OBLIGATIONS the law of intestacy from the estate of the deceased, the payment is valid and
cannot be rescinded by the payer.
A. In general
1. Definition
Article 1156. An obligation is a juridical necessity to give, to do or not to do.
(n)
2. Kinds of obligations as to basis and
enforceability
Aticle 1423. Obligations are civil or natural. Civil obligations give a right of
action to compel their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right of action to
enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason
thereof. Some natural obligations are set forth in the following articles.
Article 1424. When a right to sue upon a civil obligation has lapsed by
extinctive prescription, the obligor who voluntarily performs the contract
cannot recover what he has delivered or the value of the service he has
rendered.
Article 1425. When without the knowledge or against the will of the debtor, a
third person pays a debt which the obligor is not legally bound to pay because
the action thereon has prescribed, but the debtor later voluntarily reimburses
the third person, the obligor cannot recover what he has paid.
Article 1426. When a minor between eighteen and twenty-one years of age
who has entered into a contract without the consent of the parent or
guardian, after the annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact that he has not been
benefited thereby, there is no right to demand the thing or price thus
returned.
Article 1427. When a minor between eighteen and twenty-one years of age,
who has entered into a contract without the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to recover the same from
the obligee who has spent or consumed it in good faith. (1160A)
Article 1428. When, after an action to enforce a civil obligation has failed
the defendant voluntarily performs the obligation, he cannot demand the
return of what he has delivered or the payment of the value of the service he
has rendered.
Article 1429. When a testate or intestate heir voluntarily pays a debt of the
decedent exceeding the value of the property which he received by will or by
Article 1430. When a will is declared void because it has not been executed
in accordance with the formalities required by law, but one of the intestate
heirs, after the settlement of the debts of the deceased, pays a legacy in
compliance with a clause in the defective will, the payment is effective and
irrevocable.
Article 1139. Actions prescribe by the mere lapse of time fixed by law.
(1961)
Article 1140. Actions to recover movables shall prescribe eight years from
the time the possession thereof is lost, unless the possessor has acquired the
ownership by prescription for a less period, according to articles 1132, and
without prejudice to the provisions of articles 559, 1505, and 1133. (1962a)
Article 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition
of ownership and other real rights by prescription. (1963)
Article 1142. A mortgage action prescribes after ten years. (1964a)
Article 1143. The following rights, among others specified elsewhere in this
Code, are not extinguished by prescription:
(1) To demand a right of way, regulated in article 649;
(2) To bring an action to abate a public or private nuisance. (n)
Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Article 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Article 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or conduct of
any public officer involving the exercise of powers or authority arising from
Martial Law including the arrest, detention and/or trial of the plaintiff, the
same must be brought within one (1) year. (As amended by PD No. 1755, Dec.
24, 1980.)
Article 1147. The following actions must be filed within one year:
Page 1 of 121
 (1) For forcible entry and detainer;
(2) For defamation. (n)
Article 1148. The limitations of action mentioned in articles 1140 to 1142,
and 1144 to 1147 are without prejudice to those specified in other parts of this
Code, in the Code of Commerce, and in special laws. (n)
Article 1149. All other actions whose periods are not fixed in this Code or in
other laws must be brought within five years from the time the right of action
accrues. (n)
Article 1150. The time for prescription for all kinds of actions, when there is
no special provision which ordains otherwise, shall be counted from the day
they may be brought. (1969)
Article 1151. The time for the prescription of actions which have for their
object the enforcement of obligations to pay principal with interest or annuity
runs from the last payment of the annuity or of the interest. (1970a)
Article 1152. The period for prescription of actions to demand the
fulfillment of obligation declared by a judgment commences from the time
the judgment became final. (1971)
Article 1153. The period for prescription of actions to demand accounting
runs from the day the persons who should render the same cease in their
functions.
The period for the action arising from the result of the accounting runs from
the date when said result was recognized by agreement of the interested
parties. (1972)
Article 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against him. (n)
Article 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by the
debtor. (1973a)
VILLAROEL V. ESTRADA
Nature: Complaint for sum of money
Ponente: AVANCEÑA
Date: December 19, 1940
DOCTRINE: The rule that a new promise to pay a debt must be made by the
same person obligated or otherwise legally authorized by it, is not applicable
to this case since there was voluntarily assumption of the obligation.
FACTS:
Relevant Provision of Law:
On May 9, 1912, Alexandra F. Callao, mother of defendant John F. Villarroel,
obtained from the spouses Mariano Estrada and Severina a loan of P1, 000
payable after seven years. Alexandra died, leaving as the only heir the
defendant. Spouses Mariano Estrada and Severina died too, leaving as the
only heir to the plaintiff Bernardino Estrada. On August 9, 1930, the
defendant signed a document which states in duty to the plaintiff the amount
of P1, 000, with an interest of 12 percent per year. This action relates to the
collection of this amount.
LC: condemn the defendant to pay the claimed amount of P1, 000 with legal
interest of 12 percent per year from the August 9, 1930 until fully pay.
ISSUE:
RULING:
Although the action to recover the original debt has prescribed and when the
lawsuit was filed in this case. However, this action is based on the original
obligation contracted by the mother of the defendant, who has prescribed,
but in which the defendant contracted the August 9, 1930 (Exhibito B) to
assume the fulfillment of that obligation, as prescribed. Being the only
defendant of the primitive herdero debtor entitled to succeed him in his
inheritance, that debt legally brought by his mother, but lost its effectiveness
by prescription, it is now, however, for a moral obligation, which is
consideration enough to create and effective and enforceable his obligation
voluntarily contracted the August 9, 1930 in Exhibito B.
The rule that a new promise to pay a debt prrescrita must be made by the
same person obligated or otherwise legally authorized by it, is not applicable
to this case that does not require compliance with the mandatory obligation
orignalmente but from which they would voluntarily assume the obligation.
NOTE: The case is in Spanish.
ANSAY V. NDC
Nature: Complaint for 20% Christmas bonus
Ponente: PARAS, C. J.
Date: April 29, 1960
Page 2 of 121
DOCTRINE: Civil obligations are a right of action to compel their
performance. Natural obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof".
FACTS:
Relevant Provision of Law: Article 1423 of the New Civil Code
On July 25, 1956, appellants filed against appellees in the Court of First
Instance of Manila a complaint praying for a 20% Christmas bonus for the
years 1954 and 1955.
TC dismissed the complaint, and held, among others:
the Court does not see how petitioners may have a cause of action to
secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not
within its judicial powers to command respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give
such bonus but that they had only ask that such bonus be given to them
because it is a moral obligation of respondents to give that but as this
Court understands, it has no power to compel a party to comply with a
moral obligation (Art. 142, New Civil Code.).
Appellants contend that there exists a cause of action in their complaint
because their claim rests on moral grounds or what in brief is defined by law
as a natural obligation.
ISSUE: W/N a Christmas bonus is a demandable obligation.
RULING:
Generally, a Christmas bonus, being a natural obligation, is not demandable.
Article 1423 of the New Civil Code classifies obligations into civil or natural.
"Civil obligations are a right of action to compel their performance.
Natural obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their performance, BUT
after voluntary fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be
cognizable by the court is voluntary fulfillment by the obligor. Certainly
retention can be ordered but only after there has been voluntary
performance. But here there has been no voluntary performance. In
fact, the court cannot order the performance.
Philippine Education Co. vs. CIR: From the legal point of view a bonus
is not a demandable and enforceable obligation. It is so when it is made a
part of the wage or salary compensation.
H. E. Heacock vs. National Labor Union: Even if a bonus is not
demandable for not forming part of the wage, salary or compensation of an
employee, the same may nevertheless, be granted on equitable consideration
as when it was given in the past, though withheld in succeeding two years
from low salaried employees due to salary increases.
Still the facts in said Heacock case are not the same as in the instant one, and
hence the ruling applied in said case cannot be considered in the present
action.
DBP V. CONFESOR
Nature: Complaint for payment of loan
Ponente: GANCAYCO, J.
Date: May 11, 1989
DOCTRINE:
FACTS:
Relevant Provision of Law: Art. 165 of the CC
[1st PN] On February 10, 1940 spouses Patricio Confesor and Jovita
Villafuerte obtained an agricultural loan from the Agricultural and
Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of
said date whereby they bound themselves jointly and severally to pay the
account in ten (10) equal yearly amortizations.
[2nd PN] As the obligation remained outstanding and unpaid even after the
lapse of the aforesaid ten-year period, Confesor (only the H), who was by
then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. The new promissory
note reads as follows —
I hereby promise to pay the amount covered by my promissory note on or
before June 15, 1961. Upon my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if I can secure a
certificate of indebtedness from the government of my back pay I will be
allowed to pay the amount out of it.
Said spouses not having paid the obligation on the specified date, the DBP
filed a complaint against the spouses for the payment of the loan.
Page 3 of 121
CITY COURT: ordered the defendants Patricio Confesor and Jovita
Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines,
jointly and severally the sum of P5,760.96 plus additional daily interest, etc
CFI: reversed; dismissed the complaint
 in signing the promissory note alone, respondent Confesor cannot
thereby bind his wife, respondent Jovita Villafuerte, pursuant to
Article 166 of the New Civil Code which provides:
... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as
reanimating the old promise, or as imparting vitality to the remedy (which by
lapse of time had become extinct) and thus enabling the creditor to recover
upon his original contract.
ISSUE #2: W/N the debt is chargeable against the conjugal partnership
considering that the husband, alone, signed the 2nd PN

Art. 166. Unless the wife has been declared a non compos mentis or a
spend thrift, or is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without, the wife's consent. If
she ay compel her to refuses unreasonably to give her consent, the
court m grant the same.
Petitioner Bank contends,
 that the right to prescription may be renounced or waived; and
 that in signing the second promissory note respondent Patricio Confesor
can bind the conjugal partnership; or otherwise said respondent became
liable in his personal capacity.
RULING:
YES. The debt in favor of the bank is chargeable to the conjugal partnership.
Under Article 165 of the Civil Code, the husband is the administrator of the
conjugal partnership. As such administrator, all debts and obligations
contracted by the husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership.
3. Elements of obligations

ISSUE: W/N the right to prescription may be renounced or waived

B. Sources of civil obligations
RULING:
YES. The right to prescription may be waived or renounced. Article 1157. Obligations arise from:
(1) Law;
Article 1112 of Civil Code provides: (2) Contracts;
Art. 1112. Persons with capacity to alienate property may renounce (3) Quasi-contracts;
prescription already obtained, but not the right to prescribe in the future. (4) Acts or omissions punished by law; and
Prescription is deemed to have been tacitly renounced when the (5) Quasi-delicts. (1089a)
renunciation results from acts which imply the abandonment of the right
acquired.
1. Law
There is no doubt that prescription has set in as to the first promissory note
of February 10, 1940. However, when respondent Confesor executed the Article 1158. Obligations derived from law are not presumed. Only those
second promissory note on April 11, 1961 whereby he promised to pay the expressly determined in this Code or in special laws are demandable, and
amount covered by the previous promissory note on or before June 15, 1961, shall be regulated by the precepts of the law which establishes them; and as
and upon failure to do so, agreed to the foreclosure of the mortgage, said to what has not been foreseen, by the provisions of this Book. (1090)
respondent thereby effectively and expressly renounced and waived his right
to the prescription of the action covering the first promissory note. 2. Contracts

This is not a mere case of acknowledgment of a debt that has prescribed but a Article 1159. Obligations arising from contracts have the force of law
new promise to pay the debt. The consideration of the new promissory note is between the contracting parties and should be complied with in good faith.
the pre-existing obligation under the first promissory note. The statutory (1091a)
limitation bars the remedy but does not discharge the debt.

Page 4 of 121
Article 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to
render some service. (1254a)
3. Quasi-contracts
Article 1160. Obligations derived from quasi-contracts shall be subject to
the provisions of Chapter 1, Title XVII, of this Book. (n)
Article 2142. Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another. (n)
Article 2143. The provisions for quasi-contracts in this Chapter do not
exclude other quasi-contracts which may come within the purview of the
preceding article. (n)
SECTION 1
Negotiorum Gestio
Article 2144. Whoever voluntarily takes charge of the agency or
management of the business or property of another, without any power from
the latter, is obliged to continue the same until the termination of the affair
and its incidents, or to require the person concerned to substitute him, if the
owner is in a position to do so. This juridical relation does not arise in either
of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of articles 1317, 1403, No. 1, and 1404
regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be
applicable. (1888a)
Article 2145. The officious manager shall perform his duties with all the
diligence of a good father of a family, and pay the damages which through his
fault or negligence may be suffered by the owner of the property or business
under management.
The courts may, however, increase or moderate the indemnity according to
the circumstances of each case. (1889a)
Article 2146. If the officious manager delegates to another person all or
some of his duties, he shall be liable for the acts of the delegate, without
prejudice to the direct obligation of the latter toward the owner of the
business.
The responsibility of two or more officious managers shall be solidary, unless
the management was assumed to save the thing or business from imminent
danger. (1890a)
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2148. Except when the management was assumed to save property
or business from imminent danger, the officious manager shall be liable for
fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person
from taking up the management. (n)
Article 2149. The ratification of the management by the owner of the
business produces the effects of an express agency, even if the business may
not have been successful. (1892a)
Article 2150. Although the officious management may not have been
expressly ratified, the owner of the property or business who enjoys the
advantages of the same shall be liable for obligations incurred in his interest,
and shall reimburse the officious manager for the necessary and useful
expenses and for the damages which the latter may have suffered in the
performance of his duties.
The same obligation shall be incumbent upon him when the management
had for its purpose the prevention of an imminent and manifest loss,
although no benefit may have been derived. (1893)
Article 2151. Even though the owner did not derive any benefit and there
has been no imminent and manifest danger to the property or business, the
owner is liable as under the first paragraph of the preceding article, provided:
(1) The officious manager has acted in good faith, and
(2) The property or business is intact, ready to be returned to the
owner. (n)
Article 2152. The officious manager is personally liable for contracts which
he has entered into with third persons, even though he acted in the name of
the owner, and there shall be no right of action between the owner and third
persons. These provisions shall not apply:
(1) If the owner has expressly or tacitly ratified the management, or
(2) When the contract refers to things pertaining to the owner of the
business. (n)
Page 5 of 121
Article 2153. The management is extinguished:
(1) When the owner repudiates it or puts an end thereto;
(2) When the officious manager withdraws from the management,
subject to the provisions of article 2144;
(3) By the death, civil interdiction, insanity or insolvency of the
owner or the officious manager. (n)
SECTION 2
Solutio Indebiti
Article 2154. If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to return it
arises. (1895)
Article 2155. Payment by reason of a mistake in the construction or
application of a doubtful or difficult question of law may come within the
scope of the preceding article. (n)
Article 2156. If the payer was in doubt whether the debt was due, he may
recover if he proves that it was not due. (n)
Article 2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary. (n)
Article 2158. When the property delivered or money paid belongs to a third
person, the payee shall comply with the provisions of article 1984. (n)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing, until
it is recovered. (1896a)
Article 2160. He who in good faith accepts an undue payment of a thing
certain and determinate shall only be responsible for the impairment or loss
of the same or its accessories and accessions insofar as he has thereby been
benefited. If he has alienated it, he shall return the price or assign the action
to collect the sum. (1897)
Article 2161. As regards the reimbursement for improvements and
expenses incurred by him who unduly received the thing, the provisions of
Title V of Book II shall govern. (1898)
Article 2162. He shall be exempt from the obligation to restore who,
believing in good faith that the payment was being made of a legitimate and
subsisting claim, destroyed the document, or allowed the action to prescribe,
or gave up the pledges, or cancelled the guaranties for his right. He who paid
unduly may proceed only against the true debtor or the guarantors with
regard to whom the action is still effective. (1899)
Article 2163. It is presumed that there was a mistake in the payment if
something which had never been due or had already been paid was delivered;
but he from whom the return is claimed may prove that the delivery was
made out of liberality or for any other just cause. (1901)
SECTION 3
Other Quasi-Contracts
Article 2164. When, without the knowledge of the person obliged to give
support, it is given by a stranger, the latter shall have a right to claim the
same from the former, unless it appears that he gave it out of piety and
without intention of being repaid. (1894a)
Article 2165. When funeral expenses are borne by a third person, without
the knowledge of those relatives who were obliged to give support to the
deceased, said relatives shall reimburse the third person, should the latter
claim reimbursement. (1894a)
Article 2166. When the person obliged to support an orphan, or an insane
or other indigent person unjustly refuses to give support to the latter, any
third person may furnish support to the needy individual, with right of
reimbursement from the person obliged to give support. The provisions of
this article apply when the father or mother of a child under eighteen years of
age unjustly refuses to support him.
Article 2167. When through an accident or other cause a person is injured
or becomes seriously ill, and he is treated or helped while he is not in a
condition to give consent to a contract, he shall be liable to pay for the
services of the physician or other person aiding him, unless the service has
been rendered out of pure generosity.
Article 2168. When during a fire, flood, storm, or other calamity, property
is saved from destruction by another person without the knowledge of the
owner, the latter is bound to pay the former just compensation.
Article 2169. When the government, upon the failure of any person to
comply with health or safety regulations concerning property, undertakes to
do the necessary work, even over his objection, he shall be liable to pay the
expenses.
Article 2170. When by accident or other fortuitous event, movables
separately pertaining to two or more persons are commingled or confused,
the rules on co-ownership shall be applicable.
Page 6 of 121
Article 2171. The rights and obligations of the finder of lost personal performed his services, as in fact, a compromise agreement entered
property shall be governed by articles 719 and 720. into on March 16, 1963 between the Deudors and the defendants was
approved by the court, the latter have refused to convey to him the
Article 2172. The right of every possessor in good faith to reimbursement 3,000 square meters of land occupied by him, (a part of the 20
for necessary and useful expenses is governed by article 546. quinones above) which said defendants had promised to do "within
ten years from and after date of signing of the compromise
Article 2173. When a third person, without the knowledge of the debtor, agreement", as consideration for his services.
pays the debt, the rights of the former are governed by articles 1236 and 1237.
Defendants filed a MD on the following grounds:
Article 2174. When in a small community a majority of the inhabitants of (1) As regards that improvements made by plaintiff, that the complaint
age decide upon a measure for protection against lawlessness, fire, flood, states no cause of action, the agreement regarding the same having
storm or other calamity, any one who objects to the plan and refuses to been made by plaintiff with the Deudors and not with the
contribute to the expenses but is benefited by the project as executed shall be defendants, hence the theory of plaintiff based on Article 2142 of the
liable to pay his share of said expenses. Code on unjust enrichment is untenable; and
(2) anent the alleged agreement about plaintiffs services as intermediary
Article 2175. Any person who is constrained to pay the taxes of another in consideration of which, defendants promised to convey to him
shall be entitled to reimbursement from the latter. 3,000 square meters of land, that the same is unenforceable under
the Statute of Frauds, there being nothing in writing about it, and, in
any event,
CRUZ V. TUASON AND CO.
(3) that the action of plaintiff to compel such conveyance has already
prescribed.
Nature: complaint for recovery of improvements and conveyance of land
Ponente: BARREDO, J
CFI: dismissed the complaint on three grounds: (1) failure of the complaint
Date: April 29, 1977
to state a cause of action (defendant is not privy to the agreement between
plaintiff and the Deudors); (2) the cause of action of plaintiff is unenforceable
DOCTRINE: a presumed qauasi-contract cannot emerge as against one
under the Statute of Frauds; and (3) the action of the plaintiff has already
party when the subject matter thereof is already covered by an existing
prescribed.
contract with another party.
ISSUE: W/N plaintiff‘s claim (2nd COA) is unenforceable under the State of
FACTS:
Frauds
Relevant Provision of Law: Art 2141, CC (quasi-contract)
RULING:
Faustino Cruz filed a complaint for recovery of improvements and
No. Statute of Frauds is inapplicable. Nevertheless, plaintiff still cannot claim
conveyance of land. He alleged two separate causes of action, namely:
from defendant.
(1) that upon request of the Deudors (the family of Telesforo Deudor
who laid claim on the land in question on the strength of an
It is elementary that the Statute refers to specific kinds of transactions and
"informacion posesoria" ) plaintiff made permanent improvements
that it cannot apply to any that is not enumerated therein.
valued at P30,400.00 on said land having an area of more or less 20
quinones and for which he also incurred expenses in the amount of
The contract is not a sale of real property or any interest therein: In the
P7,781.74, and since defendants-appellees are being benefited by said
instant case, what appellant is trying to enforce is the delivery to him of
improvements, he is entitled to reimbursement from them of said
3,000 square meters of land which he claims defendants promised to do in
amounts and
consideration of his services as mediator or intermediary in effecting a
(2) that in 1952, defendants availed of plaintiff's services as an
compromise of the civil action, Civil Case No. 135, between the defendants
intermediary with the Deudors to work for the amicable settlement of
and the Deudors. In no sense may such alleged contract be considered as
Civil Case No. Q-135, then pending also in the Court of First Instance
being a "sale of real property or of any interest therein." Indeed, not all
of Quezon City, and involving 50 quinones of land, of Which the 20
dealings involving interest in real property come under the Statute.
quinones aforementioned form part, and notwithstanding his having
Page 7 of 121
There is already partial execution of the agreement: Moreover, appellant's
complaint clearly alleges that he has already fulfilled his part of the bargains
to induce the Deudors to amicably settle their differences with defendants as,
in fact, on March 16, 1963, through his efforts, a compromise agreement
between these parties was approved by the court. In other words, the
agreement in question has already been partially consummated, and is no
longer merely executory. And it is likewise a fundamental principle governing
the application of the Statute that the contract in dispute should be purely
executory on the part of both parties thereto.
We cannot, however, escape taking judicial notice, in relation to
the compromise agreement relied upon by appellant, that in
several cases We have decided, We have declared the same
rescinded and of no effect. Thus, viewed from what would be the
ultimate conclusion of appellant's case, We entertain grave doubts as to
whether or not he can successfully maintain his alleged cause of action
against defendants, considering that the compromise agreement that he
invokes did not actually materialize and defendants have not benefited
therefrom
ISSUE #2 (TOPICAL): W/N plaintiff can claim based on a quasi-contract
(unjust enrichment).
RULING:
No. Art 2142, CC is not applicable.
Art. 2142 states,
Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.
From the very language of this provision, it is obvious that a presumed
qauasi-contract cannot emerge as against one party when the subject matter
thereof is already covered by an existing contract with another party.
Predicated on the principle that no one should be allowed to unjustly enrich
himself at the expense of another, Article 2124 creates the legal fiction of a
quasi-contract precisely because of the absence of any actual agreement
between the parties concerned. Corollarily, if the one who claims having
enriched somebody has done so pursuant to a contract with a third party, his
cause of action should be against the latter, who in turn may, if there is any
ground therefor, seek relief against the party benefited.
It is essential that the act by which the defendant is benefited must have been
voluntary and unilateral on the part of the plaintiff. As one distinguished
civilian (Ambrosio Padilla) puts it, "The act is voluntary, because the actor in
quasi-contracts is not bound by any pre-existing obligation to act. It is
unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why
the law creates a juridical relation and imposes certain obligation is to
prevent a situation where a person is able to benefit or take advantage of such
lawful, voluntary and unilateral acts at the expense of said actor."
In the case at bar, since appellant has a clearer and more direct recourse
against the Deudors with whom he had entered into an agreement regarding
the improvements and expenditures made by him on the land of appellees. it
Cannot be said, in the sense contemplated in Article 2142, that appellees have
been enriched at the expense of appellant.
SIDE ISSUE (Procedural): the impugned main order was issued on August
13, 1964, while the appeal was made on September 24, 1964 or 42 days later.
Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the
subject order of dismissal was already final and executory when appellant
filed his appeal.
GUTIERREZ HERMANOS V. ORENSE
Nature: Complaint to compel defendant to execute an instrument
transferring all the right, interest, title and share which the defendant has in
the subject property.
Ponente: TORRES, J.
Date: December 4, 1914
DOCTRINE:
FACTS:
Relevant Provision of Law: Article 1259 of the Civil Code
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint,
afterwards amended, against Engacio Orense, in which he set forth,
 that on and before February 14, 1907, the defendant Orense had been
the owner of a parcel of land, with the buildings and improvements
thereon (masonry house with the nipa roof), situated in the pueblo of
Guinobatan, Albay, xxx;
 hat the said property has up to date been recorded in the new
property registry in the name of the said Orense xxx;
 that, on February 14, 1907, Jose Duran, a nephew of the defendant,
with the latter's knowledge and consent, executed before a notary a
public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor
Duran reserving to himself the right to repurchase it for the same
price within a period of four years from the date of the said
instrument;
Page 8 of 121
  that the plaintiff company had not entered into possession of the
purchased property, owing to its continued occupancy by the
defendant and his nephew, Jose Duran, by virtue of a contract of
lease executed by the plaintiff to Duran, which contract was in force
up to February 14, 1911;
 that the said instrument of sale of the property, executed by Jose
Duran, was publicly and freely confirmed and ratified by the
defendant Orense;
 that, in order to perfect the title to the said property, but that the
defendant Orense refused to do so, without any justifiable cause or
reason, wherefore he should be compelled to execute the said deed by
an express order of the court, xxx
 that the defendant had been occupying the said property since
February 14, 1911, and refused to pay the rental thereof,
notwithstanding the demand made upon him for its payment at the
rate of P30 per month, the just and reasonable value for the
occupancy of the said property, the possession of which the
defendant likewise refused to deliver to the plaintiff company, in
spite of the continuous demands made upon him, the defendant,
with bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession in
the said property.
CFI: ordered the defendant to make immediate delivery of the property in
question, through a public instrument, by transferring and conveying to the
plaintiff all his rights in the property described in the complaint
(FACTS WHICH LED TO THE FILING OF CIVIL CASE) After the lapse of
the four years stipulated for the redemption, the defendant refused to deliver
the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the
rental thereof. His refusal was based on the allegations
 that he had not executed any written power of attorney to Jose
Duran, nor had he given the latter any verbal authorization to sell the
said property to the plaintiff firm in his name; and
 that, prior to the execution of the deed of sale, the defendant
performed no act such as might have induced the plaintiff to believe
that Jose Duran was empowered and authorized by the defendant to
effect the said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First
Instance of the said province, with estafa (CRIMINAL CASE). CFI acquitted
Duran since Orense, when called to the witness stand, stated that he had
consented to the sale of the property. Thus, plaintiff firm filed the present
civil case.
ISSUE: W/N defendant must fulfill the obligation contracted by his nephew.
RULING:
YES. The owner of the property consented to the sale made by the nephew.
It having been proven at the trial that he gave his consent to the said sale, it
follows that the defendant conferred verbal, or at least implied, power of
agency upon his nephew Duran, who accepted it in the same way by selling
the said property. The principal must therefore fulfill all the
obligations contracted by the agent, who acted within the scope of
his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the
sale, it is unquestionable that the defendant, the owner of the property,
approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced
the effect of an express authorization to make the said sale. (Civil Code, arts.
1888 and 1892.)
Article 1259 of the Civil Code prescribes:
"No one can contract in the name of another without being authorized by
him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his
authorization nor legal representation shall be void, unless it should be
ratified by the person in whose name it was executed before being
revoked by the other contracting party.
The sale of the said property made by Duran to Gutierrez Hermanos was
indeed null and void in the beginning, but afterwards became perfectly valid
and cured of the defect of nullity it bore at its execution by the confirmation
solemnly made by the said owner upon his stating under oath to the judge
that he himself consented to his nephew Jose Duran's making the said sale.
If the defendant Orense acknowledged and admitted under oath that he had
consented to Jose Duran's selling the property in litigation to Gutierrez
Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said
property.
ADILLE V. CA
Nature: Action for partition with accounting
Ponente: SARMIENTO, J
Date: January 29, 1988
DOCTRINE:
Page 9 of 121
FACTS:
Relevant Provision of Law: Art. 1456, implied trust
The land in question Lot 14694 of Cadastral Survey of Albay located in
Legaspi City with an area of some 11,325 sq. m. originally belonged to one
Felisa Alzul as her own private property; she married twice in her lifetime;
 the first, with one Bernabe Adille, with whom she had as an only
child, herein defendant Rustico Adille;
 in her second marriage with one Procopio Asejo, her children were
herein plaintiffs,
[sale] Now, sometime in 1939, said Felisa sold the property in pacto de retro
to certain 3rd persons, period of repurchase being 3 years, but she died in
1942 without being able to redeem and after her death, but during the period
of redemption, herein defendant (child of 1st M) repurchased, by himself
alone, and after that, he executed a deed of extra-judicial partition
representing himself to be the only heir and child of his mother Felisa with
the consequence that he was able to secure title in his name alone also, so
that OCT. No. 21137 in the name of his mother was transferred to his name,
that was in 1955.
After some efforts of compromise had failed, his half-brothers and sisters,
herein plaintiffs, filed present case for partition with accounting on the
position that he was only a trustee on an implied trust when he redeemed,-
and this is the evidence, but as it also turned out that one of plaintiffs,
Emeteria Asejo was occupying a portion, defendant counterclaimed for her to
vacate.
LC: defendant was and became absolute owner, he was not a trustee, and
therefore, dismissed case and also condemned plaintiff occupant, Emeteria to
vacate
CA: reversed TC;
Petitioner (defendant) contends,
the property subject of dispute devolved upon him upon the failure of his
co-heirs to join him in its redemption within the period required by law.
He relies on the provisions of Article 1515 of the old Civil Article 1613 of
the present Code, giving the vendee a retro the right to demand
redemption of the entire property.
ISSUE: May petitioner, as a co-owner, acquire exclusive ownership over the
property held in common?
If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR.
RULING:
No, petitioner cannot acquire exclusive ownership under the circumstances.
Since there is fraud, petitioner is a mere trustee of the property. The doctrine
of negotiorum gestio cannot apply in the case at bar.
The right of repurchase may be exercised by a co-owner with
respect to his share alone.
Necessary expenses may be incurred by one co-owner, subject to his right to
collect reimbursement from the remaining co-owners. There is no doubt that
redemption of property entails a necessary expense. Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other co-
owners to contribute to the expenses of preservation of the thing or right
owned in common and to the taxes. Any one of the latter may exempt
himself from this obligation by renouncing so much of his undivided
interest as may be equivalent to his share of the expenses and taxes. No
such waiver shall be made if it is prejudicial to the co-ownership.
The result is that the property remains to be in a condition of co-ownership.
While a vendee a retro, under Article 1613 of the Code, "may not be
compelled to consent to a partial redemption," the redemption by one co-heir
or co-owner of the property in its totality does not vest in him ownership over
it. Failure on the part of all the co-owners to redeem it entitles the vendee a
retro to retain the property and consolidate title thereto in his name. ut the
provision does not give to the redeeming co-owner the right to the entire
property. It does not provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing
title over the parcel in his name terminate the existing co-
ownership. Registration of property is not a means of acquiring ownership.
It operates as a mere notice of existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property on
behalf of the private respondents. The Civil Code states:
ART. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for
the benefit of the person from whom the property comes.
The petitioner's pretension that he was the sole heir to the land in the
affidavit of extrajudicial settlement he executed preliminary to the
registration thereof betrays a clear effort on his part to defraud his brothers
and sisters and to exercise sole dominion over the property.
RE: negotiorum gestio
It is the view of the CA that the petitioner, in taking over the property, did so
either on behalf of his co-heirs, in which event, he had constituted himself a
negotiorum gestor under Article 2144 of the Civil Code, OR for his exclusive
Page 10 of 121
benefit, in which case, he is guilty of fraud, and must act as trustee, the
private respondents being the beneficiaries, under the Article 1456.
The evidence, of course, points to the second alternative (TRUST) the
petitioner having asserted claims of exclusive ownership over the property
and having acted in fraud of his co-heirs. He cannot therefore be said to have
assume the mere management of the property abandoned by his co-heirs, the
situation Article 2144 of the Code contemplates. In any case, as the CA itself
affirms, the result would be the same whether it is one or the other. The
petitioner would remain liable to the Private respondents, his co-heirs.
RE: prescription
This Court is not unaware of the well-established principle that prescription
bars any demand on property (owned in common) held by another (co-
owner) following the required number of years. In that event, the party in
possession acquires title to the property and the state of co-ownership is
ended. In the case at bar, the property was registered in 1955 by the
petitioner, solely in his name, while the claim of the private respondents was
presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of
co-ownership, must have been preceded by repudiation (of the co-
ownership). (No repudiation on the part of the private
respondents/plaintiffs.
ANDRES v. MANTRUST
Ponente: CORTES, J.
Date: September 15, 1989
DOCTRINE: Requisites of solution indebiti:
(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake of fact
FACTS:
Relevant Provision of Law: Art. 2154, CC
Petitioner, using the business name "Irene's Wearing Apparel," was engaged
in the manufacture of ladies garments, children's wear, men's apparel and
linens for local and foreign buyers. Among its foreign buyers was Facets
Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time
to time remitted certain amounts of money to petitioner in payment for the
items it had purchased. Sometime in August 1980, FACETS instructed the
First National State Bank of New Jersey, Newark, New Jersey, U.S.A.
(hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via
PNB.
Acting on said instruction, FNSB instructed private respondent
Manufacturers Hanover and Trust Corporation to effect the above-
mentioned transfer through its facilities and to charge the amount to the
account of FNSB with private respondent. Although private respondent was
able to send a telex to PNB to pay petitioner $10,000.00 through the
Pilipinas Bank, where petitioner had an account, the payment was not
effected immediately because the payee designated in the telex was only
"Wearing Apparel." Upon query by PNB, private respondent sent PNB
another telex dated August 27, 1980 stating that the payment was to be made
to "Irene's Wearing Apparel." On August 28, 1980, petitioner received the
remittance of $10,000.00 through Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the
remittance of the money to petitioner, FACETS informed FNSB about the
situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the
delay and at the same time amended its instruction by asking it to effect the
payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had
already received the remittance of $10,000.00 from PNB instructed the PCIB
to pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner
received a second $10,000.00 remittance.
Private respondent (Mantrust) asked petitioner for the return of the second
remittance of $10,000.00 but the latter refused to pay.
LC: in favor of petitioner as defendant; Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by
mistake but by negligence and petitioner was not unjustly enriched by virtue
thereof
CA: Art 2154 is applicable; reversed CFI
ISSUE: W/N petitioner has an obligation to return the $10,000.
RULING:
Art. 2154 of the New Civil Code provides that:
Art. 2154. If something received when there is no right to demand it, and
it was unduly delivered through mistake, the obligation to return it
arises.
Page 11 of 121
This provision is taken from Art. 1895 of the Spanish Civil Code which
provided that:
Art. 1895. If a thing is received when there was no right to claim it and
which, through an error, has been unduly delivered, an obligation to
restore it arises.
Article 1895 [now Article 2154] of the Civil Code abovequoted, is
therefore applicable. This legal provision, which determines the quasi-
contract of solution indebiti, is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly at the expense of
another.
For this article to apply the following requisites must concur:
(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake of fact" [City of
Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
Petitioner: he had the right to demand and therefore to retain the second
$10,000.00 remittance. It is alleged that even after the two $10,000.00
remittances are credited to petitioner's receivables from FACETS, the latter
allegedly still had a balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-existing debt, petitioner
was not thereby unjustly enriched.
SC: The contract of petitioner, as regards the sale of garments and other
textile products, was with FACETS. It was the latter and not private
respondent which was indebted to petitioner. On the other hand, the contract
for the transmittal of dollars from the United States to petitioner was entered
into by private respondent with FNSB. Petitioner, although named as the
payee was not privy to the contract of remittance of dollars. There being no
contractual relation between them, petitioner has no right to apply the
second $10,000.00 remittance delivered by mistake by private respondent to
the outstanding account of FACETS.
Petitioner: the payment by respondent bank of the second $10,000.00
remittance was not made by mistake but was the result of negligence of its
employees.
SC: The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial
evidence, is final and conclusive. CA held:
The fact that Facets sent only one remittance of $10,000.00 is not
disputed. In the written interrogatories sent to the First National State
Bank of New Jersey through the Consulate General of the Philippines in
New York, Adelaide C. Schachel, the investigation and reconciliation
clerk in the said bank testified that a request to remit a payment for Facet
Funwear Inc. was made in August, 1980. That there was a mistake in the
second remittance of US $10,000.00 is borne out by the fact that both
remittances have the same reference invoice number which is 263 80.
Petitioner: when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was
the proximate cause of the loss.
SC: The rule is that principles of equity cannot be applied if there is a
provision of law specifically applicable to a case.
PUYAT AND SONS V. MANILA
Nature: action for refund
Ponente: PAREDES, J
Date: April 30, 1963
DOCTRINE: (Citing a US case) It is too well settled in this state to need the
citation of authority that if money be paid through a clear mistake of law or
fact, essentially affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained by the party receiving
it, it may be recovered. Both law and sound morality so dictate
FACTS:
Relevant Provision of Law:
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action
for refund of Retail Dealerls Taxes paid by it, corresponding to the first
Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00,
against the City of Manila and its City Treasurer. The case was submitted on
the following stipulation of facts, to wit—
"1. That the plaintiff is a corporation duly organized and existing according to
the laws of the Philippines, with offices at Manila; while defendant City
Manila is a Municipal Corporation duly organized in accordance with the
laws of the Philippines, and defendant Marcelino Sarmiento is the duly
qualified incumbent City Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing and selling all
kinds of furniture xxx
"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance
No. 3364, defendant City Treasurer of Manila assessed from plaintiff retail
dealer's tax corresponding to the quarters hereunder stated on the sales of
Page 12 of 121
furniture manufactured and sold by it at its factory site, all of which
assessments plaintiff paid without protest in the erroneous belief that it was
liable therefor xxx
"4. That plaintiff, being a manufacturer of various kinds of furniture, is
exempt from the payment of taxes imposed under the provisions of Sec.
1, Group II, of Ordinance No. 3364, which took effect on September 24,
1956, on the sale of the various kinds of furniture manufactured by it
pursuant to the provisions of Sec. 18(n) of Republic Act No. 409 (Revised
Charter of Manila), as restated in Section 1 of Ordinance No.3816.
xxx
"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer
of Manila, a formal request for refund of the retail dealer's taxes unduly
paid by it.
"7. That on July 24, 1958, the defendant City Treasurer of Manila definitely
denied said request for refund.
LC: ordered the defendants to refund the amount of P29,824.00; Of the
payments made by the plaintiff, only that made on October 25, 1950 in the
amount of P1,250.00 has prescribed Payments made in 1951 and thereafter
are still recoverable since the extra-judicial demand made on October 30,
1956 was well within the six-year prescriptive period of the New Civil Code.
CITY OF MANILA (defendants): the taxes in question were voluntarily
paid by appellee company and since, in this jurisdiction, in order that a legal
basis arise for claim of refund of taxes erroneously assessed, payment thereof
must be made under protest, and this being a condition sine qua non, and no
protest having been made, -- verbally or in writing, thereby indicating that
the payment was voluntary, the action must fail.
PUYAT AND SONS: the payments could not have been voluntary. At most,
they were paid "mistakenly and in good faith" and "without protest in the
erroneous belief that it was liable thereof." Voluntariness is incompatible
with protest and mistake. It submits that this is a simple case of "solutio
indebiti"
ISSUE: W/N the amounts paid by plaintiff-appelele, as retail dealer's taxes
under Ordinance 1925, as amended by Ordinance No. 3364of the City of
Manila, without protest, are refundable
RULING:
Plaintiff-Appellee is entitled to the refund.
Appellants do not dispute the fact that appellee-company is exempted from
the payment of the tax in question.
Newport v. Ringo (US case): "It is too well settled in this state to need the
citation of authority that if money be paid through a clear mistake of law or
fact, essentially affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained by the party receiving
it, it may be recovered. Both law and sound morality so dictate. Especially
should this be the rule as to illegal taxation…‖
RE: Requirement of protest
In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question
similar to the case at bar, it was held that the requiredment of protest refers
only to the payment of taxes which are directly imposed by the charter itself,
that is, real estate taxes, which view was sustained by judicial and
administrative precedents, one of which is the case of Medina, et al., v. City of
Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not
necessary for the recovery of retail dealer's taxes, like the present, because
they are not directly imposed by the charter.
ISSUE #2: IF yes on #1, W/N the claim for refund filed in October 1956, in
so far as said claim refers to taxes paid from 1950 to 1952 has already
prescribed
CITY OF MANILA: article 1146 (NCC), which provides for a period of four
(4) years (upon injury to the rights of the plaintiff), apply to the case.
PUYAT AND SONS: provisions of Act 190 (Code of Civ. Procedure) should
apply, insofar as payments made before the effectivity of the New Civil Code
on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No.
190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for
payments made after said effectivity, providing for a period of six (6) years
(upon quasi-contracts like solutio indebiti).
RULING:
Even if the provisions of Act No. 190 should apply to those payments made
before the effectivity of the new Civil Code, because "prescription already
running before the effectivity of of this Code shall be govern by laws
previously in force xxx " (Art. 1116, NCC), Still payments made before
August 30, 1950 are no longer recoverable in view of the second
paragraph of said article (1116), which provides:
"but if since the time this Code took effect the entire period herein
required for prescription should elapse the present Code shall be
Page 13 of 121
 applicable even though by the former laws a longer period might be
required".
Anent the payments made after August 30, 1950, it is obvious that the action
has prescribed with respect to those made before October 30, 1950 only,
considering the fact that the prescription of action is interrupted xxx when is
a written extra-judicial demand x x x" (Art. 1155, NCC), and the written
demand in the case at bar was made on October 30, 1956 (Stipulation of
Facts).
MODIFIED in the sense that only payments made on or after October 30,
1950 should be refunded, the decision appealed from is affirmed, in all other
respects.
4. Acts or omissions punished by law
Article 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of
the obligation. Furthermore, it may be decreed that what has been poorly
done be undone. (1098)
Article 2177. Responsibility for fault or negligence under the preceding
article is entirely separate and distinct from the civil liability arising from
negligence under the Penal Code. But the plaintiff cannot recover damages
twice for the same act or omission of the defendant.(n)
RPC Article 100. Civil liability of a person guilty of felony. - Every person
criminally liable for a felony is also civilly liable.
RPC Article 104. What is included in civil liability. - The civil liability
established in Articles 100, 101, 102, and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
5. Quasi-delicts
Article 1162. Obligations derived from quasi-delicts shall be governed by
the provisions of Chapter 2, Title XVII of this Book, and by special laws.
(1093a)
Article 2176. Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (1902a)
SALUDAGA V. FEU
Nature: Complaint for damages
Ponente: YNARES-SANTIAGO, J.
Date: April 30, 2008
DOCTRINE:
FACTS:
Relevant Provision of Law:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far
Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete),
one of the security guards on duty at the school premises on August 18, 1996.
Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-
NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to
the police station where he explained that the shooting was accidental. He
was eventually released considering that no formal complaint was filed
against him.
Petitioner thereafter filed a complaint for damages against respondents
on the ground that they breached their obligation to provide students with a
safe and secure environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party Complaint against Galaxy
Development and Management Corporation (Galaxy), the agency contracted
by respondent FEU to provide security services within its premises and
Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any; and to pay
attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial
filed a Fourth-Party Complaint against AFP General Insurance.
TC: held FEU and GALAXY liable
CA: reversed; dismissed the complaint; shooting was a fortuitous event
ISSUE: W/N FEU is liable based on the contract between it and its student
RULING:
YES. FEU is liable (culpa contractual).
Page 14 of 121
PSBA v CA: When an academic institution accepts students for enrollment,
there is established a contract between them, resulting in bilateral obligations
which both parties are bound to comply with. For its part, the school
undertakes to provide the student with an education that would presumably
suffice to equip him with the necessary tools and skills to pursue higher
education or a profession. On the other hand, the student covenants to abide
by the school's academic requirements and observe its rules and regulations.
It is settled that in culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding
right of relief. In the instant case, we find that, when petitioner was shot
inside the campus by no less the security guard who was hired to maintain
peace and secure the premises, there is a prima facie showing that
respondents failed to comply with its obligation to provide a safe and
secure environment to its students.
Re: Force majeure
Respondents failed to discharge the burden of proving that they exercised
due diligence in providing a safe learning environment for their students.
They failed to prove that they ensured that the guards assigned in the campus
met the requirements stipulated in the Security Service Agreement. Indeed,
certain documents about Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a security guard for
the university was offered.
It was not proven that they examined the clearances, psychiatric test results,
201 files, and other vital documents enumerated in its contract with Galaxy.
Total reliance on the security agency about these matters or failure to check
the papers stating the qualifications of the guards is negligence on the
part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the
security agency it hired. To do so would result to contracting away its
inherent obligation to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In order
for force majeure to be considered, respondents must show that
no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse consequences of
such a loss. One's negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is found to be partly the
result of a person's participation - whether by active intervention, neglect or
failure to act - the whole occurrence is humanized and removed from the
rules applicable to acts of God
Re: Damages
Article 1170 of the Civil Code provides that those who are negligent in the
performance of their obligations are liable for damages. Accordingly, for
breach of contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for damages.
DISPOSITIVE:
a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner
actual damages in the amount of P35,298.25, plus 6% interest per annum
from the filing of the complaint until the finality of this Decision. After this
decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate
damages in the amount of P20,000.00; moral damages in the amount of
P100,000.00; and attorney's fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus (Prfesident of FEU)
is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.
SAGRADA ORDEN VS NACOCO
Nature: Action to recover the possession of a parcel of land and the
warehouses, as well as the rentals for its occupation and use
Ponente: Labrador
Date: June 30, 1952
DOCTRINE: In order for an obligation to exist, it must be created
by law, contract, quasi-contract, delicts, or quasi-delicts.
FACTS:
Relevant Provision of Law:
Old Civil Code Article 1089. Obligations are created by law, by contracts, by
quasi-contracts, and by illicit acts and omissions or by those in which any
kind of fault or negligence occur
On January 4, 1942, during the Japanese occupation, a Japanese corporation
by the name of Taiwan Tekkosho acquired a certain parcel of land owned by
the plaintiff for the sum of Php140,000.00, and title was issued in its name.
After the end of World War 2, the Alien Property Custodian of the USA took
possession, control and custody thereof for the reason that the land belonged
to an enemy national. Afterwards the property was occupied by the Copra
Page 15 of 121
Export Management Company, which later vacated it in favor of the National
Coconut Corporation.
Sagrada Orden made a claim of the property before the Alien Property
Custodian but this was denied, so it brought an action at the CFI of Manila to
annul the sale of the property to Taiwan Tekkosho and to recover its
possession.
The case did not come to trial as the parties presented a joint petition where
it was claimed that the sale in favor of Taiwan Tekkosho was null and voide
because it was executed under threats, duress, and intimidation, and it was
agreed that the title should be re-issued in favor of Sagrada Orden. The
parties also prayed that NACOCO and the Alien Property Administration be
released from liability, and that NACOCO would pay rentals.
CFI released NACOCO from any liability but denied plaintiff the right to
recover reasonable rentals.
Plaintiff appeals to recover reasonable rentals from August 1946, which as
when NACOCO began occupying the premises, and to vacate it.
Respondent, on the other hand, admits rentals but only starting February 28,
1949, when the judgment of the CFI was issued. It defends itself by saying it
occupied the property in good faith, and had no obligation whatsoever to pay
rentals for the use and occupation of the warehouse.
ISSUE:
Whether or not NACOCO is liable for rentals from the time of its occupancy
or from the time of the judgment of the CFI.
RULING: It is not liable for rentals at all.
If defendant is liable at all, its obligations must arise from any of the four
sources of obligations: law, contract or quasi-contract, crime, or negligence.
NACOCO is not guilty of any offense at all since it entered the premises and
occupied the same with the permission of the Alien Property Administration,
which had legal control and administration. It‘s not negligent of anything
either. There was no privity of contract or obligation between the Alien
Property Custodian and Taiwan Tekkosho such that the Alien Property
Custodian or its permittee (NACOCO) can be held responsible for the illegal
occupation by Taiwan Takkosho. Note: the Alien Property Custodian did not
occupy the property as successor to the interests of Taiwan Tekkosho, but by
expression provision of the law. When NACOCO took possession of the
property, the Alien Property Administration had the absolute control of the
property as the trustee of the US Government; as such, if NACOCO is liable
for rentals, it would accrue to the US Government and not to Sagrada Orden.
Furtehrmore, there was no agreement between the Alien Property Custodian
and NACOCO for the payment of rentals on the property. The predecessor of
NACOCO, Copra Export, did not pay any rentals or had to pay any
compensation of any kind. When the NACOCO succeeded Copra Export, it
must have also been free from payment of rentals, especially since it‘s a
Government corporation.
As such, there is no basis on any of the sources of obligations to find that
NACOCO is liable for rentals to Sagrada Orden.
PEOPLE’S CAR INC. VS COMMANDO SECURITY SERVICE
AGENCY
Nature: Action for damages
Ponente: Teehankee
Date: May 22, 1973
DOCTRINE: Obligations arising from contracts have the force of
law between the contracting parties and should be complied with
in good faith
FACTS:
Relevant Provision of Law:
NCC Article 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith.
People‘s Car Inc and Commando Security Service Agency entered into a
Guard Service Contract where the latter would safeguard and protect the
business premises of People‘s Car from theft, pilferage, robbery, vandalism
and all other unlawful acts of any person or persons prejudicial to the interest
of the plaintiff.
On April 5, 1970, at around 1AM, one of the security guards, without any
authority or consent whatsoever, brought out of the compound of the plaintiff
a car belonging to Joseph Luy, a customer, and eventually lost control of the
said car, causing the same to fall into a ditch. Plaintiff filed a complaint of
qualified theft against the security guard; plaintiff alleges that it had to suffer
damages by way of payment for the repairs of the car in the amount of
Php7,079, as well as car rental value in the sum of Php1,410 as plaintiff had
to loan a car to Joseph Luy for 47 days while the car was being repaired. As
such, plaintiff incurred a total of Php8,489.10 in damages.
Page 16 of 121

Plaintiff claimed that the entire amount is imputable to Commando Security
as, under paragraph 5 of their contract, defendant assumed liability for acts
done during their watch hours by guards, while Commando alleges, under
paragraph 4 of the contract, that its liability should not exceed Php1,000.
TC ruled in favor of the interpretation of Commando Security.
ISSUE: What is the extent of the liability of Commando Security in light of
the contract that the parties entered into
RULING: It is liable for the entire Php8,489.10.
The limitation to Php1,000 per guard post is only applicable for loss or
damage ―through the negligence of its guards during watch hours‖ provided
that the same is duly reported to the plaintiff within 24 hours of the
occurrence and the negligence is verified after proper investigation with the
attendance of both contracting parties. It‘s inapplicable in this case as the
property of the plaintiff was not lost or damaged at its premises, and was
there just mere negligence of the security guard.
Rather, this case involves a security guard who willfully and unlawfully drove
out a car and lost control of the same, causing the plaintiff to incur actual
damages in the amount of Php8,489.10. Consequently, defendant is liable for
the entire damages under paragraph 5, where the defendant assumes
―liability for the acts during their watch hours‖ and that it ―releases plaintiff
from any and all liabilities to the third parties arising from acts or omissions
done by guards during their tour of duty.‖ As the act here is wanton and
unlawful, the defendant is liable.
Contrary to TC‘s determination, plaintiff was not required to tell Luy that it
was not liable under the Guard Service Contract with Commando, and that it
should have brought the action in court. The TC also required that Luy would
file a third-party complaint (rather than dismiss the action vs. plaintiff) or to
have plaintiff file a crossclaim (if Luy did not opt to dismiss the action). The
recommendations of the TC are unduly technical and unrealistic
Plaintiff was in law liable to Luy for the damages caused by the security
guard, but it was also justified in making good such damages and relying in
turn on the defendant‘s honoring its contract. Plaintiff couldn‘t tell its
customer that it was not liable since the customer could not hold defendant
to account for damages as the customer had no privity of contract with the
defendant.
CANGCO VS MANILA RAILROAD
Nature: Action for damages based on quasi-delict
Ponente: Fisher
Date: October 4, 1918
DOCTRINE: The liability arising from culpa aquillana is based on a
voluntary act or omission, which, without willful intent but by mere
negligence, has caused damage to another. An employer who exercises all
possible care in the selection and direction of his employee would not occur
any liability. For the liability to exist, there should actually be some fault
attributable to the defendant personally.
FACTS:
Relevant Provision of Law:
Civil Code ART. 1903. The obligation imposs=ed by the next preceding
articles is enforceable not only for personal acts and omissions, but also for
those of persons for whom another is responsible..
Jose Cango was an employee of the Mania Railroad Company as a clerk. To
travel from his home to his place of work, he used a pass, as supplied by the
company, which entitled him to ride on the company‘s trains for free.
On January 20, 1915, at around 7 to 8PM, Cangco was about to disembark
from the slowing train, when one or both of his feet came in contact with
sack of watermelons resulting in him falling violently on the platform; his
body rolled from the platform and was drawn under the moving car where his
right arm was badly crushed and lacerated. The platform was dimly lit so that
it was difficult to discern the objects on the platform.
Pit appears that the sack of melons were on the platform as it was customary
season for harvesting and a large lot had been brought to the station for the
shipment to the market. They were contained in numbers sacks, which had
been piled on the platform in a row upon another near the edge of the
platform.
As a result of the accident, Cangco had to undergo two surgeries resulting in
the amputation of his arm until near the shoulder, and he expended actual
medical damages in the amount of Php790.25. He thus filed an action with
the CFI of Manila to recover damages based on the negligence of the
employees in leaving the sacks of watermelons at the edge of the platform.
CFI ruled that while negligence was attributable to the defendant, the
plaintiff had failed to exercise due caution in alighting from the train and so
was precluded from recovering
ISSUE: Whether or not Cangco is entitled to recover damages
from MRR for the negligent actions of MRR’s employees in placing
the sacks of watermelons at the edge of the platform
Page 17 of 121
RULING: Yes, Manila railroad is liable for damages for breach of
contract of carriage.
It cannot be doubted that the employees of the railroad company were
negligent in piling the sacks on the platform and that their presence caused
the plaintiff to suffer his injuries; as such, they constituted an effective legal
cause of the injuries sustained by the plaintiff. However, it must still be
weighed against the contributory negligence of the plaintiff.
The foundation of the legal liability of the defendant is the contract of
carriage; the obligation to respond for the damage arises from the failure of
the defendant to exercise due care in its performance. The liability of is direct
and immediate, and differs from the presumptive responsibility for the
negligence of its employees as imposed by Civil Code Article 1903, which can
be rebutted by proof of the exercise of due care in the selection and
supervision of employees. Article 1903 is not applicable to contractual
obligations (culpa contractual), but only to extra-contractual obligations
(culpa aquiliana).
Court cites precedent in the Rakes case where the Court stated that Article
1903 of the Civil Code is inapplicable to acts of negligence which constitute
the breach of contract; they would be subject instead to articles 1101, 1103
and 1104.
The distinction is important as the liability imposed on employers for
damages based on the negligence of the employees is not based on
respondeat superior – which would impose the master liable in every case
and unconditionally – but on the principle in Article 1902, which imposes
upon all persons who by their own fault or negligence cause injury to
another, the obligation to indemnify the damages. As such, the employer
would not be liable for damages done by a negligent employee if the employer
were not negligent in the selection and direction of the employee, and the act
did not amount to breach of the contract between the third person and the
employer.
The liability arising from culpa aquillana is based on a voluntary act or
omission, which, without willful intent but by mere negligence, has caused
damage to another. An employer who exercises all possible care in the
selection and direction of his employee would not occur any liability. For the
liability to exist, there should actually be some fault attributable to the
defendant personally.
On the other hand, the liability of masters and employers for the negligent
acts or omissions of their servants or agents, when such acts or omissions
cause damages which amount to the breach of a contact, is not based upon a
mere presumption of the master's negligence in their selection or control,
and proof of exercise of the utmost diligence and care in this regard does not
relieve the master of his liability for the breach of his contract.
The Court describes extra-contractual obligations arise from the breach or
omission of the mutual duties which civilized society imposes on its members
such that the breach of these will result in the obligation to indemnify. The
viniculum juris is the wrongful or negligent act or omission itself, while in
contractual relations, the viniculum exists independently from the breach of
the voluntary duty.
The positions of parties who have taken a contract with each other versus
those who haven‘t are different. The burden of proof is on the plaintiff to
show the negligence in culpa aquillana, while in a contract, it is sufficient to
prove the contract and the nonperformance.
Here: the duty was based on a contract of carriage, which is direct and
immediate, and its non-performance could not be excused by proof that the
fault was morally imputable to defendant‘s employees.
Defendant‘s allegation that the plaintiff should not have gotten off from the
train prior to its slowing down is insufficient to deny damages as it is not
negligence per se for a passenger to alight from a moving train. The train
here was ―barely moving‖ and it seems to be a common practice to do so
without any injury. Any contributory negligence on the part of the plaintiff
would still be on the negligence of the defendant as the platform was dark
and dimly lit.
Dissent: J. Malcolm
The contributory negligence of the plaintiff, in attempting to alight from a
moving train should absolve defendant from liability.
GUTIERREZ VS. GUTIERREZ
Nature: Action to recover damages from physical injuries from an
automobile accident
Ponente: Malcolm
Date: September 23, 1931
DOCTRINE: The head of the house, the owner of an automobile, who
maintains it for the general use of the family, is liable for its negligent
operation by one of his children where the car is occupied and being used at
the time of the injury for the pleasure of other members of the owner‘s
family.
FACTS:
Relevant Provision of Law:
Spanish Civil Code ART. 1903. The obligation imposed by the next preceding
articles is enforceable not only for personal acts and omissions, but also for
Page 18 of 121
those of persons for whom another is responsible.
The father, and, in case of his death or incapacity, the mother, are
liable for any damages caused by the minor children who live with them.
On February 2, 1930, a passenger truck, and an automobile, driven by
Bonifacio Gutierrez and owned by his parents, Mr. and Mrs. Manuel
Gutierrez, collided with one another as they were passing on the Talon Bridge
on the Manila South Road. Narciso was a passenger on the truck, and he
suffered a fracture in his right leg, which required medical attendance and
had not yet healed at the date of the trial.
The parties conceded that the collusion was caused by negligence. However,
the plaintiff blames both sets of drivers, while the truck owner blames the
automobile driver, while the automobile owners blame the truck driver.
ISSUE: Who among the defendants are liable – the truck owner or the
automobile owner?
RULING:
Bonifacio, at the time of the accident, was only 18 and was driving at an
excessive rate and so contributed to the accident by his negligence. As such,
based on article 1903 of the Civil Code, the father would be liable for damages
caused by the minor.
Citing US cases as precedent, the Court ruled that it has been held that the
head of the house, the owner of an automobile, who maintains it for the
general use of the family, is liable for its negligent operation by one of his
children where the car is occupied and being used at the time of the injury for
the pleasure of other members of the owner‘s family.
On the other hand, the liability of Cortez, the owner of the passenger truck,
and Velasco, the drier, rests on a contract, which was sufficiently proven in
evidence. The trial court found that the speed of the truck at the time and
lack of care of the driver also contributed to the accident.
Cortez and Velasco‘s contention that Narciso contributed to the accident by
sticking his leg outside the truck can‘t be counted on as it was not pleaded in
court and there was no evidence presented.
NOTES: Villa-Real had a concurring opinion which merely voted for an
indemnity of Php7,500.
C. Compliance with obligations
Article 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.
Article 1163. Every person obliged to give something is also obliged to take
care of it with the proper diligence of a good father of a family, unless the law
or the stipulation of the parties requires another standard of care. (1094a)
Article 1164. The creditor has a right to the fruits of the thing from the time
the obligation to deliver it arises. However, he shall acquire no real right over
it until the same has been delivered to him. (1095)
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery. (1096)
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not have
been mentioned. (1097a)
Article 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more
valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will. (1166a)
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have not
been stated, the creditor cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration. (1167a)
Article 1260. Once the consignation has been duly made, the debtor may
ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force. (1180)
Article 440. The ownership of property gives the right by accession to
everything which is produced thereby, or which is incorporated or attached
thereto, either naturally or artificially. (353)
Page 19 of 121

Article 442. Natural fruits are the spontaneous products of the soil, and the
young and other products of animals.
Industrial fruits are those produced by lands of any kind through cultivation
or labor.
Civil fruits are the rents of buildings, the price of leases of lands and other
property and the amount of perpetual or life annuities or other similar
income. (355a)
D. Kinds of civil obligations
1. As to perfection and extinguishment
a. Pure
Article 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition shall also be
demandable, without prejudice to the effects of the happening of the event.
(1113)
Article 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the courts
may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the
will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them. (1128a)
(NOTE: My syllabus is cut and I don’t know what follows after
these provisions, I’m sorry. Macel)
PAY VS PALANCA
Nature: Action for a sum of money based on a promissory note
Ponente: Fernando
Date: June 28, 1974
DOCTRINE: An obligation that does not depend on a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.
The filing of an action only 15 years after is too late to enforce.
FACTS:
Relevant Provision of Law:
NCC 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once
George Pay is a creditor of the late Justo Palanca. Pay‘s claim is based on a
promissory noted dated January 30, 1952, wherein Justo Palanca and Rosa
Palanca promised to pay the amount of Php26,900.00. Pay comes to the
court seeking that Segunda, the widow, be appointed as the administratrix
under the belief that once a certain parcel of land is under her
administration, Pay, as the creditor, could seek his claim against the
administratrix.
Palanca denies stating that she had refused to be appointed as the
administratrix, that the property no longer belonged to the deceased, and
that the rights of Pay on the instrument had already prescribe; the note had
been executed 15 years prior.
TC ruled in favor of Palanca and dismissed the case
ISSUE: Whether a creditor is barred by prescription in his attempted to
collect on a promissory note executed more than 15 years earlier.
RULING: Yes.
Based on the evidence presented, the only argument that merits the attention
of the Court is that of prescription. As noted by NCC 1179, any obligation that
does not depend on a future or uncertain event, or upon a past event
unknown to the parties is demandable at once.
As the obligation was due and demandable, the filing of the suit after 15 years
was much too late. The Civil Code additionally states that the prescriptive
period of a written contract is 10 years.
SMITH BELL VS SOTELO MATTI
Nature: Specific Performance – payment of goods and to receive the same
Ponente: Romualdez
Date: March 9, 1922
FACTS:
Relevant Provision of Law:
Civil Code 1125. Obligations for the performance of which a day certain has
been fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive,
even though its date be unknown.
Page 20 of 121
 If the uncertainty should consist in the arrival or non-arrival of the
day, the obligation is conditional and shall be governed by the rules of the
next preceding section.
In August 1918, Smith Bell and Sotelo entered into contracts whereby the
former obligated itself to sell to Sotelo two steel tanks for the price of
Php21,000, the tanks were to be shipped from New York and delivered at
Manila within 3-4 months; two expellers for the price of Php25,000, which
were to be shipped from San Francisco in the month of September 1918 or as
soon as possible; and two electric motors at the price of Php2,000 each – the
delivery stipulation read ―approximate delivery within 90 days – this is not
guaranteed.‖ All of the contracts were subject to contingencies such as the
sellers not being responsible for delays caused by force majeure.
The tanks arrived on April 27, 1919, the expellers on October 26 1918, and the
motors on February 27, 1919. Plaintiff notified Sotelo of the arrival of the
goods, but he refused to receive and pay for them.
Smith Bell alleges that it immediately notified Sotelo of the arrival of the
goods yet Sotelo has refused to receive any of them to pay for their price.
Sotelo counters that the he made the contracts as the manager of the Manila
Oil Refining and By-Products Company, and that it was only in May 1919 that
he was notified of the arrival of the goods, which arrived incomplete and long
after the dates stipulated. They allege that the delay in the delivery resulted in
suffering damages for the non-delivery of the tanks (P116,783.91) and on the
expellers and motors (P21,250)
TC absolved the defendant from paying for the tanks and motors but ordered
that defendant pay P50,000 for the expellers, which includes legal interest
ISSUE: Whether or not under the contracts entered into and the
circumstances established in record, the plaintiff fulfilled its obligation to
bring the goods and in due time.
RULING: Yes, the obligations were conditional.
None of the contracts fixed a specific date for the delivery of goods – they
stated ―within 3-4 months‖, ―in September 1918, or as soon as possible‖ or
―approximate delivery within 90 days – this is not guaranteed‖ and all of
them were subject to the clause that force majeure was a possible defense in
case of delays.
The record discloses that the contracts were executed at the time of World
War I, which mean that there were rigid restrictions on exports from the USA
of articles such as machinery in question, and that transportation was
difficult, which was known to the parties.
Considering these contracts in light of civil law, the Court ruled that the term
the parties attempted to fix is so uncertain that one cannot tell whether or not
the goods could actually be brought to Manila, so the obligations must be
considered as conditional.
The export of the machinery was contingent on the sellers obtaining
certificate of priority and permission of the US Government, so it was subject
to a condition that depended on the effort of Smith Bell and on the will of
third persons who could in no way be compelled to fulfill the obligation. The
obligor is considered as having sufficiently performed his part of the
obligation if he has done all in his power, even if the condition has not been
fulfilled.
As such, Soleto is sentenced to accept and receive the machinery and to pay
Php96,000.00 including legal interest from the date of the filing of the
complaint until fully paid.
CHAVES VS GONZALES
Nature: Action for damages
Ponente: Reyes
Date: April 30, 1970
DOCTRINE: When the time for compliance of an obligation had evidently
expired, even if a term was not properly fixed by the parties, there is a breach
of contract by non-performance.
FACTS:
Relevant Provision of Law:
NCC 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
The same shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore, it may be decreed that what has been poorly
done be undone
NCC 1170. 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.
NCC 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may
Page 21 of 121
fix the duration thereof.
The courts shall also fix the duration of the period when it depends
upon the will of the debtor.
In every case, the courts shall determine such period as may under
the circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
In July 1963, Chaves delivered to Gonzales a typewriter for routine cleaning
and servicing. Gonzales was unable to finish the job after some time in spite
of repeated reminders made by Chaves. Instead, he constantly gave
assurances.
In October 1963, defendant asked from plaintiff the sum of P6.00 for the
purchase of spare parts, which plaintiff gave. On October 26, finally fed up
with the delay, plaintiff demanded that the typewriter be returned. The
defendant returned the same in a wrapped package; the plaintiff discovered
that the same was completely in shames with the interior cover and some
parts and screws missing. Plaintiff sent a letter formally demanded the return
of the missing parts, the interior cover and P6.00. The next day, defendant
returned some of the missing parts, the interior cover and P6.00
The plaintiff had his typewriter repaired by Freixas Business Machines,
which was successful in doing so for the cost of P89.85.
Plaintiff commenced an action at the CFI of Manila, asking for P90 as actual
damages, P100 as temperate, P500 for moral, and P500 as attorney‘s fees.
TC ruled that the defendant should not be liable for the repairs made by
Freixas, but should only be liable for the value of the missing parts. As such it
ordered the defendant to pay the sum of P31.10, and the costs of the suit.
Plaintiff alleges that based on NCC 1167, he should be entitled to the whole
cost of labor and materials that went into the repair of the machine.
Defendant alleges that it should not be held liable as his contract with the
plaintiff did not contain a period under NCC 1197, such that the plaintiff
should have first filed an action to fix the period, within which he should have
complied with the contract before he is liable for breach
ISSUE: Whether or not defendant is liable to plaintiff for the cost of
actually repairing the typewriter, which it had failed to do
RULING:
The Court ruled that there was a perfected contract for cleaning and servicing
a typewriter, which was properly intended that the defendant finish it at a
future time though it was not specified. Furthermore, some time had passed
without the work having been finished, and the defendant returned the
typewriter ―cannibalized‖ and unrepaired, which is a breach of his contract,
and he did so without asking for more time to finish the job or for
compensation for the work he had done.
Consequently, the Court rules that the time for compliance had evidently
expired and there was already breach of contract by non-performance.
Defendant cannot invoke NCC 1197 as the fixing of a period would be a mere
formality and would only serve as a delay.
Clear that the defendant breached his obligation, so he is liable under NCC
1167 for the cost of the execution of the obligation in the proper manner,
which is P89.85 He is also liable under NCC 1170 for the cost of the missing
parts for his negligence in returning the typewriter in the same condition in
which he had received it.
The other damages were correctly rejected as they were not alleged in his
complaint.
ENCARNACION VS BALDOMAR
Nature:
Ponente: Hilado
Date: October 4, 1946
DOCTRINE: The validity and fulfillment of a contract of lease cannot be left
solely and exclusively to the will of one of the parties – here the lessees – as it
would deprive the owner from being able discontinue the lease
FACTS:
Encarnacion leased a house to Jacinto Baldomar and her son Lefrado
Fernando on a month-to-month basis for the monthly rental of P35. After the
end of World War 2, Encarnacion informed Baldomar and her son to vacate
the house by April 15, 1945 as he needed it for his offices as a result of the
destruction of the building where his office previously was. In spite of his
demand, the defendants insisted on their occupancy.
Baldomar and Fernanco contend that Encarnacion authorized them to
continue their occupancy indefinitely while they are able to faithfully fulfill
their obligation with respect to the payment of rentals.
Page 22 of 121
Encarnacion contends that the lease had always been on a month-to-moth
basis.

CFI ruled in favor of Encarnacion

ISSUE: Whether or not Encarnacion is justified in ordering the ejectment of

Baldomar and Fernando from the house that he leased to them

RULING: Yes. The Court puts more credit on the witness of Encarnacion
that the lease was for a month to month basis.

The defense set up by Fernando basically left the validity and fulfillment of
the contract of lease solely and exclusively to the will of one of the parties –
whether or not they would continue paying rentals or not – and would
deprive the owner from any say in the matter. If this defense were allowed,
the owner could potentially never be able to discontinue the lease.
Conversely, if the owner wished the lease to continue, the lessees could just
stop paying in order to terminate the lease. The Court states that this is void
according to 1256 of the Spanish Civil Code.

Page 23 of 121
 ELEIZEGUI VS MANILA LAWN TENNIS CLUB
Nature: Action for ejectment
Ponente: Arellano
Date: May 19, 1903
DOCTRINE:
FACTS:
Relevant Provision of Law:
Art 1128 Should the obligation not fix a period, but it can be inferred from
its nature and circumstances that there was an intention to grant it to the
debtor, the courts shall fix the duration of the same.
The court shall also fix the duration of the period when it may have
been left to the will of the debtor.
Eleizegui leased a parcel of land for a fixed consideration and to endure at the
will of the lessee, who was authorized to make improvements upon the land
such as erecting buildings of both permanent and temporary character, by
making fills, laying pipes, and making such other improvements as may be
desirable for the comfort and amusement of the members.
Eleizegui later tried to terminate the lease by sending notice to the Tennis
Club but this was ignored. As such, he filed an action to recover the land.
Elezegui contends that, based on Article 1569 of the Spanish Civil Code, the
lessor may judicially dispossess the lessee upon the expiration of the
conventional term or of the legal term.
TC ruled in favor of Eleizegui contending that the lease was on a per month
basis
ISSUES
(1) Whether or not there was a conventional term
RULING: Yes, so 1581 which imposes a legal term is not applicable
The Court notes that there are clauses, which do stipulate a term, so the legal
term as imposed by 1581 cannot be applied.
Clause 3 of the contract states that ―Mr. Williamson, or whoever may succeed
him as secretary of the club, may terminate this lease whenever desired
without other formality other than that of giving a month‘s notice. The
owners of the land undertake to maintain the club as tenant as long as the
latter shall see fit.‖
As such, the contract of lease cannot be considered as being one without a
conditional term as there is one, which is dependent on the lessee. As such,
the lease could not be considered terminated by the notice given by Eleizegui
as this notice is necessary only when it becomes necessary to have recourse to
the legal term.
It is also evident that the lessors did not intend to reserve to themselves the
right to rescind which they expressly conferred upon the lessee by
establishing it exclusively with the latter.
(2) Whether or not the lease depends upon the will of the lessee.
RULING:
However, It cannot be concluded that the termination of the contract is to be
left completely at the will of the lessee simply because it has been stipulated
that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations.
In speaking in general of obligations with a term it has supplied the
deficiency of the former law with respect to the "duration of the term when it
has been left to the will of the debtor," and provides that in this case the term
shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down
by the authorities, there is always a creditor who is entitled to demand the
performance, and a debtor upon whom rests the obligation to perform the
undertaking. In bilateral contracts the contracting parties are mutually
creditors and debtors. Thus, in this contract of lease, the lessee is the creditor
with respect to the rights enumerated in article 1554, and is the debtor with
respect to the obligations imposed by articles 1555 and 1561. The term within
which performance of the latter obligation is due is what has been left to the
will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is
that by which it is sought to obtain from the judge the determination of this
period, and not the unlawful detainer action which has been brought — an
action which presupposes the expiration of the term and makes it the duty of
the judge to simply decree an eviction. To maintain the latter action it is
sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the former
action it is necessary for the judge to look into the character and conditions of
the mutual undertakings with a view to supplying the lacking element of a
time at which the lease is to expire.
The lower court‘s judgment is erroneous and therefore reversed and the case
was remanded with directions to enter a judgment of dismissal of the action
in favor of the defendant, the Manila Lawn Tennis Club.
SEPARATE OPINION: Concurring by J. Willard:
Willard contends that 1128 should apply generally to unilateral contracts –
those in which the credit parted with something of value, leaving it to the
debtor to say when it should be returned. It should not be applied to the
contract of lease. But he agrees that 1581 is inapplicable
Page 24 of 121
 PHILIPPINE BANKING representing estate of JUSTINA SANTOS
v. LUI SHE as administratrix of WONG HENG
Nature: Annulment of contract
Ponente: Castro
Date: 12 September 1962
DOCTRINE: Contracts at bar cannot be annulled on the ground of 1308 –
that ―the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.‖ At bar, the contract of
lease was not dependent on Wong‘s will, as there was a fixed term.
FACTS:
Relevant Provision of Law: 1308, 1416
Santos and her sister Lorenzo both owned a Manila compound. Wong was
their lessor. He had a restaurant on the compound and also lived therein.
When Lorenzo died, Santos exclusively owned the property. It was at this
time when she became close with Wong‘s children. Wong himself was the
trusted man to whom she delivered various amounts for safekeeping,
including rentals from her property. He also took care of the payment; in her
behalf, of taxes, lawyers' fees, funeral expenses, masses, salaries of maids and
security guard, and her household expenses.
Santos and Wong then entered into several contracts with each other:
1. Contract of lease covering the area already leased to Wong and an
additional area for 50 years, with right to lessee to withdraw. The contract
was then amended to include the entire compound of Santos, including the
very house where she loved;
2. An option to buy the leased premises in favor of Wong. This was
conditioned on his obtaining Filipino citizenship;
3. A contract extending the lease to 99 years; and
4. Another fixing the option to buy at 50 years.
Santos then executed two wills where she asked her heirs to respect the
contracts made.
However, a codicil later executed said differently: it claimed that the
contracts were made only because of inducement and machination employed
by Wong. Santos then filed a case to annul the above contracts and for
collection of unpaid rentals.
CFI ruled for Santos, and annulled all contracts except the first contract of
lease. At this point, the original parties passed away.
ISSUE: W/N contracts should be annulled
RULING: Yes, they should be.
1. But they cannot be annulled on the ground of 1308 – that ―the contract
must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.‖ At bar, the contract of lease was not dependent on
Wong‘s will, as there was a fixed term.
2. They cannot also be annulled on the ground that Santos was not the owner.
When Lorenzo died, the entire property became Santos‘ therefore she could
validly dispose.
3. Neither can they be annulled because a fiduciary relationship existed
between Santos and Wong, with the latter as agent, contrary to article 1646,
in relation to article 1941 of the Civil Code, which disqualifies "agents (from
leasing) the property whose administration or sale may have been entrusted
to them." Wong was never an agent of Justina Santos.
4. Cannot annul based on fraud. There was no fraud employed, as Santos
dictated the terms of these contracts to her lawyer with Wong‘s aid. The
lawyer fully explained the effects of the contracts.
5. Neither can these contracts be annulled on the grounds that Santos was
blind, and that the contracts were in English, which she did not understand.
Nor can they be voided because of an alleged mistaken belief that Wong
rescued Santos and her sister from a fire.
6. But they are invalidated because of an illegal cause! Contracts were
executed to circumvent the constitutional prohibition against alien
ownership of land. If an alien is given not only a lease of, but also an option
to buy, a piece of land, by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last for 50 years, then it becomes
clear that the arrangement is a virtual transfer of ownership.
But pari delicto does not avail at bar because: 1) the parties are dead; and 2)
article 1416 of the Civil Code provides, as an exception to the rule on pari
delicto, that "When the agreement is not illegal per se but is merely
prohibited, and the prohibition by law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he has
paid or delivered."
Further, if the pari delicto rule were to apply and neither party may have
recourse against the other, then this would further defeat the constitutional
prohibition.
Since all contracts are annulled, the property is returned to the Santos estate.
Page 25 of 121

LIM V. PEOPLE
Nature: Estafa
Ponente: Relova
Date: 21 November 1984
DOCTRINE: Since the agreement fixed a period, Article 1197 of the New
Civil Code, which provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.
FACTS:
Relevant Provision of Law: 1197
Lim was a businesswoman. She went to the home of Maria Ayroso and
offered to sell the latter‘s tobacco. They agreed that Lim would receive the
overprice for which she would sell the tobacco for. The product was then
loaded in Lim‘s jeep. Lim eventually only paid for part of the tobacco she
took. Ayroso demanded payment for the rest.
But Lim alleges that the contract between them was not one of agency but
one of sale. She alleged that since a sale took place, ownership was now
vested in her and she is not obligated to remit anything further to Ayroso.
The CFI found Lim guilty of estafa. CA affirmed, and in doing so stated that
the contract contained a fixed period so the obligation was immediately
demandable as soon as the tobacco was sold.
ISSUE: W/N Lim is guilty of estafa
RULING: Yes, Lim is guilty.
From the agreement of Lim and Ayroso, it is clear that the proceeds of the
sale of the tobacco should be turned over to the Ayroso as soon as the same
was sold, or, that the obligation was immediately demandable as soon as the
tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the obligation if it does not
fix a period, does not apply.
The fact that appellant received the tobacco to be sold at P1.30 per kilo and
the proceeds to be given to complainant as soon as it was sold, strongly
negates transfer of ownership of the goods to the petitioner. Their agreement
constituted Lim as an agent with the obligation to return the tobacco if the
same was not sold.
ARANETA V. PHILIPPINE SUGAR ESTATES DEVT. CO. LTD
Nature: Specific performance
Ponente: Reyes, JBL
Date: 31 May 1967
DOCTRINE: 1197 provides a two-step process:
1. The court must first determine that "the obligation does not fix a period (or
that the period is made to depend upon the will of the debtor), but from the
nature and the circumstances it can be inferred that a period was intended."
2. This preliminary point settled, the court must then proceed to the second
step, and decide what period was "probably contemplated by the parties."
FACTS:
Relevant Provision of Law: 1197
Araneta sold part of its Sta. Mesa Hts. Subdivision to Phil. Sugar. The
contract included an obligation on the seller‘s end to construct roads on the
NE, NW and SW sides of the buyer‘s land within a reasonable time.
However, the respondent already finished constructing a church and convent
but the NE street was not yet constructed. They filed action to compel
petitioner to fulfill its end of the deal.
Petitioner attempts to excuse itself by reasoning that such failure is because
of a squatter, Abundo who still refuses to vacate.
The CFI and CA ruled in favor of respondent, even fixing a two-year period
for petitioner to comply with its obligation to construct the NE street.
Petitioner questions this ruling.
ISSUE: W/N the lower courts were correct to impose a period
RULING: No.
The contract between petitioner and respondent granted the former
―reasonable time within which to comply‖ – the lower courts should not have
imposed their own period of two years. Instead, they should have limited
themselves to ruling whether or not this ―reasonable period‖ had lapsed. If it
did, then there is breach, if not, then the action should be dismissed for it was
filed prematurely.
Further, the two-year period was arbitrarily set. 1197 provides a two-step
process:
1. The court must first determine that "the obligation does not fix a period (or
that the period is made to depend upon the will of the debtor), but from the
nature and the circumstances it can be inferred that a period was intended."
Page 26 of 121
2. This preliminary point settled, the court must then proceed to the second
step, and decide what period was "probably contemplated by the parties."
This process was not followed. The two-year period was made out of thin air.
At bar, the parties were both aware that squatters existed. This, the
conclusion is that the parties must have intended to defer the performance of
the obligations under the contract until the squatters were duly evicted.
MILLARE V. HERNANDO
Nature: To order renewal of lease
Ponente: Feliciano
Date: 30 June 1987
DOCTRINE: The first paragraph of Article 1197 is inapplicable when the
contract fixes a period. The second paragraph of Article 1197 is equally
inapplicable when the duration of the renewal period was not left to the will
of one party alone.
Relevant Provision of Law: 1197. If the obligation does not fix a period,
but from its nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the
will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed by
the courts, the period cannot be changed by them
FACTS:
The Cos were lessees to Millare under a lease contract for a five-year period.
In May 1980, Millare informed the Cos that they could continue leasing so
long as they were amenable to paying creased rentals of P1,200.00 a month.
In response, a counteroffer of P700.00 a month was made and to this,
Millare allegedly stated that the amount of monthly rentals could be resolved
at a later time since "the matter is simple among us." This led the spouses Co
to think that the lease had been renewed, but Millare thought otherwise and
demanded that they vacate the property.
Paragraph 13 of the lease contract states the following: This contract of lease
is subject to the laws and regulations of the government; and that this
contract of lease may be renewed after a period of five (5) years under the
terms and conditions as will be mutually agreed upon by the parties at the
time of renewal.
The Co spouses went to court to ask for the renewal of the lease contract at
P700 for 10 years. The CFI ruled on their behalf. The lower court judge
interpreted paragraph 13 to mean that since the original lease was fixed for
five years, it follows, therefore, that the lease contract is renewable for
another five.
ISSUE: W/N the lease was renewed.
RULING: No.
The lease contract (paragraph 13) can only mean that the lessor and lessee
may agree to renew the contract upon their reaching agreement on the terms
and conditions. Failure to reach agreement will of course prevent the contract
from being renewed at all. In the instant case, the lessor and the lessee
conspicuously failed to reach agreement both on the amount of the rental to
be payable during the renewal term, therefore there was no renewal.
The first paragraph of Article 1197 is clearly inapplicable, since the Contract
of Lease did in fact fix an original period of five years, which had expired. The
second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the will of the lessee alone, but
rather to the will of both the lessor and the lessee. Most importantly, Article
1197 applies only where a contract of lease clearly exists. Here, the contract
was not renewed at all, there was in fact no contract at all the period of which
could have been fixed.
Even if an implied lease took place, this would not be for an entire five-year
period, but only for month-to-month.
2. As to plurality of prestation
a. Conjunctive
b. Alternative
ARTICLE 1199. A person alternatively bound by different prestations shall
completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. (1131)
Article 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation. (1132)
Page 27 of 121
Article 1201. The choice shall produce no effect except from the time it has
been communicated. (1133)
Article 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable. (1134)
Article 1203. If through the creditor's acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract
with damages. (n)
Article 1204. The creditor shall have a right to indemnity for damages
when,
through the fault of the debtor, all the things which are alternatively the
object of the obligation have been lost, or the compliance of the obligation
has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be
awarded. (1135a)
Article 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has
been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following
rules:
(1) If one of the things is lost through a fortuitous event, he shall
perform the obligation by delivering that which the creditor should
choose from among the remainder, or that which remains if only one
subsists;
(2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the price of
that which, through the fault of the former, has disappeared, with a
right to damages;
(3) If all the things are lost through the fault of the debtor, the choice
by the creditor shall fall upon the price of any one of them, also with
indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one,
some or all of the prestations should become impossible. (1136a)
c. Facultative
Article 1206. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is called
facultative.
The loss or deterioration of the thing intended as a substitute, through the
negligence of the obligor, does not render him liable. But once the
substitution has been made, the obligor is liable for the loss of the substitute
on account of his delay, negligence or fraud. (n)
3. As to rights and obligations of
multiple parties
Article 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability
only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity. (1137a)
Article 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does not appear,
the credit or debt shall be presumed to be divided into as many shares as
there are creditors or debtors, the credits or debts being considered distinct
from one another, subject to the Rules of Court governing the multiplicity of
suits. (1138a)
Article 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors. If one of the latter should be insolvent, the
others shall not be liable for his share. (1139)
Article 1210. The indivisibility of an obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself imply indivisibility. (n)
Article 1211. Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods and
conditions. (1140)
Article 1212. Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the latter.
(1141a)
Article 1213. A solidary creditor cannot assign his rights without the
consent of the others. (n)
Article 1214. The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him. (1142a)
Page 28 of 121
Article 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of article
1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Article 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.
(1144a)
Article 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made. If
the payment is made before the debt is due, no interest for the intervening
period may be demanded.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each. (1145a)
Article 1218. Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal. (n)
Article 1219. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally paid by anyone of
them before the remission was effected. (1146a)
Article 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
(n)
Article 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of
the preceding paragraph shall apply. (1147a)
Article 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of the obligation
and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are
responsible. (1148a)
a. Joint
b. Solidary
Article 927. If two or more heirs take possession of the estate, they shall be
solidarily liable for the loss or destruction of a thing devised or bequeathed,
even though only one of them should have been negligent. (n)
Article 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under articles 1822 and 1823. (n)
Article 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act as
though he had full powers. (n)
Article 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all
the consequences of the agency. (1731)
Article 1945. When there are two or more bailees to whom a thing is loaned
in the same contract, they are liable solidarily. (1748a)
Article 2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary. (n)
Article 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary. (n)
Page 29 of 121
Article 2146. If the officious manager delegates to another person all or
some of his duties, he shall be liable for the acts of the delegate, without
prejudice to the direct obligation of the latter toward the owner of the
business.
The responsibility of two or more officious managers shall be solidary, unless
the management was assumed to save the thing or business from imminent
danger. (1890a)
Family Code—
Art. 94. The absolute community of property shall be liable for:
(1) The support of the spouses, their common children, and legitimate
children of either spouse; however, the support of illegitimate children shall
be governed by the provisions of this Code on Support;
(2) All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the community, or by both
spouses, or by one spouse with the consent of the other;
(3) Debts and obligations contracted by either spouse without the consent of
the other to the extent that the family may have been benefited;
(4) All taxes, liens, charges and expenses, including major or minor repairs,
upon the community property;
(5) All taxes and expenses for mere preservation made during marriage upon
the separate property of either spouse used by the family;
(6) Expenses to enable either spouse to commence or complete a professional
or vocational course, or other activity for self-improvement;
(7) Antenuptial debts of either spouse insofar as they have redounded to the
benefit of the family;
(8) The value of what is donated or promised by both spouses in favor of their
common legitimate children for the exclusive purpose of commencing or
completing a professional or vocational course or other activity for self-
improvement;
(9) Antenuptial debts of either spouse other than those falling under
paragraph (7) of this Article, the support of illegitimate children of either
spouse, and liabilities incurred by either spouse by reason of a crime or a
quasi-delict, in case of absence or insufficiency of the exclusive property of
the debtor-spouse, the payment of which shall be considered as advances to
be deducted from the share of the debtor-spouse upon liquidation of the
community; and
(10) Expenses of litigation between the spouses unless the suit is found to be
groundless.
If the community property is insufficient to cover the foregoing liabilities,
except those falling under paragraph (9), the spouses shall be solidarily liable
for the unpaid balance with their separate properties. (161a, 162a, 163a,
202a-205a)
Art. 121. The conjugal partnership shall be liable for:
(1) The support of the spouse, their common children, and the legitimate
children of either spouse; however, the support of illegitimate children shall
be governed by the provisions of this Code on Support;
(2) All debts and obligations contracted during the marriage by the
designated administrator-spouse for the benefit of the conjugal partnership
of gains, or by both spouses or by one of them with the consent of the other;
(3) Debts and obligations contracted by either spouse without the consent of
the other to the extent that the family may have benefited;
(4) All taxes, liens, charges, and expenses, including major or minor repairs
upon the conjugal partnership property;
(5) All taxes and expenses for mere preservation made during the marriage
upon the separate property of either spouse;
(6) Expenses to enable either spouse to commence or complete a
professional, vocational, or other activity for self-improvement;
(7) Antenuptial debts of either spouse insofar as they have redounded to the
benefit of the family;
(8) The value of what is donated or promised by both spouses in favor of their
common legitimate children for the exclusive purpose of commencing or
completing a professional or vocational course or other activity for self-
improvement; and
(9) Expenses of litigation between the spouses unless the suit is found to
groundless.
If the conjugal partnership is insufficient to cover the foregoing liabilities, the
spouses shall be solidarily liable for the unpaid balance with their separate
properties. (161a)
Revised Penal Code—
Page 30 of 121
Article 100. Civil liability of a person guilty of felony. - Every
person criminally liable for a felony is also civilly liable.
Article 101. Rules regarding civil liability in certain cases. - The
exemption from criminal liability established in subdivisions 1, 2, 3, 5 and 6
of Article 12 and in subdivision 4 of Article 11 of this Code does not include
exemption from civil liability, which shall be enforced subject to the following
rules:
First. In cases of subdivisions 1, 2, and 3 of Article 12, the civil liability for
acts committed by an imbecile or insane person, and by a person under nine
years of age, or by one over nine but under fifteen years of age, who has acted
without discernment, shall devolve upon those having such person under
their legal authority or control, unless it appears that there was no fault or
negligence on their part.
Should there be no person having such insane, imbecile or minor under his
authority, legal guardianship or control, or if such person be insolvent, said
insane, imbecile, or minor shall respond with their own property, excepting
property exempt from execution, in accordance with the civil law.
Second. In cases falling within subdivision 4 of Article 11, the persons for
whose benefit the harm has been prevented shall be civilly liable in
proportion to the benefit which they may have received.
The courts shall determine, in sound discretion, the proportionate amount
for which each one shall be liable.
When the respective shares cannot be equitably determined, even
approximately, or when the liability also attaches to the Government, or to
the majority of the inhabitants of the town, and, in all events, whenever the
damages have been caused with the consent of the authorities or their agents,
indemnification shall be made in the manner prescribed by special laws or
regulations.
Third. In cases falling within subdivisions 5 and 6 of Article 12, the persons
using violence or causing the fears shall be primarily liable and secondarily,
or, if there be no such persons, those doing the act shall be liable, saving
always to the latter that part of their property exempt from execution.
Article 102. Subsidiary civil liability of innkeepers, tavernkeepers and
proprietors of establishments. - 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
regulation shall have been committed by them or their employees.
Innkeepers are also subsidiarily 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 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.
Article 103. Subsidiary civil liability of other persons. - 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.
c. Disjunctive
CALANG V. PEOPLE
Nature: Criminal, reckless imprudence
Ponente: Brion
Date: 3 August 2010
DOCTRINE: Since the charge was criminal, it was error for the lower courts
to hold Philtranco jointly and severally liable under Articles 2176 and 2180
on quasi delicts.
FACTS:
Relevant Provision of Law: 2168, 2180, RPC 102, 103
Calang was driving a Philtranco bus when its rear left side hit the front left of
a Sarao jeep coming from the opposite direction. As a result of the collision,
the jeep driver Pinohermoso lost control and bumped and killed bystander
Mabansag. Two jeep passengers were also killed and others injured.
RTC ruled that Calang was guilty of multiple homicide, multiple physical
injuries and damage to property through reckless imprudence. It ordered
that Calang be liable jointly and severally with Philtranco to pay damages. CA
affirmed this ruling.
ISSUE: W/N the lower courts were correct in imposing joint and several
liability
Page 31 of 121
RULING: No. Philtranco should not be held jointly and severally liable
with Calang. The charge against Calang was criminal, therefore it was
error for the lower courts to hold Philtranco jointly and severally liable
under Articles 2176 and 2180 on quasi delicts.
If at all, Philtranco‘s liability may only be subsidiary under RPC, Articles 102
and 103. These liabilities 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.
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.
RONQUILLO V. CA and SO
Nature: Collection suit and execution thereof
Ponente: Cuevas
Date: 28 September 1984
DOCTRINE: The obligation in the case at bar being described as
"individually and jointly", the same is therefore enforceable against one of the
numerous obligors.
FACTS:
Relevant Provision of Law: None mentioned
Ronquillo was one of four defendants in a collection case filed by private
respondent So. A compromise agreement was reached between the parties,
which stated that the debtors obligated themselves to pay their obligation
―individually and jointly.‖
In a motion for modification of the order to execute the compromise, So
prayed that the execution be done against all defendants, jointly and
severally.
The writ of execution was then issued for the satisfaction of P 82,500, with
debtors (including petitioner) ―singly or jointly liable.‖
ISSUE: How should payment be enforced?
RULING: 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.
The obligation in the case at bar being described as "individually and jointly",
the same is therefore enforceable against one of the numerous obligors.
MALAYAN INSURANCE V. CA
Nature: Action for damages
Ponente: Padilla
Date: 26 September 1988
DOCTRINE: 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.
FACTS:
Relevant Provision of Law: 1217, 2180, 2184
Malayan issued an insurance policy for respondent Sio Choy covering a jeep.
While the policy was in effect, the insured jeep, while driven by Campollo
(employee of San Leon Rice Mill), collided with a Pantranco bus, causing
injuries to jeep passenger Vallejos and driver Campollo, as well as damage to
the jeep.
Vallejos filed an action for damages against Sio Choy, Malayan, and San Leon
Rice Mill, praying that they be held jointly and severally liable. The RTC and
CA ruled in Vallejos‘ favor finding all three solidarily liable.
1st ISSUE: W/N Malayan should be held solidarily liable alongside Sio Choy
and San Leon Rice Mill
RULING: No. Only respondents Sio Choy and San Leon Rice Mill are
solidarily liable to respondent Vallejos for the damages. Respondents Sio
Choy and San Leon Rice Mill 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 (2180, 2184).
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The
Page 32 of 121
liability of the insurer is based on contract; that of the insured is based on
tort.
2nd ISSUE: W/N Malayan is entitled to be reimbursed by respondent San
Leon Rice Mill, Inc. even if the latter respondent is not privy to the contract
of insurance
RULING: Yes, Malayan is entitled to reimbursement. Since Malayan paid
Vallejos, it has become the subrogee of the insured, the respondent Sio Choy;
as such, it is subrogated to whatever rights the latter has against respondent
San Leon Rice Mill. Article 1217 of the Civil Code gives to a solidary debtor
who has paid the entire obligation the right to be reimbursed by his co-
debtors for the share which corresponds to each.
PNB V. INDEPENDENT PLANTERS ASSN.
Nature: Collection suit
Ponente: Plana
Date: 16 May 1983
DOCTRINE: In case of the death of one of the solidary debtors, 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
FACTS:
Relevant Provision of Law: 1216
PNB filed a complaint with the CFI against several solidary debtors for the
collection of a sum of money. But the CFI dismissed this because one of the
defendants (Ceferino Valencia) died. CFI directed PNB to instead file a
money claim in the testate or intestate proceeding for the settlement of the
estate of the deceased.
PNB challenged this decision based on Art. 1216, where the creditor may
proceed against any one, some or all of the solidary debtors.
ISSUE: W/N CFI was correct to dismiss case because of the death of one
debtor
RULING: No. CFI was wrong.
The choice is undoubtedly left to the creditor to determine against whom he
will enforce collection. In case of the death of one of the solidary debtors, 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.
4. As to performance of prestation
Article 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the creditor, the provisions of
the preceding paragraph shall apply. (1147a)
Article 1222. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of the obligation
and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are
responsible. (1148a)
Article 1223. The divisibility or indivisibility of the things that are the object
of obligations in which there is only one debtor and only one creditor does
not alter or modify the provisions of Chapter 2 of this Title. (1149)
Article 1224. A joint indivisible obligation gives rise to indemnity for
damages from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their promises
shall not contribute to the indemnity beyond the corresponding portion of
the price of the thing or of the value of the service in which the obligation
consists. (1150)
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.
Page 33 of 121
When the obligation has for its object the execution of a certain number of Espiritu purchased two white trucks from petitioner. Both were secured by
days of work, the accomplishment of work by metrical units, or analogous mortgage on other trucks and by promissory notes. However, Espiritu failed
things which by their nature are susceptible of partial performance, it shall be to make full payment on both trucks. After the securities were sold and the
divisible. proceeds applied to the loan:

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.
In obligations not to do, divisibility or indivisibility shall be determined by
the character of the prestation in each particular case. (1151a)
Case 28497: Balance 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.
Case 28498: Balance 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.

Article 1209. If the division is impossible, the right of the creditors may be Espiritu assails the 25 % penalty upon the debt, in addition to the interest of
prejudiced only by their collective acts, and the debt can be enforced only by 12 % per annum. He claims the contract is usurious.
proceeding against all the debtors. If one of the latter should be insolvent, the
others shall not be liable for his share. (1139) ISSUE: W/N the contract is usurious

Article 1210. The indivisibility of an obligation does not necessarily give rise RULING: No, it is not usurious. Article 1152 of the Civil Code permits the
to solidarity. Nor does solidarity of itself imply indivisibility. (n) agreement upon a penalty apart from the interest. Should there be such an
agreement, the penalty does not include the interest, and may be demanded
a. Divisible separately. The penalty is not to be added to the interest for the
b. Indivisible determination of whether the interest exceeds the rate fixed by the law, since
c. Joint indivisible said rate was fixed only for the interest. But considering that the obligation
d. Solidary indivisible 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.

5. As to presence of an accessory ROBES-FRANCISCO v. CFI

undertaking in case of breach
a. With a penal clause; Distinguish from Nature: Direct appeal on questions of law
liquidated damages Ponente: J. Munoz Palma
Date: October 30, 1978
THE BACHRACH MOTOR CO. INC. V. ESPIRITU
DOCTRINE: A stipulation in a deed of absolute sale that should the vendor
Nature: Collection suit fail to issue the transfer certificate of title within six months from date of full
Ponente: Avanceña payment, the vendor shall refund to the vendee the total amount cannot be
Date: 6 November 1928 considered a penal clause in contemplation of Article 1226 of the New Civil
Code as to preclude recovery of damages. For obvious reasons, the clause
does not convey any penalty, for even without it, pursuant to Article 2209 of
DOCTRINE: Article 1152 of the Old Civil Code permits the agreement upon the Civil Code, the vendee would still recover the amount paid by her with
a penalty apart from the interest. Should there be such an agreement, the legal rate of interest which is even more than the 4% provided for in the
penalty does not include the interest, and may be demanded separately. clause.

FACTS: FACTS:
Relevant Provision of Law: Article 1152, Old Civil Code Relevant Provision of Law: Article 1226 and 2209 (Civil Code)

Page 34 of 121
Private respondent Millan bought a lot from petitioner Robes Realty
corporation 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.
The deed had the provision:
- The seller warrants that the TCT shall be transferred in the name of
the buyer within 6 months from full payment.
- In case the seller fails to issue the TCT, the seller bears the obligation
to refund the total amount already paid, plus 4% per annum interest.
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 private respondent who accordingly was compelled to file
a complaint for specific performance. The complaint prays: Judgment
ordering the reformation of the deed of absolute sale; Judgment ordering the
seller corporation to deliver the TCT; or, if not possible, pay buyer Millan the
value of the lot and Judgment ordering the seller corp to pay damages,
corrective and actual (P15k).
Seller corp answered. They want the complaint to be dismissed because the
deed of absolute sale was voluntarily executed between them and the interest
of the buyer Millan was protected by the provision of interest at 4% per
annum.
The case was submitted for decision on the pleadings. The trial court
awarded nominal damages for P20,000.
PETITIONER - 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. Article 1226 of the Civil: 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.
ISSUE: WON the award of nominal damages was proper under the
circumstances
RULING: The trial court did not err in awarding nominal damages;
however, the circumstances of the case warrant a reduction of the amount to
P10,000.
A stipulation in a deed of absolute sale that should the vendor fail to issue the
transfer certificate of title within six months from date of full payment, the
vendor shall refund to the vendee the total amount cannot be considered a
penal clause in contemplation of Article 1226 of the New Civil Code as to
preclude recovery of damages. For obvious reasons, the clause does not
convey any penalty, for even without it, pursuant to Article 2209 of the Civil
Code, the vendee would still recover the amount paid by her with legal rate of
interest which is even more than the 4% provided for in the clause.
Under Articles 2221 and 2222 of the New Civil Code, nominal damages are
not intended as indemnification for the 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. Nominal
damages are by their very nature small sums fixed by the court without
regard to the extent of the harm done to the injured party. 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
recognition of the existence of a technical injury. It cannot co-exist with
compensatory or exemplary damages. The circumstances of a particular case
determine whether or not the amount assessed as nominal damages is within
the scope or intention of Article 2221 of the Civil Code.
Bad faith is not to be presumed. Thus, the fact that the reality corporation
failed to convey a transfer certificate of title to the buyer because the
subdivision property was mortgaged does not itself show that there was bad
faith or fraud; especially where the vendor expected that arrangements were
possible from the mortgagee to make partial releases of the subdivision lots
from the overall real estate mortgage but the vendor did not simply succeed
in that regard.
The amount of P20,000 awarded as nominal damages against realty
corporation for failure to convey a transfer certificate of title to the buyer who
had fully paid the purchase price of the lot is excessive. Nor may such award
be considered in the nature of exemplary damages where the failure to
convey the transfer certificate of title was not attended by fraud or bad faith,
because in breach of a contract exemplary damages are awarded if the guilty
party acted in wanton, fraudulent, reckless, oppressive or malevolent
manner. Exemplary or corrective damages are imposed by way 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.
PAMINTUAN v. CA
Nature: Complaint for Damages
Ponente: J. Aquino
Page 35 of 121
Date: December 14, 1979
DOCTRINE: Responsibility arising from fraud is demandable in all
obligations.
FACTS:
Relevant Provision of Law: Article 1171 (Civil Code)
In 1960, Pamintuan was the holder of a barter license wherein he was
authorized to export to Japan 1,000 metric tons of white flint corn valued at
47,000 US dollars in exchange for a collateral importation of plastic
sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship his corn to
Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings.
He contracted to sell the plastic sheetings to Yu Ping Kun Co., Inc. for
P265,550. The company undertook to open an irrevocable domestic letter of
credit for that amount in favor of Pamintuan.
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 aggrieved party to collect from the offending
party liquidated damages in the sum of P10,000.
Upon receipt of the letter from the Manila branch of Tokyo Menka
confirming the acceptance by Japanese suppliers of firm offers for the
consignment to Pamintuan of plastic sheetings, the company immediately
secured an irrevocable letter of credit for Pamintuan.
On September 27 and 30 and October 4, 1960, the Japanese suppliers
shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic
sheetings in four shipments. The plastic sheetings arrived in Manila and were
received by Pamintuan. Out of the shipments, Pamintuan delivered to the
company's warehouse only a part of the shipments.
He withheld delivery of (1) 50 cases of plastic sheetings containing 26,000
yards valued at $5,200; (2) 37 cases containing 18,440 yards valued at
$2,305; (3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83
cases containing 40,850 yards valued at $5,236.97. While the plastic
sheetings were arriving in Manila, Pamintuan informed the president of Yu
Ping Kun Co., Inc. that he was in dire need of cash with which to pay his
obligations to the PNB. Inasmuch as the computation of the prices of each
delivery would allegedly be a long process, Pamintuan requested that he be
paid immediately.
Pamintuan and the president of the company agreed to fix the price of the
plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual
invoice value thereof. The parties arrived at that figure by dividing the total
price of P265,550 by 339,440 yards, the aggregate quantity of the shipments.
After Pamintuan had delivered 224,150 yards of sheetings of inferior quality
valued at P163,.047.87, he refused to deliver the remainder of the shipments
with a total value of P102,502.13. As justification for his refusal, Pamintuan
said that the company failed to comply with the conditions of the contract
and that it was novated with respect to the price.
The company filed its amended complaint for damages. RTC awarded the
company actual damages for unrealized profits and overpayment as well as
(a) P10,000 as stipulated liquidated damages, (b) P10,000 as moral
damages, (c) Pl,102.85 as premium paid by the company on the bond of
P102,502.13 for the issuance of the writ of preliminary attachment and (d)
P10,000 as attorney's fees, or total damages of P110,559.28.
CA found that the contract of sale between Pamintuan and the company was
partly consummated. The company fulfilled its obligation to obtain the
Japanese suppliers' confirmation of their acceptance of firm offers totalling
$47,000. Pamintuan reaped certain benefits from the contract. Hence, he is
estopped to repudiate it; otherwise, he would unjustly enrich himself at the
expense of the company.
PETITIONER: The buyer, Yu Ping Kun Co., Inc., is entitled to recover only
liquidated damages 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 ". 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).
ISSUE: WON the buyer is entitled to recover only liquidated damages
RULING: NO. 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
Page 36 of 121
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).
In this case, Yu Ping Kun Co., Inc. is allowed 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.
E. Breach of obligations
Article 1170. 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. (1101)

Castan Tobeñas notes that the penal clause in an obligation has three
functions: "1. Una funcion coercitiva o de garantia, consistente en estimular
al deudor al complimiento de la obligacion principal, ante la amenaza de
tener que pagar la pena. 2. Una funcion liquidadora del daño, o sea la de Manner of breach—
evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el
incumplimiento o cumplimiento inadecuado de la obligacion. 3. Una 1. Fraud
funcionestrictamente penal, consistente en sancionar o castigar dicho
incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias Article 1171. Responsibility arising from fraud is demandable in all
mas onerosas para el deudor que las que normalmente lleva aparejadas la obligations. Any waiver of an action for future fraud is void. (1102a)
infraccion contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128).
Article 1338. There is fraud when, through insidious words or
[Rough Translation] Castan Tobeñas notes that the penal clause in an machinations of one of the contracting parties, the other is induced to enter
obligation has three functions: "1. A coercive function or warranty, of into a contract which, without them, he would not have agreed to. (1269)
stimulating the debtor to comply with the principal obligation, under the
threat of having to pay the penalty. 2. A liquidation of the damage function, ie Article 1344. In order that fraud may make a contract voidable, it should be
to evaluate in advance the damages that the creditor would have to cause the serious and should not have been employed by both contracting parties.
failure or inadequacy of the obligation. 3 A criminal function consisting of a Incidental fraud only obliges the person employing it to pay damages. (1270)
sanction or punish such failure or inadequate performance, attributing more
onerous consequences for the debtor that normally carries with it the
2. Negligence
contractual breach.‖

Article 1171. Responsibility arising from fraud is demandable in all

The penalty clause is strictly penal or cumulative in character and does not
obligations. Any waiver of an action for future fraud is void. (1102a)
partake of the nature of liquidated damages (pena sustitutiva) when the
parties agree "que el acreedor podra pedir, en el supuesto incumplimiento o
Article 1172. Responsibility arising from negligence in the performance of
mero retardo de la obligacion principal, ademas de la pena, los danos y
every kind of obligation is also demandable, but such liability may be
perjuicios. Se habla en este caso de pena cumulativa, a differencia de
regulated by the courts, according to the circumstances. (1103)
aquellos otros ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130).
Article 1173. The fault or negligence of the obligor consists in the omission
of that diligence which is required by the nature of the obligation and
[Rough Translation] The penalty clause is strictly penal or cumulative in corresponds with the circumstances of the persons, of the time and of the
character and does not partake of the nature of liquidated damages (pena place. When negligence shows bad faith, the provisions of articles 1171 and
sustitutiva) when the parties agree that the creditor may request, assuming 2201, paragraph 2, shall apply.
there is mere breach or delay principal obligation, in addition to the sentence,
damages, where the penalty is a substitute for the ordinary repair.

Page 37 of 121
If the law or contract does not state the diligence which is to be observed in
the performance, that which is expected of a good father of a family shall be
required. (1104a)
3. Delay
Article 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery. (1096)
Article 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific
and determinate things which he may have contributed to the partnership, in
the same cases and in the same manner as the vendor is bound with respect
to the vendee. He shall also be liable for the fruits thereof from the time they
should have been delivered, without the need of any demand. (1681a)
Article 1788. A partner who has undertaken to contribute a sum of money
and fails to do so becomes a debtor for the interest and damages from the
time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to
his own use. (1682)
Article 1896. The agent owes interest on the sums he has applied to his own
use from the day on which he did so, and on those which he still owes after
the extinguishment of the agency. (1724a)
Article 1942. The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility
in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own thing,
he chose to save the latter. (1744a and 1745)
4. Any other manner of contravention
Excuse for non-performance—
1. Fortuitous event
Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)
Article 552. A possessor in good faith shall not be liable for the
deterioration or loss of the thing possessed, except in cases in which it is
proved that he has acted with fraudulent intent or negligence, after the
judicial summons.
A possessor in bad faith shall be liable for deterioration or loss in every case,
even if caused by a fortuitous event. (457a)
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery. (1096)
Page 38 of 121

Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing, until
it is recovered. (1896a)
2. Acts of creditor
SICAM v. JORGE
Nature: Complaint for indemnification for the loss of pawned jewelry and
payment of actual, moral and exemplary damages as well as attorney's fees
Ponente: J. Austria-Martinez
Date: August 8, 2007
DOCTRINE: The burden of proving that the loss was due to a fortuitous
event rests on him who invokes it. And, in order for a fortuitous event to
exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss.
When the effect is found to be partly the result of a person's participation --
whether by active intervention, neglect or failure to act -- the whole
occurrence is humanized and removed from the rules applicable to acts of
God.
FACTS:
Relevant Provision of Law: Article 1174 (Civil Code)
Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to
secure a loan. On October 19, 1987, two armed men entered the pawnshop
and took away whatever cash and jewelry were found inside the pawnshop
vault. Sicam sent respondent Lulu a letter informing her of the loss of her
jewelry due to the robbery incident in the pawnshop. Respondent Lulu
expressed disbelief stating that when the robbery happened, all jewelry
pawned were deposited with Far East Bank near the pawnshop since it had
been the practice that before they could withdraw, advance notice must be
given to the pawnshop so it could withdraw the jewelry from the bank.
Respondent Lulu then requested petitioner Sicam to prepare the pawned
jewelry for withdrawal on but petitioner Sicam failed to return the jewelry.
Respondent Lulu is seeking indemnification for the loss of pawned jewelry
and payment of damages. Petitioner is interposing the defense of caso
fortuito on the robbery committed against the pawnshop.
ISSUE: WON petitioners are liable for the loss of the pawned articles in
their possession
RULING: YES. Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event should not
have been foreseen or anticipated, as is commonly believed but it must be
one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must concur: (a) the
cause of the unforeseen and unexpected occurrence or of the failure of the
debtor to comply with obligations must be independent of human will; (b) it
must be impossible to foresee the event that constitutes the caso fortuito or,
if it can be foreseen, it must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to fulfill obligations in a
normal manner; and, (d) the obligor must be free from any participation in
the aggravation of the injury or loss.
The burden of proving that the loss was due to a fortuitous event rests on him
who invokes it. And, in order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no negligence or misconduct
that may have occasioned the loss.
An act of God cannot be invoked to protect a person who has failed to take
steps to forestall the possible adverse consequences of such a loss. When the
effect is found to be partly the result of a person's participation -- whether by
active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God.
Here, petitioner failed to prove that the robbery was a fortuitous event.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners.
Pawnshops’ Responsibility
Art. 2123 of the Civil Code provides that with regard to pawnshops and other
establishments which are engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and antichresis.
The provision on pledge, particularly Art. 2099, provides that the creditor
shall take case of the thing pledged with the diligence of a good father of a
Page 39 of 121
family. This means that the petitioners (Sicam and his incorporated
pawnshop) must take care of the pawns the way a prudent person would as to
his own property.
Sicam was Negligent
Negligence is 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. It is want of care required by the circumstances.
Petitioners were guilty of negligence in the operations of their pawnshop
business. There were no security measures adopted by petitioners in the
operations of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from unlawful
intrusion. There was no clear showing that there was any security guard at
all. Or if there was one, that he had sufficient training in securing a
pawnshop. Further, there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to enter the premises. In
fact, it is even doubtful that there was a security guard, since it is quite
impossible that he would not have noticed that the robbers were armed with
calibre .45 pistols each, which were allegedly poked at the employees.
Furthermore, petitioner Sicam‘s admission that the vault was open at the
time of robbery is clearly a proof of petitioners‘ failure to observe the case,
precaution and vigilance that the circumstances justly demanded. Petitioner
Sicam testified that once the pawnshop was open, the combination to the
vault was already off. Instead of taking the precaution to protect them, they
let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.
The robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to
deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in
Austria v. CA [148-A Phil. 462 (1971)], where no negligence was committed,
we found petitioners negligent in securing their pawnshop as earlier
discussed.
MERALCO v. RAMOY
Nature: Case for Ejectment
Ponente: J. Austria-Martinez
Date: March 4, 2008
DOCTRINE: Article 1173 provides that the fault or negligence of the obligor
consists in the omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the persons, of the
time and of the place.
FACTS:
Relevant Provision of Law: Article 1170 (Civil Code)
In the year 1987, the National Power Corporation (NPC) filed with the MTC
Quezon City a case for ejectment against several persons allegedly illegally
occupying its properties in Baesa, Quezon City. Among the defendants in the
ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On
April 28, 1989 the MTC rendered judgment for MERALCO, to demolish or
remove the building and structure they built on the land of the plaintiff and
to vacate the premises. On June 20, 1999 NPC wrote to MERALCO
requesting the immediate disconnection of electric power supply to all
residential and commercial establishments beneath the NPC transmission
lines along Baesa, Quezon City. In a letter dated August 17, 1990 MERALCO
requested NPC for a joint survey to determine all the establishments which
are considered under NPC property. In due time, the electric service
connection of the plaintiffs was disconnected. During the ocular inspection
ordered by the Court, it was found out that the residence of the plaintiffs-
spouses was indeed outside the NPC property.
Plaintiff Leoncio Ramoy testified that he and his wife are the registered
owners of a parcel of land covered by TCT No. 326346. When the MERALCO
employees were disconnecting plaintiffs' power connection, plaintiff Leoncio
Ramoy objected by informing the Meralco foreman that his property was
outside the NPC property and pointing out the monuments showing the
boundaries of his property. However, he was threatened and told not to
interfere by the armed men who accompanied the MERALCO employees.
After the electric power in Ramoy's apartment was cut off, the plaintiffs-
lessees left the premises.
ISSUES:
(1) WON the Court of Appeals gravely erred when it found MERALCO
negligent when it disconnected the subject electric service
of respondents
(2) WON the Court of Appeals gravely erred when it awarded moral and
exemplary damages and attorney‘s fees against MERALCO under the
circumstances that the latter acted in good faith in the disconnection
of the electric services of the respondents
RULING:
(1) NO. The Court agrees with the CA that under the factual
milieu of the present case, MERALCO failed to exercise the utmost
degree of care and diligence required of it, pursuant to Articles 1170
& 1173 of the Civil Code. It was not enough for MERALCO to merely
Page 40 of 121
 rely on the Decision of the MTC without ascertaining whether it had
become final and executory. Verily, only upon finality of the said
Decision can it be said with conclusiveness that respondents have no
right or proper interest over the subject property, thus, are not
entitled to the services of MERALCO.
(2) Should be moral damages only. MERALCO willfully
caused injury to Leoncio Ramoy by withholding from him and his
tenants the supply of electricity to which they were entitled under the
Service Contract. This is contrary to public policy because,
MERALCO, being a vital public utility, is expected to exercise utmost
care and diligence in the performance of its obligation. Thus,
MERALCO‘s failure to exercise utmost care and diligence in the
performance of its obligation to Leoncio Ramoy is tantamount to bad
faith. Leoncio Ramoy testified that he suffered wounded feelings
because of MERALCO‘s actions. Furthermore, due to the lack of
power supply, the lessees of his four apartments on subject lot left
the premises. Clearly, therefore Leoncio Ramoy is entitled to moral
damages in the amount awarded by the CA. Nevertheless, Leoncio is
the soleperson entitled to moral damages as he is the only who
testified on the witness stand of his wounded feelings. Pursuant to
Article 2232 of the Civil Code, exemplary damages cannot be
awarded as MERALCO‘s acts cannot be considered wanton,
fraudulent, reckless, oppressive or malevolent. Since the Court does
not deem it proper to award exemplary damages in this case then the
CA‘s award of attorney‘s fees should likewise be deleted, as pursuant
to Article 2208 of the Civil Code of which grounds were not present.
SOLAR HARVEST, INC. v. DAVAO CORRUGATED CARTON CORP.
Nature: Complaint for sum of money and damages
Ponente: J. Nachura
Date: July 26, 2010
DOCTRINE: Even in reciprocal obligations, if the period for the fulfillment
of the obligation is fixed, demand upon the obligee is still necessary before
the obligor can be considered in default and before a cause of action for
rescission will accrue.
FACTS:
Relevant Provision of Law: Articles 1191 and 1169 (Civil Code)
In the1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into
an unwritten agreement. Solar Harvest placed orders for customized boxes
for its business of exporting bananas at USD 1.10 each. Petitioner made a full
payment of USD 40,150.00. By Jan. 3, 2001 petitioner had not received any
of the ordered boxes. On Feb. 19, 2001, Davao Corrugated replied that as
early as April 3, 1998, order/boxes are completed and Solar Harvest failed to
pick them up from their warehouse within 30 days from completion as
agreed upon. Respondent mentioned that petitioner even placed additional
order of 24,000.00 boxes, out of which, 14,000 had already been
manufactured without any advance payment from Solar Harvest. Davao
Corrugated then demanded that Solar Harvest remove boxes from their
warehouse, pay balance of USD 15,400.00 for the additional boxes and
P132,000 as storage fee. On August 17, 2001 Solar harvest filed complaint
against Davao Corrugated for sum of money and damages claiming that the
agreement was for the delivery of the boxes, which Davao Corrugated did not
do. They further alleged that whenever repeated follow-up was made to
Davao Corrugated, they would only see sample boxes and get promise of
delivery. Due to Davao Corrugated‘s failure to deliver, Solar Harvest had to
cancel the order and demanded payment and/or refund which Davao
Corrugated refused to pay. Davao Corrugated counterclaimed that they
had already completed production of the 36,500 boxes plus an additional
14,000 boxes (which was part of the additional 24,000 order that is unpaid).
The agreement was for Solar Harvest to pick up the boxes, which they did
not do. They even averred that on Oct. 8, 1998 Solar Harvest‘s representative
Bobby Que even went to the warehouse to inspect and saw that indeed boxes
were ready for pick up. On Feb. 20, 1999, Que visited the factory again and
said that they ought to sell the boxes to recoup some of the costs of the
14,000 additional orders because their transaction to ship the bananas did
not materialize. Solar Harvest denies that they made the additional order. On
March 20, 2004, the RTC ruled in favor of Davao Corrugated. CA denied the
appeal. In this petition, petitioner insists that respondent did not completely
manufacture the boxes and that it was respondent which was obliged to
deliver the boxes to TADECO.
ISSUE: WON Davao Corrugated was responsible for breach of contract as
Solar Harvest had not yet demanded from it the delivery of the boxes
RULING: NO.
The CA held that it was unthinkable that for around 2 years petitioner merely
followed up and did not demand the delivery of the boxes. Even assuming
that the agreement is for delivery by Davao Corrugated, respondent would
not be liable for breach of contract as petitioner had not yet demanded from
it the delivery of the boxes. There is no error in the decision of the RTC.
Furthermore, the claim for reimbursement is actually one for rescission or
resolution of contract under Article 1191 of the Civil Code. The right to
rescind contracts arises once the party defaults in the performance of his
obligation. Article 1191 should be taken in conjunction with Article 1169:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands form them the fulfilment of their
Page 41 of 121
obligation. However the demand from creditor shall not be necessary in
order that delay may exist: 1. When the obligation or the law expressly so
declares,; 2. When from the nature and the circumstance of the obligation it
appears that the designation of the timewhen the thing is to be delivered or
the service is to be rendered was a controlling motive for theestablishment of
the contract; OR 3. When the demand would be useless, as when the obligor
has rendered it beyond his power to perform.
In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties‘ respective obligations should be
simultaneous. Hence, no demand is generally necessary because, once a
party fulfills his obligation and the other party does not fulfill his, the latter
automatically incurs in delay. But when different dates for performance of
the obligations are fixed, the default for each obligation must be determined
by the rules given in the first paragraph of Article 1169, that is, the other
party would incur in delay only from the moment the other party demands
fulfillment of the former‘s obligation. Thus, even in reciprocal obligations, if
the period for the fulfillment of the obligation is fixed, demand upon the
obligee is still necessary before the obligor can be considered in default and
before a cause of action for rescission will accrue.
In the case of Solar Harvest, merely following up the order was not the
same as demanding for the boxes. The SC held that Solar Harvests petition is
denied and that Davao Corrugated did not commit breach of contract and
may remove the boxes from their premises after petitioner is given a period
of time to remove them from their warehouse as they deem proper. The Court
gave 30-day period to comply with this.
MINDANAO TERMINAL v. PHOENIX ASSURANCE
Nature: Complaint for Damages
Ponente: J. Tinga
Date: May 8, 2009
DOCTRINE: If the law or contract does not state the degree of diligence
which is to be observed in the performance of an obligation then that which is
expected of a good father of a family or ordinary diligence shall be required.
FACTS:
Relevant Provision of Law: Article 1173 (Civil Code)
Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal and
Brokerage Service, Inc., a stevedoring company, to load and stow a shipment
of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of
fresh pineapples belonging to Del Monte Fresh Produce into the cargo hold of
the vessel M/V Mistrau. The vessel was docked at the port of Davao City and
the goods were to be transported by it to the port of Incheon, Korea in favor
of consignee Taegu Industries, Inc. Del Monte Produce insured the shipment
under an ―open cargo policy‖ with private respondent Phoenix Assurance
Company of New York, a non-life insurance company, and private
respondent McGee & Co. Inc. (McGee), the underwriting manager/agent
of Phoenix.
Upon arrival of the vessel at the port of Incheon, Korea, it was discovered
upon discharge that some of the cargo was in bad condition. The Marine
Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea,
through its representative Byeong Yong Ahn (Byeong), surveyed the extent of
the damage of the shipment. In a survey report, it was stated that 16,069
cartons of the banana shipment and 2,185 cartons of the pineapple shipment
were so damaged that they no longer had commercial value.
Del Monte Produce filed a claim under the open cargo policy for the damages
to its shipment. A check for the recommended amount was sent to Del Monte
Produce; the latter then issued a subrogation receipt to Phoenix and
McGee. Phoenix and McGee instituted an action for damages in the RTC
Davao City.
RTC dismissed the complaint holding that the only participation of
Mindanao Terminal was to load the cargoes on board the M/V Mistrau under
the direction and supervision of the ship‘s officers, who would not have
accepted the cargoes on board the vessel and signed the foreman‘s report
unless they were properly arranged and tightly secured to withstand voyage
across the open seas. Accordingly, Mindanao Terminal cannot be held liable
for whatever happened to the cargoes after it had loaded and stowed them. It
was further held that Phoenix and McGee had no cause of action against
Mindanao Terminal because the latter, whose services were contracted by Del
Monte, a distinct corporation from Del Monte Produce, had no contract with
the assured Del Monte Produce.
CA reversed and set aside. MR denied.
ISSUES:
(1) WON Phoenix and McGee have a cause of action against Mindanao
Terminal
(2) WON Mindanao Terminal, as a stevedoring company, is under
obligation to observe the same extraordinary degree of diligence in
the conduct of its business as required by law for common carriers
and warehousemen
(3) WON Mindanao Terminal observed the degree of diligence required
by law of a stevedoring company
RULING:
Page 42 of 121
 (1) YES.
The present action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del Monte Produce.
Even assuming that both Phoenix and McGee have only been subrogated in
the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may
have a cause of action in light of the Court‘s consistent ruling that the act that
breaks the contract may be also a tort. In fine, a liability for tort may arise
even under a contract, where tort is that which breaches the contract. In the
present case, Phoenix and McGee are not suing for damages for injuries
arising from the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the cargoes
belonging to Del Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to
establish a cause of action arising from quasi-delict.
Article 1173 of the Civil Code is very clear that if the law or contract does not
state the degree of diligence which is to be observed in the performance of an
obligation then that which is expected of a good father of a family or ordinary
diligence shall be required. Mindanao Terminal, a stevedoring company
which was charged with the loading and stowing the cargoes of Del Monte
Produce aboard M/V Mistrau, had acted merely as a labor provider in the
case at bar. There is no specific provision of law that imposes a higher degree
of diligence than ordinary diligence for a stevedoring company or one who is
charged only with the loading and stowing of cargoes. It was neither alleged
nor proven by Phoenix and McGee that Mindanao Terminal was bound by
contractual stipulation to observe a higher degree of diligence than that
required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence
only in loading and stowing the cargoes of Del Monte Produce aboard M/V
Mistrau.
(2) NO. There is a distinction between an arrastre and a
stevedore. Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. The
responsibility of the arrastre operator lasts until the delivery of the
cargo to the consignee. The service is usually performed by
longshoremen. On the other hand, stevedoring refers to the handling
of the cargo in the holds of the vessel or between the ship's tackle and
the holds of the vessel. The responsibility of the stevedore ends upon
the loading and stowing of the cargo in the vessel.
In the present case, Mindanao Terminal, as a stevedore, was only charged
with the loading and stowing of the cargoes from the pier to the ship‘s cargo
hold; it was never the custodian of the shipment of Del Monte Produce. A
stevedore is not a common carrier for it does not transport goods or
passengers; it is not akin to a warehouseman for it does not store goods for
profit. The loading and stowing of cargoes would not have a far reaching
public ramification as that of a common carrier and a warehouseman; the
public is adequately protected by our laws on contract and on quasi-delict.
The public policy considerations in legally imposing upon a common carrier
or a warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and stowing of
cargoes for its clients.
(3) YES. The only participation of Mindanao Terminal was to
load the cargoes on board M/V Mistrau. It was not disputed
by Phoenix and McGee that the materials, such as ropes, pallets, and
cardboards, used in lashing and rigging the cargoes were all provided
by M/V Mistrau and these materials meets industry standard.
Mindanao Terminal loaded and stowed the cargoes of Del Monte
Produce aboard the M/V Mistrau in accordance with the stowage
plan, a guide for the area assignments of the goods in the vessel‘s
hold, prepared by Del Monte Produce and the officers of M/V
Mistrau. The loading and stowing was done under the direction and
supervision of the ship officers. The said ship officers would not have
accepted the cargoes on board the vessel if they were not properly
arranged and tightly secured to withstand the voyage in open seas.
They would order the stevedore to rectify any error in its loading and
stowing. A foreman‘s report, as proof of work done on board the
vessel, was prepared by the checkers of Mindanao Terminal and
concurred in by the Chief Officer of M/V Mistrau after they were
satisfied that the cargoes were properly loaded.
However, there is no basis for an award of attorney‘s fees.
AGCAOILI v. GSIS
Nature: Action for Specific Performance and Damages
Ponente: J. Narvasa
Date: August 30, 1988
DOCTRINE: In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him.
Relevant Provision of Law: Article 1169 (Civil Code)
FACTS: The appellant Government Service Insurance System (GSIS)
approved the application of the appellee Marcelo Agcaoili for the purchase of
the house and lot in the GSIS Housing Project in Nangka, Marikina, Rizal,
Page 43 of 121
but said application was subject to the condition that the latter should
forthwith occupy the house. Agcaoili lost no time in occupying the house but
he could not stay in it and had to leave the very next day because the house
was nothing more than a shell, in such a state that civilized occupation was
not possible: ceiling, stairs, double walling, lighting facilities, water
connection, bathroom, toilet, kitchen, drainage, were inexistent. Agcaoili did,
however, ask a homeless friend, a certain Villanueva, to stay in the premises
as some sort of watchman, pending the completion of the construction of the
house. He thereafter complained to the GSIS, but to no avail.
Subsequently, the GSIS asked Agcaoili to pay the monthly amortizations of
P35.36 and other fees. He paid the first monthly amortizations and incidental
fees but he refused to make further payments until and unless the GSIS
completed the housing unit. Thereafter, GSIS cancelled the award and
required Agcaoili to vacate the premises. The house and lot was consequently
awarded to another applicant. Agcaoili reacted by instituting suit in the CFI
Manila for specific performance and damages. Judgment was rendered in
favor of Agcaoili. GSIS then appealed from that judgment.
ISSUES: WON the cancellation by the GSIS of the award in favor of
petitioner Agcaoili just and proper
RULING: NO. Respondent GSIS did not fulfill its obligation to deliver the
house in a habitable state, therefore, it cannot invoke the petitioner‘s
suspension of payment as a cause to cancel the contract between them. There
was a perfected contract of sale, it was then the duty of GSIS as seller to
deliver the thing sold in a condition suitable for its enjoyment by the buyer
and for the purpose contemplated. The house contemplated was one that
could be occupied for purpose of residence in reasonable comfort and
convenience. There would be no sense in requiring the awardee to
immediately occupy and live in a shell of a house, the structure consisting
only of four walls with openings, and a roof.
Since GSIS did not fulfill the obligation, and was not willing to put the house
in habitable state, it cannot invoke Agcaoili's suspension of payment of
amortizations as cause to cancel the contract between them. In reciprocal
obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him.
The contract between the parties relative to the property should be modified
by adding to the cost of the land, as of the time of perfection of the contract,
the cost of the house in its unfinished state also as of the time of perfection of
the contract, and correspondingly adjusting the amortizations to be paid by
petitioner Agcaoili, the modification to be effected after determination by the
Court a quo of the value of said house on the basis of the agreement of the
parties, or if this is not possible by such commissioner or commissioners as
the Court may appoint.
ARRIETA v. NARIC
Nature: Complaint for Damages
Ponente: J. Regala
Date: January 24, 1964
DOCTRINE: One who assumes a contractual obligation and fails to perform
the same on account of his inability to meet certain bank requirements,
which inability he knew and was aware of when he entered into the contract,
should be held liable in damages for breach of contract.
FACTS:
Relevant Provision of Law: Article 1170 (Civil Code)
On May 19, 1952, Paz and Vitaliado Arrieta participated in the public bidding
called by NARIC for the supply of 20,000 metric tons of Burmese rice. As her
bid of $203 per metric ton was the lowest, she was awarded the contract for
the same.
On July 1, 1952, Arrieta and NARIC entered into a Contract of Sale of Rice
under the term of which Arrieta obligated hersef to deliver to NARIC 20,000
metric tons of Burmese rice at $203,000 per metric ton. In turn, the
defendant corporation committed itself to pay for the imported rice "by
means of an irrevocable, confirmed and assignable letter of credit in U.S.
currency in favor of the plaintiff-appellee and/or supplier in Burma,
immediately."
However, it was only on July 30, 1952, or a full month from the execution of
the contract, that the defendant corporation took the first to open a letter of
credit by forwarding to the PNB its Application for Commercial Letter Credit.
On the same day, Arrieta thru counsel, advised NARIC of the extreme
necessity for the immediate opening of the letter credit since she had by then
made a tender to her supplier in Rangoon, Burma, equivalent to 5% of the
F.O.B. price of 20,000 tons at $180.70 and in compliance with the
regulations in Rangoon this 5% will be confiscated if the required letter of
credit is not received by them before August 4, 1952.
On August 4, 1952, PNB informed NARIC that its application for a letter of
has been approved by the Board of Directors with the condition that 50%
marginal cash deposit be paid and that drafts are to be paid upon
presentment. It turned out, however, NARIC was not in a financial position
to meet the condition.
Page 44 of 121
As a result of the delay in the opening of the letter of credit by NARIC, the
allocation of Arrieta‘s supplier in Rangoon was cancelled and the 5% deposit
amounting to an equivalent of P200,000 was forfeited. Arrieta endeavored
but failed to restore the cancelled Burmese rice allocation, and thus offered
Thailand rice instead. Such offer was rejected by NARIC. Subsequently,
Arrieta sent a letter to NARIC, demanding compensation for the damages
caused her in the sum of US$286,000 representing unrealized profit. The
demand having been rejected, she instituted the case.
ISSUES:
(1) WON NARIC is liable for damages
(2) WON the rate of exchange to be applied in the conversion is that
prevailing at the time of breach, or at the time the obligation was
incurred, or on the promulgation of the decision
RULING:
(1) YES. One who assumes a contractual obligation and fails to
perform the same on account of his inability to meet certain bank
requirements, which inability he knew and was aware of when he
entered into the contract, should be held liable in damages for breach
of contract.
Under Article 1170 of the Civil Code, not only debtors guilty of fraud,
negligence or default but also every debtor, in general, who fails in the
performance of his obligations is bound to indemnify for the losses and
damages caused thereby.
The phrase "in any manner contravene the tenor" of the obligation in Art.
1170, Civil Code, includes any illicit task which impairs the strict and faithful
fulfillment of the obligation, or every kind of defective performance.
Waivers are not presumed, but must be clearly and convincingly shown,
either by express stipulation or acts admitting of no other reasonable
explanation.
(2) In view of Republic Act 529 which specifically requires the
discharge of obligations only "in any coin or currency which at the
time of payment is legal tender for public and private debt", the
award of damages in U.S. dollars made by the lower court in the case
at bar is modified by converting it into Philippine pesos at the rate of
exchange prevailing at the time the obligation was incurred or when
the contract in question was executed.
As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement
to pay an obligation in the currency other than Philippine legal tender, the
same is null and void as contrary to public policy (RA 529), and the most that
could be demanded is to pay said obligation in Philippine currency to be
measured in the prevailing rate of exchange at the time the obligation was
incurred. Herein, the rate of exchange to be applied is that of 1 July 1952,
when the contract was executed.
TELEFAST v. CASTRO
Nature: Complaint for Damages
Ponente: J. Padilla
Date: February 29, 1988
DOCTRINE: Art. 1170 of the Civil Code provides that "those who in the
performance of their obligations are guilty of fraud, negligence or delay, and
those who in any manner contravene the tenor thereof, are liable for
damages." Art. 2176 also provides that "whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the
damage done."
FACTS:
Relevant Provision of Law: Article 1170 (Civil Code)
The petitioner is a company engaged in transmitting telegrams. The plaintiffs
are the children and spouse of Consolacion Castro who died in the
Philippines. One of the plaintiffs, Sofia was in the Philippines for vacation
when their mother died. On the same day, Sofia sent a telegram thru Telefast
to her father and other siblings in the USA to inform about the death of their
mother. The defendants, after receiving the required fees and charges,
accepted the telegram for transmission.
Unfortunately, the deceased had already been interred but not one from the
relatives abroad was able to pay their last respects. Sofia found out upon her
return in the US that the telegram was never received. Hence, the present
suit for damages on the ground of breach of contract. The only defense of
defendants was that the failure was due to ―the technical and atmospheric
factors beyond its control.‖ The defendant-petitioner argues that it should
only pay the actual amount paid to it.
No evidence appeared on record that the defendant ever made any attempt to
advise Sofia as to why they could not transmit the telegram.
The lower court ruled in favor of the plaintiffs and awarded compensatory,
moral, exemplary, damages to each of the plaintiffs with 6% interest per
annum plus attorney‘s fees. The Court of Appeals affirmed this ruling but
modified and eliminated the compensatory damages to Sofia and exemplary
damages to each plaintiff, it also reduced the moral damages for each. The
petitioner appealed contending that, it can only be held liable for P 31.92, the
Page 45 of 121
fee or charges paid by Sofia C. Crouch for the telegram that was never sent to
the addressee, and that the moral damages should be removed since
defendant's negligent act was not motivated by "fraud, malice or
recklessness.‖
ISSUE: WON the award of the moral, compensatory and exemplary
damages is proper
RULING: YES. There was a contract between the petitioner and private
respondent Sofia C. Crouch whereby, for a fee, petitioner undertook to send
said private respondent's message overseas by telegram. Petitioner failed to
do this despite performance by said private respondent of her obligation by
paying the required charges. Petitioner was therefore guilty of contravening
its and is thus liable for damages. This liability is not limited to actual or
quantified damages. To sustain petitioner's contrary position in this regard
would result in an inequitous situation where petitioner will only be held
liable for the actual cost of a telegram fixed thirty (30) years ago.
Art. 1170 of the Civil Code provides that "those who in the performance of
their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages." Art. 2176 also
provides that "whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done."
Award of Moral, compensatory and exemplary damages is proper
The petitioner's act or omission, which amounted to gross negligence, was
precisely the cause of the suffering private respondents had to undergo. Art.
2217 of the Civil Code states: "Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if
they are the proximate results of the defendant's wrongful act or omission."
Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch
representing the expenses she incurred when she came to the Philippines
from the United States to testify before the trial court. Had petitioner not
been remiss in performing its obligation, there would have been no need for
this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
respondents, as a warning to all telegram companies to observe due diligence
in transmitting the messages of their customers.
NPC v. CA
Nature: Action for damages
Ponente: Gutierrez, J.
Date: May 16, 1988
DOCTRINE: When the negligence of a person concurs with an act of God in
producing a loss, such person is not exempt from liability by showing that the
immediate cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free from any previous
negligence or misconduct by which the loss or damage may have been
occasioned.
FACTS:
Engineering Construction, Inc. (ECI), being a successful bidder, executed a
contract with the National Waterworks and Sewerage Authority (NAWASA),
whereby the former undertook to furnish all tools, labor, equipment, and
materials, and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and
Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at
Norzagaray, Bulacan, and to complete said works within 800 calendar days
from the date the Contractor receives the formal notice to proceed.
The project involved 2 major phases: the first phase comprising, the tunnel
work covering a distance of 7 kilometers, passing through the mountain, from
the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the
defendant National Power Corporation is located, to Bicti; the other phase
consisting of the outworks at both ends of the tunnel.
ECI already had completed the first major phase of the work. Some portions
of the outworks at the Bicti site were still under construction. As soon as the
ECI had finished the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to the Ipo site where
some projects were yet to be completed.
Typhoon 'Welming' hit Central Luzon, passing through National Power
Corporation's (NPC) Angat Hydro-electric Project and Dam at lpo,
Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains
intermittently fell. Due to the heavy downpour brought about by typhoon
―Welming,‖ the water in the reservoir of the Angat Dam was rising perilously
at the rate of 60 centimeters per hour. To prevent an overflow of water from
the dam, NPC caused the opening of the spillway gates.
ECI sued NPC for damages. The trial court and the CA found that NPC was
negligent when it opened the gates only at the height of the typhoon holding
that it could have opened the spill gates gradually and should have done so
before the ‗typhoon‘ came. Both courts awarded ECI for damages.
NPC assails the decision of the CA as being erroneous on the grounds, inter
alia, that the loss sustained by ECI was due to force majeure. The rapid rise of
Page 46 of 121
water level in the reservoir due to heavy rains brought about by the typhoon
is an extraordinary occurrence that could not have been foreseen. On the
other hand, ECI assails the decision of the court of appeals modifying the
decision of the trial court eliminating the awarding of exemplary damages.
ISSUES
(1) WON NPC is liable for damages in light of the typhoon which hit the area
RULING: YES. NPC was undoubtedly negligent because it opened the
spillway gates of the Angat Dam only at the height of typhoon "Welming"
when it knew very well that it was safer to have opened the same gradually
and earlier, as it was also undeniable that NPC knew of the coming typhoon
at least four days before it actually struck. And even though the typhoon was
an act of God or what we may call force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss and damage.
As was held in Nakpil & Sons v. CA:
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or
neglect, or failure to act, the whole occurrence is thereby humanized,
as it was, and removed from the rules applicable to the acts of God. (1
Corpus Juris, pp. 1174-1175).
(2) WON ECI is entitled to exemplary damages?
RULING: NO. CA did not err in eliminating the award since it found that
there was no bad faith on the part of NPC and that neither can the latter's
negligence be considered gross. In Dee Hua Liong Electrical Equipment
Corp. v. Reyes, the Court ruled:
Neither may private respondent recover exemplary damages since he
is not entitled to moral or compensatory damages, and again because
the petitioner is not shown to have acted in a wanton, fraudulent,
reckless or oppressive manner (Art. 2234, Civil Code)
_____________________________________________________
JIMENEZ v. CITY OF MANILA
Nature: Action for Damages
Ponente: Paras, J.
Date: May 29, 1987
DOCTRINE: Under Article 2189 of the Civil Code, it is not necessary for the
liability therein established to attach, that the defective public works belong
to the province, city or municipality from which responsibility is exacted.
What said article requires is that the province, city or municipality has either
"control or supervision" over the public building in question.
FACTS:
Relevant Provision of Law:
Art. 2189, Civil Code. Provinces, cities and municipalities shall be liable for
damages for the death of, or injuries suffered by, any person by reason of
the defective condition of roads, streets, bridges, public buildings, and other
public works under their control or supervision.
In the morning of August 15, 1974 Bernardino Jimenez, together with his
neighbors, went to the Sta. Ana Public Market to buy bagoong. The market
was flooded with ankle-deep rainwater. After purchasing the bagoong, he
turned around to return home but he stepped on an uncovered opening
which could not be seen because of the dirty rainwater, causing a dirty and
rusty four- inch nail which was stuck inside the uncovered opening to pierce
his left leg, penetrating to a depth of about one and a half inches.
After administering first aid treatment at a nearby drugstore, his companions
helped him hobble home. He felt ill and developed fever and he had to be
carried to Dr. Juanita Mascardo; despite the medicine administered, his left
leg swelled with great pain. He was then rushed to the Veterans Memorial
Hospital where he had to be confined for 20 days due to high fever and severe
pain.
Upon his discharge from the hospital, he had to walk around with crutches
for 15 days. His injury prevented him from attending to the school buses he
was operating; he had to engage the services of one Bienvenido Valdez to
supervise his business, paying him P900.
Jimenez sued the City of Manila and the Asiatic Integrated Corp., under
whose administration the Sta. Ana Public Market had been placed by virtue
of a Management and Operating Contract, for damages.
The lower court decided in favor of the City of Manila and Asiatic Integrated
Corp. On appeal, the Intermediate Appellate Court held that Asiatic
Integrated Corp liable for damages but absolved the City of Manila from any
liability.
Page 47 of 121

ISSUE: WON the City of Manila should be held jointly and severally liable
with Asiatic for damages
RULING: YES. There is no question that the Sta. Ana Public Market, despite
the Management and Operating Contract between respondent City and
Asiatic Integrated Corporation remained under the control of the former, and
as such it is liable under Art. 2189 of the Civil Code.
The Management and Operating Contract is explicit in this regard when its
several provisions impose obligations on the Asiatic Integrated Corp., but still
subject to the control of the City:
 ―start the painting, cleaning, sanitizing and repair of the public
markets and talipapas... submit a program of improvement,
development, rehabilitation and reconstruction of the city public
markets and talipapas subject to prior approval of the FIRST PARTY
(the City)‖
 ―all present personnel of the City public markets and talipapas shall
be retained by the SECOND PARTY (Asiatic Integrated Corp.) as
long as their services remain satisfactory and they shall be extended
the same rights and privileges as heretofore enjoyed by them‖
 ―the SECOND PARTY may from time to time be required by the
FIRST PARTY, or his duly authorized representative or
representatives, to report, on the activities and operation of the City
public markets and talipapas and the facilities and conveniences
installed therein, particularly as to their cost of construction,
operation and maintenance‖
Also, the fact of supervision and control of the City over subject public
market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of
Finance Cesar Virata wherein it is stated that ―the City retains the power of
supervision and control over its public markets and talipapas under the
terms of the contract.‖ In fact, the City of Manila employed a market master
for the Sta. Ana Public Market whose primary duty is to take direct
supervision and control of that particular market, more specifically, to check
the safety of the place for the public.
The contention of respondent City of Manila that petitioner should not have
ventured to go to Sta. Ana Public Market during a stormy weather is indeed
untenable. As a defense against liability on the basis of a quasi-delict, one
must have exercised the diligence of a good father of a family. (Art. 1173 of
the Civil Code). While it may be conceded that the fulfillment of such duties
is extremely difficult during storms and floods, it must however, be admitted
that ordinary precautions could have been taken during good weather to
minimize the dangers to life and limb under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls
instead of on the passageways. Even more important is the fact, that the City
should have seen to it that the openings were covered. Sadly, the evidence
indicates that long before petitioner fell into the opening, it was already
uncovered, and 5 months after the incident happened, the opening was still
uncovered. Moreover, while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there is no showing that
such practice has ever been prohibited, much less penalized by the City of
Manila. Neither was it shown that any sign had been placed thereabouts to
warn passersby of the impending danger.
Petitioner had the right to assume that there were no openings in the middle
of the passageways and if any, that they were adequately covered. Had the
opening been covered, petitioner could not have fallen into it. Thus the
negligence of the City of Manila is the proximate cause of the injury suffered;
the City is therefore liable for the injury suffered by the petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint
tort-feasors are solidarily liable under Article 2194 of the Civil Code.
_____________________________________________________
NAKPIL & SONS v. CA
Nature: Action for Damages
DOCTRINE: If upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or damage, the obligor
cannot escape liability.
FACTS:
Relevant Provision of Law:
Art. 1723, Civil Code. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years
from the completion of the structure, the same should collapse by reason of
a defect in those plans and specifications, or due to the defects in the
ground. The contractor is likewise responsible for the damages if the edifice
falls, within the same period, on account of defects in the construction or the
use of materials of inferior quality furnished by him, or due to any violation
of the terms of the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver of any
of the cause of action by reason of any defect mentioned in the preceding
paragraph.
Page 48 of 121
The action must be brought within ten years following the collapse of the
building.
Art. 1174, Civil Code. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable.
The Philippine Bar Association (PBA) decided to construct an office building
on its 840 square meter lot. It engaged the services of United Construction
Inc., as contractor, and the architect was Juan F. Nakpil & Sons. The building
was completed in June, 1966.
In the early morning of August 2, 1968, an unusually strong earthquake hit
Manila and the building sustained major damage. The front columns of the
building buckled, causing the building to tilt forward dangerously.
On November 29, 1968 PBA commenced action or the recovery of damages
arising from the partial collapse of the building. PBA claims that the collapse
was due to defects in the construction, the failure of contractors to follow
plans and specifications and violations by the defendants of the terms of the
contract. On the other hand, United Construction Inc. filed a third-party
complaint against the Nakpils, alleging in essence that the collapse of the
building was due to the defects in the architects" plans, specifications and
design.
PBA moved twice for the demolition of the building on the ground that it
would topple down in case of a strong earthquake. Three more earthquakes
occurred and with the PBA‘s request for demolition was granted.
The appointed Commissioner, Hizon, submitted his report which stated that
the damage sustained by the PBA building was directly caused by the
earthquake and was also caused by the defects in the plans and specifications
prepared by the architects, deviations from said plans and specifications by
the contractor and failure of the contractor to observe the requisite
workmanship in the construction of the building.
The trial court agreed with the findings of the Commissioner. Thus, it held
that United is entitled to the claim for damages. CA affirmed the decision of
the trial court but modified the decision by granting PBA an additional
P200,000 to be paid by the contractor and architects jointly. The parties
appealed from the decision of the CA.
The United Architects of the Philippines and The Philippine Institute of
Architects intervened as amicus curiae and submitted a position paper which
said that the plans and specifications of the Nakpils were not defective. When
asked by the Court to comment, the Commissioner reiterated his findings
and said that there were deficiencies in the design of the architects which
contributed to the collapse of the building.
Petitioners Nakpil and UCCI on the other hand claimed that it was an act of
God that caused the failure of the building which should exempt them from
responsibility.
ISSUE: WON the defendants are exempt from liability (WON an act of God-
an unusually strong earthquake-which caused the failure of the building,
exempts from liability, parties who are otherwise liable because of their
negligence.)
RULING: NO. The negligence of the defendants was established beyond
dispute. United Construction Co., Inc. was found to have made substantial
deviations from the plans and specifications. and to have failed to observe the
requisite workmanship in the construction as well as to exercise the requisite
degree of supervision; while the Nakpils were found to have inadequacies or
defects in the plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake.
There is no dispute that the earthquake is a fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code, for a
breach of an obligation due to an "act of God," the following must concur: (a)
the cause of the breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforseeable or unavoidable; (c) the
event must be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.
The principle embodied in the act of God doctrine strictly requires that the
act must be one occasioned exclusively by the violence of nature and all
human agencies are to be excluded from creating or entering into the cause of
the mischief. When the effect, the cause of which is to be considered, is found
to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of
God. (1 Corpus Juris, pp. 1174-1175).
NOTES: The defendants filed Motions for Reconsideration from the decision
of the 2nd Division of the Supreme Court. The Court held:
ISSUE: Article 1723 does not apply in view of the findings of the
Commissioner that the building did not collapse as a result of the earthquake.
Page 49 of 121
COURT: In the assasiled decision, the Court is in complete accord with the
findings of the trial court and affirmed by the CA, that after the earthquake
the building was not totally lost, the collapse was only partial and the
building could still be restored. But after the subsequent earthquakes on
there was no question that further damage was caused to the property
resulting in an eventual and unavoidable collapse or demolition (compete
collapse). Note that a needed demolition is in fact a form of "collapse".
The bone of contention is therefore, not on the fact of collapse but on who
should shoulder the damages resulting from the partial and eventual
collapse. As ruled by this Court in said decision, there should be no question
that the NAKPILS and UNITED are liable for the damage.
ISSUE: The finding of bad faith is not warranted in fact and is without basis
in law.
COURT: A careful study of the decision will show that there is no
contradiction between the above finding of negligence by the trial court
which was formed by the CA and the ruling of this Court. On the contrary, on
the basis of such finding, it was held that such wanton negligence of both the
defendant and the third-party defendants in effecting the plans, designs,
specifications, and construction of the PBA building is equivalent to bad faith
in the performance of their respective tasks.
************************************************************************
F. Remedies for breach of obligations
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery. (1096)
Article 1166. The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they may not have
been mentioned. (1097a)
Article 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of
the obligation. Furthermore, it may be decreed that what has been poorly
done be undone. (1098)
Article 1168. When the obligation consists in not doing, and the obligor
does what has been forbidden him, it shall also be undone at his expense.
(1099a)
Article 1170. 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. (1101)
Article 1177. The creditors, after having pursued the property in possession
of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are inherent
in his person; they may also impugn the acts which the debtor may have done
to defraud them. (1111)
Article 1178. Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to the contrary.
(1112)
Article 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law. (1124)
Article 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably tempered by
the courts. If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear his own
damages. (n)
Article 2236. The debtor is liable with all his property, present and future,
for the fulfillment of his obligations, subject to the exemptions provided by
law. (1911a)
Article 302. Neither the right to receive legal support nor any money or
property obtained as such support or any pension or gratuity from the
government is subject to attachment or execution. (n)
Page 50 of 121
Article 1708. The laborer's wages shall not be subject to execution or
attachment, except for debts incurred for food, shelter, clothing and medical
attendance.
FC Art. 153. The family home is deemed constituted on a house and lot
from the time it is occupied as a family residence. From the time of its
constitution and so long as any of its beneficiaries actually resides therein,
the family home continues to be such and is exempt from execution, forced
sale or attachment except as hereinafter provided and to the extent of the
value allowed by law. (223a)
FC Art. 155. The family home shall be exempt from execution, forced sale or
attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution of the family home;
(3) For debts secured by mortgages on the premises before or after
such constitution; and
(4) For debts due to laborers, mechanics, architects, builders,
materialmen and others who have rendered service or furnished
material for the construction of the building. (243a)
RULE 39, ROC—
Sec. 13. Property exempt from execution. Except as otherwise
expressly provided by law, the following property, and no other, shall
be exempt from execution:
(a) The judgment obligor's family home as provided by law, or the
homestead in which he resides, and land necessarily used in
connection therewith;
(b) Ordinary tools and implements personally used by him in his
trade, employment, or livelihood;
(c) Three horses, or three cows, or three carabaos, or other beasts of
burden such as the judgment obligor may select necessarily used by
him in his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use,
excluding jewelry;
(e) Household furniture and utensils necessary for housekeeping,
and used for that purpose by the judgment obligor and his family,
such as the judgment obligor may select, of a value not exceeding one
hundred thousand pesos;
(f) Provisions for individual or family use sufficient for four months;
(g) The professional libraries and equipment of judges, lawyers,
physicians, pharmacists, dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding three hundred
thousand pesos in value;
(h) One fishing boat and accessories not exceeding the total value of
one hundred thousand pesos owned by a fisherman and by the lawful
use of which he earns his livelihood;
(i) So much of the salaries, wages, or earnings of the judgment
obligor of his personal services within the four months preceding the
levy as are necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities accruing or in any
manner growing out of any life insurance;
(l) The right to receive legal support, or money or property obtained
as such support, or any pension or gratuity from the Government;
(m) Properties specially exempt by law.
But no article or species of property mentioned in his section shall be exempt
from execution issued upon a judgment recovered for its price or upon a
judgment of foreclosure of a mortgage thereon.
1. Extra judicial remedies
a. Expressly granted by law
Article 1786. Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific
and determinate things which he may have contributed to the partnership, in
the same cases and in the same manner as the vendor is bound with respect
to the vendee. He shall also be liable for the fruits thereof from the time they
should have been delivered, without the need of any demand. (1681a)
Article 1788. A partner who has undertaken to contribute a sum of money
and fails to do so becomes a debtor for the interest and damages from the
time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to
his own use. (1682)
Article 1526. Subject to the provisions of this Title, notwithstanding that
the ownership in the goods may have passed to the buyer, the unpaid seller of
goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is
in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the
goods in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid
seller has, in addition to his other remedies a right of withholding delivery
similar to and coextensive with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer. (n)
Page 51 of 121
 b. Stipulated
2. Judicial remedies
a. Principal remedies
Article 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent upon
him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law. (1124)
Article 1170. 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. (1101)
b. Subsidiary remedies
Article 1380. Contracts validly agreed upon may be rescinded in the cases
established by law. (1290)
Article 1177. The creditors, after having pursued the property in possession
of the debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are inherent
in his person; they may also impugn the acts which the debtor may have done
to defraud them. (1111)
c. Ancillary remedies – Rules of Court
**********************************************************************
UNLAD RESOURCES DEVELOPMENT v. DRAGON
Nature: Rescission of the agreement and the return of control and
management of the Rural Bank, plus damages
Ponente: Nachura J.
Date: July 28, 2008
DOCTRINE: Rescission has the effect of ―unmaking a contract, or its
undoing from the beginning, and not merely its termination.‖ Hence,
rescission creates the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can return whatever
he may be obliged to restore.
FACTS:
Relevant Provision of Law:
Art. 1389, Civil Code. The action to claim rescission must be commenced
within four years. x x x
Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom
they represent suffer lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the
lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the litigants
or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
Article 1191, Civil Code. The power to rescind reciprocal obligations is
implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
Page 52 of 121
On December 29, 1981, Respondents and Unlad Resources, through its
Chairman, Helena Benitez, entered into a Memorandum of Agreement
wherein it is provided that respondents, as controlling stockholders of the
Rural Bank of Noveleta shall allow Unlad Resources to invest P4,800,000.00
in the Rural Bank in the form of additional equity. On the other hand, Unlad
Resources bound itself to invest the said amount in the Rural Bank; upon
signing, it was, likewise, agreed that Unlad Resources shall subscribe to a
minimum P480,000 common or preferred non-voting shares of stock; that
the respondents, upon the signing of the said agreement shall transfer
control and management over the Rural Bank to Unlad Resources.
Immediately after the signing of the agreement, the respondents complied
with their obligation and transferred control of the Rural Bank to Unlad
Resources and its nominees and the Bank was renamed the Unlad Rural
Bank of Noveleta, Inc. However, they claim that despite repeated demands,
Unlad Resources has failed and refused to comply with their obligation under
the said Memorandum of Agreement
On July 3, 1987, respondents filed before the RTC of Makati City, a
Complaint for rescission of the agreement and the return of control and
management of the Rural Bank from petitioners to respondents, plus
damages. RTC declared that the MOA is rescinded and that the Unlad should
return control and management of the Rural Bank to the respondents. CA
affirmed the decision of the RTC.
Hence, the present petition. Petitioners argue, inter alia, that the action for
rescission has prescribed under Article 1398 of the Civil Code. Also, they
argue that they have fully complied with their undertaking, but that the
undertaking has become a ―legal and factual impossibility‖ because the
authorized capital stock of the Rural Bank was increased from P1.7 million to
only P5 million, and could not accommodate the subscription by petitioners
of P4.8 million worth of shares. Such deficiency, petitioners contend, is with
the knowledge and approval of respondent Renato P. Dragon and his
nominees to the Board of Directors.
ISSUES:
(1) WON the action for rescission has prescribed
RULING: NO. The prescriptive period applicable to rescission under
Articles 1191 and 1592, is found in Article 1144, which provides that the action
upon a written contract should be brought within ten years from the time the
right of action accrues.
Article 1389 specifically refers to rescissible contracts as, clearly, this
provision is under the chapter entitled ―Rescissible Contracts.‖
In the case of Iringan, the Court has held that Article 1389 applies to
rescissible contracts, as enumerated and defined in Articles 1380 and 1381.
The ―rescission‖ in Article 1381 is not akin to the term ―rescission‖ in Article
1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the contract while in
Article 1381, the action is a subsidiary one limited to cases of rescission for
lesion as enumerated in said article.
The MOA does not fall under the enumeration in Article 1381. Accordingly,
the prescriptive period that should apply to this case is that provided for in
Article 1144 for written contracts (10 years)
The action was commenced on July 3, 1987, while the MOA was entered into
on December 29, 1981. Article 1144 specifically provides that the 10-year
period is counted from ―the time the right of action accrues.‖ The right of
action accrues from the moment the breach of right or duty occurs. Thus, the
original Complaint was filed well within the prescriptive period.
(2) WON the trial court correctly ruled for the rescission of the Agreement
RULING: NO. Petitioners failed to fulfill their end of the agreement, and
thus, there was just cause for rescission. With the contract thus rescinded,
the parties must be restored to the status quo ante, that is, before they
entered into the Memorandum of Agreement.
It is true that respondents increased the Rural Bank‘s authorized capital
stock to only P5 million, which was not enough to accommodate the P4.8
million worth of stocks that petitioners were to subscribe to and pay for.
However, respondents‘ failure to fulfill their undertaking would have given
rise to the scenario contemplated by Article 1191 of the Civil Code.
Thus, petitioners should have exacted fulfillment from the respondents or
asked for the rescission of the contract instead of simply not performing their
part of the Agreement. But in the course of things, it was the respondents
who availed of the remedy under Article 1191, opting for the rescission of the
Agreement in order to regain control of the Rural Bank.
Mutual restitution is required in cases involving rescission under Article 1191.
This means bringing the parties back to their original status prior to the
inception of the contract. Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be
obligated to restore.
Page 53 of 121
 Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the
person causing the loss.
To rescind is to declare a contract void at its inception and to put an end to it
as though it never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the beginning
and restore the parties to their relative positions as if no contract has been
made.
_____________________________________________________
UNIVERSAL FOOD CORP. v. CA
Nature: Action for Rescission of Contract
Ponente: Castro, J.
Date: May 13, 1970
DOCTRINE: In Art. 1191 (unlike in Art. 1383), 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.
FACTS:
Relevant Provision of Law:
ART. 1191, Civil Code. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also
seek rescission even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with articles 1385 and 1388 of the
Mortgage Law.
ART. 1383, Civil Code. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other legal means
to obtain reparation for the same.
ART. 1384, Civil Code. Rescission shall be only to the extent necessary to
cover the damages caused.
As far back as 1938, Magdalo Francisco, Sr. discovered or invented a formula
for the manufacture of a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce.
Due to lack of sufficient capital to finance the expansion of the business, in
1960, he secured the financial assistance of Tirso Reyes who, after a series of
negotiations, formed with others defendant Universal Food Corporation
eventually leading to the execution on May 11, 1960 a "Bill of Assignment".
Conformably with the terms and conditions, Magdalo Francisco, Sr. was
appointed Chief Chemist and his son, Victoriano Francisco, was appointed
auditor and superintendent. Since the start of the operation of the
corporation, Magdalo Francisco, Sr., when preparing the secret materials
inside the laboratory, never allowed anyone, not even his own son, or the
President and General Manager Tirso Reyes, of defendant, to enter the
laboratory in order to keep the formula secret to himself.
Thereafter, however, due to the alleged scarcity and high prices of raw
materials, Secretary-Treasurer Ciriaco de Guzman of Universal Food issued a
Memorandum, that only Supervisor Ricardo Francisco should be retained in
the factory and that the salary of Magdalo Francisco, Sr., should be stopped
for the time being until the corporation should resume its operation.
Magdalo Francisco, Sr. received his salary as Chief Chemist in the amount of
P300.00 a month only until his services were terminated. After a few days,
the president issued another memorandum to allow the supervisor, now
assistant chief chemist, to recall some employees to produce the sauce and
Porky Pops.
Within a month, the corporation through its president authorized Zarraga
and Bacula to look for a buyer of the corporation including its formula,
trademarks and assets at a price not less than P300.00 without Francisco
being recalled back to work. Because of this, Magdalo Francisco filed an
action for rescission of the contract called ―Bill of Assignment‖ in the CFI
against Universal Food, rejecting the subsequent offer of the corporation to
recall him to work after the action was filed.
The CFI dismissed the case but the CA reversed the decision, rescinding the
contract and ordering the corporation to return the trademark and formula of
the sauce to Francisco and pay him his salary until those were returned.
Hence, the present petition. The corporation appealed the decision, saying
that Francisco is not entitled to rescission under Art. 1191 of the Civil Code.
Page 54 of 121
ISSUE: WON Magdalo Francisco is entitled to the rescission of the Bill of
Assignment
RULING: YES. The dismissal of the respondent patentee Magdalo
Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment. Thus, apart
from the legal principle that the option — to demand performance or ask for
rescission of a contract — belongs to the injured party, the fact remains that
the respondents-appellees had no alternative but to file the present action for
rescission and damages.
In accordance with the provisions of the Bill of Assignment, what was ceded
and transferred by Francisco was only the use of the Mafran sauce formula.
The word royalty was used in the contract which means compensation paid
by the licensee to the licensor for the use of the licensor‘s invention.
Moreover, it is stipulated that in case of the dissolution of the corporation,
the property rights over the trademark and formula shall revert back to
Francisco.
First, royalty was paid by UFC to Magdalo Francisco. Second, the formula of
said Mafran sauce was never disclosed to anybody else. Third, the Bill
acknowledged the fact that upon dissolution of said Corporation, the
patentee rights and interests of said trademark shall automatically revert
back to Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the
transfer of the use of the Mafran sauce and not the formula itself which was
admitted by UFC in its answer. Fifth, the facts of the case undeniably show
that what was transferred was only the use. Finally, the Civil Code allows
only ―the least transmission of right, hence, what better way is there to show
the least transmission of right of the transfer of the use of the transfer of the
formula itself.‖
The facts indicate that the petitioner, acting through its corporate officers,
schemed and maneuvered to ease out, separate and dismiss the said
respondent from the service as permanent chief chemist, in flagrant
violation of paragraph 5-(a) and (b) of the Bill of Assignment. The late
request to call him back to work was only to placate Francisco.
The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him. The
injured party may choose between fulfillment and rescission of the
obligation, with payment of damages in either case. There is no controversy
that the provisions of the Bill of Assignment are reciprocal in nature. The
petitioner corporation violated the Bill of Assignment, specifically paragraph
5-(a) and (b), by terminating the services of the respondent patentee Magdalo
V. Francisco, Sr., without lawful and justifiable cause.
The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental breach
as would defeat the very object of the parties in making the agreement. 12
The question of whether a breach of a contract is substantial depends upon
the attendant circumstances.
The petitioner contends that rescission of the Bill of Assignment should be
denied, because under article 1383, rescission is a subsidiary remedy which
cannot be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same. However, in this case the
dismissal of the respondent patentee Magdalo Francisco, Sr. as the
permanent chief chemist of the corporation is a fundamental and substantial
breach of the Bill of Assignment.
Thus, apart from the legal principle that the option — to demand
performance or ask for rescission of a contract — belongs to the injured
party, the fact remains that the respondents-appellees had no alternative but
to file the present action for rescission and damages. It is to be emphasized
that the respondent patentee would not have agreed to the other terms of the
Bill of Assignment were it not for the basic commitment of the petitioner
corporation to appoint him as its Second Vice-President and Chief Chemist
on a permanent basis; that in the manufacture of Mafran sauce and other
food products he would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safeguarding of
said products;" and that only by all these measures could the respondent
patentee preserve effectively the secrecy of the formula, prevent its
proliferation, enjoy its monopoly, and, in the process afford and secure for
himself a lifetime job and steady income.
The salient provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the
respondent patentee as Second Vice-President and chief chemist on a
permanent status; the obligation of the said respondent patentee to continue
research on the patent to improve the quality of the products of the
corporation; the need of absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safekeeping of the
chemicals and other mixtures used in the preparation of said product — all
these provisions of the Bill of Assignment are so interdependent that
violation of one would result in virtual nullification of the rest.
_____________________________________________________
MAGDALENA ESTATE v. MYRICK
Nature: Action for Collection
Ponente: Laurel, J.
Date: March 14, 1941
Page 55 of 121
DOCTRINE: Under Art. 1124 of the old Civil Code (basis of Article 1191,
New Civil Code), the injured party may choose between demanding the
fulfillment of the contract or its resolution. These remedies are alternative
and not cumulative.
FACTS:
The Magdalena Estate, Inc., sold to Louis Myrick lots Nos. 28 and 29 of Block
1, Parcel 9 of the San Juan Subdivision, San Juan Rizal, their contract of sale
No. SJ-639 providing that the price of P7,953 shall be payable in 120 equal
monthly installments of P96.39 each on the second day of every month
beginning the date of execution of the agreement. Simultaneously, the vendee
executed and delivered to the vendor a promissory note for the whole
purchase price.
In pursuance of said agreement, the vendee made several monthly payments
amounting to P2,596.08, the last being on October 4, 1930, although the first
installment due and unpaid was that of May 2, 1930. By reason of this
default, the vendor, through its president, K.H. Hemady, on December 14,
1932, notified the vendee that, in view of his inability to comply with the
terms of their contract, said agreement had been cancelled as of that date,
thereby relieving him of any further obligation thereunder, and that all
amounts paid by him had been forfeited in favor of the vendor, who assumes
the absolute right over the lots in question. To this communication, the
vendee did not reply, and it appears likewise that the vendor thereafter did
not require him to make any further disbursements on account of the
purchase price.
Louis Myrick commenced the present action in the CFI, praying for an entry
of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08 with
legal interest thereon from the filing of the complaint until its payment, and
for costs of the suit.
CFI rendered its decision ordering the defendant to pay the plaintiff the sum
of P2,596.08 with legal interest from December 14, 1932 until paid and costs,
and dismissing defendant's counterclaim. CA confirmed the decision of the
lower court, with the only modification that the payment of interest was to be
computed from the date of the filing of the complaint instead of from the date
of the cancellation of the contract.
Hence, the present petition. It is argued that the contract being a bilateral
agreement, in the absence of a stipulation permitting its cancellation, may
not be resolved by the mere act of the petitioner.
ISSUE: WON forfeiture of the payments was valid
RULING: NO. The contract of sale contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of the
stipulated monthly installments, to retain the amounts paid to him on
account of the purchase price
The fact that the contracting parties herein did not provide for resolution is
now of no moment, for the reason that the obligations arising from the
contract of sale being reciprocal, such obligations are governed by article
1124 of the Civil Code which declares that the power to resolve, in the event
that one of the obligors should not perform his part, is implied.
Upon the other hand, where, as in this case, the petitioner cancelled the
contract, advised the respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so and act upon such belief,
the petitioner may not be allowed, in the language of section 333 of the Code
of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court),
in any litigation the course of litigation or in dealings in nais, be permitted to
repudiate his representations, or occupy inconsistent positions, or, in the
letter of the Scotch law, to "approbate and reprobate."
The claim, therefore, of the petitioner that it has the right to forfeit said sums
in its favor is untenable. Under article 1124 of the Civil Code, however, he
may choose between demanding the fulfillment of the contract or its
resolution. These remedies are alternative and not cumulative, and the
petitioner in this case, having to cancel the contract, cannot avail himself of
the other remedy of exacting performance.
As a consequence of the resolution, the parties should be restored, as far as
practicable, to their original situation which can be approximated only by
ordering, as we do now, the return of the things which were the object of the
contract, with their fruits and of the price, with its interest (article 1295, Civil
Code), computed from the date of the institution of the action.
UP v. DE LOS ANGELES
Nature: Petition for Injunction
Ponente: Reyes, J.B.L., J.
Date: September 29, 1970
DOCTRINE: Article 1191 of the Civil Code allows that the resolution of
reciprocal contracts may be made extra-judicially unless successfully
impugned in court. This gives the obligee the opportunity to prevent
imminent losses which may be incurred due to the blatant negligence of the
obligor.
Page 56 of 121
FACTS:
UP and Associated Lumber Manufacturing Company, Inc. (ALUMCO)
entered into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the agreement to 31
December 1965, extendible for a further period of 5 years by mutual
agreement, to cut, collect and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, etc..
As of 8 December 1964, ALUMCO had incurred unpaid account which,
despite repeated demands, it had failed to pay. ALUMCO received notice that
UP would rescind or terminate the logging agreement, thus, it executed an
instrument, entitled "Acknowledgment of Debt and Proposed Manner of
Payments," in which it guaranteed that it would pay its debt otherwise they
would agree to the rescission of the contract without necessity of suit and
shall pay the creditor P 50,ooo in liquidated damages. Despite this, ALUMCO
continued its operations and incurred another debt in addition to the
previous one.
On 19 July 1965, UP informed ALUMCO that it had considered as rescinded
and of no further legal effect the logging agreement that they had entered
into. UP filed a complaint against ALUMCO in the CFI, for the collection or
payment of the debts and for preliminary attachment and preliminary
injunction restraining ALUMCO from continuing its logging operations.
Before the issuance of the aforesaid preliminary injunction UP had awarded a
concession to Sta. Clara Lumber Company, Inc.; the logging contract was
signed on 16 February 1966.
ALUMCO filed a petition for injunction to enjoin UP from conducting the
bidding. The respondent judge issued the orders, enjoining UP from
awarding logging rights over the concession to any other party.
ALUMCO contended, that it is only after a final court decree declaring the
contract rescinded for violation of its terms that UP could disregard
ALUMCO's rights under the contract and treat the agreement as breached
and of no force or effect.
ISSUE: WON UP can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect.
RULING: YES. UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" that, upon
default by the debtor ALUMCO, UP has "the right and the power to consider,
the Logging Agreement dated 2 December 1960 as rescinded without the
necessity of any judicial suit."
It was held in Froilan vs. Pan Oriental Shipping Co., as to such special
stipulation, and in connection with Article 1191 of the Civil Code, that:
there is nothing in the law that prohibits the parties from entering
into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In other
words, it is not always necessary for the injured party to resort to
court for rescission of the contract.
The act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the
proper court. If the other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the contract
was not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.
There is no conflict between the present ruling and the previous
jurisprudence of the Court invoked by respondent declaring that judicial
action is necessary for the resolution of a reciprocal obligation, since in every
case where the extrajudicial resolution is contested only the final award of the
court of competent jurisdiction can conclusively settle whether the resolution
was proper or not. It is in this sense that judicial action will be necessary, as
without it, the extrajudicial resolution will remain contestable and subject to
judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Even without express provision conferring the power of cancellation upon
one contracting party, the Supreme Court of Spain, in construing the effect of
Article 1124 of the Spanish Civil Code (of which Article 1191 of the Civil; Code
is practically a reproduction), has repeatedly held that, a resolution of
reciprocal or synallagmatic contracts may be made extrajudicially unless
successfully impugned in court.
The acts of the court a quo in enjoining petitioner's measures to protect its
interest without first receiving evidence on the issues tendered by the parties,
and in subsequently refusing to dissolve the injunction, were in grave abuse
of discretion, correctible by certiorari, since appeal was not available or
adequate. Such injunction, therefore, must be set aside.
_____________________________________________________
ZULUETA v. MARIANO
Nature: Ejectment suit
Ponente: Melencio-Herrera, J.
Date: January 30, 1982
Page 57 of 121
DOCTRINE: A stipulation entitling one party to take possession of the
land and building if the other party violates the contract does not ex
proprio vigore confer upon the former the right to take possession
thereof if objected to without judicial intervention and' determination.
FACTS:
Petitioner Jose Zulueta is the registered owner of a residential house and lot
situated within the Antonio Subdivision, Pasig, Rizal.
Zulueta and private respondent Lamberto Avellana, a movie director, entered
into a "Contract to Sell" the aforementioned property for P75,000.00 payable
in twenty years with respondent buyer assuming to pay a down payment of
P5,000.00 and a monthly installment of P630.00 payable in advance before
the 5th day of the corresponding month, starting with December, 1964.
It was stipulated, among others, that upon failure of the buyer to fulfill any of
the conditions being stipulated, the buyer automatically and irrevocably
authorizes owner to recover extrajudicially, physical possession of the land,
building and other improvements, which were the subject of the said
contract, and to take possession also extra-judicially whatever personal
properties may be found within the aforesaid premises from the date of said
failure to answer for whatever unfulfilled monetary obligations buyer may
have with owner. Demand was also waived.
Upon the allegation that Avellana had failed to comply with the monthly
amortizations, despite demands to pay and to vacate the premises, and that
thereby the contract was converted into one of lease, petitioner commenced
an Ejectment suit against respondent before the Municipal Court of Pasig,
praying that judgment be rendered ordering respondent 1) to vacate the
premises; 2) to pay petitioner the sum of P11,751.30 representing
respondent's balance owing as of May, 1966; 3) to pay petitioner the sum of P
630.00 every month after May, 1966, and costs. Respondent controverted by
contending that the Municipal Court had no jurisdiction over the nature of
the action as it involved the interpretation and/or rescission of the contract.
Municipal Court ruled in favor of Zulueta. The conclusion was premised on
title finding that breach of any of the conditions by private respondent
converted the agreement into a lease contract.
Upon appeal, CFI Judge dismissed the case on the ground of lack of
jurisdiction of the Municipal Court.
ISSUE: WON the action before the Municipal Court is essentially for
detainer and, therefore, within its exclusive original jurisdiction, or one for
rescission or annulment of a contract, which should be litigated before the
CFI
RULING: RESCISSION. The basic issue is not possession but one of
rescission or annulment of a contract. which is beyond the jurisdiction of the
Municipal Court to hear and determine.
The Municipal Court of Pasig was bereft of jurisdiction to take cognizance of
the case filed before it. In his Complaint, petitioner had alleged violation by
respondent Avellana of the stipulations of their agreement to sell and thus
unilaterally considered the contract rescinded. Respondent Avellana denied
any breach on his part and argued that the principal issue was one of
interpretation and/or rescission of the contract as well as of set-off. Under
those circumstances, proof of violation is a condition precedent to resolution
or rescission. It is only when the violation has been established that the
contract can be declared resolved or rescinded. Upon such rescission, in turn,
hinges a pronouncement that possession of the realty has become unlawful.
True, the contract between the parties provided for extrajudicial rescission.
This has legal effect, however, where the other party does not oppose it. Where
it is objected to, a judicial determination of the issue is still necessary.
But while respondent Judge correctly ruled that the Municipal Court had no
jurisdiction over the case and correctly dismissed the appeal, he erred in
assuming original jurisdiction, in the face of the objection interposed by
petitioner. Section 11, Rule 40, leaves no room for doubt on this point:
Section 11. Lack of jurisdiction —A case tried by an inferior court
without jurisdiction over the subject matter shall be dismiss on appeal
by the Court of First Instance. But instead of dismissing the case, the
Court of First Instance may try the case on the merits, if the parties
therein file their pleadings and go to trial without any objection to
such jurisdiction.
There was no other recourse left for respondent Judge, therefore, except to
dismiss the appeal. If an inferior court tries a case without jurisdiction over
the subject-matter on appeal, the only authority of the CFI is to declare the
inferior court to have acted without jurisdiction and dismiss the case, unless
the parties agree to the exercise by the CFI of its original jurisdiction to try the
case on the merits.
______________________________________________________
PALAY, INC v. CLAVE
Nature: Complaint for Reconveyance with alternative prayer for Refund
Ponente: Melencio-Herrera, J.
Date: September 21, 1983
Page 58 of 121
DOCTRINE: A written notice is required to be sent to the defaulter for the
rescission of a contract even though the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions.
FACTS:
Relevant Provision of Law:
ART. 1385, Civil Code. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.
Palay, Inc., through its President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the
Crestview Heights Subdivision in Antipolo, Rizal,. Paragraph 6 of the
contract provided for automatic extrajudicial rescission upon default in
payment of any monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5, 1967
for installments up to September 1967.
On May 10, 1973, or almost 6 years later, private respondent wrote petitioner
offering to update all his overdue accounts with interest, and seeking its
written consent to the assignment of his rights to a certain Lourdes Dizon. He
followed this up with another letter reiterating the same request. Replying
petitioners informed respondent that his Contract to Sell had long been
rescinded pursuant to paragraph 6 of the contract, and that the lot had
already been resold.
Respondent filed a letter complaint with the National Housing Authority
(NHA) for reconveyance with an altenative prayer for refund. NHA, finding
the rescission void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott in his capacity as President of the
corporation, jointly and severally, to refund Nazario Dumpit immediately.
On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law, respondent Presidential Executive Assistant,
affirmed the Resolution of the NHA.
Petitioners argue that it was justified in cancelling the contract to sell without
prior notice or demand in view of paragraph 6 of the Contract to Sell.
ISSUES:
(1) WON demand was necessary before the Contract to Sell may be rescinded
RULING: YES. Resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as held
in the U.P. vs. Angeles case.
Well-settled is the rule, as held in previous jurisprudence, that judicial action
for the rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and
conditions. However, even in these cases, there was at least a written notice
sent to the defaulter informing him of the rescission. As stressed in UP vs. De
Los Angeles the act of a party in treating a contract as cancelled should be
made known to the other.
Of similar import is the ruling in Nera vs. Vacante, reading:
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex propio
vigore confer upon the former the right to take possession thereof if
objected to without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano where the Court held that
extrajudicial rescission has legal effect where the other party does not oppose
it. Where it is objected to, a judicial determination of the issue is still
necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor impugns
the declaration, it shall be subject to judicial determination.
In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. It is now for the Court to determine whether
resolution of the contract by petitioners was warranted.
Petitioner relies on Torralba vs. De los Angeles where it was held that "there
was no contract to rescind in court because from the moment the petitioner
defaulted in the timely payment of the installments, the contract between the
parties was deemed ipso facto rescinded." However, it should be noted that
even in that case notice in writing was made to the vendee of the cancellation
and annulment of the contract although the contract entitled the seller to
immediate repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection
Page 59 of 121
to Buyers of Real Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:

Sec. 3(b) ... the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.

The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private
respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty of
choice has been fully accorded. Moreover, it is a matter of public policy to
protect buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments.

(2) WON petitioners may be held liable for the refund of the installment
payments made by respondent Nazario Dumpit.

RULING: YES. Indemnity for damages may be demanded from the person
causing the loss under Article 1385 of the Civil Code.

As a consequence of the resolution by petitioners, rights to the lot should be

restored to private respondent or the same should be replaced by another
acceptable lot. However, considering that the property had already been sold
to a third person and there is no evidence on record that other lots are still
available, private respondent is entitled to the refund of installments paid
plus interest at the legal rate of 12% computed from the date of the institution
of the action. 10 It would be most inequitable if petitioners were to be
allowed to retain private respondent's payments and at the same time
appropriate the proceeds of the second sale to another.

Page 60 of 121

ANGELES V CALASANZ
Nature: Action to compel execution of deed of sale
Ponente: Gutierrez
Date: March 18, 1985
Doctrine: The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial and
fundamental breach as would defeat the very object of the parties in making
the agreement. The question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
FACTS:
Ursula and Tomas Calasanz and plaintiffs Buenaventura Angeles and Teofila
Juani entered into a contract to sell a piece of land in Cainta, Rizal for the
amount of P3,920.The plaintiffs made a downpayment of P392.00 upon the
execution of the contract. They promised to pay the balance in monthly
installments of P 41.20 until fully paid which they paid monthly until July
1966, when their aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted and received
delayed installment payments. The Calasanzes then cancelled the contract
because the plaintiffs failed to meet subsequent payments. Plaintiffs seek to
compel the defendants to execute in their favor the final deed of sale alleging
that after computing all subsequent payments, they have already paid the
total amount of P4,533.38. Defendants alleged that plaintiffs violated par. 6
of the contract to sell when they failed and refused to pay and/or offer to pay
the monthly installments, constraining the defendants-appellants to cancel
the said contract.
ISSUE: WON the contract to sell has been automatically and validly
cancelled by the defendants. NO
The defendants argue that the plaintiffs failed to pay the August, 1966
installment despite demands for more than 4 months, thus he may
automatically cancel a contract to sell on the strength of a provision or
stipulation (paragraph 6) of the contract in this case. Also, they alleged that
they had the right to cancel the contract to sell under Article 1191.
SC RULING: Article 1191 is explicit. In reciprocal obligations, either party
the right to rescind the contract upon the failure of the other to perform the
obligation assumed thereunder. Moreover, there is nothing in the law that
prohibits the parties from entering into an agreement that violation of the
terms of the contract would cause its cancellation even without court
intervention. Well settled is, however, the rule that a judicial action for the
rescission of a contract is not necessary where the contract provides that it
may be revoked and cancelled for violation of any of its terms and conditions.
However, the right to rescind the contract for non-performance of one of its
stipulations, therefore, is not absolute. The general rule is that rescission of a
contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very object of the
parties in making the agreement. The question of whether a breach of a
contract is substantial depends upon the attendant circumstances.
Here, the breach of the contract adverted to by the defendants is so slight and
casual when we consider that apart from the initial downpayment of P392.00
the plaintiffs-appellees had already paid the monthly installments for a
period of almost nine (9) years. To sanction the rescission made by the
defendants-appellants will work injustice to the plaintiffs. It would unjustly
enrich the defendants.
_____________________________________________________
BOYSAW V. INTERPHIL PROMOTIONS
Nature: Action for damages
Ponente: Fernan
Date: March 20, 1987
DOCTRINE: While the contract imposed no penalty for such violation, this
does not grant any of the parties the unbridled liberty to breach it with
impunity. Our law on contracts recognizes the principle that actionable injury
inheres in every contractual breach. Thus, Art. 1170 and 1191 of the Civil
Code. Under the law when a contract is unlawfully novated by an applicable
and unilateral substitution of the obligor by another, the aggrieved creditor is
not bound to deal with the substitute.
FACTS:
Solomon Boysaw and his then Manager, Willie Ketchum, signed with
Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to
engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight
championship of the world. It was stipulated that the bout would be held at
the Rizal Memorial Stadium in Manila on September 30, 1961 or not later
than 30 days thereafter should a postponement be mutually agreed upon,
and that Boysaw would not, prior to the date of the boxing contest, engage in
any other such contest without the written consent of Interphil Promotions,
Inc. Afterwards, Ketchum assigned to J. Amado Araneta who then assigned
to Yulo the managerial rights over Solomon Boysaw. Boysaw arrived in the
Philippines. Yulo then wrote to Sarreal informing him of his acquisition of
the managerial rights over Boysaw and indicating his and Boysaw's readiness
to comply with the boxing contract. Sarreal wrote a letter to the Games and
Amusement Board expressing concern over reports that there had been a
switch of managers in the case of Boysaw. Thus, GAB decided to schedule the
Elorde-Boysaw fight for November 4, 1961. Yulo, Jr. refused to accept the
Page 61 of 121
change in the fight date. While an Elorde-Boysaw fight was eventually staged,
the fight contemplated in the May 1, 1961 boxing contract never materialized.
ISSUE 1: Whether or not there was a violation of the fight contract; who was
guilty of such violation. YES. BOYSAW IS GUILTY.
On the issue pertaining to the violation of the May 1, 1961 fight contract, the
evidence established that the contract was violated by appellant Boysaw
himself when, without the approval or consent of Interphil, he fought Louis
Avila on June 19, 1961 in Las Vegas Nevada. While the contract imposed no
penalty for such violation, this does not grant any of the parties the unbridled
liberty to breach it with impunity. Our law on contracts recognizes the
principle that actionable injury inheres in every contractual breach. Thus,
Art. 1170 and 1191 of the Civil Code.
The power to rescind is given to the injured party. "Where the plaintiff is the
party who did not perform the undertaking which he was bound by the terms
of the agreement to perform 4 he is not entitled to insist upon the
performance of the contract by the defendant, or recover damages by reason
of his own breach "
Another violation of the contract in question was the assignment and
transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr.,
of the managerial rights over Boysaw without the knowledge or consent of
Interphil. The assignments, from Ketchum to Araneta, and from Araneta to
Yulo, were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil.
Under the law when a contract is unlawfully novated by an applicable and
unilateral substitution of the obligor by another, the aggrieved creditor is not
bound to deal with the substitute.
From the evidence, it is clear that the appellees, instead of availing
themselves of the options given to them by law of rescission or refusal to
recognize the substitute obligor Yulo, really wanted to postpone the fight date
owing to an injury that Elorde sustained in a recent bout. That the appellees
had the justification to renegotiate the original contract, particularly the fight
date is undeniable from the facts aforestated. Under the circumstances, the
appellees' desire to postpone the fight date could neither be unlawful nor
unreasonable.
ISSUE 2: Whether or not there was legal ground for the postponement of
the fight date from September 1, 1961, as stipulated in the May 1, 1961 boxing
contract, to November 4,1961. YES. Since all the rights on the matter rested
with the appellees, and appellants' claims, if any, to the enforcement of the
contract hung entirely upon the former's pleasure and sufferance, the GAB
did not act arbitrarily in acceding to the appellee's request to reset the fight
date to November 4, 1961.
PILIPINAS BANK V IAC
Nature: Complaint for Specific Performance with Damages to compel
petitioner to execute a deed of sale
Ponente: Paras
Date: June 30, 1987
DOCTRINE: There is a clear WAIVER of the stipulated right of "automatic
rescission," as evidenced by the many extensions and the fact that the
petitioner never called attention to the proviso on "automatic rescission.".
FACTS:
Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and
private respondents, as vendees executed a Contract to Sell over a parcel of
land in Antipolo with a provision that ―the contract shall be considered
automatically rescinded and cancelled and of no further force and effect upon
failure of the vendee to pay when due, three or more consecutive installments
as stipulated therein or to comply with any of the terms and conditions
thereof, in which case the vendor shall have right to resell the said parcel of
land to any person interested…‖ Eventually, petitioner sent private
respondents a simple demand letter showing a delinquency in their monthly
amortizations for 19 months. They then again sent private respondents a
demand letter showing total arrearages of 20 months as of April 1965, but
this time advising that unless they up-date their installment payments,
petitioner shall be constrained to avail of the automatic rescission clause.
Respondents made a partial payment with the request for an extension
(repeated a number of times). However, private respondents failed to update
their arrearages and did not request for any further extension of time within
which to update their account. Petitioner then wrote a letter to private
respondents, informing them that the contract to sell had been
rescinded/cancelled by a notarial act, to which letter was annexed a "Demand
for Rescission of Contract".
TC: Petitioner could not rescind the contract to sell, because: (a) petitioner
waived the automatic rescission clause by accepting payment on September
1967, and by sending letters advising private respondents of the balances
due, thus, looking forward to receiving payments thereon.
ISSUE: WON the contract was rescinded or cancelled, under the automatic
rescission clause contained therein. NO.
While it is true that the Supreme Court reiterated among other things that a
contractual provision allowing "automatic rescission" (without prior need of
judicial rescission, resolution or cancellation) is VALID, the remedy of one
who feels aggrieved being to go to Court for the cancellation of the rescission
Page 62 of 121
itself, in case the rescission is found unjustified under the circumstances, still
in the instant case there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions granted private
respondents by the petitioner. In all these extensions, the petitioner never
called attention to the proviso on "automatic rescission."
_____________________________________________________
CENTRAL BANK V CA
Nature: Petition for injunction, specific performance or rescission, and
damages with preliminary injunction.
Ponente: Makasiar
Date: October 3, 1985
DOCTRINE: When one is in default in fulfilling its reciprocal obligation
under their loan agreement, the other party, under Article 1191 of the Civil
Code, may choose between specific performance or rescission with damages
in either case. But since the defaulting party is already prohibited from
fulfilling its obligation, rescission is the only alternative remedy left.
FACTS:
Island Savings Bank approved the loan application for P80,000.00 of
Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land in Agusan. The approved
loan application called for a lump sum P80,000.00 loan, repayable in semi-
annual installments for a period of 3 years. It was required that Tolentino
shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision. A mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank. An advance interest for the
P80,000.00 loan covering a 6-month period amounting to P4,800.00 was
deducted from the partial release of P17,000.00.
The Monetary Board of the Central Bank, after finding Island Savings Bank
was suffering liquidity problems, issued Resolution No. 1049, which
prohibited the bank from making new loans and investments excluding
extensions or renewals of already approved loans, provided that such
extensions or renewals shall be subject to review by the Superintendent of
Banks,
Island Savings Bank, in view of non-payment of the P17,000.00 covered by
the promissory note, filed an application for the extra-judicial foreclosure of
the real estate mortgage. Tolentino filed for injunction, specific performance
or rescission alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the P63,000.00 and
if said balance cannot be delivered, to rescind the real estate mortgage.
ISSUE 1: WON the action for specific performance may prosper? NO, only
rescission.
Island Savings Bank and Tolentino undertook reciprocal obligations. In
reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other and when one party has performed or is
ready and willing to perform his part of the contract, the other party who has
not performed or is not ready and willing to perform incurs in delay (Art.
1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan. The Bank's delay in furnishing the entire loan lasted for a
period of 3 years or when the Monetary Board of the Central Bank issued
Resolution No. 967. Such resolution made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation
under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the
Civil Code, may choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is now prohibited from
doing further business by Monetary Board Resolution No. 967, WE cannot
grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that
rescission is only for the P63,000.00 balance of the P80,000.00 loan,
because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the
partial release of P17,000.00, which Sulpicio M. Tolentino accepted and
executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to
pay the P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence
not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is,
Island Savings Bank.
RE: DAMAGES AND REAL ESTATE MORTGAGE
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
We hold, however, that the real estate mortgage of Sulpicio M. Tolentino
cannot be entirely foreclosed to satisfy his P 17,000.00 debt. When there is
partial failure of consideration, the mortgage becomes unenforceable to the
extent of such failure.
Page 63 of 121
************************************************************************
G. Modes of extinguishment of obligations
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed
elsewhere in this Code. (1156a)
************************************************************************
SAURA V DBP
Nature: Action for damages
Ponente: Makalintal
Date: April 27, 1972
DOCTRINE: Mutual desistance or "mutuo disenso" is a mode of
extinguishing obligations. It is a concept that derives from the principle that
since mutual agreement can create a contract, mutual disagreement by the
parties can cause its extinguishment.
FACTS:
Saura, Inc applied to the Rehabilitation Finance Corporation (RFC), before
its conversion into DBP, for an industrial loan of P500,000.00, to be used as
follows: P250,000.00 for the construction of a factory building (for the
manufacture of jute sacks); P240,900.00 to pay the balance of the purchase
price of the jute mill machinery and equipment; and P9,100.00 as additional
working capital. RFC passed Resolution No. 145 approving the loan
application for P500,000.00, to be secured by a first mortgage on the factory
building to be constructed, the land site thereof, and the machinery and
equipment to be installed. In a meeting of the RFC Board of Governors it was
decided to reduce the loan from P500,000.00 to P300,000.00. F.R. Halling,
who had signed the promissory note for China Engineers Ltd. jointly and
severally with the other RFC that his company no longer to of the loan and
therefore considered the same as cancelled as far as it was concerned. On
December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to
the original amount of P500,000.00, "it appearing that China Engineers, Ltd.
is now willing to sign.
The action thus taken was communicated to Saura, Inc. in a letter of RFC
dated December 22, 1954, wherein it was explained that the certification by
the Department of Agriculture and Natural Resources was required "as the
intention of the original approval (of the loan) is to develop the manufacture
of sacks on the basis of locally available raw materials." Saura, Inc. does not
deny that the factory he was building in Davao was for the manufacture of
bags from local raw materials. The explanatory note on page 1 of the same
brochure states that, the venture "is the first serious attempt in this country
to use 100% locally grown raw materials notably kenaf which is presently
grown commercially in theIsland of Mindanao where the proposed jutemill is
located ..." This fact, according to defendant DBP, is what moved RFC to
approve the loan application in the first place.
ISSUE: WON there was a perfected contract to speak of. YES but there was
mutual desistance.
We hold that there was indeed a perfected consensual contract, as recognized
in Article 1934 (An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of
the object of the contract.) There was undoubtedly offer and acceptance in
this case: the application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage
was executed and registered. But this fact alone falls short of resolving the
basic claim that the defendant failed to fulfill its obligation and the plaintiff is
therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on
the assumption that the factory to be constructed would utilize locally grown
raw materials, principally kenaf. There is no serious dispute about this. It was
in line with such assumption that when RFC, by Resolution No. 9083
approved on December 17, 1954, restored the loan to the original amount of
P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials
needed by the borrower-corporation to carry out its operation are available in
the immediate vicinity; and (2) that there is prospect of increased production
thereof to provide adequately for the requirements of the factory." The
imposition of those conditions was by no means a deviation from the terms of
the agreement, but rather a step in its implementation.
Evidently Saura, Inc. realized that it could not meet the conditions required
by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will
not be able in sufficient quantity this year or probably next year," and asking
that out of the loan agreed upon the sum of P67,586.09 be released "for raw
materials and labor." This was a deviation from the terms laid down in
Resolution No. 145 and embodied in the mortgage contract, implying as it did
a diversion of part of the proceeds of the loan to purposes other than those
agreed upon. When RFC turned down the request in its letter of January 25,
Page 64 of 121
1955 the negotiations which had been going on for the implementation of the
agreement reached an impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so and insisting that the
loan be released as agreed upon, Saura, Inc. asked that the mortgage be
cancelled, which was done on June 15, 1955. The action thus taken by both
parties was in the nature of mutual desistance — what Manresa terms "mutuo
disenso" 1 — which is a mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.
The subsequent conduct of Saura, Inc. confirms this desistance. It did not
protest against any alleged breach of contract by RFC, or even point out that
the latter's stand was legally unjustified. Its request for cancellation of the
mortgage carried no reservation of whatever rights it believed it might have
against RFC for the latter's non-compliance. In 1962 it even applied with DBP
for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had
been cancelled at its own request, that Saura, Inc. brought this action for
damages.All these circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance — and that on the
initiative of the plaintiff-appellee itself.
************************************************************************
1. Payment or performance
Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)
Article 1233. A debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be. (1157)
Article 1234. If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee. (n)
Article 1235. When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with. (n)
Article 1236. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.
(1158a)
Article 1237. Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to subrogate him
in his rights, such as those arising from a mortgage, guaranty, or penalty.
(1159a)
Article 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case valid as to the creditor who
has accepted it. (n)
Article 1239. In obligations to give, payment made by one who does not
have the free disposal of the thing due and capacity to alienate it shall not be
valid, without prejudice to the provisions of article 1427 under the Title on
"Natural Obligations." (1160a)
Article 1240. Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or any person
authorized to receive it. (1162a)
Article 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the creditor need not
be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's
rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe
that the third person had authority to receive the payment. (1163a)
Article 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor. (1164)
Article 1243. Payment made to the creditor by the debtor after the latter
has been judicially ordered to retain the debt shall not be valid. (1165)
Article 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more
valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will. (1166a)
Article 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and circumstances have not
been stated, the creditor cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration. (1167a)
Page 65 of 121
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard
to judicial costs, the Rules of Court shall govern. (1168a)
Article 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (1169a)
Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in the abeyance. (1170)
Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary. (n)
Article 1251. Payment shall be made in the place designated in the
obligation.
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be at
the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in
delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
(1171a)
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share. (1210a)
Republic Act No. 529, as repealed by RA 8183
June 16, 1950
AN ACT TO ASSURE UNIFORM VALUE TO PHILIPPINE COIN
AND CURRENCY
Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled;
WHEREAS, the value of Philippine coin and currency affects public interest
and is subject to regulation by the Congress of the Philippines; and
WHEREAS, it has been disclosed that the provisions of certain obligations
contracted in the Philippines purport to give the obligee the right to require
payment in gold or in a particular kind of coin or currency or in an amount in
money of the Philippines measured thereby, thus obstructing the power of
the Congress to regulate the value of the money of the Philippines and
contravening the policy of the Congress, here declared, to maintain at all
times the equal and stable power of every peso coined or issued by the
Philippines, in the markets and in the payment of debts; Now, therefore.
Section 1. Every provision contained in, or made with respect to, any
obligation which provision purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured
thereby, be as it is hereby declared against public policy, and null, void and of
no effect, and no such provision shall be contained in, or made with respect
to, any obligation hereafter incurred. Every obligation heretofore or hereafter
incurred, whether or not any such provision as to payment is contained
therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public
and private debts: Provided, That, if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind of coin or
currency other than Philippine currency, it shall be discharged in Philippine
currency measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of
exchange prevailing at the time of the stipulated date of payment shall
prevail. All coin and currency, including Central Bank notes, heretofore or
hereafter issued and declared by the Government of the Philippines shall be
legal tender for all debts, public and private.
Page 66 of 121

Section 2. All acts and parts of acts inconsistent with this Act are hereby
repealed.
Section 3. This Act shall take effect upon its approval.
Approved: June 16, 1950
Republic Act No. 8183, Repealing RA 529
June 11, 1996
AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE
HUNDRED TWENTY-NINE AS AMENDED, ENTITLED
"AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE
COIN AND CURRENCY."
Be it enacted by the Senate and House of Representatives of the Philippines
in Congress assembled;
Section 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties may
agree that the obligation or transaction shall be settled in any other currency
at the time of payment.
Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529),
as amended entitled "An Act to Assume the Uniform Value of Philippine Coin
and Currency," is hereby repealed.
Sec. 3. This Act shall take effect fifteen (15) days after its publication in the
Official Gazette or in two (2) national newspapers of general circulation. The
Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an
intensive information campaign on the effect of this Act.
Approved: June 11, 1996
PD 72
Section 31. Section fifty-four of the same Act is hereby amended to read as
follows: "Sec. 54. Legal tender power. All notes and coins issued by the
Central Bank shall fully guaranteed by the Government of the Republic of
the Philippines and shall be legal tender in the Philippines for all debts, both
public and private: Provided, however, That coins shall be legal tender in
amounts not exceeding fifty pesos for denominations from ten centavos to
one peso, and in amounts not exceeding twenty pesos for denominations of
five centavos or less."
PD 72 Section 32. Section sixty-three of the same Act is hereby amended to
read as follows: "Sec. 63. Legal character. Checks representing deposit
money do not have legal tender power and their acceptance in the payment
of debts, both public and private, is at the option of the creditor: Provided,
however, That a check which has been cleared and credited to the account of
the creditor shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account."
LANDBANK V ONG
Nature: Action for recovery of sum of money with damages
Ponente: Velasco
Date: November 24, 2010
DOCTRINE: The second paragraph of Art. 1236 does not apply to a third
person who does not have an interest in the fulfillment of the obligation.
FACTS:
Sps Johnson and Evangeline Sy secured a loan from Land Bank in the
amount of PhP 16 million. The loan was secured by three 3 residential lots, 5
cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of
the loan would be short-termwhile the balance of PhP 10 million would be
payable in 7 years. Spouses Sy found they could no longer pay their loan, they
sold three 3 of their mortgaged parcels of land for PhP 150,000 to Angelina
Gloria Ong, Evangeline‘s mother, under a Deed of Sale with Assumption of
Mortgage. Evangeline‘s father, petitioner Alfredo Ong, later went to Land
Bank to inform it about the sale and assumption of mortgage. They were also
told that Alfredo should pay part of the principal which was computed at PhP
750,000 so Alfredo issued a check for PhP 750,000 and personally gave it to
Atty. Hingco. Alfredo later found out that his application for assumption of
mortgage was not approved by Land Bank after a credit investigation. Land
Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo
only learned of the foreclosure when he saw the subject mortgage properties
included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC.
Issue: WON Art. 1236 of the Civil Code is applicable. Partly
Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of Land
Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is
a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the
Page 67 of 121
debtor, he can recover only insofar as the payment has been beneficial to
the debtor.1avvphi1
We agree with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredo‘s payment, since as far
as the former was concerned, he did not have an interest in the payment of
the loan of the Spouses Sy. However, in the context of the second part of said
paragraph, Alfredo was not making payment to fulfill the obligation of the
Spouses Sy. Alfredo made a conditional payment so that the properties
subject of the Deed of Sale with Assumption of Mortgage would be titled in
his name. It is clear from the records that Land Bank required Alfredo to
make payment before his assumption of mortgage would be approved. He
was informed that the certificate of title would be transferred accordingly.
He, thus, made payment not as a debtor but as a prospective mortgagor.
But the trial court stated that the contract was not perfected or consummated
because of the adverse finding in the credit investigation which led to the
disapproval of the proposed assumption. Alfredo, as a third person, did not,
therefore, have an interest in the fulfillment of the obligation of the Spouses
Sy, since his interest hinged on Land Bank‘s approval of his application,
which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment
for his own interest and not on behalf of the Spouses Sy, recourse is not
against the latter. And as Alfredo was not paying for another, he cannot
demand from the debtors, the Spouses Sy, what he has paid.
ISSUE 2: WON there was a novation. NO
We do not agree with the CA in holding that there was a novation in the
contract between the parties. Not all the elements of novation were present.
Novation must be expressly consented to. Moreover, the conflicting intention
and acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the
parties to novate the old agreement.15 Land Bank is thus correct when it
argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment
was made with the knowledge or consent of Spouses Sy, he may still pay the
obligation for the reason that even before he paid the amount of
P750,000.00 on January 31, 1997, the substitution of debtors was already
perfected by and between Spouses Sy and Spouses Ong as evidenced by a
Deed of Sale with Assumption of Mortgage executed by them on December 9,
1996. And since the substitution of debtors was made without the consent of
Land Bank – a requirement which is indispensable in order to effect a
novation of the obligation, it is therefore not bound to recognize the
substitution of debtors. Land Bank did not intervene in the contract between
Spouses Sy and Spouses Ong and did not expressly give its consent to this
substitution.
_____________________________________________________
JM TUASON V JAVIER
DOCTRINE: When a party religiously satisfied the monthly installments
and already paid beyong the stipulated amount, he may be able to recover
everything due thereto in the interest of justice and equity in accord with Art.
1234.
FACTS:
On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract
to sell with respondent Ligaya Javier a parcel of land known as Lot No. 28,
Block No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision for the sum
of Php3,691.20 with 10% interest per annum; Php396.12 will be payable
upon execution of the contract, and an installment of Php43.92 monthly for a
period of ten (10) years. It was further stipulated in the contract, particularly
the sixth paragraph, that upon failure of respondent to pay the monthly
installment, she is given a one month grace period to pay such installment
together with the monthly installment falling on the said grace period.
Furthermore, failure to pay both monthly installments, respondent will pay
an additional 10% interest. And after 90 days from the end of the grace
period, petitioner can rescind the contract, the payments made by
respondent will be considered as rentals. Upon the execution of the contract,
respondent religiously paid the monthly installment until January 5, 1962.
Respondent, however, was unable to the pay the monthly installments within
the grace period which petitioner, subsequently, sent a letter to respondent
on May 22, 1964 that the contract has been rescinded and asked the
respondent to vacate the said land. So, upon failure of respondent to vacate
the said land, petitioner filed an action to the Court of First Instance of Rizal
for the rescission of the contract. The CFI rendered a decision in favor of
respondent in applying Article 1592 of the New Civil Code. Hence, petitioner
made an appeal to the Supreme Court alleging that since Article 1592 of the
New Civil applies only to contracts of sale and not in contracts to sell.
ISSUE: Did the CFI erroneously apply Article 1592 of the New Civil Code?
Yes. Regardless, however, of the propriety of applying Article 1592,
petitioner has not been denied substantial justice under Article 1234 of the
New Civil Code. In this connection, respondent religiously satisfied the
monthly installments for almost eight (8) years or up to January 5, 1962. It
has been shown that respondent had already paid Php4,134.08 as of January
5, 1962 which is beyond the stipulated amount of Php3,691.20. Also,
respondent has offered to pay all installments overdue including the
stipulated interest, attorney‘s fees and the costs which the CFI accordingly
sentenced respondent to pay such installment, interest, fees and costs. Thus,
petitioner will be able recover everything that was due thereto. Under these
Page 68 of 121
circumstances, the SC feel that, in the interest of justice and equity, the
decision appealed from may be upheld upon the authority of Article 1234 of
the New Civil Code.

NOTE: I couldn‘t find a copy online of this case. I got this from other online
digests.

Page 69 of 121
 LEGARDA V SALDANA
Nature: Complaint for delivery of land
Ponente: Teehankee
Date: January 28, 1974
DOCTRINE: A defaulting party may be granted lesser benefits,
since no rescission of contractmay be permitted, for, according to Art. 1234
of said Code: 'If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
FACTS:
The action originated as a complaint for delivery of two parcels of land in
Sampaloc, Manila and for execution of the corresponding deed of conveyance
after payment of the balance still due on their purchase price. Private
respondent entered into two written contracts with petitioner subdivision
owner, whereby the latter agreed to sell to him 2 lots for the sum of
P1,500.00 per lot, payable over the span of ten years divided into 120 equal
monthly installments of P19.83. Subsequently, Legarda Hermanos
partitioned the subdivision among the brothers and sisters, and the two lots
were among those allotted to co-petitioner Jose Legarda. Respondent
faithfully paid for eight continuous years about 95 (of the stipulated 120)
monthly installments totalling P3,582.06 up to the month of February, 1956.
After that, respondent did not make further payments, leaving a balance of
P1,317.72. Almost five years later, respondent wrote petitioners stating that
his desire to build a house on the lots was prevented by their failure to
introduce improvements on the subdivision as "there is still no road to these
lots," and requesting information of the amount owing to update his account
as "I intend to continue paying the balance due on said lots."
Petitioners replied that cancellation was in order
ISSUE: WON defendants be compelled to allow plaintiff to complete
payment of the purchase price of the two lots in dispute and to execute the
final deeds of conveyance. NO. However, 1 lot should be given.
The Court finds that the appellate court's judgment finding that of the total
sum of P3,582.06 already paid by respondent (which was more than the
value of two lots), the sum applied by petitioners to the principal alone in the
amount of P1,682.28 was already more than the value of one lot
of P1,500.00 and hence one of the two lots as chosen by respondent would be
considered as fully paid, is fair and just and in accordance with law and
equity. The monthly payments for eight years made by respondent were
applied to his account without specifying or distinguishing between the two
lots subject of the two agreements under petitioners' own statement of
account. Even considering respondent as having defaulted after February
1956, he had as of the already paid by way
of principal (P1,682.28) more than the full value of one lot (P1,500.00).
The Court's doctrine in J.M. Tuason & Co. Inc. vs. Javier is applicable, with
the respondent at bar being granted lesser benefits, since no rescission of
contract was therein permitted. There, the Court held that "Regardless,
however, of the propriety of applying said Art. 1592 thereto, We find that
plaintiff herein has not been denied substantial justice, for, according to Art.
1234 of said Code: 'If the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee,'" and
"that in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Article 1234 of the Civil Code."
____________________________________________________________________________
AZCONA V JAMANDRE
Nature: Action for damages
Ponente: Cruz
Date: June 30, 1987
DOCTRINE: The applicable provision is Article 1235 of the Civil Code,
declaring that: Art. 1235. When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied with.
FACTS:
Through a contract, Guillermo Azcona leased 80 hectares of his 150-
hectarepro indiviso share in Hacienda Sta. Fe in Escalante, Negros
Occidental, to Cirilo Jamandre. The agreed yearly rental was P7,200.00. The
lease was for three agricultural years beginning 1960, extendible at the
lessee's option to two more agricultural years. The first annual rental was due
but because the petitioner did not deliver possession, he "waived" payment.
The respondent actually entered the premises. Petitioner notified the
respondent that the contract of lease was deemed cancelled, terminated
pursuant to its paragraph 8, for violation of the conditions specified in the
said agreement. Earlier, in fact, the respondent had been ousted from the
possession of 60 hectares of the leased premises.
ISSUE 1: WON the lack of the parcelary plan nullified the contract. NO
According to the petitioners, the parcelary plan was never agreed upon or
annexed to the contract, which thereby became null and void under Article
1318 of the Civil Code for lack of a subject matter. The correct view, as we see
it, is that there was an agreed subject-matter, to wit, the 80 hectares of the
petitioner's share in the Sta. Fe hacienda, although it was not expressly
Page 70 of 121
defined because the parcelary plan was not annexed and never approved by
the parties. Despite this lack, however, there was an ascertainable object
because the leased premises were sufficiently Identified and delineated as the
petitioner admitted in his amended answer and in his direct testimony.
Moreover, it appears that the failure to attach the parcelary plan to the
contract is imputable to the petitioner himself because it was he who was
supposed to cause the preparation of the said plan. The Identification of the
80 hectares being leased rendered the parcelary plan unnecessary, and its
absence did not nullify the agreement.
ISSUE 2: WON respondent has fully paid the rentals in the amount of 7,200
(not 7,000). YES
When the parties agreed on the lease for the succeeding agricultural year
1961-62, the respondent paying and the petitioner receiving therefrom the
sum of P7,000.00…Citing the stipulation in the lease contract for an annual
rental of P7,200.00, the petitioner now submits that there was default in the
payment thereof by the respondent because he was P200.00 short of such
rental. That deficiency never having been repaired, the petitioner concludes,
the contract should be deemed cancelled in accordance with its paragraph 8.
Court holds that the amount of P7,000.00 paid to by the respondent and
received by the petitioner represented payment in full of the rental for the
agricultural year 1961-62. The language is clear enough: "The amount of
P7,000.00, Philippine Currency, as payment for the rental corresponding to
crop year 1961-62 ... to the rental due on or before January 30, 1961, as per
contract." The conclusion should be equally clear. The words "as per
contract" are especially significant as they suggest that the parties were aware
of the provisions of the agreement, which was described in detail elsewhere
in the receipt. The rental stipulated therein was P7,200.00. The payment
being acknowledged in the receipt was P7,000.00 only. Yet no mention was
made in the receipt of the discrepancy and, on the contrary, the payment was
acknowledged "as per contract." We read this as meaning that the provisions
of the contract were being maintained and respected except only for the
reduction of the agreed rental.
The respondent court held that the amount of P200.00 had been condoned,
but we do not think so. The petitioner is correct in arguing that the requisites
of condonation under Article 1270 of the Civil Code are not present. What we
see here instead is a mere reduction of the stipulated rental in consideration
of the withdrawal from the leased premises of the 16 hectares where the
petitioner intended to graze his cattle.
It seems to us that this meaning was adequately conveyed in the
acknowledgment made by the petitioner that this was "payment for the rental
corresponding to crop year 1961-62" and "corresponds to the rentals due on
or before January 30, 1961, as per contract.
The applicable provision is Article 1235 of the Civil Code, declaring that: Art.
1235. When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the
obligation is deemed fully complied with.
_____________________________________________________
ARAÑAS VS. TUTAAN
FACTS:
On May 3, 1971 the lower court declared thatPetitioner Luisa Quijencio (and
by her spouse Jose Arañas)was the owner of 400 shares including the stock
dividendsthat accrued to said shares, of respondent Universal Textile Mills,
Inc. (UTEX) as defendant and Gene Manueland B. R. Castañeda as co-
defendants, and subsequently ordered UTEX to cancel said certificates and
issue new ones in the name of Plaintiff and to deliver all
dividendsappertaining to the same, whether in cash or in stocks.UTEX filed a
motion for clarification whether thephrase ―to deliver to her all dividends
appertaining to thesame, whether in cash or in stocks‖ meant dividends
properly pertaining to plaintiffs after the court‘sdeclaration of plaintiff
ownership of said 400 shares of stock. Defendant UTEX has always
maintained it would rightfully abide by whatever decision may be rendered
since such would be the logical consequence after the ruling in respect to the
rightful ownership of said shares of stock. The motion was granted which
ruled against UTEX, ordering it to pay plaintiff the cash dividends, which
accrued to the stocks in question after rendition of its current decision
excluding cash dividends already paid to Gene Manuel and B. R. Castañeda
which accrued before its decision. UTEX alleged that the cash dividends had
already been paid thereby absolving it from payment thereof.
ISSUE: Was the contention of UTEX, alleging that the cash dividends of
stock had already been paid and thereby absolving it from any further
payment, valid?
RULING: No. The final and executory judgment against UTEX declared
petitioners as the owners of the questioned UTEX shares of stock against its
co-defendants. It was further made clear in the motion for clarification that
all dividends accruing to the said shares after the rendition of the decision of
Aug. 7, 1971 rightfully belonged to petitioners. If UTEX nevertheless chose to
pay the wrong parties, notwithstanding its full knowledge and understanding
of the final judgment, it was still liable to pay the petitioners as the lawful
declared owners of the questions shares of stocks. The burden of recovering
the supposed payment of the cash dividends made by UTEX to the wrong
parties Castañeda and Manuel falls upon itself by its own action and cannot
be passed by it to the petitioner as the innocent parties. It is elementary that
Page 71 of 121
payment made by a judgment debtor to a wrong party cannot extinguish the
judgment obligation of such debtor to its creditor.
KALALO vs. LUZ
NATURE: Collection of Sum of Money and Damages
Zaldivar, J.
July 31, 1970
DOCTRINE: If an obligation was incurred prior to the enactment of the
Act and require payment in a particular kind of coin or currency other than
the Philippine currency the same shall be discharged in Philippine currency
measured at the prevailing
Rate of exchange at the time the obligation was incurred.
FACTS:
PROVISION/S: RA 529
- On November 17, 1959, appellee Kalalo, a licensed civil engineer doing
business under the firm name of O. A. Kalalo and Associates, entered into an
agreement with appellant Luz, a licensed architect, doing business under the
firm name of AJ. Luz and Associates, whereby the former was to render
engineering design services to the latter for fees, as stipulated in the
agreement. The services included design computation and sketches, contract
drawing and technical specifications of all engineering phases of the project
designed by O.A. Kalalo and Associates, bill of quantities and cost estimate,
and consultation and advice during construction relative to the work.
Pursuant to said agreement, appellee rendered engineering services to
appellant in the following projects:(a)Fil-American Life Insurance Building at
Legaspi City;(b)Fil-American Life Insurance Building at Iloilo City;(c)General
Milling Corporation Flour Mill at Opon, Cebu;(d)Menzi Building at Ayala
Blvd., Makati, Rizal;(e)International Rice Research Institute, Research
Center, Los Baños, Laguna;(f)Aurelia's Building at Mabina, Ermita,
Manila;(g)Far East Bank's Office at Fil-American Life Insurance Building at
Isaac Peral,Ernita, Manila;(h)Arthur Young's residence at Forbes Park,
Makati, Rizal;(i) L & S Building at Dewey Blvd., Manila; and (j)Stanvac
Refinery Service Building at Limay, Bataan.
- On December 11, 1961, appellee sent to appellant a statement of account to
which was attached an itemized statement of defendant-appellant's account,
according to which the total engineering fee asked by appellee for services
rendered amounted to P116,565.00 from which sum was to be deducted the
previous payments made in the amount of P57,000.00, thus leaving a
balance due in the amount of P59,565.00. On May 18, 1962 appellant sent
appellee a resume of fees due to the latter. Said fees, according to appellant,
amounted to P10,861.08 instead of the amount claimed by the appellee. On
June 14, 1962 appellant sent appellee a check for said amount, which
appellee refused to accept as full paymentof the balance of the fees due him.
- On August 10, 1962, appellee filed a complaint against appellant, containing
four causes of action. In the first cause of action, appellee alleged that for
services rendered in connection with the different projects therein mentioned
there was due him fees in sums consisting of $28,000 (U.S.) and
P100,204.46, excluding interests, of which sums only P69,323.21 had been
paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In
the second cause of action, appellee claimedP17,000.00 as consequential and
moral damages; in the third cause of action he claimed P55,000.00 as moral
damages, attorney's fees and expenses of litigation; and in the fourth cause of
action he claimed P25,000.00 as actual damages, and also for attorney's fees
and expenses of litigation.
- In his answer, appellant admitted that appellee rendered engineering
services, as alleged in the first cause of action, but averred that some of
appellee's services were not in accordance with the agreement and appellee's
claims were not justified by the services actually rendered, and that the
aggregate amount actually due to appellee was only P80,336.29, of which
P69,475.21 had already been paid, thus leaving a balance of only P10,861.08.
Appellant denied liability for any damage claimed by appellee to have
suffered, as alleged in the second, third and fourth causes of action. Appellant
set up affirmative and special defenses, alleging that appellee had no cause of
action, that appellee was in estoppel because of certain acts, representations,
admissions and/or silence, which led appellant to believe certain facts to exist
and to act upon said facts, that appellee's claim regarding the Menzi project
was premature because appellant had not yet been paid for said project, and
that appellee's services were not complete or were performed in violation of
the agreement and/or otherwise unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for such amount as the court may
deem fair to assess, and for attorney's fees of P10,000.00.- Inasmuch as the
pleadings showed that the appellee's right to certain fees for services
rendered was not denied, the only question being the assessment of the
proper fees and the balance due to appellee after deducting the admitted
payments made by appellant, the trial court, upon agreement of the parties,
authorized the case to be heard before a Commissioner. The Commissioner
rendered a report which, in resume, states that the amount due to appellee
was $28,000.00 (U.S.) as his fee in the International Research Institute
Project which was 20% of the$140,000.00 that was paid to appellant, and
P51,539.91 for the other projects, less the sum of P69,475.46 which was
already paid by the appellant. The trial court ruled in favor of Kalalo by
ordering Luz to pay him the sum of P51,539.91 and$28,000.00, the latter to
be converted into the Philippine currency on the basis of the current rate of
exchange at the time of the payment of this judgment, as certified to by the
Central Bank of the Philippines.
ISSUE: WON payment of the amount due to the appellee in dollars is legally
permissible, and if not, at what rate of exchange it should be paid in pesos
RULING:
Page 72 of 121
NO. Payment in dollars is prohibited by Republic Act (RA) No. 529
which provides that if the obligation was incurred prior to the
enactment of the Act and require payment in a particular kind of
coin or currency other than the Philippine currency the same shall
be discharged in Philippine currency measured at the prevailing
Rate of exchange at the time the obligation was incurred. RA No.
529 was enacted on June 16, 1950. In the case now before Us the obligation
of appellant to pay appellee the 20% of $140,000.00, or the sum of
$28,000.00, accrued on August 25, 1961, or after the enactment of RA No.
529. It follows that the provision of RA No. 529 which requires payment at
the prevailing rate of exchange when the obligation was incurred cannot be
applied. RA No. 529 does not provide for the rate of exchange for the
payment of obligation incurred after the enactment of said Act. The logical
conclusion, therefore, is that the rate of exchange should be that prevailing at
the time of payment. This view finds support in the ruling of this Court in the
case of Engel vs. Velasco & Co. where this Court held that even if the
obligation assumed by the defendant was to pay the plaintiff a sum of money
expressed in American currency, the indemnity to be allowed should be
expressed in Philippine currency at the rate of exchange at the time of
judgment rather than at the rate of exchange prevailing on the date of
defendant's breach. Therefore, appellant should pay the appellee the
equivalent in pesos of the $28,000.00 at the free market rate of exchange at
the time of payment. The trial court did not err when it held that herein
appellant should pay appellee$28,000.00 to be converted into the Philippine
currency on the basis of the current rate of exchange at the time of payment
of this judgment, as certified to by the Central Bank of the Philippines.
_____________________________________________________
PONCE vs. CA
NATURE: Recovery of sum of money
Melencio Herrera, J.
May 31, 1979
DOCTRINE: While an agreement to pay in dollars is declared as null and
void and of no effect, what the law specifically prohibits is payment in
currency other than legal tender.
FACTS:
PROVISION/S: RA 529 (cited below)
June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L.
Mendoza and Ma. Aurora C. Diño executed a promissory note in favor of
petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency,
payable, without interest, on or before July 31, 1969. It was further provided
therein that should the indebtedness be not paid at maturity, it shall draw
interest at 12% per annum, without demand; that should it be necessary to
bring suit to enforce pay ment of the note, the debtors shall pay a sum
equivalent to 10% of the total amount due for attorney's fees; and, in the
event of failure to pay the indebtedness plus interest in accordance with its
terms, the debtors shall execute a first mortgage in favor of the creditor over
their properties or of the Carmen Planas Memorial, Inc
For failure to comply w/Ø, a Complaint was filed by PONCE at CFI-Manila
for the recovery of the principal sum of P814,868.42, plus interest and
damages
Trial Court rendered judgment ordering respondent Afable and her co-
debtors, Felisa L. Mendoza and Ma. Aurora C. Diño , to pay petitioners,
jointly and severally, the sum of P814,868.42, plus 12% interest per annum
from July 31, 1969 until full payment, and a sum equivalent to 10% of the
total amount due as attorney's fees and costs
From said Decision, by respondent Afable appealed to the Court of Appeals.
She argued that the contract under consideration involved the payment of US
dollars and was, therefore, illegal; and that under the in pari delicto rule,
since both parties are guilty of violating the law, neither one can recover. It is
to be noted that said defense was not raised in her Ans
CA affirmed TC. MR denied. CA‘s holding: the agreement is null and void
and of no effect under Republic Act No. 529. Under the doctrine of pari
delicto, no recovery can be made in favor of the plaintiffs for being
themselves guilty of violating the law
ISSUE: WON the subject matter of the transaction is illegal and against
public policy, thus, doctrine of pari delicto applies.
RULING: NO. It is to be noted that while an agreement to pay in
dollars is declared as null and void and of no effect, what the law
specifically prohibits is payment in currency other than legal
tender. It does not defeat a creditor's claim for payment, as it specifically
provides that "every other domestic obligation ... whether or not any such
provision as to payment is contained therein or made with respect thereto,
shall be discharged upon payment in any coin or currency which at the time
of payment is legal tender for public and private debts." A contrary rule
would allow a Section 1 of Republic Act No. 529, which was enacted
on June 16, 1950:
Section 1. Every provision contained in, or made with respect to, any
domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require
payment in gold or in a particular kind of coin or currency other
Page 73 of 121
than Philippine currency or in an amount of money of the
Philippines measured thereby, be as it is hereby declared against
public policy, and null and void and of no effect and no such
provision shall be contained in, or made with respect to, any
obligation hereafter incurred. The above prohibition shall not apply to
(a) transactions were the funds involved are the proceeds of loans or
investments made directly or indirectly, through bona fide intermediaries or
agents, by foreign governments, their agencies and instrumentalities, and
international financial and banking institutions so long as the funds are
Identifiable, as having emanated from the sources enumerated above; (b)
transactions affecting high priority economic projects for agricultural
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds; (c)
forward exchange transactions entered into between banks or between banks
and individuals or juridical persons; (d) import-export and other
international banking financial investment and industrial transactions. With
the exception of the cases enumerated in items (a) (b), (c) and (d) in the
foregoing provision, in, which cases the terms of the parties' agreement shall
apply, every other domestic obligation heretofore or hereafter
incurred whether or not any such provision as to payment is
contained therein or made with- respect thereto, shall be
discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts:
Provided, That if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind of
coin or currency other than Philippine currency, it shall be
discharge in Philippine currency measured at the prevailing rates
of exchange at the time the obligation was incurred, except in case
of a loan made in foreign currency stipulated to be payable in the
currency in which case the rate of exchange prevailing at the time
of the stipulated date of payment shall prevail All coin and
currency, including Central Bank notes, heretofore and hereafter
issued and d by the Government of the Philippines shall be legal
tender for all debts, public and private. (As amended by RA 4100,
Section 1, approved June 19, 1964)
As the Court of Appeals itself found, the promissory note in question
provided on its face for payment of the obligation in Philippine currency, i.e.,
P814,868.42. So that, while the agreement between the parties originally
involved a dollar transaction and that petitioners expected to be paid in the
amount of US$194,016.29, petitioners are not now insisting on their
agreement with respondent Afable for the payment of the obligation in
dollars. On the contrary, they are suing on the basis of the promissory note
whereby the parties have already agreed to convert the dollar loan into
Philippine currency at the rate of P4.20 to $1.00. It may likewise be pointed
out that the Promissory Note contains no provision "giving the obligee the
right to require payment in a particular kind of currency other than
Philippine currency, " which is what is specifically prohibited by RA No. 529.
At any rate, even if we were to disregard the promissory note providing for
the payment of the obligation in Philippine currency and consider that the
intention of the parties was really to provide for payment of the obligation
would be made in dollars, petitioners can still recover the amount of
US$194,016.29, which respondent Afable and her co-debtors do not deny
having received, in its peso equivalent. As held in Eastboard Navigation,
Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta vs. National
Rice & Corn Corp., if there is any agreement to pay an obligation in a
currency other than Philippine legal tender, the same is nun and void as
contrary to public policy, pursuant to Republic Act No. 529, and the most
that could be demanded is to pay said obligation in Philippine currency. In
other words, what is prohibited by RA No. 529 is the payment of an
obligation in dollars, meaning that a creditor cannot oblige the debtor to pay
him in dollars, even if the loan were given in said currency. In such a case, the
indemnity to be allowed should be expressed in Philippine currency on the
basis of the current rate of exchange at the time of payment.
_____________________________________________________
NEW PACIFIC TIMBER vs. SENERIS
NATURE: Collection of Money
Concepcion, J.
December 19, 1980
DOCTRINE: It is well known & accepted practice in the business sector that a
Cashier's check is deemed as cash
FACTS:
PROVISION/S: Sec. 63 CB Act
Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a
complaint for collection of money filed by private respondent, Ricardo A.
Tong. In this complaint, respondent Judge rendered a compromise judgment
based on the amicable settlement entered by the parties wherein petitioner
will pay to private respondent P54,500.00 at 6% interest per annum and
P6,000.00 as attorney‘s fee of which P5,000.00 has been paid. Upon failure
of the petitioner to pay the judgment obligation, a writ of execution worth
P63,130.00 was issued levied on the personal properties of the petitioner.
Before the date of the auction sale, petitioner deposited with the Clerk of
Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashier‘s Check
of the Equitable Banking Corporation and P13,130.00 in cash for a total of
P63,130.00. Private respondent refused to accept the check and the cash and
requested for the auction sale to proceed. The properties were sold for
P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner
subsequently filed an ex-parte motion for issuance of certificate of
satisfaction of judgment which was denied by the respondent Judge. Hence
Page 74 of 121
this present petition, alleging that the respondent Judge capriciously and no valid reason to refuse the acceptance of the check and cash as full payment
whimsically abused his discretion in not granting the requested motion for of the obligation
the reason that the judgment obligation was fully satisfied before the auction
sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In
upholding the refusal of the private respondent
to accept the check, the respondent Judge cited Article 1249 of the New Civil
Code which provides that payments of debts shall be made in the currency ROMAN CATHOLIC BISHOP OF MALOLOS, INC. vs. IAC
which is the legal tender of the Philippines and Section 63 of the Central
Bank Act which provides that checks representing deposit money do not have NATURE: Specific performance with damages
legal tender power. In sustaining the contention of the private respondent to SARMIENTO, J.
refuse the acceptance of the cash, the respondent Judge cited Article 1248 of Nov. 16, 1990
the New Civil Code which provides that creditor cannot be compelled to
accept partial payment unless there is an express stipulation to the contrary. DOCTRINE: Tender of payment involves a positive and unconditional act
by the obligor of offering legal tender currency as payment to the obligee for
ISSUE: Can the check be considered a valid payment of the judgment the former‘s obligation and demanding that the latter accept the same.
obligation?
FACTS:
RULING: YES. It is to be emphasized that the check deposited by the PROVISION/S: NCC 1249
petitioner in the amount of P50,000 is not an ordinary check but a Cashier's The property subject matter of the contract consists of a parcel of land in the
check of the Equitable Banking Corp., a bank of good standing & reputation. Province of Bulacan, issued and registered in the name of the petitioner
It was even a certified crossed check. It is well known & accepted practice in which it sold to the private respondent.
the business sector that a Cashier's check is deemed as cash On July 7, 1971, the subject contract over the land in question was executed
between the petitioner as vendor and the private respondent through its then
Moreover, since the said check has been certified by the drawee bank, by the president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of
certification, the funds represented by the check are transferred fr. the credit of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to
the maker to that of the payee or holder, & for all intents & purposes, the latter be paid within four (4) years from execution of the contract. The contract
becomes the depositor of the drawee bank, w/ rights & duties of one in such likewise provides for cancellation, forfeiture of previous payments, and
situation. Where a check is certified by the bank on w/c it is drawn, reconveyance of the land in question in case the private respondent would
the certification is equivalent to acceptance. Said certification fail to complete payment within the said period.
"implies that the check is drawn upon sufficient funds in the hands
of the drawee, that they have been set apart fort its satisfaction, & After the expiration of the stipulated period for payment, Atty. Adalia
that they shall be so applied whenever the check is presented for Francisco (president of the company who bought land) wrote the petitioner a
payment. It is an understanding that the check is good then, & shall continue formal request that her company be allowed to pay the principal amount of
to be good, & this agreement is as binding on the bank as its notes in P100,000.00 in three (3) equal installments of six (6) months each with the
circulation, a certificate of deposit payable to the order of the depositor, or any first installment and the accrued interest of P24,000.00 to be paid
other obligation it can assume. The object of certifying a check, as regards both immediately upon approval of the said request.
parties, is to enable the holder to use it as money." When the holder procures
the check to be certified, "the check operates as an assignment of a part of the The petitioner formally denied the said request of the private respondent, but
funds to the creditors." Hence, the exception to the rule enunciated under Sec. granted the latter a grace period of five (5) days from the receipt of the denial
63 of the CB Act shall apply in this case: to pay the total balance of P124,000.00. The private respondent wrote the
Sec. 63. Legal Character – Checks representing deposit do not have legal petitioner requesting an extension of 30 days from said date to fully settle its
tender power and their acceptance in payment of debts, both pub & priv, is at account but this was still denied.
the option of the Cr. Provided, however that a check w/c has been Consequently, Atty. Francisco wrote a letter directly addressed to the
cleared & credited to the account of the creditor shall be equivalent petitioner, protesting the alleged refusal of the latter to accept tender of
to a delivery to the creditor in cash in an amount equal to the payment made by the former on the last day of the grace period. But the
amount credited to his account. The Cashier‘s Check and the cash are private respondent demanded the execution of a deed of absolute sale over
valid payment of the obligation of the petitioner. The private respondent has the land in question
Page 75 of 121
Atty. Fernandez, wrote a reply to the private respondent stating the refusal of
his client to execute the deed of absolute sale so the petitioner cancelled the
contract and considered all previous payments forfeited and the land as ipso
facto reconveyed.
From a perusal of the foregoing facts, SC found that both the contending
parties have conflicting versions on the main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiff‘s obligation
on tender her payment, when her request to extend the grace period has not
yet been acted upon? Atty. Francisco‘s claim that she made a tender of
payment is not worthy of credence.
The trial court considered as fatal the failure of Atty. Francisco to present in
court the certified personal check allegedly tendered as payment or, at least,
its xerox copy, or even bank records thereof.
Not satisfied with the said decision, the private respondent appealed to the
IAC. The IAC reversed the decision of the trial court. The IAC, in finding
that the private respondent had sufficient available funds, ipso facto
concluded that the latter had tendered payment.
ISSUE1: WON a finding that private respondent had sufficient available
funds on or before the grace period for the payment of its obligation proof
that it (private respondent) did a tender of payment for its said obligation
within the said period?
RULING1: No. Tender of payment involves a positive and
unconditional act by the obligor of offering legal tender currency
as payment to the obligee for the former’s obligation and
demanding that the latter accept the same. Thus, tender of payment
cannot be presumed by a mere inference from surrounding circumstances. At
most, sufficiency of available funds is only affirmative of the capacity or
ability of the obligor to fulfill his part of the bargain. But whether or not the
obligor avails himself of such funds to settle his outstanding account remains
to be proven by independent and credible evidence. Tender of payment
presupposes not only that the obligor is able, ready, and willing, but more so,
in the act of performing his obligation. Ab posse ad actu non vale illatio. ―A
proof that an act could have been done is no proof that it was actually done.‖
The respondent court was therefore in error to have concluded from the
sheer proof of sufficient available funds on the part of the private respondent
to meet more than the total obligation within the grace period, the alleged
truth of tender of payment. The same is a classic case of non-sequitur.
ISSUE2: Whether or not an offer of a check is a valid tender of payment of
an obligation under a contract which stipulates that the consideration of the
sale is in Philippine Currency.
RULING2: No. In the case of Philippine Airlines v. Court of Appeals: Since
a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid
tender of payment and may be refused receipt by the obligee or
creditor. Hence, where the tender of payment by the private respondent
was not valid for failure to comply with the requisite payment in legal tender
or currency stipulated within the grace period and as such, was validly
refused receipt by the petitioner, the subsequent consignation did not
operate to discharge the former from its obligation to the latter. In view of
the foregoing, the petitioner in the legitimate exercise of its rights pursuant to
the subject contract, did validly order therefore the cancellation of the said
contract, the forfeiture of the previous payment, and the reconveyance ipso
facto of the land in question.
_____________________________________________________
TIBAJIA, JR. vs. CA
NATURE: Motion to lift writ of execution
Padilla, J.
June 4, 1993
DOCTRINE: Payment by means of check (even by cashier's check) is not
considered payment in legal tender as required by the Civil Code, Republic
Act No. 529, and the Central Bank Act.
FACTS:
PROVISION/S: RA 265 Sec. 63, RA 529 Sec. 1, Art. 1249, NCC
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan
against the Tibajia spouses. A writ of attachment was issued by the trial court
on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a
return stating that a deposit made by the Tibajia spouses in RTC Kalookan
City in the amount of P442,750.00 in another case, had been garnished by
him. On 10 March 1988, the RTC of Pasig, rendered its decision in Civil Case
No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to
pay her an amount in excess of P300,000.00. On appeal, the CA modified the
decision by reducing the award of moral and exemplary damages. The
decision having become final, Eden Tan filed the corresponding motion for
execution and thereafter, the garnished funds which by then were on deposit
with the cashier of the RTC Pasig, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff
Eduardo Bolima the total money judgment in the following form:
Page 76 of 121
 Cashier's Check P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the
Tibajia spouses and instead insisted that the garnished funds deposited with
the cashier of Pasig RTC be withdrawn to satisfy the judgment obligation. On
15 January 1991, defendant spouses (petitioners) filed a motion to lift the writ
of execution on the ground that the judgment debt had already been paid. On
29 January 1991, the motion was denied by the trial court on the ground that
payment in cashier's check is not payment in legal tender and that payment
was made by a third party other than the defendant. A motion for
reconsideration was denied on 8 February 1991. Thereafter, the spouses
Tibajia filed a petition for certiorari, prohibition and injunction in the Court
of Appeals. The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal tender as
required by Republic Act No. 529. The motion for reconsideration was denied
on 27 May 1991.
ISSUE: Whether or not payment by means of check (even by cashier's
check) is considered payment in legal tender as required by the Civil Code,
Republic Act No. 529, and the Central Bank Act.
HELD: The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in
the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to,
any obligation which purports to give the obligee the right to
require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not
any such provision as to payment is contained therein or
made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of
payment is legal tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which
provides:
Sec. 63. Legal character — Checks representing deposit
money do not have legal tender power and their acceptance
in the payment of debts, both public and private, is at the
option of the creditor: Provided, however, that a check which
has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an
amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals and
Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court,
this Court held that —
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is
not a valid tender of payment and may be refused receipt by
the obligee or creditor.
The ruling in these 2 cases merely applies the statutory provisions which lay
down the rule that a check is not legal tender and that a creditor may validly
refuse payment by check, whether it be a manager's, cashier's or personal
check.
_____________________________________________________
VELASCO vs. MERALCO
Page 77 of 121
(Note: Case cited in the syllabus is a resolution of an MR. Hence, no facts are
indicated. However, the doctrine is clear in this case.)
NATURE: MR from the decision of the Court
Reyes, JBL
December 20, 1971
DOCTRINE: It can be seen from the employment of the words
"extraordinary inflation or deflation of the currency stipulated" that the legal
rule envisages contractual obligations where a specific currency is selected by
the parties as the medium of payment; hence it is inapplicable to obligations
arising from tort and not from contract
FACTS:
PROVISION/S: Art. 1250 NCC
Both appellant Velasco and appellee Manila Electric have filed their
respective motions to reconsider the decision of the Court dated 6 August
1971.
The only motion relevant to this case is that of the appellant. The thrust of
this motion is that the decision has incorrectly assessed appellant's damages
and unreasonably reduced their amount. It is first argued that the decision
erred in not taking into account, in computing appellant's loss of income, the
appellant's undeclared income of P8,338.20, assessed by the Bureau of
Internal Revenue for the year 1954, in addition to his declared income for
that year (P10,975), it being argued that appellant never claim any other
source of income besides his professional earnings. Court ruled however that
several circumstances of record disprove this claim. Appellant further urges
that the damages awarded him are inadequate considering the
present high cost of living, and calls attention to Article 1250 of the
present Civil Code, and to the doctrines laid down in People vs. Pantoja.
ISSUE: WON legal rule contemplated in Sec. 1249 of the NCC is applicable
to obligations arising from tort.
RULING: NO. It can be seen from the employment of the words
"extraordinary inflation or deflation of the currency stipulated"
that the legal rule envisages contractual obligations where a
specific currency is selected by the parties as the medium of
payment; hence it is inapplicable to obligations arising from tort
and not from contract, as in the case at bar, besides there being no
showing that the factual assumption of the article has come into existence. As
to the Pantoja ruling, the regard paid to the decreasing purchase of the peso
was considered a factor in estimating the indemnity due for loss of life, which
in itself is not susceptible of accurate estimation. It should not be forgotten
that the damages awarded to herein appellant were by no means full
compensatory damages, since the decision makes clear that appellant, by his
failure to minimize his damages by means easily within his reach, was
declared entitled only to a reduced award for the nuisance sued upon and the
amount granted him had already taken into account the changed economic
circumstances.
COMMISSIONER VS. BURGOS
NATURE: Complaint for recovery of ownership and possession of land
De Castro, J.
March 31, 1980
DOCTRINE: Art. 1250 applies only to cases where a contract or agreement is
involved. It does not apply where the obligation to pay arises from law,
independent of contracts.
FACTS:
PROVISION/S: 1250, NCC
On 1924, the government took private respondent Victor Amigable's land for
road-right-of-way purpose.
On 1959, Amigable filed in the Court of First Instance a complaint to recover
the ownership and possession of the land and for damages for the alleged
illegal occupation of the land by the government (entitled Victor Amigable vs.
Nicolas Cuenco, in his capacity as Commissioner of Public Highways and
Republic of the Philippines).
Amigable's complaint was dismissed on the grounds that the land was either
donated or sold by its owners to enhance its value, and that in any case, the
right of the owner to recover the value of said property was already barred by
estoppel and the statute of limitations. Also, the non-suability of the
government was invoked.
In the hearing, the government proved that the price of the property at the
time of taking was P2.37 per square meter. Amigable, on the other hand,
presented a newspaper showing that the price was P6.775.
The public respondent Judge ruled in favor of Amigable and directed the
Republic of the Philippines to pay Amigable the value of the property taken
with interest at 6% and the attorney's fees.
Page 78 of 121
ISSUE: WON Article 1250 is applicable in determining just compensation
payable to Amigable from the taking in 1924.
HELD: No. Art. 1250 applies only to cases where a contract or
agreement is involved. It does not apply where the obligation to pay
arises from law, independent of contracts. It is to be noted that
respondent judge did consider the value of the property at the time of the
taking, which as proven by the petitioner was P2.37 per square meter in 1924.
However, applying Article 1250 of the New Civil Code, and considering that
the value of the peso to the dollar during the hearing in 1972 was P6.775 to a
dollar, as proven by the evidence of the private respondent Victoria Amigable
the Court fixed the value of the property at the deflated value of the peso in
relation, to the dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of the respondent
judge, the Solicitor General has taken exception.
Article 1250 of the New Civil Code seems to be the only provision in our
statutes which provides for payment of an obligation in an amount different
from what has been agreed upon by the parties because of the supervention
of extra-ordinary inflation or deflation. It is clear that the provision applies
only to cases where a contract or agreement is involved. It does not apply
where the obligation to pay arises from law, independent of contract. The
taking of private property by the Government in the exercise of its power of
eminent domain does not give rise to a contractual obligation. Moreover, the
law as quoted, clearly provides that the value of the currency at the time of
the establishment of the obligation shall be the basis of payment which, in
cases of expropriation, would be the value of the peso at the time of the
taking of the property when the obligation of the Government to pay arises. It
is only when there is an "agreement to the contrary" that the extraordinary
inflation will make the value of the currency at the time of payment, not at
the time of the establishment of the obligation, the basis for payment. In
other words, an agreement is needed for the effects of an extraordinary
inflation to be taken into account to alter the value of the currency at the time
of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason
only in the supervention of extraordinary inflation or deflation.
Under the law, in the absence of any agreement to the contrary, even
assuming that there has been an extraordinary inflation within the meaning
of Article 1250 of the New Civil Code, a fact SC declines to declare
categorically, the value of the peso at the time of the establishment of the
obligation, which in the instant case is when the property was taken
possession of by the Government, must be considered for the purpose of
determining just compensation. Obviously, there can be no "agreement to the
contrary" to speak of because the obligation of the Government sought to be
enforced in the present action does not originate from contract, but from law
which, generally is not subject to the will of the parties. And there being no
other legal provision cited which would justify a departure from the rule that
just compensation is determined on the basis of the value of the property at
the time of the taking thereof in expropriation by the Government, the value
of the property as it is when the Government took possession of the land in
question, not the increased value resulting from the passage of time which
invariably brings unearned increment to landed properties, represents the
true value to be paid as just compensation for the property taken.
In the present case, the unusually long delay of private respondent in
bringing the present action-period of almost 25 years which a stricter
application of the law on estoppel and the statute of limitations and
prescription may have divested her of the rights she seeks on this action over
the property in question, is an added circumstance militating against
payment to her of an amount bigger-may three-fold more than the value of
the property as should have been paid at the time of the taking. For
conformably to the rule that one should take good care of his own concern,
private respondent should have commenced proper action soon after she had
been deprived of her right of ownership and possession over the land, a
deprivation she knew was permanent in character, for the land was intended
for, and had become, avenues in the City of Cebu. A penalty is always visited
upon one for his inaction, neglect or laches in the assertion of his rights
allegedly withheld from him, or otherwise transgressed upon by another.
_____________________________________________________
FILIPINO PIPE & FOUNDRY CORP. vs. NAWASA
NATURE: Complaint seeking for adjustment of unpaid balance
Grino Aquino, J
June 3, 1988
DOCTRINE: Extraordinary inflation exists "when there is a decrease or
increase in the purchasing power of the Philippine currency which is unusual
or beyond the common fluctuation in the value said currency, and such
decrease or increase could not have reasonably foreseen or was manifestly
beyond contemplation the parties at the time of the establishment of the
obligation.‖
FACTS:
PROVISION/S: NCC 1250
On June 12,1961, the NAWASA entered into a contract with the plaintiff
FPFC for the latter to supply it with 4" and 6" diameter centrifugally cast iron
pressure pipes worth P270,187.50 to be used in the construction of the
Anonoy Waterworks in Masbate and the Barrio San Andres-Villareal
Waterworks in Samar. Defendant NAWASA paid in instalments on various
Page 79 of 121
dates, a total of P134,680.00 leaving a balance of P135,507.50 excluding
interest. Having completed the delivery of the pipes, the plaintiff demanded
payment from the defendant of the unpaid balance of the price with interest
in accordance with the terms of their contract. When the NAWASA failed to
pay the balance of its account, the plaintiff filed a collection suit on March 16,
1967 which was docketed as Civil Case No. 66784 in the Court of First
Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil Case No.
66784 ordering the defendant to pay the unpaid balance of P135,507.50 in
NAWASA negotiable bonds, redeemable after ten years from their issuance
with interest at 6% per annum, P40,944.73 as interest up to March 15, 1966
and the interest accruing thereafter to the issuance of the bonds at 6% per
annum and the costs. Defendant, however, failed to satisfy the decision. It did
not deliver the bonds to the judgment creditor. On February 18, 1971, the
plaintiff FPFC filed another complaint which was docketed as Civil Case No.
82296, seeking an adjustment of the unpaid balance in accordance with the
value of the Philippine peso when the decision in Civil Case No. 66784 was
rendered on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the complaint on the
ground that it is barred by the 1967 decision in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion to dismiss
on the ground that the bar by prior judgment did not apply to the case
because the causes of action in the two cases are different: the first action
being for collection of the defendant's indebtedness for the pipes, while the
second case is for adjustment of the value of said judgment due to alleged
supervening extraordinary inflation of the Philippine peso which has reduced
the value of the bonds paid to the plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary..
The court suggested to the parties during the trial that they present expert
testimony to help it in deciding whether the economic conditions then, and
still prevailing, would justify the application of Article 1250 of the Civil Code.
The plaintiff presented voluminous records and statistics showing that a
spiralling inflation has marked the progress of the country from 1962 up to
the present. There is no denying that the price index of commodities, which is
the usual evidence of the value of the currency, has been rising.
The trial court pointed out, however, than this is a worldwide occurrence, but
hardly proof that the inflation is extraordinary in the sense contemplated by
Article 1250 of the Civil Code, which was adopted by the Code Commission to
provide "a just solution" to the "uncertainty and confusion as a result of
Malabanan contracts entered into or payments made during the last war."
Noting that the situation during the Japanese Occupation "cannot be
compared with the economic conditions today," the Malabanan trial court, on
September 5, 1973, rendered judgment dismissing the complaint.
ISSUE: WON on the basis of the continuously spiralling price index
indisputably shown by the plaintiff, there exists an extraordinary inflation of
the currency justifying an adjustment of defendant appellee's unpaid
judgment obligation the plaintiff-appellant.
HELD: NO. Extraordinary inflation exists "when there is a
decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in
the value said currency, and such decrease or increase could not
have reasonably foreseen or was manifestly beyond contemplation
the parties at the time of the establishment of the obligation. an
example of extraordinary inflation is the following description of what
happened to the Deutschmark in 1920:
More recently, in the 1920's Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark
was 4.2 to the U.S. dollar. By May of the same year, it had
stumbled to 62 to the U.S. dollar. And as prices went up
rapidly, so that by October 1923, it had reached 4.2 trillion to
the U.S. dollar! (Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third Edition]).
As reported, "prices were going up every week, then every day, then every
hour. Women were paid several times a day so that they could rush out and
exchange their money for something of value before what little purchasing
power was left dissolved in their hands. Some workers tried to beat the
constantly rising prices by throwing their money out of the windows to their
waiting wives, who would rush to upload the nearly worthless paper. A
postage stamp cost millions of marks and a loaf of bread, billions."
While appellant's voluminous records and statistics proved that there has
been a decline in the purchasing power of the Philippine peso, this downward
fall of the currency cannot be considered "extraordinary." It is simply a
universal trend that has not spared our country.
_____________________________________________________
Page 80 of 121
 DEL ROSARIO vs. SHELL
Nature: Complaint to compel payment of increased monthly rentals
Ponente: Paras
Date: August 19, 1988
DOCTRINE: In the interpretation of the contract of lease between the
parties, the term ―devaluation‖ was held to be synonymous to ―depreciation‖
because the Court interpreted it in the layman‘s point of view even though
they have different technical meanings.
FACTS:
Relevant Provision of Law: None used.
On September 20, 1960, the parties entered into a least agreement wherein
the herein plaintiff leased a parcel of land in Albay from defendant with a
monthly rate of 250php. Paragraph 14 of their contract provides that in the
event of an official ―devaluation‖ or appreciation of the Philippine Peso, the
rental shall be adjusted in accordance with the provisions of any law or
decree declaring such devaluation or appreciation as may specifically apply to
rentals.
On November 6, 1965, President Diosdado Macapagal promulgated E.O. No.
195 which changed the par value of the peso from $0.5 to $0.2564103.
Because of the enacted EO, plaintiff demanded that the rent be increased
from 250php to 487.50php a month. Defendant refused so plaintiff filed a
complaint with the CFI of Manila praying that defendant be ordered to pay
the increased rent. She also asked for damages.
However, the CFI dismissed the complaint. It stated that the EO has not
officially devalued the peso because the changing of the par value did not
change the gold value of the Philippine Peso which at the time was set at 7-
13/21 grains of gold 0.900 fine.
Plaintiff appeals stating that by virtue of the EO there has been an effective
―devaluation‖ or ―depreciation‖ of the peso which justifies the increase in
rent.
ISSUE: Should the rent be increased because of the enactment of the EO?
RULING: Yes. The Court defined the important terms found in the contract
which is mainly ―devaluation‖ and ―appreciation.‖ According to Sloan and
Zurcher‘s classic treatise, ―A Dictionary of Economics‖, devaluation is a
reduction in its metallic content as determined by law resulting in the
lowering of the value of one nation‘s currency in terms of the currencies of
other nations‘. In the book of Samuelson and Nordhaus, devaluation is when
a country‘s official exchange rate relative to gold or another currency is
lowered. Gerardo Sicat states that depreciation (opposite of appreciation)
occurs when a currency‘s value falls in relation to foreign currencies.
The Court also noted that devaluation is an official act of the government
which refers to a reduction in metallic content while depreciation can take
place with or without an official act and does not depend on metallic content.
Although the contract uses the term devaluation and admittedly the EO did
not decrease the gold equivalent of the peso, the Court ruled that there has
been a diminution or lessening in the purchasing power of the peso. When
the laymen who are unskilled in economics use the term devaluation or
depreciation, they mean them in their ordinary signification which is
decrease in value. Therefore, devaluation in the contract should be held
synonymous with depreciation because they refer both to a decrease in the
value of the currency. Therefore, the rentals should be adjusted accordingly.
************************************************************************
Special forms of payment
a. Dation in payment
Article 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law of
sales. (n)
b. Application of payments
Article 1248. Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the prestations in which the
obligation consists. Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (1169a)
Article 1252. He who has various debts of the same kind in favor of one and
the same creditor, may declare at the time of making the payment, to which
of them the same must be applied. Unless the parties so stipulate, or when
the application of payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to debts which are not
yet due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract. (1172a)
Page 81 of 121
Article 1253. If the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.
(1173)

Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application can not be inferred from other
circumstances, the debt which is most onerous to the debtor, among those
due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately. (1174a)

Page 82 of 121
 c. Payment by cession or assignment
Article 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws.
(1175a)
d. Tender of payment and consignation
Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at
the place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Article 1257. In order that the consignation of the thing due may release the
obligor, it must first be announced to the persons interested in the fulfillment
of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment. (1177)
Article 1258. Consignation shall be made by depositing the things due at
the disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be
notified thereof. (1178)
Article 1259. The expenses of consignation, when properly made, shall be
charged against the creditor. (1179)
Article 1260. Once the consignation has been duly made, the debtor may
ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force. (1180)
Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors, guarantors and sureties
shall be released. (1181a)
**********************************************************************
FILINVEST VS. PHIL. ACETYLENE
Nature: Collection of a sum of money with damages
Ponente: De Castro
Date: January 30, 1982
DOCTRINE: The mere return of the mortgaged motor vehicle by the
mortgagor, the herein appellant, to the mortgagee, the herein appellee, does
not constitute dation in payment or dacion en pago in the absence, express or
implied of the true intention of the parties.
FACTS:
Relevant Provision of Law: Articles 1484, 1232, 1245 and 1497 of the
Civil Code
Article 1484. Civil Code. - In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
Article 1232. Payment means not only the delivery of money but also the performance, in any
manner, of an obligation.
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of
a debt in money, shall be governed by the law of sales.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee.
On October 30, 1971, the Philippine Acetylene Co. (PAC) purchased from
Alexander Lim (Lim), as evidenced by a deed of sale, a 1969 Chevrolet for
55,257.80php. PAC paid a down payment of 20,000php and the balance was
payable, according to the promissory note PAC issued, at a monthly
installment for 34 months which was due and payable at the first day of each
month. Any unpaid installment will earn 12% interest per annum.
As security, PAC executed a chattel mortgage over the vehicle in favor of Lim.
Subsequently, Lim assigned to Filinvest Finance Corporation (FFC) all his
rights, title and interests in the promissory note and chattel mortgage by
virtue of a deed of assignment. Subsequently, FFC merged with the Credit
and Development Corporation (CDC) and FFC assigned all its rights to the
Page 83 of 121
promissory note and chattel mortgage to the new corporation formed by the
merger, Filinvest Credit Corporation (FCC). In effect, FCC financed the
unpaid balance owed by PAC to Lim such that Lim became fully paid.
PAC defaulted and failed to pay 9 successive installments. FCC sent a
demand letter where its counsel asked that the amount be paid in full with
interests and charges or that the vehicle be returned. PAC wrote FCC stating
that it decided to merely return the vehicle as full satisfaction of its
indebtedness pursuant to Article 1484 of the Civil Code. PAC returned the
vehicle and gave FCC a document entitled ―Voluntary Surrender with Special
Power of Attorney to Sell.‖
FCC subsequently wrote PAC that it cannot sell the vehicle because of unpaid
taxes in the sum of 70,122php so it asked that PAC pay the corresponding
indebtedness instead. FCC offered to give back the vehicle to PAC but PAC
refused to accept it. FCC then filed a case for collection of sum of money with
damages with the CFI of Manila.
PAC states in its answer that FCC has no cause of action because its return of
the vehicle satisfied all its indebtedness to FCC and assuming that it didn‘t,
that FCC still cannot recover because of the original vendor Lim‘s breach of
warranty for the unpaid taxes. CFI ruled in favor of FCC and ordered PAC to
pay and accept the vehicle.
ISSUE: Did the return by PAC of the mortgaged vehicle extinguish the
obligation?
RULING: No. PAC argues that FCC already chose its remedy when it
accepted the return of the vehicle which is tantamount to foreclosing the
chattel mortgage. PAC states that FCC then is precluded from exercising any
of the other remedies in Article 1484. PAC also argues that its return of the
vehicle is already a mode of payment by virtue of dacion en pago citing
Articles 1232, 1245, and 1497 of the Civil Code.
Court ruled however that there was no dacion en pago in this case because
there is an absence of the express or implied intention of the parties. Dacion
en pago, according to Manresa, is the transmission of the ownership of a
thing by the debtor to the creditor as an accepted equivalent of the
performance of obligation. In dacion en pago, as a special mode of payment,
the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one
sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the
debtor's debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent
of the performance of an obligation is considered as the object of the contract
of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or innovation to have
the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee, the herein
appellee, consented, or at least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor vehicle be construed as actual
payment, more specifically dation in payment or dacion en pago. The fact
that the mortgaged motor vehicle was delivered to him does not necessarily
mean that ownership thereof, as juridically contemplated by dacion en pago,
was transferred from appellant to appellee. In the absence of clear consent of
appellee to the proferred special mode of payment, there can be no transfer of
ownership of the mortgaged motor vehicle from appellant to appellee. If at
all, only transfer of possession of the mortgaged motor vehicle took place, for
it is quite possible that appellee, as mortgagee, merely wanted to secure
possession to forestall the loss, destruction, fraudulent transfer of the vehicle
to third persons, or its being rendered valueless if left in the hands of the
appellant.
Moreover, the document given which is denominated as a ―Voluntary
Surrender with Power of Attorney to Sell‖ shows clearly that it was never the
intention of the parties to transfer ownership. If it was, then there would be
no need for such power of attorney because FCC would have full power to
dispose of the vehicle as it sees fit.
FCC is also not estopped to ask for payment when it accepted the return of
the vehicle. Such return only extinguishes the obligation if the mortgagee
causes the foreclosure sale. If the mortgagee desisted on his own initiative,
such desistance is a timely disavowal of the remedy and the vendor can still
sue for specific performance.
On the issue of the breach of warranty, it is Lim who should be held liable
and not FFC. The assignment between Lim and FFC has a specific provision
absolves FFC of any liability. The taxes on the vehicle is a burden on the
property and therefore should be borne by owner which is PAC. Although
PAC may have an action against Lim, the original vendor, such remedy
though cannot be held against FFC.
_____________________________________________________
CITIZENS SURETY VS. CA
Nature: Action for a sum of money
Ponente: Gutierrez Jr.
Date: June 28, 1988
Page 84 of 121
DOCTRINE: A deed of assignment the content of which purports to be an
absolute deed of assignment cannot be held to be a valid dacion en pago
when it is clear from the circumstances and subsequent action of the parties
that the intention was to make it a security. Moreover, it cannot be a valid
dacion en pago when at the date of the assignment, there was no obligation
yet to be fulfilled.
FACTS:
Relevant Provision of Law: Article 1245 of the Civil Code
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of
a debt in money, shall be governed by the law of sales. (n)
Pascual M. Perez Enterprises (Enterprises) purchased some goods from
Singer Sewing Machine Co. under a Contract of Sale of Goods. Petitioner
Citizens Surety (Citizens) issued 2 surety bonds to guarantee compliance of
Pascual with its obligation. In consideration of the surety bonds, Pascual in
his personal capacity and as attorney in fact of his wife Nicasia Sarmiento,
and in behalf of Pascual Enterprises executed 2 indemnity agreements in
favor of Citizens wherein he obligated himself and the Enterprises to
indemnify Citizens whatever payments, advances and damages it may suffer
as a result of the surety bonds.
In addition, Enterprises were required to put up collateral security so it
assigned by virtue of a deed of assignment a stock of lumber worth
400,000php. A second real estate mortgage was also executed in favor of
Citizens as security but such was subsequently cancelled.
Enterprises failed to pay for its obligation and Citizens had to pay Singer
144,000php. Enterprises was able to pay Citizens 55,600php but failed to pay
the rest. Enterprises filed a claim for sum of money against the estate of
Nicasia Sarmiento. Pasual opposed such claim stating that the deed of
assignment extinguished the indemnity agreements. The CFI ruled in favor of
the Enterprises and ordered Pascual as administrator to pay.
On appeal to the CA however, the CA reversed the CFI stating that by virtue
of the execution of the deed of assignment wherein the ownership of the
lumber was transferred to Citizens, it amounted to a dacion en pago under
Article 1245 of the Civil Code.
ISSUE: Was the deed of assignment a dacion en pago?
RULING: No. On the face of the deed of assignment, there seems to be a
complete conveyance of the stocks of lumber to Citizens. However, the
circumstances surrounding the assignment disproves this. The Court cited Sy
vs. CA stating that if the terms of a contract are clear, the literal meaning of
the stipulations shall control except when the words appear contrary to the
evident intention of the parties. In that situation the intent of the parties shall
prevail.
In this case, the assignment could not have been a dacion en pago because as
correctly stated by the dissenting opinions of the CA decision, at the time the
assignment was done, there was no obligation yet to be extinguished because
Citizens had not yet advanced or paid anything yet by virtue of the surety
bonds.
Moreover, the subsequent acts of Pascual show that the deed was merely a
security and not an absolute assignment. Pascual paying partial payments of
55,600php shows that the assignment was merely a security. If the
assignment was absolute, there would have been no reason for subsequent
payments because it extinguished the obligation. Also, the execution of a
second real estate mortgage, although it was later cancelled, after the
execution of the deed of assignment shows further that there still exists an
obligation on the indemnity agreements.
However, the case against the estate of Nicasia Sarmiento should still be
dismissed because Citizens is more than adequately protected. It should have
collected the remaining balance of 88,400php from the sales of the lumber
and returned the excess to Pascual. Citizens is also not entitled to attorney‘s
fees and interest because it had the means to recoup its investment but
instead chose to litigate therefore it should bear the burden.
_____________________________________________________
SOCO VS. MILITANTE
Nature: Case for illegal detainer
Ponente: Guerrero
Date: June 28, 1983
DOCTRINE: The following are requirements for a valid consignation:
1. That there was a debt due
2. That the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it or
because he was absent or incapacitated or because several persons
claimed to be entitled to receive the amount due
3. That previous notice of the consignation had been given to the
person interested in the performance of the obligation
4. That the amount due was placed at the disposal of the Court
5. That after the consignation had been made the person interested was
notified thereof.
FACTS:
Relevant Provision of Law: Articles 1249, 1256-1261 of the Civil Code
Page 85 of 121
Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance.
(1170)
Article 1256. If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation of the
thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Article 1257. In order that the consignation of the thing due may release the obligor, it must
first be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions
which regulate payment. (1177)
Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof. (1178)
Article 1259. The expenses of consignation, when properly made, shall be charged against the
creditor. (1179)
Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order
the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in force. (1180)
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing. The co-
debtors, guarantors and sureties shall be released. (1181a)
Soco as lessor and Francisco as lessee entered into a contract of lease on
January 17, 1973 wherein Soco leased her commercial building and lot in
Cebu to Francisco for period of 10 years renewable for another 10 at the
option of the lessee in consideration for 800php per month.
Francisco started paying Soco by checks when Soco stopped sending her
collector and when sometimes the collector failed to issue receipts. She
issued checks under Commercial Bank and Trust Company (Comtrust) and
Soco duly received them because she admits that Francisco has been paying
religiously prior to May 1977.
Soco subsequently through her lawyer sent a letter to Francisco asking him to
vacate the premises for alleged non-payment starting from May 1977. Soco
alleged that she had sent her daughter and salesgirl to collect the rental
payments but Francisco refused to pay. Francisco also through his lawyer
answered that she had been paying through Comtrust and that the checks
were deposited with the Clerk of the Court of Cebu City. He argues that Soco
refused to accept the checks when he sent it through the messengerial
services of FAR Corporation so he ordered Comtrust to consign it with the
clerk. Despite this explanation, Soco still filed a case for illegal detainer on
January 8, 1979.
Francisco alleges that Soco had been trying to find ways to terminate their
lease contract because she found out that Francisco had been subleasing the
same property to NACIDA for 3,000php a month which is a lot higher that
what Francisco is paying Soco.
The City Court ruled that there was no valid consignation because there was
no showing that the letter delivered by the FAR Corporation contained cash
money, check, money order or any other form of note of value therefore there
was no valid tender of payment. The City Court further stated that assuming
that there was tender, there was no evidence presented to establish actual
deposit with the clerk and that he notified Soco after such deposit. The Court
ordered Francisco to pay and vacate the premises and to pay damages.
On appeal to the CFI however, it reversed the decision of the City Court
stating that there was substantial compliance in the requisites for a valid
consignation and ruled in favor of Francisco thereby dismissing the case of
illegal detainer against him. Hence this case.
ISSUE: Was there a valid consignation in this case?
RULING: No. At the outset, the SC clearly and unequivocally stated that the
essential requisites of a valid consignation must be complied with fully and
strictly in accordance with the law, specifically Articles 1256-1261 of the Civil
Code. The SC stated that the language of the provisions which use the words
―shall‖ and ―must‖ readily show that strict compliance is mandatory.
Next, the SC looked on the jurisprudence regarding the matter. The Court in
the case of Jose Ponce de Leon vs. Santiago Syjuco laid down the
requirements for a valid consignation mainly:
1. That there was a debt due
2. That the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it or
Page 86 of 121
 because he was absent or incapacitated or because several persons
claimed to be entitled to receive the amount due
3. That previous notice of the consignation had been given to the
person interested in the performance of the obligation
4. That the amount due was placed at the disposal of the Court
5. That after the consignation had been made the person interested was
notified thereof.
Failure in any of these requirements is enough ground to render the
consignation ineffective.
Moreover, the Court stressed that In order to be valid, the tender of payment
must be made in lawful currency. While payment in check by the debtor may
be acceptable as valid, if no prompt objection to said payment is made the
fact that in previous years payment in check was accepted does not place its
creditor in estoppel from requiring the debtor to pay his obligation in cash.
Thus, the tender of a check to pay for an obligation is not a valid tender of
payment thereof.
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment
may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation.
The SC reviewed the evidence presented by Francisco on which the CFI
concluded that there was substantial compliance and the SC found that the
CFI‘s conclusion is manifestly wrong and based on misapprehension of facts.
Such evidence scrutinized were mainly:
1. Exhibit 10 – Letter of Atty. Abarintos dated June 9, 1977
2. Exhibit 12 – Letter of Atty. Abarintos dated July 6, 1977
3. Exhibit 14 – Answer of Francisco in a related civil case for
reformation of the contract of lease (not related to consignation)
4. Exhibit 1 – Letter of Atty. Menchavez dated November 28, 1977
SC ruled that each of the letters at most may prove valid tender of payment
for a specific month but failed to prove the other requirements mainly
previous notice and notice after the consignation. Exhibit 14 was held to be
self-serving.
Francisco tried to prove valid tender and first notice by proving his monthly
requests to his bank to write a check for the rentals. However, the
arrangement specifically stated that the bank would issue the checks but it
was still the job of Francisco to pick it up and tender it to Soco.
Francisco also failed to prove notice after consignation. The testimony of
Bank Comptroller clearly stated that after he deposited the check with the
clerk, he did not send any notice to Soco.
Last, there was no proof of actual deposit with the clerk because no receipts
issued by the clerk were presented in evidence. Francisco tried to prove
actual deposit by virtue of the debt memorandums of the bank wherein it
shows a monthly debit to his account. But the SC brushed this aside stating
that such memorandums are merely internal banking practices or office
procedures which are not binding on third parties.
For failure to prove valid consignation, therefore in effect there was no valid
payment for certain months, Francisco as lessee has violated the terms of the
contract and may be judicially ejected.
_____________________________________________________
IMMACULATA VS. NAVARRO
Nature: Motion for consideration on issue of legal redemption
Ponente: Paras
Date: April 15, 1988
DOCTRINE: The right to redeem is a right, not an obligation, therefore,
there is no consignation required to preserve the right to redeem.
FACTS:
Relevant Provision of Law: None used
This case is a motion for reconsideration of a previous case wherein
petitioner Lauro Immaculata represented by his wife Amparo Velasco tried to
annul a judgment and deed of sale with reconveyance of property in favor of
Juanita Victoria (one of the respondents, Navarro is the judge who issued the
judgment). The SC upheld the deed of sale. However, in the decision, they
failed to take into consideration the alternative prayer of the petitioner to
allow legal redemption in case the validity of the deed of sale is upheld.
Therefore, the SC granted the reconsideration. However, the respondents
argue against legal redemption stating that the offer to redeem was not
sincere since it was not accompanied by consignation of the amount in Court.
ISSUE: Does legal redemption require consignation to preserve the right?
RULING: No. First, the SC stated that although the sale was done in
December 1969, the deed of conveyance was only executed on February 3,
1974. So the offer to redeem made on March 24, 1975 was clearly within the 5
year period allowed by the Public Land Act. This shows that the period is
counted not from the date of the sale, but on the date of formal conveyance.
Page 87 of 121
The SC ruled that the right to redeem is a right and not an obligation,
therefore, there is no consignation required to preserve the right to redeem.
Therefore, the petitioner is allowed to redeem the property.

Page 88 of 121
 2. Loss of the thing due or impossibility of performance
Article 1262. An obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault
of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Article 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation.
(n)
Article 1264. The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important as to extinguish
the obligation. (n)
Article 1265. Whenever the thing is lost in the possession of the debtor, it
shall be presumed that the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity. (1183a)
Article 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor. (1184a)
Article 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part. (n)
Article 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the payment
of its price, whatever may be the cause for the loss, unless the thing having
been offered by him to the person who should receive it, the latter refused
without justification to accept it. (1185)
Article 1269. The obligation having been extinguished by the loss of the
thing, the creditor shall have all the rights of action which the debtor may
have against third persons by reason of the loss. (1186)
Article 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that
its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary. (1122)
Article 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)
Article 1165. When what is to be delivered is a determinate thing, the
creditor, in addition to the right granted him by article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be
complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or
more persons who do not have the same interest, he shall be responsible for
any fortuitous event until he has effected the delivery. (1096)
Article 1268. When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted from the payment
of its price, whatever may be the cause for the loss, unless the thing having
been offered by him to the person who should receive it, the latter refused
without justification to accept it. (1185)
Article 1942. The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
unless there is a stipulation exempting the bailee from responsibility
in case of a fortuitous event;
Page 89 of 121
 (4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own thing,
he chose to save the latter. (1744a and 1745)
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have
been authorized to use the same. (n)
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not
accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the
owner;
(4) If he assumed the management in bad faith. (1891a)
Article 2159. Whoever in bad faith accepts an undue payment, shall pay
legal interest if a sum of money is involved, or shall be liable for fruits
received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing
from any cause, and for damages to the person who delivered the thing, until
it is recovered. (1896a)
**********************************************************************
PEOPLE VS. FRANKLIN
Nature: Appeal by surety company of forfeiture of bail bond and denial of
petition for reduction of bail
Ponente: Dizon
Date: June 7, 1971
DOCTRINE: Article 1266 of the Civil Code does not apply to a surety upon a
bail bond because 1266 speaks of a debtor-creditor relationship which is not
present between a bail bond surety and the State.
FACTS:
Relevant Provision of Law: Article 1266 of the Civil Code
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes
legally or physically impossible without the fault of the obligor.
An information was filed with the Justice of the Peace Court of Angeles,
Pampanga against Natividad Franklin for the crime of estafa. She was
released from custody upon a bail bond posted by the Asian Surety &
Insurance Company (Company) in the amount of 2,000php.
The CFI set her arraignment on July 14, 1962 but Franklin failed to appear.
The Company filed a motion to postpone the arraignment to July 28 but still
Franklin failed to appear. Her arrest was ordered and the Court required the
Company to show cause why the bail bond should not be forfeited.
On September 25, 1962, the Court granted the Company a period of 30 days
to produce the accused and warned them that failure to do so would cause
the forfeiture of the bond. On October 25, 1962, the Company filed another
Motion for Extension for another 30 days but still failed to produce the
accused.
Subsequently, the Company filed a motion to reduce bail stating that the
reason why it cannot surrender the accused is that the Government allowed
the accused to leave the country for the US on February 27, 1962. Such
motion was denied, and the subsequent MR also denied.
The Company appeals its case using as basis Article 1266 of the Civil Code. It
argues that it should be released from liability because it became impossible
to produce the accused because of the negligence of the Government in
issuing a passport to Franklin thus enabling her to leave.
ISSUE: Should the Company be absolved from liability?
RULING: No. The SC ruled that Article 1266 is inapplicable because it refers
to a situation where there is a debtor-creditor relationship which is absent in
the relationship of a bail bond surety and the State.
The Court also noted the difference between an ordinary surety (those
sureties on ordinary bonds or commercial contracts) and a bail bond surety.
Citing the case of US vs. Bonoan, the Court stated that a bail bond surety may
discharge themselves from liability by surrendering their principal while an
ordinary surety can only be released by payment of the debt or performance
of the act stipulated.
Moreover, citing the case of Uy Tuising, the Court stated that it is the
responsibility of the bail bond surety to keep the principal from leaving the
jurisdiction because in the eyes of the law, the bail bond surety becomes the
legal custodian and jailer of the accused. The Court stated that the Company
should have informed the DFA and other government agencies of the fact
that Franklin was facing a criminal charge. She would not have been issued a
passport if the Company had done this, according to the Court.
Page 90 of 121
LAGUNA VS. MANABAT
Nature: Action for sum of money for rentals
Ponente: Makasiar
Date: August 29, 1974
DOCTRINE: Article 1680 of the Civil Code is not a general provision that
can be applied to leases of all kinds. Moreover, even if it were held to apply to
this case, increase in operating costs is not an unforeseen fortuitous event
that can excuse them from obligation.
FACTS:
Relevant Provision of Law: Article 1680 of the Civil Code
Article 1680. The lessee shall have no right to a reduction of the rent on account of the sterility
of the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he
shall have such right in case of the loss of more than one-half of the fruits through
extraordinary and unforeseen fortuitous events, save always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood,
locusts, earthquake, or others which are uncommon, and which the contracting parties could
not have reasonably foreseen. (1575)
On January 20, 1956, the Binan Transportation Company (BITC) leased to
the Laguna Tayabas Bus Company (LTBC) its certificates of public
convenience over the its Manila-Binan, Manila-Canlubang, And Sta. Rosa-
Manila lines for 2,50ophp per month. It also leased to Batangas
Transportation Company (BATC) its certificates over its life Manila-Batangas
Wharf and an international truck for 5 years renewable for another 5. The
Public Service Commission provisionally approved the lease contracts on the
same date on the condition that the lessees should operate the lines in
accordance with the prescribed time schedule and was subject to
modification or cancellation and to whatever decision might be rendered in
the case.
Subsequently, the BITC was declared insolvent and Francisco Manabat was
appointed as its assignee. From the time of declaration of insolvency, the
defendants paid the rentals to Manabat. However, beginning January 1958,
notwithstanding demands, defendants failed to pay rentals despite
assurances they gave Manabat. The defendants also deducted the amount of
1,862.92 without authorization from the rent they paid for August 1957
because their workers went on strike. Manabat also opposed such
unauthorized deduction as the agreement states that the deduction can only
be made if the lessor‘s workers or officers went on strike and not the lessees.
Additionally, such deduction gave undue preference to LTBC and BATC in
the insolvency proceedings.
On February 18, 1958, the LTBC and BATC filed with the Public Service
Commission a petition for authority to suspend the operation of the lines
citing increase in costs of procuring spare parts abroad, reduction of dollar
allocation, and the lack of passenger traffic which leads to financial losses.
They asked that they be allowed to suspend operations until operating
expenses went back to normal levels.
Manabat and others opposed the petition stating that it will impair the
obligation of contracts and the fact that the PSC does not have authority to
interpret contracts. The PSC brushed aside their oppositions stating that they
were not interpreting the lease contracts but were merely exercising its
regulatory power over the leased contract.
While proceedings in the PSC were going on, Manabat filed an action against
the LTBC and BATC in the CFI of Laguna for the recovery of 42,500php in
accrued rentals and the unauthorized deduction. Meanwhile , the PSC
granted the petition of LTBC and BATC and granted them authority to
suspend their operations.
In the CFI, LTBC and BATC pointed to the authority to suspend and argued
that the rentals should be reduced because the lease is suspended during that
period. They argued further that when the BITC became insolvent, the lease
lost force and the rentals paid after were by mistake and should be returned
to them.
The CFI ruled in favor of BITC and ordered that LTBC and BATC pay for
accrued rentals even for the months where the suspension was effective, as
well as to pay for the unauthorized deduction, and the rentals that may
accrue after the suspension is lifted as well as interest. On appeal to the CA,
the CA affirmed the CFI.
On appeal to the SC, LTBC and BATC basically stated that it was wrong for
the CA to completely disregard the fact that they could not enjoy the thing
leased during the time of suspension and therefore the rentals should be
reduced. However, the SC denied such for lack of merit.
One day before the resolution of the SC became final, LTBC and BATC filed a
motion to admit amended petition stating that there is another authority for
the reduction of rentals which is Article 1680 of the Civil Code and the case of
Reyes vs. Caltex.
ISSUE: Should the rentals be reduced pursuant to Article 1680 of the Civil
Code?
RULING: No. The Court ruled that Article 1680 is a special provision for
leases of rural lands. If it was the intention of the lawmakers to make it
applicable to ordinary leases, they would have placed the article among the
general provisions on lease. Even if it were a general rule on leases, it would
still not extend to petitioners because the requisite is that the loss of the fruits
Page 91 of 121
of leased property must be an ―extraordinary and unforeseen fortuitous
event.‖ The alleged causes for suspension were the high prices of spare parts
and gasoline and the reduction of dollar allocations were already existing
when the contracts of lease were executed. Therefore, the cause of inability of
petitioners cannot be ascribed to fortuitous events but to their voluntary
desistance.
Absent the requisite of fortuitous event, Article 1680 militates strongly
against their plea as evidenced by the Article‘s opening statement. No
reduction can be sustained by the suspension based on mere speculation that
operating will yield no profits.
The SC also took note of the fact that despite the suspension, there is still
benefit to the lessees. Because the suspension would only cover the operation
of the lessees, but it does not cover the obligation of the lessor not to operate
or own certificates covering the same lines. Because petitioners LBTC and
BATC still have their own certificates covering the same lines which are not
covered by the suspension, the public would have no choice except to
patronize them.
The cited case by petitioners actually does not help their case because in
Reyes vs. Caltex, the plea for equitable reduction was denied.
“Where a person by his contract charges himself with an obligation possible to be performed,
he must perform it, unless the performance is rendered impossible by the act of God, by the
law, or by the other party, it being the rule that in case the party desires to be excused from the
performance in the event of contingencies arising, it is his duty to provide therefor in his
contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen
difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking
of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be
had under the contract, by weather conditions, by financial stringency or by stagnation of
business. Neither is performance excused by the fact that the contract turns out to be hard and
improvident, unprofitable, or impracticable, ill-advised, or even foolish, or less profitable,
unexpectedly burdensome.
Since, by the lease, the lessee was to have the advantage of casual profits of the leased
premises, he should run the hazard of casual losses during the term and not lay the whole
burden upon the lessor."
Lastly, the Court noted that the conduct of petitioners were not according to
fair play and justice. They promised Manabat that they would pay rentals.
But when they found an opportunity to excuse themselves, they reneged on
this promise. Moreover, the Court is of the opinion that the petition for
suspension is malicious because they did not ask their own certificates to be
suspended, only those they leased. If the reasons for the suspension were
true, why should they not petition their own certificates to be suspended as
well. It becomes clear that the petition for suspension was a scheme to lessen
their operating costs for greater profit.
OCCENA VS. JABSON
Nature: Appeal from the decision of the CA allowing modification of
contract
Ponente: Teehankee
Date: October 29, 1976
DOCTRINE: Article 1267 of the Civil Code allows the release of the obligor
when the service has become so difficult as to be manifestly beyond the
contemplation of the parties. But such Article does not authorize the Courts
to modify or alter the terms and conditions of the contract.
FACTS:
Relevant Provision of Law: Article 1267 of the Civil Code
Article 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
(n)
Tropical Homes Inc. (Tropical) filed a complaint in the CFI of Rizal for
modification of the terms and conditions of its subdivision contract with
petitioners who are landowners in Davao City. Tropical alleged:
“That due to the increase in price of oil and its derivatives and the concomitant
worldwide spiralling of prices, which are not within the control of plaintiff, of all
commodities including basis raw materials required for such development work, the
cost of development has risen to levels which are unanticipated, unimagined and not
within the remotest contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally changed; 'That further
performance by the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S', will result in
situation where defendants would be unustly enriched at the expense of the plaintiff;
will cause an inequitous distribution of proceeds from the sales of subdivided lots in
manifest actually result in the unjust and intolerable exposure of plaintiff to
implacable losses, all such situations resulting in an unconscionable, unjust and
immoral situation contrary to and in violation of the primordial concepts of good
faith, fairness and equity which should pervade all human relations.”
Tropical sought to change, based on the reasons cited, the provision which
granted the landowners 40% of all cash receipts from the sale of subdivision
lots. The CFI and CA ruled in favor of Tropical citing Article 1267 as basis.
(but the decision did not state how such provision should be modified)
Petitioners appeal to the SC stating that the CFI and CA were erroneous in
the application of 1267 and that Tropical has no cause of action.
Page 92 of 121
ISSUE: Can the Courts modify or alter the contract when it has become so
difficult as to be manifestly beyond the contemplation of parties?
RULING: No. The SC stated that the CFI and the CA would have been
correct in applying Article 1267 if the complaint of Tropical sought to have
itself be excused from complying with the obligation. However, what Tropical
seeks here is not release but that the Court modify the terms and conditions
of the Contract which the Article does not authorize the Court to do so. His
complaint for modification has no basis in law and therefore does not state a
cause of action.
Procedural: SC stated that the general rule is that the denial of a motion to
dismiss is interlocutory and should not be corrected by certiorari but by
appeal in due course. But this case falls under the exception that an appeal
would not prove to be a speedy and adequate remedy.
************************************************************************
3. Condonation or remission of debt
Article 1270. Condonation or remission is essentially gratuitous, and
requires the acceptance by the obligor. It may be made expressly or
impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of
donation. (1187)
Article 1271. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the
action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the
debtor and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of the debt. (1188)
Article 1272. Whenever the private document in which the debt appears is
found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. (1189)
Article 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force. (1190)
Article 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who owns the thing. (1191a)
Article 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing. Otherwise, the
donation shall be void. (632a)
Article 749. In order that the donation of an immovable may be valid, it
must be made in a public document, specifying therein the property donated
and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate
public document, but it shall not take effect unless it is done during the
lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be
notified thereof in an authentic form, and this step shall be noted in both
instruments. (633)
4. Confusion or merger of rights
Article 1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person. (1192a)
Article 1276. Merger which takes place in the person of the principal debtor
or creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation. (1193)
Article 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two
characters concur. (1194)
Article 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of article
1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Article 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made. If
the payment is made before the debt is due, no interest for the intervening
period may be demanded.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each. (1145a)
5. Compensation
Page 93 of 121
Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (1195)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor. (1196)
Article 1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may owe the
principal debtor. (1197)
Article 1281. Compensation may be total or partial. When the two debts are
of the same amount, there is a total compensation. (n)
Article 1282. The parties may agree upon the compensation of debts which
are not yet due. (n)
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to
said damages and the amount thereof. (n)
Article 1284. When one or both debts are rescissible or voidable, they may
be compensated against each other before they are judicially rescinded or
avoided. (n)
Article 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his consent,
that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to
the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up
the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment. (1198a)
Article 1286. Compensation takes place by operation of law, even though
the debts may be payable at different places, but there shall be an indemnity
for expenses of exchange or transportation to the place of payment. (1199a)
Article 1287. Compensation shall not be proper when one of the debts
arises from a depositum or from the obligations of a depositary or of a bailee
in commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of article 301. (1200a)
Article 1288. Neither shall there be compensation if one of the debts
consists in civil liability arising from a penal offense. (n)
Article 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation. (1201)
Article 1290. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and debtors are not aware
of the compensation. (1202a)
Article 1243. Payment made to the creditor by the debtor after the latter
has been judicially ordered to retain the debt shall not be valid. (1165)
Article 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of article
1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Kinds of compensation—
a. legal
b. conventional; facultative
c. judicial
**********************************************************************
BPI VS. CA
Nature: Action to recover a sum of money
Ponente: Azcuna
Date: January 25, 2007
Page 94 of 121
DOCTRINE: Legal compensation may take place when all the requisites in
Article 1279 are present. But when done maliciously by a bank, even if it is
entitled to set off, it can be liable for damages.
FACTS:
Relevant Provision of Law: Article 1278 and 1279 of the Civil Code
Article 1278. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other. (1195)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (1196)
A.A. Salazar Construction and Engineering, which was later substituted by
Anabelle A. Salazar as the real party in interest, filed a case for a sum of
money against amounting to 267,707.70php BPI in the RTC of Pasig City.
The case stemmed from the claim of Julio R. Templonuevo who demanded
from BPI the amount representing the aggregate value of 3 checks which
were payable to JRT Construction which belonged to Templonuevo but which
were allegedly maliciously deposited by Salazar to her own personal account.
Because of Templonuevo‘s claim, BPI froze account No. 0201-0588-48 of AA
Salazar and Construction instead of Salazar‘s personal account where the
checks were deposited because the account was already closed. BPI
guaranteed Salazar that her company‘s account would not be touched until
the matter was settled, but 2 weeks after, BPI debited the amount from her
account.
The CFI and the CA both ruled in favor of Salazar and ordered BPI to return
the amount to Salazar because they believed Salazar was entitled to the
checks notwithstanding the lack of endorsement by the payee, JRT
Construction, because of an internal arrangement between JRT and Salazar
with the acquiescence and knowledge of BPI. The CFI and the CA took note of
the fact that BPI honored the checks and deposited them in Salazar‘s account
3 separate instances. Both Courts explained that the only probable reason
why a bank would deposit in 3 separate instances a check without the
endorsement of the payee is that it had knowledge of the internal
arrangement between JRT and Salazar. Lastly, they also took note of the fact
that Templonuevo only claimed the amount a year after the last check was
deposited, which according to both Courts, show the existence of the internal
arrangement because of the lapse of time.
For BPI‘s part, it simply admits to the mistake of depositing the check to
Salazar‘s account and defends the act of debiting by citing Articles 1278 and
1279 of the Civil Code and its right to set off.
ISSUE: Did BPI had the right to set off?
RULING: Yes. However, it is still liable for damages for its failure to act
judiciously in its exercise of its right. The SC stated that the CFI and the CA
were wrong in holding that the Salazar had sufficiently proven that she was
entitled to the checks. The Court stated that transferees who are neither
payees or indorsees do not have any presumption in their favor. Transferees
in this situation do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of such instruments. The
weight of authority is that the mere possession of a negotiable instrument
does not in itself conclusively establish either the right of the possessor to
receive payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere possession by
persons who are not payees or indorsers of the instrument is necessary to
authorize payment to them in the absence of any other facts from which the
authority to receive payment may be inferred.
The Court also stated that the presumption stated in Section 131(s) of the
Rules of Court cannot inure to the benefit of Salazar because it assumes that
there has been a valid transfer which in the case of checks which are order
instruments, require both delivery and endorsement.
Regarding the right to set off, the SC cited the case of Associated Bank vs.
Tan. The right of set-off was explained in Associated Bank v. Tan which states
that abank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client's account for the value of a dishonored check
that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that
fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.
Hence, the relationship between banks and depositors is one of creditor and
debtor, thus legal compensation may take place once the requirements set
forth in Article 1279 have been complied with.
However, the bank is still liable for damages because it is in a business
affected with public interest and therefore they should treat the accounts of
their customers with meticulous care. To begin with, it was the bank‘s
negligence which allowed Salazar to deposit 3 checks at 3 separate instances
without endorsement. Moreover, the bank assured Salazar that it would not
touch the account of Salazar‘s company pending the resolution of the dispute
with Templonuevo. But contrary to their assurances, in less than 2 weeks, the
bank already debited the account of her company. This led to damages
Page 95 of 121
suffered by Salazar because she had already issued checks drawn on her
company‘s account. The debiting of BPI contrary to their assurances caused
her checks to bounce causing her embarrassment and damage to her
standing in the business community. Therefore, she is still entitled to
damages, but she is not entitled to the return of the money that BPI debited.
GAN TIONCO v. COURT OF APPEALS
Nature: Ejectment Case
Ponente: Makalintal, J.
Date: May 21, 1969
DOCTRINE: Attorney‘s Fees can be the proper subject of legal
compensation because it is the litigant, not his counsel, who is the judgment
creditor and who may enforce the judgment by execution. Such credit,
therefore, may properly be the subject of legal compensation
FACTS:
Art. 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (1195)
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
(1196)
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion.
In 1961 Gan Tion filed an ejectment case against the former, alleging non-
payment of rents for August and September of that year, at P180 a month, or
P360 altogether. Ong Wang Sen denied the allegation and said that the
agreed monthly rental was only P160, which he had offered to pay but he was
refused by the plaintiff.
Gan Tion won in the municipal trial court but upon appeal, was reversed by
the CFI. Gan Tion was ordered to pay the defendant the sum of P500 as
attorney's fees. That judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st, and at the same
time demanded the rents in arrears at the old rate in the aggregate amount of
P4,320.00, corresponding to a period from August 1961 to October 1963.
In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to
obtain a writ of execution of the judgment for attorney's fees in his favor. Gan
Tion went on certiorari to the Court of Appeals, where he pleaded legal
compensation, claiming that Ong Wan Sieng was indebted to him in the sum
of P4,320 for unpaid rents.
The appellate court accepted the petition but eventually decided for the
respondent Ong, holding that Ong is indebted to the petitioner for unpaid
rentals in an amount of more than P4,000.00," the sum of P500 could not be
the subject of legal compensation, it being a "trust fund for the benefit of the
lawyer, which would have to be turned over by the client to his counsel."
Appellate Court: The requisites of legal compensation, namely, that the
parties must be creditors and debtors of each other in their own right (Art.
1278, Civil Code) and that each one of them must be bound principally and at
the same time be a principal creditor of the other (Art. 1279), are not present
in the instant case, since the real creditor with respect to the sum of P500
was the defendant's counsel.
ISSUE: WON there has been legal compensation between petitioner Gan
Tion and respondent Ong Wan Sieng.
Or WON legal compensation can occur between a judgment debt and a
judgment awarding attorney’s fees
RULING: The award is made in favor of the litigant, not of his counsel, and
is justified by way of indemnity for damages recoverable by the former in the
cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his
counsel, who is the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject of legal
compensation. Quite obviously it would be unjust to compel petitioner to pay
his debt for P500 when admittedly his creditor is indebted to him for more
than P4,000.
_____________________________________________________
PHILIPPINE NATIONAL BANK v. GLORIA G. VDA. DE ONG
ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA
Nature: Action to enforce executory judgment
Ponente: Narvasa, J.
Date: February 27, 1987
Page 96 of 121
FACTS:
Depositor Isabela Wood Construction & Development Corporation opened a
Savings Account with PNB in the amount of 2 million. The Aceros are
judgment creditors of Isabela Corporation, who seek to enforce against said
savings account the final and executory judgment rendered in their favor.
The partial judgment ordered payment by ISABELA to the ACEROS of the
amount of P1,532,000.07. Notice of garnisment was served on the PNB on
January 9, 1980, pursuant to the writ of execution dated December 23, 1979.
This was followed by an Order issued on February 15, 1980 directing PNB to
hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to
the ACEROS. This partial judgment was made final plus interest.
Meanwhile, PNB's claim to the two-million-peso deposit in question is made
to rest on an agreement between it and ISABELA in virtue of which,
according to PNB: (1) the deposit was made by ISABELA as "collateral" in
connection with its indebtedness to PNB as to which it (ISABELA) had
assumed certain contractual undertakings; and (2) in the event of ISABELA's
failure to fulfill those undertakings, PNB was empowered to apply the deposit
to the payment of that indebtedness. This agreement concerned a Letter of
Credit issued in favor of a German company from whom Isabela bought 35
trucks. Since Isabela failed to deliver to PNB by way of mortgage its
Paranaque property, and secure consent of Metropolitan Bank and
Homeowners Savings and Loan Association to secure a 2nd mortgage, and
considering that the obligation of defendant corporation to PNB have been
due and unsettled, PNB applied the amount of P 2,102804.11 in defendant's
savings account of PNB.
With this basis, PNB intervened in the action between the Aceros and
Isabela. PNB claims that since ISABELA was at some point in time both its
debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)-
there had occurred a mutual set-off between them, which effectively
precluded the ACEROS' recourse to that deposit.
The Trial Court ruled in favor of PNB. But, the Intermediate Appellate Court
ruled in favor of the Aceros.
ISSUE:
(1) WON legal compensation can take place between PNB and Isabela
RULING: Article 1278 of the Civil Code does indeed provide that
"Compensation shall take when two persons, in their own right, are creditors
and debtors of each other. " Also true is that compensation may transpire by
operation of law, as when all the requisites therefor, set out in Article 1279,
are present. Nonetheless, these legal provisions can not apply to PNB's
advantage under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding
of the IAC, by which upon firmly established rules even this Court is bound,
that it has not proven by competent evidence that it is a creditor of ISABELA.
The only evidence present by PNB towards this end consists of two (2)
documents marked in its behalf as Exhibits 1 and 2, But as the IAC has
cogently observed, these documents do not prove any indebtedness of
ISABELA to PNB. All they do prove is that a letter of credit might have been
opened for ISABELA by PNB, but not that the credit was ever availed of (by
ISABELA's foreign correspondent MAN, or that the goods thereby covered
were in fact shipped, and received by ISABELA. The Failure is fatal to its
claim.
(2) WON 2M Deposit applied as collateral can be subject to voluntary
compensation
RULING:
Petitioner: PNB has however deposited an alternative theory, which is that
the P2M deposit had been assigned to it by ISABELA as "collateral," although
not by way of pledge; that ISABELA had explicitly authorized it to apply the
P2M deposit in payment of its indebtedness; and that PNB had in fact
applied the deposit to the payment of ISABELA's debt on February 26, 1980,
in concept of voluntary compensation.
Supreme Court: This second, alternative theory, is as untenable as the first.
In the first place, there being no indebtedness to PNB on ISABELA's part,
there is in consequence no occasion to speak of any mutual set-off, or
compensation, whether it be legal, i.e., which automatically occurs by
operation of law, or voluntary, i.e., which can only take place by agreement of
the parties.
In the second place, the documents indicated by PNB as constitutive of the
claimed assignment do not in truth make out any such transaction. While the
Credit Agreement declares it to be ISABELA's intention to "assign to the
BANK the proceeds of its contract with the Department of Public Works for
the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," it
does not appear that that intention was adhered to, much less carried out.
Even if it be assumed that such an assignment had indeed been made, and
PNB had been really authorized to apply the P2M deposit to the satisfaction
of ISABELA's indebtedness to it, nevertheless, since the record reveals that
the application was attempted to be made by PNB only on February 26, 1980,
that essayed application was ineffectual and futile because at that time, the
deposit was already in custodia legis, notice of garnishment thereof having
been served on PNB on January 9, 1980 (pursuant to the writ of execution
issued by the Court of First Instance on December 23, 1979 for the
Page 97 of 121
enforcement of the partial judgment in the ACEROS' favor rendered on
November 18,1979).
________________________________________________
ENGRACIO FRANCIA V. IAC
Nature: Complaint to annul sale
Ponente: Gutierrez
Date: June 28, 1988
DOCTRINE: The Court had consistently ruled that there can be no off-
setting of taxes against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being
collected.
FACTS: Engracio Francia is the registered owner of a residential lot, 328
square meters, and a two-story house built upon it situated at Barrio San
Isidro, now District of Sta. Clara, Pasay City, Metro Manila.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
Thus, on December 5, 1977, his property was sold at public auction pursuant
to Section 73 of Presidential Decree No. 464 known as the Real Property Tax
Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was
the highest bidder for the property.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He
later amended his complaint on January 24, 1980. The petitioner seeks to set
aside the auction sale of his property which took place on December 5, 1977,
and to allow him to recover a 203 square meter lot which was sold at public
auction to Ho Fernandez and ordered titled in the latter's name. He further
averred that his tax delinquency of P2,400.00 has been extinguished by legal
compensation since the government owed him P4, 116.00 when a portion of
his land was expropriated.
The lower court rendered a decision in favor Fernandez which was affirmed
by the Intermediate Appellate Court. Fernandez appealed to the court.
ISSUE: Whether or not the tax delinquency of Francia has been
extinguished by legal compensation.
RULING: There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by Article
1279, to wit: (1) that each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other; (2) that the two debts be
due.
The Court had consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes
him an amount equal to or greater than the tax being collected. The collection
of a tax cannot await the results of a lawsuit against the government. In
addition, a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included
in the tax levy.
There are also other factors which compelled the Court to rule against the
petitioner. The tax was due to the city government while the expropriation
was effected by the national government. Moreover, the amount of P4,116.00
paid by the national government for the 125 square meter portion of his lot
was deposited with the Philippine National Bank long before the sale at
public auction of his remaining property. Notice of the deposit dated
September 28, 1977 was received by the petitioner on September 30, 1977.
The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an
easy matter to withdraw P2,400.00 from the deposit so that he could pay the
tax obligation thus aborting the sale at public auction.
And finally, even if we are inclined to give relief to the petitioner on equitable
grounds, there are no strong considerations of substantial justice in his favor.
Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the
auction sale. He claims to have pocketed the notice of sale without reading it
which, if true, is still an act of inexplicable negligence. He did not withdraw
from the expropriation payment deposited with the Philippine National Bank
an amount sufficient to pay for the back taxes. The petitioner did not pay
attention to another notice sent by the City Treasurer on November 3, 1978,
during the period of redemption, regarding his tax delinquency. There is
furthermore no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to invoke equity
in his attempt to regain the property by belatedly asking for the annulment of
the sale.
The petition for review was dismissed.
________________________________________________
Page 98 of 121
 REPUBLIC, in behalf of the RICE AND CORN ADMINISTRATION
v. HON. WALFRIDO DE LOS ANGELES

Nature: Complaint to annul sale

Ponente: Concepcion, J.
Date: June 25, 1980

DOCTRINE: Proof of the liquidation of a claim, in order that there be

compensation of debts, is proper if such claim is disputed. But, if the claim is
undisputed, as in the case at bar, the statement is sufficient and no other
proof may be required.

Page 99 of 121
FACTS:
On Oct 29, 1964 spouses Petra and Benjamin Farin obtained a loan from
Marcelo Steel Corporation in the amount of P600k, with a real estate
mortgage on a parcel of land in Quezon City as security. Mortgagee Marcelo
Steel requested for extrajudicial foreclosure which the sheriff advertised and
scheduled. Spouses Farin filed petition for prohibition against the sheriff and
mortgagee.
Acting upon petition, Hon. De los Angeles issued an order commanding the
Sheriff from proceeding with the public auction sale.
While the above case was pending, Petra Farin lease portions of the "Doña
Petra Building situated on the mortgaged premises, to the Rice and Corn
Administration, (RCA).
On December 9, 1967, Marcelo Steel filed a motion praying that RCA to
channel its rental payments to Marcelo Steel, by invoking paragraph 5 of
mortgage consent. Respondent judge de los Angeles issued assailed order
granting said motion.
The RCA filed a motion for the reconsideration of said order, praying that it
be excluded therefrom, for the reasons that (a) the rents due Petra Farin had
been assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b)
Petra Farin has an outstanding obligation with the RCA in the amount of
P263,062.40, representing rice shortages incurred by her as a bonded
warehouse under contract with the RCA, which should be compensated with
the rents due and may be due; and (c) RCA was never given an opportunity to
be heard on these matters
RTC denied said motion and said that he records does not show any proof
that the plaintiff, Petra Farin, is indebted to the aforesaid movant, RCA, as
allegedly in the said motion and assuming that the herein plaintiff is really
indebted to the RCA, the records further does not show that a case has been
filed against her for the payment of such obligation, and therefore, there is no
apparent legal ground to hold the payment of the rentals due the plaintiff.
On August 28, 1968, the RCA filed a motion to vacate the orders directing the
RCA to pay rentals to Marcelo Steel Corporation, reiterating therein the
grounds alleged in its motion for reconsideration dated January 19, 1968,
and in its second motion for reconsideration dated April 17, 1968, which has
remained unacted upon. In said motion, the RCA emphasized that it is not a
party to the case; that it had been denied due process for lack of notice and
the right to be heard; that compensation took place by operation of law
pursuant to Art. 1286 of the Civil Code without the need of a case against
Petra R. Farin, or a decision rendered against her for the payment of such
obligation. Motion was denied, and so RCA filed petition for review.
ISSUE: WON RCA can validly claim that compensation of debts had taken
place, even if no case had been filed.
RULING:
Insofar as it recognized the right of the herein private respondent, Marcelo
Steel Corporation, to collect and receive rentals from the lessees of the Doña
Petra Building, the order of December 23, 1967 was within the competence of
the respondent Judge, since the lessor-mortgagor, Petra Farin, had
empowered the said corporation to collect and receive any interest, dividend,
rents, profits or other income or benefit produced by or derived from the
mortgaged property under the terms of the real estate mortgage contract
executed by them.
The respondent Judge also erred in denying the claim of the RCA that
compensation of debts had taken place allegedly because "The records does
not show any proof that the plaintiff is indebted to the aforesaid movant,
RCA, as alleged in the said motion and assuming that the herein plaintiff is
really indebted to the RCA, the records further does not show that a case has
been filed against her, or a decision has been rendered against her for the
payment of such obligation."
Proof of the liquidation of a claim, in order that there be compensation of
debts, is proper if such claim is disputed. But, if the claim is undisputed, as in
the case at bar, the statement is sufficient and no other proof may be
required.
In the instant case, the claim of the RCA that Petra R. Farin has an
outstanding obligation to the RCA in the amount of P263,062.40 which
should be compensated against the rents already due or may be due, was
raised by the RCA in its motion for the reconsideration of the order of
December 23, 1967.
A copy of said motion was duly furnished counsel for Petra R. Farin and
although the said Petra R. Farin subsequently filed a similar motion for the
reconsideration of the order of December 23, 1967, she did not dispute nor
deny such claim
Neither did the Marcelo Steel Corporation dispute such claim of
compensation in its opposition to the motion for the reconsideration of the
order of December 23, 1967.
The silence of Petra R. Farin, order of December 23, 1967. although the
declaration is such as naturally one to call for action or comment if not true,
could be taken as an admission of the existence and validity of such a claim.
Therefore, since the claim of the RCA is undisputed, proof of its liquidation is
not necessary. At any rate, if the record is bereft of the proof mentioned by
the respondent Judge of first instance, it is because the respondent Judge did
not call for the submission of such proof. Had the respondent Judge issued
an order calling for proof, the RCA would have presented sufficient evidence
to the satisfaction of the court.
Page 100 of 121

Aquino concurs: I concur in the result and on the understanding that the
trial court should hold a hearing to determine the merits of the claim of
petitioner RCA that it is entitled to retain the rentals by way of compensation.
Petition of RCA granted.
________________________________________________
LORETO J. SOLINAP v. HON. AMELIA K. DEL ROSARIO, as
Presiding Judge of Branch IV, Court of First Instance of Iloilo,
SPOUSES JUANITO and HARDEVI R. LUTERO, and THE
PROVINCIAL SHERIFF OF ILOILO
Nature: Complaint to annul sale
Ponente: Escolin, J.
Date: July 25, 1983
DOCTRINE: Compensation cannot take place where one's claim against the
other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain and
liquidated."
FACTS:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the
Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap for
10 years for the stipulated rental of P50,000.00 a year.
It was further agreed in the lease contract that P25,000.00 from the rental
should be paid by Solinap to the PNB to amortize the indebtedness of the
spouses Lutero.
When Tiburcio Lutero died, his heirs instituted the testate estate
proceedings. On the basis of an order, respondents Juanito Lutero [grandson
and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the PNB the
sum of P25,000.00 as partial settlement of the deceased's obligations.
Spouses Lutero filed a motion seeking reimbursement from the petitioner.
They argued that the said amount should have been paid by petitioner to the
PNB, as stipulated in the lease contract.
Before the motion could be resolved, petitioner Solinap a separate action
against the spouses Lutero for collection of P71,000.00 they borrowed from
the petitioner. The spouses answered and pleaded a counterclaim against
petitioner for P125,000.00 representing unpaid rentals on Hacienda Tambal
and that petitioners purchased one-half of Hacienda Tambal.
The respondent judge issued an order granting the spouses‘ motion for
reimbursement from petitioner of the sum of P25,000.00, plus interest.
Petitioner filed a petition for certiorari before this Court, assailing the above
order, which the Court Dismissed.
Respondent Luteros then filed a Motion for Execution of the payment for
reimbursement. Thereafter the Petitioner Solinap filed with the respondent
court a motion raising that the amount payable to Luteros should be
compensated against the latter's indebtedness to Solinap amounting to P7
1,000.00.
This motion was denied by respondent judge on the ground that "the claim of
Loreto Solinap against spouses was yet to be liquidated and determined, such
that the requirement in Article 1279 of the New Civil Code that both debts are
liquidated for compensation to take place has not been established by the
oppositor Loreto Solinap.
Petitioner filed a motion for reconsideration of this order, but the same was
denied. Hence, this petition.
ISSUE: WON the obligation of petitioner to private respondents may be
compensated or set-off against the amount sought to be recovered in an
action for a sum of money filed by the former against the latter
RULING:
The petition is devoid of merit.
Petitioner: Judge erred in not declaring the mutual obligations of the parties
extinguished to the extent of their respective amounts. He relies on Article
1278 of the Civil Code to the effect that compensation shall take place when
two persons, in their own right, are creditors and debtors of each other.
Supreme Court: The argument fails to consider Article 1279 of the Civil Code
which provides that compensation can take place only if both obligations are
liquidated.
In the case at bar, the petitioner's claim against the respondent Luteros in
Civil Case No. 12379 is still pending determination by the court. While it is
not for the Court to pass upon the merits of the plaintiffs' cause of action in
that case, it appears that the claim asserted therein is disputed by the Luteros
on both factual and legal grounds. More, the counterclaim interposed by
them, if ultimately found to be meritorious, can defeat petitioner's demand.
Upon this premise, his claim in that case cannot be categorized as liquidated
credit which may properly be set-off against his obligation.
As this Court ruled in Mialhe vs. Halili, ―Compensation cannot take place
where one's claim against the other is still the subject of court litigation. It is
a requirement, for compensation to take place, that the amount involved be
certain and liquidated."
Page 101 of 121

WHEREFORE, the petition is dismissed, with costs against petitioner.
Abad Concurring: Petition is frivolous, and petitioner should be assessed
treble costs.
_____________________________________________________
FRANCISCO SYCIP, JR., v. COURT OF APPEALS
Nature: Estafa Case
Ponente: Relova, J.
Date: January 31, 1985
DOCTRINE: Compensation takes place only when two persons in their own
right are creditors and debtors of each other, and that each one of the
obligors is bound principally and is at the same time a principal creditor of
the other.
FACTS:
Jose Lapuz received from Albert Smith in Manila 2000 shares of stock from
Republic Flour Mills in the name of Dwight Dill who had left for Honolulu,
with the understanding that Lapuz was supposed to sell the shares of stock,
the value out of which he would get a commission. Lapuz made it clear that
he did not own the shares. He was approached by defendant Sycip who
assured him he could sell it for a good price. Thereafter, Jose K. Lapuz
received a letter from the Sycip, informing him that "1,758 shares has been
sold for a net amount of P29,000.00," but that the transaction could not be
concluded until they received the Power of Attorney duly executed by Dwight
Dill, appointing a person to endorse the certificate of stock and a resolution
from Biochemical Research Laboratory authorizing transfer of certificate.
Lapuz signed his conformity to such document. Power of attorney only
authorized sale of 1758 shares.
Jose K. Lapuz managed to sell 758 shares, the sum of which was remitted to
Albert Smith.
The accused-appellant sold and paid for the other 500 shares of stock, for the
payment of which Jose K. Lapuz issued in his favor a receipt, dated June 9,
1961
The draft for P8,000.00, "the full value of the 500 shares' mentioned in the
letter of the accused-appellant was dishonored by the bank, for lack of funds.
Jose K. Lapuz then "discovered from the bookkeeper that he got the money
and he pocketed it already, so he started hunting for Mr. Sycip. When he
found the accused-appellant, the latter gave him a check in the amount of
P5,000.00, issued by his daughter on July 12, 1961. This also was dishonored
by the bank for lack of sufficient funds to cover it.
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa
case (in the) fiscals office ... against him' unless he raise [the] balance left
eight thousand" the accused-appellant answered him by sending a wire,
"P5,000 remitted ask boy check Equitable. But "the check was never made
good," so Jose K. Lapuz testified. He had to pay Albert Smith the value of the
500 shares of stock."
The Trial Court convicted Sycip of Estafa which the Court of Appeals
Affirmed.
ISSUE:
(1) WON legal compensation can take place
RULING:
Petitioner contends that respondent Court of Appeals erred in not applying
the provisions on compensation or setting-off debts under Articles 1278 and
1279 of the New Civil Code, despite evidence showing that Jose K. Lapuz still
owed him an amount of more than P5,000.00 and in not dismissing the
appeal considering that the latter is not legally the aggrieved party.
This contention is untenable. Compensation cannot take place in this case
since the evidence shows that Jose K. Lapuz is only an agent of Albert Smith
and/or Dr. Dwight Dill.
Compensation takes place only when two persons in their own right are
creditors and debtors of each other, and that each one of the obligors is
bound principally and is at the same time a principal creditor of the other.
Moreover, as correctly pointed out by the trial court, Lapuz did not consent to
the off-setting of his obligation with petitioner's obligation to pay for the 500
shares.
(2) WON the Court of Appeals denied him due process when they
refused his prayer that the appealed case be heard.
RULING: It is discretionary on its part whether or not to set a case for oral
argument. If it desires to hear the parties on the issues involved, motu propio
or upon petition of the parties, it may require contending parties to be heard
on oral arguments. Stated differently, if the Court of Appeals chooses not to
hear the case, the Justices composing the division may just deliberate on the
case, evaluate the recorded evidence on hand and then decide it. Accused-
appellant need not be present in the court during its deliberation or even
during the hearing of the appeal before the appellate court; it will not be
heard in the manner or type of hearing contemplated by the rules for inferior
or trial courts.
________________________________________________
Page 102 of 121
 CIA MARITIMA V. COURT OF APPEALS
Nature: Complaint to recover attorney‘s fees
Ponente: Mendoza, J.
Date: November 16, 1999
DOCTRINE: Generally, the amount of attorney's fees due is that stipulated
in the retainer agreement which is conclusive as to the amount of the lawyer's
compensation. In the absence thereof, the amount of attorney's fees is fixed
on the basis of quantum meruit, i.e., the reasonable worth of his services. In
determining the amount of attorney's fees, the following factors are
considered: (1) the time spent and extent of services rendered; (2) the novelty
and difficulty of the questions involved; (3) the importance of the subject
matter; (4) the skill demanded; (5) the probability of losing other
employment as a result of the acceptance of the proffered case; (6) the
amount involved in the controversy and the benefits resulting to the client;
(7) the certainty of compensation; (8) the character of employment; and (9)
the professional standing of the lawyer.
FACTS:
Maritime Company of the Philippines was sued by Genstar Container
Corporation before the Regional Trial Court, Branch 31, Manila. On
November 29, 1985, it was ordered to pay Genstar Container Corporation,
judgment debt and attorney‘s fees.
As a result, properties of petitioners Compania Maritima, Inc., El Varadero
de Manila, and Mindanao Terminal and Brokerage Services at Sangley Point,
Cavite, were levied upon in execution.
Petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao
Terminal and Brokerage Services engaged the services of private respondent,
Atty. Exequiel S. Consulta for (3) cases.
The cases were eventually resolved in this wise: (1) in Civil Case No. 85-
30134, the trial court dismissed the third-party claim and motion for the
issuance of a writ of preliminary injunction filed by Atty. Consulta; (2) after
Atty. Consulta filed the complaint with the Tanodbayan in TBP Case No. 86-
03662, petitioners transferred the handling of the case to another lawyer;
and (3) Civil Case No. 86-37196 was eventually dismissed on motion of both
parties, but only after the trial court's denial of the motion to dismiss filed by
Genstar Container Corporation was upheld on appeal by both the Court of
Appeals and the Supreme Court.
For the three cases Atty. Consulta billed them amounts which petitioners did
not fully pay.
Because of the failure of corporate petitioners to pay the balance of his
attorney's fees, Atty. Consulta brought suit against petitioners in the Regional
Trial Court, Branch 94, Quezon City. The Trial Court and Court of Appeals
ruled in his favor, granting him an award of (1) 2.5 M (2) 20 k (3) 20 K for the
three cases. Petitioners appealed.
ISSUE: WON the amount of attorney's fees awarded to the private
respondent by the court a quo and affirmed by the Honorable Court is
reasonable.
RULING:
The issue in this case concerns attorney's fees in the ordinary concept.
Generally, the amount of attorney's fees due is that stipulated in the retainer
agreement which is conclusive as to the amount of the lawyer's
compensation. In the absence thereof, the amount of attorney's fees is fixed
on the basis of quantum meruit, i.e., the reasonable worth of his services. In
determining the amount of attorney's fees, the following factors are
considered: (1) the time spent and extent of services rendered; (2) the novelty
and difficulty of the questions involved; (3) the importance of the subject
matter; (4) the skill demanded; (5) the probability of losing other
employment as a result of the acceptance of the proffered case; (6) the
amount involved in the controversy and the benefits resulting to the client;
(7) the certainty of compensation; (8) the character of employment; and (9)
the professional standing of the lawyer.
Both the Court of Appeals and the trial court approved attorney's fees in the
total amounts of P50,000.00 and P30,000.00 for the services of Atty.
Consulta in Civil Case No. 85-30134 and TBP Case No. 86-03662,
respectively. Based on the above criteria, we think said amounts are
reasonable, , although the third-party claim and motion for the issuance of a
writ of preliminary injunction filed by Atty. Consulta in Civil Case No. 85-
30134 was dismissed by the trial court, while TBP Case No. 86-03662 was
given by petitioners to another lawyer after Atty. Consulta had filed the
complaint. On the other hand, although the order of the trial court in Civil
Case No. 86-37196 granting the motion to dismiss filed by both parties did
not state the grounds therefor, it is reasonable to infer that petitioners agreed
thereto in consideration of some advantage.
Hence, the rulings of the Court of Appeals and the trial court that, because of
the complexity of the issues involved and the work done by counsel, the
amount of P2,550,000.00 was reasonable for Atty. Consulta's services.
In addition, the value of the properties involved was considerable. As already
stated, to satisfy the judgment in favor of Genstar Container Corporation in
Civil Case No. 85-30134, properties of petitioners worth P51,000,000.00
were sold at public auction. Only P1,235,000.00 was realized from the sale
and petitioners were in danger of losing their properties. As the appellate
court pointed out, Atty. Consulta rendered professional services not only in
the trial court but in the Court of Appeals and in this Court. There is no
Page 103 of 121
question that through his efforts, properties owned by petitioners were saved
from execution.
In the present case, the Court of Appeals affirmed the factual conclusions of
the trial court that: (1) the issues in Civil Case No. 86-03662, including the
appeals taken therefrom to the Court of Appeals and the Supreme Court,
were quite complex; (2) the pleadings filed by Atty. Consulta were well-
researched; and (3) as a result of Atty. Consulta's efforts, the adv
erse parties were induced to agree to the dismissal of the case.
Note: Other Issues about Piercing Corporate Fiction.
_____________________________________________________
MINDANAO PORTLAND CEMENT v. COURT OF APPEALS
Nature: Complaint to annul sale
Ponente: Teehankee, J.
Date: February 28, 1983
DOCTRINE: Trial Court should not defeat the compensation or set-off of
the two (2) obligations of the corporations to each other which had already
extinguished both debts by operation of law, by virtue of two separate cases
filed in the same court.
FACTS:
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party
defendant Pacweld Steel Corporation (Pacweld for short) as the latter's
attorney, filed a 'motion to direct payment of attorney's fee to
counsel'addressed to Mindanao Portland Cement Corporation (MPCC for
short), (himself ), invoking in his motion the fact that in the decision of the
court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of
P10,000.00 as attorney's fees
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion,
stating, as grounds therefor, that said amount is set-off by a like sum of
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by
way of attorney's fees which MPCC recovered from the same CFI in an
another case.
On June 26, 1978 the court issued the order appealed from and despite
MPCCs motion for reconsideration of said order, citing the law applicable
and Supreme Court decisions denied the same in its order of August 28, 1978
also subject matter of this appeal.
RULING:
It is clear from the record that both corporations, petitioner Mindanao
Portland Cement Corporation (appellant) and respondent Pacweld Steel
Corporation (appellee), were creditors and debtors of each other, their debts
to each other consisting in final and executory judgments of the Court of First
Instance in two (2) separate cases, ordering the payment to each other of the
sum of P10,000.00 by way of attorney's fees. The two (2) obligations,
therefore, respectively offset each other, compensation having taken effect by
operation of law and extinguished both debts to the concurrent amount of
P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the
Civil Code, since all the requisites provided in Art. 1279 of the said Code for
automatic compensation "even though the creditors and debtors are not
aware of the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's
motion for amendment of the judgment of September 14, 1976 against
Mindanao Portland Cement Corporation so as to make the award therein of
P10,000.00 as attorney's fees payable directly to himself as counsel of
Pacweld Steel Corporation instead of payable directly to said corporation as
provided in the judgment, which had become final and executory long before
the issuance of said "amendatory" order was a void alteration of judgment. It
was a substantial change or amendment beyond the trial court's jurisdiction
and authority and it could not defeat the compensation or set-off of the two
(2) obligations of the corporations to each other which had already
extinguished both debts by operation of law.
________________________________________________
THE INTERNATIONAL CORPORATE BANK INC. v. THE
IMMEDIATE APPELLATE COURT
Nature: Complaint for recovery of money market placements
Ponente: Paras, J. ;
Date: June 30, 1988
DOCTRINE: Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from
breach of contract.
FACTS:
Private respondent secured from petitioner's predecessors-in-interest, the
then Investment and Underwriting Corp. of the Philippines and Atrium
Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan,
private respondent mortgaged her real properties in Quiapo, Manila and in
San Rafael, Bulacan, which she claimed have a total market value of
P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was
approved for release. The same amount was applied to pay her other
obligations to petitioner, bank charges and fees. Thus, private respondent's
claim that she did not receive anything from the approved loan.
Page 104 of 121
Private respondent then made a money market placement with Atrium. But
she allegedly failed to pay her mortgaged indebtedness to the bank so that the
latter refused to pay the proceeds of the money market placement on
maturity but applied the amount instead to the deficiency in the proceeds of
the auction sale of the mortgaged properties. With Atrium as the only bidder,
the properties were sold for 20,000,000. Petitioner ICB now claims that
private respondent still owed them 6.81 M.
Private respondent filed a complaint with the trial court against petitioner for
annulment of the sheriff's sale of the mortgaged properties, for the release to
her of the balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83 representing the
proceeds of her money market investment and for damages.
Petitioner denies private respondent's allegations and asserts among others,
that it has the right to apply or set off private respondent's money market
claim of P1,062,063.83. Petitioner thus interposes counterclaims for the
recovery of P5,763,741.23, representing the balance of its deficiency claim
after deducting the proceeds of the money market placement, and for
damages.
During trial, private respondent filed a motion to order petitioner to release
in her favor the sum of P1,062,063.83, representing the proceeds of the
money market placement. petitioner filed an opposition thereto, claiming
that the proceeds of the money market investment had already been applied
to partly satisfy its deficiency claim.
Trial Court ruled in favor of private respondent
ISSUE: WON there can be legal compensation in the case at bar, involving
money market interests and a mortgage loan deficiency.
RULING:
Petitioner: After foreclosing the mortgage, there is still due from private
respondent as deficiency the amount of P6.81 million against which it has the
right to apply or set off private respondent's money market claim of
P1,062,063.83.
Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. (Art. 1278, Civil Code). "When all the
requisites mentioned in Art. 1279 of the Civil Code are present, compensation
takes effect by operation of law, even without the consent or knowledge of the
debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires
among others, that in order that legal compensation shall take place, "the two
debts be due" and "they be liquidated and demandable." Compensation is not
proper where the claim of the person asserting the set-off against the other is
not clear nor liquidated; compensation cannot extend to unliquidated,
disputed claim arising from breach of contract.
There can be no doubt that petitioner is indebted to private respondent in the
amount of P1,062,063.83 representing the proceeds of her money market
investment. This is admitted. But whether private respondent is indebted to
petitioner in the amount of P6.81 million representing the deficiency balance
after the foreclosure of the mortgage executed to secure the loan extended to
her, is vigorously disputed. This circumstance prevents legal compensation
from taking place.
6. Novation
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Article 1292. In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other. (1204)
Article 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against
the will of the latter, but not without the consent of the creditor. Payment by
the new debtor gives him the rights mentioned in articles 1236 and 1237.
(1205a)
Article 1294. If the substitution is without the knowledge or against the will
of the debtor, the new debtor's insolvency or non-fulfillment of the
obligations shall not give rise to any liability on the part of the original
debtor. (n)
Article 1295. The insolvency of the new debtor, who has been proposed by
the original debtor and accepted by the creditor, shall not revive the action of
the latter against the original obligor, except when said insolvency was
already existing and of public knowledge, or known to the debtor, when the
delegated his debt. (1206a)
Article 1296. When the principal obligation is extinguished in consequence
of a novation, accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. (1207)
Article 1297. If the new obligation is void, the original one shall subsist,
unless the parties intended that the former relation should be extinguished in
any event. (n)
Article 1298. The novation is void if the original obligation was void, except
when annulment may be claimed only by the debtor or when ratification
validates acts which are voidable. (1208a)
Article 1299. If the original obligation was subject to a suspensive or
resolutory condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated. (n)
Page 105 of 121
Article 1300. Subrogation of a third person in the rights of the creditor is
either legal or conventional. The former is not presumed, except in cases
expressly mentioned in this Code; the latter must be clearly established in
order that it may take effect. (1209a)
Article 1301. Conventional subrogation of a third person requires the
consent of the original parties and of the third person. (n)
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even
without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share. (1210a)
Article 1303. Subrogation transfers to the persons subrogated the credit
with all the rights thereto appertaining, either against the debtor or against
third person, be they guarantors or possessors of mortgages, subject to
stipulation in a conventional subrogation. (1212a)
Article 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of the partial payment of the
same credit. (1213)
Article 1215. Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of article
1219.
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them. (1143)
Kinds of novation
a. As to its nature
i. Subjective or personal
ii. Objective or real
b. As to its form
i. Express
ii. Implied
SALAZAR V. J.Y BROTHERS MARKETING GROUP
Nature: Action to declare that a novation existed and thus petitioner is not
liable as indorser to the respondent.
Ponente: PERALTA, J.
Date:OCTOBER 20, 2010
DOCTRINE: For extinctive novation to existsthe following requisites must
be fulfilled: (1) a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of the old obligation,
and (4) the birth of a valid new obligation.
FACTS:Respondent is a corporation engaged in the business of selling sugar,
rice and other commodities. The petitioner, Anamer Salazar, a freelance sales
agent, was approached by Isagani Calleja and Jess Kallos, if she knew a
supplier of rice. Answering in the positive, petitioner accompanied the two to
the respondent. As a consequence, Salazar with Calleja and Kallos procured
from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar
negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Nena
Jaucian Timario in the amount of P214,000.00 with the assurance that the
check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of
rice to Salazar. However, upon presentment, the check was dishonored due to
―closed account.‖
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered
to J.Y. Bros. a replacement cross Solid Bank Check again issued by Nena
Jaucian Timario in the amount of P214,000.00 but which, just the same,
bounced due to insufficient funds. When despite the demand letter Salazar
failed to settle the amount due J.Y. Bros., the latter charged Salazar and
Timario with the crime of estafa. The petitioner was acquitted but was
ordered to pay the respondent the sum of P214,000. Petitioner appealed and
was allowed to present evidence regarding the civil aspect of the case.
RTC dismissed the civil aspect of the criminal case as against the petitioner
on the ground that after the Prudential Bank check was dishonored, it was
replaced by a Solid Bank check which, however, was also subsequently
dishonored; that since the Solid Bank check was a crossed check, which
meant that such check was only for deposit in payee‘s account, a condition
that rendered such check non-negotiable, the substitution of a non-
negotiable Solid Bank check for a negotiable Prudential Bank check was an
essential change which had the effect of discharging from the obligation
whoever may be the endorser of the negotiable check. The RTC concluded
that the absence of negotiability rendered nugatory the obligation arising
from the technical act of indorsing a check and, thus, had the effect of
novation; and that the ultimate effect of such substitution was to extinguish
the obligation arising from the issuance of the Prudential Bank check. CA
reversed the RTC stating that the petitioner was considered an indorser of
the checks paid to respondent and considered her as an accommodation
indorser, who was liable on the instrument to a holder for value,
notwithstanding that such holder at the time of the taking of the instrument
knew her only to be an accommodation party.
ISSUE: W/N the issuance of a crossed check after the first negotiable check
produced the effect of novation and thus making the petitioner incur no civil
liability.
Page 106 of 121
HELD: No, there was no novation intended by the parties in this
case and thus there is no novation and the petitioner is still liable
as an indorser of the check.Novation is done by the substitution or
change of the obligation by a subsequent one which extinguishes the first,
either by changing the object or principal conditions, or by substituting the
person of the debtor, or by subrogating a third person in the rights of the
creditor. Novation may either be extinctive or modificatory, much being
dependent on the nature of the change and the intention of the parties.
Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the parties
must clearly demonstrate their intent to dissolve the old obligation as the
moving consideration for the emergence of the new one. Implied novation
necessitates that the incompatibility between the old and new obligation be
total on every point such that the old obligation is completely superceded by
the new one. The test of incompatibility is whether they can stand together,
each one having an independent existence; if they cannot and are
irreconcilable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one in its
stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of the old obligation,
and (4) the birth of a valid new obligation. Novation is merely modificatory
where the change brought about by any subsequent agreement is merely
incidental to the main obligation (e.g., a change in interest rates or an
extension of time to pay; in this instance, the new agreement will not have
the effect of extinguishing the first but would merely supplement it or
supplant some but not all of its provisions.)
In this case, respondent‘s acceptance of the Solid Bank check, which replaced
the dishonored Prudential Bank check, did not result to novation as there
was no express agreement to establish that petitioner was already discharged
from his liability to pay respondent the amount of P214,000.00 as payment
for the 300 bags of rice. In fact, when the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner which shows
petitioner‘s recognition of the existing obligation to respondent to pay
P214,000.00 subject of the replaced Prudential Bank check.
Moreover, respondent‘s acceptance of the Solid Bank check did not result to
any incompatibility, since the two checks − Prudential and Solid Bank checks
− were precisely for the purpose of paying the amount of P214,000.00, i.e.,
the credit obtained from the purchase of the 300 bags of rice from
respondent. Indeed, there was no substantial change in the object or
principal condition of the obligation of petitioner as the indorser of the check
to pay the amount of P214,000.00. It would appear that respondent
accepted the Solid Bank check to give petitioner the chance to pay her
obligation.
The argument of the petitioner that the acceptance of the Solid Bank check, a
non-negotiable check being a crossed check, which replaced the dishonored
Prudential Bank check, a negotiable check, is a new obligation in lieu of the
old obligation arising from the issuance of the Prudential Bank check, since
there was an essential change in the circumstance of each check, was shot
down by the court. Taking judicial cognizance of the practice that a check
with two parallel lines in the upper left hand corner means that it could only
be deposited and could not be converted into cash. Thus, the effect of
crossing a check relates to the mode of payment, meaning that the drawer
had intended the check for deposit only by the rightful person, i.e., the payee
named therein.The change in the mode of paying the obligation was
not a change in any of the objects or principal condition of the
contract for novation to take place.
METROPOLITAN BANK V. RURAL BANK OF GERONA INC.
Nature: Appeal on certiorari questioning the CA re: the need to include
Central Bank as a necessary party.
Ponente: BRION, J.
Date: July 5, 2010
DOCTRINE: When a third person not interested in the obligation, pays with
the express or tacit approval of the debtor there is a presumed legal
subrogation and when such occurs the party who is subrogated is no longer
required as a necessary party.
FACTS: Rural Bank of Gerona, Inc. (RBG), and the Central Bank of the
Philippines (Central Bank) entered into an agreement providing that RBG
shall facilitate the loan applications of farmers-borrowers under the Central
Bank-International Bank for Reconstruction and Development‘s (IBRD‘s) 4th
Rural Credit Project. The agreement required RBG to open a separate bank
account where the IBRD loan proceeds shall be deposited. The RBG
accordingly opened a special savings account with Metrobank‘s Tarlac
Branch. As the depository bank of RBG, Metrobank was designated to
receive the credit advice released by the Central Bank representing the
proceeds of the IBRD loan of the farmers-borrowers; Metrobank, in turn,
credited the proceeds to RBG‘s special savings account for the latter‘s release
to the farmers-borrowers.
Three loans applications were granted and accordingly a deposit was made in
Metrobank‘s demand deposit account. One for P178,653 in favor of
Dominador de Jesus, another for Basilio Panopio in the amount of
P189,052.00, and finally Ponciano Lagman‘s loan application for
Page 107 of 121
P220,000.00. RBG withdrew all the deposits except for Lagman‘s loan from
which it only withdrew 75,375.
A month later Central Bank issued debit advices, reversing all the approved
IBRD loans. The Central Bank implemented the reversal by debiting from
Metrobank‘s demand deposit account the amount corresponding to all three
IBRD loans.
Upon receipt of the debit advices, Metrobank, in turn, debited the following
amounts from RBG‘s special savings account: P189,052.00, P115,000.00,
and P8,000.41. Metrobank, however, claimed that these amounts were
insufficient to cover all the credit advices that were reversed by the Central
Bank. It demanded payment from RBG which could make partial payments.
As of October 17, 1979, Metrobank claimed that RBG had an outstanding
balance of P334,220.00. To collect this amount, it filed a complaint for
collection of sum of money against RBG before the RTC. RTC ruled for the
petitioner stating that legal subrogation occurred.
On appeal, the CA noted that this was not a case of legal subrogation under
Article 1302 of the Civil Code. Nevertheless, the CA recognized that
Metrobank had a right to be reimbursed of the amount it had paid and failed
to recover, as it suffered loss in an agreement that involved only the Central
Bank and the RBG. It clarified, however, that a determination still had to be
made on who should reimburse Metrobank. Noting that no evidence exists
why the Central Bank reversed the credit advices it had previously confirmed,
the CA declared that the Central Bank should be impleaded as a necessary
party so it could shed light on the IBRD loan reversals. Thus, the CA set
aside the RTC decision, and remanded the case to the trial court for further
proceedings after the Central Bank is impleaded as a necessary party. After
the CA denied its motion for reconsideration, Metrobank filed the present
petition for review on certiorari.
ISSUE: W/N there was a legal subrogation and W/N Central Bank is a
necessary party
HELD: Yes, there was legal subrogation and because of such
Central Bank is no longer a necessary party. The Terms and
Conditions of the IBRD 4th Rural Credit Project executed by the Central
Bank and the RBG shows that the farmers-borrowers to whom credits have
been extended, are primarily liable for the payment of the borrowed
amounts. The loans were extended through the RBG which also took care of
the collection and of the remittance of the collection to the Central Bank.
RBG, however, was not a mere conduit and collector. While the farmers-
borrowers were the principal debtors, RBG assumed liability under the
Project Terms and Conditions by solidarily binding itself with the principal
debtors to fulfill the obligation.
If RBG delays in remitting the amounts due, the Central Bank imposed a 14%
per annum penalty rate on RBG until the amount is actually remitted. The
Central Bank was further authorized to deduct the amount due from RBG‘s
demand deposit reserve should the latter become delinquent in payment.
Based on these arrangements, the Central Bank‘s immediate recourse,
therefore should have been against the farmers-borrowers and the RBG;
thus, it erred when it deducted the amounts covered by the debit
advices from Metrobank’s demand deposit account. Under the
Project Terms and Conditions, Metrobank had no responsibility over the
proceeds of the IBRD loans other than serving as a conduit for their transfer
from the Central Bank to the RBG once credit advice has been issued. Thus,
the agreement governed only the parties involved – the Central Bank and the
RBG. Metrobank was simply an outsider to the agreement.
Article 1302 of the Civil Code which provides ―It is presumed that there is
legal subrogation:
(2) When a third person, not interested in the obligation, pays
with the express or tacit approval of the debtor;
Metrobank as a third party to the Central Bank-RBG agreement, had no
interest except as a conduit, and was not legally answerable for the IBRD
loans. Despite this, it was Metrobank‘s demand deposit account, instead of
RBG‘s, which the Central Bank proceeded against, on the assumption
perhaps that this was the most convenient means of recovering the cancelled
loans. That Metrobank‘s payment was involuntarily made does not change
the reality that it was Metrobank which effectively answered for RBG‘s
obligations.
Was there express or tacit approval by RBG of the payment enforced against
Metrobank? After Metrobank received the Central Bank‘s debit advices in
November 1978, it (Metrobank) accordingly debited the amounts it could
from RBG‘s special savings account without any objection from RBG. RBG‘s
President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on
August 14, 1979, with proposals regarding possible means of settling the
amounts debited by Central Bank from Metrobank‘s demand deposit
account. These instances are all indicative of RBG‘s approval of Metrobank‘s
payment of the IBRD loans. That RBG‘s tacit approval came after payment
Page 108 of 121
had been made does not completely negate the legal subrogation that had
taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person
subrogated the credit with all the rights thereto appertaining, either against
the debtor or against third persons. As the entity against which the collection
was enforced, Metrobank was subrogated to the rights of Central Bank and
has a cause of action to recover from RBG the amounts it paid to the Central
Bank, plus 14% per annum interest.
Impleading the Central Bank as a party is completely unnecessary. CA
erroneously believed that the Central Bank‘s presence is necessary ―in order x
x x to shed light on the matter of reversals made by it concerning the loan
applications of the end users and to have a complete determination or
settlement of the claim.‖ In so far as Metrobank is concerned, however, the
Central Bank‘s presence and the reasons for its reversals of the IBRD loans
are immaterial after subrogation has taken place; Metrobank‘s interest is
simply to collect the amounts it paid the Central Bank. Whatever cause of
action RBG may have against the Central Bank for the unexplained reversals
and any undue deductions is for RBG to ventilate as a third-party claim; if it
has not done so at this point, then the matter should be dealt with in a
separate case that should not in any way further delay the disposition of the
present case that had been pending before the courts since 1980.
FUA LU V. YAP
Nature:
Ponente: N/A
Date: July 30, 1943
DOCTRINE: Even if a subsequent obligation does not expressly can cancel
the old obligation, if it is incompatible with the former, there is an implied
novation by reason of incompatibility.
FACTS: Plaintiff obtained a judgment against defendant and was ordered to
pay P1,538.04 with legal interest. A parcel of land was levied upon by the
sheriff. However, it was agreed that the defendants would execute a mortgage
in favor of the plaintiffs and that the obligation would be reduced to P1,200
payable in four installments of P300. It was also agree that that in case the
defendants defaulted in the payment of any of the installments, they would
pay ten per cent of the unpaid balance as attorney's fees plus the costs of the
action to be brought by the petitioner by reason of such default, and the
further amount of P338, representing the discount conceded to the
defendants.
As a result of the agreement thus reached by the parties, the sale of the land
advertised by the provincial sheriff did not take place. However, pursuant to
an alias writ of execution issued by the Court of First instance of manila the
provincial sheriff, without publishing a new notice, sold said land at a public
auction to the plaintiff for P1,923.32. The provincial sheriff executed a final
deed in favor of the plaintiff. On August 29, 1939, the plaintiff instituted the
present action in the Court of First Instance of Sorsogon against the
appellants in view of their refusal to recognize plaintiff‘s title and to vacate
the land. The defendants relied on the legal defenses that their obligation
under the judgment in civil case No. 42125 was novated by the mortgage
executed by them in favor of the plaintiff and that the sheriffs sale was void
for lack of necessary publication. These contentions were overruled by the
lower court which rendered judgment declaring the plaintiff to be the owner
of the land and ordering the appellants to deliver the same to him, without
special pronouncement as to costs. The defendants seek the reversal of this
judgment.
ISSUE: W/N there was a novation entered into by the parties to make the
purchase of the land by the plaintiff invalid.
HELD: Yes, there is a novation and thus the liability under the
prior obligation has been extinguished. The judgment in the civil case
had been extinguished by the settlement evidenced by the mortgage
executed. Although said mortgage did not expressly cancel the old obligation,
this was impliedly novated by reason of incompatibly resulting from the fact
that, whereas the judgment was for P1,538.04 payable at one time, did not
provide for attorney's fees, and was not secured, the new obligation is or
P1,200 payable in installments, stipulated for attorney's fees, and is secured
by a mortgage. The plaintiff, however, argues that the later agreement merely
extended the time of payment and did not take away his concurrent right to
have the judgment executed. This could not have been the purpose for
executive the mortgage, because it was therein recited that the defendants
promised to pay P1,200 to the plaintiffs as a settlement of the judgment in
the civil case No. 42125 .
Moreover, the sheriff's sale in favor of the plaintiff is void because no notice
thereof was published other than that which appeared in the Mamera Press
regarding the sale to be held on the prior auction sale. 1
1
Morran, J dissents: The majority sustained appellants' theory upon two grounds:
(1) that their liability under the judgment has been extinguished by the agreement
and that accordingly there was legally no judgment to execute; and (2) that the
auction sale was void not only because the judgment sought to be executed has
Page 109 of 121
MILLAR V. CA
Nature: Certiorari seeking to reverse the CA‘s decision if recognizing a
novation.
Ponente: CASTRO, J.
Date: April 30, 1971
been extinguished but also because there was no publication thereof as required by
law.
The first ground is contrary to a doctrine laid down by this Court in a previous case.
In Zapanta vs. De Rotaeche, plaintiff obtained judgment against defendant for a
sum of money. Thereafter, the parties entered into an agreement by virtue of which
the obligation under the judgment was to be paid in installments and that, upon
default of defendant to comply with the terms of one agreement, plaintiff shall be
at liberty to enter suit against him. Defendant defaulted and plaintiff sued out a
writ of execution to recover the balance due upon the judgment credit and by
virtue thereof defendant's property was levied upon and sold at public auction.
Here, as in the Zapanta case, there was an agreement providing for the manner of
payment of the obligation under the judgment. In both cases plaintiff has by
express stipulation, the option to enter an independent suit against defendant
should the latter fail to comply with the terms of the settlement. If, in the Zapante
case plaintiff alternative right to execute the judgment has been upheld. I perceive
no cogent reason why plaintiff in the instant case would be denied a like option to
merely execute the judgment and be compelled, instead, to enter an independent
suit on the terms of the settlement The spirit of the new Rules which frowns upon
multiplicity of suits lends additional argument against the majority view.
The majority maintains that here there is an implied novation by "reason of
incompatibility resulting from the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for attorney's fees, and was not
secured, the new obligation is for P1,200 payable in installments, stipulates for
attorney's fees, and is secured by a mortgage." With respect to the amount, it
should be noted that, "while the obligation under the judgment was reduced to
P1,200, there was, however, a stipulation to the effect that the discount would be
recoverable in the event of appellants' default to comply with the terms of the
agreement. And as to attorney's fees and the security by way of mortgage, the
stipulation therefor contained in the agreement is of no moment, for it is merely
incidental to, and anticipatory of, a suit which appellee may choose to take against
appellants. Far, therefore, from extinguishing the obligation under the judgment,
the agreement ratifies it and provides merely a new method and more time for the
judgment debtor to satisfy it. If the judgment debtor fail to comply with the terms
of the agreement, the judgment creditor shall be deemed remitted to his original
rights under the judgment which he may choose to execute or enter, instead, a
separate suit on the terms of the settlement.
DOCTRINE: The defense of implied novation requires clear and convincing
proof of complete incompatibility between the two obligations. The law
requires no specific form for an effective novation by implication. The test is
whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they can
stand together, no incompatibility results and novation does not take place.
FACTS: Petitioner obtained a favorable judgment from the Court of First
Instance of Manila, ordering respondent to pay him the sum of P1,746.98
with interest at 12% per annum from the date of the filing of the complaint,
the sum of P400 as attorney's fees, and the costs of suit. From the said
judgment, the respondent appealed to the Court of Appeals which, however,
dismissed the appeal.
Subsequently, after remand by the Court of Appeals of the case, the petitioner
moved ex parte in the court of origin for the issuance of the corresponding
writ of execution to enforce the judgment. Acting upon the motion, the lower
court issued the writ of execution applied for, on the basis of which the sheriff
of Manila seized the respondent's Willy's Ford jeep .
The respondent, however, pleaded with the petitioner to release the jeep
under an arrangement whereby the respondent, to secure the payment of the
judgement debt, agreed to mortgage the vehicle in favor of the petitioner. The
petitioner agreed to the arrangement; thus, the parties, executed a chattel
mortgage on the jeep, stipulating, that ―This mortgage is given as security for
the payment to the said EUSEBIO S. MILLAR, mortgagee, of the judgment
and other incidental expenses in Civil Case No. 27116 of the Court of First
Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in the amount
of ONE THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippine
currency, which MORTGAGOR agrees to pay as follows:
March 31, 1957 — EIGHT HUNDRED FIFTY (P850) PESOS;
April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00) PESOS.‖
Upon failure of the respondent to pay the first installment due on March 31,
1957, the petitioner obtained an alias writ of execution. This writ which the
sheriff served on the respondent only on May 30, 1957 — after the lapse of
the entire period stipulated in the chattel mortgage for the respondent to
comply with his obligation — was returned unsatisfied.
So on July 17, 1957 and on various dates thereafter, the lower court, at the
instance of the petitioner, issued several alias writs, which writs the sheriff
also returned unsatisfied. On September 20, 1961, the petitioner obtained a
fifth alias writ of execution. Pursuant to this last writ, the sheriff levied on
certain personal properties belonging to the respondent, and then scheduled
them for execution sale.
Page 110 of 121
However, the respondent filed an urgent motion for the suspension of the
execution sale on the ground of payment of the judgment obligation. The
lower court, ordered the suspension of the execution sole to afford the
respondent the opportunity to prove his allegation of payment of the
judgment debt. After hearing, the lower court, issued an order reiterating the
P1,700 debt and costs of execution. The lower court ruled that no novation
had taken place, and that the parties had executed the chattel mortgage only
"to secure or get better security for the judgment.
The respondent duly appealed the aforesaid order to the Court of Appeals,
which set aside the order of holding that the subsequent agreement of the
parties impliedly novated the judgment obligation in civil case 27116.
ISSUE: W/N there was novation when the respondent pleaded to release the
jeep from execution and a new means of payment was agreed upon.
HELD: No, the CA erred in its appreciation the circumstances. The
appellate court stated that the following circumstances sufficiently
demonstrate the incompatibility between the judgment debt and the
obligation embodied in the deed of chattel mortgage, warranting a conclusion
of implied novation:
1. Whereas the judgment orders the respondent to pay the petitioner
the sum of P1,746.98 with interest at 12% per annum from the filing of the
complaint, plus the amount of P400 and the costs of suit, the deed of chattel
mortgage limits the principal obligation of the respondent to P1,700;
2. Whereas the judgment mentions no specific mode of payment of the
amount due to the petitioner, the deed of chattel mortgage stipulates
payment of the sum of P1,700 in two equal installments;
3. Whereas the judgment makes no mention of damages, the deed of
chattel mortgage obligates the respondent to pay liquidated damages in the
amount of P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage,
which may be foreclosed extrajudicially in case of default, secured the
obligation.
The SC shot it down stating with regards to ―1.‖ that in the case at bar, the
mere reduction of the amount due in no sense constitutes a sufficient
indictum of incompatibility, especially in the light of (a) the explanation by
the petitioner that the reduced indebtedness was the result of the partial
payments made by the respondent before the execution of the chattel
mortgage agreement and (b) the latter's admissions bearing thereon.
At best, the deed of chattel mortgage simply specified exactly how much the
respondent still owed the petitioner by virtue of the judgment in civil case
27116. The parties apparently in their desire to avoid any future confusion as
to the amounts already paid and as to the sum still due, decoded to state with
specificity in the deed of chattel mortgage only the balance of the judgment
debt properly collectible from the respondent. All told, therefore, the first
circumstance fails to satisfy the test of substantial and complete
incompatibility between the judgment debt and the pecuniary liability of the
respondent under the chattel mortgage agreement.
With regards to the 3rd circumstance the SC stated that the discrepancy
between the amount of P400 and tile sum of P300 fixed as attorney's fees in
the judgment and the deed of chattel mortgage, respectively, is explained by
the petitioner, thus: the partial payments made by the respondent before the
execution of the chattel mortgage agreement were applied in satisfaction of
part of the judgment debt and of part of the attorney's fee fixed in the
judgment, thereby reducing both amounts.
Lastly with regards to the 2nd and 4th the courts stated that there was no
substantial incompatibility between the mortgage obligation and the
judgment liability of the respondent sufficient to justify a conclusion of
implied novation. The stipulation for the payment of the obligation under the
terms of the deed of chattel mortgage serves only to provide an express and
specific method for its extinguishment — payment in two equal installments.
The chattel mortgage simply gave the respondent a method and more time to
enable him to fully satisfy the judgment indebtedness. The chattel mortgage
agreement in no manner introduced any substantial modification or
alteration of the judgment. Instead of extinguishing the obligation of the
respondent arising from the judgment, the deed of chattel mortgage
expressly ratified and confirmed the existence of the same, amplifying only
the mode and period for compliance by the respondent.
The Court of Appeals also considered the terms of the deed of chattel
mortgage incompatible with the judgment because the chattel mortgage
secured the obligation under the deed, whereas the obligation under the
judgment was unsecured. The petitioner argues that the deed of chattel
agreement clearly shows that the parties agreed upon the chattel mortgage
solely to secure, not the payment of the reduced amount as fixed in the
Page 111 of 121
aforesaid deed, but the payment of the judgment obligation and other
incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the
parties constituted the chattel mortgage purposely to secure the satisfaction
of the then existing liability of the respondent arising from the judgment
against him in civil case 27116. As a security for the payment of the judgment
obligation, the chattel mortgage agreement effectuated no substantial
alteration in the liability of the respondent. 2
SANDICO V. PIGUING
Nature: Certiorari seeking to set aside the order of the respondent judge
setting the aside the writ of executions.
Ponente: CASTRO, J.
Date: November 29, 1971
DOCTRINE: For novation to exist there must be a substitution or
modification of an obligation by another or an extinguishment of one
obligation in the creation of another.
FACTS: Petitioners (the spouses Carlos Sandico and Enrica Timbol, and
Teopisto P. Timbol, administrator of the estate of the late Sixta Paras)
obtained a judgment in their favor against Desiderio Paras (hereinafter
referred to as the respondent) in an action for easement and damages in the
CFI of Pampanga. On appeal, the Court of Appeals affirmed and modified the
judgment, condemning the respondent to recognize the easement which is
held binding as to him; sentencing him to pay plaintiffs the sums of
P5,000.00 actual, and P500.00 exemplary damages, and P500.00 attorney's
fees; plus costs in both instances.
2
BARREDO, J concurs stating that it was unmistakably the intent of the parties that
the said mortgage be merely a "security for the payment to the said Eusebio Millar,
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116
of the Court of First Instance of Manila against Antonio P. Gabriel, mortgagor," to
be paid in the amount and manner therein stated. If this can in any sense in which
the parties must be held to have newly bound themselves. In other words, by their
explicit covenant, the parties contemplated the chattel mortgage to be a security
for the payment of the judgment and not the payment itself thereof. Such being the
case, and it appearing that respondent Gabriel has not paid the judgment remains
unimpaired in its full existence and vigor, and the resort to the execution thereof
thru the ordinary procedure of a writ of execution by the petitioner is an election to
which every mortgage creditor is entitled when he decides to abandon his security.
Petitioners then moved for the issuance of a writ of execution to enforce the
appellate court's judgment which had acquired finality. Acting upon the
motion, the court a quo issued a writ of execution.
Meanwhile the petitioners and the respondent reached a settlement, finally
agreeing to the reduction of the money judgment from P6,000 to P4,000.
Thus, the respondent, paid the petitioners the sum of P3,000 and P1,000 in
two separate payments as evidenced by a receipt issued by the petitioners'
counsel. ―P1,000.00, RECEIVED from Mr. Desiderio Paras the sum of ONE
THOUSAND PESOS (P1,000.00), Philippine Currency, in full satisfaction of
the money judgment rendered against him in Civil Case No. 1554 of the Court
of First Instance of Pampanga, it being understood that the portion of the
final judgment rendered in the said case ordering him to reconstruct the
irrigation canal in question shall be complied with by him immediately.‖
Subsequently, the petitioners sent the respondent a letter demanding
compliance by the latter with the portion of the judgment in civil case 1554
relative to the reconstruction and reopening of the irrigation canal.
Upon failure and refusal of the respondent to rebuild and reopen the
irrigation canal, the petitioners, filed with the respondent judge, a motion to
declare the said private respondent in contempt of court. Opposing the
motion, the respondent alleged recognition by him of the existence of the
easement and compliance with the appellate court's judgment, stating that he
had dug a canal in its former place, measuring about one and-a-half feet
deep, for the petitioners' use.
The respondent judge issued an order denying the petitioners' motion to
declare the respondents in contempt of court, ruling that ―it appears from the
dispositive part of the decision that the defendant was only ordered to
recognize the easement which is held binding as to him and to pay the
plaintiffs the sums P5,000.00 of actual, and P500.00 exemplary damages.‖
Apparently, it is clear from the dispositive part of the decision that there is
nothing to show that the defendant was ordered to reconstruct the canal.
The petitioners moved for issuance of an alias writ of execution to enforce the
judgement of the Court of Appeals. This motion the respondent judge
granted. Tespondent moved to set aside the said alias writ, alleging full
satisfaction of the judgment per agreement of the parties when the petitioner
received the sum of P4, as evidenced by the receipt.
The respondent judge then issued an order directing the provincial sheriff to
suspend the execution of the alias writ until further orders. The respondent
judge issued an order calling, and directing the quashal of the alias writ of
execution. The respondent judge stated in her order that the agreement of the
Page 112 of 121
parties "novated" the money judgment provided for in the decision of the
Court of Appeals, ruling that the said decision.
ISSUES: (1) W/N the respondent judge correctly constructed the judgment
of the Court of Appeals as not requiring the respondent to reconstruct and
reopen the irrigation canal
(2) W/N the payment of the P4,000 novated the obligation of the respondent
HELD: (1) Yes, although the dispositive portion of the appellate
court's judgment omitted any directive to the respondent to
reconstruct and reopen the irrigation canal, the Court of Appeals'
order requiring recognition of the easement on the part of the said
respondent suffices to make him aware of his obligation under the
judgment. The reconstruction and reopening of the irrigation canal may be
done by same other person designated by the court, at the cost of the
respondent. In fact, the respondent in his attempt to rebuild the irrigation
canal, contracted the services of one Gerardo Salenga. Accordingly, in
conformity with the appellate court's judgment as further mutually
interpreted by the parties themselves, the court a quo, because of the failure
and refusal of the respondent to restore the irrigation canal to its former
condition and to reopen it, should have appointed some other person to do
the reconstruction, charging the expenses therefor to the said respondent.
Consequently, the respondent judge, when she granted the motion of the
respondent to set aside the alias writ of execution and issued the order
recalling and quashing the said alias writ, acted correctly. Courts have
jurisdiction to entertain motions to quash previously issued writs of
execution because courts have the inherent power, for the advancement of
justice, to correct the errors of their ministerial officers and to control their
own processes.
(2) No, there is no new or modified obligation that arose out of the
payment by the respondent of the reduced amount of P4,000 and
substitute the monetary liability for P6,000. Additionally, to sustain
novation necessitates that the same be so declared in unequivocal terms —
clearly and unmistakably shown by the express agreement of the parties or by
acts of equivalent import — or that there is complete and substantial
incompatibility between the two obligations. Novation results in two
stipulations — one to extinguish an existing obligation, the other to substitute
a new one in its place. Fundamental it is that novation effects a substitution
or modification of an obligation by another or an extinguishment of one
obligation in the creation of another.
The receipt neither expressly nor impliedly declares that the reduction of the
money judgment was conditioned on the respondent's reconstruction and
reopening of the irrigation canal. The receipt merely embodies the
recognition by the respondent of his obligation to reconstruct the irrigation
canal. And the receipt simply requires the respondent to comply with such
obligation "immediately." The obligation of the respondent remains as a
portion of the Court of Appeals' judgment. In fact, the petitioners themselves,
in their letter dated November 5, 1964, sent to the respondent, demanding
that the latter reconstruct the irrigation canal immediately, referred to the
same not as a condition but as "the portion of the judgment" in civil case
1594.
NATIONAL POWER CORPORATION V DAYRIT
Nature: Petition to set aside the Order, of the respondent judge on the
allegation that the questioned Order was issued with grave abuse of
discretion.
Ponente: ABAD SANTOS, J.
Date: November 25, 1983
DOCTRINE: Novation is never presumed; it must be explicitly stated or
there must be manifest incompatibility between the old and the new
obligations in every aspect.
FACTS: DANIEL E. ROXAS, doing business under the name and style of
United Veterans Security Agency and Foreign Boats Watchmen, sued the
NATIONAL POWER CORPORATION (NPC) and two of its officers in Iligan
City. The purpose of the suit was to compel the NPC to restore the contract of
Roxas for security services which the former had terminated.
After several incidents, the litigants entered into a Compromise Agreement
asked the Court to approve it. Accordingly, a decision was rendered allowing
the parties to enter into a compromise agreement instead of going through
trial. The agreement stated that:
1. The defendant National Power Corporation shall pay to plaintiff the
sum of P7,277.45, representing the amount due to plaintiff for the services of
one of plaintiff's supervisors;
2. The defendant shall pay plaintiff the value of the line materials which
were stolen but recovered, by plaintiff's agency which value is to be
determined after a joint inventory by the representatives of both parties;
3. The parties shall continue with the contract of security services under
the same terms and conditions as the previous contract effective upon the
signing thereof;
Page 113 of 121

4. The parties waive all their respective claims and counterclaims in
favor of each other;
5. The parties agree to faithfully comply with the foregoing agreement.
The judgment was not implemented. Later on, the NPC executed another
contract for security services with Josette L. Roxas whose relationship to
Daniel is not shown. At any rate Daniel has owned the contract. The NPC
refused to implement the new contract for which reason Daniel filed a
Motion for Execution .
Acting on the motion the Court, considering that the decision was based on a
Compromise Agreement entered into by and between the parties which
decidedly, become final and executory, is inclined to grant said action.
The NPC assails the Order on the ground that it directs execution of a
contract which had been novated. Upon the other hand, Roxas claims that
said contract was executed precisely to implement the compromise
agreement for which reason there was no novation.
ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas
constituted a novation.
HELD: No, there is no novation in this case. It is elementary that
novation is never presumed; it must be explicitly stated or there must be
manifest incompatibility between the old and the new obligations in every
aspect. Thus the Civil Code provides:
Art. 1292. In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible
with each other.
In the case at bar there is nothing in the May 14, 1982, agreement which
supports the petitioner's contention. There is neither explicit novation nor
incompatibility on every point between the "old" and the "new" agreements.
INTEGRATED CONSTRUCTION V. RELOVA
Nature: Mandamus to compel the respondent judge to grant the writ of
execution.
Ponente: PARAS, J.
Date: December 29, 1986
DOCTRINE: When a novation is subject to a suspensive condition, failure
to comply with the said condition reverts the parties to their original rights.
FACTS: Petitioners sued the respondent Metropolitan Waterworks and
Sewerage System (MWSS), formerly the National Waterworks and Sewerage
Authority (NAWASA), in the Court of First Instance of Manila for breach of
contract. Meanwhile, the parties submitted the case to arbitration.
The Arbitration Board, after extensive hearings, rendered its decision-award
Respondent Judge confirmed the Award and the same has long since become
final and executory.
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less
P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint
venture in connection with the projector a net award of P13,188,950.20 with
interest thereon from the filing of the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in
consideration of an early payment of the award. Thus, on September 21, 1972,
MWSS adopted Board Resolution No. 132-72, embodying the terms and
conditions of their agreement. MWSS sent a letter-agreement to petitioners,
quoting Board Resolution No. 13272, granting MWSS some discounts from
the amount payable under the decision award (consisting of certain
reductions in interests, in the net principal award and in the trust fund),
provided that MWSS would pay the judgment, less the said discounts, within
fifteen days therefrom.
Upon MWSS' request, the petitioners signed their "Conforme" to the said
letter-agreement, and extended the period to pay the judgment less the
discounts aforesaid to October 31, 1972. MWSS, however, paid only on
December 22, 1972, the amount stated in the decision but less the reductions
provided for in the October 2, 1972 letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust
fund had been released and used to satisfy creditors' claims, the petitioners
filed a motion for execution in said civil case against MWSS for the balance
due under the decision-award. Respondent MWSS opposed execution setting
forth the defenses of payment and estoppel.
Respondent judge denied the motion for execution on the ground that the
parties had novated the award by their subsequent letter-agreement.
Petitioners moved for reconsideration but respondent judge denied the same.
Hence, this Petition for Mandamus, alleging that respondent judge
unlawfully refused to comply with his mandatory duty-to order the execution
of the unsatisfied portion of the final and executory award.
Page 114 of 121
ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas
constituted a novation.
HELD: No, while the tenor of the subsequent letter-agreement in a
sense novates the judgment award there being a shortening of the
period within which to pay is expressly acknowledged. 14th
whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo)
which states: ―WHEREAS, all the foregoing benefits and advantages
secured by the MWSS out of said conferences were accepted by the Joint
Venture provided that the remaining net amount payable to the Joint
Venture will be paid by the MWSS within fifteen (15) days after the official
release of this resolution and a written CONFORME to be signed by the Joint
Venture‖
MWSS' failure to pay within the stipulated period removed the very cause
and reason for the agreement, rendering some ineffective. Petitioners,
therefore, were remitted to their original rights under the judgment award.
The placing of MWSS under the control and management of the Secretary of
National Defense thru Letter of Instruction No. 2, dated September 22, 1972
was not an unforeseen supervening factor because when MWSS forwarded
the letter-agreement to the petitioners, the MWSS was already aware of LOI
No. 2.
MWSS' contention that the stipulated period was intended to pressure
MWSS officials to process the voucher is untenable. As aforestated, it is
apparent from the terms of the agreement that the 15-day period was
intended to be a suspensive condition. MWSS, admittedly, was aware of this,
as shown by the internal memorandum of a responsible MWSS official,
stating that necessary steps should be taken to effect payment within 15 days,
for otherwise, MWSS would forego the advantages of the discount. "
As to whether or not petitioners are now in estoppel to question the
subsequent agreement, suffice it to state that petitioners never acknowledged
full payment; on the contrary, petitioners refused MWSS' request for a
conforme or quitclaim.
Accordingly, the award is still subject to execution by mere motion, which
may be availed of as a matter of right any time within (5) years from entry of
final judgment in accordance with Section 5, Rule 39 of the Rules of Court.
COCHINGYAN, JR. and JOSE K. VILLANUEVA, v. R & B SURETY AND
INSURANCE COMPANY, INC.
Nature: Appeal to the SC
Ponente: FELICIANO, J.
Date: June 30, 1987
DOCTRINE: If objective novation is to take place, it is imperative that the
new obligation expressly declare that the old obligation is thereby
extinguished, or that the new obligation be on every point incompatible with
the old one. Novation is never presumed: it must be established either by the
discharge of the old debt by the express terms of the new agreement or by the
acts of the parties whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be clearly discernible.
FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was
granted an increase in its line of credit from P400,000.00 to P800,000.00
(the "Principal Obligation"), with the Philippine National Bank (PNB). To
secure PNB's approval, PAGRICO had to give a good and sufficient bond in
the amount of P400,000.00, representing the increment in its line of credit,
to secure its faithful compliance with the terms and conditions under which
its line of credit was increased. In compliance with this requirement,
PAGRICO submitted Surety Bond No. 4765, issued by the respondent R & B
Surety and Insurance Co., Inc. (R & B Surety") in the specified amount in
favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R & B
Surety bound themselves jointly and severally to comply with the "terms and
conditions of the advance line [of credit] established by the [PNB]." PNB had
the right under the Surety Bond to proceed directly against R & B Surety
"without the necessity of first exhausting the assets" of the principal obligor,
PAGRICO. The Surety Bond also provided that R & B Surety's liability was
not to be limited to the principal sum of P400,000.00, but would also
include "accrued interest" on the said amount "plus all expenses, charges or
other legal costs incident to collection of the obligation [of R & B Surety]"
under the Surety Bond.
In consideration of R & B Surety's issuance of the Surety Bond, two Identical
indemnity agreements were entered into with R & B Surety: (a) one
agreement was executed by the Catholic Church Mart (CCM) and by
petitioner Joseph Cochingyan, Jr, the latter signed not only as President of
CCM but also in his personal and individual capacity; and (b) another
agreement was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO),
Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager
of PAGRICO and in his personal and individual capacity; Mr. Liu signed both
as President of PACOCO and in his individual and personal capacity.
Under both indemnity agreements, the indemnitors bound themselves jointly
and severally to R & B Surety to pay an annual premium of P5,103.05 and
Page 115 of 121
"for the faithful compliance of the terms and conditions set forth in said
SURETY BOND for a period beginning ... until the same is CANCELLED
and/or DISCHARGED."
When PAGRICO failed to comply with its Principal Obligation to the PNB,
the PNB demanded payment from R & B Surety of the sum of P400,000.00,
the full amount of the Principal Obligation. R & B Surety made a series of
payments to PNB by virtue of that demand totalling P70,000.00 evidenced
by detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph
Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments
made by it to the PNB and for a discharge of its liability to the PNB under the
Surety Bond. When petitioners failed to heed its demands, R & B Surety
brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua
Ben.
Petitioner Joseph Cochingyan, Jr. maintained that the Indemnity Agreement
he executed in favor of R & B Surety: (i) did not express the true intent of the
parties thereto in that he had been asked by R & B Surety to execute the
Indemnity Agreement merely in order to make it appear that R & B Surety
had complied with the requirements of the PNB that credit lines be secured;
(ii) was executed so that R & B Surety could show that it was complying with
the regulations of the Insurance Commission concerning bonding companies;
(iii) that R & B Surety had assured him that the execution of the agreement
was a mere formality and that he was to be considered a stranger to the
transaction between the PNB and R & B Surety; and (iv) that R & B Surety
was estopped from enforcing the Indemnity Agreement as against him.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed
the Indemnity Agreement in favor of R & B Surety only "for accommodation
purposes" and that it did not express their true intention; (ii) that the
Principal Obligation of PAGRICO to the PNB secured by the Surety Bond had
already been assumed by CCM by virtue of a Trust Agreement entered into
with the PNB, where CCM represented by Joseph Cochingyan, Jr. undertook
to pay the Principal Obligation of PAGRICO to the PNB; (iii) that his
obligation under the Indemnity Agreement was thereby extinguished by
novation arising from the change of debtor under the Principal Obligation;
and (iv) that the filing of the complaint was premature, considering that R &
B Surety filed the case against him as indemnitor although the PNB had not
yet proceeded against R & B Surety to enforce the latter's liability under the
Surety Bond.
Petitioner Cochingyan, however, did not present any evidence at all to
support his asserted defenses. Petitioner Villanueva did not submit any
evidence either on his "accommodation" defense. The trial court was
therefore constrained to decide the case on the basis alone of the terms of the
Trust Agreement and other documents submitted in evidence.
Judgment was rendered ordering the defendants Joseph Cochingyan, Jr. and
Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of
400,000,00, representing the total amount of their liability on Surety Bond
No. 4765, and interest at the rate of 6% per annum on the premium amounts.
judgment was rendered: (a) ordering the defendants Joseph Cochingyan, Jr.
and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum
of 400,000,00, representing the total amount of their liability on Surety
Bond No. 4765, and interest at the rate of 6% per annum on the premium
amounts. (b) ordering said defendants to pay, jointly and severally, unto the
plaintiff the sum of P20,412.00 as the unpaid premiums for Surety Bond No.
4765, with legal interest thereon from the filing of plaintiff's complaint on
August 1, 1968 until fully paid, and the further sum of P4,000.00 as and for
attorney's fees and expenses of litigation which this Court deems just and
equitable.
Not satisfied with the decision of the trial court, the petitioners took this
appeal to the Court of Appeals which, as already noted, certified the case to
us as one raising only questions of law.
ISSUES: W/N the Trust Agreement had extinguished, by novation, the
obligation of R & B Surety to the PNB under the Surety Bond which, in turn,
extinguished the obligations of the petitioners under the Indemnity
Agreements
HELD: No, the Surety Bond and their respective obligations under
the Indemnity Agreements were not extinguished by novation
brought about by the subsequent execution of the Trust
Agreement. Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which
terminates it, either by changing its object or principal conditions, or by
substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. Novation through a change of the object
or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of
the creditor is described as subjective (or personal) novation. Novation may
also be both objective and subjective (mixed) at the same time. In both
objective and subjective novation, a dual purpose is achieved-an obligation is
extinguished and a new one is created in lieu thereof.
Page 116 of 121
If objective novation is to take place, it is imperative that the new obligation
expressly declare that the old obligation is thereby extinguished, or that the
new obligation be on every point incompatible with the old one. Novation is
never presumed: it must be established either by the discharge of the old debt
by the express terms of the new agreement or by the acts of the parties whose
intention to dissolve the old obligation as a consideration of the emergence of
the new one must be clearly discernible.
Again, if subjective novation by a change in the person of the debtor is to
occur, it is not enough that the juridical relation between the parties to the
original contract is extended to a third person. It is essential that the old
debtor be released from the obligation, and the third person or new debtor
take his place in the new relation. If the old debtor is not released, no
novation occurs and the third person who has assumed the obligation of the
debtor becomes merely a co-debtor or surety or a co-surety.
Applying the above principles to the instant case, it is at once evident that the
Trust Agreement does not expressly terminate the obligation of R & B Surety
under the Surety Bond. On the contrary, the Trust Agreement expressly
provides for the continuing subsistence of that obligation by stipulating that
"[the Trust Agreement] shall not in any manner release" R & B Surety from
its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent
an unequivocal declaration of extinguishment of a pre-existing obligation, a
showing of complete incompatibility between the old and the new obligation
(and nothing else) would sustain a finding of novation by implication. 9 But
where, as in this case, the parties to the new obligation expressly recognize
the continuing existence and validity of the old one, where, in other words,
the parties expressly negated the lapsing of the old obligation, there can be no
novation. The issue of implied novation is not reached at all.
What the trust agreement did was, at most, merely to bring in another person
or persons-the Trustor[s]-to assume the same obligation that R & B Surety
was bound to perform under the Surety Bond. It is not unusual in business
for a stranger to a contract to assume obligations thereunder; a contract of
suretyship or guarantee is the classical example. The precise legal effect is the
increase of the number of persons liable to the obligee, and not the
extinguishment of the liability of the first debtor. Thus, in Magdalena Estates
vs. Rodriguez, it was held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments
from a third person who has agreed to assume the obligation, when there is
no agreement that the first debtor shall be released from responsibility, does
not constitute a novation, and the creditor can still enforce the obligation
against the original debtor.
In the present case it was noted that the Trustor under the Trust Agreement,
the CCM, was already previously bound to R & B Surety under its Indemnity
Agreement. Under the Trust Agreement, the Trustor also became directly
liable to the PNB. So far as the PNB was concerned, the effect of the Trust
Agreement was that where there had been only two, there would now be
three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R
& B Surety and the Trustor. And the PNB could proceed against any of the
three, in any order or sequence. Clearly, PNB never intended to release, and
never did release, R & B Surety. Thus, R & B Surety, which was not a party to
the Trust Agreement, could not have intended to release any of its own
indemnitors simply because one of those indemnitors, the Trustor under the
Trust Agreement, became also directly liable to the PNB.
The Surety Bond was not novated by the Trust Agreement. Both
agreements can co-exist. The Trust Agreement merely furnished
to PNB another party obligor to the Principal Obligation in
addition to PAGRICO and R & B Surety.
SPOUSES BALILA v. IAC
Nature: Petition for review of certiorari
Ponente: PARAS, J.
Date: October 29, 1987
DOCTRINE: The decisions of lower courts may be novated, if such is the
intention of the parties
FACTS: There was an amicable settlement between petitioners and private
respondents as defendants and plaintiffs in a Civil Case, which was approved
by the trial court and made as the basis of its Decision ordering the parties to
comply strictly with the terms and conditions embodied in said amicable
settlement. The salient points therein show that defendants admitted "having
sold under a pacto de retro sale the parcels of land described in the complaint
in the amount of P84,000.00" and that they "hereby promise to pay the said
amount within the period of four (4) months but not later than May 15,1981."
On December 30, 1981 or more than seven months after the last day for
making payments, defendants redeemed from plaintiff Guadalupe (one of the
Page 117 of 121
private respondents herein) Lot No. 52 with an area of 294 sq.m. covered by
TCT 101352 which was one of the three parcels of land described in the
complaint by paying the amount of P20,000.00.
On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation
of title over the remaining two (2) parcels of land namely Lot 965 and Lot 16
alleging that the court's decision dated December 11, 1980 remained
unenforced for no payment of the total obligation due from defendants.
Defendants opposed said motion alleging that they had made partial
payments of their obligation through plaintiff's attorney in fact and son,
Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower
court issued the questioned order affirming consolidation.
On June 8, 1983, while the Order of the lower court had not yet been
enforced, defendants paid plaintiff Guadalupe Vda. del Castillo by tendering
the amount of P28,800.00 to her son Waldo del Castillo (one of the private
respondents herein) thus leaving an unpaid balance of P35,200.00. A
Certification dated June 8, 1983, (Annex D, Rollo, page 31) and signed by
Waldo shows that defendants were given a period of 45 days from date or up
to July 23, 1983 within which to pay the balance. Said Certification supported
defendants' motion for reconsideration and supplemental motion for
reconsideration of the Order reconsolidation of title, which motions were
both denied by the lower court, prompting defendants to file a petition for
certiorari, prohibition and mandamus with pre injunction petition with the
Intermediate Appellate Court to seeking to annul and set aside the assailed
Order dated April 26, 1983 and the Order denying their motion for
reconsideration. After due consideration of the records of the case, the
appellate tribunal sustained the lower court, hence the present petition for
certiorari.
ISSUES: W/N the judgment by compromise was novated by the subsequent
act of the parties.
HELD: Yes, it was novated and amended by the subsequent
mutual agreements and actions of petitioners and private
respondents. The root of all the issues raised before Us is that judgment by
compromise rendered by the lower court based on the terms of the amicable
settlement of the contending parties. Such agreement not being contrary to
law, good morals or public policy was approved by the lower court and
therefore binds the parties who are enjoined to comply therewith.
However, the records show that petitioners made partial payments to private
respondent Waldo del Castillo after May 15, 1981 or the last day for making
payments, redeeming Lot No. 52 as earlier stated. (Annex "A," Petition).
There is no question that petitioners tendered several payments to Waldo del
Castillo even after redeeming lot No. 52. A total of these payments reveals
that petitioners share. fulIy paid the amount stated in the judgment by com
promise. The only issue is whether Waldo del Castillo was a person duly
authorized by his mother Guadalupe Vda. de del Castillo, as her attorney-in-
fact to represent her in transactions involving the properties in question. We
believe that he was so authorized in the same way that the appellate court
took cognizance of such fact as embodied in its assailed decision.
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo,
represented by her attorney in fact Waldo Castillo, filed a complaint for
consolidation of ownership against the same petitioners herein before the
Court of First Instance of Pangasinan, docketed as Civil Case No. U-3650, the
allegations of which are Identical to the complaint filed in Civil Case No. U-
3501 of the same court. This case U-3650 was, however, dismissed in an
Order dated May 27, 1983, in view of the order of consolidation issued in
Civil Case No. U-350 1.
The fact therefore remains that the amount of P84,000.00 payable on or
before May 15, 1981 decreed by the trial court in its judgment by compromise
was novated and amended by the subsequent mutual agreements and actions
of petitioners and private respondents. Petitioners paid the aforestated
amount on an insatalment basis and they were given by private respondents
no less than eight extensions of time pay their obligation. These transactions
took place during the pendency of the motion for reconsideration of the
Order of the trial court dated April 26, 1983 in Civil Case No. U-3501, during
the pendency of the petition for certiorari in AC-G.R. SP-01307 before the
Intermediate Appellate Court and after the filing of the petition before us.
This answers the claim of the respondents on the failure of the petitioners to
present evidences or proofs of payment in the lower court and the appellate
court.
As early as Molina vs. De la Riva the principle has been laid down that, when,
after judgment has become final, facts and circumstances transpire which
render its execution impossible or unjust, the interested party may ask the
court to modify or alter the judgment to harmonize the same with justice and
the facts.
Page 118 of 121
For this reason in Amor vs. Judge Jose, it was ruled that: The Court cannot
refuse to issue a writ of execution upon a final and executory judgment, or
quash it, or order its stay, for, as a general rule, parties will not be allowed,
after final judgment, to object to the execution by raising new issues of fact or
of law, except when there had been a change in the situation of the parties
which makes such execution in- equitable; or when it appears that the
controversy has never been submitted to the judgment of the court, or when
it appears that the writ of execution has been improvidently issued, or that it
is defective in substance, or issued against the wrong party or that judgment
debt has been paid or otherwise satisfied or when the writ has been issued
without authority.
What was done by respondent Judge in setting aside the writ of execution in
Civil Case No. 5111 finds support in the applicable authorities. There is this
relevant excerpt in Barretto v. Lopez this Court speaking through the then
Chief Justice Paras: "Allegating that the respondent judge of the municipal
court had acted in excess of her jurisdiction and with grave abuse of
discretion in issuing the writ of execution of December 15, 1947, the
petitioner has filed the present petition for certiorari and prohibition for the
purpose of having said writ of execution annulled. Said petition is
meritorious. The agreement filed by the parties in the ejectment case created
as between them new rights and obligations which naturally superseded the
judgment of the municipal court." In Santos v. Acuna, it was contended that a
lower court decision was novated by the subsequent agreement of the parties.
Implicit in this Court's ruling is that such a plea would merit approval if
indeed that was what the parties intended.
BALILA v. IAC
Nature: Petition for certiorari to review the decision of the IAC regarding
the consolidation of ownership over parcels of land in the name of private
respondents
Ponente: Paras, J.
Date: October 29, 1987
DOCTRINE: Subsequent mutual agreements and actions of the plaintiffs
and the defendants will result in the novation of and amended to the order of
the court in its judgment of compromise.
FACTS:
Relevant Provision of Law:
No provision of law cited
Petitioners sold parcels of land to respondents under a pacto de retro sale.
Petitioners failed to repurchase within the agreed period. A civil case was
filed by respondents against petitioners. However, an amicable settlement
was reached between the parties and was approved by the trial court and was
made as the basis of the court‘s decision. In the amicable settlement, the
period of payment was extended to May 15, 1981.
Unfortunately, petitioners failed to pay within the extended period. It was
only on December 30, 1981, that petitioners offered to redeem the property.
On August 4, 1982, respondents filed a case for the consolidation of
ownership over the parcels of land. The court ordered the consolidation,
which was eventually appealed to the IAC. The IAC affirmed the trial court.
Petitioners then elevated the case to the SC.
While the case was pending before the IAC and the SC, however, petitioners
made partial payments to respondent Vda. de Del Castillo‘s son and attorney
in fact, Waldo del Castillo, which the latter received and accepted.
Petitioners contend that these partial payments were subsequent mutual
agreements of the parties which novated the agreement in the amicable
settlement from which the trial court‘s decision was based, so that the period
of payment was further extended beyond the period in the trial court
decision.
ISSUE:
WON subsequent mutual agreements between the parties novated the prior
agreement which was made the basis of the trial court decision, so that the
period of payment was further extended.
RULING:
YES. The payment period in the trial court’s judgment by
compromise was novated and amended by the subsequent mutual
agreements and actions of the parties.
The fact therefore remains that the amount of P84,000.00 payable on or
before May 15, 1981 decreed by the trial court in its judgment by compromise
was novated and amended by the subsequent mutual agreements and actions
of petitioners and private respondents.
De Los Santos v Rodriguez:
When, after judgment has become final, facts and circumstances transpire
which render its execution impossible or unjust, the interested party may ask
the court to modify or alter the judgment to harmonize the same with justice
and the facts.
Dormitorio v Fernandez:
Page 119 of 121
The agreement filed by the parties in the ejectment case created as between
them new rights and obligations which naturally superseded the judgment of
the municipal court. In Santos v. Acuna, it was contended that a lower court
decision was novated by the subsequent agreement of the parties. Implicit in
this Court's ruling is that such a plea would merit approval if indeed that was
what the parties intended.
PEOPLE’S BANK v. SYVEL’S
Nature: Appeal from the decision of the CFI; originally, action for
foreclosure of chattel mortgage
Ponente: Paras, J.
Date: August 11, 1968
DOCTRINE: It is elementary that novation is never presumed; it must be
explicitly stated or there must be manifest incompatibility between the old
and the new obligations in every aspect.
FACTS:
Relevant Provisions of Law:
No provision of law cited
The plaintiff-appellee bank granted the defendant-appellant corporation a
credit commercial line, secured by a chattel mortgage on the corporation‘s
stocks of goods, personal properties and other materials. The appellant drew
advances on the credit line. However, the appellant failed to make payments
in accordance with the terms and conditions agreed upon in the credit line.
The appellee started to foreclose extrajudicially the chattel mortgage, and a
case was eventually filed in court. The appellant proposed to have the case
settled amicably and requested to dismiss the case to avoid the impairment of
the corporation‘s goodwill. Appellant offered to execute a real estate
mortgage on real property, and this was executed in favor of appellee. In the
contract of real estate mortgage, it was stipulated that the chattel mortgage
shall remain in full force and shall not be impaired by the real estate
mortgage.
A motion to dismiss was prepared by the appellee, following the agreement to
dismiss the case, but appellant did not want to agree with such dismissal
since it would mean that the counterclaim of appellant against the appellee
would also be dismissed. Trial proceeded.
The trial court ruled in favor of appellee, and ordered the payment of the debt
by the appellant to the appellee. If appellant failed to pay, then the chattel
mortgaged would be foreclosed.
ISSUE:
WON there was a novation of the contract so that the chattel mortgage has
been replaced by the real estate mortgage
RULING:
NO. The real estate mortgage is merely a new additional security
to the chattel mortgage previously entered into by the parties.
Novation takes place when the object or principal condition of an obligation
is changed or altered. It is elementary that novation is never presumed; it
must be explicitly stated or there must be manifest incompatibility between
the old and the new obligations in every aspect.
In the case at bar, there is nothing in the Real Estate Mortgage which
supports appellants‘ submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every point between
the ―old‖ and the ―new‖ agreements as the second contract evidently indicates
that the same was executed as new additional security to the chattel mortgage
previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed
that the chattel mortgage ―shall remain in full force and shall not be impaired
by this (real estate) mortgage.‖
It is clear, therefore, that a novation was not intended. The real estate
mortgage was evidently taken as additional security for the performance of
the contract.
RODRIGUEZ v. REYES
Nature: Original action in the Supreme Court. Certiorari with preliminary
injunction. Sale of properties at public auction, where properties mortgaged.
Ponente: Reyes, J.B.L., J.
Date: January 30, 1971
DOCTRINE: The mere fact that the purchaser of an immovable has notice
that the required realty is encumbered with a mortgage does not render him
liable for the payment of the debt guaranteed by the mortgage, in the absence
of stipulation or condition that he is to assume payment of the mortgage
debt. Here, the purchaser does not obligate himself to replace the debtor in
the principal obligation, and he could not do so in law without the creditor‘s
consent, as explicitly provided in Art. 1293
FACTS:
Relevant Provisions of Law:
Article 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against
the will of the latter, but not without the consent of the creditor. Payment by
Page 120 of 121
the new debtor gives him the rights mentioned in articles 1236 and 1237.
(1205a)

Petitioners filed a complaint against respondent, their brother, for the

partition of properties held in common. During the pre-trial conference, the
co-owners (siblings) agreed to have the property in litigation sold at public
auction to the highest bidder. At that time, the property was mortgaged to
the DBP. An auction sale was held, where respondent Dualan was the
highest bidder. When the petitioners moved for the approval of the sale,
respondents (brother and highest bidder) commented that court should
order that the property sold is free from all liens and encumbrances,
including the mortgage to DBP.

Petitioners contend that the doctrine of caveat emptor should apply, so that
since the highest bidder bought the property at his own peril, with knowledge
of the encumbrance, he should assume payment of the indebtedness secured
thereby.

ISSUE:
WON, by virtue of the auction sale, the highest bidder assumed the mortgage
indebtedness, so that there is a novation substituting the highest bidder in
place of the original debtor.

RULING:
NO. A buyer cannot be obligate himself to replace the debtor in
the principal obligation without the creditor’s consent.

We find the stand of petitioners-appellants to be unmeritorious and

untenable. The maxim ―caveat emptor‖ applies only to execution sales, and
this was not one such. The mere fact that the purchaser of an immovable has
notice that the required realty is encumbered with a mortgage does not
render him liable for the payment of the debt guaranteed by the mortgage, in
the absence of stipulation or condition that he is to assume payment of the
mortgage debt.

By buying the property with notice that it was mortgaged, respondent Dualan
only undertook either to pay or else allow the land‘s being sold if the
mortgage creditor could not or did no obtain payment from the principal
debtor when the debt matured. Nothing else. Certainly the buyer did not
obligate himself to replace the debtor in the principal obligation, and he
could not do so in law without the creditor‘s consent, under Art. 1293.

The obligation to discharge the mortgage indebtedness, therefore, remained

on the shoulders of the original debtors and their heirs, petitioners herein,
since the record is devoid of any evidence of contrary intent.
Page 121 of 121