OBLIGATIONS Article 1423 of the New Civil Code classifies obligations into civil or natural.
Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a right of action
A. IN GENERAL
VILLAROEL VS ESTRADA
GR NO. L-4732 DEC. 19. 1940
FACTS:
Allejandra Calao is the mother of the defendant-appellant, John Villaroel. Alejandra obtained a loan of P1,000.00
payable after 7 years from spouses Mariano and Severina Estrada, parents of plaintiff-appellee, Bernardino
Estrada. Said loan was obtained in 1012. First parties died. The heirs entered into a new agreement wherein
Villaroel executed a document declaring the aforementioned loan with an interest of 12% PA. The original debt
already prescribed when John executed the document in August 9, 1930.
ISSUE:
Whether John should be held liable notwithstanding the prescription of the original debt.
HELD:
The action is based on the original obligation contracted by the mother of the defendant [Alejandra], which
already prescribed, but in which the defendant contracted in August 9, 1930, by assuming the fulfillment of that
obligation. Being the only defendant inherited or the only heir of his mother, the debt although lost its
effectiveness by prescription, is now, however, for a moral obligation that is consideration enough to create and
make effective and enforceable the obligation voluntarily contracted in 1930.
PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants, vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET AL., defendants-appellees.
G.R. No. L-13667 April 29, 1960
FACTS:
On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint praying
for a 20% Christmas bonus for the years 1954 and 1955 against Board of Directors of National Dev’t Company.
The Court does not see how petitioners may have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers to command
respondents to be liberal;
(b) Petitioners admit that respondents are not under legal duty to give such bonus but that they had only ask
that such bonus be given to them because it is a moral obligation of respondents to give that but as this Court
understands, it has no power to compel a party to comply with a moral obligation (Art. 142, New Civil Code.).
ISSUE:
Whether or not the Christmas bonus is a moral obligation and a demandable obligation.
HELD:
NO. Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that the
grant arises only from a moral obligation or the natural obligation that they discussed in their brief, this Court
feels it urgent to reproduce at this point, the definition and meaning of natural obligation.
to compel their performance. Natural obligations, not being based on positive law but on equity and natural law,
do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation before it can be cognizable by the court is voluntary
fulfillment by the obligor. Certainly retention can be ordered but only after there has been voluntary
performance. But here there has been no voluntary performance. In fact, the court cannot order the
performance.
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner, vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First Instance of Iloilo and
SPOUSES PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.
G.R. No. L-48889 May 11, 1989 GANCAYCO, J.:
FACTS:
On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the
Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00,
Philippine Currency, as evidenced by a promissory note of said date whereby they bound themselves jointly and
severally to pay the account in ten (10) equal yearly amortizations. As the obligation remained outstanding and
unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the
Congress of the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said
loan and promising to pay the same on or before June 15, 1961.
The City Court of Iloilo rendered a decision against the spouses Confessor, ordering them to jointly and severally
pay DBP. Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a
decision was rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint and
counter-claim with costs against the plaintiff.
A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10, 1978. Hence
this petition wherein petitioner alleges that the decision of respondent judge is contrary to law and runs counter
to decisions of this Court when respondent judge (a) refused to recognize the law that the right to prescription
may be renounced or waived; and (b) that in signing the second promissory note respondent Patricio Confesor
can bind the conjugal partnership; or otherwise said respondent became liable in his personal capacity.
ISSUE:
Whether or not Confesor should be held liable notwithstanding the original debt prescribed.
RULING:
The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the
right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However,
when respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay
the amount covered by the previous promissory note on or before June 15, 1961, and upon failure to do so,
agreed to the foreclosure of the mortgage, said respondent thereby effectively and expressly renounced and
waived his right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract
recognizing and assuming the prescribed debt would be valid and enforceable ... . 1
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the same has
prescribed and with full knowledge of the prescription he thereby waives the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing obligation under the first promissory note. The
statutory limitation bars the remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of the statute of limitations
as this proceeds upon the ground that as a statutory limitation merely bars the remedy and does not discharge
the debt, there is something more than a mere moral obligation to support a promise, to wit a – pre-existing
debt which is a sufficient consideration for the new the new promise; upon this sufficient consideration
constitutes, in fact, a new cause of action. 3
... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal
implication, which is to be regarded as reanimating the old promise, or as imparting vitality to the remedy
(which by lapse of time had become extinct) and thus enabling the creditor to recover upon his original contract.
B. SOURCES OF OBLIGATIONS
CRUZ V. TUAZON & CO
76 SCRA 546 APRIL 29, 1977 J. BARREDO
FACTS:
As requested by the Deudors (the family of Telesforo Deudor who laid claim on the land in questionon the
strength of an "informacion posesoria"), Cruz made permanent improvements on said landhaving an area of
more or less 20 quinones. The improvements were valued at P30,400.00 and for which he incurred expenses
amounting toP7,781.74.
In 1952, Tuason & Co. availed of Cruz' services as an intermediary with the Deudors to work for theamicable
settlement of Civil Case No. Q-135. The said case involved 50 quinones of land, of whichthe 20 quinones of land
mentioned above formed part.
A compromise agreement between the Deudors and Tuason & Co. was entered into on 1963 and was approved
by the Court.
Cruz alleged that Tuason & Co. Promised to convey to him the 3,000 sq. meters of land occupied byhim (which
was part of the 20 quinones of land) within ten years from the date of signing of thecompromise agreement
between the Deudors and the latter as consideration for his services. Saidland was not conveyed to him by
Tuason & Co.
Cruz further alleged that Tuason & Co. was unjustly enriched at his expense since they enjoyed thebenefits of
the improvements he made on the land acquired by the latter.
The trial court dismissed the case on the ground that there was no cause of action. Hence this appeal.
ISSUE:
a.) Is Cruz’ theory on unjust enrichment tenable?
b.)Was there a quasi-contract between Cruz and Tuason & Co.?
c.) Is Tuason & Co. obliged to reimburse Cruz for the improvements on the land?
HELD:
No, reliance on Article 2142 of the Civil Code is misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that
no one shall be unjustly enriched or benefited atthe expense of another.
On the quasi-contract:
It is obvious that a presumed quasi-contract cannot emerge as against one party when the subject mater thereof
is already covered by an existing contract with another party. Predicated on the principle that no one should
be allowed to unjustly enrich himself atthe expense of another, Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any actual agreement between the parties concerned.
It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the
part of the plaintiff.
"The act is voluntary because the actor in quasi-contract is not bound by any pre-existing obligation to act. It
is unilateral because it arises from the sole will of the actor who is not previously bound by any reciprocal or
bilateral agreement. The reason why the law creates a juridical relation and imposes a certain obligation is
to prevent a situation where a person is able to benefit or take advantage of such lawful, voluntary and
unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at
bar, since appellant has a clearer and more direct recourse against the Deudors with whom he had entered into
an agreement regarding the improvements and expenditures made by him on the land of appellees. it Cannot be
said, in the sense contemplated in Article 2142, that appellees have been enriched at the expense of appellant.
GUTIERREZ HERMANOS V. ORENSE
28 PHIL 571
FACTS:
Engracio Orense is the owner of a parcel of land located in Albay. Jose Duran, his nephew sold the said property
to Hermanos’ company for P1500, with reservation of right to repurchase the same for the same price within 4
years. The sale of the property was done with the consent and knowledge of Engracio Orense. The company had
not entered into possession of the purchased property, owing to its continued occupancy by the defendant and
his nephew, Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in
force up to February 14, 1911. Jose Duran was unable to repurchase the property within the stipulated period
due insolvency. In spite of the continuous demands made upon him, the defendant, with bad faith and to the
prejudice of the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said
property refused to vacate the property and execute a deed of conveyance. Petitioner filed a case for estafa
against Jose Duran. During trial, Engracio was called as a witness for Jose Duran, to which he testified that he
was aware of the sale made by Duran. Hence, the court acquitted the latter from the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the owner
of the property, to the effect that he had consented to his nephew Duran's selling the property under right of
repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other remedies,
that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff
company of all the right, title and interest with Orense had in the property sold, and to pay to the same the
rental of the property due from February 14, 1911.
ISSUE:
WON there is a civil obligation to deliver the property to Hermanos by virtue of a sale entered into by the former
and Jose Duran?
RULING:
Yes. Xxx It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant
conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way
by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent, who
acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to
make the said sale.(Civil Code, arts. 1888 and 1892.)
Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized
by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor legal representation
shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by
the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for
estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to
article 1313 of the Civil Code, remedies all defects which the contract may have contained from the moment of
its execution.
The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning,
but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the
confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself
consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code, the
right of action for nullification that could have been brought became legally extinguished from the moment the
contract was validly confirmed and ratified, and, in the present case, it is unquestionable that the defendant did
confirm the said contract of sale and consent to its execution.
Xxx
If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling
the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to
be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure,
because the authority which Orense may have given to Duran to make the said contract of sale is not shown to
have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that the
defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew Jose
Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and presented in
this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant
made no objection. Therefore the principal is bound to abide by the consequences of his agency as though it had
actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil.
Rep., 241; Kuenzle&Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed
that he had given his consent to the sale of his property, meet the requirements of the law and legally excuse
the lack of written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran,
they produce the effects of an express power of agency.
RUSTICO ADILLE VS. THE HON. COURT OF APPEALS ET. ALS.
G.R. NO. L-44546, JANUARY 29, 1988
FACTS:
Felisa Alzul married Bernabe Adille with whom she had an only child Rustico Adille and in her second
marriage to Procopio Asejo she had children namely, Emeteria, Teodorica, Domingo, Josefa and Santiago all
surnamed Asejo.
Felisa sold her property containing an area of 11,325 sq.m., under pacto de retro to certain third
persons and the period of repurchase being 3 years. Felisa died without being able to redeem the property after
her death. During the period of redemption, Rustico Adille, repurchased by himself alone and then after
executed a deed of extra-judicial partition representing himself to be the only heir and child of Felisa. Rustico
secured title in his name in 1955.
The half brother and sisters of Rustico Adille filed a case for partition with accounting on the position
that he was only a trustee on an implied trust when he redeemed the property.
RTC ruled in his favor and declared him as the absolute owner ans not as a trustee and then dismissed the case.
On appeal, the CA reversed the trial court decision, hence, this case.
Issue:
Whether Rustico Adille in taking over the property in question is a trustee of 11,325 sq.m., on behalf of his half-
brother and sisters which constituted himself a negotiorum gestor under Art. 2155 of the Civil Code.
Held:
Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
The Court agreed with the decision of the Court of Appeals that fraud attended the registration of
property. Rustico pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he
executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and
sisters and to exercise sole dominion over the property.

It is view of the Court of Appeals that Rustico in taking over the property, did so either on behalf of
his co-heirs, in which event, he constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or
for exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents
(Rustico’s half-brothers and sisters or co-heirs) being the beneficiaries, under the Article 1456. Rustico’s claims
of exclusive ownership over the property and having acted in fraud of his co-heirs, he cannot therefore be said
to have assume the mere management of the property abandoned by his co-heirs, the situation Article 2144 of
the Codes contemplates. In any case, as the respondent Court itself affirms, the result would be the same
whether it is one or the other. Rustico would remain liable to Private respondents, his co-heirs.
DOMETILA ANDRES, DOING BUSINESS UNDER THE NAME AND STYLE “IRENE’S WEARING APPAREL”
VS. MANUFACTURERS HANOVER & TRUST CORPORATION, CA,
SEPTEMBER 15, 1989, J. CORTES.
FACTS:
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers was
Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States. In the course of the business
transaction between the two, FACETS from time to time remitted certain amounts of money to petitioner in
payment for the items it had purchased. Sometime in August 1980, FACETS instructed the First National State
Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to
petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to
effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB with
private respondent. Although private respondent was able to send a telex to PNB to pay petitioner $10,000.00
through the Pilipinas Bank, where petitioner had an account, the payment was not effected immediately
because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB, private respondent
sent PNB another telex dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing
Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through Demand Draft No.
225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already received
the remittance, FACETS informed private respondent about the delay and at the same time amended its
instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank (hereinafter
referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance of
$10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused
to pay.
ISSUE:
Whether or not Mantrust can recover the second remittance worth $10,000.
RULING:
YES. The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It
was the latter and not private respondent which was indebted to petitioner.
On the other hand, the contract for the transmittal of dollars from the United States to petitioner was entered
into by private respondent with FNSB. Petitioner, although named as the payee was not privy to the contract of
remittance of dollars. Neither was private respondent a party to the contract of sale between petitioner and
FACETS. There being no contractual relation between them, petitioner has no right to apply the second
$10,000.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS.
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the
time the second $10,000.00 remittance was made, five hundred and ten days had elapsed before private
respondent demanded the return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
GONZALO PUYAT & SONS, INC., vs. CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila
G.R. No. L-17447 April 30, 1963 PAREDES, J.:
FACTS:
Plaintiff Gonzalo Puyat & Sons, Inc., an entity engaged in the business of manufacturing and selling all kinds of
furniture, paid without protest the Retail Dealer's Taxes for the First Quarter of 1950 up to the third Quarter of
1956, amounting to P33,785.00, to City of Manila, in the erroneous belief that it was liable therefor.
On August 11, 1958, the plaintiff Puyat & Sons, Inc., filed an action for refund of Retail Dealer's Taxes paid by it
against the City of Manila and its City Treasurer on the ground that plaintiff, being a manufacturer of various
kinds of furniture, is exempt from the payment of taxes imposed under the provisions of Sec. 1, Group II, of
Ordinance No. 3364,which took effect on September 24, 1956, on the sale of the various kinds of furniture
manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No. 409 (Revised Charter of Manila),
as restated in Section 1 of Ordinance No.3816.
Defendants do not dispute the fact that plaintiff is exempted from the payment of the tax in question, however,
it contend that the taxes in question were voluntarily paid by plaintiff and since, in this jurisdiction, in order that
a legal basis arise for claim of refund of taxes erroneously assessed, payment thereof must be made under
protest, and this being a condition sine qua non, and no protest having been made, -- verbally or in writing,
thereby indicating that the payment was voluntary, the action must fail. In refutation of the above stand of
appellants, plaintiff avers that the payments could not have been voluntary. At most, they were paid "mistakenly
and in good faith"and "without protest in the erroneous belief that it was liable thereof." Voluntariness is
incompatible with protest and mistake.
It submits that this is a simple case of "solutio indebiti".
Defendants also maintain that article 1146 (NCC), which provides for a period of four (4) years (upon injury to
the rights of the plaintiff), apply to this case. On the other hand, plaintiff contends that provisions of Act 190
(Code of Civ. Procedure) should apply, insofar as payments made before the effectivity of the New Civil Code on
August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211)
and article 1145 (NCC), for payments made after said effectivity, providing for a period of six (6) years (upon
quasi-contracts like solutio indebiti).
ISSUE:
(1) Whether or not the amounts paid by plaintiff-appellee, as retail dealer's taxes under Ordinance 1925, as
amended by Ordinance No. 3364of the City of Manila, without protest, are refundable;
(2) Assuming arguendo, that plaintiff-appellee is entitled to the refund of the retail taxes in question, whether
or not the claim for refund filed in October 1956, in so far as said claim refers to taxes paid from 1950 to 1952
has already prescribed.
HELD:
1. Defendants do not dispute the fact that plaintiff is exempted from the payment of the tax in question. With
this admission, it would seem clear that the taxes collected from plaintiff were paid, thru an error or mistake,
which places said act of payment within the pale of the new Civil Code provision on solutio indebiti. "If
something is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligation to retun it arises" (Art. 2154, NCC). Thus the defendants, at the very start, notwithstanding the
Ordinance imposing the Retailer's Tax, had no right to demand payment thereof.
Plaintiff's payment was not voluntarily made, (a fact found also by the lower court),but on the erroneous belief,
that they were due. Under this circumstance, the amount paid, even without protest is recoverable. "If the payer
was in doubt whether the debt was due, he may recover if he proves that it was not due" (Art. 2156, NCC).
Plaintiff had duly proved that taxes were not lawfully due. There is, therefore, no doubt that the provisions of
solutio indebtiti, the new Civil Code, apply to the admitted facts of the case.
"Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may
come within the scope of the preceding article" (Art. 2155). There is no gainsaying the fact that the payments
made by plaintiff was due to a mistake in the construction of a doubtful question of law.
"Every person who through an act or performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal grounds, shall return the same to
him"(Art. 22, Civil Code). It would seems unedifying for the government, (here the City of Manila), that knowing
it has no right at all to collect or to receive money for alleged taxes paid by mistake, it would be reluctant to
return the same. No one should enrich itself unjustly at the expense of another (Art. 2125, Civil Code)..
Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non for its application..
2. Even if the provisions of Act No. 190 should apply to those payments made before the effectivity of the new
Civil Code, because "prescription already running before the effectivity of this Code shall be governed by laws
previously in force x x x" (art. 1116, NCC), for payments made after said effectivity,providing for a period of six
(6) years (upon quasi-contracts like solutio indebiti). Even if the provisions of Act No. 190should apply to those
payments made before the effectivity of the new Civil Code, because "prescription already running before the
effectivity of of this Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments made
before August 30, 1950 are no longer recoverable in view of the second paragraph of said article (1116), which
provides:"but if since the time this Code took effect the entire period herein required for prescription should
elapse the present Code shall be applicable even though by the
former laws a longer period might be required". Anent the payments made after August 30, 1950, it is abvious
that the action has prescribed with respect to those made before October 30, 1950 only, considering the fact
that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art. 1155, NCC),
and the written demand in the case at bar was made on October 30, 1956 (Stipulation of Facts).MODIFIED in the
sense that only payments made on or after October 30, 1950 should be refunded, the decision appealed from is
affirmed, in all other respects.
SALUDAGA vs. FAR EASTERN UNIVERSITY
G.R. No. 179337 April 30, 2008
FACTS:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University when he was
shot by Alejandro Rosete, one of the security guards on duty at the school premises on August 18, 1996. Rosete
was brought to the police station where he explained that the shooting was accidental. He was eventually
released considering that no formal complaint was filed against him.
Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation
(Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano
D. Imperial (Galaxy’s President), to indemnify them for whatever would be adjudged in favor of petitioner.
Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe
and secure environment and an atmosphere conducive to learning.
ISSUE:
WON FEU was not negligent and such shooting was tantamount to a caso fortuito? NO, it was negligent and such
is not a fortuitous case.
HELD:
When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes
to provide the student with an education that would presumably suffice to equip him with the necessary tools
and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the
school’s academic requirements and observe its rules and regulations.
Respondent FEU failed to discharge the burden of proving that they exercised due diligence in providing a safe
learning environment for their students. It failed to show that they undertook steps to ascertain and confirm
that the security guards assigned to them actually possess the qualifications required in the Security Service
Agreement. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other
vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these
matters or failure to check the papers stating the qualifications of the guards is negligence on the part of
respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters
in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation
to ensure a safe learning environment for its students.
Respondent FEU is liable to petitioner for damages.
FEU cannot be held liable for damages under Art. 2180 of the Civil Code because respondents are not the
employers of Rosete. The latter was employed by Galaxy. The instructions issued by respondents Security
Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the
contract for services entered into by a principal and a security agency. They cannot be construed as the element
of control as to treat respondents as the employers of Rosete. It had no hand in selecting thesecurity guards.
Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client
FALLO:
“For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which
resulted to the latters breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for
such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus,
we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the
security agency.
SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS vs. NATIONAL COCONUT
CORPORATION
G.R. No. L-3756 June 30, 1952
Facts:
This is an action to recover the possession of a piece of real property (land and warehouses) situated in
Pandacan Manila, and the rentals for its occupation and use. The land belongs to the plaintiff, in whose name
the title was registered before the war. On January 4, 1943, during the Japanese military occupation, the land
was acquired by a Japanese corporation by the name of Taiwan Tekkosho. After liberation, the Alien Property
Custodian of the United States of America took possession, control, and custody thereof for the reason that it
belonged to an enemy national. During the year 1946 the property was occupied by the Copra Export
Management Company under a custodianship agreement with United States Alien Property Custodian and when
it vacated the property it was occupied by the defendant. The Philippine Government made representations
with the Office Alien Property Custodian for the use of property by the Government. On March 31, 1947, the
defendant was authorized to repair the warehouse on the land. In 1948, defendant leased one-third of the
warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month. Sarile
did not pay the rents, so action was brought against him.
Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as this was
denied, it brought an action in court to annul the sale of property of Taiwan Tekkosho, and recover its
possession.
Issue:
w/n defendant is liable for the rentals in the subject property
Held:
No. We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of the
property and the defendant-appellant the occupant, which used for its own benefit but by the express
permission of the Alien Property Custodian of the United States, so easily jumped to the conclusion that the
occupant is liable for the value of such use and occupation. If defendant-appellant is liable at all, its obligations,
must arise from any of the four sources of obligations, namley, law, contract or quasi-contract, crime, or
negligence. (Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all, because it
entered the premises and occupied it with the permission of the entity which had the legal control and
administration thereof, the Allien Property Administration. Neither was there any negligence on its part. There
was also no privity (of contract or obligation) between the Alien Property Custodian and the Taiwan Tekkosho,
which had secured the possession of the property from the plaintiff-appellee by the use of duress, such that the
Alien Property Custodian or its permittee (defendant-appellant) may be held esponsible for the supposed
illegality of the occupation of the property by the said Taiwan Tekkosho. The Allien Property Administration had
the control and administration of the property not as successor to the interests of the enemy holder of the title,
the Taiwan Tekkosho, but by express provision of law (Trading with the Enemy Act of the United States, 40 Stat.,
411; 50 U.S.C.A., 189). Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of
then Government of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion
of, and against the claim or title of, the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179
N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when defendant-appellant took possession, to
the late of judgment on February 28, 1948, Allien Property Administration had the absolute control of the
property as trustee of the Government of the United States, with power to dispose of it by sale or otherwise, as
though it were the absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A.,
283.) Therefore, even if defendant-appellant were liable to the Allien Property Administration for rentals, these
would not accrue to the benefit of the plaintiff-appellee, the owner, but to the United States Government.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provision of this chapter.
PEOPLE’S CAR V. COMMANDO SECURITY 51 SCRA 40
FACTS:
Plaintiff, a car dealer, entered into a contract with defendant, a security agency, and the latter’s duty is to guard
the former’s premises from theft, robbery, pilferage, vandalism and other unlawful acts of any person or person
prejudicial to the interest of plaintiff. At around 1 AM of April 1970, the security guard deployed by the
defendant, without authority neither from the plaintiff nor from defendant, drove a car, which was entrusted to
the plaintiff by a customer for service and maintenance, outside of the plaintiff’s compound and around the city
which after the security guard lost control of, fell into a ditch, causing it severe damage. Plaintiff complained
against the security guard for qualified theft. While the car is undergoing repair, plaintiff rented a car for its
customer for 47 days until the car was fixed, and took pain to repair the damaged car. Then plaintiff instituted a
claim against the defendant for recovery of the actual damages amounting to P8,489.10 incurred due to the
unlawful act of the latter’s personnel, citing inter alia the Par. 5 of the contract that the defendant shall be solely
responsible for the acts done during their watch, and the Party of the First Part being specifically released from
any and all liabilities to the former’s employee or to the third parties arising from the acts or omissions done by
the guard during their tour of duty”. Defendant on the other hand, interposed, that it may be liable but its
liability is limited under Par. 4 of said contract providing: “that its liability shall not exceed one thousand
(P1,000.00) pesos per guard post”.
ISSUE:
1. Whether or not, plaintiff is liable to its customer for the damages caused by the guard wrongful act?
2. Whether or not the defendant, Commando Security, is liable to indemnify the plaintiff for the entire damages
thus incurred?
RULING:
1. Yes. Plaintiff was in law liable to its customer for the damages caused the customer's car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and relying in
turn on defendant to honor its contract and indemnify it for such undisputed damages, which had been caused
directly by the unlawful and wrongful acts of defendant's security guard in breach of their contract. As ordained
in Article 1159, Civil Code, "obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith."
2. Yes. Instead of defendant, through its assigned security guards, complying with its contractual undertaking 'to
safeguard and protect the business premises of (plaintiff) from theft, robbery, vandalism and all other unlawful
acts of any person or persons," defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs
premises a customer's car, lost control of it on the highway causing it to fall into a ditch, thereby directly causing
plaintiff to incur actual damages in the total amount of P8,489.10.
JOSE CANGCO, plaintiff-appellant,
vs.MANILA RAILROAD CO., defendant-appellee.
G.R. No. L-12191 October 14, 1918 FISHER, J.:
FACTS:
Plaintiff, Jose Cangco, was in the employment of Manila Railroad Company in the capacity of clerk. He used a
pass, supplied by the company, which entitled him to ride upon the company's trains free of charge.
As the train slowed down another passenger, named Emilio Zuñiga, also an employee of the railroad company,
got off the same car, alighting safely at the point where the platform begins to rise from the level of the ground.
When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also, but one or both of his
feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell
violently on the platform. His body at once rolled from the platform and was drawn under the moving car, where
his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car
moved forward possibly six meters before it came to a full stop.The accident occurred between 7 and 8 o'clock
on a dark night, and as the railroad station was lighted dimly by a single light located some distance away,
objects on the platform where the accident occurred were difficult to discern especially to a person emerging
from a lighted car.
The trial court ruled that although negligence was attributable to the defendant by reason of the fact that the
sacks of melons were so placed as to obstruct passengers passing to and from the cars, nevertheless, the
plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded from
recovering. Judgment was accordingly entered in favor of the defendant company, and the plaintiff appealed.
ISSUE:
Whether or not Manila Railroad should be held liable?
RULING:
It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and
that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that
contract by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is
direct and immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the
negligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the
exercise of due care in their selection and supervision. Article 1903 of the Civil Code is not applicable to
obligations arising ex contractu, but only to extra-contractual obligations — or to use the technical form of
expression, that article relates only to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this
distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and
Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa clearly points out the difference
between "culpa, substantive and independent, which of itself constitutes the source of an obligation between
persons not formerly connected by any legal tie" and culpa considered as an accident in the performance of an
obligation already existing . . . ."
Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its
source in the breach or omission of those mutual duties which civilized society imposes upon it members, or
which arise from these relations, other than contractual, of certain members of society to others, generally
embraced in the concept of status. The legal rights of each member of society constitute the measure of the
corresponding legal duties, mainly negative in character, which the existence of those rights imposes upon all
other members of society. The breach of these general duties whether due to willful intent or to mere
inattention, if productive of injury, give rise to an obligation to indemnify the injured party. The fundamental
distinction between obligations of this character and those which arise from contract, rests upon the fact that in
cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the
vinculum juris, whereas in contractual relations the vinculum exists independently of the breach of the voluntary
duty assumed by the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect — and our Legislature has so elected — whom such an obligation is
imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend that liability, without
regard to the lack of moral culpability, so as to include responsibility for the negligence of those person who acts
or mission are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited
control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability —
with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the
persons to be charged. This moral responsibility may consist in having failed to exercise due care in the selection
and control of one's agents or servants, or in the control of persons who, by reason of their status, occupy a
position of dependency with respect to the person made liable for their conduct.
The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the obligation upon
which plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests upon plaintiff
to prove the negligence — if he does not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to
perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents. Proof of
the contract and of its nonperformance is sufficient prima facie to warrant a recovery.
As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that
plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly
the condition of the platform and while the train was yet slowly moving. In considering the situation thus
presented, it should not be overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction
which was caused by the sacks of melons piled on the platform existed; and as the defendant was bound by
reason of its duty as a public carrier to afford to its passengers facilities for safe egress from its trains, the
plaintiff had a right to assume, in the absence of some circumstance to warn him to the contrary, that the
platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this also is proof of a
failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff; for if it were by
any possibility concede that it had right to pile these sacks in the path of alighting passengers, the placing of
them adequately so that their presence would be revealed.
 NARCISO GUTIERREZ vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ
G.R. No. 34840 September 23, 1931
FACTS:
A passenger truck and an automobile of private ownership collided resulting to an injury suffered by
plaintiff passenger Narciso Gutierrez. The truck was driven by Abelardo Velasco, and was owned by Saturnino
Cortez. The automobile was being operated by Bonifacio Gutierrez, 18 years of age, and was owned by
Bonifacio's parents Mr. and Mrs. Manuel Gutierrez.
ISSUE:
Whether or not the defendants are civilly liable for obligations which arise from fault or negligence?
RULING:
YES. In relation to the liability, pursuant to the provisions of article 1903 of the Civil Code, the father
alone and not the minor or the mother, would be liable for the damages caused by the minor.
Under the common law rule: The theory of the law is that the running of the machine by a child to
carry other members of the family is within the scope of the owner's business, so that he is liable for the
negligence of the child because of the relationship of master and servant; The liability of Saturnino Cortez, the
owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of
contractsufficiently demonstrated by the allegations of the complaint, not controverted, and the evidence. In its
broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with
neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision and
an accident.
D. KINDS OF OBLIGATIONS
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN, Retirement Trust Fund,
Inc.) Petitioner,
vs. SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
G.R. No. 178610 November 17, 2010 CARPIO, J.:
FACTS:
Petitioner Editha Broqueza is an employee of Hongkong and Shanghai Banking Corporation (HSBC). She is also a
member of respondent Hongkong Shanghai Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP). The
HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the
employees.
On October 1, 1990, petitioner Editha Broqueza obtained a car loan in the amount of Php175,000.00. On
December 12, 1991, she again applied and was granted an appliance loan in the amount of Php24,000.00. These
loans are paid through automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBC’s employees
were terminated, among whom is petitioner Editha Broqueza.
Because of their dismissal, petitioner was not able to pay the monthly amortizations of her loans. Thus,
respondent HSBCL-SRP considered the accounts of petitioner delinquent. Demands to pay the obligations were
made upon petitioner, but she failed to pay.
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed Civil Case No.
52400 against the spouses Broqueza on 31 July 1996. The suit was civil actions for recovery and collection of
sums of money.
MeTC promulgated its Decision in favor of HSBCL-SRP. The MeTC ruled that the nature of HSBCL-SRP’s demands
for payment is civil and has no connection to the ongoing labor dispute. Editha Broqueza’s termination from
employment resulted in the loss of continued benefits under their retirement plans. Thus, the loans secured by
their future retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil
obligations. As unsecured and pure obligations, the loans are immediately demandable.
RTC affirmed in toto. CA reversed ruling that the HSBCL-SRP’s complaints for recovery of sum of money against
Gerong and the spouses Broqueza are premature as the loan obligations have not yet matured. Thus, no cause
of action accrued in favor of HSBCL-SRP.
ISSUE:
Whether or not the loan are demandable at once notwithstanding its maturity.
RULING:
We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:
PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC
RETIREMENT PLAN (hereinafter called the "PLAN") at its office in the Municipality of
Makati, Metro Manila, on or before until fully paid the sum of PESOS ___ (P___)
Philippine Currency without discount, with interest from date hereof at the rate
of Six per cent (6%) per annum, payable monthly.
I/WE agree that the PLAN may, upon written notice, increase the interest rate
stipulated in this note at any time depending on prevailing conditions.
I/WE hereby expressly consent to any extensions or renewals hereof for a portion or
whole of the principal without notice to the other(s), and in such a case our liability
shall remain joint and several.
In case collection is made by or through an attorney, I/WE jointly and severally agree to
pay ten percent (10%) of the amount due on this note (but in no case less than P200.00)
as and for attorney’s fees in addition to expenses and costs of suit.
In case of judicial execution, I/WE hereby jointly and severally waive our rights under
the provisions of Rule 39, Section 12 of the Rules of Court.
In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:
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.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes.
The RTC is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to
demand immediate payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s obligation to pay
HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha
Broqueza’s salary is of no moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a
demand to enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal from HSBC in December
1993, she "religiously paid the loan amortizations, which HSBC collected through payroll check-off." A definite
amount is paid to HSBCL-SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to make deductions from
her payroll until her loans are fully paid. Editha Broqueza, however, defaulted in her monthly loan payment due to
her dismissal. Despite the spouses Broqueza’s protestations, the payroll deduction is merely a convenient mode of
payment and not the sole source of payment for the loans. HSBCL-SRP never agreed that the loans will be paid only
through salary deductions. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC,
her obligation to pay the loans will be suspended. HSBCL-SRP can immediately demand payment of the loans at
anytime because the obligation to pay has no period. Moreover, the spouses Broqueza have already incurred in
default in paying the monthly installments.
PAY VS. PALANCA
57 SCRA 618
FACTS:
Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the
petitioner is based on a promissory note dated January 30, 1952, whereby the late Justo Palanca and Rosa
Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of P26,900.00, with interest thereon at
the rate of 12% per annum.
The promissory note dated January 30, 1962, is worded thus:
" `For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr.
[George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine
Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by
either of the undersigned of cash payment from the Estate of the late Don Carlos Palancaorupon
demand'. . . .
This promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." Pay filed an action
before the the Court to bring a real property located in Taft Avenue Manila under the administration of
SegundinaVda de Palanca. However, his action could not prosper because of the refusal on the part of
Segundina to be appointed as administratix and that his action already prescribed. The Court has inquired
whether any cash payment has been received by either of the signers of this promissory note from the Estate of
the late Carlos Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only
claiming on his right under the promissory note ." 3 The Court then ruled, that the wording of the promissory
note being "upon demand," the obligation was immediately due. Since it was dated January 30, 1952, it was
clear that more "than ten (10) years has already transpired from that time until to date. The action, therefore, of
the creditor has definitely prescribed." 4 The result, as above noted, was the dismissal of the petition.
ISSUE:
1)WON the obligation embodied in the promissory note constitute a pure obligation?
2) WON the right to file action for the fulfillment of the obligation had already prescribed?
RULING:
1) Yes. X xxFrom the manner in which the promissory note was executed, it would appear that
petitioner was hopeful that the satisfaction of his credit could he realized either through the debtor
sued receiving cash payment from the estate of the late Carlos Palanca presumptively as one of the
heirs, or, as expressed therein, "upon demand." There is nothing in the record that would indicate
whether or not the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more
than fifteen years after the execution of the promissory note on January 30, 1952, this petition was
filed. The defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil
Code provides: "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." This used to be Article
1113 of the Spanish Civil Code of 1889. As far back as Floriano v. Delgado, 5 a 1908 decision, it has
been applied according to its express language. The well-known Spanish commentator, Manresa, on
this point, states: "Dejando con acierto, el caractermasteorico y grafico del acto, o sea la perfeccion
de este, se fija, para determinar el concepto de la obligacionpura, en el distinctive de esta, y
queesconsecuencia de aquel: la exigibilidadimmediata."
2) Yes. The obligation being due and demandable, it would appear that the filing of the suit after fifteen
years was much too late. For again, according to the Civil Code, which is based on Section 43 of Act
No. 190, the prescriptive period for a written contract is that of ten years. 7
SMITH BELL & CO., LTD. VS. VICENTE SOTELO MATTI
G.R. NO. L-16570, MARCH 9, 1922
FACTS:
Smith Bell & Co., Ltd., (Smith Bell) and Mr. Vicente Sotelo (Sotelo) entered into contracts whereby Smith Bell
obligated itself to sell and Sotelo to purchase from it the following:
a.) 2 steel tanks for total price of P21, 000.00 to be shipped from New York and delivered at Manila within 3
or 4 months;
b.) 2 expellers for P25, 000.00 per piece to be shipped from San Francisco in the month of September 1918 or
as soon as posible; and
c.) 2 Electricmotors for P2, 000.00 per piece approximate delivery within 90days - this is not guaranteed.
The tanks arrived in Manila on April 27, 1919, expellers on October 26, 1918 and the motors on February 27,
1919. Smith Bell brought a suit against Sotelo based on 4 separate causes of action alleging among other facts,
that immediately notified Sotelo of the arrival of the goods and asked instructions from him as to the delivery
thereof, and that Mr. Sotelo refused to received any of them and to pay their price.
Mr. Sotelo denied the allegations and posits that it was only on May 1919 that he was notified of the arrival of
the steel tanks, the motors and the expellers having arrived incomplete and long after the date stipulated. As a
consequence of delay in making the delivery of goods which the intervenor Manila Oil Refining Co., Ltd.,
intended to use it in the manufacture of coconut oil it suffered damages in the amount of P116, 783.91 for non-
delivery of tanks an P21, 250.00 on account of expellers and the motors not having arrived in due time.
Trial ensued and the Regional Trial Court absolved Mr. Sotelo from the complaint in so far as the tanks and
the eletric motors but rendered judgment against them to receive the expellers and pay P50, 000.00, the price
of goods and interests thereon.
ISSUE:
Whether Smith Bell fulfilled in due time its obligation to bring the goods to Manila, otherwise held guilty of delay
and liable for the consequences thereof.
RULING:
The Court determined what period was fixed for the delivery of the goods. As regard the tanks within 3 or 4
months. With reference to expellers, to be shipped at San Francisco within the month of September 1918 or as
soon as possible and the motors approximate delivery within 90 days- this is not guaranteed.
In all these contracts, there is a final clause that " sellers are not responsible for delays caused by fire, riots on
lands or on the sea, strikes or other causes known as Force Majeure entirely beyond the control of the sellers or
their representatives".
The stipulation fall short of fixing a period. From the records it appears that the contracts were executed at
the time of world war when there existed rigid restrictions on the export from the United States of articles like
the machinery in question, maritime as well as railroad, transportation was difficult, which fact was known to
the parties. Hence, clauses were inserted in the contracts regarding the Government regulations, railroad
embargoes, lack of vessel space, the exigencies of the requirements of the United States Government, in
connection with the tanks and Priority Certificate, subject to the US Gov't., with respect to the motors. At the
time of the execution of tne contracts, the parties were not unmindful of the contingency of the US Gov't., not
allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might
prevent it.
The Court conclude that the termwhich the parties attempted to fix is so uncertain that one cannot tell just
whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, the obligations
must be regarded as conditional.
obligations for the performance of which a day certain has been fixed shall be demandable only when tne day
arrives.
a day certain is understood to be one which must necessarily arrive, even though its date be unknown.
if the uncertainty should consist in the arrival on non-arrival of the day, the obligation is conditional and shall
be governed by the rules of thd next preceding section. ( referring to pure and conditional obligations). (art.
1125, Civ. Code).
and as the export of the machineries question was, as stated in the contract, contingent upon the sellers
obtaining certificate of priority and permissions of the US Government, subject to the rules and regulations, as
well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended
not only upon the effort of the herein plaintiff, but upin the will of third person s who could in no way be
compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered
by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has
done all that was in his power, even the condition has not been fulfilled in reality.
In such cases, the decision prior to the Civil Code have held that the obligee having done all that was in his
power, was entitled to enforce performance of the obligation. This performance, which is fictitious - not real - is
not expressly authorized by the Code, which limit itself only to declare valid those conditions and the obligation
thereby affected ; but it is neither disallowed, and the Code being thus silent, the old view can be maintained
as doctrine.
Mr. Sotelo is sentenced to accept and receive from Smith Bell the tanks, the expellers and the motors in
question, and to pay Smith Bell the sum of P96, 000.00 with legal interest thereon from July 17, 1919, the date
of filing the complaint, until fully paid, and the costs of both instances.
CHAVEZ VS. GONZALES
32 SCRA 547
FACTS:
In the early part of July 1963, Rosendo Chavez delivered to Fructuoso Gonzales, who is a typewriter repairer, a
portable typewriter for routine cleaning and servicing. Gonzales was not able to finish job after some time
despite repeated reminder. Gonzales merely gave assurances but failed to comply with the same. In October
1963, Gonzales asked from Chavez the sum of P6.00 for the purchase of spare parts which amount was duly
given to the former. On October 26, 1963, Chavez asked for the return of the typewriter. Gonzales just delivered
it in a wrapped package. And it was only upon reaching home that Chavez found out that the typewriter was in
shambles, with the interior cover and some parts and screws missing. On October 29, 1963, Chavez demanded
the return of the missing parts and the P6.00 which was heeded to. Thereafter, Chavez had the typewriter
repaired for P89.85. Chavez sued for damages.
ISSUE:
Whether or not Gonzales is liable for damages for the subsequent repair of the typewriter of Chavez.
RULING:
YES. The SC found that both Chavez and Gonzales had a perfected contract for cleaning and servicing of
typewriter intending for Gonzales to finish the work at some future time although such time was not specified
and that such time had passed without the work having been accomplished, for Gonzales returned the
typewriter cannibalized and unrepaired, which in itself is a breach of obligation, without demanding that he
should be given more time to finish the job or compensation for the work he had already done. The time for
compliance having evidently expired and there being a breach of contract by non-compliance, Gonzales cannot
invoke Article 1197 for he admitted non-performance by returning the typewriter that he was obliged to repair.
The fixing of a period would thus be a mere formality and would serve no purpose than to delay. For such,
Gonzales is liable under Article 1167 for the cost of the execution of the obligation in a proper manner.
VICENTE SINGSON ENCARNACION, plaintiff-appellee, vs. JACINTA BALDOMAR, ET AL., defendants-appellants.
G.R. No. L-264 October 4, 1946 HILADO, J.:
FACTS:
Sometime in 1940, plaintiff Encarnacion, leased his house situated in Legarda, Manila to defendants
Baldomar and her son, upon a month-to-month basis. When Manila was liberated in the last war on March 16,
1945, the plaintiff Encarnacion notified defendants Baldomar on April 7, 1945 to vacate the house on or before
April 15, 1945 because plaintiff Encarnacion needed it for his offices as a result of the destruction of the building
where said plaintiff Encarnacion had said offices before.
Despite this demand, defendants Baldomar insisted on continuing their occupancy. The graveman of
the defense interposed by defendants Baldomar was that the contract which they had celebrated with plaintiff
Encarnacion since the beginning authorized them to continue occupying the house indefinitely and while they
should faithfully fulfill their obligations as respects the payment of the rentals, and that the lease agreement had
been ratified when another ejectment case between the parties filed during the Japanese regime concerning the
same house was allegedly compounded in the municipal court.
ISSUE:
Whether or not Defendants Baldomar can continuously and indefinitely occupy the house as long as they pay
rentals?
RULING:
NO. The defense set up by defendants Baldomar would leave to the sole and exclusive will of one of the
contracting parties (defendants in this case) the validity and fulfillment of the contract of lease, within the
meaning of article 1256 of the Civil Code, since the continuance and fulfillment of the contract would then
depend solely and exclusively upon their free and uncontrolled choice between continuing paying the rentals or
not, completely depriving the owner of all say in the matter.
If this defense were to be allowed, so long as defendants elected to continue the lease by continuing
the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner
should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited
by the aforesaid article of the Civil Code.
ELEIZEGUI V. THE MANILA LAWN TENNIS CLUB
G.R. NO. 967 MAY 19, 1903
FACTS:
A contract of lease was executed on January 25, 1980 over a piece of land owned by the plaintiffs Eleizegui
(Lessor) to the Manila Lawn Tennis Club, an English association (represented by Mr. Williamson) for a fixed
consideration of P25 per month and accordingly, to last at the will of the lessee. Under the contract, the lessee
can make improvements deemed desirable for the comfort and amusement of its members. It appeared that the
plaintiffs terminated the lease right on the first month. The defendant is in the belief that there can be no other
mode of terminating the lease than by its own will, as what they believe has been stipulated.
As a result the plaintiff filed a case for unlawful detainer for the restitution of the land claiming that article 1569
of the Civil Code provided that a lessor may judicially dispossess the lessee upon the expiration of the
conventional term or of the legal term; the conventional term — that is, the one agreed upon by the parties; the
legal term, in defect of the conventional, fixed for leases by articles 1577 and 1581. The Plaintiffs argued that the
duration of the lease depends upon the will of the lessor on the basis of Art. 1581 which provides that, "When
the term has not been fixed for the lease, it is understood to be for years when an annual rental has been fixed,
for months when the rent is monthly. . . ." The second clause of the contract provides as follows: "The rent of the
said land is fixed at 25 pesos per month."
The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code, the law which was in
force at the time the contract was entered into. It is of the opinion that the contract of lease was terminated by
the notice given by the plaintiff. The judgment was entered upon the theory of the expiration of a legal term
which does not exist, as the case requires that a term be fixed by the courts under the provisions of article 1128
with respect to obligations which, as is the present, are terminable at the will of the obligee.
ISSUE:
a) Whether or not the parties have agreed upon the duration of the lease
b) Whether or not the lease depends upon the will of the lessee
RULING:
a) YES, the parties have agreed upon a term hence Art. 1581 is inapplicable.
The legal term cannot be applied under Art 1581 as it appears that there was actually an agreement between
the parties as to the duration of the lease, albeit implied that the lease is to be dependent upon the will of the
lessee. It would be absurd to accept the argument of the plaintiff that the contract was terminated at its notice,
given this implication.
Interestingly, the contract should not be understood as one stipulated as a life tenancy, and still less as a
perpetual lease since the terms of the contract express nothing to this effect, even if they implied this idea. If the
lease could last during such time as the lessee might see fit, because it has been so stipulated by the lessor, it
would last, first, as long as the will of the lessee — that is, all his life; second, during all the time that he may
have succession, inasmuch as he who contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.)
The lease in question does not fall within any of the cases in which the rights and obligations arising from a
contract can not be transmitted to heirs, either by its nature, by agreement, or by provision of law. Moreover,
being a lease, then it must be for a determinate period. (Art. 1543.) By its very nature it must be temporary, just
as by reason of its nature, an emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)
B) The duration of the lease does not depend solely upon the will of the Lessee (defendant).
It cannot be concluded that the termination of the contract is to be left completely at the will of the lessee
simply because it has been stipulated that its duration is to be left to his will.
The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of obligations
with a term it has supplied the deficiency of the former law with respect to the "duration of the term when it
has been left to the will of the debtor," and provides that in this case the term shall be fixed by the courts. (Art.
1128, sec. 2.) In every contract, as laid down by the authorities, there is always a creditor who is entitled to
demand the performance, and a debtor upon whom rests the obligation to perform the undertaking. In bilateral
contracts the contracting parties are mutually creditors and debtors. Thus, in this contract of lease, the lessee is
the creditor with respect to the rights enumerated in article 1554, and is the debtor with respect to the
obligations imposed by articles 1555 and 1561. The term within which performance of the latter obligation is
due is what has been left to the will of the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the contract is that by which it is sought to obtain
from the judge the determination of this period, and not the unlawful detainer action which has been brought —
an action which presupposes the expiration of the term and makes it the duty of the judge to simply decree an
eviction. To maintain the latter action it is sufficient to show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be granted in the former action it is necessary for the judge
to look into the character and conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire.
The lower court’s judgement is erroneous and therefore reversed and the case was remanded with directions to
enter a judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club.
PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO vs. LUI
SHE in her own behalf and as administratrix of the intestate estate of Wong Heng
G.R. No. L-17587 September 12, 1967
FACTS:
Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila.
This parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and opens into Florentino Torres
street at the back and Katubusan street on one side. In it are two residential houses with entrance on Florentino
Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses,
while Wong Heng, a Chinese, lived with his family in the restaurant. Wong had been a long-time lessee of a
portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with no other
heir. Then already well advanced in years, being at the time 90 years old, blind, crippled and an invalid, she was
left with no other relative to live with. Her only companions in the house were her 17 dogs and 8 maids. Her
otherwise dreary existence was brightened now and then by the visits of Wong's four children who had become
the joy of her life. Wong himself was the trusted man to whom she delivered various amounts for safekeeping,
including rentals from her property at the corner of Ongpin and Salazar streets and the rentals which Wong
himself paid as lessee of a part of the Rizal Avenue property. Wong also took care of the payment; in her behalf,
of taxes, lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and her household
expenses.
"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed on
November 15, 1957 a contract of lease in favor of Wong, covering the portion then already leased to him and
another portion fronting Florentino Torres street. The lease was for 50 years. Ten days later, the contract was
amended so as to make it cover the entire property, including the portion on which the house of Justina Santos
stood, at an additional monthly rental of P360. For his part Wong undertook to pay, out of the rental due from
him, an amount not exceeding P1,000 a month for the food of her dogs and the salaries of her maids.
On December 21 she executed another contract giving Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly installment of P1,000. The option was conditioned on his
obtaining Philippine citizenship, a petition for which was then pending in the Court of First Instance of Rizal. It
appears, however, that this application for naturalization was withdrawn when it was discovered that he was
not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him and his children on the erroneous
belief that adoption would confer on them Philippine citizenship. The error was discovered and the proceedings
were abandoned.
On November 18, 1958 she executed two other contracts, one extending the term of the lease to 99 years, and
another fixing the term of the option of 50 years. Both contracts are written in Tagalog.
In two wills executed on August 24 and 29, 1959, she bade her legatees to respect the contracts she had entered
into with Wong, but in a codicil of a later date (November 4, 1959) she appears to have a change of heart.
Claiming that the various contracts were made by her because of machinations and inducements practiced by
him, she now directed her executor to secure the annulment of the contracts.
On November 18 the present action was filed in the Court of First Instance of Manila. The complaint alleged that
the contracts were obtained by Wong "through fraud, misrepresentation, inequitable conduct, undue influence
and abuse of confidence and trust of and (by) taking advantage of the helplessness of the plaintiff and were
made to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and
also of the Philippine Naturalization Laws."
ISSUE:
Whether or not the option given to Wong to buy the property despite him being an alien is valid.
HELD:
NO. Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal
an insidious pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an
alien for a reasonable period is valid. So is an option giving an alien the right to buy real property on condition
that he is granted Philippine citizenship. As this Court said in Krivenko v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since
their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract
which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes
and misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his property,21 this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of
the right to enjoy the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) — rights the sum total of which make up ownership. It is just as if today the
possession is transferred, tomorrow, the use, the next day, the disposition, and so on, until ultimately all the
rights of which ownership is made up are consolidated in an alien. And yet this is just exactly what the parties in
this case did within the space of one year, with the result that Justina Santos' ownership of her property was
reduced to a hollow concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.
LIM V. PEOPLE 133 SCRA 333
FACTS:
On January 10, 1966, appellant Lourdes Valerion Lim who is a businesswoman went to the house of Maria
Ayroso and proposed to sell Ayroso’s tobacco consisting of 615 kilos at P1.30 a kilo. The appellant shall receive
the profit from sale of the tobacco. This agreement was made in the presence of the plaintiff’s sister, Salud
Bantug. Salvador Bantug drew the document which apprised of a certification that appellant had received from
Ayroso the amount of 615 kilos of leaf tobacco to be sold at P1.30 per kilo or a total of P799.50. It is also stated
there that the proceeds in the amount of P799.50 will be given to Ayroso as soon as it was sold. It was signed by
the appellant and witnessed by the complainant’s sister Salud Bantug and the latter’s maid Genoveva Ruiz. P240
out of P799.50 was paid by the appellant to Ayroso on three installments. As no further amount was paid,
complainant Ayroso filed a complaint against appellant Lim for estafa. Judgment was rendered against appellant.
In this petition for review on certiorari, appellant claimed that the obligation does not fix a period and that the
court should fix the duration thereof pursuant to Article 1197 of the Civil Code.
ISSUE:
Whether or not the obligation of Lourdes Lim to pay Ayroso the amount of P799.50 is an obligation with a fix
period?
RULING:
No. It is clear in the agreement that the proceeds of the sale of the tobacco will be turned over to the
complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the
tobacco was disposed of. The agreement constituted her as an agent with the obligation to return the tobacco if
the same was not sold. Furthermore, where a person obliged himself to pay to another the proceeds of the
latter’s tobacco as soon as they are disposed of, a period exists for payment of the obligation and, therefore,
Article 1197 does not apply.
GREGORIO ARANETA, INC., petitioner, vs. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
respondent.
G.R. No. L-22558 May 31, 1967 REYES, J.B.L., J.:
FACTS:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as
the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950, through Gregorio
Araneta, Inc., it (Tuason & Co.) sold a portion thereof to Philippine Sugar Estates Development Co., Ltd. The
parties stipulated, among in the contract of purchase and sale with mortgage, that the buyer will — “ Build on
the said parcel land the Sto. Domingo Church and Convent” while the seller for its part will — “Construct streets
on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets
on all four sides; and the street on the NE side shall be named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo
Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to
finish the construction of the street in the Northeast side named (Sto. Domingo Avenue) because a certain third-
party, by the name of Manuel Abundo, who has been physically occupying a middle part thereof, refused to
vacate the same; hence, on May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint
against J. M. Tuason & Co., Inc., and instance, seeking to compel the latter to comply with their obligation, as
stipulated in the above-mentioned deed of sale, and/or to pay damages in the event they failed or refused to
perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter
particularly setting up the principal defense that the action was premature since its obligation to construct the
streets in question was without a definite period which needs to be fixed first by the court in a proper suit for
that purpose before a complaint for specific performance will prosper.
The trial court dismissed plaintiff's complaint. Plaintiff moved to reconsider and modify the above
decision, praying that the court fix a period within which defendants will comply with their obligation to
construct the streets in question. The lower court ordered defendant Gregorio Araneta, Inc., a period of two (2)
years from notice, within which to comply with its obligation under the contract. On appeal, the appellate court
pointed out that under the Deed of Sale between the parties, herein defendant has a reasonable time within
which to comply with its obligations to construct and complete the streets on the NE, NW and SW sides of the
lot in question; that under the circumstances, said reasonable time has not elapsed; thus fixing the period is
proper.
ISSUE:
Whether or not the clause in the parties contract “reasonable time” needs to be fixed a period for the
defendant to comply with its obligation
HELD:
NO. Article 1197 expressly prescribes that — “the Court shall determine such period as may under
the circumstances been probably contemplated by the parties.”
The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to
be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in
its answer that the contract with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner
Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to construct and complete
the streets." Neither of the courts below seems to have noticed that, on the hypothesis stated, what the answer
put in issue was not whether the court should fix the time of performance, but whether or not the parties
agreed that the petitioner should have reasonable time to perform its part of the bargain. If the contract so
provided, then there was a period fixed, a "reasonable time;" and all that the court should have done was to
determine if that reasonable time had already elapsed when suit was filed if it had passed, then the court should
declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting damages. On
the other hand, if the reasonable time had not yet elapsed, the court perforce was bound to dismiss the action
for being premature. But in no case can it be logically held that under the plea above quoted, the intervention of
the court to fix the period for performance was warranted, for Article 1197 is precisely predicated on the
absence of any period fixed by the parties.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must
first determine that "the obligation does not fix a period" (or that the period is made to depend upon the will of
the debtor)," but from the nature and the circumstances it can be inferred that a period was intended" (Art.
1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to the second step, and decide
what period was "probably contemplated by the parties" . So that, ultimately, the Court cannot fix a period
merely because in its opinion it is or should be reasonable, but must set the time that the parties are shown to
have intended. As the record stands, the trial Court appears to have pulled the two-year period set in its decision
out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil
Code.
The conclusion is thus forced that the parties must have intended to defer the performance of the
obligations under the contract until the squatters were duly evicted, as contended by the petitioner Gregorio
Araneta, Inc.
PACIFICA MILLARE vs. HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, ANTONIO CO and ELSA
CO
G.R. No. L-55480 June 30, 1987
FACTS:
A five year contract of lease was executed between petitioner Pacifica Millare as lessor and private
respondents’ spouses Elsa and Antonio Co. After the end of the five year contract, Mrs. Millare wrote the Co
spouses requesting them to vacate the leased premises as she had no intention of renewing the Contract of
Lease which had already expired. Another letter of demand from Mrs. Millare was received by the Co spouses,
who responded by depositing the rentals for two months in court. Spouses Co thereafter filed a complaint with
the court of first instance seeking judgment ordering the renewal of the Contract of Lease. Mrs. Millare
countered with an Omnibus Motion to Dismiss which respondent judge denied and ordered the renewal of the
Contract of Lease. Respondent judge had rendered a Judgment by Default against petitioner founding his
decision under Article 1197 and 1670 of the New Civil Code.
ISSUE:
Whether or not Article 1197 may be applied in this case?
RULING:
NO.Article 1197 provides that:
“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. “
Since the Contract of Lease did in fact fix an original period of five years, which had expired. It is also clear from
paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the
period of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the wiu of the lessee alone, but rather to the will of both the
lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here,
the contract was not renewed at all, there was in fact no contract at all the period of which could have been
fixed.
CALANG and PHILTRANCO vs. PEOPLE
[G.R. No. 190696. August 3, 2010]
FACTS:
 Petitioner Calang was driving a bus owned by Philtranco when its rear left side hit the front left
portion of a Sarao jeep coming from the opposite direction.
 As a result of the collision, the jeep’s driver, lost control of the vehicle, and bumped and killed a
bystander who was standing along the highway’s shoulder.
 Two of the jeep’s passengers were instantly killed, while the other passengers sustained serious
physical injuries.
 The prosecution charged Calang with multiple homicide, multiple serious physical injuries and
damage to property thru reckless imprudence before the RTC.
 RTC found Calang guilty beyond reasonable doubt of reckless imprudence resulting [in] multiple
homicide, multiple physical injuries and damage to property.
 The Court of Appeals affirmed the decision of RTC.
ISSUE:
 Whether or not Philtranco may be held jointly and severally liable with Calang.
RULING:
No. The RTC and the CA both erred in holding Philtranco jointly and severally liable with Calang. He
was charged criminally before the RTC. Undisputedly, Philtranco was not a direct party in this case.
Since the cause of action against Calang was based on delict, both the RTC and the CA erred in
holding Philtranco jointly and severally liable with Calang, based on quasi-delict under Articles
2176 and 2180 of the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious
liability of an employer for quasi-delicts that an employee has committed. Such provision of law does
not apply to civil liability arising from delict.
ERNESTO V. RONQUILLO, petitioner,
vs. HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.
G.R. No. L-55138 September 28, 1984, CUEVAS, J.:
FACTS:
Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and Shanghai Banking
Corporation (HSBC). They are also members of respondent Hongkong Shanghai Banking Corporation, Ltd. Staff
Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by HSBC through
its Board of Trustees for the benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of Php175,000.00. On
December 12, 1991, she again applied and was granted an appliance loan in the amount of Php24,000.00. On
the other hand, petitioner Gerong applied and was granted an emergency loan in the amount of Php35,780.00
on June 2, 1993. These loans are paid through automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBC’s employees
were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The employees then filed an
illegal dismissal case before the National Labor Relations Commission (NLRC) against HSBC. The legality or
illegality of such termination is now pending before this appellate Court in CA G.R. CV No. 56797,
entitled Hongkong Shanghai Banking Corp. Employees Union, et al. vs. National Labor Relations Commission, et
al.
Because of their dismissal, petitioners were not able to pay the monthly amortizations of their respective loans.
Thus, respondent HSBCL-SRP considered the accounts of petitioners delinquent. Demands to pay the respective
obligations were made upon petitioners, but they failed to pay.
HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed Civil Case No.
52400 against the spouses Broqueza on 31 July 1996. On 19 September 1996, HSBCL-SRP filed Civil Case No.
52911 against Gerong. Both suits were civil actions for recovery and collection of sums of money.
ISSUE:
Whether the nature of liability as termed “jointly and severally” of the defendants means being solidary; hence the
full payment can be demanded by anyone of the defendant and thereby correctly rejecting the tender of payment
of Ronquillo of his ¼ share only.
RULING:
The High Court ruled in the affirmative.
In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each
one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance
with the prestation. Then is a solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligation to which the preceding article refers
the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as
there are creditors and debtors, the credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of quits.
The decision of the lower court based on the parties' compromise agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree to
acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness
of P110,000.00, the amount of P5,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months from January 1980 or before June
30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants
obligated themselves to pay their obligation "individually and jointly".
The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable" undoubtedly creates a several obligation, and a "several
obligation is one by which one individual binds himself to perform the whole obligation.
In the case of Parot vs. Gemora, We therein ruled that "the phrase juntos or separadamente or in the
promissory note is an express statement making each of the persons who signed it individually liable for the
payment of the fun amount of the obligation contained therein." Likewise in Un Pak Leung vs. Negorra, We held
that "in the absence of a finding of facts that the defendants made themselves individually hable for the debt
incurred they are each liable only for one-half of said amount
The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable
against one of the numerous obligors.
MALAYAN INSURANCE CO., INC. v. COURT OF APPEALS
G.R. NO. L-36413, September 26, 1988
FACTS:
Malayan Insurance Co., Inc. (Malayan) issued an insurance policy in favor of private respondent Sio
Choy (Choy) covering a Willys Jeep for “own damage” not exceeding Php600,000.00 and “third party liability” in
the amount of Php20,000.00.
During the effectivity of the insurance policy, the insured jeep, while being driven by one Juan P.
Campollo (Campollo), an employee of the respondent San Leon Rice Mill, Inc. (San Leon) collided with a
PANTRANCO bus causing damage to the insured vehicle and injuries to Campollo and his passenger Martin C.
Vallejos (Vallejos).
Vallejos filed an action for damages against Choy, Malayan, and PANTRANCO wherein they
interposed their defenses. Choy further filed a separate answer with cross-claim against Malayan for
reimbursement of the hospitalization expenses he paid to Vallejos. A third-party complaint was also filed by
Malayan against San Leon for being the employer of the deceased Campollo making it liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code.
The RTC ruled in favor of Vallejos ordering Choy, Malayan and San Leon jointly and severally liable for
damages. However, the liability of Malayan was limited only to the amount of Php20,000.00. On appeal, the
Court of Appeals affirmed the trial court’s decision. However, the CA ruled that San Leon has no obligation to
indemnify or reimburse Malayan for whatever amount it was ordered to pay on its policy, since San Leon is not a
privy to the contract of insurance between Choy and Malayan.
ISSUES:
1. Whether Malayan, Choy and San Leon are solidarily liable to Vallejos.
2. Whether Malayan is entitled to be reimbursed by San Leon.
RULING:
First Issue
It is only respondent Sio Choy and San Leon Rice Mill, Inc. (to the exclusion of the petitioner) that are
solidarily liable to respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated
Willys jeep, pursuant to Art. 2184 of the Civil Code. xxx xxx xxx. On the other hand, it is noted that the
basis of liability by respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the
driver of the Willys jeep at the time of the motor vehicle mishap, is Art. 2180 of the Civil Code. xxx xxx
xxx
On the other hand, the basis of petitioner’s liability is its insurance contract with respondent Sio
Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than P20,000.00, this is on
account of its being the insurer of respondent Sio Choy under the third party liability clause included in the
private car comprehensive policy existing between petitioner and respondent Sio Chou at the time of the
complained vehicular accident.
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.
In the case at bar, the petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot,
as incorrectly held by the trial court, be made “solidarily” liable with the two principal tortfeasors. For if
petitioner-insurer were solidarily liable with said 2 respondents by reason of the indemnity contract against third
party liability – under which an insurer can be directly sued by a third party – this will result in a violation of the
principles underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of the solidary
debtors. On the other hand, insurance is defined as “a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.”
In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon
Rice Mills, Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification
that petitioner’s liability is only up to P20,000.00. in the context of solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the qualification
made by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount stated
in its insurance policy with respondent Sio Choy for indemnity against third party liability is only P20,000.00?
Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to
pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is an evident breach of the
concept of a solidary obligation.
Second Issue:
The appellate court overlooked the principle of subrogation in insurance contracts. Thus –
…Subrogation is a normal incident of indemnity insurance. Upon payment of
the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the
insured may have against the third person whose negligence or wrongful act caused the
loss.

The right of subrogation is of the highest equity. The loss in the first instance is
that of the insured but after reimbursement or compensation, it becomes the loss of the
insurer.
Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without any formal
assignment or any express stipulation to that effect in the policy. Stated otherwise, when
the insurance company pays for the loss, such payment operates as an equitable
assignment to the insurer of the property and all remedies which the insured may have for
the recovery thereof. The right is not dependent upon, nor does it grow out of any privity
of contract or upon written assignment of claim, and payment to the insured makes the
insurer assignee in equity.
It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding
P20,000.00 shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to
whatever rights the latter has against respondent San Leon Rice Mill, Inc. Art. 1217 of the Civil Code gives to a
solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for the share
which corresponds to each.
In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby
becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice
Mill, Inc.
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA,
MOISES CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO LEVISTE, GAVINO GONZALES, LOPE
GEVANA and BONIFACIO LAUREANA,defendants-appellees.
. G.R. No. L-28046 May 16, 1983
FACTS:
Philippine National Bank (PNB) filed a complaint against several solidary debtors for the collection of a sum of
money. One of the solidary debtors, Ceferino Valencia died during the pendency of the case. The Court of First
Instance dismissed PNB’s complaint based on the death of one of the solidary debtors and therefore the
complaint, being a money claim based on contract, should be prosecuted in the testate or intestate proceeding
for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court
which reads:
SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary with another
debtor, the claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right
of the estate to recover contribution from the other debtor. In a joint obligation of the decedent, the claim shall
be confined to the portion belonging to him.
PNB appealed and contend, invoking its right of recourse against one, some or all of its solidary
debtors under Article 1216 of the Civil Code —
ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected.
ISSUE:
Whether or not in an action for collection of a sum of money based on contract against all the
solidary debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case against
the surviving defendants.
HELD:
No, It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or convenient for the
protection of his interests; and if, after instituting a collection suit based on contract against some or all of them
and, during its pendency, one of the defendants dies, the court retains jurisdiction to continue the proceedings
and decide the case in respect of the surviving defendants.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. Said
provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of them
simultaneously.' The choice is undoubtedly left to the solidary, creditor to determine against whom he will
enforce collection. In case of the death of one of the solidary debtors, he (the creditor) may, if he so chooses,
proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased
debtors. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in
the estate of the deceased solidary debtor .
THE BACHRACH MOTOR CO V. ESPIRITU
G.R. No. L-28497 November 6, 1928 AVANCEÑA, C. J.:
FACTS:
This is a consolidated case (Cases no. 28497 and 28948) involving two separate sale transactions. One
made in Feb. 18, 1925 (case 28498), when the defendant earlier bought a truck on installment from the
petitioner and said truck was mortgaged together with the two others (no. 77197 & 92744 in the subsequent
sale transaction dated July 28, 1925. The said two of the other trucks were also purchased (but already paid
previously) from the plaintiff. The defendant failed to pay the balance. In July 1925, defendant again purchased
another truck from Bachrach. The said truck, together with the 3 other vehicles were mortgaged to the plaintiff
to secure the remaining balance. The defendant failed to pay the balance for the latest truck obtained.
It was agreed in both sales that 12% interest will be paid on the unpaid price, and in case of the
non-payment of the total debt at maturity, 25% shall be the penalty. The defendant also signed a promissory
note solidarily with his brother Rosario (acting as intervenor), the sums secured by the mortgages. Rosario is
alleged to be the owner of the two white trucks no. 77197 & 92744 mortgaged.
While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of
the mortgage, all of them together bringing in, after deducting the sheriff's fees and transportation charges to
Manila.
The lower court ordered the defendants and the intervenor to pay plaintiff in case 28497 the sum of
P7,732.09 with interest at the rate of 12 % per annum from May 1, 1926 until fully paid, and 25 % thereof in
addition as penalty. In case 28498, the trial court ordered the defendant and the intervenor to pay plaintiff the
sum of P4,208.28 with interest at 12 % per annum from December 1, 1925 until fully paid, and 25 % thereon as
penalty.
The appellants contend that trucks 77197 and 92744 were not mortgaged, because, when the
defendant signed the mortgage deeds these trucks were not included in those documents, and were only put in
later, without defendant's knowledge. Appellants also alleged that on February 4, 1925, the defendant sold his
rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the latter did not sign the mortgage
deeds, such trucks cannot be considered as mortgaged. But there is positive proof that they were included at the
time the defendant signed these documents. Besides, there were presented two of defendant's letters to
Hidalgo, an employee of the plaintiff's written a few days before the transaction, acquiescing in the inclusion of
all his White trucks already paid for, in the mortgage.
ISSUE:
WON the 25% penalty upon the debt, in addition to the interest of 12% per annum, makes the contract usurious.
RULING:
No.
xxx
Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. Should there be
such an agreement, the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the
interest, and which may be demanded separately. According to this, the penalty is not to be added to the
interest for the determination of whether the interest exceeds the rate fixed by the law, since said rate was fixed
only for the interest. But considering that the obligation was partly performed, and making use of the power
given to the court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt.
With the sole modification that instead of 25 per cent upon the sum owed, the defendants need pay only 10 per
cent thereon as penalty, the judgment appealed from is affirmed in all other respects without special
pronouncement as to costs. So ordered.
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION
VS COURT OF FIRST INSTANCE OF RIZAL and LOLITA MILLAN
G.R. No. L-41093 October 30, 1978
FACTS :
This is a direct appeal on questions of law from a decision of the Court of First Instance of Rizal commanding the
defendant to register the deed of absolute sale it had executed in favor of plaintiff with the Register of Deeds of
Caloocan City and secure the corresponding title in the name of plaintiff within ten (10) days after finality of this
decision; if, for any reason, this is not possible, defendant is hereby sentenced to pay plaintiff the sum of
P5,193.63 with interest at 4% per annum from June 22, 1972 until fully paid.
In May 1962, Petitioner Realty Corp. sold to Lolita Millan a parcel of land in Camarin, Caloocan on installment basis.
Millan paying in full on Dec. 1971, including the interests and expenses for registration of title. Deed of sale was
executed in Mar. 1973, wherein VENDOR warrants that it shall issue TCT w/in 6 months. Should the vendor fail to
issue the TCT w/in 6 mos. from the date of full payment, it shall refund to the vendee the total amount paid for w/
interest at the rate of 4% per annum. Failing to do so, Millan filed a case of specific performance and damages vs.
Robes in CFI. On trial it was found that Corp. failed to deliver the TCT because the property was mortgaged with
GSIS. Petitioner was found guilty of delay amounting to non-performance of obligation, thus Art. 1170 was applied.
Petitioner here invokes Art. 1226, that in lieu of the contract Millan should be allowed to recover damages more
than what was agreed upon.
ISSUE:
Whether or not the provision in the deed of sale constitutes a penal clause.
HELD:
The court held in the negative. The foregoing argument of petitioner is totally devoid of merit. We would agree w/
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 w/o it, pursuant to Art. 2209 of the NCC, the vendee would be
entitled to recover the amount paid by her w/ legal rate of interest w/c 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.
The pertinent provisions of our Civil Code follow:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for
the purpose of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any
source enumerated in article 1157, or in every case where any property right has been
invaded.
At any rate, the circumstances of a particular case will determine whether or not the amount assessed as
nominal damages is within the scope or intent of the law, more particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the amount of P20,000.00 is excessive. The admitted fact
that petitioner corporation failed to convey a transfer certificate of title to respondent Millan because the
subdivision property was mortgaged to the GSIS does not in itself show that there was bad faith or fraud. Bad
faith is not to be presumed. Moreover, there was the expectation of the vendor that arrangements were
possible for the GSIS to make partial releases of the subdivision lots from the overall real estate mortgage. It was
simply unfortunate that petitioner did not succeed in that regard.
For that reason We cannot agree with respondent Millan Chat the P20,000.00 award may be considered in the
nature of exemplary damages.
In case of breach of contract, exemplary damages may be awarded if the guilty party acted in wanton,
fraudulent, reckless, oppressive or malevolent manner. 13 Furthermore, exemplary or corrective damages are to
be imposed by way of example or correction for the public good, only if the injured party has shown that he is
entitled to recover moral, temperate or compensatory damages."
Here, respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory
damages.
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.
MARIANO C. PAMINTUAN, petitioner-appellant,
vs.COURT OF APPEALS and YU PING KUN CO., INC., respondent-appellees.
G.R. No. L-26339 December 14, 1979
FACTS:
This case is about the recovery compensatory damages for breach of a contract of sale in addition to liquidated
damages.
Pamintuan was the holder of a barter license wherein he was authorized to export to Japan one thousand metric
tons of white flint corn valued at forty-seven thousand United States dollars in exchange for a collateral
importation of plastic sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd. of Osaka,
Japan in exchange for plastic sheetings. He contracted to sell the plastic sheetings to Yu Ping Kun Co., Inc. for
two hundred sixty-five thousand five hundred fifty pesos.
It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its bodegas in Manila
or suburbs directly from the piers "within one month upon arrival of" the carrying vessels. Any violation of the
contract of sale would entitle the aggreived party to collect from the offending party liquidated damages in the
sum of ten thousand pesos (Exh. A).
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 yards valued at $5,200; (2) 37
cases containing 18,440 yards valued at $2,305; (3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83
cases containing 40,850 yards valued at $5,236.97. While the plastic sheetings were arriving in Manila,
Pamintuan informed the president of Yu Ping Kun Co., Inc. that he was in dire need of cash with which to pay his
obligations to the Philippine National Bank. Inasmuch as the computation of the prices of each delivery would
allegedly be a long process, Pamintuan requested that he be paid immediately.
Consequently, Pamintuan and the president of the company, Benito Y.C. Espiritu, agreed to fix the price of the
plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual invoice value thereof. The parties
arrived at that figure by dividing the total price of P265,550 by 339,440 yards, the aggregate quantity of the
shipments.
After Pamintuan had delivered 224,150 yards of sheetings of interior quality valued at P163,.047.87, he refused
to deliver the remainder of the shipments with a total value of P102,502.13 which were covered by (i) Firm Offer
No. 330, containing 26,000 yards valued at P29,380; (2) Firm Offer No. 343, containing 18,440 yards valued at
P13,023.25; (3) Firm Offer No. 217, containing 30,000 yards valued at P30,510 and (4) Firm Offer No. 329
containing 40,850 yards valued at P29,588.88 (See pp. 243-2, Record on Appeal).
As justification for his refusal, Pamintuan said that the company failed to comply with the conditions of the
contract and that it was novated with respect to the price.
In their agreement, it was stipulated "that any violation of the provisions of this contract (of sale) shall entitle
the aggrieved party to collect from the offending party liquidated damages in the sum of P10,000 ".
ISSUE:
Whether or not the buyer, Yu Ping Kun Co., Inc., is entitled to recover only stipulated liquidated damages of
P10,000.00 based on their agreement and not the actual damages?
RULING:
We hold that appellant's contention cannot be sustained because the second sentence of article 1226 itself
provides that I nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the fulfillment of the
obligation". "Responsibility arising from fraud is demandable in all obligations" (Art. 1171, Civil Code). "In case of
fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for an damages which may be
reasonably attributed to the non-performance of the obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not make a
complete delivery of the plastic sheetings and he overpriced the same. That factual finding is conclusive upon
this Court.
There is no justification for the Civil Code to make an apparent distinction between penalty and liquidated
damages because the settled rule is that there is no difference between penalty and liquidated damages insofar
as legal results are concerned and that either may be recovered without the necessity of proving actual damages
and both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L.
Reyes, cited in 4 Tolentino's Civil Code, p. 251).
After a conscientious consideration of the facts of the case, as found by Court of Appeals and the trial court, and
after reflecting on the/tenor of the stipulation for liquidated damages herein, the true nature of which is not
easy to categorize, we further hold that justice would be adequately done in this case by allowing Yu Ping Kun
Co., Inc. to recover only the actual damages proven and not to award to it the stipulated liquidated damages of
ten thousand pesos for any breach of the contract. The proven damages supersede the stipulated liquidated
damages.
This view finds support in the opinion of Manresa (whose comments were the bases of the new matter found in
article 1226, not found in article 1152 of the old Civil Code) that in case of fraud the difference between the
proven damages and the stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine pesos and
twenty-eight centavos (P90,559.28), with six percent interest a year from the filing of the complaint.
With that modification the judgment of the Court of Appeals is affirmed in all respects. No costs in this instance.
E. BREACH OF OBLIGATIONS
SICAM VS. JORGE
G.R. NO. 159617, AUGUST 8, 2007 AUSTRIA-MARTINEZ, J.:
FACTS:
Respondent Lulu V. Jorge on separate date pawned several pieces of jewelry with with Agencia de R. C. Sicam to
secure a loan in the total amount of P59,500.00.
Two armed men entered the pawnshop and took whatever cash and jewelry were found inside the pawnshop
vault. The incident was entered in the police blotter. Petitioner Roberto Sicam informed respondent Jorge of the
loss of the jewelry because of the incident. Respondent Jorge however expressed her disbelief of the loss
because she knew that it has been the pawnshop’s practice to deposit the jewelry with Far East Bank near the
pawnshop. She then demanded the jewelry be prepared and withdrawn but petitioner Sicam failed.
Jorge, with her husband, then filed a complaint against petitioner Sicam, then latter impleading the corporation.
The RTC dismissed the case since the loss was occasioned by armed robbery and that robbery is a fortuitous
event which exempts the victim from liability for the loss. The CA reversed the decision of the RTC, piercing the
corporate veil, and finding Sicam negligent for not insuring the pawned jewelry. Hence, this petition for review
with the Supreme Court.
ISSUE:
Whether or not Sicam is liable for breach of obligation considering that he raised as defense the fact that he did
not deposit the jewelry with the bank since the CB discouraged the practice and that he did not insure the
jewelry for no insurance company will insure due to rampant robberies of pawnshop and that the loss was
occasioned by armed robbery.
HELD:
Yes, Sicam is still liable; robbery cannot be considered a fortuitous event since the petitioner himself actually
foreseen and anticipated it. there is no showing that there was a security guard; besides, the vault is already
open when robbery took place.
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the
nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since
pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had
allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen
and anticipated. Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.
Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence
on the part of herein petitioners.
Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that
he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals
were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite
impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which
were allegedly poked at the employees. Significantly, the alleged security guard was not presented at all to
corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of
petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes
Parañaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight
and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open
the vault, providing no difficulty for the robbers to cart away the pawned articles.
We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971,
the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered
travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the
conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value
would have been negligence per se and would not exempt her from responsibility in the case of robbery.
However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961,
when criminality had not reached the level of incidence obtaining in 1971.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the
Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encash two checks
covering the wages of the employees and the operating expenses of the project. However for some reason, the
processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the
check because the project employees would be waiting for their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with
him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose
the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for
Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and
caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber
who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not
brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal
procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check
and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the
following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries
the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after
July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2)
that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to
the two places, said decision seemed logical at that time. We further held that the fact that two robbers
attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other
passengers could not be said to be a result of his imprudence and negligence.
MERALCO VS RAMOY GR NO. 158911
FACTS:
In 1987, the National Power Corporation (NPC) filed with the MTC in Quezon City a case for ejectment against
several persons who were allegedly illegally occupying its properties in Baesa, Quezon City. Among the
defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989,
the MTC rendered judgment for MERALCO, to demolish or remove the building and structure they built on the
land of the plaintiff and to vacate the premises. On June 20, 1999, NPC wrote to MERALCO requesting the
immediate disconnection of electric power supply to all residential and commercial establishments beneath the
NPC transmission lines along Baesa, Quezon City. In a letter dated August 17, 1990, MERALCO requested NPC
for a joint survey to determine all the establishments which are considered under NPC proper. In due time, the
electric service connection of the plaintiffs was disconnected. During the ocular inspection ordered by the
Court, it was found out that the residence of the plaintiffs-spouses was outside the NPC property.
Ramoy testified that he and his wife are registered owners of the subject parcel of land. When MERALCO
employees were disconnecting Ramoy’s power connection, Ramoy objected by informing MERALCO foreman
that his property was outside the NPC property and pointing out the monuments showing the boundaries of his
property. However, he was threatened and told not to interfere by the armed men who accompanied the
MERALCO employees. After the electric power in Ramoy’s apartment was cut off, the plaintiffs-lessees left the
premises.
ISSUE:
Whether or not MERALCO was negligent when it disconnected the subject electric service of respondents.
RULING:
Yes. MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant to Articles
1170 and 1173 of the Civil Code. It was not enough for MERALCO to merely rely on the decision of the MTC
without ascertaining whether it had become final and executory. Verily, only upon finality of the said decision
can it be said with conclusiveness that respondents have no right or proper interest over the subject property,
thus are not entitled to the services of MERALCO.
SOLAR HARVEST, INC., petitioner, vs. DAVAO CORRUGATED CARTON CORPORATION, respondent.
G.R. No. 176868. July 26, 2010.* NACHURA, J.:
FACTS:
Petitioner claims for reimbursement for the amount it paid to respondent for the manufacture of corrugated
carton boxes.
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao
Corrugated Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for
petitioner’s business of exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing.
To get the production underway, petitioner deposited, on March 31, 1998, US$40,150.00 in respondent’s US
Dollar Savings Account with Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner
wrote a demand letter for reimbursement of the amount paid.On February 19, 2001, respondent replied that
the boxes had been completed as early as April 3, 1998 and that petitioner failed to pick them up from the
former’s warehouse 30 days from completion, as agreed upon.
On September 21, 2006, the CA denied petitioner's appeal for lack of merit. The appellate court held that
petitioner failed to discharge its burden of proving what it claimed to be the parties’ agreement with respect to
the delivery of the boxes. According to the CA, it was unthinkable that, over a period of more than two years,
petitioner did not even demand for the delivery of the boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes, respondent would not be liable for breach of contract as
petitioner had not yet demanded from it the delivery of the boxes.
ISSUE:
Whether or not in reciprocal obligations, demand is necessary before the obligor can be considered in default
and before a cause of action for rescission will accrue if the period for the fulfillment of the obligation is fixed
RULING:
Yes. Petitioner’s claim for reimbursement is actually one for rescission (or resolution) of contract under Article
1191 of the Civil Code, which reads:
“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.”
The right to rescind a contract arises once the other party defaults in the performance of his obligation. In
determining when default occurs, Art. 1191 should be taken in conjunction with Art. 1169 of the same law,
which provides:
“Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins.”
In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties’
respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a
party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But
when different dates for performance of the obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the present article, that is, the other party would incur
in delay only from the moment the other party demands fulfillment of the former’s obligation. Thus, even in
reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is
still necessary before the obligor can be considered in default and before a cause of action for rescission will
accrue.
Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner
upon respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that
petitioner made a “follow-up” upon respondent, which, however, would not qualify as a demand for the
fulfillment of the obligation. Petitioner’s witness also testified that they made a follow-up of the boxes, but not a
demand. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of
action for rescission against respondent as the latter would not yet be considered in breach of its contractual
obligation.
Note.—Rescission has the effect of abrogating the contract in all parts. (Unlad Resources Development
Corporation vs. Dragon, 560 SCRA 63 [2008])
 MINDANAO TERMINAL VS PHOENIX ASSURANCE
GR NO. 162467
FACTS:
Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal and Brokerage Service, Inc., a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons
of fresh pineapples belonging to Del Monte Fresh Produce International, Inc. into the cargo hold of the vessel
M/V Mistrau
The vessel was docked at the port of Davao City and the goods were to be transported by it to the port of
Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an
"open cargo policy" with private respondent Phoenix Assurance Company of New York , a non-life insurance
company, and private respondent McGee & Co. Inc. (McGee), the under writing manager/agent of Phoenix. The
vessel set sail from the port of Davao City and arrived at the port of Inchon, Korea. It was then discovered upon
discharge that some of the cargo was in bad condition. The MarineCargo Damage Surveyor of Incok Loss
andAverage Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent of the
damage of the shipment. In a survey report, it was stated that 16,069 cartons of the banana shipment and2,185
cartons of the pineapple shipment were so damaged that they no longer had commercial value.
Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. McGee’s Marine
Claims Insurance Adjuster evaluated the claim and recommended that payment in the amount of $210,266.43
be made. Phoenix and McGee instituted an action for damages against Mindanao Terminal After trial, the RTC
held that the only participation of Mindanao Terminal was to load the cargoes on board the M/V Mistrau
Phoenix and McGee instituted an action for damages against Mindanao Terminal in the Regional Trial Court
(RTC) of Davao City, After trial, the RTC, held that the only participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction and supervision of the ship’s officers, who would not
have accepted the cargoes on board the vessel and signed the foreman’s report unless they were properly
arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal cannot
be held liable for whatever happened to the cargoes after it had loaded and stowed them. The CA reverse the
decision of the RTC hence Mindanao Terminal the issue
ISSUE:
W/N Mindanao Terminal did not exercise the diligence of a good father of family when they loaded and stowed
the items in the M/V Miastrau hence there was negligence on their part.
RULING:
Phoenix and McGee failed to prove by preponderance of evidence that Mindanao Terminal had acted
negligently. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the
evidence preponderates the party having the burden of proof fails upon that issue. That is to say, if the evidence
touching a disputed fact is equally balanced, or if it does not produce a just, rational belief of its existence, or if it
leaves the mind in a state of perplexity, the party holding the affirmative as to such fact must fail.
We adopt the findings[ of the RTC, which are not disputed by Phoenix and McGee. The Court of Appeals did not
make any new findings of fact when it reversed the decision of the trial court.
As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing
the cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition is in order.
AGCAOILI VS. GSIS
No. L-30056, August 30, 1988
FACTS:
The appellant Government Service Insurance System (GSIS) approved the application of the appellee Marcelo
Agcaoili for the purchase of the house and lot in the GSIS Housing Project at Nangka, Marikina, Rizal, but said
application was subject to the condition that the latter should forthwith occupy the house. Agcaoili lost no time
in occupying the house but he could not stay in it and had to leave the very next day because the house was
nothing more than a shell, in such a state that civilized occupation was not possible: ceiling, stairs, double
walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did
however asked a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman,
pending the completion of the construction of the house. He thereafter complained to the GSIS but to no avail.
Subsequently, the GSIS asked Agcaoili to pay the monthly amortizations of P35.56 and other fees. He paid the
first monthly amortizations and incidental fees, but refused to make further payments until and unless the GSIS
completed the housing unit. Thereafter, GSIS cancelled the award and required Agcaoili to vacate the premise.
The house and lot was consequently awarded to another applicant. Agcaoili reactedby instituting suit in the
Court of First Instance of Manila for specific performance and damages. The judgment was rendered in favor of
Agcaoili. GSIS then appealed from that judgment.
ISSUE:
Was the cancellation by GSIS of the award in favor of petitioner Agcaoili just and proper?
RULING:
No. It was the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoymentby the
buyer for the purpose contemplated. There would be no sense to require the awardee to immediately occupy
and live in a shell of a house, structure consisting only of four walls with openings, and a roof. GSIS had an
obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the
stipulated price.
Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke
Agcaoili’s suspension of payment of amortizations as cause to cancel the contract between them.
It is axiomatic that “In reciprocal obligations, neither party incurs in delay if the other does not comply.
ARRIETA VS. NARIC (NATIONAL RICE AND CORN CORPORATION)
10 SCRA 79
FACTS:
On July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation entered into a Contract of Sale of
Rice, under the terms of which the former obligated herself to deliver to the latter 20,000 metric tons of
Burmess Rice at $203.00 per metric ton. In turn, the defendant corporation committed itself to pay for the
imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of
the plaintiff-appellee and/or supplier in Burma, immediately." Despite the commitment to pay immediately "by
means of an irrevocable, confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or a
full month from the execution of the contract, that the defendant corporation, thru its general manager, took
the first to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial
Letter Credit. The application was accompanied by a transmittal letter.

As a result of the delay, the allocation of Arrieta was cancelled and the 5% deposit, approximately Php
200,000, was forfeited. Arrieta tried to restore the cancelled Burmese rice allocation, but failed. Arrieta then
instead offered to substitute Thailand rice to NARIC, communicating that such was a solution which should be
beneficial for both parties. However, the corporation rejected the substitution. Hence, Arrieta sent a letter to
the corporation, demanding for the compensation for the damages caused her.
ISSUES:
1. Whether or not the NARIC’s failure to open immediately the letter of credit amounted to a breach of
the contract for which the corporation should be held liable?
2. Whether or not there was a waiver on the part of Arrieta when she offered the Thailand rice as
substitute?
RULING:
1. Yes. It was clear from the records that the sole and principal reason for the cancellation of the allocation
contracted by Arrieta in Ragoon, Burma was the failure of the letter of credit to be opened. The failure,
therefore, was the immediate cause for the consequent damage which resulted. It was clear from the records
that the delay in the opening of the letter of credit was due to the inability of the corporation to meet the
condition imposed by the bank for the granting the same.
Furthermore, the liability of the corporation stemmed not alone from failure or inability to satisfy the
requirements of the bank, but its culpability arose from is willful and deliberate assumption of contractual
obligations even as it was well aware of its financial incapacity to undertake the prestation. Under Article 1170,
“those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof, are liable in damages.” The terms “in any manner contravene the tenor
thereof” includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind or
defective performance. In general also, every debtor who fails in the performance of his obligation is bound to
indemnify for the losses and damages caused thereby.
The payment for damages or the award to be given should be converted into the Philippine peso at the
rate of exchange prevailing at the time the obligation was incurred pursuant to RA 527.
2. No. The subsequent offer to substitute the Thailand rice for the originally contracted Burmese did not
constitute a waiver. Waivers are not presumed. It must be clearly and convincingly shown either by express
stipulations or acts admitting no other reasonable explanation. In this case, no such intent to waive had been
established.
TELEFAST vs. CASTRO
G.R. No. 73867 February 29, 1988 Justice Padilla
FACTS:
The petitioner is a company engaged in transmitting telegrams. The plaintiffs are the children and spouse of
Consolacion Castro who died in the Philippines. One of the plaintiffs, Sofia sent a telegram thru Telefast to her
father and other siblings in the USA to inform about the death of their mother. Unfortunately, the deceased had
already been interred but not one from the relatives abroad was able to pay their last respects. Sofia found out
upon her return in the US that the telegram was never received. Hence, the suit for damages on the ground of
breach of contract. The defendant-petitioner argues that it should only pay the actual amount paid to it.
The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary, damages to each
of the plaintiffs with 6% interest p.a. plus attorney’s fees. The Court of Appeals affirmed this ruling but modified
and eliminated the compensatory damages to Sofia and exemplary damages to each plaintiff, it also reduced the
moral damages for each. The petitioner appealed contending that, it can only be held liable for P 31.92, the fee
or charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee, and that the moral
damages should be removed since defendant's negligent act was not motivated by "fraud, malice or
recklessness.
ISSUE:
Whether or not the award of the moral, compensatory and exemplary damages is proper.
RULING:
Yes, there was a contract between the petitioner and private respondent Sofia C. Crouch whereby, for a fee,
petitioner undertook to send said private respondent's message overseas by telegram. Petitioner failed to do
this despite performance by said private respondent of her obligation by paying the required charges. Petitioner
was therefore guilty of contravening its and is thus liable for damages. This liability is not limited to actual or
quantified damages. To sustain petitioner's contrary position in this regard would result in an inequitous
situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago.
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art.
2176 also provides that "whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done."
Award of Moral, compensatory and exemplary damages is proper.
The petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering
private respondents had to undergo. Art. 2217 of the Civil Code states: "Moral damages include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if
they are the proximate results of the defendant's wrongful act or omission."
Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she
incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner
not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's
testimony.
The award of exemplary damages by the trial court is likewise justified for each of the private respondents, as a
warning to all telegram companies to observe due diligence in transmitting the messages of their customers.
NPC VS COURT OF APPEALS 161 SCRA 334
FACTS:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a successful bidder, executed a
contract in Manila with the National Waterworks and Sewerage Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, equipment, and materials, and to construct the proposed 2nd lpo-Bicti
Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray,
Bulacan, and to complete said works within eight hundred calendar days from the date the Contractor receives
the formal notice to proceed.
The project involved two major phases: the first phase comprising, the tunnel work and the other
phase consisting of the outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed the first major phase of the
work, namely, the tunnel excavation work. Some portions of the outworks at the Bicti site were still under
construction. As soon as the plaintiff corporation had finished the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to the Ipo site where some projects were yet to be
completed.
And then typhoon 'Welming' hit Central Luzon, passing through defendant's Angat Hydro-electric
Project and Dam at lpo, Norzagaray, Bulacan. Due to the heavy downpour, the water in the reservoir of the
Angat Dam was rising perilously. To prevent an overflow of water from the dam, since the water level had
reached the danger height, the defendant corporation caused the opening of the spillway gates.
The appellate court sustained the findings of the trial court that the evidence preponderantly
established the fact that due to the negligent manner with which the spillway gates of the Angat Dam were
opened, an extraordinary large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at the lpo site with terrific impact, as a result of which the latter's stockpile of
materials and supplies, camp facilities and permanent structures and accessories either washed away, lost or
destroyed.
That it cannot be pretended that there was no negligence or that the appellant exercised
extraordinary care in the opening of the spillway gates of the Angat Dam. Maintainers of the dam knew very well
that it was far more safe to open them gradually. But the spillway gates were opened only when typhoon
Welming was already at its height, in a vain effort to race against time and prevent the overflow of water from
the dam as it 'was rising dangerously. When the water in the reservoir was still low, action could have been
taken. At that time, the gates of the dam could have been opened in a regulated manner. Let it be stressed that
the appellant knew of the coming of the typhoon four days before it actually hit the project area.
ISSUE:
Whether or not NPC is negligent in the opening of Angat Dam spillways
HELD:
YES, NPC is negligent in the opening of the Angat Dam spillways.
Petitioner NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam
only at the height of typhoon "Welming" when it knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it
actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot
escape liability because its negligence was the proximate cause of the loss and damage.
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided
for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in
part the result of the participation of man, whether it be from active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God.
Thus, it has been held that when the negligence of a person concurs with an act of God in producing a
loss, such person is not exempt from liability by showing that the immediate cause of the damage was the act of
God. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence
or misconduct by which the loss or damage may have been occasioned.
Furthermore, the question of whether or not there was negligence on the part of NPC is a question of
fact which properly falls within the jurisdiction of the Court of Appeals and will not be disturbed by this Court
unless the same is clearly unfounded.
Therefore, the respondent Court of Appeals did not err in holding the NPC liable for
damages.Likewise, it did not err in reducing the consequential damages from P333,200.00 to P19,000.00.
We do not find anything erroneous in the decision of the appellate court that the consequential
damages should represent only the service of the temporary crane for one month. A contrary ruling would result
in the unjust enrichment of ECI.Neither may private respondent recover exemplary damages since he is not
entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a
wanton, fraudulent, reckless or oppressive manner.
BERNARDINO JIMENEZ vs. CITY OF MANILA [150 SCRA 510]
FACTS:
Bernardino Jimenez went to Sta. Ana Public market to buy “bagoong” when his left foot fell in an open hole that
was hidden by muddy rainwater in the flooded market when the latter was flooded with ankle-deep rainwater.
His left leg was stuck by a rusty 4-inch nail. His leg later on swelled and he was brought for treatment to
Veteran’s Memorial Hospital. He walked around with crutches for 15 days, unable to work, forced to hire a
temporary driver for his school bus he is operating. Thus, he sued the City of Manila for damages, and the Asiatic
Integrated Corp. (AIC) who had the managing and operating contract to that market. Lower court dismissed his
complaint for insufficiency of evidence. The appellate court found in his favor and placed sole liability on AIC.
ISSUE:
Whether or not the City of Manila should be held solidarily liable with Asiatic Integrated Corp. for injuries
suffered by petitioner?
RULING:
YES. As a defense against liability on the basis of quasi-delict, one must have exercised the diligence of a good
father of a family. (Article 1173, NCC)
There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the public
market reasonably safe for people frequenting the place for their marketing needs. While it may be conceded
that the fulfillment of such duties is extremely difficult during storms & floods, it must, however, be admitted
that ordinary precautions could have been taken during good weather to minimize the dangers to life & limb
under those difficult circumstances. For instance, the drainage hole could have been placed under the stalls
instead of on the passage ways. Even more important is the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was
already uncovered, & 5 mos. after the incident happened, the opening was still uncovered. Moreover, while
there are findings that during floods the vendors remove the iron grills to hasten the flow of water, there is no
showing that such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it
shown that any sign had been placed thereabouts to warn passers-by of the impending danger.
For liability under Article 2189 NCC to attach, it is not necessary that the defective public works belong to the
LGU concerned. What is required is “control or supervision.”
NAKPIL & SONS v. CA
144 SCRA 596; 160 SCRA 334
To be exempt from liability due to an act of God, the engineer/architect/contractor must not have been
negligent in the construction of the building.
FACTS:
Private respondents – Philippine Bar Association (PBA) – a non-profit organization formed under the corporation
law decided to put up a building in Intramuros, Manila. Hired to plan the specifications of the building were Juan
Nakpil & Sons, while United Construction was hired to construct it. The proposal was approved by the Board of
Directors and signed by the President, Ramon Ozaeta. The building was completed in 1966.
In 1968, there was an unusually strong earthquake which caused the building heavy damage, which led the
building to tilt forward, leading the tenants to vacate the premises. United Construction took remedial measures
to sustain the building.
PBA filed a suit for damages against United Construction, but United Construction subsequently filed a suit
against Nakpil and Sons, alleging defects in the plans and specifications.
Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner. PBA moved for the
demolition of the building, but was opposed. PBA eventually paid for the demolition after the building suffered
more damages in 1970 due to previous earthquakes. The Commissioner found that there were deviations in the
specifications and plans, as well as defects in the construction of the building.
ISSUE:
Whether or not an act of God (fortuitous event) exempts from liability parties who would otherwise be due to
negligence?
HELD:
Art. 1723 dictates that the engineer/architect and contractor are liable for damages should the building collapse
within 15 years from completion.
Art. 1174 of the NCC, however, states that no person shall be responsible for events, which could not be
foreseen. But to be exempt from liability due to an act of God, the ff must occur:
1) cause of breach must be independent of the will of the debtor
2) event must be unforeseeable or unavoidable
3) event must be such that it would render it impossible for the debtor to fulfill the obligation
4) debtor must be free from any participation or aggravation of the industry to the creditor.
In the case at bar, although the damage was ultimately caused by the earthquake which was an act of God, the
defects in the construction, as well as the deviations in the specifications and plans aggravated the damage, and
lessened the preventive measures that the building would otherwise have had.
F. REMEDIES FOR BREACH OF OBLIGATIONS
UNLAD Resources Dev. Co., UNLAD Rural Bank of Noveleta, Inc., UNLAD Commodities, Inc., Helena Benitez
and Conrado Benitez II vs. Renato Dragon, et al.,
July 28, 2008, J. Nachura.
Facts:
Herein respondents and petitioner entered into a Memorandum of Agreement wherein it is provided that
respondents, as controlling stockholders of Rural Bank shall allow Unlad Resources to invest P4.8 Million in the
Rural Bank in a form of additional equity. Likewise, Unlad Resources, upon signing, it was agreed that the former
shall subscribe to a minimum of 480,000 common or preferred non-voting share of stock and pay immediately
1,200,000 for said subscription, and that upon signing, said agreement shall transfer control and management
over Rural Bank to Unlad. According to respondents, immediately after signing, they complied with their
obligation and transferred control of Rural Bank to Unlad, thereby renaming the Bank into Unlad Rural Bank of
Noveleta. However, despite repeated demands, Unlad has failed and refused to comply with their obligations as
agreed upon. On August 10, 1984, the Board of Directors of [petitioner] Unlad Resources passed Resolution No.
84-041 authorizing the President and the General Manager to lease a mango plantation situated in Naic, Cavite.
Pursuant to this Resolution, the Bank as [lessee] entered into a Contract of Lease with the [petitioner] Helena Z.
Benitez as [lessor]. The management of the mango plantation was undertaken by Unlad Commodities, Inc., a
subsidiary of Unlad Resources[,] under a Management Contract Agreement. The Management Contract provides
that Unlad Commodities, Inc. would receive eighty percent (80%) of the net profits generated by the operation
of the mango plantation while the Bank’s share is twenty percent (20%). It was further agreed that at the end of
the lease period, the Rural Bank shall turn over to the lessor all permanent improvements introduced by it on
the plantation.
On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the] Central Bank’s approval to
retire its [Development Bank of the Philippines] preferred shares in the amount of P219,000.00 and giving notice
for subscription to proportionate shares. The [respondents] objected on the grounds that there is already a
sinking fund for the retirement of the said DEBTORP-held preferred shares provided for annually and that it
could deprive the Rural Bank of a cheap source of fund. (sic)
[Respondents] alleged compliance with all of their obligations under the Memorandum of Agreement in that
they have transferred control and management over the Rural bank to the [petitioners] and are ready, willing
and able to allow [petitioners] to subscribe to a minimum of four hundred eighty thousand (P480,000.00) (sic)
common or preferred non-voting shares of stocks with a total par value of four million eight hundred thousand
pesos (P4,800,000.00) in the Rural Bank. However, [petitioners] have failed and refused to subscribe to the said
shares of stock and to pay the initial amount of one million two hundred thousand pesos (P1,200,000.00) for
said subscription.
On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of Makati City, Branch 61 a
Complaint4 for rescission of the agreement and the return of control and management of the Rural Bank from
petitioners to respondents, plus damages. RTC ruled in favor of the respondents. Hence, petitioners appeal. But
CA affirmed the RTC decision.
Issues:
(1) Whether or not the action for rescission had already prescribed.
(2) Whether or not the action for rescission is proper.
Held:
(1) NO. Article 1389. The action to claim rescission must be commenced within four years.
This is an erroneous proposition. Article 1389 specifically refers to rescissible contracts as, clearly, this provision
is under the chapter entitled "Rescissible Contracts."
In a previous case, this Court has held that Article 1389: applies to rescissible contracts, as enumerated and
defined in Articles 1380 and 1381. We must stress however, that the "rescission" in Article 1381 is not akin to
the term "rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary
one limited to cases of rescission for lesion as enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144, which
provides that the action upon a written contract should be brought within ten years from the time the right of
action accrues.
Article 1381 sets out what are rescissible contracts, to wit:
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.
The Memorandum of Agreement subject of this controversy does not fall under the above enumeration.
Accordingly, the prescriptive period that should apply to this case is that provided for in Article 1144, to wit:
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
Based on the records of this case, the action was commenced on July 3, 1987, while the Memorandum of
Agreement was entered into on December 29, 1981. Article 1144 specifically provides that the 10-year period is
counted from "the time the right of action accrues." The right of action accrues from the moment the breach of
right or duty occurs.13 Thus, the original Complaint was filed well within the prescriptive period.
(2) YES.
There is no question that petitioners herein failed to fulfill their obligation under the Memorandum of
Agreement. Even they admit the same, albeit laying the blame on respondents.
It is true that respondents increased the Rural Bank’s authorized capital stock to only P5 million, which was not
enough to accommodate the P4.8 million worth of stocks that petitioners were to subscribe to and pay for.
However, respondents’ failure to fulfill their undertaking in the agreement would have given rise to the scenario
contemplated by Article 1191 of the Civil Code, which reads:
Article 1191. The power to rescind reciprocal obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law.
Thus, petitioners should have exacted fulfillment from the respondents or asked for the rescission of the
contract instead of simply not performing their part of the Agreement. But in the course of things, it was the
respondents who availed of the remedy under Article 1191, opting for the rescission of the Agreement in order
to regain control of the Rural Bank.
Having determined that the rescission of the subject Memorandum of Agreement was in order, the trial court
ordered petitioner Unlad Resources to return to respondents the management and control of the Rural Bank
and for the latter to return the sum of P1,003,070.00 to petitioners.
Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties
back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obligated to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
This Court has consistently ruled that this provision applies to rescission under Article 1191:
Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return
the things which were the object of the contract, together with their fruits, and the price with its interest," the
Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission
under Article 1191.
Rescission has the effect of "unmaking a contract, or its undoing from the beginning, and not merely its
termination."16 Hence, rescission creates the obligation to return the object of the contract. It can be carried
out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind
is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to
terminate it and release the parties from further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions as if no contract has been made.
Accordingly, when a decree for rescission is handed down, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each other as far as practicable in his
original situation. The rescission has the effect of abrogating the contract in all parts.
Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause for
rescission. With the contract thus rescinded, the parties must be restored to the status quo ante, that is,
before they entered into the Memorandum of Agreement.
UNIVERSAL FOOD CORPORATION VS. CA 33 SCRA 1
FACTS:
This is a petition for certiorari by the UFC against the CA decision of February 13, 1968 declaring the BILL OF
ASSIGNMENT rescinded, ordering UFC to return to Magdalo Francisco his Mafran sauce trademark and to pay his
monthly salary of P300.00 from Dec. 1, 1960 until the return to him of said trademark and formula.
In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the manufacture of a food seasoning (sauce)
derived from banana fruits popularly known as MAFRAN sauce. It was used commercially since
1942, and in the same year plaintiff registered his trademark in his name as owner and inventor with the Bureau
of Patents. However, due to lack of sufficient capital to finance the expansion of the business, in 1960, said
plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations, formed with others
defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the aforequoted
"Bill of Assignment" (Exhibit A or 1).
On May 31, 1960, Magdalo Francisco entered into contract with UFC stipulating among other things that he be
the Chief Chemist and Second Vice-President of UFC and shall have absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the chemicals used in the
preparation of said Mafran sauce and that said positions are permanent in nature.
In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco was appointed Chief Chemist
with a salary of P300.00 a month. Magdalo Francisco kept the formula of the Mafran sauce secret to himself.
Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a Memorandum duly approved by the President and
General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained in the factory and that
the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being until the corporation
should resume its operation. On December 3, 1960, President and General Manager Tirso T. Reyes, issued a
memorandum to Victoriano Francisco ordering him to report to the factory and produce "Mafran Sauce" at the
rate of not less than 100 cases a day so as to cope with the orders of the corporation's various distributors and
dealers, and with instructions to take only the necessary daily employees without employing permanent
employees. Again, on December 6, 1961, another memorandum was issued by the same President and General
Manager instructing the
Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected in the production of
Mafran Sauce and also some additional daily employees for the production of Porky Pops. On December 29,
1960, another memorandum was issued by the President and General Manager instructing Ricardo Francisco, as
Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full
swing starting January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast
operation. Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only
until his services were terminated on November 30, 1960. On January 9 and 16, 1961, UFC, acting thru its
President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the
corporation including its trademarks, formula and assets at a price of not less than P300,000.00. Due to these
successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, he filed the
present action on February 14,1961. Then in a letter dated March 20, 1961, UFC requested said plaintiff to
report for duty, but the latter declined the request because the present action was already filed in court.
ISSUES:
1. Was the Bill of Assignment really one that involves transfer of the formula for Mafran sauce itself?
2. Was petitioner’s contention that Magdalo Francisco is not entitled to rescission valid?
RULING:
1. No. Certain provisions of the bill would lead one to believe that the formula itself was transferred. To
quote, “the respondent patentee "assign, transfer and convey all its property rights and interest over said
Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and) in no case
shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula." “However, a perceptive analysis of the entire instrument and the
language employed therein would lead one to the conclusion that what was actually ceded and transferred was
only the use of the Mafran sauce formula. This was the precise intention of the parties.” The SC had the
following reasons to back up the above conclusion. First, royalty was paid by UFC to Magdalo Francisco. Second,
the formula of said Mafran sauce was never disclosed to anybody else. Third, the Bill acknowledged the fact that
upon dissolution of said Corporation, the patentee rights and interests of said trademark shall automatically
revert back to Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the transfer of the use of the
Mafran sauce and not the formula itself which was admitted by UFC in its answer. Fifth, the facts of the case
undeniably show that what was transferred was only the use. Finally, our Civil Code allows only “the least
transmission of right, hence, what better way is there to show the least transmission of right of the transfer of
the use of the transfer of the formula itself.”
2. No. Petitioner’s contention that Magdalo Francisco’s petition for rescission should be denied because under
Article 1383 of the Civil Code of the Philippines rescission can not be demanded except when
the party suffering damage has no other legal means to obtain reparation, was of no merit because “it is
predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil
Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq.” This was a case of
reciprocal obligation. Article 1191 may be scanned without disclosing anywhere that the action for rescission
thereunder was subordinated to anything other than the culpable breach of his obligations by the defendant.
Hence, the reparation of damages for the breach was purely secondary. Simply put, unlike Art. 1383, Art. 1191
allows both the rescission and the payment for damages. Rescission is not given to the party as a last resort,
hence, it is not subsidiary in nature.
MAGDALENA ESTATE VS. MYRICK 71 PHIL. 346
FACTS:
Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision,
San Juan, Rizal. Their contract of sale provides that the Price of P7,953 shall be payable in 120 equal monthly
installments of P96.39 each on the second
day of every month beginning the date of execution of the agreement.

In pursuance of said agreement, the vendee made several payments amounting to 2,596.08, the last being due
and unpaid was that of May 2, 1930. By reason of this, the vendor, through its president, notified the vendee
that, in view of his inability to comply with the terms of their contract, said agreement had been cancelled,
relieving him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor
of the vendor. To
this communication, the vendee did not reply, and it appears likewise that the vendor thereafter did not require
him to make any further disbursements on account of the
purchase price.
ISSUE:
Was the petitioner authorized to forfeit the purchase price paid?
RULING:
No. The contract of sale contains no provision authorizing the vendor, in the event of failure of the vendee to
continue in the payment of the stipulated monthly installments, to retain the amounts paid to him on account of
the purchase price. The claim therefore, of the petitioner
that it has the right to forfeit said sums in its favor is untenable. Under Article 1124 of the Civil Code, however,
he may choose between demanding the fulfillment of the contract or its resolution. These remedies are
alternative and not cumulative, and the petitioner in this case, having elected to cancel the contract cannot avail
himself of the other remedy of exacting performance. As a consequence of the resolution, the parties should be
restored, as far as practicable, to their original situation which can be approximated only be ordering the return
of the things which were the object of the contract, with their fruits and of the price, with its interest, computed
from the date of institution of the action.
UP v. DE LOS ANGELES
G.R. No. L-28602 29 September 1970 35 SCRA 102
FACTS:
The University of the Philippines (UP) and Associated Lumber Manufacturing Company, Inc.
(ALUMCO), on November 2, 1960 entered into a logging agreement under which ALUMCO was granted exclusive
authority for 5 years (extendible) to ct, collect and remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc. As of December 8, 1964, ALUMCO incurred an unpaid account of
P219,362.94, which was not paid. After receiving from UP that it would rescind the logging agreement, ALUMCO
executed an instrument entitled “Acknowledgement of Debt and Proposed Manner of Payments” which
provides among other things to UP the right and power to consider the logging agreement as rescinded without
the necessity of any judicial suit in case ALUMCO fails to comply. Again, ALUMCO failed to pay. On July 19,1965,
UP informed ALUMCO that it had rescinded the agreement. UP entered into another logging contract with Sta.
Clara Lumber Company, Inc. ALUMCO sought for injunction.
ISSUE:
WON UP can treat its contract with ALUMCO rescinded.
RULING:
It must be understood that the act of party in treating a contract as cancelled or revolved on account of
infraction by the other contracting party must be made known to the other and in always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free
to resort to judicial action in its own behalf and ring the matter to court. Then, should the court, after due
hearing decide that the resolution was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed and the consequent indemnity award to the party prejudiced.
Wherever deems the contract rescinded without previous court action, proceeds at its own risk. It is only the
final judgment of the corresponding court that will conclusively and finally settle whether the action taken was
or was not correct in law. UP made out a prima facie case of reach of contract and defaults in payment by
ALUMCO.
ZULUETA VS. MARIANO (111 SCRA 206)
FACTS:
Petitioner Jose C. Zulueta is the registered owner of a residential house and lot situated
within the Antonio Subdivision, Pasig, Rizal. On November 6, 1964, petitioner Zulueta and private respondent
Lamberto Avellana, a movie director, entered into a “Contract to Sell” the aforementioned property for P75,
000.00 payable in 20 years with respondent buyer assuming to pay a down payment of P5, 000.00 and a
monthly installment of P630.00 payable in advance before the 5 th day of the corresponding month, starting
December 1964. It was further stipulated that upon failure of BUYER (AVELLANA) to fulfill any of the conditions
herein stipulated, BUYER automatically and irrevocably authorizes OWNER to recover extra-judicially, physical
possession of the land, building, and other improvements which are the subject of the of this contract, and to
take possession also extra-judicially whatever personal properties may be found within the aforesaid premises
from the date of said failure to answer for whatever unfilled monetary obligations BUYER may have with
OWNER, and this contract shall be considered without force and effect also from said date.
Respondent Avellana occupied the property from December 1964, but title remained with
petitioner Zulueta. On June 22, 1966, petitioner Zulueta commenced an Ejectment Suit against respondent
before the Municipal Court of Pasig alleging that respondent Avellana had failed to comply with the monthly
amortizations stipulated in the contract, despite demands to pay and vacate the premises, and that thereby the
contract was converted into one of lease. The Ejectment Suit prays for that the respondent be ordered to: 1)
vacate the premises; 2) to pay petitioner the sum of P 11, 751.30 representing the respondent’s owing as of May
1966; 3) to pay petitioner the sum of P630.00 every month after May, 1966, and costs.
Respondent raised his contention that the Municipal Trial Court had no jurisdiction over the
nature of the action as it involved the interpretation and/or rescission of the contract. The Municipal Trial Court
decided the case in favor of the petitioner finding that Respondent Avellana had failed to comply with his
financial obligations under the contract and ordered him to vacate the premises and deliver possession thereof
to petitioner, to pay petitioner the sum of P21, 093.88 representing arrearages as of April, 1967 and P630.00 as
monthly rental from and after May, 1967 until delivery of possession of that premises to petitioner.
Respondent Avellana appealed to the Court of First Instance of Rizal presided by the
Respondent Judge, although the Judge held resolution in abeyance. Respondent Avellana filed a Motion to
Dismiss Appeal alleging that the case necessarily involved the interpretation and/or rescission of the contract,
therefore beyond the jurisdiction of the Municipal Trial Court. Petitioner opposed it by claiming that the
complaint had set out a clear case of unlawful detainer considering that judicial action for rescission of the
contract was unnecessary due to automatic rescission clause. The Respondent Judge dismissed the case on the
ground of lack of jurisdiction of the Municipal Court. The Petitioner’s Motion for Reconsideration was likewise
denied and pre-trial has been set, thus the filing of this action for Mandamus and Prohibition.
ISSUE:
Was the action before the Municipal Trial Court of Pasig essentially for detainer and, therefore,
within the exclusive original jurisdiction, or one for rescission or annulment of contract, which should be litigated
before a Court of First Instance?
RULING:
Upon a review of the attendant fact circumstances, we uphold the ruling of respondent Judge that
the Municipal Court of Pasig was bereft of jurisdiction to take recognizance of the case filed before it. In his
Complaint, petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell
and thus unilaterally considered the contract rescinded. Respondent Avellana denied any breach on his part and
argued that the principal issue was one of interpretation and/or rescission of the contract as well as of set-off.
Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is only when
the violation has been established that the contract can be declared resolved or rescinded. Upon such rescission,
in turn, hinges a pronouncement that possession of the realty has become unlawful. Thus, the basic issue is not
possession but one of rescission or annulment of contract, which is beyond the jurisdiction of the Municipal
Court to hear and determine.
PALAY, INC. VS. CLAVE
L-56076 SEPTEMBER 21, 1983
FACTS:
That Palay, Inc., through its President, Albert Onstott executed in favor of private respondent,
NazarioDumpit, a Contract to Sell a parcel of Land payable with a downpayment and monthly installments until
fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of
any monthly installment after the lapse of 90 days from the expiration of the grace period of one month,
without need of notice and with forfeiture of all installments paid. Private respondent Dumpit paid the
downpayment and several installments. However, Dumpit failed to continue paying the installments for almost 6
years. Thereafter, Dumpit wrote petitioner offering to update all his overdue accounts with interest, and seeking
its written consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners replied that the
Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already
been resold. Consequently, Dumpit filed a complaint questioning the validity of the rescission with the National
Housing Authority (NHA) for reconveyance with an alternative prayer for refund. The NHA found the rescission
void in the absence of either judicial or notarial demand. Thus, it ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and severally, to refund immediately to Dumpit the amount paid
with 12% interest from the filing of the complaint. On appeal, respondent Clave, the Presidential Executive
Assistant affirmed. Hence, this petition.
ISSUES:
Whether or not notice or demand is not mandatory under the circumstances, and therefore may be
dispensed with by stipulation in a contract to sell.
HELD:
Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any
of its terms and conditions. However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. We quote the
pertinent excerpt:
Of course, it must be understood that the act of a party in treating a contract as cancelled
or resolved in account of infractions by the other contracting party must be made known
to the other and is always provisional being ever subject to scrutiny and review by the
proper court. If the other party denies that rescission is justified it is free to resort to
judicial action in its own behalf, and bring the matter to court.
This was reiterated in Zulueta vs. Mariano where we held that extrajudicial rescission has legal effect
where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still
necessary.
In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully
impugned in Court. If the debtor impugns the declaration, it shall be subject to judicial determination.
In this case, private respondent has denied that rescission is justified and has resorted to judicial
action. It is now for the Court to determine whether resolution of the contract by petitioners was warranted.
The indispensability of notice of cancellation to the buyer is underscored in Republic Act No. 6551
entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the buyer.
(Emphasis supplied).
The contention that private respondent had waived his right to be notified under paragraph 6 of the
contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation,
and private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently
made; such waiver follows only where liberty of choice has been fully accorded. Moreover, it is a matter of
public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment
payments.
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs. URSULA TORRES CALASANZ, ET AL., defendants-appellants.
G.R. No. L-42283 March 18, 1985 GUTIERREZ, JR., J.:
FACTS:
Defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura
Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of
P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the
execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid,
the installments being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly
installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous
occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs-
appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the
remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract
because the plaintiffs-appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for
reconsideration of the said cancellation was denied by the defendants-appellants. The plaintiffs-appellees filed
Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch X to compel the
defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all
subsequent payments for the land in question, they found out that they have already paid the total amount of
P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the
plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or
offer to pay the monthly installments corresponding to the month of August, 1966 for more than five (5)
months, thereby constraining the defendants-appellants to cancel the said contract
SIXTH.—In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments
herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with
the one corresponding to the said month of grace; xxxx should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts
he should have paid with the corresponding interest up to that date, the party of the FIRST PART has the right to
declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may
dispose of the parcel of land covered by this contract in favor of other persons, as if this contract had never been
entered into. In case of such cancellation of the contract, xxx the party of the SECOND PART hereby renounces all
his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and
deliver the same to the party of the FIRST PART.
The lower court rendered judgment in favor of the plaintiffs-appellees declaring that the contract subject matter
of the instant case was NOT VALIDLY cancelled by the defendants. A motion for reconsideration filed by the
defendants-appellants was denied. The then Court of Appeals certified the case to the SC considering that the
appeal involves pure questions of law.
The defendants-appellants contends that even in the absence of the paragraph 6 in the contract, they
had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines. The plaintiffs-
appellees on the other hand contend that paragraph 6 of the contract to sell is contrary to law insofar as it
provides that in case of specified breaches of its terms, the sellers have the right to declare the contract
cancelled and of no effect, because it granted the sellers an absolute and automatic right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides: “The power to
rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
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.”
ISSUE:
Whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants
(whether or not rescission is proper)
HELD:
NO. Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the
failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that
prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its
cancellation even without court intervention. However, the right to rescind the contract for non-performance of
one of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of
the parties in making the agreement. The question of whether a breach of a contract is substantial depends
upon the attendant circumstances.
The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider
that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly
installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation
would have been paid. Furthermore, although the principal obligation was only P 3,920.00 excluding the 7
percent interests, the plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction the
rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees. It would unjustly
enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less damages suffered by the obligee.
Also militates against the unilateral act of the defendants-appellants in cancelling the contract.
We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their alleged
right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees
have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-
appellants have waived and are now estopped from exercising their alleged right of rescission.
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already
paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining
installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without
any interest thereon, the defendants-appellants must immediately execute the final deed of sale in favor of the
plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract.
BOYSAW VS. INTERPHIL PROMOTIONS
148 SCRA 638
FACTS:
Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by
Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight
championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in
Manila on September 30, 1961 or not later than thirty [30] days thereafter should a postponement be mutually
agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in any other such
contest without the written consent of Interphil Promotions, Inc.
However, before September 30, 1961, Boysaw entered into a non-title bout on June 19, 1961 and without
consent from Interphil, Ketchum assigned to Amado Araneta the managerial rights over Boysaw. Amado Araneta
in turn transferred the earlier acquired managerial rights to Alfredo again without the consent from Interphil.
Yulo thereafter informed InterphilBoysaw’s readiness to comply with the boxing contract of May 1, 1961. The
GAB after a series of conferences of both parties scheduled the Elorde-Boysaw fight on November 4, 1961. Yulo
refused to accept the charge in the fight date even after Sarreal offered to advance the fight date to October 28,
1961. However, he changed his mind and decided to accept the fight date on November 4, 1961. While an
Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never
materialized.
As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latter’s refusal to honor their
commitments under the boxing contract of May 1, 1961.
ISSUE:
W/N there is a violation on the contract; and
W/N plaintiff is the proper party to rescind the contract
RULING:
The evidence established that the contract was violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. While the contract
imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to breach it
with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual
breach. Thus:
Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those
who in any manner contravene the terms thereof, are liable for damages. [Art. 1170, Civil Code].
Also:
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. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are
those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that
the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously,
so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino, Civil
Code of the Philippines, Vol. IV, p. 175.1
The power to rescind is given to the injured party. Since the plaintiff performed what was to be intended for him
to not to as stipulated in the contract, he is not entitled to insist upon the performance of the contract by the
defendant, or recover damages by reason of his own breach.
PILIPINAS BANK VS. IAC AND JOSE DIOKNO
GR NO L-67881 JUNE30,1987
FACTS:
On April 18, 1961, Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and private
respondents, as vendees executed Contract to Sell No. VV-18 (a) (Exh. A) over a parcel of land with an area of
5,936 square meters of the Victoria Valley Subdivision in Antipolo, Rizal, subject to the following terms and
conditions, among others, relevant to this petition:
(a) The total contract price for the entire 5,936 square-meter-lot was P47,488.00;
(b) Of the total sum, an amount of Pl2,182.00 was applied thereto so as to reduce the balance on the principal to
P35,306.00;
(c) The aforesaid balance, together with the stipulated interest of 6% per annum, was to be paid over a period of
8-1/2 years starting on May 1, 1961 at a monthly installment of P446.10 until fully paid-although this monthly
installment was later adjusted to the higher amount of P797.86, starting on April 1, 1965;
(d) Upon complete payment by the vendee of the total price of the lot the vendor shall execute a deed of sale in
favor of the vendee;
(e) The contract shall be considered automatically rescinded and cancelled and of no further force and effect
upon failure of the vendee to pay when due, three or more consecutive installments as stipulated therein or to
comply with any of the terms and conditions thereof, in which case the vendor shall have right to resell the said
parcel of land to any person interested, forfeiting payments made by the vendee as liquidated damages.
On July 27, 1965, petitioner sent to private respondents a Statement of Account (Exh. F-1) requesting remittance
of installment arrears showing partial payments for the month of April 1965 and May 1965 and complete default
for June, July and August, 1965;
Likewise, on August 31, 1965, petitioner sent to private respondents another Statement of Account with the
additional entries of interests and the incoming installment for September, 1965;
In partial compliance with the aforesaid Statements of Account, private respondents paid on September 3, 1965
the sum of Pl,397.00 which answers for the installments for the months of June 1965 to August 1965;
On March 17, 1967, petitioner sent private respondents a simple demand letter showing a delinquency in their
monthly amortizations for 19 months (Exh. 9);
On April 17, 1967, petitioner again sent private respondents a demand letter showing total arrearages of 20
months as of April 1965, but this time advising that unless they up-date their installment payments, petitioner
shall be constrained to avail of the automatic rescission clause (Exh. 10);
On May 17, 1967, private respondents made a partial payment of P2,000.00 with the request for an extension of
60 days from May 17, 1967 within which to up-date their account (Exh. 10-a);
On July 17, 1967, private respondents wrote a letter to petitioner asking another extension of sixty (60) days to
pay all their arrearages and update their payments under Contract No. VV-18 (a);
On September 18, 1967, private respondents paid P5,000.00 as partial payment and requested an extension of
another 30 days from September 18, 1967 within which to update their account (Exh. 10-c);
On October 19, 1967, however, private respondents failed to update their arrearages and did not request for
any further extension of time within which to update their account;
After almost three (3) years, or on July 16, 1970, private respondents wrote a letter to petitioner requesting for a
Statement of Account as of date in arrears and interests(Exh. 10-d), to which petitioner made a reply on July 22,
1970 (Exh. 11);
On May 19, 1971, petitioner wrote a letter to private respondents, reminding them of their balance which will
be due on the 31st instant (Exh. J);
More than two (2) years from May 19, 1971 or on July 5, 1973, private respondents wrote a letter to petitioner
expressing their desire to fully settle their obligation, requesting for a complete statement of all the balance due
including interests;
On March 14, 1974, private respondents wrote a letter reiterating their request in their letter dated July 5, 1973,
which has not been complied with despite several follow-ups (Exh. O);
On March 25, 1974, private respondent Carmen I. Diokno went to see the Chairman of petitioner's Board of
Directors on the matter informing him that she had a buyer who was ready to purchase the property,
On March 27, 1974, petitioner wrote a letter to private respondents, informing them that the contract to sell
had been rescinded/cancelled by a notarial act, to which letter was annexed a "Demand for Rescission of
Contract", notarized on March 25, 1974 (Exh. 12);
In view of the foregoing, private respondents filed Complaint for Specific Performance with Damages to compel
petitioner to execute a deed of sale in their favor, and to deliver to them the title of the lot in question.
Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees, claiming that Contract
to Sell No. VV-18(a) has been automatically rescinded or cancelled by virtue of private respondents' failure to
pay the installments due in the contract under the automatic rescission clause.
After trial, the lower court rendered a decision in private respondents' favor, holding that petitioner could not
rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment
on September 1967, and by sending letters advising private respondents of the balances due, thus, looking
forward to receiving payments thereon; (b) in any event, until May 18, 1977 (when petitioner made
arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire
area contracted for, so, neither could private respondents be liable in default, citing Art. 1 189 of the New Civil
Code. (Decision, pp. 141-148, Amended Record on Appeal).
Said decision was affirmed on appeal.
ISSUE:
Whether the rescission or cancellation of the contract based on the automatic rescission clause is valid
RULING:
While it is true that in the leading case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers
Building Co., 43 SCRA 93 the Supreme Court reiterated among other things that a contractual provision allowing
"automatic rescission" (without prior need of judicial rescission, resolution or cancellation) is VALID, the remedy
of one who feels aggrieved being to go to Court for the cancellation of the rescission itself, in case the rescission
is found unjustified under the circumstances, still in the instant case there is a clear WAIVER of the stipulated
right of "automatic rescission," as evidenced by the many extensions granted private respondents by the
petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic rescission."
CENTRAL BANK OF THE PHILIPPINES vs. THE HONORABLE COURT OF APPEALS
G.R. No. L-45710 October 3, 1985 J. Makasiar
FACTS:
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department,
approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed
on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and
covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years,
with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an
additional capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank;
and Sulpicio M. Tolentino and his wife EditaTolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract at semi-annual installments of
P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to
Sulpicio M. Tolentino. on July 23, 1965, after being informed by the Bank that there was no fund yet available for
the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised
repeatedly the release of the P63,000.00 balance On August 13, 1965, the Monetary Board of the Central Bank,
after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans, provided
that such extensions or renewals shall be subject to review by the Superintendent of Banks,
who may impose such limitations as may be necessary to insure correction of the bank's
deficiency as soon as possible, xxxx
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required
capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of
Island Savings Bank.
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the
promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the
100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island
Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from
April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage. So on January 21,
1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining
the Island Savings Bank from continuing with the foreclosure of the mortgage.
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the
petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by
the Acting Superintendent of Banks.
The trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of
Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and
legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure.
The case was elevated to the Court of Appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that
Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan.

Hence, this instant petition by the central Bank.
ISSUES:
Can the action of Sulpicio M. Tolentino for specific performance prosper?
HELD:
No, instead Rescission. When Island Savings Bank and Sulpicio M. Tolentino entered into an
P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations,
the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirinovs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and willing
to perform his part of the contract, the other party who has not performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code).
The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings
Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28,
1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings
Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April
28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution
No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition
made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The
power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely
prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank
from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to
fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a
decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere
fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as
a breach of the contract by him.
Also, Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the
P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of
P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was
deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. X xxxxx
Since both parties were in default in the performance of their respective reciprocal obligations, that
is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino
failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable
for damages. x x xxxx
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS
LAND BANK OF THE PHILIPPINES, PETITIONER VS. ALFREDO ONG, RESPONDENT.
G.R. NO. 190755 NOVEMBER 24, 2010
FACTS :
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City
in the amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and would mature on
February 28, 1997, while the balance of PhP 10 million would be payable in seven (7) years. The Spouses Sy
could no longer pay their loan which resulted to the sale of three (3) of their mortgaged parcels of land for PhP
150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.
Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale
and assumption of mortgage. Land Bank Banch Head told Alfredo that there was nothing wrong with agreement
with the Spouses Sy and provided him requirements for the assumption of mortgage. Alfredo later found out
that his application for assumption of mortgage was not approved by Land Bank. On December 12, 1997, Alfredo
initiated an action for recovery of sum of money with damages against Land Bank, as Alfredo’s payment was not
returned by Land Bank. Alfredo said that Land Bank’s foreclosure without informing him of the denial of his
assumption of the mortgage was done in bad faith and that he was made to believed that P750,000 would cause
Land Bank to approve his assumption to the mortgage.
He also claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP 15,000, and
PhP 250,000 in moral damages. This prompted Alfredo to file a case with RTC against Land Bank on its decision
to the case, RTC held that the contract approving the assumption of mortgage was not perfected as a result of
the credit investigation conducted on Alfredo where he was disapproved.. As such, it ruled that it would be
incorrect to consider Alfredo a third person with no interest in the fulfillment of the obligation under Article1236
of the Civil Code. Although Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the
appellate court found that Alfredo and Land Bank’s active preparations for Alfredo’s assumption of mortgage
essentially novated the agreement.
ISSUES :
1) Whether or not the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in
finding that there is novation.2) Whether or not the Court of Appeals misconstrued the evidence and the law
when it affirmed the trial court decision’s ordering Land Bank to pay Ong the amount of Php750,000.00 with
interest at 12% annum.
RULING :
The Supreme Court affirmed with modification to the appealed decision that recourse against Land
Bank. Land Bank contends that Art.1236 of the Civil Code backs their claim that Alfredo should have sought
recourse against the Spouses Sy instead of Land Bank. The court agreed with Land Bank on the point mentioned
as to the first part of paragraph 1 of Art. 1236. However, Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of Mortgage which Land Bank required from him would
be approved. Thus, he made payment not as a debtor but as a prospective mortgagor.
Furthermore, the contract between Alfredo and Land Bank was not perfected nor consummated
because of the adverse disapproval of the proposed assumption. The Supreme Court did not agree with the
Court of Appeals that there was novation in the contract between the parties because not all elements of
novation were present. The court further stresses that the instant case would not have been litigated had Land
Bank been more circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even
before a credit investigation was underway and also failed to informed him of the disapproval. The court found
that there was negligence to a certain degree on the part of Land Bank in handling the transaction with Alfredo.
A bank as a business entity should observe a higher standard of diligence when dealing with the public which
Land Bank neglect to observe in this case. The petitioner’s appeal was denied by the Supreme Court and the
decision of the Court of Appeals was affirmed with modification in that the amount of Ph P 750,000 will earn
interest at 6% per annum and the total aggregate monetary awards will in turn earn 12% per annum from the
finality of this Decision until fully paid
J. M. TUASON AND CO. INC. VS. JAVIER (31 SCRA 829)
FACTS:
On September 7, 1954, a contract was entered into between the plaintiff, and defendant-appellee,
Ligaya Javier, whereby plaintiff agreed to sell, transfer and convey to the defendant a parcel of land of Sta. Mesa
Heights Subdivision for the total sum of P3, 691.20 with interest thereon at the rate of 10% a year, payable as
follows: P396.12 upon the execution of the contract and P43.92 every month thereafter, for a period of 10 years.
Upon the execution of the contract and the payment of the first installment, the defendant was placed in
possession of the land. Until January 5, 1962, she paid the stipulated monthly installments which aggregated to
P4, 134.08. Subsequently, she defaulted in the payment of said monthly installments. On May 22, 1964, plaintiff
informed her by letter that their contract had been rescinded.
On July 9, 1964, plaintiff commenced the present action against defendant due to failure and refusal
of the defendant to vacate said land. Plaintiff prayed for that the contract be declared validly rescinded, and
additionally, defendant and all persons claiming under be ordered to deliver to the plaintiff the lot in question,
with the improvement thereon and to pay monthly rentals from January 5, 1962 until the property had been
surrendered to the plaintiff.
In her answer, defendant admitted she had defaulted in the payment of the stipulated monthly
installments from January 5, 1962 due to unforeseen circumstances. She is also willing to pay all arrears in
installments under the contract and had in fact, offered the same to the plaintiff and that the contract cannot be
rescinded upon the unilateral act of the plaintiff.
The Court rendered its Decision, applying Art. 1592 of our Civil Code, declaring that the contract to
sell has not yet been rescinded and ordering the defendant to pay te plaintiff within 60 days from receipt hereof
all installment payments in arrears together with interests. Hence, this appeal by the plaintiff.
ISSUE:
Whether or not the defendant is entitled to a new period for payment of its obligation.
RULING:
In the interest of justice and equity, court may grant the vendee a new term where he substantially
performed in good faith his obligation, as stated in Article 1234 of the Civil Code “If the obligation has been
substantially performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee.
Apart from the initial paid upon the execution of the contract, the defendant religiously satisfied the monthly
installments accruing thereafter, for a period of almost 8 years, that, although the principal obligation was P3,
691.20, the total payments made by the defendant aggregated P4,134.08; that the defendant has offered to pay
all of the installments over due, including interests. Thus, plaintiff will recover everything due him pursuant to
its contract with the defendant, including such damages as the former may have suffered in consequence of the
latter’s default.
LEGARDA VS. SALDANA 55 SCRA 324
FACTS:
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for execution of
the corresponding deed of conveyance after payment of the balance still due on their purchase price. Private
respondent as plaintiff had entered into two written contracts with petitioner Legarda Hermanos,subdivision
owner,whereby the latter agreed to sell him Lots nos 7&8 of BLK #5N,with an area of 150 sqm,for P1500/lot for
10 years or 120 equal monthly installments with 10% per annum to begin on May 26,1948,date of execution of
the contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and
the two lots were among those allotted to co-petitioner Jose Legarda who was then included as co-defendant in
the action.
Respondent faithfully paid for eight continuous years about 95 (of the stipulated 120) monthly installments
totalling P3,582.06 up to February 1956. It is equally undisputed that after February, 1956 up to the filing of
respondent's complaint in the Manila court of first instance in 1961, respondent did not make further payments.
The account thus shows that he owed the sum of P1,317.72 on account of the balance of the purchase price
(principal) of the two lots (in the total sum of P3,000.00), although he had paid more than the stipulated
purchase price of P1,500.00 for one lot.
On February 2,1961,respondent wrote petitioners stating that his desire to build a house on the lots was
prevented by their failure to introduce improvements on the subdivision as "there is still no road to these lots,"
and requesting information of the amount owing to update his account as "I intend to continue paying the
balance due on said lots." Petitioners replied that as respondent had failed to complete total payment of the 120
installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the provisions of both contracts all
the amounts paid in accordance with the agreement together with the improvements on the premises have
been considered as rents paid and as payment for damages suffered by your failure," and "Said cancellation
being in order, is hereby confirmed."
The trial court’s adverse decision sustains petitioners’ cancellation of the contracts. The appellate court
rendered its judgment reversing the lower court’s judgement. Hence this petition.
ISSUE:
Whether or not plaintiff may be allowed to complete payment of the purchase price of the two lots in dispute
and thereafter to execute the final deeds of conveyance thereof in his favour.
RULING:
YES. The court applied the broad principles of equity and justice. In the case at bar, the plaintiff has paid the total
sum of P3,582.06 including interests, which is even more than the value of the two lots. And even if the sum
applied to the principal alone were to be considered, which was of the total of P1,682.28, the same was already
more than the value of one lot, which is P1,500.00. The only balance due on both lots was P1,317.72, which was
even less than the value of one lot. We will consider as fully paid by the plaintiff at least one of the two lots, at
the choice of the defendants. This is more in line with good conscience than a total denial to the plaintiff of a
little token of what he has paid the defendant Legarda Hermanos.
Hence, the present petition for review, wherein petitioners insist on their right of cancellation under the "plainly
valid written agreements which constitute the law between the parties" as against "the broad principles of
equity and justice" applied by the appellate court. Respondent on the other hand while adhering to the validity
of the doctrine of the Caridad Estates cases which recognizes the right of a vendor of land under a contract to
sell to cancel the contract upon default, with forfeiture of the installments paid as rentals, disputes its
applicability herein contending that here petitioners-sellers were equally in default as the lots were "completely
under water" and "there is neither evidence nor a finding that the petitioners in fact cancelled the contracts
previous to receipt of respondent's letter." The Court finds that the appellate court's judgment finding that of
the total sum of P3,582.06 (including interests of P1,889.78) already paid by respondent (which was more than
the value of two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was
already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by respondent
would be considered as fully paid, is fair and just and in accordance with law and equity.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier is fully applicable to the present
case, with the respondent at bar being granted lesser benefits, since no rescission of contract was therein
permitted. There, where the therein buyer-appellee identically situated as herein respondent buyer had likewise
defaulted in completing the payments after having religiously paid the stipulated monthly installments for
almost eight years and notwithstanding that the seller-appellant had duly notified the buyer of the rescission of
the contract to sell, the Court upheld the lower court's judgment denying judicial confirmation of the rescission
and instead granting the buyer an additional grace period of sixty days from notice of judgment to pay all the
installment payments in arrears together with the stipulated 10% interest per annum from the date of default,
apart from reasonable attorney's fees and costs, which payments, the Court observed, would have the plaintiff-
seller "recover everything due thereto, pursuant to its contract with the defendant, including such damages as
the former may have suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592 thereto, We
find that plaintiff herein has not been denied substantial justice, for, according to Art. 1234 of said Code: 'If the
obligation has been substantially performed in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the obligee,'" and "that in the interest of justice and
equity, the decision appealed from may be upheld upon the authority of Article 1234 of the Civil Code."
AZCONA V. JAMANDRE
151 SCRA 317
FACTS:
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to
Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960.
On March 30, 1960, when the first annual rent was due,petitioner was not able to deliver possession of the
leased property thus he “waived” payment of that rental. Respondent only entered the premises on October 26,
1960 after paying P7000, whichwas acknowledged by the petitioner in the receipt. On April 6, 1961, the
petitioner notifiedrespondent that the contract of lease was deemed cancelled for violation of the conditions of
thecontract. Earlier, in fact, the respondent had been ousted from the possession of the 60 hectaresof the
leased premises and let with only 20 hectares of the original area.
ISSUES:
1. Whether or not the lease contract is deemed cancelled upon failure of the respondent to:
2. Attach the parcelary plan identifying the exact area subject of the contract
3. Secure approval of PNB of said contract
RULING:
Parcelary Plan - The correct view is that there was an agreed subject-matter, although it was not expressly
defined because the plan was not annexed and never approved. There was still an ascertainable object because
the leased premises were sufficiently delineated and identified. Failure to attach the plan was imputable to the
petitioner himself because he was supposed to prepare the said plan. Nevertheless, the identification of the
lease area rendered the plan unnecessary and its absence did not nullify the agreement.PNB Approval
Petitioners claim that such possession was not delivered because the approval of by the PNB had not
materialized due to respondent's neglect. Respondent was negotiating the loan with PNB but the contract does
not state upon whom fell the obligation to secure the approval. Payment of Rent Petitioner contends that the
payment of P7000, which was short of P200, was a violation of the agreement thus the contract should be
deemed cancelled. But the petitioner unqualifiedly accepted the amount. The absence of any mention of the
discrepancy in the receipt nor any protest or demand to collect the remaining balance, means that
petitioner acknowledged the amount as the full payment for the rent. The SC affirms the decision of the CA and
petition is denied. Note: The CA held that the amount of P200 had been condoned but the SC viewed it as
a mere reduction of the stipulated rental in consideration of the withdrawal from the leased premises where the
petitioner intended to graze his cattle.
Relevant Articles/ Jurisprudence
Art 1235 – When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
ARANAS V. TUTAAN
127 SCRA 828
FACTS:
On August 1971, CFI Rizal, Quezon declared petitioner spouses Aranas as owner of 400 shares of stocks in
Universal Textile Mills Inc. (UTEX). UTEX issued to co defendant Manuel and Castaneda issued the said shares
and included therein the stock dividend accruing to said shares. Pursuant to the said decision, UTEX filed a
motion for clarification worded as follows:
“ (I)f this Honorable Court by the phrase ‘to deliver to her all dividends appertaining to same,
whether in cash or in stocks,’ meant dividends properly pertaining to plaintiffs after the court’s
declaration of plaintiffs’ ownership of said 400 shares of stock, xxx ."
The trial court ruled that its judgment against UTEX was to pay to Luisa Quijencio Arañas the cash dividends
which accrued to the stocks in question after the rendition of this decision excluding cash dividends already paid
to its co-defendants Gene Manuel and B.R. Castañeda which accrued before its decision. Subsequently, the trial
court granted the motion for new trial of the two co-defendants Manuel and Castañeda ruling in substantially
similar manner as its first decision of May 3, 1971 which had already become final and executory as against
UTEX. The both filed an appeal with CA who affirmed in toto the Trial Court’s decision.
At petitioners’ instance, the lower court issued a writ of execution and a specific order of December 5, 1979
directing UTEX to 1) To effect the cancellation of the certificates of stock in question in the names of B.R.
Castañeda and Gene G. Manuel and the issuance of new ones in the names of the plaintiffs; 2. To pay the
amount of P100,701.45 representing the cash dividends that accrued to the same stocks from 1972 to 1979 with
interest thereon at the rate of 12% per annum from the date of the service of the writ of execution on October
3, 1979 until fully paid.
UTEX filed a motion for partial reconsideration alleging that the cash dividends of the stocks corresponding to
the period from 1972 to 1979 had already been paid and delivered by it to co-defendants Castañeda and Manuel
who then still appeared as the registered owners of the said shares. The lower court issued an order dated
January 4, 1980 granting said motion of UTEX absolved UTEX from paying the cash dividend corresponding to the
stocks in question to the plaintiffs for the period 1972 to 1979. Hence this petition.
ISSUE:
WON the wrongful payment of dividends and interest accruing from 1972 to 1979 by UTEX to Manuel and
Castaneda extinguishes its obligation to pay Sps Aranas?
RULING:
No. xxx Consequently, there is no legal nor equitable basis for respondent judge’s position "that it would indeed
be most unjust and inequitable to require the defendant Universal Textile Mills, Inc. to pay twice cash dividends
on particular shares of stocks." 1 If UTEX nevertheless chose to pay the wrong parties, notwithstanding its full
knowledge and understanding of the final judgment, that it was liable to pay all dividends after the trial court’s
judgment in 1971 to petitioners as the lawfully declared owners of the questioned shares of stock (but which
could not be enforced against it pending the outcome of the appeal filed by the co-defendants Castañeda and
Manuel in the Court of Appeals), it only had itself to blame therefor.
The burden of recovering the supposed payment of the cash dividends made by UTEX to the wrong parties
Castañeda and Manuel squarely falls upon itself by its own action and cannot be passed by it to petitioners as
innocent parties. It is elementary that payment made by a judgment debtor to a wrong party cannot
extinguish the judgment obligation of such debtor to its creditor
OCTAVIO A. KALALO VS. ALFREDO J. LUZ
G.R. NO. L-27782, JULY 31, 1970
FACTS:
On November 17, 1959, Octavio Kalalo doing business under the firm name O.A. Kalalo and Associate
(Kalalo) entered into agreement with Alfredo J. Luz doing business under the firm name A.J. Luz and Associates
(Luz), whereby Kalalo had to render engineering design services to Kalalo for fees, as stipulated in their
agreement. The services included design computation and sketches, contract drawing and technical
specifications of all engineering phases of the project designed by Kalalo, bill of quantities and cost estimate, and
consultation and advice during construction relative to the work.
On December 1 1, '1961, Kalalo sent to Luz a statement of account, according to which the total
engineering fee asked by Kalalo for services rendered amounted to P116,565.00 from which sum was to be
deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount
of P59,565.00.
On May 18, 1962, Luz sent Kalalo a resume of fees due to said statement of account. Said fees,
according to Luz amounted to P10,861.08 instead of the amount claimed by Kalalo. On June 14, 1962 Luz sent
Kalalo a check for said amount, which Kalalo refused to accept as full payment of the balance of the fees due
him.
On August 10, 1962, Kalalo filed a complaint against Luz, containing four causes of action. Kalalo
alleged that for services rendered in connection with the different projects and there was due him fees in sum s
consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid,
thus leaving unpaid the $28,000.00 and the balance of P30,881.25.
Luz admitted that Kalalo rendered engineering services, but averred that some of Kalalo's services
were not in accordance with the agreement and Kalalo’s claims were not justified by the services actually
rendered, and that the aggregate amount actually due to Kalalo was only P80,336.29, of which P69,475.21 had
already been paid, thus leaving a balance of only P10,861.08. Kalalo services were not complete or were
performed in violation of the agreement and/or otherwise unsatisfactory.
Upon agreement of the parties, the case was to be heard before a Commissioner. The Commissioner
rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in
the International Research Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to
Luz, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the Luz. The
Commissioner also recommended the payment to Kalalo of the sum of P5,000.00 as attorney's fees.
ISSUE:
Whether the balance owing from Kalalo to one of its project (IRRI project) should be paid based on the rate of
exchange of the U.S. dollar to the Philippine peso at the time of payment of judgment
HELD:
The Court have taken note of the fact that on August 25, 1961, the date when Luz obligation to pay
Kalalo's fees became due, there was two rates of exchange, to wit: the preferred rate of P2.00 to $1.00, and the
free market rate.
Under the agreement, Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00. Kalalo, however,
cannot oblige Luz to pay him in dollars, even if Luz himself had received his fee for the IRRI project in dollars.
This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides
as follows:
SECTION 1. Every provision contained in, or made with respect to, any obligation which
provision purports to give the obligee the right to require payment in gold or in a particular
kind of coin or currency other than Philippine currency or in an amount of money of the
Philippines measured thereby, be as it is hereby declared against public policy, and null,
void and of no effect, and no such provision shall be contained in, or made with respect to,
any obligation hereafter incurred. Every obligation heretofore or here after incurred,
whether or not any such provision as to payment is contained therein or made with respect
thereto, shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts: Provided, That, ( a) if the obligation
was incurred prior to the enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the obligation was
incurred, (b) except in case of a loan made in a foreign currency stipulated to be payable in
the same currency in which case the rate of exchange prevailing at the time of the
stipulated date of payment shall prevail. All coin and currency, including Central Bank
notes, heretofore or hereafter issued and declared by the Government of the Philippines
shall be legal tender for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the
enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine
currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the
time the obligation was incurred. As We have adverted to, Republic Act 529 was enacted on June 16, 1950. In
the case now before us the obligation of Luz to pay Kalalo the 20% of $140,000.00, or the sum of $28,000.00,
accrued on August 25, 1961, or after the enactment of Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the prevailing rate of exchange when the obligation was incurred
cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment of obligation
incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange should
be that prevailing at the time of payment. This view finds support in the ruling of this Court in the case of Engel
vs. Velasco & Co. where this Court held that even if the obligation assumed by the defendant was to pay the
plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange
prevailing on the date of defendant's breach.
Therefore, Luz should pay Kalalo the equivalent in pesos of the $28,000.00 at the free market rate of
exchange at the time of payment. And so the trial court did not err when it held that Luz should pay Kalalo
$28,000.00 "to be converted into the Philippine currency on the basis of the current rate of exchange at the time
of payment of this judgment, as certified to by the Central Bank of the Philippines, ...."
PONCE VS CA 90 SCRA 533
FACTS:
On June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L. Mendoza and Ma. Aurora C. Diño
executed a promissory note in favor of petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency,
payable, without interest, on or before July 31, 1969. It was further provided therein that should the
indebtedness be not paid at maturity, it shall draw interest at 12% per annum, without demand; that should it
be necessary to bring suit to enforce pay ment of the note, the debtors shall pay a sum equivalent to 10% of the
total amount due for attorney's fees; and, in the event of failure to pay the indebtedness plus interest in
accordance with its terms, the debtors shall execute a first mortgage in favor of the creditor over their
properties or of the Carmen Planas Memorial, Inc.
Upon the failure of the debtors to comply with the terms of the promissory note, petitioners (Nelia G. Ponce and
her husband) filed, on July 27, 1970, a Complaint against them with the Court of First Instance of Manila for the
recovery of the principal sum of P814,868.42, plus interest and damages.
On March 9, 1972, the trial Court rendered judgment ordering respondent Afable and her co-debtors, Felisa L.
Mendoza and Ma. Aurora C. Diño , to pay petitioners, jointly and severally, the sum of P814,868.42, plus 12%
interest per annum from July 31, 1969 until full payment, and a sum equivalent to 10% of the total amount due
as attorney's fees and costs.
On December 13, 1977, the Court of Appeals* rendered judgment affirming the decision of the trial Court. In a
Resolution dated February 27, 1978, the Court of Appeals,** denied respondent's Motion for Reconsideration.
However, in a Resolution dated June 8, 1978, the Court of Appeals acting on the Second Motion for
Reconsideration filed by private respondent, set aside the Decision of December 13, 1977, reversed the
judgment of the trial Court and dismissed the Complaint.
The Court of Appeals opined that the intent of the parties was that the promissory note was payable in US
dollars, and, therefore, the transaction was illegal with neither party entitled to recover under the in pari delicto
rule.
ISUUE:
Whether or not the subject matter of contract is legalt. If the subject matter is illegal and against public policy,
will the the doctrine of pari delicto applies. Can Ponce recover?
RULING:
Yes. RA 529 provides that an agreement to pay in dollars is null and void and of no effect however what the law
specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor’s claim for
payment, as it specifically provides that “every other domestic obligation … whether or not any such provision as
to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public and private debts.” A contrary rule would allow
a person to profit or enrich himself inequitably at another’s expense.
On the face of the promissory note, it says that it is payable in Philippine currency – the equivalent of the dollar
amount loaned to Afable et al. It may likewise be pointed out that the Promissory Note contains no provision
“giving the obligee the right to require payment in a particular kind of currency other than Philippine currency, ”
which is what is specifically prohibited by RA No. 529. If there is any agreement to pay an obligation in a
currency other than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to
Republic Act No. 529, and the most that could be demanded is to pay said obligation in Philippine currency.
WHEREFORE, the Resolutions of the Court of Appeals dated June 8, 1978, July 6, 1978 and November 27, 1978
are hereby set aside, and judgment is hereby rendered reinstating the Decision of the Court of First Instance of
Manila.
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner, vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S. ABDULWAHID, respondents.
G.R. No. L-41764 December 19, 1980 CONCEPCION JR., J.:
FACTS:
In a complaint for a collection of sum of money, petitioner New Pacific and respondent Ricardo Tong entered
into an amicable settlement before Respondent Judge Seneris in the terms and conditions agreed by the parties
and approved by the court through Respondent Judge Seneris.
However, Plaintiff New Pacific failed to comply with his judgment obligation with Respondent Tong, thus, a writ
of execution was issued for the amount of P63, 140.00 pursuant to which, petitioner’s properties were levied
and was set for an auction sale. Prior to the set date for the auction sale, petitioner deposited with the Clerk of
Court, CFI, in his capacity as Ex-Officio Sheriff, the sum of P63, 130.00 for payment of the judgment obligation,
consisting of (1) P50, 000.00 Cashier’s Check and (2) P13,130.00 in cash. Private respondent refused to accept
the check as well as the cash deposit and requested the scheduled auction sale.
Respondent judge uphold private respondent’s claim that Respondent Tong has the right to refuse payment by
means of a check and cited the following legal basis:
1. Section 63 of the Central Bank Act:
“Sec 63. Legal Character – Checks representing deposit money do not have legal tender
power and their acceptance in payment of debts, both public and private, is at the option of the
creditor. Provided, however, that a check which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount
credited to his account.”
 2. Article 1249 of the New Civil Code:
“Art. 1249. — The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Likewise, the respondent Judge sustained the contention of the private respondent that he has the right to
refuse payment of the amount of P13, 130.00 in cash because the said amount is less than the judgment
obligation, citing Article 1248 of the New Civil Code:
“Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the presentations in which the obligation consists. Neither may the debtor be
required to make partial payment.
However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the liquidation of
the latter.
ISSUE:
The main issue to be resolved in this instance is as to whether or not the private respondent can validly refuse
acceptance of the payment of the judgment obligation made by the petitioner consisting of P50,000.00 in
Cashier's Check and P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the
scheduled auction sale.
HELD:
NO. The check deposited by the petitioner in the amount of P50,000.00 is not an ordinary check but a Cashier's
Check of the Equitable Banking Corporation, a bank of good standing and reputation. It is a well-known and
accepted practice in the business sector that a Cashier's Check is deemed as cash. Where a check is certified by
the bank on which it is drawn, the certification is equivalent to acceptance. Said certification "implies that the
check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an
understanding that the check is good then, and shall continue well, and this agreement is as binding on the bank
as its notes in circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it
can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money."
When the holder procures the check to be certified, "The check operates as an assignment of a part
of the funds to the creditors." Hence, the exception to the rule enunciated under Section 63 of the Central Bank
Act to the effect "that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account" shall
apply in this case.
Considering that the whole amount deposited by the petitioner consisting of Cashier's Check of
P50,000.00 and P13,130.00 in cash covers the judgment obligation of P63,000.00 as mentioned in the writ of
execution, then, there is no valid reason for the private respondent to have refused acceptance of the payment
of the obligation in his favor. The auction sale, therefore, was uncalled for.
ROMAN CATHOLIC OF MALOLOS V IAC
Facts:
The property subject matter of the contract consists of a parcel of land in the Province of Bulacan,
issued and registered in the name of the petitioner which it sold to the private respondent.
On July 7, 1971, the subject contract over the land in question was executed between the petitioner
as vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for
a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within
four (4) years from execution of the contract. The contract likewise provides for cancellation, forfeiture of
previous payments, and reconveyance of the land in question in case the private respondent would fail to
complete payment within the said period.
After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the
company who bought land) wrote the petitioner a formal request that her company be allowed to pay the
principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request.
The petitioner formally denied the said request of the private respondent, but granted the latter a
grace period of five (5) days from the receipt of the denial to pay the total balance of P124,000.00. The private
respondent wrote the petitioner requesting an extension of 30 days from said date to fully settle its account but
this was still denied.
Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the
alleged refusal of the latter to accept tender of payment made by the former on the last day of the grace period.
But the private respondent demanded the execution of a deed of absolute sale over the land in question
Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute
the deed of absolute sale so the petitioner cancelled the contract and considered all previous payments
forfeited and the land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the contending parties have conflicting
versions on the main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s obligation on tender her payment, when her
request to extend the grace period has not yet been acted upon? Atty. Francisco’s claim that she made a tender
of payment is not worthy of credence.
The trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check
allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof.
Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC reversed the decision
of the trial court. The IAC, in finding that the private respondent had sufficient available funds, ipso facto
concluded that the latter had tendered payment.
Issue:
Whether or not an offer of a check is a valid tender of payment of an obligation under a contract which
stipulates that the consideration of the sale is in Philippine Currency.
Ruling:
No. In the case of Philippine Airlines v. Court of Appeals:
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument
does not, by itself, operate as payment. A check, whether a manager’s check or ordinary check, is not legal
tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt
by the obligee or creditor. The tender of payment by the private respondent was not valid for failure to comply
with the requisite payment in legal tender or currency stipulated within the grace period.
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA
vs. THE HONORABLE COURT OF APPEALS and EDEN TAN
G.R. No. 100290 June 4, 1993
FACTS:
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses. A writ
of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff
filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial Court of Kalookan City in
the amount of Four Hundred Forty Two Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case,
had been garnished by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila
rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to
pay her an amount in excess of Three Hundred Thousand Pesos (P300,000.00). On appeal, the Court of Appeals
modified the decision by reducing the award of moral and exemplary damages. The decision having become
final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which by then
were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money
judgment in the following form:
Cashier's Check P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted
that the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be
withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses (petitioners) filed a
motion to lift the writ of execution on the ground that the judgment debt had already been paid. On 29 January
1991, the motion was denied by the trial court on the ground that payment in cashier's check is not payment in
legal tender and that payment was made by a third party other than the defendant. A motion for
reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal tender as required by Republic Act No. 529. The
motion for reconsideration was denied on 27 May 1991.
ISSUE:
w/n payment by means of check (even by cashier's check) is considered payment in legal tender as required by
the Civil Code, Republic Act No. 529, and the Central Bank Act.
HELD:
NO. The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or when through the fault of the creditor they
have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the obligee
the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency
or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public
policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
Sec. 63. Legal character — Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however,
that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery
to the creditor of cash in an amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this petition must fail.
VELASCO V. MERALCO, 42 SCRA 556
FACTS:
Velasco bought three (3) adjoining lots. He sold two (2) of these to Meralco and maintained the last one as his
residence. Meralco constructed on their lots a sub-station at a distance of 10-20 meters away from appellant’s
house. The company also built a concrete wall at the sides along the streets but put up only an interlink wire
fence (previously a sawali wall) on the boundary with appellant. An unceasing sound emanates from the
substation. Such, appellant contends, constitute a nuisance which has worsened his health condition and has
lowered the value of his property.
The court ordered Meralco to either transfer its substation or take appropriate measures to reduce its noise to
an average of forty (40) to fifty (50) decibels; and to pay the said plaintiff-appellant P20,000.00 in damages plus
attorney's fees. The appellant, Dr. Velasco, filed a motion for reconsideration. The thrust of his motion is that the
court erred in not taking into account, in computing appellant’s loss of income, the appellant’s undeclared
income. Velasco urges that the damages awarded him are inadequate considering the present high cost of living,
and calls attention to Article 1250. Consequently, Meralco filed a motion for consideration. Meralco argues that
in case the noise emitted by its substation cannot be brought down to the 50 decibel level imposed by the
decision in chief, the remedy of the appellant would be to compel appellee Company to acquire and pay for the
value of the house, under the so-called doctrine of "inverse condemnation”.
ISSUE:
1. Whether or not Article 1250 (extraordinary inflation or deflation) of the present civil code applies in this case?
2. If in case the noise emitted by its substation cannot be brought down to the 50 decibel level, can the appellee
acquire and pay for the value of the house, under the so called doctrine of “inverse condemnation”?

RULING:
1. No.
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene,
the value of the currency at the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary.
It can be seen from the employment of the words "extraordinary inflation or deflation of the currency
stipulated" that the legal rule envisages contractual obligations where a specific currency is selected
by the parties as the medium of payment; hence it is inapplicable to obligations arising from tort and
not from contract, as in the case at bar, besides there being no showing that the factual assumption
of the article has come into existence. Nor is the fact that appellant lost a chance to sell his house
constitute a ground for an award of damages in that amount. As remarked in the main decision, there
is no adequate proof of loss, since there is no evidence of the depreciation in the market value of the
house in question caused by the acts of defendant Meralco. The house, after all, has remained with
appellant and he admits in his motion for reconsideration that properties have increased in value by
200% since then.
2. No.
As pointed out by appellant in his opposition, this issue was not raised, nor was the inverse
condemnation doctrine invoked in the trial court, so that it would be improper to consider it on
appeal, and worse still, on a motion for reconsideration of the decision on the merits. Furthermore,
there is no showing that it is impossible to reduce the substation noise to the level decreed by this
Court in the main decision. On the contrary, appellee's own evidence is that the noise can be reduced
by erecting a wall barrier on the line separating the substation lot and the property of appellant.
The version that appellee did not erect the wall because of the objections of appellant's wife was
denied by her, and there is no preponderance of evidence in favor of appellee on this point.
Moreover, since it was appellant Dr. Velasco who complained, his wife's objection would not suffice
to constitute a waiver of his claim.
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs. HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First Instance of Cebu City, Branch 11,
and Victoria Amigable, respondents.
G.R. No. L-36706 March 31, 1980 DE CASTRO, J.:
FACTS:
Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167 square meters.
Sometime in 1924, the Government took this land for road-right-of-way purpose.
On February 6, 1959, Victoria Amigable filed a complaint to recover ownership and possession of the land, and
for damages for the alleged illegal occupation of the land by the Government, moral damages, and attorney's
fees plus costs of suit.
In its answer, the Republic alleged, among others, that the land was either donated or sold by its owners to the
province of Cebu to enhance its value, and that in any case, the right of the owner, if any, to recover the value of
said property was already barred by estoppel and the statute of limitations, defendants also invoking the non-
suability of the Government.
In a decision rendered by Judge Amador E. Gomez, the plaintiff's complaint was dismissed on the grounds relied
upon by the defendants therein. The plaintiff appealed the decision to the Supreme Court where it was
reversed, and the case was remanded to the court of origin for the determination of the compensation to be
paid the plaintiff-appellant as owner of the land, including attorney's fees. 4 The Supreme Court decision also
directed that to determine just compensation for the land, the basis should be the price or value thereof at the
time of the taking. 5
In the hearing held pursuant to the decision of the Supreme Court, the Government proved the value of the
property at the time of the taking thereof in 1924 with certified copies, issued by the Bureau of Records
Management showing the price to be at P2.37 per square meter. Victoria Amigable presented newspaper
clippings of the Manila Times showing the value of the peso to the dollar obtaining about the middle of 1972,
which was P6.775 to a dollar.
The court which is now the public respondent in the instant petition, rendered judgment on January 9, 1973
directing the Republic of the Philippines to pay Victoria Amigable the sum of P49,459.34 as the value of the
property taken, plus P145,410.44 representing interest at 6% on the principal amount of P49,459.34 from the
year 1924 up to the date of the decision, plus attorney's fees of 10% of the total amount due to Victoria
Amigable, or a grand total of P214,356.75.
ISSUE:
Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount of
compensation to be paid to respondent Victoria Amigable for the property taken
RULING:
ART. 1250. In case extra-ordinary inflation or deflation of the currency stipulated should supervene, the value of
the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.
It is clear that the foregoing provision applies only to cases where a contract or agreement is involved. It does
not apply where the obligation to pay arises from law, independent of contract. The taking of private property
by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation.
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of
the obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at
the time of the taking of the property when the obligation of the Government to pay arises. 12 It is only when
there is an "agreement to the contrary" that the extraordinary inflation will make the value of the currency at
the time of payment, not at the time of the establishment of the obligation, the basis for payment. In other
words, an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the
value of the currency at the time of the establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would find reason only in the supervention of
extraordinary inflation or deflation.
We hold, therefore, that under the law, in the absence of any agreement to the contrary, even assuming that
there has been an extraordinary inflation within the meaning of Article 1250 of the New Civil Code, a fact We
decline to declare categorically, the value of the peso at the time of the establishment of the obligation, which in
the instant case is when the property was taken possession of by the Government, must be considered for the
purpose of determining just compensation. Obviously, there can be no "agreement to the contrary" to speak of
because the obligation of the Government sought to be enforced in the present action does not originate from
contract, but from law which, generally is not subject to the will of the parties. And there being no other legal
provision cited which would justify a departure from the rule that just compensation is determined on the basis
of the value of the property at the time of the taking thereof in expropriation by the Government, the value of
the property as it is when the Government took possession of the land in question, not the increased value
resulting from the passage of time which invariably brings unearned increment to landed properties, represents
the true value to be paid as just compensation for the property taken.
FILIPINO PIPE AND FOUNDRY CORPORATION vs. NATIONAL WATERWORKS AND SEWERAGE AUTHORITY
G.R. No. L-43446 May 3, 1988
FACTS:
On 1961 NAWASA entered into a contract with FPFC for the latter to supply with iron pressure pipes
to be used in the construction of Anonoy waterworks in Masbate. Defendant NAWASA paid in installment on
various dates. Plaintiff FPFC, having completed the delivery of the pipes, demanded payment from the
defendant of the unpaid balance of the price with interest, which the latter failed to pay. The plaintiff filed a
collection suit which the Trial Court ruled in its favor, ordering the defendant to pay the unpaid balance of P135,
507.50 in NAWASA negotiable bonds redeemable after ten years from their issuance with interest at 6% per
annum, 40,944.73 as interest up to 1966. Second complaint was filed by the plaintiff for the adjustment of said
judgment due to alleged supervening extraordinary inflation of the Philippine peso. The Trial Court dismissed the
complaint, hence, appealed.
ISSUE:
Whether or not there exist an extraordinary inflation of the currency justifying the adjustment of the defendant
appellee’s unpaid judgment obligation to plaintiff appellant?
RULING:
NO. Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of
the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such
decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the parties at
the time of the establishment of the obligation (Tolentino Commentaries and Jurisprudence on the Civil Code
Vol. IV, p. 284.)
While appellant's voluminous records and statistics proved that there has been a decline in the purchasing
power of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is
simply a universal trend that has not spared our country.
SIMEON DEL ROSARIO vs. THE SHELL COMPANY OF THE PHILIPPINES LIMITED
G.R. No. L-28776 August 19, 1988
FACTS:
1. On September 20, 1960 the parties entered into a Lease Agreement whereby the plaintiff- appellant leased a
parcel of land at Ligao, Albay with defendant-appellee at a monthly rental of Two Hundred Fifty Pesos (P250.00).
2. Paragraph 14 of said contract of lease provides:
14. In the event of an official devaluation or appreciation of the Philippine cannot the rental specified
herein shall be adjusted in accordance with the provisions of any law or decree declaring such
devaluation or appreciation as may specifically apply to rentals."
3. On November 6, 1965, President DiosdadoMacapagal promulgated Executive Order No. 195 1 titled "Changing
the Par Value of the Peso from US$0.50 to US$0.2564103 (U.S. Dollar of the Weight and Fineness in Effect on
July 1, 1944). This took effect at noon of November 8, 1965.
4. By reason of this Executive Order No. 195, plaintiff-appellant demanded from the defendant-appellee ailieged
increase in the monthly rentals from P250.00 a month to P487.50 a month.
5. Defendant-appellee fertilize to pay the increased monthly rentals.
6. On January 16, 1967, plaintiff-appellant filed a complaint with the CFI of Manila, praying that defendant-
appellee be ordered to pay the monthly rentals as increased by reason of Executive Order 195 and further
prayed that plaintiff-appellant be paid of the adjusted rental plus damages.
7. On January 8, 1968 the trial court in dismissing the complaint saying that Executive Order No. 195, contrary to
the contention of the plaintiff, has not officially devalued the Philippine peso but merely modified the par value
of the peso effective noon on Monday, the eighth of November, 1965.
In view of the trial cross-claimant refusal to increase the rental, petitioner brought the instant petition on the
theory that beneficient Executive Order No. 195 in effect decreased the worth or value of our currency, there
has taken place a "devaluation" or "depreciation" which would justify the proportionate increase of rent.
ISSUE:
Whether or not Executive Order No. 195 has officially devalued the Philippines Peso thereby making the
increase in rent valid.
RULING:
YES. The increase of rent as a result of the EO is valid. The court said: …. After a study of the case, We have come
to the conclusion that the resultant decrease in the par value of the peso is precisely not the situation or event
contemplated by the parties in their contract; accordingly alleged upward revision of the rent is called for.
…………..
In the case at bar, while no express reference has been made to metallic content, there nonetheless is a
reduction in par value or in the purchasing power of Philippine currency. Even assuming there has been no
official devaluation as the term is technically understood, the fact is that there has been a diminution or lessen
weding in the purchasing power of the peso, thus, there has been a "depreciation" (opposite of "appreciation").
Moreover, when laymen unskilled in the semantics of economics use the terms "devaluation" or "depreciation"
they certainly mean them in their ordinary signification — decrease in value. Hence as contemplated currency
the parties herein in their lease agreement, the term "devaluation" may be regarded as synonymous with
"depreciation," for certainly both refer to a decrease in the value of the currency. The rentals should therefore
by their agreement be proportionately increased.
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs. PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.
G.R. No. L-50449 January 30, 1982, DE CASTRO, J.
FACTS:
Appellant Philippine Acetylene purchased from one Alexander Lim a motor vehicle with a down payment and the
balance to be paid in 34 equal monthly installments. As security therefor, appellant executed a chattel mortgage
over the same motor vehicle. Lim assigned his interests to Filinvest Finance Corporation, which in turn assigned
said interests to appellee Filinvest Credit Corporation. Appellant defaulted in the payment of 9 successive
installments. Appellee sent a letter, demanding appellant to pay the amount due in full or return the mortgaged
property to appellee. Appellant replied that it will return the vehicle in full satisfaction of the indebtedness.
Accordingly, the vehicle was returned to appellee together with the document “Voluntary Surrender with Special
Power of Attorney to Sell”
Appellee wrote a letter informing appellant that the motor vehicle cannot be sold as there were unpaid taxes.
Appellee offered to deliver back the motor vehicle but the appellant refused to accept it, so appellee instituted
an action for collection of a sum of money with damages. In its answer, appellant avers that appellee has no
cause of action against it since its obligation was extinguished when in compliance with the appellee's demand
letter, it returned the mortgaged property, and that assuming arguendo that the return of the property did not
extinguish its obligation, it was nonetheless justified in refusing payment since the appellee is not entitled to
recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim.
The trial court ordered appellant to pay the unpaid balance, and the appellee to return the vehicle. Appellant
appealed to the CA, which certified the case to the SC for being purely a question of law. Appellant maintains
that when it returned the mortgaged motor vehicle to the appellee, the obligation was extinguished. Appellant
construed the return to and acceptance by the appellee of the mortgaged motor vehicle as dation in payment,
which virtually made appellee the owner of the mortgaged motor vehicle by the mere delivery thereof.
ISSUE/S:
1. Whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary
surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee.
2. Whether or not the warranty for the unpaid taxes on the mortgaged motor vehicle may be properly raised
and imputed to or passed over to the appellee.
RULING:
1. The mere return of the mortgaged motor vehicle by the mortgagor to the mortgagee does not constitute
dation in payment or dacion en pago in the absence, express or implied of the true intention of the
parties. Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of payment,
the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such,
the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance of an
obligation is considered as the object of the contract of sale, while the debt is considered as the purchase
price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of
totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee consented, or at least intended, that the mere
delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment . The
fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership
thereof was transferred, in the absence of clear consent of appellee. A more solid basis of the true
intention of the parties is furnished by the document executed by appellant. An examination of the
language of the document reveals that the possession of the mortgaged motor vehicle was voluntarily
surrendered by the appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle
in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the
mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the
selling price and the mortgage obligation. The appellee, in essence, was constituted as a mere agent to sell
the motor vehicle which was delivered to the appellee.
The delivery of possession of the mortgaged property to the mortgagee can only operate to extinguish the
mortgagor's liability if the appellee had actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof. If the vendor desisted, on his own initiative, from consummating the
auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still
sue for specific performance. This is exactly what happened in the instant case.
2. There is a specific provision in the Deed of Sale that the seller Alexander Lim warrants the sale of the motor
vehicle to the buyer to be free from liens and encumbrances. When appellee accepted the assignment of
credit from the seller Alexander Lim, there is a specific agreement that Lim continued to be bound by the
warranties he had given to the buyer. Since the ownership of the mortgaged property never left the
appellant, unpaid taxes should be home by him. His remedy is against Alexander Lim.
CITIZENS SURETY AND INSURANCE COMPANY, INC. V. COURT OF APPEALS
G.R. No. L-48958, June 28, 1988
FACTS:
On 1959, Citizens Surety issued two surety bonds to guarantee compliance by Pascual M. Perez
Enterprise of its obligation with Singer Sewing Machine Co. In consideration of the issuance of the said bonds,
Pascual M. Perez executed two indemnity agreements (in his personal capacity and as attorney-in-fact of Nicasia
Sarmiento and of the enterprise) wherein he obligated himself and the enterprise to indemnify Citizens Surety
jointly and severally, whatever payments advances and damage it may suffer or pay as a result of the issuance of
the surety bonds. In addition, the enterprise was also required to put up a collateral security to further insure
reimbursements, therefore Perez executed a deed of assignment of his stock of lumber and a second real estate
mortgage was further executed.
The enterprise failed to comply with its obligation to Singer. Consequently, Citizens Surety was
compelled to pay, as it did pay. However, the enterprise failed to reimburse Citizens Surety of the total amount
the latter paid to Singer. Thereafter, Citizens Surety filed a claim for some of money against the estate of the late
Nicasia Sarmiento which was being administered by Perez. Perez opposed the claim stating that the surety
bonds and the indemnity agreements had been extinguished by the execution of the deed of assignment.
The CFI of Batangas ordered Perez to pay the remaining balance of the amount to be reimbursed to
Citizens Surety which was subsequently reversed by the Court of Appeals on appeal.
ISSUE:
Whether the obligation under the surety bonds and indemnity agreements had been extinguished by the
execution of the deed of assignment.
RULING:
The transaction could not be dation in payment. xxx xxx when the deed of assignment was executed on
December 4, 1959, the obligation of the assignor to refund the assignee had not yet arisen. In other words, there
was no obligation yet on the part of the petitioner to pay Singer Sewing Machine Co. There was nothing to be
extinguished on that date, hence, there could not have been dation in payment.
The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety
bonds was automatically extinguished. The subsequent acts of the private respondent bolster the fact that the
deed of assignment was intended merely as a security for the issuance of the two bonds. Partial payments
amounting to P55,600.00 were made after the execution of the deed of assignment to satisfy the obligation
under the two surety bonds. Since later payments were made to pay the indebtedness, it follows that no debt
was extinguished upon the execution of the deed of assignment. xxx xxx xxx.
If indeed the deed of assignment extinguished the obligation, there was no reason for a second mortgage to still
have to be executed. xxx xxx xxx. It was not yet extinguished when the deed of assignment was
executed on December 4, 1959. The deed of assignment was therefore intended merely as another collateral
security for the issuance of the two surety bonds.
SOLEDAD SOCO, petitioner, vs. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First
Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR., respondents.
G.R. No. L-58961 June 28, 1983
FACTS:
Appellee-Soco, and defendant-appellant-Francisco, entered into a contract of lease on January 17, 1973,
whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a
monthly rental of P 800.00 for a period of 10 years renewable for another 10 years at the option of the lessee.
Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of
more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under the
Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look for
ways and means to terminate the contract. In view of this alleged non-payment of rental of the leased premises
beginning May, 1977, Soco through her lawyer sent a letter dated November 23, 1978nto Francisco serving
notice to the latter 'to vacate the premises leased.' In answer to this letter, Francisco through his lawyer
informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and
Trust Company through the Clerk of Court of the City Court of Cebu. Despite this explanation, Soco filed this
instant case of Illegal Detainer on January 8, 1979.
The Court of First Instance, holds that there was in fact a tender of payment of the rentals made by
Francisco to Soco through Comtrust and since these payments were not accepted by Soco evidently because of
her intention to evict Francisco, by all means, culminating in the filing of Civil Case R-16261, Francisco was
impelled to deposit the rentals with the Clerk of Court of the City Court of Cebu. Soco was notified of this deposit
by virtue of the letter of Atty. Pampio Abarientos dated June 9, 1977 and the letter of Atty. Pampio Abarientos
dated July 6. 1977 as well as in the answer of Francisco in Civil Case R-16261. She was further notified of these
payments by consignation in the letter of Atty. Menchavez dated November 28, 1978. There was therefore
substantial compliance of the requisites of consignation, hence his payments were valid and effective.
Consequently, Francisco cannot be ejected from the leased premises for non-payment of rentals.
ISSUE:
Whether or not the consignation of the rentals was valid to discharge effectively the lessee's
obligation to pay the same.
HELD:
No, there was no valid consignation
According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of
the thing or sum due. Consignation alone shall produce the same effect in the following cases: (1) When the
creditor is absent or unknown, or does not appear at the place of payment; (2) When he is incapacitated to
receive the payment at the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When
two or more persons claim the same right to collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment.
(Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must first comply with certain requirements prescribed
by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been
made because the creditor to whom tender of payment was made refused to accept it, or because he was
absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176,
Civil Code); (3) that previous notice of the consignation had been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the
court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was
notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a
consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in the fulfillment of the obligation, the
consignation as a payment is void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in lawful currency. While payment in check by the
debtor may be acceptable as valid, if no prompt objection to said payment is made (Desbarats vs. Vda. de
Mortera, L-4915, May 25, 1956) the fact that in previous years payment in check was accepted does not place its
creditor in estoppel from requiring the debtor to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30,
1958). Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats
vs. Vda. de Mortera, supra). See Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-
179.
Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is,
an act preparatory to the consignation, which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8 Manresa 325).
We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation:
First, tender of payment of the monthly rentals to the lessor.
Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation,
Evidently, from this arrangement, it was the lessee’s duty to send someone to get the cashier’s check from the
bank and logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee
failed to do, which is fatal to his defense.
Third, respondent lessee likewise failed to prove the second notice, that is after consignation has
been made, to the lessor. And the fourth requisite that respondent lessee failed to prove is the actual deposit or
consignation of the monthly rentals except the two cashier’s checks referred to in Exhibit 12. As indicated
earlier, not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case
to prove the actual deposit or consignation.
We, therefore, find and rule that the lessee has failed to prove tender of payment except that in Exh.
10; he has failed to prove the first notice to the lessor prior to consignation except that given in Exh. 10; he has
failed to prove the second notice after consignation except the two made in Exh. 12; and he has failed to pay the
rentals for the months of July and August, 1977 as of the time the complaint was filed for the eviction of the
lessee. We hold that the evidence is clear, competent and convincing showing that the lessee has violated the
terms of the lease contract and he may, therefore, be judicially ejected.
IMMACULATA VS NAVARRO
G.R. No. L-42230 April 15, 1988 SECOND DIVISION PARAS, J.
FACTS:
The sale was originally executed sometime in December, 1969, it was only on February 3, 1974 when, as prayed
for by private respondent, and as ordered by the court a quo, a "deed of conveyance" was formally executed.
Since offer to redeem was made on March 24, 1975, this was clearly within the five-year period of legal
redemption allowed by the Public Land Act.
ISSUE:
WON the offer to redeem was insincere in the absence of consignation of such amount in Court.
RULING:
NO.
xxx
The allegation that the offer to redeem was not sincere, because there was no consignation of the amount in
Court is devoid of merit. The right to redeem is a RIGHT, not an obligation, therefore, there is no consignation
required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-
28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. Capistrano, 9 Phil. 416).
WHEREFORE, as prayed for by the petitioner Lauro Immaculata (represented by his wife, Amparo Velasco, as
Guardian ad litem) the decision of this Court dated November 26, 1986 is hereby MODIFIED, and the case is
remanded to the court a quo for it to accept payment or consignation 2 (in connection with the legal redemption
which We are hereby allowing the petitioner to do) by the herein petitioner of whatever he received from
respondent at the time the transaction was made.
PEOPLE OF THE PHILIPPINES VS
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE COMPANY, INC., bondsman-appellant –
G.R. No. L-21507 June 7, 1971
FACTS :
Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the Court of First Instance of
Pampanga dated April 17, 1963, forfeiting the bail bond posted by it for the provisional release of Natividad
Franklin, the accused in Criminal Case No. 4300 of said court, as well as from the latter's orders denying the
surety company's motion for a reductions of bail, and its motion for reconsideration thereof. Natividad Franklin
was charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc. in the amount
of P2,000.00, she was released from custody. The Court of First Instance then set her arraignment however she
failed to appear even after its postponement. For which reason the court ordered her arrest and required the
surety company to show cause why the bail bond posted by it should not be forfeited.
The court rendered the judgment of forfeiture for failure to produce the accused notwithstanding the extension
granted to the surety company.
Subsequently, the surety company filed a motion for a reduction of bail alleging that the reason for its inability
to produce and surrender the accused to the court was the fact that the Philippine Government had allowed her
to leave the country and proceed to the United States on February 27, 1962 however this was denied
Appellant now contends that the lower court should have released it from all liability under the bail bond posted
by it because its failure to produce and surrender the accused was due to the negligence of the Philippine
Government itself in issuing a passport to said accused, thereby enabling her to leave the country. In support of
this contention the provisions of Article 1266 of the New Civil Code are invoked.
ISSUE:
Whether or not Article 1226 should be applied in the case at hand.
RULING:
NO, Appellant's contention is untenable. The abovementioned legal provision does not apply to its case, because
the same speaks of the relation between a debtor and a creditor, which does not exist in the case of
a surety upon a bail bond, on the one hand, and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail bond are, in many respects,
different from those of sureties on ordinary bonds or commercial contracts. The former
can discharge themselves from liability by surrendering their principal; the latter, as a
general rule, can only be released by payment of the debt or performance of the act
stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:
By the mere fact that a person binds himself as surety for the accused, he takes charge of,
and absolutely becomes responsible for the latter's custody, and under such
circumstances it is incumbent upon him, or rather, it is his inevitable obligation not merely
a right, to keep the accused at all times under his surveillance, inasmuch as the authority
emanating from his character as surety is no more nor less than the Government's
authority to hold the said accused under preventive imprisonment. In allowing the
accused Eugenio Uy Tuising to leave the jurisdiction of the Philippines, the appellee
necessarily ran the risk of violating and in fact it clearly violated the terms of its bail bonds
because it failed to produce the said accused when on January 15, 1932, it was required to
do so. Undoubtedly, the result of the obligation assumed by the appellee to hold the
accused at all times to the orders and processes of the lower court was to prohibit said
accused from leaving the jurisdiction of the Philippines because, otherwise, said orders
and processes would be nugatory and inasmuch as the jurisdiction of the court from which
they issued does not extend beyond that of the Philippines, they would have no binding
force outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused,
thereby assuming the obligation to keep the latter at all times under his surveillance, and to produce and
surrender him to the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which enabled her to go to the United
States was, in fact, due to the surety company's fault because it was its duty to do everything and take all steps
necessary to prevent that departure. This could have been accomplished by seasonably informing the
Department of Foreign Affairs and other agencies of the government of the fact that the accused for whose
provisional liberty it had posted a bail bond was facing a criminal charge in a particular court of the country. Had
the surety company done this, there can be no doubt that no Philippine passport would have been issued to
Natividad Franklin.
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY, petitioners, vs. FRANCISCO
C. MANABAT, as assignee of Biñan Transportation Company, Insolvent, respondent.
G.R. No. L-23546 August 29, 1974
FACTS:
On January 20, 1956, a contract was executed whereby the Biñan Transportation Company leased to the Laguna-
Tayabas Bus Company at a monthly rental of P2,500.00 its certificates of public convenience over the lines
known as Manila-Biñan, Manila-Canlubang and Sta. Rosa-Manila, and to the Batangas Transportation Company
its certificate of public convenience over the line known as Manila-Batangas Wharf, together with one
"International" truck, for a period of five years, renewable for another similar period, to commence from the
approval of the lease contract by the Public Service Commission. On the same date the Public Service
Commission provisionally approved the lease contract on condition that the lessees should operate on the
leased lines in accordance with the prescribed time schedule and that such approval was subject to modification
or cancellation and to whatever decision that in due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Biñan Transportation Company was declared
insolvent in Special Proceedings No. B-30 of the Court of First Instance of Laguna, and Francisco C. Manabat was
appointed as its assignee. From time to time, the defendants paid the lease rentals up to December, 1957, with
the exception of the rental for August 1957, from which there was deducted the sum of P1,836.92 without the
consent of the plaintiff. This deduction was based on the ground that the employees of the defendants on the
leased lines went on strike for 6 days in June and another 6 days in July, 1957, and caused a loss of P500 for each
strike, or a total of P1,000.00; and that in Civil Case No. 696 of the Court of First Instance of Batangas, Branch II,
judgment was rendered in favor of defendant Batangas Transportation Company against the Biñan
Transportation Company for the sum of P836.92. The assignee of the plaintiff objected to such deduction,
claiming that the contract of lease would be suspended only if the defendants could not operate the leased lines
due to the action of the officers, employees or laborers of the lessor but not of the lessees, and that the
deduction of P836.92 amounted to a fraudulent preference in the insolvency proceedings as whatever judgment
might have been rendered in favor of any of the lessees should have been filed as a claim in said proceedings.
The defendants neither refunded the deductions nor paid the rentals beginning January, 1958, notwithstanding
demands therefor made from time to time. At first, the defendants assured the plaintiff that the lease rentals
would be paid, although it might be delayed, but in the end they failed to comply with their promise.
On February 18, 1958, the Batangas Transportation Company and Laguna-Tayabas Bus Company separately filed
with the Public Service Commission a petition for authority to suspend the operation on the lines covered by the
certificates of public convenience leased to each of them by the Biñan Transportation Company. The defendants
alleged as reasons the reduction in the amount of dollars allowed by the Monetary Board of the Central Bank of
the Philippines for the purchase of spare parts needed in the operation of their trucks, the alleged difficulty
encountered in securing said parts, and their procurement at exorbitant costs, thus rendering the operation of
the leased lines prohibitive. The defendants further alleged that the high cost of operation, coupled with the lack
of passenger traffic on the leased lines resulted in financial losses. For these reasons they asked permission to
suspend the operation of the leased lines until such time as the operating expenses were restored to normal
levels so as to allow the lessees to realize a reasonable margin of profit from their operation.
ISSUE:
Whether or not the cause of petitioner’s (Laguna Tayabas Bus Company and Batangas Transport Company)
inability to operate on the lines can be ascribed to fortuitous events or circumstances beyond their control?
RULING:
If the petitioners would predicate their plea on the basis solely of their inability to use the certificates of public
convenience, absent the requisite of fortuitous event, the cited article would speak strongly against their
plea.Article 1680 opens with the statement: "The lessee shall have no right to reduction of the rent on account
of the sterility of the land leased ... ." Obviously, no reduction can be sustained on the ground that the operation
of the leased lines was suspended upon the mere speculation that it would yield no substantial profit for the
lessee bus company. Petitioners' profits may be reduced due to increase operating costs; but the volume of
passenger traffic along the leased lines not only remains same but may even increase as the tempo of the
movement of population is intensified by the industrial development of the areas covered or connected by the
leased routes. Moreover, upon proper showing, the Public Service Commission might have granted petitioners
an increase in rates, as it has done so in several instances, so that public interest will always be promoted by a
continuous flow of transportation facilities to service the population and the economy. The citizenry and the
economy will suffer by reason of any disruption in the transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no material advantage to the lessor for
the period of suspension. It must be recalled that the lease contract not only stipulated for the transfer of the
lessor's right to operate the lines covered by the contract, but also for a forbearance on the part of the lessor to
operate transportation business along the same lines — and to hold a certificate for that purpose. Thus, even if
the lessee would not actually make use of the lessor's certificates over the leased lines, the contractual
commitment of the lessor not to operate on the lines would sufficiently insure added profit to the lessees on
account of the lease contract. In other words, the commitment alone of the lessor under the contract would
enable the lessees to reap full benefits therefrom since the commuting public would, after all, be forced — at
their inconvenience and prejudice — to patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, We refused in the Reyes case, supra, to apply by analogy Article
1680 and consequently, We denied the plea of lessee therein for an equitable reduction of the stipulated
rentals, holding that:
The general rule on performance of contracts is graphically set forth in American treatises which is also the rule,
in our opinion, obtaining under the Civil Code.
Where a person by his contract charges himself with an obligation possible to be performed, he must perform it,
unless the performance is rendered impossible by the act of God, by the law, or by the other party, it being the
rule that in case the party desires to be excused from the performance in the event of contingencies arising, it is
his duty to provide therefor in his contract. Hence, performance is not excused by subsequent inability to
perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by
breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits tobe had under
the contract, by weather conditions, by financial stringency or bystagnation of business. Neither is performance
excused by the fact that the contract turns out to be hard and improvident, unprofitable, or impracticable , ill-
advised, or even foolish, or less profitable, unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra,
664. Emphasis supplied).
Also expressed in said case is a ruling in American jurisprudence, which found relevance again in the case at bar,
to wit: "(S)ince, by the lease, the lessee was to have the advantage of casual profits of the leased premises, he
should run the hazard of casual losses during the term and not lay the whole burden upon the lessor." (Reyes vs.
Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to the petitioners is the petitioners' conduct which is
not in accord with the rules of fair play and justice. Petitioners, it must be recalled, promised to pay the accrued
rentals in due time. Later, however, when they believed they found a convenient excuse for escaping their
obligation, they reneged on their earlier promise. Moreover, petitioners' option to suspend operation on the
leased lines appears malicious. Thus, Justice Esguerra, speaking for the Court of Appeals, propounded the
following questions: "If it were true that thecause of the suspension was the high prices of spare parts, gasoline
and needed materials and the reduction of the dollar allocation, why was it that only plaintiff-appellee's
certificate of public convenience was sought to be suspended? Why did not the defendants-appellants ask for a
corresponding reduction or suspension under their own certificate along the same route? Suppose the prices of
the spare parts and needed materials were cheap, would the defendants-appellants have paid more than what
is stipulated in the lease contract? We believe not. Hence, the suspension of operation on the leased lines was
conceived as a scheme to lessen operation costs with the expectation of greater profit." (p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which fact militates against their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY DISMISSED, AND THE DECISION OF THE
COURT OF APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONERS.
OCCEÑA VS. JABSON
G.R. NO. L-44349, 73 SCRA 637, OCTOBER 29, 1976 TEEHANKEE, J.:
FACTS:
Petitioners Jesus Occeña and Efigencia Occeña, landowner of a piece of land, and private respondent
corporation Tropical Homes, Inc. entered into a subdivision contract. Due to increase of prices of oil resulting to
increase of prices of materials, respondent Tropical Homes filed a complaint with the RTC to modify the
subdivision contract or to fix a different sharing ratio from that as stipulated in the contract. Petitioner moved to
dismiss the complaint but was denied. The Court of Appeals, on appeal, also denied the motion to dismiss.
ISSUE:
Whether or not respondent Tropical Homes, Inc. has a cause of action to modify the obligation which becomes
so difficult to perform due to the increase of prices.
HELD:
No. While the obligor may be freed from obligation following Article 1267 of the Civil Code of the Philippines, or
when the service becomes so difficult as to be manifestly beyond the contemplation of the parties, still said
article does not authorize the court to remake, modify or revise the contract or to fix the division of shares
between the parties as contractually stipulated with the force of law between the parties.
While respondent court correctly cited in its decision the Code Commission's report giving the rationale for
Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor. However, it is submitted
that when the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the court should be authorized to release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns out to be so difficult as have been
beyond their contemplation, it would be doing violence to that intention to hold the obligor still
responsible.
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it
could show at the trial that the service undertaken contractually by it had "become so difficult as to be
manifestly beyond the contemplation of the parties", then respondent court's upholding of respondent's
complaint and dismissal of the petition would be justifiable under the cited codal article. Without said article,
respondent would remain bound by its contract under the theretofore prevailing doctrine that performance
therewith is to excused "by the fact that the contract turns out to be hard and improvident, unprofitable, or
unexpectedly burdensome", since in case a party desires to be excuse from performance in the event of such
contingencies arising, it is his duty to provide therefor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment
I modifying the terms and Conditions of the Contract by fixing the proper shares that should pertain to the
herein parties out of the gross proceed, from the sales of subdivided lots of subject subdivision". The cited
article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and therefore states no cause of action. Under the
particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even
in equity grant the relief.
BANK OF THE PHILIPPINES VS CA GR NO. 136202
FACTS:
A.A. Salazar Construction and Engineering, which was later substituted by Anabelle A. Salazar as the real party in
interest, filed a case for a sum of money against BPI amounting to P267,707.70 in the RTC of Pasig. The case
stemmed from the claim of Julio Templonuevo who demanded from BPI the amount representing the aggregate
value of 3 checks which were payable to JRT Construction which belonged to Templonuevo but which were
allegedly maliciously deposited by Salazar to her own personal account.
Because of Templonuevo’s claim, BPI froze the bank account of AA Salazar and Construction instead of Salazar’s
personal account where the checks were deposited because the account was already closed. BPI guaranteed
Salazar that her company’s account would not be touched until the matter was settled, but 2 weeks after, BPI
debited the amount from the said account.
CFI and CA both ruled in favor of Salazar and ordered BPI to return the amount to Salazar because they believed
Salazar was entitled to the checks notwithstanding the lack of endorsement by the payee, JRT Construction,
because of an internal arrangement between JRT and Salazar with the acquiescence and knowledge of BPI.
For BPI’s part, it simply admits to the mistake of depositing the check to Salazar’s account and defends the act of
debiting by citing Articles 1278 and 1279 of the Civil Code and its right to set off.
ISSUE:
Whether or not BPI had the right to set off.
RULING:
Yes. SC cited the case of Associated Bank vs. Tan where it was discussed that a bank generally has a right of set-
off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a
collecting bank to debit a client’s account for the value of a dishonored check that has previously been credited
has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that fixed,
savings, and current deposits of money in banks and similar institutions shall be governed by the provisions
concerning simple loan. Hence, the relationship between banks and depositors is one of the creditor and
debtor, thus legal compensation may take place once the requirements set forth in Article 1279 have been
complied with.
GAN TION VS. COURT OF APPEALS No. L-22490. May 21, 1969.
Civil law; Obligations; Extinguishment of obligations; Compensation; Award for attorney's fees as subject of legal
compensation.—An award for attorney's fees is a proper subject of legal compensation.
FACTS:
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an ejectment case
against the former, alleging non-payment of rents for August and September of that year, at P180 a month, or
P360 altogether. The plaintiff obtained a favorable judgment in the municipal court (of Manila), but upon appeal
the Court of First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint, and ordered the
plaintiff to pay the defendant the sum of P500 as attorney's fees.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month,
effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate
amount of P4,320.00, corresponding to a period from August 1961 to October 1963.
In the meantime, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his
favor. Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that
Ong Wan Sieng was indebted to him in the sum of P4,320 f or unpaid rents, " In the opinion of the CA, the
requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their
own right (Art. 1278, Civil Code) and that each one of them must be bound principally and at the same time be a
principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with respect
to the sum of P500 was the defendant's counsel.
ISSUE:
Whether or not an award for attorney's fees is a proper subject of legal compensation.
HELD:
Yes. This is not an accurate statement of the nature of an award for attorney's fees. The award is made in favor
of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in
the cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, who is the judgment
creditor and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of
legal compensation.
PHILIPPINE NATIONAL BANK vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA
G.R. No.L-69255; February 27, 1987; NARVASA, J.
--- For compensation to automatically apply by law, it must be proved by competent evidence that the parties
are the creditors and debtors of each other.
--- Property already in custodialegis cannot be the subject of a set-off.
FACTS:
Isabela Wood Construction &Dvpt Corp (ISABELA) has a savings account with PNB in the amount of P2 Million.
Said account is the subject of two conflicting claims. One claim is asserted by the Aceros (respondents), and the
other is by PNB.
Aceros’ claim to the bank deposit was founded upon the garnishment thereof by the sheriff, effected in
execution of the partial judgment (in the amount of P1.5 M) rendered by the CFI in their favor. Notice of
garnishment was served on PNB, followed by a CFI order (Feb. 15, 1980) directing the latter to hand over the
P1.5M to the sheriff for delivery to the ACEROs. A second judgment was rendered ordering ISABELLA to pay
compensatory damages and atty.’s fees all amounting to almost P600k.
On the other hand, PNB's claim is based on a Credit Agreement between it and ISABELA in virtue of which: (1)
the deposit was made by ISABELA as "collateral" in connection with its indebtedness to PNB as to which it
(ISABELA) had assumed certain contractual undertakings (such as to deliver a property as mortgage, obtain the
consent of Metrobank to secure a second mortgage in favor of PNB); and (2) in the event of ISABELA's failure to
fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness.
It was upon this version of the facts, and its theory thereon based on a mutual set-off, or compensation,
between it and ISABELA — in accordance with Articles 1278 et al. of the Civil Code — that PNB intervened in the
action between the ACEROS and ISABELA on or about February 28, 1980 and moved for reconsideration of the
Order of February 15, 1980 (requiring it to turn over to the sheriff the sum of P1,532,000. The CFI denied the
motion. PNB again filed an MR, this time of another Order, and also pleaded for suspension in the meantime of
the enforcement of the Orders of February 15, and May 14, 1980. Its persistence seemingly paid off.
The RTC set aside the Orders, and set for hearing PNB’s first MR. Subsequently, the RTC reversed its decision,
ruling that there had been a valid assignment by ISABELA to PNB of the amount deposited. The ACEROS
appealed to the IAC which ruled in their favor. PNB appealed to the SC.
PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M,
it (PNB) became indebted to ISABELA in that amount. So that when ISABELA itself subsequently came to be
indebted to PNB on account of ISABELA's breach of the terms of the Credit Agreement, ISABELA and PNB
became at the same time creditors and debtors of each other, compensation automatically took place between
them, in accordance with Article 1278 of the Civil Code.
PNB’s alternative theory: which is that the P2M deposit had been assigned to it by ISABELA as "collateral,"
although not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of
its indebtedness; and that PNB had in fact applied the deposit to the payment of ISABELA's debt on February 26,
1980, in concept of voluntary compensation.
ISSUE:
WON PNB’s contentions are correct, and that compensation automatically took place between the parties thus
preventing the Aceros’ garnishment thereof
HELD:
NO. Article 1278 of the Civil Code does indeed provide that "Compensation shall take place when two persons,
in their own right, are creditors and debtors of each other. " Also true is that compensation may transpire by
operation of law, as when all the requisites therefor, set out in Article 1279, are present. Nonetheless, these
legal provisions cannot apply to PNB’s advantage under the circumstances of the case at bar. The insuperable
obstacle to the success of PNB's cause is the factual finding of the IAC, that it has not proven by competent
evidence that it is a creditor of ISABELA. All that the documents presented by PNB prove is that a letter of credit
might have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign
correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA. It bears
stressing that PNB did not at all lack want for opportunity to produce these documents, if it does indeed have
them.
PNB’s alternative theory, is as untenable as the first. First, there being no indebtedness to PNB on ISABELA's
part, there is in consequence no occasion to speak of any mutual set-off, or compensation, whether it be legal,
i.e., which automatically occurs by operation of law, or voluntary, i.e., which can only take place by agreement of
the parties. In the second place, the documents indicated by PNB as constitutive of the claimed assignment do
not in truth make out any such transaction. While the Credit Agreement declares it to be ISABELA's intention to
"assign to the BANK the proceeds of its contract with the Department of Public Works” it does not appear that
that intention was adhered to, much less carried out.
Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to
apply the P2M deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals
that the application was attempted to be made by PNB only on February 26, 1980, that essayed application was
ineffectual and futile because at that time, the deposit was already in custodialegis, notice of garnishment
thereof having been served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the CFI for
the enforcement of the partial judgment in the ACEROS' favor).
One final factor precludes according validity to PNB's arguments. On the assumption that the P 2M deposit was
in truth assigned as some sort of "collateral" to PNB — although as PNB insists, it was not in the form of a pledge
— the agreement postulated by PNB that it had been authorized to assume ownership of the fund upon the
coming into being of ISABELA s indebtedness is void ab initio, it being in the nature of a pactum commisoruim
proscribed as contrary to public policy.
FRANCIA VS IAC 162 SCRA 753
FACTS:
Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a portion of his land
(125 square meter) was expropriated by the government for P4,116.00. The expropriation was made to give way
to the expansion of a nearby road.
It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So in
December 1977, the remaining 203 square meters of his land was sold at a public auction (after due notice was
given him). The highest bidder was a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was
lesser than the price of the portion of his land that was expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was grossly
inadequate. He further argued that his land should have never been auctioned because the P2,400.00 he owed
the government in taxes should have been set-off by the debt the government owed him (legal compensation).
He alleged that he was not paid by the government for the expropriated portion of his land because though he
knew that the payment therefor was deposited in the Philippine National Bank, he never withdrew it.
ISSUE:
Whether or not the tax owed by Francia should be set-off by the “debt” owed him by the
government.
HELD:
No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). This is not applicable in taxes. There can be no off-setting of taxes against
the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the
ground that the government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state
or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the
contract or transaction sued on.
Further, the government already Francia. All he has to do was to withdraw the money. Had he done that, he
could have paid his tax obligations even before the auction sale or could have exercised his right to redeem –
which he did not do.
Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The Supreme
Court said: “alleged gross inadequacy of price is not material when the law gives the owner the right to redeem
as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner
to effect redemption.” If mere inadequacy of price is held to be a valid objection to a sale for taxes, the
collection of taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable.
“Where land is sold for taxes, the inadequacy of the price given is not a valid objection to the sale.” This rule
arises from necessity, for, if a fair price for the land were essential to the sale, it would be useless to offer the
property. Indeed, it is notorious that the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land.
 REPUBLIC V. DE LOS ANGELES [98 SCRA 103]
Compensation of debts arising even without proof of liquidation of claim is allowable where the claim is
undisputed.
FACTS:
Spouses FARIN got a loan from MARCELO STEEL CORP of P600k and did a Real Estate Mortgage of their lot in
Quezon City as security in favor of MARCELO STEEL. A year later MARCELO STEEL asked sheriff assistant in
extrajudicial foreclosure of the real estate mortgage of such lot. Spouses Farin filed for injunction and
succeeded. Thus, MARCELO STEEL invoked par. 5 in the mortgage contract and asked the court instead to
compel the lessees of “Dona Petra Bldg” situated on the mortgaged lot, including the Rice and Corn Admin
(RCA), to direct their rental payments to MARCELO STEEL. Such an order was issued by the court. RCA filed an
Motion for Reconsideration praying to be excluded from such order because Spouses Farin has a standing
OBLIGATION with RCA which should be set-off with their rental OBLIGATIONS, thus rents of RCA has been
previously assigned by Spouses Farin to Vidal Tan. Spouses Farin also filed Motion for Reconsideration asking the
court to exclude lessees of the bldg from such order as they are not parties to the case. The trial court denied
both MR and granted motion of Spouses Farin for RCA to release rentals incurred for repair of the bldg. Trial
Court ratiocinated that RCA never presented any proof of Farin’s indebtedness which it wants to offset with its
rentals.
ISSUE:
Whether or not Respondent Judge erred in denying claim of RCA that compensation of debts has taken place
because records showed no proof of plaintiffs’ indebtedness to RCA.
HELD:
Yes. Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is
disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may
be required. xxx In the instant case, RCA’s claim of Petra’s obligation to RCA was raised by RCA in its motion
dated Dec. 23, 1967. The silence of Petra, although the declaration is such as naturally one to call for action or
comment if not true, could be taken as an admission of the existence and validity of such a claim. Since RCA’s
claim is undisputed, proof of its liquidation is not necessary.
SOLINAP vs. Hon. DEL ROSARIO, et al.
G.R. No. 50638 July 25, 1983 Justice Escolin
FACTS:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda
to petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year. It was further agreed in
the lease contract that P25,000.00 from the rental should be paid by Solinap to the PNB to amortize the
indebtedness of the spouses Lutero. When Tiburcio Lutero died, his heirs instituted the testate estate
proceedings. On the basis of an order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and
his wife Hardivi R. Lutero paid the PNB the sum of P25,000.00 as partial settlement of the deceased's obligations.
Spouses Lutero filed a motion seeking reimbursement from the petitioner. They argued that the said amount
should have been paid by petitioner to the PNB, as stipulated in the lease contract. Before the motion could be
resolved, petitioner a separate action against the spouses for collection of P71,000.00 they borrowed from the
petitioner. The spouses answered and pleaded a counterclaim against petitioner for P125,000.00 representing
unpaid rentals on Hacienda Tambal and that petitioners purchased one-half of Hacienda Tambal. The
respondent judge issued an order granting the spouses’ motion for reimbursement from petitioner of the sum of
P25,000.00, plus interest. Petitioner filed a petition for certiorari before this Court, assailing the above order.
Acting on the petition, the P25,000.00 to be paid by the petitioner to the private respondent Luteros may well
be taken up in the final liquidation of the account between petitioner as lessee and the subject estate as lessor.
Thereafter the respondent Luteros filed with the respondent court a motion raising that the amount payable to
private respondents should be compensated against the latter's indebtedness to him amounting to P7 1,000.00.
This motion was denied by respondent judge on the ground that "the claim of Loreto Solinap against spouses
was yet to be liquidated and determined, such that the requirement in Article 1279 of the New Civil Code that
both debts are liquidated for compensation to take place has not been established by the oppositor Loreto
Solinap. Petitioner filed a motion for reconsideration of this order, but the same was denied. Hence, this
petition.
ISSUE:
whether or not the obligation of petitioner to private respondents may be compensated or set-off against the
amount sought to be recovered in an action for a sum of money filed by the former against the latter
RULING:
The petition is devoid of merit. In the case at bar, the petitioner's claim against the spouses was still pending
determination by the court. Petitioner’s claim in the case could not be categorized as liquidated credit which
may properly be set-off against his obligation. As this Court ruled in Mialhe vs. Halili "compensation cannot take
place where one's claim against the other is still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be certain and liquidated." The petition was dismissed.
SYCIP vs Court of Appeals 134 SCRA 317
FACTS:
In April 1961, Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock of the Republic
Flour Mills, Inc., covered by Certificate No. 57 in the name of Dwight Dill who had left for Honolulu. Jose K. Lapuz
"was supposed to sell his the shares at present market value out of which I (he) was supposed to get certain
commission." According to Jose K. Lapuz, the accused-appellant approached him and told him that he had good
connections in the Stock Exchange, assuring him that he could sent them at a good price. Before accepting the
offer of the accused-appellant to sent the shares of stock, Jose K. Lapuz made it clear to him that the shares of
stock did not belong to him and were shortly entrusted to him for sale. He then gave the shares of stock to the
accused-appellant who put them in the market.
ISSUE:
Whether or not the Court of Appeals erred in upholding the provisions on compensation, Articles
1278 and 1279 of the New Civil Code
HELD:
The Court of Appeals did not err in upholding the provisions on compensation.
Compensation cannot take place in this case since the evidence shows that Jose K. Lapuz is only an
agent of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their own
right are creditors and debtors of each other, and that each one of the obligors is bound principally and is at the
same time a principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not
consent to the off-setting of his obligation with petitioner's obligation to pay for the 500 shares.
 COMPANIA MARITIMA vs. CA and PAN ORIENTAL SHIPPING CO
[135 SCRA 593].
FACTS:
FERNANDO FROILAN purchased from SHIPPING ADMINISTRATION a boat for 200K, and paid downpayment of
50K, while he constituted a mortgage on the vessel for the unpaid balance. However, Froilan defaulted in
payment of the balance and interests as well as insurance premiums on the vessel which was paid for by the
SHIPPING ADMINISTRATION (SA). Thus, SA took immediate possession of the vessel as well as its cargoes, with
claim that the vessel is not repossessed but its ownership is retransferred to the SA/government.
PAN ORIENTAL offered to charter the same vessel with monthly rental of 3K, which the government agreed with
further stipulation that charterer will pay cost of labor, dry-docking and repairs, including spare parts needed.
Froilan protested to the charter agreement.
Before formal bareboat charter was to be approved by General Manager of SA, a Cabinet resolution was issued
revoking the cancellation of the contract of Sale to Froilan, restored him to all his rights, on condition he will pay
at least 10K to settle partially his outstanding accounts, to reimburse Pan Oriental of its expenses incurred, and
file a bond to cover the rest of his undertaking with the government. After posting his bond, court ordered to
restore Froilan’s possession of the vessel. Pan Oriental resisted.
COMPANIA MARITIMA as purchaser of the vessel from Froilan was allowed to be intervenor.
ISSUE:
Whether or not the Court erred in holding that Froilan, Compania and Government should pay Pan Oriental
reimbursements of its legitimate expenses with legal interest from the time of disbursement, instead of from the
date of dispossession, failing to consider legal compensation between RP and Pan Oriental.
HELD:
NO. More, the legal interest payable from 2/3/51 on the sum of P40,797.54, representing useful expenses
incurred by PAN-ORIENTAL, is also still unliquidated since interest does not stop accruing "until the expenses are
fully paid." Thus, we find without basis REPUBLIC'S allegation that PAN-ORIENTAL'S claim in the amount of
P40,797.54 was extinguished by compensation since the rentals payable by PAN-ORIENTAL amount to P59,500
while the expenses reach only P40,797.54. Deducting the latter amount from the former, REPUBLIC claims that
P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the fact that to the
sum of P40,797.54 will still have to be added the legal rate of interest "from Feb. 3, 1951 until fully paid."
Compensation cannot take place where one of the debts is not liquidated as when there is a running interest still
to be paid thereon.
THE INTERNATIONAL CORPORATE BANK INC. vs.THE IMMEDIATE APPELLATE COURT
G.R. No. L-69560 June 30, 1988
FACTS :
In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then
Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount
of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manilaand
in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan, only the
amount of P20,000,000.00 was approved for release. The same amount was applied to pay her other obligations
to petitioner, bank charges and fees. Thus, private respondent's claim that she did not receive anything from the
approved loan. On September 11, 1980, private respondent made a money market placement with ATRIUM in
the amount of P1,046,253.77 at 17% interest per annum for a period of 32 days or until October 13, 1980, its
maturity date.
Meanwhile, private respondent allegedly failed to pay her mortgaged indebtedness to the bank so that the latter
refused to pay the proceeds of the money market placement on maturity but applied the amount instead to the
deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder,
said properties were sold in its favor for only P20,000,000.00. Petitioner claims that after deducting this amount,
private respondent is still indebted in the amount of P6.81 million. On November 17, 1982, private respondent
filed a complaint with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged
properties, for the release to her of the balance of her loan from petitioner in the amount of P30,000,000,00,
and for recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages.
She alleges in her complaint, which was subsequently amended, that the mortgage is not yet due and
demandable and accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is
entitled to the release to her of the balance of the loan in the amount of P30,000,000.00; that petitioner refused
to pay her the proceeds of her money market placement notwithstanding the fact that it has long become due
and payable; and that she suffered damages as a consequence of petitioner's illegal acts. In its answer, petitioner
denies private respondent's allegations and asserts among others, that it has the right to apply or set off private
respondent's money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money
market placement, and for damages. The trial court subsequently dismissed private respondent's cause of action
concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of action to
be resolved after trial.
On December 15, 1983, private respondent filed a motion to order petitioner to release in her favor the sum
of P1,062,063.83, representing the proceeds of the money market placement, at the time when she hadalready
given her direct testimony on the merits of the case and was being cross-examined by counsel.On February 13,
1984, respondent judge issued an order granting the motion. Petitioner filed a motion for reconsideration to the
aforesaid order, asserting among other things that said motion is not verified, andtherefore a mere scrap
of paper. On March 13, 1984, petitioner filed a special civil action for certiorari andprohibition with preliminary
injunction with the Court of Appeals. In a decision rendered on October 31, 1984, the Court of Appeals dismissed
said petition.
ISSUE :
Whether or not there can be legal compensation in the case at bar.
HELD :
The argument is without merit. Compensation shall take place when two persons, in their own right,
arecreditors and debtors of each other. "When all the requisites mentioned in Art. 1279 of the Civil Code are
present, compensation takes effect by operation of law, even without the consent or knowledge of the debtors."
Article 1279 of the Civil Code requires among others, that in order that legal compensation shall take place, "the
two debts be due" and "they be liquidated and demandable." Compensation is not proper where the claim
of the person asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim arising from breach of contract. There can beno doubt that petitioner is indebted to
private respondent in the amount of P1,062,063.83 representing the proceeds of her money market investment.
This is admitted. But whether private respondent is indebted to petitioner in the amount of P6.81 million
representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended
to her, is vigorously disputed. This circumstance prevents legal compensation from taking place
 MINDANAO PORTLAND CEMENT CORPORATION (MPCC) VS. CA, PACWELD STEEL CORPORATION AND ATTY.
CASIANO LAQUIHON [120 SCRA 930]- Automatic compensation requires present extinguishment of two debts
arising from final and executory judgments due to compensation by operation of law.
FACTS:
Atty. Laquihon, in behalf of 3rd party defendant Pacweld Steel Corp. filed a Motion to direct payment of
attorney’s fees to counsel invoking the fact that MPCC was adjudged to pay Pacweld 10K in attorney’s fees.
MPCC opposed this motion stating that such amount is compensated with an equal amount it is entitled from
Pacweld after the latter is also adjudged by same CFI-Manila in another case to pay to MPCC. The Court issued
the motion of Atty. Laquihon and denied the MR of MPCC.
ISSUE:
WON Trial Court erred in not holding the 2 judgment debts of the 2 corporations against each other mutually
compensated.
HELD:
YES. It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corp. (appellant)
and respondent Pacweld Steel Corp. (appellee), were creditors and debtors of each other, their debts to each
other consisting in final and executory judgments of the CFI in 2 separate cases, ordering the payment to each
other of the sum of P10K by way of attorney's fees. The 2 obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law and extinguished both debts to the concurrent amount of
P10T, pursuant to the provisions of Article 1278, 1279 and 1290, since all the requisites provided in Article 1279
for automatic compensation even though the creditors and debtors are not aware of the compensation were
duly present.
Automatic compensation, requisites of, present Extinguishment of two debts arising from final and executory
judgments due to compensation by operation of law.
JAL V SIMANGAN GR No. 170141
FACTS:
Respondent needed to go to the US to donate his kidney to his ailing cousin. Having obtained an emergency US
Visa, respondent purchased a round trip ticket from petitioner JAL. He was scheduled to a flight bound for LA via
Japan. On the date of his flight, respondent passed through rigid immigration and security routines before being
allowed to board a JAL plane.
While inside the plane, respondent was asked to show his travel documents. After which he was ordered by the
crew to leave the plane, imputing that the respondent is carrying falsified documents. Respondent pleaded but
was ignored and under constraint he gets off the plane. The plane took off and the respondent was left behind.
Respondent was refunded with the cost of his ticket minus 500USD, when JAL found out eventually that his
travel documents were not falsified and in order. Respondent filed an action for damages against JAL.
ISSUE:
WON JAL is guilty of breach of contract of carriage.
HELD:
In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such
contract and its non performance by the carrier through the failure to carry the passenger safely to his
destination. Simangal complied with these requisites. Damage was accrued by JAL when Simangan was bumped
off despite his protestations and valid travel documents and notwithstanding his contract of carriage with JAL.
ANAMER SALAZAR, Petitioner, vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
G.R. No. 171998 October 20, 2010
FACTS:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and
other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani
Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to
J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth
P214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated
October 15, 1996 issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the
check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon
presentment, the check was dishonored due to "closed account. JY Brothers then informed Salazar, Calleja and
Kallos of the state ot the check and they issued a replacement , a Solid Bank check in the same amount but it
bounced due to 'Insufficient Funds"
ISSUE:
Whether or not the acceptance of the Solid Bank check by the JY Brothers amounted to novation?
HELD:
Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the
first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. Novation may:
Either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the
parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation necessitates that the incompatibility
between the old and new obligation be total on every point such that the old obligation is completely
superceded by the new one. The test of incompatibility is whether they can stand together, each one having an
independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish
the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second,
creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a
previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of
the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change
brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant some but not all of its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes
only the terms of payment, adds other obligations not incompatible with the old ones or the new contract
merely supplements the old one.

In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's claim that
novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently
replaced by a Security Bank check,15 and said
In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank
check, did not result to novation as there was no express agreement to establish that petitioner was already
discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice.
As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid
Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner’s
recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank
check.
METROPOLITAN BANK AND TRUST COMPANY
v. RURAL BANK OF GERONA, INC.
GR No. 159097 July 5, 2010
FACTS:
The Central Bank (CB) and the Rural Bank of Gerona, Inc. (RBG) entered into an agreement providing
that RBG shall facilitate the loan applications of farmers-borrowers and requiring that a separate bank account in
Metropolitan Bank and Trust Company (Metrobank) be opened where the loan proceeds shall be deposited. As
the depository bank of RBG, Metrobank was designated to receive the credit advice released by the Central Bank
representing the proceeds of the loan; Metrobank, in turn, credited the said proceeds to RBG’s special savings
account for the latter’s release to the farmers-borrowers.
Metrobank contends that it credited RBG’s special savings account with three amounts
corresponding to the three credit advices issued by the Central Bank. Thereafter, all of the three credit advices
were subsequently reversed by the Central Bank, evidenced by three debit advices. Accordingly, it debited the
said amounts from RBG’s special savings account. Metrobank, however, claimed that the said amounts were
insufficient to cover all the credit advices that were reversed by the Central Bank. To collect this amount, it filed
a complaint for collection of sum of money against RBG.
ISSUE:
WON a legal subrogation existed.
RULING:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter’s share. [Emphasis
supplied.]
Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a
conduit, and was not legally answerable for the loans. Despite this, it was Metrobank’s demand deposit account,
instead of RBG’s, which the Central Bank proceeded against, on the assumption perhaps that this was the most
convenient means of recovering the cancelled loans. That Metrobank’s payment was involuntarily made does
not change the reality that it was Metrobank which effectively answered for RBG’s obligations.
After Metrobank received the Central Bank’s debit advices, it accordingly debited the amounts it
could from RBG’s special savings account without any objection from RBG. RBG’s President and even wrote with
proposals regarding possible means of settling the amounts debited by Central Bank from Metrobank’s demand
deposit account. These instances are all indicative of RBG’s approval of Metrobank’s payment of the loans.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit
with all the rights thereto appertaining, either against the debtor or against third persons. As the entity against
which the collection was enforced, Metrobank was subrogated to the rights of Central Bank and has a cause of
action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest.
FUA CAM LU VS. YAP FAUCO ET. AL (74 PHIL 287)
FACTS:
Fua Cam Lu (the plaintiff-appellee), obtained a judgment in Civil Case No. 42125 of the Court of First
Instance of Manila a judgment sentencing the defendants-appellants, Yap Fauco and Yap Singco, to pay
P1,538.04 with legal interest and costs. By virtue of writ of execution, a certain parcel of land belonging to the
appellants, which has an assessed value at P3, 550 situated in Donsol, Sorsogon was levied upon the provincial
sheriff of Sorsogon and would be sold in a public auction on December 12, 1933. On December 16, 1933, the
appellants executed a mortgage in favor of the appellee, wherein it was stipulated that their obligation was
reduced to P1, 200.00 which is payable in four installments. Additionally, it was stipulated that to secure the
payment of the said P1, 200.00, a camarin belonging to the appellants and built on the above-mentioned land
was mortgaged to the appellee. In case of default, Yap Fauco and Yap Singco would pay 10% of the unpaid
balance as attorney’s fees plus the cost of action to be brought by the appellee by reason of default. As a result
of the said agreement, there was no public auction was held. However, on March 31, 1934, the provincial sheriff,
without publication, sold said land at a public auction to the appellee thus leading to the execution of the final
deed of sale in favor of appellee.
On August 29, 1939, the appellee instituted the present action in the Court of First Instance of
Sorsogon against the appellants in view of their refusal to recognize appellee’s title and to vacate the land. The
appellants relied on the legal defenses that their obligation under the judgment in civil case no. 42125 was
novated by the mortgage executed by them in favor of the appellee and that the sheriffs sale was void for lack of
necessary publication.
ISSUE:
Whether or not the appellants’ liability has been extinguished by implied novation.
RULING:
Yes. Although said mortgage did not expressly cancel the old obligation, this was impliedly novated by
reason of incompatibly resulting from the fact that, whereas the judgment was for P1, 538.04 payable at one
time, did not provide the attorney’s fees, and was not secured, the new obligation is or P1, 200.00 payable in
installments, stipulated for attorney’s fees, and is secured by a mortgage. The appellee, however, argues that
the later agreement merely extended the time of payment and did not take away his concurrent right to have
the judgment executed.
 MILLAR VS CA 38 SCRA 642
FACTS:
Millar obtained a favourable judgment condemning Antonio P. Gabriel to pay him the sum of P1,746.98 with
interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as attorney's fees, and
the costs of suit. The lower court issued the writ of execution on the basis of which the sheriff seized the
respondent's Willy's Ford jeep. The respondent, however, pleaded with the petitioner to release the jeep under
an arrangement whereby the respondent, to secure the payment of the judgment debt, agreed to mortgage the
vehicle in favor of the petitioner. The petitioner agreed to the arrangement; thus, the parties executed a chattel
mortgage on the jeep. Resolution of the controversy posed by the petition at bar hinges entirely on a
determination of whether or not the subsequent agreement of the parties as embodied in the deed of chattel
mortgage impliedly novated the judgment obligation.
ISSUE:
Whether or not the deed of chattel mortgage novated the judgment of the CFI.
HELD:
No. There is a substantial incompatibility between the mortgage obligation and the judgment liability of the
respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel mortgage serves only to provide an express and specific
method for its extinguishment — payment in two equal installments. The chattel mortgage simply gave the
respondent a method and more time to enable him to fully satisfy the judgment indebtedness. The chattel
mortgage agreement in no manner introduced any substantial modification or alteration of the judgment.
Instead of extinguishing the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying only the mode and period for
compliance by the respondent.
The defense of implied novation requires clear and convincing proof of complete incompatibility between the
two obligations. The law requires no specific form for an effective novation by implication. The test is whether
the two obligations can stand together. If they cannot, incompatibility arises, and the second obligation novates
the first. If they can stand together, no incompatibility results. Hence, novation does not take place.
CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners, vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First Instance of Pampanga, and
DESIDERIO PARAS, respondents
G.R. No. L-26115 November 29, 1971 CASTRO, J.:
FACTS:
Spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol, administrator of the estate of the
late Sixta Paras, obtained a judgment in their favor against Desiderio Paras in civil case 1554, an action for
easement and damages in the Court of First Instance of Pampanga. The CA on appeal modified the judgment
and ordered to pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary damages, and P500.00
attorney's fees. Thereafter, acting upon motion, the court a quo issued a writ of execution on July 22, 1964. This
writ the provincial sheriff served upon the respondent on August 22, 1964. Meanwhile the petitioners and the
respondent reached a settlement, finally agreeing to the reduction of the money judgment from P6,000 to
P4,000. Thus, the respondent, on August 5, 1964, paid the petitioners the sum of P3,000; he made another
payment in the amount of P1,000 as evidenced by a receipt issued by the petitioners' counsel.
The petitioners moved for issuance of an alias writ of execution to enforce the judgement of the Court of
Appeals. The respondent moved to set aside the said alias writ, alleging full satisfaction of the judgment per
agreement of the parties when the petitioner received the sum of P4,000 in August, 1964 as evidenced by the
receipt dated August 31, 1964. The respondent judge then issued an order directing the provincial sheriff to
suspend the execution of the alias writ until further orders. The respondent judge issued an order calling, and
directing the quashal of the alias writ of execution. The respondent judge stated in her order that the agreement
of the parties "novated" the money judgment provided for in the decision of the Court of Appeals, ruling that
the said decision.
ISSUE:
Whether or not the payment by the respondent to the petitioners of the amount of P4,000
extinguished the money judgment
HELD:
YES. The payment by the respondent of the lesser amount of P4,000, accepted by the petitioners
without any protest or objection and acknowledged by them as "in full satisfaction of the money judgment" in
civil case 1554, completely extinguished the judgment debt and released the respondent from his pecuniary
liability.
Novation results in two stipulations — one to extinguish an existing obligation, the other to substitute
a new one in its place. Fundamental it is that novation effects a substitution or modification of an obligation by
another or an extinguishment of one obligation in the creation of another. In the case at hand, we fail to see
what new or modified obligation arose out of the payment by the respondent of the reduced amount of P4,000
and substitute the monetary liability for P6,000 of the said respondent under the appellate court's judgment.
Additionally, to sustain novation necessitates that the same be so declared in unequivocal terms — clearly and
unmistakably shown by the express agreement of the parties or by acts of equivalent import — or that there is
complete and substantial incompatibility between the two obligations.
In the instant case, the payment of the judgment debt by the respondent, although in a reduced
amount but accepted by the petitioners as "in full satisfaction of the money judgment," warrants the quashal of
the alias writ.
NPC VS. DAYRIT 125 SCRA 849
Facts:
This is a petition to set aside the Order of the respondent judge. In a Civil Case DANIEL E. ROXAS, doing business
under the name and style of United Veterans Security Agency and Foreign Boats Watchmen, sued NPC and two
of its officers in Iligan City, to compel the NPC to restore the contract of Roxas for security services which the
former had terminated. After several incidents, the litigants entered into a Compromise Agreement on October
14, 1981, and they asked the Court to approve it. However, the judgment was not implemented for reasons
which have no relevance here.
On, May 14, 1982, NPC executed another contract for security services with Josette L. Roxas whose relationship
to Daniel is not shown. NPC refused to implement the new contract for which reason Daniel filed a Motion for
Execution. Acting on the Motion, the respondent judge issued writ of execution. The NPC assails the Order on
the ground that it directs execution of a contract which had been novated. Upon the other hand, Roxas claims
that said contract was executed precisely to implement the compromise agreement for which reason there was
no novation. The RTC sustain private respondent contention.
ISSUE:
W/N there was novation.
Ruling:
The petition is denied for lack of merit with costs against the petitioner. It is elementary that novation is never
presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new
obligations in every aspect.
Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.
In the case at bar there is nothing in the May 14, 1982, agreement which supports the petitioner's contention.
There is neither explicit novation nor incompatibility on every point between the "old" and the "new"
agreements.
INTEGRATED CONSTRUCTION VS RELOVA 146 SCRA 360
FACTS:
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and Sewerage System (MWSS),
formerly the National Waterworks and Sewerage Authority (NAWASA), in the Court of First Instance of Manila
for breach of contract, docketed as Civil Case No. 80390 in that Court. Meanwhile, the parties submitted the
case to arbitration.
The Arbitration Board, after extensive hearings, rendered its decision-award on August 11, 1972. Respondent
Judge confirmed the Award on September 9, 1972 and the same has long since become final and executory.
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less P2,329,433.41, to be set aside as a
trust fund to pay creditors of the joint venture in connection with the projector a net award of P13,188,950.20
with interest thereon from the filing of the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early payment
of the award. Thus, on September 21, 1972, MWSS adopted Board Resolution No. 132-72, embodying the terms
and conditions of their agreement. On October 2, 1972, MWSS sent a letter-agreement to petitioners, quoting
Board Resolution No. 13272, granting MWSS some discounts from the amount payable under the decision award
(consisting of certain reductions in interests, in the net principal award and in the trust fund), provided that
MWSS would pay the judgment, less the said discounts, within fifteen days therefrom or up to October 17, 1972.
Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and extended the
period to pay the judgment less the discounts aforesaid to October 31, 1972. MWSS, however, paid only on
December 22, 1972, the amount stated in the decision but less the reductions provided for in the October 2,
1972 letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust fund had been released and used to
satisfy creditors' claims, the petitioners filed a motion for execution in said civil case against MWSS for the
balance due under the decision-award. Respondent MWSS opposed execution setting forth the defenses of
payment and estoppel. (p. 174, Rollo)
On July 10, 1975, respondent judge denied the motion for execution on the ground that the parties had novated
the award by their subsequent letter-agreement. Petitioners moved for reconsideration but respondent judge,
likewise, denied the same in his Order dated July 24, 1975.
ISSUE:
Whether there was Novation to the agreement and whether said Novation was effective
RULING:
While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a
shortening of the period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive
and conditional nature of the said agreement (making the novation conditional) is expressly acknowledged and
stipulated in the 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo) which states:
WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said conferences were
accepted by the Joint Venture provided that the remaining net amount payable to the Joint Venture will be paid
by the MWSS within fifteen (15) days after the official release of this resolution and a written CONFORME to be
signed by the Joint Venture; (Emphasis supplied)
MWSS' failure to pay within the stipulated period removed the very cause and reason for the agreement,
rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment
award.
The placing of MWSS under the control and management of the Secretary of National Defense thru Letter of
Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening factor because when MWSS
forwarded the letter-agreement to the petitioners on October 2, 1972, the MWSS was already aware of LOI No.
2.
MWSS' contention that the stipulated period was intended to pressure MWSS officials to process the voucher is
untenable. As aforestated, it is apparent from the terms of the agreement that the 15-day period was intended
to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal memorandum of a
responsible MWSS official, stating that necessary steps should be taken to effect payment within 15 days, for
otherwise, MWSS would forego the advantages of the discount. " (p. 426, Rollo)
As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state
that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS' request for
a conforme or quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of right
any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the Rules of
Court.
JOSEPH COCHINGYAN, JR. VSR & B SURETY AND INSURANCE COMPANY, INC.,
G.R. NO. L-47369 JUNE 30, 1987 J. FELICIANO
FACTS:
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an
increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine
National Bank (PNB). To secure PNB's approval, PAGRICO had to give a good and sufficient bond in the amount
of P400,000.00, representing the increment in its line of credit, to secure its faithful compliance with the terms
and conditions under which its line of credit was increased. In compliance with this requirement, PAGRICO
submitted Surety Bond No. 4765, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety")
in the specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R & B Surety
bound themselves jointly and severally to comply with the "terms and conditions of the advance line [of credit]
established by the [PNB]." PNB had the right under the Surety Bond to proceed directly against R & B Surety
"without the necessity of first exhausting the assets" of the principal obligor, PAGRICO. The Surety Bond also
provided that R & B Surety's liability was not to be limited to the principal sum of P400,000.00, but would also
include "accrued interest" on the said amount "plus all expenses, charges or other legal costs incident to
collection of the obligation [of R & B Surety]" under the Surety Bond.In consideration of R & B Surety's issuance
of the Surety Bond, two Identical indemnity agreements were entered into with R & B Surety: (a) one agreement
dated 23 December 1963 was executed by the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan,
Jr, the latter signed not only as President of CCM but also in his personal and individual capacity; and (b) another
agreement dated 24 December 1963 was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K.
Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his personal and individual
capacity; Mr. Liu signed both as President of PACOCO and in his individual and personal capacity.
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B
Surety to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set
forth in said SURETY BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED." The
Indemnity Agreements further provided: x xx x of a pre-existing obligation, a showing of complete incompatibility between the old and the new obligation (and
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment
from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a
series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and
receipts.
The trial court was therefore constrained to decide the case on the basis alone of the terms of the
Trust Agreement and other documents submitted in evidence.In due time, the Court of First Instance of Manila,
Branch 24 1 rendered a decision in favor of R & B Surety, (a) ordering the defendants Joseph Cochingyan, Jr. and
Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of 400,000,00, representing the total
amount of their liability on Surety Bond No. 4765, and interest at the rate of 6% per annum. The case was
eleveated to the Court of appeals,
ISSUE:
Whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the PNB
under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the Indemnity
Agreements?
HELD:
No. The Trust Agreement referred to by both petitioners in their separate briefs, was executed on 28
December 1965 (two years after the Surety Bond and the Indemnity Agreements were executed) between: (1)
Jose and Susana Cochingyan, Sr., doing business under the name and style of the Catholic. Novation is the
extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the
old one, or by subrogating a third person to the rights of the creditor. Novation through a change of the object
or principal conditions of an existing obligation is referred to as objective (or real) novation. Novation by the
change of either the person of the debtor or of the creditor is described as subjective (or personal) novation.
Novation may also be both objective and subjective (mixed) at the same time. In both objective and
subjective novation, a dual purpose is achieved-an obligation is extinguished and a new one is created in lieu
thereof. If objective novation is to take place, it is imperative that the new obligation expressly declare that
the old obligation is thereby extinguished, or that the new obligation be on every point incompatible with the
old one.
Novation is never presumed: it must be established either by the discharge of the old debt by the
express terms of the new agreement, or by the acts of the parties whose intention to dissolve the old obligation
as a consideration of the emergence of the new one must be clearly discernible.
Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the
juridical relation between the parties to the original contract is extended to a third person. It is essential that the
old debtor be released from the obligation, and the third person or new debtor take his place in the new
relation. If the old debtor is not released, no novation occurs and the third person who has assumed the
obligation of the debtor becomes merely a co-debtor or surety or a co-surety.
Applying the above principles to the instant case, it is at once evident that the Trust Agreement does
not expressly terminate the obligation of R & B Surety under the Surety Bond. On the contrary, the Trust
Agreement expressly provides for the continuing subsistence of that obligation by stipulating that "[the Trust
Agreement] shall not in any manner release" R & B Surety from its obligation under the Surety Bond.Neither can
the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of extinguishment
nothing else) would sustain a finding of novation by implication.
But where, as in this case, the parties to the new obligation expressly recognize the continuing
existence and validity of the old one, where, in other words, the parties expressly negated the lapsing of the old
obligation, there can be no novation. The issue of implied novation is not reached at all.What the trust
agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to assume the same
obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual in business for a
stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee is the classical
example. The precise legal effect is the increase of the number of persons liable to the obligee, and not the
extinguishment of the liability of the first debtor. Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the
original debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already
previously bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also
became directly liable to the PNB. So far as the PNB was concerned, the effect of the Trust Agreement was that
where there had been only two, there would now be three obligors directly and solidarily bound in favor of the
PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of the three, in any order
or sequence. Clearly, PNB never intended to release, and never did release, R & B Surety. Thus, R & B Surety,
which was not a party to the Trust Agreement, could not have intended to release any of its own indemnitors
simply because one of those indemnitors, the Trustor under the Trust Agreement, became also directly liable to
the PNB.
BALILA VS IAC
G.R. No. L-68477 October 29, 1987

FACTS:
Petitioners were defendants and private respondents were plaintiffs in a Civil Case. They entered into an
amicable settlement wherein petitioners admitted “having sold under a pacto de retro sale 3 parcels of land (Lot
965, Lot 16, Lot 52) in the amount of P84,000” and that they “hereby promise to pay the said amount within the
period of 4 months but not later than May 15, 1981.”
December 30, 1981 or more than 7 months after the last day for making payments, petitioners redeemed from
private respondent Guadalupe Lot No. 52 by paying the amount of P20,000. August 4, 1982.
Guadalupe filed a motion for a hearing on the consolidation of the title over the remaining 2 parcels of land
namely Lot 965 and Loot 16 alleging that the earlier court decision (approving the amicable settlement)
remained unenforced for non-payment of the total obligation. Petitioners opposed, alleging that they had made
partial payments to Guadalupe’s attorney-in-fact and son, Waldo, as well as to the Sheriff. TC issued an order
affirming consolidation. On June 8, 1983, while the TC order had not yet been enforced, petitioners paid
Guadalupe by tendering the amount of P28,000 to her son Waldo, thus leaving an unpaid amount of P35,200. A
certification dated June 8, 1983 and signed by Waldo showed that petitioners were given a period of 45 days
from date or up to July 23, 1983 within which to pay the balance. Such certification supported petitioners’ MR of
the order of consolidation. MR was however denied.
ISSUE:
Was the Order approving the amicable settlement novated upon subsequent mutual agreements of the parties?
RULING:
YES. The root of all the issues raised before Us is that judgment by compromise rendered by the lower court
based on the terms of the amicable settlement of the contending parties. Such agreement not being contrary to
law, good morals or public policy was approved by the lower court and therefore binds the parties who are
enjoined to comply therewith. However, the records show that petitioners made partial payments to private
respondent Waldo del Castillo after May 15, 1981 or the last day for making payments, redeeming Lot No. 52 as
earlier stated. There is no question that petitioners tendered several payments to Waldo del Castillo even after
redeeming lot No. 52. A total of these payments reveal that petitioners share fully paid the amount stated in the
judgment by compromise. The only issue is whether Waldo del Castillo was a person duly authorized by his
mother Guadalupe Vda. de del Castillo, as her attorney-in-fact to represent her in transactions involving the
properties in question.
We believe that he was so authorized. The fact therefore remains that the amount of P84,000.00 payable on or
before May 15, 1981 decreed by the trial court in its judgment by compromise was novated and amended by
the subsequent mutual agreements and actions of petitioners and private respondents. Petitioners paid the
afore stated amount on an instalment basis and they were given by private respondents no less than eight
extensions of time pay their obligation. These transactions took place during the pendency of the motion for
reconsideration of the Order of the trial court dated April 26, 1983 in Civil Case No. U-3501, during the pendency
of the petition for certiorari in AC-G.R. SP-01307 before the Intermediate Appellate Court and after the filing of
the petition before us. The principle has been laid down that, when, after judgment has become final, facts and
circumstances transpire which render its execution impossible or unjust, the interested party may ask the court
to modify or alter the judgment to harmonize the same with justice and the facts. DISPOSITIVE Petition is given
due course. Private respondents are hereby ordered to reconvey and deliver lot No. 965 and Lot No. 16 as
covered by TCT Nos. 146360 and 146361 respectively in favor of petitioners. Should private respondent s fail to
do so, the Clerk of Court of the Regional Trial Court concerned is ordered to execute the necessary deed of
reconveyance, conformably with the provisions of the Rules of Court. The local Register of Property is ordered to
register said deed of reconveyance. Private respondents are hereby authorized to withdraw the balance in the
amount of P10,000 consigned by petitioners on January 9, 1985 with the trial court as per OR No. 9764172
(Annex "O") a full payment of petitioners' obligation
PEOPLE’S BANK VS. SYVEL’S (164 SCRA 247)
FACTS:
People’s Bank and Trust Company granted Syvel’s Inc. a credit commercial line in the amount of
P900, 000.00. This was secured by a chattel mortgage executed in favor of People’s Bank by Syvel’s on its stocks
of goods, personal properties and other materials owned by it. Syvel’s failed to make payment in accordance
with the Commercial Credit Agreement. People’s Bank started the extra-judicial foreclosure of the chattel
mortgage but was not pushed thru. A case was eventually filed in court. After the filing and during pendency of
the case, Antonio Syyap proposed amicable settlement. A conference with People’s Bank was held. Syyap
requested that the case be dismissed so as not to impair Syvel’s goodwill and offered to execute a real estate
mortgage, which was executed on June 22, 1967. Syvel’s did not agree to People’s Bank’s motion to dismiss
which included the dismissal of their counterclaim and filed instead their own motion to dismiss on the ground
that by the execution of said real estate mortgage, the obligation secured by the chattel mortgage was novated
and therefore, appelle’s cause of action thereon was extinguished.
ISSUE:
Whether or not there is novation.
RULING:
None. It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as
additional security for the performance of the contract. Novation takes place when the object or principal
condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be
explicitly stated or there must be manifest incompatibility between the old and the new obligations in every
aspect (Goni v. CA, 144 SCRA 223 [1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).
In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission.
The contract on its face does not show the existence of an explicit novation nor incompatibility on every point
between the "old and the "new" agreements as the second contract evidently indicates that the same was
executed as new additional security to the chattel mortgage previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed that the chattel
mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage."
RODRIGUEZ VS REYES 37 SCRA 195
FACTS:
The petition for certiorari filed in this case prays for judgment, inter alia, as follows:
... declare the order of the respondent judge approving the auction sale of the properties in question null and
void and, thereafter, ordering the re-bidding of the properties in question at public auction or the approval of
the sale thereof without any condition such that the buyers should assume the liability in favor of the
Development of the Philippines;
On the date scheduled in the Notice of Sale, petitioners were not allowed to actively participate in the auction
sale,they moved for the postponement of of the sale. Respondent Benipayo represented by Ambrosio Padilla
Law offices objected, the postponement was denied and the sale continued as scheduled with Atty. Ambrosio
Padilla actively participating therein allegedly not in behalf of his client, respondent Benipayo, but on behalf of
the bidder respondent Jose N. Dualan. In the said auction sale, respondent Dualan acting through Atty. Ambrosio
Padilla successfully bid for Lot No. 6-B-2, Block No. 2124 under TCT No. 48979.on the other hand, Respondent
Vicente Sayson Jr, successfully bid for the sale to him of Lot No. 6-A of Block No. 2124, under TCT no. 48978.
Thereafter, the Sheriff of Manila, presented his Return to the respondent judge. It appears that after the
respondents, through their respective counsel, filed their answer to the petition for certiorari, the parties
submitted their respective memorandum.

On May 8,1970 the petitioners , jointly with respondents Sayson and Benipayo, submitted the following
Compromise Agreement:

1. That in consideration of the return to respondent Sayson of the amount he has paid for property covered by
TCT #48978, the auction sale be considered cancelled and declared of no further force and effect.

2. That as consideration for the said property sold in the abovementioned public auction, respondent Sayson has
paid to the sheriff P173,000.00 which forms part of the sum of P405,934.00 deposited with the CFI Manila or the
City Treasurer of Manila; that such sum shall also be returned to him.

3. That with the compromise agreement, the pending petition for certiorari shall be deemed academic as far as
Sayson is concerned

ISSUE:
WON the Compromise Agreement should be given effect and therefore the auction sale be considered null and
void.

RULING:
A partial decision in this case is hereby rendered approving the above Compromise Agreement and requiring the
parties thereto to comply with the provisions thereof. This case should be dismissed against Sayson.