CIVIL LAW | CASE PRINCIPLE COMPILATION

OBLIGATIONS AND CONTRACTS Verily, the promissory notes as contracts should bind both contracting
parties; hence, the validity or compliance therewith should not be left
(Relevant Case Principles)
to the will of the petitioner. Otherwise, she would contravene and
violate the principles of mutuality and of the obligatory force of
An obligation is a juridical necessity to give, to do or not to do (Art.
contracts. A respected commentator on civil law has written in this
1156, Civil Code). The obligation is constituted upon the concurrence
respect:
of the essential elements thereof, viz: (a) The vinculum juris or juridical
The binding effect of the contract on both parties is based on
tie which is the efficient cause established by the various sources of
the principles (1) that obligations arising from contracts have the force
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
of law between the contracting parties; and (2) that there must be
(b) the object which is the prestation or conduct, required to be
mutuality between the parties based on their essential equality, to
observed (to give, to do or not to do); and (c) the subject-persons who,
which is repugnant to have one party bound by the contract leaving the
viewed from the demandability of the obligation, are the active
other free therefrom.TERESITA I. BUENAVENTURA V.
(obligee) and the passive (obligor) subjects. ANG YU ASUNCION V. CA,
METROPOLITAN BANK & TRUST COMPANY, G.R.# 167082,
G.R. NO. 109125, DECEMBER 02, 1994
AUGUST 3, 2016
The "Hold Out" clause applies only if there is a valid and existing
The Court cannot generalize the 1997 Asian financial crisis to be
obligation arising from any of the sources of obligation enumerated in
unforeseeable and beyond the control of a business corporation. A real
Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts,
estate enterprise engaged in the pre-selling of condominium units is
delict, and quasi-delict. METROPOLITAN BANK V. ANA GRACE
concededly a master in projections on commodities and currency
ROSALES, GR NO. 183204, JAN 13, 2014
movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday
Article 1159 of the same Code also provides that obligations arising
occurrence, hence, not an instance of caso fortuito. MEGAWORLD
from contracts have the force of law between the contracting parties
GLOBUS ASIA, INC. V. MILA TANSECO, G.R.# 181206, OCTOBER 9,
and should be complied with in good faith. Courts cannot stipulate for
2009;
the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy, for
If there was delay on the part of respondent in its normal role as
to do so would be to alter the real intent of the parties, and would run
creditor to the cardholder, such delay would not have been in the
contrary to the function of the courts to give force and effect thereto.
acceptance of the performance of the debtor's obligation (i.e., the
Not being contrary to public policy, the non-involvement clause, which
repayment of the debt), but it would be delay in the extension of the
petitioner and respondent freely agreed upon, has the force of law
credit in the first place. Such delay would not fall under mora
between them, and thus, should be complied with in good faith. DAISY
accipiendi, which contemplates that the obligation of the debtor, such
B. TIU V. PLATINUM PLANS PHIL, GR NO. 163512, FEB 28, 2007
as the actual purchases on credit, has already been constituted. Herein,
the establishment of the debt itself (purchases on credit of the jewelry)
In order that the debtor may be in default it is necessary that the
had not yet been perfected, as it remained pending the approval or
following requisites be present: (1) that the obligation be demandable
consent of the respondent credit card company. POLO PANTALEON V.
and already liquidated; (2) that the debtor delays performance; and (3)
AMERICAN EXPRESS INTERNATIONAL, INC., G.R.# 174269, MAY
that the creditor requires the performance because it must appear
8, 2009;
that the tolerance or benevolence of the creditor must have ended.
PHILIPPINE EXPORT V. V.P. EUSEBIO CONSTRUCTION, GR NO.
Respondents' offer to partially satisfy their accounts is not enough to
140047, JUL 13, 2004
extinguish their obligation. Under Article 1248 of the Civil Code, the
creditor cannot be compelled to accept partial payments from the
Mora solvendi, or debtor's default, is defined as a delay in the
debtor, unless there is an express stipulation to that effect. More so,
fulfillment of an obligation, by reason of a cause imputable to the
respondents cannot substitute or apply as their payment the value of
debtor. There are three requisites necessary for a finding of default.
the chicks and by-products they expect to derive because it is
First, the obligation is demandable and liquidated; second, the debtor
necessary that all the debts be for the same kind, generally of a
delays performance; third, the creditor judicially or extrajudicially
monetary character. Needless to say, there was no valid application of
requires the debtor's performance. SELEGNA MANAGEMENT V.
payment in this case. ASJ CORPORATION, ET. AL., V. SPOUSES
UNITED COCONUT PLANTERS BANK, GR NO. 165662, MAY 03,
EFREN & MAURA EVANGELISTA, G.R. NO. 158086, FEBRUARY 14,
2006
2008;
Article 1169 of the Civil Code provides that in reciprocal obligations,
There is no doubt that the contract of sale in question gave rise to a
delay by one of the parties begins from the moment the other fulfills
reciprocal obligation of the parties. Reciprocal obligations are those
the obligation. In this case, Lexber is guilty of delay with regard to the
which arise from the same cause, and which each party is a debtor and
amount of P84,364.19, which should be paid. Also, the delay shall
a creditor of the other, such that the obligation of one is dependent
make it liable to Vil-Rey for damages, which We impose in the form of
upon the obligation of the other. They are to be performed
interest at the rate of 6% per annum from 24 December 1996 until the
simultaneously, so that the performance of one is conditioned upon
finality of this Decision. Thereafter, it shall earn interest at the rate of
the simultaneous fulfillment of the other. ANTONIO CORTES V. CA,
6% per annum until satisfaction. VIL-REY PLANNERS & BUILDERS V.
G.R.# 126083, JULY 12, 2006;
LEXBER, GR NO. 189401, JUN 15, 2016
Article 1186 enunciates the doctrine of constructive fulfillment of
In order that obligations arising from contracts may have the force of
suspensive conditions, which applies when the following three (3)
law between the parties, there must be mutuality between the parties
requisites concur, viz: (1) The condition is suspensive; (2) The obligor
based on their essential equality. A contract containing a condition
actually prevents the fulfillment of the condition; and (3) He acts
which makes its fulfillment dependent exclusively upon the
voluntarily. Suspensive condition is one the happening of which gives
uncontrolled will of one of the contracting parties, is void. UNITED
rise to the obligation. It will be irrational for any Bank to provide a
COCONUT PLANTERS BANK V. SPOUSES SAMUEL AND ODETTE
suspensive condition in the Promissory Note or the Restructuring
BELUSO, G.R.# 159912, AUGUST 17, 2007
Agreement that will allow the debtor-promissor to be freed from the
duty to pay the loan without paying it. CARLOS LIM, ET. AL., V.

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CIVIL LAW | CASE PRINCIPLE COMPILATION
DEVELOPMENT BANK OF THE PHILIPPINES, G.R.# 177050, JULY 1,
2013;
The legal remedy of rescission, however, is by no means limited to the
situations covered by the above provisions. The Civil Code uses
rescission in two different contexts, namely: (1) rescission on account
of breach of contract under Article 1191; and (2) rescission by reason of
lesion or economic prejudice under Article 1381. While the term
"rescission" is used in Article 1191, "resolution" was the original term
used in the old Civil Code, on which the article was based. Resolution is
a principal action based on a breach by a party, while rescission under
Article 1383 is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the New Civil Code. SPS. JAIME AND
MATILDE POON V. PRIME SAVINGS BANK, G.R.# 183794, JUNE 13,
2016;
As an alternative justification for its premature termination of the
Contract, respondent lessee invokes the doctrine of unforeseen event
under Article 1267 of the Civil Code, which provides: 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. The theory of rebus sic stantibus in
public international law is often cited as the basis of the above article.
Under this theory, the parties stipulate in light of certain prevailing
conditions, and the theory can be made to apply when these
conditions cease to exist.[35] The Court, however, has once cautioned
that Article 1267 is not an absolute application of the principle of rebus
sic stantibus, otherwise, it would endanger the security of contractual
relations. After all, parties to a contract are presumed to have assumed
the risks of unfavorable developments. It is only in absolutely
exceptional changes of circumstance, therefore, that equity demands
assistance for the debtor. SPS. JAIME AND MATILDE POON V. PRIME
SAVINGS BANK, G.R.# 183794, JUNE 13, 2016;
In the past, this Court has distinguished between a condition imposed
on the perfection of a contract and a condition imposed merely on the
performance of an obligation. While failure to comply with the first
condition results in the failure of a contract, failure to comply with the
second merely gives the other party the option to either refuse to
proceed with the sale or to waive the condition. ROLANDO T.
CATUNGAL, ET. AL. V. ANGEL S. RODRIGUEZ, G.R.# 146839, MAR.
23, 2011;
For novation to take place, the following requisites must concur: (1)
There must be a previous valid obligation; (2) The parties concerned
must agree to a new contract; (3) The old contract must be
extinguished; (4) There must be a valid new contract. Novation may
also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It
is implied when the new obligation is incompatible with the old one on
every point. The test of incompatibility is whether the two obligations
can stand together, each one with its own independent existence.
WELLEX GROUP, INC., V. U-LAND AIRLINES CO., LTD., G.R.#
167519, JANUARY 14, 2015;
The due execution of the share purchase agreement is further
bolstered by Article 1198(4) of the Civil Code, which states that the
debtor loses the right to make use of the period when a condition is
violated, making the obligation immediately demandable.
DEVELOPMENT BANK OF THE PHILIPPINES V. STA. INES MELALE
FORST PRODUCTS CORPORATION, ET. AL., G.R. NOS. 193068 AND
193099, FEBRUARY 1, 2017;
Under the rule on the Statute of Frauds, as expressed in Article 1403 of
the Civil Code, a contract for the sale or acquisition of real property
shall be unenforceable unless the same or some note of the contract
be in writing and subscribed by the party charged. Subject to defined
exceptions, evidence of the agreement cannot be received without the
writing, or secondary evidence of its contents. MCIAA's invocation of
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the Statute of Frauds is misplaced primarily because the statute
applies only to executory and not to completed, executed, or partially
consummated contracts. ANUNCIACION VDA. DE OUANO, ET. AL., V.
THE REPUBLIC OF THE PHILIPPINES, G.R. NO. 168770, FEBRUARY
9, 2011;
The nature of an action filed under Article 1389, as well as the
prescriptive period of four years that is provided under the provision,
do not apply to all rescissible contracts but are limited to specific
cases. In a previous case, this Court has held that Article 1389 applies
to rescissible contracts, as enumerated and defined in Articles 1380
and 1381. We must stress however, that the "rescission" in Article 1381
is not akin to the term "rescission" in Article 1191 and Article 1592. In
Articles 1191 and 1592, the rescission is a principal action which seeks
the resolution or cancellation of the contract while in Article 1381, the
action is a subsidiary one limited to cases of rescission for lesion as
enumerated in said article. The prescriptive period applicable to
rescission under Articles 1191 and 1592, is found in Article 1144, which
provides that the action upon a written contract should be brought
within ten years from the time the right of action accrues. RENATO
PERALTA V. JOSE ROY RAVAL, G.R. NOS. 188467 & 188464,
MARCH 29, 2017;
Clearly, the long delay in the performance of GPI's obligation from date
of demand on September 16, 2002 was unreasonable and unjustified.
It cannot therefore be denied that GPI substantially breached its
contract to sell with Sps. Fajardo which thereby accords the latter the
right to rescind the same pursuant to Article 1191 of the Code. At this
juncture, it is noteworthy to point out that rescission does not merely
terminate the contract and release the parties from further obligations
to each other, but abrogates the contract from its inception and
restores the parties to their original positions as if no contract has
been made. Consequently, mutual restitution, which entails the return
of the benefits that each party may have received as a result of the
contract, is thus required. GOTESCO PROPERTIES, INC., ET. AL. V.
SPS. EUGENIO AND ANGELINA FAJARDO, GR NO. 201167,
FEBRUARY 27, 2013;
As a general rule, "rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial
and fundamental as to defeat the object of the parties in making the
agreement." SPOUSES DELFIN AND AURORA TUMIBAY, ET. AL., V.
SPOUSES MELVIN AND ROWENA LOPEZ, G.R. NO. 171692, JUNE 3,
2013;
Article 1191 of the Civil Code provides that 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 rescission
referred to in this article, more appropriately referred to as resolution,
is not predicated on injury to economic interests on the part of the
party plaintiff, but of breach of faith by the defendant which is violative
of the reciprocity between the parties. The right to rescind may be
waived, expressly or impliedly. SPOUSES LINO & GUIA FRANCSISCO
V. DEAC CONSTRUCTION, ET. AL., G.R. NO. 171312, FEBRUARY 4,
2008;
Nonetheless, the right to rescind a contract for non-performance 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 violations as would defeat the very
object of the parties in making the agreement. Whether a breach is
substantial is largely determined by the attendant circumstances.
SPOUSES FERNANDO AND LOURDES VILLORIA V. CONTINENTAL
AIRLINES, INC., G.R. NO. 188288, JANUARY 16, 2012;
As correctly observed by the RTC, the rescissory action taken by GSIS
is pursuant to Article 1191 of the Civil Code. In cases involving
rescission under the said provision, mutual restitution is required. The
parties should be brought back to their original position prior to the
CIVIL LAW | CASE PRINCIPLE COMPILATION
inception of the contract. "Accordingly, when a decree of rescission is
handed down, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each
other as far as practicable in [their] original situation." Pursuant to this,
Goldloop should return to GSIS the possession and control of the
property subject of their agreements while GSIS should reimburse
Goldloop whatever amount it had received from the latter by reason of
the MOA and the Addendum. GOLDLOOP PROPERTIES, INC., V.
GOVERNMENT SERVICE INSURANCE SYSTEM, G.R. NO. 171076,
AUGUST 1, 2012;
It is a doctrine firmly settled in this jurisdiction that courts have no
power to make a contract for the parties nor can they construe
contracts in such a manner as to change the terms of the contracts not
contemplated by the parties. Verily, under Art. 1308 of the Civil Code,
the contract between the parties is the law between them; mutuality
being an essential characteristic of contracts giving rise to reciprocal
obligations. And under Art. 1306 of the Code, the parties may establish
stipulations mutually acceptable to them for as long as such are not
contrary to law, morals, good customs, public order, or public policy.
And where a determinate period for a contract's effectivity and
expiration has been mutually agreed upon and duly stipulated, the
lapse of such period ends the contract's effectivity and the parties
cease to be bound by the contract. MANILA INTERNATIONAL
AIRPORT AUTHORITY V. OLONGAPO MAINTENANCE SERVICES,
INC., G.R. NOS. 146184-146185, JANUARY 31, 2008;
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill obligations in a normal manner; and,
(d) the obligor must be free from any participation in the aggravation of
the injury or loss. The burden of proving that the loss was due to a
fortuitous event rests on him who invokes it. And, in order for a
fortuitous event to exempt one from liability, it is necessary that one
has committed no negligence or misconduct that may have
occasioned the loss. ROBERTO B. SICAM, ET. AL. V. LULU V. JORGE,
ET. AL., G.R. NO.159617, AUGUST 8, 2007;
It has been held that an act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation -- whether by active intervention, neglect or failure to act
-- the whole occurrence is humanized and removed from the rules
applicable to acts of God. ROBERTO B. SICAM, ET. AL. V. LULU V.
JORGE, ET. AL., G.R. NO.159617, AUGUST 8, 2007;
It is a not a defense for a repair shop of motor vehicles to escape
liability simply because the damage or loss of a thing lawfully placed in
its possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To
be considered as such, carnapping entails more than the mere forceful
taking of another's property. It must be proved and established that
the event was an act of God or was done solely by third parties and
that neither the claimant nor the person alleged to be negligent has
any participation. JIMMY CO V. CA, G.R. NO.124922, JUNE 22, 1998;
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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. The
choice of the debtor must also be communicated to the creditor who
must receive notice of it since the object of this notice is to give the
creditor . . . opportunity to express his consent, or to impugn the
election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if
impugned by the latter, when declared proper by a competent court.
ARCO PULP AND PAPER CO., INC., ET. AL., V. DAN T. LIM, G.R. NO.
206806, JUNE 25, 2015;
A liability is solidary "only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so
requires." In this regard, Article 1207 of the Civil Code provides: Art.
1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of
the former has a right to demand, or that each one of the latter is
bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity. As can be
gleaned therefrom, Article 1207 does not presume solidary liability
unless: 1] the obligation expressly so states; or 2] the law or nature
requires solidarity. Here, there is no doubt that the nature of the
obligation of PEPI and AFPRSBS under the subject contract to sell was
solidary. In the said contract, PEPI and AFPRSBS were expressly
referred to as the "SELLER" while Sanvictores was referred to as the
"BUYER." Indeed, the contract to sell did not state "SELLERS" but
"SELLER." This could only mean that PEPI and AFPRSBS were
considered as one seller in the contract. As correctly pointed out by
the administrative tribunals below and the CA, there was no
delineation as to their rights and obligations.AFP RETIREMENT AND
SEPARATION BENEFITS SYSTEM (AFPRSBS) V. EDUARDO SAN
VICTORES, G.R. NO. 207586. AUGUST 17, 2016;
A solidary or joint and several obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand
the whole obligation. In a joint obligation each obligor answers only for
a part of the whole liability and to each obligee belongs only a part of
the correlative rights. Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is a solidary liability only
when the obligation expressly so states, when the law so provides or
when the nature of the obligation so requires.INDUSTRIAL
MANAGEMENT INTERNATIONAL DEVELOPMENT CORPORATION
V. NATIONAL LABOR RELATIONS COMMISSION, GR# 101723, MAY
11, 2000;
Verily, "[ j]oint tortfeasors are those who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet the
commission of a tort, or approve of it after it is done, if done for their
benefit. They are also referred to as those who act together in
committing wrong or whose acts, if independent of each other, unite in
causing a single injury. Under Article 2194 of the Civil Code, joint
tortfeasors are solidarily liable for the resulting damage. In other
words, joint tortfeasors are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful act
themselves." RUKS KONSULT AND CONSTRUCTION V. ADWORLD
SIGN AND ADVERTISING CORPORATION, GR NO. 204866,
JANUARY 21, 2015;
Under Article 2180 of the New Civil Code, employers are liable for the
damages caused by their employees acting within the scope of their
assigned tasks. Once negligence on the part of the employee is
established, a presumption instantly arises that the employer was
remiss in the selection and/or supervision of the negligent employee.
CIVIL LAW | CASE PRINCIPLE COMPILATION
To avoid liability for the quasi-delict committed by its employee, it is
incumbent upon the employer to rebut this presumption by presenting
adequate and convincing proof that it exercised the care and diligence
of a good father of a family in the selection and supervision of its
employees. R TRANSPORT CORPORATION V. LUISITO G. YU,
G.R.#174161, FEBRUARY 18, 2015;
As defined in Article 1208, a joint obligation is one where there is a
concurrence of several creditors, or of several debtors, or of several
debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound
to render compliance with his proportionate part of the prestation
which constitutes the object of the obligation. Each debtor answers
only for a part of the whole liability and to each obligee belongs only a
part of the correlative rights as it is only in solidary obligations that
payment made to any one of the solidary creditors extinguishes the
entire obligation. This means that Francisco, Ma. Consuelo and
Consuelo are each entitled to equal shares in the P3,000,000 agreed
upon in the Amended Compromise Agreement and that payment to
Consuelo and Ma. Consuelo will not have the effect of discharging the
obligation with respect to Francisco. SPOUSES AMADO AND
ESTHER IBANEZ V. JAMES HARPER, ET. AL., G.R.# 194272,
FEBRUARY 15, 2017;
Thus, petitioner may only claim contribution from him in accordance
with Article 1217 of the Civil Code, and not by virtue of its hauling
contract, in the event that respondents decide to proceed against
petitioner alone for the satisfaction of judgment. Art. 1217 states:
Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor
may choose which offer to accept. He who made the payment may
claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made
before the debt is due, no interest for the intervening period may be
demanded. PETRON CORPORATION V. SPOUSES CESAR JOVERO
AND ERMA F. CUDILLA, ET. AL., G.R.# 151038, JANUARY 18, 2012;
The new obligation extinguishes the prior agreement only when the
substitution is unequivocally declared, or the old and the new
obligations are incompatible on every point. A compromise of a final
judgment operates as a novation of the judgment obligation upon
compliance with either of these two conditions. HEIRS OF SERVANDO
FRANCO V. SPOUSES DANILO AND VERONICA GONZALES, G.R.#
159709, JUNE 27, 2012;
Under the law and jurisprudence, respondent may sue, separately or
together, the principal debtor and the petitioner herein, in view of the
solidary nature of their liability. The death of the principal debtor will
not work to convert, decrease or nullify the substantive right of the
solidary creditor. Evidently, despite the death of the principal debtor,
respondent may still sue petitioner alone, in accordance with the
solidary nature of the latters liability under the performance bond.
STRONGHOLD INSURANCE CO., INC., V. REPUBLIC-ASAHI GLASS
CORPORATION, G.R.# 147561, JUNE 22, 2006;
When the law expressly provides for solidarity of the obligation, as in
the liability of co-principals in a contract of agency, each obligor may
be compelled to pay the entire obligation.[12] The agent may recover
the whole compensation from any one of the co-principals, as in this
case. CONSTANTE AMOR DE CASTRO V. CA, ET. AL., G.R. NO.
115838, JULY 18, 2002;
Novation extinguishes an obligation by (1) changing its object or
principal conditions; (2) substituting the person of the debtor; and (3)
subrogating a third person in the rights of the creditor. Article 1292 of
the Civil Code clearly provides that in order that an obligation may be
extinguished by another which substitutes the same, it should be
declared in unequivocal terms, or that the old and new obligations be
on every point incompatible with each other. Novation may either be
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extinctive or modificatory. Novation is extinctive when an old
obligation is terminated by the creation of a new obligation that takes
the place of the former. Novation is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement. REPUBLIC GLASS CORPORATION, ET. AL.,
V. LAWRENCE C. QUA, G.R.# 144413, JULY 30, 2004;
Considering that MBMSI, as the labor-only contractor, is solidarily liable
with the respondents, as the principal employer, then the NLRC and
the CA correctly held that the respondents' solidary liability was
already expunged by virtue of the releases, waivers and quitclaims
executed by each of the petitioners in favor of MBMSI pursuant to
Article 1217 of the Civil Code which provides that "payment made by
one of the solidary debtors extinguishes the obligation." BENIGNO M.
VIGILLA, ET. AL., V. PHILIPPINE COLLEGE OF CRIMINOLOGY, INC.,
ET. AL., G.R.# 200094, JUNE 10, 2013;
A repairman who fails to perform his obligation is liable to pay for the
cost of the execution of the obligation plus damages. Though entitled,
petitioner in this case is not claiming reimbursement for the repair
allegedly done by Newton Contractor,[36] but is instead asking for
damages for the delay caused by respondent ABB. CONTINENTAL
CEMENT CORPORATION V. ASEA BROWN BOVERI, INC., ET. AL.,
G.R.# 171660, OCTOBER 17, 2011;
The penal clause is generally undertaken to insure performance and
works as either, or both, punishment and reparation. It is an exception
to the general rules on recovery of losses and damages. As an
exception to the general rule, a penal clause must be specifically set
forth in the obligation. In high relief, the stipulation in the Promissory
Note is designated as payment of interest, not as a penal clause, and is
simply an indemnity for damages incurred by the Spouses Chua
because Rivera defaulted in the payment of the amount of
P120,000.00. The measure of damages for the Rivera's delay is limited
to the interest stipulated in the Promissory Note. In apt instances, in
default of stipulation, the interest is that provided by law. RODRIGO
RIVERA V. SPOUSES SALVADOR AND VIOLETA CHUA, G.R.#
184458, JANUARY 14, 2016;
In view of the foregoing disquisitions, we find that there was not only
delay but non-completion of the projects undertaken by petitioner
without justifiable ground. Undoubtedly, petitioner is guilty of breach of
contract. Breach of contract is defined as the failure without legal
reason to comply with the terms of a contract. It is also defined as the
failure, without legal excuse, to perform any promise which forms the
whole or part of the contract. In the present case, petitioner did not
complete the projects. This gives respondent the right to terminate the
contract by serving petitioner a written notice. R.S. TOMAS, INC. V.
RIZAL CEMENT COMPANY, INC., G.R.# 173155, MARCH 21, 2012;
Our perusal of the Kasunduan also shows that it contains a penal
clause which provides that a party who violates any of its provisions
shall be liable to pay the aggrieved party a penalty fixed at
P50,000.00, together with the attorney's fees and litigation expenses
incurred by the latter should judicial resolution of the matter becomes
necessary. An accessory undertaking to assume greater liability on the
part of the obligor in case of breach of an obligation, the foregoing
stipulation is a penal clause which serves to strengthen the coercive
force of the obligation and provides for liquidated damages for such
breach. "The obligor would then be bound to pay the stipulated
indemnity without the necessity of proof of the existence and the
measure of damages caused by the breach." HEIRS OF MANUEL UY
EK LIONG V. MAURICIA MEER CASTILLO, ET. AL., G.R. NO. 176425,
JUNE 15, 2013;
Since the stipulation on the interest rate is void, it is as if there was no
express contract thereon. Hence, courts may reduce the interest rate
as reason and equity demand. WILLIAM C. LOUH, JR., ET. AL. V. BANK
OF THE PHILIPPINE ISLANDS, G.R. NO. 225562, MARCH 8, 2017;
CIVIL LAW | CASE PRINCIPLE COMPILATION
Avoid contract is deemed legally nonexistent. It produces no legal
effect. As a general rule, courts leave parties to such a contract as
they are, because they are in pari delicto or equally at fault. Neither
party is entitled to legal protection. JOSE MENCHAVEZ, ET. AL., V.
FLORENTINO TEVES, JR., GR NO. 153201, JANUARY 26, 2005;
Write-off is not one of the legal grounds for extinguishing an obligation
under the Civil Code. It is not a compromise of liability. Neither is it a
condonation, since in condonation gratuity on the part of the obligee
and acceptance by the obligor are required. In making the write-off,
only the creditor takes action by removing the uncollectible account
from its books even without the approval or participation of the debtor.
Furthermore, write-off cannot be likened to a novation, since the
obligations of both parties have not been modified. When a write-off
occurs, the actual worth of the asset is reflected in the books of
accounts of the creditor, but the legal relationship between the
creditor and the debtor still remains the same - the debtor continues to
be liable to the creditor for the full extent of the unpaid debt. Based on
the foregoing, as creditor, Land Bank may write-off in its books of
account the advance payment released to REMAD in the interest of
accounting accuracy given that the loans were already uncollectible.
Such write-off, however, as previously discussed, does not equate to a
release from liability of petitioners. RUBEN REYNA V. LLOYD SORIA,
G.R. NO. 167219, FEBRUARY 8, 2011;
Of particular note is the affirmative defense of payment raised during
the proceedings a quo. While petitioners insisted that they had paid,
albeit partially, their loan obligation to respondent, the fact of such
payment was never established by petitioners in this case.
Jurisprudence abounds that, in civil cases, one who pleads payment
has the burden of proving it; the burden rests on the defendant, i.e.,
petitioners, to prove payment, rather than on the plaintiff, i.e.,
respondent, to prove non-payment. When the creditor is in possession
of the document of credit, proof of non-payment is not needed for it is
presumed. Here, respondent's possession of the Credit Agreement,
PN, and CSA, especially with their genuineness and due execution
already having been admitted, cements its claim that the obligation of
petitioners has not been extinguished. GO TONG ELECTRICAL
SUPPLY CO., INC., ET. AL., V. BPI FAMILY SAVINGS BANK, G.R. NO.
187487, JUNE 29, 2015;
It is a cardinal rule in contract interpretation that the ascertainment of
the intention of the contracting parties is to be discharged by looking
to the words they used to project that intention in their contract, that
is, all the words, not just a particular word or two, and words in context,
not words standing alone. Article 1374 of the Civil Code requires that
the various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from all of
them taken jointly. In this case, we find it was error on the part of the
trial court to have interpreted the compromise agreement in the
manner it has done so. AURELIO ALONZO, ET. AL., V. JAIME AND
PERALTA SAN JUAN, G.R. NO. 137549, FEBRUARY 11, 2005;
It is established that the one who pleads payment has the burden of
proving it. Even where the creditor alleges non-payment, the general
rule is that the debtor has the burden to prove payment, rather than
the creditor. The debtor has the burden of showing with legal certainty
that the obligation has been discharged by payment. Where the debtor
introduces some evidence of payment, the burden of going forward
with the evidence—as distinct from the general burden of proof—shifts
to the creditor, who is then under a duty of producing some evidence
to show non-payment. MULTI-INTERNATIONAL BUSINESS DATA
SYSTEM, INC., V. RUEL MARTINEZ, G.R. NO. 175378, NOVEMBER
11, 2015;
Furthermore, contrary to petitioner's submission, the nonpayment of
the full consideration did not invalidate the contract of sale. Under
settled doctrine, nonpayment is a resolutory condition that
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extinguishes the transaction existing for a time and discharges the
obligations created thereunder. The remedy of the unpaid seller is to
sue for collection or, in case of a substantial breach, to rescind the
contract. DESAMPARADOS SOLIVA V. THE INTESTATE ESTATE OF
MARCELO VILLALBA, G.R. NO. 154017, DECEMBER 8, 2003;
It is well to note that Article 1234 applies only when an obligor admits
breaching the contract after honestly and faithfully performing all the
material elements thereof except for some technical aspects that
cause no serious harm to the obligee. IHC correctly submits that the
provision refers to an omission or deviation that is slight, or technical
and unimportant, and does not affect the real purpose of the contract.
INTERNATIONAL HOTEL CORPORATION V. FRANCISCO JOAQUIN,
ET. AL., G.R. NO. 158361, APRIL 10, 2013;
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.[38] 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. ALEJANDRO V. TANKEH V. DEVELOPMENT BANK
OF THE PHILIPPINES, ET. AL., G.R. NO. 171428, NOVEMBER 11,
2013;
Article 1374 of the Civil Code clearly provides that "[t]he various
stipulations of a contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all of them taken
jointly." Indeed, in construing a contract, the provisions thereof should
not be read in isolation, but in relation to each other and in their
entirety so as to render them effective, having in mind the intention of
the parties and the purpose to be achieved. In other words, the
stipulations in a contract and other contract documents should be
interpreted together with the end in view of giving effect to all.
MANILA INTERNATIONAL AIRPORT AUTHORITY V. AVIA
FILIPINAS INTERNATIONAL, INC., G.R. NO. 180168, FEBRUARY 27,
2012;
The principle of unjust enrichment finds application in this case. Unjust
enrichment exists when a person unfairly retains a benefit to the loss
of another, or when a person retains money or property of another
against the fundamental principles of justice, equity, and good
conscience. There is unjust enrichment under Article 22 of the Civil
Code when (1) a person is unjustly benefited, and (2) such benefit is
derived at the expense of or with damages to another. The principle of
unjust enrichment essentially contemplates payment when there is no
duty to pay, and the person who receives the payment has no right to
receive it. The CA is then correct when it ruled that allowing Jalandoni
to keep the amounts received from Encomienda will certainly cause an
unjust enrichment on Jalandoni's part and to Encomienda's damage
and prejudice. GEORGIA OSMENA-JALANDONI V. CARMENCITA
ENCOMIENDA, G.R. NO. 205578, MARCH 1, 2017;
When there is a concurrence of several creditors or of several debtors
or of several creditors and debtors in one and the same obligation, it is
presumed that the obligation is joint and not solidary.[60] The most
fundamental effect of joint divisible obligations is that each creditor
can demand only for the payment of his proportionate share of the
credit, while each debtor can be held liable only for the payment of his
proportionate share of the debt. As a corollary to this rule, the credit or
CIVIL LAW | CASE PRINCIPLE COMPILATION
debt shall be presumed, in the absence of any law or stipulation to the
contrary, to be divided into as many shares as there are creditors and
debtors, the credits or debts being considered distinct from one
another.[61] It necessarily follows that a joint creditor cannot act in
representation of the others. Neither can a joint debtor be compelled
to answer for the liability of the others.[62] The pertinent rules are
provided in Articles 1207 and 1208[64] of the Civil Code. GIL M.
CEMBRANO AND DOLLFUSS R. GO V. CITY OF BUTUAN, ET. AL.,
G.R. NO.163605, SEPTEMBER 20, 2006;
The RTC and the Court of Appeals correctly ruled that the petitioner's
obligation has not been extinguished. The petitioner's obligation
consists of payment of a sum of money. In order for petitioner's
payment to be effective in extinguishing its obligation, it must be made
to the proper person. Article 1240 of the Civil Code states:
Art. 1240. Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in interest,
or any person authorized to receive it. REPUBLIC OF THE
PHILIPPINES V. THI THU THUY T. DE GUZMAN, G.R. NO. 175021,
JUNE 15, 2011;
Article 1242 of the Civil Code is an exception to the rule that a valid
payment of an obligation can only be made to the person to whom
such obligation is rightfully owed. It contemplates a situation where a
debtor pays a "possessor of credit" i.e., someone who is not the real
creditor but appears, under the circumstances, to be the real creditor.
In such scenario, the law considers the payment to the "possessor of
credit" as valid even as against the real creditor taking into account the
good faith of the debtor. NATIONAL POWER CORPORATION V.
LUCMAN IBRAHIM, ET. AL., G.R. NO. 175863, FEBRUARY 18, 2015;
Dacion en pago as a mode of extinguishing an existing obligation
partakes of the nature of sale whereby property is alienated to the
creditor in satisfaction of a debt in money. It is an objective novation of
the obligation, hence, common consent of the parties is required in
order to extinguish the obligation. DAO HENG BANK V. SPOUSES
REYNALDO AND LILIA LAIGO, G.R. NO. 173856, NOVEMBER 20,
2008;
In the event that the debtor failed to exercise the right to elect the
creditor may choose to which among the debts the payment is applied
as in the case at bar. It is noteworthy that after the sale of the
foreclosed properties at the public auction, Lorenze Realty failed to
manifes": its preference as to which among the obligations that were
all due the proceeds of the sale should be applied. SPOUSES JUAN
CHUY TAN, ET. AL., V. CHINA BANKING CORPORATION, G.R. NO.
200299, AUGUST 17, 2016;
Article 1216 of the Civil Code provides that "[t]he creditor may proceed
against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected." Article 1252 of
the Civil Code does not apply, as urged by the petitioners, because in
the said article the situation contemplated is that of a debtor with
several debts due, whereas the reverse is true, with each solidary debt
imputable to several debtors. ESTANISLAO AND AFRICA SINAMBAN
V. CHINA BANKING CORPORATION, G.R. NO. 193890, MARCH 11,
2015;
The rule under Article 1253 that payments shall first be applied to the
interest and not to the principal shall govern if two facts exist: (1) the
debt produces interest (e.g., the payment of interest is expressly
stipulated) and (2) the principal remains unpaid. The exception is a
situation covered under Article 1176, i.e., when the creditor waives
payment of the interest despite the presence of (1) and (2) above. In
such case, the payments shall obviously be credited to the principal.
Since the doubt in the present case pertains to the application of the
daily payments, Article 1253 shall apply. Only when there is a waiver of
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interest shall Article 1176 become relevant. NUNELEON R. MARQUEZ
V. ELISAN CREDIT CORPORATION, G.R. NO. 194642, APRIL 6,
2015;
The assignment, being intended to be a mere security rather than a
satisfaction of indebtedness, is not a dation in payment under Article
1245 and did not extinguish the loan obligation. "Dation in payment
extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement-express or implied, or by their silence-
consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished." SPOUSES JOHNNY, JR., AND MAY
S. VILLALUZ V. LAND BANK OF THE PHILIPPINES, ET. AL., G.R. NO.
192602, JANUARY 18, 2017;
Consignation is necessarily judicial. Article 1258 of the Civil Code
specifically provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority. The said
provision clearly precludes consignation in venues other than the
courts. SPOUSES OSCAR AND THELMA CACAYORIN V. ARMED
FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., G.R.
NO. 171298, APRIL 15, 2013;
Petitioner cannot invoke Articles 1266 and 1267 of the Civil Code.
These provisions—which release debtors from their obligations if they
become legally or physical impossible or so difficult to be manifestly
beyond the contemplation of the parties—only apply to obligations to
do. They do not apply to obligations to give as when a party is obliged
to deliver a thing which, in this case, is a certificate of title to a real
property free from liens and encumbrances.Development. BANK OF
THE PHILIPPINES V. CLARGES REALTY CORPORATION, G.R. NO.
170060, AUGUST 17, 2016;
For Article 1267 to apply, the following conditions should concur,
namely: (a) the event or change in circumstances could not have been
foreseen at the time of the execution of the contract; (b) it makes the
performance of the contract extremely difficult but not impossible; (c)
it must not be due to the act of any of the parties; and (d) the contract
is for a future prestation. The requisites did not concur herein because
the difficulty of performance under Article 1267 of the Civil Code
should be such that one party would be placed at a disadvantage by
the unforeseen event. Mere inconvenience, or unexepected
impediments, or increased expenses did not suffice to relieve the
debtor from a bad bargain. TAGAYTAY REALTY CO., INC., V. ARTURO
G. GACUTAN, G.R. NO. 160033, JULY 1, 2015;
Here, the fourth requisite of legal compensation is absent. A debt is
liquidated when its existence and amount are determined.
Compensation can only take place between certain and liquidated
debts; it cannot extend to unliquidated, disputed claims. Since the loan
obligation, including its amount and demandability, is still being
disputed in CA-G.R. CVNo. 30340, PTC's credit cannot be considered
liquidated as of yet. Consequently, no legal compensation could have
taken place between PTC's loan credit and the Spouses Roxas'
judgment credit. PHILIPPINE TRUST CO., V. FLORO ROXAS, ET. AL.,
G.R. NO. 171897, OCTOBER 14, 2015;
We find that petitioner's act of withholding respondent's service
fees/commissions and applying them to the latter's outstanding
obligation with the former is merely an acknowledgment of the legal
compensation that occurred by operation of law between the parties.
Compensation is a mode of extinguishing to the concurrent amount
the obligations of persons who in their own right and as principals are
reciprocally debtors and creditors of each other. Legal compensation
takes place by operation of law when all the requisites are present, as
opposed to conventional compensation which takes place when the
parties agree to compensate their mutual obligations even in the
absence of some requisites.[18] Legal compensation requires the
concurrence of the following conditions:
CIVIL LAW | CASE PRINCIPLE COMPILATION
(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. MONDRAGON PERSONAL SALES, INC., V. VICTORIANO
SOLA, G.R. NO.174882, JANUARY 21, 2013;
Compromise is a form of amicable settlement that is not only allowed,
but also encouraged in civil cases. Contracting parties may establish
such stipulations, clauses, terms, and conditions as they deem
convenient, provided that these are not contrary to law, morals, good
customs, public order, or public policy. Rights may be waived through a
compromise agreement, notwithstanding a final judgment that has
already settled the rights of the contracting parties. To be binding, the
compromise must be shown to have been voluntarily, freely and
intelligently executed by the parties, who had full knowledge of the
judgment. SM SYSTEMS CORPORATION V. OSCAR CAMERINO, ET.
AL., G.R. NO.178591, MARCH 29, 2017;
Under this provision, there are two forms of novation by substituting
the person of the debtor, and they are: (1) expromision and (2)
delegacion. In the former, the initiative for the change does not come
from the debtor and may even be made without his knowledge, since it
consists in a third person assuming the obligation. As such, it logically
requires the consent of the third person and the creditor. In the latter,
the debtor offers and the creditor accepts a third person who consents
to the substitution and assumes the obligation, so that the intervention
and the consent of these three persons are necessary (8 Manresa
436-437, cited in IV Civil Code of the Philippines by Tolentino, 1962
ed., p. 360). In these two modes of substitution, the consent of the
creditor is an indispensable requirement. BANK OF THE PHILIPPINE
ISLANDS V. AMADOR DOMINGO, G.R. NO. 169407, MARCH 25,
2015;
An evaluation of our contract and corporation laws validates that the
Nell Doctrine is fully supported by Philippine statutes. The general rule
expressed by the doctrine reflects the principle of relativity under
Article 1311 of the Civil Code. Contracts, including the rights and
obligations arising therefrom, are valid and binding only between the
contracting parties and their successors-in-interest. Thus, despite the
sale of all corporate assets, the transferee corporation cannot be
prejudiced as it is not in privity with the contracts between the
transferor corporation and its creditors.
The first exception under the Nell Doctrine, where the
transferee corporation expressly or impliedly agrees to assume the
transferor's debts, is provided under Article 2047[35] of the Civil Code.
When a person binds himself solidarity with the principal debtor, then a
contract of suretyship is produced. Necessarily, the corporation which
expressly or impliedly agrees to assume the transferor's debts shall be
liable to the same.
The second exception under the doctrine, as to the merger
and consolidation of corporations, is well-established under Sections
76 to 80, Title X of the Corporation Code. If the transfer of assets of
one corporation to another amounts to a merger or consolidation, then
the transferee corporation must take over the liabilities of the
transferor.
Another exception of the doctrine, where the sale of all
corporate assets is entered into fraudulently to escape liability for
transferor's debts, can be found under Article 1388 of the Civil Code. It
provides that whoever acquires in bad faith the things alienated in
fraud of creditors, shall indemnify the latter for damages suffered.
Thus, if there is fraud in the transfer of all the assets of the transferor
corporation, its creditors can hold the transferee liable. Y-1 LEISURE
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PHILIPPINES, INC., ET. AL., V. JAMES YU, G.R. NO. 207161,
SEPTEMBER 8, 2015;
Subrogation of a third person in the rights of a creditor may either be
legal or conventional.[15] There is legal subrogation when: (a) a creditor
pays another preferred creditor, even without the debtor's knowledge;
(b) a third person who is not interested in the obligation pays with the
express or tacit approval of the debtor; and (c) a person interested in
the fulfilment of the obligation pays, even without the knowledge of
the debtor. In the present case, Figuera based her claim on the third
type of subrogation. She claims that as the EIDC's new owner, she is
interested in fulfilling Ang's obligation to pay the utility bills. Since the
payment of the bills was long overdue prior to the assignment of
business rights to Figuera, the failure to settle the bills would
eventually result in "the disconnection of the electricity and telephone
services, ejectment from the office premises, and resignation by some,
if not all, of the company's employees with the possibility of
subsequent labor claims for sums of money." These utilities are
obviously necessary for the continuation of Figuera's business
transactions. JENNIFER FIGUERA V. MARIA REMEDIOS ANG, G.R.
NO. 204264, JUNE 29, 2016;
"The primary consideration in determining the true nature of a
contract is the intention of the parties. If the words of a contract
appear to contravene the evident intention of the parties, the latter
shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and
subsequent acts of the parties." However, if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control. FLORITA LIAM V.
UNITED COCONUT PLANTERS BANK, G.R. NO. 194664, JUNE 15,
2016;
Verily, a penal clause is an accessory undertaking attached to a
principal obligation. It has for its purposes, firstly, to provide for
liquidated damages; and, secondly, to strengthen the coercive force of
the obligation by the threat of greater responsibility in the event of
breach of obligation. Under Article 1226 of the Civil Code, a penal
clause is a substitute indemnity for damages and the payment of
interests in case of noncompliance, unless there is a stipulation to the
contrary. TERESITA BUENAVENTURA V. METROPOLITAN BANK
AND TRUST COMPANY, GR NO. 167082, AUGUST 3, 2016;
It is basic in law that a compromise agreement, as a contract, is binding
only upon the parties to the compromise, and not upon non-parties.
This is the doctrine of relativity of contracts. The rule is based on
Article 1311 (1) of the Civil Code which provides that "contracts take
effect only between the parties, their assigns and heirs x x x." The
sound reason for the exclusion of non-parties to an agreement is the
absence of a vinculum or juridical tie which is the efficient cause for
the establishment of an obligation. Consistent with this principle, a
judgment based entirely on a compromise agreement is binding only
on the parties to the compromise the court approved, and not upon the
parties who did not take part in the compromise agreement and in the
proceedings leading to its submission and approval by the court.
Otherwise stated, a court judgment made solely on the basis of a
compromise agreement binds only the parties to the compromise, and
cannot bind a party litigant who did not take part in the compromise
agreement. DONA ADELA EXPORT INTERNATIONAL, INC., V.
TRADE AND INVESTMENT DEVELOPMENT CORP., ET. AL., G.R.#
201931, FEBRUARY 11, 2015;
The principle of relativity of contracts dictates that contractual
agreements can only bind the parties who entered into them, and
cannot favor or prejudice third persons, even if he is aware of such
contract and has acted with knowledge thereof.[62] The doctrine finds
statutory basis under Art. 1311 of the New Civil Code, which provides:
Article 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and obligations
CIVIL LAW | CASE PRINCIPLE COMPILATION
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.
The law is categorical in declaring that as a general rule, the heirs of
the contracting parties are precluded from denying the binding effect
of the valid agreement entered into by their predecessors-in-interest.
This is so because they are not deemed "third persons" to the contract
within the contemplation of law. Additionally, neither the provision nor
the doctrine makes a distinction on whether the contract adverted to
is oral or written, and, even more so, whether it is embodied in a public
or private instrument. It is then immaterial that the Extrajudicial
Settlement executed by Flaviana was not properly notarized for the
said document to be binding on her heirs, herein respondents.
SPOUSES LUISITO PONTIGON, ET. AL., V. HEIRS OF MELITON
SANCHEZ, G.R.# 221513, DECEMBER 5, 2016;
In absolute simulation,there is a colorable contract but it has no
substance as the parties have no intention to be bound by it.The main
characteristic of an absolute simulation is that the apparent contract is
not really desired or intended to produce legal effect or in any way alter
the juridical situation of the parties. As a result, an absolutely simulated
or fictitious contract is void, and the parties may recover from each
other what they may have given under the contract.However, if the
parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties are still
bound by their real agreement.Hence, where the essential requisites of
a contract are present and the simulation refers only to the content or
terms of the contract, the agreement is absolutely binding and
enforceable between the parties and their successors in interest.
HEIRS OF POLICORNIO URETA V. HEIRS OF LIBERATO URETA,
G.R.# 165748, SEPTEMBER 14, 2011;
To determine the compensation due and to avoid unjust enrichment
from resulting out of a fulfilled contract, the principle of quantum
meruit may be used. Under this principle, a contractor is allowed to
recover the reasonable value of the services rendered despite the lack
of a written contract. The measure of recovery under the principle
should relate to the reasonable value of the services performed. The
principle prevents undue enrichment based on the equitable postulate
that it is unjust for a person to retain any benefit without paying for it.
Being predicated on equity, said principle should only be applied if no
express contract was entered into, and no specific statutory provision
was applicable. KABISIG REAL WEALTH DEVELOPMENT, ET. AL., V.
YOUNG CORPORATION BUILDERS, G.R.# 212375, JANUARY 25,
2017;
There is no need to bring a separate action for the declaration of the
subject deeds of conveyance as void. A void or inexistent contract is
one which has no force and effect from the very beginning. Hence, it is
as if it has never been entered into and cannot be validated either by
the passage of time or by ratification. The need to bring a separate
action for declaration of nullity applies only if the void contract is no
longer fully executory. Contrary to Peña's stance, the deeds of
conveyance made in favor of Atty. Robiso in 2005 cannot be
considered as executory because at that time the judgment award
ceding the subject lots to Jesus and Rosita was not yet implemented. A
writ of execution was issued only on July 10, 2008. "If the void contract
is still fully executory, no party need bring an action to declare its
nullity; but if any party should bring an action to enforce it, the other
party can simply set up the nullity as a defense." JOSE R. PENA V.
JESUS DELOS SANTOS, ET. AL., G.R.# 202223, MARCH 2, 2016;
At this point, however, we should clarify that the proper basis for the
nullity of the forged pacto de retro sale is not Article 1409(which
enumerates examples of void contracts) in relation to Article
1505(which refers to an unenforceable contract and is applicable only
to goods) of the Civil Code as stated by the Court of Appeals, but
Article 1318 of the Civil Code, which enumerates the essential
requisites of a valid contract:
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Article 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
There are two types of void contracts: (1) those where one of the
essential requisites of a valid contract as provided for by Article 1318
of the Civil Code is totally wanting; and (2) those declared to be so
under Article 1409 of the Civil Code. "[C]onveyances by virtue of a
forged signature x x x are void ab initio. The absence of the essential
[requisites] of consent and cause or consideration in these cases
rendered the contract inexistent. x x x." VICENTE MANZANO, JR., V.
MARELINO GARCIA, G.R. NO. 179323, NOVEMBER 28, 2011;
The law expressly declares void a government contract that fails to
comply with the two requirements, namely, an appropriation law
funding the contract and a certification of appropriation and fund
availability. The clear purpose of these requirements is to insure that
government contracts are never signed unless supported by the
corresponding appropriation law and fund availability. MIGUEL
GUILLERMO, ET. AL., V. PHILIPPINE INFORMATION AGENCY, G.R.#
223751, MARCH 15, 2017;
The petitioners' mere proposal to extinguish their loan obligations by
way of dacion en pago does not novate the mortgage contract. On the
question of the petitioners' failed proposal to extinguish their loan
obligations by way of dacion en pago, no bad faith can be imputed to
Solidbank for refusing the offered settlement as to render itself liable
for moral and exemplary damages after opting to extrajudicially
foreclose on the mortgage. In Tecnogas Philippines Manufacturing
Corporation v. Philippine National Bank, the Court held:
Dacion en pago is a special mode of payment whereby the
debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding obligation. The undertaking is
really one 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. It is only when the thing offered as an equivalent is accepted
by the creditor that novation takes place, thereby, totally extinguishing
the debt. FLORANTE E. JONSAY, ET. AL., V. SOLIDBANK
CORPORATION, G.R.# 206459, APRIL 6, 2016
Generally, parties to a void agreement cannot expect the aid of the law;
the courts leave them as they are, because they are deemed in pari
delicto or "in equal fault." In pari delicto is "a universal doctrine which
holds that no action arises, in equity or at law, from an illegal contract;
no suit can be maintained for its specific performance, or to recover
the property agreed to be sold or delivered, or the money agreed to be
paid, or damages for its violation; and where the parties are in pari
delicto, no affirmative relief of any kind will be given to one against the
other." JACOBUS BERNHARD HULST V. PR BUILDERS, INC., G.R.#
156364, SEPTEMBER 3, 2007;
Finding the inapplicability of the in pari delicto doctrine, We find
occasion to stress that Article 1412 of the Civil Code that breathes life
to the doctrine speaks of the rights and obligations of the parties to
the contract with an illegal cause or object which does not constitute a
criminal offense. It applies to contracts which are void for illegality of
subject matter and not to contracts rendered void for being simulated,
[28] or those in which the parties do not really intend to be bound
thereby. Specifically, in pari delicto situations involve the parties in one
contract who are both at fault, such that neither can recover nor have
any action against each other. OSCAR CONSTANTINO, ET. AL., V.
HEIRS OF PEDRO CONSTANTINO, JR., G.R.# 181508, OCTOBER 2,
2013;