Obligation Digest Cases

OSG v. Ayala Land Inc.
GR No. 177056 – Sept 18, 2009
FACTS:
Respondents operate or lease out shopping malls that have parking facilities. The people that use said facilities are
required to pay parking fees by the respondents. Senate committees conducted an investigation to determine the
legality of said practice which the same found to be against the National Building Code. Respondents then received
an information from various government agencies enjoining them from collecting parking fees and later a civil case
against them. Respondents argued that the same constitutes undue taking of private property. OSG argues that the
same is implemented in view of public welfare more specifically to ease traffic congestion. The RTC ruled in favor of
the respondents. Hence petition for certiorari.
ISSUE:
Whether or not the respondents are obligated to provide for free parking to its consumers and the public.
RULING:
No. Respondents are not obligated to provide for free parking to the people.
Article 1158 of the Civil Code provides that “Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special laws are demandable, and shall be regulated by the
precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book”.
The court does not agree to the petitioner’s reliance on the National Building Code as the same does not expressly
provide that respondents are required to provide free parking to the public. Moreover, the court holds that the code
regulates buildings and not traffic congestion. Police power is a power to regulate but not to confiscate. The OSG’s
contention is a deprivation of private property and falls under eminent domain which requires just compensation.
Thus, the RTC decision is affirmed and petition is dismissed for lack of merit.
* Case digest by Ariel Acopiado, LLB-1, Andres Bonifacio Law School, SY 2017-2018
PADCOM v. Ortigas
G.R. No. 146807, May 9, 2002, 382 SCRA 222
FACTS:
Petitioner Padcom Condominium Corporation owns and manage the Padilla Office Condominium Building
(PADCOM BUILDING). The land on which the building stands was originally acquired from the Ortigas & Company,
Limited Partnership, by Tierra Development Corporation (TDC) under a Deed of Sale with a condition that the
transferee and its successor-in-interest must become members of an association for realty owners and long-term
lessees in the area later known as the Ortigas Center. Subsequently, the said lot, together with the improvements
thereon, was conveyed by TDC in favor of PADCOM in a Deed of Transfer. Respondent Ortigas Center Association,
Inc. was organized to advance the interests and promote the general welfare of the real estate owners and long-
term lessees of the lots in the Ortigas Center and sought the collection of membership dues from PADCOM.
PADCOM’S refusal to pay its arrears in monthly dues prompted the Association to file a complaint for collection of
sum of money before the trial court, but the same was dismissed. On appeal, the Court of Appeals reversed and set
aside the trial court’s dismissal.
ISSUE:
Whether or not PADCOM is unjustly enriched by the improvements made by the Association, thus requiring the
former to pay dues to the latter.
RULING:
Yes. The Supreme Court held that as resident and lot owner in the Ortigas area, PADCOM was definitely benefited
by the Association’s acts and activities to promote the interests and welfare of those who acquire property therein or
benefit from the acts or activities of the Association. Generally, it may be said that a quasi-contract is based on the
presumed will or intent of the obligor dictated by equity and by the principles of absolute justice. Examples of these
principles are: (1) it is presumed that a person agrees to that which will benefit him; (2) nobody wants to enrich
himself unjustly at the expense of another; or (3) one must do unto others what he would want others to do unto him
under the same circumstances.
Finally, PADCOM’s argument that the collection of monthly dues has no basis since there was no board resolution
defining how much fees are to be imposed deserves scant consideration. Suffice it is to say that PADCOM never
protested upon receipt of the earlier demands for payment of membership dues. In fact, by proposing a scheme to
pay its obligation, PADCOM cannot belatedly question the Association’s authority to assess and collect the fees in
accordance with the total land area owned or occupied by the members, which finds support in a resolution dated 6
November 1982 of the Association’s incorporating directors and Section 2 of its By-laws.
* Case digest by Cherrie Mae Aguila-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Metrobank v. Absolute Management Corp.

G.R. No. 170498, January 9, 2013, 688 SCRA 225
FACTS:
Metrobank deposited the AMC checks to Ayala Lumber and Hardware’s account; because of Chua’s control over
AMC’s operations, Metrobank assumed that the checks payable to AMC could be deposited to Ayala Lumber and
Hardware’s account.
Ayala Lumber and Hardware had no right to demand and receive the checks that were deposited to its account;
despite Chua’s control over AMC and Ayala Lumber and Hardware, the two entities are distinct, and checks
exclusively and expressly payable to one cannot be
deposited in the account of the other.
In its fourth-party complaint, Metrobank claims that Chua’s estate should reimburse it if it becomes liable on the
checks that it deposited to Ayala Lumber and Hardware’s account.
ISSUE:
Whether or not Ayala Lumber must return the amount of said checks to Metrobank.
RULING:
Metrobank acted in a manner akin to a mistake when it deposited the AMC checks to Ayala Lumber and Hardware’s
account because it assumed that the checks payable to AMC could be deposited to Ayala Lumber and Hardware’s
account. This disjunct created an obligation on the part of Ayala Lumber and Hardware, through its sole proprietor,
Chua, to return the amount of these checks to Metrobank.
This fulfills the requisites of solutio indebiti. Metrobank’s fourth-party complaint falls under the quasi-contracts
enunciated in Article 2154 of the Civil Code. Article 2154 embodies the concept “solutio indebiti” which arises when
something is delivered through mistake to a person who has no right to demand it. It obligates the latter to return
what has been received through mistake. Solutio indebiti, as defined in Article 2154 of the Civil Code, has two
indispensable requisites: first, that something has been unduly delivered through mistake; and second, that
something was received when there was no right to demand it.
* Case digest by Neah Hope Bato, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Barredo v. Garcia and Almario

July 8, 1942, 73 Phil. 607
FACTS:
May 3, 1936 on the road between malabon and Navotas, province of Rizal, there was a head-on collision between a
taxi of the Malate Taxicab driven by Pedro Fontanilla and a carretela guided by Pedro Dimapalis. The carretela was
overturned, and one of its passengers, 16 years old boy Faustino Garcia, suffered injuries from which he died two
days later. A criminal action was filed against Fontanilla and he was convicted.
Severino Garcia and Timotea Almario, parents of the deceased on March 7, 1939, brought an action in the Court of
First Instance of Manila Against Fausto Barredo as the sole proprietor of the Malate Taxicab and employer of Pedro
Fontanilla.
Fausto Barredo is shown to be careless in employing Fontanilla who had been caught for several times for violation
of the automobile law and speeding. The defense is that the liability is only subsidiary, and as there has been no
civil action against Pedro Fontanilla, the person criminally liable, Barredo cannot be held responsible in the case.
ISSUE:
Whether or not they can file for a separate civil action against Fausto Barredo making him primarily and directly
responsible.
RULING:
Whether the plaintiffs may bring this separate civil action against Fausto Barredo, thus making him primarily and
directly, responsible under Article 1903 of the Civil Code as an employer of Pedro Fontanilla. To decide the main
issue, we must cut through the tangled that has, in the minds of many confused and jumbled together delitos and
cuasi delitos, or crimes under the Penal Code and Fault or negligence under Articles 1902-1910 of the Civil Code.
Authorities support the proposition that a quasi-delict or “culpa aquiliana” is a separate legal institution under the
Civil Code with a substantivity all its own, and individually that is entirely apart and independent from delict or crime.
* Case digest by Lea Caipang, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Amadora v. Court of Appeals

G.R. No. L-47745, 15 April 1988
FACTS:
Alfredo Amadora, while in the auditorium of the school, was mortally hit by a gun by PablitoDaffon resulting to the
former’s death. Daffon was convicted of homicide through reckless imprudence. The victim’s parents, herein
petitioners, filed a civil action for damages against Colegio de San Jose-Recoletos, its rectors, high school principal,
dean of boys, the physics teacher together with Daffon and 2 other students. Complaints against the students were
dropped. Respondent Court absolved the defendants completely and reversed CFI Cebu’s decision for the following
reasons: 1. Since the school was an academic institution of learning and not a school of arts and trades 2. Those
students were not in the custody of the school since the semester has already ended 3. There was no clear
identification of the fatal gun, and 4. In any event, defendants exercised the necessary diligence through
enforcement of the school regulations in maintaining discipline. Petitioners on the other hand claimed their son was
under school custody because he went to school to comply with a requirement for graduation (submission of
Physics reports).
ISSUE:
Whether or not Collegio de San Jose-Recoletos should be held liable.
RULING:
No. Collegio de San Jose-Recoletos should not be held liable.
Article 2180 of the Civil Code states that “teachers or heads of establishments of arts and trades shall be liable for
damages caused by their pupils and students or apprentices, so long as they remain in their custody. Responsibility
shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a
family to prevent damage.”
Even though at the time Alfredo was fatally shot, he was in the custody of the authorities of the school
notwithstanding classes had formally ended when the incident happened; it was immaterial if he was in the school
auditorium to finish his physics requirement. What was important is that he was there for a legitimate purpose. On
the other hand, the rector, high school principal and the dean of boys cannot be held liable because none of them
was the teacher-in-charge as defined in the provision. Each was exercising only a general authority over the
students and not direct control and influence exerted by the teacher placed in-charge of particular classes.
In the absence of a teacher- in charge, dean of boys should probably be held liable considering that he had earlier
confiscated an unlicensed gun from a student and later returned to him without taking disciplinary action or reporting
the matter to the higher authorities. Though it was clear negligence on his part, no proof was shown to necessarily
link this gun with the shooting incident.
Collegio San Jose-Recoletos cannot directly be held liable under the provision because only the teacher of the head
of school of arts and trade is made responsible for the damage caused by the student. Hence, under the facts
disclosed, none of the respondents were held liable for the injury inflicted with Alfredo resulting to his death.
* Case digest by Frillin M. Lomosad, LLB-1, Andres Bonifacio Law School, SY 2017-2018
PSBA v. Court of Appeals

G.R. No. 84698, February 4, 1992, 205 SCRA 729
FACTS:
Private respondents sought to adjudge petitioner PSBA and its officers liable for the death of Carlitos Bautista, a
third year commerce student who was stabbed while on the premises of PSBA by elements from outside the school.
Private respondents are suing under the law on quasi-delicts alleging the school and its officers’ negligence,
recklessness and lack of safety precautions before, during, and after the attack on the victim. Petitioners moved to
dismiss the suit but were denied by the trial court. CA affirmed.
ISSUE:
Whether or not PSBA may be held liable under quasi-delicts.
RULING:
NO. Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos
Bautista, the rules on quasi-delict do not really govern. A perusal of Article 2176 shows that obligations arising from
quasi-delicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by
contract, whether express or implied.
When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to
provide the student with an education that would presumably suffice to equip him with the necessary tools and skills
to pursue higher education or a profession. On the other hand, the student covenants to abide by the school’s
academic requirements and observe its rules and regulations. Necessarily, the school must ensure that adequate
steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof.
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the
school and Bautista had been breached thru the former’s negligence in providing proper security measures. This
would be for the trial court to determine. And, even if there be a finding of negligence, the same could give rise
generally to a breach of contractual obligation only.
* Case digest by Aisha Mie Faith Fernandez, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Mendoza v. Arrieta
G.R. No. L-32599, June 29, 1979, 91 SCRA 113
FACTS:
A three- way vehicular accident involving a Mercedes Benz owned and driven by petitioner; a private jeep owned
and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and
driven by Freddie Montoya. As a consequence of said mishap, two separate Informations for Reckless Imprudence
Causing Damage to Property were filed against Rodolfo Salazar and Freddie Montoya. The trial Court absolved
jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings that the collision between Salazar’s
jeep and petitioner’s car was the result of the former having been bumped from behind by the truck driven by
Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver Montoya but
only against jeep- owner-driver Salazar.
After the termination of the criminal cases, petitioner filed a civil case against respondents jeep-owner-driver Salazar
and Felino Timbol, the latter being the owner of the gravel and sand truck driven by Montoya, for indemnification for
the damages sustained by his car as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and
truck- owner Timbol were joined as defendants, either in the alternative or in solidum allegedly for the reason that
petitioner was uncertain as to whether he was entitled to relief against both on only one of them. Respondent Judge
dismissed the Complaint against truck-owner Timbol and jeep- owner-driver Salazar.
ISSUE:
Whether or not the cases against Salazar and Timbol were properly dismissed.
RULING:
The suit against to truck-owner Timbol:
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following requisites
must concur:
(1)it must be a final judgment; (2) it must have been rendered by a Court having jurisdiction over the subject matter
and over the parties; (3) it must be a judgment on the merits; and (4) there must be, between the first and second
actions, Identity of parties, Identity of subject matter and Identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, the court agrees with petitioner that
there is no Identity of cause of action between the criminal and civil case. Obvious is the fact that in said criminal
case truck-driver Montoya was not prosecuted for damage to petitioner’s car but for damage to the jeep. Neither
was truck-owner Timbol a party in said case. In the criminal cases, the cause of action was the enforcement of the
civil liability arising from criminal negligence under Article l of the Revised Penal Code, whereas Civil Case No.
80803 is based on quasi-delict under Article 2180.
Petitioner’s cause of action against Timbol in the civil case is based on quasi-delict is evident from the recitals in the
complaint to wit: that while petitioner was driving his car along MacArthur Highway at Marilao, Bulacan, a jeep
owned and driven by Salazar suddenly swerved to his (petitioner’s) lane and collided with his car: That the sudden
swerving of Salazar’s jeep was caused either by the negligence and lack of skill of Freddie Montoya, Timbol’s
employee, who was then driving a gravel and sand truck the same direction as Salazar’s jeep; and that as a
consequence of the collision, petitioner’s car suffered extensive damage. Consequently,
petitioner’s cause of action being based on quasi-delict, respondent Judge committed reversible error when he
dismissed the civil suit against the truck-owner, as said case may proceed independently of the criminal
proceedings and regardless of the result of the latter. But it is truck-owner Timbol’s submission (as well as that of
jeep-owner-driver Salazar) that petitioner’s failure to make a reservation in the criminal action of his right to file an
independent civil action bars the institution of such separate civil action. In so far as truck-owner Timbol is
concerned, he is not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file an
independent civil action based on quasi-delict.
The suit against jeep-owner-driver Salazar:
Petitioner had opted to base his cause of action against jeep-owner-driver Salazar on culpa criminal and not on
culpa aquiliana as evidenced by his active participation and intervention in the prosecution of the criminal suit
against said Salazar. The latter’s civil liability continued to be involved in the criminal action until its termination.
Such being the case, there was no need for petitioner to have reserved his right to file a separate civil action as his
action for civil liability was deemed impliedly instituted in criminal case. Jeep-owner-driver Salazar cannot be held
liable for the damages sustained by petitioner’s car. In other words, “the fact from which the civil might arise did not
exist.”
And even if petitioner’s cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end result
would be the same, it being clear from the judgment in the criminal case that Salazar’s acquittal was not based upon
reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is explicitly provided for
in Article 29 of the Civil Code quoted here under:
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his guilt has not been proved
beyond reasonable doubt, a civil action for damages for the same act or omission may be instituted. Such action
requires only a preponderance of evidence …
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the court shall so declare. In the
absence of any declaration to that effect, it may be inferred from the text of the decision whether or not the acquittal
is due to that ground.
In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge’s Order
dated January 30, 1971 dismissing the complaint, albeit on different grounds.
* Case digest by Paula Bianca Eguia, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Villaroel v. Estrada, G.R. No. L-47262, 19
December 1940.
19MAR
[AVANCEÑA, Pres.]
FACTS: On May 9, 1912, Alejandro F. Callao, the mother of the defendant Juan F. Villarroel, obtained from the spouses
Mariano Estrada and Severina a loan of P1,000 payable after seven years. Alejandra died, leaving as sole heir to the
defendant. The spouses Mariano Estrada and Severina also died, leaving as sole heir the plaintiff Bernardino Estrada. On
August 9, 1930, the defendant signed a document (Exhibit B) by which it declares the applicant to owe the amount of
P1,000, with an interest of 12 percent per year. This action deals with the collection of this amount.
ISSUE: Is the defendant Juan under obligation to pay the loan that already prescribed if he subsequently declared that he
owed it to plaintiff Bernardino?
HELD: YES.
Although the action to recover the original debt has already been prescribed when the claim was filed in this case, the
question that arises in this appeal is mainly whether, notwithstanding such a prescription, the action (may be) brought.
However, the present action is not based on the original obligation contracted by the defendant’s mother, who has already
been prescribed, but in which the defendant contracted on August 9, 1930 upon assuming the fulfillment of that obligation,
Already prescribed. Since the defendant is the sole inheritor of the primitive debtor, with the right to succeed in his
inheritance, that debt, brought by his mother legally, although it has lost its effectiveness by prescription, is now, however,
for a moral obligation, which is consideration Sufficient to create and render effective and enforceable its obligation
voluntarily contracted on August 9, 1930 in Exhibit B.
The rule that a new promise to pay a pre-paid debt must be made by the same obligated person or by another legally
authorized by it, is not applicable to the present case in which it is not required to fulfill the obligation of the obligee
originally, but of which he voluntarily wanted to assume this obligation.
Fisher v. Robb
G.R. No. 46274, 2 November 1939
FACTS:
John C. Robb made a business trip to Shanghai as per request by the board of directors of the Philippine
Greyhound Club, Inc. to study the operation of a dog racing course. The defendant stayed at American Club where
he became acquainted with Fisher. Upon knowing the purpose of the defendant the plaintiff himself asked the
defendant if he could be part of the stockholder. The defendant agreed to it, and the plaintiff then paid the first
installment.
The defendant went back to Manila and the board of directors of PGCI issued a call for the payment of the second
installment in which the plaintiff answered that he had already paid the same. The PGCI was then replaced by The
Philippine Racing Club. The defendant then sends letters to plaintiff informing him of the critical condition of the
PGCI to reimburse the second installment out of moral responsibility.
ISSUE:
Whether or not there was sufficient consideration to justify the promise made by the defendant-appellant in his
letters
RULING:
No. The Supreme Court held that the promise made by an organizer of a dog racing course to a stockholder to
return to him certain amounts paid by the latter in satisfaction of his subscription upon the belief of said organizer
that he was morally responsible because of the failure of the enterprise, is not the consideration required by article
1261 of the Civil Code as an essential element for the legal existence of an onerous contract which would bind the
promisor to comply with his promise.
ART. 1261. There is no contract unless the following requisites exists:
1. The consent of the contracting parties;

2. A definite object which is the subject-matter of the contract;
3. A consideration for the obligation established.
In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally responsible for the
second payments which had been made to carry out his plan, and that Mr. Hilscher and he would do everything
possible so that the stockholders who had made second payments may receive the amount paid by them from their
personal funds because they voluntarily assumed the responsibility to make such payment as soon as they receive
from the Philippine racing Club certain shares for their services as promoters of said organization, it does not appear
that the plaintiff-appellee had consented to said form of reimbursement which he had directly paid to the Philippine
Greyhound Club, Inc., in satisfaction of the second installment. The first essential requisite required by the cited
article 1261 of the Civil Code for the existence of a contract, does not exists.
* Case digest by Aileen B. Buenafe, LLB-1, Andres Bonifacio Law School, SY 2017-2018
DE GUIA v. MANILA ELECTRIC CO.
G.R. No. L-14335
January 28, 1920
STREET, J.
SYNOPSIS
Manuel de Guia, a physician, boarded one of Manila Electric Railroad and Light Co.'s
(MERLC) car.
The car was derailed, hitting a post. De Guia was thrown against the door with some
violence. He had several bruises and possible internal injuries.
The trial court found that the motorman was negligent for having maintained too rapid a
speed, for not stopping even after he realized that the wheels have been derailed, and for
failure to exercise a more cautious course of action given his experience.
De Guia sought to recover damages from MERLC.
The trial court awarded P6,100 damages to De Guia. Both appealed.
HELD - MERLC is liable. The basis of the obligation is contractual. However, the Court has
the power to regulate the award of damages.
DOCTRINE
The relationship between the parties is contractual. The obligations of MERLC as a common
carrier is determined with reference to the principles of contract law.
Under the contract law, the company was bound to convey and deliver the plaintiff safely
and securely with reference to the degree of care which, under the circumstances, is
required by law and custom applicable to the case. Failure to do so makes it liable for
damages.
The evidence reveals that the motorman failed to exercise the proper diligence required
under the circumstances. It was going at a rapid speed as manifested by the impact at which
it hit the post. There is also some evidence pointing out that the car was behind schedule
and that it is going at a rate faster than ordinary. MERLC, being his employer, is thus liable.
US v. Barias
Facts:
On November 2, 1911, defendant Segundo Barias, a motorman for the Manila Electric
Railroad and Light Company, was driving his car along Rizal Avenue and stopped at an
intersection to take on some passengers. He looked backward, presumably to be sure that
all passengers were aboard, and then started the car. At that moment, Fermina Jose, a 3-
year old child, walked or ran in front of the car. She was knocked down and dragged at
some distance to death. Defendant knew nothing of this until his return, when he was
informed of what happened. He was charged and found guilty of homicide resulting from
reckless negligence.
Issue:
Whether the evidence shows such carelessness or want of ordinary care on the part of the
defendant as to amount to reckless negligence
Held:
Negligence is want of the care required by the circumstances. It is a relative or

comparative, not an absolute, term and its application depends upon the situation of the
parties and the degree of care and vigilance which the circumstances reasonably require.
Where the danger is great, a high degree of care is necessary, and the failure to observe
it is a want of ordinary care under the circumstances.
The evidence shows that the thoroughfare on which the incident occurred was a public
street in a densely populated section of the city. The hour was six in the morning, or about
the time when the residents of such streets begin to move about. Under such conditions a
motorman of an electric street car was clearly charged with a high degree of diligence in
the performance of his duties. He was bound to know and to recognize that any
negligence on his part in observing the track over which he was running his car might
result in fatal accidents. He had no right to assume that the track before his car was clear.
It was his duty to satisfy himself of that fact by keeping a sharp lookout, and to do
everything in his power to avoid the danger which is necessarily incident to the operation
of heavy street cars on public thoroughfares in populous sections of the city. At times, it
might be highly proper and prudent for him to glance back before again setting his car in
motion, to satisfy himself that he understood correctly a signal to go forward or that all the
passengers had safely alighted or gotten on board. But we do insist that before setting his
car again in motion, it was his duty to satisfy himself that the track was clear, and, for that
purpose, to look and to see the track just in front of his car. This the defendant did not do,
and the result of his negligence was the death of the child.
We hold that the reasons of public policy which impose upon street car companies and
their employees the duty of exercising the utmost degree of diligence in securing the
safety of passengers, apply with equal force to the duty of avoiding the infliction of injuries
upon pedestrians and others on the public streets and thoroughfares over which these
companies are authorized to run their cars. And while, in a criminal case, the courts will
require proof of the guilt of the company or its employees beyond a reasonable doubt,
nevertheless the care or diligence required of the company and its employees is the same
in both cases, and the only question to be determined is whether the proofs shows beyond
a reasonable doubt that the failure to exercise such care or diligence was the cause of the
accident, and that the defendant was guilty thereof.
Standing erect, at the position he would ordinarily assume while the car is in motion, the
eye of the average motorman might just miss seeing the top of the head of a child, about
three years old, standing or walking close up to the front of the car. But it is also very
evident that by inclining the head and shoulders forward very slightly, and glancing in front
of the car, a person in the position of a motorman could not fail to see a child on the track
immediately in front of his car; and we hold that it is the manifest duty of a motorman, who
is about to start his car on a public thoroughfare in a thickly-settled district, to satisfy
himself that the track is clear immediately in front of his car, and to incline his body slightly
forward, if that be necessary, in order to bring the whole track within his line of vision. Of
course, this may not be, and usually is not necessary when the car is in motion, but we
think that it is required by the dictates of the most ordinary prudence in starting from a
standstill.
Sarmiento v. Sps. Cabrido

G.R. No. 141258, April 9, 2003, 401 SCRA 122
FACTS:
Tomasa Sarmiento’s friend, Dra. Virginia Lao, requested her to find someone to reset a pair of diamond earrings
into two gold rings. Sarmiento sent Tita Payag with the earrings to Dingding’s Jewelry Shop, owned and managed
by spouses Luis and Rose Cabrido, which accepted the job order for P400. Respondent Marilou Sun went on to
dismount the diamond from original settings. Unsuccessful, she asked their goldsmith, Zenon Santos, to do it. He
removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the process. Petitioner
required the respondents to replace the diamond with the same size and quality. When they refused, the petitioner
was forced to buy a replacement in the amount of P30,000. Rose Cabrido, manager, denied having any transaction
with Payag whom she met only after the latter came to seek compensation for the broken piece of jewelry. Marilou,
on the other hand, admitted knowing Payag to avail their services and recalled that when Santos broke the jewelry,
Payag turned to her for reimbursement thinking she was the owner. Santos also recalled that Payag requested him
to dismount what appeared to him as sapphire and that the stone accidentally broke. He denied being an employee
of the Jewelry shop.
ISSUE:
1. WoN dismounting of the diamond from its original setting was part of the obligation
2. WoN respondents are liable for damages and moral damages.
RULING:
Yes. The contemporaneous and subsequent acts of the parties reveal the scope of obligation assumed by the
jewelry shop to reset the pair of earrings. Marilou expressed no reservation regarding the dismounting of the
diamonds. She could have instructed Payag to have the diamonds dismounted first, but instead, she readily
accepted the job order and charged P400. After the new settings were completed, she called petitioner to bring the
diamond earrings to be reset. She examined one of them and went on to dismount the diamond from the original
setting. After failing to do the same, she delegated it to the goldsmith. Having acted the way she did, she cannot
deny that the dismounting was part of the shop’s obligation to reset the pair of earrings.
Yes. Those who, in the performance of their obligations are guilty of fraud, negligence or delay and those who in
any manner contravene the tenor thereof, are liable for damages. Santos acted negligently in dismounting the
diamond from its original setting. Instead of using a miniature wire, which is the practice of the trade, he used a pair
of pliers. Moral damages may also be awarded in a breach of contract when there is proof that defendant acted in
bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligation.
Doctrine:
Obligations arising from contracts have the force of law between the contracting parties. Corollarily, those who in the
performance of their obligations are guilty of fraud, negligence or delay and those who in any manner contravene
the tenor thereof, are liable for damages. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place.
* Case digest by Lady Rubyge Denura, LLB-1, Andres Bonifacio Law School, SY 2017-2018
SARMIENTO v. SPS. CABRIDO
G.R. No. 141258
April 9, 2003
CORONA, J.
SYNOPSIS
Dra. Virginia Lao sought the help of her friend, Tomasa Sarmiento, to have some pieces of
her jewelry reset (a pair of diamond earrings into two gold rings).
The latter sent one Tita Payag to bring the jewelry to Dingding's Jewelry Shop, owned by the
Cabrido Spouses.
The job was eventually performed by Zenon Santos, the shop's goldsmith, breaking the gem
in the process.
Sarmiento sought to recover damages.
HELD - The shop, as Santos' employer is liable for damages. Their employee having been
negligent in the performance of its obligation.
DOCTRINE
In contractual obligations, the party bound is expected to perform his obligation with the
ordinary diligence required by the circumstances.
In this case, Santos, the shop's employee failed to observe the ordinary diligence required
by the circumstances.
He acted negligently in dismounting the diamond from its original setting. It appears to be
the practice of the trade to use a miniature wire saw in dismounting precious gems, such as
diamonds, from their original settings. However, Santos employed a pair of pliers in clipping
the original setting, thus resulting in breakage of the diamond. Res ipsa loquitur.
Crisostomo v. CA
G.R. No. 138334, August 25, 2003, 409 SCRA 528
FACTS:
Petitioner contracted the services of respondent Caravan Travel and Tours International, Inc. to arrange and
facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of Europe. Pursuant to said contract,
the travel documents and plane tickets were delivered to the petitioner who in turn gave the full payment for the
package tour on June 12, 1991. Without checking her travel documents, petitioner went to NAIA on Saturday, June
15, 1991, to take the flight for the first leg of her journey from Manila to Hongkong. To petitioner’s dismay, she
discovered that the flight she was supposed to take had already departed the previous day. She learned that her
plane ticket was for the flight scheduled on June 14, 1991. She thus called up Menor to complain. Subsequently,
Menor prevailed upon petitioner to take another tour- the British Pageant. Upon petitioner’s return from Europe, she
demanded from respondent the reimbursement of the difference between the sum she paid for Jewels of Europe
and the amount she owed respondent for the British Pageant tour.
Petitioner filed a complaint against respondent for breach of contract of carriage and damages alleging that her
failure to join Jewels of Europe was due to respondent’s fault since it did not clearly indicate the departure date on
the plane, failing to observe the standard of care required of a common carrier when it informed her wrongly of the
flight schedule. For its part, respondent company, denied responsibility for petitioner’s failure to join the first tour,
insisting that petitioner was informed of the correct departure date, which was clearly and legibly printed on the
plane ticket. The travel documents were given to petitioner two days ahead of the scheduled trip. Respondent
further contend that petitioner had only herself to blame for missing the flight, as she did not bother to read or
confirm her flight schedule as printed on the ticket.
ISSUE:
Whether or not Caravan Travel & Tours International Inc. is negligent in the fulfilment of its obligation to petitioner
Crisostomo thus granting to the petitioner the consequential damages due her as a result of breach of contract of
carriage.
RULING:
Contention of petitioner has no merit. A contract of carriage or transportation is one whereby a certain person or
association of persons obligate themselves to transport persons, things, or news from one place to another for a
fixed price. Such person or association of persons are regarded as carriers and are classified as private or special
carriers and common or public carriers. Respondent is not an entity engaged in the business of transporting either
passengers or goods and is therefore, neither a private nor a common carrier. Respondent did not undertake to
transport petitioner from one place to another since its covenant with its customers is simply to make travel
arrangements in their behalf. Respondent’s services as a travel agency include procuring tickets and facilitating
travel permits or visas as well as booking customers for tours.
The object of petitioner’s contractual relation with respondent is the service of arranging and facilitating petitioners
booking, ticketing and accommodation in the package tour. In contrast, the object of a contract of carriage is the
transportation of passengers or goods. It is in this sense that the contract between the parties in this case was an
ordinary one for services and not one of carriage. Since the contract between the parties is an ordinary one for
services, the standard of care required of respondent is that of a good father of a family under Article 1173 of the
Civil Code. The evidence on record shows that respondent exercised due diligence in performing its obligations
under the contract and followed standard procedure in rendering its services to petitioner. As correctly observed by
the lower court, the plane ticket issued to petitioner clearly reflected the departure date and time, contrary to
petitioner’s contention. The travel documents, consisting of the tour itinerary, vouchers and instructions, were
likewise delivered to petitioner two days prior to the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It arranged petitioner’s hotel accommodation as
well as food, land transfers and sightseeing excursions, in accordance with its avowed undertaking. The evidence
on record shows that respondent company performed its duty diligently and did not commit any contractual breach.
Hence, petitioner cannot recover and must bear her own damage.
Song Fo & Company vs Hawaiian Philippine Co.

G.R. No. 23769 – September 16, 1925
FACTS:
Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC) where it would deliver molasses
to the latter evidenced by a letter containing their contract. The same states that Mr. Song Fo agreed to the delivery
of 300,000 gallons of molasses and the same requested for an additional 100,000 molasses which the HPC
promised that it will do its best to comply with the additional shipment. However, the HPC was only able to deliver
55,006 gallons. SFC thereafter filed a complaint with two causes of action for breach of contract against the HPC
and asked for P70,369.50. HPC answered that there was a delay in the payment from
SFC and that HPC has the right to rescind the contract because of the same· The trial court condemned HPC to pay
SFC a total of P35,317.93, with legal interest.
ISSUES:
1. Whether or not SFC is entitled to damages

2. Whether or not HPC has a right to rescind the contract?
RULING:
As to the first question, yes, SFC is entitled to damages. Article 1170 of the Civil Code provides “Those who in the
performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages”
The failure of HPC to deliver the rest of the molasses constitutes a breach of contract by contravention of tenor and
is thus liable for damages. The bases for damages is the cost in excess of the agreed price in the contract when
SFC was made to acquire the needed molasses from another supplier and the expenses related to the
transportation of the same. Loss of profits would have been included as part of damages had SFC been able to
substantiate such a claim.
As to the second question, no, HPC has no right to rescind the contract.
The court provided that the general rule is that rescission will not be permitted for a slight or casual breach of
the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the
parties in making the agreement.
It should be noted that the time of payment stipulated for in the contract should be treated as of the essence of the
contract. There was only a slight breach of contract when the payment was delayed for 20 days and does not violate
essential condition of the contract which warrants rescission for non-performance. Furthermore, HPC accepted the
payment of the overdue accounts and continued with the contract, waiving its right to rescind the same.
Petition of partly granted, and the judgment appealed is modified. Plaintiff shall have and recover from the
defendant the sum of P3,000, with legal interest from date of judgment, no special costs.
Velarde vs. Court of Appeals (361 SCRA 57)

14JAN
FACTS:
The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance of P1.8 million, in favor of
the petitioners. Pursuant to said agreements, plaintiffs paid the bank (BPI) for three (3) months until they were advised
that the Application for Assumption of Mortgage was denied. This prompted the plaintiffs not to make any further payment.
Private respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru counsel
responded that they are willing to pay in cash the balance subject to several conditions. Private respondents sent a
notarial notice of cancellation/rescission of the Deed of Sale. Petitioners filed a complaint which was consequently
dismissed by an outgoing judge but was reversed by the assuming judge in their Motion for Reconsideration. The Court of
Appeals reinstated the decision to dismiss.
ISSUE:
Whether or not there is a substantial breach of contract that would entitle its rescission.
RULING:
YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a slight delay in
payment or an irregularity; such breach would not normally defeat the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations
as preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation of an
existing obligation, which was legally due and demandable under the contract of sale. Hence, private respondents were
left with the legal option of seeking rescission to protect their own interest.
Woodhouse v. Halili
G.R. No. L-4811, 31 July 1953
FACTS:
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with defendant Halili stating among
others that: 1) that they shall organize a partnership for the bottling and distribution of Missionsoft drinks, plaintiff to
act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefore; 2)
that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that
the plaintiff was to receive 30 per cent of the net profits of the business. Prior to entering into this agreement, plaintiff
had informed the Mission Dry Corporation of Los Angeles, California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a milliondollars in the bottling and distribution of
the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and
distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation.
Pursuant to this request, plaintiff was given “a thirty days’ option on exclusive bottling and distribution rights for the
Philippines”. The contract was finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation, plaintiff demanded of defendant that the said partnership papers
be executed. Defendant Halili gave excuses and would not execute said agreement, thus the complaint by the
plaintiff. Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and 3)share
thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the other hand claims that: 1)
the defendant’s consent to the agreement, was secured by the representation of plaintiff that he was the owner, or
was about to become owner of an exclusive bottling franchise, which representation was false, and that plaintiff did
not secure the franchise but was given to defendant himself 2) that defendant did not fail to carry out his
undertakings, but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise to
the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution of contract
cannot be enforced upon parties. Lastly, the 3) fraud was not proved.
ISSUE:
1. Whether or Not plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages.
2. Whether or Not false representation, if it existed, annuls the agreement to form the partnership.
RULING:
1. Plaintiff did make false representation and this can be seen through his letter to Mission Dry Corporation
asking for the latter to grant him temporary franchise so he could settle the agreement with defendant. The
trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement “to
secure the Mission Dry franchise for and in behalf of the proposed partnership.” The existence of this
provision in the final agreement does not militate against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he did actually make the representation. The defendant
believed, or was made to believe, that plaintiff was the grantee of an exclusive franchise. Thus it is that it
was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon
its dissolution or termination, the same shall be reassigned to the plaintiff. Again, the immediate reaction of
defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as
he himself testified, plaintiff’s participation in the net profits to one half of that agreed upon. He could not
have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive
grantee of the franchise.
2. In consequence, Article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud the causal
fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders
the party who employs it liable for damages only. The Supreme Court has held that in order that fraud may
vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente) inducement
to the making of the contract. The record abounds with circumstances indicative of the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant’s counsel was to the effect that plaintiff obligated
himself to secure a franchise for the defendant. But if plaintiff was guilty of a false representation, this was
not the causal consideration, or the principal inducement, that led plaintiff to enter into the partnership
agreement. On the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 per cent granted him in the net profits of
the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the partnership.
Having arrived at the conclusion that the contract cannot be declared null and voidmay the agreement be carried out
or executed? The SC finds no merit in the claim of plaintiff that the partnership was already a fait accompli from the
time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended
that the execution of the agreement to form a partnership was to be carried out at a later date. , The defendant may
not be compelled against his will to carry out the agreement nor execute the partnership papers. The law recognizes
the individual’s freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.
* Case digest by Neah Hope L. Bata, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Geraldez, vs. CA & Kenstar Travel Corporation

G.R. No. 108253, February 23, 1994
FACTS:
Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent Kenstar Travel
Corp. Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of Europe for $2,990.00
which she paid the total equivalent amount of P190,000.00 charged by private respondent for her and her sister,
Dolores. At the tour, petitioner claimed that what was alleged in the brochure was not what they experienced. There
was no European tour manager as stated in the brochure, the hotels where they stayed in which were advertised as
first class were not, the UGC leather factory which was specifically included as a highlight of the tour was not visited
and The Filipino tour guide provided by Kenstar was a first timer thus inexperienced. The Quezon City RTC
rendered a decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totalling
P1,000,000 and P50,000 attorney’s fees. On appeal, respondent Court of Appeals deleted the award for moral and
exemplary damages and reduced the nominal damages and attorney’s fees to P30,000 and P10,000 respectively.
ISSUE:
Whether or not Kenstar acted in bad faith or with gross negligence in discharging its obligations in the contract?
RULING:
Yes. Kenstar acted in bad faith and with gross negligence in discharging its obligation. When they authorized an
inexperienced and a first timer to be a tour escort, private respondent manifested its indifference to the
convenience, satisfaction and peace of mind of its clients during the trip despite its express commitment to provide
such facilities under the Volare 3 Tour Program which had the grandiose slogan “Let your heart sing”. This
incompetence must necessarily be traced to the lack of due diligence on the part of private respondent in the
selection of its employees. It is true that among the thirty-two destinations, which included twenty-three cities and
special visits to nine tourist spots, this was the only place that was not visited. Clearly, therefore, private
respondent’s choice of Zapanta as the tour guide is a manifest disregard of its specific assurances to the tour group,
resulting in agitation and anxiety on their part, and which deliberate omission is contrary to the elementary rules of
good faith and fair play. It is extremely doubtful if any group of Filipino tourists would knowingly agree to be used in
effect as guinea pigs in an employees’ training program of a travel agency, to be conducted in unfamiliar European
countries with their diverse cultures, lifestyles and languages.
In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions became
patent in the light of after-events when, contrary to its representations, it employed an inexperienced tour guide,
housed the tourist group in substandard hotels, and reneged on its promise of a European tour manager and the
visit to the leather factory, it is indubitably liable for damages to petitioner. The effects of dolo causante are the
nullity of the contract and the indemnification of damages, 63 and dolo incidente also obliges the person employing
it to pay damages. Wherefore, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L.
Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and P20,000.00
as and for attorney’s fees, with costs against private respondent.
Gutierrez vs Gutierrez
March 25, 2016
G.R. NO. 34840
FACTS
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on a bridge. The truck was driven by the chauffeur Abelardo Velasco,
and was owned by saturnine Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio’s father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together with
several other members of the Gutierrez family were accommodated therein.
The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fractured
right leg which required medical attendance for a considerable period of time.
ISSUE
Whether or not both the driver of the truck and automobile are liable for damages and indemnification
due to their negligence. What are the legal obligations of the defendants?
HELD
Bonifacio Gutierrez’s obligation arises from culpa aquiliana. On the other hand, Saturnino Cortez’s
and his chauffeur Abelardo Velasco’s obligation rise from culpa contractual.
The youth Bonifacio was na incompetent chauffeur, that he was driving at an excessive rate of speed,
and that, on approaching the bridge and the truck, he lost his head and so contributed by his
negligence to the accident. The guaranty given by the father at the time the son was granted a
license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of Art. 1903 of the Civil Code, the father alone and not the minor or
the mother would be liable for the damages caused by the minor. The liability of Saturnino Cortez, the
owner of the truck, and his chauffeur Abelardo Velasco rests on a different basis, namely, that of
contract.
74 Phil 560 – Civil Law – Torts and Damages – Distinction of Liability of Employers Under Article
2180 and Their Liability for Breach of Contract
Vasquez vs. Borja
In January 1932, Francisco De Borja entered into a contract of sale with the NVSD (Natividad-
Vasquez Sabani Development Co., Inc.). The subject of the sale was 4,000 cavans of rice valued at
Php2.10 per cavan. On behalf of the company, the contract was executed by Antonio Vasquez as the
company’s acting president. NVSD. only delivered 2,488 cavans and failed and refused despite
demand to deliver the rest hence De Borja incurred damages (apparently, NVSD was insolvent). He
then sue Vasquez for payment of damages.
ISSUE: Whether or not Vasquez is liable for damages.
HELD: No. Vasquez is not party to the contract as it was NVSD which De Borja contracted with. It is
well known that a corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who manage and run its
affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily has to act
thru its agents, does not make the latter personally liable on a contract duly entered into, or for an act
lawfully performed, by them for an in its behalf.
The fact that the corporation, acting thru Vazquez as its manager, was guilty of negligence in the
fulfillment of the contract did not make Vazquez principally or even subsidiarily liable for such
negligence. Since it was the corporation’s contract, its non fulfillment, whether due to negligence or
fault or to any other cause, made the corporation and not its agent liable.
JUSTICE PARAS Dissenting :
Vasquez as president of NVSD is liable for damages. Vasquez, as acting president and manager of
NVSD, and with full knowledge of the then insolvent status of his company, agreed to sell to De Borja
4,000 cavans of palay. Further, NVSD was soon thereafter dissolved.
Cetus Development, Inc. vs. Court of Appeals

G.R. No. 77648, August 7, 1989, 176 SCRA 72
FACTS:
The private respondents were the lessees of the premises originally owned by the Susana Realty. These individual
verbal leases were on a month-to-month basis and were paying to a collector of the Susana Realty who went to the
premises monthly. Sometime on March 1984, Susana Realty sold the leased premises to the petitioner, Cetus
Development, Inc. From April to June 1984, the respondents continued to pay their monthly rentals to a collector
sent by the petitioner, but in the succeeding months, they failed to pay as no collector came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate the
subject premises and to pay the back rentals for the unpaid monthly rentals. Immediately upon receipt thereof, the
private respondents paid their respective arrearages in rent which were accepted by the petitioner. However, private
respondents did not vacate the leased premises. Hence, petitioner filed with the Metropolitan Trial Court of Manila
complaints for ejectment against the private respondents.
The private respondents, in their respective answers assailed that they were paying their monthly rental regularly
since they occupied such premises, that their non-payment of the rentals was due to the failure of the petitioner to
send its collector, that they were at a loss as to where they should pay their rentals, that one of them called the
office of the petitioner to inquire as to where they would make payment and was told that a collector would be sent
to receive the same, that no collector was subsequently sent, and that instead they received a uniform demand
letter.
The trial court rendered its decision dismissing the six cases. It held that the plaintiff cannot eject the defendants
from the leased premises because at the time cases were instituted, there are no rentals in arrears. The alleged
rental arrearages were paid immediately after receipt of the demand letter and that the rentals of the tenants are
relatively small to which the ejectment may not lie on grounds of equity and for humanitarian reasons. Petitioner
appealed to the Regional Trial Court and the Court of Appeals, but both dismissed the appeal for lack of merit,
affirming the decision of the trial court. Hence, this case.
ISSUE:
Whether or not there exists a cause of action when the complaints for unlawful detainer were filed considering the
fact that upon demand by petitioner from private respondents for payment of their back rentals, the latter
immediately tendered payment which was accepted by petitioner.
RULING:
No, there is lack of cause of action. We held that the demand required and contemplated by law is a jurisdictional
requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions
of the lease. It partakes of an extrajudicial remedy that must be pursued before resorting for judicial action so much
so that when there is full compliance with the demand, there arises no necessity for court action.
For the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be failure to pay
rent or comply with the conditions of the lease and (2) there must be demand both to pay or to comply and vacate
within the periods specified by law.
In the case at bar, it is very clear that no cause of action for ejectment has accrued. There was no failure yet on the
part of the private respondents to pay rents for three consecutive months. As the terms of the individual verbal
leases which were on a month-to- month basis were not alleged and proved, the general rule on necessity of
demand applies, to wit: there is default in the fulfillment of an obligation when the creditor demands payment at the
maturity of the obligation or at anytime thereafter.
* Case digest by Frilin Lomosad, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Santos Ventura Hocorma Foundation, Inc. vs. Ernesto V.

Santos
G.R. No. 153004 (November 5, 2004)
FACTS:
On October 26, 1990, the parties executed a Compromise Agreement wherein Foundation shall pay Santos P14.5
Million in the following manner: (a) P1.5 Million immediately upon the execution of this agreement; and (b) the
balance of P13 Million shall be paid, whether in lump sum or in installments, at the discretion of the Foundation,
within a period of not more than two (2) years from the execution of this agreement.
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil
cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. Subsequently, petitioner SVHFI
sold to Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis
pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million, which was ignored by the latter. Respondent Santos sent
another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from
petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City for the issuance of
a writ of execution.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging delay on
the part of SVHFI in paying the balance. They further alleged that under the Compromise Agreement, the obligation
became due on October 26, 1992, but payment of the remaining balance was effected only on November 22, 1994.
Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney’s fees
and costs of litigation. SVHFI alleged that the legal interest on account of fault or delay was not due and payable,
considering that the obligation had been superseded by the compromise agreement. Moreover, SVHFI argued that
absent a stipulation, Santos must ask for judicial intervention for purposes of fixing the period.
ISSUE:
Whether or not SVHFI incurred in delay based on the compromise agreement and thereby liable for legal interest
RULING:
Yes. SVHFI is liable for legal interest as penalty on account of delay. The general rule is that a compromise has
upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which
by implication from its terms should be deemed to have been included therein. This holds true even if the agreement
has not been judicially approved. Article 1169 of the New Civil Code provides that those obliged to deliver or to do
something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that the obligation
be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance judicially or extrajudicially.
In the case at bar, the obligation was already due and demandable after the lapse of the two-year period from the
execution of the contract. The Compromise Agreement was entered into by the parties on October 26, 1990. It was
judicially approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a
consensual contract became binding between the parties upon its execution and not upon its court approval. From
the time a compromise is validly entered into, it becomes the source of the rights and obligations of the parties
thereto. Hence, the two-year period must be counted from October 26, 1990. Verily, the petitioner is liable for
damages for the delay in the performance of its obligation. This is provided for in Article 1170 of the New Civil Code.
* Case digest by Vera Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Vasquez v Ayala Corporation
GR No. 149734
Tinga, J.:
FACTS:
On April 23, 1981, spouses Vasquez entered into a MOA with Ayala Corp. with Ayala
buying from the Vazquez spouses all of the latter's shares of stock in Conduit Development,
Inc. The main asset was a property in Ayala Alabang which was then being developed by
Conduit under a development plan where the land was divided into Villages 1, 2 and 3. The
development was then being undertaken by G.P. Construction and Development Corp. Under
the MOA, Ayala was to develop the entire property, less what was defined as the "Retained
Area". This "Retained Area" was to be retained by the Vazquez spouses. The area to be
developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots
adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to the spouses at
the prevailing price at the time of purchase. After the execution of the MOA, Ayala caused the
suspension of work on Village 1 of the project. Ayala then received a letter from Lancer
General Builder Corp. in which the latter was claiming a certain amount as subcontractor.
G.P. Construction not being able to reach an amicable settlement with Lancer, Lancer sued
G.P. Construction, Conduit and Ayala in the court. G.P. Construction and Lancer both tried to
enjoin Ayala from undertaking the development of the property. The suit was terminated only
on 1987. Taking the position that Ayala was obligated to sell the 4 lots adjacent to the
"Retained Area" within 3 years from the date of the MOA, the Vasquez spouses sent several
"reminder" letters of the approaching so-called deadline. However, no demand after 1984,
was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of
the letters signed by their authorized agent categorically stated that they expected
development of Phase 1 to be completed 3 years from the settlement of the legal problems
with the previous contractor. By early 1990, Ayala finished the development of the vicinity.
The 4 lots were then offered to be sold to the Vasquez spouses at the prevailing price in
1990. This was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby
leading to the suit below.
ISSUE:
Whether or not respondent incurred default or delay in the fulfillment of its obligation.
HELD:
No. In order that the debtor may be in default it is necessary that the following
requisites be present: (1) that the obligation be demandable and already liquidated; (2) that
the debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. Under Article 1193 of the Civil Code, obligations for whose fulfillment a day
certain has been fixed shall be demandable only when that day comes. However, no such
day certain was fixed in the MOA. Petitioners, therefore, cannot demand performance after
the 3 year period fixed by the MOA for the development of the first phase of the property
since this is not the same period contemplated for the development of the subject lots. Since
the MOA does not specify a period for the development of the subject lots, petitioners should
have petitioned the court to fix the period in accordance with Article 1197 of the Civil Code. As
no such action was filed by petitioners, their complaint for specific performance was
premature, the obligation not being demandable at that point. Accordingly, Ayala Corp. cannot
likewise be said to have delayed performance of the obligation. Even assuming that the MOA
imposes an obligation on Ayala Corp. to develop the subject lots, within 3 years from date
thereof, Ayala Corp. could still not be held to have been in delay since no demand was made
by petitioners for the performance of its obligation. Moreover, the letters were mere reminders
and not categorical demands to perform. These letters were sent before the obligation could
become legally demandable. More importantly, petitioners waived the 3 year period as
evidenced by their agent's letter to the effect that petitioners agreed that the 3 year period
should be counted from the termination of the case filed by Lancer.
Abella v. Francisco
55 Phil. 447 (1931)
FACTS:
Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the Tala
Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of October,
1928, he signed a document acknowledging payment of P500 and the balance to be paid on or before December
15, 1928, extendible fifteen days thereafter. On December 27th of the same year, the defendant, being in the
Province of Cebu, wrote to Roman Mabanta of this City of Manila, attaching a power of attorney authorizing him to
sign in behalf of the defendant all the documents required by the Bureau of Lands for the transfer of the lots to the
plaintiff. Mabanta, as attorney-in-fact, did what was instructed to him. The plaintiff, asked for an extension until
January 9, 1929. However, Mabanta, only extended it until January 5, 1929. When Abella was not able to pay of the
said date, Mabanta refused to accept the full payment on January 9, 1929 and already considered the contract
rescinded. On the same day, Mabanta returned by check the sum of P915.31 which the plaintiff had paid.
ISSUE:
Whether or not the defendant be compelled to accept the payment and the plaintiff be judicially declared as owner
of the land.
RULING:
The court relied on the fact that the plaintiff had failed to pay the price of the lots within the stipulated time; and that
since the contract between plaintiff and defendant was an option for the purchase of the lots,’ time was an essential
element in it. It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the
date, extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been
admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He contends that Mabanta, as
attorney-in-fact for the defendant in this transaction, granted him an extension of time until the 9th of January. But
Mabanta has stated that he only extended the time until the 5th of that month. Mabanta’s testimony on this point is
corroborated by that of Paz Vicente and by the plaintiff’s own admission to Narciso Javier that his option to purchase
those lots expired on January 5, 1929. The defendant wanted to sell those lots to the plaintiff in order to pay off
certain obligations which fell due in the month of December, 1928. The time fixed for the payment of the price was
therefore essential for the defendant, and this view is borne out by his letter to his representative Mabanta
instructing him to consider the contract rescinded if the price was not completed in time. In accordance with article
1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to pay the price within the time
specified.
* Case digest by Jason Olasiman, LLB-1, Andres Bonifacio Law School, SY 2017-2018
CLAUDINA VDA. DE VILLARUEL, ET AL. VS. MANILA

MOTOR CO., INC. 104 PHIL. 926
FACTS: On May 31, 1940, the plaintiffs Villaruel and
defendant Manila Motor Co. Inc. entered into a contract
whereby the defendant agreed to lease plaintiffs building
premises. On October 31, 1940, the leased premises were
placed in the possession of the defendant until the invasion of
1941. The Japanese military occupied and used the property
leased as part of their quarters from June, 1942 to March,
1945, in which no payment of rentals were made. Upon the
liberation of the said city, the American forces occupied the
same buildings that were vacated by the Japanese. When the
United States gave up the occupancy of the premises,
defendant decided to exercise their option to renew the
contract, in which they agreed. However, before resuming the
collection of rentals, Dr. Alfredo Villaruel upon advice
demanded payment of rentals corresponding to the time the
Japanese military occupied the leased premises, but the
defendant refused to pay. As a result plaintiff gave notice
seeking the rescission of the contract and the payment of
rentals from June, 1942 to March, 1945; this was rejected by
the defendant. Despite the fact the defendant under new
branch manager paid to plaintiff the sum of P350 for the rent,
the plaintiff still demanded for rents in arrears and for the
rescission of the contract of lease. The plaintiff commenced an
action before the CFC of Neg. Occidental against defendant
company. During the pendency of the case, the leased
building was burned down. Because of the occurrence,
plaintiffs demanded reimbursement from the defendants, but
having been refused, they filed a supplemental complaint to
include a 3rd cause of action, the recovery of the value of the
burned building. The trial court rendered judgment in favor of
the plaintiff. Hence the defendants appeal.
ISSUE: Is Manila Motor Co. Inc. liable for the loss of the
leased premises?
RULING: No. Clearly, the lessor’s insistence upon collecting
the occupation rentals for 1942-1945 was unwarranted in law.
Hence, their refusal to accept the current rentals without
qualification placed them in default (mora creditoris or
accipiendi) with the result that thereafter, they had to bear all
supervening risks of accidental injury or destruction of the
leased premises. While not expressly declared by the Code of
1889, this result is clearly inferable from the nature and effects
of mora. In other words, the only effect of the failure to consign
the rentals in court was that the obligation to pay them
subsisted and the lessee remained liable for the amount of the
unpaid contract rent, corresponding to the period from July to
November, 1946; it being undisputed that, from December
1946 up to March 2, 1948, when the commercial buildings
were burned, the defendants appellants have paid the contract
rentals at the rate of P350 per month. But the failure to
consign did not eradicate the default (mora) of the lessors nor
the risk of loss that lay upon them.
Tengco v. CA
G.R. No. 49852, October 18, 1989, 178 SCRA 608
FACTS:
On 16 September 1976, the herein private respondent, Benjamin Cifra, Jr., claiming to be the owner of the premises
in Navotas, Metro Manila, which he had leased to the herein petitioner, Emilia Tengco, filed an action for unlawful
detainer, to evict the petitioner, from the said premises for her alleged failure to comply with the terms and
conditions of the lease contract by failing and refusing to pay the stipulated rentals despite repeated demands.
Petitioner claims that she entered into the lease agreement but with his mother; that her failure to pay the rentals on
the premises was due to the refusal of the collector to accept her tender of payment; and that laches had deprived
private respondent of whatever right he had against her.
ISSUE:
Whether or not the private respondent or the lessor is liable for mora accipiendi.
RULING:
No. It should be noted that petitioner admits that she is a lessee on the premises in question and that she had been
in default in the payment of the rentals thereon because of the refusal of the collector to accept her tender of
payment.
In the doctrine of mora accipiendi, the creditor or lessor is guilty of default when he unjustifiably refuses to accept
payment or performance at the time said payment or performance can be done.
In the case, the refusal to accept the proffered rentals is not without justification. The ownership of the property had
been transferred to the private respondent and the person to whom payment was offered had no authority to accept
payment. It should be noted that the contract of lease between the petitioner and the former owner of the land, was
not in writing and, hence, unrecorded. The Court has held that a contract of lease executed by the vendor, unless
recorded, ceases to have effect when the property is sold, in the absence of a contrary agreement. The petitioner
cannot claim ignorance of the transfer of ownership of the property because, by her own account, the private
respondent, at various times, had informed her of their respective claims to ownership of the property occupied by
the petitioner. The petitioner should have tendered payment of the rentals to the private respondent and if that was
not possible, she should have consigned such rentals in court.
* Case digest by Prince Dave Santiago, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Central Bank v. CA
G.R. No. L-45710, October 3, 1985, 139 SCRA 46
FACTS:
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305,
and which mortgage was annotated on the said title the next day. The approved loan application called for a lump
sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision. The loan called for a lump sum of P80,000, repayable in semi-annual installments for 3
yrs, with 12% annual interest. After the agreement, a mere P17,000 partial release of the loan was made by the
bank and Tolentino and his wife signed a promissory note for the P17,000 at 12% annual interest payable w/in 3
yrs. An advance interest was deducted fr the partial release but this prededucted interest was refunded to Tolentino
after being informed that there was no fund yet for the release of the P63,000 balance.
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which provides the prohibition of the bank from making new loans
and investments [except investments in government securities] excluding extensions or renewals of already
approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of
Banks, who may impose such limitations as may be necessary to insure correction of the bank’s deficiency as soon
as possible.
ISSUES:
Can the action of Sulpicio M. Tolentino for specific performance prosper?
RULING:
In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other and when
one party has performed or is ready and willing to perform his part of the contract, the other party who has not
performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio
M. Tolentino to pay was the consideration for the obligation of 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
the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued.
Thus, the Bank’s delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or
when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island
Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to
furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent
banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15,
1948, the validity of which is not in question.
* Case digest by Daisy Mae Tambolero, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Chavez v. Gonzales
G.R. No. 27454, April 30, 1970, 32 SCRA 547
FACTS:
On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a typewriter repairman for the
cleaning and servicing of the said typewriter but the latter was not able to finish the job. During October 1963, the
plaintiff gave the amount of P6.00 to the defendant which the latter asked from the plaintiff for the purchase of spare
parts, because of the delay of the repair the plaintiff decided to recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff reached their home he opened it and examined that some parts and
screws was lost. That on October 29, 1963 the plaintiff sent a letter to the defendant for the return of the missing
parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff
some of the missing parts, the interior cover and the P6.00. The plaintiff brought his typewriter to Freixas Business
Machines and the repair cost the amount of P89.85. He commenced this action on August 23, 1965 in 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. The defendant made no
denials of the facts narrated above, except the claim of the plaintiff that the cost of the repair made by Freixas
Business Machines be fully chargeable against him.
ISSUE:
Whether or not the defendant is liable for the total cost of the repair made by Freixas Business Machines with the
plaintiff typewriter?
RULING:
No, he is not liable for the total cost of the repair made by Freixas Business Machines instead he is only liable for
the cost of the missing parts and screws. The defendant contravened the tenor of his obligation in repairing the
typewriter of the plaintiff that he fails to repair it and returned it with the missing parts.
Under Article 1167 of the Civil Code, a person who is obliged to do something and fails to do it shall be liable for the
cost of executing the obligation in a proper manner. The cost of execution of the obligation to repair a typewriter is
the cost of the labor or service expended in the repair of the typewriter. In addition, the obligor, under Article 1170 of
the Code, is liable for the cost of the missing parts because in his obligation to repair the typewriter he is bound to
return the typewriter in the same condition it was when he received it.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone.”
Telefast v. Castro
G.R. No. 73867, February 29, 1988, 158 SCRA 445
FACTS:
Sofia, one of the plaintiffs, sent a telegram thru Telefast to her father and other siblings in the USA to inform about
the death of their mother. Unfortunately, the deceased had already been interred but not one from the relatives
abroad was able to pay their last respects. Sofia found out upon her return in the US that the telegram was never
received. Hence the suit for damages on the ground of breach of contract. The defendant-petitioner argues that it
should only pay the actual amount paid to it.
The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary damages to each of the
plaintiffs with 6% interest per annum plus attorney’s fees. The Court of Appeals affirmed this ruling but modified and
eliminated the compensatory damages to Sofia and exemplary damages to each plaintiff, it also reduced the moral
damages for each. The petitioner appealed contending that, it can only be held liable for P 31.92, the fee or charges
paid by Sofia for the telegram that was never sent to the addressee, and that the moral damages should be
removed since defendant’s negligent act was not motivated by “fraud, malice or recklessness.
ISSUE:
Whether or not the award of the moral, compensatory and exemplary damages is proper.
RULING:
Yes, award of moral, compensatory and exemplary damages is proper.
Art. 1170 of the Civil Code provides that “those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages.” Art. 2176
also provides that “whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done.”
The petitioner’s act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo. Art. 2217 of the Civil Code states: “Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate results of the defendant’s wrongful act or omission.”
Then, the award of P16,000.00 as compensatory damages to Sofia representing the expenses she incurred when
she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in
performing its obligation, there would have been no need for this suit or for her testimony. The award of exemplary
damages by the trial court is likewise justified for each of the private respondents, as a warning to all telegram
companies to observe due diligence in transmitting the messages of their customers.
* Case digest by Kristine Camille Gahuman, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Arrieta v. National Rice and Corn Corporation, 10 SCRA 79
September 10, 2016
FACTS :
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the supply of
20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it was the lowest that’s why
the contract was awarded to her. On July 1,1952, Arrieta and NARIC entered into contract. Arrieta
was obligated to deliver 20,000 metric ton of Burmese rice at $203.00 per metric ton to NARIC. In
return, NARIC committed itself to pay for the imported rice “ by means of an irrevocable, confirmed
and assignable letter of credit in US currency in favour of Arrieta and/or supplier in Burma (THIRI
SETKYA), immediately.” NARIC took the first step to open the letter of credit on July 30, 1952 by
forwarding to the PNB its application for commercial letter of credit. Arrieta with the help of a counsel,
advised NARIC of the necessity for the opening of the letter because she tender her supplier in
Ragoon, Burma of 5 % of the price of 20,000 tons at $180.70 and if she didn’t comply the 5% will be
confiscated if the required letter of credit is not received by them before August 4, 1952. PNB
informed NARIC that their application of credit letter amounting to $3,614,000.00 was approved with
the condition of 50% marginal cash be paid. NARIC does not meet the condition. The allocation of
Arrieta’s supplier in Ragoon was cancelled and the 5% deposit was forfeited.
ISSUE :
Does NARIC liable for damages?
HELD :
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma was the
failure of NARIC to open the letter of credit within a specific period of time. One who assumes
contractual obligation and fails to perform in which he knew and was aware when he entered in the
contract, should be liable for his failure to do what is required by a law. Under the Art. 1170 of the
Civil Code, not only the debtors guilty of fraud, negligence or default but also a debtor of every, in
general, who fails in the performance of his obligation is bound to indemnify for the losses and
damages caused thereby.
Magat vs. Medialdea

G.R. No. L-37120, 20 April 1983
FACTS:
Sometime in September 1972, respondent entered into a contract with the U.S. Navy Exchange, Subic Bay,
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary taximeter and a
radio transceiver. Isidro Q. Aligada, acting as an agent, approached the petitioner in behalf of the respondent and
proposed to import from Japan thru the plaintiff herein or thru plaintiff’s Japanese business associates, all taximeters
and radio transceivers needed by the defendant. Petitioner was able to import the same and a firm offer, in written
form, was made by Aligada. Petitioner received notice of the fact that the defendant accepted plaintiff’s offer to sell
to the defendant the items specified as well as the terms and conditions of said offer. After petitioner received advice
from the defendant as to the radio frequency to be assigned by the proper authorities to the defendant, petitioner
requested a letter of credit from the defendant, a normal business practice in case of foreign importation. Petitioner
was repeatedly assured by Aligada and respondent of the latter’s financial capabilities to pay and refused to open a
letter of credit. Thereafter, petitioner found out that defendant had already been operating his taxicabs without the
required radio transceivers. And when pressed by the U.S. Navy to comply, defendant blamed petitioner, claiming
the latter was in delay. Petitioner sent a letter to the defendant ascertaining his intention to fulfill his end of the
bargain but he did not reply. In view of defendant’s failure to fulfill his contractual obligations with the petitioner, the
petitioner filed a case against the defendant for breach of contract and damages.
Respondent filed a motion to dismiss alleging a lack of cause of action. He contended that plaintiff was merely
anticipating his loss or damage which might result from the alleged failure of defendant to comply with the terms of
the alleged contract. Plaintiff’s right therefore under his cause of action is not yet fixed or vested. Respondent Judge
in this case dismissed the complaint.
ISSUE:
Whether or not the respondent is guilty for breach of contract.
RULING:
Yes. The Court contends that the parties, both businessmen, entered into the aforesaid contract with the evident
intention of deriving some profits therefrom. Upon breach of the contract by either of them, the other would
necessarily suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such
loss is real, “fixed and vested” and, therefore, recoverable under the law.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof are liable for damages.
The phrase “in any manner contravene the tenor” of the obligation includes any illicit act or omission which impairs
the strict and faithful fulfillment of the obligation and every kind of defective performance. The damages which the
obligor is liable for includes not only the value of the loss suffered by the obligee [daño emergente] but also the
profits which the latter failed to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for those
damages that are the natural and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad
faith, malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the non-
performance of the obligation. The same is true with respect to moral and exemplary damages. The applicable legal
provisions on the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of
contract where the defendant acted in bad faith.
* Case digest by Suzeyne Garcia, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Crismina Garments v. CA
G.R. No. 128721, March 9, 1999, 304 SCRA 356
FACTS:
During the period from February 1979 to April 1979, Crismina Garments, Inc. contracted the services of D’Wilmar
Garments, for the sewing of 20,762 pieces of assorted girls denims for P76,410. At first, the respondent was told
that the sewing of some of the pants were defective. She offered to take them back, but then she was later told by
the petitioner’s representative that it was good already and asked her to return for her check of P76,410. However,
the petitioner failed to pay her the aforesaid amount. This prompted her to hire the services of counsel who, on
November 12, 1979, wrote a letter to the petitioner demanding payment of the aforesaid amount within ten days
from receipt thereof.
On February 7, 1990, the petitioner’s vice-president-comptroller, wrote a letter to respondent’s counsel, averring,
inter alia, that the pairs of jeans sewn by her, numbering 6,164 pairs, were defective and that she was liable to the
petitioner for the amount of P49,925.51 which was the value of the damaged pairs of denim pants and demanded
refund of the aforesaid amount.
On January 8, 1981, the respondent filed a complaint against the petitioner with the trial court. The RTC rendered
judgment in favor of the respondent, ordering the petitioner to pay the sum of P76,140 with 12% interest per annum.
CA affirmed.
ISSUE:
Whether or not it is proper to impose 12% interest rate per annum for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties.
RULING:
No. The amount due in this case arose from a contract for a piece of work, not from a loan or forbearance of money.
Hence, the legal rate of interest shall be 6% per annum, computed from the time of the filing of the Complaint in the
trial court until the finality of the judgment. If the adjudged principal and the interest (or any part thereof) remain
unpaid thereafter, the interest rate shall be 12% per annum computed from the time the judgment becomes final and
executory until it is fully satisfied.
Keng Hua Products v. CA

G.R No. 116863, 12 February 1998
FACTS:
Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the
Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed container, containing seventy-
six bales of unsorted waste paper for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in
Manila. A bill of lading to cover the shipment was issued by the plaintiff.
On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were
transmitted to the defendant but the latter failed to discharge the shipment from the container during the free time
period or grace period. The said shipment remained inside the plaintiffs container from the moment the free time
period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22,
1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued.
Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however,
refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the
defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and
damages.
In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste
paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit issued by Equitable
Banking Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of the
shipment was only ten (10) metric tons as shown in Invoice that the shipment plaintiff was asking defendant to
accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant
were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws;
that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the
merchandise; that the cause of action should be against the shipper which contracted the plaintiffs services and not
against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated
January 24, 1983.
ISSUE:
1. Whether or not the petitioner was bound by the bill of lading.

2. Whether or not interest may not be allowed to run from the date of private respondents extrajudicial demands on
March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, there was no demand
for interest.
RULING:
A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume
stipulated obligations.
Petitioner admits that it received the bill of lading immediately after the arrival of the shipment on July 8, 1982.
Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or
dissent from any term or stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a
letter to private respondent saying that it could not accept the shipment. Petitioners inaction for such a long period
conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke
only of petitioner’s inability to use the delivery permit, i.e. to pick up the cargo, due to the shippers failure to comply
with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents
were returned by the banks to the shipper. The letter merely proved petitioners refusal to pick up the cargo, not its
rejection of the bill of lading.
In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private
respondent’s vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to
the former.
On behalf of the interest jurisprudence teaches us:

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article
2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify
the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total
amount demanded cannot be deemed to have been established with reasonable certainty until the trial court
rendered its judgment. Indeed, (u)nliquidated damages or claims, it is said, are those which are not or cannot be
known until definitely ascertained, assessed and determined by the courts after presentation of proof. Consequently,
the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court’s decision.
And in accordance with Philippine Natonal Bank and Eastern Shipping, the rate of twelve percent per annum shall
be charged on the total then outstanding, from the time the judgment becomes final and executory until its
satisfaction.
Security Bank v. RTC Makati

263 SCRA 453 (1996)
FACTS:
In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed interest rate was
23% per annum. The promissory note was freely and voluntarily signed by both parties. Leia Ventura was the co-
maker. Eusebio defaulted from paying. Security Bank sued for collection. Judge Gorospe of the Makati RTC ordered
Eusebio to pay but he lowered the interest rate to 12% per annum.
ISSUE:
Whether or not the courts have liberality to reduce stipulated interest rates to the legal rate of 12% per annum.
RULING:
No. From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three
(3) promissory notes is 23% per annum. The applicable provision of law is the Central Bank Circular No. 905 which
took effect on December 22, 1982.The absence of stipulations will the 12% rate be applied or if the stipulated rate is
grossly excessive.
Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and conditions. The
promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between them.
Almeda v. CA
G.R. No. 113412, April 17, 1996, 256 SCRA 292
FACTS:
On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano L.
Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0 Million pesos payable in a
period of six years at an interest rate of 21% per annum. To secure the loan, the spouses Almeda executed a Real
Estate Mortgage Contract covering a 3,500 square meter parcel of land, together with the building erected thereon
(the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. Between 1981 and 1984, petitioners made
several partial payments on the loan totaling. P7,735,004.66, a substantial portion of which was applied to accrued
interest. On March 31, 1984, respondent bank, over petitioners’ protestations, raised the interest rate to 28%,
allegedly pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from an initial
21% to a high of 68% between March of 1984 to September of 1986.
Petitioner protested the increase in interest rates, to no avail. Before the loan was to mature in March, 1988, the
spouses filed on, February 6, 1988 a petition for declaratory relief with prayer for a writ of preliminary injunction and
temporary restraining order. Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the
PNB countered by ordering the extrajudicial foreclosure of petitioner’s mortgaged properties and scheduled an
auction sale for March 14, 1989. Upon motion by petitioners, however, the lower court, on April 5, 1989, granted a
supplemental writ of preliminary injunction, staying the public auction of the mortgaged property.
ISSUE:
Won PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement.
RULING:
No. Any contact which appears to be heavily weighted in favor of one of the parties so as to lead to an
unconscionable result is void. Likewise, any stipulation regarding the validity or compliance of the contract which is
left solely to the will of one of the parties is invalid. The binding effect of any agreement between parties to a
contract is premised on two settled principle: that any obligation arising from the contact has the force of law
between the parties; and that there must be mutuality between the parties based on their essential equality.
Doctrine:
The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on
whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the
Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease of the maximum interest rate.
First Metro Investment vs. Este. Del Sol

G.R. No. 141811, November 15, 2001, 369 SCRA 99
FACTS:
Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five
Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve,
a sports/resort complex project located at Barrio Puray, Montalban, Rizal.
Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest
on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The loan was
payable in thirty-six (36) equal and consecutive monthly amortizations. In case of default, an acceleration clause
was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on
the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default
until full payment thereof plus liquidated plus attorney’s fees equivalent to twenty-five (25%) percent of the sum
sought to be recovered.
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement with
underwriting fee, annual supervision fee and consultancy fee with Consultancy Agreement for four (4) years,
coinciding with the term of the loan The said fees were deducted from the first release of loan.Respondent Este del
Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization. Accordingly,
petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the public
auction, petitioner FMIC was the highest bidder of the mortgaged properties. Failing to secure from the individual
respondents the payment of the alleged deficiency balance, despite individual demands sent to each of them,
petitioner instituted the instant collection suit against the respondents to collect the alleged deficiency balance.
ISSUE:
Whether or not the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to
camouflage the excessively usurious interest charged.
RULING:
Yes. The Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The
Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan
Agreement were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful
loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly
unrelated contract providing for payment by the borrower for the lender’s services which are of little value or which
are not in fact to be rendered, such as in the instant case. In this connection, Article 1957 of the New Civil Code
clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against
usury shall be void. The borrower may recover in accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the
unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void,
consequently, the debt is to be considered without stipulation as to the interest.
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 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
illegal. Thus, the nullity of the stipulation on the usurious interest does not affect the lender’s right to receive back
the principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement
is recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily.
Nacar v. Gallery Frames

G.R. No. 189871, August 13, 2013, 703 SCRA 439
FACTS:
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar alleged that he was
dismissed without cause by Gallery Frames on January 24, 1997. On October 15, 1998, the Labor Arbiter (LA)
found Gallery Frames guilty of illegal dismissal hence the Arbiter awarded Nacar P158,919.92 in damages
consisting of backwages and separation pay.
Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court affirmed the decision of the
Labor Arbiter and the decision became final on May 27, 2002. After the finality of the SC decision, Nacar filed a
motion before the LA for recomputation as he alleged that his backwages should be computed from the time of his
illegal dismissal (January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA denied
the motion as he ruled that the reckoning point of the computation should only be from the time Nacar was illegally
dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA reasoned that the said date
should be the reckoning point because Nacar did not appeal hence as to him, that decision became final and
executory.
ISSUE:
Whether or not the Labor Arbiter is correct.
RULING:
No. There are two parts of a decision when it comes to illegal dismissal cases (referring to cases where the
dismissed employee wins, or loses but wins on appeal). The first part is the ruling that the employee was illegally
dismissed. This is immediately final even if the employer appeals – but will be reversed if employer wins on appeal.
The second part is the ruling on the award of backwages and/or separation pay. For backwages, it will be computed
from the date of illegal dismissal until the date of the decision of the Labor Arbiter. But if the employer appeals, then
the end date shall be extended until the day when the appellate court’s decision shall become final. Hence, as a
consequence, the liability of the employer, if he loses on appeal, will increase – this is just but a risk that the
employer cannot avoid when it continued to seek recourses against the Labor Arbiter’s decision. This is also in
accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the Supreme Court ruled that
the old case of Eastern Shipping Lines vs CA is already modified by the promulgation of the Bangko Sentral ng
Pilipinas Monetary Board Resolution No. 796 which lowered the legal rate of interest from 12% to 6%. Specifically,
the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:

a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon judicial demand
whichever is appropriate and subject to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of judicial or extra-judicial
demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum demandable from the date of
judgment because such on such date, it is already deemed that the amount of damages is already ascertained.
3. Compounded Interest– This is applicable to both monetary and non-monetary obligations– 6% per annum
computed against award of damages (interest) granted by the court. To be computed from the date when the court’s
decision becomes final and executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:– Final and executory judgments awarding
damages prior to July 1, 2013 shall apply the 12% rate;– Final and executory judgments awarding damages on or
after July 1, 2013 shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid obligations with respect
to said judgments on or after July 1, 2013 shall still incur the 6% rate.
Chavez v. Gonzales
G.R. No. 27454, April 30, 1970, 32 SCRA 547
FACTS:
On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a typewriter repairman for the
cleaning and servicing of the said typewriter but the latter was not able to finish the job. During October 1963, the
plaintiff gave the amount of P6.00 to the defendant which the latter asked from the plaintiff for the purchase of spare
parts, because of the delay of the repair the plaintiff decided to recover the typewriter to the defendant which he
wrapped it like a package. When the plaintiff reached their home he opened it and examined that some parts and
screws was lost. That on October 29, 1963 the plaintiff sent a letter to the defendant for the return of the missing
parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff
some of the missing parts, the interior cover and the P6.00. The plaintiff brought his typewriter to Freixas Business
Machines and the repair cost the amount of P89.85. He commenced this action on August 23, 1965 in 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. The defendant made no
denials of the facts narrated above, except the claim of the plaintiff that the cost of the repair made by Freixas
Business Machines be fully chargeable against him.
ISSUE:
Whether or not the defendant is liable for the total cost of the repair made by Freixas Business Machines with the
plaintiff typewriter?
RULING:
No, he is not liable for the total cost of the repair made by Freixas Business Machines instead he is only liable for
the cost of the missing parts and screws. The defendant contravened the tenor of his obligation in repairing the
typewriter of the plaintiff that he fails to repair it and returned it with the missing parts.
Under Article 1167 of the Civil Code, a person who is obliged to do something and fails to do it shall be liable for the
cost of executing the obligation in a proper manner. The cost of execution of the obligation to repair a typewriter is
the cost of the labor or service expended in the repair of the typewriter. In addition, the obligor, under Article 1170 of
the Code, is liable for the cost of the missing parts because in his obligation to repair the typewriter he is bound to
return the typewriter in the same condition it was when he received it.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone.”
This case is with regard to ART 1174 of the NCC - Fortuitous Events
Case of JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND
GENERAL MERCHANDISING vs COURT OF APPEALS and VICENTE HERCE JR.
G.R.No. 125994 29June2001
FACTS OF THE CASE:
Herce contracted Tanguilig to construct a windmill system for him, for consideration of 60,000.00.
Pursuant to the agreement Herce paid the downpayment of 30,000.00 and installment of 15,000.00
leaving a 15,000.00 balance.
Herce refused to pay the balance because he had already paid this amount to SPGMI which
constructed a deep well to which the windmill system was to be connected since the deepwell, and
assuming that he owed the 15,000.00 this should be offset by the defects in the windmill system
which caused the structure to collapse after strong winds hit their place. According to Tanguilig, the
60,000.00 consideration is only for the construction of the windmill and the construction of the
deepwell was not part of it. The collapse of the windmill cannot be attributed to him as well, since he
delivered it in good and working condition and Herce accepted it without protest. Herce contested that
the collapse is attributable to a typhoon, a force majeure that relieved him of liability.
The RTC ruled in favor of Tanguilig, but this decision was overturned by the Court of Appeals which
ruled in favor of Herce
ISSUES OF THE CASE:

Can the collapse of the windmill be attributed to force majeure? Thus, extinguishing the liability of
Tanguilig?
- Yes, in order for a party to claim exemption from liability by reason of fortuitous event under Art
1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of
the object of the contract.
- In Nakpil vs. Court of Appeals, the S.C. held that 4 requisites must concur that there must be a (a)
the cause of the breach of the obligation must be independent of the will of debtor (b) the event must
be either unforeseeable or unavoidable; (c) the event be such to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
- Tanguilig merely stated that there was a strong wind, and a strong wind in this case is not fortuitous,
it was not unforeseeable nor unavoidable, places with strong winds are the perfect locations to put up
a windmill, since it needs strong winds for it to work.
HELD:
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed
to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at the legal rate
from the date of the filing of the complaint. In return, petitioner is ordered to "reconstruct subject
defective windmill system, in accordance with the one-year guaranty" and to complete the same
within three (3) months from the finality of this decision.
Obligations and Contracts Terms:
Fortuitous Events- Refers to an occurrence or happening which could not be foreseen, or even if
foreseen, is inevitable. It is necessary that the obligor is free from negligence. Fortuitous events may
be produced by two (2) general causes: (1) by Nature, such as but not limited to, earthquakes,
storms, floods, epidemics, fires, and (2) by the act of man, such as but not limited to, armed invasion,
attack by bandits, governmental prohibitions, robbery, provided that they have the force of an
imposition which the contractor or supplier could not have resisted.
Song Fo & Company vs Hawaiian Philippine Co.

G.R. No. 23769 – September 16, 1925
FACTS:
Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC) where it would deliver molasses
to the latter evidenced by a letter containing their contract. The same states that Mr. Song Fo agreed to the delivery
of 300,000 gallons of molasses and the same requested for an additional 100,000 molasses which the HPC
promised that it will do its best to comply with the additional shipment. However, the HPC was only able to deliver
55,006 gallons. SFC thereafter filed a complaint with two causes of action for breach of contract against the HPC
and asked for P70,369.50. HPC answered that there was a delay in the payment from
SFC and that HPC has the right to rescind the contract because of the same· The trial court condemned HPC to pay
SFC a total of P35,317.93, with legal interest.
ISSUES:
1. Whether or not SFC is entitled to damages

2. Whether or not HPC has a right to rescind the contract?
RULING:
As to the first question, yes, SFC is entitled to damages. Article 1170 of the Civil Code provides “Those who in the
performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
the tenor thereof, are liable for damages”
The failure of HPC to deliver the rest of the molasses constitutes a breach of contract by contravention of tenor and
is thus liable for damages. The bases for damages is the cost in excess of the agreed price in the contract when
SFC was made to acquire the needed molasses from another supplier and the expenses related to the
transportation of the same. Loss of profits would have been included as part of damages had SFC been able to
substantiate such a claim.
As to the second question, no, HPC has no right to rescind the contract.
The court provided that the general rule is that rescission will not be permitted for a slight or casual breach of
the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the
parties in making the agreement.
It should be noted that the time of payment stipulated for in the contract should be treated as of the essence of the
contract. There was only a slight breach of contract when the payment was delayed for 20 days and does not violate
essential condition of the contract which warrants rescission for non-performance. Furthermore, HPC accepted the
payment of the overdue accounts and continued with the contract, waiving its right to rescind the same.
Petition of partly granted, and the judgment appealed is modified. Plaintiff shall have and recover from the
defendant the sum of P3,000, with legal interest from date of judgment, no special costs.
Boysaw vs. Interphil Promotions

Boxer (P) vs. Promoter (D)
GR L-22590 [T]
Summary: A boxer signed an agreement with a promotions agency to arrange and promote a boxing match with Flash
Elorde. The boxer violated the terms of the contract, but in spite of these, the agency proceeded except it negotiated for a
new date for the match. Eventually, the match as originally stated in the contract did not materialize. Boxer and manager
is now suing the promotion agency for breach of contract.
Rule of Law: Where one party did not perform the undertaking which he was bound by the terms of the agreement to
perform, he is not entitled to insist upon the performance of the contract by the other party, or recover damages by reason
of his own breach.
Facts: Solomon Boysaw (P), signed with Interphil Promotions, Inc. (D), a contract to engage Gabriel "Flash" Elorde in a
boxing contest for the junior lightweight championship of the world. Thereafter, Interphil (D) signed Gabriel "Flash" Elorde
to a similar agreement—that is, to engage Boysaw in a title fight.
The managerial rights over Boysaw (P) was assigned and eventually reassigned to Alfredo Yulo, Jr. (P) without the
consent of Interphil (D) in violation of their contract. When informed of the change, Interphil (D) referred the matter to the
Games and Amusement Board culminating to a decision by the board to approve a new date for the match. Yulo (P)
protested against the new date even when another proposed date was within the 30-day allowable postponements.
Boysaw (P) and Yulo (P) filed for breach of contract when the fight contemplated in the original boxing contract did not
materialize.
Issues: May the offending party in a reciprocal obligation compel the other party for specific performance?
Ruling: No. Evidence established that the contract was violated by Boysaw (P) when, without the approval or consent of
Interphil (D), he fought a boxing match in Las Vegas. Another violation was the assignment and transfer of the managerial
rights over Boysaw (P) without the knowledge or consent of Interphil (D).
While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to
breach it with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual
breach.
Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages.
—Article 1170, Civil Code.
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.
—Article 1191, Civil Code.
The contract in question gave rise to reciprocal obligations.
Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.
—Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.
The power to rescind is given to the injured party.
Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to
perform, he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason
of his own breach.
—Seva vs. Alfredo Berwin, 48 Phil. 581.
Under the law, when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another,
the aggrieved creditor is not bound to deal with the substitute. However, from the evidence, it is clear that the Interphil (D),
instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute
obligor, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That Interphil (D)
had justification to renegotiate the original contract, particularly the fight date is undeniable from the facts. Under the
circumstances, Interphil's (D) desire to postpone the fight date could neither be unlawful nor unreasonable.
UP vs. De Los Angeles

G.R. No. L-28602, 29 September 1970
FACTS:
Petitioner and respondent ALUMCO entered into a logging agreement under which the latter was granted exclusive
authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period
of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc. The Land Grant, situated at the Lubayat areas in the provinces of
Laguna and Quezon, was segregated from the public domain and given as an endowment to UP, an institution of
higher learning, to be operated and developed for the purpose of raising additional income for its support, pursuant
to Act 3608. ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid
account of P219,362.94, which, despite repeated demands, it had failed to pay. After a notice was given by the
petitioner that they would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled
“Acknowledgment of Debt and Proposed Manner of Payments,” dated 9 December 1964, which was approved by
the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the
foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments
have been applied shall be paid by the DEBTOR in full no later than June 30, 1965;
5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the
DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR
shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December
1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously
acknowledged. Four days later, petitioner UP informed respondent ALUMCO that it had, as of that date, considered
as rescinded and of no further legal effect the logging agreement that they had entered in 1960.
ISSUE:
Whether or not petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect.
RULING:
Yes to both. UP and ALUMCO had expressly stipulated in the “Acknowledgment of Debt and Proposed Manner of
Payments” that, upon default by the debtor ALUMCO, the creditor (UP) has “the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit.” As to such
special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental
Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract.
Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of
infractions 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 that rescission is justified, it is free to
resort to judicial action in 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 will be affirmed, and the consequent indemnity awarded to the party prejudiced.
De Erquiaga v. CA
G.R. No. 47206, September 27, 1989, 178 SCRA 1
FACTS:
Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development
Corporation (EDC) which owns the Hacienda San Jose in Irosin, Sorsogon.
On November 4, 1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or
100%) of EDC for P900,000, payable in installments on definite dates fixed in the contract but not later than
November 30, 1968.
Reynoso failed to pay the second and third installments on time. Thus, the total price of the sale was increased to
P971,371.70 payable on or before December 17, 1969. The increase represented brokers’ commission and interest.
As of December 17, 1968, Reynoso was able to pay P410,000 to Erquiaga who thereupon transferred all his shares
to Reynoso, as well as the possession of the Hacienda San Jose, EDC’s only asset. However, as provided in
paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as
security for the balance of his obligation.
Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory
notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that
he was rescinding the sale of his shares in EDC.
Erquiaga filed a complaint for rescission with preliminary injunction against Reynoso and EDC, in CFI Sorsogon,
Branch I. The CFI ruled in favor of Erquiaga, rescinded the sale, and ordered Reynoso to: (a) return and reconvey to
Erquiaga the 3,100 paid up shares of stock of the EDC; (b) render a full accounting of the fruits he received by virtue
of said shares, and to return said fruits received by him to Erquiaga; (c) and pay Erquiaga P12,000 as actual
damages, P50,000 as attorney’s fees, the costs of this suit and expenses of litigation (P62,000). Erquiaga was
ordered to return to Reynoso P100,000 plus legal interest from November 4, 1968, and P310,000 plus legal interest
from December 17, 1968, until paid (P410,000 total).
The CFI decision became final and executory. However, it issued another order holding in abeyance Erquiaga’s
payment of P410,000 plus interest, pending Reynoso’s accounting of the fruits he received on account of the
shares. In the same order, the CFI appointed a receiver since (a) the accounting of the fruits received by Reynoso
would take time; and (b) Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver ‘in
order to preserve the Hacienda which has obviously been mismanaged by Reynoso (arrears in DBP loan amounting
to P503,510.70 and danger of foreclosure to Erquiaga’s damage).
On April 26, 1973, Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda. de
Reynoso and children, as defendants. The Reynoso heirs (Reynosos) filed a petition for certiorari in the CA against
the CFI order. The CA dismissed the petition. The SC affirmed. Upon Erquiaga’s motion, the CFI issued an order on
February 12, 1975: (a) dissolving the receivership and ordering the delivery of the possession of the Hacienda San
Jose to Erquiaga, (b) ordering Erquiaga to file a P410,000 bond conditioned to the payment of whatever may be due
to the Reynoso heirs after the approval of Reynoso’s accounting report; and (c) allowing Erquiaga’s counsel to
inspect, copy and photograph certain documents related to the accounting report.
The CFI approved Erquiaga’s submitted bond and turned over the possession, management and control of the
hacienda to him. Upon Erquiaga’s Omnibus Motion, opposed by Reynosos, the CFI ordered the latter to deliver to
Erquiaga within 5 days from receipt of the order the 1,600 shares which are in their possession. The CFI also denied
the prayer to (a) strike out all expenses allegedly incurred by Reynosos in the production of the fruits of Hacienda
San Jose; (b) declare Erquiaga’s obligation to pay Reynosos P410,000 with interest as fully compensated by the
fruits earned by Reynosos from the property; and (c) issue a writ of execution against Reynosos to pay Erquiaga
P62,000.
Reynosos filed a petition for certiorari against the last order. The CA ruled in their favor, holding that the CFI acted
with GADALEJ in refusing to order the reimbursement of the P410,000 purchase price plus interests awarded in the
final decision and the setoff therewith of P62,000 as damages and attorney’s fees in Erquiaga’s favor. Thus, the CA
directed Erquiaga to return P410,000 (or net P348,000 after deducting P62,000 due from Reynoso) as the price
paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga’s 3,100
shares with the fruits.
At the time of the CA decision:

o Hacienda San Jose was returned to Erquiaga;
o Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock;
o Reynoso has not complied with (b) and (c) of the decision;
o Erquiaga has not returned P410k required by the decision.
Erquiaga alleged that the CA decision of requiring him to pay Reynosos P410,000 plus interest, without first awaiting
Reynoso’s accounting of the fruits of the Hacienda San Jose, violates the law of the case and Art. 1385, CC, alters
the final order dated February 12, 1975 of the trial court, and is inequitous.
ISSUE:
WON Erquiaga’s allegation has merit
HELD:
NO. The CA order is in full accord with Art. 1385, CC:
“ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be oblig
ed to restore.
“Neither shall rescission take place when the things which are the object of the contract are legally in the possession
of third persons who did not act in bad faith.
“In this case, indemnity for damages may be demanded from the person causing the loss.”
The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the
return to him of the remaining 1,600 shares, Erquiaga should return to Reynoso P410,000 which the latter paid for
those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual
restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This
should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso’s P410,000 while
in the possession of Erquiaga, and its counterpart: the fruits of Hacienda San Jose which Reynoso received from
the time the hacienda was delivered to him on November 4, 1968 until it was placed under receivership by the court
on March 3, 1975.
However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga’s obligation to
deliver to Reynoso the legal interest earned by his money, should await the rendition and approval of his
accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and
oppressive to require Erquiaga to pay the legal interest earned by Reynoso’s P410,000 since 1968 or for the past
20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the fruits of
Erquiaga’s hacienda which he allegedly squandered while it was in his possession from November 1968 up to
March 3, 1975.
Angeles v. Calasanz
G.R. No. L-42283, March 18, 1985, 135 SCRA 323
FACTS:
Ursula and Tomas Calasanz sold a piece of land to Buenaventura Angeles and Teofila Juani covered by a contract
to sell. Angeles paid a down payment upon the execution of the contract and started paying the balance in monthly
installments for nine years with only a few remaining installments left to pay. Although Calasanz accepted late
payments before, Angeles was now five months late. Calasanz demanded payment of past due accounts, but did
not receive any. Eventually, Calansanz canceled the said contract and Angeles asked for reconsideration, but was
denied.
A provision in the contract to sell gave Calasanz the right to cancel the contract and consider the amounts paid as
rent for the property. However, the lower court ruled that the contract was not validly canceled and ordered
Calasanz to execute a final Deed of Sale in favor of Angeles.
ISSUE:
Was the contract to sell validly canceled?
RULING:
No. The act of a party in treating a contract as canceled or resolved on account of infractions by the other 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 that rescission is justified, it is free to bring the matter to court. Then, should the court decide
that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed and indemnity awarded to the party prejudiced.
The right to rescind the contract for non-performance of one of its stipulations is not absolute. The general rule is
that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement. The question of
whether a breach of a contract is substantial depends upon the attendant circumstances.
The breach of the contract alleged by Calasanz is so slight considering that Angeles had already paid monthly
installments for almost nine years. In only a short time, the entire obligation would have been paid.
To mitigate the unilateral act of Calasanz in cancelling the contract, Article 1234 of the Civil Code provides that: If
the obligation has been substantially performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee.
* Case digest by Immanuel Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
July 6, 1999| Ynares-Santiago | Reciprocal Obligations)
PETITIONER: Jaime Ong

RESPONDENT: CA, Spouses Miguel Robles and Alejandro Robles
SUMMARY: Petitioner Jaime Ong entered in an Agreement of Purchase and Sale with Spouses
Robles for two parcels of land. Petitioner failed to pay the full initial payment and the checks issued
to pay for the remaining balance were dishonored due to insufficient funds. Spouses seek
rescission of the Agreement.
DOCTRINE:
Rescission as contemplated in Art. 1191 of Civil Code is applicable only in obligor’s failure to
comply with an obligation already extant. It is not applicable during a failure for the fulfillment of
a condition to render an obligation binding.
FACTS:
1. Petitioner Ong and Respondent Spouses Robles entered into an “Agreement of Purchase and Sale”
on two parcels of land for P2 Million.
2. It is stipulated that:
a. P600K will serve as Initial Payment to comprise:
i. P103.5K (at that time already paid to Spouses) plus P496.5K (to be paid to BPI to
settle an outstanding loan of Respondent Spouses Robles
b. P1.4 Million Balance to be paid in 4 equal quarterly installments.
c. Upon execution of the Agreement, Respondent Spouses are to deliver to the Petitioner the
parcels of land plus the improvements (including Ricemill and Piggery)
d. Upon the payment of the total purchase prices by Petitioner Ong, Respondent Spouses
are to deliver Deed of Sale and free and clear from all liens and encumbrances.
3. After the execution, Petitioner took possession of the said parcel of lands plus the improvements.
4. However, Petitioner failed to pay the remaining Balance since the 4 checks issued were dishonored
when the same were presented. Furthermore, Petitioner was only able to pay P393.6K of the P496.5
supposedly to be deposited directly to BPI.
5. BPI then threatened to foreclose the Respondent Spouses’ mortgage prompting them to sell three
transformers of the Rice Mill to settle the outstanding obligation with Petitioner’s knowledge and
conformity.
6. Petitioner also allowed Respondent Spouses to operate the Rice Mill while petitioner continued to be
in possession of the two parcels of land.
7. Respondent Spouses subsequently sought for the return of the properties prompting them to file a
complaint for rescission in the RTC.
8. RTC granted Petitioner and affirmed by CA.
ISSUE (TOPIC): Whether or not the contract entered into by the parties may be validly rescinded
under Art. 1191 of the Civil Code? - NO
RULING: CA decision AFFIRMED.
RATIO:
1. Art. 1380 is a remedy granted by law to contractinig parties and even 3 rd persons to secure
reparations of damage caused to them by contract. Said contract, even valid, produces lesion or
pecuniary damage. This remedy is a subsidiary action limited to cases of rescission for lesion.
2. Art. 1191 refers to rescission to reciprocal obligation where the obligation arise from the same ause
and which each party is debtor and creditor. Performance of one is conditioned on the performance of
the other. This is the principal action based on breach of party.
3. Said Agreement between Petitioner and Respondent Spouses do not fall within Art. 1380.
4. But! Art. 1191 is also inapplicable. The Agreement is in a nature of a Contract to Sell and not a
Contract of Sale.
a. In Contract to Sell, ownership is reserved in the vendor and not passed to the vendee until
full payment of the purchase price.
b. For Contract of Sale the title is passed to the vendee upon delivery of the thing sold.
5. In Contract to Sell, the payment to the purchase price is a POSITIVE SUSPENSIVE CONDITION
where failure of which is not breach but a situation which prevents the obligation of the vendor to
covey title from acquiring obligatory force.
a. In Contract of Sale, its remedy is Rescission (Art. 1191)
6. Here, Respondents Spouses were bound to deliver a DEED OF ABSOLUTE SALE AND CLEAN
TITLE subject to the suspensive condition of the full payment of the purchase price. Its non-
fulfillment renders the Contract to Sell ineffective.
a. Breach contemplated in Art. 1191 is Obligor’s failure to comply with an obligation
already extant, not a failure of a condition to render binding that obligation.
7. The Agreement may be set aside but not due to the breach of Petitioner but for his failure to complete
the payment.
ISSUE: Whether the parties had novated their original contract as to the manner of payment?
RATIO:
1. Novation could not also be appreciated as theorized by Petitioner. Novation cannot be presumed and
must be expressly stipulated by parties or impliedly derived from the irreconcilable difference between
the old and new obligation.
2. Records show that the parties never intended to novate their previous agreement. Here, the sale of
the Transformers from the Rice Mill was to credit Petitioner’s unfulfilled obligation.
3. Petitioner also builder in bad faith on the building of improvements.
Visayan Sawmill Company, Inc. vs. The Honorable

Court of Appeals and RJH Trading
G.R. No. 83851 (March 3, 1993)
FACTS:
On May 1, 1983, RJH Trading and Visayan Sawmill Company (VSC) entered into a sale involving
scrap iron located at VSC’s stockyard at Negros Oriental, subject to the condition that RJH will open
a Letter of Credit (LOC) of P250,000 in favor of VSC on or before May 15, 1983. This is evidenced
by a contract entitled `Purchase and Sale of Scrap Iron’ duly signed by both parties. On May 17,
1983, RJH through his men started to dig and gather and scrap iron at the VSC’s premises,
proceeding until May 30 when VSC allegedly directed RJH’s men to desist from pursuing the work in
view of an alleged case filed against RJH by Alberto Pursuelo. VSC denied this, alleging that on May
23, 1983, they sent a telegram to RJH cancelling the contract of sale because of the failure of the
latter to comply with the conditions thereof. On May 24, 1983, RJH informed VSC that the LOC was
opened May 12, 1983 at BPI main office in Ayala, but then the transmittal was delayed.
On May 26, 1983, VSC received a letter advice from BPI Dumaguete stating that an irrevocable
domestic LOC P250,000 was opened in favor of Ang Tay c/o VSC on account of Armaco-Armsteel
Alloy Corporation. On July 19, 1983, RJH Trading sent a series of telegrams stating that the case
filed against him by Pursuelo had been dismissed and demanding that VSC comply with the deed of
sale, otherwise a case will be filed against them. On July 20, 1983, VSC informed RJH that they
were unwilling to continue with the sale due to RJH’s failure to comply with essential pre-conditions
of the contract. On July 29, 1983, RJH filed the complaint, praying for judgment ordering VSC to
comply with the contract by delivering to him the scrap iron subject thereof. VSC insisted that the
cancellation of the contract was justified because of RJH’s noncompliance with essential pre-
conditions. The RTC ruled in RJH’s favor. The CA affirmed. Hence, this appeal.
ISSUE:
Whether or not the reasons or grounds for cancelling the contract valid and justified.
RULING:
Yes. The reasons or grounds for cancelling the contract are valid and justified. Both the trial court
and the public respondent erred in the appreciation of the nature of the transaction between the
petitioner corporation and the private respondent. To this Court’s mind, what obtains in the case at
bar is a mere contract to sell or promise to sell, and not a contract of sale.
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, even after he has chosen
fulfillment, if the latter should become impossible. The Civil Code provides:
Article 1593. With respect to movable property, the rescission of the sale shall of right take place in
the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the
thing, should not have appeared to receive it, or, having appeared, he should not have tendered the
price at the same time, unless a longer period has been stipulated for its payment.
Article 1191. 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.
In this case, there was to be no actual sale until the opening, making or indorsing of the irrevocable
and unconditional LOC. Since what obtains here is a mere promise to sell, RJH’s failure to comply
with the positive suspensive condition cannot even be considered a breach casual or serious but
simply an event that prevented the obligation of petitioner corporation to convey title from acquiring
binding force. Consequently, the obligation of the petitioner corporation to sell did not arise; it
therefore cannot be compelled by specific performance to comply with its prestation. In short, Article
1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the
petitioner corporation may totally rescind, as it did in this case, the contract.
Deiparine vs. CA and Trinidad

GR. No. 96643, April 23, 1993
FACTS:
Spouses Carungay entered into a contract with Deiparine for the construction of a 3-story dormitory
in Cebu. Carungay agreed to pay Php970,000 inclusive of contractor’s fee, and Deiparine bound
himself to erect the building “in strict accordance to plans and specifications.” Trinidad, a civil
engineer, was designated as Carungays’ representative, with powers of inspection and coordination
with the contractor.
Trinidad reported to Carungay that Deiparine had been deviating from the plans and specifications,
thus impairing the strength and safety of the building. Carungay ordered Deiparine to first secure
approval from him before pouring cement. This order was not heeded, prompting Carungay to send
Deiparine another memorandum complaining that the construction works are faulty and done
haphazardly mainky due to lax supervision coupled with inexperienced and unqualified staff.
Carungay then filed a complaint for the rescission of the construction contract for damages.
ISSUE:
Whether or not the rescission of contract is valid due to breach.

RULING:
Yes. Article 1385 states that rescission creates the obligation to return the things which were the
object of the contract, together with the fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return whatever he may be obliged to restore.
The construction contract falls squarely under Article 1191 because it imposes upon Deiparine the
obligation to build the structure and upon the Carungays the obligation to pay for the project upon its
completion. Article 1191 is not predicated on economic prejudice to one of the parties but on breach
of faith by one of them that violated the reciprocity between them. The violation of reciprocity
between Deiparine and Carungay spouses, to wit, the breach caused by Deiparine’s failure to follow
the stipulated plans and specifications, has given the Carungay spouses the right to rescind or
cancel the contract.
Iringan v. Court of Appeals

G.R. No. 129107, September 26, 2001, 366 SCRA 41
FACTS:
Private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No.
992 of the Tuguegarao Cadastre, located at the Poblacion of Tuguegarao and covered by Transfer
Certificate of Title No. T-5790. The parties executed a Deed of Sale] on the same date with the
purchase price of P295,000.00,payable as follows:(a) P10,000.00 upon the execution of this
instrument ;(b) P140,000.00 on or before April 30, 1985;(c) P145,000.00 on or before December 31,
1985.
When the second payment was due, Iringan paid only P40,000. Thus, Palao sent a letter to Iringan
stating that he considered the contract as rescinded and that he would not accept any further
payment considering that Iringan failed to comply with his obligation to pay the full amount of the
second installment. Iringan through his counsel Atty. Hilarion L. Aquino, replied that they were not
opposing the revocation of the Deed of Sale but asked for the reimbursement of the following
amounts:(a) P50,000.00 cash received;(b) P3,200.00 geodetic engineers fee;(c) P500.00 attorneys
fee;(d) the current interest on P53,700.00. In response, Palao sent a letter dated January 10, 1986
to Atty. Aquino, stating that he was not amenable to the reimbursements claimed by Iringan.
On February 21, 1989, Iringan, now represented by a new counsel Atty. Carmelo Z. Lasam,
proposed that the P50,000 which he had already paid Palao be reimbursed or Palao could sell to
Iringan, an equivalent portion of the land. Palao instead wrote Iringan that the latters standing
obligation had reached P61,600, representing payment of arrears for rentals from October 1985 up
to March 1989.[9] The parties failed to arrive at an agreement. On July 1, 1991, Palao filed a
Complaint[10] for Judicial Confirmation of Rescission of Contract and Damages against Iringan and
his wife.
ISSUE:
Whether or not the contract of sale was validly rescinded.

RULING:
Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable
property. Article 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term. Article 1592 requires the rescinding party to serve
judicial or notarial notice of his intent to resolve the contract.
Article 1191. 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. The injured party may choose between
the fulfillment and the rescission of the obligation, with payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.
But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic
rescission. In Escueta v. Pando, we ruled that under Article 1124 (now Article 1191) of the Civil
Code, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall
fail to comply with what is incumbent upon him. But that right must be invoked judicially. The same
article also provides: The Court shall decree the resolution demanded, unless there should be
grounds, which justify the allowance of a term for the performance of the obligation. This
requirement has been retained in the third paragraph of Article 1191, which states that the court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
Consequently, even if the right to rescind is made available to the injured party, the obligation is not
ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The
party entitled to rescind should apply to the court for a decree of rescission.The right cannot be
exercised solely on a party’s own judgment that the other committed a breach of the obligation.The
operative act which produces the resolution of the contract is the decree of the court and not the
mere act of the vendor. Since a judicial or notarial act is required by law for a valid rescission to take
place, the letter written by respondent declaring his intention to rescind did not operate to validly
rescind the contract.
* Case digest by Leizel Lagare, LLB-1, Andres Bonifacio Law School, SY 2017-2018
VDA. DE MISTICA VS. NAGUIAT

GR. No 137909 December 11, 2003
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of a

parcel of land. A portion thereof was leased to [Respondent Bernardino Naguiat]
sometime in 1970. On 5 April 1979, Eulalio Mistica entered into a contract to sell with
Respondent Naguiat over a portion of the aforementioned lot containing an area of 200
square meters.
Pursuant to said agreement, Respondent Bernardino Naguiat gave a

downpayment of P2,000.00. He made another partial payment of P1,000.00 on 7
February 1980. He failed to make any payments thereafter. Eulalio Mistica died
sometime in October 1986.
On 4 December 1991, petitioner filed a complaint for rescission alleging inter alia:
that the failure and refusal of respondents to pay the balance of the purchase price
constitutes a violation of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion and they should be
ordered to vacate and surrender possession of the same to petitioner. Respondents
contended that the contract cannot be rescinded on the ground that it clearly stipulates
that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be
paid. Likewise alleged that sometime in October 1986, during the wake of the late
Eulalio Mistica, he offered to pay the remaining balance to petitioner but the latter
refused and hence, there is no breach or violation committed by them and no damages
could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the
said document.
ISSUE:
Whether petitioner may rescind the contract.
RULING:
Disallowing rescission, the CA held that respondents did not breach the Contract
of Sale. It explained that the conclusion of the ten-year period was not a resolutory
term, because the Contract had stipulated that payment -- with interest of 12 percent --
could still be made if respondents failed to pay within the period. According to the
appellate court, petitioner did not disprove the allegation of respondents that they had
tendered payment of the balance of the purchase price during her husband’s funeral,
which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already

transferred the land title to their names. The proper recourse, the CA held, was to order
them to pay the balance of the purchase price, with 12 percent interest.
Petitioner claims that she is entitled to rescind the Contract under Article 1191 of
the Civil Code, because respondents committed a substantial breach when they did not
pay the balance of the purchase price within the ten-year period.
We disagree. The transaction between Eulalio Mistica and respondents, as
evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale is
considered absolute in nature when there is neither a stipulation in the deed that title to
the property sold is reserved to the seller until the full payment of the price; nor a
stipulation giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. The CA further ruled that rescission in this case
would be unjust to respondents, because a certificate of title had already been issued in
their names.
Khe Hong Cheng v. CA

G.R. No. 144169, March 28, 2001, 355 SCRA 701
FACTS:
Petitioner is the owner of Butuan Shipping Lines. In one of the vessels owned by the petitioner,
Philippine Agricultural Trading Corporation boarded 3,400 bags of copra to be shipped from Masbate
to Dipolog City and which said shipment of copra was insured by PhilAm. While on board, the ship
sank amounting to total loss of the shipments. Because of the loss, the insurer paid the damages to
the consignee. Having subrogated the rights of the consignee, PhilAm instituted a civil case to
recover the money paid to the consignee based on breach of contract of carriage. While the case
was pending, petitioner executed deeds of donations of parcels of land to his children. The trial court
rendered judgment against the petitioner, Khe Hong Cheng in the civil case on December 29, 1993.
After the decision became final, a writ of execution was issued but it was not served. Therefore, an
alias writ was applied for which was granted. The sheriff did not found any property under Butuan
Shipping Lines and/or Khe Hong Cheng. In 1997, PhilAm filed complaint for annulling the deeds of
donation made by herein petitioner to his children and alleged the donation was to defraud his
creditors including PhilAm. Petitioner filed an answer stating that the action had already prescribed.
ISSUE:
Whether or not the action to rescind the donation had already prescribed.
HELD:
No, the action for rescission has not yet prescribed.
Article 1389 of the Civil Code simply provides that the action to claim rescission must be
commenced within four years. When the law is silent as to when the prescriptive period shall
commence, general rule must apply that it will commence when the moment the action accrues.
According to the trial court, the period began from December 29, 1993 when the civil case was
resolved. Thus, the CA maintained that the four year period began only on January 1997, the time
when it first learned that the judgment award could not be satisfied because Khe Hong Cheng had
no more properties in his name. An action for rescission must be the last resort of the creditors and
can only be availed after the creditor had exhausted all the properties. The herein respondent came
to know only in January 1997 about the unlawful conveyances of the petitioner when, together with
the sheriff and counsel, were to attach the property of the petitioner and it was then only when they
found out it is no longer in the name of the petitioner. Since the respondent filed accion pauliana on
February 1997, a month after the discovery that petitioner had no property in his name to satisfy the
judgment, action for rescission of subject deeds had not yet prescribed.
Siguan vs. Lim

G.R. No. 134686, 19 November 1999
FACTS:
On 25 and 26 August 1990, respondent issued two Metrobank checks to petitioner. However, the
checks were dishonored for the reason account closed. After demands to make good the checks
proved futile, a criminal case for violation of Batas Pambansa Blg. 22 was filed by the petitioner with
the Regional Trial Court (RTC) of Cebu City. The lower court convicted the respondent. On 31 July
1990 respondent was also charged with estafa by a certain Victoria Suarez. Respondent was
acquitted but held civilly liable.
On 2 July 1991, a Deed of Donation conveying the parcels of land and purportedly executed by
respondent on 10 August 1989 in favor of her children was registered. On 23 June 1993, petitioner
filed an accion pauliana against respondent and her children to rescind the questioned Deed of
Donation. She alleges that respondent and her children conspired to fraudulently transfer all her real
property to her children in bad faith and in fraud of creditors, including her.
The trial court ordered the rescission of the deed of donation. But upon appeal, the CA reversed the
decision contending that two of the requisites for filing an accion pauliana were absent, namely, (1)
there must be a credit existing prior to the celebration of the contract; and (2) there must be a fraud,
or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission. The CA
argues the deed of donation appears to have been executed in 1989 prior to any credit.
ISSUES:
Whether or not the Deed of Donation executed by respondent Rosa Lim in favor of her children be
rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan.
RULING:
No. The alleged debt of respondent in favor of petitioner was incurred in August 1990, while the
deed of donation was purportedly executed on 10 August 1989. Article 1381 of the Civil Code
enumerates the contracts which are rescissible, and among them are those contracts undertaken in
fraud of creditors when the latter cannot in any other manner collect the claims due them. The action
to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper, the
following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the
alienation, although demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim;
(4) the act being impugned is fraudulent; (5) the third person who received the property conveyed, if
it is by onerous title, has been an accomplice in the fraud.
The fourth requisite for an accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors
when the donor did not reserve sufficient property to pay all debts contracted before the donation.
Likewise, Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient
property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave adequate
properties which creditors might have recourse for the collection of their credits existing before the
execution of the donation. As earlier discussed, petitioners alleged credit existed only a year after
the deed of donation was executed. She cannot, therefore, be said to have been prejudiced or
defrauded by such alienation. Evidence also disclose that respondent still had other properties when
the deed of donation was executed.
Juan Nakpil and Sons v. CA

144 SCRA 597 (1986)
FACTS:
The Philippine Bar Association, private respondent, hired the services of the petitioner to make the
plans and specifications for the construction of their office building. The building was completed by
the contractor but subsequently, an earthquake struck causing its partial collapse and damage.
ISSUE:
Is the petitioner liable for damages in this case?
RULING:
Yes. The petitioner made significant deviations from the plans and specifications, thereby failing to
observe requisite workmanship standards in the construction of the building while their architect
drew plans that contain defects and other inadequacies. Both the contractor and the architect cannot
escape liability for damages when the building collapsed due to an earthquake when other buildings
in the area withstood the earthquake. Further, the lower court also found that the spirals in one of the
columns on the ground floor have been cut. One who creates a dangerous condition is still liable
even if an act of God may have intervened. As such, the liability of the contractor and the architect
for the collapse of the building is solidary.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and all human agencies are to be 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 participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God.
* Case digest by Immanuel Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Republic v. Luzon Stevedoring Corporation

21 SCRA 279 G.R. No. L-21749 (September 29, 1967)
FACTS:
1. Barge owned by Luzon Stevedoring Corporation(defendant, LSC for brevity) was being towed
down the Pasig river by tugboats belonging to the same corporation.`
2. The barge rammed against one of the wooden piles of the Nagtahan Bailey Bridge, smashing the
posts and causing the bright to list. The river, at that time, was swollen and the current swift, on
account of the heavy downpour of Manila and the surrounding provinces.
3. Republic of the Philippines (PH) sued LSC for actual and consequential damages caused by its
employees.
ISSUE:
Whether or not the collision of LSC’s barge with the supports or piers of the Nagtahan bridge was in
law caused by fortuitous event or force majeure.
RULING:
No. Considering that the Nagtahan bridge was an immovable and stationary object and
uncontrovertibly provided with adequate openings for the passage of water craft, including barges
like of NSC’s, it is undeniable that the unusual event that the barge, exclusively controlled by
appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant
or its employees manning the barge or the tugs that towed it. For in the ordinary course of events,
such a thing does not happen if proper case is used. Res ipsa loquitur.
NLS stresses the precautions (due diligence) taken by it: (1) that it assigned two of its most powerful
tugboats to tow down river its barge, and (2) that it assigned to the task the more competent and
experienced among its patrons, (3) had the towlines, engines and equipment double-checked and
inspected; (4) that it instructed its patrons to take extra precautions. These very precautions,
completely destroy the NLS’defense.
Caso fortuito or force majeure by definition, are extraordinary events not foreseeable or avoidable,
events that could not be foreseen, or which, though foreseen, were inevitable.” It is, therefore, not
enough that the event should not have been foreseen or anticipated, as is commonly believed, but it
must be one impossible to foresee or to avoid. The more difficulty to foresee the happening is not
impossibility to foresee the same. The very measures adopted by NSC prove that the possibility of
danger was not only foreseeable, but actually foreseen, and was not caso fortuito.
LSC, knowing and appreciating the perils posed by the swollen steam and its swift current,
voluntarily entered into a situation involving obvious danger; it therefore assured the risk, and cannot
shed responsibility merely because the precautions it adopted turned out to be insufficient.
Pedro Dioquino vs. Federico Laureano
G.R. No. L-25906, May 28, 1970
33 SCRA 65
FACTS:
Atty. Dioquino met patrol officer Federico Laureano in the MVO office in
Masbate to register his car. Laureano helped Dioquino in the facilitation of the
registration of his car. Thereby, Atty. Dioquino lent Laureano his car on a commodatum
basis but the car’s windshield was broken due to a stone thrown by some mischievous
boys. No satisfactory arrangements were made about the damage caused on the
windshield. Laureano believed that the stone-throwing was merely accidental so he
refused to file any charges against the stone-thrower or the parents; and he also
believed that he is not liable for any damages because the incident was a force
majeure.
ISSUE:
The issue is whether or not the breaking of the car’s windshield due to the stone-
throwing is a force majeure and thereby exculpating defendant from civil liability in favor
of Atty. Dioquino.
HELD:
YES, because Article 1174 of the Civil Code states that “Except in cases
expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen,
were inevitable.” The stone-throwing that yielded to the breaking of the windshield was
clearly unforeseeable and inevitable. Hence, Laureano cannot be compelled to pay the
damages caused on Atty. Dioquino’s car windshield.
ALBERTA YOBIDO vs. COURT OF APPEALS
G.R. No. 113003 1997 Oct 17

FACTS:
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named
Ardee and Jasmin, boarded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound
for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front
tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road
and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy, and
physical injuries to other passengers. On November 21, 1988, a complaint for breach of
contract of carriage, damages and attorney's fees was filed by Leny and her children
against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before
the Regional Trial Court of Davao City. The plaintiffs asserted that violation of the
contract of carriage between them and the defendants was brought about by the driver's
failure to exercise the diligence required of the carrier in transporting passengers safely
to their place of destination. On the other hand, the defendants raised the affirmative
defense of caso fortuito.
ISSUE:
Whether or not petitioners should be exempt from liability because the tire blowout
was a fortuitous event.
RULING:
As a rule, when a passenger boards a common carrier, he takes the risks

incidental to the mode of travel he has taken. After all, a carrier is not an insurer of the
safety of its passengers and is not bound absolutely and at all events to carry them
safely and without injury. However, when a passenger is injured or dies, while traveling,
the law presumes that the common carrier is negligent. Thus, the Civil Code provides
under Article 1755 that a common carrier is bound to carry the passengers safely as far
as human care and foresight can provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances. Accordingly, in culpa contractual,
once a passenger dies or is injured, the carrier is presumed to have been at fault or to
have acted negligently. This disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligence as prescribed by Articles 1733, 10
1755 and 1756 of the Civil Code or that the death or injury of the passenger was due to
a fortuitous event. Consequently, the court need not make an express finding of fault or
negligence on the part of the carrier to hold it responsible for damages sought by the
passenger.
The petitioners' contention that they should be exempt from liability because the
tire blowout was no more than a fortuitous event that could not have been foreseen,
must fail. Under the circumstances of this case, the explosion of the new tire may not be
considered a fortuitous event. There are human factors involved in the situation. The
fact that the tire was new did not imply that it was entirely free from manufacturing
defects or that it was properly mounted on the vehicle. Neither may the fact that the tire
bought and used in the vehicle is of a brand name noted for quality, resulting in the
conclusion that it could not explode within five days' use. It is settled that an accident
caused either by defects in the automobile or through the negligence of its driver is not
a caso fortuito that would exempt the carrier from liability for damages.
Moral damages are generally not recoverable in culpa contractual except when
bad faith had been proven. However, the same damages may be recovered when
breach of contract of carriage results in the death of a passenger, as in this case.
Exemplary damages, awarded by way of example or correction for the public good
when moral damages are awarded, may likewise be recovered in contractual
obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner. Because petitioners failed to exercise the extraordinary diligence
required of a common carrier, which resulted in the death of Tito Tumboy, it is deemed
to have acted recklessly. As such, private respondents shall be entitled to exemplary
damages.
Austria vs. Court of Appeals

G.R. No. L-29640, June 10, 1971
FACTS:
On January 30, 1961, Maria G. Abad acknowledged that she received from Guillermo Austria one
(1) pendant with diamonds to be sold on a commission basis or to be returned on demand. However,
on February 1, 1961, while walking home to her residence, Abad was said to have been accosted by
two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and
cash, and ran away.
Since Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought
in the Court of First Instance of Manila an action against her and her husband for recovery of the
pendant or of its value, and damages. On their answer, the defendant spouses set up the defense
that the alleged robbery had extinguished their obligation.
The trial court rendered judgment in favor for the plaintiff which is Austria. It held that defendant
failed to prove the fact of robbery, or, if indeed it was committed, the defendant was guilty of
negligence. The defendants appealed to the Court of Appeals and secured a reversal of judgment. It
declared respondents not responsible for the loss of the jewelry on account of fortuitous event, and
relieved them from liability for damages to the owner. Hence, this case contending that for robbery to
fall under the category of fortuitous event and relieve the obligor form his obligation under a contract,
there ought to be prior judgment on the guilt of the persons responsible therefor.
ISSUE:
Whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior
conviction for robbery before the loss of the article shall exempt the consignee from liability for such
loss.
RULING:
NO, the law provides that except in case expressly specified by law, or when it is otherwise declared
by stipulation, or when the nature of the obligation require the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
It must be noted that to avail of the exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be punished; it would only be sufficient to establish that the
enforceable event, the robbery in this case did take place without any concurrent fault on the
debtor`s part, and this can be done by preponderant evidence.
It must also be noted that a court finding that a robbery has happened would not necessarily mean
that those accused in the criminal action should be found guilty of the crime; nor would be a ruling
that those actually accused did not commit the robbery be inconsistent with a finding that a robbery
did take place. The evidence to establish these facts would not necessarily be the same.
National Power Corporation vs. Honorable Court of

Appeals
G.R. No. L-47379 (May 16, 1988)
FACTS:
Plaintiff Engineering Construction, Inc., being a successful bidder, executed a contract in Manila with
the National Waterworks and Sewerage Authority (NAWASA), whereby the former undertook to
furnish all tools, labor, equipment and materials, and to construct the proposed 2nd Ipo-Bicti Tunnel,
Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features at Norzagaray,
Bulacan and to complete said works within 800 calendar days.
The project involves two major phases: (1) tunnel work covering a distance of 7 kilometres and (2)
the outworks at both ends of the tunnel. The ECI already had completed the first major phase of the
work, the Tunnel Excavation Work. Some portions of the outworks were still under construction. As
soon as the plaintiff corporation had finished the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to the Ipo site where some projects were yet to
be completed.
On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing through corporations’ Angat
Hydro-electric Project and Dam. Due to the heavy downpour, the water in the reservoir of the Angat
Dam was rising perilously at the rate of 60 cm per hour. To prevent an overflow of water from the
dam, the National Power Corporation (NPC) caused the opening of the spillway gates. Extraordinary
large volume of water rushed out of the gates, and hit the installations and construction works of ECI
at Ipo site with terrific impact, as a result of which the latter’s stockpile of materials supplies, camp
facilities and permanent structures and accessories whether washed away, lost or destroyed.
ISSUE:
Whether or not the destruction and loss of ECI’s equipment and facilities were due to force majeure
which will exempt NPC from liability.
RULING:
No. The NPC will not be exempted from liability. It is clear from the appellate court’s decision that
based on its findings of fact and that of the trial court’s, petitioner NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of typhoon “Welming”
when it knew very well that it was safer to have opened the same gradually and earlier, as it was
also undeniable that NPC knew of the coming typhoon at least four days before it actually struck.
And even though the typhoon was an act of God or what we may call force majeure, NPC cannot
escape liability because its negligence was the proximate cause of the loss and damage.
Bacolod-Murcia Milling v. Court of

Appeals 182 SCRA 24, G.R. No. 81100-01
(February 7, 1990)
Facts:
1. Bacolod-Murcia Milling Co., Inc.(BMMC) is the owner and operator of the sugar
central in Bacolod.
2. Alonso Gatuslao (Gatuslao) is a registered plantor of the Bacolod-Muria Mill
District.
3. BMMC and Gatuslao executed an “Extension and Modification of Milling
Contract.
4. From crop year 1957-1958 up to crop year 1967-1968, Gatuslao has been milling
all the sugarcane grown and produced with the Mill of BMMC.
5. From crop year 1920-21 to crop year 1967-68, the canes of planters adhered to
the mill of BMMC were transported from the plantation to the mill by means of cane cars
and through railway system operated by BMMC.
6. BMMC has been hauling planter Gatuslao’s sugar cane to its mill or factory
continuously until crop year 1967 – 1968.
7. The milling contract between BMMC and owners of the hacienda Helvetica
expired at the end of the 1964-1965 crop year.
8. The portion of the railway traversing the hacienda Helvetica was closed as per
decision of the court.
9. The use of the railroad tracks(traversing hacienda Helvetica) was temporarily
allowed due to the intervention of the President of the Philippines, which is until 1967-
1978 milling season only.
10. Gatuslao loaded their cut cranes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-MACMA) during 1968-1969 crop
year.
11. BMMC had not been able to use its cane cars and railway system for the cargo
crop year 1968-1989.
Issue/s:
1. Whether or not the termination of petitioner’s right of way over the hacienda
Helvetica caused by the expiration of its amended milling contracts with the landowners
of the land in question is fortuitous event or force majeure which will exempt petitioner
BMMC from fulfillment of its contractual obligation.
2. Whether or not BMMC was able to provide adequate and efficient transportation
facilities of the canes of Gatuslao and the other planters milling with BMMC during the
crop year 1968-69.
Ruling:
1. No. The terms of the milling contracts were clear and undoubtedly there was no
reason for BMMC to expect otherwise. The closure of any portion of the railroad track,
not necessarily in the hacienda Helvetica but in any of the properties whose owners
decided not to renew their milling contracts with the Central upon their expiration, was
foreseeable and inevitable.
Despite its awareness that the conventional contract of lease would expire in crop year
1964-1965 and that refusal on the part of any one of the landowners to renew their
milling contracts and the corresponding use of the right of way on their lands would
render impossible compliance of its commitments, BMMC took a calculated risk that all
the landowners would renew their contracts.
The closure of the railway lines was not an act of God nor it constitute force majeure. It
was due to the termination of the contractual relationships of the parties, for which
BMMC is charged with knowledge. Owners of the hacienda Helvetica notified BMMC as
far back as August 1965 of its intention not to allow the passage of the railway system
thru its land after the aforesaid crop year. Adequate measures should have been
adopted by BMMC to forestall such paralyzations but the records show none.
2. No, BMMC failed to provide adequate transportation facilities to Gatuslao and

other adherent parties.
The inadequacies of the reparto or trailer allotment as well as the state of

unpreparedness on the part of BMMC to meet the problem posed by the closure of the
railway lines.
It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers
arrived and when two trailers finally arrived on October 1968 after several unheeded
requests, they were left on the national highway about one kilometer away from the
loading station, the means of transportation provided by BMMC is very inadequate to
answer the needs of Gatuslao.
Philcomsat vs. Globe Telecom

G.R No. 147324, May 25, 2004, 429, SCRA 153
FACTS:
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated
itself to establish, operate and provide an IBS Standard B earth station (earth station) within Cubi
Point for the exclusive use of the USDCA. The term of the contract was for 60 months, or five (5)
years. In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. At
the time of the execution of the Agreement, both parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US (RP-US Military Bases Agreement) was to
expire. Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or
facilities, which include those located at the US Naval Facility in Cubi Point, shall not be allowed in
the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of
the votes cast by the people in a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA
made use of the same.
On 16 September 1991, the Senate passed and adopted a resolution expressing its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the use by the US of Subic
Naval Base, among others.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of
the earth station in view of the withdrawal of US military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe invoked as basis for the letter of
termination Section 8 (Default) of the Agreement.
ISSUE:
Whether or not the non-ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force majeure (fortuitous event) which
exempts Globe from complying with its obligations under the Agreement.
RULING:
Yes. Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the Civil Code
because said provision does not prohibit parties to a contract from providing for other instances
when they would be exempt from fulfilling their contractual obligations. Globe also claims that the
termination of the RP-US Military Bases Agreement constitutes force majeure and exempts it from
complying with its obligations under the Agreement.
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be
deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable,
but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which, could not be foreseen, or which, though foreseen were inevitable.
Clearly, the foregoing facts are either unforeseeable, or foreseeable but beyond the control of the
parties. There is nothing in the enumeration that runs contrary to, or expands, the concept of a
fortuitous event under Article 1174.
ARRIETA VS. NATIONAL RICE AND CORN CORPORATION
GR L-15645 January 31, 1964
Regala, J.:
FACTS:
On May 19, 1952, plaintiff-appellee Mrs. Paz Arrieta participated in a public bidding
called by NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of
$203.00 per metric ton was the lowest, she was awarded he contract for the same. On
July 1, 1952,Arrieta and NARIC entered into Contract of Sale of Rice under the term of
which the former obligated herself to deliver to the latter 20,000 metric tons of Burmese
rice at $203.00 per metric ton. In turn, NARIC committed itself to pay for the imported
rice “by means of an irrevocable,confirmed and assignable letter of credit in US
currency in favor of Arrieta and/or supplier in Burma, immediately.” However, it was only
on July 30, 1952 that NARIC took the first step to open a letter of credit by forwarding to
the PNB its application for Commercial Letter of Credit.On the same day, Arrieta, thru
counsel, advised NARIC ofthe extreme necessity for the opening of the letter of credit
since she had by then made a tender to her supplier in Rangoon, Burma equivalent to
5% of the F.O.B. price of 20, 000 tons at $180.70 and in compliance with the regulations
in Rangoon, this 5% will be confiscated if the required letter of credit is not received by
them before August 4, 1952.On August 4, PNB informed NARIC that its application for a
letter of credit has been approved by the Board of Directors with the condition that 50%
marginal cash deposit be paid and that drafts to be paid upon presentment. It turned out
that NARIC was not in financial position to meet the condition. As a result of the delay,
the allocation of Arrieta’s supplier in Rangoon was cancelled and the 5% deposit
amounting to 524 kyats or approximately P200,000 was forfeited.
ISSUE: Was NARIC liable for damages?
RULING:
Yes. One who assumes a contractual obligation and fails to perform the same on
account of his inability to meet certain bank which inability he knew and was aware of
when he entered into contract, should be held liable indamages for breach of
contract.Under Article 1170 of the Civil Code, not only debtors guilty of fraud,
negligence or default but also debtor of every, in general, who fails in the performance
of his obligations is bound to indemnify for the losses and damages caused thereby.
Kalalo v. Luz
G.R. No. L-27782, 31 July 1970
FACTS:
Kalalo the plaintiff is a licensed civil engineer he entered into an agreement with defendant Alfredo J.
Luz a license architect. Plaintiff sent a statement of account to defendant stating his fee for the
service that he rendered. The defendant however did not pay the plaintiff of the exact amount that he
requested because some of appellee’s services were not in accordance with the agreement and
appellee’s claims were not justified by the services actually rendered. Defendant alleges that plaintiff
had no cause of action, that plaintiff was in estoppel because of certain acts, representations,
admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said
facts.
ISSUE:
Whether or not under the doctrine of estoppel would apply in this case.
RULING:
No. The statement of accounts could not estop appellee, because appellant did not rely thereon as
found by the Commissioner. Under article 1431 of the Civil Code, in order that estoppel may apply
the person, to whom representations have been made and who claims the estoppel in his favor must
have relied or acted on such representations.
The essential elements of estoppel in pais may be considered in relation to the party sought to be
estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to be
estopped, the essential elements are: (1) conduct amounting to false representation or concealment
of material facts or at least calculated to convey the impression that the facts are otherwise than,
and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least
expectation that his conduct shall be acted upon by, or at least influence, the other party; and (3)
knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the
essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts
in questions; (2) (reliance, in good faith, upon the conduct or statements of the party to be estopped;
(3) action or inaction based thereon of such character as to change the position or status of the party
claiming the estoppel, to his injury, detriment or prejudice.
The first essential element in relation to the party sought to be estopped does not obtain in the
instant case, for, as appears in the Report of the Commissioner, appellee testified “that when he
wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his counsel and it
was only upon advice of counsel that the terms of the contract were interpreted to him resulting in
his subsequent letters to the defendant demanding payments of his fees pursuant to the contract
Exhibit A.” It is established, therefore, that Exhibit 1-A was written by appellee through ignorance or
mistake. Anent this matter, it has been held that if an act, conduct or misrepresentation of the party
sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise.
Regarding the essential elements of estoppel in relation to the party claiming the estoppel, the first
element does not obtain in the instant case, for it cannot be said that appellant did not know, or at
least did not have the means of knowing, the services rendered to him by appellee and the fees due
thereon as provided in Exhibit A. The second element is also wanting, for, as adverted to, appellant
did not rely on Exhibit 1-A but consistently denied the accounts stated therein. Neither does the third
element obtain, for appellant did not act on the basis of the representations in Exhibit 1-A, and there
was no change in his position, to his own injury or prejudice.
St. Paul Fire & Marine Insurance Co. vs. Macondray & Co. Inc.
(What is to be paid; Art. 1233)
FACTS
On June, 1960, Winthrop Products, Inc. of New York, New York, USA shipped 218
cartons and drums of drugs and medicines consigned to Winthrop-Steams, Inc., Manila,
aboard SS “Tai Ping”, owned and operated by Wilhelm Wilhelmsen.
Barber Steamship Lines Inc. issued Bill of Lading 34 (a document issued by a

carrier which details a shipment of merchandise and gives title of that shipment to a
specified party.) in the name of Winthrop Producs Inc. as shipper with arrival
notice to Manila to consignee Winthrop-Steams Inc. Manila. The shipment was
insured by shipper against loss and/or damage with St. Paul Fire& Marine Insurance
Company under its insurance Special Policy.
Two months after, SS “Tai Ping” arrived at the Port of Manila and discharged shipment
into the custody of Manila Port Service, the arrastre contractor. Shipment was complete
and in good order except of 1 drum and several cartons which were in bad
condition. Winthrop-Steams, Inc. Manila upon failing to receive the whole shipment
and as several cartons were in bad condition, they filed a claim in the amount of
P1,109.67 representing the CIF1 (Cost, Insurance, and Freight) value of the damaged
drum and cartons of medicine to Macondray & Co. Inc., and Barber Steamship Lines
Inc. and Manila Port Service. However, both refused to pay.
Winthrop-Steams Inc. also filed its claim with insurer St. Paul Fire & Marine Insurance
Co. and insurance company on the basis of the value of lost and damaged goods in the
total amount of $1,134.46. As subrogee2 of the rights of Winthrop-Steams Inc, St. Paul
Fire & Marine Insurance Co. instituted an action for recovery of $1,134.46 plus costs
against Macondray & CO., INC., BARBER Steamship Lines, Inc.,Manila Port Service
and/or Manila Railroad Company.
Manila Port Service and Manila Railroad Company: (no, you cannot collect from us)
resisted action contending that the whole cargo was delivered to consignee Winthrop
Steams Inc. Manila in the same condition in which it received from carrying vessel and
that their liability is limited to the invoice value goods of not more than P500 per
package pursuant to Management Contract.
Macondray & Co, Inc., Barber Steamship Lines Inc., and Wilhelm Wilhelmsen contested
as well the claim alleging that:
-their liability for shipment ceased upon the discharge of package from ship's tackle
-are also not agents of the vessel (together with Manila Port Service)
-218 packages were discharged from SS “Tai Ping” into the custody of Manila Port
Service as operator and if any damage was sustained while it was under SS “Tai Ping”,
damage was caused by the insufficiency of packing, force majeure and/or perils of the
sea
-offers to settle the claim of Winthrop-Steams Inc.by paying the CIF value of 27 lbs.
Caramel, 4.13 kls methyl salicylate and 12 pcs pharmaceutical vials only in good faith
1
requires the seller to arrange and pay for delivery of the goods to a port or place of import in the country of
destination of the buyer.
2
The insurance company that assumes the legal right to collect the claim of an injured claimant (the subrogor)
against the third party that caused the injury, in return for paying the other's expenses in advance.
Winthrop-Steams Inc however rejected the offer.
Lower Court: rendered judgment ordering:

– Macondray & Co, Barber Steamship Lines, Inc and Wilhelm Wilhelmsen to pay
Winthrop-Steams Inc jointly and severally the sum of P300 with legal interest
from filing of complaint until fully paid
– Manila Railroad and Manila Port Service to pay Winthrop-Steams Inc jointly and
severally P809.67 with legal interest plus costs.
Winthrop-Steams Inc filed a motion of reconsideration contending that it also should

recover $1, 134.46 (value of the lost and damaged goods) but lower court denied.
Hence present petition. (You can stop until here for the facts tho)
St. Paul Fire & Marine Insurance Company argues:

-it should also recover from Macondray & Co, Barber Steamship Lines Inc., Manila Port
Service, and Manila Railroad $1,134.46 because they paid in full amount to Winthrop-
Steams Inc
Macondray & Co., et.al, countered:

-liability is limited to CIF (Cost, Insurance, Freight) value of the goods pursuant to the
contract of sea carriage in the Bill of Lading
-Winthrop-Steams Inc.'s claim was only for P1,109.67
-they are not insurers of goods and should not be made to pay the insured value
-exchange rate should be based on rate on the delivery of goods and not at the time
lower court rendered its decision.
ISSUE/S
1. Whether in case of loss or damage, liability of the carrier is limited to the CIF
value of goods that were lost or damaged
2. Whether insurer (St. Paul Fire & Marine Insurance Company) who paid claim in
dollars to Winthrop-Steams Inc should be reimbursed in peso equivalent on date
of discharge or on date of decision
HELD
Appeal is without merit.
1. Yes, liability is limited only to CIF value of lost goods.

As provided in the Bill of Lading for the rights and liabilities of parties in reference to
contract to carry, liability is limited to the value of the goods appearing in the bill is valid
and binding. The limitation of carrier's liability is sanctioned by the freedom of
contracting parties to establish such stipulations , clauses, terms, or conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs and
public policy. Stipulation fixing or limiting the sum that may be recovered from the carrier
on the loss or deterioration of the goods is valid, provided it is (a) reasonable and just
under the circumstances, and (b) has been fairly and freely agreed upon.
In the case at bar, liabilities of the defendants-appellees with respect to the lost
or damaged shipments are expressly limited to the C.I.F. value of the goods as per
contract of sea carriage embodied in the bill of lading:
"Whenever the value of the goods is less than $500 per package or
other freight unit, their value in the calculation and adjustment of claims
for which the Carrier may be liable shall for the purpose of avoiding
uncertainties and difficulties in fixing value be deemed to be the invoice
value, plus freight and insurance if paid, irrespective of whether any
other value is greater or less.”
"The limitation of liability and other provisions herein shall inure not only
to the benefit of the carrier, its agents, servants and employees, but also
to the benefit of any independent contractor performing services
including stevedoring in connection with the goods covered hereunder."
The ship (ambot unsay pangan sa ship) and Steamship Inc are therefore bound
by the stipulations since it is expressly stated that in accepting the Bill of lading,
shipper, owner, and consignee of goods and holder of bill of Lading all agree to
be bound by stipulations, exceptions and conditions whether written, stamped or
printed as if they were signed by shipper, owner, consignee or holder.
(Therefore ang gist is not more than P500 ra ang ma-collect ni Winthrop-Steams
Inc dahil nakasaad sa BoL)
2. Since St. Paul Fire & Marine Insurance company are subrogated merely to the
rights of the assured, it can only recover the amount that is recoverable by
Winthrop-Steams Inc as limited and restricted by the provisions of the Bill of
Lading.
"The insurer after paying the claim of the insured for damages under the
insurance is subrogated merely to the rights of the insured and therefore can
necessarily recover only that to what was recoverable by the insured."
Also, the contention of St. Paul Fire & Marine Insurance Company that it should be paid
according to the full amount in dollars it paid Winthrop-Steams Inc is of no moment
(haha ka ew sa of no moment).
The obligation of the carrier to pay for the damage commenced on the date it failed to
deliver the shipment in good condition to the consignee. The C.I.F. Manila value of the
goods which were lost or damaged, according to the claim of the consignee dated
September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33
(shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine Currency.
The peso equivalent was based by the consignee on the exchange rate of P2.015 to
$1.00 which was the rate existing at that time. We find, therefore, that the trial court
committed no error in adopting the aforesaid rate of exchange.
(Gist is di dapat feelingero si St.Paul Fire &Marine Insurance Company na ma-
reimbursean sha of the full amount na iya gi pay kay Winthrop since si Winthrop bound
by Bill of Lading, insurance company is also bound by the said stipulation. Furthermore,
hindi in dollars ang reimbursement and should start on the date of filing of complaint. )
Papa v. Valencia
G.R. No. 105188, 23 January 1998
FACTS:
A parcel of land was allegedly sold to respondent Penarroyo by petitioner acting as attorney-in-fact
of Anne Butte. The purchaser, through Valencia, made a check payment in the amount of P40,000
and in cash, P5,000. Both were accepted by petitioner as evidenced by various receipts. It appeared
that the said property has already been mortgaged to the bank previously together with other
properties of Butte.
When Butte passed away, the Penarroyo demanded that the title to the property be conveyed to
him, however, the bank refused. Hence, the filing of a suit for specific performance by private
respondents against the petitioner. The lower court ruled in favor of the private respondents and
ordered herein petitioner the conveyance or the property or if not, its payment. The petitioner
appealed the lower court’s decision alleging that the sale was not consummated as he never
encashed the check given as part of the purchase price.
The Court of Appeals affirmed with modifications the lower court’s decision. It held that there was a
consummated sale of the subject property despite.
ISSUE:
Whether or not the check is a valid tender of payment.

Whether or not there was a valid sale of the subject property
RULING:
Yes. While it is true that the delivery of check produces payment only when encashed (pursuant to
Art. 1249, Civil Code), the rule is otherwise if the debtor is prejudiced by the delay in presentment. In
this case, the petitioner alleges that he did not present the check, ten years after the same was paid
to him as part of the purchase price of the property.
Check acceptance implied an undertaking of due diligence in presenting it for payment. If the person
who receives it sustains loss by want of this diligence, this will operate as the actual payment of the
debt or obligation for which the check was given. The debtor cannot now be held liable if non-
presentment of the check was through the fault of the creditor.
* Case digest by Cherry Mae Aguilla-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
PAL v. Court of Appeals

G.R. No. L-49188, 30 January 1990
FACTS:
Amelia Tan was found to have been wronged by Philippine Air Lines (PAL). She filed her complaint
in 1967. After ten (10) years of protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case. Almost twenty-two (22) years later, Ms. Tan has not seen a centavo
of what the courts have solemnly declared as rightfully hers. Through absolutely no fault of her own,
Ms. Tan has been deprived of what, technically, she should have been paid from the start, before
1967, without the need of her going to court to enforce her rights. And all because of PAL did not
issue the checks intended for her, in her name. Petitioner PAL filed a petition for review on certiorari
the decision of Court of Appeals dismissing the petition for certiorari against the order of the Court of
First Instance (CFI) which issued an alias writ of execution against them. Petitioner alleged that the
payment in check had already been effected to the absconding sheriff, satisfying the judgment.
ISSUE:
Whether or Not payment made to the absconding sheriff by check in his name extinguishes the
judgment debt.
RULING:
No. Payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment. The payment made by the petitioner to the absconding
sheriff was not in cash or legal tender but in checks. The checks were not payable to Amelia Tan or
Able Printing Press but to the absconding sheriff. In the absence of an agreement, either express or
implied, payment means the discharge of a debt or obligation in money and unless the parties so
agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as a
medium of payment of his debt. Strictly speaking, the acceptance by the sheriff of the petitioner’s
checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. The check
as a negotiable instrument is only a substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. A check, whether a manager’s check or ordinary
check, is not legal 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 obligee or creditor. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by the commercial document is actually realized (Art. 1249, Civil Code,
par. 3).
* Case digest by Neah Hope L. Bato, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Reparations Commission v. Universal Deep Sea

Fishing
A.M. No. 21901-96, 27 June 1978
FACTS:
Universal Deep Sea Fishing acquired 6 trawl boats by the Reparations Commission to be delivered
two at a time and a Contract Purchase and Sale of Reparations Goods between the parties. The
Manila Surety & Fidelity Co. Inc. was the surety of UNIVERSAL to indemnify the Reparations in case
of damage or loss. Now after the Reparations have given all the boats they were now filing a suit
against UNIVERSAL and the Manila Surety to pay the amount of the boats. The surety company
now contends that the action is premature, but set up a cross-claim against UNIVERSAL for
reimbursement of whatever amount of money it may have to pay judgment, plaintiff by reason of
judgment, complaint, including interest, and for judgment, collection of accumulated and unpaid
premiums on judgment, bonds with interest thereon.
ISSUE:
Whether or not the paying of the down payment by UNIVERSAL to Reparations Commission
guaranteed indebtedness.
RULING:
Surety company, under Article 1254 of judgment, Civil Code, where there is no imputation of
payment made by either judgment, debtor or creditor, The debt which is the most onerous to the
debtor shall be deemed to have been satisfied, so that the amount of P10,000.00 paid by
UNIVERSAL as down payment on the purchase of the, M/S UNIFISH 1 and M/S UNIFISH 2 should
be applied to the guaranteed portion of the debt, this releasing part of the liability hence the
obligation of the surety company shall be only P43,643.00, instead of P53,643.00.
The rules contained in Articles 1252 to 1254 of judgment, Civil Code apply to a person owing several
debts of judgment, same kind to a single creditor. They cannot be made applicable to a person
whose obligation as a mere surety is both contingent and singular, which in this case is the full and
faithful compliance with the terms of the contract of conditional purchase and sale of reparations
goods. The obligation included the payment, not only of the first installment but also of the ten (10)
equal yearly installments. The amount of P10,000.00 was, indeed, deducted from judgment, amount
of P53,643.00, but then judgment, first of judgment, ten (10) equal yearly installments had also
accrued, hence, no error was committed to holding judgment, surety company to judgment, the full
extent of its undertaking.
Paculdo v. Regalado
G.R. No. 123855, 20 November 2000
FACTS:
Petitioner Nereo Paculdo and respondent Bonifacio Regalado entered into a contract of lease over a
parcel of land. Aside from the lease, petitioner leased eleven (11) other property from the
respondent, ten (10) of which was located within the Fairview compound, while the eleventh was
located along Quirino Highway Quezon City. Petitioner also purchased from respondent eight (8)
units of heavy equipment and vehicles.
On account of petitioner’s failure to pay rent for the month of May and the monthly rental for the
months of June and July the respondent sent two demand letters to petitioner demanding payment
of the back rentals, and if no payment was made within fifteen (15) days from the receipt of the
letter, it would cause the cancellation of the lease contract. Without the knowledge of petitioner,
respondent mortgaged the land subject of the lease contract, including the improvements which
petitioner introduced into the land amounting to Monte de Piedad Savings Bank, as a security for a
loan. Respondent refused to accept petitioner’s daily rental payments.
ISSUE:
Whether or not the petitioner was truly in arrears in the payment of rentals on the subject property at
the time of the filing of the complaint about ejectment.
RULING:
NO, the petitioner was not in arrears in the payment of rentals on the subject property at the time of
the filing of the complaint about ejectment.
As provided in Article 1252 of the Civil Code, the right to specify which among his various obligations
to the same creditor is to be satisfied first rest with the debtor.
In the case at bar, at the time petitioner made the payment, he made it clear to the respondent that
they were to be applied to his rental obligations on the Fairview wet market property. Though he
entered into various contracts and obligations with respondent, all the payments made, were to be
applied to rental and security deposit on the Fairview wet market property. However, respondent
applied a big portion of the amount paid by petitioner to the satisfaction of an obligation which was
not yet due and demandable which is the payment of heavy equipment.
Under the law, if the debtor did not declare at the time he made the payment to which of his debts
with the creditor the payment is to be applied, the law provided the guideline; i.e. no payment is to be
applied to a debt which is not yet due and the payment has to be applied first to the debt which is
most onerous to the debtor.
Development Bank of the Philippines v. Court of

Appeal
G.R. No. 118342, 5 January 1998
FACTS:
Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of
P500,000.00 with the Development Bank of the Philippine on May 1987. The loan was approved by
the bank in August 1987 but in the reduced amount of P300,000. As the principal mortgagor, Dans,
then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with
the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
On September 3, 1987, Dans died of cardiac arrest. DBP MRI notified DBP was not eligible for the
coverage of the insurance for he was beyond the maximum age of 60. The wife, Candida, filed a
complaint to the RTC against DBP and DBP MRI pool for the ‘Collection of Sum of money with
Damages’. Prior to that, DBP offered Mrs. Dans a refund of the MRI payment but she refused for
insisting that the family must receive the amount equivalent of the loan. DBP also offered and ex
gratia for a settlement worth P30,000 but Mrs. Dans refused to take it.
ISSUE:
Whether or not the DBP MRI Pool should be held liable on the ground that the contract was already
perfected.
RULING:
No. DBP MRI Pool is not liable. Though the power to approve the insurance is lodged to the pool, it
did not approve the application of Mr. Dans. Thus, there was no perfected contract between the
insurance pool and Mr. Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent. As an insurance agent, DBP made believed that the family already fulfilled the
requirements of the said insurance although DBP had a full knowledge that the application would
never be approved. DBP acted beyond the scope of its authority for accepting applications for the
MRI. If the third person who contracted is unaware of the authority conferred by the principal on the
agent and he has been deceived, the latter is liable for damages.
The DBP’s liability, however, cannot be for the entire value of the insurance policy. To assume that
were it not for DBP’s concealment of the limits of its authority, Dans would have secured an MRI
from another insurance company, and therefore would have been fully insured by the time he died,
is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from
the date of release of his loan.
Wherefore, petitioner DBP is ORDERED: (1) to REIMBURSE respondent Estate of Juan B. Dans the
amount of P1,476.00 with legal interest from the date of the filing of the complaint until fully paid; and
(2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and the
amount of Ten Thousand Pesos (P10,000.00) as attorney’s fees. With costs against petitioner.
* Case digest by Lady Rubygw Denura, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Filinvest Credit Corporation v. Philippine Acetylene

G.R. No. L-50449, 10 January 1982
FACTS:
Philippine Acetylene Co., Inc. purchased from Alexander Lima motor vehicle described as Chevorlet
1969 model for P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80
payable, under the terms and conditions of the promissory note at a monthly installment of
P1,036.70 for thirty-four (34) months, due and payable on the first day of each month starting
December 1971 through and inclusive September 1, 1974. As security for the payment of the said
promissory note, the appellant executed a chattel mortgage over the same motor vehicle in favor of
said Alexander Lim. Subsequently, Alexander Lim assigned to the Filinvest Finance Corporation all
his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of
Assignment.
Appellant failed to comply with the terms and conditions set forth in the promissory note and chattel
mortgage since it had defaulted in the payment of nine successive installments. Appellee then sent a
demand letter whereby its counsel demanded that appellant remit the amount in full in addition to
stipulated interest and charges or return the mortgaged property to his client’s office within five (5)
days from the date of this letter during office hours. Appellant wrote back advising appellee of its
decision to “return the mortgaged property and accordingly, the mortgaged vehicle was returned to
the appellee together with the document “Voluntary Surrender with Special Power of Attorney To
Sell”.
Appellee wrote a letter to appellant informing the latter that appellee cannot sell the motor vehicle as
there were unpaid taxes on the said vehicle requested the appellant to update its account by paying
the installments in arrears and accruing interest. Appellee offered to deliver back the motor vehicle
to the appellant but the latter refused to accept it, so appellee instituted an action for collection of a
sum of money with damages in the Court of First Instance of Manila.
ISSUE:
Whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary
surrender by the appellant totally extinguished and/or canceled its obligation to the appellee.
RULING:
Appellant’s contention devoid of persuasive force. 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 payment or dacion en pago in the absence, express or implied of the true intention of the
parties.
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of
an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is to be charged
against the debtor’s debt. 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 in dacion en pago is an objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. In any case, common consent is an
essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or
obligation.
The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at
least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be
construed as actual payment, more specifically dation in payment or dacion en pago. The fact that
the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership
thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In
the absence of clear consent of appellee to the proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible 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.
A more solid basis of the true intention of the parties is furnished by the document executed by
appellant captioned “Voluntary Surrender with Special Power of Attorney To Sell”. An examination of
the language of the document reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and
sell the vehicle in behalf of 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
any, between the selling price and the mortgage obligation. With the stipulated conditions as stated,
the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was
delivered to the appellee, not as its property, for if it were, he would have full power of disposition of
the property, not only to sell it as is the limited authority given him in the special power of attorney.
Had appellee intended to completely release appellant of its mortgage obligation, there would be no
necessity of executing the document captioned “Voluntary Surrender with Special Power of Attorney
To Sell.” Nowhere in the said document can. We find that the mere surrender of the mortgaged
motor vehicle to the appellee extinguished appellant’s obligation for the unpaid price.
* Case digest by Paula Bianca B. Eguia, LLB-1, Andres Bonifacio Law School, SY 2017-2018
De Guzman v. Court of Appeals

G.R. No. L-52733, 23 July 1985
FACTS:
On November 29, 1977, the trial court rendered a decision approving a compromise between Pilar
de Guzman, Rolando Gestuvo, and Minerva Gestuvo, as sellers, and Leonida P. Singh, the buyer.
Singh agreed to pay de Guzman and the Gestuvos, now petitioners, P250,000 for two lots located at
Cementina Street, Pasay City at ten o’clock in the morning of January 27, 1978, in the courtroom of
Judge Bautista of Pasay City. In case no payment was made, then the petitioners would be
immediately entitled to a writ of execution for the possession of the said lots.
Ben Restrivera, in behalf of Singh, on January 24, 1978, deposited P220,000 with the clerk of court.
Restrivera on January 27, 1978, tried to deliver to Antonio G. Barredo, petitioners’ counsel, P5,000
cash and P25,000 in postdated checks, or P30,000 to complete the price of P250,000. Barredo
refused to accept that payment. On January 30, 1978 (3 days after the deadline) Singh deposited
with the clerk of court cash of P30,000.
On that same day, January 30, the petitioners filed a motion for execution. It was opposed by Singh.
Judge Bautista in his order of March 27, 1978, denied the motion and ordered the petitioners to
execute the corresponding deed of sale. He ordered the clerk of court to release the P250,000 to
them.
ISSUE:
Whether or not private respondent substantially complied with the terms of the compromise
agreement.
RULING:
The private respondent had substantially complied with the terms and conditions of the compromise
agreement. Her failure to deliver to the petitioners the full amount on January 27, 1978, was not her
fault. The blame lies with the petitioners. The deposit of the balance of the purchase price was made
in good faith and that the failure of the private respondent to deposit the purchase price on the date
specified was due to the petitioners who also make no claim that they had sustained damages
because of the two days delay, there was substantial compliance with the terms and conditions of
the compromise agreement. </span>
* Case digest by Aisha Mie Faith M. Fernandez, LLB-1, Andres Bonifacio Law School, SY 2017-2018
TLG International Continental Enterprising, Inc. v.

Flores
G.R. No. L-35381, 31 October 1972
FACTS:
In a case for an action for declaratory relief involving the rights of Bearcon Trading Co, Inc. as
lesseeof the premises of Juan Fabella, Judge Flores granted TLG’s Motion to Intervene.TLG
intervened as sub-lessee of Bearcon over the property to protect its rights as sub-lessee and to
enable it, during pendency of the case, to make a consignation of the monthly rentals as it was at a
loss as to who is lawfully and rightfully entitled to receive payments of the monthly rentals. TLG
deposited with the Clerk of Court of the CFI P3, 750.00.
Upon Juan Fabella’s prayer, Judge Flores issued an Omnibus Order dismissing the complaint and
the complaint in intervention on ground that the subject matter could be better ventilated in the
ejectment case against Bearcon. Petitioner filed its Motion to withdraw the P3, 750.00 it deposited
because the Order dismissed the case and complaint in intervention without a resolution having
been made as to the right of Fabella/Bearcon to the rentals deposited by TLG. This left TLG without
any recourse but to apply for authority to withdraw the amount and turn it over to Fabella.
Judge Flores denied it and the motion for reconsideration as well.
ISSUE:
Whether or not respondent judge could authorize the withdrawal of the deposits considering that
according to respondent, the Court has not ordered the intervenor to make any deposit in connection
with the case.
RULING:
Yes, the case was dismissed before the amount deposited was either accepted by the creditor or
a declaration made by the Court approving such consignation. The dismissal rendered the
consignation ineffectual. Under such circumstances, it was incumbent upon the respondent to have
allowed the withdrawal by TLG of the money deposited with the CFI.
Art. 1260 – Before the creditor has accepted the consignation, or before a judicial declaration that
the consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.
The two Orders are hereby set aside and the respondent is directed to grant the withdrawal of the
deposit in accordance with the foregoing.
* Case digest by Kristine Camille B. Gahuman, LLB-1, Andres Bonifacio Law School, SY 2017-2018
McLaughlin v. Court of Appeals

G.R. No. L-57552, 10 October 1986
FACTS:
Petitioner and private respondent, Flores, entered into a contract of conditional sale of real property.
When the private responded failed to pay the balance on the date stipulated, he filed a petition to
rescind the contract. They entered into a Compromise Agreement. Thereafter, the petitioner made a
demand. In response, the Flores sent a letter to the former signifying his willingness and intention to
pay the balance. Flores alleged that he tendered payment to petitioner but the petitioner refused to
accept it. Petitioner filed a motion for writ of execution, to rescind and liquidate damages, alleging
that Flores had failed to pay the installment due, as stipulated in their compromise agreement.
Flores filed a motion for reconsideration and tendered a certified manager’s check covering the
entire obligation, within seventeen days after it was due. The trial court dismissed the motion for
reconsideration. The CA nullified and set aside the decision of the trial court. It contended that
rescission will not be permitted in cases of a slight or casual breach. The delay in payment of Flores
is merely a slight breach.
ISSUE:
WON the tender of payment restored the defendant’s right as vendee.
RULING:
Yes. The tender made by private respondent of a certified bank manager’s check payable to
petitioner was a valid tender of payment. The certified check covered not only the balance of the
purchase price in the amount of P69,059.71, but also the arrears in the rental payments from June to
December 1980 in the amount of P7,000.00, or a total of P76,059.71. But he is not released from the
responsibility to pay the vendor. The vendee must first consign the amount to the court. According to
Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due, and that consignation alone shall produce the same effect in
the five cases enumerated therein; Article 1257 provides that in order that the consignation of the
thing (or sum) due may release the obligor, it must first be announced to the persons interested in
the fulfillment of the obligation; and Article 1258 provides that consignation shall be made by
depositing the thing (or sum) due at the disposal of the judicial authority and that the interested
parties shall also be notified thereof.
Soco v. Militante
G.R. No. L-58961, 28 June 1983
FACTS:
Soco and Francisco entered into a contract of lease whereby Soco leased her commercial building
and lot to Francisco for a monthly rental of P 800.00 for a period of 10 years renewable for another
10 years at the option of the lessee.
Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at
times there were payments made but no receipts were issued. This situation prompted Francisco to
write Soco a letter which the latter received. After writing this letter, Francisco sent his payment for
rentals by checks issued by the Commercial Bank and Trust Company.
Soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA at a monthly
rental of more than P3,000.00 which is definitely very much higher than what Francisco was paying
to Soco under the Contract of Lease, the latter felt that she was on the losing end of the lease
agreement so she tried to look for ways and means to terminate the contract.
In view of the alleged non-payment of rental of the leased premises, Soco, through her lawyer, sent
to Francisco serving notice to the latter ‘to vacate the premises leased.’ In answer to this letter,
Francisco, through his lawyer, informed Soco and her lawyer that all payments of rental due her
were in fact paid by Commercial Bank and Trust Company through the Clerk of Court. Despite this
explanation, Soco filed a case of Illegal Detainer.
ISSUE:
Whether or not there was a valid consignation of payment of the rentals.
RULING:
No valid consignation. 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 was a debt due;

(2) that the consignation of the obligation had been made because the creditor to whom tender of
payment was made refused to accept it, or because he was absent or incapacitated, or because
several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code);
(3) that previous notice of the consignation had been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code);
(4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and
(5) that after the consignation had been made the person interested was notified thereof (Art. 1178,
Civil Code).
Failure in any of these requirements is enough ground to render a consignation ineffective.
The Court held that the respondent lessee has utterly failed to prove the following requisites of a
valid consignation.
First, failed to prove tender of payment of the monthly rentals to the lessor.
Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation.
Evidently, from this arrangement, it was the lessee’s duty to send someone to get 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 defense.
Third, respondent lessee likewise failed to prove the second notice, that is, after consignation has
been made, to the lessor.
And, lastly, respondent lessee failed to prove the actual deposit or consignation of the monthly
rentals.
* Case digest by Immanuel Y. Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Sotto v. Mijares
G.R. No. L-23563, 8 May 1969
FACTS:
Sotto filed a Motion for Deposit in the Court of First Instance of Negros Occidental dated March 20,
1963, in its Civil Case No. 6796 which requires them to deposit with the Clerk of Court the amount of
P5,106.00 within ten (10) days from receipt of said order.
“Defendants, in their “Opposition” dated November 23, 1962, signified their willingness to deposit the
requested amount provided that the complaint is dismissed and that they be absolved of all other
liabilities, expenses, and costs.
CFI issued the following order “hereby ordered to deposit said amount to the Clerk of Court pending
the final termination of this case. Plaintiff — this time represented by new counsel — filed a motion
for partial judgment on the pleadings with respect to the amount of P5,106.00, modifying their
previous request for the judicial deposit, which had already been granted.
Defendants moved to reconsider the order of November 26, explaining that through oversight they
failed to allege in their “Opposition” that the sum of P5,106.00 was actually secured by a real estate
mortgage. They would thus premise their willingness to deposit said amount upon the condition “…
that the plaintiff will cancel the mortgage above mentioned and that the plaintiff be ordered to return
to the defendants Transfer Certificate of Title No. 29326 covering Lot No. 327 of Pontevedra and
Transfer Certificate of Title No. 29327 covering Lot No. 882 of Hinigaran Cadastre, Negros
Occidental.”
The CFI denied both motions. Thus this appeal.
ISSUE:
Did the court act with authority and in the judicious exercise of its discretion in ordering the
defendants to make the deposit but without the condition they had stated?
RULING:
Whether or not to deposit at all the amount of an admitted indebtedness, or to do so under certain
conditions, is a right which belongs to the debtor exclusively. If he refuses he may not be compelled
to do so, and the creditor must fall back on the proper coercive processes provided by law to secure
or satisfy his credit, as by attachment, judgment, and execution. From the viewpoint of the debtor, a
deposit such as the one involved here is in the nature of consignation, and consignation is a
facultative remedy which he may or may not avail himself of. If made by the debtor, the creditor
merely accepts it, if he wishes; or the court declares that it has been properly made, in either of
which events the obligation is ordered canceled. Indeed, the law says that “before the creditor has
accepted the consignation or before a judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in
force.” 2 If the debtor has such right of withdrawal, he surely has the right to refuse to make the
deposit in the first place. For the court to compel him to do so was a grave abuse of discretion
amounting to excess of jurisdiction.
* Case digest by Leizel O. Lagare, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Meat Packing Corp vs. Sandiganbayan

G.R. No. 103068, June 22, 2001
FACTS:
Meat Packing Corporation of the Philippines (MPCP) is a corporation wholly owned by GSIS. It is
the owner of 3 parcels of land in Pasig as well as the meat processing and packing plant thereon.
MPCP and Philippine Integrated Meat Corporation (PIMECO) entered into an Agreement: MPCP
leased to PIMECO, under a lease-purchase arrangement, its aforesaid property at an annual rental
rate of P1,375,563.92. It is payable over 28 years commencing on the date of execution of the
Agreement, or for a total consideration of P38,515,789.87. The Agreement’s rescission clause: If the
lessee-vendee (PIMECO) should fail or default in the payment of rentals equivalent to the cumulative
sum total of 3 annual installments, the Agreement shall be deemed automatically canceled and
forfeited without the need of judicial intervention. MPCP and PIMECO entered into a Supplementary
and Loan Agreement. In consideration of the additional expenditures incurred by MPCP for plant
rehabilitation, the total contract price of the lease-purchase agreement was increased to
P93,695,552.59, payable over a period of 28 years, at the annual rental rate of P3,346,269.70.
PCGG sequestered all the assets, properties, and records of PIMECO, including the meat packing
plant and the lease-purchase agreement. MPCP wrote a letter to PIMECO, giving notice of the
rescission of the lease-purchase agreement on the ground, among others, of non-payment of rentals
of more than P2M. GSIS asked the PCGG to exclude the meat packing plant from the sequestered
assets of PIMECO because it is owned by MPCP. However, PCGG denied the request. Likewise,
MPCP sought the turnover to it of the meat packaging plant on the ground that the lease-purchase
agreement had already been rescinded. PCGG ordered the transfer of the plant to GSIS, under the
condition that the PCGG management team might continue its operations to complete outstanding
orders.
Sandiganbayan found that PCGG committed grave abuse of authority, power, and discretion in
unilaterally terminating the lease-purchase agreement of PIMECO and MPCP, and in turning over its
management, control, and operation to the latter.
ISSUE:
Whether or not the lease-purchase agreement has been rescinded.
RULING:
No. Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a prior tender of
payment. Tender is the antecedent of consignation. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. Tender and consignation, where
validly made, produces the effect of payment and extinguishes the obligation.
Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due.
There was prior tender by PCGG for payment of the rentals in arrears. MPCP’s refusal to accept the
same on the ground merely that its lease-purchase agreement with PIMECO had been rescinded
was unjustified. PIMECO paid, and GSIS/MPCP received several amounts due under the lease-
purchase agreement. Certainly, the acceptance by MPCP and GSIS of such payments negates any
rescission of the lease-purchase agreement. Under the terms of the lease-purchase agreement, the
amount of arrears in rentals or amortizations must be equivalent to the cumulative sum of three
annual installments, in order to warrant the rescission of the contract.
Therefore, it must be shown that PIMECO failed to pay the aggregate amount of at least
P10,038,809.10 before the lease-purchase agreement can be deemed automatically canceled.
Assuming in the extreme that, as alleged by MPCP, the arrears at the time of tender amounted to
P12,578,171.00, the tender and consignation of the sum of P5,000,000.00, which had the effect of
payment, reduced the back rentals to only P7,578,171.00, an amount less than the equivalent of
three annual installments. Thus, with the Sandiganbayan’s approval of the consignation and
directive for MPCP to accept the tendered payment, the lease-purchase agreement could not be
said to have been rescinded.
* Case digest by Vera L.Nataa, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Pabugais v. Sahijwani
G.R. No. 156846, 23 February 2004
FACTS:
Pursuant to an Agreement and Undertaking, petitioner Teddy G. Pabugais agreed to sell to

respondent Dave P. Sahijwani a lot. Respondent paid petitioner an option/reservation fee and the
balance to be paid within 60 days from the execution of the contract. The parties further agreed that
failure on the part of respondent to pay the balance of the purchase price entitles petitioner to forfeit
the option/reservation fee; while non-delivery by the latter of the necessary documents obliges him
to return to respondent the said option/reservation fee with interest at 18% per annum.
Petitioner failed to deliver the required documents. In compliance with their agreement, he returned
to respondent the latter’s option/reservation fee by way of manager’s check which was, however,
dishonored.
Petitioner claimed that he twice tendered to respondent, through his counsel, in the form of Far East
Bank & Trust Company Managers Check but said counsel refused to accept the same. He wrote a
letter to respondent saying that he is consigning the amount tendered, thus petitioner filed a
complaint for consignation.
ISSUE:
1. WHETHER OR NOT there was a valid consignation.

2. WHETHER OR NOT petitioner can withdraw the amount consigned as a matter of right.
RULING:
1. Yes. As testified by the counsel for respondent, the reasons why his client did not accept
petitioners tender of payment were (1) the check mentioned in the August 5, 1994 letter of
petitioner manifesting that he is settling the obligation was not attached to the said letter; and
(2) the amount tendered was insufficient to cover the obligation. It is obvious that the reason
for respondents non-acceptance of the tender of payment was the alleged insufficiency
thereof and not because the said check was not tendered to respondent, or because it was
in the form of managers check. While it is true that in general, a manager’s check is not legal
tender, the creditor has the option of refusing or accepting it. Payment in check by the debtor
may be acceptable as valid, if no prompt objection to said payment is made.
2. No. The amount consigned with the trial court can no longer be withdrawn by petitioner
because respondent’s prayer in his answer that the amount consigned be awarded to him is
equivalent to an acceptance of the consignation, which has the effect of extinguishing
petitioner’s obligation. Petitioner failed to manifest his intention to comply with the Agreement
and Undertaking by delivering the necessary documents and the lot subject of the sale to
respondent in exchange for the amount deposited. Withdrawal of the money consigned
would enrich petitioner and unjustly prejudice respondent.
* Case digest by Prince Dave C. Santiago, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Occeña v. CA
G.R. No. L-44349, 29 October 1976
FACTS:
Respondent Tropical Homes entered into a subdivision contract to develop petitioner’s land. They
agreed that respondent would receive 40% from the sale of the subdivision lots. Thereafter,
development costs rose to unanticipated levels which prompted respondent to file an action for the
modification of the contract, particularly on the sharing of sale proceeds. Petitioners moved to
dismiss complaint for lack of cause of action. The lower court denied said motion. CA upheld lower
court citing Article 1267 on impossible obligations. Petitioner insists that the increase in said costs do
not justify a modification of the contract. Hence petition.
ISSUE:
WON respondent may demand modification of the contract on the ground that the prestation has
manifestly come beyond the contemplation of the parties.
RULING:
No. private respondent cannot demand modification of the contract.
SC ruled that Article 1267 of the Civil Code which states that: “When the service has become so
difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part” is only applicable if the remedy sought is the release from the
compliance of the obligation not a modification of the same.
The cited article does not grant the courts authority to remake, modify or revise the contract or to fix
the division of shares between the parties as contractually stipulated with the force of law between
the parties, so as to substitute its own terms for those covenanted by the parties themselves.
Respondent’s complaint for modification of contract manifestly has no basis in law and therefore
states no cause of action. Petition granted.
* Case digest by Ariel M. Acopiado, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Naga Telephone Co. v. CA

G.R. No. 107112, 24 February 1994
FACTS:
NATELCO entered into contract with CASURECO II for the use in operation of its telephone service,
electric light posts of CASURECO II and in return, there will be free use of 10 telephone connections
as long as NATELCO needs electric light posts. The period would last for as long as NATELCO
needs electric light posts. In other words, the contract will terminate when they are forced to stop,
abandon operation and remove light posts. After 10 years, CASURECO filed for reformation of
contract with damages, for petitioner’s failure to conform to the guidelines of National Electrification
Administration of reasonable compensation for use of posts. Compensation is worth P10, but the
consumption of telephone cables costs P2,630. NATELCO, who used 319, without the contract of
P10 each, refused to pay. Moreover, respondent alleged poor servicing. All in all, an amount of not
less than P100,000 is claimed as damages.
ISSUE:
Can there be reformation of contract?
RULING:
No. However, the allegations in private respondent’s complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. The Court, therefore, released the parties
from their correlative obligations under the contract. However, the Court has to take into account the
possible consequences of such condition—disruption of electric services to the public and prejudice
to business of petitoners.
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part.
* Case digest by Cherry Mae Aguilla-Grana, LLB-1, Andres Bonifacio Law School, SY 2017-2018
PNCC vs. CA
G.R. No. 116896, 5 May 1997
FACTS:
On November 18, 1985, private respondents and petitioner entered into a contract of lease of a
parcel of land owned by the former. The terms and conditions of said contract of lease are as
follows: a) the lease shall be for a period of five (5) years which begins upon the issuance of permit
by the Ministry of Human Settlement and renewable at the option of the lessee under the terms and
conditions, b) the monthly rent is P20, 000.00 which shall be increased yearly by 5% based on the
monthly rate, c) the rent shall be paid yearly in advance, and d) the property shall be used as
premises of a rock crushing plan.
On January 7, 2986, petitioner obtained permit from the Ministry which was to be valid for two (2)
years unless revoked by the Ministry. Later, respondent requested the payment of the first annual
rental. But petitioner alleged that the payment of rental should commence on the date of the
issuance of the industrial clearance not on the date of signing of the contract. It then expressed its
intention to terminate the contract and decided to cancel the project due to financial and technical
difficulties. However, petitioner refused to accede to respondent’s request and reiterated their
demand for the payment of the first annual rental. But the petitioner argued that it was only obligated
to pay P20,000.00 as rental for one month prompting private respondent to file an action against the
petitioner for specific performance with damages before the RTC of Pasig. The trial court rendered
decision in favor of private respondent. Petitioner then appealed the decision of the trial court to the
Court of Appeals but the later affirmed the decision of the trial court and denied the motion for
reconsideration.
ISSUE:
Whether or Not petitioner can avail the benefit of Article 1267 of the New Civil Code.
RULING:
No. The petitioner cannot take refuge of the said article. Article 1267 of the New Civil Code provides
that when the service has become so difficult as to manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part. This article, which
enunciates the doctrine of unforeseen events, is not, however an absolute application of the principle
of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable developments. It is therefore
only in absolutely exceptional chances of circumstances that equity demands assistance for the
debtor. The principle of rebus sic stantibus neither fits in with the facts of the case. Under this this
theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist.
In this case, petitioner averred that three (3) abrupt changes in the political climate of the country
after the EDSA Revolution and its poor financial condition rendered the performance of the lease
contract impractical and inimical to the corporate survival of the petitioner. However, as held in
Central Bank v. CA, mere pecuniary inability to fulfill an engagement does not discharge a
contractual obligation, nor does it constitute a defense of an action for specific performance.
YAM v. CA
G.R. No. 104726, 11 February 1999
FACTS:
The parties herein entered into a Loan Agreement with Assumption of Solidary Liability. Petitioner
subsequently obtained a second Industrial Guarantee and Loan Fund. The petitioner had paid the
first debt, it so happened that the private respondent was placed under receivership. The petitioner
made a partial payment to the second loan and the private respondent sent an answer letter to the
petitioner that their penalty charges will decreased provided that they can pay on or before July 30,
1986. Because of the failure of the petitioner to pay the specific amount totaled private respondent
filed a complaint against the petitioner. The petitioner now contending that they had fully paid their
obligation where before July 2, 1986, Yam and his wife the president of the respondent’s corporation
agreed to waive the penalties and services charge provided petitioners paid the principal and
interest.
ISSUE:
Whether petitioners are liable for the payment of the penalties and service charges on their loan
which, as of July 31, 1986
RULING:
In the case at bar, it is undisputed that the alleged agreement to condone P266,146.88 of the
second IGLF loan was not reduced in writing.
Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the forms of
donation. Art. 748, par. 3 provides that the donation and acceptance of a movable, the value of
which exceeds P5,000.00, must be made in writing, otherwise the same shall be void.
Moreover, it is to be noted that the alleged agreement to condone the amount in question was
supposedly entered into by the parties sometime in July 1986, that is, after respondent corporation
had been placed under receivership on November 4, 1985. As held in. Thus, Sobrepeas had no
authority to condone the debt.
Gan Tion v. CA
G.R. No. L-22490, 21 May 1969
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 August and September of that
year, at P180 a month, or P360 altogether. The plaintiff obtained a favourable judgment in the
municipal court (of Manila), but upon appeal the Court of First Instance, on July 2, 1962, reversed
the judgment and dismissed the complaint, and ordered the plaintiff to pay the defendant the sum of
P500 as attorney’s fees. That judgment became final.
Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month,
effective November 1st, and at the same time demanded the rents in arrears at the old rate in the
aggregate amount of P4,320.00, corresponding to a period from August 1961 to October 1963.Gan
Tion’s opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for
attorney’s fees in his favor. Gan Tion went on certiorari 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 accepted the petition but eventually decided for the respondent,
holding that although “respondent Ong is indebted to the petitioner for unpaid rentals in an amount of
more than P4,000.00,” the sum of P500 could not be the subject of legal compensation, it being a
“trust fund for the benefit of the lawyer, which would have to be turned over by the client to his
counsel.”
ISSUE:
Whether or not there has been legal compensation between petitioner Gan Tion and respondent
Ong Wan Sieng.
RULING:
The award is made in favor of the litigant, not of his counsel, and is justified by way of indemnity for
damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. It is
the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject of legal compensation. Quite
obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his
creditor is indebted to him for more than P4,000.
Silahis Marketing Corp vs. IAC

G.R. No. L-74027, 7 December 1989
FACTS:
On various dates in October, November and December, 1975, Gregorio de Leon doing business
under the name and style of Mark Industrial Sales sold and delivered to Silahis Marketing
Corporation, and its president Jose Taylo various items of merchandise covered by several invoices
in the aggregate amount of P22,213.75 payable within thirty (30) days from date of the covering
invoices. Allegedly due to Silahis’ failure to pay its account upon maturity despite repeated demands,
de Leon filed a complaint for the collection of the said accounts including accrued interest thereon in
the amount of P661.03 and attorney’s fees of P5,000.00 plus costs of litigation. The answer admitted
the allegations of the complaint insofar as the invoices were concerned but presented as affirmative
defenses; [a] a debit memo for P22,200.00 as unrealized profit for a supposed commission that
Silahis should have received from de Leon for the sale of sprockets in the amount of P111,000.00
made directly to Dole Philippines, Incorporated by the latter sometime in August 1975; and [b]
Silahis’ claim that it is entitled to return the stainless steel screen which was found defective by its
client, Borden International, Davao City, and to have the corresponding amount cancelled from its
account with de Leon.
ISSUE:
Whether or not the commissions be regarded as a valid compensation.
RULING:
It must be remembered that compensation takes place when two persons, in their own right, are
creditors and debtors to each other. Article 1279 of the Civil Code provides that: “In order that
compensation may be proper, it is necessary: [1] that each one of the obligors be bound principally,
and that he be at the same time a principal creditor of the other; [2] that both debts consist in a sum
of money, or if the things due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated; [3] that the two debts be due; [4] that they be liquidated and
demandable; [5] that over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.”
Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in the
amount of P22,213.75 as contained in its answer. But whether the private respondent is liable to pay
the petitioner a 20% margin or commission on the subject sale to Dole Philippines, Inc. is vigorously
disputed. This circumstance prevents legal compensation from taking place.
The Court agrees with respondent appellate court that there is no evidence on record from which it
can be inferred that there was an agreement between the petitioner and private respondent
prohibiting the latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be
asserted that the debit memo was a contract binding between the parties considering that the same,
as correctly found by the appellate court, was not signed by private respondent nor was there any
mention therein of any commitment by the latter to pay any commission to the former involving the
sale of sprockets to Dole Philippines, Inc. in the amount of P111,000.00. Indeed, such document can
be taken as self-serving with no probative value absent a showing or at the very least an inference,
that the party sought to be bound assented to its contents or showed conformity thereto.
Bank of Philippine Islands v. Reyes

G.R. No. 116792, 29 March 1996
FACTS:
On December 7, 1990, respondent Jesusa Reyes together with her daughter, went to BPI Zapote
Branch to open an ATM account.
Respondent informed one of petitioners employees, Mr. Capati, that they wanted to open an ATM
account for the amount of P200,000.00, P100,000.00 of which shall be withdrawn from her existing
savings account with BPI bank and the other P100,000.00 will be given by her in cash.
Capati allegedly made a mistake and prepared a withdrawal slip for P200,00.00 to be withdrawn
from her existing savings account with the said bank and the respondent believing in good faith that
Capati prepared the papers with the correct amount signed the same unaware of the mistakes in
figures.
Minutes later after the slips were presented to the teller, Capati returned to where the respondent
was seating and informed the latter that the withdrawable balance could not accommodate P200,
000.00.
Respondent explained that she is withdrawing P100, 000.00 only and then corrected the figure two
(2) into one (1) with her signature super-imposed thereto signifying the change, after which the
amount of P100, 000.00 in cash in two bundles containing 100 pieces of P500.00 peso bill was given
to Capati with her daughter Joan witnessing the same. Thereafter Capati prepared a deposit slip for
P200, 000.00 in the name of respondent Jesusa Reyes with the new account number and brought
the same to the teller’s booth
After a while, he returned and handed to the respondent her duplicate copy of her deposit reflecting
the amount of P200, 000.00 with receipt stamp showing December 7, as the date.
Later on, respondent becomes aware that her ATM account only contained the amount of P100,
000.00 with interest. Hence, she filed an action before the RTC.
Petitioner claimed that there was actually no cash involved with the transactions which happened on
December 7, 1990, as contained in the bank’s teller tape.
On August 12, 1994, the RTC issued a Decision upholding the versions of respondents.
Aggrieved, petitioner appealed to the CA which affirmed the RTC decision with modification.
ISSUE:
Whether the CA erred in sustaining the RTC’s finding that respondent Jesusa made an initial deposit
of P200, 000.00 in her newly opened Express Teller account on December 7, 1990.
RULING:
It is a basic rule in evidence that each party to a case must prove his own affirmative allegations by
the degree of evidence required by law. In civil cases, the party having the burden of proof must
establish his case by a preponderance of the evidence, or that evidence which is of greater weight or
is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it
means that the testimony of one side is more believable than that of the other side and that the
probability of truth is on one side than on the other.
For a better perspective on the calibration of the evidence on hand, it must first be stressed that the
judge who had heard and seen the witnesses testify was not the same judge who penned the
decision. Thus, not having heard the testimonies himself, the trial judge or the appellate court would
not be in a better position than this Court to assess the credibility of witnesses on the basis of their
demeanor.
Hence, to arrive at the truth, we thoroughly reviewed the transcripts of the witnesses’ testimonies
and examined the pieces of evidence on record. After a careful and close examination of the records
and evidence presented by the parties, we find that respondents failed to successfully prove by a
preponderance of the evidence that respondent Jesusa made an initial deposit of P200, 000.00 in
her Express Teller account.
PNB v. CA
G.R. No. 108052, 24 July 1996
FACTS:
PNB, herein petitioner, doubly credited the private respondent’s account erroneously. Petitioner then
demanded the private respondent to return the amount in excess, equal to P34,340.58. Thereafter,
remittances from abroad to the private respondent were coursed through petitioner PNB. Without his
knowledge and consent, the bank deducted P34,340.58 from the remittances, by virtue of
compensation. Private respondent averred contending that the bank does not have a legal
justification to make compensation on the remittances. The trial and the CA ruled in favor of the
private respondent and ordered the amount taken by the petitioner to be returned the private
respondent.
ISSUE:
WON a local correspondent bank can make compensation against remittances coursed through it.
RULING:
No. The Court affirms the decision of the lower courts. The trial court correctly ruled that the
petitioner and the private respondent are not debtors and creditors of each other. Article 1279 of
the Civil Code provides:
In order that compensation may prosper, it is necessary:
 That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
 That both debts consist in a sum of money, or if the things due are consumable, they are of
the same kind, and also of the same quality if the latter has been stated;
 That the two debts be due;
 That they are liquidated and demandable;
 That over neither of them there by any retention or controversy commenced by third persons
and communicated in due time to the debtor.
As to the relationship created by the telexed fund transfers from abroad: A contract between a
foreign bank and local bank asking the latter to pay an amount to a beneficiary is a stipulation pour
autrui. the parties are not both principally bound with respect to the $2,627.11 from Jeddah; neither
are they at the same time principal creditor of the other. Therefore, as matters stand, the parties’
obligations are not subject to compensation or set off under Art. 1279 of the Civil Code, for the
reason that the defendant is not a principal debtor nor, is the plaintiff a principal creditor insofar as
the amount of $2,627.11 is concerned. They are debtor and creditor only with respect to the double
payments; but are trustee-beneficiary as to the fund transfer of $2,627.11.
MIRASOL VS CA [351 SCRA 44; G.R. No. 128448; 1 Feb

2001]
Friday, January 30, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Political Law
Facts: The Mirasols are sugarland owners and planters. Philippine National Bank
(PNB) financed the Mirasols' sugar production venture FROM 1973-1975 under a crop loan
financing scheme. The Mirasols signed Credit Agreements, a Chattel Mortgage on
Standing Crops, and a Real Estate Mortgage in favor of PNB.
The Chattel Mortgage empowered PNB to negotiate and sell the latter's sugar and
to apply the proceeds to the payment of their obligations to it.
President Marcos issued PD 579 in November, 1974 authorizing Philippine Exchange Co.,
Inc. (PHILEX) to purchase sugar allocated for export and authorized PNB to finance
PHILEX's purchases. The decree directed that whatever profit PHILEX might realize was to
be remitted to the government. Believing that the proceeds were more than enough to pay
their obligations, petitioners asked PNB for an accounting of the proceeds which it ignored.
Petitioners continued to avail of other loans from PNB and to make unfunded withdrawals
from their accounts with said bank. PNB asked petitioners to settle their due and
demandable accounts. As a result, petitioners, conveyed to PNB real properties by way of
dacion en pago still leaving an unpaid amount. PNB proceeded to extrajudicially foreclose
the mortgaged properties. PNB still had a deficiency claim.
Petitioners continued to ask PNB to account for the proceeds, insisting that said proceeds, if
properly liquidated, could offset their outstanding obligations. PNB remained adamant in its
stance that under P.D. No. 579, there was nothing to account since under said law, all
earnings from the export sales of sugar pertained to the National Government.
On August 9, 1979, the Mirasols filed a suit for accounting, specific performance,
and damages against PNB.
Issues:
(1) Whether or not the Trial Court has jurisdiction to declare a statute unconstitutional
without notice to the Solicitor General where the parties have agreed to submit such issue
for the resolution of the Trial Court.
(2) Whether PD 579 and subsequent issuances thereof are unconstitutional.
(3) Whether or not said PD is subject to judicial review.
Held: It is settled that Regional Trial Courts have the authority and jurisdiction to

consider the constitutionality of a statute, presidential decree, or executive order. The
Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or
regulation not only in this Court, but in all Regional Trial Courts.
The purpose of the mandatory notice in Rule 64, Section 3 is to enable the Solicitor General
to decide whether or not his intervention in the action assailing the validity of a law or treaty
is necessary. To deny the Solicitor General such notice would be tantamount to depriving
him of his day in court. We must stress that, contrary to petitioners' stand, the mandatory
notice requirement is not limited to actions involving declaratory relief and similar remedies.
The rule itself provides that such notice is required in "any action" and not just actions
involving declaratory relief. Where there is no ambiguity in the words used in the rule, there
is no room for construction. 15 In all actions assailing the validity of a statute, treaty,
presidential decree, order, or proclamation, notice to the Solicitor General is mandatory.
Petitioners contend that P.D. No. 579 and its implementing issuances are void for violating
the due process clause and the prohibition against the taking of private property without just
compensation. Petitioners now ask this Court to exercise its power of judicial review.
Jurisprudence has laid down the following requisites for the exercise of this power: First,
there must be before the Court an actual case calling for the exercise of judicial review.
Second, the question before the Court must be ripe for adjudication. Third, the person
challenging the validity of the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity, and lastly, the issue of
constitutionality must be the very lis mota of the case.
Millar v. CA
G.R. No. L-29981, 30 April 1971
FACTS:
Millar obtained a favorable condemning Antonio P. Gabriel to pay him the sum of P1,746.98 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. The lower court issued the writ of execution on the basis of which the
sheriff seized the respondent’s Willy’s Ford jeep. The respondent, however, pleaded with the
petitioner to release the jeep under an arrangement whereby the respondent, to secure the payment
of the judgment debt, agreed to mortgage the vehicle in favor of the petitioner. The petitioner agreed
to the arrangement; thus, the parties executed a chattel mortgage on the jeep. Resolution of the
controversy posed by the petition at bar hinges entirely on a determination of whether or not the
subsequent agreement of the parties as embodied in the deed of chattel mortgage impliedly novated
the judgment obligation.
ISSUE:
Whether or not there is novation?
RULING:
No substantial incompatibility between the mortgage obligation and the judgment liability of the
respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment of
the obligation under the terms of the deed of chattel mortgage serves only to provide an express and
specific method for its extinguishment — payment in two equal installments. The chattel mortgage
simply gave the respondent a method and more time to enable him to fully satisfy the judgment
indebtedness. The chattel mortgage agreement in no manner introduced any substantial
modification or alteration of the judgment. Instead of extinguishing the obligation of the respondent
arising from the judgment, the deed of chattel mortgage expressly ratified and confirmed the
existence of the same, amplifying only the mode and period for compliance by the respondent.
The defense of implied novation requires clear and convincing proof of complete incompatibility
between the two obligations. The law requires no specific form for an effective novation by
implication. The test is whether the two 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 novation does not take place.
Dormitorio v Fernandez
Doctrine:
A final executory judgment of a trial court may be novated by subsequent agreement of

the parties.
Facts:
The Municipality of Victorias is the owner of several parcels of lands in Victorias, Negros
Occidental. In 1948, it sold lot No.1 Block 16 with an area of 230 sq. m. at 1 peso
per sq. meter to Serafin Lazalita. Payment for said lot was completed in 1958.
Lazalita had been in full and peaceful possession of the said land for eight continuos
years and he introduced permanent and invaluable improvements thereon such as fruite
trees, a house of strong materials, etc.
In 1955, Agustin and Leoncia Dormitorio also purchased a land from the Municipality of
Victorias. They bought Lot No. 2, Block 16 having an area of 343 sq. meters at 1 peso
per sq. meter. They, however, have not taken actual possession of the land.
In 1958- Dormitorios filed a suit for ejectment against Lazalita. The Municipal Mayor and
Council tried to settle the matter between the parties. A private surveyor was hired and
it was found out that the lot sold by the Municipality to Lazalita was converted to
the Municipal Road known as Jover Street and the lot presently occupied by him
is supposed to be Lot. No. 2 bought by the Dormitorios.
1961- CFI rendered judgment in favor of the Dormitorios, ordering Lazalita to vacate the
land and to pay a monthly rental to the former at a rate of 20 pesos a month.
Lazalita, with the Dormitorios, then filed a case against the Municipality of Victorias
because the value of the improvement he made on the land have far exceeded the
purchase price.
The Municipality of Victorias, is willing to amicably settle the case, by giving the
plaintiff another lot, if they could open their newly proposed subdivision, or pay
back Lazalita the amount necessary and just for him to acquire another lot for his
residence and for the expenses of transferring his present residential house
thereto.
1965- The parties agreed and submitted an "Agreed Stipulation of Facts" before the
court. Accordingly, judgment was rendered based on the same.
Thereafter, the Dormitorios filed a writ of execution for the enforcement of the earlier
judgment by the Court ordering Lazalita to pay 20 pesos monthly rental and to vacate
said property. The petition was granted. However, Judge Fernandez set aside said
writ of execution on the ground that it was obtained by means of fraud,
misrepresentation and concealment of the true facts of the case by making it
appear that the case was still enforceable (even if it had already been novated by a
subsequent agreement by the parties). It found out that the said order was granted
based on a decision of the Court on Sept. 5, 1961 (prior to the Agreed Stipulation
of Facts submitted by both parties on Feb. 12, 1965)
I: WON the judgment of the court had been novated and thus can no longer be
enforced?
H: Yes. The agreement filed by the parties created between them new rights and
obligation which naturally superseded the prior judgment. It is proper to show that there
is animus novandi between the parties for novation to properly take effect.
In the case at bar, the presence of animus novandi is undeniable.
Secondly, the decision resulting from a compromise had the effect of res judicata. The
parties therefore are bound by it. The judge therefore committed no error in setting
aside the order of execution as the same had only set maters right.
Magdalena Estate v. Rodriguez

G.R. No. L-18411, 17 December 1966
FACTS:
Spouses Rodriguez bought form the petitioner a parcel of land in Quezon City. There was an unpaid
balance of P5,000.00 on account of the price of the lot which was covered by the promissory note
issued by respondents. On the same date, Respondents and Luzon Surety Co., Inc. executed a
bond in favor of petitioner, the latter being the surety of the respondents. When the promissory note
becomes due and demandable, Luzon Surety Com., Inc. paid the amount to petitioner.
Subsequently, petitioner demanded payment from respondents herein on the alleged accumulated
interests on the principal amount. Respondents refuse to pay.
Respondents alleged that petitioner waived or condoned the interests due upon its unqualified
acceptance of the principal payment knowing its incompleteness and without exercising its rights to
apply a portion thereof to the interest as provided in the Articles 1235 and 1253 of the Civil Code.
They claimed that there was a novation and/or modification of the obligation of the appellants in
favor of the appellee because the appellee accepted without reservation the subsequent agreement
set forth in the surety bond despite its failure to provide that it also guaranteed payment of accruing
interest.
ISSUE:
Whether or not there was a waiver, novation and/or modification of the obligation?
RULING:
No.It is very clear in the promissory note that the principal obligation is the balance of the purchase
price of the parcel of land, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety
Co., Inc. undertook “to pay the amount of P5,000.00 representing balance of the purchase price of a
parcel of land. Petitioner did not protest nor object when it accepted the payment of P5,000.00
because it knew that that was the complete amount undertaken by the surety as appearing in the
contract. The liability of a surety is not extended, by implication, beyond the terms of his contract. It
is for the same reason that the petitioner cannot apply a part of the P5,000.00 as payment for the
accrued interest.
Appellants are relying on Article 1253 of the Civil Code which states that “If the debt produces
interest, payment of the principal shall not be deemed to have been made until the interests have
been recovered.” This law cannot be made applicable to a person whose obligation as a mere surety
is both contingent and singular; his liability is confined to such obligation, and he is entitled to have
all payments made applied exclusively to said application and to no other. It is merely directory, and
not mandatory. Inasmuch as the appellee cannot protest for non-payment of the interest when it
accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a part of that amount
as payment for the interest, we cannot now say that there was a waiver or condonation on the
interest due.
The rule is settled that novation by presumption has never been favored. To be sustained, it needs
to be established that the old and new contracts are incompatible in all points, or that the will to
novate appears by express agreement of the parties or in acts of similar import. The mere fact that
the creditor receives a guaranty or accepts payments from a third person who has agreed to assume
the obligation, when there is no agreement that the first debtor shall be released from responsibility
does not constitute a novation, and the creditor can still enforce the obligation against the original
debtor.
WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs against
the appellants.
* Case digest Frilin Lomosad, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Reyes v. Secretary of Justice

G.R. No. 120817,4 November 1996
FACTS:
Reyes is the president of EUROTRUST, a domestic corporation engaged in credit finance, entered
into a contract of loan with Eleazar the president of BERMIC, a domestic enterprise engaged in real
estate development. Based on their contract EUROTRUST extended financial support for the
construction of BERMIC’s Condominium and Business Park. The loan was without collateral but with
higher interest rate. BERMIC issued 21 post-dated checks to cover the payments of the loan;
however, the said checks were dishonored by the drawee bank, due to stop payment order by
Eleazar. Despite notice and repeated demands Eleazar still failed to pay.
Subsequently, Reyes was investigated in the Blue Ribbon Committee and found out that she was
involved in large scale scam belonging to IMC, an agency under the department of education,
culture and sports. AFP-MBAI invested to EUROTRUST for government securities, conducted its
own investigation and found out that after the securities were delivered to AFP-MBAI the said
securities were borrowed by EUROTRUST to AFP-MBAI but failed to return the same. And the
securities were in turn lent by Reyes to BERMIC.
EUROTRUST and BERMIC agreed that BERMIC will settle its obligation to the real owners of the
fund which are the AFP-MBAI and DECS-IMC, this was formalized by two letters. BERMIC the
negotiated with AFP-MBAI and DECS-IMC.
ISSUE:
Whether or not there was a novation by substitution of creditor.
RULING:
The Supreme Court ruled that there was no novation by substitution of creditor. In order that
novation can take place the following requisites must first be followed:
1. There must be a previous valid obligation,

2. There must be an agreement of the parties concerned to a new contract,
3. There must be the extinguishment of the old contract, and
4. There must be the validity of the new contract.
In the case according to it, formalized petitioners and respondent Eleazars agreement that BERMIC
would directly settle its obligation with the real owners of the funds – the AFP MBAI and DECS IMC.
Be that as it may, a cursory reading of these letters, however, clearly and unmistakably shows that
there was nothing therein that would evince that respondent AFP-MBAI agreed to substitute for the
petitioner as the new creditor of respondent Eleazar in the contract of loan. It is evident that the two
letters merely gave respondent Eleazar an authority to directly settle the obligation of petitioner to
AFP-MBAI and DECS-IMC. It is essentially an agreement between petitioner and respondent
Eleazar only. There was no mention whatsoever of AFP-MBAI’s consent to the new agreement
between petitioner and respondent Eleazar much less an indication of AFP-MBAI’s intention to be
the substitute creditor in the loan contract. Well settled is the rule that novation by substitution of
creditor requires an agreement among the three parties concerned – the original creditor, the debtor
and the new creditor. It is a new contractual relation based on the mutual agreement among all the
necessary parties. Hence, there is no novation if no new contract was executed by the parties.
Article 1301 of the Civil Code is explicit, thus:
Conventional subrogation of a third person requires the consent of the original parties and of the
third person.
The fact that respondent Eleazar made payments to AFP-MBAI and the latter accepted them does
not ipso facto result in novation. There must be an express intention to novate – animus
novandi. Novation is never presumed.Article 1300 of the Civil Code provides inter alia that
conventional subrogation must be clearly established in order that it may take effect.
The 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 Principal Obligation in addition to PAGRICO and R & B
Surety.
Cochingyan, Jr. v. R&B Surety and Insurance Co., Inc.
June 30, 1987

Feliciano, J.
Petition: for review on certiorari of a decision of the Court of Appeals involving questions of law
Parties:
Joseph Cochingyan, Jr. and Jose Villanueva – petitioners
R&B Surety and Insurance Company, Inc. - respondent
Facts: (Who are the actors? What is the contract? Cause of Action? Injury? Damage? Lower Court Ruling?)
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in its line of credit from
P400,000.00 to P800,000.00 (the “Principal Obligation”), with the Philippine National Bank (PNB).
PAGRICO submitted Surety Bond No. 4765, issued by respondent R&B Surety and Insurance Co., (R&B Surety) in the
amount of P400,000.00 in favor of the PNB. In consideration of R & B Surety's issuance of the Surety Bond, two
identical indemnity agreements were entered into with R & B Surety executed by the Catholic Church Mart (CCM) and
by petitioner Joseph Cochingyan, Jr, and (b) another agreement dated 24 December 1963 was executed by PAGRICO.
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety to pay an
annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth in said SURETY
BOND for a period beginning ... until the same is CANCELLED and/or 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, the full amount of the Principal Obligation. R & B Surety made a series of payments
to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for
reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety
Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K.
Villanueva and Liu Tua Ben.
The lower court rendered a decision in favor of R & B Surety, ordering the Cochingyan and Villanueva to pay the
plaintiff, jointly and severally, the total amount of their liability on Surety Bond No. 4765, at the interest rate of 6% per
annum.
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, extinguished the obligations of the petitioners under the Indemnity Agreements
Ruling:
NO.
It is at once evident that 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 for the continuing subsistence of that obligation
by stipulating that "[the Trust Agreement] shall not in any manner release" R & B Surety from its obligation under the
Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the new
obligation (and nothing else) would sustain a finding of novation by implication. But where, as in this case, the parties to
the new obligation expressly recognize the continuing existence and validity of the old one, where, in other words, the
parties expressly negated the lapsing of the old obligation, there can be no novation. The issue of implied novation is
not reached at all.
What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to assume the
same obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual in business for a
stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee is the classical example.
The precise legal effect is the increase of the number of persons liable to the obligee, and not the extinguishment of the
liability of the first debtor. Thus, in Magdalena Estates vs. Rodriguez, we held that:
“[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be
released from responsibility, does not constitute a novation, and the creditor can still enforce the
obligation against the original debtor.”
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously bound to R
& B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also became directly liable to the
PNB. So far as the PNB was concerned, the effect of the Trust Agreement was that where there had been only two,
there would now be three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and the
Trustor. And the PNB could proceed against any of the three, in any order or sequence. Clearly, PNB never intended to
release, and never did release, R & B Surety. Thus, R & B Surety, which was not a party to the Trust Agreement, could
not have intended to release any of its own indemnitors simply because one of those indemnitors, the Trustor under the
Trust Agreement, became also directly liable to the PNB.
Notes:
If objective novation is to take place, it is imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible with the old one. Novation is never
presumed: it must be established either by the discharge of the old debt by the express terms of the new agreement, or
by the acts of the parties whose intention to dissolve the old obligation as a consideration of the emergence of the new
one must be clearly discernible.
Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical
relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be
released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is
not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a
co-debtor or surety or a co-surety.
Broadway Centrum Condominium Corp vs. Tropical

Hut
G.R. No. 79642, 5 July 1993
FACTS:
Broadway agreed to lease a portion of the Broadway Centrum Commercial Complex to Tropical Hut
for a period of 10 years with rental rates as follows: 1 st 3 years (Feb 1 1981 to Feb 1 1984) :
Php120,000; 2nd 3 years (Feb 1 1984 to Feb 1 1987) : Php140,000; Last 4 years (Feb 1 1987 to Feb
1 1991) : Php165,000. There were no problems during the first year of lease, but on 1982 Tropical
Hut requested for a rental rate reduction due to financial difficulties. Tropical Hut is paying a rental
rate of 6.08% of sales “which is too high for Tropical Hut-Broadway considering that the present
rental rates of other Tropical branches are even below the normal rate of 1.5% on sales.”
Negotiations between Broadway Centrum and Tropical Hut representatives were made. Broadway
agreed to a “provisional and temporary agreement” wherein Tropical will pay a monthly rental on the
basis of 2% of gross receipts or P60,000.00, whichever is higher. After a few months, Broadway sent
Tropical a letter returning the old rental rates. Tropical requested that the reduced rental scheme be
maintained but Broadway did not agree and sought to enforce the original contract details. Tropical
Hut filed for a writ of prohibition against Broadway.
ISSUE:
Whether or not the agreement novated the Contract of Lease.
RULING:
No. If objective novation is to take place, it is essential that the new obligation expressly declare that
the old obligation to be extinguished, or that now obligation be on every point incompatible with the
old one. Novation is never presumed; it must be established either by the discharge of use old debt
by the express terms of the new agreement or by the acts of the parties whose intention to dissolve
the old obligation as a consideration of the emergence of the new one must be clearly manifested.
In the case at hand, the letter-agreement was, by its own terms, a ” provisional and temporary
agreement to a reduction of [Tropical’s] monthly rental —.” The non-specification by Broadway of the
period of time during which the reduced rentals would remain in effect, only meant that Broadway
retained for itself the discretionary right to return to the original contractual rates of rental whenever
Broadway felt it appropriate to do so. The formal notarized Lease Contract made it clear that a
temporary and provisional concessional reduction of rentals which Broadway might grant to Tropical
was not to be construed as alteration or waiver of any of the terms of the Lease Contract itself. The
course of negotiations between Broadway and Tropical clearly indicated that what they were
negotiating was a temporary and provisional reduction of rentals only and was not to persist for the
rest of the life of the ten (10)-year Contract of Lease.
California Bus Line v. State Investment

G.R. No. 147950, 11 December 2003
FACTS:
Delta Motors Corporation M.A.N. Division (Delta) applied for financial assistance from respondent
State Investment House, Inc. (hereafter SIHI) which the latter agreed to extend a credit line to Delta
in three separate credit agreements. On several occasions, Delta availed of the credit line by
discounting with SIHI some of its receivables, which evidence actual sales of Deltas vehicles. Delta
eventually became indebted to SIHI.
Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI),
purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel
Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses, CBLI
and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of
Delta payable in 60 monthly installments. When CBLI defaulted on all payments due, it entered into
a restructuring agreement with Delta to cover its overdue obligations under the promissory notes.
Delta executed a Continuing Deed of Assignment of Receivables [7] in favor of SIHI as security for the
payment of its obligations to SIHI per the credit agreements. In view of Deltas failure to pay, the loan
agreements were restructured under a Memorandum of Agreement.
CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten CBLI
with the enforcement of the management takeover clause. To pre-empt the take-over, CBLI filed a
complaint.
ISSUE:
WHETHER OR NOT the Restructuring Agreement between petitioner CBLI and Delta Motors,
Corp. novated the five promissory notes Delta Motors, Corp. assigned to respondent SIHI.
RULING:
No. The restructuring agreement between Delta and CBLI shows that the parties did not expressly
stipulate that the restructuring agreement novated the promissory notes. Absent an unequivocal
declaration of extinguishment of the pre-existing obligation, only a showing of complete
incompatibility between the old and the new obligation would sustain a finding of novation by
implication
There was no change in the object of the prior obligations. The restructuring agreement merely
provided for a new schedule of payments and additional security giving Delta authority to take over
the management and operations of CBLI in case CBLI fails to pay installments equivalent to 60
days. Where the parties to the new obligation expressly recognize the continuing existence and
validity of the old one, there can be no novation.
Moreover, this Court has ruled that an agreement subsequently executed between a seller and a
buyer that provided for a different schedule and manner of payment, to restructure the mode of
payments by the buyer so that it could settle its outstanding obligation in spite of its delinquency in
payment, is not tantamount to novation.
* Case digest Prince Dave C. Santiago, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Garcia v. Llamas
G.R. No. 154127, 8 December 2003
FACTS:
Petitioner Romeo Garcia and de Jesus borrowed P400,000.00 from respondent Dionisio Llamas.
They executed a promissory note wherein they bound themselves jointly and severally to pay the
loan with a 5% interest/month.
The loan has long been overdue and, despite repeated demands, petitioner and de Jesus have
failed and refused to pay it. Which leads respondent to file a complaint. Petitioner averred that he
assumed no liability under the promissory note because he signed it merely as an accommodation
party for de Jesus; and, that he is relieved from any liability arising from the note since the loan had
been paid by de Jesus thru a check; and that, the issuance of the check and respondents
acceptance thereof novated the note.
Respondent asserted that the loan remained unpaid for because the check issued by de Jesus
bounced. RTC rendered judgment in favor of respondent, ordering petitioner & de Jesus to pay
jointly & severally. CA ruled that no novation, express or implied, had taken place.
ISSUE:
Whether or Not there was a novation of the obligation.
RULING:
No. There was no novation of obligation that took place.
The parties did not declare that the old obligation had been extinguished by the issuance and the
acceptance of the check, or that the check would take the place of the note. There is no
incompatibility between the promissory note and the check. The check had been issued only to
answer for the obligation. On the one hand, the note evidences the loan obligation; and on the other,
the check answers for it. Hence, the two can stand together.
Neither could the payment of interests, Such payment was already provided for in the promissory
note and, like the check, was totally in accord with the terms and conditions thereof.
Petitioners argue that the obligation was novated by the substitution of debtors is without merit
because petitioner has not shown that he was expressly released from the obligation, that a third
person was substituted in his place, or that the joint and solidary obligation was canceled and
substituted by the solitary undertaking of De Jesus. The law requires that the creditor expressly
consents to the substitution of a new debtor.
Quinto v. People
G.R. No. 126712, 14 April 1999
FACTS:
Quinto was convicted of the crime estafa, the case started when Quinto asked Cariaga to allow her
to have the jewelries for some prospective buyer. They made an agreement that after 5 days if
Quinto have not sell the jewelries it will be return to the owner. After 5 days Quinto failed to deliver
back the jewelries and asked for extension that results for almost six months. After Cariaga send
demand letters to Quinto for the return of the jewelries in which Cariaga failed to do again the former
then filed a case of estafa against the latter.
In the Quinto’s defense she narrated that the solo ring was sold by certain Mrs. Camacho, the buyer
paid in check on half amount only and the remaining half was paid by installments directly to
Cariaga. Quinto also transacted with Mrs. Camacho the marques and the ring, Mrs. Camacho then
failed to pay the full amount. Quinto brought Cariaga to Mrs. Camacho and both of them agreed that
the payment will be in installments. Quinto was also able to sell the diamond ring to Mrs. Ramos,
unfortunately she was unable to pay the whole amount again Quinto brought Cariago to Mrs. Ramos
and they talked about the terms of payment. In the first payment Mrs. Ramos gave Quinto a ring, in
the next payment was P5,000. Quinto herself paid the P2,000.
ISSUE:
Whether or not there was a novation when the private complainant consented to receive payment on
installments directly to the buyer.
RULING:
The extinguishment of the old obligation by the new one is a necessary element of novation which
may be effected either expressly or impliedly. The term “expressly” means that the contracting
parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old
one. Upon the other hand, no specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two contracts. While there is really no
hard and fast rule to determine what might constitute to be a sufficient change that can bring about
novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between
the old and the new obligations.
The changes alluded to by petitioner consists only in the manner of payment. There was really no
substitution of debtors since private complainant merely acquiesced to the payment but did not give
her consent to enter into a new contract.
It is thus easy to see why Cariaga’s acceptance of Ramos and Camacho’s payment on installment
basis cannot be construed as a case of either expromision or delegacion sufficient to justify the
attendance of extinctive novation. Not too uncommon is when a stranger to a contract agrees to
assume an obligation; and while this may have the effect of adding to the number of persons liable, it
does not necessarily imply the extinguishment of the liability of the first debtor. Neither would the fact
alone that the creditor receives guaranty or accepts payments from a third person who has agreed to
assume the obligation, constitute an extinctive novation absent an agreement that the first debtor
shall be released from responsibility.
Astro Electronics Corp. v. Philippine Export and

Foreign Loan Guarantee Corporation
G.R. No. 136729, 23 September 2003
FACTS:
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting P3M w/
interest and secured by 3 promissory notes: December 14, 1981: P600,000.00, December 14, 1981:
P400,000.00, and August 27, 1981: P2,000,000.00.
Petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed
a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of
70% of Astros loan, subject to the condition that upon payment by Philguanrantee of said amount, it
shall be proportionally subrogated to the rights of Philtrust against Astro.
As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of
the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC of Makati. Roxas disclaims any liability on the instruments,
alleging, inter alia, that he merely signed the same in blank and the phrases in his personal capacity
and in his official capacity were fraudulently inserted without his knowledge.
ISSUE:
Whether or not Roxas should be jointly and severally liable with Astro.
RULING:
Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are
valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as
president of Astro and second, in his personal capacity. In signing his name aside from being the
President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any
liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the
face of promissory notes are makers, promising that they will pay to the order of the payee or any
holder according to its tenor.
Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested by the
fact that he affixed his signature on each of the promissory notes twice which necessarily would
imply that he is undertaking the obligation in two different capacities, official and personal.
Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust
to demand for and collect payment from both Roxas and Astro since it already paid the value of 70%
of roxas and Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in
favor of Philtrust.
Affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro Manila,
whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay
respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), jointly and
severally, the amount of P3,621,187.52 with interests and costs.
Metrobank v. Rural Bank of Gerona

G.R. No. 159057, 5 July 2010
FACTS:
The Central Bank and the RBG entered into an agreement providing that RBG shall facilitate the
loan applications of farmers-borrowers. The agreement required RBG to open a separate bank
account where the IBRD loan proceeds shall be deposited. The RBG accordingly opened a special
savings account with Metrobanks Tarlac Branch. As the depository bank of RBG, Metrobank was
designated to receive the credit advice released by the Central Bank representing the proceeds of
the IBRD loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special
savings account for the latter’s release to the farmers-borrowers.
The Central Bank released a credit advice in Metrobanks favor and accordingly credited Metrobanks
demand deposit account in the amount of P178,652.00, for the account of RBG. The Central Bank
approved the loan application of another farmer-borrower and credited the amount to Metrobanks
demand deposit account. Metrobank, in turn, credited RBGs special savings account. Metrobank
claims that the RBG also withdrew the entire credited amount from its account. The Central Bank
approved another loan application. As with the two other IBRD loans, the amount was credited to
Metrobanks demand deposit account, which amount Metrobank later credited in favor of RBGs
special savings account.
More than a month after RBG had made the above withdrawals from its account with Metrobank, the
Central Bank issued debit advices, reversing all the approved IBRD loans. The Central Bank
implemented the reversal by debiting from Metrobanks demand deposit account the amount
corresponding to all three IBRD loans.Upon receipt of debit advices, Metrobank, in turn, debited the
amounts from RBGs special savings account but however, Metrobank claimed that these amounts
were insufficient to cover all the credit advices that were reversed by the Central Bank. It demanded
payment from RBG which could make partial payments. To collect this amount, it filed a complaint
for collection of sum of money against RBG before the RTC.
ISSUE:
Whether or not there was legal subrogation that took place in the case.
RULING:
Yes. The Terms and Conditions of the IBRD 4th Rural Credit Project executed by the Central Bank
and the RBG shows that the farmers-borrowers to whom credits have been extended, are primarily
liable for the payment of the borrowed amounts. The loans were extended through the RBG which
also took care of the collection and of the remittance of the collection to the Central Bank. RBG,
however, was not a mere conduit and collector. While the farmers-borrowers were the principal
debtors, RBG assumed liability under the Project Terms and Conditions by solidarily binding itself
with the principal debtors to fulfill the obligation.
The Central Bank was further authorized to deduct the amount due from RBGs demand deposit
reserve should the latter become delinquent in payment. Based on these arrangements, the Central
Banks immediate recourse, therefore should have been against the farmers-borrowers and the RBG;
thus, it erred when it deducted the amounts covered by the debit advices from Metrobanks 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 Central Bank to the RBG once credit advice has been
issued. The agreement governed only the parties involved the Central Bank and the RBG.
Metrobank was simply an outsider to the agreement. Our disagreement with the appellate court is in
its conclusion that no legal subrogation took place; the present case, in fact, exemplifies the
circumstance contemplated under paragraph 2, of Article 1302 of the Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtors knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter’s share.
Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a
conduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobanks demand
deposit account, instead of RBGs, which the Central Bank proceeded against, on the assumption
perhaps that this was the most convenient means of recovering the cancelled loans. That
Metrobanks payment was involuntarily made does not change the reality that it was Metrobank
which effectively answered for RBGs obligations.
After Metrobank received the Central Banks debit advices, it (Metrobank) accordingly debited the
amounts it could from RBGs special savings account without any objection from RBG. RBGs
President and Manager, Dr. Aquiles Abellar, even wrote Metrobank with proposals regarding
possible means of settling the amounts debited by Central Bank from Metrobank’s demand deposit
account. These instances are all indicative of RBGs approval of Metrobank’s payment of the IBRD
loans. That RBGs tacit approval came after payment had been made does not completely negate
the legal subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit
with all the rights thereto appertaining, either against the debtor or against third persons. As the
entity against which the collection was enforced, Metrobank was subrogated to the rights of Central
Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank.
* Case digest by Paula Bianca B. Eguia, LLB-1, Andres Bonifacio Law School, SY 2017-2018
[G.R. No. 142838. August 9, 2001]

ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent.
GONZAGA-REYES, J.:
PROVISION: NCC: 1301: Conventional Subrogation
DOCTRINE: Conventional subrogation is that which takes place by agreement of parties.
DEFINITIONS: assignment of credit: process of transferring the right of the assignor to the assignee who would
then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale.
Subrogation: transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may
either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law
because of certain acts. Conventional subrogation is that which takes place by agreement of parties.
FACTS:
1. 1980s: Abelardo Licaros, a Fil. Businessman thought that it would be good to make a fund placement with
the Anglo-Asean Bank and Trust Limited (Anglo-Asean) which is a private bank that works under the laws of
the Republic of Vanuatu. Its main business is in receiving fund placements from investors around the world
and thereafter investing such deposits in money market placements and potentially profitable capital
ventures in H.K, Europe and the U.S. for maximization of returns.
2. Eventually, Licaros’ investment didn’t turn out well as he had difficulties in retrieving not only his profits but
also his investments. Thus, he sought the counsel of Antonio Gatmaitan, a reputable banker and investment
manager to help get back his investments.
3. Gatmaitan voluntarily offered to assume the payment of Anglo-Asean’s indebtedness to Licaros subject to
terms and conditions. They made it formal and effective through a MEMORANDUM OF AGREEMENT
(MOA) on July 29, 1988.
4. In line w/ this agreement, Gatmaitan executed a NON-NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS in favor of Licaros. Here, it’s stated that: Gatmatian promises to pay
Licaros P3,150,000 w/o interest as material consideration for the full settlement of his money claims from
Anglo-Asean. Also, 70% of all cash dividends from his shares of stock in the Prudential Life Realty Inc. to
the extent of his shareholding in Prudential Life Plan, Inc. (holding company of Prudential Realty) was
assigned as a security for the payment of the promissory note.
5. Nothing happened when Gatmaitan tried to claim the S150, 000 from Anglo-Asean. Thus, he didn’t bother to
fulfil his promise to pay Licaros the amount states in the promissory note.
6. However, Licaros felt that he had a right to collect on the basis of the promissory note regardless of the
outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru counsel, addressed successive
demand letters to Gatmaitan, demanding payment of the latter’s obligations under the promissory note.
Gatmaitan, however, did not accede to these demands.
7. Licaros then filed a complaint to the RTC where he won. But CA reversed it saying that the MOA is of a
conventional subrogation which needs the consent of Anglo-Asean for its validity.
ISSUES:
1. WON the MOA is one of assignment of credit or one of conventional subrogation?
2. WON the MOA was perfected?
HELD:
1. MOA is a conventional subrogation.
- The intent for it to be one of conventional subrogation is clear in its stipulations. To wit:
“WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their mutual
prestations which they now record herein with the express conformity of the third parties concerned”
(emphasis supplied), which third party is admittedly Anglo- Asean Bank.
- If the intent was just to make Gatmaitan the “assignee” of Licaros’ credit, it woud’ve been senseless to stipulate in
the MOA that same is conditioned on the “express conformity” of Anglo-Asean Bank.
2. NO
- The consent of Anglo-Asean wasn’t obtained and since consent is a requirement of subrogation, the MOA wasn’t
perfected. Thus, there’s no cause of action.
DISPOSITION: CA decision affirmed.
HSBC v. Spouses Broqueza

G.R. No. 178610, November 17, 2010
FACTS:
Petitioners Gerong and Broqueza are employees of Hongkong and Shanghai Banking Corporation
(HSBC). They are also members of respondent Hongkong Shanghai Banking Corporation, Ltd. Staff
Retirement Plan.
In October 1990, petitioner Broqueza obtained a car loan in the amount of Php 175,000.00. In
December 1991, she again applied and was granted an appliance loan in the amount of Php
24,000.00.
In 1993, a labor dispute arose between HSBC and its employees. Majority of HSBCs employees
were terminated, among whom are petitioners Editha Broqueza and Fe Gerong.
ISSUE:
Whether or not the claim was premature as the loan obligations have not yet matured
RULING:
No. The Court affirms the findings of the lower courts that there is no date of payment indicated in
the Promissory Notes. 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 of the Civil Code
applies: Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once. The spouses Broquezas
obligation to pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the
prior monthly check-off from Editha Broquezas salary is of no moment. Once Editha Broqueza
defaulted in her monthly payment, HSBCL-SRP made a demand to enforce e a pure obligation.
* Case digest by Immanuel Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018 q
Gaite v. Fonacier
G.R. No. L-11827, July 31, 1961, 2 SCRA 830
FACTS:
Gaite was appointed by Fonacier as attorney-in-fact to contract any party for the exploration and
development of mining claims. Gaite executed a deed of assignment in favor of a single
proprietorship owned by him. For some reasons, Fonacier revoked the agency, which was acceded
to by Gaite, subject to certain conditions, one of which being the transfer of ores extracted from the
mineral claims for P75,000, of which P10,000 has already been paid upon signing of the agreement
and the balance to be paid from the first letter of credit for the first local sale of the iron ores. To
secure payment, Fonacier delivered a surety agreement with Larap Mines and some of its
stockholders, and another one with Far Eastern Insurance. When the second surety agreement
expired with no sale being made on the ores, Gaite demanded the P65,000 balance. Defendants
contended that the payment was subject to the condition that the ores will be sold.
ISSUE:
(1) Whether the sale is conditional or one with a period

(2) Whether there were insufficient tons of ores
HELD:
(1) The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the
payment of the balance of P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished
from its demandability) is subordinated to the happening of a future and uncertain event; so that if
the suspensive condition does not take place, the parties would stand as if the conditional obligation
had never existed.
A contract of sale is normally commutative and onerous: not only does each one of the parties
assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the
buyer to pay the price),but each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of
a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly appear. Nothing is found in the record
to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without
getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a
bond by Fonacier, the Larap Mines & Smelting Co., and the company’s stockholders, but also on
one by a surety company; and the fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the balance of P65,000.00.
The appellant have forfeited the right court below that the appellants have forfeited the right to
compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00,
because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with
an equivalent guarantee. The expiration of the bonding company’s undertaking on December 8,
1955 substantially reduced the security of the vendor’s rights as creditor for the unpaid P65,000.00,
a security that Gaite considered essential and upon which he had insisted when he executed the
deed of sale of the ore to Fonacier.
(2) The sale between the parties is a sale of a specific mass or iron ore because no provision was
made in their contract for the measuring or weighing of the ore sold in order to complete or perfect
the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such
measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of
the ore found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them.
Gonzales vs. Heirs of Thomas

314 SCRA 585 (1999)
FACTS:
On December 1, 1983, Paula Ao Cruz together with the plaintiffs heirs of Thomas and Paula Cruz,
entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, a certain parcel of
land. The defendant Gonzales paid the annual rental on the half-portion of the property covered by
Transfer Certificate of Title No. 12111 in accordance with the second provision of the Contract of
Lease/Purchase and thereafter took possession of the property, installing thereon the defendant
Jesus Sambrano as his caretaker. The defendant Gonzales did not, however, exercise his option to
purchase the property immediately after the expiration of the one-year lease. He remained in
possession of the property without paying the purchase price provided for in the Contract of
Lease/Purchase and without paying any further rentals thereon.
A letter was sent by one of the plaintiffs-heirs to the defendant Gonzales informing him of the lessors
decision to rescind the Contract of Lease/Purchase due to a breach thereof committed by the
defendant which also served as a demand on the defendant to vacate the premises within 10 days
from receipt of said letter. However, the defendant refused to vacate the property and continued
possession thereof.
Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint
for recovery of possession of the property – subject of the contract with damages, both moral and
compensatory and attorney’s fees and litigation expenses. The defendant Gonzales filed his answer
praying for a dismissal of the complaint filed against him and an award of moral, exemplary and
actual damages, as well as litigation expenses.
The trial court rendered a decision in favor of the defendant. It held that he failure of the plaintiffs to
secure the Transfer Certificate of Title, as provided for in the contract, does not entitle them to
rescind the contract. The plaintiff appealed to the Court of Appeals which reversed the decision of
the Trial Court. Hence, this petition.
ISSUE:
Whether or not the express stipulation of the contract which is to secure the Transfer Certificate of
Title a condition precedent before the petitioner could exercise his option to buy the property.
RULING:
Yes, it is a condition precedent. If a stipulation in a contract admits of several meanings, it shall be

understood as bearing that import most adequate to render it effectual. An obligation cannot be
enforced unless the plaintiff has fulfilled the condition upon which it is premised. Hence, an
obligation to purchase cannot be implemented unless and until the sellers have shown their title to
the specific portion of the property being sold.
We hold that the ninth provision was intended to ensure that respondents would have a valid title
over the specific portion they were selling to petitioner. Only after the title is assured may the
obligation to buy the land and to pay the sums stated in the Contract be enforced within the period
stipulated. Verily, the petitioners obligation to purchase has not yet ripened and cannot be enforced
until and unless respondents can prove their title to the property subject of the Contract.
Therefore, respondents cannot rescind the contract, because they have not caused the transfer of
the TCT to their names, which is a condition precedent to petitioners obligation. This Court has held
that there can be no rescission (or more properly, resolution) of an obligation as yet non-existent,
because the suspensive condition has not happened.
Romulo A. Coronel, et al vs. The Court of Appeals,

et al
G.R. No. 103577 (October 7, 1996)
FACTS:
Coronel et al. consummated the sale of his property located in Quezon City to respondent Alcaraz.
Since the title of the property was still in the name of the deceased father of the Coronels, they
agreed to transfer its title to their name upon payment of the down payment and thereafter an
absolute deed of sale will be executed.
Alcaraz’s mother paid the down payment in behalf of her daughter and as such, Coronel made the
transfer of title to their name. Notwithstanding this fact, Coronel sold the property to petitioner
Mabanag and rescinded its prior contract with Alcaraz.
ISSUE:
Whether or not the contract between the petitioner and the respondent was a contract to sell subject
to a suspensive condition.
RULING:
No. The agreement could not have been a contract to sell because the sellers herein made no
express reservation of ownership or title to the subject parcel of land. Unlike in a contract to sell,
petitioners in the case at bar did not merely promise to sell the property to private respondent upon
the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title change to their names and immediately
thereafter, to execute the written deed of absolute sale.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case.
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the
condition.
What is clearly established by the plain language of the subject document is that when the said
Receipt of Down Payment was prepared and signed by petitioners, the parties had agreed to a
conditional contract of sale, consummation of which is subject only to the successful transfer of the
certificate of title from the name of petitioners father to their names. In fact, the Court significantly
notes that this suspensive condition was fulfilled. Thus, the conditional contract of sale between
petitioners and private respondent became obligatory, the only act required for the consummation
thereof being the delivery of the property by means of the execution of the deed of absolute sale in a
public instrument.
What may be perceived from the respective undertakings of the parties to the contract is that
petitioners had already agreed to sell the house and lot they inherited from their father, completely
willing to transfer ownership of the subject house and lot to the buyer if the documents were then in
order. It just so happened, however, that the transfer certificate of title was then still in the name of
their father.
PARKS V. PROVINCE OF
TARLAC- DONATION WITH A
CONDITION
FACTS:
In 1910, Concepcion Cirer and James Hill donated parcels of land to the municipality of
Tarlac on the condition that it be used absolutely and exclusively for the erection of a
central school and public parks, the work to commence within six months. The president
of the municipality of Tarlac accepted and registered the donation.
In 1921, Cirer and Hill sold the same property to George L. Parks.
Later on the, the municipality of Tarlac transferred their rights in the property to the
Province of Tarlac.
Parks filed a complaint seeking the annulment of the donation and asking that he be
declared the absolute owner of the property. Parks allege that the conditions of the
donation were not complied with.
ISSUE:
Whether or not the donation was coupled with a condition precedent? W/N the action to
revoke has prescribed?
HELD:
No. The condition to erect a school within six months is not a condition precedent. The
characteristic of a condition precedent is that the acquisiito of the right is not effected
while said condition is mot complied with or is not deemed complied with. Meanwhile
nothing is acquired and there is only an expectancy of a right. Consequently, when a
condition is imposed, the compliance of which cannot be effected except when the right
is deemed acquired, such condition cannot be a condition precedent. In the present
case the condition that a public school be erected and a public park be made of the
donated land could not be complied with except after giving effect to the donation.
The action to revoke the donation has prescribed. The prescriptive periods are: 5 years
for the revocation by the subsequent birth of children, 1 year if by reason of ingratitude.
If no special period is prescribed, 10 years, for an onerous donation following the law of
contracts and general rules on prescriptions. The donation was made in 1910, the
cause of action accrued in 1911, while the action to revoke was filed 1924, twenty three
years later.
Central Philippine University v. CA

G.R. No. 112127, July 17, 1995, 246 SCRA 511
FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the
following conditions: 1.) The land should be utilized by CPU exclusively for the establishment & use
of medical college; 2.)The said college shall not sell transfer or convey to any 3rd party; 3.)The said
land shall be called “Ramon Lopez Campus” and any income from that land shall be put in the fund
to be known as “Ramon Lopez Campus Fund”.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment of
donation, reconveyance & damages against CPU for not complying with the conditions. The heirs
also argued that CPU had negotiated with the NHA to exchange the donated property with another
land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.
ISSUE:
1. WON petitioner failed to comply the resolutely conditions annotated at the back of petitioner’s
certificate of title without a fixed period when to comply with such conditions.
2. WON there is a need to fix the period for compliance of the condition.
RULING:
Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment or
loss of those already acquired shall depend upon the happening of the event which constitutes the
condition. Thus, when a person donates land to another on the condition that the latter would build
upon the land a school is such a resolutory one. The donation had to be valid before the fulfillment of
the condition. If there was no fulfillment with the condition such as what obtains in the instant case,
the donation may be revoked & all rights which the donee may have acquired shall be deemed lost &
extinguished.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the
opportunity to comply with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of
a term of the obligation when such procedure would be a mere technicality and formality and would
serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits.
Records are clear and facts are undisputed that since the execution of the deed of donation up to
the time of filing of the instant action, petitioner has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so
that petitioner as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.
Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can
be inferred that the period was intended, the court may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith & such period has arrived. However, this general rule cannot be applied in this
case considering the different set of circumstances existing more than a reasonable period of 50yrs
has already been allowed to petitioner to avail of the opportunity to comply but unfortunately, it failed
to do so. Hence, there is no need to fix a period when such procedure would be a mere technicality
& formality & would serve no purpose than to delay or load to unnecessary and expensive
multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the
obligee may seek rescission before the court unless there is just cause authorizing the fixing of a
period. In the absence of any just cause for the court to determine the period of compliance there is
no more obstacle for the court to decree rescission.
Quijada v. CA
G.R. No. 126444, December 4, 1998
FACTS:
Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de Quijada.
Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the two-hectare
parcel of land. Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequea and Paz
Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation of the
two-hectare parcel of land wit the condition being that the parcel of land shall be used solely and
exclusively as part of the campus of the proposed provincial high school in Talacogon but Trinidad
remained in possession of the parcel of land despite the donation.
On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant
Regalado Mondejar. Subsequently, Trinidad verbally sold the remaining one (1) hectare to
defendant-appellant (respondent) Regalado Mondejar without the benefit of a written deed of sale
and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry
against defendant-appellant (respondent) Regalado Mondejar, which complaint was dismissed. The
proposed provincial high school having failed to materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a resolution reverting the two (2) hectares of land donated back to
the donors.
ISSUE:
Whether or not the donated parcel of land will revert back to the original owner for not complying the
resolutory condition of the construction of the school.
RULING:
Yes. In this case, that resolutory condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the latter would build upon the land a
school, the condition imposed is not a condition precedent or a suspensive condition but a resolutory
one. Thus, at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could
not have sold the lots since she had earlier transferred ownership thereof by virtue of the deed of
donation. Only then – when the non-fulfillment of the resolutory condition was brought to the donor’s
knowledge – that ownership of the donated property reverted to the donor as provided in the
automatic reversion clause of the deed of donation.
In the doctrine of resolutory condition provided under Article 1181, So long as the resolutory
condition subsists and is capable of fulfillment, the donation remains effective and the donee
continues to be the owner subject only to the rights of the donor or his successors-in-interest under
the deed of donation.
The donor may have an inchoate interest in the donated property during the time that ownership of
the land has not reverted to her. Such inchoate interest may be the subject of contracts including a
contract of sale. In this case, however, what the donor sold was the land itself which she no longer
owns. It would have been different if the donor-seller sold her interests over the property under the
deed of donation which is subject to the possibility of reversion of ownership arising from the non-
fulfillment of the resolutory condition.
Lao Lim vs. CA

G.R. No. 87047, October 31, 1990
FACTS:
Private respondent entered into a contract of lease with petitioner for a period of three (3) years, that
is, from 1976 to 1979. After the stipulated term expired, private respondent refused to vacate the
premises, hence, petitioner filed an ejectment suit against the former in the City Court of Manila. The
case was terminated by a judicially compromise agreement. On 1985 Dy, informed Lim of his
intention to renew the lease up to 1988, Lim did not agree to the renewal. Another ejectment suit
was filed by Lim against Dy due to the failure to vacate the premises. The RTC dismissed the case
then later affirmed by the CA for the following reasons: (1) the stipulation in the compromise
agreement which allows the lessee (Benito Dy) to stay on the premises as long as he needs it and
can pay rents is valid, being a resolutory condition, and therefore beyond the ambit of art 1308 of the
NCC; and (2) the compromise agreement has the effect of res judicata.
ISSUE:
Whether or not the stipulation in the compromise agreement which allows the lessee to stay on the
premises as long as he needs it and can pay rents is valid?
RULING:
No, the stipulation in the compromise agreement is not valid. The statement “for as long as the
defendant needed the premises and can meet and pay said increases” is a purely potestative
condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and
exclusive will of the lessee.
* Case digest by Daisy Mae Tambolero, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Naga Telephone Co. v. CA

G.R. No. 107112, 24 February 1994
FACTS:
NATELCO entered into contract with CASURECO II for the use in operation of its telephone service,
electric light posts of CASURECO II and in return, there will be free use of 10 telephone connections
as long as NATELCO needs electric light posts. The period would last for as long as NATELCO
needs electric light posts. In other words, the contract will terminate when they are forced to stop,
abandon operation and remove light posts. After 10 years, CASURECO filed for reformation of
contract with damages, for petitioner’s failure to conform to the guidelines of National Electrification
Administration of reasonable compensation for use of posts. Compensation is worth P10, but the
consumption of telephone cables costs P2,630. NATELCO, who used 319, without the contract of
P10 each, refused to pay. Moreover, respondent alleged poor servicing. All in all, an amount of not
less than P100,000 is claimed as damages.
ISSUE:
Can there be reformation of contract?

RULING:
No. However, the allegations in private respondent’s complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. The Court, therefore, released the parties
from their correlative obligations under the contract. However, the Court has to take into account the
possible consequences of such condition—disruption of electric services to the public and prejudice
to business of petitoners.
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part.
* Case digest by Cherry Mae Aguilla-Grana, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Osmeña vs Rama
GR No. 4437 – September 9, 1909
FACTS:
Petitioner – defendant (Rama) obtained a series of loans from respondent – plaintiff (Osmena), with
which petitioner pledged her sugar harvest, present and future properties including her house.
Sometime after the execution and delivery of the loans, respondent died. Plaintiff was succeeded by
his heir who filed a case and presented evidence of an acknowledgment by defendant of the loan
stating that the same shall be paid “when her house is sold”. Petitioner answered by setting up the
defense of prescription. The lower court ruled in favor of the respondent. Hence the petition.
ISSUE:
Whether or not the loan obligation had prescribed.
RULING:
No. The loans did not prescribe.
Article 1182 of the Civil Code provides that: “When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.”
The condition presented by the petitioner in the acknowledgement is a void condition being
dependent on the sole will (potestative) of the same. The court ruled that since the said condition is
found on the acknowledgment and not on the original obligation, only the said condition is void and
the acknowledgment thus becomes an absolute recognition of the loans contracted. There already
being prior acknowledgment, the debt is considered to have not prescribed. Petition is dismissed
and lower court’s decision is affirmed.
Hermosa v. Longara
93 Phil. 971 (1953)
FACTS:
Three kinds of claims received after the death of the intestate in December 1944. The claimant
presented evidence and the Court of Appeals found that the intestate has asked for the said credit
advances for himself and for the members of his family “on condition that their payment should be
made by Fernando Hermosa, Sr. as soon as he received funds derived from the sale of his property
in Spain.” The Court of Appeals held that payment of the advances did not become due until the
administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of the
probate court in October 1997, the same was paid for subsequently.
ISSUE:
Whether the obligation contracted by the intestate was subject to a condition exclusively dependent
upon the will of the debtor and therefore null and void.
RULING:
As the obligation retroacts to the date when the contract was entered into, all amounts advanced
from the time of the agreement became due, upon the happening of the suspensive condition. As
the obligation to pay became due and demandable only when the house was sold and the proceeds
received in the islands, the action to recover the same only accrued, within the meaning of the
statute of limitations, on date the money became available here hence the action to recover the
advances has not yet prescribed.
* Case digest by Cherrie Mae Aguila-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Taylor v. Uy Tieng Piao

43 Phil. 873 (1922)
FACTS:
On December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as superintendent
of an oil factory which the latter contemplated establishing in this city. The period of the contract
extended over two years from the date mentioned; and the salary was to be at the rate of P600 per
month during the first year and P700 per month during the second, with electric light and water for
domestic consumption, and a residence to live in, or in lieu thereof P60 per month.
At the time this agreement was made, the machinery for the factory had not been acquired, though
ten expellers had been ordered from the U.S. as agreed, for any reason the machinery failed to
arrived in the city of Manila for the period of six months from the date given, the contract may be
canceled by the party of the second part.
The machinery stated in the contract did not arrive in the city of Manila within the six months
succeeding the making of the contract, and other equipment necessary for the factory. On June 28,
1919, the defendants informed the plaintiff that they had decided to rescind the contract effective
June 30th. The plaintiff thereupon instituted this action to recover damages in the amount of
P13,000, covering salary and perquisites due and to become due under the contract.
ISSUE:
Whether or not the plaintiff may demand perquisites under the rescinded contract.
RULING:
Yes, it has been concluded that the Court of First Instance committed no error in rejecting the
plaintiff claim in so far as damages are sought for the period subsequent to the expiration of the first
six months, but in the assessment of damages due for six months period, the trial judge evidently
overlooked the item of P60 specified in the plaintiff fourth assignment of error, which represent
commutation of house rental for the month of June 1919. This amount the plaintiff is clearly entitled
to recover, in addition to the P300 awarded in the lower court.
The judgment of CFI is modified, the defendant shall pay the plaintiff the sum of P360 instead of
P300 as allowed by the lower court.
DOCTRINE:
A condition at once facultative and resolutory may be valid even though the condition is made to
depend upon the will of the obligor. In the case ate bar, the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in the absence
of affirmative proof showing that the non-arrival of the machinery was due to some cause not having
its origin in their own act or will.
Rustan Pulp and Paper Mills v. IAC

G. R. No. 70789, 19 October 1992
FACTS:
Petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. Respondent Lluch, who
is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw
materials by the former to the latter. In their contract it stated that the supply is not exclusive, Rustan
shall have the option to buy supplies from other and that buyer shall have the right to stop delivery of
the materials by the seller if the supply will be efficient, however the seller is given sufficient notice.
During the test run of the pulp mill, the machinery line thereat had major defects while deliveries of
the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend
the stoppage of the deliveries. The suppliers were informed to stop deliveries and the letter of similar
advice sent by petitioners to private respondents.
Lluch sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the
contract of sale was intended, but Rustan Pulp failed to reply. This alleged ambiguity
notwithstanding, Lluch and the other suppliers resumed deliveries after a series of talks between
Lluch and Romeo Vergara, the manager of Rustan Pulp.
Later, Lluch filed a complaint for breach of contract. The case was dismissed, but at the same time,
the court enjoined Rustan Pulp to honor the contract. On appeal, the court ruled that Rustan Pulp’s
suspension of deliveries was not in the lawful exercise of its rights under the contract of sale.
ISSUE:
Is the suspension of deliveries by Rustan (D) a proper exercise of its rights under the contract of
sale?
RULING:
No. There is cogent basis for private respondent’s apprehension on the illusory resumption of
deliveries inasmuch as the prerogative suggests a condition solely dependent upon the will of
petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at the
plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as
determined likewise by petitioners.
Article 1182 of the civil code states that: When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon will of a
third person, the obligation shall take effect in conformity with the provisions of this Code.
A purely potestative imposition of this character must be obliterated from the face of the contract
without affecting the rest of the stipulations considering that the condition relates to the fulfillment of
an already existing obligation and not to its inception.
Romero vs. CA
G.R. No. 107207, November 23, 1995
FACTS:
Petitioner Virgilio Romero a civil engineer together with his foreign partners wants to put up a Central
Warehouse in Metro Manila. Alfonso Flores and his wife accompanied by a broker, offered a parcel
of land measuring 1,952 square meters, owned by the private respondent Enriqueta Chua vda. De
Ongsiong. The two entered into a “Conditional deed of Sale”. The petitioner paid in advance in the
sum of P50,000.00 for the eviction of squatters. Although successful, private respondent sought the
return of the advance payment she received because she could not get rid of the squatters.
ISSUE:
1. May the vendor demand the rescission of a contract of sale of a parcel of land for a cause
traceable to his own failure to evict the squatters?
2. Is the condition of the contract valid?
RULING:
A perfected contract of sale may either be absolute or conditional depending on whether the
agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be
conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply prevent the duty to convey title from
acquiring an obligatory force. If the condition is imposed upon the obligation of a party thereto when
ownership is retained until the fulfillment of a positive condition will simply prevent the duty to convey
title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is
not complied with the other party may either refuse to proceed or waive said condition. Where, of
course, the condition is imposed upon the perfection of the contract itself, the failure of such
condition would prevent the juridical relation itself from coming into existence. The right of resolution
of a party to an obligation is predicted on a breach of faith by the other party that violates the
reciprocity between them. It is private respondent who has failed in her obligation under the contract.
Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expense of the
execution of the judgment in the ejectment case and to make arrangements with the sherriff to effect
such execution.
Roman Catholic Archbishop of Manila v. CA

G.R. No. 77425, June 19, 1991, 198 SCRA 300
FACTS:
The administrators of the estate of deceased spouses Eusebioand Martina De Castro filed a
complaint to nullify the deed of donation, rescission of contract, and reconveyance of the property
against spouses Florencio and Soledad Ignao, Roman Catholic Bishop of Imus, and Roman Catholic
Archbishop of Manila. The administrators alleged that in 1930 the De Castros executed the deed of
donation over their Cavite property to the Archbishop, said deed allegedly providing that the latter
cannot disposeor sell the property within 100 years from execution. The administration of the said
properties was transferred to the Bishop of Imus in 1962. And in 1980, the Bishop of Imus sold the
property to thespouses Ignao. The Ignaos were then able to transfer the TCT undertheir names. The
lower court ruled that the action had already prescribed and dismissed the complaint. This was
reversed by the CA.The Ignaos and the Bishops contend that the cause of actionhad already
prescribed, relying on Art. 764 which provides that “(t)hedonation shall be revoked at the instance of
the donor, when the donee fails to comply with any of the conditions which the former imposed
uponthe latter,” and that “(t)his action shall prescribe after four years fromthe non-compliance with
the condition, may be transmitted to the heirs of the donor, and may be exercised against the
donee’s heirs
ISSUE:
WON the action has already prescribed.

RULING:
Action has already prescribed. Art. 764 is not applicable in this case. The deed of donation involved
expressly provided for automatic reversion of the property donated in case of violation of the, as was
correctly recognized by the CA.A judicial action for rescission of a contract is not necessary where
the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions. This cancellation can be applied in the case at bar. Art. 732 of the Civil Code provides
that donations inter vivos shall be governed by the general provisions on contracts and obligations in
all that is not determined by the law on donations. In contracts providing for automatic revocation,
judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded, but in order to determine whether or not the rescission was
proper.
While the action may not be dismissed by reason of prescription, the same should be dismissed on
the ground that the estates of the De Castros have. No cause of action against the Ignaos and other
petitioners. The cause of action of the De Castros is based on the alleged breach of the resolutory
condition that the property donated should not be sold within the prohibited period. Said condition,
however, constitutes an undue restriction on the rights arising from ownership and is, therefore,
contrary to public policy and should be declared as an illegal or impossible condition. The Ignaos
won. The CA decision is reversed
Doctrine:
There is no need for prescription to be applied in cases where there is stipulation for automatic
reversion. Nonetheless, the stipulation is against public policy and thus, is void.
Taylor v. Uy Tieng Piao

43 Phil. 873 (1922)
FACTS:
On December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as superintendent
of an oil factory which the latter contemplated establishing in this city. The period of the contract
extended over two years from the date mentioned; and the salary was to be at the rate of P600 per
month during the first year and P700 per month during the second, with electric light and water for
domestic consumption, and a residence to live in, or in lieu thereof P60 per month.
At the time this agreement was made, the machinery for the factory had not been acquired, though
ten expellers had been ordered from the U.S. as agreed, for any reason the machinery failed to
arrived in the city of Manila for the period of six months from the date given, the contract may be
canceled by the party of the second part.
The machinery stated in the contract did not arrive in the city of Manila within the six months
succeeding the making of the contract, and other equipment necessary for the factory. On June 28,
1919, the defendants informed the plaintiff that they had decided to rescind the contract effective
June 30th. The plaintiff thereupon instituted this action to recover damages in the amount of
P13,000, covering salary and perquisites due and to become due under the contract.
ISSUE:
Whether or not the plaintiff may demand perquisites under the rescinded contract.
RULING:
Yes, it has been concluded that the Court of First Instance committed no error in rejecting the
plaintiff claim in so far as damages are sought for the period subsequent to the expiration of the first
six months, but in the assessment of damages due for six months period, the trial judge evidently
overlooked the item of P60 specified in the plaintiff fourth assignment of error, which represent
commutation of house rental for the month of June 1919. This amount the plaintiff is clearly entitled
to recover, in addition to the P300 awarded in the lower court.
The judgment of CFI is modified, the defendant shall pay the plaintiff the sum of P360 instead of
P300 as allowed by the lower court.
DOCTRINE:
A condition at once facultative and resolutory may be valid even though the condition is made to
depend upon the will of the obligor. In the case ate bar, the defendants were under a positive
obligation to cause the machinery to arrive in Manila, they would of course be liable, in the absence
of affirmative proof showing that the non-arrival of the machinery was due to some cause not having
its origin in their own act or will.
Herrera v. Leviste
G.R. No. 55744, February 28, 1985
FACTS:
Leviste obtained a loan from the Government Service Insurance System (GSIS) in the amount of
P1,854,311.50. As security therefore, Leviste mortgaged two (2) lots, one located at Parañaque (the
Parañaque Property), and the other located at Buendia Avenue, Makati. Leviste sold to Petitioner,
Jose V. Herrera, the Buendia Property for the amount of P3,750,000.00. The conditions were that
petitioner would: (1) pay Leviste P11,895,688.50; (2) assume Leviste’s indebtedness of
P1854,311.50 to the GSIS; and (3) substitute the Paranaque property with his own within a period of
six (6) months. For his part, Leviste undertook to arrange for the conformity of the GSIS to
petitioner’s assumption of the obligation.
ISSUE:
Whether or not the petition shall gain merit?
RULING:
The petition was denied due to the following reasons:
1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it received, by way
of redemption from respondent Marcelo, was the mortgage loan it had extended plus interest and
sundry charges.
(b)Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid to GSIS the
amount P 3,232,766.94, which is not far below the sum of P 3,750,000.00, which was the
consideration petitioner would have paid to Leviste had his contract been consummated.
(c)Leviste had neither profited at the expense of petitioner, For Losing his Buendia Property, all he
had received was P 1,854,311.50 from GSIS less amounts he had paid, plus P 1,895,688.00 paid to
him by petitioner, the total of which is substantially a reasonable value of the Buendia Property.
2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus P
300,000.00 he had paid to GSIS, less the rentals he had received when in possession of the
Buendia Property. That loss is attributable to his fault in:
(a)Not having been able to submit collateral to GSIS in substitution of the Paranaque Property;
(b)Not paying off the mortgage debt when GSIS decided to foreclose; and
(c)Not making an earnest effort to redeem the property as a possible redemptioner.
3. It cannot be validly said that petitioner had fully complied with all the conditions of his contract with
Leviste. For one thing, he was not able to substitute the Parañaque Property with another collateral
for the GSIS loan. Moreover, as stated by the Court of Appeals, “nowhere in the letter (of the GSIS)
was mentioned that a final deed of sale must first be executed and presented before the assumption
may be considered. For if it was really the intention of GSIS, the requirement of Deed of Sale should
have been stated in its letter.
* Case digest by Daisy Mae Tambulero, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Solante v. COA
G.R. No. 207348, 19 August 2014
FACTS:
The City of Mandaue and F.F. Cruz Inc. entered into a Contract of Reclamation with land-sharing
agreement to be undertaken by the latter. The project was estimated to be completed within six (6)
years as stipulated in the contract. The parties executed an MOA wherein all improvements by the
F.F. Cruz on the City’s portion of the land shall belong to the latter after project completion. The
project was not completed within 6 years. Thereafter, the DPWH contracted with F.F. Cruz to
demolish improvements on the City’s parcel of land for a road-widening project. Petitioner Solante,
prepared disbursement vouchers in favor of F.F. Cruz as payment for the demolished improvements.
COA disallowed the disbursement, stating that the failure of FF. Cruz to finish the project within 6
years means the project is deemed completed and that the City now owns the rights to the
demolished improvements, hence, F.F. Cruz cannot collect payments from the demolition of the
same.
ISSUE:
WON F.F. Cruz owned the improvements demolished.
RULING:
Yes. F.F. Cruz owned said properties and can collect the payments for their demolition.
SC ruled that a mere estimate of a period of project completion does not fall under the definition of a
fixed period or day certain as defined in law. Art. 1193 of the Civil Code provides that: “Obligations
for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes;
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain;
A day certain is understood to be that which must necessarily come, although it may not be known
when; If the uncertainty consists in whether the day will come or not, the obligation is conditional,
and it shall be regulated by the rules of the preceding Section.”
The lapse of the estimated 6-year period did not deem the project completed much less bring about
the fulfillment of the condition stipulated in the MOA (on the shift of ownership over the demolished
properties). As it were, the Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on
the property of the city will belong to the latter only upon the completion of the project. Clearly, the
completion of the project is a suspensive condition that has yet to be fulfilled. Until the condition
arises, ownership of the structures properly pertains to F.F. Cruz. Petition is granted.
Maria Lachica v Gregorio Araneta Inc.
August 19, 1949

Paredes, J.
Petition: Appeal
Parties:
Maria Lachica - plaintiffs-appellees
Gregorio Araneta - defendants-appellants
.
Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land with the
improvements thereon. This property was bought by Investment Corporation through Maria
Lachica, the wife of the Esteban Sadang who was sales agent of defendant corporation.
The terms of the contract stated that the price was P20,000, of which P8,000 was to be paid in cash
and the balance of P12,000 in installments of –
P 1,000 on or before December 31, 1943

P 1,000 on or before December 31, 1944
P 10,000 on or before December 31, 1945.
What the parties signed was a contract of exact content as stated, which however omitted the
words “or before.” Thus, it would appear that the payment of the installments would be “on” and not
“on or before” the dates as specified.
The contract further added that “this same property will be mortgaged to us to guarantee the unpaid
balance, and the same will bear an interest of 8 percent per annum; said interest to be paid monthly
in advance.”
The terms were complied with, together with some resolved differences, until on Sept. 5, 1944,
plaintiff Sadang went to see Araneta to pay the entire balance, including the interest thereon and
ask for the cancellation of the mortgage, but Araneta refused to accept the tender of payment.
Araneta gave as his reason for his non-acceptance that such payment was not in accordance with
the terms of the deed of sale with mortgage.
Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta with the CFI
of Manila by way of consignation, and at the same time presented the complaint.
The defendant alleges that payment should be on the date specified, not before; the plaintiffs claim
that such payment may be made on or before the date specified.
Issue:
(1) Whether or not Araneta Inc. should be compelled to accept the payment.
Ruling:
Yes. The contract does not prohibit if it is done before (p.5706, no. 2). A term is fixed and “it is
presumed to have been established for the benefit of the creditor as sell as that of the debtor,
unless from its tenor or from other circumstances it should appear that the terms as established for
the benefit of one or the other.” (Art. 1127, now 1196 Civil Code). And the contract specifically
provides that “these periods of payment have been agreed for the benefit of the vendor and the
vendee.” Such mutual benefit has been interpreted to consist of the time granted a debtor to find
means to comply with his obligation, and the fruits, such as interest, accruing to the creditor.
From the SC decision in Villaseñor vs. Javellana, the only impediment to a debtor making payment
before the term fixed, is the denial to the creditor of the benefits, such as interests, accruing to the
later by reason of the fixed term. This, coupled with the fact that the contract did not prohibit
payment before the fixed date, justifies the conclusion that under the terms signed, plaintiffs could
do so. To hold otherwise, would be virtually compelling an obligor to assume an obligation later
when he offers to, and could very well, discharge it earlier. The law should not be interpreted as to
compel a debtor to remain so, when he is in a position to release himself.
Further, the acceleration clause in the contract signed by the parties state that “in the event of
defaults in payment of any amount due, either for capital or interest, the whole balance shall
automatically become due and payable, and the vendor shall have the right to foreclose the
mortgage in its entirety.” While the clause is standard one contained in most mortgage deeds where
the mortgage loan is payable in several installments, still we cannot escape the conclusion, derived
from the clause itself, that payments may be made by the vendee before the dates stated in the
contract .
Ponce de Leon v. Syjuco
G.R. No. L-3316, 31 October 1951
FACTS:
Plaintiff obtained from defendant Syjuco two loans in 1944. One is for P200,000 obtained on May 5,
1944, and another for P16,000 obtained on July 31, 1944. These two loans appear in two
promissory notes signed by the plaintiff which were couched in practically the same terms and
conditions and were secured by two deeds of mortgage covering the same parcels of land. In said
promissory notes it was expressly agreed upon that plaintiff shall pay the loans “within one year from
May 5, 1948, . . . peso for peso in the coin or currency of the Government of the Philippines that, at
the time of payment above fixed it is the legal tender for public and private debts, with interests at
the rate of 6% per annum, payable in advance for the first year, and semi-annually in advance during
the succeeding years”, and that, the period above set forth having been established for the mutual
benefit of the debtor and creditor, the former binds himself to pay, and the latter not to demand the
payment of, the loans except within the period above mentioned. And as corollary to having the
above stipulations, it was likewise agreed upon in the two deeds of mortgage that “if either party
should attempt to annul or alter any of the stipulations of this deed or of the note which it secures, or
do anything which has for its purpose or effect an alteration or annulment of any of said stipulations,
he binds himself to indemnify the other for the losses and damages, which the parties hereby
liquidate and fix the amount of P200,000”.
The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above
mentioned, plaintiff offered to pay to the defendant not only the principal sum due on the two
promissory notes but also all the interests which said principal sum may earn up to the dates of
maturity of the two notes, and as the defendant refused to accept the payment so tendered, plaintiff
deposited the money with the clerk of court and brought this action to compel the defendant to
accept it to relieve himself of further liability.
ISSUE:
Is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon
in the two promissory notes signed by the plaintiff?
RULING:
Negative. 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 was a debt due; (2) that the
consignation of the obligation had been made bacause the creditor to whom tender of payment was
made refused to accept it, or because he was absent for incapacitated, or because several persons
claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of
the consignation has been given to the person interested in the performance of the obligation (Art.
1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil
Code); and (5) that after the consignation had been made the person interested was notified thereof
(Art. 1178, Civil Code). In the instant case, while it is admitted a debt existed, that the consignation
was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel
its acceptance on the part of the creditor can be considered sufficient notice of the consignation to
the creditor, nevertheless, it appears that at least two of the above requirements have not been
complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the
court, failed to give previous notice thereof to the person interested in the performance of the
obligation. It also appears that the obligation was not yet due and demandable when the money was
consigned, because, as already stated, by the very express provisions of the document evidencing
the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was
made before this period matured. The failure of these two requirements is enough ground to render
the consignation ineffective. And it cannot be contended that plaintiff is justified in accelerating the
payment of the obligation because he was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary obligation contracted with a period, the presumption
is that the same is deemed constituted in favor of both the creditor and the debtor unless from its
tenor or from other circumstances it appears that the period has been established for the benefit of
either one of them (Art. 1127, Civil Code). Here no such exception or circumstance exists.
* Case digest by Cherry Mae Aguilla-Granada, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Buce v. CA
G.R. No. 136913, 12 May 2000
FACTS:
Petitioner Anita Buce leased a 56 square meter of land located at Quirino Avenue, Pandacan,
Manila. The lease was for a period of 15 years to commence on June 1, 1979 and subject to renewal
for another 10 years, under the same terms and conditions. Respondent Jose Tiongco, demanded a
gradual increase in the rent for Php 1,000 on 1991. On December 1991, respondent wrote petitioner
informing the increase of rent pursuant to the Rent Control Law, effective on January 1992.
However, petitioner tendered checks dated October 1991 to January 1993 for only Php 400 payable
to respondent as administrator which the latter refused to accept. Petitioner filed a complaint for
specific performance which the trial court ruled in favor of petitioner. Appellate court reversed the
decision.
ISSUE:
Whether or Not the period of lease is to renew the contract be given to the lessor.
RULING:
Yes. In the given case of contract of lease, it is given to the lessor. As a general rule under Article
1196 of the Civil Code, the period of the lease contract is deemed to have been set for the benefit of
both parties. Renewal of the contract may be had only upon their mutual agreement or at the will of
both of them. In the given case, “this lease shall be for a period of fifteen years effective June 1,
1979, subject to renewal for another ten (10) years, under the same terms and conditions” does not
mean an autmoctic extension of the contract. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the intention of the lessors to automatically extend
the contract. However, in the given case, Tionco were not amenable to a renewal, they cannot be
compelled to execute a new contract when the old contract terminated on 1 June 1994. It is the
owner-lessors prerogative to terminate the lease at its expiration. The fulfillment of a contract of
lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee
and completely depriving the owner of any say in the matter. Mutuality does not obtain in such a
contract of lease and no equality exists between the lessor and the lessee since the life of the
contract would be dictated solely by the lessee.
Araneta v. Philippine Sugar Estate Development

Co.
G.R. No. L-22558, 31 May 1967
FACTS:
J.M. Tuason & Co., Inc. through Gregorio Araneta, Inc. sold a portion of their land to Philippine
Sugar Estates Development with a condition that the buyer will build a church in the said land while
the seller will construct a street within the property. The buyer had already finished building the
church while the seller had failed to do the construction of the street in Northeast side because a
certain person was occupying its middle portion and refused to vacate.
Now the buyer filed a case in court contending that the seller must evict the person occupying the
property and finish the construction. The seller now contends that the case was premature because
it is without definite period. The lower court then gave a two year period to seller to evict the squatter
and to construct the street.
ISSUE:
Whether or not the parties agreed that the petitioner should have reasonable time to perform its part
of the bargain
RULING:
If the contract so provided, then there was a period fixed, a “reasonable time;” and all that the court
should have done was to determine if that reasonable time had already elapsed when suit was filed
if it had passed, then the court should declare that petitioner had breached the contract, as averred
in the complaint, and fix the resulting damages. On the other hand, if the reasonable time had not
yet elapsed, the court perforce was bound to dismiss the action for being premature.
Article 1197 of the Civil Code involves a two-step process. The Court must first determine that “the
obligation does not fix a period but from the nature and the circumstances it can be inferred that a
period was intended”. The Court must then proceed to the second step, and decide what period was
“probably contemplated by the parties” So the Court cannot fix a period merely because in its
opinion it is or should be reasonable, but must set the time that the parties are shown to have
intended.
In this connection, it is to be borne in mind that the contract shows that the parties were fully aware
that the land described therein was occupied by squatters. As the parties must have known that they
could not take the law into their own hands, but must resort to legal processes in evicting the
squatters, they must have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance. The conclusion is thus forced that the
parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.
Central Philippine University v. CA

G.R. No. 112127, July 17, 1995, 246 SCRA 511
FACTS:
In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor of CPU together with the
following conditions: 1.) The land should be utilized by CPU exclusively for the establishment & use
of medical college; 2.)The said college shall not sell transfer or convey to any 3rd party; 3.)The said
land shall be called “Ramon Lopez Campus” and any income from that land shall be put in the fund
to be known as “Ramon Lopez Campus Fund”.
However, on May 31, 1989, PR, who are the heirs of Don Ramon filed an action for annulment of
donation, reconveyance & damages against CPU for not complying with the conditions. The heirs
also argued that CPU had negotiated with the NHA to exchange the donated property with another
land owned by the latter.
Petitioner alleged that the right of private respondents to file the action had prescribed.
ISSUE:
1. WON petitioner failed to comply the resolutely conditions annotated at the back of petitioner’s
certificate of title without a fixed period when to comply with such conditions.
2. WON there is a need to fix the period for compliance of the condition.
RULING:
Under Art. 1181, on conditional obligations, the acquisition of rights as well the extinguishment or
loss of those already acquired shall depend upon the happening of the event which constitutes the
condition. Thus, when a person donates land to another on the condition that the latter would build
upon the land a school is such a resolutory one. The donation had to be valid before the fulfillment of
the condition. If there was no fulfillment with the condition such as what obtains in the instant case,
the donation may be revoked & all rights which the donee may have acquired shall be deemed lost &
extinguished.
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the
opportunity to comply with the condition even if it be burdensome, to make the donation in its favor
forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of
a term of the obligation when such procedure would be a mere technicality and formality and would
serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits.
Records are clear and facts are undisputed that since the execution of the deed of donation up to
the time of filing of the instant action, petitioner has failed to comply with its obligation as donee.
Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so
that petitioner as donee should now return the donated property to the heirs of the donor, private
respondents herein, by means of reconveyance.
Under Art. 1197, when the obligation does not fix a period but from its nature & circumstance it can
be inferred that the period was intended, the court may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for
compliance therewith & such period has arrived. However, this general rule cannot be applied in this
case considering the different set of circumstances existing more than a reasonable period of 50yrs
has already been allowed to petitioner to avail of the opportunity to comply but unfortunately, it failed
to do so. Hence, there is no need to fix a period when such procedure would be a mere technicality
& formality & would serve no purpose than to delay or load to unnecessary and expensive
multiplication of suits.
Under Art. 1191, when one of the obligors cannot comply with what is incumbent upon him, the
obligee may seek rescission before the court unless there is just cause authorizing the fixing of a
period. In the absence of any just cause for the court to determine the period of compliance there is
no more obstacle for the court to decree rescission.
Arco Pulp and Paper Co, v. Lim

G.R. No. 206806, 25 June 2014
FACTS:
Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the
name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill
business. Lim delivered scrap papers to Arco Pulp and Paper Company, Inc. The parties allegedly
agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials or
deliver to him their finished products of equivalent value. Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement where Arco Pulp and Paper bound themselves to deliver
their finished products to Megapack Container Corporation, owned by Eric Sy. The liability of Arco
Pulp was now transferred to Megapack in paying Lim. Dan T. Lim sent a letter to Arco Pulp and
Paper demanding payment but no payment was made to him. Now Lim filed a case against Arco
Pulp. The Arco Pulp now contends that their agreement was novated because of the MOA agreed
upon Sy and Arco.
ISSUE:
Whether or not the obligation between the parties was an alternative obligation
RULING:
Yes. The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely perform one of
them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
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 has the right of election.” The right of election
is extinguished when the party who may exercise that option categorically and unequivocally makes
his or her choice known.
Inchausti v. Yulo
G.R. No. L-7721, 25 March 1914
FACTS:
This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodor Yulo and after his death continued by
Gregorio Yulo as principal representative of his children. On Aug.12, 1909, Gregorio Yulo, in
representation of his 3 siblings, executed a notarial instrument, ratifying all the contents of the prior
document of Jan.26, 1908, severally and joint acknowledged their indebtedness for P253,445.42, 10
% per annum, 5 installments. Plaintiff brought an action againsta Gregorio for the payment of the
said balance due. But on May 12, 1911, 3 siblings executed another instrument in recognition of the
debt, reduced to P225,000, interest reduced to 6% per annum, installments increased to 8.
They obligated themselves to pay but failed to pay right at the first instalment. An action was brought
against Gregorio Yulo. However, another notarial instrument was executed by the Yulos
inrecognition of the debt and the obligation of payment, and then asking plaintiff to include in the filed
suit Pedro Yulo, and in that case, they’d procure all means for the judgment to be in favour of the
plaintiff. However, the court ruled in favour of Gregorio instead. Court reversed the judgment and
held that plaintiff cansue Gregorio Yulo alone since the Yulos obligated themselves in solidum.
ISSUE:
Whether or not the contract constitute novation.
RULING:
The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909, with
respect to the other debtors who executed this contract. First, “in order that an obligation may be
extinguished by another which substitutes it, it is necessary that it should be so expressly declared
or that the old and the new be incompatible in all points(art. 1292). It is always necessary to state
that it is the intentionof the contracting parties to extinguish the former obligation by the new one.”
The obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified,
by changing only the term of payment and adding other obligations not incompatible with the old
one.
The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one
or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt
that, in accordance with the provision of Art. 1215, 1222, the defendant has the right to enjoy the
benefits of the partial remission. At present judgment can be rendered only as to P112,500.
* Case digest by Lady Rubyge Denura,LLB-1, Andres Bonifacio Law School, SY 2017-2018
Lafarge Cement Phil v. Continental Cement

G.R. No. 155173, 23 November 2004
FACTS:
In the Letter of Intent (LOI) executed by both parties, Petitioner Lafarge Cement Philippines, Inc. on
behalf of its affiliates and other qualified entities agreed to purchase the cement business of
Respondent Continental Cement Corporation. Both parties entered into a Sale and Purchase
Agreement knowing that respondent has a case pending with the Supreme Court. In anticipation of
future liability, the parties allegedly agreed to retain from the purchase price a certain amount to be
deposited in an account for payment to the complainant who sued respondent herein. Upon the
finality of the decision of the said case wherein liability was imposed to the respondent, petitioner
allegedly refused to apply the sum for payment despite repeated instructions of the Respondent.
Respondent filed a Complaint with Application for Preliminary Attachment against petitioners.
Petitioners filed their Answer and Compulsory Counterclaims denying all the allegations and alleged
that respondent`s majority stockholder (Lim) which is also the company president and the corporate
secretary (Mariano), influences respondent to file the baseless complaint and procured the Writ of
Attachment in bad faith. Hence, petitioners prayed that both the president and corporate secretary
be held jointly and solidarily liable with respondent. RTC dismissed petitioner`s counterclaims.
ISSUE:
May defendants in civil cases implead in their counterclaims persons who were not parties to the
original complaint?
RULING:
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as any claim which
a defending party may have against an opposing party. They are generally allowed in order to avoid
a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such
that the defendants demand may be adjudged by a counterclaim rather than by an independent suit.
The only limitations to this principle are (1) that the court should have jurisdiction over the subject
matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence
is essential for its adjudication.
The general rule that a defendant cannot by a counterclaim bring into the action any claim against
persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that
when the presence of parties other than those to the original action is required for the granting of
complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be
brought in as defendants, if jurisdiction over them can be obtained.
The foregoing procedural rules are founded on practicality and convenience. They are meant to
discourage duplicity and multiplicity of suits. This objective is negated by insisting — as the court a
quo has done — that the compulsory counterclaim for damages be dismissed, only to have it
possibly re-filed in a separate proceeding. Respondents Lim and Mariano are real parties in interest
to the compulsory counterclaim; it is imperative that they be joined therein. Moreover, in joining Lim
and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary
nature of the liability alleged therein.
WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is
hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners Answer with
Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim
and Anthony A. Mariano.
Inchausti v. Yulo
G.R. No. L-7721, 25 March 1914
FACTS:
This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodor Yulo and after his death continued by
Gregorio Yulo as principal representative of his children. On Aug.12, 1909, Gregorio Yulo, in
representation of his 3 siblings, executed a notarial instrument, ratifying all the contents of the prior
document of Jan.26, 1908, severally and joint acknowledged their indebtedness for P253,445.42, 10
% per annum, 5 installments. Plaintiff brought an action againsta Gregorio for the payment of the
said balance due. But on May 12, 1911, 3 siblings executed another instrument in recognition of the
debt, reduced to P225,000, interest reduced to 6% per annum, installments increased to 8.
They obligated themselves to pay but failed to pay right at the first instalment. An action was brought
against Gregorio Yulo. However, another notarial instrument was executed by the Yulos
inrecognition of the debt and the obligation of payment, and then asking plaintiff to include in the filed
suit Pedro Yulo, and in that case, they’d procure all means for the judgment to be in favour of the
plaintiff. However, the court ruled in favour of Gregorio instead. Court reversed the judgment and
held that plaintiff cansue Gregorio Yulo alone since the Yulos obligated themselves in solidum.
ISSUE:
Whether or not the contract constitute novation.
RULING:
The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909, with
respect to the other debtors who executed this contract. First, “in order that an obligation may be
extinguished by another which substitutes it, it is necessary that it should be so expressly declared
or that the old and the new be incompatible in all points(art. 1292). It is always necessary to state
that it is the intentionof the contracting parties to extinguish the former obligation by the new one.”
The obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified,
by changing only the term of payment and adding other obligations not incompatible with the old
one.
The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one
or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt
that, in accordance with the provision of Art. 1215, 1222, the defendant has the right to enjoy the
benefits of the partial remission. At present judgment can be rendered only as to P112,500.
* Case digest by Lady Rubyge Denura,LLB-1, Andres Bonifacio Law School, SY 2017-2018
Alipio v. CA
G.R. No. 134100, 29 September 2000
FACTS:
(1) Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco,
Hermosa, Bataan. The lease was for a period of five years ending on September 12, 1990. On June
19, 1987, he subleased the fishpond, for the remaining period of his lease, to the spouses Placido
and Purita Alipio and the Manuel Spouses.
(2) The sublessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00.
(3) Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had
passed away on December 1, 1988.
RTC: Surviving spouse should pay. The trial court denied petitioner’s motion on the ground that
since petitioner was herself a party to the sublease contract, she could be independently impleaded
in the suit together with the Manuel spouses and that the death of her husband merely resulted in his
exclusion from the case.
CA: Surviving spouse should pay. It is noted that all the defendants, including the deceased, were
signatories to the contract of sub-lease. The remaining defendants cannot avoid the action by
claiming that the death of one of the parties to the contract has totally extinguished their obligation.
ISSUE:
(1) Whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the
conjugal partnership of gains, or
(2) Whether such claim must be filed in proceedings for the settlement of the estate of the decedent.
RULING:
(1) Surviving spouse is not liable. The conjugal partnership of gains is liable. It is clear that Climaco
had a cause of action against the persons named as defendants therein. It was, however, a cause of
action for the recovery of damages, that is, a sum of money and the corresponding action is,
unfortunately, one that does not survive upon the death of the defendant, in accordance with the
provisions of Section 21, Rule 3 of the Rules of Court. As held in Calma v. Tañedo, after the death
of either of the spouses, no complaint about the collection of indebtedness chargeable against the
conjugal partnership
can be brought against the surviving spouse. Instead, the claim must be made in the proceedings for
the liquidation and settlement of the conjugal property. The reason for this is that upon the death of
one spouse, the powers of administration of the surviving spouse ceases and is passed to the
administrator appointed by the court having jurisdiction over the settlement of estate proceedings.
Indeed, the surviving spouse is not even a de facto administrator such that conveyances made by
him of any property belonging to the partnership prior to the liquidation of the mass of conjugal
partnership property is void. the inventory of the Alipios’ conjugal property is necessary before any
claim chargeable against it can be paid. Needless to say, such power exclusively pertains to the
court having jurisdiction over the settlement of the decedent’s estate and not to any other court.
(2) The obligation is joint. Indeed, if from the law or the nature or the wording of the obligation the
contrary does not appear, an obligation is presumed to be only joint, i.e., the debt is divided into as
many equal shares as there are debtors, each debt being considered distinct from one another.
Clearly, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio
spouses is chargeable against their respective conjugal partnerships, the unpaid balance of
P50,600.00 should be divided into two so that each couple is liable to pay the amount of P25,300.00.
Jaucian vs. Querol

Creditor (D) vs. Estate of "solidary" debtor
(P)
GR L-11307, October 5, 1918 [T]
Summary: A surety signed a debt instrument binding herself "jointly and severally" with the debtor. The
surety sued for cancellation of the instrument, but it was ruled by the court as valid. When the surety died,
the creditor filed a claim with the estate, but was refused because the creditor did not exhaust his claim
against the principal debtor.
Rule of Law: A creditor may sue any of the joint and several (solidarios) debtors or all of them
simultaneously. The claims instituted against one shall not be an obstacle for those that may be later
presented against the others, as long as it does not appear that the debt has been collected in full.
Facts: Lino Dayandante and Hermenegilda Rogero (P) acknowledged themselves to be indebted to

Roman Jaucian (D) "jointly and severally".
Rogero (P) signed the document in the capacity of surety for Dayandante, but the instrument showed that
both debtors bound themselves jointly and severally to the creditor. There was nothing in the terms of the
obligation itself to show that the relation between the two debtors was that of principal and surety.
Rogero (P) sued Jaucian (D) for fraud. But in his answer, Jaucian (D) asked for judgment against the
Rogero (P) for the amount due upon the obligation. The court ruled in favor of Jaucian (D).
While the case was pending, Rogero (P) died and her estate was substituted as plaintiff. Meanwhile, the
Supreme Court ruled that the document was valid and Rogero (P) was a surety of the debtor.
Jaucian (D) filed a claim against the estate of Rogero (P). Francisco Querol (P), the administrator of
Rogero's (P) estate, demanded a judgment from the court of his claim against Dayandante that he is
indeed insolvent and that Jaucian (D) exhausted all means to collect from the principal debtor.
Issues: Is the surety solidary liable with the principal debtor? May the creditor sue a "surety" without
exhausting all means against the primary debtor?
Ruling: Yes. Rogero (P), though a surety for Dayandante, was nevertheless bound jointly and severally
with him in the obligation.
By security a person binds himself to pay or perform for a third person in case the latter should fail to do
so.
A creditor may sue any of the joint and several (solidarios) debtors or all of them simultaneously. The
claims instituted against one shall not be an obstacle for those that may be later presented against the
others, as long as it does not appear that the debt has been collected in full.
Rogero (P) was solidary liable for the full amount of the obligation without any right to demand the
exhaustion of the property of the principal debtor. Her position so far as the creditor was concerned was
exactly the same as if she had been the principal debtor.
__________
* Keyword : solidary obligation
POSTED BY KANSHU AT 10:00 AM
LABELS: 1918, LLB117, LLB117+2E1Y2S
RFC v CA
FACTS:
 "On October 31, 1941, Jesus de Anduiza and Quintana Cano executed
the following promissory note-
(PI3,800.00 Legaspi, Albay, Octcber 37, 1941
''On or befcre October 31, 1951 for value received, I/we, jointly an d severally, promise
to pay the Agricultural and Industrial Bank, or order, at its office at Manila or Agency at
Legaspi, Albay, Philippines, the sum of (P13,800.00), Philippine currency, with interest
at the rate of 6 per centum per annum, from the date hereof until paid. Payments of the
principal and the corresponding interest are to be made in 10 years equal annual
installments of P1,874.98 each in accordance with the following schedule of
amortizations .
All unpaid installments shall bear interest at the rate of 6 per centum, per annum
 Secured by mortgage
 Failed to pay yearly amortizations
 Estelito Madrid paid for them to creditor for P7,374.83 for principal and P2,625 for
interest or a total of P10, 000. Balance of P6,425 likewise paid on Oct. 30.
 Estelito demanded from Anduiza the P16, 425 but failed to pay. RFC then AIC
refused to cancel mortgage executed by Anduiza
 RFC: Loan not due and demandable because payable in 10 years, no authority from
debtor; accepted only pending proof of Anduiza’s authority; cannot release mortgage
because Anduiza refuse to approve
 No authority, paid P2,000, null and void Madrid’s claim, concede to RFC all legal
remedies
 Anduiza: Not yet due, mere deposit, null and void by EO 49 (June 6, 1945) ->
invalidating the Japanese Currency
 TC: For petitioner but retrial upon motion that disappearance due to
misunderstanding then dismissed
 CA: Cancel mortgage and Anduiza pay petitioner
 SC: Clear any time before date
 Payment may be made even if unknown to debtor
 "It is presumed that a person who has interest on the compliance of the obligation
who is replaced in the payment to the debtor; in natural defense of their own
interests, and unusual and unaccustomed that, out of sheer generosity, debt is
satisfied without any benefit other than the part of that thus applicable. In this sense,
the guarantor, that is, if not a principal debtor, is debtor finally since it has linked its
interests, with his account and reason, to the person liable, and is committed to it
alternatively to pay what is owed, be advanced many times, for different reasons, to
pay the debt, taking it own and legitimate profit. Apart from the legal interest,
particular reasons of another order, a genre involving any benefit, can also move the
mind of a third person for substitution in place of the debtor. "
Quiombing v. CA
G.R. No. 93010, 30 August 1990
FACTS:
On August 30, 1983, Nicencio Tan Quiombing and Dante Biscocho, as the First Party, jointly and
severally bound themselves in a “Construction and Service Agreement” to construct a house for
private respondents Francisco and Manuelita Saligo, as the Second Party, for the contract price of
P137,940.00, which the latter agreed to pay. On October 10, 1984, Quiombing and Manuelita Saligo
entered into a second written agreement under which the latter acknowledged the completion of the
house and undertook to pay the balance of the contract price in the manner prescribed in the said
second agreement. On November 19, 1984, Manuelita Saligo signed a promissory note for
P125,363.50 representing the amount still due from her and her husband, payable on or before
December 31, 1984, to Nicencio Tan Quiombing.
On October 9, 1986, Quiombing filed a complaint for recovery of the said amount, plus charges and
interests, which the private respondents had acknowledged and promised to pay but had not,
despite repeated demands. Instead of filing an answer, the defendants moved to dismiss the
complaint on February 4, 1987, contending that Biscocho was an indispensable party and therefore
should have been included as a co-plaintiff.
ISSUE:
Whether or not Biscocho is an indispensable party in the case.
RULING:
Each one of the solidary creditors may do whatever may be useful to the others, but not anything
which may be prejudice to the latter. Suing for the recovery of the contract price is certainly a useful
act that Quiombing could do by himself alone.
A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt,
and each creditor is entitled only to a proportionate part of the credit. A solidary obligation is one in
which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole
obligation. Hence, in the former, each creditor can recover only his share of the obligation, and each
debtor can be made to pay only his part; whereas, in the latter, each creditor may enforce the entire
obligation, and each debtor may be obliged to pay it in full.
The essence of active solidarity consists in the authority of each creditor to claim and enforce the
rights of all, with the resulting obligation of paying every one what belongs to him; there is no
merger, much less a renunciation of rights, but only mutual representation.
The question of who should sue the private respondents was a personal issue between Quiombing
and Biscocho in which the spouses Saligo had no right to interfere. It did not matter who as between
them filed the complaint because the private respondents were liable to either of the two as a
solidary creditor for the full amount of the debt. Full satisfaction of a judgment obtained against them
by Quiombing would discharge their obligation to Biscocho, and vice versa; hence, it was not
necessary for both Quiombing and Biscocho to file the complaint. Inclusion of Biscocho as a co-
plaintiff, when Quiombing was competent to sue by himself alone, would be a useless formality.
Parenthetically, it must be observed that the complaint having been filed by the petitioner, whatever
amount is awarded against the debtor must be paid exclusively to him, pursuant to Article 1214. This
provision states that “the debtor may pay any of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by any one of them, payment should be made to him.
If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may later claim
his share thereof, but that decision is for him alone to make. It will affect only the petitioner as the
other solidary creditor and not the private respondents, who have absolutely nothing to do with this
matter. As far as they are concerned, payment of the judgment debt to the complainant will be
considered payment to the other solidary creditor even if the latter was not a party to the suit.
Although he signed the original Construction and Service Agreement, Biscocho need not be included
as a co-plaintiff in the complaint filed by the petitioner against the private respondents. Quiombing as
solidary creditor can by himself alone enforce payment of the construction costs by the private
respondents and as a solidary debtor may by himself alone be held liable for any possible breach of
contract that may be proved by the private respondents. In either case, the participation of Biscocho
is not at all necessary, much less indispensable.
* Case digest by Paula Bianca E.Eguia, LLB-1, Andres Bonifacio Law School, SY 2017-2018
Inciong v. CA
G.R. No. 96405, 26 June 1996
FACTS:
In February 1983, Rene Naybe took out a loan from Philippine Bank of Communications (PBC) in
the amount of P50k. For that he executed a promissory note in the same amount. Naybe was able to
convince Baldomero Inciong, Jr. and Gregorio Pantanosas to co-sign with him as co-makers. The
promissory note went due and it was left unpaid. PBC demanded payment from the three but still no
payment was made. PBC then sue the three but PBC later released Pantanosas from its obligations.
Naybe left for Saudi Arabia hence can’t be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the complaint
against Naybe was dropped, and that Pantanosas was released from his obligations, he too should
have been released.a
ISSUE:
Whether or not Inciong should be held liable.
RULING:
Yes. Inciong is considering himself as a guarantor in the promissory note. And he was basing his
argument based on Article 2080 of the Civil Code which provides that guarantors are released from
their obligations if the creditors shall release their debtors. It is to be noted however that Inciong did
not sign the promissory note as a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the principal debtor does not become a solidary co-
debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in
solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of
the principal debtor has been exhausted, retains all the other rights, actions and benefits which
pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him.
Because the promissory note involved in this case expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor (PBC) to determine against whom he will
enforce collection. Consequently, the dismissal of the case against Pontanosas may not be deemed
as having discharged Inciong from liability as well. As regards Naybe, suffice it to say that the court
never acquired jurisdiction over him. Inciong, therefore, may only have recourse against his co-
makers, as provided by law.
Vigilla v. Phil. College of Criminology, Inc.

G.R. No. 200094, 10 June 2013
FACTS:
The petitioners work for the Philippine College of Criminology Inc. (PCCr) as janitors, janitress, and
supervisor in its maintenance department. The petitioners were made to understand by the
respondent PCCr that they are under the Metropolitan Building Services, Inc. (MBMSI) which is a
corporation engaged in providing janitorial services. PCCr terminated the services of MBMSI on
2009 which resulted in the dismissal of the petitioners. An illegal dismissal complaint was then filed
against PCCr by the petitioners contending that it is their real employer and not MBMSI.
Subsequently, the PCCr submitted to the Labor Arbiter waivers, releases, and quitclaims that were
executed by the petitioners in favor to MBMSI.
The Labor Arbiter and NLRC ruled in favor of the petitioner, however upon filing the petition for
review on certiorari before the Court of Appeals, the CA ruled that the quitclaims, releases, and
waivers executed by the petitioners in favor to MBMSI redounds to the benefit of PCCr by virtue of
solidary liability under Article 1217 of the New Civil Code. The petitioners contend that under Article
106 of the Labor Code a labor-only contractor’s liability is not solidary as it is the employer who
should be directly responsible to the supplied worker.
ISSUE:
Whether or not the quitclaims, releases, and waivers executed by the petitioners in favor to MBMSI
redounds to the benefit of PCCr?
RULING:
Yes. The Supreme Court held that the basis of the solidary liability of the principal with those
engaged in labor-only contracting is the last paragraph of Article 106 of the Labor Code that
provides, “In such cases of labor-only contracting, the person or intermediary shall be considered
merely as an agent of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.”
It also pointed out D.O. No. 18-A, s. 2011 section 27 providing for the effects of labor-only
contracting “where upon the finding by competent authority of labor-only contracting shall render the
principal jointly and severally liable with the contractor to the latter’s employees, in the same manner
and extent that the principal is liable to employees directly hired by him/her, as provided in Article
106 of the Labor Code.”
Hence, the PCCr’s solidary liability was already expunged by virtue of the releases, waivers and
quitclaims executed by the petitioners in favor of MBMSI by virtue of Article 1217 of the Civil Code
providing that “payment made by one of the solidary debtors extinguishes the obligation.”
APOLEON M. CRUZ v. SPOUSES MARIANO BASISTER AND ANA BASISTER, AND IRENE
ALEJANDRO
Sirs/Mesdames:
lt;div align="justify">Please take notice that the Court, Second Division, issued a Resolution
dated 30 January 2012 which reads as follows:
G.R. No. 196576 (Napoleon M. Cruz v. Spouses Mariano Basister and Ana Basister, and Irene
Alejandro) - For the Court's consideration is the Motion for Reconsideration dated 12 December
2011 filed by petitioner, moving for the reconsideration of this Court's Resolution dated 12 October
2011. This Resolution denied his Petition dated 26 May 2011 for failure to sufficiently show any
reversible error on the part of the Court of Appeals (CA).
In the instant Motion for Reconsideration, petitioner insists that he is not liable for temperate
damages for the pecuniary loss sustained by respondents spouses Mariano Basister and Ana
Basister (Sps. Basister) on account of the Compromise Agreement executed between them and his
insurer, Paramount General Insurance Corporation (Paramount Insurance), as well as the
withdrawal of the case against his co-defendant Wilfredo Bechayda (Bechayda). He maintains that
this Compromise Agreement and the withdrawal of the case against Bechayda released him from
any obligation. His argument is anchored on the assertion that Article 1217 of the Civil Code on the
payment of one of solidary debtors is applicable to the case at bar. These contentions cannot be
sustained.
In Malayan Insurance v. CA [248 Phil. 1, 8-9 (1988)], this Court distinguished the liability of the
insurer from that of the insured in cases based on tort, to wit:
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault. The liability of
the insurer is based on contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely
respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with
said two (2) respondents by reason of the indemnity contract against third party liability — under
which an insurer can be directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability arising from an unknown or
contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon
Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the
qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation,
petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,013.00,
notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay
the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third party liability is only P20,000.00? Moreover, the qualification made in the
decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when
the obligation to pay P29,103.00 is made solidary, is an evident breach of the concept of a solidary
obligation. (Emphasis supplied.)
It is clear from the above discussion that petitioner can still be held liable even after the payment
made by Paramount Insurance. Thus, the CA correctly ruled that the Compromise Agreement
covered only property damage, and did not include the other claims, such as loss of earnings.
Finally, there is no reason to reverse the finding of the CA with regard to the award of temperate or
moderate damages, which "may be recovered when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be proved with certainty."
[Spouses Hernandez v. Spouses Dolor, 479 Phil. 593, 604 (2004)]
WHEREFORE, the Motion for Reconsideration is DENIED. The 27 November 2009 Decision and 31
March 2011 Resolution of the Court of Appeals are hereby AFFIRMED with FINALITY. No further
pleadings shall be allowed. (Brion, J., on leave under the Court's Wellness Program on January 16-
30, 2012; Perlas-Bernabe, J., designated acting member per S.O. No. 1174 dated 9 January
2012; Reyes, J., no part for being the ponente of the assailed CA decision; Peralta, J., designated
additional member per Raffle dated 5 October 2011)
Very truly yours,

(Sgd.) TERESITA AQUINO TUAZON
Deputy Division Clerk of Court
Diamond Builders v. Country Bankers

G.R. No. 171820, 13 December 2007
FACTS:
Rogelio Acidre (sole proprietor of Diamond Builders) was sued by Marceliano Borja for breach of his
obligation to construct a residential and commercial building.
Rogelio entered into a compromise agreement with Borja.
Rogelio in order to secure himself entered into surety bond with Country Bankers. Under the Surety
Bond, Rogelio and his spouse and other petitioners, in this case, signed an indemnity agreement
consenting to their joint and several liabilities to Country Bankers should the surety bond be
executed uponRogelio violates the compromise agreement.
A writ of execution was issued against Country Bankers for violation of Rogelio to the compromise
agreement.
Country bankers paid the surety bond and ask for reimbursement from petitioners. Petitioners
refused to pay. Country bankers filed a complaint about the sum of money against petitioners.
ISSUE:
W/N Country Bankers is entitled to reimbursement?
RULING:
YES. Art. 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor (principal
co-debtor in case of suretyship) in favor of one who paid the surety.
Only payments made after the obligation has prescribed or became illegal shall not entitle a solidary
debtor for reimbursement (in accordance with Art. 1218).
Capalla v. COMELEC
G.R. No. 201112, 23 October 2012
FACTS:
The Comelec and Smartmatic-TIM entered into a Contract for the Provision of an Automated
Election System for the May 10, 2010 Synchronized National and Local Elections (AES Contract)
which is a Contract of Lease with Option to Purchase (OTP) the goods listed therein consisting of
the Precinct Count Optical Scan (PCOS), both software and hardware. The Comelec opted not to
exercise the same except for 920 units of PCOS machines. Subsequently, the Comelec issued
Resolution resolving to seriously consider exercising the OTP subject to certain conditions. It issued
another Resolution resolving to exercise the OTP in accordance with the AES Contract.Later, the
COMELEC issued Resolution resolving to accept Smartmatic-TIM’s offer to extend the period to
exercise the OTP. The agreement on the Extension of the OTP under the AES Contract (Extension
Agreement) was eventually signed. Finally, it issued Resolution resolving to approve the Deed of
Sale between the Comelec and Smartmatic-TIM to purchase the latter’s PCOS machines to be used
in the upcoming elections. The Deed of Sale was forthwith executed.
ISSUE:
Whether or not assailed resolutions and transactions entered are valid.
RULING:
Yes. The SC decided in favor of respondents and placed a stamp of validity on the assailed
resolutions and transactions entered into. Based on the AES Contract, the Court sustained the
parties’ right to amend the same by extending the option period. Considering that the performance
security had not been released to Smartmatic-TIM, the contract was still effective which can still be
amended by the mutual agreement of the parties, such amendment being reduced in writing. To be
sure, the option contract is embodied in the AES Contract whereby the Comelec was given the right
to decide whether or not to buy the subject goods listed therein under the terms and conditions also
agreed upon by the parties.
Clearly, under the AES Contract, the Comelec was given until December 31, 2010 within which to
exercise the OTP the subject goods listed therein including the PCOS machines. The option was,
however, not exercised within said period. But the parties later entered into an extension agreement
giving the Comelec until March 31, 2012 within which to exercise it. With the extension of the period,
the Comelec validly exercised the option and eventually entered into a contract of sale of the subject
goods. The extension of the option period, the subsequent exercise thereof, and the eventual
execution of the Deed of Sale became the subjects of the petitions challenging their validity in light of
the contractual stipulations of respondents and the provisions of RA 9184.
As the Court simply held in the assailed decision that the moment the performance security is
released, the contract would have ceased to exist. However, since it is without prejudice to the
surviving provisions of the contract, the warranty provision and the period of the option to purchase
survive even after the release of the performance security. While these surviving provisions may
have different terms, in no way can we then consider the provision on the OTP separate from the
main contract of lease such that it cannot be amended under Article 19. Thus, not only the option
and warranty provisions survive but the entire contract as well. In light of the contractual provisions,
the SC sustained the amendment of the option period.
Makati Dev’t Corp. v. Empire Insurance Co.

G.R. No. L-21780, 30 June 1967
FACTS:
On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot. A so-called
“special condition” contained in the deed of sale provides that “the VENDEE/S shall commence the
construction and complete at least 50% of his/her/their/its residence on the property within two (2)
years to the satisfaction of the VENDOR and, in the event of his/her/their/its failure to do so will be
forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this
special condition.” To ensure faithful compliance with this “condition,” Andal gave a surety bond the
sum of P12,000 in case Andal failed to comply with his obligation under the deed of sale.
Andal did not build his house; instead, he sold the lot to Juan Carlos. As neither Andal nor Juan
Carlos built a house on the lot within the stipulated period, the Makati Development Corporation,
sent a notice of claim to the Empire Insurance Co. advising it of Andal’s failure to comply with his
undertaking. Demand for the payment was refused, whereupon the Makati Development Corporation
filed a complaint against the Empire Insurance Co. to recover on the bond in the full amount, plus
attorney’s fees. In due time, the Empire Insurance Co. filed its answer with a third-party complaint
against Andal.
ISSUE:
WHETHER OR NOT Andal is entitled to pay the surety bond of Php12,000 as a penal sanction.
RULING:
No. The so-called “special condition” in the deed of sale is, in reality, an obligation 1 — to build a
house at least 50 percent of which must be finished within two years. It was to secure the
performance of this obligation that a penal clause was inserted. Here the trial court found that Juan
Carlos had finished more than 50 percent of his house or barely a month after the expiration of the
stipulated period. There was, therefore, a partial performance of the obligation within the meaning
and intendment of article 1229. The penal clause, in this case, was inserted not to indemnify the
Makati Development Corporation for any damage it might suffer as a result of a breach of the
contract but rather compel performance of the so-called “special condition” and thus encourage
home building among lot owners in the Urdaneta Village.
Considering that a house had been built shortly after the period stipulated, the substantial, if tardy,
performance of the obligation, having in view the purpose of the penal clause, fully justified the trial
court in reducing the penalty.
The stipulation, in this case, to commence the construction and complete at least 50 percent of the
vendee’s house within two years cannot be construed as imposing a strictly personal obligation on
Andal. To adopt such a construction would be to limit Andal’s right to dispose of the lot. There is
nothing in the deed of sale restricting Andal’s right to sell the lot at least within the two-year period
and we think it plain that a reading of such a limitation on one of the rights of ownership must rest on
more explicit language in the contract. It cannot be left to mere inference.
* Case digest by Prince Dave C. Santiago, LLB-1, Andres Bonifacio Law School, SY 2017-2018
__
Tan vs. Court f Appeals

G.R. No. 116285, October 19, 2001
367 SCRA 571
FACTS:
On May 14, 1978, petitioner Antonio Tan obtained two (2) loans in the total
principal amount of four (4) million pesos from respondent Cultural Center of the
Philippines (CCP), evidenced by 2 promissory notes with maturity dates on May 14,
1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial
payments he had the loans restructured by respondent CCP, and petitioner accordingly
executed a promissory note on August 31, 1979 in the amount of P3,411,421.32
payable in five (5) installments. Petitioner Tan, however, failed to pay any of the
supposed installments and again offered another mode of paying restructured loan
which respondent CCP refused to consent.
On May 30, 1984, respondent, thru counsel, wrote petitioner demanding the full
payment, within ten (10) days, from receipt of the letter, of the latter’s restructured loan
which as of April 30, 1984 amounted to P6, 088,735.03.
On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint
for a collection of a sum of money. Eventually, petitioner was ordered to pay said
amount, with 25% thereof as attorney’s fees and P500, 000.00 as exemplary damages.
The Court of Appeals, on appeal, reduced the attorney’s fees to 5% of the principal
amount to be collected from petitioner and deleted the exemplary damages.
Still unsatisfied with the decision, petitioner comes to this Court seeking for the
deletion of the attorney’s fees and the reduction of the penalties.
ISSUE:
The issue is whether or not interests and penalties may be both awarded in the
case at bar.
HELD:
YES. Article 1226 of the New Civil Code provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is
demandable in accordance with the provisions of this Code. In the case at bar, the
promissory note expressly provides for the imposition of both interest and penalties in
case of default on the part of the petitioner in the payment of the subject restructured
loan, and since the said stipulation has the force of law between the parties and does
not appear to be inequitable or unjust, the said stipulation must be respected.
Country Bankers Insurance v. CA

G.R. No. 85161, 9 September 1991
FACTS:
Sy (petitioner) leased theaters owned by Oscar Ventanilla Enterprises Corporation (OVEC)

(respondent). Despite numerous demands and a supplemental agreement, Petitioner failed to pay
the monthly rentals and amusement taxes as stipulated in their contract. Respondent thereafter
repossessed said properties in accordance with their written agreement. Sy filed to enjoin said action
of OVEC.
ISSUE:
WON the repossession is valid.
RULING:
Yes. The repossession is valid as the same constitutes a penal clause.
Article 1226 of the Civil Code provides that as a general rule, in obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the payment of interests in case of non-
compliance.
There is no merit in petitioners’ argument that the forfeiture clause stipulated in the lease agreement
would unjustly enrich the respondent at the expense of petitioners is contrary to law, morals, good
customs, public order or public policy. A provision which calls for the forfeiture of the remaining
deposit still in the possession of the lessor, without prejudice to any other obligation still owing, in the
event of the termination or cancellation of the agreement by reason of the lessee’s violation of any of
the terms and conditions of the agreement is a penal clause that may be validly entered into. The
petition is denied.

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