403 Oblicon 21 22 Digests

OBLICON CASE DIGESTS | ATTY.
BATHAN-LASCO | EH 403 – CASES FOR RECITATIONS

By: Alcasid - Alicante - Baes - Buenaventura - Burdeos - Hidalgo - Legaspi - Lucero - Montilla - Rufin - Selma - Sia - Tupa - Tagapia - Villarin - Wee
CIVIL LAW REVIEW compromised amount was reduced from P8M to P6.5M
OBLIGATIONS & CONTRACTS upon delivery of the 3 Toyota vehicles.
DIGESTS FOR RECITATIONS
ATTY. MARICRIS BATHAN ISSUE: (relevant)
WON the Compromise Agreement takes effect
KINDS OF OBLIGATIONS RULING:

No. When a contract is subject to a suspensive condition,
its birth or effectivity can take place only if and when the
Pure and Conditional Obligations event which constitutes the condition happens or is
September 14, 2021 Recitations fulfilled. If the suspensive condition does not take place,
the parties would stand as if the conditional obligation has
never existed.
Suspensive and Resolutory conditions
In this case, the Compromise Agreement clearly
Insular Life Assurance Co., Ltd. vs. Toyota Bel-Air, stipulates that it shall become valid and binding only upon
 Inc the occurrence of all the conditions in the agreement.
550 SCRA 70 (2008)   Thus, the issuance of 12 postdated checks and the
Aireen Selma posting of a surety bond are positive suspensive
conditions of the Compromise Agreement, the non-
FACTS: compliance with which was not a breach but a situation
Toyota Bel-Air, Inc. (Toyota) entered into a Contract of that prevented the obligation under the Compromise
Lease over a 3,700sqm lot and building owned by Insular Agreement from acquiring obligatory force. For its non-
Life Assurance Company, Ltd. (Insular Life). Upon fulfillment, there was no contract or agreement to speak
expiration of the lease, Toyota remained in possession of of.
the property. Despite repeated demands, Toyota refused
to vacate the property. Thus, Insular Life filed a complaint Since Toyota was unable to comply with the last two
for unlawful detainer against Toyota in the MeTC. conditions of the agreement, which were suspensive
conditions, Insular Life cannot be compelled to comply
MeTC issued a writ of execution against Toyota, levying with its obligation to end the present litigation. No right in
on the latter’s real and personal properties as well as favor Toyota arose and no obligation on the part of Insular
garnishing its bank accounts. Life was created.
Toyota and Insular Life entered into a Compromise Coronel vs. CA

Agreement whereby Toyota was obligated to pay Insular GR No. 103577, Oct 7, 1996  
Life P8 million through: Googi Buenaventura
(1) delivery of 3 Toyota vehicles worth P1.5M, FACTS: The obligation involved in this case was
(2) issuance of 12 post dated corporate checks to answer embodied in a Receipt of Down Payment between the
for the balance of P6.5M in 12 monthly installments, and Coronels and Ramona. In this agreement, they stipulated
(3) posting of a surety bond which shall guarantee that upon down payment of Ramona of P50,000 and upon
payment of installments. the transfer of the TCT from their father’s name to the
Coronels’ names, they agreed to sell to Ramona the
Once all the conditions are met, there will be lifting of the parcel of land to which Ramona would pay the P1.19M
garnishment. balance.
Insular Life maintains that Toyota failed to comply with the On the same day of the execution of this agreement, the
conditionals relating to the postdated checks and surety mother of Ramona, Concepcion, had paid the
bond. However, Toyota insisted that the Compromise downpayment. A month later, the Coronels had
Agreement should be given effect as there was already transferred the title to their name. However, they sold the
substantial compliance of the conditions since the property to Catalina instead. This prompted Ramona to
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OBLICON CASE DIGESTS | ATTY. BATHAN-LASCO | EH 403 – CASES FOR RECITATIONS
file for specific performance and asked the court to the case, the Court may safely presume that, had the
compel the Coronels to sell them the land as promised. certificate of title been in the wonames of petitioners-
sellers at that time, there would have been no reason why
ISSUE: What kind of contract did the Coronels and an absolute contract of sale could not have been
Ramona enter into? A conditional contract of sale? Or a executed and consummated right there and then. Unlike
contract to sell? in a contract to sell, the Coronels in the case at bar did
not merely promise to sell the property to Ramona upon
RULING: They entered into a conditional contract of the fulfillment of the suspensive condition. On the
sale, which was perfected when the Coronels had contrary, having already agreed to sell the subject
transferred the TCT in their name. property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to
Sale, by its very nature, is a consensual contract, execute the written deed of absolute sale.
perfected by mere consent. The essential elements of a
contract of sale are the following: consent, object and SC ordered: (1) the Coronels to execute in favor of
cause. Ramona a deed of absolute sale together will all the
improvements thereon free of all liens and encumbrances
It should be noted that a Contract to Sell may not be and to immediately deliver the document to respondents;
considered as a Contract of Sale because the first (2) Ramona to pay the whole balance of P1,190,000; and
essential element of consent is lacking. In a contract to (3) have the TCT of Catalina canceled and declared to be
sell, the prospective seller explicitly reserves the transfer without force and effect.
of title to the prospective buyer. In other words, the full
payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the Central Philippine University vs. CA
obligation to sell from arising and thus, ownership is GR No. 112127,  July 17, 1995, 246 SCRA 511, 63
retained by the prospective seller without further remedies SCAD 72  
by the prospective buyer. Jewel Wee
In a contract to sell, upon the fulfillment of the suspensive Don Ramon Lopez, Sr. executed a deed of donation in
condition which is the full payment of the purchase price, favor of CPU, with the following conditions:
the prospective seller's obligation to sell the subject 1. The land shall be utilized exclusively for the
property by entering into a contract of sale with the establishment of a medical college.
prospective buyer becomes demandable. 2. CPU shall not sell, transfer, or convey it to any 3 rd
party nor encumber it.
In the case, considered in its entirety, the "Receipt of 3. That it shall be called the “RAMON LOPEZ
Down Payment" had a clear intent on the part of the CAMPUS” and the net income from the land shall
Coronels to transfer title to the buyer – Ramona. But since be put in the “RAMON LOPEZ CAMPUS FUND”
the TCT was still in the name of their father, they could to be used for its improvements.
not fully effect such transfer although the buyer was then
willing and able to immediately pay the purchase price. The heirs of Lopez, Sr. filed an action for annulment,
Therefore, the Coronels undertook upon receipt of the reconveyance and damages against CPU for non-
down payment from Ramona, to cause the issuance of a compliance of the conditions, as they have not yet built
new certificate of title in their names from that of their the building and negotiated with the NHA to exchange it
father, after which, they promised to present said title, for another lot. But CPU denied that it violated the
now in their names, to the latter and to execute the deed conditions and alleged that the right of the heirs have
of absolute sale whereupon, the latter shall, in turn, pay already prescribed.
the entire balance of the purchase price.
ISSUE: Whether the donation was subjected to onerous
Thus: the agreement could not have been a contract to obligations and non-compliance of the conditions would
sell because the sellers herein made no express render the donation revocable.
reservation of ownership or title to the subject parcel of
land. Under the established facts and circumstances of DECISION:
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As to the condition (main) Jacinto vs. Kaparaz
A clear perusal of the conditions set forth in the deed of 209 SCRA 246 (1992)  
donation would conclude that the donation was onerous, Ruth Montilla
one executed for a valuable consideration, which is
considered the equivalent of the donation itself. Facts: Petitioners and private respondents entered into
an agreement where the respondents agreed to sell and
Under Art. 1181, the acquisition of rights, as well as the convey to the petitioners a portion of a lot in Davao
extinguishment or loss of those already acquired, shall Oriental for a total consideration of 1,800php. 800php was
depend upon the happening of the event which given as down payment upon execution of the agreement.
constitutes the condition. The balance of 1000php was to be paid by petitioners on
installment at rate of 100php a month to DBP for the
Thus, when a person donates land to another on the account of Domingo and Narciza Kaparaz. In paying the
condition that the latter would build upon the land, the 1000php, petitioners claimed that they made an excess
condition imposed was not a condition precedent or a payment of 100php.
suspensive condition, but a resolutory one. The donation
had to be valid before the fulfillment of the condition, and Since the respondents were refusing to execute the deed
by non-compliance with the condition, the donation may of sale, petitioners filed a complaint for specific
be revoked and all rights which the done may have performance. In their defense, the private respondents
acquired under it shall be deemed lost and extinguished. alleged that the sale did not materialize because of the
petitioner’s failure to make timely payments. RTC ruled in
As to prescription favor of the plaintiffs. The defendants are ordered to
The condition imposed by the donor depended upon the reconvey the property to the plaintiffs herein. Private
exclusive will of the donee as to when they will fulfill it. respondents appealed to the CA. CA reversed the
Since the time within which the condition should be decision of RTC and believes that petitioner had not fully
fulfilled depended upon the exclusive will of CPU, it has discharged their obligation under the agreement since
been held that its absolute acceptance and the there was a delay of payment to the DBP. Even if both
acknowledgment of its obligation provided in the deed parties defaulted in the performance of their respective
were sufficient to prevent the statute of limitations from obligations, petitioner were the first to incur delay.
barring the action of the heirs upon the original contract.
Issue: WON the respondents are entitled to rescind the
As to fixing of the period payment.
Thus, when the obligation does not fix for a period but
from its nature and circumstances, it can be inferred that Ruling: NO.
a period was intended, Art 1197 applies, which provides
that the courts may fix the duration thereof because the In a contract of sale, the non-payment of the price is a
fulfillment of the obligation itself cannot be demanded until resolutory condition. The remedy of the seller is to exact
after the court has fixed the period for compliance fulfillment or to rescind the contract. In the sale of
therewith and such period has arrived. But this rule cannot immovable property, even though it may have been
be applied in this case since more than 50 years had stipulated that upon failure to pay the price at the time
already lapsed to give CPU the opportunity to comply with agreed upon the rescission of the contract shall of right
the conditions, but they still failed. take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the
As to rescission contract has been made upon him either judicially or by a
Under Art 1191, when one of the obligors cannot comply notarial act.
with what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless In the case at bar, there was non-compliance with the
there is just cause authorizing the fixing of a period. In the requirements prescribed in the provisions. There was a
absence of any just cause for the court to determine the delay incurred by the petitioners but it was causal or a
period of the compliance, there is no more obstacle for the slight breach of the agreement. Such delay did not defeat
court to decree the rescission claimed. the object of the parties who entered into an agreement.
Hence, the private respondents are not entitled to
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rescission and the property should be reconveyed to the Art. 1308. The contract must bind both
plaintiffs contracting parties; its validity or compliance
cannot be left to the will of one of them.
Ducusin vs. CA
122 SCRA 280 (1983)   Art. 1182. When the fulfillment of the condition
Renier Hidalgo depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends
FACTS: Ducusin leased to Spouses Baliola an apartment upon chance or upon the will of a third person, the
unit on February 20, 1975. One of the terms of the lease obligation shall take effect in conformity with the
contract provides that: provisions of this Code.
-xxx- The resolutory condition in the contract of lease re: the

need of the lessor's children of the leased premises
The term of this contract shall be in a month-to- is not a condition the happening of which is
month basis commencing on February 19, 1975 dependent solely upon the will of the lessor. The
until terminated by mutual agreement or happening of the condition depends upon the will of
terminated by the lessor on the ground that a third person - the lessor's children. Whenever the
his children need the premises for their own latter require the use of the leased premises for their own
use or residence or upon any ground provided needs, then the contract of lease shall be deemed
for in accordance with law; terminated. The validity of the said condition as agreed
upon by the parties stands.
-xxx-
Subsequently, on January 18, 1977, Ducusin sent a

Postestative, Casual and Mixed Conditions
"Notice to Terminate Lease Contract" to the Spouses
Baliola terminating the lease for the reason that his two
children were getting married and would need the Rustan Pulp vs. IAC
apartment for their own use and residence. The Spouses GR No. 70789, Oct. 19, 1992, 214 SCRA 665  
Baliola did not reply to the Notice. Thus, this ejectment Von Villarin
suit by Ducusin.
Facts: In 1966, Rustan Pulp established a pulp and paper
ISSUE: Whether the ground for terminating the lease mill in Lanao del Norte. Lluch, who is a supplier and a
contract is legally valid. YUP holder of a forest products license, sent a letter to Rustan
Pulp to engage in preparatory talks for a business
RATIO: The parties to the contract of lease agreed that contract.
the obligations arising from the said contract shall be
extinguished due to the following causes: (1) termination Rustan Pulp agreed to a supply deal with Lluch, proposing
of the contract by mutual consent of to parties; (2) when among other things that the supply deal not be made
the lessor elects to terminate the contract on the ground exclusive. In other words, Rustan Pulp made it clear that
that his children need the premises for their own use or it would be able to obtain said supply from other suppliers
residence; and (3) for any cause as provided in as well.
accordance with law.
A contract of sale was signed by and between them
In the complaint for ejectment, Ducusin relied on, among whereby Lluch would supply Rustan Pulp and in turn, the
others, the happening of the resolutory condition — need latter would pay the price of P30 per cubic meter of pulp
of the leased premises by the lessor's children. wood raw materials to be delivered at Rustan’s plant.
The validity of the terms and conditions in a contract is The contract contained a stipulation to wit:
governed by the following Civil Code provisions:
“That the Buyer (Rustan) shall have the right to stop
delivery of the said raw materials when the supply of the
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same shall become sufficient until such time when need While it is true however that according to jurisprudence, A
for said raw materials shall have become necessary. condition which is BOTH potestative and resolutory may
Provided however, that the seller (Lluch) is given be valid even if the saving clause is left to the will of the
sufficient notice.” obligor. But this is only so when the proviso relates to the
birth of the contract and not to the fulfillment of an existing
After some time and in the installation of the plant facilities obligation.
and machines, the technical staff of Rustan
recommended the acceptance of deliveries from the Thus, according to the Civil Code, a purely potestative
suppliers. However, during the test run the machinery line imposition must be obliterated from the contract without
had major defects while the deliveries kept piling up. The affecting the rest of the stipulations considering that the
Japanese supplier of the machines recommended the proviso relates to the fulfillment of an already existing
stoppage of the deliveries. obligation and not to its inception.
Thus, Rustan sent letters to its suppliers, including Lluch Thus, the Court so declares that the stipulation is deemed
informing them that the deliveries needed to be stopped. as inoperative.
Lluch, not sure of whether the stoppage was temporary or Neither will the Court accept the reasoning of Rustan
permanent, sent a letter to Rustan asking the latter to alleging that they could not perform the stipulations of the
clarify. This letter was not answered. contract because of their machines breaking down. Even
after Rustan sent the letter to its suppliers, it still continued
Lluch and other suppliers however, resumed deliveries accepting shipments of supplies. Such conduct will
after a series of talks by and between Romeo Vergara, a estope Rustan from claiming that the breakdown of the
manager of Rustan, and Lluch. machinery was an extraordinary obstacle to their
compliance with their legal obligation.
On January 1969 however, a complaint for breach of
contract was filed by Lluch against Rustan. The Trial
Court dismissed the petition and enjoined the parties to Osmena vs. Rama
respect the contract if the circumstances warrant. 14 Phil 99 (1909), Sept. 9, 1909  
Nikki Sia
Upon appeal to the CA, the CA modified the judgment
directing Rustan to pay moral damages for violating the Hi, the facts were taken from the digest I found online
contract. cause mas sabotable siya hehe.
ISSUE: was Rustan Pulp well within their rights to stop FACTS:
the delivery of supplies? Doña Cenona Rama entered into a contract with Don
Victoriano Osmena for a sum of money with a stipulated
Held: NO. condition that in the event that the former will not be able
to pay the amount borrowed, she will sell to the said Señor
Rustan is of the impression that the letter sent to Lluch is Osmeña all the sugar that she will harvest and as a
well within their rights to stop the deliveries pursuant to guarantee, pledge as security all of her present and future
the contract. It is true that Rustan has the prerogative. property, and as special security the house with tile roof
However, what diminishes the legal efficacy of such and ground floor of stone in which she is currently
stipulation is the condition attached to it. Because the residing. The following year, defendant contracted an
condition is one that is solely dependent and exclusively additional loan from petitioner.
on the will of Rustan. This would make the resumption of
the delivery of the supplies purely dependent on the will However, even before the said loans can be paid, Don
of Rustan whereby Rustan can always claim that they still Victoriano Osmena died. As a consequence, the said
have a sufficient supply when in fact they have been contractual agreements became properties of one of his
accepting such supplies from other sources. heirs. When the stipulated payment period came,
defendant was not able to pay for said obligation. This
prompted the heir, herein plaintiff, to file a case in the
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Court of First Instance demanding for the execution and respondent filed against petitioners for reformation of
delivery of said contracts. After hearing the evidence contract with damages on the ground that it has become
presented by both parties, the Court of First Instance too one-sided and disadvantageous to private
rendered a decision in a favor of the plaintiff. Dissatisfied respondent.
with the decision, the defendants appealed.
ISSUE: -Trial court ruled that the contract should be reformed by
ordering petitioners to pay private respondent
Whether the condition that herein defendant relied upon compensation for the use of their posts in Naga City and
for the payment of the obligation is valid and would also for those used outside Naga City, while private
thereby preclude her from payment. respondent should also be ordered to pay the monthly
bills for the use of the telephones also in Naga City.
RULING:
NO, the condition was void. -CA affirmed RTC, BUT also added that the contract was
subject to a potestative condition in favor of petitioners
It was suggested during the discussion of the case in this which rendered the condition void.
court that, in the acknowledgment above quoted of the
indebtedness made by the defendant, she imposed the -Petitioners allege that there is nothing purely potestative
condition that she would pay the obligation if she sold her about the prestations of either party because petitioner's
house. If that statement found in her acknowledgment of permission for free use of telephones is not made to
the indebtedness should be regarded as a condition, it depend purely on their will, neither is private respondent's
was a condition which depended upon her exclusive will, permission for free use of its posts dependent purely on
and is therefore, void. (Art. 1115, Civil Code.) The its will.
acknowledgment, therefore, was an absolute
acknowledgment of the obligation and was sufficient to Issue: Whether there exists a potestative condition in the
prevent the statute of limitation from barring the action contract entered into by the parties.
upon the original contract.
Ruling: Petitioner’s allegations must be upheld in this
Naga Telephone Co., Inc. vs. Court of Appeals regard. That particular provision in the contract that “the
230  SCRA 351 (1994)   term of this contract shall be as long as the party of the
Luke Burdeos first part (petitioner) has need of the electric post of the
party of the second part (private respondent)…” is a
Topic in the Syllabus: Potestative, casual and mixed potestative condition.
conditions.
HOWEVER, the CA must have overlooked the other
Facts: conditions in the same provision which states “… it being
understood that this contract shall terminate when for any
-Naga Telephone Co. and CamSur Electric Coop. Inc. reason, the party of the second part is forced to stop,
entered into contract for the use by petitioner of the abandon its operation as a public service and it becomes
electric light posts of private respondent for its telephone necessary to remove the electric light posts” which are
service in Naga City. As a consideration, petitioner casual conditions since they depend on chance, hazard,
obliged itself to provide ten telephone lines to private or the will of a third person.
respondent, free of charge.
Court held that the contract is subject to MIXED
-The contract provided that the term of the contract shall CONDITIONS because they depend partly on the will
be as long as petitioner has need for the electric light of the debtor and partly on chance, hazard, or the will
posts of private respondent and that the contract shall of a third person, which do not invalidate the
terminate when for any reason, respondent is forced to provision.
stop, abandon its operation as a public service and it
becomes necessary to remove the electric light post. *TN: However, in this case there were other discussions
which still resulted in the affirmation of the CA’s decision
- After 10 years of enforcing the contract, private that the contract must be reformed and that the parties
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must pay compensation for the use of each other’s attorney's fees and damages awarded in favor of private
services.* respondent.
In a perfected contract of sale of land under an agreed

Constructive Fulfillment, Art 1186
schedule of payments, while the parties may mutually
oblige each other to compel the specific performance of
Tayag vs. CA the monthly amortization plan, and upon failure of the
G.R. No. 96053. March 3, 1993 buyer to make the payment, the seller has the right to ask
Nickha Tupa for a rescission of the contract under Art. 1191 of the Civil
Code, this shall be deemed waived by acceptance of
FACTS posterior payments.
Galicia executed a deed of conveyance, prior to his
demise in favor of Leyva involving the undivided one-half When the obligee accepts the performance, knowing its
portion of a piece of land for P50,000.00. There is no incompleteness or irregularity, and without expressing
dispute that the first installment was received by Galicia. any protest or objection, the obligation is deemed fully
According to petitioners, of the P10,000.00 to be paid complied with.
within ten days from execution of the instrument, only
P9,707.00 was tendered to, and received by, them. Respondent court applied Article 1186 of the Civil Code
on constructive fulfillment which petitioners claim should
It was also agreed upon that private respondent will not have been appreciated because they are the obligees
assume the vendors' obligation to the Philippine Veterans while the proviso in point speaks of the obligor. But
Bank, however, he paid only the sum of P6,926.41 while petitioners must concede that in a reciprocal obligation
the difference of the indebtedness was paid by Galicia’s like a contract of purchase both parties are mutually
sister. obligors and also obligees and any of the contracting
parties may, upon non-fulfillment by the other privy of his
Moreover, petitioners claimed that not a single centavo of part of the prestation, rescind the contract or seek
the P27,000.00 representing the remaining balance was fulfillment (Article 1191, Civil Code).
paid to them. Petitioners averred that private respondent’s
failure to pay full consideration of the agreement to sell It is puerile for petitioners to say that they are the only
gave them the right to have the contract rescinded. obligees under the contract since they are also bound as
obligors to respect the stipulation in permitting private
ISSUE respondent to assume the loan with the Philippine
● WON there exist constructive fulfillment on the Veterans Bank which petitioners impeded when they paid
petitioner towards the respondent the balance of said loan. As vendors, they are supposed
to execute the final deed of sale upon full payment of the
RULING balance as determined hereafter.
Considering that the heirs of Galicia accommodated
private respondent by accepting the latter's delayed
payments not only beyond the grace periods but also Ong vs. Bognalbal
during the pendency of the case for specific performance, 501 SCRA 490 (2006)
petitioners' actuation is susceptible of but one Jeah Alicante
construction that they are now estopped from reneging
from their commitment on account of acceptance of FACTS:
benefits arising from overdue accounts of private Ernesto Bogñalbal, an architect-contractor doing
respondent. Indeed, the right to rescind is not absolute business under the name and style of E.B. Bogñalbal
and will not be granted where there has been substantial Construction, entered into an "Owner-Contractor
compliance by partial payments. Agreement" with Victoria Ong, a businesswoman, for the
construction of a proposed boutique owned by the latter
Private respondent is ordered to pay the balance of the to be known as Les Galeries de Paris in Shangri-La Plaza,
purchase price and to reimburse the sum paid by Galicias Mandaluyong City.
sister to the Philippine Veteran’s bank, minus the
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For a consideration of P200,000, the contractor agrees to
furnish labor, tools and equipment to complete the work The evidence preponderates in favor of respondent
on the boutique 45 days excluding Sundays from the date Bogñalbal that there had been no novation of the
of delivery of the construction materials. Payment by the contract. At best, what was proven was a grudging
owner shall be made by progress billing to be collected accommodation on the part of respondent Bogñalbal to
every 2 weeks. continue working on the project despite petitioner Ong's
failure to pay the 4th progress billing.
Bogñalbal submitted the 4th progress billing in the sum of
P30,950 equivalent to 15.47% of the total job but Ong Assuming that there was indeed a novation of the
refused to pay. Ong claims as a defense that the only obligation to pay the 4th billing so as to include as
reason why the 4th billing was not paid was because additional condition the completion of the Kenzo flooring,
Bogñalbal himself agreed and committed to collect the 4th such new condition would, nevertheless, be deemed
progress billing after he completed the Kenzo flooring fulfilled. This is pursuant to Article 1186 of the Civil Code,
(Ong wanted to change the flooring from vinyl to kenzo). which provides:
Because of this promise, her obligation to pay respondent
Bogñalbal has not yet become due and demandable. Article 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment.
Despite written demands, Ong refused to pay, thus, an
action for sum of money with damages was filed with Petitioner Ong hired the services of another contractor,
MeTC of Caloocan City. MeTC ruled in favor of Bogñalbal. for which she had to unnecessarily incur expenses in the
RTC reversed and set aside the ruling of MeTC. CA amount of P78,000. But just the same, the completion of
reversed the RTC ruling. Hence, this case. the project was delayed for 82 days, which also caused
petitioner additional damages.
ISSUE:
WON Bogñalbal is liable? The Civil Code indeed provides that, "if a person obliged
to do something fails to do it, the same shall be executed
RULING: at his cost. This same rule shall be observed if he does it
NO. There was no novation of the obligation agreed upon. in contravention of the tenor of the obligation.
If the parties indeed had a verbal agreement that Furthermore, it may be decreed that what has been poorly
collection of said billing will be held on abeyance until after done be undone." There is no question, however, that
respondent Bogñalbal finished the work on the Kenzo such allegation constitutes an admission that Petitioner
flooring, there would have been a novation of petitioner Ong had voluntarily prevented the fulfillment of the
Ong's obligation to pay the price by changing the principal condition. Respondent Bogñalbal would no longer have
conditions thereof. This falls under the first type of the opportunity to finish the Kenzo flooring if another
novation under Article 1291 of the Civil Code which contractor had already finished the same. Such a
provides: condition would, hence, be deemed fulfilled under Article
1186 of the Civil Code, and, therefore, petitioner Ong's
Article 1291. Obligations may be modified by: obligation to pay the amount of the fourth billing has been
(1) Changing their object or principal conditions; converted to a pure obligation.
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. WHEREFORE, CA decision is affirmed holding petitioner
Victoria Ong liable for damages.
The effect of novation may be partial or total. There is
partial novation when there is only a modification or
change in some principal conditions of the obligation. It is
Fulfillment of Conditions
total, when the obligation is completely extinguished.
Also, the term principal conditions in Article 1291 should
be construed to include a change in the period to comply Enriquez vs. Ramos
with the obligation. Such a change in the period would 73 SCRA 116 (1976)
only be a partial novation, since the period merely affects Gab Baes
the performance, not the creation of the obligation.
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The plaintiffs here charges the defendant of non-payment
Rescission in Reciprocal Obligations
of the balance despite the completion of the roads. That
the REM was not registered, and they did not pay the real
property taxes. Tan vs. Court of Appeals
G.R. No. 80479, July 28, 1989, 175 SCRA656
The defendant admits to the non-payment, but sets up Xanthe Alcasid
their defense that the roads were not completed in
accordance to the Quezon City Ordinance 2969. They FACTS: Spouses Singson were selling their house to Tan
contend that it could not be completed without the planted for P1.8M (reduced to P1.75M later on) and requiring the
trees or water facilities required by the ordinance; that it latter to advance earnest money of P200,000 to secure
cannot be said to be completed absent the acceptance of the cancellation of the mortgage and lien annotated on the
the City who implements the said ordinance and thus, the title of the property.
obligation to pay of P200,000 did not yet arise.
The parties agreed to extend the execution of the deed of
Issue: sale for 2 weeks because DBP has not executed the deed
Did the obligation become due and demandable when the of cancellation of mortgage yet. However, according to
roads were completed by the plaintiff? Spouses Singson, it was Tan who requested for the
extension because she was not ready to pay the balance
Ruling: of P1.55M yet. However, Tan claimed that it was the
Yes. First, as to the non-payment of the RPTs and non- spouses who requested for such extension because the
registration of REM, it is clear in the deed of sale that this Bank had not yet executed the deed of cancellation of
was her expressed duties. Failure to fulfill, by express mortgage.
terms fo the contract, made the entire obligation due and
demandable, susceptible to foreclosure. Upon DBP’s execution of the deed of cancellation of
mortgage, the spouses tried to contact Tan for the formal
As to the question of completion of the road, Court did not execution of the deed of sale, but to no avail.
accept the defendant’s submission. Nothing in the
Quezon Ordinance requires the acceptance of the agency Instead the spouses received a telegram cancelling the
as a condition precedent before a street in QC is sale and demanding the return of the P200,000 earnest
considered constructed. money.
The question of planting of trees and installation of water The spouses countered with a letter calling on Tan to
facilities, the Court said this cannot be considered the perform her part of the contract because the title to the
contemplation of the parties. First, these are activities of house and lot now suffers no imperfection or doubt.
substantial outlay of funds, it cannot be appreciated if not
placed in their “Explanations.” Second, these are imposed Tan filed a case for recovery of sum of money with
on the subdivision owner and clearly, it is the defendant damage claiming that upon the assurances that the
here who intends to develop the purchased subdivision, spouses could transfer her the house and lot free from an
not the plaintiff. Third, the trees and water facilities were liens and encumbrances but later on discovered that she
not in the contemplation of the parties when they had been dealt with in bad faith by the spouses as the
negotiated the purchase, and lastly, nothing in the QC mortgage on the property was not release or cancelled
Ordinance says that a street is completed only when trees and the driveway was still public land and could not be
and waters were planted. validly transferred to her.
Lastly, despite the lack of demand and previous notice of ISSUE: WON Tan could validly rescind the contract
completion, the filing of the case is sufficient notice to the
completion and desire of plaintiff to be paid. Said demand RULING: NO.
retroacts to the day of the obligation’s constitution. Once
condition is fulfilled, it retroacts as per Article 1187. 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 is clear from a reading of the
9
Civil Code provisions. However, it is equally settled that, BPI did not approve of the assumption of mortgage.
in the absence of a stipulation to the contrary, this power Velarde did not pay anymore the mortgage nor the
must be invoked judicially; it cannot be exercised solely balance of the land. Respondents sent petitioners notice
on a party's own judgment that the other has committed a or recission.
breach of the obligation.
ISSUE: Whether or not Velarde violated the condition in
Petitioner, in rescinding the sale, claims that a substantial the mortgage contract which would activate the forfeiture
breach of the obligation has been committed by the and rescission.
private respondents
RULING: NO. The breach committed by petitioners was
Private respondents had substantially complied with their not so much their nonpayment of the mortgage
undertaking of clearing the title to the property obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract of
Rescission will not be permitted for a slight or casual sale. Private respondents' right to rescind the contract
breach of the contract but only for such breaches as are finds basis in Article 1191 of the Civil Code:
so substantial and fundamental as to defeat the object of
the parties in making the agreement The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
Time not being of the essence in the agreement, a slight what is incumbent upon him. The injured party may
delay on the part of the private respondents in the choose between fulfillment and the rescission of the
performance of their obligation, is not sufficient ground for obligation, with the payment of damages in either case.
the resolution of the agreement
He may also seek rescission even after he has chosen
Inasmuch as the private respondents are ready, willing fulfillment, if the latter should become impossible."
and able to comply with their obligation to deliver title to
the property subject of the sale and had already The right of rescission of a party to an obligation under
demanded that petitioner pay the full amount of the Article 1191 of the Civil Code is predicated on a breach of
purchase price, the petitioner must be considered as faith by the other party who violates the reciprocity
having incurred in delay. between them. The breach contemplated in the said
provision is the obligor's failure to comply with an existing
obligation. When the obligor cannot comply with what is
Velarde vs. Court of Appeals incumbent upon it, the obligee may seek rescission and,
G.R. No. 108346, July 11, 2001 in the absence of any just cause for the court to determine
Jan Legaspi the period of compliance, the court shall decree the
rescission.
FACTS: Velarde entered into a deed of sale with
assumption of mortgage with Raymundo private In the present case, private respondents validly exercised
respondent. The mortgage is in favor of BPI. their right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the
Velarde paid the downpayment of 800k and assumed to balance of the purchase price. Indubitably, the latter
pay the P1.8M mortgage. Petitioner paid a total of 74K for violated the very essence of reciprocity in the contract of
the mortgage sale, a violation that
consequently gave rise to private respondents' right to
There was a condition in their agreement stating: in the rescind the same in accordance with law.
event of violation of any of the terms and conditions of the
deed of real estate mortgage, where Velarde agreed that
the P800,000 downpayment shall be forfeited as Siy vs. Court of Appeals
liquidated damages and the deed of sale with assumption G.R. No. L-39778, Sept. 13, 1985, 138 SCRA 536
of mortgage shall be deemed automatically cancelled. Ninia Tagapia
FACTS:
10
Sps. Valdez (respondent) are the owners of a parcel of the partial amount of P12,000 on the
land and a house constructed therein. They entered into condition that the balance of P4,376 is
a contract of sale with Mr. Siy (petitioner). completely paid for 45 days after the date
fixed by them
There are 2 sets of contracts in this case:
1) The Main contracts, consisting of: However, Siy failed to pay 12,000 and the P4,376 balance
i. Deed of Conditional Sale- whereby for within the 45 day deadline, so when the loan was finally
consideration of P22K the respondents agreed up for release, and all it needed was the signature of
to sell the lot with the improvements thereon Valdez. Valdez now refused to do so because Siy had
subject to the condition that immediately upon already breached their contract by not paying within the
the approval of the petitioner's loan with the 45 day period.
Social Security System (SSS) and its payment
to the respondents, the respondent shall Thus, Siy filed a case for specific performance, to compel
execute the deed of absolute sale in favor of the Valdez to sign so that the loan may be released, so that
petitioner. he can pay Valdez.
**So pursuant to the condition, the petitioner now The TRIAL COURT and CA ruled in favor of Valdez, so
applied for a loan with SSS through Home Siy now ask the court to set aside the CA’s decision.
Financing Commission(HFC).
ISSUE: Whether it is proper to order the rescission of the
ii. Deed of Sale with assumption of agreement and payment of damages?
mortgage- Upon the loan application, this deed of
sale with assumption of mortgaged was required RULING:
by HFC since the property in question was 1)It is proper to order the rescission of the agreement
mortgaged to GSIS. Under this deed, it states
among others petitioner only needs to pay 15,600 Article 1191 of the New Civil Code provides that the power
pesos because the petitioner already paid for the to rescind obligations is implied in reciprocal ones in case
6,400 improvements on the land. one of the obligors should not comply with what is
incumbent upon him. The injured party may choose
In reality, however, the respondents had NOT between the fulfillment and the rescission of the
received a single centavo from the petitioner at the obligation, with the payment of damages in either case.
time
There is no dispute that all the contracts entered into by
2) The supplementary contracts/subsequent the parties in this case are reciprocal ones. There is also
contracts, consisting of: a delay on the part of Siy.
i. 1st contract- executed more than 1 month
AFTER the execution of deed of conditional Here, Sps. Valdez chose to rescind the contracts after the
sale. respondents agreed to sell the property petitioner REPEATEDLY failed to pay not only the
to the petitioner at P14,000.00 while the latter balance but the initial amount as down payment in
must negotiate a loan with the SSS in order consideration of which the contracts or agreements were
to settle the amount within a period of 30 executed. By failing to pay the amount of P12,000.00 and
days. This includes payment of rentals for the balance of P4,376.00 as stipulated in the contract
P50/month and a penalty clause at P30/day within the 45 day period, the petitioner clearly committed
of delay. a breach of contract which sufficiently and justly entitled
ii. 2nd contract: it provided that the full amount the respondents to ask for the rescission of the contracts
of P14,000.00 would be paid on or before the
30th day from the date of the execution of the
contract. 2)The award of damages in the amount of P4, 376 is
iii. 3rd contract: The last contract (the 3rd) unwarranted
entered by the parties, provided among
others that the respondents agreed to receive Computation:
11
instrument, entitled “Acknowledgment of Debt and
Proposed Manner of Payments”, which was approved by
the president of UP.
ALUMCO continued its logging operations, but again

incurred an unpaid account of P61,133.74, in addition to
the indebtedness that it had previously acknowledged. On
Under Article 1191 of the Civil Code, "the injured party July 19, 1965, UP informed ALUMCO that it had
may choose between the fulfillment and rescission of the considered as rescinded and of no further legal effect the
obligation, with the payment of damages in either case. logging agreement that they had entered. Then, UP filed
He may also seek rescission, even after he has chosen a complaint against ALUMCO for the collection or
fulfillment, if the latter should become impossible . . .." The payment of the stated sums of money. UP obtained a
law, however, does not authorize the injured party to preliminary attachment and preliminary injunction
rescind the obligation and at the same time seek its partial restraining ALUMCO from continuing its logging
fulfillment under the guise of recovering damages. operations in the Land Grant.
Thus, the appellate court, therefore, erred in including Before the issuance of the preliminary injunction, UP
both the penalty clause (P12, 100 in the computation) and advertised an invitation to bid, which prompted ALUMCO
the part of the purchase price (P2, 000 shortage) in the to file a petition to enjoin UP. UP received the order of
computation of damages. injunction after it had concluded its contract with Sta.
Clara Lumber Company, Inc. and said company had
The penalty clause was embodied in the 1st contract. started logging operations.
Enforcement of the clause on daily penalties now would
result in excessive damages considering that the ISSUE:
agreement was entered into way back in 1963. Moreover, Whether UP can treat its contract with ALUMCO
the P2,000.00 represents part of the purchase price of the rescinded, and may disregard the same before any
sale which was already rescinded. judicial pronouncement to that effect.
NOTE: But the court still ordered the petitioner for the RULING:
payment of rentals until they vacated the property in Yes. The act of a party in treating a contract as cancelled
question. 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
University of the Philippines vs. De Los Angeles review by the proper court. If the other party denies that
G.R. No. L-28602, Sept. 29, 1970, 35 SCRA 102 rescission is justified, it is free to resort to judicial action in
Aireen Selma its own behalf, and bring the matter to court.
FACTS: Even without express provision conferring the power of

UP and ALUMCO entered into a logging agreement under cancellation upon the contracting party, the SC of Spain
which the latter was granted exclusive authority, from the has repeatedly held that a resolution of reciprocal
date of agreement to December 31, 1965, extendible for contracts may be made extrajudicially unless successfully
a further period of five years by mutual agreement, to cut, impugned in court.
collect, and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, In this case, UP and ALUMCO had expressly stipulated
etc. “that, upon default by the debtor ALUMCO, the creditor
UP has the right to consider the Logging Agreement dated
ALUMCO cut and removed timber but, as of December 8, 2 December 1960 as rescinded without the necessity of
1964, it had incurred an unpaid account of P219,362.94, any judicial suit. UP made out a prima facie case of
which, despite repeated demands, it had failed to pay. breach of contract and defaults in payment by ALUMCO,
After it had received notice that UP would rescind or to the extent that the court below issued a writ of
terminate the logging agreement, ALUMCO executed an
12
preliminary injunction stopping ALUMCO’s logging Dumpit could not have been said to have waived his right
operations. to be notified under paragraph 6 of the contract, because
it was a contract of adhesion, a standard form of Palay
Palay, Inc. vs. Clave Inc, and thus Dumpit had no freedom to stipulate. A
G.R. No. L-56076, Sept. 21, 1983, 124 SCRA 638 waiver must be certain and unequivocal, and intelligently
Googi Buenaventura made; such waiver follows only where liberty of choice
has been fully accorded.
FACTS: Through its president Onstott, Palay Inc. entered
into a Contract to sell with Dumpit over a parcel of land. As a consequence of the resolution by Palay Inc., rights
In paragraph 6 of this contract, there was a stipulation for to the lot should be restored to Dumpit, or the same
automatic extrajudicial rescission upon default in payment should be replaced by another acceptable lot. However,
of any monthly installment after the lapse of 90 days from considering that the property had already been sold to a
the expiration of the grace period of one month, without third person and there is no evidence on record that other
need of notice and with forfeiture of all installments paid. lots are still available, Dumpit is entitled to the refund of
installments paid plus interest at the legal rate of 12%
While Dumpit paid the downpayment and several computed from the date of the institution of the action. It
installments thereafter, he suddenly failed to pay the rest would be most inequitable if Palay Inc were to be allowed
of the installments. to retain Dumpit’s payments and at the same time
appropriate the proceeds of the second sale to another.
It was only 6 years later when Dumpit wrote to Palay Inc
and offered to update all his overdue accounts with
interest. However, Palay Inc informed him that the
Both parties in breach of reciprocal obligations,
Contract to Sell had long been rescinded pursuant to
Art 1192
paragraph 6 of the contract, and that the lot had already
been resold.
Camus vs. Price, Inc.
ISSUE: Was the extrajudicial rescission of the contract G.R. Nos. L-17859-9, July 18, 1962
valid? Jewel Wee
RULING: The rescission was not valid. Price and Camus entered into a contract of lease where
Camus will lease his property to Price for lawful purposes
Well-settled is the rule that extrajudicial rescission has for 10 years from April 1, 1951, to March 30, 1960, for a
legal effect where the other party does not oppose it. monthly rent of P300, to be paid on the 1st 5 days of the
Where it is objected to, a judicial determination of the month without the need of express demand.
issue is still necessary.
They also agreed that Price would construct a factory
In other words, resolution of reciprocal contracts may be building and warehouse, which shall be insured at an
made extrajudicially unless successfully impugned in amount equal to the insurable interest of the Camus. The
Court. If the debtor impugns the declaration, it shall be agreement also states that one year from the execution of
subject to judicial determination. the contract of lease, Camus will fill the vacant portion of
the lot to elevate it and enable Price to use the whole lot
In this case, Dumpit denied that rescission is justified and and construct a fence with barbed wires.
resorted to judicial action. Thus, it was up to the Court to
determine whether resolution of the contract by Palay Inc. Price filed a case for specific performance with damages
was warranted. and extension of period of the lease for Camus’ failure to
comply with its obligation to elevate the lot. Camus, on the
Thus, it was held that resolution by Palay Inc. of the other hand, filed an action for unlawful detainer against
contract was ineffective and inoperative against Dumpit Price for non-payment of rentals since February 1953.
for lack of notice of resolution.
ISSUE: Whether the parties are in pari delicto.
13
DECISION: agreement and the balance to be paid from the first letter
The SC affirmed the CA’s decision in all respects. of credit for the first local sale of the iron ores.
The CA declared the contract extinguished but the parties To secure payment, Fonacier delivered to Gaite a surety
were made to bear their own losses according to Art. 1192 bond. When it expired, no payment had been made by
of CC. But because Price was found to be in continued Fonacier on the theory that they had lost right to make use
possession of the land and in operation of its business of the period when their bond expired. Gaite filed a
during the pendency of the case, it was ordered to complaint in court for its payment. The lower court ruled
compensate Camus from Feb 1953 until it vacated the the obligation was one with a term and that the obligation
land. The building and the warehouse were declared to became due and demandable under Article 1198 of the
have automatically become the properties of the lessor. New Civil Code. Hence, the defendants jointly filed an
appeal.
Camus started the filling in and fencing of a portion of the
500 sq.m. but did not completely comply therewith, the Issue: WON the lower court erred in holding that the
fence being only of adobe stones without barbed wires obligation of Fonacier to pay Gaite is one with a period or
and the filling being 40cm lower than the elevation of the term and that the term has already expired.
lot. On the other hand, Price failed to secure insurance for
the building and the warehouse, as stipulated. They also Ruling: NO.
defaulted in the payment of the rentals. The failure of
Camus to comply with its obligation could not be the The provision in the contract was not a condition but only
cause for Price’s non-fulfillment of its commitments under a suspensive period or term to the payment of the balance
the contract. of P65,000.00. What characterizes a conditional
obligation is the fact that its efficacy or obligatory force (as
Although Camus has been declared prima facie to be the distinguished from its demandability) is subordinated to
first to commit the breach, the lessee also failed to insure the happening of a future and uncertain event; so that if
the building, which is a violation of the specific terms of the suspensive condition does not take place, the parties
the contract. It cannot really be determined with would stand as if the conditional obligation had never
definiteness who of the parties committed the first existed. The parties did not intend such state. The words
infraction of the terms of the contract. Under the of the contract expressed that obligation to pay and
circumstances, the parties are actually in pari delicto and intended Gaite to be paid.
the contract is deemed extinguished, with the parties
suffering their respective losses. For their failure to renew the bond, the appellant have
forfeited the right to compel Gaite to wait for the sale of
the ore before receiving payment of the balance.
Obligations with a Period
Under paragraphs 2 and 3 of Article 1198 of the Civil Code
of the Philippines, the debtor shall lose every right to
Gaite vs. Fonacier make use of the period:
G.R. No. L-11827, July 31, 1961, 2 SCRA  831   a. When he does not furnish to the creditor the
Ruth Montilla guaranties or securities which he has promised.
b. When by his own acts he has impaired said
Facts: Gaite was appointed by Fonacier as attorney-in- guaranties or securities after their establishment,
fact to contract any party for the exploration and and when through fortuitous event they
development of mining claims. Gaite executed a deed of disappear, unless he immediately gives new ones
assignment in favor of a single proprietorship owned by equally satisfactory.
him. For some reasons, Fonacier revoked the agency,
which was acceded to by Gaite, subject to certain Gaite's acceptance of the surety company's bond with full
conditions, one of which being the transfer of ores knowledge it would automatically expire within a year was
extracted from the mineral claims for P75,000, of which not a waiver of its renewal after the expiration date. The
P10,000 has already been paid upon signing of the balance became due and payable thereafter.
14
Fernandez vs. CA
G.R. No.80231, October 18, 1988, 166  SCRA 577   The second portion of the contract clause addresses the
Renier Hidalgo future and directs the parties to negotiate and reach
mutual agreement on the terms and conditions of the new
FACTS: On July 31, 1973, Miguel, as lessor, and Celso, contract, including the new rental rate, which terms and
as lessee, entered into a ten-year Contract of Lease over conditions must be reasonable under such situation as
a piece of land. The parties agreed that the lease, which may be extant when the time for renewal arrives. The only
was scheduled to end on July 1, 1983, would be term on which there has been some pre-agreement is the
"renewable for another ten (10) years at the option of period of the new contract: "another ten years." Clearly,
both parties under such terms, conditions and rental the requirement of future mutual agreement as to
reasonable at that time" renewal, has here been specified with adequate
precision.
Before the agreed term ended, or on April 19, 1983,
Miguel wrote to Celso about the former's intention not to Abesamis vs. Woodcraft Works, Inc.
extend further or renew the lease. Celso replied that he G.R. No. L-18916, Nov. 28, 1969, 30 SCRA 372  
had opted to renew the contract for another ten (10) Von Villarin
years.
Facts: East Samar Lumber Mills is the owner of a timber
In another letter, Miguel advised that he could not accept concession and sawmill located in Dolores, Samar.
Celso’s unilateral action to renew the lease because,
under the contract, any renewal or extension thereof was Woodcraft Works entered into an agreement with East
possible only "at the option of both parties." Samar Lumber Mills to purchase from them 300,000
board feet of Philippine Round logs.
Thus, Celso, the lessee, filed this case to compel Miguel
to renew the lease contract. Due to bad weather conditions and for failure of
Woodcraft Works to send a vessel, only 13,068 board feet
ISSUE: Whether Celso, the lessee, may unilaterally of logs were delivered.
renew the lease contract. NOPE.
On January 1951, the parties entered into a new contract.
RATIO: In a reciprocal contract like a lease, the period of The previous one was cancelled. It was stipulated that
the lease must be deemed to have been agreed upon for Woodcraft Works would purchase from East Samar
the benefit of both parties, absent language showing that Lumber Mills 1,700,000 board feet of logs. It was
the term was deliberately set for the benefit of the lessee expressly agreed that the shipment was to be made
or lessor alone. before the end of July but will not commence earlier than
April with the option to make partial shipment depending
The intention of the parties in the subject lease agreement on the availability of the logs and vessels.
is clearly discernible in the words of that agreement.
Accordingly, the assent of both lessor and lessee is Of the entire order, only two shipments were made. One
essential for another contract to spring into juridical in March and the other on April of 1951 amounting to only
existence upon expiration of the original one. The contract 333,832 board feet and 128,825 board feet respectively.
clause may be seen to consist of two (2) parts: first, the
contract is stipulated to be "renewable" for another ten In September, the supplier, East Samar Lumber filed in
years "at the option of both parties"; second, the contract the court of first instance of Leyte an action to rescind the
is specified to be "renewable — under such terms, contract and for the recovery of damages because of
conditions and rental reasonable at that time." Woodcraft Work’s failure to comply with its obligations.
The first part of the clause stresses that the option or The trial court rendered judgment rescinding the contract
faculty to renew was given, not to the lessee alone nor to and ordering Woodcraft Works to pay damages. It
the lessor by himself, but to the two (2) simultaneously surmised that the tenor of the contract obligated
who hence must both exercise the option to renew if a Woodcraft Works to send a vessel to Samar to pick up the
new contract is to come about. said logs and for failure to do so, it is liable for damages.
15
Secondly, after the storm of May 5, East Samar Lumber
Woodcraft Works appealed to the Supreme Court alleging continued its logging operations. Woodcraft was advised
that the court was in error in granting damages. Woodcraft of the quantity of logs ready for shipment and was urged
Works also states that it was not incumbent upon them to to send a vessel to take delivery. Thus, Woodcraft gave
supply the vessel for the shipment. assurance that a vessel, the SS Albay with a capacity of
450,000 board feet, was coming to Samar to load on
Issue: is Woodcraft works liable for damages? June. East Samar Lumber readied the necessary quantity
of logs but the vessel did not arrive. As a result, 60,000
Held: Woodcraft Works is liable for damages. It was board feet of logs which had been rafted broke loose and
incumbent upon them to furnish the necessary vessel for were lost. East Samar Lumber’s loss on this account
the shipment. amounted to a total of P7,685.26 representing the value
of the logs lost, the cost of the rafting and other expenses.
Although the contract does not expressly provide which Although the obligation would not become due until July
among the parties must furnish the vessel, it does 31, appellant waived the benefit of the period by assuring
however contain provisions which show clearly by the arrival of the vessel its sent for June 15. On that date
implication that the obligation to furnish the vessel East Samar Lumber was ready to comply but Woodcraft
devolved upon Woodcraft Works. failed without any explanation. Thus, Woodcraft must
bear the loss.
A proviso that wharfage fees are to be paid by Woodcraft
Works and a proviso on demurrage points to the Thirdly, by the end of July, East Samar Lumber had
conclusion that Woodcraft must be the one to furnish the sufficient logs ready for shipment in accordance with the
vessel. Furthermore, in the two shipments made, it was contract. But, Woodcraft, failed to send a vessel on the
Woodcraft Works that supplied the ships. date. There is no evidence that such failure was due to
circumstances beyond Woodcraft’s control. Woodcraft
According to Jurisprudence, the contemporaneous and should be held liable.
subsequent acts of the parties may be taken into
consideration to determine their intentions.
Gregorio Araneta, Inc. vs. Phil. Sugar Estates
Eastern Samar Lumber, divides his claims for damages Development Co., Ltd
into three parts. Each based on a separate breach of G.R. No. L-22558, May 31, 1967, 20 SCRA 330
contract by Woodcraft Works. Aireen Selma
First Eastern Samar Lumber maintains that due to the FACTS:

failure of Woodcraft to send a vessel to Samar, the storm Through Gregorio Araneta, Tuason & Co. sold a portion
on May 5 swept away all the logs awaiting shipment of Sta. Mesa Heights Subdivision with an area of
amounting to 410,000 board feet valued at P73,537.77. 43,034.4sqm, more or less, for the sum of P430,514 to
However, under the contract, shipment was to be made Philippine Sugar Estates Development Co., Ltd.
before the end of July but not to commence earlier than (Philippine Sugar).
April. The obligation between the parties was a reciprocal
one. It was also an obligation with a term, which obviously The parties stipulated in the contract of purchase and sale
was intended for the benefit of both parties, the period with mortgage, that the buyer will “build on the parcel of
having been agreed upon in order to avoid the stormy land the Sto. Domingo church and convent”, while the
weather in Samar during the month of January to March. seller for its part will “construct streets on the NE and NW
and SW sides of the land sold…, and the street on the NE
Since the obligation is a reciprocal one and one with a side shall be named Sto. Domingo Avenue”.
period, neither party could demand performance nor incur
in delay before the expiration of the period. Thus, when Philippine Sugar finished the construction of Sto.
the typhoon struck on May 5, there was yet no delay and Domingo Church and Convent, but the seller, which
the loss must be borne by East Samar Lumber. began constructing the streets, is unable to finish the
construction of the street in NE side because a certain
third party, Manuel Abundo, who has been physically
16
occupying a middle part thereof, refused to vacate the FACTS: Spouses del Rosario executed a Promissory
same. Note in favor of Radiowealth Finance Company. It read:
Philippine Sugar filed a complaint against Tuason & Co

FOR VALUE RECEIVED, on or before the date listed
and Araneta seeking to compel the latter to comply with
below, I/We promise to pay jointly and severally
their obligation, as stipulated. In its defense, Tuason &
Radiowealth Finance Co. or order the sum of
Co. stated that the action was premature since its
₱138,948.00 without need of notice or demand, in
obligation was without a definite period which needs to be
installments as follows:
fixed first by the court in a proper suit for that purpose.
₱11,579.00 payable for 12 consecutive months starting
The court dismissed the complaint. Philippine Sugar
on ________ 19__ until the amount of ₱11,579.00 is
moved to reconsider and modify the decision, praying that
fully paid. Each installment shall be due every ____ day
the court fix a period. The lower court, after finding that
of each month. A late payment penalty charge of two
“the proven facts precisely warrants the fixing of such a
and a half (2.5%) percent per month shall be added to
period”, granted said motion and gave the defendant a
each unpaid installment from due date thereof until fully
period of two years to comply with its obligation.
paid.
ISSUE:
It is hereby agreed that if default be made in the
Whether the intervention of the lower court to fix the
payment of any of the installments or late payment
period for performance of obligation was proper.
charges thereon as and when the same becomes
due and payable as specified above, the total
RULING:
principal sum then remaining unpaid, together with
No. It must be recalled that Article 1197 of the Civil Code
the agreed late payment charges thereon, shall at
involves a two-step process. The Court must first
once become due and payable without need of
determine that “the obligation does not fix a period but
notice or demand.
from the nature and the circumstances it can be inferred
that a period was intended”. This preliminary point settled,
the Court must then proceed to the second step, and Thereafter, Spouses del Rosario defaulted on the monthly
decide what period was “probably contemplated by the installments. Despite repeated demands, they failed to
parties”. pay their obligations under their Promissory Note. Thus,
Radiowealth filed a Complaint for the collection of a sum
The contract shows that the parties were fully aware that of money.
the land described therein was occupied by squatters. As
the parties must have known that they could not take the While Radiowealth claimed that Spouses del Rosario
law into their own hand, but must resort to legal processes were liable for the whole amount of their debt and the
in evicting the squatters, they must have realized that the interest thereon, after they defaulted on the monthly
duration of the suits to be brought would not be under their installments, Spouses del Rosario countered that the
control nor could the same be determined in advance. installments were not yet due and demandable because
Thus, the parties must have intended to defer the no period was specifically stated on the note. The couple
performance of the obligations under the contract until the relied on the fact that there were blank spaces left. They
squatters were duly evicted. theorized that the action for immediate enforcement of
their obligation is premature because its fulfillment is
It follows that there is no justification in law for the setting dependent on the sole will of the debtor. Hence, they
of the date of performance at any other time than that of consider that the proper court should first fix a period for
the eviction of the squatters occupying the land in payment.
question.
ISSUE: Is the promissory note an obligation with a
Radiowealth Finance Company vs. Del Rosario period?
G.R. No. 138739, July 6, 2000, 335 SCRA 288  
Googi Buenaventura
17
RULING: It is one with a period, and thus, the 2. If the delay was caused by Allen, is the Province
obligation was due and demandable, because the entitled to deduct the amount of liquidated damage
period to which it must be fulfilled had already lapsed. and other expenses?
The act of leaving blank the due date of the first DECISION:
installment did not necessarily mean that the debtors The plaintiff, through his agent, requested an extension of
were allowed to pay as and when they could. If this was time due to the delay in the delivery of the steel and some
the intention of the parties, they should have so indicated other unforeseen event, but the parties did not agree upon
in the Promissory Note. However, it did not reflect any the extension. Instead, the provincial board issued a
such intention. resolution imposing certain consideration for the
extension, which were rejected by the plaintiff.
On the contrary, the Note expressly stipulated that the
debt should be amortized monthly in installments of We must conclude that the provinces waived the contract
₱11,579 for twelve consecutive months. While the time by their failure to deliver the steel promptly, by
specific date on which each installment would be due was reason of having placed the strict quarantine on animals
left blank, the Note clearly provided that each installment and on account of the change in the plan subsequent to
should be payable each month. October 12, and that the waiver operated to eliminate the
definite date from which to assess from which to assess
Furthermore, it also provided for an acceleration clause liquidated damages, and though the plaintiff, in continuing
and a late payment penalty, both of which showed the to work, was obligated to complete the same within a
intention of the parties that the installments should be paid reasonable time, the liquidated damage clause was not
at a definite date. Had they intended that the debtors thereby restored and made applicable to an unreasonable
could pay as and when they could, there would have been time.
no need for these two clauses.
Where strict performance on the part of the contractor is
Verily, the contemporaneous and subsequent acts of the prevented or waived by the other party, a claim by such
parties manifest their intention and knowledge that the party of fines, penalty, and liquidated damage for the
monthly installments would be due and demandable each delay or failure cannot be sustained. If it be true that the
month. plaintiff was responsible for a large number of days of
delay and the provinces for only a few of the days thereof,
yet, under such circumstances, we cannot apportion such
Allen vs. Province of Albay delay between them to hold the contractor liable for
G.R. No. 11433, December 20, 1916, 35 Phil. 826 damages for his delay.
Jewel Wee
The contractor should have finished the project by Feb 15,
Plaintiff and the Province of Albay executed a formal 1914, the date he sought as an extension. Completion
contract for the construction of the reenforced bridge on after such time would constitute as unreasonable delay.
June 26, 1913, which was completed by Allen and However, this may be true, the province has not proven
accepted by the Province on April 1, 1914. Upon payment any actual damages resulting after February 15.
of the contract price, the Province deducted the sum of
P1,301.45 for the liquidated damages for the delay and
Alternative & Facultative Obligations
other expenses.
September 17, 2021 Recits
An action for the recovery of the amount deducted was

instituted by Allen, plus several other amounts for the Ong Guan Can vs. Century Insurance Company
delay and non-delivery of materials by the Province. 46 Phil. 492
Nikki Sia
ISSUES:
1. Who caused the delay on the completion of the FACTS:
project? The building of the plaintiff got burned on Feb 28, 1923,
in which such building along with its goods and
18
merchandise is insured in the sum of P45,000 by the G.R. No. 126490, Mar. 31, 1998, 288 SCRA 422
defendant company. Luke Burdeos
Defendant company was ordered by the CFI to pay the FACTS:

amount with legal interests from the time the building was - Private respondent M.B. Lending Corp. extended
burned. The defendant company appealed, insisting that loan to spouses Azarraga, together with petitioner Estrella
it be permitted to rebuild and in doing so, shall be relieved Palmares. Petitioner Palmares signed the promissory
from payment. It further contended that under clause 14 note as a co-maker and binds herself to be jointly and
of the conditions, it (defendant company) has an option to severally liable with the principal debtor in case the latter
reinstate or rebuild the property damaged instead of defaults in the payment of the loan.
paying the insured amount, and that it is not bound to
reinstate exactly completely, it may rebuild the house - On four occasions after the execution of the
burnt, and although the house may be smaller, yet it Promissory Note and even after the loan matured,
would be sufficient indemnity to the insured for the actual petitioner and the spouses were able to pay 16,300,
loss suffered by him, and in no case shall it be bound to leaving a balance of 13,700. No further payments were
expend more in reinstatement than the sum insured. made thereafter.
ISSUE: Whether the plaintiff is bound by the election - Respondent corp. then filed a complaint against
made by the defendant company in rebuilding the house petitioner alone to the exclusion of the principal debtors,
burnt. NO. allegedly by reason of the insolvency of the debtors.
RULING: - Petitioner argued that immediately after the loan

The SC ruled that if this clause of the policies is valid, its matured, she offered to settle it but the respondent
effect is to make the obligation of the insurance company informed her that they would try to collect from the
an alternative one. Either: spouses and that she need not worry about it; she also
a. It may either pay the insured value of house or argued that while she agrees to be liable on the note but
b. rebuild it. only upon default of the principal debtor, respondent corp.
acted in bad faith in suing her alone without including the
And that in alternative obligations, the debtor must notify Azarragas when they were the ones who benefited from
creditor of his election, stating which of the two the proceeds of the loan.
prestations he is disposed to fulfill, in accordance with
article 1133 of the Civil Code. - Palmares also argued that the promissory note
had inconsistent provisions, particularly par. 2 and par. 3:
The object of this notice is to give the creditor an
opportunity to express his consent, or to impugn the
election made by the debtor, and only after said notice
ATTENTION TO CO-MAKERS: PLEASE READ WELL
shall the election take legal effect when consented by the
creditor, or if impugned by the latter, when declared
I, Mrs. Estrella Palmares, as the Co-maker of the
proper by a competent court.
above-quoted loan, have fully understood the contents
of this Promissory Note for Short-Term Loan:
In the case at bar, it is not shown that the defendant gave
such notice to the plaintiff and thus, the election made by
That as Co-maker, I am fully aware that I shall be jointly
defendant company was not assented to. Being an
and severally or solidarily liable with the above principal
alternative obligation, the plaintiff is yet to be bound by the
maker of this note;
election made since it has not yet produced any effect.
The SC affirmed the decision of the lower court.
That in fact, I hereby agree that M.B. LENDING
CORPORATION may demand payment of the above
Joint and Solidary Obligations loan from me in case the principal maker, Mrs. Merlyn
Azarraga defaults in the payment of the note subject to
the same conditions above-contained.
Palmares vs. CA
19
some or all of them simultaneously. The rule, therefore, is
She argued that although the second paragraph says that that if the obligation is joint and several, the creditor has
she is liable as a surety, the third paragraph defines the the right to proceed even against the surety alone.
nature of her liability as that of a guarantor. According to
petitioner, these are two conflicting provisions in the Sesbreno vs. CA
promissory note and the rule is that clauses in the contract G.R. No. 89252, May 24, 1993, 222 SCRA 466
should be interpreted in relation to one another and not Nickha Tupa
by parts. In other words, the second paragraph should not
be taken in isolation, but should be read in relation to the FACTS
third paragraph. Sesbreno made a money market placement in the amount
of P300,000 with PhilFinance, with a term of 32 days.
ISSUE: Whether Palmares’ obligation is that of a surety
and thus liable solidarily. PhilFinance issued to Sesbreno the Certificate of
Confirmation of Sale of a Delta Motor Corporation
RULING: Promissory Note (DMC PN No. 2731), the Certificate of
- YES. It is a cardinal rule in the interpretation of Securities Delivery Receipt indicating the sale of the Note
contracts that if the terms of a contract are clear and leave with notation that said security was in the custody of
no doubt upon the intention of the contracting parties, the Pilipinas Bank, and postdated checks drawn against the
literal meaning of its stipulation shall control. Insular Bank of Asia and America. Said checks were
dishonored for having been drawn against insufficient
- In the case at bar, petitioner expressly bound funds. Philfinance delivered to petitioner Denominated
herself to be jointly and severally or solidarily liable with Custodian Receipt (DCR).
the principal maker of the note. The terms of the contract
are clear, explicit and unequivocal that petitioner's liability Petitioner approached Ms. de Villa of private respondent
is that of a surety. Pilipinas, and handed her a demand letter informing the
bank that his placement with Philfinance in the amount
- Her argument that the terms “jointly and severally reflected in the DCR had remained unpaid and
or solidarily liable” in par. 2 of the PN are technical and outstanding, and that he in effect was asking for the
legal terms which could not be easily understood by and physical delivery of the underlying promissory note. But
ordinary layman like her is OPPOSED to her Pilipinas did not deliver the Note, nor any certificate of
manifestation in the PN that she “fully understood the participation in respect thereof, to petitioner.
contents” of the promissory note and that she is “fully
aware” of her solidary liability with the principal maker. Petitioner later made similar demand letters again asking
Petitioner admits that she voluntarily affixed her signature private respondent Pilipinas for physical delivery of the
thereto, hence she cannot now claim otherwise. original of DMC. Petitioner also made a written demand
upon private respondent Delta for the partial satisfaction
- SC further held that undertaking to pay upon of DMC, explaining that Philfinance, as payee thereof,
default of the principal debtor does not automatically had assigned to him said Note to the extent of
remove it from the ambit of a contract of suretyship. The P307,933.33. Delta, however, denied any liability to
second and third paragraphs of the aforequoted portion of petitioner on the promissory note.
the promissory note do not contain any other condition for
the enforcement of respondent corporation's right against As petitioner had failed to collect his investment and
petitioner. It has not been shown, either in the contract or interest thereon, he filed an action for damages against
the pleadings, that respondent corporation agreed to private respondents. Petitioner claims that Pilipinas
proceed against herein petitioner only if and when the became solidarily liable when it issued the DCR.
defaulting principal has become insolvent
ISSUE
- A creditor's right to proceed against the surety WON Pilipinas became solidarily liable with Philfinance
exists independently of his right to proceed against the and Delta when Pilipinas issued the DCR.
principal. Under Article 1216 of the Civil Code, the creditor
may proceed against any one of the solidary debtors or RULING
20
There is nothing in the DCR that establishes an obligation by his 6 brothers and sisters to mortgage a 16-odd
on the part of Pilipinas to pay petitioner the said amount. hectare parcel of land, jointly owned by all of them,
There is nothing written on the DCR which could be read located in Bataan. In addition, Valeriana Sta. Maria alone
as converting Pilipinas into an obligor under the terms of also executed in favor of her brother, Maximo, a special
the DMC assigned to petitioner, either upon maturity power of attorney to borrow money and mortgage any real
thereof or at any other time. estate owned by her.
Under Art. 1207, "there is a solidary liability only when the As security for the two loans, Maximo executed in his own
obligation expressly so states, or when the law or the name 2 chattel mortgages on the standing crops,
nature of the obligation requires solidarity." guaranteed by surety bonds executed by the Associated
Insurance & Surety Co., Inc.
The record exhibits no express assumption of solidary
liability vis-a-vis petitioner, on the part of Pilipinas. Trial court rendered judgment ordering the defendants, all
However, this does not mean that Pilipinas has no surnamed Sta. Maria and Associated Insurance and
responsibility and liability in respect of petitioner under the Surety Company Inc. to jointly and severally pay PNB.
terms of the DCR. To the contrary, Pilipinas had
breached its undertaking under the DCR to Sesbreno. In An appeal was made by his 6 brothers and sisters. Their
this case, Pilipinas refused to deliver the security main contention is that under the special power of
deposited with it when Sesbreno first demanded physical attorney, they had not given their brother, Maximo, the
delivery thereof. authority to borrow money but only to mortgage the real
estate jointly owned by them; and that if they are liable at
It must be noted that the DMC had not yet matured and all, their liability should not go beyond the value of the
therefore, compensation or offsetting against Philfinance property which they had authorized to be given as security
PN had not yet taken place. Instead of complying with the for the loans obtained by Maximo. They further contended
demand of petitioner, Pilipinas purported to require and that they did not benefit whatsoever from the loans, and
await the instructions of Philfinance, in obvious that the plaintiff bank's only recourse against them is to
contravention of its undertaking under the DCR to effect foreclose on the property which they had authorized
physical delivery of the Note upon receipt of “written Maximo to mortgage.
instructions” from petitioner.
ISSUE:
In principle, petitioner became entitled to demand WON the siblings are liable?
physical delivery of the Note held by Pilipinas as soon as
petitioner's money market placement matured without RULING:
payment from Philfinance. Therefore, Pilipinas is liable for NO except for Valeriana Sta. Maria.
damages arising out of its breach of duty. Pilipinas’ failure
to deliver the Note effectively and unlawfully deprived The authority granted by defendants (except Valeriana)
petitioner of the Note deposited with it. unto their brother, Maximo, was merely to mortgage the
property jointly owned by them. They did not grant
PNB VS. STA. Maria Maximo any authority to contract for any loans in their
G.R. No. L-24765, Aug. 29, 1969, 29 SCRA 303 names and behalf. Maximo alone, with Valeriana who
Jeah Alicante authorized him to borrow money, must answer for said
loans and the other defendants-appellants' only liability is
FACTS that the real estate authorized by them to be mortgaged
PNB filed an action for the collection of certain amounts would be subject to foreclosure and sale to respond for
representing unpaid balances on two agricultural sugar the obligations contracted by Maximo. But they cannot be
crop loans from defendants Maximo Sta. Maria and his 6 held personally liable for the payment of such obligations,
brothers and sisters and the Associated Insurance & as erroneously held by the trial court.
Surety Co., Inc.
Valeriana stands liable not merely on the mortgage of her
The sugar crop loans were obtained by Maximo from PNB share in the property, but also for the loans which Maximo
under a special power of attorney, executed in his favor had obtained from PNB, since she had expressly granted
21
Maximo the authority to incur such loans. Valeriana's
liability for the loans secured by Maximo is not joint and Under the Guarantor’s Undertaking, Roberto signed
several or solidary as adjudged by the trial court, but only himself as jointly and severally liable with Celia on the
joint, pursuant to the provisions of Article 1207 of the Civil debts of the latter to the bank. Although the contract was
Code that "the concurrence ... of two or more debtors in titled as a “guarantor’s undertaking,” in substance, it was
one and the same obligation does not imply that ... each a contract of surety. On the contract of guaranty, the
one of the (debtors) is bound to render entire compliance guarantor only answers in case the debtor cannot pay the
with the prestation. There is a solidary liability only when debt, whereas in a surety contract, he binds himself
the obligation expressly so states, or when the law or the solidarily with the debtor. The “joint and several”
nature of the obligation requires solidarity." It should be undertaking is a solidary obligation.
noted that in the additional special power of attorney
executed by Valeriana, she did not grant Maximo the In the agreement, Roberto bound himself solidarily to the
authority to bind her solidarily with him on any loans he extend of Celia’s debt and waived any discharge thereof
might secure thereunder. from any novation of the credit card contract. The
undertaking was very clear. He was made aware thereof,
WHEREFORE, the judgment of the trial court as to the and yet, voluntarily signed it.
siblings (except Valeriana) is reversed and set aside. The
judgment against Valeriana Sta. Maria is modified in that A surety becomes liable only if the debtor becomes liable.
her liability is held to be joint and not solidary. This is the difference. However, the surety is liable to the
same extent as the debtor.
Pacific Banking Corp. vs. Intermediate Appellate

Court Ronquillo vs. CA
G.R. No. 72275, Nov. 13, 1991, 203 SCRA 496 G.R. No. L-55138, Sept. 28, 1984, 132 SCRA 274
Gab Baes Xanthe Alcasid
Celia Regalia
Celia obtained a credit card from Pacific Bank. On the FACTS:
same date, Roberto signed a Guarantor’s Undertaking ● Ronquillo was one of the 4 defendants against
where he held himself jointly and severally liable with whom P117,498.98 was sought to be collected
Celia to pay to Pacific Bank upon demand all representing the dishonored checks they issues.
indebtedness and charges due and incurred by Celia with ● The decision of the court was based on the
the credit card. compromise agreement submitted by the parties,
the pertinent portion of which reads:
Later, Celia couldn’t pay her debts, so the bank ● Plaintiff agrees to reduce its total claim of
demanded from Roberto pursuant to the guarantor’s P117,498.95 to only P110,000.00 and
agreement. defendants agree to acknowledge the validity of
such claim and further bind themselves to initially
A case was then filed against Celia and impleaded pay out of the total indebtedness of P110,000.00
Roberto. The trial court ruled for Pacific Bank and the amount of P55,000.00 on or before December
awarded the total amount of the loan plus interest, but the 24, 1979, the balance of P55,000.00, defendants
IAC modified the award against Roberto, imposing the individually and jointly agree to pay within a
latter to answer only at a P2,000 per month basis for one period of six months from January 1980, or before
year, as per the credit card limit, than the entire amount. June 30, 1980.
● 2 of the defendants tendered the amount of
Pacific questions this decision. P13,750 as their pro rata share in the P55,000
initial payment.
Issue: ● Respondent refused to accept their payments
Should Roberto answer for the entire amount? and moved for the modification of the Order of
execution and prayed instead for the “execution
Ruling: of the decision in its entirety against all
Yes. He was a surety. defendants, jointly and severally.”
22
Whether or not one of the two solidary creditors sue by
ISSUE: himself alone for the recovery of amounts due to both of
What is the nature of the liability of the defendants them without joining the other creditor as a co-plaintiff?
(including petitioner), was it merely joint, or was it several And corollarily, is the second solidary creditor an
or solidary? indispensable party?
RULING: SOLIDARY. RULING:

● The term "individually" has the same meaning as
"collectively", "separately", "distinctively", A solidary obligation is one in which each debtor is liable
respectively or "severally". An agreement to be for the entire obligation, and each creditor is entitled to
"individually liable" undoubtedly creates a several demand the whole obligation…each creditor may enforce
obligation, 14 and a "several obligation" is one by the entire obligation, and each debtor may be obliged to
which one individual binds himself to perform pay it in full.
the whole obligation
● Parot vs. Gemora - the phrase juntos or The essence of active solidarity consists in the authority
separadamente used in the promissory note is an of each creditor to claim and enforce the rights of all, with
express statement making each of the persons the resulting obligation of paying every one what belongs
who signed it individually liable for the payment of to him; there is no merger, much less a renunciation of
the full amount of the obligation contained rights, but only mutual representation
therein.
● Un Pak Leung vs. Negorra - in the absence of a It would follow from these observations that the question
finding of facts that the defendants made of who should sue the private respondents was a personal
themselves individually liable for the debt issue between A&B in which the spouses C&D had no
incurred they are each liable only for one-half of right to interfere. It did not matter who as between them
said amount. filed the complaint because the private respondents were
liable to either of the two as a solidary creditor for the full
amount of the debt. Full satisfaction of a judgment
Quiombing vs. CA obtained against them byA would discharge their
G.R. No. 93010, Aug. 30, 1990, 189 SCRA 325 obligation to B, and vice versa; hence, it was not
Jan Legaspi necessary for bothA&B to file the complaint. Inclusion of
B as a co-plaintiff, when A was competent to sue by
FACTS: himself alone, would be a useless formality.
A (petitioner)& B agreed to construct the house of Sps. C
&D. Sps C & D thereafter acknowledges its completion Article 1212 of the Civil Code provides: Each one of the
and as promised will be bound to pay for its construction solidary creditors may do whatever may be useful to the
solidarily. D signed a promissory not representing the others, but not anything which may be prejudice to the
amount due A &B. latter.
A filed a complaint to recover said amounts from Sps C & According to Justice Jose Y. Feria, "where the obligation
D who acknowledged and promised to pay said amounts of the parties is solidary, either one of the parties is
and despite demands still failed. Sps C&D filed for a indispensable, and the other is not even necessary (now
motion to dismiss contending that B is an indispensable proper) because complete relief may be obtained from
party which was granted. either."
A argued that e argued that as a solidary creditor he could

act by himself alone in the enforcement of his claim Inciong, Jr. vs. CA
against the private respondents G.R. No. 96405, June 26, 1996, 257 SCRA 578
Ninia Tagapia
ISSUE:
BRIEF: Inciong, a co-maker of a loan in favor of PCB for
the alleged purchase of chainsaws for a falcate logs
23
operation business, wrongly assumed that his liability By guaranty a person, called the guarantor, binds himself
would only be limited to P5,000 when by the language of to the creditor to fulfill the obligation of the principal debtor
the contract it was shown he was jointly and severally in case the latter should fail to do so. (Art. 2047 NCC)
liable (in other words, he’s a solidary debtor).
On the other hand, A solidary or joint and several
FACTS: obligation is one in which each debtor is liable for the
entire obligation, and each creditor is entitled to demand
Inciong Jr, along with a Rene Naybe and Gregorio the whole obligation.
Pantanosas, executed a promissory note in favor of
respondent bank PCB for the amount of P50,000 for Solidary co-debtor vs Sureties
chainsaws for a falcata logs operation business The SC further explains that while a guarantor may bind
himself in solidum to the principal debtor, such does not
When the obligation became due and demandable, they make him a solidary co-debtor for all intents and
failed to satisfy it. So PCB filed a complaint against all purposes. There is a difference between a solidary co-
three debtor, and a fiador in solidum (surety).
The case against Pantanosas was dismissed. Naybe was The latter, outside of the liability he assumes to pay the
in Saudi Arabia. So only the proceeding against Inciong debt before the property of the principal debtor has been
Jr continued. exhausted, retains all the other rights, actions and
benefits which pertain to him by reason of the fianza;
Inciong Jr argues that it was through trickery, fraud and
misrepresentation that he signed for the P50,000, while a solidary co-debtor has no other rights than those
believing his status only to be a “co-maker for P5,000” bestowed upon him in Section 4, Chapter 3, title I, Book
pesos IV of the Civil Code."
Issue: W/N the petitioner was a guarantor

Under Art. 1207 thereof, when there are two or more
RULING: debtors in one and the same obligation, the presumption
NO, Inciong signed the promissory note as solidary co- is that the obligation is joint so that each of the debtors is
maker and NOT as a guarantor. liable only for a proportionate part of the debt. There is a
solidary liability only when:
On his argument that since the complaint against Naybe i. the obligation expressly so states;
was dismissed, this should be dismissed as well: It is to ii. when the law so provides; or
be noted, however, that petitioner signed the promissory iii. when the nature of the obligation so
note as a solidary co-maker and not as a guarantor. requires.
Because the promissory note involved in this case In this case, the promissory note clearly stated “jointly and
expressly states that the three signatories therein are severally,” indicating Inciong’s status as a solidary debtor.
jointly and severally liable, any one, some or all of them
may be proceeded against for the entire obligation
EXTINGUISHMENT OF OBLIGATIONS
Thus, PCB is entitled to proceed against Inciong, Jr alone
and completely because of his status as a surety. Under
the Civil Code, it is up to the choice of the creditor which Payment or Performance
debtor to collect from in a solidary obligation. September 24, 2021 Rectitations
Distinctions as discussed in this case:

Guaranty vs. Sureties Montecillo vs. Reynes
385 SCRA 244 (2002)  
Ruth Montilla
24
Facts: Respondent alleged that she is the owner of a matter between him and Jayag and cannot by implication
parcel of land in Mabolo, Cebu and that she signed a deed or deception be made to appear as an encumbrance upon
of sale in favor of petitioner Montecillo who promised to the land. Thus, payment to Jayag’s creditor could not
pay the purchase price (P47,000) within 1 month. possibly redound to the benefit of Reynes.
Montecillo was not able to pay on time but refused to
return the deed of sale. Because of that, Reynes executed Addition: The deed of sale is void for not only lack of
a document revoking the deed of sale and sold the entire consideration, but also lack of consent.
lot to Abucay spouses. Reynes and Abucay argued that
for lack of consideration there was no meeting of the PNB vs. CA
minds between Reynes and Montecillo, thus the Deed of G.R. No. 108630, Apr. 2, 1996, 256 SCRA 44  
Sale should be declared null and void. Renier Hidalgo
However, Montecillo was able to register the land in his FACTS: An expropriation case was instituted by the
name, so the respondents filed a complaint for declaration Government against a parcel of land owned by Loreto
of nullity and quieting of title against Montecillo, alleging Tan. As the case proceeded, Tan filed a motion for the
that there was a lack of consideration. As a defense, release of the expropriation price to him amounting to
Montecillo said that he was a buyer in good faith and he P32,480. Corollary, the court ordered PNB to pay Tan the
already paid P47,000, although still having a balance. mentioned amount which was deposited with it by the
Montecillo paid P50,000 to Cebu Ice Storage for the Government. As such, PNB issued a manager’s check in
release of Jayag’s chattel mortgage debt which was a lien the amount of P32,480. However, without the consent of
on the land. Montecillo said that such payment was made Tan, instead of delivering the check to the latter, it was
in consideration for the sale of the lot. Reynes stated delivered to Sonia Gonzaga. Subsequently, the latter
however that she had nothing to do with Jayag’s debt deposited the check in her Far East Bank and Trust Co.
except that the house mortgaged by Jayag stood on a (FEBTC) account and withdrew the money.
portion of the Mabolo Lot. The payment by Montecillo is a
matter between Montecillo and Jayag. Reynes has Tan demanded the payment directly from PNB but the
nothing to do with it. latter alleges that it already made payment to Gonzaga
who was duly authorized by Tan to receive the payment
Issue: WON Montecillo’s payment to Cebu Ice Storage by virtue of a Special Power of Attorney (SPA). A hearing
was valid therefore extinguishing his obligation to pay was held during the exporpriation proceedings but PNB
Reynes. was not able to present the alleged SPA or the check.
Ruling: NO. The deed of sale did not state that the Thereafter, Tan filed a separate civil action against PNB
purchase price of P47,000 should be paid by Montecillo to collect the P32,480. PNB argues that it already
to a third party, Cebu Ice Storage. Montecillo failed to performed its obligation to make the payment in issue and
show any evidence that Reynes agreed, verbally or in that it is no longer necessary for it to present the SPA
writing, that the P47,000 should be paid to Cebu Ice since it already proved the existence of such instrument
Storage. Absent any evidence, the payment must be from the testimonies of its witnesses and by the
made to Reynes. certification issued by FEBTC that it allowed Gonzaga to
encash the check on the basis of the SPA.
Art 1240 of the NCC provides that payment shall be
made to the person in whose favor the obligation has ISSUE: Whether PNB has made a valid payment of its
been constituted, or his successor in interest, or any obligation. NOPE
person authorized to receive it.
RATIO: There is no question that no payment had ever
Thus, Montecillos payment to Cebu Ice Storage is not the been made to Tan as the check was never delivered to
payment that would extinguish Montecillos obligation to him. When the court ordered PNB to pay Tan the amount
Reynes under the Deed of Sale. Reynes was not a party of P32,480.00, it had the obligation to deliver the same to
to nor privy of the obligation in favor of the Cebu Ice and him. Under Art. 1233 of the Civil Code, a debt shall not be
Cold Storage Corporation. The payment by the defendant understood to have been paid unless the thing or service
to release the residential house from the mortgage is a in which the obligation consists has been completely
25
delivered or rendered, as the case may be. The burden of property was sold to the bank for P8,163 and the bank
proof of such payment lies with the debtor. In the instant later claimed for a deficiency of P21,391.
case, neither the SPA nor the check issued by PNB was
ever presented in court. Pilar then filed an action for annulment of sale with
damages and writ of preliminary injunction against the
Furthermore, it is also necessary for evidence to be bank arguing that in fact, there was an overpayment.
presented regarding the nature and extent of the alleged
powers and authority granted to Gonzaga; more Pilar argues that the bank has no right to foreclose
specifically, to determine whether the document indeed because, had the bank applied her payments to the
authorized her to receive payment intended for Tan. principal obligation which was the loan, the said loan
However, PNB only presented evidence regarding the would have been extinguished. And the accessory
existence of the SPA but not the instrument itself. obligation of the mortgage would have also been
extinguished.
Considering that the contents of the SPA are also in issue
here, the best evidence rule applies. Hence, only the The bank argued that the computation made with Pilar
original document (which has not been presented at all) was not in accordance with the terms of the Promissory
is the best evidence of the fact as to whether or not Tan note because it contained an acceleration clause that
indeed authorized Sonia Gonzaga to receive the check made the whole obligation due on May. And thus, the
from PNB. In the absence of such document, PNBr's payments she made were applied to the penalty and
arguments regarding due payment must fail. interests.
Pagsibigan vs. CA Furthermore, the bank states that since she was in
G.R. No. 90169, Apr. 7, 1993, 221 SCRA  202   default, they were within their rights to foreclose.
Von Villarin
Issue: Was the obligation extinguished?
Facts: Pilar through her daughter and attorney-in-fact
obtained a loan from Planters Development Bank. Ruling: YES.
The loan was fully paid. There is no question that the bank had all the right to
foreclose the mortgage when Pilar defaulted on her first
Pilar then obtained a second loan from the same bank in payment in May. HOWEVER, the bank did not in fact
the amount of P4,500 which was secured by a mortgage foreclose. When the bank received payment on July,
over a parcel of land. Pilar executed a promissory note. nearly 2 months after the stipulated period, it applied
P154 to the principal, P210 to the interest and P25 to the
The promissory note stipulated that a first payment shall penalty.
be made on May and every six months thereafter at
P1,018.14 with a 19% interest rate for unpaid The bank’s act of receiving delayed payment is thus a
amortizations. Finally, in case of default, the promissory waiver of its right under the acceleration clause. Instead
note contained an acceleration clause. of claiming penalty charges of the entire amount, it only
computed the penalty based on the defaulted initial
Pilar was late in paying. However, she made an initial amortization payment.
payment on July which was accepted by the bank.
This is similarly observed in the other payments.
She made several payments thereafter totaling an
amount of P11,900. However, the Bank only applied four The receipt which the bank issued for the partial
of such payments to the loan. The rest were applied to the payments show that it waived its right on Application of
interest and the penalty. Payments when it applied the payment to the principal
instead of the interest.
The bank then extrajudicially foreclosed the land of Pilar
for failure to pay an outstanding balance of P29,554. The From this conduct, it is clear that it neither enforced its
right under the acceleration clause nor its right to
26
foreclose. For more than four years, the bank made Pilar ISSUE: WON there exists constructive fulfillment on
believe that it was applying her payment on the loan and the petitioner towards the respondent which amounts
interest just like before when the bank accepted such to payment of the obligation.
payment and issued a receipt therefor.
RULING: YES. The obligation on the vendee to pay for
It is not bound by estoppel to apply the same as payment the indebtedness of the vendor shall be considered as
for Pilar’s obligation as it did when it received previous having been complied and fully paid when the co-vendor
payments on three occasions. paid the balance, rendering the vendee incapable of
complying to the condition.
Moreover, the payment of Pilar constitutes substantial
performance. The payment made by the sister was construed as a
ploy under Art 1186 that “prematurely prevented
The Civil Code states that if an obligation has been plaintiff from paying the installment fully” and “for the
substantially performed in good faith, the obligor may purpose of withdrawing the lot.”
recover as though there had been a strict and complete
fulfillment less damages.
Panganiban vs. Cuevas
The Civil Code also states that when the creditor accepts 7 Phil 477  
performance knowing its incompleteness and irregularity Luke Burdeos
without protest or objection, the obligation is deemed
complied with. Facts: This involves a sale by Panganiban of a parcel of
land with a camarin (a structure made out of bamboo)
The land must therefore be returned to Pilar, plus which is divided into five apartments to Francisco
damages. Gonzales, for a price of P1,300 with a right to repurchase
the property within six months from December 10, 1897.
Tayag vs. CA It was stipulated that in case Panganiban fails to
G.R. No. 96053, Mar. 3, 1993, 219 SCRA 480   repurchase the property within the period, the vendee
Nikki Sia should pay to him an additional P200 and will become the
absolute owner of the property.
FACTS:
A deed of conveyance was executed in favor of Leyva, by The parties in this case were not able to perform any of
Galicia who subsequently died, involving an undivided ½ the stipulation because of the Philippine Revolution in
portion of a piece of land for P50,000. The terms thereof 1898-1900. Gonzales was not present and the property
were that: was seized by the Revolutionary Government in 1898.
In August 1900, Gonzales sold the property to Cuevas.
1) The sum of 3,000 is received by Galicia upon The latter then instituted an ex parte proceeding for
execution of the agreement, judicial possession of the property and deposited the
2) The sum of 10,000 shall be paid within 10 days amount of P200 to the court.
from the execution,
3) The sum of 10,000 which constitutes the In October 1900, Cuevas brought and action for ejectment
indebtedness of the vendors to Phil Veterans Bank, against Panganiban. Subsequently, Panganiban filed a
shall be assumed by the vendee, and complaint for the recovery of possession, the proceedings
4) The balance of 27,000 shall be paid within 1 year in the action for ejectment having been suspended.
from the execution of the agreement.
It was discovered that in May 1898, Panganiban
The condition in issue is the 3rd, where vendee has paid attempted to repurchase the property from Gonzales but
a partial amount, and the balance thereof was paid by the the latter was absent from his residence on account of the
co-vender (sister of the vendor) thereby preventing the war, nor was he able to deposit the purchase price for the
vendee from fully complying with the agreed conditions. same reason. When the Revolutionary Government
seized the property from Gonzales, it was subsequently
redeemed by Panganiban from the government in
27
November 1898. So basically, Panganiban repurchased A joint checking account with Lim was opened by Velasco
the property from the government. with funds withdrawn from the account of Eastern and/or
Lim. Various amounts were later deposited or withdrawn.
It is an evident fact that from November, 1898, until the When Velasco died, there existed an outstanding balance
15th of August, 1900, when Cuevas took judicial under the account. By virtue of an Indemnity Undertaking
possession of the property by an ex parte proceeding, executed by Lim, half of the balance was released and
Panganiban had been in the quiet and peaceful transferred to one of the bank accounts of Eastern with
possession of the property. CBTC.
Issue: Whether it was proper to pay the repurchase price CBTC loaned to Eastern “Additional Working Capital”.
to the Revolutionary Government. Eastern issued a promissory note payable on demand.
Eastern and CBTC signed another document entitled
RULING: NO. “Holdout Agreement” which provided that the joint
account of Lim and Velasco will be used as security for
The payment made by Panganiban to the revolutionary the loan.
government of the 1,300 pesos which he should have
paid to Francisco Gonzales in order to redeem the While such an agreement was in place, a case for the
property, could not have extinguished the obligation settlement of Velasco’s estate was filed. The balance was
incurred by him in favor of the latter. being claimed as part of Velasco’s estate. This claim was
granted and Velasco’s heirs divided the amount
The repurchase made by Panganiban to the revolutionary withdrawn amongst themselves.
government does not bind Gonzales. Here, while the
property may have been seized by the revolutionary CBTC eventually merged with BPI. BPI filed an action to
government, ownership remains with Gonzales. Hence, demand payment of the promissory note. Lim and Eastern
payment should have been made to Gonzales or to his filed a counterclaim against BPI for the return of the
agent, and not to the revolutionary government, who, in balance in the account subject of the Holdout Agreement
any way, did not acquire ownership of the subject property and the interests thereon after deducting the amount due
nor acted as an agent of Gonzales. on the promissory note.
The supreme court of Spain, in a judgment rendered on ISSUES

the 28th of February, 1896, said: "The payment of the ● WON BPI can demand payment of the loan
debt in order to extinguish the obligation must be made to despite the existence of the Holdout Agreement.
the person or persons in whose favor it was incurred or to (YES)
his or their duly authorized agent. It follows, therefore, that ● WON the money in the joint account rightfully
the payment made to a third person, even through error belonged to Eastern. (YES)
and in good faith, shall not release the debtor of the
obligation to pay and will not deprive the creditor of his HELD
right to demand payment. 1st Issue
BPI had every right to demand payment of the loan. It
cannot be compelled to retain and apply the deposit in Lim
BPI vs. CA and Velasco’s account to the payment of the note. The
G.R. No. 104612, May 10, 1994, 232 SCRA 302   agreement conferred the power, not the duty to apply the
Nickha Tupa deposit to the payment. To apply the deposit to the
payment of a loan is a privilege, a right of set-off which
FACTS BPI has the option to exercise.
Private respondents Eastern Plywood Corporation and
Lim held at least one joint bank account with the Furthermore, Paragraph 05 of the Holdout Agreement
Commercial Bank and Trust Co. (CBTC). CBTC is the state that CBTC/BPI was not precluded from demanding
predecessor-in-interest of petitioner BPI. payment and from instituting an action to recover said
payment. Said paragraph provided for an alternative
method of enforcing a claim on the note. In this case, BPI
28
had opted not to exercise its right to apply part of the the former's aviation fuel requirements for 2 years. Asia
deposit subject of the Holdout Agreement to the payment Pacific had an outstanding obligation to Caltex for
of the promissory note. P4,072,682.13, representing the unpaid price of the fuel
supplied. To settle this outstanding obligation, Asia Pacific
2nd issue executed a Deed of Assignment assigning to Caltex its
The relationship then between a depositor and a bank is receivables or refunds of Special Fund Import Payments
one of creditor and debtor. The deposit under the from National Treasury of the Philippines to be applied as
questioned account was an ordinary bank deposit; hence, payment.
it was payable on demand of the depositor.
Pursuant to the Deed of Assignment, Treasury Warrant in
The account was proved and established to belong to the amount of P5,475,294 representing the refund to
Eastern even if it was under the name of Lim and Velasco. respondent of Special Fund Import Payment on its fuel
Eastern has the right to withdraw it or to demand payment purchases was issued by the National Treasury in favor
from the account. of Caltex. Four days later, Asia Pacific, having learned
that the amount remitted exceeded the amount covered
BPI cannot be relieved of its duty to pay Eastern simply by the Deed of Assignment, wrote a letter to Caltex,
because the heirs of Velasco withdrew the whole balance requesting a refund. Caltex informed Asia Pacific that the
of the account. The SC has ruled that when the ownership amount not returned (P510,550.63) represented interest
of a particular property is in question, the determination and service charges at the rate of 18% per annum on the
by a probate court of whether a property is included in the unpaid and overdue account of Asia Pacific.
estate is merely provisional in character and cannot be
the subject of execution. The order of the court merely Asia Pacific filed a complaint in RTC Manila to collect the
authorized the heirs of Velasco to withdraw the account. unreturned amount. Trial court dismissed the complaint.
BPI was not judicially compelled to release the account to IAC reversed the decision. Thus, this petition.
the heirs.
ISSUE:
Because the ownership of the deposit remained WON there was dation in payment.
undetermined, BPI, as the debtor, had no right to pay to
persons other than those in whose favor the obligation RULING:
was constituted or whose right or authority to receive NO. The Deed of Assignment executed by the parties is
payment is indisputable. The payment of the money not a dation in payment and did not totally extinguish
deposited with BPI that will extinguish its obligation to the respondent's obligation.
creditor-depositor is payment to the person of the creditor
or to one authorized by him or by the law to receive it. The dation in payment extinguishes the obligation to the
Payment made by the debtor to the wrong party does not extent of the value of the thing delivered, either as agreed
extinguish the obligation as to the creditor who is without upon by the parties or as may be proved, unless the
fault or negligence, even if the debtor acted in utmost parties by agreement, express or implied, or by their
good faith and by mistake as to the person of the creditor, silence, consider the thing as equivalent to the obligation,
or through error induced by fraud of a third person. The in which case the obligation is totally extinguished.
payment then by BPI to the heirs of Velasco, even if done
in good faith, did not extinguish its obligation to the true It is clear that a dation in payment does not necessarily
depositor, Eastern. mean total extinguishment of the obligation. The
obligation is totally extinguished only when the parties, by
agreement, express or implied, or by their silence,
Caltex vs. Intermediate Appellate Court consider the thing as equivalent to the obligation.
GR No. 72703, Nov.  13, 1992, 215 SCRA 580  
Jeah Alicante In the instant case, the Deed of Assignment states that:
FACTS: “That Whereas, ASSIGNOR has an outstanding

Asia Pacific Airways Inc. entered into an agreement with obligation with ASSIGNEE in the amount of
Caltex (Philippines) Inc. where the latter agreed to supply P4,072,682.13 as of June 30, 1980, plus any
29
applicable interest on overdue account. (p. 2,
Deed of Assignment) Finally, the payment of applicable interest charges on
overdue account, separate from the principal obligation of
Now therefore in consideration of the foregoing P4,072.682.13 was expressly stipulated in the Deed of
premises, ASSIGNOR by virtue of these Assignment. The law provides that "if the debt produces
presents, does hereby irrevocably assign and interest, payment of the principal shall not be deemed to
transfer unto ASSIGNEE any and all funds and/or have been made until the interests have been covered."
Refund of Special Fund Payments, including all (Art. 1253, Civil Code).
its rights and benefits accruing out of the same,
that ASSIGNOR might be entitled to, by virtue of WHEREFORE, decision of the RTC is reinstated.
and pursuant to the decision in BOE Case No. 80-
123, in payment of ASSIGNOR's outstanding
obligation plus any applicable interest charges on FEBTC vs. Diaz Realty Inc.
overdue account and other avturbo fuel lifting and GR No. 138588, Aug. 23, 2001
deliveries that ASSIGNOR may from time to time Gab Baes
receive from the ASSIGNEE, and ASSIGNEE
does hereby accepts such assignment in its Diaz got a loan from a bank, secured by a Real Estate
favor. (p. 2, Deed of Assignment)” Mortgage. The real property was later on leased to Allied
Banking. The parties agreed that the monthly rentals shall
Hence, it could easily be seen that the Deed of be paid to the bank-mortgagee for Diaz’s account, for
Assignment speaks of three (3) obligations: payment of the indebtedness in full or part.
1. The outstanding obligation of P4,072,682.13;
2. The applicable interest charges on overdue So, Allied Bank paid the monthly rentals to the bank-
accounts; and mortgagee instead. Later on, the bank-mortgagee was
3. The other avturbo fuel lifting and deliveries that closed and was bought by FEBTC.
assignor (Asia Pacific) may from time to time
receive from assignee (Caltex). The account shows that Diaz still owes P1,447,142. Diaz
then tendered P1.45M thru an Interbank check to prevent
The terms of the Deed of Assignment were very clear that accruals of interest and penalties. This was not accepted
the parties did not intend to limit or fix Asia Pacific's by FEBTC and was asked to deposit it in FEBTC’s Davao
obligation to P4,072.682.13. If they did, then there would City Branch Office, pending approval from the liquidator.
have been no need to include the clauses “plus any Diaz then asked for reduction of the interest rate from
applicable interest charges on overdue account" and "and 20% to 12% per annum but no reply was given. Later,
other avturbo fuel lifting and deliveries that ASSIGNOR FEBTC asked Diaz to put the check into a money market
may from time to time receive from the ASSIGNEE". placement.
Moreover, the subsequent acts of the parties clearly show Diaz asked whether the tender of payment will be
that they did not intend the Deed of Assignment to totally accepted, and when no response was given, he filed a
extinguish the obligation: case in the Davao City RTC.
1. After the execution of the Deed of Assignment, Lower Courts found a valid tender of payment of the
Caltex continued to charge Asia Pacific with P1.45M loan for FEBTC. Tender of payment was to
interest on its overdue account; liquidate Diaz’s indebtedness and FEBTC treated it as a
2. Asia Pacific requested Caltex for limitation and deposit instead unilaterally.
reduction of interest imposed.
FEBTC argues that the tender of payment was not valid
The foregoing subsequent acts of the parties clearly show because it was a check, which the bank could legally
that they did not intend the Deed of Assignment to have refuse
the effect of totally extinguishing the obligations of private
respondent without payment of the applicable interest Issue:
charges on the overdue account. Whether a valid tender of payment was exercised
30
● Diaz was leasing Espina’s condominium unit.
Ruling: ● Espina thereafter executed a Provisional Deed of
There was a valid tender. Sale to Diaz where Espina sold the condominium
unit to Diaz for P1.5M. P100k to be paid upon
FEBTC received the Interbank check worth P1.45M from execution of the contract. The balance to be paid
Diaz for full payment of the account. It was subsequently through postdated checks.
cleared and honored by Interbank. ● Diaz informed Espina that the postdated checks
issued will be replaced with new ones because
Although creditor can refuse the check as tendered, it the checking account of Diaz has been closed.
does not prevent him from accepting it as payment. ● Diaz paid P200k to Espina acknowledged by the
Creditor has option and discretion of refusing or accepting latter as partial payment.
it. ● Espina then sent Diaz a Notice of Cancellation of
the Provisional Deed of Sale
Here, the bank did not refuse the check. It accepted it and ● Despite the cancellation, Espina still accepted a
insisted to deposit it in its Davao branch. When deposited, check for P100k.
it was fully funded and honored by the drawee Interbank. ● Espina filed a complaint for unlawful detainer
against Diaz for nonpayment of rentals.
Tender of payment is the definite act of debtor in offering
payment of what is due him, together with the demand to ISSUE:
the creditor to accept it. There is fusion of intent, ability WON payment should be applied to the unpaid rentals
and capability to make good such offer, it is absolute and
it covers the amount due. RULING: YES.
● Diaz contends that the subsequent acceptance of
Here, upon learning the account of P1.447M, Diaz the P100k check which effectively withdrew the
presented the P1.45M check, noting it for full payment of cancellation of the provisional sale. The Court
its account. It was accepted and even insisted to consider disagrees.
it as a mere deposit. The check was funded and was ● Unless the application of payment is expressly
honored. Thus, when FEBTC refused to release the indicated, the payment shall be applied to the
mortgage, Diaz instituted this suit to compel FEBTC to obligation most onerous to the debtor.
acknowledge the tender, accept the payment, and release ● Here, the unpaid rentals constituted the more
the mortgage. These acts comply with the intent, ability onerous obligation. As the payment did not fully
and capability to settle the obligation. settle the unpaid rentals, petitioner’s cause of
action for ejectment survives.
The subsequent withdrawal of Diaz is of no consequence ● Unpaid rentals were more onerous because non-
for it does not affect the efficacy of the tender of payment payment of back rentals would give Espina cause
earlier given. Again, it was accepted, it was converted to for ejectment against Diaz
money, and the money was kept with FEBTC’s
possession.
Payment by Cession
There is no need for consignation, because it will only play
should creditor refuse to accept the payment. Again here,
the payment was accepted and FEBTC treated it as a Lopez vs. CA
deposit. G.R. No. L-33157, June 29, 1982, 114 SCRA 671
Jan Legaspi
Application of Payments
FACTS:
Petitioner Lopez obtained a loan from Prudential bank
Espina vs. CA with respondent Philamgen as its surety. In consideration
G.R. No. 116805, June 22, 2000, 334 SCRA 186 for the surety undertaken by Philamgen, Lopez executed
Xanthe Alcasid an indemnity agreement and a deed of assignment of
FACTS: 4000 shares of stock of Baguio Military Institute in favor
31
of the said company, endorsing in blank and delivering the Other reasons why it was not a dacion en pago:
stock certificate to the latter. -there is no express provision in the terms of the
stock assignment between Philamgen and Lopez that the
It was their understanding that if he could not pay the loan, principal
Vice-President Abello and Pio Pedrosa of the Prudential obligation (which is the loan) is immediately extinguished
Bank would buy the shares of stocks and out of the by reason of the assignment
proceeds thereof, the loan would be paid to the Prudential -ch assignment. In case of doubt as to whether a
Bank. transaction is a pledge or a dation in payment, the
presumption is in favor of pledge, the latter being the
Lopez was unable to pay when the loan was due so lesser transmission of rights and interests.
Philamgen paid the loan and thereafter filed for
reimbursement. The 4000 shares of stock were
Tender of Payment and Consignation
transferred in the name of Philamgen.
RTC dismissed and ruled it was not a pledge while CA Eternal Gardens Memorial Park vs. CA
reversed and said it was a pledge. 282 SCRA 553 (1997)
Ninia Tagapia
Issue: Whether or not the shares of stock were merely
pledged or there was absolute transfer. DOCTRINE: Consignation produces the effect of
payment. The rationale for consignation is to avoid the
Ruling: Pledge. Considering that the indemnity performance of an obligation becoming more onerous to
agreement connotes a continuing obligation of Lopez the debtor by reason of causes not imputable to him.
towards Philamgen while the stock assignment indicates
a complete discharge of the same obligation, the FACTS:
existence of the indemnity agreement whereby Lopez had In a land development agreement, Eternal Gardens
to pay a premium of P1,000.00 for a period of one year Memorial Park Corporation (EGMPC) undertook to
and agreed at all times to indemnify Philamgen of any and develop a parcel of land owned by the North Philippine
all kinds of losses which the latter might sustain by reason Union Mission of the Seventh Day Adventists (NPUM) into
of it becoming a surety, is inconsistent with the theory of a memorial park subdivided into lots. EGMPC under the
an absolute sale for and in consideration of the same agreement had the obligation to remit monthly to NPUM
undertaking of Philamgen. forty percent (40%) of its net gross collection from the
development of a memorial park on property owned
It has been said that a transfer of property by the debtor by NPUM (in other words, EGMPC has the obligation to
to a creditor, even if sufficient on its face to make an remit to NPUM the proceeds of a sale per month)
absolute conveyance, should be treated as a pledge if the
debt continues in existence and is not discharged by the However, two claimants of the parcel of land surfaced —
transfer, and that accordingly, the use of the terms Maysilo Estate and the heirs of a certain Vicente Singson
ordinarily importing conveyance, of absolute ownership Encarnacion. EGMPC thus filed an action for
will not be given that effect in such a transaction if they interpleader against Maysilo Estate and NPUM. The
are also commonly used in pledges and mortgages and Singson heirs in turn filed an action for quieting of title
therefore do not unqualifiedly indicate a transfer of against EGMPC and NPUM.
absolute ownership.
From these two cases, several proceedings ensued. The
The following requirements of a contract of pledge have respondent (NPUM) moved that the proceeds of the sale
been satisfied: (1) that it be constituted to secure the be deposited with the court while the case is ongoing. The
fulfillment of a principal obligation; (2) that the pledgor be Court ordered Eternal Gardens to consign the amount
the absolute owner of the thing pledged; and (3) that the due to NPUM, which Eternal Gardens opposed. Eternal
person constituting the pledge has the free disposal of the Gardens claimed that they were correct in withholding
property, and in the absence thereof, that he be legally payment because they still did NOT know as to whom
authorized for the purpose. payment was to be made since there was still the
32
unresolved issue of ownership over the property funds in litigation at the expense of whoever will
subject of the Land Development Agreement. ultimately be adjudged as entitled thereto.
● However, Eternal Gardens OBJECTED to the deposit
ISSUE: Whether petitioner EGMPC is justified in of the amounts in litigation after having asked for the
withholding payment while the unresolved issue of assistance of the lower court by filing a complaint for
ownership over the property subject of the Land interpleader where the deposit of aforesaid amounts
Development Agreement is still pending? is not only required by the nature of the action but is
a contractual obligation of the petitioner under the
RULING: Land Development Program.
● Thus, Eternal Gardens is liable for interest at the rate
NO, EGMPC is not justified because the deposit of of twelve percent (12%). The withholding of the
aforesaid amounts is not only required by the nature amounts due under the agreement was tantamount to
of the action but is a contractual obligation of the a forbearance of money.
petitioner under the Land Development Program
1) It is provided under their contractual agreement: Rayos vs. Reyes

● EGMPC under the agreement had the obligation to 398 SCRA 24 (2003)
remit monthly to NPUM forty percent (40%) for its net Aireen Selma
gross collection from the development of a memorial
park on property owned by NPUM. FACTS:
● The same agreement provided for the designation of There were three (3) parcels of land formerly owned by
a depository/trustee bank to act as the the Spouses Tazal who sold them for P724.00 to Reyes,
depository/trustee for all funds collected by EGMPC. with the right to repurchase within two (2) years from
There was no obstacle, legal or otherwise, to the September 1, 1957 by paying to the buyer the purchase
compliance by EGMPC of this provision in the price and all expenses incident to their reconveyance.
contract, even on the affectation that it did not know
to whom payment was to be made. This became controversial when two (2) of three (3)
● Even disregarding the agreement, EGMPC cannot parcels were again sold by Sps. Tazal for P420.00 in favor
"suspend" payment on the ground that it did not know of Rayos, without first availing of their right to repurchase
who among the subject property's claimants was the the properties. On September 1, 1959, the conventional
rightful owner. It had a remedy under the New Civil right of redemption in favor of Sps. Tazal expired without
Code of the Philippines — to give in consignation the right being exercised by either Sps. Tazal or the
the amounts due, as these fell due. Consignation second buyer, Rayos.
produces the effect of payment. The rationale for
consignation is to avoid the performance of an After the expiration of the redemption period, Tazal
obligation becoming more onerous to the debtor by attempted to repurchase the properties from Reyes by
reason of causes not imputable to him Thus, for its asserting that the deed of sale with right of repurchase
failure to consign the amounts due, Eternal Gardens' was actually an equitable mortgage. Tazal offered the
obligation to NPUM necessarily became more amount of P724.00 to pay for the alleged debt but Reyes
onerous as it became liable for INTEREST on the refused the tender of payment and vigorously claimed that
amounts it failed to remit. their agreement was not an equitable mortgage.
2) Eternal Garden’s objection is contrary to the Tazal filed a complaint with the CFI against Reyes for the
nature of an Interpleader action: declaration of their transaction as a contract of equitable
● The essence of the interpleader on the part of the mortgage. He also prayed for an order requiring Reyes to
petitioner, aside from disavowal of interest in the accept the amount of P724.00 which he had deposited
property being litigated, is the deposit of the with the trial court as full payment for his debt, and
property or funds in controversy with the court. cancelling the supposed mortgage on the three (3)
This rule is founded on justice and equity so that the parcels of land.
plaintiff will not be benefited from the property or
33
The trial court rejected the contention of Tazal that the notice that makes known the debtor’s intention to deposit
deed of sale executed was an equitable mortgage but the amount.
held that Tazal could nonetheless redeem the three (3)
parcels of land within 30 days from finality of judgment by Without any announcement of the intention to resort to
paying Reyes the purchase price of P724.00 and all consignation first being made to the persons interested
expenses to execute the reconveyance. in the fulfillment of the obligation, the consignation as a
means of payment is void.
Subsequent to the finality of judgment, Sps. Tazal did
nothing to repurchase the three (3) parcels of land within 3. Sps. Tazal failed to show the acceptance by the
the 30-day grace period since, according to them, they creditor of the amount deposited as full settlement of the
believed that the consignation of P724.00 had perfected obligation, or in alternative, a declaration by the court of
the repurchase of the disputed properties. the validity of the consignation.
ISSUE: (relevant) It should be recalled that one of the requisites of

WON there was a valid consignation. consignation is the filing of the complaint by the debtor
against the creditor. Hence, it is the judgment on the
RULING: NO. complaint where the court declares that the consignation
1. Sps. Tazal failed to offer a valid and unconditional has been properly made that will release the debtor from
tender of payment. liability. Should the consignation be disapproved by the
court and the case dismissed, as in this case, there is no
Consignation and tender of payment must not be payment and the debtor is in mora and he shall be liable
encumbered by conditions if they are to produce the for the expenses and bear the risk of the loss of the thing.
intended result of fulfilling the obligation. In the instant
case, the tender of payment of P724.00 was conditional Badayos vs. CA
and void as it was predicated upon the argument of Tazal G.R. No. 57630, Mar. 13, 1992
that he was paying a debt which he could do at any time Googi Buenaventura
allegedly because the transaction was a contract of
equitable mortgage and not a deed of sale with right to FACTS: On March 9, 1973, Clara Badayos executed in
repurchase. favor of Spouses Gabisan a Deed of Sale With The Right
to Repurchase over her undivided half portion of land in
The ostensible purpose of offering the amount in Talisay. The sale was made subject to the following
connection with a purported outstanding debt was to stipulation:
evade the stipulated redemption period in the deed of sale
which had already expired when the tender of payment That it is the essence of this contract that the vendor,
was made. Reyes was, therefore, within his right to refuse Clara Badayos has the right to repurchase the above
the tender of payment offered by Tazal because it was described property after 2 years from and after the
conditional upon his waiver of the two-year redemption execution of this contract for the same amount of
period stipulated in the deed of sale with right to P7,400.00.
repurchase.
Two years after the execution of the document (on April
2. Sps. Tazal failed to notify Reyes of the intention to 17, 1975), the spouses filed an action to consolidate
deposit the amount with the court. ownership over the property; it was alleged that the two-
year period from March 9, 1973 had already elapsed but
Tazal failed to prove that any form of notice regarding Badayos never repurchased the said property in violation
their intention to deposit the amount of P724.00 with CFI of the contract of pacto de Retro Sale.
had been served upon Reyes. This requirement is not
fulfilled by the notice which could have ensued from the In her Answer, Badayos alleged that: (1) the document is
filing of the complaint or the stipulation made between actually an equitable mortgage intended to secure her
Tazal and Reyes. The latter constituted the second notice loan of P4,000.00 from Spouses Gabison, and (2) after
required by law as it already concerns the actual deposit the expiration of the two-year period counted from 9
or consignation of the amount and is different from the first March 1973, she approached the spouses to request for
34
an extension of time within which to pay the obligation, redemption, was not one of debtor-creditor. Badayos was
which was granted (since Badayos was waiting for the exercising a right, not discharging an obligation, hence a
approval of the loan of her daughter. mere tender of payment is sufficient to preserve the right
of a vendor a retro.
ISSUE: Whether or not Badayos was able to repurchase
the property in question within the period stipulated in the Adelfa Properties, Inc. vs. CA
deed of sale with right to repurchase G.R. No. 111238, Jan. 25, 1995, 240 SCRA 565
Jewel Wee
RULING: Badayos was able to repurchase the
property well within the stipulated period to do so, FACTS:
since their stipulation was clear in that Badayos
could redeem the property two years after the Siblings Rosario, Salud, Jose, Dominador were the
execution of the contract. registered co-owners of the subject lot. Jose and
Dominador sold their share (eastern part) in the said land
Here, since the contract was executed on March 9, 1973, to Adelfa Properties, Inc. (API).
Badayos can redeem the property only after 9 March
1975. The foregoing stipulation was clear and needed no API expressed interest in buying the share of Rosario and
further interpretation; hence, its literal meaning is binding. Salud (western part) so they executed an “Exclusive
The rule in this jurisdiction is that if the terms of a contract Option to Purchase”, to wit:
are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations 2. The sum of P50,000 which we received
shall control. from API as an option money shall be
credited as partial payment upon
It is to be noted, however, that while the parties agreed on consummation of the sale and the
the period within which the right may not be exercised or balance… to be paid on or before Nov. 30,
will be deemed suspended, they did not specify the period 1989;
within which such may be exercised thereafter. This 3. In case of default on the part of API to pay
suspension remains valid as long as Article 1606 of the said balance… this option shall be cancelled
Civil Code is not violated. Said Article reads: The right and 50% of the option money to be forfeited
referred to in article 1601, in the absence of an express in our favor and we will refund the remaining
agreement, shall last four years from the date of the 50% of said option money upon the sale of
contract. Should there be an agreement, the period said property to a third party;
cannot exceed ten years.
Before API could make payment, it received complaints
While the counting of this four-year period shall begin from the Jose and Dominador, and nieces and nephews
from the execution of the contract, where the right is of Salud and Rosario for the annulment of the deed of sale
suspended by agreement until after a certain time, event and the recovery of the ownership of the property. So, API
or condition, the period shall be counted from the time informed respondents that it would withhold payment of
such right could be exercised, but not exceeding 10 years the price until the respondents could settle the issues, but
from the execution of the contract. Applying the provision Salud refused to heed the suspension of the payment by
to the instant case, the period to repurchase the property reason of lack of word of honor and informed Atty.
must be deemed to be four years from 9 March 1975 or Bernardo, API’s counsel, that they were cancelling the
until 9 March 1979. transaction.
Since Badayos consigned the repurchase price on 11 Once again, on Feb 28, 1990, API caused to be annotated
August 1975, a fact Spouses Gabison did not deny, this anew on the TCT the exclusive option to purchase. But on
Court declares that this consignation operated as a valid the same day, respondents executed a deed of
offer or tender of the redemption price. It must be conditional sale in favor of Chua over the same property,
emphasized that consignation was not necessary for the even though API was willing to pay the price and the
reason that the relationship that existed between Badayos request for the execution of the DoAS.
and Spouses Gabison, in respect to the right of
35
Respondents returned the 50% of the option money and contemplated in Art 1590. API was justified in suspending
requested that the TCT be returned to them, but API failed the payment by reason of the civil action filed by Jose,
to surrender the TCT. Dominador and the nieces and nephews of Salud and
Rosario.
ISSUE: What are the legal effects thereof on the
contractual relations of the parties? Respondents may no longer be compelled to sell and
deliver the subject property to API because of the latter’s
DECISION: failure to duly effect the consignation of the purchase
Option Contract v. CTS v. COS price after the disturbance had ceased and the fact that
In determining whether a contract is a contract of sale or the CTS had been validly rescinded by the respondents.
a mere option is whether the agreement could be
specifically enforced. Tender of payment and consignation
The mere sending of a letter to express the intention to
The agreement between the parties is a contract to sell pay, without accompanying payment, is not considered a
and not an option contract or a contract of sale. The valid tender of payment. A mere tender of payment is not
parties never intended to transfer the ownership except sufficient to compel respondents to deliver the property
upon full payment of the price since there was no and execute the deed of absolute sale. It is consignation
stipulation of reversion of ownership of property in case of which is essential in order to extinguish API’s obligation
default by API. In effect, there was an implied agreement to pay the balance.
that ownership shall not pass to the buyer until he had
fully paid the price. But in an option contract or in legal redemption or in sale
with right of repurchase, consignation is not necessary
Another reason is the fact that the deed of absolute sale because these cases involve and exercise of a right or
would only be issued upon the payment of the balance of privilege rather than a discharge of an obligation, hence
the purchase price. Also, it has not been shown that there tender of payment would be sufficient to preserve the
was delivery made in favor of API and the exclusive option right. Consignation is only applicable where there is an
to purchase was not contained in a public instrument. obligation to pay like in a contract to sell.
An option is a continuing offer or contract by which the Rescission of contract

owner stipulates with another that the latter shall have the By reason of API’s failure to pay the balance after the
right to buy the property at a fixed price within a certain disturbance had ceased, respondents elected to rescind
time, or under, or in compliance with, certain terms and the contract and the written notice of rescission is deemed
conditions, which gives to the owner of the property the sufficient in this case, since Art 1592 is not applicable to
right to sell or demand a sale. The records shows that CTS and judicial action is not necessary where the
respondents accepted the offer of API to buy the property contract provides for automatic rescission in case of
under the terms of their contract. breach. But if the debtor impugns the declaration, it shall
be subject to judicial determination. If the other party does
Suspension of payment of price not oppose, as in this case, the extrajudicial rescission
Art 1590. Should the vendee be disturbed in the shall have legal effect.
possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may De Mesa vs. CA
suspend the payment of the price until the vendor caused G.R. Nos. 106467-68, Oct. 19, 1999, 317 SCRA 24
the disturbance or danger to cease, unless the latter gives Joan Rufin
security for the return of price in proper case, or it has
been stipulated that, notwithstanding any such FACTS: Petitioner Dolores Ligaya de Mesa owns several
contingency, the vendee shall be bound to make the parcels of land which were mortgaged to the
payment. … Development Bank of the Philippines (DBP) as security
for a loan she obtained from the bank. Failing to pay her
The assurance given by respondents that API did not mortgage debt, all her mortgaged properties were
have to worry about the case is not the kind of guaranty
36
foreclosed and sold at public auction. In all the said
auction sales, DBP was the winning bidder. The records show that several tenders of payment were
consistently turned down by the petitioner, so much so
Petitioner de Mesa requested DBP that she be allowed to that the respondent OSSA found it pointless to keep on
repurchase her foreclosed properties.Thereafter, Mrs. de making formal tenders of payment and serving notices of
Mesa, under a "Deed of Sale with Assumption of consignation to petitioner. Moreover, in a motion dated
Mortgage," sold the foreclosed properties to private May 7, 1987, OSSA prayed before the lower court that it
respondent OSSA under the condition that the latter was be allowed to deposit by way of consignation all the
to assume the payment of the mortgage debt by the quarterly installments, without making formal tenders of
repurchase of all the properties mortgaged on installment payment and serving notice of consignation, which prayer
basis. was granted by the trial court in the Order dated July 3,
1982. The motion and the subsequent court order
Private respondent OSSA remitted to DBP the initial served on the petitioner in the consignation
payment of P90,000.00, in addition to the amount of proceedings sufficiently served as notice to
P10,000.00 previously paid to the petitioner. DBP in a petitioner of OSSA's willingness to pay the quarterly
"Deed of Conditional Sale" granted the petitioner's installments and the consignation of such payments
request to repurchase the foreclosed properties. with the court. For reasons of equity, the procedural
requirements of consignation are deemed
Private respondent OSSA paid DBP the first to eight substantially complied with in the present case.
quarterly installments which installment payments were
applied to petitioner's obligation with DBP pursuant to the The claim also of petitioner with regard to the validity of
Deed of Conditional Sale. However, a notification was the tender of payment does not accord with the records
made by petitioner de Mesa to private respondent OSSA on hand.
informing her that she was rescinding the Deed of Sale
with Assumption of Mortgage on the ground that OSSA Thus, the Court of Appeals ratiocinated:
failed to comply with the terms and conditions of their "The 'Deed of Sale with Assumption of Mortgage',
agreement, particularly the payment of installments to the was for a consideration of P500,000.00, from which
DBP, the discharge and cancellation of the mortgage on shall be deducted de Mesas's outstanding
the property. obligation, with the DBP pegged as of May 10,
1978, by the parties themselves, at P455,636.92.
OSSA offered to pay the difference between the purchase This amount of P455,636.92 owing DBP, is what
price and the mortgage obligation to DBP after deducting OSSA agreed to assume. What remained to be
the downpayment but the petitioner refused to accept paid de Mesa was P44,636.08, but OSSA made an
such payment. DBP refused to accept the 9th quarterly advance payment of P10,000.00, hence the
installment paid by OSSA, prompting the latter to file remaining amount payable to de Mesa is
against DBP and the petitioner for specific performance P34,363.08, which OSSA tendered in cash
and consignation. (Exhibits 'X', 'BB' and 'CC')."
Petitioner argues that there was no notice to her regarding It is thus beyond cavil that the respondent OSSA tendered
OSSA's consignation of the amounts corresponding to the the correct amount, the tender of which was in cash and
12th up to the 20th quarterly installments. Petitioner also not by check, as theorized by petitioner.
insists that there was no valid tender of payment because
the amount tendered was P34,363.08, not P51,243.26,
and assuming ex gratia argumenti that it was the correct
Loss of the Thing Due
amount, the tender thereof was still not valid, the same
having been made by check.
Yu Tek Co. vs. Gonzales
ISSUE: Whether or not the requirements of Articles 1256 29 Phil. 384  
to 1261 can be ‘relaxed’ or ‘substantially complied with’. Klynton Lucero
FACTS:
RULING:
37
Based on a written contract, Basilio Gonzalez weather that destroyed his growing cane is immaterial as
(Gonzalez) received Php 3,000 from Yu Tek & Company under the contract, he was not limited to his growing crop
(Yu Tek). In consideration of said amount, Gonzalez in order to make the delivery.
obligated himself to deliver to Yu Tek 600 piculs of sugar
within a period of three months. In view of the foregoing, aside from the prior
judgment obligating Gonzalez to return the Php 3,000 to
In case Gonzalez does not deliver the 600 piculs Yu Tek, he is now also obliged to pay the sum of Php
of sugar to Yu Tek within the stipulated three months, the 1,200 by way of indemnity and damages.
contract will be rescinded and Gonzalez will be obligated
to return to Yu Tek the Php 3,000 received and also the Labayen vs. Talisay-Silay Milling Co.
sum of Php 1,200 by way of indemnity for loss and 52 Phil. 440  
damages. Ruth Montilla
Yu Tek proved that no sugar had been delivered Facts: Reynaldo Labayen was a hacienda owner who
to it, nor had it been able to recover the Php 3,000. Then, entered into a contract with Talisay Milling for the milling
Yu Tek prayed for judgment for the Php 3,000 and Php of sugar cane. Among the clauses of the contract was the
1,200. However, judgment was rendered for the Php construction of a permanent railroad that would pass
3,000 only. From this judgment, both Yu Tek and through Labayen’s Hacienda subject to the condition that
Gonzalez appealed. it shall be constructed whenever the contour of the land,
the curves, and elevations permit the same. However,
Here, Gonzalez sought to show that the sugar was to be such construction did not continue because according to
obtained exclusively from the crop raised by him. a civil engineer, the construction was possible but very
However, there is no clause in the written contract which dangerous. That was when the complainant filed for the
suggests such a condition. Further, Gonzalez contends alleged breach of contract to grind sugar cane.
that he assumed that the contract was limited to the sugar
he might raise upon his own plantation, and that by failure Issue: WON defendant can excuse itself from
of his crop, he was relieved from complying with his constructing the railroad.
undertaking by the loss of the thing due.
Ruling: YES.
ISSUE:
Is Gonzalez relieved from his obligation to deliver It is elemental that the law requires parties to do what they
the 600 piculs of sugar to Yu Tek by virtue of the loss of have agreed to do. If a party charges himself with an
the thing due? obligation possible to be performed, he must abide by it
unless performance is rendered impossible by the act of
RULING: God, the law, or the other party. A showing of mere
No, Gonzalez is not relieved of such obligation. inconvenience, unexpected impediments, or increased
Under the Old Civil Code, until a thing is segregated or expenses is not enough.
appropriated, the vendee does not assume the risk of
loss. Further, to correlate this 1915 case to the New Civil Furthermore, the law provides that ’’impossible things or
Code, Art. 1263 of said Code provides: “In an obligation services cannot be the subject matter of contracts.” It also
to deliver a generic thing, the loss or destruction of provides that ’’the debtor shall also be relieved from
anything of the same kind does not extinguish the obligations which consist in the performance of an act if
obligation.” In this case, there being no appropriation fulfillment of the undertaking becomes legally or
of any particular lot of sugar, it is clear that such sugar physically impossible.’’
is a generic thing.
In this case, the defendant cannot be held liable for the
Moreover, Gonzalez undertook to deliver a breach because the contract stipulated that it could only
specified quantity of sugar within a specified time. The construct if the contour of the land would permit the same.
contract placed no restriction upon him in the matter of The construction of the railroad was very dangerous to the
obtaining the sugar. Gonzalez was equally at liberty to life and limb of the construction workers. Hence, there is
purchase it on the market or raise it himself. The dry a moral impossibility to perform the obligation which
38
justifies its extinguishment. Failure to grind sugar cane in implies a renunciation of the action which Velasco had for
view of the non-construction of the railroad does not give the recovery of his credit.
rise to damages.
Under the Civil Code, the possession by the debtor of a
private document proving a debt supposes and creates
the presumption that the creditor delivered it voluntarily,
Condonation/ Remission of Debt
unless the contrary is proven, and no such proof has been
offered by Velasco upon whom the burden rests to
Veloso vs. Masa destroy the said presumption.
10 Phil. 279  
Renier Hidalgo Therefore, since no proof appears in the record that the
delivery of the document was not voluntarily made, it
FACTS: Felix Velasco filed a case for robbery against appears from the whole of the foregoing that the debt now
Martin Masa. Velasco alleged that by means of threats, claimed was remitted for reasons of gratitude, and that
Masa was able to obtain a private document against the Velasco has implicitly waived its recovery,
former’s wife, which was evidence of the loan obtained by
Masa from him. However, the latter was acquitted Lopez vs. Tambunting
because it was proven that the private document had 33 Phil. 236  
been delivered for reasons of gratitude G.R. no. 9806
Von Villarin
Unsatisfied, Velasco instituted this present civil case for
the collection of the loan he allegedly granted to Masa. Facts:
Velasco avers that the private document which evidenced
the debt was obtained by Masa through coercion and Lopez is a doctor who allegedly rendered professional
trickeries exercised with respect to his wife. Meanwhile, medical services to the daughter of Tambunting.
Masa presented witnesses who testified that the evidence
of indebtedness was returned to him by Velasco, through In consideration thereof, Lopez demanded payment from
his wife, as remission of the debt. Tambunting for the amount of P700. He allegedly sent a
receipt to Tambunting as part of the former’s demand for
The lower court dismissed Velasco’s complaint for the latter to pay.
insufficiency of evidence.
Since his demands were not heeded, he filed a case
ISSUE: Whether remission of the debt occurred. YUP against Tambunting in the Court of First Instance for the
collection of P2000.
RATIO: While in the criminal proceedings it could not be
proved that Masa had obtained possession of the private Tambunting denied the allegations stating that the
document through violence or intimidation, and for such obligation has already been extinguished as evidenced by
reason he was acquitted of the charge of robbery, so also his possession of the receipt.
in the present action, whereby it is pretended to collect the
amount stated in the document, it has not been proved The Court of First Instance ordered Tambunting to pay
that the defendant, Masa, managed to obtain delivery albeit only P700.
thereof from the wife of Velasco by means of coercion or
trickery as alleged. Tambunting brought an appeal.
As such, it is now an unquestionable fact, duly proven at Issue: was the obligation extinguished?
the trial, that the instrument proving the debt now claimed
passed to the possession of Masa and for this reason, Held: No.
unless the contrary be proven, it must be presumed, in
accordance with the provisions of law, that the delivery of Tambunting claims that he already paid for the obligation
the instrument was voluntarily made, and that this fact as evidenced by his possession of the receipt. He
operates under the presumption in the Civil Code that
39
states that an obligation delivered up to the debtor has ISSUE: Whether remission of the debt occurred. YUP
been paid, and whenever the private instrument which
evidences the debt is in possession of the debtor, it will RATIO: While in the criminal proceedings it could not be
be presumed that the creditor delivered it of his own free proved that Masa had obtained possession of the private
will, unless the contrary is proven. document through violence or intimidation, and for such
reason he was acquitted of the charge of robbery, so also
In this case however, the legal presumption established in the present action, whereby it is pretended to collect the
cannot stand if sufficient proof is adduced against it. The amount stated in the document, it has not been proved
trial court correctly held that there was sufficient evidence that the defendant, Masa, managed to obtain delivery
to show that the obligation had not yet been paid. thereof from the wife of Velasco by means of coercion or
trickery as alleged.
In order that such a presumption may be taken into
account, it is important that the evidence of the obligation As such, it is now an unquestionable fact, duly proven at
be delivered up to the debtor and that the delivery of the the trial, that the instrument proving the debt now claimed
instrument proving the credit be made voluntarily by the passed to the possession of Masa and for this reason,
creditor to the debtor. unless the contrary be proven, it must be presumed, in
accordance with the provisions of law, that the delivery of
In this case, Lopez merely delivered the receipt as part of the instrument was voluntarily made, and that this fact
his demand for the latter to pay. It cannot be said that it implies a renunciation of the action which Velasco had for
was his intention that the document should remain in the recovery of his credit.
possession of Tambunting if the latter did not pay the said
amount. Under the Civil Code, the possession by the debtor of a
private document proving a debt supposes and creates
the presumption that the creditor delivered it voluntarily,
unless the contrary is proven, and no such proof has been
Condonation/ Remission of Debt
offered by Velasco upon whom the burden rests to
destroy the said presumption.
Veloso vs. Masa
10 Phil. 279   Therefore, since no proof appears in the record that the
Renier Hidalgo delivery of the document was not voluntarily made, it
appears from the whole of the foregoing that the debt now
FACTS: Felix Velasco filed a case for robbery against claimed was remitted for reasons of gratitude, and that
Martin Masa. Velasco alleged that by means of threats, Velasco has implicitly waived its recovery,
Masa was able to obtain a private document against the
former’s wife, which was evidence of the loan obtained by Lopez vs. Tambunting
Masa from him. However, the latter was acquitted 33 Phil. 236  
because it was proven that the private document had G.R. no. 9806
been delivered for reasons of gratitude Von Villarin
Unsatisfied, Velasco instituted this present civil case for Facts:

the collection of the loan he allegedly granted to Masa.
Velasco avers that the private document which evidenced Lopez is a doctor who allegedly rendered professional
the debt was obtained by Masa through coercion and medical services to the daughter of Tambunting.
trickeries exercised with respect to his wife. Meanwhile,
Masa presented witnesses who testified that the evidence In consideration thereof, Lopez demanded payment from
of indebtedness was returned to him by Velasco, through Tambunting for the amount of P700. He allegedly sent a
his wife, as remission of the debt. receipt to Tambunting as part of the former’s demand for
the latter to pay.
The lower court dismissed Velasco’s complaint for
insufficiency of evidence.
40
Since his demands were not heeded, he filed a case
against Tambunting in the Court of First Instance for the FACTS:
collection of P2000. Plaintiff Paulina Sochayseng is the mother of Marcela
Yatco, the deceased-spouse of defendant Trujillo. She
Tambunting denied the allegations stating that the filed a written complaint wherein she alleged that her
obligation has already been extinguished as evidenced by daughter died on June 25, 1911 without leaving any
his possession of the receipt. legitimate heir other than the plaintiff.
The Court of First Instance ordered Tambunting to pay 5 months prior to the death of Marcela, she left her
albeit only P700. husband’s house with his knowledge and consent and
removed to that of the plaintiff for the purpose of being
Tambunting brought an appeal. attended by the latter during her sickness wherein plaintiff
spent a total of P730 for the cost of care and funeral
Issue: was the obligation extinguished? expenses.
Held: No. The record show that the property acquired during the
marriage amounted to P2,603 and that the wife had
Tambunting claims that he already paid for the obligation paraphernal properties amounting to P1,490 wherein
as evidenced by his possession of the receipt. He plaintiff is willing an amount of P615 (from 1490) as such
operates under the presumption in the Civil Code that was the value of the property which the deceased Marcela
states that an obligation delivered up to the debtor has Yatco took away with her upon leaving the conjugal home.
been paid, and whenever the private instrument which
evidences the debt is in possession of the debtor, it will ISSUE: Whether there was a merger of rights of a creditor
be presumed that the creditor delivered it of his own free and debtor on the person of Paulina Sochayseng.
will, unless the contrary is proven.
RULING: YES. With respect to the funeral expenses
In this case however, the legal presumption established (only).
cannot stand if sufficient proof is adduced against it. The
trial court correctly held that there was sufficient evidence The estate of the deceased Marcela Yatco is entitled to
to show that the obligation had not yet been paid. P659, as community property, and P875, as paraphernal
property, or to the total sum of P1,534. From this must be
In order that such a presumption may be taken into deducted the other part of the credit demanded of P320
account, it is important that the evidence of the obligation for the funeral expenses of the said deceased, which must
be delivered up to the debtor and that the delivery of the be paid, not by the husband, but by the heir. The character
instrument proving the credit be made voluntarily by the of the mother as the debtor-heir and creditor is merged in
creditor to the debtor. this respect.
In this case, Lopez merely delivered the receipt as part of Plaintiff will collect the P410 under her personal right as a
his demand for the latter to pay. It cannot be said that it creditor of the defendant, like any third person who might
was his intention that the document should remain in have furnished that subsistence, and the remaining
possession of Tambunting if the latter did not pay the said P1,534 as the legitimate heir of the deceased Marcela
amount. Yatco.
The court ordered the defendant to pay plaintiff

Sochayseng: P875 as the paraphernal property of the
Confusion or Merger of Rights
deceased; P659 as her ½ share of the community
September 25, 2021 Recitations
property; and P410 as the debt owed by him as the legal
administrator of the community property for the cost of the
Sochayseng vs. Trujillo subsistence to which the deceased was entitled. Totaling
31 Phil. 153 to P1,944.
Nikki Sia
41
ISSUE: Whether it was proper for the lower court to order
Yek Ton Lin Fire & Marine Insurance Co. vs. Yusingco Madrigal to turn over the proceeds of the sale to plaintiff,
46 Phil. 473 the one who paid the same in public auction.
Luke Burdeos
RULING: When the plaintiff attempted to foreclose the
FACTS: mortgage constituted in its favor, first by filing its third
- Pelagio Yusingo was owner of Yusingco steamship, party claim in the civil case wherein the writ of execution
the steamship was mortgaged to plaintiff Yek Tong Lin was issued, by virtue of which the steamship Yusingco
Fire & Marine Insurance Co to answer for any amount was sold at public auction, its only right with respect to
plaintiff might pay on account of a promissory note said vessel was to sell it judicially or extrajudicially in
executed by defendant upon receipt of a loan from China accordance with law, upon default in the performance of
Bank, and on account of a guaranty in the sum of the conditions of the mortgage contract entered into
subscribed by it in favor of said bank between it and the owners thereof, in order to apply the
proceeds of the sale to its mortgage credit against said
- More than a year later, the steamship Yusingco owners, or at least against Pelagio Yusingco, if such
needed some repairs which were made by the Earnshaw proceeds are sufficient and if insufficient, to collect the
Docks & Honolulu Iron Works upon petition of A. Yusingco balance thereof on other property belonging to said
Hermanos, a co-owner of Pelagio Yusingco. The repairs defendants. However, the steamship Yusingco was then
were made upon the guaranty of Vicente Madrigal. in custodia legis and, under the circumstances, it could
neither take possession thereof nor sell it pursuant to the
- A. Yusingco nor Pelagio Yusingco were unable to conditions of its mortgage contract.
pay hence Vicente Madrigal had to make the payment by
virtue of the guaranty. After the steamship Yusingco had been sold by virtue of
the judicial writ issued in the civil case filed by Madrigal
- After paying Earnshaw Docks, the latter assigned for the execution of the judgment rendered in favor of
its credit against A. Yusingco to Madrigal. Madrigal, the only right left to the plaintiff was to
collect its mortgage credit from the purchaser thereof
- Madrigal then brought action against A. Yusingco at public auction, inasmuch as the rule is that a
and Pelagio Yusingco to compel them to reimburse the mortgage directly and immediately subjects the property
amount paid. The latter were ordered by the court to pay on which it is imposed, whoever its possessor may be, to
Madrigal, but they failed to do so. Hence, a writ of the fulfillment of the obligation for the security of which it
execution was issued in order to have the steamship was created; BUT it so happens that it cannot take
Yusingco sold at public auction to satisfy the judgment such steps now because it was the purchaser of the
credit of Madrigal. steamship Yusingco at public auction, and it was so
with full knowledge that it had a mortgage credit on
- However, before the sale was carried out, the said vessel. Obligations are extinguished by the
plaintiff Insurance Company filed with the sheriff a third merger of the rights of the creditor and debtor.
party claim demanding the ship, alleging that it had been
mortgaged to it long before the issuance of the writ. BOTTOMLINE: The Insurance Company was the
purchaser at public auction, so it would be absurd for it to
- The ship was sold at public auction and was collect the mortgage credit from itself.
purchased by the plaintiff Insurance Company itself
as the highest bidder of 12,000. Of the said amount, the
Compensation
sheriff turned over 10,000 to Madrgial in payment of his
judgment credit. The lower court then ordered Madrigal to
turn over the 10,000 to plaintiff for the payment made by Silahis Mktg. Corp. vs. IAC
plaintiff on account of the credit of China Bank against 180 SCRA 217  
Pelagio Yusingco by virtue of the Deed of Mortgage. Nickha Tupa
FACTS
42
De Leon sold and delivered to Silahis various items of 3) that the two debts be due;
merchandise amounting to P22,213.75 payable within 30 4) that they be liquidated and demandable;
days from date of the covering invoices. Silahis failed to 5) that over neither of them there be any retention or
pay despite repeated demands so De Leon filed a controversy, commenced by third persons and
complaint for the collection, plus accrued interest, communicated in due time to the debtor.
attorney's fees plus litigation cost.
When all the requisites mentioned in Art. 1279 of the Civil
Silahis admitted the complaint insofar as the invoices are Code are present, compensation takes effect by operation
concerned but countered by: (1) presenting a debit memo of law, even without the consent or knowledge of the
representing the unrealized profit for their commission creditors and debtors
with the transaction that De Leon made with Dole Phil.
without coursing through Silahis; and (2) Asking for the Article 1279 requires, among others, that in order that
cancellation of the defective stainless steel wire which legal compensation shall take place, "the two debts be
was returned by Silahis’ client due" and "they be liquidated and demandable."
Compensation is not proper where the claim of the person
The lower court confirmed the liability of Silahis for the asserting the set-off against the other is not clear nor
claim of de Leon but at the same time ordered that it be liquidated; compensation cannot extend to unliquidated,
partially offset by Silahis' counterclaim as contained in the disputed claim existing from breach of contract.
debit memo for unrealized profit and commission.
Silahis admits the validity of its outstanding accounts with
CA set aside the lower court’s decision as it found that De Leon amounting to P22,213.75. But whether private
there was no agreement, verbal or otherwise, nor was respondent is liable to pay the petitioner a 20% margin or
there any contractual obligation between De Leon and commission on the subject sale to Dole is disputed. This
Silahis prohibiting any direct sales to Dole by de Leon; nor circumstance prevents legal compensation from taking
was there anything in the debit memo obligating de Leon place.
to pay a commission to Silahis for the sale of sprockets to
Dole.
ISSUE BPI vs. CA, et.al

WON De Leon is liable to pay Silahis for the margin or 255 SCRA 571  
commission for the direct sale which the De Leon Jeah Alicante
concluded and consummated with Dole Phil., without
coursing the same through Silahis. (NO) FACTS:
Edvin F. Reyes opened a savings account in BPI Cubao.
HELD It is a joint "AND/OR" account with his wife, Sonia S.
The Court found no proof to show that De Leon obligated Reyes. Edvin also held a joint "AND/OR" savings account
himself to set-off or compensate Silahis’ outstanding with his grandmother, Emeteria M. Fernandez at the
accounts with the alleged unrealized commission from the same BPI branch. He regularly deposited in this account
assailed sale of sprockets to Dole. the US Treasury Warrants payable to the order of
Emeteria as her monthly pension.
Compensation takes place when two persons, in their
own right, are creditors and debtors to each other. Article Emeteria died without the knowledge of the US Treasury
1279 of the Civil Code provides that: "In order that Department. She was still sent a US treasury warrant in
compensation may be proper, it is necessary: the amount of USD377 or P10,556. Edvin deposited the
1) that each one of the obligors be bound principally, said US treasury check in their savings account (his and
and that he be at the same time a principal Emeteria’s account). The US Veterans Administration
creditor of the other; Office in Manila conditionally cleared the check which was
2) that both debts consist in a sum of money, or if sent to US for further clearing.
the things due are consumable, they be of the
same kind, and also of the same quality if the Two months after, Edvin closed his and Emeteria’s
latter has been stated; account and transferred its funds to the joint account with
43
his wife. The US Treasury Warrant was dishonored as it The elements of legal compensation are all present in the
was discovered that Emeteria died 3 days prior to its case at bar. The obligors bound principally are at the
issuance. The US Department of Treasury requested BPI same time creditors of each other. BPI stands as a debtor
for a refund and for the first time BPI came to know of the of the Edvin, a depositor. At the same time, BPI is the
death of Emeteria. creditor of the Edvin with respect to the dishonored US
Treasury Warrant which the latter illegally transferred to
Edvin verbally authorized BPI to debit from his other joint his joint account. The debts involved consist of a sum of
account the amount stated in the dishonored US Treasury money. They are due, liquidated, and demandable. They
Warrant which BPI did. Surprisingly, Edvin demanded are not claimed by a third person.
from BPI restitution of the debited amount. He claimed
that because of the debit, he failed to withdraw his money The presence of private respondent's wife does not
when he needed them. He then filed a suit for Damage. negate the element of mutuality of parties, i.e., that they
Trial court dismissed the complaint for lack of cause of must be creditors and debtors of each other in their own
action. CA reversed the decision. right. The wife of private respondent is not a party in the
case at bar. She never asserted any right to the debited
ISSUE: US Treasury Warrant. Indeed, the right of the BPI to make
WON BPI has the legal right to apply the principle of legal the debit is clear and cannot be doubted. To frustrate the
compensation application of legal compensation on the ground that the
parties are not all mutually obligated would result in unjust
RULING: enrichment on the part of the Edvin and his wife who
YES. herself out of honesty has not objected to the debit. The
Compensation shall take place when two persons, in their rule as to mutuality is strictly applied at law. But not in
own right, are creditors and debtors of each other. Article equity, where to allow the same would defeat a clear right
1290 of the Civil Code provides that "when all the or permit irremediable injustice.
requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and Wherefore, decision of the trial court is reinstated.
extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the Tan vs. Mendez Jr.
compensation." Legal compensation operates even 383 SCRA 202 (2002)  
against the will of the interested parties and even without Gab Baes
the consent of them. Since this compensation takes place
ipso jure, its effects arise on the very day on which all its Tan opened a credit line with Mendez’s company for its
requisites concur. When used as a defense, it retroacts lubricants and fuel consumption. The latter was
to the date when its requisites are fulfilled. designated as the booking and ticketing agent of Tan’s
bus company.
Article 1279 states that in order that compensation may
be proper, it is necessary: Under the scheme, drivers purchases on credit fuel
1. That each one of the obligors be bound various oil products for the bus thru withdrawal slips
principally, and that he be at the same time a issued by Tan, with period payments thru checks. The
principal creditor of the other; respondent remits the ticket sales to Tan in their booking
2. That both debts consist in a sum of money, or if office, which is managed separately and independently by
the things due are consumable, they be of the another agent.
same kind, and also of the same quality if the
latter has been stated; Tan says that they issued several checks to Mendez for
3. That the two debts be due; payments of the products. FEBTC 704227 check was
4. That they be liquidated and demandable; issued in the amount of P58,237 to pay the products
5. That over neither of them there be any retention procured from May 2 to 15, 1991. It was dishonored for
or controversy, commenced by third persons and being drawn to an insufficient fund.
communicated in due time to the debtor."
Mendez demanded for payment to make good of the
check. There was no response, so a criminal case for BP
44
22 was filed. According to Mendez, the Tans asked to Mendez himself. Again, the ticketing branch was
settle and asked for more time so they could acquire their managed separately and independently by another agent
tax credit certificate amounting to P517,998 for it is what in Baao. Here, Mendez was merely an intermediary in
they shall use to settle the accounts. remitting the ticket sales from Baao branch, and thus, not
a debtor to Tan.
The Tans however argues that they cannot be held liable
under BP22 because the amount subject of the check has Compensation was never claimed when demanded.
been extinguished by compensation against collection Neither did they raise it in the preliminary investigation or
from the ticket sales. He showed a memo showing before trial by filing a motion to dismiss. If there was
unencashed checks amounting to P55,839. payment, they should have redeemed the checks back in
the ordinary course of business.
The Tans argue that they could not be prosecuted
because of compensation or offset, the amount covered
by the bum check thru other checks issued by Mendez as
Novation
remittance.
Issue: Diongzon vs. Court of Appeals

Whether there was a proper offsetting here, which 321 SCRA 477 (1999)
precludes prosecution for BP 22. Xanthe Alcasid
FACTS:
Ruling: ● Diongzon was a sales supervisor of Filpro Inc
Here, the Tans admitted to drawing the unfunded checks. (now Nestle Phil.). He was found to have been
Clearly, they are liable for BP 22. Thus, even if there had engaged in questionable transactions.
been payment by compensation, prosecution for BP 22 ● He resorted to credit riding, a practice whereby
will not be precluded. other dealers were allowed to use the existing
credit line of the authorized dealers in order to
Court declared that an issue of whether an obligation avail of FIlpro’s goods without cash payments.
covered by a check has been by compensation is a ● (He was basically delivering goods to
factual issue. Supreme Court said it is not a trier of facts. unauthorized customers and holding on to
The basis for not according compensation is that the claim simulated checks until cash payments are made
was not supported by evidence. Here, it was noted that by such customers. )
the two checks issued by Tan is P293,625 but the amount ● When the simulated checks were deposited, they
of the returned checks amounted to only P66,939. No were all dishonored.
application of payment is made as to which check was ● After acknowledging responsibility, he promised
paid. These findings will not be disturbed. to settle the same.
● He was found guilty by the lower courts.
The compensation is unavailing here because Tan did not ● He now contends that his partial payment and
clearly specify in the memo which dishonored check is written undertaking to pay the balance of the
being offset. Article 1289 in relation to 1254, the check constituted a novation which thereby
unencashed checks amounting to P66,839 should have extinguished his obligation.
been applied to the earlier dishonored check amounting
to P235,387 which is more onerous than the subject ISSUE: WON there was novation
check amounting to only P58,237.
RULING: NO
Compensation requires both parties be creditors and ● Novation cannot be presumed but must be
debtors of each other. Here, it cannot be said that Mendez expressly intended by the parties
is a debtor of Tan insofar as the two checks representing
collections from the ticket sales. Memo shows here that Requisites:
some unencashed checks returned to Mendez to 1. A previous valid obligation
allegedly offset the dishonored check from the ticket sales 2. Agreement of all the parties to the new
of Baao branch are separate from the the ticket sales of contract
45
3. Extinguishment of the old contract
4. Validity of the new one ISSUE: Whether the payment by the respondent to the
petitioners of the amount of P4,000 extinguished the
● The third requisite was not proven. The money judgment(Sandico is also asing for the unpaid
transaction became a personal undertaking of the 2000.00)
petitioner when he received the goods for deliver
but made no delivery thereof either to the credited RULING: Judgment debt has been satisfied but not by
dealer or to the credited rider. Petitioner had an novation.
existing obligation to pay the value of the goods
for which the check was issues. The payment by the respondent of the lesser amount of
● The obligation was not extinguished when the P4,000, accepted by the petitioners without any protest or
check was dishonored and a new agreement was objection and acknowledged by them as "in full
reached by the parties to pay in cash value. satisfaction of the money judgment" in civil case 1554,
● The change in the mode of paying the obligation completely extinguished the judgment debt and released
was not a change in any of the objects or principal the respondent from his pecuniary liability.
conditions of the contract.
● Even if there was novation, Diongzon’s liability Novation results in two stipulations — one to extinguish
under BP 22 was not extinguished because the an existing obligation, the other to substitute a new one in
gravamen of the offense is the issuance of its place. 4 Fundamental it is that novation effects a
worthless checks. Novation is not a mode of substitution or modification of an obligation by another or
extinguishing criminal liability. an extinguishment of one obligation by the creation of
● Criminal liability once incurred, cannot be another. In the case at hand, we fail to see what new or
compromised. Novation may prevent the rise of modified obligation arose out of the payment by the
criminal liability as long as it occurs prior to the respondent of the reduced amount of P4,000 and
filing of the criminal information in court substituted the monetary liability for P6,000 of the said
respondent under the appellate court's judgment.
Sandico vs. Hon. Piguing+Prive respondentParas Additionally, to sustain novation necessitates that the
42 SCRA 322   same be so declared in unequivocal terms — clearly and
Jan Legaspi unmistakably shown by the express agreement of the
parties or by acts of equivalent import — or that there is
FACTS: Petitioner obtained a judgment in their favor complete and substantial incompatibility between the two
against Desiderio Paras. The decision states: defendant obligations
is condemned to recognize the easement which is held
binding as to him; he is sentenced to pay plaintiffs the People’s bank and Trust Co. vs. Syvel’s, Inc
sums of P5,000.00 actual, and P500.00 exemplary 164 SCRA 247  
damages, and P500.00 attorney's fees; Ninia Tagapia
When the judgment became final petitioners moved for a DOCTRINE: It is elementary that novation is never
writ of execution which was granted. Meanwhile the presumed; it must be explicitly stated or there must be
petitioners and Paras reached a settlement reducing the manifest incompatibility between the old and the new
money judgment from 6000 to 4000. This was paid by obligations in every aspect
Paras.
FACTS:
Petitioner demanded that Paras comply with the
reconstruction of the canal. This was not complied with so ● This case involves the foreclosure of the chattel
they filed a case to declare Paras in contempt which judge mortgage executed in favor of People’s Bank and
Paguing denied. Petitioners then filed an alias writ of Trust Co. (PBTC) by the defendant Syvel's
execution to enforce the monetary judgment but Paras Incorporated on its stocks of goods, personal
moved to set it aside alleging full satisfaction by paying properties and other materials owned by it and
4000.00. Hon. Plaguing then quashed the writ and ruled located at its stores or warehouses in Pasay City.
that there was novation.
46
● The chattel mortgage was executed in connection between the "old'' and the "new" agreements as the
with the credit commercial line in the amount of second contract evidently indicates that the same was
P900K which is granted to the defendant corporation. executed as new additional security to the chattel
● Defendants executed an undertaking in favor of the mortgage previously entered into by the parties.
plaintiff whereby they both agreed to guarantee
absolutely and unconditionally and without the benefit Records show that in the real estate mortgage, appellants
of excussion the full and prompt payment of any agreed that the chattel mortgage "shall remain in full
indebtedness to be incurred on account of the said force and shall not be impaired by this (real estate)
credit line. mortgage” . In other words, a mere agreement that
● In view of the failure of the defendant corporation to stipulates to the end that a real estate mortgage shall be
make payment in accordance with the terms and constituted as a security WITHOUT releasing the
conditions agreed upon in the Commercial Credit Line (previous) chattel mortgage from being a security does
Agreement, the plaintiff started to foreclose NOT constitute novation. The only legal effect that the
extrajudicially the chattel mortgage. aforesaid stipulation creates is that a real estate mortgage
● A case was also initially filed by PBTC against the be placed as additional security for the loan.
defendants. They alleged that the defendants are
disposing of their properties with intent to defraud
their creditors, particularly the plaintiff herein. Thus, a Cruz vs. Court of Appeals
preliminary writ of attachment was issued. As a July 27, 1998, 293 SCRA 239
consequence of the issuance of the writ of Aireen Selma
attachment, the defendants, in their answer to the
complaint also set up a compulsory counterclaim for Principle: A subsequent agreement cannot novate or
damages. change by implication a previous one, unless the old and
● During the pendency of the case, defendant Antonio the new contracts are, on every point, incompatible with
Syyap proposed to have the case be settled each other.
amicably. Mr. Syyap requested that the plaintiff
(PBTC) dismiss this case because he did not want to FACTS:
have the goodwill of Syvel’s Incorporated impaired, Delfin and Adoracion Cruz were spouses and their
and instead offered to execute a real estate children were Thelma, Nerissa, Arnel, and Gerry. Upon
mortgage (REM) on his real property. The plaintiff the death of Delfin, his surviving spouse and children
agreed to the proposal and thus dismissed the case. executed a notarized Deed of Partial Partition (DPP) by
● However, the defendants did NOT agree with the virtue of which each one of them was given a share of
plaintiff’s motion to dismiss as it would also mean the several parcels of land.
dismissal of their counterclaim against the plaintiff.
Thus, the defendant filed instead their OWN motion A day after the execution of the DPP, the same parties
to dismiss on the ground that by the execution of said executed a Memorandum of Agreement (MOA) wherein
REM, the obligation secured by the chattel mortgage they covenanted and agreed among themselves that they
of this case was novated, and therefore, appellee’s shall alike and receive equal shares from the proceeds of
cause of action thereon was extinguished. the sale of any of the lot or lots allotted to and adjudicated
in their individual names by virtue of the DPP.
ISSUE: Was there novation? NO
Nerissa and her spouse were sued by Sps. Malolos for a
RULING: sum of money in the CFI. After trial, they were condemned
by the trial court to pay Sps. Malolos. A writ of execution
A valid novation must extinguish an old obligation and was issued and the sheriff levied upon the lands in
create a new one in its place. question (share of Nerissa) and thereafter sold the
properties in an execution sale to the highest bidder, Sps.
In the case at bar, there is nothing in the Real Estate Malolos.
Mortgage which supports appellants' submission. The
contract on its face does not show the existence of an Nerissa refused to surrender the owner’s duplicate copy
explicit novation nor incompatibility on every point of the titles of the lands in question to the Sps. Malolos so
47
the latter asked the court to declare said titles null and For failure to return the jewelries on time, Aurelia filed an
void. At this point, Adoracion, Thelma, and Gerry estafa case against Leonida.
(petitioners) intervened, alleging that they are co-owners
of the lands in question. However, in her defense, Leonida alleged the defense of
novation. According to Leonida, among the jewelries
ISSUE: (relevant) received by her were a solo ring worth P40,000.00, a
Whether the DPP was cancelled or novated by the MOA, marques worth P16,000.00 and another ring valued at
thereby making the petitioners and Nerissa co-owners of P4,000.00, which were all sold to Mrs. Camacho. But
the land in question. upon Mrs. Camacho’s failure to pay, Leonida brought Mrs.
Camacho to Aurelia, who agreed to allow Mrs. Camacho
RULING: NO. to pay the balance in installments directly to Aurelia. The
1) The MOA does not express a clear intent to dissolve same situation happened with Mrs. Ramos.
the old obligation as a consideration for the emergence of
the new one. ISSUE: Whether or not Leonida and Aurelia’s agreement
was effectively novated when the Aurelia consented to
In the instant case, the stipulation that the petitioners and receive payment on installments directly from Mrs.
Nerissa were co-owners was merely the introductory part Camacho and Mrs. Ramos
of the MOA. Following that is a statement that the subject
parcels of land had in fact been partitioned, but that the RULING: There was no novation, so Leonida was
former co-owner intended to share with petitioners the guilty of estafa.
proceeds of any sale of said land.
There are two forms of novation by substituting the person
2) Petitioners failed to show that the DPP and the MOA of the debtor, depending on whose initiative it comes
are materially and substantially incompatible with each from: expromision and delegacion.
other.
In either of these two modes of substitution, the consent
Indeed, the DPP granted title to the lots in question to the of the creditor, such as can be seen, is an indispensable
co-owner to whom they were assigned, and the MOA requirement. Novation is never presumed, and the
created an obligation on the part of such co-owner to animus novandi, whether totally or partially, must appear
share with the others the proceeds of the sale of such by express agreement of the parties, or by their acts that
parcels. There is no incompatibility between these are too clear and unequivocal to be mistaken.
contracts,
In the case, Aurelia’s acceptance of Ramos and
Therefore, the MOA cannot be construed as a repudiation Camacho's payment on installment basis cannot be
of the earlier DPP. Both documents can exist together and construed as a case of either expromision or delegacion
must be so interpreted as to give life to both. sufficient to justify the attendance of extinctive novation,
since absent was any agreement that the first debtor shall
Quinto vs. People be released from liability.
April 14, 1999, 305 SCRA 708
Googi Buenaventura When a stranger agrees to assume an obligation, this
adds to the number of persons liable. This does not imply
FACTS: Aurelia Cariaga and Leonida Quinto started to extinguishment of the liability of the first debtor. Neither
transact business in pieces of jewelry. Their arrangement would the fact alone that the creditor receives guaranty or
was that Leonida would receive in trust from Aurelia accepts payments from a third person who has agreed to
pieces of jewelry for the purpose of selling the same on assume the obligation, constitute an extinctive novation
commission basis, and with the express obligation on absent an agreement that the first debtor shall be
Leonida to turn over the proceeds of sale thereof, or to released from responsibility.
return the said jewelries if not sold, five (5) days after
receipt thereof. Moreover, factual findings of the lower courts prove that
there has never been any animus novandi between or
among the parties.
48
or condition. GSIS, in their answer, admitted the non-
It is axiomatic that the gravemen of the offense of estafa existence of the notation at the time the DCS was signed.
is the appropriation or conversion of money or property
received to the prejudice of the owner. Verily, the sale of This was also confirmed by GSIS in the instant petition
the pieces of jewelry on installments in contravention of where it alleged that “the respondent-spouses Leuterio
the explicit terms of the authority granted to is deemed to were not required to sign a new contract … but instead,
be one of conversion. Thus, novation posed by Leonida the words ‘subject to adjustment pending approval of the
cannot avoid the incipient criminal liability, since novation Board of Trustees’ were inserted…” GSIS is bound by
is not one of the means recognized by the Penal Code these judicial admissions.
whereby criminal liability can be extinguished.
Therefore, the purchase price mutually agreed upon by
the parties was P19,740. The spouses Leuterio did not
give their consent for the petitioner to make a unilateral
CONTRACTS
increase in the purchase price depending on the final
September 28, 2021 Recitations
construction cost of the property.
General Provisions Art 1473 provides “the fixing of the price can never be left
to the discretion of one of the contracting parties.”
Characteristics: Mutuality Characteristics: Relativity
GSIS v. CA Manila Railroad Co. v. La Compana Transatlantica

228 SCRA 183 (1993)   38  Phil. 875 (1918)
Jewel Wee Joan Rufin
GSIS conducted a lottery draw for the allocation of house FACTS: The Steamship Alicante, belonging to the
and lots in GSIS Village, where Leuterio won and was Compañia Trasatlantica de Barcelona, arrived at Manila
issued a Certificate of Acknowledgment to purchase the with two locomotive boilers aboard, the property of The
said property., wherein GSIS executed a Deed of Manila Railroad Company. The equipment of the ship for
Conditional Sale (DCS) in favor of Leuterio for 180 discharging heavy cargo was not sufficiently strong to
monthly installments of P168.53 or P19,740. But 3 years handle these boilers, and it was therefore necessary for
had lapsed before the deed was notarized and a copy was the Steamship Company to procure assistance in the port
given to the Leuterios. of Manila.
After the land development and housing constructions, The Atlantic, Gulf and Pacific Company (hereafter called
GSIS’ BOT increased the price indicated in the DCS, the Atlantic Company) was accordingly employed by the
based on the alleged final construction cost of the village. Steamship Company, as having probably the best
But in the Leuterios’ DCS, there is a marginal notation equipment for this purpose of any contracting company in
stating that it is “subject to adjustment pending approval the city. Upon the arrival of the Alicante, the Atlantic
of the Board of Trustees.” But the Leuterios alleged that Company sent out its crane in charge of one Leyden. The
this notation was not in the deed when they signed it. boiler, however, fell. It was found to be so badly damaged
that it had to be reshipped to England where it was rebuilt,
ISSUE: Whether the spouses Leuterio agreed to the and afterwards was returned to Manila.
notation “subject to adjustment pending approval of the
Board of Trustees” appearing on the DCS. The Railroad Company's damage by reason of the cost of
repairs, expenses, and loss of the use of the boiler proved
DECISION: to be P22,343.29. To recover these damages the present
The pleadings before us do not demonstrate that the trial action was instituted by the Railroad Company against the
court grossly erred when it found that the purchase price Steamship Company. The latter caused the Atlantic
agreed upon by the parties was P19,740 and this Company to be brought in as a codefendant, and insisted
agreement was not made subject to any posterior event
49
that whatever liability existed should be fixed upon the Boilers. At this point we merely observe that in the
Atlantic Company as an independent contractor who had performance of this service the Atlantic Company was no
undertaken to discharge the boilers and had become more than a servant or employee of the Steamship
responsible for such damage as had been done. Company, and it has never yet been held that the failure
to comply with a contractual obligation can be excused by
The judge of the Court of First Instance gave judgment in showing that such delinquency was due to the negligence
favor of the plaintiff against the Atlantic Company, but of one to whom the contracting party had committed the
absolved the Steamship Company from the complaint. performance of the contract.
The plaintiff has appealed from the action of the court in
failing to give judgment against the Steamship Company, (2) YES.
while the Atlantic Company has appealed from the What has been said suffices in our opinion to demonstrate
judgment against it. that the Atlantic Company is liable to the Steamship
Company for the damages brought upon the latter by the
The mishap was undoubtedly due, as the lower court failure of the Atlantic Company to use due care in
found, to the negligence of one Leyden, the foreman in discharging the boiler, regardless of the fact that the
charge; and we may add that the evidence tends to show damage was caused by the negligence of an employee
that his negligence was of a type which may without who was qualified for the work and who had been chosen
exaggeration be denominated gross. by the Atlantic Company with due care.
ISSUE: (1) Is the Steamship Company liable to the (3) NO.

plaintiff by reason of having delivered the boiler in
question in a damaged condition? Having regard then to the bare fact that the Atlantic
(2) Is the Atlantic Company liable to be made to respond Company undertook to remove the boiler from the ship's
to the steamship company for the amount the latter may hold and for this purpose took the property into its power
be required to pay to the plaintiff for the damage done ? and control, there arose a duty to the owner to use due
(3) Is the Atlantic Company directly liable to the care in the performance of that service and to avoid
plaintiff, as the trial court held? damaging the property in the course of such operation.
This duty was obviously in existence before the negligent
RULING: It will be observed that a contractual relation act was done which resulted in damage, and said
existed between the Railroad Company and the negligent act may, if we still ignore the existence of the
Steamship Company; and the duties of the latter with express contract, be considered as an act done in
respect to the carrying and delivery of the boilers are to violation of this duty. The duty thus to use due care is
be discovered by considering the terms and legal effect of an implied obligation, of a quasi contractual nature,
that contract. A contractual relation also existed between since it is created by implication of law in the absence
the Steamship Company and the Atlantic Company; and of express agreement.
the duties owing by the latter to the former with respect to
the lifting and the transferring of the boilers are likewise to The conclusion must therefore be that if there had been
be discovered by considering the terms and legal effect of no contract of any sort between the Atlantic Company and
the contract between these parties. On the other hand, the Steamship Company, an action could have been
no contractual relation existed directly between the maintained by the Railroad Company, as owner, against
Railroad Company and the Atlantic Company. the Atlantic Company to recover the damages sustained
by the former. Such damages would have been
(1) YES. demandable under article 1103 of the Civil Code and the
action would not have been subject to the qualification
Such being the contract of the Steamship Company, said expressed in the last paragraph of article 1903.
company is necessarily liable, under articles 1103 and
1104 of the Civil Code, for the consequences of the The circumstance that a contract was made between
omission of the care necessary to the proper performance the Atlantic Company and the Steamship Company
of its obligation. Nor does the Steamship Company introduces, HOWEVER, an important, and in our
escape liability by reason of the fact that it employed a opinion, controlling factor into this branch of the
competent independent contractor to discharge the case. It cannot be denied that the Steamship Company
50
had possession of this boiler in the capacity of carrier and 329 SCRA 666 (2000)  
that, as such, it was authorized to make a contract with Klynton Lucero
the Atlantic Company to discharge the same from the
ship. Indeed, it appears in evidence that even before the FACTS:
contract of affreightment was made the Railroad The subject of the controversy is a 14,021 square meter
Company was informed that it would be necessary for the parcel of land located in Metro Manila. This land was
Steamship Company to procure the services of some originally owned by Encarnacion Bartolome
contractor in the port of Manila to effect the discharge, as (Encarnacion).
the ship's tackle was inadequate to handle heavy cargo.
It is therefore to be assumed that the Railroad Company In 1988, DKC Holdings Corp. (DKC Holdings) entered into
had in fact assented to the employment of a contractor to a Lease Contract with Option to Buy with Encarnacion,
perform this service. whereby DKC Holdings was given the option to lease or
lease with purchase the subject land, which option must
Now, it cannot be admitted that a person who be exercised within a period of two years counted from
contracts to do a service like that rendered by the the signing of the Lease Contract.
Atlantic Company in this case incurs a double
responsibility upon entering upon performance, In turn, DKC Holdings undertook to pay Php 3,000 a
namely, a responsibility to the party with whom he month as consideration for the reservation of its option.
contracted, and another entirely different Within the two-year period, DKC Holdings shall serve
responsibility to the owner, based on an implied formal written notice upon the Encarnacion of its desire to
contract. The two liabilities can not in our opinion exercise its option. The Lease Contract also provided that
coexist. It is a general rule that an implied contract in case DKC Holdings chose to lease the property, it may
never arises where an express contract has been take actual possession of the premises. In such an event,
made. the lease shall be for a period of six years, renewable for
another six years, and the monthly rental fee shall be Php
If double responsibility existed in such a case as this, it 15,000 for the first six years and Php 18,000 for the next
would result that a person who had limited his liability by six years, in case of renewal.
express stipulation might find himself liable to the owner
without regard to the limitation which he had seen fit to DKC Holdings regularly paid the monthly Php 3,000 to
impose by contract. There appears to be no possibility of Encarnacion until her death in 1990. Thereafter, DKC
reconciling the conflict that would be developed in Holdings coursed its payment to Victor Bartolome (Victor)
attempting to give effect to those inconsistent liabilities. - Encarnacion’s son, being the sole heir of Encarnacion.
The contract which was in fact made, in our opinion, However, Victor refused to accept these payments.
determines not only the character and extent of the
liability of the Atlantic Company but also the person or Then, Victor executed an Affidavit of Self-Adjudication
entity by whom the obligation is exigible. It is of course over all the properties of Encarnacion, including the
quite clear that if the Atlantic Company had refused to subject lot. In March 1990, DKC Holdings gave a notice
carry out its agreement to discharge the cargo, the plaintiff to Victor that it was exercising its option to lease the
could not have enforced specific performance and could property, tendering the amount of Php 15,000 as rent.
not have recovered damages for non-performance. In Again, Victor refused to accept the tendered rental fee
view of the preceding discussion it is equally obvious and to surrender possession of the property to DKC
that, for lack of privity with the contract, the Railroad Holdings.
Company can have no right of action to recover
damages from the Atlantic Company for the wrongful DKC Holdings tried to register and annotate the Lease
act which constituted the violation of said contract. Contract on Victor’s title to the property, but the Register
The rights of the plaintiff can only be made effective of Deeds (RD) refused to register and annotate the same.
through the Compañia Trasatlantica de Barcelona with Thus, DKC Holdings filed a Complaint for specific
whom the contract of affreightment was made. performance and damages against Victor and the RD.
ISSUE:
DKC Holdings Corp. v. CA
51
Did the Lease Contract with Option to Buy entered into by
Encarnacion with DKC Holdings terminate upon her death Under both Article 1311 of the Civil Code and
or did it bind her sole heir, Victor, even after her demise? jurisprudence, therefore, Victor is bound by the subject
Contract of Lease with Option to Buy.
RULING:
The Lease Contract with Option to Buy binded Victor even
after his mother’s death. Gutierrez Hmnos. v. Orense
28 Phil. 571 (1914)  
Article 1311(1) of the Civil Code provides: “Contracts take Ruth Montilla
effect only between the parties, their assigns and heirs,
except in case where the rights and obligations arising Facts: Defendant Engracio Orense had been the owner
from the contract are not transmissible by their nature, or of a parcel of land. His nephew, Duran, with the consent
by stipulation or by provision of law. The heir is not liable and knowledge of the defendant, sold such parcel of land
beyond the value of the property he received from the to plaintiff company (Gutierrez), with a right to repurchase
decedent.” within 4 years. The plaintiff company had not entered into
possession of the purchased property, owing to its
The general rule, therefore, is that heirs are bound by continued occupancy of Orense and Duran by virtue of a
contracts entered into by their predecessors-in-interest contract of lease executed by Duran.
except when the rights and obligations arising therefrom
are not transmissible by (1) their nature, (2) stipulation or After the lapse of 4 years stipulated for the redemption,
(3) provision of law. Gutierrez asked Orense to deliver the property to the
company and pay the rentals for the use of the property.
In this case, there is neither contractual stipulation nor Orense refused to do so. He alleged that the sale was
legal provision making the rights and obligations under void because it was done without his authority and that he
the contract intransmissible. More importantly, the nature did not give his consent on the selling of the property by
of the rights and obligations therein are, by their nature, his nephew.
transmissible.
This prompted plaintiff company to file a case of estafa
Here, there’s no personal act required from the late against Duran for having represented himself in the said
Encarnacion. Rather, Encarnacion’s obligation to deliver deed of sale to be the absolute owner of the aforesaid
possession of the subject property to DKC Holdings, upon land and improvements. During trial, Orense was
the latter’s exercise of its option to lease, may very well presented as witness and testified that he consented to
be performed by Victor. such sale.
It is futile for Victor to insist that he is not a party to the Issue: WON the contract was valid and binding.
contract because of the clear provision of Article 1311 of
the Civil Code. Indeed, being an heir of Encarnacion, Ruling: YUP.
there is privity of interest between him and his deceased
mother. He only succeeds to what rights his mother had It is unquestionable that the defendant, the owner of the
and what is valid and binding against her is also valid and property, approved the action of his nephew, who in this
binding as against him. case acted as the manager of his uncle's business, and
Orense's ratification produced the effect of an express
In the case at bar, the subject matter of the contract is authorization to make the said sale
likewise a lease, which is a property right. The death of a
party does not excuse nonperformance of a contract Under Art 1259 of the Civil Code, no one can contract in
which involves a property right, and the rights and the name of another without being authorized by him or
obligations thereunder pass to the personal without having his legal representation according to law.
representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party Originally, the sale of the said property was null and void
when the other party has a property interest in the subject because the authority which Orense may have given to
matter of the contract. Duran was not in writing. But, the sworn statement made
52
by Orense, while testifying as a witness at the trial of Von Villarin
Duran for estafa, virtually confirms and ratifies the sale of Facts: Pakistan International Airlines is a foreign
his property effected by his nephew, Duran. It cured all corporation licensed to do business in the Philippines.
defects which the contract may have contained from the
moment of its execution. It entered into an employment contract with Farrales and
Mamasig with the following stipulations among others:
Parties: Freedom to contract
a. That the employment shall be for a period of 3
years but may be extended by the mutual consent
Gabriel v. Monte de Piedad of the parties
71 Phil. 497 (1941) b. That Pakistan International Airlines reserves the
Renier Hidalgo right to terminate the employment contract by
giving the employee a notice one month prior OR
FACTS: Gabriel was employed as an appraiser in the in lieu thereof, by paying the employee wages
pawnshop of Monte de Piedad. For erroneously equivalent to one month’s salary.
appraising the value of jewelries pawned to the latter, c. That the applicable law governing the parties
Gabriel became liable in the amount of P14,679.07. To shall be that of Pakistan Law and shall only be
secure his debt, Gabriel executed a chattel mortgage. For tried in the courts of Pakistan.
failure to pay the remaining balance of P11,346.75, Monte
de Piedad instituted this civil suit to foreclose the chattel During their employment and a year prior to the expiration
mortgage. of the contract, Farrales and Mamasig were given notice
that their services would be terminated.
Gabriel contends, among others, that the provisions of the
chattel mortgage contract by which he guaranteed to pay They filed an illegal dismissal case against Pakistan
the amount of P14,679.07 are contrary to public policy, International Airlines with the Ministry of Labor and
and hence, the chattel mortgage contract is ineffective Employment.
and the principal obligation secured by it is void.
The MOLE, ruled that the dismissal was illegal and thus,
ISSUE: Whether the contract is void for being contrary to they were entitled to reinstatement plus backwages.
public policy. NOPE
Upon appeal, Pakistan International argues that the
RATIO: The freedom of contract is both a constitutional contract by and between the corporation and the
and statutory right and to uphold this right, courts should terminated employees must be followed since this is the
move with all the necessary caution and prudence in law that governs the relationship between the said parties
holding contracts void. and not the Labor Code.
At any rate, courts should not rashly extend the rule which Issue: should the contract be followed?
holds that a contract is void as against public policy. In
general, a contract which is neither prohibited by law nor Ruling: No.
condemned by judicial decision, nor contrary to public
morals, contravenes no public policy. The employment contract set a term of 3 years and
Pakistan International had the right to terminate the
Wala jud gipakita sa SC ang provisions sa chattel employment at any time. Pakistan argues that the
mortgage nya igo ra sila niingon nga: Examining the stipulations must be respected.
contract at bar, we are of the opinion that it does not in
anyway militate against the public good. Neither does it However, the Principle of Party Autonomy in contracts is
contravene the policy of the law nor the established not an absolute principle.
interests of society.
The Civil Code states that contracting parties may
Pakistan International Airlines v. Ople establish such stipulations as they may deem convenient
190 SCRA 90 (1990)  
53
provided they are not contrary to laws, morals, good University, Cui likewise left Arellano and enrolled in Abad
customs, public order or public policy. Santos.
Thus, the governing principle is that parties may nor He was awarded scholarship grants in Arellano for
contract away applicable provisions of law especially scholastic merit. His tuition fees were returned to him after
peremptory provisions dealing with matters heavily the end of the semesters (from 1st yr to 4th yr 1st sem)
impressed with public interest. amounting to a total of P1,033.87.
Laws relating to labor and employment is clearly an area After graduating from Abad, he applied to take the bar
of public interest and the parties are not at liberty to exam and to secure permission to take the bar, he needed
insulate themselves and their relationships from the the transcript of his record in Arellano. However, Arellano
impact of our labor laws. refused to release the TOR until after he paid back the
1,033.87 which was refunded to him. As he could not take
Our laws must prevail. the bar without the transcripts, he paid the sum under
protest.
Although contracts with a period are not illegal per se, the
stipulation that allows Pakistan International to terminate Before he was awarded scholarship grants, he was made
the employee at any time by simply giving them one to sign the contract which stipulates that in consideration
month’s salary renders the employment subject to a to such scholarship grant, he waives his right to transfer
facultative obligation at the option of the employer. This is to another school without having refunded the equivalent
meant as a clear circumvention of the security of tenure of his scholarship to Arellano.
that should have been for the benefit of the employees -
even with a limited period. The case was instituted by Plaintiff Emeterio Cui to
recover the sum paid to Arellano University.
Thus, the employees were illegally dismissed and
deserve reinstatement plus backwages. ISSUE: Whether the provision in the contract where the
Cui waives his right to transfer to another school without
refunding the equivalent of his scholarships in cash is
valid.
Parties: What they may not stipulate
RULING: NO. The stipulation in question is contrary to

Cui v. Arellano public policy.
2 SCRA 205 (1961) 
Nikki Sia The stipulation in a contract, between a student and the
FACTS: school, that the student's scholarship is good only if he
Plaintiff Emeterio Cui took up preparatory law course in continues in the same school, and that he waives his right
Arellano University before the school year 1948-1949. to transfer to another school without refunding the
After finishing the preparatory law course, he enrolled in equivalent of his scholarship in cash, is contrary to public
the College of Law from the s.y. 1948-1949. He finished policy and, hence, null and void, because scholarships
his studies in Arellano until 4th year 1st sem. are awarded in recognition of merit and to help gifted
students in whom society has an established interest or a
During all the school years to which he was studying in first lien, and not to keep outstanding students in school
Arellano, his uncle (Emeterio’s mother’s brother), to bolster its prestige and increase its business potential.
Francisco Capistrano, was the dean of the College of Law
and Arellano’s legal counsel. Arroyo v. Berwin
36 Phil. 386 (1917)
In his last semester, Cui failed to pay his tuition fees Luke Burdeos
because his uncle Dean, having severed his connection FACTS: This involves a criminal prosecution for theft of
with Arellano University and accepted deanship and cane against Marcela Juaneza filed by plaintiff Ignacio
chancellorship in the College of Law of Abad Santos Arroyo. The defendant in this case represented Juaneza
54
in the case for theft. The justice of peace ruled against
Juaneza and the latter appealed to CFI Iloilo.
Bustamante v. Rosel
On the day set for the hearing of the appeal of Juaneza, 319 SCRA 413 (1999)
the latter’s representative, defendant Alfred Berwin, Nickha Tupa
requested Arroyo to agree to dismiss the criminal
proceedings. They agreed that Arroyo will ask the FACTS:
prosecuting attorney to drop the charges for theft filed Respondent entered into a loan agreement with
against Juaneza and in exchange, the latter would petitioner, which involved a portion of land inclusive of the
recognize Arroyo’s ownership of the land where Juaneza apartment thereon as collateral. Under the terms of their
ordered the cane cut and that Juaneza would not oppose agreement, the respondent has the option to buy the
the application for registration of a Torrens title over the collateral for the amount of P200,000.00 inclusive of the
said land that Arroyo will file. borrowed amount (P100,000.00) and interest (18% p.a.).
Arroyo complied with the agreement and the case was When the loan was about to mature, respondents
dismissed. Arroyo delivered to Berwin the written proposed to buy the land at the pre-set price. Petitioner
agreement between the parties for the signature of refused to sell and requested for extension of time to pay
Juaneza, but Berwin has not returned the written the loan and offered to sell another land instead.
agreement despite demands. Respondents refused all proposals of the petitioner.
Arroyo then filed a complaint to order defendant Berwin to On the date of maturity, petitioner tendered payment but
comply with the agreement by causing Juaneza to sign respondent refused to accept and insisted that petitioner
the document. signed a prepared deed of absolute sale of the collateral.
Respondents refused.
The trial judge dismissed this complaint on the ground of
the illegality of the consideration of the alleged contract. A complaint for specific performance with consignation
ISSUE: Whether the contract was valid. was filed against petitioner. The trial court rendered a
decision denying the execution of the deed of sale to
RULING: NO. An agreement by the owner of stolen convey the collateral and ordered that the loan be paid
goods to stifle the prosecution of the person charged with with the corresponding interest. However, this was
the theft, for a pecuniary or other valuable consideration, reversed on appeal, and the CA ordered petitioner to
is manifestly contrary to public policy and the due execute the necessary Deed of Sale and accept the
administration of justice. In the interest of the public it balance of payment.
is if the utmost importance that criminals should be
prosecuted, and that all criminal proceedings should be ISSUE: WON the stipulation in the loan contract was valid
instituted and maintained in the form and manner and enforceable. (NO)
prescribed by law; and to permit an offender to escape the
penalties prescribed by law by the purchase of immunity RULING:
from private individuals would result in a manifest Respondents argue that contracts have the force of law
perversion of justice. between the contracting parties and must be complied
with in good faith. There are, however, certain exceptions
Article 1255 of the Civil Code provides that: "The to the rule, specifically Article 1306 of the Civil Code.
contracting parties may make the agreement and
establish the clauses and conditions which they may A scrutiny of the stipulation of the parties reveals a subtle
deem advisable, provided they are not in contravention of intention of the creditor to acquire the property given as
law, morals, or public order." security for the loan. This is embraced in the concept of
pactum commissorium, which is proscribed by law.
Article 1275 provides that: "Contracts without
consideration or with an illicit one have no effect "The elements of pactum commissorium are as follows:
whatsoever. A consideration is illicit when it is contrary to (1) there should be a property mortgaged by way of
law and good morals." security for the payment of the principal obligation, and (2)
55
there should be a stipulation automatic appropriation by Dizon informed Gaborro that he is offering to reimburse
the creditor of the thing mortgaged in case of non- Gaborro of what he paid to the banks but without,
payment of the principal obligation within the stipulated however, tendering any cash, and demanding an
period." accounting of the income contending that the transaction
they entered into was one of antichresis. Gaborro did not
In this case, the intent to appropriate the property given accede to the demands of the Dizon. Dizon instituted a
as collateral in favor of the creditor appears to be evident, complaint in CFI Pampanga alleging that the documents
for the debtor is obliged to dispose of the collateral at the Deed of Sale with Assumption of Mortgage and the Option
pre-agreed consideration amounting to practically the to Purchase Real Estate did not express the true intention
same amount as the loan. In effect, the creditor acquires and agreement between the parties. The 2 deeds
the collateral in the event of non-payment of the loan. This constitute in fact a single transaction that their real
is within the concept of pactum commissorium. Such agreement was not an absolute sale of the land but
stipulation is void. merely an equitable mortgage.
ISSUE:
WON there was a real and unconditional sale of the land
Classification: According to name
RULING:
Dizon vs. Gaborro NO. The Deed of Sale with Assumption of Mortgage was
83 SCRA 688 (1978) not an absolute sale. There was no money consideration
Jeah Alicante although the receipt was acknowledged, it was not
actually paid. The properties had already been previously
FACTS: sold by the sheriff at the foreclosure sale, thereby
Jose Dizon was the owner of 3 parcels of land in divesting the Dizon of his full right as owner thereof to
Pampanga which was mortgaged to: dispose and sell the lands.
- 1st to DBP to secure a loan of P38,000
- 2nd to PNB to pay for his indebtedness of The Option to Purchase Real Estate only granted Gaborro
P93,831.91 the right to recover the properties upon reimbursement by
Dizon of the total sums of money that the former may have
Having defaulted in the payment of his debt, DBP paid to DBP and PNB on account of the mortgage debts,
foreclosed the mortgage extrajudicially and Dizon the said right to be exercised within the stipulated 5-year
executed the deed of sale in favor of DBP which was period.
recorded in the Office of the Register of Deeds.
Dizon, a judgment debtor, whose property is levied on
Dizon and Alfredo Gaborro entered into a Deed of Sale execution, may transfer his right of redemption to any one
with Assumption of Mortgage where Gaborro would whom he may desire. He retained the right to redeem the
assume the mortgage indebtedness both with DBP and lands, the possession, use and enjoyment of the same
PNB. They also executed a 2nd contract called Option to during the period of redemption. And these are the only
Purchase Real Estate for a period of 5 years. rights that Dizon could legally transfer, cede and convey
unto Gaborro.
The consideration for the sale was not actually paid by
Gaborro but Gaborro took possession of the 3 parcels of The agreement between Dizon and Gaborro is one of
land in question. Dizon assigned his right of redemption those innominate contracts under Art. 1307 of the New
(to redeem the properties from DBP within 1 year from Civil Code whereby petitioner and respondent agreed "to
foreclosure) to Gaborro in an instrument called give and to do" certain rights and obligations respecting
Assignment of Right of Redemption and Assumption of the lands and the mortgage debts which would be
Obligation. Gaborro made several payments to the DBP acceptable to the bank but partaking of the nature of the
and PNB and introduced improvements and cultivated antichresis insofar as the principal parties, Dizon and
crops on the properties. Gaborro, are concerned.
56
In this case, since there was mutual mistake by the parties So the Court ordered the same as encumbrance to all the
to disclose their real agreement, said instrument may be other shares of the land, except that of the oppositor,
reformed (Art. 1361, New Civil Code) in accordance with Salvador and Angel.
the intention and legal rights and obligations of the parties
— Dizon, Gaborro and the banks. The trial court in its later decision further said that even if
it is a stipulation pour autrui, it cannot be enforced
Dizon has the right to reacquire the 3 parcels of land nonetheless because its acceptance was not
within 1 year by refunding or reimbursing Gaborro communicated to the oppositors who revoked it. The
whatever amount the latter has actually paid on account church never submitted evidence of their acceptance
of the principal only, of the loans of Dizon with the DBP before Salvador and Angel revoked it.
and PNB, excluding the interests and land taxes that may
have been paid or may have accrued. Issue:
Is the stipulation of the religious expenses a stipulation
pour autrui? YES PO.
With respect to third persons: Stipulations in favor
Ruling:
of third persons
The Supreme Court said that it was not revocable at their
unilateral option and it is also binding to Angel and
Florentino v. Encarnacion Salvador.
79 SCRA 192 (1977)
Gab Baes The said stipulation in the partition was duly agreed and
signed by the parties and thus, binding to them and its
The Encarnacions filed for a land registration petition. validity or compliance cannot be left to the will of one of
They are pro-indiviso co-owners in a fee simple land with them. It takes effect as well to their assignees and heirs.
improvements, and that there are no encumbrances on
said land nor any 3rd person interests. They allege to In a stipulation pour autrui, law allows third person to
have inherited it from their deceased aunt. demand for its fulfillment upon communication of his
acceptance before its revocation. For there to be a
Salvador and Angel acquired their other shares in the land stipulation pour autrui, the following requisites should
thru the Singsons, the original heir and from Asuncion concur:
Florentino.
(1) stipulation for the 3rd person must be only a part of the
The crucial issue in the registration case is the contract;
extrajudicial partition which says that the “produce of the (2) favorable stipulation is not conditioned or
land are to be used to pay the expenses, repairs and compensated;
preservation, construction of Religious Functions.” What (3) neither parties bears legal representation or
is left will be divided among the heirs. authorization of third party.
Now, it is being testified as an encumbrance of the land, It should be intended to benefit the third person, not
and cause the entry of it in the title to be issued. Salvador merely an incidental benefit. The test says that it does not
and Angel opposed this. matter whether its in the nature of a gift.
The registration court did not consider it as an In this case, it matters to determine whether the co-
encumbrance and took it as a self-imposed arrangement owners intended to benefit the church in their partition
in favor of the church as a pure and simple donation. It deed of the land inherited. As to whether they agreed the
was also voided for it was not accepted by the said donee, to have the fruits of the lands serve to defray religious
and that Salvador and Angel made no oral or written grant expenses.
and was in fact opposed by them.
Supreme Court said yes. The partition deed is evident as
to their intent. They intended to give a direct and material
benefit to the church. The fruits are to used to defray
57
church expenses for the holy week. Without the Insured towards the passengers of the Motor
stipulation, it would have been the church who will do the Vehicle and the Public" — in other words, third
expenses. parties.
● While the policy was in force, a taxicab driven by
Supreme Court found error in lower court’s ruling. Carlito Coquia met a vehicular accident which
Although a stipulation pour autrui has no binding effect caused his death.
prior acceptance, the law however, does not provide ● Insured filed a claim to the Company but did not
when the third person should accept. So the rule is, there arrive at an agreement as to the amount.
is no time limit. The third person has all the time until the ● The Insured and Carlito’s parents filed a
stipulation is revoked. complaint against the Company to collect the
proceeds of the policy.
In this case, Supreme Court found that the Church
accepted the stipulation in its favor before it was sought ISSUE:
to be revoked by the co-owners. From time immemorial, WON the policy is a contract pour autrui
even before their aunt died, the Church has always
enjoyed the said benefits. It was for 17 years, and the RULING:
Supreme Court found this as an implied acceptance of the ● YES.
stipulation pour autrui. ● Although, in general, only parties to a contract
may bring an action based thereon, this rule is
There is no form required for the acceptance. It need not subject to exceptions, one of which is found in the
be express or formal. second paragraph of Article 1311 of the Civil
Code of the Philippines, reading:
Thus, Angel and Salvador are to bear the stipulation pour ○ "If a contract should contain some
autrui because they are bound by it when they became stipulation in favor of a third person, he
successors of the purchasers. They kept their peace in may demand its fulfillment provided he
1962 and 1963, and are deemed to have given conformity communicated his acceptance of the
as having bought said shares without question. In a obligor before its revocation. A mere
mortgage that they executed on the said land, they incidental benefit or interest of a person
acknowledged that it is also encumbered. is not sufficient. The contracting parties
must have clearly and deliberately
conferred a favor upon a third person."
● The policy under consideration is typical of
Coquia v. Fieldmen’s Insurance Co. contracts pour autrui this character being made
26 SCRA 178 (1968) more manifest by the fact that the deceased
Xanthe Alcasid driver paid fifty percent (50%) of the
FACTS: corresponding premiums, which were deducted
● Fieldmen’s Insurance Company (Company) from his weekly commissions.
issued a common carrier accident insurance ● Coquias — who, admittedly, are the sole heirs of
policy to Manila Yellow Taxicab Co. Inc., the deceased — have a direct cause of action
(Insured) against the Company, 3 and, since they could
● Pursuant to the stipulations, the Company "will have maintained this action by themselves,
indemnify any authorized Driver who is driving the without the assistance of the Insured, it goes
Motor Vehicle" of the Insured and, in the event of without saying that they could and did properly
death of said driver, the Company shall, likewise, join the latter in filing the complaint herein
"indemnify his personal representatives." In
fact the Company "may, at its option, make
indemnity payable directly to the Constantino v. Espiritu
claimants…or heirs of claimants…it being the 39 SCRA 206 (1971)  
true intention of this Policy to protect…the Jan Legaspi
liabilities of the insured being the true intention
of this Policy to protect…the liabilities of the
58
Facts: Constantino Sr. complaint alleged that he had, by It appearing that the amended complaint submitted by
a fictitious deed of absolute sale, conveyed to Espiritu for appellant to the lower court impleaded the beneficiary
a consideration of P8,000.00, the two-storey house and under the contract as a party co-plaintiff, it seems clear
four (4) subdivision lots covered by TCT No. 20174 in the that the three parties concerned therewith would, as a
name of Pastor B. Constantino, married to Honorata result, be before the court and the latter's adjudication
Geukeko, with ,the understanding that Espiritu would hold would be complete and binding upon them
the properties in trust for their illegitimate son, Pastor
Constantino, Jr., still unborn at the time of the Note: SC held the dismissal was improper and the case
conveyance; that thereafter Espiritu mortgaged said was remanded to the lower court to determine the
properties twice to secure payment of two loans and that agreement that appellee would hold the properties in trust
thereafter she offered them for sale. The complaint then for their unborn child which is a question of fact.
prayed for the issuance of a writ of preliminary injunction
restraining Espiritu and her agents or representatives
With respect to third persons: Interference by third
from further alienating or disposing of the properties, and
persons
for judgment ordering her to execute a deed of absolute
sale of said properties in favor of Pastor B. Constantino,
Jr., the beneficiary (who, at the filing of said complaint, Daywalt v. Corp.
was about five years of age), and to pay attorney's fees in 39 Phil 587 (1919)
the sum of P2,000.00. Ninia Tagapia
So basically the TCT covering the land is in the name of DOCTRINE: A stranger who interferes in a contract
Espiritu. between other parties CANNOT become more
extensively liable in damages for the nonperformance of
Espiritu moved to dismiss the complaint on the ground the contract than the party in whose behalf he meddles.
that it stated no cause of action because Pastor
Constantino, Jr., the beneficiary of the alleged trust, was FACTS:
not included as party-plaintiff, and on the further ground Teodorica Endencia (Endencia) executed a contract
that appellant's cause of action was unenforceable under whereby she obligated herself to convey a tract of land to
the Statute of Frauds. Geo. Daywalt (Daywalt), petitioner.
RTC dismissed Constantino Sr filed a motion for the It was agreed that a deed should be executed as soon as
admission of Constantino Jr. as co-plaintiff with the title to the land should be perfected and a Torrens
Senior(Sr.) appointed as guardian ad litem. certificate should be procured in the name of Endencia. A
decree was now issued to Endencia as but the Torrens
Issue: Whether or not the dismissal was proper certificate was NOT ISSUED until later.
Ruling: It appears then that, upon the facts alleged by After several years, the Torrens certificate was issued to
appellant, the contract between him and appellee was a Endencia, but it was found by official survey that the land
contract pour autrui, although couched in the form of a sold was bigger than what Teodrica wanted to sell. In view
deed of absolute sale, and that appellant's action was, in of this, Endencia is now reluctant to transfer the whole
effect, one for specific performance. That one of the tract to Daywalt. Her reluctance led to litigation in which
parties to a contract is entitled to bring an action for its Daywalt finally succeeded, upon appeal to the Supreme
enforcement or to prevent its breach is too clear to need Court, in obtaining a decree for specific performance.
any extensive discussion. Upon the other hand, that the
contract involved contained a stipulation pour autrui The respondent (neighbor of Endencia) came into picture
amplifies this settled rule only in the sense that the third when they entered into an agreement with Endencia that
person for whose benefit the contract was entered into its cattle may still pasture the land of Endencia.
may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor History and Background of the respondent:
before the stipulation in his favor is revoked. ● The respondent (the 3rd person in this case) is La
Corporacion de los Padres Recoletos. It is a
59
religious corporation which formerly owns the San petitioners cannot ask for an amount more than the
Jose estate. It is also an owner of another estate damages.
immediately adjacent to the land which Endencia
had sold to the petitioner (Daywalt). For many A stranger who interferes in a contract between other
years, the Recoletos Fathers had maintained a parties CANNOT become more extensively liable in
large herds of cattle on the farms referred thereto. damages for the nonperformance of the contract than the
They are also friends with Endencia and they are party in whose behalf he meddles. Hence, in order to
also fully aware of the existence of the contract determine the liability of the respondent, there is a need
between Endencia and Daywalt. They were also to consider first the liability of Endencia to Daywalt. The
tasked by Endencia for the safekeeping of her damages claimed by Daywalt from Endencia CANNOT be
Torrens title. recovered from her:
● When respondent now sold San Jose estate, it was 1) This is because these are special damages which
necessary to bring the cattle off of that property. So were NOT within the contemplation of the parties
they entered into a contract with Endencia whereby when the contract was made; and
large numbers of cattle belonging to the respondent 2) These damages are too remote to be the subject
corporation were pastured upon said land during a of recovery.
period extending from 1909-1914.
Since Endencia is NOT liable for damages to Daywalt,
FIRST CAUSE OF ACTION: Under the first cause action, neither can the respondent be held liable.
Daywalt seeks to recover from the respondent corporation
for the use and occupation of the land in question by Furthermore, there was NO unlawful interference due to
reason of the pasturing of cattle thereon during the period absence of malicious motives. The respondent believed
stated. This was granted by the court. in good faith that the contract could NOT be enforced
and that Endencia would be wronged if it should be
SECOND CAUSE OF ACTION (relevant to the topic): carried into effect. Any advice or assistance which they
Petitioner seeks to recover damages against the may have given was, therefore, prompted by no means or
respondent on the ground that said corporation, for its improper motive.
own selfish purposes, unlawfully induced Teodorica to
refrain from the performance of her contract for the So Ping Bun v. CA
sale of the land in question and to withhold delivery to 314 SCRA 751 (1999)  
the plaintiff of the Torrens title. Aireen Selma
➢ Daywalt entered into a Wakefield Project for the
establishment of a large sugar growing and FACTS:
milling enterprise but it was NOT realized Tek Hua Enterprises is the lessee of Dee C. Chuan &
because the project depended on the ability of Sons, Inc. (DCCSI) in the latter’s premises in Binondo but
Daywalt to get possession of the land and the it was So Ping Bun who was occupying the same for his
Torrens certificate of title of Endencia. According Trendsetter Marketing. Later, Mr. Manual Tiong asked So
to Daywalt, he was NOT able to secure the Ping Bun to vacate the premises but the latter refused and
Torrens title because the respondent refused to entered into a formal contract of lease with DCCSI.
deliver the document.
In a suit for injunction, Tek Hua Enterprises pressed for
ISSUE: Whether the respondent corporation who is not the nullification of the lease contracts between DCCSI
a party to a contract for the sale of land makes himself and So Ping Bun, and for damages.
liable for damages to Daywalt by colluding with Teodorica
and maintaining her in the effort to resist an action for ISSUE:
specific performance? NO WON So Ping Bun is guilty of Tortous Interference of
Contract.
RULING:
There was no unlawful interference. It was done in RULING:
good faith because they just wanted to protect Yes. The law on torts imposed a duty to respect for the
Endencia. Even if there was unlawful interference, the property of others, and a cause of action ex delicto may
60
be predicated upon an unlawful interference by one RULING: There was no offer, because the offer made
person of the enjoyment by the other of his private by Esler was neither definite nor certain.
property. This may pertain to a situation where a third
person induces a party to renege on or violate his In order that an offer can be considered certain, it must
undertaking under a contract. not be vague, misleading, or made as a joke. Therefore,
In this case, Trendsetter Marketing, through So Ping Bun, a declaration of a person of “his intention to enter into a
asked DCCSI to execute the lease contract in its favor, contract” is not an offer that is certain.
and as a result it deprived Tek Hua Enterprises of the
latter’s property right. However, nothing on record To convey the idea of a resolution to purchase, a man of
imputed malice on So Ping Bun, thus, precluding ordinary intelligence and common culture would use
damages. But although the extent of damages was not these clear and simple words: ‘I offer to purchase,’ ‘I want
quantifiable, it does not relieve So Ping Bun of the legal to purchase,’ ‘I am in position to purchase...’ It must be
liability for entering into contracts and causing breach of presumed that a man in his transactions in good faith
existing ones. Hence, the Court confirmed the permanent used the best means of expressing his mind that his
injunction and nullification of the lease contracts between intelligence and culture so permit as to convey and
DCCSI and Trendsetter Marketing. exteriorize his will faithfully and unequivocally.
In this case, the word ‘entertain’ applied to an act does

Essential Requisites of Contracts
not mean the resolution to perform said act, but simply a
position to deliberate for deciding to perform said act. It
Consent: Must be manifested by the concurrence was not a definite or certain offer, but a mere invitation to
of offer and acceptance a proposal being made to him, which might be accepted
by him or not.”
Rosenstock v. Burke
46 Phil. 217 (1924) Malbarosa v. CA
Googi Buenaventura 402 SCRA 168 (2003)
Jewel Wee
FACTS: Edwin Burke purchased a yacht called
“Bronzewing,” which he sought to sell. He initially had a Malbarosa was the President and GM of Philtectic, a
difficult time selling it. So when he took a loan from Asia subsidiary of SEADC, and an officer of other corporations
Banking Corporation, he used the yacht as security. of SEADC. Da Costa was the president of SEADC and
However, H.W. Elser began negotiations with Burke in Commonwealth Insurance, another subsidiary of SEADC.
1922 when the yacht was mortgaged. While Valero was the Vice-Chair of the BOD of SEADC
and Philtectic.
In the negotiations, Elser planned to organize a yacht club
and sell the yacht to the yacht club. The yacht was to be SEADC assigned to Malbarosa a 1982 Mitsubishi Galant
sold at P120,000, of which P20,000 was to be retained by Super Saloonfor his use. He was also issued membership
him as commission and the remaining P10,000 to be paid certificates of Architectural Center Inc.
to the Burke.
Malbarosa told Valero his desire to retire from the SEADC
To accomplish this plan, Elser sent an offer to Burke in group and requested that his 1989 compensation as
the following manner: “In connection with the yacht Philtectic’s president be paid to him.
Bronzewing, I am in position and am willing to entertain
the purchase of it under the following terms.” On March 14, 1990, Valero signed the letter-offer stating
that Malbarosa’s resignation from all his positions in
ISSUE: Was there an offer that was certain, an offer SEADC had been accepted and he was entitled to an
which, if accepted, could compel Esler to really buy the incentive compensation of P251,057.67, which is settled
yacht? as follows:
1. 1982 Mitsubishi Super Saloon assigned –
220,000 (based on FMV)
61
2. Membership shares in Tradestar, a An acceptance not made in the manner prescribed is not
subsidiary, in Architectural Center – 60,000 effective but constitutes a counter-offer, which the offeror
may accept or reject. The contract is not perfected if the
Since the original agreed amount was P395,000, offeror revokes or withdraws its offer and the revocation
Malbarosa felt aggrieved. So instead of conforming with or withdrawal of the offeror is the first to reach the offeree.
the letter-offer, Malbarosa wrote “Rec’d original for review The acceptance by the offeree after having knowledge of
purposes”. More than 2 weeks has already passed, but the revocation or withdrawal if inefficacious.
SEADC still did not receive the original copy of the letter-
offer, so respondent decided to withdraw the offer. In this case, there was no perfected contract between
Malbarosa and Philtectic. Although he claims that he had
They demanded for the return of the car and the affixed his conformity on March 28, 1990, he failed to
membership certificate, within 24 hours from his receipt of transmit the said copy to the respondent before he
the demand. But Malbarosa responded that he cannot received the withdrawal and demand letter of the
comply with the demand as he had already accepted the respondent.
offer-letter when he affixed his signature on the original
copy of the letter-offer on March 28, 1990.
Consent: Acceptance
ISSUE: Whether there was a valid acceptance by
Malbarosa. NO.
Sanchez v. Rigos
DECISION: 45 SCRA 368 (1972)  
Art. 1318. There is no contract unless the following Joan Rufin
requisites concur:
1. Consent of the contracting parties; FACTS: Plaintiff Nicolas Sanchez and defendant
2. Object certain which is the subject matter of Severina Rigos executed an instrument, entitled "Option
the contract; to Purchase," whereby Mrs. Rigos "agreed, promised and
3. Cause of the obligation which is established. committed . . . to sell" to Sanchez, for the sum of
P1,510.00, a parcel of land within two (2) years from said
Under Art. 1319, the consent by a party is manifested by date with the understanding that said option shall be
the meeting of the offer and the acceptance upon the deemed "terminated and elapsed," if "Sanchez shall fail
thing and the cause which are to constitute the contract. to exercise his right to buy the property" within the
stipulated period.
To produce a contract, there must be acceptance of the
offer which may be express or implied, but it must not Inasmuch as several tenders of payment of the sum of
qualify the terms of the offer. Acceptance must be P1,510.00, made by Sanchez within said period, were
absolute, unconditional and without variance of any sort rejected by Mrs. Rigos, the former deposited said amount
from the offer. The acceptance of an offer must be made with the Court of First Instance and commenced against
known to the offeror. Unless the offeror knows of the the latter the present action, for specific performance and
acceptance, there is no meeting of the minds of the damages.
parties. The offeror may withdraw its offer and revoke the Defendant alleged as special defense that the contract
same before acceptance thereof by the offeree. between the parties "is a unilateral promise to sell, and
the same being unsupported by any valuable
The contract is perfected only from the time an consideration, by force of the New Civil Code, is null and
acceptance of an offer is made known to the offeror. An void"
offer made inter praesentes (face to face) must be
accepted immediately. If the parties intended that there The lower court rendered judgment for Sanchez, ordering
should be an express acceptance, the contract will be Mrs. Rigos to accept the sum judicially consigned by him
perfected only upon knowledge by the offeror of the and to execute, in his favor, the requisite deed of
express acceptance by the offeree. conveyance.
62
Plaintiff maintains that the promise contained in the Pacific Co., saw no distinction between Articles 1324 and
contract is "reciprocally demandable," pursuant to the first 1479 of the Civil Code and applied the former where a
paragraph of said Article 1479. unilateral promise to sell similar to the one sued upon
here was involved, treating such promise as an option
ISSUE: Whether there is a perfected contract of sale which, although not binding as a contract in itself for
between parties? lack of a separate consideration, nevertheless
generated a bilateral contract of purchase and sale
RULING: YES. The Supreme Court mentioned two upon acceptance. Speaking through Associate Justice,
conflicting jurisprudence, to wit: (1) Southwestern Sugar later Chief Justice, Cesar Bengzon, this Court said:
& Molasses Co. v. Atlantic Gulf & Pacific Co, and (2)
Atkins, Kroll and Co., Inc. v. Cua Hian Tek. "Furthermore, an option is unilateral: a promise to
sell at the price fixed whenever the offeree should
Squarely in point is SOUTHWESTERN SUGAR & decide to exercise his option within the specified
MOLASSES CO. V. ATLANTIC GULF & PACIFIC CO. , time. After accepting the promise and before he
from which We quote: exercises his option, the holder of the option is not
bound to buy. He is free either to buy or not to buy
"ART. 1479. A promise to buy and sell a later. In this case however, upon accepting herein
determinate thing for a price certain is petitioner's offer a bilateral promise to sell and to buy
reciprocally demandable. ensued, and the respondent ipso facto assumed the
obligation of a purchaser. He did not just get the right
"An accepted unilateral promise to buy or to subsequently to buy or not to buy. It was not a mere
sell a determinate thing for a price certain is option then; it was bilateral contract of sale.
binding upon the promissor if the promise is
supported by a consideration distinct from the In other words, since there may be no valid contract
price." without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it.
'ART. 1324. When the offerer has allowed the Pending notice of its withdrawal, his accepted
offeree a certain period to accept, the offer promise partakes, however, of the nature of an offer
may be withdrawn at any time before to sell which, if accepted, results in a perfected
acceptance by communicating such contract of sale.
withdrawal, except when the option is founded
upon consideration, as something paid or Moreover, the decision in Southwestern Sugar &
promised.' Molasses Co. v. Atlantic Gulf & pacific Co., holding that
Art. 1324 is modified by Art. 1479 of the Civil Code, in
"There is no question that under article 1479 of the effect, considers the latter as an exception to the former,
new Civil Code 'an option to sell,' or 'a promise to and exceptions are not favored, unless the intention to the
buy or to sell,' as used in said article, to be valid must contrary is clear, and it is not so, insofar as said two (2)
be 'supported by a consideration distinct from the articles are concerned. What is more, the reference, in
price.' This is clearly inferred from the context of said both the second paragraph of Art. 1479 and Art. 1324, to
article that a unilateral promise to buy or to sell, an option or promise supported by or founded upon a
even if accepted, is only binding if supported by consideration, strongly suggests that the two (2)
a consideration. provisions intended to enforce or implement the same
principle.
Here it is not disputed that the option is without
consideration. It can therefore be withdrawn Upon mature deliberation, the Court is of the considered
notwithstanding the acceptance made of it by opinion that it should, as it hereby reiterates the doctrine
appellee. laid down in the Atkins, Kroll & Co. case, and that, insofar
all inconsistent therewith, the view adhered to in the South
However, this Court itself, in the case of ATKINS, KROLL western Sugar & Molasses Co. case should be deemed
AND CO., INC. V. CUA HIAN TEK, decided later than abandoned or modified.
Southwestern Sugar & Molasses Co. v. Atlantic Gulf &
63
Vices of consent: Mistake or error

RULING:
Asiain v. Jalandoni Yes, the sale should be annulled due to mutual mistake
45 Phil. 296 (1923) or error.
Klynton Lucero
A vendee of land when it is sold in gross or with the
FACTS: description "more or less" does not thereby ipso facto take
Luis Asiain (Luis) is the owner of the hacienda known as all risk of quantity in the land. The use of "more or less" or
“Maria” situated in Negros Occidental, containing about similar words in designating quantity covers only a
106 hectares. Benjamin Jalandoni (Benjamin) is the reasonable excess or deficiency. Mutual mistake of the
owner of another hacienda adjoining that of Luis’. contracting parties to a sale in regard to the subject-
matter of the sale which is so material as to go to the
Upon meeting each other, Luis told Benjamin that he was essence of the contract, is a ground for relief and
willing to sell a portion of his hacienda for the sum of Php rescission. It has been held that when the parties saw the
55,000. With a waive of his hand, Luis indicated that the premises and knew the boundaries it cannot prevent relief
tract of land contained between 25-30 hectares, and that when there was mutual gross mistake as to quantity.
the planted sugar cane would produce not less than 2,000 Innocent and mutual mistake alone are sufficient grounds
piculs of sugar. However, Benjamin remained doubtful as for rescission.
to the extent of the land and as to the amount of the crop
on it.
Nonetheless, Luis and Benjamin signed a Memorandum Heirs of William Sevilla, et Al. v. Leopold Sevilla
of Agreement (MOA) wherein Benjamin was to purchase 402 SCRA 501 (2003)
Luis’ hacienda containing 25 hectares more or less, with Ruth Montilla
its corresponding crop estimated at 2,000 piculs of sugar,
with the total purchase value of Php 55,000. Facts: Filomena Almirol de Sevilla left four parcels of
land. One of which (Lot No. 653) is a paraphernal property
When Benjamin was in possession of the land, reality of Filemona which she co-owned with her sisters
struck when the area of the land was only 18 hectares Honorata and Felisa who were both single.
(when what was agreed upon was 25 hectares) and
produced a crop of only 800 piculs of sugar (when what When Honorata died, her 1/3 undivided share in Lot No.
was agreed upon that it would produce 2,000 piculs of 653 was transmitted to her heirs, Felisa and the heirs of
sugar). Filomena (since Filomena died already). Before Felisa
died, she executed two deeds: the "Donation Inter
Then, Luis filed a complaint in the Court of First Instance Vivos,” ceding to Leopoldo Sevilla (one of the children of
(CFI) for the recovery of the remaining balance of Php Filomena) her ½ undivided share in Lot No. 653, which
25,000 against Benjamin. On the other hand, Benjamin was accepted by Leopoldo in the same document; and
filed an answer and a counter-complaint interposing that the "Deed of Extrajudicial Partition,” identifying and
he be absolved from the complaint and that the contract adjudicating the 1/3 share of Honorata to the heirs of
be annulled. Filomena and to Felisa.
Thus, the CFI declared null the document of purchase and
the MOA. Further, the CFI ordered Luis to return to Petitioners, some of the children of Filomena, filed for the
Benjamin the sum of Php 30,000 with legal interest, and annulment of the Deed of Donation and the Deed of
for Benjamin to be absolved from paying the balance of Extrajudicial partition. They alleged that the donation is
Php 25,000. void because it was obtained through fraud since Felisa,
who was 81 years old, was seriously ill and of unsound
ISSUE: mind. Furthermore, the Deed of Extrajudicial partition is
Should the sale between Luis and Benjamin be annulled likewise void because it was executed without their
on the ground that it was contracted by mutual mistake or knowledge and consent.
error?
64
Issue: WON the two deeds (Donation and Extrajudicial in Lot No. 653. In effect, there is no consent given to
Partition) are valid. the execution of the deed, and therefore, there is no
contract to speak of. As such, the deed of partition is
Ruling: YUP, valid as to Donation. NOPE, void as to void ab initio which is not susceptible of ratification.
Extrajudicial Partition.
There is fraud when, through the insidious words or

machinations of one of the contracting parties, the other Dumasug v. Modelo
is induced to enter into a contract which, without them, he 34 Phil. 252 (1916)
would not have agreed to. There is undue influence when Renier Hidalgo
a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable FACTS: Dumasug was involved in two civil cases
freedom of choice. regarding the recovery of a parcel of land that she owns.
In both suits, she won with the aid of Modelo. To
Deed of Donation (valid) compensate the services of Modelo, Dumasug agreed
that she will pay him P101. Consequently, Modelo made
If the plaintiff, upon whom rests the burden of proving his Dumasug sign a document which according to him will
cause of action, fails to show in a satisfactory manner the serve as an evidence of Dumasug’s promise to pay P101.
facts on which he bases his claim, the defendant is under
no obligation to prove his exception or defense. Unknown to Dumasug, the document actually contains
provisions which will convey properties owned by her to
In the instant case, the self-serving testimony of the Modelo, to wit: two parcels of land and a plow carabao.
petitioners are vague on what acts of Leopoldo Sevilla Dumasug, who was illiterate, and without adequately
constituted fraud and undue influence and on how these understanding the content of the document, signed it by
acts vitiated the consent of Felisa Almirol. Fraud and drawing a cross mark on her name. Subsequently,
undue influence that vitiated a party's consent must be Modelo brought Dumasug to a notary public who
established by full, clear and convincing evidence, notarized the document, also without explaining the
otherwise, the latter's presumed consent to the contract provisions of the document to Dumasug.
prevails. Neither does the fact that the donation preceded
the partition constitute fraud. It is not necessary that Dumasug was taken aback when Modelo started to take
partition should first be had because what was donated to possession of the properties contained in the document
Leopoldo was the 1/2 undivided share of Felisa in Lot No. she signed. Thus, this case of recovery of said properties
653. by Dumasug.
Deed of Extrajudicial Partition (void) Modelo, of course, banks his argument on the public
instrument which purports a sale to him by Dumasug.
Legal consent presupposes capacity. Meanwhile, the latter avers that the said instrument is of
no value whatsoever, as her consent thereto was
At the time Felisa executed the deed of extra-judicial obtained by means of fraud and deceit on the part of
partition dividing the share of her deceased sister defendant.
Honorata between her and the heirs of Filomena Almirol
de Sevilla, she was no longer the owner of the ½ ISSUE: Whether the public instrument conveying the
undivided portion of Lot No. 653, having previously properties of Dumasug is void. YUP
donated the same to respondent Leopoldo Sevilla
who accepted the donation in the same deed. RATIO: The document was not duly and faithfully
explained to Dumasug in the act of its execution.
Evidently, Felisa did not possess the capacity to give Accordingly, the consent said to have been given by
consent to or execute the deed of partition inasmuch as Dumasug in is null and void, as it was given by mistake.
she was neither the owner nor the authorized
representative of respondent Leopoldo to whom she This error invalidates the contract, because it goes to the
previously transmitted ownership of her undivided share very substance of the thing which was the subject matter
65
(value of Modelo’s services in comparison to a sale of
parcels of land and a carabao) of said contract, for, had Enrique sold the subject property to Dominium Realty
the maker thereof truly understood the contents of said Corp who in turn sold the said land to Asia Brewery.
document, she would neither have accepted nor
authenticated it by her mark. Asia Brewery then constructed a warehouse on the said
property.
The consent given by Dumasug being null and void, the
document is consequently also null, void, and of no value Upon learning of the construction, R&B Insurance wrote
or effect. a letter to Asia Brewery informing them that the property
was owned by R&B Insurance.
Maxima Hemedes v. CA
316 SCRA 347 (1990) Thus, Dominium Realty and Enrique filed a complaint with
Von Villarin the Court of First Instance for the annulment of the TCT.
Facts: They argue that there was fraud and mistake in the
issuance of the deed of conveyance in favor of Maxima
Jose, the father of Maxima and Enrique, owns an since the instrument was in English which Justa could not
unregistered parcel of land in Laguna. have understood. Justa claims that she has never seen
He executed a deed of donation with resolutory conditions the Deed of Conveyance in favor of Maxima.
whereby he donated to his third wife, Justa, the said land
with all its improvements. Thus the trial court rendered a decision in favor of Enrique
by applying Article 1332 of the Civil Code which states
The resolutory conditions which accompanied the that: When one of the parties is unable to read or if the
donations stated that: upon the death or remarriage of contract is in a language not understood by him, and
Justa, the title to the property will be reverted to any of mistake or fraud is alleged, the person enforcing the
Jose’s legal heirs (either Maxima or Enrique) who shall be contract must show that the terms have been fully
designated and chosen by Justa in a public document. explained to the former.
After some time, Justa executed a notarized document Since there was mistake and fraud, the deed of
titled” Deed of Conveyance of Unregistered Real Property conveyance in favor of Maxima is declared void.
by Reversion” which conveyed to Maxima the subject
property with the stipulation that Justa shall enjoy Maxima appeals the case to the Supreme Court arguing
usufructuary rights over the property until her death or that Justa understands the contents of the instrument
remarriage. especially since she placed her thumbprint on the
instrument.
Maxima, on the strength of the said deed filed an
application for the registration and titling of the said land.
Thus, she was issued an OCT no. 0-198. This carried with Issue: was there mistake or fraud?
it the annotation that Justa shall have usufructuary rights.
Ruling: No.
Maxima then obtained a loan from R&B Insurance to
which Maxima constituted a real estate mortgage on the A party to a contract cannot just evade compliance with
said parcel of land. Maxima failed to pay the loan and the his contractual obligations by the simple expedient of
land was foreclosed. denying the execution of such contract.
A TCT was then issued in the name of R&B Insurance. If after a perfect and binding contract has been executed,
and it occurs to one of them to allege a defect as a reason
Subsequently, Justa executed another deed of for annulling it, the alleged defect must be conclusively
conveyance entitled “Kasunduan” in favor of Enrique. proven since the validity and fulfillment cannot be left to
Thus, Enrique paid the real estate taxes and was named the will of one of the contracting parties.
the owner of the property in the records of the Ministry for
agrarian reform.
66
The records show that there was no evidence offered by notary public. The evidence must be so clear, strong and
Enrique to show that there was fraud or mistake in the convincing as to exclude all reasonable controversy as to
Deed of Conveyance. the falsity of the certificate. The certificate (the Deed of
Conveyance) must be upheld.
In fact, a simple comparison of Justa’s thumbmark with
that of the thumbmark affixed on the deed of conveyance
ESSENTIAL REQUISITES OF CONTRACTS
would have cleared any doubts as to whether the deed
October 5, 2021 Recitations
was forged. However, Enrique fought tooth and nail to
disallow Justa from giving her thumbmark for the Court’s
inspection. Consent
Moreover, evidence willfully suppressed is presumed to

be adverse if produced. Thus, Justa affixed her Vices of consent: Fraud or dolo
thumbmark on the instrument.
The lower court was in error when it nullified the Deed of Hill v. Veloso
Conveyance based on the failure of Maxima to comply 31 Phil. 161 (1915)
with Article 1332 of the Civil Code. Nikki Sia
Article 1332 was intended for the protection of a party to FACTS:

a contract who is at a disadvantage due to illiteracy, Maximina Veloso, with consent from her husband Manuel
ignorance, mental weakness or other handicap. This Cuana, and Domingo Franco executed and signed a
article contemplates a situation wherein a contract has document in 1910 promising to pay jointly and severally
been entered into but the consent of one of the parties is to Michael & Co. for the goods they received in La
vitiated by mistake or fraud committed by the other party. Cooperativa Filipina in the sum of P6,319.33. The
document was endorsed to plaintiff Hill.
In order that mistake may invalidate consent, it should
refer to the substance of the thing which is the object of On July 24, 1915, Maximina Veloso claimed that she was
the contract, or to those conditions which have principally tricked by her son-in-law Domingo Franco into signing a
moved one or both parties to enter into the contract. blank document, unknowingly binding her to a debt of
Fraud, on the other hand, is present when through P6,319 to Michael & Co. She thought that she was made
insidious words or machinations of one of the contracting to sign to acknowledge an obligation to pay for the
parties, the other is induced to entered into a contract guardianship of the minor children of Potenciano Veloso
which without them, he would not have agreed to. (her brother) in the amount of P8,000. She only learned
of the true nature of the document (a promissory note to
Clearly, Article 1332 assumes that the consent of the Michael & Co.) after Franco’s death. She contends that
contracting party imputing the mistake or fraud was given her signature on the promissory note was obtained by
although vitiated. It does not cover a situation where there means of fraud.
is a complete absence of consent.
ISSUE: Whether the deceit employed by Franco, a third
In this case, Justa claims that she has no knowledge of person, constitutes the causal deceit which annuls the
the Deed of Conveyance. And it was only during the consent.
proceedings in this case where she has seen the Deed of
Conveyance. It is her own allegations that cannot make RULING: NO. Granted there was deceit in executing the
Article 1332 applicable to this case. It will be useless to Promissory Note to Michael & Co., but the deceit and
determine whether her consent was obtained through error alleged could not annul the consent of Veloso nor
fraud or mistake when she claims that no consent was exempt her from the obligation incurred.
given at all in the first place.
It is required under the law that for the deceit to cause the
Thus, it is jurisprudential that mere preponderance of annulment of consent, that: “There is deceit when by
evidence is not sufficient to overthrow a certificate of a words or insidious machinations on the part of one of the
67
contracting parties, the other is induced to execute a limited time. Pursuant to this request, plaintiff was given
contract which without them he would not have made.” "a thirty days' option on exclusive bottling and
distribution rights for the Philippines"
Franco was not one of the contracting parties who may
have deceitfully induced the other contracting party, The Plaintiff and Defendant then arrived at the agreement
Michael & Co., to execute the contract. The one and the through plaintiff’s representation that he already had
other of the contracting parties, to whom the law refers, an exclusive franchise, when in fact he only had an
are the active and passive subjects of the obligation, the option and such option had already expired upon
party of the first part and the party of the second part who reaching the agreement. They then went to U.S to meet
execute the contract. The active subject and the party of with Mission Dry Corp. Upon arriving in California,
the first part of the Promissory Note in question was defendant learned that plaintiff did not have the exclusive
Michael & Co., and the passive subject and party of the franchise, and the immediate reaction of defendant, was
second part were Veloso and Franco. to reduce plaintiff's participation in the net profits to one
half of that agreed upon (15%). The Mission Dry
Veloso and Franco, therefore, composed a single Corporation granted the exclusive franchise to defendant.
contracting party in contractual relation with or against
Franco, like any other person who might have induced When the bottling plant was already in operation, plaintiff
Veloso into signing the Promissory Note under the demanded defendant that the partnership papers be
influence of deceit, would be but a third person. executed. Defendant promised to do so after the sales of
the products had been increased to P50,000, but after this
Under the Civil Code, deceit by a third person does not in condition was attained still defendant did not execute the
general annul consent. This deceit may give rise to more contract of partnership and defendant also refused to give
or less extensive and serious responsibility on the part of further allowances to plaintiff which caused the latter to
the third person (Franco) and a corresponding right of file this complaint.
action for the contracting party prejudiced (Veloso).
In this complaint, plaintiff asks for the execution of the
Therefore, the promissory note is valid and Maximina contract of partnership, and accounting of the profits, and
shall be liable for the balance of the debt due to Levering a share of 30%, as well as damages for P200,000.
for the payment of guardianship. Defendant alleges as a defense that defendant's consent
to the agreement, was secured by the representation of
Woodhouse v. Halili plaintiff that he was the owner, or was about to become
supra owner of an exclusive bottling franchise, which
Luke Burdeos representation was false, and that plaintiff did not secure
the franchise, but was given to defendant himself.
FACTS: Defendant also presented a counterclaim for P200,000 as
There was a written agreement between the plaintiff and damages.
defendant that they will organize a partnership for the CFI ordered defendant to render an accounting of the
bottling and distribution of softdrinks. (TN: No contract of profits of the bottling and distribution business, and to pay
partnership yet, agreement that they will contract pa) plaintiff 15 per cent of the profits. It held that execution of
contract of partnership could not be enforced upon the
Prior to entering into this agreement, defendant told parties, but it also held that the defense of fraud was not
plaintiff to come back to him when he had the authority to proved.
operate. Because of this, plaintiff had informed the
Mission Dry Corporation of Los Angeles, California, Both parties then appealed this judgment.
manufacturers of the bases and ingredients of the
beverages bearing its name, that he had interested a Defendant argues on appeal that plaintiff did represent to
prominent financier (defendant herein) in the business, the defendant that he had an exclusive franchise, when
who was willing to invest half a million dollars in the as a matter of fact, at the time of its execution, he no
bottling and distribution of the said beverages, and longer had it as the same had expired, and that, therefore,
requested, in order that he may close the deal with him, the consent of the defendant to the contract was vitiated
that the right to bottle and distribute be granted him for a by fraud and it is, consequently, null and void.
68
violence to do so. (Prohibition against Involuntary
ISSUE: 1) Whether the consent of defendant to the Servitude)
agreement was vitiated by fraud due to the false
representation of plaintiff that he had an exclusive 3) Both are entitled to damages, but there should be
franchise. a set-off. Plaintiff is entitled under the terms of the
2) Provided that the consent was not vitiated and that the agreement to 30 per cent of the net profits of the business.
agreement was valid, whether the same may be carried The SC set off plaintiff’s entitlement to damages against
out or executed. the damage defendant suffered by plaintiff's
3) Whether plaintiff and/or defendant can claim damages. misrepresentation (incidental fraud) that he had the
exclusive franchise, by which misrepresentation he
RULING: 1) NO. There was no causal fraud that would obtained a very high percentage of share in the profits. In
vitiate the consent. There is only incidental fraud. doing the set-off, SC just followed the appraisal that the
parties themselves had adopted which is half of the
SC concluded that the defendant was made to believe, agreed percentage, so 15%.
and he actually believed, that plaintiff had the exclusive
franchise. Defendant would not perhaps have gone to
California and incurred expenses for the trip, unless he Geraldez v. CA
believed that plaintiff did have that exclusive privilege, and 230 SCRA 320 (1994)
that the latter would be able to get the same from the Nickha Tupa
Mission Dry Corporation itself.
FACTS:
However, article 1270 of the Spanish Civil Code An action for damages by reason of contractual breach
distinguishes two kinds of (civil) fraud, the causal fraud, was filed by Geraldez against Kenstar Travel Corporation.
which may be a ground for the annulment of a contract,
and the incidental deceit, which only renders the party Geraldez came to know about Kenstar from numerous
who employs it liable for damages. This Court has held advertisements in newspapers regarding tours in Europe.
that in order that fraud may vitiate consent, it must be Geraldez then contacted Kenstar by phone, Cruz
the causal (dolo causante), not merely the incidental (Kenstar’s representative) answered and gave Geraldez
(dolo incidente), inducement to the making of the the brochure for the route, and she ended up choosing
contract. the “Volare 3” classification and paid P190,000.
In the case at bar, inasmuch as the principal Geraldez claimed that during the tour, she was
consideration, the main cause that induced defendant to disappointed and uneasy, and there was no European
enter into the partnership agreement with plaintiff, was tour manager for their group of tourists, the hotel was not
the ability of plaintiff to get the exclusive franchise to first class - all contrary to what the brochure offered.
bottle and distribute for the defendant or for the
partnership, the false representation made by the plaintiff ISSUE: WON Kenstar acted in bad faith or with gross
that he had an exclusive franchise was not the casual negligence in discharging its obligations under the
consideration, or the principal inducement, that led the contract. (YES)
defendant to enter into the partnership agreement.
RULING
2) NO. The defendant may not be compelled against Kenstar can be faulted with fraud in the inducement,
his will to carry out the agreement nor execute the which is employed by a party to a contract in securing the
partnership papers. Under the Spanish Civil Code, the consent of the other.
defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act This fraud which is present at the time of birth of a contract
he has promised to do, or not to do it, as he pleases. It may either be; dolo causante or dolo incidente.
falls within what Spanish commentators call a very
personal act (acto personalisimo), of which courts may Causal fraud are those deceptions of a serious character
not compel compliance, as it is considered an act of employed by one party without which the other party
69
would not have entered into the contract. Effect: nullity of authorities of Lucena. Marquez announced to the Public
contract + indemnification of damages. Utility Commissioner his intention to give up the franchise.
Subsequent to the accomplishment of the contract of sale,
Incidental fraud are those which are not serious in the Public Utility Commissioner cancelled the franchise
character and without which the other party would still acquired by Marquez.
have entered into the contract. Effect: indemnification of
damages. Tuason was permitted to operate the company pursuant
to a special license which was to continue until they
In this case, Geraldez believed that an experienced tour obtained a new franchise. The new franchise was finally
escort and tour manager would accompany them, with a granted with certain conditions, which amounted to a
reassuring thought of security and assistance; a visit to renovation of the entire plant. Following the knowledge of
the leather factory – one of the highlights of the program; what was expected by the Government, and following the
and that they would be accommodated by 1st- class execution sale, Tuason brought an action against
hotels. All of these induced Geraldez to choose the Volare Marquez to rescind the contract. The Tuason claims that
3 classification and pay 190,000. Hence it was incumbent the contract should be rescinded plus damages on
upon the organizers of the tour to take special efforts to account of the misrepresentation and fraud perpetrated
ensure the same, but it failed to do so. by the defendant in selling an electric light plan with a
franchise when the defendant had already given up his
Moral and exemplary damages are awarded in favor of rights to that franchise.
Geraldez.
ISSUE:
WON the contract can be rescinded
Failure to disclosure facts; duty to reveal them
RULING:
NO.
Tuason v. Marquez
45 Phil. 381 (1923) The franchise was not the determining cause of the
Jeah Alicante purchase. Indeed, the franchise was then in force and
either party could easily have ascertained its status by
FACTS: applying at the office of the Public Utility Commissioner.
Crisanto Marquez, owner of the electric light plant called The innocent non-disclosure of a fact does not affect the
Sucesores del Lucena Electric, sold the electric light plant formation of the contract or operate to discharge the
to Mariano S. Tuason. The agreement was that Tuason parties from their agreement. The maxim caveat emptor
was to pay Marquez a total of P14,400; P2,400 within 60 should be recalled.
days, and the remainder, P12,000, within a year. The first
installment was paid subsequent to the 60-day period; the The equitable doctrine of "estoppel by laches" is
second installment has not been paid. applicable here. Inexcusable delay in asserting a right and
acquiescence in existing conditions are a bar to legal
The electric light plant was under the management of the action. Tuason operated the electric light plant for about
Consolidated Electric Company until it was sold under 16 months without question. He made the first payment
execution by reason of a judgment in the case of Levy on the contract without protest. He only asked for
Hermanos vs. The Philippine Electric Light Company. The damages from Marquez after the venture had proved
purchaser at said sale was Gregorio Marquez, brother of disastrous and only after the property had passed into the
Crisanto Marquez. hands of a third party. There was also no proof of fraud
on the part of Marquez.
It appears that originally a franchise for 35 years was
granted to Lucena Electric Company. The rights of this Thus, Tuason is estopped to press his action.
company passed to Crisanto Marquez at a sheriff's sale.
The company seems never to have functioned very
efficiently either at that time or at any other time, as Rural Bank of Sta. Maria v. CA
appears from the constant complaint of the municipal 314 SCRA 255 (1999)
70
Gab Baes Cristina’s claims; (2) Payments were not made on time as
per the MOA; (3) Consent to the MOA was vitiated by
Manuel is the registered owner of a parcel of land. It was fraud because the Bank was not shown of the second
later mortgaged to the bank to secure their loans. But agreement between plaintiffs and Manuel as to the
Manuel became delinquents. consideration of P2.4M.
Later, the land was sold to Rosario & Carmen (plaintiffs) The bank tried to return the price paid by the plaintiffs but
for P250,000 and where the latter assumed the mortgage the latter rejected, saying that the MOA was valid until
thereof. Later, another agreement was executed which annulled in Court.
reflects that Rosario & Carmen were indebted to Manuel
for P2.4M. In the new agreement, Manuel is given the The Trial Court declared the MOA as annulled due to the
legal recourse to the portions of the land equivalent to the fraud of the plaintiffs. CA declared the MOA as valid and
unpaid balance. This is the real consideration for the sale. reversed the findings of bad faith of the plaintiff in the
concealment of real purchase price of the land.
But the plaintiffs did not go to the Register of Deeds to ask
for the title; neither did they annotate the contracts; nor Issue:
did they go to the bank and present said contracts. So title Is the MOA valid? OPO.
remained with Manuel.
Ruling:
The plaintiffs were not able to complete their full payment. The Court found that Manuel and Plaintiffs sale had a real
Meanwhile, the loan of Manuel to the bank continued to consideration of P2.4M in the second agreement and the
accumulate being delinquent. The plaintiffs later on went plaintiffs assumed the mortgage. They negotiated with the
to the Bank since the banks wants to foreclose the bank for the said assumption. The bank agreed and
mortgage. They presented the Sale with Assumption, but restructured the loan and consented to the substitution as
did not show the second agreement where the real mortgage debtors as per the MOA. Since there was non-
consideration was P2.4M. payment of time, the bank did not foreclose the mortgage
but instead received partial payments of the installments.
Bank and Plaintiff entered into a memorandum of After receiving payment of P143,000, the bank agreed to
agreement then. The total obligation of P343,782 was release the mortgage and give consent to its transfer of
acknowledged by the plaintiffs and agreed to pay it and title.
they are to assume the mortgage debt. This MOA was not
annotated in the title. Thus, is the hiding of the real consideration of the sale w/
assumption between Manuel and Plaintiffs made the
However, the wife of Manuel claimed that no mortgage agreement with the bank as voidable? Bank submits it to
was valid on the land because her signature was not there be so, since they would not have assented to the
and neither did she authorize anybody to redeem the P343,000 mortgage price because plaintiffs will be unable
property on her behalf. to pay for it since at the same time, they would be paying
P2.4M to Manuel on the price.
Plaintiffs then demanded the Bank to comply with their
obligation under the MOA to release the mortgage; give Supreme Court said that for fraud to vitiate consent, must
their consent to the transfer of title; and execute a new refer to those insidious words or machinations resorted to
mortgage with the plaintiff for the balance. No progress induce another to enter into a contract which he would not
then proceeded for months. have agreed to. Fraud should be the determining cause
of the contract.
Later on, Halsema Inc. was interested with the land and
negotiated with the Bank. Later, the mortgage of Manuel In this case, the non-disclosure of the second agreement
was assigned to Halsema Inc. The mortgage assigned between plaintiffs and Manuel is not the type of fraud
was that of Manuel and not the plaintiffs. which will annul the obligation. The sole reason that the
bank was kept in the dark as to the financial capacity of
The Bank assigned it to Halsema. It considered the MOA Plaintiffs is not enough to vitiate consent. Court cannot
with the plaintiffs as void since: (1) They did not object to see how bank’s consent will be vitiated if real purchase
71
price was concealed, and as to how it could induce the ○ Azarraga misrepresented the area of the
bank to enter or omit in the agreement. second parcel. Gay believed it to have an
area of 98 hectares but actually only had
The consideration of sale in Manuel and Plaintiff’s 60.
agreement is not the determining cause for bank to enter ○ Arrazaga made it appear in the deed of
into the MOA. The purpose of their MOA was to settle and sale and induced the vendee to bind
effect the payment of Manuel’s debts. Again, the bank herself to pay the price of 47k for the 2
received payments even if delayed. The alleged nullity parcels of land, to which price ay would
was the bank’s clear afterthought upon Cristina’s not have bound herself had she known
revelations. The consideration of the sale was that the real area of the second parcel.
unimportant to bank because the whether it be P250,000 ○ she is entitled to a reduction in the price
or P2.4M, the bank’s security remains unimpaired. of the two parcels
○ he never refused to pay the justly
Under Article 1339, silence or concealment per se is not reduced price, but Azarraga refused to
fraud unless there is a special duty to disclose certain receive the just amount of debt
facts, or good faith and usages of commerce demands so.
Here, plaintiffs had no duty to disclose. They could not be ISSUE: WON Azarraga deceived Gay in the sale of the
said to have acted in bad faith. parcels of land
Next, the bank had other means to verify plaintiff’s RULING:

financial capacity to avoid the contract. They cannot claim ● No, there is no evidence of record that Azarraga
to have been kept in the dark. Again, security remained made false representation to Gay as to the area
unimpaired regardless of the consideration of the sale of said second parcel, and even if he did ,the
between Plaintiff and Manuel. Bank can still foreclose latter accepted such representations at her own
upon default and they could not say they were operating risk and she is the only one responsible for the
at a disadvantage. consequences of her inexcusable credulousness.
● Before the execution of the contract, the Gay
went over the Azarraga’s land and made her own
Usual exaggeration in trade; opportunity to know
calculations as to the area of said two parcels.
the facts
● Gay had a document in her possession where it
appears that the area of the second parcel is
Azarraga v. Gay about 70 hectares. It was the Gay who intrusted
52 Phil. 599 (1928) the drawing of the deed of sale to her attorney
Xanthe Alcasid and notary and it is to be presumed that both she
and the lawyer who drew the document had read
DOCTRINE: When the purchaser proceeds to make the contents.
investigations by himself, and the vendor does ● Gay had ample opportunity to appraise herself of
nothing to prevent such investigation from being as the condition of the land which she purchased,
complete as the former might wish, the purchaser and the plaintiff did nothing to prevent her from
cannot later allege that the vendor made false making such investigation as she deemed fit.
representations to him. ● One who contracts for the purchase of real
estate in reliance on the representations and
FACTS: statements of the vendor as to its character
● Azarraga sold 2 parcels of land to Gay. and value, but after he has visited and
● Gay to pay 20k upon delivery of the title of the first examined it for himself, and has had the
parcel; 10k upon delivery of the title of the second means and opportunity of verifying such
parcel; and 12k one year after delivery of the title statements, cannot avoid the contract on the
for the second parcel. ground that they were false or exaggerated.
● Gay paid 20k for the first parcel but failed to pay
the 22k for the second Laureta Trinidad v. IAC
● Gay avers that: 204 SCRA 524 (1991)
72
Jan Legaspi 6) the petitioner paid the 1970 and 1971
amortizations even if, according to her Complaint,
Facts: Private respondent Frasco was the owner of "since 1969 said lot had been under floods of
Bungalow 17. In 1969 Petitioner Trinidad offered to buy about one (1) foot deep,
the house to which Frasco was willing to sell. Trinidad
inspected the house and examined the vicinity map which To repeat, it has not been satisfactorily established that
indicated drainage canals along Bungalow 17. The the private respondent inveigled the petitioner through
purchase price was 70K with a down payment of 17.5K. false representation to buy the subject property.
Assuming that he did make such representations, as the
Trinidad paid 5K as earnest money and entered into the petitioner contends, she is deemed to have accepted
possession of the house. Trinidad heard from her them at her own risk and must therefore be responsible
neighbor that 2 previous owners of Bungalow 17 vacated for the consequences of her careless credulousness.
because of flooding. Trinidad told Frasco about this and
Frasco replied “everything has been fixed and the house A man who relies upon such an affirmation made by a
will not be flooded again”. person whose interest might so readily prompt him to
exaggerate the value of his property does so at his peril,
Trinidad paid the 1970 and 1971 installments and asked and must take the consequences of his own
for extension for the next installment, discontinued paying imprudence.(Songco v Sellner)
because the house was flooded.
Mere expression of an opinion
Trinidad asked an engineer to determine the cause of
flooding and it was because the lot is low and is a
narrowed portion of the creek. Songco v. Sellner
37 Phil. 254 (1917)
Trinidad filed her complaint against Francisco alleging Ninia Tagapia
that she was induced to enter into the contract of sale
because of his misrepresentations. DOCTRINE: A mere expression of an opinion does not
signify fraud, unless made by an expert and the other
Issue: Whether or not Respondent used party has relied on the former’s special knowledge (Art.
misrepresentations to justify the rescission of the Sale. 1341)
Ruling: No. Fraud is never lightly inferred; it is good faith FACTS:

that is.Under the Rules of Court, it is presumed that "a
person is innocent of crime or wrong" and that "private ● Sellner, was the owner of a farm, which was
transactions have been fair and regular. contiguous to a farm owned by Songco. Both
properties had a considerable quantity of sugar cane
Fraud has not been established because: ready to be cut.
1) It was Trinidad who approached Frasco who ● There was a sugar central located at a short distance
never offered to sell away from the farm and Sellner desired to mill his
2) Trinidad had opportunity to inspect cane at this central. However, the owners of the
3) Trinidad is a real estate broker. central were not sure they could mill his cane.
4) The lot was depressed and there was a drainage Sellner learned that the central was going to mill
lot abutting it, she cannot say she was not Songco's cane.
forewarned of the possibility that the place might ● Thus, Sellner decided to buy the uncut sugarcane
be flooded drop of Songco still standing in the sugarcane field
5) There is no evidence except her own testimony on Songco’s estimation that it would produce 3,000
that two previous owners of the property had piculs of sugar.
vacated it because of the floods and that ● This is payable in 4 installments. HOWEVER,
Francisco assured her that the house would not Sellner refused to pay the third and last installment
be flooded again. on the ground that his deal with Songco was marred
by fraudulent misrepresentation.
73
➢ Sellner argued that he only decided to buy the Prior to said date, the widower also executed a pledge or
crop believing Songco’s estimate to be mortgage to Espiritu, the land adjoining the parcel
substantially correct. However, it turned out, it previously sold which is the remaining part of the land in
produced only 2,017 piculs of sugar. litigation (an area covered by 6 cavanes of seed).
ISSUE: Whether the contract of sale should be voided for Plaintiffs Domingo and Josefa Mercado, together with
fraud? NO their sisters Consejo and Paz, declaring themselves to be
of legal age, executed a deed, which refers to the
RULING: previous sale of land effected by their deceased mother
The sale was valid. Although Songco did claim a for the sum of P2,600, they sold absolutely and in
higher yield, such was only an opinion. In fact, Sellner perpetuity to Luis Espiritu for the sum of P400 “as an
wasn’t induced by such since he had a different increase” of the previous purchase price.
motive – i.e., to get an easement to pass on the
property of Songco. The plaintiffs now seek the annulment of the deed of sale
on the ground that, on the date of its execution, two of
A misrepresentation upon a mere matter of opinion is them were minors and without legal capacity to contract,
NOT an actionable deceit, nor is it a sufficient ground for and for further reason that the deceased purchaser
avoiding a contract as fraudulent. Espiritu availed himself of deceit and fraud in obtaining
their consent for the execution of said deed.
The law allows considerable latitude to seller's
statements, or dealer's talk. The refusal of Songco to ISSUE:
warrant his estimate should have admonished Sellner that WON the instrument is valid.
the said estimate was put forth as a mere opinion.
Granted, a misinterpretation upon a mere matter of RULING: Yes.
opinion is not an actionable deceit, nor is it a sufficient
ground for voiding a contract as fraudulent. There was no evidence that Josefa and Domingo were in
fact minors, for no certified copies of their respective
By relying on Songco's estimate, Sellner bound himself to baptismal certificates were presented nor did they adduce
the terms stipulated in their contract. Since Sellner did so any supplemental evidence to prove that they had not yet
at his own peril, he must therefore take the consequences attained the age of 21.
of his own imprudence. As such, he must pay Songco
the third and final installment. It is an established rule that the sale of real estate, made
by minors who pretend to be of legal age, when in fact
they are not, is valid, and they will not be permitted to
Misrepresentation
excuse themselves from the fulfillment of the obligations
contracted by them.
Mercado and Mercado v. Espiritu
37 Phil. 215 (1917) Taking into account the relationship between the
Aireen Selma contracting parties and also the general custom that
prevails in many of provinces for the vendor or debtor to
FACTS: obtain “an increase” in the price of sale or of the pledge,
The mother of the plaintiffs, through a notarial instrument, or an increase in the amount loaned, without proof to the
conveyed by actual and absolute sale to her brother contrary, it would be improper and illegal to hold that the
Espiritu a portion of the land in litigation (an area covered purchaser Espiritu had any need to forge or simulate the
by 15 cavanes of seed); deed of sale.
The widower and father of the plaintiffs executed another Espiritu and his estate is in lawful possession of the parcel
notarial instrument at the instance of Espiritu, confirming of land (an area covered by 21 cavanes of seed) by virtue
the sale of said portion of land that was made by his wife, of the title of conveyance of ownership and in
then deceased, to Espiritu. consequence of the contract of pledge or mortgage.
74
support), it is fair to hold them liable to the extent of said
Braganza v. Villa Abrille benefit.
105 Phil. 456 (1959)  
Googi Buenaventura
Simulation of contracts
FACTS: Rosario de Braganza and her two minor sons
borrowed from Villa Abrille P70,000 in Japanese war
notes (basically Japanese money), promising to pay Rodriguez v. Rodriguez
solidarily P10,000 in legal currency of the Philippines 2 28 SCRA 229 (1914)
years after the war. They all (including the minor sons) Jewel Wee
signed on Exhibit A. They failed to pay. Thus, Abrille sued
her. In the trial, Braganza claimed to have only borrowed In 1934, Concepcion Felix executed a deed of sale
P40,000 and used the defense of minority of her two sons conveying 2 fishponds (paraphernal properties) to
at the time the contract was entered into. Concepcion Calderon for 2,500. Later, Calderon
transferred the properties to spouses Concepcion Felix
ISSUE: Was there misrepresentation by Braganza’s two and Domingo Rodriguez by means of a notarized
minor sons? document. Because of the registration of the notarized
documents, the OCTs were cancelled and a new TCT
RULING: There was no misrepresentation. The minor was issued in the names Felix and Domingo.
sons had no juridical duty to disclose their inability to
enter into a contract. Domingo died and was survived by Felix, Geronimo,
Esmeragdo, Mauricio, and the children of Jose, who
The SC differentiated the facts in this case from the facts executed an extrajudicial settlement for Domingo’s
in Mercado v. Espiritu. The Mercado case is different estate, ½ of the conjugal properties, which included the
because the document signed by the minor specifically fishpond.
stated he was of age. On the other hand, in this instant
case, Exhibit A contained no such statement. But when their relationship turned sour, Felix sought for
the nullification of the deed of the sale of the fishpond
In other words, in the Mercado case, the minor was guilty alleging that Domingo employed force and pressure upon
of active misrepresentation; whereas in this case, if the her for the conveyance of the fishponds, and the transfers
minors were guilty at all, which we doubt it is of passive are both without consideration.
(or constructive) misrepresentation. Indeed, there is a
growing sentiment in favor of limiting the scope of the The trial court upheld the validity of the contracts and
application of the Mercado ruling, what with the found that although the documents were executed to
consideration that the very minority which incapacitated convert the properties into conjugal assets, it was made
from contracting should likewise exempt them from the voluntarily. Also, contracts without consideration are not
results of misrepresentation. inexistent but only voidable. Rescission of the deed
should have been filed within 4 years from its execution.
As to liability: Braganza cannot escape her own liability In this case, there was ratification when they executed the
because of the minority of her sons. However, the minors' extrajudicial settlement of the estate.
failure to disclose their minority in the same promissory
note they signed does not preclude them to assert such. ISSUE: Whether the transfers from Felix to Calderon to
They had no juridical duty to disclose their inability. Felix and Domingo were void by reason of simulation of
contracts. (No, valid by pari delicto)
Therefore, Braganza is liable for 1/3 of the P10,000, since
the minority of her children did not completely release her DECISION:
from liability, since minority is a personal defense of the Violence or intimidation
minors, and her two sons should not be legally bound by Duress is merely a vice or defect of consent, and action
their signatures in Exhibit A. The contract entered into by based upon it must be brought within 4 years after it has
them is voidable, but since it cannot be denied that they ceased. In this case, action has already prescribed.
had profited by the money they received (for their
75
Simulation of contract (main) Joan Rufin
The charge of simulation is untenable, for the
characteristic of simulation is the fact that the apparent FACTS: Federico Suntay was the registered owner of a
contract is not really desired or intended to produce legal parcel of land situated in Hagonoy, Bulacan. On the land
effects or in any way alter the juridical situation of the may be found a rice mill and other improvements.
parties. Federico applied as a miller-contractor of the then
National Rice and Corn Corporation (NARIC). His
In this case Felix intended to convert her paraphernal application was disapproved, because at that time he was
property into their conjugal property. The two contracts of tied up with several unpaid loans. For purposes of
sale could not have been simulated, but were real and circumvention, he had thought of allowing Rafael to make
intended to be fully operative, being the means to achieve the application for him. Rafael prepared an absolute deed
the result desired. of sale whereby Federico, for and in consideration of
P20,000.00 conveyed to Rafael said parcel of land with
Under Art 1274 (now 1350), “in onerous contracts, the all its existing structures. Less than three months after this
cause is understood to be, for each contracting party, the conveyance, a counter sale was prepared and signed by
prestation or promise of a thing or service by the other…” Rafael who also caused its delivery to Federico. Upon the
execution and registration of the first deed, a Certificate
Since each of the buyer became obligated to pay a of Title in the name of Federico was cancelled and in lieu
definite price in money, such undertakings constituted the thereof, TCT was issued in the name of Rafael. Even after
actual cause of the conveyance. Non-payment does not the execution of the deed, Federico remained in
make the sale inexistent because the consideration need possession of the property sold in concept of owner.
not be paid at the time of the promise.
Federico requested that Rafael deliver his copy of TCT so
Spousal donation (Supposedly void but they are in that Federico could have the counter deed of sale in his
pari delicto) favor registered in his name. Rafael declined and further
In contracts invalidated by illegal subject matter or illegal contended that the second deed of sale was a counterfeit.
cause, Article 1306 (now 1412) applies. Federico filed a complaint for reconveyance and damages
Art 1412. If the act in which the unlawful or against Rafael assailing the validity and genuineness of
forbidden cause consists does not constitute a the sale to him of Federico’s land and rice mill.
criminal offense, the following rules shall be
observed: ISSUE: Whether the deed of sale executed by Federico
1. When the fault is on the part of both in favor of Rafael was simulated and therefore invalid.
contracting parties, neither may
recover what he has given by virtue of RULING: YES. The evidence on record demonstrates a
the contract … combination of circumstances from which may be
reasonably inferred certain badges of simulation that
*not included in the case but the provisions on point* attach themselves to the deed of sale in question.
Art 1345. Simulation of contract may be absolute or
relative. The former takes place when the parties do not I. The history and relationship of trust,
intend to be bound at all; the latter, when the parties interdependence and intimacy between the
conceal their true agreement. late Rafael and Federico is an unmistakable
token of simulation. It has been observed that
Art 1346. An absolutely simulated or fictitious contract is fraud is generally accompanied by trust.
void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary The late Rafael Suntay and private respondent Federico
to law, morals, good customs, public order or public policy Suntay were relatives, undisputedly, whose blood relation
binds the parties to their real agreement. was the foundation of their professional and business
relationship. Federico had such faith and confidence in
the late Rafael, as nephew and counsel, that he blindly
Suntay v. CA signed and executed the sale in question. He had
251 SCRa 430 (1995) entrusted to Rafael many of his business documents and
76
personal papers, the return of which he did not demand thereafter. Federico was obviously financially liquid. Had
even upon termination of their professional relationship. It he intended to pay attorney's fees, he would have paid
was precisely because of this relationship that Federico Rafael in cash and not part with valuable income-
consented to what he alleged as a loan of title over his producing real property.
land and rice mill in favor of the late Rafael.
Object of Contracts
Hardly is it inconsistent with practical experience,
especially in the context of the Filipino family's way of life,
that Federico, the uncle, would almost naively lend his Blas v. Santos
land title to his nephew and agree to its cancellation in his 1 SCRA 899 (1961)
nephew's favor because Federico, in the first place, Klynton Lucero
trusted his nephew; was well aware of his power over him
as uncle, client, and patron; and was actually in FACTS:
possession of the land and rice mill. Maria, Manuel, Leoncio, Gervacio, and Loida (all
surnamed Blas), herein plaintiffs, instituted an action
II. The most protuberant index of simulation is against Rosalina Santos (Rosalina), herein defendant
the complete absence of an attempt in any and administratrix of the estate of Maxima Santos
manner on the part of the late Rafael to assert (Maxima). The purpose of the plaintiffs’ action is to secure
his rights of ownership over the land and rice a judicial declaration that one-half of the properties left by
mill in question. Maxima, having been promised by the latter to be
delivered upon her death and in her will to the plaintiffs,
After the sale, he should have entered the land and be adjudicated to them.
occupied the premises thereof. He did not even attempt
to. If he stood as owner, he would have collected rentals The alleged promise of the deceased Maxima is
from Federico for the use and occupation of the land and contained in a document executed by her, and introduced
its improvements. at trial as Exhibit “A”.
The failure of the late Rafael to take exclusive possession Exhibit “A”
of the property allegedly sold to him is a clear badge of "KNOW ALL MEN BY THESE PRESENTS:
fraud. The fact that, notwithstanding the title transfer, "That I Maxima Santos de Blas, of legal age, married to
Federico remained in actual possession, cultivation and Simeon Blas, resident of Malabon, Rizal, Philippines,
occupation of the disputed lot from the time the deed of voluntarily state:
sale was executed until the present, is a circumstance That I have read and knew the contents of the will
which is unmistakably added proof of the fictitiousness of signed by my husband, Simeon Blas, (2) and I promise
the said transfer, the same being contrary to the principle on my word of honor in the presence of my husband
of ownership. that I will respect and obey all and every disposition of
said will (3) and furthermore, I promise in this document
III. According to the late Rafael, he allowed that all the properties my husband and I will leave, the
Federico to remain in the premises and enjoy portion and share corresponding to me when I make my
the fruits thereof because of their will, I will give one-half (1/2) to the heirs and legatees
understanding that Federico may or the beneficiaries named in the will of my husband,
subsequently repurchase the property. (4) and that I can select or choose any of them to whom
Contrary to what Rafael thought, this in fact is I will give depending upon the respect, service and
an added reason for simulation. treatment accorded to me. xxx
The idea of allowing a repurchase goes along the same

lines posed by the theory of Federico. If it were true that The reason why Simeon ordered the preparation of
the first sale transaction was actually a "dacion en pago" Exhibit “A” was because the properties that Simeon had
in satisfaction of Federico's alleged unpaid attorney's acquired during his first marriage with Marta Cruz had not
fees, it does strain the logical mind that Rafael has agreed been liquidated and were not separated from those
to allow the repurchase of the property three months acquired during the second marriage with Maxima.
77
Liguez v. CA
However, the lower court held that Exhibit “A” cannot be 102 Phil. 577 (1957)
considered a valid and enforceable contract because it Ruth Montilla
deals with future inheritance.
FACTS: Salvador, a married and matured man, courted
ISSUE: a young woman, Conchita. The former wanted to cohabit
Is the object or subject matter in Exhibit “A” valid? with the latter but Conchita’s parents refused unless
Salvador donated a parcel of land. Desirous to have
RULING: sexual congress with Conchita, Salvador ultimately gave
in and donated the parcel of land which is the subject of
Yes. It is to be noted that the conjugal properties referred this present controversy.
in Exhibit “A” were actually existing at that time, Dec. 26,
1936. Simeon died on Jan. 9, 1937. On June 2, 1937, When Salvador died, the possession of the land still
Maxima (as administratrix of her husband) submitted an remained with his legitimate wife, Maria, and their
inventory of all conjugal properties left by Simeon. children. Consequently, Conchita instituted this suit for
the recovery of the said land, arguing on the basis of the
Exhibit “A” is an obligation or promise made by the maker deed of donation executed by Salvador in her favor.
to transmit one-half of her share in the conjugal properties
acquired with her husband, which properties are stated or As a defense, Maria avers that the donation is void for
declared to be conjugal properties in the will of the having an illicit cause. Meanwhile, Conchita counters by
husband. The conjugal properties were in existence at the arguing that the donation is valid for having a valid cause
time of the execution of Exhibit "A" on Dec. 26, 1936. As because a donation is a contract of pure beneficence
a matter of fact, Maxima Santos included these properties where the cause is the donor’s (Salvador) liberality.
in her inventory of her husband's estate of June 2, 1937. Conchita adds that assuming that the donation was
The promise does not refer to any properties that the established in order for Salvador to have an illicit
maker would inherit upon the death of her husband. The relationship with her, such premise is a mere motive
document refers to existing properties which she will which is different from the cause of the donation which is
receive by operation of law on the death of her husband, the liberality of Salvador.
because it is her share in the conjugal assets.
ISSUE: Whether the donation is void for having an illicit
What is prohibited to be the subject matter of a contract cause.
under the Civil Code is “future inheritance.” Future
inheritance is any property or right not in existence or RULING: YES. The flaw in Conchita’s argument lies in
capable of determination at the time of the contract, that ignoring that liberality of the donor is deemed causa only
a person may in the future acquire by succession. The in those contracts that are of "pure" beneficence; that is
properties subject of the contract Exhibit "A" are well- to say, contracts designed solely and exclusively to
defined properties, existing at the time of the agreement, procure the welfare of the beneficiary, without any intent
which Simeon declares in his testament as belonging to of producing any satisfaction for the donor; contracts, in
his wife as her share in the conjugal partnership. other words, in which the idea of self-interest is totally
Certainly, his wife's actual share in the conjugal properties absent on the part of the transferor.
may not be considered as future inheritance because they
were actually in existence at the time Exhibit "A" was Here, the facts demonstrate that in making the donation
executed. in question, the late Salvador was not moved exclusively
by the desire to benefit Conchita, but also to secure her
cohabiting with him, so that he could gratify his sexual
Cause of Contracts
impulses. He was in love with Conchita, but her parents
would not agree unless he donated the land in question
Defective causes and their effects: Absence of to her. Actually, therefore, the donation was but one part
cause and unlawful cause of an onerous transaction (at least with Conchita's
parents) that must be viewed in its totality. Thus
78
considered, the conveyance was clearly predicated upon Maximino was able to obtain a title to the remaining
an illicit causa. portion of Lot No. 44, i.e, Lot No. 44-D and Lot No. 44-E.
Conchita seeks to differentiate between the alleged Now, the other heirs of Mateo filed this present suit to
liberality of Salvador, as causa for the donation in her subdivide Lot No. 44-D and Lot No. 44-E. They allege that
favor, and his desire for cohabiting with Conchita, as the "Assignment of Right to Inheritance" was executed
motives that impelled him to make the donation. However, merely to expedite the expropriation proceedings
motive may be regarded as causa when it predetermines instituted by the government. The RTC ruled in favor of
the purpose of the contract. Maximino. However, the CA reversed it, holding that the
deed of "Assignment of Right to Inheritance" is void ab
In the present case, it is scarcely disputable that Salvador initio and inexistent on the grounds that real consent was
would not have conveyed the property in question had he wanting and the consideration of P1.00 is so shocking to
known that Conchita would refuse to cohabit with him; so the conscience that there was in fact no consideration.
that the cohabitation was an implied condition to the
donation, and being unlawful, necessarily tainted the ISSUE: Whether the deed of "Assignment of Right to
donation itself. Inheritance" is void ab initio for absence of cause or
consideration. NOPE
Lesion or inadequacy of cause
RATIO: Article 1409 (2) of the new Civil Code relied upon
by the Court of Appeals provides that contracts "which are
Carantes v. CA absolutely simulated or fictitious" are inexistent and void
76 SCRA 514 (1977) from the beginning. The basic characteristic of simulation
Renier Hidalgo is the fact that the apparent contract is not really desired
or intended to produce legal effects or in any way alter the
FACTS: Mateo Carantes owned a parcel of land juridical situation of the parties.
designated as Lot No. 44. Subsequently, a portion of said
lot was needed by the government for the construction of It is total absence of cause or consideration that renders
an airport. This necessity resulted in the subdivision of the a contract absolutely void and inexistent. In the case at
lot into 5 parcels, namely: Lot No. 44-A; Lot No. 44-B; Lot bar, consideration was not absent. The sum of P1.00
No. 44-C, Lot No. 44-D and Lot No. 44-E. Consequently appears in the document as one of the considerations for
during 1930, Lot No. 44-A, got expropriated in favor of the the assignment of inheritance. In addition — and this of
government. When Mateo died, he was survived by his great legal import — the document recites that the
wife and six children, among whom is Maximino. decedent Mateo Carantes had, during his lifetime,
expressed to the signatories to the contract that the
On October 23, 1939, the heirs executed a deed property subject-matter thereof rightly and exclusively
denominated "Assignment of Right to Inheritance" belonged to Maximino. This acknowledgment by the
assigning to Maximino their rights to inheritance in the signatories definitely constitutes valuable consideration
remaining parcels of land in Lot No. 44. The stated for the contract.
monetary consideration for the assignment was P1.00.
However, the document contains a recital to the effect Sps. Buenaventura et al. v. CA
that the said lots, "by agreement of all the direct heirs and 416 SCRA 263  (2003)
heirs by representation of the deceased Mateo Carantes Von Villarin
as expressed and conveyed verbally by him during his Facts:
lifetime, rightly and exclusively belong to the particular This case involves a squabble between siblings over
heir, Maximino Carantes, now and in the past in the parcels of land.
exclusive, continuous, peaceful and notorious possession
of the same for more than ten years." The Spouses Leonardo and Feliciana are the parents of
Consolacion, Nora, Emma, and Natividad (the plaintiffs in
On the same date in 1939, Lot No. 44-B and Lot No. 44- this case)
C were further sold to the government due to the latter’s
need to widen the initially constructed airport. Ultimately,
79
The Spouses are also the parents of Fidel, Tomas,
Artemio, Clarita, Felecitas, Fe and Gavino (the In this case, the plaintiff siblings failed to prove any of the
defendants in this case). instances under the Civil Code that would invalidate the
deed of sale. Indeed, there is no requirement that the
The said spouses issued 6 Deeds of Absolute Sale of real price be equal to the exact value of the subject matter of
property in favor of the defendant siblings. the sale. All the respondents believe that they received
the commutative value of what they gave.
The plaintiff siblings, however did not receive a share so
they filed a petition against the defendant siblings for the
nullification of the deeds of absolute sale. They argue that
FORM OF CONTRACTS
the deeds are void ab initio since there was actually no
cause or consideration for the said properties. And
assuming that there was valid consideration, the value Hernaez vs. de los Angeles
indicated in the deeds were not commensurate with the 27 SCRA 1276 (1969)
value of the properties. Nikki Sia
Plaintiff siblings aver that the whole thing was a MINI DIGEST
conspiracy to deprive them of their rightful shares. Petitioner Hernaez is a motion picture actress of
Hollywood Far East Productions Inc. She sued the
The defendant siblings aver that the contracts were company for the balance due for her services as the
entered into in accordance with law and were entered into leading actress and for the recovery of damages.
in good faith.They also set up the defense that the plaintiff
siblings had no cause of action as against the deeds of Her complaint was dismissed by respondent judge delos
absolute sale. Angeles on the ground that the claim was not evidenced
by any written document, either public or private.
The Trial Court ruled in favor of the defendant siblings.
The issue in this case is whether the judge correctly
dismissed the complaint on such ground.
Issue: were the contracts void ab initio?
The SC said no, nowhere in the code provides that in the
Ruling: NO. absence of such written document, it will render the
contract invalid or unenforceable. The law likewise
The plaintiff siblings assert that their siblings did not expressly provided the documents that require a written
actually pay for the said properties. formality, as an exception to the general rule (that mere
consent by both parties shall bind both of them), to which
However, no evidence was offered to show that the prices the case at bar does not fall under.
stated in the deeds are absolutely simulated. The trial
court did not find this allegation credible. Thus, the respondents is wrong in saying that there was
no valid contract in the absence of a written document and
Plaintiff siblings also assert that even if there was for dismissing the complaint for failure to state a cause of
consideration, the same was grossly inadequate. action as it did not plead any written agreement.
=Respondents are liable to pay hahaha
However, under the Civil Code, it states therein that
Except in cases specified by law, lesion or inadequacy of FACTS:
contracts shall not invalidate a contract unless there has Petitioner Hernaez is a motion picture actress. She filed a
been fraud, mistake or undue influence. complaint against private respondents (Hollywood Far
East Productions, Inc.) and Ramon Valenzuela, its
The Civil Code also provides that Gross INadequacy of president and general manager to recover 14,700
Price does not affect a contract of sale, except as may representing a balance allegedly due to her, and for
indicate a defect in the consent or that the parties really damages,
intended a donation or some other contract.
80
The respondent judge delos Angeles ordered the Article 1357: also indicates that contracts covered by
dismissal of the complaint on the ground that the claim Article 1358 are binding and enforceable by action or suit
was not evidenced by any written document, either public despite the absence of writing.
or private” and that the complaint was defective on its face
for violating Arts 1356 and 1358, and that it contained It thus becomes inevitable to conclude that both the court
defective allegations. a quo as well as the private respondents herein were
grossly mistaken in holding that because petitioner
ISSUE: Whether there was abuse on the part of Dauden's contract for services was not in writing the same
respondent judge in ruling that a contract for personal could not be sued upon, or that her complaint should be
services involving more than P500.00 was either invalid dismissed for failure to state a cause of action because it
or unenforceable under the last paragraph of Art 1358. did not plead any written agreement.
RULING: YES, there was abuse since the ruling The basic error in the lower court's decision lies in
contested betrays a basic and lamentable overlooking that in our contractual system it is not enough
misunderstanding of the role of the written form in that the law should require that the contract be in writing,
contracts, as ordained in the Civil Code. as it does in Article 1358. The law must further prescribe
that without the writing the contract is not valid or not
Article 1315: contracts are perfected by mere consent and enforceable by action.
the parties are bound not only to the fulfillment thereof but
also to all its consequences.
REFORMATION OF INSTRUMENTS
Art 1356: contracts shall be obligatory in whatever form

they may have been entered into as long as the essential Requisites of Reformation
requisites for their validity are present.
GR: a contract shall be valid if all the requisites are Garcia v. Bisaya
present, regardless of the form in which they are couched. 97 Phil. 609 (1955)
EXCEPTIONS provided in the Code: Luke Burdeos
a) Contracts for which the law itself requires that
they be in some particular form (writing) in order FACTS: Garcia filed a complaint against the Bisaya et al
to make them valid and enforceable (the so- alleging that on November 12, 1938, Bisaya executed in
called solemn contracts). favor of Garcia a deed of sale covering a land; that the
b) Contracts that the law requires to be proved by land "was erroneously designated by the parties in the
some writing (memorandum) of its terms, as in deed of sale as an unregistered land (not registered under
those covered by the old Statute of Frauds, now Act 496, nor under the Spanish Mortgage Law) when in
Article 1403(2) of the Civil Code. truth and in fact said land is a portion of a big mass of land
registered under Original Certificate of Title No. 6579 in
However, in the case at bar, the contract sued upon by the Office of the Register of Deeds of Oriental Mindoro" ;
petitioner does not come under the exceptions. that despite persistent demand from Garcia to have the
Art 1358: While it is true that it appears included in Article error corrected, Bisaya refused.
1358, last clause, providing that:
"all other contracts where the amount involved While Garcia prayed to order Bisaya to make the
exceeds P500 must appear in writing, even a correction in the deed of sale, Bisaya denied having
private one." executed the deed and pleaded prescription as a defense.
However Garcia alleged that he "was without knowledge
But Article 1358 nowhere provides that the absence of of the error sought to be corrected at the time the deed of
written form in this case will make the agreement invalid sale was executed and for many years thereafter," having
or unenforceable. discovered the said error "only recently."
The trial court dismissed the case due to prescription.
81
ISSUE: Was the trial court correct? contract of lease of a parcel of land with petitioner Bentir
for a period of 20 years starting May 1968 and it was later
RULING: the order of dismissal is correct, not because extended for another four years until May 1992.
Garcia’s action has already prescribed, but because his
complaint states no cause of action. In May 1989, Bentir sold the leased property to spouses
Pormida. Respondent questioned the sale alleging it had
Both Garcia and Bisaya apparently regard the present the right of first refusal. So it filed a case for the
action as one for the reformation of an instrument. reformation of the expired contract of lease by claiming
Specifically, the object sought is the correction of an that its lawyers inadvertently omitted to incorporate in the
alleged mistake in a deed of sale covering a piece of land. contract of lease executed in 1968, the verbal agreement
The action being upon a written contract, it should or understanding between the parties that in the event
prescribe in ten years counted from the day it could have Bentir leases or sells the lot after the expiration of the
been instituted. lease, respondent has the right to equal the highest offer.
Obviously, Garcia could not have instituted his action to Petitioners alleged, among others, that the respondent is
correct an error in a deed until that error was discovered. guilty of laches for not bringing the case for reformation of
There being nothing in the pleadings to show that the the lease contract within the prescriptive period of ten
error was discovered more than ten years before the years from its execution.
present action was filed, while, on the other hand, there is
allegation that the error was discovered "only recently", ISSUE:
we think the action should not have been dismissed as Whether the complaint for reformation of instrument has
having already prescribed before the factual basis for prescribed. (NO)
prescription had been established and clarified by
evidence. RULING:
The remedy of reformation of an instrument is grounded
However, that Garcia’s complaint states no cause of on the principle of equity where, in order to express the
action, for it fails to allege that the instrument to the true intention of the contracting parties, an instrument
reformed does not express the real agreement or already executed is allowed by law to be reformed. The
intention of the parties. Such allegation is essential right of reformation is necessarily an invasion or limitation
since the object sought in an action for reformation is of the parol evidence rule since, when a writing is
to make an instrument conform to the real agreement reformed, the result is that an oral agreement is by court
or intention of the parties. decree made legally effective.
In this case, the complaint does not even allege what the The remedy, being an extraordinary one, must be subject
real agreement or intention was. How then is the court to to limitations as may be provided by law. Our law and
know that the correction sought will make the instrument jurisprudence set such limitations, among which is laches.
conform to what was agreed or intended by the parties? A suit for reformation of an instrument may be barred by
It is not the function of the remedy of reformation to make lapse of time. The prescriptive period for actions based
a new agreement, but to establish and perpetuate the true upon a written contract and for reformation of an
existing one. instrument is ten years under Article 1144 of the Civil
Code.
Moreover, courts do not reform instruments merely for the
sake of reforming them, but only to enable some party to Prescription is intended to suppress stale and fraudulent
assert right under them as reformed. claims arising from transactions like the one at bar which
facts had become so obscure from the lapse of time or
Bentir v. Leande defective memory. In the case at bar, respondent had ten
330 SCRA 591 (2000)   years from the time when the contract of lease was
Nickha Tupa executed, to file an action for reformation. But it only did
so twenty-four years after the cause of action accrued,
FACTS: hence, its cause of action has become stale, hence, time-
Respondent Leyte Gulf Traders, Inc. entered into a barred.
82
that the defendants had refused to accept the exchange.
Even if we were to assume for the sake of argument that Lot No. 535-E has an area of 2,612 square meters, as
the instant action for reformation is not time-barred, compared to the 1,808 square-meter area of lot No. 535-
respondent’s action will still not prosper. Under Section 1, A.
Rule 64 of the New Rules of Court, an action for the
reformation of an instrument is instituted as a special civil Defendants alleged that the reference to lot No. 535-E in
action for declaratory relief. Since the purpose of an the deed of sale was an involuntary error. The intention of
action for declaratory relief is to secure an authoritative the parties was to convey the lot correctly identified as lot
statement of the rights and obligations of the parties for No. 535-A since Atilano I had been possessing and had
their guidance in the enforcement thereof, or compliance his house on the portion designated as lot No. 535-E. He
therewith, and not to settle issues arising from an alleged even increased the area under his possession when
breach thereof, it may be entertained only before the Atilano I bought a portion of an adjoining lot.
breach or violation of the law or contract to which it refers.
Here, respondent brought the present action for Trial court rendered judgment for the plaintiffs on the sole
reformation after an alleged breach or violation of the ground that since the property was registered under the
contract was already committed by petitioner Bentir. Land Registration Act the defendants could not acquire it
Consequently, the remedy of reformation no longer lies. through prescription.
ISSUE:
Procedure of Reformation
WON the mistake in the deed of sale invalidated the
contract.
Atilano v. Atilano
28 SCRA 2232 (1969) RULING:
Jeah Alicante NO.
FACTS: The designation as lot No. 535-E in the deed of sale was
Eulogio Atilano I purchased a lot from Gerardo Villanueva a simple mistake in the drafting of the document. The
in Zamboanga. He had the land subdivided into 5 parts. mistake did not vitiate the consent of the parties nor affect
After the subdivision, Atilano I executed a deed of sale of the validity and binding effect of the contract between
one of the lots in favor of his brother Atilano II (Lot No. them.
535-E) and had the title transferred in his name. 3 other
portions were likewise sold to other persons, Atilano I Lot No. 535-A was already in the possession of the
retained for himself the remaining portion of the land. vendee, Atilano II, who had constructed his residence
Upon his death, the title to this lot passed to Ladislao therein, even before the sale in his favor and even before
Atilano, defendant in this case, in whose name a TCT was the subdivision of the entire lot No. 535. Atilano I also had
issued. his house on the portion identified as lot No. 535-E, even
adding to the area thereof by purchasing a portion of an
Atilano II having become a widower, he and his children adjoining property belonging to a different owner. The two
were made co-owners of Lot 535-E. Desiring to put an brothers continued in possession of the respective
end to the co-ownership, they had the land resurveyed so portions the rest of their lives, obviously ignorant of the
that it could properly be subdivided; and it was then initial mistake in the designation of the lot subject.
discovered that the land they were actually occupying was
Lot No. 535-A and not lot 535-E, as referred to in the The new Civil Code provides a remedy for such a situation
deed, while the land which remained in the possession of by means of reformation of the instrument. This remedy
the vendor, Atilano I, and which passed to his successor is available when, there having been a meeting of the
was lot No. 535-E and not lot No. 535-A. minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the
Heirs of Atilano II filed an action in CFI Zamboanga agreement by reason of mistake, fraud, inequitable
alleging that they had offered to surrender to the conduct on accident (Art. 1359).
defendants the possession of lot No. 535-A and
demanded in return the possession of lot No. 535-E but
83
In this case, the deed of sale need no longer be reformed. they want it declared null and void and a corresponding
The parties have retained possession of their respective partition be ordered (six equal shares).
properties conformably to the real intention of the parties
to that sale, and all they should do is to execute mutual The trial court ruled that the action has prescribed, and
deeds of conveyance. that even assuming that it was a common property, the
same has been repudiated by Maximino and acquisitive
Carantes v. CA prescription vested.
G.R. No. L-33360
Gab Baes Issue:
Is the Inheritance Right Assignment void ab initio? DI PO.
A parcel of land (Lot-44) was owned by the Carantes. He
died in 1913 and the said parcel of land was inherited by Ruling:
his heirs. In 1930, the Government commenced the The mere fact that the consideration reflected is P1.00 is
construction of Loakan Airport and commenced not conclusive that there was lack of consideration or that
expropriation proceedings on the said land. the sale is simulated or fictitious, making the contract void
from the beginning. For simulation to play, it must be
In 1933, estate settlement proceedings were filed. The apparent that the contract is not really desired or intended
only property listed in the inventory for the partition was to produce legal effects or alter the parties.
remaining portion of Lot 44 since Lot 44-B and Lot 44-C
was under negotiation with the government. Here, there was a consideration of P1.00. This sum is the
consideration for the assignment. Further, the document
In 1939, four of Carantes’ children assigned their also recites that Mateo, their father, conveyed the lot to
inheritance to Maximino (the Administrator) for a Maximino. This acknowledgment constituted valuable
consideration of P1.00. In the document, it recited that by consideration for the contract.
agreement of all heirs and by representation, that their
father conveyed verbally during his lifetime, to Maximino. The Supreme Court said that this present action is really
So Maximino sold 44-B and 44-C to the government and rather to annul the contract, based on fraud. Now,
divided the proceeds of the sale among the heirs. prescription is relevant since voidable contracts
acknowledge validity. So when should we reckon the
Another special proceedings were instituted, where it period of four years from discovery? Should it be in 1958
cancelled the OCT of the lot and got TCT 2533 issued in upon actual discovery? or should it be in 1940 upon
the joint names of the five children of Mateo and children registration of the Deed?
of Apung.
The Supreme Court said it should be in 1940 where there
Maximino registered the “Assignment of Right to was registration because a registration in the RD amounts
Inheritance” and so, TCT 2533 were cancelled and TCT to constructive notice, complying with the discovery
2540 was issued in the sole name of Maximino. ANd thus, requirements. Thus, since the case was filed in 1958, the
as exclusive owner by title, sold to the Government Lots same is barred by prescription. They only had four years.
44-B and 44-C.
The Supreme Court noted that there was no express trust
The remaining divisions of Lot-44 were issued to here, contrary to the conclusions of the Court of Appeals.
Maximino. Who is up to now, the registered owner of said In constructive trusts, there are no fiduciary relations
lots. either and constructive notice applies also to constructive
trusts.
A complaint was then filed by some heirs, attacking the
Inheritance Assignment, alleging that it was executed Action of reconveyance based on constructive or implied
because Maximino led them to believe that it was just an trust, prescribes. It is ten-years. Thus, assuming there
“authority” to Maximino to convey portions of Lot 44 to the was implied trust here, the prescription started to run from
Government to minimize expenses and facilitate the 1940, when the deed was registered and a title was
transaction, and only in 1958 did they know that the secured. Thus, only until 1950. Since the case was
purported deed has assigned everything to Maximino. So instituted in 1958, action has prescribed.
84
but she was also one of the heirs entitled to the
Sarming et al. v. Cresencio Dy et al. estate of Venancio and Maxima
383 SCRA 131 (2002)   ● Her name did not appear as one of the sellers of
Xanthe Alcasid one-half lot to Alejandra Delfino because she
never sold her share. What was sold was the one-
DOCTRINE: All parties claiming interests by the half share of Jose Flores, as represented by his
instrument sought to be reformed are necessary heirs. It is also established that it was Silveria
parties to the action. Flores herself who delivered the subject lot to the
FACTS: vendee Alejandra Delfino
● Silveria is a co-owner of Lots No. 5734 and 4163, ● Through her actions, Silveria Flores had made
in different shares; the parties to the deed believe that the lot
● The heirs of Jose, Silveria’s co-owner in Lot No. intended to be the object of the contract was the
4163, offered to sell to her their one-half share but same lot described in the deed. Thus, by mistake
she declined for lack of money; or accident, as well as inequitable conduct,
● That said share was later sold to Alejandra; neither she nor her successors-in-interest could
● Silveria was asked to deliver the title of Lot No. deny involvement in the transaction that resulted
4163 but instead she delivered the title of Lot No. in a deed that now ought to be reformed.
5734; ● What the plaintiffs-vendors really intended to sell
● After the sale, Alejandra occupied one-half and what Alejandra Delfino intended to buy, of
portion of Lot No. 4163 while Lot No. 5734 was which both of the parties agreed to be the subject
still in the possession of Venancio and the heirs of the transaction, was actually that parcel of
of Maxima and Silveria; land, with two rows of coconut trees as the
● It was only when Alejandra was about to buy the dividing line, and which lot is known as Lot 4163
adjacent lot that she realized that what was . This lot, on the western portion, was the very
indicated in the Settlement of Estate and Sale portion which was pointed to and delivered to
was Lot No. 5734 and not 4163. Alejandra Delfino by the original defendant
● Petitioners alleged that the trial court failed to Silveria Flores and her two children, together with
pronounce that Silveria Flores who is not a party the vendors
to the contract of sale cannot be legally
compelled by Alejandra Delfino thru an action for Reformation is proper
reformation of contract to execute a “conveyance An action for reformation of instrument under this
of sale” provision of law may prosper only upon the concurrence
of the following requisites:
ISSUE: WON there is a cause of action for reformation of 1. there must have been a meeting of the minds of
instrument against Silveria Flores, and consequently the the parties to the contact;
petitioners 2. the instrument does not express the true intention
of the parties; and
RULING: 3. the failure of the instrument to express the true
● YES. (Caveat: The case did not really discuss intention of the parties is due to mistake, fraud,
about the application of Art 1369, based the ratio inequitable conduct or accident.
on my 1st year notes and applied it to the case)
● ART 1369. The procedure for the reformation All of these requisites are present in this case. There was
of instruments shall be governed by rules of a meeting of the minds between the parties to the contract
court to be promulgated by the Supreme but the deed did not express the true intention of the
Court parties due to mistake in the designation of the lot subject
● All parties claiming interests by the instrument of the deed. There is no dispute as to the intention of the
sought to be reformed are necessary parties to parties to sell the land to Alejandra Delfino but there was
the action. a mistake as to the designation of the lot intended to be
● Silveria Flores was a party to the contract. She is sold as stated in the Settlement of Estate and Sale.
not only the seller of the coconut trees worth P15
85
INTERPRETATION OF CONTRACTS (Compare with

ISSUE: Is the stipulation waiving prescription valid?
Rules on Statutory Construction)
RULING: YES. Stipulation is valid.

Borromeo v. CA
47 SCRA 65 (1972) Between two possible interpretations, that which saves
Jan Legaspi rather than destroys is preferred. It is a fundamental
principle in the interpretation of contracts that while
FACTS: Jose A. Villamor was a distributor of lumber ordinarily the literal sense of the words employed is to be
belonging to Mr. Miller who was the agent of the Insular followed, such is not the case where they "appear to be
Lumber Company in Cebu City. Villamor being a friend contrary to the evident intention of the contracting
and former classmate of Canuto O. Borromeo used to parties," which "intention shall prevail." (Art. 1370)
borrow from the latter certain amounts from time to time.
There is nothing implausible in the view that such
On one occasion with some pressing obligation to settle language renouncing the debtor's right to the prescription
with Mr. Miller, Villamor borrowed from Borromeo a large established by the Code of Civil Procedure should be
sum of money for which he mortgaged his land and house given the meaning, as noted in the preceding sentence of
in Cebu City. the decision of CA, that the debtor could be trusted to pay
even after the termination of the ten-year prescriptive
Mr. Miller filed civil action against Villamor and attached period. CA should have interpreted the stipulation based
his properties including those mortgaged to Borromeo, on the context of the friendship between the two parties.
because the deed of mortgage in favor of Borromeo could
not be registered because the deed was not properly Where an agreement founded on a legal consideration
drawn up. contains several promises, or a promise to do several
things, and a part only of the things to be done are illegal,
In November 1933, Borromeo then pressed Villamor for the promises which can be separated, or the promise, so
settlement of his obligation, but Villamor instead offered far as it can be separated, from the illegality, may be valid.
to execute a document promising to pay his indebtedness
even after the lapse of ten years. After liquidation, The rule is that a lawful promise made for a lawful
Villamor was found to be indebted to Borromeo in the sum consideration is not invalid merely because an unlawful
of P7,220.00, for which Villamor signed a promissory note promise was made at the same time and for the same
with interest of 12% per annum, agreeing to pay 'as soon consideration, and this rule applies, although the invalidity
as I have money'. The note further stipulates that Villamor is due to violation of a statutory provision, unless the
'hereby relinquishes, renounces, or otherwise waives his statute expressly or by necessary implication declares the
rights to the prescriptions established by our Code of Civil entire contract void.
Procedure for the collection or recovery of the above sum
of P7,220.00 . . . at any time even after the lapse of ten In this case, the first ten years after the execution of the
years from the date of this instrument'. note should not be counted in determining when the
action of the creditor (Borromeo) could be filed. If the first
After, Borromeo would verbally request Villamor to settle ten-year period was to be excluded, Borromeo had until
his indebtedness from time to time. Borromeo did not file November 29, 1953 to start judicial proceedings. After
any complaint against the Villamor within ten years from deducting the first ten-year period which expired on
the execution of the document. It was only after the war November 29, 1943, there was the additional period of still
and after the lapse of 10 years when Borromeo finally filed another ten years. Nor could there be any legal objection
a collection suit against Villamor. to the complaint by the creditor Borromeo of January 7,
1953 embodying not merely the fixing of the period within
While the trial court did order Villamor to pay, the CA which the debtor Villamor was to pay but likewise the
reversed such decision on the ground that there was a collection of the amount that until then was not paid.
lack of validity in the stipulation amounting to a waiver in
line with the principle “that a person cannot renounce Kasilag v. Rodriguez
future prescription.” 69 Phil. 217 (1939)
86
Ninia Tagapia 1) Whether the 2 contracts are valid? (relevant to the
topic)
DOCTRINE: The terms, clauses and conditions contrary - Only the accessory contract of mortgage of
to law, morals and public order should be separated from the improvements on the land is valid while
the valid and legal contract when such separation can be the verbal contract of antichresis agreed
made because they are independent of the valid contract upon is void.
which expresses the will of the contracting parties. 2) Whether the petitioner should be deemed a
possessor in good faith because he was unaware of
FACTS: any flaw in his title or in the manner of its acquisition
Respondents Rodriguez are the heirs of Emiliana by which it is invalidated? YES
Ambrosio who commenced this civil case to recover from
Kasilag the possession of the land and its improvements RULING:
granted by way of homestead to the deceased Ambrosio.
1) Rule in interpretation of Contracts: the terms, clauses
Background prior to present case: and conditions contrary to law, morals and public order
● There are 2 contracts involved in this case: should be separated from the valid and legal contract
1. accessory contract of mortgage of the when such separation can be made because they are
improvements of on the land; and independent of the valid contract which expresses the
2. the verbal contract of antichresis will of the contracting parties.
● 1st contract: Kasilag and Emiliana Ambrosio ➢ Thus, in applying this rule, the accessory
(Ambrosio) entered into a contract of loan to which contract of mortgage of the improvements on
has an accompanying accessory contract of the land is VALID. However, the verbal
mortgage. The executed accessory contract involved contract of antichresis agreed upon is VOID.
the improvements on a piece of land, the land having
been acquired by means of homestead.
FOR REFERENCE: Relevant law as cited in this case:
➢ The parties stipulated that Ambrosio was to
pay the debt with interest within 4 ½ years.,
Section 116 of Act No. 2874, as amended by section
and in such a case, the mortgage would not
23 of Act No. 3517:
have any effect.
➢ They also agreed that Ambrosio would "SEC. 116. Except in favor of the Government or any of
execute a deed of sale if the debt would not its branches, units, or institutions, or legally constituted
be paid within 4 ½ years and that she would banking corporations, lands acquired under the free
pay the tax on the land. patent or homestead provisions shall NOT be
● 2 contract: After a year, it turned out that she was
nd
subject to ENCUMBRANCE or ALIENATION from the
NOT able to pay the tax. Hence, they entered a date of the approval of the application and for a term of
subsequent contract which is only a verbal five years from and after the date of issuance of the
agreement. She conveyed to Kasilag the possession patent or grant, nor shall they become liable to the
of the land on the condition that they would NOT satisfaction of any debt contracted prior to the
collect the interest of the loan, would attend to the expiration of said period; but the improvements or
payment of the land tax, would benefit by the fruits of crops on the land may be MORTGAGED or pledged
the land, & would introduce improvement thereof. to qualified persons, associations, or
● Petitioner Kasilag for his part accepted the contract of corporations."
mortgage. Believing that there are no violations to the
prohibitions in the alienation of lands, Kasilag, acting
in good faith took possession of the land, to wit, he The 1st contract which is an accessory contract of
has no knowledge that the enjoyment of the fruits of mortgage of the improvements on the land is VALID:
the land is an element of the credit transaction of ● It is NOT against the law. The mortgage of the
Antichresis improvements, is expressly authorized by section 116
of Act No. 2874, as amended by section 23 of Act No.
ISSUES: 3517.
87
● It will be recalled that in the contract, the parties by paying them its market value to be fixed by the
agreed that should Ambrosio fail to redeem the court of origin, upon hearing the parties.
mortgage within the stipulated period of four and a
half years, by paying the loan together with interest,
she would execute in favor of the petitioner an
absolute deed of sale of the land for P1,000, including
the interest stipulated and owing.
The 2nd contract which is the verbal contract of

antichresis is VOID:
● The stipulation in the 1st contract was verbally
modified by the same parties after the expiration of
one year, in the sense that the petitioner would take
possession of the land and would benefit by the fruits
thereof on condition that he would condone the
payment of interest upon the loan and he would
attend to the payment of the land tax.
● This in effect altered the mortgage contract and
converted the latter into a contract of antichresis
(article 1881 of the Civil Code).
● The contract of antichresis, being a real
encumbrance burdening the land, is illegal and
void because it is condemned by section 116 of Act
No. 2874, as amended.
● But the clauses regarding the contract of
antichresis being independent and separable from
the contract of mortgage, can be eliminated, thereby
leaving the latter in being because it is legal and valid.
2) Kasilag is in Good Faith:

● Gross and inexcusable ignorance of the law may not
be the basis of GF but excusable ignorance may be a
basis (if it is based upon ignorance of a fact.)
● Here, Kasilag is NOT conversant w/ the laws because
he is not a lawyer. In accepting the mortgage of the
improvements he proceeded on the well-grounded
belief that he was NOT violating the prohibition
regarding the alienation of the land.
● In taking possession thereof and in consenting to
receive its fruits, he did NOT know, as clearly as a
jurist does, that the possession and enjoyment of the
fruits are attributes of the contract of antichresis and
that the latter, as a lien, was prohibited by Sec. 116.
● Thus, as to the petitioner, his ignorance of the
provisions of sec. 116 is excusable and may be the
basis of GF.
● The petitioners being in GF, the respondents may
elect to have the improvements introduced by the
petitioner by paying the latter the value thereof,
P3,000, or to compel the petitioner to buy and have
the land where the improvements or plants are found,
88

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OBLICON CASE DIGESTS | ATTY.

BATHAN-LASCO | EH 403 – CASES FOR RECITATIONS

KINDS OF OBLIGATIONS RULING:

Toyota and Insular Life entered into a Compromise Coronel vs. CA

-xxx- The resolutory condition in the contract of lease re: the

Subsequently, on January 18, 1977, Ducusin sent a

In a perfected contract of sale of land under an agreed

ALUMCO continued its logging operations, but again

FACTS: Even without express provision conferring the power of

First Eastern Samar Lumber maintains that due to the FACTS:

Philippine Sugar filed a complaint against Tuason & Co

An action for the recovery of the amount deducted was

Defendant company was ordered by the CFI to pay the FACTS:

RULING: - Petitioner argued that immediately after the loan

Pacific Banking Corp. vs. Intermediate Appellate

RULING: SOLIDARY. RULING:

A argued that e argued that as a solidary creditor he could

Issue: W/N the petitioner was a guarantor

Distinctions as discussed in this case:

The supreme court of Spain, in a judgment rendered on ISSUES

FACTS: “That Whereas, ASSIGNOR has an outstanding

1) It is provided under their contractual agreement: Rayos vs. Reyes

ISSUE: (relevant) It should be recalled that one of the requisites of

An option is a continuing offer or contract by which the Rescission of contract

Unsatisfied, Velasco instituted this present civil case for Facts:

The court ordered the defendant to pay plaintiff

ISSUE BPI vs. CA, et.al

Issue: Diongzon vs. Court of Appeals

Characteristics: Mutuality Characteristics: Relativity

GSIS v. CA Manila Railroad Co. v. La Compana Transatlantica

ISSUE: (1) Is the Steamship Company liable to the (3) NO.

RULING: NO. The stipulation in question is contrary to

In this case, the word ‘entertain’ applied to an act does

Vices of consent: Mistake or error

There is fraud when, through the insidious words or

Moreover, evidence willfully suppressed is presumed to

Article 1332 was intended for the protection of a party to FACTS:

Next, the bank had other means to verify plaintiff’s RULING:

Ruling: No. Fraud is never lightly inferred; it is good faith FACTS:

The idea of allowing a repurchase goes along the same

Art 1356: contracts shall be obligatory in whatever form

The trial court dismissed the case due to prescription.

INTERPRETATION OF CONTRACTS (Compare with

RULING: YES. Stipulation is valid.

The 2nd contract which is the verbal contract of

2) Kasilag is in Good Faith:

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