be done in bad faith or in a wanton disregard of its contractual obligation to NATURE OF ACTION: Petition for Review on Certiorari under Rule 45
respondents. It must be stressed that while we recognize that petitioner has the right to
protect itself from fraud or suspicions of fraud, the exercise of this right should be done FACTS: Joseph Saludaga was a sophomore law student of FEU when he was shot by
within the bounds of the law and in accordance with due process, and not in bad faith or Alejandro Rosete, one of the security guards on duty at the school premises on August
in a wanton disregard of its contractual obligations to respondents. Hence, petitioner, 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-
who indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the police
when it refused to release the deposits of respondents without any legal basis, is liable station where he explained that the shooting was accidental. He was eventually released
for exemplary damages under Article 2229 of the New Civil Code. considering that no formal complaint was filed against him. Saludaga filed a complaint
for damages against FEU and Edilberto De Jesus, in his capacity as President of FEU,
In view of the foregoing, the Supreme Court found that petitioner is guilty of breach of (Respondents) on the ground that they breached their obligation to provide students with
contract when it unjustifiably refused to release respondents’ deposit despite demand. a safe and secure environment and an atmosphere conducive to learning. Respondents,
Having breached its contract with respondents, petitioner is liable for damages. in turn, filed a 3rd Party Complaint against Galaxy Development and Management
Corporation, the agency contracted by FEU to provide security services within its
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision premises and Mariano Imperial, Galaxy's President, to indemnify them for whatever
and the May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 would be adjudged in favor of Saludaga, if any; and to pay attorney's fees and cost of
are hereby AFFIRMED. the suit. On the other hand, Galaxy and Imperial filed a 4th Party Complaint against AFP
General Insurance.
1. Law – Art 1158
2. Contracts – Arts. 1159, 1305 The trial court rendered a decision in favor of Saludaga and ordered FEU and De Jesus
3. Quasi-contracts – Arts. 1160, 2142 – 2175 to pay jointly and severally Saludaga actual, moral, and exemplary damages, attorney's
a. Negotiorium Gestio
b. Solutio Indebiti fees and cost of the suit. It also ordered Galaxy and Imperial to indemnify solidarily 3rd
c. Other Quasi-contracts Party plaintiffs (FEU and De Jesus) for the above-mentioned amounts. Lastly, it
dismissed the 4th party complaint is dismissed for lack of cause of action. Upon appeal,
4. Acts or omissions punished by law – Arts. 1167, 2177, Arts. 100 & the CA reversed the RTC ruling and dismissed the civil case.
104, RPC
5. Quasi-delicts – Arts. 1162, 2176 ISSUE: Whether or not the Respondents are liable for damages for the injury resulting
from a gunshot wound suffered by Saludaga from the hands of no less than
SALUDAGA v. FEU their own security guard in violation of their built-in contractual obligation to
G.R. No. 179337 April 30, 2008 Ynares – Santiago, J. Saludaga at that time, to provide him with a safe and secure educational
environment
DOCTRINE: It is settled that in culpa contractual, the mere proof of the existence
of the contract and the failure of its compliance justify, prima facie, a corresponding RULING: YES. In Philippine School of Business Administration v. CA, the SC has
right of relief. held that:
When an academic institution accepts students for enrollment, there is
Where the security agency recruits, hires and assigns the works of its watchmen or established a contract between them, resulting in bilateral obligations which
security guards to a client, the employer of such guards or watchmen is such agency, both parties are bound to comply with. For its part, the school undertakes to
and not the client, since the latter has no hand in selecting the security guards. Thus, provide the student with an education that would presumably suffice to
the duty to observe the diligence of a good father of a family cannot be demanded equip him with the necessary tools and skills to pursue higher education or
from the said client.
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a profession. On the other hand, the student covenants to abide by the guards are ordinarily no more than requests commonly envisaged in the contract for
school's academic requirements and observe its rules and regulations. services entered into by a principal and a security agency. They cannot be construed as
the element of control as to treat respondents as the employers of Rosete. “Where the
Institutions of learning must also meet the implicit or "built-in" obligation of providing security agency recruits, hires and assigns the works of its watchmen or security guards
their students with an atmosphere that promotes or assists in attaining its primary to a client, the employer of such guards or watchmen is such agency, and not the client,
undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of since the latter has no hand in selecting the security guards. Thus, the duty to observe
physics or higher mathematics or explore the realm of the arts and other sciences when the diligence of a good father of a family cannot be demanded from the said client
bullets are flying or grenades exploding in the air or where there looms around the school (Soliman, Jr. v. Tuazon).
premises a constant threat to life and limb. Necessarily, the school must ensure that Petition is GRANTED.
adequate steps are taken to maintain peace and order within the campus premises and to
prevent the breakdown thereof. PEOPLE’S CAR v. COMMANDO SECURITY
G.R. No. L – 36840 May 22, 1973 Teehankee, J.
Since Saludaga was enrolled as a sophomore law student in FEU, there was created a
contractual obligation between them. Saludaga was obliged to comply with the rules and
regulations of the school. On the other hand, FEU, as a learning institution is mandated DOCTRINE: (regarding sources of Obligation particularly, CONTRACT) Plaintiff
to impart knowledge and equip its students with the necessary skills to pursue higher [therefore] was in law justified in making good such damages and relying in turn on
education or a profession. It is also obliged to ensure and take adequate steps to maintain defendant to honor its contract and indemnify it for such undisputed damages, which
peace and order within the campus. had been caused directly by the unlawful and wrongful acts of defendant's security
guard in breach of their contract.
It is settled that in culpa contractual, the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of relief. In the NATURE OF ACTION: Appeal on pure question of law from the adverse judgment
instant case, when Saludaga was shot inside the campus by no less the security guard of the Davao court of first instance limiting plaintiff-appellant's recovery under its
who was hired to maintain peace and secure the premises, there is a prima facie showing complaint to the sum of P1,000.00 instead of the actual damages of P8,489.10 claimed
that Respondents failed to comply with its obligation to provide a safe and secure and suffered by it as a direct result of the wrongful acts of defendant security agency's
environment to its students. Moreover, the Respondents failed to discharge the burden guard assigned at plaintiff's premises in pursuance of their "Guard Service Contract"
of proving that they exercised due diligence in providing a safe learning environment
for their students. They failed to prove that they ensured that the guards assigned in the FACTS: One night at around 1:00 A.M. Commando Security Service Agency's
campus met the requirements stipulated in the Security Service Agreement. Indeed, (Commando) security guard (name not indicated in the case) on duty at People's Car’s
certain documents about Galaxy were presented during trial; however, no evidence as (People’s) premises, without any authority brought out of the compound of the People’s
to the qualifications of Rosete as a security guard for the university was offered. For a car belonging to its customer, and drove said car to a place unknown, abandoning his
breach of contract due to negligence in providing a safe learning environment, FEU is post, and while driving said car lost control and caused the same to fall into a ditch along
liable to Saludaga for damages (Art. 1170). De Jesus was not held solidarily liable with J.P. Laurel St., Davao City.
FEU as the personal liability of a corporate director, trustee or officer along (although
not necessarily) with the corporation did not attach (Powton Conglomerate, Inc. v. As a result of these wrongful acts of Commando's security guard, the car of People's
Agcolicol). customer, Joseph Luy, which had been left with plaintiff for servicing and maintenance,
suffered damages in the total amount of P7,079." aside from the car rental value in the
Saludaga also holds Respondents vicariously liable under Article 2180 of the Civil sum of P1,410.00 for a car that People’s had to rent for said customer to enable him to
Code. However, Respondents cannot be held liable for damages under such provision pursue his business and occupation for the period of 47 days that it took to repair the
because they are not the employers of Rosete as the latter was employed by Galaxy. damaged car, or total actual damages in the sum of P8,489.10.
The instructions issued by Respondents' Security Consultant to Galaxy and its security
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Because of such, People's car Inc. contends that Commando was liable for the entire investigation with the attendance of both contracting parties. Said paragraph is
amount under paragraph 5 of the Guard Service Contract where defendant assumed manifestly inapplicable to the stipulated facts of record, which involve neither property
"sole responsibility for the acts done during their watch hours" by its guards. paragraph of the plaintiff that has been lost or damaged at its premises nor mere negligence of the
5 states that: defendant's security guard on duty.
Par. 5 — The party of the Second Part assumes the responsibility for the
proper performance by the guards employed, of their duties and (shall) be Here, instead of defendant, through its assigned security guards, complying with its
solely responsible for the acts done during their watch hours, the Party of contractual undertaking 'to safeguard and protect the business premises of (plaintiff)
the First Part being specifically released from any and all liabilities to the from theft, robbery, vandalism and all other unlawful acts of any person or persons,"
former's employee or to the third parties arising from the acts or omissions defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs
done by the guard during their tour of premises a customer's car, lost control of it on the highway causing it to fall into a ditch,
duty.' ... thereby directly causing plaintiff to incur actual damages in the total amount of
P8,489.10.
On the other hand, on its part, Commando contends that Its liability "shall not exceed
one thousand (P1,000.00) pesos per guard post" under paragraph 4 of their contract. Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages
Paragraph 4 states that: thus incurred, since under paragraph 5 of their contract it "assumed the responsibility
Par. 4. — Party of the Second Part (defendant) through the negligence of its for the proper performance by the guards employed of their duties and (contracted to)
guards, after an investigation has been conducted by the Party of the First be solely responsible for the acts done during their watch hours" and "specifically
Part (plaintiff) wherein the Party of the Second Part has been duly released (plaintiff) from any and all liabilities ... to the third parties arising from the acts
represented shall assume full responsibilities for any loss or damages that or omissions done by the guards during their tour of duty." As plaintiff had duly
may occur to any property of the Party of the First Part for which it is discharged its liability to the third party, its customer, Joseph Luy, for the undisputed
accountable, during the watch hours of the Party of the Second Part, damages of P8,489.10 caused said customer, due to the wanton and unlawful act of
provided the same is reported to the Party of the Second Part within twenty- defendant's guard, defendant in turn was clearly liable under the terms of paragraph 5 of
four (24) hours of the occurrence, except where such loss or damage is due their contract to indemnify plaintiff in the same amount.
to force majeure, provided however that after the proper investigation to be
made thereof that the guard on post is found negligent and that the amount Plaintiff was in law liable to its customer for the damages caused the customer's car,
of the loss shall not exceed ONE THOUSAND (P1,000.00) PESOS per which had been entrusted into its custody. Plaintiff therefore was in law justified in
guard post. making good such damages and relying in turn on defendant to honor its contract and
indemnify it for such undisputed damages, which had been caused directly by the
The Trial Court ruled in favor of Commando ordering the said defendant to pay only the unlawful and wrongful acts of defendant's security guard in breach of their contract. As
amount of 1,000 pesos with costs. This case was certified to SC for resolution of the ordained in Article 1159, Civil Code, "obligations arising from contracts have the force
case on pure question of law. of law between the contracting parties and should be complied with in good faith."
ISSUE: Whether or not paragraph 4 is the correct basis of the liability of the defendant. CRUZ v. TUAZON & CO.
G.R. No. L – 23749 April 29, 1977 Barredo, J. (Second
RULING: The court ruled in the negative Division)
The court ruled that Paragraph 4 of the contract, which limits defendant's liability for
the amount of loss or damage to any property of plaintiff to "P1,000.00 per guard post,"
is by its own terms applicable only for loss or damage 'through the negligence of its DOCTRINE: From the very language of this provision, it is obvious that a presumed
guards ... during the watch hours" provided that the same is duly reported by plaintiff quasi-contract cannot emerge as against one party when the subject matter thereof is
within 24 hours of the occurrence and the guard's negligence is verified after proper already covered by an existing contract with another party. Predicated on the
CIVIL LAW REVIEW 2
principle that no one should be allowed to unjustly enrich himself at the expense of GUTIERREZ HERMANOS v. ORENSE
another, Article 2124 creates the legal fiction of a quasi-contract precisely because G.R. No. L – 9188 December 4, 1914 Torres, J.
of the absence of any actual agreement between the parties concerned. Corollarily, if
the one who claims having enriched somebody has done so pursuant to a contract
DOCTRINE: Even should it be held that the said consent was granted subsequently
with a third party, his cause of action should be against the latter, who in turn may, to the sale, it is unquestionable that the defendant, the owner of the property,
if there is any ground therefor, seek relief against the party benefited. It is essential approved the action of his nephew, who in this case acted as the manager of his
that the act by which the defendant is benefited must have been voluntary and uncle's business, and Orense's ratification produced the effect of an express
unilateral on the part of the plaintiff. authorization to make the said sale.
NATURE OF ACTION: Action for Reimbursement and Conveyance Art. 1259 of the Civil Code prescribes: "No one can contract in the name of another
without being authorized by him or without his legal representation according to law.
FACTS: Plaintiff Faustino Cruz filed a complaint seeking the payment of Php 30,400
and Php 7,781.00 representing improvements he allegedly made on a parcel of land A contract executed in the name of another by one who has neither his authorization
owned by defendants. He also seeks the conveyance of 3,000 sqm as promised by nor legal representation shall be void, unless it should be ratified by the person in
defendants for serving as their mediator in arriving at an amicable settlement in another whose name it was executed before being revoked by the other contracting party.
case.
NATURE OF ACTION: Sources of Civil Obligations – Obligations contracted by the
Among plaintiff’s arguments, he raises Art. 2142 in providing that certain lawful,
agent who was acting within the scope of his authority must be fulfilled by the principal.
voluntary and unilateral acts give rise to the juridical relation of quasi contract to the
(Arts. 1709, 1710, 1727)
end that no one shall be unjustly enriched or benefited at the expense of another. In using
the improvements he made, defendants are actually unjustly enriching themselves at his This suit involves the validity and efficacy of the sale under right of redemption of a
expense. parcel of land and a masonry house with the nipa roof erected thereon, effected by Jose
Duran, a nephew of the owner of the property, Engracio Orense, for the sum of PHP
The trial court ruled in favor of defendants citing that the agreement of constructing the 1,500 by means of a notarial instrument executed and ratified on February 14, 1907.
said improvements on the land was between plaintiff and the Deudors, the previous
owners of the said land. Defendants were not privy to the said agreement. FACTS: On March 5, 1913, Gutierrez Hermanos filed a complaint in the CFI of Albay
against respondent Engracio Orense. In the said complaint, he stated that on and before
ISSUE: Whether defendants are liable to reimburse plaintiff for the cost of the
February 14, 1907, Orense had been the owner of a parcel of land, with the buildings
improvements made on the land now occupied by the former.
and improvements thereon in Guinobatan, Albay. The said property was recorded in the
new property registry in Orense’s name.
RULING: The Court ruled in the negative. From the provision cited by plaintiff, it is
obvious that a presumed quasi- contract cannot emerge as against one party when the On February 14, 1907, Jose Duran, Orense’s nephew, with Orense’s knowledge and
subject matter thereof is already covered by an existing contract with another party. In
consent, executed an instrument before the notary public whereby he sold and conveyed
this case, plaintiff has a clearer and more direct recourse against the Deudors with whom
the subject property to plaintiff for PHP 1,500. Duran, in that document, also reserved
he had entered into an agreement regarding the improvements and expenditures made his right to repurchase it for the same price within a period of four years from the date
by him on the land of defendants. It cannot be said, in the sense contemplated in Article of the instrument.
2142 that appellees have been enriched at the expense of appellant.
WHEREFORE, the appeal of Faustino Cruz in this case is dismissed.
CIVIL LAW REVIEW 2
Plaintiff company had not entered into the possession of the subject property as Duran The record in the case shows that he indeed gave his consent to Jose Duran to sell the
still continued to possess and occupy it, by virtue of a contract of lease which was in property and that he thereafter ratified and confirmed the sale by means of a public
force up to February 14, 1911. instrument executed before a notary.
Plaintiff alleges that the instrument made by Duran was publicly and freely confirmed, The defendant conferred verbally or at least impliedly, the power of agency upon his
as well as ratified by the defendant Orense. The title to the property, however, cannot be nephew. Even should it be held that the said consent was granted subsequently to the
perfected because Orense refused to do so, without any justifiable reason. Plaintiffs filed sale, it is unquestionable that the defendant, the owner of the property, approved the
the case to compel the respondent to execute the said deed by an express order of the action of his nephew, who in this case acted as the manager of his uncle's business, and
court, as Jose Duran is notoriously insolvent and cannot reimburse the plaintiff for the Orense's ratification produced the effect of an express authorization to make the said
cost of the property and pay them damages incurred by virtue of the sale. He also has sale.
not paid his monthly rentals from the lease. The plaintiff therefore prayed that judgment
be rendered holding that the land and its improvements in question belong legitimately The sworn statement made by the defendant, Orense, while testifying as a witness at the
and exclusively to him, and to order the defendant to execute the instrument of transfer trial of Duran for estafa, virtually confirms and ratifies the sale of his property effected
and conveyance in favor of the plaintiff. by his nephew, Duran, and, pursuant to Art. 1313 of the Civil Code, remedies all defects
which the contract may have contained from the moment of its execution.
After the lapse of four years for the redemption, the defendant failed to deliver the
property and to pay the rental rate for its use and occupation until February 14, 1911, The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and
which prompted the plaintiff to charge Duran with estafa, for having represented himself void in the beginning, but afterwards became perfectly valid and cured of the defect of
in the deed of sale to be the absolute owner of the land whereas in reality the subject nullity when Orense stated under oath to the judge that he himself consented to his
property was not his, as it belonged to defendant Orense. nephew Jose Duran's making the said sale. Moreover, pursuant to Art. 1309 of the Code,
the right of action for nullification that could have been brought became legally
During the trial of the aforesaid estafa case, Engracio Orense was called as a witness. extinguished from the moment the contract was validly confirmed and ratified, and, in
He was interrogated by the fiscal as to whether or not he consented to the sale of the the present case, it is unquestionable that the defendant did confirm the said contract of
subject property under the right of redemption to plaintiff, to which he replied that he sale and consent to its execution.
had consented to the same. In view of the aforesaid statement, the CFI acquitted Jose
Duran of estafa. If the defendant Orense acknowledged and admitted under oath that he had consented
to Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor
However, as a result of the acquittal, the plaintiff then filed a complaint to compel is it permissible for him afterward to deny that admission, to the prejudice of the
Orense to execute a deed for the transfer and conveyance to the plaintiff of all the rights, purchaser, who gave PHP 1,500 for the said property.
title and interest over the subject property and to pay the rental of the property.
The repeated and successive statements made by the defendant Orense in two actions,
ISSUE: Whether or not Orense is bound to fulfill the obligation contracted by his wherein he affirmed that he had given his consent to the sale of his property, meet the
nephew Duran. requirements of the law and legally excuse the lack of written authority, and, as they are
a full ratification of the acts executed by his nephew Jose Duran, they produce the effects
RULING: The court ruled in the affirmative.The sworn statement made by the of an express power of agency.
defendant, Orense, while testifying as a witness at the trial for estafa, virtually confirms
and ratifies the sale of his property effected by his nephew, Duran. Pursuant to Art. 1313 The judgment appealed from is hereby affirmed.
of the Civil Code, the aforesaid ratification remedies all defects which the contract may
have contained from the moment of its execution.
CIVIL LAW REVIEW 2
ADILLE v. CA the co-owners to redeem it entitles the vendee a retro to retain the property and
G.R. No. L – 44546 January 29, 1988 Sarmiento, J. consolidate title thereto in his name. But Article 488 of the Civil Code does not give to
the redeeming co-owner the right to the entire property. It does not provide for a mode
of terminating a co-ownership.
DOCTRINE: Petitioner, in taking over the property, did so either on behalf of his
co-heirs, in which event, he had constituted himself a negotiorum gestor under Moreover, the Civil Code states under Article 1456 that when the registration of the
Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty property is attended with fraud, the person obtaining it is considered a trustee of an
of fraud, and must act as trustee, the private respondents being the beneficiaries, implied trust for the benefit of the person whom the property comes. The petitioner's
under the Article 1456. pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement
he executed preliminary to the registration thereof betrays a clear effort on his part to
NATURE OF ACTION: Appeal by way of certiorari defraud his brothers and sisters and to exercise sole dominion over the property.
FACTS: Lot 14694 of Cadastral Survey of Albay in Legaspi City belonged to Felisa It is the view of the respondent Court that the petitioner, in taking over the property, did
Alzul as her own private property. With her first husband, she had Rustico Adille; and so either on behalf of his co-heirs, in which event, he had constituted himself a
with her second, she had children with surname Asejo. In 1939, Felisa sold the property negotiorum gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in
in pacto de retro, period of repurchase being 3 years but she died without redeeming the which case, he is guilty of fraud, and must act as trustee, the private respondents being
property. Adille repurchased the property within the period of redemption with a deed the beneficiaries, under the Article 1456.
of extra-judicial partition representing himself to be the only heir of Felisa. Hence, he
was able to secure title solely in his name in 1955. His half brothers and sisters filed a Well-established is the principle that prescription bars any demand on property (owned
case for partition with accounting, claiming that he was only a trustee and not the in common) held by another (co-owner) following the required number of years. In the
absolute owner. In fact, Emeteria Asejo, one of the children to Felisa’s second husband case at bar, the property was registered in 1955 by the petitioner, solely in his name,
occupied a portion but she was asked to vacate. while the claim of the private respondents was presented in 1974. But prescription has
not set. Prescription, as a mode of terminating a relation of co-ownership, must have
After hearing the evidence, trial Judge sustained Adille in his position tha he was the been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is
absolute owner and that Emeteria must vacate. The Court of Appeals reversed this subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an
decision and ruled for the Asejo siblings. Adille, now petitioner, appeals by way of act of repudiation is clearly made known to the other co-owners; (3) the evidence thereon
certiorari from the Court’s decision. Only the petitioner, Adille, filed a brief and the is clear and conclusive, and (4) he has been in possession through open, continuous,
case was submitted for decision. Petitioner claims that the property subject of dispute exclusive, and notorious possession of the property for the period required by law.
devolved upon him upon the failure of his co-heirs to join him in its redemption within
the period required by law The instant case shows that the petitioner had not complied with these requisites. He
deliberately kept the Asejo siblings in the dark by feigning sole heirship over the estate
ISSUE: May a co-owner acquire exclusive ownership over the property held in under dispute. He cannot therefore be said to have "made known" his efforts to deny the
common? co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is occupying
a portion of the land up to the present, yet, the petitioner has not taken pains to eject her
RULING: The Court ruled in the negative. therefrom.
The right of repurchase may only be exercised by a co-owner with respect to his share Lastly, while it is true that registration under the Torrens system is constructive notice
alone. While petitioner redeemed the property in its entirety, with the expenses, this does of title, the Torrens title does not furnish a shield for fraud. There is fraudulent
not entitle him to full ownership nor did it put an end in co-ownership. A right to collect misrepresentation in Adille’s unilateral affidavit of extrajudicial settlement that he is
reimbursement from the remaining co-owners instead arises. Failure on the part of all "the only heir and child of his mother Feliza with the consequence that he was able to
CIVIL LAW REVIEW 2
secure title in his name also. Hence, the Court ruled that the right of the private However, when FNSB discovered that Mantrust had made a duplication of the
respondents commenced from the time they actually discovered the petitioner's act of remittance, it asked for a recredit of its account in the amount of $10,000.00. Mantrust
defraudation. complied with the request. Mantrust then asked Andres for the return of the second
remittance of $10,000.00 but the latter refused to pay.
ANDRES v. MANTRUST
G.R. No. 82670 September 15, 1989 Cortes, J. A complaint was filed with the Regional Trial Court which was decided in favor of
Andres as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by mistake but by
DOCTRINE: For Article 2154 of the Civil Code (principle of solutio indebiti) to negligence and petitioner was not unjustly enriched by virtue thereof. On appeal, the
apply the following requisites must concur: (1) that he who paid was not under Court of Appeals held that Art. 2154 is applicable and reversed the RTC decision.
obligation to do so; and (2) that payment was made by reason of an essential mistake
of fact. ISSUE: Whether or not the Mantrust has the right to recover the second $10,000.00
remittance it had delivered to Andres.
NATURE OF ACTION: Petition for Certiorari
RULING: Yes. The resolution of this issue would hinge on the applicability of Art.
FACTS: Andres, using the business name "Irene's Wearing Apparel," was engaged in 2154 of the New Civil Code which provides that:
the manufacture of ladies garments, children's wear, men's apparel and linens for local Art. 2154.If something received when there is no right to demand it, and it
and foreign buyers. Among its foreign buyers was Facets Funwear, Inc. (FACETS) of was unduly delivered through mistake, the obligation to return it arises.
the United States.
For this article to apply the following requisites must concur: "(1) that he who paid was
FACETS instructed the First National State Bank of New Jersey (hereinafter referred to not under obligation to do so; and, (2) that payment was made by reason of an essential
as FNSB) to transfer $10,000.00 to Andres via Philippine National Bank, Sta. Cruz mistake of fact".
Branch, Manila (PNB). FNSB instructed private respondent Manufacturers Hanover and
Trust Corporation (Mantrust) to effect the transfer through its facilities and to charge the It is undisputed that Mantrust delivered the second $10,000.00 remittance. However,
amount to the account of FNSB with Mantrust. However, the payment was not effected Andrescontends that the doctrine of solutio indebiti does not apply because its requisites
immediately because the payee designated in the telex was only"Wearing Apparel." are absent.
Only upon correction that the payment was to be made to "Irene's Wearing Apparel."
did the petitioner receive the remittance of $10,000.00 through Demand Draft No. First, it is argued that Andres had the right to demand and therefore to retain the second
225654 of the PNB. $10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter allegedly still had a balance
After learning about the delay in the remittance of the money to Andres, FACETS of $49,324.00. The contention is without merit. The contract of Andres, as regards the
informed FNSB about the situation. Unaware that Andres had already received the sale of garments and other textile products, was with FACETS. It was the latter and not
remittance, FACETS informed Mantrust about the delay and at the same time amended Mantrustwhich was indebted to petitioner. There being no contractual relation between
its instruction by asking it to effect the payment through the Philippine Commercial and them, Andres has no right to apply the second $10,000.00 remittance delivered by
Industrial Bank (PCIB) instead of PNB. Mantrust, which was also unaware that Andres mistake by Mantrust to the outstanding account of FACETS.
had already received the remittance of $10,000.00 from PNB instructed the PCIB to pay
$10,000.00 to Andres. Hence, on September 11, 1980, Andres received a second Second, Andres contends that the payment by Mantrust of the second $10,000.00
$10,000.00 remittance. remittance was not made by mistake but was the result of negligence of its employees.
Andres invokes the equitable principle that when one of two innocent persons must
CIVIL LAW REVIEW 2
suffer by the wrongful act of a third person, the loss must be borne by the one whose However, plaintiff, is liable for the payment of taxes prescribed in Section 1, Group II
negligence was the proximate cause of the loss. or Ordinance No. 3364 as amended by Sec. 1, Group II of Ordinance No. 3816, which
took effect on September 24, 1956, on the sales of imported billiard balls, bowling balls
However, the rule is that principles of equity cannot be applied if there is a provision of and other accessories at its display room.
law specifically applicable to a case. Having shown that Art. 2154 of the Civil Code,
which embodies the doctrine of solutio indebiti, applies in the case at bar, the Court must On October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a
reject the common law principle invoked by petitioner. formal request for refund of the retail dealer's taxes unduly paid by it. Defendant City
Treasurer of Manila definitely denied said request for refund.
Finally, in her attempt to defeat Mantrust's claim, Andres makes much of the fact that
from the time the second $10,000.00 remittance was made, five hundred and ten days On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund
had elapsed before private respondent demanded the return thereof. Needless to say, of Retail Dealer’s Taxes paid by it, corresponding to the first Quarter of 1950 up to the
private respondent instituted the complaint for recovery of the second $10,000.00 third Quarter of 1956, amounting to P33,785.00, against the City of Manila and its City
remittance well within the six years prescriptive period for actions based upon a quasi- Treasurer.
contract [Art. 1145 of the New Civil Code].
Defendants-appellants contend that the taxes in question were voluntarily paid by
PUYAT & SONS v. MANILA appellee company and since, in this jurisdiction, in order that a legal basis arise for claim
G.R. No. L – 17447 April 30, 1963 Paredes, J. of refund of taxes erroneously assessed, payment thereof must be made under protest,
and this being a condition sine qua non, and no protest having been made, -- verbally or
in writing, thereby indicating that the payment was voluntary, the action must fail.
DOCTRINE: If money be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or conscience was not payable, Appellee avers that the payments could not have been voluntary.At most, they were paid
and should not be retained by the party receiving it, it may be recovered. Both law "mistakenly and in good faith"and "without protest in the erroneous belief that it was
and sound morality so dictate. Especially should this be the rule as to illegal taxation. liable thereof." Voluntariness is incompatible with protest and mistake. It submits that
this is a simple case of "solutio indebiti".
NATURE OF ACTION: Appeal from the judgment of the CFI of Manila.
ISSUE: Whether or not the amounts paid by plaintiff-appellee, as retail dealer's taxes
FACTS: Plaintiff is engaged in the business of manufacturing and selling all kinds of under Ordinance 1925, as amended by Ordinance No. 3364of the City of
furniture at its factory at 190 Rodriguez-Arias, San Miguel, Manila, and has a display Manila, without protest, are refundable.
room located at 604-606 Rizal Avenue, Manila, wherein it displays the various kind of
furniture manufactured by it and sells some goods imported by it, such as billiard balls, RULING:YES. Appellants do not dispute the fact that appellee-company is exempted
bowling balls and other accessories. Acting pursuant to the provisions of Sec. 1. group from the payment of the tax in question. This is manifest from the reply of appellant
II, of Ordinance No. 3364, defendant City Treasurer of Manila assessed from plaintiff City Treasurer stating that sales of manufactured products at the factory site are not
retail dealer's tax corresponding to the first Quarter of 1950 up to the third Quarter of taxable either under the Wholesalers Ordinance or under the Retailers' Ordinance. With
1956 on the sales of furniture manufactured and sold by it at its factory site, all of which this admission, it would seem clear that the taxes collected from appellee were paid,
assessments plaintiff paid without protest in the erroneous belief that it was liable through an error or mistake, which places said act of payment within the pale of the new
therefor. Plaintiff, being a manufacturer of various kinds of furniture, is exempt from Civil Code provision on solutio indebiti. The appellant City of Manila, at the very start,
the payment of taxes imposed under the provisions of Sec. 1, Group II, of Ordinance notwithstanding the Ordinance imposing the Retailer's Tax, had no right to demand
No. 3364,which took effect on September 24, 1956, on the sale of the various kinds of payment thereof..
furniture manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act
No. 409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.
CIVIL LAW REVIEW 2
"If something is received when there is no right to demand it, and it was unduly delivered effectivity of this Code shall be governed by laws previously in force x x x" (Art. 1116,
through mistake, the obligation to return it arises" (Art. 2154, NCC). NCC), for payments made after said effectivity,providing for a period of six (6) years
(upon quasi-contracts like solutio indebiti). Even if the provisions of Act No. 190 should
Appellee categorically stated that the payment was not voluntarily made, (a fact found apply to those payments made before the effectivity of the new Civil Code, because
also by the lower court),but on the erroneous belief that they were due. Under this "prescription already running before the effectivity of this Code shall be govern by laws
circumstance, the amount paid, even without protest is recoverable. "If the payer was in previously in force xxx " (Art. 1116, NCC), Still payments made before August 30, 1950
doubt whether the debt was due, he may recover if he proves that it was not due" (Art. are no longer recoverable in view of the second paragraph of said Article (1116), which
2156, NCC). Appellee had duly proved that taxes were not lawfully due. There is, provides:"but if since the time this Code took effect the entire period herein required for
therefore, no doubt that the provisions of solutio indebtiti, the new Civil Code, apply to prescription should elapse the present Code shall be applicable even though by the
the admitted facts of the case. former laws a longer period might be required". Anent the payments made after August
30, 1950, it is obvious that the action has prescribed with respect to those made before
"Payment by reason of a mistake in the construction or application of a doubtful or October 30, 1950 only, considering the fact that the prescription of action is interrupted
difficult question of law may come within the scope of the preceding article" (Art. xxx when a writteen extra-judicial demand x x x" (Art. 1155, NCC), and the written
21555). There is no gainsaying the fact that the payments made by appellee was due to demand in the case at bar was made on October 30, 1956.
a mistake in the construction of a doubtful question of law.
CBK POWER CO., LTD. v. CIR
"Every person who through an act or performance by another, or any other means, G.R. Nos. 198729 – 30 January 15, 2014 Sereno, C.J.
acquires or comes into possession of something at the expense of the latter without just
or legal grounds, shall return the same to him"(Art. 22, Civil Code). It would seem
unedifying for the government, (here the City of Manila), that knowing it has no right at DOCTRINE: According to the principle of solutio indebiti, if something is received
all to collect or to receive money for alleged taxes paid by mistake, it would be reluctant when there is no right to demand it, and it was unduly delivered through mistake, the
to return the same. No one should enrich itself unjustly at the expense of another (Art. obligation to return it arises. In that situation, a creditor-debtor relationship is created
2125, Civil Code). under a quasi-contract, whereby the payor becomes the creditor who then has the
right to demand the return of payment made by mistake, and the person who has no
The requirement of protest refers only to the payment of taxes which are directly right to receive the payment becomes obligated to return it. The quasi-contract of
imposed by the charter itself, that is, real estate taxes. In other words, protest is not solutio indebiti is based on the ancient principle that no one shall enrich oneself
necessary for the recovery of retail dealer's taxes, like the present, because they are not unjustly at the expense of another.
directly imposed by the charter.
There is solutio indebiti when:
The next issue in discussion is that of prescription. Appellants maintain that Article 1146 1. Payment is made when there exists no binding relation between the payor,
(NCC), which provides for a period of four (4) years (upon injury to the rights of the who has no duty to pay, and the person who received the payment; and
plaintiff), apply to the case. On the other hand, appellee contends that provisions of Act 2. Payment is made through mistake, and not through liberality or some other
190 (Code of Civ. Procedure) should apply, insofar as payments made before the cause.
effectivity of the New Civil Code on August 30, 1950, the period of which is ten (10)
years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 NATURE OF ACTION: Administrative claims for the issuance of tax credit
(NCC), for payments made after said effectivity, providing for a period of six (6) years certificates
(upon quasi-contracts like solutio indebiti).
FACTS: Petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal
Even if the provisions of Act No. 190 should apply to those payments made before the Revenue in accordance with Section 108(B)(3) of the National Internal Revenue Code
effectivity of the new Civil Code, because "prescription already running before the of 1997, as amended. The application was duly approved by the BIR. Thus, petitioner’s
CIVIL LAW REVIEW 2
sale of electricity to the NPC from 1 January 2005 to 31 October 2005 was declared to First, there exists a binding relation between petitioner and the CIR, the former being a
be entitled to the benefit of effectively zero-rated value added tax. taxpayer obligated to pay VAT.
Petitioner filed its administrative claims for the issuance of tax credit certificates for its Second, the payment of input tax was not made through mistake, since the petitioner
alleged unutilized input taxes on its purchase of capital goods and alleged unutilized was legally obligated to pay for that liability. The entitlement to a refund or credit excess
input taxes on its local purchases and/or importation of goods and services, other than input tax is solely based on the distinctive nature of the VAT system. At the time of
capital goods, pursuant to Sections 112(A) and (B) of the NIRC of 1997, with BIR payment of the input VAT, the amount paid was correct or proper.
Revenue District Office No. 55 of Laguna.
CANGCO v. MRR
Alleging inaction of the Commissioner of Internal Revenue, petitioner filed a Petition G.R. No. 12191 October 14, 1918 Fisher, J.
for Review with the CTA on 18 April 2007.
The CTA Division denied the claim for the first quarter of 2005 for having been filed DOCTRINE: The liability arising from extra-contractual culpa is always based upon
out of time but partly granted the petitioner's claim for the second and third quarters of a voluntary act or omission which, without willful intent, but by mere negligence or
2005. inattention, has caused damage to another.
The CTA En Banc ruled that the petitioner's judicial claim for the first, second, and third NATURE OF ACTION: Action brought by the plaintiff in the Court of First Instance
quarters of 2005 were belatedly filed. of Manila to recover damages against Manila Rail Road Co. for negligence of the
servants and employees of defendant in placing the sacks of melons upon the platform
ISSUE: Whether the principle of solutio indebiti is applicable in this case? and in leaving them so placed as to be a menace to the security of passenger alighting
from the company’s trains
RULING: No. According to the principle of solutio indebiti, if something is received
when there is no right to demand it, and it was unduly delivered through mistake, the FACTS: The plaintiff was returning home by rail from his daily labors; and as the train
obligation to return it arises. In that situation, a creditor-debtor relationship is created drew up to the station in San Mateo the plaintiff arose from his seat in the second class-
under a quasi-contract, whereby the payor becomes the creditor who then has the right car where he was riding and, making his exit through the door, took his position upon
to demand the return of payment made by mistake, and the person who has no right to the steps of the coach, seizing the upright guardrail with his right hand for support. On
receive the payment becomes obligated to return it. The quasi-contract of solutio indebiti the side of the train where passengers alight at the San Mateo station there is a cement
is based on the ancient principle that no one shall enrich oneself unjustly at the expense platform which begins to rise with a moderate gradient some distance away from the
of another. company's office and extends along in front of said office for a distance sufficient to
cover the length of several coaches. As the train slowed down another passenger, named
There is solutio indebiti when: Emilio Zuniga, also an employee of the railroad company, got off the same car, alighting
1. Payment is made when there exists no binding relation between the payor, who safely at the point where the platform begins to rise from the level of the ground. When
has no duty to pay, and the person who received the payment; and the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but one
2. Payment is made through mistake, and not through liberality or some other or both of his feet came in contact with a sack of watermelons with the result that his
cause. feet slipped from under him and he fell violently on the platform. His body at once rolled
from the platform and was drawn under the moving car, where his right arm was badly
Though the principle of solutio indebiti may be applicable to some instances of claims crushed and lacerated. It appears that after the plaintiff alighted from the train the car
for a refund, the elements thereof are wanting in this case. moved forward possibly six meters before it came to a full stop.
CIVIL LAW REVIEW 2
The explanation of the presence of a sack of melons on the platform where the plaintiff not have occurred. Defendant contends, and cites many authorities in support of the
alighted is found in the fact that it was the customary season for harvesting these melons contention, that it is negligence per se for a passenger to alight from a moving train. We
and a large lot had been brought to the station for shipment to the market. They were are not disposed to subscribe to this doctrine in its absolute form. We are of the opinion
contained in numerous tow sacks which had been piled on the platform in a row one that this proposition is too broadly stated and is at variance with the experience of every-
upon another. The testimony shows that this row of sacks was so placed that there was day life. In this particular instance, tat the train was barely moving when plaintiff
a space of only about two feet between the sacks of melons and the edge of the platform; alighted is shown conclusively by the fact that it came to stop within six meters from
and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon the place where he stepped from it. Thousands of persons alight from trains under these
one of these melons at the moment he stepped upon the platform. His statement that he conditions every day of the year, and sustain no injury where the company has kept its
failed to see these objects in the darkness is readily to be credited. The plaintiff was platform free from dangerous obstructions. There is no reason to believe that plaintiff
drawn from under the car in an unconscious condition, and it appeared that the injuries would have suffered any injury whatever in alighting as he did had it not been for
which he had received were very serious. He was therefore brought at once to a certain defendant's negligent failure to perform its duty to provide a safe alighting place.
hospital in the city of Manila where an examination was made and his arm was
amputated. The result of this operation was unsatisfactory, and the plaintiff was then The place, as we have already stated, was dark, or dimly lighted, and this also is proof
carried to another hospital where a second operation was performed and the member of a failure upon the part of the defendant in the performance of a duty owing by it to
was again amputated higher up near the shoulder. It appears in evidence that the plaintiff the plaintiff; for if it were by any possibility conceded that it had a right to pile these
expended the sum of P790.25 in the form of medical and surgical fees and for other sacks in the path of alighting passengers, the placing of them in that position gave rise
expenses in connection with the process of his curation. to the duty to light the premises adequately so that their presence would be revealed. We
are of the opinion that a fair compensation for the damage suffered by him for his
He instituted this proceeding in the Court of First Instance of the city of Manila to permanent disability is the sum of P2,500, and that he is also entitled to recover of
recover damages of the defendant company, founding his action upon the negligence of defendant the additional sum of P790.25 for medical attention, hospital services, and
the servants and employees of the defendant in placing the sacks of melons upon the other incidental expenditures connected with the treatment of his injuries.
platform and in leaving them so placed as to be a menace to the security of passenger
alighting from the company's trains. At the hearing in the Court of First Instance, his GUTIERREZ v. GUTIERREZ
Honor, the trial judge, found the facts substantially as above stated, and drew therefrom G.R. No. 34840 September 23, 1931 Malcolm, J.
his conclusion to the effect that, although negligence was attributable to the defendant
by reason of the fact that the sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself had failed to use due DOCTRINE: In the United States, it is uniformly held that the head of a house, the
caution in alighting from the coach and was therefore precluded from recovering. owner of an automobile, who maintains it for the general use of his family is liable
Judgment was accordingly entered in favor of the defendant company, and the plaintiff for its negligent operation by one of his children, whom he designates or permits to
appealed. run it, where the car is occupied and being used at the time of the injury for the
pleasure of other members of the owner's family than the child driving it.
ISSUE: Whether or not MMR is liable for damages for the negligence allegedly
committed by them NATURE OF ACTION: Action brought by the plaintiff in the Court of First Instance
of Manila against the five defendants, to recover damages in the amount of P10,000, for
RULING: The contract of defendant to transport plaintiff carried with it, by implication, physical injuries suffered as a result of an automobile accident.
the duty to carry him in safety and to provide safe means of entering and leaving its
trains (Civil Code, article 1258). That duty, being contractual, was direct and immediate, FACTS: Action brought by the plaintiff in the Court of First Instance of Manila against
and its non-performance could not be excused by proof that the fault was morally the five defendants, to recover damages in the amount of P10,000, for physical injuries
imputable to defendant's servants. It may be admitted that had plaintiff waited until the suffered as a result of an automobile accident.
train had come to a full stop before alighting, the particular injury suffered by him could
CIVIL LAW REVIEW 2
On February 1930, a truck and a automobile of private ownership collided with each Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum of
other on the Talon Bridge in Las Pinas. Truck was driven by Velasco and owned by P5,000, and the costs of both instances.
Cortez. The automobile was driven by Bonifacio Gutierrez, who was 18y/o and was
owned by his parents; sps. Gutierrez. The vehicle was full of members of the Gutierrez C. Compliance with Obligations – Arts. 19, 1163 – 1166, 1244, 1246,
family with Mrs. G. and other 7 people. Narciso Gutierrez, a passenger of the autobus 1460, 442, 440
suffered a fracture in his right leg which did not heal properly even at the date of the D. Kinds of Civil Obligations
1. As to Perfection & Extinguishment
trial. a. Pure – Arts. 1179, 1197
b. Conditional – Arts. 1181 – 1190
The defendants Velasco and Cortez contend that there existed contributory negligence c. With a term or period – Arts. 1180, 1193 – 1198
on the part of the plaintiff, consisting principally of his keeping his foot outside the truck,
which occasioned his injury. HSBC v. SPOUSES BROQUEZA
G.R. No. 178610 November 17, 2010 Carpio, J.
ISSUE: How should the civil liability be imposed upon the parties in the present case?
RULING: The youth Bonifacio was in incompetent chauffeur, that he was driving at an DOCTRINE: The loan obligations are considered pure obligations, the fulfillment
excessive rate of speed, and that, on approaching the bridge and the truck, he lost his of which are demandable at once. Every obligation whose performance does not
head and so contributed by his negligence to the accident. The guaranty given by the depend upon a future or uncertain event, or upon a past event unknown to the parties,
father at the time the son was granted a license to operate motor vehicles made the father is demandable at once.
responsible for the acts of his son. Based on these facts, pursuant to the provisions of
article 1903 of the Civil Code, the father alone and not the minor or the mother, would NATURE OF ACTION: Petition for Review assailing the CA’s decision; Recovery of
be liable for the damages caused by the minor. sum of money
In the United States, it is uniformly held that the head of a house, the owner of an FACTS: Petitioners Gerong and Editha Broqueza (Sps. Broqueza) are employees of
automobile, who maintains it for the general use of his family is liable for its negligent Hongkong and Shanghai Banking Corporation (HSBC) and are members of the HSBC
operation by one of his children, whom he designates or permits to run it, where the car Staff Retirement Plan.
is occupied and being used at the time of the injury for the pleasure of other members of
the owner's family than the child driving it. On October 1, 1990, Editha obtained a car loan in the amount of Php175,000.00. On
December 12, 1991, she again applied and was granted an appliance loan in the amount
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo of Php24,000.00. On the other hand, Gerong applied and was granted an emergency loan
Velasco rests on a different basis, namely, that of contract which, we think, has been in the amount of Php35,780.00 on June 2, 1993.
sufficiently demonstrated by the allegations of the complaint, not controverted, and the
evidence. The Spouses executed a promissory note which stated a promise to pay the sum on or
before until fully paid, payable monthly. These loans were paid through automatic salary
In its broader aspects, the case is one of two drivers approaching a narrow bridge from deduction.
opposite directions, with neither being willing to slow up and give the right of way to
the other, with the inevitable result of a collision and an accident. When a labor dispute arose between HSBC and its employees in 1993, the petitioners
were among those who were terminated and because of the said dismissal, they were
In consonance with the foregoing rulings, the judgment appealed from will be modified, unable to pay the monthly amortizations of their respective loans.
and the plaintiff will have judgment in his favor against the defendants Manuel
CIVIL LAW REVIEW 2
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. PAY v. PALANCA
Custodio, filed Civil Case No. 52400 against the spouses Broqueza on 31 July 1996. On G.R. No. L – 29900 June 18, 1974 Fernando, J.
19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits
were civil actions for recovery and collection of sums of money.
DOCTRINE: Article 1179 of the Civil Code provides: "Every obligation whose
The MeTC ruled that the nature of HSBCL-SRP's demands for payment is civil and has performance does not depend upon a future or uncertain event, or upon a past event
no connection to the ongoing labor dispute. Gerong and Editha Broqueza's termination unknown to the parties, is demandable at once."
from employment resulted in the loss of continued benefits under their retirement plans.
Thus, the loans secured by their future retirement benefits to which they are no longer NATURE OF ACTION: Action for a sum of money based on a promissory note
entitled are reduced to unsecured and pure civil obligations.
FACTS: George Pay is a creditor of the late Justo Palanca. Pay‘s claim is based on a
The RTC ruled that Gerong and Editha Broqueza's termination from employment promissory noted dated January 30, 1952, wherein Justo Palanca and Rosa Palanca
disqualified them from availing of benefits under their retirement plans. As a promised to pay the amount of Php26,900.00. Pay comes to the court seeking that
consequence, there is no longer any security for the loans. HSBCL-SRP has a legal right Segunda, the widow, be appointed as the administratrix under the belief that once a
to demand immediate settlement of the unpaid balance because of Gerong and Editha certain parcel of land is under her administration, Pay, as the creditor, could seek his
Broqueza's continued default in payment and their failure to provide new security for claim against the administratrix.
their loans. Moreover, the absence of a period within which to pay the loan allows
HSBCL-SRP to demand immediate payment. However, Palanca denies stating that she had refused to be appointed as the
administratrix, that the property no longer belonged to the deceased, and that the rights
ISSUE: Whether or not the obligation to pay the retirement loans were dependent upon of Pay on the instrument had already prescribe since the wording of the promissory note
the employment of the Spouses being "upon demand," the obligation was immediately due. (Date of the PN: January 30,
1952; Date when action is filed: August 26, 1967)
RULING: No. The RTC is correct in ruling that since the Promissory Notes do not
contain a period, HSBCL-SRP has the right to demand immediate payment. Article 1179 ISSUE: Whether a creditor is barred by prescription in his attempted to collect on a
of the Civil Code applies. The spouses Broqueza's obligation to pay HSBCL-SRP is a promissory note?
pure obligation. The fact that HSBCL-SRP was content with the prior monthly check-
off from Editha Broqueza's salary is of no moment. Once Editha Broqueza defaulted in RULING: Yes. Article 1179 of the Civil Code provides: "Every obligation whose
her monthly payment, HSBCL-SRP made a demand to enforce a pure obligation. performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." The obligation being due and
A definite amount is paid to HSBCL-SRP on a specific date. Editha Broqueza authorized demandable, it would appear that the filing of the suit after fifteen years was much too
HSBCL-SRP to make deductions from her payroll until her loans are fully paid. Editha late. For again, according to the Civil Code, which is based on Section 43 of Act No.
Broqueza, however, defaulted in her monthly loan payment due to her dismissal. Despite 190, the prescriptive period for a written contract is that of ten years.
the spouses Broqueza's protestations, the payroll deduction is merely a convenient mode
of payment and not the sole source of payment for the loans. HSBCL-SRP never agreed SMITH BELL v. SOTELO MATTI
that the loans will be paid only through salary deductions. Neither did HSBCL-SRP G.R. No. 16570 March 9, 1922 Romualdez, J.
agree that if Editha Broqueza ceases to be an employee of HSBC, her obligation to pay
the loans will be suspended. HSBCL-SRP can immediately demand payment of the
DOCTRINE: Obligations for the performance of which a day certain has been fixed
loans at anytime because the obligation to pay has no period. Moreover, the spouses
shall be demandable only when the day arrives. A day certain is understood to be one
Broqueza have already incurred in default in paying the monthly installments. which must necessarily arrive, even though its date be unknown. If the uncertainty
should consist in the arrival or non-arrival of the day, the obligation is conditional
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and shall be governed by the rules of the next preceding section (Art. 1125, Civil subject to a condition the fulfillment of which depended not only upon the effort of the
Code). 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
NATURE OF ACTION: Appeal from the judgment rendered by the court absolving impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently
defendants from the complaint 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
FACTS: Plaintiff-appellant Smith, Bell & Co. LTD and Vincent Sotelo, entered into plaintiff has made all the efforts it could possibly be expected to make under the
contracts whereby the former obligated itself to sell, and the latter to purchase from it, circumstances, to bring the goods in question to Manila, as soon as possible. And, as a
two steel tanks for P21,000 to be delivered within 3 to 4 months; two expellers for matter of fact, through such efforts, it succeeded in importing them and placing them at
P25,000 each to be delivered on September 1918, or as soon as possible; and two electric the disposal of the defendant in April 1919. Under the doctrine just cited, which, as we
motors for P2,000 each with a delivery date stipulated as “approximately within 90 have seen is of the same juridical origin as our Civil Code, it is obvious that the plaintiff
days.” When these arrived at different dates between October 1918 and April 1919, has complied with its obligation.
plaintiff notified the defendant but the latter refused to receive them and to pay the prices
stipulated. Plaintiff brought suit against the defendant alleging that it immediately Therefore, the plaintiff has not been guilty of any delay in the fulfillment of its
notified the defendant of the arrival of the goods and asked instructions from him as to obligation, and consequently, it could not have incurred any of the liabilities mentioned
the delivery but refused to receive and pay the same. Defendant denied the allegations by the intervenor in its counterclaim or set-off.
and alleged the special defense that he had made the contract in question as Manager of
Manila Oil Refining and By-Products Co, Inc., which fact was known to the plaintiff CHAVEZ v. GONZALES
and that it was only in May 1919, that it notified the intervenor that said tanks had G.R. No. L – 27454 April 30, 1970 Reyes, J.B.L., J.
arrived, the motors and the expellers having arrived incomplete and long after the date
stipulated. The lower court absolved the defendants from the complaint in so far as the DOCTRINE: Where the defendant virtually admitted non-performance of the
tanks and electric motors were concerned but rendered judgment against them as to the contract by returning the typewriter that he was obliged to repair in a non-working
expellers. Both parties appealed from this judgment. condition, with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a mere formality
ISSUE: Whether or not, under the contracts entered into and the circumstances and would serve no purpose than to delay.
established in the record, the plaintiff has fulfilled, in due time, its obligation
to bring the goods in question NATURE OF ACTION: Direct Appeal from the decision of the Court of First Instance
of Manila by a party in a suit for breach of oral contract and recovery of damages.
RULING: To resolve the question, it is necessary to determine what period was fixed
for the delivery of the goods. Under the stipulations, it cannot be said that any definite
FACTS: In July 1963, Chaves delivered to Gonzales a portable typewriter for routine
date was fixed for the delivery of the goods. At the time of execution of the contracts,
cleaning and servicing. Gonzales was not able to finish the job after some time despite
the parties were not unmindful of the contingency of the US government not allowing repeated reminders. In October, 1963, Gonzales asked the sum of P6.00 from Chaves
the export of the goods, nor the fact that the other foreseen circumstances therein stated
for the purchase of spare parts. On October 26, 1963, after getting exasperated with the
might prevent it. Considering these contracts in the light of the civil law, we cannot but
delay of the repair of the typewriter, Chaves went to the house of Gonzales and asked
conclude that the term which the parties attempted to fix is so uncertain that one cannot for the return of the typewriter. Gonzales delivered the typewriter in a wrapped package
tell just whether, as a matter of fact, those articles could be brought to Manila or not. If and upon reaching home, the Chaves examined the typewriter and found out that the
that is the case, as we think it is, the obligation must be regarded as conditional. And as same was in shambles, with the interior cover and some parts and screws missing. On
the export of the machinery in question was as stated in the contract, contingent upon October 29, 1963. He sent a letter to Gonzales formally demanding the return of the
the sellers obtaining certificate of priority and permission of the US government, subject
to the rules and regulations, as well as to railroad embargoes, then the delivery was
CIVIL LAW REVIEW 2
missing parts, the interior cover and the sum of P6.00. The following day, Gonzales bound, but failed or neglected, to return it in the same condition it was when
returned some of the missing parts, the interior cover and the P6.00. he received it.
The plaintiff had his typewriter repaired by Freixas Business Machines, and the repair VICENTE SINGSON ENCARNACION v. JACINTA BALDOMAR, ET AL.
job cost him a total of P89.85, including labor and materials. On August 23, 1965, the G.R. No. L – 264 October 3, 1946 Hilado, J.
plaintiff commenced this action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and compensatory damages, P100.00 for
temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees but the DOCTRINE: If the continuance and fulfillment of the contract would then depend
court a quo awarded only the value of the missing parts of the typewriter (P31.10), solely and exclusively upon the lessee’s free and uncontrolled choice between
instead of the whole cost of labor and materials that went into the repair of the machine. continuing paying the rentals or not, completely depriving the owner of all say in the
Chaves appealed. Gonzales argued that he is not liable at all because his contract with matter, it is prohibited within the meaning or Article 1256 of the Civil Code.
Chaves did not contain a period, so that Chaves should have first filed a petition for the
court to fix the period, under Article 1197 of the Civil Code, within which the Gonzales NATURE OR ACTION: Appeal from the Court of First Instance of Manila
was to comply with the contract before said defendant-appellee could be held liable for
breach of contract. FACTS: Plaintiff Vicente Singson Encarnacion leased his house to defendants Jacinta
Baldomar and her son, Lefrado Fernando, upon a month-to-month basis at a monthly
ISSUES: rental of P35.00. Around March 16 and April 7, 1945, plaintiff notified defendants to
1. Whether or not Chaves should have gone to Court to fix the period of their vacate the house on or before April 15 because plaintiff needed it for his offices. Despite
contract before commencing present action. this demand, defendants insisted on continuing their occupancy.
2. Whether or not Chaves can recover the cost of executing the obligation from
Gonzales. On April 20, plaintiff filed a complaint with Manila MTC during which defendants were
in arrears in the payment of the rental for that month but such paid prior to the hearing
RULINGS: of the case. Court entered judgment for restitution and payment of rentals at the rate of
1. No. The defendant cannot invoke Article 1197 of the Civil Code for he virtually P35 a month from May 1, 1945, until defendants completely vacate the premises.
admitted non-performance by returning the typewriter that he was obliged to Although the plaintiff included in said original complaint a claim for P500 damages per
repair in a non-working condition, with essential parts missing. The fixing of a month, that claim was waived by him before the hearing so nothing was said regarding
period would thus be a mere formality and would serve no purpose than to said damages in the municipal court's decision.
delay.
Upon appeal to the CFI of Manila, defendants filed a Motion to Dismiss on the ground
2. Yes. The defendant-appellee contravened the tenor of his obligation because that the MTC has no jurisdiction over the subject matter due to the aforesaid claim for
he not only did not repair the typewriter but returned it "in shambles", damages but the Motion was denied. In the CFI, the defendant interposed that the
according to the appealed decision. For such contravention, as appellant contract they celebrated with the plaintiff authorized them to continue occupying the
contends, he is liable under Article 1167 of the Civil Code for the cost of house indefinitely as long as they faithfully paid their rentals. The CFI ruled in favor of
executing the obligation in a proper manner. The cost of the execution of the the plaintiff who testified that the lease had always been on a month-to-month basis.
obligation in this case should be the cost of the labor or service expended in the
repair of the typewriter, which is in the amount of P58.75. because the ISSUE: Whether the lease contract entered into by the parties is for an indefinite period
obligation or contract was to repair it. In addition, the defendant-appellee is as long as the rentals are paid or on a month-to-month basis?
likewise liable, under Article 1170 of the Code, for the cost of the missing parts,
in the amount of P31.10, for in his obligation to repair the typewriter he was RULING: The lease contract is entered into by the parties on a month-to-month basis.
The defense set up by defendant would leave to the sole and exclusive will of one of the
CIVIL LAW REVIEW 2
contracting parties (defendants in this case) the validity and fulfillment of the contract It would appear that only the defendant has the right to terminate the contract by giving
of lease, within the meaning of Article 1256 of the Civil Code, since the continuance one month's notice. Nonetheless, the contract of lease was terminated by the notice given
and fulfillment of the contract would then depend solely and exclusively upon their free by the plaintiffs on August 28 of last year.
and uncontrolled choice between continuing paying the rentals or not, completely
depriving the owner of all say in the matter. If this defense were to be allowed, so long The trial court ruled for the plaintiff, thus: The court is of the opinion that the contract
as defendants elected to continue the lease by continuing the payment of the rentals, the of lease was terminated by the notice given by the plaintiffs on August 28 of last year"
owner would never be able to discontinue it. Conversely, although the owner should And such is the theory maintained by the plaintiffs, which expressly rests upon article
desire the lease to continue, the lessees could effectively thwart his purpose if they 1581 of the Civil Code, the law which was in force at the time the contract was entered
should prefer to terminate the contract by the simple expedient of stopping payment of into (January 25,1890). The judge, in giving to this notice the effect of terminating the
the rentals. This, of course, is prohibited by the aforesaid article of the Civil Code. lease, undoubtedly considers that it is governed by the article relied upon by the
Wherefore, the decision of the CFI of Manila was affirmed. plaintiffs, which is of the following tenor: When the term has not been fixed for the
lease, it is understood to be for years when an annual rental has been fixed, for months
ELEIZUEGUI v. LAWN TENNIS CLUB when the rent is monthly. The second clause of the contract provides as follows: The
G.R. No. 967 May 19, 1909 Arellano, C.J. rent of the said land is fixed at 25 pesos per month.
ISSUE: Whether or not the termination of the contract is to be left completely at the will
DOCTRINE: The Civil Code, in speaking in general of obligations with a term, it of the lessee
has supplied the deficiency of the former law with respect to the "duration of the term
when it has been left to the will of the debtor," and provides that in this case the term RULING: No. It would appear to follow, from the foregoing, that, if such is the force
shall be fixed by the courts. of the agreement, there can be no other mode of terminating the lease than by the will
of the lessee, as stipulated in this case. Such is the conclusion maintained by the
NATURE OF ACTION: Unlawful detainer defendant in the demonstration of the first error of law in the judgment, as alleged by
him. He goes so far, under this theory, as to maintain the possibility of a perpetual lease,
FACTS: This suit concerns the lease of a piece of land for n fixed consideration and to either as such lease, if the name can be applied, or else as an innominate contract, or
endure at the will of the lessee. By the contract of lease the lessee is expressly authorized under any other denomination, in accordance with the agreement of the parties, which
to make improvements upon the land, by erecting buildings of both permanent and is, in fine, the law of the contract, superior to all other law, provided that there be no
temporary character, by making fills, laying pipes, and making such other improvements agreement against any prohibitive statute, morals, or public policy.
as might be considered desirable for the comfort and amusement of the members. xxx
The contract provides, thus: They lease the above-described land to Mr. Williamson, It is not to be understood that we admit that the lease entered into was stipulated as a life
who takes it on lease xxx for all the time the members of the said club may desire to use tenancy, and still less as a perpetual lease. The terms of the contract express nothing to
it. xxx The owners of the land undertake to maintain the club as tenant as long as the this effect. They do, however, imply this idea. If the lease could last during such time as
latter shall see fit, without altering in the slightest degree the conditions of this contract, the lessee might see fit, because it has been so stipulated by the lessor, it would last,
even though the estate be sold. xxx Mr. Williamson, or whoever may succeed him as first, as long as the will of the lessee—that is, all his life; second, during all the time that
secretary of said club, may terminate this lease whenever desired without other he may have succession, inasmuch as he who contracts does so for himself and his heirs.
formality than that of giving a month's notice. The owners of the land undertake to (Art. 1257 of the Civil Code.) The lease in question does not, fall within any of the cases
maintain the club as tenant as long as the latter shall see fit. The rental is fixed at 25 in which the rights and obligations arising from a contract can not be transmitted to heirs,
pesos a month. either by its nature, by agreement, or by provision of law. Furthermore, the lessee is an
English association.
xxx
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On the other hand, it can not be concluded that the termination of the contract is to be PHIL. BANKING v. LUI SHE
left completely at the will of the lessee, because it has been stipulated that its duration G.R. No. L – 17587 September 2, 1967 Castro, J.
is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In DOCTRINE: Article 1256 (now 1308) of the Civil Code creates no impediment to
speaking in general of obligations with a term it has supplied the deficiency of the former the insertion in a contract of a resolutory condition permitting the cancellation of the
law with respect to the "duration of the term when it has been left to the will of the contract by one of the parties.
debtor," and provides that in this case the term shall be fixed by the courts. (Art. 1128,
sec. 2.) In every contract, as laid down by the authorities, there is always a creditor who NATURE OF ACTION: Kinds of Obligations – As to Perfection & Extinguishment.
is entitled to demand the performance, and a debtor upon whom rests the obligation to This is an action for annulment of contract on the ground of lack of mutuality due to a
perform the undertaking. In bilateral contracts the contracting parties are mutually resolutory condition found in the contract which allows the lessee to withdraw from the
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with agreement any time.
respect to the rights enumerated in article 1554, and is the debtor with respect to the
obligations imposed by articles 1555 and 1561. The term within which performance of FACTS: Justina Santos and her sister Lorenza were owners in common of a piece of
the latter obligation is due is what has been left to the will of the debtor. This term it is land. In said land were two residential houses and the Hen Wah Restaurant owned by
which must be fixed by the courts. Wong Heng, a Chinese national. Wong had been a long-time lessee of a portion of the
property owned by the sisters. Eventually, Justina became the owner of the entire
The only action which can be maintained under the terms of the contract is that by which property as her sister died with no other heir. Wong himself was the trusted man to
it is sought to obtain from the judge the determination of this period, and not the unlawful whom Santos delivered amounts for safekeeping, including rentals from her property,
detainer action which has been brought—an action which presupposes the expiration of including the rentals which Wong himself paid as lessee.
the term and makes it the duty of the judge to simply decree an eviction. To maintain
the latter action it is sufficient to show the expiration of the term of the contract, whether In November 1957, “In grateful acknowledgement of the personal services of the Lessee
conventional or legal; in order to decree the relief to be granted in the former action it is to her,” Santos executed a contract of lease in favor of Wong, covering the portion then
necessary for the judge to look into the character and conditions of the mutual already leased to him and another portion in Torres street. The lease was for 50 years,
undertakings with a view to supplying the lacking element of a time at which the lease although the lessee was given the right to withdraw at any time from the agreement; the
is to expire. In the case of a loan of money or a commodatum of furniture, the payment monthly rental was P3,120. However, ten days later, the contract was amended so as to
or return to be made when the borrower "can conveniently do so" does not mean that he make it cover the entire property, including the portion on which the house of Santos
is to be allowed to enjoy the money or to make use of the thing indefinitely or stood.
perpetually. The courts will fix in each case, according to the circumstances, the time
for the payment or return. This is the theory also maintained by the defendant in his A month after, Santos executed another contract giving Wong the option to buy the
demonstration of the fifth assignment of error. "Under article 1128 of the Civil Code," leased premises payable within 10 years. The option to buy was conditioned on Wong’s
thus his proposition concludes, "contracts whose term is left to the will of one of the obtaining Philippine citizenship, a petition for which was then pending in the CFI of
contracting parties must be fixed by the courts, xxx the condition as to the term of this Rizal. It appears, however, that his application for naturalization was withdrawn when
lease has a direct legislative sanction," and he cites article 1128. "In place of the ruthless it was discovered that he was not a resident of Rizal. In 1958, Santos filed a petition to
method of annihilating a solemn obligation, which the plaintiffs in this case have sought adopt Wong and his children on the erroneous belief that the adoption would confer on
to pursue, the Code has provided a legitimate and easily available remedy. xxx The Code them Philippine citizenship. The error was discovered and the proceedings were
has provided for the proper disposition of those covenants, and a case can hardly arise abandoned. In November 1958, Santos executed two other contracts, one extending the
more clearly demonstrating the usefulness of that provision than the case at bar." term of the lease to 99 years, and another fixing the term of the option at 50 years.
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In two wills executed in August 1959, she bade her legatees to respect the contracts she Accordingly, the contracts in question are annulled and set aside. The land subject-
has entered into with Wong, but in a codicil of a later date, she appears to have a change matter of the contracts is ordered returned to the estate of Santos as represented by
of heart. Claiming that the various contracts were made by her because of machinations Philippine Banking Corporation.
and inducements practiced by him, she now directed her executor to secure the
annulment of the contracts. LOURDES VALERIO LIM v. PEOPLE OF THE PHILIPPINES
G.R. No. L – 34338 November 21, 1984 Relova, J.
The present action is filed with the CFI of Manila alleging that the contracts were
obtained by Wong “through fraud, misrepresentation, inequitable conduct, undue
influence and abuse of confidence and trust of and (by) taking advantage of the DOCTRINE: Where a person obliged himself to pay to another the proceeds of the
helplessness of the plaintiff and were made to circumvent the constitutional prohibition latter’s tobacco as soon as they are disposed of, a period exists for payment of the
prohibiting aliens from acquiring lands in the Philippines and also of the Philippine obligation and, therefore, Art. 1197 of the New Civil Code, which provides that the
Naturalization Laws.” Santos assails the validity of the lease agreement for want of courts may fix the duration of the obligation if it does not fix a period, does not apply.
mutuality. Paragraph 5 of the lease contract states that “The lessee may at any time
withdraw from this agreement.” It is claimed that the stipulation offends Article 1308 of NATURE OF ACTION: Petition for Certiorari
the Civil Code.
FACTS: Lourdes Valerio Lim was a businesswoman, who, on January 10, 1966, went
ISSUE: Whether or not the stipulation in the lease contract granting the lessee the right to the house of Maria Ayroso and proposed to sell the latter’s tobacco. Ayroso agreed to
to withdraw from the agreement affects the validity of the lease agreement. the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 per
kilo. The appellant was to receive the overprice for which she could sell the tobacco.
RULING: No. The Court, citing the case of Taylor v. Uy Tiong Pao ruled that Article This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador
1256 (now 1308) of the Civil Code creates no impediment to the insertion in a contract Bantug drew a document which certifies of the agreement made between Lim and
of a resolutory condition permitting the cancellation of the contract by one of the parties. Ayroso. It also states that the proceeds of P799.50 will be given to Ayroso as soon as it
Such a stipulation, as can be readily seen, does not make either the validity or the was sold. The agreement was signed by the appellant and witnessed by Bantug and Ruiz.
fulfillment of the contract upon the will of the party to whom is conceded the privilege However, out of the total value of P799.50, only P240.00 was paid to Ayroso on three
of cancellation; for where the contracting parties have agreed that such option shall exist, different times. Because Ayroso claimed that Lim often eluded her even when the former
the exercise of the option is as much in the fulfillment of the contract as any other act visits the later’s house, Ayroso filed a complaint for estafa against Lim. Judgment was
which may have been the subject of the agreement. Indeed, the cancellation of the rendered, however, on appeal, Lim questions whether CA was correct that the agreement
contract in accordance with conditions agreed upon beforehand is fulfillment. fixed the period, making the obligation immediately demandable as soon as the tobacco
was sold.
Note, however, that taken singly, the contracts show nothing that is necessarily illegal,
but considered collectively, they reveal an insidious pattern to subvert what the ISSUE: Whether or not Lim’s contention was correct in applying Article 1197 of the
Constitution directly prohibits. To be sure, a lease to an alien for a reasonable period is Civil Code?
valid. So is an option giving an alien the right to buy real property on condition that he
is granted Philippine citizenship. But if an alien is given not only a lease, but also an RULING: No. It is clear in the agreement, Exhibit "A", that the proceeds of the sale of
option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or the tobacco should be turned over to the complainant as soon as the same was sold, or,
otherwise dispose of his property, this to last for 50 years, then it becomes clear that the that the obligation was immediately demandable as soon as the tobacco was disposed
arrangement is a virtual transfer of ownership whereby the owner divests himself in of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix
stages not only of the right to enjoy the land, but also of the right to dispose of it – rights the duration of the obligation if it does not fix a period, does not apply. The fact that
the sum of which make up ownership. appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given
to complainant as soon as it was sold, strongly negates transfer of ownership of the goods
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to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the period which needs to be fixed first by the court in a proper suit for that purpose before
obligation to return the tobacco if the same was not sold a complaint for specific performance will prosper.
ARANETA, INC. v. PHIL. SUGAR ESTATES Lower court dismissed plaintiff's complaint upholding the defenses interposed by
G.R. No. L – 22558 May 31, 1967 Reyes, J.B.L., J. defendant Gregorio Araneta, Inc. 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. Defendant Gregorio Araneta, Inc.
DOCTRINE: It must be recalled that Article 1197 of the Civil Code involves a two- opposed said motion, maintaining that plaintiff's complaint did not expressly or
step process. The Court must first determine that "the obligation does not fix a impliedly allege and pray for the fixing of a period to comply with its obligation and
period" (or that the period is made to depend upon the will of the debtor)," but from that the evidence presented at the trial was insufficient to warrant the fixing of such a
the nature and the circumstances it can be inferred that a period was intended.” The period.
Court must then proceed to the second step, and decide what period was "probably
contemplated by the parties. The lower court thereafter rendered (amended its decision) a judgment giving defendant
Gregorio Araneta, Inc., a period of two 2 from notice hereof, within which to comply
NATURE OF ACTION: Petition for certiorari with its obligation under the contract. MR. Denied. Appeal to CA. Gregorio Araneta,
Inc. contended mainly that the relief granted, i.e., fixing of a period, under the
FACTS: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon amendatory decision, was not justified by the pleadings and not supported by the facts
City, otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens submitted at the trial of the case in the court below and that the relief granted in effect
title in its name. On July 28, 1950, through Gregorio Araneta, Inc., Tuason & Co. sold allowed a change of theory after the submission of the case for decision. CA affirmed
a portion thereof to Philippine Sugar Estates Development Co., Ltd. The parties lower court.
stipulated, among in the contract of purchase and sale with mortgage, that the buyer will
build on the said parcel land the Sto. Domingo Church and Convent; while the seller ISSUE: Whether or not the 2-year period fixed by the lower court is proper and
will construct streets on the NE and NW and SW sides of the land herein sold so that justified?
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;" RULINGS: NO. 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
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of below) placed the absence of a period in issue by pleading in its answer that the contract
Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner
constructing the streets, is unable to finish the construction of the street in the Northeast Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to
side because a certain third-party, by the name of Manuel Abundo, who has been construct and complete the streets." Neither of the courts below seems to have noticed
physically occupying a middle part thereof, refused to vacate the same; hence, on May that what the answer put in issue was not whether the court should fix the time of
7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M. performance, but whether or not the parties agreed that the petitioner should have
Tuason &Co., Inc., and instance, seeking to compel the latter to comply with their reasonable time to perform its part of the bargain. If the contract so provided, then there
obligation and/or to pay damages in the event they failed or refused to perform said was a period fixed, a "reasonable time;" and all that the court should have done was to
obligation. 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
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, and fix the resulting damages. On the other hand, if the reasonable time had
complaint, the latter particularly setting up the principal defense that the action was not yet elapsed, the court perforce was bound to dismiss the action for being premature.
premature since its obligation to construct the streets in question was without a definite But in no case can it be logically held that under the plea above quoted, the intervention
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of the court to fix the period for performance was warranted, for Article 1197 is precisely contract until the squatters were duly evicted, as contended by the petitioner Gregorio
predicated on the absence of any period fixed by the parties. Araneta, Inc.
Even on the assumption that the court should have found that no reasonable time or no The Court of Appeals objected to this conclusion that it would render the date of
period at all had been fixed, still, the complaint not having sought that the Court should performance indefinite. Yet, the circumstances admit no other reasonable view; and this
set a period, the court could not proceed to do so unless the complaint in as first very indefiniteness is what explains why the agreement did not specify any exact periods
amended; for the original decision is clear that the complaint proceeded on the theory or dates of performance. It follows that there is no justification in law for the setting the
that the period for performance had already elapsed, that the contract had been breached date of performance at any other time than that of the eviction of the squatters occupying
and defendant was already answerable in damages. the land in question; and in not so holding, both the trial Court and the Court of Appeals
committed reversible error. It is not denied that the case against one of the squatters,
Granting, however, that it lay within the Court's power to fix the period of performance, Abundo, was still pending in the Court of Appeals when its decision in this case was
still the amended decision is defective in that no basis is stated to support the conclusion rendered.
that the period should be set at two years after finality of the judgment. The list paragraph
of Article 1197 is clear that the period cannot be set arbitrarily. The law expressly PACIFICA MILLARE v. HON. HAROLD HERNANDO, IN HIS CAPACITY
prescribes that the Court shall determine such period as may under the circumstances AS PRESIDING JUDGE, COURT OF FIRST INSTANCE OF ABRA,
been probably contemplated by the parties. All that the trial court's amended decision SECOND JUDICIAL DISTRICT, BRANCH I, ANTONIO CO AND ELSA
says in this respect is that "the proven facts precisely warrant the fixing of such a period," CO
a statement manifestly insufficient to explain how the two-period given to petitioner G.R. No. 55480 June 30, 1987 Feliciano, J.
herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The DOCTRINE: Save in the limited and exceptional situations envisaged in Articles
Court must first determine that "the obligation does not fix a period" (or that the period 1197 and 1670 of the Civil Code, which do not obtain in this case, courts have no
is made to depend upon the will of the debtor)," but from the nature and the authority to prescribe the terms and conditions of a contract for the parties. Contracts
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). spring from the volition of the parties. That volition cannot be supplied by a judge
This preliminary point settled, the Court must then proceed to the second step, and and a judge who pretends to do so, acts tyrannically, arbitrarily and in excess of his
decide what period was "probably contemplated by the parties.” So that, ultimately, the jurisdiction. The court cannot fix the terms of Contract of Lease in this case since
Court cannot fix a period merely because in its opinion it is or should be reasonable, but the said contract did in fact fix an original period of five years, and the duration of
must set the time that the parties are shown to have intended. As the record stands, the the renewal period was not left to the will of the lessee alone, but rather to the will
trial Court appears to have pulled the two-year period set in its decision out of thin air, of both the lessor and the lessee.
since no circumstances are mentioned to support it. Plainly, this is not warranted by the
Civil Code. NATURE OF ACTION: This is a Petition for Certiorari, Prohibition and Mandamus,
seeking injunctive relief from the respondent judge’s order to renew the Contract of
In this connection, it is to be borne in mind that the contract shows that the parties were Lease.
fully aware that the land described therein was occupied by squatters, because the fact
is expressly mentioned therein. As the parties must have known that they could not take FACTS: A five-year Contract of Lease was executed between petitioner Pacifica
the law into their own hands, but must resort to legal processes in evicting the squatters, Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee.
they must have realized that the duration of the suits to be brought would not be under Under the written agreement, which was scheduled to expire on 31 May 1980, the lessor-
their control nor could the same be determined in advance. The conclusion is thus forced petitioner agreed to rent out to the lessee at a monthly rate of P350.00 the "People's
that the parties must have intended to defer the performance of the obligations under the Restaurant", a commercial establishment. Sometime during the last week of May 1980,
the lessor informed them that they could continue leasing the People's Restaurant so
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long as they were amenable to paying increased rentals of P1,200.00 a month. In agreement both on the amount of the rental to be payable during the renewal term, and
response, a counter-offer of P700.00 a month was made by the Co spouses. At this point, on the term of the renewed contract.
the lessor allegedly stated that the amount of monthly rentals could be resolved at a later
time since "the matter is simple among us", which alleged remark was supposedly taken The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the
by the spouses Co to mean that the Contract of Lease had been renewed, prompting them "Judgment by Default" by which he ordered the renewal of the lease for another term of
to continue occupying the subject premises and to forego their search for a substitute five years and fixed monthly rentals thereunder at P700.00 a month.
place to rent. In contrast, the lessor flatly denied ever having considered, much less
offered, a renewal of the Contract of Lease. Thereafter, Mrs. Millare wrote the Co Article 1197 of the Civil Code provides as follows:
spouses requesting them to vacate the leased premises as she had no intention of "If the obligation does not fix a period, but from its nature and the
renewing the Contract of Lease which had, in the meantime, already expired. circumstances it can be inferred that a period was intended, the courts may
fix the duration thereof.
Co spouses filed a Complaint with the then Court of First Instance of Abra against Mrs.
Millare, seeking judgment ordering the renewal of the Contract of Lease at a rental rate The courts shall also fix the duration of the period when it depends upon the will of the
of P700.00 a month and for a period of ten years. Mrs. Millare countered with an debtor.
Omnibus Motion to Dismiss grounded on lack of cause of action due to plaintiffs' failure
to establish a valid renewal of the Contract of Lease. Respondent judge denied the In every case, the courts shall determine such period as may, under the circumstances,
motion to dismiss and ordered the renewal of the Contract of Lease. Mrs. Millare filed have been probably contemplated by the parties. Once fixed by the courts, the period
the instant Petition for Certiorari, Prohibition and Mandamus, seeking injunctive relief cannot be changed by them." (Underscoring supplied.)
from the abovementioned orders. SC issued the corresponding temporary restraining
order. Apparently, before the temporary restraining order could be served on the The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease
respondent judge, he rendered a "Judgment by Default" ordering the renewal of the lease did in fact fix an original period of five years, which had expired. It is also clear from
contract for a term of 5 years counted from the expiration date of the original lease paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty
contract, and fixing monthly rentals thereunder at P700.00 a month, payable in arrears. of agreeing upon the period of the renewal contract. The second paragraph of Article
1197 is equally clearly inapplicable since the duration of the renewal period was not left
ISSUE: Whether or not respondent judge’s order to renew the Contract of Lease and to to the will of the lessee alone, but rather to the will of both the lessor and the lessee.
fix the terms thereof is proper. Most importantly, Article 1197 applies only where a contract of lease clearly exists.
Here, the contract was not renewed at all there was in fact no contract at all the period
RULING: NO, respondent judge’s order to renew the Contract of Lease and to fix the of which could have been fixed.
terms thereof is not proper.
Article 1670 of the Civil Code reads thus:
Paragraph 13 of the Contract of Lease reads as follows: "13. This contract of lease is "If at the end of the contract the lessee should continue enjoying the thing
subject to the laws and regulations of the government; and that this contract of lease may left for 15 days with the acquiescence of the lessor and unless a notice to
be renewed after a period of five (5) years under the terms and conditions as will be the contrary by either party has previously been given, it is understood that
mutually agreed upon by the parties at the time of renewal.” there is an implied new lease, not for the period of the original contract, but
for the time established in Articles 1682 and 1687. The other terms of the
Paragraph 13 of the Contract of Lease can only mean that the lessor and lessee may original contract shall be revived." (Underscoring supplied.)
agree to renew the contract upon their reaching agreement on the terms and conditions
to be embodied in such renewal contract. Failure to reach agreement on the terms and The respondents themselves do not pretend that the continued occupancy of the leased
conditions of the renewal contract will of course prevent the contract from being premises after the date of expiration of the contract, was with the acquiescence of the
renewed at all. In the instant case, the lessor and the lessee conspicuously failed to reach lessor. Even if it be assumed that tacita reconduccion had occurred, the implied new
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lease could not possibly have a period of five years, but rather would have been a month-
to-month lease since the rentals (under the original contract) were payable on a monthly From February 2007 to March 2007, Dan Lim delivered scrap papers to Arco Pulp and
basis. At the latest, an implied new lease (had one arisen) would have expired as of the Paper and the parties allegedly agreed that Arco Pulp and Paper:
end of July 1980 in view of the written demands served by the petitioner upon the private a. would either pay Dan T. Lim the value of the raw materials; or
respondents to vacate the previously leased premises. b. deliver to him their finished products of equivalent value.
2. As to Plurality of Prestation Arco Pulp and Paper and Eric Sy of Megapack Container Corporation executed a
memorandum of agreement where Arco Pulp and Paper bound themselves to deliver
a. Conjunctive their finished products to Megapack. According to the memorandum, the raw materials
b. Alternative
c. Facultative would be supplied by Dan T. Lim, through his company, Quality Paper and Plastic
Products.
Arco Pulp and Paper Co., Inc. and Candida Santos v. Dan T. Lim
On May 5, 2007, Dan T. Lim sent a letter to Arco Pulp and Paper demanding payment
G.R. No. 206806 June 25, 2014 Leonen, J. of the amount of P7,220,968.31, but no payment was made to him.
DOCTRINE: When petitioner tendered a check to respondent in partial payment for Regional Trial Court: Dan T. Lim filed a complaint for collection of sum of money
the scrap papers, they exercised their option to pay the price. Respondent’s receipt with prayer for attachment RTC Branch 171, Valenzuela City, on May 28, 2007.
of the check and his subsequent act of depositing it constituted his notice of the
petitioner's option to pay, as an alternative obligation. Arco Pulp and Paper filed its answer but failed to have its representatives attend the pre-
trial hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex parte.
Novation must be stated in clear and unequivocal terms to extinguish an obligation.
It cannot be presumed and may be implied only if the old and new contracts are On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and
incompatible on every point. Paper and dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy
entered into the memorandum of agreement, novation took place, which extinguished
NATURE OF ACTION: Petition for Review on Certiorari Arco Pulp and Paper’s obligation to Dan T. Lim.
FACTS: Petitioner Arco Pulp and Paper executed a memorandum, through CEO and Court of Appeals: Dan T. Lim appealed the judgment with the Court of Appeals.
President Candida Santos, with a certain Eric Sy of Megapack Container Corporation,
where Arco Pulp and Paper bound themselves to deliver their finished products to On January 11, 2013, the CA rendered a decision reversing and setting aside the
Megapack Container Corporation, owned by Eric Sy, for his account. Petitioner argued judgment dated September 19, 2008 and ordering Arco Pulp and Paper to jointly and
that the execution of the memorandum of agreement constituted a novation of the severally pay Dan T. Lim the amount of P7,220,968.31 with interest at 12% per annum
original obligation since Eric Sy became the new debtor of respondent. from the time of demand; P50,000.00 moral damages; P50,000.00 exemplary damages;
and P50,000.00 attorney’s fees.
Respondent Dan T. Lim works in the business of supplying scrap papers, cartons, and
other raw materials, under the name Quality Paper and Plastic Products, Enterprises, The CA ruled that there exists an alternative obligation. It also ruled that Dan T. Lim
to factories engaged in the paper mill business. Respondent alleged that he delivered the was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp
raw materials amounting to P7,220,968.31 and in return Arco Pulp and Paper issued a and Paper in not honoring its undertaking.
post-dated check dated April 18, 2007 in the amount of P1,487,766.68 as partial
payment, with the assurance that the check would not bounce but on April 18, 2007 said
check was dishonored for being drawn against a closed account.
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Supreme Court: Its motion for reconsideration having been denied, Arco Pulp and only after said notice shall the election take legal effect when consented by the creditor,
Paper and its President and Chief Executive Officer, Candida A. Santos, bring this or if impugned by the latter, when declared proper by a competent court.”
petition for review on certiorari.
In the case at bar, the original contract between the parties provides that respondent is
Respondent Dan T. Lim argues that novation did not take place since the memorandum bound to deliver scrap papers worth P7,220,968.31 to petitioner Arco Pulp and Paper
of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private hence the payment for this delivery became petitioner Arco Pulp and Paper’s obligation.
agreement between them. He argued that if his name was mentioned in the contract, it By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to either (1)
was only for supplying the parties their required scrap papers, where his conformity pay the price or (2) deliver the finished products of equivalent value to the respondent.
through a separate contract was indispensable. The appellate court, therefore, correctly identified the obligation between the parties as
an alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the
Petitioner Arco Pulp and Paper argues that the execution of the memorandum of raw materials from respondent, would either pay him the price of the raw materials or,
agreement constituted a novation of the original obligation since Eric Sy became the in the alternative, deliver to him the finished products of equivalent value.
new debtor of respondent. They also argue that there is no legal basis to hold petitioner
CEO and President Candida A. Santos personally liable for the transaction that petitioner When petitioner Arco Pulp and Paper tendered a check to respondent Lim in partial
corporation entered into with respondent. payment for the scrap papers, they exercised their option to pay the price. Respondent’s
receipt of the check and his subsequent act of depositing it constituted his notice of
Petitioners reiterate that novation took place since there was nothing in the memorandum petitioner Arco Pulp and Paper’s option to pay.
of agreement showing that the obligation was alternative. They also argue that when
respondent allowed them to deliver the finished products to Eric Sy, the original 2. No. The memorandum of agreement did not constitute a novation of the
obligation was novated. original contract.
ISSUES: The Supreme Court held that novation extinguishes an obligation between two parties
1. Whether or not the obligation between the parties was an alternative obligation. when there is a substitution of objects or debtors or when there is subrogation of the
2. Whether or not the obligation between the parties was extinguished by creditor. It occurs only when the new contract declares so “in unequivocal terms” or that
novation. “the old and the new obligations be on every point incompatible with each other.”
RULINGS: In the case at bar, there is nothing in the memorandum of agreement that states that with
1. Yes. The obligation between the parties was an alternative obligation, in its execution, the obligation of petitioner Arco Pulp and Paper to respondent would be
accordance with Article 1199 of the Civil Code, which states that a person extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco
alternatively bound by different prestations shall completely perform one of Pulp and Paper as respondent’s debtor. It merely shows that petitioner Arco Pulp and
them and the creditor cannot be compelled to receive part of one and part of Paper opted to deliver the finished products to a third person instead.
the other undertaking.
The consent of the creditor must also be secured for the novation to be valid. In this case,
The Supreme Court held that in an alternative obligation, there is more than one object, respondent Dan T. Lim was not privy to the memorandum of agreement, thus, his
and the fulfillment of one is sufficient, determined by the choice of the debtor who conformity to the contract need not be secured.
generally has the right of election. Further, the right of election is extinguished when the
party who may exercise that option categorically and unequivocally makes his or her Furthermore, if the memorandum of agreement was intended to novate the original
choice known. The choice of the debtor must also be communicated to the creditor who agreement between the parties, Lim must have first agreed to the substitution of Eric Sy
must receive notice of it since “the object of this notice is to give the creditor an as his new debtor. The memorandum of agreement must also state in clear and
opportunity to express his consent, or to impugn the election made by the debtor, and
CIVIL LAW REVIEW 2
unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and In its decision, the CFI recognized the parties’ compromise agreement where it was
Paper to Lim. Neither of these circumstances is present in this case. agreed:
1. to reduce the total claim to only P110,000;
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent Lim 2. the defendants would acknowledge the validity of the claim and bound
also conflicts with their alleged intent to pass on their obligation to Eric Sy. When themselves to pay the initial installment of P55,000 on or before December 24,
respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric 1979 and individually and jointly agree to pay the balance of P55,000 within a
Sy, it showed that the former neither acknowledged nor consented to the latter as his period of six months from January 1980, or before June 30, 1980; and
new debtor. These acts, when taken together, clearly show that novation did not take 3. If either party fails to comply, the innocent party is entitled to execution of the
place. decision based on the compromise agreement and the defaulting party shall
reimburse the former for fees related to the execution.
Since there was no novation, petitioner Arco Pulp and Paper’s obligation to respondent
remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay On December 26, So filed a Motion for Execution on the ground that defendants failed
respondent the full amount of P7,220,968.31. WHEREFORE, the petition is DENIED to pay the initial P55K. Ronquillo opposed the motion contending that his inability to
in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED. pay was due to So’s own act of making himself scarce and inaccessible on December
24. He prayed that So be ordered to accept his payment of P13,750 representing his
3. As to rights & obligations of multiple parties – Arts. 1207 – 1222 prorate share in the P55K initial payment. So refused to accept Ronquillo and Pilar’s
a. Joint payment, as he demanded the full P55K initial installment, the latter instead deposited
b. Solidary – Arts. 927, 1824, 1911, 1915, 1945, 2157, 2194, 2146 their payment with the Clerk of Court. The CFI ordered the issuance of a writ of
Arts. 94, 121, FC; Art. 90, RPC
c. Disjunctive execution for the balance against the other defendants who did not pay their shares.
So filed a MR of the Order and prayed for the execution of the decision in its entirety
Ernesto Ronquillo v. Court of Appeals and Antonio So
against all defendants, jointly and severally. Ronquillo opposed arguing that under the
G.R. No. L – 55138 September 28, 1984 Cuevas, J. (Second CFI decision, the liability of the 4 defendants was not expressly declared to be solidary,
Division) consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the
amount. The CFI recognized the non-payment and issued a writ of execution for the
DOCTRINE: The phrase in the compromise agreement “individually and jointly” satisfaction of the P82,500 against the properties of the defendants (including
undoubtedly creates a several obligation, and a "several obligation” is one by which Ronquillo), "singly or jointly liable."
one individual binds himself to perform the whole obligation. Hence, the defendants,
including Ronquillo, obligated themselves to pay their obligation solidarily not The public sale of furniture and appliances in Ronquillo's residence to satisfy the unpaid
jointly. balance was scheduled at 10:00 a.m. of April 2, 1980. On March 17, Ronquillo filed a
MR of the Order which was set for hearing on March 25 and upon So’s motion, the
NATURE OF ACTION: Petition for Review of a CA Resolution denying Ronquillo’s hearing was reset to April 2 at 8:30 a.m. Upon realizing that if his MR is denied and he
MR. would have no more time to obtain a writ from the CA to stop the sale of his properties
at 10:00 a.m. of the same day, Ronquillo filed with the CA on March 26, a petition for
FACTS: On July 23, 1979, So filed before the CFI-Rizal a complaint for collection of certiorari and prohibition with a prayer for the issuance of a restraining order to stop the
P117,498.98 plus attorney's fees and costs against Petitioner Ronquillo, Offshore sale. He questioned the sale of his properties to satisfy the entire unpaid obligation of all
Catertrade Inc., Johnny and Pilar Tan. The amount represents the value of dishonored 4 defendants arguing that the CFI’s decision did not specifically state solidary liability.
checks issued by defendants for the payment of foodstuffs they received. On April 2, the CFI denied Ronquillo's MR but the scheduled sale on the same day did
not proceed in view of the pendency of the certiorari proceeding. Thereafter, the CA
issued its resolution ruling that the petition was filed prematurely since it was filed
CIVIL LAW REVIEW 2
without waiting for the resolution of the CFI on the MR. Moreover, the CA recognized Malayan Insurance v. CA
that when the defendants defaulted in their obligation, So became entitled to an G.R. No. L – 36413 September 26, 1988 Padilla, J.
execution. Ronquillo filed an MR as he alleged that since the CFI already denied the
MR before it, the legal issues being raised in the certiorari petition were already "ripe"
for determination. This was likewise denied. DOCTRINE: In solidary obligation, the creditor may enforce the entire obligation
against one of the solidary debtors. On the other hand, insurance is defined as "a
Hence, this petition for review. Ronquillo argues that under the CFI decision based on contract whereby one undertakes for a consideration to indemnify another against
the compromise agreement the liability of the defendants is joint and since he already loss, damage, or liability arising from an unknown or contingent event."
paid his pro-rata share of the adjudged obligation he should not be held liable of the total
unpaid amount payable by his joint co-defendants. NATURE OF ACTION: A Petition for Review on Certiorari
ISSUE: Based on the compromise agreement and the decision based upon it, are the FACTS: Malayan Insurance issued a comprehensive car policy in favor of private
defendants solidary liable? respondent Sio Choy. The insurance coverage was for "own damage" not to exceed
P600.00 and "third-party liability" in the amount of P20,000.00. during the effectivity
RULING: Yes, by the express term of the compromise agreement and the decision of the policy, the insured jeep, while being driven by one Juan P. Campollo an employee
based upon it, the defendants obligated themselves to pay their obligation "individually of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to
and jointly". the respondent PANTRANCO. As a result, Martin C. Vallejos filed an action for
damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO.
Article 1207 of the Civil Code on solidary obligations provide that “The concurrence of
two or more debtors in one and the same obligation does not imply that each one of the Sio Choy filed a separate answer with crossclaim. Sio Choy alleged that the petitioner
former has a right to demand, or that each one of the latter is bound to render, entire had issued in his favor a private car comprehensive policy wherein the insurance
compliance with the prestation. Then is a solidary liability only when the obligation company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor
expressly so states, or when the law or the nature of the obligation requires solidarity.” vehicle, as well as for any liability to third persons arising out of any accident during the
The term "individually" has the same meaning as "collectively", "separately", effectivity of such insurance contract, which policy was in full force and effect when the
"distinctively", respectively or "severally". An agreement to be "individually liable" vehicular accident complained of occurred. He prayed that he be reimbursed by the
undoubtedly creates a several obligation, and a "several obligation is one by which one insurance company for the amount that he may be ordered to pay.
individual binds himself to perform the whole obligation.
The Trial Court ruled that Sio Choy and Malayan Insurance Co., Inc., and third-party
In the case of Parot vs. Gemora, it was held that "the phrase juntos or separadamente defendant San Leon Rice Mill, Inc are liable to Vallejos. On appeal, the said decision
or in the promissory note is an express statement making each of the persons who signed was affirmed by the CA; that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan
it individually liable for the payment of the fun amount of the obligation contained Insurance Co., Inc. are jointly and severally liable for the damages awarded to the
therein." It was likewise held in Un Pak Leung vs. Negorra, that "in the absence of a plaintiff Martin C. Vallejos
finding of facts that the defendants made themselves individually hable for the debt
incurred they are each liable only for one-half of said amount. The obligation herein ISSUE: Whether trial court, as upheld by the Court of Appeals, was correct in holding
being described as "individually and jointly", the same is therefore enforceable against petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarily
one of the numerous obligors. liable" to respondent Vallejos?
RULING: NO. We hold instead that it is only respondents Sio Choy and San Leon Rice
Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to respondent
Vallejos for the damages awarded to Vallejos.
CIVIL LAW REVIEW 2
On the other hand, the basis of petitioner's liability is its insurance contract with CFI of Manila issued an order dismissing PNB’s complaint against several solidary
respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the amount debtors for the collection of sum of money on the ground that one of the defendants
of not more than P20,000.00, this is on account of its being the insurer of respondent Sio (Ceferino Valencia) died during the pendency of the case, and therefore the complaint,
Choy under the third party liability clause included in the private car comprehensive being a money claim based on contract, should be prosecuted in the testate or intestate
policy existing between petitioner and respondent Sio Choy at the time of the proceeding for the settlement of the estate of the deceased defendant pursuant to Section
complained vehicular accident. 6 of Rule 86 of the Rules of Court.
While it is true that where the insurance contract provides for indemnity against liability PNB assails the order of dismissal, invoking its right of recourse against one or all of its
to third persons, such third persons can directly sue the insurer, however, the direct solidary debtors under Article 1216 of the Civil Code.
liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured and/or the other ISSUE: Whether in an action for collection of a sum of money based on contract against
parties found at fault. The liability of the insurer is based on contract; that of the insured all the solidary debtors, the death of one defendant deprives the court of
is based on tort. jurisdiction to proceed with the case against the surviving defendants.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but RULING: No.
it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two ART. 1216. The creditor may proceed against any one of the solidary
principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc. For if debtors or some or all of them simultaneously. The demand made against
petitioner-insurer were solidarily liable with said two (2) respondents by reason of the one of them shall not be an obstacle to those which may subsequently be
indemnity contract against third party liability-under which an insurer can be directly directed against the others, so long as the debt has not been fully collected.
sued by a third party — this will result in a violation of the principles underlying solidary
obligation and insurance contracts. It is now settled that the quoted Article 1216 grants the creditor the substantive right to
seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems
PNB v. Independent Planters Association Inc. fit or convenient for the protection of his interests; and if, after instituting a collection
G.R. No. L – 28046 May 16, 1983 Plana, J. suit based on contract against some or all of them and, during the pendency, one of the
defendants dies, the court retains jurisdiction to continue the proceedings and decide the
case in respect of the surviving defendants.
DOCTRINE: It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the creditor the right to Similarly, in PNB vs Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr.
‘proceed against anyone of the solidary debtors or some or all of them Justice Makasiar, reiterated the doctrine.
simultaneously.’ The choice is undoubtedly left to the solidary creditor to determine
against whom he will enforce collection. In case of death of one of the solidary “It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in
debtors without necessity of filing a claim in the estate of the deceased debtors. It is this matter. Said provision gives the creditor the right to ‘proceed against anyone of the
not mandatory for him to have the case dismissed against the surviving debtors and solidary debtors or some or all of them simultaneously.’ The choice is undoubtedly left
file its claim in the estate of the deceased solidary debtor. . . to the solidary creditor to determine against whom he will enforce collection. In case of
death of one of the solidary debtors without necessity of filing a claim in the estate of
NATURE OF ACTION: Appeal from the order of the Court of First Instance of Manila the deceased debtors. It is not mandatory for him to have the case dismissed against the
surviving debtors and file its claim in the estate of the deceased solidary debtor. . .”
FACTS: The Philippine National Bank (PNB) filed a complaint for the collection of a
sum of money against several solidary debtors.
CIVIL LAW REVIEW 2
Calang and PHILTRANCO v. People delicts that an employee has committed. Such provision of law does not apply to civil
G.R. No. 190696 August 3, 2010 Brion, J. liability arising from delict.
If at all, Philtranco’s liability may only be subsidiary. Article 102 of the RPC states the
DOCTRINE: Articles 2176 and 2180 of the Civil Code pertain to the vicarious subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of
liability of an employer for quasi-delicts that an employee has committed. Such establishments. Such subsidiary liability applies to employers (Article 103, RPC). Such
provision of law does NOT apply to civil liability arising from delict. provisions of the RPC on subsidiary liability are deemed written into the judgments in
cases to which they are applicable. Thus, in the dispositive portion of its decision, the
NATURE OF ACTION: Motion for Reconsideration, challenging the SC Resolution trial court need not expressly pronounce the subsidiary liability of the employer.
which denied the Petition for Review on Certiorari Nonetheless, before the employers’ subsidiary liability is enforced, adequate evidence
must exist establishing that (1) they are indeed the employers of the convicted
FACTS: At 2PM, Rolito Calang was driving Philtranco Bus No. 7001, owned by employees; (2) they are engaged in some kind of industry; (3) the crime was committed
Philtranco Service Enterprises, Inc. along Daang Maharlika Highway in Barangay by the employees in the discharge of their duties; and (4) the execution against the latter
Lambao, Sta. Margarita, Samar when its rear left side hit the front left portion of a Sarao has not been satisfied due to insolvency. The determination of these conditions may be
jeep coming from the opposite direction. As a result of the collision, Cresencio done in the same criminal action in which the employee’s liability, criminal and civil,
Pinohermoso, the jeep’s driver, lost control of the vehicle, and bumped and killed Jose has been pronounced, in a hearing set for that precise purpose, with due notice to the
Mabansag, a bystander who was standing along the highway’s shoulder. The jeep turned employer, as part of the proceedings for the execution of the judgment.
turtle 3 times before finally stopping at about 25m from the point of impact. Two of the
jeep’s passengers, Armando Nablo and an unidentified woman, were instantly killed, WHEREFORE, the motion is is PARTLY GRANTED.
while the other passengers sustained serious physical injuries.
Ruks Konslt and Construction v. Adworld Sign and Advertising Corp. and
The prosecution charged Calang with multiple homicide, multiple serious physical Transworld Media Ads.
injuries and damage to property thru reckless imprudence before the RTC. The trial court G.R. No. 204866 January 21, 201 Perlas – Bernabe, J.
found Calang guilty beyond reasonable doubt of reckless imprudence resulting to
multiple homicide, multiple physical injuries and damage to property.
DOCTRINE: Joint tortfeasors are each liable as principals, to the same extent and
The Calang and Philtranco (Petitioners) appealed the RTC decision to the CA. The in the same manner as if they had performed the wrongful act themselves.
appellate court affirmed the RTC decision in toto. It ruled that Calang failed to exercise
due care and precaution in driving the Philtranco bus. It added that the RTC correctly NATURE OF ACTION: Petition for review on certiorari
held Philtranco jointly and severally liable with Calang, for failing to prove that it had
exercised the diligence of a good father of the family to prevent the accident. FACTS: Adworld is the owner of a 75 ft. x 60 ft. billboard structure located at EDSA
Tulay, Guadalupe, Barangka Mandaluyong. It alleged that the said billboard was
ISSUE: Whether or not Philtranco is jointly and severally liable with Calang misaligned and its foundation impaired when the adjacent billboard structure owned by
Transworld and used by Comark collapsed and crashed against it. Adworld filed a
RULING: NO. The RTC and the CA both erred in holding Philtranco jointly and complaint for damages against Transworld and Comark International Corporation
severally liable with Calang. Calang was charged criminally before the RTC and (Comark) before the RTC.
Philtranco was not a direct party in the case. Since the cause of action against Calang
was based on delict, both the RTC and the CA erred in holding Philtranco jointly and Transworld averred that the collapse of its billboard structure was due to extraordinarily
severally liable with Calang, based on quasi-delict under Articles 2176 and 2180 of the strong winds that occurred instantly and unexpectedly, and maintained that the damage
Civil Code. The provisions pertain to the vicarious liability of an employer for quasi- caused to Adworld’s billboard structure was hardly noticeable. Transworld likewise
CIVIL LAW REVIEW 2
filed a Third-Party Complaint against Ruks, the company which built the collapsed Negligence is defined as the omission to do something which a reasonable man, guided
billboard structure in the former’s favor. It was alleged therein that the structure by those considerations which ordinarily regulate the conduct of human affairs, would
constructed by Ruks had a weak and poor foundation not suited for billboards, thus, do, or the doing of something which a prudent and reasonable man would not do. It is
prone to collapse, and as such, Ruks should ultimately be held liable for the damages the failure to observe for the protection of the interest of another person that degree of
caused to Adworld’s billboard structure. care, precaution, and vigilance which the circumstances justly demand, whereby such
other person suffers injury.
Comark denied liability for the damages caused to Adworld’s billboard structure,
maintaining that it does not have any interest on Transworld’s collapsed billboard Transworld’s initial construction of its billboard’s lower structure without the proper
structure as it only contracted the use of the same. foundation, and that of Ruks’s finishing its upper structure and just merely assuming
that Transworld would reinforce the weak foundation are the two (2) successive acts
Ruks admitted that it entered into a contract with Transworld for the construction of the which were the direct and proximate cause of the damages sustained by Adworld.
latter’s billboard structure, but denied liability for the damages caused by its collapse. It Worse, both Transworld and Ruks were fully aware that the foundation for the former’s
contended that when Transworld hired its services, there was already an existing billboard was weak; yet, neither of them took any positive step to reinforce the same.
foundation for the billboard and that it merely finished the structure according to the They merely relied on each other’s word that repairs would be done to such foundation,
terms and conditions of its contract with the latter. but none was done at all. Clearly, the foregoing circumstances show that both
Transworld and Ruks are guilty of negligence in the construction of the former’s
Regional Trial Court: Transworld and Ruks are jointly and severally liable to Adworld. billboard, and perforce, should be held liable for its collapse and the resulting damage
RTC found both Transworld and Ruks negligent in the construction of the collapsed to Adworld’s billboard structure. As joint tortfeasors, therefore, they are solidarily liable
billboard as they knew that the foundation supporting the same was weak and would to Adworld.
pose danger to the safety of the motorists and the other adjacent properties, such as
Adworld’s billboard, and yet, they did not do anything to remedy the situation. In Verily, “[j]oint tortfeasors are those who command, instigate, promote, encourage,
particular, the RTC explained that Transworld was made aware by Ruks that the initial advise, countenance, cooperate in, aid or abet the commission of a tort, or approve of it
construction of the lower structure of its billboard did not have the proper foundation after it is done, if done for their benefit. They are also referred to as those who act
and would require additional columns and pedestals to support the structure. together in committing wrong or whose acts, if independent of each other, unite in
Notwithstanding, however, Ruks proceeded with the construction of the billboard’s causing a single injury.
upper structure and merely assumed that Transworld would reinforce its lower structure.
The RTC then concluded that these negligent acts were the direct and proximate cause Under Article 2194 of the Civil Code, joint tortfeasors are solidarily liable for the
of the damages suffered by Adworld’s billboard. resulting damage. In other words, joint tortfeasors are each liable as principals, to the
same extent and in the same manner as if they had performed the wrongful act
Court of Appeals: CA dismissed Transworld’s appeal for its failure to file an themselves.”
appellant’s brief on time. CA denied Ruks’s appeal and affirmed the ruling of the RTC.
In People v. Velasco:
ISSUE: Whether or not Ruks is jointly and severally liable with Transworld for damages Where several causes producing an injury are concurrent and each is an
sustained by AdWorld efficient cause without which the injury would not have happened, the
injury may be attributed to all or any of the causes and recovery may be had
RULING: Yes. The Court sees no cogent reason to deviate from the findings of the against any or all of the responsible persons.
RTC and the CA and their uniform conclusion that both Transworld and Ruks
committed acts resulting in the collapse of the former’s billboard, which in turn, caused Where the concurrent or successive negligent acts or omissions of two or
damage to the adjacent billboard of Adworld. more persons, although acting independently, are in combination the direct
and proximate cause of a single injury to a third person, it is impossible to
CIVIL LAW REVIEW 2
determine in what proportion each contributed to the injury and either of goods. Plaintiff refused to pay, prompting defendant to file a complaint for damages. In
them is responsible for the whole injury. turn, plaintiff impleaded as third party defendant BMT Trucking.
In conclusion, Ruks is jointly and severally liable with Transworld for damages During trial, TBMI asserted that it was not liable for the loss of goods because it
sustained by Adworld. exercised due diligence on its part. It was actually BMT who neglected to exercise
extraordinary diligence in making the delivery. BMT for its part, blamed TBMI for
TMBI v. Feb Mitsui and Manalastas neglecting to send representatives to accompany the transit of goods. Both argued that
G.R. No. 194121 July 11, 2016 Brion, J. (Second the hijacking was a fortuitous event.
Division)
The trial court ruled in favor of Feb Mitsui and ordered the two solidarily liable, using
as basis Art. 2194, in stating that the liability of two or more persons who are liable for
DOCTRINE: In culpa contractual, the plaintiff only needs to establish the existence quasi delict is solidary. The CA affirmed the trial court’s ruling.
of the contract and the obligor's failure to perform his obligation. It is not necessary
for the plaintiff to prove or even allege that the obligor's noncompliance was due to ISSUE: Whether TBMI and BMT should be held solidarily liable.
fault or negligence because Article 1735 already presumes that the common carrier
is negligent. RULING: The Court ruled in the negative.
On the other hand, the plaintiff in culpa aquiliana must clearly establish the TMBI’s liability to Mitsui does not stem from quasi delict (culpa aquiliana) but from its
defendant's fault or negligence because this is the very basis of the action. Moreover, breach of contract (culpa contractual). The tie that binds TMBI with Mitsui is
if the injury to the plaintiff resulted from the act or omission of the defendant's contractual, albeit one that passed on to Mitsui as a result of TMBI's contract of carriage
employee or servant, the defendant may absolve himself by proving that he observed with Sony to which Mitsui had been subrogated as an insurer who had paid Sony's
the diligence of a good father of a family to prevent the damage insurance claim.
NATURE OF ACTION: Action for Damages We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the
loss of the cargo. While it is undisputed that the cargo was lost under the actual custody
FACTS: A shipment of various Sony products arrived at the port of Manila. Sony of BMT, no direct contractual relationship existed between Sony/Mitsui and BMT. If at
Philippines contracted the services of plaintiff Torres-Madrid Brokerage Inc (TMBI) to all, Sony/Mitsui's cause of action against BMT could only arise from quasi-delict, as a
facilitate, process, withdraw and deliver the shipment from the port to its warehouse in third party suffering damage from the action of another due to the latter's fault or
Laguna. TMBI however did not own any trucks to make the required delivery and negligence, pursuant to Article 2176 of the Civil Code.
subcontracted BMT Trucking Services to undertake delivery of the said goods. Sony
agreed to the said arrangement. In the present case, Mitsui's action is solely premised on TMBl's breach of contract.
Mitsui did not even sue BMT, much less prove any negligence on its part. If BMT has
On the day of delivery, four trucks containing the goods left the port. However, only entered the picture at all, it 'is because TMBI sued it for reimbursement for the liability
three trucks arrived at the warehouse. Upon investigation, it was found that the last that TMBI might incur from its contract of carriage with Sony/Mitsui. Accordingly,
remaining truck was found abandoned along the Diversion Road in Filinvest, Alabang, there is no basis to directly hold BMT liable to Mitsui for quasi-delict.
Muntinlupa with the goods and driver gone.
We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo
Sony filed a claim with the insurer of the goods Feb Mitsui. The defendant approved the delivery to BMT, TMBI entered into its own contract of carriage with a fellow common
claim, and was now subrogated in the rights of Sony. It sent a demand letter to plaintiff carrier.
demanding the sum of Php 7,293,286.23, corresponding to the value of the missing
CIVIL LAW REVIEW 2
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract jeep, but because the step board was wet, her left foot slipped and got crushed between
of carriage. In turn, TMBI is entitled to reimbursement from BMT due to the latter's own the step board and a coconut tree, which the jeepney’s rear end collided with. Colipano’s
breach of its contract of carriage with TMBI. The proverbial buck stops with BMT who egg was severely injured and was eventually amputated.
may either: (a) absorb the loss, or (b) proceed after its missing driver, the suspected
culprit, pursuant to Article 2181. Colipano prayed for actual damages, loss of income, moral damages, exemplary
damages and attorney’s fees.
Sanico and Castro v. Colipano
G.R. No. 209969 September 27, 2017 Caguioa, J. The plaintiffs’ defense was that it was Colipano’s own fault that her leg got crushed; the
conductor instructed everyone not to panic but Colipano tried to disembark which led to
the unfortunate event of having her leg crushed in between the coconut tree and the step
DOCTRINE: In case of death of or injury to their passengers, Art. 1756 of the Civil board. Sanico also claimed that he paid for all the hospital and medical expenses incurred
Code provides that common carriers are presumed to have been at fault or negligent, by Colipano and that Colipano eventually freely and voluntarily executed an Affidavit
and this presumption can be overcome only by proof of the extraordinary diligence of Desistance and Release of Claim.
exercised to ensure the safety of the passengers.
The RTC found that Sanico and Castro breached the contract of carriage between them
Further, common carriers may also be liable for damages when they contravene the and Colipano but only awarded actual and compensatory judges.
tenor of their obligations. Art. 1170 of the Civil Code states:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, When Sanico and Castro appealed to the CA, the judgment rendered by the RTC was
negligence, or delay, and those who in any manner contravene the tenor thereof, affirmed with modification.
are liable for damages.
Sanico and Castro then filed the present petition before the court to assail the CA
Sanico’s defense that he exercised extraordinary diligence in hiring Castro, who was decision.
allegedly an experienced and time-tested driver, whom he also accompanied during
a test drive, are not enough to exonerate him from liability because the liability of ISSUE: Whether or not there was a breach of contract of carriage in the present case.
common carriers do not cease upon proof that they exercised the diligence of a good
father of a family regarding the selection and supervision of their employees. RULING: The court ruled in the affirmative, but the court ruled that only Sanico
breached the contract of carriage. Only Sanico was a party to the contract of carriage
NATURE OF ACTION: Breach of obligation and its consequences. In this case, the with Colipano, hence the lower court ruling that Sanico and Castro are jointly and
suit filed is due to a breach of contract of carriage. Notable provision includes Art. 1170. severally liable is erroneous.
FACTS: Defendant Colipano field a complaint on January 7, 1997 for breach of contract Sanico is liable as operator and owner of a common carrier. Specific to a contract of
of carriage and damages against herein plaintiffs. Colipano claimed that at 4:00 PM carriage, the Civil Code requires common carriers to observe extraordinary diligence in
more or less of December 25, 1993, she and her daughter were paying passengers of the safely transporting their passengers. This extraordinary diligence, following Art. 1755
jeepney operated by Sanico and driven by Castro. She was made to sit on an empty beer of the Civil Code, means that common carriers have the obligation to carry passengers
case at the edge of the rear entrance/exit of the jeepney, with her sleeping child on her safely as far as human care and foresight can provide, using the utmost diligence of very
lap. cautious persons, with due regard for all the circumstances.
At an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney slid In case of death of or injury to their passengers, Art. 1756 of the Civil Code provides
backwards because it was underpowered to reach the top of the incline. Colipano pushed that common carriers are presumed to have been at fault or negligent, and this
both feet against the step board to prevent herself and her child from toppling out of the
CIVIL LAW REVIEW 2
presumption can be overcome only by proof of the extraordinary diligence exercised to 3. that the waiver must be clear and unequivocal although it may be made
ensure the safety of the passengers. expressly or impliedly, and
4. that the waiver is not contrary to law, public policy, public order, morals, good
Further, common carriers may also be liable for damages when they contravene the tenor customs or prejudicial to a third person with a right recognized by law.
of their obligations. Art. 1170 of the Civil Code states:
While the first two requirements can be said to exist in this case, the third and fourth
ART. 1170. Those who in the performance of their obligations are guilty of requirements are, however, lacking.
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. 4. As to performance of prestation – Arts. 1221 – 1225, 1209 –
1210
Sanico’s defense that he exercised extraordinary diligence in hiring Castro, who was a. Divisible
allegedly an experienced and time-tested driver, whom he also accompanied during a b. Indivisible
c. Joint indivisible
test drive, are not enough to exonerate him from liability because the liability of common d. Solidary indivisible
carriers do not cease upon proof that they exercised the diligence of a good father of a
family regarding the selection and supervision of their employees. Art. 1759 states in
Sps. Lam v. KODAK Philippines
wise:
ART. 1759. Common carriers are liable for the death of or injuries to G.R. No. 167615 January 11, 2016 Leonen, J.
passengers through the negligence or willful acts of the former's employees,
although such employees may have acted beyond the scope of their DOCTRINE: Even though the object or service may be physically divisible, an
authority or in violation of the orders of the common carriers. obligation is indivisible if so provided by law or intended by the parties. The tenor
of the Letter Agreement which indicated an intention for a single transaction must
This liability of the common carriers does not cease upon proof that they prevail even though the articles involved are physically separable and capable of
exercised all the diligence of a good father of a family in the selection and being paid for and delivered individually, consistent with the New Civil Code.
supervision of their employees.
NATURE OF ACTION: Petition for Review on Certiorari
The only defenses available to Sanico at this point are:
1. Proof that they observed extraordinary diligence as prescribed in the aforesaid FACTS: Petitioner Spouses Alexander and Julie Lam, doing business under the name
article; and style "COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO
2. Following Art. 1174, that the injury was caused by a fortuitous event. SUPPLY", entered into an agreement to purchase from Kodak Philippines Minilab
equipment. Lam Spouses issued postdated checks amounting to ₱35,000.00 each for 12
Absent these two defenses, the court therefore finds Sanico liable for breach of contract. months as payment for the first delivered unit but the 10 other checks were subsequently
dishonored after the Lam Spouses ordered the depository bank to stop payment.
NOTA BENE: The affidavit of desistance and release of claim is found to be void by
the court, absent any proof that the contents of such quitclaim were sufficiently Respondent Kodak Philippines entered into a contract of sale with Spouses Lam of three
translated and explained to her. (3) units of the Kodak Minilab System 22XL (Minilab Equipment) in the amount of
₱1,796,000.00 per unit but cancelled the sale and demanded that the Lam Spouses return
For there to be a valid waiver, the following requisites are essential: the unit after the latter’s failure to perform their obligation.
1. That the person making the waiver possesses the right,
2. that he has the capacity and power to dispose of the right,
CIVIL LAW REVIEW 2
On January 8, 1992, the Lam Spouses and Kodak Philippines entered into an agreement CA Second Decision: Lam Spouses filed their Notice of Partial Appeal. Kodak also filed
(Letter Agreement) for the sale of 3 units of the Kodak Minilab System 22XL6 (Minilab an appeal.
Equipment) in the amount of ₱1,796,000.00 per unit,
The CA dismissed it for Kodak’s failure to file its appellant’s brief, without prejudice to
On January 15, 1992, Kodak delivered 1 unit of the Minilab Equipment in Tagum, the continuation of the Lam Spouses’ appeal. The Resolution became final and
Davao Province. The Lam Spouses issued postdated checks amounting to ₱35,000.00 executory.
each for 12 months as payment for the first delivered unit, with the first check due on
March 31, 1992. The CA modified the decision of the RTC, agreed with the trial court’s Decision, but
extensively discussed the basis for the modification of the dispositive portion.
The Lam Spouses requested that Kodak not negotiate the check dated March 31, 1992
allegedly due to insufficiency of funds. The same request was made for the check due The CA ruled that the Letter Agreement executed by the parties showed that their
on April 30, 1992. Both checks were negotiated by Kodak and were honored by the obligations were susceptible of partial performance.
depository bank. The 10 other checks were subsequently dishonored after the Lam
Spouses ordered the depository bank to stop payment. ISSUES:
1. Whether or not the contract between the parties is an obligation that is
Kodak cancelled the sale and demanded that the Lam Spouses return the unit. The Lam severable, divisible, and susceptible of partial performance
Spouses ignored the demand but also rescinded the contract through the letter dated 2. Whether or not rescission of the contract was proper
November 18, 1992 on account of Kodak Philippines, Ltd.’s failure to deliver the two
(2) remaining Minilab Equipment units. RULINGS:
1. Yes. The Letter Agreement contained an indivisible obligation.
Regional Trial Court: On November 25, 1992, Kodak filed a Complaint for replevin
and/or recovery of sum of money with RTC Makati. Summons and a copy of the The Supreme Court held that the intention of the parties is for there to be a single
Complaint was personally served on the Lam Spouses. The Lam Spouses failed to transaction covering all three (3) units of the Minilab Equipment. Respondent’s
appear during the pre-trial conference. Thus, they were declared in default. obligation was to deliver all products purchased under a "package," and, in turn,
petitioners’ obligation was to pay for the total purchase price, payable in installments.
Kodak presented evidence ex-parte then the trial court issued the Decision in favor of Furthermore, there was only one agreement covering all three (3) units of the Minilab
ordering the seizure of the Minilab Equipment. Equipment and their accessories.
Based on this Decision, Kodak was able to obtain a writ of seizure for the Minilab The Letter Agreement also provided:
Equipment installed at the Lam Spouses’ outlet in Tagum, Davao Province hence gained a. Only one specified purpose for the buyer, which was to obtain these units
possession of the Minilab Equipment unit, accessories, and the generator set. for three different outlets;
b. The 19% multiple order discount was applied to all three acquired units.
Court of Appeals: The Lam Spouses filed before the CA a Petition to Set Aside the c. The "no downpayment" term contained was also applicable to all the
Orders issued by the trial court and these Orders were subsequently set aside by the CA, Minilab Equipment units.
and the case was remanded to the trial court for pre-trial. d. The fourth clause clearly referred to the object of the contract as "Minilab
Equipment Package.
REMANDED BACK TO TRIAL COURT: RTC dismissed the case and ordered the
Kodak to pay Lam Spouses Hence, this intent must prevail even though the articles involved are physically separable
and capable of being paid for and delivered individually.
CIVIL LAW REVIEW 2
The Supreme Court also added that in ruling that the contract between the parties
intended to cover divisible obligations, the Court of Appeals highlighted: (a) the separate 2. Yes. Rescission was correctly applied since the obligors did not comply with
purchase price of each item; (b) petitioners’ acceptance of separate deliveries of the what was incumbent upon them. Kodak failed to deliver the remaining Minilab
units; and (c) the separate payment arrangements for each unit. However, through the Equipment and Spouses Lam stopped their payments. The power to rescind
specified terms and conditions, the tenor of the Letter Agreement indicated an obligations is implied in reciprocal ones, in case one of the obligors should not
intention for a single transaction. This intent must prevail even though the articles comply with what is incumbent upon him.
involved are physically separable and capable of being paid for and delivered
individually, consistent with the New Civil Code: Rescission under Article 1191 has the effect of mutual restitution as if the contract was
“Article 1225. For the purposes of the preceding articles, obligations to give never entered into.
definite things and those which are not susceptible of partial performance
shall be deemed to be indivisible. WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9,
2005 is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is
When the obligation has for its object the execution of a certain number of ordered to pay petitioners Alexander and Julie Lam:
days of work, the accomplishment of work by metrical units, or analogous a. P270,000.00, representing the partial payment made on the Minilab
things which by their nature are susceptible of partial performance, it shall Equipment;
be divisible. b. P130,000.00, representing the amount of the generator set, plus legal interest
at 12% per annumfrom December 1992 until fully paid;
However, even though the object or service may be physically divisible, an c. P440,000.00 as actual damages;
obligation is indivisible if so provided by law or intended by the parties.” d. P25,000.00 as moral damages;
e. P50,000.00 as exemplary damages; and
In Nazareno vs. CA, the Supreme Court also ruled that the indivisibility of an obligation f. P20,000.00 as attorney’s fees.
is tested against whether it can be the subject of partial performance: “An obligation is
indivisible when it cannot be validly performed in parts, whatever may be the nature of Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
the thing which is the object thereof. The indivisibility refers to the prestation and not to accessories to respondent.
the object thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible because the 5. As to the presence of an accessory undertaking in case of
performance of the contract cannot be done in parts, otherwise the value of what is breach
transferred is diminished. Petitioners are therefore mistaken in basing the indivisibility a. With a Penal Clause – Arts. 1226 – 1230
of a contract on the number of obligors.” Distinguish from Liquidated Damages
In the case at bar, there is no indication in the Letter Agreement that the units petitioners Bachrach v. Espiritu
ordered were covered by three (3) separate transactions. The factors considered by the G.R. Nos. 28497 and November 6, 1928 Avanceña, C.J.
Court of Appeals are mere incidents of the execution of the obligation, which is to 28498
deliver three units of the Minilab Equipment on the part of respondent and payment for
all three on the part of petitioners. The intention to create an indivisible contract is DOCTRINE: Article 1152 of the Civil Code permits the agreement upon a penalty
apparent from the benefits that the Letter Agreement afforded to both parties. Petitioners apart from the interest. Should there be such an agreement, the penalty, does not
were given the 19% discount on account of a multiple order, with the discount being include the interest, and as such the two are different and distinct things which may
equally applicable to all units that they sought to acquire. The provision on "no be demanded separately.
downpayment" was also applicable to all units. Respondent, in turn, was entitled to
payment of all three Minilab Equipment units, payable by installments.
NATURE OF ACTION: Appeal (not mentioned if ordinary or via certiorari)
CIVIL LAW REVIEW 2
Robes – Francisco v. CFI

FACTS: These two cases, Nos. 28497 and 28498, were tried together. G.R. No. L – 41093 October 30, 1978 Muñoz - Palma, J.
In case 28497; the defendant Faustino Espiritu purchased of the plaintiff Bachrach
Corporation a two-ton White truck for P11,983.50, paying P1,000 down to apply on DOCTRINE: A penal clause is an accessory undertaking to assume greater liability
account of this price, and obligating himself to pay the remaining P10,983.50 within the in case of breach. From this alone, the 4% provision does not come to be penal in
periods agreed upon. To secure the payment of this sum, the Faustino mortgaged the character, hence, Robes Corporation’s contention that the penalty shall substitute the
said truck purchased and, besides, three others, two of which are numbered 77197 and indemnity for damages and the payment of interest in case of non-compliance does
92744 respectively. These two trucks had been purchased from the same corporation not hold water.
and were fully paid for by the Faustino and his brother Rosario Espiritu. The defendant
failed to pay P10,477.82 of the price secured by this mortgage. NATURE OF ACTION: Direct Appeal on questions of law from a decision of the
Court of First Instance of Rizal, Branch 34.
In case 28498, Faustino bought a one-ton White truck of the Bachrach Corporation for
the sum of P7,136.50, and after having deducted the P500 cash payment and the 12 per FACTS: In May 1962 Robes-Francisco Realty & Development Corporation, now
cent annual interest on the unpaid principal, obligated himself to make payment of this petitioner, agreed to sell to private respondent Lolita Millan for and in consideration of
sum within the periods agreed upon. To secure this payment Faustino mortgaged the the sum of P3,864.00, payable in installments, a parcel of land containing an area of
same 2 trucks that were mortgaged in the purchase of the other truck. The defendant approximately 276 square meters, situated in Barrio Camarin, Caloocan City, known as
failed to pay P4,208.28 of this sum. Lot No. 20, Block No. 11 of its Franville Subdivision. Millan complied with her
obligation under the contract and paid the installments stipulated therein, the final
In both sales it was agreed that 12 percent interest would be paid upon the unpaid portion payment having been made on December 22, 1971. The vendee made a total payment
of the price at the execution of the contracts, and in case of nonpayment of the total debt of P5,193.63 including interests and expenses for registration of title. Thereafter, Lolita
upon its maturity, 25 percent thereon, as penalty. Millan made repeated demands upon the corporation for the execution of the final deed
of sale and the issuance to her of the transfer certificate of title over the lot. On March
ISSUE: Whether or not the penalty upon the debt is valid. 2, 1973, the parties executed a deed of absolute sale of the aforementioned parcel of
land. The deed of absolute sale contained, among others, this particular provision:
RULING: Yes. It is finally contended that the 25 percent penalty upon the debt, in “That the VENDOR further warrants that the transfer certificate of title of
addition to the interest of 12 percent per annum makes the contract usurious. Such a the above-described parcel of land shall be transferred in the name of the
contention is not well founded. Article 1152 of the Civil Code permits the agreement VENDEE within the period of six (6) months from the date of full payment
upon a penalty apart from the interest. Should there be such an agreement, the penalty, and in case the VENDOR fails to issue said transfer certificate of title, it
as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the interest, shall bear the obligation to refund to the VENDEE the total amount already
and as such the two are different and distinct things which may be demanded separately. paid for, plus an interest at the rate of 4% per annum.”
According to this, the penalty is not to be added to the interest for the determination of
whether the interest exceeds the rate fixed by the law, since said rate was fixed only for Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months,
the interest. But considering that the obligation was partly performed, and making use the corporation failed to cause the issuance of the corresponding transfer certificate of
of the power given to the court by article 1154 of the Civil Code, this penalty is reduced title over the lot sold to Millan, hence, the latter filed on August 14, 1974 a complaint
to 10 percent of the unpaid debt. for specific performance and damages against Robes-Francisco Realty & Development
Corporation in the Court of First Instance of Rizal, Branch 34, Caloocan City.
The corporation in its answer prayed that the complaint be dismissed alleging that the
deed of absolute sale was voluntarily executed between the parties and the interest of
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the plaintiff was amply protected by the provision in said contract for payment of interest nonperformance of petitioner's obligation under the deed of sale. Nonetheless, the facts
at 4% per annum of the total amount paid, for the delay in the issuance of the title. show that the right of the vendee to acquire title to the lot bought by her was violated by
petitioner and this entitles her at the very least to nominal damages.
Regional Trial Court: the realty corporation failed to cause the issuance of the
corresponding transfer certificate of title because the parcel of land conveyed to Millan The court is of the view that the amount of P20,000.00 is excessive. The admitted fact
was included among other properties of the corporation mortgaged to the GSIS to secure that petitioner corporation failed to convey a transfer certificate of title to respondent
an obligation of P10 million and that the owner's duplicate certificate of title of the Millan because the subdivision property was mortgaged to the GSIS does not in itself
subdivision was in the possession of the Government Service Insurance System (GSIS). show that there was bad faith or fraud. Bad faith is not to be presumed. Moreover, there
was the expectation of the vendor that arrangements were possible for the GSIS to make
ISSUE: Whether or not the 4% interest provision of the contract can be considered as a partial releases of the subdivision lots from the overall real estate mortgage. It was
penal clause. simply unfortunate that the petitioner did not succeed in that regard.
RULING: NO. Said clause does not convey any penalty, for even without it, pursuant For that reason, the court cannot agree with respondent Millan, the P20,000.00 award
to Article 2209 of the Civil Code, the vendee would be entitled to recover the amount may be considered in the nature of exemplary damages.
paid by her with legal rate of interest which is even more than the 4% provided for in
the clause. In case of breach of contract, exemplary damages may be awarded if the guilty party
acted in wanton, fraudulent, reckless, oppressive or malevolent manner. Furthermore,
There can be no dispute in this case under the pleadings and the admitted facts that exemplary or corrective damages are to be imposed by way of example or correction for
petitioner corporation was guilty of delay, amounting to nonperformance of its the public good, only if the injured party has shown that he is entitled to recover moral,
obligation, in issuing the transfer certificate of title to vendee Millan who had fully paid temperate or compensatory damages."
up her installments on the lot bought by her. Article 170 of the Civil Code expressly
provides that those who in the performance of their obligations are guilty of fraud, Here, respondent Millan did not submit below any evidence to prove that she suffered
negligence, or delay, and those who in any manner contravene the tenor thereof, are actual or compensatory damages.
liable for damages.
To conclude, the court hold that the sum of Ten Thousand Pesos (P10,000.00) by way
Petitioner contends that the deed of absolute sale executed between the parties stipulates of nominal damages is fair and just under the following circumstances, viz: respondent
that should the vendor fail to issue the transfer certificate of title within six months from Millan bought the lot from petitioner in May, 1962, and paid in full her installments on
the date of full payment, it shall refund to the vendee the total amount paid for with December 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale was
interest at the rate of 4% per annum, hence, the vendee is bound by the terms of the executed in her favor, and notwithstanding the lapse of almost three years since she
provision and cannot recover more than what is agreed upon. Presumably, petitioner in made her last payment, petitioner still failed to convey the corresponding transfer
invoking Article 1226 of the Civil Code which provides that in obligations with a penal certificate of title to Millan who accordingly was compelled to file the instant complaint
clause, the penalty shall substitute the indemnity for damages and the payment of in August of 1974.
interests in case of noncompliance, if there is no stipulation to the contrary.
Pamintuan v. CA
It is therefore inconceivable that the aforecited provision in the deed of sale is a penal G.R. No. L – 26339 December 14, 1979 Aquino, J.
clause which will preclude an award of damages to the vendee Millan. In fact the clause
is so worded as to work to the advantage of petitioner corporation.
DOCTRINE: Article 1226 itself provides that “nevertheless, damages shall be paid
Unfortunately, the vendee, now private respondent, submitted her case below without if the obligor x x x is guilty of fraud in the fulfillment of the obligation.”
presenting evidence on the actual damages suffered by her as a result of the “Responsibility arising from fraud is demandable in all obligations.” “In case of
CIVIL LAW REVIEW 2
fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the nonperformance of the RULING: No. Pamintuan’s contention cannot be sustained because the second sentence
obligation.” of article 1226 itself provides that “nevertheless, damages shall be paid if the obligor x
x x is guilty of fraud in the fulfillment of the obligation.” “Responsibility arising from
NATURE OF ACTION: Recovery of compensatory damages for breach of a contract fraud is demandable in all obligations.” “In case of fraud, bad faith, malice or wanton
of sale in addition to liquidated damages attitude, the obligor shall be responsible for all damages which may be reasonably
attributed to the nonperformance of the obligation.”
FACTS: Mariano C. Pamintuan was the holder of a barter license wherein he was
authorized to export to Japan one thousand metric tons of white flint corn in exchange The trial court and the Court of Appeals found that Pamintuan was guilty of fraud
for a collateral importation of plastic sheetings of an equivalent value. because he did not make a complete delivery of the plastic sheetings and he overpriced
the same.
By virtue of that license, he entered into an agreement to ship his corn to Toyo Menka
Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings. He contracted to sell the There is no justification for the Civil Code to make an apparent distinction between
plastic sheetings to Yu Ping Kun Co., Inc. for two hundred sixty-five thousand five penalty and liquidated damages because the settled rule is that there is no difference
hundred fifty pesos. The company undertook to open an irrevocable domestic letter of between penalty and liquidated damages insofar as legal results are concerned and that
credit for that amount in favor of Pamintuan. either may be recovered without the necessity of proving actual damages and both may
be reduced when proper.
The Japanese suppliers shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., a total
of 339,440 plastic sheetings. The penalty clause is strictly penal or cumulative in character and does not partake of
the nature of liquidated damages.
Pamintuan and the president of the company, Benito Y.C. Espiritu, agreed to fix the
price of the plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual Castillo v. Security Bank, et al.
invoice value thereof. The parties arrived at that figure by dividing the total price of G.R. No. 196118 July 30, 2014 Peralta, J.
P265,550 by 339,440 yards, the aggregate quantity of the shipments.
DOCTRINE: The enforcement of penalty can be demanded by the creditor in case
After Pamintuan had delivered 224,150 yards of sheetings of inferior quality valued at of non-performance due to the debtor's fault or fraud. The non performance gives
P163,047.87, he refused to deliver the remainder of the shipments. rise to the presumption of fault and in order to avoid the penalty, the debtor has the
burden of proving that the failure of the performance was due to either force majeure
As justification for his refusal, Pamintuan said that the company failed to comply with or the creditor's own acts.
the conditions of the contract and that it was novated with respect to the price.
NATURE OF ACTION: Action was brought by Leonardo Castillo to partially annul
The lower court ordered Pamintuan to deliver to Yu Ping Kun Co., Inc. certain plastic the real estate mortgage with respect to his property.
sheetings and, if he could not do so, to pay the latter P100,559.28 as damages with six
percent interest from the date of the filing of the complaint.
FACTS: Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are
siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo) were doing business
The Court of appeals affirmed the judgment with the modification that the moral under the name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo obtained
damages were disallowed. The Court of Appeals also found that Pamintuan was guilty a loan from respondent SBC in the amount of P45,000,000.00. To secure said loan, they
of fraud. executed a real estate mortgage on August 5, 1994 over eleven (11) parcels of land
belonging to different members of the Castillo family and which are all located in San
ISSUE: Whether Yu Ping Kun Co., Inc., is entitled to recover only liquidated damages?
CIVIL LAW REVIEW 2
Pablo City. They also procured a second loan 5 amounting to P2,500,000.00, which was Sps. Poon v. Prime Savings Bank
covered by a mortgage on a land in Pasay City. Subsequently, the Spouses Castillo failed G.R. No. 183794 June 13, 2016 Sereno, C.J.
to settle the loan, prompting SBC to proceed with the foreclosure of the properties. SBC
was then adjudged as the winning bidder in the foreclosure sale held on July 29, 1999.
Thereafter, they were able to redeem the foreclosed properties, with the exception of the DOCTRINE: A provision is a penal clause if it calls for the forfeiture of any
lots covered by Torrens Certificate of Title (TCT) Nos. 28302 and 28297. 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
Leonardo filed a complaint for the partial annulment of the real estate mortgage. He by reason of the lessee’s violation of any of the terms and conditions thereof. This
alleged that he owns the property covered by TCT No. 28297 and that the Spouses kind of agreement may be validly entered into the by the parties
Castillo used it as one of the collaterals for a loan without his consent. He contested his
supposed Special Power of Attorney (SPA) in Leon's favor, claiming that it is falsified. NATURE OF ACTION: Petition for Review on Certiorar assailing the Court of
According to him, the date of issuance of his Community Tax Certificate (CTC) as Appeals (CA) Decision which affirmed the Decision issued by Branch 21, Regional
indicated on the notarization of said SPA is January 11, 1993, when he only secured the Trial Court (RTC) of Naga City.
same on May 17, 1993. He also assailed the foreclosure of the lots under TCT Nos.
20030 and 10073 which were still registered in the name of their deceased father. The RTC ordered the partial rescission of the penal clause in the lease contract over the
Leonardo attacked SBC's imposition of penalty and interest on the loans as being commercial building of Spouses Poon. It directed petitioners to return to Prime Savings
arbitrary and unconscionable.Sps. Castillo insisted on the validity of Leonardo’s SPA. Bank the sum of P1,740,000, representing one-half of the unused portion of its advance
rentals, in view of the closure of respondent's business upon order by the Bangko Sentral
RTC ruled in favor of Leonardo. Both parties elevated to the CA. CA denied reversed ng Pilipinas (BSP).
and set aside the RTC Decision, essentially ruling that the real estate mortgage is valid.
FACTS: Petitioners owned a commercial building in Naga City, which they used for
ISSUES: their bakery business. November 2006, Matilde Poon and Prime Savings Bank executed
1. Whether or not the real estate mortgage constituted over the property under a 10-year Contract of Lease over the building for the latter's use as its branch office in
TCT No. T-28297 is valid and binding; Naga City.
2. Whether or not the interest and penalty charges imposed by SBC are just
They agreed to a fixed monthly rental of P60,000, with an advance payment of the
RULING: Yes. The Court finds that the interest and penalty charges imposed by SBC rentals for the first 100 months.
are just, and not excessive or unconscionable. SBC's 16% rate of interest is not computed
per month, but rather per annum or only 1.33% per month. The debtors cannot renege Paragraph 24 of the Contract provides:
on their obligation to comply with what is incumbent upon them under the contract of 24. Should the lease[d] premises be closed, deserted or vacated by the
loan as they are bound by its stipulations. The enforcement of penalty can be demanded LESSEE, the LESSOR shall have the right to terminate the lease without
by the creditor in case of non-performance due to the debtor's fault or fraud. The non the necessity of serving a court order and to immediately repossess the
performance gives rise to the presumption of fault and in order to avoid the penalty, the leased premises. Thereafter the LESSOR shall open and enter the leased
debtor has the burden of proving that the failure of the performance was due to either premises in the presence of a representative of the LESSEE (or of the proper
force majeure or the creditor's own acts. Petitioner failed to discharge said burden and authorities) for the purpose of taking a complete inventory of all furniture,
thus cannot avoid the payment of the penalty charge agreed upon. fixtures, equipment and/or other materials or property found within the
leased premises.
CIVIL LAW REVIEW 2
The LESSOR shall thereupon have the right to enter into a new contract of the obligation by the threat of greater responsibility in case of breach. As the CA
with another party. All advanced rentals shall be forfeited in favor of the correctly found, the prestation secured by those clauses was the parties' mutual
LESSOR. obligation to observe the fixed term of the lease. For this reason, We sustain the lower
courts' finding that the forfeiture clause in paragraph 24 is a penal clause, even if it is
Three years later, however, the BSP placed respondent under the receivership (PDIC) not expressly labelled as such.
by virtue of BSP Monetary Board Resolution No. 22 and The BSP eventually ordered
respondent's liquidation. E. Breach of Obligations – Art. 1170
The respondent vacated petitioner’s building and PDIC then demanded return of the Honrado v. GMA Network Films, Inc.
advance rentals. Petitioners refused to return the advanced rentals. Thus respondent G.R. No. 204702 January 14, 2015 Carpio, J.
commenced this case for rescission of contract and recovery of sum of money.
DOCTRINE: Being a stranger to an agreement, Respondent is not entitled to
The trial court ruled that the second clause in paragraph 24 of the Contract was penal in
complain of any breach by Petitioner of his contract with the film owners than the
nature, and that the clause was a valid contractual agreement. Citing Provident Savings
film owners are for any breach by a stranger of its agreement with the
Bank v. CA as legal precedent, it ruled that the premature termination of the lease due
aforementioned.
to the BSP's closure of respondent's business was actually involuntary.
On appeal, the CA affirmed the RTC Decision, CA sustained the trial court's NATURE OF ACTION: Petition to Review the decision of the CA ordering Petitioner
interpretation of the proviso on the forfeiture of advance rentals as a penal clause and to pay a sum of money to Respondent for breach of contract and breach of trust
the consequent application of Article 1229.
FACTS: GMA Films (“Respondent” for brevity) entered into a “TV Rights Agreement”
ISSUE: Whether or not the proviso in the parties' Contract allowing the forfeiture of (Agreement) with Ricardo Honrado (“Petitioner” for brevity) which Petitioner, as a
advance rentals was a penal clause that warrants the forfeiture of the entire licensor of 36 films, granted to Respondent, for a fee of Php60.75 million, the exclusive
deposit given by the respondent. right to telecast the 36 Films for a period of three (3) years. Parties agreed that “all
betcam copies of the [films] should pass through broadcast quality test conducted by
RULING: The forfeiture clause in the contract is penal in nature. A provision is a penal GMA-7”. The parties also agreed to submit the films for review by the Movie and
clause if it calls for the forfeiture of any remaining deposit still in the possession of the Television Review and Classification Board (“MTRCB” for brevity) and stipulated on
lessor without prejudice to any other obligation still owing, in the event of the the remedies in the event that MTRCB bans the telecasting of any of the films, Petitioner
termination or cancellation of the agreement by reason of the lessee’s violation of any will either replace the censored PROGRAMME TITLES with another title which is
of the terms and conditions thereof. This kind of agreement may be validly entered into mutually acceptable to both parties or, failure to do such, a proportionate reduction from
the by the parties. In this case, it is evident that the stipulation on the forfeiture of the total price shall either be deducted or refunded whichever is the case by the
advance rentals is a penal in the sense that it provides for liquidated damages. The Respondent. Two (2) of the films covered by the Agreement were Evangeline Katrose
penalty for the premature termination of the contract works both ways. The penalty was and Bubot which Respondent paid Php1.5M each. Respondent sued Petitioner in the
to compel respondent to complete the 10-year term of the lease. Petitioners, too were RTC-QC to collect Php1.6M representing he fee it paid for Evangeline Katorse and a
similarly obliged to ensure the peaceful use of the building by respondent for the portion of the fee it paid for Bubot. Respondent alleges that it rejected Evangeline
duration of the lease under paid of losing the remaining advance rentals paid by the Katorse because “it’s running time was too short for telecast” and petitioner only
respondent. remitted Php900K to the owner of Bubot, keeping for himself the balance of
Php350,000.00. Petitioner, for his part, denied liability, counter-alleging that after
The forfeiture clauses of the Contract, therefore, served the two functions of a penal Respondent rejected Evangeline Katorse, he replaced it with another film, Winasak na
clause, i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive force Pangarap which Respondent accepted. Regarding the fee Respondent paid for Bubot,
Petitioner alleged that he had settled his obligation to Alano, and alternatively, petitioner
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alleged respondent, being a stranger to the contracts he entered into with the owners of Winasak na Pangarap because the latter considered the film “bomba”. In doing
the film in question, has no personality to question his compliance with the terms of so, Respondent went beyond its assigned rule under the Agreement of
such contract RTC dismissed the complaint and gave credence to Petitioner’s defense screening films to test their broadcast quality and assumed the function of
that he replaced Evangeline Katorse with Winasak na Pangarap. On the disposal of the MTRCB to evaluate the films for the propriety of their content. This runs
fee Respondent paid for Bubot, the trial court rejected Respondent’s theory of implied counter to the clear terms of the agreement.
trust, finding insufficient Respondent’s proof that Petitioner pocketed any portion of the
fee in question. Respondent appealed to the CA, which set aside the ruling of the RTC 2. No. The agreement, as its full title denotes (TV Rights Agreement), is a
and ruled in favor of Respondent, on the ground that Respondent was authorized under licensing contract, the essence of which is the transfer by the licensor
the agreement to reject Evangeline Katorse and that Respondent could never accept (Petitioner) to the licensee (GMA Films), for a fee, of the exclusive right to
Winasak na Pangarap as replacement because it was a ‘bold’ film. On Petitioner’s telecast the films listed in the Agreement. Stipulations for payment of
liability for the fee Respondent paid for Bubot, the CA sustained Respondent’s “commission” to the licensor is incongruous to the nature of such contracts
contention that Petitioner was under obligation to turn over to the film owners the full unless the licensor merely acted as agent of the film owners. Nowhere in the
amount Respondent paid for the films as “nowhere in the TV Rights Agreement does it agreement, however, did the parties stipulate that petitioner signed the contract
provide that the licensor is entitled to any commission and Honrado cannot claim any in such capacity. On the contrary, the agreement repeatedly refers to Petitioner
part of the purchase price paid for by Respondent” that Petitioner’s retention of a portion as “licensor” and GMA Films as “licensee” nor did the parties stipulate that the
of the fee gave rise to an implied trust. fees paid by GMA Films for the films listed in the agreement will be turned
over by petitioner to the film owners. Instead, the agreement merely provided
ISSUES: that the total fees will be paid in three installment. We entertain no doubt that
1. Whether or not the Respondent was entitled, under the agreement, to return the petitioner forged separate contractual arrangements with the owners of the
film [Evangeline Katorse] and cause it to be replaced or to proportionally films listed in the agreements, spelling out the terms of payment to the latter.
reduce the total price, on the ground that it did not pass its quality test Whether or not petitioner complied with these terms, however, is a matter to
2. Whether or not the Respondent has the personality to question the disposal of which GMA Films holds absolutely no interest. Being a stranger to such
the fees paid to Petitioner outside the terms of the Agreement. arrangements, GMA films is no more entitled to complain of any breach by
Petitioner of his contracts with film owners than the film owners are for any
RULINGS: breach by GMA Films of its Agreement with Petitioner.
1. No. The MTRCB’s disapproval is the stipulated basis for the film replacement.
Petitioner committed no breach of contract or trust. Under this stipulation, what Manner of Breach
triggers the rejection and replacement of any film listed in the Agreement is the
“disapproval” of its telecasting by MTRCB. Nor is there any dispute that GMA 1. Fraud – Arts. 1171, 1338, 1344
2. Negligence
Films rejected Evangeline Katorse not because it was disapproved by MTRCB 3. Delay
but because the film’s total running time was too short for telecast (undertime). 4. Any other manner of contravention
Petitioner even voluntarily acceded to it and replaced such film with Winasak
na Pangarap. What is disputed is whether GMA Films accepted the replacement Excuses for non-performance
film offered by Petitioner. In terms devoid of any ambiguity , the agreement
requires the intervention of MTRCB, the state censor, before GMA Films can 1. Fortuitous event
2. Act of Creditor
reject a film and require its replacement. MTRCB, after reviewing a film listed
in the Agreement, disapprove or x-rate it for telecasting. GMA Films does not
allege, and we find no proof on record indicated, that MTRCB reviewed
Winasak na Pangarap and x-rated it. Indeed GMA Films’ own witness, Mr.
Abacan testified during the trial that it was GMA network which rejected
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Cangco v. MRR RULING: The Court ruled that there is a breach of contract against Manila Railroad. It
G.R. No. L – 12191 October 14, 1918 Fisher, J. cannot be doubted that the employees of the defendant were guilty of negligence in
piling these sacks on the platform in the manner stated. It necessarily follows that the
defendant company is liable for the damage thereby occasioned unless recovery is barred
DOCTRINE: The fundamental distinction between obligation of this character and by the plaintiff’s own contributory negligence.
those which arise from contract, rest upon the fact that in cases of non-contractual
obligations it is the wrongful or negligent act or omission itself which creates the It is to note that the foundation of the legal liability is the contract of carriage. However
vinculum juris, whereas in contractual relations the vinculum exists independently Art. 1903 relates only to culpa aquiliana and not to culpa contractual, as the Court
of the breach of the voluntary duty assumed by the parties when entering into the cleared on the case of Rakes v. Atlantic Gulf. It is not accurate to say that proof of
contractual relation. diligence and care in the selection and control of the servant relieves the master from
liability for the latter’s act. The fundamental distinction between obligation of this
NATURE OF ACTION: Appeal on pure question of law character and those which arise from contract, rest upon the fact that in cases of non-
contractual obligations it is the wrongful or negligent act or omission itself which creates
FACTS: Jose Cangco was in the employment of Manila Railroad Company. He lived the vinculum juris, whereas in contractual relations the vinculum exists independently
in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of of the breach of the voluntary duty assumed by the parties when entering into the
the defendant railroad company; and in coming daily by train to the company’s office in contractual relation.
the city of Manila where he worked, he used a pass, supplied by the company, which
entitled him to ride upon the company’s trains free of charge. When the source of obligation upon which the plaintiff's cause of action depends is a
negligent act or omission, the burden of proof rests upon the plaintiff to prove
During his ride in the train he arose from his seat and makes his way to the exit while negligence. On the other hand, in contractual undertaking, proof of the contract and of
the train is still on travel. When the train had proceeded a little farther Jose Cangco its nonperformance is sufficient prima facie to warrant recovery. The negligence of an
stepped down into the cement platform but unfortunately stepped into a sack of employee cannot be invoked to relieve the employer from liability as it will make
watermelon, fell down and rolled under the platform and was drawn under the moving juridical persons completely immune from damages arising from breach of their
car which resulted in his arm to be crushed and lacerated. He was rushed to the hospital contracts. Defendant was therefore liable for the injury suffered by plaintiff, whether the
and sued the company and the employee who put the sack of watermelon in the platform. breach of the duty were to be regarded as constituting culpa aquiliana or contractual.
The accident occurred between 7 and 8 o’ clock on a dark night. It is that time of the As Manresa discussed, whether negligence occurs as an incident in the course of the
year to be considered as season to harvest watermelon, which explains why there are performance of a contractual undertaking or is itself the source of an extra-contractual
sacks of watermelon on the platform. The plaintiff contends that it is the negligence of obligation, its essential characteristics are identical. There is always an act or omission
the Manila Railroad Co. on why they let their employees put a hindrance in the platform productive of damage due to carelessness or inattention on the part of the defendant. The
that may cause a serious accident. The defendant answered that it is the lack of diligence contract of defendant to transport plaintiff carried with it, by implication, the duty to
on behalf of the plaintiff alone on why he did not wait for the train to stop before carry him in safety and to provide safe means of entering and leaving its trains.
alighting the train.
Contributory negligence on the part of petitioner as invoked by defendant is untenable.
The trial court ruled in favor of Manila Railroad, hence this appeal. In determining the question of contributory negligence in performing such act- that is to
say, whether the passenger acted prudently or recklessly- age, sex, and physical
ISSUE: Whether or not the company breached their obligation or there is a contributory condition of the passenger are circumstances necessarily affecting the safety of the
negligence on behalf of the plaintiff. passenger, and should be considered. It is to be noted that the place was perfectly
familiar to the plaintiff as it was his daily routine. Our conclusion is there is slightly
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underway characterized by imprudence and therefore was not guilty of contributory In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a
negligence. The decision of the trial court is REVERSED. contract whereby, for a fee, petitioner undertook to send said private respondent’s
message overseas by telegram. this , petitioner did not do, despite performance by said
Telefast v. Castro private respondent of her obligation by paying the required charges. Petitioner was
G.R. No. 73867 February 29, 1988 Padilla, J. therefore guilty of contravening its obligation to said private respondent and is thus,
liable for damages.
DOCTRINE: 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 MERALCO v. Ramoy
who in any manner contravene the tenor thereof, are liable for damages.” G.R. No. 158911 March 4, 2008 Austria – Martinez, J.
NATURE OF ACTION: Petition for review on certiorari off the decision of the IAC DOCTRINE: The nature of culpa contractual that the mere proof of the existence of
the contract and the failure of its compliance justify, prima facie, a corresponding
FACTS: On November 2, 1956, Consolacion Bravo-Castro, wife of respondent right of relief. The remedy serves to preserve the interests of the promissee that may
Ignacio Castro and mother of the other respondents, passed away in Lingayen, include his expectation interest, or his reliance interest, or his restitution interest. The
Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing effect of every infraction is to create a new duty, that is, to make recompense to the
in the Philippines, addressed a telegram to plaintiff Ignacio Castro at 685 Wanda, one who has been injured by the failure of another to observe his contractual
Scottsburg, Indiana, USA announcing Consolacion’s death. The telegram was accepted obligation unless he can show extenuating circumstances, like proof of his exercise
by the defendant in its Dagupan office, for transmission, after payment of the required of due diligence xxx or of the attendance of fortuitous event, to excuse him from his
fees or charges. The telegram never reached its addressee. When Sofia returned to the ensuing liability. Article 1173 also provides that the fault or negligence of the obligor
US, she discovered that the wire she had caused the respondent to send, had not been consists in the omission of that diligence which is required by the nature of the
received. She and the other respondents thereupon brought action for damages arising obligation and corresponds with the circumstances of the persons, of the time and of
from petitioner’s breach of contract. The only defense of the defendant was that it was the place.
unable to transmit the telegram because of “technical and atmospheric factors beyond
its control.” No evidence appears on record that petitioner ever made any attempt to NATURE OF ACTION: Petition for review on certiorari of the decision and resolution
advise Sofia C. Crouch as to why it could not transmit the telegram. The CFI of of the Court of Appeals.
Pangasinan ordered petitioner to pay the respondents damages. On appeal, the IAC
partly affirmed the trial court’s decision.Petitioner appeals from the judgment of the FACTS: In 1987, the National Power Corporation (NPC) filed with the MTC Quezon
appellate court, contending that the award of moral damages should be eliminated as City a case for ejectment against several persons allegedly illegally occupying its
petitioner’s negligent act was not motivated by “fraud, malice, or recklessness.” properties in Baesa, Quezon City and among the defendants was Leoncio Ramoy, one
of the plaintiffs in the case at bar. After the defendants failed to file an answer in spite
ISSUE: Whether or not petitioner can only be held liable for the fees or charges paid by of summons duly served, the MTC rendered judgment for the plaintiff MERALCO and
respondent Sofia Crouch for the telegram that was never sent to the addressee ordered the defendants to demolish or remove the building and structures they built on
the land of the plaintiff and to vacate the premises.
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 Sometime in 1990, NPC wrote MERALCO requesting for the immediate disconnection
contravene the tenor thereof, are liable for damages.” Art. 2176 also provides that of electric power supply to all residential and commercial establishments beneath the
“whoever by act or omission causes damage to another, there being fault or negligence, NPC transmission lines along Baesa, Quezon. Attached to the letter was a list of
is obliged to pay for the damage done.” establishments affected which included plaintiffs Leoncio and Matilde Ramoy as well
as a copy of the court decision. MERALCO complied with NPC's request and issued
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notices of disconnection to all establishments affected including plaintiffs Ramoy. In a RULINGS:

letter, MERALCO requested NPC for a joint survey to determine all the establishments 1. Yes. MERALCO failed to exercise the utmost degree of care and diligence
which are considered under NPC property in view of the fact that the houses in the area required of it. It was not enough for MERALCO to merely rely on the Decision
are very close to each other. A joint survey was conducted and the NPC personnel of the MTC without ascertaining whether it had become final and executory.
pointed out the electric meters to be disconnected. Thereafter, the electric service Verily, only upon finality of said Decision can it be said with conclusiveness
connection of the plaintiffs was disconnected. that respondents have no right or proper interest over the subject property, thus,
are not entitled to the services of MERALCO. Moreover, if it were true that the
Ramoy testified that he and his wife are the registered owners of a parcel of land,, a decision was final and executory, the most prudent thing for MERALCO to
portion of which was occupied by other plaintiffs as lessees. When MERALCO have done was to coordinate with the proper court officials in determining
employees were disconnecting plaintiffs’ power connection, plaintiff Ramoy objected which structures are covered by said court order. Likewise, there is no evidence
by informing the MERALCO foreman that his property was outside the NPC property on record to show that this was done by MERALCO.
and pointing out the monuments showing the boundaries of his property. However, he
was threatened and told not to interfere by the armed men who accompanied the In Ridjo Tape & Chemical Corporation vs Court of Appeals, the Court explained that
MERALCO employees. After the electric power in Ramoy's apartment was cut off, the being a public utility vested with vital public interest, MERALCO is impressed with
plaintiffs-lessees left the premises. certain obligations towards its customers and any omission on its part to perform such
duties would be prejudicial to its interest. For in the final analysis, the bottom line is that
During the ocular inspection ordered by the Court and attended by the parties, it was those who do not exercise such prudence in the discharge of their duties shall be made
found out that the residence of plaintiffs-spouses Ramoy was indeed outside the NPC to bear the consequences of such oversight.
property. This was confirmed by defendant's witness R.P. Monsale III on cross-
examination. Monsale also admitted that he did not inform his supervisor about this fact Under the Service Contract, [a] customer of electric service must show his right or
nor did he recommend re-connection of plaintiffs’ power supply. It also shows that at proper interest over the property in order that he will be provided with and assured a
the request of NPC, defendant Meralco re-connected the electric service of four continuous electric service. Clearly, respondents' cause of action against MERALCO is
customers previously disconnected none of whom was any of the plaintiffs. anchored on culpa contractual or breach of contract for the latter's discontinuance of its
service to respondents under Article 1170 of the Civil Code.
RTC ordered MERALCO to restore the electric power supply of respondents and
dismissed respondents’ claim for moral damages, exemplary damages and attorney's In Radio Communications of the Philippines, Inc. v. Verchez, Court expounded on the
fees. Upon respondents’ appeal, CA faulted MERALCO for not requiring from NPC a nature of culpa contractual that the mere proof of the existence of the contract and the
Writ of Execution or demolition and for not coordinating with the court sheriff or other failure of its compliance justify, prima facie, a corresponding right of relief. The remedy
proper officer before complying with the NPC's request. Thus, the CA held MERALCO serves to preserve the interests of the promissee that may include his expectation interest,
liable for moral and exemplary damages and attorney’s fees. MERALCO’s Motion for or his reliance interest, or his restitution interest. The effect of every infraction is to
Reconsideration was denied. Hence, this petition. create a new duty, that is, to make recompense to the one who has been injured by the
failure of another to observe his contractual obligation unless he can show extenuating
ISSUES: circumstances, like proof of his exercise of due diligence xxx or of the attendance of
1. Whether or not MERALCO was negligent when disconnected the electric fortuitous event, to excuse him from his ensuing liability. Article 1173 also provides that
service of the respondent. the fault or negligence of the obligor consists in the omission of that diligence which is
2. Whether or not MERALCO is liable for moral, exemplary damages and required by the nature of the obligation and corresponds with the circumstances of the
attorney’s fees. persons, of the time and of the place.
2. Only respondent Ramoy may be awarded moral damages for testifying as to

his wounded feelings. In Mahinay v. Velasquez, Jr., the Court held that in order
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that moral damages may be awarded, there must be pleading and proof of moral FACTS: Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal and
suffering, mental anguish, fright and the like. Mere allegations do not suffice; Brokerage Service, Inc., a stevedoring company, to load and stow a shipment of 146,288
they must be substantiated by clear and convincing proof. No other person cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples
could have proven such damages except the respondent himself as they were belonging to Del Monte Fresh Produce International, Inc. into the cargo hold vessel M/V
extremely personal to him.. Mistrau. Del Monte Produce insured the shipment under an "open cargo policy" with
private respondent Phoenix Assurance Company of New York, and McGee & Co. Inc.
With regard to exemplary damages, The Court finds that MERALCO fell short of Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The vessel
exercising the due diligence required, but its actions cannot be considered wanton, set sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then
fraudulent, reckless, oppressive or malevolent. Records show that MERALCO did take discovered upon discharge that some of the cargo was in bad condition and the extent of
some measures, i.e., coordinating with NPC officials and conducting a joint survey of the damage of the shipment stated that 16,069 cartons of the banana shipment and 2,185
the subject area, to verify which electric meters should be disconnected although these cartons of the pineapple shipment were so damaged that they no longer had commercial
measures are not sufficient, considering the degree of diligence required of it. Thus, in value. Del Monte Produce filed a claim under the open cargo policy for the damages
this case, exemplary damages should not be awarded. which Phoenix and McGee paid. Phoenix and McGee instituted an action for damages
against Mindanao Terminal in RTC. RTC ruled in favor of Mindanao Terminal because
Since the Court does not deem it proper to award exemplary damages in this case, then the RTC found out that cargoes were damaged on account of a typhoon which M/V
the CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Mistrau had encountered during the voyage. It was further held that Phoenix and McGee
Civil Code states that in the absence of stipulation, attorney's fees cannot be recovered had no cause of action against Mindanao Terminal because the latter, whose services
except in cases provided for in said Article. None of the grounds for recovery of were contracted by Del Monte, a distinct corporation from Del Monte Produce, had no
attorney’s fees are present. contract with the assured Del Monte Produce. Upon appeal, the Court of Appeals
reversed the decision of the RTC and ordered Mindanao Terminal to pay Phoenix and
Mindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance McGee. Mindanao Terminal filed for Motion for Reconsideration which was also
Company / McGee & Co., Inc. denied.
G.R. No. 162467 May 8, 2009 Tinga, J.
ISSUES:
1. Whether Phoenix and McGee have a cause of action against Mindanao
DOCTRINE: A liability for tort may arise even under a contract, where tort is that Terminal?
which breaches the contract. 2. Whether Mindanao Terminal, as a stevedoring company, is under obligation to
observe the same extraordinary degree of diligence in the conduct of its
Article 1173 of the Civil Code is very clear that if the law or contract does not state business as required by law for common carriers and warehousemen?
the degree of diligence which is to be observed in the performance of an obligation 3. Whether Mindanao Terminal observed the degree of diligence required by law
then that which is expected of a good father of a family or ordinary diligence shall of a stevedoring company?
be required. Since there is no specific provision of law that imposes a higher degree
of diligence than ordinary diligence for a stevedoring company or one who is charged RULINGS:
only with the loading and stowing of cargoes, they are only expected to observe 1. YES, Phoenix and McGee’s complaint against Mindanao Terminal states a
ordinary diligence in the performance of their duty. cause of action. The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes belonging to Del
NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 appealing the Monte Produce. Even assuming that both Phoenix and McGee have only been
decision of the Court of Appeals subrogated in the rights of Del Monte Produce, who is not a party to the contract
of service between Mindanao Terminal and Del Monte, still the insurance
carriers may have a cause of action because an act that breaks the contract may
CIVIL LAW REVIEW 2
be also a tort. In fine, a liability for tort may arise even under a contract, where tightly secured to withstand the voyage in open seas. They would order the
tort is that which breaches the contract. In the present case, Phoenix and McGee stevedore to rectify any error in its loading and stowing.
are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal Jimenez v. City of Manila
handled the cargoes belonging to Del Monte Produce. G.R. No. 71049 May 29, 1987 Paras, J.
2. NO, Mindanao Terminal is only expected to observe the ordinary diligence.
Article 1173 of the Civil Code is very clear that if the law or contract does not DOCTRINE: The Supreme Court found that it was an error for the trial court to
state the degree of diligence which is to be observed in the performance of an attribute the negligence to petitioner. In this sense, the source of the obligation is a
obligation then that which is expected of a good father of a family or ordinary quasi-delict. This finds its basis with ART. 2189 of the Civil Code, which states:
diligence shall be required. Mindanao Terminal, a stevedoring company which Provinces, cities and municipalities shall be liable for damages for the death of,
was charged with the loading and stowing the cargoes of Del Monte Produce or injuries suffered by any person by reason of defective conditions of roads,
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. streets, bridges, public buildings and other public works under their control or
There is no specific provision of law that imposes a higher degree of diligence supervision.
than ordinary diligence for a stevedoring company or one who is charged only
with the loading and stowing of cargoes. It was neither alleged nor proven by It is the duty of the City of Manila to exercise reasonable care to keep the public
Phoenix and McGee that Mindanao Terminal was bound by contractual market reasonably safe for people frequenting the place for marketing needs. While
stipulation to observe a higher degree of diligence than that required of a good it may be conceded that the fulfillment of such duties is extremely difficult during
father of a family. storms and floods, it must however, be admitted that ordinary precautions could have
been taken during good weather to minimize the dangers to life and limb under those
The relationship between the consignee and the arrastre operator must be difficult circumstances.
differentiated. In the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a To recapitulate, it appears evident that the City of Manila is likewise liable for
warehouseman. Being the custodian of the goods discharged from a vessel, an damages under ART. 2189 of the Civil Code, respondent City having retained control
arrastre operator's duty is to take good care of the goods and to turn them over to and supervision over the Sta. Ana Public Market and as tort-feasor under ART. 2176
the party entitled to their possession. The responsibility of the arrastre operator lasts of the Civil Code on quasi-delicts.
until the delivery of the cargo to the consignee. The service is usually performed by
longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the NATURE OF ACTION: Breach of Obligations
holds of the vessel or between the ship's tackle and the holds of the vessel. The
responsibility of the stevedore ends upon the loading and stowing of the cargo in the FACTS: In the morning of August 15, 1974, herein petitioner Bernardino Jimenez,
vessel. together with his neighbors, went to Sta. Ana public market to buy bagoong. At the time,
the public market was flooded with ankle-deep rainwater. After purchasing the bagoong,
3. YES, Mindanao Terminal observed the ordinary diligence required by law as a he turned around to go home but he stepped on an uncovered opening which was hidden
stevedoring company. It was sufficiently established that Mindanao Terminal because of the murky rainwater. When he stepped on the opening, a dirty and rusty four-
loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau inch nail stuck inside the opening pierced petitioner on his left leg, which penetrated
in accordance with the stowage plan prepared by Del Monte Produce and the him for about one and a half inches.
officers of M/V Mistrau. The loading and stowing was done under the direction
and supervision of the ship officers. The said ship officers would not have After administering first-aid treatment at a nearby drugstore, his neighbors helped him
accepted the cargoes on board the vessel if they were not properly arranged and hobble home. Thereafter, he fell ill and developed a high fever. He had to be carried to
Dr. Juanita Mascardo. Despite the medicine administered by the doctor, his left leg still
CIVIL LAW REVIEW 2
swelled with great pain. He was then rushed to Veterans Memorial Hospital where he Since the court found that the liability is based upon a quasi-delict, specifically sourced
had to be confined for twenty (20) days due to high fever and severe pain. from ART. 2189, only the exercise of the diligence of a good father of a family
(according to ART. 1173 of the Civil Code).
Upon his discharge, he had to walk around with crutches for fifteen (15) more days. His
injury prevented him from attending to the school buses he was operating as his It is the duty of the City of Manila to exercise reasonable care to keep the public market
occupation. As a result, he had to engage the services of Bienvenido Valdez to supervise reasonably safe for people frequenting the place for marketing needs. While it may be
his business for an aggregate compensation of Nine Hundred Pesos (PHP 900.00). conceded that the fulfillment of such duties is extremely difficult during storms and
floods, it must however, be admitted that ordinary precautions could have been taken
Petitioner sued the City of Manila for damages and the Asiatic Integrated Corporation during good weather to minimize the dangers to life and limb under those difficult
under whose administration the Sta. Ana Public Market had been placed by virtue of a circumstances.
management and operating contract.
To recapitulate, it appears evident that the City of Manila is likewise liable for damages
The IAC, however, decided this case in favor of the respondents. The IAC held the under ART. 2189 of the Civil Code, respondent City having retained control and
Asiatic Integrated Corporation liable for damages but absolved the respondent City of supervision over the Sta. Ana Public Market and as tort-feasor under ART. 2176 of the
Manila. Civil Code on quasi-delicts.
Hence, the present petition for review on certiorari. Petitioner had the right to assume that the marketplace was safe even with the presence
of the murky rainwater, and that there were no openings in the middle of passageways.
ISSUE: Whether or not the City of Manila should likewise be held liable for the If any, he also had the right to expect that the openings in between those passageways
damages suffered by petitioner. were safely and adequately covered.
RULING: The court ruled in the AFFIRMATIVE. The negligence of the City of Manila is therefore the proximate cause of the injury
suffered, and the City is therefore also liable for the injury suffered by Jimenez.
The Supreme Court found that it was an error for the trial court to attribute the
negligence to petitioner. In this sense, the source of the obligation is a quasi-delict. This The decision of the CA is therefore MODIFIED to include the City of Manila as
finds its basis with ART. 2189 of the Civil Code, which states: solidarily liable with Asiatic Integrated Corporation.
Provinces, cities and municipalities shall be liable for damages for the death
of, or injuries suffered by any person by reason of defective conditions of Nakpil & Sons v. Court of Appeals
roads, streets, bridges, public buildings and other public works under their G.R. No. L – 47851 October 3, 1986 Paras, J.
control or supervision.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the DOCTRINE: To exempt the obligor from liability under Art. 1174, for a breach of
management and operating contract between City of Manila and Asiatic Integrated an obligation due to an “act of God,” the following must concur:
Corporation, remained under the control of the City of Manila. The fact of supervision 1. The cause of the breach of the obligation must be independent of the will
and control of the City of Manila over the subject public market was admitted by Mayor of the debtor;
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata. The City of Manila 2. The event must be either unforeseeable or unavoidable;
also employed a market master for the Sta. Ana Public Market whose primary duty is to 3. The event must be such as to render it impossible for the debtor to fulfill
take direct supervision and control of the aforesaid market, specifically to check the his obligation in a normal manner; and
safety of the place. 4. The debtor must be free from any participation in, or aggravation of the
injury to the creditor.
CIVIL LAW REVIEW 2
However, when the negligence of a person concurs with an act of God in producing In their respective briefs, Nakpil & Sons, claimed that it [the earthquake] was an act of
a loss, such person is not exempt from liability by showing that the immediate cause God that caused the failure of the building which should exempt them from
of the damage was an act of God. To be exempt from liability for loss because of an responsibility and not the defective construction, poor workmanship, deviations from
act of God, he must be free from any previous negligence of misconduct by which plans and specifications and other imperfections in the case of United Constructions Co.,
that loss or damage may have been occasioned. Inc. or the deficiencies in the design, plans and specifications prepared by them.
NATURE OF ACTION: These are consolidated cases which seek, among other things, ISSUE: Whether or not an act of God – an unusually strong earthquake – which caused
exoneration from liability on account of an earthquake which plaintiffs claim as an act the failure of the building, exempts from liability, parties who are otherwise
of God, thus exempts them from liability citing Article 1174 of the Civil Code. liable because of their negligence.
1. Nakpil & Sons v. CA [L-47851]
2. United Construction Co., Inc. v. CA [L-47862] RULING: No. The general rule is that no person shall be responsible for events which
3. Philippine Bar Association, et. al. v. CA [L-47896] could not be foreseen or which, though foreseen, were inevitable (Article 1174, CC). An
act of God has been defined as an accident, due directly and exclusively to natural causes
FACTS: The Philippine Bar Association (PBA) decided to construct an office building without human intervention, which by no amount of foresight, pains or care, reasonably
on its lot in Intramuros, Manila. The construction was undertaken by the United to have been expected, could have been prevented. There is no dispute that the
Construction Co., Inc. (UCCI) on an administration basis. The plans and specifications earthquake of August 2, 1968 is a fortuitous event or an act of God.
for the building were prepared by the other third-party defendants Juan Nakpil & Sons.
The building was completed in June 1966. To exempt the obligor from liability under Art. 1174, for a breach of an obligation due
to an “act of God,” the following must concur:
In the early morning of August 2, 1968, an unusually strong earthquake hit Manila and 1. The cause of the breach of the obligation must be independent of the will of the
its environs and the building in question sustained major damage. The front of the debtor;
building buckled, causing the building to tilt forward dangerously. The tenants vacated 2. The event must be either unforeseeable or unavoidable;
the building in view of its precarious condition. As a temporary remedial measure, the 3. The event must be such as to render it impossible for the debtor to fulfill his
building was shored up by UCCI at the cost of P13,661.28 obligation in a normal manner; and
4. The debtor must be free from any participation in, or aggravation of the injury
This prompted the PBA to commence an action for recovery of damages arising from to the creditor.
the partial collapse of the building against UCCI. It argued that the collapse of the
building was accused by defects in the construction, the failure of the contractors to Thus, if upon the happening of a fortuitous event or an act of God, there concurs a
follow plans and specifications, and violations by UCCI of the terms of the contract. The corresponding fraud, negligence, delay or violation or contravention in any manner of
latter in turn filed a third-party complaint against the architects who prepared the plans the tenor of the obligation as provided for in Article 1170, which results in loss or
and specifications, alleging in essence that the collapse of the building was due to the damage, the obligor cannot escape liability.
defects in the said plans and specifications.
In other words, when the negligence of a person concurs with an act of God in producing
The parties agreed to submit the technical issues to a Commissioner who, after the a loss, such person is not exempt from liability by showing that the immediate cause of
protracted hearings, found that while the damages sustained by the PBA building was the damage was an act of God. To be exempt from liability for loss because of an act of
caused directly by the August 1968 earthquake whose magnitude was estimated at 7.3, God, he must be free from any previous negligence of misconduct by which that loss or
they were also caused by the defects in the plans and specifications prepared by the damage may have been occasioned.
third-party defendants’ architects, deviations from said plans and specifications by the
defendant contractors.
CIVIL LAW REVIEW 2
In this case, the negligence of UCCI and Nakpil & Sons, was established beyond dispute Gilat filed a complaint against UCPB. The RTC, ruling in favor of Gilat, found that Gilat
both in the lower court and in the IAC. UCCI was found to have made substantial has already complied with it’s end of the obligation, i.e. delivery and installation of the
deviations from the plans and specifications, and to have failed to observe the requisite purchased equipment.
workmanship in the construction as well as to exercise the requisite degree of
supervision; while Nakpil & Sons, were found to have inadequacies or defects in the Demand notwithstanding, One Virtual and UCPB, as surety, failed to settle the
plans and specifications prepared by them. As correctly assessed by both courts, the obligation. The lower court reasoned that UCPB, as surety, bound itself to pay in
defects in the construction and in the plans and specifications were the proximate causes accordance with the Payment Milestones.
that rendered the PBA building unable to withstand the earthquake of August 2, 1968.
For this reason UCCI and Nakpil & Sons, cannot claim exemption from liability. This obligation was not made dependent on any condition outside the terms and
conditions of the Surety Bond and Payment Milestones. However, the RTC denied
Gilat Satellite Networks, Ltd. v. UCPB (United Coconut Planters Bank) Gilat’s claim for interest on the premise that the interest shall only accrue when the delay
General Insurance Co., Inc. or refusal to pay the principal obligation is without any justifiable cause. Here, UCPB
G.R. No. 189563 April 7, 2014 Sereno, C.J. failed to pay its surety obligation because of the advice of its principal (One Virtual) not
to pay. The RTC then obligated UCPB to pay Gilat the principal debt (US $1.2 Million)
under the Surety Bond, with legal interest at the rate of 12% per annum computed from
DOCTRINE: Liability of a surety on the principal contract is direct, primary and
the time the judgment becomes final and executory, plus attorney’s fees and litigation
absolute; The existence of a suretyship agreement does not give the surety the right
expenses.
to intervene in the principal contract, hence, surety cannot invoke the arbitration
clause between the parties in the principal contract; Interest, as a form of indemnity,
The Court of Appeals (CA) dismissed the appeal of UCPB based on lack of jurisdiction.
may be awarded to a creditor in case of inexcusable delay incurred by a debtor in the
It ruled that in "enforcing a surety contract, the ‘complementary- contracts-construed-
payment of his obligation.
together’ doctrine finds application." In this case, the CA considered the arbitration
clause contained in the Purchase Agreement (principal contract) between Gilat and One
Delay arises from the time the obligee judicially or extrajudicially demands from the
Virtual as applicable and binding on the parties to the suretyship agreement (accessory
obligor the performance of the obligation, and the latter fails to comply. Delay, as
contract). Hence, the trial court’s Decision was vacated. Gilat and One Virtual were
used in Article 1169, is synonymous with default or mora, which means delay in the
ordered to proceed to arbitration.
fulfillment of obligations. It is the nonfulfillment of an obligation with respect to
time. In order for the debtor (in this case, the surety) to be in default, it is necessary
ISSUES:
that the following requisites be present: (1) that the obligation be demandable and
1. Whether or not the CA erred in dismissing the case and ordering petitioner and
already liquidated; (2) that the debtor delays performance; and (3) that the creditor
One Virtual to arbitrate; and 
requires the performance judicially or extrajudicially
2. Whether or not petitioner is entitled to legal interest due to the delay in the
fulfilment by respondent of its obligation under the Suretyship Agreement.
RULING: Liability of a surety on the principal contract is direct, primary and absolute.
FACTS: One Virtual placed with Gilat Satellite Network (Gilat) a purchase order for The failure of One Virtual, as the principal debtor, to fulfill its monetary obligation to
various telecommunications equipment, promising to pay portions of the price according petitioner Gilat gave the latter an immediate right to pursue UCPB as the surety.
to a payment schedule. To ensure the prompt payment, it obtained a surety bond from
defendant UCPB General Insurance Co., Inc. (UCPB) in favor of Gilat One Virtual In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with
failed to pay Gilat twice, prompting Gilat to write the surety UCPB two demand letters
that of the principal debtor. This undertaking makes a surety agreement an ancillary
for payment. However, UCPB failed to settle the amount. contract, as it presupposes the existence of a principal contract. Nevertheless, although
the contract of a surety is in essence secondary only to a valid principal obligation, its
CIVIL LAW REVIEW 2
liability to the creditor or "promise" of the principal is said to be direct, primary and Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a
absolute; in other words, a surety is directly and equally bound with the principal. He sum of money, and the debtor incurs a delay, the indemnity for damages, there being no
becomes liable for the debt and duty of the principal obligor, even without possessing a stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
direct or personal interest in the obligations constituted by the latter. absence of stipulation, the legal interest." demanded. In the absence of stipulation, the
rate of interest shall be 6% per annum to be computed from default, i.e., from judicial
Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion. or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
It may in fact be sued separately or together with the principal debtor. Code. x x x When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interes...shall be 6% per annum from such finality until
Sureties do not insure the solvency of the debtor, but rather the debt itself. They are its satisfaction, this interim period being deemed to be by then an equivalent to a
contracted precisely to mitigate risks of non- performance on the part of the obligor. forbearance of credit."
This responsibility necessarily places a surety on the same level as that of the principal
debtor. The effect is that the creditor is given the right to directly proceed against either Rivera v.. Sps. Chua
principal debtor or surety. This is the reason why execution cannot be invoked. To G.R. No. 184458 January 14, 2015 Perez, J.
require the creditor to proceed to arbitration would render the very essence of suretyship
nugatory and diminish its value in commerce. The existence of a suretyship agreement
does not give the surety the right to intervene in the principal ontract, hence, surety DOCTRINE: When the obligation is breached, and it consists in the payment of a
cannot invoke the arbitration clause between the parties in the principal contract. sum of money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall itself
UCPB’s claim that the Purchase Agreement, being the principal contract to which the earn legal interest from the time it is judicially demanded. In the absence of
Suretyship Agreement is accessory, must take precedence over arbitration as the stipulation, the rate of interest shall be 6% per annum to be computed from default.
preferred mode of settling disputes, cannot be sustained. 6. The acceptance of a surety
agreement does not change in any material way the creditor’s relationship with the NATURE OF ACTION: Petitions for Review on Certiorari under Rule, a case for
principal debtor nor does it make the surety an active party to the principal creditor- collection of a sum of money due a promissory note
debtor relationship. In other words, the acceptance [of the surety agreement] does not
give the surety the right to intervene in the principal contract. The surety’s role arises FACTS: The parties were friends of long standing having known each other since 1973:
only upon the debtor’s default, at which time, it can be directly held liable by the creditor Rivera and Salvador are kumpadres, the former is the godfather of the Spouses Chua’s
for payment as a solidary obligor. Hence, the surety remains a stranger to the Purchase son. On 24 February 1995, Rivera obtained a loan from the Spouses Chua for the amount
Agreement. of P120,000.00 and promised to pay it on December 31, 1995 with 5% interest monthly.
Should the note be referred to a lawyer for collection, Rivera also allegedly agreed to
UCPB cannot invoke in its favor the arbitration clause in the Purchase Agreement, pay the further sum equivalent to 20% of the total amount due and payable as well as
because it is not a party to that contract. An arbitration agreement being contractual in attorney’s fees.
nature, it is binding only on the parties thereto, as well as their assigns and heirs.
In October 1998, almost three years from the date of payment stipulated in the
Section 24 of Republic Act No. 9285 is clear in stating that a referral to arbitration may promissory note, Rivera, as partial payment for the loan, issued and delivered to the
only take place "if at least one party so requests not later than the pre-trial conference, Spouses Chua, as payee, a check dated 30 December 1998, drawn against Rivera’s
or upon the request of both parties thereafter." UCPB has not presented evidence to show current account with the Philippine Commercial International Bank (PCIB) in the
that either Gilat or One Virtual submitted its contesting claim for arbitration. Interest, amount of P25,000.00. On 21 December 1998, the Spouses Chua received another check
by way of damages or indemnity, may be awarded to a creditor in case of inexcusable presumably issued by Rivera, likewise drawn against Rivera’s PCIB current account,
delay incurred by a debtor in the payment of his obligation. duly signed and dated, but blank as to payee and amount.
CIVIL LAW REVIEW 2
Ostensibly, as per understanding by the parties, the last check issued was in the amount ISSUE: Whether or not demand from Spouses was still necessary in order to charge
of P133,454.00 with “cash” as payee. Purportedly, both checks were simply partial Rivera liable?
payment for Rivera’s loan in the principal amount of P120,000.00. As of 31 May 1999,
the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of RULING: NO. Article 1169 of the Civil Code explicitly provides that there are four
P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May instances when demand is not necessary to constitute the debtor in default: (1) when
1999. The Spouses Chua alleged that they have repeatedly demanded payment from there is an express stipulation to that effect; (2) where the law so provides; (3) when the
Rivera to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua period is the controlling motive or the principal inducement for the creation of the
were constrained to file a suit. obligation; and (4) where demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for performance; it must further state
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never expressly that after the period lapses, default will commence.
executed the subject Promissory Note; (2) in all instances when he obtained a loan from
the Spouses Chua, the loans were always covered by a security; (3) at the time of the We agree that the subject promissory note is not a negotiable instrument and the
filing of the complaint, he still had an existing indebtedness to the Spouses Chua, provisions of the NIL do not apply to this case. However, even if Rivera’s Promissory
secured by a real estate mortgage, but not yet in default. (4) PCIB Check signed by him Note is not a negotiable instrument and therefore outside the coverage of Section 70 of
which he delivered to the Spouses Chua on 21 December 1998, should have been issued the NIL which provides that presentment for payment is not necessary to charge the
in the amount of only P1,300.00, representing the amount he received from the Spouses person liable on the instrument, Rivera is still liable under the terms of the Promissory
Chua’s saleslady; (5) contrary to the supposed agreement, the Spouses Chua presented Note that he issued. The Promissory Note is unequivocal about the date when the
the check for payment in the amount of P133,454.00; and (6) there was no demand for obligation falls due and becomes demandable—31 December 1995. As of 1 January
payment of the amount of P120,000.00 prior to the encashment of PCIB Check. In the 1996, Rivera had already incurred in delay when he failed to pay the amount of
main, Rivera claimed forgery of the subject Promissory Note and denied his P120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.
indebtedness.
The date of default under the Promissory Note is 1 January 1996, the day following 31
After trial, the MeTC ruled in favor of the Spouses Chua. On appeal, the RTC Manila December 1995, the due date of the obligation. On that date, Rivera became liable for
affirmed the Decision of the MeTC, but deleted the award of attorney’s fees to the the stipulated interest which the Promissory Note says is equivalent to 5% a month. In
Spouses Chua. RTC Manila affirmed the Decision of the MeTC, but deleted the award sum, until 31 December 1995, demand was not necessary before Rivera could be held
of attorney’s fees. Both trial courts found the Promissory Note as authentic and validly liable for the principal amount of P120,000.00. Thereafter, on 1 January 1996, upon
bore the signature of Rivera. Undaunted, Rivera appealed to the Court of Appeals which default, Rivera became liable to pay the Spouses Chua damages, in the form of stipulated
affirmed Rivera’s liability under the Promissory Note, reduced the imposition of interest interest.
on the loan from 60% to 12% per annum, and reinstated the award of attorney’s fees in
favor of the Spouses Chua. Hence, these consolidated petitions for review on certiorari The liability for damages of those who default, including those who are guilty of delay,
of Rivera. in the performance of their obligations is laid down on Article 1170 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an
Rivera points out that the Spouses Chua never demanded payment for the loan nor indemnity for damages when the obligor incurs in delay:
interest thereof from Rivera for almost 4 years from the time of the alleged default in Art. 2209. If the obligation consists in the payment of a sum of money, and
payment [i.e., after December 31, 1995]. Rivera argues that even assuming the validity the debtor incurs in delay, the indemnity for damages, there being no
of the Promissory Note, demand was still necessary in order to charge him liable stipulation to the contrary, shall be the payment of the interest agreed upon,
thereunder. Rivera argues that it was grave error on the part of the appellate court to and in the absence of stipulation, the legal interest, which is six percent per
apply Section 70 of the Negotiable Instruments Law annum.
CIVIL LAW REVIEW 2
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a from default, i.e., from judicial or extrajudicial demand under and subject to the
sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or provisions of Article 1169 of the Civil Code.
before 31 December 1995; and (3) the Promissory Note provides for an indemnity for
damages upon default of Rivera which is the payment of a 5% monthly interest from the Solar Harvest, Inc. v. Davao Corrugated Carton Corp.
date of default. G.R. No. 176868 July 26, 2010 Nachura, J.
We do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the DOCTRINE: Even in reciprocal obligations, if the period for the fulfillment of the
principal amount of P120,000.00 upon default. Article 1226 of the Civil Code provides: obligation is fixed, demand upon the obligee is still necessary before the obligor can
Art. 1226. In obligations with a penal clause, the penalty shall substitute the be considered in default and before a cause of action for rescission will accrue.
indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless, NATURE OF ACTION: This is a Petition for Review of the CA Decision which denied
damages shall be paid if the obligor refuses to pay the penalty or is guilty petitioner's claim for reimbursement for the amount it paid to respondent for the
of fraud in the fulfillment of the obligation. manufacture of corrugated carton boxes.
The penalty may be enforced only when it is demandable in accordance with FACTS: Petitioner, Solar Harvest, Inc., entered into an agreement with respondent,
the provisions of this Code. Davao Corrugated Carton Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioner's business of exporting fresh bananas. The agreement
The penal clause is generally undertaken to insure performance and works as either, or was not reduced into writing. On March 31, 1998, to get the production underway,
both, punishment and reparation. It is an exception to the general rules on recovery of petitioner deposited US$40,150.00 in respondent's US Dollar Savings Account with
losses and damages. As an exception to the general rule, a penal clause must be Westmont Bank, as full payment for the ordered boxes. Despite such payment, petitioner
specifically set forth in the obligation. did not receive any boxes from respondent. Petitioner wrote a demand letter for
reimbursement of the amount paid. Respondent replied that the boxes had been
However, the appellate court found the 5% a month or 60% per annum interest rate, on completed as early as April 3, 1998 and that petitioner failed to pick them up from the
top of the legal interest and attorney’s fees, steep, tantamount to it being illegal, former's warehouse 30 days from completion, as agreed upon.
iniquitous and unconscionable. Hence, as for the legal interest accruing from 11 June
1999, when judicial demand was made, to the date when this Decision becomes final Petitioner filed a Complaint for sum of money and damages against respondent, alleging
and executory, such is likewise divided into two periods: (1) 12% per annum from 11 that the parties agreed that the boxes will be delivered within 30 days from payment but
June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum from 1 respondent failed to manufacture and deliver the boxes within such time. Respondent
July 2013 to date when this Decision becomes final and executor. We base this insisted that, as early as April 3, 1998, it had already completed production of the 36,500
imposition of interest on interest due earning legal interest on Article 2212 of the Civil boxes. According to respondent, petitioner, in fact, made an additional order of 24,000
Code which provides that “interest due shall earn legal interest from the time it is boxes, out of which 14,000 had been completed without waiting for petitioner's
judicially demanded, although the obligation may be silent on this point.” payment. Respondent stated that petitioner was to pick up the boxes at the factory as
agreed upon, but petitioner failed to do so. Respondent averred that petitioner's
We cite our recent ruling in Nacar v. Gallery Frames: When the obligation is breached, representative, Bobby Que, went to the factory and saw that the boxes were ready for
and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, pick up. On February 20, 1999, Que visited the factory again and supposedly advised
the interest due should be that which may have been stipulated in writing. Furthermore, respondent to sell the boxes as rejects to recoup the cost of the unpaid 14,000 boxes,
the interest due shall itself earn legal interest from the time it is judicially demanded. In because petitioner's transaction to ship bananas to China did not materialize.
the absence of stipulation, the rate of interest shall be 6% per annum to be computed
CIVIL LAW REVIEW 2
RTC ruled that respondent did not commit any breach of faith and that respondent was petitioner's boxes and Que took samples thereof. Que, petitioner's witness himself
able to produce the ordered boxes but petitioner failed to obtain possession thereof confirmed this incident.
because its ship did not arrive. It thus dismissed the complaint and respondent's
counterclaims. CA denied the appeal of petitioner and held that even assuming that the We also believe that the agreement between the parties was for petitioner to pick up the
agreement was for respondent to deliver the boxes, respondent would not be liable for boxes from respondent's warehouse, contrary to petitioner's allegation. Thus, it was due
breach of contract as petitioner had not yet demanded from it the delivery of the boxes. to petitioner's fault that the boxes were not delivered to TADECO. Moreover, assuming
that respondent was obliged to deliver the boxes, it could not have complied with such
ISSUE: Whether or not there was default by the respondent which would justify the obligation. Que admitted that he did not give respondent the authority to deliver the
rescission of the contract with petitioner. boxes to TADECO.
RULING: NO, there was no default by the respondent which would justify the Agcaoili v. GSIS
rescission of the contract with petitioner. G.R. No. L – 30056 August 30, 1988 Narvasa, J.
Petitioner's claim for reimbursement is actually one for rescission (or resolution) of
contract under Article 1191 of the Civil Code. The right to rescind a contract arises once DOCTRINES:
the other party defaults in the performance of his obligation. In determining when default 1. Since GSIS did not fulfill that obligation, and was not willing to put the
occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the Civil Code. In house in habitable state, it cannot invoke Agcaoili's suspension of payment
reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of of amortizations as cause to cancel the contract between them. It is
the parties' respective obligations should be simultaneous. Hence, no demand is axiomatic that "(i)n reciprocal obligations, neither party incurs in delay if
generally necessary because, once a party fulfills his obligation and the other party does the other does not comply or is not ready to comply in a proper manner
not fulfill his, the latter automatically incurs in delay. But when different dates for with what is incumbent upon him."
performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article, that is, the 2. The Court cannot require specific performance of the contract in question
other party would incur in delay only from the moment the other party demands according to its literal terms, as this would result in inequity. The situation
fulfillment of the former's obligation. calls for the exercise by this Court of its equity jurisdiction, to the end that
it may render complete justice to both parties. In the exercise of its equity
Evident from the records and even from the allegations in the complaint was the lack of jurisdiction, the Court may adjust the rights of parties in accordance with
demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the circumstances obtaining at the time of rendition of judgment, when
the boxes. The Complaint only alleged that petitioner made a "follow-up" upon these are significantly different from those existing at the time of
respondent, which, however, would not qualify as a demand for the fulfillment of the generation of those rights
obligation. Without a previous demand for the fulfillment of the obligation, petitioner
would not have a cause of action for rescission against respondent as the latter would NATURE OF ACTION: Appeal
not yet be considered in breach of its contractual obligation.
FACTS: Approval of Agcaoili's application for purchase was contained in a letter
Even assuming that a demand had been previously made, petitioner's claim for reading that the application to purchase a house and lot in our GSIS Housing Project at
reimbursement would still fail, as the circumstances would show that respondent was Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No. (48)
not guilty of breach of contract. Aside from the pictures of the finished boxes and the 2, together with the housing unit constructed thereon. GSIS also advises the occupation
production report thereof, there is the testimony of Estanislao who accompanied Que to immediately for failure to occupy within three days from notice, the application will be
the factory, attesting that, during their first visit to the company, they saw the pile of deemed disapproved.
CIVIL LAW REVIEW 2
Agcaoili occupied it immediately but had to leave the next day as it was in the state of On the second point, the Court ruled that there was then a perfected contract of sale
incompleteness – without ceiling, stairs, double walling ,lighting facilities, water between the parties; there had been a meeting of the minds upon the purchase by
connection, bathroom, drainage. He asked a homeless friend to be a watchman pending Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka
the construction of the house. Agcaoili complained to GSIS but was not heard. Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and
from that moment the parties acquired the right to reciprocally demand performance. It
When GSIS demanded the monthly amortizations from Agcaoili, the latter paid the first was the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for
monthly installment and incidental fees and refused to pay the rest unless the house is its enjoyment by the buyer for the purpose contemplated, or,in a reasonably livable state.
completed. GSIS cancelled the award and asked Agcaoili to vacate the premises. He It sold a house to Agcaoili, and required him to immediately occupy it under pain of
instituted suit for specific performance and damages with the Court of First Instance. cancellation of the sale. There would be no sense to require the awardee to immediately
Pending this action, other awardees protested to the same clamor that Agcaoili had- the occupy and live in a shell of a house and argue that the contract did not clearly impose
incompleteness of the housing units. The court ruled in favor of Agcaoili and declared upon it the obligation to deliver a habitable house. Since GSIS did not fulfill that
the cancellation illegal and void. The decision further orderd GSIS to complete the house obligation, and was not willing to put the house in habitable state, it cannot invoke
and collect the amortizations once the house has been completed. Agcaoili's suspension of payment of amortizations as cause to cancel the contract
between them. It is axiomatic that "(i)n reciprocal obligations, neither party incurs in
Appellant GSIS argues that: first, Agcaoili had no right to suspend the payment of delay if the other does not comply or is not ready to comply in a proper manner with
amortizations by reason of the incompleteness of the housing units. He is assumed to what is incumbent upon him."
have accepted the unit in the same condition he found it because it was sold "in the
condition and state of completion then existing”. Second, GSIS avers that there is a The Court also rejected GSIS’ point on not fulfilling the occupation within three days.
perfected contract between GSIS and Agcaouili conditioned upon the immediate The record shows that Agcaoili did try to fulfill the condition; he did try to occupy the
occupancy of the house. Since Agcaoili failed to comply, there is not contract to begin house but found it to be so uninhabitable that he had to leave it the following day. He
with. Lastly, GSIS asserts that placing a homeless person in the housing unit without the did however leave a friend in the structure, who being homeless and hence willing to
knowledge or consent of GSIS operated as repudiation on the part of Agcaoili. accept shelter even of the most rudimentary sort, agreed to stay therein and look after it.
Finally, the GSIS should not blame or point our the imprecision of the prestation to
ISSUES: Agcaoili since it was GSIS who caused the contract, only to be accepted by Agcaoili.
1. Whether or not Agcaoili is deemed to have accepted the housing unit in the The appellant having caused the ambiguity of which it would now make capital, the
condition then existing. question of interpretation arising therefrom, should be resolved against it.
2. Whether or not there was a perfected contract between Agcaoili and GSIS.
3. Whether or not requiring specific performance would result in inequity. It will, however be unfair to declare that the contract had not been validly cancelled and
was therefore still in force, and that Agcaoili could not be compelled by the GSIS to pay
RULING: On the first assertion, the Court disagrees with appellant. Agcaoili's offer to the stipulated price of the house and lot subject of the contract until and unless it had
buy from GSIS was contained in a printed form drawn up by the latter, entitled first completed construction of the house. In the same way, assuming the completion is
"Application to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and possible, to compel the GSIS to do so so that Agcaoili's prestation to pay the price might
submitted it. Neither the application form nor the acceptance or approval form of the in turn be demanded, without modifying the price therefor, would not be quite fair. The
GSIS — nor the notice to commence payment of a monthly amortizations,— contained cost to the GSIS of completion of construction at present prices would make the
any hint that the house was incomplete. On the other hand, the condition explicitly stipulated price disproportionate, unrealistic. In this case, the Court cannot require
imposed on Agcaoili would imply that construction of the house was more or less specific performance of the contract in question according to its literal terms, as this
complete, and it was by reasonable standards, habitable, and that indeed, the awardee would result in inequity. The situation calls for the exercise by this Court of its equity
should stay and live in it. jurisdiction, to the end that it may render complete justice to both parties.
CIVIL LAW REVIEW 2
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in urgency of opening the letter of credit, otherwise the supplier in Rangoo, Burma will
accordance with the circumstances obtaining at the time of rendition of judgment, when confiscate the 5% equivalent of the F.O.B. of 20,000 tons or $180.70.
these are significantly different from those existing at the time of generation of those
rights. Since the completion of the house is no longer feasible given the time elapsed, it On August 4, 1952, PNB approved the letter of credit of $3,614,000.00 with a condition
is more in keeping with the realities of the situation, and with equitable norms, to simply that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment.
require payment for the land on which the house stands, and for the house itself, in its However, NARIC is not in any financial position to meet the conditions of PNB.
unfinished state, as of the time of the contract. As Agcaoili suggested, “to execute a deed
of sale that would embody and provide for a reasonable amortization of payment on the Due to the delay of the opening of the letter of credit, the rice allocated to Arrieta was
basis of the present actual unfinished and uncompleted condition, worth and value of the cancelled and the 5% deposit was forfeited, despite the 15days grace period.
said house.”
Arrieta’s suggested solution to substitute the Burmese to Thailand rice was rejected by
Arrieta v. Naric NARIC.
G.R. No. L – 15645 January 31, 1964 Regala, J.
Arrieta: compensation for damages P286,000.00 unrealized profit
NARIC: counterclaim
DOCTRINE: : Under this provision, not only debtors guilty of fraud, negligence or Manila Underwriters Insurance Company: 3rd party defendant, hold liable on the
default in the performance of obligations a decreed liable; in general, every debtor performance bond
who fails in performance of his obligations is bound to indemnify for the losses and
damages caused thereby. The phrase "any manner contravene the tenor" of the Appellant corporation disclaims responsibility for the delay in the opening of the letter
obligation includes any illicit act which impairs the strict and faithful fulfillment of of credit. On the contrary, it insists that the fault lies with the appellee. Appellant
the obligation or every kind or defective performance. contends that the disputed negotiable instrument was not promptly secured because the
appellee , failed to seasonably furnish data necessary and required for opening the same,
NATURE OF ACTION: This is an appeal of the defendant-appellant NARIC from the namely, "(1) the amount of the letter of credit, (2) the person, company or corporation
decision of the trial court dated February 20, 1958, awarding; to the plaintiffs-appellees in whose favor it is to be opened, and (3) the place and bank where it may be negotiated."
the amount of $286,000.00 as damages for breach of contract and dismissing the
counterclaim and third party complaint of the defendant-appellant NARIC. ISSUE: Whether NARIC’s failure to open immediately the letter of credit in dispute
amounted to a breach of the contract.
FACTS: May 19, 1952, plaintiff-appellee participated in the public bidding called by
the NARIC for the supply of 20,000 metric tons of Burmese rice. She was awarded the RULING: The sole and principal reason for the cancellation of the allocation contracted
same. by the appellee herein in Rangoon, Burma, was the failure of the letter of credit to be
opened with the contemplated period.
July 1, 1952, Arrieta and the appellant corporation entered into a Contract of Sale of
Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial
metric tons of Burmese Rice at $208.00 per metric ton. The defendant Corporation judge in the formulation of the ruling. Trial Courts ruling: The defense that the delay, if
committed itself to pay for the imported rice "by means of an irrevocable, confirmed any in opening the letter of credit was due to the failure of plaintiff to name the supplier,
and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee.” the amount and the bank is not tenable. Plaintiff stated in Court that these facts were
known to defendant even before the contract was executed because these facts were
Only after a month from execution of contract did the corporation forwarded to PNB the necessarily revealed to the defendant before she could qualify as a bidder.
application to open a commercial of credit. Arrieta advised the corporation of the
CIVIL LAW REVIEW 2
We do not think the appellant corporation can refute the fact that had it been able to put NATURE OF ACTION: Petition for Review on Certiorari.
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 August 4, 1952. The letter of the FACTS: Respondent Jorge, pawned several pices of jewellery with petioner Sicam to
Philippine National Bank to the NARIC was plain and explicit that as of the said date, secure a loan in the amount of P59, 500.00. Two armed men entered the pawnshop and
appellant's "application for a letter of credit ... has been approved by the Board of took away whatever cash and jewelry were found inside the pawnshop vault. The
Directors with the condition that 50% marginal cash deposit be paid and that drafts are incident was entered in the police blotter of the Southern Police District, Parañaque
to be paid upon presentment." Police Station
The liability of the appellant, however, stems not alone from this failure or inability to Petitioner Sicam sent respondent Jorge letter informing her of the loss of her jewellery
satisfy the requirements of the bank. Its culpability arises from its willful and deliberate due to the robbery incident in the pawnshop. Respondent Jorge then wrote a letter to
assumption of contractual obligations even as it was well aware of its financial petitioner Sicam expressing disbelief stating that when the robbery happened.
incapacity to undertake the prestation. Despite this awareness that it was financially
incompetent to open a letter of credit immediately, appellant agreed in paragraph 8 of In an action for indemnification for the loss of pawned jewellry filed by Spouses Jorge,
the contract to pay immediately "by means of an irrevocable, confirmed and assignable the petitioner corporation had exercised due care and diligence in the safekeeping of the
letter of credit,”. articles pledged with it and could not be made liable for an event that is fortuitous.
Under this provision, not only debtors guilty of fraud, negligence or default in the RTC held that petitioner Sicam could not be made personally liable for a claim arising
performance of obligations a decreed liable; in general, every debtor who fails in out of a corporate transaction as the pawnshop incorporated as Agencia de R.C. Sicam;
performance of his obligations is bound to indemnify for the losses and damages caused and that as a consequence of the separate juridical personality of a corporation, the
thereby. The phrase "any manner contravene the tenor" of the obligation includes any corporate debt or credit is not the debt or credit of a stockholder.
illicit act which impairs the strict and faithful fulfillment of the obligation or every kind
or defective performance. Jorge filed an appeal before the CA. The appellate court ruled that petitioner is liable by
application of the pierce the veil of the corporate fiction and adjudged petitioner Sicam
The NARIC would also have this Court hold that the subsequent offer to substitute liable together with petitioner corporation.
Thailand rice for the originally contracted Burmese rice amounted to a waiver by the
appellee of whatever rights she might have derived from the breach of the contract. We ISSUE: Whether petitioners are liable for the loss of the pawned articles in their
disagree. Waivers are not presumed, but must be clearly and convincingly shown, either possession?
by express stipulation or acts admitting no other reasonable explanation.
RULING: YES. To constitute a fortuitous event, the following elements must concur:
Sicam v. Jorge (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor
G.R. No. 159617 August 8, 2007 Austria – Martinez, J. to comply with obligations must be independent of human will; (b) it must be impossible
to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it impossible for the
DOCTRINE: Fortuitous events by definition are extraordinary events not debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from
foreseeable or avoidable. It is therefore not enough that the event should not have any participation in the aggravation of the injury or loss.
been foreseen or anticipated, as is commonly believed but it must be one impossible
to foresee or to avoid. The mere difficulty to foresee the happening is not Sicam testified that there was a security guard in their pawnshop at the time of the
impossibility to foresee the same. Robbery per se, just like carnapping, is not a robbery and, he thought of opening a vault with the nearby bank for the purpose of
fortuitous event. It does not foreclose the possibility of negligence. safekeeping the valuables but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop. The very measures which
CIVIL LAW REVIEW 2
petitioners had allegedly adopted show that to them the possibility of robbery was not principle embodied in the act of God doctrine strictly requires that the act must be
only foreseeable, but actually foreseen and anticipated. Sicam’s testimony, in effect, one occasioned exclusively by the violence of nature and human agencies are to be
contradicts his defense of a fortuitous event. excluded from creating or entering into the cause of the mischief. When the effect,
the cause of which is to be considered, is found to be in part the result of the
Moreover, petitioners failed to show that they were free from any negligence by which participation of man, whether it be from active intervention or neglect, or failure to
the loss of the pawned jewelry may have been occasioned. Robbery per se, just like act, the whole occurrence is thereby humanized, as it was, and removed from the
carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence rules applicable to the acts of God.
on the part of herein petitioners.
NATURE OF ACTION: Appeal to set aside judgment of the CA
Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect
the pawnshop from unlawful intrusion. There was no clear showing that there was any FACTS: On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful
security guard at all. Or if there was one, that he had sufficient training in securing a bidder, executed a contract in Manila with the National Waterworks and Sewerage
pawnshop. Further, there is no showing that the alleged security guard exercised all that Authority (NAWASA), whereby the former undertook to furnish all tools, labor,
was necessary to prevent any untoward incident or to ensure that no suspicious equipment, and materials (not furnished by Owner), and to construct the proposed 2nd
individuals were allowed to enter the premises. In fact, it is even doubtful that there was Ipo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and
a security guard, since it is quite impossible that he would not have noticed that the Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within eight
robbers were armed with caliber .45 pistols each, which were allegedly poked at the hundred (800) calendar days from the date the Contractor receives the formal notice to
employees. Significantly, the alleged security guard was not presented at all to proceed.
corroborate petitioner Sicam's claim; not one of petitioners' employees who were present
during the robbery incident testified in court. The project involved 2 major phases: the first phase comprising the tunnel work
covering a distance of 7 kilometers, passing through the mountain, from the Ipo river, a
Furthermore, Sicam's admission that the vault was open at the time of robbery is clearly part of Norzagaray, Bulacan, where the Ipo Dam of the defendant National Power
a proof of petitioners' failure to observe the care, precaution and vigilance that the Corporation is located, to Bicti; the other phase consisting of the outworks at both ends
circumstances justly demanded. Sicam testified that once the pawnshop was open, the of the tunnel.
combination was already off. Considering Sicam's testimony that the robbery took place
on a Saturday afternoon and the area in BF Homes Parañaque at that time was quiet, By September 1967, the plaintiff corporation already had completed the tunnel
there was more reason for petitioners to have exercised reasonable foresight and excavation work. Some portions of the outworks at the Bicti site were still under
diligence in protecting the pawned jewelleries. Instead of taking the precaution to protect construction. As soon as the plaintiff corporation had finished the tunnel excavation
them, they let open the vault, providing no difficulty for the robbers to cart away the work at the Bicti site, all the equipment no longer needed there were transferred to the
pawned articles. Ipo site where some projects were yet to be completed.
NPC v. CA On November 4, 1967, typhoon 'Welming' hit Central Luzon, passing through
G.R. No. L - 47379; L- May 16, 1988 Gutierrez, Jr., J. defendant's Angat Hydro-electric Project and Dam at Ipo, Norzagaray, Bulacan. Strong
47481 winds struck the project area, and heavy rains intermittently fell. Due to the heavy
downpour, the water in the reservoir of the Angat Dam was rising perilously at the rate
DOCTRINE: If upon the happening of a fortuitous event or an act of God, there of 60 centimeters per hour. To prevent an overflow of water from the dam, since the
concurs a corresponding fraud, negligence, delay or violation or contravention in any water level had reached the danger height of 212 meters above sea level, the defendant
manner of the tenor of the obligation as provided for in Article 1170 of the Civil corporation caused the opening of the spillway gates abruptly instead of gradually as
Code, which results in loss or damage, the obligor cannot escape liability. The would have been the proper course of action.
CIVIL LAW REVIEW 2
NPC assails the appellate court's decision as being erroneous on the ground that the
destruction and loss of the ECI's equipment and facilities were due to force majeure. It FACTS: Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central
argues that the rapid rise of the water level in the reservoir of its Angat Dam due to Park Place Tower while co-petitioner Fil-Estate Network, Inc. is its authorized
heavy rains brought about by the typhoon was an extraordinary occurrence that could marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo purchased
not have been foreseen, and thus, the subsequent release of water through the spillway from petitioners an 82-sq.m condominium unit at Central Park Place Tower in
gates and its resultant effect, if any, on ECI's equipment and facilities may rightly be Mandaluyong City for a pre-selling contract price of P5,174,000. Respondents executed
attributed to force majeure. and signed a Reservation Application Agreement wherein they deposited P200,000 as
reservation fee. As agreed upon, Respondents paid the full downpayment of P1,552,200
On the other hand, ECI assails the reduction of the consequential damages from and had been paying the P63,363.33 monthly amortizations until September 1998.
P333,200.00 to P19,000.00 on the grounds that the appellate court had no basis in
concluding that ECI acquired a new Crawler-type crane and therefore, it only can claim Upon learning that construction works had stopped, Respondents likewise stopped
rentals for the temporary use of the leased crane for a period of one month; and that the paying their monthly amortization. Claiming to have paid a total of P2,198,949.96 to
award of P4,000.00 a day or P120,000.00 a month bonus is justified since the period Petitioners, Respondents through 2 successive letters, demanded a full refund of their
limitation on ECI's contract with NAWASA had dual effects, ie., bonus for earlier payment with interest. When their demands went unheeded, they filed a Complaint for
completion and liquidated damages for delayed performance; and in either case at the Refund and Damages before the HLURB, praying for reimbursement/refund of the total
rate of P4,000.00 daily. Thus, since NPC's negligence compelled work stoppage for a amortization payments, moral damages, attorney’s fees and other litigation expenses.
period of one month, the said award of P120,000.00 is justified. ECI further assails the
reduction of attorney's fees and the total elimination of exemplary damages. The HLURB issued an Order of Default against Petitioners for failing to file their
Answer within the reglementary period despite service of summons. The Petitioners
ISSUE: Whether or not NPC’s defense of force majeure is tenable filed a motion to lift order of default and attached their position paper attributing the
delay in construction to the 1997 Asian financial crisis. They denied committing fraud
RULING: No. It is clear from the appellate court's decision that based on its findings or misrepresentation which could entitle respondents to an award of moral damages. The
of fact and that of the trial court's, petitioner NPC was undoubtedly negligent because it HLURB rendered judgment ordering petitioners to jointly and severally pay
opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" Respondents the latter’s claims. The HLURB Arbiter considered Petitioners’ failure to
when it knew very well that it was safer to have opened the same gradually and earlier, develop the condominium project as a substantial breach of their obligation which
as it was also undeniable that NPC knew of the coming typhoon at least four days before entitles respondents to seek for rescission with payment of damages. He also stated that
it actually struck. And even though the typhoon was an act of God or what we may call mere economic hardship is not an excuse for contractual and legal delay. On appeal, the
force majeure, NPC cannot escape liability because its negligence was the proximate Board of Commissioners of the HLURB affirmed the Arbiter’s Decision, reiterating that
cause of the loss and damage. the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of their contractual
Fil – Estate v. Sps. Ronquillo obligation.
G.R. No. 185798 January 13, 2014 Perez, J.
The Office of the President also dismissed the Petitioners’ appeal for lack of merit. The
CA also denied the Petitioners’ appeal, echoing the HLURB Arbiter’s ruling that "a
buyer for a condominium/subdivision unit/lot unit which has not been developed in
DOCTRINE: The 1997 Asian financial crisis did not constitute a valid justification accordance with the approved condominium/subdivision plan within the time limit for
to renege on obligations. It cannot be generalized that the Crisis was unforeseeable complying with said developmental requirement may opt for reimbursement under
and beyond the control of a business corporation. Section 20 in relation to Section 23 of PD 957. It ruled that Petitioners’ failure to develop
the condominium project is tantamount to a substantial breach which warrants a refund
NATURE OF ACTION: Petition for Review on certiorari under Rule 45 of the total amount paid, including interest. It pointed out that Petitioners failed to prove
CIVIL LAW REVIEW 2
that the Asian financial crisis constitutes a fortuitous event which could excuse them In the early morning of October 9, 2000, the four trucks left BMT's garage for Laguna.
from the performance of their contractual and statutory obligations. However, only three trucks arrived at Sony's Binan warehouse.
ISSUE: Whether or not the Asian financial crisis constitute a fortuitous event which At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was
would justify delay by Petitioners in the performance of their contractual found abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa City. Both
obligation the driver and the shipment were missing.
RULING: NO. The Respondents are entitled to rescind the contract and demand In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods.
reimbursement for the payments they had made to Petitioners. As previously held by the After evaluating the merits of the claim, Mitsui paid Sony PHP7,293,386.23
SC, the 1997 Asian financial crisis did not constitute a valid justification to renege on corresponding to the value of the lost goods.
obligations. It cannot be generalized that the Crisis was unforeseeable and beyond the
control of a business corporation. It is unfortunate that Petitioner apparently met with After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter for payment
considerable difficulty e.g. increase cost of materials and labor, even before the of the lost goods. TMBI refused to pay Mitsui's claim. As a result, Mitsui filed a
scheduled commencement of its real estate project as early as 1995. However, a real complaint against TMBI.
estate enterprise engaged in the pre-selling of condominium units is concededly a master
in projections on commodities and currency movements and business risks. The TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party
fluctuating movement of the Philippine peso in the foreign exchange market is an defendant.
everyday occurrence, and fluctuations in currency exchange rates happen everyday,
thus, not an instance of caso fortuito. The RTC found TMBI and Benjamin Manalastas jointly and solidarity liable to pay
Mitsui. The CA affirmed the RTC's decision
TMBI v. Feb Mitsui and Manalastas
G.R. No. 194121 July 11, 2016 Brion, J. ISSUE: Whether TMBI and Benjamin Manalastas are jointly and severally liable to
Mitsui.
DOCTRINE: An action for breach of contract precludes the application of quasi- RULING: No. The ruling of the lower courts is based on Article 2194 of the Civil Code
delict based on Art. 2194 which provides that the responsibility of two or more which provides that the responsibility of two or more persons who are liable for quasi-
persons who are liable for quasi-delict is solidary. delict is solidary. Notably, TMBI's liability to Mitsui does not stem from a quasi-delict
(culpa aquiliana) but from its breach of contract (culpa contractual). The tie that binds
NATURE OF ACTION: Action for breach of contract TMBI with Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI's
contract of carriage with Sony to which Mitsui had been subrogated as an insurer who
FACTS: A shipment of various electronic goods from Thailand and Malaysia arrived had paid Sony's insurance claim. The legal reality that results from this contractual tie
at the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had precludes the application of quasi-delict based Article 2194.
engaged the services of Torres-Madrid Brokerage, Inc. (TMBI) to facilitate, process,
withdraw, and deliver the shipment from the port to its warehouse in Binan, Laguna. In turn, BMT is liable to TMBI for breach of their contract of carriage. By subcontracting
the cargo delivery to BMT, TMBI entered into its own contract of carriage with a fellow
TMBI - who did not own any delivery trucks - subcontracted the services of Benjamin common carrier. The cargo was lost after its transfer to BMT's custody based on its
Manalastas' company, BMT Trucking Services (BMT), to transport the shipment from contract of carriage with TMBI. Following Article 1735, BMT is presumed to be at fault.
the port to the Binan warehouse. Since BMT failed to prove that it observed extraordinary diligence in the performance
of its obligation to TMBI, it is liable to TMBI for breach of their contract of carriage.
CIVIL LAW REVIEW 2
F. Remedies for Breach of Obligations Due to these events, defendant Magdalo Francisco filed a complaint for rescission of
1. Extra-judicial Remedies contract with damages. The complaint was dismissed by the lower court taking credence
in the argument of herein plaintiff corporation that defendant was not removed from his
a. Expressly granted by law
b. Stipulated position as a Chief Chemist, and that they have complied with their undertaking stated
in the Bill of Assignment.
2. Judicial Remedies
Upon appeal, the CA reversed the order of the trial court.
a. Principal remedies
b. Subsidiary remedies ISSUE: Whether the respondent can validly rescind the contract.
c. Ancillary remedies
RULING: The Court ruled in the affirmative.
Universal Food Corp v. CA
G.R. No. L – 29155 May 13, 1970 Castro, J. In the case, there was no question that the obligations between the parties are reciprocal.
However, what is being disputed is the fact that plaintiff removed defendant from his
DOCTRINE: The general rule is that rescission of a contract will not be permitted position as Chief Chemist without a lawful and justifiable cause.
for a slight or casual breach, but only for such substantial and fundamental breach as
would defeat the very object of the parties in making the agreement. The question of The general rule is that the rescission of contract will not be permitted for a slight or
whether a breach of a contract is substantial depends upon the attendant casual breach but only for such substantial and fundamental breach as would defeat the
circumstances. very object of the parties making the agreement. In this case, the dismissal of Magdalo
Francisco is a substantial breach of the Bill of Assignment because he was dismissed
NATURE OF ACTION: Action for Rescission of Contract with Damages without any fault or negligence from his part. As such, he has no alternative but to file
the present action for rescission and damages.
FACTS: Magdalo Francisco discovered a formula of creating a food seasoning form
bananas popularly known as MAFRAN sauce. He registered his trademark in his name. It would have to be considered that defendant would not have agreed to the Bill of
Later, he met Tirso Reyes who later formed plaintiff corporation. They executed a Assignment were it not for the basic commitment of the plaintiff to appoint him as Chief
contract denominated as a Bill of Assignment, which stipulated that Magdalo Francisco Chemist on a permanent basis.
shall be hired by the company as its chief chemist for a permanent status. It also
stipulated that Francisco shall cede and transfer to plaintiff the rights over the trademark. ACCORDINGLY, conformably with the observations we have above made, the
judgment of the Court of Appeals is modified.
Later, due allegedly to the scarcity of resources, and increase in prices, the plaintiff was
forced to suspend operations. A memorandum was issued stating that only the supervisor Magdalena Estate v. Myrick
Ricardo Francisco shall be retained in the factory, and that the salary of Magdalo G.R. No. L – 47774 March 14, 1941 Laurel, J.
Francisco shall be temporarily stopped. A few days later,, a second memorandum was
issued to Victoriano Francisco ordering him to report to the factory and produce Mafran DOCTRINE: Remedies are alternative and not cumulative, and the petitioner in this
Sauce at the rate of 100 bottles per day to satisfy the orders of plaintiff’s clients. He was case, having to cancel the contract, cannot avail himself of the other remedy of
instructed to bring only the necessary number of daily employees required to produce exacting performance.
the said number. Lastly, another memorandum was issued appointing Ricardo Francisco
as Chief Chemist. NATURE OF ACTION: Petition for a writ of certiorari
CIVIL LAW REVIEW 2
FACTS: On January 2, 1928, the petitioner, Magdalena Estate, Inc., sold to respondent ISSUE: Whether or not the petitioner is authorized to forfeit the purchase price paid by
and vendee Louis J. Myrick lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan respondent.
Subdivision, San Juan Rizal, their contract of sale providing that the price of P7,953
shall be payable in 120 equal monthly installments of P96.39 each on the second day of RULING: No. The contract of sale contains no provision authorizing the vendor, in the
every month beginning the date of execution of the agreement. event of failure of the vendee to continue in the payment of the stipulated monthly
installments, to retain the amounts paid to him on account of the purchase price. The
Simultaneously, the vendee executed and delivered to the vendor a promissory note for claim therefore, of the petitioner that it has the right to forfeit said sums in its favor is
the whole purchase price. The vendee made several monthly payments amounting to untenable.
P2,596.08, the last being on October 4, 1930, although the first installment due and
unpaid was that of May 2, 1930. By reason of this default, the vendor, through its Under Article 1124 of the Civil Code, however, the petitioner may choose between
president, K.H. Hemady, on December 14, 1932, notified the vendee that, in view of his demanding the fulfillment of the contract or its resolution. These remedies are
inability to comply with the terms of their contract, said agreement had been cancelled alternative and not cumulative, and the petitioner in this case, having to cancel the
as of that date, thereby relieving him of any further obligation thereunder, and that all contract, cannot avail himself of the other remedy of exacting performance.
amounts paid by him had been forfeited in favor of the vendor, who assumes the absolute
right over the lots in question. To this communication, the vendee did not reply, and it As a consequence of the resolution, the parties should be restored, as far as practicable,
appears likewise that the vendor thereafter did not require him to make any further to their original situation which can be approximated only by ordering the return of
disbursements on account of the purchase price. the things which were the object of the contract, with their fruits and of the price,
with its interest (article 1295, Civil Code), computed from the date of the institution
Court of First Instance of Albay: On July 22, 1936, Myrick commenced an action of the action.
praying for an entry of judgment against the Magdalena Estate, Inc. for the sum of
P2,596.08 with legal interest thereon from the filing of the complaint until its payment, The writ prayed for is hereby denied, with costs against the petitioner. So ordered.
and for costs of the suit.
University of the Philippines v. Walfrido de los Angeles, Judge CFI Quezon
Petitioner, on September 7, 1936, filed his answer consisting in a general denial and a City
cross-complaint and counterclaim, alleging that contract SJ-639 was still in full force G.R. No. L – 28602 September 29, 1970 Reyes, JBL., J.
and effect and that, therefore, the plaintiff should be condemned to pay the balance plus
interest and attorneys' fees.
DOCTRINE: Since there’s an express stipulation, UP is empowered to consider the
CFI Albay , on January 31, 1939, rendered its decision ordering the defendant to pay the Logging Agreement as rescinded without the necessity of any judicial suit upon
plaintiff the sum of P2,596.08 with legal interest from December 14, 1932 until paid and default by ALUMCO . However, such an act of rescission is only provisional and
costs, and dismissing the defendant's counterclaim. such party proceeds at his own risk since it’s still subject to scrutiny and review by
the proper court. Without court review, the extrajudicial resolution will remain
Court of Appeals: Magdalena Estate, Inc. appealed to the Court of Appeals, which contestable and subject to judicial invalidation, unless attack thereon should become
confirmed the decision of the lower court, with the only modification that the payment barred by acquiescence, estoppel or prescription
of interest was to be computed from the date of the filing of the complaint instead of
from the date of the cancellation of the contract. A motion for reconsideration was NATURE OF ACTION: Petition for certiorari and prohibition with prayer for the
presented, which was denied on September 6, 1940. Hence, the present petition for a issuance of a writ of preliminary injunction against the enforcement or implementation
writ of certiorari. of the three orders of CFI-QC.
CIVIL LAW REVIEW 2
FACTS: By virtue of Act 3608, a timber concession or “Land Grant'' situated at the In its defense, ALUMCO argued that in case of resolution of a reciprocal obligation it
Lubayat areas in the provinces of Laguna and Quezon was segregated from the public is only after a final court decree declaring the contract rescinded for violation of its terms
domain and given as an endowment to UP to be operated for the purpose of raising that U.P. could disregard ALUMCO's rights under the contract and treat the agreement
additional income for its support. UP and Associated Lumber Manufacturing Company, as breached and of no force or effect.
Inc. (or ALUMCO) entered into a logging agreement under which ALUMCO was
granted exclusive authority, to cut, collect and remove timber from the Land Grant, in ISSUE: Can U.P. treat its contract with ALUMCO rescinded, and may it disregard the
consideration of payment to UP of royalties, forest fees, etc. same before any judicial pronouncement to that effect?
After some time, ALUMCO failed to pay P219,362.94 despite repeated demands from RULING: Yes, UP and ALUMCO expressly stipulated in the "Acknowledgment of
UP. Hence, it received notice that UP would rescind the logging agreement. In response, Debt and Proposed Manner of Payments" that, upon default by ALUMCO, UP has "the
ALUMCO executed an “Acknowledgment of Debt and Proposed Manner of Payments" right and the power to consider, the Logging Agreement as rescinded without the
which stipulated that if there’s still a balance after ALUMCO made payments, such shall necessity of any judicial suit."
be paid in full and in the event that ALUMCO fails to comply with any of its promises,
UP shall have the right and the power to consider the Logging Agreement as rescinded As to such special stipulation, and in connection with Article 1191 of the Civil Code,
without the necessity of any judicial suit, and UP shall be entitled, as a matter of right, this Court stated in Froilan vs. Pan Oriental Shipping Co., that “there is nothing in the
to P50,000.00 liquidated damages. ALUMCO continued its logging operations, but law that prohibits the parties from entering into agreement that violation of the terms of
again incurred a P61,133.74 unpaid account in addition to the indebtedness that it had the contract would cause cancellation thereof, even without court intervention. In other
previously acknowledged in the instrument. Later, UP informed ALUMCO that it words, it is not always necessary for the injured party to resort to court for rescission of
considered the logging agreement rescinded. the contract.”
Before the CFI-QC, UP filed a complaint against ALUMCO for the payment of the Of course, it must be understood that the act of party in treating a contract as cancelled
unpaid accounts. UP later obtained writs for preliminary attachment and preliminary or resolved on account of infractions by the other contracting party must be made known
injunction restraining ALUMCO from continuing its logging operations in the Land to the other and is always provisional, being ever subject to scrutiny and review by the
Grant. Several motions to discharge the writs of attachment and preliminary injunction proper court. If the other party denies that rescission is justified, it is free to resort to
ALUMCO but were denied by the court; judicial action on its own behalf and bring the matter to court. Then, should the court,
after due hearing, decide that the resolution of the contract was not warranted, the
Prior to the issuance of the preliminary injunction, UP invited other concessionaires to responsible party will be sentenced to damages; in the contrary case, the resolution will
bid and take over the logging operation which prompted ALUMCO to file a petition to be affirmed, and the consequent indemnity awarded to the party prejudiced.
enjoin UP from conducting such bidding. After the bidding, a logging contract was
entered into by UP and Sta. Clara Lumber Company, Inc. on 16 February 1966 which In other words, the party who deems the contract violated may consider it resolved or
awarded to the latter the logging concession. rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively
On 25 February 1966, respondent Judge de los Angeles issued its first order enjoining and finally settle whether the action taken was or was not correct in law. But the law
UP from awarding logging rights over the concession to any other party which was definitely does not require that the contracting party who believes itself injured must
received by UP after it had concluded its contract with Sta. Clara, and the ompany started first file suit and wait for a judgment before taking extrajudicial steps to protect its
logging operations. Another order was issued which declared UP in contempt of court interest. Otherwise, the party injured by the other's breach will have to passively sit and
and directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights watch its damages accumulate during the pendency of the suit until the final judgment
or conducting logging operations in the concession. A MR filed by UP was likewise of rescission is rendered when the law itself requires that he should exercise due
denied. Hence, this petition. diligence to minimize its own damages (Civil Code, Article 2203).
CIVIL LAW REVIEW 2
In every case where the extrajudicial resolution of a reciprocal obligation is contested Avellana appealed to the Court of First Instance of Rizal presided by respondent Judge
only the final award of the court of competent jurisdiction can conclusively settle Mariano. Judge dismissed the case on the ground of lack of jurisdiction of the Municipal
whether the resolution was proper or not. It is in this sense that judicial action will be Court.
necessary, as without it, the extrajudicial resolution will remain contestable and subject
to judicial invalidation, unless attack thereon should become barred by acquiescence, ISSUE: Whether or not the Municipal Court of Pasig has jurisdiction over the case.
estoppel or prescription.
RULING: No. Upon a review of the attendant circumstances, we uphold the ruling of
The Court recognized that UP’s complaint made out a prima facie case of breach of respondent Judge that the Municipal Court of Pasig was bereft of jurisdiction to take
contract and defaults in payment and the excuses offered by ALUMCO do not constitute cognizance of the case filed before it. In his Complaint, petitioner had alleged violation
on their face sufficient excuse for non-payment. by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally
considered the contract rescinded. Respondent Avellana denied any breach on his part
Zulueta v. Mariano and argued that the principal issue was one of interpretation and/or rescission of the
G.R. No. L – 29360 January 30, 1982 Melencio – Herrera, J. contract as well as of set-off. Under those circumstances, proof of violation is a condition
precedent to resolution or rescission. It is only when the violation has been established
that the contract can be declared resolved or rescinded. Upon such rescission, in turn,
DOCTRINE: Even if the contract between the parties provided for extrajudicial hinges a pronouncement that possession of the realty has become unlawful. Thus, the
rescission, this has legal effect only where the other party does not oppose it. Where basic issue is not possession but one of rescission or annulment of a contract, which is
it is objected to, a judicial determination of the issue is still necessary. beyond the jurisdiction of the Municipal Court to hear and determine.
NATURE OF ACTION: Action for Mandamus and Prohibition seeking to compel A violation by a party of any of the stipulations of a contract on agreement to sell real
respondent Judge to assume appellate, not original, jurisdiction over an Ejectment case property would entitle the other party to resolve or rescind it. An allegation of such
appealed from the Municipal Court of Pasig and to issue a Writ of Execution in said violation in a detainer suit may be proved by competent evidence. And if proved a justice
case. of the peace court might make a finding to that effect, but it certainly cannot declare and
hold that the contract is resolved or rescinded. It is beyond its power so to do. And as
FACTS: Petitioner Zulueta and private respondent Lamberto Avellana, entered into a the illegality of the possession of realty by a party to a contract to sell is premised upon
"Contract to Sell" of a property for P75,000.00 payable in twenty years. Avellana the resolution of the contract, it follows that an allegation and proof of such violation, a
occupied the property but the title remained with petitioner Zulueta. condition precedent to such resolution or rescission, to render unlawful the possession
of the land or building erected thereon by the party who has violated the contract, cannot
Upon the allegation that respondent Avellana had failed to comply with the monthly be taken cognizance of by a justice of the peace court.
amortizations stipulated in the contract, despite demands to pay and to vacate the
premises, and that thereby the contract was converted into one of lease, petitioner, True, the contract between the parties provided for extrajudicial rescission. This has
commenced an Ejectment suit against respondent before the Municipal Court of Pasig. legal effect, however, where the other party does not oppose it. Where it is objected to,
Avellana controverted by contending that the Municipal Court had no jurisdiction over a judicial determination of the issue is still necessary.
the nature of the action as it involved the interpretation and/or rescission of the contract;
that prior to the execution of the contract to sell, petitioner was already indebted to him. A stipulation entitling one party to take possession of the land and building if the other
The Municipal Court found that Avellana had failed to comply with his financial party violates the contract does not ex proprio vigore confer upon the former the right
obligations under the contract and ordered him to vacate the premises and deliver to take possession thereof if objected to without judicial intervention and determination.
possession thereof to Zulueta.
CIVIL LAW REVIEW 2
Palay, Inc. v. Clave President of the corporation, jointly and severally, to refund immediately to Nazario
G.R. No. L – 56076 September 21, 1983 Melencio – Herrera, J. Dumpit. Petitioners appealed but subsequently denied for lack of merit.
Petitioners maintain that it was justified in cancelling the contract to sell without prior
DOCTRINE: Well settled is the rule, as held in previous jurisprudence, that judicial notice or demand upon respondent in view of paragraph 6 thereof which provides-
action for the rescission of a contract is not necessary where the contract provides “6. That in case the BUYER falls to satisfy any monthly installment or any
that it may be revoked and cancelled for violation of any of its terms and conditions. other payments herein agreed upon, the BUYER shall be granted a month
of grace within which to make the payment of the t in arrears together with
NATURE OF ACTION: Petition assailing the Resolution, dated May 2, 1980, issued the one corresponding to the said month of grace. -It shall be understood,
by Presidential Executive Assistant Jacobo Clave in O.P. Case No. 1459, directing however, that should the month of grace herein granted to the BUYER
petitioners Palay, Inc. and Alberto Onstott jointly and severally, to refund to private expire, without the payment & corresponding to both months having been
respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest per annum. satisfied, an interest of ten (10%) per cent per annum shall be charged on
the amounts the BUYER should have paid; it is understood further, that
FACTS: On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott should a period of NINETY (90) DAYS elapse to begin from the expiration
executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of of the month of grace hereinbefore mentioned, and the BUYER shall not
Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo, Rizal, have paid all the amounts that the BUYER should have paid with the
with an area of 1,165 square meters, - covered by TCT No. 90454, and owned by said corresponding interest up to the date, the SELLER shall have the right to
corporation. The sale price was P23,300.00 with 9% interest per annum, payable with a declare this contract cancelled and of no effect without notice, and as a
downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. consequence thereof, the SELLER may dispose of the lot/lots covered by
Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default this Contract in favor of other persons, as if this contract had never been
in payment of any monthly installment after the lapse of 90 days from the expiration of entered into. In case of such cancellation of this Contract, all the amounts
the grace period of one month, without need of notice and with forfeiture of all which may have been paid by the BUYER in accordance with the agreement,
installments paid. together with all the improvements made on the premises, shall be
considered as rents paid for the use and occupation of the above mentioned
Respondent Dumpit paid the downpayment and several installments amounting to premises and for liquidated damages suffered by virtue of the failure of the
P13,722.50. The last payment was made on December 5, 1967 for installments up to BUYER to fulfill his part of this agreement : and the BUYER hereby
September 1967. renounces his right to demand or reclaim the return of the same and further
obligates peacefully to vacate the premises and deliver the same to the
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner SELLER.”
offering to update all his overdue accounts with interest, and seeking its written consent
to the assignment of his rights to a certain Lourdes Dizon. He followed this up with ISSUE: Whether or not notice or demand is mandatory under the circumstances and,
another letter dated June 20, 1973 reiterating the same request. Replying petitioners therefore, may be dispensed with by stipulation in a contract to sell.
informed respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold. RULING: Well settled is the rule, as held in previous jurisprudence, that judicial action
for the rescission of a contract is not necessary where the contract provides that it may
Questioning the validity of the rescission of the contract, respondent filed a letter be revoked and cancelled for violation of any of its terms and conditions. However, even
complaint with the National Housing Authority (NHA) for reconveyance with an in the cited cases, there was at least a written notice sent to the defaulter informing him
alternative prayer for refund. NHA finds the rescission void in the absence of either of the rescission.
judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as
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As stressed in University of the Philippines vs. Walfrido de los Angeles which held that may also seek rescission, even after he has chosen fulfillment, if the latter
the act of a party in treating a contract as cancelled or resolved in account of infractions should become impossible.”
by the other contracting party must be made known to the other and is always provisional
being ever subject to scrutiny and review by the proper court. If the other party denies NATURE OF ACTION: This is an appeal from the decision of the Court of First
that rescission is justified it is free to resort to judicial action in its own behalf, and bring Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to sell as
the matter to court. Then, should the court, after due hearing, decide that the resolution not having been validly cancelled and ordering the defendants-appellants to execute a
of the contract was not warranted, the responsible party will be sentenced to damages; final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney’s fees and
in the contrary case, the resolution will be affirmed, and the consequent indemnity costs.
awarded to the party prejudiced.
FACTS: Defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and
In other words, the party who deems the contract violated may consider it resolved or plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to
rescinded, and act accordingly, without previous court action, but it proceeds at its own sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest
risk. For it is only the final judgment of the corresponding court that will conclusively per annum.
and finally settle whether the action taken was or was not correct in law. But the law
definitely does not require that the contracting party who believes itself injured must The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the
first file suit and wait for a judgment before taking extrajudicial steps to protect its contract. The promised to pay the balance in monthly installments of P41.20 until fully
interest. Otherwise, the party injured by the other’s breach will have to passively sit and paid.
watch its damages accumulate during the pendency of the suit until the final judgment
of rescission is rendered when the law itself requires that he should exercise due On January 28, 1967, the defendants-appellants cancelled the said contract because the
diligence to minimize its own damages. plaintiffs-appellees failed to meet subsequent payments.
Moreover, there was no waiver on the part of the private respondent of his right to be The plaintiffs-appellees filed a civil case to compel the defendants-appellants to execute
notified under paragraph 6 of the contract since it was a contract of adhesion, a standard in their favorthe final deed of sale alleging inter alia that after computing all subsequent
form of petitioner corporation, and private respondent had no freedom to stipulate. payments for the land in question, they found out that they have already paid the total
Finally, it is a matter of public policy to protect buyers of real estate on instalment amount of P4,533.38 including interests, realty taxes and incidental expenses for the
payments against onerous and oppressive conditions. Waiver of notice is one such registration and transfer of the land.
onerous and oppressive condition to buyers of real estate on instalment payments.
The lower court ruled in favor of the plaintiffs-appellees.
Angeles v. Calasanz
G.R. No. L – 42283 March 18, 1985 Gutierrez, Jr., J. ISSUE: Whether the contract to sell has been automatically and validly cancelled by the
defendants-appellants?
DOCTRINE: Article 1191 of the Civil Code on the recission of reciprocal
obligations provides: RULING: NO. Article 1191 of the Civil Code on the recission of reciprocal obligations
“The power to rescind obligations is implied in reciprocal ones, in case one provides:
of the obligors should not comply with what is incumbent upon him. “The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.
“That the injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He “That the injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He
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may also seek rescission, even after he has chosen fulfillment, if the latter Boysaw v. Interphil Promotions
should become impossible.” G.R. No. L – 22590 March 20, 1987 Fernan, J
Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the
contract upon the failure of the other to perform the obligation assumed thereunder. DOCTRINE: While the contract imposed no penalty for such violation, this does
Moreover, there is nothing in the law that prohibits the parties from entering into an not grant any of the parties the unbridled liberty to breach it with impunity. Our law
agreement that violation of the terms of the contract would cause its cancellation even on contracts recognizes the principle that actionable injury inheres in every
without court intervention. contractual breach.
“Well settled is, however, the rule that a judicial action for the rescission of NATURE OF ACTION: A Motion for New Trial was denied based from another
a contract is not necessary where the contract provides that it may be decision by the court ruling that damages be awarded to defendant
revoked and cancelled for violation of any of its terms and conditions’
FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
“Resort to judicial action for rescission is obviously not contemplated…The Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash"
validity of the stipulation can not be seriously disputed. It is in the nature of Elorde in a boxing contest for the junior lightweight championship of the world. It was
a facultative resolutory condition which in many cases has been upheld by stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on
this Court.” September 30, 1961 or not later than thirty [30] days thereafter should a postponement
be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing
The right to rescind the contract for non-performance of one of its stipulations, therefore, contest, engage in any other such contest without the written consent of Interphil
is not absolute. In Universal Food Corp. v. Court of Appeals the Court stated that - Promotions, Inc. A supplemental agreement on certain details not covered by the
“The general rule is that rescission of a contract will not be permitted for a principal contract was entered into by Ketchum and Interphil. Thereafter, Interphil
slight or casual breach, but only for such substantial and fundamental breach signed Gabriel "Flash" Elorde to a similar agreement, that is, to engage Boysaw in a title
as would defeat the very object of the parties in making the agreement. The fight at the Rizal Memorial Stadium on September 30, 1961.
question of whether a breach of a contract is substantial depends upon the
attendant circumstances.” Alfredo Yulo, Jr. wrote to Sarreal, informing him of his acquisition of the managerial
rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing
The breach of the contract adverted to by the defendants-appellants is so slight and contract of May 1, 1961. On the same date, on behalf of Interphil, Sarreal wrote a letter
casual when we consider that apart from the initial down payment of P392.00 the to the Games and Amusement Board [GAB] expressing concern over reports that there
plaintiffs-appellees had already paid the monthly installments for a period of almost nine had been a switch of managers in the case of Boysaw, of which he had not been formally
years. In other words, in only a short time, the entire obligation would have been paid. notified, and requesting that Boysaw be called to an inquiry to clarify the situation.
Furthermore, although the principal obligation was only P3,920.00 excluding the 7
percent interests, the plaintiffs-appellees had already paid an aggregate amount of Yulo, Jr. refused to accept the change in the ght date, maintaining his refusal even after
P4,5333.38. To sanction the rescission made by the defendants-appellants will work Sarreal on September 26, 1961, offered to advance the ght date to October 28, 1961
injustice to the plaintiffs-appellees. It would unjustly enrich the defendants-appellants. which was within the 30-day period of allowable postponements provided in the
principal boxing contract of May 1, 1961. Early in October 1961, Yulo, Jr. exchanged
communications with one Mamerto Besa, a local boxing promoter, for a possible
promotion of the projected Elorde-
CIVIL LAW REVIEW 2
Boysaw title bout. In one of such communications dated October 6, 1961, Yulo informed Pilipans Bank v. IAC
Besa that he was willing to approve the fight date of November 4, 1961 provided the G.R. No. L – 67881 June 30, 1987 Paras, J.
same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the ght contemplated in the May DOCTRINE: A contractual provision allowing "automatic rescission" (without
1, 1961 boxing contract never materialized. Boysaw and Yulo, Jr. sued Interphil, Sarreal, prior need of judicial rescission, resolution or cancellation) is VALID
Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, NATURE OF ACTION: Appeal by certiorari
Jr., then GAB Chairman, to honor their commitments under the boxing contract of May
1, 1961. FACTS: Hacienda Benito, Inc., as vendor, and private respondents Jose Diokno and
Carmen Diokno, as vendees executed a Contract to Sell over a parcel of land of Victoria
After the lower court rendered its judgment dismissing the plaintiffs' complaint, the Valley Subdivision in Antipolo, Rizal for the total price of P47,488.00, subject to an
plaintiffs moved for a new trial. The motion was denied, hence, this appeal taken directly automatic rescission clause:
to this Court by reason of the amount involved. “(e) The contract shall be considered automatically rescinded and cancelled
and of no further force and effect upon failure of the vendee to pay when
ISSUE: Whether or not there was a violation of the fight contract of May 1, 1961; and due, three or more consecutive installments as stipulated therein or to
if there was, who was guilty of such violation. comply with any of the terms and conditions thereof, in which case the
vendor shall have right to resell the said parcel of land to any person
RULING: The evidence established that the contract was violated by appellant Boysaw interested, forfeiting payments made by the vendee as liquidated damages.”
himself when, without the approval or consent of Interphil, he fought Louis Avila on
June 19, 1961 in Las Vegas, Nevada. Appellant Yulo admitted this fact during the trial. Petitioner sent private respondents a demand letter showing total arrearages of 20
[pp. 26-27, t.s.n., March 14, 1963]. While the contract imposed no penalty for such months, advising that unless they up-date their instalment payments, petitioner shall be
violation, this does not grant any of the parties the unbridled liberty to breach it with constrained to avail of the automatic rescission clause.
impunity. Our law on contracts recognizes the principle that actionable injury inheres in
every contractual breach. From May 1967 to September 1967, private respondents made partial payments with the
request for extension from within which to up-date their account.
There is no doubt that the contract in question gave rise to reciprocal obligations.
"Reciprocal obligations are those which arise from the same cause, and in which each Private respondents failed to update their arrearages.
party is a debtor and a creditor of the other, such that the obligation of one is dependent
upon the obligation of the other. They are to be performed simultaneously, so that the On July 1973, private respondents wrote a letter to petitioner expressing their desire to
performance of one is conditioned upon the simultaneous fulfillment of the other. fully settle their obligation, requesting for a complete statement of all the balance due
including interests.
The power to rescind is given to the injured party. "Where the plaintiff is the part who
did not perform the undertaking which he was bound by the terms of the agreement to Petitioner wrote a letter to private respondents informing them that the contract to sell
perform, he is not entitled to insist upon the performance of the contract by the has been rescinded/cancelled.
defendant, or recover damages by reason of his own breach.
Private respondents filed a complaint for Specific Performance with Damages to compel
petitioner to execute a deed of sale in their favor, and to deliver to them the title of the
lot in question.
CIVIL LAW REVIEW 2
Petitioner filed an answer, claiming the Contract to Sell has been automatically
rescinded and cancelled by virtue of private respondent’s failure to pay the instalments On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made
due in the contract under the automatic rescission clause. by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the
The lower court rendered a decision in favor of private respondents, holding that date of execution of the contract at semi-annual installments of P3,459.00. But on July
petitioner could not rescind the contract to sell, because petitioner waived the automatic 23, 1965, the Bank informed Tolentino that there was no fund yet available for the
rescission clause by accepting payment and by sending letters advising private release of the P63,000.00 balance.
respondents of the balances due, thus, looking forward to receiving payments.
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island
Said decision was affirmed on appeal. Hence, this petition for review for Certiorari. Savings Bank was suffering liquidity problems, issued Resolution No. 1049 prohibits
the bank from making new loans and investments.
ISSUE: Whether or not the Contract to Sell was rescinded or cancelled, under the
automatic rescission clause constrained therein. On June 14, 1968, the Monetary Board, after finding that Island Savings Bank failed to
put up the required capital to restore its solvency, issued Resolution No. 967 which
RULING: NO. A contractual provision allowing "automatic rescission" (without prior prohibited Island Savings Bank from doing business in the Philippines and instructed
need of judicial rescission, resolution or cancellation) is VALID, the remedy of one who the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank.
feels aggrieved being to go to Court for the cancellation of the rescission itself, in case On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00
the rescission is found unjustified under the circumstances, still in the instant case there covered by the promissory note, filed an application for the extra-judicial foreclosure of
is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the
many extensions granted private respondents by the petitioner. In all these extensions, sheriff scheduled the auction for January 22, 1969.
the petitioner never called attention to the proviso on "automatic rescission."
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First
Central Bank v. CA Instance of Agusan for injunction, specific performance or rescission and damages with
G.R. No. L – 45710 October 3, 1985 Makasiar, C.J. preliminary injunction. On January 21, 1969, the trial court, upon the filing of a
P5,000.00 surety bond, issued a temporary restraining order enjoining the Island Savings
Bank from continuing with the foreclosure of the mortgage.
DOCTRINE: When both parties were in default in the performance of their
respective reciprocal obligations, they are both liable for damages. Article 1192 of ISSUES:
the Civil Code provides that in case both parties have committed a breach of their 1. Whether or not the action of Tolentino for specific performance will prosper
reciprocal obligations, the liability of the first infractor shall be equitably tempered 2. Whether or not the REM may be foreclosed because of non-payment of the
by the courts. 17,000 debt by Tolentino
NATURE OF ACTION: Petition for review on certiorari to set aside as null and void RULINGS:
the decision of the Court of Appeals 1. No since Island Savings Bank is now prohibited from doing further business
by Monetary Board Resolution No. 967.
FACTS: On April 28, 1965, Island Savings Bank approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan
same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal
Agusan. The approved loan application called for a lump sum P80,000.00 loan, obligations, the obligation or promise of each party is the consideration for that of the
repayable in semi-annual installments for a period of 3 years, with 12% annual interest. other, and when one party has performed or is ready and willing to perform his part of
CIVIL LAW REVIEW 2
the contract, the other party who has not performed or is not ready and willing to perform Since both parties were in default in the performance of their respective reciprocal
incurs in delay (Art. 1169 of the Civil Code). obligations, that is, Island Savings Bank failed to comply with its obligation to furnish
the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino
executed a real estate mortgage on April 28, 1965, he signified his willingness to pay Article 1192 of the Civil Code provides that in case both parties have committed a breach
the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish of their reciprocal obligations, the liability of the first infractor shall be equitably
the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started tempered by the courts. WE rule that the liability of Island Savings Bank for damages
on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00
Savings Bank from doing further business. Such prohibition made it legally impossible debt.
for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan.
2. Yes, but not entirely. The real estate mortgage of Sulpicio M. Tolentino cannot
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default be entirely foreclosed to satisfy his P 17,000.00 debt.
of Island Savings Bank in complying with its obligation of releasing the P63,000.00
balance because said resolution merely prohibited the Bank from making new loans and The consideration of the accessory contract of real estate mortgage is the same as that
investments, and nowhere did it prohibit island Savings Bank from releasing the balance of the principal contract. For the debtor, the consideration of his obligation to pay is the
of loan agreements previously contracted. existence of a debt. Thus, in the accessory contract of real estate mortgage, the
consideration of the debtor in furnishing the mortgage is the existence of a valid,
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code).
their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with damages in either case. But The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no
since Island Savings Bank is now prohibited from doing further business by Monetary consideration was then in existence, as there was no debt yet because Island Savings
Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio Bank had not made any release on the loan, does not make the real estate mortgage void
M, Tolentino. for lack of consideration. It is not necessary that any consideration should pass at the
time of the execution of the contract of real mortgage. lt may either be a prior or
Rescission is the only alternative remedy left. WE rule, however, that rescission is only subsequent matter. But when the consideration is subsequent to the mortgage, the
for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only mortgage can take effect only when the debt secured by it is created as a binding contract
insofar as such amount is concerned, as there is no doubt that the bank failed to give the to pay. And, when there is partial failure of consideration, the mortgage becomes
P63,000.00. unenforceable to the extent of such failure. Where the indebtedness actually owing to
the holder of the mortgage is less than the sum named in the mortgage, the mortgage
As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and cannot be enforced for more than the actual sum due.
executed a promissory note to cover it, the bank was deemed to have complied with its
reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00
Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such
due. extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering
100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering
His failure to pay the overdue amortizations under the promissory note made him a party the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
in default, hence not entitled to rescission (Article 1191 of the Civil Code). hectares is more than sufficient to secure a P17,000.00 debt.
CIVIL LAW REVIEW 2
Unlad Resources Development v. Dragon

G.R. No. 149338 July 28, 2008 Nachura, J. On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the]
Central Bank's approval to retire its [Development Bank of the Philippines] preferred
shares in the amount of P219,000.00 and giving notice for subscription to proportionate
DOCTRINE: In reciprocal obligations, the injured party may choose between the shares. The [respondents] objected on the grounds that there is already a sinking fund
fulfillment and the rescission of the obligation, with the payment of damages in either for the retirement of the said DBP-held preferred shares provided for annually and that
case. He may also seek rescission, even after he has chosen fulfillment, if the latter it could deprive the Rural Bank of a cheap source of fund. This prompted [respondents]
should become impossible. in alleging compliance with all of petitioners obligations under the Memorandum of
Agreement, claiming that [respondents] have transferred control and management over
Rescission has the effect of "unmaking a contract, or its undoing from the beginning, the Rural bank to the [petitioners] and are ready, willing and able to allow [petitioners]
and not merely its termination.” Hence, rescission creates the obligation to return the to subscribe to a minimum of four hundred eighty thousand (P480,000.00) (sic) common
object of the contract. It can be carried out only when the one who demands rescission or preferred non-voting shares of stocks with a total par value of four million eight
can return whatever he may be obliged to restore. hundred thousand pesos (P4,800,000.00) in the Rural Bank. However, [petitioners] have
failed and refused to subscribe to the said shares of stock and to pay the initial amount
NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 seeking of one million two hundred thousand pesos (P1,200,000.00) for said subscription.
reversal of CA decision
On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of
FACTS: On December 29, 1981, the Plaintiffs (herein respondents - Dragon et al) and Makati City, Branch 61 a Complaint for rescission of the agreement and the return of
defendant (herein petitioner) Unlad Resources entered into a Memorandum of control and management of the Rural Bank from petitioners to respondents, plus
Agreement wherein it is provided that respondents Dragon et al, as controlling damages. After trial, the RTC rendered a Decision in favor of respondents, rescinding
stockholders of the Rural Bank Noveleta shall allow Unlad Resources to invest four the memorandum of agreement and granting the payment of damages.
million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank in the form of
additional equity. Petitioners appealed the ruling to the CA however, the CA, in a Decision dated
November 29, 2000, dismissed the appeal for lack of merit and affirmed the RTC
On the other hand, [petitioner] Unlad Resources bound itself to invest the said amount decision. Petitioners' motion for reconsideration was denied in CA Resolution dated
of 4.8 million pesos in the Rural Bank. Upon signing it was likewise agreed that August 2, 2001. Hence this Petition for Review on Certiorari under Rule 45.
[petitioner] Unlad Resources shall subscribe to a minimum of four hundred eighty
thousand pesos (P480,000.00) (sic) common or preferred non-voting shares of stock Petitioners question the jurisdiction of the trial court, something they have done from
with a total par value of four million eight hundred thousand pesos (P4,800,000.00) and the beginning of the controversy, contending that the issues that respondents raised
pay up immediately one million two hundred thousand pesos (P1,200,000.00) for said before the trial court are intra-corporate in nature and are, therefore, beyond the
subscription; that the [respondents], upon the signing of the said agreement shall transfer jurisdiction of the trial court. They point out that respondents' complaint charged them
control and management over the Rural Bank to Unlad Resources. According to the with mismanagement and alleged dissipation of the assets of the Rural Bank. Petitioners
[respondents], immediately after the signing of the agreement, they complied with their further argue that the action instituted by respondents had already prescribed, because
obligation and transferred control of the Rural Bank to Unlad Resources. However, Article 1389 of the Civil Code provides that an action for rescission must be commenced
[respondents] claim that despite repeated demands, Unlad Resources has failed and within four years. They claim that the trial court and the CA mistakenly applied Article
refused to comply with their obligation under the said Memorandum of Agreement when 1144 of the Civil Code which treats of prescription of actions in general. They submit
it did not invest four million eight hundred thousand pesos (P4,800,000.00) in the Rural that Article 1389, which deals specifically with actions for rescission, is the applicable
Bank in the form of additional equity and, likewise, it failed to immediately infuse one law.
million two hundred thousand pesos (P1,200,000.00) as paid in capital upon signing of
the Memorandum of Agreement.
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Moreover, petitioners assert that they have fully complied with their undertaking under But in the course of things, it was the respondents who availed of the remedy under
the subject Memorandum of Agreement, but that the undertaking has become a "legal Article 1191, opting for the rescission of the Agreement in order to regain control of the
and factual impossibility" because the authorized capital stock of the Rural Bank was Rural Bank.
increased from P1.7 million to only P5 million, and could not accommodate the
subscription by petitioners of P4.8 million worth of shares. Rescission has the effect of "unmaking a contract, or its undoing from the beginning,
and not merely its termination.” Hence, rescission creates the obligation to return the
On the other hand, respondents declare that immediately after the signing of the object of the contract. It can be carried out only when the one who demands rescission
Memorandum of Agreement, they complied with their obligation and transferred control can return whatever he may be obliged to restore. To rescind is to declare a contract void
of the Rural Bank to petitioner Unlad Resources and its nominees, but that, despite at its inception and to put an end to it as though it never was. It is not merely to terminate
repeated demands, petitioners have failed and refused to comply with their concomitant it and release the parties from further obligations to each other, but to abrogate it from
obligations under the Agreement. the beginning and restore the parties to their relative positions as if no contract has been
made.
ISSUES:
1. Whether or not Petitioners were in breach of their obligation which entitles Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was
respondents to rescind the Memorandum of Agreement? (Issue related to CIV2 just cause for rescission. With the contract thus rescinded, the parties must be restored
- Remedies for Breach of Obligation) to the status quo ante, that is, before they entered into the Memorandum of Agreement.
2. Whether or not the CA erred in affirming that the RTC had jurisdiction over
the case? 2. No. The law in force at the time of the filing of the case was Presidential Decree
3. Whether or not the action instituted by respondents had already prescribed as (P.D.) 902-A, Section 5(b) of which vested the Securities and Exchange
provided in Article 1389? Commission with original and exclusive jurisdiction to hear and decide cases
involving controversies arising out of intra-corporate relations.
RULINGS:
1. Yes. There is no question that petitioners herein failed to fulfill their obligation Sec. 5. In addition to the regulatory and adjudicative functions of the
under the Memorandum of Agreement. Even they admit the same, albeit laying Securities and Exchange Commission over corporations, partnerships and
the blame on respondents. It is true that respondents increased the Rural Bank's other forms of associations registered with it as expressly granted under
authorized capital stock to only P5 million, which was not enough to existing laws and decrees, it shall have original and exclusive jurisdiction
accommodate the P4.8 million worth of stocks that petitioners were to to hear and decide cases involving:
subscribe to and pay for. However, respondents' failure to fulfill their
undertaking in the agreement would have given rise to the scenario b) Controversies arising out of intra-corporate or partnership relations,
contemplated by Article 1191 of the Civil Code, which reads: between and among stockholders, members, or associates; between any or
Article 1191. The power to rescind reciprocal obligations is implied all of them and the corporation, partnership or association of which they
in reciprocal ones, in case one of the obligors should not comply with are stockholders, members or associates, respectively; and between such
what is incumbent upon him. corporation, partnership or association and the state insofar as it concerns
their individual franchise or right to exist as such entity;
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, Be that as it may, this point has been rendered moot by Republic Act (R.A.) No. 8799,
even after he has chosen fulfillment, if the latter should become impossible. also known as the Securities Regulation Code. This law, which took effect in 2000, has
transferred jurisdiction over such disputes to the RTC.
Thus, petitioners should have exacted fulfillment from the respondents or asked for the
rescission of the contract instead of simply not performing their part of the Agreement. Specifically, R.A. 8799 provides:
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Powers and Functions - The Commission's jurisdiction over all cases The Memorandum of Agreement subject of this controversy does not fall under the
enumerated under Section 5 of Presidential Decree No. 902-A is hereby above enumeration. Accordingly, the prescriptive period that should apply to this case
transferred to the Courts of general jurisdiction or the appropriate is that provided for in Article 1144:
Regional Trial Court: Provided, That the Supreme Court in the exercise of Article 1144. The following actions must be brought within ten years from
its authority may designate the Regional Trial Court branches that shall the time the right of action accrues:
exercise jurisdiction over these cases. The Commission shall retain
jurisdiction over pending cases involving intra-corporate disputes (1) Upon a written contract;
submitted for final resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall retain jurisdiction Based on the records of this case, the action was commenced on July 3, 1987, while the
over pending suspension of payments/rehabilitation cases filed as of 30 Memorandum of Agreement was entered into on December 29, 1981. Article 1144
June 2000 until finally disposed. specifically provides that the 10-year period is counted from "the time the right of action
accrues." The right of action accrues from the moment the breach of right or duty occurs.
Consequently, whether the cause of action stems from a contractual dispute or one that Thus, the original Complaint was filed well within the prescriptive period.
involves intra-corporate matters, the RTC already has jurisdiction over this case.
Swire Realty Dev’t Corp. v. Jayne Yu
3. No. In a previous case this Court has held that Article 1389 applies to G.R. No. 207133 March 9, 2015 Peralta, J. .
rescissible contracts, as enumerated and defined in Articles 1380 and 1381. We
must stress however, that the "rescission" in Article 1381 is not akin to the term
"rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the DOCTRINE: Basic is the rule that the right of rescission of a party to an obligation
rescission is a principal action which seeks the resolution or cancellation of the under Article 1191 of the Civil Code is predicated on a breach of faith by the other
contract while in Article 1381, the action is a subsidiary one limited to cases of party who violated the reciprocity between them.
rescission for lesion as enumerated in said article.
NATURE OF ACTION: Petition for review on certiorari under Rule 45 which seeks
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found to reverse and set aside the decision and resolution of the CA
in Article 1144, which provides that the action upon a written contract should be brought
within ten years from the time the right of action accrues. FACTS: Respondent Jayne Yu and petitioner Swire Realty Development Corporation
entered into a Contract to Sell on July 25, 1995 covering one residential condominium
Under article 1381, the following contracts are rescissible: unit for a total contract price of P7,519,371.80, payable in equal monthly installments
(1) Those which are entered into by guardians whenever the wards whom until September 24, 1997. Respondent likewise purchased a parking slot in the same
they represent suffer lesion by more than one-fourth of the value of the condominium building for P600,000.00. On September 24, 1997, respondent paid the
things which are the object thereof; full purchase price for the unit while making a downpayment of P20,000.00 for the
(2) Those agreed upon in representation of absentees, if the latter suffer the parking lot. However, notwithstanding the full payment of the contract price, petitioner
lesion stated in the preceding number; failed to complete and deliver the subject unit on time. This prompted respondent to file
(3) Those undertaken in fraud of creditors when the latter cannot in any a Complaint for Rescission of Contract with Damages before the HLURB Expanded
other manner collect the claims due them; National Capital Region Field Office (ENCRFO). HLURB ENCRFO rendered a
(4) Those which refer to things under litigation if they have been entered decision dismissing the respondent’s complaint and ruling that rescission is not
into by the defendant without the knowledge and approval of the litigants permitted for slight or casual breach of the contract but only for such breaches as are
or of competent judicial authority; substantial and fundamental as to defeat the object of the parties in making the
(5) All other contracts specially declared by law to be subject to rescission. agreement. The HLURB Board of Commissioners reversed and set aside the ruling of
the HLURB ENCRFO and ordered the rescission of the Contract to Sell on the ground
CIVIL LAW REVIEW 2
that the delay in the completion of the project as well as of the delay in the delivery of transfer of title to the prospective buyer is not automatic. "The prospective seller
the unit are breaches of statutory and contractual obligations which entitles the rescission [must] convey title to the property [through] a deed of conditional sale."
the of the contract, demand of a refund and payment of damages.
NATURE OF ACTION: Petition for review on certiorari of the decision and resolution
ISSUE: Whether or not the rescission of the contract is proper in this case of the Court of Appeals.
RULING: Article 1191 of the Civil Code sanctions the right to rescind the obligation FACTS: Benjamin Castillo was the registered owner of a 346,918 - square meter parcel
in the event that specific performance becomes impossible. Basic is the rule that the of land located in Laurel, Batangas.. The Philippine Tourism Authority allegedly
right of rescission of a party to an obligation under Art. 1191 of the Civil Code is claimed ownership of the same parcel of land based on Transfer Certificate of Title No.
predicated on a breach of faith by the other party who violates the reciprocity between T-18493. On April 5, 2000, Castillo and Olivarez Realty Corporation, represented by
them. The breach contemplated in the said provision is the obligor’s failure to comply Dr. Pablo R. Olivarez, entered into a contract of conditional sale over the property.
with an existing obligation. When the obligor cannot comply with what is incumbent Under the deed of conditional sale, Castillo agreed to sell his property to Olivarez Realty
upon it, the obligee may seek rescission and, in the absence of any just cause for the Corporation for P19,080,490.00. Olivarez Realty Corporation agreed to a down payment
court to determine the period of compliance, the court shall decree the rescission. of P5,000,000.00, in which a schedule for payment was made. As to the balance of
P14,080,490.00, Olivarez Realty Corporation agreed to pay in 30 equal monthly
In the instance case, the CA aptly found that the completion date of the condominium installments every eighth day of the month beginning in the month that the parties would
unit was November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 receive a decision voiding the Philippine Tourism Authority’s title to the property.
but was extended to December 1999 as per License No. 99-05-3401 dated May 8, 1999.
However, at the time of the ocular inspection conducted by the HLURB ENCRFO, the On September 2, 2004, Castillo filed a complaint against Olivarez Realty Corporation
unit was not yet completely finished as the kitchen cabinets and fixtures were not yet and Dr. Olivarez with the Regional Trial Court of Tanauan City, Batangas.Castillo
installed and the agreed amenities were not yet available. Incontovertibly, petitioner had alleged that Dr. Olivarez convinced him into selling his property to Olivarez Realty
incurred delay in the performance of its obligation amounting to breach of contract as it Corporation on the representation that the corporation shall be responsible in clearing
failed to finish and deliver the unit to respondent within the stipulated period. The delay the property of the tenants and in paying them disturbance compensation. He further
in the completion of the project as well as of the delay in the delivery of the unit are alleged that Dr. Olivarez solely prepared the deed of conditional sale and that he was
breaches of statutory and contractual obligations which entitle respondent to rescind the made to sign the contract with its terms "not adequately explained [to him] in Tagalog."
contract, demand a refund, and payment of damages.
After the parties had signed the deed of conditional sale, Olivarez Realty Corporation
Olivarez Realty v. Castillo immediately took possession of the property. However, the corporation only paid
G.R. No. 196251 July 9, 2014 Leonen, J. 2,500,000.00 of the purchase price. Contrary to the agreement, the corporation did not
file any action against the Philippine Tourism Authority to void the latter’s title to the
DOCTRINE: In both contracts to sell and contracts of conditional sale, title to the property. The corporation neither cleared the land of the tenants nor paid them
property remains with the seller until the buyer fully pays the purchase price. Both disturbance compensation. Despite demand, Olivarez Realty Corporation refused to
contracts are subject to the positive suspensive condition of the buyer’s full payment fully pay the purchase price.
of the purchase price.
Arguing that Olivarez Realty Corporation committed substantial breach of the contract
In a contract of conditional sale, the buyer automatically acquires title to the property of conditional sale and that the deed of conditional sale was a contract of adhesion,
upon full payment of the purchase price. This transfer of title is "by operation of law Castillo prayed for rescission of contract under Article 1191 of the Civil Code of the
without any further act having to be performed by the seller." In a contract to sell, Philippines.
ISSUE: Whether or not Castillo is entitled to cancel the contract of conditional sale.
CIVIL LAW REVIEW 2
[Olivarez Realty Corporation] shall be entitled to occupy, possess and develop the
RULING: Yes. Since Olivarez Realty Corporation illegally withheld payments of the subject property. In case this Contract is cancelled, any improvement introduced by
purchase price, Castillo is entitled to cancel his contract with the petitioner corporation. [Olivarez Realty Corporation] on the property shall be forfeited in favor of [Castillo].”
However, we properly characterize the parties’ contract as a contract to sell, not a
contract of conditional sale. Nissan Car Lease Phils., Inc. (NCLPI) v. Lica Management, Inc. (LMI) and
Proton Pilipinas, Inc.
In both contracts to sell and contracts of conditional sale, title to the property remains G.R. No. 1769896 January 13, 2016 Jardeleza, J.
with the seller until the buyer fully pays the purchase price. Both contracts are subject
to the positive suspensive condition of the buyer’s full payment of the purchase price.
DOCTRINE: An aggrieved party is not prevented from extrajudicially rescinding a
In a contract of conditional sale, the buyer automatically acquires title to the property contract to protect its interests, even in the absence of any provision expressly
upon full payment of the purchase price. This transfer of title is "by operation of law providing for such right. However, the party who deems the contract violated may
without any further act having to be performed by the seller." In a contract to sell, consider it resolved or rescinded, and act accordingly, without previous court action,
transfer of title to the prospective buyer is not automatic. "The prospective seller [must] but it proceeds at its own risk. For it is only the final judgment of the corresponding
convey title to the property [through] a deed of conditional sale." court that will conclusively and finally settle whether the action taken was or was not
correct in law.
The distinction is important to determine the applicable laws and remedies in case a
party does not fulfill his or her obligations under the contract. In contracts of conditional NATURE OF ACTION: Petition for Review on Certiorari
sale, our laws on sales under the Civil Code of the Philippines apply. On the other hand,
contracts to sell are not governed by our law on sales but by the Civil Code provisions FACTS: On June 24, 1994, LMI entered into a Contract of Lease with NCLPI for a term
on conditional obligations. Specifically, Article 1191 of the Civil Code on the right to of 10 years with a monthly rental of P308,000.00. Subsequently, NCLPI became
rescind reciprocal obligations does not apply to contracts to sell. As this court explained delinquent in paying rent such that upon October 18, 1996, LMI informed NCLPI that
in Ong v. Court of Appeals, failure to fully pay the purchase price in contracts to sell is it was terminating their Contract of Lease due to arrears in payment of rentals. LMI also
not the breach of contract under Article 1191. Failure to fully pay the purchase price is demanded NCLPI to pay P2,651,570.39 for unpaid rentals and to vacate the premises
"merely an event which prevents the [seller’s] obligation to convey title from acquiring within 5 days from receipt of the notice.
binding force." This is because "there can be no rescission of an obligation that is still
nonexistent, the suspensive condition not having [happened]." In the meantime, around October 11, 1996, NCLPI entered into a Memorandum of
Agreement with Proton whereby the former agreed to allow Proton to use the premises
In this case, Castillo reserved his title to the property and undertook to execute a deed as temporary display center for “Audi” brand cars and immediately commence
of absolute sale upon Olivarez Realty Corporation’s full payment of the purchase price. renovation work even prior to the execution of the Contract of Sublease. NCLPI also
Since Castillo still has to execute a deed of absolute sale to Olivarez Realty Corporation received a check representing 3 months of rental payments, to be deposited upon due
upon full payment of the purchase price, the transfer of title is not automatic. The execution of their Contract of Sublease.
contract in this case is a contract to sell.
NCLPI acknowledged its arrearages but claims it has no intention of abandoning the
As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines lease and requested LMI to defer taking court action on the matter. On November 8,
does not apply. The contract to sell is instead cancelled, and the parties shall stand as if 1996, LMI entered into a Contract of Lease with Proton over the subject property.
the obligation to sell never existed. Olivarez Realty Corporation shall return the Subsequently, LMI filed a complaint against NCLPI to recover the balance of the unpaid
possession of the property to Castillo. Any improvement that Olivarez Realty rentals. However, NCLPI demanded Proton to vacate the premises. But Proton replied
Corporation may have introduced on the property shall be forfeited in favor of Castillo that it was occupying the property based on a contract of lease with LMI. NCLPI filed
per paragraph I of the deed of conditional sale: “Immediately upon signing this Contract, a Third-Party Complaint against Proton alleging that LMI and Proton “schemed” and
CIVIL LAW REVIEW 2
“colluded” to unlawfully force NCLPI from the premises. The RTC ruled in favor of In other words, the party who deems the contract violated may consider it resolved
LMI and demanded NCLPI to pay the unpaid rentals inclusive of interest and penalties. or rescinded, and act accordingly, without previous court action, but it proceeds at
Upon appeal, CA affirmed the trial court’s decision. its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
ISSUE: May a contract be rescinded extrajudicially despite the absence of a special law. In fact, the rule is the same even if the parties’ contract expressly allows
contractual stipulation therefor? extrajudicial rescission. The other party denying the rescission may still seek judicial
intervention to determine whether or not the rescission was proper.
RULING: YES, a contract may be extrajudicially rescinded despite the absence of a
special contractual stipulation about such. NCLPI maintains that LMI cannot Having established that LMI can extrajudicially rescind its contract with NCLPI even
unilaterally and extrajudicially rescind their Contract of Lease in the absence of an absent an express contractual stipulation to that effect, the question now to be resolved
express provision in their Contract to that effect. is whether this extrajudicial rescission was proper under the circumstances. In this case,
the Court affirmed LMI’s rescission of its Contract of Lease with NCLPI on account of
Although it is true that NCLPI and LMI’s Contract of Lease does not contain a provision the latter’s breach of its obligation by reason of their non-payment of rentals and
expressly authorizing extrajudicial rescission, LMI can nevertheless rescind the unauthorized sublease of the premises to Proton.
contract, without prior court approval, pursuant to Art. 1191 of the Civil Code which
provides that the power to rescind is implied in reciprocal obligations, in cases where G. Modes of Extinguishment of Obligations
one of the obligors should fail to comply with what is incumbent upon him. Otherwise Other Modes
stated, an aggrieved party is not prevented from extrajudicially rescinding a contract to
protect its interests, even in the absence of any provision expressly providing for such Saura v. DBP
right. The law definitely does not require that the contracting party who believes itself G.R. No. L – 24968 April 27, 1972 Makalintal, J.
injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to DOCTRINE: Mutuo disenso (Mutual desistance) is a mode of extinguishing
passively sit and watch its damages accumulate during the pendency of the suit until the obligations. It is a concept that derives from the principle that since mutual agreement
final judgment of rescission is rendered when the law itself requires that he should can create a contract, mutual disagreement by the parties can cause its
exercise due diligence to minimize its own damages. extinguishment.
Jurisprudence still indicates that an extrajudicial rescission based on grounds not
NATURE OF ACTION: Appeal from the decision of the CFI of Manila sentencing
specified in the contract would not preclude a party to treat the same as rescinded.
However, the rescinding party, by such course of action, subjects himself to the risk of defendant to pay actual and consequential damages to plaintiff
being held liable for damages when the extrajudicial rescission is questioned by the
opposing party in court. It must be understood that the act of a party in treating a contract FACTS: Petitioner applied to Rehabilitation Finance Corporation before its conversion
to DBP for an industrial loan of 500,000.00 that would be allegedly used in the following
as cancelled or resolved on account of infractions by the other contracting party must be
manner: 250K for the construction of a factory building, 240,900 for the balance of the
made known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified, it is free purchase price of the jute mill machinery and equipment and 9,100 as additional working
capital.
to resort to judicial action on its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the contrary case, the resolution RFC passed resolution no. 145 approving the loan application for 500K to be secured
by a first mortgage on the factory building to be constructed, the land site thereof and
will be affirmed, and the consequent indemnity awarded to the party prejudiced.
the machinery equipment to be installed. Further that the loan should be used exclusively
for the purposes above-mentioned. And lastly, the promissory notes should be signed by
Sps. Saura, Arellano, Caolboy, Estabillo and China Engineers Ltd (CEL for brevity)
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1. That the raw materials needed by the borrower-corporation

A day before being notified of the said resolution, Petitioner wrote to RFC requesting a [petitioner] to carry out its operation are available in the immediate
modification of the terms laid down by it, namely that in lieu of having CEL (which vicinity; and
was willing to assume liability to the extent of its stock subscription with Petitioner) 2. That there is prospect of increased production thereof to provide
sign the PN, Petitioner would put up a bond of 123,500 an amount equivalent to the adequately for the requirements of the factory”
subscription of CEL and Roca would be substituted for Arellano.
This certification was required as the intention of the original approval (of the loan) is
In view of said request, RFC passed Resolution no. 736 designating members of its to develop the manufacture of sacks on the basis of locally available raw materials.
board of governors, for certain reasons stated in the resolution, “to examine all the
aspects of this approved loan… with special reference as to the advisability of financing Petitioner does not deny that the factory he was building in Davao was for the
this particular project based on present conditions obtaining in the operations of jute manufacture of bags from local raw materials.
mills, and to submit his finding thereon” the parties named their respective committees
of engineers and technical men to meet with each other and undertake the necessary “Cover page of Petitioner’s brochure describes the project as a “joint venture by and
studies, although in appointing its own committee petitioner made the observation that between the Mindanao Industry Corp and Petitioner, to finance, manage, and operate a
the same “should not be taken as an acquiescence on its part to novate or accept new Kenaf mill plant, to manufacture copra and corn bags, runners, floor mattings, carpets,
conditions to the agreement already entered into – referring to its acceptance of the terms draperies; out of 100% local raw materials, principal Kenaf”
and conditions mentioned in Resolution no. 145.
“explanatory note on page 1 of the same brochure states that, the venture is the first
Petitioner wrote RFC that CEL had agreed to act as co-signer for the loan and asked that serious attempt in this country to use 100% locally grown raw materials notably kenaf
the necessary documents be prepared in accordance with the terms and conditions which is presently grown commercially in the island of Mindanao where the proposed
specified in Resolution 145. jutemill is located”
The loan documents were executed. This fact, according to Respondent, is what moved RFC to approve the loan application
in the first place, and to require in its resolution no. 9083, a certification from DANR as
It appears, however, that despite the formal execution of the loan agreement the to the availability of the local raw materials to provide adequately for the requirements
reexamination contemplated in resolution no. 736 proceeded and resolution no. 3989 of the factory.
was passed reducing the loan from 500K to 300K.
Petitioner stated in a letter the following:
Petitioner asked RFC to increase the loan from 300K to 500K which was denied by 1. According to a special study made by the Bureau of Forestry “kenaf will not be
RFC. Petitioner then wrote again and said that CEL will at any time reinstate their available in sufficient quantity this year or probably even next year”
signature as a co-signer of the note if RFC releases the 500K originally approved, 2. Requesting assurances from RFC that my company and associates will be able
to bring in sufficient jute materials as may be necessary for the full operation
RFC passed resolution no. 9083 restoring the loan to the original amount of 500K it of the jute mill
appearing that CEL is now willing to sign the Promissory Note. However, an additional 3. And it provided for the manner in which the loan should be released.
provisio was added by RFC:
“That in view of observations made of the shortage and high cost of RFC sent a letter to the Petitioner that the revival of the 500K loan is subject to the
imported raw materials, the Department of Agriculture and Natural availability of funds towards the end that the sack factory shall be placed in actual
Resources (DANR) shall certify to the following: operating status. That RFC would be able to act on the request for revised purpose and
manner of release upon re-appraisal of the securities of the loan. and further that the
statement of Petitioner that it will have to rely on the importation of jute and its request
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that RFC give an assurance that the petitioner will be able to bring in sufficient jute implementation. There was nothing in said conditions that contradicted the terms laid
materials as may be necessary for the operation of the factory is not in line with the down in RFC RN 145.
principle in approving the loan.
When RFC turned down the request the negotiations which had been going on for the
With the foregoing letter the negotiations came to a standstill. Petitioner did not pursue implementation of the agreement reached an impasse. Petitioner obviously was in no
the matter further. Instead, it requested RFC to cancel the mortgage. The deed of position to comply with RFC’s conditions. So instead of doing so and insisting that the
cancellation over the property was given by RFC, the same property was the subject of loan be released as agreed upon, petitioner asked that the mortgage be cancelled. The
a mortgage contract in favor of Prudential Bank and trust Co. action thus taken by both parties was in the nature of mutual desistance (Manresa “Mutu
disenso”) – which is a mode of extinguishing obligations. It is a concept that derives
After almost 9 years after the mortgage was cancelled by RFC, Petitioner commenced a from the principle that since mutual agreement can create a contract, mutual
complaint for damages alleging failure of RFC t comply with its obligation to release disagreement by the parties can cause its extinguishment. The subsequent conduct of
the proceeds of the loan applied for and approved, thereby preventing Petitioner from Petitioner confirms this desistance. It did not protest against any alleged breach of
completing or paying contractual commitments it had entered into, in connection with contract by RFC, or even point out that RFC’s stand was legally unjustified. Its request
its jute mill. for cancellation of the mortgage carried no reservation of whatever rights it believed it
might have against RFC for RFC’s non-compliance. It was only 9 years after the loan
Trial Court rendered judgment in favor of Petitioner ruling that there was a perfected agreement had been cancelled at its own request that petitioner brough this action for
contract. damages. All these circumstances demonstrate beyond doubt that the said agreement
had been extinguished by mutual desistance – and that on the initiative of the petitioner
Defendant on appeal raises the defense that Petitioner’s cause of action had prescribed, itself.
or that its claim had been waived or abandoned; that there was no perfected contract and
that even assuming that there was, the petitioner did not comply with its terms. 1. Payment or performance
ISSUE: Whether or not, based on the foregoing facts of the case, there is a perfected NPC v. Ibrahim
contract between Petitioner and herein respondent and a subsequent G.R. No. 175863 February 18, 2015 Perez, J.
extinguishment
DOCTRINE: Article 1242 of the Civil Code is an exception to the rule that a valid
RULING: Yes, there is a perfected contract as recognized by Article 1934 and a
payment of an obligation can only be made to the person to whom such obligation is
subsequent extinguishment of the same.
rightfully owed. It contemplates a situation where a debtor pays a "possessor of
credit" i.e., someone who is not the real creditor but appears, under the
There was undoubtedly offer and acceptance in this case: the application of Petitioner
circumstances, to be the real creditor. In such scenario, the law considers the payment
for the loan of 500K was approved by resolution of the defendant, and the corresponding
to the "possessor of credit" as valid even as against the real creditor taking into
mortgage was executed and registered. But this fact alone falls short of resolving the
account the good faith of the debtor.
basic claim that respondent failed to fulfill its obligation and the Petitioner is therefore
entitled to recover damages. It should be noted that RFC entertained the loan application
of Petitioner on the assumption that the factory to be constructed would utilize locally NATURE OF ACTION: This is an action to collect expropriation indemnity and
grown raw materials, principally kenaf. There is not serious dispute about this. It was in rentals.
line with such assumption that when RFC, by RN 9083 restored the loan to the original
amount of 500K, it imposed conditions. The imposition of those conditions was by no FACTS: National Power Corporation (NAPOCOR) took possession of a parcel of land
means a deviation from the terms of the agreement, but rather a step in its in Marawi City for the purpose of building thereon a hydroelectric powerplant pursuant
to its Agus 1 project. A portion of the said land was registered in the name of respondent
Mangondato, but was occupied by NAPOCOR under the mistaken belief that such land
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is part of the vast tract of public land reserved for its use by the government under Proc. Upon the other hand, Br. 10 RTC of Marawi, in its decision of Civ. Case No. 967-93,
Mo. 1354, s. 1974. Mangondato learned of NAPOCOR’s occupation on his land in 1979 held that the Ibrahims and Maruhoms – not Mangondato – are the true owners of the
– the same year the latter started its construction of the Agus 1 plant. Thus, shortly subject lands; the land can no longer be reconveyed for having been expropriated and
thereafter, Mangondato began demanding compensation for the subject land from paid for by NAPOCOR; they are the rightful recipients of the rental fess and indemnity
NAPOCOR. His demand for compensation was supported by a letter where he detailed that may be due. Notable in the trial court’s decision, however, was that it held both
the origins of ownership over the land: Mangondato and NAPOCOR solidarily liable to the Ibrahims and Maruhoms for rental
“(...) This piece of land was particularly set aside by the Patriatch fees and expropriation indemnity.
Maruhom, to belong to his eldest son Magayo-ong Maruhom. This is the
very foundation of the right and ownership over the land in question which ISSUE: Whether or not NAPOCOR should be held solidarily liable with Mangondato
was titled in my name because as the son-in-law of Hadji Ali Maruhom the for the rental fees and expropriation indemnity due to the Ibrahims and
eldest son of, and only lawyer among the descendants of Datu Magayo-ong Maruhoms.
Maruhom, the authority and right to apply for the title to the land was given
to me by said heirs after mutual agreement among themselves (...).” RULING: No. NAPOCOR’s payment pursuant to the decision in G.R. No. 39353 had
the effect of extinguishing his obligation to pay expropriation indemnity and rentals.
[Civ. Case No. 605-92] There being a failure of communication as to the amount of
compensation to be paid, Mangondato filed a complaint for reconveyance (and payment [Not the main topic but relevant in arriving at the ruling] A finding of bad faith usually
of rentals) against NAPOCOR before the RTC of Marawi City. [Civ. Case No. 610-92] assumed the presence of two elements:
For its part, NAPOCOR filed an expropriation complaint before the RTC. These two 1. That the actor knew or should have known that a particular course of action is
cases were consolidated. The decision of the RTC upheld NAPOCOR’s right to wrong or illegal; and
expropriate the subject land and made NAPOCOR pay rentals from 1978-1992. 2. That despite such actual or imputable knowledge, the actor, voluntarily,
Disagreeing as to the compensation, the decision was appealed by NAPOCOR to the consciously and out of his own free will, proceeds with such course of action.
CA – G.R. No. 39353.
In this case, NAPOCOR cannot be said to have made the payment in bad faith for it was
[Civ. Case No. 967-93] While the appeal before the CA was pending, herein Ibrahims only acting under the lawful orders of a court in paying Mangondato, even assuming
and Maruhoms, filed a complaint against Mangondato and NAPOCOR arguing that that NAPOCOR may have had prior knowledge about the claims of the Ibrahims and
they are the real owners of the land, being lawful heirs of the late Magayo-ong Maruhom, Maruhoms upon the subject land.
who was the original proprietor of the said lands. Being the real owners of the lands,
they should be the ones entitled to the rental fees or expropriation indemnity that may Without the existence of bad faith, the ruling of the RTC and CA apropos petitioner's
be found due for the subject land. It further filed for the issuance of a TRO to enjoin remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In fact,
NAPOCOR from making payments to Mangondato concerning expropriation indemnity petitioner's previous payment to Mangondato of the rental fees and expropriation
for the land, which the Br. 10 RTC of Marawi granted. indemnity due the subject land pursuant to the final judgment in Civil Case No. 605-92
and Civil Case No. 610-92 may be considered to have extinguished the former's
The appeal to the CA by NAPOCOR (G.R. No. 39353) was denied. Hence, Mangondato obligation regardless of who between Mangondato, on one hand, and the Ibrahims and
filed a Motion for Execution of the decision in the first two civil cases. Despite Maruhoms, on the other, turns out to be the real owner of the subject land. Either way,
NAPOCOR’s opposition on the ground of the TRO issued, the Br. 8 RTC of Marawi NAPOCOR cannot be made liable to the Ibrahims and Maruhoms:
ordered the issuance of a Writ of Execution in favor of Mangondato. Pursuant thereto, a First. If Mangondato is the real owner of the subject land, then the obligation
notice of garnishment was promptly served upon Philippine National Bank (PNB) – the by petitioner to pay for the rental fees and expropriation indemnity due the
authorized depositary of NAPOCOR. Consequently, the amount thereby garnished was subject land is already deemed extinguished by the latter's previous payment
paid to Mangondato in full satisfaction of NAPOCOR’s judgment debt. under the final judgment in Civil Case No. 605-92 and Civil Case No. 610-
92. This would be a simple case of an obligation being extinguished through
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payment by the debtor to its creditor. Under this scenario, the Ibrahims and Land Bank of the Philippines v. Alfredo Ong
Maruhoms would not even be entitled to receive anything from anyone for G.R. No. 190755 November 24, 2010 Velasco, Jr., J.
the subject land. Hence, petitioner cannot be held liable to the Ibrahims and
Maruhoms.
DOCTRINE: Novation would have dual functions—one to extinguish an existing
Second. We, however, can reach the same conclusion even if the Ibrahims obligation, the other to substitute a new one in its place—requiring a conflux of four
and Maruhoms turn out to be the real owners of the subject land. Should the essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
Ibrahims and Maruhoms turn out to be the real owners of the subject land, concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the
petitioner's previous payment to Mangondato pursuant to Civil Case No. birth of a valid new obligation.
605-92 and Civil Case No. 610-92 — given the absence of bad faith on
petitioner's part as previously discussed — may nonetheless be considered Novation must be expressly consented to. Moreover, the conflicting intention and
as akin to a payment made in "good faith" to a person in "possession of acts of the parties underscore the absence of any express disclosure or circumstances
credit" per Article 1242 of the Civil Code that, just the same, extinguishes with which to deduce a clear and unequivocal intent by the parties to novate the old
its obligation to pay for the rental fees and expropriation indemnity due for agreement.
the subject land. Article 1242 of the Civil Code reads:
"Payment made in good faith to any person in possession of the credit shall
release the debtor." FACTS: Spouses Johnson and Evangeline Sy obtained a PhP16 Million loan from Land
Bank secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under
Article 1242 of the Civil Code is an exception to the rule that a valid payment of an the loan agreement, PhP6 Million of the loan would be short-term and would mature on
obligation can only be made to the person to whom such obligation is rightfully owed. February 28, 1997, while the balance of PhP10 million would be payable in seven (7)
It contemplates a situation where a debtor pays a "possessor of credit" i.e., someone who years. The Notice of Loan Approval dated February 22, 1996 contained an acceleration
is not the real creditor but appears, under the circumstances, to be the real creditor. In clause wherein any default in payment of amortizations or other charges would
such scenario, the law considers the payment to the "possessor of credit" as valid even accelerate the maturity of the loan.
as against the real creditor taking into account the good faith of the debtor.
They failed to pay, and they sold the three parcels of land to Alfredo Ong. When Ong
Borrowing the principles behind Article 1242 of the Civil Code, we find that paid the remaining amount, the application for assumption of mortgage was not
Mangondato — being the judgment creditor in Civil Case No. 605-92 and Civil Case approved by Land Bank. The bank learned from its credit investigation report that Ong
No. 610-92 as well as the registered owner of the subject land at the time — may be had a real estate mortgage in the amount of PhP18,300,000 with another bank that was
considered as a "possessor of credit" with respect to the rental fees and expropriation past due. Thus, the bank foreclosed the properties. Ong filed an action for recovery of
indemnity adjudged due for the subject land in the two cases, if the Ibrahims and the money that he paid, and won in the RTC. On appeal to the CA, it likewise affirmed
Maruhoms turn out to be the real owners of the subject land. Hence, petitioner's payment the RTC decision. Thus, Land Bank appeals to the Supreme Court.
to Mangondato of the fees and indemnity due for the subject land as a consequence of
the execution of Civil Case No. 605-92 and Civil Case No. 610-92 could still validly ISSUE: Whether or not Art. 1236 of the Civil Code does not apply and in finding that
extinguish its obligation to pay for the same even as against the Ibrahims and Maruhoms. there is no novation.
The Supreme Court absolved NAPOCOR from any liability. RULING: Land Bank was not bound to accept Alfredo’s payment, since as far as the
former was concerned, he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was
not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a
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conditional payment so that the properties subject of the Deed of Sale with Assumption of the latter, but not without the consent of the creditor. Payment by the new
of Mortgage would be titled in his name. It is clear from the records that Land Bank debtor gives him rights mentioned in articles 1236 and 1237.”
required Alfredo to make payment before his assumption of mortgage would be
approved. He was informed that the certificate of title would be transferred accordingly. We do not agree, then, with the CA in holding that there was a novation in the contract
He, thus, made payment not as a debtor but as a prospective mortgagor. between the parties. Not all the elements of novation were present. Novation must be
expressly consented to. Moreover, the conflicting intention and acts of the parties
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the underscore the absence of any express disclosure or circumstances with which to deduce
obligation of the Spouses Sy, since his interest hinged on Land Bank’s approval of his a clear and unequivocal intent by the parties to novate the old agreement.
application, which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his J.M. Tuason v. Javier
own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And G.R. No. L – 28569 February 27, 1970 Concepcion, C.J.
as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses
Sy, what he has paid.
DOCTRINE: Civil Law; Contracts; Sale of Real Property; Remedy of rescission not
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance available in instant case for failure to pay price at the time agreed upon when there
Corporation provides the following discussion: is substantial performance in good faith
“Novation, in its broad concept, may either be extinctive or modificatory. It
is extinctive when an old obligation is terminated by the creation of a new NATURE OF ACTION: Appeal
obligation that takes the place of the former; it is merely modificatory when
the old obligation subsists to the extent it remains compatible with the FACTS: On September 7, 1954, a contract was entered into between the plaintiff and
amendatory agreement. An extinctive novation results either by changing defendant-appellee, Ligaya Javier, whereby plaintiff agreed to sell, transfer and convey
the object or principal conditions (objective or ureal), or by substituting the to the defendant a parcel of land known located in Sta. Mesa Heights Subdivision, for
person of the debtor or subrogating a third person in the rights of the creditor the total sum of P3,691.20, with interest thereon at the rate of ten 10% a year, payable
(subjective or personal). Under this mode, novation would have dual as follows: P896.12 upon the execution of the contract and P43.92 every month
functions—one to extinguish an existing obligation, the other to substitute thereafter, for a period of 10 years.
a new one in its place—requiring a conflux of four essential requisites: (1)
a previous valid obligation; (2) an agreement of all parties concerned The 6th Paragraph of the contract provided that:
to a new contract; (3) the extinguishment of the old obligation; and (4) 1. In case the party fails to satisfy any monthly installments, he is
the birth of a valid new obligation. x x x granted a month of grace within which to make the retarded
paymen
In order that an obligation may be extinguished by another which substitutes 2. Should the month of grace expire without the payments
the same, it is imperative that it be so declared in unequivocal terms, or that corresponding to both months having been satisfied, an interest of
the old and the new obligations be on every point incompatible with each 10% per annum will be charged
other. The test of incompatibility is whether or not the two obligations can 3. Should a period of 90 days elapse after the expiration of the month
stand together, each one having its independent existence. x x x” of grace and the party of the has not paid all the amounts with the
corresponding interest, the party of the first part has the right to
Furthermore, Art. 1293 of the Civil Code states: declare this contract cancelled, and as consequence thereof, the
“Novation which consists in substituting a new debtor in the place of the party of the first part may dispose of the parcel of land covered by
original one, may be made even without the knowledge or against the will this contract in favor of other persons, as if this contract had never
been entered into
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4. In case of such cancellation, all the amounts paid in accordance

with this agreement together with all the improvements made on In this connection, it should be noted that, apart from the initial installment paid upon
the premises, shall be considered as rents paid for the use and the execution of the contract, the defendant religiously satisfied the monthly installments
occupation of premises, and as payment for the damages suffered accruing thereafter, for a period of almost 8 years; that, although the principal obligation
by failure of the party of the second part to fulfill his part of the under the contract was P3,691.20, the total payments made by the defendant, including
agreement; and stipulated interest, aggregated P4,134.08; that the defendant has offered to pay all of the
5. The party of the second part hereby renounces all his right to installments overdue including the stipulated interest, apart from reasonable attorney’s
demand or reclaim the return of the same and obliges himself to fees and the costs; and that, accordingly, the trial court sentenced the defendant to pay
peacefully vacate the premises and deliver the same to the party of all such installments, interest, fees and costs. Thus, plaintiff will thereby recover
the first part everything due thereto, pursuant to its contract with the defendant, including such
damages as the former may have suffered in consequence of the latter’s default. Under
Upon the execution of the contract and the payment of the first installment, the defendant these circumstances, The Court feel that, in the interest of justice and equity, the decision
was placed in possession of the land. Thereafter and until January 5, 1962, she paid the appealed from may be upheld upon the authority of Art. 1234 of the Civil Code.
stipulated monthly installments. Subsequently, however, she defaulted in the payment
of said installments, in view of which, plaintiff informed her by letter that their contract Legarda Hermanos and Jose Legarda v. Felipe Saldaña and CA
had been rescinded. Defendant having thereafter failed or refused to vacate said land, G.R. No. L – 26578 January 28, 1974 Teehankee, J.
plaintiff commenced the present action against her in the CFI of Rizal.
CFI rendered its decision declaring that the contract to sell has not yet been rescinded, DOCTRINE: According to Art. 1234 of said Code: 'If the obligation has been
and ordering the defendant to pay to the plaintiff within 60 days from receipt hereof all substantially performed in good faith, the obligor may recover as though there had
the installment payments in arrears together with interest thereon at 10% per annum. been a strict and complete fulfillment, less damages suffered by the obligee. In the
Hence, this appeal by plaintiff, based mainly upon the alleged erroneous application of interest of justice and equity, the decision appealed from may be upheld upon the
Art. 1592. Plaintiff maintains that this provision governs contracts of sale, not contracts authority of Article 1234 of the Civil Code.
to sell, such as the one entered into by the parties in this case.
NATURE OF ACTION: This is a present petition for review of CA’s decision which
In the sale of immovable property, even though it may have been stipulated that upon held that the respondent buyer of two small residential lots on installment contracts on
the failure to pay the price at the time agreed upon, the rescission of the contract shall a ten-year basis, who has faithfully paid for eight continuous years on the principal alone
of right take place, the vendee may pay, even after the expiration of the period, as long and already more than the value of one lot, besides the larger stipulated interests on both
as no demand for rescission of the contract has been made upon him either judicially or lots, is entitled to the conveyance of one fully paid lot of his choice.
by a notarial act. After the demand, the court may not grant him a new term.
FACTS: The action originated as a complaint by the private respondent for the delivery
ISSUE: Whether or not the contract should have been rescinded pursuant to automatic of two parcels of land in Sampaloc, Manila. Private respondent as plaintiff had entered
rescission enunciated under Art. 1592? into two written contracts with petitioner Legarda Hermanos as defendant subdivision
owner, whereby the latter agreed to sell to him two lots for the sum of P1,500.00 per lot,
RULING: NO. The Court ruled that regardless of the propriety of applying said Art. payable over the span of ten years divided into 120 equal monthly installments of P19.83
1592 thereto, The Court find that plaintiff herein has not been denied substantial justice, with 10% interest per annum, to commence on May 26, 1948, date of execution of the
for, according to Art. 1234 of said Code: contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the
If the obligation has been substantially performed in good faith, the obligor brothers and sisters, and the two lots were among those allotted to co-petitioner Jose
may recover as though there had been a strict and complete fulfillment, less Legarda. Respondent faithfully paid for eight continuous years about 95 (of the
damages suffered by the obligee.
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stipulated 120) monthly installments totalling P3,582.06 up to the month of February, The Court finds that the appellate court's judgment finding that of the total sum of
1956. P3,582.06 (including interests of P1,889.78) already paid by respondent (which was
more than the value of two lots), the sum applied by petitioners to the principal alone in
After February, 1956 up to the filing of respondent's complaint in the Manila court of the amount of P1,682.28 was already more than the value of one lot of P1,500.00 and
first instance in 1961, respondent did not make further payments. He owed petitioners hence one of the two lots as chosen by respondent would be considered as fully paid, is
the sum of P1,317.72 on account of the balance of the purchase price (principal) of the fair and just and in accordance with law and equity.
two lots (in the total sum of P3,000.00), although he had paid more than the stipulated
purchase price of P1,500.00 for one lot. Azcona v. Jamandre
G.R. No. L – 30597 June 30, 1987 Cruz, J.
Almost five years later, just before the filing of the action, respondent wrote petitioners
stating that his desire to build a house on the lots was prevented by their failure to
introduce improvements on the subdivision as "there is still no road to these lots," and DOCTRINE: When the obligee accepts the performance, knowing its
requesting information of the amount owing to update his account as "I intend to incompleteness or irregularity, and without expressing any protest or objection, the
continue paying the balance due on said lots. Petitioners replied that as respondent had obligation is deemed fully complied with.
failed to complete total payment of the 120 installments by May, 1958 as stipulated in
the contracts to sell, "pursuant to the provisions of both contracts all the amounts paid NATURE OF ACTION: Petition for certiorari
in accordance with the agreement together with the improvements on the premises have
been considered as rents paid and as payment for damages suffered by your failure,” and FACTS: Guillermo Azcona leased 80 hectares of his 150-hectare share in Hacienda
"Said cancellation being in order, is hereby confirmed." Sta. Fe in Escalante, Negros Occidental, to Cirilo Jamandre. The agreed yearly rental
was P7,200.00. The lease was for three agricultural years beginning 1960.
Trial court sustained petitioners' cancellation of the contracts and dismissed respondent's
complaint. Respondent CA reversed the lower court's judgment and ordered petitioners The first annual rental was due on or before March 30, 1960, but because the petitioner
"to deliver to the plaintiff possession of one of the two lots, at the choice of defendants, did not deliver possession of the leased property to the respondent, he "waived"
and to execute the corresponding deed of conveyance to the plaintiff for the said lot. payment, as he put it, of that rental. The respondent actually entered the premises only
Hence, the present petition for review. Petitioners insist on their right of cancellation on October 26, 1960, after payment by him to the petitioner of the sum of P7,000.00,
under the "plainly valid written agreements which constitute the law between the which was acknowledged in the receipt later offered as Exhibit "B"
parties" as against "the broad principles of equity and justice" applied by the appellate
court. On April 6, 1961, the petitioner, through his lawyer, notified the respondent that the
contract of lease was "deemed cancelled, terminated, and of no further effect," for
ISSUE: Whether or not one of the two lots bought by respondent should be considered violation of the conditions specified in the said agreement.
as fully paid, entitling him to the conveyance of one of the two lots.
ISSUE: Whether or not the contract is deemed cancelled upon respondent’s failure to
RULING: YES, one of the two lots bought by respondent is considered as fully paid. 1) to attach thereto the parcelary plan identifying the exact area subject of the
agreement, as stipulated in the contract; 2) to secure the approval by the
According to Art. 1234 of said Code: 'If the obligation has been substantially performed Philippine National Bank of the said contract; and 3) to pay the rentals.
in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. In the interest of justice and equity, RULING:
the decision appealed from may be upheld upon the authority of Article 1234 of the Civil Parcelary Plan
Code.
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According to the petitioners, the parcelary plan was never agreed upon or annexed to Art. 1235 provides that when the obligee accepts the performance, knowing its
the contract, which thereby became null and void under Article 1318 of the Civil Code incompleteness or irregularity, and without expressing any protest or objection, the
for lack of a subject matter. Moreover, the failure of the parties to approve and annex obligation is deemed fully complied with.c
the said parcelary plan had the effect of a breach of the contract that justified its
cancellation. Arañas v. Tutaan
G.R. No. L – 52807 February 29, 1984 Teehankee, J.
The correct view, is that there was an agreed subject-matter, to wit, the 80 hectares of
the petitioner’s share in the Sta. Fe hacienda, although it was not expressly defined
because the parcelary plan was not annexed and never approved by the parties. Despite DOCTRINE: It is elementary that payment made by a judgment debtor to a wrong
this lack, however, there was an ascertainable object because the leased premises were party cannot extinguish the judgment obligation of such debtor to its creditor.
sufficiently identified and delineated, as the petitioner admitted in his amended answer
and in his direct testimony. NATURE OF ACTION: Petition for Certiorari to set aside respondent judge’s order
and for mandamus to compel respondent judge to perform his ministerial duty of
Moreover, it appears that the failure to attach the parcelary plan to the contract is ordering execution of a final and executory judgment.
imputable to the petitioner himself because it was he who was supposed to cause the
preparation of the said plan. FACTS: In a decision rendered on May 3, 1971 by the now defunct Court of First
Instance of Rizal, in Civil Case No. Q-40689 thereof, entitled "Jose Arañas, Et. Al. v.
Default in Payment of Rentals Juanito R. Castañeda, Et Al.," the said court declared that petitioner Luisa Quijencio as
plaintiff (assisted by her spouse co-petitioner Jose Arañas) was the owner of 400 shares
In Exhibit "B," the petitioner declared that "I hereby waive payment for the rentals of stock of respondent Universal Textile Mills, Inc. (UTEX) as defendant issued "in the
corresponding to the crop year 1960-61 and which was due on March 30, 1960," there names of its co-defendants Gene Manuel and B.R. Castañeda, including the stock
was really nothing to waive because, as he himself put it in the same document, dividends that accrued to said shares, and ordering defendant Universal Textile Mills,
possession of the leased property "was not actually delivered" to the Respondent. Inc. to cancel said certificates and issue new ones in the name of said plaintiff Luisa
Quijencio Arañas and to deliver to her all dividends appertaining to same, whether in
Approval by PNB of Contract cash or in stocks.”
The contract does not state upon whom fell the obligation to secure the approval" so that In a motion for clarification and/or motion for reconsideration, respondent UTEX
it was not clear that "the fault, if any, was due solely to one or the other." manifested, inter alia, that" (I)f this Honorable Court by the phrase ‘to deliver to her all
dividends appertaining to same, whether in cash or in stocks,’ meant dividends properly
At any rate, that issue and the omission of the parcelary plan became immaterial when pertaining to plaintiffs after the court’s declaration of plaintiffs’ ownership of said 400
the parties agreed on the lease for the succeeding agricultural year 1961-62, the shares of stock, then as defendant UTEX has always maintained it would rightfully abide
respondent paying and the petitioner receiving therefrom the sum of P7,000.00, as by whatever decision may be rendered by this Honorable Court since such would be the
acknowledged in Exhibit "B," logical consequence after the declaration or ruling in respect to the rightful ownership
of the said shares of stock."
Although the rental fee stipulated in the contract is P7,200, the payment being
acknowledged by the receipt is P7,000 only. The receipt was signed by the petitioner, The motion for clarification was granted which ruled that its judgment against UTEX
without reservation or protest. was to pay to Luisa Quijencio Arañas the cash dividends which accrued to the stocks in
question after the rendition of this decision excluding cash dividends already paid to its
co-defendants Gene Manuel and B.R. Castañeda which accrued before its decision and
could not be claimed by the petitioners-spouses.
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maintained "it would rightfully abide by whatever decision may be rendered by

Apparently satisfied with the clarification, UTEX neither moved for reconsideration of this Honorable Court”. Notwithstanding its full knowledge and understanding
the order nor appealed from the judgment. Subsequently, the trial court granted the of the final judgment, that it was liable to pay all dividends after the trial court’s
motion for new trial of the two co-defendants Manuel and Castañeda, and after such new judgment in 1971 to petitioners as the lawfully declared owners of the
trial, it rendered its decision against them which was substantially the same as its first questioned shares of stock, UTEX nevertheless chose to pay the wrong parties,
decision which had already become final and executory as against UTEX, declaring it only had itself to blame therefor.
petitioners-spouses the owners of the questioned shares of stock.
The burden of recovering the supposed payment of the cash dividends made by UTEX
Co-defendants Castañeda and Manuel appealed this judgment against them to the CA to the wrong parties Castañeda and Manuel squarely falls upon itself by its own action
but to no avail. They likewise sought to appeal the appellates’s court’s adverse jugdment and cannot be passed by it to petitioners as innocent parties. It is elementary that
but was also denied for lack of merit since the judgment against the defendants became payment made by a judgment debtor to a wrong party cannot extinguish the judgment
final and executory. obligation of such debtor to its creditor.
Thereafter, at petitioners’ instance, the lower court issued a writ of execution in favor of 2. No. The final and executory judgment against UTEX in favor of petitioners,
plaintiffs. declared petitioners as the owners of the questioned UTEX shares of stock as
against its co-defendants Castañeda and Manuel. Consequently, there is no
UTEX then filed a motion for partial reconsideration alleging that the cash dividends of legal nor equitable basis for respondent judge’s position "that it would indeed
the stocks corresponding to the period from 1972 to 1979 had already been paid and be most unjust and inequitable to require the defendant Universal Textile Mills,
delivered by it to co-defendants Castañeda and Manuel who then still appeared as the Inc. to pay twice cash dividends on particular shares of stocks.”
registered owners of the said share. The lower court granted the motion and partially
reconsidered its order of January 4, 1980 "to the effect that the defendant Universal It is equally elementary that once a judgment becomes final and executory, the court
Textile Mills, Inc. is absolved from paying the cash dividend corresponding to the stocks which rendered it cannot change or modify the same in any material aspect such as what
in question to the plaintiffs for the period 1972 to 1979.” y respondent judge has without authority attempted to do with his questioned order.
Execution of a final and executory judgment according to its terms is a matter of right
Hence the present action for for certiorari to set aside respondent judge’s questioned for the prevailing party and becomes the ministerial duty of the court
order of January 4, 1980.
Kalalo v. Luz
ISSUES: G.R. No. L – 27782 July 21, 1970 Zaldivar, J.
1. Whether or not payment to a wrong party by the judgment creditor extinguishes
the judgments debtors obligation? (Issue related to CIV2 topic - Modes of
Extinguishment of Obligations) DOCTRINE: If the obligation assumed by the defendant was to pay the plaintiff a
2. Whether or not the order of the court in modifying the judgment and absolving sum of money expressed in American currency, the indemnity to be allowed should
the payment of the cash dividends was proper? be expressed in Philippine currency at the rate of exchange at the time of judgment
rather than at the rate of exchange prevailing on the date of defendant's breach.
RULINGS:
1. No. It was made clear upon UTEX’ own motion for clarification that all NATURE OF ACTION:
dividends accruing to the said shares of stock after the rendition of the decision
of August 7, 1971 which for the period from 1972 to 1979 amounted to FACTS: Plaintiff Kalalo, a licensed civil engineer entered into an agreement with
P100,701.45 were to be paid by UTEX to petitioners, and UTEX, per the trial defendant Luz, a licensed architect, whereby the former was to render engineering
court’s order of clarification of June 16, 1971 above quoted had expressly design services to the latter for fees, as stipulated in the agreement. The services included
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design computation and sketches, contract drawing and technical specifications of all obligation incurred after the enactment of said Act. The logical Conclusion, therefore,
engineering phases of the project designed by O. A. Kalalo and Associates bill of is that the rate of exchange should be that prevailing at the time of payment. This view
quantities and cost estimate, and consultation and advice during construction relative to finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. where
the work. this Court held that even if the obligation assumed by the defendant was to pay the
plaintiff a sum of money expressed in American currency, the indemnity to be allowed
Kalalo sent Luz a statement of account for the balance of P 59, 565. However according should be expressed in Philippine currency at the rate of exchange at the time of
to Luz, the balance amounts to P10, 861.08; a check was sent covering the said amount judgment rather than at the rate of exchange prevailing on the date of defendant's breach.
but Kalalo refused to accept as full payment of the balance.
Ponce v. CA
Kalalo filed a complaint against Luz that there was an unpaid amount $28,000.00 and G.R. No. L – 49494 May 31, 1979 Melencio – Herrera, J.
P30,881.25. Luzargued that the claims were not justified by the services actually
rendered, and that the aggregate amount actually due to Kalalo was only P80,336.29, of
which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. DOCTRINE: What is prohibited by RA 529 is the payment of an obligation in
dollars, meaning that a creditor cannot oblige the debtor to pay him in dollars, even
The Trial Court, upon agreement of the parties, authorized the case to be heard before a if the loan were given in said current. In such a case, the indemnity to be allowed
Commissioner. The Commissioner rendered a report which, in resume, states that the should be expressed in Philippine Currency on the basis of the current rate of
amount due to Kalalo was $28,000.00 (U.S.) as his fee in the International Research exchange at the time of payment.
Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to
appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was NATURE OF ACTION: Petition for Certiorari seeking to set aside the Resolution of
already paid by the appellant. the CA reconsidering its earlier decision and reversing the judgment of the CFI of
Manila.
ISSUE: Whether Luz should pay the balance on the IRRI project on the basis of the rate
of exchange of the U.S. dollar to the Philippine peso at the time of payment of FACTS: Private Respondent Afable, together with Mendoza and Dino executed a
the judgment? Promissory note in favor of Petitioner Ponce in the sum of 814,868.42, that should the
indebtedness be not paid at maturity, it shall draw interest at 12% per annum, without
RULING: No. Under the agreement, Kalalo was entitled to 20%. Under the agreement, demand and that the debtors shall execute a first mortgage in favor of the creditor over
Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00. Kalalo, their properties or of the carmen planas memorial inc.
however, cannot oblige the Luz to pay him in dollars, even if appellant himself had
received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Upon failure of the debtors to comply with the terms of the promissory note, petitioners
Republic Act 529 which was enacted on June 16, 1950. filed a complaint against them with the CFI of Manila for the recovery of the principal
sum plus interest and damages.
If the obligation was incurred prior to the enactment of the Act and require payment in
a particular kind of coin or currency other than the Philippine currency the same shall Defendant Dino answer consisted of a general denial and the contention that she did not
be discharged in Philippine currency measured at the prevailing rate of exchange at the borrow any amount from the plaintiffs and that her signature on the promissory note was
time the obligation was incurred. As We have adverted to, RA 529 was enacted on June obtained by private respondents on their assurance that the same was for “formality
16, 1950. In the case now before Us the obligation of Luz to pay Kalalo the 20% of only”
$140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the
enactment of RA 529. It follows that the provision of Republic Act 529 which requires Defendant Afable asserted in her answer that the promissory note failed to express the
payment at the prevailing rate of exchange when the obligation was incurred cannot be true intent and agreement of the parties, the true agreement being that the obligation
applied. Republic Act 529 does not provide for the rate of exchange for the payment of therein mentioned would be assumed and paid entirely by defendant Mendoza, that she
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signed the document only as President of Carmen Planas Memorial Inc. and that she was no such provision shall be contained in, or made with respect to, any
not to incur any personal obligation as to the paymen thereof because the same would obligation hereafter incurred.”
be repaid by defendant Mendoza.
The above prohibition shall not apply to:
Mendoza admitted authenticity and due execution of the promissory note, but averred 1. Transactions were the funds involved are the proceeds of loans or investments
that it was a recapitulation of a series of transactions between her and the Petitioners; made directly or indirectly, through bona fide intermediaries or agents, by
Dino and Afable coming only as accommodation parties. That the promissory note was foreign governments, their agencies and instrumentalities, and international
the result of usurious transactions, and, as counterclaim, she prayed that petitioners be financial and banking institutions so long as the funds are identifiable, as
ordered to account for all the interests paid. having emanated from the sources enumerated above;
2. Transactions affecting high priority economic projects for agricultural
Petitioner denied under oath the allegations of usury. industrial and power development as may be determined by National Economic
Council which are financed by or through foreign funds;
Trial Court rendered judgment ordering respondents to pay jointly and severally the sum 3. Forward exchange transactions entered into between banks or between banks
of 814,868.49 plus 12% interest. and individuals or juridical persons;
4. Import-export and other international banking financial investment and
Afable appealed to the CA, she argued that the contract involved the payment of US industrial transactions.
dollars, and was, therefore, illegal and that under in pari delicto rule, since both parties
are guilty of violating the law, neither one can recover. With the exception of the cases enumerated in 1-4 in the foregoing provision, in, which
cases the terms of the parties’ agreement shall apply. Every other domestic obligation
The CA affirmed the decision of the trial court and denied respondent’s motion for heretofore or hereafter incurred whether or not any such provision as to payment is
reconsideration. However, the CA in a second motion for reconsideration set aside the contained therein or made with-respect thereto, shall be discharged upon payment in
decision, reversed the judgment of the trial court and dismissed the complaint. The CA any coin or currency which at the time of payment is legal tender for public and private
opined that the intent of the parties was that the PN was payable in US Dollars, and, debt.
therefore the transaction was illegal with neither party entitled to recover under the in
pari delicto rule. MR was denied. Petitioners filed this instant petition. It is to be noted that while an agreement to pay in dollars is declared as null and void
and of no effect, what the law specifically prohibits is payment in currency other than
ISSUE: Whether or not the agreement between the parties is covered by RA 529 thereby legal tender. It does not defeat a creditor’s claim for payment, as it specifically provides
making the same null and void on the ground that its payment should be made that “every other domestic obligation … whether or not any such provision as to
in US Dollars payment is contained therein or made with respect thereto., shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for public
RULING: No. the agreement is not covered by RA 529. and private debts” A contrary rule would allow a person to profit or enrich himself
inequitably at another’s expense. Even if we disregard the promissory note providing
Section 1 of RA 529, otherwise known as the “Asian Act To Assure Uniform Value To for the payment of the obligation in Philippine Currency and consider that the intention
Philippine Coins And Currency” enacted on June 16, 1950, states that: of the parties was really to provide for payment of the obligation would be made in
Every provision contained in, or made with respect to, any domestic dollars, petitioners can still recover the amount of US194,016.29 which respondents do
obligation to wit, any obligation contracted in the Philippines which not deny having received in its peso equivalent.
provision purports to give the obligee the right to require payment in gold
or in a particular kind of coin or currency other than Philippine currency If there is any agreement to pay an obligation in a currency other than Philippine legal
or in an amount of money of the Philippines measured thereby, be as it is tender the same is null and void for being contrary to public policy, pursuant to RA 529
hereby declared against public policy, and null voice and of no effect and and the most that could be demanded is to pay said obligation in Philippine currency.
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amount of P63,000.00 consisting of the Cashier's Check and cash. On the other hand,
New Pacific Timber & Supply Company, Inc. v. Hon. Alberto V. Seneris, respondent argues that Tong has the right to refuse payment by means of a check because
Ricardo A. Tong and Ex Officio Sheriff Hakim S. Abdulwahid under Section 63 of the Central Bank Act, checks representing deposit money do not
G.R. No. L – 41764 December 19, 1980 Concepcion, Jr., J. have legal tender power and their acceptance in payment of debts, both public and
private, is at the option of the creditor. In addition, Art. 1249 (NCC) provides that
mercantile documents shall produce the effect of payment only when they have been
DOCTRINE: Private respondent Tong cannot validly refuse acceptance of payment cashed, or when through the fault of the creditor they have been impaired and in the
by means of a certified cashier’s check which is deemed as cash in the business meantime, the action derived from the original obligation shall be held in abeyance.
sector. Moreover, payment of P13,130.00 in cash can be refused because such is less than the
judgment obligation, citing Art. 1248 (NCC) that unless there is an express stipulation
NATURE OF ACTION: A petition for certiorari with preliminary injunction to annul to that effect, the creditor cannot be compelled partially to receive the presentations in
and/or modify the order of CFI Zamboanga (Br.2) denying New Pacific's Ex-Parte which the obligation consists.
Motion for Issuance of Certificate of Satisfaction of Judgment.
ISSUE: Can private respondent Tong validly refuse acceptance of the payment of the
FACTS: In a collection suit, a compromise judgment was rendered by respondent Judge judgment obligation made by the petitioner New Pacific consisting of a
Seneris in accordance with an amicable settlement entered by the complainant Tong and Cashier's Check and cash which was deposited with the Ex-Officio Sheriff
defendant New Pacific. The parties agreed that a writ of execution may be issued for the before the date of the scheduled auction sale?
satisfaction of the obligation in case New Pacific fails to comply with any of the
conditions. Thereafter, New Pacific failed to comply and a writ of execution was issued RULING: No, Tong cannot refuse payment. The check deposited byNew Pacific is not
for P63,130.00 and Ex-Officio Sheriff Abdulwahid set the auction sale of personal an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a bank
properties of New Pacific on January 15, 1975. However, prior to January 15, New of good standing and reputation and it’s also a certified crossed check, as testified to by
Pacific deposited with the Clerk of Court, CFI, Zamboanga City, a P50.000.00 Cashier's the Ex-Officio Sheriff.
Check of the Equitable Banking Corporation and P13,130.00 in cash as payment.
It is a well-known and accepted practice in the business sector that a Cashier's Check is
Tong refused to accept the check and cash deposit and requested the scheduled auction deemed as cash. Moreover, since the said check had been certified by the drawee bank,
sale to proceed if the New Pacific cannot produce the cash. After several postponements, by the certification, the funds represented by the check are transferred from the credit of
the auction sale was set on January 16 at 10:00 o'clock a.m. On January 16, At about the maker to that of the payee or holder, and for all intents and purposes, the latter
9:15 a.m., representatives of New Pacific requested the Ex-Officio Sheriff to give them becomes the depositor of the drawee bank, with rights and duties of one in such situation.
fifteen minutes within which to contract their lawyer which request was granted. After
they failed to return, the Ex-Officio Sheriff proceeded with the auction sale. Despite the Where a check is certified by the bank on which it is drawn, the certification is equivalent
sale of all items, a deficiency of P13,130.0 was declared, hence, a "Sheriff's Certificate to acceptance. Said certification "implies that the check is drawn upon sufficient funds
of Sale" was issued in favor of Tong for only P50,000.00. in the hands of the drawee, that they have been set apart for its satisfaction, and that they
shall be so applied whenever the check is presented for payment. It is an understanding
An ex-parte motion for issuance of certificate of satisfaction of judgment was filed by that the check is good then, and shall continue good, and this agreement is as binding on
New Pacifc but was later denied by the respondent Judge. Hence, this petition. The SC the bank as its notes in circulation, a certificate of deposit payable to the order of the
issued a TRO enjoining the respondent Ex-Officio Sheriff from delivering the personal depositor, or any other obligation it can assume. The object of certifying a check, as
properties subject to Tong. regards both parties, is to enable the holder to use it as money." When the holder
procures the check to be certified, "the check operates as an assignment of a part of the
New Pacific argued that there’s already full satisfaction of the judgment before the funds to the creditors." Hence, the exception to the rule enunciated under Section 63 of
auction sale was conducted with the deposit made to the Ex-Officio Sheriff in the the Central Bank Act to the effect "that a check which has been cleared and credited to
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the account of the creditor shall be equivalent to a delivery to the creditor in cash in an After, private respondent, through its president, Atty. Francisco, again, wrote the
amount equal to the amount credited to his account" shall apply in this case. counsel of the petitioner requesting an extension of 30 days from to fully settle its
account. The petitioner’s counsel, Atty. Fernandez, wrote a reply 12 to the private
Considering that the whole amount deposited by New Pacific covers the judgment respondent stating the refusal of his client to execute the deed of absolute sale due to its
obligation of P63,000.00, there’s no valid reason for Tong to refuse acceptance of the (private respondent’s) failure to pay its full obligation. Moreover, the petitioner denied
payment. The auction sale, therefore, was uncalled for. Furthermore, it appears that on that the private respondent had made any tender of payment whatsoever within the grace
January 17, the Cashier's Check was even withdrawn by New Pacific and replaced with period. In view of this alleged breach of contract, the petitioner cancelled the contract
cash in the corresponding amount of P50,000.00 on January 27, 1975 pursuant to an and considered all previous payments forfeited and the land as ipso facto reconveyed.
agreement entered into by the parties at the instance of the respondent Judge. However, The petitioner contends that since the defendant failed to pay his obligations, the
Tong still refused to receive the same. Obviously, Tong is more interested in the levied contract between them should be rescinded and the payment earlier received will be
properties than in the mere satisfaction of the judgment obligation. forfeited in favor of Roman Catholic Bishop of Malolos. On the other hand, the
respondents aver that there is a valid tender and consignation on their part, hence they
Roman Catholic Bishop of Malolos, Inc. v. IAC should be given the documents pertaining to the sale of the property.
G.R. No. 72110 November 16, 1990 Sarmiento, J.
The RTC favored Bishop declaring the down payment as forfeited but the CA reversed
the said decision. RTC favored Bishop declaring the down payment as forfeited
DOCTRINE: Tender of payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the obligee for the former’s ISSUE:
obligation and demanding that the latter accept the same. Thus, tender of payment 1. Is a finding that private respondent had sufficient available funds on or before
cannot be presumed by a mere inference from surrounding circumstances. the grace period for the payment of its obligation proof that it (private
respondent) did make a tender of payment for its said obligation within said
NATURE OF ACTION: Petitioion for review on certiorari period?
2. Is an offer of a check a valid tender of payment of an obligation under a contract
FACTS: A contract over the land was executed between the Roman Catholic Bishop of which stipulates that the consideration of the sale is in Philippine Currency?
Malolos (bishop) as vendor and Robles-Francisco Realty through its then president, Mr.
Carlos F. Robes, as vendee, stipulating for a down payment of P23,930 and the balance RULINGS:
of P100,000 plus 12% interest per annum to be paid within 4 years from execution of 1. The court ruled in the negative. We agree with the petitioner that a finding that
the contract. The contract likewise provides for cancellation, forfeiture of previous the private respondent had sufficient available funds on or before the grace
payments, and conveyance of the land in case of failure to pay within the period. period for the payment of its obligation does not constitute proof of tender of
payment by the latter for its obligation within the said period. Tender of
Several months after, private respondent, through its new president, Atty. Adalia payment involves a positive and unconditional act by the obligor of offering
Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, legal tender currency as payment to the obligee for the former’s obligation and
Bulacan, requesting to be furnished with a copy of the subject contract and the demanding that the latter accept the same. Thus, tender of payment cannot be
supporting documents. After the expiration of the stipulated period for payment, Atty. presumed by a mere inference from surrounding circumstances. At most,
Francisco wrote the formal request that her company be allowed to pay the principal sufficiency of available funds is only affirmative of the capacity or ability of
amount of P100,000 in 3 equal installments of 6 months each with the 1st installment the obligor to fulfill his part of the bargain. But whether or not the obligor avails
and the accrued interest of P24,000 to be paid immediately upon approval. Bishop himself of such funds to settle his outstanding account remains to be proven by
through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted independent and credible evidence.
a grace period of 5 days from the receipt of the denial to pay the total balance of
P124,000.
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Tender of payment presupposes not only that the obligor is able, ready, and willing, but
more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. "A FACTS: A case for collection of sum of money was filed by Eden Tan against Spouses
proof that an act could have been done is no proof that it was actually done." The Tibajia. A writ of attachment was issued in said case, and per the Sheriff’s return, a
respondent court was therefore in error to have concluded from the sheer proof of deposit made by the Spouses in RTC of Kalookan was garnished. The RTC rendered
sufficient available funds on the part of the private respondent to meet more than the judgment in the collection case in favor of Tan and ordered the spouses to pay her an
total obligation within the grace period, the alleged truth of tender of payment. The same amount in excess of Php 300,000. The decision became final and Tan moved for the
is a classic case of non-sequitur. execution of judgment.
2. The court also ruled in the negative. With regard to the third issue, granting Later, spouses delivered to the Sheriff the total money judgment in the following form:
arguendo that we would rule affirmatively on the two preceding issues, the case (a) cashier’s check amounting to Php 262,750 and cash amounting to Php 135,733.70.
of the private respondent still cannot succeed in view of the fact that the latter Tan refused to accept the payment and insisted that the garnished funds from RTC
used a certified personal check which is not legal tender nor the currency Caloocan be deposited with the cashier.
stipulated, and therefore, cannot constitute valid tender of payment. The first
paragraph of Art. 1249 of the Civil Code provides that "the payment of debts Plaintiffs now moved to lift the order of execution stating that there was valid tender of
in money shall be made in the currency stipulated, and if it is not possible to payment. The trial court denied the motion stating that cashier’s checks are not
deliver such currency, then in the currency which is legal tender in the considered as legal tender. The CA affirmed the judgment of the trial court.
Philippines.
ISSUE: Whether the payment of cashier’s check is considered as legal tender in order
The Court en banc in the recent case of Philippine Airlines v. Court of Appeals, to effect a valid tender of payment.
(Promulgated on January 30, 1990) G.R. No. L-49188, stated thus: Since a negotiable
instrument is only a substitute for money and not money, the delivery of such an RULING: The Court ruled in the negative.
instrument does not, by itself, operate as payment (citing Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Art. 1249 is instructive, to wit: The payment of debts in money shall be made in the
Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager’s check or currency stipulated, and if it is not possible to deliver such currency, then in the currency
ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a which is legal tender in the Philippines. The delivery of promissory notes payable to
valid tender of payment and may be refused receipt by the obligee or creditor. Hence, order, or bills of exchange or other mercantile documents shall produce the effect of
where the tender of payment by the private respondent was not valid for failure to payment only when they have been cashed, or when through the fault of the creditor
comply with the requisite payment in legal tender or currency stipulated within the grace they have been impaired.
period and as such, was validly refused receipt by the petitioner, the subsequent
consignation did not operate to discharge the former from its obligation to the latter. Petitioner erroneously relied on a dissenting opinion in the case of Philippine Airlines
vs. Court of Appeals in stating that it is a well- known and accepted practice in the
Tibajia, Jr. v. CA business sector that a cashier’s check is deemed as cash.
G.R. No. 100290 June 4, 1993 Padilla,J.
In the recent case of Fortunado vs Court of Appeals, the Court stressed that it is not
sanctioning the use of check for the payment of obligations over the objection of the
DOCTRINE: A check, whether a manager's check or ordinary check, is not legal creditor.
tender, and an offer of a check in payment of a debt is not a valid tender of payment
and may be refused receipt by the obligee or creditor. The ruling in these two (2) cases merely applies the statutory provisions which lay down
the rule that a check is not legal tender and that a creditor may validly refuse payment
NATURE OR ACTION: Action for Sum of Money/ Annulment of Judgment by check, whether it be a manager's, cashier's or personal check.
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fees and issued a post-dated check dated June 30, 1997 as security. As had been done in
WHEREFORE, the petition is DENIED. the past, the respondent superimposed the date "June 30, 1997" on the upper right
portion of Promissory Note No. 97-035 to make it appear that it would mature on the
Bognot v. RRI Lending Corp. said date.
G.R. No. 180144 September 24, 2014 Brion, J.
Several days before the loan’s maturity, Rolando’s wife, Julieta, went to the
respondent’s office and applied for another renewal of the loan. She issued in favor of
DOCTRINE: One who pleads payment has the burden of proving it; the burden the respondent Promissory Note and International Bank Exchange Check dated July 30,
rests on the defendant to prove payment, rather than on the plaintiff to prove non- 1997, in the amount of ₱54,600.00 as renewal fee.
payment. Indeed, once the existence of an indebtedness is duly established by
evidence, the burden of showing with legal certainty that the obligation has been On the excuse that she needs to bring home the loan documents for the Bognot siblings’
discharged by payment rests on the debtor. signatures and replacement, Mrs. Bognot asked the respondent’s clerk to release to her
the promissory note, the disclosure statement, and the check dated July 30, 1997. Mrs.
In order to give novation legal effect, the creditor should consent to the substitution Bognot, however, never returned these documents nor issued a new post-dated check.
of a new debtor. Novation must be clearly and unequivocally shown, and cannot be Respondent sent the petitioner follow-up letters demanding payment of the loan, plus
presumed. interest and penalty charges but to no avail
NATURE OF ACTION: Petition for Review on Certiorari Regional Trial Court: On November 27, 1997, the respondent, through Bernardez,
filed a complaint for sum of money against the Bognot siblings, mainly alleging that the
FACTS: Respondent RRI Lending Corporation is engaged in the business of lending loan renewal payable on June 30, 1997 which the Bognot siblings applied for remained
money within Metro Manila, represented by its General Manager Dario Bernardez. unpaid; that before June 30, 1997, Mrs. Bognot applied for another loan extension and
issued IBE Check as payment for the renewal fee; that Mrs. Bognot convinced the
In September 1996, the petitioner Leonardo Bognot and his younger brother, Rolando respondent’s clerk to release to her the promissory note and the other loan documents;
A. Bognot applied for and obtained a loan ₱500,000.00 from the RRI, payable on that since Mrs. Bognot never issued any replacement check, no loan extension took place
November 30, 1996. The loan was evidenced by a promissory note and was secured by and the loan, originally payable on June 30, 1997, became due on this date; and despite
a post dated check dated November 30, 1996. repeated demands, the Bognot siblings failed to pay their joint and solidary obligation.
Petitioner renewed the loan several times on a monthly basis. Bognot paid a renewal fee Summons were served on the Bognot siblings. However, only the petitioner filed his
of ₱54,600.00 for each renewal, issued a new post-dated check as security, and executed answer, claiming that the complaint states no cause of action because the respondent’s
and/or renewed the promissory note previously issued. RRI on the other hand, cancelled claim had been paid, waived, abandoned or otherwise extinguished. He denied being a
and returned to the petitioner the post-dated checks issued prior to their renewal. party to any loan application and/or renewal in May 1997. He also denied having issued
the BPI check post-dated to June 30, 1997, as well as the promissory note dated June
In March 1997, the Bognot applied for another loan renewal. He again executed as 30, 1997, claiming that this note had been tampered. He claimed that the one (1) month
principal and signed a promissory note payable on April 1, 1997; his co-maker was again loan contracted by Rolando and his wife in November 1996 which was lastly renewed
Rolando. As security for the loan, the petitioner also issued BPI Check post dated to in March 1997 had already been fully paid and extinguished in April 1997.
April 1, 1997.
In a decision dated January 17, 2000, the RTC ruled in favor of the respondent and
Subsequently, the loan was again renewed on a monthly basis, until June 30, 1997, as ordered the Bognot siblings to pay the amount of the loan, plus interest and penalty
shown by an Official Receipt dated May 5, 1997, and the Disclosure Statement dated charges. It considered the wordings of the promissory note and found that the loan they
May 30, 1997 duly signed by Bernardez. The petitioner purportedly paid the renewal contracted was joint and solidary. It also noted that the petitioner signed the promissory
CIVIL LAW REVIEW 2
note as a principal (and not merely as a guarantor), while Rolando was the co-maker. It 2. Whether the parties’ obligation was extinguished novation by substitution of
brushed the petitioner’s defense of full payment aside, ruling that the respondent had debtors.
successfully proven, by preponderance of evidence, the nonpayment of the loan.
RULINGS:
Court of Appeals: The petitioner appealed the decision to the Court of Appeals. 1. No. No evidence was presented to establish the fact of payment
In its decision dated March 28, 2007, the CA affirmed the RTC’s findings. It found the The Supreme Court reiterates that jurisprudence tells us that one who pleads payment
petitioner’s defense of payment untenable and unsupported by clear and convincing has the burden of proving it; the burden rests on the defendant to prove payment, rather
evidence. It observed that the petitioner did not present any evidence showing that the than on the plaintiff to prove non-payment. Indeed, once the existence of an
check dated June 30, 1997 had, in fact, been encashed by the respondent and the indebtedness is duly established by evidence, the burden of showing with legal certainty
proceeds applied to the loan, or any official receipt evidencing the payment of the loan. that the obligation has been discharged by payment rests on the debtor.
It further stated that the only document relied upon by the petitioner to substantiate his
defense was the April 1, 1997 check he issued which was cancelled and returned to him In the case at bar, the petitioner failed to satisfactorily prove that his obligation had
by the respondent. already been extinguished by payment. As the CA correctly noted, the petitioner failed
to present any evidence that the respondent had in fact encashed his check and applied
The CA, however, noted the respondent’s established policy of cancelling and returning the proceeds to the payment of the loan. Neither did he present official receipts
the post-dated checks previously issued, as well as the subsequent loan renewals applied evidencing payment, nor any proof that the check had been dishonored. The petitioner
for by the petitioner, as manifested by the official receipts under his name. The CA thus merely relied on the respondent’s cancellation and return to him of the check dated April
ruled that the petitioner failed to discharge the burden of proving payment. 1, 1997. The evidence shows that this check was issued to secure the indebtedness. The
acts imputed on the respondent, standing alone, do not constitute sufficient evidence of
The petitioner moved for the reconsideration of the decision, but the CA denied his payment.
motion in its resolution of October 15, 2007, hence, the present recourse to us pursuant
to Rule 45 of the Rules of Court. Article 1249, paragraph 2 of the Civil Code provides: “The delivery of promissory notes
payable to order, or bills of exchange or other mercantile documents shall produce the
Petitioner claims that based on the legal presumption provided by Article 1271 of the effect of payment only when they have been cashed, or when through the fault of the
Civil Code, his obligation had been discharged by virtue of his possession of the post- creditor they have been impaired.”
dated check (stamped "CANCELLED") that evidenced his indebtedness. He argued that
it was Mrs. Bognot who subsequently assumed the obligation by renewing the loan, Furthermore, the Supreme Court emphasized the rule that payment must be made in
paying the fees and charges, and issuing a check. Thus, there is an entirely new legal tender. A check is not legal tender and, therefore, cannot constitute a valid tender
obligation whose payment is her sole responsibility. He also claims that he had been of payment. Since a negotiable instrument is only a substitute for money and not money,
released from his indebtedness by novation when Mrs. Bognot renewed the loan and the delivery of such an instrument does not, by itself, operate as payment. Mere delivery
assumed the indebtedness. of checks does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is
Respondent submits that the issues the petitioner raised hinge on the appreciation of the actually realized. (Bank of the Philippine Islands v. Spouses Royeca)
adduced evidence and of the factual lower courts’ findings that, as a rule, are not
reviewable by this Court. Although Article 1271 of the Civil Code provides for a legal presumption of
renunciation of action (in cases where a private document evidencing a credit was
ISSUES: voluntarily returned by the creditor to the debtor), this presumption is merely prima facie
1. Whether the parties’ obligation was extinguished by payment. and is not conclusive; the presumption loses efficacy when faced with evidence to the
contrary. Moreover, the cited provision merely raises a presumption, not of payment,
CIVIL LAW REVIEW 2
but of the renunciation of the credit where more convincing evidence would be required a new promissory note. He further claimed that she issued her own check to cover the
than what normally would be called for to prove payment. Thus, reliance by the renewal fees, which fact, according to the petitioner, was done with the respondent’s
petitioner on the legal presumption to prove payment is misplaced. consent. However, contrary to the petitioner’s contention, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to renew the original loan
Finally, it is established that no cash payment was proven by the petitioner. The by executing a new promissory note and check. The purported one month renewal of
cancellation and return of the check dated April 1, 1997, simply established his renewal the loan, however, did not push through, as Mrs. Bognot did not return the documents
of the loan – not the fact of payment. Furthermore, it has been established during trial, or issue a new post dated check. Since the loan was not renewed for another month, the
through repeated acts, that the respondent cancelled and surrendered the post-dated original due date, June 30,1997, continued to stand.
check previously issued whenever the loan is renewed.
More importantly, the respondent never agreed to release the petitioner from his
2. No. The petitioner’s belated claim of Novation by Substitution may no longer obligation. That the respondent initially allowed Mrs. Bognot to bring home the
be entertained. The Supreme Court held that the petitioner never raised this promissory note, disclosure statement and the petitioner’s previous check dated June 30,
issue before the lower courts. It is a settled principle of law that no issue may 1997, does not ipso facto result in novation. Neither will this acquiescence constitute an
be raised on appeal unless it has been brought before the lower tribunal for its implied acceptance of the substitution of the debtor.
consideration. Matters neither alleged in the pleadings nor raised during the
proceedings below cannot be ventilated for the first time on appeal before the In order to give novation legal effect, the creditor should consent to the substitution
Supreme Court. of a new debtor. Novation must be clearly and unequivocally shown, and cannot be
presumed. Hence, in the absence of showing that Mrs. Bognot and the respondent had
In any event, the Court finds no merit in the defense of novation Novation cannot be agreed to release the petitioner, the respondent can still enforce the payment of the
presumed and must be clearly and unequivocably proven. Novation is a mode of obligation against the original debtor. Mere acquiescence to the renewal of the loan,
extinguishing an obligation by changing its objects or principal obligations, by when there is clearly no agreement to release the petitioner from his responsibility, does
substituting a new debtor in place of the old one, or by subrogating a third person to the not constitute novation.
rights of the creditor (Article 1293 of the Civil Code).
Velasco v. MERALCO
Hence, to give novation legal effect, the original debtor must be expressly released from G.R. No. L – 18390 December 20, 1971 Reyes, J.B. L., J.
the obligation, and the new debtor must assume the original debtor’s place in the
contractual relationship. Depending on who took the initiative, novation by substitution
of debtor has two forms – substitution by expromision and substitution by delegacion. DOCTRINE: It can be seen from the employment of the words "extraordinary
"In expromision, the initiative for the change does not come from -- and may even be inflation or deflation of the currency stipulated" that the legal rule envisages
made without the knowledge of -- the debtor, since it consists of a third person’s contractual obligations where a specific currency is selected by the parties as the
assumption of the obligation. As such, it logically requires the consent of the third person medium of payment; hence it is inapplicable to obligations arising from tort and not
and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person from contract, as in the case at bar.
who consents to the substitution and assumes the obligation; thus, the consent of these
three persons are necessary" (Garcia v. Llamas). In both cases, the original debtor must NATURE OF ACTION: Motion for Reconsideration (refer to the case digest of the
be released from the obligation; otherwise, there can be no valid novation. Furthermore, earlier case below)
novation by substitution of debtor must always be made with the consent of the creditor.
FACTS: Appellant filed a motion for reconsideration with the Court for the reason that
In the case at bar, petitioner contends that novation took place through a substitution of that the decision is alleged to have incorrectly assessed appellant’s damages and
debtors when Mrs. Bognot renewed the loan and assumed the debt. He alleged that Mrs. unreasonably reduced their amount in its decision on August 6, 1971. Appellant argues
Bognot assumed the obligation by paying the renewal fees and charges, and by executing
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that the decision did not take into account the undeclared income in the computation of For the foregoing reasons, the motion for reconsideration is denied.
appellant’s total loss of income.
Case Digest of the earlier case:
Second, Appellant Velasco urges that the damages awarded him are inadequate
considering the present high cost of living, and calls attention to Article 1250 of the FACTS: Velasco bought from the People's Homesite and Housing Corporation three
present Civil Code and the case of People vs. Pantoja. (3) adjoining lots situated at the corner of South D and South 6 Streets, Diliman, Quezon
City. These lots are within an area zoned out as a "first residence" district by the City
Council of Quezon City. Subsequently, two lots were sold to Meralco, but retained the
ISSUES: third lot to build his house. In 1953, the appellee company started the construction of
1. Whether or not the damages were incorrectly assessed by not including the the sub-station finished it without prior building permit or authority from the Public
appellant’s undeclared income. Service. This facility reduces high voltage electricity to a current suitable for distribution
2. Whether or not Article 1250 is applicable to obligations arising from tort. to the company's consumers, It was constructed at a distance of 10 to 20 meters from the
appellant's house and built a stone and cement wall at the sides along the streets but
RULING: On the first issue, The Court ruled in the negative. First, the amount of along the side adjoining the appellant's property it put up a sawale wall but later changed
undeclared income of P8,338.20 was kept apart from the ordinary earnings of appellant it to an interlink wire fence.
for the year 1954 (P10,975), is in itself circumstantial evidence that it was not of
comparable character. Second, if it was part of his ordinary professional income, A sound emanates from the substation. Plaintiff-appellant Velasco contends that the
appellant was guilty of fraud in not declaring it and he should not be allowed to derive sound constitutes an actionable nuisance under Article 694 of the Civil Code of the
advantage from his own wrongdoing. Third, the decision pointed out that by including Philippines, because subjection to the sound since 1954 had disturbed the concentration
the undeclared amount in appellant’s disclosed professional earnings, as a physician, the and sleep of said appellant, and impaired his health and lowered the value of his
grand total becomes abnormally high compared to his earning for the three preceding property. He sought for a judicial decree for the abatement of the nuisance and asked
years. Lastly, Finally, the true source of the undeclared amount lay in appellant’s own that he be declared entitled to compensatory, moral and other damages. The court found
knowledge, but he chose not to disclose it. the sound of substation to be unavoidable and did not constitute nuisance; that it could
not have caused the diseases of anxiety neurosis, pyelonephritis, ureteritis, lumbago and
It can be seen from the employment of the words "extraordinary inflation or deflation of anemia; and that the items of damage claimed by plaintiff were not adequate proved.
the currency stipulated" that the legal rule envisages contractual obligations where a
specific currency is selected by the parties as the medium of payment; hence it is ISSUES:
inapplicable to obligations arising from tort and not from contract, as in the case at bar, 1. Whether or not the sound emitted is considered actionable nuisance.
besides there being no showing that the factual assumption of the article has come into 2. Whether or not appellant is entitled to damages.
existence As to the Pantoja ruling, the regard paid to the decreasing purchase of the peso
was considered a factor in estimating the indemnity due for loss of life, which in itself RULING:The Court ruled that the noise continuously emitted, day and night,
is not susceptible of accurate estimation. The damages awarded to herein appellant were constitutes an actionable nuisance for which the appellant is entitled to relief, by
by no means full compensatory damages, since the decision makes clear that appellant, requiring the appellee company to adopt the necessary measures to deaden or reduce the
by his failure to minimize his damages by means easily within his reach, was declared sound at the plaintiff's house, by replacing the interlink wire fence with a partition made
entitled only to a reduced award for the nuisance sued upon and the amount granted him of sound absorbent material, since the relocation of the substation is manifestly
had already taken into account the changed economic circumstances. impracticable and would be prejudicial to the customers of the Electric Company who
are being serviced from the substation.
Nor is the fact that appellant lost a chance to sell his house for P95,000 to Jose Valencia
constitute a ground for an award of damages in that amount. As remarked in the main Regarding the amount of damages claimed by appellant, it is plain that the same are
decision, there is no adequate proof of loss, exaggerated. The alleged loss of earnings at the rate of P19,000 per annum is predicated
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on the Internal Revenue assessment, wherein appellant was found to have undeclared
income of P8,338.20 in additional to his declared gross income of P10,975.00 for 1954. In 1959, Amigable filed in the CFI Cebu a complaint to recover ownership and
There is no competent showing, however, that the source of such undeclared income possession of the land, and for damages in the sum of P50,000.00 for the alleged illegal
was appellant's profession. occupation of the land by the Government, moral damages in the sum of P25,000.00,
and attorney's fees in the sum of P5,000.00, plus costs of suit. In its answer, the Republic
As to the demand for exemplary or punitive damages, there appears no adequate basis alleged that the land was either donated or sold by its owners to the province of Cebu to
for their award. While the appellee Manila Electric Company was convicted for erecting enhance its value, and that in any case, the right of the owner, if any, to recover the value
the substation in question without permit from the Public Service Commission, the of said property was already barred by estoppel and the statute of limitations. In addition,
explanation that its officials and counsel had originally deemed that such permit was not it invoked the non-suability of the Government.
required as the installation was authorized by the terms of its franchise was deemed
reasonable. Neither the absence of such permit is incompatible with the Company's good Amigable’s complaint was dismissed. Hence, she appealed to the SC. The decision was
faith. reversed, and the case was remanded to the CFI for the determination of just
Other factors mitigating defendant’s liability in damages are: 1. the noise from the compensation, including attorney's fees. The SC also directed that to determine just
substation does not appear to be an exclusive causative factor of plaintiff-appellant's compensation, the basis should be the price or value thereof at the time of the taking.
illnesses. No other person in Velasco's own household nor in his immediate
neighborhood was shown to have become sick despite the noise complained of. 2. His During the subsequent hearing, the Government proved the value of the property to be
passivity in the face of the damage caused to him by the noise of the substation. at P2.37 per square meter at the time of the taking thereof in 1924 with certified copies,
Realizing as a physician that the latter was disturbing or depriving him of sleep and issued by the Bureau of Records Management, of deeds of conveyance executed in 1924
affecting both his physical and mental well-being, he did not take any steps to bring or thereabouts, of several parcels of land in the Banilad Friar Lands in which the property
action to abate the nuisance or remove himself from the affected area as soon as the in question is located. On the other hand, Amigable presented newspaper clippings of
deleterious effects became noticeable. the Manila Times showing the value of the peso to the dollar obtained about the middle
of 1972, which was P6.775 to a dollar.
Commissioner of Public Highways v. Hon. Francisco P. Burgos (Judge of CFI Thereafter, the Court rendered judgment in 1973 directing the Republic to pay Amigable
Cebu City, Branch 11) and Victoria Amigable the sum of P49,459.34 as the value of the property taken, plus P145,410.44 representing
G.R. No. L – 36706 March 31, 1980 De Castro, J. interest at 6% on the principal amount of P49,459.34 from the year 1924 up to the date
of the decision, plus 10% attorney's fees of 10% or a grand total of P214,356.75.
Hence, this petition for review by certiorari.
DOCTRINE: Article 1250 (NCC) on payment of an obligation in an amount The SolGen contends that the CFI in applying Article 1250 (NCC) by considering the
different from what has been agreed upon by the parties because of a supervening value of the peso to the dollar at the time of hearing, in determining due compensation
extra-ordinary inflation or deflation applies only to cases where a contract or to be paid for the property taken violated the order of this Court, in its 1972 decision to
agreement is involved. It does not apply where the obligation to pay arises from law, make as basis of the determination of just compensation the price or value of the land at
independent of contract. The taking of private property by the Government in the the time of the taking.
exercise of its power of eminent domain does not give rise to a contractual obligation.
ISSUE: Can Article 1250 (NCC) be applied in determining the amount of compensation
NATURE OF ACTION: Petition for Review by Certiorari to be paid to Amigable for the property taken?
FACTS: Private Respondent Amigable owns a parcel of land situated in Cebu City with RULING: No, Article 1250 (NCC) on payment of an obligation in an amount different
an area of 6,167 sqm. In 1924, the Government expropriated such land for road-right- from what has been agreed upon by the parties because of a supervening extra-ordinary
of-way purpose and later became Mango Avenue and Gorordo Avenue in Cebu City. inflation or deflation applies only to cases where a contract or agreement is involved. It
CIVIL LAW REVIEW 2
does not apply where the obligation to pay arises from law, independent of contract. The From what has been said, the correct amount of compensation due private respondent
taking of private property by the Government in the exercise of its power of eminent for the taking of her land for a public purpose would be not P49,459.34, as fixed by the
domain does not give rise to a contractual obligation. respondent court, but only P14,615.79 at P2.37 per square meter, the actual value of the
land of 6,167 square meters when it was taken in 1924. The interest in the sum of
ART. 1250. In case extra-ordinary inflation or deflation of the currency P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its
stipulated should supervene, the value of the currency at the time of the decision, as was awarded by the said court should accordingly be reduced.
establishment of the obligation shall be the basis of payment, unless there
is an agreement to the contrary. Filipino Pipe & Foundry Corp. v. NAWASA
G.R. No. L – 43446 May 3, 1988 Aquino, J.
It was held in Velasco vs. Manila Electric Co., et al., L-19390, that the law clearly
provides that the value of the currency at the time of the establishment of the obligation
shall be the basis of payment which, in cases of expropriation, would be the value of the DOCTRINE: Extraordinary inflation exists "when there is a decrease or increase in
peso at the time of the taking of the property when the obligation to pay arises. It is only the purchasing power of the Philippine currency which is unusual or beyond the
when there is an "agreement to the contrary" that the extraordinary inflation will make common fluctuation in the value said currency, and such decrease or increase could
the value of the currency at the time of payment, not at the time of the establishment of not have reasonably foreseen or was manifestly beyond contemplation the the parties
the obligation, the basis for payment. at the time of the establishment of the obligation.
In the absence of any agreement to the contrary, the value of the peso at the time of the NATURE OF ACTION: Appeal
establishment of the obligation, which is when the property was taken possession of by
the Government, must be considered for the purpose of determining just compensation. FACTS: On June 12,1961, the NAWASA entered into a contract with the plaintiff
Obviously, there can be no "agreement to the contrary" to speak of because the FPFC for the latter to supply it with 4" and 6" diameter centrifugally cast iron pressure
obligation of the Government sought to be enforced in the present action does not pipes worth P270,187.50 to be used in the construction of the Anonoy Waterworks in
originate from contract, but from law which, generally is not subject to the will of the Masbate and the Barrio San Andres-Villareal Waterworks in Samar. Defendant
parties. And there being no other legal provision cited which would justify a departure NAWASA paid in installments on various dates, a total of P134,680.00 leaving a
from the rule that just compensation is determined on the basis of the value of the balance of 135,507.50 excluding interest. Having completed the delivery of the pipes,
property at the time of the taking thereof in expropriation by the Government, the value the plaintiff demanded payment from the defendant of the unpaid balance of the price
of the property as it is when the Government took possession of the land in question, not with interest in accordance with the terms of their contract. When the NAWASA failed
the increased value resulting from the passage of time which invariably brings unearned to pay the balance of its account, the plaintiff filed a collection suit on March 16, 1967
increment to landed properties, represents the true value to be paid as just compensation in the Court of First Instance of Manila.
for the property taken.
Regional Trial Court: Ordering the defendant to pay the unpaid balance of
Herein, the 25-year unusually long delay of Amigable in bringing the action which a P135,507.50 in NAWASA negotiable bonds, redeemable after ten years from their
stricter application of the law on estoppel and the statute of limitations and prescription issuance with interest at 6% per annum, P40,944.73 as interest up to March 15, 1966
may have divested her of the rights she seeks is an added circumstance militating against and the interest accruing thereafter to the issuance of the bonds at 6% per annum and the
payment to her of an amount bigger than the value of the property as should have been costs.
paid at the time of the taking. A penalty is always visited upon one for his inaction,
neglect or laches in the assertion of his rights allegedly withheld from him, or otherwise Defendant, however, failed to satisfy the decision. It did not deliver the bonds to the
transgressed upon by another. judgment creditor. On February 18, 1971, the plaintiff FPFC filed another complaint
seeking an adjustment of the unpaid balance in accordance with the value of the
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Philippine peso when the decision in Civil Case No. 66784 was rendered on November Del Rosario v. Shell
23, 1967. G.R. No. L – 28776 August 19, 1988 Paras, J.
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground
that it is barred by the 1967 decision. DOCTRINE: While no express reference has been made to metallic content, there
nonetheless is a reduction in par value or in the purchasing power of Philippine
The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the currency. Even assuming there has been no official devaluation as the term is
ground that the bar by prior judgment did not apply to the case because the causes of technically understood, the fact is that there has been a diminution or lessening in the
action in the two cases are different: the first action being for collection of the purchasing power of the peso, thus, there has been a “depreciation.” Moreover, when
defendant's indebtedness for the pipes, while the second case is for adjustment of the laymen unskilled in the semantics of economics use the terms “devaluation” or
value of said judgment due to alleged supervening extraordinary inflation of the “depreciation” they certainly mean them in their ordinary signification - decrease in
Philippine peso which has reduced the value of the bonds paid to the plaintiff. value.
ISSUE: Whether or not there exists an extraordinary inflation of the currency justifying NATURE OF ACTION: Appeal
an adjustment of NAWASA's unpaid judgment obligation to FPFC.
FACTS: The parties entered into a Lease Agreement whereby the plaintiff-appellant
RULING: NONE. Article 1250 of the Civil Code provides: “In case an extraordinary leased a parcel of land to the defendant-appellee at a monthly rental of Two Hundred
inflation or deflation of the currency stipulated should supervene, the value of the Fifty Pesos. They agreed that in the event of an official devaluation or appreciation of
currency at the time of the establishment of the obligation shall be the basis of payment, the Philippine currency the rental specified shall be adjusted in accordance with the
unless there is an agreement to the contrary.” provisions of any law or decree declaring such devaluation or appreciation as may
specifically apply to rentals.
The plaintiff presented voluminous records and statistics showing that a spiralling
inflation has marked the progress of the country from 1962 up to the present. There is President Diosdado Macapagal promulgated Executive Order No. 195 titled “Changing
no denying that the price index of commodities, which is the usual evidence of the value the Par Value of the Peso from US$0.50 to US$0.2564103.
of the currency has been rising.
By reason of this Executive Order No. 195, plaintiff-appellant demanded from the
Extraordinary inflation exists "when there is a decrease or increase in the purchasing defendant-appellee an increase in the monthly rentals from P250.00 a month to P487.50
power of the Philippine currency which is unusual or beyond the common fluctuation in a month.
the value said currency, and such decrease or increase could not have reasonably
foreseen or was manifestly beyond contemplation the the parties at the time of the Defendant-appellee refused to pay the increased monthly rentals.
establishment of the obligation.
Plaintiff-appellant filed a complaint praying that defendant-appellee be ordered to pay
While appellant's voluminous records and statistics proved that there has been a decline the monthly rentals as increased by reason of Executive Order No. 195.
in the purchasing power of the Philippine peso, this downward fall of the currency
cannot be considered "extraordinary." It is simply a universal trend that has not spared The trial court dismissed the complaint.
our country.
ISSUE: Whether the resultant decrease in the par value of the currency would justify
the proportionate increase in rent?
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RULING: YES. While no express reference has been made to metallic content, there appellant executed a chattel mortgage (Exh. C) over the same motor vehicle in favor of
nonetheless is a reduction in par value or in the purchasing power of Philippine currency. said Alexander Lim. Subsequently, on November 2, 1971, Alexander Lim assigned to
Even assuming there has been no official devaluation as the term is technically the Filinvest Finance Corporation all his rights, title, and interests in the promissory note
understood, the fact is that there has been a diminution or lessening in the purchasing and chattel mortgage by virtue of a Deed of Assignment (Exh. D).
power of the peso, thus, there has been a “depreciation.” Moreover, when laymen
unskilled in the semantics of economics use the terms “devaluation” or “depreciation” The Filinvest Finance Corporation, as a consequence of its merger with the Credit and
they certainly mean them in their ordinary signification - decrease in value. Hence, as Development Corporation, assigned to the new corporation, the herein plaintiff-appellee
contemplated by the parties in their lease agreement, the term “devaluation” may be Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory
regarded as synonymous with “depreciation,” for certainly both refer to a decrease in note and chattel mortgage. Appellant failed to comply with the terms and conditions set
the value of the currency. The rentals should therefore by their agreement be forth in the promissory note and chattel mortgage since it had defaulted in the payment
proportionately increased. of nine successive installments.
Special Forms of Payment Appellee then sent a demand letter (Exh. 1) whereby its counsel demanded "that you
(appellant) remit the aforesaid amount in full in addition to stipulated interest and
a. Dation in Payment
b. Application of Payments charges or return the mortgaged property to my client at its office at 2133 Taft Avenue,
c. Payment by Cession of Assignment Malate, Manila within five (5) days from date of this letter during office hours."
d. Tender of Payment and Consignation Replying thereto, appellant, thru its assistant general-manager, wrote back (Exh. 2)
advising appellee of its decision to "return the mortgaged property, which return shall
Filinvest v. Phil. Acetylene be in full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil
G.R. No. L – 50449 January 30, 1982 De Castro, J. Code." The mortgaged vehicle was returned to the appellee together with the document
"Voluntary Surrender with Special Power of Attorney To Sell"executed by appellant on
March 12, 1973 and confirmed to by appellee's v jice president.
DOCTRINE: The mere return of the mortgaged motor vehicle by the mortgagor, the
herein appellant, to the mortgagee, the herein appellee, does not constitute dation in Appellee wrote a letter (Exh. H) to appellant informing the latter that appellee cannot
payment or dacion en pago in the absence, express or implied, of the true intention sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of
of the parties. Dacion en pago, according to Manresa, is the transmission of the P70,122.00. appellee, in a letter (Exh. I), offered to deliver back the motor vehicle to the
ownership of a thing by the debtor to the creditor as an accepted equivalent of the appellant but the latter refused to accept it, so appellee instituted an action for collection
performance of an obligation. of a sum of money with damages in the Court of First Instance of Manila on September
14, 1973.
NATURE OF ACTION: Action for collection of a sum of money with damages
Appellant maintains that when it opted to return, as in fact it did return, the mortgaged
FACTS: Defendant-appellant herein, purchased from one Alexander Lim, as evidenced motor vehicle to the appellee, said return necessarily had the effect of extinguishing
by a Deed of Sale marked as Exhibit G, a motor vehicle described as Chevrolet, 1969 appellant's obligation for the unpaid price to the appellee, construing the return to and
model with Serial No. 136699Z303652 for P55,247.80 with a down payment of acceptance by the appellee of the mortgaged motor vehicle as a mode of payment,
P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of specifically, dation in payment or dacion en pago which according to appellant, virtually
the promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four (34) made appellee the owner of the mortgaged motor vehicle by the mere delivery thereof,
months, due and payable on the first day of each month starting December 1971 through citing Articles 1232, 1245, and 1497 of the Civil Code.
and inclusive September 1, 1974 with 12% interest per annum on each unpaid
installment, and attorney's fees in the amount equivalent to 25% of the total of the
outstanding unpaid amount. As security for the payment of said promissory note, the
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ISSUE: Whether or not the return of the mortgaged motor vehicle to the appellee by possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant
virtue of its voluntary surrender by the appellant totally extinguished and/or to the appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of
cancelled its obligation to the appellee the appellant who retains ownership thereof, and to apply the proceeds of the sale to the
mortgage indebtedness, with the undertaking of the appellant to pay the difference, if
RULING: We find appellant's contention devoid of persuasive force. The mere return any, between the selling price and the mortgage obligation. With the stipulated
of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, conditions as stated, the appellee, in essence was constituted as a mere agent to sell the
the herein appellee, does not constitute dation in payment or dacion en pago in the motor vehicle which was delivered to the appellee, not as its property, for if it were, he
absence, express or implied, of the true intention of the parties. Dacion en pago, would have full power of disposition of the property, not only to sell it as is the limited
according to Manresa, is the transmission of the ownership of a thing by the debtor to authority given him in the special power of attorney. Had appellee intended to
the creditor as an accepted equivalent of the performance of an obligation. In dacion en completely release appellant of its mortgage obligation, there would be no necessity of
pago, as a special mode of payment, the debtor offers another thing to the creditor who executing the document captioned "Voluntary Surrender with Special Power of Attorney
accepts it as equivalent of payment of an outstanding debt. The undertaking really To Sell." Nowhere in the said document can We find that the mere surrender of the
partakes in one sense of the nature of sale, that is, the creditor is really buying the thing mortgaged motor vehicle to the appellee extinguished appellant's obligation for the
or property of the debtor, payment for which is to be charged against the debtor's debt. unpaid price.
As such, the essential elements of a contract of sale, namely, consent, object certain, and
cause or consideration must be present. In its modern concept, what actually takes place Appellant would also argue that by accepting the delivery of the mortgaged motor
in dacion en pago is an objective novation of the obligation where the thing offered as vehicle, appellee is estopped from demanding payment of the unpaid obligation.
an accepted equivalent of the performance of an obligation is considered as the object Estoppel would not lie since, as clearly set forth above, appellee never accepted the
of the contract of sale, while the debt is considered as the purchase price. In any case, mortgaged motor vehicle in full satisfaction of the mortgaged debt. Under the law, the
common consent is an essential prerequisite, be it sale or novation, to have the effect delivery of possession of the mortgaged property to the mortgagee, the herein appellee,
of totally extinguishing the debt or obligation. can only operate to extinguish appellant's liability if the appellee had actually caused the
foreclosure sale of the mortgaged property when it
The evidence on the record fails to show that the mortgagee, the herein appellee, recovered possession thereof. 6 It is worth noting that it is the fact of foreclosure and
consented, or at least intended, that the mere delivery to, and acceptance by him, of the actual sale of the mortgaged chattel that bar the recovery by the vendor of any balance
mortgaged motor vehicle be construed as actual payment, more specifically dation in of the purchaser's outstanding obligation not satised by the sale. As held by this Court,
payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to if the vendor desisted, on his own initiative, from consummating the auction sale, such
him does not necessarily mean that ownership thereof, as juridically contemplated by desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still
dacion en pago, was transferred from appellant to appellee. In the absence of clear sue for specific performance. This is exactly what happened in the instant case.
consent of appellee to the proffered special mode of payment, there can be no transfer
of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only Citizens Surety v. CA
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible G.R. No. L – 48958 June 28, 1988 Gutierrez, Jr., J.
that appellee, as mortgagee, merely wanted to secure possession to forestall the loss,
destruction, fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant. DOCTRINE: There is no dation in payment when there is no obligation to be
extinguished. A deed of assignment cannot be regarded as absolute conveyance
A more solid basis of the true intention of the parties is furnished by the document whereby the obligation under the surety bonds was automatically extinguished.
executed by appellant captioned "Voluntary Surrender with Special Power of Attorney
To Sell" dated March 12, 1973, attached as Annex "C" of the appellant's answer to the NATURE OF ACTION: This is a petition to review the decision of the Court of
complaint. An examination of the language of the document reveals that the Appeals which reversed the decision of the Court of First Instance of Batangas in a case
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involving a claim for a sum of money against the estate of the late Sarmiento, this amounted to dation in payment whereby Perez is considered to have alienated his
administered by her husband Pascual M. Perez. property in favor of the Citizen's Surety in satisfaction of a monetary debt (Artide 1245).
Perez's obligation therefore, under the surety bonds is extinguished upon the execution
FACTS: On December 4, 1959, the petitioner issued two surety bonds to guarantee of the deed of assignment." Court ruled that his is not sustained by the records.
compliance by the principal Enterprises of its obligation under a "Contract of Sale of
Goods" entered into with the Singer Sewing Machine Co. The transaction cannot be dation in payment because the obligation on the part of
Citizens Surety to pay Singer Sewing Machine had not yet arisen. There was nothing
In consideration of the issuance of the bonds, Perez, in his personal capacity and as extinguished on that date, hence there is no dation in payment.
attorney-in-fact of his wife, and in behalf of the Enterprises executed 2 indemnity
agreements. Also in addition, the enterprise was required to put up a collateral security The deed of assignment cannot be regarded as an absolute conveyance whereby the
for reimbursement for losses or liabilities it may be made to pay under the bonds. obligation under the surety bonds was automatically extinguished. The subsequent acts
of Perez bolster the fact that the deed of assignment was intended merely as a security
On the same day, Perez Executed a deed of assignment of his stock of lumber with a for the issuance of the two bonds. Partial payments amounting to P55,600 were made
total value of P400,000.00 and a a second real estate mortgage was further executed in after the execution of the deed of assignment to satisfy the obligation under the two
favor of the petitioner to guarantee the fulfillment of said obligation. surety bonds. Since later payments were made to pay the indebtedness, it follows that
no debt was extinguished upon the execution of the deed of assignment. Moreover, a
When the enterprise failed to comply with its obligation with Singer Sewing Machine second real estate mortgage was executed on April 12, 1960 and eventually cancelled
Co., Ltd. the petitioner was compelled to pay P144,000.00. Except for partial payments only on May 15, 1962. If indeed the deed of assignment extinguished the obligation,
of P55,600.00 and notwithstanding several demands, the Enterprises failed to reimburse there was no reason for a second mortgage to still have to be executed. We agree with
the petitioner for the losses it sustained under the said surety bonds. the two dissenting opinions in the Court of Appeals that the only conceivable reason for
the execution of still another mortgage on April 12, 1960 was because the obligation
When petitioner filed a claim against the estate of Sarmiento, Perez averred that the under the indemnity bonds still existed. It was not yet extinguished when the deed of
bonds and indemnity agreements had been extinguished by the deed of assignment due assignment was executed on December 4, 1959. The deed of assignment was therefore
to the CA’s judgment which extinguishes the obligation by virtue of execution of deed intended merely as another collateral security for the issuance of the two surety bonds.
of assignment and release of second mortgage.
PNB v. DEE, Antipolo Properties, Inc. (now Prime East Properties, inc.) and
ISSUE: Whether or not the obligation under the surety bonds and indemnity agreements AFP – RSBS, Inc.
had been extinguished by reason of the execution of the deed of assignment via G.R. No. 182128 February 19, 2014 Reyes, J.
dation of payment.
RULING: There was no Dation of Payment. It is a rule that there is no room for DOCTRINE: Dacion en pago or dation in payment is the delivery and transmission
construction thereof when words of a contract are plain and readily understandable, of ownership of a thing by the debtor to the creditor as an accepted equivalent of the
however this case is under the exceptions. On its face, the document (Deed of performance of the obligation. It is a mode of extinguishing an existing obligation
Assignment) speaks of an assignment where there seems to be a complete conveyance and partakes the nature of sale as the creditor is really buying the thing or property
of the stocks of lumber to Citizen’s surety, as assignee. However, in the light of the of the debtor, the payment for which is to be charged against the debtor's debt. Dation
circumstances obtaining at the time of the execution of said deed of assignment, Court in payment extinguishes the obligation to the extent of the value of the thing
cannot regard the transaction as an absolute conveyance. delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement — express or implied, or by their silence — consider the thing as
Respondent court stated that "by virtue of the execution of deed of assignment, equivalent to the obligation, in which case the obligation is totally extinguished.
ownership of lumber materials had been transferred from Perez to Citizen's Surety, and
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NATURE OF ACTION:: Petition for Review under Rule 45 stipulation that the petitioner agreed to release the mortgage lien on fully paid mortgaged
properties upon the issuance of the certificates of title over the dacioned properties
FACTS: Some time in July 1994, respondent Teresita Tan Dee bought from respondent
Prime East Properties, Inc. (PEPI) on an installment basis a residential lot located in PEPI brought to the attention of the Court the subsequent execution of a Memorandum
Binangonan, Rizal. Subsequently, PEPI assigned its rights over a property on August of Agreement dated November 22, 2006 by PEPI and the petitioner. Said agreement was
1996 to respondent Armed Forces of the Philippines-Retirement and Separation Benefits executed pursuant to an Order dated February 23, 2004 by the RTC of Makati City, a
System, Inc. (AFP-RSBS), which included the property purchased by Dee. petition for Rehabilitation under the Interim Rules of Procedure on Corporate
Rehabilitation filed by PEPI. The RTC order approved PEPI's modified Rehabilitation
Thereafter, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Plan, which included the settlement of the latter's unpaid obligations to its creditors by
Bank (petitioner), secured by a mortgage over several properties, including Dee's way of dacion of real properties. In said order, the RTC also incorporated certain
property. The mortgage was cleared by the Housing and Land Use Regulatory Board measures that were not included in PEPI's plan, one of which is that "[t]itles to the lots
(HLURB) on September 18, 1996. which have been fully paid shall be released to the purchasers within 90 days after the
dacion to the secured creditors has been completed." Consequently, the agreement
After Dee's full payment of the purchase price, a deed of sale was executed by stipulated that as partial settlement of PEPI's obligation with the petitioner, the former
respondents PEPI and AFP-RSBS on July 1998 in Dee's favor. Consequently, Dee absolutely and irrevocably conveys by way of "dacion en pago" the properties listed
sought from the petitioner the delivery of the owner's duplicate title over the property, therein, which included the lot purchased by Dee.
to no avail. Thus, she filed with the HLURB a complaint for specific performance to
compel delivery of the TCT by the petitioner, PEPI and AFP-RSBS, among others. ISSUE: Whether or not the CA erred in ordering the cancellation of mortgage / release
of title in favor of the respondent despite lack of payment or settlement by the
The petitioner claims that it has a valid mortgage over Dee's property, which was part mortgagor or prior to the exercise of the right of redemption pursuant to the
of the property mortgaged by PEPI to it to secure its loan obligation, and that Dee and deed of undertaking which would warrant the release of the same
PEPI are bound by such mortgage. The petitioner also argues that it is not privy to the
transactions between the subdivision project buyers and PEPI, and has no obligation to RULING: No. There is nothing on record showing that the Memorandum of Agreement
perform any of their respective undertakings under their contract. The petitioner also has been nullified or is the subject of pending litigation; hence, it carries with it the
maintains that PD No. 957 cannot nullify the subsisting agreement between it and PEPI, presumption of validity. Consequently, the execution of the dation in payment
and that the petitioner's rights over the mortgaged properties are protected by Act 3135. effectively extinguished respondent PEPI's loan obligation to the petitioner insofar as it
If at all, the petitioner can be compelled to release or cancel the mortgage only after the covers the value of the property purchased by Dee. This negates the petitioner's claim
provisions of P.D. No. 957 on redemption of the mortgage by the owner/developer that PEPI must first redeem the property before it can cancel or release the mortgage.
(Section 25) are complied with. The petitioner also objects to the denomination by the As it now stands, the petitioner already stepped into the shoes of PEPI and there is no
CA of the provisions in the Affidavit of Undertaking as stipulations pour autrui, arguing more reason for the petitioner to refuse the cancellation or release of the mortgage, for,
that the release of the title was conditioned on Dee's direct payment to it. as stated by the Court in Luzon Development Bank, in accepting the assigned properties
as payment of the obligation, "[the bank] has assumed the risk that some of the assigned
Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or properties are covered by contracts to sell which must be honored under PD 957."
settle the obligation under the mortgage contract between PEPI and the petitioner as it Whatever claims the petitioner has against PEPI and AFP-RSBS, monetary or otherwise,
is merely an investor in the subdivision project and is not privy to the mortgage. should not prejudice the rights and interests of Dee over the property, which she has
Respondent PEPI also claims that the title over the subject property is one of the already fully paid for.|
properties due for release by the petitioner as it has already been the subject of a
Memorandum of Agreement and dacion en pago entered into between them. The
agreement was reached after PEPI filed a petition for rehabilitation, and contained the
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Soco v. Militante Soco under the Contract of Lease, the latter felt that she was on the losing end of the
G.R. No. L – 58961 June 28, 1983 Guerrero, J. lease agreement so she tried to look for ways and means to terminate the contract.
In view of this alleged non-payment of rental of the leased premises beginning May,
DOCTRINES: 1977, Soco through her lawyer sent a letter dated November 23, 1978 to Francisco
1. According to Article 1256, New Civil Code, if the creditor to whom tender of serving notice to the latter 'to vacate the premises leased.'
payment has been made refuses without just cause to accept it, the debtor shall
be released from responsibility by the consignation of the thing or sum due; In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that
2. Consignation is the act of depositing the thing due with the court or judicial all payments of rental due her were in fact paid by Commercial Bank and Trust Company
authorities whenever the creditor cannot accept or refuses to accept payment through the Clerk of Court of the City Court of Cebu. Despite this explanation, Soco
and it generally requires a prior tender of payment; filed this instant case of Illegal Detainer on January 8, 1979
3. In order that consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1) that there The City Court of Cebu holds that there was in fact a tender of payment of the rentals
was a debt due; (2) that the consignation of the obligation had been made made by Francisco to Soco through Comtrust and since these payments were not
because the creditor to whom tender of payment was made refused to accept accepted by Soco evidently because of her intention to evict Francisco, by all means.
it, or because he was absent or incapacitated, or because several persons Thus, there was therefore substantial compliance of the requisites of consignation, hence
claimed to be entitled to receive the amount due; (3) that previous notice of his payments were valid and effective. Consequently, Francisco cannot be ejected from
the consignation had been given to the person interested in the performance the leased premises for non-payment of rentals.
of the obligation; (4) that the amount due was placed at the disposal of the
court and (5) that after the consignation had been made the person interested The Court of First Instance reversed the judgment of the City Court of Cebu ordering
was notified thereof. Failure in any of these requirements is enough ground the defendants to vacate
to render a consignation ineffective.
4. Tender of payment must be distinguished from consignation. Tender is the ISSUE: Whether the consignation of the rentals was valid or not to discharge effectively
antecedent of consignation, that is, an act preparatory to the consignation, the lessee's obligation to pay the same.
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment RULING: No. The consignation of the rentals was not valid. According to Article
may be extrajudicial, while consignation is necessarily judicial, and the 1256, New Civil Code, if the creditor to whom tender of payment has been made refuses
priority of the first is the attempt to make a private settlement before without just cause to accept it, the debtor shall be released from responsibility by the
proceeding to the solemnities of consignation. consignation of the thing or sum due.
NATURE OF ACTION: Action for unlawful detainer Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and it generally
FACTS: Plaintiff-appellee-Soco, and the 'defendant-appellant-Francisco, entered into a requires a prior tender of payment.
contract of lease on January 17, 1973, whereby Soco leased her commercial building
and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P In order that consignation may be effective, the debtor must first comply with certain
800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. requirements prescribed by law. The debtor must show (1) that there was a debt due; (2)
The factual background setting of this case indicates that soon after Soco learned that that the consignation of the obligation had been made because the creditor to whom
Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more tender of payment was made refused to accept it, or because he was absent or
than P3,000.00 which is definitely very much higher than what Francisco was paying to incapacitated, or because several persons claimed to be entitled to receive the amount
due; (3) that previous notice of the consignation had been given to the person interested
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in the performance of the obligation; (4) that the amount due was placed at the disposal
of the court and (5) that after the consignation had been made the person interested was Recapitulating the testimony of the Bank Comptroller, it is clear that the bank did not
notified thereof. Failure in any of these requirements is enough ground to render a send notice to Soco that the checks will be deposited in consignation with the Clerk of
consignation ineffective. Court (the first notice) and also, the bank did not send notice to Soco that the checks
were in fact deposited (the second notice) because no instructions were given by its
Without the notice first announced to the persons interested in the fulfillment of the depositor, the lessee, to this effect
obligation, the consignation as a payment is void.
And the fourth requisite that respondent lessee failed to prove is the actual deposit or
Further, tender of payment must be distinguished from consignation. Tender is the consignation of the monthly rentals except the two cashier's checks referred to in Exhibit
antecedent of consignation, that is, an act preparatory to the consignation, which is the 12. Not a single copy of the official receipts issued by the Clerk of Court was presented
principal, and from which are derived the immediate consequences which the debtor at the trial of the case to prove the actual deposit or consignation.
desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation
is necessarily judicial, and the priority of the first is the attempt to make a private Immaculata v. Navarro
settlement before proceeding to the solemnities of consignation. G.R. No. L – 42230 November 26, 1986 Paras, J.
This Court holds that the respondent lessee has utterly failed to prove the following
requisites of a valid consignation: DOCTRINE: The right to redeem is a RIGHT, not an obligation, therefore, there is
no consignation required to preserve the right to redeem.
First, tender of payment of the monthly rentals to the lessor except that indicated in the
June 9, l977 Letter NATURE OF ACTION:
Second, respondent lessee also failed to prove the first notice to the lessor prior to FACTS: On March 24, 1975, petitioner Lauro Immaculata, represented by his wife
consignation. In this connection, the purpose of the notice is in order to give the creditor Amparo Velasco as guardian ad litem, filed in the CFI of Rizal a complaint for
an opportunity to reconsider his unjustified refusal and to accept payment thereby annulment of judgment and deed of sale with reconveyance of real property against
avoiding consignation and the subsequent litigation. This previous notice is essential to private respondents. It was alleged that Juanito Victoria with the cooperation of his wife
the validity of the consignation and its lack invalidates the same. and others, succeeded in causing Lauro to execute a Deed of Absolute Sale in favor of
Juanito Victoria, by unduly taking advantage of the mental illness and or/ weakness of
There is no factual basis for the lower court's finding that the lessee had tendered petitioner and thru deceit and fraudulent means, purportedly disposed by way of absolute
payment of the monthly rentals, thru his bank. Scrutinizing carefully Exhibit 4, this is sale, a 5,000-square meter parcel of land for P58,000. Based on the said fictitious and
what the lessee also wrote: "Please immediately notify us everytime you have the check simulated sale, an action for specific performance ws filed by Juanito Victoria, during
ready so we may send somebody over to get it. " And this is exactly what the bank his lifetime, against petitioner to compel the latter to execute a document registrable
agreed: "Please be advised that we are in conformity to the above arrangement with the with the Register of Deeds of Rizal in order that Juanito Victoria may be able to obtain
understanding that you shall send somebody over to pick up the cashier's check from title over the property. Private respondent moved for the dismissal of the complaint on
us." Evidently, from this arrangement, it was the lessee's duty to send someone to get the ground of res judicata.
the cashier's check from the bank and logically, the lessee has the obligation to make
and tender the check to the lessor. This the lessee failed to do, which is fatal to his ISSUE: Whether or not the dismissal of the case on the ground of res judicata is
defense warranted
Third, respondent lessee likewise failed to prove the second notice, that is after RULING: It is true that Civil Case nNo. 13734 is an action for specific performance
consignation has been made. which seeks to enforce the right of the plaintiff therein, Juanito Victoria, to the title over
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the lot in question. However, when the lower court rendered its decision dated October the downpayment and the first monthly amortization, but no monthly installments were
4, 1972, it in effect ruled on the validity of the contract of sake as it ordered the defendant made thereafter. Threatened with the cancellation of the conditional sale, the Suico and
therein, Lauro Immaculata to eliver to the plaintiff therein, Juanito Victoria, the owner’s Flores spouses sold their rights over the said properties to (Sabordo Spouses) subject to
copy of TCT 280711 and to execute the necessary documents in order that the sale in the condition that the latter shall pay the balance of the sale price. On September 3, 1974,
favor of the plaintiff may be registered. hence, herein petitioner, lauro Immaculata can respondents and the Suico and Flores spouses executed a supplemental agreement
no longer question the validity of the sale in the present case because the said issue was whereby they affirmed that what was actually sold to respondents were Lots 512 and
already settled although it was an action for specific performance. 513, while Lots 506 and 514 were given to them as usufructuaries. DBP approved the
sale of rights of the Suico and Flores spouses in favor of herein respondents.
*Petitioner filed a Motion for Reconsideration of the decision of the Court raising the Subsequently, respondents were able to repurchase the foreclosed properties of the Suico
matter of legal redemption of the parcel of land previously obtained by petitioner Lauro and Flores spouses.
immaculata thru a free patent. The reconsideration was granted by the Court.
Respondent filed with the Court for declaratory relief with damages and prayer for a
While res judicata may bar questions on the validity of the sale in view of the validity writ of preliminary injunction raising the issue of whether or not the Suico spouses have
of the sale in view of alleged insanity and intimidation (and this point is no longer the right to recover from respondents Lots 506 and 514. While the action is pending,
pressed by counsel for petitioner) still the question of the right of legal redemption has they obtained a loan from Republic Planters Bank (RPB) mortgaging the said lots as
remained unsolved. security for the subject loan. The Court ruled in favor of the Suico spouses directing that
the Suico have until August 31, 1987 within which to redeem or buy back from
The allegation that the offer to redeem was not sincere because there was no respondents Lots 506 and 514. Also, Suicos have to pay the respondents the sum of
consignation of the amount in Court is devoid of merit. The right to redeem is a RIGHT ₱127,500.00. Suico alleging that they cannot determine as to whom such payment shall
not an obligation, therefore, there is no consignation required to preserve the right to be made, petitioner and her co-heirs filed a Complaint with the RTC of San Carlos City,
redeem. Negros Occidental. Suico consigned the ₱127,500.00 to the said court. RTC dismissed
the Complaint of petitioner and her co-heirs for lack of merit.
Del Carmen v. Sps. Sabordo
G.R. No. 181723 August 11, 2014 Peralta, J. Petitioners filed an appeal with the CA contending that the judicial deposit or
consignation of the amount of P127,500.00 was valid and binding and produced the
effect of payment of the purchase price of the subject lots. CA denied the above appeal
DOCTRINE: Consignation is the act of depositing the thing due with the court or for lack of merit and affirmed RTC's decision. MR was likewise denied.
judicial authorities whenever the creditor cannot accept or refuses to accept payment,
and it generally requires a prior tender of payment (Note: Elizabeth Del Carmen is among the legal heirs of the spouses Suico who
continued this case as a substitute when Toribio Suico died during the pendency of this
NATURE OF ACTION: Petition for review on certiorari of the decision and resolution case.)
of the Court of Appeals.
ISSUE: Whether or not the consignation was valid.
FACTS: Spouses Toribio and Eufrocina Suico along with several partners established
a rice and corn mill at Mandaue City, Cebu. As part of their capital, they obtained a loan RULING: No.. Consignation is the act of depositing the thing due with the court or
from the Development Bank of the Philippines (DBP), and four parcels of land namely judicial authorities whenever the creditor cannot accept or refuses to accept payment,
Lots 506, 512, 513 and 514 were mortgaged as security. They failed to pay their loan and it generally requires a prior tender of payment. It should be distinguished from
forcing DBP to foreclose the mortgage. DBP consolidated its ownership over the same. tender of payment which is the manifestation by the debtor to the creditor of his desire
Nonetheless, DBP later allowed the Suico spouses Flores spouses to repurchase the to comply with his obligation, with the offer of immediate performance. Tender is the
subject lots by way of a conditional sale. The Suico and Flores spouses were able to pay antecedent of consignation, that is, an act preparatory to the consignation, which is the
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principal, and from which are derived the immediate consequences which the debtor
desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation Soledad Dalton v. FGR Realty and Development Corporation, et al.
is necessarily judicial, and the priority of the first is the attempt to make a private G.R. No. 172577 January 19, 2011 Carpio, J.
settlement before proceeding to the solemnities of consignation. Tender and
consignation, where validly made, produces the effect of payment and extinguishes the
obligation. DOCTRINE: Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to accept payment
In the case of Arzaga v. Rumbaoa, this Court held that while "[t]he deposit, by itself and generally requires a prior tender of payment. The requisites of a valid
alone, may not have been sufficient, but with the express terms of the petition, there was consignation are: (1) A debt due; (2) Creditor to whom tender of payment was made
full and complete offer of payment made directly to defendants-appellants." In the refused without just cause to accept the payment, or the creditor was absent, unknown
instant case, however, the petitioner and her co-heirs, upon making the deposit with the or incapacitated, or several persons claimed the same right to collect, or the title of
RTC, did not ask the trial court that respondents be notified to receive the amount that the obligation was lost; (3) Person interested in the performance of the obligation
they have deposited. In fact, there was no tender of payment. Instead, what petitioner was given notice before consignation was made; (4) Amount was placed at the
and her co-heirs prayed for is that respondents and RPB be directed to interplead with disposal of the court; and (5) Person interested in the performance of the obligation
one another to determine their alleged respective rights over the consigned amount; that was given notice after the consignation was made.
respondents be likewise directed to substitute the subject lots with other real properties
as collateral for their loan with RPB and that RPB be also directed to accept the NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 challenging
substitute real properties as collateral for the said loan. the decision of the Court of Appeals.
In the cases of Del Rosario v. Sandico and Salvante v. Cruz, likewise cited as authority FACTS: Flora R. Dayrit leased a portion of her property to petitioner Soledad Dalton
by petitioner, this Court held that, for a consignation or deposit with the court of an and Sasam, et. al. In June 1985, Dayrit sold the property to respondent FGR Realty and
amount due on a judgment to be considered as payment, there must be prior tender to Development Corporation. In August 1985, Dayrit and FGR stopped accepting rental
the judgment creditor who refuses to accept it. As stated above, tender of payment payments because they wanted to terminate the lease agreements with Dalton and
involves a positive and unconditional act by the obligor of offering legal tender currency Sasam, et. al.
as payment to the obligee for the former’s obligation and demanding that the latter
accept the same. In the instant case, the Court finds no cogent reason to depart from the Dalton and Sasam, et. al filed a complaint against Dayrit and FGR and consigned the
findings of the CA and the RTC that petitioner and her coheirs failed to make a prior rental payments with the RTC. However, Dalton failed to notify Dayrit and FGR about
valid tender of payment to respondents. the consignment. In their motions, Dayrit and FGR withdrew the rental payments but
reserved their right to question the validity of the consignation. Dayrit, FGR and Sasam,
It is settled that compliance with the requisites of a valid consignation is mandatory. et. al. entered into a compromise agreement and agreed to abandon all claims against
Failure to comply strictly with any of the requisites will render the consignation void. each other. However, Dalton did not enter into a compromise agreement with Dayrit and
One of these requisites is a valid prior tender of payment. Under Article 1256, the only FGR.
instances where prior tender of payment is excused are: (1) when the creditor is absent
or unknown, or does not appear at the place of payment; (2) when the creditor is The RTC dismissed the complaint and ordered Dalton to vacate the premises because
incapacitated to receive the payment at the time it is due; (3) when, without just cause, there was no valid consignation made. Besides, the last deposit was made on December
the creditor refuses to give a receipt; (4) when two or more persons claim the same right 21, 1988. At the time Dalton testified on December 22, 1999, she did not present
to collect; and (5) when the title of the obligation has been lost. None of these instances evidence of payment in 1999. She had not, therefore, religiously paid her monthly
are present in the instant case. Hence, the fact that the subject lots are in danger of being obligation. Upon appeal, the Court of Appeals affirmed the decision of the RTC.
foreclosed does not excuse petitioner and her coheirs from tendering payment to
respondents, as directed by the court.
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ISSUE: Whether or not there was valid consignation made by Dalton in favor of Dayrit commercial contracts. The former can discharge themselves from liability by
and FGR? surrendering their principal; the latter, as a general rule, can only be released by
payment of the debt or performance of the act stipulated.
RULING: NO, there was no valid consignation made. Dalton claims that the issue as to
whether the consignation is valid or not for lack of notice has already been rendered NATURE OF ACTION: Surety of bail bond
moot and academic with the withdrawal by the private respondents of the amounts
consigned and deposited by the petitioner as rental of the subject premises. However, in FACTS: It appears that an information filed with the Justice of the Peace Court of
withdrawing the amounts consigned, Dayrit and FGR expressly reserve the right to Angeles, Pampanga, docketed as Criminal Case No. 5536, Natividad Franklin was
question the validity of the consignation. Thus, when the amount consigned does not charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company,
cover the entire obligation, the creditor may accept it, reserving his right to the balance. Inc. in the amount of P2,000.00, she was released from custody.
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and generally requires The Justice of the Peace Court elevated it to the Court of First Instance of Pampanga
a prior tender of payment. The requisites of a valid consignation are: where the Provincial Fiscal filed the corresponding information against the accused. The
1. A debt due; Court of First Instance then set her arraignment on July 14, 1962, on which date she
2. Creditor to whom tender of payment was made refused without just cause failed to appear, but the court postponed the arraignment to July 28 of the same year
to accept the payment, or the creditor was absent, unknown or incapacitated, upon motion of counsel for the surety company. The accused failed to appear again, for
or several persons claimed the same right to collect, or the title of the which reason the court ordered her arrest and required the surety company to show cause
obligation was lost; why the bail bond posted by it should not be forfeited.
3. Person interested in the performance of the obligation was given notice
before consignation was made; On September 25, 1962, the court granted the surety company a period of thirty days
4. Amount was placed at the disposal of the court; and within which to produce and surrender the accused, with the warning that upon its failure
5. Person interested in the performance of the obligation was given notice after to do so the bail bond posted by it would be forfeited. On October 25, 1962 the surety
the consignation was made. company filed a motion praying for an extension of thirty days within which to produce
the body of the accused and to show cause why its bail bond should not be forfeited. As
In this case, requisites (3) and (5) were not complied with. The giving of notice to the not withstanding the extension granted the surety company failed to produce the accused
persons interested in the performance of the obligation is mandatory. Failure to notify again, the court had no other alternative but to render the judgment of forfeiture.
the persons interested in the performance of the obligation will render the consignation
void. The essential requisites of a valid consignation must be complied with fully and Subsequently, the surety company filed a motion for a reduction of bail alleging that the
strictly in accordance with the law. Substantial compliance is not enough for that would reason for its inability to produce and surrender the accused to the court was the fact that
render only a directory construction to the law. The use of the words "shall" and "must" the Philippine Government had allowed her to leave the country and proceed to the
which are imperative, operating to impose a duty which may be enforced, positively United States on February 27, 1962. The reason thus given not being to the satisfaction
indicate that all the essential requisites of a valid consignation must be complied with. of the court, the motion for reduction of bail was denied. The surety company's motion
for reconsideration was also denied by the lower court on May 27, 1963, although it
2. Loss of the thing due of Impossibility of Performance
stated in its order that it would consider the matter of reducing the bail bond "upon
production of the accused." The surety company never complied with this condition.
People v. Frankling
G.R. No. L – 21507 June 7, 1971 Dizon, J. ISSUE: Whether or not the appellant should be released from all liability under the bail
bond posted by it because its failure to produce and surrender the accused was due to
DOCTRINE: The rights and liabilities of sureties on a recognizance or bail bond the negligence of the Philippine Government itself in issuing a passport to said accused,
are, in many respects, different from those of sureties on ordinary bonds or thereby enabling her to leave the country.
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RULING: No. Appellant's contention is untenable. The abovementioned legal provision NATURE OF ACTION: This is an action which sought authority from the PSC to
does not apply to its case, because the same speaks of the relation between a debtor and suspend their operation due to difficulty in its performance.
a creditor, which does not exist in the case of a surety upon a bail bond, on the one hand,
and the State, on the other. FACTS: The PSC approved a lease contract that was executed by Biñan Transportation
Company leasing to Laguna-Tayabas Bus Company and to Batangas Transportation
The rights and liabilities of sureties on a recognizance or bail bond are, in many respects, Company its certificates of public convenience over certain lines for a period of 5 years,
different from those of sureties on ordinary bonds or commercial contracts. The former renewable for another similar period.
can discharge themselves from liability by surrendering their principal; the latter, as a
general rule, can only be released by payment of the debt or performance of the act Sometime after the execution of the lease contract, Biñan Transportation Company was
stipulated. declared insolvent and Francisco Manabat was appointed as its assignee. Petitioner
religiously paid their rents except that of August 1957 from which they deducted the
Undoubtedly, the result of the obligation assumed by the appellee to hold the accused at sum of P1,836.92 without the consent of Biñan Transportation Company. Said deduction
all times to the orders and processes of the lower court was to prohibit said accused from was due to the fact the employees of petitioners went on a strike for a total of 12 days.
leaving the jurisdiction of the Philippines because, otherwise, said orders and processes Manabat opposed the deduction claiming that the contract of lease would only be
would be nugatory and inasmuch as the jurisdiction of the court from which they issued suspended if the petitioners could not operate the leased lines due to the action of the
does not extend beyond that of the Philippines, they would have no binding force outside officers, employees and laborers of the lessor but not of the lessees.
of said jurisdiction.
Biñan Transportation Company opposed petitioners petition with the PSC for authority
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and to suspend the operation on the lines covered by the certificates of public convenience
jailer of the accused, thereby assuming the obligation to keep the latter at all times under leased to each of them by the former. Petitioners grounded their petition on the
his surveillance, and to produce and surrender him to the court upon the latter's demand. following:
1. The reduction in the amount of dollars allowed by the Monetary Board of
Laguna – Tayabas Bus Company v. Manabat, Biñan Transportation Company the Central Bank of the Philippines for the purchase of spare parts needed
G.R. No. 23456 August 29, 1974 Makasiar, J. in the operation of their trucks;
2. The difficulty in securing said parts;
3. Their procurement of said parts at exorbitant costs;
DOCTRINE: Where a person by his contract charges himself with an obligation
possible to be performed, he must perform it, unless the performance is rendered Petitioners seek permission to suspend the operation of the leased lines until such time
impossible by the act of God, by the law, or by the other party, it being the rule that as the operating expenses were restored to normal levels so as to allow the lessees to
in case the party desires to be excused from the performance in the event of realize a reasonable profit from their operation. For its part, Biñan Transportation
contingencies arising, it is his duty to provide therefor in his contract. Hence, Company opposed the petition on the ground that to grant the petition would amount to
performance is not excused by subsequent inability to perform, by unforeseen an impairment of the obligation of contract. The PSC overruled the opposition of
difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, respondents holding that upon its approval of the lease contract, the lessees acquired the
by breaking of machinery, by strikes, by sickness, by failure of a party to avail operating rights of the lessor; and that the suspension prayed for was but an incident of
himself of the benefits to be had under the contract, by weather conditions, by the operation of the lines leased to petitioners.
financial stringency or by stagnation of business. Neither is performance excused by
the fact that the contract turns out to be hard and improvident, unprofitable, or Pending the proceedings with the PSC, respondents filed with the CFI of Laguna an
impracticable, ill-advised, or even foolish, or less profitable, unexpectedly action to recover accrued rentals from petitioners. The motion to dismiss filed by
burdensome. petitioners was denied. Meanwhile, the PSC authorized petitioners to suspend their
CIVIL LAW REVIEW 2
operations. Such authorization to suspend was used by petitioners in arguing that the namely, the high prices of spare parts and gasoline and the reduction of the dollar
lease contract should also be deemed suspended during the period of suspension to allocations, "already existed when the contract of lease was executed". The cause of
operate. Nevertheless, the CFI ruled in favor of Manabat, ordering petitioners to jointly petitioners' inability to operate on the lines cannot, therefore, be ascribed to fortuitous
and severally to pay respondents for the rentals of the certificates of public convenience, events or circumstances beyond their control, but to their own voluntary desistance. If
including the deductions made. CA affirmed the CFI decision in toto. Hence, this the petitioners would predicate their plea on the basis solely of their inability to use the
petition. certificates of public convenience, absent the requisite of fortuitous event, the cited
article would speak strongly against their plea.
ISSUE: Whether or not the grounds relied upon by petitioners warrant the grant by the
PSC of the authority to suspend operations; and consequently whether or not Obviously, no reduction can be sustained on the ground that the operation of the leased
the suspension of operations on the lines authorized by the PSC justifies the lines was suspended upon the mere speculation that it would yield no substantial profit
plea for reduction of rentals of the lease. for the lessee bus company. Petitioners' profits may be reduced due to increased
operating costs; but the volume of passenger traffic along the leased lines not only
RULING: No and No. Petitioner’s invocation of Article 1680 of the Civil Code is remains same but may even increase as the tempo of the movement of population is
misplaced. Said article provides: intensified by the industrial development of the areas covered or connected by the leased
Art. 1680. The lessee shall have no right to a reduction of the rent on routes. Moreover, upon proper showing, the Public Service Commission might have
account of the sterility of the land leased, or by reason of the loss of fruits granted petitioners an increase in rates, as it has done so in several instances, so that
due to ordinary fortuitous events; but he shall have such right in case of the public interest will always be promoted by a continuous flow of transportation facilities
loss of more than one-half of the fruits through extraordinary and to service the population and the economy. The citizenry and the economy will suffer
unforeseen fortuitous events, save always when there is a specific by reason of any disruption in the transportation facilities.
stipulation to the contrary.
Jesus V. Occeña and Efigenia C. Occeña v.
Extraordinary fortuitous events are understood to be: fire, war, pestilence, Hon. Ramon V. Jabson, Presiding Judge of the Court of First Instance of
unusual flood, locusts, earthquake, or others which are uncommon, and Rizal, Branch XXVI;
which the contracting parties could not have reasonably foreseen. Court of Appeals; and Tropical Homes, Inc.
G.R. No. L – 4439 October 29, 1976 Teehankee, J.
The above article is a special provision for leases of rural lands. No other legal provision
makes it applicable to ordinary leases. Had the intention of the lawmakers been so, they
would have placed the article among the general provisions on lease. Nor can the article DOCTRINE: Without Article 1267, respondent would remain bound by its contract
be applied analogously to ordinary leases, for precisely because of its special character, under the therefore prevailing doctrine that performance therewith is not excused “by
it was meant to apply only to a special specie of lease. It is a provision of social justice the fact that the contract turns out to be hard and improvident, profitable or
designed to relieve poor farmers from the harsh consequences of their contracts with unexpectedly burdensome,” since in case a party desires to be excused from
rich landowners. And taken in that light, the article provides no refuge to lessees whose performance in the event of such contingencies arising, it is his duty to provide
financial standing or social position is equal to, or even better than, the lessor as in the therefore in the contract.
case at bar.
NATURE OF ACTION: Appeal from the resolution of Court of Appeals
Even if the cited article were a general rule on lease, its provisions nevertheless do not
extend to petitioners. One of its requisites is that the cause of loss of the fruits of the FACTS: On February 25, 1975, private respondent Tropical Homes, Inc. filed a
leased property must be an "extraordinary and unforeseen fortuitous event." The complaint for modification of the terms and conditions of its subdivision contract with
circumstances of the instant case fail to satisfy such requisite. As correctly ruled by the petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making
Court of Appeals, the alleged causes for the suspension of operations on the lines leased, the following allegations:
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"That due to the increase in price of oil and its derivatives and the
concomitant worldwide spiraling of prices, which are not within the control ISSUE: Whether or not the worldwide increase in prices cited by respondent constitute
of plaintiff, of all commodities including basis raw materials required for a sufficient cause for modification of the subdivision contract?
such development work, the cost of development has risen to levels which
are unanticipated, unimagined and not within the remotest contemplation of RULING: NO. The Court reverses the Court of Appeals appealed resolution. The Civil
the parties at the time said agreement was entered into and to such a degree Code authorizes the release of an obligor when the service has become so difficult as to
that the conditions and factors which formed the original basis of said be manifestly beyond the contemplation of the parties but does not authorize the courts
contract, Annex 'A', have been totally changed; to modify or revise the subdivision contract between the parties or fix a different sharing
ratio from that contractually stipulated with the force of law between the parties. Private
That further performance by the plaintiff under the contract, Annex 'S', will respondent's complaint for modification of the contract manifestly has no basis in law
result in situation where defendants would be unjustly enriched at the and must therefore be dismissed for failure to state a cause of action.
expense of the plaintiff; will cause an iniquitous distribution of proceeds
from the sales of subdivided lots in manifest actually result in the unjust and While respondent court correctly cited in its decision the Code Commission's report
intolerable exposure of plaintiff to implacable losses, all such situations giving the rationale for Article 1267 of the Civil Code, to wit:
resulting in an unconscionable, unjust and immoral situation contrary to and The general rule is that impossibility of performance releases the obligor.
in violation of the primordial concepts of good faith, fairness and equity However, it is submitted that when the service has become so difficult as to
which should pervade all human relations." be manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as parties should govern and if it appears that the service turns out to be so
the latter's fixed and sole share and participation an amount equivalent to 40% percent difficult as have been beyond their contemplation, it would be doing
of all cash receipts from the sale of the subdivision lots." violence to that intention to hold the obligor still responsible. ...
Petitioners moved to dismiss the complaint principally for lack of cause of action, and It misapplied the same to respondent's complaint.
upon denial thereof and of reconsideration by the lower court, elevated the matter on
certiorari to the CA. If respondent's complaint were to be released from having to comply with the
subdivision contract, assuming it could show at the trial that the service undertaken
The CA dismissed the petition on the ground that under Article 1267 of the Civil Code contractually by it had "become so difficult as to be manifestly beyond the
which provides that: contemplation of the parties", then respondent court's upholding of respondent's
ART. 1267. When the service has become so difficult as to be manifestly complaint and dismissal of the petition would be justifiable under the cited codal article.
beyond the contemplation of the parties, the obligor may also be released Without said article, respondent would remain bound by its contract under the
therefrom, in whole or in part. theretofore prevailing doctrine that performance therewith is not excused "by the fact
that the contract turns out to be hard and improvident, unprofitable, or unexpectedly
…a positive right is created in favor of the obligor to be released from the burdensome", since in case a party desires to be excuse from performance in the event
performance of an obligation in full or in part when its performance 'has of such contingencies arising, it is his duty to provide therefor in the contract.
become so difficult as to be manifestly beyond the contemplation of the
parties. But respondent's complaint seeks not release from the subdivision contract but that the
court "render judgment I modifying the terms and Conditions of the Contract by fixing
Hence, the petition at bar wherein petitioners insist that the worldwide increase in prices the proper shares that should pertain to the herein parties out of the gross proceed., from
cited by respondent does not constitute a sufficient cause of action for modification of the sales of subdivided lots of subject subdivision". The cited article does not grant the
the subdivision contract. courts this authority to remake, modify or revise the contract or to fix the division of
CIVIL LAW REVIEW 2
shares between the parties as contractually stipulated with the force of law between the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a
parties, so as to substitute its own terms for those covenanted by the parties themselves. period from August 1961 to October 1963.
Respondent's complaint for modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular allegations of respondent's In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ
complaint and the circumstances therein averred, the courts cannot even in equity grant of execution of the judgment for attorney's fees in his favor. Gan Tion went on certiorari
the relief sought. to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan
Sieng was indebted to him in the sum of P4,320 for unpaid rents. The appellate court
3. Condonation or remission of the debt accepted the petition but eventually decided for the respondent, holding that although
4. Confusion or Merger of Rights "respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more
5. Compensation than P4,000.00," the sum of P500 could not be the subject of legal compensation, it
Kinds of Compensation being a "trust fund for the benefit of the lawyer, which would have to be turned over by
a. Legal the client to his counsel."
b. Conventional
Facultative ISSUE: Whether or not there has been legal compensation between petitioner Gan Tion
c. Judicial and respondent Ong Wan Sieng
Gan Tion v. CA RULING: YES. In the opinion of said court, the requisites of legal compensation,
G.R. No. L – 22490 May 21, 1969 Makalintal, J. namely, that the parties must be creditors and debtors of each other in their own right
(Art. 1278, Civil Code) and that each one of them must be bound principally and at the
same time be a principal creditor of the other (Art. 1279), are not present in the instant
DOCTRINE: The requisites of legal compensation, namely, that the parties must be
case, since the real creditor with respect to the sum of P500 was the defendant's counsel.
creditors and debtors of each other in their own right and that each one of them must
This is not an accurate statement of the nature of an award for attorney's fee's. The award
be bound principally and at the same time be a principal creditor of the other is not
is made in favor of the litigant, not of his counsel, and is justified by way of indemnity
an accurate statement of the nature of an award for attorney's fee's. The award is
for damages recoverable by the former in the cases enumerated in Article 2208 of the
made in favor of the litigant, not of his counsel, and is justified by way of indemnity
Civil Code. It is the litigant, not his counsel, who is the judgment creditor and who may
for damages recoverable.
enforce the judgment by execution. Such credit, therefore, may properly be the subject
of legal compensation.
WHEREFORE, the judgment of the Court of Appeals is reversed.
FACTS: Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961
the latter filed an ejectment case against the former, alleging non-payment of rents for
Philippine National Bank v. Gloria G. vda. De Ong Acero, Arnolfo Ong Acero
August and September of that year, at P180 a month, or P360 altogether. The defendant
and Soledad Ong Acero Chua
denied the allegation and said that the agreed monthly rental was only P160, which he
had offered to but was refused by the plaintiff. The plaintiff obtained a favorable G.R. No. 69255 February 27, 1987 Narvasa, J.
judgment in the municipal court (of Manila), but upon appeal the Court of First Instance,
reversed the judgment and dismissed the complaint, and ordered the plaintiff to pay the DOCTRINE: Article 1278 of the Civil Code does indeed provide that
defendant the sum of P500 as attorney's fees. That judgment became final. "Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other." Also true is that compensation may transpire by operation
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing of law, as when all the requisites therefor, set out in Article 1279, are present.
the rent to P180 a month, effective November 1st, and at the same time demanded the
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Nonetheless, these legal provisions can not apply to PNB's advantage since the The Lower Court struck down its Order of February 15, 1980 and opined that there had
circumstances herein show that there is no indebtedness to PNB on ISABELA's part. been a valid assignment by ISABELA to PNB of the amount deposited, which
effectively placed that amount beyond the reach of the ACEROS. The ACEROS then
NATUER OF ACTION: This is a petition for review seeking to reverse the decision appealed to the IAC which, after due proceedings, sustained them. Hence, this petition.
of the Intermediate Appellate Court which sustained the claim of ACEROS over the
savings account of ISABELA with PNB. ISSUE: Whether or not compensation transpired between PNB and ISABELA.
FACTS: The Savings Account of Isabela Wood Construction & Development RULING: NO, compensation did not transpire between PNB and ISABELA.
Corporation, opened with the Philippine National Bank in the amount of P2 million, is
the subject of two conflicting claims, sought to be resolved in the Article 1278 of the Civil Code does indeed provide that "Compensation shall take place
proceedings at bar. when two persons, in their own right, are creditors and debtors of each other." Also true
is that compensation may transpire by operation of law, as when all the requisites
One claim is asserted by the ACEROS, judgment creditors of the depositor ISABELA therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can not
— who seek to enforce against said savings account the final and executory judgment apply to PNB's advantage since the circumstances herein show that there is no
rendered in their favor by the Court of First Instance of Rizal. The other claim has been indebtedness to PNB on ISABELA's part.
put forth by the PNB which claims that since ISABELA was at some point in time both
its debtor and creditor — ISABELA's deposit being deemed a loan to it (PNB) — there PNB has not proven by competent evidence that it is a creditor of ISABELA. The
had occurred a mutual set-off between them, which effectively precluded the ACEROS' avowed indebtedness of ISABELA was an essential element of PNB's claim to the
recourse to that deposit. former's P2 million deposit and hence, it was incumbent on the latter to demonstrate it
by competent evidence. This, it has failed to do. The failure is fatal to its claim.
ACEROS' claim to the bank deposit is more specifically founded upon the garnishment
thereof by the sheriff, effected in execution of the partial judgment rendered by the CFI PNB also claims that the P2M deposit had been assigned to it by ISABELA as
at Quezon City. The partial judgment ordered payment by ISABELA to the ACEROS "collateral" and that ISABELA had explicitly authorized it to apply the P2M deposit in
of the amount of P1,532,000.07. Notice of garnishment was served on the PNB pursuant payment of its indebtedness.
to the writ of execution. This was followed by an Order issued on February 15, 1980
directing PNB to hand over this amount of P1,532,000.07 to the sheriff for delivery, in In the first place, there being no indebtedness to PNB on ISABELA's part, there is in
turn, to the ACEROS. Not quite two months later, a second (and the final and complete consequence no occasion to speak of any mutual set-off, or compensation, whether it be
judgment) was promulgated by the CFI in favor of the ACEROS and against ISABELA. legal, i.e.., which automatically occurs by operation of law, or voluntary, i.e., which can
PNB intervened in the action between the ACEROS and ISABELA. only take place by agreement of the parties.
PNB's main thesis is that when it opened a savings account for ISABELA in the amount In the second place, the documents indicated by PNB as constitutive of the claimed
of P2M, it (PNB) became indebted to ISABELA in that amount. So that when ISABELA assignment do not make out any such transaction. While the Credit Agreement declares
itself subsequently came to be indebted to it on account of ISABELA's breach of the it to be ISABELA's intention to "assign to the BANK the proceeds of its contract with
terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB the Department of Public Works for the construction of Nagapit Suspension Bridge in
became at the same time creditors and debtors of each other, compensation Cagayan”, it does not appear that that intention was adhered to. The letter of ISABELA's
automatically took place between them, in accordance with Article 1278 of the Civil president had statements therein that the amount of P2M (representing the bulk of the
Code. This having taken place, that amount of P2M could no longer be levied on by any proceeds of its contract referred to) "shall be placed in a savings account" and that "said
other creditor of ISABELA, as the ACEROS attempted to do. amount shall remain in the savings account until ISABELA is able to comply with"
specified commitments — these being: the constitution and registration of a mortgage
in PNB's favor over its "Parañaque property", and the obtention from the first mortgage
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thereof of consent for the creation of a second lien on the property. These statements are favor of Fernandez and the payment of P1,000 as attorney's fees.On appeal, the IAC
inconsistent with the notion of an assignment of the money. PNB itself deposited the affirmed the decision of the lower court. Hence, this petition for review.
whole amount of P2 million, not in its name, but in the name of ISABELA without any
accompanying statement even remotely intimating that it (PNB) was the owner of the Francia argued that the obligation to pay the supposed tax delinquency was set-off by
deposit, or that an assignment thereof was intended, or that some condition or lien was the P4,116 which the government owed him when a portion of his land was expropriated
meant to burden it. on October 15, 1977. Hence, his tax obligation had been set-off by operation of law as
of that date.
Francia v. IAC
G.R. No. L – 67649 June 18, 1988 Gutierrez, Jr., J. Francia contends that the auction sale was void because it was made without complying
with the procedure on sale of property for tax delinquency since no evidence was
presented that such procedure was followed and Fernandez had the burden of proof to
DOCTRINE: Internal Revenue Taxes cannot be the subject of set-off or show that he was duly notified. Moreover, the price of P2,400 was grossly inadequate
compensation. The government and taxpayer are not mutually creditors and debtors as to shock one's conscience amounting to fraud and a deprivation of property without
of each other' under Article 1278 and a claim for taxes is not such a debt, demand, due process of law.
contract or judgment as can be set-off.
ISSUE: Was Francia’s tax delinquency of P2,400.00 extinguished by legal
NATURE OF ACTION: Petition for Review compensation since the government owed him P4,116.00 when a portion of his land was
previously expropriated?
FACTS: Francia is the registered owner of a residential lot (328 sqm) and a two-story
house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, RULING: No, there is no legal basis for the contention. By legal compensation,
Metro Manila covered by TCT No. 4739 (37795). On October 15, 1977, a 125 sqm obligations of persons, who are reciprocally debtors and creditors of each other, are
portion of the property was expropriated for the sum of P4,116. extinguished (Art. 1278, Civil Code).
From 1963 to 1977, Francia failed to pay P2,400 real estate taxes. In order to satisfy his The circumstances herein do not satisfy the requirements under Art. 1279, to wit: (1)
tax delinquency, his property was sold at public auction by the Pasay City Treasurer that each one of the obligors be bound principally and that he be at the same time a
pursuant to Sec. 73 of PD No. 464 (Real Property Tax Code) on December 5, 1977. principal creditor of the other and (2) that the two debts be due.
During the auction sale, Francia was not present since he was in Iligan City helping his
uncle ship bananas. Fernandez was the highest bidder. There can be no off-setting of taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the ground that the government
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: owes him an amount equal to or greater than the tax being collected. The collection of a
Petition for Entry of New Certificate of Title" filed by Fernandez, seeking the tax cannot await the results of a lawsuit against the government.
cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate
of title. Upon verification through his lawyer, Francia discovered that on December 11, In Republic v. Mambulao Lumber Co, it was held that Internal Revenue Taxes cannot
1978, a Final Bill of Sale had been issued in favor of Fernandez by the City Treasurer. be the subject of set-off or compensation. The government and taxpayer are not mutually
The auction sale and the final bill of sale were both annotated at the back of TCT No. creditors and debtors of each other' under Article 1278 and a claim for taxes is not such
4739 (37795) by the Register of Deeds. a debt, demand, contract or judgment as can be set-off.
On March 20, 1979, Francia filed a complaint to annul the auction sale. The complaint Moreover, the tax was due to the city government while the expropriation was by the
was amended on January 24, 1980. On April 23, 1981, the lower court rendered a national government. Moreover, the amount of P4,116.00 paid by the national
decision dismissing the amended complaint and ordered the issuance of a new TCT in government was deposited with the Philippine National Bank long before the sale at
CIVIL LAW REVIEW 2
public auction of his remaining property. Notice of the deposit dated September 28, 1977
was received by Francia on September 30, 1977. He admitted in his testimony that he Republic v. de los Angeles
knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would G.R. No. L – 30187 June 25, 2980 Concepcion, Jr., J.
have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay
the tax obligation thus aborting the sale at public auction.
DOCTRINE: Proof of the liquidation of a claim, in order that there be compensation
VALIDITY OF THE AUCTION SALE of debts, is proper if such claim is disputed. But, if the claim is undisputed, as in the
Fernandez, the purchaser at the auction sale, has the burden of proof to show that there case at bar, the statement is sufficient and no other proof may be required.
was compliance with all the prescribed requisites for a tax sale. There is no presumption
of the regularity of any administrative action which results in depriving a taxpayer of NATURE OF ACTION: Petition for Certiorari and Prohibition, with preliminary
his property through a tax sale. (Exception to the rule that administrative proceedings injunction.
are presumed to be regular)
FACTS: On October 29, 1964, the spouses Petra R. Farin and Benjamin Farin obtained
Even if the burden of proof lies with Fernandez to show that all legal prerequisites have a loan from the Marcelo Steel Corporation in the amount of P600,000.00, and as security
been complied with, Francia cannot deny he received the notice for the auction sale. On therefor, the said spouses constituted, in favor of the said corporation, a real estate
record, Francia admitted in his testimony that he received the letter dated November 21, mortgage upon their parcel of land situated at Quezon City.
1977 as shown by his signature. As long as there was substantial compliance with the
requirements of the notice, the validity of the auction sale cannot be assailed. Therefore, On July 24, 1965, the mortgagee wrote the Sheriff of Quezon City requesting the extra-
Francia was notified about the auction sale. It was negligence on his part when he judicial foreclosure of the aforesaid mortgage.
ignored such notice. By his very own admission that he received the notice, his now
coming to court assailing the validity of the auction sale loses its force. However, on August 21, 1965, the mortgagors filed a petition for prohibition with
injunction and damages against Benito Macrohon, as sheriff of Quezon City, and the
INADEQUATE PRICE Marcelo Steel Corporation, wherein they prayed that the respondent sheriff be
As a general rule, gross inadequacy of price is not material when the law gives the owner permanently enjoined from proceeding with the scheduled sale at public auction of the
the right to redeem as when a sale is made at public auction, upon the theory that “the mortgaged property. Acting upon the petition, the herein respondent Judge Walfrido de
judgment debtor may reacquire the property or also sell his right to redeem and thus los Angeles, issued an order commanding the respondent Sheriff and the respondent
recover the loss he claims to have suffered by reason of the price obtained at the auction Cor-poration to desist from proceeding with the public auction sale of the property
sale." scheduled on August 26, 1965.
Even if the Court is inclined to give relief to Francia on equitable grounds, there are no While the above case was pending, Petra Farin leased portions of the "Doña Petra
strong considerations of substantial justice in his favor. He failed to pay his taxes for 14 Building", situated on the mortgaged premises, to the Rice and Corn Administration,
years. He claims to have pocketed the notice of sale without reading it which, if true, is (RCA, for short), for the amount of P11,500.00 per month
still an act of inexplicable negligence. He did not withdraw from the expropriation
payment deposited with the Philippine National Bank an amount sufficient to pay for On December 9, 1967, the Marcelo Steel Corporation, invoking paragraph 5 of the
the back taxes. The petitioner did not pay attention to another notice sent by the City mortgage contract, filed a motion praying that an order be issued directing and/or
Treasurer on November 3, 1978, during the period of redemption, regarding his tax authorizing the Rice and Corn Administration (RCA) and all other business concerns
delinquency. There is furthermore no showing of bad faith or collusion in the purchase holding offices at the Doña Petra Building to channel or pay directly to it the rents for
of the property by Fernandez. The petitioner has no standing to invoke equity in his the use of the building. On December 23, 1967, the respondent Judge of first instance
attempt to regain the property by belatedly asking for the annulment of the sale. granted the motion of Marcel Steel Corporation and issued the questioned order which
CIVIL LAW REVIEW 2
is the subject of this Present Petition for Certiorari and Prohibition with Preliminary unacted upon. Under the said motion dated August 28, 1968, RCA emphasized that it is
Injunction. not a party to the case; that it had been denied due process for lack of notice and the
right to be heard; that compensation took place by operation of law pursuant to Art. 1286
RCA filed a motion for the reconsideration of said order, praying that it be excluded of the Civil Code without the need of filing a case against Petra R. Farin, or a decision
therefrom, for the reasons that (a) the rents due Petra Farin had been assigned by her, rendered against her for the payment of such obligation; and that the provi-sions of the
with the conformity with the RCA, to Vidal A. Tan; (b) Petra Farin has an outstanding Rules of Court permitting a judgment creditor to reach money or property in the hands
obligation with the RCA in the amount of P263,062.40, representing rice shortages of third persons like the RCA, all presuppose a final judgment, and not a mere
incurred by her as a bonded warehouseman under contract with the RCA, which should interlocutory order.
be compen-sated with the rents due and may be due; and (c) the RCA was never
given an opportunity to be heard on these matters. Petra and Benjamin Farin filed a The motion was again denied and when the RCA received a letter from counsel for the
similar motion for the reconsideration of the disputed order of December 23, 1967. Marcelo Steel Cor-poration, requesting compliance with the order of December 23,
However, the trial court denied both motions for reconsideration of RCA and spouses 1967, and the payment of accrued rentals, the petitioner instituted the present recourse.
Farin dated April 3, 1968 and April 17, 1968 respectively.
ISSUES:
The RCA filed a second motion for reconsideration insisting that the claim of Marcelo 1. Whether or not the judge erred in saying that compensation has not taken effect
Steel Corporation for rents has no legal basis, but no action appears to have been taken. as there appears to be no record showing proof that the plaintiff is indebted?
(Issue related to CIV2 topic - Compensation)
On May 10, 1968, Petra Farin filed an urgent ex parte motion to authorize the RCA to 2. Whether or not the assailed order which directed RCA to deliver its rents due
release the rentals corresponding to the months of December, 1967, January and to Marcelo Steel Corporation was proper?
February, 1968, amount-ing to P37,500.00 so as to enable her to make the necessary
repairs on the air conditioning system of the Doña Petra Building, stating, among others, RULINGS:
that "The RCA is ready, willing and able to release to the petitioners the rentals 1. Yes. Proof of the liquidation of a claim, in order that there be compensation of
mentioned above.” Respondent Judge granted the motion. debts, is proper if such claim is disputed. But, if the claim is undisputed, as in
the case at bar, the statement is sufficient and no other proof may be required.
On May 17, 1968, the RCA filed a motion to set aside the said order, claiming that the In the instant case, the claim of the RCA that Petra R. Farin has an outstanding
allegations contained in the motion dated May 10, 1968, that "The RCA is ready, willing obligation to the RCA in the amount of P263,062.40 which should be
and able to release to the petitioners the rentals mentioned above" is unauthorized and compensated against the rents already due or may be due, was raised by the
gratuitous, and the delivery of the withheld rentals to Petra R. Farin would defeat its RCA in its motion for the reconsideration of the order of December 23, 1967.
claim without giving the corporation its day in court. But the trial court denied the
motion arguing that: A copy of said motion was duly furnished counsel for Petra R. Farin and although the
“The records does not show any proof that the plaintiff, Petra Farin, is said Petra R. Farin subsequently filed a similar motion for the reconsideration of the
indebted to the aforesaid movant, RCA, as alleged in the said motion and order of December 23, 1967, she did not dispute nor deny such claim. Neither did the
assuming that the herein plaintiff is really indebted to the RCA, the records Marcelo Steel Corporation dispute such claim of compensation in its opposition to the
further does not show that a case has been filed against her for the payment motion for the reconsideration of the order of December 23, 1967. The silence of Petra
of such obligation, and therefore, there is no apparent legal ground to hold R. Farin, although the declaration is such as naturally one to call for action or comment
the payment of the rentals due the plaintiff." if not true, could be taken as an admission of the existence and validity of such a claim.
Therefore, since the claim of the RCA is undisputed, proof of its liquidation is not
On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to necessary.
pay rentals to Marcelo Steel Corpo-ration, reiterating therein the grounds alleged in its
motion for reconsideration and second motion for reconsideration which remained
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Furthermore, if the record is bereft of the proof mentioned by the respondent Judge, it is Before the action could be resolved, Solinap filed an action against respondents.; for
because the respondent Judge did not call for the submission of such proof. Had the collection of sums of money secured by a real estate mortgage. Lutero pleaded a
respondent Judge issued an order calling for proof, the RCA would have presented counterclaim against petitioners for the total sum of P 125,000.00 representing unpaid
sufficient evidence to the satisfaction of the court. rentals on Hacienda Tambal. Petitioner filed a rejoinder to said motion, raising for the
first time the thesis that the amount payable to private respondents should be
2. No. Insofar as the right of the herein private respondent, Marcelo Steel compensated against the latter's indebtedness to him amounting to P71,000.00.
Corporation, to collect and receive rentals from the lessees of the Doña Petra
Building, was within the competence of the respondent Judge since the lessor- The trial court denied petitioners motion.
mortgagor, Petra Farin, had empowered the said corporation to collect and
receive any interest, dividend, rents, profits or other income or benefit produced ISSUE: Whether or not the obligation of petitioners to private respondents may be
by or derived from the mortgaged property under the terms of the real estate compensated or set- off against the amount sought to be recovered in an action
mortgage contract executed by them. Respondent Judge exceeded his for a sum of money filed by the former against the latter?
jurisdiction in ordering or compelling the lessees of the said building, to pay
the rentals to the respondent Corporation, without giving the lessees an RULING: No. Article 1279 of the Civil Code which provides that compensation can
oppor-tunity to be heard. The said lessees are not parties to the case between take place only if both obligations are liquidated. In the case at bar, the petitioner's claim
the lessor and the Marcelo Steel Corporation. against the respondent Luteros in Civil Case No. 12379 is still pending determination
by the court. While it is not for Us to pass upon the merits of the plaintiffs' cause of
Solinan v. del Rosario action in that case, it appears that the claim asserted therein is disputed by the Luteros
G.R. No. L – 50638 July 25, 1983 Escolin, J. on both factual and legal grounds. More, the counterclaim interposed by them, if
ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise,
his claim in that case cannot be categorized as liquidated credit which may properly be
DOCTRINE: Article 1279 of the Civil Code which provides that compensation can set-off against his obligation. As this Court ruled in Mialhe vs. Halili, " compensation
take place only if both obligations are liquidated. cannot take place where one's claim against the other is still the subject of court
litigation. It is a requirement, for compensation to take place, that the amount involved
NATURE OF ACTION: Petition for Certiorari. be certain and liquidated."
FACTS: Tiburcio Lutero and Asuncion Magalona leased the Hacienda Tambal they Sycip v. CA
owned to petitioner Solinap for a period of 10 years for the stipulated rental of P50,000 G.R. No. L – 38711 January 31, 1985 Relova, J.
a year. It was further agreed in the lease contract that out of the aforesaid annual rental,
the sum of P25,000.00 should be paid by Solinap to the Philippine National Bank to
amortize the indebtedness of the spouses Lutero with the said bank. DOCTRINE: Compensation takes place only when two persons in their own right
are creditors and debtors of each other, and that each one of the obligors is bound
Tiburcio Lutero died. His heirs immediately instituted the testate proceedings of the principally and is at the same time a principal debtor of the other.
estate of the deceased. Respondents as heirs of Tiburcio paid the PNB P25, 000 as partial
settlement of the estate of the deceased. Lutero filed a motion in the testate court for NATURE OF ACTION: Petition for review on certiorari.CFI rendered a decision
reimbursement from the petitioner of the amount thus paid. They argued that the said convicting Petitioner of the crime of Estafa, CA affirmed the trial court’s decision but
amount should have been paid by petitioner to the PNB, as stipulated in the lease deleted the part of subsidiary imprisonment.
contract he had entered into with the deceased Tiburcio Lutero.
FACTS: Jose Lapuz received from Albert Smith shares of stock of the Republic Flour
Mills, Inc. in the name of Dwight Dill who had left for Honolulu. Lapuz was supposed
CIVIL LAW REVIEW 2
to sell his shares at present market value of which he was supposed to get a certain RULING: No. Compensation cannot take place in this case since the evidence shows
commission. According to Lapuz, the Petitioner approached him and told him that he that Jose Lapuz is only an agent of Albert smith and/or Dr. Dwight Dill. Compensation
had good connections in the Stock Exchange, assuring him that he could sent them at a takes place only when two persons in their own right are creditors and debtors of each
good price. Lapuz made it clear that the shares of stock did not belong to him and were other, and that each one of the obligors is bound principally and is at the same time a
shortly entrusted to him for sale. He then gave it to the Petitioner who put them in the principal debtor of the other. Moreover, as correctly pointed our by the trial court, Lapuz
market. Lapuz received a letter from Petitioner that the 1,758 shares has been sold for a did not consent to the off-setting of his obligation with Petitioner’s obligation to pay for
net amount of 29K but that the transaction could not be concluded until they receive the the 500 shares.
Power of Attorney duly executed by Dill, appointing a person to endorse the certificate
of stock and a resolution form the Biochemical research laboratory authorizing the Compañia Maritima v. CA and Pan Oriental
transfer of the certificate. Lapuz declared that he was able to secure the power of G.R. No. L – 50900, L – April 9, 1985 Melencio – Herrera, J.
attorney, and authorized the sale of 1,758 shares only, the difference of 758 shares where 51438 and L – 51463
given back to Biochemical research laboratory. Out of the 1,758 shares, petitioner was
able to sell 758 shares for Php12, 128.00 at 16 per share, which Lapuz issued a receipt
and turned over to Smith. DOCTRINE: For compensation to take place, one of the elements necessary is that
the debts be liquidated.
Lapuz received a letter from Petitioner (regarding the remaining 1000 shares) informing
him that although the deal has been closed, actual delivery has been withheld pending NATURE OF ACTION: Petitions for Review
receipt of payment, enclosed several certificate of shares (Certificate no. 955 for 500
shares, CN 952 for 50 shares, CN 953 for 208 shares) and that a check would be issued FACTS: In 1947, Fernando Froilan purchased from the Shipping Administration a boat.
within the next few days. Petitioner promised to deliver the 242 shares as soon as he To secure payment of the unpaid balance of the purchase price, a mortgage was
would have received them from one Vicente Chua. constituted on the vessel in favor of the Shipping Administration. Froilan appeared
defaulted in his obligation in spite of demands. The General Manager of the Shipping
Later, Petitioner wrote a letter to Lapuz confirming their conversation on that date that Administration directed its officers to take immediate possession of the vessel and to
“500 shares our of 1000 share of the Republic flour .. has been sold” and stated “pending suspend the unloading of all cargoes on the same until the owners thereof made the
receipt of the payment expected next week” and a draft was enclosed covering the value corresponding arrangement with the Shipping Administration. The boat was, not only
of the 500 shares which was dishonored by the bank for lack of funds, Lapuz then actually repossessed, but the title thereto was registered again in the name of the
discovered from the bookkeeper that he got the money and he pocketed it already, so he Shipping Administration, thereby re-transferring the ownership thereof to the
started hunting Petitioner. When he found Petitioner, the latter have him a check which government.
was also dishonored. Mr. Lapuz sent a wire to Petitioner telling him that he would file
estafa case in fiscals office against him unless he raise the balance, Petitioner remitted a Pan Oriental Shipping Co. offered to charter the subject vessel. The Slopping
check but was again dishonored. Mr. Lapuz was then constrained to pay Smith the value Administration accepted the offer "in principle" subject to the condition that the latter
of the 500 shares. Petitioner on appeal before the SC claims that CA refused to uphold shag cause the repair of the vessel advancing the cost of labor and drydocking thereof,
the provisions on Compensation or setting-off debts under Article 1278 and 1279, and the Shipping Administration to furnish the necessary spare parts. In accordance with
despite evidence showing that Lapuz still owed him an amount of more than 5K and in this charter contract, the vessel was delivered to the possession of Pan Oriental.
not dismissing the appeal considering that the latter is not legally the aggrieved party.
Froilan offered to pay all his overdue accounts but he failed to fulfill the same. The
ISSUE: Whether or not compensation should be applied in this case as between Lapuz Shipping Administration denied his petition for reconsideration of the rescission of the
and Petitioner contract. The boat has been repossessed and the title thereto re-registered in the name of
the government, and delivered to the Pan Oriental in virtue of the charter agreement.
Froilan protested to the President against the charter of the vessel. The Shipping
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Administration and the Pan Oriental formalized the charter agreement and signed a
bareboat contract with option to purchase. Int’l Corporate Bank v. IAC
The Cabinet revoked the cancellation of Froilan's contract of sale and restored to him all
G.R. No. . L-69560 June 30, 1988 Paras J: RO
his rights thereunder. Froilan again failed to comply with the conditions in the
restoration. The Executive Secretary authorized the Administration to continue its
charter contract with Pan Oriental and enforce whatever rights it may still have under
the original contract with Froilan. The Cabinet resolved once more to restore Froilan to NATURE OF ACTION: Petition for review on Certiorari dismissing petitioner’s
his rights under the original contract of sale. Pan Oriental protested to this restoration of petition for certiorari against RTC of Makati Br 143 for lack of merit, and of its
Froilan's rights under the contract of sale, for the reason that when the vessel was resolution denying petitioners MR
delivered to it, the Shipping Administration had authority to dispose of the said property,
Froilan having already relinquished whatever rights he may have thereon. Froilan paid FACTS: Private respondent Fajardo secured from petitioner's predecessors-in-interest,
the required cash and as Pan Oriental refused to surrender possession of the vessel, he (the then Investment and Underwriting Corp, and ATRIUM Capital Corp), a loan in the
filed an action for replevin in the CFI to recover possession thereof and to have him amount of P50 Million. To secure this loan, Fajardo mortgaged her real properties in
declared the rightful owner of said property. Manila and in Bulacan, which she claimed have a total market value of P110 Million.
Of this loan, only the amount of P20 Million was approved for release, which was
The lower court upheld Froilan's right to the ownership and possession of the subject applied to pay her other obligations to petitioner, bank charges and fees. Thus, Fajardo
vessel. claims that she did not receive anything from the approved loan.
ISSUE: Whether or not Compensation by operation of law took place as between the Thereafter, Fajardo made a money market placement with ATRIUM in the amount of
Republic and Pan Oriental as of the date of dispossession P1,046,253.77 at 17% interest per annum for a period of 32 days or until October 13,
1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her
RULING: NO. For compensation to take place, one of the elements necessary is that mortgaged indebtedness to ATRIUM, so the latter refused to pay the proceeds of the
the debts be liquidated. In this case, all the elements for Compensation to take place money market placement on maturity but applied the amount instead to the deficiency
were not present on the date of dispossession. The amount expended for repairs and in the proceeds of the auction sale of the mortgaged properties. With Atrium being the
improvements had yet to be determined by the trial court. At the time of dispossession only bidder, said properties were sold in its favor for only P20 Million. Petitioner claims
also, Pan Oriental was still insisting on its right to purchase the vessel. The obligation that after deducting this amount, private respondent is still indebted in the amount of
of Republic to reimburse Pan Oriental for expenses arose only after the SC had so ruled. P6.81 million.
Rentals for the use of the vessel by Pan Oriental were neither due and demandable at the
time of dispossession but only after this Court had issued its Resolution. In 1982, Fajardo filed a complaint with the trial court against petitioner for annulment
of the sheriff's sale of the mortgaged properties, for the release to her of the balance of
International Corporate Bank v. IAC her loan from petitioner in the amount of P30 Million, and for recovery of P1,062,063.83
G.R. No. L 0 69560 June 30, 1988 Paras, J. representing the proceeds of her money market investment and for damages. She alleges
that the mortgage is not yet due and demandable, and accordingly the foreclosure was
DOCTRINE: Compensation is not proper where the claim of the person asserting illegal; that per her loan agreement with petitioner she is entitled to the release to her of
the set-off against the other is not clear nor liquidated; compensation cannot extend the balance of the loan in the amount of P30 Million; that petitioner refused to pay her
to unliquidated, disputed claim arising from breach of contract. the proceeds of her money market placement notwithstanding the fact that it has long
become due and payable; and that she suffered damages as a consequence of petitioner's
illegal acts.
CIVIL LAW REVIEW 2
Petitioner denied Fajardo's allegations and asserted that it has the right to apply or set
off private respondent's money market claim of P1,062,063.83. Petitioner thus The Trial Court granted the motion, and issued another Writ of Execution.
interposes counterclaims for the recovery of P5,763,741.23, representing the balance of
its deficiency claim after deducting the proceeds of the money market placement, and Petitioner having failed to comply with the above-cited Writs, the Trial Court ordered
for damages. several employees of petitioner ICB to show cause wily they should not be cited in
contempt.
The Trial Court subsequently dismissed Fajardo’s cause of action concerning the
annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of Hence, this petition for review on certiorari with prayer for a restraining order and for a
action to be resolved after trial. Private respondent then filed separate complaints in writ of preliminary injunction. Petitioner contends that after foreclosing the mortgage,
Manila and in Bulacan for annulment of the foreclosure sale of the properties in Manila there is still due from private respondent as deficiency the amount of P6.81 million
and in Bulacan, respectively. against which it has the right to apply or set off private respondent's money market claim
of P1,062,063.83.
In 1983, private respondent filed a motion to order petitioner to release in her favor the
proceeds of the money market placement. Petitioner filed an opposition thereto, ISSUE: Whether or not there can be legal compensation in the case at bar.
claiming that the proceeds of the money market investment had already been applied to
partly satisfy its deficiency claim, and that to grant the motion would be to render RULING: The court ruled in the negative. As correctly pointed out by the CA —
judgment in her favor without trial and make the proceedings moot and academic.
Compensation shall take place when two persons, in their own right, are creditors and
On February 13, 1984, respondent judge granted Fajardo’s motion, ordering petitioner debtors of each other. (Art. 1278, Civil Code). "When all the requisites mentioned in
ICB to deliver the said amount conditioned on private respondent’s filing of a bond to Art. 1279 of the Civil Code are present, compensation takes effect by operation of law,
answer for damages which ICB may suffer in the event that the Court finally decided even without the consent or knowledge of the debtors." (Art. 1290, Civil Code). Article
that Fajardo was not entitled to said amount. 1279 of the Civil Code requires, among others, that in order that legal compensation
shall take place, "the two debts be due" and "they be liquidated and demandable."
Petitioner filed an MR with the RTC, and subsequently a petition for certiorari to the Compensation is not proper where the claim of the person asserting the set-off against
CA, which the latter dismissed. A part of its Resolution reads: the other is not clear nor liquidated; compensation cannot extend to unliquidated,
(c) that the circumstances of this case prevent legal compensation from disputed claim arising from breach of contract. (Compañia General de Tabacos vs.
taking place because the question of whether private respondent is indebted French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29).
to petitioner in the amount of 6.81 million representing the deficiency
balance after the foreclosure of the mortgage executed to secure the loan There can be no doubt that petitioner is indebted to private respondent in the amount of
extended to her, is vigorously disputed; P1,062,063.83 representing the proceeds of her money market investment. This is
admitted. But whether private respondent is indebted to petitioner in the amount of P6.81
Having been affirmed by the CA, the trial court issued a Writ of Execution to implement million representing the deficiency balance after the foreclosure of the mortgage
its Order of February 13, 1984 and by virtue thereof, a levy was made on petitioner's executed to secure the loan extended to her, is vigorously disputed. This circumstance
personal property consisting of 20 motor vehicles. prevents legal compensation from taking place.
On January 9, 1985, Fajardo filed in the trial court an ex-parte motion praying that the It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC
four branches of the petitioner be ordered to pay the amount of P250k each, and the main Manila, for annulment of Sheriffs sale on extra-judicial foreclosure of private
office of the petitioner bank at Paseo de Roxas, Makati, Metro Manila, be ordered to pay respondent's property from which the alleged deficiency arose. Therefore, the validity
the amount of P62,063.83 in order to answer for the claim of private respondent of the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in
amounting to P1,062,063.83. question, so much so that it is evident that the requirement of Article 1279 that the debts
CIVIL LAW REVIEW 2
must be liquidated and demandable has not yet been met. For this reason, legal compensation having taken effect by operation of law and extinguished both debts to
compensation cannot take place under Article 1290 of the Civil Code. the concurrent amount of Php 10,000.
Mindanao Portland Cement v. CA ART. 1279. In order that compensation may be proper, it is necessary:
G.R. No. L – 62169 February 28, 1983 Teehankee, J. 1. That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are consumable,
DOCTRINE: It is clear from the record that both corporations, petitioner Mindanao they be of the same kind, and also of the same quality if the latter has been
Portland Cement Corporation (appellant) and respondent Pacweld Steel Corporation stated:
(appellee), were creditors and debtors of each other, their debts to each other 3. That the two debts be due;
consisting in final and executory judgments of the Court of First Instance in two (2) 4. That they be liquidated and demandable;
separate cases, ordering the payment to each other of the sum of P10,000.00 by way 5. That over neither of them there be any retention or controversy, commenced
of attorney's fees. The two (2) obligations, therefore, respectively offset each other, by third persons and communicated in due time to the debtor.
compensation having taken effect by operation of law and extinguished both debts
to the concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278, ACCORDINGLY. the appealed orders are hereby annulled and set aside
1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the
said Code for automatic compensation "even though the creditors and debtors are not
aware of the compensation" were duly present. Bank of the Philippines v. CA
G.R. No. 136202 January 25, 2007 Azcuna, J.
NATURE OF ACTION: Payment of Attorney’s Fees
DOCTRINE: A bank generally has a right of set-off over the deposits therein for
FACTS: Atty. Casiano Laquihon, on behalf of Pacweld Steel Corporation, which it the payment of any withdrawals on the part of a depositor. The right of a collecting
represented in a case against plaintiff Mindanao Portland Cement Corporation (MPCC), bank to debit a client's account for the value of a dishonored check that has previously
wrote a demand letter addressed to the latter, demanding the payment of attorney’s fees been credited has fairly been established by jurisprudence. To begin with, Article
amounting to Php 10,000 to be given to him by virtue of the award of the CFI in the case 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money
between them. in banks and similar institutions shall be governed by the provisions concerning
simple loan."
Plaintiff now argues that the said attorney’s fees are offset by a similar award rendered
by the Court, now in favor of MPCC, against Pacweld, in the sum of Php 10,000. Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
The trial court ordered MPCC to pay Atty. Laquihon the said amount. may take place "when all the requisites mentioned in Article 1279 are present.”
ISSUE: Whether there is compensation in the following case. As businesses affected with public interest, and because of the nature of their
functions, banks are under obligation to treat the accounts of their depositors with
RULING: The Court ruled in the affirmative. meticulous care, always having in mind the fiduciary nature of their relationship. In
this regard, petitioner was clearly remiss in its duty to private respondent Salazar as
It is clear that plaintiff and defendant were mutual debtors and creditors of each other, its depositor.
their debts to each other consisting in final and executory judgments of the Court of First
Instance in two separate cases, ordering the payment to each other of the sum of Php NATURE OF ACTION: Compensation as mode of extinguishing obligation
10,000 by way of attorney’s fees. The two obligations therefore set off each other,
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FACTS: A.A Salazar Construction (Construction Company) filed an action for authority is that the mere possession of a negotiable instrument does not in itself
collection of sum of money against BPI. The complaint was amended to substitute conclusively establish either the right of the possessor to receive payment, or of the right
Anabelle Salazar (Salazar) as the real party in interest. Salazar prayed for the recovery of one who has made payment to be discharged from liability. Thus, something more
of PHP 267,707.70 debited from by petitioner BPI. BPI alleged that 3rd party than mere possession by persons who are not payees or indorsers of the instrument is
Templonuevo demanded from BPI the amount of PHP 267,692 representing 3 checks necessary to authorize payment to them in the absence of any other facts from which the
which is supposed to be payable to Templonuevo, but was credited to the Salazar’s authority to receive payment may be inferred.
account.
The delay in demanding reimbursement for the amount of the checks does not estop
BPI believed Templonuevo ‘s claim and froze the account of A.A. Salazar Construction. Temploneuvo in asserting his ownership over the checks, bearing in mind that these are
They then debited the amount of the 3 checks in the aforesaid Construction Company’s crossed checks. Thus Salazar’s possession of the checks and their subsequent deposit
account and credited it back to Templonuevo’s account. does not overcome the presumption of ownership by Templonuevo. The present case
involves checks payable to order, therefore the lack of indorsement, not being a payee
The RTC ruled in favor of Salazar. BPI then filed an appeal in the CA wherein the CA or indorsee of the checks Salazar is not holder of the same.
ruled that Salazar was entitled to the proceeds of the 3 checks even if there’s a lack of
endorsement by Templonuevo. The CA concluded that Salazar and Temploneuvo had Salazar failed to discharge the burden that Templonuevo authorized her to deposit the
previously agreed that the checks payable to JRT Construction belonged to Salazar and checks and encash the same. Further BPI already gave its warranty having assumed a
would be deposited in her account with BPI agreeing to such terms. general indorser. The petitioner had the right to set-off.
ISSUES: 2. The court ruled in the NEGATIVE in this regard. There were irregularities on
1. Whether or not Salazar is a transferee under the Section 49 of the Negotiable the face of the checks, the checks lacked indorsement, even so BPI permitted
Instruments Law (NIL), which authorizes BPI to debit Salazar’s account. the deposit and encashment of these checks. Banks are institutions that are
2. Whether or not the deduction of the amount was proper. imbued with public interest and confidence, thus the law holds it to a high
standard of conduct. Moreover, upon Templonuevo's request, BPI debited the
RULINGS: amount despite assurances of the latter to Salazar that her account was to be
1. The court ruled in the NEGATIVE. The records do not support that a prior left untouched. The subsequent checks drawn against the construction
arrangement existed between Salazar and Templonuevo regarding the company’s account drawn by Salazar bounced because of the deduction. The
ownership of the checks. Section 49 of the NIL contemplates a situation court ruled that Salazar suffered undue embarrassment and humiliation,
wherein a payee or indorsee delivers the instrument for value to another without without her having the opportunity to protect her interest while BPI unilaterally
indorsing it. withdrew the amount.
This kind of transaction is an equitable assignment and the transferee acquires the Union Bank v. DBP
instrument subject to defenses and equities available among prior parties. Thus, if the G.R. No. 191555 January 20, 2014 Perlas – Bernabe, J.
transferor had legal title, the transferee acquires such title and, in addition, the right to
have the indorsement of the transferor and also the right, as holder of the legal title, to
maintain legal action against the maker or acceptor or other party liable to the transferor. DOCTRINE: Legal compensation could not have taken place between these debts
The underlying premise of this provision, however, is that a valid transfer of ownership for the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code
of the negotiable instrument in question has taken place. are not present. Since DBP’s assumed obligations to Union Bank for remittance of
the lease payments are contingent on the prior payment thereof by FW to DBP, it
Transferees in this situation do not enjoy the presumption of ownership in favor of cannot be said that both debts are due (requisite 3 of Article 1279 of the Civil Code).
holders since they are neither payees nor indorsees of such instruments. The weight of Moreover, any deficiency that DBP had cannot be determined until after the
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satisfaction of Foodmasters’ obligation to DBP. It cannot be concluded that the same obligations to Union Bank, DBP was only obliged to remit to the latter 30% of the lease
debt had already been liquidated, and thereby became demandable. rentals collected from FW, from which any deficiency was to be settled by DBP not later
than December 29, 1998.
Union Bank filed a motion for execution before the RTC, praying that DBP be directed
FACTS: Foodmasters, Inc. (FI) had outstanding loan obligations to both Bancom to pay the amount of ₱9,732,420.555 which represents the amount of the subject rentals
Development Corporation (Bancom), and to DBP. FI and DBP entered into a Deed of (i.e., 30% of the FW’s total rental debt in the amount of ₱32,441,401.85. DBP opposed
Cession of Property In Payment of Debt (dacion en pago) whereby the former ceded in Union Bank’s motion, contending that it sought to effectively vary the dispositive
favor of the latter certain properties (including a processing plant in Marilao, Bulacan) portion of the CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866. It filed its own
in consideration of the following: (a) the full and complete satisfaction of FI’s loan motion for execution against FW, citing the CA decision as its basis.
obligations to DBP; and (b) the direct assumption by DBP of FI’s obligations to Bancom
in the amount of ₱17,000,000.00 (assumed obligations). DBP leased back for 20 years RTC granted both motions for execution. RTC opined that the CA’s ruling that DBP’s
the processing plant to FI (Lease Agreement) and obliged the latter to pay monthly payment to Union Bank shall be demandable only upon payment of FW must be viewed
rentals to be shared by DBP and Bancom. in light of the date when the same was rendered. It noted that the CA decision was
promulgated only on May 27, 1994, which was before the December 29, 1998 due date
DBP also entered into a separate agreement with Bancom (Assumption Agreement) within which DBP had to fully pay its obligation to Union Bank under the Assumption
whereby the former: (a) confirmed its assumption of FI’s obligations to Bancom; and Agreement. Since the latter period had already lapsed, "[i]t would, thus, be too strained
(b) undertook to remit up to 30% of any and all rentals due from FI to Bancom (subject to argue that payment by DBP of its assumed obligation[s] shall be dependent on [FW’s]
rentals) which would serve as payment of the assumed obligations, to be paid in monthly ability, if not availability, to pay." RTC granted DBP’s motion for execution against FW
installments. Any balance of the Assumed Obligations after application of the entire since its liability to Union Bank and DBP remained undisputed.
rentals and or the entire sales proceeds actually received by Bancom on the Leased
Properties shall be paid by DBP to Bancom. FI assigned its leasehold rights under the A writ of execution and a notice of garnishment were issued dated October 15, 2001 and
Lease Agreement to Foodmasters Worldwide, Inc. (FW); while Bancom conveyed all a notice of garnishment against DBP were issued. DBP filed a motion for
its receivables to Union Bank. Union Bank filed a collection case against DBP. In reconsideration but was denied. DBP’s deposits were eventually garnished. Aggrieved,
opposition, DBP countered that the obligations it assumed were payable only out of the DBP filed a petition for certiorari before the CA but it was dismissed. DBP appealed
rental payments made by FI. Since FI had yet to pay the same, DBP’s obligation to the CA’s ruling and was granted. It found significant points of variance between the
Union Bank had not arisen. DBP sought to implead FW as third party-defendant in its CA’s May 27, 1994 Decision in CA-G.R. CV No. 35866, and the RTC’s Order of
capacity as FI’s assignee. Execution/October 15, 2001 Writ of Execution. It ruled that both the body and the
dispositive portion of the same decision acknowledged that DBP’s obligation to Union
The RTC ruled in favor of Unionbank and ordered DBP to pay subject rentals and FW Bank for remittance of the lease payments is contingent on FW’s prior payment to DBP,
to reimburse DBP. It ruled that there lies no evidence which would show that DBP’s and that any deficiency DBP had to pay by December 29, 1998 as per the Assumption
receipt of the rental payments from FW is a condition precedent to the former’s Agreement cannot be determined until after the satisfaction of FW’s own rental
obligation to remit the subject rentals under the Lease Agreement. The CA reversed this obligations to DBP. Accordingly, the Court ordered Union Bank to return to DBP the
ruling and stated that the claim contravened the "plain meaning" of the Assumption amounts it received pursuant to the said writ. Union Bank moved for reconsideration but
Agreement which specifies that the payment of the assumed obligations shall be made was denied by the Court. Eventually, RTC issued a writ of execution ordering Union
"out of the portion of the lease rentals or part of the proceeds of the sale of those Bank to return to DBP all funds it received pursuant to the October 15, 2001 Writ of
properties of [FI] conveyed to DBP." It also interpreted the agreement to mean that the Execution.
lease rentals must first be applied to the payment of the assumed obligations and that
DBP would have to pay out of its own money only in case the lease rentals were Union Bank’s Motion to Affirm Legal Compensation (relevant issue)
insufficient. The Court upheld the CA’s finding that while DBP directly assumed FI’s
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Union Bank filed Motion to Affirm Legal Compensation, praying that the RTC apply In this case, Union Bank filed a motion to seek affirmation that legal compensation had
legal compensation between itself and DBP in order to offset the return of the funds it taken place in order to effectively offset (a) its own obligation to return the funds it
previously received from DBP for two reasons: (a) DBP’s assumed obligations became previously received from DBP as directed with (b) DBP’s assumed obligations under
due and demandable; and (b) since FWI became non-operational and non-existent, DBP the Assumption Agreement. However, legal compensation could not have taken place
became primarily liable to the balance of its assumed obligation. RTC denied the between these debts for the apparent reason that requisites 3 and 4 under Article 1279
motion. of the Civil Code are not present. Since DBP’s assumed obligations to Union Bank for
remittance of the lease payments are contingent on the prior payment thereof by [FW]
Pending resolution, Union Bank issued a Manager’s Check ₱52,427,250.00 in favor of to DBP, it cannot be said that both debts are due (requisite 3 of Article 1279 of the Civil
DBP, in satisfaction of the Writ of Execution. However, a balance of ₱756,372.39 Code). Moreover, any deficiency that DBP had cannot be determined until after the
representing a portion of the garnished funds of DBP was demanded. satisfaction of Foodmasters’ obligation to DBP. It cannot be concluded that the same
CA affirmed the denial of its motion to affirm legal compensation arguing that DBP is debt had already been liquidated, and thereby became demandable.
not a debtor of Union Bank and there is neither a demandable nor liquidated debt from
DBP to Union Bank. Union Bank moved for reconsideration which was also denied. Both the body and the dispositive portion of the [correctly construed the nature of DBP’s
liability for the lease payments under the various contracts, in that that the lease rentals
ISSUE: Whether or not UnionBank’s obligation may be extinguished by legal must first be applied to the payment of the ₱17 million debt and that DBP would have
compensation. to pay out of its money only in case of insufficiency of the lease rentals having until
December 29, 1998 to do so. In this sense, it is correct to say that the means of repayment
RULINGS: The Court ruled in the negative. Compensation is defined as a mode of of the assumed obligation is not limited to the lease rentals. The monthly installments,
extinguishing obligations whereby two persons in their capacity as principals are mutual however, would still have to come from the lease rentals since this was stipulated in the
debtors and creditors of each other with respect to equally liquidated and demandable "Agreement." Therefore, DBP is ordered to pay the lease rentals only upon payment of
obligations to which no retention or controversy has been timely commenced and FW.
communicated by third parties. The requisites therefor are provided under Article 1279
of the Civil Code which reads as follows: 6. Novation
Art. 1279. In order that compensation may be proper, it is necessary:
1. That each one of the obligors be bound principally, and that he be Kinds of Novation
at the same time a principal creditor of the other; a. As to its nature
2. That both debts consist in a sum of money, or if the things due are i. Subjective or personal
consumable, they be of the same kind, and also of the same quality ii. Objective or real
if the latter has been stated;
3. That the two debts be due; b. As to its form
4. That they be liquidated and demandable; i. Express
ii. Implied
5. That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor. Fua v. Yap
G.R. No. 48797 July 30, 1943 Not mentioned
Article 1290 of the Civil Code provides that "when all the requisites mentioned in Article
1279 are present, compensation takes effect by operation of law, and extinguishes both DOCTRINE: A mortgage mutually agreed upon by parties may impliedly novate an
debts to the concurrent amount, even though the creditors and debtors are not aware of earlier obligation arising from court obligation if it shown that the mortgate is
the compensation." incompatible from the earlier judgment.
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reason of incompatibility resulting from the fact that, whereas the judgment was for
NATURE OF ACTION: Appeals from the decision of the lower court. P1,538.04 payable at one time, did not provide for attorney's fees, and was not secured,
the new obligation is for P1,200 payable in installments, stipulates for attorney's fees,
FACTS: The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the and is secured by a mortgage.
Court of First Instance of Manila a judgment sentencing the defendants-appellants, Yap
Fauco and Yap Singco, to pay P1,538.04, with legal interest and costs. By virtue of a Fua, however, argues that the later agreement merely extended the time of payment and
writ of execution, a certain parcel of land belonging to theYaps in Donsol, Sorsogon, did not take away his concurrent right to have the judgment executed. This could not
was levied upon by the provincial sheriff of Sorsogon. The Sheriff made a notice, duly have been the purpose for executing the mortgage, because it was therein recited that
posted in three conspicuous places in the municipalities of Donsol and Sorsogon and the Yaps promised to pay P1,200 to Fua as a settlement of the judgment in civil case
published in the Mamera Press, that said land would be sold at public auction No. 42125. Said judgment cannot be said to have been settled, unless it was
. extinguished.
Before the public auction, the Fua executed a mortgage in favor of the Yaps, wherein it
was stipulated that their obligation under the judgment in civil case No. 42125 was Japan Airlines v. Simangan
reduced to P1,200 which was made payable in four installments of P300; that to secure G.R. No. 170141 April 22, 2008 Reyes, R.T., J.
the payment of the said P1,200, a camarin belonging to the Yaps and built on the above-
mentioned land, was mortgaged to Fua; that in case the Yaps defaulted in the payment
of any of the installments, they would pay 10% of the unpaid balance as attorney's fees, DOCTRINE: Since novation implies a waiver of the right the creditor had before
plus the costs of the action to be brought by Fua by reason of such default, and the further the novation, such waiver must be express. It cannot be supposed, without clear
amount of P338, representing the discount conceded to the Yaps. proof, that respondent had willingly done away with his right.
As a result of the agreement by the parties, the sale of the land advertised by the NATURE OF ACTION: Petition for review on certiorari.
provincial sheriff did not take place.
However, pursuant to an alias writ of execution issued by the Court of First Instance of FACTS: In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing
Manila in civil case No. 42125, the provincial sheriff, without publishing a new notice, cousin, Loreto Simangan, in UCLA School of Medicine in Los Angeles, California,
sold said land at a public auction to Fua. fThe provincial sheriff executed a final deed in U.S.A. Upon request of UCLA, respondent undertook a series of laboratory tests at the
favor of Fua. National Kidney Institute in Quezon City to verify whether his blood and tissue type are
compatible with Loreto's. Fortunately, said tests proved that respondent's blood and
Fua instituted the present action in the Court of First Instance of Sorsogon against the tissue type were well-matched with Loreto's.
Yaps in view of their refusal to recognize Fua's title and to vacate the land. TheYaps
relied on the legal defenses that their obligation under the judgment in civil case No. Respondent needed to go to the United States to complete his preliminary work-up and
42125 was novated by the mortgage executed by them in favor of the appellee and that donation surgery. Hence, to facilitate respondent's travel to the United States, UCLA
the sheriff's sale was void for lack of necessary publication. The lower court favored wrote a letter to the American Consulate in Manila to arrange for his visa. In due time,
Fua. respondent was issued an emergency U.S. visa by the American Embassy in Manila.
ISSUE: Whether or not the subsequent mortgage novated the obligation arising from Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket
the court judgment. from petitioner JAL for US$1,485.00 and was issued the corresponding boarding pass.
He was scheduled to a particular flight bound for Los Angeles, California, U.S.A. via
RULING: Yes. The judgment in civil case No. 42125 had been extinguished by the Narita, Japan.
settlement evidenced by the mortgage executed by them in favor of the Yaps. Although
said mortgage did not expressly cancel the old obligation, this was impliedly novated by
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On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not
Airport in the company of several relatives and friends. He was allowed to check-in at guilty of breach of contract of carriage, hence, not liable for damages. It posited that it
JAL's counter. After passing through said immigration and security procedures, is the one entitled to recover on its counterclaim.
respondent was allowed by JAL to enter its airplane. While inside the airplane, JAL's
airline crew suspected respondent of carrying a falsified travel document and imputed Court of Appeals: Affirmed the decision of the RTC with modification in that it
that he would only use the trip to the United States as a pretext to stay and work in Japan. lowered the amount of moral and exemplary damages and deleted the award of attorney's
The stewardess asked respondent to show his travel documents. Shortly after, the fees. The CA elucidated that since JAL issued to respondent a round trip plane ticket for
stewardess along with a Japanese and a Filipino haughtily ordered him to stand up and a lawful consideration, "there arose a perfected contract between them." It found that
leave the plane. Respondent protested, explaining that he was issued a U.S. visa. Just to respondent was "haughtily ejected" by JAL and that "he was certainly embarrassed and
allow him to board the plane, he pleaded with JAL to closely monitor his movements humiliated” when, in the presence of other passengers, JAL's airline staff "shouted at
when the aircraft stops over in Narita. His pleas were ignored. He was then constrained him to stand up and arrogantly asked him to produce his travel papers, without the least
to go out of the plane. In a nutshell, respondent was bumped off the flight. Respondent courtesy every human being is entitled to", and that "he was compelled to deplane on
went to JAL's ground office and waited there for three hours. Meanwhile, the plane took the grounds that his papers were fake." That appellee possessed bogus travel documents
off and he was left behind. Afterwards, he was informed that his travel documents were, and that he might stay illegally in Japan are allegations without substantiation. Also,
indeed, in order. Respondent was refunded the cost of his plane ticket less the sum of appellant's attempt to rebook appellee the following day was too late and did not relieve
US$500.00 which was deducted by JAL. Subsequently, respondent's U.S. visa was it from liability. The damage had been done.
cancelled.
ISSUE: Whether or not there was novation of the contract of carriage.
Displeased by the turn of events, respondent filed an action for damages against JAL
with the Regional Trial Court (RTC) in Valenzuela City. He claimed he was not able to RULING: NO. Appellant’s belated theory of novation, i.e., that appellant's original
donate his kidney to Loreto; and that he suffered terrible embarrassment and mental obligation to carry appellee to Narita and Los Angeles on July 29, 1992 was
anguish. He prayed that he be awarded P3 million as moral damages, P1.5 million as extinguished by novation when appellee and appellant agreed that appellee will instead
exemplary damages and P500,000.00 as attorney's fees. take appellant's flight to Narita on the following day, July 30, 1992, deserves little
attention.
JAL denied the material allegations of the complaint. It argued, among others, that its
failure to allow respondent to fly on his scheduled departure was due to "a need for his Since JAL definitely declared that the flight could not wait for respondent, it gave
travel documents to be authenticated by the United States Embassy” because no one respondent no choice but to be left behind. The latter was unceremoniously bumped off
from JAL's airport staff had encountered a parole visa before. It posited that the despite his protestations and valid travel documents and notwithstanding his contract of
authentication required additional time; that respondent was advised to take the flight carriage with JAL. Damage had already been done when respondent was offered to fly
the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked on the next day on July 30, 1992. Said offer did not cure JAL's default.
July 30, 1992. JAL also lodged a counterclaim anchored on respondent's alleged
wrongful institution of the complaint. It prayed for litigation expenses, exemplary Considering that respondent was forced to get out of the plane and left behind against
damages and attorney's fees. his will, he could not have freely consented to be rebooked the next day. In short, he did
not agree to the alleged novation. Since novation implies a waiver of the right the
Regional Trial Court: In favor of respondent (plaintiff). The foregoing act of the creditor had before the novation, such waiver must be express. It cannot be supposed,
defendant in ordering the plaintiff to deplane while already settled in his assigned seat without clear proof, that respondent had willingly done away with his right to fly on July
clearly demonstrated that the defendant breached its contract of carriage with the 29, 1992.
plaintiff as passenger in bad faith and as such the plaintiff is entitled to moral and
exemplary damages as well as to an award of attorney's fees.
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Moreover, the reason behind the bumping off incident, as found by the RTC and CA, independent existence; if they cannot and are irreconcilable, the subsequent
was that JAL personnel imputed that the respondent would only use the trip to the United obligation would also extinguish the first.
States as a pretext to stay and work in Japan.
An extinctive novation would thus have the twin effects of, first,
Apart from the fact that respondent's plane ticket, boarding pass, travel authority and extinguishing an existing obligation and, second, creating a new one in its
personal articles already passed the rigid immigration and security routines, JAL, as a stead. This kind of novation presupposes a confluence of four essential
common carrier, ought to know the kind of valid travel documents respondent carried. requisites: (1) a previous valid obligation, (2) an agreement of all parties
As provided in Article 1755 of the New Civil Code: "A common carrier is bound to concerned to a new contract, (3) the extinguishment of the old obligation,
carry the passengers safely as far as human care and foresight can provide, using the and (4) the birth of a valid new obligation. Novation is merely modificatory
utmost diligence of very cautious persons, with a due regard for all the circumstances." where the change brought about by any subsequent agreement is merely
incidental to the main obligation.
It bears repeating that the power to admit or not an alien into the country is a sovereign
act which cannot be interfered with even by JAL. NATURE OF ACTION: Petition for review seeking to annul and set aside the Decision
and Resolution of the Court of Appeals
In an action for breach of contract of carriage, all that is required of the plaintiff is to
prove the existence of such contract and its non-performance by the carrier through the FACTS: Salazar with Calleja and Kallos procured from J.Y. Bros. 300 cavans of rice.
latter's failure to carry the passenger safely to his destination. Respondent has complied As payment, Salazar negotiated and indorsed to J.Y. Bros. a Prudential Bank Check
with these twin requisites. issued by Nena Jaucian Timario with the assurance that the check is good as cash.
However, upon presentment, the check was dishonored due to “closed account.”
Respondent is entitled to moral and exemplary damages and attorney's fees plus legal
interest. JAL is not entitled to its counterclaim for damages. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros.
a replacement cross Solid Bank Check again issued by Nena Jaucian Timario but which,
Anamer Salazar v. J.Y. Brothers Marketing Corp. just the same, bounced due to insufficient funds. When despite the demand letter, Salazar
G.R. No. 171998 October 20, 2010 Peralta, J. failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with
the crime of estafa.
DOCTRINE: Novation is done by the substitution or change of the obligation by a
subsequent one which extinguishes the first, either by changing the object or Salazar was acquitted and the civil aspect of the case was dismissed by the RTC.
principal conditions, or by substituting the person of the debtor, or by subrogating a
third person in the rights of the creditor. Novation may: The CA reversed the Decision.
Either be extinctive or modificatory, much being dependent on the nature
of the change and the intention of the parties. Extinctive novation is never ISSUE: Whether the issuance of the Solid Bank check and the acceptance thereof by
presumed; there must be an express intention to novate; in cases where it is the respondent, in replacement of the dishonored Prudential Bank check,
implied, the acts of the parties must clearly demonstrate their intent to amounted to novation that discharged the latter check?
dissolve the old obligation as the moving consideration for the emergence
of the new one. Implied novation necessitates that the incompatibility RULING: NO. Novation is done by the substitution or change of the obligation by a
between the old and new obligation be total on every point such that the old subsequent one which extinguishes the first, either by changing the object or principal
obligation is completely superceded by the new one. The test of conditions, or by substituting the person of the debtor, or by subrogating a third person
incompatibility is whether they can stand together, each one having an in the rights of the creditor. Novation may:
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Either be extinctive or modificatory, much being dependent on the nature Metropolitan Bank v. Rural Bank of Gerona, Inc.
of the change and the intention of the parties. Extinctive novation is never G.R. No. 159097 July 5, 2010 Brion, J.
presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to
dissolve the old obligation as the moving consideration for the emergence DOCTRINE: Article 1303 of the Civil Code states that subrogation transfers to the
of the new one. Implied novation necessitates that the incompatibility person subrogated the credit with all the rights thereto appertaining, either against
between the old and new obligation be total on every point such that the old the debtor or against third persons. As the entity against which the collection was
obligation is completely superceded by the new one. The test of enforced, Metrobank was subrogated to the rights of Central Bank and has a cause
incompatibility is whether they can stand together, each one having an of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per
independent existence; if they cannot and are irreconcilable, the subsequent annum interest.
obligation would also extinguish the first.
NATURE OF ACTION: Petitioner Metropolitan Bank and Trust Company
An extinctive novation would thus have the twin effects of, first, (Metrobank) filed this Petition for Review on Certiorari 1 under Rule 45 of the Rules of
extinguishing an existing obligation and, second, creating a new one in its Court to challenge the Court of Appeals (CA) decision dated December 17, 2002 2 and
stead. This kind of novation presupposes a confluence of four essential the resolution dated July 14, 2003 3 in CA-G.R. CV No. 46777. The CA decision set
requisites: (1) a previous valid obligation, (2) an agreement of all parties aside the July 7, 1994 decision 4 of the Regional Trial Court (RTC) of Tarlac, Branch
concerned to a new contract, (3) the extinguishment of the old obligation, 65, in Civil Case No. 6028 (a collection case filed by Metrobank against respondent
and (4) the birth of a valid new obligation. Novation is merely modificatory Rural Bank of Gerona, Inc. [RBG ]), and ordered the remand of the case to include the
where the change brought about by any subsequent agreement is merely Central Bank of the Philippines 5 (Central Bank) as a necessary party.
incidental to the main obligation.
FACTS: RBG is a rural banking corporation organized under Philippine laws and
In this case, respondent's acceptance of the Solid Bank check, which replaced the located in Gerona, Tarlac. The Central Bank and the RBG entered into an agreement
dishonored Prudential Bank check, did not result to novation as there was no express providing that RBG shall facilitate the loan applications of farmers-borrowers under the
agreement to establish that petitioner was already discharged from his liability to pay Central Bank-International Bank for Reconstruction and Development's (IBRD's) 4th
respondent the amount of P214,000.00 as payment for the 300 bags of rice. Novation is Rural Credit Project. As the depository bank of RBG, Metrobank was designated to
never presumed, there must be an express intention to novate. In fact, when the Solid receive the credit advice released by the Central Bank representing the proceeds of the
Bank check was delivered to respondent, the same was also indorsed by petitioner which IBRD loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBG's
shows petitioner's recognition of the existing obligation to respondent to pay special savings account for the latter's release to the farmers-borrowers. The Central
P214,000.00 subject of the replaced Prudential Bank check. Bank released three credit advice in Metrobank’s favor and credited Metrobank’s
demand deposit account.
Moreover, respondent's acceptance of the Solid Bank check did not result to any
incompatibility, since the two checks − Prudential and Solid Bank checks − were More than a month after RBG had made the above withdrawals from its account with
precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained Metrobank, the Central Bank issued debit advices, reversing all the approved IBRD
from the purchase of the 300 bags of rice from respondent. Indeed, there was no loans. Metrobank, however, claimed that these amounts were insufficient to cover all
substantial change in the object or principal condition of the obligation of petitioner as the credit advices that were reversed by the Central Bank. It demanded payment from
the indorser of the check to pay the amount of P214,000.00. It would appear that the RBG which could make partial payments. To collect this amount, it led a complaint for
respondent accepted the Solid Bank check to give the petitioner the chance to pay her collection of sum of money against RBG.
obligation.
RTC ruled for Metrobank, finding legal subrogation. It thus ordered RBG to pay
Metrobank the sum of P334,200.00, plus interest at 14% per annum until the amount is
CIVIL LAW REVIEW 2
fully paid. On appeal, the CA noted that this was not a case of legal subrogation under subrogated to the rights of Central Bank and has a cause of action to recover from RBG
Article 1302 of the Civil Code. Nevertheless, the CA recognized that Metrobank had a the amounts it paid to the Central Bank, plus 14% per annum interest.
right to be reimbursed of the amount it had paid and failed to recover, as it suffered loss
in an agreement that involved only the Central Bank and the RBG. The CA declared that Arco Pulp and Pate
the Central Bank should be impleaded as a necessary party so it could shed light on the G.R. No. 206806 June 25, 2014 Leonen, J.
IBRD loan reversals. Thus, the CA set aside the RTC decision, and remanded the case
to the trial court for further proceedings after the Central Bank is impleaded as a
necessary party. DOCTRINE: In an alternative obligation, there is more than one object, and the
fulfillment of one is sufficient, determined by the choice of the debtor who generally
Metrobank disagrees with the CA's ruling to implead the Central Bank as a necessary has the right of election.” The right of election is extinguished when the party who
party and to remand the case to the RTC for further proceedings. It argues that the may exercise that option categorically and unequivocally makes his or her choice
inclusion of the Central Bank as party to the case is unnecessary since RBG has already known.
admitted its liability for the amount Metrobank failed to recover.
NATURE OF ACTION: Petition for review on certiorari assailing the Court of
ISSUE: Whether or not Legal Subrogation took place Appeals’ decision , which stemmed from a complaint filed in the Regional Trial Court
of Valenzuela City, for collection of sum of money.
RULING: The farmers-borrowers to whom credits have been extended, are primarily
liable for the payment of the borrowed amounts. While the farmers-borrowers were the FACTS: Lim works in the business of supplying scrap papers, cartons, and other raw
principal debtors, RBG assumed liability under the Project Terms and Conditions by materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
solidarily binding itself with the principal debtors to fulfill the obligation. The Central engaged in the paper mill business.
Bank was further authorized to deduct the amount due from RBG's demand deposit
reserve should the latter become delinquent in payment. The Central Bank was further From February 2007 to March 2007, he delivered scrap papers worth P7,220,968.31 to
authorized to deduct the amount due from RBG's demand deposit reserve should the Arco Pulp through its Chief Executive Officer and President, Santos.
latter become delinquent in payment. Based on these arrangements, the Central Bank's
immediate recourse, therefore should have been against the farmers-borrowers and the The parties allegedly agreed that Arco Pulp and Paper would either pay Lim the value
RBG; thus, it erred when it deducted the amounts covered by the debit advices from of the raw materials or deliver to him their finish products of equivalent value.
Metrobank's demand deposit account. Metrobank had no responsibility over the
proceeds of the IBRD loans other than serving as a conduit for their transfer from the A post dated check issued by Arco Pulp and Paper worth P1,487,766.68 as partial
Central Bank to the RBG once credit advice has been issued. payment was dishonored.
Metrobank was a third party to the Central Bank-RBG agreement, had no interest except Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement where
as a conduit, and was not legally answerable for the IBRD loans. Despite this, it was Arco Pulp and Paper bound themselves to deliver their finished products to Megapack
Metrobank's demand deposit account, instead of RBG's, which the Central Bank Container Corporation, owned by Eric Sy. According to the memorandum, the raw
proceeded against, on the assumption perhaps that this was the most convenient means materials would be supplied by Dan T. Lim, through his company, Quality Paper and
of recovering the cancelled loans. Plastic Products.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated When Lim filed a complaint for collection of money, The trial court ruled that when
the credit with all the rights thereto appertaining, either against the debtor or against Arco Pulp and Paper and Sy entree into the memorandum of agreement, novation took
third persons. As the entity against which the collection was enforced, Metrobank was place.
CIVIL LAW REVIEW 2
The Court of Appeals reversed the judgement and ordered Arco Pulp and Paper to jointly Millare v. CA
and severally pay Lim: G.R. No. L – 29981 April 30, 1971 Castro, J.
P7,220,968.31 with 12% interest per annum
P50,000.00 moral damages
P50,000.00 exemplary damages DOCTRINE: The defense of implied novation requires clear and convincing proof
P50,000.00 attorney’s fees of complete incompatibility between the two obligations. (Magda Estates, Inc. v.
Rodriguez and Rodriguez, L-18411, Dec. 17, 1966, 18 SCRA 967.) The law requires
The appellate court ruled that the facts and circumstances in this case clearly showed the no specific form for an effective novation by implication. The test is whether the two
existence of an alternative obligation. obligations can stand together. If they cannot, incompatibility arises, and the second
obligation novates the first. If they can stand together, no incompatibility results and
ISSUE: Whether or not the obligation between the parties was extinguished by novation does not take place.
novation.
NATURE OF ACTION: Petition for Certiorari to Review the Decision of the CA
RULING: The obligation between the parties was an alternative obligation.
FACTS: On February 11, 1956, Eusebio S. Millar obtained a favorable judgment from
Article 1199. A person alternatively bound by different prestations shall the CFI of Manila, condemning Antonio P. Gabriel to pay him the sum of P1,746.98
completely perform one of them. with interest at 12% per annum from the date of the filing of the complaint, the sum of
P400 as attorney's fees, and the costs of suit. From the said judgment, the respondent
The creditor cannot be compelled to receive part of one and part of the other appealed to the Court of Appeals which, however, dismissed the appeal.
undertaking.
Subsequently, after remand by the Court of Appeals of the case, the petitioner moved ex
In an alternative obligation, there is more than one object, and the fulfillment of one is parte in the court of origin for the issuance of the corresponding writ of execution to
sufficient, determined by the choice of the debtor who generally has the right of enforce the judgment. Acting upon the motion, the lower court issued the writ of
election.” The right of election is extinguished when the party who may exercise that execution applied for, on the basis of which the sheriff of Manila seized the respondent's
option categorically and unequivocally makes his or her choice known. Willy's Ford jeep.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment The respondent, however, pleaded with the petitioner to release the jeep under an
for the scrap papers, they exercised their option to pay the price. Respondent's receipt of arrangement whereby the respondent, to secure the payment of the judgement debt,
the check and his subsequent act of depositing it constituted his notice of petitioner Arco agreed to mortgage the vehicle in favor of the petitioner. The petitioner agreed to the
Pulp and Paper's option to pay. arrangement.
This choice was also shown by the terms of the memorandum of agreement, which was Upon failure of the respondent to pay the first installment due on March 31, 1957, the
executed on the same day. The memorandum declared in clear terms that the delivery of petitioner obtained an alias writ of execution. This writ which the sheriff served on the
petitioner Arco Pulp and Paper's finished products would be to a third person, thereby respondent only on May 30, 1957 — after the lapse of the entire period stipulated in the
extinguishing the option to deliver the finished products of equivalent value to chattel mortgage for the respondent to comply with his obligation — was returned
respondent. unsatisfied.
So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of
the petitioner, issued several alias writs, which writs the sheriff also returned unsatisfied.
On September 20, 1961, the petitioner obtained a fifth alias writ of execution. Pursuant
CIVIL LAW REVIEW 2
to this last writ, the sheriff levied on certain personal properties belonging to the Instead of extinguishing the obligation of the respondent arising from the judgment, the
respondent, and then scheduled them for execution sale. deed of chattel mortgage expressly ratified and confirmed the existence of the same,
amplify only the mode and period for compliance by the respondent.
However, on November 10, 1961, the respondent filed an urgent motion for the
suspension of the execution sale on the ground of payment of the judgment obligation. Where the new obligation merely reiterates or ratifies the old obligation, although the
The lower court, on November 11, 1961, ordered the suspension of the execution sale former effects but minor alterations or slight modifications with respect to the cause or
to afford the respondent the opportunity to prove his allegation of payment of the object or conditions of the latter, such changes do not effectuate any substantial
judgment debt, and set the matter for hearing on November 25, 1961. incompatibility between the two obligations. Only those essential and principal changes
introduced by the new obligation producing an alteration or modification of the essence
The lower court ruled that novation had taken place, and that the parties had executed of the old obligation result in implied novation. In the case at bar, the mere reduction of
the chattel mortgage only "to secure or get better security for the judgment. The appellate the amount due in no sense constitutes a sufficient indicium of incompatibility,
court stated that the following circumstances sufficiently demonstrate the especially in the light of (a) the explanation by the petitioner that the reduced
incompatibility between the judgment debt and the obligation embodied in the deed of indebtedness was the result of the partial payments made by the respondent before the
chattel mortgage, warranting a conclusion of implied novation: execution of the chattel mortgage agreement and (b) the latter's admissions bearing
1. Whereas the judgment orders the respondent to pay the petitioner thereon.
the sum of P1,746.98 with interest at 12% per annum from the
filing of the complaint, plus the amount of P400 and the costs of At best, the deed of chattel mortgage simply specified exactly how much the respondent
suit, the deed of chattel mortgage limits the principal obligation of still owed the petitioner by virtue of the judgment in civil case 27116. The parties,
the respondent to P1,700; apparently in their desire to avoid any future confusion as to the amounts already paid
2. Whereas the judgment mentions no specific mode of payment of and as to the sum still due, decided to state with specificity in the deed of chattel
the amount due to the petitioner, the deed of chattel mortgage mortgage only the balance of the judgment debt properly collectible from the
stipulates payment of the sum of P1,700 in two equal installments; respondent. All told, therefore, the first circumstance fails to satisfy the test of
3. Whereas the judgment makes no mention of damages, the deed of substantial and complete incompatibility between the judgment debt and the pecuniary
chattel mortgage obligates the respondent to pay liquidated liability of the respondent under the chattel mortgage agreement.
damages in the amount of P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, Sandico v. Piguing
which may be foreclosed extrajudicially in case of default, secured G.R. No. L – 26115 November 29, 1971 Castro, J.
the obligation.
ISSUE: Whether or not the subsequent agreement of the parties as embodied in the deed DOCTRINES:
of chattel mortgage impliedly novated the judgment obligation 1. Novation results in two stipulations — one to extinguish an existing
obligation, the other to substitute a new one in its place. Fundamental it is that
RULING: No, there is no substantial incompatibility between the mortgage obligation novation effects a substitution or modification of an obligation by another or
and the judgment liability of the respondent sufficient to justify a conclusion of implied an extinguishment of one obligation in the creation of another.
novation. The stipulation for the payment of the obligation under the terms of the deed 2. Additionally, to sustain novation necessitates that the same be so declared in
of chanel mortgage serves only to provide an express and specific method for its unequivocal terms — clearly and unmistakably shown by the express
extinguishment — payment in two equal installments. The chattel mortgage simply gave agreement of the parties or by acts of equivalent import — or that there is
the respondent a method and more time to enable him to fully satisfy the judgment complete and substantial incompatibility between the two obligations.
indebtedness. (Zapanta v. De Rotaeche, 21 Phil. 154) The chattel mortgage agreement
in no manner introduced any substantial modification or alteration of the judgment. NATURE OF ACTION: Action for easement and damages
CIVIL LAW REVIEW 2
FACTS: Spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol, The respondent judge issued an order calling, and directing the quashal of the alias writ
administrator of the estate of the late Sixta Paras, obtained a judgment in their favor of execution. The respondent judge stated in her order that the agreement of the parties
against Desiderio Paras (hereinafter referred to as the respondent) in civil case 1554, an "novated" the money judgment provided for in the decision of the Court of Appeals.
action for easement and damages in the Court of First Instance
The petitioners allege that their agreement with the respondent in August, 1964,
On appeal, the Court of Appeals affirmed and modified the judgment, as follows: IN reducing the amount due from the respondent, constitutes neither waiver of their claim
VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is for the sum of P2,000 nor novation of the money judgment provided for in the Court of
condemned to recognize the easement which is held binding as to him; he is sentenced Appeals' decision. They state that their agreement with the respondent reduced the
to pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary damages, and amount of the money judgment, subject to the condition that the latter reconstruct and
P500.00 attorney's fees; plus costs in both instances. reopen the irrigation canal immediately. This, they argue, does not constitute alteration
of the appellate court's judgment.
Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and Timbol
(hereinafter referred to as the petitioners) moved for the issuance of a writ of execution For his part, the respondent contends that his payment of the sum of P4,000, received
to enforce the appellate court's judgment which had acquired finality. Acting upon the and acknowledged by the petitioners through their counsel as "in full satisfaction of the
motion, the court a quo issued a writ of execution on July 22, 1964. This writ the money judgment" in civil case 1554, extinguished his pecuniary liability.
provincial sheriff served upon the respondent
ISSUE: Whether the payment by the respondent to the petitioners of the amount of
Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to P4,000 extinguished the money judgment
the reduction of the money judgment from P6,000 to P4,000. Thus, the respondent, on
August 5, 1964, paid the petitioners the sum of P3,000; he made another payment in the RULING: Yes. The Court adjudge the respondent's judgment debt as having been fully
amount of P1,000 as evidenced by a receipt issued by the petitioners' counsel. satisfied. We see no valid objection to the petitioners and the respondent entering into
an agreement regarding the monetary obligation of the latter under the judgment of the
Subsequently, the petitioners sent the respondent a letter dated November 5, 1964 Court of Appeals, reducing the same from P6,000 to P4,000. The payment by the
demanding compliance by the latter with the portion of the judgment in civil case 1554 respondent of the lesser amount of P4,000, accepted by the petitioners without any
relative to the reconstruction and reopening of the irrigation canal. protest or objection and acknowledged by them as "in full satisfaction of the money
judgment" in civil case 1554, completely extinguished the judgment debt and released
Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal, the the respondent from his pecuniary liability.
petitioners, on March 3, 1965, filed with the court a quo, with Judge Minerva R.
Inocencio Piguing (hereinafter referred to as the respondent judge) presiding, a motion However the Court noted that there was no novation. Novation results in two stipulations
to declare the said private respondent in contempt of court — one to extinguish an existing obligation, the other to substitute a new one in its place.
Fundamental it is that novation effects a substitution or modification of an obligation by
The respondent judge issued an order denying the petitioners' motion to declare the another or an extinguishment of one obligation in the creation of another.
respondents in contempt of court.
In the case at hand, we fail to see what new or modified obligation arose out of the
The petitioners moved for issuance of an alias writ of execution to enforce the payment by the respondent of the reduced amount of P4,000 and substitute the monetary
judgement of the Court of Appeals. he respondent moved to set aside the said alias writ, liability for P6,000 of the said respondent under the appellate court's judgment.
alleging full satisfaction of the judgment per agreement of the parties when the petitioner Additionally, to sustain novation necessitates that the same be so declared in
received the sum of P4,000 in August, 1964 as evidenced by the receipt dated August unequivocal terms — clearly and unmistakably shown by the express agreement of the
31, 1964.
CIVIL LAW REVIEW 2
parties or by acts of equivalent import — or that there is complete and substantial Integrated Construction v. Hon. Lorenzo Relova and MWSS
incompatibility between the two obligations. G.R. No. L – 41117 December 29, 1986 Paras, J.
NPC v. Dayrit
DOCTRINE: While the tenor of the subsequent letter agreement in a sense novates
G.R. No. L – 62845 – 46 November 25, 1983 Abad Santos, J. the judgment award there being a shortening of the period within which to pay, the
failure of a party to comply with the suspensive and conditional nature of the
DOCTRINE: It is elementary that novation is never presumed; it must be explicitly agreement, were remitted the parties to their original rights under the judgment award
stated or there must be manifest incompatibility between the old and new obligations
in every aspect. NATURE OF ACTION: This is a petition for mandamus as a special civil action
and/or, in the alternative, an appeal from orders of the Court of First Instance of Manila
NATURE OF ACTION: Petition to set aside the Order of the respondent judge under R.A. No. 5440 in Civil Case No. 80390 entitled "Integrated Construction
premised on the allegation that the questioned order was issued with grave abuse of Services, Inc. and Engineering Construction, Inc., plaintiffs, vs. NWSS (now MWSS).
discretion.
FACTS: Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks
FACTS: Private respondent Daniel E. Roxas, doing business under the name and style and Sewerage System (MWSS), formerly the National Waterworks and Sewerage
of United Veterans Security Agency and Foreign Boats Watchmen, sued petitioner, Authority (NAWASA), in the Court of First Instance of Manila for breach of contract,
National Power Corporation and two of its officers in Iligan City. The purpose of the docketed as Civil Case No. 80390 in that Court.
suit was to compel the NPC to restore the contract of Roxas for security services which
the former had terminated. The litigants entered into a Compromise Agreement on The parties submitted the case to arbitration. The Arbitration Board, after extensive
October 14, 1981, and asked the court to approve it. On May 14, 1982, the NPC executed hearings, rendered its decision-award on August 11, 1972. Respondent Judge confirmed
another contract for security services with Josette L. Roxas whose relationship with the Award on September 9, 1972 and the same has long since become final and
Daniel Roxas is not shown. At any rate Daniel Roxas has owned the contract. The NPC executory. The decision-award ordered MWSS to pay petitioners P15,518,383.61-less
refused to implement the new contract for which reason Daniel filed a Motion for P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint venture in
Execution. The Motion for Execution was approved which the NPC assails on the connection with the projector a net award of P13,188,950.20 with interest thereon from
ground that it directs execution of a contact which had been novated by that of May 14, the filing of the complaint until fully paid.
1982. On the other hand, Roxas claims that said contract was executed precisely to
implement the compromise agreement for which reason there was no novation. Subsequently, however, petitioners agreed to give MWSS some discounts in
consideration of an early payment of the award. Thus, on September 21, 1972, MWSS
ISSUE: Whether or not there was a novation of the contract between parties adopted Board Resolution No. 132-72, embodying the terms and conditions of their
agreement.
RULING: The Court ruled in favor of the respondent. It is elementary that novation is
never presumed; it must be explicitly stated or there must be manifest incompatibility On October 2, 1972, MWSS sent a letter-agreement to petitioners, quoting Board
between the old and new obligations in every aspect. Resolution No. 13272, granting MWSS some discounts from the amount payable under
the decision award (consisting of certain reductions in interests, in the net principal
In the case at bar, there is nothing in the May 14, 1982 agreement which supports the award and in the trust fund), provided that MWSS would pay the judgment, less the said
petitioner’s contention. There is either explicit novation nor incompatibility on every discounts, within fifteen days therefrom or up to October 17, 1972. MWSS, however,
point between the old and new agreements. paid only on December 22, 1972, the amount stated in the decision but less the
reductions provided for in the October 2, 1972 letter-agreement. Three years thereafter,
or on June, 1975, after the last balance of the trust fund had been released and used to
CIVIL LAW REVIEW 2
satisfy creditors' claims, the petitioners filed a motion for execution in said civil case Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr and (b) another
against MWSS for the balance due under the decision-award. Respondent MWSS agreement was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K.
opposed execution setting forth the defenses of payment and estoppel. On July 10, 1975, Villanueva and Liu Tua Ben. Mr. Villanueva.
respondent judge denied the motion for execution on the ground that the parties had
novated the award by their subsequent letter-agreement. Under both indemnity agreements, the indemnitors bound themselves jointly and
severally to R & B Surety to pay an annual premium and for the faithful compliance of
ISSUE: Whether or not there is novation and whether it will render the initial judgement the terms and conditions set forth in said Surety Bond until the same is cancelled and/or
unenforceable. discharged. When PAGRICO failed to comply with its Principal Obligation to the PNB,
the PNB demanded payment from R & B Surety of the sum of P400,000.00. R & B
RULING: While the tenor of the subsequent letter-agreement in a sense novates the Surety made a series of payments to PNB by virtue of that demand.
judgment award there being a shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco), the suspensive and conditional nature of the said R&B Surety in turn sent formal demand letters to petitioners for reimbursement of the
agreement (making the novation conditional) is expressly acknowledged and stipulated payments made by it to the PNB and for a discharge of its liability to the PNB under the
in the 14th whereas clause of MWSS' Resolution No. 132-72. MWSS’ failure to pay Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit
within the stipulated period removed the very cause and reason for the agreement, against petitioner in the CFI of Manila. CFI ruled in favor of R&B Surety and made
rendering some ineffective. Petitioners, therefore, were remitted to their original rights petitioners jointly and severally liable for Surety Bond No. 4675 and interest.
under the judgment award.
ISSUE: Whether or not the Trust Agreement had extinguished, by novation, the
obligation of R&B Surety to the PNB under the Surety Bond which, in turn,
Joseph Cochingyan, Jr. and Jose K. Villanueva v. R&B Surety and Insurance extinguished the obligations of the petitioners under the Indemnity
Co., Inc. Agreements?
G.R. No. L – 47369 June 30, 1987 Feliciano, J.
RULING: NO. Surety Bond was not novated by the Trust Agreement. Both agreements
can co-exist. The Trust Agreement merely furnished to PNB another party obligor to the
DOCTRINE: Novation is the extinguishment of an obligation by the substitution or Principal Obligation in addition to PAGRICO and R & B Surety.
change of the obligation by a subsequent one which terminates it, either by changing
its object or principal conditions, or by substituting a new debtor in place of the old Novation is the extinguishment of an obligation by the substitution or change of the
one, or by subrogating a third person to the rights of the creditor. obligation by a subsequent one which terminates it, either by changing its object or
principal conditions, or by substituting a new debtor in place of the old one, or by
NATURE OF ACTION: Petition for Review on Certiorari on decision of the CFI of subrogating a third person to the rights of the creditor. Novation through a change of
Manila involving purely questions of law the object or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of the
FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in creditor is described as subjective (or personal) novation. Novation may also be both
its line of credit from P400,000 to P800,000 with Philippine National Bank. To secure objective and subjective (mixed) at the same time. In both objective and subjective
PNB's approval, PAGRICO had to give a bond in the amount of P400,000.00 so novation, a dual purpose is achieved-an obligation is extinguished and a new one is
PAGRICO submitted Surety Bond No. 4765 issued by respondent R&B Surety and created in lieu thereof.
Insurance Co., Inc.
If objective novation is to take place, it is imperative that the new obligation expressly
In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity declare that the old obligation is thereby extinguished, or that the new obligation be on
agreements were entered into with R & B Surety: (a) one agreement executed by the every point incompatible with the old one. Novation is never presumed: it must be
CIVIL LAW REVIEW 2
established either by the discharge of the old debt by the express terms of the new approved by the trial court and made as the basis of its Decision dated December 11,
agreement, or by the acts of the parties whose intention to dissolve the old obligation as 1980 ordering the parties to comply strictly with the terms and conditions embodied in
a consideration of the emergence of the new one must be clearly discernible. If said amicable settlement. The salient points therein show that defendants admitted
subjective novation by a change in the person of the debtor is to occur, it is not enough "having sold under a pacto de retro sale the parcels of land described in the complaint
that the juridical relation between the parties to the original contract is extended to a in the amount of P84,000.00" and that they "hereby promise to pay the said amount
third person. It is essential that the old debtor be released from the obligation, and the within the period of four (4) months but not later than May 15, 1981."On December 30,
third person or new debtor take his place in the new relation. Otherwise, no novation 1981 or more than seven months after the last day for making payments, defendants
occurs and the third person who has assumed the obligation of the debtor becomes redeemed from plaintiff Guadalupe (one of the private respondents herein) Lot No. 52
merely a co-debtor or surety or a co-surety. with an area of 294 sq.m. covered by TCT 101352 which was one of the three parcels
of land described in the complaint by paying the amount of P20,000.00.
In this case, the Trust Agreement does not expressly terminate the obligation of R&B
Surety under the Surety Bond. On the contrary, the Trust Agreement expressly provides On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title
for the continuing subsistence of that obligation by stipulating that the Trust Agreement over the remaining two (2) parcels of land namely Lot 965 and Lot 16 alleging that the
shall not in any manner release R & B Surety from its obligation under the Surety Bond. court's decision dated December 11, 1980 remained unenforced for non-payment of the
total obligation due from defendants. Defendants opposed said motion alleging that they
Neither can the petitioners anchor their defense on implied novation. Absent an had made partial payments of their obligation through plaintiffs attorney in fact and son,
unequivocal declaration of extinguishment of a pre-existing obligation, a showing of Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower court issued
complete incompatibility between the old and the new obligation (and nothing else) the questioned order affirming consolidation.
would sustain a finding of novation by implication. However, in this case, the parties to
the new obligation expressly recognize the continuing existence and validity of the old On June 8, 1983, while the Order of the lower court had not yet been enforced,
one implied novation is not reached at all. What the trust agreement did at most was defendants paid plaintiff Guadalupe Vda. de del Castillo by tendering the amount of
merely to bring in another person/s -the Trustor[s]- to assume the same obligation that P28,800.00 to her son Waldo del Castillo (one of the private respondents herein) thus
R & B Surety was bound to perform under the Surety Bond. So far as the PNB was leaving an unpaid balance of P35,200.00. A Certification dated June 8, 1983, and signed
concerned, the effect of the Trust Agreement was that where there had been only two, by Waldo shows that defendants were given a period of 45 days from date or up to July
there would now be three obligors directly and solidarily bound in favor of the PNB: 23, 1983 within which to pay the balance. Said Certification supported defendants'
PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of motion for reconsideration and supplemental motion for reconsideration of the Order
the three, in any order or sequence. reconsolidation of title, which motions were both denied by the lower court, prompting
defendants to file a petition for certiorari, prohibition and mandamus with preliminary
Balila v. IAC injunction with the Intermediate Appellate Court seeking to annul and set aside the
G.R. No. L – 68477 October 29, 1987 Paras, J. assailed Order dated April 26, 1983 and the Order denying their motion for
reconsideration.
DOCTRINE: A lower court decision can be novated by the subsequent agreement Petitioners contend that despite the rendition of the said decision by the appellate court,
of the parties. Implicit in this Court's ruling is that such a plea would merit approval private respondent Guadaiupe Vda. de del Castillo, represented by her son Waldo del
if indeed that was what the parties intended. Castillo as her attorney-in-fact, accepted payments from petitioners and gave
petitioners several extensions of time to pay their remaining obligations.
NATURE OF ACTION: Novation agreed upon through an agent
Petitioners likewise allege that private respondents Guadalupe Vda. de del Castillo and
FACTS: The petition at bar began as an amicable settlement between petitioners and son Waldo, were nowhere to be found on December 30, 1984, the last day for petitioners
private respondents as defendants and plaintiffs in Civil Case No. U-3501, which was to pay their balance of P10,000.00 and for private respondents to reconvey the lands in
CIVIL LAW REVIEW 2
question (Lots 965 and 16) in favor of petitioners and to deliver TCT Nos. 146360 and execution inequitable; or when it appears that the controversy has never been submitted
146361 already in the name of private respondent Guadalupe Vda. de del Castillo, to the judgment of the court, or when it appears that the writ of execution has been
covering said lots respectively. This incident compelled petitioners to deposit said improvidently issued, or that it is defective in substance, or issued against the wrong
amount with the Regional Trial Court as per receipt OR No. 9764172 accompanied by party or that judgment debt has been paid or otherwise satisfied; or when the writ has
a motion to deposit which motion was granted as per Order dated January 9, 1985. The been issued without authority.
aforementioned titles over the two parcels of lands are subject to Notice of Lis Pendens
dated August 15, 1983. A lower court decision was novated by the subsequent agreement of the parties. Implicit
in this Court's ruling is that such a plea wouid merit approval if indeed that was what the
ISSUE: Whether or not Waldo del Castillo was a person duly authorized by his mother parties intended.
Guadalupe Vda. de del Castillo, as her attorney-in-fact to represent her in
transactions involving the properties in question. People’s Bank & Trust Company v. Syvel’s Inc., Antonio and Angel Syyap
G.R. No. L – 29280 August 11, 1988 Paras, J.
RULING: Yes. We believe that he was so authorized in the same way that the appellate
court took cognizance of such fact as embodied in its assailed decision, reading as
follows: DOCTRINE: Novation takes place when the object or principal condition of an
"It may be mentioned that on May 25, 1981, Guadalupe Vda. de Del obligation is changed or altered. It is elementary that novation is never presumed. It
Castillo, represented by her attorney in fact Waldo Castillo, filed a must be explicitly stated or there must be manifest incompatibility between the old
complaint for consolidation of ownership against the same petitioners and the new obligations in every aspect.
herein before the Court of First Instance of Pangasinan docketed as Civil
Case No. U-3650, the allegations of which are identical to the complaint NATURE OF ACTION: This is an action for foreclosure of chattel mortgage.
filed in Civil Case No. U-3501 of the same court. This case (U-3650) was,
however, dismissed in an Order dated May 27, 1983, in view of the order FACTS: People’s Bank and Trust Co., extended a credit commercial line in the amount
of consolidation issued in Civil Case No. U-3501." of P900,000 to Syvel’s Inc. Defendants Syyaps executed an undertaking in favor of
plaintiff whereby they both agreed to guarantee absolutely and unconditionally and
The fact therefore remains that the amount of P84,000.00 payable on or before May 15, without benefit of excussion the full payment of any indebtedness to be incurred on
1981 decreed by the trial court in its judgment by compromise was novated and amended account of the said credit line. Furthermore, they executed a chattel mortgage in favor
by the subsequent mutual agreements and actions of petitioners and private respondents. of plaintiff over its stock of goods, personal properties and other materials owned by it
Petitioners paid the aforestated amount on an installment basis and they were given by in its stores and warehouses. However, Syvel’s Inc. failed to make payment in
private respondents no less than eight extensions of time to pay their obligation. These accordance with the terms and conditions of the Commercial Credit Agreement. Thus,
transactions took place during the pendency of the motion for reconsideration of the People’s Bank started to extrajudicially foreclose the chattel mortgage.
Order of the trial court dated April 26, 1983 in Civil Case No. U-3501, during the
pendency of the petition for certiorari in AC-G.R. SP-01307 before the Intermediate After the filing of the foreclosure, Antonio Syyap proposed to settle amicably with
Appellate Court and after the filing of the petition before Us. This answers the claim of plaintiffs. In a conference with Mr. Alas, VP of People’s Bank, Syyap requested the
the respondents on the failure of the petitioners to present evidences or proofs of dismissal of the foreclosure because he did not want to have the goodwill of Syvel’s Inc.
payment in the lower court and the appellate court. impaired, and offered to execute a real estate mortgage on his real property in Cavite.
Mr. Alas consented to Syyap’s offer and thus the deed of mortgage was executed.
The Court cannot refuse to issue a writ of execution upon a final and executory
judgment, or quash it, or order its stay, for, as a general rule, parties will not be allowed, ISSUE: Whether or not the obligation secured by the chattel mortgage sought to be
after final judgment, to object to the execution by raising new issues of fact or of law, foreclosed was novated by the subsequent execution of the real estate mortgage
except when there had been a change in the situation of the parties which makes such as an additional collateral to the obligation secured by the chattel mortgage.
CIVIL LAW REVIEW 2
replace the debtor in the principal obligation, and he could not do so in law without
RULING: No. Novation takes place when the object or principal condition of an the creditor's consent.  
obligation is changed or altered. It is elementary that novation is never presumed; it must
be explicitly stated or there must be manifest incompatibility between the old and the Where some of the parties reached a compromise agreement concerning a property
new obligations in every aspect. separate from that litigated in the action between the other parties, a partial decision
may be rendered approving the compromise agreement and requiring the parties
In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants' thereto to comply with the provisions thereof.
submission. The contract on its face does not show the existence of an explicit novation
nor incompatibility on every point between the "old and the "new" agreements as the
NATURE OF ACTION: Petition for Certiorari
second contract evidently indicates that the same was executed as new additional
security to the chattel mortgage previously entered into by the parties.
FACTS:: Petitioners filed an action against their brother private respondent Alberto
Benipayo for the partition of the properties they held in common. In the course of the
Moreover, records show that in the real estate mortgage, appellants agreed that the
proceedings, the parties agreed to sell the properties in litigation at public auction and
chattel mortgage "shall remain in full force and shall not be impaired by this (real estate)
divide the profits among themselves.
mortgage." The pertinent provision of the contract is quoted as follows:
"That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book
In one of the properties subject of the public auction, herein private respondent Dualan
No. I, Series of 1965, Notary Public Jose C. Merris, Manila); real estate
was the highest bidder. After the sheriff had filed his return with the respondent judge,
mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441,
petitioners moved for the approval of the sale, deducting from the total amount of
Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris
P408,000.00 the sheriff's percentage, and the expenses incurred by petitioners for the
Manila) shall remain in full force and shall not be impaired by this
publication of the notice of sale.
mortgage (par. 5, Exhibit 'A,' emphasis ours)."
Commenting on the aforesaid motion, private respondents Benipayo and Dualan prayed
It is clear, therefore, that a novation was not intended. The real estate mortgage was
that the respondent Judge Reyes order (1) the payment of the mortgage debt in favor of
evidently taken as additional security for the performance of the contract.
the Development Bank of the Philippines in the amount of P37,121.96 from the proceeds
of the auction sale; (2) the issuance by the sheriff of Manila of a certificate of sale in
Estrella Benipayo Rodriguez, Manuel D. Benipayo, Donato Benipayo, Jr., favor of Dualan of the property sold to him free from all liens and encumbrances; and
Jaime D. Benipayo, Maxima Benipayo Morales, Aurora Benipayo De Leon, (3) the payment to respondent Benipayo of 1/12 of the proceeds of the sale after
Francisco D. Benipayo, Alejandro D. Benipayo, Teresita Benipayo De Los deducting therefrom the payment to the Development Bank of the Philippines.
Santos, Lydia Benipayo Clemente, and Julia C. Mercado v. Hon. Juan O.
Reyes, in his capacity as Presiding Judge of the Manila Court of First In resolving the said motion, respondent Judge issued an order stating:
Instance, Branch XXI; Alberto D. Benipayo, Dr. Jose N. Dualan ; and Vicente WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, and the
Sayson, Jr. Quezon City Sheriff's Report dated April 6, 1964, are hereby approved,
G.R. No. L – 22958 January 30, 1971 Reyes, JBL, J. subject to the following conditions:
1. That the vendors or the owners of the properties sold shall clear
DOCTRINE: By buying the property with notice that it was mortgaged, respondent said properties of all encumbrances that were incurred in them long
Dualan only undertook either to pay or else allow the land's being sold if the before the auction sales;  
mortgage creditor could not or did no obtain payment from the principal debtor when 2. That since the taxes on said real estates are not encumbrances
the debt matured. Nothing else. Certainly the buyer did not obligate himself to incurred by the owners of the properties, but are proper charges
attached and against the properties themselves, the real estate taxes
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shall be borne by the owner or owners of the said properties on the The obligation to discharge the mortgage indebtedness, therefore, remained on the
date when said taxes become due for payment.   shoulders of the original debtors and their heirs, petitioners herein, since the record is
devoid of any evidence of contrary intent. This Court has so ruled in Bank of the
Hence, this petition. Philippine Islands vs. Concepcion e Hijos, Inc., 53 Phil. 806, from which We quote:
But the plaintiff argues that in American jurisprudence, the purchaser of
Petitioners seek to apply the doctrine of caveat emptor to the successful bidder Dualan, mortgaged property who assumes the payment of the mortgage debt, may
and contend that under said rule Dualan bought at his own peril and, having purchased for that reason alone be sued for the debt by the creditor and that that rule
the property with knowledge of the encumbrance he should assume payment of the is applicable in this jurisdiction. Aside from the fact we are not here dealing
indebtedness secured thereby. with a mere assumption of the debt, but with a subrogation, it may be noted
that this court has already held that the American doctrine in this respect is
ISSUE: Whether or not private respondent Dualan is liable for the payment of the not in harmony with the spirit of our legislation and has not been adopted
unpaid obligation of the petitioners with the DBP, on the ground of the doctrine in this country. In the case of E. C. McCullough & Co. vs. Veloso and Serna
of caveat emptor and novation? (46 Phil., 1), the court, speaking through its present Chief Justice, said:
The effects of a transfer of a mortgaged property to a third person are
RULING: No. We find the stand of petitioners-appellants to be unmeritorious and well determined by the Civil Code. According to article 1879 7 of this
untenable. The maxim "caveat emptor" applies only to execution sales, and this was not Code, the creditor may demand of the third person in possession of the
one such. The mere fact that the purchaser of an immovable has notice that the required property mortgaged payment of such part of the debt, as is secured by
realty is encumbered with a mortgage does not render him liable for the payment of the the property in his possession, in the manner and form established by the
debt guaranteed by the mortgage, in the absence of stipulation or condition that he is to law. The Mortgage Law in force at the promulgation of the Civil Code
assume payment of the mortgage debt. The reason is plain: the mortgage is merely an and referred to in the latter, exacted, among other conditions, also the
encumbrance on the property, entitling the mortgagee to have the property foreclosed, circumstance that after judicial or notarial demand, the original debtor
i.e., sold, in case the principal obligor does not pay the mortgage debt, and apply the had failed to make payment of the debt at maturity. (Art. 135 of the
proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory Mortgage Law of the Philippines of 1889.) According to this, the
undertaking for the convenience and security of the mortgage creditor, and exists obligation of the new possessor to pay the debt originated only from the
independently of the obligation to pay the debt secured by it. The mortgagee, if he is so right of the creditor to demand payment of him, it being necessary that a
minded, can waive the mortgage security and proceed to collect the principal debt by demand for payment should have previously been made upon the debtor
personal action against the original mortgagor. and the latter should have failed to pay. And even if these requirements
were complied with, still the third possessor might abandon the property
By buying the property with notice that it was mortgaged, respondent Dualan only mortgaged, and in that case it is considered to be in the possession of the
undertook either to pay or else allow the land's being sold if the mortgage creditor could debtor. (Art. 136 of the same law.) This clearly shows that the spirit of
not or did no obtain payment from the principal debtor when the debt matured. Nothing the Civil Code is to let the obligation of the debtor to pay the debt stand
else. Certainly the buyer did not obligate himself to replace the debtor in the principal although the property mortgaged to secure the payment of said debt may
obligation, and he could not do so in law without the creditor's consent. Our Civil Code, have been transferred to a third person. While the Mortgage Law of 1893
Article 1293, explicitly provides: eliminated these provisions, it contained nothing indicating any change
ART. 1293. Novation which consists in substituting a new debtor in the in the spirit of the law in this respect. Article 129 of this law, which
place of the original one, may be made even without the knowledge or provides for the substitution of the debtor by the third person in
against the will of the latter, but not without the consent of the creditor. possession of the property, for the purposes of the giving of notice, does
Payment by the new debtor gives him the rights mentioned in Articles 1236 not show this change and has reference to a case where the action is
and 1237. directed only against the property burdened with the mortgage. (Art. 168
of the Regulation)
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in the proceedings for the settlement of their estates. Petitioner averred that respondent
Upon the other hand, the orders complained of, in so far as they require the vendors- had, in fact, participated in the settlement proceedings and had issued a certification
heirs to clear the title to the land sold to respondent Dualan, when the latter bid for it stating that it was petitioner's deceased parents who were indebted to respondent for
with full knowledge that the same was subject to a valid and subsisting mortgage, is P2,000,000.00. She further maintained that as administratix of her parents' estates, she
plainly erroneous. In submitting his bid, Dualan is presumed to know, and in fact did agreed to pay such indebtedness on installment but respondent refused to accept her
know, that the property was subject to a mortgage lien; that such encumbrance would payments.
make him, as purchaser, eventually liable to discharge mortgage by paying or settling
with the mortgage creditor, should the original mortgagors fail to satisfy the debt. RTC denied petitioner's motion to dismiss, thus prompting her to file an answer. She
Normally, therefore, he would have taken this eventuality into account in making his asserted that respondent merely persuaded her to issue the check to guarantee her
bid, and offer a lower amount for the lot than if it were not encumbered. If he intended deceased parents' loan. She further claimed that the check was blank when she issued it
his bid to be understood as conditioned upon the property being conveyed to him free and that despite having no authority to fill up the same, respondent wrote the amount
from encumbrance, it was his duty to have so stated in his bid, or at least before and date thereon. She also maintained that from December 29, 2000 to May 31, 2003,
depositing the purchase price. He did not do so, and the bid must be understood and she made, in almost daily installments, payments to respondent ranging from P500.00
taken to conform to the normal practice of the buyer's taking the mortgaged property to P10,000.00, and that while she tried to make succeeding payments, respondent
subject to the mortgage. Consequently, he may not demand that the vendors should refused to accept the same, demanding, instead, the payment of the entire balance.
discharge the encumbrance aforesaid.
RTC ruled in favor of respondent and ordered petitioner to pay: (a) P1,710,049.00 which
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the represents the unpaid portion of the P2,100,000.00 debt; (b) twelve percent (12%)
property of all its encumbrances is not in accordance with law. interest computed from the time judicial demand ; (c) attorney's fees; (d) litigation
expenses; and (e) the costs of suit. The RTC refused to give credence to petitioner's
Odiamar v. Odiamar Valencia contention that it was her deceased parents who borrowed money from respondent,
G.R. No. 213582 June 28, 2016 Perlas – Bernabe, J. observing that while the latter acknowledged that the former's deceased parents owed
her P700,000.00 out of the P2,100,000.00, petitioner likewise admitted that she obtained
personal loans from respondent. By assuming the liability of her deceased parents and
DOCTRINE: To constitute novation by substitution of debtor, the former debtor agreeing to pay their debt in installments - which she in fact paid and which payments
must be expressly released from the obligation and the third person or new debtor respondent did actually accept - a mixed novation took place and petitioner was
must assume the former's place in the contractual relations. The fact that the creditor substituted in their place as debtor. Thus, the liabilities of the estates of petitioner's
accepts payments from a third person, who has assumed the obligation, will result deceased parents were extinguished and transferred to petitioner.
merely in the addition of debtors and not novation.
CA affirmed the ruling of the RTC. It agreed that petitioner cannot deny her liability to
NATURE OF ACTION: Petition for review on certiorari respondent in view of her admission that she borrowed money from the latter several
times. Anent the issue of novation, the CA concurred with the RTC that novation took
FACTS: Respondent filed a complaint for sum of money and damages against place insofar as petitioner was substituted in place of petitioner's late parents,
petitioner, alleging that the latter owed her P2,100,000.00. Petitioner purportedly issued considering that petitioner undertook to pay her deceased parents' debt. However, the
China Bank Check for the said amount to guarantee the payment of the debt, but upon CA opined that there was no novation with respect to the object of the contract,
presentment, the same was dishonored. Respondent lamented that petitioner refused to following the rule that an obligation is not novated by an instrument which expressly
pay despite repeated demands. recognizes the old obligation and changes only the terms of paying the same, as in this
case where the parties merely modified the terms of payment of the P2,100,000.00.
Petitioner sought the dismissal of the complaint on the ground that it was her deceased
parents who owed respondent money. Accordingly, respondent's claim should be filed ISSUE: Whether or not there was novation?
CIVIL LAW REVIEW 2
erred in holding petitioner liable for the debts obtained by her deceased parents on
RULING: None. At the outset, it must be emphasized that the fact of petitioner's account of novation by substitution of the debtor.
liability to respondent is well-established. As correctly pointed out by the RTC and the
CA, while respondent acknowledged that petitioner's deceased parents owed her money, CONTRACTS
petitioner also admitted obtaining loans from respondent. Having admitted that she
obtained loans from respondent without showing that the same had already been paid or A. In General
otherwise extinguished, petitioner cannot now aver otherwise. Accordingly, petitioner
is bound by her admission of liability and the only material question remaining is the 1. Definition
extent of such liability. Auto-contract
2. Elements of Contracts
Based on the records of this case, respondent, for her part, admitted that petitioner's
deceased parents owed her P700,000.00 of the P2,100,000.00 debt and that petitioner a. Essential
owed her P1,400,000.00 only. Applying the same principle on judicial admissions b. Natural
above, it is therefore incontrovertible that petitioner's debt to respondent amounted to c. Accidental
only P1,400,000.00 and not P2,100,000.00. Considering that petitioner had already paid
P389,951.00 in installments as evidenced by the receipts, the unpaid balance of Batcelder v. CB
petitioner's P1,400,000.00 debt to respondent stands at P1,010,049.00 G.R. No. L – 25071 July 29, 1972 Fernando, J.
The Court finds it apt to correct the mistaken notions that: (a) novation by substitution
of the debtor took place so as to release the estates of the petitioner's deceased parents DOCTRINE: Central Bank acted not as a juridical person with power to enter into
from their obligation, which, thus, rendered petitioner solely liable for the entire contracts but as a regulatory agency entrusted with the delicate function of managing
P2,100,000.00 debt; and (b) the P100,000.00 of the P2,100,000,00 debt was in the nature the currency. It is far-fetched to assume that such an administrative body by the
of accrued monetary interests. issuance of the circulars in question did transform itself into just another party to a
juridical relation, called upon to satisfy a credit.
On the first matter, while it is observed that petitioner had indeed admitted that she
agreed to settle her late parents' debt, which was supposedly evinced by (a) the NATURE OF ACTION: This is a motion for the reconsideration of SC’s Decision of
P2,100,000.00 check she issued therefor, and (b) several installment payments she made March 29, 1972 submitted by plaintiff-appellant.
to respondent from December 29, 2000 to May 31, 2003, there was no allegation, much
less any proof to show, that the estates of her deceased parents were released from FACTS: Plaintiff-appellant filed the present motion for the reconsideration based
liability thereby. In S.C. Megaworld Construction and Development Corporation v. primarily on this contention: "Said decision failed to consider that if there was, no
Parada, the Court held that to constitute novation by substitution of debtor, the former contract obligating the defendant to resell US$154,094.56 to plaintiff at the exchange
debtor must be expressly released from the obligation and the third person or new debtor rate of P2.00375 to US$1.00, the judgment of the lower court can and should
must assume the former's place in the contractual relations. Moreover, the Court ruled nevertheless be sustained on the basis of there being such an obligation arising from
that the "fact that the creditor accepts payments from a third person, who has assumed law." There is a retreat from the untenable position taken by it, both in the lower court
the obligation, will result merely in the addition of debtors and not novation." At its core, and here on appeal, that there was a contract between it and defendant Central Bank of
novation is never presumed, and the animus novandi, whether totally or partially, must the Philippines that gave rise to such a duty on the part of the latter. This time, it would
appear by express agreement of the parties, or by their acts that are too clear and predicate its alleged right to the exchange rate of P2.00375 to US$1.00 to an obligation
unequivocal to be mistaken. Here, the intent to novate was not satisfactorily proven by of defendant Central Bank arising from law.
respondent. At best, petitioner only manifested her desire to shoulder the debt of her
parents, which, as above-discussed, does not amount to novation. Thus, the courts a quo ISSUE: Whether or not there is a contract between plaintiff-appellant and Central Bank.
CIVIL LAW REVIEW 2
NATURE OF ACTION: Direct appeal

RULING: No, there is no contract between plaintiff-appellant and Central Bank. No
reliance could be placed on the lower court decision reversed by us based on the FACTS: The Bureau of Telecommunications set up its own Government Telephone
assumption that there was a contract between plaintiff and defendant. Central Bank acted System by utilizing its own appropriation and equipment and by renting trunk lines of
not as a juridical person with power to enter into contracts but as a regulatory agency the PLDT to enable government offices to call private parties. However, one of the many
entrusted with the delicate function of managing the currency. It is far-fetched to assume rules of PLDT prohibits the public use of the service furnished the telephone subscriber
that such an administrative body by the issuance of the circulars in question did for his private use. The Bureau has extended its services to the general public since
transform itself into just another party to a juridical relation, called upon to satisfy a 1948, using the same trunk lines owned by, and rented from, the PLDT, and prescribing
credit. Necessarily any claim that a vested right has accrued is likewise untenable. its (the Bureau's) own schedule of rates.
One of the sources of an obligation then is law. A legal norm could so require that a On 5 March 1958, the plaintiff, through the Director of Telecommunications, entered
particular party be chargeable with a prestation or undertaking to give or to deliver or to into an agreement with RCA Communications, Inc., for a joint overseas telephone
do or to render some service. It is an indispensable requisite though that such a provision service whereby the Bureau would convey radio-telephone overseas calls received by
thus in fact exists. Obligations arising from law are not presumed. RCA's station to and from local residents.
It is true though, as noted in the motion for reconsideration, that a Central Bank circular On 7 April 1958, PLDT complained to the Bureau of Telecommunications that said
may have the force and effect of law, especially so when issued in pursuance of its quasi- bureau was violating the conditions under which their Private Branch Exchange (PBX)
legislative power. That of itself, however, is no justification to conclude that it has is inter-connected with the PLDT's facilities, referring to the rented trunk lines, for the
thereby assumed an obligation. To be impressed with such a character, however, it must Bureau had used the trunk lines not only for the use of government offices but even to
be categorically demonstrated that the very administrative agency, which is the source serve private persons or the general public, in competition with the business of the
of such regulation, would place such a burden on itself. PLDT; and gave notice that if said violations were not stopped by midnight of 12 April
1958, the PLDT would sever the telephone connections. When the PLDT received no
The motion for reconsideration cannot suffice to call for a reversal of our judgment. Our reply, it disconnected the trunk lines being rented by the Bureau at midnight on 12 April
decision of March 29, 1972 therefore stands. 1958. The result was the isolation of the Philippines, on telephone services, from the
rest of the world, except the United States.
B. Fundamental Characteristics / Principles of Contracts
The Bureau of Telecommunications had proposed to the PLDT that both enter into an
1. Consensuality of Contracts interconnecting agreement, with the government paying (on a call basis) for all calls
Contract of Adhesion
passing through the interconnecting facilities from the Government Telephone System
to the PLDT. However, it did not prosper.
Republic v. PLDT
G.R. No. L – 18841 January 27, 1969 Reyes, JBL., J. The Republic commenced suit against PLDT in CFI Manila praying in its complaint for
judgment commanding the PLDT to execute a contract with plaintiff, through the
DOCTRINE: Parties can not be coerced to enter into a contract where no agreement Bureau, for the use of the facilities of defendant's telephone system throughout the
is had between them as to the principal terms and conditions of the contract. Freedom Philippines under such terms and conditions as the court might consider reasonable, and
to stipulate such terms and conditions is of the essence of our contractual system, and for a writ of preliminary injunction against the defendant company to restrain the
by express provision of the statute, a contract may be annulled if tainted by violence, severance of the existing telephone connections and/or restore those severed.
intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the
Philippines). ISSUE: Whether or not PLDT may be compelled to continue servicing the Government
Telephone System
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preliminary mandatory injuction and damages against Miguel Cuaderno, Sr., the Central
RULING: Yes, in the exercise of its sovereign power of eminent domain. Bank and Mario Marcos who was appointed to the position of the defendant.
Parties can not be coerced to enter into a contract where no agreement is had between On June 14, 1960, Judge Lantin dismissed Civil Case No. 41226 for failure to exhaust
them as to the principal terms and conditions of the contract. Freedom to stipulate such administrative remedies available to the herein defendant.
terms and conditions is of the essence of our contractual system, and by express
provision of the statute, a contract may be annulled if tainted by violence, intimidation, On June 24, 1960, Atty. Alverez received a copy of the order of dismissal It was at this
or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). state that the plaintiff entered into the case under circumstances about which the parties
herein have given divergent versions.
However, the court a quo has apparently overlooked that while the Republic may not
compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the Laying aside the true circumstances under which the plaintiff started rendering
sovereign power of eminent domain, require the telephone company to permit professional services to the defendant, the undisputed evidence shows that on July 7,
interconnection of the government telephone system and that of the PLDT, as the needs 1960, the plaintiff filed a motion for reconsideration of the order of dismissal under the
of the government service may require, subject to the payment of just compensation to joint signatures of the plaintiff and Atty. Alverez. On November 15, 1960, Judge Lantin
be determined by the court. denied the motion for reconsideration. On November 19, 1960, the plaintiff perfected
the appeal from the order of dismissal dated June 14, 1960. The plaintiff was the one
Corpus v. CA who orally argued the case before the Supreme Court.
G.R. No. 40424 June 30, 1980 Makasiar, J.
On March 30, 1962, the Supreme Court promulgated its decision reversing the order of
dismissal and remanding the case for further proceedings. On April 18, 1962, after the
DOCTRINE: Where one has rendered services to another, and these services are promulgation of the decision of the Supreme Court reversing the dismissal of the case
accepted by the latter, in the absence of proof that the service was rendered the defendant wrote the plaintiff the following letter, Exhibit 'Q'. .
gratuitously, it is but just that he should pay a reasonable remuneration therefor Dear Juaning:
because 'it is a well-known principle of law, that no one should be permitted to enrich Will you please accept the attached check in the amount of TWO
himself to the damage of another. Justified by virtue of the innominate contract of THOUSAND P2,000.00) PESOS for legal services in the handling of L-
facio ut des (I do and you give which is based on the principle that "no one shall 17860 recently decided by the Court? I wish I could give more but as you
unjustly enrich himself at the expense of another.” know we were banking on a SC decision reinstating me and reimburse my
backstage I had been wanting to offer some token of my appreciation of
NATURE OF ACTION: Petition for review on certiorari of the decision of the Court your legal fight for and in my behalf, and it was only last week that I
of Appeals received something on account of a pending claim. Looking forward to a
continuation of the case in the lower court, I remain
FACTS: In March, 1958, the defendant was charged administratively by several
employees of the Central Bank Export Department of which the defendant is the Sincerely yours, Illegible
director. The defendant was represented by Atty. Rosauro Alvarez. The then Governor
of Central Bank, Miguel Cuaderno, Sr., recommended that the defendant be considered In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said
resigned as on the ground that he had lost confidence in him. The Monetary Board, by a act as follows:
resolution of July 20, 1959, declared the defendant as resigned as of the date of My dear Marino:
suspension. On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of Yesterday, I received your letter of April 18th with its enclosure. I wished
First Instance of Manila a petition for certiorari, mandamus and quo warranto with thank you for your kind thoughts, however, please don't take offense if I
have to return the check. I will explain.
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rendered judgment ordering the defendant to pay plaintiff the sum of P30,000.00 in the
When I decided to render professional services in your case, I was concept of professional fees, and to pay the costs.
motivated by the value to me of the very intimate relations which you and I
have enjoyed during the past many years. It was nor primarily, for a After receipt of the judgment, petitioner Marino Corpus, defendant therein, filed on
professional fee. October 7, 1967 a notice of appeal from said judgment to the Court of Appeals claiming
that plaintiff's professional services were offered and rendered gratuitously and that no
Although we were not fortunate to have obtained a decision in your case contract for the payment was made to that effect. Likewise, private respondent Atty.
which should have put an end to it. I feel that we have reason to be jubilant Juan T. David appealed to the Court of Appeals on October 9, 1967 claiming that the
over the outcome, because, the final favorable outcome of the case seems lower court erred in ordering the defendant to pay the plaintiff only the sum of
certain irrespective of the length of time required to terminate the same. P30,000.00 in the concept of attorney's fees.
Your appreciation of the efforts I have invested in your case is enough On February 14, 1975, respondent Court of Appeals promulgated its decision affirming
compensation therefor, however, when you shall have obtained a decision in toto the decision of the lower court, with costs against petitioner Marino Corpus.
which would have finally resolved the case in your favor, remembering me
then will make me happy. In the meantime, you will make me happier by Hence, the instant petition for review on certiorari
just keeping the check.
ISSUES:
Sincerely yours, 1. Whether or not Atty. David is entitled to claim attorney’s fees despite the
JUANING absence of a contract for the payment of the said fees? (CIV2 related issue -
Principles of Contracts)
On June 24, 1963, Judge Lantin rendered his decision in favor of the defendant declaring 2. Whether the amount of 50% attorney’s fees being claimed is proper?
illegal the resolution of the Monetary Board of July 20, 1959, and ordering the
defendant's reinstatement and the payment of his back salaries and allowances The RULINGS:
respondents in said Civil Case No. 41226 filed a motion for reconsideration. The 1. Yes. The payment of attorney's fees to respondent David may be justified by
decision was appealed, however the Court of Appeals certified the case to the Supreme virtue of the innominate contract of facio ut des (I do and you give which is
Court in 1964. based on the principle that "no one shall unjustly enrich himself at the expense
of another." Innominate contracts have been elevated to a codal provision in
On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of the New Civil Code by providing under Article 1307 that such contracts shall
the Court of first Instance of Manila. be regulated by the stipulations of the parties, by the general provisions or
principles of obligations and contracts, by the rules governing the most
On April 19, 1965 the plaintiffs law office made a formal de command upon the analogous nominate contracts, and by the customs of the people.
defendant for collection of 50% of the amount recovered (which is P203,000.00) by the
defendant as back salaries and other emoluments from the Central Bank. The defendant While there was no express contract between the parties for the payment of attorney's
demurred to this demand inasmuch as he had plenty of outstanding obligations and that fees, the fact remains that respondent David rendered legal services to petitioner Corpus
his tax liability for said back salaries was around P90,000.00, and that he expected to and therefore as aforestated, is entitled to compensation under the innominate contract
net only around P10,000.00 after deducting all expenses and taxes. of facio lit des And such being the case, respondent David is entitled to a reasonable
compensation.
Herein petitioner Marino Corpus filed in August 5, 1965 an answer with counter-claim.
On August 30, 1965, private respondent Atty. Juan T. David, plaintiff therein, filed a The facts of the case also support the position that there was at least an implied
reply with answer to the counterclaim of petitioner. After due trial, the lower court agreement for the payment of attorney's fees. Petitioner's act of giving the check for
CIVIL LAW REVIEW 2
P2,000.00 indicates petitioner's commitment to pay the former attorney's fees, which is clause granting authority to the Company to grant or consent to the renewal of the
stressed by expressing that "I wish I could give more but as you know we were banking bond. Having entered into the contract with full knowledge of its terms and
on a SC decision reinstating me and reimbursing my back salaries. This last sentiment conditions, petitioners are stopped from asserting that they did so under the ignorance
constitutes a promise to pay more upon his reinstatement and payment of his back of the legal effect of the contract or the undertaking.
salaries.
Moreover, respondent David's letter-reply confirms the promise of petitioner Corpus to
pay attorney's fees upon his reinstatement and payment of back salaries. Said reply states FACTS: Respondent Oriental Assurance Corporation issued a Surety Bond in favor of
that respondent David decided to be his counsel in the case because of the value to him FFV Travel & Tours, Inc. (Company) to guarantee the Company’s payment of airline
of their intimate relationship over the years and "not, primarily, for a professional fee.” tickets purchased on credit from International Air Transport Association (IATA) for
It is patent then, that respondent David agreed to render professional services to 3million.
petitioner Corpus secondarily for a professional fee.
Petitioners Paulino Ejercito, Jessie Ejercito and Johnny Chang and Merissa Somes
Petitioner Corpus, in his reply dated May 7, 1965 to the aforesaid written demand, while (Somes) executed a Deed of Indemnity in favor of respondent.
disagreeing as to the amount of attorney's fees demanded, did not categorically deny the
right of respondent David to attorney's fees but on the contrary gave the latter the amount The Security Bond was effective for one year from its issuance. However, It was
of P2,500.00, which is one-half (½) of the court-awarded attorney's fees of P5,000.00, renewed for another year.
thus impliedly admitting the right of respondent David to attorney's fees.
FFV Travel & Tours, Inc. has been declared in default for failure to pay its obligations.
2. No. There was no contract for contingent fee between Corpus and respondent IATA demanded payment of the bond, and the respondent heeded the demand as
David. Contingent fees depend on an express contract therefor. Thus, "an evidenced by China Bank Check.
attorney is not entitled to a percentage of the amount recovered by his client in
the absence of an express contract to that effect” IATA executed a Release of Claim acknowledging payment of the surety bond
acknowledging payment of the security bond.
Where services were rendered without any agreement whatever as to the amount or
terms of compensation, the attorney is not acting under a contract for a contingent fee, Respondent sent demand letters to petitioners and Somes for reimbursement of the
and a letter by the attorney to the client stating that a certain sum would be a reasonable 3million pursuant to indemnity agreement. For failure to reimburse respondent, the latter
amount to charge for his services and adding that a rate of not less than five percent nor filed a collection suit.
more than ten would be reasonable and customary does not convert the original
agreement into a contract for a contingent fee The RTC rendered a decision dismissing the complaint and ruling that there was no
agreement to show the intention of petitioners to renew the Deed of Indemnity.
Ejercito, et al. v. Oriental Assurance Corp.
G.R. No. 192099 July 8, 2015 Sereno, C.J. The CA reversed the finding of the RTC and rules that petitioners could not escape
liability as they had authorized respondent to grant any renewals or extensions pursuant
DOCTRINE: With regard to the contention that the Deed of Indemnity is a contract to the indemnity agreement.
of adhesion, the Court has consistently held that contracts of adhesion are not invalid
per se and that their binding effects have been upheld on numerous occasions. The Hence, this petition for review on Certiorari assailing the CA decision.
pretension that petitioners did not consent to the renewal of the bond is belied by the
fact that the terms of the contract which they voluntarily entered into contained a
CIVIL LAW REVIEW 2
ISSUE: Whether or not petitioner are liable for indemnify the respondent under the deed Company to grant or consent to the renewal of the bond. Having entered into the contract
of indemnity considering that petitioners did not give their consent to be bound with full knowledge of its terms and conditions, petitioners are stopped from asserting
beyond the one (1) year effectivity period of the original surety bond. that they did so under the ignorance of the legal effect of the contract or the undertaking.
RULING: Yes.The contract of indemnity is the law between the parties. it is a cardinal 2. Autonomy of Contracts
rule in the interpretation of a contract that if its terms are clear and leave no doubt on
the intention of the contracting parties, the literal meaning of its stipulation shall control. Daisy Tiu v. Platinum Plans
G.R. No. 163512 February 28, 2007 Quisumbing, J.
The Deed of Indemnity contained a stipulation that the signatories (petitioners) were
authorizing the Company (respondent) to grant or consent to the grant of any extension,
DOCTRINE: A Contract in restraint of trade is valid provided there is a limitation
continuation, increase, modification, change or alteration, and/or renewal of the original
upon either time or place and the restraint upon one party is not greater than the
bond. Petitioners voluntarily signed the agreement and, are educated persons (Paulino,
protection the other party requires. A non-involvement clause is not necessarily void
being a lawyer), so they could not have misunderstood the legal effects of the
for being restraint of trade as long as there are reasonable limitations as to time, trade
undertaking they had signed.
and place.
The deed of indemnity contains the following stipulations:
NATURE OF ACTION: For Review on Certiorari are the decision of the CA in
RENEWALS ALTERATIONS AND SUBSTITUTIONS: - the affirming the decision of the RTC in an action for damages against Petitioner and its
undersigned hereby empower and authorize the company to grant or consent resolution denying the reconsideration.
to the granting of any extension continuation increase modifications change
alteration and/or renewal of the original bond herein referred to and to FACTS: Platinum Plans (Hereinafter referred to as “Respondent”) is a domestic
execute or consent to the execution of any substitution for said bond with corporation engaged in the pre-need industry and Daisy Tiu (Hereinafter referred to as
the same or different conditions and parties and the undersigned hereby hold “Petitioner”) as its Division Marketing Director. Respondent re-hired Petitioner as
themselves jointly and severally liable to the company for the original bond Senior Assistant Vice President and Territorial Operations Head in charge of its
hereinabove mentioned or for any extension, continuation, increase, Hongkong and ASEAN operations. The parties executed a contract of employment valid
modification, change, alteration, renewal or substitution thereof until the for five (5) years. A few months thereafter, Petitioner stopped reporting for work, she
full amount including principal interests premiums costs and other expenses became the VP for sales and professional pension plans inc., a corporation engaged also
due to the company thereunder is fully paid up. in the pre-need industry. Consequently, Respondent sued Petitioner for damages.
Clearly, as far as respondent is concerned, petitioners have expressly bound themselves Respondents argument, among others, is that Petitioner’s employment with Professional
to the contract, which provides for the term granting authority to the company to renew Pension Plans Inc., Violated the non-involvement clause in her contract of employment,
the original bond. The terms of the contract are clear, explicit and unequivocal. to wit:
Therefore, the subsequent acts of the Company, through Somes, the led to the renewal “8 NON INVOLVMENT PROVISION – The EMPLOYEE further
of the surety bond are binding on petitioners as well. undertakes that during his/her engagement with EMPLOYER and in case
of separation from the Company, whether voluntary or for cause, he/she
With regard to the contention that the Deed of Indemnity is a contract of adhesion, the shall not, for the next TWO (2) years thereafter, whether directly or
Court has consistently held that contracts of adhesion are not invalid per se and that their indirectly, engaged in the same business or belonging to the same pre-need
binding effects have been upheld on numerous occasions. The pretension that petitioners industry as the EMPLOYER. Any breach of the foregoing provision shall
did not consent to the renewal of the bond is belied by the fact that the terms of the render the EMPLOYEE liable to the EMPLOYER in the amount of ONE
contract which they voluntarily entered into contained a clause granting authority to the HUNDRED THOUSAND PESOS (Php100,000.00) for and as liquidated
damages”
CIVIL LAW REVIEW 2
Respondent’s trade secrets vulnerable especially in a highly competitive marketing

Petitioner countered that the non-involvement clause was unenforceable for being environment. Courts cannot stipulate for the parties nor amend their agreement where
against public order or public policy: First, the restraint imposed was much greater than the same does not contravene law, morals, good customs, public order or public policy,
what was necessary to afford her [Petitioner] a fair and reasonable protection. That the for to do so would be to alter the real intent of the parties, and would run contrary to the
transfer to the rival company was an accepted practice in the pre-need industry. Since function of the courts to give force and effect thereto. Nor being contrary to public
the products sold by the companies were more or less the same, there was nothing policy, the non-involvement clause, which Petitioner and Respondent freely agreed
peculiar or unique to protect. Second, Respondent did not invest in Petitioner’s training upon, has the force of law between them, and thus, should be complied with in good
or improvement. At the time Petitioner was recruited, she already possessed the faith.
knowledge and expertise required in the pre-need industry and respondent benefited
tremendously from it. And finally, a strict application of the non-involvement clause Cui v. Arellano University
would amount to a deprivation of Petitioner’s right to engage in the only work she knew. G.R. No. L – 15127 May 30, 1961 Concepcion, J.
Trial Court ruled in favor of Respondent, that a contract in restraint of trade is valid
provided that there is a limitation upon either time or place. In the case of the -pre-need
industry, the trial found the two (2) year restriction to be valid and reasonable. DOCTRINE: The policy enunciated in Memorandum No. 38 is sound policy.
Scholarships are awarded in recognition of merit not to keep outstanding students in
CA in affirming the decision of the trial court, reasoned that Petitioner entered into the school to bolster its prestige. In the understanding of that university scholarships
contract on her own will and volition. Thus, she bound herself to fulfill not only what award is a business scheme designed to increase the business potential of an
was expressly stipulated in the contract, but also all its consequences that were not education institution. The practice of awarding scholarships to attract students and
against good faith, usage and law. keep them in school is not good customs nor has it received some kind of social and
practical confirmation except in some private institutions as in Arellano.
ISSUE: Whether or not the non-involvement clause in this case is contrary to public
welfare for being in restraint of trade and is greater than is necessary to afford NATURE OF ACTION: Appeal by Emeterio Cui from a decision of the CFI of
a fair and reasonable protection to Respondent, and consequently may not be Manila, absolving Arellano University from Cui’s complaint, with costs against the
enforced as against herein Petitioner. plaintiff, and dismissing defendant's counter claim, for insufficiency of proof thereon
RULING: No. The non-involvement clause is not contrary to public welfare and not FACTS: Emiterio Cui took up preparatory law course in Arellano University. After
greater than is necessary to afford a fair and reasonable protection to Respondent. In finishing his preparatory law course, he enrolled in the College of Law of Arellano from
this case, the non-involvement clause has a time limit: Two years from the time the school year 1948-1949. He finished his law studies in the university up to and
Petitioner’s employment with Respondent ends. It is also limited as to trade, since it including the 1st semester of the 4th year. During all the school years in which he was
only prohibits Petitioner from engaging in any pre-need business akin to Respondent’s. studying law in Arellano, Francisco Capistrano, brother of the mother of Cui, was the
While the stipulation was indeed limited as to time and space, it was not limited to trade. dean of the College of Law and legal counsel of Arellano. Cui enrolled for the last
Such prohibition, in effect, forces an employee to leave the Philippines to work should semester of his law studies in Arellano but failed to pay his tuition fees because his uncle
his employer refuse to give a written permission. A Contract in restraint of trade is valid Dean Capistrano having severed his connection with Arellano and having accepted the
provided there is a limitation upon either time or place and the restraint upon one party deanship and chancellorship of the College of Law of Abad Santos University, Cui left
is not greater than the protection the other party requires. A non-involvement clause is the Arellano and enrolled for the last semester of his 4th year law in the college of law
not necessarily void for being restraint of trade as long as there are reasonable limitations of the Abad Santos University graduating therefrom. Cui, during all the time he was
as to time, trade and place. Petitioner was the Senior Assistant VP and Territorial studying law in Arellano was awarded scholarship grants, for scholastic merit, so that
Operations Head in charge of Respondent’s HK and ASEAN operations, she had been his semestral tuition fees were returned to him after the ends of semester and when his
privy to confidential and highly sensitive marketing strategies of Respondent’s business. scholarship grants were awarded to him. The whole amount of tuition fees paid by Cui
To allow her to engage in a rival business soon after she leaves would make and refunded to him by Arellano from the 1st semester up to and including the 1st
CIVIL LAW REVIEW 2
semester of his last year in the college of law or the 4th year, is in total Php 1,033.87. statutes, and the practice of government officers. It might take more than a government
To secure permission to take the bar he needed the transcripts of his records in Arellano. bureau or office to lay down or establish a public policy, but courts consider the practices
Cui petitioned the latter to issue to him the needed transcripts but Arellano refused until of government officials as one of the 4 factors in determining a public policy of the state.
after he had paid back the Php 1,033 87 refunded to him as above stated. As he could It has been consistently held in America that under the principles relating to the doctrine
not take the bar examination without those transcripts, Cui paid to Arellano the said sum of public policy, as applied to the law of contracts, courts of justice will not recognize
under protest. Before Arellano awarded to Cui the scholarship grants as above stated, he or uphold a transaction which its object, operation, or tendency is calculated to be
was made to sign the following contract covenant and agreement: prejudicial to the public welfare, to sound morality or to civic honesty. If Arellano
"In consideration of the scholarship granted to me by the University, I University understood clearly the real essence of scholarships and the motives which
hereby waive my right to transfer to another school without having refunded prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered
to the University (defendant) the equivalent of my scholarship cash. (Sgd.) into a contract of waiver with Cui, which is a direct violation of the Memorandum and
Emeterio Cui an open challenge to the authority of the Director of Private Schools because the contract
was repugnant to sound morality and civic honesty.
On August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series
of 1949, on the subject of "Scholarship," addressed to "All heads of private schools, In Gabriel vs. Monte de Piedad, it was held that in order to declare a contract void as
colleges and universities," stating that: “The amount in tuition and other fees against public policy, a court must find that the contract as to consideration or the thing
corresponding to these scholarships should not be subsequently charged to the recipient to be done, contravenes some established interest of society, or is inconsistent with
students when they decide to quit school or to transfer to another institution. sound policy and good morals or tends clearly to undermine the security of individual
Scholarships should not be offered merely to attract and keep students in a school.” rights. The policy enunciated in Memorandum No. 38 is sound policy. Scholarships are
Arellano received a copy of this memorandum. Cui asked the Bureau of Private Schools awarded in recognition of merit not to keep outstanding students in school to bolster its
to pass upon the issue on his right to secure the transcript of his record in Arellano, prestige. In the understanding of that university scholarships award is a business scheme
without being required to refund the subject sum and the Bureau upheld the position designed to increase the business potential of an education institution. The practice of
taken by the Cui and so advised Arellano. Still, the latter refused to issue said transcript awarding scholarships to attract students and keep them in school is not good customs
of records, unless said refund were made, and even recommended to said Bureau that it nor has it received some kind of social and practical confirmation except in some private
issue a written order directing the it to release said transcript of record, "so that the case institutions as in Arellano. UP which implements Section 5 of Article XIV of the
may be presented to the court for judicial action." As above stated, Cui was, accordingly, Constitution with reference to the giving of free scholarships to gifted children, does not
constrained to pay, and did pay under protest, said sum, in order that he could take the require scholars to reimburse the corresponding value of the scholarships if they transfer
bar examination in 1953. Subsequently, he brought this action for the recovery of said to other schools. So also with the leading colleges and universities of the United States
amount. after which the educational practices or policies are patterned. In these institutions
scholarships are granted not to attract and to keep brilliant students in school for their
The CFI of Manila absolved Arellano from Cui’s complaint. propaganda mine but to reward merit or help gifted students in whom society has an
established interest or a first lien. WHEREFORE, the decision appealed from is
ISSUE: Whether or not the provision of the contract between Cui and Arellano, whereby REVERSED.
the former waived his right to transfer to another school without refunding to
the latter the equivalent of his scholarship in cash, is valid or not. Saura v. Sindico
G.R. No. L – 13403 March 23, 1960 Reyes, J.
RULING: NO. The stipulation in question is contrary to public policy and, hence, null
and void. Memorandum No. 38 incorporates a sound principle of public policy. The
Director of Private Schools pointed out in his letter to Arellano that in the case of Zeigel DOCTRINE: Constitutional and statutory provision fix the qualifications of persons
vs. Illinois Trust and Savings Bank, it was held that in determining a public policy of the who may be eligible for certain elective public offices. Said requirements may neither
state, courts are limited to a consideration of the Constitution, the judicial decisions, the be enlarged nor reduced by mere agreements between private parties.
CIVIL LAW REVIEW 2
Leal v. IAC
NATURE OF ACTION: Appeal on issue of law from an order of CFI of Pangasinan G.R. No. L – 65425 November 5, 1987 Sarmiento, J.
dismissing plaintiff's complaint for damages
FACTS: Ramon Saura and Estela Sindico were competing for nomination as the official DOCTRINE: One such condition which is contrary to public policy is the present
candidate of the Nacionalista Party in the 4th district of Pangasinan for the 1957 prohibition to self to third parties, because the same virtually amounts to a perpetual
congressional elections. The parties entered into a written agreement containing a pledge restriction to the right of ownership, specifically the owner's right to freely dispose
that “Each aspirant shall respect the result of the convention, i.e., no one of us shall of his properties. This, we hold that any such prohibition, indefinite and stated as to
either run as a rebel or independent candidate after losing in said convention.” time, so much so that it shall continue to be applicable even beyond the lifetime of
In the provincial convention of the Nacionalista Party, Saura was elected the Party's the original parties to the contract, is, without doubt, a nullity.
official congressional candidate for the 4th district of Pangasinan. Sindico, in disregard
of the covenant, filed her certificate of candidacy for the same office with COMELEC, NATURE OF ACTION: Complaint for Specific Performance
and she openly and actively campaigned for her election. Saura commenced a suit for
the recovery of damages. FACTS: A “compraventa” was executed between Cirilo Leal, father of several of the
plaintiff, and Vicente and Luis Santiago, predecessors of defendants. It was stated
The CFI dismissed the complaint of Saura because the agreement sued upon is null and therein that the title to three parcels of land were cancelled and a new one was entered
void, in that (1) the subject matter of the contract, being a public office, is not within the in favor of Leal.
commerce of man; and (2) the pledge was in curtailment of the free exercise of elective
franchise and therefore against public policy. Later, Vicente Santiago approached plaintiffs and offered to repurchase the same
property to which the plaintiffs refused. This prompted defendants to file the complaint
ISSUE: Whether the agreement between the parties has a valid object which makes the for specific performance before the CFI. The agreement contained a stipulation that the
contract binding. vendee Leal shall not sell to any other the three lots except to Vicente or his heirs or
successors.
RULING: The court ruled in the negative. Among those that may not be the object of
contracts are certain rights of individuals, which the law and public policy have deemed The RTC denied the complaint finding that its filing was premature as no sale as of yet
wise to exclude from the commerce of man. Among them are the political rights took place. Upon appeal, the same was affirmed by the CA Fourth Division. After that,
conferred upon citizens, including, one's right to vote, the right to present one's plaintiffs seasonably filed a motion to amend the Decision to annul the annotations at
candidacy to the people and to be voted to public office, provided, however, that all the the back of the Transfer certificates of Titles issued in their favor. To this, a new Division
qualifications prescribed by law are obtained. Such rights may not be bargained away reversed the ruling of the earlier Division and ordered the plaintiffs to accept the
for they are conferred not for individual or private benefit or advantage but for the public repurchase price offered by defendants pursuant to the compreventa.
good and interest.
ISSUE: Whether the prohibition contained in the compraventa as to the sale and
Constitutional and statutory provision fix the qualifications of persons who may be disposition of the subject lots is valid.
eligible for certain elective public offices. Said requirements may neither be enlarged
nor reduced by mere agreements between private parties. In the case at hand, Saura RULING: The Court ruled in the negative.
complains on account of Sindico's alleged violation of the pledge by filing her own
certificate of candidacy. In the face of the preceding considerations, Saura's action would Contracts are generally binding between the parties, their assigns and heirs; however,
result in limiting the choice of the electors to only those persons selected by a small under Art. 1255 of the Civil Code of Spain, which is applicable in this instance, pacts,
group. clauses, and conditions which are contrary to public order are null and void, thus,
without any binding effect.
CIVIL LAW REVIEW 2
NATURE OF ACTION: Petition for review on certiorari after obtaining declarative

Parenthetically, the equivalent provision in the Civil Code of the Philippines is that of relief from the lower court.
Art. 1306, which states: "That contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not FACTS: On May 20, 1975, respondent Florante del Valle (the borrower in this case)
contrary to law, morals, good customs, public order, or public policy. obtained a loan secured by a real estate mortgage from petitioner Banco Filipino in the
sum of PHP 41,300.00, payable and to be amortized within 15 years at 12% interest
One such condition which is contrary to public policy is the present prohibition to self annually. The loan still had more than 730 days to run by January 2, 1976, when Circular
to third parties, because the same virtually amounts to a perpetual restriction to the right no. 494 was issued by the BSP.
of ownership, specifically the owner's right to freely dispose of his properties. This, we
hold that any such prohibition, indefinite and stated as to time, so much so that it shall The promissory note evidencing the loan contained an escalation clause, which states
continue to be applicable even beyond the lifetime of the original parties to the contract, that the maximum rate of interest, including commissions, premiums, fees and other
is, without doubt, a nullity. In the light of this pronouncement, we grant the petitioners' charges on loans with maturity of more than 730 days by banking institutions, including
prayer for the cancellation of the annotations of this prohibition at the back of their thrift and rural banks, or by financial intermediaries authorized to engage in quasi-
Transfer Certificates 'Title. banking functions shall be 19% per annum.
WHEREFORE, in view of the foregoing, the Resolution dated September 27, 1983, of Circular No. 494 was issued pursuant to the authority granted to the Monetary Board by
the respondent court is SET ASIDE and the Decision promulgated on June 28, 1978 is Presidential Decree No. 116 which amended certain provisions of the Usury Law. The
hereby REINSTATED. applicable section states:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the
3. Mutuality of Contracts maximum rate or rates of interest for the loan or renewal thereof or the
Acceleration Clause forbearance of any money, goods or credits, and to change such rate or
Escalation Clause rates whenever warranted by prevailing economic and social conditions:
Provided, that such changes shall not be made oftener than once every
Banco Filipino Savings v. Navarro twelve months.
G.R. No. L – 46591 July 28, 1987 Melencio – Herrera, J.
The same grant of authority appeared in P.D. No. 858, promulgated on December 31,
DOCTRINE: The stipulation is clear that the interest rate may only be increased “in 1975. With Circular No. 494 as basis, Banco Filipino gave notice to the borrower that it
the event a law should be enacted increasing the lawful rate of interest that may be would increase the interest rate on the loan from 12 percent to 17 effective on March 1,
charged on this particular kind of loan.” The clause was dependent on an increase of 1976.
rate made by “law” alone. Circular no. 494, although it has the effect of law, is NOT
a law. A circular duly issued is not strictly a statute or a law, it has, however, the Because of this, the petitioner wrote BSP a letter to clarify on the official stand of Banco
force and effect of law. Filipino’s decision to raise interest rates. The BSP wrote back to Florante del Valle and
the contents of the letter confirms the escalation clause included in his promissory note,
For a loan’s interest to be subject to the increases provided in CIRCULAR No. 494, but the BSP apprised Florante del Valle that the Central Bank Circulars no. 492-498
there must be an Escalation Clause allowing the increase "in the event that any law only applies to loans directly granted by authorized lending bank or non-bank
or Central Bank regulation is promulgated increasing the maximum interest rate for performing quasi-banking functions to increase the rate of interest stipulated in the
loans." The guidelines thus presuppose that a Central Bank regulation is not within contract, and the loans have remaining maturities of more than 730 days as of January
the term "any law." 2, 1976. The increase in the rate of interest can be effective ONLY as of January 2, 1976
or on a later date.
CIVIL LAW REVIEW 2
Contending that Circular No. 494 is not the law contemplated in the escalation clause of contract was too indefinite to be enforceable and did not evidence an actual meeting of
the promissory note, the borrower filed a suit against Banco Filipino for declaratory the minds of the parties, or that the arrangement left the price to be determined arbitrarily
relief, praying that the clause be declared null and void if found so, and that Banco by one party so that the contract lacked mutuality. In most instances, however, these
Filipino be ordered to desist from enforcing the elevated rate. attacks have been unsuccessful.
Banco Filipino, in turn, maintained that the escalation clause signed by the borrower on The court ruled that although the escalation clause is valid, Banco Filipino could not
the promissory note authorized the bank to increase the rate of interest, and that the raise the interest rate to 17% without the “law” contemplated in the clause itself. The
authority was further bolstered by Circular No. 494. TROs enforced upon the imposition of the 17% interest rate are therefore made
permanent.
The respondent court ruled that the escalation clause was null and void, and that Banco
Filipino should desist from enforcing the higher rate of interest. Florendo v. CA
G.R. No. 101771 December 17, 1996 Panganiban, J.
ISSUE: Whether or not the escalation of the interest made by Banco Filipino from 12%
to 17% per annum was proper.
DOCTRINE: In order that obligations arising from contracts may have the force of
RULING: The court ruled in the negative. The clause is also held as valid. law between the parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its fulfillment
Banco Filipino is not authorized to increase the interest rates, notwithstanding the dependent exclusively upon the uncontrolled will of one of the contracting parties, is
circulars that were released. The escalation clause included in the promissory note reads void. An escalation due to resignation would have been a valid stipulation. But no
as follows: such stipulation was in fact made, and thus the escalation provision could not be
I/We hereby authorize Banco Filipino to correspondingly increase the legally applied and enforced as against herein petitioners.
interest rate stipulated in this contract without advance notice to me/us in
the event a law increasing the lawful rates of interest that may be charged NATURE OF ACTION: Petition for review on certiorari
on this particular kind of loan.
FACTS: Petitioner Gilda Florendo (was) an employee of Respondent Bank from May
The stipulation is clear that the interest rate may only be increased “in the event a law 17, 1976 until August 16, 1984 when she voluntarily resigned. Before her resignation,
should be enacted increasing the lawful rate of interest that may be charged on this she applied for a housing loan of P148,000.00, payable within 25 years from the bank’s
particular kind of loan.” The clause was dependent on an increase of rate made by “law” Provident Fund on July 20, 1983. The parties entered into a Housing Loan Agreementt
alone. Circular no. 494, although it has the effect of law, is NOT a law. A circular duly and executed a Real Estate Mortgage and Promissory Note. The loan was given to
issued is not strictly a statute or a law, it has, however, the force and effect of law. Florendo in her capacity as an employee.
For a loan’s interest to be subject to the increases provided in CIRCULAR No. 494, On March 19, 1985, Respondent Bank increased the interest rate on the loan from 9%
there must be an Escalation Clause allowing the increase "in the event that any law or per annum to 17%, to take effect on March 19, 1985, which was based on ManCom
Central Bank regulation is promulgated increasing the maximum interest rate for loans." Resolution No. 85-08 dated March 19, 1985. Petitioners were informed of the increase
The guidelines thus presuppose that a Central Bank regulation is not within the term on June 7, 1985 with aa copy of the Memo Circular and a Statement of Account as of
"any law." May 31, 1985. Petitioners protested and replied on July 1, 1985. After such, despite
repeated demands to pay the loan with the increased rate of interest were made by
It bears stressing that the contract contains the requisite mutuality, as the clause did not respondent, but petitioners paid and discharged the original obligation faithfully.
render the contract invalid. As it has been said by the court: attacks on such a clause Moreover, petitioner deemed the increase unlawful and unjustifiable and filed an instant
have usually been based on the claim that, because of the open price-provision, the suit for Injunction and Damages;
CIVIL LAW REVIEW 2
housing loan agreement and the mortgage contract. However, the increased interest rate
The clauses in question are: shall apply only upon the finality of the judgment and not from March 19, 1985. The
The clauses or provisions in the Housing Loan Agreement and the Real parties appealed and the respondent court affirmed with modification that the 17% shall
Estate Mortgage referred to above as the basis for the escalation are: be computed from July 1, 1985.
a. Section I-F of Article VI of the Housing Loan Agreement, 3 Petitioners filed the petition with the Court arguing that: the HLA provision covers only
which provides that, for as long as the loan or any portion administrative and other matters, and does not include interest rates per se, since Article
thereof or any sum that may be due and payable under the VI of the agreement deals with insurance on and upkeep of the mortgaged property;
said loan agreement remains outstanding, the borrower shall nowhere in the loan agreement or mortgage contract is it provided that petitioner-wife's
— resignation will be a ground for the adjustment of interest rates; the escalation is
f) Comply with all the rules and regulations of the program violative of Section 7-A of the Usury Law; and that the ground that the increase and the
imposed by the LENDER and to comply with all the rules and contractual provision that (respondent bank) relies upon for the increase are contrary to
regulations that the Central Bank of the Philippines has morals, good customs, public order and public policy.
imposed or will impose in connection with the financing
programs for bank officers and employees in the form of fringe ISSUE: May a bank unilaterally raise the interest rate on a housing loan granted an
benefits. employee, by reason of the voluntary resignation of the borrower?
b. Paragraph (f) of the Real Estate Mortgage 4 which states: RULING: As to the first contention of the petitioners, the Court ruled in the negative.
The rate of interest charged on the obligation secured by this First, paragraph (f) of the mortgage contract is clearly and indubitably an escalation
mortgage. . ., shall be subject, during the life of this contract, to provision, and therefore, the parties were and are bound by the said stipulation n Banco
such an increase/decrease in accordance with prevailing rules, Filipino Savings & Mortgage Bank vs. Navarro, the Court in essence ruled that in
regulations and circulars of the Central Bank of the Philippines as general there is nothing inherently wrong with escalation clauses.
the Provident Fund Board of Trustees of the Mortgagee may
prescribe for its debtors and subject to the condition that the On the second, the Court stated that the loan was perfected on July 20, 1983. PD No.
increase/decrease shall only take effect on the date of effectivity 116 became effective on January 29, 1973. CB Circular No. 416 was issued on July 29,
of said increase/decrease and shall only apply to the remaining 1974. CB Circ. 504 was issued February 6, 1976. CB Circ. 706 was issued December 1,
balance of the loan. 1979. CB Circ. 905, lifting any interest rate ceiling prescribed under or pursuant to the
Usury Law, as amended, was promulgated in 1982. These and other relevant CB
c. and ManCom (Management Committee) Resolution No. 85- issuances had already come into existence prior to the perfection of the housing loan
08, together with PF (Provident Fund) Memorandum agreement and mortgage contract, and thus it may be said that these regulations had been
Circular No. 85-08, which escalated the interest rates on taken into consideration by the contracting parties when they first entered into their loan
outstanding housing loans of bank employees who contract. In light of the CB issuances in force at that time, respondent bank was fully
voluntarily "secede" (resign) from the Bank; the range of aware that it could have imposed an interest rate higher than 9% per annum rate for the
rates varied depending upon the number of years service housing loans of its employees, but it did not. Moreover, ManCom Resolution No. 85-
rendered by the employees concerned. The rates were made 08, which is neither a rule nor a resolution of the Monetary Board, cannot be used as
applicable to those who had previously resigned from the basis for the escalation in lieu of CB issuances. Hence, the increase cannot be made
bank as well as those who would be resigning in the future. effective.
The trial court ruled in favor of respondent bank, and held that the bank was vested with
authority to increase the interest rate pursuant to said escalation provisions in the
CIVIL LAW REVIEW 2
On the issue of violation of Usury Law, it was mentioned that by virtue of CB Circular preterminate the contract by sending notice in writing to New World at least six months
905, the Usury Law has been rendered ineffective. Hence, the argument is bereft of before the intended date. In case of pretermination, AMA shall be liable for liquidated
merit. damages in an amount equivalent to six months of the prevailing rent.
Lastly, the Court ruled that the unilateral determination and imposition of increased For the first three years, AMA paid the monthly rent as stipulated in the contract.In 2002
interest rates by the respondent bank is obviously violative of the principle of mutuality AMA requested the deferment of the annual increase in the monthly rent by citing
of contracts ordained in Article 1308 of the Civil Code. In order that obligations arising financial constraints brought about by a decrease in its enrollment. New World agreed
from contracts may have the force of law between the parties, there must be mutuality to reduce the escalation rate by 50% for the next six months. The following year, AMA
between the parties based on their essential equality. A contract containing a condition again requested the adjustment of the monthly rent and New World obliged by granting
which makes its fulfillment dependent exclusively upon the uncontrolled will of one of a 45% reduction of the monthly rent and a 5% reduction of the escalation rate for the
the contracting parties, is void. When it comes to the determination and imposition of remaining term of the lease. For this purpose, the parties entered into an Addendum to
escalated rates of interest as unilaterally provided in the ManCom Resolution, petitioners the Contract of Lease.
had no voice at all in its preparation and application.
On the evening of 6 July 2004, AMA removed all its office equipment and furniture
The bank had the option to impose in its loan contracts the condition that resignation of from the leased premises. The following day, New World received a letter from AMA
an employee-borrower would be a ground for escalation. The fact is it did not. Hence, it dated 6 July 2004 stating that the former had decided to preterminate the contract
must live with such omission. And it would be totally unfair to now impose said effective immediately on the ground of business losses due to a drastic decline in
condition, not to mention that it would violate the principle of mutuality of consent in enrollment. AMA also demanded the refund of its advance rental and security deposit.
contracts. Therefore, the escalation provision could not be legally applied and enforced
as against herein petitioners. New World replied in a letter dated 12 July 2004, to which was attached a Statement of
Account indicating the following amounts to be paid by AMA: 1) unpaid two months'
4. Obligatory Force of Contracts rent in the amount of P466,620; 2) 3% monthly interest for the unpaid rent in the amount
of P67,426.59; 3) liquidated damages equivalent to six months of the prevailing rent in
New World v. AMA CLC the amount of P1,399,860; and 4) damage to the leased premises amounting to P15,580.
G.R. No. 187930 February 23, 2015 Sereno, C.J. The deduction of the advance rental and security deposit paid by AMA still left an
unpaid balance in the amount of P1,049,486.59.
DOCTRINE: The law does not relieve a party from the consequences of a contract
Despite the meetings between the parties, they failed to arrive at a settlement regarding
it entered into with all the required formalities. Courts have no power to ease the
the payment of the foregoing amounts. On 27 October 2004, New World filed a
burden of obligations voluntarily assumed by parties, just because things did not turn
complaint for a sum of money and damages against AMA before the RTC of Marikina
out as expected at the inception of the contract.
City.
NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 The RTC ordered AMA to pay New World P466,620 as unpaid rentals plus 3% monthly
penalty interest until payment; P1,399,860 as liquidated damages equivalent to 6
FACTS: New World is the owner of a commercial building located at España corner months' rent, with the advance rental and security deposit paid by AMA to be deducted
Paredes Streets, Sampaloc, Manila. AMA agreed to lease the entire second floor of the therefrom; P15,580 for the damage to the leased premises; P100,000 as attorney's fees;
building for its computer learning center, and the parties entered into a Contract of Lease and costs of the suit.
covering the eight-year period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual escalation rate
equivalent to 15% for the succeeding years. It was also provided that AMA may
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The CA ordered AMA to pay New World P466,620 for unpaid rentals and P933,240 for
liquidated damages equivalent to 4 months' rent (instead of 6 months), with the advance Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
rental and security deposit paid by AMA to be deducted therefrom. Art. 2234. While the amount of the exemplary damages need not be proved,
the plaintiff must show that he is entitled to moral, temperate or
New World filed an appeal via Rule 45 before the Supreme Court. According to New compensatory damages before the court may consider the question of
World, when parties freely stipulate on the manner by which onemay preterminate the whether or not exemplary damages should be awarded. In case liquidated
lease, that stipulation has the force of law between them and shouldbe complied with in damages have been agreed upon, although no proof of loss is necessary in
good faith. Since AMA preterminated the lease, it became liable to liquidated damages order that such liquidated damages may be recovered, nevertheless, before
equivalent to six months' rent. Furthermore, its failure to give notice to New World six the court may consider the question of granting exemplary in addition to the
months prior to the intended pretermination of the contract and its leaving the leased liquidated damages, the plaintiff must show that he would be entitled to
premises in the middle of the night, with all its office equipment and furniture, smacked moral, temperate or compensatory damages were it not for the stipulation
of gross bad faith that renders it undeserving of sympathy from the courts. for liquidated damages.
ISSUE: Whether or not New World is entitled to 6 months worth of liquidated damages. In this case, it is quite clear that New World sustained losses as a result of the
unwarranted acts of AMA. Further, were it not for the stipulation in the contract
RULING: Yes. Quite notable is the fact that AMA never denied its liability for the regarding the payment of liquidated damages, we would be awarding compensatory
payment of liquidated damages in view of its pretermination of the lease contract with damages to New World.
New World. What it claims, however, is that it is entitled to the reduction of the amount
due to the serious business losses it suffered as a result of a drastic decrease in its 5. Relativity of Contracts
enrollment. This Court is, first and foremost, one of law. While we are also a court of Privity of Contracts
equity, we do not employ equitable principles when well-established doctrines and
positive provisions of the law clearly apply. Saludo, Jr. v. Security Bank Corp.
G.R. No. 184041 October 13, 2010 Perez, J.
The law does not relieve a party from the consequences of a contract it entered into with
all the required formalities. Courts have no power to ease the burden of obligations DOCTRINE: In Gateway Electronics Corporation v. Asianbank Corporation, the
voluntarily assumed by parties, just because things did not turn out as expected at the Court emphasized that "[b]y its nature, a continuing suretyship covers current and
inception of the contract. It must also be emphasized that AMA is an entity that has had future loans, provided that, with respect to future loan transactions, they are x x x
significant business experience, and is not a mere babe in the woods. ‘within the description or contemplation of the contract of guaranty.’"
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between NATURE OF ACTION Petition for review on certiorari
the contracting parties and should be complied with in good faith.
FACTS: On May 1996, Booklight was extended an omnibus line credit facility by
Art. 1306. The contracting parties may establish such stipulations, clauses, Security Bank Corporation (SBC) in the amount of P10,000,000.00.
terms and conditions as they may deem convenient, provided they are not
Said load was covered by a Credit Agreement and a Continuing Suretyship with
contrary to law, morals, good customs, public order, or public policy.
petitioner Aniceto Saludo as surety, to secure full payment and performance of the
obligations.
The fundamental rule is that a contract is the law between the parties. Unless it has been
shown that its provisions are wholly or in part contrary to law, morals, good customs,
public order, or public policy, the contract will be strictly enforced by the courts.
CIVIL LAW REVIEW 2
Booklight faithfully complied with the terms of the load from 1996 to 1997. On October Obligations. This Suretyship shall not be terminated by the partial payment
1997, SBC approved the renewal of credit facility of Booklight. Booklight executed nine to the Bank of Guaranteed Obligations by any other surety or sureties of the
(9) promissory notes in favor of SBC. Guaranteed Obligations, even if the particular surety or sureties are relieved
of further liabilities and concluded that the liability of petitioner did not
For failure to settle the loans upon maturity, demands were made on Booklight and expire upon the termination of the first credit facility.
petitioner but both failed to pay. The obligation of Booklight stood past due and penalty.
The essence of a continuing surety has been highlighted in the case of Totanes v. China
SBC filed against Booklight and herein petitioner Saludo an action for collection of sum Banking Corporation in this wise:
of money with the RTC. Comprehensive or continuing surety agreements are, in fact, quite
commonplace in present day financial and commercial practice. A bank or
In his answer, Booklight asserted that the amount demanded by SBC was not based on financing company which anticipates entering into a series of credit
the omnibus credit line facility of May 1996, but rather on the amendment of the credit transactions with a particular company, normally requires the projected
facilities on October 1997. principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a
Booklight denied executing the promissory notes. It also claimed that it was not in position to enter into the projected series of transactions with its creditor;
default as in fact, it paid on September 1999 as a preclude to restricting its loan for which with such suretyship agreement, there would be no need to execute a
it earnestly negotiated for mutually acceptable agreement. separate surety contract or bond for each financing or credit accommodation
extended to the principal debtor.
Petitioner alleged that under Continuing Suretyship, it was the parties understanding that
his undertaking and liability was merely as an accommodation guarantor of Booklight. In Gateway Electronics Corporation v. Asianbank Corporation, the Court emphasized
He argued that the said offer to pay constitutes valid tender of payment which discharged that "[b]y its nature, a continuing suretyship covers current and future loans, provided
Booklight’s obligation to the extent of the offer. that, with respect to future loan transactions, they are x x x ‘within the description or
contemplation of the contract of guaranty.’"
RTC ruled that petitioner is jointly and solidarily liable with Booklight under the
Continuing Suretyship Agreement. Petitioner’s argument is contrary to the express waiver of his consent to such renewal,
contained in paragraph 12 of the Continuing Suretyship, which provides in part:
CA affirmed in toto the ruling of the RTC. Hence, this petition for review on certiorari. 12. Waivers by the Surety. – The Surety hereby waives: x x x (v) notice or consent to
any modification, amendment, renewal, extension or grace period granted by the Bank
Petitioner argues that when the first credit facility expired, its accessory contract, the to the Debtor with respect to the Credit Instruments.
Continuing Surety agreement likewise expired. That the approval of the second credit
facility necessitates his consent considering the onerous and solidary liability of a surety. Metropolitan Bank and Trust Company v. Reynado and Adrandea
G.R. No. 164538 August 9, 2010 Del Castillo, J.
ISSUE: Whether or not petitioner should be held solidarily liable for the second credit
facility extended to Booklight.
DOCTRINE: The civil law principle of relativity of contracts provides that
RULING: Yes. Whether the second credit facility is considered a renewal of the first or "contracts can only bind the parties who entered into it, and it cannot favor or
a brand new credit facility altogether was indirectly answered by the trial court when it prejudice a third person, even if he is aware of such contract and has acted with
invoked paragraph 10 of the Continuing Suretyship which provides: knowledge thereof."
10. Continuity of Suretyship. – This Suretyship shall remain in full force
and effect until full and due payment and performance of the Guaranteed
CIVIL LAW REVIEW 2
NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 of the Rules P53,873,500.00 which Universal owed your client after its checks deposited with
of Court Metrobank were dishonored.
FACTS: On January 31, 1997, petitioner Metropolitan Bank and Trust Company The CA affirmed the twin resolutions of the Secretary of Justice.
charged respondents before the Office of the City Prosecutor of Manila with the crime
of estafa under Article 315, paragraph 1(b) of the Revised Penal Code. In the affidavit Petitioner persistently insists that the execution of the Debt Settlement Agreement with
of petitioner's audit officer, Antonio Ivan S. Aguirre, it was alleged that the special audit Universal did not absolve private respondents from criminal liability for estafa.
conducted on the cash and lending operations of its Port Area branch uncovered Petitioner submits that the settlement affects only the civil obligation of Universal but
anomalous/fraudulent transactions perpetrated by respondents in connivance with client did not extinguish the criminal liability of the respondents.
Universal Converter Philippines, Inc. (Universal); that respondents were the only voting
members of the branch's credit committee authorized to extend credit accommodation Adraneda denies being a privy to the anomalous transactions and passes on the sole
to clients up to P200,000.00; that through the so-called Bills Purchase Transaction, responsibility to his co-respondent Reynado as the latter was able to conceal the
Universal, which has a paid-up capital of only P125,000.00 and actual maintaining pertinent documents being the head of petitioner's Port Area branch. Nonetheless, he
balance of P5,000.00, was able to make withdrawals totaling P81,652,000.00 against contends that because of the Debt Settlement Agreement, they cannot be held liable for
uncleared regional checks deposited in its account at petitioner's Port Area branch; that, estafa.
consequently, Universal was able to utilize petitioner's funds even before the seven-day
clearing period for regional checks expired; that Universal's withdrawals against ISSUE: Whether the execution of the Debt Settlement Agreement precluded petitioner
uncleared regional check deposits were without prior approval of petitioner's head from holding respondents liable to stand trial for estafa under Art. 315 (1)(b)
office; that the uncleared checks were later dishonored by the drawee bank for the reason of the Revised Penal Code?
"Account Closed"; and, that respondents acted with fraud, deceit, and abuse of
confidence. RULING: No. The execution of the Debt Settlement Agreement did not prevent the
incipience of criminal liability.
Respondents denied responsibility in the anomalous transactions with Universal and
claimed that they only intended to help the Port Area branch solicit and increase its Under Article 1311 of the Civil Code, "contracts take effect only between the parties,
deposit accounts and daily transactions. their assigns and heirs, except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law."
On February 26, 1997, petitioner and Universal entered into a Debt Settlement The civil law principle of relativity of contracts provides that "contracts can only bind
Agreement whereby the latter acknowledged its indebtedness to the former in the total the parties who entered into it, and it cannot favor or prejudice a third person, even if he
amount of P50,990,976.27 as of February 4, 1997 and undertook to pay the same in is aware of such contract and has acted with knowledge thereof."
bimonthly amortizations in the sum of P300,000.00 starting January 15, 1997, covered
by postdated checks, "plus balloon payment of the remaining principal balance and In the case at bar, it is beyond cavil that respondents are not parties to the agreement.
interest and other charges, if any, on December 31, 2001." The intention of the parties thereto not to include them is evident either in the onerous
or in the beneficent provisions of said agreement. They are not assigns or heirs of either
Assistant City Prosecutor Winnie M. Edad found petitioner’s evidence insufficient to of the parties. Not being parties to the agreement, respondents cannot take refuge
hold respondents liable for estafa and recommended the dismissal of the case claiming therefrom to bar their anticipated trial for the crime they committed. It may do well for
that the execution of the Debt Settlement Agreement puts petitioner in estoppel to argue respondents to remember that the criminal action commenced by petitioner had its
that the liability is criminal. genesis from the alleged fraud, unfaithfulness, and abuse of confidence perpetrated by
them in relation to their positions as responsible bank officers. It did not arise from a
The DOJ affirmed the Resolution of Prosecutor Edad stating that there is no estafa in contractual dispute or matters strictly between petitioner and Universal. This being so,
the instant case as it was not clearly shown how respondents misappropriated the respondents cannot rely on subject settlement agreement to preclude prosecution of the
CIVIL LAW REVIEW 2
offense already committed to the end of extinguishing their criminal liability or prevent approval of Corazon's loan application and the release of its proceeds to Corazon who,
the incipience of any liability that may arise from the criminal offense. This only despite repeated demands, failed to pay the purchase price of the properties. Respondent
demonstrates that the execution of the agreement between petitioner and Universal has eventually accepted from Corazon partial payment in kind consisting of one owner type
no bearing on the innocence or guilt of the respondents. jeepney and four passenger jeepneys, plus installment payments, which, by the trial
court's computation, totaled P665,000. In view of Corazon's failure to fully pay the
Prudential Bank v. Abasolo purchase price, respondent filed a complaint for collection of sum of money and
G.R. No. 186738 September 27, 2010 Carpio – Morales, J. annulment of sale and mortgage with damages, against Corazon and PBTC (hereafter
Petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna.
DOCTRINE: If a contract should contain some stipulation in favor of a third person, RTC rendered judgment in favor of respondent and against Corazon who was made
he may demand its fulfillment provided he communicated his acceptance to the directly liable to respondent, and against petitioner who was made subsidiarily liable in
obligor before its revocation. A mere incidental benefit or interest of a person isnot the event that Corazon fails to pay. It held that petitioner breached its understanding to
sufficient. The contracting parties must have clearly and deliberately conferred a release the proceeds of the loan to respondent. On appeal, the CA affirmed the RTC
favor upon a third person. (underscoring supplied) decision with modification on the amount of the balance of the purchase price which
was reduced from P1,783,960 to P1,753,960.
NATURE OF ACTION:
ISSUE: Whether or not Prudential Bank is subsidiarily liable
FACTS: Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan,
Sta. Cruz, Laguna (the properties). After she passed away, her heirs executed on June RULING: No. In the absence of a lender-borrower relationship between petitioner and
14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) Liwayway, there is no inherent obligation of petitioner to release the proceeds of the
empowering her to sell the properties. Corazon Marasigan (Corazon) wanted to buy the loan to her. To a banking institution, well-defined lending policies and sound lending
properties which were being sold for P2,448,960, but as she had no available cash, she practices are essential to perform its lending function effectively and minimize the risk
broached the idea of first mortgaging the properties to petitioner Prudential Bank and inherent in any extension of credit.
Trust Company (PBTC), the proceeds of which would be paid directly to respondent.
On Corazon and respondent's consultation with PBTC's Head Office, its employee, In order to identify and monitor loans that a bank has extended, a system of
Norberto Mendiola (Mendiola), allegedly advised respondent to issue an authorization documentation is necessary. Under this fold falls the issuance by a bank of a guarantee
for Corazon to mortgage the properties, and for her (respondent) to act as one of the co- which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It
makers so that the proceeds could be released to both of them. By respondent’s claim, would be contrary to established banking practice if Mendiola issued a bank guarantee,
Mendiola advised her to transfer the properties first to Corazon for the immediate even if no request to that effect was made.
processing of Corazon's loan application with assurance that the proceeds thereof would
be paid directly to her (respondent), and the obligation would be reflected in a bank The principle of relativity of contracts in Article 1311 of the Civil Code supports
guarantee. Heeding Mendiola's advice, respondent executed a Deed of Absolute Sale petitioner's cause:
over the properties in favor of Corazon following which or on December 4, 1995, Art. 1311. Contracts take effect only between the parties, their assigns and
Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of heirs, except in case where the rights and obligations arising from the
Corazon. contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
Corazon's application for a loan with PBTC's Tondo Branch was approved on December received from the decedent.
1995. She thereupon executed a real estate mortgage covering the properties to secure
the payment of the loan. In the absence of a written request for a bank guarantee, the For Liwayway to prove her claim against petitioner, a clear and deliberate act of
PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the conferring a favor upon her must be present. A written request would have sufficed to
CIVIL LAW REVIEW 2
prove this, given the nature of a banking business, not to mention the amount involved. ACFLC claimed that it was merely exercising its right as mortgagor, it prayed for the
Since it has not been established that petitioner had an obligation to Liwayway, there is dismissal of the complaint.
no breach to speak of. Liwayway's claim should only be directed against Corazon.
Petitioner cannot thus be held subsidiarily liable. Regional Trial Court: dismissing the complaint for lack of cause of action. rejected
respondents' claim that ACFLC deceived them into signing the promissory note,
Asian Cathay Finance and Leasing Corporation v. Sps. Cesario Gravador and disclosure statement, and deed of real estate mortgage. Promissory note is neither
Norma de Vera, et al. indispensable nor imperative for the validity of the mortgage.
G.R. No. 186550 July 5, 2010 Nachura, J.
Court of Appeals: P1,871,480.00 demanded by ACFLC from respondents is
unconscionable and excessive. Respondents' principal loan to be P800,000.00, and fixed
DOCTRINE: Stipulations authorizing the imposition of iniquitous or the interest rate at 12% per annum and reduced the penalty charge to 1% per month.
unconscionable interest are contrary to morals, if not against the law. The nullity of
the stipulation on the usurious interest does not, however, affect the lender's right to ISSUE: Whether or nor the court of appeals erred in reversing RTC’s decision.
recover the principal of the loan.
RULING: No. Stipulations authorizing the imposition of iniquitous or unconscionable
Settled is the rule that for a waiver to be valid and effective, it must, in the first place, interest are contrary to morals, if not against the law. ACFLC failed to show any
be couched in clear and unequivocal terms which will leave no doubt as to the computation on how much interest was imposed and on the penalties charged. The
intention of a party to give up a right or benefit which legally pertains to him. nullity of the stipulation on the usurious interest does not, however, affect the lender's
right to recover the principal of the loan. Nor would it affect the terms of the real estate
NATURE OF ACTION: Appeal of the CA decision setting aside RTC’s decision mortgage. The right to foreclose the mortgage remains with the creditors, and said right
can be exercised upon the failure of the debtors to pay the debt due.
FACTS: October 22, 1999, petitioner extended a loan of P800k, payable in sixty (60)
monthly installments of P24,400.00 each, to respondent Gravador, with respondents Settled is the rule that for a waiver to be valid and effective, it must, in the first place,
Norma de Vera and Emma Concepcion Dumigpi as co-makers. As security, respondent be couched in clear and unequivocal terms which will leave no doubt as to the intention
executed a real estate mortgage over his property in Sta. Maria, Bulacan. of a party to give up a right or benefit which legally pertains to him. Additionally, the
intention to waive a right or an advantage must be shown clearly and convincingly.
When respondent failed to pay the subsequent installment after the first one, the Unfortunately, ACFLC failed to convince us that respondents waived their right of
petitioner demanded the whole value of P1,871,480. After respondent declined the redemption voluntarily.
request for extension, ACFLC filed a petition for extrajudicial foreclosure of the
mortgage of the Bulacan property. Velasco v. CA
G.R. No. L – 47544 January 28, 1980 Barredo, J.
Respondent: real estate mortgage is null and void. Mortgage does not make reference to
the promissory note dated October 22, 1999. The promissory note does not specify the
maturity date of the loan, the interest rate, and the mode of payment; and it illegally DOCTRINE: Article 1311 of the Civil Code which GSIS invokes is not applicable
imposed liquidated damages. where the situation contemplated in Article 1729 obtains. The intention of the latter
The real estate mortgage, on the other hand, contains a provision on the waiver of the provision is to protect the laborers and the materialmen from being taken advantage
mortgagor's right of redemption, a provision that is contrary to law and public policy. of by unscrupulous contractors and from possible connivance between owners and
contractors. Thus, a constructive vinculum or contractual privity is created by this
Petitioner: in their Answer, denying the material allegations in the complaint and provision, by way of exception to the principle underlying Article 1311 between the
averring failure to state a cause of action and lack of cause of action, as defenses. owner, on the one hand, and those who furnish labor and/or materials, on the other
CIVIL LAW REVIEW 2
hold that upon this premise it is a fair construction of the Deed of Quitclaim
NATURE OF ACTION: Collection of sums of money representing labor and materials aforementioned, that GSIS can be held liable to petitioners, without prejudice to its
used in the construction of houses securing corresponding indemnity from Laigo. It is obvious from the terms of said deed
that GSIS contemplated the possibility of its being liable for Laigo's account, otherwise,
FACTS: Alta Farms secured from the GSIS two loans to finance a piggery project. there was no need for the reservation. This is one such liability.
These loans were secured by two mortgages. Alta Farms defaulted in the payment of its
amortizations. It is presumably because of this that Alta Farms executed a Deed of Sale In this connection while, indeed, Article 1729 refers to the laborers and materialmen
With Assumption of Mortgage with Asian Engineering Corporation but without the themselves, under the peculiar circumstances of this case, it is but fair and just that
previous consent or approval of the GSIS and in direct violation of the provisions of the petitioners be deemed as suing for the reimbursement of what they have already paid the
mortgage contracts. Even without the approval of the Deed of Sale With Assumption of laborers and materialmen, as otherwise they (petitioners) would be unduly prejudiced
Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales while either Laigo, GSIS or the occupants of the houses would enrich themselves at their
Agency, Management and Administration Contract in favor of Laigo Realty expense. It is a bad law that would allow such a result.
Corporation, with intention of converting the piggery farm into a subdivision. Asian
Engineering executed another contract with Laigo, whereby Laigo was to undertake the At this juncture, We need to add only that Article 1311 of the Civil Code which GSIS
development of the property into a subdivision. Conformably with the two contracts, invokes is not applicable where the situation contemplated in Article 1729 obtains. The
Laigo started the development of the lot into a subdivision. Laigo entered into contracts intention of the latter provision is to protect the laborers and the materialmen from being
with petitoners for the construction of houses for home buyers. The checks paid by Laigo taken advantage of by unscrupulous contractors and from possible connivance between
to the petitioners were dishonored. owners and contractors. Thus, a constructive vinculum or contractual privity is created
by this provision, by way of exception to the principle underlying Article 1311 between
When the petitioners could not collect from Laigo and the home buyers and after the the owner, on the one hand, and those who furnish labor and/or materials, on the other.
GSIS foreclosed the subdivision including the improvements, the petitioners sent a letter As a matter of fact, insofar as the laborers are concerned, by a special law, Act No. 3959,
of demand GSIS to pay for the indebtedness of Laigo Realty Corporation. they are given added protection by requiring contractors to file bonds guaranteeing
payment to them. And under Article 2242 of the Civil Code, paragraphs (3) and (4),
Petitioners filed a case against the GSIS for the collection of sums of money representing claims of laborers and materialmen, respectively, enjoy preference among the creditors
labor and materials used in the construction of houses caused by home buyers through of the owner in regard to specific immovable property.
the intercession of Laigo Realty Corporation.
Kauffman v. PNB
Petitioners and the GSIS filed their ‘Joint Manifestation’ which in substance is a G.R. No. 16454 September 29, 1921 Street, J.
stipulation of facts where it was agreed that the witnesses of GSIS would testify on the
execution of the Deed of Quit-Claim in favor of defendant GSIS by Laigo Realty
Corporation, freeing said defendant from any and all claims arising out of the suppliers, DOCTRINE: A stipulation in favor of a third person cannot be revoked by the
contractors and house builders. obligated party alone, without the conformity of the other contracting party.
ISSUE: Whether or not GSIS is liable to the petitioners for the cost of the materials and NATURE OF ACTION: Action for recovery of sum of money
labor furnished by them in construction of the 63 houses now owned by the
GSIS and for the construction of which no payment has been made on the FACTS: Plaintiff George A. Kauffman was the president of a domestic corporation
balance due petitioners. engaged in the exportation of hemp from the Philippines and known as the Philippine
Fibr and Produce Company. The plaintiff apparently held in his own right nearly the
RULING: Yes. Laigo admittedly has not paid petitioners. The "bouncing" checks entire issue of capital stock. The Board of Directors declared a dividend of P100,000
issued by it in their favor is mentioned by GSIS itself in its statement of the facts. We from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum
CIVIL LAW REVIEW 2
of P98,000. Said amount was placed to his credito the books of the company and In the case of Uy Tam and Uy Yet vs. Leonard, is found an elaborate dissertation upon
remained as such since effort was unsuccessful to transmit the whole or part of it to the the history and interpretation of the paragraph above quoted and complete is the
plaintiff in New York. However, on October 9, 1918, treasurer of the Philippine Fiber discussion contained in that opinion that it would be idle for us here to go over the same
and Produce Company requested to Philippine National Bank (PNB) that a telegraphic matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up
transfer amounting to $45,000 should be made to the plaintiff in New York upon the its conclusions upon the conditions governing the right of the person for whose benefit
account of the company. He was informed that the total cost of the transfer, including a contract is made to maintain an action for the breach thereof in the following words:
exchange and cost of message would be P90,355.50. The treasurer then drew and “So, we believe the fairest test, in this jurisdiction at least, whereby to
delivered a check for that amount and the same was accepted by PNB. PNB dispatched determine whether the interest of a third person in a contract is a stipulation
the message to the bank’s representative in New York and upon receiving the same, the pour autrui, or merely an incidental interest, is to rely upon the intention of
latter replied suggesting the advisability of withholding the money from the plaintiff the parties as disclosed by their contract.”
because of his reluctance to accept certain bills of the company. PNB heed the advice
and sent another message to withhold the payment as suggested. Meanwhile, the In light of the conclusions thus stated, the right of the plaintiff to maintain the present
treasurer of the company cabled plaintiff advising him that $45,000 had been placed to action is clear enough; for it is undeniable that the bank’s promise to cause a definite
his credit in the New York agency of PNB. He then presented himself at the office of sum of money to be paid to the plaintiff in New York City is a stipulation in his favor
PNB and demanded the money. However, by this time, the message from PNB to within the meaning of the paragraph above quoted; and the circumstances under which
withhold the payment had been received in New York and payment was therefore that promise was given disclose an evident intention on the part of the contracting parties
refused. that the plaintiff should have that money upon demand in New York City.
Plaintiff then instituted an action in the CFI of Manila to recover the sum, with interest Bonifacio Bros v. Mora
and costs. Defendant averred that because Kauffman was not a party to the contract with G.R. No. L – 20853 May 29, 1967 Castro, J.
the bank for the transmission of this credit, no right of action can be vested in him for
the breach thereof. The appellant’s brief states that if there exists a cause of action
against the defendant, it would not be in favor of the plaintiff who had taken no part at DOCTRINE: The question of whether a third person has an enforceable interest in
all in the transaction nor had entered into any contract with the plaintiff, but in favor of a contract is settled by determining whether the contracting parties intended to tender
the company, theparty which contracted in its own name with the defendant. him such an interest by deliberately inserting terms in their agreement with the
avowed purpose of conferring a favor upon such third person. The fairest test to
ISSUE: Whether or not the lack of privity with the contract on the part of the plaintiff determine whether the interest of a third person in a contract is a stipulation pour
fatal to his right of action to file recovery of sum of money autrui or merely an incidental interest, is to rely upon the intention of the parties as
disclosed by their contract.
RULING: No. The only express provision of law that has been cited as bearing directly
on this question is the second paragraph of Art. 1257 of the Civil Code and unless the NATURE OF ACTION: Appeal from the decision of the Court of First Instance of
present action can be maintained under that provision, the plaintiff admittedly has no Manila.
case. This provision states an exception to the more general rule expressed in the first
paragraph of the same article to the effect that contracts are productive of effects only FACTS: Enrique Mora owned an Oldsmobile sedan model 1956 which he mortgaged
between the parties who execute them. The paragraph introducing the exception which to H.S. Reyes Inc.with the condition that Mora would insure the sedan and H.S. Reyes
we are now to consider is in these words: would be the beneficiary. The sedan was insured with State Bonding & Insurance Co.,
“Should the contract contain any stipulation in favor of a third person, he Inc. During the effectivity of the insurance contract, the car was involved in an accident
may demand its fulfillment, provided he has given notice of his acceptance and SBICI assigned the accident to H.H. Bayne Adjustment Co. for investigation and
to the person bound before the stipulation has been revoked.” appraisal of the damage. Mora, without knowledge and consent of H.S. Reyes,
CIVIL LAW REVIEW 2
authorized the Bonifiacio Bros. to furnish the labor and the materials, some of which have clearly and deliberately conferred a favor upon such person. Consequently, a third
some were supplied by Ayala Auto Parts Co. person, not a party to the contract, has no action against the parties thereto, and cannot
generally demand the enforcement of the same.
Mora was billed at P2,102.73 for the cost of labor and materials, through the H.H. Bayne
Adjustment Co. The insurance company, after claiming a franchise in the amount of The question of whether a third person has an enforceable interest in a contract must be
P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, settled by determining whether the contracting parties intended to tender him such an
payable to the order of Enrique Mora or H.S. Reyes, Inc., and entrusted the check to the interest by deliberately inserting terms in their agreement with the avowed purpose of
H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. The car conferring a favor upon such third person. The fairest test to determine whether the
was delivered to Mora without the consent of the H.S, Reyes, Inc., and without payment interest of a third person in a contract is a stipulation pour autrui or merely an incidental
to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and interest, is to rely upon the intention of the parties as disclosed by their contract.
materials
In the instant case the insurance contract does not contain any words or clauses to
Bonifacio Bros and Ayala Auto Parts filed a complaint for collection of sum of money disclose an intent to give any benefit to any repairmen or materialmen in case of repair
against Mora and State Bonding & Insurance Co., Inc.with the Municipal Court of of the car in question. The parties to the insurance contract omitted such stipulation,
Manila alleging that the proceeds should be paid to them directly. The insurance which is a circumstance that supports the said conclusion. On the other hand, the "loss
company filed its answer with a counterclaim for interpleader, requiring the Bonifacio payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S.
Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to
right to the insurance proceeds. Mora was declared in default for failure to appear at the benefit.
hearing, and evidence against him was received ex parte. The Municipal Court declared
H.S. Reyes Inc. as having the better right. The Court likewise observed from the brief of the State Bonding & Insurance Company
that it has vehemently opposed the assertion or pretension of the appellants that they are
Upon appeal, the CFI affirmed the decision. The Motion for Reconsideration was privy to the contract. If it were the intention of the insurance company to make itself
denied. Hence, this appeal. liable to the repair shop or materialmen, it could have easily inserted in the contract a
stipulation to that effect. To hold now that the original parties to the insurance contract
ISSUE: Whether or not there is privity of contract between the Bonifacio Bros. Inc. and intended to confer upon the appellants the benefit claimed by them would require us to
the Ayala Auto Parts Co. on the one hand and the insurance company on the ignore the indispensable requisite that a stipulation pour autrui must be clearly
other. expressed by the parties, which we cannot do.
RULING: No.The appellants' alleged cause of action rests exclusively upon the terms As regards paragraph 4 of the insurance contract, a perusal thereof would show that
of the insurance contract. The appellants seek to recover the insurance proceeds, and for instead of establishing privity between the appellants and the insurance company, such
this purpose, they rely upon paragraph 4 of the insurance contract document executed stipulation merely establishes the procedure that the insured has to follow in order to be
by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The entitled to indemnity for repair. This paragraph therefore should not be construed as
appellants are not mentioned in the contract as parties thereto; nor is there any clause or bringing into existence in favor of the appellants a right of action against the insurance
provision thereof from which we can infer that there is an obligation on the part of the company as such intention can never be inferred therefrom.
insurance company to pay the cost of repairs directly to them. It is fundamental' that
contracts take effect only between the parties thereto, except in some specific instances
provided by law where the contract contains some stipulation in favor of a third person
which is known as a stipulation pour autrui or a provision in favor of a third person not
a party to the contract. Under this doctrine, a third person is allowed to avail himself of
a benefit granted to him by the terms of the contract, provided that the contracting parties
CIVIL LAW REVIEW 2
Miguel Florentino, et. a v. Salvador Encarnacion, Sr., Salvador Encarnacion, the three oppositors who is a party to the Exhibit O-1, Salvador, Jr. and Angel did revoke
Jr. and Angel Encarnacion it as shown by their acts of refusing the same to appear as encumbrance on the title to
G.R. No. L – 27696 September 30, 1977 Guerrero, J. be issued. Thus, the religious expenses should be made and entered on the undivided
shares only of all the petitioner-appellants, Miguel, et. al.
DOCTRINE: A stipulation pour autrui is a stipulation in favor of a third person ISSUE: Whether or not the stipulation in Exhibit O-1 on religious expenses is revocable
conferring a clear and deliberate favor upon him, and which stipulation is merely a at the unilateral option of the co-owners?
part of a contract entered into by the parties, neither of whom acted as agent of the
third person, and such third person and demand its fulfillment provoked that he RULING: NO, stipulations embodied in Exhibit O-1 on religious expenses is not
communicates this to the obligor before it is revoked. The requisites are: (1) revocable at the unilateral option of the co-owners. A stipulation in an extrajudicial
stipulation in favor of a third person should be a part, not the whole, of the contract; partition duly agreed and signed by the parties is binding to contracting parties thereto
(2) favorable stipulation should not be conditioned or compensated by any kind of and its validity and compliance cannot be left to the will of one of them. Under Article
obligation whatever; and (3) neither of the contracting bears the legal represented or 1311 of the New Civil Code, this stipulation takes effect between the parties, their heirs
authorization of third person. and assigns.
Third person for whose benefit the contract was entered into may also demand the The stipulation in Exhibit O-1 states a pour autrui. A stipulation pour autrui is a
contract’s fulfillment provided he had communicated his acceptance thereof to the stipulation in favor of a third person conferring a clear and deliberate favor upon him,
obligor before the stipulation in his favor is revoked. and which stipulation is merely a part of a contract entered into by the parties, neither of
whom acted as agent of the third person, and such third person and demand its
NATURE OF ACTION: Appeal from the decision of the Court of First Instance of fulfillment provoked that he communicates this to the obligor before it is revoked. The
Ilocos Sur acting as a land registration court. requisites are:
1. Stipulation in favor of a third person should be a part, not the whole, of the
FACTS: The parties filed with the CFI of Ilocos Sur an application for the registration contract;
of a parcel of land stating that they are co-owners of said land; that they acquired the 2. Favorable stipulation should not be conditioned or compensated by any kind of
land by inheritance and was adjudicated to them by virtue of a Deed of Extrajudicial obligation whatever; and
Partition, except for Salvador Encarnacion, Jr. and Angel Encarnacion who purchased 3. Neither of the contracting bears the legal represented or authorization of third
their shares from the original heirs. person.
The deed of extrajudicial partition has a stipulation in Spanish (Exhibit O-1) stating that To constitute a valid stipulation pour autrui it must be the purpose and intent of the
the products of the said land shall answer for the expenses to be incurred by the Church stipulating parties to benefit the third and it is not sufficient that the third person may be
for the preparation and celebration of the Holy Week and that what is left after all incidentally benefited by the stipulation. The fairest test to determine whether the
expenses have been discounted shall be shared to all the heirs. interest of third person in a contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract. In the
Miguel asked the CFI to include said stipulation (Exhibit O-1) as an encumbrance on case at bar, the evidence shows that the true intent of the parties is to confer a direct and
the land sought to be registered, and cause its entry on the fact of the title that will be material benefit upon the Church. The fruits of the aforesaid land were used thenceforth
issued but petitioner-appellees Salvador Sr., Salvador Jr., and Angel opposed. to defray the expenses of the Church in the preparation and celebration of the Holy
Week, an annual Church function.
CFI ruled that the stipulation is void it being a self-imposed arrangement in favor of the
Church which has not been accepted by the Church as donee. Also, because the While a stipulation in favor of a third person has no binding effect in itself before its
stipulation can be revoked as in fact the oppositors, Salvador Sr., who is the only one of acceptance by the party favored, the law does not provide when the third person must
CIVIL LAW REVIEW 2
make his acceptance. As a rule, there is no time at such third person after the time until
the stipulation is revoked. In this case, it is proved that the Church has impliedly On March 12, 1981, Minami withdrew the sum of P180,000.00 the equivalent in
accepted the stipulation in its favor before it is sought to be revoked by some of the co- Philippine Pesos of the sum of US$23,595.00 from the Bank on his Account Number
owners. It is not disputed that from 1941 up to a year before the firing of their application 24506-07-1 (should be 24506-01-7)."
in May 1964, the Church had been enjoying the benefits of the stipulation. Hence, the
stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own It may be explained that the "tested" telex advice is a message signed in "code".
option. This must be so because of Article 1257, Civil Code and the cardinal rule of Evidently, there was a previous contractual agreement between Kyowa Bank of Japan
contracts that it has the force of law between the parties. Contract must bind both parties, (KYOWA) and Petitioner (BANKAMERICA) that, from time to time, KYOWA can
based on the principles (1) that obligation arising from contracts have the force of law ask BANKAMERICA to pay amounts to a third party (beneficiary) with
between the contracting parties; and (2) that there must be mutuality between the parties BANKAMERICA afterwards billing KYOWA the indicated amount given to the
based on their principle equality, to which is repugnant to have one party bound by the beneficiary. To assure itself that an Order received from KYOWA really comes from
contract leaving the other free therefrom. Consequently, Salvador Encarnacion, Sr. must KYOWA, it is usually agreed that KYOWA's signature will be in accordance with a
bear with Exhibit O-1, being a signatory to the Deed of Extrajudicial Partition confidential code.
embodying such beneficial stipulation. Likewise, with regards to Salvador, Jr. and Angel
Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they According to ACTC in its Comment, in the early part of 1981, it was Tokyo Tourist
are privies or successors in interest; it is axiomatic that contracts are enforceable against Corporation in Japan which applied with Kyowa Bank, Ltd. also based in Tokyo, Japan,
the parties and their privies. Wherefore, the annotation of Exhibit O-1 as an for telegraphic transfer of the sum of US$23,595.00 payable to ACTC's account with
encumbrance on the face of the title is allowed. BANKAMERICA, Manila.
Bank of America v. IAC When the tested telex was received on May 10, 1981, employees of BANKAMERICA
G.R. No. 74521 November 11, 1986 Melencio – Herrera, J. noted its patent ambiguity. Notwithstanding, on the following day, BANKAMERICA
credited the amount of US$23,595.00 to the account of Minami. ACTC claimed that
the amount should have been credited to its account and demanded restitution, but
DOCTRINE: The opening of a letter of credit in favor of the exporter becomes BANKAMERICA refused.
ultimately but the result of a stipulation pour autrui.
On February 18, 1982, ACTC filed suit for damages against BANKAMERICA and
NATURE OF ACTION: Stipulation pour autrui Minami before the Trial Court in Pasig for the failure of BANKAMERICA to restitute.
FACTS: Plaintiff Air Cargo and Travel Corporation is the owner of Account Number It is our considered opinion that, in the tested telex, considered either as a patent
19842-01-2 with defendant Bank of America. Defendant Toshiyuki Minami, President ambiguity or as a latent ambiguity, the beneficiary is Minami. The mention of Account
of plaintiff corporation in Japan, is the owner of Account Number 24506-01-7 with No. 24506-01-7, as well as the name of Minami, has to be given more weight than the
defendant Bank. mention of the name of ACTC. BANKAMERICA could not have very well disregarded
that account number. It could also be that the mention of ACTC's name was a further
On March 10, 1981, the Bank received a tested telex advise from Kyowa Bank of Japan identification of Minami, to prevent payment to a possible another "Toshiyuko Minami"
stating: who may not be connected with ACTC. On the other hand, it should be difficult to
'ADVISE PAY USDLS 23,595. - TO YOUR A/C NBR 24506-01-7 OF A. concede that, in the tested telex, Account No. 24506-01-7 was erroneously written and
C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI.' should be substituted by Account No. 19842-01-2 in the name of ACTC.
"and the Bank Credited the amount of US$23,595.00 to Account Number ISSUE: Whether or not BANK AMERICA is liable to ACTC for the amound credited
24506-07-1 (should be 24506-01-7) owned, as aforesaid, by Minami. to the account of Minami? NO.
CIVIL LAW REVIEW 2
Marimperio. Philin and Union authorized Toeg to negotiate for its charter but with
RULING: instructions to keep confidential the fact that they are the real charterers. Consequently,
a Uniform Time Charter for the hire of “Paxoi'' was entered into by Vlassopulos and
In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the opening of a letter Matthews, Marimperio and Interocean’s agents respectively. The latter appeared to be
of credit in favor of the exporter becomes ultimately but the result of a stipulation pour the charterer, although it merely acted in behalf of the real charterers, Philin and Union.
autrui". Similarly, when KYOWA asked BANKAMERICA to pay an amount to a
beneficiary (either ACTC or Minami), the contract was between KYOWA and BANK- The Charterer was however, twice in default in its payment which were supposed to
AMERICA and it had a stipulation pour autrui. have been done in advance. Although the late payments for the charter of the vessel were
received and acknowledged by Vlassopulos, without comment or protest, said agent
It should be recalled that the tested telex originated from KYOWA at the behest of notified Matthews that the shipowners were withdrawing the vessel from the Charterer’s
Tokyo Tourist Corporation with whom ACTC had business dealings. Minami, on the service and holding the Charterer responsible for unpaid hirings and all legal claims
other hand, was the liaison officer of ACTC in Japan. As the entity responsible for the pursuant to Clause 6 of the Charter Party. The shipowner had, in fact, entered into
tested telex was Tokyo Tourist Corporation, it can reasonably be concluded that if it had another charter agreement with another charterer from Amsterdam.
intended that the US$23,595.00 should be credited to ACTC, upon learning that the
amount was credited to Minami, it should have gone, together with the representatives Meanwhile, the original charterer again remitted the amount corresponding to the third
of ACTC, in protest to KYOWA and lodged a protest. Since that was not done, it could 15-day hire of the vessel but this time, the remittance was refused. This prompted private
well be that Tokyo Tourist Corporation had really intended its remittance to be credited respondents Union and Philin to file a complaint with the CFI of Manila, Br. 8 against
to Minami. The identity of the beneficiary should be in accordance with the unknown owners of the vessel “Paxoi” for specific performance with prayer for
identification made by KYOWA, and ACTC cannot question that identification as it is preliminary attachment, alleging among other things, that the unknown owners entered
not a party to the arrangement between KYOWA and BANKAMERICA. into a contract of Uniform Time Charter with Interocean Shipping Company of Manila
for the charter of “Paxoi;” that, immediately thereafter, Interocean sublet the said vessel
Marimperio Compania Naviera, S.A. v. Court of Appeals to Union which in turn sublet the same to Philin. The complaint was amended to identify
G.R. No. L – 40234 December 14, 1987 Paras, J. Marimperio Compania Naviera as the owner of the vessel.
In its answer to the amended complaint, Marimperio alleged that the Charter Party
DOCTRINE: Since a contract may be violated only by the parties, thereto as against covering its vessel was entered into by them with Interocean – which is not a party to
each other, in an action upon that contract, the real parties in interest, either as the complaint; that it had no agreement or relationship whatsoever with Union and
plaintiff or as defendant, must be parties to said contract. Therefore, a party who has Philin; that the latter are unknown to them; that the charter party entered into by Union
not taken part in it cannot sue or be sued for performance or for cancellation thereof, and Philin with Interocean does not authorize a sub-charter of said vessel to other parties;
unless he shows that he has a real interest affected thereby. (See Art. 1131, Civil and that at any rate, any such sub-charter was without the knowledge and consent of
Code) Marimperio or its agents, and therefore, has no effect and/or is not binding upon them.
NATURE OF ACTION: This is a petition for certiorari under Section 1, Rule 65 of Interocean filed a complaint-in-intervention to collect what it claims to be its loss of
the Rules of Court seeking annulment and setting aside of the decision of the CA in G.R. income by way of commission and expenses in the amount of P15,000.00 and the sum
No. 48521-R. of P2,000 for attorney’s fees. In its amended answer to the complaint-in-intervention
petitioner, by way of special defense alleged, among others, that the plaintiff-in-
FACTS: In 1964, private respondents Philin Traders Corp. (Philin) and Union Import intervention, being the charterer did not notify the defendant shipowner, petitioner
Corp. (Union) entered into a joint business venture for the purchase of copra from herein, about any alleged sub-charter of the vessel to Philin and Union; consequently,
Indonesia for sale in Europe. Exequiel Toeg of Interoceam was commissioned to look there is no privity of contract between defendant and plaintiffs and it follows that the
for a vessel and he found the vessel “SS Paxoi'' owned by petitioner company
CIVIL LAW REVIEW 2
plaintiff-in-intervention, as charterer, is responsible for defendant shipowner for the Overseas Steamship Co., Inc., that the real charterer is the Interocean Shipping Company
performance of the charter party. (which sublet the vessel to Union Import and Export Corporation which in turn sublet it
to Philin Traders Corporation).
Court of First Instance: Ruled in favor of Marimperio Compania Naviera, S.A. Acting
on the Motion for Reconsideration, the trial court reversed its stand. Discussion on Lease: In a sub-lease, there are two leases and two distinct judicial
relations although intimately connected and related to each other, unlike in a case of
Court of Appeals: Affirmed the amended decision of the lower court except the portion assignment of lease, where the lessee transmits absolutely his right, and his personality
granting commission to the Interocean. disappears; there only remains in the juridical relation two persons, the lessor and the
assignee who is converted into a lessee. In other words, in a contract of sub-lease, the
ISSUE: Whether or not Philin and Union have the legal capacity to bring the suit for personality of the lessee does not disappear; he does not transmit absolutely his rights
specific performance against Marimperio based on the charter party. and obligations to the sub-lessee; and the sub- lessee generally does not have any direct
action against the owner of the premises as lessor, to require the compliance of the
RULING: The Court ruled in the negative. obligations contracted with the plaintiff as lessee, or vice versa.
According to Article 1311 of the Civil Code, a contract takes effect between the parties However, there are at least two instances in the Civil Code which allow the lessor to
who made it, and also their assigns and heirs, except in cases where the rights and bring an action directly (accion directa) against the sub-lessee (use and preservation of
obligations arising from the contract are not transmissible by their nature, or by the premises under Art. 1651, and rentals under Article 1652). It will be noted however
stipulation or by provision of law. Since a contract may be violated only by the parties, that in said two Articles it is not the sub-lessee, but the lessor, who can bring the action.
thereto as against each other, in an action upon that contract, the real parties in interest, In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they
either as plaintiff or as defendant, must be parties to said contract. Therefore, a party filed with the trial court.
who has not taken part in it cannot sue or be sued for performance or for cancellation
thereof, unless he shows that he has a real interest affected thereby. While in the instant case, the true charterers of the vessel were the private respondents
herein and they chartered the vessel through an intermediary which upon instructions
It is undisputed that the charter party, basis of the complaint, was entered into between from them did not disclose their names. Article 1883 cannot help the private
petitioner Marimperio Compañia Naviera, S.A., through its duly authorized agent in respondents, because although they were the actual principals in the charter of the vessel,
London, the N & J Vlassopulos, Ltd., and the Interocean Shipping Company of Manila the law does not allow them to bring any action against the adverse party and vice-versa.
through the latter's duly authorized broker, the Overseas Steamship Co., Inc.,
represented by Matthews, Wrightson Burbridge Ltd., for the Charter of the "SS PAXOI". Geo W. Daywalt v. La Corporacion De Los Padres Agustinos Recoletos et al.
It is also alleged in both the Complaint and the Amended Complaint that the Interocean G.R. No. 13505 February 4, 1919 Ostrand, J.
Shipping Company sublet the said vessel to respondent Union Import and Export
Corporation which in turn sublet the same to respondent Philin Traders Corporation.
DOCTRINE: Whatever may be the character of the liability, if any, which a stranger
It is admitted by respondents that the charterer is the Interocean Shipping Company. to a contract may incur by advising or assisting one of the parties to evade
Even paragraph 3 of the complaint-in-intervention alleges that respondents were given performance, he cannot become more extensively liable in damages for the
the use of the vessel "pursuant to paragraph 20 of the Uniform Time Charter . . ." which nonperformance of the contract than the party in whose behalf he intermeddles.
precisely provides for the subletting of the vessel by the charterer. Furthermore, Article
652 of the Code of Commerce provides that the charter party shall contain, among NATURE OF ACTION: Appeal from a judgment of CFI of Manila
others, the name, surname, and domicile of the charterer, and if he states that he is
acting by commission, that of the person for whose account he makes the contract. It is FACTS: In 1902, Teodorica Endencia executed a contract whereby she obligated herself
obvious from the disclosure made in the charter party by the authorized broker, the to convey to Geo W. Daywalt a 452-hectare parcel of landfor P 4000. They agreed that
CIVIL LAW REVIEW 2
a deed should be executed as soon as Endencia’s title to the land was perfected in the C. S. Gilchrist v. E. A. Cuddy, et al., Jose Fernandez Espejo and Mariano
Court of Land Registration and a Torrens title issued in her name. When the Torrens Zaldarriaga
title was issued, Endencia found out that the property measured 1248 hectares instead G.R. No. L – 9356 February 18, 1915 Trent (En Banc)
of 452 hectares, as she initially believed. Because of this, she became reluctant to
transfer the whole tract to Daywalt, claiming that she never intended to sell so large an
amount and that she had been misinformed as to its area. Daywalt filed an action for DOCTRINE: Mere right to compete could not justify Espejo and Zaldarriaga in
specific performance. The SC ordered Endencia to convey the entire tract to Daywalt. intentionally inducing Cuddy to rent them the same film he rented to Gilchrist which
Meanwhile, La Corporacion de los Padres Agustinos Recoletos (Recoletos), was a takes away Gilchrist 's contractual rights. Such interference is a form of a tort, and
religious corporation, which owned an estate immediately adjacent to the property sold so the fact that they did not know Gilchrist’s identity as the person to whom they
by Endencia to Daywalt. It also happened that Fr. Sanz, the representative of the caused damage is immaterial
Recoletos, exerted some influence and ascendancy over Endencia, who was a woman of
little force and easily subject to the influence of other people. Fr. Sanz knew of the NATURE OF ACTION: Appeal
existence of the contracts with Daywalt and discouraged her from conveying the entire
tract. FACTS: Cuddy was the owner of the film “Zigomar” which he rented to Gilchrist, an
owner of a cinematograph theater in Iloilo, for a week for P125. However, few days
Daywalt filed an action for damages against the Recoletos on the ground that it before delivery to Gilchrist, Cuddy sent the money back saying that he had made other
unlawfully induced Endencia to refrain from the performance of her contract for the sale arrangements with his film. He arranged another rental to Espejo and his partner for
of the land in question and to withhold delivery of the Torrens title. Daywalt’s claim for P350 for the week. This prompted Gilchrist to file for injunction before the CFI
damages against the Recoletos was for the huge sum of P 500,000 [in the year 1919], Iloiloagainst from receiving and exhibiting in their theater the “Zigomar” until further
since he claims that because of the interference of the Recoletos, she failed to orders of the court. An ex parte mandatory injunction was issued directing Cuddy, to
consummate a contract with another person for the sale of the property and its send to Gilchrist the film and preventing Espejo and Zaldarriaga from exhibiting such
conversion into a sugar mill. film. Hence, Espejo and Zaldarriaga appealed.
ISSUE: Whether Recoletos is liable to Daywalt? For their part, Espejo and Zaldarriaga alleged that they do not know that they were
inducing Cuddy to violate his contract with Gilchrist when they induced him to accept
RULING: No, it is not liable. the P350. Espejo admitted that he knew that Cuddy was the owner of the film. He
received a letter from his agents assuring him that he could not get the film for about six
The stranger who interferes in a contract between other parties cannot become more weeks. Moreover, they allege that there was no valid and binding contract between
extensively liable in damages for the non- performance of the contract than the party in Cuddy and Gilchrist and, therefore, they had a right to compete with Gilchrist for the
whose behalf he intermediates. Hence, in order to determine the liability of the lease of the film, the right to compete being a justification for their acts.
Recoletos, there is first a need to consider the liability of Endencia to Daywalt. The
damages claimed by Daywalt from Endencia cannot be recovered from her, first, The CFI held that Espejo and Zaldarriaga must necessarily have known at the time they
because these are special damages w/c were not w/in the contemplation of the parties made their offer to Cuddy, the latter had booked or contracted the film for six weeks.
when the contract was made, and secondly, these damages are too remote to be the Therefore, they knowingly induced Cuddy to violate his contract with another person.
subject of recovery. Since Endencia is not liable for damages to Daywalt, neither can However, there is no specific finding that they knew the identity of Gilchrist as the other
the Recoletos be held liable. As already suggested, by advising Endencia not to perform party.
the contract, the Recoletos could in no event render itself more extensively liable than
the principal in the contract. ISSUE: Can Espejo and Zaldarriaga be held liable for interfering with the contract
between Gilchrist and Cuddy, without knowing at the time the identity of
Gilchrist as one of the contracting parties?
CIVIL LAW REVIEW 2
RULING: Yes, the mere right to compete could not justify Espejo and Zaldarriaga in
intentionally inducing Cuddy to take away the Gilchrist 's contractual rights. NATURE OF ACTION: This is an appeal by Luzon Surety Co., Inc., from an order of
the Court of First Instance of Rizal, dismissing its claim against the Estate of K. H.
Chief Justice Wells in Walker vs. Cronin held that "Everyone has a right to enjoy the Hemady (Special proceeding No. Q-293) for failure to state a cause of action.
fruits and advantages of his own enterprise, industry, skill and credit. He has no right to
be free from malicious and wanton interference, disturbance or annoyance. If FACTS: The Luzon Surety Co. had filed a claim against the Estate based on twenty
disturbance or loss come as a result of competition, or the exercise of like rights by different indemnity agreements, or counter bonds, each subscribed by a distinct principal
others, it is damnum absque injuria, unless some superior right by contract or otherwise and by the deceased K. H. Hemady, a surety solidary guarantor in all of them, in
is interfered with. It is said that the ground on which the liability of a third party for consideration of the Luzon Surety Co.'s of having guaranteed, the various principals in
interfering with a contract between others rests, is that the interference was malicious. favor of different creditors. The Luzon Surety Co., prayed for allowance of the value of
Herein, the only motive for the interference was a desire to make a profit by exhibiting the twenty bonds it had executed in consideration of the counterbonds, and further asked
the film in their theater. There was no malice beyond this desire; but this fact does not for judgment for the unpaid premiums and documentary stamps affixed to the bonds,
relieve them of the legal liability for interfering with that contract and causing its breach. with 12 percent interest thereon. The lower court dismissed the claims of Luzon Surety
It is, therefore, clear that they were liable to Gilchrist for the damages caused by their Co., on the ground that "whatever losses may occur after Hemady's death, are not
acts, unless they are relieved from such liability by reason of the fact that they did not chargeable to his estate, because upon his death he ceased to be guarantor."
know at the time the identity of the original lessee (Gilchrist) of the film.
ISSUE: Whether or not Hemady’s obligation under the contracts of suretyship is strictly
The liability of the appellants arises from unlawful acts and not from contractual personal and intransmissible.
obligations, as they were under no such obligations to induce Cuddy to violate his
contract with Gilchrist. Article 1902 of Civil Code (now Art 2176 NCC on Quasi RULING: NO, Hemady’s obligation under the contracts of suretyship is not strictly
Delicts) provides that a person who, by act or omission, causes damages to another personal and intransmissible. Under the present Civil Code (Article 1311), the rule is
when there is fault or negligence, shall be obliged to repair the damage do done. There that: "Contracts take effect only as between the parties, their assigns and heirs, except
is nothing in Art. 1902 which requires that a tort-feasor must know the identity of a in the case where the rights and obligations arising from the contract are not
person to whom he causes damages as a condition precedent to any liability. In fact, the transmissible by their nature, or by stipulation or by provision of law."
chapter wherein this article is found clearly shows that no such knowledge is required
in order that the injured party may recover for the damage suffered. However, the fact Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety
that the appellants' interference with the Gilchrist contract was actionable did not of or guarantor does not warrant the conclusion that his peculiar individual qualities are
itself entitle Gilchrist to sue out an injunction against them. contemplated as a principal inducement for the contract. What did the creditor Luzon
Surety Co. expect of K. H. Hemady when it accepted the latter as surety in the
Estate of K.H. Hemady v. Luzon Surety counterbonds? Nothing but the reimbursement of the moneys that the Luzon Surety Co.
G.R. No. L – 8437 November 28 1956 Reyes, JBL., J. might have to disburse on account of the obligations of the principal debtors. To the
Luzon Surety Co., it was indifferent that the reimbursement should be made by Hemady
himself or by someone else in his behalf, so long as the money was paid to it.
DOCTRINE: Contracts take effect only as between the parties, their assigns and
heirs, except in the case where the rights and obligations arising from the contract The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the
are not transmissible by their nature, or by stipulation or by provision of law. The parties. Being exceptional and contrary to the general rule, this intransmissibility should
contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not be easily implied, but must be expressly established, or at the very least, clearly
not being rendered intransmissible due to the nature of the undertaking, nor by the inferable from the provisions of the contract itself. Because under the law (Article 1311),
stipulations of the contracts themselves, nor by provision of law, his eventual liability a person who enters into a contract is deemed to have contracted for himself and hid
thereunder necessarily passed upon his death to his heirs. heirs and assigns, it is unnecessary for him to expressly stipulate to that effect; hence,
CIVIL LAW REVIEW 2
his failure to do so, is no sign that he intended his bargain to terminate upon his death.
Similarly, that the Luzon Surety Co,. did not require bondsman Hemady to execute a NATURE OF ACTION: Petition for certiorari
mortgage indicates nothing more than the company's faith and confidence in the
financial stability of the surety, but not that his obligation was strictly personal. FACTS: In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok,
entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects
The third exception to the transmissibility of obligations under Article 1311 exists when of four (4) lease contracts were premises located at Nos. 930, 930-Int., 924-B and 924-
they are "not transmissible by operation of law". The provision makes reference to those C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles.
cases where the law expresses that the rights or obligations are extinguished by death,
as is the case in legal support (Article 300), parental authority (Article 327), usufruct When the contracts expired, the parties did not renew the contracts, but Tek Hua
(Article 603), contracts for a piece of work (Article 1726), partnership (Article 1830 and continued to occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later,
agency (Article 1919). By contract, the articles of the Civil Code that regulate guaranty the original members of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek
or suretyship (Articles 2047 to 2084) contain no provision that the guaranty is Hua Enterprising Corp., herein respondent corporation.
extinguished upon the death of the guarantor or the surety.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's
The lower court sought to infer such a limitation from Art. 2056, to the effect that "one grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business,
who is obliged to furnish a guarantor must present a person who possesses integrity, Trendsetter Marketing.
capacity to bind himself, and sufficient property to answer for the obligation, which he
guarantees. It will be noted, however, that the law requires these qualities to be present On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises,
only at the time of the perfection of the contract of guaranty. It is self-evident that once informing the latter the rent. DCCSI warned that failure of the lessee to accomplish the
the contract has become perfected and binding, the supervening incapacity of the contracts shall be deemed as lack of interest on the lessee's part, and agreement to the
guarantor would not operate to exonerate him of the eventual liability he has contracted; termination of the lease. Private respondents did not answer any of these letters. Still,
and if that be true of his capacity to bind himself, it should also be true of his integrity, the lease contracts were not rescinded.
which is a quality mentioned in the article alongside the capacity. Hence Article. 2057
of the present Civil Code is incompatible with the trial court's stand that the requirement On March 1, 1991, private respondent Tiong sent a letter to petitioner asking the latter
of integrity in the guarantor or surety makes the latter's undertaking strictly personal, so to vacate the property. Petitioner refused to vacate. Instead, he requested formal
linked to his individuality that the guaranty automatically terminates upon his death. contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that
after the death of his grandfather, So Pek Giok, he had been occupying the premises for
Our conclusion is that the solidary guarantor's liability is not extinguished by his death, his textile business and religiously paid rent. DCCSI acceded to petitioner's request. The
and that in such event, the Luzon Surety Co., had the right to file against the estate a lease contracts in favor of Trendsetter were executed.
contingent claim for reimbursement.
In the suit for injunction, private respondents pressed for the nullification of the lease
So Ping Bun v. CA contracts between DCCSI and petitioner.
G.R. No. 120554 September 21, 1999 Quisumbing, J.
ISSUE: Whether or not So Ping Bun is guilty of tortuous conduct, particulary unlawful
interference with contract when he entered into a Lease Agreement with
DOCTRINE: A duty which the law of torts is concerned with is respect for the DCCSI
property of others, and a cause of action ex delicto may be predicated upon an
unlawful interference by one person of the enjoyment by the other of his private RULING: Yes. Damage is the loss, hurt, or harm which results from injury, and
property. This may pertain to a situation where a third person induces a party to damages are the recompense or compensation awarded for the damage suffered. One
renege on or violate his undertaking under a contract. becomes liable in an action for damages for a nontrespassory invasion of another's
CIVIL LAW REVIEW 2
interest in the private use and enjoyment of asset if (a) the other has property rights and from being thrown out of the exit, but because the step board was wet, her left foot
privileges with respect to the use or enjoyment interfered with, (b) the invasion is slipped and got crushed between the step board and a coconut tree which the jeepney
substantial, (c) the defendant's conduct is a legal cause of the invasion, and (d) the bumped. Colipano's leg was badly injured and was eventually amputated. Colipano
invasion is either intentional and unreasonable or unintentional and actionable under prayed for actual damages, loss of income, moral damages, exemplary damages, and
general negligence rules. attorney's fees.
The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on In their answer, Sanico and Castro admitted that Colipano's leg was crushed and
the part of the third person of the existence of contract; and (3) interference of the third amputated but claimed that it was Colipano's fault that her leg was crushed. They
person is without legal justification or excuse. admitted that the jeepney slid backwards because the jeepney lost power. The conductor
then instructed everyone not to panic but Colipano tried to disembark and her foot got
A duty which the law of torts is concerned with is respect for the property of others, and caught in between the step board and the coconut tree.
a cause of action ex delicto may be predicated upon an unlawful interference by one
person of the enjoyment by the other of his private property. This may pertain to a After trial, the RTC found that Sanico and Castro breached the contract of carriage.
situation where a third person induces a party to renege on or violate his undertaking Sanico and Castro appealed to the CA, which affirmed with modification (reduced
under a contract. compensatory damages from 360,000 to 200,000) the RTC Decision..
In the case before us, petitioner's Trendsetter Marketing asked DCCSI to execute lease Sanico and Castro without moving for reconsideration filed this petition before the Court
contracts in its favor, and as a result petitioner deprived respondent corporation of the assailing the CA Decision.
latter's property right. Clearly, and as correctly viewed by the appellate court, the three
elements of tort interference above-mentioned are present in the instant case. ISSUE: Whether or not both Sanico and Castro are jointly and severally liable to
Colipano?
Sanico and Castro v. Colipano
G.R. No. 209969 September 7, 2017 Caguioa, J. RULING: No. Only Sanico breached the contract of carriage. Since the cause of action
is based on a breach of a contract of carriage, the liability of Sanico is direct as the
contract is between him and Colipano. Castro, being merely the driver of Sanico's
DOCTRINE: A complaint for breach of a contract of carriage is dismissible as jeepney, cannot be made liable as he is not a party to the contract of carriage.
against the employee who was driving the bus because the parties to the contract of
carriage are only the passenger, the bus owner, and the operator. In Soberano v. Manila Railroad Co., the Court ruled that a complaint for breach of a
contract of carriage is dismissible as against the employee who was driving the bus
NATURE OF ACTION: Petition for Review on Certiorari1 under Rule 45 of the Rules because the parties to the contract of carriage are only the passenger, the bus owner, and
of Court the operator. Since Castro was not a party to the contract of carriage, Colipano had no
cause of action against him and the complaint against him should be dismissed.
FACTS: Colipano filed a complaint on January 7, 1997 for breach of contract of
carriage and damages against Sanico and Castro. In her complaint, Colipano claimed Furthermore, specific to a contract of carriage, the Civil Code requires common carriers
that on Christmas Day, she and her daughter were paying passengers in the jeepney to observe extraordinary diligence in safely transporting their passengers. Being an
operated by Sanico, which was driven by Castro. Colipano claimed she was made to sit operator and owner of a common carrier, Sanico was required to observe extraordinary
on an empty beer case at the edge of the rear entrance/exit of the jeepney with her diligence in safely transporting Colipano. When Colipano's leg was injured while she
sleeping child on her lap. And, at an uphill incline in the road to Natimao-an, Carmen, was a passenger in Sanico's jeepney, the presumption of fault or negligence on Sanico's
Cebu, the jeepney slid backwards because it did not have the power to reach the top. part arose and he had the burden to prove that he exercised the extraordinary diligence
Colipano pushed both her feet against the step board to prevent herself and her child required of him. He failed to do
CIVIL LAW REVIEW 2
9. According to Subject Matter

Evidence indubitably established Sanico's negligence when Castro made Colipano sit a. Thing
on an empty beer case at the edge of the rear entrance/exit of the jeepney with her b. Right
sleeping child on her lap, which put her and her child in greater peril than the other c. Service
passengers. D. Stages of Contracts
C. Classification of Contracts 1. Negotiation
Contract of Option
1. According to degree of dependence
a. Preparatory
b. Principal Sanchez v. Rigos
c. Accessory G.R. No. 25494 June 14, 1971 Concepcion, C.J.
2. According to Perfection
a. Consensual DOCTRINE: Under the Civil Code, there is no valid contract without a cause or
b. Real consideration, the promisor is not bound by his promise and may withdraw it.
c. Formal However, pending the notice of its withdrawal, his accepted promise is in the nature
of an offer to sell which if accepted results in a perfected contract of sale. In this case,
3. According to Solemnity or Form the contract between parties became a perfected contract of sale upon acceptance of
a. Any form Rigos of the offer within the stipulated period even though he was only initially
b. Special form
granted an option to buy.
4. According to Purpose
a. Transfer of Ownership NATURE OF ACTION: Appeal from a decision of the Court of First Instance of
b. Conveyance of Use Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground
c. Rendition of Service that it involves a question purely of law.
5. According to Nature of Obligation Produced FACTS: Nicolas Sanchez and Severina Rigos executed an instrument entitled "Option
a. Bilateral to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
b. Unilateral
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot,
6. According to Cause municipality of San Jose, province of Nueva Ecija within 2 years from the date of the
a. Onerous instrument with the understanding that the said option shall be deemed terminated and
b. Gratuitous elapsed if Mr. Sanchez shall fail to exercise his right to buy the property within the
c. Remuneratory stipulated period.
7. According to Risk Several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period,
a. Commutative were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with
b. Aleatory the Court of First Instance of Nueva Ecija.
8. According to Name
a. Nominate Rigos answered their contract "is a unilateral promise to sell, and the same being
b. Innominate unsupported by any valuable consideration, by force of the New Civil Code, is null and
void".
CIVIL LAW REVIEW 2
It is not disputed that the option is without consideration. It can therefore be withdrawn
The trial court ruled in favor of Sanchez. This case admittedly hinges on the proper notwithstanding the acceptance of it by appellee.
application of Article 1479 of our Civil Code, which provides: "ART. 1479. A promise
to buy and sell a determinate thing for a price certain is reciprocally demandable. "An In other words, since there may be no valid contract without a cause or consideration,
accepted unilateral promise to buy or to sell a determinate thing for a price is binding the promisor is not bound by his promise and may, accordingly, withdraw it. Pending
upon the promissor if the promise is supported by a consideration distinct from the notice of its withdrawal, his accepted promise partakes, however, of the nature of an
price." offer to sell which, if accepted, results in a perfected contract of sale.
ISSUE: Was there a contract to buy and sell between the parties or only a unilateral This view has the advantage of avoiding a conflict between Articles 1324 - on the
promise to sell? general principles on contracts - and 1479 - on sales - of the Civil Code, in line with the
cardinal rule of statutory construction that, in construing different provisions of one and
RULING: The Supreme Court affirmed the lower court’s decision. The instrument the same law or code, such interpretation should be favored as will reconcile or
executed in 1961 is not a "contract to buy and sell," but merely granted the plaintiff an harmonize said provisions and avoid a conflict between the same. Indeed, the
"option" to buy, as indicated by its own title "Option to Purchase." The option did not presumption is that, in the process of drafting the Code, its author has maintained a
impose upon plaintiff Sanchez the obligation to purchase defendant Rigos' property. consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Rigos "agreed, promised and committed" herself to sell the land to Sanchez for Molasses Co. v. Atlantic Gulf & Pacific Co., holding that Art. 1324 is modified by Art.
P1,510.00, but there is nothing in the contract to indicate that her aforementioned 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
agreement, promise and undertaking is supported by a consideration "distinct from the exceptions are not favored, unless the intention to the contrary is clear, and it is not so,
price" stipulated for the sale of the land. The lower court relied upon Article 1354 of the insofar as said two (2) articles are concerned. What is more, the reference, in both the
Civil Code when it presumed the existence of said consideration, but the said Article second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or
only applies to contracts in general. founded upon a consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.
However, it is not Article 1354 but the Article 1479 of the same Code which is
controlling in the case at bar because the latter’s 2nd paragraph refers to "sales" in 2. Perfection
particular, and, more specifically, to "an accepted unilateral promise to buy or to sell."
Since there may be no valid contract without a cause or consideration, the promisor is Tong Brothers Co. v. IAC
not bound by his promise and may, accordingly, withdraw it. Pending notice of its G.R. No. 73918 December 21, 1987 Gutierrez, Jr., J.
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale. Upon mature deliberation, the
DOCTRINE: The cause of the contract has been defined as “the essential reason
Court reiterates the doctrine laid down in the Atkins case and deemed abandoned or
which moves the contracting parties to enter into it” in other words, the cause is the
modified the view adhered to in the Southwestern Company case.
immediate, direct and proximate reason which justifies the creation of an obligation
thru the will of the contracting parties.
There is no question that under article 1479 of the new Civil Code "an option to sell,"
or "a promise to buy or to sell," as used in said article, to be valid must be "supported
by a consideration distinct from the price." This is clearly inferred from the context of NATURE OF ACTION: Petition for review on certiorari the decision and order of the
said article that a unilateral promise to buy or to sell, even if accepted, is only binding if then IAC, now CA awarding to the herein Private respondent damages.
supported by consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the option can FACTS: Tong Brothers (Herein referred to as “Petitioner”) is a registered general
still be withdrawn, even if accepted, if the same is not supported by any consideration. partnership engaged in the construction and repair of vessels with drydocking facilities.
While Julian and Company (Hereinafter referred to as “Respondent”) is a domestic
CIVIL LAW REVIEW 2
corporation engaged in the coastwise shipping industry operating for that purpose the Lower court ruled in favor of Private Respondents. Appellate court adopted the findings
vessel “M/S Zamboanga-J”(Hereinafter referred to as “Vessel”) and conclusions of the lower court and ruled that there was a perfected contract for the
repair on the vessel anchoring its decision on the previous transactions and business
Respondent allegedly contracted with the Petitioner the annual drydocking and repair of relationship between the parties. Initially the petition was denied in a resolution and
the vessel. Petitioner did not complete or execute all the work necessary resulting in its upon an MR SC set aside the resolution and gave due course to the Petition.
deterioration and total loss, Respondent filed a complaint against the Petitioner for
specific performance and damages with the CFI. Petitioner, on the other hand, denied ISSUE: Whether or not there was a perfected contract between the parties for the repair
that there was a perfected contract to repair the vessel between the two parties. of the vessel and consequently making Petitioner liable for its violation thereof.
Version of Respondent: The relationship of the parties started in 1960’s, the procedure RULING: No, there was no perfected contract of sale between the parties.
was for the vessels of Respondent to be drydocked and repaired and after each job, a
statement of account would be sent to the Respondent, which remitted payments to the The applicable laws on work done upon a vessel are the general rules on contract. A
Petitioner in varying amounts. Because the business relationship between the parties contract may be entered into in whatever form except where the law requires a document
herein had continued for over 10 years, the Respondent enjoyed credit facilities from or other special form as in the contracts enumerated in Article 1388 of the Civil Code.
Petitioner and the Petitioner performed repair work on the Respondent’s vessels without The general rule, therefore, is that a contract may be oral or written. The fact that the
need of a formal written contract. On the strength if this relationship, Respondent parties previous contracts for the repair of the Respondent’s vessels were in oral and that
brought the vessel to the Petitioner’s dockyard. Petitioner asked for a deposit of the procedure consisted merely in the vessels being drydocked at the Petitioner’s
Php15,000.00 but even without having received this amount that it had requested, the shipyard and after repair the Petitioner would just send the bill to the Respondent, does
Petitioner drydocked the vessel. When the amount was received, Petitioner issued two not necessarily result in the conclusive presumption that all subsequent contracts
(2) receipts. With this payment, Petitioner commenced work on the vessel. For some between the parties of similar or allied nature should also be oral and the procedure be
excuse or other, the Petitioner did not continue the job on the vessel. Instead, it undocked the same. The cause of the contract has been defined as “the essential reason which
the vessel and left it exposed to the elements where it remained until it became a total moves the contracting parties to enter into it” in other words, the cause is the immediate,
loss. direct and proximate reason which justifies the creation of an obligation thru the will of
the contracting parties. For the Respondents, the cause of the contract was the repair of
Version of the Petitioner: The business name is VARADERO DE RECODO, it used its vessel while for the Petitioner the cause would be its commitment to repair the vessel
to repair the vessels owned by Respondents. The vessel was drydocked after Respondent and make it seaworthy. The telegrams sent by the Petitioner to the Respondent, however,
paid the Php15,000.00 representing partial payment of its old accounts. With the written indicate that the former had not accepted the repair of the vessel, the reason being that
application filed by Respondent with the Coast Guard or Zamboanga City, inspector the extent of the repair to be made necessitated a major expense so that the petitioner
Casimero inspected the vessel. Canto as Respondent’s representative admittedly did not insisted on the presence of the respondent for evaluation before it accepted the repair of
have any authority to enter into an agreement with Petitioner. Due to the extensive repair the wooden vessel. Petitioner had not yet consented to the contract is evidence when its
to be done on the vessel, Petitioner prepared a written contract for the signature of telegram stated “NO AGREEMENT AS TO THE EXTENT OF REPAIRS AND
Respondent’s authorized representative. In the said contract, Respondent was to have PAYMENT WILL UNDOCK THE VESSEL” The fact that the Respondent who
deposited with Petitioner the amount of Php50,000.00. Mr. Canto was repeatedly received this telegram ignored it, confirms that there was no perfected contract to repair
informed on several occasions by the Petitioner to get in touch with his employer for the the vessel. It is to be noted that despite its knowledge of the vessel having been undocked
purpose of sending an authorized representative to see the extent of the deterioration on the private respondent took no action to save its vessel and the vessel was left to rot and
the vessel and to sign the written contract prepared by Petitioner. No authorized decay in the sea of Zamboanga. It was only after the lapse of six (6) months that the
representative of Respondent came to Zamboanga and no JOB ORDER from the Coast respondent tried to recover the value of its vessel from the petitioner. The proximate
Guard was likewise secured, it being its duty to do so. cause of the total loss of the vessel was the negligence of the respondent. Breach of
contract by the appellant could not have been the proximate cause as there was no
CIVIL LAW REVIEW 2
perfected contract between the parties to repair the vessel. Hence, the respondent is not in-law (plaintiff). Socorro failed to complete the down payment and neither has she paid
entitled to recover damages against the Respondent. any installments on the balance up to the present time. It was only on January 8, 1964
that Socorro tendered payment of Php 20,000, which offer the defendant refused to
Velasco v. CA accept because it had considered the offer to sell rescinded on account of her failure to
G.R. No. L – 31018 June 29, 1973 Castro, J. complete the down payment on or before December 31, 1962.
Lorenzo Velasco testifies that Socorro Velasco is his sister-in-law and that he had
DOCTRINE: A definite agreement on the manner of payment of the purchase price requested her to make the necessary contacts with defendant referring to the purchase of
is an essential element in the formation of a binding and unforceable contract of sale. the property in question. Because he does not understand English well, he had authorized
her to negotiate with the defendant in her whenever she went to the office of the
NATURE OF ACTION: Petition for certiorari and mandamus against the resolution defendant. Moreover, the receipt for the Php 10,000 down payment was issued in his
of the CA which ordered the dismissal of the appeal interposed by the petitioners from favor. The plaintiff also claims that the contract that was perfected. To prove that the
a decision of the CFI of QC on the ground that they had failed seasonably to file their Magdalena Estate, Inc. had been dealing all along with him and not with his sister-in-
printed record on appeal law and that the former knew very well that he was the person interested in the lot in
question, the plaintiff offers in evidence 5checks all drawn by him in favor of Magdalena
FACTS: This is a suit for specific performance filed by Lorenzo Velasco (plaintiff) Estate, Inc. for payment of the lease of the property.
against the Magdalena Estate, Inc. (defendant) on the allegation that the parties had
entered into a contract of sale by virtue of which the defendant offered to sell the plaintiff It is undisputed that the Velasco family was leasing the property from the Magdalena
and the latter in turn agreed to buy a parcel of land with an area of 2,059 sq.m located at Estate, Inc. since December 29, 1961. The Family sometime in 1962 offered to purchase
No. 39 corner 6th Street and Pacific Avenue in New Manila for the total purchase price the lot as a result of which Lorenzo thru Socorro made the Php 10,00 deposit or, in the
of Php 100,000. language of the defendant 'earnest money or down payment.' The only matter that
remains to be decided is whether the talks between the Magdalena Estate, Inc. and
The plaintiff alleges that the agreement was that the plaintiff was to give a down payment Lorenzo either directly or thru his sister-in-law Socorro ever ripened into a
of Php 10,000 to be followed by Php 20,000 and the balance of Php 70,000 would be consummated sale. It is the position of the defendant (1) that the sale was never
paid in installments, the equal monthly amortization of which was to be determined as consummated and (2) that the contract is unenforceable under the Statute of Frauds.
soon as the down payment had been completed. It is further alleged that the plaintiff
paid a down payment of Php 10,000. But when he tendered to the defendant the payment The RTC agreed with the defendant’s contention that no contract of sale was perfected
of the additional Php 20,000 to complete the down payment, the defendant refused to because the minds of the parties did not meet "in regard to the manner of payment."
accept and that eventually it likewise refused to execute a formal deed of sale obviously
agreed upon. On the other hand, the defendant denies that it has had any contractual ISSUE: Whether or not the talks between the Magdalena Estate, Inc. and Lorenzo ever
relations with the plaintiff regarding the property in question. It contends that the alleged ripened into a consummated sale (NO)
contract is entirely unenforceable under the Statute of Frauds. It claimed that a portion
of the property in question was being leased by Socorro Velasco who went to the office RULING: The material averments contained in the petitioners' complaint themselves
of the defendant indicated her desire to purchase the lot. The defendant agreed to sell disclose a lack of complete "agreement in regard to the manner of payment" of the lot
the property under the condition that a down payment of Php 30,000 be made, Php in question. The complaint states pertinently that the parties agreed that the total down
20,000.00 of which was to be paid on November 31, 1962, and that the balance of Php payment shall by Php 30,000, including the Php 10,000 partial payment, and that upon
70,000.00 including interest a 9% per annum was to be paid on installments for a period completion of the said down payment of Php 30,000, the balance of Php 70,000 shall be
of 10 years. On November 29, Socorro Velasco offered to pay Php 10,000 as initial paid by the plaintiff to the defendant in 10 years from November 29, 1962. The the time
payment instead but because the amount was short, the same was accepted merely as within the full down payment of the Php 30,000 was to be completed was not specified
deposited and upon request of Socorro the receipt was made in the name of her brother- by the parties but the defendant was duly compensated during the said time prior to
CIVIL LAW REVIEW 2
completion of the down payment of Php 30,000 by way of lease rentals on the house FACTS: Adela owned three (3) adjoining parcels of land in Scout Ojeda Street,
existing thereon which was earlier leased by defendant to the plaintiff's sister-in-law, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-B (the "Properties"). Among
Socorro, and which were duly paid to the defendant by checks drawn by plaintiff. the improvements on the Properties was Adela's house (also referred to as the "big
house"). During her lifetime, Adela allowed her children, namely, Annie Shotwell
The petitioners themselves admit that they and the respondent still had to meet and agree Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell and Corazon S.
on how and when the down-payment and the installment payments were to be paid. Such Basset, and her grandchildren, the use and possession of the Properties and its
being the situation, it cannot, therefore, be said that a definite and firm sales agreement improvements.
between the parties had been perfected over the lot in question. A definite agreement on
the manner of payment of the purchase price is an essential element in the formation of Sometime in 1985 and 1987, Adela simulated the transfer of Lots 32 and Lot 34 to her
a binding and unforceable contract of sale. The fact, therefore, that the petitioners two grandsons (Carlos Jr and Dennis Shotwell), who are children of Carlos Sr.
delivered to the respondent the sum of Php 10,000 as part of the downpayment that they
had to pay CANNOT be considered as sufficient proof of the perfection of any purchase On April 18, 1989, prior to Adela and petitioner’s departure for the United States, Adela
and sale agreement between the parties herein under Article 1482 of the New Civil Code, requested Carlos Jr. and Dennis to execute a deed of reconveyance over Lots 32 and 34
as the petitioners themselves admit that some essential matter — the terms of payment which were in fact executed and registered with the Register of Deeds.
— still had to be mutually covenanted.
Instant petitione is denied. On April 25, 1989, Adela executed a deed of absolute sale over Lots 32 and 34, and
their improvements, in favor of petitioner, which is her cousin, bearing on its face the
3. Performance price of ¬250,000.00. On the same day, Adela also executed a special power of attorney
4. Consummation (SPA) in favor of petitioner. Petitioner’s authority under the SPA included the power to
administer, take charge and manage, for Adela’s benefit, the Properties and all her other
E. Essential Elements of Contracts
real and personal properties in the Philippines.
1. Consent of Contracting Parties
Cognition Theory When the petitioner returned to the Philippines, she registered the sale over Lots 32 and
Manifestation Theory 34. Soon thereafter Adela died in the US and was succeeded by her children. Petitioner
2. Object certain which is the subject matter of the contract sought to eject Annie and Carlos Sr. in the property in dispute who thereafter filed a
3. Cause of the Obligation complaint for reconveyance. They alleged that Adela only wanted to help petitioner
4. Delivery
5. Due observance of prescribed formalities travel to the United States, by making it appear that petitioner has ownership of the
Properties. They further alleged that similar to the previous simulated transfers to Carlos
Jr. and Dennis, petitioner also undertook and warranted to execute a deed of
Clemente v. CA, Jalandoon reconveyance in favor of the deceased over the Properties, if and when Adela should
G.R. No. 175483 October 14, 2015 Jardeleza, J. demand the same.
DOCTRINE: Simulation takes place when the parties do not really want the contract The trial court promulgated a decision in favor of private respondents. On appeal, the
they have executed to produce the legal effects expressed by its wordings. CA affirmed with modification the Decision. The CA ruled that the Deeds of Absolute
Sale were simulated. It also ruled that the conveyances of the Properties to petitioner
NATURE OF ACTION: Petition for Review on Certiorari1 under Rule 45 of the were made without consideration and with no intention to have legal effect.
Revised Rules of Court filed by Valentina S. Clemente from the Decision and the
Resolution of the Court of Appeals (CA) Eighth Division ISSUE: Whether or not there is a perfected contract of sale between Adela and the
petitioner.
CIVIL LAW REVIEW 2
RULING: The court ruled in the negative.The Deeds of Absolute Sale between of the parties. As a result, an absolutely simulated or fictitious contract is
petitioner and the late Adela Shotwell are null and void for lack of consent and void, and the parties may recover from each other what they may have given
consideration. under the contract...
While the Deeds of Absolute Sale appear to be valid on their face, the courts are not In short, in absolute simulation there appears to be a valid contract but there is actually
completely precluded to consider evidence aliunde in determining the real intent of the none because the element of consent is lacking. This is so because the parties do not
parties. This is especially true when the validity of the contracts was put in issue by one actually intend to be bound by the terms of the contract.
of the parties in his pleadings. Here, private respondents assail the validity of the Deeds
of Absolute Sale by alleging that they were simulated and lacked consideration. In determining the true nature of a contract, the primary test is the intention of the parties.
If the words of a contract appear to contravene the evident intention of the parties, the
A. Simulated contract latter shall prevail. Such intention is determined not only from the express terms of their
The Civil Code defines a contract as a meeting of minds between two persons whereby agreement, but also from the contemporaneous and subsequent acts of the parties. This
one binds himself, with respect to the other, to give something or to render some service. is especially true in a claim of absolute simulation where a colorable contract is
executed.
Article 1318 provides that there is no contract unless the following requisites concur:
1. Consent of the contracting parties; In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts
2. Object certain which is the subject matter of the contract; and considered the totality of the prior, contemporaneous and subsequent acts of the parties.
3. Cause of the obligation which is established. The following circumstances led the RTC and the CA to conclude that the Deeds of
Absolute Sale are simulated, and that the transfers were never intended to affect the
All these elements must be present to constitute a valid contract; the absence of one juridical relation of the parties:
renders the contract void. As one of the essential elements, consent when wanting makes a. There was no indication that Adela intended to alienate her properties in
the contract non-existent. Consent is manifested by the meeting of the offer and the favor of the petitioner. In fact, the letter of Adela to Dennis dated April 18,
acceptance of the thing and the cause, which are to constitute the contract. A contract of 1989 reveals that she has reserved the ownership of the Properties in favor
sale is perfected at the moment there is a meeting of the minds upon the thing that is the of Dennis.
object of the contract, and upon the price. b. Adela continued exercising acts of dominion and control over the properties,
even after the execution of the Deeds of Absolute Sale, and though she lived
Here, there was no valid contract of sale between petitioner and Adela because their abroad for a time. In Adela’s letter dated August 25, 198952 to a certain
consent was absent. The contract of sale was a mere simulation. Candy, she advised the latter to stay in the big house. Also, in petitioner’s
letter to her cousin Dennis dated July 3, 1989,53 she admitted that Adela
Simulation takes place when the parties do not really want the contract they have continued to be in charge of the Properties; that she has no "say" when it
executed to produce the legal effects expressed by its wordings.46 Article 1345 of the comes to the Properties; that she does not intend to claim exclusive
Civil Code provides that the simulation of a contract may either be absolute or relative. ownership of Lot 35-B; and that she is aware that the ownership and control
The former takes place when the parties do not intend to be bound at all; the latter, when of the Properties are intended to be consolidated in Dennis.
the parties conceal their true agreement. The case of Heirs of Policronio M. Ureta, Sr. v. c. The SPA executed on the same day as the Deeds of Absolute Sale appointing
Heirs of Liberato M. Ureta47 is instructive on the matter of absolute simulation of petitioner as administratrix of Adela’s properties, including the Properties,
contracts, viz: is repugnant to petitioner’s claim that the ownership of the same had been
In absolute simulation, there is a colorable contract but it has no substance transferred to her.
as the parties have no intention to be bound by it. The main characteristic d. The previous sales of the Properties to Dennis and Carlos, Jr. were
of an absolute simulation is that the apparent contract is not really desired simulated. This history, coupled with Adela’s treatment of petitioner, and
or intended to produce legal effect or in any way alter the juridical situation
CIVIL LAW REVIEW 2
the surrounding circumstances of the sales, strongly show that Adela only Petitioner claims that Candy and the house referred to in the letter were not identified.
granted petitioner the same favor she had granted to Dennis and Carlos Jr. Records show, however, that petitioner has testified she has a cousin named Candy
Shotwell who stayed at the "big house" since February 1989.58
The April 18, 1989 letter to Dennis convincingly shows Adela’s intention to give him
the Properties. Part of the letter reads: "Dennis, the two lot [sic] 32-34 at your said lower Clearly, the submission of petitioner to the orders of Adela does not only show that the
house will be at name yours [sic] plus the 35 part of Cora or Teens [sic] house are all latter retained dominion over the Properties, but also that petitioner did not exercise acts
under your name."54 Petitioner claims this letter was not properly identified and is thus, of ownership over it. If at all, her actions only affirm the conclusion that she was merely
hearsay evidence. The records, however, show that the letter was admitted by the trial an administratrix of the Properties by virtue of the SPA.
court in its Order dated February 24, 1993.55 While it is true that the letter is dated prior
(or six days before to be exact) to the execution of the Deeds of Absolute Sale and is not On the SPA, petitioner claims the lower courts erred in holding that it is inconsistent
conclusive that Adela did not change her mind, we find that the language of the letter is with her claim of ownership. Petitioner claims that she has sufficiently explained that
more consistent with the other pieces of evidence that show Adela never intended to the SPA is not for the administration of the Properties, but for the reconstitution of their
relinquish ownership of the Properties to petitioner. In this regard, we see no compelling titles.
reason to depart from the findings of the trial court as there appears no grave abuse of
discretion in its admission and consideration of the letter. We agree with the lower courts that the execution of an SPA for the administration of
the Properties, on the same day the Deeds of Absolute Sale were executed, is antithetical
Petitioner’s letter to her cousin Dennis dated July 3, 1989 also sufficiently establishes to the relinquishment of ownership. The SPA shows that it is so worded as to leave no
that Adela retained control over the Properties, even after the execution of the Deeds of doubt that Adela is appointing petitioner as the administratrix of her properties in Scout
Absolute Sale. Petitioner herself admitted that she was only following the orders of Ojeda. Had the SPA been intended only to facilitate the processing of the reconstitution
Adela, and that she has no claim over the Properties. We quote in verbatim the relevant of the titles, there would have been no need to confer other powers of administration,
part of the letter: such as the collection of debts, filing of suit, etc., to petitioner.59 In any case, the
…Now, before I left going back here in Mla. Mommy Dela ask me to read explanation given by petitioner that the SPA was executed so as only to facilitate the
your letter about the big house and lot, and I explained it to her. Now reconstitution of the titles of the Properties is not inconsistent with the idea of her being
Mommy and Mommy Dela wants that the house is for everyone who will the administratrix of the Properties. On the other hand, the idea of assigning her as
need to stay, well that is what they say. Alam mo naman, I have no "say" administratrix is not only inconsistent, but also repugnant, to the intention of selling and
esp. when it comes with properties & you know that. Now kung ano gusto relinquishing ownership of the Properties.
nila that goes. Now, to be honest Mommy was surprise [sic] bakit daw
kailangan mawalan ng karapatan sa bahay eh Nanay daw nila iyon at tayo Pentacapital Investment Corp. v. Mahinay
apo lang, Eh wala akong masasabi dyan, to be truthful to you, I only get the G.R. No. 181482 July 5, 2010 Nachura, J.
orders… Tapos, sinisingil pa ako ng P1,000 – para sa gate na pinapagawa
nya sa lot 35-B, eh hindi na lang ako kumibo pero nagdamdam ako, imagine
minsan na lang sya nakagawa ng bien sa akin at wala sa intention ko na DOCTRINE: Under Article 1354 of the Civil Code, it is presumed that
suluhin ang 35-B, ganyan pa sya… Now tungkol sa iyo, alam ko meron ka consideration exists and is lawful unless the debtor proves the contrary. Moreover,
rin lupa tapos yung bahay na malaki ikaw rin ang titira at magmamahala under Section 3, Rule 131 of the Rules of court, the following are disputable
sa lahat. Anyway, itong bahay ko sa iyo rin, alam mo naman na I’m just presumptions: (1) private transactions have been fair and regular; (2) the ordinary
making the kids grow a little older then we have to home in the states… course of business has been followed; (3) there was sufficient consideration for a
contract. A presumption may operate against an adversary who has not introduced
Moreover, Adela’s letter to petitioner’s cousin Candy dated August 25, 1989 shows proof to rebut it. The effect of legal presumption upon burden of proof is to create
Adela’s retention of dominion over the Properties even after the sales. In the letter, Adela the necessity of presenting evidence to meet the legal presumption or the prima facie
even requested her granddaughter Candy to stay in the house rent and expense free.57
CIVIL LAW REVIEW 2
case created thereby, and which, if no proof to the contrary is presented and offered, have been fair and regular; (2) the ordinary course of business has been followed; (3)
will prevail. there was sufficient consideration for a contract. A presumption may operate against an
adversary who has not introduced proof to rebut it. The effect of legal presumption upon
NATURE OF ACTION: Complaint for sum of money burden of proof is to create the necessity of presenting evidence to meet the legal
presumption or the prima facie case created thereby, and which, if no proof to the
FACTS: Petitioner Pentacapital Investment Corporation filed a complaint for sum of contrary is presented and offered, will prevail.
money against respondent Makilito Mahinay based on two separate loans obtained by
the latter, amounting to P1,936,800.00. The presumption that a contract has sufficient consideration cannot be overthrown by
the bare, uncorroborated and self-serving assertion of respondent that it has no
These loans were evidenced by two promissory notes. Despite repeated demands, the consideration. The alleged lack of consideration must be shown by preponderance of
respondent failed to pay the loans. evidence.
Respondent denied the liability on the ground that his obligation was subject to a As it now appears, the promissory notes clearly stated that respondent promised to pay
condition that did not occur. He explained that the promissory notes were dependent petitioner P1,520,000.00 and P416,800.00, plus interests and penalty charges, a year
upon the happening of a remote event that the parties tried to anticipate at the time they after their execution. Nowhere in the notes was it stated that they were subject to a
transacted with each other, and the event did not happen. He further insisted that he did condition.
not receive the proceeds of the loan.
As correctly observed by the petitioner, the respondent is not only a lawyer but a law
Respondent denied liability on the ground that promissory notes lacked consideration as professor as well. He is, therefore, legally presumed not only to exercise vigilance over
he did not receive the proceeds of the loan. his concerns but, more importantly, to know the legal and binding effects of promissory
notes and the intricacies involving the execution of negotiable instruments including the
As proof of his claim of lack of consideration, respondent denied under oath that he need to execute an agreement to document extraneous collateral conditions and/or
owed petitioner a single centavo. He added that he did not apply for a loan and that when agreements, if truly there were such. This militates against the respondent's claim that
he signed the promissory notes, they were all blank forms and all the blank spaces were there was indeed such an agreement. Thus, the promissory notes should be accepted as
to be filled up only if the sale transaction over the subject properties would not push they appear on their face.
through because of a possible adverse decision in the civil cases involving them.
Ong Yiu v. CA
ISSUE: Whether or not respondent is bound by the promissory notes? G.R. No. L – 40597 June 29, 1979 Melencio – Herrera, J.
RULING: YES. DOCTRINE: The contract is also what is known as a contract of adhesion, wherein
one party imposes a ready-made form of contract on the other (such as the plane
Like any other contract, a contract of loan is subject to the rules governing the requisites ticket, in this case) and the other party is free to accept or adhere to all of the
and validity of contracts in general. It is elementary in this jurisdiction that what provisions of the contract or to reject it entirely. This kind of contract is not at all
determines the validity of a contract, in general, is the presence of the following prohibited, as it still provides the other party with the freedom to consent to its
elements: (1) consent of the contracting parties; (2) object certain which is subject matter provisions or to reject all entirely. In this sense, the contract still contains all of its
of the contact; and (3) cause of the obligation which is established. essential elements, especially consent of the contracting parties, because the freedom
to consent was not wrested away from the plaintiff.
Under Article 1354 of the Civil Code, it is presumed that consideration exists and is
lawful unless the debtor proves the contrary. Moreover, under Section 3, Rule 131 of
the Rules of court, the following are disputable presumptions: (1) private transactions
CIVIL LAW REVIEW 2
NATURE OF ACTION: Suit for a breach of contract of carriage, under essential missing, aside from two gift items for his parents-in-law. Petitioner refused to accept the
elements of contracts in the syllabus. luggage and had Dagorro return it to the porter clerk who sealed it and forwarded it to
PAL Cebu. Petitioner asked for a postponement of the hearing due to loss of the
FACTS: Petitioner was a fare-paying passenger of PAL on August 26, 1967, on board documents.
a flight from Mactan Cebu bound for Butuan City. He was scheduled to attend 2 trials
(a civil case and a special procedure case) at the CFI of Butuan City, set for hearing on Petitioner then filed a complaint against PAL for damages for breach of contract of
August 28-31. He checked in one piece of luggage, a blue “maleta” for which he was carriage with the CFI of Cebu. The CFI found PAL to have acted in bad faith and with
issued a claim check. The plane left Mactan, Cebu at about 1PM and arrived at Bancasi, malice, and it ruled in favor of petitioner. Both parties appealed to the CA but the court
Butuan City past 2PM the same day. Upon arrival, petitioner claimed his luggage but ruled that PAL was guilty of simple negligence only and deleted the award of damages.
the same could not be found. The CA directed PAL to pay PHP 100.00, the baggage liability assumed by it under the
condition of carriage printed at the back of the ticket.
According to petitioner, it wasn’t until he started acting indignantly to the loss that the
matter was attended to by the porter clerk, Maximo Gomez. At about 3PM, PAL Butuan ISSUES:
sent a message to PAL Cebu inquiring about the missing luggage, and such message 1. Whether or not the breach of contract of carriage was due to bad faith.
was relayed in full to the Mactan Airport teletype operator at 3:45PM that same day. At 2. Whether or not the contract of carriage is prohibited as it is a contract of
3:59PM, PAL Manila wired PAL Cebu and advised that the luggage in question had adhesion.
been over carried to Manila aboard Flight no. 156 and that it would be forwarded to
Cebu on Flight no. 345 of the same day. Instructions were also given for the luggage to RULINGS:
be immediately forwarded to Butuan City on the first available flight. At 5:00PM, PAL 1. There is no question as to the fact of PAL incurring in delay when it failed to
Cebu sent a message to PAL Butuan that the luggage would be forwarded on Flight no. deliver the luggage in time. But the Supreme Court found that PAL had not
963 the following day. acted in bad faith, which means a breach of a known duty through some motive
of interest or ill will. It was the duty of PAL to look for his luggage which had
Petitioner was, in the meantime, worried about the missing luggage because the maleta been miscarried. The SC agrees with the CA’s finding that the airline exerted
contained vital documents needed for his trial the next day. At 10PM that evening, diligent efforts to locate plaintiff’s baggage.
petitioner wired PAL Cebu and demanded the delivery of his luggage before noon the
next day, otherwise he would hold PAL liable for damages. This telegram was received 2. The Petitioner argues that there is nothing in the evidence to show that he had
by Cebu PAL supervisor but the supervisor did not act upon it, because he was under actually entered into a contract with PAL limiting the latter’s liability for loss
the assumption that by the time the message reached Butuan City, the luggage would or delay of the baggage of its passengers, and that ART. 1750 of the Civil Code
have already arrived by then. has not been complied with. While it is true that petitioner did not sign the plane
ticket, he is nevertheless bound by the provisions thereof. The provisions are
Early in the morning of the next day, petitioner went to the Bancasi airport to inquire part of the contract of carriage, valid and binding upon the passenger regardless
about his luggage. He did not wait for the morning flight which arrived at 10AM with of the latter’s lack of knowledge or assent to the regulation.
his luggage. The porter clerk, Maximo Gomez, paged him but he had already left. An
Emilio Dagorro, the driver of a “colorum” car who also used to drive for the petitioner, The contract is also what is known as a contract of adhesion, wherein one party imposes
volunteered to take the luggage to him. Maximo Gomez knew Dagoro as the driver so a ready-made form of contract on the other (such as the plane ticket, in this case) and
he entrusted the same maleta to Dagorro. Dagorro opened the maleta on the counter but the other party is free to accept or adhere to all of the provisions of the contract or to
did not touch its contents, the documents. He informed the porter clerk that the maleta reject it entirely. This kind of contract is not at all prohibited, as it still provides the other
had been opened, which explains why the lock does not work. Dagorro then delivered party with the freedom to consent to its provisions or to reject all entirely. In this sense,
the same to the petitioner, with the information that the lock was open. Upon inspection, the contract still contains all of its essential elements, especially consent of the
petitioner found that a folder containing exhibits, transcripts and private documents were
CIVIL LAW REVIEW 2
contracting parties, because the freedom to consent was not wrested away from the 5. That we shall receive a commission of Ten Percent (10%) of the total
plaintiff. cost, to be paid upon submission of statement of cost.
The instant petition is therefore DENIED and the judgment of the CA is affirmed in toto. Private respondent Cancio resisted the petitioner's claims for commission and for the
cost of "extra works" by producing Exhibit "5", a building contract providing for the
Weldon v. CA construction of the building in question for the stipulated price of P600,000.00 pesos
G.R. No. L – 35721 October 12, 1987 Cortes, J. which said private respondent had already paid to the petitioner's predecessor-in-
interest:
4. The Owner shall pay the Contractor the full amount of SIX HUNDRED
DOCTRINE: The agreement between the parties is the contract of construction for THOUSAND (P600,000.00) PESOS, Philippine Currency, which payment
a stipulated price contained in Exhibit "5" which is akin to a contract for a piece of the Owner shall pay in the basis of work accomplished based on the
work. Both parties having fully performed their reciprocal obligations in accordance breakdown attached herewith marked Annex "B" and "C." Such payment
with said contract, petitioner is estopped from invoking an entirely different shall be paid on the tenth day of every month. Ten percent retention of every
agreement so as to demand additional consideration. Once a contract has been payment shall be retained by the owner, to be paid upon completion of the
consummated, there is nothing left to be done or to be demanded by the parties project.
thereto. All obligations arising from the contract are extinguished.
Prior to March 7, 1961, Lucio Lee, doing business under the trade name Weldon
In the absence of a written authority by the owner for the changes in the plans and Construction, drafted plans for a theater-apartment building which private respondent
specifications of the building and of a written agreement between the parties on the Cancio intended to put up. Thereafter, on March 7, 1961, he submitted to the latter a
additional price to be paid to the contractor, as required by Article 1724, the claim proposal (Exhibit "A") for the supervision of the construction of said building on
for the cost of additional works on the Gay Theater building must be denied. commission basis. The proposal was signed not by Lee but by his office manager,
Antonio Wong. The private respondent never affixed his signature on the document.
NATURE OF ACTION: Petition for Certiorari under Rule 45
Without having signed the proposal Exhibit "A" or any written agreement on the
FACTS: Petitioner WELDON CONSTRUCTION CORPORATION sued the private construction of the building, private respondent Cancio gave an advance payment of
respondent Manuel Cancio in the then Court of First Instance of Manila to recover ten P10,000.00 Pesos. Lee submitted another proposal this time for the construction of the
per (10%) of the total cost of construction of the building, as commission, and the cost same building at the stipulated price of P600,000.00 Pesos. Two days after, Lee sent the
of additional works thereon. The basis for the claim for commission is an alleged private respondent a prepared "Building Contract" (Exhibit "5") signed by him for the
contract of supervision of construction of the Gay Theater building on the corner of signature of the latter and those of the witnesses. Private respondent did not return the
Herran and Singalong Streets in Manila. The private respondent refused to pay the document to Lee, but the petitioner started the construction of the building. When the
amounts demanded on the ground that the Gay Theater building was constructed by document (Exhibit "5") was later presented in court, it contained the signatures of Lee,
Weldon Construction for the stipulated price of P600,000.00 Pesos which has already as well as the signatures of Manuel Cancio, that of his wife, giving her marital consent,
been fully paid. and those of two witnesses. Shortly after the completion of the theater building and its
delivery to the owner, the latter completed the payment of the P600,000.00 contract
Two documents were produced by the plaintiff and the defendant, respectively, before price.
the trial court. Plaintiff, herein petitioner sought the enforcement of the alleged contract
of supervision, with the pertinent provisions: The then Court of First, instance of Manila ruled that the agreement between the parties
3. That we shall be under the direct supervision of the Owner, and shad is a contract of supervision of construction ordered the theater-owner Cancio to pay the
provide facilities for the Owner's representative to have access or inspection ten per cent (10%) supervision fee or commission provided for in said contract. The
of the work whether it is in preparation or progress. Court of Appeals reversed the lower court's Decision and dismissed the Complaint. The
CIVIL LAW REVIEW 2
appellate court held that the transaction between the parties is a construction contract does not question the authenticity of the signature of its predecessors-in-interest, Lucio
for a stipulated price contained in Exhibit "5" (Rollo, pp. 53-62 [Court of Appeals Lee, appearing on the document (Exhibit "5"). Lee himself has admitted said signature
Decision]). Both parties moved for the reconsideration of the aforesaid Decision but as his. Once a contract is shown to have been consummated or fully performed by the
both were denied. Upon a Second Motion for Reconsideration filed by the plaintiff- parties thereto, its existence and binding effect can no longer be disputed. It is irrelevant
appellee, the Court of Appeals modified its Decision by dimissing the plaintiff’s and immaterial to dispute the due execution of a contract. i.e.. the date of signing by one
complaint, as well as the defendant’s counterclaim. WELDON CONSTRUCTION of the parties, if both of them have in fact performed their obligations thereunder and
CORPORATION elevated its case to this Tribunal by certiorari under Rule 45 of the their respective signatures and those of their witnesses appear upon the face of the
Rules of Court. document.
ISSUES: Thus, even as that the Building Contract in Exhibit "5" was signed by the private
1. Whether or not the agreement between the parties is a contract of supervision respondent only after the Gay Theater building had been completed and the
of construction on commission basis, in which the case commission will be stipulated price of P600,000.00 Pews fully paid, such fact can no longer negate the
legally demandable, or a construction contract for a stipulated price which has binding effect of that agreement if its existence and especially, its consummation can be
already been consummated. established by other evidence. As held in Kriedt v. E.C. McCullough & Co
2. Whether or not the petitioner can recover the cost of additional works on the . . . Acts done by the parties to a contract in the course of its performance
building. am admissible in evidence upon the question of its meaning as being their
own contemporaneous interpretation of its terms.
RULINGS: On the first issue, the Court ruled against the Petitioner. One basic
difference between the two agreements lies in the proposed consideration for the And in Shell Company of the Philippines, Ltd. v. Firemen's Insurance CO. of Newark:
administration or supervision services. Proposed under Exhibit "A" was Ten Per cent To determine the nature of a contract courts do not have or are not bound to
(10%) of the total cost of construction without a maximum amount set as a limit on that rely upon the name or title given it by the contracting parties, should there
cost. In contrast, Exhibit "5" sets the stipulated price of the construction of the building be a controversy as to what they really had intended to enter into, but the
at P600,000.00 Pesos, which is the consideration of the contract. The other point of way the contracting parties do or perform their respective obligations,
divergence is the manner in which the expenses for labor and materials are provided for. stipulated or agreed upon may be shown and inquired into, and should such
Exhibit "A", sets up a revolving fund of P10,000.00 Pesos to be paid by the Owner and performance conflict with the name given the contract by the parties, the
to be replenished by him from time to time, which fund shall answer for the various former must prevail over the latter
costs of construction including labor and materials which is not present in the latter
document. Thus, the manner in which the parties conducted their transactions relating to the
construction of the Gay Theater building indicates whether the parties had intended to
The first proposal submitted by Weldon Construction for rendering service under a be bound by a construction contract for a stipulated price or by any other agreement.
contract of supervision (Exhibit "A") is simply that, a proposal. It never attained The demandability of the amounts sought to be recovered by the petitioner will depend
perfection as the contract between the parties. Only an absolute or unqualified on the nature of that agreement.
acceptance of a definite offer manifests the consent necessary to perfect a contract
(Article 1319, New Civil Code). The advance payment of P10,000.00 Pesos was not an In this case, the Court finds that the parties adhered to the terms and stipulations of the
unqualified acceptance of the offer contained in the first proposal. The existence of the Building Contract (Exhibit "5"). The inescapable conclusion is that Weldon
second proposal belies the perfection of any contract arising from the first proposal. Res Construction assumed the obligation to construct the building at the price fixed by the
ipsa loquitur. parties and to furnish both the labor and materials required for the project. It acted as an
independent contractor within the meaning of Article 1713 of the New Civil Code,
With regard to the second proposal it appears upon the face of the document (Exhibit which states:
"5") that the same was signed by the contracting parties and their witnesses. Petitioner
CIVIL LAW REVIEW 2
ART. 1713. By the contract for a piece of work the contractor binds himself In the case before this Court, the records do not yield any written authority for the
to execute a piece of work for the employer, in consideration of a certain changes made on the plans and specifications of the Gay Theater building. Neither can
price or compensation. The contractor may either employ only his labor or there be found any written agreement on the additional price to be paid for said "extra
skill or also furnish the materials. works." In the absence of a written authority by the owner for the changes in the plans
and specifications of the building and of a written agreement between the parties on the
This Court finds that the agreement between the parties is the contract of construction additional price to be paid to the contractor, as required by Article 1724, the claim for
for a stipulated price contained in Exhibit "5" which is akin to a contract for a piece of the cost of additional works on the Gay Theater building must be denied.
work. Both parties having fully performed their reciprocal obligations in accordance
with said contract, petitioner is estopped from invoking an entirely different agreement C & C Commercial Corp. v. Menor
so as to demand additional consideration. Once a contract has been consummated, there G.R. No. L – 28360 January 27, 1983 Aquino, J.
is nothing left to be done or to be demanded by the parties thereto. All obligations arising
from the contract are extinguished.
DOCTRINE: A GOCC may refuse the lowest bidder and refuse to enter into
As set by the parties, the consideration for the construction of the Gay Theater building contract with it if it cannot comply with the requirements set by law.
is P600,000.00 Pesos which amount has been fully paid by the private respondent. There
is no basis for the petitioner's demand for the payment of commission. NATURE OF ACTION: Appeal from the Decision of the lower court
On the second issue, the Court ruled that there is no right to recover additional costs. FACTS: Judge Cloribel of the Court of First Instance of Manila in his decision dated
Since the contract between the parties has been established as a contract for a piece of March 1, 1967 in Civil Case No. 66750, a mandamus case, ordered the Acting General
work for a stipulated price the right of the contractor to recover the cost of additional Manager of the National Waterworks and Sewerage Authority and the members of the
works must be governed by Article 1724 quoted as follows: Committee on Pre-Qualification to allow C & C Commercial Corporation to participate
ART. 1724. The contractor who undertakes to build a structure or any other as a qualified bidder in the public bidding for the supply of asbestos cement pressure
work for a stipulated price, in conformity with plans and specifications pipes to the Nawasa in spite of the fact that it had a pending tax case and had no tax
agreed upon with the landowner can neither withdraw from the contract or clearance certificate.
demand an increase in the price on account of the higher cost of labor or
materials, save when there has been a change in the plans and specifications, By virtue of that judgment, which became final because the Nawasa did not appeal, C
provided: & C Commercial Corporation took part in the bidding. When the bids were opened on
1. Such change has been authorized by the proprietor in writing; and May 18, 1967, it was found to be the lowest bidder. In a letter dated, Antonio C. Menor,
2. The additional price to be paid to the contractor had been the acting general manager of the Nawasa, required C & C Commercial Corporation to
determined in writing by both parties. submit the tax clearance certificate required in Presidential Administrative Order No.
66. Menor said that the requirement as to the tax clearance certificate was mandatory as
In addition to the owner's authorization for any change in the plans and specifications, held by the Government Corporate Counsel in his Opinion No. 159, Series of 1967.
Article 1724 requires that the additional price to be paid for the contractor be likewise
reduced in writing. Compliance with the two requisites in Article 1724, a specific On that same date, or long after Judge Cloribel's judgment had been executed and when
provision governing additional works, is a condition precedent to recovery (San Diego he had no more jurisdiction to amend it, C & C Commercial Corporation filed a motion
v. Sayson, supra). The absence of one or the other bars the recovery of additional costs. in Civil Case No. 66750 wherein it prayed that the Nawasa officials be ordered to award
Neither the authority for the changes made nor the additional price to be paid therefor to the said corporation the contract for the supply of asbestos cement pressure pipes, that
may be proved by any other evidence for purposes of recovery. they be restrained from awarding the contract to another bidder and that they be required
to show cause why they should not be held in contempt of court. Judge Cloribel granted
the motion and ordered Menor and the other Nawasa officials to award within 10 days
CIVIL LAW REVIEW 2
from notice the contract to C & C Commercial Corporation as the lowest bidder. From Moreover, it was not the ministerial duty of the Nawasa officials to award the contract
that order, the Nawasa appealed to the Supreme Court. to C & C Commercial Corporation even if it was the lowest bidder. The Nawasa in its
addendum No. 1 to the invitation to bid dated July 6, 1966 reserved the right "to reject
Realizing that the appeal would delay the award and that another bidder might be given the bid of any bidder". Therefore, a bidder whose bid is rejected has no cause for
the contract, C & C Commercial Corporation filed in the lower court another petition complaint nor a right to dispute the award to another bidder.
for mandamus wherein it prayed that the Nawasa Board of Directors, its Committee of
Awards and Menor, its acting general manager, be restrained from awarding the contract Tang v. CA
to another bidder and that they be ordered to award the contract to C & C Commercial G.R. No. L – 48563 May 25, 1979 Abad Santos, J.
Corporation. That case was assigned to Judge Francisco Geronimo who denied the
motion of C & C Commercial Corporation for a preliminary injunction. He said that the
injunction would be inimical to the public interest. DOCTRINE: It should be noted that under Art. 1332, the obligation to show that
the terms of the contract had been fully explained to the party who is unable to read
The Government Corporate Counsel apprised the lower court that the Nawasa board of or understand the language of the contract, when fraud or mistake is alleged, devolves
directors awarded the contract to Regal Trading Corporation as the lowest complying on the party seeking to enforce it.
bidder. Menor forwarded to the President of the Philippines for examination and review
the contract entered into between the Nawasa and Regal Trading Corporation, acting in NATURE OF ACTION: Petition to Review on Certiorari.
behalf of the Sumitomo Shoji Kaisha, Ltd., for the supply of asbestos cement pressure
pipes worth $387,814.72. The Presidential Economic Staff and the O ce of the FACTS: On September 25, 1965, Lee See Guat, a widow, 61 years old, and an illiterate
President approved the contract. who spoke only Chinese, applied for an insurance on her life for P60,000 with the
respondent Company. The application consisted of two parts, both in the English
Unable to get an injunction from Judge Geronimo, C & C Commercial Corporation language. The second part of her application dealt with her state of health and because
sought recourse in this Court. In its ex parte motion, it asked the Supreme Court to enjoin her answers indicated that she was healthy, the Company issued her Policy No. 0690397,
the implementation of the said contract. The Nawasa opposed the motion on the ground effective October 23, 1965, with her nephew Vicente E. Tang, herein Petitioner, as her
that there was nothing more to be enjoined. beneficiary.
ISSUE: Whether or not NAWASA may reject the lowest bidder if it does not comply On November 15, 1965, Lee See Guat again applied with the respondent Company for
with the requirements set by the law. an additional insurance on her life for P40,000. Considering that her first application
had just been approved, no further medical examination was made but she was required
RULING: Yes. The Nawasa was justified in not awarding the contract to C & C to accomplish and submit Part I of the application which reads: "I/WE HEREBY
Commercial Corporation because it had no tax clearance certificate. It had a pending tax DECLARE AND AGREE that all questions, statements answers contained herein, as
case in the Bureau of Internal Revenue. The award to C & C Commercial Corporation well as those made to or to be made to the Medical Examiner in Part II are full, complete
would be in gross contravention of Administrative Order No. 66. That was the ruling in and true and bind all parties in interest under the policy herein applied for; that there
Nawasa vs. Reyes, where the bidder was also the C & C Commercial Corporation. It shall be no contract of insurance unless a policy is issued on this application and the fun
was held therein that C & C Commercial Corporation was disqualified under the said first premium thereon, according to the mode of payment specified in answer to question
order to take part in the bidding to supply the Nawasa with steel pipes because it had 4D above, actually paid during the lifetime and good health of the Proposed Insured."
"tremendous tax liabilities". Under Administrative Order No. 66, the Nawasa officials Moreover, her answers in Part II of her previous application were used in appraising her
would be subject to administrative disciplinary action if they awarded the contract to C insurability for the second insurance. On November 28, 1965, Policy No. 695632 was
& C Commercial Corporation in spite of its unsettled tax liabilities. issued to Lee See Guat with the same Vicente E. Tang as her beneficiary.
CIVIL LAW REVIEW 2
Lee See Guat died of lung cancer. Thereafter, the beneficiary of the two policies, Vicente Lagunzad v. Gonzales
E. Tang claimed for their face value in the amount of P100,000 which the insurance G.R. No. L – 32066 August 6, 1979 Melencio – Herrera, J.
company refused to pay on the ground that the insured was guilty of concealment and
misrepresentation at the time she applied for the two policies.
DOCTRINE: A contract is valid even though one of the parties entered into it
Court of First Instance Manila: Dismissed the claim because of the concealment against his own wish and desires, or even against his better judgment.
practised by the insured in violation of the Insurance Law.
NATURE OF ACTION: Petition for Review by Certiorari of the Decision of the Court
Court of Appeals: Affirmed the CFI’s decision. of Appeals
ISSUE: Whether or not Article 1332 applies in the case at bar. FACTS: Sometime in August 1961, petitioner Manuel Lagunzad, a newspaperman,
began the production of a movie entitled "The Moises Padilla Story" under the name of
RULING: NO. Art. 1332 supplements Art. 24 of the Civil Code which provides that " his own business outfit, the "MML Productions." It was based mainly on the copyrighted
In all contractual, property or other relations, when one of the parties is at a disadvantage but unpublished book of Atty. Ernesto Rodriguez, Jr., entitled "The Long Dark Night in
on account of his moral dependence, ignorance, indigence, mental weakness, tender age Negros" subtitled "The Moises Padilla Story,'' the rights to which petitioner had
or other handicap, the court must be vigilant for his protection. purchased from Atty. Rodriguez in the amount of P2,000.00.
It is the position of the petitioner that because Lee See Guat was illiterate and spoke only Although the emphasis of the movie was on the public life of Moises Padilla, there were
Chinese, she could not be held guilty of concealment of her health history because the portions which dealt with his private and family life including the portrayal in some
applications for insurance were in English and the insurer has not proved that the terms scenes of his mother, Maria Soto Vda. de Gonzales, private respondent herein, and of
thereof had been fully explained to her. one "Auring" as his girlfriend.
It should be noted that under Art. 1332, the obligation to show that the terms of the On October 3, 1961, petitioner received a telephone call from one Mrs. Nelly Amante,
contract had been fully explained to the party who is unable to read or understand the halfsister of Moises Padilla, objecting to the filming of the movie and the "exploitation"
language of the contract, when fraud or mistake is alleged, devolves on the party seeking of his life. Shown the early "rushes" of the picture, Mrs. Amante and her sister, Mrs.
to enforce it. Here the insurance company is not seeking to enforce the contracts; on the Gavieres, objected to many portions thereof notwithstanding petitioner's explanation
contrary, it is seeking to avoid their performance. It is the petitioner who is seeking to that the movie had been supervised by Ernesto Rodriguez, Jr., based on his book "The
enforce them even as fraud or mistake is not alleged. Accordingly, respondent company Long Dark Night in Negros." On October 5, 1961, Mrs. Amante, for and on behalf of
was under no obligation to prove that the terms of the insurance contracts were fully her mother, private respondent, demanded in writing for certain changes, corrections
explained to the other party. Even if we were to say that the insurer is the one seeking and deletions in the movie. Petitioner contends that he acceded to the demands because
the performance of the contracts by avoiding paying the claim, it has to be noted as he had already invested heavily in the picture to the extent of mortgaging his properties,
above stated that there has been no imputation of mistake or fraud by the illiterate in addition to the fact that he had to meet the scheduled target date of the premiere
insured whose personality is represented by her beneficiary, the petitioner herein. showing.
WHEREFORE, the decision of the Court of Appeals is hereby affirmed. No special On the same date, October 5, 1961, after some bargaining as to the amount to be paid,
pronouncement as to costs. which was P50,000.00 at first, then reduced to P20,000.00, petitioner and private
respondent, represented by her daughters and Atty. Ernesto Rodriguez, at the law office
of Jalandoni and Jamir, executed a "Licensing Agreement.''
CIVIL LAW REVIEW 2
Petitioner takes the position that he was pressured into signing the Agreement because Law v. Olympic Sawmill
of private respondent's demand, through Mrs. Amante, for payment for the G.R. No. L – 30771 May 28, 1984 Melencio – Herrera, J.
"exploitation" of the life story of Moises Padilla, otherwise, she would "call a press
conference declaring the whole picture as a fake, fraud and a hoax and would denounce
the whole thing in the press, radio, television and that they were going to Court to stop DOCTRINE: Under Article 1354 of the Civil Code, in regards to the agreement of
the picture." the parties relative to the P6,000.00 obligation, "it is presumed that it exists and is
lawful, unless the debtor proves the contrary".
On October 10, 1961, petitioner paid private respondent the amount of P5,000.00 but
contends that he did so not pursuant to their Agreement but just to placate private NATURE OF ACTION: Plaintiff instituted a collection case for sum of money for
respondent. the two loans.
Because petitioner refused to pay any additional amounts pursuant to the Agreement, on FACTS: Plaintiff loaned P10,000.00, without interest, to defendant partnership and
December 22, 1961, private respondent instituted the present suit against him. defendant Elino Lee Chi, as the managing partner. The loan became ultimately due on
January 31, 1960, but was not paid on that date, with the debtors asking for an extension
The trial court ruled in favor of the private respondent. of three months, or up to April 30, 1960. The parties executed another loan document.
Payment of the P10,000.00 was extended to April 30, 1960, but the obligation was
The Court of Appeals affirmed the judgment. increased by P6,000.00. Defendants again failed to pay their obligation by April 30,
1960 and, on September 23, 1960, plaintiff instituted this collection case. Defendants
ISSUE: Whether the Licensing Agreement is null and void, the petitioner’s consent admitted the P10,000.00 principal obligation, but claimed that the additional P6,000.00
having been procured by means of duress, intimidation and undue influence? constituted usurious interest. Upon application of plaintiff, the Trial Court issued, on the
same date of September 23, 1960, a writ of Attachment on real and personal properties
Rulings: No. As held in Martinez vs. Hongkong & Shanghai Bank, it is necessary to of defendants located at Karanglan, Nueva Ecija. The Trial Court rendered decision
distinguish between real duress and the motive which is present when one gives his ordering defendants to pay plaintiff "the amount of P10,000.00 plus the further sum of
consent reluctantly. A contract is valid even though one of the parties entered into it P6,000.00 by way of liquidated damages . . . with legal rate of interest on both amounts
against his own wish and desires, or even against his better judgment. In legal effect, from April 30, 1960."
there is no difference between a contract wherein one of the contracting parties
exchanges one condition for another because he looks for greater profit or gain by reason ISSUE: Whether or not the subsequent obligation of a loan amounting to P6,000 is valid
of such change, and an agreement wherein one of the contracting parties agrees to accept
the lesser of two disadvantages. In either case, he makes a choice free and untrammelled RULING: YES. Under Article 1354 of the Civil Code, in regards to the agreement of
and must accordingly abide by it. The Licensing Agreement has the force of law between the parties relative to the P6,000.00 obligation, "it is presumed that it exists and is lawful,
the contracting parties and since its provisions are not contrary to law, morals, good unless the debtor proves the contrary". No evidentiary hearing having been held, it has
customs, public order or public policy (Art. 1306, Civil Code), petitioner should comply to be concluded that defendants had not proven that the P6,000.00 obligation was illegal.
with it in good faith. Confirming the Trial Court's nding, we view the P6,000.00 obligation as liquidated
damages suffered by plaintiff, as of March 17, 1960, representing loss of interest
income, attorney's fees and incidentals.
CIVIL LAW REVIEW 2
F. Form of Contracts
Private respondents filed a complaint with the Ministry of Labor and Employment
1. Any form – oral charging the petitioner with illegal dismissal and non-payment of their separation pay,
2. Special form allowance and incentive leave pay.
a. Validity
b. Enforceability The Labor Arbiter rendered a decision in favor of the respondents ordering the payment
c. Greater efficacy or convenience of the separation pay. The NLRC affirmed the decision of the Labor Arbiter.
Lao Sok v. Sabaysabay ISSUE: Whether or not petitioner Lao Sok is obligated to pay the private respondents'
G.R. No. L – 61898 August 9, 1985 Gutierrez, Jr., J. separation pay.
RULING: Yes. He is obliged to pay the severance compensation.

DOCTRINE: Essential requisites of a valid contract are present, to wit:
1. consent was freely given by the parties, The said compensation is not based on his failure to make a report or to ask for a prior
2. there was a subject matter, which is the payment of the separation pay of clearance as reiterated in Sections 10 and 11 (c), Rule XIV, Book V of the Labor Code.
private respondents, and This obligation should be based on Article 284 of the Labor Code which provides for
3. a cause, which is the loss of job of private respondents. separation pay whenever there is a reduction of personnel caused by the closure of an
establishment which is not intended to circumvent the provisions of the law.
Lao Sok made an offer which was duly accepted by the private respondents. There
was, therefore, a meeting of the minds between two parties (Article 1305 of the Civil Lao Sok promised to give his employees their separation pay, as soon as he receives the
Code). insurance proceeds for his burned building was not rebutted. The Solicitor General
further explained that in was “ in reality not a mere ‘promise’ as petitioner terms it but
NATURE OF ACTION: This is a petition for review which seeks to set aside for grave a contract, because all the essential requisites of a valid contract are present, to wit:
abuse of discretion the decision of the National Labor Relations Commission affirming 1. consent was freely given by the parties,
the decision of Labor Arbiter Apolonio L. Reyes ordering the petitioner to pay the 2. there was a subject matter, which is the payment of the separation pay of private
private respondents their separation pay. respondents, and
3. a cause, which is the loss of job of private respondents”.
FACTS: Lao Sok owned and operated the Shelton Department Store in Carriedo Street,
Quiapo, Manila. Which was razed bu fine on Oct 12, 1980. Private respondents: Lao Sok made an offer which was duly accepted by the private respondents. There was,
Sabaysabay, Mangulat, Salvienjo, Ruinata, Capillo, and Sanorjo were all salesladies of therefore, a meeting of the minds between two parties (Article 1305 of the Civil Code).
the department store with a daily wage of P14.00 each, lost their job due to the fine. The
said lost of job was not reported to the Regional Office of the Ministry of Labor. The requirement of writing for the offer made by Lao Sok is only for convenience and
not enforceability. Lao Sok voluntarily agreed to compensate private respondents for the
Lao Sok’s promise to transfer the respondents did not push through, instead he offered loss of their jobs. The validity of that agreement must, consequently, be sustained.
them their separation pay and other benefits due them as soon as he collected the
insurance proceeds arising from his burned store.
Petitioner later collected the proceeds of his insurance but he did not give the private
respondents their separation pay and other benefits. Neither did he employ them in his
other stores as earlier promised.
CIVIL LAW REVIEW 2
Gallardo v. IAC Petitioners claim that the sale although not in a public document, is nevertheless valid
G.R. No. L – 67742 October 29, 1987 Paras, J. and binding citing this Court's rulings in the cases of Cauto v. Cortes, 8 Phil. 459, 460;
Guerrero v. Miguel, 10 Phil. 52, 53; Bucton v. Gabar, 55 SCRA 499 wherein this Court
ruled that even a verbal contract of sale of real estate produces legal effects between the
DOCTRINE: The general rule enunciated in said Art. 1356 is that contracts are parties.
obligatory, in whatever form they may have been entered, provided all the essential
requisites for their validity are present. The next sentence provides the exception, ISSUE: Whether or not the unnotarized deed of sale can be considered as a valid
requiring a contract to be in some form when the law so requires for validity or instrument to effect the alienation by way of sale of a parcel of land registered
enforceability. Said law is Section 127 of Act 496 which requires, among other under the Torrens system
things, that the conveyance be executed 'before the judge of a court of record or clerk
of a court of record or a notary public or a justice of the peace, who shall certify such RULING: No. Upon consideration of the facts and circumstances surrounding the
acknowledgment substantially in form next herein after stated. execution of the assailed document, the trial court found that said private document
(Exhibit "B") was null and void and that it was signed by somebody else not Pedro
NATURE OF ACTION: Petition for Review on Certiorari; Quieting of Title Villanueva. The action of the Register of Deeds of Laguna in allowing the registration
of the private deed of sale was unauthorized and did not lend a bit of validity to the
FACTS: The subject matter of this controversy is a parcel of land located in Cavinti, defective private document of sale.
Laguna registered in the name of the late Pedro Villanueva (Former Justice of Peace of
the MTC of Cavinti, Laguna). Petitioners were nephew and niece of the late Justice and Furthermore, with reference to the special law, Section 127 of the Land Registration
first cousin of the respondent Marta Villanueva, daughter of Pedro. Act, Act 496 (now Sec. 112 of P.D. No. 1529) provides:
"Sec. 127. Deeds of Conveyance. . . . effecting lands, whether registered
On August 10, 1937, petitioner claimed that the aforestated land was sold to them in a under this act or unregistered shall be sufficient in law when made
private document, an unnotarized deed of sale written in Tagalog that was allegedly substantially in accordance with the following forms, and shall be as
signed by the late Pedro Villanueva conveying and transferring the property in question effective to convey, encumber, . . . or bind the lands as though made in
in favor of the petitioners. accordance with the more prolix forms heretofore in use: Provided, That
every such instrument shall be signed by the person or persons executing
During the Second World War, the records as well as the Office of the Register of Deeds the same, in the presence of two witnesses, who shall sign the instrument as
of Laguna, where the original of the new transfer certificate of title was kept, were witnesses to the execution thereof, and shall be acknowledged to be his or
completely burned. Accordingly, by virtue of an Affidavit of Reconstitution dated their free act and deed by the person or persons executing the same, before
December 2, 1958 and upon presentation of the Owner's Duplicate Certificate of Title, the judge of a court of record, or clerk of a court of record, or a notary
the title was administratively reconstituted and the Register of Deeds of Laguna issued public, or a justice of the peace, who shall certify to such acknowledgment
in the name of the petitioners. substantially in the form next hereinafter stated." (Emphasis supplied).
As to the validity of the Affidavit for Reconstitution, affiant Teresa Villanueva testified It is therefore evident that Exhibit "E" in the case at bar is definitely not registerable
on December 19, 1980, that she did not know anything about the reconstitution of their under the Land Registration Act.
title as it was their children who took charge of the same and that she never participated
in the said reconstitution. In fact she never appeared before the Notary Public and this
testimony was corroborated by the testimony of Eleuterio Rebenque, entry clerk in the
Office of the Register of Deeds who never made any categorical affirmation that said
Teresa Villanueva appeared at said office.
CIVIL LAW REVIEW 2
Paredes v. Espino In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed
G.R. No. L – 23351 March 13, 1968 Reyes, JBL., J. by letter and telegram" (Record on Appeal, p. 2), and the letter referred to was evidently
the one copy of which was appended as Exhibit A to plaintiff's opposition to the motion
dismiss. This letter, transcribed above in part, together with that one marked as
DOCTRINE: The Statute of Frauds, embodied in Article 1403 of the Civil Code of Appendix B, constitute an adequate memorandum of the transaction. They are signed
the Philippines, does not require that the contract itself be in writing. The plain text by the defendant-appellee; refer to the property sold as a lot in Puerto Princesa, Palawan,
of Article 1403, paragraph (2) is clear that a written note or memorandum, covered, by TCT No. 62; give its area as 1826 square meters and the purchase price of
embodying the essentials of the contract and signed by the party charged, or his four (P4.00) pesos per square meter payable in cash. We have in them therefore, all the
agent, suffices to make the verbal agreement enforceable, taking it out of the essential terms of the contract, and they satisfy the requirements of the Statute of Frauds
operation of the statute.
Sps. Aguinaldo v. Torres
NATURE OF ACTION: Action for specific performance G.R. No. 225808 September 11, 2017 Perlas – Bernabe, J.
FACTS: Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino
to execute a deed of sale and to pay damages. The complaint alleged that the defendant DOCTRINE: Although an improper notarization of a deed of sale did not affect the
"had entered into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre at validity of the sale of the subject properties, the same however, is rendered
P4.00 a square meter; that the deal had been "closed by letter and telegram" but the unregistrable, since notarization is essential to the registrability of deed and
actual execution of the deed of sale and payment of the price were deferred to the arrival conveyances.
of defendant at Puerto Princesa; that defendant upon arrival had refused to execute the
deed of sale altho plaintiff was able and willing to pay the price, and continued to refuse NATURE OF ACTION: Petition for review on certiorari assailing the decision and
despite written demands of plaintiff; that as a result, plaintiff had lost expected profits resolution of the Court of Appeals in affirming the RTC’s decision of dismissing the
from a resale of the property, and caused plaintiff mental anguish and suffering, for complaint for the annulment of sale, cancellation of title, and damages.
which reason the complaint prayed for specific performance and damages.
FACTS: On March 3, 2003, petitioners filed a complaint for annulment of sale,
Defendant filed a motion to dismiss on the ground that the plaintiff's claim upon which cancellation of title, and damages against respondent before the RTC. They claimed that
the action was founded was unenforceable under the Statute of Frauds. they are the registered owners of three lots situated in Tanza, Cavite. Sometime in
December 2000, they discovered that the titles to these properties were transferred to
The Court below dismissed the complaint on the ground that there being no written respondent thru fraud, deceit, and stealth by causing the execution of a Deed of Absolute
contract, under Article 1403 of the Civil Code of the Philippines Sale dated July 21, 1979. Respondent filed his answer denying participation in the
execution of the 1979 Deed of Sale, and averring that the subject properties were validly
ISSUE: Whether enforcement of the contract pleaded in the complaint is barred by the sold by petitioners to him thru a Deed of Absolute Sale dated March 10, 1991. He also
Statute of Frauds claimed that petitioners caused the registration of the 1979 deed of sale with the Register
of Deeds of Trece Martires City and the transfer of title to his name, hence, they are
RULING: No. The Statute of Frauds, embodied in Article 1403 of the Civil Code of the estopped from impugning the validity of his title. A copy of the 1991 deed of sale was
Philippines, does not require that the contract itself be in writing. The plain text of transmitted to the NBI for examination and determination of its genuineness. The report
Article 1403, paragraph (2) is clear that a written note or memorandum, embodying the showed that the petitioner’s questioned signatures match their sample signatures. RTC
essentials of the contract and signed by the party charged, or his agent, suffices to make dismissed the complaint holding that the petitioners failed to establish their claim by
the verbal agreement enforceable, taking it out of the operation of the statute. preponderance of evidence. On appeal, the CA upheld the findings and conclusions of
the RTC. However, the CA observed that despite the authenticity and due execution of
the 1991 deed of sale, it was still improperly notarized, given that it was signed by
CIVIL LAW REVIEW 2
respondent and a witness in Makati City and by petitioners in the USA, but notarized in Lim v. CA
Tanza, Cavite. As such, the same could not be registered by the Register of Deed. G.R. No. L – 40258 September 11, 1980 Guerrero, J.
ISSUE: Whether or not the sale was valid despite not being in accordance with the form
prescribed in Articles 1357 and 1358 DOCTRINE: Interpretation of a contract shall not favor the party who caused the
ambiguity.
RULING: Yes. Settled is the rule that a forged deed of sale in null and void and conveys
no title. Notably, the complaint prayed for the nullification of the said certificates of title NATURE OF ACTION: Petition to review the decision of the Court of Appeals by
based on the spurious 1979 deed of sale. Hence, finding the foregoing in order, the CA’s way of certiorari.
ruling must be modified accordingly.
FACTS: Petitioner Lim Yhi Luya is a businessman, resident of Lingayen, Pangasinan
Nonetheless, save from the above modification, the Court agrees with the CA’s where he operates a grocery store, a hardware store and gasoline station. Private
conclusion that a valid conveyance of the subject properties to respondent was respondent Hind Sugar Company is engaged in the manufacturing and marketing of
established. The improper notarization of the 1991 sale stripped it of its public character sugar, its principal office located in Manaoag, Pangasinan. Vice President and General
and reduced it to a private instrument. In this case, the CA made an independent Manager of respondent company is Atty. Emiliano Abalos. His assistant is Generoso
examination of petitioner’s signatures on the 1991 deed of sale and concluded that they Bongato, while the cashier and accountant of the company is Teodoro Garcia.
are the same signatures found on other pertinent documents, which is the same
conclusion arrived at by the NBI. The due execution and authenticity of the said deed Lim and Hind Sugar Company since 1958 have had business dealings with each other,
having been ostensibly established by the finding that the signature of petitioners thereon the company selling sugar to the petitioner and the latter has been supplying the
were genuine, the burden was shifted upon the latter to prove by contrary evidence that company with diesoline, gasoline, muriatic acid, sulfuric acid, other supplies and
the subject properties were not so transferred. materials ordered on credit.
Although the improper notarization of the 1991 deed of sale did not affect the validity On November 12, 1970, petitioner received a telegram from Manager Abalos in the
of the sale of the subject properties to respondent, the same, however, rendered the said following tenor: “Please come tomorrow morning without fail.” (Exh. “B”). The
deed unregistrable, since notarization is essential to registrability of deeds and following day, petitioner proceeded to the company and in the office of Manager Abalos,
conveyances. Bearing in mind that the legal requirements that the same of real property the latter offered to sell sugar at P37.00 per picul. The parties agreed to the purchase of
must appear in public instrument is merely a coercive means granted to the contracting 4,085 piculs of sugar at P35.00 per picul.
parties to enable them to reciprocally compel the observance of the prescribed from, and
considering that the existence of the sale of the subject properties in respondent’s favor CONTRACT OF SALE OF SUGAR
had been duly established, the Court upholds th CA’s directive for petitioners to execute
a registrable deed of conveyance in respondent’s favor within 30 days from finality of Seller : Hind Sugar Company
the decision, in accordance with the prescribed form under Articles 1357 and 1358 of Manaoag, Pangasinan
the Civil Code. Buyer : Lim Yhi Luya
Lingayen, Pangasinan
G. Reformation of Contracts Quantity: Four Thousand Eighty-Five (4,085)
H. Interpretation of Contracts piculs of Hind-2 sugar, 1969-70 crop
Price : Thirty Five (?35.00) Pesos per
picul, f.o.b. Manaoag
Terms : Cash upon signing of this contract.
Manaoag, Pangasinan, Nov. 13, 1970.
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Art. 1371. In order to judge the intention. Of the contracting parties, their
On the same day, in compliance with the contract, four delivery orders were issued to contemporaneous and subsequent acts shall be principally considered.
petitioner by cashier Garcia upon instructions of Manager Abalos covering the total
quantity of sugar sold, 4,085 piculs. Between November 13, 1970 to January 27, 1971, Art. 1375. Words which may have different significations shall be
petitioner withdrew from the company warehouse in varying quantities a total amount understood in that which is most in keeping with the nature and object of
of 3,735 piculs under substitute delivery orders leaving a balance of 350 piculs the contract.
undelivered.
Art. 1377. The interpretation of obscure words or stipulations in a contract
On January 22, 1971, the question of payment cropped out between the parties. shall not favor the party who caused the obscurity.
Petitioner claimed that he had paid P142,975.00 to the company officials, Cashier Garcia
and Manager Abalos on November 13, 1970 and as proof of his payment, he referred to Considering the admitted fact that the contract of sale (Exhibit “A”) was prepared in the
the contract Exhibit “A”, particularly to the stipulation stating “Terms: Cash upon office of respondent company by Generoso Bongato, Assistant to the Manager of the
signing of this contract.” Respondent company officials denied the claim of the company, upon instruction of General Manager Emiliano L. Abalos who is a lawyer,
petitioner, alleging that petitioner never paid for the sugar on November 13, 1970 or at and the Court is now confronted with the varying or conflicting interpretations of the
any time thereafter. An audit report or examination of the books of the company made parties thereto, the respondent company contending that the stipulation “Terms: Cash
by External Auditor Victorino Daroya showed no payment by petitioner. upon signing of this contract” does not mean that the agreement was a cash transaction
because no money was paid by the petitioner at the time of the signing thereof whereas
On May 17, 1971, petitioner filed the complaint against the defendant Hind Sugar the petitioner insists that it was a cash transaction inasmuch as he paid cash amounting
Company, before the Court of First Instance of Pangasinan. to P142,975.00 upon the signing of the contract, the payment having been made at
around 1:30 in the afternoon of November 13, 1970 to the cashier, Teodoro Garcia, and
After trial, the CFI of Pangasinan rendered judgment against Hind Sugar Company. Manager Abalos although the sale was agreed to in the morning of the same day,
Defendant Hind Sugar Company appealed the decision with the Court of Appeals. The November 13, 1970, the conflicting interpretations have shrouded the stipulation with
Court of Appeals reversed and modified the decision of the Court of First Instance. ambiguity or vagueness. Then, the cardinal rule should and must apply, which is that the
Plaintiff-appellee, now the herein petitioner, filed a Motion for Reconsideration but it interpretation shall not favor the party who caused the ambiguity (Art. 1377, NCC). We
was denied. Hence this petition for review by way of certiorari. rule that in the instant case, the interpretation to be taken shall not favor the respondent
company since it is the party who caused the ambiguity in its preparation.
ISSUE: Whether or not the plaintiff-appellee has paid the sum of P142,975.00 which is
the purchase price of the 4,085 piculs of sugar covered by the contract of sale In truth, the stipulation in the contract which reads: “Terms: Cash upon signing of this
(Exhibit “A”) between the parties. contract” is very clear and simple in its meaning, leaving no doubt in our minds upon
the intention of the contracting parties, hence, the first rule of contract interpretation that
RULING:Yes. The error may be resolved by the rules on the interpretation of contracts. the literal meaning of its stipulation shall control, is the governing rule at hand. Resorting
The Court laid down cardinal rules in the interpretation of contracts as provided in the to Webster's Third New International Dictionary, p. 2515, for the definition of the word
New Civil Code: "upon" which literally means, among others, "10a (1): immediately following on; very
Art. 1370. If the terms of a contract are Clear and leave no doubt upon the soon after; ... b: on the occasion of at the time of; ... " the clear import of the stipulation
intention of the contracting parties. the literal meaning of its stipulation shall is that payment was made on the occasion of or at the time of the signing of the contract
control. and not that payment will follow the signing. The Court said that it must adopt the former
meaning because it is such an interpretation that would most adequately render the
If the words appear to be contrary to the evident intention of the parties, the contract effectual, following Article 1373 of the New Civil Code which provides:
latter shall prevail over the former.
CIVIL LAW REVIEW 2
“Art. 1373. If some stipulation of any contract should admit of several P11,389,485.00 and the Philippine Air Force, had been, despite repeated demands,
meanings, it shall be understood as bearing that import which is most illegally occupying her property since July 1, 1956, thereby preventing her from using
adequate to render it effectual.” and disposing of it, thus causing her damages by way of unrealized profits.
The evidence for the petitioner establishes that after paying the cash consideration to After the Republic had deposited with the Provincial Treasurer of Pampanga the amount
Cashier Garcia and Manager Abalos, the parties signed the contract and thereafter signed of P259,669.10, the trial court ordered that the Republic be placed in possession of the
copy of said contract was given to petitioner and also the tour (4) delivery orders lands. The Republic was actually placed in possession of the lands on August 10, 1959.
covering the 4,085 piculs of sugar sold. The questioned stipulation recites exactly the The trial court appointed three commissioners to ascertain and report to the court the
act of payment which is the paying of the money on the occasion of or at the time of the just compensation for the property sought to be expropriated. Commissioners
signing. Respondent would have Us believe that the stipulation does not mean what it recommended unanimously that the lowest price that should be paid was P10.00 per
conveys because petitioner has not paid cash after the signing of the contract nor at any square meter, for both the lands of Castellvi and Toledo-Gozun; that legal interest on
time thereafter. We cannot agree with the respondent for otherwise the sanctity of the the compensation, computed from August 10, 1959, be paid after deducting the amounts
written contract can easily be violated and impugned, for otherwise oral testimony already paid to the owners, and that no consequential damages be awarded. The
would prevail over a written document to vary, alter or modify the written terms, and Commissioner’s report was objected by all the parties in the case so the trial court issued
most importantly, respondent’s interpretation would render the stipulation ineffectual as an order, stating that "in the interest of expediency, the questions raised may be properly
a mere agreement. and finally determined by the Supreme Court," and at the same time it ordered the
Solicitor General to submit a record on appeal containing copies of orders and pleadings
Republic of the Philippines v. Carmen M. Vda De Castellvi, et. al specified therein.
G.R. No. L – 20620 August 15, 1974 Zaldivar, J.
The Republic argues that the "taking" of the property should be reckoned from the year
1947 when by virtue of a special lease agreement between the Republic and appellee
DOCTRINE: It is a rule in the interpretation of contracts that "However general the Castellvi, the former was granted the "right and privilege" to buy the property should
terms of a contract may be, they shall not be understood to comprehend things that the lessor wish to terminate the lease, and that in the event of such sale, it was stipulated
are distinct and cases that are different from those upon which the parties intended that the fair market value should be as of the time of occupancy and not from the filing
to agree". of the complaint.
NATURE OF ACTION: Appeal from the decision of the Court of First Instance of On the other hand, Castellvi maintains that the "taking" of property under the power of
Pampanga in an expropriation proceeding. eminent domain requires two essential elements, to wit: (1) entrance and occupation by
condemn or upon the private property for more than a momentary or limited period, and
FACTS: The Republic of the Philippines filed a complaint for eminent domain against (2) devoting it to a public use in such a way as to oust the owner and deprive him of all
Carmen M. Vda de Castellvi, judicial administratrix of the estate of the late Alfonso de beneficial enjoyment of the property. The appellee argues that in the instant case the first
Castellvi over a parcel of land situated in Barrio San Jose, Floridablanca, Pampanga. element is wanting, for the contract of lease relied upon provides for a lease from year
to year; that the second element is also wanting, because the Republic was paying the
In its complaint, the Republic alleged that the fair market value of the land according to lessor Castellvi a monthly rental of P445.58; and that the contract of lease does not grant
the Committee on Appraisal for the Province of Pampanga, was not more than P2,000 the Republic the "right and privilege" to buy the premises "at the value at the time of
per hectare, or a total market value of P259,669.10 as to which the court issued an order occupancy”.
fixing the provisional value at said amount.
ISSUE: Whether or not the Republic has the right and privilege to buy the property at
Castellvi filed a Motion to Dismiss alleging that being a residential land, the property the value it had at the time when they first occupied the property as lessee as
has a fair market value of P15.00 per square meter, so it had a total market value of provided in their Contract of Lease?
CIVIL LAW REVIEW 2
commit an error when it held that the "taking" of the property under expropriation
RULING: NO. To better comprehend the issues raised in appeal, a pertinent provision commenced with the filing of the complaint in this case.
of the Contract of Lease provides:
5. The LESSEE shall surrender possession of the premises upon the Eastern Shipping v. Margarina – Verkaufs - Union
expiration or termination of this lease and if so required by the LESSOR, G.R. No. 31087 September 27, 1979 Teehankee, Acting C.J.
shall return the premises in substantially the same condition as that existing
at the time same were first occupied by the AFP, reasonable and ordinary
wear and tear and damages by the elements or by circumstances over which DOCTRINE: What is here involved is a contract of adhesion as embodied in the
the LESSEE has no control excepted: PROVIDED, that if the LESSOR so printed bill of lading issued by petitioner for the shipment to which respondent as the
requires the return of the premises in such condition, the LESSOR shall give consignee merely adhered, having no choice in the matter, and consequently, any
written notice thereof to the LESSEE at least twenty (20) days before the ambiguity therein must be construed against peti-tioner as the author.
termination of the lease and provided, further, that should the LESSOR give
notice within the time specified above, the LESSEE shall have the right and NATURE OF ACTION: Interpretation of contract of adhesion.
privilege to compensate the LESSOR at the fair value or the equivalent, in
lieu of performance of its obligation, if any, to restore the premises. Fair FACTS: Respondent corporation, a West German corporation not engaged in business
value is to be determined as the value at the time of occupancy less fair wear in the Philippines, was the consignee of 500 long tons of Philippine copra in bulk with
and tear and depreciation during the period of this lease. a total value of US$108, 750.00 shipped from Cebu City on board petitioner's (a
Philippine corpora-tion) vessel, the SS "EASTERN PLANET" for discharge at
The Republic's claim that it had the "right and privilege" to buy the property at the value Hamburg, Germany. Petitioner's bill of lading for the cargo provided as fol-lows:
that it had at the time when it first occupied the property as lessee nowhere appears in "x x x Except as otherwise stated herein and in the Charter Party, this
the lease contract. What was agreed expressly in paragraph No. 5 of the lease agreement con-tract shall be governed by the laws of the Flag of the Ship carrying the
was that, should the lessor require the lessee to return the premises in the same condition goods. In case of average, same shall be adjusted according to York-
as at the time the same was first occupied by the AFP, the lessee would have the "right Antwerp Rules of 1950.”
and privilege" (or option) of paying the lessor what it would fairly cost to put the
premises in the same condition as it was at the commencement of the lease, in lieu of While the vessel was off Gibraltar, a fire broke out aboard the vessel and caused water
the lessee's performance of the undertaking to put the land in said condition. The "fair damage to the copra shipment in the amount of US$591.38. Petitioner corporation
value" at the time of occupancy, mentioned in the lease agreement, does not refer to the rejected respondent's claim for payment of the damage and respondent filed on June 18,
value of the property if bought by the lessee, but refers to the cost of restoring the 1966 in the Manila court of first instance its complaint against petitioner as defendant
property in the same condition as of the time when the lessee took possession of the for re-covery of the same and US$250.00-attorney's fees and expenses of litiga-tion.
property. Such fair value cannot refer to the purchase price, for purchase was never
intended by the parties to the lease contract. It is a rule in the interpretation of contracts After trial, the lower court rejected petitioner's defense that it was not liable under
that "However general the terms of a contract may be, they shall not be understood to Philippine Law for the damage which did not exceed 5% of respondent's interest in the
comprehend things that are distinct and cases that are different from those upon which cargo and rendered judg-ment on April 25, 1969 "ordering the defendant, Eastern
the parties intended to agree" (Art. 1372, Civil Code). Shipping Lines, Inc. to pay to the plaintiff, Margarine-Verkaufs-Union GMBH, the sum
of US$591.38, with interest at the legal rate from the date of the filing of the complaint
Therefore, that the "taking" of the Castellvi property should not be reckoned as of the until fully paid, plus US$250.00 as attorney's fees and the costs of the suit."
year 1947 when the Republic first occupied the same pursuant to the contract of lease,
and that the just compensation to be paid for the Castellvi property should not be ISSUE: Whether or not Article 848 of the Code of Commerce which would bar claims
determined on the basis of the value of the property as of that year. Lower court did not for averages not exceeding 5% of the claimant's interest should be applied
rather than the lower court's ruling that petitioner's bill of lading expressly
CIVIL LAW REVIEW 2
contained “an agreement to the contrary," i.e. for the application of the York- Cabaliw v. Sadorra
Antwerp Rules which provide for respondent's full recovery of the damage loss. G.R. No. L – 25650 June 11, 1975 Muñoz – Palma, J.
RULING: No. The Court finds no error and upholds the lower court's ruling sustaining
respondent's damage claim although the amount thereof did not exceed 5% of DOCTRINE: Alienations by onerous title are also presumed fraudulent when made
respondent's interest in the cargo and would have been barred by the cited article of the by persons against whom some judgment has been rendered in any instance or some
Commerce Code. We hold that the lower court correctly ruled the cited codal article to writ of attachment has been issued. The decision or attachment need not refer to the
be “not applicable in this particular case for the reason that the bill of lading (Exhibit property alienated and need not have been obtained by the party seeking rescission.
'F') contains 'an agreement to the contrary' for it is expressly provided in the last sentence
of the first paragraph (Exhibit '1-A') that 'In case of average, same shall be adjusted NATURE OF ACTION: This is a petition filed by Isidora Cabaliw and her daughter
according to York-Antwerp Rules of 1950.' The insertion of said condition is expressly Soledad Sadorra for the Court to review the adverse judgment of the Court of Appeals.
authorized by Commonwealth Act No. 65 which has adopted in toto the U. S. Carriage
of Goods by Sea Act. Now, it has not been shown that said rules limit the recovery of FACTS: Isidora Cabaliw was the wife of Benigno Sadorra by his second marriage. This
damage, to cases within a certain percentage or pro-portion that said damage may bear couple had a daughter named Soledad Sadorra. During their marriage, they acquired 2
to claimant's interest either in the vessel or cargo as provided in Article 848 of the Code parcels of land in Nueva Ecija. Having been later abandoned by her husband, Isidora
of Commerce. On the contrary, Rule 3 of said York-Antwerp Rules expressly states that instituted an action for support with the CFI of Manila wherein judgment was rendered
'Damage done to a ship and cargo, or either of them, by water or otherwise, including requiring Benigno to pay for support and the resulting attorney’s fees and costs.
damage by breaching or scuttling a burning ship, in extinguishing a fire on board the Unknown to Isidora, on August 1933, Benigno executed 2 deeds of sale over the two
ship, shall be made good as general average x x x.'" parcels of land above mentioned in favor of his son-in-law, herein respondent, Sotero
Sadorra – married to Encarnacion Sadorra who is a daughter of Benigno by his first
There is a clear and irreconcilable inconsistency between the York-Antwerp Rules marriage. The deeds of ale were duly registered and the OCTs were cancelled and
expressly adopted by the parties as their contract under the bill of lading which sustains replaced.
respondent's claim and the codal article cited by petitioner which would bar the same.
Furthermore, as correctly contended by respondent, what is here involved is a contract Because of Benigno’s failure to comply with the judgment of support, Isidora filed a
of adhesion as embodied in the printed bill of lading issued by petitioner for the shipment motion to cite the former in contempt, and the CFI of Manila authorized Isidora to take
to which respondent as the consignee merely adhered, having no choice in the matter, possession of the conjugal property, to administer the same, and to avail herself of the
and consequently, any ambiguity therein must be construed against peti-tioner as the fruits thereof in payment of the monthly support in arrears. Isidora then proceeded to
author. Nueva Vizcaya to take possession of the parcels of land. It was then that she found out
that her husband sold them to Sotero Sadorra. This prompted Isidora to file with the CFI
1. Kinds of Contracts as to Validity of Nueva Vizcaya a complaint against Benigno and Sotero for the recovery of the lands
in question on the ground that the sale was fictitious. Unfortunately, Benigno died. Thus,
a. Valid and binding the suit was pursued against the Sps Sadorra.
b. Valid but defective
i. Rescissible Contracts Court of First Instance: Declared the deeds of sale executed by Benigno to be
simulated and fictitious.
Court of Appeals: By a vote of 3 to 2, reversed the decision of the trial court.
ISSUE: Whether or not fraud is presumed in the transfer of the lots done by Benigno
just shortly after the judgment for support was rendered.
CIVIL LAW REVIEW 2
that a vendor transfers all of his property to a third person when there is a judgment
RULING: Yes. (The SC dealt more on the issue of fraud as a ground for the rescission against him is a strong indication of a scheme to demand one who may have a valid
of the contract.) interest over his properties.
The facts narrated in the first portion of this Decision which are not disputed, Added to the above circumstances is the undisputed fact that the vendee Sotero Sadorra
convincingly show or prove that the conveyances made by Benigno Sadorra in favor of secured the cancellation of the lis pendens on O.C.T. No. 1, which was annotated in
his son-in-law were fraudulent. For the heart of the matter is that about seven months 1940 at the instance of Isidora Cabaliw, and the issuance of a transfer certificate of title
after a judgment was rendered against him in Civil Case No. 43192 of the Court of First in his favor, by executing an affidavit, Exhibit H, on June 7, 1948, wherein he referred
Instance of Manila and without paying any part of that judgment, Benigno Sadorra sold to Isidora as "the late Isidora Cabaliw" when he knew for a fact that she was alive, and
the only two parcels of land belonging to the conjugal partnership to his son-in-law. alleged that Civil Case 449 of the Court of First Instance of Nueva Vizcaya was decided
Such a sale even if made for a valuable consideration is presumed to be in fraud of the in his favor where in truth there was no such decision because the proceedings in said
judgment creditor who in this case happens to be the offended wife. case were interrupted by the last world war. Such conduct of Sotero Sadorra reveals, as
stated by the lower court, an "utter lack of sincerity and truthfulness" and belies his
Article 1297 of the old Civil Code (Now Article 1387) which was the law in force at the pretensions of good faith.
time of the transaction provides:
"Contracts by virtue of which the debtor alienates property by gratuitous Hongkong & Shanghai Banking Corporation v. Ralph Pauli and Spouses Sally
title are presumed to be made in fraud of creditors. P. Garganera and Mateo Garganera
G.R. No. L – 38303 May 30, 1988 Grino – Aquino, J.
"Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued. The decision or attachment need DOCTRINE: When a transaction involves registered land, the four-year period
not refer to the property alienated and need not have been obtained by the fixed in Article 1391 within which to bring an action for annulment of the deed, shall
party seeking rescission." (emphasis supplied) be computed from the registration of the conveyance (March 5, 1963) on the familiar
theory that the registration of the document is constructive notice of the conveyance
The above-quoted legal provision was totally disregarded by the appellate court, and to the whole world.
there lies its basic error.
NATURE OF ACTION: Appeal from an order of CFI of Manila
We agree with petitioners that the parties here do not stand in equipoise, for the
petitioners have in their favor, by a specific provision of law, the presumption of a FACTS: On June 14, 1957, HSBC filed an action for collection of sum of money against
fraudulent transaction which is not overcome by the mere fact that the deeds of sale in Ralph Pauli wherein a judgment was rendered in favor of HSBC. However, said
question were in the nature of public instruments. Furthermore, the presumption of fraud judgment was not satisfied because no leviable assets of Pauli were found.
established by the law in favor of petitioners is bolstered by other indicia of bad faith on
the part of the vendor and vendee. Thus (1) the vendee is the son-in-law of the vendor. Unknown to HSBC, Pauli purchased from the PNB a sugar cane plantation known as
In the early case of Regalado vs. Luchsinger & Co., 5 Phil. 625, this Court held that the Hacienda Riverside (Lot No. 693 of Saravia Cadastre, Negros Occidental), but he did
close relationship between the vendor and the vendee is one of the known badges of not register the deed of sale to avoid discovery by his creditors. Six years later, on March
fraud. (2) At the time of the conveyance, the vendee, Sotero, was living with his father- 1, 1963, he fraudulently sold the hacienda to his daughter Sally Garganera and her
in-law, the vendor, and he knew that there was a judgment directing the latter to give a husband Mateo Gargenera. In another civil case filed by Warner Barnes & Co., another
monthly support to his wife Isidora and that his father-in-law was avoiding payment and creditor of Pauli, the sale to spouses Garganera was declared fictitious for being in fraud
execution of the judgment. (3) It was known to the vendee that his father-in-law had no of creditors.
properties other than those two parcels of land which were being sold to him. The fact
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Having discovered that the hacienda belonged to Pauli, HSBC filed a complaint for The heirs of Maximo Aldon, namely his widow Gimena and their children Sofia and
revival of the previous judgment on January 13, 1969 wherein the court ordered Pauli Salvador Aldon, filed a complaint in the CFI of Masbate against the Felipes. The alleged
to pay HSBC. HSBC filed another civil case to annul the conditional sale as well as the that the plaintiffs were the owners of Lots 1370, 1371 and 1415; that they had orally
deed of sale of the disputed hacienda. Pauli argues that the case is barred by prescription. mortgaged the same to the defendants; and an offer to redeem the mortgage had been
HSBC counters that the four-year period commenced to run from the date when they refused so they filed the complaint in order to recover the three parcels of land.
had actual knowledge of the fraudulent sale (sometime in 1969), hence, the action has
not yet prescribed. The trial court sustained the claim of the defendants and rendered defendants to be the
lawful owners of the property subject of the present litigation; and declaring the
ISSUE: Has the action for annulment of the sale of the hacienda to the Garganeras complaint in the present action to be without merit and is therefore ordered its dismissal.
prescribed? Plaintiffs appealed the decision to the CA which reversed and set aside the decision of
the lower court, and ordering the defendants-appellees to surrender the lots in question
RULING: Yes, the action has prescribed. as well as the plaintiffs’-appellants’ muniments of title thereof to said plaintiffs-
appellants reasoning that the appellants are entitled to recover the ownership of the lots
When a transaction involves registered land, the four-year period fixed in Article 1391 in question because the sale made by Gimena Almosara is invalid, having been executed
of the Civil Code within which to bring an action for annulment of the deed, shall be without the needed consent of her husband, the lots being conjugal.
computed from the registration of the conveyance (March 5, 1963) on the familiar theory
that the registration of the document is constructive notice of the conveyance to the ISSUE: Whether or not the sale made by Gimena is defective?
whole world. HSBC’s theory would diminish public faith in the integrity of torrens titles
and impair commercial transactions involving registered lands for it would render RULING: YES, the sale is voidable. It is useful at this point to re-state some elementary
uncertain the computation of the period for the prescription of such actions. rules: The husband is the administrator of the conjugal partnership. Subject to certain
exceptions, the husband cannot alienate or encumber any real property of the conjugal
ii. Voidable Contracts partnership without the wife’s consent. And the wife cannot bind the conjugal
partnership without the husband’s consent, except in cases provided by law.
Felipe v. Heirs of Aldon
G.R. No. L – 60174 February 16, 1983 Abad Santos, J. In the instant case, Gimena, the wife, sold lands belonging to the conjugal partnership
without the consent of the husband and the sale is not covered by the phrase "except in
cases provided by law." The Court of Appeals described the sale as "invalid" — a term
DOCTRINE: Contracts entered by the husband without the consent of the wife
which is imprecise when used in relation to contracts because the Civil Code uses
when such consent is required, are annullable at her instance during the marriage and
specific names in designating defective contracts, namely: rescissible, voidable,
within ten years from the transaction questioned
unenforceable, and void. The sale made by Gimena is certainly a defective contract but
of what category? The answer: it is a voidable contract.
NATURE OF ACTION: Petition for Review
The view that the contract made by Gimena is a voidable contract is supported by the
FACTS: Maximo Aldon married Gimena Almosara in 1936. The spouses bought legal provision that contracts entered by the husband without the consent of the wife
several pieces of land sometime between 1948 and 1950. In 1960-62, the lands were when such consent is required, are annullable at her instance during the marriage and
divided into three lots, 1370, 1371 and 1415 of the San Jacinto Public Land Subdivision, within ten years from the transaction questioned. (Art. 173, Civil Code). Gimena’s
San Jacinto, Masbate. In 1951, Gimena Almosara sold the lots to the spouses Eduardo contract is not rescissible for in such contract all the essential elements are untainted but
Felipe and Hermogena V. Felipe. The sale was made without the consent of her husband, Gimena’s consent was tainted. Neither can the contract be classified as unenforceable
Maximo. because it does not fit any of those described in Art. 1403 of the Civil Code. And finally,
the contract cannot be void or inexistent because it is not one of those mentioned in Art.
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1409 of the Civil Code. By process of elimination, it must perforce be a voidable Development Corporation (TOWERS) for the primary purpose of engaging in the real
contract. estate business. Subsequently, CENTERTOWN assigned to TOWERS all its rights and
obligations under the Deed of Conditional Sale, with the consent and approval of the
The voidable contract of Gimena was subject to annulment by her husband only during GSIS.
the marriage because he was the victim who had an interest in the contract. Gimena,
who was the party responsible for the defect, could not ask for its annulment. Their Thereafter, ASSOCIATION filed a complaint with the RTC of Manila against
children could not likewise seek the annulment of the contract while the marriage CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale
subsisted because they merely had an inchoate right to the lands sold. The termination and the subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint
of the marriage and the dissolution of the conjugal partnership by the death of Maximo alleged in part that the Deed of Conditional Sale is null and void ab initio for being ultra
Aldon did not improve the situation of Gimena. What she could not do during the vires, since defendant CENTERTOWN is not qualified to acquire real estate property or
marriage, she could not do thereafter to engage in real estate transactions.
House International Building Tenants Association, Inc. v. Intermediate The RTC dismissed the complaint. Such was appealed by the CA. Hence, this petition
Appellate Court, Centertown Marketing Corp., Manila Towers Development for review on certiorari.
Corp., and the Government Service Insurance System
G.R. No. 75287 June 30, 1987 Cortes, J. ASSOCIATION argued that the deed of conditional sale is being void, inexistent, and
absolutely wanting in civil effects because its consideration is illicit and/or the object
violates some mandatory provisions of the laws. Moreover, the contract is ultra vires
DOCTRINE: The action for the annulment of contracts may be instituted by all who because CENTERTOWN is not qualified to acquire properties under its Articles of
are thereby obliged principally or subsidiarily. The ASSOCIATION is neither a party Incorporation.
nor a privy to the Deed of Conditional Sale and the assignment thereof thus, it cannot
assail the validity of the said contracts ISSUE: Did the ASSOCIATION have the personality to assail the validity of the
conditional sale and its assignment?
NATURE OF ACTION: Petition for Review on Certiorari.
RULING: No, the ASSOCIATION is neither a party nor a privy to the Deed of
FACTS: House International Building Tenants Association, Inc. (ASSOCIATION) is a Conditional Sale and the assignment thereof thus, it cannot assail the validity of the said
domestic non-stock, non-profit civic corporation, whose incorporators, directors and contracts
members constitute the great majority of more than a hundred heads of families who are
tenants of long and good standing of the 14-storey House International Building located Art. 1397 of the NCC provides that the action for the annulment of contracts may be
at 777 Ongpin Street, Binondo, Manila. The property was formerly owned by Atty. instituted by all who are thereby obliged principally or subsidiarily.
Felipe Ang who mortgaged the same to the GSIS to secure payment of an obligation.
After foreclosure of the mortgage and for failure of Ang to exercise his right of In Ibañez v. Hongkong and Shanghai Bank it was held that the interest in a given contract
redemption over the foreclosed property, the ownership thereof was consolidated with is the determining reason of the right which lies in favor of the party obligated
the GSIS which subsequently sold it to Centertown Marketing Corporation principally or subsidiarily to enable him to bring an action for the nullity of the contract
(CENTERTOWN) in a deed of conditional sale, without notice to the tenants of the in which he intervened, and, therefore, he who has no right in a contract is not entitled
building and without securing the prior clearance of the Ministry of Human Settlements. to prosecute an action for nullity, for, according to the precedents established by the
courts, the person who is not a party to a contract, nor has any cause of action or
As CENTERTOWN was not authorized by its Articles of Incorporation to engage in the representation from those who intervened therein, is manifestly without right of action
real estate business, it organized a sister corporation, with almost all the same and personality such as to enable him to assail the validity of the contract.
incorporators and stockholders under the corporate name of Manila Towers
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Hence, the action for the annulment of the deed of conditional sale may be instituted UnionBank informed Poole-Blunden that after inquiring with the Housing and Land Use
only by those who are thereby obliged principally or subsidiarily . ASSOCIATION is Regulatory Board (HLURB), the Homeowners' Association of T-Tower Condominium,
not privy to either the deed of conditional sale or the assignment. and its appraisers, the Unit was confirmed to be 95 square meters, inclusive of the terrace
and the common areas surrounding it.
Poole – Blunden v. Union Bank
G.R. No. 205838 November 29, 2017 Leonen, J. Poole-Blunden charges UnionBank with fraud in failing to disclose to him that the
advertised 95 square meters was inclusive of common areas. With the vitiation of his
consent as to the object of the sale, he asserts that the Contract to Sell may be voided.
DOCTRINE: Banks are required to observe a high degree of diligence in their He insists that UnionBank is liable for breach of warranty despite the "as-is-where-is"
affairs. This encompasses their dealings concerning properties offered as security for clause in the Contract to Sell.
loans. A bank that wrongly advertises the area of a property acquired through
foreclosure because it failed to dutifully ascertain the property's specifications is ISSUE: Whether or not Union Bank of the Philippines committed such a degree of fraud
grossly negligent as to practically be in bad faith in offering that property to as would entitle Poole-Blunden to the voiding of the Contract to Sell the
prospective buyers. Any sale made on this account is voidable for causal fraud. In condominium unit
actions to void such sales, banks cannot hide under the defense that a sale was made
on an as-is-where-is basis. As-is-where-is stipulations can only encompass physical RULING: Yes. Gross negligence on the part of Union Bank amounted to fraud.
features that are readily perceptible by an ordinary person possessing no specialized
skills. For there to be a valid contract, all the three (3) elements of consent, subject matter, and
price must be present. Consent wrongfully obtained is defective. The party to a contract
NATURE OF ACTION: Petition for Review on Certiorari under Rule 45 whose consent was vitiated is entitled to have the contract rescinded. Accordingly,
Article 1390 of the Civil Code stipulates that a contract is voidable or annullable even
FACTS: Poole-Blunden came across an advertisement placed by Union Bank in the if there is no damage to the contracting parties where "consent is vitiated by mistake,
Manila Bulletin. The ad was for the public auction of a condominium unit. UnionBank violence, intimidation, undue influence or fraud."
had acquired the property through foreclosure proceedings "after the developer
defaulted in the payment of its loan from UnionBank." The Unit was advertised to have Under Article 1338 of the Civil Code "[t]here is fraud when, through insidious words or
an area of 95 square meters. Thinking that it was sufficient and spacious enough for his machinations of one of the contracting parties, the other is induced to enter into a
residential needs, Poole-Blunden decided to register for the sale and bid on the unit. contract which, without them, he would not have agreed to." However, not all instances
of fraud enable the voiding of contracts. Article 1344 clarifies that in order to make a
About a week prior to the auction, Poole-Blunden visited the unit for inspection. He was contract voidable, the fraud "should be serious and should not have been employed by
accompanied by a representative of UnionBank. The unit had an irregular shape; it was both contracting parties."
neither a square nor a rectangle and included a circular terrace. Poole-Blunden did not
doubt the unit's area as advertised. Tankeh v. Development Bank of the Philippines explained, "There are two types of fraud
contemplated in the performance of contracts: dolo incidente or incidental fraud and
Poole-Blunden entered into a Contract to Sell with UnionBank. After 2 years, he was dolo causante or fraud serious enough to render a contract voidable." The fraud required
able to fully pay for the Unit. When he is about to construct two rooms in the unit, Poole- to annul or avoid a contract "must be so material that had it not been present, the
Blunden noticed apparent problems in its dimensions. He took rough measurements of defrauded party would not have entered into the contract." The fraud must be "the
the Unit, which indicated that its floor area was just about 70 square meters, not 95 determining cause of the contract, or must have caused the consent to be given."
square meters, as advertised by UnionBank.
Petitioner's contention on how crucial the dimensions and area of the Unit are to his
decision to proceed with the purchase is well-taken. The significance of space and
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dimensions to any buyer of real property is plain to see. This is particularly significant Gross negligence connotes want of care in the performance of one's duties; it is a
to buyers of condominium units in urban areas, and even more so in central business negligence characterized by the want of even slight care, acting or omitting to act in a
districts, where the scarcity of space drives vertical construction and propels property situation where there is duty to act, not inadvertently but wilfully and intentionally, with
values. It would be immensely guileless of this Court to fail to appreciate how the a conscious indifference to consequences insofar as other persons may be affected. It
advertised area of the Unit was material or even indispensable to petitioner's consent. evinces a thoughtless disregard of consequences without exerting any effort to avoid
As petitioner emphasized, he opted to register for and participate in the auction for the them.
Unit only after determining that its advertised area was spacious enough for his
residential needs. Banks assume a degree of prudence and diligence higher than that of a good father of a
family, because their business is imbued with public interest and is inherently fiduciary.
Falsity on its area is attributable to none but to respondent, which, however, pleads that Thus, banks have the obligation to treat the accounts of its clients "meticulously and
it should not be considered as having acted fraudulently given that petitioner conceded with the highest degree of care."
to a sale on an as-is-where-is basis, thereby waiving "warranties regarding possible
errors in boundaries or description of property." The high degree of diligence required of banks equally holds true in their dealing with
mortgaged real properties, and subsequently acquired through foreclosure, such as the
Reliance on as-is-where-is stipulation is misplaced for two (2) reasons. First, a Unit purchased by petitioner.
stipulation absolving a seller of liability for hidden defects can only be invoked by a
seller who has no knowledge of hidden defects. Respondent here knew that the Unit's However, whether it was unaware of the unit's actual interior area; or, knew of it, but
area, as reckoned in accordance with the Condominium Act, was not 95 square meters. wrongly thought that its area should include common spaces, respondent's predicament
Second, an as-is-where-is stipulation can only pertain to the readily perceptible physical demonstrates how it failed to exercise utmost diligence in investigating the Unit offered
state of the object of a sale. It cannot encompass matters that require specialized scrutiny, as security before accepting it. This negligence is so inexcusable; it is tantamount to bad
as well as features and traits that are immediately appreciable only by someone with faith.Even the least effort on respondent's part could have very easily confirmed the
technical competence. Unit's true area. Respondent's failure to do so indicates how it created a situation that
could have led to no other outcome than petitioner being defrauded.
A person not equipped with technical knowledge and expertise to survey real property
could not reasonably be expected to recognize deficiencies in measurement at the first iii. Unenforceable Contracts
instance especially if that property was of "irregular shape," "neither square nor
rectangle," and having a "circular terrace." Ortega v. Leonardo
G.R. No. L – 11311 May 28, 1954 Bengzon, J.
By definition, fraud presupposes bad faith or malicious intent. It transpires when
insidious words or machinations are deliberately employed to induce agreement to a
DOCTRINE: While, as a general rule, an oral agreement to sell a piece of land is
contract. Thus, one could conceivably claim that respondent could not be guilty of fraud
not provable, however, where there is partial performance of the sale contract, the
as it does not appear to have crafted a deceptive strategy directed specifically at
principle excluding evidence of parol contracts for the sale of realty will not apply.
petitioner. However, while petitioner was not a specific target, respondent was so
callously remiss of its duties as a bank. It was so grossly negligent that its recklessness
The "Statute of Frauds" lists other acts of partial performance, such as possession,
amounts to a wrongful willingness to engender a situation where any buyer in
the making of improvements, rendition of services, payment of taxes, relinquishment
petitioner's shoes would have been insidiously induced into buying a unit with an actual
of rights, etc.
area so grossly short of its advertised space.
In Spouses Carbonell v. Metropolitan Bank and Trust Company, this Court considered NATURE OF ACTION: Appeal to the Supreme Court following the dismissal of the
gross negligence, in relation to the fiduciary nature of banks: Manila court of first instance
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FACTS: The complaint averred that long before and until her house had been Granting that none of the three circumstances indicated by him, (relinquishment, survey,
completely destroyed during the liberation of the City of Manila, plaintiff occupied a tender) would separately suffice, still the combination of the three with the others
parcel of land located at San Andres Street, Malate, Manila; that after liberation she already mentioned, amounts to more than enough. Hence, as there was partial
reoccupied it; that when the administration and disposition of the said Lot were assigned performance, the principle excluding parol (oral) contracts for the sale of realty, does
by the Government to the Rural Progress Administration. Plaintiff asserted her right not apply.
thereto (as occupant) for purposes of purchase; that defendant also asserted a similar
right, alleging occupancy of a portion of the land subsequent to plaintiff’s; that during Carbonel v. Poncio
the investigation of such conflicting interests, defendant asked plaintiff to desist from G.R. No. 11231 May 12, 1958 Concepcion, J.
pressing her claim and definitely promised that if and when he succeeded in getting title
to the Lot, he would sell to her a portion thereof with an area of 55.60 square meters at
the rate of P25.00 per square meter provided that she complies with the conditions DOCTRINE: The Statute of Frauds is applicable only to executory contracts, not to
imposed such as surveying, subdivision and becoming a tenant at the rate of P10.00 until contracts that are totally or partially performed. The reason is simple. In executory
said portion shall have been segregated and the purchase price fully paid. contracts there is a wide field for fraud because, unless they be in writing there is no
palpable evidence of the intention of the contracting parties. However, if a contract
Plaintiff accepted defendant’s offer, and desisted from further claiming the Lot. That has been totally or partially performed, the exclusion of parol evidence would
plaintiff complied with all the conditions imposed, incurring expenses therefor. promote fraud or bad faith, for it would enable the defendant to keep the benefits
already derived by him from the transaction in litigation, and, at the same time, evade
After defendant had acquired the Lot, plaintiff regularly paid him the monthly rental of the obligations, responsibilities or liabilities assumed or contracted by him thereby.
P10.00; that in July 1954, after the plans of subdivision and segregation of the lot had
been approved by the Bureau of Lands, plaintiff tendered to defendant the purchase price NATURE OF ACTION: An appeal from the trial court in dismissing the plaintiff's
which the latter refused to accept, without cause or reason. complaint on the ground that her cause of action is unenforceable under the statute of
frauds.
ISSUE: Whether or not partial performance in an oral contract of sale requires part
payment of the purchase price before it can be enforceable? FACTS: Petitioner Rosario Carbonnel allegedly purchased a parcel of land from
respondent Jose Poncio. Such land was mortgaged to a Republic Savings Bank which
RULING: No. Well known is the general rule in the Statute of Frauds precluding Poncio has an obligation to pay. It was alleged that Carbonnel partially paid the Poncio
enforcement of oral contracts for the sale of land. Not so well known is the exception of the price of the land and to assume respondent`s responsibility to recover the land.
concerning partially executed contracts. One of the conditions of the alleged sale was that Poncio would be allowed to continue
in staying in said land for one year. However, Poncio has conveyed the same land to the
If partial performance of a sale contract occurs only when part of the purchase price is other respondents herein which are the spouses Mr. and Mrs. Infante.
paid, it surely constitutes a defective statement of the law. American jurisprudence in its
title "Statute of Frauds" lists other acts of partial performance, such as possession, the Respondents herein claim that the previous sale between Poncio and petitioner was
making of improvements, rendition of services, payment of taxes, relinquishment of unenforceable due to a violation of the Statute of Fraud as the alleged sale was never
rights, etc. deduced to writing. Petitioner here claims ownership of the said property.
In the light of the above it would appear that the complaint in this case described several Infantes filed an answer denying most of the allegations of said complaint and alleged,
circumstance indicating partial performance: relinquishment of rights continued by way of special defense, that they purchased the land in question in good faith, for
possession, building of improvements, tender of payment plus the surveying of the lot value, and without knowledge of the alleged sale to plaintiff; and that plaintiff's claim is
at plaintiff’s expense and the payment of rentals. unenforceable under the Statute of Frauds.
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During trial, Carbonnel presented Exhibit A which reads: “From this date, January 27, In the case at bar, it appears that Poncio still asked permission from the petitioner to stay
José Poncio may stay in this lot that I bought from him until one year without payment. in the premises (Exhibit A, as document signed by the defendant). Aside from that, it
After that one year and he cannot find any place where to transfer his house, he can also was shown that the passbook of Poncio was in the hand of the Petitioner and it has a
stay in this lot and he will pay according to agreement.” credit account allegedly representing the amount partially paid by petitioner.
The lower court issued an order dismissing the plaintiff's complaint, without costs, upon Wherefore, the order appealed from is hereby set aside, and let this case be remanded to
the ground that her cause of action is unenforceable under the Statute of Frauds. The the lower court for further proceedings not inconsistent with this decision, with the costs
counterclaims were, also, dismissed. of this instance against defendants-appellees. It is so ordered.
ISSUE: Whether or not the transaction falls under the Statute of Frauds? Babao v. Perez
G.R. No. L – 8334 December 28, 1957 Bautista – Angelo, J.
RULING: No. We are of the opinion and so hold that the appeal is well taken. It is well
settled in this jurisdiction that the Statute of Frauds is applicable only to executory
contracts, not to contracts that are totally or partially performed. DOCTRINE: Contracts which their terms are not to be performed within 1 year,
may be taken out of the statute through performance by one party thereto. All that is
In the words of former Chief Justice Moran: "The reason is simple. In executory required in such case is complete performance within the year by one party, however
contracts there is a wide field for fraud because unless they be in writing there is many years may have to elapse before the agreement is performed by the other party.
no palpable evidence of the intention of the contracting parties. The statute has But nothing less than full performance by one party will suffice, and it has been held
precisely been enacted to prevent fraud." (Comments on the Rules of Court, by that, if anything remains to be done after the expiration of the year besides the mere
Moran, Vol. III [1957 ed. ], p. 178.) However, if a contract has been totally or partially payment of money, the statute will apply
performed, the exclusion of parol evidence would promote fraud or bad faith, for it
would enable the defendant to keep the benefits already derived by him from the NATURE OF ACTION: Action to recover ½ of a parcel of land containing an area of
transaction in litigation, and, at the same time, evade the obligations, responsibilities or 156 hectares situated in San Juan, Batangas, plus the value of the produce gathered
liabilities assumed or contracted by him thereby. thereon until actual recovery and in the alternative, to recover the sum representing
reimbursement of the amount of useful and necessary expenses incurred to clear and
For obvious reasons, it is not enough for a party to allege partial performance in order improve the aforesaid land.
to hold that there has been such performance and to render a decision declaring that the
Statute of Frauds is inapplicable. But neither is required to establish such partial FACTS: Complaint alleges that Celestina Perez was in her lifetime the owner of the
performance by documentary proof before he could have the opportunity to introduce parcel of land, that when the deceased Santiago Babao (Herein referred to as
oral testimony on the transaction. Indeed, such oral testimony would usually be “Petitioner”) married Maria Perez, niece of Celestina, the latter and the former entered
unnecessary if there were documents proving partial performance. Thus, the rejection of into a verbal agreement into a verbal agreement whereby Petitioner bound himself to
any and all testimonial evidence on partial performance, would nullify the rule that the improve the land by levelling and clearing all the forest trees standing thereon and
Statute of Frauds is inapplicable to contracts which have been partly executed, and lead planting in lieu thereof coconuts, rice, corns and other crops such as bananas and
to the very evils that the statute seeks to prevent. bamboos and to act at the same time as administrator thereof during the lifetime of
Celestina. All expenses for labor and materials to be at the cost of Petitioner. Celestina
The true basis of the doctrine of part performance according to the overwhelming weight in turn bound herself to convey to Petitioner or his wife, ½ of the land, together with all
of authority, is that it would be a fraud upon the plaintiff if the defendant were permitted the improvements thereon upon her death. Petitioner in 1924 left his job as administrator
to escape performance of his part of the oral agreement after he has permitted the of the Llana Estate in San Juan, Batangas and started levelling and clearing the land. In
plaintiff to perform in reliance upon the agreement. violation of the aforesaid verbal agreement, Celestina acting through Leovigildo perez,
CIVIL LAW REVIEW 2
to whom she extended a power of attorney to sell, sold few days before she died about contract may take the case out of the operation of the statute, it must appear clear that
127 ½ hectares of the land in question in consequence of which Petitioner was deprived the full performance has been made by one party within 1 year, as otherwise the statute
of the possession and administration thereof that the said sales were fictitious and were would apply. Thus, the rule on this point is well stated in Corpus Juris in the following
made in clear violation of the oral agreement made between Celestina and Petitioner and wise: “Contracts which their terms are not to be performed within 1 year, may be taken
as such the same are all null and void. Defendants denies the existence of that verbal out of the statute through performance by one party thereto. All that is required in such
agreement. They alleged that in 1924 and for many years prior thereto, the land in case is complete performance within the year by one party, however many years may
question had already been cleared and cultivated for agricultural purposes with an have to elapse before the agreement is performed by the other party. But nothing less
exception of a portion of 50 hectares, the land was cleared and cultivated due party to than full performance by one party will suffice, and it has been held that, if anything
the effort made by Celestina’s husband – Esteban De Villa – her overseers ad tenants remains to be done after the expiration of the year besides the mere payment of money,
and partly to the “trusco” system employed by them whereby person were allowed to the statute will apply” it is not therefore correct to state that Petitioner has fully complied
clear the land and plant thereon and from the harvest were compensated according to a with his part within one year from the alleged contract in question. The statute of frauds
graduated scale of division varying from year to year. And that Petitioner did not have applies only to agreements not to be performed on either side within 1 years from the
anything to do with the land in question for Esteban de Villa was then still living and making thereof. Agreement to be fully performed on one side within 1 year are taken
actively managed the same with the help of his overseer and tenants until he died in out of the operation of the statute. Assuming arguendo that the agreement in question
1930. That Celestina disgusted with the conduct of Petitioner left their company and falls also under paragraph (a) of Art. 1403, it cannot also be contended that the provision
went to live with her Nephew Bernardo until her death and Celestine prohibited Santiago does not apply to the provision of the present case for the reason that there was part
from interfering with the administration of the land and was designated another person performance on the part of one of the parties. In this connection, it must be noted that
in his place and for the work he did, he was compensated. this statute is one based on equity. It is based on equitable estoppel or estoppel by
conduct. It operates only under certain specified conditions and when adequate relief at
Judgement was rendered by the trial court in favor of the Petitioner and against the law is unavailable. And one of the requisites that need be present is that the agreement
respondent, declaring the sales fraudulent and fictitious. That Petitioner fully complied relied on must be certain, definite, clear, unambiguous and unequivocal in its terms
with his part of the oral contract between the parties and that this is an action not only before the statute may operate.
for specific performance but also for damages. That statute of frauds cannot be invoked
for the reason that “performance by one party of his part of the contract take the case Cabage v. Auxilio
out of the statute” and pursuant to such ruling, when the case was tried on the merits, G.R. No. L – 5028 November 26, 1952 Bengzon, J.
the court overruled all objections of counsel for appellants to the introduction of oral
testimony to prove the alleged verbal agreement.
DOCTRINE: For breach of a mutual promise to marry, one may may sue for
ISSUE: Whether or not the verbal contract between the parties are enforceable and not damages as evidence of such mutual promise is admissible. However, an action on
covered by the statute of frauds on the ground that one party was able to fully the theory of "mutual promise to marry” may not prosper, because it is to enforce an
comply with his part of the agreement. agreement in consideration of marriage.
RULING: No. The oral contract allegedly entered into by Celestina with herein NATURE OF ACTION: Appeal
Petitioner is unenforceable.
FACTS: In the justice of the peace court of Basud, Camarines Norte, Felipe Cabague
The trial court expressed the view that the statute does not apply because it assumed that and his son Geronimo sued the defendant Matias Auxilio and his daughter Socorro to
Petitioner fully complied with his part of the oral contract between the parties, and in its recover damages resulting from defendants' refusal to carry out the previously agreed
opinion “performance by one party of his part of the contract take the case out of the marriage between Socorro and Geronimo. The complaint alleged, in short: (a) that
statute” Even if this assumption were correct, still we find one flaw in its logic which defendants promised such marriage to plaintiffs, provided the latter would improve the
fully nullifies it for it fails to consider that in order that a atrial performance of the defendants' house in Basud and spend for the wedding feast and the needs of the bride;
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(b) that relying upon such promises plaintiffs made the improvement and spent Php 700; NATURE OF ACTION: Petition for certiorari and prohibition to declare void for being
and (c) that without cause defendants refused to honor their pledged word. in grave abuse of discretion the orders of respondent judge.
The defendants moved to dismiss, arguing that the contract was oral, unenforceable FACTS: Petitioners own a property in Tacloban City which they intend to sell for 6.5M.
under the rule of evidence. They gave the respondents the right to purchase the property but only until July 31,
1978. Respondents replied thru telegram that they agree to buy the property and they
The peace court dismissed the case. On appeal to the CFI, the plaintiffs reproduced their will negotiate for details. Petitioner sent another telegram informing respondents that
complaint and defendants reiterated their motion to dismiss. From an order of dismissal their proposal is accepted and a contract will be prepared.
this appeal was perfected in due time and form.
Lawyer of defendant, Mr.Gamboa, arrived bringing a contact with an altered mode of
ISSUE: Whether or not the plaintiffs may claim damages from defendant’s due to payment which says that the balance payment should be paid withing 30 days instead of
breach of verbal promise to marry the former 90 days. (Original terms: 2M payment upon execution. 4.5M after 90 days)
In essence, the theory of petitioners is that while it is true that they did express
RULING: The understanding between the plaintiffs on one side and the defendants on willingness to sell to private respondents the subject property (land and building) for
the other, involves 2 kinds of agreement. One, the agreement between Felipe Cabague P6,500,000.00 provided the latter made known their own decision to buy it not later than
and the defendants in consideration of the marriage of Socorro and Geronimo. Another, July 31, 1978, the respondents' reply that they were agreeable was not absolute, so much
the agreement between the two lovers, as "a mutual promise to marry." For breach of so that when ultimately petitioners' representative went to Cebu City with a prepared
that mutual promise to marry, Geronimo may sue Socorro for damages. This is such and duly signed contract for the purpose of perfecting and consummating the
action, and evidence of such mutual promise is admissible. However Felipe Cabague's transaction, respondents and said representative found variance between the terms of
action may not prosper, because it is to enforce an agreement in consideration of payment stipulated in the prepared document and what respondents had in mind, hence
marriage. Evidently as to Felipe Cabague and Matias Auxilio this action could not be the bank draft which respondents were delivering to the representative was returned and
maintained on the theory of "mutual promise to marry". Neither may it be regarded as the document remained unsigned by respondents.
action by Felipe against Socorro "on a mutual promise to marry."
The respondents, in their complaint, contended “That on August 1, 1978 Pedro Gamboa
Consequently, Geronimo may continue his action against Socorro for such damages as arrived Tacloban City bringing with him the prepared contract to purchase and to sell
may have resulted from her failure to carry out their mutual matrimonial promises. referred to in his telegram dated July 27, 1978 for the purpose of closing the transactions
referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of plaintiffs,
Wherefore this expediente will be returned to the lower court for further proceedings in the defendant without giving notice to plaintiffs, changed the mode of payment with
accordance with this opinion. So ordered. respect to the balance of P4,500,000.00 by imposing upon plaintiffs to pay same amount
within thirty (30) days from execution of the contract instead of the former term of ninety
Yuvencio v. Dacuycuy (90) days.” It was on the basis of the foregoing facts and allegations that herein
G.R. No. L – 55048 May 27, 1981 Barredo, J. petitioners filed their motion to dismiss as main grounds: I. That plaintiff, TACLOBAN
MERCHANTS' REALTY DEVELOPMENT CORPORATION, amended complaint,
does not state a cause of action and the claim on which the action is founded is likewise
DOCTRINE: We hold that in any sale of real property on installments, the Statute unenforceable under the provisions of the Statute of Frauds. II. That as to the rest of the
of Frauds read together with the perfection requirements of Article 1475 of the Civil plaintiffs, their amended complaint does not state a cause of action and the claim on
Code must be understood and applied in the sense that the idea of payment on which the action is founded is likewise unenforceable under the provisions of the Statute
installments must be in the requisite of a note or memorandum therein contemplated. of Frauds.
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In the trial court, the respondent judge ruled negatively on the motion to dismiss. hence, object of the contract and upon the price", the Statute would no longer apply as long as
this petition for certiorari and prohibition to declare void for being in grave abuse of the total price or consideration is mentioned in some note or memorandum and there is
discretion the orders of respondent judge. no need of any indication of the manner in which such total price is to be paid.
ISSUE: Whether or not the contract between the petitioner and the private-respondent We cannot agree. In the reality of the economic world and the exacting demands of
complied with the Statues of Fraud, and thus enforceable. business interests monetary in character, payment on installments or staggered payment
of the total price is entirely a different matter from cash payment, considering the
RULING: The court ruled in the negative. unpredictable trends in the sudden fluctuation of the rate of interest. In other words, it is
indisputable that the value of money - varies from day to day, hence the indispensability
On the other score of considering the supposed agreement of paying installments as of providing in any sale of the terms of payment when not expressly or impliedly
partly supported by the letter and t telegram earlier quoted herein, His Honor declared intended to be in cash.
with well-studied ratiocination, albeit legally inaccurate, that:
The next issue relates to the State of Frauds. It is contended that plaintiffs' Thus, We hold that in any sale of real property on installments, the Statute of Frauds
action for specific performance to compel the defendants to execute a good read together with the perfection requirements of Article 1475 of the Civil Code must
and sufficient conveyance of the property in question (Sotto land and be understood and applied in the sense that the idea of payment on installments must be
building) is unenforceable because there is no other note memorandum or in the requisite of a note or memorandum therein contemplated. Stated otherwise, the
writing except annexes "C", "C-l" and "D", which by themselves did not inessential elements" mentioned in the case of Parades vs. Espino, 22 SCRA 1000, relied
give birth to a contract to sell. The argument is not well founded. The rules upon by the respondent judge must be deemed to include the requirement just discussed
of pleading limit the statement of the cause of action only to such operative when it comes to installment sales. There is nothing in the monograph re — the Statute
facts as give rise to the right of action of the plaintiff to obtain relief against of Frauds appearing in 21 SCRA 250 also cited by His Honor indicative of any contrary
the wrongdoer. The details of probative matter or particulars of evidence, view to this ruling of Ours, for the essence and thrust of the said monograph refers only
statements of law, inferences and arguments need not be stated. Thus, Sec. to the form of the note or memorandum which would comply with the Statute, and no
1 of Rule 8 provides that 'every pleading shall contain in a methodical and doubt, while such note or memorandum need not be in one single document or writing
logical form, a plain concise and direct statement of the ultimate facts on and it can be in just sufficiently implicit tenor, imperatively the separate notes must,
which the party pleading relies for his claim or defense, as the case may be, when put together', contain all the requisites of a perfected contract of sale. To put it the
omitting the statement of mere evidentiary facts.' Exhibits need not be other way, under the Statute of Frauds, the contents of the note or memorandum, whether
attached. The contract of sale sued upon in this case is supported by letters in one writing or in separate ones merely indicative for an adequate understanding of all
and telegrams annexed to the complaint and plaintiffs have announced that the essential elements of the entire agreement, may be said to be the contract itself,
they will present additional evidences during the trial to prove their cause except as to the form.
of action. The plaintiffs having alleged that the contract is backed up by
letters and telegrams, and the same being sufficient memorandum, the Clarin v. Rulona
complaint states a cause of action and they should be given their day in G.R. No. L – 30786 February 20, 1984 Gutierrez, Jr., J.
court and allowed to substantiate their allegations (Parades vs. Espino, 22
SCRA 1000). (Pp 165-166, Record.)
DOCTRINE: A contract of sale is perfected at the moment there is a meeting of
The foregoing disquisition of respondent judge misses at least two (2) juridical minds upon the thing which is the object of the contract and upon the price. Such
substantive aspects of the Statute of Frauds insofar as sale of real property is concerned. contract is binding in whatever form it may have been entered into.
First, His Honor assumed that the requirement of perfection of such kind of contract
under Article 1475 of the Civil Code which provides that "(t)he contract of sale is NATURE OF ACTION: Action for Specific Performance/ Petition for Review on
perfected at the moment there is a meeting of the minds upon the thing which is the Certiorari
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Bisaya Land Transportation v. Sanchez

FACTS: On May 31, 1959, petitioner executed two documents which provide that G.R. No. 74623 August 31, 1987 Padilla, J.
petitioner is selling to respondent spouses Rulona ten hectares of land for Php 2,500. In
the second document, petitioner acknowledged the receipt of downpayment amounting
to Php 1,000 and the payment of the first installment of Php 100. DOCTRINE: The determination, therefore, of whether the questioned contracts are
void or merely unenforceable is important, because of the settled distinction that a
Later, petitioner returned the sum of Php 1,100 and told the spouses that it cannot void and inexistent contract can not be ratified and become enforceable, whereas an
anymore proceed with the sale due to the non- conformity of his co- heirs to the sale. unenforceable contract may still be ratified and, thereafter, enforced.
According to him, the respondent spouses entered into the contract of sale knowing full
well that it is subject to the condition that the petitioner's co heirs will agree with the NATURE OF ACTION: Petition for certiorari against decision of the IAC (original
sale. Otherwise, the sale will not push through and any amount paid shall be returned. action in the trial court was one for Specific Performance w/ Preliminary Injunction and
Damages). This is under unenforceable contracts in the syllabus.
The RTC rendered judgment in favor of spouses finding that the contract of sale is a
pure sale of the said parcel of land for the said sum of Php 2,500 and not a conditional FACTS: Petitioner Bisaya Land Transportation Company, Inc. (BISTRANCO) has
sale. Therefore, it declared the same binding between the parties. It also noted that the been engaged in the shipping business, operating several passenger-cargo vessels, and
act of petitioner in returning the money paid by respondents is an act of rescission, which among the ports of call of these vessels has been Butuan City. Private respondent
under Art. 1191, can be authorized by the court only upon showing of a substantial Sanchez was an employee of BISTRANCO as a quartermaster in one of its vessels, He
breach by one party of his obligation. The CA sustained the findings of the RTC. later ceased to be an employee as he engaged in stevedoring services in the port of
Butuan City and rendered stevedoring services for the vessels of BISTRANCO.
ISSUE: Whether the contract between the parties is pure or conditional.
In May 1975, Sanchez was appointed by BISTRANCO as shipping agent in Butuan City
RULING: The Court ruled that it is a pure contract of sale. Construing the two Exhibits for the vessel M/V Don Mariano. Later on 12 March 1976, when BISTRANCO was
together, it is clear that petitioner agreed to sell and the respondent agreed to buy a under receivership, Sanchez was appointed by its Receiver, Atty. Adolfo V. Amor, as
definite object, that is, the ten hectares of land which is part and parcel of Lot 20 PLD acting shipping agent, also for M/V Doña Remedies, in addition to M/V Doña Filomena,
No. 4, owned in common by petitioner and his sisters although the boundaries shall be in the port of Butuan City "pending the execution of the formal contract of agency.”
delineated at a later date. The parties also agreed to a definite price which is Php 2,500. When Sanchez was constituted as acting shipping agent, he received the same
Petitioner also admits that it received from respondent the initial payment of Php1,000. commission as his predecessor, who received 10% for all freight and passenger revenues
Hence, it cannot be denied that there was a perfected contract of sale between them and coming from Butuan City and 5% for all freight going to Butuan.
that such contract was already partially executed when the petitioner received the said
initial payment. The latter’s acceptance of the consent clearly showed his consent to the On 27 July 1976, a formal Contract of Agency (Exhibit F) was executed between
contract thereby precluding him from rejecting its binding effect. With the contract BISTRANCO, represented by Receiver Atty. Amor, and Marciano C. Sanchez,
being partially executed, the same is no longer covered by the requirements of the Statute represented by his authorized representative Exequiel Aranas. On 30 July 1976, after
of Frauds in order to be enforceable. Sanchez found that Paragraph 16 of the Contract of agency was quite prejudicial to him,
he executed with BISTRANCO a Supplemental Shipping Agency Contract (Exhibit G)
WHEREFORE, the petition is hereby DISMISSED for lack of merit. Costs against the which was duly signed by Receiver Atty. Amor on behalf of BISTRANCO and
petitioner. Marciano C. Sanchez himself. But, both the Contract of Agency and the Supplemental
Shipping Agency Contract were never submitted by Atty. Amor to the receivership court
for its approval.
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By virtue of the Contract of Agency and the Supplemental Shipping Agency Contract Pursuant to such latter, BISTRANCO actually opened and operated a branch office in
(hereinafter Contracts), Sanchez performed his duties as shipping agent of Butuan City on 15 January 1980. BISTRANCO through its new representative contacted
BISTRANCO, and he received his corresponding commissions as such shipping agent. the shippers in Butuan City and neighboring towns, advising them to transact their
business directly with its new branch office in Butuan City. Under these circumstances,
He did the following pursuant to the Contracts: the business of Sanchez, as shipping agent of BISTRANCO in Butuan City, was
1. Leased a parcel of land owned by Jose S. Mondejar which was used as the seriously impaired and undermined . He could not solicit as many passengers as he used
wharf and berthing facilities of BISTRANCO; to, because the passenger tickets issued to him by BISTRANCO were limited. The
2. At an expense of more than P100,000.00, constructed the wharf on the land he cargoes solicited by Sanchez were loaded on a "chance basis" because those that were
leased and the wharf was used to facilitate the loading and unloading of cargoes solicited by the branch office were given priority.
of the BISTRANCO vessels at the port of Butuan City from 1976 to December
1979; RTC sided with Sanchez. CA affirmed in toto.
3. constructed a bodega at his wharf for use in connection with the shipping
business of BISTRANCO; ISSUE: Are the Contracts entered into between BISTRANCO and Sanchez
4. Constructed an office for the agency and, as of December 1979, he had an unenforceable?
office force of 13 employees, all paid and maintained by him;
5. Operated six (6) cargo trucks and one (1) jeep for the service of the shipping RULING: The Supreme Court ruled in the affirmative.
agency;
6. Put up billboards and other forms of advertisement to enhance the shipping The general powers of a court-appointed receiver are provided in Section 7, Rule 59 of
business of BISTRANCO; the Rules of Court. Under such rule, the receiver is "subject to the control of the court
7. Established good business relations with the business community of Butuan in which the action is pending" and he can "generally do such acts respecting the
City. property as the court may authorize". The act of Receiver Amor in entering into a
8. In these endeavors, Sanchez succeeded in increasing the volume of the shipping contract of agency with Sanchez is not one of the acts specifically allowed in the
business of BISTRANCO at the Butuan City port, so much so that his earnings mentioned rule. As held in one case, a court-appointed receiver cannot validly enter into
on freight alone increased from an average of P8,535.00 a month in 1975 to an a contract without the approval of the court.
average of about P32,000.00 a month in the last seven months of 1979.
What then is the status of the Contracts which Receiver Amor entered into with Sanchez,
While the shipping business of BISTRANCO in Butuan City flourished, evidently to the without the approval of the court which appointed him receiver? The determination,
mutual benefit of both parties, on 26 December 1979, co-petitioner Roa, as Executive therefore, of whether the questioned contracts are void or merely unenforceable is
Vice-President of BISTRANCO, wrote Sanchez a letter (Exhibit FF) advising him that, important, because of the settled distinction that a void and inexistent contract can not
effective 1 January 1980, BISTRANCO would commence operating its branch office in be ratified and become enforceable, whereas an unenforceable contract may still be
Butuan City. Prior to this, on 11 December 1979, Sanchez was invited to attend a ratified and, thereafter, enforced.
meeting of the Board of Directors of BISTRANCO wherein he was told by co-petitioner
Cuenco that the Board was to open a branch office in Butuan City and he was asked The petitioners allege that the Contracts are void, citing Article 1409(l) of the Civil Code
what would be his proposals. Sanchez submitted his proposals in writing, but these were which provides that contracts whose cause, object or purpose is contrary to law, morals,
not acceptable to BISTRANCO. good customs, public order or public policy, are inexistent and void from the beginning.
In the case at bar, the contracts of agency were entered into for the management and
Realizing that the letter Exhibit FF, was in effect a repudiation of the Contracts, Sanchez operation of BISTRANCO's business in Butuan City. The purpose of the Contracts was
filed an action for specific performance with preliminary injunction and damages with to create an agency for BISTRANCO with Marciano Sanchez as its agent in Butuan
the Regional Trial Court of Cebu City on 28 December 1979. City. Even as to the other provisions of the Contracts, there is nothing in their cause or
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object which can be said as contrary to law, morals, good customs, public order or public also show that there is no single provision therein that can be said as prejudicial or not
policy so as to render them void. beneficial to BISTRANCO.
On the other hand, paragraph 1, Article 1403 of the Civil Code provides that contracts As held in Savings v. Ball-Bearing Chain Co.: Not every act within the letter of an order
"entered into in the name of another person by one who has been given no authority or can be sanctioned, nor everything done without the direction of the court condemned.
legal representation, or who has acted beyond his powers" are unenforceable, unless The tests to be applied are: (1) was the act under investigation within the authority
they are ratified. conferred by an order of court? (2) If so, was it performed with reference to the
preservation of the estate, as a man of ordinary sagacity and prudence would have
In the case at bar, it is undisputed that Atty. Amor was entrusted, as receiver, with the performed it under like circumstances? (3) If without authority, was it beneficial to the
administration of BISTRANCO and it business. But the act of entering into a contract estate?
is one which requires the authorization of the court which appointed him receiver.
Consequently, the questioned Contracts can rightfully be classified as unenforceable for The petition is therefore denied, and the decision of the respondent court is affirmed.
having been entered into by one who had acted beyond his powers, due to Receiver
Amor's failure to secure the court's approval of said Contracts. iv. Void or Inexistent
These unenforceable Contracts were nevertheless deemed ratified in the case at bar,
based upon the facts and circumstances on record which have led this Court to conclude Clemente v. CA, Jalandoon
that BISTRANCO had actually ratified the questioned Contracts. G.R. No. 175483 October 14, 2015 Jardeleza, J.
Private respondent Sanchez filed his complaint in the lower court on 28 December 1979.
DOCTRINE: In absolute simulation, there is a colorable contract but it has no
But on 10 January 1980, co-petitioner Roa, as Executive Vice-President of
substance as the parties have no intention to be bound by it. The main characteristic
BISTRANCO, still sent Sanchez three (3) separate letters with the following contents:
of an absolute simulation is that the apparent contract is not really desired or intended
reducing his passage commission from 10%, as he used to receive in the previous years,
to produce legal effect or in any way alter the juridical situation of the parties. As a
to 7-1/2% "as stated in the agency contract dated 27 July 1976; advising Sanchez that in
result, an absolutely simulated or fictitious contract is void, and the parties may
view of "his failure to post a bond or such other securities acceptable to the company in
recover from each other what they may have given under the contract.
the sum of P5,000.00 pursuant to par. 8 of the Contract executed by Sanchez the plaintiff
with BISTRANCO on 27 July 1976, we are recalling all unused passage tickets issued
Although on their face, the Deeds of Absolute Sale appear to be supported by
by your agency" and reminding him (Sanchez) also that "pursuant to par. 2 of
valuable consideration, the same was superimposed on the spaces therein, bearing a
aforementioned Contract, solicitation of cargo and passengers shall be undertaken by
font type different from that used in the rest of the document.That the duplicate
you strictly in accordance with the scheduled rates of the Company; and informing
originals of the Deeds of Absolute Sale bear a different entry with regard to the price
Sanchez that "we (petitioners) are abiding strictly with the terms of the contracts
suggests, along with the other circumstances, that there is no valuable consideration.
executed between Marciano C Sanchez, and Atty. Adolfo V Amor in behalf of
BISTRANCO, etc. etc.
The three (3) letters of Benjamin G. Roa in effect recognized and gave efficacy to the
Contracts in question. FACTS: Adela owned three (3) adjoining parcels of land in Scout Ojeda Street,
Diliman, Quezon City, subdivided as Lots 32, 34 Among the improvements was Adela's
Furthermore, it is clear that BISTRANCO received material benefits from the contracts house where she allowed her children, namely, Annie Shotwell Jalandoon, Carlos G.
of agency of Sanchez, based upon the monthly statements of income of BISTRANCO, Shotwell ("Carlos Sr."), Anselmo G. Shotwell and Corazon S. Basset, and her
upon which the commissions of Sanchez were based. A perusal of the Contracts will grandchildren to use and possess.
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Adela simulated the transfer of Lots 32 and Lot 34 to her two grandsons from Carlos dominion over the Properties even after she executed the conveyances to petitioner.
Sr., namely, Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell. TCT was Petitioner filed a Motion for Reconsideration but was denied.
issued over Lot 32 and 34 under the name of Carlos Jr and Dennis, respectively. Lot
35-B remained with Adela. The transfers were never intended to vest title to Carlos Jr. ISSUES:
and Dennis. Adela requested Carlos Jr. and Dennis to execute a deed of reconveyance 1. Whether or not the Deeds of Absolute Sale between petitioner and her late
over Lots 32 and 34. The deed of reconveyance was executed and registered. grandmother over the Properties are null and void for lack of consent
Subsequently Adela executed a deed of absolute sale over Lots 32 and 34, and their 2. Whether or not the Deeds of Absolute Sale lacked valuable consideration.
improvements, in favor of petitioner, bearing on its face the price of P250,000.00. On
the same day, Adela also executed a special power of attorney (SPA) in favor of RULING: On the first issue, the court ruled in the affirmative.
petitioner. Petitioner's authority under the SPA included the power to administer, take
charge and manage, for Adela's benefit, the Properties and all her other real and personal While the Deeds of Absolute Sale appear to be valid on their face, the courts are not
properties in the Philippines. completely precluded to consider evidence aliunde in determining the real intent of the
parties. This is especially true when the validity of the contracts was put in issue by one
Adela and petitioner left for the United States. When petitioner returned to the of the parties in his pleadings.
Philippines, she registered the sale over Lots 32 and 34. Adela died in the United States
and was succeeded by her four children. Petitioner sought to eject Annie and Carlos Sr., The Civil Code defines a contract as a meeting of minds between two persons whereby
who were then staying on the Properties. Only then did Annie and Carlos Sr. learn of one binds himself, with respect to the other, to give something or to render some service.
the transfer of titles to petitioner. Private respondents filed a complaint for reconveyance Article 1318 provides that there is no contract unless the elements concur; the absence
of property. They amended the complaint upon discovery that Adela and petitioner of one renders the contract void. As one of the essential elements, consent when wanting
executed another deed of absolute sale over Lot 35-B bearing on its face the price of makes the contract non-existent. Consent is manifested by the meeting of the offer and
P60,000.00. In their amended complaint, private respondents sought nullification of the the acceptance of the thing and the cause, which are to constitute the contract. A contract
Deeds of Absolute Sale. They argue that Adela only wanted to help petitioner travel to of sale is perfected at the moment there is a meeting of the minds upon the thing that is
the United States, by making it appear that petitioner has ownership of properties; the object of the contract, and upon the price. Here, there was no valid contract of sale
furthermore, that similar to the previous simulated transfers to Carlos Jr. and Dennis, between petitioner and Adela because their consent was absent. The contract of sale was
petitioner also undertook and warranted to execute a deed of reconveyance in favor of a mere simulation.
the deceased over the Properties, if and when Adela should demand the same. Lastly,
they argue that no consideration was given by petitioner to Adela in exchange for the Simulation takes place when the parties do not really want the contract they have
simulated conveyances. Carlos Sr. died and was substituted only by Dennis and Annie executed to produce the legal effects expressed by its wordings. Article 1345 of the Civil
manifested her intention to withdraw as a party-plaintiff. Anselmo Shotwell also died Code provides that the simulation of a contract may either be absolute or relative. The
without any compulsory heir. former takes place when the parties do not intend to be bound at all; the latter, when the
parties conceal their true agreement.
The trial court ruled in favor of the respondents, declaring the Deed of Absolute Sale
between Adela and the defendant nilll and void, and the cancellation of the TCTs in the In absolute simulation, there is a colorable contract but it has no substance as the
name of Clemente. The CA affirmed this decision with modification that that the Deeds parties have no intention to be bound by it. The main characteristic of an absolute
of Absolute Sale were simulated. It also ruled that the conveyances of the Properties to simulation is that the apparent contract is not really desired or intended to produce legal
petitioner were made without consideration and with no intention to have legal effect. effect or in any way alter the juridical situation of the parties. As a result, an absolutely
The CA agreed with the trial court that the contemporaneous and subsequent acts of simulated or fictitious contract is void, and the parties may recover from each other
petitioner and her grandmother are enough to render the conveyances null and void on what they may have given under the contract.
the ground of being simulated because of Adela’s retained and continued to exercise
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In short, in absolute simulation there appears to be a valid contract but there is actually There is no consideration. Although on their face, the Deeds of Absolute Sale appear to
none because the parties do not actually intend to be bound, hence, no consent. be supported by valuable consideration, the same was superimposed on the spaces
therein, bearing a font type different from that used in the rest of the document.The lower
In determining the true nature of a contract, the primary test is the intention of the parties. courts also found that the duplicate originals of the Deeds of Absolute Sale bear a
In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts different entry with regard to the price.
considered the totality of the prior, contemporaneous and subsequent acts of the parties:
a. There was no indication that Adela intended to alienate her properties in favor Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void."
of petitioner. In fact, the letter of Adela to Dennis dated April 18, 1989 reveals Where a deed of sale states that the purchase price has been paid but in fact has never
that she has reserved the ownership of the Properties in favor of Dennis. been paid, the deed of sale is null and void for lack of consideration. Thus, although the
b. Adela continued exercising acts of dominion and control over the properties, contracts state that the purchase price, the evidence shows that the contrary is true,
even after the execution of the Deeds of Absolute Sale, and though she lived because no money changed hands.
abroad for a time.
c. The SPA executed on the same day as the Deeds of Absolute Sale appointing Moreover, the Court agreed with the CA in reversing the trial court’s decision of
petitioner as administratrix of Adela's properties. declaring an implied trust. There is no implied trust can be generated by the simulated
d. The previous sales of the Properties to Dennis and Carlos, Jr. were simulated. transfers because being fictitious or simulated, the transfers were null and void ab initio
— from the very beginning — and thus vested no rights whatsoever in favor of
We agree with the lower courts that the execution of an SPA for the administration of petitioner.
the Properties, on the same day the Deeds of Absolute Sale were executed, is antithetical
to the relinquishment of ownership. The SPA shows that it is so worded as to leave no Hernandez v. CA
doubt that Adela is appointing petitioner as the administratrix of her properties in Scout G.R. No. L – 41132 April 27, 1988 Narvasa, J.
Ojeda. Had the SPA been intended only to facilitate the processing of the reconstitution
of the titles, there would have been no need to confer other powers of administration,
such as the collection of debts, filing of suit, etc., to petitioner. DOCTRINE: Not every agreement "affecting land" must be put in writing to attain
enforceability. Under the Statute of Frauds, Article 1403(2) (e) of the Civil Code,
It may be true that, taken by itself, the fact that Adela had previously feigned the transfer such formality is only required of contracts involving leases for longer than one year,
of ownership of Lots 32 and 34 to her other grandchildren would not automatically mean or for the sale of real property or of an interest therein.
that the subject Deeds of Absolute Sale are likewise void. However, the totality of which
reveals that Adela's intention was merely to feign the transfer to petitioner. NATURE OF ACTION: Appeal from the decision of the lower court
Therefore, Adela did not intend to alienate the Properties in favor of petitioner, and that FACTS: Fr. Garcia 4 applied in 1959 for the registration in his name of Lots 1-A, 1-B,
the transfers were merely a sham to accommodate petitioner in her travel abroad. and 2 of Plan Psu-172410-B in Bo. San Dionisio, Parañaque. His property adjoined that
of Hernandez, and since both estates were once owned by one Andres San
It is also of no moment that only one of the heirs contests the sale. In a contest for the Buenaventura, no dividing boundaries existed thereon until cadastral surveyors from the
declaration of nullity of an instrument for being simulated, the number of contestants is Bureau of Lands laid down official monuments to mark the separation of the lots. These
not determinative of the propriety of the cause. Any person who is prejudiced by a monuments were set along a line which the landowners had previously agreed upon as
simulated contract may set up its inexistence. In this instant case, it does not matter representing the correct boundary between their estates. This was in 1956.
if the contest is made by one, some or all of the heirs.
Unknown to Hernandez, the Advance Plan Psu-172410-B submitted in Fr. Garcia's
On the second issue, the court also ruled in the affirmative. behalf to the land registration court in 1959 included 220 square meters of land now
disputed - Lots ABC and 4057-A of Lot 1-B. This area fell beyond the stipulated
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boundaries of Fr. Garcia's land and encroached pro tanto on the land of Hernandez (on "temporary" structure "to stop the public from using this place as a common midden
which, it should be mentioned, his tenants had been living for many years [decades, in shed." The excuse is lamentably feeble.
fact] before the date of Fr. Garcia's application.) Allegedly lulled into complacency by
the recentness of their agreement as to the limits of their respective properties, and Given the weight they deserve, the recorded facts prove Hernandez's entitlement to the
confident that the visible landmarks installed by the government surveyors precluded relief sought. The respondents' reliance on the Statute of Frauds to secure a contrary
any overstepping of those limits, Hernandez proffered no opposition to Fr. Garcia's judgment is misplaced. The Statute of Frauds finds no application to this case. Not every
application, leaving the heirs of Andres San Buenaventura as the only oppositors thereto. agreement "affecting land" must be put in writing to attain enforceability. Under the
Statute of Frauds, Article 1403(2) (e) of the Civil Code, such formality is only required
It was not until the court had already ordered the registration of the lots in Fr. Garcia's of contracts involving leases for longer than one year, or for the sale of real property or
name that Hernandez discovered the anomaly in the application. He at once filed a of an interest therein. Hernandez's testimony is thus admissible to establish his
petition for review of the decree, but in view of the new trial ordered by the court upon agreement with Fr. Garcia as to the boundary of their estates. It is also to be noted that
motion of the heirs-oppositors, the petition was dismissed on the ground of prematurity. the presence of Hernandez's tenants on the land within his side of the border, were this
The court thereafter adjudged Fr. Garcia as the owner of Lots 1-A and 2 and the heirs- to be reckoned from the "mojones," further buttresses his claim.
oppositors as owners of Lot 1-B.
Rubias v. Batiller
Hernandez promptly refiled his petition for the reopening of the decree. He argued that G.R. No. L – 35702 May 29, 1973 Teehankee, J.
the decree covered a substantial portion of his land to which Fr. Garcia could claim no
title. He averred anew that the Advance Plan supporting the application was "irregular,
because it disregarded the existing Bureau of Lands monuments designating the actual DOCTRINE: Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil
possessions of the petitioner and the applicant" and "falsely designates other boundaries Code) prohibits in its six paragraphs certain persons, by reason of the relation of trust
not actually marked by any monuments, thus fraudulently giving the false impression to or their peculiar control over the property, from acquiring such property in their trust
Hernandez that no alteration has actually been made in originally agreed-upon or control either directly or indirectly and "even at a public or judicial auction," as
boundaries in the course of the preparation of (the) Plan." Thus having been "misled to follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and
believe that no encroachment has been made by applicant," and "conscious of the employees; judicial officers and employees, prosecuting attorneys, and lawyers; and
previous agreement and the fact that the Bureau of Lands monuments have not been (6) others especially disqualified by law.
altered," Hernandez had put up no objection to the application.
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot
ISSUE: Whether or not the registration of the land by the heirs of Fr. Garcia was void. be cured by ratification. The public interest and public policy remain paramount and
do not permit compromise or ratification. In his aspect, the permanent
RULING: Yes. In this case there are several pivotal facts — about which there is no disqualification of public and judicial officers and lawyers grounded on public policy
controversy whatever, it may be added — which clearly should have been weighed by differs from the first three cases of guardians, agents and administrators (Article
the court a quo in Hernandez's favor, but inexplicably were not. It is of record, to begin 1491, Civil Code), as to whose transactions it had been opined that they may be
with, that concrete monuments or "mojones" were laid out by government surveyors in "ratified" by means of and in "the form of a new contact, in which cases its validity
1956 between the properties of Hernandez and Fr. Garcia. Hernandez avows that these shall be determined only by the circumstances at the time the execution of such new
structures were purposely installed to mark the limits of their estates; his opponents contract. The causes of nullity which have ceased to exist cannot impair the validity
could only let this statement pass with telling silence. Neither did they seriously dispute of the new contract. Thus, the object which was illegal at the time of the first contract,
that these "mojones" were installed along the line agreed upon by the parties as marking may have already become lawful at the time of the ratification or second contract; or
their properties' boundaries. All they averred in their defense is that the agreement did the service which was impossible may have become possible; or the intention which
not bind them. Lastly, they freely conceded the presence of a fence along this line, but could not be ascertained may have been clarified by the parties. The ratification or
were quick to point out that they had merely "permitted" Hernandez to put up this
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second contract would then be valid from its execution; however, it does not retroact paragraph (7) of our Civil Code which provides that contracts "expressly prohibited or
to the date of the first contract." declared void by law' are "inexistent and that "These contracts cannot be ratified. Neither
can the right to set up the defense of illegality be waived."
Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits
FACTS: On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to in its six paragraphs certain persons, by reason of the relation of trust or their peculiar
recover the ownership and possession of certain portions of lot located in Barrio General control over the property, from acquiring such property in their trust or control either
Luna, Barotac Viejo, Iloilo which he bought from his father-in-law, Francisco Militante directly or indirectly and "even at a public or judicial auction," as follows: (1) guardians;
in 1956 against its present occupant defendant, Isaias Batiller, who illegally entered said (2) agents; (3) administrators; (4) public officers and employees; judicial officers and
portions of the lot. In his answer with counter-claim defendant claims the complaint of employees, prosecuting attorneys, and lawyers; and (6) others especially disqualified by
the plaintiff does not state a cause of action, the truth of the matter being that he and his law.
predecessors-in-interest have always been in actual, open and continuous possession
since time immemorial under claim of ownership of the portions of the lot in question The reason thus given by Manresa in considering such prohibited acquisitions under
and for the alleged malicious institution of the complaint he claims he has suffered moral Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of
damages in the amount of P 2,000.00, as well as the sum of P500.00 for attorney’s fees. the vendor and not void — "that the Code does not recognize such nullity de pleno
Defendant claims that plaintiff could not have acquired any interest in the property in derecho" — is no longer true and applicable to our own Philippine Civil Code which
dispute as the contract the plaintiff had with Francisco Militante was inexistent and void. does recognize the absolute nullity of contracts "whose cause, object, or purpose is
Plaintiff strongly opposed defendant’s motion to dismiss claiming that defendant cannot contrary to law, morals, good customs, public order or public policy" or which are
invoke Articles 1409 and 1491 of the Civil Code as Article 1422 of the same Code "expressly prohibited or declared void by law" and declares such contracts "inexistent
provides that “The defense of illegality of contracts is not available to third persons and void from the beginning."
whose interests are not directly affected”.
Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be
ISSUE: Whether or not the contract of sale between appellant and his father-in-law, the cured by ratification. The public interest and public policy remain paramount and do not
late Francisco Militante over the property was void because it was made when permit compromise or ratification. In his aspect, the permanent disqualification of public
plaintiff was counsel of his father-in-law in a land registration case involving and judicial officers and lawyers grounded on public policy differs from the first three
the property in dispute. cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose
transactions it had been opined that they may be "ratified" by means of and in "the form
RULING: Yes. The stipulated facts and exhibits of record indisputably established the of a new contact, in which cases its validity shall be determined only by the
plaintiff's lack of cause of action and justified the outright dismissal of the complaint. circumstances at the time the execution of such new contract. The causes of nullity
Plaintiff's claim of ownership to the land in question was predicated on the sale thereof which have ceased to exist cannot impair the validity of the new contract. Thus, the
for P2,000.00 made in 1956 by his father-in- law, Francisco Militante, in his favor, at a object which was illegal at the time of the first contract, may have already become lawful
time when Militante's application for registration thereof had already been dismissed by at the time of the ratification or second contract; or the service which was impossible
the Iloilo land registration court and was pending appeal in the Court of Appeals. may have become possible; or the intention which could not be ascertained may have
been clarified by the parties. The ratification or second contract would then be valid
No error could be attributed either to the lower court's holding that the purchase by a from its execution; however, it does not retroact to the date of the first contract."
lawyer of the property in litigation from his client is categorically prohibited by Article
1491, paragraph (5) of the Philippine Civil Code, and that consequently, plaintiff's As applied to the case at bar, the lower court therefore properly acted upon defendant-
purchase of the property in litigation from his client (assuming that his client could sell appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of
the same since as already shown above, his client's claim to the property was defeated the land, since its juridical effects and plaintiff's alleged cause of action founded thereon
and rejected) was void and could produce no legal effect, by virtue of Article 1409, were being asserted against defendant-appellant. The principles governing the nullity of
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such prohibited contracts and judicial declaration of their nullity have been well restated
by Tolentino in his treatise on our Civil Code, as follows: The amended complaint stated that Eusebio Cruz, who died on February 2, 1941 at the
Parties Affected. — Any person may invoke the in existence of the contract age of 100 years without leaving any will nor compulsory heirs, was the absolute and
whenever juridical effects founded thereon are asserted against him. Thus, exclusive owner of a parcel of mountainous and unimproved land situated in sitio
if there has been a void transfer of property, the transferor can recover it Matogalo, Taytay, Rizal which he inherited from his forebears, described therein; that
by the accion reinvindicatoria; and any prossessor may refuse to deliver it during his lifetime, Eusebio Cruz had been living with one Teodora Santos "without the
to the transferee, who cannot enforce the contract. Creditors may attach sanction of marriage"; that Teodora Santos had with her as distant relatives and
property of the debtor which has been alienated by the latter under a void protegees the brothers Gregorio Cruz and Justo Cruz; that Gregorio Cruz was the father
contract; a mortgagee can allege the inexistence of a prior encumbrance; of Delfin Cruz, deceased husband of defendant Dominga Vda. de Cruz and father of
a debtor can assert the nullity of an assignment of credit as a defense to an defendants Leonila, Roman, Eliseo, Liberata and Melecia, all surnamed Cruz; that on
action by the assignee. January 16, 1941 Delfin Cruz, by means of deceit and in collusion with persons among
them his father Gregorio Cruz made Eusebio Cruz, who could read and write, stamp his
Action On Contract. — Even when the contract is void or inexistent, an thumb mark on a deed of sale of a portion of the land described in the complaint
action is necessary to declare its inexistence, when it has already been consisting of 26,577 square meters for the sum of P700.00 in favor of said Delfin Cruz;
fulfilled. Nobody can take the law into his own hands; hence, the that at that time Delfin Cruz did not have the amount of P700.00 and Eusebio Cruz did
intervention of the competent court is necessary to declare the absolute not receive the said amount; that at the time Eusebio Cruz was almost dying and as a
nullity of the contract and to decree the restitution of what has been given matter of fact he died seventeen days after, on February 2, 1941; that the defendant
under it. The judgment, however, will retroact to the very day when the Dominga Vda. de Cruz together with her children co-defendants, taking advantage of
contract was entered into. the approved plan of the land in question obtained through the efforts of the plaintiff,
acting in absolute bad faith and relying upon the fraudulent deed of sale, presented an
If the void contract is still fully executory, no party need bring an action to application in their names for the registration and confirmation of title of the totality of
declare its nullity; but if any party should bring an action to enforce it, the the said land with an area of 182,959 square meters instead of only the portion of 26,577
other party can simply set up the nullity as a defense. square meters supposedly sold by the late Eusebio Cruz to Delfin Cruz; and that the
application for registration of title was docketed as Land Registration Case No. N-2637
Javier v. vda. De Cruz of the lower court.
G.R. No. L – 25891 November 29, 1977 Fernandez, J.
The defendants alleged that Eusebio Cruz and Isidora Santos were legally married and
had lived together for more than 50 years; and that the property described in the
DOCTRINE: The consideration of P700.00 is not only grossly inadequate but is complaint was bought by the spouses Eusebio Cruz and Isidora Santos during their
shocking to the conscience. No sane person would sell the land claimed by the marriage. As affirmative defense, they stated that the plaintiff, Benedicto Javier, has no
defendants for only about P40.00 per hectare. legal capacity to sue as administrator because all the properties of Eusebio Cruz had
been disposed of for consideration by Eusebio Cruz; that the defendant, Dominga Vda.
NATURE OF ACTION: Appeal by the plaintiff from the decision of the Court of First de Cruz and her late husband; Delfin Cruz, acquired title of the land in question by way
Instance of Rizal of absolute sale from the spouses Eusebio Cruz and Isidora Santos; that the said sale was
thumb marked by Eusebio Cruz and Isidora Santos and acknowledged before Notary
FACTS: On February 1, 1960 Benedicto M. Javier, as administrator of the Estate of Public Ciriaco Valle and was registered under Act No. 3344 in the Registry of Deeds of
Eusebio Cruz, instituted against Dominga Vda. de Cruz and her children Civil Case No. Rizal; and that the defendants have occupied publicly, openly, continuously, peacefully
5996 to declare null and void a deed of sale of a part of a parcel of land located in Barrio and adversely against the whole world for more than 18 years since January 16, 1941.
San Isidro, Taytay, Rizal containing an area of 182,959 square meters and assessed at
P4,310.00 under Tax No. 9136 in the name of Estate of E. Cruz. The trial court declared the sale valid.
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ISSUE: Whether the deed of sale of the land in question is void and inexistent for lack FACTS: Agueda Garan obtained a homestead patent over the land in question. Within
of consent and consideration. the prohibitive 5-year period, Agueda Garan sold the land to movant Potenciano Menil
for P415.00 as evidenced by a deed of sale bearing the same date. But, for reasons not
RULING: YES. Delfin Cruz did not have any means of livelihood. He was only the revealed in the records, the contracting parties did not register the deed of sale in the
houseboy of Eusebio Cruz. Registry of Deeds of Surigao. Original Certicate of Title No. 220 was not cancelled and
the land remained registered in the name of Agueda Garan. Agueda Garan executed
It is obvious that on January 17, 1941 Delfin Cruz could not have raised the amount of another deed of sale over the same parcel of land in favor of the same vendee, Potenciano
P700.00 as consideration of the land supposedly sold to him by Eusebio Cruz. Menil, and for the same price of P415.00. The contracting parties registered the second
deed of sale in the Registry of Deeds of Surigao and was issued in the name of
Although the deed of sale purports to convey a parcel of land with an area of only 26,577 Potenciano Menil. Potenciano Menil mortgaged the land to the Development Bank of
square meters, defendants, as heirs of Delfin Cruz, claim a much bigger land containing the Philippines to secure an agricultural loan which the former obtained from the latter.
an area of 182,959 square meters assessed at P4,310.00. The consideration of P700.00
is not only grossly inadequate but is shocking to the conscience. No sane person would Petitioners were in possession of the land in question until sometime in 1967 when
sell the land claimed by the defendants for only about P40.00 per hectare. private respondents Agueda Garan, Francisco Calanias, Miguel Nayve, Jr., Rufo Nayve,
and Lucio Calanias forcibly took possession of the said land, and led against petitioners
Moreover, Eusebio Cruz did not voluntarily affix his thumb mark on the deed of sale Civil Case No. 1692 for "Quieting of Title" before Branch II of the Court of First
and did not receive any consideration for said sale. Instance of Surigao del Norte. The said court dismissed the complaint, awarded damages
to the petitioners, and granted the writ of execution prayed for by the latter. Upon the
Menil v. CA claim that the above decision was silent on the issue of who are entitled to the possession
G.R. No. L – 43668 – 69 July 31, 1978 Guerrero, J. of the land under litigation, the private respondents refused to vacate the land, thus,
forcing petitioners to le on July 8, 1968 Civil Case No. 1810 for "Recovery of
Possession" of the said land before Branch I of the same Court of First Instance of
DOCTRINE: "The law prohibiting any transfer or alienation of homestead land Surigao del Norte.
within five years from the issuance of the patent does not distinguish between
executory and consummated sales; and it would hardly be in keeping with the Private respondents led against the petitioners Civil Case No. 1816 for the reconveyance
primordial aim of this prohibition to preserve and keep in the family of the of the land litigated in Civil Case No. 1692 and Civil Case No. 1810 before the same
homesteader the piece of land that the state had gratuitously given to them, to hold court. A joint judgment dated June 13, 1970 was rendered declaring that the decision in
valid a homestead sale actually perfected during the period of prohibition but with Civil Case No. 1692 clearly stated that the spouses Menil were legally entitled to the
the execution of the formal deed of conveyance and the delivery of possession of the possession of the land, ordering private respondents to restore possession of the land in
land sold to the buyer deferred until after the expiration of the prohibitory period, litigation to petitioners, and dismissing Civil Case No. 1816 for insufficiency of
purposely to circumvent the very law that prohibits and declares invalid such evidence. On a motion for reconsideration led by the private respondents, the lower court
transaction to protect the homesteader and his family. To hold valid such ordered the reopening of the two cases, after the rehearing of which, the said court armed
arrangements would be to throw the door wide open to all possible fraudulent the joint judgment dated June 13, 1970, but dismissed Civil Case No. 1816 insofar as
subterfuges and schemes that persons interested in land given to homesteaders may the Development Bank of the Philippines was concerned.
devise to circumvent and defeat the legal provision prohibiting their alienation within
five years from the issuance of the homestead's patent." The appellate court in its Decision dated April 18, 1975 dismissed the appeal and armed
the decision of the lower court, with a declaration that the decision in Civil Case No.
NATURE OF ACTION: This is an appeal by certiorari from the Resolution of the CA 1692 was res judicata to Civil Case No. 1810 and Civil Case No. 1816. On a motion for
and from the resolution of the same court. reconsideration led by private respondents, the appellate court set aside its Decision and
CIVIL LAW REVIEW 2
rendered the Resolution dated September 3, 1975 which declared the sale of the possible fraudulent subterfuges and schemes that persons interested in land given to
homestead in question to petitioners as null and void, ordered the cancellation of homesteaders may devise to circumvent and defeat the legal provision prohibiting their
Transfer Certificate of Title No. T-60 and the mortgage in favor of the Development alienation within five years from the issuance of the homestead's patent."
Bank of the Philippines, the reissuance of Original Certicate of Title No. 220 in favor of
homesteader Agueda Garan, and ordered Garan to reimburse Menil the sum of P415.00, We are fully in accord with the conclusion of the appellate court that the issue presented
the price of the sale, the interest thereon being declared compensated by the fruits Menil in the case at bar is squarely resolved by the doctrine enunciated in the aforecited case
received from their possession of the properties. of Manzano v. Ocampo. The second contract of sale executed on March 3, 1964 is
admittedly a conrmatory deed of sale. Even the petitioners concede this point. Inasmuch
Petitioners now led this appeal by way of certiorari seeking that the Resolutions of the as the contract of sale executed on May 7, 1960 is void for it is expressly prohibited or
Court of Appeals dated September 3, 1975 and January 16, 1976 be set aside and that declared void by law [CA 141, Section 118], it therefore cannot be confirmed nor
the Decision of the same court dated April 18, 1975 be revived. ratified.
ISSUE: Who are entitled to the land under litigation? Director of Lands v. Ababa
G.R. No. L – 26096 February 27, 1979 Makasiar, J.
RULING: It is not disputed by the parties that the contract of sale executed on May
7,1960, having been executed less than 5 years from May 7,1960, the date the homestead
patent was awarded to private respondent Agueda Garan, is null and void for being DOCTRINE: Article 1491 prohibits only the sale or assignment between the lawyer
violative of Section 118 of C.A. 141 [Public Land Act]. and his client, of property which is the subject of litigation.
Petitioners contend, however, that the subsequent approval thereof by the Secretary of The prohibition in said article applies only to a sale or assignment to the lawyer by
Agriculture and Natural Resources, and the execution of the confirmatory deed of sale his client of the property which is the subject of litigation. In other words, for the
on August 10, 1965, cured any defect that the first sale may have suffered. The prohibition to operate, the sale or assignment of the property must take place during
contention is without merit. In another case, the Supreme Court held that "We therefore, the pendency of the litigation involving the property.
hold that the sale in question is illegal and void for having been made within ve years
from the date of Manzano's patent, in violation of Section 118 of the Public Land Law. NATURE OF ACTION: An appeal from the order of the CFI of Cebu dated March 19,
Being void from its inception, the approval thereof by the Undersecretary of Agriculture 1966 denying the petition for the cancellation of an adverse claim registered by the
and Natural Resources after the lapse of ve years from Manzano's patent did not legalize adverse claimant on the transfer certificate of title of the petitioners.
the sale.
FACTS: The adverse claimant, Atty. Alberto B. Fernandez was the counsel of
As to the execution of the confirmatory deed of sale, by proper analogy, the Supreme petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance
Court in the said case said: "The law prohibiting any transfer or alienation of homestead of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a
land within five years from the issuance of the patent does not distinguish between contract of sale with right of repurchase and for the recovery of the land which was the
executory and consummated sales; and it would hardly be in keeping with the primordial subject matter thereof.
aim of this prohibition to preserve and keep in the family of the homesteader the piece
of land that the state had gratuitously given to them, to hold valid a homestead sale Litigating as a pauper in the lower court and engaging the services of his lawyer on a
actually perfected during the period of prohibition but with the execution of the formal contingent basis, petitioner, unable to compensate his lawyer whom he also retained for
deed of conveyance and the delivery of possession of the land sold to the buyer deferred his appeal, executed a document on June 10, 1961 in the Cebuano- Visayan dialect
until after the expiration of the prohibitory period, purposely to circumvent the very law whereby he obliged himself to give to his lawyer or one-half (1/2) of whatever he might
that prohibits and declares invalid such transaction to protect the homesteader and his recover from Lots 5600 and 5602 should the appeal prosper.
family. To hold valid such arrangements would be to throw the door wide open to all
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The case having been resolved and title having been issued to petitioner, adverse property and rights in litigation or levied upon an execution before the court within
claimant waited for petitioner to comply with his obligation under the document which whose jurisdiction or territory they exercise their respective functions; this prohibition
is delivering the one-half (1/2) portion of the said parcels of land. However, Petitioner includes the act of acquiring by assignment and shall apply to lawyers, with respect to
refused to comply with his obligation and instead offered to sell the whole parcels of the property and rights which may be the object of any litigation in which they may take
land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de part by virtue of their profession"
Larrazabal.
This contention is without merit. Article 1491 prohibits only the sale or assignment
Upon being informed of the intention of the petitioner, adverse claimant immediately between the lawyer and his client, of property which is the subject of litigation.
took steps to protect his interest by filing with the trial court a motion to annotate his
attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective As we have already stated "The prohibition in said article applies only to a sale or
buyers of his claim over the one-half portion of the parcels of land. assignment to the lawyer by his client of the property which is the subject of litigation.
In other words, for the prohibition to operate, the sale or assignment of the property must
Realizing later that the motion to annotate attorney's lien was a wrong remedy, as it was take place during the pendency of the litigation involving the property." A contract for
not within the purview of Section 37, rule 138 of the Revised Rules of Court, but before a contingent fee is not covered by Article 1491 because the transfer or assignment of the
the same was denied by the trial court, adverse claimant filed an affidavit of adverse property in litigation takes effect only after the finality of a favorable judgment.
claim on July 19, 1966 with the Register of Deeds of Cebu. By virtue of the registration
of said affidavit the adverse claim for one-half (1/2) of the lots covered by the June 10, In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of
1961 document was annotated on TCT No. 31841. whatever Maximo Abarquez might recover from his share in the lots in question, is
contingent upon the success of the appeal. Hence, the payment of the attorney's fees,
Notwithstanding the annotation of the adverse claim, petitioner-spouses Maximo that is, the transfer or assignment of one-half (1/2) of the property in litigation will take
Abarquez and Anastacia Cabigas conveyed by deed of absolute sale on July 29, 1965 place only if the appeal prospers.
two thirds (2/3 of the lands covered by TCT No. 31841 to petitioner-spouses Juan
Larrazabal and Marta C. de Larrazabal. When the new transfer certificate of title No. Therefore, the transfer actually takes effect after the finality of a favourable judgment
32996 was issued, the annotation of adverse claim on TCT No. 31841 necessarily had rendered on appeal and not during the pendency of the litigation involving the property
to appear on the new transfer certificate of title. in question.
This adverse claim on TCT No. 32996 became the subject of cancellation proceedings WHEREFORE, THE DECISION OF THE LOWER COURT DENYING THE
filed by herein petitioner spouses on March 7, 1966 with the Court of First Instance of PETITION FOR THE CANCELLATION OF THE ADVERSE CLAIM SHOULD BE,
Cebu. The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the AS IT IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONER-
petition for cancellation on March 18, 1966. APPELLANTS JUAN LARRAZABAL AND MARTA C. DE LARRAZABAL.
ISSUE: Whether or not the contract for a contingent fee, basis of the interest of Atty. Tongoy v. CA
Fernandez over the lots, is prohibited by Article 1491 of the New Civil Code. G.R. No. L – 45645 June 28, 1983 Makasiar, J.
RULING: Petitioners contend that a contract for a contingent fee violates Article 1491
because it involves an assignment of a property subject of litigation. That article DOCTRINE: A void or in existent contract is one which has no force and effect
provides:"Article 1491. The following persons cannot acquire by purchase even at from the very beginning, as if it has never been into. and which cannot be validated
public or judicial auction, either in person or through the mediation of another:"xxx xxx either by time or by ratification (p. 592, Civil Code of the Philippines, Vol. IV,
xxx"(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, Tolentino, 1973 Ed.). A void contract procedures no effect what so ever either against
and other officers and employees connected with the administration of justice, the
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or in favor of anyone; it does not create, modify or extinguish the juridicial relation Jose Tongoy followed suit by each executing a similar 'Escritura de Venta' pertaining to
to which refers. their corresponding rights and interests over Hacienda Pulo in favor also of Luis
D. Tongoy. In the case of Jose Tongoy, the execution of the 'Escritura de Venta' was
NATURE OF ACTION: Petition for Certiorari; Action for Reconveyance preceded by the execution on October 14, 1935 of an Assignment of Rights (in
favor of Luis D. Tongoy by the Pacific Commercial Company as judgment lien-holder
FACTS: This case is basically an Action for Reconveyance respecting 2 parcels of land (subordinate to the PNB mortgage) of Jose Tongoy's share in Hacienda Pulo.
in Bacolod City: the first known as Hacienda Pulo registered in the names of Francisco,
Jose, Ana, Teresa and Jovita, all surnamed Tongoy in pro-indiviso equal shares. The On the basis of the foregoing documents, Hacienda Pulo was placed on November 8,
second, known as Cuaycong property in the name of Basilisa Cuaycong. 1935 in the name of Luis D. Tongoy, married to Maria Rosario Araneta, under TCT No.
20154. In the following year, the title of the adjacent Cuaycong property also came
Of the original registered co-owners of Hacienda Pulo, Jose, Ana and Teresa – all died under the name of Luis D. Tongoy, per TCT No. 21522, by virtue of an 'Escritura de
single; Francisco was survived by six children; and for her part, Jovita had four children. Venta' executed in his favor by the owner Basilisa Cuaycong on June 22, 1936
By the time this case was commenced. the late Francisco Tongoy's aforesaid two purportedly for P4,000.00.
children by his first marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves
died. It is claimed that Patricio D. Tongoy left three acknowledged natural children On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the Cuaycong
named Fernando, Estrella and Salvacion, all surnamed Tongoy. On the other hand, there property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three
is no question that Luis D. Tongoy left behind a son, Francisco A. Tongoy, and a days thereafter, on June 29, 1936, he also executed a real estate mortgage over Hacienda
surviving spouse, Ma. Rosario Araneta Vda. de Tongoy. Pulo in favor of the same bank to secure an indebtedness of P21,000.00, payable for a
period of 15 years at 8% per annum. After two decades, on April 17, 1956, Luis
On April 17, 1918, Hacienda Pulo was mortgaged by its registered co owners to PNB, D. Tongoy paid off all his obligations with the PNB, amounting to a
Bacolod Branch, as security for a loan of P11,000.00 payable in 10 years at 8% interest balance of P34,410.00, including the mortgage obligations on the Cuaycong property
per annum. The mortgagors however were unable to keep up with the yearly and Hacienda Pulo. However, it was only on April 22, 1958 that a release of real estate
amortizations. as a result of which the PNB instituted judicial foreclosure proceedings mortgage was executed by the bank in favor of Luis D. Tongoy who dies on February
over Hacienda Pulo. 5, 1966. Just before his death, however, Luis D. Tongoy received a letter from Jesus T.
Sonora, dated January 26, 1966, demanding the return of the shares in the properties to
To avoid foreclosure, one of the co-owners and mortgagors, Jose Tongoy, proposed to the co-owners.
the PNB an amortization plan that would enable them to liquidate their account. But, on
December 23, 1932, the PNB Branch Manager in Bacolod advised Jose Tongoy by letter Both parties appealed the decision of the lower court to respondent appellate court.
that the latter's proposal was rejected and that the foreclosure suit had to continue. As a Plaintiffs-appellants Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the
matter of fact, the suit was pursued to finality up to the Supreme Court which affirmed heirs of Juan T. Sonora questioned the lower court's decision dismissing their complaint
on July 31, 1935 the decision of the CFI giving the PNB the right to foreclose the on ground of prescription, and assailed it insofar as it held that the agreement created
mortgage on Hacienda Pulo. among the Tongoy-Sonora family in 1931 was an implied, and not an express, trust; that
their action had prescribed; that the defendants-appellants were not ordered to render an
In the meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a accounting of the fruits and income of the properties in trust; and that defendants were
Declaration of Inheritance wherein they declared themselves as the only heirs of the late not ordered to pay the attorney's fees of plaintiffs-appellants. For their part, defendants-
Francisco Tongoy and thereby entitled to the latter's share in Hacienda Pulo. On March appellants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy not only
13, 1934, Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora refuted the errors assigned by plaintiffs-appellants, but also assailed the findings that
and Patricio Tongoy executed an 'Escritura de Venta', which by its terms transferred for there was preponderance of evidence in support of the existence of an implied trust; that
consideration their rights and interests over Hacienda Pulo in favor of Luis D. Tongoy. Ricardo P. Tongoy, Amado P, Tongoy and Norberto P. Tongoy are the legitimate half-
Thereafter, on October 23, 1935 and November 5, 1935, respectively, Jesus Sonora and brothers of the late Luis D. Tongoy; that their shares in Hacienda Pulo and Cuaycong
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property should be reconveyed to them by defendants-appellants; and that an execution Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from
was ordered pending appeal. the very beginning absolutely simulated or fictitious, since the same were made merely
for the purpose of restructuring the mortgage over the subject properties and thus
ISSUE: Whether or not the rights of herein respondents over subject properties, which preventing the foreclosure by the PNB.
were the subjects of simulated or fictitious transactions, have already
prescribed Considering the law and jurisprudence on simulated or fictitious contracts as aforestated,
the within action for reconveyance instituted by herein respondents which is anchored
RULING: No. The characteristic of simulation is the fact that the apparent contract is on the said simulated deeds of transfer cannot and should not be barred by prescription.
not really desired nor intended to produce legal effects nor in any way alter the juridical No amount of time could accord validity or efficacy to such fictitious transactions, the
situation of the parties. Thus, where a person, in order to place his property beyond the defect of which is permanent. Cdpr
reach of his creditors, simulates a transfer of it to another, he does not really intend to
divest himself of his title and control of the property; hence, the deed of transfer is but a There is no implied trust that was generated by the simulated transfers; because being
sham. This characteristic of simulation was defined by this Court in the fictitious or simulated, the transfers were null and void ab initio — from the very
case of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. beginning — and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs.
That which is inexistent cannot give life to anything at all.
A void or inexistent contract is one which has no force and effect from the very
beginning, as if it had never been entered into, and which cannot be validated either by Lita Enterprises v. IAC
time or by ratification (p. 592, Civil Code of the Philippines, Vol. IV, Tolentino, 1973 G.R. No. L – 646693 April 27, 1984 Escolin, J.
Ed.).
A void contract produces no effect whatsoever either against or in favor of anyone; DOCTRINE:
hence, it does not create, modify or extinguish the juridical relation to which it refers (p. 1. It is a fundamental principle that the court will not aid either party to enforce
594, Tolentino, supra). an illegal contract, but will leave them both where it finds them. Upon this
premise, it was flagrant error on the part of both the trial and appellate courts
The following are the most fundamental characteristics of void or inexistent contracts: to have accorded the parties relief from their predicament. Article 1412 of the
1. As a general rule, they produce no legal effects whatsoever in accordance with Civil Code denies them such aid.
the principle "quod nullum est nullum producit effectum." 2. The defect of inexistence of a contract is permanent and incurable, and cannot
2. They are not susceptible of ratification. be cured by ratification or by prescription.
3. The right to set up the defense of inexistence or absolute nullity cannot be 3. The rule has sometimes been laid down as though it was equally universal,
waived or renounced. that where the parties are in pari delicto, no affirmative relief of any kind will
4. The action or defense for the declaration of their inexistence or absolute nullity be given to one against the other." Although certain exceptions to the rule are
is imprescriptible. provided by law.
5. The inexistence or absolute nullity of a contract cannot be invoked by a person
whose interests are not directly affected (p. 444, Comments and Jurisprudence NATURE OF ACTION: Action for reconveyance of motor vehicles with damages
on Obligations and Contracts, Jurado, 1969 Ed.; italics supplied).
FACTS: Spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents,
The nullity of these contracts is definite and cannot he cured by ratification. The nullity purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona
is permanent, even if the cause thereof has ceased to exist, or even when the parties have Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs,
complied with the contract spontaneously. they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel
Concordia, for the use of the latter's certificate of public convenience in consideration
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of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To certificate of convenience allows another person who owns motors vehicles to operate
effectuate Id agreement, the aforesaid cars were registered in the name of petitioner Lita under such franchise for a fee. Although not outrightly penalized as a criminal offense,
Enterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated the "kabit system" is invariably recognized as being contrary to public policy and,
and maintained the same under the name Acme Taxi, petitioner's trade name. therefore, void and inexistent under Article 1409 of the Civil Code.
About a year later, one of said taxicabs driven by their employee, Emeterio Martin, It is a fundamental principle that the court will not aid either party to enforce an illegal
collided with a motorcycle whose driver, one Florante Galvez, died from the head contract, but will leave them both where it finds them. Upon this premise, it was flagrant
injuries sustained therefrom. A criminal case was eventually filed against the driver error on the part of both the trial and appellate courts to have accorded the parties relief
Emeterio Martin, while a civil case for damages was instituted by the heir of the victim from their predicament. Article 1412 of the Civil Code denies them such aid.
against Lita Enterprises, Inc., as registered owner of the taxicab.
The defect of inexistence of a contract is permanent and incurable, and cannot be cured
Petitioner Lita Enterprises, Inc. was adjudged liable for damages by ratification or by prescription.
This decision having become final, a writ of execution was issued. One of the vehicles The principle of in pari delicto is well known not only in this jurisdiction but also in the
of respondent spouses was levied upon and sold at public auction for 12,150.00 to one United States where common law prevails. The rule has sometimes been laid down as
Sonnie Cortez, the highest bidder. Another car to certain Lopez. though it was equally universal, that where the parties are in pari delicto, no affirmative
relief of any kind will be given to one against the other." Although certain exceptions to
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs the rule are provided by law, We see no cogent reason why the full force of the rule
in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over should not be applied in the instant case.
the registration papers to him, but the latter allegedly refused. Hence, he and his wife
filed a complaint against Lita Enterprises, Inc. for reconveyance of motor vehicles with Arsenal v. IAC
damages. G.R. No. L – 66696 July 14, 1986 Gutierrez, Jr., J.
The Court of First Instance of Manila ordered Lita Enterprises, Inc., to transfer the
registration certificate of the three Toyota cars not levied upon in favor of the plaintiff. DOCTRINE: A void contract is inexistent from the beginning. It cannot be ratified
Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the neither can the right to set up the defense of its illegality be waived.
certificate of convenience.
NATURE OF ACTION: Action for the annulment of an issued transfer certificate of
On appeal by petitioner, the Intermediate Appellate Court modified the decision by title
including as part of its dispositive portion another paragraph, to wit: In the event the
condition of the three Toyota rears will no longer serve the purpose of the deed of FACTS: Defendant Filomeo Palaos secured an OCT from the Register of Deeds of
conveyance because of their deterioration, or because they are no longer serviceable, or Bukidnon for a parcel of land consisting of 87,829 sq.m. situated at formr barrio of
because they are no longer available, then Lita Enterprises, Inc. is ordered to pay the Kitaokitao now a municipality of Bukidnon. He, together with his wife, executed in
plaintiffs their fair market value. favor of Torcuato Suralta a deed of sale for 4 hectares of the land for the sum of P890.
Sometime in 1964, Sps. Francisca and Remedio Arsenal became tenants of an adjoining
ISSUE: Whether it was error on the part of both the trial and appellate courts to have land. They came to know of Suralta as their neighbor and in the course of their
accorded the parties relief from their predicament relationship came, Suralta came to know of their intention to buy the remaining land of
the defendants. On March 14, 1967, defendants executed a notarial Deed of Sale in
RULING: Yes. Unquestionably, the parties herein operated under an arrangement, consideration of P800 supposedly for the remaining 3 hectares of their land without
comonly known as the "kabit system", whereby a person who has been granted a knowing that the document covered the entirety of the land including the 4-hectare
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portion previously deeded by them to Suralta. Suralta presented his Sales Contract in the To further distinguish this contract from the other kinds of contract, a commentator has
Office of the Register of Deeds but was refused registration for having been executed stated that:
within the prohibitive period of five years from the issuance of the patent. In order to "The right to set up the nullity of a void or non-existent contract is not limited to the
cure the defect, he caused defendants to sign a new Sales Contract. He then came to parties as in the case of annullable or voidable contracts; it is extended to third persons
know of the Deed of Sale embracing the whole lot signed by defendants in favor of who are directly affected by the contract." (Tolentino, Civil Code of the Philippines,
Francisca Arsenal and confronted the former about it. Filomeno insisted that he only Vol. IV, p. 604, [1973]).
sold 3 hectares to Arsenal. Suralta then approached Arsenal but the latter insisted on
abiding by her contract. Because of their disagreement, Arsenal registered her Deed of "Any person may invoke the inexistence of the contract whenever juridical effects
Sale and obtained a transfer certificate of title for the entire lot without the knowledge founded thereon are asserted against him." (Id. p. 595).
of Suralta. Suralta then filed a case against Filomeno Palaos and his wife, and Sps.
Arsenal and the Register of Deeds of Bukidnon for the annulment of the TCT issued to Concededly, the contract of sale executed between the respondents Palaos and Suralta
the Arsenals in so far as it covers the 4-hectare potion previously sold to him. In their in 1957 is void. It was entered into three (3) years and eight (8) months after the grant
defense, Sps. Arsenal denied previous knowledge of the sale to Suralta and even assailed of the homestead patent to the respondent Palaos in 1954.
the validity of the purchase pointing to the prohibition contained in the Public Land Law
against disposal within the period of 5 years from the issuance of the patent. On their Being void, the foregoing principles and rulings are applicable. Thus, it was erroneous
part, Filomeno Palaos and Mahina Lagwas sustained the sale they made to Suralta. for the trial court to declare that the benefit of the prohibition in the Public Land
Act "does not inure to any third party." Such a sweeping declaration does not find
The trial court rendered judgment in favor of Suralta imputing bad faith to the Arsenals support in the law or in precedents, A third person who is directly affected by a void
and declared them disqualified to avail of the protection afforded to innocent purchasers. contract may set up its nullity. In this case, it is precisely the petitioners' interest in the
The trial court also ruled that the Arsenals cannot avail of the prohibition in the Public disputed land which is in question.
Land Act because the benefit of said prohibition does not inure to any third party.
Moreover, a verbal sale of land is valid and effective as between parties to the agreement As to whether or not the execution by the respondents Palaos and Suralta of another
and by Filomeno Palaos had reaffirmed the same he made in favor of Suralta by instrument in 1973 cured the defects in their previous contract, we reiterate the rule that
executing another instrument to cure the defects which may have affected their formal an alienation or sale of a homestead executed within the five-year prohibitory period is
contract. On appeal, the IAC affirmed the decision. void and cannot be confirmed or ratified. This Court has on several occasions ruled on
the nature of a confirmatory sale and the public policy which proscribes it.
ISSUE: Whether or not there was a valid contract between Palaos and Suralta even
though the sale was made in contradiction to the provision of the Public Land Manotok Realty v. IAC
Act G.R. No. L – 45038 April 30, 1987 Gutierrez, Jr., J.
Rulings: No. A contract which purports of alienate, transfer, convey or encumber any
homestead within the prohibitory period of five years from the date of the issuance of DOCTRINE: Sale of the paraphernal property of the deceased wife by the husband
the patent is void from its execution. In a number of cases, this Court has held that such who was neither an owner nor administrator of the property at the time of sale is void
provision is mandatory. ab initio; Sale which is void cannot be subject of ratification by the company or the
probate court.
Under the provisions of the Civil Code, a void contract is inexistent from the beginning.
It cannot be ratified neither can the right to set up the defense of its illegality be waived. NATURE OF ACTION: Petition for certiorari to review the decision of the Court of
(Art. 1409, Civil Code). Appeals.
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FACTS: Private respondent Felipe Madlangawa claims that he has been occupying a The trial court dismissed the petitioner's action after finding that the Identity of the parcel
parcel of land in the Clara de Tambunting de Legarda Subdivision since 1949 upon of land described in the complaint had not been sufficiently established as the very same
permission being obtained from Andres Ladores, then an overseer of the subdivision, piece of land in the material and physical possession of Madlangawa.
with the understanding that the respondent would eventually buy the lot. On April 2,
1950, Clara Tambunting, the owner of lot, died and her entire estate, including her On appeal, the Court of Appeals found the Identity of the lot sought to be recovered by
paraphernal properties which covered the lot occupied by the private respondent were petitioner to be the same as that in the physical possession of Madlangawa and ruled that
placed under custodia legis. Don Vicente Legarda was appointed as a special the only right remaining to petitioner is to enforce the collection of the balance because
administrator of the estate. Meanwhile the private respondent remained in possession of accordingly, it stepped into the shoes of its predecessor; and that since the area now in
the lot in question. possession of the petitioner which is that involved in the present case is only 115 square
meters, the balance after deducting the deposit of P1,500.00 is P2,551.85, and as per
On April 22, 1950, Madlangawa made a deposit for the said lot in the sum of P1,500.00 order of the CFI of Manila, the said balance should be paid in 18 equal monthly
which was received by Vicente Legarda, husband of the late owner. As evidenced by installments.
the receipt issued by Vicente Legarda, the lot consisted of an area of 240 square meters
and was sold at P30.00 per square meter. There, thus, remained an unpaid balance of ISSUE: Whether or not the sale by Don Vicente Legarda in favor of Felipe Madlangawa
P5,700.00 but Madlangawa did not pay or was unable to pay this balance because after is valid, binding, and enforceable against Manotok Realty Inc.
the death of the testatrix, Clara Tambunting de Legarda, her heirs could not settle their
differences. RULING: No. There is nothing in the records that will show that Don Vicente Legarda
was the administrator of the paraphernal properties of Dona Clara Tambunting during
On April 28, 1950, Don Vicente Legarda was appointed as a special administrator of the the lifetime of the latter. Thus, it cannot be said that the sale which was entered into by
estate. Meanwhile Madlangawa remained in possession of the lot in question. the private respondent and Don Vicente Legarda had its inception before the death of
Subsequently, the petitioner Manotok Realty Inc. became the successful bidder and Dona Clara Tambunting and was entered into by the former for and on behalf of the
vendee of the Tambunting de Legarda Subdivision consisting of 44 parcels of land latter, but was only consummated after her death. Don Vicente Legarda, therefore, could
spread out in the districts of Tondo and Sta. Cruz, Manila, pursuant to the deeds of sale not have validly disposed of the lot in dispute as a continuing administrator of the
executed in its favor by the Philippine Trust Company on March 13 and 20, 1959, as paraphernal properties of Dona Clara Tambunting. It is also undisputed that the probate
administrator of the Testate Estate of Clara Tambunting de Legarda, in Special court appointed Don Vicente Legarda as administrator of the estate only on August 28,
Proceeding No. 10809 of the Manila probate court. The lot in dispute was one of those 1950, more than three months after the questioned sale had taken place.
covered by the sale.
The Court is therefore, led to the inevitable conclusion that the sale between Don Vicente
In its effort to clear the Tambunting Subdivision of its squatters and occupants, petitioner Legarda and the private respondent is void ab initio, the former being neither an owner
caused the publication of several notices in the Manila Times issues of January 1, 1966 nor administrator of the subject property. Such being the case, the sale cannot be the
and the Taliba issues of January 2, and March 16, 1966, advising the occupants to vacate subject of the ratification by the Philippine Trust Company or the probate court. As the
their respective premises, otherwise, court action with damages would follow. In Court held in Arsenal v. Intermediate Appellate Court (143 SCRA 40, 49):
addition to these notices by publication, petitioner sent circulars to the occupants to “Under the provisions of the Civil Code, a void contract is inexistent from
vacate. the beginning. It cannot be ratified neither can the right to set up the defense
of its illegality be waived. (Art. 1409, Civil Code.
Felipe Madlangawa was one of the many occupants who refused to vacate the lots they
were occupying. On April 26, 1968, petitioner filed the an action to recover the said lot. “To further distinguish this contract from the other kinds of contract, a
commentator has stated that:
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The right to set up the nullity of a void or non-existent contract is not limited other brothers and sisters, to institute an action for the annulment of the controversial
to the parties as in the case of annullable or voidable contracts, it is extended deed of sale and the reconveyance of the title the residential land.
to third persons who are directly affected by the contract. (Tolentino, Civil
Code of the Philippines, Vol. IV, p. 604, [1973]). The Court of First Instance of Cavite ruled in favor of the petitioners and declared the
Deed of Sale inoperative. Upon appeal, the Intermediate Appellate Court reversed the
Any person may invoke the inexistence of the contract whenever juridical decision of the trial court.
affects founded thereon are asserted against him.”
ISSUE: Whether or not the present action has prescribed?
Cornelia Clnor Vda De Portugal, et. al v. IAC and Hugo C. Portugal
G.R. No. 73564 March 25, 1988 Sarmiento, J. RULING: NO, the action has not yet prescribed. Although the trial court correctly ruled
that the action instituted by the petitioners has not yet prescribed, conclusion was
reached through an erroneous rationalization, i.e., the case is purely for reconveyance
DOCTRINE: The absence of a valid cause or consideration in any contract makes based on an implied or constructive trust. On the other hand, IAC held that since the
the contract void or inexistent, not merely voidable. action for reconveyance was fathered by a fraudulent deed of sale, Article 1391 of the
Civil Code which lays down the rule that an action to annul a contract based on fraud
NATURE OF ACTION: Appeal from the decision of the Intermediate Appellate Court prescribes in four years, applies.
FACTS: Cornelia Clanor and her late husband Pascual Portugal, were able to The case at bar is not purely an action for reconveyance based on an implied or
accumulate several parcels of real property. Among these were a parcel of residential constructive trust neither is it one for the annulment of a fraudulent contract. A closer
land situated in Poblacion, Gen. Trias, Cavite consisting of 2,069 square meters, more scrutiny of the records of the case readily supports a finding that fraud and mistake are
or less and an agricultural land located at Pasong Kawayan, Gen. Trias, Cavite, with not the only vices present in the assailed contract of sale as held by the trial court. More
an area of 43,587 square meters, more or less. than these, the alleged contract of sale is vitiated by the total absence of a valid cause or
consideration. The petitioners in their complaint, assert that they, particularly Cornelia,
Sometime in January, 1967, Hugo Portugal, a son of the spouses, borrowed from his never knew of the existence of the questioned deed of sale. They claim that they came
mother, Cornelia, the certificates of title to the above-mentioned parcels of land on the to know of the supposed sale only after the private respondent, upon their repeated pleas
pretext that he had to use them in securing a loan that he was negotiating. Cornelia to produce and return the owner's duplicate copy of the transfer certificate of title
assented and delivered the titles to her son. The matter was never again brought up until covering the two parcels of land, showed to them the controversial deed. And their claim
after Pascual Portugal died on November 17, 1974. (Cornelia herself died on November was immeasurably bolstered when the private respondent's co-defendant, his brother
12, 1987.) When the other heirs of the deceased Pascual, for the purposes of executing Emiliano Portugal, who was allegedly his co-vendee in the transaction, disclaimed any
an extra-judicial partition of Pascual's estate, wished to have all the properties of the knowledge or participation therein. Thus, the inevitable implication of the allegations is
spouses collated, Cornelia asked Hugo for the return of the two titles she previously that no consideration was ever paid at all by Hugo. Applying the provisions of Articles
loaned. But Hugo manifested that the said titles no longer exist. When further 1350, 1352, and 1409 of the New Civil Code in relation to the indispensable requisite
questioned, Hugo showed the petitioners Transfer Certificate of Title T.C.T. No. 23539 of a valid cause or consideration in any contract, and what constitutes a void or inexistent
registered in his and his brother Emiliano Portugal's names, and which cancelled the two contract, it is ruled that the disputed deed of sale is void ab initio or inexistent, not merely
previous ones. This falsification was triggered by a deed of sale by which the spouses voidable. And it is provided in Article 1410 of the Civil Code, that '(T)he action or
purportedly sold for P8,000.00 the two parcels of land to their two sons, Hugo and defense for the declaration of the inexistence of a contract does not prescribe.
Emiliano. Confronted by his mother of this fraud, Emiliano denied any participation and
to show his good faith, Emiliano caused the reconveyance of the agricultural land and But even if the action of the petitioners is for reconveyance of the parcel of land based
which was conveyed to him in the void deed of sale. Hugo, on the other hand, refused on an implied or constructive trust, still it has been seasonably filed. For actions of this
to make the necessary restitution thus compelling the petitioners, his mother and his nature prescribe in ten years, the point of reference being the date of registration of the
CIVIL LAW REVIEW 2
deed or the date of the issuance of the certificate of titIe over the property. In this case, never sold his land and that the price of P200 was grossly inadequate because the land
the petitioner commenced the instant action for reconveyance in the trial court on was worth not less than P6,000.
October 26, 1976, or less than ten years from January 23, 1967 when the deed of sale
was registered with the Register of Deeds. Clearly, even on this basis alone, the present ISSUE: Whether or not the deed of sale was fabricated and simulated and, therefore,
action has not yet prescribed. void ab initio and that Maria Aglimot as surviving spouse could recover the lot
Yanas v. Acaylar RULING: We hold that the sale was fictitious and fraudulent. Among the badges of
G.R. No. 54538 April 25, 1985 Aquino, J. fraud and fictitiousness taken collectively are the following: (1) the fact that the sale is
in English, the alleged vendor being illiterate; (2) the fact that his wife did not join in
the sale and that her name is indicated in the deed as "Maria S. Yanas" when the truth is
DOCTRINE: The action or defense for the declaration of the inexistence of a that her correct name is Maria Aglimot Yanas; (3) the obvious inadequacy of P200 as
contract does not prescribe. price for a 13-hectare land (P15.40 a hectare); (4) the notarization of the sale on the day
following the alleged thumbmarking of the document; (5) the failure to state the
NATURE OF ACTION: Void contract boundaries of the lot sold; (6) the fact that the governor approved it more than two years
after the alleged sale; (7) its registration more than three years later, and (8) the fact that
FACTS: This case is about the validity of the sale of land executed by Luis Yanas, an the Acaylars were able to occupy only four hectares out of the 13 hectares and were
illiterate Subano. Yanas, also known as Sulung Subano, had occupied, even before eventually forcibly ousted therefrom by the children and agents of the vendor. It was
1926, Lot No. 5408 with an area of 13 hectares located at Sitio Dionom (Lower Gumay), not a fair and regular transaction done in the ordinary course of business.
Barrio Sianib, Piñan (Dipolog), Zamboanga del Norte (Exh. L). Through lawyer
Leoncio S. Hamoy, Yanas claimed the lot in the cadastral proceeding. The grave flaws in the evidence for defendants Acaylar are the patent contradictions in
the testimonies of Antonio L. Acaylar and lawyer Hamoy, their principal witnesses on
On August 7, 1950 Yanas thumbmarked in Dapitan a deed of sale and conveyance the validity of the sale. Acaylar testified that he signed the deed of sale and that one
wherein he purportedly sold to Antonio L. Acaylar of Dapitan for P200 his 13-hectare Tupas was an instrumental witness (12-13 tsn May 4, 1970). The truth is that Acaylar
land. The sale was notarized on the following day, August 8. An instrumental witness never signed the deed and Tupas was not a witness. The instrumental witnesses were
was lawyer Hamoy. The sale was approved by Governor Felipe B. Azcuna on May 15, Hamoy and Paulino Empeynado.
1953 or 33 months after the sale.
The deed of sale (Exh. 2 and 6) appears as Document No. 113, page 57, Book 3, series
It is the theory of the heirs of Yanas that that deed of sale is fictitious and fraudulent of 1950 of Jose G. Empeynado's notarial register. Teofisto Realiza, the clerk in charge
because what Yanas thumbmarked on August 7, 1950 was supposed to be a receipt of the court archives, testified on November 10, 1966 that Document No. 113 is an
attesting that he owed Hamoy P200 for his legal services. Hamoy allegedly taking affidavit of Lorenzo Bajamunde, not a deed of sale signed by Yanas (4-5 tsn).
advantage of his illiteracy, made Yanas affix his thumbmark to a deed of sale in English.
However, five days later, or on November 15, 1966, he issued a certified copy of the
The decree issued by Judge Mañalac in 1941 was registered only on June 5, 1954. On deed of sale, Exhibit 2, to Acaylar's lawyer. Presumably, the deed of sale was a part of
that day, OCT No. 64 was issued to Yanas. On December 21, 1954 Acaylar registered the notarial report of Empeynado but he did not enter the sale in his notarial book.
the 1950 deed of sale. He obtained TCT No. T-3338. How Acaylar came to have
possession of the owner's duplicate of OCT No. 64 and why it was not delivered to The fact that the alleged sale took place in 1950 and the action to have it declared void
Yanas are not shown in the record. or inexistent was filed in 1963 is immaterial. The action or defense for the declaration
of the inexistence of a contract does not prescribe.
When Yanas discovered that his title was cancelled, he caused on August 28, 1958 an
adverse claim to be annotated on Acaylar's title. He stated in his adverse claim that he
CIVIL LAW REVIEW 2
Barsobia v. Cuenco
G.R. No. L – 33048 April 16, 1982 Melencio – Herrera, J. Regional Trial Court: Dismissed the complaint and declared Vallar as the lawful owner
and possessor of the portion of the land she bought from Emeteria Basobia.
DOCTRINE: There should be no question that the sale of the land in question in Court of Appeals: Reversed the RTC decision and declared Cuenco as the owner of the
1936 by Epifania to Ong King Po was inexistent and void from the beginning (Art. property. Denied petitioner’s MR. Hence this Petition for Review on Cetiorari.
1409 [7], Civil Code) because it was a contract executed against the mandatory
provision of the 1935 Constitution, which is an expression of public policy to ISSUE: Whether or not the sale to Ong King Po, a Chinese national, is valid.
conserve lands for the Filipinos.
RULING: There should be no question that the sale of the land in question in 1936 by
Art. 1409 (7) of the Civil Code: The following contracts are inexistent and void from Epifania to Ong King Po was inexistent and void from the beginning (Art. 1409 [7],
the beginning: . . . (7) Those expressly prohibited or declared void by law. Civil Code) because it was a contract executed against the mandatory provision of the
1935 Constitution, which is an expression of public policy to conserve lands for the
NATURE OF ACTION: This is a Petition for Review on Cetiorari assailing the CA Filipinos. Said provision reads:
decision declaring Cuenco as the absolute owner of the coconut land in question. "Save in cases of hereditary succession, no private agricultural land shall
be transferred or assigned except to individuals, corporations, or
FACTS: Leocadia Balisado owned a parcel of land located in Misamis Oriental. She associations, qualified to acquire or hold lands of the public domain."
sold the same to the herein petitioner spouses Patricio Barsobia (now deceased) and
Epifania Sarosa – both Filipino citizens. Then the latter in year 1936, being a widow, Had this been a suit between Epifania and Ong King Po, she could have been declared
sold the land to a Chinese national, Ong King Po, for the sum of P1,050.00. Ong King entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking
Po took actual possession and enjoyed the fruits thereof. In August 1961, Ong King Po Corporation vs. Lui She, reading:
sold the litigated property to herein respondent Cuenco, a naturalized Filipino, for the ". . . For another thing, and this is not only cogent but also important.
sum of P5,000.00. Cuenco immediately took actual possession and harvested the fruits Article 1416 of the Civil Code provides as an exception to the rule on pari
therefrom. delicto that when the agreement is not illegal per se but is merely
prohibited, and the prohibition by the law is designed for the protection of
In March 1962, Epifania usurped the controverted property. In fact, she sold, through the plaintiff, he may, if public policy is thereby enhanced, recover what he
her only daughter Emeteria Barsobia, one-half of the land to Pacita Vallar. Epifania has sold or delivered . . . "
claimed that it was not her intention to sell the land to Ong King Po and that she signed
the document merely to evidence her indebtedness to the latter. Epifania has been in But the factual set-up has changed. The litigated property is now in the hands of a
possession ever since except for the portion sold to Vallar. naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a
naturalized citizen, was constitutionally qualified to own the subject property. There
This prompted Cuenco to file a case for Forcible Entry against Epifania before the would be no more public policy to be served in allowing petitioner Epifania to recover
Municipal Court of Camiguin but the same was dismissed for lack of jurisdiction. Four the land as it is already in the hands of a qualified person. Applying by analogy the ruling
years after, Cuenco instituted before the CFI of Misamis Oriental a complaint for of this Court in Vasquez vs. Giap and Li Seng Giap & Sons:
recovery of possession and ownership of the land against Epifania and Vallar. In their ". . . if the ban on aliens from acquiring not only agricultural but also urban
answer, petitioners insisted that: lands, as construed by this Court in the Krivenko case, is to preserve the
1. They were the owners and possessors of the litigated land; nation's lands for future generations of Filipinos, that aim or purpose would
2. The sale to Ong King Po, a Chinese, was inexistent and/or void ab initio; and not be thwarted but achieved by making lawful the acquisition of real estate
3. The deed of sale between them was only an evidence of Epifania’s debt to Ong by aliens who became Filipino citizens by naturalization."
King Po.
CIVIL LAW REVIEW 2
While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of RULING: There can be no dispute that the sale in 1941 by Jose Godinez of his
ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her residential lot acquired from the Bureau of Lands as part of the Jolo townsite to Fong
rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she Pak Luen, a Chinese citizen residing in Hongkong, was violative of Section 5, Article
should be held barred from asserting her claim to the litigated property. XIII of the 1935 Constitution which provided:
Sec.5. Save in cases of hereditary succession, no private agricultural land
Respondent, therefore, must be declared to be the rightful owner of the property. will be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the
Vincente Godinez, et al. v. Fong Pak Luen, et al., Trinidad S. Navata Philippines.
G.R. No. L – 36731 January 27, 1983 Gutierrez, Jr., J.
The meaning of the above provision was fully discussed in Krivenko v. Register of
Deeds of Manila which also detailed the evolution of the provision in the public land
DOCTRINE: “Under the Constitution aliens may not acquire private or agricultural laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling that "under
lands, including residential lands” is a declaration of an imperative constitutional the Constitution aliens may not acquire private or agricultural lands, including
policy. Consequently, prescription may never be invoked to defend that which the residential lands" is a declaration of an imperative constitutional policy. Consequently,
Constitution prohibits. prescription may never be invoked to defend that which the Constitution prohibits.
However, we see no necessity from the facts of this case to pass upon the nature of the
NATURE OF ACTION: Appeal from an order of CFI of Sulu contract of sale executed by Jose Godinez and Fong Pak Luen whether void ab initio,
illegal per se or merely pro-exhibited.
FACTS: The plaintiffs filed a case to recover a parcel of land sold by their father Jose
Godinez to defendant Fong Pak Luen. Said defendant executed a power of attorney in It is enough to stress that insofar as the vendee is concerned, prescription is unavailing.
favor of his co-defendant Kwan Pun Ming, who conveyed and sold the above-described But neither can the vendor or his heirs rely on an argument based on imprescriptibility
parcel of land to co-defendant Trinidad S. Navata. The latter is aware of and with full because the land sold in 1941 is now in the hands of a Filipino citizen against whom the
knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun Ming, who constitutional prescription was never intended to apply. The lower court erred in treating
under the law are prohibited and disqualified to acquire real property; that Fong Pak the case as one involving simply the application of the statute of limitations.
Luen has not acquired any title or interest in said parcel of land as purported contract of From the fact that prescription may not be used to defend a contract which the
sale executed by Jose Godinez alone was contrary to law and considered non-existent. Constitution prohibits, it does not necessarily follow that the appellants may be allowed
The defendant filed her answer that the complaint does not state a cause of action since to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the
it appears from the allegation that the property is registered in the name of Jose Godinez disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino
so that as his sole property he may dispose of the same; that the cause of action has been citizen qualified to acquire real property.
barred by the statute of limitations as the alleged document of sale executed by Jose
Godinez on November 27, 1941, conveyed the property to defendant Fong Pak Luen as Donato Yap v. Judge Ezekiel Grageda
a result of which a title was issued to said defendant; that under Article 1144(1) of the G.R. No. L – 31606 March 28, 1983 Gutierrez, Jr., J.
Civil Code, an action based upon a written contract must be brought within 10 years
from the time the right of action accrues; that the right of action accrued on November
27, 1941 but the complaint was filed only on September 30, 1966, beyond the10-year DOCTRINE: When the litigated property is now in the hands of a naturalized
period provided by law. The trial court issued an order dismissing the complaint. A Filipino, who was formerly a Chinese national, the prohibition with regard ownership
motion for reconsideration was filed by plaintiffs but was denied. of land by foreigners does not apply anymore as the subject land is no longer owned
by a disqualified vendee.
ISSUE: Whether or not the lower court erred in dismissing the complaint on the ground
that the cause of action had prescribed. NATURE OF ACTION: Petition to Review
CIVIL LAW REVIEW 2
“If the ban on aliens from acquiring not only agricultural but also urban
FACTS: Petitioner Donato Reyes Yap is a Chinese national who bought Lot 339 and a lands, as construed by this Court in the Krivenko case, is to preserve the
portion of Lot 327, as evidenced by a Deed of Absolute Sale executed on April 12, 1939, nation's lands for future generations of Filipinos, that aim or purpose would
from Maximino Rico, father of respondent Jose A. Rico. Yap, as vendee, caused the not be thwarted but achieved by making lawful the acquisition of real estate
registration of the instrument of sale and the cancellation of Original Certificates of Title by aliens who became Filipino citizens by naturalization.”
Nos. 29332 and 29410 and the consequent issuance in his favor of Transfer Certificate
of Title No. T-2433 covering the two lots subject matter of the Contract of Sale. The amended judgment of the respondent court is hereby REVERSED and SET ASIDE.
The complaint is DISMISSED.
After the lapse of nearly fifteen years from and after the execution of the deed of absolute
sale, Yap was admitted as a Filipino citizen and allowed to take his oath of allegiance to Pineda v. de la Rama
the Republic of the Philippines and was issued a Certificate of Naturalization in Albay. G.R. No. L – 31831 April 28, 1983 Gutierrez, J.
On December 1, 1967, Yap ceded the major portion of Lot No. 327 consisting of 1,078
square meters to his son, Felix Yap, who was also a Filipino citizen because of the DOCTRINE: The consideration for the promissory note - to influence public
Filipino citizenship of his mother and the naturalization of his father Donato Reyes Yap. officers in the performance of their duties - is contrary to law and public policy. The
promissory note is void ab initio and no cause of action for the collection cases can
Subsequently, Lourdes Rico, aunt and co-heir of respondent Jose A. Rico sold the arise from it.
remaining portion of Lot 327 to Yap, who has been in possession of the lots in question
since 1939, openly, publicly, continuously, and adversely in the concept of owner until NATURE OF ACTION: Petition for review on certiorari
the present time.
FACTS: Jose Dela Rama is a practising lawyer whose services were retained by
Respondent Judge Grageda considered Section 5, Article XIII of the 1935 Constitution petitioner Jesus Pineda for the purpose of making representations with the National Rice
that "no private agricultural land shall be transferred or assigned except to individuals, and Corn Administration (NARIC) to stop or delay the institution of criminal charges
corporations, or associations qualified to acquire or hold lands of the public domain in against Pineda who allegedly misappropriated 11,000 cavans of palay deposited at his
the Philippines" to be an absolute and unqualified prohibition and, therefore, ruled that rice mill in Tarlac.
a conveyance contrary to it would not be validated nor its void nature altered by the
subsequent naturalization of the vendee. Dela Rama filed a suit to collect the loan of P9,300.00 evidenced by the matured
promissory note and P5,000.00 attorney’s fees for legal services rendered as Pineda’s
ISSUE: Whether or not the sale of the questioned residential lots to a foreigner, in this counsel in the case being investigated by NARIC.
case a Chinese national, is null and void, despite the vendee having been a
naturalized born Filipino citizen after such sale. According to Dela Pena, he loaned the P9,300.00 to Pineda in two installments on two
occasions five days apart – first loan for P5,000.00 and second loan for P4,300.00, both
RULING: No. The litigated property is now in the hands of a naturalized Filipino. It is given in cash.
no longer owned by a disqualified vendee. Yap, as a naturalized citizen, was
constitutionally qualified to own the subject property. There would be no more public CFI of Manila decided in favor of petitioner Pineda. The court believed the evidence of
policy to be served in allowing the former owner to recover the land as it is already in Pineda that he signed the promissory note of P9,300.00 only because Dela Rama had
the hands of a qualified person. told him that this amount had already been advanced to grease the palms of the Chairman
and General Manager of NARIC in order to save Pineda from criminal prosecution.
Applying by analogy the ruling of this Court in Vasquez vs. Giap and Leng Seng Giap
& Sons:
CIVIL LAW REVIEW 2
The trial court rendered judgment finding that the amount of P3,000.00 was given by FACTS: Petitioner-appellant filed a complaint against the widow and heirs of the late
the defendant to grease the palms of the NARIC officials. The purpose was illegal, null Salvador P. Lopez to recover a parcel of 51.84 hectares of land, situated in barrio Bogac-
and void. Linot, of the municipality of Mati, Province of Davao. Plaintiff averred to be its legal
owner, pursuant to a deed of donation of said land, executed in her favor by the late
CA reversed the decision of the trial court. Hence, this petition for review on certiorari. owner, Salvador P. Lopez, on 18 May 1943. The defense interposed was that the
donation was null and void for having an illicit causa or consideration, which was the
ISSUE: Whether or not the promissory is void for lack of consideration. plaintiff's entering into marital relations with Salvador P. Lopez, a married man; and that
the property had been adjudicated to the appellees as heirs of Lopez by the CFI, since
RULING: YES. We agree with the trial court that the promissory note was executed for 1949.
an illegal consideration. Articles 1409 and 1412 of the Civil Code in part, provide:
Art. 1409. The following contracts are inexistent and void from the The Court of Appeals found that when the donation was made, Lopez had been living
beginning: with the parents of appellant for barely a month; that the donation was made in view of
(1) Those whose cause, object or purpose is contrary to law, morals, good the desire of Salvador P. Lopez, a man of mature years, to have sexual relations with
customs, public order and public policy; appellant Conchita Liguez; that Lopez had confessed to his love for appellant to the
xxx xxx xxx instrumental witnesses, with the remark that her parents would not allow Lopez to live
with her unless he first donated the land in question; that after the donation, Conchita
Art. 1412. If the act in which the unlawful or forbidden cause consists does Liguez and Salvador P. Lopez lived together in the house that was built upon the latter's
not constitute a criminal offense, the following rules shall be observed: orders, until Lopez was killed on July 1st, 1943, by some guerrillas who believed him
(1) When the fault is on the part of both contracting parties, neither may to be pro-Japanese.
recover what he has given by virtue of the contract, or demand the
performance of the other's undertaking. It was also ascertained by the Court of Appeals that the donated land originally belonged
xxx xxx xxx to the conjugal partnership of Salvador P. Lopez and his wife, Maria Ngo.
Whether or not the supposed cash advances reached their destination is of no moment. ISSUES:
The consideration for the promissory note - to influence public officers in the 1. Whether or not the deed of donation is null and void because such is tainted
performance of their duties - is contrary to law and public policy. The promissory note will illegal cause or consideration
is void ab initio and no cause of action for the collection cases can arise from it. 2. Whether or not the deed of donation is null and void because husband had no
right to donate the conjugal property
Liguez v. CA
G.R. No. L – 11240 December 18, 1957 Reyes, JBL., J. RULINGS:
1. Yes, but such defense cannot be set up by appellees.
DOCTRINE: Liberality of the donor is deemed causa only in contracts that are of Appellant argued that under Article 1274 of the Civil Code of 1889 (which was the
“pure” beneficence, or contracts designed solely and exclusively to procure the governing law in 1948, when the donation was executed), "in contracts of pure
welfare of the beneficiary, without any intent of producing any satisfaction for the beneficence the consideration is the liberality of the donor", and that liberality per se can
donor never be illegal, since it is neither against law or morals or public policy.
NATURE OF ACTION: Petition for certiorari The flaw in this argument lies in ignoring that under Article 1274, liberality of the donor
is deemed causa in those contracts that are of "pure" beneficence; that is to say, contracts
designed solely and exclusively to procure the welfare of the beneficiary, without any
CIVIL LAW REVIEW 2
intent of producing any satisfaction for the donor; contracts, in other words, in which The text of the articles makes it plain that the donation made by the husband in
the idea of self-interest is totally absent on the part of the transferor. For this very reason, contravention of law is not void in its entirety, but only in so far as it prejudices the
the same Article 1274 provides that in remuneratory contracts, the consideration is the interest of the wife.
service or benefit for which the remuneration is given; causa is not liberality in these
cases because the contract or conveyance is not made out of pure beneficence, but To determine the prejudice to the widow, it must be shown that the value of her share in
"solvendi animo." the property donated can not be paid out of the husband's share of the community profits.
The requisite data, however, are not available to us and necessitate a remand of the
In this case, the late Salvador P. Lopez was not moved exclusively by the desire to records to the court of origin that settled the estate of the late Salvador P. Lopez.
benefit appellant Conchita Liguez, but also to secure her cohabiting with him, so that he
could gratify his sexual impulses. Actually, therefore, the donation was but one part of Philbanking v. Lui She
an onerous transaction (at least with appellant's parents) that must be viewed in its G.R. No. L – 17587 September 12, 1967 Castro, J.
totality. Thus considered, the conveyance was clearly predicated upon an illicit causa.
The appellant seeks recovery of the disputed land on the strength of a donation regular DOCTRINE: Article 1308 creates no impediment to the insertion in a contract for
on its face. To defeat its effect, the appellees must plead and prove that the same is personal service of a resolutory condition permitting the cancellation of the contract
illegal. But such plea on the part of the Lopez heirs is not receivable, since Lopez, by one of the parties.
himself, if living, would be barred from setting up that plea (guilty party hence barred
from raising illegality as a defense or using it as cause of action); and his heirs, as his NATURE OF ACTION: An Appeal directly to the Supreme Court from judgment of
privies and successors in interest, can have no better rights than Lopez himself. the Court of First Instance
2. Lopez could not donate the entirety of the property in litigation, to the prejudice FACTS: Justina Santos y Canon Faustino and her sister Lorenzo were the owners in
of his wife Maria Ngo, because said property was conjugal in character and the common of a piece of land in Manila with an area of 2,582.30 square meters. In it are
right of the husband to donate community property is strictly limited by law two residential houses with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses, while
ART. 1409. The conjugal partnership shall also be chargeable with anything Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-
which may have been given or promised by the husband alone to the time lessee of a portion of the property, paying a monthly rental of P2,620.
children born of the marriage in order to obtain employment for them or
give then, a profession or by both spouses by common consent, should they On September 22, 1957 Justina Santos became the owner of the entire property as her
not have stipulated that such expenditures should be borne in whole or in sister died with no other heir. Being at the time 90 years old, blind, crippled and an
part by the separate property of one of them.". invalid, she was left with no other relative to live with. Her only companions in the
house were her 17 dogs and 8 maids. Wong himself was the trusted man to whom she
ART. 1415. The husband may dispose of the property of the conjugal delivered various amounts for safekeeping, including rentals from her property. Wong
partnership for the purposes mentioned in Article 1409. also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses,
masses, salaries of maids and security guard, and her household expenses.
ART. 1413. In addition to his powers as manager the husband may for a
valuable consideration alienate and encumber the property of the conjugal "In grateful acknowledgment of the personal services of the lessee to her," Justina Santos
partnership without the consent of the wife. executed on November 15, 1957 a contract of lease for 50 years in favor of Wong, giving
him also the right to withdraw at any time from the agreement; the monthly rental was
P3,120. The contract covered an area of 1,124 square meters. Ten days later the contract
CIVIL LAW REVIEW 2
was amended so as to make it cover the entire property, including the portion on which Both parties appealed directly to this Court and after the case was submitted for decision,
the house of Justina Santos stood, at an additional monthly rental of P360. both parties died, Wong Heng on October 21, 1962 and Justina Santos on December 28,
1964. Wong was substituted by his wife, Lui She, while Justina Santos was substituted
On December 21 she executed another contract giving Wong the option to buy the leased by the Philippine Banking Corporation.
premises for P120,000, payable within ten years at a monthly installment of P1,000. The
option, imposed on him the obligation to pay for the food of the dogs and the salaries of ISSUE: Whether or not the stipulation in the contract of lease that the lessee may at
the maids in her household, the charge not to exceed P1,800 a month. The option was anytime withdraw from the agreement is in violation of Article 1308 of the
conditioned on his obtaining Philippine citizenship. However, that application for Civil Code which states that the validity or compliance of a contract cannot be
naturalization was withdrawn when it was discovered that he was not a resident of Rizal. left to the will of one of the contracting parties;that there is lack of mutuality
On October 28, 1958 she filed a petition to adopt him and his children on the erroneous of contracts?
belief that adoption would confer on them Philippine citizenship. The error was
discovered and the proceedings were abandoned. RULING: No. In the early case of Taylor v. Uy Tieng, Article 1256 [now art. 1308] of
the Civil Code in our opinion creates no impediment to the insertion in a contract for
On November 18, 1958 she executed two other contracts, one extending the term of the personal service of a resolutory condition permitting the cancellation of the contract by
lease to 99 years, and another fixing the term of the option of 50 years. 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
In two wills executed on August 24 and 29, 1959 she bade her legatees to respect the is conceded the privilege of cancellation; for where the contracting parties have agreed
contracts she had entered into with Wong, but in a codicil of a later date (November 4, that such option shall exist, the exercise of the option is as much in the fulfillment of the
1959) she claimed that the various contracts were entered by her because of contract as any other act which may have been the subject of agreement. Indeed, the
machinations and inducements practiced by him, she now directed her executor to secure cancellation of a contract in accordance with conditions agreed upon beforehand is
the annulment of the contracts. fulfillment.
A complaint was filed alleging that the contracts were obtained by Wong "through fraud, And so it was held in Melencio v. Dy Tiao Lay that a "provision in a lease contract that
misrepresentation, inequitable conduct, undue influence and abuse of confidence and the lessee, at any time before he erected any building on the land, might rescind the
trust of and (by) taking advantage of the helplessness of the plaintiff and were made to lease, can hardly be regarded as a violation of article 1256 [now art. 1308] of the Civil
circumvent the constitutional provision prohibiting aliens from acquiring lands in the Code.”
Philippines and also of the Philippine Naturalization Laws." Wong denied having taken
advantage of her trust in order to secure the execution of the contracts in question.He The case of Singson Encarnacion v. Baldomar cannot be cited in support of the claim of
insisted that the various contracts were freely and voluntarily entered into by the parties. want of mutuality, because of a difference in factual setting. In that case, the lessees
argued that they could occupy the premises as long as they paid the rent. This is of course
In the meantime as a result of a petition for guardianship filed in the Juvenile and untenable, for as this Court said, "If this defense were to be allowed, so long as
Domestic Relations Court, the Security Bank & Trust Co. was appointed guardian of the defendants elected to continue the lease by continuing the payment of the rentals, the
properties of Justina Santos, while Ephraim G. Gochangco was appointed guardian of owner would never be able to discontinue it. Here, in contrast, the right of the lessee to
her person. continue the lease or to terminate it is so circumscribed by the term of the contract that
it cannot be said that the continuance of the lease depends upon his will. At any rate,
The lower court rendered judgment stating that all the documents mentioned in the first even if no term had been fixed in the agreement, this case would at most justify the
cause of action, with the exception of the lease contract of 15 November 1957, are fixing of a period but not the annulment of the contract.
declared null and void.
CIVIL LAW REVIEW 2
Heirs of Marciana Avila v. CA any property sold by the Government for the non-payment of any public
G.R. No. L – 45255 November 14, 1986 Paras, J. tax. Any such purchase by a public official or employee shall be void.”
Thus, the sale to her of Lot 594 is void.

DOCTRINE: When the purchase of land is prohibited under Section 579 of the
Revised Administrative Code, and hence void, the contract is inexistent from the Further, Article 1409 of the Civil Code provides that a void contract is inexistent from
beginning. It cannot be ratified neither can the right to set up the defense of its the beginning. It cannot be ratified nor can the right to set up the defense of its illegality
illegality be waived be waived. Moreover, Marciana Avila was a party to an illegal transaction, and
therefore, under Art. 1412 of the Civil Code, she cannot recover what she has given by
NATURE OF ACTION: Petition for Review on Certiorari reason of the contract or ask for the fulfillment of what has been promised her.
FACTS: Marciana G. Avila, a teacher, wife of Leonardo Avila and the mother of the Possession cannot be claimed by petitioners, because their predecessor-in-interest Avila,
petitioners, acquired in a public bidding in 1939, Lots 594 and 828 of the Cadastral besides being at fault, is not the successful claimant in the registration proceedings and
Survey of Cagayan, formerly owned by one Paz Chavez. Despite the provision of hence not entitled to a writ of possession. As correctly stated by the Court of Appeals
Section 579 of the Revised Administrative Code prohibiting public school teachers from when respondent Court issued the writ of execution as to Lot 594, there really was no
buying delinquent properties, nobody, not even the government questioned her legal basis for the same, for Avila had not
participation in said auction sale. In fact on February 20, 1940, after the expiration of
the redemption period, the Provincial Treasurer executed in her favor the final bill of The government also did not file any claim for possession; nor appear to be impleaded
sale. in any of the actions or petitions before the Courts, Its only interest in the land in question
appears to be in the collection of taxes.
Sometime in 1947, Original Certificate of Title for those lots were issued in favor of Paz Consequently, the situation is evidently one of failure of ownership because of the
Chavez. In opposition thereto, private respondents filed a petition for review of the violation of Section 579 of the Administrative Code. Otherwise stated, the property
decrees. The Court of First Instance of Misamis Oriental as cadastral court ruled that the apparently has no owner.
decision of this Court of December 13, 1940, which adjudicated the lots in question in
favor of respondent Paz Chavez is null and void. Under the principle that the State is the ultimate proprietor of land within its jurisdiction,
subject land may be escheated in favor of the government upon filing of appropriate
Paz Chavez appealed the said decision with the Court of Appeals and ruled against the actions for reversion or escheat under Section 5, Rule 91 of the Rules of Court relative
validity of the transfer to Avila. Hence, this petition. to properties alienated in violation of any statute.
ISSUE: Whether or not the acquisition of land by Avila is valid. Teja Marketing and/or Angel Jaucian v. Honorable Intermediate Appellate
Court and Pedro N. Nale
RULING: No. While it is true that Marciana Avila, their mother and predecessor-in- G.R. No. L – 65510 March 9, 1987 Paras, J.
interest, purchased the questioned property at a public auction conducted by the
government; paid the purchase price; and was issued a final bill of sale after the
expiration of the redemption period, it is however undisputed that such purchase was DOCTRINE: Although not outrightly penalized as a criminal offense, the “kabit
prohibited under Section 579 of the Revised Administrative Code, as amended, which system” is recognized as being contrary to public policy and, therefore, void and
provides: inexistent under Article 1409 (NCC). "'Ex pacto illicito' non oritur actio" (No action
“Section 579. Inhibition against purchase of property at tax sale.-Official arises out of illicit bargain) must be applied. Hence, having entered into an illegal
and employees of the Government of the Republic of the Philippines are contract, neither can seek relief from the courts, and each must bear the consequences
prohibited from purchasing, directly or indirectly, from the Government, of his acts.
CIVIL LAW REVIEW 2
the owner of the unit. Furthermore, both parties agreed that Teja Marketing would
NATURE OF ACTION: Petition for Review undertake the yearly registration of the unit in question with the LTC while Pedro paid
for its registration and insurance coverage.
FACTS: Pedro bought from Teja Marketing a motorcycle with complete accessories
and a sidecar in the total consideration of P8,000.00. He gave a downpayment of On appeal, the CFI Camarines Sur affirmed the decision in toto.
P1,700.00 with a promise that he would pay the balance within 60 days. After he failed
to pay within the 60-day period, a one year-monthly installment plan was made but Pedro filed a petition for review with the IAC. The IAC held that the parties are in pari
Pedro stopped paying thereafter. Despite repeated demands, he still failed to pay. delicto and neither of them may bring an action against the other to enforce their illegal
contract. The purchase of the motorcycle pursuant to a "kabit system" without the prior
Thereafter, a chattel mortgage was constituted as a security for the payment of the approval of the Board of Transportation (formerly the Public Service Commission) was
balance of the purchase price. The records of the Land Transportation Commission an illegal transaction involving the fictitious registration of the motor vehicle.
(LTC) show that the motorcycle was first mortgaged by Angel Jaucian to Teja Hence, this petition for review.
Marketing though the Teja Marketing and Angel Jaucian are one and the same, because
it was made to appear that way only as the Pedro had no franchise of his own and he ISSUE: Is the contract between the parties void since it is operated under a "kabit
attached the unit to the Teja Marketing's MCH Line. The agreement included Teja system" arrangement?
Marketing’s undertaking to register the motorcycle yearly with the LTC.
RULING: Yes, although not outrightly penalized as a criminal offense, the “kabit
Pursuant to this agreement, Pedro gave 90 pesos for the mortgage fee and the registration system” is invariably recognized as being contrary to public policy and, therefore, void
fee of the motorcycle. However, Teja Marketing failed to register the motorcycle on that and in existent under Article 1409 of the Civil Code.
year on the ground that Pedro failed to comply with some requirements such as the
payment of the insurance premiums and the bringing of the motorcycle to the LTC for It is a fundamental principle that the court will not aid either party to enforce an illegal
stenciling, the plaintiff saying that the defendant was hiding the motorcycle from him. contract but will leave both where it finds then. Upon this premise it would be error to
Teja Marketing filed an action for Sum of Money with Damages against Pedro. accord the parties relief from their predicament. Article 1412 of the Civil Code denies
them such aid where it’s provided that if the act in which the unlawful or forbidden cause
Teja Marketing explained also that though the ownership of the motorcycle was already consists does not constitute a criminal offense, the following rules shall be observed (1)
transferred to the Pedro, the vehicle was still mortgaged with his consent to the Rural When the fault is on the part of both contracting parties, neither may recover that he has
Bank of Camaligan for the reason that all motorcycle purchased on credit was given by virtue of the contract, or demand, the performance of the other's undertaking.
rediscounted with the bank. For his part, Pedro alleged that due to Teja Marketing’s The defect of in existence of a contract is permanent and cannot be cured by ratification
failure to comply with its obligation to register the motorcycle , he suffered damages or by prescription. The mere lapse of time cannot give efficacy to contracts that are null
when he failed to claim any insurance indemnity which would amount to no less than and void.
P15,000.00 for the more than two times that the motorcycle figured in accidents aside
from the loss of the daily income when the motorcycle was impounded by the LTC for Unquestionably, the parties herein operated under an arrangement, commonly known as
not being registered. Pedro does not deny the sale and its terms. However, he claimed the "kabit system" whereby a person who has been granted a certificate of public
that Teja Marketing is to blame for not registering the motorcycle with the LTC and for convenience allows another person who owns motor vehicles to operate under such
not giving him the registration papers despite of his demands. franchise for a fee. A certificate of public convenience is a special privilege conferred
by the government. Abuse of this privilege by the grantees thereof cannot be
The Court rendered judgment in favor of Teja Marketing. It held that Pedro purchased countenanced. The "kabit system" has been Identified as one of the root causes of the
the motorcycle in order to engage in the transportation business. For this purpose, the prevalence of graft and corruption in the government transportation offices.
trimobile unit was attached to the Teja Marketing’s transportation line who had the
franchise, so much so that in the registration certificate, Teja Marketing appears to be
CIVIL LAW REVIEW 2
Briones v. Cammayo
G.R. No. L – 23559 October 4, 1971 Dizon, J. ISSUE: Whether a creditor in a usurious contract may or may not recover the principal
of the loan.
DOCTRINE: A contract of loan with usurious interest consists of principal and RULING: Yes. A contract of loan with usurious interest consists of principal and
accessory stipulations; the principal one is to pay the debt; the accessory stipulation accessory stipulations; the principal one is to pay the debt; the accessory stipulation is
is to pay interest thereon. And said two stipulations are divisible in the sense that the to pay interest thereon.
former can still stand without the latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the accessory obligations; but the And said two stipulations are divisible in the sense that the former can still stand without
waiver of the latter shall leave the former in force. In simple loan with stipulation of the latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal
usurious interest, the prestation of the debtor to pay the principal debt, which is the debt shall extinguish the accessory obligations; but the waiver of the latter shall leave
cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only the former in force."
as to the prestation to pay the stipulated interest; hence, being separable, the latter
only should be deemed void, since it is the only one that is illegal. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
NATURE OF ACTION: Action to recover sum of money illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
FACTS: Aurelio Briones filed an action in the Municipal Court of Manila against illegal.
defendants Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to
recover from them jointly and serverally, the amount of P1,500.00. The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest
allowed by the usury laws may be recovered by the debtor, with interest thereon from
The defendants answered, alleging that they executed the real estate mortgage for the date of payment." Article 1413, in speaking of "interest paid in excess of the interest
securing the payment of the loan of P1,500.00 for a period of one year without interest. allowed by the usury laws" means the whole usurious interest; that is, in a loan of
However, plaintiff delivered to the defendant Primitivo Cammayo only the sum of P1,000, with interest of 20% per annum or P200 for one year, if the borrower pays said
P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for P200, the whole P200 is the usurious interest, not just that part thereof in excess of the
one year. interest allowed by law. It is in this case that the law does not allow division. The whole
stipulation as to interest is void, since payment of said interest is illegal. The only change
That on account of said loan of P1,200.00, defendant Primitivo Cammayo paid the effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery
plaintiff during the period from October 1955 to July 1956 the total sum of P330.00 of the interest paid in excess of that allowed by law, which the Usury Law already
which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the provided for, but to add that the same can be recovered "with interest thereon from the
account but as interest of the said loan for an extension of another term of one year. date of payment."
That said contact of loan entered into between plaintiff and defendant Primitivo The foregoing interpretation is reached with the philosophy of usury legislation in mind;
Cammayo is a usurious contact and is contrary to law, morals, good custom, public order to discourage stipulations on usurious interest, said stipulations are treated as wholly
or public policy, and is therefore, in existent and void from the beginning. void, so that the loan becomes one without stipulation as to payment of interest. It should
not, however, be interpreted to mean forfeiture even of the principal, for this would
The Municipal Court granted the motion and rendered judgment ordering the defendants unjustly enrich the borrower at the expense of the lender. Furthermore, penal sanctions
to pay the plaintiff. are available against a usurious lender, as a further deterrence to usury.
The Court of First Instance of Manila, rendered, ordering defendant to pay plaintiff.
CIVIL LAW REVIEW 2
IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense
that appellee may recover from appellant the principal of the loan (P1,180.00) only, with
interest thereon at the legal rate of 6% per annum from the date of the filing of the
complaint.

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CIVIL LAW REVIEW 2

Atty. Crisostomo A. Uribe

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed.

Robes – Francisco v. CFI

notices of disconnection to all establishments affected including plaintiffs Ramoy. In a RULINGS:

2. Only respondent Ramoy may be awarded moral damages for testifying as to

Unlad Resources Development v. Dragon

1. That the raw materials needed by the borrower-corporation

4. In case of such cancellation, all the amounts paid in accordance

maintained "it would rightfully abide by whatever decision may be rendered by

NATURE OF ACTION: Direct appeal

Respondent’s trade secrets vulnerable especially in a highly competitive marketing

NATURE OF ACTION: Petition for review on certiorari after obtaining declarative

9. According to Subject Matter

RULING: Yes. He is obliged to pay the severance compensation.

Court of Appeals: By a vote of 3 to 2, reversed the decision of the trial court.

Bisaya Land Transportation v. Sanchez

Thus, the sale to her of Lot 594 is void.

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