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OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
RIGHTS AND OBLIGATIONS OF MULTIPLE PARTIES
G.R. No. L-55138 September 28, 1984
ERNESTO V. RONQUILLO vs. HONORABLE COURT OF APPEALS AND ANTONIO
P. SO
The other defendants were Offshore Catertrade Inc., Johnny Tan and Pilar Tan.
The amount of P117,498.98 sought to be collected
Antonio So filed for the collection of the sum against several defendants, one of
whom was Ernesto V. Ronquillo, in the amount of P117,498.98. This represents the
value of the checks issued several defendants in payment for foodstuffs delivered to
and received by them. The said checks were dishonored by the drawee bank.
The lower court rendered its Decision based on the compromise agreement
submitted by the parties, the pertinent portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95 to only
P11,000 .00 and defendants agree to acknowledge the validity of such claim
and further bind themselves to initially pay out of the total indebtedness of
P10,000.00 the amount of P55,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980, or before June 30, 1980;
(Emphasis supplied)
On December 26, 1979, private respondent So filed a Motion for Execution on the
ground that defendants failed to make the initial payment of P55,000.00 on or
before December 24, 1979 as provided in the Decision. Said motion for execution
was opposed by petitioner Ernesto V. Ronquillo contending that his inability to
make the payment was due to private respondent's own act of making himself
scarce and inaccessible on December 24, 1979. Petitioner then prayed that private
respondent be ordered to accept his payment in the amount of P13,750.00.  court's decision based on the compromise agreement did not specifically state the
During the hearing of the Motion for Execution and the Opposition thereto on
January 16, 1980, petitioner, as one of the four defendants, tendered the amount of
P13,750.00, as his prorata share in the P55,000.00 initial payment. Another
defendant, Pilar P. Tan, offered to pay the same amount. Because private
respondent refused to accept their payments, demanding from them the full initial
installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said
amount with the Clerk of Court. The amount deposited was subsequently
withdrawn by private respondent.  ISSUE: WHETHER OR NOT PETITIONER IS SOLIDARILY LIABLE. YES
On the same day, January 16, 1980, the lower court ordered the issuance of a writ
of execution for the balance of the initial amount payable, against the other two
defendants, Offshore Catertrade Inc. and Johnny Tan who did not pay their shares.
On January 22, 1980, private respondent moved for the reconsideration and/or
modification of the aforesaid Order of execution and prayed instead for the
"execution of the decision in its entirety against all defendants, jointly and
severally." Petitioner opposed the said motion arguing that under the decision of the
lower court being executed which has already become final, the liability of the four
(4) defendants was not expressly declared to be solidary, consequently each
defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and
payable.
A writ of execution was issued for the satisfaction of the sum of P82,500.00 as
against the properties of the defendants (including petitioner), "singly or jointly
liable." 
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of
sheriff's sale, for the sale of certain furnitures and appliances found in petitioner's
residence to satisfy the sum of P82,500.00. The public sale was scheduled for April
2, 1980 at 10:00 a.m.
Realizing the actual threat to property rights poised by the re-setting of the hearing
of s motion for reconsideration for April 2, 1980 at 8:30 a.m. such that if his motion
for reconsideration would be denied he would have no more time to obtain a writ
from the appellate court to stop the scheduled public sale of his personal properties
at 10:00 a.m. of the same day, April 2, 1980, petitioner filed on March 26, 1980 a
petition for certiorari and prohibition with the then Court of Appeals (CA-G.R. No.
SP-10573), praying at the same time for the issuance of a restraining order to stop
the public sale. He raised the question of the validity of the order of execution, the
writ of execution and the notice of public sale of his properties to satisfy fully the
entire unpaid obligation payable by all of the four (4) defendants, when the lower
liability of the four (4) defendants to be solidary.
The CA dismissed the petition for having been filed prematurely.
Petitioner moved to reconsider but was denied.
Hence, this petition for review.

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
RULING: In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence 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. Then is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law,or the nature or the wording of the obligation to
which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many equal shares as there are
creditors and debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement,
provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only
P110,000.00 and defendants agree to acknowledge the validity of such claim
and further bind themselves to initially pay out of the total indebtedness of
P110,000.00, the amount of P5,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980 or before June 30, 1980.
(Emphasis supply)
Clearly then, by the express term of the compromise agreement and the decision
based upon it, the defendants obligated themselves to pay their obligation
"individually and jointly".
The term "individually" has the same meaning as "collectively", "separately",
"distinctively", respectively or "severally". An agreement to be " individually liable"
undoubtedly creates a several obligation, and a "several obligation is one by which
one individual binds himself to perform the whole obligation.
In the case of Parot vs. Gemora  We therein ruled that "the phrase juntos or
separadamente or in the promissory note is an express statement making each of
the persons who signed it individually liable for the payment of the fun amount of
the obligation contained therein." Likewise in Un Pak Leung vs. Negorra  We held
that "in the absence of a finding of facts that the defendants made themselves
individually liable for the debt incurred they are each liable only for one-half of said
amount. The obligation in the case at bar being described as "individually and
jointly", the same is therefore enforceable against one of the numerous obligors.
Page 2 of 25
G.R. No. L-36413 September 26, 1988
MALAYAN INSURANCE CO., INC. vs. THE HON. COURT OF APPEALS (THIRD
DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and
PANGASINAN TRANSPORTATION CO., INC.
Malayan Insurance Co., Inc., issued in favor of Sio Choy Private Car Comprehensive
Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a
Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate No. J-21536,
Quezon City, 1967. The insurance coverage was for "own damage" not to exceed
P600.00 and "third-party liability" in the amount of P20,000.00.
During the effectivity of said insurance policy, and more particularly on 19
December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being
driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill,
Inc., collided with a passenger bus belonging to the respondent Pangasinan
Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio
San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries
to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was
riding in the ill-fated jeep.
As a result, Martin C. Vallejos filed an action for damages against Sio Choy,
Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance
of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein
that the defendants be ordered to pay him, jointly and severally, the amount of
P15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for
lost income; P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an
excessive speed and bumped the PANTRANCO bus which had moved to, and
stopped at, the shoulder of the highway in order to avoid the jeep; and that it had
observed the diligence of a good father of a family to prevent damage, especially in
the selection and supervision of its employees and in the maintenance of its motor
vehicles. It prayed that it be absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance company, in their answer, also
denied liability to the plaintiff, claiming that the fault in the accident was solely
imputable to the PANTRANCO.
Sio Choy, however, later filed a separate answer with a cross-claim against the
herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C.
Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in
his cross-claim against the herein petitioner, he alleged that the petitioner had

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
issued in his favor a private car comprehensive policy wherein the insurance
company obligated itself to indemnify Sio Choy, as insured, for the damage to his
motor vehicle, as well as for any liability to third persons arising out of any accident
during the effectivity of such insurance contract, which policy was in full force and
effect when the vehicular accident complained of occurred. He prayed that he be
reimbursed by the insurance company for the amount that he may be ordered to
pay.
Also later, the herein petitioner sought, and was granted, leave to file a third-party
complaint against the San Leon Rice Mill, Inc. for the reason that the person driving
the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon
Rice Mill, Inc. performing his duties within the scope of his assigned task, and not
an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of
the deceased driver, Juan P. Campollo, it should be liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that
judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the
amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to
reimburse and indemnify the petitioner for any sum that it may be ordered to pay
the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the foregoing findings of this Court judgment is
hereby rendered in favor of the plaintiff and against Sio Choy and Malayan
Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as
follows:
(a) P4,103 as actual damages;
(b) P18,000.00 representing the unearned income of plaintiff Martin C.
Vallejos for the period of three (3) years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.
The above-named parties against whom this judgment is rendered are
hereby held jointly and severally liable. With respect, however, to Malayan
Insurance Co., Inc., its liability will be up to only P20,000.00.
On appeal, the respondent Court of Appeals affirmed the judgment of the trial court
that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are
jointly and severally liable for the damages awarded to the plaintiff Martin C.
Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to
indemnify or reimburse the petitioner insurance company for whatever amount it
Page 3 of 25
has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a
privy to the contract of insurance between Sio Choy and the insurance company. 
Hence, the present recourse by petitioner insurance company.
The petitioner prays for the reversal of the appellate court's judgment, or, in the
alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any
amount, in excess of one-half (1/2) of the entire amount of damages, petitioner may
be ordered to pay jointly and severally with Sio Choy.
ISSUE: WHETHER PETITIONER MALAYAN, INSURANCE COMPANY, CAN BE HELD
SEVERALLY LIABLE WITH THE TORTFEASOR. NO.
RULING: It is to be noted that the trial court found, as affirmed by the appellate
court, that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are
jointly and severally liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that it is only
respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the
petitioner) that are solidarily liable to respondent Vallejos for the damages awarded
to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as
owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which
provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of due
diligence, prevented the misfortune it is disputably presumed that a driver
was negligent, if he had been found guilty of reckless driving or violating
traffic regulations at least twice within the next preceding two months.
If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.
On the other hand, it is noted that the basis of liability of respondent San Leon Rice
Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of the
Willys jeep at the time of the motor vehicle mishap, is Article 2180 of the Civil Code
which reads:

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
Art. 2180. The obligation imposed by article 2176 is demandable not only for
one's own acts or omissions, but also for those of persons for whom one is
responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged ill any business or industry.
xxx xxx xxx
The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the
principal tortfeasors who are primarily liable to respondent Vallejos. The law states
that the responsibility of two or more persons who are liable for a quasi-delict is
solidarily.4
On the other hand, the basis of petitioner's liability is its insurance contract with
respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the
amount of not more than P20,000.00, this is on account of its being the insurer of
respondent Sio Choy under the third party liability clause included in the private
car comprehensive policy existing between petitioner and respondent Sio Choy at
the time of the complained vehicular accident.
In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom,
when he was bumped by another passenger jeepney. He died as a result thereof. In
the damage suit filed by the heirs of said passenger against the driver and owner of
the jeepney at fault as well as against the insurance company which insured the
latter jeepney against third party liability, the trial court, affirmed by this Court,
adjudged the owner and the driver of the jeepney at fault jointly and severally liable
to the heirs of the victim in the total amount of P9,572.95 as damages and
attorney's fees; while the insurance company was sentenced to pay the heirs the
amount of P5,500.00 which was to be applied as partial satisfaction of the judgment
rendered against said owner and driver of the jeepney. Thus, in said Guingon case,
it was only the owner and the driver of the jeepney at fault, not including the
insurance company, who were held solidarily liable to the heirs of the victim.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, 6 however,
the direct liability of the insurer under indemnity contracts against third party
liability does not mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.
Page 4 of 25
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos,
but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with
the two principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill,
Inc. For if petitioner-insurer were solidarily liable with said two (2) respondents by
reason of the indemnity contract against third party liability-under which an insurer
can be directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. 7 On the other hand, insurance is defined as "a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event." 8
In the case at bar, the trial court held petitioner together with respondents Sio Choy
and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total
amount of P29,103.00, with the qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation, petitioner may be compelled by
respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the
entire obligation when the amount stated in its insurance policy with respondent
Sio Choy for indemnity against third party liability is only P20,000.00? Moreover,
the qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is
made solidary, is an evident breach of the concept of a solidary obligation. Thus, We
hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc.
to respondent Vallejos.
G.R. No. L-28046 May 16, 1983
PHILIPPINE NATIONAL BANK vs. INDEPENDENT PLANTERS ASSOCIATION,
INC., ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA, MOISES
CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO LEVISTE,
GAVINO GONZALES, LOPE GEVANA and BONIFACIO LAUREANA
Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of
First Instance of Manila (Branch XX) in its Civil Case No. 46741 dismissing PNB's
complaint against several solidary debtors for the collection of a sum of money on
the ground that one of the defendants (Ceferino Valencia) died during the pendency
of the case (i.e., after the plaintiff had presented its evidence) and therefore the
complaint, being a money claim based on contract, should be prosecuted in the

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
testate or intestate proceeding for the settlement of the estate of the deceased
defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is
solidary with another debtor, the claim shall be filed against the decedent as
if he were the only debtor, without prejudice to the right of the estate to
recover contribution from the other debtor. In a joint obligation of the
decedent, the claim shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of recourse against
one, some or all of its solidary debtors under Article 1216 of the Civil Code —
ART. 1216. The 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.
ISSUE: WHETHER IN AN ACTION FOR COLLECTION OF A SUM OF MONEY BASED
ON CONTRACT AGAINST ALL THE SOLIDARY DEBTORS, THE DEATH OF ONE
DEFENDANT DEPRIVES THE COURT OF JURISDICTION TO PROCEED WITH THE
CASE AGAINST THE SURVIVING DEFENDANTS.
RULING: It is now settled that the quoted Article 1216 grants the creditor the
substantive right to seek satisfaction of his credit from one, some or all of his
solidary debtors, as he deems fit or convenient for the protection of his interests;
and if, after instituting a collection suit based on contract against some or all of
them and, during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants. Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al.,
107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that where
two persons are bound in solidum for the same debt and one of them dies,
the whole indebtedness can be proved against the estate of the latter, the
decedent's liability being absolute and primary; and if the claim is not
presented within the time provided by the rules, the same will be barred as
against the estate. It is evident from the foregoing that Section 6 of Rule 87
(now Rule 86) provides the procedure should the creditor desire to go against
the deceased debtor, but there is certainly nothing in the said provision
making compliance with such procedure a condition precedent before an
ordinary action against the surviving solidary debtors, should the creditor
choose to demand payment from the latter, could be entertained to the
Page 5 of 25
extent that failure to observe the same would deprive the court jurisdiction
to take cognizance of the action against the surviving debtors. Upon the
other hand, the Civil Code expressly allows the creditor to proceed against
any one of the solidary debtors or some or all of them simultaneously. There
is, therefore, nothing improper in the creditor's filing of an action against the
surviving solidary debtors alone, instead of instituting a proceeding for the
settlement of the estate of the deceased debtor wherein his claim could be
filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru
Mr. Justice Makasiar, reiterated the doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of Court reveals
that nothing therein prevents a creditor from proceeding against the
surviving solidary debtors. Said provision merely sets up the procedure in
enforcing collection in case a creditor chooses to pursue his claim against the
estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable
provision in this matter. Said provision gives the creditor the right to
'proceed against anyone of the solidary debtors or some or all of them
simultaneously.' The choice is undoubtedly left to the solidary, creditor to
determine against whom he will enforce collection. In case of the death of one
of the solidary debtors, he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without necessity of filing a claim in
the estate of the deceased debtors. It is not mandatory for him to have the
case dismissed against the surviving debtors and file its claim in the estate of
the deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules
of Court were applied literally, Article 1216 of the New Civil Code would, in
effect, be repealed since under the Rules of Court, petitioner has no choice
but to proceed against the estate of Manuel Barredo only. Obviously, this
provision diminishes the Bank's right under the New Civil, Code to proceed
against any one, some or all of the solidary debtors. Such a construction is
not sanctioned by the principle, which is too well settled to require citation,
that a substantive law cannot be amended by a procedural rule. Otherwise
stared, Section 6, Rule 86 of the Revised Rules of Court cannot be made to
prevail over Article 1216 of the New Civil Code, the former being merely
procedural, while the latter, substantive.

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No.
46741 is hereby set aside in respect of the surviving defendants; and the case is
remanded to the corresponding Regional Trial Court for proceedings.
G.R. No. 190696               August 3, 2010
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC vs. PEOPLE
OF THE PHILIPPINES,  party in the criminal case (for multiple homicide with multiple serious physical
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No.
7001, owned by Philtranco along Daang Maharlika Highway in Barangay Lambao,
Sta. Margarita, Samar when its rear left side hit the front left portion of a Sarao jeep
coming from the opposite direction. As a result of the collision, Cresencio
Pinohermoso, the jeep’s driver, lost control of the vehicle, and bumped and killed
Jose Mabansag, a bystander who was standing along the highway’s shoulder. The
jeep turned turtle three (3) times before finally stopping at about 25 meters from the
point of impact. Two of the jeep’s passengers, Armando Nablo and an unidentified
woman, were instantly killed, while the other passengers sustained serious physical
injuries.
The prosecution charged Calang with multiple homicide, multiple serious physical
injuries and damage to property thru reckless imprudence before the Regional Trial
Court (RTC), Branch 31, Calbayog City. The RTC, in its decision dated May 21,
2001, found Calang guilty beyond reasonable doubt of reckless imprudence
resulting to multiple homicide, multiple physical injuries and damage to property,
and sentenced him to suffer an indeterminate penalty of thirty days of arresto
menor, as minimum, to four years and two months of prision correccional, as
maximum. The RTC ordered Calang and Philtranco, jointly and severally, to pay
₱50,000.00 as death indemnity to the heirs of Armando; ₱50,000.00 as death
indemnity to the heirs of Mabansag; and ₱90,083.93 as actual damages to the
private complainants.
The petitioners appealed the RTC decision to the Court of Appeals (CA). The CA, in
its decision dated November 20, 2009, affirmed the RTC decision in toto. The CA
ruled that petitioner Calang failed to exercise due care and precaution in driving the
Philtranco bus. According to the CA, various eyewitnesses testified that the bus was
traveling fast and encroached into the opposite lane when it evaded a pushcart that
was on the side of the road. In addition, he failed to slacken his speed, despite
admitting that he had already seen the jeep coming from the opposite direction
when it was still half a kilometer away. The CA further ruled that Calang
demonstrated a reckless attitude when he drove the bus, despite knowing that it
was suffering from loose compression, hence, not roadworthy.
Page 6 of 25
The CA added that the RTC correctly held Philtranco jointly and severally liable with
petitioner Calang, for failing to prove that it had exercised the diligence of a good
father of the family to prevent the accident.
The petitioners filed with this Court a petition for review on certiorari. In the present
motion for reconsideration, the petitioners claim that there was no basis to hold
Philtranco jointly and severally liable with Calang because the former was not a
injuries and damage to property thru reckless imprudence) before the RTC.
ISSUE: WHETHER PHILTRANCO CAN BE HELD SOLIDARILY LIABLE. NO
RULING: We, however, hold that the RTC and the CA both erred in holding
Philtranco jointly and severally liable with Calang. We emphasize that Calang was
charged criminally before the RTC. Undisputedly, Philtranco was not a direct party
in this case. Since the cause of action against Calang was based on delict, both the
RTC and the CA erred in holding Philtranco jointly and severally liable with Calang,
based on quasi-delict under Articles 2176 1 and 21802 of the Civil Code. Articles
2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer for
quasi-delicts that an employee has committed. Such provision of law does not apply
to civil liability arising from delict.
If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised
Penal Code states the subsidiary civil liabilities of innkeepers, tavernkeepers and
proprietors of establishments, as follows:
In default of the persons criminally liable, innkeepers, tavernkeepers, and any other
persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some
general or special police regulations shall have been committed by them or their
employees.
Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or
theft within their houses from guests lodging therein, or for the payment of the
value thereof, provided that such guests shall have notified in advance the
innkeeper himself, or the person representing him, of the deposit of such goods
within the inn; and shall furthermore have followed the directions which such
innkeeper or his representative may have given them with respect to the care of and
vigilance over such goods. No liability shall attach in case of robbery with violence
against or intimidation of persons unless committed by the innkeeper’s employees.
The foregoing subsidiary liability applies to employers, according to Article 103 of
the Revised Penal Code, which reads:

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
The subsidiary liability established in the next preceding article shall also
apply to employers, teachers, persons, and corporations engaged in any kind
of industry for felonies committed by their servants, pupils, workmen,
apprentices, or employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and
103 – are deemed written into the judgments in cases to which they are applicable.
Thus, in the dispositive portion of its decision, the trial court need not expressly
pronounce the subsidiary liability of the employer. 3 Nonetheless, before the
employers’ subsidiary liability is enforced, adequate evidence must exist
establishing that (1) they are indeed the employers of the convicted employees; (2)
they are engaged in some kind of industry; (3) the crime was committed by the
employees in the discharge of their duties; and (4) the execution against the latter
has not been satisfied due to insolvency. The determination of these conditions may
be done in the same criminal action in which the employee’s liability, criminal and
civil, has been pronounced, in a hearing set for that precise purpose, with due
notice to the employer, as part of the proceedings for the execution of the judgment. 4
WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals
decision that affirmed in toto the RTC decision, finding Rolito Calang guilty beyond
reasonable doubt of reckless imprudence resulting in multiple homicide, multiple
serious physical injuries and damage to property, is AFFIRMED, with the
MODIFICATION that Philtranco’s liability should only be subsidiary. No costs.
G.R. No. 204866               January 21, 2015
RUKS KONSULT AND CONSTRUCTION vs. ADWORLD SIGN AND ADVERTISING
CORPORATION* and TRANSWORLD MEDIA ADS, INC.
The instant case arose from a complaint for damages filed by Adworld against
Transworld and Comark International Corporation (Comark) before the RTC. 5 In the
complaint, Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard structure
located at EDSA Tulay, Guadalupe, Barangka Mandaluyong, which was misaligned
and its foundation impaired when, on August 11, 2003, the adjacent billboard
structure owned by Transworld and used by Comark collapsed and crashed against
it. Resultantly, on August 19, 2003, Adworld sent Transworld and Comark a letter
demanding payment for the repairs of its billboard as well asloss of rental income.
On August 29, 2003, Transworld sent its reply, admitting the damage caused by its
billboard structure on Adworld’s billboard, but nevertheless, refused and failed to
pay the amounts demanded by Adworld. As Adworld’s final demand letter also went
unheeded, it was constrained to file the instant complaint.
Page 7 of 25
In its Answer with Counterclaim, Transworld averred that the collapse of its
billboard structure was due to extraordinarily strong winds that occurred instantly
and unexpectedly, and maintained that the damage caused to Adworld’s billboard
structure was hardly noticeable. Transworld likewise filed a Third-Party Complaint
against Ruks, the company which built the collapsed billboard structure in the
former’s favor. It was alleged therein that the structure constructed by Ruks had a
weak and poor foundation not suited for billboards, thus, prone to collapse, and as
such, Ruks should ultimately be held liable for the damages caused to Adworld’s
billboard structure.7
For its part, Comark denied liability for the damages caused to Adworld’s billboard
structure, maintaining that it does not have any interest on Transworld’s collapsed
billboard structure as it only contracted the use of the same. In this relation,
Comark prayed for exemplary damages from Transworld for unreasonably
includingit as a party-defendant in the complaint.8
Lastly, Ruks admitted that it entered into a contract with Transworld for the
construction of the latter’s billboard structure, but denied liability for the damages
caused by its collapse. It contended that when Transworld hired its services, there
was already an existing foundation for the billboard and that it merely finished the
structure according to the terms and conditions of its contract with the latter. 9
ISSUE: WHETHER RUKS IS SOLIDARY LIABLE WITH TRANSWORLD FOR
DAMAGES SUSTAINED BY ADWORLD. YES
RULING: Jurisprudence defines negligence as the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do.27 It is the failure to observe for the protection of the
interest of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.28
In this case, the CA correctly affirmed the RTC’s finding that Transworld’s initial
construction of its billboard’s lower structure without the proper foundation, and
that of Ruks’s finishing its upper structure and just merely assuming that
Transworld would reinforce the weak foundation are the two (2) successive acts
which were the direct and proximate cause of the damages sustained by Adworld.
Worse, both Transworld and Ruks were fully aware that the foundation for the
former’s billboard was weak; yet, neither of them took any positive step to reinforce
the same. They merely relied on each other’s word that repairs would be done to
such foundation, but none was done at all. Clearly, the foregoing circumstances
show that both Transworld and Ruks are guilty of negligence in the construction of
the former’s billboard, and perforce, should be held liable for its collapse and the

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
resulting damage to Adworld’s billboard structure. As joint tortfeasors, therefore,
they are solidarily liable to Adworld. 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 219429 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."30 The Court’s pronouncement in People v. Velasco 31 is instructive on
this matter, to wit:32
Where several causes producing an injury are concurrent and each is an
efficient cause without which the injury would not have happened, the injury
may be attributed to all or any of the causes and recovery may be had
against any or all of the responsible persons although under the
circumstances of the case, it may appear that one of them was more
culpable, and that the duty owed by them to the injured person was not
same. No actor's negligence ceases to be a proximate cause merely because it
does not exceed the negligence of other actors. Each wrongdoer is
responsible for the entire result and is liable as though his acts were the sole
cause of the injury.
There is no contribution between joint [tortfeasors] whose liability is solidary
since both of them are liable for the total damage. Where the concurrent or
successive negligent acts or omissions of two or more persons, although
acting independently, are in combination the direct and proximate cause of a
single injury to a third person, it is impossible to determine in what
proportion each contributed to the injury and either of them is responsible
for the whole injury. x x x. (Emphases and underscoring supplied)
In conclusion, the CA correctly affirmed the ruling of the RTC declaring Ruks jointly
and severally liable with Transworld for damages sustained by Adworld.
G.R. No. 194121 July 11, 2016
TORRES-MADRID BROKERAGE, INC vs. FEB MITSUI MARINE INSURANCE CO.,
INC. and BENJAMIN P. MANALAST AS, doing business under the name of BMT
TRUCKING SERVICES
On October 7, 2000, a shipment of various electronic goods from Thailand and
Malaysia arrived at the Port of Manila for Sony Philippines, Inc. (Sony). Previous to
Page 8 of 25
the arrival, Sony had engaged the services of TMBI to facilitate, process, withdraw,
and deliver the shipment from the port to its warehouse in Biñan, Laguna.2
TMBI – who did not own any delivery trucks – subcontracted the services of
Benjamin Manalastas’ company, BMT Trucking Services (BMT), to transport the
shipment from the port to the Biñan warehouse.3 Incidentally, TMBI notified Sony
who had no objections to the arrangement.4
Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of
October 7, 2000. However, BMT could not immediately undertake the delivery
because of the truck ban and because the following day was a Sunday. Thus, BMT
scheduled the delivery on October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT’s garage for
Laguna.5 However, only three trucks arrived at Sony’s Biñan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was
found abandoned along the Diversion Road in Filinvest, Alabang, Muntinlupa
City.6 Both the driver and the shipment were missing.
Later that evening, BMT’s Operations Manager Melchor Manalastas informed Victor
Torres, TMBI’s General Manager, of the development. 7 They went to Muntinlupa
together to inspect the truck and to report the matter to the police. 8
Victor Torres also filed a complaint with the National Bureau of
Investigation (NBI) against Lapesura for "hijacking."9The complaint resulted in a
recommendation by the NBI to the Manila City Prosecutor’s Office to prosecute
Lapesura for qualified theft.10
TMBI notified Sony of the loss through a letter dated October 10, 2000. 11 It also sent
BMT a letter dated March 29, 2001, demanding payment for the lost shipment. BMT
refused to pay, insisting that the goods were "hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the
goods. After evaluating the merits of the claim, Mitsui paid
Sony PHP7,293,386.23 corresponding to the value of the lost goods.12
After being subrogated to Sony’s rights, Mitsui sent TMBI a demand letter dated
August 30, 2001 for payment of the lost goods. TMBI refused to pay Mitsui’s claim.
As a result, Mitsui filed a complaint against TMBI on November 6, 2001,
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-
party defendant. TMBI alleged that BMT’s driver, Lapesura, was responsible for the

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
theft/hijacking of the lost cargo and claimed BMT’s negligence as the proximate
cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for the
loss, it should be reimbursed by BMT.
At the trial, it was revealed that BMT and TMBI have been doing business with each
other since the early 80’s. It also came out that there had been a previous hijacking
incident involving Sony’s cargo in 1997, but neither Sony nor its insurer filed a
complaint against BMT or TMBI.13
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and
solidarily liable to pay Mitsui PHP 7,293,386.23 as actual damages, attorney’s fees
equivalent to 25% of the amount claimed, and the costs of the suit. 14 The RTC held
that TMBI and Manalastas were common carriers and had acted negligently.
The Court’s Ruling
TMBI and BMT are not solidarily liable
to Mitsui
We disagree with the lower courts’ ruling that TMBI and BMT are solidarily liable to
Mitsui for the loss as joint tortfeasors. The ruling was based on Article 2194 of the
Civil Code:
Art. 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Notably, TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa aquiliana)
but from its breach of contract (culpa contractual). The tie that binds TMBI with
Mitsui is contractual, albeit one that passed on to Mitsui as a result of TMBI’s
contract of carriage with Sony to which Mitsui had been subrogated as an insurer
who had paid Sony’s insurance claim. The legal reality that results from this
contractual tie precludes the application of quasi-delict based Article 2194.
Page 9 of 25
AS TO PERFORMANCE OF PRESTATION
G.R. No. 167615 January 11, 2016
SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and
Style "COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY" vs.
KODAK PHILIPPINES, LTD.
On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an
agreement (Letter Agreement) for the sale of three (3) units of the Kodak Minilab
System 22XL6 (Minilab Equipment) in the amount of ₱1,796,000.00 per unit,7 with
the following terms:
This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your
existing Multicolor photo counter in Cotabato City under the following terms and
conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise
and delivered in advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments
at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of 24% interest
rate for the first 12 months; the balance shall be re-amortized for the
remaining 36 months and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]8
On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab
Equipment in Tagum, Davao Province.9 The delivered unit was installed by Noritsu
representatives on March 9, 1992.10 The Lam Spouses issued postdated checks
amounting to ₱35,000.00 each for 12 months as payment for the first delivered
unit, with the first check due on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check
dated March 31, 1992 allegedly due to insufficiency of funds. 12 The same request

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
was made for the check due on April 30, 1992. However, both checks were
negotiated by Kodak Philippines, Ltd. and were honored by the depository
bank.13 The 10 other checks were subsequently dishonored after the Lam Spouses
ordered the depository bank to stop payment.14
Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses
return the unit it delivered together with its accessories. 15 The Lam Spouses ignored
the demand but also rescinded the contract through the letter dated November 18,
1992 on account of Kodak Philippines, Ltd.’s failure to deliver the two (2) remaining
Minilab Equipment units.16
On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin
and/or recovery of sum of money. The case was raffled to Branch 61 of the Regional
Trial Court, Makati City.17 The Summons and a copy of Kodak Philippines, Ltd.’s
Complaint was personally served on the Lam Spouses.18
The Lam Spouses failed to appear during the pre-trial conference and submit their
pre-trial brief despite being given extensions. 19 Thus, on July 30, 1993, they were
declared in default.20 Kodak Philippines, Ltd. presented evidence ex-parte. 21 The trial
court issued the Decision in favor of Kodak Philippines, Ltd. ordering the seizure of
the Minilab Equipment, which included the lone delivered unit, its standard
accessories, and a separate generator set.22 Based on this Decision, Kodak
Philippines, Ltd. was able to obtain a writ of seizure on December 16, 1992 for the
Minilab Equipment installed at the Lam Spouses’ outlet in Tagum, Davao
Province.23 The writ was enforced on December 21, 1992, and Kodak Philippines,
Ltd. gained possession of the Minilab Equipment unit, accessories, and the
generator set.24
The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the
Orders issued by the trial court dated July 30, 1993 and August 13, 1993. These
Orders were subsequently set aside by the Court of Appeals Ninth Division, and the
case was remanded to the trial court for pre-trial.25
On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge
Fernando V. Gorospe, Jr.,26 who had issued the writ of seizure.27 The ground for the
motion for inhibition was not provided. Nevertheless, Judge Fernando V. Gorospe
Jr. inhibited himself, and the case was reassigned to Branch 65 of the Regional Trial
Court, Makati City on October 3, 1995.28
In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak
Philippines, Ltd. defaulted in the performance of its obligation under its Letter
Agreement with the Lam Spouses.29 It held that Kodak Philippines, Ltd.’s failure to
deliver two (2) out of the three (3) units of the Minilab Equipment caused the Lam
Page 10 of 25
Spouses to stop paying for the rest of the installments. 30 The trial court noted that
while the Letter Agreement did not specify a period within which the delivery of all
units was to be made, the Civil Code provides "reasonable time" as the standard
period for compliance:
The second paragraph of Article 1521 of the Civil Code provides:
Where by a contract of sale the seller is bound to send the goods to the buyer, but
no time for sending them is fixed, the seller is bound to send them within a
reasonable time.
What constitutes reasonable time is dependent on the circumstances availing both
on the part of the seller and the buyer. In this case, delivery of the first unit was
made five (5) days after the date of the agreement. Delivery of the other two (2) units,
however, was never made despite the lapse of at least three (3) months. 31
Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver
all three (3) purchased units within a reasonable time.32
The trial court found:
Kodak would have the court believe that it did not deliver the other two (2) units due
to the failure of defendants to make good the installments subsequent to the
second. The court is not convinced. First of all, there should have been
simultaneous delivery on account of the circumstances surrounding the
transaction. . . . Even after the first delivery . . . no delivery was made despite
repeated demands from the defendants and despite the fact no installments were
due. Then in March and in April (three and four months respectively from the date
of the agreement and the first delivery) when the installments due were both
honored, still no delivery was made.
Second, although it might be said that Kodak was testing the waters with just one
delivery - determining first defendants’ capacity to pay - it was not at liberty to do
so. It is implicit in the letter agreement that delivery within a reasonable time was of
the essence and failure to so deliver within a reasonable time and despite demand
would render the vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak refused delivery on
account of defendants’ inability to pay, non-delivery during the two (2) months that
payments were honored is unjustified.33
Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery
of the first unit, they became liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522
of the Civil Code, in the event the buyer accepts incomplete delivery and uses the

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
goods so delivered, not then knowing that there would not be any further delivery by
the seller, the buyer shall be liable only for the fair value to him of the goods
received. In other words, the buyer is still liable for the value of the property
received. Defendants were under obligation to pay the amount of the unit. Failure of
delivery of the other units did not thereby give unto them the right to suspend
payment on the unit delivered. Indeed, in incomplete deliveries, the buyer has the
remedy of refusing payment unless delivery is first made. In this case though,
payment for the two undelivered units have not even commenced; the installments
made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34
The Lam Spouses were under obligation to pay for the amount of one unit, and the
failure to deliver the remaining units did not give them the right to suspend
payment for the unit already delivered. 35 However, the trial court held that since
Kodak Philippines, Ltd. had elected to cancel the sale and retrieve the delivered
unit, it could no longer seek payment for any deterioration that the unit may have
suffered while under the custody of the Lam Spouses.36
As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted
to mislead the court by claiming that it had delivered the generator set with its
accessories to the Lam Spouses, when the evidence showed that the Lam Spouses
had purchased it from Davao Ken Trading, not from Kodak Philippines, Ltd. 37 Thus,
the generator set that Kodak Philippines, Ltd. wrongfully took from the Lam
Spouses should be replaced.38
The dispositive portion of the Regional Trial Court Decision reads:
PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay
the following:
1) PHP 130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum,
Davao and Rizal Ave., Manila outlets.
On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as
an issue the Regional Trial Court’s failure to order Kodak Philippines, Ltd. to pay: (1)
₱2,040,000 in actual damages; (2) ₱50,000,000 in moral damages; (3) ₱20,000,000
in exemplary damages; (4) ₱353,000 in attorney’s fees; and (5) ₱300,000 as
litigation expenses.40 The Lam Spouses did not appeal the Regional Trial Court’s
award for the generator set and the renovation expenses.41
Kodak Philippines, Ltd. also filed an appeal. However, the Court of
Appeals42 dismissed it on December 16, 2002 for Kodak Philippines, Ltd.’s failure to
Page 11 of 25
file its appellant’s brief, without prejudice to the continuation of the Lam Spouses’
appeal.43 The Court of Appeals’ December 16, 2002 Resolution denying Kodak
Philippines, Ltd.’s appeal became final and executory on January 4, 2003.44
In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth
Division modified the February 26, 1999 Decision of the Regional Trial Court:
WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February
1999 of the Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
1. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
The Court of Appeals agreed with the trial court’s Decision, but extensively
discussed the basis for the modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement executed by the parties
showed that their obligations were susceptible of partial performance. Under Article
1225 of the New Civil Code, their obligations are divisible:
In determining the divisibility of an obligation, the following factors may be
considered, to wit: (1) the will or intention of the parties, which may be expressed or
presumed; (2) the objective or purpose of the stipulated prestation; (3) the nature of
the thing; and (4) provisions of law affecting the prestation.
Applying the foregoing factors to this case, We found that the intention of the parties
is to be bound separately for each Minilab Equipment to be delivered as shown by the
separate purchase price for each of the item, by the acceptance of Sps. Lam of
separate deliveries for the first Minilab Equipment and for those of the remaining two
and the separate payment arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount of the purchase price of the
Minilab
Equipment delivered considering that Kodak had already completely fulfilled its
obligation to deliver the same. . . .
Third, it is also evident that the contract is one that is severable in character as
demonstrated by the separate purchase price for each of the minilab equipment. "If
the part to be performed by one party consists in several distinct and separate items
and the price is apportioned to each of them, the contract will generally be held to

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
be severable. In such case, each distinct stipulation relating to a separate subject
matter will be treated as a separate contract." Considering this, Kodak's breach of its
obligation to deliver the other two (2) equipment cannot bar its recovery for the full
payment of the equipment already delivered. As far as Kodak is concerned, it had
already fully complied with its separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of replevin is proper insofar as
the delivered Minilab Equipment unit and its standard accessories are concerned,
since Kodak Philippines, Ltd. had the right to possess it:48
The purchase price of said equipment is P1,796,000.00 which, under the agreement
is payable with forty eight (48) monthly amortization. It is undisputed that Sps. Lam
made payments which amounted to Two Hundred Seventy Thousand Pesos
(P270,000.00) through the following checks: Metrobank Check Nos. 00892620 and
00892621 dated 31 March 1992 and 30 April 1992 respectively in the amount of
Thirty Five Thousand Pesos (P35,000.00) each, and BPI Family Check dated 31 July
1992 amounting to Two Hundred Thousand Pesos (P200,000.00). This being the
case, Sps. Lam are still liable to Kodak in the amount of One Million Five Hundred
Twenty Six Thousand Pesos (P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter Agreement. However, Sps. Lam admitted that
sometime in May 1992, they had already ordered their drawee bank to stop the
payment on all the other checks they had issued to Kodak as payment for the Minilab
Equipment delivered to them. Clearly then, Kodak ha[d] the right to repossess the said
equipment, through this replevin suit. Sps. Lam cannot excuse themselves from paying
in full the purchase price of the equipment delivered to them on account of Kodak’s
breach of the contract to deliver the other two (2) Minilab Equipment, as contemplated
in the Letter Agreement.49(Emphasis supplied)
Echoing the ruling of the trial court, the Court of Appeals held that the liability of
the Lam Spouses to pay the remaining balance for the first delivered unit is based
on the second sentence of Article 1592 of the New Civil Code. 50 The Lam Spouses’
receipt and use of the Minilab Equipment before they knew that Kodak Philippines,
Ltd. would not deliver the two (2) remaining units has made them liable for the
unpaid portion of the purchase price.51
The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its
contract with the Lam Spouses in the letter dated October 14, 1992. 52 The
rescission was based on Article 1191 of the New Civil Code, which provides: "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." 53 In its letter, Kodak
Philippines, Ltd. demanded that the Lam Spouses surrender the lone delivered unit
of Minilab Equipment along with its standard accessories.54
Page 12 of 25
The Court of Appeals likewise noted that the Lam Spouses rescinded the contract
through its letter dated November 18, 1992 on account of Kodak Philippines, Inc.’s
breach of the parties’ agreement to deliver the two (2) remaining units. 55
As a result of this rescission under Article 1191, the Court of Appeals ruled that
"both parties must be restored to their original situation, as far as practicable, as if
the contract was never entered into." 56 The Court of Appeals ratiocinated that Article
1191 had the effect of extinguishing the obligatory relation as if one was never
created:57
To rescind is to declare a contract void in its inception and to put an end to it as
though it never were. It is not merely to terminate it and to release parties from
further obligations to each other but abrogate it from the beginning and restore
parties to relative positions which they would have occupied had no contract been
made.58
The Lam Spouses were ordered to relinquish possession of the Minilab Equipment
unit and its standard accessories, while Kodak Philippines, Ltd. was ordered to
return the amount of ₱270,000.00, tendered by the Lam Spouses as partial
payment.59
As to the actual damages sought by the parties, the Court of Appeals found that the
Lam Spouses were able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the
contract of lease which made the Sps. Lam liable, by way of advance payment, in
the amount of P40,000.00, the same being intended for the repair of the flooring of
the leased premises; and lastly, the payment of P300,000.00, as compromise
agreement for the pre-termination of the contract of lease with Ruales. 60
The total amount is ₱440,000.00. The Court of Appeals found that all other claims
made by the Lam Spouses were not supported by evidence, either through official
receipts or check payments.61
As regards the generator set improperly seized from Kodak Philippines, Ltd. on the
basis of the writ of replevin, the Court of Appeals found that there was no basis for
the Lam Spouses’ claim for reasonable rental of ₱5,000.00. It held that the trial
court’s award of 12% interest, in addition to the cost of the generator set in the
amount of ₱130,000.00, is sufficient compensation for whatever damage the Lam
Spouses suffered on account of its improper seizure.62

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The Court of Appeals also ruled on the Lam Spouses’ entitlement to moral and
exemplary damages, as well as attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have
manifested bad faith and malevolence because as earlier ruled upon, it was well
within its right to do the same. However, with respect to the seizure of the generator
set, where Kodak misrepresented to the court a quo its alleged right over the said
item, Kodak’s bad faith and abuse of judicial processes become self-evident.
Considering the off-setting circumstances attendant, the amount of P25,000.00 by
way of moral damages is considered sufficient.
In addition, so as to serve as an example to the public that an application for
replevin should not be accompanied by any false claims and misrepresentation, the
amount of P50,000.00 by way of exemplary damages should be pegged against
Kodak.
With respect to the attorney’s fees and litigation expenses, We find that there is no
basis to award Sps. Lam the amount sought for.63
Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision,
but it was denied for lack of merit. 64 However, the Court of Appeals noted that the
Lam Spouses’ Opposition correctly pointed out that the additional award of
₱270,000.00 made by the trial court was not mentioned in the decretal portion of
the March 30, 2005 Decision:
Going over the Decision, specifically page 12 thereof, the Court noted that, in
addition to the amount of Two Hundred Seventy Thousand (P270,000.00) which
plaintiff-appellant should return to the defendantsappellants, the Court also ruled
that defendants-appellants should, in turn, relinquish possession of the Minilab
Equipment and the standard accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal portion of the Decision. Hence,
the proper correction should herein be made.65
The Lam Spouses filed this Petition for Review on April 14, 2005. On the other
hand, Kodak Philippines, Ltd. filed its Motion for Reconsideration 66 before the Court
of Appeals on April 22, 2005.
While the Petition for Review on Certiorari filed by the Lam Spouses was pending
before this court, the Court of Appeals Special Fourteenth Division, acting on Kodak
Philippines, Ltd.’s Motion for Reconsideration, issued the Amended Decision 67 dated
September 9, 2005. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, this Court resolved that:
Page 13 of 25
A. Plaintiff-appellant’s Motion for Reconsideration is hereby DENIED for lack
of merit.
B. The decretal portion of the 30 March 2005 Decision should now read as
follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February
1999 of the Regional Trial Court, Branch 65 in Civil Cases No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to pay the following:
a. P270,000.00 representing the partial payment made on the Minilab
equipment.
b. P130,000.00 representing the amount of the generator set, plus legal
interest at 12% per annum from December 1992 until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are hereby ordered to return to
plaintiff-appellant the Minilab equipment and the standard accessories delivered by
plaintiff-appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines,
Ltd. filed a Motion for Extension of Time to File an Appeal by Certiorari under Rule
45 of the 1997 Rules of Civil Procedure before this court.69
This was docketed as G.R. No. 169639. In the Motion for Consolidation dated
November 2, 2005, the Lam Spouses moved that G.R. No. 167615 and G.R. No.
169639 be consolidated since both involved the same parties, issues, transactions,
and essential facts and circumstances.70
In the Resolution dated November 16, 2005, this court noted the Lam Spouses’
September 23 and September 30, 2005 Manifestations praying that the Court of
Appeals’ September 9, 2005 Amended Decision be considered in the resolution of
the Petition for Review on Certiorari.71 It also granted the Lam Spouses’ Motion for
Consolidation.72
In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No.
167615 from G.R. No. 169639 and declared G.R. No. 169639 closed and terminated
since Kodak Philippines, Ltd. failed to file its Petition for Review.
ISSUE: WHETHER THE CONTRACT BETWEEN PETITIONERS SPOUSES
ALEXANDER AND JULIE LAM AND RESPONDENT KODAK PHILIPPINES, LTD.
PERTAINED TO OBLIGATIONS THAT ARE SEVERABLE, DIVISIBLE, AND
SUSCEPTIBLE OF PARTIAL PERFORMANCE UNDER ARTICLE 1225 OF THE NEW
CIVIL CODE; AND

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
III
The Letter Agreement contained an indivisible obligation.
Both parties rely on the Letter Agreement97 as basis of their respective obligations.
Written by respondent’s Jeffrey T. Go and Antonio V. Mines and addressed to
petitioner Alexander Lam, the Letter Agreement contemplated a "package deal"
involving three (3) units of the Kodak Minilab System 22XL, with the following terms
and conditions:
This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your
existing Multicolor photo counter in Cotabato City under the following terms and
conditions:
1. Said Minilab Equipment packages will avail a total of 19% multiple order
discount based on prevailing equipment price provided said equipment
packages will be purchased not later than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in the form of merchandise
and delivered in advance immediately after signing of the contract.
* Also includes start-up packages worth P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in 48 monthly installments
at THIRTY FIVE THOUSAND PESOS (P35,000.00) inclusive of 24% interest
rate for the first 12 months; the balance shall be re-amortized for the
remaining 36 months and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at
ONE MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due 45 days after
installation[.]98
Based on the foregoing, the intention of the parties is for there to be a single
transaction covering all three (3) units of the Minilab Equipment. Respondent’s
obligation was to deliver all products purchased under a "package," and, in turn,
petitioners’ obligation was to pay for the total purchase price, payable in
installments.
The intention of the parties to bind themselves to an indivisible obligation can be
further discerned through their direct acts in relation to the package deal. There
was only one agreement covering all three (3) units of the Minilab Equipment and
their accessories. The Letter Agreement specified only one purpose for the buyer,
which was to obtain these units for three different outlets. If the intention of the
Page 14 of 25
parties were to have a divisible contract, then separate agreements could have been
made for each Minilab Equipment unit instead of covering all three in one package
deal. Furthermore, the 19% multiple order discount as contained in the Letter
Agreement was applied to all three acquired units. 99 The "no downpayment" term
contained in the Letter Agreement was also applicable to all the Minilab Equipment
units. Lastly, the fourth clause of the Letter Agreement clearly referred to the object
of the contract as "Minilab Equipment Package."
In ruling that the contract between the parties intended to cover divisible
obligations, the Court of Appeals highlighted: (a) the separate purchase price of each
item; (b) petitioners’ acceptance of separate deliveries of the units; and (c) the
separate payment arrangements for each unit. 100 However, through the specified
terms and conditions, the tenor of the Letter Agreement indicated an intention for a
single transaction. This intent must prevail even though the articles involved are
physically separable and capable of being paid for and delivered individually,
consistent with the New Civil Code:
Article 1225. For the purposes of the preceding articles, obligations to give definite
things and those which are not susceptible of partial performance shall be deemed
to be indivisible.
When the obligation has for its object the execution of a certain number of days of
work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation
is indivisible if so provided by law or intended by the parties. (Emphasis supplied)
In Nazareno v. Court of Appeals, 101 the indivisibility of an obligation is tested against
whether it can be the subject of partial performance:
An obligation is indivisible when it cannot be validly performed in parts, whatever
may be the nature of the thing which is the object thereof. The indivisibility refers to
the prestation and not to the object thereof. In the present case, the Deed of Sale of
January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners are therefore
mistaken in basing the indivisibility of a contract on the number of
obligors.102 (Emphasis supplied, citation omitted)
There is no indication in the Letter Agreement that the units petitioners ordered
were covered by three (3) separate transactions. The factors considered by the Court
of Appeals are mere incidents of the execution of the obligation, which is to deliver

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
three units of the Minilab Equipment on the part of respondent and payment for all
three on the part of petitioners. The intention to create an indivisible contract is
apparent from the benefits that the Letter Agreement afforded to both parties.
Petitioners were given the 19% discount on account of a multiple order, with the
discount being equally applicable to all units that they sought to acquire. The
provision on "no downpayment" was also applicable to all units. Respondent, in
turn, was entitled to payment of all three Minilab Equipment units, payable by
installments.
WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9,
2005 is AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is
ordered to pay petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial payment made on the Minilab
Equipment;
(b) P130,000.00, representing the amount of the generator set, plus legal
interest at 12% .per annum from December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the Kodak Minilab System 22XL unit and its
standard accessories to respondent.
SO ORDERED.
AS TO PRESENCE OF AN ACCESSORY UNDERTAKING IN CASE OF BREACH
G.R. No. L-28497             November 6, 1928
THE BACHRACH MOTOR CO., INC vs. FAUSTINO ESPIRITU
It appears, in connection with case 28497; that on July 28, 1925 the defendant
Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for
P11,983.50, paying P1,000 down to apply on account of this price, and obligating
himself to pay the remaining P10,983.50 within the periods agreed upon. To secure
the payment of this sum, the defendants mortgaged the said truck purchased and,
besides, three others, two of which are numbered 77197 and 92744 respectively,
and all of the White make (Exhibit A). These two trucks had been purchased from
the same plaintiff and were fully paid for by the defendant and his brother Rosario
Espiritu. The defendant failed to pay P10,477.82 of the price secured by this
mortgage.
Page 15 of 25
In connection with case 28498, it appears that on February 18, 1925 the defendant
bought a one-ton White truck of the plaintiff corporation for the sum of P7,136.50,
and after having deducted the P500 cash payment and the 12 per cent annual
interest on the unpaid principal, obligated himself to make payment of this sum
within the periods agreed upon. To secure this payment the defendant mortgaged to
the plaintiff corporation the said truck purchased and two others, numbered 77197
and 92744, respectively, the same that were mortgaged in the purchase of the other
truck referred to in the other case. The defendant failed to pay P4,208.28 of this
sum.
In both sales it was agreed that 12 per cent interest would be paid upon the unpaid
portion of the price at the executon of the contracts, and in case of non-payment of
the total debt upon its maturity, 25 per cent thereon, as penalty.
In addition to the mortagage deeds referred to, which the defendant executed in
favor of the plaintiff, the defendant at the same time also signed a promissory note
solidarily with his brother Rosario Espiritu for the several sums secured by the two
mortgages (Exhibits B and D).
Rosario Espiritu appeared in these two cases as intervenor, alleging to be the
exclusive owner of the two White trucks Nos. 77197 and 92744, which appear to
have been mortgaged by the defendants to the plaintiff. lawphi1.net
While these two cases were pending in the lower court the mortgaged trucks were
sold by virtue of the mortgage, all of them together bringing in, after deducting the
sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.
The judgment appealed from ordered the defendants and the intervenor to pay
plaintiff in case 28497 the sum of P7,732.09 with interest at the rate of 12 per cent
per annum from May 1, 1926 until fully paid, and 25 per cent thereof in addition as
penalty. In case 28498, the trial court ordered the defendant and the intervenor to
pay plaintiff the sum of P4,208.28 with interest at 12 per cent per annum from
December 1, 1925 until fully paid, and 25 per cent thereon as penalty.
The appellants contend that trucks 77197 and 92744 were not mortgaged, because,
when the defendant signed the mortgage deeds these trucks were not included in
those documents, and were only put in later, without defendant's knowledge. But
there is positive proof that they were included at the time the defendant signed
these documents. Besides, there were presented two of defendant's letters to
Hidalgo, an employee of the plaintiff's written a few days before the transaction,
acquiescing in the inclusion of all his White trucks already paid for, in the mortgage
(Exhibit H-I).

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
Appellants also alleged that on February 4, 1925, the defendant sold his rights in
said trucks Nos. 77197 and 92744 to the intervenor, and that as the latter did not
sign the mortgage deeds, such trucks cannot be considered as mortgaged. But the
evidence shows that while the intervenor Rosario Espiritu did not sign the two
mortgage deeds (Exhibits A and C), yet, together with the defendants Faustino
Espiritu, he signed the two promissory notes (Exhibits B and D) secured by these
two mortgages. All these instruments were executed at the same time, and when the
trucks 77197 and 92744 were included in the mortgages, the intervenor Rosario
Espiritu was aware of it and consented to such inclusion. These facts are supported
by the testimony of Bachrach, manager of the plaintiff corporation, of Agustin
Ramirez, who witnessed the execution of all these documents, and of Angel Hidalgo,
who witnessed the execution of Exhibits B and D.
We do not find the statement of the intervenor Rosario Espiritu that he did not sign
promissory notes Exhibits B and C to be sufficient to overthrow this evidence. A
comparison of his genuine signature on Exhibit AA with those appearing on
promissory notes B and C, convinces us that the latter are his signatures. And such
is our conclusion, notwithstanding the evidence presented to establish that on the
date when Exhibits B appears to have been signed, that is July 25, 1925, the
intervenor was in Batac, Ilocos Norte, many miles away from Manila. And the fact
that on the 24th of said month of July, the plaintiff sent some truck accessory parts
by rail to Ilocos for the intervenor does not necessarily prove that the latter could
not have been in Manila on the 25th of that month.
In view of his conclusion that the intervenor signed the promissory notes secured by
trucks 77197 and 92744 and consented to the mortgage of the same, it is
immaterial whether he was or was not the exclusive owner thereof.
It is finally contended that the 25 per cent penalty upon the debt, in addition to the
interest of 12 per cent per annum, makes the contract usurious. Such a contention
is not well founded. Article 1152 of the Civil Code permits the agreement upon a
penalty apart from the interest. Should there be such an agreemnet, the penalty, as
was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the
interest, and which may be demamded separetely. According to this, the penalty is
not to be added to the interest for the determination of whether the interest exceeds
the rate fixed by the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed, and making use of the power
given to the court by article 1154 of the Civil Code, this penalty is reduced to 10 per
cent of the unpaid debt.
With the sole modification that instead of 25 per cent upon the sum owed, the
defendants need pay only 10 per cent thereon as penalty, the judgment appealed
Page 16 of 25
from is affired in all other respects without special pronouncement as to costs. So
ordered.
G.R. No. L-41093 October 30, 1978
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION vs. COURT OF
FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and LOLITA MILLAN
In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner,
agreed to sell to private respondent Lolita Millan for and in consideration of the sum
of P3,864.00, payable in installments, a parcel of land containing an area of
approximately 276 square meters, situated in Barrio Camarin, Caloocan City,
known as Lot No. 20, Block No. 11 of its Franville Subdivision. 2
Millan complied with her obligation under the contract and paid the installments
stipulated therein, the final payment having been made on December 22, 1971. The
vendee made a total payment of P5,193.63 including interests and expenses for
registration of title.3
Thereafter, Lolita Millan made repeated demands upon the corporation for the
execution of the final deed of sale and the issuance to her of the transfer certificate
of title over the lot. On March 2, 1973, the parties executed a deed of absolute sale
of the aforementioned parcel of land. The deed of absolute sale contained, among
others, this particular provision:
That the VENDOR further warrants that the transfer certificate of title of the
above-described parcel of land shall be transferred in the name of the
VENDEE within the period of six (6) months from the date of full payment
and in case the VENDOR fails to issue said transfer certificate of title, it shall
bear the obligation to refund to the VENDEE the total amount already paid
for, plus an interest at the rate of 4% per annum. (record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated period of six (6)
months, the corporation failed to cause the issuance of the corresponding transfer
certificate of title over the lot sold to Millan, hence, the latter filed on August 14,
1974 a complaint for specific performance and damages against Robes-Francisco
Realty & Development Corporation in the Court of First Instance of Rizal, Branch
XXXIV, Caloocan City, docketed therein as Civil Case No. C-3268. 4
The complaint prayed for judgment (1) ordering the reformation of the deed of
absolute sale; (2) ordering the defendant to deliver to plaintiff the certificate of title
over the lot free from any lien or encumbrance; or, should this be not possible, to
pay plaintiff the value of the lot which should not be less than P27,600.00 (allegedly

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
the present estimated value of the lot); and (3) ordering the defendant to pay plaintiff
damages, corrective and actual in the sum of P15 000.00. 5
The corporation in its answer prayed that the complaint be dismissed alleging that
the deed of absolute sale was voluntarily executed between the parties and the
interest of the plaintiff was amply protected by the provision in said contract for
payment of interest at 4% per annum of the total amount paid, for the delay in the
issuance of the title. 6
Finding that the realty corporation failed to cause the issuance of the corresponding
transfer certificate of title because the parcel of land conveyed to Millan was
included among other properties of the corporation mortgaged to the GSIS to secure
an obligation of P10 million and that the owner's duplicate certificate of title of the
subdivision was in the possession of the Government Service Insurance System
(GSIS), the trial court, on February 11, 1975, rendered judgment the dispositive
portion of which is quoted in pages 1 and 2 of this Decision. We hold that the trial
court did not err in awarding nominal damages; however, the circumstances of the
case warrant a reduction of the amount of P20,000.00 granted to private respondent
Millan.
There can be no dispute in this case under the pleadings and the admitted facts
that petitioner corporation was guilty of delay, amounting to nonperformance of its
obligation, in issuing the transfer certificate of title to vendee Millan who had fully
paid up her installments on the lot bought by her. Article 170 of the Civil Code
expressly provides that those who in the performance of their obligations are guilty
of fraud, negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title within
six months from the date of full payment, it shall refund to the vendee the total
amount paid for with interest at the rate of 4% per annum, hence, the vendee is
bound by the terms of the provision and cannot recover more than what is agreed
upon. Presumably, petitioner in invoking Article 1226 of the Civil Code which
provides that in obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there is no stipulation to the contrary.
The foregoing argument of petitioner is totally devoid of merit. We would agree with
petitioner if the clause in question were to be considered as a penal clause.
Nevertheless, for very obvious reasons, said clause does not convey any penalty, for
even without it, pursuant to Article 2209 of the Civil Code, the vendee would be
Page 17 of 25
entitled to recover the amount paid by her with legal rate of interest which is even
more than the 4% provided for in the clause. 7-A
It is therefore inconceivable that the aforecited provision in the deed of sale is a
penal clause which will preclude an award of damages to the vendee Millan. In fact
the clause is so worded as to work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted her case below
without presenting evidence on the actual damages suffered by her as a result of the
nonperformance of petitioner's obligation under the deed of sale. Nonetheless, the
facts show that the right of the vendee to acquire title to the lot bought by her was
violated by petitioner and this entitles her at the very least to nominal damages.
The pertinent provisions of our Civil Code follow:
Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising
from any source enumerated in article 1157, or in every case where any
property right has been invaded.
Under the foregoing provisions nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a right
violated or invaded. They are recoverable where some injury has been done the
amount of which the evidence fails to show, the assessment of damages being left to
the discretion of the court according to the circumstances of the case. 8
It is true as petitioner claims that under American jurisprudence nominal damages
by their very nature are small sums fixed by the court without regard to the extent
of the harm done to the injured party.
It is generally held that a nominal damage is a substantial claim, if based
upon the violation of a legal right; in such case, the law presumes a damage,
although actual or compensatory damages are not proven; in truth nominal
damages are damages in name only and not in fact, and are allowed, not as
an equivalent of a wrong inflicted, but simply in recogniton of the existence
of a technical injury. (Fouraker v. Kidd Springs Boating and Fishing Club, 65
S. W. 2d 796-797, citing 17 C.J. 720, and a number of authorities). 9

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which was an
action for damages arising out of a vehicular accident, this Court had occasion to
eliminate an award of P10,000.00 imposed by way of nominal damages, the Court
stating inter alia that the amount cannot, in common sense, be demeed "nominal".10
In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this
Court, however, through then Justice Roberto Concepcion who later became Chief
Justice of this Court, sustained an award of P20,000.00 as nominal damages in
favor of respnodent Cuenca. The Court there found special reasons for considering
P20,000.00 as "nominal". Cuenca who was the holder of a first class ticket from
Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to
the tourist class notwithstanding its knowledge that Cuenca as Commissioner of
Public Highways of the Republic of the Philippines was travelling in his official
capacity as a delegate of the country to a conference in Tokyo." 11
Actually, as explained in the Court's decision in Northwest Airlines, there is no
conflict between that case and Medina, for in the latter, the P10,000.00 award for
nominal damages was eliminated principally because the aggrieved party had
already been awarded P6,000.00 as compensatory damages, P30,000.00 as moral
damages and P10,000.00 as exemplary damages, and "nominal damages cannot
coexist with compensatory damages," while in the case of Commissioner Cuenca, no
such compensatory, moral, or exemplary damages were granted to the latter. 12
At any rate, the circumstances of a particular case will determine whether or not the
amount assessed as nominal damages is within the scope or intent of the law, more
particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the amount of P20,000.00 is
excessive. The admitted fact that petitioner corporation failed to convey a transfer
certificate of title to respondent Millan because the subdivision property was
mortgaged to the GSIS does not in itself show that there was bad faith or fraud. Bad
faith is not to be presumed. Moreover, there was the expectation of the vendor that
arrangements were possible for the GSIS to make partial releases of the subdivision
lots from the overall real estate mortgage. It was simply unfortunate that petitioner
did not succeed in that regard.
For that reason We cannot agree with respondent Millan Chat the P20,000.00 award
may be considered in the nature of exemplary damages.
In case of breach of contract, exemplary damages may be awarded if the guilty party
acted in wanton, fraudulent, reckless, oppressive or malevolent
manner. 13 Furthermore, exemplary or corrective damages are to be imposed by way
Page 18 of 25
of example or correction for the public good, only if the injured party has shown that
he is entitled to recover moral, temperate or compensatory damages."
Here, respondent Millan did not submit below any evidence to prove that she
suffered actual or compensatory damages. 14
To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by way of
nominal damages is fair and just under the following circumstances, viz: respondent
Millan bought the lot from petitioner in May, 1962, and paid in full her installments
on December 22, 1971, but it was only on March 2, 1973, that a deed of absolute
sale was executed in her favor, and notwithstanding the lapse of almost three years
since she made her last payment, petitioner still failed to convey the corresponding
transfer certificate of title to Millan who accordingly was compelled to file the instant
complaint in August of 1974.
PREMISES CONSIDERED, We modify the decision of the trial court and reduce the
nominal damages to Ten Thousand Pesos (P10,000.00). In all other respects the
aforesaid decision stands.
G.R. No. L-26339 December 14, 1979
MARIANO C. PAMINTUAN vs. COURT OF APPEALS and YU PING KUN CO., INC.
Pamintuan contracted to sell plastic sheetings to Yu Ping Kun Co., Inc. for two
hundred sixty-five thousand five hundred fifty pesos. It was further agreed that
Pamintuan would deliver the plastic sheetings to the company at its bodegas in
Manila or suburbs directly from the piers "within one month upon arrival of" the
carrying vessels. Any violation of the contract of sale would entitle the aggreived
party to collect from the offending party liquidated damages in the sum of ten
thousand pesos.
However, Pamintuan withheld delivery of some items agreed upon.
After Pamintuan had delivered 224,150 yards of sheetings of interior, he refused to
deliver the remainder of the shipments.
The company filed its amended complaint for damages against Pamintuan. After
trial, the lower court rendered the judgment awarding in moral damages, stipulated
liquidated damages, and attorney’s fees. This was affirmed by the CA but moral
damages was removed. The lower court and the CA found Pamintuan to be guilty of
fraud.

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
The main contention of appellant Pamintuan is that the buyer, Yu Ping Kun Co.,
Inc., is entitled to recover only liquidated damages. That contention is based on the
stipulation "that any violation of the provisions of this contract (of sale) shall entitle
the aggrieved party to collect from the offending party liquidated damages in the
sum of P10,000 ".
Pamintuan relies on the rule that a penalty and liquidated damages are the same
(Lambert vs. Fox 26 Phil. 588); that "in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests in case of
non-compliance, if there is no stipulation to the contrary " (1st sentence of Art.
1226, Civil Code) and, it is argued, there is no such stipulation to the contrary in
this case and that "liquidated damages are those agreed upon by the parties to a
contract, to be paid in case of breach thereof" (Art. 2226, Civil Code).
Whether or not the stipulated liquidated damages is a penalty clause.
No. We hold that appellant's contention cannot be sustained because the second
sentence of article 1226 itself provides that I nevertheless, damages shall be paid if
the obligor ... is guilty of fraud in the fulfillment of the obligation". "Responsibility
arising from fraud is demandable in all obligations" (Art. 1171, Civil Code). "In case
of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for an
damages which may be reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty of fraud
because he did not make a complete delivery of the plastic sheetings and he
overpriced the same. That factual finding is conclusive upon this Court.
There is no justification for the Civil Code to make an apparent distinction between
penalty and liquidated damages because the settled rule is that there is no
difference between penalty and liquidated damages insofar as legal results are
concerned and that either may be recovered without the necessity of proving actual
damages and both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil
Code. See observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p.
251).
Castan Tobeñas notes that the penal clause in an obligation has three functions:
Page 19 of 25
1. A coercive or guarantee function, consisting in stimulating the debtor to the
compliance of the principal obligation, before the threat of having to pay the
penalty;
2. A liquidating function of the damage, that is to evaluate in advance the
damages that would cause to the creditor the breach or inadequate
fulfillment of the obligation.
3. A strictly penal function, consisting of punishing or punishing such breach
or improper fulfilment, atribuyendole consequences more onerous to the
debtor than those that normally carry the contractual breach.
The penalty clause is strictly penal or cumulative in character and does not partake
of the nature of liquidated damages (pena sustitutiva) when the parties agree "That
the creditor may request, in the alleged breach or mere delay of the principal
obligation, in addition to the penalty, the damages. One speaks in this case of
cumulative penalty, with difference of those other ordinary, in which the penalty is
substitutive of the ordinary repair."
After a conscientious consideration of the facts of the case, as found by Court of
Appeals and the trial court, and after reflecting on the/tenor of the stipulation for
liquidated damages herein, the true nature of which is not easy to categorize, we
further hold that justice would be adequately done in this case by allowing Yu Ping
Kun Co., Inc. to recover only the actual damages proven and not to award to it the
stipulated liquidated damages of ten thousand pesos for any breach of the
contract. The proven damages supersede the stipulated liquidated damages.
This view finds support in the opinion of Manresa (whose comments were the bases
of the new matter found in article 1226, not found in article 1152 of the old Civil
Code) that in case of fraud the difference between the proven damages and the
stipulated penalty may be recovered
G.R. No. 196118               July 30, 2014
LEONARDO C. CASTILLO, represented by LENNARD V. CASTILLO vs. SECURITY
BANK CORPORATION, JRC POULTRY FARMS or SPOUSES LEON C. CASTILLO,
JR., and TERESITA FLORESCASTILLO
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are siblings.
Leon and Teresita Flores-Castillo (the Spouses Castillo) were doing business under
the name of JRC Poultry Farms. Sometime in 1994, the Spouses Castillo obtained a
loan from respondent SBC in the amount of ₱45,000,000.00. To secure said loan,
they executed a real estate mortgage on August 5, 1994 over eleven (11) parcels of
land belonging to different members of the Castillo family and which are all located

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
in San Pablo City.4 They also procured a second loan5 amounting to ₱2,500,000.00,
which was covered by a mortgage on a land in Pasay City. Subsequently, the
Spouses Castillo failed to settle the loan, prompting SBC to proceed with the
foreclosure of the properties. SBC was then adjudged as the winning bidder in the
foreclosure sale held on July 29, 1999. Thereafter, they were able to redeem the
foreclosed properties, withthe exception of the lots covered by Torrens Certificate of
Title(TCT) Nos. 28302 and 28297.
On January 30, 2002, Leonardo filed a complaint for the partial annulment of the
real estate mortgage. He alleged that he owns the property covered by TCT No.
28297 and that the Spouses Castillo used it as one of the collaterals for a loan
without his consent. He contested his supposed Special Power of Attorney (SPA) in
Leon’s favor, claiming that it is falsified. According to him, the date of issuance of
his Community Tax Certificate (CTC) as indicated on the notarization of said SPA is
January 11, 1993, when he only secured the same on May 17, 1993. He also
assailed the foreclosure of the lots under TCT Nos.20030 and 10073 which were still
registered in the name of their deceased father. Lastly, Leonardo attacked SBC’s
imposition of penalty and interest on the loans as being arbitrary and
unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of Leonardo’s SPA.
They alleged that they incurred the loan not only for themselves, but also for the
other members of the Castillo family who needed money at that time. Upon receipt
of the proceeds of the loan, they distributed the same to their family members, as
agreed upon. However, when the loan became due, their relatives failed to pay their
respective shares such that Leon was forced to use his own money until SBC had to
finally foreclose the mortgage over the lots.6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled in Leonardo’s
favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff Leonardo C.
Castillo and against the defendants SECURITY BANK CORPORATION, and JRC
POULTRY FARMS or SPS. LEON C. CASTILLO, JR. and TERESITA FLORES-
CASTILLO declaring as null and void the Real Estate Mortgage dated August 5,
1994, the Memorandum of Agreement dated October 28, 1997 and the Certificate of
Sale dated August 27, 1999 insofar as plaintiff’s property with Transfer Certificate of
Title No. T-28297 is concerned. The Security Bank Corporation is likewise ordered
to return the ownership of the Transfer Certificate of Title No. T-28297 to plaintiff
Leonardo Castillo. Likewise, defendants spouses Leon C. Castillo, Jr. and Teresita
Flores-Castillo are hereby ordered to pay plaintiff moral damages in the total
amount of ₱500,000.00 and exemplary damages of ₱20,000.00. All other claims for
damages and attorney’s fees are DENIED for insufficiency of evidence.
Page 20 of 25
Both parties elevated the case to the CA. On November 26, 2010, the CA denied
Leonardo’s appeal and granted that of the Spouses Castillo and SBC. It reversed
and set aside the RTC Decision, essentially ruling that the August 5, 1994 real
estate mortgage isvalid. Leonardo filed a Motion for Reconsideration, but the same
was denied for lack of merit.
Hence, Leonardo brought the case to the Court and filed the instant Petition for
Review. The main issue soughtto be resolved here is whether or not the real estate
mortgage constituted over the property under TCT No. T-28297 is valid and binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases from the CA is limited to
the review and revision of errors of law it allegedly committed, as its findings of fact
are deemed conclusive. Thus, the Court is not duty-bound to evaluate and weigh
the evidence all over again which were already considered in the proceedings below,
except when, as in this case, the findings of fact of the CAare contrary to the
findings and conclusions of the trial court.8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal of
their property, and in the absence thereof, they should be legally authorized
for the purpose.9
Leonardo asserts that his signature inthe SPA authorizing his brother, Leon, to
mortgage his property covered by TCT No. T-28297 was falsified. He claims that he
was in America at the time of its execution. As proof of the forgery, he focuses on his
alleged CTC used for the notarization 10 of the SPA on May 5, 1993 and points out
that it appears to have been issued on January 11, 1993 when, in fact, he only
obtained it on May 17, 1993. But it is a settled rule that allegations of forgery, like
all other allegations, must be proved by clear, positive, and convincing evidence by
the party alleging it. It should not be presumed, but must beestablished by
comparing the alleged forged signature with the genuine signatures. 11 Here,
Leonardo simply relied on his self-serving declarations and refused to present
further corroborative evidence, saying that the falsified document itself is the best
evidence.12 He did not even bother comparing the alleged forged signature on the
SPA with samples of his real and actual signature. What he consistently utilized as
lone support for his allegation was the supposed discrepancy on the date of
issuance of his CTC as reflectedon the subject SPA’s notarial acknowledgment. On

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
the contrary, in view of the great ease with which CTCs are obtained these
days,13 there is reasonable ground to believe that, as the CA correctly observed, the
CTC could have been issued with the space for the date left blank and Leonardo
merelyfilled it up to accommodate his assertions. Also, upon careful examination,
the handwriting appearing on the space for the date of issuance is different from
that on the computation of fees, which in turn was consistent with the rest of the
writings on the document.14 He did not likewise attempt to show any evidence that
would back up his claim that at the time of the execution of the SPA on May 5,
1993, he was actually in America and therefore could not have possibly appeared
and signed the document before the notary.
And even if the Court were to assume, simply for the sake of argument, that
Leonardo indeed secured his CTC only on May 17, 1993, this does not automatically
render the SPA invalid. The appellate court aptly held that defective notarization will
simply strip the document of its public character and reduce it to a private
instrument, but nonetheless, binding, provided its validity is established by
preponderance of evidence.15 Article 1358 of the Civil Code requires that the form of
a contract that transmits or extinguishes real rights over immovable property
should be in a public document, yet the failure to observethe proper form does not
render the transaction invalid.16 The necessity of a public document for said
contracts is only for convenience; it is not essential for validity or
enforceability.17 Even a sale of real property, though notcontained in a public
instrument or formal writing, is nevertheless valid and binding, for even a verbal
contract of sale or real estate produceslegal effects between the
parties.18 Consequently, when there is a defect in the notarization of a document,
the clear and convincing evidentiary standard originally attached to a dulynotarized
document is dispensed with, and the measure to test the validity of such document
is preponderance of evidence.19
Here, the preponderance ofevidence indubitably tilts in favor of the respondents,
still making the SPA binding between the parties even with the aforementioned
assumed irregularity.1âwphi1 There are several telling circumstances that would
clearly demonstrate that Leonardo was aware of the mortgage and he indeed
executed the SPA to entrust Leon with the mortgage of his property. Leon had inhis
possession all the titles covering the eleven (11) properties mortgaged, including that
of Leonardo.20 Leonardo and the rest of their relatives could not have just blindly
ceded their respective TCTs to Leon.21 It is likewise ridiculous how Leonardo seemed
to have been totally oblivious to the status of his property for eight (8) long years,
and would only find outabout the mortgage and foreclosure from a nephew who
himself had consented to the mortgage of his own lot. 22 Considering the lapse of
time from the alleged forgery on May 5, 1993 and the mortgage on August 5, 1994,
to the foreclosure on July 29, 1999, and to the supposed discovery in 2001, it
appears that the suit is a mere afterthought or a last-ditch effort on Leonardo’s part
Page 21 of 25
to extend his hold over his property and to prevent SBC from consolidating
ownership over the same. More importantly, Leonardo himself admitted on cross-
examination that he granted Leon authority to mortgage, only that, according to
him, he thought it was going to be with China Bank, and not SBC. 23 But as the CA
noted, there is no mention of a certainbank in the subject SPA with which Leon
must specifically deal. Leon, therefore, was simply acting within the bounds of the
SPA’s authority when hemortgaged the lot to SBC.
True, banks and other financing institutions, in entering into mortgage contracts,
are expected to exercise due diligence.24 The ascertainment of the status or
condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.25 In this case, however, no evidence was
presented to show that SBC was remiss in the exercise of the standard care and
prudence required of it or that it was negligent in accepting the mortgage. 26 SBC
could not likewise befaulted for relying on the presumption of regularity of the
notarized SPA when it entered into the subject mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed by SBC are
just, and not excessive or unconscionable.
Section 47 of The General Banking Law of 200027 thus provides:
Section 47. Foreclosure of Real Estate Mortgage.- In the event of foreclosure,
whether judicially or extra-judicially, of any mortgage on real estate which is
security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with
interest thereon at the rate specified in the mortgage, and all the costs and expenses
incurred by the bank or institutionfrom the sale and custody of said property less
the income derived therefrom. However,the purchaser at the auction sale concerned
whether in a judicial or extra-judicial foreclosure shall have the right to enter upon
and take possession of such property immediately after the date of the confirmation
of the auction sale and administer the same in accordance with law. Any petition in
court to enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only upon the filing by the
petitioner of a bond in an amount fixed by the court conditioned that he will pay all
the damages which the bank may suffer by the enjoining or the restraint of the
foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant
to an extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of the certificate
of foreclosure sale with the applicable Register of Deeds which in no case shall be

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their expiration. 28 Verily, the redemption
price comprises not only the total amount due under the mortgage deed, but also
with interest at the rate specified in the mortgage, and all the foreclosure expenses
incurred by the mortgagee bank.
To sustain Leonardo's claim that their payment of ₱45,000,000.00 had already
extinguished their entire obligation with SBC would mean that no interest ever
accrued from 1994, when the loan was availed, up to the time the payment of
₱45,000,000.00 was made in 2000-2001.
SBC's 16% rate of interest is not computed per month, but rather per annum or
only 1.33% per month. In Spouses Bacolor v. Banco Filipino Savings and Mortgage
Bank, Dagupan City Branch,29 the Court held that the interest rate of 24% per
annum on a loan of ₱244,000.00 is not considered as unconscionable and
excessive. As such, the Court ruled that the debtors cannot renege on their
obligation to comply with what is incumbent upon them under the contract of loan
as they are bound by its stipulations. Also, the 24o/o per annum rate or 2% per
month for the penalty charges imposed on account of default, cannot be considered
as skyrocketing. The enforcement of penalty can be demanded by the creditor in
case of non-performance due to the debtor's fault or fraud. The nonperformance
gives rise to the presumption of fault and in order to avoid the penalty, the debtor
has the burden of proving that the failure of the performance was due to either force
majeure or the creditor's own acts. 30 In the instant case, petitioner failed to
discharge said burden and thus cannot avoid the payment of the penalty charge
agreed upon.
G.R. No. 183794 June 13, 2016
SPOUSES JAIME AND MATILDE POON v. PRIME SAVINGS BANK
REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS
STATUTORY LIQUIDATOR
Petitioners owned a commercial building in Naga City, which they used for their
bakery business. On 3 November 2006, Matilde Poon and respondent executed a
10-year Contract of Lease4 (Contract) over the building for the latter's use as its
branch office in Naga City. They agreed to a fixed monthly rental of P60,000, with an
advance payment of the rentals for the first 100 months in the amount of
P6,000,000. As agreed, the advance payment was to be applied immediately, while
the rentals for the remaining period of the Contract were to be paid on a monthly
Page 22 of 25
basis.5chanrobleslaw
In addition, paragraph 24 of the Contract provides:
24. Should the lease[d] premises be closed, deserted or vacated by the
LESSEE, the LESSOR shall have the right to terminate the lease without the
necessity of serving a court order and to immediately repossess the leased
premises. Thereafter the LESSOR shall open and enter the leased premises
in the presence of a representative of the LESSEE (or of the proper
authorities) for the purpose of taking a complete inventory of all furniture,
fixtures, equipment and/or other materials or property found within the
leased premises.
The LESSOR shall thereupon have the right to enter into a new contract with
another party. All advanced rentals shall be forfeited in favor of the LESSOR.
Barely three years later, however, the BSP placed respondent under the receivership
of the Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary
Board Resolution No. 22,7 which reads:
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift
Banks and Non-Bank Financial Institutions (DTBNBF1), in his
memorandum dated January 3, 2000, which report showed that the Prime
Savings Bank, Inc. (a) is unable to pay its liabilities as they became due in
the ordinary course of business; (b) has insufficient realizable assets as
determined by the Bangko Sentral ng Pilipinas to meet its liabilities; (c)
cannot continue in business without involving probable losses to its
depositors and creditors; and (d) has wilfully violated cease and desist
orders under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the
institution; x x x.8 (Emphasis supplied)
The BSP eventually ordered respondent's liquidation under Monetary Board
Resolution No. 664.
On 12 May 2000, respondent vacated the leased premises and surrendered them to
petitioners.10Subsequently, the PDIC issued petitioners a demand letter 11 asking for
the return of the unused advance rental amounting to P3,480,000 on the ground
that paragraph 24 of the lease agreement had become inoperative, because
respondent's closure constituted force majeure. The PDIC likewise invoked the
principle of rebus sic stantibus under Article 1267 of Republic Act No. 386 (Civil
Code) as alternative legal basis for demanding the refund.
Petitioners, however, refused the PDIC's demand. 12 They maintained that they were

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
entitled to retain the remainder of the advance rentals following paragraph 24 of
their Contract.
Consequently, respondent sued petitioners before the RTC of Naga City for a partial
rescission of contract and/or recovery of a sum of money.
ISSUE: WHETHER THE PROVISO IN THE PARTIES' CONTRACT ALLOWING THE
FORFEITURE OF ADVANCE RENTALS WAS A PENAL CLAUSE; YES
WHETHER THE PENALTY AGREED UPON BY THE PARTIES MAY BE EQUITABLY
REDUCED UNDER ARTICLE 1229 OF THE CIVIL CODE. YES
RULING:
The forfeiture clause in the Contract is penal in nature.
It is settled that a provision is a penal clause if it calls for the forfeiture of any
remaining deposit still in the possession of the lessor, without prejudice to any other
obligation still owing, in the event of the termination or cancellation of the
agreement by reason of the lessee's violation of any of the terms and conditions
thereof. This kind of agreement may be validly entered into by the parties. The
clause is an accessory obligation meant to ensure the performance of the principal
obligation by imposing on the debtor a special prestation in case of nonperformance
or inadequate performance of the principal obligation.
It is evident from the above-quoted testimony of Jaime Poon that the stipulation on
the forfeiture of advance rentals under paragraph 24 is a penal clause in the sense
that it provides for liquidated damages.
Notably, paragraph 5 of the Contract also provides:
5. It is hereby stipulated that should the leased property be foreclosed by PCI
Bank or any other banking or financial institution, all unused rentals shall
be returned by the LESSOR to the LESSEE; x x x.
In effect, the penalty for the premature termination of the Contract works both
ways. As the CA correctly found, the penalty was to compel respondent to complete
the 10-year term of the lease. Petitioners, too, were similarly obliged to ensure the
peaceful use of their building by respondent for the entire duration of the lease
under pain of losing the remaining advance rentals paid by the latter.
The forfeiture clauses of the Contract, therefore, served the two functions of a penal
clause, i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive
Page 23 of 25
force of the obligation by the threat of greater responsibility in case of breach. 47 As
the CA correctly found, the prestation secured by those clauses was the parties'
mutual obligation to observe the fixed term of the lease. For this reason, We sustain
the lower courts' finding that the forfeiture clause in paragraph 24 is a penal clause,
even if it is not expressly labelled as such.
A reduction of the penalty agreed upon by the parties is warranted under
Article 1129 of the Civil Code.
We have no reason to doubt that the forfeiture provisions of the Contract were
deliberately and intelligently crafted. Under Article 1196 of the Civil Code, 48 the
period of the lease contract is deemed to have been set for the benefit of both
parties. Its continuance, effectivity or fulfillment cannot be made to depend
exclusively upon the free and uncontrolled choice of just one party. 49 Petitioners and
respondent freely and knowingly committed themselves to respecting the lease
period, such that a breach by either party would result in the forfeiture of the
remaining advance rentals in favor of the aggrieved party.
If this were an ordinary contest of rights of private contracting parties, respondent
lessee would be obligated to abide by its commitment to petitioners. The general rule
is that courts have no power to ease the burden of obligations voluntarily assumed
by parties, just because things did not turn out as expected at the inception of the
contract.
It must be noted, however, that this case was initiated by the PDIC in furtherance of
its statutory role as the fiduciary of Prime Savings Bank. 51 As the state-appointed
receiver and liquidator, the PDIC is mandated to recover and conserve the assets of
the foreclosed bank on behalf of the latter's depositors and creditors. 52 In other
words, at stake in this case are not just the rights of petitioners and the correlative
liabilities of respondent lessee. Over and above those rights and liabilities is the
interest of innocent debtors and creditors of a delinquent bank establishment. These
overriding considerations justify the 50% reduction of the penalty agreed upon by
petitioners and respondent lessee in keeping with Article 1229 of the Civil Code,
which provides:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
The reasonableness of a penalty depends on the circumstances in each case,
because what is iniquitous and unconscionable in one may be totally just and
equitable in another.53 In resolving this issue, courts may consider factors including

OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE
but not limited to the type, extent and purpose of the penalty; the nature of the
obligation; the mode of the breach and its consequences; the supervening realities;
and the standing and relationship of the parties.
Under the circumstances, it is neither fair nor reasonable to deprive depositors and
creditors of what could be their last chance to recoup whatever bank assets or
receivables the PDIC can still legally recover. Besides, nothing has prevented
petitioners from putting their building to other profitable uses, since respondent
surrendered the premises immediately after the closure of its business. Strict
adherence to the doctrine of freedom of contracts, at the expense of the rights of
innocent creditors and investors, will only work injustice rather than promote
justice in this case.55 Such adherence may even be misconstrued as condoning
profligate bank operations. We cannot allow this to happen. We are a Court of both
law and equity; We cannot sanction grossly unfair results without doing violence to
Our solemn obligation to administer justice fairly and equally to all who might be
affected by our decisions.
Neither do We find any error in the trial court's denial of the damages and attorney's
fees claimed by petitioners. No proof of the supposed expenses they have incurred
for the improvement of the leased premises and the payment of respondent's unpaid
utility bills can be found in the records. Actual and compensatory damages must be
duly proven with a reasonable degree of certainty.
To recover moral and exemplary damages where there is a breach of contract, the
breach must be palpably wanton, reckless, malicious, in bad faith, oppressive, or
abusive. Attorney's fees are not awarded even if a claimant is compelled to litigate or
to incur expenses where no sufficient showing of bad faith exists. 58 None of these
circumstances have been shown in this case.
Finally, in line with prevailing jurisprudence, 59 legal interest at the rate of 6% per
annum is imposed on the monetary award computed from the finality of this
Decision until full payment.
BREACH OF OBLIGATIONS
G.R. No. 204702               January 14, 2015
RICARDO C. HONRADO vs. GMA NETWORK FILMS, INC.
On 11December 1998, respondent GMA Network Films, Inc. (GMA Films) entered
into a "TV Rights Agreement" (Agreement) with petitioner under which petitioner, as
licensor of 36 films, granted to GMA Films, for a fee of ₱60.75 million, the exclusive
Page 24 of 25
right to telecast the 36 films for a period of three years. Under Paragraph 3 of the
Agreement, the parties agreed that "all betacam copies of the [films] should pass
through broadcast quality test conducted by GMA-7," the TV station operated by
GMA Network, Inc. (GMA Network), an affiliate of GMA Films. The parties also
agreed to submit the films for review by the Movie and Television Review and
Classification Board (MTRCB) and stipulated on the remedies in the event that
MTRCB bans the telecasting ofany of the films (Paragraph 4):
The PROGRAMME TITLES listed above shall be subject to approval by the Movie
and Television Review and Classification Board (MTRCB) and, in the event of
disapproval, LICENSOR [Petitioner] will either replace the censored PROGRAMME
TITLES with another title which is mutually acceptable to both parties or, failure to
do such, a proportionate reduction from the total price shall either be deducted or
refunded whichever is the case by the LICENSOR OR LICENSEE [GMA
Films].3 (Emphasis supplied)
Two of the films covered by the Agreement were Evangeline Katorse and Bubot for
which GMA Films paid ₱1.5 million each.
In 2003, GMA Films sued petitioner in the Regional Trial Court of Quezon City (trial
court) to collect ₱1.6 million representing the fee it paid for Evangeline Katorse (₱1.5
million) and a portion of the fee it paid for Bubot (₱350,0004). GMA Films alleged
that it rejected Evangeline Katorse because "its running time was too short for
telecast"5 and petitioner only remitted ₱900,000 to the owner of Bubot (Juanita
Alano [Alano]), keeping for himself the balance of ₱350,000. GMA Films prayed for
the return of such amount on the theory that an implied trust arose between the
parties as petitioner fraudulently kept it for himself.6
Petitioner denied liability, counter-alleging that after GMA Films rejected Evangeline
Katorse, he replaced it with another film, Winasak na Pangarap, which GMA Films
accepted. As proof of such acceptance, petitioner invoked a certification of GMA
Network, dated 30 March 1999, attesting that such film "is of good broadcast
quality"7 (Film Certification). Regarding the fee GMA Films paid for Bubot, petitioner
alleged that he had settled his obligation to Alano. Alternatively, petitioner alleged
that GMA Films, being a stranger to the contracts he entered into with the owners of
the films in question, has no personality to question his compliance with the terms
of such contracts. Petitioner counterclaimed for attorney’s fees.
The Issue
The question is whether the CA erred in finding petitioner liable for breach of the
Agreement and breach of trust.
The Ruling of the Court
 Page 25 of 25
OBLIGATIONS ART. 1156-1304 NEW CIVIL CODE

We grant the petition. We find GMA Films’ complaint without merit and accordingly
reinstate the trial court’s ruling dismissing it with the modification that the award of
attorney’s fees is deleted. Petitioner Committed No Breach of Contract or Trust
MTRCB Disapproval the Stipulated
Basis for Film Replacement
The parties do not quarrel on the meaning of Paragraph 4 of the Agreement which
states:
reviewing a film listed in the Agreement, disapprove or X-rate it for telecasting. GMA
Films does not allege, and we find no proof on record indicating, that MTRCB
reviewed Winasak na Pangarap and X-rated it. Indeed, GMA Films’ own witness,
Jose Marie Abacan (Abacan), then Vice-President for Program Management of GMA
Network, testified during trial that it was GMA Network which rejected Winasak na
Pangarap because the latter considered the film "bomba."13 In doing so, GMA
Network went beyond its assigned role under the Agreement of screening films to
test their broadcast quality and assumed the function of MTRCB to evaluate the
films for the propriety of their content. This runs counter to the clear terms of
Paragraphs 3 and 4 of the Agreement.

The PROGRAMME TITLES listed [in the Agreement] x x x shall be subject to

approval by the Movie and Television Review and Classification Board
(MTRCB) and, in the event of disapproval, LICENSOR [Petitioner] will either
replace the censored PROGRAMME TITLES with another title which is
mutually acceptable to both parties or, failure to do such, a proportionate
reduction from the total price shall either be deducted or refunded whichever
is the case by the LICENSOR OR LICENSEE [GMA Films]. 11(Emphasis
supplied)

Under this stipulation, what triggers the rejection and replacement of any film listed
in the Agreement is the "disapproval" of its telecasting by MTRCB.

Nor is there any dispute that GMA Films rejected Evangeline Katorse not because it
was disapproved by MTRCB but because the film’s total running time was too short
for telecast (undertime). Instead of rejecting GMA Films’ demand for falling outside
of the terms of Paragraph 4, petitioner voluntarily acceded to it and replaced such
film with Winasak na Pangarap. What is disputed is whether GMA Films accepted
the replacement film offered by petitioner.

Petitioner maintains that the Film Certification issued by GMA Network attesting to
the "good broadcast quality" of Winasak na Pangarap amounted to GMA Films’
acceptance of such film. On the other hand, GMA Films insists that such clearance
pertained only to the technical quality of the film but not to its content which it
rejected because it found the film as "bomba" (bold). 12 The CA, working under the
assumption that the ground GMA Films invoked to reject Winasak na Pangarap was
sanctioned under the Agreement, found merit in the latter’s claim. We hold that
regardless of the import of the Film Certification, GMA Films’ rejection of Winasak
na Pangarap finds no basis in the Agreement.

In terms devoid of any ambiguity, Paragraph 4 of the Agreement requires the

intervention of MTRCB, the state censor, before GMA Films can reject a film and
require its replacement. Specifically, Paragraph 4 requires that MTRCB, after