1.PNCC vs. CA (GR No.

116896, May 5, 1997)

FACTS:

Petitioner PNCC and private respondents entered into a Lease Agreement on November 18,
1985 for a five (5)-year lease, commencing on the date of issuance of the industrial clearance
by the Ministry of Human Settlements to the petitioner. It was also stated in the Agreement that
rental shall be paid by the petitioner yearly, the first annual rent shall be in the amount of Two
Hundred Forty Thousand Pesos (Php 240,000.00). On January 7, 1986, upon obtaining of
Temporary Use Permit from the Ministry of Human Settlement by the petitioner, private
respondents wrote a letter requesting the petitioner to pay the first annual rental, they also
emphasized that they had stopped considering other proposals to lease in consideration to the
existing agreement with the petitioner. However, petitioner failed to fulfill its obligation and
expressed its intention to terminate the contract due to financial as well as technical difficulties.
The petitioner also argued that it was only obligated to pay the amount of Php 20,000.00 as
payment for the one-month period of lease, counted from January 7, 1986 (when the Permit
was issued) to February 7, 1986. This prompted the respondent to file an action against the
petitioner for specific performance with damages before the Regional Trial Court of Pasig. The
trial court and the Court of Appeals favored the respondents, hence this petition.

ISSUE:
Whether or not the petitioner is entitled to avail the benefit of Articles 1266 and 1267 of the New
Civil Code.

RULING:
No. Firstly, the petitioner cannot take refuge in Article 1266 since said article is only applicable
to obligations “to do”, and not to obligations “to give”. “To give” is a prestation which consists in
the delivery of a movable or an immovable thing in order to create a real right, or for the use of
the recipient, or for its simple possession, or in order to return it to its owner. The obligation to
pay rentals or deliver the thing in a contract of lease falls within the prestation “to give”.
Secondly, the principle rebus sic stantibus (a treaty or agreement remains valid only if the same
conditions prevailing at the time of contracting continue to exist at the time of performance)
neither fits in with the facts of this case. It was noted that the petitioner has entered into the
Contract of Lease with private respondents with open eyes of the deteriorating conditions of the
country since the assassination of the late Senator NinoyAquino.

11. Racquel-Santos vs. Court of Appeals, 592 SCRA 169

Facts:Finvest incurred liabilities to PSE representing fines and penalties for non-payment of its
clearing house obligations. PSE also received reports that Finvest. was notmeeting its
obligations its clients. PSE suspended Finvest from trading. Finvest’s totalobligation to PSE
totaled to P5,990,839.99. Finvest promised to settle all obligations toits clients and to PSE
subject to verification of the amount due, but PSE granted Finvest’srequest, with the warning
that, should Finvest fail to meet the deadline, PSE mightexercise its right to sell Finvest’s
membership seat and use the proceeds thereof to settleits obligations to the PSE, its member-
brokers and its clients. Finvest protested theimposition of the deadline for being arbitrary on the
ground that the claims against it hadnot yet been established.At this juncture, Finvest filed a
Complaint with the SEC foraccounting and damages with prayer for a temporary restraining
order and/or preliminaryinjunction and mandamus.Consequently, notices of garnishment and
sale were issuedagainst Raquel-Santos’ (FINVEST presideny) Manila Golf Shares and Sta.
Elena GolfShares. On June 29, 2000, the parties entered into an Agreement, approved by the
SECen banc in its Order of July 11, 2000, to remand the case to the Securities Investigationand
Clearing Division for service of summonses to Raquel-Santos and Mallari.
With the enactment of the Securities Regulation Code, the case was transferredto the Regional
Trial Court (RTC), Makati City, and docketed as Civil Case No. 00-1589. On October 2, 2001,
the RTC issued an Order lifting the garnishment. The CAheld that the sale of Raquel-Santos’
share in Manila Golf Club was valid.

Issue: W/N Finvest’s liability for fines, penalties and charges has been established,determined
and substantiated, hence, liquidated

Held: Article 1159 of the Civil Code provides that contracts have the force of law between the
contracting parties and should be complied with in good faith. Being the primary law between
the parties, the contract governs the adjudication of their rights and obligations. A court has no
alternative but to enforce the contractual stipulations in themanner they have been agreed upon
and written. A debt is liquidated when the amount is known or is
determinable by inspectionof the terms and conditions of relevant documents. Under the
attendant circumstances, itcannot be said that Finvest’s debt is liquidated. At the time PSE left
the negotiating table,the exact amount of Finvest’s fines, penalties and charges was still in
dispute and as yetundetermined. Consequently, Finvest cannot be deemed to have incurred in
delay in thepayment of its obligations to PSE. It cannot be made to pay an obligation the
amount ofwhich was not fully explained to it. The public sale of the pledged seat would, thus,
bepremature

21. Cortes vs CA

FACTS:Cortes entered into a contract of sale with the Corporation for the sale of
several lotsworth p3,700,000 and executeda Deed of Absolute Sale. The Corporation advanced
payment of p1,213,000 but Cortes retained the Deed for notarization. Upon the Corporation’s
demand for specific performance, Cortes refused to deliver the Deed alleging that the balance
wasyet to be paid resulting in his failure to pay his lessees the disturbance fees causing the
latter’s refusal to pay their rent. He thus prayed that the Corporation to pay the
outstanding balance plus interest otherwise to cancel the sale. The trial court rendered a
decision rescinding the sale but the Court of Appeals reversed its decision. ISSUE:Whether or
not there is delay in the performance of the parties’ obligation that would justify the rescission of
the contract.HELD:Yes. Both parties were in delay. Considering that their obligation was
reciprocal, performance thereof must be simultaneous. The mutual inaction of the parties
gave rise to compensatio morae because neither completed their part in their reciprocal
obligation. Thismutual delay of the parties cancels out the effects of default, such that it is as if
no one is guilty of delay

31. Safeguard Security Agency v. Tangco

FACTS:

The victim Evangeline Tangco was depositor of Ecology Bank. She was also a
licensed-fire arm holder, thus during the incident, she was entering the bank to renew her time
deposit and along with her was her firearm. Suddenly, the security guard of the bank, upon
knowing that the victim carries a firearm, the security guard shot the victim causing the latter’s
instant death. The heirs of the victim filed a criminal case against security guard and an action
against Safeguard Security for failure to observe diligence of a goof father implied upon the act
of its agent.

ISSUE:

WON Safeguard Security can be held liable for the acts of its agent.

HELD:

Yes. The law presumes that any injury committed either by fault or omission of an
employee reflects the negligence of the employer. In quasi-delicts cases, in order to overcome
this presumption, the employer must prove that there was no negligence on his part in the
supervision of his employees.

It was declared that in the selection of employees and agents, employers are required to
examine them as to their qualifications, experience and service records. Thus, due diligence on
the supervision and operation of employees includes the formulation of suitable rules and
regulations for the guidance of employees and the issuance of proper instructions intended for
the protection of the public and persons with whom the employer has relations through his
employees. Thus, in this case, Safeguard Security committed negligence in identifying the
qualifications and ability of its agents.

41.Asset Privatization v. TJ Enterprises

FACTS:

Pursuant to a Mortgage Trust Agreement, the Development Bank of the Philippines and the
Philippine National Bank foreclosed the assets of the Marinduque Mining and Industrial
Corporation. The assets were sold to Philippine National Bank and later transferred to the Asset
Privatization Trust (APT).

In February 1985, Jesus Cabarrus, Sr., together with other stockholders of Marinduque Mining
and Industrial Corporation, filed a derivative suit against Development Bank of the Philippines
and Philippine National Bank before the Regional Trial Court of Makati for Annulment of
Foreclosures, Specific Performance and Damages. In the course of the trial, Marinduque Mining
and Industrial Corporation and Asset Privatization Trust as successor in interest of Development
Bank of the Philippines and Philippine National Bank, agreed to submit the case to arbitration by
entering into a Compromise and Arbitration Agreement. This agreement was approved by the
trial court and the complaint was corollarily dismissed.

Thereafter, the Arbitration Committee rendered a decision ordering Asset Privatization Trust to
pay Marinduque Mining and Industrial Corporation damages and arbitration costs in the amount
of P2.5 Billion, P13,000,000.00 of which is for moral and exemplary damages.

On motion of Cabarrus and the other stockholders of Marinduque Mining and Industrial
Corporation, the trial court confirmed the Arbitration Committee’s award. Its motion for
reconsideration having been denied, Asset Privatization Trust filed a special civil action for
certiorari with the Court of Appeals. It was likewise denied.

ISSUE:

Whether or not the Marinduque Mining and Industrial Corporation is entitled to moral damages?

HELD:

No. How could the MMIC be entitled to a big amount of moral damages when its credit
reputation was not exactly something to be considered sound and wholesome. Under Article
2217 of the Civil Code, moral damages include besmirched reputation which a corporation may
possibly suffer. A corporation whose overdue and unpaid debts to the Government alone
reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business
reputation to brag about.

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral
damages. While the Supreme Court may have awarded moral damages to a corporation for
besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such ruling cannot find application
in this case. It must be pointed out that when the supposed wrongful act of foreclosure was
done, MMIC’s credit reputation was no longer a desirable one. The company then was already
suffering from serious financial crisis which definitely projects an image not compatible with
good and wholesome reputation. So it could not be said that there was a “reputation”
besmirched by the act of foreclosure.

As a rule, a corporation exercises its powers, including the power to enter into contracts,
through its board of directors. While a corporation may appoint agents to enter into a contract in
its behalf, the agent should not exceed his authority. 54 In the case at bar, there was no
showing that the representatives of PNB and DBP in MMIC even had the requisite authority to
enter into a debt-for-equity swap. And if they had such authority, there was no showing that the
banks, through their board of directors, had ratified the FRP.

51. Yobido v. CA

Facts:
Spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin boarded a
Yobido Liner bus.
The left front tire of the bus exploded.
The bus fell into a ravine which resulted in the death of 28-year old Tumboy and physical
injuries to other passengers.

Issue:
Whether or not the Yobidobe exempt from liability because the tire blowout was no more than a
fortuitous event that could not have foreseen.

Held:
No. Under the circumstances of the present case, the explosion of the new tire may not be
considered a fortuitous event. 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.
A common carrier may not be absolved from liability in case of force majeure or fortuitous event
alone. The common carrier must still prove that it was not negligent in causing the death or
injury resulting from an accident.

In culpa contractual, once a passenger dies or injured, the carrier is presumed to have been at
fault or to have acted negligently. This presumption may only be overcome by evidence that the
carrier had observed extraordinary diligence.

The Yobido failed to rebut the testimony of Leny Tumboy that the bus was running so fast that
she cautioned the driver to slow down. These contradictory facts must, be resolved in favor of
liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the
established condition of the road tough, winding and wet due to rain. It was incumbent upon the
defense to establish that it took precautionary measures considering partially dangerous
condition of the road.

Yobido failed to discharge its duty to overthrow the presumption of negligence with clear and
convincing evidence.

61.The Insular Life Assurance v. Toyota Bel-Air

FACTS:

Toyota Bel-Air and Insular Life entered into a contract of lease over a lot and building owned by
Insular Life in Makati City, the contract is for a 5-yar period from April 16, 1992 to April 15, 1997.
The conflict began upon the expiration of the lease wherein Toyota Bel-Air refused to vacate the
property, this actually forced Insular Life to file a complaint in Metropolitan Trial Court (MeTC)
for unlawful detainer against Toyota Bel-Air where the verdict was in favor of the petitioner
Insular Life.

MeTC issued a writ of execution in an action for ejectment against of the respondent Toyota
Bel-Air where the deputy sheriff of MeTC executed the writ by levying on the respondent’s real
and personal properties as well as garnishing its bank accounts. On the hand, because of the
issued writ and the scheduled auction of the levied properties, the respondent Toyota Bel-Air
filed a petition before the Regional Trial Court (RTC) for the injunctive relief which was ultimately
decided that the writ of execution and the levy effected by the deputy sheriff was void.

ISSUE:

Whether or not the petitioner Insular Life has the right to oust Toyota Bel-Air in the
building?

SUPREME COURT RULING:

The Supreme Court declared the writ of execution issued by MeTC valid

– The compromise agreement is an agreement subject to a suspensive condition which

will only give rise to the obligation if all the stipulated conditions are followed which clearly in this
case the respondent Toyota Bel-Air was not able to comply with.

91. Iringan v. CA

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.

101. Ullman v. Hernaez

FACTS

Vicente Hernaez contracted a debt in favor of Felix Ullman on April 5, 1900, amounting to 3,525
pesos Mexican currency, to be paid says Hernaez, “as soon as I receive the portion that as an
heir must come to me from the estate of Juana Espinosa, widow of Hernaez: without prejudice
to paying on it, during the time that may elapse until I get possession of said property, interest at
six per cent a year, but not, however, compound interest.”

On June 2, 1913, Ullman filed suit against Vicente Hernaez, alleging therrein, as the fifth fact:

‘That the defendant did on January 5, 1913, cede, alienate, and convey to Rosendo Hernaez for
the sum of twenty-five thousand pesos (P25,000) Philippine currency, all his rights and rights of
action in the property left by the deceased Juana Espinosa.

This fact was expressly admitted by the defendant in the agreement of facts. Moreover, the
instrument of indebtedness was inserted in the complaint and has not been denied under oath
in the reply.

ISSUES

Whether or not the right of action for nullity of the defendant can prosper?

HELD

No. True it is that the defendant lacked three months and fifteen days when he executed the
note for the sum stated, the price of some jewelry he had bought from the plaintiff; but the
attained his majority on July 20 of the same year 1900, and he did not then nor in the four years
following attempt to enforce the nullity that he now assigns as a ground of error.

111. Central Philippine University v. CA

FACTS:
In 1939, the late Don Ramon Lopez was a member of the board of trustees of Central Philippine
University when he executed a donation to the school, stating that the land must be for
exclusive use of a medical college. 50 years later, The heirs of Ramon Lopez filed an action to
annul the donation, stating the failure of the school to construct the medical college over the
land. RTC ruled in favor of respondents, which the CA affirmed.

ISSUE: Whether there is a resolutory condition

RULING:
The donation was an onerous one, where failure of the school to construct a medical college
would give the heirs the power to revoke the donation, reverting the property back to the heirs of
the donor. It is therefore a resolutory condition. Although, the period was not stated, and the
courts should have fixed a period, in this case, 50 years has lapsed since the donation was
executed, thus fixing a period would serve no purpose and the property must already be
reverted back.

Dissenting Opinion:
Davide considered the donation as "modal" where the obligations are unconditional, and the
fulfillment, performance, existence or extinguishment is not dependent on any future and
uncertain event. It is more accurate to say that the condition stated is not a resolutory condition,
rather a obligation itself, being an onerous donation. Since this is an onerous donation, it has to
comply with the rules on Oblicon, and therefore the courts should have fixed a period.

131. Escano v. Ortigas Jr.

Facts:

On April 28, 1980, Private Development Corp. of the Philippines (PDCP) entered into a loan
agreement with the Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to male available and
lend to Falcon the amount of US $320, 000.00 for specific purposes and subject to certain terms
and conditions.
Three stockholder officers of the Falcon assumed solidary liability, in their individual capacity,
with Falcon for the due and punctual payment of the loan.
Two years later, control of Falcon was ceded to Escaño, Silos and Matti, and the shares of
deceased Scholey, through his heirs Ortigas, Scholey and Inductivo, were assigned to the three
new stock-holders, as well as all of their guaranteed to PDCP and PAIC.
On April 28, 1989, PDCP filed a complaint for sum of money with the RTC of Makati. A
counterclaim was filed by Ortigas.
The other parties entered into compromise agreement with PDCP. Ortigas pursued his claim
against Escaño, Silos and Matti, and filing a motion for Summary Judgement in his favor against
Escaño, Silos and Matti.
The RTC ruled in favor of Ortigas, ordering the three to pay jointly and severally the amount of
P1,300,000.00 as well as P20,000.00 in attorney’s fees.
On appeal, the Court of Appeals affirmed the Summary Judgement. Hence, the present petition
for review.

Issue: Whether or not there was solidary obligation.

Ruling:
No. The obligation was joint.
In this case, there is a concurrence of two or more creditors or of two or more debtors in one
and the same obligation. Article 1207 of the Civil Code states that among them, there is a
solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity. Article 1210 supplies further caution against the broad
interpretation of solidarity by providing that the indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility.

These Civil Code provisions establish that in case of concurrence of two or more creditors or of
two or more debtors in one and the same obligation, and in the absence of express and
indubitable terms characterizing the obligation as solidary, the presumption is that the obligation
is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed
solidary in character to prove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed to bind
themselves jointly and severally in their obligations to the Ortigas group, or any such terms to
that effect. Hence, such obligation established in the Undertaking is presumed only to be joint.
Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome
the presumption of jointness of obligations. The SC ruled that he failed to discharge such
burden.

141. Inciong, Jr. v. CA

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.

171. International Hotel v. Joaquin

FACTS:

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to International

Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed DBP. The proposal encompassed nine phases. The
IHC Board of Directors approved phase one to phase six of the proposal and earmarked
P2,000,000.00 for the project. Anent the financing, IHC applied with DBP for a foreign loan
guaranty. DBP approved it on October 24, 1969 subject to several conditions. On July 11, 1969,
shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of
his fees in the amount of P500,000.00 for the services that he had provided and would be
providing to IHC in relation to the hotel project that were outside the scope of the technical
proposal. Joaquin intimated his amenability to receive shares of stock instead of cash in view of
IHC’s financial situation.

IHC granted Joaquin’s request. Joaquin recommended that he commence negotiating with a
prospective financier, Materials handling corp. IHC allowed. So Joaquin started negotiating
Materials Handling Corp and later on with its principal, Barnes international. While the
negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC,
met with another financier, the Weston International Corporation (Weston), to explore possible
financing. When Barnes failed to deliver the needed loan, IHC informed DBP that it would
submit Weston for DBP’s consideration. As a result, DBP cancelled its previous guaranty. Due
to Joaquin’s failure to secure the needed loan, IHC, through its President Bautista, canceled the
17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services.
The latter requested a reconsideration of the cancellation, but their request was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages against IHC and the members of its BOD. IHC lost.

ISSUE:

Whether or not IHC is liable to pay despite the alleged non performance of obligation on the part
of the petitioner.

RULING:

Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC’s obligation to pay
respondents. IHC argues that it should not be held liable because: (a) it was Joaquin who had
recommended Barnes; and (b) IHC’s negotiation with Barnes had been neither intentional nor
willfully intended to prevent Joaquin from complying with his obligations.

Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials
Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or
otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence of any
intention negated the basis for the CA’s reliance on Article 1186 of the Civil Code.

In order that there may be substantial performance of an obligation, there must have been an
attempt in good faith to perform, without any willful or intentional departure therefrom. The
deviation from the obligation must be slight, and the omission or defect must be technical and
unimportant, and must not pervade the whole or be so material that the object which the parties
intended to accomplish in a particular manner is not attained. The non-performance of a
material part of a contract will prevent the performance from amounting to a substantial
compliance. The party claiming substantial performance must show that he has attempted in
good faith to perform his contract, but has through oversight, misunderstanding or any
excusable neglect failed to completely perform in certain negligible respects, for which the other
party may be adequately indemnified by an allowance and deduction from the contract price or
by an award of damages. But a party who knowingly and wilfully fails to perform his contract in
any respect, or omits to perform a material part of it, cannot be permitted, under the protection
of this rule, to compel the other party, and the trend of the more recent decisions is to hold that
the percentage of omitted or irregular performance may in and of itself be sufficient to show that
there had not been a substantial performance.
By reason of the inconsequential nature of the breach or omission, the law deems the
performance as substantial, making it the obligee’s duty to pay. The compulsion of payment is
predicated on the substantial benefit derived by the obligee from the partial performance.
Although compelled to pay, the obligee is nonetheless entitled to an allowance for the sum
required to remedy omissions or defects and to complete the work agreed upon.

Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it
will adversely affect the nature of the obligation that the obligor promised to deliver, the benefits
that the obligee expects to receive after full compliance, and the extent that the non-
performance defeated the purposes of the contract. Accordingly, for the principle embodied in
Article 1234 to apply, the failure of Joaquin and Suarez to comply with their commitment should
not defeat the ultimate purpose of the contract. The primary objective of the parties in entering
into the services agreement was to obtain a foreign loan to finance the construction of IHC’s
hotel project. This objective could be inferred from IHC’s approval of phase 1 to phase 6 of the
proposal. Phase 1 and phase 2, respectively the preparation of a new project study and the
settlement of the unregistered mortgage, would pave the way for Joaquin and Suarez to render
assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing
foreign financial institution acceptable to DBP. All the steps that Joaquin and Suarez undertook
to accomplish had a single objective – to secure a loan to fund the construction and eventual
operations of the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was
specifically sought to seek financing for IHC’s hotel project.

Needless to say, finding the foreign financier that DBP would guarantee was the essence of the
parties’ contract, so that the failure to completely satisfy such obligation could not be
characterized as slight and unimportant as to have resulted in Joaquin and Suarez’s substantial
performance that consequentially benefitted IHC. Whatever benefits IHC gained from their
services could only be minimal, and were even probably outweighed by whatever losses IHC
suffered from the delayed construction of its hotel. Consequently, Article 1234 did not apply.

Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was
liable based on the nature of the obligation. Considering that the agreement between the parties
was not circumscribed by a definite period, its termination was subject to a condition – the
happening of a future and uncertain event. The prevailing rule in conditional obligations is that
the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event that constitutes the condition.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will
of the respondents because it required the action and discretion of third persons – an able and
willing foreign financial institution to provide the needed funds, and the DBP Board of Governors
to guarantee the loan. Such third persons could not be legally compelled to act in a manner
favorable to IHC. There is no question that when the fulfillment of a condition is dependent
partly on the will of one of the contracting parties,44 or of the obligor, and partly on chance,
hazard or the will of a third person, the obligation is mixed.45 The existing rule in a mixed
conditional obligation is that when the condition was not fulfilled but the obligor did all in his
power to comply with the obligation, the condition should be deemed satisfied.

Considering that the respondents were able to secure an agreement with Weston, and
subsequently tried to reverse the prior cancellation of the guaranty by DBP, the Supreme Court
ruled that they thereby constructively fulfilled their obligation.

Lastly, the amount purportedly included services still to be rendered that supposedly extended
until the completion of the construction of the hotel. It is basic, however, that in obligations to do,
there can be no payment unless the obligation has been completely rendered.

181. Far East Bank v. Diaz Realty

Facts:
Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at
12% interest p.a. which was increased thereafter. The said loan was secured with a real estate
mortgage over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the
loan account was purchased by the petitioner Far East Bank (FEBTC). Two years after, the
respondent through its President inquired about its obligation and upon learning of the
outstanding obligation, it tendered payment in the form of an Interbank check in the amount of
P1,450,000 in order to avoid the further imposition of interests. The payment was with a notation
for the full settlement of the obligation.

The petitioner accepted the check but it alleged in its defense that it was merely a deposit.
When the petitioner refused to release the mortgage, the respondent filed a suit. The lower
court ruled that there was a valid tender of payment and ordered the petitioner to cancel the
mortgage. Upon appeal, the appellate court affirmed the decision.

Issue: Whether or not there was a valid tender of payment to extinguish the obligation of the
respondent

RULING: Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor
may validly refuse it, this dictum does not prevent a creditor from accepting a check as
payment. Herein, the petitioner accepted the check and the same was cleared.

A tender of payment is the definitive act of of offering the creditor what is due him or her,
together with the demand that he accepts it. More important is that there must be a concurrence
of intent, ability and capability to make good such offer, and must be absolute and must cover
the amount due. The acts of the respondent manifest its intent, ability and capability. Hence,
there was a valid tender of payment.

Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not involve an effective
novation but an assignment of credit. As such, the petitioner has the right to collect the full value
of the credit from the respondent subject to the conditions of the promissory note previously
executed.

191. Magdalena Estates Inc v. Rodriguez

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.

201. State Investment House v. CA

Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry,
she returned it to Victoriano before the maturity of the checks. However, the checks cannot be
retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds
from the bank contesting that she incurred no obligation on the checks because the jewellery
was never sold and the checks are negotiated without her knowledge and consent. Upon
presentment of for payment, the checks were dishonoured for insufficiency of funds.

Issues:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or
absence of consideration

Held:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The evidence
shows that: on the faces of the post dated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano before the due dates; that it was
taken in good faith and for value; and there was no knowledge with regard that the checks were
issued as security and not for value. A prima facie presumption exists that a holder of a
negotiable instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the purpose for
which they were issued and therefore is not a holder in due course.

No, Section 119 of NIL provides how an instruments be discharged. Moulic can only invoke
paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic
failed to get back the possession of the checks as provided by paragraph c, intentional
cancellation of instrument is impossible. As provided by paragraph d, the acts which will
discharge a simple contract of payment of money will discharge the instrument. Correlating
Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of
those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally
discharge herself from her liability by mere expediency of withdrawing her funds from the
drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her
check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of
dishonor is of no moment. The need for such notice is not absolute; there are exceptions
provided by Sec 114 of NIL.