OBLICON CASES BATCH 2 RULING: NO.
RULING: NO. Under article 1245 of the Civil Code, there is dation in payment when property is
CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS
SECTION 1. PURE AND CONDITIONAL OBLIGATIONS
1 NUNEZ V MOISES-PALMA
FACTS: Vicentico Nuñez is the owner of a 429 square meters lot. In may 1992, he borrowed money
from Rosita Moises with the amount of 30,000 pesos, and as security for the loan, they executed a real
estate mortgage involving the property of Vicentico. Since Rosita had no money, the funds that were
used were Norma’s money, Rosita’s daughter. Petitioner’s alleged that the 30,000 pesos loan was
already paid as evidenced by the Affidavit Authorizing Release of Mortgage. Upon the death of
Vicentico on September 27, 1994, the subject lot was transmitted to his heirs, namely the petitioners,
and his surviving spouse, Placida Nuñez. However, Placida died 3 years later and her shares were
inherited equally by her heirs.
On June 28, 1995, Norma was able to make the petitioners, except Alden, to sign a Deed of
Adjudication and Sale, where petitioners allegedly sold their respective pro indiviso shares in the
subject lot to Norma for 50,000 pesos. Norma, immediately took possession of the subject lot after the
execution of the DAS.
Instead of paying cash, she executed and promissory note (PN) in favor or petitioners, whereby she
obligated herself to pay 50,000. Also, she executed an acknowledgment of debt (AOD) whereby she
admitted that she owed petitioners 50,000 representing the purchase price of the DAS.
Despite non-payment of the purchase price and absence of Alden’s signature on the DAS, she still
proceeded with registering the said document to the register of deeds of Capiz.
Alden sought to annul the TCT and wants to declare the DAS null and void. However, during the
pendency of the case, Norma and Alden reached a compromise agreement with respect to the share of
Alden in the subject lot.
The petitioners, represented by their brother and their attorney in fact Alden, filed against Norma a case
for Declaration of Nullity of Deed of Adjudication and Sale, Cancellation of TCT No. T-35460, Recovery
of Ownership and/or Possession of Lot No. 2159-A and Damages before the MTC. The MTC ruled in
favor of siblings Nuñez saying that the DAS was null and void because the respondent never paid the
purchase price to the petitioners. Norma appealed the decision with the RTC. The RTC ruled in favor of
Norma and said that the DAS was valid because there was constructive delivery of the subject lot right
after the execution of the Deed of Adjudication, showing transfer of ownership. Nuñez appealed the
case before the CA. The CA affirmed the RTC’s decision but said that it was not a contract of sale but a
dacion en pago.
Petitioners elevated the case to the SC as a question of law under rule 45 because the decision of RTC
and CA are divergent.
ISSUE/S:
(1) W/N then the transaction between the parties is a dacion in payment or dacion en pago. (2) W/N the
ownership of the property has been transferred to Norma despite the non-payment of the P50,000?
alienated to the creditor in satisfaction of a debt in money and is governed by the law of sales. There is
preponderant evidence that supports the finding that the DAS was not intended by the parties to be a
dacion in payment. And even in assuming that the DAS was a dacion in payment, the documents
subsequently executed had the effect of novating the same.
Under Art. 1291 of the Civil Code, obligations may be modified by: (1) changing their object or physical
conditions; (2) substituting the person of the debtor; and (3) subrogating a third person in the rights of
the creditor.
When Norma executed the PN, AOD and Compromise Agreement, she was acknowledging that the
principal condition or stipulation on the payment of the purchase price in the DAS had been modified
from the offset or cancellation of Vicentico's indebtedness secured by the REM, without which would
have amounted to a dation in payment, to a loan payable within a certain period, which converted the
transaction to a sale on credit.
Given the foregoing, the CA erred in its finding that the transaction between the parties is a dation in
payment or dacion en pago. The MTC and RTC were, therefore, correct in considering the transaction
as a contract of sale.
Pursuant to Article 1458 of the Civil Code, a contract of sale is a reciprocal obligation to give; and the
prestation or obligation of the seller or vendor is "to transfer the ownership of and to deliver a
determinate thing" while the prestation or obligation of the buyer or vendee is "to pay therefor a price
certain in money or its equivalent." The full payment of the purchase price is the buyer's prestation. The
non-payment of the purchase price by the buyer after the seller has delivered the object of the sale to
the buyer constitutes a breach of the buyer's prestation in a contract of sale. The buyer has contravened
the very tenor of the contract.
2 FEDERAL EXPRESS V ANTONIO
FACTS: Eliza was the owner of Unit 22-A in Allegro Condominium, located at New York, United States.
In November 2003, monthly common charges on the Unit became due for the period of July 2003 to
November 2003, and were for a total amount of US$9,742.81. On December 15, 2003, while Luwalhati
and Eliza were in the Philippines, they decided to send several Citibank checks, amounting to
US$17,726.18 for the payment of monthly charges and US$11,619.35 for the payment of real estate
taxes to Veronica Z. Sison, who was based in New York and such were sent by Luwalhati through
FedEx. The package was addressed to Sison who was tasked to deliver the checks payable to
Maxwell- Kates, Inc. and to the New York County Department of Finance.
Sison allegedly did not receive the package, resulting in the non-payment of Luwalhati and Eliza’s
obligations and the foreclosure of the Unit. Upon learning that the checks were sent on December 15,
2003, Sison contacted FedEx to inquire about the non-delivery. She was informed that the package was
delivered to her neighbor but there was no signed receipt.
On March 14, 2004, Luwalhati and Eliza sent a demand letter to FedEx for payment of damages due to
the non-delivery of the package, but FedEx refused to heed their demand. Hence, on April 5, 2004, they
filed their Complaint for damages.
As for FedEx defenses, it claimed that Luwalhati and Eliza “had no cause of action against it because
they failed to comply with a condition precedent, that of filing a written notice of claim within the 45
calendar days from the acceptance of the shipment.” It added that it was absolved of liability as
Luwalhati and Eliza shipped prohibited items and misdeclared these items as “documents.” It pointed to
conditions under its Air Waybill prohibiting the “transportation of money”.
The Regional Trial Court ruled for Luwalhati and Eliza. The Court of Appeals affirmed the ruling of the
RTC.
ISSUE: W/N petitioner Federal Express Corporation may be held liable for damages on account of its
failure to deliver the checks shipped by respondents Luwalhati R. Antonino and Eliza Bettina Ricasa
Antonino to the consignee Veronica Sison.
RULING: Yes, petitioner may be held liable for damages on account of its failure to deliver the checks
shipped by respondents to the consignee.
SUBSTANTIAL COMPLIANCE TO THE PROVISION OF CONTRACT OF CARRIAGE
The provision in a contract of carriage requiring the filing of a formal claim within a specified period is a
valid stipulation. Jurisprudence maintains that compliance with this provision is a legitimate condition
precedent to an action for damages arising from loss of the shipment. The fundamental reason or
purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that
the shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury.
For their claim to prosper, respondents must, thus, surpass two hurdles: the filing of their formal claim
within 45 days; and the subsequent filing of the action within two years.
There is no dispute on respondents’ compliance with the second period as their Complaint was filed on
April 5, 2004.
For the former, the Supreme Court is guided by settled standards in the case of PAL v. CA:
“xxx there was substantial compliance with the period because of the zealous efforts demonstrated by
Mejia in following up her claim. These efforts coupled with Philippine Airlines’ “tossing around the claim
and leaving it unresolved for an indefinite period of time” led the Supreme Court to deem the requisite
period satisfied.
This is pursuant to Article 1186 of the New Civil Code which provides that “the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment.”
Luwalhati showed ardent campaign in following up the claim. It is beyond her control why the demand
letter for damages was only sent subsequent to her infuriating follow-ups regarding the whereabouts of
the said package. Petitioner has been unable to persuasively refute Luwalhati’s recollection of the
efforts that she and Sison exerted, and of the responses it gave them. It instead insists that the 45-day
period stated in its Air Waybill is inviolable. It is one with the RTC and the CA in stressing that
respondents’ inability to expediently file a formal claim can only be attributed to petitioner hampering its
fulfillment. Thus, respondents must be deemed to have substantially complied with the requisite 45-day
period for filing a formal claim.
3 PLAZO V LIPAT
FACTS: Lipat Sr, as represented by Lipat Jr executed a Contract to Sell Agreement in favor of Felix
Plazo Urban Poor Settlers Assn, petitioner, whereby the former agreed to sell two parcels of land in
Naga City for a consideration of 200 pesos per square meters. The parties stipulated that Felix Plazo
has 90 days to pay the purchase price and failure to do so will automatically terminate the contract to
sell agreement. Furtheremore, it was also stipulated that the subject properties be cleared from all
claims of third persons. Felix Plazo failed to pay within the stipulated price. Felix rendered financial
assistant for litigation against the claims of third persons despite the fact that the within was already
expired. Felix demanded to transfer the subject lots in their favor but Lipat declined due to the fact of
expiration of the 90 days period. Felix filed specific performance to execute the contract to sell
agreement. The Regional Trial Court rendered decision in his favor. However, the Court of Appeals
reversed the decision of the trial court.
ISSUE: Whether or not the contract to sell should be executed despite of the fact that the 90 days
period was already expired?
RULING: No. The parties are bound to the stipulations they mutually agreed upon in the Contract to
sell. Indeed, the contract executed by the parties is the law between them. Consequently, from the time
the contract is perfected, all parties privy to it are bound not only to the fulfillment of what has been
expressly stipulated but likewise to all consequences which, according to their nature, may be in
keeping with good faith, usage and law. In this case, the contract is in nature of contract to sell. The
obligation of the seller to sell becomes demandable only upon the occurrence of suspensive condition.
The suspensive condition here is the payment in full of the purchase price by the petitioner prior to the
expiration of the 90 day stipulation period. The petitioner did not pay the full purchase price which its
obligation under the contract. As the payment of the full purchase price is a positive suspensive
condition the nonfulfillment of which prevents the perfection of the contract, it is indubitable that the
contract to sell is ineffective, and without force and effect.
4 PROVINCE OF CAMARINES SUR V BODEGA GLASSWARE
FACTS: Petitioner is the registered owner of a parcel of land in Naga City. Through then Provincial
Governor Maleniza, petitioner donated around 600 sqm of the land to the Camerines Sur Teacher’s
Association, Inc (CASTEA) through a Deed of Donation. The said deed of donation included an
automatic revocation clause which states that the Donee shall use the portion of land for no other
purpose except the construction of its building to house its offices to be used by the said CASTEA; the
done shall not sell, mortgage or incumber the property otherwise the donation shall be deemed
automatically revoked and voided and of no further force and effect.
CASTEA accepted the donation and complied with the conditions stated in the deed. But in 1995,
CASTEA entered into a Contract of Lease with Bodega over the donated property. CASTEA leased the
property to Bodega for a period of 20 years commencing on Sept 1, 1995 to Sept 15, 2015. Bodega
took actual possession of the property on Sept 1, 1995.
In 2005, the Office of the Provincial Legal Officer wrote Bodega regarding the building it built on the
property. Bodega failed to show proof of ownership. Petitioner left Bodega undisturbed and merely
tolerated its possession of the property. In 2007, petitioner send a letter demanding Bodega to vacated
the property. Bodega refused to comply. Thus, through then Provincial Governor Villafuerte Jr, the
petitioner revoked its donation through a Deed of Revocation of Donation. It asserted that CASTEA
violated the conditions in the Deed of Donation when it leased the property to Bodega, invoking the
automatic revocation clause of the Deed of Donation.
The petitioner filed an action for unlawful detainer against Bodega before the MTC Naga City. It prayed
that Bodega be ordered to vacate the property and surrender to petitioner its peaceful possession. The
MTC ruled in favor of the petitioner. Bodega appealed to the RTC of Naga City which reversed the MTC
decision. Petitioner went up on appeal to the CA which affirmed the decision of the RTC. The CA held
that petitioner cannot demand Bodega to vacate the property. CA explained that Bodega’s possession
of the property is based on its Contract of Lease with CASTEA. CASTEA, in turn, claims ownership of
the property by virtue of the Deed of Donation. According to. the CA, while petitioner alleges that
CASTEA violated the conditions of the donation and thus, the automatic revocation clause applies, it
should have first filed an action for reconveyance of the property against CASTEA. The CA theorized
that judicial intervention is necessary to ascertain if the automatic revocation clause suffices to declare
the donation revoked. CA also found that petitioner’s action has already prescribed.
ISSUE: Who between petitioner and Bodega has the right to the actual physical possession of the
property
RULING: We shall rule on the effect of the automatic revocation clause for the purpose of ascertaining
who between petitioner and Bodega has the right to possess the property. In this case, the Deed of
Donation contains a clear automatic revocation clause.
The provision identifies three conditions for the donation: (1) that the property shall be used for "no
other purpose except the construction of its building to be owned and to be constructed by the above-
named DONEE to house its offices to be used by the said Camarines Sur Teachers' Association, Inc., in
connection with its functions under its charter and bylaws and the Naga City Teachers' Association as
well as the Camarines Sur High School Alumni Association," (2) CASTEA shall "not sell, mortgage or
incumber the property herein donated including any and all improvements thereon in favor of any party,"
and (3) "the construction of the building or buildings referred to above shall be commenced within a
period of one (1) year from and after the execution." The last clause of this paragraph states that
"otherwise, this donation shall be deemed automatically revoked x x x."50 We read the final clause of
this provision as an automatic revocation clause which pertains to all three conditions of the donation.
When CASTEA leased the property to Bodega, it breached the first and second conditions.
Accordingly, petitioner takes the position that when CASTEA leased the property to Bodega, it violated
the conditions in the Deed of Donation and as such, the property automatically reverted to it. It even
executed a Deed of Revocation. Thus, as petitioner validly considered the donation revoked and
CASTEA never contested it, the property donated effectively reverted back to it as owner. In demanding
the return of the property, petitioner sources its right of possession on its ownership. Under Article 428
of the Civil Code, the owner has a right of action against the holder and possessor of the thing in order
to recover it.
This right of possession prevails over Bodega's claim which is anchored on its Contract of Lease with
CASTEA.1âwphi1 CASTEA's act of leasing the property to Bodega, in breach of the conditions stated in
the Deed of Donation, is the very same act which caused the automatic revocation of the donation.
Thus, it had no right, either as an owner or as an authorized administrator of the property to lease it to
Bodega. While a lessor need not be the owner of the property leased, he or she must, at the very least,
have the authority to lease it out.51 None exists in this case. Bodega finds no basis for its continued
possession of the property.
5 NISSAN CAR V LICA
FACTS: Lica Management, Inc. (LMI) owns a property leased to Nissan Car Lease Phils., Inc. (Nissan)
for ten years. On June 24, 1994, they entered a lease contract with a monthly rent of ₱308,000.00 and
a ten percent (10%) annual escalation rate. Nissan allowed its subsidiary, Nissan Smartfix Corporation
(NSC), to use the premises with LMI’s consent. However, Nissan became delinquent in paying monthly
rent.
In May 1996, Nissan and LMI verbally agreed to settle arrears through a promissory note and postdated
checks. While Nissan delivered the postdated checks, it failed to sign the promissory note and pay
checks for June to October 1996. LMI terminated the lease on October 16, 1996, due to arrears,
demanding ₱2,651,570.39 for unpaid rentals and vacating the premises within five (5) days. Meanwhile,
Nissan entered a Memorandum of Agreement with Proton for renovation work.
In response, Nissan, through counsel, acknowledged arrears but claimed no intention to abandon the
lease. LMI filed a Complaint for sum of money with damages. The trial court ruled in favor of LMI,
finding Nissan in violation of the lease contract. The Court of Appeals affirmed with modification.
ISSUE: Whether LMI had the right to extrajudicially rescind the lease contract with Nissan, considering
the absence of an express provision allowing such action in their agreement.
RULING: Yes. Despite the absence of a specific provision for extrajudicial rescission, the court held that
LMI had the right to rescind the contract under Article 1191 of the Civil Code. This article implies the
power to rescind reciprocal obligations when one party fails to fulfill its duties. The court clarified that a
party can extrajudicially rescind a contract to protect its interests, even without a contractual provision.
However, such rescission is subject to possible court review, and the rescinding party may be held
liable for damages if challenged in court. In this case, the court found Nissan in breach due to non-
payment of rent and unauthorized sublease, justifying LMI's rescission. Therefore, the court denied
Nissan's petition.
6 PEZA V PHILHINO SALES
FACTS: Philippine Economic Zone Authority published an invitation to bid for its acquisition of two (2)
brand new fire truck units. Pilhino secured the contract for P2,900,000.00 per truck and was to deliver
the fire trucks within 45 days of receipt of a purchase order. The contract stipulated that "in case of
failure to deliver the goods on the date specified, the Supplier agrees to pay a penalty at the rate of 1/10
of 1% of the total contract price for each day commencing on the first day after the date stipulated. After
the purchase order was furnished, Pilhino failed to deliver the trucks and this prompted the petitioner to
make formal demands. As respondent still failed to comply, petitioner filed a complaint for rescission of
contract and damages.
The RTC ruled in favor of petitioner and ordering the latter to pay liquidated damages and declared the
rescission of the contract. CA modified the order by pegging the liquidated damages in the amount of
P1,400,000 because upon the failure to deliver the goods, petitioner has not yet paid any amount to
respondent. Petitioner moved to reinstate the award of the RTC. Respondent argued that rescission of
the contract nullifies the liquidated damages, thus no liability for the same.
ISSUE: WON a rescinded contract carries with it the obliteration of the liability for the stipulated
liquidated damages
RULING: No. Mutual under Article 1191 is no license for the negation of contractually stipulated
liquidated damages. Article 1191 itself clearly states that the options of rescission and specific
performance come with "with the payment of damages in either case." The very same breach or delay
in performance that triggers rescission is what makes damages due.
When the contracting parties, by their own free acts of will, agreed on what these damages ought to be,
they established the law between themselves. Their contemplation of the consequences proper in the
event of a breach has been articulated. When courts are, thereafter, confronted with the need to award
damages in tandem with rescission, courts must not lose sight of how the parties have explicitly stated,
in their own language, these consequences. To uphold both Article 1191 of the Civil Code and the
parties' will, contractually stipulated liquidated damages must, as a rule, be maintained.
7 GOTESCO PROPERTIES V SPOUSES FAJARDO
FACTS: Respondent-spouses Fajardo entered into a Contract to Sell of a certain lot located at
Novaliches, Caloocan City with petitioner-corporation Gotesco Properties, Inc. (GPI). The subject lot is a
portion of a bigger lot. Under the contract, Sps. Fajardo undertook to pay the purchase price within a
10-year period, including interest. GPI, on the other hand, agreed to execute a final deed of sale deed in
favor of Sps. Fajardo upon full payment of the stipulated consideration. However, despite its full
payment and subsequent demands, GPI failed to execute the deed and to deliver the title and physical
possession of the subject lot. Thus, Sps. Fajardo filed a complaint against GPI and the members of its
Board of Directors (individual petitioners). Sps. Fajardo averred that GPI failed to construct and provide
developments and facilities for the subdivision project; it failed to provide boundary marks for each lot
and that the mother title including the subject lot had no technical description. They thus prayed that
GPI be ordered to execute the deed, to deliver the corresponding certificate of title and the physical
possession of the subject lot within a reasonable period, and to develop Evergreen Executive Village; or
in the alternative, to cancel and/or rescind the contract and refund the total payments made plus legal
interest. Petitioners maintained that at the time of the execution of the contract, Sps. Fajardo were
actually aware that GPI's certificate of title had no technical description inscribed on it. Nonetheless, the
title to the subject lot was free from any liens or encumbrance. Petitioners claimed that the failure to
deliver the title to Sps. Fajardo was beyond their control because their petition for inscription of technical
description was dismissed by the CA; this caused the delay in the subdivision of the property into
individual lots with individual titles. Given the foregoing incidents, petitioners thus argued that Article
1191 of the Civil Code (Code) – the provision on which Sps. Fajardo anchor their right of rescission –
remained inapplicable since they were actually willing to comply with their obligation but were only
prevented from doing so due to circumstances beyond their control.
ISSUE: Whether or not the respondents have the right to rescind the contract.
RULING: YES. It is settled that in a contract to sell, the seller's obligation to deliver the corresponding
certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price. In
the present case, petitioners failed to sufficiently explain why GPI took no positive action to cause the
immediate filing of a new petition for inscription within a reasonable time from notice of the CA Decision
which dismissed GPI’s earlier petition based on technical defects, this notwithstanding spouses
Fajardo's full payment of the purchase price and prior demand for delivery of title. Clearly, the long
delay in the performance of GPI's obligation from date of demand was unreasonable and unjustified.
This accords spouses Fajardo the right to rescind the same pursuant to Article 1191 of the Civil Code.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
8 GARCIA V CA
FACTS: In May 1993, Spouses Garcia, Spouses Galvez, and Emerlita Dela Cruz entered a Contract to
Sell for five parcels of land in Tanza, Cavite, with a total purchase price of ₱3,170,220. Sps Garcia and
Sps Galvez failed to pay the last installment on December 31, 1993. Despite attempting to settle the
balance in July 1995, Dela Cruz refused their payment. Subsequently, on September 23, 1995, Dela
Cruz sold the same land to Diogenes Bartolome for ₱7,793,000.
Sps Garcia and Sps Galvez filed a complaint for specific performance, claiming the Deed of Absolute
Sale was spurious. Dela Cruz argued non-payment and sent a rescission notice, but it was returned as
"insufficient address." Intervenor Bartolome asserted the contract was rescinded due to non-payment,
and he acquired the land from Dela Cruz.
The trial court ruled against Dela Cruz's rescission, citing the Maceda Law, and found Sps Garcia and
Sps Galvez justified in withholding payment. The CA reversed this decision, stating Dela Cruz's
obligation did not arise due to non-payment. It also emphasized that judicial action for rescission is
unnecessary when the contract allows revocation for violation of terms. Bartolome was considered not a
purchaser in good faith due to his awareness of the prior dispute.
ISSUE: WON Dela Cruz can be compelled to accept the full payment and execute the corresponding
Deed of Absolute Sale.
RULING: NO. Contracts are law between the parties, and they are bound by its stipulations. It is clear
from the above-quoted provisions that the parties intended their agreement to be a Contract to Sell:
Dela Cruz retains ownership of the subject lands and does not have the obligation to execute a Deed of
Absolute Sale until petitioners payment of the full purchase price. Payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Strictly speaking, there can be no rescission or
resolution of an obligation that is still non-existent due to the non-happening of the suspensive
condition. Dela Cruz is thus not obliged to execute a Deed of Absolute Sale in petitioners favor because
of petitioners failure to make full payment on the stipulated date. Maceda Law was misapplied in the
case as the subject property does not comprise residential real estate as contemplated by such law.
Further the offer to pay is beyond the 60-day grace period under Sec 4 of the Maceda Law. The
applicable provision of law in instant case is Article 1191 of the New Civil Code which makes available
to the injured party alternative remedies such as the power to rescind or enforce fulfillment of the
contract, with damages in either case if the obligor does not comply with what is incumbent upon him.
There is nothing in this law which prohibits the parties from entering into an agreement that a violation
of the terms of the contract would cause its cancellation even without court intervention. It is undeniable
that petitioners failed to pay the balance of the purchase price on the stipulated date of the Contract to
Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome.
9 UNIVERSAL FOODS CORPORATION VS CA
FACTS: Magdalo V. Francisco, Sr. discovered a formula for Mafran sauce and registered it as a
trademark. He entered into a contract with Universal Food Corporation, transferring the use of the
formula to the corporation in exchange for a royalty payment. The contract also stated that Francisco
would be appointed as the Second Vice President and Chief Chemist of the corporation on a permanent
basis. However, the corporation later dismissed Francisco from his position without justifiable cause.
Francisco filed a complaint for rescission of the contract, seeking the return of the trademark and
formula, payment of his unpaid salary, and damages. The Court of Appeals ruled in favor of Francisco
and ordered the rescission of the contract.
ISSUE: Whether the contract between Francisco and Universal Food Corporation should be rescinded.
RULING: YES. Under Art 1191, the power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him, the injured party may choose
between fulfillment and rescission of the obligation, with payment of damages in either case. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental breach as would defeat the very object of the parties in making the
agreement. Rescission is a subsidiary remedy which cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same. In this case the dismissal
of the respondent patentee Francisco, Sr. as the permanent chief chemist of the corporation is a
fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option to demand performance or
ask for rescission of a contract belongs to the injured party, the fact remains that the Francisco had no
alternative but to file the present action for rescission and damages.
10 SONG FO AND CO V HAWAIIAN-PHIL CO
FACTS: Hawaiian-Philippine Co (HPC) entered into a contract with Song Fo and Co (SFC) where it
would deliver molasses to the latter evidenced by a letter containing their contract. The same states that
Mr. Song Fo agreed to the delivery of 300,000 gallons of molasses and the same requested for an
additional 100,000 molasses which the HPC promised that it will do its best to comply with the
additional shipment. However, the HPC was only able to deliver 55,006 gallons. SFC thereafter filed a
complaint with two causes of action for breach of contract against the HPC and asked for P70,369.50.
HPC answered that there was a delay in the payment from SFC and that HPC has the right to rescind
the contract because of the same· The trial court condemned HPC to pay SFC a total of P35,317.93,
with legal interest.
ISSUE: Does HPC have a right to rescind the contract?
RULING: NO.HPC has no right to rescind the contract. The court provided that the general rule is that
rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches
as are so substantial and fundamental as to defeat the object of the parties in making the agreement. It
should be noted that the time of payment stipulated for in the contract should be treated as of the
essence of the contract. There was only a slight breach of contract when the payment was delayed for
20 days and does not violate essential condition of the contract which warrants rescission for non-
performance. Furthermore, HPC accepted the payment of the overdue accounts and continued with the
contract, waiving its right to rescind the same. Petition of partly granted, and the judgment appealed is
modified. Plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest from
date of judgment, no special costs.
11 SECURITY BANK & TRUST COMPANY AND ROSITO MANHIT V CA AND YSMAEL FERRER
FACTS: Private respondent Ysmael C. Ferrer entered into a contract with petitioners Security Bank and
Trust Company (SBTC) and Rosito C. Manhit to construct a building in Davao City for P1,760,000.00.
Although Ferrer completed the construction within the agreed timeframe, he faced increased
construction material costs, resulting in additional expenses of approximately P300,000.00. Ferrer
notified SBTC of these additional costs, supported by documents. SBTC, after verification,
recommended settling Ferrer's claim for P200,000.00, but SBTC denied authorizing any payment
beyond the original contract price. SBTC argued that, under Article IX of the building contract, any
increased cost must be mutually agreed upon for payment. As no mutual agreement occurred, SBTC
claimed no obligation to pay beyond the original contract price. Ferrer filed a complaint for breach of
contract with damages, which the trial court and the Court of Appeals both ruled in favor of Ferrer.
ISSUE: Whether or not petitioners are liable to pay for the increased construction cost.
RULING: Yes, petitioners are liable to pay for the increased construction cost.
It is not denied that private respondent incurred additional expenses in constructing petitioner bank’s
building due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted
liability for increased cost when a recommendation was made to settle private
respondent’s claim for P200,000.00. Private respondent’s claim for the increased amount was
adequately proven during the trial by receipts, invoices and other supporting documents.
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon
the sole will of the debtor.
In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support
its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank’s
sole will, since private respondent would naturally and logically give consent to such an agreement
which would allow him recovery of the increased cost.
Further, it cannot be denied that petitioner bank derived benefits when private respondent completed
the construction even at an increased cost.
Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private
respondent. Such unjust enrichment is not allowed by law.
12 GONZALES V HEIRS OF THOMAS
FACTS: On December 1, 1983, Paula Año Cruz together with the plaintiffs, heirs of Thomas and Paula
Cruz, namely Ricardo A. Cruz, Carmelita M. Cruz, Salome A Cruz, Irenea C. Victoria, Leticia C.
Salvador and Elena C. Talens, entered into a Contract of Lease/Purchase with the defendant, Felix L.
Gonzales, the owner and manager of Felgon Farms, of a half-portion of a parcel of land situated in
Rodriguez Town, Province of Rizal.
The defendant Gonzales paid the P2,500.00 per hectare of P15,000.00 annual rental on the half-portion
of the land and thereafter took possession of the property. However, the defendant did not exercise his
option to purchase the property immediately after the expiration of the one-year lease on November 30,
1984. He remained in possession of the property without paying the purchase price provided for in the
Contract of Lease/Purchase and without paying any further rentals.
Letters were sent by the plaintiff/heirs informing Gonzales of their decision to rescind the contract and
ordered him to vacate the premises. Yet, Gonzales did not heed. As a result, the plaintiffs filed a
complaint for recovery of possession of the property alleging breach of the provisions of the Contract of
Lease/Purchase. Alleging breach of paragraph nine of the Contract of Lease/Purchase and the payment
of P50,000.00 of the P500,000.00, from the P1,000,000.00 purchase price,the defendant prayed for a
dismissal of the complaint filed against him.
The trial court dismissed the petition on the basis that the plaintiffs cannot terminate the Contract of
Lease due to their failure to notify the defendant in due time of their intention to that effect. Nor can they
rescind the Contract of Purchase in view of the fact that there is a condition precedent which the
plaintiffs have not fulfilled. The Court of Appeals reversed the decision finding the trial court’s
interpretation of the provision wrong, stating that the transfer of title to the property in the appellee's
name cannot be interpreted as a condition precedent to the payment of the agreed purchase price
because such interpretation not only runs counter to the explicit provisions of the contract but also is
contrary to the normal course of things anent the sale of real properties.
ISSUE: Whether or not paragraph 9 of the Lease/Purchase Contract a condition precedent before
petitioner could exercise his option to buy the property
RULING: YES, the clear intent of the ninth paragraph was for respondents to obtain a separate and
distinct TCT in their names. This was necessary to enable them to show their ownership of the
stipulated portion of the land and their concomitant right to dispose of it. Absent any title in their names,
they could not have sold the disputed parcel of land.
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold. In
this case, the respondent could not deliver ownership or title to a specific portion of the yet undivided
property. True, they could have intended to sell their hereditary interest, but in the context of the
Contract of Lease/Purchase, the parties under paragraph nine wanted the specific portion of the land to
be segregated, identified and specifically titled.
The petitioner’s obligation to purchase the land is a conditional one and is governed by Article 1181 of
the Civil Code. Hence, by the said Contract, the respondents as sellers were given a maximum of four
years within which to acquire a separate TCT in their names, preparatory to the execution of the deed of
sale and the payment of the agreed price in the manner described in paragraph nine.
13 CORONEL V CA
FACTS: Romulo A Coronel, Alarico A Coronel, Annette A Coronel, Annabelle C Gonzales, Cielito A
Coronel, Floraida A Almonte and Catalina Balais Mabanag petitioners entered into a contract of sale
with Concepcion D Alcaraz and Ramona Patricia Alcaraz respondents for a parcel of land in Quezon
City. The contract was subject to the condition that the sellers would transfer the title to the property to
their names and execute a deed of absolute sale upon receipt of the down payment. The sellers
fulfilled the condition and transferred the title to their names on February 6, 1985. However, the sellers
later sold the same property to Catalina B Mabanag on February 18, 1985. The second sale was
registered and a new title was issued to Mabanag’s name on June 5, 1985. The respondents filed a
complaint for specific performance to compel the sellers to execute the deed of absolute sale and
delivery of the property. The trial court ruled in favor of the respondents, which was affirmed by the
court of appeals.
ISSUE: Whether there was a valid contract of sale between the petitioners and respondents.
RULING: The Court affirmed the ruling of the lower courts and held that there was a valid contract of
sale between the petitioners and respondents.
Ratio:
A contract of sale is a consensual contract that is perfected by the mere consent. The essential
elements of a contract of sale are consent, determinate subject matter, and price certain in money or its
equivalent. A contract to sell is different from a conditional contract of sale. In a contract to sell, the
seller reserves the transfer of title to the buyer until the full payment of the purchase price. In a
conditional contract of sale, the seller may reserve title to the property until the fulfillment of a
suspensive condition. If the suspensive condition is not fulfilled, the contract of sale is completely
abated. If the suspensive condition is fulfilled, the contract of sale is perfected. In this case, the sellers
explicitly agreed to transfer ownership of property to the buyer upon fulfillment of the condition of
transferring the title to their names. The condition was fulfilled on February 6, 1985 and the contract of
sale became due and demandable at that time. The sellers are precluded from denying ownership of
the property at the time of the sale because they represented themselves as the true owners of the
property at that time. The alleged absence of the buyers is not a ground for rescission of the contract of
sale. The sellers did not have the authority to unilaterally rescind the contract without
express stipulation authorizing them to do so. The second buyer cannot be considered a buyer in good
faith because she registered the sale after the notice of lis pendens was already annotated on the title.
The first buyer’s rights preval over the second buyer’s rights.
14 PARKS V PROV OF TARLAC
FACTS: Oct. 18, 1910: Cirer & Hill donated their land (Land No. 2) perpetually to the Municipality of
Tarlac w/certain conditions stipulated in a public document. Conditions were: 1) it will be used
absolutely & exclusively for the erection of a central school & public park and 2) work will commence
6mos from the date of the ratification of the document. Donation was accepted by Mr. De Jesus,
municipal president. Land was registered in the name of the municipality.
Jan. 15, 1921: Cirer & Hill sold the same parcel of land to Parks.
Aug. 24, 1923: municipality transferred ownership of the land to the province of Tarlac.
Parks filed this case claiming that he was the lawful owner of the land. According to him, the
municipality failed to comply w/the conditions thus, Cirer & Hill sold the land to him. He prayed for the
annulment of the transfer of ownership. Lower court dismissed Parks' complaint.
ISSUE/S:
WON Parks has a right of action.
WON the conditions in the donation were conditions precedent (suspensive).
WON non-compliance w/condition subsequent (resolutory) would be sufficient cause to revoke the
donation.
RULING:
NO. Although the donation might have been revoked, such was not done when Cirer & Hill sold the land
to Parks. Revocation should either be consented to by the donee (municipality) or be judicially decreed.
When the spouses sold the land, they were no longer the owners of said land.
NO. Condition Precedent: acquisition of the right is not effected while said condition is not complied with
or is not deemed complied with. A condition is not suspensive when compliance of w/c cannot be
effected except when the right is deemed acquired. In this case, donation was already in effect since
the conditions could only be complied with after giving effect to the donation. Otherwise, it would have
been an invasion of another's property (donor). If the conditions were suspensive, the donor would have
continued to be the owner so long as the condition imposed was not complied with.
YES. Prescribed.
YES, however period for bringing the action has already prescribed.
a. Revocation by subsequent birth of children: 5yrs.
b. Revocation by reason of ingratitude: 1 yr.
c. Non-compliance of conditions of donation (considered as onerous thus there's no special
period as per CC Art. 647), law of contracts & general rules of prescription governs: 10 yrs. (Code of
Civ. Procedure, Sec. 43)
In this case, cause of action arose on April 19, 1911 (6mos after Oct. 18, 1910 or when the donation
was made as per the condition that work should begin w/in 6mos after document's ratified). Case was
filed on July 5, 1924 w/c is more than 10 years after the cause accrued.
Holding: Lower court decision affirmed.
15 CENTRAL PHILIPPINES V CA
FACTS: In 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of
the Central Philippine College (now Central Philippine University, CPU), executed a deed of donation in
favor of the latter (CPU). A parcel of land was issued in the name of the donee CPU with the following
annotations copied from the deed of donation:
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a
medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said
land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under
obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks
shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building thereon.
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the
time the action was filed the latter had not complied with the conditions of the donation.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation
and declared it null and void. CA ruled that the annotations at the back of petitioner's certificate of title
were resolutory conditions breach of which should terminate the rights of the donee thus making the
donation revocable. CA also found that while the first condition mandated petitioner to utilize the
donated property for the establishment of a medical school, the donor did not fix a period within which
the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply with its part of the bargain. It reversed
RTC decision.
ISSUE/S: 1. W/N there exists onerous obligations and resolutory conditions of the donation which must
be fulfilled non-compliance of which would render the donation revocable? 2. Has the Action
prescribed? 3. Can court still fix the period since the condition depends upon the will of the debtor.
RULING: Yes. The donation was onerous. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation
was onerous, one executed for a valuable consideration which is considered the equivalent of the
donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. The
donation had to be valid before the fulfillment of the condition. If there was no fulfillment or compliance
with the condition, such as what obtains in the instant case, the donation may now be revoked and all
rights which the donee may have acquired under it shall be deemed lost and extinguished.
(2) The action has not prescribed. It has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute
of limitations from barring the action of private respondents upon the original contract which was the
deed of donation.
(3) Courts fixing a period is now moot and rescission is proper. Petitioner has slept on its obligation for
an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that petitioner as donee should now return the
donated property to the heirs of the donor, private respondents herein, by means of reconveyance.
Section 1. Pure and Conditional Obligations
APPLICABLE LAWS:
• Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the condition.
(1114)
• Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
• Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
(1128a)
16 QUIJADA V CA
FACTS: On April 5, 1956, Trinidad Quijada, together with her siblings, donated a two-hectare parcel of
land to the Municipality of Talacogon with the condition that the same shall be used solely and
exclusively as part of the campus of the proposed provincial high school. Subsequently, on July
29,1962, Trinidad sold the property to Regalado Mondejar.
Since the lot was never used for the school, the Sangguniang Bayan enacted a resolution in 1987
reverting the land back to the donors. In the meantime, Mondejar sold portions of it to several people.
The petitioners herein filed an action for the quieting of title, recovery of possession and ownership of
the lands alleging that Trinidad never sold the same as the land still belonged to the Municipality of
Talacogon.
The trial court decided in favor of the petitioners but the CA reversed the decision ruling that the sale
made by Trinidad was valid as she retained an inchoate interest by virtue of the automatic reversion
clause in the deed or donation.
ISSUE: WON the sale made by Trinidad was valid.
RULING: Yes. Ownership by the seller of the thing sold at the time of the perfection of the contract of
sale is not an element for its perfection. What the law requires is that the seller has the right to transfer
ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which
occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be
challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence
the sale is still valid. Wherefore the assailed decision of the Court of Appeals is AFFIRMED.
17 MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY V BENJAMIN TUDTUD
FACTS: The National Airports Corporation (NAC) filed a complaint for expropriation in order to expand
the Cebu Lahug Airport. It sought to acquire, by negotiated sale or expropriation, several lots adjoining
the then existing airport which included the parcels of land owned by the predecessors-in- interest of
respondents Benjamin Tudtud et al. NAC assured the owners that they would reacquire the land if it is
no longer needed by the airport.
The Court of First Instance of Cebu granted the expropriation. No structures related to the operation of
the Cebu Lahug Airport were constructed on the land expropriated. Respondent Lydia Adlawan (Lydia),
acting as attorney-in-fact of the original owners, sent a letter to the general manager of the petitioner
Mactan Cebu International Airport Authority (MCIAA), the new owner of the lot and demanded to
repurchase the lot at the same price paid at the time of the taking, without interest, no structures or
improvements having been erected thereon and the Cebu Lahug Airport having been closed and
abandoned, hence, the purpose for which the lot was acquired no longer existed.
As the demand remained unheeded, Lydia filed a complaint before the Regional Trial Court (RTC) of
Cebu City for reconveyance and damages against the MCIAA. The RTC of Cebu rendered judgment in
favor of Tudtud et al. MCIAA appealed to the Court of Appeals but it affirmed the RTC decision. MCIAA
then filed a Motion for Reconsideration but was denied.
ISSUE: W/N Tudtud et al. are entitled for the re-conveyance of the land expropriated.
RULING: Tudtud et al.’s witness respondent Justiniano Borga declared that the original owners did not
oppose the expropriation of the lot upon the assurance of the NAC that they would reacquire it if it is no
longer needed by the airport.
The rights and duties between the MCIAA and Tudtud et al. are governed by Article 1190 of the Civil
Code which provides: When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what they have
received.
In case of the loss, deterioration, or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article [Article 1189] shall be applied to the party who is bound to
return.
While the MCIAA is obliged to re-convey Lot No. 988 to Tudtud et al., they must return to the MCIAA
what they received as just compensation for the expropriation of Lot No. 988, plus legal interest to be
computed from default, which in this case runs from the time the MCIAA complies with its obligation to
the respondents. Tudtud et al., must likewise pay the MCIAA the necessary expenses it may have
incurred in sustaining Lot No. 988 and the monetary value of its services in managing it to the extent
that Tudtud et al., were benefited thereby.
Following Article 1187 of the Civil Code, the MCIAA may keep whatever income or fruits it may have
obtained from Lot No. 988, and Tudtud et al., need not account for the interests that the amounts they
received as just compensation may have earned in the meantime.
18 LIM V CA
FACTS: Records show that Francisco Lim, entered into a contract of lease with Benito Dy for a period
of 3 years, from 1976 to 1979. After the stipulated term expired the respondent refused to leave the
premises, so Francisco Lim filed an ejectment suit against Benito Dy. This case was then taken over by
a judicially approved compromise agreement which provides an automatic increase in rent of 20% every
3 years. On 1985 Dy, informed Lim of his intention to renew the lease up to 1988, Lim did not agree to
the renewal. In 1987 another ejectment suit was filed by Lim after the failure of Dy to vacate the
premises. It was dismissed by the RTC and later affirmed by the CA for the following reasons: (1) the
stipulation in the compromise agreement which allows the lessee (Benito Dy) to stay on the premises as
long as he needs it and can pay rents is valid, being a resolutory condition, and therefore beyond the
ambit of art 1308 of the NCC; and (2) the compromise agreement has the effect of res judicata.
ISSUE: W/N the stipulation in the compromise agreement which allows the lessee to stay on the
premises as long as he needs it and can pay rents is valid?
RULING: No, since the stipulation “for as long as the defendant needed the premises and can meet and
pay said increases” is a purely potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee. The continuance, effectivity, and fulfillment
of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of
the lessee between continuing payment of the rentals or not, completely depriving the owner of any say
in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the
lessor and the lessee.
19 SILOS V PNB
FACTS: Spouses Eduardo and Lydia Silos have been in the business for about two decades of
operating a department store and buying and selling of ready-to-wear apparel. Respondent PNB is a
banking corporation organized and existing under Philippine laws. Spouses Silos secured a revolving
credit line with Philippine National Bank (PNB) through a real estate mortgage as a security. After two
years, their credit line increased. Spouses Silos then signed a Credit Agreement which was also
amended two years later, and several Promissory Notes (PN) as regards their Credit Agreements with
PNB. The said loan was initially subjected to a 19.5% interest rate per annum. In the Credit
Agreements, Spouses Silos bound themselves to the power of PNB to modify the interest rate
depending on whatever policy that PNB may adopt in the future, without the need of notice upon them.
Thus, the said interest rates played from 16% to as high as 32% per annum. Spouses Silos acceded to
the policy by pre-signing a total of twenty-six (26) PNs leaving the individual applicable interest rates at
hand blank since it would be subject to modification by PNB. Spouses Silos regularly renewed and
made good on their promissory notes, religiously paid the interests without objection or fail. However,
during the 1997 Asian Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses
Silos’ 26th Promissory Note became past due, and despite repeated demands by PNB, they failed to
make good on the note. Thus, PNB foreclosed and auctioned the involved security for the mortgage.
Spouses Silos instituted an action to annul the foreclosure sale on the ground that the succeeding
interest rates used in their loan agreements was left to the sole will of PNB, the same fixed by the latter
without their prior consent and thus, void. The Regional Trial Court (RTC) ruled that such stipulation
authorizing both the increase and decrease of interest rates as may be applicable is valid. The Court of
Appeals (CA) affirmed the RTC decision.
ISSUE: May the bank, on its own, modify the interest rate in a loan agreement without violating the
mutuality of contracts?
RULING: No. Any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties. The minds of all the parties must meet as to the proposed
modification, especially when it affects an important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the most important component. Loan and
credit arrangements may be made enticing by, or “sweetened” with, offers of low initial interest rates,
but actually accompanied by provisions written in fine print that allow lenders to later on increase or
decrease interest rates unilaterally, without the consent of the borrower, and depending on complex and
subjective factors. Because they have been lured into these contracts by initially low interest rates,
borrowers get caught and struck in the web of subsequent steep rates and penalties, surcharges and
the like. Being ordinary individuals or entities, they naturally dread legal complications and cannot afford
court litigation; they succumb to whatever charges the lenders impose. At the very least, borrowers
should be charged rightly; but then again this is not possible in a one-sided credit system where the
temptation to abuse is strong and the willingness to rectify is made weak by the eternal desire for profit.
20 NAGA TELEPHONE V CA
FACTS: NATELCO, a telephone company in Naga, entered into a contract in 1977 with CASURECO II,
an electric power service in the same city. The agreement allowed NATELCO to use CASURECO's
electric light posts for free in exchange for 10 telephone connections. The contract specified termination
if CASURECO ceased its operation or the removal of electric light posts became necessary. After 11
years, CASURECO sought reformation, citing the contract's one-sidedness, the unauthorized use of
posts since 1981, and poor servicing causing damages.
NATELCO defended, claiming insufficient reasons, prescription, and estoppel. They argued that
CASURECO used their posts without a contract and owed more than NATELCO's claims. CASURECO
presented witnesses supporting their claims, while NATELCO's Atty. Maggay testified.
The RTC ruled for reformation, ordering NATELCO to pay P10/post/month and CASURECO to pay
monthly billings from the complaint date. On appeal, the CA affirmed invoking Article 1267 of the NCC.
NATELCO argued the inapplicability of Article 1267, citing a different case (Occeña).
ISSUE: Whether the CA erred in using Article 1267 to affirm the RTC's decision.
RULING: No. Article 1267 speaks of "service" and may refer to "performance," including allowing
NATELCO to use CASURECO's posts. The article doesn't require a contract for future service with
future unusual change. While Sen. Tolentino notes its application to unforeseen events, the SC
considered the specific case's exceptions. In Occeña, parties were released under Article 1267, but
here, the potential disruption to NATELCO's service and CASURECO's return of telephone units
justified equity jurisdiction. Although Article 1267 doesn't authorize contract modification, the SC
clarified that in reformation, only the instrument embodying the contract is reformed. The CA decision
was affirmed.
21 OSMEÑA V RAMA
FACTS: On November 15, 1890, defendant Rama executed and delivered to Victoriano Osmeña a
contract. The contract stipulates that Rama received from Victoriano the sum of P200 which the
defendant will pay Victoriano Osmeña in sugar and pay also an interest at a rate of half a cuartillo per
month. Defendant promised that he well sell to Mr. Osmeña all the sugar that he may harvest and as a
guarantee pledge as a security all his present and future property and as special security his house in
Pagina. On October 27, 1891, defendant executed another contract with Victoriano Osmeña which
states that defendant asked for a loan amounting to P70, P50 of which defendant loaned to Don
Peñares, which they will pay in sugar.
Sometime after the execution and delivery of the above contracts, Victoriano died. In the settlement and
division of the property of his estate the above contracts became the property of one of his heirs,
Agustina Rafols. Later, Agustina Rafols ceded to the present plaintiff Tomas Osmeña all of her right and
interest in said contracts. On March 15, 1902, plaintiff presented the contracts to the defendant for
payment and she acknowledged her responsibility upon said contracts by an endorsement which
stipulates: On this date I hereby promise,..that if the house of strong materials in which I live in Pagina
is sold, I will pay my indebtedness to Don Tomas Osmeña as set forth in this document. The defendant
not having paid the amount due on said contracts, the plaintiff filed an action before the CFl Cebu. The
lower court rendered judgment in favor of the plaintiff for the sum of P200 with interest.
ISSUE: Is the endorsement made by defendant Rama for payment of said obligation valid?
RULING: No. If that statement found in her acknowledgment of the indebtedness should be regarded as
a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art.
1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation
and was sufficient to prevent the statute of limitation from barring the action upon the original contract.
The court ruled in favor of the plaintiff, Tomas Osmeña, and affirmed the judgment of the lower court.
The defendant, Cenona Rama, was held liable to pay the debt stated in the contracts. The court based
its decision on the provisions of the Civil Code. It cited Article 1115, which states that a condition
imposed upon a contract by the promisor, the performance of which depends upon their exclusive will,
is void. In this case, the defendant's acknowledgment of her indebtedness, as stated in Exhibit C, was
considered an absolute acknowledgment of the obligation. The court deemed the condition imposed by
the defendant, that she would pay the debt only if she sold her house, as void. Therefore, the
acknowledgment prevented the statute of limitations from barring the action upon the original contract.
22 SMITH BELL V SOTELO MATTI
FACTS: In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into
contracts whereby the former obligated itself to sell, and the latter to purchase from it the following: two
steel tanks for P21,000, the same to be shipped from New York and delivered at Manila within three or
four months; two expellers at the price of P25,000 each which were to be shipped from San Francisco
in the month of September 1918 or as soon as possible; and two electric motors at the price of P2,000
each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery
within ninety days. This is not guaranteed. The tanks arrived at Manila on the 27th of April, 1919 (way
beyond the 3–4-month period); the expellers on the 26th of October, 1918 (beyond Sept 1918); and the
motors on the 27th of February, 1919 (beyond ninety days). When the goods arrived, Mr. Sotelo refused
to receive them and to pay the prices stipulated. The plaintiff brought suit against the defendant. In their
answer, the defendant Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc.,
denied the plaintiff's allegations. Morever, they alleged that Mr. Sotelo had made the contracts in
question as manager of the intervenor, the Manila Oil Refining and ByProducts Co., Inc., which fact was
known to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks
had arrived, the motors and the expellers having arrived incomplete and long after the date stipulated.”
As a counterclaim or set-off, they also alleged that, as a consequence of the plaintiff's delay in making
delivery of the goods, which the intervenor intended to use in the manufacture of coconut oil, the
intervenor suffered for the nondelivery of the tanks and on account of the expellers and the motors not
having arrived in due time. The lower court Ordered Mr. Sotelo and Manila Oil Refining to "receive the
aforesaid expellers and pay the plaintiff.
ISSUE/S:
1) Whether Manila Oil Refining and By-Products Co has a right of action against Smith Bell due to the
alleged damage it has suffered.
2) Whether under the contracts entered into and the circumstances established in the record, the
plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila
RULING:
1)NO. Manila Oil Refining and By-Products Co., Inc., has not in any way taken part in these contracts. It
is well-settled that when an agent acts in his own name, the principal shall have no right of action
against the persons with whom the agent has contracted, or such persons against the principal. In such
case, the agent is directly liable to the person with whom he has contracted, as if the transaction were
his own. Cases involving things belonging to the principal are excepted. The provisions of this article
shall be understood to be without prejudice to actions between principal and agent. (Civil Code, art.
1717.)
2) YES. To solve this question, it is necessary to determine what period was fixed for the delivery of the
goods. In all these contracts, there is a final clause as follows: "The sellers are not responsible for
delays caused by fires, riots on land or on the sea, strikes or other causes known as 'Force Majeure'
entirely beyond the control of the sellers or their representatives." Under these stipulations, there is no
definite date fixed for the delivery of the goods. As to the tanks, the agreement was that the delivery
was to be made "within 3 or 4 months," but that period was subject to the contingencies referred to in a
subsequent clause. With regard to the expellers, the contract says "within the month of September,
1918," but to this is added "or as soon as possible." And with reference to the motors, the contract
contains this expression, "Approximate delivery within ninety days," but right after this, it is noted that
"this is not guaranteed."
23 RUSTAN PULP V IAC
FACTS: When Rustan Pulp & Paper Mills started operations, Romeo Lluch offered to supply raw
materials. Rustan Pulp proposed a non-exclusive contract to buy wood pulp from Lluch. However, a
condition in the contract gave Rustan Pulp the right to stop accepting deliveries when the supply
became sufficient until such time the raw materials are needed.
During the test run of the pulp mill, major defects on the machinery were discovered prompting the
Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were
informed to stop deliveries but were not informed as to the reasons for the stoppage.
Lluch sought to clarify the tenor of the notice as to whether stoppage of delivery or termination of the
contract of sale was intended, but Rustan Pulp failed to reply. This alleged ambiguity notwithstanding,
Lluch and the other suppliers resumed deliveries after a series of talks between Lluch and Romeo
Vergara, the manager of Rustan Pulp.
Later, Lluch filed a complaint for breach of contract. The case was dismissed, but at the same time, the
court enjoined Rustan Pulp to honor the contract. On appeal, the court ruled that Rustan Pulp's
suspension of deliveries was not in the lawful exercise of its rights under the contract of sale.
ISSUE: WON the suspension of deliveries by Rustan a proper exercise of its rights under the contract of
sale?
RULING: NO. There is basis for the apprehension on the illusory resumption of deliveries at Rustan
Pulp because the prerogative suggests a condition solely dependent upon its exclusive will. The literal
import of contested condition is that Rustan Pulp (D) can stop delivery of pulp wood from Lluch if the
supply at the plant is sufficient as ascertained by Rustan Pulp, subject to re-delivery when the need
arises as determined likewise by Rustan Pulp. A purely potestative imposition of this character must be
obliterated from the face of the contract without affecting the rest of the stipulations considering that the
condition relates to the fulfillment of an already existing obligation and not to its inception (Civil Code
Annotated, by Padilla, 1987 Edition, Volume 4, Page 160).
A condition which is both potestative (or facultative) and resolutory may be valid, even though the
saving clause is left to the will of the obligor as this Court ruled in Taylor vs. Uy Tieng Piao (43 Phil.
873). But the Taylor case, which allowed a condition for unilateral cancellation dependent on the arrival
of factory machinery, cannot be applied because the facts relate to the birth of the undertaking and not
to the fulfillment of an existing obligation.
24 ROMERO V CA
FACTS: Petitioner Virgilio R. Romero, a civil engineer, was looking for a parcel of land to build a central
warehouse. Respondent Enriqueta Chua vda. de Ongsiong offered a parcel of land for sale. Petitioner
visited the property and found it suitable for his purposes, except for the presence of squatters. A
contract of conditional sale was executed between petitioner and respondent, with the condition that the
squatters be evicted from the property within 60 days. Private respondent filed a complaint for ejectment
against the squatters, and a judgment was rendered ordering them to vacate the premises. Private
respondent failed to evict the squatters within the stipulated period. Petitioner offered to shoulder the
expenses of ejecting the squatters and demanded the execution of the deed of absolute sale. Private
respondent sought to return the downpayment and declared the contract null and void. Petitioner
refused the return of the downpayment and insisted on the execution of the deed of absolute sale.
Private respondent filed a complaint for rescission of the contract.
ISSUE: Whether the vendor can demand rescission of the contract due to her own failure to evict the
squatters within the stipulated period.
RULING: The Court ruled in favor of the petitioner and ordered him to pay the balance of the purchase
price, and the respondent to execute the deed of absolute sale. A perfected contract of sale may be
absolute or conditional, depending on whether there are conditions imposed on the passing of title or
the obligations of the parties. The title given to the contract by the parties is not as significant as its
substance in determining its real character. The term "condition" in a contract of sale refers to the
compliance by one party of an undertaking that would trigger the demandability of the reciprocal
prestation of the other party. The contract in question was a perfected contract of sale, with the
condition being the eviction of the squatters from the property. Private respondent's failure to evict the
squatters within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive the condition. The option to proceed with the agreement or waive the condition
belongs to the petitioner, not the respondent.
The condition imposed on private respondent was not a potestative condition dependent solely on her
will, but a mixed condition dependent on the will of third parties like the squatters and government
agencies. Private respondent's action for rescission is not warranted since she is the one who failed in
her obligation under the contract.
25 INTERNATIONAL HOTEL CORPORATION V FRANCISCO B JOAQUIN JR AND RAFAEL
SUARES INC
FACTS: Respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the
International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan
for the construction of a hotel, to be guaranteed by the Development Bank of the Philippines (DBP).
Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed the application,6
and approved it on October 24, 1969 subject to several conditions.
Due to Joaquin’s failure to secure the needed loan, IHC, through its President Bautista, canceled the
17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The
latter requested a reconsideration of the cancellation, but their request was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages and injunction by a complaint in the Regional Trial Court in Manila (RTC).
The RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code. The CA
concurred with the RTC, upholding IHC’s liability under Article 1186 of the Civil Code.
ISSUE: WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING
COMPENSATION AND EVEN MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE
NON-FULFILLMENT OF THEIR OBLIGATION TO HEREIN PETITIONER.
RULING: YES. Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC
was liable based on the nature of the obligation.
Considering that the agreement between the parties was not circumscribed by a definite period, its
termination was subject to a condition – the happening of a future and uncertain event.42 The prevailing
rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event that constitutes the condition.
To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the
respondents because it required the action and discretion of third persons – an able and willing foreign
financial institution to provide the needed funds, and the DBP Board of Governors to guarantee the
loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no
question that when the fulfillment of a condition is dependent partly on the will of one of the contracting
parties,44 or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is
mixed.45 The existing rule in a mixed conditional obligation is that when the condition was not fulfilled
but the obligor did all in his power to comply with the obligation, the condition should be deemed
satisfied.
Considering that the respondents were able to secure an agreement with Weston, and subsequently
tried to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively
fulfilled their obligation.
26 ROMAN CATHOLIC ARCHBISHOP V CA
FACTS: On November 29, 1984, private respondents filed a complaint against petitioners Florencio and
Soledad C. Ignao, the Roman Catholic Bishop of Imus, Cavite, and the Roman Catholic Archbishop of
Manila. The complaint sought the nullification of a deed of donation, rescission of a contract, and
reconveyance of real property with damages. The dispute centered around a deed of donation executed
on August 23, 1930, involving a parcel of land in Kawit, Cavite. The deed included a condition
preventing the donee from selling the property for 100 years, with automatic nullification and reversion if
the condition was violated. The complaint alleged that, within the restricted period, the Roman Catholic
Bishop of Imus sold the property to the Ignao couple in 1980 for P114,000.00.
ISSUE: It is the contention of petitioners that the cause of action of herein private respondents has
already prescribed, invoking Article 764 of the Civil Code which provides that "(t)he donation shall be
revoked at the instance of the donor, when the. donee fails to comply with any of the conditions which
the former imposed upon the latter," and that "(t)his action shall prescribe after four years from the non-
compliance with the condition, may be transmitted to the heirs of the donor, and may be exercised...
against the donee's heirs."
RULING: We do not agree.
The court argues that, in such cases, the rules on contracts and general prescription should apply
instead of the specific provision in Article 764 of the Civil Code. The court emphasizes that when a
contract explicitly allows automatic revocation for a breach, a judicial declaration may not be necessary.
However, the court finds fault with a condition in the deed prohibiting the sale of the donated property
for 100 years, deeming it an unreasonable restriction on ownership rights and contrary to public policy.
Consequently, the court declares this condition an illegal or impossible one under Article 727 of the Civil
Code. The prohibition against alienation for a century serves as the basis for the action to nullify the
deed, and the court rejects the argument of prescription in the motion to dismiss, asserting that the
condition's validity should be determined.
WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby
rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite.

SECTION 2. OBLIGATIONS WITH A PERIOD
27a. CLEMENTE vs. REPUBLIC - G.R. No. 220008, February 20, 2019
Facts: Municipal Mayor Amado A. Clemente, Dr. Vicente A. Clemente, Judge Ramon A. Clemente, and
Milagros A. Clemente (Siblings) were the owners of a parcel of land. During their lifetime, they executed
a Deed of Donation dated 16 March 1963 over a one-hectare portion of their property (Subject Property)
in favor of the Republic of the Philippines.
In 2004, almost forty-one (41) years after the Deed of Donation was executed, Socorro, as heir
and successor-in-interest of Mayor Clemente, filed a Complaint, and subsequently an Amended
Complaint, for Revocation of Donation, Reconveyance and Recovery of Possession alleging that the
Republic of the Philippines failed to comply with the condition imposed on the Deed of Donation, which
was to use the property “solely for hospital site only and for no other else, where a government hospital
shall be constructed”.
On 24 September 2007, the RTC rendered its Decision dismissing the case on the ground of
prematurity. The RTC held that the Republic agreed to comply with the condition of constructing a
government hospital, and it initially commenced its construction. However, it was not completed for
unknown reasons, and that only the foundation remains. The CA denied the appeal, finding that while
there may be basis for the recovery of the property, Socorro, as an heir of a deceased co-donor, cannot
assert the concept of heirship to participate in the revocation of the property donated by her successor-
in-interest.
Issue: W/N non-fulfillment of the condition gives the donor’s heir the right to revoke the donation.
Ruling: Yes. The nature of the donation made by the Clemente Siblings is a donation subject to a
condition –the condition being the construction of a government hospital and the use of the Subject
Property solely for hospital purposes. Upon the non-fulfillment of the condition, the donation may be
revoked and all the rights already acquired by the donee shall be deemed lost and extinguished.
This is a resolutory condition because it is demandable at once by the done, but the non-
fulfillment of the condition gives the donor the right to revoke the donation. In this case, upon the
execution of the Deed of Donation and the acceptance of such donation in the same instrument,
ownership was transferred to the Republic, as evidenced by the new certificate of title issued in the
name of the Province of Quezon. Because the condition in the Deed of Donation is a resolutory
condition, until the donation is revoked, it remains valid. However, for the donation to remain
valid, the donee must comply with its obligation to construct a government hospital and use the Subject
Property as a hospital site. The failure to do so gives the donor the right to revoke the donation. Article
764 of the Civil Code provides: Art. 764. The donation shall be revoked at the instance of the donor,
when the donee fails to comply with any of the conditions which the former imposed upon the latter.
There is no need for the settlement of the estate before one of the heirs can institute an action
on behalf of the other co-heirs. Although an heir’s right in the estate of the decedent which has not been
fully settled and partitioned is merely inchoate, Article 493 of the Civil Code gives the heir the right to
exercise acts of ownership.
Thus, even before the settlement of the estate, an heir may file an action for reconveyance of
possession as a co-owner thereof, provided that such heir recognizes and acknowledges the other co-
heirs as co-owners of the property as it will be assumed that the heir is acting on behalf of all the co-
heirs for the benefit of the co-ownership.
27 SOLANTE V COA
FACTS: On April 26, 1989, the City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a
Contract of Reclamation in which F.F. Cruz stipulated the reclamation of of more or less 180 hectares
of foreshore and submerged lands from the Cabahug Causeway in that city. Pursuant to the MOA, F.F.
Cruz proceeded to construct the contemplated housing units and other facilities which included a
canteen and a septic tank. Later developments saw the City of Mandaue undertaking the Metro Cebu
Development Project II (MCDP II), part of which required the widening of the Plaridel Extension
Mandaue Causeway. However, the structures and facilities built by F.F. Cruz subject of the MOA stood
in the direct path of the road widening project.
The Department of Public Works and Highways (DPWH) and Samuel B. Darza, MCDP II project
director, entered into an Agreement to Demolish, Remove and Reconstruct Improvement dated July 23,
1997 with F.F. Cruz whereby the latter would demolish the improvements outside of the boundary of the
road widening project and, in return, receive the total amount of PhP 1,084,836.42 in compensation.
Accordingly, petitioner Rowena B. Rances (now Rowena RancesSolante), Human Resource
Management Officer III, prepared and, with the approval of Samuel B. Darza (Darza), then issued
Disbursement Voucher (DV) No. 102-07-88-97 dated July 24, 1997 for PhP 1,084,836.42 in favor of
F.F. Cruz. In the voucher, Solante certified that the expense covered by it was "necessary, lawful and
incurred under my direct supervision."
Thereafter, Darza addressed a letter-complaint to the Office of the Ombudsman, Visayas, inviting
attention to several irregularities regarding the implementation of MCDP II. The letter was then referred
to COA. The latter disallowed the payment of PhP 1,084,836.42 emphasizing that even if the
contractual stipulations may turn out to be financially disadvantageous to any party, such will not relieve
any or both parties fromtheir contractual obligations.
ISSUE: Whether or not the City of Mandaue owns the demolished property
RULING: NO, The Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on the property
of the city will belong to the latter only upon the completion of the project. Clearly, the completion of the
project is a suspensive condition that has yet to be fulfilled. Until the condition arises, ownership of the
structures properly pertains to F .F. Cruz. To be clear, the MOA does not state that the structures shall
inure in ownership to the City of Mandaue after the lapse of six ( 6) years from the execution of the
Contract of Reclamation. What the MOA does provide is that ownership of the structures shall vest
upon, or ipso facto belong to, the City of Mandaue when the Contract of Reclamation shall have been
completed. Logically, before such time, or until the agreed reclamation project is actually finished, F.F.
Cruz owns the structures. The payment of compensation for the demolition thereof is justified.
28 CENTRAL PHILIPPINE UNIVERSITY V CA
Duplicate of 15
29 GAITE V FONACIER
FACTS: Fonacier, owner of 11 iron lode mineral claims (Dawahan Group) in Camarines Norte,
constituted a "Deed of Assignment” and appointed Gaite as his true and lawful attorney-in-fact to enter
into a contract for its exploration and development on a royalty basis. Gaite executed a general
assignment to the Larap Iron Mines owned solely by him.
However, for some reasons, Fonacier revoked the authority granted, subject to certain conditions, one
of which being the transfer of ores extracted from the mineral claims for P75,000, of which P10,000 has
already been paid upon signing of the agreement and the balance to be paid from the first letter of credit
for the first local sale of the iron ores.
To secure payment, Fonacier delivered a surety agreement to Gaite and some of its stockholders, and
another one with Far Eastern Insurance. When the second surety agreement expired with no sale being
made on the ores, Gaite demanded the P65,000 balance. Defendants contended that the payment was
subject to the condition that the ores will be sold.
Gaite filed a complaint in court for its payment. The lower court ruled the obligation was one with a term,
and that the obligation became due and demandable under Article 1198 of the New Civil Code.
Hence, the defendants jointly filed an appeal.
ISSUE: WON the sale is conditional or one with a period. (W/N that the lower court erred in holding that
the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the
iron ore in question) is one with a period or term and not one with a suspensive condition, and that the
term expired on December 8, 1955;)
RULING: NO. The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to
the payment of the balance of P65,000.00, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished
from its demandability) is subordinated to the happening of a future and uncertain event; so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation had
never existed.
The words of the contract express no contingency in the buyer's obligation to pay: "The balance of
Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first
shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or
later; what is undetermined is merely the exact date at which it will be made. By the very terms of the
contract, therefore, the existence of the obligation to pay is recognized; only its maturity or
demandability is deferred.
A contract of sale is normally commutative and onerous: not only does each one of the parties assume
a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to
pay the price), but each party anticipates performance by the other from the very start. While in a sale
the obligation of one party can be lawfully subordinated to an uncertain event, so that the other
understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of
hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the
contingent character of the obligation must clearly appear. Nothing is found in the record to evidence
that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or
that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite
insisted on a bond a to guarantee payment of the P65,000.00, not only upon a bond by Fonacier, the
Larap Mines & Smelting Co., and the company’s stockholders, but also on one by a surety company;
and the fact that appellants did put up such bonds indicates that they admitted the definite existence of
their obligation to pay the balance of P65,000.00.
The appellant have forfeited the right court below that the appellants have forfeited the right to compel
Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00 because of
their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent
guarantee. The expiration of the bonding company’s undertaking on December 8, 1955 substantially
reduced the security of the vendor’s rights as creditor for the unpaid P65,000.00, a security that Gaite
considered essential and upon which he had insisted when he executed the deed of sale of the ore to
Fonacier.
30 GONZALES V JOSE
FACTS: This action was instituted by the plaintiff Gonzales to recover from the defendant Jose the
amount of two promissory notes worded as follows: “I promise to pay Mr. Benito Gonzalez the sum of
four hundred three pesos and fifty-five centavos (P403.55) as soon as possible. Manila, June 22, 1922.
(Sgd.) FLORENTINO DE JOSE”
Another letter says: “I promise to pay Mr. Benito Gonzalez the sum of three hundred and
seventy-three pesos and thirty centavos (P373.30) as soon as possible. In Manila, this 13th day of
September, 1922. (Sgd.) FLORENTINO DE JOSE”
Defendant appealed from the decision of the CFI of Manila ordering him to pay the plaintiff the sum of
P547.95. In his answer the defendant interposed the special defenses that the complaint is uncertain as
it does not specify when the indebtedness was incurred or when it was demandable, and that, granting
that the plaintiff has any cause of action, the same has prescribed in accordance with law.
Trial court held that the action for the recovery of the amount of the two promissory notes has not
prescribed in accordance with Article 1128(now 1197) of the Civil Code which provides:
ART. 1128. If the obligations does not specify a term, but it is to be inferred from its nature and
circumstances that it was intended to grant the debtor time for its performance, the period of the term
shall be fixed by the court.
The court shall also fix the duration of the term when it has been left to the will of the debtor.
The defendant contends that article 1113 of the Civil Code should be applied inasmuch as the
obligations derived from the promissory notes were demandable from the time of their execution, and
adds that even supposing that article 1128 is applicable, the action to ask the court to fix the period had
already prescribed in accordance with section 43 (1) of the Code of Civil Procedure.
ISSUE: W/N the obligation to pay is governed by Article 1128 and has not prescribed.
RULING: No. We hold that the two promissory notes are governed by Article 1123 because under the
terms thereof the plaintiff intended to grant the defendant a period within which to pay his debts. As the
promissory notes do not fix this period, it is for the court to fix the same. (Eleizagui vs. Manila Lawn
Tennis club, etc.).
The action to ask the court to fix the period has already prescribed in accordance with section 43 (1) of
the Code of Civil Procedure. This period of prescription is ten years, which has already elapsed from the
execution of the promissory notes until the filing of the action on June 1, 1934. The action which should
be brought in accordance with Article 1128 is different from the action for the recovery of the amount of
the notes, although the effects of both are the same, being, like other civil actions, subject to the rules of
prescription.
Since the action brought by the plaintiff having already prescribed, the appealed decision should be
reversed and the defendant absolved from the complaint, without special pronouncement as to the
costs in both instances.
Applicable Laws:
Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be applied to the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall
be observed as regards the effect of the extinguishment of the obligation. (Previously Art. 1123)
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
(Previously 1128a)
APPLICABLE LAWS:
Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event. (Previously Art. 1113)
Section 2. Obligations with a Period.
31 PHILIPPINE NATIONAL BANK V LOPEZ VITO
FACTS: The defendant-spouses mortgaged a certain realty to secure the payment of a loan of P24,000
granted to them by the plaintiff, the Philippine National Bank (PNB). The defendant-spouses bound
themselves to pay plaintiff P24,000 plus interest, payable on or before July 18th of each year from the
date of said contract.
On July 18, 1920, the defendant-spouses paid a sum on account of this obligation, leaving a balance of
P16,248.84 against them and binding themselves to pay the debit balance in 8 annual installments of
P2,844.68 each, payable on or before July 18th of each year, dating from July 18, 1920.
The defendant-spouses failed to pay the sums corresponding to the 6 yearly installments and interest
thereon (1920 - 1926). Hence, the plaintiff (PNB) instituted this action demanding of the payment.
The trial court rendered judgment ordering the defendants to pay the sum with interest. In due time and
form, the plaintiff excepted to that part of the judgment reserving to the PNB the proper action on the
last annual installment of P2,844.88 and the interest thereon.
ISSUE: WON the trial court committed an error in holding that the 8 annual installment of P2,844.88 is
not yet demandable.
RULING: Yes, this assignment of error is well taken, the judgment appealed from must be, as it is
hereby, modified, and it is declared that, as the mortgage installments in question have matured by the
failure of the mortgagor to pay, the mortgagee may collect the whole debt, with interest thereon.
The contract entered into by the parties, the obligation of the mortgagors was to pay the debt in yearly
installments on a fixed day of each year, until it has been fully satisfied, but in case of nonfulfillment of
any of the stipulations and conditions of the mortgage, such as the failure to pay any of the annual
installments, the mortgagee could declare said stipulations and conditions violated and proceed to the
foreclosure of the mortgage in accordance with law. We are of the opinion that the non-fulfillment of the
conditions of the contract renders the period ineffective, and makes the obligation demandable at the
will of the creditor.
MORTGAGE; BREACH OF TERMS OF PAYMENT; FORECLOSURE.—When the parties have agreed
that should the mortgagor fail to fulfill any of the con of the contract, such as the one to pay any of the
installments, the mortg may declare such stipulations and conditions violated and proceed to the
foreclosure of the mortgage in accordance with law, the intention of the contracting parties was to
authorize the creditor to declare all the conditi the contract violated, that is, to declare all the remaining
installments due so it must be, because the creditor is not bound to declare the unpaid installments due,
for they became due by the failure to pay.
SECTION 3. ALTERNATIVE OBLIGATIION
32 AGONCILLO V JAVIER
FACTS: Anastasio Alano, Jose Alano, and Florencio Alano promised to Marcela Marino the following:
1. To pay P2,730.50, with 12 percent interest per annum, within one year.
2. To secure payment with house and lot as mortgage.
 3. In case of insolvency, cede house and lot, transferring to her all rights to the ownership and
possession of the lot; and if the value of the house and lot is not sufficient to cover debt,
Anastatio Alano also mortgages four parcels of his land to secure the balance.
Anastatio Alano died intestate. Javier Crisanto was appointed to be the administrator his estate. The
estate proceedings were terminated in 1915.
In 1916, the plaintiff Marino reopened the estate proceedings, claiming to be a creditor with a mortgage
on the deceased's property. Marino filed a complaint against respondents because defendants have
paid no part of the interest or of the principal due upon this undertaking, except the sum of P200 paid in
the year 1908 by the late Anastasio Alano.
Complaint stated that unless defendants pay the debt for the recovery of which the action was brought,
they shall be required to convey to plaintiffs the house and lot described in paragraph two of the said
document; that this property be appraised; and that if its value is found to be less than the amount of the
debt, with the accrued interest at the stipulated rate, judgment be rendered in favor of the plaintiffs for
the balance.
Findings of the trial court showed that the principal undertaking evidenced by the document is,
obviously, the payment of money. The attempt to create a mortgage upon the house and lot described
in the second clause of the contract is, of course, invalid, as it is admitted that the so-called mortgage
was never recorded. However, the agreement to convey the house and lot at an appraised valuation in
the event of failure to pay the debt in money at its maturity is valid. It is simply provided that if the debt
is not paid in money, it shall be paid in another specific way by the transfer of property at a valuation.
ISSUE: W/N Marino has the right to compel transfer of ownership of the said alleged mortgaged
properties instead of cash payment.
RULING: No, since the house and lot and parcel of land were merely a subsidiary alternative pact
relating to the method by which the debt might be paid. The liability of the defendants as to the
conveyance of the house and lot is subsidiary and conditional, being dependent upon their failure to pay
the debt in money.
Only if the debtors are unable to pay the amount in money or if they intend that the payment be the
house and lot shall Marino have right to the properties. As the alternative indivisible obligation is
imposed only in the event that the debtors fail to pay the money, it is subject to a suspensive condition,
and the prescription of the obligation whose non-performance constitutes the condition effectively
prevents the condition from taking place (the debt matured February 27, 1905 and a complaint was not
filed within ten years from that date). The judgment of the lower court is reversed and the action is
dismissed as to all the defendants. No costs will be allowed.
We do this most regretfully, as the evidence in this case shows that plaintiff has been extremely lenient
with defendants and has refrained from pressing her claim against them when it fell due, and for a long
period of years thereafter, purely out of consideration for them. The defense of prescription interposed,
particularly as regards Jose and Florencio Alano, is as indefensible from the standpoint of fair dealing
and honesty as it is unassailable from the standpoint of legal technicality. However, the law, as we see
it, is clear and it is our duty to enforce it.
33 ARCO PULP V LIM
FACTS: Lim works in the business of supplying scrap papers, cartons, and other raw materials, under
the name Quality Paper and Plastic Products. He delivered scrap papers to Arco Pulp and Paper
Company, Inc. through its Chief Executive Officer and President, Candida A. Santos. The parties
allegedly agreed that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials
or deliver to him their finished products of equivalent value. Dan T. Lim alleged that when he delivered
the raw materials, Arco Pulp and Paper issued a post-dated check as partial payment, with the
assurance that the check would not bounce. When he deposited the check on April 18, 2007, it was
dishonored for being drawn against a closed account. On the same day, Arco Pulp and Paper and a
certain Eric Sy executed a memorandum of agreement where Arco Pulp and Paper bound themselves
to deliver their finished products Sy. According to the memorandum, the raw materials would be
supplied by Dan T. Lim. Dan T. Lim filed a complaint for collection of sum of money with prayer for
attachment with the Regional Trial Court .The trial court rendered a judgment in favor of Arco Pulp and
Paper and dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy entered into
the memorandum of agreement, novation took place, which extinguished Arco Pulp and Paper’s
obligation to Dan T. Lim. Dan T. Lim appealed that novation did not take place since the memorandum
of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement
between them. The CA reversed the RTC decision and ruled that the facts and circumstances in this
case clearly showed the existence of an alternative obligation.
ISSUE: W/N the obligation between the parties was an alternative obligation
RULING: The obligation between the parties was an alternative obligation. In an alternative obligation,
there is more than one object, and the fulfillment of one is sufficient, determined by the choice of the
debtor who generally has the right of election. The right of election is extinguished when the party who
may exercise that option categorically and unequivocally makes his or her choice known. The choice of
the debtor must also be communicated to the creditor who must receive notice of it since the object of
this notice is to give the creditor opportunity to express his consent, or to impugn the election made by
the debtor, and only after said notice shall the election take legal effect when consented by the creditor,
or if impugned by the latter, when declared proper by a competent court.
According to the factual findings of the trial court and the appellate court, the original contract between
the parties was for respondent to deliver scrap papers worth P7,220,968.31 to petitioner Arco Pulp and
Paper. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pay the price or
(2) deliver the finished products of equivalent value to respondent. When petitioner Arco Pulp and
Paper tendered a check to respondent in partial payment for the scrap papers, they exercised their
option to pay the price. Respondent’s receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper’s option to pay. This choice was also shown by
the terms of the memorandum of agreement, which was executed on the same day. The memorandum
declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be
to a third person, thereby extinguishing the option to deliver the finished products of equivalent value to
respondent.
SECTION 4. JOINT AND SOLIDARY OBLIGATIONS
34 AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM V SANVICTORES
FACTS: PEPI (formerly Antipolo Properties Inc) offered to Eduardo Sanvictores for sale on installment
basis a parcel of land in Village East Executive Homes in Binangonan, Rizal. Sanvictores paid the
required down payment, subsequently, a Contract to Sell was executed by and between PEPI and
AFPRSBS, as seller, and Sanvictores as buyer. Sanvictores paid in full the purchase price but despite
full payment, the seller failed to execute the corresponding deed of absolute sale and deliver the title
thereto. Sanvictores demanded from PEPI the execution of the deed of sale and the delivery of the TCT
but PEPI claimed that the title was still with the PNB and could not be released because of economic
crisis. Despite several follow-ups with PEPI, the latter did not communicate with Sanvictores and that
led him to file a complaint for recission of the contract to sell, refund of payments, damages, and
attorney’s fees against PEPI and AFPRSBS before the HLRUB.
PEPI argued that it could not be faulted for the delay in the delivery of the title due to forced majeure.
For AFPRSBS, it countered that it was not the owner and developer but PEPI; that PEPI alone was the
seller.
HLRUB Arbiter ruled that Sanvictores was entitled to the reliefs he prayed for in the complaint and that
the recission of the contract to sell was just and proper because of the unjustified refusal of the seller to
execute the deed of absolute sale and to deliver the subject property despite full payment.
Subsequently, PEPI and AFPRSBS appealed to the HLRUB Board but the board affirmed the decision
of the arbiter.
Then PEPI and AFPRSBS filed separate appeals before the Office of the President with AFPRSBS
insisting that it should not be held jointly liable with PEPI for the refund, etc. the OP upheld the decision
of the HLRUB Board stating that the two were referred to singly as the “seller”; hence, the OP
concluded that their obligation to Sanvictores was joint and several.
On appeal alone by AFPRSBS, the CA affirmed the decision of the OP. CA concluded that the nature of
the obligation of PEPI and AFPRSBS under the subject contract was solidary pursuant to Art 1207 of
the Civil Code.
ISSUE: WON AFPRSBS is jointly and severally liable with PEPI to the respondent
RULING: YES. In the case at bench, the HLURB, the OP and the CA were one in ruling that AFPRSBS
was jointly and severally liable with PEPI to Sanvictores. The Court reviewed the records and found
their factual findings and conclusions to be in accordance with the evidentiary records.
In Spouses Berot v. Siapno, the Court defined solidary obligation as one in which each of the debtors is
liable for the entire obligation, and each of the creditors is entitled to demand the satisfaction of the
whole obligation from any or all of the debtors. On the other hand, a joint obligation is one in which each
debtor is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-entrenched rule is that solidary obligations
cannot be inferred lightly. They must be positively and clearly expressed. A liability is solidary "only
when the obligation expressly so states, when the law so provides or when the nature of the obligation
so requires."
As can be gleaned therefrom, Article 1207 does not presume solidary liability unless: 1] the obligation
expressly so states; or 2] the law or nature requires solidarity. 13
Here, there is no doubt that the nature of the obligation of PEPI and AFPRSBS under the subject
contract to sell was solidary. In the said contract, PEPI and AFPRSBS were expressly referred to as the
"SELLER" while Sanvictores was referred to as the "BUYER." Indeed, the contract to sell did not state
"SELLERS" but "SELLER." This could only mean that PEPI and AFPRSBS were considered as one
seller in the contract. As correctly pointed out by the administrative tribunals below and the CA, there
was no delineation as to their rights and obligations.
Indeed, there could be no other conclusion except that PEPI and AFPRSBS came to the contracting
table with the intention to be bound jointly and severally.
35 BPI V FERNANDEZ
FACTS: The facts of the case unfolded in 1991 when Tarcila Fernandez, together with her husband
Manuel, opened joint AND/OR deposit accounts with BPI. Seeking pre-termination in 1991, Tarcila
presented the certificates of deposits to BPI Shaw Blvd. Branch. Despite her efforts, BPI refused,
insisting on contacting Manuel. Shortly After, Manuel, accompanied by individuals including Sian,
managed to pre-terminate the accounts without presenting the actual certificates.
BPI's involvement didn't end there; it facilitated the transfer of funds to Sian's account and allowed
Manuel to withdraw using blank slips. Unaware of these transactions, Tarcila later demanded her share
as a co-depositor. In response, she filed a case, alleging that BPI acted in bad faith by permitting pre-
termination without adhering to proper procedures. The trial court ruled in her favor, and the CA
affirmed, finding BPI in bad faith.
ISSUE: Whether or not Tarcilia, being the first one to demand upon the BPI, is entitled to the payment
of their proceeds of the solidary accounts.
RULING: Yes. Art 1214 provides that “the debtor may pay any one of the solidary creditors: but if any
demand, judicial or extrajudicial, has been made by one of then, payment should be made to him.”
A certificate of deposit requires endorsement and presentation for termination. BPI breached its
obligations by allowing termination without demanding surrender of the certificates, even with
knowledge that Tarcila possessed them. This deprived co-depositor of their shares.
BPI also exhibited bias, favoring Manuel and acting in bad faith. The Court affirmed the CA's decision,
emphasizing the fiduciary duty of banks to treat accounts with integrity and good faith. This allowed for
the awarding of Damages and Attorney’s fees citing Art 19 of the Civil code.
36 SPOUSES RODOLFO BEROT AND LILIA BEROT V FELIPE SIAPNO
FACTS: Macaria and petitioner spouses Rodolfo and Lilla Berot obtained a P250,000 loan from
respondent Siapno. As security for the loan, Macaria and spouses Berol mortgaged to Sapno a portion
of a parcel of land in Pangasinan. On June 23, 2003, Macaria died. Because of the mortgagors' default,
Siapno filed an action for foreclosure of mortgage and damages in the RTC. Spouses Berot alleged that
the lower court has no jurisdiction over Macaria for the reason that no summons was served on her as
she was already dead and they argued joint obligation.
The trial court permitted foreclosure, and the CA affirmed, explained that petitioners correctly argued
that a decedent's estate is not a legal entity and thus, cannot sue or be sued. It noted petitioner’s failure
to object to the court's jurisdiction over Macaria's estate. The appellate court found the foreclosure
procedurally correct under Section 7, Rule 86 of the Rules of Court, when it decided to foreclose on the
mortgage of petitioner and prove his deficiency as an ordinary claim. CA did not determine if the
obligation was joint or solidary.
ISSUE: WON erred in not holding that the obligation is joint
RULING: NO. Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there
is a concurrence of two or more debtors under a single obligation, the obligation is presumed to be joint.
The law further provides that to consider the obligation as solidary in nature, it must expressly be stated
as such, or the law or the nature of the obligation itself must require solidarity. Solidary obligation is one
in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of the debtors. They must be positively
and clearly expressed. A liability is solidary "only when the obligation expressly so states, when the law
so provides or when the nature of the obligation so requires.” Joint obligation is one in which each
debtors is liable only for a proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor.
When Rodolfo Berot testified in court, he admitted that he and his mother, Macaria had contracted the
loan for their benefit. The testimony of Rodolfo only established that there was that existing loan to
respondent, and that the subject property was mortgaged as security for the said obligation.His
admission of the existence of the loan made. Respondent was not able to prove by a preponderance of
evidence that petitioners' obligation to him was solidary. Hence, applicable to this case is the
presumption under the law that the nature of the obligation herein can only be considered as joint. It is
incumbent upon the party alleging otherwise to prove with a preponderance of evidence that petitioners'
obligation under the loan contract is indeed solidary in character.
37 BOGNOT V RRI LENDING
FACTS: In September 1996, Leonardo Bognot and his younger brother, Rolando Bognot applied for
and obtained a loan of P500,000.00 from RRI Lending, payable on November 30, 1996. The loan was
evidenced by a promissory note and was secured by a post-dated check dated November 30, 1996.
Evidence on record shows that Leonardo renewed the loan several times on a monthly basis. He paid a
renewal fee of P54,600.00 for each renewal, issued a new post-dated check as security, and executed
and/or renewed the promissory note previously issued. RRI Lending on the other hand, cancelled and
returned to Leonardo the post-dated checks issued prior to their renewal. Leonardo purportedly paid the
renewal fees and issued a post-dated check dated June 30, 1997 as security. As had been done in the
past, RRI Lending superimposed the date "June 30, 1997" on the promissory note to make it appear
that it would mature on the said date. Several days before the loan’s maturity, Rolando’s wife, Julieta,
went to the respondent’s office and applied for another renewal of the loan. She issued in favor of RRI
Lending a promissory note and a check dated July 30, 1997, in the amount of P54,600.00 as renewal
fee. On the excuse that she needs to bring home the loan documents for the Bognot siblings’ signatures
and replacement, Julieta asked the RRI Lending clerk to release to her the promissory note, the
disclosure statement, and the check dated July 30, 1997. Julieta, however, never returned these
documents nor issued a new post-dated check. Consequently, RRI Lending sent Leonardo follow-up
letters demanding payment of the loan, plus interest and penalty charges. These demands went
unheeded. In his Answer, Leonardo, claimed, among other things, that the complaint states no cause of
action because RRI Lending’s claim had been paid, waived, abandoned or otherwise extinguished, and
that the one (1) month loan contracted by Rolando and his wife in November 1996 which was lastly
renewed in March 1997 had already been fully paid and extinguished in April 1997.
ISSUE: Whether the parties’ obligation was extinguished by payment.
RULING: NO. There was no evidence was presented to establish the fact of payment. Jurisprudence
tells us that one who pleads payment has the burden of proving it; the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove non-payment. Indeed, once the existence of an
indebtedness is duly established by evidence, the burden of showing with legal certainty that the
obligation has been discharged by payment rests on the debtor. In the present case, Leonardo failed to
satisfactorily prove that his obligation had already been extinguished by payment. As the CA correctly
noted, the petitioner failed to present any evidence that RRI Lending had in fact encashed his check
and applied the proceeds to the payment of the loan. Neither did he present official receipts evidencing
payment, nor any proof that the check had been dishonored. We note that the petitioner merely relied
on the respondent’s cancellation and return to him of the check dated April 1, 1997. The evidence
shows that this check was issued to secure the indebtedness. The acts imputed on the respondent,
standing alone, do not constitute sufficient evidence of payment.
38 LAFARGE CEMENT V CONTINENTAL CEMENT
FACTS: Lafarge and Continental Cement Corp (CCC) entered into a Sale and Purchase Agreement
(SPA) for Lafarge to acquire CCC's cement business. Acknowledging CCC's ongoing case with the
Supreme Court (Asset Privatization Trust [APT] v. CA and Continental), the SPA included Clause 2(c),
stipulating the retention of a portion of the purchase price (P117,020,846.84) in an interest-bearing
account at Citibank for potential liabilities, to be paid to APT.
Despite the Supreme Court's final decision in favor of APT and CCC's instructions, petitioners allegedly
refused to utilize the retained sum for APT's payment. In response, CCC filed a complaint with the
Regional Trial Court (RTC) of Quezon City, seeking the release of the APT retained amount as
specified in Clause 2(a) of the SPA.
Petitioners moved to dismiss the complaint, citing forum shopping, but the trial court rejected the
motion. In their answer, petitioners denied the allegations and filed compulsory counterclaims against
CCC, its major stockholder Gregory Lim, and corporate secretary Anthony Mariano. The counterclaims
alleged damages and asserted that CCC, through Lim and Mariano, filed a baseless complaint and
obtained a writ of attachment in bad faith. The counterclaims sought joint and several liability of Lim and
Mariano with CCC.
The Quezon City RTC dismissed petitioners' counterclaims, prompting a motion for reconsideration.
The RTC clarified its dismissal, specifying that it applied to the counterclaims against respondents Lim
and Mariano, even if CCC was included. This clarification is the subject of the present petition.
ISSUE: WON respondents’ liability, if proven, is solidary?
RULING: YES. Art 1207 of the NCC provides that obligations are generally considered joint,
except when otherwise expressly stated or when the law or the nature of the obligation
requires solidarity. However, obligations arising from tort are, by their nature, always solidary.
The fact that the liability sought against the CCC is for specific performance and tort, while
that sought against the individual respondents is based solely on tort does not negate the
solidary nature of their liability for tortuous acts alleged in the counterclaim.
Art 1211 – “Solidarity may exist although the creditors and debtors may not be bound in the
same manner and by the same periods and conditions.”
39 SINAMBAN V CHINA BANKING CORP
FACTS: The spouses Danilo and Magdalena Manalastas executed a Real Estate Mortgage (REM) in
favor of China Banking Corporation (Chinabank) to secure a loan of P700,000.00 for their rice milling
business. The loan limit was progressively increased to P2,450,000.00.
The spouses Manalastas executed several promissory notes (PNs) in favor of Chinabank, with the
petitioners Estanislao and Africa Sinamban signing as co-makers in two of the PNs. Chinabank filed a
complaint for sum of money against the spouses Manalastas and the spouses Sinamban for their failure
to pay their loan obligations under the PNs.
Chinabank instituted extrajudicial foreclosure proceedings against the mortgage security and won the
auction sale. The RTC rendered a decision ordering the defendants to pay the loan deficiency, but later
modified the decision to relieve the spouses Sinamban from any liability. The CA affirmed the decision
of the RTC with modifications, holding the spouses Sinamban solidarily liable with the spouses
Manalastas for the loan deficiency on two of the PNs.
ISSUE: Whether the spouses Sinamban should be held solidarily liable for the loan deficiency on the
PNs they co-signed with the spouses Manalastas.
RULING: The Court affirms the decision of the CA with modifications. The spouses Sinamban should be
held solidarily liable for the loan deficiency on the PNs they co-signed with the spouses Manalastas. A
co-maker of a promissory note who binds himself "jointly and severally" renders himself directly and
primarily liable with the maker on the debt.
The PNs in question expressly state that the defendants are jointly and severally liable for the loan.
Chinabank opted to proceed against the co-debtors simultaneously and applied the entire amount of the
auction bid to the aggregate amount of the loan obligations. Each PN is covered by the same mortgage
security and should be proportionately covered by the auction proceeds. The defendants should be held
solidarily liable for the loan deficiency on the PNs they co-signed.
40 LBP V BELLE
FACTS: Respondent Belle Corporation filed a Complaint for quieting of title and damages against
Florosa A. Bautista (Bautista) and the Register of Deeds of Tagaytay City. It received a demand letter
from Bautista's counsel which ordered the immediate stoppage of its occupation and use of a
substantial portion of the land that she purportedly owns. She claimed that respondent had illegally
constructed a road on said property without her prior notice or permission.
During the pendency of the case, the respondent was informed that Bautista is no longer the registered
owner of the disputed area as it was already foreclosed by the petitioner bank and a new TCT was
registered in the bank’ name. Hence, a Motion for Leave to File Amended Petition impleading petitioner
as indispensable party was filed by the respondent corporation which was granted by the trial court.
Apparently, Bautista mortgaged the property to the bank without informing respondent. However,
because of the failure to pay the loan obtained, the mortgage was foreclosed in favor of the bank.
Claiming that it is a mortgagee on good faith, the petitioner bank contended that they observed due
diligence and prudence expected of it as a banking institution.
Thus, in the event that the trial court holds that respondent has a sufficient cause of action, Bautista
should be directed to pay the sum of P16,327,991.40 representing unpaid principal, interests, penalties,
other charges, and any and all damages which may be suffered as a consequence.
Lastly, to support its Third Party Complaint, petitioner contended that Liezel 's Garments, Inc. should be
made to pay its outstanding obligation of 16,327,991.40, pursuant to the Omnibus Credit Line
Agreement dated August 16, 1994 and August 30, 1995,22 both of which were secured by a real estate
mortgage23 involving the disputed property. As evidence of the availments/releases made, it allegedly
executed in favor of petitioner promissory notes amounting to P7,672.091.11 and P3,000,000.00 on
June 30, 1995 and September 30, 1995, respectively.
In response, Liezel 's Garments, Inc. filed an Answer (To the Third Party Complaint) It stressed that the
subject property is free from all forms of liens and encumbrances when the mortgage contract was
executed with petitioner, since Bautista was then its absolute and lawful owner with a clean and valid
title. It reiterated petitioner's position that there is nothing from Bautista's title which could arouse
suspicion and, by reason thereof, the bank has no obligation to look beyond what appears on the face
of the certificate of title.
After trial, the RTC ruled against respondent. It held that the title issued to Belle Corporations as void.
CA ordered Bautista and Liezel's Garments, Inc. to jointly pay petitioner 16,327,991.40, the amount for
which the disputed property was sold to petitioner at public auction.
ISSUE: WON CA erred in ordering that Bautista and Liezel’s Garments be jointly liable to pay the
petitioner?
RULING: YES. It must be emphasized that Bautista, who by now may have already turned 87 years
old,60 is considered as a third-party or accommodation mortgagor. She mortgaged her property to
stand as security for the indebtedness of Liezel 's Garments, Inc. She is not a party to the principal
obligation but merely secured the latter by mortgaging her own property. In fact, it was only Dolores E.
Bautista, theh the President and General Manager of Liezel's Garments, Inc., who was the sole
signatory of the Omnibus Credit Line Agreement dated August 16, 1994 and August 30, 199561 as well
as the promissory note dated June 30, 1995 and September 30, 1995.62 In Cerna v. Court of
Appeals,63 it was held:
“There is x x x no legal provision nor jurisprudence in our jurisdiction which makes a third person who
secures the fulfillment of another's obligation by mortgaging his own property to be solidarily bound with
the principal obligor. x x x. The signatory to the principal contract- loan - remains to be primarily bound.
It is only upon the default of the latter that the creditor may have recourse on the mortgagors by
foreclosing the mortgaged properties in lieu of an action for the recovery of the amount of the loan. And
the liability of the third-party mortgagors extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.”
The Court held that Only Liezel 's Garments, Inc. is liable to pay petitioner with the amount of
P16,327,991.40, which represents the sum for which the disputed property was sold to petitioner at
public auction.
41 RIVELISA REALTY V FIRST STA CLARA BUILDERS
FACTS: Rivelisa Realty entered into a Joint Venture Agreement (JVA) with First Sta. Clara for a
residential subdivision project. The JVA outlined the responsibilities and cost-sharing arrangements.
First Sta. Clara, facing financial issues, hired a subcontractor, and Rivelisa Realty had to cover part of
the payment. First Sta. Clara expressed intent to exit the JVA, and after negotiations, Rivelisa Realty
agreed to release them, estimating their actual accomplishment at P4,000,000.00. Disputing the
valuation, First Sta. Clara insisted on P4,578,142.10, seeking reimbursement of P3,000,000.00. Rivelisa
agreed to reimburse but emphasized it was beyond their JVA obligation. The amount remained unpaid,
leading to a lawsuit. The RTC ruled in favor of Rivelisa, stating First Sta. Clara had unfulfilled
conditions. The CA overturned this, asserting that Rivelisa should pay P3M, as First Sta. Clara was
released from JVA obligations. The case reached the Supreme Court.
ISSUE: WON First Sta. Clara is entitled to be compensated.
RULING: YES. procedural laws. The Supreme Court concurs with the CA that First Sta. Clara is entitled
to be compensated for the development works it had accomplished on the project based on the
principle of quantum meruit. Case law instructs that under this principle, a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack of a written contract, in
order to avoid unjust enrichment. Quantum meruit means that, in an action for work and labor, payment
shall be made in such amount as the plaintiff reasonably deserves. The measure of recovery should
relate to the reasonable value of the services performed because the principle aims to prevent undue
enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without
paying for it. In this case, it is undisputed that First Sta. Clara already performed certain works on the
project with an estimated value of P4,578,152.10. Clearly, to completely deny it payment for the same
would result in Rivelisa Realty's unjust enrichment at the former's expense. Besides, as may be gleaned
from the parties' correspondence, Rivelisa Realty obligated itself to unconditionally reimburse First Sta.
Clara the amount of P3,000,000.00 (representing First Sta. Clara's valuation of its accomplished works
at P4,578,152.10, less the cash advances and subcontractor's fees) after the JVA had already been
terminated by them through mutual assent. As such, Rivelisa Realty cannot unilaterally renege on its
promise by citing First Sta. Clara's non-fulfillment of the terms and conditions of the terminated JVA. For
all these reasons, the CA's ruling must be upheld.
The key take-away or doctrine to remember is the principle of "Quantum Meruit." According to case law,
this principle allows a contractor to recover the reasonable value of the services or goods provided,
even in the absence of a written contract. This is done to prevent unjust enrichment and ensures that a
party is fairly compensated for the work performed or services rendered.
SECTION 5. DIVISIBLE AND INDIVISIBLE OBLIGATIONS
42 LAM V KODAK PHILS
FACTS: On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into a written
agreement for the sale of three (3) units of the Kodak Minilab System 22XL (Minilab Equipment) in the
amount of ₱1,796,000.00 per unit. Kodak delivered one unit of Minilab Equipment in Tagum, Davao
Province. The Lam Spouses issued postdated checks amounting to ₱35,000.00 each for 12 months as
payment for the first delivered unit, with the first check due on March 31, 1992.
The Lam Spouses requested that Kodak Philippines, Ltd. not to negotiate the check dated March 31,
1992 allegedly due to insufficiency of funds. The same request was made for the check due on April 30,
1992. However, both checks were negotiated by Kodak Philippines, Ltd. and were honored by the
depository bank.The 10 other checks were subsequently dishonored after the Lam Spouses ordered the
depository bank to stop payment.
Kodak cancelled the sale and demanded the Lam spouses to return the unit with its accessories. The
spouses ignored the demand and also rescinded the contract through a letter on the account that Kodak
failed to deliver the remaining two Minilab Equipment Unit. On November 25, 1992, Kodak Philippines,
Ltd. filed a Complaint for replevin and/or recovery of sum of money.
The trial court issued the Decision in favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab
Equipment, which included the lone delivered unit, its standard accessories, and a separate generator
set. The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders issued
by the trial court.
The case was reassigned to Branch 65 of the Regional Trial Court, Makati City. RTC found that Kodak
defaulted in the performance of its obligation. The Court of Appeals agreed with the trial court’s
Decision, and ruled that the Letter Agreement executed by the parties showed that their obligations
were susceptible of partial performance. Under Article 1225 of the New Civil Code, their obligations are
divisible and the spouses Lam are liable for damages
ISSUE: Whether or not the contract between petitioners Spouses Alexander and Julie Lam and
respondent Kodak Philippines, Ltd. pertained to obligations that are severable, divisible, and susceptible
of partial performance under Article 1225 of the New Civil Code
RULING: No, the Letter Agreement contained an indivisible obligation. Based on the foregoing, the
intention of the parties is for there to be a single transaction covering all three (3) units of the Minilab
Equipment. Respondent’s obligation was to deliver all products purchased under a "package," and, in
turn, petitioners’ obligation was to pay for the total purchase price, payable in installments.
Article 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
The intention of the parties to bind themselves to an indivisible obligation can be further discerned
through their direct acts in relation to the package deal. There was only one agreement covering all
three (3) units of the Minilab Equipment and their accessories. The Letter Agreement specified only one
purpose for the buyer, which was to obtain these units for three different outlets. If the intention of the
parties were to have a divisible contract, then separate agreements could have been made for each
Minilab Equipment unit instead of covering all three in one package deal. Furthermore, the 19% multiple
order discount as contained in the Letter Agreement was applied to all three acquired units. The "no
downpayment" term contained in the Letter Agreement was also applicable to all the Minilab Equipment
units. Lastly, the fourth clause of the Letter Agreement clearly referred to the object of the contract as
"Minilab Equipment Package.
43 NAZARENO, vs. CA - G.R. No. 138842, October 18, 2000
Facts: During their marriage, Maximino Nazarano, Sr. and Aurea Poblete acquired properties in Quezon
City. After their death, Romeo, one of their children, filed an intestate case in the Court of First Instance
of Cavite. He was thereafter appointed as the administrator. In the course of the intestate proceedings,
Romeo discovered that his parents executed several deeds of sale in January 1970 conveying a
number of real properties to his sister, Natividad. One of the properties involved six lots in Quezon City.
By virtue of the said deed, transfer certificates of title were issued to Natividad. Among the lots covered
was Lot 3-B which was occupied by Romeo and his wife, and by his brother, Maximino, Jr.
Unknown to Romeo, Natividad sold Lot 3-B to Maximino, Jr. When he found out of the sale, Romeo and
his wife locked Maximino, Jr. of the house. As such, Maximino, Jr. filed an action for recovery of
possession and damages. The trial court ruled in favor of Maximino, Jr. which the Court of Appeals
affirmed. On Jun 1988, Romeo in turn filed for the annulment of sale against Natividad and Maximino, Jr
on the ground of lack of consideration. Natividad and Maximino, Jr. then filed a third-party complaint
seeking the annulment of the transfer to Romeo and cancellation of his title.
During the trial, Romeo presented evidence to show that Maximino and Aurea never intended to sell the
six lots to Natividad and Natividad was only to hold the said lots in trust for her siblings. He presented a
Deed of Partition and Distribution dated June 1962. Further, Romeo testified that the deeds were
created for consideration, but they never really paid any amount for the supposed sale in order to avoid
payment of inheritance taxes. On the other hand, Natividad and Maximino, Jr. claimed that she bought
the properties because she was the one financially able to do so.
The trial court declared thereafter the nullity of the January 1970 Deed of Sale and ordered that the
remaining properties were held in trust by Natividad in favor of his brother, Jose. On appeal, the Court
of Appeals modified the decision in the sense that the titles of Lot 3 and Lot 3-B were canceled and
restored to the estate of Maximino, Sr.
Hence, the petitioner filed a case before the Supreme Court.
Issue: W/N THE DEED OF ABSOLUTE SALE DATED JANUARY 29, 1970 EXECUTED BY THE
DECEASED SPOUSES MAXIMINO A. NAZARENO, SR. AND AUREA POBLETE DURING THEIR
LIFETIME INVOLVING THEIR CONJUGAL PROPERTIES IS AN INDIVISIBLE CONTRACT?
Ruling: Yes. The Deed of Absolute Sale dated January 29, 1970 is an indivisible contract founded on an
indivisible obligation. As such, it being indivisible, it cannot be annulled by only one of them. And since
this suit was filed only by the estate of Maximino A. Nazareno, Sr. without including the estate of Aurea
Poblete, the present suit must fail. The estate of Maximino A. Nazareno, Sr. cannot cause its annulment
while its validity is sustained by the estate of Aurea Poblete.
An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of
the thing which is the object thereof. The indivisibility refers to the prestation and not to the object
thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because the performance of the contract cannot be done
in parts, otherwise the value of what is transferred is diminished. Petitioners are therefore mistaken in
basing the indivisibility of a contract on the number of obligors.
SECTION 6. OBLIGATIONS WITH A PENAL CLAUSE
44 WILLIAM LOUH AND IRENE LOUH V BPI
FACTS: BPI issued a credit card in William's name, with Irene as the extension cardholder. Pursuant to
the terms and conditions of the cards' issuance, a 3.5% finance charge and a 6% late payment charge
shall be imposed monthly upon unpaid credit availments. The Spouses Louh made purchases using the
credit cards and paid regularly based on the amounts indicated in the Statement of Accounts (SOAs).
However, they became remiss in their obligations starting October 14, 2009. As of August 15, 2010,
their account was unsettled, prompting BPI to send written demand letters. By September 14, 2010,
they owed BPI: (1) the total amount of P533,836.27, (2) 25% of the amount due as attorney's fees, plus
P1,000.00 per court hearing and P8,064.00 as filing or docket fees, and (3) costs of suit. Despite
repeated verbal and written demands, the Spouses Louh failed to pay BPI. BPI filed a complaint for the
collection of a sum of money and a motion to declare the Spouses Louh in default. The RTC issued an
Order declaring the Spouses Louh in default and ordered them to solidarily pay BPI P533,836.27 plus
12% finance and 12% late payment annual charges. The CA affirmed in toto the RTC’s judgment.
ISSUE: WON the principal amount and attorney’s fees awarded by the RTC and CA are excessive.
RULING: YES. The Court affirms the herein assailed decision and resolution but modifies the principal
amount and attorney's fees awarded by the RTC and the CA.
In Macalinao, where BPI charged the credit cardholder 3.25% interest and 6% penalty per month, and
25% of the total amount due as attorney's fees, the Court declared the interest rate of 36% per annum
as excessive and unconscionable. The stipulated interest rates of 3% per month and higher are
considered excessive, iniquitous, unconscionable, and exorbitant. Since the stipulation on the interest
rate is void, courts may reduce the interest rate as reason and equity demand.
The same is true for the penalty charge. Article 1229 of the Civil Code allows the judge to equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with or when the
penalty is iniquitous or unconscionable. The stipulated penalty charge of 3% per month or 36% per
annum, in addition to regular interests, is indeed iniquitous and unconscionable. Thus, in Macalinao, the
Court reduced both the interest and penalty charges to 12% each, and the attorney's fees to
P10,000.00.
In MCMP Construction Corp. v. Monark Equipment Corp., the Court similarly found rates as exorbitant
and unconscionable, hence directed the reduction of the annual interest to 12%, penalty and collection
charges to 6%, and attorney's fees to 5%. Attorney's fees are in the nature of liquidated damages and
shall be equitably reduced if they are iniquitous or unconscionable.
In the case at bench, BPI imposed a cumulative annual interest of 114%, plus 25% of the amount due
as attorney's fees. Inevitably, the RTC and the CA aptly reduced the charges imposed by BPI upon the
Spouses Louh. Note that incorporated in the amount of P533,836.27 demanded by BPI as the Spouses
Louh's obligation as of August 7, 2010, were the higher rates of finance and late payment charges,
which the courts a quo had properly directed to be reduced.
In the SOA dated October 14, 2009, the principal amount indicated was P113,756.83. In accordance
with Macalinao, the finance and late payment charges to be imposed on the principal amount of
P113,756.83 are reduced to 12% each per annum, reckoned from October 14, 2009, the date when the
Spouses Louh became initially remiss in the payment of their obligation to BPI, until full payment.
Anent BPI's litigation expenses, the Court retains the RTC and CA's disquisition awarding P8,064.00 as
filing or docket fees and costs of suit. However, the Court reduces the attorney's fees to five percent
(5%) of the total amount due from the Spouses Louh pursuant to MCMP and Article 2227 of the New
Civil Code.
45 JOVEN V CHINA BANKING CORPORATION
FACTS: The petitioners executed 3 promissory notes in favor of the respondent which includes the term
for petitioners to pay jointly and severally penalty charges equivalent to 1/10 of 1 % per day of the total
amount due should they default, payable and due from the date of default until fully paid. Petitioners
also agreed to pay 10% of the total amount due as attorney's fees. The said PNs were also secured by
a real estate mortgage over petitioners' property.
Petitioners, failed to comply with their obligation which eventually amounted to a total of
₱28,438,791.69. The China Bank foreclosed the mortgaged property yielded ₱14,500,000.00 only in the
foreclosure sale. Being a deficiency, China Bank demanded that petitioners settle the balance in the
amount of ₱13,938,791.69, but to no avail. China Bank then filed its complaint for sum of money before
the RTC praying that judgment be rendered ordering petitioners to pay, jointly and severally, the amount
of ₱13,938,791.69 representing the amount of deficiency, plus interest at the legal rate, from February
26, 2004 until fully paid; an additional amount equivalent to 1/10 of 1% per day of the total amount, until
fully paid, as penalty; an amount equivalent to 10% of the said amounts as attorney's fees and
expenses of litigation; and costs of suit.
The RTC ruled in favor of China Bank, recognizing the latter's right to the deficiency balance in the
amount of ₱13,938,971.69, as per the computations adduced by China Bank, as well as 1% penalty on
the said deficiency balance for every month of default, ₱100,000.00 attorney's fees and costs of suit.
Petitioners moved for reconsideration, but their motion was denied by the RTC. Petitioners then
appealed the case before the CA but the CA affirmed the ruling of the RTC. Petitioners did not move for
reconsideration, but instead filed this petition before this Court.
ISSUE: Whether or not the computation of the deficient balance is correct.
RULING: NO, As held by the RTC, the deficiency balance was based on interest charges computed at
the prevailing market rates but with the divisor, used to arrive at the daily basis of the interest rates per
annum by China Bank, at 360 days. Article 13 of the Civil Code provides that when the law speaks of
years it shall be understood that years are of 365 days each and not 360 days. There being no
agreement between the parties, this Court adopts the 365-day rule as the proper reckoning point to
determine the daily basis of the interest rates charged per annum. Adding the interest charges plus
penalty and the principal amount due as of the date of the foreclosure sale would show that the
outstanding obligation of petitioners stood only at ₱22,134,132.93. Thus, with the ₱100,000.00
representing attorney's fees, the amount of the outstanding balance should now amount to only
₱22,234,132.93. China Bank already realized ₱14,500,000.00 from the foreclosure of petitioners'
mortgaged property, the outstanding balance should stand only at ₱7,734,132.93.
Petition is PARTLY GRANTED. The December 15, 2014 Decision of the Court of Appeals is hereby
modified to read as follows: WHEREFORE, premises considered, the instant appeal is hereby DENIED.
The challenged decision, dated 21 May 2010, as well as the order, dated 7 June 2011, are hereby
AFFIRMED with MODIFICATIONS. Respondent spouses Joven Sy and Corazon Que Sy are
ORDERED to pay petitioner China Banking Corporation ₱7,734,132.93, representing the deficiency of
their obligation, net of the proceeds of the foreclosed property, plus legal interest of 12% per annum
from April 19, 2004 until June 30, 2013, and 6% per annum thereafter, until fully satisfied.
:46 RIVERA V CHUA
FACTS: The parties were friends of long standing having known each other since 1973. In February
1995, Rivera obtained a loan from the Spouses Chua, in the tune of P120,000.00 embodied in a
promissory note with stipulations that failure on the part of Rivera to pay the amount on December 31,
1995, he agrees to pay 5% interest monthly from the date of default (January 1, 1996). Three years
have passed from the maturity date, when Rivera issued two (2) checks in favor of Chua as payment for
the loan, which, upon presentment, were dishonored for the reason “account closed.” In their collection
suit, Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. In
his Answer, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness
thereunder. From the MeTC to the CA, the monetary claim of Spouses Chua was sustained.
ISSUE: WON a demand from Sps. Chua is needed to make Rivera liable.
RULING: NO. Demand is no longer necessary because the law is explicit that when the debtor fails to
pay upon maturity date, when the obligation is due and demandable, he therefore incurs delay. Art.
1169 of the NCC states, “Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the
demand by the creditor shall not be necessary in order that delay may exist: 1) When the obligation or
the law expressly so declare xxx.”
There are four instances when demand is not necessary to constitute the debtor in default: (1) when
there is an express stipulation to that effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the obligation; and (4) where demand
would be useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the period lapses, default will commence.
The clause in the Promissory Note containing the stipulation of interest which expressly requires Rivera
to pay 5% monthly interest from the date of default until the entire obligation is fully paid. It is evident
that the maturity of the obligation on a date certain, December 31, 1995, will give rise to the obligation to
pay interest. The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for the stipulated
interest which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount of P120,000.00.
Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the Spouses Chua damages,
in the form of stipulated interest.
47 PRYCE CORP V PAGCOR
FACTS: PPC and PAGCOR executed a contract of lease for the hotel's ballroom, spanning a three-year
period from December 01, 1992, to November 30, 1995. A public rally took place on December 18,
1992, just hours before the casino's opening. However, operations were suspended by PAGCOR due to
barricades preventing access to and from the casino.
An agreement was reached between representatives and rallyists, concluding the rally on December
20, 1992. PAGCOR resumed operations on July 15, 1993, but persistent public rallies led to the
indefinite suspension of operations.
PPC informed PAGCOR of outstanding accounts for the quarter spanning September 1 to November
30, 1993. In response, PAGCOR communicated its reluctance to pay full rentals, citing unforeseen
circumstances that hindered compliance with obligations. Additionally, PAGCOR expressed its decision
to prematurely terminate the lease agreement upon order of the Office of the President.
ISSUE: W/N the future rentals constitute a penalty clause and is PAGCOR liable to pay the future
rentals after PPC has already terminated the contract?
RULING: The termination of the contract between PPC and PAGCOR released the latter from future
obligations, including the payment of rentals. The contractual provision in Section XX (c) was identified
as a penalty clause intended to ensure performance by imposing a special prestation in case of breach.
Such clauses are common in lease contracts, aiming to strengthen the coercive force of obligations and
provide for liquidated damages resulting from a breach. The general rule is that the penalty serves as a
substitute for indemnity and interest, unless stipulated otherwise or specific conditions apply, such as
refusal to pay the agreed penalty or the obligor being guilty of fraud.
In this case, the penalty clause stated that, in addition to remaining lease term rentals, PAGCOR would
be liable for any damages resulting from default and contract termination. Despite facing real and
pressing challenges leading to the breach, PAGCOR, having entered into the contract voluntarily and
with full knowledge, was held bound to its obligations. However, the court acknowledged its power to
equitably reduce stipulated penalties under certain circumstances.
The court considered factors such as the type, extent, and purpose of the penalty, nature of the
obligation, mode of breach, consequences, supervening realities, and the standing and relationship of
the parties. The court found that PAGCOR's breach was prompted by events that, though not fortuitous,
were real and pressing. PAGCOR engaged in negotiations, consulted with officials, contested
ordinances, and received advice from the Office of the President to cease operations. The court
acknowledged the interruptions and stoppages in PAGCOR's casino operations, causing a significant
loss of expected revenues.
While affirming petitioner's right to a stipulated penalty, the court deemed the claim for future rentals of
P7,037,835.40 to be highly iniquitous. Therefore, the court exercised its discretion to equitably reduce
the amount, considering the advanced rental deposits in the sum of P687,289.50 as a sufficient penalty
for respondent's breach.
48 RUIZ V CA
FACTS: Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She
obtained loans from private respondent Consuelo Torres on different occasions, in the following
amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5 Prior to their maturity, the loans
were consolidated under one (1) promissory note. The consolidated loan of P750,000.00 was secured
by a real estate mortgage and the lot was registered in the name of petitioner. Thereafter, petitioner
obtained three (3) more loans from private respondent, and it was secured by three promissory notes in
the amount of 100,000 each. These combined loans of P300,000.00 were secured by P571,000.00
worth of jewelry pledged by petitioner to private respondent. Petitioner paid the stipulated 3% monthly
interest on the P750,000.00 loan, amounting to P270,000.00. After that, petitioner was unable to make
interest payments as she had difficulties collecting from her clients in her jewelry business. Due to
petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest payment, private
respondent demanded payment not only of the P750,000.00 loan, but also of the P300,000.00 loan.
When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the
aforementioned real estate mortgage.
Private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage. On
September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff issued a Notice of Sheriffs Sale of
subject lot. On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a
complaint with the RTC of Quezon City docketed as Civil Case No. Q-9629024, with a prayer for the
issuance of a Temporary Restraining Order, which was granted and ordered the petitioner to pay the
amount of P1,307,000.00 with legal interest from date of receipt of decision until payment of total
amount of P1,307,000.00 has been made. Private respondents motion for reconsideration was denied,
and later on appealed to the Court of Appeals, the appellate court set aside the decision of the trial
court.
ISSUE: Whether the rates of interests and surcharges on the obligation of petitioner to private
respondent are valid.
RULING: No. We affirm the ruling of the appellate court, striking down as invalid the 10% compounded
monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995
and December 1, 1995, and the 1% compounded monthly interest stipulated in the promissory note
dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after the maturity dates of
the notes until full payment of the entire amount due. Also, the only permissible rate of surcharge is 1%
per month, without compounding.
49 ROBES V CFI AND MILLAN
FACTS: Robes-Francisco Realty & Development Corporation agreed to sell to private respondent Millan
a parcel of land in Caloocan City, payable in installment. Millan complied with her obligation under the
contract and paid the installments stipulated therein. Millan was able to pay the entire amount including
interests and expenses for registration of title. Thereafter, Millan made repeated demands upon the
corporation for the execution of the final deed of sale and the issuance to her the TCT over the lot. The
parties executed a deed of absolute sale containing a particular provision that states: “That the
VENDOR further warrants that the transfer certificate of title of the above-described parcel of land shall
be transferred in the name of the VENDEE within the period of six (6) months from the date of full
payment and in case the VENDOR fails to issue said transfer certificate of title, it shall bear the
obligation to refund to the VENDEE the total amount already paid for, plus an interest at the rate of 4%
per annum.”
In spite of the lapse of 6 months, the petitioner failed to cause the issuance of the TCT over the lot sold
to Millan, hence, the latter filed a complaint for specific performance and damages against petitioner
before the CFI of Rizal. After finding that the petitioner failed to cause the issuance of the TCT over the
lot because it was included among the properties mortgaged to GSIS to secure an obligation of
P10Million and that the owner’s duplicate title was with the GSIS, the trial court ruled in favor of Millan
commanding the petitioner to register the deed of sale and to pay Millan nominal damages plus
attorney’s fees. Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title within six months from the
date of full payment, it shall refund to the vendee the total amount paid for with interest at the rate of 4%
per annum, hence, the vendee is bound by the terms of the provision and cannot recover more than
what is agreed upon.
ISSUE: WON the provisions included in the deed of sale constituted a penal clause which would then
preclude an award of damages to private respondent Millan
RULING: NO. The foregoing argument of petitioner is totally devoid of merit. We would agree with
petitioner if the clause in question were to be considered as a penal clause. Nevertheless, for very
obvious reasons, said clause does not convey any penalty, for even without it, pursuant to Article 2209
of the Civil Code, the vendee would be entitled to recover the amount paid by her with legal rate of
interest which is even more than the 4% provided for in the clause. It is therefore inconceivable that the
aforecited provision in the deed of sale is a penal clause which will preclude an award of damages to
the vendee Millan. In fact, the clause is so worded as to work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted her case below without presenting
evidence on the actual damages suffered by her as a result of the nonperformance of petitioner's
obligation under the deed of sale. Nonetheless, the facts show that the right of the vendee to acquire
title to the lot bought by her was violated by petitioner and this entitles her at the very least to nominal
damages.
Under the foregoing provisions nominal damages are not intended for indemnification of loss suffered
but for the vindication or recognition of a right violated or invaded. They are recoverable where some
injury has been done the amount of which the evidence fails to show, the assessment of damages
being left to the discretion of the court according to the circumstances of the case.
50 CABARROGUIS V VICENTE
FACTS: Antonia Cabarroguis, a registered nurse and midwife, suffered permanent partial disability in
her right forearm due to an accident involving an AC jeepney owned by Telesforo B. Vicente. To settle
the matter and avoid litigation, Vicente entered a compromise agreement to pay Cabarroguis P2,500 as
actual and compensatory damages. A stipulation in the agreement imposed a penalty of P200 if Vicente
failed to complete payment within 60 days. Despite receiving P1,500, Vicente refused to fulfill the
remaining P1,000, prompting Cabarroguis to file a suit. The Municipal Court ruled in favor of
Cabarroguis, which Vicente appealed, arguing that the penalty should substitute for damages and
interest.
On appeal, the Court of Appeals affirmed the trial court's decision. It held that the lower court did not
erred in awarding interest, especially on the penalty amount, as Vicente had refused to pay the
stipulated penalty. The decision was affirmed with this modification.
ISSUE: Whether the court erred in ordering Vicente to pay interest from the date of the complaint until
full payment.
RULING: No, the court did not err. Article 1226 of the Civil Code states that a penalty substitutes for
indemnity and interest, with exceptions. Interest on the principal obligation was not awarded due to the
agreed penalty. However, the court clarified that interest could be imposed on the penalty amount.
Vicente's refusal to pay justified this, and Article 2210 allowed interest on damages awarded for breach
of contract. The Court of Appeals affirmed the decision, ensuring Cabarroguis received fair
compensation, considering both the principal and penalty.
51 LAMBERT V FOX
FACTS: John Edgar & Co., engaged in the retail book and stationery business, was taken over by its
creditors including Lambert and Fox. Lambert and Fox became the two largest stockholders in the new
corporation called John R. Edgar & Co., Incorporated. Lambert and Fox entered into an agreement
wherein they mutually and reciprocally agree not to sell, transfer, or otherwise dispose of any part of
their present holdings of stock until after one year from the agreement date. Either party violating the
agreement shall pay to the other the sum of P1,000 as liquidated damages, unless previous consent in
writing to such sale, transfer, or other disposition be obtained. Defendant Fox sold his stock to E. C.
McCullough of the firm of E. C. McCullough & Co. of Manila, a strong competitor of the said John R.
Edgar & Co., Inc. This sale was made by the defendant against the protest of the plaintiff and with the
warning that he would be held liable under the contract. Fox offered to sell his shares of stock to the
plaintiff for the same sum that McCullough was paying them less P1,000, the penalty specified in the
contract.
The trial court ruled in favor of the defendant, stating that the parties intended the agreement to be
effective only until the corporation reached a sound financial basis. As this had occurred before the
contract's expiration, the purpose was fulfilled, and the defendant was discharged from obligations. The
complaint was dismissed. The appellee argues that the plaintiff cannot recover, claiming the lack of
proof of damages. Citing American authorities, the appellee asserts that stipulations for liquidated
damages are often viewed as penalties, and courts are inclined to enforce recovery for actual damages
only. The appellee emphasizes the need for the suing party to demonstrate actual damages resulting
from the defendant's wrongful act or omission.
ISSUE: WON Fox should be penalized
RULING: YES. The parties expressly stipulated that the contract should last one year regardless of the
objective, it should be applied. Parties who are competent to contract may make such agreements
within the limitations of the law and public policy as they desire, and that the courts will enforce them
according to their terms. Legally, there is no distinction between a penalty and liquidated damages; they
are treated the same. The party entitled to payment is not required to prove damages, as the primary
purpose of fixing a penalty or liquidating damages is to avoid such necessity. The suspension of the
power to sell has a beneficial purpose, results in the protection of the corporation as well as of the
individual parties to the contract, and is reasonable as to the length of time of the suspension. While not
delving into the limitations of suspending the right of stock alienation, the Court asserts that the
suspension in this case is legal and valid.
The judgment is reversed, the case remanded with instructions to enter a judgment in favor of the
plaintiff and against the defendant for P1,000, with interest; without costs.
52 REPEAT CASE #49
53 NEW WORLD DEVELOPERS AND MANAGEMENT V AMA
FACTS: New World Developers (NWD) owns a commercial building in Sampaloc, Manila. In 1998, it
entered into a contract of lease with AMA for a period of eight years (15 June 1998-14 March 2006) a.
AMA paid P450,000.00 as advance rental and another P450,000.00 as security deposit. AMA
religiously paid rentals for the first three years. In 2002, it requested the deferment of the annual
increase in monthly rent due to financial constraints. NWD agreed to reduce the escalation rate by 50%
for the next six months. AMA again requested an adjustment the following year. The parties executed
an addendum to the lease agreement, whereby NWD granted a 45% of the monthly rate and 5%
reduction of the escalation rate. On the evening of 6 July 2004, AMA removed all of its equipment from
the premises and informed NWD the following day that it was preterminating the lease due to drastic
decline in enrollments. AMA also demanded the refund of the advance rental and security deposit.
NWD replied with a Statement of Account indicating the ff. amounts due: a. Unpaid two months’ rental –
P466,620; b. 3% monthly interest for unpaid rent – P67,426.59; c. Liquidated damages – P1,399,860 d.
Damage to the premises – P15,580. NWD then filed a suit for sum of money before the RTC of
Marikina. The RTC ordered AMA to pay the unpaid rentals plus 3% interest; liquidated damages, with
the advance and security deducted therefrom. On appeal to the CA, it ruled that the RTC erred in
imposing the 3% penalty because there was no stipulation in the Contract of Lease or in the Addendum.
It also reduced the liquidated damages on the basis that courts may equitably reduce penalties
according to its sound discretion.

ISSUE: Whether or not AMA liable to pay six months’ worth of rent as liquidated damages?

RULING: Yes. The Contract of Lease states that AMA may pre-terminate this Contract of Lease by
notice in writing to NWD at least six (6) months before the intended date of pre-termination, provided,
however, that in such case, AMA shall be liable to NWD for an amount equivalent to six (6) months
current rental as liquidated damages”. AMA never denied liability for the payment of liquidated
damages. What it claims is that it is entitled to the reduction of the amount due to its serious business
losses. The SC ruled that the law does not relieve a party from the consequences of a contract it
entered into with all the required formalities. A contract is the law between the parties. It will be strictly
enforced by the courts, unless shown to be contrary to law, morals, good customs, public order, or
public policy.