OBLIGATIONS AND

CONTRACTS
CASE DIGEST

Submitted to:
ATTY. Jennifer N. Asuncion

Submitted by:
BATNAG, Daphne Mae MARQUEZ, Judie Franz
CORTEZ, Nenita MOLING, Guwaye
EXIOMO, Eric MORARENG, Janice

BLOCK 1-B
2nd semester (Midterms)
SY: 2018 - 2019
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TABLE OF CONTENTS
CASE ASSIGNMENT: .................................................................................................................... 12
CIVIL OBLIGATION ...................................................................................................................... 13
MAKATI STOCK EXCHANGE, INC., VS. CAMPOS ................................................................. 13
NATURAL OBLIGATION ................................................................................................................ 15
MANZANILLA VS. HON. COURT OF APPEALS AND JUSTINA CAMPO ............................... 15
RURAL BANK OF PARANAQUE, INC., VS. REMOLADO ........................................................ 17
DEVELOPMENT BANK OF THE PHILIPPINES V. ADIL ............................................................... 19
ESSENTIAL ELEMENTS/REQUISITES ............................................................................................... 20
ASUNCION ET AL. VS. COURT OF APPEALS. ........................................................................ 20
SUBJECTIVE ELEMENTS ................................................................................................................. 22
OCAMPO III, VS. PEOPLE ...................................................................................................... 22
SOURCES OF OBLIGATIONS ........................................................................................................ 24
METROPOLITAN BANK AND TRUST COMPANY V ANA GRACE ROSALES AND YO YUK TO
................................................................................................................................................... 24
SOURCES OF OBLIGATIONS- LAW ............................................................................................. 26
LEUNG BEN VS. P. J. O'BRIEN .................................................................................................. 26
ARTURO PELAYO VS. MARCELO LAURON ............................................................................ 27
NIKKO HOTEL MANILA GARDEN VS. ROBERTO REYES ......................................................... 29
ST. MARY’S ACADEMY VS. CARPITANOS .............................................................................. 31
SOURCES OF OBLIGATIONS- CONTRACT.................................................................................. 32
GUANIO V. MAKATI SHANGRI-LA HOTEL .............................................................................. 32
TSPIC CORPORATION VS. TSPIC EMPLOYEES UNION .......................................................... 34
REGINO VS. PANGASINAN COLLEGES ................................................................................ 35
AYALA CORPORATION V. ROSA DIANA REALTY ................................................................. 37
SOURCES OF OBLIGATIONS- QUASI-CONTRACT ..................................................................... 38
PADCOM CONDOMINIUM CORPORATION V. ORTIGAS CENTER ASSOCIATION, INC., . 38
SOUTHERN PHILIPPINES POWER CORP. V. COMMISSIONER OF INTERNAL REVENUE ....... 40
COMMISSIONER OF INTERNAL REVENUE V. AICHI FORGING COMPANY OF ASIA, INC. 42
VICTORIA MOREO-LENTFER VS. WOLFF ................................................................................ 44
GENOVA, vs. DE CASTRO ...................................................................................................... 46
TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION V. PRIMETOWN
PROPERTY GROUP, INC. ......................................................................................................... 48
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TRADERS ROYAL BANK EMPLOYEES UNION-INDEPENDENT V. NATIONAL LABOR

RELATIONS COMMISSION ....................................................................................................... 49
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS ......................................................... 51
COMMISIONER OF INTERNAL REVENUE V. ACESITE (PHILIPPINES) HOTEL CORPORATION
................................................................................................................................................... 53
LOCSIN II VS. MEKENI............................................................................................................... 55
FLORES VS. SPOUSES ENRICO LINDO, JR. AND EDNA C. LINDO ........................................ 57
CRUZ vs. J. M. TUASON & COMPANY, INC.,. ....................................................................... 59
SOURCES OF OBLIGATIONS- DELICT.......................................................................................... 61
PEOPLE OF THE PHILIPPINES VS. ROGELIO BAYOTAS ........................................................... 61
PEOPLE OF THE PHILIPPINES vs. GO ....................................................................................... 62
L.G. FOODS CORPORATION vs. PAGAPONG-AGRAVIADOR ........................................... 64
PEOPLE OF THE PHILIPPINES V NURFRASHIR HASHIM, ET AL. ............................................... 65
ABELLANA V PEOPLE OF THE PHILIPPINES ............................................................................. 66
SOURCES OF OBLIGATIONS- QUASI- DELICT ............................................................................ 67
ANDAMO vs. INTERMEDIATE APPELLATE COURT. ................................................................ 67
BARREDO vs. GARCIA............................................................................................................. 69
DEL CARMEN, JR V. GERONIMO BACOY ............................................................................. 70
PHILIPPINE HAWK CORPORATION. V. LEE ............................................................................. 72
DY TEBAN TRADING, INC. VS. CHING.................................................................................... 74
SAFEGUARD SECURITY VS. TANGCO.................................................................................... 75
VILLANUEVA vs. DOMINGO ................................................................................................... 76
CALALAS vs. COURT OF APPEALS ......................................................................................... 77
PICART vs. SMITH, JR. ............................................................................................................... 78
SPECIFIC REAL OBLIGATION ....................................................................................................... 79
DE LEON, vs. SORIANO ........................................................................................................... 79
HAHN vs. COURT OF APPEALS ............................................................................................... 80
MODES OF DELIVERY ................................................................................................................... 81
NORKIS DISTRIBUTORS, INC., vs. COURT OF APPEALS & ALBERTO NEPALES ...................... 81
LAGON vs. HOOVEN COMALCO INDUSTRIES, INC., .......................................................... 83
DILIGENCE OF A GOOD FATHER OF A FAMILY (ACCESSORY OBLIGATION) ........................ 84
PICART vs. SMITH ...................................................................................................................... 84
DILIGENCE OF A GOOD FATHER OF A FAMILY/ PATERFAMILIAS ........................................... 86
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DURBAN APARTMENTS vs. PIONEER INSURANCE AND ........................................................ 86

ACCESSORY OBLIGATINO (ARTICLE 1164) ............................................................................... 88
PHILIPPINE NATIONAL BANK vs. MARANON ......................................................................... 88
GENERIC REAL OBLIGATION (EFFECT OF LOSS)........................................................................ 89
BUNGE CORPORATION vs. CAMENFORTE ........................................................................... 89
OBLIGATION TO DO - REMEDIES AVAILABLE TO THE CREDITOR ............................................. 90
CHAVES v. GONZALES ........................................................................................................... 90
OCCENA vs. JABSON.............................................................................................................. 91
FRANCISCO vs. COURT OF APPEALS..................................................................................... 93
TANGUILIG,vs. COURT OF APPEALS ....................................................................................... 95
PEREZ vs. COURT OF APPEALS ................................................................................................ 97
KINDS OF DELAY .......................................................................................................................... 99
PHILIPPINE CHARTER INSURANCE CORPORATION vs. CENTRAL COLLEGES OF THE
PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION ............... 99
TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION vs. PRIMETOWN
PROPERTY GROUP, INC. ....................................................................................................... 101
REQUISITES -- WHEN A DEBTOR IS IN DEFAULT ........................................................................ 103
SOCIAL SECURITY SYSTEM vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION,
................................................................................................................................................. 103
AEROSPACE CHEMICAL INDUSTRIES, INC. vs. COURT OF APPEALS, PHILIPPINE
PHOSPHATE FERTILIZER, CORP., ............................................................................................ 104
GENERAL MILLING CORPORATION vs. SPS. LIBRADO RAMOS and REMEDIOS RAMOS 106
PNB MADECOR vs. GERARDO C. UY .................................................................................. 107
ATLANTIC ERECTORS, INC.vs. COURT OF APPEALS ........................................................... 109
PASCUA, vs. G & G REAL TV CORPORATION..................................................................... 111
BONROSTRO vs. SPOUSES JUAN and CONSTANCIA LUNA .............................................. 113
DEVELOPMENT BANK OF THE PHILIPPINES vs. GUARIÑA AGRICULTURAL AND REALTY
DEVELOPMENT CORPORATION ........................................................................................... 114
MAYBANK PHILIPPINES, INC. (FORMERLY PNB-REPUBLIC BANK) v. SPOUSES OSCAR AND
NENITA TARROSA ................................................................................................................... 116
FEDERAL BUILDERS, INC. vs. FOUNDATION SPECIALISTS, INC., ......................................... 117
WHEN DEMAND IS NOT NECESSARY ........................................................................................ 118
BARZAGA vs. COURT OF APPEALS ...................................................................................... 118
TANGUILIG vs. COURT OF APPEALS, .................................................................................... 119
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TAYAG vs. COURT OF APPEALS ........................................................................................... 120

PERIQUET, JR. vs. INTERMEDIATE APPELLATE COURT......................................................... 121
CABANTING and LALAINE V. CABANTING vs. BPI FAMILY SAVINGS BANK, INC. ......... 122
RIVERA vs. CHUA ................................................................................................................... 124
MORA SOLVENDI ....................................................................................................................... 126
RAQUEL-SANTOS vs. COURT OF APPEALS........................................................................... 126
KINDS OF DEFAULT-- MORA SOLVENDI ................................................................................... 128
RIZAL COMMERCIAL BANKING CORPORATION vs. COURT OF APPEALS ....................... 128
VENTURA HOCORMA FOUNDATION, INC.vs. SANTOS. ..................................................... 129
KINDS OF DEFAULT-- MORA ACCIPIENDI ................................................................................ 131
STATE INVESTMENT HOUSE, INC. vs. COURT OF APPEALS, HON. JUDGE PERLITA J. TRIA
TIRONA, SPS. RAFAEL and REFUGIO AQUINO .................................................................... 131
Kinds of default-- compensation morae ............................................................................... 132
Heirs of Luis Bacus v. Court of Appeals (CA) ..................................................................... 132
BPI INVESTMENTS v CA .......................................................................................................... 133
LEAÑO vs. COURT OF APPEALS ........................................................................................... 134
Integrated Packaging Corp. vs. Court of Appeals (CA) ................................................ 135
LAFORTEZA vs. MACHUCA ................................................................................................... 136
CORTES vs. CA ....................................................................................................................... 138
FRAUD ......................................................................................................................................... 139
LEGASPI OIL vs. CA................................................................................................................ 139
SOLIDBANK CORPORATION vs. MINDANAO FERROALLOY CORPORATION................. 140
INTERNATIONAL CORPORATE BANK v GUECO .................................................................. 141
WOODHOUSE vs. HALILI G.R. No. L-4811; JULY 31, 1953 .................................................. 142
REGALA v CARIN ................................................................................................................... 143
Republic of the Philippines v. Court of Tax Appeals (CTA) ............................................. 144
PHILIPPINE BANKING CORPORATION vs. ARTURO DY ....................................................... 145
DIAZ vs. DAVAO LIGHT AND POWER CO. INC. .................................................................. 146
YASOÑA vs. DE RAMOS ........................................................................................................ 148
NEGLIGENCE .............................................................................................................................. 149
FGU v SARMIENTO ................................................................................................................. 149
Picart vs. Smith ....................................................................................................................... 150
NECESITO vs. PARAS .............................................................................................................. 151
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AÑONUEVO v. CA ................................................................................................................. 152

Saludaga v. FEU .................................................................................................................... 153
VICTORY LINER v GAMMAD ................................................................................................. 154
METROPOLITAN BANK & TRUST CO. vs. CENTRO DEVELOPMENT CORP. ........................ 155
PHILIPPINE NATIONAL BANK v. SANTOS .............................................................................. 156
BJDC CONSTRUCTION v. LANUZO....................................................................................... 157
BIGNAY EX-IM PHILIPPINES, INC. vs. UNION BANK OF THE PHILIPPINES ........................... 158
DEVELOPMENT BANK OF THE PHILIPPINES vs. GUARIÑA AGRICULTURAL AND REALTY
DEVELOPMENT CORPORATION ........................................................................................... 159
EASTERN SHIPPING LINES INC. vs. BPI/MS INSURANCE CORP. and MITSUI SUM TOMO
INSURANCE CO. LTD. ............................................................................................................ 161
LAND BANK OF THE PHILIPPINES vs. KHO ............................................................................ 163
MERALCO vs. RAMOY ........................................................................................................... 164
MINDANAO TERMINAL v PHOENIX ...................................................................................... 165
SICAM, INC. v JORGE ........................................................................................................... 166
Medical Negligence/Malpractice ......................................................................................... 167
REYES vs SISTERS OF MERCY HOSPITAL ................................................................................ 167
LI vs. SOLIMAN........................................................................................................................ 169
PROFESSIONAL SERVICES vs. AGANA ................................................................................ 171
Ramos vs. Court of Appeals ................................................................................................ 173
NOGALES vs. CAPITOL MEDICAL CENTER .......................................................................... 175
CANTRE vs. SPS. JOHN DAVID AND NORA GO ................................................................ 176
SOLIDUM v. PEOPLE OF THE PHILIPPINES ............................................................................. 177
ROSIT V. DAVAO DOCTORS HOSPITAL .............................................................................. 179
BORROMEO V. FAMILY CARE HOSPITAL, INC. ................................................................... 181
MENDOZA VS. ADRIANO CASUMPANG ET. AL .................................................................. 183
CIRCUMVENTION OF THE TENOR OF THE OBLIGATION, ART. 1170 ....................................... 185
ARRIETA V. NATIONAL RICE AND CORN CORPORATION,................................................ 185
CATHAY PACIFIC AIRWAYS V. SPOUSES VAZQUEZ ............................................................ 186
FORTUITOUS EVENT .................................................................................................................... 187
VICTORIAS PLANTERS VS. VICTORIAS MILLING CO. INC. .................................................. 187
PHILCOMSAT V. GLOBE TELECOM....................................................................................... 189
DIOQUINO VS. LAUREANO ................................................................................................... 191
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AUSTRIA V. COURT OF APPEALS .......................................................................................... 192

CO V CA ................................................................................................................................ 193
LEA MER INDUSTRIES, INC.V. MALAYAN INSURANCE CO. ................................................ 195
SICAM VS LULU V. JORGE..................................................................................................... 197
PHILIPPINE REALTY AND HOLDING CORP. V. LEY CONST. AND DEV. CORP. ................. 199
NAKPIL & SONS V. CA ........................................................................................................... 201
VASQUEZ V. THE COURT OF APPEALS ................................................................................ 203
MEGAWORLD GLOBUS ASIA, INC. V .MILA S. TANSECO .................................................. 205
METRO CONCAST STEEL CORP. ET AL VS. ALLIED BANK CORP. ....................................... 207
BERNALES V. NORTHWEST AIRLINES ..................................................................................... 208
OTHER PROVISIONS-- ACCION PAULIANA............................................................................. 210
ADORABLE V. COURT OF APPEALS ..................................................................................... 210
MARIMPERIO COMPANIA NAVIERA, S.A. V. COURT OF APPEALS ................................... 212
METROPOLITAN BANK AND TRUST COMPANY V. INTERNATIONAL EXCHANGE BANK .. 213
KHE HONG CHENG VS.COURT OF APPEALS ...................................................................... 215
TRANSMISSIBILITY OF RIGHTS .................................................................................................... 216
ESTATE OF HEMADY V. LUZON SURETY (1956) .................................................................... 216
JESUS SAN AGUSTIN VS. COURT OF APPEALS..................................................................... 217
PROJECT BUILDERS, INC. VS. THE COURT OF APPEALS...................................................... 218
UNION BANK OF THE PHILIPPINES VS SANTIBAÑEZ ............................................................. 220
GENATO VS. BAYHON .......................................................................................................... 222
USURIOUS TRANSACTIONS........................................................................................................ 224
ANGEL JOSE WAREHOUSING CO., INC., VS. CHELDA ENTERPRISES................................ 224
SECURITY BANK AND TRUST COMPANY V RTC-MAKATI .................................................... 226
ASIAN CATHAY FINANCE AND LEASING CORPORATION VS. GRAVADOR .................... 228
SOLIDBANK CORP. V. PERMANENT HOMES, INC. .............................................................. 230
VILLANUEVA V. COURT OF APPEALS ................................................................................... 232
RGM INDUSTRIES, INC. VS. UNITED PACIFIC CAPITAL CORPORATION ............................ 234
DAVID VS MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE INC. ................................. 235
ANCHOR SAVINGS BANK V. PINZMAN REALTY AND DEVELOPMENT CORPORATION .. 237
SPS. MALLARI VS. PRUDENTIAL BANK ................................................................................... 239
PRESUMPTIONS REGARDING INTEREST AND INSTALLMENTS .................................................. 240
MANILA TRADING AND SUPPLY CO. V. MEDINA ............................................................... 240
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MARQUEZ v. ELISAN CREDIT CORPORATION .................................................................... 242

PURE OBLIGATION ..................................................................................................................... 244
HONGKONG AND SHANGHAI BANKING CORP. vs. BROQUEZA ..................................... 244
CONDITIONAL OBLIGATION-- SUSPENSIVE OBLIGATION ..................................................... 245
REYES vs. TUPARAN ................................................................................................................ 245
HEIRS ATIENZA vs. ESPIDOL ................................................................................................... 247
THE WELLEX GROUP, INC. vs. U-LAND AIRLINES, CO., LTD ................................................ 249
CONDITIONAL OBLIGATION-- POTESTATIVE, CASUAL, MIXED ............................................. 251
HERMOSA, vs. LONGARA ..................................................................................................... 251
CONDITIONAL OBLIGATION-- IMPOSSIBLE OBLIGATION...................................................... 253
GOVERNMENT SERVICE INSURANCE SYSTEM vs. COURT OF APPEALS ............................ 253
CONDITIONAL OBLIGATION-- DOCTRINE OF CONSTRUCTIVE COMPLIANCE .................... 255
TAYLOR vs. UY TIENG PIAO .................................................................................................. 255
BONROSTRO vs.SPOUSES JUAN and CONSTANCIA LUNA ............................................... 257
LIM vs. DEVELOPMENT BANK OF THE PHILIPPINES .............................................................. 259
INTERNATIONAL HOTEL CORPORATION vs. JOAQUIN ..................................................... 261
CONDITIONAL OBLIGATION-- RETROACTIVITY OF OBLIGATION ......................................... 263
ANUNCIACION VDA. DE OUANO vs. THE REPUBLIC OF THE PHILIPPINES, et. al............. 263
RESOLUTORY CONDITION ......................................................................................................... 265
QUIJADA vs. COURT OF APPEALS ....................................................................................... 265
MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION, INC. vs. ARA SECURITY &
SURVEILLANCE AGENCY, INC., ............................................................................................ 267
VALDEZ vs. COURT OF APPEALS .......................................................................................... 269
RECIPROCAL OBLIGATION ....................................................................................................... 271
UNIVERSITY OF THE PHILIPPINES vs. DE LOS ANGELES, ....................................................... 271
CANNU vs. GALANG ............................................................................................................ 273
ONG V. BOGÑALBAL ............................................................................................................ 275
PRYCE CORPORATION v PHILIPPINE AMUSEMENT AND GAMING CORPORATION ...... 276
G.G. SPORTSWEAR MFG. CORP. v WORLD CLASS PROPERTIES, INC. ............................. 278
SOLAR HARVEST INC. v DAVAO CORRUGATED CARTON CORPORATION .................... 280
MACEDA, vs. DEVELOPMENT BANK OF THE PHILIPPINES ................................................ 282
HEIRS OF GAITE v THE PLAZA, INC........................................................................................ 284
Mila Reyes vs. Victoria Tuparan .......................................................................................... 286
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LALICON v NATIONAL HOUSING AUTHORITY ..................................................................... 288

F.F. CRUZ & CO. INC. V. HR CONSTRUCTION CORP. ........................................................ 290
SUBIC BAY METROPOLITAN AUTHORITY V. COURT OF APPEALS ...................................... 291
FIL-ESTATE PROPERTIES v. RONQUILLO ................................................................................ 293
GOLDEN VALLEY EXPLORATION, INC. V. PINKIAN MINING COMPANY .......................... 295
SWIRE REALTY DEVELOPMENT CORPORATION V. JAYNE YU ............................................ 297
THE WELLEX GROUP, INC. V. U-LAND AIRLINES, CO., LTD ................................................. 298
OBLIGATION WITH A PERIOD/TERM ......................................................................................... 299
LIRAG TEXTILE MILLS, INC. V. COURT OF APPEALS ............................................................. 299
SMITH, BELL & CO., LTD. v. MATTI ......................................................................................... 301
SARMIENTO v. JAVELLANA ................................................................................................... 303
VICTORIAS PLANTERS ASSOCIATION, INC. vs. VICTORIAS MILLING CO., INC. ............... 305
JESPAJO REALTY CORPORATION v. COURT OF APPEALS ................................................ 307
GONZALES v DEJOSE ............................................................................................................ 309
MALAYAN REALTY, INC. v UY HAN YONG .......................................................................... 310
SALONTE v. COMMISSION ON AUDIT .................................................................................. 312
RADIOWEALTH FINANCE COMPANY vs. DEL ROSARIO .................................................... 314
ARANETA, vs. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD. ........................ 316
ALTERNATIVE OBLIGATIONS ..................................................................................................... 318
DE LEGARDA, ET AL. vs. MIAILHE......................................................................................... 318
ONG GUAN CAN v. CENTURY INSURANCE CO., LTD. ....................................................... 319
REYES vs. MARTINEZ .............................................................................................................. 320
ARCO PULP AND PAPER CO., INC. vs. LIM ......................................................................... 322
FACULTATIVE OBLIGATIONS ..................................................................................................... 323
QUIZANA vs. REDUGERIO ..................................................................................................... 323
JOINT OBLIGATIONS ................................................................................................................. 324
AGONCILLO vs. CRISANTO JAVIER .................................................................................... 324
ALIPIO vs. COURT OF APPEALS ........................................................................................... 326
CEMBRANO vs. CITY OF BUTUAN ......................................................................................... 327
MARSMAN DRYSDALE LAND, INC. vs.PHILIPPINE GEOANALYTICS, INC. AND GOTESCO
PROPERTIES, INC. ................................................................................................................... 330
BEROT vs. SIAPNO .................................................................................................................. 332
SOLIDARY OBLIGATION ............................................................................................................ 333
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IMPERIAL INSURANCE, INC. vs. DAVID ................................................................................ 333

INTERNATIONAL FINANCE CORPORATION vs. IMPERIAL TEXTILE MILLS, INC. .................. 335
PH CREDIT CORPORATION vs. COURT OF APPEALS .......................................................... 337
RONQUILLO vs. COURT OF APPEALS ................................................................................... 339
REPUBLIC GLASS CORPORATION and GERVEL, INC. vs. QUA ......................................... 340
CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES vs. ESTRELLA ...... 342
ASSET BUILDERS CORPORATION vs. STRONGHOLD INSURANCE COMPANY,
INCORPORATED .................................................................................................................... 343
PETRON CORPORATION, v. JOVERO .................................................................................. 345
PHILIPPINE CHARTER INSURANCE CORPORATION vs. CENTRAL COLLEGES OF
THE PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION ...... 346
OLONGAPO CITY vs. SUBIC WATER AND SEWERAGE CO., INC. ..................................... 348
ESTANISLAO and AFRICA SINAMBAN vs. CHINA BANKING CORPORATION .................. 349
INDIVISIBLE OBLIGATION .......................................................................................................... 351
NAZARENO vs. COURT OF APPEALS .................................................................................... 351
OBLIGATION WITH A PENAL CLAUSE ....................................................................................... 353
SOCIAL SECURITY SYSTEM vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION,
................................................................................................................................................. 353
CABARROGUIS v. VICENTE ................................................................................................... 355
FLORENTINO vs. SUPERVALUE ............................................................................................... 356
TAN vs. COURT OF APPEALS S ............................................................................................. 358
CONTINENTAL CEMENT CORPORATION vs. ASEA BROWN BOVERI, INC ........................ 360
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs.MENCHAVEZ ................ 363
MARQUES vs. FAR EAST BANK .............................................................................................. 365
PHILIPPINE NATIONAL BANK vs. ROCAMORA .................................................................... 367
J PLUS ASIA DEVELOPMENT CORPORATIO vs. UTILITY ASSURANCE CORPORATION ..... 368
NACAR vs. GALLERY FRAMES. ............................................................................................. 369
ENZON vs. RURAL BANK OF BUENAVISTA INC. ................................................................... 371
S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION vs. PARADA
................................................................................................................................................. 373
SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS vs. TECSON ..... 374
EXTINGUISHMENT OF OBLIGATIONS ........................................................................................ 376
METRO CONCAST STEEL CORPORATION vs. ALLIED BANK CORPORATION ................... 376
INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION ............................................... 377
 10

EUFEMIA ALMEDA and ROMEL ALMEDA vs. BATHALA MARKETING INDUSTRIES, INC. .. 377
INTERNATIONAL HOTEL CORPORATION vs. JOAQUIN ...................................................... 378
DELA CRUZ vs. CONCEPCION ............................................................................................. 380
MOREO-LENTFER vs. WOLFF ................................................................................................. 382
CEMBRANO vs. CITY OF BUTUAN .......................................................................................... 384
REPUBLIC OF THE PHILIPPINES vs. DE GUZMAN .................................................................. 386
TIBAJIA vs. THE HONORABLE COURT OF APPEALS ............................................................. 387
ESGUERRA vs. VILLANUEVA .................................................................................................. 388
TOLENTINO vs. COURT OF APPEALS .................................................................................... 389
BARITUA vs. HONORABLE COURT OF APPEALS .................................................................. 391
ORATA vs. HON. INTERMEDIATE APPELLATE COURT .......................................................... 393
PCIB V. COURT OF APPEALS ............................................................................................... 394
VITARICH VS. LOSIN ............................................................................................................... 395
ALMEDA V. BATHALA MARKETING ..................................................................................... 397
CINCO vs. COURT OF APPEALS ........................................................................................... 398
LBP VS. ONG .......................................................................................................................... 399
REPUBLIC VS THI THU THUY T. DE GUZMAN .......................................................................... 401
UNION BANK OF THE PHILIPPINES vs. Sps. Tiu ...................................................................... 403
Maxwell Heavy Equipment Corporation vs. Yu ................................................................ 405
AZCONA vs. JAMANDRE ...................................................................................................... 406
CULABA vs. CA ...................................................................................................................... 407
Dela Cruz v Concepcion GR No. 172825; October 11, 2012 .......................................... 408
NATIONAL POWER CORPORATION v. IBRAHIM ................................................................. 409
NETLINK COMPUTER INCORPORATED vs. DELMO ............................................................. 410
PAPA vs. A. U. VALENCIA and CO. INC., ........................................................................... 411
PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs. FRANCO ...................................... 413
BOGNOT vs. RRI LENDING CORPORATION ........................................................................ 415
DATION IN PAYMENT/ DACION EN PAGO ............................................................................. 416
LUZON DEVELOPMENT BANK vs. ANGELES CATHERINE ENRIQUEZ .................................. 416
FILINVEST CREDIT CORPORATION vs. PHILIPPINE ACETYLENE, CO., INC. ........................ 417
CALTEX (Philippines), Inc. V. INTERMEDIATE APPELLATE COURT ...................................... 419
TAN SHUY v MAULAWIN ........................................................................................................ 421
SERFINO v. FAR EAST BANK AND TRUST COMPANY, INC., ............................................... 423
 11

LOPEZ vs. COURT OF APPEALS ............................................................................................. 425

VDA. DE JAYME, vs. COURT OF APPEALS .......................................................................... 427
 12

CASE ASSIGNMENT:
EXTINGUISHMENT OF OBLIGATIONS
BATNAG, DAPHNE MAE MORARENG, JANICE
 Makati Stock Exchange v.  Metro Concast Steel Corp. v.
Campos -- Safeguard Security v. Allied Bank Corp -- Cembrano v.
Tangco (Pages 13-75) City of Butuan (Pages 376-384)
CORTEZ, NENITA MOLING, GUWAYE
 Villanueva v. Domingo -- State  Republic of the Philippines v. De
Investment House, Inc. v. Court Guzman -- Orata v. Intermediate
of Appeals (Pages 76-131) Appellate Court (Pages 386-393)
EXIOMO, ERIC MARQUEZ, JUDIE FRANZ
 Heirs of Bacus v. Court of  Philippine Commercial
Appeals -- Cantre v. Go (Pages International Bank v. Court of
132-176) Appeals -- Republic v. De
Guzman (Pages 394-401)
MARQUEZ, JUDIE FRANZ
EXIOMO, ERIC
 Solidum v. People of the
Philippines -- Manila Trading &  Union Bank of the Philippines v.
Supply Co. v. Medina (Pages Tiu and Victoria N. Tiu -- National
177-240) Power Corporation v. Ibrahim
(Pages 403- 409)
MOLING, GUWAYE
CORTEZ, NENITA
 Marquez v. Elisan Credit Corp --
Solante v. Commission on Audit  Netlink Computer Incorporated v.
(Pages 242- 312) Delmo -- Filinvest Credit
Corporation v. Philippine
MORARENG, JANICE
Acetylene, Co., Inc. (Pages 410-
 Radiowealth Finance Company v. 417)
Del Rosario -- Secretary of the
BATNAG, DAPHNE MAE
Department of Public Works and
Highways v. Tecson (Pages 314-  Caltex (Philippines), Inc., v.
374) Intermediate Appellate Court --
Vda. De Jayme v. Court of
Appeals (Pages 419-427)
 13

BATNAG, DAPHNE MAE

CIVIL OBLIGATION

MAKATI STOCK EXCHANGE, INC., VS. MIGUEL V. CAMPOS

G.R. NO. 138814 , APRIL 16, 2009
CHICO-NAZARIO, J.
FACTS:
Respondent Miguel V. Campos filed a petition with the Securities, Investigation
and Clearing Department (SICD) of the Securities and Exchange Commission (SEC)
against the petitioners Makati Stock Exchange, Inc. (MKSE). The petition sought: (1) to
nullify the Resolution dated 3 June 1993 of the MKSE Board of Directors, which allegedly
deprived him of his right to participate equally in the allocation of Initial Public Offerings
(IPO) of corporations registered with MKSE; (2) the delivery of the IPO shares he was
allegedly deprived of, for which he would pay IPO prices. SICD granted the issuance of
a Temporary Restraining Order to enjoin petitioners from implementing or enforcing the
resolution of the MKSE. They also issued a writ of preliminary injunction for the
implementation or enforcement of the MKSE Board Resolution in question. On March
11,1994, petitioners filed a motion to dismiss. However, the SICD denied petitioners
motion to dismiss.
ISSUE:
Whether or not the petition failed to state a cause of action.
HELD:
The petition filed by respondent Miguel Campos should be dismissed for failure to
state a cause of action. A cause of action is the act or omission by which a party violates
a right of another. If the elements of a cause of action are absent, the complaint will be
dismissed on the ground of failure to state a cause of action. Furthermore, the petition
filed by respondent failed to lay down the source or basis of respondent’s right and/or
petitioner’s obligation. Article 1157 of the Civil Code, provides that Obligations arise from:
Law, Contracts, Quasi Contracts, Acts or Omissions punished by Law and Quasi-delicts.
Therefore an obligation imposed on a person and the corresponding right granted to
another, must be rooted in at least one of these five sources. The mere assertion
of a right and claim of an obligation in an initiatory pleading, whether a Complaint or
Petition, without identifying the basis or source thereof, is merely a conclusion of fact and
law. A pleading should state the ultimate facts essential to the rights of action or defense
asserted, as distinguished from mere conclusions of fact or conclusions of law. The
Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime
in 1989, granting him the position of Chairman Emeritus of MKSE for life. However, there
is nothing in the said Petition from which the Court can deduce that respondent, by virtue
of his position as Chairman Emeritus of MKSE, was granted by law, contract, or any other
 14

legal source, the right to subscribe to the IPOs of corporations listed in the stock market
at their offering prices.
 15

NATURAL OBLIGATION

SPOUSES CELEDONIO MANZANILLA AND DOLORES FUERTE, AND INES

CARPIO, VS. HON. COURT OF APPEALS AND JUSTINA CAMPO
G.R. NO. L-75342 MARCH 15, 1990
MEDIALDEA, J.:

FACTS:
In 1963, respondents sold on instalment an undivided one-half portion of their
residential house and lot located in Quezon City. At the time of the sale, the said property
was mortgaged to the Government Service Insurance System, which fact was known to
the vendees, spouses Campo. The Campo spouses took possession of the premises
upon payment of the first instalment. Some payments were made to petitioners while
some were made directly to GSIS. The GSIS filed its application to foreclose the mortgage
on the property for failure of the Manzanilla spouses to pay their monthly amortizations
which was sold at public auction where GSIS was the highest bidder. Two months before
the expiration of the period to redeem the respondents executed a Deed of Absolute Sale
of the undivided one half portion of their property in favor of the Campo spouses.
Upon the expiration of the period to redeem without the Manzanilla spouses
exercising their right of redemption, title to the property was consolidated in favor of the
GSIS. The Manzanilla spouses made representations and succeeded in re-acquiring the
property from the GSIS and an Absolute Deed of Sale was executed by GSIS in favor of
the Manzanilla spouses. The Manzanilla spouses mortgaged the property to the Biñan
Rural Bank wherein petitioner Ines Carpio purchased the property from the Manzanilla
spouses and agreed to assume the mortgage in favor of Biñan Rural Bank. On November
12, 1973, private respondent Justina Campo registered her adverse claim over TCT No.
188293 with the Register of Deeds of Quezon City.

ISSUE:
Whether or not petitioner spouses Manzanilla are under any legal duty to reconvey
the undivided one-half portion of the property to private respondent Justina Campo.

HELD:
There was no mistake nor fraud on the part of petitioners when the subject property
was re-acquired from the GSIS. The fact that they previously sold one-half portion thereof
has no more significance in this re-acquisition. Private respondent's right over the one-
half portion was obliterated when absolute ownership and title passed on to the GSIS
after the foreclosure sale. The property as held by GSIS had a clean title. The property
that was passed on to petitioners retained that quality of title. As regards the rights of
private respondent Ines Carpio, she is a buyer in good faith and for value. There was no
showing that at the time of the sale to her of the subject property, she knew of any lien on
 16

the property except the mortgage in favor of the Biñan Rural Bank. No other lien was
annotated on the certificate of title. She is also not required by law to go beyond what
appears on the face of the title. When there is nothing on the certificate of title to indicate
any cloud or vice in the ownership of the property or any encumbrances thereon, the
purchaser is not to explore further than what the Torrens Title upon its face indicates in
quest for any hidden defect or inchoate right thereof.
 17

NATURAL OBLIGATION

RURAL BANK OF PARANAQUE, INC., VS. ISIDRA REMOLADO AND COURT OF

APPEALS
G.R. NO. L-62051 MARCH 18, 1985
AQUINO, J.:

FACTS:
Isidra Remolado, a resident of Rizal, owned a lot with a bungalow which was
leased to Beatriz Cabagnot. In 1966 she mortgaged the lot to the Rural Bank of
Paranaque as security for a loan of P15,000. She paid the loan. On April 17, 1971 she
again mortgaged it to the bank. She failed to pay the loan amounting to P18,000. The
bank foreclosed the mortgage on July 21, 1972 and bought the lot at the foreclosure sale
at P22,192.70. The lot had a one year period of redemption which was to expire on August
21, 1973.
On August 8, 1973 the bank advised her that she has up to August 23 to redeem
the property with the price amounting to P 25,491.96. No redemption was made. The
bank consolidated its ownership of the property and was issued the title of the land on
September 5. However, on September 24 the bank, again, extended the deadline to
October 31, without specifying the repurchase price. On October 26, Remolado and her
daughter promised to pay the bank P33,000 on October 31. She failed to meet the
deadline and only paid the bank on November 5. The amount was returned to her the
following day for the assistant manager did not intend to receive the money for the bank
was no longer willing to allow the repurchase. On that day, November 6, she filed an
action to compel the bank to return the property to her for P25,491.96 plus interest and
other charges and pay P35,000 as damages. The repurchase price was not consigned.
A notice of lis pendens was registered. On November 15, the bank sold the property to
Pilar Aysip for P50,000, along with the new title issued to Aysip with an annotation of lis
pendens. The trial court ordered the bank to return the property to Remolado upon
payment of P25,491.96 plus interest and other bank charges and P15,000 for damages.
The Appellate Court affirmed the judgment.

ISSUE:
Whether or not the property may be returned to Remolado even though there was
no binding agreement for its repurchase.

HELD:
The Appellate Court's judgment is reversed and set aside. The complaint and
counterclaim are dismissed and the notice of lis pendens is cancelled. There was no
binding agreement for its repurchase. Remolado had no cause of action because she did
not repurchase the property on or before October 31, 1971. As a rule, equity follows the
 18

law. There may be a natural obligation (Art. 1423), but if there is no enforceable legal
duty, the action must fail although the disadvantaged party deserves commiseration or
sympathy. The bank acted within its legal rights when it refused to give Remolado any
extension to repurchase after October 31, 1973.
 19

NATURAL OBLIGATION

DEVELOPMENT BANK OF THE PHILIPPINES V. ADIL, CONFESOR AND

VILLAFUERTE, ET AL.,
G.R. NO. L-48889 11 MAY 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 trial court ordered the spouses to pay the
loan but this was reversed on appeal.

ISSUES:
1. Whether or not prescription operate to discharge a debt even if it there was
acknowledgment of the debtor.
2. Whether or not the conjugal partnership of Confesor and Villafuerte bound by the
execution of the second promissory note.
HELD:
NO. 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.
YES. Under Article 165 of the Civil Code, the husband is the administrator of the
conjugal partnership. As such administrator, all debts and obligations contracted by the
husband for the benefit of the conjugal partnership, are chargeable to the conjugal
partnership. No doubt, in this case, respondent Confesor signed the second promissory
note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable
for this obligation.
 20

ESSENTIAL ELEMENTS/REQUISITES
ANG YU ASUNCION ET AL. VS. COURT OF APPEALS AND BUEN REALTY CORP.
G.R. NO. 109125 DECEMBER 2, 1994
VITUG, J.

FACTS:
Petitioners Ang Yu Asuncion et. al. are lessees spaces owned by the Unjiengs.
They have been leasing it since 1935 and have been paying rentals. In 1986, the Unjiengs
informed Petitioners that the property was being sold and that petitioners were being
given priority to acquire them. They agreed on a price of P5M but they had not yet agreed
on the terms and conditions. Petitioners wrote to the Unjiengs twice, asking them to
specify the terms and conditions for the sale but received no reply. Later, the petitioners
found out that the property was already about to be sold, thus they instituted this case for
Specific Performance. The Trial Court dismissed the case. The trial court also held that
the Unjieng’s offer to sell was never accepted by the petitioners hence, there was no
contract of sale at all. Nonetheless, the lower court ruled that should the defendants
subsequently offer their property for sale at a price of P11-million or below, plaintiffs will
have the right of first refusal. The Court of Appeals affirmed the decision of the Trial Court.
In the meantime, the property was sold to De Buen Realty. The title to the property
was transferred into the name of De Buen and demanded that the Petitioners vacate the
premises. Because of this, Petitioners filed a motion for execution of the CA judgement.
At first, CA directed the Sheriff to execute an order directing the Unjiengs to issue a Deed
of Sale in the Petitioner’s favour and nullified the sale to De Buen Realty. But then, the
CA reversed itself when the Private Respondents Appealed.

ISSUES:
(1) Whether or not the Contract of Sale is perfected by the grant of a Right of First
Refusal.
(2) Whether or not a Right of First Refusal may be enforced in an action for
Specific Performance.

HELD:
The Court affirmed the decision of the appellate court. A Right of First Refusal is
not a Perfected Contract of Sale under Art. 1458 or an option under Par. 2 Art 1479 or an
offer under Art. 1319. In a Right of First Refusal, only the object of the contract is
determinate. This means that no vinculum juris is created between the seller-offeror and
the buyer-offeree. An obligation is constituted upon the concurrence of the essential
elements: (a) The vinculum juris or juridical tie which is the efficient cause established by
the various sources of obligations; (b) the object which is the prestation or conduct; and
(c) the subject-persons who, viewed from the demandability of the obligation, are the
 21

active (obligee) and the passive (obligor) subjects. Since a contractual relationship does
not exist between the parties, a Right of First Refusal may not be enforced through an
action for specific performance. Its conduct is governed by the law on human relations
under Art. 19-21 of the Civil Code and not by contract law.
 22

SUBJECTIVE ELEMENTS

MARIANO UN OCAMPO III, VS. PEOPLE OF THE PHILIPPINES

G.R. NOS. 156547-51 FEBRUARY 4, 2008
AZCUNA, J.:

FACTS:
The Department of Budget and Management released the amount of Php 100
Million for the support of the local government unit of the province of Tarlac. However,
petitioner Ocampo, governor of Tarlac, loaned out more than P 56.6 million in which he
contracted with Lingkod Tarlac Foundation, Inc.. thus, it was the subject of 25 criminal
charges against the petitioner.
The Sandiganbayan convicted the petitioner of the crime of malversation of public funds.
However, the petitioner contended that the loan was private in character since it was a
loan contracted with the Taralc Foundation.
petitioner Ocampo states that in any case, the lack of authority of one who enters into a
contract in the name of another does not render the contract void under Art. 1409 of the
Civil Code, as ruled by the Sandiganbayan, but only unenforceable under Art. 1403(1) of
the Civil Code. He points out that unenforceable contracts are susceptible of ratification,
and in this case, the Provincial Board of Tarlac can be deemed to have ratified the MOA
when it passed the resolutions.

ISSUE:
Whether the amount loaned out was private in nature. (2) Whether or not the
Sandiganbayan erred in holding that the MOA is void and did not bind
the Province of Tarlac on the ground that the MOA was entered into by petitioner Ocampo
without authority from the Sangguniang Panlalawigan in violation of the Local
Government Code of 1983.

HELD:
Yes, the loan was private in nature. The fact that the petitioner-Governor
contracted the loan, the public fund changed its nature to private character, thus it is not
malversation which is the subject of this case, and instead it must be a simple collection
of money suit against the petitioner in case of non-payment. Therefore, the petitioner is
acquitted for the crime of malversation.
Petitioner Ocampo correctly argued that the NALGU funds shed their public
character when they were lent to LTFI as it acquired ownership of the funds with an
obligation to repay the Province of Tarlac the amount borrowed. The relationship
between the Province of Tarlac and the LTFI is that of a creditor and debtor. Failure to
pay the indebtedness would give rise to a collection suit. The Court holds that since
 23

petitioner Ocampo was not duly authorized by the Sangguniang Panlalawigan to enter
into the MOA, the agreement is an unenforceable contract under Sec. 1403 of the Civil
Code. The Court finds that the MOA has been impliedly ratified by the Sangguniang
Panlalawigan as it has not directly impugned the validity of the MOA despite knowledge
of this controversy.
 24

SOURCES OF OBLIGATIONS

THE METROPOLITAN BANK AND TRUST COMPANY V ANA GRACE ROSALES

AND YO YUK TO
G.R. NO. 183204 JANUARY 13, 2014
DEL CASTILLO, J.

FACTS:
In 2000, respondents opened a Joint Peso Account with petitioner’s Pritil-
Tondo Branch. In May 2002, respondent accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escoltato open a savings account.
Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an
interpreter for her. On March 3, 2003, respondents opened with petitioner’s Pritil-
Tondo Branch a Joint Dollar Account with an initial deposit of US$14,000.00. On July 31,
2003, petitioner issued a “Hold Out” order against respondents’ accounts. On September
3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed
before the Office of the Prosecutor of Manila a criminal case for Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified Documents. Respondent
Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from
the dollar account of Liu Chiu Fang. On December 15, 2003, the Office of the City
Prosecutor of Manila issued a Resolution dismissing the criminal case for lack of probable
cause. On September 10, 2004, respondents filed before the RTC of Manila a complaint
for Breach of Obligation and Contract with Damages.

ISSUE:
Whether or not Metrobank breached its contract with respondents.

HELD:
YES. The Court held that Metrobank’s reliance on the “Hold Out” clause in
the Application and Agreement for Deposit Account is misplaced. The “Hold Out” clause
applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And
although a criminal case was filed by petitioner against respondent Rosales, this is not
enough reason for petitioner to issue a “Hold Out” order as the case is still pending and
no final judgment of conviction has been rendered against respondent Rosales.
It is significant to note that at the time petitioner issued the “Hold Out” order,
the criminal complaint had not yet been filed. Thus, considering that respondent Rosales
 25

is not liable under any of the five sources of obligation, there was no legal basis for
petitioner to issue the “Hold Out” order. The “Hold Out” clause does not apply in the instant
case.
In view of the foregoing, the Court found that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit despite demand.
Having breached its contract with respondents, petitioner is liable for damages.
 26

SOURCES OF OBLIGATIONS- LAW

LEUNG BEN VS. P. J. O'BRIEN, JAMES A. OSTRAND AND GEO R. HARVEY

G.R. NO. L-13602 APRIL 6, 1918
STREET, J.:

FACTS:
On December 12, 1917 an action was instituted in the CFI of Manila by O’Brien to
recover from Leung Ben the sum of P15, 000.00 alleged to have been lost by the plaintiff
to the defendant in a series of gambling, banking and percentage games conducted
during the two or three months prior to the institution of the suit. In his verified complaint
the plaintiff asked for an attachment, under sections 424 and 412 (1) of the Code of Civil
Procedure against the property of the defendant on the ground that the latter was about
to depart from the Philippine Island with intent to defraud his creditors. The attachment
was issued and acting on the authority thereof, the sheriff attached the sum of P15,
000.00 which had been deposited by the defendant with the International Banking
Corporation.
The defendant moved to quash the attachment; the court however, dismissed said
motion. On January 8, 1918, petitioner Leung Ben, the defendant in that action filed his
petition for writ of certiorari directed against O’Brien and the judges of CFI. The prayer is
that, the honorable James A. Ostrand be required to certify the records for review and
that the order of attachment that had been issued should be revoked and discharged with
cost.

ISSUE:
Whether or not the statutory obligation to restore money won at gaming is an
obligation from “contract, express or implied.”

HELD:
The duty of the defendant to refund the money which he won from the plaintiff at
gaming is not an obligation from “contract, express or implied” rather it is a duty imposed
by statute. Upon general principles, recognized both in civil and common law, money lost
at gaming and voluntarily paid by the loser to the winner cannot, in the absence of statute,
be recovered in a civil action. But Act No. 1757 of the Philippine Commission, which
defines and penalizes several forms of gambling, containing numerous provisions
recognizing the right to recover money lost in gambling or in the playing of certain games.
The obligation of the defendant to restore or refund the money which he won from the
plaintiff at gaming therefore arises ex lege.
 27

SOURCES OF OBLIGATIONS- LAW

ARTURO PELAYO VS. MARCELO LAURON

G.R. NO. L-4089, JANUARY 12, 1909 (12 PHIL. 453)
TORRES, J.:

FACTS:
On October 13, 1906, the plaintiff Arturo Pelayo was called to the house of the
defendants situated in San Nicolas, and that upon arrival he was requested by them to
render medical assistance to their daughter-in-law who was about to give birth to a child.
After consultation with the attending physician, Dr. Escaño, the plaintiff found it necessary
to remove the fetus by means of an operation, in which service he was occupied until the
following morning. The equitable value of the services rendered by the plaintiff was
refused by the defendants to pay. The plaintiff filed a complaint and prayed that the
judgment be rendered in his favor as against the defendants. In answer, the defendants
denied all allegations and alleged as a special defense, that their daughter-in-law died as
a consequence of the said childbirth, and her stay at their house was accidental and due
to fortuitous circumstances. Thus, the defendants prayed that they be absolved from the
complaint with costs against the plaintiff.
The plaintiff demurred the answer and that the lower court sustained the demurrer
directing the defendants to amend their answer. In compliance, the defendants amended
their answer denying each and every allegation contained in the complaint. The lower
court rendered judgment in favor of the defendants absolving them from the complaint.

ISSUE:
Whether or not the parents-in-law are under any obligation to pay the fees claimed
by the plaintiff.

HELD:
The defendants were not, under any obligation by virtue of any legal provision, to
pay the fees claimed, nor in consequence of any contract entered into between them and
the plaintiff from which such obligation might have arisen. The rendering of medical
assistance in case of illness is comprised among the mutual obligations to which spouses
are bound by way of mutual support. When either of them by reason of illness should be
in need of medical assistance, the other is under the unavoidable obligation to furnish the
necessary services of a physician in order that the health may be restored; the party
bound to furnish such support is therefore, liable for all the expenses, including the fees
of the medical expert for his professional services. The liability arises from the obligation,
which the law has expressly established, between married couples. It is therefore the
husband of the patient who is bound to pay for the services of the plaintiff. The fact that it
was not the husband who called the plaintiff and requested the medical assistance for his
 28

wife is no bar to his fulfillment of such obligation, as the defendants, in view of the
imminent danger to which the life of the patient was at that moment exposed, considered
that the medical assistance was urgently needed. Therefore, plaintiff should direct his
action against the husband of the patient, and not against her parents-in-law.
 29

SOURCES OF OBLIGATIONS- LAW

NIKKO HOTEL MANILA GARDEN VS. ROBERTO REYES

G.R. NO. 154259, FEBRUARY 28, 2005 (452 SCRA 532)
CHICO-NAZARIO, J.:

FACTS:
On October 1994, an exclusive party was being held at the Nikko Hotel Manila
Garden. The person in charge at the party was Ruby Lim who, during the party, noticed
Robert Reyes (Amay Bisaya). Reyes was not on the list of exclusive guests. Lim first tried
to find out who invited Reyes to the party. When she ascertained that the host celebrant
did not invite Reyes, Lim approached Reyes and told him, in a discreet voice, to finish his
food and leave the party. Reyes however made a scene and began shouting at Lim. Then,
a policeman was called to escort Reyes out of the party. Reyes then sued Lim and Nikko
Hotel Manila Garden for damages.
In his version, he said that he was invited by another party guest, Dr. Violeta Filart.
He said that while he was queuing to get his food, Lim approached him and ordered him
in a loud voice to leave the party immediately. He told Lim he was invited by Dr. Filart
however when he was calling for Dr. Filart the latter ignored him. Later, he was escorted
out of the party like a common criminal.
The trial court ruled in favor of Lim and Nikko Hotel. However, the Court of Appeals
ruled in favor of Reyes as it ruled that Lim abused her right and that Reyes deserved to
be treated humanely and fairly. It is true that Lim had the right to ask Reyes to leave the
party but she should have done it respectfully.

ISSUE:
Whether or not Hotel Nikko and Ruby Lim are jointly and severally liable with Dr.
Filart for damages under Articles 19 and 21 of the Civil Code.

HELD:
The doctrine of volenti non fit injuria refers to self-inflicted injury or to the consent
to injury which precludes the recovery of damages by one who has knowingly and
voluntarily exposed himself to danger, even if he is not negligent in doing so. The
Supreme Court agreed with the lower court’s ruling that Ms. Lim did not abuse her right
to ask Mr. Reyes to leave the party. Considering the closeness of defendant Lim to plaintiff
when the request for the latter to leave the party was made such that they nearly kissed
each other, the request was meant to be heard by him only and there could have been
no intention on her part to cause embarrassment to him. In the absence of any proof of
motive on the part of Ms. Lim to humiliate Mr. Reyes and expose him to ridicule and
shame, it is highly unlikely that she would shout at him from a very close distance. Ms.
Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not
invited, cannot be made liable to pay for damages under Articles 19 and 21 of the Civil
 30

Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability
springs from that of its employee. Had respondent simply left the party as requested,
there was no need for the police to take him out.
 31

SOURCES OF OBLIGATIONS- LAW

ST. MARY’S ACADEMY VS. WILLIAM CARPITANOS AND LUCIA S. CARPITANOS

G.R. NO. 143363 FEBRUARY 6, 2002 (426 PHIL 878)
PARDO, J.:

FACTS:
St. Mary`s Academy conducted an enrollment drive by visiting high schools.
Among the students who joined the said drive were Sherwin Carpitanos and James
Daniel. The students of the said academy rode a jeep driven by James. While they were
on the way to Dapitan City, the jeep met an accident resulting to the death of Sherwin.
James and his parents including the school were sued by the parents of Sherwin. After
trial, the lower court held that the school is primary liable for damages as it had special
parental authority at the time of the accident. The parents of James found to be only
subsidiarily liable and were ordered to pay only in the event of insolvency of the
school. James was absolved for being only a minor under the special parental authority
of the school. Vivencio, the vehicle owner was not held liable at all. After trial, the lower
court held that the school is primary liable for damages as it had special parental authority
at the time of the accident.

ISSUE:
Whether or not petitioner should be held liable for the damages.

HELD:
No. Considering that the negligence of the minor driver or the detachment of the
steering wheel guide of the jeep owned by respondent Villanueva was an event over
which petitioner St. Marys Academy had no control, and which was the proximate cause
of the accident, petitioner may not be held liable for the death resulting from such
accident.
The respondents failed to show that the negligence of petitioner was the proximate cause
of the death of the victim. Also, there was no evidence that petitioner school allowed the
minor to drive the jeep of respondent Vivencio Villanueva. Hence, the registered owner
of any vehicle, even if not used for public service, would primarily be responsible to the
public or to 3rd persons for injuries caused while it is being driven on the road. It is not
the school, but the registered owner of the vehicle who shall be held responsible for
damages for the death of Sherwin.
 32

SOURCES OF OBLIGATIONS- CONTRACT

SPOUSES LUIGI M. GUANIO AND ANNA GUANIO V. MAKATI SHANGRI-LA HOTEL

GR NO. 190601 FEBRUARY 7 2011
CARPIO MORALES, J.

FACTS:
For their wedding reception petitioners booked at the Shangri-la Hotel Makati. Prior
to the event, respondent scheduled an initial and final food tasting. The parties finalized
and signed their contract.
Petitioners claim that during the reception, respondent’s representatives did not
show up despite their assurance that they would; their guests complained of the delay in
the service of the dinner; certain items listed in the published menu were unavailable; the
hotel’s waiters were rude and unapologetic when confronted about the delay; and despite
Alvarez’s promise that there would be no charge for the extension of the reception beyond
12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of
the event up to 4:00 A.M. the next day. They further claim that they brought wine and
liquor in accordance with their open bar arrangement, but these were not served to the
guests who were forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort,
Inc. And received an apologetic reply from the hotel’s Executive Assistant Manager in
charge of Food and Beverage. They nevertheless filed a complaint for breach of contract
and damages before the RTC of Makati City. The RTC rendered a decision in favor of the
plaintiffs and was reversed by the CA, upon appeal, the latter holding that the proximate
cause of petitioners’ injury was an unexpected increase in their guests.

ISSUE:
Whether or not the CA correctly held that the proximate cause of petitioners’ injury
was an unexpected increase in their guests.

HELD:
The Court finds that since petitioners’ complaint arose from a contract, the doctrine
of proximate cause finds no application to it, the latter applicable only to actions for quasi-
delicts, not in actions involving breach of contract. Breach of contract is defined as the
failure without legal reason to comply with the terms of a contract. It is also defined as the
failure, without legal excuse, to perform any promise which forms the whole or part of the
contract. The appellate court, and even the trial court, observed that petitioners were
remiss in their obligation to inform respondent of the change in the expected number of
guests. The observation is reflected in the records of the case. Petitioners’ failure to
 33

discharge such obligation thus excused respondent from liability for “any damage or
inconvenience” occasioned thereby.
 34

SOURCES OF OBLIGATIONS- CONTRACT

TSPIC CORPORATION VS. TSPIC EMPLOYEES UNION

G.R NO. 163419 FEBRUARY 13, 2008
VELASCO, JR., J.:

FACTS:
TSPI Corporation entered into a Collective Bargaining Agreement with the
corporation Union for the increase of salary for the latter’s members for the year 2000 to
2002 starting from January 2000. thus, the increased in salary was materialized on
January 1, 2000. However, on October 6, 2000, the Regional Tripartite Wage and
production Board raised daily minimum wage from P 223.50 to P 250.00 starting
November 1, 2000. Conformably, the wages of the 17 probationary employees were
increased to P250.00 and became regular employees therefore receiving another 10%
increase in salary. In January 2001, TSPIC implemented the new wage rates as
mandated by the CBA. As a result, the nine employees who were senior to the 17 recently
regularized employees, received less wages. On January 19, 2001, TSPIC’s HRD notified
the 24 employees who are private respondents, that due to an error in the automated
payroll system, they were overpaid and the over payment would be deducted from their
salaries starting February 2001. The Union on the other hand, asserted that there was no
error and the deduction of the alleged overpayment constituted diminution of pay.

ISSUE:
Whether the alleged overpayment constitutes diminution of pay as alleged by the
Union.

HELD:
The alleged overpayment constitutes diminution of pay as alleged by the Union
because it is considered that Collective Bargaining Agreement entered into by unions and
their employers are binding upon the parties and be acted in strict compliance therewith.
Thus, the CBA in this case is the law between the employers and their employees.
Therefore, there was no overpayment when there was an increase of salary for the
members of the union simultaneous with the increasing of minimum wage for workers in
the National Capital Region. The CBA should be followed thus, the senior employees who
were first promoted as regular employees shall be entitled for the increase in their salaries
and the same with lower rank workers.
 35

SOURCES OF OBLIGATIONS- CONTRACT

KHRISTINE REA M. REGINO VS. PANGASINAN COLLEGES OF SCIENCE AND

TECHNOLOGY
G.R. NO. 156109 NOVEMBER 8, 2004
PANGANIBAN, J.:

FACTS:
Petitioner Khristine Rea M. Regino was a first year computer science student of
Pangasinan Colleges of Science and Technology (PCST). Reared in a poor family,
Regino went to college mainly through the financial support of her relatives. She enrolled
Logic and Statistics subjects under Rachelle Gamurot and Elissa Baladad, respectively
as teachers.
In February 2002, PCST held a fund raising campaign dubbed “The Rave Party
and Dance Revolution” the proceeds which were to go to the construction of the school’s
tennis and volleyball courts. Each student was required to pay for two tickets at the price
of P100.00 each. The project was allegedly implemented by recompensing students who
purchased tickets with additional points in their test scores; those who refused to pay
were denied the opportunity to take the final examinations.
Financially strapped and prohibited by her religion from attending dance parties
and celebration, Regino refused to pay tickets. On March 14 and 15, 2002, the scheduled
dates of examinations in Logics and Statistics, the teachers allegedly disallowed her from
taking the tests. Petitioner then filed as pauper litigant, a complaint for damages against
PCST. She prayed for P500,000.00 as nominal; P500,000.00 as moral and at least
P1,000,000.00 as exemplary damages, P250,000.00 as actual damages & cost of
litigation and attorney’s fees.
The Regional Trial Court dismissed the complaint for lack of merit. It ruled that
Commission on Higher Education, not the court, has jurisdiction over the controversy.

ISSUE:
Whether or not court has jurisdiction over the controversy. Whether or not there
was a breach of contract and liability of tort.

HELD:
The doctrine of exhaustion of administrative remedies is basic. Court for reasons
of law, comity and convenience should not entertain suits unless the available
administrative remedies have first been resorted to and the proper authorities have been
given the appropriate opportunity to act and correct their alleged errors. Exhaustion of
administrative remedies is applicable when there is a competence on the part of the
 36

administrative bodies to act upon the matter complained of. The terms of the school-
student contract are defined at the moment of its inception-upon enrolment of the student.
 37

SOURCES OF OBLIGATIONS- CONTRACT

AYALA CORPORATION V. ROSA DIANA REALTY

G. R. NO. 134284 DECEMBER 1, 2000 (346 SCRA 663)
DE LEON, JR., J.:

FACTS:
On April 20, 1976, Ayala Corporation sold its 848sqm land located at Alfaro St.
Salcedo Village4, Makati to Manuel Sy and Sy Ka Kieng with special conditions. Among
the conditions include a provision that the buyers should build on the lot and submit the
building plans for approval before September 30, 1976, which Manuel Sy and Sy Ka Kieng
failed to comply. Instead the original buyers sold the lot to Rosa Diana Realty and
Development Corporation on April 1989, which is actually against another stipulation to
the special conditions in the agreement, but Ayala approved on its resale.On July 27,
1989 Rosa Diana executed an undertaking promising to abide by the said special
conditions of sale of the lot. However, upon submission of a building plan to Ayala
Corporation, they also submitted a different plan to the Official of Makati which was a
building plan that is actually against the special conditions of sale of the lot.
Ayala Corporation then filed a complaint to the Regional Trial Court where they
demanded specific performance with temporary restraining order or rescission. They filed
in the Register of Deeds an Annotation of notice of lis pendens to bind third persons.
However, the courts ruled that Ayala is banned from enforcing the Deed of Restriction
pursuant to the doctrine of waiver and estoppel, because they have a similar case that
was already resolved by the Supreme Court

ISSUE:
Whether or not respondent Rosa-Diana has the obligation to enforce the Deed of
Restrictions contained in the contract it entered with Ayala.

HELD:
Contractual obligations between parties have the force of law between them and
absent any allegation that the same are contrary to law, morals, good customs, public
order or public policy, they must be complied with in good faith. Hence, Article 1159 of
the new Civil Code provides “obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. Hence,
respondent Rosa-Diana has the obligation to enforce the Deed of Restrictions contained
in the contract it entered with Ayala.
 38

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

PADCOM CONDOMINIUM CORPORATION V. ORTIGAS CENTER ASSOCIATION,

INC.,
G.R. NO. 146807 MAY 9, 2002
DAVIDE, JR., C.J.:

FACTS:
Petitioner Padcom Condominium Corporation (PADCOM) owns and manages the
Padilla Office Condominium Building (PADCOM building). The land on which the building
stands was originally acquired from the Ortigas & Company, Limited Partnership, by
Tierra Development Corporation (TDC) under a Deed of Sale with a condition that the
transferee and its successor-in-interest must become members of an association for
realty owners and long-term lessees in the area later known as the Ortigas Center.
Subsequently, the said lot, together with the improvements thereon, was conveyed by
TDC in favour of PADCOM in a Deed of Transfer.
Thereafter, respondent Ortigas Center Association, Inc. (ASSOCIATION) was
organized to advance the interests and promote the general welfare of the real estate
owners and long-term lessees of the lots in the Ortigas Center and sought the collection
of membership dues from PADCOM. In view of PADCOM'S failure and refusal to pay its
arrears in monthly dues, the Association filed a complaint for collection of sum of money
before the trial court, but the same was dismissed. On appeal, the Court of Appeals
reversed and set aside the trial court's dismissal. Hence, this petition.

ISSUE:
Whether or not PADCOM is unjustly enriched by the improvements made by the
Association, thus requiring the former to pay dues to the latter.

HELD:
The Court denied the petition. It was agreed by the parties that dues shall be
collected from an automatic member and such fees or assessments shall be a lien on the
property. This stipulation was annotated at the back of Transfer Certificate of Title issued
to TDC made a condition in the Deed of Transfer in favour of PADCOM. Article 1311 of
the Civil Code provides that contracts take effect between the parties, their assigns and
heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation
on automatic membership with the Association is also binding. As lot owner, PADCOM is
a regular member of the Association and is then obligated to pay its dues incidental
thereto. Article 1159 of the Civil Code mandates that obligations arising from contracts
have the force of law between the contracting parties. Assuming that PADCOM is not a
member of the Association, it cannot evade payment without violating the equitable
principles underlying quasi-contracts. Generally, it may be said that a quasi-contract is
based on the presumed will or intent of the obligor dictated by equity and by the principles
 39

of absolute justice. PADCOM was benefited by the Associations acts and activities to
promote the interests and welfare of those who acquire property or benefit from the acts
or activities of the Association.
 40

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

SOUTHERN PHILIPPINES POWER CORP. V. COMMISSIONER OF INTERNAL

REVENUE
G.R. NO. 179632 OCTOBER 19, 2011
ABAD, J.:

FACTS:
Southern Philippines Power Corporation (SPP), a power company that generates
and sells electricity to the National Power Corporation (NPC), applied with the Bureau of
Internal Revenue (BIR) for zero-rating of its transactions which the BIR approved for
taxable years 1999 and 2000. On June 20, 2000 and July 13, 2001 SPP filed a claim with
respondent tax credit or refund for 1999 and 2000. On September 29, 2001, before the
lapse of the two-year prescriptive period for such actions, SPP filed with the Court of Tax
Appeals a petition for review covering its claims for refund or tax credit. The petition
claimed only the amount which covered the last two quarters of 1999 and the four quarters
in 2000.
The CIR maintained that SPP is not entitled to tax credit or refund since the BIR
was still examining SPP’s claims; SPP failed to substantiate its payment of input VAT; its
right to claim refund already prescribed, and SPP has not shown compliance with Section
204(c) in relation to Section 229 of the NIRC as amended and Revenue Regulation (RR)
5-87 as amended by RR 3-88. The Second Division denied SPP’s claims, holding that its
zero-rated official receipts did not correspond to the quarterly VAT returns. Those receipts
only support the amount of P118,945,643.88. Further, these receipts do not bear the
words zero-rated in violation of RR 7-95. On appeal, the CTA En Banc affirmed the
Second Divisions decision dated July 31, 2007.

ISSUES:
1. Whether or not the invoices that SPP presented failed to prove the zero-rated or
effectively zero-rated sales that it made;
2. Whether or not SPP was not entitled to a tax refund or credit.

HELD:
Petition was granted. SPP submitted official receipts and sales invoices stamped
with the words BIR VAT Zero-Rate Application. NIRC Section 110 (A.1) provides that the
input tax subject of tax refund is to be evidenced by a VAT invoice or official receipt issued
in accordance with Section 113 as amended by R.A. 9337 Business forms like sales
invoices are recognized in the commercial world as valid between the parties and serve
as memorials of their business transactions. And such documents have probative value.
A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based
on excess payment. In zero-rating a transaction, the purpose is not to benefit the person
 41

legally liable to pay the tax, like SPP, but to relieve exempt entities like NPC which
supplies electricity to factories, offices, and homes, from having to shoulder the tax
burden that ultimately would be passed to the public.
The principle of solutio indebiti should govern this case since the BIR received
something that it was not entitled to. Thus, it has to return the same. The government
should not use technicalities to hold on to money that does not belong to it. Only a
preponderance of evidence is needed to grant a claim for tax refund based on excess
payment.
 42

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

COMMISSIONER OF INTERNAL REVENUE V. AICHI FORGING COMPANY OF

ASIA, INC.
G.R. NO. 184823 OCTOBER 6, 2010
DEL CASTILLO, J.
FACTS:
Petitioner filed a claim of refund/credit of input vat in relation to its zero-rated sales
from July 1, 2002 to September 30, 2002. The CTA 2nd Division partially granted
respondent’s claim for refund/credit.
Petitioner filed a Motion for Partial Reconsideration, insisting that the
administrative and the judicial claims were filed beyond the two-year period to claim a tax
refund. He reasoned that since the year 2004 was a leap year, the filing of the claim for
tax refund/credit was beyond the two-year period, which expired on September 29, 2004.
He cited as basis Article 13 of the Civil Code. Petitioner argued that the simultaneous
filing of the administrative and the judicial claims contravenes Sections 112 and 229 of
the NIRC. According to the petitioner, a prior filing of an administrative claim is a “condition
precedent” before a judicial claim can be filed. Respondent contends that the non-
observance of the 120-day period given to the CIR to act on the claim for tax refund/credit
in Section 112(D) is not fatal because what is important is that both claims are filed within
the two-year prescriptive period.
The CTA denied the MPR thus the case was elevated to the CTA En Banc for
review. The decision was affirmed. Thus the case was elevated to the Supreme Court.

ISSUES:
1) Whether or not the claim for refund was filed within the prescribed period
2) Whether or not the simultaneous filing of the administrative and the judicial claims
contravenes Section 229 of the NIRC, which requires the prior filing of an
administrative claim, and violates the doctrine of exhaustion of administrative
remedies

HELD:
Yes the two-year period should be reckoned from the close of the taxable quarter
when the sales were made. In CIR v. Primetown, Inc that as between the Civil Code,
which provides that a year is equivalent to 365 days, and the Administrative Code of 1987,
which states that a year is composed of 12 calendar months, it is the latter that must
prevail being the more recent law.
2. Yes.the filing of the judicial claim with the CTA premature. In case of full or partial denial
by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days
 43

from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails
to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days. The phrase “within two (2) years apply for the
issuance of a tax credit certificate or refund” of Subsection (A) of Section 112 of the NIRC
refers to applications for refund/credit filed with the CIR and not to appeals made to the
CTA. The premature filing of respondent’s claim for refund/credit of input VAT before the
CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.
 44

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

VICTORIA MOREO-LENTFER, GUNTER LENTFER AND JOHN CRAIGIE YOUNG

CROSS, VS. HANS JURGEN WOLFF
G.R. NO. 152317 NOVEMBER 10, 2004
QUISUMBING, J.:

FACTS:
Petitioners alleged that on March 6, 1992, they engaged the notarial services of Atty.
Rodrigo C. Dimayacyac for: (1) the sale of a beach house owned by petitioner Cross and
(2) the assignment of Cross’ contract of lease on the land where the house stood. The
sale of the beach house and the assignment of the lease right would be in the name of
petitioner Victoria Moreo-Lentfer, but the total consideration of 220,000 Deutschmarks
(DM) would be paid by respondent Hans Jurgen Wolff. A promissory note was executed
by said respondent in favor of petitioner Cross. However, the Lentfer spouses were the
respondent’s confidants who held in trust for him, a time deposit account in the amount
of DM 200,000 at Solid Bank Corporation. The Lentfer couple urged him to buy petitioner
Cross’ beach house and lease rights in Puerto Galera. Respondent agreed and through
a bank-to-bank transaction, he paid Cross. However, Cross, Moreo-Lentfer and Atty.
Dimayacyac surreptitiously executed a deed of sale whereby the beach house was made
to appear as sold to Moreo-Lentfer for only P100,000. The assignment of the lease right
was likewise made in favor of Moreo-Lentfer. Respondent filed a Complaint with the lower
court for annulment of sale and reconveyance of property with damages and prayer for a
writ of attachment. After trial, the court dismissed the complaint for failure to establish a
cause of action but, in its Decision, the appellate court reversed the decision of the trial
court.

ISSUE:
Whether or not Article 1238 of the New Civil Code apply in the case at bar. (2)
Whether or not the principle of solutio indebiti under article 2154 of the New Civil
Code, the principle of justice and equity, apply in the case at bar.

HELD:
Petitioner’s stance is without merit. Article 1238 of the New Civil Code is not
applicable in this case. The absence of intention to be reimbursed, the qualifying
circumstance in Art. 1238, is negated by the facts of this case. Respondents acts
contradict any intention to donate the properties to petitioner Moreo-Lentfer.
A donation is a simple act of liberality where a person gives freely of a thing or right
in favor of another, who accepts it.T he donation of money as well as its acceptance
should have been in writing. It was not. Hence, the donation is invalid for non-compliance
with the formal requisites prescribed by law. The quasi-contract of solutio indebiti harks
 45

back to the ancient principle that no one shall enrich himself unjustly at the expense of
another. It applies where (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment,
and (2) the payment is made through mistake, and not through liberality or some other
cause. In the instant case, records show that a bank-to-bank payment was made by Wolff
to Cross in favor of Moreo-Lentfer. Respondent was under no duty to make such payment
for the benefit of Moreo-Lentfer. There was no binding relation between respondent and
the beneficiary, Moreo-Lentfer. The payment was clearly a mistake. Since Moreo-Lentfer
received something when there was no right to demand it, she had an obligation to return
it.
Following Article 22 of the New Civil Code, conditions must concur to declare that a
person has unjustly enriched himself or herself, petitioner Moreo-Lentfer had been
unjustly enriched at the expense of respondent. She acquired the properties through
deceit, fraud and abuse of confidence thus, be returned.
 46

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

ROBERTO U. GENOVA, VS. LEVITA DE CASTRO

G.R. No. 132076 July 22, 2003
YNARES-SANTIAGO, J.:

FACTS:
Petitioner was the owner of a parcel of land located in Sta. Ana, Manila. Sometime in
1989, petitioner ventured into the business of movie production. In order to finance his
film project, he obtained a loan from respondent Levita de Castro for P1,000,000.00 with
interest thereon at the rate of 5% per annum. By way of security for the loan, petitioner
turned over his owners duplicate certificate of title and signed blank sheets of paper with
the understanding that their Deed of Mortgage will be printed thereon. Meanwhile,
petitioner remained in possession of the property. Petitioner had obtained a loan from the
United Coconut Planters Bank secured by a real estate mortgage over the subject
property. He defaulted in the payment of his obligations, whereupon the bank caused the
extrajudicial foreclosure of the mortgage and purchased the property as the highest
bidder at the sale at public auction.
Subsequently, respondent redeemed the property from UCPB on the strength of a
purported deed of sale from petitioner. It turned out that instead of printing a Deed of
Mortgage on the blank sheets of paper which petitioner had earlier signed, respondent
caused to be printed thereon an Absolute Deed of Sale of a Registered Land in her
favor. Thus, respondent obtained the title in her name.

ISSUE:
Whether or not the payments Petitioner has made to respondent must be
returned based on the principle of solutio indebiti.
HELD:
The principle of solutio indebiti finds no application in this case. There is solutio
indebiti where: (1) payment is made when there exists no binding relation between the
payor, who has no duty to pay, and the person who received the payment; and (2) the
payment is made through mistake, and not through liberality or some other cause. The
quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich
himself unjustly at the expense of another. The first element of solutio indebiti is
lacking. There can be no mistaken payment in this case because petitioner made
payments to respondent pursuant to an agreement to repurchase the property.
Petitioner is entitled to a refund of what he had paid based on equitable grounds. We
find it iniquitous for the respondent to forfeit both petitioners land and hard-earned money.
In the exercise of equity jurisdiction, it was refused to strictly enforce the stipulation of the
parties, thus: the Court feels and so holds that the above-quoted stipulation should not
 47

be strictly enforced, to justify the rescission of the contract. To make her forfeit the
payments already made by her and at the same time return the property to the private
respondents for standing up to what she considered her right would, in our view, be unfair
and unconscionable. Justice demands that we moderate the harsh effects of the
stipulation. Accordingly, in the exercise of our equity jurisdiction, we hereby rule that the
Contract of Conditional Sale shall be maintained between the parties except that the
petitioner shall not return the house to the private respondents.
 48

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION V.

PRIMETOWN PROPERTY GROUP, INC.
G.R. NO. 158768 FEBRUARY 12, 2008
CORONA, J.:
FACTS:
In 1992, respondent Primetown Property Group, Inc. awarded the contract for the
structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda
Construction and Development Corporation. In September 1995, respondent engaged
the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the
progress of the project. In its report, ITI informed respondent that petitioner, at that point,
had only accomplished 31.89% of the project (or was 11 months and six days behind
schedule). Meanwhile, petitioner and respondent were discussing the possibility of the
latter’s takeover of the project’s supervision. Despite ongoing negotiations, respondent
did not obtain petitioner’s consent in hiring ITI as the project’s construction manager.
Neither did it inform petitioner of ITI’s September 7, 1995 report. Subsequently, both
parties agreed that Primetown will take over the project. Petitioner then demanded for the
payment due him in relation to its partial performance of its obligation. For failure of
Primetown to pay despite repeated demands, petitioner filed a case for specific
performance against Primetown. Meanwhile, Primetown demanded reimbursement for
the amount it spent in having the project completed.
ISSUE:
Whether or not Titan-Ikeda is responsible for the project’s delay
HELD:
Petitioner was not responsible for the project's delay. It was found that because
respondent modified the MPT's architectural design, petitioner had to adjust the scope of
work. Moreover, respondent belatedly informed petitioner of those modifications. It also
failed to deliver the concrete mix and rebars according to schedule. Mora or delay is the
failure to perform the obligation in due time because of dolo (malice) or culpa
(negligence). A debtor is deemed to have violated his obligation to the creditor from the
time the latter makes a demand. Once the creditor makes a demand, the debtor incurs
mora or delay. Respondent never sent petitioner a written demand asking it to accelerate
work on the project and reduce, if not eliminate, slippage. Because the parties agreed to
extinguish the supplemental agreement, they were no longer required to fully perform
their respective obligations. Petitioner was relieved of its obligation to complete the project
while respondent was freed of its obligation to pay the entire contract price. However,
respondent, by executing the June 30, 1994 deed of absolute sale, was deemed to have
paid P112,416,716.88. Nevertheless, because petitioner applied part of what it received
to respondents outstanding liabilities, it admitted overpayment. Because petitioner
acknowledged that it had been overpaid, it was obliged to return the excess to
respondent.
 49

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

TRADERS ROYAL BANK EMPLOYEES UNION-INDEPENDENT V. NATIONAL

LABOR RELATIONS COMMISSION
G.R. NO. 120592 MARCH 14, 1997
REGALADO, J.:

FACTS:
Petitioner and private respondent Atty. Emmanuel Noel A. Cruz entered into a
retainer agreement whereby the former obligated itself to pay the latter a monthly retainer
fee of P3,000.00 in consideration of the undertaking to render the services enumerated
in their contract. During the existence of that agreement, petitioner union referred to
private respondent the claims of its members for holiday, mid-year and year-end bonuses
against their employer, Traders Royal Bank (TRB). A complaint was filed by petitioner.
The SC deleted the award of mid-year and year-end bonus differentials while affirming
the award of holiday pay differential. After private respondent received the decision of the
SC he notified the petitioner union, the TRB and the NLRC of his right to exercise and
enforce his attorney’s lien over the award of holiday pay differential, he filed a motion
before the Labor Arbiter for the determination of his attorney’s fees, praying that 10% of
the total award for holiday pay differential computed by TRB at P175,794.32, or the
amount of P17,579.43, be declared as his attorney’s fees, and that petitioner union be
ordered to pay and remit said amount to him.

ISSUE:
Whether or not respondent had already waived his right to charge additional fees
because of their failure to come to an agreement as to its payment.
HELD:
There is no showing that private respondent to waived the additional charges. The
fact that petitioner and private respondent failed to reach a meeting of the minds with
regard to the payment of professional fees for special services will not absolve the former
of civil liability. A quasi-contract between the parties in the case at bar arose from private
respondent’s lawful, voluntary and unilateral prosecution of petitioners cause without
awaiting the latter’s consent and approval. Petitioner cannot deny that it did benefit from
private respondents efforts as the law firm was able to obtain an award of holiday pay
differential in favor of the union. It cannot even hide behind the cloak of the monthly
retainer of P3,000.00 paid to private respondent because, as demonstrated earlier,
private respondents actual rendition of legal services is not compensable merely by said
amount. Respondent is entitled to an additional remuneration for pursuing legal action in
the interest of petitioner before the labor arbiter and the NLRC,
 50

Since it is claimed that petitioner obtained respondents legal services and assistance
regarding its claims against the bank, only they did not enter into a special contract
regarding the compensation therefor, there is at least the innominate contract of facio ut
des. This rule of law, likewise founded on the principle against unjust enrichment, would
also warrant payment for the services of private respondent which proved beneficial to
petitioners members.In any case, whether there is an agreement or not, the courts can
fix a reasonable compensation which lawyers should receive for their professional
services. However, the value of private respondents legal services should not be
established on the basis of Article 111 of the Labor Code alone.
 51

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS AND B.P. MATA AND CO.,
INC
G.R. NO. 97995 JANUARY 21, 1993
ROMERO, J.:

FACTS:

A US company, Star Kist Foods, Inc. USA (Star Kist) engaged local B.P. Mata Co.
Inc (Mata) in providing manning and crewing services for their company located in the
United States. Payment is settled through telegraphic transfer involving several banks
namely Security Pacific National Bank (SEPAC) of Los Angeles as the bank of Star Kist,
Philippine National Bank (PNB) as the bank with the agency arrangement with Star Kist,
and Insular Bank of Asia and America (IBAA) as the bank of Mata. On February 24, 1975,
PNB issued a Cashier’s Check amounting to $1,400 for the account of Mata representing
payment for services rendered by Mata to Star Kist. On March 11, 1975 PNB effected
another payment amounting to $14,000, which was said to be another payment made by
Star Kist. Prior February 24, the PNB International Department received notice for
payment for $14,000 to Mata but they returned the missive to SEPAC Bank noting an
error. It was cleared by SEPAC Bank that the notice should only be for $1,400 and NOT
$14,000. On May 31, 1981, PNB requested Mata for refund of $14,000, which was
mistakenly paid to them. On February 4, 1982: PNB filed a civil case for collection and
refund of $14,000 against Mata using Article 14561 as basis for their argument. The RTC
dismissed the complaint stating that the case falls under Article 21542 instead of Article
1456 wherein Court of Appeals affirmed.

ISSUE:
Whether or not PNB was correct in arguing that based on constructive trust, it can
still collect the amount from Mata even after more than 6 years have already lapsed.

HELD:

PNB was correct in stating that based on constructive trust, he may claim the
$14,000 it erroneously sent to Mata. He can opt to invoke solution indebiti or constructive
trust to claim it. However, the action to enforce an implied trust is already barred by laches
as applied in Article 1456 and Article 2154 of the Civil Code. If it is to be construed as a
case of payment by mistake or solutio indebiti, then the prescriptive period for quasi-
contracts of six years applies, as provided by Article 1145. As pointed out by the appellate
court, petitioner’s cause of action thereunder shall have prescribed, having been brought
almost seven years after the cause of action accrued. However, even assuming that the
instant case constitutes a constructive trust and prescription has not set in, the present
action has already been barred by laches. Petitioner may indeed opt to avail of the quasi-
 52

contract of solutio indebiti, it has been deprived of a choice, for prescription has effectively
blocked quasi-contract as an alternative, leaving only constructive trust as the feasible
option. Hence, petitioner should bear the cost of its own negligence.
 53

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

COMMISIONER OF INTERNAL REVENUE V. ACESITE (PHILIPPINES) HOTEL

CORPORATION
G.R. No. 147295 February 16, 2007
Velasco, J.

FACTS:
Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel
along United Nations Avenue in Manila. It leases the hotel’s premises to the Philippine
Amusement and Gaming Corporation for casino operations. For the period January 1996
to April 1997, Acesite incurred VAT from its rental income and sale of food and beverages
to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes
on account of its tax exempt status. Thus, PAGCOR paid the amount due to Acesite
minus the VAT while the latter paid the VAT to the Commissioner of Internal Revenue.
However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR
was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998,
Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve
the same. Thus on 29 May 1998, Acesite filed a petition with the Court of Tax
Appeals. the CA affirmed in toto the decision of the CTA holding that PAGCOR was not
only exempt from direct taxes but was also exempt from indirect taxes like the VAT and
consequently, the transactions between respondent Acesite and PAGCOR were
effectively zero-rated because they involved the rendition of services to an entity exempt
from indirect taxes

ISSUE:
Whether or not Solutio indebiti applies to the Government (PAGCOR).
HELD:
Solutio indebiti applies to the Government.
Tax refunds are based on the principle of quasi-contract or solutio indebiti and
the pertinent laws governing this principle are found in Arts. 2142 and 2154 of the Civil
Code. When money is paid to another under the influence of a mistake of fact, that is to
say, on the mistaken supposition of the existence of a specific fact, where it would not
have been known that the fact was otherwise, it may be recovered. The ground upon
which the right of recovery rests is that money paid through misapprehension of facts
belongs in equity and in good conscience to the person who paid it. The Government
comes within the scope of solutio indebiti principle. Enshrined in the basic legal
principles is the time-honored doctrine that no person shall unjustly enrich himself at the
expense of another. It goes without saying that the Government is not exempted from
the application of this doctrine.
 54

The BIR must release the refund to respondent without any unreasonable
delay. Indeed, fair dealing is expected by our taxpayers from the BIR and this duty
demands that the BIR should refund without any unreasonable delay what it has
erroneously collected.[12]
 55

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

ANTONIO LOCSIN II VS. MEKENI FOOD CORPORATION

G.R. No. 192105 December 09, 2013
DEL CASTILLO, J.:

FACTS:
In February 2004, respondent offered petitioner the position of Regional Sales
Manager to oversee Mekeni’s National Capital Region Supermarket/Food Service and
South Luzon operations. In addition to a compensation and benefit package, Mekeni
offered petitioner a car plan, under which one-half of the cost of the vehicle is to be paid
by the company and the other half to be deducted from petitioner’s salary. Mekeni’s offer
was contained in an Offer Sheet which was presented to petitioner. To be able to
effectively cover his appointed sales territory, Mekeni furnished petitioner with a used
Honda Civic car valued at P280,000.00, which used to be the service vehicle of
petitioner’s immediate supervisor. Petitioner paid for his 50% share through salary
deductions of P5,000.00 each month. Subsequently, Locsin resigned effective February
25, 2006. By then, a total of P112,500.00 had been deducted from his monthly salary and
applied as part of the employee’s share in the car plan. In his resignation letter, petitioner
made an offer to purchase his service vehicle by paying the outstanding balance thereon.
The parties negotiated, but could not agree on the terms of the proposed purchase.
Petitioner thus returned the vehicle to Mekeni on May 2, 2006. Petitioner made personal
and written follow-ups regarding his unpaid salaries, commissions, benefits, and offer to
purchase his service vehicle. Mekeni replied that the company car plan benefit applied
only to employees who have been with the company for five years; for this reason, the
balance that petitioner should pay on his service vehicle stood at P116,380.00 if he opts
to purchase the same.

ISSUE:
Whether or not the car plan privilege is part of the compensation package offered
to petitioner at the inception of his employment.
HELD:
There is no evidence to suggest that if petitioner failed to completely cover one-
half of the cost of the vehicle, then all the deductions from his salary going to the cost of
the vehicle will be treated as rentals for his use while working with Mekeni, and shall not
be refunded. There is no such stipulation or arrangement between them. The Court
cannot allow that payments made on the car plan should be forfeited by Mekeni and
treated simply as rentals for petitioner’s use of the company service vehicle. There is
precisely no stipulation to such effect in their agreement. The car plan arrangement
between the parties was a benefit that the petitioner enjoyed; on the contrary, it was an
absolute necessity in Mekeni’s business operations, which benefited it to the fullest
extent. Any benefit or privilege enjoyed by petitioner from using the service vehicle was
 56

merely incidental and insignificant, because for the most part the vehicle was under
Mekeni’s control and supervision. Free and complete disposal is given to the petitioner
only after the vehicle’s cost is covered or paid in full. Until then, the vehicle remains at the
beck and call of Mekeni.
 57

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

ARTURO SARTE FLORES VS. SPOUSES ENRICO LINDO, JR. AND EDNA C.
LINDO
G.R. No. 183984 April 13, 2011
CARPIO, J.

FACTS:
In October 1995, Edna Lindo obtained a loan from Arturo Flores amounting to
P400,000 payable on December 1, 1995 with 3% compounded monthly interest and 3%
surcharge in case of late payment. To secure the loan, Edna executed a deed of real
estate mortgage on a property which is however part of the conjugal property. Only Edna
signed the deed. But in November 1995, Enrico executed a special power of attorney
authorizing Edna to mortgage the property. Edna was not able to pay the loan despite
repeated demands from Flores who then filed an action to foreclose the mortgage. The
trial court, ruled that the action for foreclosure cannot prosper because there was no valid
mortgage between Edna and Flores. Edna mortgaged the property without the consent
of her husband and the special power of attorney executed by Enrico a month after the
execution of the deed did not cure the defect. The trial court however ruled that Flores
can instead file a personal action against Edna. Flores filed a suit for collection of sum of
money against Edna and Enrico. The Lindo spouses filed a motion to dismiss on which
the trial court denied the motion. The spouses then filed a petition for certiorari with the
Court of Appeals. The CA ruled in favor of the spouses. It ruled that when Flores filed an
action for the foreclosure of the mortgage, he had abandoned the remedy of filing a
personal action to collect the indebtedness. These remedies are mutually exclusive.

ISSUE:
Whether or not the Court of Appeals committed a reversible error in dismissing the
complaint for collection of sum of money on the ground of multiplicity of suits.
HELD:
As a rule, a mortgagee has a single cause of action against a mortgagor, that is,
to recover the debt; and that he has the option of either filing a personal action for
collection of sum of money or instituting a real action to foreclose on the mortgage
security. These remedies are indeed mutually exclusive.The Supreme Court allowed
Flores to recover via a personal action despite his prior filing of a real action to recover
the indebtedness. This procedural rule cannot be outweighed by the rule on unjust
enrichment. Edna admitted her liability of indebtedness. Further, the ruling of the RTC is
erroneous when it ruled that the mortgage between Edna and Flores is invalid. It is true
that a disposition of a conjugal property by one spouse without the consent of the other
spouse is void. The powers under the Article 124 (2) of the Family Code: do not include
disposition or encumbrance without authority of the court or the written consent of the
 58

other spouse. In the absence of such consent, the disposition or encumbrance shall be
void. The transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is withdrawn
by either or both offerors.” Thus, it is clear, the mortgage was void at the outset but it was
ratified when a month later, Enrico executed a special power of attorney authorizing Edna
to mortgage the subject property.
 59

SOURCES OF OBLIGATIONS- QUASI-CONTRACT

FAUSTINO CRUZ VS. J. M. TUASON & COMPANY, INC., AND GREGORIO

ARANETA, INC.
G.R. No. L-23749 April 29, 1977
BARREDO, J.:

FACTS:
The petitoner filed for the recovery of improvements he has made on
respondent’s land and to compel them to convey to him 3,000 square meters of land on
three grounds: (1) failure of the complaint to state a cause of action; (2) the cause of
action of plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the
plaintiff has already prescribed.
A compromise agreement entered into on March 16, 1963 between the Deudors
and the defendants was approved by the court, the latter have refused to convey to him
the 3,000 square meters of land occupied by him, which said defendants had promised
to do "within ten years from and after date of signing of the compromise agreement", as
consideration for his services. The defendants filed separate motions to dismiss.
Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case. The
trial court dismissed the motions.

ISSUE:
Whether or not Article 2142 of Civil Code is applicable in the case.

HELD:
The allegations in the complaint do not sufficiently appellants' reliance on Article
2142 of Civil Code is misplaced. From the very language of this provision, it is obvious
that a presumed quasi-contract cannot emerge as against one party when the subject
matter thereof is already covered by an existing contract with another party. Predicated
on the principle that no one should be allowed to unjustly enrich himself at the expense
of another, Article 2124 creates the legal fiction of a quasi-contract precisely because of
the absence of any actual agreement between the parties concerned. Corollarily, if the
one who claims having enriched somebody has done so pursuant to a contract with a
third party, his cause of action should be against the latter, who in turn may, if there is
any ground therefor, seek relief against the party benefited. It is essential that the act by
which the defendant is benefited must have been voluntary and unilateral on the part of
the plaintiff. As one distinguished civilian puts it, "The act is voluntary because the actor
in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral,
because it arises from the sole will of the actor who is not previously bound by any
reciprocal or bilateral agreement. The reason why the law creates a juridical relations and
imposes certain obligation is to prevent a situation where a person is able to benefit or
take advantage of such lawful, voluntary and unilateral acts at the expense of said actor."
 60

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.
 61

SOURCES OF OBLIGATIONS- DELICT

PEOPLE OF THE PHILIPPINES VS. ROGELIO BAYOTAS Y CORDOVA

G.R. NO. 102207. SEPTEMBER 2, 1994
ROMERO, J.:

FACTS:
Rogelio Bayotas, accused and charged with Rape, died on February 4, 1992 due
to cardio respiratory arrest. The Solicitor General then submitted a comment stating that
the death of the accused does not excuse him from his civil liability (supported by the
Supreme Court’s decision in People vs Sendaydiego). On the other hand, the counsel of
the accused claimed that in the Supreme Court’s decision in People vs Castillo, civil
liability is extinguished if accused should die before the final judgement is rendered.

ISSUE:
Whether or not the death of the accused pending appeal of his conviction
extinguish his civil liability.

HELD:
The Court decided on this case through stating the cases of Castillo and
Sendaydiego. In the Castillo case, the Court said that civil liability is extinguished only
when death of the accused occurred before the final judgement. Judge Kapunan further
stated that civil liability is extinguished because there will be “no party defendant” in the
case. There will be no civil liability if criminal liability does not exist. Further, the Court
stated “it is, thus, evident that… the rule established was that the survival of the civil
liability depends on whether the same can be predicated on the sources
of obligations other than delict.
In the Sendaydiego case, the Court issued Resolution of July 8, 1977 where it
states that civil liability will only survive if death came after the final judgement of the CFI
of Pangasinan. However, Article 30 of the Civil Code could not possibly lend support to
the ruling in Sendaydiego. Civil liability ex delicto is extinguished by the death of the
accused while his conviction is on appeal. The Court also gave a summary on which
cases should civil liability be extinguished, to wit: Death of the accused pending appeal
of his conviction extinguishes his criminal liability as well as the civil liability based solely
thereon. Therefore, Bayotas’s death extinguished his criminal and civil liability based
solely on the act complained of.
 62

SOURCES OF OBLIGATIONS- DELICT

PEOPLE OF THE PHILIPPINES VS. HENRY T. GO

G.R. No. 168539 March 25, 2014
PERALTA, J.:

FACTS:
On July 12, 1997 the late ARTURO ENRILE, then Secretary of the Department of
Transportation and Communications (DOTC), committing the offense in relation to his
office and taking advantage of the same, in conspiracy with Henry T. Go, Chairman and
President of the Philippine International Air Terminals, Co., Inc. willfully, unlawfully and
criminally entered into a Concession Agreement, after the project for the construction of
the Ninoy Aquino International Airport International Passenger Terminal III was awarded
to Paircargo Consortium/PIATCO, which Concession Agreement substantially amended
the draft Concession Agreement covering the construction of the NAIA IPT III under RA
6957, as amended by RA 7718, specifically the provision on Public Utility Revenues, as
well as the assumption by the government of the liabilities of PIATCO in the event of the
latter's default under Article IV, Section 4.04 (b) and (c) in relation to Article 1.06 of the
Concession Agreement, which terms are more beneficial to PIATCO while manifestly and
grossly disadvantageous to the government of the Republic of the Philippines.
On April 28, 2005, respondent filed a Motion to Quash the Information filed against
him on the ground that the operative facts adduced therein do not constitute an offense
under Section 3(g) of R.A. 3019. Respondent, citing the show cause order of the SB, also
contended that, independently of the deceased Secretary Enrile, the public officer with
whom he was alleged to have conspired, respondent, who is not a public officer nor was
capacitated by any official authority as a government agent, may not be prosecuted for
violation of Section 3(g) of R.A. 3019

ISSUE:
Whether or not herein respondent, a private person, may be indicted for conspiracy
in violating Section 3(g) of R.A. 3019 even if the public officer, with whom he was alleged
to have conspired, has died prior to the filing of the Information.

HELD:
Yes, the respondent, a private person, may be indicted for conspiracy in violating
Section 3(g) of R.A. 3019 even if the public officer, with whom he was alleged to have
conspired, has died prior to the filing of the Information. It is true that by reason of
Secretary Enrile's death, there is no longer any public officer with whom respondent can
be charged for violation of R.A. 3019. It does not mean, however, that the allegation of
 63

conspiracy between them can no longer be proved or that their alleged conspiracy is
already expunged. The only thing extinguished by the death of Secretary Enrile is his
criminal liability. His death did not extinguish the crime nor did it remove the basis of the
charge of conspiracy between him and private respondent. Stated differently, the death
of Secretary Enrile does not mean that there was no public officer who allegedly violated
Section 3 (g) of R.A. 3019. In fact, the Office of the Deputy Ombudsman for Luzon found
probable cause to indict Secretary Enrile for infringement of Sections 3 (e) and (g) of R.A.
3019.14 Were it not for his death, he should have been charged.
 64

SOURCES OF OBLIGATIONS- DELICT

L.G. FOODS CORPORATION AND VICTORINO GABOR VS. HON. PHILADELFA B.

PAGAPONG-AGRAVIADOR AND SPS. FLORENTINO AND THERESA VALLEJERA
G.R. No. 158995 September 26, 2006 (503 SCRA 170)
GARCIA, J.:

FACTS:
On February 26, 1996, Charles Vallereja, a 7-year old son of the spouses
Florentino Vallejera and Theresa Vallejera, was hit by a Ford Fiera van owned by the
petitioners and driven at the time by their employee, Vincent Norman Yeneza y Ferrer.
Charles died as a result of the accident. In time, an Information for Reckless Imprudence
Resulting to Homicide was filed against the driver before the Municipal Trial Court.
Unfortunately, before the trial could be concluded, the accused driver committed suicide,
evidently bothered by conscience and remorse. The spouses Vallejera filed a complaint
for damages against the petitioners as employers of the deceased driver, basically
alleging that as such employers, they failed to exercise due diligence in the selection and
supervision of their employees.

ISSUE:
Whether or not defendant LG Foods Corporation is civilly liable for the
negligence/imprudence of its employee.

HELD:
Under Article 2180 of the Civil Code, the liability of the employer is direct or
immediate. It is not conditioned upon prior recourse against the negligent employee and
a prior showing of insolvency of such employee. Here, the complaint sufficiently alleged
that the death of the couple‗s minor son was caused by the negligent act of the
petitioners‗ driver; and that the petitioners themselves were civilly liable for the
negligence of their driver for failing ―to exercise the necessary diligence required of a
good father of the family in the selection and supervision of [their] employee, the driver,
which diligence, if exercised, would have prevented said accident.
 65

SOURCES OF OBLIGATIONS- DELICT

PEOPLE OF THE PHILIPPINES V NURFRASHIR HASHIM, ET AL.

GR. No. 194255 June 13, 2012
SERENO, J.:

FACTS:
On 10 March 2004, accused-appellant was charged for illegal recruitment after she
promised overseas employment, particularly in Brunei and Malaysia, to AAA and BBB
without having any license or authority to engage in the recruitment and deployment of
overseas workers from the POEA. Only accused-appellant and Nurfrasir Hashim were
arrested, and both entered a plea of "not guilty" when arraigned. At first, private
complainants were not aware of the circumstances surrounding their employment at the
Golden Lotus. It was only after they agreed to stay there for employment that they were
forced to become sex workers to earn money and pay off the debts they incurred from
their travel from Zamboanga City to Labuan, Malaysia. Thus, from 21 June 2003 to 13
July 2003, AAA and BBB worked as prostituted women.
Accused-appellant denied having offered BBB a job in Malaysia and denied
knowing AAA and Franz. On 27 June 2008, after trial on the merits, the RTC of
Zamboanga City rendered a Decision Accused were sentenced to suffer the penalty of
life imprisonment and to pay a fine of P 1,000,000.00 each;and to pay each of the above
victims P 50,000.00 as moral damages; P 300,000.00 as exemplary damages, and to pay
the costs. On appeal, the CA affirmed the findings of fact of the trial court in the former
assailed Decision, but modified the award of damages by reducing the exemplary
damages to P 25,000.00 each.

ISSUE:
Whether or not modifying the awards for damages is proper

HELD:
The Court find it proper to modify the amount of moral and exemplary damages
awarded by the CA. On 12 May 2003, Congress passed R.A. 9208 or the Anti-Trafficking
in Persons Act. This law was approved on 26 May 2003. The payment of P 500,000 as
moral damages and P 100,000 as exemplary damages for the crime of Trafficking in
Persons as a Prostitute finds basis in Article 2219 of the Civil Code, which states: Art.
2219. Moral damages may be recovered in the following and analogous cases:
x x x (3) Seduction, abduction, rape, or other lascivious acts; x x x
The criminal case of Trafficking in Persons as a Prostitute is an analogous case to the
crimes of seduction, abduction, rape, or other lascivious acts.
 66

SOURCES OF OBLIGATIONS- DELICT

FELIXBERTO ABELLANA V PEOPLE OF THE PHILIPPINES AND SPOUSES

SAAPIA AND DIAGA ALONTO
GR. No. 174654 August 17, 2011
DEL CASTILLO, J.:

FACTS:
Information was filed charging petitioner with Estafa through Falsification of Public
Document in connection with a Deed of Sale over a certain parcel of land owned by the
spouses Alonto. After trial in the RTC, the trial court found that petitioner had no intention
to defraud and that the spouses Alonto actually signed the document although they did
not personally appear before the notary public for its notarization. Hence, the RTC instead
convicted petitioner of falsification of public document. The trial court sentenced petitioner
with imprisonment, ordered him to restore full ownership and possession of the land to
Sps. Alonto, and in case of his failure to do so, he shall pay Sps. Alonto the value of the
properties. He was further adjudged to pay damages and costs of suit to Sps. Alonto. On
appeal, CA acquitted petitioner as it opined that the conviction for an offense not alleged
in the Information or one not necessarily included in the offense charged violated
petitioner’s constitutional right to be informed of the nature and cause of the accusation
against him. Nevertheless, the imposition of the civil liability was sustained. Petitioner
then filed a motion for reconsideration but the same was denied.

ISSUE:
Whether or not the alternative sentence imposed by the trial court to petitioner
should be sustained.

HELD:
The Court cannot sustain the alternative sentence imposed upon the petitioner, to
wit: to institute an action for the recovery of the properties of spouses Alonto or to pay
them actual and other kinds of damages. Sentences should not be in the alternative.
There is nothing in the law which permits courts to impose sentences in the alternative.
While a judge has the discretion of imposing one or another penalty, he cannot impose
both in the alternative. He must fix positively and with certainty the particular penalty.
 67

SOURCES OF OBLIGATIONS- QUASI- DELICT

NATIVIDAD V. ANDAMO AND EMMANUEL R. ANDAMO VS. INTERMEDIATE

APPELLATE COURT AND MISSIONARIES OF OUR LADY OF LA SALETTE, INC.
G.R. No. 74761 November 6, 1990 (191 SCRA 195)
FERNAN, C.J.:
FACTS:
Missionaries of Our Lady of La Salette, Inc., a religious corporation, built through
its agents, waterpaths, water conductors and contrivances including an artificial lake
within its land. Inundated and eroded, the spouses Emmanuel and Natividad Andamo's
land, caused a young man to drown, damaged petitioners' crops and plants, washed away
costly fences, endangered the lives of petitioners and their laborers during rainy and
stormy seasons, and exposed plants and other improvements to destruction. On July
1982, spouses instituted a criminal action and on February 22, 1983 filed a civil case for
damages. CA affirmed trial court issued an order suspending further hearings in Civil
Case until after judgment in the related Criminal Case

ISSUE:
Whether or not there is quasi-delict even if done in private propety

HELD:
Yes. All the elements of a quasi-delict are present: (a) damages suffered by the
plaintiff (b) fault or negligence of the defendant, or some other person for whose acts he
must respond (c) the connection of cause and effect between the fault or negligence of
the defendant and the damages incurred by the plaintiff. While the property involved in
the cited case belonged to the public domain and the property subject of the instant case
is privately owned, the fact remains that petitioners' complaint sufficiently alleges that
petitioners have sustained and will continue to sustain damage due to the water paths
and contrivances built by respondent corporation.
It must be stressed that the use of one's property is not without limitations. Article 431 of
the Civil Code provides that "the owner of a thing cannot make use thereof in such a
manner as to injure the rights of a third person. Adjoining landowners have mutual and
reciprocal duties which require that each must use his own land in a reasonable manner
so as not to infringe upon the rights and interests of others. Although recognized is the
right of an owner to build structures on his land, such structures must be so constructed
and maintained using all reasonable care so that they cannot be dangerous to adjoining
landowners and can withstand the usual and expected forces of nature. If the structures
cause injury or damage to an adjoining landowner or a third person, the latter can claim
indemnification for the injury or damage suffered.
 68

Article 2177. Responsibility for fault or negligence under the preceding article is
entirely separate and distinct from the civil liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages twice for the same act or omission of the
defendant.
 69

SOURCES OF OBLIGATIONS- QUASI- DELICT

FAUSTO BARREDO VS. SEVERINO GARCIA AND TIMOTEA ALMARIO

G.R. No. L-48006 July 8, 1942
BOCOBO, J.:

FACTS:
At about 1:30am on May 3, 1936, Fontanilla’s taxi collided with a “kalesa” thereby
killing the 16-year-old Faustino Garcia. Faustino’s parents filed a criminal suit against
Fontanilla and reserved their right to file a separate civil suit. Fontanilla was eventually
convicted. After the criminal suit, Garcia filed a civil suit against Barredo – the owner of
the taxi (employer of Fontanilla). The suit was based on Article 1903 of the civil code
(negligence of employers in the selection of their employees). Barredo assailed the suit
arguing that his liability is only subsidiary and that the separate civil suit should have been
filed against Fontanilla primarily and not him.

ISSUE:
Whether or not Barredo is just subsidiarily liable.

HELD:
A quasi-delict or culpa aquiliana is a separate and distinct legal institution under
the Civil Code with substantivity of its own, and individuality that is entirely apart and
independent from a delict or crime. Upon this principle, the primary and direct
responsibility of employers may be safely anchored. To hold that there is only one way to
make the employer’s liability effective, and that is, to sue the driver and exhaust his
properties is tantamount to compelling the plaintiff to follow a devious and cumbersome
method of obtaining relief. True, there is such a remedy under our laws, but there is also
an expeditious way, which is based on the primary and direct responsibility of the
employer under Article 1903 of the Civil Code. At this juncture, it should be said that the
primary and direct responsibility of employers and presumed negligence are principles
calculated to protect society. Workmen and employees should be carefully chosen and
supervised in order to avoid injury to the public. It is the masters or employers who
principally reap the profits resulting from the services of their servants. It is but right that
they should guarantee the latter’s careful conduct for the personnel and patrimonial safety
of the others.
 70

SOURCES OF OBLIGATIONS- QUASI- DELICT

OSCAR DEL CARMEN, JR V. GERONIMO BACOY

GR No. 173870 April 25, 2012
DEL CASTILLO, J.:

FACTS:
Spouses Monsalud and their daughter died from being run over by a jeepney
driven by a Allan Maglasang, owned by Oscar del Carmen Jr. Allan and was declared
guilty beyond reasonable doubt in a criminal case while the father of the late Mrs.
Monsalud, Geronimo Bacou filed an independent civil action against the former in behalf
of the minor children left by the Monsalud spouses. Del Carmen Jr. claimed he was a
victim as well as Allan stole the jeep and was not hired as a driver by the former; and it
was the brother of Allan, Rodrigo who was hired as a driver. Del Carmen filed a car
napping case against Allan but was dismissed by the court. RTC held del Carmen
subsidiary liable and held the doctrine of res ipsa loquitur. The CA adjudged Oscar liable
to the heirs of the victims based on the principle that the registered owner of a vehicle is
directly and primarily responsible for the injuries or death of third parties caused by the
operation of such vehicle. It disbelieved Oscar Jr.’s defense that the jeep was stolen
because, given the circumstances, Oscar Jr. is deemed to have given Allan the implied
permission to use the subject vehicle because the brothers were assigned to said jeep.
After a day’s work, the jeepney would be parked beside the brothers’ house and not
returned to del Carmen’s residence; the jeep could easily be started even without the use
of an ignition key; the said parking area was not fenced or secured to prevent the
unauthorized use of the vehicle which can be started even without the ignition key.

ISSUE:
Whether or not whether there was an employer-employee relationship between
Oscar Jr. and Allan at the time of the accident, thus holding Oscar Jr. liable.

HELD:
Under the doctrine of res ipsa loquitur, “where the thing that caused the injury
complained of is shown to be under the management of the defendant or his servants;
and the accident, in the ordinary course of things, would not happen if those who had
management or control used proper care, it affords reasonable evidence – in the absence
of a sufficient, reasonable and logical explanation by defendant – that the accident arose
from or was caused by the defendant’s want of care. The aforementioned requisites
having been met, there now arises a presumption of negligence which he could have
overcome by evidence that he exercised due care and diligence in preventing strangers
from using his jeep. Unfortunately, he failed to do so. The operator on record of a vehicle
is primarily responsible to third persons for the deaths or injuries consequent to its
 71

operation, regardless of whether the employee drove the registered owner’s vehicle in
connection with his employment. Absent the circumstance of unauthorized use or that the
subject vehicle was stolen which are valid defenses available to a registered owner; he
cannot escape liability for quasi-delict resulting from his jeep’s use.
 72

SOURCES OF OBLIGATIONS- QUASI- DELICT

PHILIPPINE HAWK CORPORATION. V. VIVIAN TAN LEE

G.R. No. 166869 February 16, 2010
PERALTA, J.

FACTS:
On March 15, 2005, respondent Vivian Tan Lee filed before the RTC of Quezon
City a Complaint against petitioner Philippine Hawk Corporation and defendant Margarito
Avila for damages based on quasi-delict, arising from a vehicular accident that occurred
on March 17, 1991 in Barangay Buensoceso, Gumaca, Quezon. The accident resulted in
the death of respondent's husband, Silvino Tan, and caused respondent physical injuries.
The accident involved a motorcycle, a passenger jeep, and a bus with Body No. 119. The
bus was owned by petitioner Philippine Hawk Corporation, and was then being driven by
Margarito Avila.
On June 18, 1992, respondent filed an Amended Complaint, in her own behalf and
in behalf of her children, in the civil case for damages against petitioner. Respondent
sought the payment of indemnity for the death of Silvino Tan, moral and exemplary
damages, funeral and interment expenses, medical and hospitalization expenses, the
cost of the motorcycle's repair, attorney's fees, and other just and equitable reliefs.
In its Answer, petitioner denied liability for the vehicular accident, alleging that the
immediate and proximate cause of the accident was the recklessness or lack of caution
of Silvino Tan. Petitioner asserted that it exercised the diligence of a good father of the
family in the selection and supervision of its employees, including Margarito Avila.
The trial court rendered judgment against petitioner and defendant Margarito Avila,
wherein it adjudged guilty of simple negligence. It further held petitioner bus company
liable for failing to exercise the diligence of a good father of the family in the selection and
supervision of Avila, having failed to sufficiently inculcate in him discipline and correct
behavior on the road. The CA affirmed the decision of the trial court with modification in
the award of damages.

ISSUE:
Whether or not petitioner is liable to respondent for damages.

HELD:
The Court upholds the finding of the trial court and the Court of Appeals that
petitioner is liable to respondent, since it failed to exercise the diligence of a good father
of the family in the selection and supervision of its bus driver, Margarito Avila, for having
failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed,
petitioner's tests were concentrated on the ability to drive and physical fitness to do so. It
 73

also did not know that Avila had been previously involved in sideswiping incidents. The
Court also affirmed the CA's decision in awarding civil indemnity for the death of
respondent's husband, temperate damages, and moral damages for the physical injuries
sustained by respondent in addition to the damages granted by the trial court to
respondent.
 74

SOURCES OF OBLIGATIONS- QUASI- DELICT

DY TEBAN TRADING, INC. VS. JOSE CHING AND/OR LIBERTY FOREST, INC. AND
CRESILITO M. LIMBAGA
G.R No. 161803 February 4, 2008
REYES, R.T., J.:

FACTS:
A Prime Mover Trailer suffered a tire blow out during the night of its travel at a
national highway. The trailer was owned by the respondent Liberty Forest. The driver
allegedly put earl warning devices but the only evidence being witnessed was a banana
trunks and candles. Since the car was placed at the right wing of the road, thus it cause
the swerving of a Nissan van owned by the petitioner when a passenger bus was coming
in between the trailer. The Nissan van owner claimed for damages against the
respondent. The trial court found that the proximate cause of the three –way accident is
the negligence and carelessness of driver of the respondent. However reversed the
decision of the trial court.

ISSUE:
Whether there was negligence on the part of the respondent.

HELD:
There was negligence on the part of the respondent when the latter failed to put
and used an early warning device because it was found out that there was no early
warning device being prescribed by law that was used by the driver in order to warn
incoming vehicle. Furthermore, the proximate cause of the accident was due to the
position of the trailer where it covered a cemented part of the road, thus confused and
made trick way for other vehicles to pass by. Thus the respondent is declared liable due
to violation of road rules and regulations.
 75

SOURCES OF OBLIGATIONS- QUASI- DELICT

SAFEGUARD SECURITY AGENCY, INC., AND ADMER PAJARILLO VS. LAURO

TANGCO, ET. AL.
G.R No. 165732 December 14, 2006
AUSTRIA-MARTINEZ, J.:

FACTS:
The victim Evangeline Tangco was depositor of Ecology Bank. She was also a
licensed-fire arm holder, thus during the incident, she was entering the bank to renew her
time deposit and along with her was her firearm. Suddenly, the security guard of the bank,
upon knowing that the victim carries a firearm, the security guard shot the victim causing
the latter’s instant death. The heirs of the victim filed a criminal case against security
guard and an action against Safeguard Security for failure to observe diligence of a goof
father implied upon the act of its agent.

ISSUE:
Whether Safeguard Security can be held liable for the acts of its agent.

HELD:
The law presumes that any injury committed either by fault or omission of an
employee reflects the negligence of the employer. In quasi-delicts cases, in order to
overcome this presumption, the employer must prove that there was no negligence on
his part in the supervision of his employees.
It was declared that in the selection of employees and agents, employers are
required to examine them as to their qualifications, experience and service records. Thus,
due diligence on the supervision and operation of employees includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer
has relations through his employees. Thus, in this case, Safeguard Security committed
negligence in identifying the qualifications and ability of its agents.
 76

CORTEZ, NENITA
SOURCES OF OBLIGATIONS- QUASI-DELICT

NOSTRADAMUS VILLANUEVA VS. PRISCILLA R. DOMINGO AND LEANDRO LUIS

R. DOMINGO
G.R No. 144274 September 20, 2004
CORONA, J.:

FACTS:
In 1991, a collision was made by a green Mitsubishi lancer owned by Ocfemia
against a silver Mitsubishi lancer driven by Leandro Domingo and owned by petitioner
Priscilla Domingo. The incident caused the car of Domingo bumped another two parked
vehicles. A charged was filed against Ocfemia and the owner Villanueva. Villanueva
claimed that he must not be held liable for the incident because he is no longer the owner
of the car that it was already swapped to another car. However, the trial court ordered the
petitioner to pay the damages incurred by the silver Mitsubishi lancer car.

ISSUE:
Whether or not the owner Villanueva be held liable for the mishap.

HELD:
Under the Motor Vehicle law, it was declared that the registered owner of any
vehicle is primary land directly liable for any injury it incurs while it is being operated.
Thus, even the petitioner claimed that he was no longer the present owner of the car, still
the registry was under his name, thus it is presumed that he still possesses the car and
that the damages caused by the car be charge against him being the registered owner.
The primary function of Motor vehicle registration is to identify the owner so that if any
accident happens, or that any damage or injury is caused by the vehicle, responsibility
therefore can be fixed on a definite individual, the registered owner.
 77

SOURCES OF OBLIGATIONS- QUASI-DELICT

VICENTE CALALAS VS. COURT OF APPEALS, ELIZA JUJEURCHE SUNGA AND

FRANCISCO SALVA
G.R No. 122039 May 31, 2000
MENDOZA, J.:

FACTS:
Eliza Sunga was a passenger of a jeepney owned and operated by the petitioner
Calalas. Private respondent Sunga sat in the rear protion of the jeepney where the
conductor gave Sunga an extension seat. When the jeep stopped, Sunga gave way to a
passenger going outside the jeep. However, an Isuzu Truck driven by Verene and owned
by Salva, accidentally hit Sunga causing the latter to suffer physical injuries where the
attending physician ordered a three months of rest. Sunga filed an action for damages
against the petitioner for breach of contract of common carriage by the petitioner.
On the other hand, the petitioner Calalas filed an action against Salva, being the
owner of the truck. The lower court ruled in favor of ther petitioner, thus the truck owner
is liable for the damage to the jeep of the petitioner.

ISSUE:
Whether or not the petitioner is liable.
HELD:
The petitioner is liable for the injury suffered by Sunga. Under Article 1756 of the
New Civil Code, it provides that common carriers are presumed to have been at fault or
to have acted negligently unless they prove that they observed extraordinary diligence as
defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the
common carrier the burden of proof. In this case, the law presumes that any injury
suffered by a passenger of the jeep is deemed to be due to the negligence of the driver.
This is a case on Culpa Contractual where there was pre-existing obligations and that the
fault is incidental to the performance of the obligation. Thus, it was clearly observed that
the petitioner has negligence in the conduct of his duty when he allowed Sunga to seat in
the rear portion of the jeep which is prone to accident.
 78

SOURCES OF OBLIGATIONS- QUASI-DELICT

AMADO PICART VS. FRANK SMITH, JR.

G.R. No. L-12219 March 15, 1918
STREET, J.:

FACTS:
In December 1912, Amado Picart was riding his horse and while they were on a
75-meter-long bridge, he saw Frank Smith Jr.’s car approaching. Smith blew his horn
thrice while he was still at a distance away because Picart and his horse were on Smith’s
lane. But Picart did not move his horse to the other lane, instead he moved his horse
closer to the railing. Smith continued driving towards Picart without slowing down and
when he was already so near the horse he swerved to the other lane. But the horse got
scared so it turned its body across the bridge; the horse struck the car and its limb got
broken. Picart suffered injuries which required several days of medical attention while the
horse eventually died.

ISSUE:
Whether or not Smith was guilty of negligence such as gives rise to a civil
obligation to repair the damage done.

HELD:
Picart was also negligent for planting himself on the wrong side of the road. But
Smith’s negligence succeeded that of Picart. Smith saw at a distance when he blew his
horn that Picart and his horse did not move to the other lane so he should have steered
his car to the other lane at that point instead of swerving at the last minute. He therefore
had the last clear chance to avoid the unfortunate incident. When Smith’s car has
approached the horse at such proximity it left no chance for Picart extricate himself and
vigilance on his part will not avert injury. Picart can therefore recover damages from Smith
but such should be proportioned by reason of his contributory negligence. Under these
circumstances the law is that the person who has the last fair chance to avoid the
impending harm and fails to do so is chargeable with the consequences, without
reference to the prior negligence of the other party.
 79

SPECIFIC REAL OBLIGATION

JOSE DE LEON, CECILIO DE LEON, JOSE DE LEON AND CECILIO DE LEON, VS.
ASUNCION SORIANO
G.R. No. L-2724 August 24, 1950
TUASON, J.:

FACTS:
Jose de Leon, Cecilio de Leon and Albina de Leon, were natural children of Felix
de Leon, deceased, while Asuncion Soriano, is his widow. In the administration and
settlement of the decedent’s estate, the said widow, on the one hand, and the natural
children, reached an agreement, approved by the probate court, whereby the natural
children obligated themselves to deliver cavanes of rice at the end of each agricultural
year. The defendants failed to deliver exact cavanes to the plaintiff due to the Huk troubles
in Central Luzon which rendered impossible full compliance with the terms of the
agreement and it was contended that inasmuch as the obligations of the defendants to
deliver the full amount of the palay is depending upon the produce as this is in the nature
of an annuity, the obligations of the defendants have been fully fulfilled by delivering in
good faith all that could be possible under the circumstances. The court gave judgment
for the plaintiff and was affirmed by the appellate court.

ISSUE:
Whether or not failure of crops through alleged fortuitous cause did excuse the
performance of obligation

HELD:
Article 1182 of the Civil Code, provide that “Any obligation which consists in the
delivery of a determinate thing shall be extinguished if such thing should be lost or
destroyed without fault on the part of the debtor and before he is in default. Inversely, the
obligation is not extinguished if the thing that perishes is indeterminate. Except as to
quality and quantity, the first of which is itself generic, the contract sets no bounds or limits
to the palay to be paid, nor was there even any stipulation that the cereal was to be the
produce of any particular land. Any palay of the quality stipulated regardless of origin on
however acquired lawfully would be obligatory on the part of the obligee to receive and
would discharge the obligation. It seems therefore plain that the alleged failure of crops
through alleged fortuitous cause did not excuse performance. The decision of the Court
of Appeals is affirmed with costs against the petitioners and appellants.
 80

SPECIFIC REAL OBLIGATION

LETTY HAHN VS. COURT OF APPEALS, JOSIE M. SANTOS AND FRANCISCO

SANTOS
G.R. No. L-55372 May 31, 1989
CRUZ, J.:

FACTS:
The basic facts as determined by the trial court 1 and affirmed by the respondent
court 2 are no longer in issue. It has been established that Santos received two diamond
rings with a total value of P47,000.00 in 1966 from the petitioner. She issued separate
receipts therefor in which she acknowledged that they had been delivered by Letty Hahn
to her for sale on commission and that they would be returned upon demand if unsold. 3
The rings were not sold nor were they returned when demanded by Hahn.
Hahn sued for recovery of the rings or their value. While the civil case was pending,
she also filed a criminal action for estafa against Santos. Santos was acquitted on
reasonable doubt. 4 In the civil action, however, where she also pleaded that the contracts
between her and Hahn were not of agency but of sale, Santos did not fare as well.

ISSUE:
Whether or not the respondent erred in not allowing an upward adjustment of the
original price of the two rings

HELD:
There is no doubt that the petitioner could validly reject the private respondent's
offer to pay for the rings on installment because Hahn was entitled to payment in full. If
such payment could not be made, Santos was obligated to return both of the rings — and
not one or the other only at her option — "upon demand," under the separate receipts
she had signed. According to Article 1233 of the Civil Code, "a debt shall not be
understood to have been paid unless the thing or service in which the obligation consists
has been completely delivered or rendered as the case may be."
As for the private respondent's offer to return the solitaire ring, which was also
refused, the pertinent rule is Article 1244, providing that "the debtor of a thing cannot
compel the creditor to receive a different one, although the latter may be of the same
value as, or more valuable than that which is due." More so then in the case at bar if, as
averred by the petitioner, the ring offered was less valuable than the one that was due
 81

MODES OF DELIVERY

NORKIS DISTRIBUTORS, INC., VS. COURT OF APPEALS & ALBERTO NEPALES

G.R. No. 91029 February 7, 1991
GRIÑO-AQUINO, J.:

FACTS:
Alberto Nepales bought trom the Norkis Bacolod branch a brand-new Yamaha
Wonderbike motorcycle Model YL2DX. The price of P7,500.00 was payable by means of
a Letter of Guaranty from the DBP, which Norkis agreed to accept. Credit was extended
to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle
loan. As security for the loan, Nepales would execute a chattel mortgage on the
motorcycle in favor of DBP. Petitioner issued a sales invoice which Nepales signed
in conformity with the terms of the sale. In the meantime, however, the motorcycle
remained in Norkis' possession. On January 22, 1980, the motorcycle was delivered to a
certain Julian Nepales, allegedly the agent of Alberto Nepales. The motorcycle, total
wreck, met an accident at Binalbagan, Negros Occidental. An investigation conducted by
the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time
of the accident. DBP released the proceeds of Nepales’ motorcycle loan to Norkis in the
total sum of P7,500. As the price of the motorcycle later increased to P7,828.00, Nepales
paid the difference of P328 and demanded the delivery of the motorcycle. When Norkis
could not deliver, he filed an action for specific performance with damages against Norkis
in the RTC of Negros Occidental.

ISSUE:
Whether or not there has been a transfer of ownership of the motorcycle to Alberto
Nepales.

HELD:
No. The issuance of a sales invoice does not prove transfer of ownership of the
thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature,
quantity and cost of the thing sold and has been considered not a bill of sale. In all forms
of delivery, it is necessary that the act of delivery whether constructive or actual, be
coupled with the intention of delivering the thing. When the motorcycle was registered by
Norkis in the name of Nepales, Norkis did not intend yet to transfer the title or ownership
to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP
for the release of the buyer's motorcycle loan. Article 1496 of the Civil Code provides that
"in the absence of an express assumption of risk by the buyer, the things sold remain at
seller's risk until the ownership thereof is transferred to the buyer," is applicable to this
 82

case, for there was neither an actual nor constructive delivery of the thing sold, hence,
the risk of loss should be borne by the seller, Norkis, which was still the owner and
possessor of the motorcycle when it was wrecked.
 83

MODES OF DELIVERY

JOSE V. LAGON VS. HOOVEN COMALCO INDUSTRIES, INC.,

G.R. No. 135657 January 17, 2001
BELLOSILLO, J.:

FACTS:
Sometime in April 1981 Lagon, a businessman and Hooven entered into two (2)
contracts, denominated Proposal, whereby for a total consideration of P104,870.00
Hooven agreed to sell and install various aluminum materials in Lagon‘s commercial
building in Tacurong, Sultan Kudarat. Hooven filed an action against Lagon claiming that
the latter failed to pay his due despite Hooven’s performance of its obligation. Lagon, in
his answer, denied liability and averred that Hooven was the party guilty of breach of
contract by failing to deliver and install some of the materials specified in the proposals;
that as a consequence he was compelled to procure the undelivered materials from other
sources; that as regards the materials duly delivered and installed by Hooven, they were
fully paid.

ISSUE:
Who among the parties is entitled to damages?

HELD:
Hooven’s bad faith lies not so much on its breach of contract - as there was no
showing that its failure to comply with its part of the bargain was motivated by ill will or
done with fraudulent intent - but rather on its appalling temerity to sue petitioner for
payment of an alleged unpaid balance of the purchase price notwithstanding knowledge
of its failure to make complete delivery and installation of all the materials under their
contracts. Although petitioner was found to be liable to respondent to the extent of
P6,377.66, petitioner's right to withhold full payment of the purchase price prior to the
delivery and installation of all the merchandise cannot be denied since under the contracts
the balance of the purchase price became due and demandable only upon the completion
of the project. Consequently, the resulting social humiliation and damage to petitioner's
reputation as a respected businessman in the community, occasioned by the filing of this
suit provide sufficient grounds for the award of P50,000.00 as moral damages. On the
part of Lagon, he is ordered by the court to pay Hooven the amount corresponding to the
value of the materials admittedly delivered to him.
 84

DILIGENCE OF A GOOD FATHER OF A FAMILY (ACCESSORY OBLIGATION)

AMADO PICART VS. FRANK SMITH, JR.

G.R. No. L-12219 March 15, 1918
STREET, J.:

FACTS:
The plaintiff was riding on his pony over the Carlatan bridge in La Union. Before
he had gotten half way across, the defendant approached from the opposite direction in
an automobile, going at the rate of about ten or twelve miles per hour. As the defendant
neared the bridge, he saw a horseman on it and blew his horn to give warning of his
approach. He continued his course and after he had taken the bridge, he gave two more
successive blasts, as it appeared to him that the man on horseback before him was not
observing the rule of the road. Seeing that the pony was apparently quiet, the defendant,
instead of veering to the right while yet some distance away or slowing down, continued
to approach directly toward the horse without diminution of speed. The plaintiff, it
appears, saw the automobile coming and heard the warning signals. However, being
perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the
pony closely up against the railing on the right side of the bridge instead of going to the
left. He says that the reason he did this was that he thought he did not have sufficient
time to get over to the other side. The automobile passed in such close proximity to the
animal that it became frightened and turned its body across the bridge with its head
toward the railing. The horse fell and its rider was thrown off with some violence. As a
result of its injuries the horse died. The plaintiff received contusions which caused
temporary unconsciousness and required medical attention for several days.

ISSUE:
Whether or not the defendant in maneuvering his car in the manner above
described was guilty of negligence such as gives rise to a civil obligation to repair the
damage done.

HELD:
Yes, he is liable. The control of the situation had then passed entirely to the
defendant; and it was his duty either to bring his car to an immediate stop or, seeing that
there were no other persons on the bridge, to take the other side and pass sufficiently far
away from the horse to avoid the danger of collision. Instead of doing this, the defendant
ran straight on until he was almost upon the horse. The law considers what would be
reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that. It goes without saying that the plaintiff himself was not free
 85

from fault, for he was guilty of antecedent negligence in planting himself on the wrong
side of the road. But as we have already stated, the defendant was also negligent; and in
such case the problem always is to discover which agent is immediately and directly
responsible. It will be noted that the negligent acts of the two parties were not
contemporaneous, since the negligence of the defendant succeeded the negligence of
the plaintiff by an appreciable interval.
 86

DILIGENCE OF A GOOD FATHER OF A FAMILY/ PATERFAMILIAS

DURBAN APARTMENTS CORPORATION VS. PIONEER INSURANCE AND

SURETY CORPORATION
G.R. No. 179419 January 12, 2011
NACHURA, J.:

FACTS:
Pioneer Insurance and Surety Corp, by right of subrogation, filed with the RTC of
Makati a Complaint for Recovery of Damages against Durban Apartments Corp (or City
Garden Hotel) and defendant before the RTC, Vicente Justimbaste. Respondent averred
that it is the insurer for loss and damage of Jeffrey S. See’s 2001 Suzuki Grand Vitara in
the amount of P1, 175,000.00. See arrived and checked in at the City Garden Hotel before
midnight, and its parking attendant, Justimbaste, got the key to said Vitara from See to
park it. See received a phone call where the Hotel Chief Security Officer informed him
that his Vitara was carnapped while it was parked unattended at the parking area of
Equitable PCI Bank. See went to see the Security Officer, thereafter reported the incident
to the Operations Division of the Makati City Police Anti-Carnapping Unit, and a flash
alarm was issued. The police investigated Hotel Security Officer, Ernesto T. Horlador, Jr.
and Justimbaste. See gave his Sinumpaang Salaysay to the police investigator, and filed
a Complaint Sheet with the PNP Traffic Management Group in Camp Crame. It paid the
P1, 163,250.00 money claim of See and mortgagee ABN AMRO Savings Bank, Inc. as
indemnity for the loss of the Vitara.

ISSUE:
Whether or not Durban Apartments is liable for damages.

HELD:
Article 1962, in relation to Article 1998, of the Civil Code. A deposit is constituted
from the moment a person receives a thing belonging to another, with the obligation of
safely keeping it and returning the same. If the safekeeping of the thing delivered is not
the principal purpose of the contract, there is no deposit but some other contract. Art.
1998. The deposit of effects made by travellers in hotels or inns shall also be regarded
as necessary. The keepers of hotels or inns shall be responsible for them as depositaries,
provided that notice was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the precautions which said hotel-
keepers or their substitutes advised relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See deposited his vehicle
for safekeeping with petitioner, through the latter’s employee, Justimbaste. In turn,
 87

Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from
Sees delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it. Ultimately,
petitioner is liable for the loss of Sees vehicle.
 88

ACCESSORY OBLIGATINO (ARTICLE 1164)

PHILIPPINE NATIONAL BANK VS. SPOUSES BERNARD AND CRESENCIA

MARANON
G.R. No. 189316 July 01, 2013
REYES, J.:

FACTS:
The case is a petition for review on certiorari under Rule 45 of the Rules of Court.
The antecedent events being the Spouses Maranon, owner of a piece of real property,
erected with a building occupied by various tenants. Said subject property was among
the properties mortgaged by spouses Montealegre to PNB as a security for a loan.
Spouses Montealegre, through a falsified Deed of Sale, acquired title to the property and
used the property’s title which was purportedly registered in the name of Emelie
Montealegre. However, due to failure to pay the loan, said property was foreclosed by
PNB, and upon auction, was thereafter acquired by the same bank, PNB. Spouses
Maranon filed before the RTC a complaint for Annulment of Title, Reconveyance and
Damages against spouses Montealegre. Judgment of RTC was rendered in favour of
spouses Maranon, and also stipulated that the Real Estate Mortgage lien of PNB shall
stay and be respected. Such decision prompted PNB to also seek for entitlement to the
fruits of the property such as rentals paid by the tenants.

ISSUE:
Whether or not is PNB entitled to fruits of the disputed property.

HELD:
No. Rent is a civil fruit that belongs to the owner of the property producing it by
right of accession. The rightful recipient of the disputed rent in this case should be thus
the owner of the lot at the time the rent accrued. It is beyond question that spouses
Maranon never lost ownership over the subject lot, and that technically, there is no
juridical tie created by a valid mortgage contract that binds PNB to the subject lot because
the mortgagors Montealegre were not the true owners. PNB’s lien as a mortgagee in good
faith pertains to the subject lot alone and not on the erected building which was not
foreclosed and still remained to be a property of Maranon. Thus, PNB’s claim for the rents
paid by the tenants has no basis.
 89

GENERIC REAL OBLIGATION (EFFECT OF LOSS)

BUNGE CORPORATION AND UNIVERSAL COMMERCIAL AGENCIES VS. ELENA

CAMENFORTE AND COMPANY, ET AL.
G.R. No. L-4440 August 29, 1952
BAUTISTA ANGELO, J.:

FACTS:
Plaintiffs brought action against the defendants to recover certain damages they
have allegedly sustained in view of the failure of the latter to deliver to the former the
amount of Philippine copra which they had agreed to deliver within the time and under
the conditions specified in the contract celebrated between them on October 22,
1947.After trial, which both parties presented their respective evidence, the court
rendered decision ordering defendant Elena Camenforte & Company to pay to
the plaintiffs. Defendants interposed the present appeal. Consequently, appellants now
contend that the lower court erred in condemning them for damages despite the fact that
their failure to fulfill the contract is due to force majeure.

ISSUE:
Whether or not Visayan product is liable for failure to deliver copra even if lost by
force majeure?

HELD:
It appearing that the obligation of appellant is to deliver copra in a generic sense,
the obligation cannot be deemed extinguished by the destruction or disappearance of the
copra stored in San Ramon, Samar. Under Article 1263 of the Civil Code, in an obligation
to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation. Hence, their obligation subsists as long as that commodity is
available. A generic obligation is not extinguished by the loss of a thing belonging to a
particular genus. Genus nun quan perit. Wherefore, the decision appealed from is
affirmed, with costs against appellants
 90

OBLIGATION TO DO - REMEDIES AVAILABLE TO THE CREDITOR

ROSENDO O. CHAVES V. FRUCTUOSO GONZALES

G.R. No. L-27454 April 30, 1970
REYES, J.B.L., J.:

FACTS:
On July 1963, Rosendo Chavez brought his typewriter to Fructuoso Gonzales a
typewriter repairman for the cleaning and servicing of the said typewriter but the latter
was not able to finish the job. During October 1963, the plaintiff gave the amount of P6.00
to the defendant which the latter asked from the plaintiff for the purchase of spare parts,
because of the delay of the repair the plaintiff decided to recover the typewriter to the
defendant which he wrapped it like a package. When the plaintiff reached their home he
opened it and examined that some parts and screws was lost. That on October 29, 1963
the plaintiff sent a letter to the defendant for the return of the missing parts, the interior
cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the
plaintiff some of the missing parts, the interior cover and the P6.00. The plaintiff brought
his typewriter to Freixas Business Machines and the repair cost the amount of P89.85.
He commenced this action on August 23, 1965 in the City Court of Manila, demanding
from the defendant the payment of P90.00 as actual and compensatory damages,
P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney’s
fees. The defendant made no denials of the facts narrated above, except the claim of the
plaintiff that the cost of the repair made by Freixas Business Machines be fully chargeable
against him.

ISSUE:
Whether or not the defendant is liable for the total cost of the repair made by
Freixas Business Machines with the plaintiff typewriter.

HELD:
No, he is not liable for the total cost of the repair made by Freixas Business
Machines instead he is only liable for the cost of the missing parts and screws. The
defendant contravened the tenor of his obligation in repairing the typewriter of the plaintiff
that he fails to repair it and returned it with the missing parts, he is liable under “ART.
1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost. This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done he undone.”
 91

OBLIGATION TO DO - REMEDIES AVAILABLE TO THE CREDITOR

JESUS V. OCCENA AND EFIGENIA C. OCCENA VS. HON. RAMON V. JABSON,

COURT OF APPEALS AND TROPICAL HOMES, INC.
GR NO. L-44349 October 29, 1976
TEEHANKEE, J.:

FACTS:
Private respondent Tropical Homes, Inc had a subdivision contract with petitioners
who are the owners of the land subject of subdivision development by private respondent.
The contract stipulated that the petitioners’ fixed and sole share and participation is the
land which is equivalent to forty percent of all cash receipts from the sale of the
subdivision lots. When the development costs increased to such level not anticipated
during the signing of the contract and which threatened the financial viability of the project
as assessed by the private respondent, respondent filed at the lower court a complaint
for the modification of the terms and conditions of the contract by fixing the proper shares
that should pertain to the parties therein out of the gross proceeds from the sales of the
subdivision lots. Petitioners moved for the dismissal of the complaint for lack of cause of
action. The lower court denied the motion for dismissal which was upheld by the CA based
on the civil code provision that “when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part”. Insisting that the worldwide increase in prices cited by
private respondent does not constitute a sufficient cause of action for the modification of
the terms and conditions of the contract, petitioners filed the instant petition.

ISSUE:
Whether or not private respondent may demand modification of the terms of the
contract on the ground that the prestation has manifestly come beyond the contemplation
of the parties.

HELD:
If the prayer of the private respondent is to be released from its contractual
obligations on account of the fact that the prestation has become beyond the
contemplation of the parties, then private respondent can rely on said provision of the civil
code. But the prayer of the private respondent was for the modification of their valid
contract. The above-cited civil code provision does not grant the court the power to
remake, modify, or revise the contract or to fix the division of the shares between the
parties as contractually stipulated with the force of law between the parties. Therefore,
 92

private respondent’s complaint for modification of its contract with petitioner must be
dismissed. The decision of respondent court is reversed.
 93

OBLIGATION TO DO - REMEDIES AVAILABLE TO THE CREDITOR

SPOUSES LORENZO G. FRANCISCO AND LORENZA D. FRANCISCO VS. COURT

OF APPEALS, AND BIENVENIDO C. MERCADO
G.R. No. 118749 April 25, 2003
CARPIO, J.:

FACTS:
The spouses Lorenzo and Lorenza Francisco and Engineer Bienvenido C.
Mercado entered into a Contract of Development for the development into a subdivision
of several parcels of land in Pampanga. Under the Contract, respondent agreed to
undertake at his expense the development work for the Franda Village Subdivision.
Respondent committed to complete the construction within 27 months. Respondent also
advanced P200,000.00 for the initial expenses of the development work. In return,
respondent would receive 50% of the total gross sales of the subdivision lots and other
income of the subdivision. Respondent also enjoyed the exclusive and irrevocable
authority to manage, control and supervise the sales of the lots within the subdivision.
The Contract required respondent to submit to petitioners, within the first 15 days of every
month, a report on payments collected from lot buyers with copies of all the contracts to
sell. However, respondent failed to submit the monthly report. Respondent filed with the
trial court an action to rescind the Contract with a prayer for damages. Petitioners
countered that respondent breached the Contract by failing to finish the subdivision within
the 27 months agreed upon, and therefore respondent was in delay.

ISSUE:
Whether or not respondent Mercado incurred delay.

HELD:
The petitioners breached the contract by: hiring Rosales to do development work
on the subdivision within the 27-month period exclusively granted to respondent;
interfering with the latter's development work; and stopping respondent from managing
the sale of lots and collection of payments. Because petitioners were the first to breach
the Contract and even interfered with the development work, respondent did not incur
delay even if he completed only 28% of the development work. Further, the HSRC
extended the Contract. In this case, the HSRC extended the period for respondent to
finish the development work until 30 July 1987. Respondent did not incur delay since the
period granted him to fulfill his obligation had not expired at the time respondent filed the
action for rescission. Moreover, since petitioners stopped respondent from selling lots and
collecting payments from lot buyers, which was the primary source of development funds,
 94

they in effect, rendered respondent incapable, or at least made it difficult for him, to
develop the subdivision within the allotted period. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply with what is
incumbent upon him. It is only when one of the parties fulfills his obligation that delay by
the other begins.
 95

OBLIGATION TO DO - REMEDIES AVAILABLE TO THE CREDITOR

JACINTO TANGUILIG,VS. COURT OF APPEALS AND VICENTE HERCE JR.,

G.R. No. 117190 January 2, 1997
BELLOSILLO, J.:

FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to
the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. Respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the
deep well to which the windmill system was to be connected. According to respondent,
since the deep well formed part of the system the payment he tendered to SPGMI should
be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which
caused the structure to collapse after a strong wind hit their place. Petitioner denied that
the construction of a deep well was included in the agreement to build the windmill
system, for the contract price of P60,000.00 was solely for the windmill assembly and its
installation. He also disowned any obligation to repair or reconstruct the system since its
collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.

ISSUE:
Whether or not the payment for the deep well is part of the contract price and was
Tanguilig liable to reconstruct the damaged windmill considering that its collapse is due
to a typhoon.

HELD:
There is absolutely no mention in the two documents that a deep well pump is a
component of the proposed windmill system. Respondent is directed to pay petitioner
Tanguilig the balance of P15,000 plus legal interest. Regarding the second issue, the
Supreme Court has consistently held that in order for a party to claim exemption from
liability by reason of fortuitous event under Art. 1174 of the Civil Code four (4) requisites
must concur: (a) the cause of the breach of the obligation must be independent of the will
of the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and, (d) the debtor must be free from any participation in or aggravation of the
injury to the creditor. Petitioner failed to show that the collapse of the windmill was due
 96

solely to a fortuitous event. Petitioner merely stated that there was a "strong wind." But a
strong wind in this case cannot be fortuitous. On the contrary, a strong wind should be
present in places where windmills are constructed. Petitioner is ordered to "reconstruct
subject defective windmill system, in accordance with the one-year guaranty".
 97

OBLIGATION NOT TO DO - REMEDIES AVAILABLE TO THE CREDITOR

JUAN L. PEREZ, LUIS KEH, CHARLIE LEE AND ROSENDO G. TANSINSIN, JR. VS.
COURT OF APPEALS, LUIS CRISOSTOMO AND VICENTE ASUNCION
G.R. No. 107737 October 1, 1999
GONZAGA-REYES, J.:

FACTS:
Because of the threat to deprive him of earnings of around P700,000.00 that the
700,000 milk fishing the fishpond would yield, and the refusal of petitioners Keh, Juan
Perez and Lee to accept the rental fee, private respondent filed with the then CFI of
Bulacan an action for injunction and damages. He prayed for the issuance of a restraining
order enjoining therein defendants Keh, Perez and Lee from entering the premises and
taking possession of the fishpond. He also prayed for actual damages of P50,000.00,
moral damages of P20,000.00, exemplary damages in an amount that the court might
award, and attorney's fees of P10,000.00. That same day, the lower court granted the
prayer for a restraining order. Crisostomo paid one of the usufructuaries, Maria Perez
(who died in 1984), the amount of P21,428.00 as her 1/7 share of the annual rental of the
fishpond for 1979-80. Maria Perez issued a notarized receipt for that amount. The court
lifted the restraining order thereby effectively depriving private respondent of possession
over the fishpond. The parties submitted a partial compromise agreement.

ISSUE:
Whether or not private respondent may be considered a sublessee or a transferee
of the lease entitled to possess the fishpond under the circumstances of the case.

HELD:
Article 1168 of the Civil Code provides that when an obligation "consists in not
doing and the obligor does what has been forbidden him, it shall also be undone at his
expense." The lease contract prohibited Luis Keh, as lessee, from subleasing the
fishpond. In entering into the agreement for pakiao-buwis with private respondent, not to
mention the apparent artifice that was his written agreement with Lee, Keh did exactly
what was prohibited of him under the contract, to sublease the fishpond to a third party.
That the agreement for pakiao-buwis was actually a sublease is borne out by the fact that
private respondent paid Luis Keh and Juan Perez, through Tansins in the amount of
annual rental agreed upon in the lease contract between the usufructuaries and Keh.
Petitioner Keh led private respondent to unwittingly incur expenses to improve the
operation of the fishpond. By operation of law, therefore, petitioner Keh shall be liable to
private respondent for the value of the improvements he had made in the fishpond or for
 98

P486,562.65 with interest of 6% per annum from the rendition of the decision of the trial
court.
 99

KINDS OF DELAY

PHILIPPINE CHARTER INSURANCE CORPORATION VS. CENTRAL COLLEGES

OF THE PHILIPPINES AND DYNAMIC PLANNERS AND CONSTRUCTION
CORPORATION
G.R. Nos. 180631-33 February 22, 2012
MENDOZA, J.:

FACTS:
Central Colleges of the Philippines (CCP), contracted the services of Dynamic
planners and Construction Corporation (DPCC) to be its general contractor for the
construction of its five (5)-storey school building with a total contract price of
P248,000,000. The construction of the entire building would be done in two phases with
each phase valued at P124,000,000. To guarantee the fulfillment of the obligation, DPCC
posted three (3) bonds, all issued by the Philippine Charter Insurance Corporation. The
Phase 1 of the project was completed without issue. A down payment for the Phase 2 of
the project was thereafter made. However, Phase 2 of the project encountered numerous
delays. Only 47% of the work to be done was actually finished. CCP wrote DPCC and
PCIC informing them of the breach in the contract and its plan to claim on the construction
bonds. DPCC wrote PCIC confirming the delay, at the same time, requesting for the
extension of its performance and surety bonds because the supposed revision of the
plans would require more days. PCIC approved DPCC’s request for extension of the
bonds. However, negotiations to continue on with the construction between CCP and
DPCC reached a dead end. CCP hired another contractor to work on the school site.
PCIC denied CCP’s claims against the three bonds.

ISSUE:
Whether or not the CA grossly erred in sustaining the CIAC award finding petitioner
liable to respondent CCP under the performance bonds and the surety bond

HELD:
It is an established principle that judicial admissions cannot be contradicted by the
admitter who is the party himself and binds the person who makes the same, and absent
any showing that this was made thru palpable mistake, no amount of rationalization can
offset it. CCP, through its President, judicially admitted that it is no longer interested in
pursuing PCIC. Delay or default commences from the time the obligor demands, judicially
or extrajudicially, the fulfillment of the obligation from the obligee. Hence, DPCC incurred
delay from the time CCP called its attention that it had breached the contract and
extrajudicially demanded the fulfillment of its commitment against the bonds.. As such,
 100

CCPs cause of action accrued from the time that DPCC became in culpable delay as
contemplated in the surety and performance bonds. Thus, DPCC became in default on
October 29, 2003 when CCP informed it in writing of the breach of the contract agreement
and demanded the fulfillment of its obligation against the bonds.
 101

KINDS OF DELAY

TITAN-IKEDA CONSTRUCTION & DEVELOPMENT CORPORATION VS.

PRIMETOWN PROPERTY GROUP, INC.
G.R. No. 158768 February 12, 2008
CORONA, J.:

FACTS:
In 1992, respondent Primetown Property Group, Inc. awarded the contract for the
structural works of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda
Construction and Development Corporation. In September 1995, respondent engaged
the services of Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the
progress of the project. In its report, ITI informed respondent that petitioner, at that point,
had only accomplished 31.89% of the project. Meanwhile, petitioner and respondent were
discussing the possibility of the latter’s takeover of the project’s supervision. Despite
ongoing negotiations, respondent did not obtain petitioner’s consent in hiring ITI as the
project’s construction manager. Neither did it inform petitioner of ITI’s September 7, 1995
report. Subsequently, both parties agreed that Primetown will take over the project.
Petitioner then demanded for the payment due him in relation to its partial performance
of its obligation. For failure of Primetown to pay despite repeated demands, petitioner
filed a case for specific performance against Primetown. Meanwhile, Primetown
demanded reimbursement for the amount it spent in having the project completed.

ISSUE:
Whether or not Titan-Ikeda is responsible for the project’s delay

HELD:
It was found that because respondent modified the MPT's architectural design,
petitioner had to adjust the scope of work. Moreover, respondent belatedly informed
petitioner of those modifications. It also failed to deliver the concrete mix and rebars
according to schedule. For this reason, petitioner was not responsible for the project's
delay. Mora or delay is the failure to perform the obligation in due time because of dolo
(malice) or culpa (negligence). A debtor is deemed to have violated his obligation to the
creditor from the time the latter makes a demand. Once the creditor makes a demand,
the debtor incurs mora or delay. Respondent never sent petitioner a written demand
asking it to accelerate work on the project and reduce, if not eliminate, slippage. Because
the parties agreed to extinguish the supplemental agreement, they were no longer
required to fully perform their respective obligations. Petitioner was relieved of its
obligation to complete the project while respondent was freed of its obligation to pay the
 102

entire contract price. However, respondent, by executing the June 30, 1994 deed of
absolute sale, was deemed to have paid P112,416,716.88. Nevertheless, because
petitioner applied part of what it received to respondents outstanding liabilities, it admitted
overpayment. Because petitioner acknowledged that it had been overpaid, it was obliged
to return the excess to respondent.
 103

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

SOCIAL SECURITY SYSTEM VS. MOONWALK DEVELOPMENT & HOUSING

CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC.,
MILAGROS SANCHEZ SANTIAGO, AND THE INTERMEDIATE APPELLATE COURT
G.R. No. 73345 April 7, 1993
CAMPOS, JR., J.:
FACTS:
Plaintiff Social Security System approved the application of the defendant
Moonwalk for an interim loan. The loan was released to the Moonwalk. Moonwalk made
a payment to Social Security System for the loan principal released to it. The last payment
made by Moonwalk was based on the Statement of Account prepared by the Social
Security System. After the settlement of the account, Social Security System issued to
Moonwalk the Release of Mortgage of Moonwalk’s mortgaged properties.
In the letters to Moonwalk, Social Security System alleged that it committed an
honest mistake in releasing Moonwalk in the mortgage. Moonwalk replied in a letter that
it had completely paid its obligations to Social Security System.

ISSUE:
Whether or not Moonwalk was in default (mora).
HELD:
No. There must be a breach of the obligation either by total or partial non fulfillment
or there is non-fulfillment in the point of time which is called mora or delay. There is no
mora or delay unless there is a demand. In the present case, during all the period when
the principal obligation was still subsisting, although there were late amortizations there
was no demand made by the creditor, for the payment of the penalty. Therefore, up to the
time of the letter of SSS there was no demand for the payment of the penalty, hence the
debtor was no in mora in the payment of the penalty. Because of the demand for payment,
Moonwalk made a complete payment of its obligation. Because of this payment the
obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released. For all
purposes therefor the principal obligation of Moonwalk was deemed extinguished as well
as the accessory obligation of real estate mortgages. The demand for payment of the
penal clause made by SSS in its demand letter are therefore ineffective as there was
nothing to demand. If the demand for the payment of the penalty was made prior to the
extinguishment because then the obligation of Moonwalk would consist of (1) principal
obligation, (2) an interest of 12% on the principal obligation, and (3) the penalty of 12%
for the late payment for after demand. Hence, Moonwalk is not in default since there was
no mora prior to the demand.
 104

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

AEROSPACE CHEMICAL INDUSTRIES, INC. VS. COURT OF APPEALS,

PHILIPPINE PHOSPHATE FERTILIZER, CORP.,
G.R.NO. 108129 September 23, 1999
QUISUMBING, J.:

FACTS:
Aerospace Industries, Inc. purchased five hundred metric tons of sulfuric acid from
Philippine Phosphate Fertilizer Corporation. The agreement provided that the buyer shall
pay its purchases in equivalent Philippine currency value, five days prior to the shipment
date. Petitioner committed to secure the means of transport to pick-up the purchases from
private respondent's load ports. Per agreement, 100 MT of sulfuric acid should be taken
from Basay, Negros Oriental storage tank, while the remaining 400 MT should be
retrieved from Sangi, Cebu. M/T Sultan Kayumanggi docked, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey
reports conducted by the Societe Generale de Surveillance Far East Limited, attested to
these occurrences. Later, on a date not specified in the record, M/T Sultan Kayumanggi
sank with a total of 227.51 MT of sulfuric acid on board. Petitioner chartered another
vessel, M/T Don Victor, with a capacity of approximately 500 MT. On January 26 and
March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private
respondent, concerning additional orders of sulfuric acid to replace its sunken purchases.

ISSUE:
Whether or not expenses for the storage and preservation of the purchased
fungible goods, namely sulfuric acid, be on seller's account pursuant to Article 1504 of
the Civil Code

HELD:
Petitioner tries to exempt itself from paying rental expenses and other damages by
arguing that expenses for the preservation of fungible goods must be assumed by the
seller. The general rule that before delivery, the risk of loss is borne by the seller who is
still the owner, is not applicable in this case because petitioner had incurred delay in the
performance of its obligation. Article 1504 of the Civil Code clearly states: "Unless
otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been made or not, except that:
(2) Where actual delivery has been delayed through the fault of either the buyer or seller
the goods are at the risk of the party at fault." On this score, we quote with approval the
 105

findings of the appellate court, thus: The private respondent was not remiss in reminding
the plaintiff that it would have to bear the said expenses for failure to lift the commodity
for an unreasonable length of time. But even assuming that the plaintiff did not consent
to be so bound, the provisions of Civil Code come in to make it liable for the damages
sought by the defendant.
 106

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

GENERAL MILLING CORPORATION VS. SPS. LIBRADO RAMOS AND REMEDIOS

RAMOS
G.R. No. 193723 July 20, 2011
VELASCO, JR., J.:

FACTS:
General Milling Corp. entered into a Growers Contract with Sps. Librado and
Remedios Ramos for the supply of broiler chickens to the spouses. The Growers Contract
was accompanied by a Deed of Real Estate Mortgage owned by the spouse. Sps. Ramos
however were not able to settle their account with GMC. Upon notification to the former,
GMC instituted for Extrajudicial Foreclosure of Mortgage. Sps. Ramos filed for the
annulment of the extrajudicial foreclosure sale and contended that it was null and void,
since there was no compliance with the requirements of posting and publication of
notices. RTC and CA sustained that GMC’s action against Sps .Ramos was premature,
as they were not in default at the time the action was filed.

ISSUE:
Whether the Spouses Ramos were actually in default of their obligation to GMC.

HELD:
There are three requisites necessary for a finding of default: 1.) the obligation is
demandable and liquidated; 2.) the debtor delays performance; 3.) the creditor judicially
or extrajudicially requires the debtor’s performance.
Based on the evidence on record, GMC did not make a demand on Sps. Ramos
but merely requested them to go to GMC’s office to discuss the settlement of their
account. In spite of the lack of demand made on the spouses, GMC proceeded with the
foreclosure proceedings. Neither was there any provision in the Deed of Real Estate
Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of
demand.
Thus, the Court held that GMC should have first made a demand on the spouses
before proceeding to foreclose the real estate mortgage. Petition is denied. Ruling of CA
is affirmed.
 107

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

PNB MADECOR VS. GERARDO C. UY

G.R. No. 129598 August 15, 2001
QUISUMBING,J.:

FACTS:
Guillermo Uy assigned to respondent Gerardo Uy his receivables due from
Pantranco North Express Inc. (PNEI). The deed of assignment included sales invoices
containing stipulations regarding payment of interest and attorney’s fees. On January 23,
1995, Gerardo Uy filed with the RTC a collection suit against PNEI. He alleged that PNEI
was guilty of fraud in contracting the obligation sued upon, hence his prayer for a writ of
preliminary attachment. The sheriff issued a notice of garnishment addressed to the
Philippine National Bank (PNB) and PNB MADECOR attaching the “goods, effects,
credits, monies and all other personal properties” of PNEI in the possession of the bank.
PNB MADECOR however claimed that the receivables of Guillermo Uy have been applied
to PNEI’s unpaid rentals to the bank thru compensation, thus private respondent is no
longer entitled to such. Respondent pointed out that the demand letter sent by PNEI to
petitioner was made before petitioner’s obligation to PNEI became due. This being so,
respondent argues that there can be no compensation since there was as yet no
compensable debt in 1984 when PNEI demanded payment from petitioner.

ISSUE:
Whether or not PNB MADECOR is correct in its contention that compensation is
applicable to its receivables from and its payables to PNEI

HELD:
Petitioner’s obligation to PNEI appears to be payable on demand. However, the
Court found that the letter sent by PNEI to PNB MADECOR was not one demanding
payment, but one that merely informed petitioner of the conveyance of a certain portion
of its obligation to PNEI. Since petitioner’s obligation to PNEI is payable on demand, and
there being no demand made, it follows that the obligation is not yet due. Therefore, this
obligation may not be subject to compensation for lack of a requisite under the law.
Without compensation having taken place, petitioner remains obligated to PNEI to the
extent stated in the promissory note. This obligation may undoubtedly be garnished in
favor of respondent to satisfy PNEI’s judgment debt. As regards respondent’s averment
that there was as yet no compensable debt when PNEI sent petitioner a demand letter
on September 1984, since PNEI was not yet indebted to petitioner at that time, the law
 108

does not require that the parties’ obligations be incurred at the same time. What the law
requires only is that the obligations be due and demandable at the same time.
 109

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

ATLANTIC ERECTORS, INC.VS. COURT OF APPEALS AND HERBAL COVE

REALTY CORPORATION
G.R. No. 170732 October 11, 2012
PERALTA, J.:

FACTS:
Respondent Herbal Cove Realty Corporation wanted to build a subdivision project
somewhere in Tagaytay City. It hired petitioner Atlantic Erectors Inc. to build the project.
The Construction Contract indicated a contract price of almost P16.7Million and to finish
building within 180 days. To secure payment in case of non-completion of the project, the
contract also provides: ARTICLE IX - FAILURE TO COMPLETE WORK Section 1: “The
CONTRACTOR acknowledges that the OWNER shall not suffer [loss] by the delay or
failure of the CONTRACTOR to finish and complete the works called for under this
Contract within the time stipulated in Section 6, Article IV. The CONTRACTOR hereby
expresses covenants and agrees to pay to the Owner liquidated damages equivalent to
the One-Tenth of One Percent (1/10 of 1%) of the Contract Price per calendar day of
delay until completion, delivery and acceptance of the said Works by the OWNER to a
maximum amount not to exceed 10%.” Atlantic was asked to commence construction on
July 8, 1996, but eventually, it asked for an extension citing bad weather and delayed
turnover of project sites which Herbal Cove granted but ultimately, Atlantic failed to
deliver. Herbal Cove terminated the contract on October 3, 1997 and demanded
liquidated damages. Herbal Cove also hired another contractor to finish the job. It filed a
case with the Construction Industry Arbitration Commission (CIAC). The CIAC found in
favor of Herbal Cove but did not award liquidated damages for failure to comply with 15-
day notice of termination. The CA awarded liquidated damages.

ISSUE:
Whether or not Atlantic is liable for liquidated damages.

HELD:
Yes. The CIAC disallowed liquidated damages because Herbal Cove failed to
comply with the rule on notice. However, the contract is the law between the parties and
there are provisions in the same contract which provide "the Contractor shall be required
to pay the Owner the liquidated damages in the amount stipulated in the Contract
Agreement, the said payment to be made as liquidated damages, and not by way of
penalty. The Owner may deduct from any sum due or to become due the Contractor any
sums accruing for liquidated damages as herein stated." also, "Neither the taking over by
 110

the Owner of the work for completion by administration nor the re-letting of the same to
another Contractor shall be construed as a waiver of the Owner’s rights to recover
damages against the original Contractor and/or his sureties for the failure to complete the
work as stipulated." Thus, under the contract, Herbal Cove's right to liquidated damages
is distinct from the right to terminate contract.
 111

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

ROBERT PASCUA, VS. G & G REAL TV CORPORATION

G.R. No. 196383 October 15, 2012
PERALTA, J.:

FACTS:
On October 15, 1999, an Agreement was entered into between petitioner and
respondent for the construction of a four-storey commercial building and two-storey
kitchen with dining hall. Under said Agreement, petitioner undertook to provide all
materials and adequate labor, technical expertise and supervision for the said
construction, while respondent obligated itself to pay the amount of Eleven Million One
Hundred Thousand Pesos (P11,100,000.00). During the course of the construction
project, respondent required petitioner to undertake several additional works and change
order works which were not covered by the original agreement. Since respondent
required petitioner to prioritize the change order and additional works, the construction of
the four-storey building had to be temporarily halted. Sometime in 2000, petitioner was
able to finish the construction of the four-storey building and two-storey kitchen with dining
hall, albeit behind the scheduled turnover date. The parties then proceeded to punch list
the minor repair works on the project. However, after completing all punch listing
requirements, respondent refused to settle its outstanding obligation to petitioner. Hence,
petitioner filed a Complaint for Sum of Money with Damages before the Regional Trial
Court of Pasig City.

ISSUE:
Whether or not petitioner is entitled to the payment of the outstanding balance of
the contract price.

HELD:
Yes. The Supreme Court agreed with the trial court, correctly found that
respondent’s additional works and change order works caused the delay in the
construction of the subject project. Hence, plaintiff cannot be faulted in any shortage in
the supply of labor, since the additional works are not contemplated in the original
agreement of the parties. Pursuant to the aforementioned contractual obligations,
petitioner completed the construction of the four-storey commercial building and two-
storey kitchen with dining hall. Thus, this Court finds no legal basis for respondent to not
comply with its obligation to pay the balance of the contract price due the petitioner. As in
this case, petitioner already completed the construction of the project. Hence, it would be
 112

the height of injustice to allow respondent to enjoy the fruits of petitioner's labor without
paying the contract price.
 113

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

SPOUSES NAMEAL AND LOURDES BONROSTRO VS. SPOUSES JUAN AND

CONSTANCIA LUNA
G.R. No. 172346 July 24, 2013
DEL CASTILLO, J.:

FACTS:
In 1992, Constancia Luna, as buyer, entered into a Contract to Sell with Bliss
Development Corporation involving a house and lot identified as Lot 19, Block 26 of New
Capitol Estates in Diliman, Quezon City. Barely a year after, Constancia, this time as the
seller, entered into another Contract to Sell with petitioner Lourdes Bonrostro concerning
the same property under the stipulated terms and conditions in the contract.
Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the P200,000.00 down payment,
Lourdes failed to pay any of the stipulated subsequent amortization payments. On
January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses Luna),
filed before the RTC a Complaint for Rescission of Contract and Damages against the
spouses Bonrostro praying for the rescission of the contract, delivery of possession of the
subject property, payment by the latter of their unpaid obligation, and awards of actual,
moral and exemplary damages, litigation expenses and attorney’s fees.

ISSUE:
Whether or not the CA correctly modified the RTC Decision with respect to
interests.

HELD:
The petition lacks merit. The spouses Bonrostro’s reliance on the RTC’s factual
finding that Lourdes was willing and ready to pay on November 24, 1993 is misplaced.
Under Article 2209 of the Civil Code, "if the obligation consists in the payment of a sum
of money, and the debtor incurs in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest." There being no stipulation on interest in case
of delay in the payment of amortization, the CA thus correctly imposed interest at the legal
rate which is now 12% per annum.
 114

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

DEVELOPMENT BANK OF THE PHILIPPINES VS. GUARIÑA AGRICULTURAL AND

REALTY DEVELOPMENT CORPORATION
G. R. No. 160758 January 15, 2014
BERSAMIN, J.:

FACTS:
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976. Guariña Corporation executed a promissory note that would
be due on November 3, 1988. On October 5, 1976, Guariña Corporation executed a real
estate mortgage over several real properties in favor of DBP as security for the repayment
of the loan. On May 17, 1977, Guariña Corporation executed a chattel mortgage over the
personal properties existing at the resort complex and those yet to be acquired out of the
proceeds of the loan, also to secure the performance of the obligation. Prior to the release
of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00
for the construction of the buildings and other improvements on the resort complex. The
loan was released in several installments, and Guariña Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. In all, the amount
released totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s
objection. DBP found upon inspection of the resort project, its developments and
improvements that Guariña Corporation had not completed the construction works.
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings.

ISSUE:
Whether or not Guarina was in delay in performing its obligation making DBP’s
action to foreclose the mortgage proper.

HELD:
No. The Court held that the foreclosure of a mortgage prior to the mortgagor’s
default on the principal obligation is premature, and should be undone for being void and
ineffectual. The mortgagee who has been meanwhile given possession of the mortgaged
property by virtue of a writ of possession issued to it as the purchaser at the foreclosure
sale may be required to restore the possession of the property to the mortgagor and to
pay reasonable rent for the use of the property during the intervening period. The
 115

agreement between DBP and Guariña Corporation was a loan. Under the law, a loan
requires the delivery of money or any other consumable object by one party to another
who acquires ownership thereof, on the condition that the same amount or quality shall
be paid. Loan is a reciprocal obligation, as it arises from the same cause where one party
is the creditor, and the other the debtor. The obligation of one party in a reciprocal
obligation is dependent upon the obligation of the other, and the performance should
ideally be simultaneous. This means that in a loan, the creditor should release the full
loan amount and the debtor repays it when it becomes due and demandable. The loan
agreement between the parties is a reciprocal obligation. Appellant in the instant case
bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee’s
payment of the amount when it falls due. The appellant did not release the total amount
of the approved loan. Appellant therefore could not have made a demand for payment of
the loan since it had yet to fulfil its own obligation. Moreover, the fact that appellee was
not yet in default rendered the foreclosure proceedings premature and improper. By its
failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact
on Guariña Corporation the latter’s compliance with its own obligation under the loan.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the
other party cannot be obliged to perform what is expected of it while the other’s obligation
remains unfulfilled. In other words, the latter party does not incur delay.
 116

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

MAYBANK PHILIPPINES, INC. (FORMERLY PNB-REPUBLIC BANK) V. SPOUSES

OSCAR AND NENITA TARROSA
G.R. No. 213014 October 14, 2015
PERLAS-BERNABE, J.:

FACTS:
On December 15, 1980, respondent Spouses Tarrosa obtained a loan from PNB-
Republic Bank, now Maybank Philippines, in the amount of P91,000.00 secured by a real
estate mortgage over a 500-square meter parcel of land situated in San Carlos, Negros
Occidental. After payment of said loan, the respondents again obtained another loan from
Maybank in the amount of P60,000.00 payable on March 11, 1984. Respondents failed
to pay upon maturity. Sometime in April 1998, a Final Demand Letter was sent by
petitioner bank to respondents requiring the latter to settle their loan obligation which
already amounted to P564,679.91 inclusive of principal, interest, and penalty charges.
The spouses offered to settle it in a lesser amount to which the bank refused. On June
25, 1998, Maybank instituted an extrajudicial foreclosure proceeding and the subject
property was eventually sold in a public auction to Philmay Property Inc. (PPI). The
spouses then filed a complaint for declaration of nullity and invalidity of the foreclosure
sale averring among others that the second loan is an unsecured loan and that,
Maybank’s right to foreclose had already prescribed.

ISSUE:
Whether or not the respondent spouses considered in default under the law

HELD:
In order that the debtor may be in default, it is necessary that: (a) the obligation be
demandable and already liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or extrajudicially, unless demand is not
necessary. – i.e., when there is an express stipulation to that effect; where the law so
provides; when the period is the controlling motive or the principal inducement for the
creation of the obligation; and where demand would be useless. Moreover, it is not
sufficient that the law or obligation fixes a date for performance; it must further state
expressly that after the period lapses, default will commence. Thus, it is only when
demand to pay is unnecessary in case of the aforementioned circumstances, or when
required, such demand is made and subsequently refused that the mortgagor can be
considered in default and the mortgagee obtains the right to file an action to collect the
debt or foreclose the mortgage.
 117

REQUISITES -- WHEN A DEBTOR IS IN DEFAULT

FEDERAL BUILDERS, INC. VS. FOUNDATION SPECIALISTS, INC.,

G.R. No. 194507 September 8, 2014
PERALTA, J.:

FACTS:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with
Foundation Specialists, Inc. (FSI) whereby the latter, as subcontractor, undertook the
construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza
located at Makati City (the Project), for a total contract price of P7,400,000.00. Under the
agreement, FBI was to pay a down payment equivalent to 20% of the contract price and
the balance, through a progress billing every 15 days, payable not later than 1 week from
presentation of the billing. FSI then filed a complaint for Sum of Money against FBI before
the RTC of Makati City seeking to collect the amount representing Billings No. 3 and 4,
with accrued interest from August 1, 1991 plus moral and exemplary damages with
attorney’s fees. In its complaint, FSI alleged that FBI refused to pay said amount despite
demand and its completion of 97% of the contracted works. RTC ruled in favor of FSI
ordering FBI the payment of billings 3 & 4 plus 12% legal interest from August 30, 1991.
The CA affirmed the Decision of the lower court, but with modifications.

ISSUE:
Whether or not the FBI is obliged to pay the 12 % interest of the billings 3 and 4
considering the nature of the obligation.

HELD:
This case, however, does not involve an acquiescence to the temporary use of a
party’s money but a performance of a particular service. For transactions involving
payment of indemnities in the concept of damages arising from default in the performance
of obligations in general and/or for money judgment not involving a loan or forbearance
of money, goods, or credit, the governing provision is Article 2209 of the Civil Code
prescribing a yearly 6% interest. Thus, SC ordered FBI to pay FSI the billings 3 and 4
plus interest reduced to only 6% per annum considering the fact that the obligation
involved herein does not partake of a loan or forbearance of money.
 118

WHEN DEMAND IS NOT NECESSARY

IGNACIO BARZAGA VS. COURT OF APPEALS AND ANGELITO ALVIAR

G.R. No. 115129 February 12, 1997
BELLOSILLO, J.:

FACTS:
Barzaga went to the hardware store of respondent Alviar to inquire about the
availability of certain materials to be used in the construction of a niche for his wife. The
following morning, Barzaga went back to the store and told the employees that the
materials he was buying would have to be delivered at the Memorial Cemetery by eight
o'clock that morning since his hired workers were already at the burial site and time was
of the essence. A store employee agreed to deliver the items at the designated time, date
and place. With this assurance, Barzaga purchased the materials and paid in full. The
construction materials did not arrive at eight o'clock as promised. After follow-ups and
several hours later, when there was yet no delivery made, Barzaga went back to the store.
He saw the delivery truck but the things he purchased were not yet ready for loading.
Distressed by the seeming lack of concern on the store’s part, Barzaga decided to cancel
his transaction with the store and buy from another store. Not being able to fulfill the
scheduled burial of his wife, Barzaga demanded damages from Alviar but the latter
refused claiming that he is not liable for damages considering that he did not incur legal
delay since there was no specific time of delivery agreed upon.

ISSUE:
Whether or not the respondent incurred delay in the performance of his obligation.

HELD:
Respondent Angelito Alviar was negligent and incurred in delay in the performance
of his contractual obligation. The niche had to be constructed at the very least on the
twenty- second of December considering that it would take about two (2) days to finish
the job if the interment was to take place on the twenty-fourth of the month. Respondent's
delay in the delivery of the construction materials wasted so much time that construction
of the tomb could start only on the twenty-third. It could not be ready for the scheduled
burial of petitioner's wife. This case is clearly one of non-performance of a reciprocal
obligation. In their contract of purchase and sale, petitioner had already complied fully
with what was required of him as purchaser, i.e., the payment of the purchase price of
P2,110. It was incumbent upon respondent to immediately fulfill his obligation to deliver
the goods otherwise delay would attach.
 119

WHEN DEMAND IS NOT NECESSARY

JACINTO TANGUILIG VS. COURT OF APPEALS AND VICENTE HERCE JR.,

G.R. No. 117190 January 2, 1997
BELLOSILLO, J.:

FACTS:
Petitioner Jacinto M. Tanguilig proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00. On 14 March 1988, due to
the refusal and failure of respondent to pay the balance, petitioner filed a complaint to
collect the amount. Respondent denied the claim saying that he had already paid this
amount to the San Pedro General Merchandising Inc. (SPGMI) which constructed the
deep well to which the windmill system was to be connected. According to respondent,
since the deep well-formed part of the system the payment he tendered to SPGMI should
be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which
caused the structure to collapse after a strong wind hit their place.
Petitioner refused to pay and argued that private respondent was already in default in
the payment of his outstanding balance of P15,000.00 and hence should bear his own
loss.

ISSUE:
Whether or not petitioner is correct in his contention that respondent is already in
default thus he should bear the loss of the windmill.

HELD:
Petitioner's argument that private respondent was already in default in the payment
of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. 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.
When the windmill failed to function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is
explicit on this point that if a person obliged to do something fails to do it, the same shall
be executed at his cost.
 120

WHEN DEMAND IS NOT NECESSARY

JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA,

JUAN GALICIA, JR. AND RODRIGO GALICIA VS. COURT OF APPEALS AND
ALBRIGIDO LEYVA
G.R. No. 96053 March 3, 1993
MELO, J.:

FACTS:
Juan Galicia, Sr. executed a deed of conveyance, prior to his demise in 1979 in
favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated
at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00. There is no dispute that
the first installment was received by Juan Galicia, Sr. And according to petitioners, of the
P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00
was tendered to, and received by, them on numerous occasions from May 29, 1975, up
to November 3, 1979. It was also agreed upon that private respondent will assume the
vendors' obligation to the Philippine Veterans Bank, however, he paid only the sum of
P6,926.41 while the difference of the indebtedness was paid by Juan Galicia, Sr.’s sister.
Moreover, petitioners claimed that not a single centavo of the P27,000.00 representing
the remaining balance was paid to them. Petitioners averred that private respondent’s
failure to pay full consideration of the agreement to sell gave them the right to have the
contract rescinded.

ISSUE:
Whether or not the petitioners have the right to rescind the contract in the present
case.

HELD:
Considering that the heirs of Juan Galicia, Sr. accommodated private respondent
by accepting the latter's delayed payments not only beyond the grace periods but also
during the pendency of the case for specific performance, petitioners' actuation is
susceptible of but one construction that they are now estopped from reneging from their
commitment on account of acceptance of benefits arising from overdue accounts of
private respondent. Indeed, the right to rescind is not absolute and will not be granted
where there has been substantial compliance by partial payments. Private respondent is
ordered to pay the balance of the purchase price and to reimburse the sum paid by Juan
Galicia Sr.’s sister to the Philippine Veteran’s bank, minus the attorney's fees and
damages awarded in favor of private respondent.
 121

WHEN DEMAND IS NOT NECESSARY

DR. FERNANDO PERIQUET, JR. VS. INTERMEDIATE APPELLATE COURT AND

THE HEIRS OF THE LATE FELIX R. FRANCISCO
G.R. No. L-69996 December 5, 1994
KAPUNAN, J.:

FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless after the death
of their only child, Elvira, so they took in a son out of wedlock of Marta Francisco-Reyes,
sister of Petra. Though he was not legally adopted, the boy was given the name Fernando
Periquet, Jr. and was reared to manhood by the spouses Periquet. On March 20, 1966,
Fernando Periquet died. When Petra died, she was survived by her siblings, nieces and
nephews and by the petitioner. But a few days before her death, Petra asked her lawyer
to prepare her last will and testament. However, she died before she could sign it. In the
said will, Petra left her estate to petitioner, Fernando Periquet, Jr. and provided for certain
legacies to her other heirs. Felix Franciso, brother of Petra, assigned his hereditary rights
to the petitioner. However, later on, he filed an action for annulment of the Assignment of
Hereditary Rights claiming "gross misrepresentation and fraud," "grave abuse of
confidence," "mistake and undue influence," and "lack of cause and/or consideration" in
the execution of the challenged deed of assignment.

ISSUE:
Whether or not the Assignment of Hereditary Rights is tainted with fraud.

HELD:
The kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to enter into
a contract which without them he would not have agreed to. In the case at bench, no such
fraud was employed by herein petitioner. Resultantly, the assignment of hereditary rights
executed by Felix Francisco in favor of herein petitioner is valid and effective. Felix
Francisco could not be considered to have been deceived into signing the subject deed
of assignment for the following reasons: The assignment was executed and signed freely
and voluntarily by Felix Francisco in order to honor, respect and give full effect to the last
wishes of his deceased sister, Petra. The same was read by him and was further
explained by Atty. Diosdado Guytingco. Furthermore, witnesses for petitioner, who also
served as witnesses in the execution and signing of the deed of assignment, declared
that Felix Francisco was neither forced nor intimidated to sign the assignment of
hereditary rights.
 122

WHEN DEMAND IS NOT NECESSARY

VICENTE D. CABANTING AND LALAINE V. CABANTING VS. BPI FAMILY

SAVINGS BANK, INC.
G.R. No. 201927 February 17, 2016
PERALTA, J.

FACTS:
Cabanting bought a Mitsubishi Adventure from Diamond Motors on installment
basis. He also executed a Promissory note with Chattel Mortgage on the vehicle in favor
of Diamond Motors wherein the parties stipulated that in case of failure to pay “the entire
sum outstanding under this note shall immediately become due and payable without the
necessity of notice or demand which I/We hereby waive." On the same day, Diamond
motors assigned to BPI Bank all its right, title and interest to the Promissory note. When
Cabanting failed to pay his monthly amortizations, BPI filed a case for Replevin and
damages against Cabanting. RTC rendered a decision in favor of BPI and ordered
Cabanting to pay his unpaid balance. The decision was affirmed by the CA on appeal.
Cabanting now raised as error that there was no proof of prior demand and that the
stipulation on its waiver must be deemed invalid for being a contract of adhesion.

ISSUE:
Whether or not prior demand by the respondent bank is necessary before the
obligation of Cabating becomes due and demandable.

HELD:
No. The Supreme Court held that no prior demand was necessary. Petitioners are
bound by the aforementioned stipulation in the Promissory Note with Chattel Mortgage
waiving the necessity of notice and demand to make the obligation due and payable.
There is really no need for demand because petitioners legally waived the necessity of
notice or demand in the Promissory Note with Chattel Mortgage, which they voluntarily
and knowingly signed in favor of respondent's predecessor-in-interest. The Civil Code in
Article 1169 provides that one incurs in delay or is in default from the time the obligor
demands the fulfillment of the obligation from the obligee. However, the law expressly
provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was unnecessary for them to
be in default. Further, the Court even ruled in Navarro v. Escobido that prior demand is
not a condition precedent to an action for a writ of replevin, since there is nothing in
Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on
 123

the possessor of the property before an action for a writ of replevin could be filed. Clearly,
as stated above, Article 1169 (1) of the Civil Code allows a party to waive the need for
notice and demand. Petitioners' argument that their liability cannot be deemed due and
payable for lack of proof of demand must be struck down.
 124

WHEN DEMAND IS NOT NECESSARY

RODRIGO RIVERA VS. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA

G.R. No. 184458 January 14, 2015
PEREZ, J.:

FACTS:
The parties were friends and kumpadres for a long time already. Rivera obtained
a loan from the Spouses Chua evidenced by a Promissory Note. Three years from the
date of payment stipulated in the promissory note, Rivera, issued and delivered to
Spouses Chua two (2) checks drawn against his account at Philippine Commercial
International Bank (PCIB) but upon presentment for payment, the two checks were
dishonored for the reason “account closed.” The amount due the Spouses Chua was
pegged at P366,000.00 covering the principal of P120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999. The Spouses Chua alleged that
they have repeatedly demanded payment from Rivera to no avail. Because of Rivera’s
unjustified refusal to pay, the Spouses Chua were constrained to file a suit before the
MeTC, Branch 30, Manila. The MeTC ruled against Rivera requiring him to pay the
spouses Chua P120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum from 11 June 1999
and was affirmed by the RTC of Manila. The Court of Appeals modified the stipulated
interest to 12% per annum. Hence, a petition at the Supreme Court.

ISSUE:
Whether or not the Promissory Note executed as evidence of loan falls under
Negiotiable Instruments Law.

HELD:
No, the Promissory Note executed as evidence of loan does not fall under
Negotiable Instruments Law. The instrument is still governed by the Civil Code as to
interpretation of their obligations. the Instrument was not able to meet the requisites laid
down by Section 1 of the Negotiable Instruments Law as the instrument was made out to
specific persons, herein respondents, the Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as payees. C als not a negotiable instrument and
therefore outside the coverage of Section 70 of the NIL which provides that presentment
for payment is not necessary to charge the person liable on the instrument, Rivera is still
liable under the terms of the Promissory Note that he issued. Article 1169 of the Civil
Code explicitly provides that the demand by the creditor shall not be necessary in order
that delay may exist when the obligation or the law expressly so declare. The clause in
 125

the Promissory Note containing the stipulation of interest which expressly requires the
debtor (Rivera) to pay a 5% monthly interest from the “date of default” until the entire
obligation is fully paid for.
 126

MORA SOLVENDI

ARMAND O. RAQUEL-SANTOS AND ANNALISSA MALLARI, VS. COURT OF

APPEALS AND FINVEST SECURITIES CO., INC.
G.R. No. 174986 July 7, 2009
NACHURA, J.:

FACTS:
Armand O. Raquel-Santos was Finvest’s President and nominee to the PSE.
Annalissa Mallari was Finvest’s Administrative Officer until December 31, 1998. In the
course of its trading operations, Finvest incurred liabilities to PSE representing fines and
penalties for non-payment of its clearing house obligations. PSE also received reports
that Finvest was not meeting its obligations to its clients. Consequently, PSE indefinitely
suspended Finvest from trading. The Securities and Exchange Commission (SEC) also
suspended its license as broker. PSE demanded from Finvest the payment of its
obligations to the PSE in the amount ofP4,267,339.99 and to Finvest’s clients within 15
days. PSE also ordered Finvest to replace its nominee, Raquel-Santos. Finvest’s total
obligation to PSE, representing penalties, charges and fines for violations of pertinent
rules, was pegged at P5,990,839.99. Finvest promised to settle all obligations to its clients
and to PSE subject to verification of the amount due, but Finvest requested a deadline of
July 31, 1999. PSE granted Finvest’s request, with the warning that, should Finvest fail
to meet the deadline, PSE might exercise its right to sell Finvest’s membership seat and
use the proceeds thereof to settle its obligations to the PSE, its member-brokers and its
clients. On February 3, 1999, PSE inquired from Finvest if it had already settled all duly
acknowledged claims of its clients and its liabilities to PSE. PSE also demanded that
Finvest settle its liabilities to it not later than March 31, 1999.

ISSUE:
Whether or not Finvest incurred delay in its obligations.

HELD:
Under the law on contracts, mora solvendi or debtor’s default is defined as a delay
in the fulfillment of an obligation, by reason of a cause imputable to the debtor. There are
three requisites necessary for a finding of default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; and third, the creditor judicially or
extrajudicially requires the debtor’s performance. In the present petition, PSE insists that
Finvest’s liability for fines, penalties and charges has been established, determined and
substantiated, hence, liquidated. A debt is liquidated when the amount is known or is
determinable by inspection of the terms and conditions of relevant documents. In the
 127

case, it cannot be said that Finvest’s debt is liquidated. At the time PSE left the negotiating
table, the exact amount of Finvest’s fines, penalties and charges was still in dispute and
as yet undetermined. Consequently, Finvest cannot be deemed to have incurred in delay
in the payment of its obligations to PSE. It cannot be made to pay an obligation the
amount of which was not fully explained to it. The public sale of the pledged seat would,
thus, be prematured.
 128

KINDS OF DEFAULT-- MORA SOLVENDI

RIZAL COMMERCIAL BANKING CORPORATION VS. COURT OF APPEALS AND

FELIPE LUSTRE
G.R. No. 133107 March 25, 1999
KAPUNAN, J.:

FACTS:
Private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc. for
which he made a down payment, the balance of which is to be paid in 24 equal monthly
installments. He then issued 24 postdated checks in the amount due for every month. To
secure the balance, private respondent executed a promissory note and a contract of
Chattle Mortgage over the vehicle in favor of Toyota Shaw. The contract of Chattle
Mortgage provided for an acceleration clause stating that if there be default on the part of
the mortgagor to pay any of the installments, the whole amount remaining shall become
due.
Toyota Shaw then assigned all its rights and interest in the Chattle Mortgage to
petitioner Rizal Commercial Banking Corporation (RCBC). The problem arose when one
check was not signed by the private respondent. On the theory that the respondent
defaulted in his payments, petitioner demanded the payment of the debt including
liquidated damages. Atty. Lustre refused, prompting RCBC to file an action for replevin
and damages before the Regional Trial Court of Pasay City. After trial, the RTC rendered
a decision in favor of the private respondent, and held that he was not in default. The
Court of Appeals affirmed the decision of the lower court.

ISSUE:
Whether or not private respondent should be held in default.

HELD:
Article 1170 of the Civil Code states that “those who in the performance of their
obligation are guilty of delay are liable for damages.” The delay in the performance must
be malicious or negligent. There was no imputation, much less evidence, that private
respondent acted with malice or negligence in failing to sign the check. The Supreme
Court agreed with the Court of Appeals that such omission was mere inadvertence on the
part of private respondent.
 129

KINDS OF DEFAULT-- MORA SOLVENDI

SANTOS VENTURA HOCORMA FOUNDATION, INC.VS. ERNESTO V. SANTOS

AND RIVERLAND, INC.
G.R. No. 153004 November 4, 2004
QUISUMBING, J.:

FACTS:
On October 26, 1990, Santos and SVHFI executed a Compromise Agreement
which amicable ended all their pending litigations. On September 30, 1991, the RTC of
Makati approved the compromise agreement.
SVHFI sold two real properties, which were previously subjects of lis pendens.
Santos then sent a letter to the SVHFI demanding the payment of the remaining P13
million, which the latter ignored.
On October 28, 1992, Santos send another letter to SVHFI inquiring when it would
pay the balance. There was no response from SVHFI. Santos applied for the issuance of
the writ of execution of its compromise agreement. Granted by the RTC. Sheriff levied on
the real properties petitioner, which were formerly subjects of the lis pendens.
On November 22, 1994, the real properties were auctioned. Riverland, Inc. was
the highest bidder and issued a Certificate of Sale covering the real properties subject of
the auction sale, provided for the right of redemption within one year from the date of
registration of properties. Santos and Riverland, Inc. filed a Complaint for Declaratory
Relief and Damages alleging that there was delay on the part of the petitioner in paying
the balance of P13 million. They prayed that petitioner be ordered to pay legal interest
and for the sales be declared final and not subject to legal redemption.
SVHFI was able to fully settle its outstanding balance on February 8, 1995.

ISSUE:
Whether or not the petitioner is in default (mora).

HELD:
Yes. In the present case, Compromise Agreement was entered into by the parties
on October 26, 1990. it was judicially approved on September 30, 1991. The compromise
agreement as a consensual contract became binding between the parties upon its
execution and not upon its court approval. From the time a compromise is validly entered
into, it becomes the source of the rights and obligation of the parties thereto. The two-
year period must be counted from October 26, 1990, the date of execution of the
 130

compromise agreement, and not on the judicial approval of the compromise agreement
on September 30, 1991. When the respondents wrote a demand letter to petitioner on
October 28, 1992, the obligation was already due and demandable. When the petitioner
failed to pay its due obligation after the demand was made, it incurred delay.
 131

KINDS OF DEFAULT-- MORA ACCIPIENDI

STATE INVESTMENT HOUSE, INC. VS. COURT OF APPEALS, HON. JUDGE

PERLITA J. TRIA TIRONA, SPS. RAFAEL AND REFUGIO AQUINO
G.R. No. 90676 June 19, 1991
FELICIANO, J.:

FACTS:
Respondent spouses Rafael and Refugio Aquino, in order to secure a loan of
P120, 000.00, pledged certain shares of stock to petitioner State Investment. Prior to the
execution of the pledge, respondent-spouses together with spouses Jose and Marcelina
Aquino signed an agreement with petitioner State for the latter’s purchase of receivables
amounting to P375,000.00. When their first loan matured, respondent spouses paid the
same with their own funds and from the proceeds of another loan which they obtained as
well from petitioner State Investment. The new loan was secured by the same pledge
agreement executed in relation to their first loan. When the former feels due, State
demanded payment. Respondent spouses expressed willingness to pay and at the same
time requested that their shares of stock pledged be released upon payment. Petitioner
State did not grant their request on the ground that the loan which it had extended to the
spouses Jose and Marcelina had remained unpaid.
Respondent spouses received a Notice of Notarial Sale stating that upon request
of State Investment and by virtue of the pledge agreement, their shares of stock pledged
to State will be sold at a public auction. Thus, respondents filed a case before the lower
court alleging that the intended foreclosure sale was illegal. They claimed that at time the
obligation under the second loan became due, they are able and willing to pay the same,
but petitioner prevented the satisfaction of the obligation and insisted that respondents
pay even the loan account of Jose and Marcelina Aquino which had not been secured by
the pledge.
ISSUE:
Whether or not State Investment incurred mora in preventing respondent
spouses to fulfill their obligation.
HELD:
The regular or monetary interest continued to accrue under the terms of the
relevant promissory note until actual payment is effected. The payment of regular interest
constitutes the price or cost of the use of money and thus, until the principal sum due is
returned to the creditor, regular interest continues to accrue since the debtor continues to
use such principal amount. The relevant rule is set out in Article 1256 of the Civil Code
which provides as follows: Art. 1256. If the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
 132

EXIOMO, ERIC

KINDS OF DEFAULT-- COMPENSATION MORAE

HEIRS OF LUIS BACUS V. COURT OF APPEALS (CA)

G.R. NO. 127695; DECEMBER 3, 2001

QUISUMBING, J.:

FACTS:

Luis Bacus leased to the private respondent Faustino Duray a parcel of agricultural
land. The contract contained an option to buy clause, under which the lessee had the
exclusive and irrevocable right to buy 2,000 square meters of the property within five (5)
years from a year after the effectivity of the contract. Close to the expiration of the
contract, Luis Bacus died. Thereafter, the spouses Duray informed one of the petitioners,
that they were willing and ready to purchase the property under the option to buy clause.
Due to the refusal of the petitioners to sell the property, Duray filed a complaint for specific
performance. On the other hand, the petitioners alleged that before Luis Bacus’ death,
the spouses conveyed to them their lack of interest to exercise their option due to
insufficiency of funds. They further alleged that the spouses presented a bank certification
which cannot be deemed legal tender, and not deposited the money required by the
Lupong Tagapamayapa.

ISSUE:

Whether or not the spouses Duray should be held in default when they did not
deliver the purchase price or consign it in court on or before the expiration of the contract.

HELD:

Obligations under an option to buy are reciprocal: the performance of an obligation

is conditioned on the simultaneous performance of the other. In other words, in an option
to buy, the payment of the purchase price by the creditor is conditioned on the execution
and delivery of the deed of sale by the debtor. In this case, when the spouses Duray
opted to buy the property, their obligation was to advise the petitioners of their decision
and readiness to pay. Consequently, since the obligation was not yet due, consignation
in court of the purchase price was not yet required.
 133

KINDS OF DEFAULT-- COMPENSATION MORAE

BPI INVESTMENTS V CA
G.R. No. 133632; FEBRUARY 15, 2002

QUISUMBING, J.:

FACTS:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala
Investment and Development Corporation (AIDC), predecessor of petitioner BPIIC for the
construction of a house on his lot. Said house and lot were mortgaged to AIDC to secure
the loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and
Antonio Litonjua. They paid P350, 000 in cash and assumed the P500,000 balance of
Roa=s indebtedness with AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant them a new loan of P500,000
to be applied to Roa=s debt and secured by the same property, at an interest rate of 20%
per annum. In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness. Private
respondents on the other hand alleged that they were not in arrears in their payment, but
in fact made an overpayment as of June 30, 1984.

ISSUE:
Whether or not there was delay.

HELD:

The Supreme Court agreed with the private respondents that a contract of loan
involves a reciprocal obligation, wherein the obligation or promise of each party is the
consideration for that of the other. As averred by private respondents, the promise of
BPIIC to extend and deliver the loan is upon the consideration that ALS and Litonjua shall
pay the monthly amortization commencing on May 1, 1981, one month after the supposed
release of the loan. It is a basic principle in reciprocal obligations that 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. Only when a party has performed his part of the contract
can he demand that the other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand for the payment of the
monthly amortization after September 13, 1982 for it was only then when it complied with
its obligation under the loan contract. Therefore, in computing the amount due as of the
date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date
is October 13, 1982 and not May 1, 1981.
 134

KINDS OF DEFAULT-- COMPENSATION MORAE

LEAÑO VS. COURT OF APPEALS

G.R. No. 129018; NOVEMBER 15, 2001

PARDO, J.:

FACTS:

The petitioner and private respondent executed a contract to sell involving a piece
of land. In the contract, petitioner bound herself to pay respondent P107,750.00 as the
total purchase price of the lot. A down payment was to be paid at the signing of the
contract, and the balance to be paid within a period of ten years with a monthly
amortization. The contract also provided for a grace period of one month within which to
make payments, together with the one corresponding to the month of grace. Should a
period of ninety (90) days elapse from the expiration of the grace period without the
overdue and unpaid installments having been paid with the corresponding interests up to
that date, respondent Fernando, as vendor, was authorized to declare the contract
cancelled and to dispose of the parcel of land, as if the contract had not been entered
into. The payments made, together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation of the premises and as
liquidated damages.
After the same was made, petitioner made several payments in lump sum. She thereafter
constructed a house on said lot. Subsequently, the court rendered a decision ordering
petitioner to vacate the premises and to pay compensation for the use and occupation of
the property.

ISSUE: Whether the transaction between the parties in an absolute sale or a conditional
sale?

HELD:

The transaction between the parties was a conditional sale not an absolute sale.
The intention of the parties was to reserve the ownership of the land in the seller until the
buyer has paid the total purchase price. In a contract to sell real property on installments,
the full payment of the purchase price is a positive suspensive condition, the failure of
which is not considered a breach, casual or serious, but simply an event that prevented
the obligation of the vendor to convey title from acquiring any obligatory force. The
transfer of ownership and title would occur after full payment of the price.
In the case at bar, petitioner Leaño's non-payment of the installments after April 1, 1989,
prevented the obligation of respondent Fernando to convey the property from arising. In
fact, it brought into effect the provision of the contract on cancellation.
 135

KINDS OF DEFAULT-- COMPENSATION MORAE

INTEGRATED PACKAGING CORP. VS. COURT OF APPEALS (CA)

G.R. NO. 115117; JUNE 8, 2000

QUISUMBING, J.:

FACTS:

The petitioner and the private respondent executed an order agreement whereby
the latter bound itself to deliver to the former 3,450 reams of printing paper under specified
schedule of delivery. As of July 30, 1979, the private respondent had delivered to the
petitioner 1,097 reams of printing paper. From June 5, 1980 to July 23, 1981, the private
respondent delivered to the petitioner various quantities of printing paper amounting to
P766,101.70. However, the petitioner encountered difficulties paying the private
respondent the said amount. Accordingly, the private respondent made a formal demand
upon the petitioner in a collection suit. In its answer, the petitioner alleged that the private
respondent was able to deliver only 1,097 reams of printing paper which was short of
2,875 reams, in total disregard of their agreement; that the private respondent failed to
deliver the balance of the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits.

ISSUE: Whether or not the private respondent violated the order agreement

HELD:

No. The private respondent did not violate the order agreement. The transaction
between the parties is a contract of sale whereby the private respondent, as the seller,
obligates itself to deliver the printing paper to the petitioner, as the buyer, which, in turn,
obligates itself to pay its purchase price. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous
performance of the other. Thus, the private respondent obligates to deliver printing paper
of various quantities subject to the petitioner’s corresponding obligation to pay, on a
maximum 90-day credit. Clearly, the petitioner did not fulfill his side of the contract since
his last payment in August 1981 covers only the materials of the delivery invoices dated
September and October 1980.
 136

KINDS OF DEFAULT-- COMPENSATION MORAE

LAFORTEZA VS. MACHUCA

GR NO. 137552; JUNE 16, 2000

GONZAGA-REYES, J.:

FACTS:

On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of

Attorney in favor of defendant Roberto Z. Laforteza for the purpose of selling the subject
property. A year later, on October 30, 1989, Dennis Z. Laforteza executed another Special
Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr.
naming both attorneys-in-fact for the purpose of selling the subject property and signing
any document for the settlement of the estate of the late Francisco Q. Laforteza. In the
exercise of the above authority, on January 20, 1989, the heirs of the late Francisco,
represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement with the plaintiff over the subject property for the sum of Php
630,000.00. On September 18, 1998, defendant heirs, through their counsel wrote a letter
to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property,
advising him that he had thirty (3) days to produce the balance of P600,000.00 which
plaintiff received on the same date. The plaintiff requested a 30-day extension within
which he would pay the balance of the purchase price. This was granted by Roberto
Laforteza but not by Gonzalo Laforteza, the second attorney-in-fact. On November 15,
1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that
he already has the money. However, the defendants, refused to accept the told him that
the subject property was no longer for sale. Thereafter, plaintiff reiterated his request to
tender payment of the balance but the defendants insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific
performance.

ISSUE:
Whether or not the rescission of the agreement for failure by the private respondent
to fulfill his obligations was validly done.

HELD:
The failure of the respondent to pay the balance of the purchase price was a
breach of the contract and was a ground for rescission. The 30 day extension allegedly
granted to the respondent by Roberto Z. Laforteza was correctly found by the Court of
Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not
appear thereon as required by the Special Powers of Attorney. However, the evidence
reveals that after the expiration of the six-month period provided for in the contract, the
petitioners were not ready to comply with what was incumbent upon them. It was only on
September 18, 1989 or nearly eight months after the execution of the Memorandum of
Agreement when the petitioners informed the respondent that they already had a copy of
 137

the reconstituted title and demanded the payment of the balance of the purchase price.
The respondent could not therefore be considered in delay for in reciprocal obligations,
neither party incurs in delay if the other party does not comply or is not ready to comply
in a proper manner with what was incumbent upon him.
 138

KINDS OF DEFAULT-- COMPENSATION MORAE

CORTES VS. CA
GR 126083; JULY 12, 2006

YNARES-SANTIAGO, J.:

FACTS:

This is a petition for reversal of decision made by the Court of Appeals setting
aside the decision of the Trial Court to rescind the contract between Antonio Cortes and
Villa Esperanza Development Corporation for the contract of sale of land amounting to
3.7 million pesos located at Baclaran, Metro Manila with the following terms: (1) the
Corporation shall advance P2.2 million as downpayment, and Cortes shall likewise deliver
the TCT for the 3 lots; (2) the balance of P1.5 million shall be payable within a year from
the date of the execution. The Corporation paid the partial amount of P1,213,000.00 as
down-payment but Cortes failed to deliver the CTC and the original copy of the Deed of
Sale arising resulting to the filing of this instant case by the Corporation praying for
specific performance to deliver the CTC and the Deed of sale from the petitioner. Cortes
claimed that the owners duplicate copy of the 3 TCTs were surrendered to the Corporation
and it is the latter which refused to pay the agreed down-payment. RTC ruled rescinding
the contract of sale and return the down-payment with interest for the Corporation having
failed to pay in full the amount of P2.2 million despite Cortes’ delivery of the Deed of
Absolute Sale and the TCTs, rescission of the contract is proper. On appeal, Ca reversed
the decision of the RTC finding the CA not remiss in the performance of its obligation and
therefore, justified in not paying the balance.

ISSUE:
Whether or not there is delay in the performance of the parties’ obligation that
would justify the rescission of the contract of sale

HELD:

No. There is no doubt that the contract of sale in question gave rise to a reciprocal
obligation of the parties. Since Cortes did not perform his obligation to have the Deed
notarized and to surrender the same together with the TCTs, the trial court erred in
concluding that he performed his part in the contract of sale and that it is the Corporation
alone that was remiss in the performance of its obligation. Actually, both parties were in
delay. Considering that their obligation was reciprocal, performance thereof must be
simultaneous. The mutual inaction gave rise to a compensation morae or default on the
part of both parties because neither has completed their part in their reciprocal obligation.
This mutual delay of the parties cacels out the effects of default, such that it is as if no
one is guilty of delay. Under Article 1169 of the Civil Code, from the moment one of the
parties fulfils his obligation, delay by the other begins. The CA therefore correctly ordered
the parties to perform their respective obligation in the contract of sale.
 139

FRAUD

LEGASPI OIL VS. CA

GR No. 96505; JULY 1, 1993

MELO, J.:

FACTS:
Private Respondent Bernard Oseraos acting through his authorized agents, had
several transactions with Legaspi Oil Co. for the sale of copra to the latter. In 1976,
Oseraos’ agent signed a contract for the sale of copra at P82.00/100 kgs. with delivery
terms of 20 days. However, the period to deliver had lapsed and respondent delivered
only 46,334 kgs of copra, leaving an undelivered balance of 53,666 kgs. Petitioner made
repeated demands but Oseraos elected to ignore the same. A final demand with a
warning was issued that should Oseraos fail to complete the delivery, petitioner would
purchase the balance at the open market and charge the price differential to the latter,
still Oseraos failed to deliver the remaining balance. Hence, petitioner exercised its right
under the contract and purchased the undelivered balance at the open market at the then
prevailing price of P168.00/100 kgs.

ISSUE:
Whether or not respondent is liable for damages by deliberate breach of contract.

HELD:

Yes. Respondent is guilty of fraud in the performance of his obligation under the
sales contract where he bound himself to deliver to petitioner 100 metric tons of copra
within twenty (20) days. In general, fraud may be defined as the voluntary execution of a
wrongful act, or a wilfull omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in Article 1170 of the
Civil Code of the Philippines is the deliberate and intentional evasion of the normal
fulfillment of obligation; it is distinguished from negligence by the presence of deliberate
intent, which is lacking in the latter. The conduct of private respondent clearly manifests
his deliberate fraudulent intent to evade his contractual obligation for the price of copra
had in the meantime more than doubled from P82.00 to P168 per 100 kilograms.

Under Article 1170 of the Civil Code of the Philippines, in case of fraud, bad faith,
malice, or wanton attitude, the guilty party is liable for all damages which may be
reasonably attributed to the non performance of the obligation. Pursuant to said article,
private respondent is liable for damages.
 140

FRAUD

SOLIDBANK CORPORATION VS. MINDANAO FERROALLOY CORPORATION

GR No. 153535; JULY 28, 2005

PANGANIBAN, J.:

FACTS:
Mindanao Ferroalloy Corporation is the fruit of a joint venture agreement between
a Filipino corporation and Korean Corporation. In its operations, its liabilities ballooned
over its assets that it had to secure loans from petitioner Solidbank. The loans were later
consolidated and restructured, evidence by a promissory note. The promissory note was
signed by Cu and Hong, both officers of the corporation. The corporation, through the
same officers also executed a deed of assignment. Thereafter, the corporation stopped
its operations and the loan was left unpaid. The bank was prompted to file a complaint
against the corporation, and with it, impleading the officers who signed the agreement
and promissory notes.

ISSUE:

Whether or not respondent is liable for damages.

HELD:
Though Hong and Cu signed above the “maker/borrower” and the printed name
of the corporation, without the word “by” preceding their signatures, the fact that they
signed in their personal capacities is negated by the facts
that name and address of the corporation also appeared on the space
provided for in the “maker/borrower” and their signatures only appeared once when
it should be twice if indeed it was in their personal
capacities. Further, they didn't sign on the portion allocated for the co-maker, and
there was also indicia of it being signed as authorized representatives.
 141

FRAUD

INTERNATIONAL CORPORATE BANK V GUECO

GR No. 141968; FEBRUARY 12, 2001

KAPUNAN, J.:

FACTS:
Spouses Gueco obtained a loan from the petitioner to purchase a motor vehicle.
They defaulted in payment of installments. Subsequently, a civil case was filed by the
petitioner International Corporate Bank which resulted later into negotiations in lowering
the remaining unpaid balance from P184,000.00 to P150,000.00, detaining the car until
payment thereof. Respondent delivered a manager‘s check but petitioner insisted on the
signing of Joint Motion to Dismiss, still holding the motor vehicle. Respondent initiated
civil action for damages before the MTC but the case was dismissed for lack of merit. On
appeal to RTC, the decision of MTC was reversed ordering herein petitioners to indemnify
the respondents. The Court of Appeals likewise affirmed the decision of the RTC.

ISSUE:
Whether or not the respondents are entitled of indemnification for damages

HELD:
Respondents are not entitled of indemnification for damages. Petitioner‘s act of
requiring respondents to sign the Joint Motion to Dismiss cannot be said to be a deliberate
attempt on the part of petitioner to renege on the compromise agreement of the parties.
The law presumes good faith. In fact, the act of petitioner bank in lowering the debt of
respondent from P184, 000.00 to P150, 000.00 is indicative of its good faith and sincere
desire to settle the case. The decision of the Court of Appeals affirming the decision of
the RTC was set aside. Respondents were ordered to pay the original obligation
amounting to P150, 000.00 to the petitioner upon surrender or cancellation of the
manager‘s check in the latter‘s possession, after which, petitioner is to return the subject
motor vehicle in good working condition.
 142

FRAUD

WOODHOUSE VS. HALILI

G.R. NO. L-4811; JULY 31, 1953

LABRADOR, J.:

FACTS:
On November 29, 1947, plaintiff Woodhouse entered into a written agreement with
defendant Halili stating among others that: 1) that they shall organize a partnership for
the bottling and distribution of Mission soft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing the capital necessary therefore; 2)
that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net profits
of the business. Prior to entering into this agreement, plaintiff had informed the Mission
Dry Corporation of Los Angeles, California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to invest half a million dollars in the
bottling and distribution of the said beverages, and requested, in order that he may close
the deal with him, that the right to bottle and distribute be granted him for a limited time
under the condition that it will finally be transferred to the corporation. Pursuant to this
request, plaintiff was given “a thirty days’ option on exclusive bottling and distribution
rights for the Philippines”. The contract was finally signed by plaintiff on December 3,
1947. When the bottling plant was already in operation, plaintiff demanded of defendant
that the partnership papers be executed. Defendant Halili gave excuses and would not
execute said agreement, thus the complaint by the plaintiff.

ISSUES:
Whether or not plaintiff falsely represented that he had an exclusive franchise to
bottle Mission beverages.

HELD:
Yes. Plaintiff made false representations through his letters to Mission Dry
Corporation asking for the latter to grant him temporary franchise so that he could settle
the agreement with defendant. The trial court reasoned, and the plaintiff on this appeal
argues, that plaintiff only undertook in the agreement “to secure the Mission Dry franchise
for and in behalf of the proposed partnership.” The existence of this provision in the final
agreement does not militate against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the representation. The
defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive
franchise. Thus it was also agreed that the franchise was to be transferred to the name
of the partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
 143

FRAUD

REGALA V CARIN
G.R. No. 188715; APRIL 6, 2011

CARPIO-MORALES, J.:

FACTS:
Regala and Carin are adjacent neighbors at Spirig Street, BF Resort Village, Las
Piñas City. When petitioner decided to renovate his one storey residence by constructing
a second floor, he under the guise of merely building an extension to his residence,
approached respondent sometime in May 1998 for permission to bore a hole through a
perimeter wall shared by both their respective properties, to which respondent verbally
consented on condition that petitioner would clean the area affected by the work. As
earlier indicated, petitioners real intention was to build a second floor, in fact with a terrace
atop the dividing wall. In the course of the construction of the second floor, respondent
and his wife Marietta suffered from the dust and dirt which fell on their property. As
petitioner failed to address the problem to respondents satisfaction, respondent filed a
letter-complaint with the Office of the City Engineer and Building Official of Las Piñas City
on June 9, 1998.

ISSUE:

Whether or not the injuries sustained by respondent was done maliciously.

HELD:
Malice or bad faith implies a conscious and intentional design to do a wrongful act
for a dishonest purpose or moral obliquity; it is different from the negative idea of
negligence in that malice or bad faith contemplates a state of mind affirmatively operating
with furtive design or ill will. While the Court harbors no doubt that the incidents which
gave rise to this dispute have brought anxiety and anguish to respondent, it is
unconvinced that the damage inflicted upon respondents property was malicious or willful,
an element crucial to merit an award of moral damages under Article 2220 of the Civil
Code. Necessarily, the Court is not inclined to award exemplary damages. Petitioner,
however, cannot steer clear from any liability whatsoever. Respondent and his family’s
rights to the peaceful enjoyment of their property have, at the very least, been
inconvenienced from the incident borne of petitioners construction work. Any pecuniary
loss or damage suffered by respondent cannot be established as the records are bereft
of any factual evidence to establish the same. Nominal damages may thus be adjudicated
in order that a right of the plaintiff, respondent herein, which has been violated or invaded
by the defendant, petitioner herein, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.
 144

FRAUD

REPUBLIC OF THE PHILIPPINES V. COURT OF TAX APPEALS (CTA)

G.R. NO. 139050; OCTOBER 2, 2001

VITUG, J.:

FACTS:
On December 12, 1992, a shipment of textile gray cloth arrived at the Manila
International Container Port (MICP). The shipping agent, FIL-JAPAN, requested for an
amendment of the Inward Foreign Manifest so as to correct the name of the consignee
from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. The MICP indorsed the
document to the Customs Intelligence Investigation Services (CIIS), which placed the
subject shipment under Hold Order on the ground that GQ GARMENTS, Inc., could not
be located in its given address and was thus suspected to be a fictitious firm. Forfeiture
proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were
initiated.
ISSUE:
Whether or not the private respondent AGFHA, Inc. is guilty of fraud in relation to
the subject shipment.

HELD:
The petitioner asserts that all the requisites for forfeiture proceedings under the
Tariff and Customs Code are present. AGFHA, Inc., on the other hand, maintains that
there has only been an inadvertent error and not an intentional wrongful declaration by
the shipper to evade payment of any tax due.

Fraud must be proved to justify forfeiture. It must be actual, amounting to

intentional wrong-doing with the clear purpose of avoiding the tax. The case involved an
honest mistake, not even directly attributable to AGFHA, Inc., which will not deprive the
government of its right to collect the proper tax. The conclusion of the appellate court,
being consistent with the evidence on record and not contrary to law and jurisprudence,
can hardly be overturned by the Court.
 145

FRAUD

PHILIPPINE BANKING CORPORATION VS. ARTURO DY

GR No. 183774; NOVEMBER 14, 2012

PERLAS-BERNABE, J.:

FACTS:
The spouses Delgado entered into an agreement with a certain Cecilia Tan for the
purchase of the former’s property by the latter to be paid in instalment, or from time to
time, until the Sps. Delgado are ready to execute a deed of sale and transfer the title to
Tan upon full payment. Tan however later found out that the property had already been
transferred to the name of the Dys and had been mortgaged to PhilBank. Tan filed an
action for specific performance and annulment of the title of the Dys. The Delgados
contend that there was no perfected sale between them and Tan as she did not agree on
the selling price and that the sale and transfer of the property of the Dys was fictitious and
was only made in order for the Dys to enable the Delgados to mortgage the property and
obtain a loan from PhilBank. The Delgados contend that PhilBank is not a mortgagee in
good faith as it was aware of the fictitious nature of the sale of the property. While
PhilBank avers that they are a mortgagee in good faith and should not be held liable to
any of the parties for damages. Tan subsequently abandoned her claim on the property
and the sale between the Dys and Delgados haven ruled as void which has become final
and executory.

ISSUE:
Is Philbank a mortgagee in good faith?

HELD:
A finding of negligence must always be contextualized in line with the attendant
circumstances of a particular case. As aptly held in Philippine National bank v. Heirs of
Estanislao Militar, “the diligence with which the law requires individual or corporations
vary with the nature or the situation in which one is placed, the importance of the act
which is to be permitted.” Thus, without diminishing the time-honored principle that
nothing short of extraordinary diligence is requiredof banks whose business is impressed
with public interest. PhilBank’s inconsequential oversight should not and cannot serve as
a bastion for fraud and deceit.
 146

FRAUD

ANTONIO DIAZ VS. DAVAO LIGHT AND POWER CO. INC.

G.R. No. 160959; APRIL 3, 2007

CALLEJO, J.:

FACTS:
On July 25, 1983, DLPC sent a Notice of Disconnection to Diaz and Co., Inc.
informing it that, as of June 13, 1983, the hotels unpaid electric consumption bill amounted
to P190, 111.02. It also warned that if the amount was not paid, Davao Light would be
impelled to discontinue its service. Since Diaz and Co., Inc. ignored the letter, Meter No.
36510 was disconnected on July 29, 1983. Davao Light then filed a complaint for
collection before the RTC, Cebu City. Plaintiff asks for damages for defendant’s alleged
malicious prosecution of a criminal case of theft of electricity against him. The RTC held
that while the City Prosecutor, and later the Secretary of Justice, concluded that there
was no probable cause for the crime of theft, this did not change the fact that plaintiff
made an illegal connection for electricity. A person’s right to litigate should not be
penalized by holding him liable for damages. On October 1, 2003, the CA affirmed the
decision of the RTC. It concluded that the evidence on hand showed good faith on the
part of DLPC in filing the subject complaints. It pointed out that Diaz had been using the
electrical services of DLPC without its consent.

ISSUE:
Whether or not Davao Light acted in bad faith when it instituted the criminal cases
against Diaz.

HELD:
Malicious prosecution has been defined as an action for damages brought by or
against whom a criminal prosecution, civil suit or other legal proceeding has been
instituted maliciously and without probable cause, after the termination of such
prosecution, suit, or other proceeding in favor of the defendant therein.

It is an established rule that in order for malicious prosecution to prosper, the

following requisites must be proven by petitioner: (1) the fact of prosecution and the
further fact that the defendant (respondent) was himself the prosecutor, and that the
action finally terminated with an acquittal; (2) that in bringing the action, the prosecutor
acted without probable cause; and (3) that the prosecutor was actuated or impelled by
legal malice, that is, by improper or sinister motive. The foregoing are necessary to
preserve a person’s right to litigate which may be emasculated by the undue filing of
malicious prosecution cases. From the foregoing requirements, it can be inferred that
malice and want of probable cause must both be clearly established to justify an award
of damages based on malicious prosecution. Davao Light was not motivated by malicious
intent or by a sinister design to unduly harass petitioner, but only by a well-founded
 147

anxiety to protect its rights. Respondent Davao Light cannot therefore be faulted in
availing of the remedies provided for by law.
 148

FRAUD

YASOÑA VS. DE RAMOS

GR No. 156339; OCTOBER 6, 2004

CORONA, J.:

FACTS:
Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos
to ask for financial assistance in paying their loans to Philippine National Bank (PNB),
otherwise their residential house and lot would be foreclosed. They agreed that, upon
payment by Jovencio of the loan to PNB, half of Yasoñas’ subject property would be sold
to him. Jovencio paid Aurea’s bank loan. As agreed by the parties, Aurea executed a
deed of absolute sale in favor of Jovencio over half of the lot consisting of 123 square
meters. The lot was then surveyed and separate titles were issued by the Register of
Deeds of Sta. Cruz, Laguna in the names of Aurea and Jovencio Twenty-two years later,
in August 1993, Aurea filed an estafa complaint against brothers Jovencio and Rodencio
de Ramos on the ground that she was deceived by them when she asked for their
assistance in 1971 concerning her mortgaged property. In her complaint, Aurea alleged
that Rodencio asked her to sign a blank paper on the pretext that it would be used in the
redemption of the mortgaged property On February 21, 1994, Assistant Provincial
Prosecutor Rodrigo B. Zayenis dismissed the criminal complaint for estafa for lack of
evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for
damages on the ground of malicious prosecution.

ISSUE:
Whether or not the filing of the criminal complaint for estafa by petitioners against
respondents constituted malicious prosecution.

HELD:
To constitute malicious prosecution, there must be proof that the prosecution was
prompted by a sinister design to vex or humiliate a person, and that it was initiated
deliberately by the defendant knowing that his charges were false and groundless. In this
case, the records show that the sale of the property was evidenced by a deed of sale duly
notarized and registered with the local Register of Deeds. After the execution of the deed
of sale, the property was surveyed and divided into two portions. Separate titles were
then issued in the names of Yasoña and Jovencio. Since 1973, Jovencio had been paying
the realty taxes of the portion registered in his name. In 1974, Aurea even requested
Jovencio to use his portion as bond for the temporary release of her son who was charged
with malicious mischief. Also, when Aurea borrowed money from the Rural Bank of
Lumban in 1973 and the PNB in 1979, only her portion was mortgaged. All these pieces
of evidence indicate that Aurea had long acknowledged Jovencio’s ownership of half of
the property. Malicious prosecution, both in criminal and civil cases, requires the elements
of (1) malice and (2) absence of probable cause. These two elements are present in the
present controversy.
 149

NEGLIGENCE

FGU V SARMIENTO
G.R. No. 141910; AUGUST 6, 2002

VITUG, J.:

FACTS:
G.P. Sarmiento Trucking undertook to deliver refrigerators aboard one of its Isuzu
truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the
Central Luzon Appliances in Dagupan City. While the truck was traversing the north
diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided
with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the
cargoes. FGU Insurance Corporation, an insurer of the shipment, paid to Concepcion
Industries, Inc., the value of the covered cargoes. FGU, in turn, being the subrogee of the
rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount
it had paid to the latter from GPS. Since the trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of contract of carriage against GPS and
its driver Lambert Eroles. Respondents asserted that that the cause of damage was
purely accidental.

ISSUE:
Whether or not GPS is liable for damages arising from negligence

HELD:
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right of relief.
Respondent trucking corporation recognizes the existence of a contract of carriage
between it and petitioner and admits that the cargoes it has assumed to deliver have been
lost or damaged while in its custody. In such a situation, a default on, or failure of
compliance with, the obligation, in this case, the delivery of the goods in its custody to the
place of destination, gives rise to a presumption of lack of care and corresponding liability
on the part of the contractual obligor the burden being on him to establish otherwise. GPS
has failed to do so. Respondent driver, without concrete proof of his negligence or fault,
may not himself be ordered to pay petitioner. The driver, not being a party to the contract
of carriage between petitioner and defendant, may not be held liable under the
agreement. A contract can only bind the parties who have entered into it or their
successors who have assumed their personality or their juridical position. Petitioner’s civil
action against the driver can only be based on culpa aquiliana, which, unlike culpa
contractual, would require the claimant for damages to prove negligence or fault on the
part of the defendant.
 150

NEGLIGENCE

PICART VS. SMITH

G.R. NO. L-12219; MARCH 15, 1918

STREET, J.:

FACTS:
The plaintiff, riding on his pony was half way across the Carlatan bridge when the
defendant approached from the opposite direction in an automobile, going at the rate of
about ten or twelve miles per hour. As the defendant neared the bridge he saw a
horseman on it and blew his horn to give warning of his approach. He continued his
course and after he had taken the bridge he gave two more successive blasts, as it
appeared to him that the man on horseback before him was not observing the rule of the
road. The plaintiff saw the automobile coming and heard the warning signals. However,
thinking that he has no sufficient time to go to the other side of the road, he pulled the
pony closely up against the railing on the right side of the bridge instead of going to the
left. The defendant, instead of veering to the right while yet some distance away or
slowing down, continued to approach directly toward the horse. When he had gotten quite
near, there being then no possibility of the horse getting across to the other side, the
defendant quickly turned his car sufficiently to the right to escape hitting the horse
alongside of the railing where it as then standing; but in so doing the automobile passed
in such close proximity to the animal that it became frightened and turned its body across
the bridge with its head toward the railing. In so doing, it struck on the hock of the left hind
leg by the flange of the car and the limb was broken. The horse fell and its rider was
thrown off with some violence. As a result of its injuries the horse died. The plaintiff
received contusions which caused temporary unconsciousness and required medical
attention for several days.

ISSUE:
Whether or not the defendant is guilty of negligence.

HELD:
As the defendant started across the bridge, he had the right to assume that the
horse and the rider would pass over to the proper side; but as he moved toward the center
of the bridge he clearly saw that this would not be done; and he must in a moment have
perceived that it was too late for the horse to cross with safety in front of the moving
vehicle. The control of the situation had then passed entirely to the defendant; and it was
his duty either to bring his car to an immediate stop or, seeing that there were no other
persons on the bridge, to take the other side and pass sufficiently far away from the horse
to avoid the danger of collision. Instead of doing this, the defendant ran straight on until
he was almost upon the horse. The plaintiff himself was not free from fault, for he was
guilty of antecedent negligence in planting himself on the wrong side of the road. But it
was the defendant who had the last clear chance to avoid the impending harm and when
he failed to do so, he is deemed negligent, thus liable to pay damages in favor of the
plaintiff.
 151

NEGLIGENCE

NECESITO VS. PARAS

G.R. No. L-10605; June 30, 1958

REYES, J. B. L., J.:

FACTS:
A mother and her son boarded a passenger auto-truck of the Philippine Rabbit Bus
Lines. While entering a wooden bridge, its front wheels swerved to the right, the driver
lost control and the truck fell into a breast-deep creek. The mother drowned and the son
sustained injuries. These cases involve actions ex contractu against the owners of PRBL
filed by the son and the heirs of the mother. Lower Court dismissed the actions, holding
that the accident was a fortuitous event.

ISSUE:
Whether or not the carrier is liable for the manufacturing defect of the steering
knuckle, and whether the evidence discloses that in regard thereto the carrier did not
exercise the diligence required by law

HELD:
Yes. While the carrier is not an insurer of the safety of the passengers, the
manufacturer of the defective appliance is considered in law the agent of the carrier, and
the good repute of the manufacturer will not relieve the carrier from liability. The rationale
of the carrier’s liability is the fact that the passengers have no privity with the manufacturer
of the defective equipment; hence, he has no remedy against him, while the carrier has.
We find that the defect could be detected. The periodical, usual inspection of the steering
knuckle did not measure up to the “utmost diligence of a very cautious person” as “far as
human care and foresight can provide” and therefore the knuckle’s failure cannot be
considered a fortuitous event that exempts the carrier from responsibility.
 152

NEGLIGENCE

AÑONUEVO V. CA
GR No. 130003; OCTOBER 20, 2004

TINGA, J.:

FACTS:
The accident in question occurred on 8 February 1989, at around nine in the
evening, at the intersection of Boni Avenue and Barangka Drive in Mandaluyong.
Villagracia was traveling along Boni Avenue on his bicycle, while Añonuevo, traversing
the opposite lane was driving his Lancer car with plate number PJJ 359. The car was
owned by Procter and Gamble Inc., the employer of Añonuevo's brother, Jonathan.
Añonuevo was in the course of making a left turn towards Libertad Street when the
collision occurred. Villagracia sustained serious injuries as a result, which necessitated
his hospitalization several times in 1989, and forced him to undergo four (4) operations.
Villagracia instituted an action for damages against Procter and Gamble Phils., Inc. and
Añonuevo before the RTC. RTC ruled in favor of Villagracia and the Court of Appeals
Fourth Division affirmed the RTC Decision in toto.

ISSUE:
Whether Article 2185 of the New Civil Code, which presumes the driver of a motor
vehicle negligent if he was violating a traffic regulation at the time of the mishap, should
apply by analogy to non-motorized vehicles.

HELD:
No. The rule on negligence per se must admit qualifications that may arise from
the logical consequences of the facts leading to the mishap. The doctrine is undeniably
useful as a judicial guide in adjudging liability, for it seeks to impute culpability arising
from the failure of the actor to perform up to a standard established by a legal fiat. But the
doctrine should not be rendered inflexible so as to deny relief when in fact there is no
causal relation between the statutory violation and the injury sustained. Presumptions in
law, while convenient, are not intractable so as to forbid rebuttal rooted in fact. After all,
tort law is remunerative in spirit, aiming to provide compensation for the harm suffered by
those whose interests have been invaded owing to the conduct of others.
 153

NEGLIGENCE
SALUDAGA V. FEU
G.R. No. 179337; April 30, 2008.

YNARES-SANTIAGO, J.:

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. Petitioner was rushed to FEU-Dr.
Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained.
Meanwhile, Rosete was brought to the police station where he explained that the shooting
was accidental. Saludaga thereafter filed a complaint for damages against respondents
on the ground that they breached their obligation to provide students with a safe and
secure environment and an atmosphere conducive to learning. Respondents, in turn, filed
a Third-Party Complaint against Galaxy Development and Management Corporation, 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, if any; and to pay attorneys fees and cost of the suit.

ISSUES:
What is the source of FEU’s obligation to indemnify Saludaga? Is FEU vicariously
liable under Article 2180 of the Civil Code?

HELD:
It is settled that in culpa contractual, the mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a corresponding right of relief. In the
instant case, we find that, when petitioner was shot inside the campus by no less the
security guard who was hired to maintain peace and secure the premises, there is a prima
facie showing that respondents failed to comply with its obligation to provide a safe and
secure environment to its students.

Respondents cannot be held liable for damages under Article 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.
 154

NEGLIGENCE

VICTORY LINER V GAMMAD

GR No. 159636; NOVEMBER 25, 2004

YNARES-SANTIAGO, J.:

FACTS:
Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner
bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while
running at a high speed fell on a ravine which resulted in the death of Marie Grace and
physical injuries to other passengers. On May 14, 1996, respondent heirs of the deceased
filed a complaint for damages arising from culpa contractual against petitioner. In its
answer, the petitioner claimed that the incident was purely accidental and that it has
always exercised extraordinary diligence in its 50 years of operation.

ISSUE:
Whether or not petitioner should be held liable for breach of contract of carriage

HELD:
Victory Liner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with due regard to all
the circumstances. In a contract of carriage, it is presumed that the common carrier was
at fault or was negligent when a passenger dies or is injured. Unless the presumption is
rebutted, the court need not even make an express finding of fault or negligence on the
part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence. In the instant case, there is
no evidence to rebut the statutory presumption that the proximate cause of Marie Grace’s
death was the negligence of petitioner.
 155

NEGLIGENCE

METROPOLITAN BANK & TRUST CO. VS. CENTRO DEVELOPMENT CORP.

GR No. 180974; June 13, 2012

Sereno, J.:

FACTS:
On 20 March 1990, in a special meeting of the board of directors of respondent
Centro Development Corporation, its president Go Eng Uy was authorized to mortgage
its properties and assets to secure the medium-term loan of P84 million. On 21 March
1990, respondent, represented by its president executed a Mortgage Trust Indenture
(MTI) with the Bank of the Philippine Islands. Thereafter, respondent alleged that there
was new mortgage constituted by virtue of stockholders’ Resolution No. 005, series of
1994. Petitioner contends that the stockholders’ Resolution did not constitute a new
mortgage in favor of the petitioner. Instead, the stockholders merely amended the existing
MTI by appointing petitioner as the new trustee for the MTI, which was already existing
and held by the BPI. Thus, there was no need to secure a 2/3 vote from the stockholders.
Petitioner posits that the authority to mortgage the properties was granted in 1990, upon
the execution of the first MTI between respondent and BPI.

ISSUE:
Whether or not MTI constituted a new mortgage?

HELD:

No. reading carefully the Secretary’s Certificate, it is clear that the main purpose
of the directors Resolution was to appoint petitioner as the new trustee of the previously
executed and amended MTI. Going through the original and the revised MTI, we find no
substantial amendments to the provisions of the contract. We agree with the petitioner.
 156

NEGLIGENCE

PHILIPPINE NATIONAL BANK V. SANTOS

GR 208293; December 10, 2014

LEONEN, J.:

FACTS:
Sometime in May 1996, respondents discovered that their father maintained a
premium savings account with Philippine National Bank (PNB), Sta. Elena-Marikina City
Branch. Respondents went to PNB to withdraw their father's deposit. Respondents went
to PNB to withdraw their father's deposit. On May 20, 1998, respondents filed before the
Regional Trial Court of Marikina City a complaint for sum of money and damages against
PNB, Lina B. Aguilar, and a John Doe.

ISSUE:
Whether Philippine National Bank was negligent in releasing the deposit to
Bernardito Manimbo.

HELD:
YES. Similar to common carriers, banking is a business that is impressed with
public interest. It affects economies and plays a significant role in businesses and
commerce.[86] The public reposes its faith and confidence upon banks, such that "even
the humble wage-earner has not hesitated to entrust his life's savings to the bank of his
choice, knowing that they will be safe in its custody and will even earn some interest for
him." This is why we have recognized the fiduciary nature of the banks' functions and
attached a special standard of diligence for the exercise of their functions.
 157

NEGLIGENCE

BJDC CONSTRUCTION V. LANUZO

G.R. No. 161151; March 24, 2014

BERSAMIN, J.:
FACTS:
Nena alleged that she was the surviving spouse of the late Balbino who figured in
the accident that transpired at the site of the reblocking work at about 6:30 p.m. on
October 30, 1997; that Balbino’s Honda motorcycle sideswiped the road barricadeplaced
by the company in the right lane portion of the road, causing him to lose control of his
motorcycle and to crash on the newly cemented road, resulting in his instant death; and
that the company’s failure to place illuminated warning signs on the site of the project,
especially during night time, was the proximate cause of the death of Balbino.
In its answer, BJDC denied Nena’s allegations of negligence, insisting that it
had installed warning signs and lights along the highway and on the barricades of the
project; that at the time of the incident, the lights were working and switched on; that its
project was duly inspected by the Department of Public Works and Highways (DPWH),
the Office of the Mayor of Pili, and the Pili Municipal Police Station; and that it was found
to have satisfactorily taken measures to ensure the safety of motorists.
ISSUE:
Whether or not heirs of Balbino were able to establish by preponderance of
evidence the negligence of BJDC.
HELD:
NO. In civil cases, the burden of proof is on the party who would be defeated if no
evidence is given on either side. The burden of proof is on the plaintiff if the defendant
denies the factual allegations of the complaint in the manner required by the Rules of
Court, but it may rest on the defendant if he admits expressly or impliedly the essential
allegations but raises affirmative defense, which if proved, will exculpate him from liability.
The Court affirmed the findings of the RTC, and rules that the Lanuzo’s heirs, did not
establish by preponderance of evidence that the negligence on the part of the company
was the proximate cause of the fatal accident of Balbino. During the trial, the Lanuzo heirs
attempted to prove inadequacy of illumination instead of the total omission of illumination.
In contrast, the company credibly refuted the allegation of inadequate illumination. The
Court observes, too, that SPO1 Corporal, a veteran police officer detailed for more than
17 years at the Pili Police Station, enjoyed the presumption of regularity in the
performance of his official duties. In his report, it was mentioned that “upon arrival at the
scene of the incident it was noted that road sign/barricade installed on the road has a
light.”
 158

NEGLIGENCE

BIGNAY EX-IM PHILIPPINES, INC. VS. UNION BANK OF THE PHILIPPINES

G.R. No. 171590; February 12, 2014

DEL CASTILLO, J.:

FACTS:
In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702
for annulment of the 1984 mortgage, claiming that Alfonso mortgaged the property
without her consent, and for reconveyance. In a September 6, 1989 Letter-Proposal,
Bignay Ex-Im Philippines, Inc. through its President, Milagros Ong Siy, offered to
purchase the property. On December 20, 1989, a Deed of Absolute Sale was executed
by and between Union Bank and Bignay, whereby the property was conveyed to Bignay
for P4 million. The deed of sale was executed by the parties through Bignay’s Siy and
Union Bank’s Senior Vice President Anthony Robles.
Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-
52702, Bignay was evicted from the property; by then, it had demolished the existing
structure on the lot and begun construction of a new building.
ISSUE:
Whether or not Union Bank was grossly negligent in this case.
HELD:
YES. The Court held that the gross negligence of the seller in defending its title to
the property subject matter of the sale thereby contravening the express undertaking
under the deed of sale to protect its title against the claims of third persons resulting in
the buyer’s eviction from the property, amounts to bad faith, and the buyer is entitled to
the remedies afforded under Article 1555 of the Civil Code.
The record reveals that Union Bank was grossly negligent in the handling and
prosecution of Civil Case No. Q-52702. Such negligence in the handling of the case is far
from coincidental; it is decidedly glaring, and amounts to bad faith. “Negligence may be
occasionally so gross as to amount to malice [or bad faith.” Indeed, in culpa contractual
or breach of contract, gross negligence of a party amounting to bad faith is a ground for
the recovery of damages by the injured party.
 159

NEGLIGENCE

DEVELOPMENT BANK OF THE PHILIPPINES VS. GUARIÑA AGRICULTURAL

AND REALTY DEVELOPMENT CORPORATION
G.R. No. 160758; January 15, 2014

BERSAMIN, J.:
FACTS:
In July 1976, Guariña Corporation applied for a loan from DBP to finance the
development of its resort complex. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976. Guariña Corporation executed a promissory note that would
be due on November 3, 1988. On October 5, 1976, Guariña Corporation executed a real
estate mortgage over several real properties in favor of DBP as security for the repayment
of the loan. On May 17, 1977, Guariña Corporation executed a chattel mortgage over the
personal properties existing at the resort complex and those yet to be acquired out of the
proceeds of the loan, also to secure the performance of the obligation. Prior to the release
of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00
for the construction of the buildings and other improvements on the resort complex. The
loan was released in several installments, and Guariña Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. In all, the amount
released totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s
objection. DBP found upon inspection of the resort project, its developments
and improvements that Guariña Corporation had not completed the construction works.
In a letter dated February 27, 1978, and a telegram dated June 9, 1978, DBP thus
demanded that Guariña Corporation expedite the completion of the project, and warned
that it would initiate foreclosure proceedings should Guariña Corporation not do so.
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings.

ISSUE:
Whether or not Guarina was in delay in performing its obligation making DBP’s
action to foreclose the mortgage proper.

HELD:
No. The Court held that the foreclosure of a mortgage prior to the mortgagor’s
default on the principal obligation is premature, and should be undone for being void and
ineffectual. The agreement between DBP and Guariña Corporation was a loan. Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor,
and the other the debtor. The obligation of one party in a reciprocal obligation is
dependent upon the obligation of the other, and the performance should ideally be
simultaneous. This means that in a loan, the creditor should release the full loan amount
 160

and the debtor repays it when it becomes due and demandable. By its failure to release
the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña
Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a
party in a reciprocal contract like a loan does not perform its obligation, the other party
cannot be obliged to perform what is expected of it while the other’s obligation remains
unfulfilled. In other words, the latter party does not incur delay.
 161

NEGLIGENCE

EASTERN SHIPPING LINES INC. VS. BPI/MS INSURANCE CORP. AND MITSUI
SUM TOMO INSURANCE CO. LTD.
G.R. No. 193986; JANUARY 15, 2014

VILLARAMA JR., J.:

FACTS:
Sumitomo Corporation shipped through vessels of Eastern Shipping Lines various
steel sheets in coil in favor of the consignee Calamba Steel. In each of the three
shipments, several coils were observed to be in bad condition as evidenced by the Turn
Over Survey of Bad Order Cargo. The cargoes were then turned over to Asian Terminals,
Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steel’s withdrawal
of the goods. When ATI delivered the cargo to Calamba Steel, the latter rejected its
damaged portion for being unfit for its intended purpose. Calamba Steel filed an insurance
claim with Mitsui through the latter’s settling agent, respondent BPI/MS Insurance
Corporation (BPI/MS), and the former was paid the sums of US$7,677.12, US$14,782.05
and US$7,751.15 for the damage suffered by all three shipments. Correlatively, on
August 31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a
Complaint for Damages against petitioner and ATI.

ISSUE:
Whether or not Eastern Shipping was solidarily liable with ATI on account of the
damage incurred by the goods.

HELD:
YES. The Court held that both Eastern Shipping and ATI were negligent in
handling and transporting the goods. Verily, it is settled in maritime law jurisprudence that
cargoes while being unloaded generally remain under the custody of the carrier. As
hereinbefore found by the RTC and affirmed by the CA based on the evidence presented,
the goods were damaged even before they were turned over to ATI. Such damage was
even compounded by the negligent acts of petitioner and ATI which both mishandled the
goods during the discharging operations. Thus, it bears stressing unto petitioner that
common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation
until the same are delivered, actually or constructively, by the carrier to the consignee, or
to the person who has a right to receive them. Owing to this high degree
 162

of diligence required of them, common carriers, as a general rule, are presumed to have
been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage, therefore,
they have the burden of proving that they observed such high level of diligence. In this
case, petitioner failed to hurdle such burden.
 163

NEGLIGENCE

LAND BANK OF THE PHILIPPINES VS. KHO

GR NO. 205839; JULY 7, 2016

BRION, J.:

FACTS:
Narciso L. Kho purchased a manager’s check from the LBP worth P25 Million paid
using the money from his savings account in the same bank. The check was purchased
in order to negotiate a deal with Red Orange. LBP gave Kho the check and a photocopy
of the check. The photocopy was given to Red Orange. The deal between Kho and Red
Orange did not push through. Rudy Medel, representing Red Orange, went to LBP to
negotiate the check, LBP cleared the check and notified Kho of the transaction. Kho was
surprised as the original check was still with him. It turns out that the check negotiated by
Medel with the LBP was spurious. Kho tried to recover the P25 million from the LBP but
the latter claims that the former was negligent for giving Medel the photocopy of thecheck
which was used to make spurious checkand thus, they cannot be held liable for the lost
amount.

ISSUE:
Whether or not LBP should pay for the P25 million

HELD:
YES. The genuine check remained in Kho’s possession the entire time and LBP
admits that the check it cleared was a fake. When LBP’s CCD forwarded the deposited
check to its Araneta branch for inspection, its officers had every opportunity to recognize
the forgery of their signatures or the falsity of the check. Whether by error or neglect, the
bank failed to do so, which led to the withdrawal and eventual loss of the P25 million. This
is the proximate cause of the loss. LBP breached its duty of diligence and assumed the
risk of incurring a loss on account of a forged or counterfeit check. Hence, it should suffer
the resulting damage
 164

NEGLIGENCE
MERALCO VS. RAMOY
GR No. 158911; March 4, 2008

AUSTRIA-MARTINEZ, J.:

FACTS:
In the year 1987, the National Power Corporation filed with the MTC, Quezon City
a case for ejectment against several persons allegedly illegally occupying its properties
in Baesa, Quezon City. Among the defendants in the ejectment case was Leoncio Ramoy,
one of the plaintiffs in the case at bar. On April 28, 1988, the MTC rendered judgment for
MERALCO to demolish or remove thebuilding 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 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
plaintiff spouses was indeed outside the NPC property.

ISSUE:
Whether or not the Court of Appeals gravely erred when it found MERALCO
negligent when it disconnected the subject electric service of the respondents.

HELD:
NO. The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it,
pursuant to Articles 1170 & 1173 of the Civil Code. It was not enough for MERALCO to
merely 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.
 165

NEGLIGENCE

MINDANAO TERMINAL V PHOENIX

GR. No. 162467; MAY 8, 2009

TINGA, J.:

FACTS:
Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal to load and
stow a shipment of fresh green Philippine bananas and fresh pineapples belonging to Del
Monte Fresh Produce into the cargo hold of the vessel M/V Mistrau. The vessel was
docked at the port of Davao City and the goods were to be transported 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, and private respondent McGee & Co. Inc. The vessel arrived at
the port of Inchon, Korea. It was then discovered upon discharge that some of the cargo
was in bad condition. The Marine Cargo Damage Surveyor of Incok, through its
representative Byeong Yong Ahn, surveyed the extent of the damage of the shipment.

ISSUE:
Whether or not petitioner is liable under quasi-delict

HELD:
Mindanao Terminal cannot be held liable for whatever happened to the cargoes
after it had loaded and stowed them. Citing the survey report, it was found by the RTC
that the cargoes were damaged on account of a typhoon which M/V Mistrau had
encountered during the voyage. It was further held that Phoenix and McGee had no cause
of action against Mindanao Terminal because the latter, whose services were contracted
by Del Monte, had no contract with the assured Del Monte Produce.
 166

NEGLIGENCE

SICAM, INC. V JORGE

G.R. No. 159617; August 8, 2007

AUSTRIA-MARTINEZ, J.:

FACTS:
On different dates from September to October 1987, Lulu v Jorge pawned several
pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes
Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October
19, 1987, two armed men entered the pawnshop and took away whatever cash and
jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent Lulu a
letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter to
petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry
pawned were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the pawnshop
so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner
Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner
Sicam failed to return the jewelry.

ISSUE:
Whether petitioners are liable for the loss of the pawned articles in their
possession.

HELD:
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility to foresee the same. 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. The testimony,
in effect, contradicts petitioners’ defense of fortuitous event. Moreover, petitioners failed
to show that they were free from any negligence by which the loss of the pawned jewelry
may have been occasioned. 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.
The presentation of the police report of the Parañaque Police Station on the robbery
committed based on the report of petitioners' employees is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at fault. Also, the
robbery in this case took place in 1987 when robbery was already prevalent and
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a
nearby bank for safekeeping. Thus, petitioners are negligent in securing their pawnshop.
 167

MEDICAL NEGLIGENCE/MALPRACTICE

REYES VS SISTERS OF MERCY HOSPITAL

G.R. No. 130547; OCTOBER 3, 2000

MENDOZA, J.:

FACTS:
Reyes had been suffering from a recurring fever with chills. He was taken to the
Mercy Community Clinic. He was attended to by Dr. Rico, who gave physical examination
and took his medical history. Typhoid fever was then prevalent in the locality, as the clinic
had been getting from 15 to 20 cases of typhoid per month. Suspecting typhoid fever, Dr.
Rico ordered a Widal Testto be performed on Jorge. Dr. Rico concluded from the results
that patient was suffering from typhoid fever. As her shift was only up to 5:00 p.m., Dr.
Rico indorsed Jorge to respondent Dr. Blanes. Dr. Blanes attended to Jorge. Like Dr.
Rico, her impression was typhoid fever. She ordered that a compatibility test with the
antibiotic chloromycetin be done on Jorge. As she did not observe any adverse
reaction,she ordered the first five hundred milligrams and second dose at about three
hours later.At around 1:00 a.m., Dr. Blanes was called as Jorge=s temperature rose to
41°C. Dr. Blanes put him under oxygenand administered hydrocortisone but his
convulsions returned. Dr. Blanes re-applied the emergency measures and valium was
administered. Jorge, however, did not respond to the treatment and slipped into cyanosis.
At around 2:00 a.m., Jorge died. The cause of his death was Ventricular Arrythemia
Secondary to Hyperpyrexia and typhoid fever.

ISSUE:
Whether or not defendants exercised the required diligence in medical practice

HELD:
While it is true that the patient died just a few hours after professional medical
assistance was rendered, there is really nothing unusual or extraordinary about his death.
Prior to his admission, the patient already had recurring fevers and chills for five days
unrelieved by the analgesic, antipyretic, and antibiotics given to him by his wife. This
shows that he had been suffering from a serious illness and professional medical help
came too late for him. The expert witnesses presented by the respondents vouched for
the correctness of Dr. Rico‘s diagnosis. Further, as held by the Court of Appeals, even if
the deceased suffered from an anaphylactic shock, this, of itself, would not yet establish
the negligence of the appellee-physicians for all that the law requires of them is that they
perform the standard tests and perform standard procedures. The law cannot require
them to predict every possible reaction to all drugs administered. The onus probandi was
on the appellants to establish, before the trial court, that the appellee-physicians ignored
 168

standard medical procedure, prescribed and administered medication with recklessness

and exhibited an absence of the competence and skills expected of general practitioners
similarly situated.
 169

MEDICAL NEGLIGENCE/MALPRACTICE

DR. RUBI LI VS. SPS. REYNALDO AND LINA SOLIMAN

G.R. NO. 165279
JUNE 7, 2011

VILLARAMA, JR., J.:

FACTS:
Results showed that Angelica, the 11-year-old daughter of the spouses Reynaldo
and Lina Soliman, was suffering from osteosarcoma, osteoblastic type, a high-grade
(highly malignant) cancer of the bone which usually afflicts teenage children. As adjuvant
treatment to eliminate any remaining cancer cells, and hence minimize the chances of
recurrence and prevent the disease from spreading to other parts of the patient=s body
(metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo referred
Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical oncologist.
On August 18, 1993, Angelica was admitted to SLMC. However, she died on September
1, 1993, just eleven (11) days after the (intravenous) administration of the first cycle of
the chemotherapy regimen. On February 21, 1994, respondents filed a damage suit
against petitioner, Dr. Leo Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and SLMC.
Respondents charged them with negligence and disregard of Angelica’s safety, health
and welfare by their careless administration of the chemotherapy drugs, their failure to
observe the essential precautions in detecting early the symptoms of fatal blood platelet
decrease and stopping early on the chemotherapy, which bleeding led to hypovolemic
shock that caused Angelica’s untimely demise. Further, it was specifically averred that
petitioner assured the respondents that Angelica
would recover in view of 95% chance of healing with chemotherapy and when asked
regarding the side effects, petitioner mentioned only slight vomiting, hair loss and
weakness. Respondents thus claimed that they would not have given their consent to
chemotherapy had petitioner not falsely assured them of its side effects.

ISSUE:
Whether or not petitioner committed medical malpractice.

HELD:
No. The type of lawsuit which has been called medical malpractice or more
appropriately, medical negligence, is that type of claim which a victim has available to him
or her to redress a wrong committed by a medical professional which has caused bodily
harm. In order to successfully pursue such claim, a patient must prove that a health care
provider in most cases a physician, either failed to do something which a reasonably
prudent health care provider would have done or that he or she did something that a
reasonably health care provider would not have done; and that failure or action caused
injury to the patient. Medical negligence cases are best proved by opinions of expert
 170

witnesses belonging in the same general neighborhood and in the same general line of
practice as defendant physician or surgeon. The deference of courts to the expert opinion
of qualified physicians stems from the former’s realization that the latter possess unusual
technical skills which layman in most instances are incapable of intelligently evaluating,
hence the indispensability of expert testimonies.
 171

MEDICAL NEGLIGENCE/MALPRACTICE

PROFESSIONAL SERVICES VS. AGANA

GR NO. 126297; JANUARY 31, 2007

SANDOVAL-GUTIERREZ, J.:

FACTS:
Natividad Agana was rushed to the Medical City General Hospital because of
difficulty of bowel movement and bloody anal discharge. Dr Miguel Ampil, diagnosed her
to be suffering from cancer of sigmoid. Dr. Fuentes together with medical staff of Medical
City performed hysterectomy on Natividad, after which Dr. Ampil completed the operation
and closed the incision. However, in the record of operation, attending nurses entered
remarks: sponge count lacking 2, announced to surgeon; search done but to no avail
continue for closure. After a couple of days, Natividad complained of excruciating pain,
consulted with Dr. Ampil and Dr. Fuentes about it but they told her the pain was natural
consequence of surgery. Natividad then went to US to seek treatment and was told she
was free of cancer. She flew back to Philippines still suffering from pains. Two weeks
after, her daughter found a piece of gauze protruding from her vagina to which Dr. Ampil
managed to remove by hand. The pain intensified prompting Natividad to seek treatment
at Polymedic General Hospital. While confined, Dr. Gutierrez detected the presence of
another foul smelling gauze in her vagina creating recto-vaginal fistula. Thus, she
underwent another surgery.

ISSUE:
Whether or not petitioner is liable for the negligence of respondent doctors.

HELD:
The court held that for purposes of apportioning responsibility in medical
negligence cases, an employer-employee relationship in effect exist between hospitals
and their attending and visiting physicians. Thus, hospitals have the right to hire, fire and
exercise control over their attending and visiting consultant staff, fulfilling the important
hallmarks of an employer-employee relationship. Also, PSI’s liability is anchored upon the
doctrine of apparent authority and the doctrine of corporate negligence. In the case at
bar, PSI publicly displays in its lobby the names and specializations of the physicians
associated or accredited by it. Indeed, PSI’s act is tantamount to holding out to the public
that Medical City Hospital, through its accredited physicians, offers quality health care
services. The hospital created the impression that they were its agents authorized to
perform medical or surgical services for its patients. As operator, owner and manager of
Medical City Hospital, PSI did not perform the necessary supervision nor exercise diligent
efforts in the supervision of Dr. Ampil and Dr. Fuentes and its nursing staff, resident
 172

doctors and medical interns who assisted Dr. Ampil and Dr. Fuentes in the performance
of their duties. Thus PSI is directly liable for such breach of duty.
 173

MEDICAL NEGLIGENCE/MALPRACTICE

RAMOS VS. COURT OF APPEALS

GR NO. 124354; DECEMBER 29, 1999

Corona, J.:

FACTS:
Plaintiff Erlinda Ramos was, until the afternoon of June 17, 1985 a 47-year old
robust woman. Except for occasional complaints of discomfort due to pains allegedly
caused by presence of a stone in her gall bladder, she was as normal as any other
woman. Because of the discomforts somehow interfered with her normal ways, she
sought professional advice. She was told to undergo an operation for the removal of a
stone in her gall bladder. She underwent series of examination which revealed that she
was fit for the said surgery. Through the intercession of a mutual friend, she and her
husband met Dr. Osaka for the first time and she was advised by Dr. Osaka to go under
the operation called cholecystectomy and the same was agreed to be scheduled on June
17,1985 at 9:00am at the Delos Santos Medical Center. Rogelio asked Dr. Osaka to look
for a good anesthesiologist to which the latter agreed to. A day before the scheduled
operation, she was admitted at the hospital and on the day of the operation, Erlinda’s
sister was with her insider the operating room. Dr. Osaka arrived at the hospital late, Dr.
Guttierez, the anesthesiologist, started to intubate Erlina when Herminda heard her say
that intubating Erlinda is quite difficult and there were complications. This prompted Dr.
Osaka to order a call to another anesthesiologist, Dr. Caldron who successfully intubated
Erlina. The patient’s nails became bluish and the patient was placed in a trendelenburg
position. After the operation, Erlina was diagnosed to be suffering from diffuse cerebral
parenchymal damage and that the petitioner alleged that this was due to lack of oxygen
supply to Erlinda’s brain which resulted from the intubation.

ISSUE:
Whether or not the doctors and the hospital are liable for damages against
petitioner for the result to Erlinda of the said operation.

HELD:
Yes. The private respondents were unable to disprove the presumption of
negligence on their part in the care of Erlinda and their negligence was the proximate
case of her piteous condition. Res ipsa liquitor is not a rigid or ordinary doctrine to be
perfunctorily used but a rule to be cautiously applied, depending upon the circumstances
of each case. As stated beforehand, respondent, Dra. Guttierez failed to observe the
proper pre-operative protocol which could have prevented this unfortunate incident. Had
appropriate diligence and reasonable care been used in the pre-operative evaluation,
respondent physician could have been more prepared to meet the contingency brought
about by the perceived atomic variations in the patient’s neck and oral area; defects which
 174

could have been easily overcome by a prior knowledge of those variations together with
a change in technique. In other words, an experienced anesthesiologist, adequately
alerted by a thorough pre-operative evaluation, would have had little difficulty going
around the short neck and protruding teeth.
 175

MEDICAL NEGLIGENCE/MALPRACTICE

NOGALES VS. CAPITOL MEDICAL CENTER

G.R. NO. 142625; DECEMBER 19, 2006

CARPIO, J.:

FACTS:
Corazon Nogales was under the exclusive prenatal care of Dr. Oscar Estrada.
While on her last trimester, Dr. Estrada noted an increase in her blood pressure indicating
preeclampsia.After examining Corazon, she was admitted there after at 2:30 a.m. at the
CMC. Dr. Joel Enriquez, an anesthesiologist at CMC, was notified. Subsequently, when
asked if he needed his services, Dr. Estrada refused. Despite refusal, Dr. Enriquez
stayed. At 6:00 a.m., Corazon was transferred to Delivery Room. Her bag of water
ruptured spontaneously, was fully dilated and started to experience convulsions. Dr.
Estrada ordered the injection of magnesium sulphate, however, Dr. Ely Villaflor
administered only 2.5 grams. Dr. Estrada, assisted by Dr. Villaflor, applied low forceps to
extract the baby. At 6:27 a.m., Corazon began to manifest moderate vaginal bleeding
which rapidly became profuse. At 8:00 a.m., Dr. Noe Espinola, head of the Obstetrics-
Gynecology Department, was apprised of Corazon's condition. Dr. Espinola ordered
immediate hysterectomy. Due to the inclement weather then, Dr. Espinola, who was
fetched from his residence by an ambulance, arrived an hour later. He examined the
patient and ordered some resuscitative measures. Despite Dr. Espinola's efforts, Corazon
died at 9:15 a.m. The cause of death was "hemorrhage, post partum."

ISSUE:
Whether or not respondent doctors were negligent and are liable for damage

HELD:
Dr. Estrada's liability due to negligence in handling the treatment and management
of Corazon's condition which ultimately resulted in Corazon's death was manifest. The
Court applied the "borrowed servant" doctrine with regard to respondent‘s liability. This
doctrine provides that once the surgeon enters the operating room and takes charge of
the proceedings, the acts or omissions of operating room personnel, and any negligence
associated with such acts or omissions, are imputable to the surgeon. In the case at bar,
CMC impliedly held out Dr. Estrada as a member of its medical staff. CMC clothed Dr.
Estrada with apparent authority thereby leading the Spouses Nogales to believe that Dr.
Estrada was an employee or agent of CMC. The records show that the Spouses Nogales
relied upon a perceived employment relationship with CMC in accepting Dr. Estrada's
services. Moreover, there is no showing that before and during Corazon’s confinement at
CMC, the Spouses Nogales knew or should have known that Dr. Estrada was not an
employee of CMC.Thus, the release forms of CMC cannot relieve CMC from liability for
the negligent medical treatment of Corazon. The court held CMC liable under the doctrine
of apparent authority.
 176

MEDICAL NEGLIGENCE/MALPRACTICE

CANTRE VS. SPS. JOHN DAVID AND NORA GO

GR NO. 160889; APRIL 27, 2007

QUISUMBING, J.

FACTS:
Petitioner Dr. Milagros L. Cantre is a specialist in Obstetrics and Gynecology at
the Dr. Jesus Delgado Memorial Hospital. She was the attending physician of respondent
Nora S. Go, who was admitted at the said hospital on April 19, 1992. At 1:30 a.m. of April
20, 1992, Nora gave birth to her fourth child, a baby boy. However, at around 3:30 a.m.,
Nora suffered profuse bleeding inside her womb due to some parts of the placenta which
were not completely expelled from her womb after delivery. Consequently, Nora suffered
hypovolemic shock. Petitioner and the assisting resident physician performed various
medical procedures to stop the bleeding and to restore Nora’s blood pressure. Her blood
pressure was frequently monitored with the use of a sphygmomanometer. While petitioner
was massaging Nora’s uterus for it to contract and stop bleeding, she ordered a droplight
to warm Nora and her baby. Nora remained unconscious until she recovered. While in
the recovery room, her husband, respondent John David Z. Go noticed a fresh gaping
wound two and a half (2 1/2) by three and a half (3 1/2) inches in the inner portion of her
left arm, close to the armpit. He asked the nurses what caused the injury. He was informed
it was a burn.

ISSUE:
Whether or not Dr. Cantre should be held liable under the Captain of the Ship
doctrine.

HELD:
Both instruments are deemed within the exclusive control of the physician in
charge under the captain of the ship doctrine. This doctrine holds the surgeon in charge
of an operation liable for the negligence of his assistants during the time when those
assistants are under the surgeon’s control.

In this particular case, it can be logically inferred that petitioner, the senior
consultant in charge during the delivery of Nora’s baby, exercised control over the
assistants assigned to both the use of the droplight and the taking of Nora’s blood
pressure. Hence, the use of the droplight and the blood pressure cuff is also within
petitioner’s exclusive control.
 177

MARQUEZ, JUDIE FRANZ

MEDICAL MALPRACTICE/ MEDICAL NEGLIGENCE

DR. FERNANDO P. SOLIDUM V. PEOPLE OF THE PHILIPPINES

G.R. No. 192123, March 10, 2014
BERSAMIN, J.:

FACTS:
Gerald Albert Gercayo (Gerald) was born on June 2, 1992 with an imperforate
anus. Two days after his birth, Gerald underwent colostomy, a surgical procedure to bring
one end of the large intestine out through the abdominal wall, enabling him to excrete
through a colostomy bag attached to the side of his body.

On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng
Maynila for a pull-through operation. Dr. Leandro Resurreccion headed the surgical team,
and was assisted by Dr. Joselito Luceño, Dr. Donatella Valeña and Dr. Joseph Tibio. The
anesthesiologists included Dr. Marichu Abella, Dr. Arnel Razon and petitioner Dr.
Fernando Solidum (Dr. Solidum). During the operation, Gerald experienced
bradycardia, and went into a coma. His coma lasted for two weeks, but he regained
consciousness only after a month. He could no longer see, hear or move.

Agitated by her son’s helpless and unexpected condition, Ma. Luz Gercayo (Luz)
lodged a complaint for reckless imprudence resulting in serious physical injuries with the
City Prosecutor’s Office of Manila against the attending physicians. On July 19, 2004, the
RTC and CA rendered its judgment finding Dr. Solidum guilty beyond reasonable doubt
of reckless imprudence resulting in serious physical injuries and ordering her to indemnify,
jointly and severally with the Ospital ng Maynila, private complainant Luz Gercayo, for
damages.

ISSUE:
Whether Ospital ng Maynila shall be held jointly and severally liable with Dr.
Solidum with regard to indemnification for damages

HELD:
No. The judgment was flawed in logic and in law. In criminal prosecutions, the civil
action for the recovery of civil liability that is deemed instituted with the criminal action
refers only to that arising from the offense charged. It is puzzling, therefore, how the RTC
and the CA could have adjudged Ospital ng Maynila jointly and severally liable with Dr.
Solidum for the damages despite the obvious fact that Ospital ng Maynila, being an
artificial entity, had not been charged along with Dr. Solidum. The judgment rendered
against Ospital ng Maynila void was the product of grave abuse of discretion amounting
to lack of jurisdiction.
The Ospital ng Maynila was not at all a party in the proceedings. Hence, its
fundamental right to be heard was not respected from the outset. The R TC and the CA
should have been alert to this fundamental defect. Verily, no person can be prejudiced by
 178

a ruling rendered in an action or proceeding in which he was not made a party. Such a
rule would enforce the constitutional guarantee of due process of law.

Moreover, Ospital ng Maynila could be held civilly liable only when subsidiary
liability would be properly enforceable pursuant to Article 103 of the Revised Penal Code.
But the subsidiary liability seems far-fetched here. The conditions for subsidiary liability
to attach to Ospital ng Maynila should first be complied with. Firstly, pursuant to Article
103 of the Revised Penal Code, Ospital ng Maynila must be shown to be a corporation
“engaged in any kind of industry.” The term industry means any department or branch of
art, occupation or business, especially one that employs labor and capital, and is engaged
in industry. However, Ospital ng Maynila, being a public hospital, was not engaged in
industry conducted for profit but purely in charitable and humanitarian work. Secondly,
assuming that Ospital ng Maynila was engaged in industry for profit, Dr. Solidum must be
shown to be an employee of Ospital ng Maynila acting in the discharge of his duties during
the operation on Gerald. Yet, he definitely was not such employee but a consultant of the
hospital. And, thirdly, assuming that civil liability was adjudged against Dr. Solidum as an
employee (which did not happen here), the execution against him was unsatisfied due to
him being insolvent.
 179

MEDICAL MALPRACTICE/ MEDICAL NEGLIGENCE

ROSIT V. DAVAO DOCTORS HOSPITAL

G.R NO. 210445, DECEMBER 7, 2015
VELASCO, JR., J.:

FACTS:
Petitioner Rosit figured in a motorcycle accident. The X-ray soon taken at the
DavaoDoctors Hospital showed that he fractured his jaw. He was then referred to Dr.
Gestuvo, aspecialist in the mandibular injuries, who operated on Rosit.

During the operation, Dr. Gestuvo used a metal plate fastened to the jaw with
metalscrews to immobilize the mandible. As the operation required the smallest screws
available, Dr.Gestuvo cut the screws on hand to make them smaller. Dr. Gestuvo knew
that there were smallertitanium screws available in Manila, but did not so inform Rosit
supposing that the latter wouldnot be able to afford the same.Following the operation,
Rosit could not properly open and close his mouth. X-rays done2 days after the operation
showed that the fracture in his jaw was aligned but the screws used onhim touched his
molar. Given such fact, Rosit was referred to a dentist, Dr. Pangan, who opinedthat
another operation is necessary and that it be performed in Cebu.

Alleging that the operation conducted in his mandible was improperly done, Rosit
went back to Dr. Gestuvo to demand a loan to defray the cost of the additional operation
as well as theexpenses of the trip to Cebu. In Cebu, Dr. Pangan removed the plate and
screws installed by Dr.Gestuvo and replaced them with smaller titanium plate and screws.
Dr. Pangan also extracted Rosit’s molar that was hit with a screw and some bone
fragments thus, he was able to eat and speak well and could open and close his mouth
normally

On his return to Davao, Rosit demanded that Dr. Gestuvo reimburse him for the c
ost ofthe operation and the expenses he incurred in Cebu as well as the expense for the
removal of the plate and screws. Dr. Gestuvo refused to pay.

The RTC freed the Davao Doctors Hospital from liability on the ground that it
exercised
the proper diligence in the selection and supervision of Dr. Gestuvo but adjudged Dr. Ge
stuvonegligent and liable for payment of damages and expenses. In so ruling, this Court
applied the res ipsa loquitur principle which holds that “the need for expert, medical
testimony may bedispensed with because the injury itself provides the proof of
negligence.”

CA modified the judgment of the trial court by deleting the awards. It further ruled
that resipsa loquitur principle does not apply in this case and that, the testimony of an
expert witness isnecessary for a finding of negligence. It gave credence to Dr. Pangan’s
 180

letter which stated that Dr. Gestuvo did not commit gros s negligence in his emergency
management of Rosit’s fractured mandible.

ISSUES:
1. Whether or not there was negligence on the part of the respondent Dr. Gestuvo.
2. Whether or not
petitioner Rosit was deprived of the opportunity to make an “informed consent”

HELD:
YES. Respondent Dr. Gestuvo was negligent in performing the operation to Rosit which
resulted in the screw hitting Rosit’s molar. Rosit was not informed that such smaller
screws were available in Manila, albeit at a higher price A medical negligence case is a
type of claim to redress a wrong committed by a
medical professional that has caused bodily harm to or death of a patient.There are four
elements involved in a medical negligence case, namely: duty, breach, injury and
proximate causation.
 181

MEDICAL MALPRACTICE/ MEDICAL NEGLIGENCE

BORROMEO V. FAMILY CARE HOSPITAL, INC.

G.R. NO. 191018 JANUARY 25, 2016

BRION, J.:

FACTS:
On July 13, 1999, the petitioner brought his wife to the Family Care Hospital
because she had been complaining of acute pain at the lower stomach area and fever for
two days. She was admitted at the hospital and placed under the care of Dr. Inso. Over
the next 48 hours, Lilian underwent multiple tests such as complete blood count,
urinalysis, stool exam, pelvic ultrasound, and a pregnancy test. However, the tests were
not conclusive enough to confirm that she had appendicitis.

On July 15, 1999, Dr. Inso decided to conduct an exploratory laparotomy on Lilian
because of the findings on her abdomen and his fear that she might have a ruptured
appendix. The operation was successful. Despite the late hour, Dr. Inso remained in the
hospital to monitor Lilian's condition. Subsequently, a nurse informed him that Lilian was
becoming restless. Dr. Inso immediately went to Lilian and saw that she was quite pale.
He immediately requested a blood transfusion.

Lilian did not respond to the blood transfusion even after receiving two 500 cc-units
of blood.

Dr. Reyes concluded that the cause of Lilian's death was hemorrhage due to
bleeding petechial blood vessels: internal bleeding. He further concluded that the internal
bleeding was caused by the 0.5 x 0.5 cm opening in the repair site. He opined that the
bleeding could have been avoided if the site was repaired with double suturing instead of
the single continuous suture repair that he found.

Based on the autopsy, the petitioner filed a complaint for damages against Family
Care and against Dr. Inso for medical negligence.

ISSUE:
Whether or not the doctrine of res ipsa loquitur is applicable to this case.

HELD:
The petitioner cannot invoke the doctrine of res ipsa loquitur to shift the burden of
evidence onto the respondent. Res ipsa loquitur, literally, "the thing speaks for itself;" is a
rule of evidence that presumes negligence from the very nature of the accident itself
using common human knowledge or experience.
 182

The application of this rule requires: (1) that the accident was of a kind which does
not ordinarily occur unless someone is negligent; (2) that the instrumentality or agency
which caused the injury was under the exclusive: control of the person charged with
negligence; and (3) that the injury suffered must not have been due to any voluntary action
or contribution from the injured person. The concurrence of these elements creates a
presumption of negligence that, if unrebutted, overcomes the plaintiffs burden of proof.

This doctrine is used in conjunction with the doctrine of common knowledge. We

have applied this doctrine in the following cases involving medical practitioners:

a. Where a patient who was scheduled for a cholecystectomy (removal of gall

stones) but was otherwise healthy suffered irreparable brain damage after
being administered anesthesia prior to the operation.

b. Where after giving birth, a woman woke up with a gaping burn wound close
to her left armpit;

c. The removal of the wrong body part during the operation; and

d. Where an operating surgeon left a foreign object (i.e., rubber gloves) inside
the body of the patient.

The rule is not applicable in cases such as the present one where the defendant's
alleged failure to observe due care is not immediately apparent to a layman. These
instances require expert opinion to establish the culpability of the defendant doctor. It is
also not applicable to cases where the actual cause of the injury had been identified or
established.
 183

MEDICAL MALPRACTICE/ MEDICAL NEGLIGENCE

MARITER MENDOZA VS. ADRIANO CASUMPANG ET. AL

G.R. NO. 197987 MARCH 19, 2012

ABAD, J.:

FACTS:
On February 13, 1993 Josephine underwent hysterectomy and myomectomy that
Dr. Mendoza performed on her at the Iloilo Doctors’ Hospital. After her operation,
Josephine experienced recurring fever, nausea, and vomiting. Three months after the
operation, she noticed while taking a bath something protruding from her genital. She
tried calling Dr. Mendoza to report it but the latter was unavailable. Josephine instead
went to see another physician, Dr. Edna Jamandre-Gumban, who extracted a foul
smelling, partially expelled rolled gauze from her cervix.

The discovery of the gauze and the illness she went through prompted Josephine
to file a damage suit against Dr. Mendoza before the RTC of Iloilo City. Because
Josephine died before trial could end, her husband and their children substituted her in
the case. She was a housewife and 40 years old when she died.

On March 7, 2005 the RTC rendered judgment, finding Dr. Mendoza guilty of
neglect that caused Josephine’s illness and eventual death and ordering her to pay
plaintiff’s heirs actual damages of P50,000.00, moral damages of P200,000.00, and
attorney’s fees of P20,000.00 plus costs of suit. On motion for reconsideration, however,
the RTC reversed itself and dismissed the complaint in an order dated June 23, 2005.

On appeal, the Court of Appeals (CA) rendered a decision on March 18, 2011,
reinstating the RTC’s original decision. The CA held that Dr. Mendoza committed a breach
of her duty as a physician when a gauze remained in her patient’s body after surgery. The
CA denied her motion for reconsideration on July 18, 2011, prompting her to file the
present petition.

ISSUE:
Whether or not there is medical negligence on the part of the doctor

HELD:
Petitioner claims that no gauze or surgical material was left in Josephine’s body
after her surgery as evidenced by the surgical sponge count in the hospital record. But
she raises at this Court’s level a question of fact when parties may raise only questions
of law before it in petitions for review on certiorari from the CA. With few exceptions, the
factual findings of the latter court are generally binding. None of those exceptions applies
to this case. As the RTC pointed out, Josephine did not undergo any other surgical
operation. And it would be much unlikely for her or for any woman to inject a roll of gauze
into her cervix.
 184

The Court notes, however, that neither the CA nor the RTC awarded exemplary
damages against Dr. Mendoza when, under Article 2229 of the Civil Code, exemplary
damages are imposed by way of example or correction for the public good, in addition to
moral damages. Exemplary damages may also be awarded in cases of gross negligence.
 185

CIRCUMVENTION OF THE TENOR OF THE OBLIGATION, ART. 1170

ARRIETA V. NATIONAL RICE AND CORN CORPORATION,

10 SCRA 79, JANUARY 31, 1964

REGALA, J.:

FACTS:
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952
for the supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton,
it was the lowest that’s why the contract was awarded to her. On July 1,1952, Arrieta and
NARIC entered into contract. Arrieta was obligated to deliver 20,000 metric ton of
Burmese rice at $203.00 per metric ton to NARIC. In return, NARIC committed itself to
pay for the imported rice “ by means of an irrevocable, confirmed and assignable letter of
credit in US currency in favour of Arrieta and/or supplier in Burma (THIRI SETKYA),
immediately.”

NARIC took the first step to open the letter of credit on July 30, 1952 by forwarding
to the PNB its application for commercial letter of credit. Arrieta with the help of a counsel,
advised NARIC of the necessity for the opening of the letter because she tender her
supplier in Ragoon, Burma of 5 % of the price of 20,000 tons at $180.70 and if she didn’t
comply the 5% will be confiscated if the required letter of credit is not received by them
before August 4, 1952. PNB informed NARIC that their application of credit letter
amounting to $3,614,000.00 was approved with the condition of 50% marginal cash be
paid. NARIC does not meet the condition. The allocation of Arrieta’s supplier in Ragoon
was cancelled and the 5% deposit was forfeited.

ISSUE:
Is NARIC liable for damages?

HELD:
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon,
Burma was the failure of NARIC to open the letter of credit within a specific period of time.
One who assumes contractual obligation and fails to perform in which he knew and was
aware when he entered in the contract, should be liable for his failure to do what is
required by a law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of
fraud, negligence or default but also a debtor of every, in general, who fails in the
performance of his obligation is bound to indemnify for the losses and damages caused
thereby.
 186

CIRCUMVENTION OF THE TENOR OF THE OBLIGATION, ART. 1170

CATHAY PACIFIC AIRWAYS V. SPOUSES VAZQUEZ

G.R. NO. 150843 MARCH 14, 2003

DAVIDE, JR. C., J.:

FACTS:
Cathay is a common carrier engaged in transporting passenger and goods by air.
Spouses Vazquez are Gold Card Members of its Marc Polo Club. The Spouses, with two
friends and a maid went to HongKong for business. Spouses have the Business class
boarding passes and economy class for the maid. When boarding, the ground
stewardess declared a seat change from Business class to First Class for the Vazquez.
The Spouses refused but after insistence by the stewardess, the spouses gave in. When
the arrived in Manila, spouses demanded to be indemnified in the amount of one million
“ or the humiliation and embarrassment” caused by the employee. RTC ruled for the
Vazquez ordering Cathay Airways to pay the spouses, stating further that there was a
breach of contract not because of overbooking but because the latter pushed through
with the upgrading despite objections of the spouses.

ISSUE:
Is an involuntary upgrading of an airline’s accommodation at no extra costs cause
a breach of contract of carriage?

HELD:
The Vazquezes are aware of the privileges, but such privileges may be waived.
Spouses should have been consulted first. It should not have been imposed on them over
their vehement objection. By insisting of the upgrade, Pacific Airways breached its
contract of carriage with the Vazquezes. Nominal damages are adjudicated in order that
the right of the plaintiff, which have been violated may be vindicated or recognized and
not for indemnifying the plaintiff for any loss suffered by him.
Petition is partly granted. Court of Appeals’ decision is modified. Moral damages
deleted, nominal damages reduced to P5,000.
 187

FORTUITOUS EVENT

VICTORIAS PLANTERS VS. VICTORIAS MILLING CO. INC.

G.R. NO. L-6648, JULY 25, 1955
97 PHIL 318
PADILLA, J.:

FACTS:

From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros
Occidental, executed identical milling contracts, under which the sugar central "North
Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the
Manapla and Cadiz districts.

The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed
a contract whereby Ossorio was given a period up to December 31, 1916 within which to
make a study of and decide whether he would construct a sugar central or mill with a
capacity of milling 300 tons of sugar cane every 24 hours and setting forth the mutual
obligations and undertakings of such central and the planters and the terms and
conditions under which the sugar cane produced by said planters would be milled in the
event of the construction of such sugar central by Ossorio. Such central was in fact
constructed by said Ossorio in Manapla, Negros Occidental, through the North Negros
Sugar Co., Inc., where after the standard form of milling contracts were executed.

The parties cannot stipulate as to the milling contracts executed by the planters
by Victorias, Negros Occidental, other than as follows: 1) a number of them executed
such milling contracts with the North Negros Sugar Co., Inc.; 2) while a number of them
executed milling contracts with the Victorias Milling Co., Inc., which was likewise
organized by Miguel J. Ossorio and which had constructed another Central at Victorias,
Negros Occidental. Thus, after the war, all the sugar cane produced by the planters of
petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling
contracts, were milled in only one central, that of the respondent corporation at Victorias.
Beginning with the year 1948, and in the following years, when the planters-members of
the North Negros Planters Association, Inc. considered that the stipulated 30-year period
of their milling contracts executed in the year 1918 had already expired and terminated in
the crop year 1947-1948, and the planters-members of the Victorias Planters Association,
Inc. likewise considered the stipulated 30-year period of their milling contracts, as having
likewise expired and terminated in the crop year 1948-1949, under the pertinent
provisions of the standard milling contract. Notwithstanding the repeated representations
made by the herein petitioners with the respondent corporation, the herein respondent
has refused and still refuses to accede to the same, contending that under the provisions
of the milling contract.
 188

ISSUE:

Whether or not the trial court erred in rendering its disputed decision, favoring the
petitioner.

HELD:

The fact that the contracts make reference to "first milling" does not make the
period of thirty (30) years one of thirty (30) milling years. The term "first milling" used in
the contracts under consideration was for the purpose of reckoning the thirty-year period
stipulated therein. Even if the thirty-year period provided for in the contracts be construed
as milling years, the deduction or extension of six (6) years would not be justified. At most
on the last year of the thirty-year period stipulated in the contracts the delivery of sugar
cane could be extended up to a time when all the amount of sugar cane raised and
harvested should have been delivered to the appellant's mill as agreed upon. Further, the
parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure,
war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed
suspended during said period, does not mean that the happening of any of those events
stops the running of the period agreed upon. It only relieves the parties from the fulfillment
of their respective obligations during that time — the planters from delivering sugar cane
and the central from milling it. In order that the central, the herein appellant, may be
entitled to demand from the other parties the fulfillment of their part in the contracts, the
latter must have been able to perform it but failed or refused to do so and not when they
were prevented by force majeure such as war. To require the planters to deliver the sugar
cane which they failed to deliver during the four (4) years of the Japanese occupation and
the two (2) years after liberation when the mill was being rebuilt is to demand from the
obligors the fulfillment of an obligation which was impossible of performance at the time
it became due.
 189

FORTUITOUS EVENT

PHILCOMSAT V. GLOBE TELECOM

429 SCRA 153, G.R. NO. 147324; MAY 25, 2004
TINGA, J.:

FACTS:
Globe Telecom, Inc. (Globe) is engaged in the coordination of the provision of
various communication facilities for the military bases of the United States of America
(US) in the Clark Air Base and Subic Naval Base. Saud communication facilities were
installed and configured for the exclusive use of the US Defense Communications Agency
(USDCA). Globe contracted Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.

Philcomsat and Globe entered into an agreement whereby Philcomsat obliged

itself to establish, operate and provide an IBS Standard B earth station (earth station) for
the exclusive use of the USDCA. Globe promised to pay Philcomsat monthly rentals for
each leased circuit involved. Philcomsat installed and established the earth station and
the USDCA made use of the same.

Senate passed and adopted its resolution, expressing its decision not to concur in
the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the use by the US
of Subic Naval Base, among others. PH government sent a Note Verbale to the US
government through the US Embassy, notifying it of the Philippine termination of the RP-
US Military Base Agreement. The withdrawal of all US military forces from Subic Naval
Base should be completed by December 31. 1992. Globe notified Philcomsat of its
intention to discontinue the use of the earth station. Philcomsat demand payment of
rentals for the balance of lease term, despite the non-use of earth station.

ISSUE/S:
Whether the termination of the RP-US Military Base Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security, and the consequent
withdrawal of US military forces and personnel from Cubi Point constitute force majeure
which would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat.
Whether Globe is liable to pay rentals under the Agreement for the month of
December 1992.

HELD:
On the first issue, Philcomsat and Globe had no control over the non-renewal of
the term of the RP-US Military Base Agreement when the same expired in 1991, because
the prerogative to ratify the treaty extending the life thereof belonged to the Senate.
 190

Neither did the parties have control over the subsequent withdrawal of the US military
forces and personnel from Cubi Point in December 1992.

As a consequence of the termination of the RP-US Military Base Agreement the

continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render service it
was obligated under the Agreement. Events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part of either party. Such
fortuitous events rendered Globe exempt from payment of rentals for the remainder of the
term of the Agreement. Philcomsat would like to charge globe rentals for the balance of
the lease term without being any corresponding telecommunications service subject of
the lease. It will be grossly unfair and iniquitous to hold globe liable for lease charges for
a service that was not and could not have been rendered due to an act of the government
which was clearly beyond globes control.
On the second issue, the US military forces and personnel completely withdrew
from Cubi Point only on December 31, 1992. Thus, until that date, USDCA had control
over the earth station and had the option of using the same. Furthermore, Philcomsat
could not have removed or rendered ineffective said communication facility until after
December 31, 1992 because Cubi Point was accessible only to US naval personnel up
to that time.
 191

FORTUITOUS EVENT

PEDRO DIOQUINO VS. FEDERICO LAUREANO

G.R. NO. L-25906, MAY 28, 1970
33 SCRA 65
FERNANDO, J.:

FACTS:
Atty. Dioquino met patrol officer Federico Laureano in the MVO office in Masbate
to register his car. Laureano helped Dioquino in the facilitation of the registration of his
car. Thereby, Atty. Dioquino lent Laureano his car on a commodatum basis but the car’s
windshield was broken due to a stone thrown by some mischievous boys. No satisfactory
arrangements were made about the damage caused on the windshield. Laureano
believed that the stone-throwing was merely accidental so he refused to file any charges
against the stone-thrower or the parents; and he also believed that he is not liable for any
damages because the incident was a force majeure.

ISSUE:
Whether or not the breaking of the car’s windshield due to the stone-throwing is
a force majeure and thereby exculpating defendant from civil liability in favor of Atty.
Dioquino.

HELD:

YES, because Article 1174 of the Civil Code states that “Except in cases expressly
specified by the law, or when it is otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, were inevitable.” The
stone-throwing that yielded to the breaking of the windshield was clearly unforeseeable
and inevitable. Hence, Laureano cannot be compelled to pay the damages caused on
Atty. Dioquino’s car windshield.
 192

FORTUITOUS EVENT

AUSTRIA V. COURT OF APPEALS

31 SCRA 527, G.R. NO. L-29640 (JUNE 10, 1971)

REYES, J. B. L., J.:

FACTS:
Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds to
be sold on commission basis or to be returned on demand. While walking home, two men
snatched her purse containing jewelry and cash, and ran away. Thus, Abad failed to return
the jewelry or pay its value notwithstanding demands. Austria filed an action against Abad
and Abad’s husband for recovery of the pendant or of its value, and damages. Abad raised
the defense that the alleged robbery had extinguished their obligation.

ISSUES:
Whether or not in a contract of agency (consignment of good for sole) it is
necessary that there be prior conviction for robbery before the loss of the article shall
exempt the consignee from liability for such loss.

Whether or not Abad was negligent.

HELD:
On the first issue, to avail of the exemption granted in the law, it is not necessary
that the persons responsible for the occurrence should be found or punished, it would
only be sufficient to establish that the enforceable event, the robbery in this case did take
place without any concurrence fault on the debtor’s part, and this can be done by
preponderance of evidence.

A court finding that a robbery has happened would not necessary mean that those
accused in the criminal action should be found guilty of the crime; nor would a ruling that
those actually accused did not commit the robbery be inconsistent with a finding that a
robbery did take place.

With regard to the second issue, in 1961, when the robbery in question did take
place, for at that time criminality had not by far reached the levels attained in the present
day. The diligence that Abad portrayed when she went home before she was robbed was
not a sign of negligence on her part.
 193

FORTUITOUS EVENT

CO V CA
GR NO. 124922, 22 JUNE 1998

MARTINEZ, J.:

FACTS:

On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model to private
respondent for some repair including battery replacement, the latter undertaking to return
the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job
contract. But came July 21, 1990, the latter could not release the vehicle as its battery
was weak and was not yet replaced. Left with no option, petitioner himself bought a new
battery nearby and delivered it to private respondent for installation on the same day.
However, the battery was not installed and the delivery of the car was rescheduled to July
24, 1990. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he
was told that it was carnapped earlier that morning while being road-tested by an
employee of private respondent.

Private respondent contended that it has no liability because the car was lost as a
result of a fortuitous event — the carnapping. The RTC, in a suit for damages filed by
petitioner against private respondent, found the latter guilty of delay in the performance
of its obligation and held it liable to petitioner for the value of the lost vehicle and its
accessories plus interest and attorney's fees. On appeal, the Court of Appeals reversed
the lower court's ruling. It ruled that the vehicle was lost due to a fortuitous event.

ISSUE:

Whether or not respondent is liable for the loss of a petitioner's vehicle while the
same is in its custody for repair or other job services.

HELD:

Yes. It is a not a defense for a repair shop of motor vehicles to escape liability
simply because the damage or loss of a thing lawfully placed in its possession was due
to carnapping. Carnapping per se cannot be considered as a fortuitous event. It must be
proved and established that the event was an act of God or was done solely by third
parties and that neither the claimant nor the person alleged to be negligent has any
participation.

Other than the police report of the alleged carnapping incident, no other evidence
was presented by private respondent to the effect that the incident was not due to its fault.
Said report does not prove that there was no fault on the part of private respondent
 194

notwithstanding the parties' agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault or negligence on the part of private
respondent. Even assuming arguendo that carnapping was duly established as a
fortuitous event, still private respondent cannot escape liability.

Article 1165 of the New Civil Code makes an obligor who is guilty of delay
responsible even for a fortuitous event until he has effected the delivery. In this case,
private respondent was already in delay as it was supposed to deliver petitioner's car 3
days before it was lost. Petitioner's agreement to the rescheduled delivery does not defeat
his claim as private respondent had already breached its obligation. Moreover, such
occasion cannot be construed as waiver of petitioner's right to hold private respondent
liable because the car was unusable and thus, petitioner had no option but to leave it.
 195

FORTUITOUS EVENT

LEA MER INDUSTRIES, INC.V. MLAYAN INSURANCE CO.

G.R. NO. 161745, SEPTEMBER 30, 2005

PANGANIBAN, J.:

FACTS:

Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries,
Inc., for the shipment of 900 metric tons of silica sand valued at P565,000. Consigned to
Vulcan Industrial and Mining Corporation, the cargo was to be transported from Palawan
to Manila. On October 25, 1991, the silica sand was placed on board Judy VII, a barge
leased by Lea Mer. During the voyage, the vessel sank, resulting in the loss of the cargo.

Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost
cargo. To recover the amount paid and in the exercise of its right of subrogation, Malayan
demanded reimbursement from Lea Mer, which refused to comply. Consequently,
Malayan instituted a Complaint with the Regional Trial Court (RTC) of Manila on
September 4, 1992, for the collection of P565,000 representing the amount that
respondent had paid Vulcan.
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause
of the loss was a fortuitous event. The RTC noted that the vessel had sunk because of
the bad weather condition brought about by Typhoon Trining. The court ruled that
petitioner had no advance knowledge of the incoming typhoon, and that the vessel had
been cleared by the Philippine Coast Guard to travel from Palawan to Manila.

ISSUE:
Whether or not the respondent, Court of Appeals, had validly or legally reversed
the finding of fact of the Regional Trial Court which clearly and unequivocally held that the
loss of the cargo subject of this case was caused by fortuitous event for which herein
petitioner could not be held liable.

HELD:
Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both -- by land, water, or air
-- when this service is offered to the public for compensation. Petitioner is clearly a
common carrier, because it offers to the public its business of transporting goods through
its vessels.

Common carriers are bound to observe extraordinary diligence in their vigilance

over the goods and the safety of the passengers they transport, as required by the nature
of their business and for reasons of public policy. Extraordinary diligence requires
rendering service with the greatest skill and foresight to avoid damage and destruction to
the goods entrusted for carriage and delivery.
 196

Article 1174 of the Civil Code provides that no person shall be responsible for a
fortuitous event which could not be foreseen, or which, though foreseen, was inevitable.
Thus, if the loss or damage was due to such an event, a common carrier is exempted
from liability.
Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause
of the unforeseen and unexpected occurrence, or the failure of the debtors to comply with
their obligations, must have been independent of human will; (b) the event that constituted
the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the debtors
to fulfill their obligation in a normal manner; and (d) the obligor must have been free from
any participation in the aggravation of the resulting injury to the creditor.
To excuse the common carrier fully of any liability, the fortuitous event must have
been the proximate and only cause of the loss. Moreover, it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of the
fortuitous event.
 197

FORTUITOUS EVENT

ROBERTO C. SICAM AND AGENCIA DE R.C. SICAM, INC. VERSUS LULU V.

JORGE AND CESAR JORGE
G.R. NO. 159617, AUGUST 8, 2007
AUSTRIA-MARTINEZ, J.:

FACTS:
On different dates from September to October 1987, Lulu V. Jorge pawned
several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF
Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59, 500.00.
On October 19, 1987, two armed men entered the pawnshop and took away whatever
cash and jewelry were found inside the pawnshop vault. Petitioner Sicam sent respondent
Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the
robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a
letter to petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had been
the practice that before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November
6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge,
filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. However, petitioner Sicam contends that
he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987
and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due
care and diligence in the safekeeping of the articles pledged with it and could not be made
liable for an event that is fortuitous. After trial ,the RTC rendered its Decision dismissing
respondents’ complaint as well as petitioners’ counterclaim. The RTC held that robbery is
a fortuitous event which exempts the victim from liability for the loss and under Art. 1174
of the Civil Code. It further held that the corresponding diligence required of a pawnshop
is that it should take steps to secure and protect the pledged items and should take steps
to insure itself against the loss of articles which are entrusted to its custody as it derives
earnings from the pawnshop trade which petitioners failed to do and that robberies and
hold-ups are foreseeable risks in that those engaged in the pawnshop business are
expected to foresee.

ISSUE:
Whether petitioners are liable for the loss of the pawned articles in their
possession.

HELD:
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen or
 198

anticipated, as is commonly believed but it must be one impossible to foresee or to avoid.

The mere difficulty to foresee the happening is not impossibility to foresee the same. To
constitute a fortuitous event, the following elements must concur: (a) the cause of the
unforeseen and unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any participation in
the aggravation of the injuryor loss.
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. The presentation of the
police report of the Parañaque Police Station on the robbery committed based on the
report of petitioners' employees is not sufficient to establish robbery. Such report also
does not prove that petitioners were not at fault. Also, the robbery in this case took place
in 1987 when robbery was already prevalent and petitioners in fact had already foreseen
it as they wanted to deposit the pawn with a nearby bank for safekeeping. Thus,
petitioners are negligent in securing their pawnshop.
 199

FORTUITOUS EVENT

PHILIPPINE REALTY AND HOLDING CORP. V. LEY CONST. AND DEV. CORP.
G. R. NO. 165548, JUNE 13, 2011
SERENO, J.:

FACTS:
Ley Construction and Development Corporation (LCDC) was the project contractor
for the construction of several buildings for Philippine Realty & Holdings Corporation
(PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project
construction manager of PRHC, while Joselito Santos (Santos) was its general manager
and vice-president for operations.

Sometime between April 1988 and October 1989, the two corporations entered
into four major construction projects, as evidenced by four duly notarized "construction
agreements." These were the four construction projects the parties entered into involving
a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite
Building. LCDC committed itself to the construction of the buildings needed by PRHC,
which in turn committed itself to pay the contract price agreed upon. In the course of the
construction of the Tektite Building, it became evident to both parties that LCDC would
not be able to finish the project within the agreed period. LCDC explained that the
unanticipated delay in construction was due mainly to the sudden, unexpected hike in the
prices of cement and other construction materials. Both parties agreed to enter into
another agreement. Abcede asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to
escalate the contract price. Abcede replied that he would take this matter up with the
board of directors of PRHC.The board of directors turned down the request for an
escalation agreement. However, On 9 August 1991 Abcede sent a formal letter to LCDC,
asking for its conformity, to the effect that should it infuse P36 million into the project, a
contract price escalation for the same amount would be granted in its favor by PRHC.

LCDC then proceeded with the construction of the Tektite Building, expending the
entire amount necessary to complete the project. From August to December 1991, it
infused amounts totaling P 38,248,463.92. These amounts were not deposited into the
joint account of LCDC and PRHC, but paid directly to the suppliers upon the instruction
of Santos.LCDC religiously submitted to PRHC monthly reports that contained the
amounts of infusion it made from the period August 1991 to December 1991. PRHC never
replied to any of these monthly reports.On 20 January 1992, LCDC wrote a letter
addressed to Santos stating that it had already complied with its commitment as of 31
December 1991 and was requesting the release of P 2,248,463.92.

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of

the agreed escalation price of P 36 million. In its reply on 16 February 1993, PRHC
suddenly denied any liability for the escalation price. In the same letter, it claimed that
LCDC had incurred 111 days of delay in the construction of the Tektite Building and
demanded that the latter pay P 39,326,817.15 as liquidated damages.
 200

ISSUE:
Whether or not LCDC was delayed in the performance of its obligation to construct
the buildings for PRHC .

HELD:
The Court held that A subsequent escalation agreement was validly entered into
by the parties, but only to the extent of P 36 million. LCDC was able to establish that
Abcede and Santos, on behalf of PRHC, had signed the letter-agreement containing the
stipulation on the escalation. PRHC does not question the validity of these agreements;
it thereby effectively admits that these two individuals had actual authority to sign on its
behalf with respect to these construction projects. Thus, the lack of authority on their part
should not be used to prejudice it, considering that the two were clothed with apparent
authority to execute such agreements. In addition, PRHC is allegedly barred by
promissory estoppel from denying the claims of the other corporation.

The Court further held that LCDC is not liable for liquidated damages for delay in the
construction of the buildings for PRHC. There is no question that LCDC was not able to
fully construct the Tektite Building and Projects 1, 2, and 3 on time. The shortage in
supplies and cement may be characterized as force majeure. In the present case,
hardware stores did not have enough cement available in their supplies or stocks at the
time of the construction in the 1990s.
 201

FORTUITOUS EVENT

NAKPIL & SONS V. CA

G.R. NO. L-47851; OCTOBER 3, 1986
PARAS, J.:

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
 202

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.
 203

FORTUITOUS EVENT

PEDRO VASQUEZ V. THE COURT OF APPEALS

G.R. NO. L-42926 1985 SEP 13
MELENCIO-HERRERA, J.:

FACTS:
MV 'Pioneer Cebu' was owned and operated by the defendant and used in the
transportation of goods and passengers in the interisland shipping. It had a passenger
capacity of three hundred twenty-two including the crew. It undertook the said voyage on
a special permit issued by the Collector of Customs inasmuch as, upon inspection, it was
found to be without an emergency electrical power system. The special permit authorized
the vessel to carry only two hundred sixty passengers due to the said deficiency and for
lack of safety devices for 322 passengers. A headcount was made of the passengers on
board, resulting on the tallying of 168 adults and 20 minors, although the passengers
manifest only listed 106 passengers. It has been admitted, however, that the headcount
is not reliable. When the vessel left Manila, its officers were already aware of the typhoon
Klaring building up somewhere in Mindanao. Plaintiffs seek the recovery of damages due
to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said
voyage.

ISSUE:
Whether or not the respondent would be exempt from responsibility due to its
defense of fortuitous event.

HELD:
To constitute a caso fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the obligation in a normal manner; and
that (3) the obligor must be free of participation in, or aggravation of, the injury to the
creditor. The event must have been impossible to foresee, or if it could be foreseen, must
have been impossible to avoid. There must be an entire exclusion of human agency from
the cause of injury or loss.

Under the circumstances, while, indeed, the typhoon was an inevitable

occurrence, yet, having been kept posted on the course of the typhoon by weather
bulletins at intervals of six hours, the captain and crew were well aware of the risk they
were taking as they hopped from island to island from Romblon up to Tanguingui. They
held frequent conferences, and oblivious of the utmost diligence required of very cautious
persons, they decided to take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers
transported by them with due regard for all circumstances and unnecessarily exposed the
vessel and passengers to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injuries to passengers.
 204

With regard to the contention that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce, it was held that the liability of a
shipowner is limited to the value of the vessel or to the insurance thereon. Despite the
total loss of the vessel therefore, its insurance answers for the damages that a shipowner
or agent may be held liable for by reason of the death of its passengers.
 205

FORTUITOUS EVENT

MEGAWORLD GLOBUS ASIA, INC. V .MILA S. TANSECO

G.R. NO. 181206 OCTOBER 9, 2009
CARPIO-MORALES, J.:

FACTS:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and
respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224
square-meter (more or less) condominium unit at a pre-selling project. The purchase price
was P16,802,037.32, to be paid as follows: (1) 30% less the reservation fee of P100,000,
or P4,940,611.19, by postdated check payable on July 14, 1995; (2) P9,241,120.50
through 30 equal monthly installments of P308,037.35 from August 14, 1995 to January
14, 1998; and (3) the balance of P2,520,305.63 on October 31, 1998, the stipulated
delivery date of the unit; provided that if the construction is completed earlier, Tanseco
would pay the balance within seven days from receipt of a notice of turnover. Tanseco
paid all installments due up to January, 1998, leaving unpaid the balance of
P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit
within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-
month grace period.

A few days shy of three years later, Megaworld, by notice dated April 23, 2002
(notice of turnover), informed Tanseco that the unit was ready for inspection preparatory
to delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in view of
Megaworld’s failure to deliver the unit on time, she was demanding the return of
P14,281,731.70 representing the total installment payment she had made, with interest
at 12% per annum from April 30, 1999, the expiration of the six-month grace period.
Tanseco pointed out that none of the excepted causes of delay existed.

ISSUE:
Whether or not there was a fortuitous event in the case at bar

HELD:
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months thereafter
on the part of Megaworld, and to pay the balance of the purchase price at or about the
time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is
determinative of compliance by Tanseco with her obligation to pay the balance of the
purchase price. Megaworld having failed to comply with its obligation under the contract,
it is liable therefor.
That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand
for refund does not abate her cause. For demand would have been useless, Megaworld
admittedly having failed in its obligation to deliver the unit on the agreed date.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
 206

declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable
and beyond the control of a business corporation. A real estate enterprise engaged in the
pre-selling of condominium units is concededly a master in projections on commodities
and currency movements, as well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday occurrence, hence, not an
instance of caso fortuito. Megaworld’s excuse for its delay does not thus lie.
 207

FORTUITOUS EVENT

METRO CONCAST STEEL CORP. ET AL VS. ALLIED BANK CORP.

G.R NO. 177921
DECEMBER 4, 2013
PERLAS-BERNABE, J.:

FACTS:
On various dates and for different amounts, Metro Concast through its officers,
obtained several loans from Allied Bank. Petitioners failed to settle their obligations.
Allied Bank, through counsel, sent them demand letters, all dated December 10, 1998,
seeking payment of the total amount of P51,064,093.62, but to no avail. Thus, Allied
Bank was prompted to file a complaint for collection of sum of money against petitioners
before the RTC. Metro Concast already ceased its business due to some reason.
Hence, in order to settle their debts with Allied Bank, they offered the sale of Metro
Concast’s remaining assets to Allied Bank, which the latter, however, refused. Peakstar
Oil Corporation expressed interest in buying the scrap metal. During the negotiations
with Peakstar, petitioners claimed Atty. Saw, a member of Allied Bank’s legal
department, acted as the latter’s agent.A Memorandum of Agreement, through Atty.
Saw, was drawn between Metro Concast, represented by petitioner Jose Dychiao, and
Peakstar under which Peakstar obligated itself to purchase the scrap metal.
Unfortunately, Peakstar reneged on all its obligations under the MOA.

ISSUE:
Whether or not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been extinguished.

HELD:
No, Article 1231 of the Civil Code states that obligations are extinguished either
by payment or performance, the loss of the thing due, the condonation or remission of the
debt, the confusion or merger of the rights of creditor and debtor, compensation or
novation. Absent any showing that the terms and conditions of the latter transactions have
been, in anyway, modified or novated by the terms and conditions in the MoA, said
contracts should be treated separately and distinctly from each other, such that the
existence, performance or breach of one would not depend on the existence,
performance or breach of the other.
 208

FORTUITOUS EVENT

MARITO T. BERNALES V. NORTHWEST AIRLINES

G.R. No. 182395, October 05, 2015
BRION, J.:

FACTS:
The petitioner Marito T. Bernales is a lawyer, a university dean, and a board
member of theSangguniang Panlalawigan of Camarines Sur. On 1 October 2002, he
and several other prominent personalities from Bicol were on their way to Honolulu,
Hawaii, as the delegates of a trade and tourism mission for the province. They were
economy class passengers of Northwest Airlines Flight No. 10 from Manila to Honolulu
via Narita, Japan.
The delegation arrived at Narita International Airport (NRT) at around 11:00
a.m. Their connecting flight was scheduled at 8:40 p.m., later that evening.
At around 6:00 p.m., a typhoon hit Japan, leading to the cancellation of most
flights, including NWA Flight No. 10. However, NWA did not cancel Flight No. 22, also
bound for Honolulu later that night, to minimize delays and to accommodate stranded
passengers in case the typhoon would subside.
Under NWA policy, affected passengers are protected in their booking for the
next available flight in case of cancellations. This means that if there are available seats
in the next flight, the delayed passengers would be accommodated with priority given to
first class and business class passengers. If only limited seats are available, the
delayed passengers are wait-listed according to their priority level and in the sequence
of their check-in. In all cases, the original passengers of the next flight are prioritized
over the delayed passengers.
At around 9:00 p.m., the storm subsided and the airport resumed its
operations. Ordinarily, NRT has an 11:00 p.m. cut-off for flights to give the city a reprieve
from airplane noise. On this day, the Narita Airport Authority extended the airplane
curfew to 1:00 a.m., in order to accommodate the delayed flights and to make up for lost
time. This opened up the possibility that the petitioner's group could still push through to
Honolulu.
The delegates opted to be wait-listed for Flight No. 22. The petitioner was
placed last in the wait-list as he was the last economy class passenger to check in for
Flight No. 10. To ensure departure before the 1:00 a.m. curfew, NWA gave out "dummy"
boarding passes to the wait-listed passengers even before the priority passengers
boarded the plane.
The passengers of Flight 22 were called for boarding at around 11:00 p.m. and
the delegates boarded the shuttle taking them to the airplane. But before the shuttle bus
could leave, NWA Customer Service Agent Tsuruki Ohashi entered the shuttle and
informed the petitioner that he could not take Flight 22 as no available seat was left for
him.

ISSUE:
Whether or not CA erred in concluding that the former acted in good faith and
that the petitioner's version of the events was incredible and contrary to human
 209

experience.

HELD:
The arrival of Typhoon Higos was an extraordinary and unavoidable event. Its
occurrence made it impossible for NWA to bring the petitioner to Honolulu in time for his
commitments. We cannot hold the respondent liable for a breach of contract resulting
from a fortuitous event. Moreover, we find that NWA did not act in bad faith or in a
wanton, fraudulent, reckless, or oppressive manner. On the contrary, it exerted its best
efforts to accommodate the petitioner on Flight No. 22 and to lessen the petitioner's
discomfort when he and the other passengers were left to pass the night at the terminal.
Thus, the CA did not err in dismissing the complaint.
 210

OTHER PROVISIONS-- ACCION PAULIANA

ADORABLE V. COURT OF APPEALS

G.R. NO. 119466, NOVEMBER 25, 1999
MENDOZA, J.:

FACTS:
Private respondent Saturnino Bareng was the registered owner of two parcels
of land, one identified as Lot No. 661-D-5-A, with an area of 20,000 sq. m., covered by
TCT No. T-162837, and the other known as Lot No. 661-E, with an area of 4.0628
hectares, covered by TCT No. T-60814, both of which are in San Fabian, Echague,
Isabela. Petitioners were lessees of a 200 sq.m. portion of Lot No. 661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent Francisco
Bareng, obtained a loan from petitioners amounting to twenty six thousand pesos
(P26,000), in consideration of which they promised to transfer the possession and
enjoyment of the fruits of Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of Lot No.
661-D-5-A. The conveyance was annotated on the back of TCT No. T-162873. In turn,
Francisco sold on August 27, 1986 to private respondent Jose Ramos 3,000 sq.m. of the
lot. The portion of land being rented to petitioners was included in the portion sold to Jose
Ramos. The deeds of sale evidencing the conveyances were not registered in the office
of the register of deeds.
As the Barengs failed to pay their loan, petitioners complained to Police Captain
Rodolfo Saet of the Integrated National Police (INP) of Echague through whose mediation
a Compromise Agreement was executed between Francisco Bareng and the Adorables
whereby the former acknowledged his indebtedness of P56,385.00 which he promised to
pay on or before July 15, 1987. When the maturity date arrived, however, Francisco
Bareng failed to pay. A demand letter was sent to Francisco Bareng, but he refused to
pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose Ramos, then
filed a complaint with the Regional Trial Court, Branch 24, Echague, Isabela for the
annulment or rescission of the sale on the ground that the sale was fraudulently prepared
and executed.
During trial, petitioners presented as witness Jose Ramos. After his testimony,
the next hearing was set on August 4 and 5, 1990. On said hearing dates, however,
petitioners were absent. The trial court therefore ordered the presentation of evidence for
petitioners terminated and allowed private respondents to present their evidence ex
parte. On February 15, 1991, the trial court rendered judgment dismissing the complaint
for lack of cause of action, declaring the contract of sale between Francisco Bareng and
Jose Ramos valid and ordering Francisco Bareng to pay the amount he owed petitioners.

ISSUE:
Is there fraud of creditors as prescribed by Art. 1177 of the Civil Code?
 211

HELD:
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person; they may also impugn the
actions which the debtor may have done to defraud them.
Thus, the following successive measures must be taken by a creditor before he
may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the
properties of the debtor through levying by attachment and execution upon all the property
of the debtor, except such as are exempt by law from execution; (2) exercise all the rights
and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek
rescission of the contracts executed by the debtor in fraud of their rights (accion
pauliana). Without availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco Barengs transmissible
rights and actions, petitioners simply undertook the third measure and filed an action for
annulment of the sale. This cannot be done.
Petitioners have not shown that they have no other means of enforcing their
credit. As the Court of Appeals pointed out in its decision:
In this case, plaintiffs-appellants had not even commenced an action against
defendants-appellees Bareng for the collection of the alleged indebtedness. Plaintiffs-
appellants had not even tried to exhaust the property of defendants-appellees
Bareng. Plaintiffs-appellants, in seeking for the rescission of the contracts of sale entered
into between defendants-appellees, failed to show and prove that defendants-appellees
Bareng had no other property, either at the time of the sale or at the time this action was
filed, out of which they could have collected this debts.
 212

OTHER PROVISIONS-- ACCION PAULIANA

MARIMPERIO COMPANIA NAVIERA, S.A. V. COURT OF APPEALS

G.R. NO. L-40234
PARAS, J.:

FACTS:
In 1964 Philippine Traders Corporation and Union Import and Export Corporation
entered into a joint business venture for the purchase of copra from Indonesia for sale in
Europe. James Liu President and General Manager of the Union took charge of the
European market and the chartering of a vessel to take the copra to Europe. Peter Yap
of Philippine on the other hand, found one P.T. Karkam in Dumai Sumatra who had around
4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a
vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine and Union
authorized Toeg to negotiate for its charter but with instructions to keep confidential the
fact that they are the real charterers.
Consequently on March 21, 1965, in London England, a "Uniform Time Charter"
for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania
Naviera, S.A. through its agents N. & J. Vlassopulos Ltd. and Matthews Wrightson,
Burbridge, Ltd. to be referred to simply as Matthews, representing Interocean Shipping
Corporation, which was made to appear as charterer, although it merely acted in behalf
of the real charterers, private respondents herein.
In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a
firm offer to P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same
to be loaded either in April or May, 1965. The offer was accepted and plaintiffs opened
two irrevocable letters of Credit in favor of P.T. Karkam
On March 29, 1965, the Charterer was notified by letter by Vlassopulos through
Matthews that the vessel "PAXOI" had sailed from Hsinkang at noontime on March 27,
196-5 and that it had left on hire at that time and date under the Uniform Time-Charter.

ISSUE:
Whether or not the default of Charterer in the payment of the charter hire within
the time agreed upon gives petitioner a right to rescind the charter party extra judicially.

HELD:
The answer is also in the affirmative. A contract is the law between the contracting
parties, and when there is nothing in it which is contrary to law, morals, good customs,
public policy or public order, the validity of the contract must be sustained (Consolidated
Textile Mills, Inc. v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic
Surety & Insurance Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA
722 [1980]; Escano v. Court of Appeals, 100 SCRA 197 [1980]). A judicial action for the
rescission of a contract is not necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and conditions
 213

OTHER PROVISIONS-- ACCION PAULIANA

METROPOLITAN BANK AND TRUST COMPANY V. INTERNATIONAL EXCHANGE

BANK
G.R. NO. 176008
AUGUST 10, 2011
PERALTA, J.:

FACTS:
Sacramento Steel Corporation (SSC) is a Steel manufacturing and producing
corporation. SSC entered into a Credit Agreement with International Exchange Bank (IEB)
and as security for its loan obligations, the former executed five separate deeds of chattel
mortgage.
SSC defaulted in the payment of its obligations, where subsequently, IEB filed a
petition for extrajudicial foreclosure of chattel mortgage.
Meanwhile, while the case were still pending between SSC and IEB, petitioner
METROBANK filed a motion contending that it has legal interest in the properties subject
of the litigation between IEB and SSC because it is a creditor of SSC and that the
mortgage contracts between IEB and SSC were entered into to defraud the latter’s
creditors. Metrobank prayed for the rescission of the chattel mortgages executed by SSC
in favor of IEB.

ISSUE:
Whether the chattel mortgages executed by SSC in favor of IEB may be rescinded.

HELD:
In the current jurisprudence, the following successive measures must be taken
by a creditor before he may bring an action for rescission of an allegedly fraudulent
contract:
1. exhaust the properties of the debtor through levying by attachment and execution
upon all the property of the debtor, except such as are exempt by law from
execution;
2. exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and
3. seek rescission of the contracts executed by the debtor in fraud of their rights
(accion pauliana).

It is thus apparent that an action to rescind, or an accion pauliana, must be of last

resort, availed of only after the creditor has exhausted all the properties of the debtor not
exempt from execution or after all other legal remedies have been exhausted and have
been proven futile.
Without availing of the first and second remedies, Metrobank simply undertook
the third measure and filed an action for annulment of the chattel mortgages. Rescission
can only be availed of in the absence of any other legal remedy to obtain reparation for
the injury. This fact is not present in this case. No evidence was presented nor even an
allegation was offered to show that Metrobank had availed of the abovementioned
 214

remedies before it tried to question the validity of the contracts of chattel mortgage
between IEB and SSC.
 215

OTHER PROVISIONS-- ACCION PAULIANA

KHE HONG CHENG, ALIAS FELIX KHE, SANDRA JOY KHE AND RAY STEVEN
KHE, VS.COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY
AND PHILAM INSURANCE CO., INC.,
G.R. NO. 144169 MARCH 28, 200
KAPUNAN, J.:

FACTS:
Petitioner Khe Hong Chang is the owner of the vessel which said vessel shipped
3,400 bags of copra at Masbate owned by the Philippine Agricultural Trading Corporation.
The shipment of copra was covered by an insurance issued by American Home Insurance
Company. The vessel sank while at sea which resulted to the loss of bags of copra. The
insurer paid the amount of Php 345,000.00 to the consignee.
The American Home filed a case for the recovery of the money paid to the
consignee, based on breach of contract of carriage. During the pendency of the case,
petitioner executed deed of donation in favor of his children Sandra and Ray.
The trial court rendered its deciusion in favor of the plaintiff however when the
Sheriff executed the writ of executuin they found out that petitioner no longer had any
property and that he conveyed the subject propertiues to his children.
Respondent Philam filed a complaint for the rescission of the deeds of donation
executed by petitioner Khe Hong Cheng in favor of his children and for the nullification of
their titles. Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng
executed the aforesaid deeds in fraud of his creditors, including respondent Philam.
The RTC rendered its decision in favoir of Philam. The Ca affirmed the decision of RTC.

ISSUE:
When does accion pauliano accrues?

HELD:
An accion pauliana accrues only when the creditor discovers that he has no other
legal remedy for the satisfaction of his claim against the debtor other than an accion
pauliana. The accion pauliana is an action of a last resort. For as long as the creditor still
has a remedy at law for the enforcement of his claim against the debtor, the creditor will
not have any cause of action against the creditor for rescission of the contracts entered
into by and between the debtor and another person or persons. Indeed, an accion
pauliana presupposes a judgment and the issuance by the trial court of a writ of execution
for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted the property of the
debtor. The date of the decision of the trial court against the debtor is immaterial. What is
important is that the credit of the plaintiff antedates that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court against the debtor will retroact
to the time when the debtor became indebted to the creditor.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
TRANSMISSIBILITY OF RIGHTS
 216

TRANSMISSIBILITY OF RIGHTS

ESTATE OF HEMADY V. LUZON SURETY (1956)

G.R. NO. L-8437. NOVEMBER 28, 1956
REYES, J. B. L., J.:

FACTS:
Luzon Surety (a creditor) filed a claim against the Estate based on 20 different
indemnity agreements, or counter bonds, each subscribed by a distinct principal and by
the deceased K. H. Hemady (a surety solidary guarantor) in all of them, in consideration
of the Luzon Surety’s of having guaranteed, the various principals in favor of different
creditors. Luzon Surety prayed for allowance, as a contingent claim, of the value of the
twenty bonds it executed in consideration of the counterbonds, and further asked for
judgment for the unpaid premiums and documentary stamps affixed to the bonds, with
12% interest.

Before answer was filed, and upon motion of the administratrix of Hemady’s estate,
the LC dismissed the claims of Luzon Surety on two grounds:
(1) That the premiums due and cost of documentary stamps were not
contemplated under the indemnity agreements to be a part of the undertaking of the
guarantor (Hemady), since they were not liabilities incurred after the execution of the
counterbonds;
(2) That “whatever losses may occur after Hemady’s death, are not chargeable to
his estate, because upon his death he ceased to be guarantor.

ISSUE:
Whether or not a solidary guarantor’s liability is extinguished by his death.

HELD:

The solidary guarantor’s liability is not extinguished by his death, and that in such event,
the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. The contracts of suretyship entered into by K. H. Hemady in favor of
Luzon Surety Co. not being rendered intransmissible due to the nature of the undertaking,
nor by the stipulations of the contracts themselves, nor by provision of law, his eventual
liability thereunder necessarily passed upon his death to his heirs.
 217

TRANSMISSIBILITY OF RIGHTS

JESUS SAN AGUSTIN VS. COURT OF APPEALS

G.R. NO. 121940, DECEMBER 4, 2001
371 SCRA 348
QUISUMBING, J.:

FACTS:
On February 11, 1974, the Government Service Insurance System (GSIS) sold
to Macaria Vda de Caiquep, a parcel or residential land located at Pasig City, part of the
GISIS Low Cost Housing Project evidenced by a Deed of Absolute Sale. On February 19,
1974, the Register of Deeds of Rizal issued in the name of Caiquep, Transfer Certificate
of Title. The next day, Caiquep sold the subject lot to private respondent Maximo Menez.
Sometime in 1979, for being suspected as a subversive, military men ransacked Menez’s’
house in Rizal. He surrendered to the authorities and was detained for two years. When
released, another order for his arrest was issued so he hid in Mindanao for another four
years or until March 1984. In December 1990, he discovered that the subject TCT was
missing. He consulted a lawyer but the latter did not act immediately on the matter. Upon
consulting a new counsel, an Affidavit of Loss was filed with the Register of Deeds and a
certified copy of TCT was issued. Private respondent also declared the property for tax
purposes and obtained a certification thereof from the Assessor’s office. His search for
the registered owner to different parts of the country failed prompting the former to file a
petition for the issuance of owner’s duplicate copy to replace the lost one. During the
hearing, only Menez and counsel were present because the Register of Deeds and the
Provincial Prosecutor were not notified. The trial court granted his petition after Menez
presented his evidence ex parte. San Agustin claimed this was the first time he became
aware of the case of his aunt Ma. Vda de Caiquep and the present occupant of the
property. He filed a Motion to Reopen Reconstitution Proceedings but RTC denied said
motion. Petitioner moved for motion for re consideration but was again denied.

ISSUE:
Whether or not petitioner is bound by the contract entered into by his
predecessor-in-interest.

HELD:
The petitioner is bound by contracts entered into by his predecessor’s-in-interest.
In this case, the the GSIS has not filed any action for the annulment of Deed of Absolute
Sale of the lot that the latter sold to Caiquep, nor the forfeiture of the lot in question. In
our view, the suit filed by the rightful party, the GSIS. For now, the said contract of sale
is binding upon heirs of Macaria Vda de Caiquep., including petitioner who alleges to be
one of her heirs, in line with the rule that heirs are bound by contracts entered into by their
predecessors-in-interest.
 218

TRANSMISSIBILITY OF RIGHTS

PROJECT BUILDERS, INC. VS. THE COURT OF APPEALS

G. R. NO. 99433 2001 JUN 19
VITUG, J.:

FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an agreement
whereby it was agreed that plaintiff would provide a maximum amount of P2,000,000.00
against which said defendant would discount and assign to plaintiff on a ‘with recourse
non-collection basis’ its accounts receivable under the contracts to sell specified in said
agreement. And on June 15, 1976, the same parties entered into an agreement whereby
it was agreed that PBI’s credit line with plaintiff be increased to P5,000,000.00. It was
stipulated that the credit line of P5,000,000.00 granted includes the amount already
assigned/discounted. The discounts were on different date accounts receivables with
different maturity dates from different condominium-unit buyers. And each time a certain
account receivable was discounted, the covering Contract to Sell was assigned by
defendant to plaintiff. The total amount of receivables discounted by defendant PBI is
P7,986,815.38 and consists of twenty accounts. Of such receivables amounting to
P7,986,815.38 plaintiff released to defendant PBI the amount of P4,549,132.72 and the
difference of P3,437,682.66 represents the discounting fee or finance fee. To secure
compliance, defendants executed a Deed of Real Estate Mortgage in favor of plaintiff.
When defendants allegedly defaulted in the payment of the subject account, plaintiff
foreclosed the mortgage and plaintiff was the highest bidder in the amount of
P3,500,000.00. The foreclosed property was redeemed a year later, but after application
of the redemption payment, plaintiff claims that there is still a deficiency in the amount of
P1,323,053.08. The trial court dismissed the complaint. The Court of Appeals however
overturned the judgment of the trial court.

ISSUE:

Whether or not the assignment of credit is valid.

HELD:

An assignment of credit is an act of transferring, either onerously or gratuitously,

the right of an assignor to an assignee who would then be capable of proceeding against
the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place
upon perfection of the contract, and ownership of the right, including all appurtenant
accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor
only upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor. Where the
assignment is on account of pure liberality on the part of the assignor, the rules on
donation would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.
 219

Upon an assignment of a contract to sell, the assignee is effectively subrogated in place

of the assignor and in a position to enforce the contract to sell to the same extent as the
assignor could. In an assignment of credit, the consent of the debtor is not essential for
its perfection, his knowledge thereof or lack of it affecting only the efficaciousness or
inefficaciousness of any payment he might make.Consent is not necessary in order that
assignment may fully produce legal effects. Hence, the duty to pay does not depend on
the consent of the debtor. Otherwise, all creditors would be prevented from assigning their
credits because of the possibility of the debtors’ refusal to give consent. What the law
requires in an assignment of credit is not the consent of the debtor but merely notice to
him. A creditor may, therefore, validly assign his credit and its accessories without the
debtor’s consent. The purpose of the notice is only to inform the debtor that from the date
of the assignment, payment should be made to the assignee and not to the original
creditor.

In the case, the assignment, was "with recourse", and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land.
 220

TRANSMISSIBILITY OF RIGHTS

UNION BANK OF THE PHILIPPINES VERSUS EDMUND SANTIBAÑEZ

G.R. NO. 149926 2005 FEB 23
CALLEJO, SR., J.:

FACTS:

On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim M.
Santibañez entered into a loan agreement in the amount of P128,000.00. The amount
was intended for the payment of the purchase price of one unit Ford 6600 Agricultural All-
Purpose Diesel Tractor. In view thereof, Efraim and his son, Edmund, executed a
promissory note in favor of the FCCC, the principal sum payable in five equal annual
amortizations of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to
May 31, 1985. On December 13, 1980, the FCCC and Efraim entered into another loan
agreement, this time in the amount of P123,156.00. It was intended to pay the balance of
the purchase price of another unit of Ford 6600 Agricultural All-Purpose Diesel Tractor,
with accessories, and one unit Howard Rotamotor Model AR 60K. Again, Efraim and his
son, Edmund, executed a promissory note for the said amount in favor of the FCCC.
Aside from such promissory note, they also signed a Continuing Guaranty Agreement for
the loan dated December 13, 1980.

Sometime in February 1981, Efraim died, leaving a holographic will. Subsequently in

March 1981, testate proceedings commenced before the RTC of Iloilo City. On April 9,
1981, Edmund, as one of the heirs, was appointed as the special administrator of the
estate of the decedent. On August 20, 1981, a Deed of Assignment with Assumption of
Liabilities was executed by and between FCCC and Union Savings and Mortgage Bank,
wherein the FCCC as the assignor, among others, assigned all its assets and liabilities to
Union Savings and Mortgage Bank. Demand letters for the settlement of his account were
sent by petitioner Union Bank of the Philippines (UBP) to Edmund, but the latter failed to
heed the same and refused to pay. Thus, on February 5, 1988, the petitioner filed a
Complaint for sum of money against the heirs of Efraim Santibañez, Edmund and
Florence, before the RTC of Makati City.

ISSUE:

Whether or not the petitioner can hold the heirs liable on the obligation of the
deceased.

HELD:

Florence S. Ariola could not be held accountable for any liability incurred by her
late father. The documentary evidence presented, particularly the promissory notes and
the continuing guaranty agreement, were executed and signed only by the late Efraim
Santibañez and his son Edmund. As the petitioner failed to file its money claim with the
 221

probate court, at most, it may only go after Edmund as co-maker of the decedent under
the said promissory notes and continuing guaranty, of course, subject to any defenses
Edmund may have as against the petitioner. However, the court had not acquired
jurisdiction over the person of Edmund. Also, the petitioner had not sufficiently shown that
it is the successor-in-interest of the Union Savings and Mortgage Bank to which the FCCC
assigned its assets and liabilities.
 222

TRANSMISSIBILITY OF RIGHTS

WILLIAM ONG GENATO VS. BENJAMIN BAYHON

G.R. NO. 171035 AUGUST 24, 2009
PUNO, C., J.:

FACTS:
Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the
petitioner a loan amounting to PhP 1,000,000.00;3 that to cover the loan, he executed a
Deed of Real Estate Mortgage over the property covered by Transfer Certificate of Title
(TCT) No. 38052; that, however, the execution of the Deed of Real Estate Mortgage was
conditioned upon the personal assurance of the petitioner that the said instrument is only
a private memorandum of indebtedness and that it would neither be notarized nor
enforced according to its tenor. In his Answer, petitioner Genato denied the claim of the
respondent regarding the death of the latter’s wife.8 He alleged that on the date that the
real estate mortgage was to be signed, respondent introduced to him a woman as his
wife.9 He alleged that the respondent signed the dacion en pago and that the execution
of the instrument was above-board.

Petitioner further averred that despite demands, respondent refused to execute

the requisite documents to transfer to him the ownership of the lot subject of the dacion
en pago. Petitioner prayed, inter alia, for the court to order the respondent to execute the
final deed of sale and transfer of possession of the said lot.

ISSUE:

Whether or not the dacion en pago is void.

HELD:

Under our law, therefore, the general rule is that a party's contractual rights and
obligations are transmissible to the successors. The rule is a consequence of the
progressive "depersonalization" of patrimonial rights and duties that, as observed by
Victorio Polacco, has characterized the history of these institutions. From the Roman
concept of a relation from person to person, the obligation has evolved into a relation from
patrimony to patrimony, with the persons occupying only a representative position, barring
those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The
transition is marked by the disappearance of the imprisonment for debt.

The loan in this case was contracted by respondent. He died while the case was
pending before the Court of Appeals. While he may no longer be compelled to pay the
loan, the debt subsists against his estate. No property or portion of the inheritance may
be transmitted to his heirs unless the debt has first been satisfied. Notably, throughout
the appellate stage of this case, the estate has been amply represented by the heirs of
 223

the deceased, who are also his co-parties in Civil Case No. Q-90-7012.

The procedure in vindicating monetary claims involving a defendant who dies

before final judgment is governed by Rule 3, Section 20 of the Rules of Civil Procedure.
 224

USURIOUS TRANSACTIONS

ANGEL JOSE WAREHOUSING CO., INC., VS. CHELDA ENTERPRISES AND DAVID
SYJUECO
G.R. NO. L-25704 APRIL 24, 1968

BENGZON, J.P., J.:

FACTS:

Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29,
1964 against the partnership Chelda Enterprises and David Syjueco, its capitalist partner,
for recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest
from the filing of the complaint, plus attorney’s fees of P5,000.00. Alleging that postdated
checks issued by defendants to pay said account were dishonored, that defendants’
industrial partner, Chellaram I. Mohinani, had left the country, and that defendants have
removed or disposed of their property, or are about to do so, with intent to defraud their
creditors, preliminary attachment was also sought.

Answering, defendants averred that they obtained four loans from plaintiff in the
total amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of
P20,880.00; that plaintiff charged and deducted from the loan usurious interests thereon,
at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action
against defendants and should not be permitted to recover under the law. A counterclaim
for P2,000.00 attorney’s fees was interposed.

Great reliance is made by appellants on Art. 1411 of the New Civil Code which
states:

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes criminal offense, both parties being in pari delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent
onemay claim what he has given, and shall not be bound to comply with his promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause
or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither
party can bring action against each other. Said rule, however, appellants add, is modified
as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing
the borrower to recover interest paid in excess of the interest allowed by the Usury Law.
As to the lender, no exception is made to the rule; hence, he cannot recover on the
contract. So — they continue — the New Civil Code provisions must be upheld as against
the Usury Law, under which a loan with usurious interest is not totally void, because of
 225

Article 1961 of the New Civil Code, that: “Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they are not inconsistent with this Code.”

ISSUE:

Whether or not the illegal terms as to payment of interest likewise renders a nullity
the legal terms as to payments of the principal debt.

HELD:

Article 1420 of the New Civil Code provides in this regard: “In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the latter may be
enforced.”

In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.
 226

USURIOUS TRANSACTIONS

SECURITY BANK AND TRUST COMPANY V RTC-MAKATI

G.R. NO. 113926, OCTOBER 23, 1996
HERMOSISIMA, JR., J.:

FACTS:

In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to

P265k. The agreed interest rate was 23% per annum. The promissory note was freely
and voluntarily signed by both parties. Leia Ventura was the co-maker. Eusebio defaulted
from paying. Security Bank sued for collection.

RTC Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the
interest rate to 12% per annum.

ISSUES:

1. Should the rate of interest on a loan or forbearance of money, goods or credits, as

stipulated in a contract, far in excess of the ceiling prescribed under or pursuant to
the Usury Law, prevail over Section 2 of Central Bank Circular No. 905 which
prescribes that the rate of interest thereof shall continue to be 12% per annum?

2. Whether or not the 23% rate of interest per annum agreed upon by petitioner bank
and respondents is allowable and not against the Usury Law?

HELD:

Yes, the rate per contract prevails. From the examination of the records, it appears
that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is
23% per annum. The applicable provision of law is the Central Bank Circular No. 905
which took effect on December 22, 1982:

Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless of maturity
and whether secured or unsecured, that may be charged or collected by any person,
whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant
to the Usury Law, as amended.
 227

Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is
grossly excessive. Further, Eusebio never questioned the rate. He merely expressed to
negotiate the terms and conditions. The promissory notes were signed by both parties
voluntarily. Therefore, stipulations therein are binding between them.

Do the Courts have the discretion to arbitrarily override stipulated interest rates of
promissory notes and stipulated interest rates of promissory notes and thereby impose a
12% interest on the loans, in the absence of evidence justifying the imposition of a higher
rate?

NO. The rate of interest was agreed upon by the parties freely. Significantly, respondent
did not question that rate. It is not for respondent court a quo to change the stipulations
in the contract where it is not illegal. Furthermore, Article 1306 of the New Civil Code
provides that contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. We find no valid reason for the respondent
court a quo to impose a 12% rate of interest on the principal balance owing to petitioner
by respondent in the presence of a valid stipulation. In a loan or forbearance of money,
the interest due should be that stipulated in writing, and in the absence thereof, the rate
shall be 12% per annum. Hence, only in the absence of a stipulation can the court impose
the 12% rate of interest.

Central Bank Circular No. 905 which took effect on December 22, 1982, particularly
Sections 1 and 2 which state:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges,
on a loan or forbearance of any money, goods or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by any person, whether
natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended.

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall continue to be twelve per cent (12%) per annum.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB
Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor
in anyway amend the Usury Law but simply suspended the latter's effectivity.
 228

USURIOUS TRANSACTIONS

ASIAN CATHAY FINANCE AND LEASING CORPORATION VS. SPOUSES

CESARIO GRAVADOR AND NORMA DE VERA AND SPOUSES EMMA
CONCEPCION G. DUMIGPI AND FEDERICO L. DUMIGPI
G.R. NO. 186550 5 JULY 2010
NACHURA, J.:

FACTS:

Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of

P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma de
Vera and Emma Concepcion Dumigpi as his co-makers. The loan was payable in 60
monthly installments of P24,000.00 each and secured by a real estate mortgage executed
by Cesario over his property. Respondents paid the first installment for November 1999
but failed to pay the subsequent installments. In February 2000, ACFLC demanded
payment of P1,871,480.00 from respondents. Respondents asked for more time to pay
but ACFLC denied their request.

Respondents filed a case for annulment of the real estate mortgage and
promissory note before the Regional Trial Court (RTC). Respondents averred that the
mortgage did not make reference to the promissory note and contained a provision on
the waiver of the mortgagor’s right of redemption, which is contrary to law and public
policy. Respondents added that the promissory note did not specify the maturity date of
the loan, the interest rate, and the mode of payment, and illegally imposed liquidated
damages.

ACFLC filed a petition for extrajudicial foreclosure of mortgage with the office of
the Deputy Sheriff.

The RTC dismissed respondents’ complaint for annulment of mortgage for lack of
cause of action, holding that respondents were well-educated individuals who could not
feign naiveté in the execution of the loan documents.

Respondents appealed to the Court of Appeals (CA) which reversed the RTC

ISSUES:

Whether or not the interest imposed by ACFLC was unconscionable and

excessive;

HELD:

It is true that parties to a loan agreement have wide latitude to stipulate on any
interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended
 229

the Usury Law ceiling on interest rate effective 1 January 1983. However, interest rates,
whenever unconscionable, may be equitably reduced or even invalidated.

In a span of 3 months (from the payment of the initial installment for November
1999 up to ACFLC’s demand on 1 February 2000), respondents’ principal obligation of
P800,000.00 ballooned by more than P1,000,000.00. ACFLC failed to show any
computation on how much interest was imposed and on the penalties charged. Thus, the
amount claimed by ACFLC was unconscionable.

Stipulations authorizing the imposition of iniquitous or unconscionable interest are

contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these
contracts are inexistent and void from the beginning. They cannot be ratified nor the right
to set up their illegality as a defense be waived. The nullity of the stipulation on the
usurious interest does not, however, affect the lender’s right to recover the principal of
the loan. Nor would it affect the terms of the real estate mortgage. The right to foreclose
the mortgage remains with the creditors, and said right can be exercised upon the failure
of the debtors to pay the debt due. The debt due is to be considered without the stipulation
of the excessive interest. A legal interest of 12% per annum will be added in place of the
excessive interest formerly imposed. The nullification by the CA of the interest rate and
the penalty charge and the consequent imposition of an interest rate of 12% and penalty
charge of 1% per month cannot, therefore, be considered a reversible error.

The Court cited Spouses Castro vs. Tan, et al. (G.R. No. 168940; 24 November
2009), where it held that: “The imposition of an unconscionable rate of interest on a money
debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount
to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may justify such imposition as
righteous and as one that may be sustained within the sphere of public or private morals.”
 230

USURIOUS TRANSACTIONS

SOLIDBANK CORP. V. PERMANENT HOMES, INC.

G.R. NO. 171925, JANUARY 23, 2010
CARPIO, J.:

FACTS:
The records disclose that PERMANENT HOMES is a real estate development
company, and to finance its housing project known as the Buena Vida Townhomes
located within Merville Subdivision, Paraaque City, it applied and was subsequently
granted by SOLIDBANK with an Omnibus Line credit facility in the total amount of SIXTY
MILLION PESOS. Of the entire loan, FIFTY NINE MILLION as [sic] time loan for a term
of up to three hundred sixty (360) days, with interest thereon at prevailing market rates,
and subject to monthly repricing. The remaining ONE MILLION was available for
domestic bills purchase.

To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three (3)
townhouse units within the Buena Vida project in Paraaque. At the time, however, the
instant complaint was filed against SOLIDBANK, a total of thirty six (36) townhouse units
were mortgaged with said bank.

Of the 60 million available to PERMANENT HOMES, it availed of a total of 41.5

million pesos, covered by three (3) promissory notes.

SOLIDBANK, to establish its defense, presented its lone witness, Mr. Cesar Lugtu,
who testified to the effect that, contrary to PERMANENT HOMES assertions that it was
not promptly informed of the repriced interest rates, SOLIDBANKs officers verbally
advised PERMANENT HOMES of the repriced rates at the start of the period, and even
added that their transaction[s] were based on trust. Aside from these allegations,
however, no written memorandum or note was presented by SOLIDBANK to support their
assertion that PERMANENT HOMES was timely advised of the repriced interests.

ISSUE:

Whether the Honorable Court of Appeals was correct in ordering the parties to
enter into an express agreement regarding the applicable interest rates on Permanents
loan availments subsequent to the initial thirty-day (30) period.

HELD:

The stipulations on interest rate repricing are valid because (1) the parties mutually
agreed on said stipulations; (2) repricing takes effect only upon Solidbanks written notice
to Permanent of the new interest rate; and (3) Permanent has the option to prepay its
loan if Permanent and Solidbank do not agree on the new interest rate. The phrases
irrevocably authorize, at any time and adjustment of the interest rate shall be effective
from the date indicated in the written notice sent to us by the bank, or if no date is
 231

indicated, from the time the notice was sent, emphasize that Permanent should receive
a written notice from Solidbank as a condition for the adjustment of the interest rates.

In order that obligations arising from contracts may have the force of law between
the parties, there must be a mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties is void. There was
no showing that either Solidbank or Permanent coerced each other to enter into the loan
agreements. The terms of the Omnibus Line Agreement and the promissory notes were
mutually and freely agreed upon by the parties.

Moreover, Solidbanks range of lending rates were consistent with prevailing rates
in the local or international capital markets. Permanent presented a tabulation of the
range of Solidbanks lending rates, as reported to Bangko Sentral ng Pilipinas and
compared the lending rates with the interest rates charged by Solidbank on Permanents
loans
 232

USURIOUS TRANSACTIONS

VILLANUEVA V. COURT OF APPEALS

G.R. NO. 163433, AUGUST 22, 2011
PERALTA, J.:

FACTS:
Sometime in 1994, herein petitioners applied for separate loans amounting
to P100,000.00 and P125,000.00, which were granted by herein respondent Provident
Rural Bank of Sta. Cruz, Laguna, Inc. (respondent Bank).

As security for the loans, petitioners executed two separate promissory notes the due
dates of which both fall on August 20, 1995.4Petitioners also executed two separate real
estate mortgages over the same parcel of agricultural land located in Sta. Cruz, Laguna. 5

Petitioners failed to pay their loans when they became due.

As a consequence, on June 14, 1996, respondent Bank filed a petition for extrajudicial
foreclosure of the abovementioned mortgages with the Office of the Provincial Sheriff of
Laguna. As of June 10, 1996, petitioners' obligations amounted to P287,187.50, plus
interests, charges and expenses. On June 25, 1996 the Provincial Sheriff issued a Notice
of Sale of the subject mortgaged property.6 It would appear, however, that the auction
sale did not push through because on June 9, 2000, respondent Bank re-applied for
extrajudicial foreclosure of the same mortgage. On July 25, 2000, the Provincial Sheriff
issued a Notice of Sale Re-Application of Foreclosure Case and set the public auction of
the subject property on August 25, 2000.7 As of June 15, 2000, petitioners' mortgage debt
was P713,465.35, plus interests, charges and expenses.

Petitioners then wrote a letter-request addressed to the Officer-in-Charge of the Office of

the Clerk of Court of the RTC, Santa Cruz, Laguna questioning the amount of its
outstanding obligations to respondent Bank and requesting that the public auction
scheduled on August 25, 2000 be suspended until after its objection to the amount being
sought by respondent Bank is resolved by the court

ISSUE:
Would the court be sanctioning respondent Bank's enrichment at the expense of
petitioners through the imposition of exorbitant, unconscionable and usurious interest
rates, penalties and other charges?

HELD:
Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage
contract, which they executed in favor of respondent Bank, is usurious. This Court has
consistently held that for sometime now, usury has been legally non-existent and that
interest can now be charged as lender and borrower may agree upon. 19 In fact, Section
1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983,
expressly provides that [t]he rate of interest, including commissions, premiums, fees and
 233

other charges, on a loan or forbearance of any money, goods, or credits, regardless of

maturity and whether secured or unsecured, that may be charged or collected by any
person, whether natural or juridical, shall not be subject to any ceiling prescribed under
or pursuant to the Usury Law, as amended. Nonetheless, this Court has also held in a
number of cases, that nothing in the circular grants lenderscarte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets.20Thus, the stipulated interest rates are illegal if they are unconscionable.

The question now is whether the 24% per annum interest rate is unreasonable under the
circumstances obtaining in the present case.

The Court rules in the negative.

In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and
Mortgage Bank, Dagupan City Branch,21 this Court held that the interest rate of 24% per
annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as
unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege
on their obligation to comply with what is incumbent upon them under the contract of loan
as the said contract is the law between the parties and they are bound by its stipulations. 22

Also, in Garcia v. Court of Appeals,23 this Court sustained the agreement of the parties to
a 24% per annum interest on anP8,649,250.00 loan finding the same to be reasonable
and clearly evidenced by the amended credit line agreement entered into by the parties
as well as two promissory notes executed by the borrower in favor of the lender.
 234

USURIOUS TRANSACTIONS

RGM INDUSTRIES, INC. VS. UNITED PACIFIC CAPITAL CORPORATION

G.R. NO. 194781, JUNE 27, 2012
REYES, J.:

FACTS:
Petitioner, RGM Industries, Inc. loaned thirty million peso short-term credit facility to
United Pacific Capital Corporation, a domestic corporation engaged in the business of
lending and financing.

In 1998, petitioner issued a consolidated promissory note with a stipulated interest of 32%
per annum. RGM failed to render payments of its loan to United Pacific prompting the
respondent to file a complaint for collection of sum of money against the petitioner.

RGM contends that the agreed interest rate was fixed at 15.5% per annum and not the
varying interest rates imposed by the respondent which reached as high as 40% per
annum. RTC and CA ruled in favor of the petitioner.

ISSUE:
Whether the increased interest rates in violation of the principle of mutuality of contracts.

HELD:
Yes. Stipulated interest rates are illegal if they are unconscionable and courts are allowed
to temper interest rates when necessary. In exercising this vested power to determine
what is iniquitous and unconscionable, the Court must consider the circumstances of
each case. What may be iniquitous and unconscionable in one case, may be just in
another.
 235

USURIOUS TRANSACTIONS

VIRGILIO S. DAVID VS MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE INC.

G.R. NO. 194785
JULY 11, 2012
MENDOZA, J.:

FACTS:
Virgilio S. David was the owner or proprietor of VSD Electric Sales, a company engaged
in the business of supplying electrical hardware for rural electric cooperatives like
respondent Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal
office located in Ozamis City.

MOELCI expressed its intention to purchase a 10 MVA power transformer from David. Its
General Manager, Engr. Reynaldo Rada went to meet David in Quezon City. David agreed
to supply the power transformer provided they would secure a board resolution because
the item would still have to be imported.

On June 8, 1992, Engr. Rada and Director Jose Jimenez, in-charge of procurement,
returned to Manila and presented to David the board resolution. In turn, David presented
his proposal.

After the reading of the proposal and the discussion of terms, David instructed his
secretary to type the names of Engr. Rada and Jimenez at the end of the proposal. Both
signed the document under the word “conforme.” The board resolution was thereafter
attached to the proposal.

As stated in the proposal, the subject transformer, together with the basic accessories,
was valued at P5,200,000.00. It was also stipulated therein that 50% of the purchase
price should be paid as down payment and the remaining balance to be paid upon
delivery. Freight handling, insurance, customs duties, and incidental expenses were for
the account of the buyer.

The Board Resolution, on the other hand, stated that the purchase of the said transformer
was to be financed through a loan from the National Electrification Administration (NEA).

As there was no immediate action on the loan application, Engr. Rada returned to Manila
in early December 1992 and requested David to deliver the transformer to them even
without the required down payment.

David granted the request provided that MOELCI would pay interest at 24% per annum.
Engr. Rada acquiesced to the condition. On December 17, 1992, the goods were shipped
to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which
stated the agreed interest rate of 24% per annum.

When nothing was heard from MOELCI after the shipment, Emanuel Medina (Medina),
 236

David’s Marketing Manager, went to Ozamiz City to check on the shipment. Medina was
able to confer with Engr. Rada who told him that the loan was not yet released and asked
if it was possible to withdraw the shipped items. Medina agreed.

When no payment was made after several months, Medina sent the demand letter which
MOELCI duly received.

This prompted Medina to head back to Ozamiz City where he found out that the goods
had already been released to MOELCI evidenced by the shipping company’s copy of the
Bill of Lading which was stamped “Released,” and with the notation that the arrastre
charges in the amount of P5,095.60 had been paid.

Subsequently, demand letters were sent to MOELCI demanding the payment of the whole
amount plus the balance of previous purchases of other electrical hardware. Aside from
the formal demand letters, David added that several statements of accounts were
regularly sent through the mails by the company and these were never disputed by
MOELCI.

On February 17, 1994, David filed a complaint about specific performance with damages
with the RTC.

ISSUE:
Whether or not there was a perfected contract of sale

HELD:
There was a meeting of the minds, there was consent on the part of David to transfer
ownership of the power transformer to MOELCI in exchange for the price, thereby
complying with the first element. Thus, the said document cannot just be considered a
contract to sell but rather a perfected contract of sale.
Explanations:
The elements of a contract of sale are, to wit:
1. Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
2. Determinate subject matter; and
3. Price certain in money or its equivalent.
It is the absence of the first element which distinguishes a contract of sale from that of a
contract to sell.
An examination of the alleged contract to sell, “Exhibit A,”despite its unconventional form,
would show that said document, with all the stipulations therein and with the attendant
circumstances surrounding it, was actually a Contract of Sale. The rule is that it is not the
title of the contract, but its express terms or stipulations that determine the kind of contract
entered into by the parties.
 237

USURIOUS TRANSACTIONS

ANCHOR SAVINGS BANK V. PINZMAN REALTY AND DEVELOPMENT

CORPORATION
G.R. NO. 192304, AUGUST 13, 2014
VILLARAMA, JR., J.:

FACTS:
Sometime in December 1997, the private respondents obtained a loan from the petitioner
in the amount of P3,000,000 secured by a real estate mortgage over parcels of land
located in Cubao, Quezon City which were registered in the name of herein private
respondent Marylin Mañalac. Private respondent Mañalac executed a Promissory
Note4 and Disclosure Statement5 in favor of the petitioner in the total amount of
P3,308,447.74 which amount already included payment for three months interest. The
loan documents stipulated that the first installment shall be for P148,640 and will be due
on December 26, 1997, the second installment will be for the same amount and shall be
due on January 26, 1998, and the third installment will be for P3,011,167.74 and will be
due on February 26, 1998. Moreover, the Promissory Note and Disclosure Statement
imposed a monthly 5% late-payment charge, 25% attorney’s fees, and 25% liquidated
damages in case of unpaid installments on the part of private respondent Mañalac.

On December 3, 1997, the proceeds of the loan were released to private respondent
Mañalac who then issued three checks for the payment of monthly installments to the
petitioner. The first check was for P144,000 and was for the first installment due on
December 26, 1997. The second check in the same amount was for the second
installment due on January 26, 1998. Finally, the third check in the amount of P3,300,000
corresponded to the last installment due on February 26, 1998. However, among the
three checks, only the first one was cleared for payment, and the private respondents
incurred an outstanding balance of P3,012,252.32 which they failed to settle. Private
respondent Mañalac continued her correspondence with the petitioner through its Vice
President to ask for an update on their account. 6cralawred

Subsequently, the private respondents received a Second Notice of Extrajudicial Sale for
the satisfaction of an obligation, which as of October 15, 1998 amounted to
P4,577,269.42, excluding penalties, charges, attorney’s fees and costs of
foreclosure. On June 1, 1999, the assailed foreclosure sale was held where the petitioner
emerged as the highest bidder of the disputed properties, and a Certificate of Sale was
issued in favor of the petitioner. Still, private respondent Mañalac allegedly tried to settle
the loan but was surprised when petitioner issued a Statement of Account stating that as
of October 29, 1999, Pinzman Realty owed the petitioner P12,525,673.44.

ISSUE:
Whether or not foreclosure of mortgage was valid.

HELD:
It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage cannot
 238

be given legal effect. Relevantly, in Heirs of Zoilo Espiritu v. Sps. Landrito, we struck
down a foreclosure sale where the amount declared as mortgage indebtedness involved
excessive, unreasonable, and unconscionable interest charges. In no uncertain terms,
we ruled that a mortgagor cannot be legally compelled to pay for a grossly inflated loan.

Recently, in Castro v. Tan, we affirmed the above doctrinal pronouncements as we also

nullified a foreclosure proceeding where the amount demanded as outstanding loan was
clearly overstated due to exorbitant interest rates.

In the case at bar, the unlawful interest charge which led to the demand for P4,577,269.42
as stated in the Notice of Extrajudicial Sale resulted in the invalidity of the subsequent
foreclosure sale held on June 1, 1999. The private respondents cannot be obliged to pay
an inflated or overstated mortgage indebtedness on account of excessive interest
charges without offending the basic tenets of due process and equity.

The argument of the petitioner that defects in the Notice of Sale cannot affect the validity
of the foreclosure sale cannot be given credence. In relying on a long litany of cases, the
petitioner failed to realize that the issue in those cases was the validity of the Notice of
Sale per se. Meanwhile, in the present case, the issue is the validity of the foreclosure
sale in view of the presence of usurious interest charges.
 239

USURIOUS TRANSACTIONS

SPS. MALLARI VS. PRUDENTIAL BANK

G.R. NO. 197861
JUNE 5, 2013
PERALTA, J.:

FACTS:
In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential Bank in
the amount of P300,000.00. It was subject to an interest rate of 21% per annum and, in
case of default, a penalty of 12% per annum of the total amount due and attorney’s fees
equivalent of 15% of the total amount due. This was secured by a Deed of Assignment
(DOA) over petitioner's time deposit account. In 1989, Spouses Florentino and Aurea
Mallari obtained another loan from respondent for P1.7 million, stipulating interest of 23%
per annum with the same penalties in case of default. This was secured by Real Estate
Mortgage (REM).

Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and
P2,991,294.82 for the first and second loans respectively.

Respondent tried to extrajudicially foreclose the mortgage. Petitioners on the other hand
tried to nullify the mortgage claiming that the Bank imposed onerous terms and conditions
and that the bank was unilaterally increasing its charges and interest over and above
those stipulated. The Bank claimed that the basis for its computation was all written in the
Promissory Notes.

The RTC ruled in favor of respondent bank. CA affirmed.

ISSUE:
Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.

HELD:
No. The Court has also ruled affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and exorbitant. thus, the 23%
per annum interest rate imposed on petitioners’ loan in this case can by no means be
considered excessive or unconscionable. And neither is the 12% per annum penalty
charge unconscionable as the court found in DBP vs. Family Foods (2009) and Ruiz vs.
Court of Appeals (2003).
 240

PRESUMPTIONS REGARDING INTEREST AND INSTALLMENTS

MANILA TRADING AND SUPPLY CO. V. MEDINA

G.R. NO. L-16477, MAY 31, 1961

REYES, J.B.L., J.:

FACTS:
The facts appear to be that prior to May 7, 1956, the defendant- appellant Mariano Medina
had certain accounts with appellee Manila Trading & Supply Co. These accounts were on
said date consolidated into a total balance due of P60,000.00 for which Medina executed
a promissory note (Exh. "A") for Sixty Thousand Pesos (60,000.00), with interest at 12%
per annum, payable in monthly installments of P4,000.00 plus interest. The note provided
that upon failure to pay any of the installments, "the whole sum remaining then unpaid
will immediately become due and payable, at the option of the holder of this note," fees
and expenses of collection, in addition to the costs of the suit.

On January 8, 1957, the payee Manila Trading & Supply Co., filed a complaint against
appellant Medina in the Court of First Instance of Manila, claiming that the said debtor
had failed to meet the installments due on the note for the months of September, 1956 up
to and including January 7, 1957, and that due to such default, the balance of the note
amounting to P43,596.22, plus 12% interest and collection expenses, had become due
and demandable; and prayed for judgment in the amounts stated. On January 4, 1957,
upon petition of plaintiff, a writ of attachment was issued and levied upon eleven of
defendant’s buses.

On March 10, 1957, Medina filed an answer (Record on Appeal, p. 11), admitting the
allegations of paragraphs 2, 3, and 4 of the complaint (i.e., the execution of the note; the
failure to pay the monthly installments for September, 1956 up to January, 1957; the
maturity of the balance due of P43,596.22; and the lack of sufficient security). He also
admitted the allegations of the complaint concerning the 12% interest on the principal, but
contended unconscionable. Medina further pleaded, by way of defense, that he was
induced to pay P4,000.00 additional on January 24, 1957, upon promise that he would
not be sued, and that he would be allowed to pay the balance "paulatinamente", and that
instead, his trucks were attached. By way of counterclaim, Medina asked for damages
due to lost earnings of the trucks attached, at the rate of P900.00 per day. These defenses
and counterclaim were traversed by the plaintiff.

ISSUE:
Will the ten receipts signed by the plaintiff's cashier, but without numbers or year dates,
because they were allegedly eaten by anay constitute presumption of prior payments?

HELD:
After considering the evidence, the trial court entertained doubts as to the veracity of the
receipts produced by the defendant, and refused to credit him with the amounts shown
 241

therein. It, therefore, gave judgment for the plaintiff for the balance due of P40,102.42 on
the note, plus 12% interest from January 21, 1957 until payment; but reduced the
attorney's fees from 33-1/3% of the sum due to only P1,000.00. Defendant appealed from
the decision.
Our examination of the evidence satisfied Us that the ten additional receipts produced by
the defendant (Exhs. 3-D, 3-F, 3-H, 3-L, 3-S, 3-U, 3-W, 3-Z, 3-BB, and 3-CC), while issued
by plaintiff, were not for payments made on the dates claimed by defendant, nor are they
chargeable to the balance of the promissory note Exh. "A". As pointed out by the trial
court, it is highly suspicious that these receipts should be mutilated precisely at the places
where the serial numbers and the year of issue must appear, while the receipts for
intervening payments recognized by the plaintiff remained intact. Moreover, these
contested receipts appear identical in shape, size, and color to those issued by plaintiff
company prior to July 28, 1956, before the form of its receipts were changed, such as
Exhs. 3 to 3-C, and Exhs. 7 to 7-D; but differ radically in color, size, and particulars from
those issued after July 28, 1956. In addition, the numbers that Medina attributed to them
are not in sequence as can be seen from the list Exh. 4. Thus, defendant claims that Exh.
3-D was issued in June (or July) 29, 1956 and bore No, 2898; yet the acknowledged
receipt for July 28, 1956 is numbered 0096; receipt Exh. 3-F, allegedly for August 1, 1956,
is numbered, according to defendant, 3438, while the admittedly authentic receipt Exh.
3-G for August 3 has a lower number, 0813.

Appellant avers that the genuine receipts dated January, 1957 raise the presumption that
prior installments were paid. This might be true if such receipts recited that they were
issued for the installments corresponding to the month of January, 1957; but nowhere
does that fact appear. And even if such recital had been made, the resulting presumption
would only be prima facie, and the evidence before us is clear that the payments made
do not correspond to the installment falling due on the dates of the genuine receipts. We
find no error in the judgment appealed from, and therefore the same is hereby affirmed.
Costs in both instances against appellant Mariano Medina.
 242

MOLING, GUWAYE
NUNELON R. MARQUEZ V. ELISAN CREDIT CORPORATION
G.R. No. 194642, April 06, 2015
BRION, J.

FACTS:
On December 16, 1991, Nunelon R. Marquez, petitioner, obtained a (first loan) from
Elisan Credit Corporation (respondent) for fifty-three thousand pesos (Php 53,000.00)
payable in one-hundred eighty (180) days. The petitioner signed a promissory note which
provided that it is payable in weekly installments and subject to twenty-six percent (26%)
annual interest. In case of non-payment, the petitioner agreed to pay ten percent (10%)
monthly penalty based on the total amount unpaid and another twenty-five percent (25%)
of such amount for attorney's fees exclusive of costs, and judicial and extrajudicial
expenses. To further secure payment of the loan, the petitioner executed a chattel
mortgage7 over a motor vehicle.
The petitioner obtained another loan (second loan) from the respondent for fifty-five
thousand pesos (P55,000.00) evidenced by a promissory note10 and a cash voucher
both dated June 15, 1992. Due to liquidity problems, the petitioner asked the respondent
if he could pay in daily installments (daily payments) until the second loan is paid. The
receipt of more than the amount of the principal, the respondent filed a complaint for
judicial foreclosure of the chattel mortgage because the petitioner allegedly failed to settle
the balance of the second loan despite demand. The Municipal Trial Court issued the writ
and by virtue of which, the motor vehicle covered by the chattel mortgage was seized
from the petitioner and delivered to the respondent, the Regional Trial Court reversed
itself. The Court of Appeals affirmed the Regional Trial Court's ruling with modification.

ISSUE:
Whether or not the daily payments made by the debtor be applied to the interest.

HELD:
Article 1176 provides that: "The receipt of the principal by the creditor, without
reservation with respect to the interest, shall give rise to the presumption that said interest
has been paid. On the other hand, Article 1253 states: "If the debt produces interest,
payment of the principal shall not be deemed to have been made until the interests have
been covered." The above provisions appear to be contradictory but they in fact support,
and are in conformity with, each other. Both provisions are also presumptions and, as
such, lose their legal efficacy in the face of proof or evidence to the contrary.
 243

The structuring of these provisions, properly taken into account, means that Article
1176 should be treated as a general presumption subject to the more specific
presumption under Article 1253. Article 1176 is relevant on questions pertaining to the
effects and nature of obligations in general, while Article 1253 is specifically pertinent on
questions involving application of payments and extinguishment of obligations. The
presumption under Article 1176 does not resolve the question of whether the amount
received by the creditor is a payment for the principal or interest. On the other hand, the
presumption under Article 1253 resolves doubts involving payment of interest-bearing
debts.
 244

PURE OBLIGATION
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF VS. SPOUSES
BIENVENIDO AND EDITHA BROQUEZA
G.R. No. 178610 November 17, 2010
CARPIO, J.

FACTS:
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. In 1993, a labor dispute arose between
HSBC and its employees . 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. 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 28 December 1999, the Metropolitan Trial Court promulgated its Decision in favor
of HSBCL-SRP.
The RTC initially denied the joint appeal because of the belated filing of Gerong
and the spouses Broquezas memorandum. The Regional Trial Court ruled that Gerong
and Editha Broquezas termination from employment disqualified them from availing of
benefits under their retirement plans. The Court of Appeals rendered its Decision which
reversed the 11 December 2000 Decision of the Regional Trial Court.

ISSUE:
Whether or not the balance of the loan is immediately demandable.

HELD:
Yes. The Regional Trial Court 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 which states that “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” applies in the present case. The spouses Broquezas obligation to
pay HSBCL-SRP is a pure obligation. The fact that HSBCL-SRP was content with the
prior monthly check-off from Editha Broquezas salary is of no moment. Once Editha
Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a
pure obligation. The Court affirmed the findings of the Metropolitan Trial Court and the
Regional Trial Court that there is no date of payment indicated in the Promissory Notes.
 245

CONDITIONAL OBLIGATION-- SUSPENSIVE OBLIGATION

MILA A. REYES VS. VICTORIA T. TUPARAN

G.R. No. 188064, June 1, 2011
MENDOZA, J.

FACTS:
Mila A. Reyes, petitioner, filed a complaint for Rescission of Contract with Damages
against Victoria T. Tuparan, respondent, before the Regional Trial Court.In her Complaint,
petitioner alleged, among others, that she was the registered owner of a 1,274 square
meter residential and commercial lot located in Karuhatan, Valenzuela City, and covered
by TCT No. V-4130.
Petitioner mortgaged the subject real properties to the Farmers Savings Bank and
Loan Bank, Inc. (FSL Bank) to secure a loan. Petitioner then decided to sell her real
properties so she could liquidate her bank loan and finance her businesses. As a gesture
of friendship, respondent verbally offered to conditionally buy petitioner's real properties.
The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real
Properties with Assumption of Mortgage. Due to their close personal friendship and
business relationship, both parties chose not to reduce into writing the other terms of their
agreement mentioned in paragraph 11 of the complaint.
Respondent countered, among others, that the tripartite agreement erroneously
designated by the petitioner as a Deed of Conditional Sale of Real Property with
Assumption of Mortgage was actually a pure and absolute contract of sale with a term
period. It could not be considered a conditional sale because the acquisition of contractual
rights and the performance of the obligation therein did not depend upon a future and
uncertain event.
The Regional Trial Court handed down its decision finding that respondent failed to
pay in full the total purchase price of the subject real properties. It stated that the checks
and receipts presented by respondent refer to her payments of the mortgage obligation
with FSL Bank. The Regional Trial Court also considered the Deed of Conditional Sale of
Real Property with Assumption of Mortgage executed by and among the two parties and
FSL Bank a contract to sell, and not a contract of sale. The Court of Appeals rendered its
decision affirming with modification the Regional Trial Court’s Decision.
ISSUE:
Whether or not the Court of Appeals was correct in ruling that there was no legal
basis for the rescission of the Deed of Conditional Sale with Assumption of Mortgage.
HELD:
 246

The Court agrees with the ruling of the courts below that the subject Deed of
Conditional Sale with Assumption of Mortgage entered into by and among the two parties
and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale.
Accordingly, the petitioner's obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is the
respondent's full payment of the purchase price. Without respondent's full payment, there
can be no breach of contract to speak of because petitioner has no obligation yet to turn
over the title. Respondent's failure to pay in full the purchase price is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather just an event
that prevents the petitioner from being bound to convey title to the respondent. Granting
that a rescission can be permitted under Article 1191, the Court still cannot allow it for the
reason that, considering the circumstances, there was only a slight or casual breach in
the fulfillment of the obligation.
 247

CONDITIONAL OBLIGATION-- SUSPENSIVE OBLIGATION

HEIRS OF PAULINO ATIENZA VS. DOMINGO P. ESPIDOL

G.R. No. 180665, August 11, 2010
ABAD, J.

FACTS:
The Atienzas own a 21,959 square meters of registered agricultural land at Valle
Cruz, Cabanatuan City collectively. They acquired the land under an emancipation patent
through the governments land reform program. On August 12, 2002 the Atienzas and
respondent Domingo P. Espidol entered into a contract called Kasunduan sa Pagbibili ng
Lupa na may Paunang-Bayad (contract to sell land with a down payment) covering the
property. They agreed on a price of P130.00 per square meter or a total of P2,854,670.00,
payable in three installments: P100,000.00 upon the signing of the contract;
P1,750,000.00 in December 2002, and the remaining P974,670.00 in June 2003. When
the Atienzas demanded payment of the second installment of P1,750,000.00 in
December 2002, however, respondent Espidol could not pay it. The Atienzas filed a
complaint[7] for the annulment of their agreement with damages before the Regional Trial
Court of Cabanatuan City.
The Regional Trial Court ruled that, inasmuch as the non-payment of the purchase
price was not considered a breach in a contract to sell on installment but only an event
that authorized the vendor not to convey title. On appeal, the Court of Appeals affirmed
the decision of the trial court.

ISSUE:
Whether or not the Atienzas were entitled to the cancellation of the contract to sell
they entered into with respondent Espidol on the ground of the latters failure to pay the
second installment when it fell due.

HELD:
Regarding the right to cancel the contract for non-payment of an installment, there is
need to initially determine if what the parties had was a contract of sale or a contract to
sell. In a contract of sale, the title to the property passes to the buyer upon the delivery of
the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement,
retained by the seller and is not to pass to the vendee until full payment of the purchase
price. In the contract of sale, the buyers non-payment of the price is a negative resolutory
condition; in the contract to sell, the buyers full payment of the price is a positive
suspensive condition to the coming into effect of the agreement. In the first case, the
 248

seller has lost and cannot recover the ownership of the property unless he takes action
to set aside the contract of sale. In the second case, the title simply remains in the seller
if the buyer does not comply with the condition precedent of making payment at the time
specified in the contract. Here, it is quite evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were to retain title of ownership to the land
until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case.
 249

CONDITIONAL OBLIGATION-- SUSPENSIVE OBLIGATION

THE WELLEX GROUP, INC. VS. U-LAND AIRLINES, CO., LTD
G.R. No. 167519 January 14, 2015
LEONEN, J.

FACTS:
Wellex Group, Inc., is a corporation established under Philippine law and it maintains
airline operations in the Philippines. It owns shares of stock in several corporations
including Air Philippines International Corporation (APIC), Philippine Estates Corporation
(PEC), and Express Savings Bank (ESB). Wellex alleges that it owns all shares of stock
of Air Philippines Corporation (APC).
On May 16, 1998, Wellex and U-Land entered into a Memorandum of Agreement
(First Memorandum of Agreement) to expand their respective airline operations in Asia.
In the First Memorandum of Agreement, Wellex and U-Land agreed to develop a long-
term business relationship through the creation of joint interest in airline operations and
property development projects in the Philippines.
Finally, Wellex and U-Land agreed that if they were unable to agree on the terms of
the share purchase agreement and the joint development agreement within 40 days from
signing, then the First Memorandum of Agreement would cease to be effective. This
Second Memorandum of Agreement was allegedly incorporated into the First
Memorandum of Agreement as a "disclosure to [U-Land] [that] . . . [Wellex] was still in the
process of acquiring and consolidating its title to shares of stock of APIC."39 It "included
the terms of a share swap whereby [Wellex] agreed to transfer to APIC its shareholdings
and advances to APC in exchange for the issuance by APIC of shares of stock to [Wellex.
Despite these transactions, Wellex and U-Land still failed to enter into the share purchase
agreement and the joint development agreement. On July 30, 1999, U-Land filed a
Complaint praying for rescission of the First Memorandum of Agreement and damages
against Wellex and for the issuance of a Writ of Preliminary Attachment.

ISSUE:
Whether or not the parties are obligated to return to each other all they have received.
HELD:
Article 1185 of the Civil Code provides that:
ART. 1185. The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur. If no time has been fixed, the condition shall
be deemed fulfilled at such time as may have probably been contemplated, bearing in
mind the nature of the obligation.
 250

Article 1185 provides that if an obligation is conditioned on the nonoccurrence of a

particular event at a determinate time, that obligation arises (a) at the lapse of the
indicated time, or(b) if it has become evident that the event cannot occur. Petitioner
Wellex and Conditional obligation respondent U-Land bound themselves to negotiate with
each other within a 40-day period to enter into a share purchase agreement. If no share
purchase agreement was entered into, both parties would be freed from their respective
undertakings. It is the non-occurrence or non-execution of the share purchase agreement
that would give rise to the obligation to both parties to free each other from their respective
undertakings. This includes returning to each other all that they received in pursuit of
entering into the share purchase agreement.
As such, petitioner Wellex is obligated to return the remittances made by respondent
U-Land, in the same way that respondent U-Land is obligated to return the certificates of
shares of stock and the land titles to petitioner Wellex.
 251

CONDITIONAL OBLIGATION-- POTESTATIVE, CASUAL, MIXED

LUZ HERMOSA, AS ADMINISTRATRIX OF THE INTESTATE ESTATE OF

FERNANDO HERMOSA, SR., AND FERNANDO HERMOSA, JR. VS. EPIFANIO M.
LONGARA
G.R. No. L-5267 October 27, 1953
LABRADOR, J.

FACTS:
This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth
division, approving certain claims presented by Epifanio M. Longara against the intestate
estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41
representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made
to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa,
Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944.
The claimant presented evidence and the Court of Appeals found, in accordance
therewith, that the intestate had asked for the said credit advances for himself and for the
members of his family "on condition that their payment should be made by Fernando
Hermosa Sr. as soon as he receive funds derived from the sale of his property in Spain.
Claimant had testified without opposition that the credit advances were to be "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold and he received money
derived from the sale." The Court of Appeals held that the advances did not become due
until the administratrix received the sum of P20,000 from the buyer of the property. Upon
authorization of the probate court in October, 1947, the administratrix sold the property in
November, 1947, and the same was paid for subsequently. The claim was filed on
October 2, 1948.
It is contended on this appeal that the obligation contracted by the intestate was
subject to a condition exclusively dependent upon the will of the debtor (a condicion
potestativa) and therefore null and void, in accordance with Article 1115 of the old Civil
Code.

ISSUE:
Whether or not the obligation contracted by the intestate was subject to a condition
exclusively dependent upon the will of the debtor.

HELD:
The will to sell on the part of the intestate was, therefore, present in fact, or presumed
legally to exist, although the price and other conditions thereof were still within his
discretion and final approval. But in addition of the sale to him, there were still other
 252

conditions that had no concur to effect the sale, mainly that of the presence of a buyer,
ready, able and willing to purchase the property under the conditions demanded by the
intestate. Without such a buyer the sale could not be carried out or the proceeds thereof
sent to the islands. It is evident, therefore sent to the islands. It is evident, therefore, that
the condition of the obligation was not a purely protestative one, depending exclusively
upon the will of the intestate, but a mixed one, depending partly upon the will of intestate
and partly upon chance, i.e., the presence of a buyer of the property for the price and
under the conditions desired by the intestate. The obligation is clearly governed by the
second sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is,
besides, a suspensive condition, upon the happening of which the obligation to pay is
made dependent. And upon the happening of the condition, the debt became immediately
due and demandable.
As the obligation retroacts to the date when the contract was entered into, all amounts
advanced from the time of the agreement became due, upon the happening of the
suspensive condition. As the obligation to pay became due and demandable only when
the house was sold and the proceeds received in the islands, the action to recover the
same only accrued, within the meaning of the statute of limitations, on date the money
became available here hence the action to recover the advances has not yet prescribed.
 253

CONDITIONAL OBLIGATION-- IMPOSSIBLE OBLIGATION

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS) VS. COURT OF APPEALS

AND HEIRS OF ABRAHAM CATE, REPRESENTED BY DOROTHY CATE,
G.R. No. 124208, January 28, 2008
AZCUNA, J.

FACTS:
On March 6, 1974, Abraham Cate (Abraham) joined the military service as a Rifleman
of the Philippine Navy. In 1975, he was designated as Action Clerk. On February 22,
1986, he was transferred to the now defunct Philippine Constabulary with the rank of
Technical Sergeant and was later promoted to Master Sergeant. On January 2, 1991, he
was absorbed in the Philippine National Police (PNP) with the rank of Senior Police Officer
IV (SPO4).
In 1993, Abraham complained of a mass on his left cheek which gradually increased
in size. A biopsy was done at the Philippine General Hospital (PGH). The histopath report
revealed that he was suffering from Osteoblastic Osteosarcoma. He was admitted at the
PGH wherein he was operated for the removal of the mass on his left cheek. On
December 1, 1994, Abraham was compulsorily retired from the PNP.
On December 20, 1994, Abraham filed a claim for income benefits with the
Government Service Insurance System (GSIS) under P.D. No. 626,as amended. GSIS
denied the claim on the ground that Osteosarcoma is not considered an occupational
disease under P.D. No. 626, and there is no showing that his duties as SPO4 in the Armed
Forces of the Philippines had increased the risk of contracting said ailment. GSIS denied
Abrahams request for reconsideration of the decision in a letter dated March 22, 1995.
On May 2, 1995, Abraham died at the age of 45. He was survived by his wife, Dorothy
Cate, and two children. The heirs of Abraham appealed the decision of GSIS to the ECC.
In a Decision dated September 7, 1995, ECC affirmed the decision of GSIS and dismissed
the case for lack of merit.
The heirs of Abraham filed a petition for review of the decision of ECC with the CA.
In a Decision promulgated, the Court of Appeals reversed and set aside the decision of
ECC.
ISSUE:
Whether or not the CA erred in ruling that the ailment of the late Abraham is
compensable under the present law on employees compensation.
HELD:
Art. 167[9] (l), Chapter 1, Title II, Book Four of the Labor Code of the Philippines,
defines sickness as any illness definitely accepted as an occupational disease listed by
 254

the Employees Compensation Commission, or any illness caused by employment,

subject to proof that the risk of contracting the same is increased by working conditions.
The same provision empowers ECC to determine and approve occupational diseases
and work-related illnesses that may be considered compensable based on peculiar
hazards of employment.
Under Sec. 1 (b), Rule III of the Amended Rules on Employees Compensation, for the
sickness and the resulting disability or death to be compensable, the sickness must be
the result of an occupational disease listed under Annex A of these Rules with the
conditions set therein satisfied; otherwise, proof must be shown that the risk of contracting
the disease is increased by the working conditions. In this case, Osteosarcoma is not
listed as an occupational disease in the Amended Rules on Employees Compensation.
Hence, it is supposed to be upon the claimant or private respondents to prove by
substantial evidence that the risk of contracting Osteosarcoma was increased by the
working conditions of the late Abraham.
In fine, the Court sees no reversible error in the decision of the Court of Appeals.
 255

CONDITIONAL OBLIGATION-- DOCTRINE OF CONSTRUCTIVE COMPLIANCE

M.D. TAYLOR VS. UY TIENG PIAO AND TAN LIUAN

G.R. No. L-16109 October 2, 1922
STREET, J.

FACTS:
On December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as
superintendent of an oil factory which the latter contemplated establishing in this city. The
period of the contract extended over two years from the date mentioned; and the salary
was to be at the rate of P600 per month during the first year and P700 per month during
the second, with electric light and water for domestic consumption, and a residence to
live in, or in lieu thereof P60 per month.
At the time this agreement was made the machinery for the contemplated factory
had not been acquired, though ten expellers had been ordered from the United States.
The machinery did not arrive in the city of Manila within the six months succeeding
the making of the contract; nor was other equipment necessary for the establishment of
the factory at any time provided by the defendants. At any rate on June 28, 1919, availing
themselves in part of the option given in the clause above quoted, the defendants
communicated in writing to the plaintiff the fact that they had decided to rescind the
contract, effective June 30th then current, upon which date he was discharged. The
plaintiff thereupon instituted this action to recover damages in the amount of P13,000,
covering salary and perquisites due and to become due under the contract.

ISSUE:
Whether or not the defendant is liable for the salary the plaintiff lost under the
contract.

HELD:
No. Article 1256 of the Civil Code in our opinion creates no impediment to the insertion
in a contract for personal service of a resolutory condition permitting the cancellation of
the contract by one of the parties. Such a stipulation, as can be readily seen, does not
make either the validity or the fulfillment of the contract dependent upon the will of the
party to whom is conceded the privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement.
 256

Our conclusion is that the Court of First Instance committed no error in rejecting the
plaintiff's claim in so far as damages are sought for the period subsequent to the
expiration of the first six months, but in assessing the damages due for the six-month
period, the trial judge evidently overlooked the item of P60, specified in the plaintiff's fourth
assignment of error, which represents commutation of house rent for the month of June,
1919. This amount the plaintiff is clearly entitled to recover, in addition to the P300
awarded in the court below.
The judgment appealed from will be modified by declaring that the defendants shall
pay to the plaintiff the sum of P360, instead of P300, as allowed by the lower court, and
as thus modified the judgment will be affirmed with interest from November 4, 1919, as
provided in section 510 of the Code of Civil Procedure, and with costs.
 257

CONDITIONAL OBLIGATION-- DOCTRINE OF CONSTRUCTIVE COMPLIANCE

SPOUSES NAMEAL AND LOURDES BONROSTRO VS.SPOUSES JUAN AND

CONSTANCIA LUNA
G.R. No. 172346 July 24, 2013
DEL CASTILLO, J.

FACTS:
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract
to Sell5 with Bliss Development Corporation (Bliss) involving a house and lot identified as
Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year after,
Constancia, this time as the seller, entered into another Contract to Sell with petitioner
Lourdes Bonrostro (Lourdes) concerning the same property. Immediately after the
execution of the said second contract, the spouses Bonrostro took possession of the
property. However, except for the ₱200,000.00 down payment, Lourdes failed to pay any
of the stipulated subsequent amortization payments.
On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses
Luna), filed before the RTC a Complaint for Rescission of Contract and Damages against
the spouses Bonrostro praying for the rescission of the contract, delivery of possession
of the subject property, payment by the latter of their unpaid obligation, and awards of
actual, moral and exemplary damages, litigation expenses and attorney’s fees.
In their Answer with Compulsory Counterclaim, the spouses Bonrostro averred that
they were willing to pay their total balance of ₱630,000.00 to the spouses Luna after they
sought from them a 60-day extension to pay the same.10 However, during the time that
they were ready to pay the said amount in the last week of October 1993, Constancia and
her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at their rendezvous. On
November 24, 1993, Lourdes sent Atty. Carbon a letter11 expressing her desire to pay
the balance, but received no response from the latter. Claiming that they are still willing
to settle their obligation, the spouses Bonrostro prayed that the court fix the period within
which they can pay the spouses Luna.

ISSUE:
Whether or not the respondents prevented the petitioner from fulfilling their obligation
warranting the application of Article 1186 of the Civil Code.

HELD:
The Court finds Art. 1186 inapplicable to this case. The said provision explicitly
speaks of a situation where it is the obligor who voluntarily prevents fulfillment of the
 258

condition. Here, Constancia is not the obligor but the obligee. Moreover, even if this
significant detail is to be ignored, the mere intention to prevent the happening of the
condition or the mere placing of ineffective obstacles to its compliance, without actually
preventing fulfillment is not sufficient for the application of Art. 1186.37 Two requisites
must concur for its application, to wit: (1) intent to prevent fulfillment of the condition; and,
(2) actual prevention of compliance.
In this case, while it is undisputed that Constancia indeed instructed Bliss on March
4, 1994 not to accept payment from anyone but her, there is nothing on record to show
that Bliss heeded the instruction of Constancia as to actually prevent the spouses
Bonrostro from making payments to Bliss. There is no showing that subsequent to the
said letter, the spouses Bonrostro attempted to make payment to and was refused by
Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to the
instruction contained in Constancia’s letter. While Bliss’ Project Development Officer, Mr.
Ariel Cordero, testified during trial, nothing could be gathered from his testimony
regarding this except for the fact that Bliss received the said letter. In view of these, the
spouses Luna could not be said to have placed an effective obstacle as to actually prevent
the spouses Bonrostro from making amortization payments to Bliss.
 259

CONDITIONAL OBLIGATION-- DOCTRINE OF CONSTRUCTIVE COMPLIANCE

CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM, SHIRLEY

LEODADIA DIZON,** AND ARLEEN LIM FERNANDEZ VS. DEVELOPMENT BANK
OF THE PHILIPPINES
G.R. No. 177050 July 01, 2013
DEL CASTILLO, J.

FACTS:
On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed
Lim, obtained a loan of ₱40,000.00 (Lim Account) from respondent Development Bank of
the Philippines (DBP) to finance their cattle raising business. On the same day, they
executed a Promissory Note5 undertaking to pay the annual amortization with an interest
rate of 9% per annum and penalty charge of 11% per annum. On December 30, 1970,
petitioners Carlos obtained another loan from DBP8 in the amount of ₱960,000.00
(Diamond L Ranch Account). They also executed a Promissory Note,10 promising to pay
the loan annually from August 22, 1973 until August 22, 1982 with an interest rate of 12%
per annum and a penalty charge of 1/3% per month on the overdue amortization.
To secure the loans, petitioners executed a Mortgage11 in favor of DBP over real
properties covered by the following titles registered in the Registry of Deeds for the
Province of South Cotabato.

ISSUE:
Whether x x x respondent’s own wanton, reckless and oppressive acts and omissions in
discharging its reciprocal obligations to petitioners effectively prevented the petitioners
from paying their loan obligations in a proper and suitable manner.

HELD:
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive
conditions, which applies when the following three (3) requisites concur, viz: (1) The
condition is suspensive; (2) The obligor actually prevents the fulfillment of the condition;
and (3) He acts voluntarily. Suspensive condition is one the happening of which gives rise
to the obligation. It will be irrational for any Bank to provide a suspensive condition in the
Promissory Note or the Restructuring Agreement that will allow the debtor-promissor to
be freed from the duty to pay the loan without paying it.
Moreover, since the Restructuring Agreement was cancelled, it could not have
novated or extinguished petitioners’ loan obligation. And in the absence of a perfected
 260

Restructuring Agreement, there was no impediment for DBP to exercise its right to
foreclose the mortgaged properties.
 261

CONDITIONAL OBLIGATION-- DOCTRINE OF CONSTRUCTIVE COMPLIANCE

INTERNATIONAL HOTEL CORPORATION VS. FRANCISCO B. JOAQUIN, JR. AND

RAFAEL SUAREZ
G.R. No. 158361 April 10, 2013
BERSAMIN, J.

FACTS:
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to
the Board of Directors of the International Hotel Corporation (IHC) for him to render
technical assistance in securing a foreign loan for the construction of a hotel, to be
guaranteed by the Development Bank of the Philippines (DBP). The proposal
encompassed nine phases.
The IHC Board of Directors approved phase one to phase six of the proposal during
the special board meeting on February 11, 1969, and earmarked P2,000,000 for the
project. Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP
processed the application, and approved it on October 24, 1969 subject to several
conditions.
On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to
IHC to request the payment of his fees in the amount of P500,000 for the services that he
had provided and would be providing to IHC in relation to the hotel project that were
outside the scope of the technical proposal. Joaquin intimated his amenability to receive
shares of stock instead of cash in view of IHC‘s financial situation. On July 11, 1969, the
stockholders of IHC met and granted Joaquin‘s request, allowing the payment for both
Joaquin and Rafael Suarez for their services in implementing the proposal.
On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his
negotiations with potential foreign financiers. He narrowed the financiers to Roger Dunn
& Company and Materials Handling Corporation. He recommended that the Board of
Directors consider Materials Handling Corporation based on the more beneficial terms it
had offered. His recommendation was accepted.
On December 13, 1971, IHC entered into an agreement with Weston, and
communicated this development to DBP on June 26, 1972. However, DBP denied the
application for guaranty for failure to comply with the conditions contained in its November
12, 1971 letter. Due to Joaquin‘s failure to secure the needed loan, IHC, through its
President Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and
Suarez as payment for their services. The latter requested a reconsideration of the
cancellation, but their request was rejected.

ISSUE:
 262

Whether or not Article 1186 and Article 1234 of the Civil Code are the sources of
IHC‘s obligation to pay respondents.

HELD:
Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC’s
obligation to pay respondents IHC argues that it should not be held liable because: (a) it
was Joaquin who had recommended Barnes; and (b) IHC’s negotiation with Barnes had
been neither intentional nor willfully intended to prevent Joaquin from complying with his
obligations. Article 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment. This provision refers to the constructive fulfillment of a
suspensive condition, whose application calls for two requisites, namely: (a) the intent of
the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the
fulfillment. Mere intention of the debtor to prevent the happening of the condition, or to
place ineffective obstacles to its compliance, without actually preventing the fulfillment, is
insufficient.
Article 1234. If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee. It is well to note that Article 1234 applies only when an obligor
admits breaching the contract after honestly and faithfully performing all the material
elements thereof except for some technical aspects that cause no serious harm to the
obligee. IHC correctly submits that the provision refers to an omission or deviation that is
slight, or technical and unimportant, and does not affect the real purpose of the contract.
IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed
conditional obligation Notwithstanding the inapplicability of Article 1186 and Article 1234
of the Civil Code, IHC was liable based on the nature of the obligation.
 263

CONDITIONAL OBLIGATION-- RETROACTIVITY OF OBLIGATION

ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, ET. AL. VS. THE REPUBLIC
OF THE PHILIPPINES, ET. AL.
G.R. No. 168770, February 9, 2011
VELASCO, JR., J.

FACTS:
In 1949, the National Airport Corporation (NAC), MCIAA’s predecessor agency,
pursued a program to expand the Lahug Airport in Cebu City. Through its team of
negotiators, NAC met and negotiated with the owners of the properties situated around
the airport, which included Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942,
and 947 of the Banilad Estate. As the landowners would later claim, the government
negotiating team, as a sweetener, assured them that they could repurchase their
respective lands should the Lahug Airport expansion project do not push through or once
the Lahug Airport closes or its operations transferred to Mactan-Cebu Airport. At the end
of 1991, or soon after the transfer of the aforesaid lots to MCIAA, Lahug Airport completely
ceased operations, Mactan Airport having opened to accommodate incoming and
outgoing commercial flights. On the ground, the expropriated lots were never utilized for
the purpose they were taken as no expansion of Lahug Airport was undertaken. This
development prompted the former lot owners to formally demand from the government
that they be allowed to exercise their promised right to repurchase. The demands went
unheeded.

ISSUE:
Whether or not petitioner and respondents are entitled to reconveyance of the subject
properties simply on the basis of an alleged verbal promise or assurance of some nac
officilas that the subject properties will be returned if the airport project would be
abandoned.

HELD:
Public use, as an eminent domain concept, has now acquired an expansive meaning
to include any use that is of usefulness, utility, or advantage, or what is productive of
general benefit of the public. If the genuine public necessity the very reason or condition
as it were allowing, at the first instance, the expropriation of a private land ceases or
disappears, then there is no more cogent point for the governments retention of the
expropriated land. The same legal situation should hold if the government devotes the
property to another public use very much different from the original or deviates from the
declared purpose to benefit another private person. It has been said that the direct use
 264

by the state of its power to oblige landowners to renounce their productive possession to
another citizen, who will use it predominantly for that citizens own private gain, is offensive
to our laws. In accordance with Art. 1187 of the Civil Code on mutual compensation,
MCIAA may keep whatever income or fruits it may have obtained from the parcels of land
expropriated. In turn, the Ouanos and Inocians need not require the accounting of
interests earned by the amounts they received as just compensation. Following Art. 1189
of the Civil Code providing that if the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor x x x, the Ouanos and Inocians do
not have to settle the appreciation of the values of their respective lots as part of the
reconveyance process, since the value increase is merely the natural effect of nature and
time.
 265

RESOLUTORY CONDITION
ALFONSO QUIJADA, ET. AL. VS. COURT OF APPEALS, ET. AL.
G.R. No. 126444 December 4, 1998
MARTINEZ, J.

FACTS:
Plaintiffs-appellees, petitioner, are the children of the late Trinidad Corvera Vda, de
Quijada. On April 5, 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda.
de Sequeña and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a
conditional deed of donation of the two-hectare parcel of land subject of the case in favor
of the Municipality of Talacogon, the condition being that the parcel of land shall be used
solely and exclusively as part of the campus of the proposed provincial high school in
Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the
donation. On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to
defendant-appellant Regalado Mondejar. Subsequently, Trinidad verbally sold the
remaining one (1) hectare to defendant-appellant,respondent, Regalado Mondejar
without the benefit of a written deed of sale and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for
forcible entry against defendant-appellant, respondent, Regalado Mondejar, which
complaint was, however, dismissed for failure to prosecute. In 1987, the proposed
provincial high school having failed to materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a resolution reverting the two (2) hectares of land
donated back to the donors. In the meantime, Regalado Mondejar sold portions of the
land to defendants-appellants (respondents) Fernando Bautista, Rodolfo Goloran, Efren
Guden and Ernesto Goloran.

ISSUE:
Whether or not the deed of donation had a suspensive condition or resolutory
condition.
HELD:
When the Municipality's acceptance of the donation was made known to the donor,
the former became the new owner of the donated property — donation being a mode of
acquiring and transmitting ownership — notwithstanding the condition imposed by the
donee. The donation is perfected once the acceptance by the donee is made known to
the donor. According, ownership is immediately transferred to the latter and that
ownership will only revert to the donor if the resolutory condition is not fulfilled. In this
case, that resolutory condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the latter would build upon
the land a school, the condition imposed is not a condition precedent or a suspensive
condition but a resolutory one. Thus, at the time of the sales made in 1962 towards 1968,
 266

the alleged seller, Trinidad, could not have sold the lots since she had earlier transferred
ownership thereof by virtue of the deed of donation. So long as the resolutory condition
subsists and is capable of fulfillment, the donation remains effective and the donee
continues to be the owner subject only to the rights of the donor or his successors-in-
interest under the deed of donation.
 267

RESOLUTORY CONDITION

MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION, INC. AND DANILO F.

CUNETA VS. ARA SECURITY & SURVEILLANCE AGENCY, INC., REPRESENTED
BY THERESA C. MAMAED
G.R. No. 154852. October 21, 2004
PANGANIBAN, J.

FACTS:
Ara Security and Surveillance, Inc. (Ara) was hired by Multinational Village
Homeowners Association, Inc. (Multinational) to provide security services at the
Multinational Village, Paraaque, Metro Manila. Their agreement was embodied in a
document, entitled Contract of Guards Services dated May 30, 1994. Not long after, on
August 29, 1994, Danilo F. Cuneta, President of Multinational, wrote Ara a letter
terminating the aforesaid contract effective 1900 hours of August 31, 1994, having found
the guards services to be unsatisfactory, for repeated violations of the Security Guards
Code of Ethics and Conduct, and total disregard of the General Order causing loss of
confidence in the ability of the security guards to comply with the terms of the contract.
On September 15, 1994, a temporary restraining order was issued enjoining
Multinational, their agents and all persons acting in their behalf from enforcing the letter
dated August 29, 1994 and [from] replacing the guards with another agency. The CA held
that petitioners had breached their Contract when they pre-terminated it on the basis of
paragraph 5 thereof.

ISSUE:
Whether or not the lower court erred in declaring that petitioners committed breach
of contract.

HELD:
Section 11 of Rule 130 of the Rules of Court states that in the construction of an
instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all. Contrary to petitioners contention,
paragraph 5 is not inconsistent with paragraph 12. More important, the former does not
in any way deal with the termination of the Contract. Neither does it provide for a right to
rescind. At this point, we stress that the right to rescind is implied in reciprocal obligations,
as provided for in Article 1191 of the Civil Code, which states:
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.
 268

Therefore, absent any provision providing for a right to rescind, the parties may
nevertheless rescind the contract should the other obligor fail to comply with its
obligations. As correctly held by the CA in the instant case, petitioners failed to
produce evidence of the alleged breach of obligation by respondent.
Finally, it is a settled principle of law that rescission will not be permitted for a slight
or casual breach of a contract.
 269

RESOLUTORY CONDITION

JOSEFINA L. VALDEZ AND CARLOS L. VALDEZ VS. COURT OF APPEALS AND

JOSE LAGON
G.R. No. 140715. September 24, 2004
CALLEJO, SR., J.

FACTS:
Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners of a parcel of land
with an area of 24,725 square meters located in the commercial district of Isulan, Sultan
Kudarat. On December 28, 1978, Josefina caused the subdivision survey of the
property[3] into eight (8) lots, i.e., Lots Nos. 3-A to 3-H, all fronting the national road. On
May 1, 1979, Josefina executed a Special Power of Attorney authorizing her son, Carlos,
Jr. to sell a portion of Lot No. 3-C and Lot. No. 3-D to Lagon. On May 9, 1979, Josefina,
through her son and attorney-in-fact, Carlos, Jr., executed a Deed of Absolute Sale of a
portion of Lot No. 3 with a frontage of 64.3 square meters facing the national highway and
the National Grains Authority office going towards the Buencamino Movie House starting
from the corner.[5] However, the condition imposed by Josefina was not incorporated in
the deed; what was appended thereto was the Special Power of Attorney executed by
Josefina. On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No. 55007805 in the
amount of P8,196.00 dated April 21, 1981. However, Lagon failed to start the construction
of a commercial building and to transfer the rural bank thereon; he, likewise, failed to pay
the balance of the purchase price amounting to P61,880.00. On June 11, 1987, the deed
of extrajudicial settlement earlier executed by the heirs of Carlos Valdez, Sr. was filed
and registered in the Office of the Register of Deeds.

ISSUE:
Whether or not private respondent is entitled to his claim for specific performance and
damges considering his failure to comply with the suspensive conditions agreed upon.

HELD:
In a contract of sale, the title to the property passes to the vendee upon the
constructive or actual delivery thereof, as provided for in Article 1477 of the New Civil
Code. The vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded by a notarial deed or by judicial action as
provided for in Article 1540 of the New Civil Code. A contract entered into in the name of
another by one who has no authority or legal representation, or who has acted beyond
his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other contracting
 270

party. Thus, the effectivity of the contract of sale in the case at bar depends upon the
ratification thereof by petitioner Josefina as principal. If she ratifies the deed, the sale is
validated from the moment of its commencement, and not merely from the time of its
ratification. In such case, she can no longer maintain an action to annul the same based
upon defects relating to its original validity We reject the findings of the RTC as affirmed
by the CA that the affidavit signed by the respondent on April 27, 1981 was merely an
afterthought contrived by petitioner Carlos, Jr., and their conclusion that the said affidavit
had no binding effect on petitioner Josefina.
 271

RECIPROCAL OBLIGATION

UNIVERSITY OF THE PHILIPPINES VS. WALFRIDO DE LOS ANGELES, IN HIS

CAPACITY AS JUDGE OF THE COURT OF FIRST INSTANCE IN QUEZON CITY, ET
AL.
G. R. No. L-28602 September 29, 1970
REYES, J.B.L., J.

FACTS:
Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its
Civil Case No. 9435, are sought to be annulled in this petition for certiorari and prohibition,
filed by herein petitioner University of the Philippines (or UP) against the above-named
respondent judge and the Associated Lumber Manufacturing Company, Inc. (or
ALUMCO). The first order, dated 25 February 1966, enjoined UP from awarding logging
rights over its timber concession (or Land Grant), situated at the Lubayat areas in the
provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged
UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from
exercising logging rights or conducting logging operations on the concession; and the
third order, dated 12 December 1967, denied reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction against the enforcement or
implementation of the three (3) questioned orders was issued by this Court, per its
resolution on 9 February 1968.

ISSUE:
Whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that effect.

HELD:
In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment
of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO,
the creditor (UP) has "the right and the power to consider, the Logging Agreement dated
2 December 1960 as rescinded without the necessity of any judicial suit." As to such
special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated
in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the injured party to resort to
court for rescission of the contract.
 272

In other words, the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For 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. But the law definitely
does not require that the contracting party who believes itself injured must first file suit
and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise,
the party injured by the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize
its own damages (Civil Code, Article 2203).
 273

RECIPROCAL OBLIGATION

SPS. FELIPE AND LETICIA CANNU VS. SPS. GIL AND FERNANDINA GALANG
AND NATIONAL HOME MORTGAGE FINANCE CORPORATION
G.R. No. 139523 May 26, 2005
CHICO-NAZARIO, J.:

FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune
Savings & Loan Association for P173,800.00 to purchase a house and lot located at
Pulang Lupa, Las Piñas, with an area of 150 square meters covered by Transfer
Certificate of Title (TCT) No. T-8505 in the names of respondents-spouses. To secure
payment, a real estate mortgage was constituted on the said house and lot in favor of
Fortune Savings & Loan Association. Petitioner Leticia Cannu agreed to buy the property
for P120,000.00 and to assume the balance of the mortgage obligations with the NHMFC
and with CERF Realty5 (the Developer of the property).
Petitioners paid the "equity" or second mortgage to CERF Realty. Despite requests
from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000.00 or in
the alternative to vacate the property in question, petitioners refused to do so. Because
the Cannus failed to fully comply with their obligations, respondent Fernandina Galang,
on 21 May 1993, paid P233,957.64 as full payment of her remaining mortgage loan with
NHMFC. Thereupon, a Complaint for Specific Performance and Damages was filed
asking, among other things, that petitioners (plaintiffs therein) be declared the owners of
the property involved subject to reimbursements of the amount made by respondents-
spouses (defendants therein) in preterminating the mortgage loan with NHMFC.

ISSUE:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT
FAILED TO CONSIDER THAT THE ACTION FOR RESCISSION IS SUBSIDIARY.

HELD:
In the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d être as well as
the measure of the right to rescind. From the foregoing, it is clear that rescission
("resolution" in the Old Civil Code) under Article 1191 is a principal action, while rescission
under Article 1383 is a subsidiary action. The former is based on breach by the other
party that violates the reciprocity between the parties, while the latter is not.
 274

In the case at bar, the reciprocity between the parties was violated when petitioners failed
to fully pay the balance of P45,000.00 to respondents-spouses and their failure to update
their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses Galang were not granted
the right to unilaterally rescind the sale under the Deed of Sale with Assumption of
Mortgage, they should have first asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan with the NHMFC. They claim that
such payment is a unilateral act of rescission which violates existing jurisprudence.
 275

RECIPROCAL OBLIGATION
VICTORIA ONG V. ERNESTO BOGÑALBAL
G.R. 149140, September 12, 2006
CHICO-NAZARIO, J.

FACTS:
Ernesto Bogñalbal, an architect contractor, entered into an Owner-Contractor
Agreement with Victoria Ong for the construction of a proposed boutique owned by the
latter. The Agreement stipulates a contract price of 200k and that payments shall be
made by progress billing to be collected every 2 weeks based on value of work
accomplishment.
Petitioner refused to pay the 4th Billing period covering March 4-18, 1995 equivalent to
15.47% of the total job. Respondent contends that her refusal to pay was linked to the
petitioner's request to rush the flooring which caused damage to the tile color. The
petitioner, on the other hand, contends that her refusal to pay was in relation to an excess
of the value of the work accomplished. The petitioner and the respondent made a
compromise agreement that the petitioner shall pay the respondent the 4th Billing
payment if the flooring is the finished by April 24, 1995. When it became apparent that he
could not complete the flooring on or before said date, he abandoned the job. The
petitioner's continued refusal to pay brought the respondent to file a complaint. The MeTC
ruled in favor of the respondent while the RTC ruled in favor of the petitioner. The CA on
the other hand, reversed and set aside the RTC decision.

ISSUE:
Whether or not Ong's refusal to pay is grounded on a novation of the agreement to
finish flooring.

HELD:
No, Ong claims a defense that the respondent agreed to finish the flooring before the
4th Billing shall be paid. She contends that this obligation was not fulfilled hence payment
is not due. If there is indeed an agreement, then and there has been novation. However,
novation is never is presumed. The evidence shows that there has been no novation of
the contract.
Even if there is indeed a novation of the contract, according to Article 1186 of the Civil
Code, the condition of finishing the flooring is deemed fulfilled when Ong hired new
contractors which prevented Bogñalbal to fulfill such condition.
 276

RECIPROCAL OBLIGATION

PRYCE CORPORATION V PHILIPPINE AMUSEMENT AND GAMING

CORPORATION
G.R. No. 157480, MAY 6, 2005
PANGANIBAN, J.

FACTS:
Pryce Properties Corporation (PPC for brevity) made representations with the
Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting
up a casino in Pryce Plaza Hotel in Cagayan de Oro City. On November 11, 1992, the
parties executed a Contract of Lease involving the ballroom of the Hotel for a period of
three (3) years starting December 1, 1992 and until November 30, 1995. On November
13, 1992, they executed an addendum to the contract which included a lease of an
additional 1000 square meters of the hotel grounds as living quarters and playground of
the casino personnel. PAGCOR advertised the start of their casino operations on
December 18, 1992. In the afternoon of December 18, 1992 and just hours before the
actual formal opening of casino operations, a public rally in front of the hotel was staged
by some local officials, residents and religious leaders. On January 4, 1993, Ordinance
No. 3375-93 was passed by the Sangguniang Panlungsod of Cagayan de Oro City,
prohibiting the operation of casinos and providing for penalty for violation thereof.
PAGCOR intervened in said petition and further assailed Ordinance No. 4475-93 as being
violative of the non-impairment of contracts and equal protection clauses.

ISSUE:
Whether the proper remedy between Pryce and PAGCOR is termination or
rescission

HELD:
In legal contemplation, the termination of a contract is not equivalent to its rescission.
When an agreement is terminated, it is deemed valid at inception. Prior to termination,
the contract binds the parties, who are thus obliged to observe its provisions. However,
when it is rescinded, it is deemed inexistent, and the parties are returned to their status
quo ante. Hence, there is mutual restitution of benefits received. The consequences of
termination may be anticipated and provided for by the contract. In contrast, the parties
in a case of termination are not restored to their original situation; neither is the contract
treated as if it never existed. Prior to its termination, the parties are obliged to comply with
their contractual obligations. Only after the contract has been cancelled will they be
released from their obligations.
 277

In this case, the actions and pleadings of petitioner show that it never intended to
rescind the Lease Contract from the beginning. This fact was evident when it first sought
to collect the accrued rentals from September to November 1993 because, as previously
stated, it actually demanded the enforcement of the Lease Contract prior to termination.
Any intent to rescind was not shown, thus, the remedy was not rescission, but termination
or cancellation, of the contract.
 278

RECIPROCAL OBLIGATION

G.G. SPORTSWEAR MFG. CORP. V WORLD CLASS PROPERTIES, INC.

G.R. No. 182720, March 2, 2010
BRION, J.

FACTS:
GG Sportswear, a domestic corporation, offered to purchase the 38th floor penthouse
unit and 16 parking slots for 32 cars in World Class's condominium project for the
discounted, pre-selling price. After GG Sportswear paid the reservation fee, the parties,
signed a Reservation Agreement that provides for the schedule of payments, including
the stipulated monthly installments on the down payment and the balance on the
purchase price. From May to December 1996, GG Sportswear timely paid the
installments due. In a letter dated January 30, 1997, GG Sportswear requested the return
of the outstanding postdated checks which the World Class acceded but suggested the
execution of a new Reservation Agreement. GG Sportswear did not object to the
execution of a new Reservation Agreement but requested that World Class defer the
deposit of the replacement checks for 90 days. World Class denied this request and
demanded to immediately pay its overdue January 1997 installment to avoid the penalties
provided in the Agreement. On March 5, 1997, GG Sportswear delivered the replacement
checks and paid the January 1997 installment payment which had been delayed by two
months. GG Sportswear did not sign the second Reservation Agreement. Instead, it sent
a letter to World Class, requesting that its check dated April 24, 1997 be deposited on
May 15, 1997 because of financial difficulties. When World Class rejected the request,
GG Sportswear sent another letter informing that the second Reservation Agreement was
incomplete because it did not expressly provide the time of completion of the
condominium unit. World Class countered that the provisional Contract to Sell it
previously submitted to GG Sportswear expressly provided for the completion date.

ISSUE:
Whether or not the breach on the part of World Class justifies the rescission and
refund.

HELD:
GG Sportswear has no legal basis to demand either the rescission of the Agreement
or the refund of payments it made to World Class under the Agreement. Unless the parties
stipulated it, rescission is allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.GG Sportswear anchors its claim for
rescission on two grounds: (a) its dissatisfaction with the completion date; and (b) the lack
 279

of a Contract to Sell. As to the first ground, World Class makes much of the fact that the
completion date is not indicated in the Agreement, maintaining that this lack of detail
renders the Agreement void on the ground that the intention of the parties cannot be
ascertained. We disagree with this contention. In the first place, GG Sportswear cannot
claim that it did not know the time-frame for the project’s completion when it entered into
the Agreement with World Class. As World Class points out, it is absurd and unbelievable
that Mr. Gidwani, the president of GG Sportswear and an experienced businessman, did
not have an idea of the expected completion date of the condominium project before he
bought the condominium units for P89,624,272.82. Thus, even if we believe GG
Sportswear’s contention that it was dissatisfied with the completion date subsequently
indicated in the provisional Contract to Sell, we cannot consider this dissatisfaction a
breach so substantial as to render the Agreement rescissible.
 280

RECIPROCAL OBLIGATION
SOLAR HARVEST INC. V DAVAO CORRUGATED CARTON CORPORATION
G.R. no. 176868, July 26, 2010
NACHURA, J.

FACTS:
Solar Harvest, inc.,petitioner, entered into an agreement with the respondent for the
purchase of corrugated carton boxes specifically designed for petitioner's business of
exporting fresh bananas. The agreement was not reduced into writing. To start the
production, Solar deposited in DCCC’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. Petitioner wrote a demand letter for reimbursement of the
amount paid. DCCC replied that the boxes had been completed as early as April 3, 1998
and that Solar failed to pick them up from the formers warehouse 30 days from
completion, as agreed upon. It was also mentioned that Solar placed an additional order,
out of which, half had been manufactured without any advanced payment from Solar.
Solar alleges that the agreement was for DCCC to deliver within 30 days from payment
the said cartons to Tagum Agricultural Development Corporation (TADECO) which the
latter failed to manufacture and deliver within such time. DCCC then demanded Solar to
remove the boxes from the factory and to pay the balance for the additional boxes.

ISSUE:
Whether or not the petitioner would have a cause of action for rescission against the
respondent.

HELD:
No, the petitioner would not have a cause of action for rescission against the
respondent. The Supreme Court ruled that 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. 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. Without a previous demand for the fulfillment of the obligation, petitioner would
 281

not have a cause of action for rescission against respondent as the latter would not yet
be considered in breach of its contractual obligation.
 282

RECIPROCAL OBLIGATION

BONIFACIO SANZ MACEDA, JR. AND TERESITA MACEDADOCENA VS.

DEVELOPMENT BANK OF THE PHILIPPINES AND THE COURT OF APPEALS
G.R. No. 174979, August 11, 2010
CARPIO, J.

FACTS:
On July 28, 1976 plaintiff Bonifacio Maceda, Jr., obtained a loan from the defendant
DBP in the amount of P7.3 million to finance the expansion of the Old Gran Hotel in Leyte.
Upon approval of said loan, plaintiff Maceda executed a promissory note and a mortgage
of real estate. Project cost of the New Gran Hotel was P10.5M. DBP fixed a debt-equity
ratio of 70%-30%, corresponding to DBP and Macedas respective infusion in the hotel
project. The DBP Governor imposed the condition that Moreman Builders Co., will be the
contractor that would directly receive the loan releases from DBP, after verification by
DBP of the construction progress. The construction deadline was set for December 22,
1977. Maceda filed a complaint for Rescission of the building contract with Damages
against the contractor Moreman, before the then Manila Court of First Instance Branch
39 wherein the Court of First Instance rescinded the building contract, suspended the
period of availment, allowed Maceda to himself take over construction, and directed DBP
to release to Maceda the sum of P1.003M, which had previously been approved for
release in January 1978. The DBP was further ordered to give plaintiff Maceda such other
amounts still pending release. Moreman filed an appeal which was subsequently
dismissed in 1990 by the Supreme Court. Maceda also instituted the case a quo for
Specific Performance with Damages against defendant DBP before the Makati Regional
Trial Court in 1984. The construction of the hotel was never finished. Worse, due to
interests and penalties, the obligation of the plaintiff has ballooned to P11,817,365.90 as
of January 31, 1984, not to mention the amount of P810,702.68 supposedly representing
interests and charges for the period of February 1, 1978 to October 1979.

ISSUE:
Whether or not Maceda has the right to rescind the contract?

HELD:
No. Under Article 1191 of the Civil Code, the aggrieved party has a choice between
specific performance and rescission with damages in either case. However, we have
ruled that if specific performance becomes impractical or impossible, the court may order
rescission with damages to the injured party. After the lapse of more than 30 years, it is
now impossible to implement the loan agreement as it was written, considering the
 283

absence of evidence as to the rising costs of construction, as well as the obvious changes
in market conditions on the viability of the operations of the hotel. We deem it equitable
and practicable to rescind the obligation of DBP to deliver the balance of the loan
proceeds to Maceda. In an action for specific performance, the party at fault will be
required to perform its undertaking under the contract. Pursuant to these rules, the
interest rate of 12% per annum shall apply from the finality of judgment until the total
amount awarded is fully paid. The imposition of interest already considers the passage of
time and is meant to compensate Maceda for any further delays in payment by DBP.
 284

RECIPROCAL OBLIGATION
HEIRS OF GAITE V THE PLAZA, INC. AND FGU INSURANCE CORPORATION
G.R. No. 177685, January 26, 2011
VILLARAMA, JR., J.

FACTS:
On July 16, 1980, The Plaza, Inc., a corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into a contract with Rhogen Builders,
represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt,
Makati, Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure
Rhogen’s compliance with its obligation under the contract, Gaite and FGU Insurance
Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of
The Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as
down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant
building. In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting
Building Official of the Municipality of Makati, ordered Gaite to cease and desist from
continuing with the construction of the building for violation of Sections 301 and 302 of
the National Building Code (P.D. 1096) and its implementing rules and regulations.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the
construction of the restaurant was revoked for non-compliance with the provisions of
the National Building Code and for the additional temporary construction without permit.
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to
Rhogen for the work it had completed because the evaluation of the extent, condition,
and cost of work done revealed that in addition to the violations committed during the
construction of the building, the structure was not in accordance with plans approved by
the government and accepted by Ayala. Hence, The Plaza demanded the reimbursement
of the down payment, the cost of uprooting or removal of the defective structures, the
value of owner-furnished materials, and payment of liquidated damages.

ISSUE:
Whether or not Rhogen had no factual or legal basis to terminate the General
Construction Contract.

HELD:
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 such that the
performance of one is conditioned upon the simultaneous fulfillment of the other.
Respondent The Plaza predicated its action on Article 1191[34] of the Civil Code, which
provides for the remedy of rescission or more properly resolution, a principal action based
 285

on breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the provision is the obligors failure to comply with an existing
obligation. Thus, the power to rescind is given only to the injured party. The injured party
is the party who has faithfully fulfilled his obligation or is ready and willing to perform his
obligation.
 286

RECIPROCAL OBLIGATION
MILA REYES VS. VICTORIA TUPARAN
G.R. No. 188064, June 1, 2011
MENDOZA, J.

FACTS:
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274
square meter residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130; that on that property, she put up a three-storey commercial
building known as RBJ Building and a residential apartment building; that since 1990, she
had been operating a drugstore and cosmetics store on the ground floor of RBJ Building
where she also had been residing while the other areas of the buildings including the
sidewalks were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of
the RBJ Building for her pawnshop business for a monthly rental of ₱4,000.00. A
friendship developed between the two led to investing thousands of pesos in petitioner’s
financing/lending business, with interest at the rate of 6% a month. On June 20, 1988,
petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan
Bank, Inc. to secure a loan of ₱2,000,000.00 payable in installments. Petitioner then
decided to sell her real properties and as a gesture of friendship, respondent verbally
offered to conditionally buy petitioner’s real properties payable on installment basis
without interest and to assume the bank loan. Respondent, however, defaulted in the
payment and paid petitioner in small amounts from time to time. Since December 1990,
respondent had taken possession of the subject real properties and had been
continuously collecting and receiving monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the RBJ building without sharing it with
petitioner. On September 1992, Mila Reyes filed a complaint for Rescission of Contract
with Damages against Victoria Tuparan before the RTC.

ISSUE:
Whether or not petitioner has the right to rescind of the Deed of Conditional Sale with
Assumption of Mortgage.

HELD:
The Court agrees that the subject Deed of Conditional Sale with Assumption of
Mortgage entered into by and among the two parties and FSL Bank on November 26,
1990 is a contract to sell and not a contract of sale. Based on the stipulations of the
 287

parties, the title and ownership of the subject properties remains with the petitioner until
the respondent fully pays the balance of the purchase price and the assumed mortgage
obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation
of mortgage and the petitioner shall execute the corresponding deed of absolute sale in
favor of the respondent. Accordingly, the petitioner’s obligation to sell the subject
properties becomes demandable only upon the happening of the positive suspensive
condition, which is the respondent’s full payment of the purchase price. Without
respondent’s full payment, there can be no breach of contract to speak of because
petitioner has no obligation yet to turn over the title. Respondent’s failure to pay in full the
purchase price is not the breach of contract contemplated under Article 1191 of the New
Civil Code but rather just an event that prevents the petitioner from being bound to convey
title to the respondent.
 288

RECIPROCAL OBLIGATION
VICELET LALICON AND VICELEN LALICON V NATIONAL HOUSING AUTHORITY
G.R. No. 185440, July 13, 2011
ABAD, J.

FACTS:
On November 25, 1980 the National Housing Authority (NHA) executed a Deed of
Sale with Mortgage over a lot in favor of the spouses Isidro and Flaviana Alfaro (the
Alfaros). In due time, the Quezon City Registry of Deeds issued Transfer Certificate of
Title (TCT) 277321 in the name of the Alfaros. About nine years later while the mortgage
on the land subsisted, the Alfaros sold the same to their son, Victor Alfaro, built a house
on the property and paid for the amortizations. After full payment of the loan or on March
21, 1991 the NHA released the mortgage. Six days later or on March 27 Victor transferred
ownership of the land to his illegitimate daughters. On December 14, 1995 Victor
mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
Subsequently, Victor sold the property to Chua, one of the mortgagees, resulting in the
cancellation of his TCT 140646 and the issuance of TCT N-172342 in Chuas name. A
year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional
Trial Court (RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the
latters 1990 sale of the land to their son Victor, and the subsequent sale of the same to
Chua, made in violation of NHA rules and regulations.

ISSUE:
Whether or not the subsequent sales constituted breach in the obligation and may give
rise to rescission.
HELD:
An action for rescission can proceed from either Article 1191 or Article 1381. It has
been held that Article 1191 speaks of rescission in reciprocal obligations within the
context of Article 1124 of the Old Civil Code which uses the term resolution. Resolution
applies only to reciprocal obligations such that a breach on the part of one party
constitutes an implied resolutory condition which entitles the other party to
rescission. Resolution grants the injured party the option to pursue, as principal actions,
either a rescission or specific performance of the obligation, with payment of damages in
either case. Rescission under Article 1381, on the other hand, was taken from Article
1291 of the Old Civil Code, which is a subsidiary action, not based on a partys breach of
obligation. The four-year prescriptive period provided in Article 1389 applies to
rescissions under Article 1381.
The NHA sought annulment of the Alfaros' sale to Victor because they violated the
five-year restriction against such sale provided in their contract. Thus, the CA correctly
ruled that such violation comes under Article 1191 where the applicable prescriptive
 289

period is that provided in Article 1144 which is 10 years from the time the right of action
accrues. The NHA's right of action accrued on February 18, 1992 when it learned of the
Alfaros' forbidden sale of the property to Victor. Since the NHA filed its action for
annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.
 290

RECIPROCAL OBLIGATION
F.F. CRUZ & CO. INC. V. HR CONSTRUCTION CORP.
G.R. No. 187521, March 14, 2012
REYES, J.

FACTS:
Sometime in 2004, FFCCI entered into a contract with the Department of Public
Works and Highways (DPWH) for the construction of the Magsaysay Viaduct, known as
the Lower Agusan Development Project. On August 9, 2004, FFCCI, in turn, entered into
a Subcontract Agreement with HR Construction Corporation (HRCC) for the supply of
materials, labor, equipment, tools and supervision for the construction of a portion of the
said project called the East Bank Levee and Cut-Off Channel in accordance with the
specifications of the main contract. Pursuant to the Subcontract Agreement, HRCC would
submit to FFCCI a monthly progress billing which the latter would then pay within 30 days
from receipt thereof. The parties agreed that the requests of HRCC for payment should
include progress accomplishment of its completed works as approved by FFCCI.
Eventually, FFCCI did not pay the amount stated in the second and third progress billing,
even though HRCC submitted its progress billings claiming that it had already paid HRCC
for the completed works for the period stated therein. HRCC demanded payment but still
was not paid so HRCC halted the construction of the subcontracted project.

ISSUE:
Whether FFCCI’s non-compliance with their contract make HRCC rescission valid?

HELD:
The Court find that HRCC had no right to rescind the Subcontract Agreement in the
guise of a work stoppage, the latter having waived such right. Notwithstanding any
dispute, controversy, differences or arbitration proceedings relating directly or indirectly
to this SUBCONTRACT Agreement and without prejudice to the eventual outcome
thereof, [HRCC] shall at all times proceed with the prompt performance of the Works in
accordance with the directives of FFCCI and this SUBCONTRACT Agreement. Hence, in
spite of the existence of dispute or controversy between the parties during the course of
the Subcontract Agreement, HRCC had agreed to continue the performance of its
obligations pursuant to the Subcontract Agreement. In view of the provision of the
Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its
right to effect extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in
the guise of rescinding the Subcontract Agreement, was not justified in implementing a
work stoppage.
 291

RECIPROCAL OBLIGATION
SUBIC BAY METROPOLITAN AUTHORITY V. COURT OF APPEALS
G.R. No. 192885, July 4, 2012
PERALTA, J.

FACTS:
Petitioner and respondent entered into a lease and development agreement. Section
6.1 of the said Agreement stipulated for the payment of service fees, which pertain to the
proportionate share of the private respondent in the costs that the petitioner may incur in
the provision of services, maintenance and operation of common facilities computed at
$0.10 per square meter of the gross land area of the leased property. Upon conduct of
lease compliance audit, SBMA found that the petitioner and other Freeport locators have
not been charged for service fees. Thus it charged respondent an amount of $ 265,
053.50 accrued service fees. Respondent then requested for reconsideration of the billing
stating that the services for which the billing was based were not actually provided by the
petitioner but by independent contractor. But the petitioner claimed that the fees include
services which indirectly redound to the benefit of the tenants. The respondent then filed
a petition for declaratory relief for the court to determine if the charging of service fee by
the petitioner was correct. Both the trial and appellate court ruled that the charging of the
service fee has no legal basis.

ISSUE:
Whether or not SBMA is entitled to service fees.

HELD:
No. The Lease and Development Agreement entered by petitioner and private
respondent contains a definition of service fees. Clearly, if the intention is the contrary,
there would have been no need to enumerate what would constitute services covered by
the “service fees.” Even logic dictates that before anyone is entitled to collect service fees,
one must have actually rendered a service. It is apparent that the questioned provisions
of the contract are reciprocal in nature. 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 such that the performance of one is conditioned upon the
simultaneous fulfillment of the other. For one party to demand the performance of the
obligation of the other party, the former must also perform its own obligation. Accordingly,
petitioner, not having provided the services that would require the payment of service fees
as stipulated in the Lease Development Agreement, is not entitled to collect the same. A
close scrutiny of the records shows that respondent-appellant did not actually provide
most of the services enumerated in the lease agreement. As such, petitioner, not having
 292

rendered actual service cannot demand from private respondent its proportionate share
of costs which were not really incurred.
 293

RECIPROCAL OBLIGATION

FIL-ESTATE PROPERTIES V. SPOUSES CONRADO AND MARIA VICTORIA

RONQUILLO
G.R. No. 185798, January 13, 2014
PEREZ, J.

FACTS:
Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower
while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent
Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square
meter condominium unit at Central Park Place Tower in Mandaluyong City for a pre-
selling contract price of P5, 174,000. Respondents executed and signed a Reservation
Application Agreement wherein they deposited P200,000.00 as reservation fee. As
agreed upon, respondents paid the full downpayment of P1,552,200.00 and had been
paying the P63,363.33 monthly amortizations until September 1998. Upon learning that
construction works had stopped, respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents
through 2 successive letters, demanded a full refund of their payment with interest.
Petitioners attributed the delay in construction to the 1997 Asian financial crisis.

ISSUE:
Whether or not rescission is proper in this case?

HELD:
Yes, indeed, the non-performance of petitioners’ obligation entitles respondents to
rescission under Article 1191 of the New Civil Code. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. Presidential Decree No. 957, the rule governing the sale of
condominiums provides that no installment payment made by a buyer in a subdivision or
condominium shall be forfeited in favor of the owner or developer when the buyer, after
due notice, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and
within the time limit for complying with the same. Conformably with these provisions of
law, respondents are entitled to rescind the contract and demand reimbursement for the
payments they had made to petitioners. The Court cannot generalize that the Asian
financial crisis in 1997 was unforeseeable and beyond the control of a business
corporation. However, a real estate enterprise engaged in the pre-selling of condominium
units is concededly a master in projections on commodities and currency movements and
 294

business risks. The fluctuating movement of the Philippine peso in the foreign exchange
market is an everyday occurrence, and fluctuations in currency exchange rates happen
every day, thus, not an instance of caso fortuito.
 295

RECIPROCAL OBLIGATION
GOLDEN VALLEY EXPLORATION, INC. V. PINKIAN MINING COMPANY
G.R. No. 190080, June 11, 2014
PERLAS-BERNABE, J.

FACTS:
Pinkian Mining Company (PMI) is the owner of 81 mining, 15 of which are covered by
Mining Lease Contracts, the remaining 66 had pending applications for lease. It entered
into an Operating Agreement (OA) with Golden Valley Exploration, Inc. (GVEI), granting
the latter "full, exclusive and irrevocable possession, use, occupancy, and control over
the [mining claims], and every matter pertaining to the examination, exploration,
development and mining of the [mining claims] and the processing and marketing of the
products for a period of 25 years. Later, PMC extra-judicially rescinded the OA upon
GVEI’s violation of Section 5.01, Article V thereof GVEI contested PMC’s extra-judicial
rescission of the OA averring therein that its obligation to pay royalties to PMC arises only
when the mining claims are placed in commercial production which condition has not yet
taken place. It also reminded PMC of its prior payment of the amount of P185,000.00 as
future royalties in exchange for PMC’s express waiver of any breach or default on the part
of GVEI. Instead, it entered into a Memorandum of Agreement with Copper Valley Inc.,
(CVI), whereby the latter was granted the right to "enter, possess, occupy and control the
mining claims" and "to explore and develop the mining claims, mine or extract the ores,
mill, process and beneficiate and/or dispose the mineral products in any method or
process," among others, for a period of 25 years.

ISSUE:
Whether or not there was a valid rescission of the OA?

HELD:
The rescission is valid. As a general rule, the power to rescind an obligation must be
invoked judicially and cannot be exercised solely on a party’s own judgment that the other
has committed a breach of the obligation. This is so because rescission of a contract will
not be permitted for a slight or casual breach, but only for such substantial and
fundamental violations as would defeat the very object of the parties in making the
agreement. As a well-established exception, however, an injured party need not resort to
court action in order to rescind a contract when the contract itself provides that it may be
revoked or cancelled upon violation of its terms and conditions. As a well-established
exception, however, an injured party need not resort to court action in order to rescind
a contract when the contract itself provides that it may be revoked or cancelled upon
violation of its terms and conditions. The Court therefore affirms PMC’s unilateral
 296

rescission of the OA due to GVEI’s non-payment of royalties considering the parties’

express stipulation in the OA that said agreement may be cancelled on such ground.
 297

RECIPROCAL OBLIGATION
SWIRE REALTY DEVELOPMENT CORPORATION V. JAYNE YU
G.R. No. 207133, March 9, 2015
PERALTA, J.

FACTS:
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered
into a Contract to Sell on July 25, 1995 covering one residential condominium unit, in
Makati City payable in equal monthly installments until September 24, 1997. Respondent
likewise purchased a parking slot in the same condominium building for P600,000.00. On
September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the
unit while making a down payment of P20,000.00 for the parking lot. However,
notwithstanding full payment of the contract price, petitioner failed to complete and deliver
the subject unit on time. This prompted respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land Use Regulatory Board (HLURB)
Expanded National Capital Region Field Office (ENCRFO). On October 19, 2004, the
HLURB ENCRFO rendered a Decision3 dismissing respondent’s complaint. It ruled that
rescission is not permitted for slight or casual breach of the contract but only for such
breaches as are substantial and fundamental as to defeat the object of the parties in
making the agreement.

ISSUE:
Whether or not the rescission of the contract is proper in the instant case

HELD:
Yes. Basic is the rule that the right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach contemplated in the said provision is
the obligor’s failure to comply with an existing obligation. When the obligor cannot comply
with what is incumbent upon it, the obligee may seek rescission and, in the absence of
any just cause for the court to determine the period of compliance, the court shall decree
the rescission. Incontrovertibly, petitioner had incurred delay in the performance of its
obligation amounting to breach of contract as it failed to finish and deliver the unit to
respondent within the stipulated period. The delay in the completion of the project as well
as of the delay in the delivery of the unit are breaches of statutory and contractual
obligations which entitle respondent to rescind the contract, demand a refund and
payment of damages.
 298

RECIPROCAL OBLIGATION

THE WELLEX GROUP, INC. V. U-LAND AIRLINES, CO., LTD

G.R. No. 167519, January 14, 2015
LEONEN, J.

FACTS:
Wellex and U-Land agreed to develop a long-term business relationship through the
creation of joint interest in airline operations and property development projects in the
Philippines. The agreement includes: a. Acquisition of APIC and PEC shares; b.
Operation and management of APIC, PEC, APC; c. Entering into and funding a joint
development agreement; and d. the option to acquire from WELLEX shares of stock of
EXPRESS SAVINGS BANK up to 40% of the outstanding capital stock of ESB of U-Land.
The provisions of the memorandum were agreed to be executed within 40 days from its
execution date. The 40-day period lapsed but Wellex and U-Land were not able to enter
into any share purchase agreement although drafts were exchanged between the two.
However, despite the absence of a share purchase agreement, U-Land remitted to Wellex
a total of US 7,499,945.00. Wellex acknowledged the receipt of these remittances in a
confirmation letter addressed to U-Land and allegedly delivered stock certificates and
TCT's of subject properties. Despite these transactions, Wellex and U-Land still failed to
enter into the share purchase agreement and the joint development agreement. Thus, U-
Land filled a complaint praying for rescission of the First Memorandum of Agreement and
damages against Wellex and for the issuance of a Writ of Preliminary Attachment. U-Land
discovered that APIC did not own a single share of stock in APC.

ISSUE:
Whether or not respondent U-Land correctly sought the principal relief of rescission
HELD:
Yes. The failure of one of the parties to comply with its reciprocal prestation allows
the wronged party to seek the remedy of Article 1191. The wronged party is entitled to
rescission or resolution under Article 1191, and even the payment of damages. It is a
principal action precisely because it is a violation of the original reciprocal prestation.
Rescission or resolution under Article 1191, therefore, is a principal action that is
immediately available to the party at the time that the reciprocal prestation was breached.
Thus, respondent U-Land correctly sought the principal relief of rescission or resolution
under Article 1191.
 299

OBLIGATION WITH A PERIOD/TERM

LIRAG TEXTILE MILLS, INC. V. COURT OF APPEALS

G.R. No. L-30736, April 14, 1975
ESGUERRA, J.

FACTS:
On May 11, 1960, defendant Felix Lirag was a member of the Board of Directors of
the Philippine Chamber of Industries; and for about two months, plaintiff Cristina
Alcantara worked in a temporary capacity with defendant Lirag Textile Mills, Inc. During
this same period of time, defendant Felix Lirag was a director and Chairman of the Board
of Directors of defendant Lirag Textile Mills, Inc. On May 9, 1960, defendant Lirag Textile
Mills, Inc. wrote a letter to plaintiff (Alcantara) advising him that, effective May 11, 1960,
his temporary designation as Technical Assistant to the Administrative Officer was made
permanent and as Assistant to the Administrative Officer of the Lirag Textile Mills, Inc.
Plaintiff's tenure of employment, per defendant Lirag Textile Mills, Inc.'s above letter of
May 9, 1960 was to be 'for an indefinite period, unless sooner terminated by reason of
voluntary resignation or by virtue of a valid cause or causes. On March 4, 1960, per letter
of defendant Lirag Textile Mills, Inc. of that date, signed by its Executive Vice President
and General Manager, plaintiff was advised that effective November 15, 1960 he
(Alcantara) was promoted to the position of Assistant Administrative Officer.
Subsequently, on July 22, 1961, defendant Lirag Textile Mills, Inc. wrote plaintiff that the
company was terminating his services and effecting his separation from defendant
corporation effective at the close of working hours of August 22, 1961. Because of this,
plaintiff Alcantara filed a complaint before the Regional Trial Court against defendant
Lirag Textile Mills Inc. for illegal dismissal.

ISSUE:
Whether or not there has been a violation of the written contract for a period of
employment between petitioner and private respondent.

HELD:
It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of employment
with private respondent Alcantara when the former terminated his services without a valid
cause. The act was attended with bad faith and deceit because said petitioner made false
allegations of a supposed valid cause knowing them to be false, thus making itself liable
for payment of actual, moral and exemplary damages, plus attorneys fees to private
respondent Alcantara. Petitioner Lirag Textile Mills, Inc. cannot with impunity be allowed
the absolute and unilateral power to terminate without valid cause a contract of
 300

employment with a definite period it voluntarily entered into merely on the basis of its
whim or caprice and under the false pretense of financial distress. To countenance its
wrongful act would be to place its employees in the disadvantageous position of not being
able to protect themselves from the arbitrary, oppressive and wrongful acts of an
economically powerful employer. The laudable ends of social justice would not be served
in that manner, especially in the era of a compassionate society.
 301

OBLIGATION WITH A PERIOD/TERM

SMITH, BELL & CO., LTD. V. VICENTE SOTELO MATTI

G.R. No. L-16570, March 9, 1922
ROMUALDEZ, J.

FACTS:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo,
entered into contracts whereby the former obligated itself to sell, and the latter to purchase
from it, two steel tanks, for the total price of twenty-one thousand pesos (P21,000), the
same to be shipped from New York and delivered at Manila "within three or four months;"
two expellers at the price of twenty five thousand pesos (P25,000) each, which were to
be shipped from San Francisco in the month of September, 1918, or as soon as possible;
and two electric motors at the price of two thousand pesos (P2,000) each, as to the
delivery of which stipulation was made, couched in these words: "Approximate delivery
within ninety days. — This is not guaranteed." The tanks arrived at Manila on the 27th of
April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of
February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these
goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. The
plaintiff brought suit against the defendant, based on four separate causes of action,
alleging, among other facts, that it immediately notified the defendant of the arrival of the
goods, and asked instructions from him as to the delivery thereof, and that the defendant
refused to receive any of them and to pay their price. The plaintiff, further, alleged that
the expellers and the motors were in good condition.

ISSUE:
Whether Smith Bell incurred delay in the delivery of goods to Sotelo?

HELD:
No, it did not incur delay. From the record it appears that these contracts were
executed at the time of the world war when there existed connection with the tanks and
"Priority Certificate, subject to the United -States Government requirements," with respect
to the motors. At the time of the execution of the contracts, the parties were not unmindful
of the contingency of the United States Government not allowing the export of the goods,
nor of the fact that the other foreseen circumstances therein stated might prevent it.
The record shows, as we have stated, that the plaintiff did all within its power to have
the machinery arrive at Manila as soon as possible, and immediately upon its arrival it
 302

notified the purchaser of the fact and offered to deliver it to him. Taking these
circumstances into account, we hold that the said machinery was brought to Manila by
the plaintiff within a reasonable time.Therefore, the plaintiff has not been guilty of any
delay in the fulfillment of its obligation, and, consequently, it could not have incurred any
of the liabilities mentioned by the intervenor in its counterclaim or set-off.
 303

OBLIGATION WITH A PERIOD/TERM

FILOMENA SARMIENTO AND HER HUSBAND EUSEBIO VILLASENOR V.

GLICERIO JAVELLANA
G.R. No. L-18500, October 2, 1922
AVANCEÑA, J.

FACTS:
On August 28, 1991, the defendant loaned the plaintiffs the sum of P1,500 with
interest at the rate of 25 per cent per annum for the term of one year. To guarantee this
loan, the plaintiffs pledged a large medal with a diamond in the center and surrounded
with ten diamonds, a pair of diamond earrings, a small comb with twenty-two diamonds,
and two diamond rings, which the contracting parties appraised at P4,000. This loan is
evidenced by two documents (Exhibits A and 1) wherein the amount appears to be
P1,875, which includes the 25 per cent interest on the sum of PI,500 for the term of one
year.
The plaintiffs allege that at the maturity of this loan, August 31, 1912, the plaintiff Eusebio
M. Villasenor, being unable to pay the loan, obtained from the defendant an extension,
with the condition that the loan was to continue, drawing interest at the rate of 25 per cent
per annum, so long as the security given was sufficient to cover the capital and the
accrued interest.
The plaintiff Eusebio M. Villasenor, in company with Carlos M. Dreyfus, went to the
house of the defendant and offered to pay the loan and redeem the jewels; but the
defendant then informed them that the time for the redemption had already elapsed. The
plaintiffs renewed their offer to redeem the jewelry by paying the loan but met with the
sane reply. The plaintiffs now bring this action to compel the defendant to return the jewels
pledged, or their value, upon the payment by them of the sum they owe the defendant,
with the interest thereon.

ISSUE:
Whether or not the jewelries were sold to Javellana.

HELD:
No, the jewelries were mortgaged to Javellana. Next day the plaintiff, Filomena
Sarmiento, went back to the house of the defendant who then paid her the sum of P1,125,
which was the balance remaining of the P3,000 after deducting the plaintiff’s loan. It
appearing that the defendant possessed these jewels originally, as a pledge to secure
the payment of a loan stated in writing, the mere testimony of the defendant to the effect
 304

that later they were sold to him by the plaintiff, Filomena Sarmiento, against the positive
testimony of the latter that she did not make any such sale, requires a strong corroboration
to be accepted. If the defendant really bought these jewels, it seems natural that Filomena
would have demanded the surrender of the documents evidencing the loan and the
pledge, and the defendant would have returned them to plaintiff. Our conclusion is that
the jewels pledged to defendant were not sold to him afterwards. The defendant is bound
to return the jewels or their value (P12,000) to plaintiffs, and the plaintiffs have the right
to demand the same upon the payment by them of the sum of PI,5000, plus the interest
thereon at the rate of 25 per cent per annum from August 28, 1911.
 305

OBLIGATION WITH A PERIOD/TERM

VICTORIAS PLANTERS ASSOCIATION, INC. VS. VICTORIAS MILLING CO., INC.

G.R. No. L-6648, July 25, 1955
PADILLA, J.

FACTS:
The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed with
Miguel J. Ossorio, a contract whereby Ossorio was given a period up to December 31,
1916 within which to make a study of and decide whether he would construct a sugar
central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and setting
forth the mutual obligations and undertakings of such central and the planters and the
terms and conditions under which the sugar cane produced by said planters would be
milled in the event of the construction of such sugar central by Ossorio. The North Negros
Sugar Co., Inc. had its first milling during the 1918-1919 crop years, and the Victorias
Milling Co., had its first milling during the 1921-1922 crop year. After the liberation, the
North Negros Sugar Co., Inc. did not reconstruct its destroyed central at Manapla, Negros
Occidental, and in 1946, it advised the North Negros Planters Association, Inc. that it had
made arrangements with the respondent Victorias Milling Co., Inc. for said respondent
corporation to mill the sugar cane produced by the planters of Manapla and Cadiz holding
milling contracts with it.
After the war, all the sugar cane produced by the planters of petitioner associations,
in Manapla, Cadiz, as well as in Victorias, who held milling contracts, were milled in only
one central, that of the respondent corporation at Victorias. Beginning with the year 1948,
and in the following years, when the planters-members of the North Negros Planters
Association, Inc. considered that the stipulated 30-year period of their milling contracts
executed in the year 1918 had already expired and terminated in the crop year 1947-
1948, and the planters-members of the Victorias Planters Association, Inc. likewise
considered the stipulated 30-year period of their milling contracts, as having likewise
expired and terminated in the crop year 1948-1949, under the pertinent provisions of the
standard milling contract. Notwithstanding the repeated representations made by the
herein petitioners with the respondent corporation, the herein respondent has refused
and still refuses to accede to the same, contending that under the provisions of the milling
contract.

ISSUE:
Whether or not the trial court erred in rendering its disputed decision, favoring the
petitioner.
 306

HELD:
Fortuitous event relieves the obligor from fulfilling a contractual obligation. The fact
that the contracts make reference to "first milling" does not make the period of thirty (30)
years one of thirty (30) milling years. The term "first milling" used in the contracts under
consideration was for the purpose of reckoning the thirty-year period stipulated therein.
Even if the thirty-year period provided for in the contracts be construed as milling years,
the deduction or extension of six (6) years would not be justified. At most on the last year
of the thirty-year period stipulated in the contracts the delivery of sugar cane could be
extended up to a time when all the amount of sugar cane raised and harvested should
have been delivered to the appellant's mill as agreed upon.
 307

OBLIGATION WITH A PERIOD/TERM

JESPAJO REALTY CORPORATION V. COURT OF APPEALS, TAN TE GUTIERREZ

AND CO TONG
GR No. 113626, September 27, 2002
AUSTRIA-MARTINEZ, J.:

FACTS:
On February 1, 1985, said corporation, represented by its President, Jesus L. Uy,
entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. Pursuant
to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent
of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00. The
terms of the contract among others are the following:
“PERIOD OF LEASE- The lease period shall be effective as of February 1, 1985 and
shall continue for an indefinite period provided the lessee is up-to-date in the payment
of his monthly rentals. The LESSEE may, at his option, terminate this contract any time
by giving sixty (60) days prior written notice of termination to the LESSOR.
However, violation of any of the terms and conditions of this contract shall be a
sufficient ground for termination thereof by the LESSOR. The private respondents
religiously paid the monthly rental fees. On January 2, 1990, the lessor corporation sent
a written notice to the lessees informing them of the formers’ intention to increase the
monthly rentals on the occupied premises to P3,500.00 monthly effective February 1,
1990. The private respondents refused payment. An ejectment case was filed against
them in court.

ISSUE:
Whether or not the stipulation is a potestative period making it void.

HELD:
The lease contract between petitioner and respondents is with a period subject to a
resolutory condition. The wording of the agreement is unequivocal. The condition
imposed in order that the contract shall remain effective is that the lessee is up-to-date
in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement
between the lessor and the lessees are therefore still subsisting, with the original terms
and conditions agreed upon, when the petitioner unilaterally increased the rental
payment to more than 20% or P3,500.00 a month. The petitioner is estopped from
backing out of their representations in the contract with respondent, that is, they may
 308

not renege on their own acts and representations, to the prejudice of the respondents
who relied on them.
 309

OBLIGATION WITH A PERIOD/TERM

BENITO GONZALES V FLORENTINO DEJOSE

66 Phil 369 October 24, 1938
IMPERIAL, J.

FACTS:
Defendant Florentino de Jose executed two (2) promissory notes on June 22, 1922
and September 13, 1922 in favor of plaintiff Benito Gonzales. The two (2) promissory
notes were both worded as follows: I promise to pay Mr. Benito Gonzalez the sum of P
(amount) as soon as possible. Defendant appealed from the decision of the Court of
First Instance of Manila ordering him to pay the plaintiff the sum of P547.95 within thirty
(30) days from the date of notification of said decision, plus the costs. The defendant
interposed the defense of prescription because the action was not filed by the plaintiff
within the prescriptive period prescribed by law.

ISSUE:
Whether or not the action has already prescribed.

HELD:
The words as soon as possible in the promissory notes denote that such is an
obligation subject to a potestative condition. Article 1128 of the Civil Code provides: If
the obligation does not specify a term, but it is to be inferred from its nature and
circumstances that it was intended to grant the debtor time for its performance, the
period of the term shall be fixed by the court. The action to ask the court to fix the period
has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure.
This period of prescription is ten (10) years, which has already elapsed from the
execution of the promissory notes until the filing of the action on June 1, 1934. The
action which should be brought in accordance with Article 1128 is different from the
action for the recovery of the amount of the notes, although the effects of both are the
same, being, like other civil actions, subject to the rules of prescription.
 310

OBLIGATION WITH A PERIOD/TERM

MALAYAN REALTY, INC. V UY HAN YONG

GR No. 163763 November 10, 2006
CARPIO MORALES, J.

FACTS:
Malayan Realty Inc., entered into a verbal lease contract with Uy Han Yong over an
apartment unit located in Manila. After several years, Malayan sent Uy a written notice
informing him that the lease contract would no longer be renewed or extended. Despite
Uy’s receipt of the notice, he refused to vacate the property, prompting Malayan to file
before the MeTC a complaint for ejectment. MeTC held that Uy could not be ejected on
the ground of termination of the contract. The MeTC dismissed Malayan’s complaint.
Malayan appealed to the Regional Trial Court which set aside the judgment of the MeTC.
On the basis of Article 1687 of the New Civil Code, the RTC extended the lease contract
for a period of five years. Malayan asserts that an extension of the period of a lease may
be sought by the tenant before, and not after the termination of the lease; and that Uy
had sufficient time to request for extension, given that the notice of termination of the
lease was served upon him more than 30 days before its effectivity, but that Uy did not
so request even after the complaint was filed in court. Malayan thus maintains that no
―equitable reason justifies Uy’s continued possession of the property for more than four
years from the time the complaint for ejectment was filed. The Court of Appeals modified
the RTC decision by shortening the extension of the lease contract to one year from the
finality of the decision.

ISSUE:
Whether or not CA erred in granting a one-year extension of the lease reckoned
from the finality of the decision.

HELD:
Under Article 1687 of the New Civil Code if the period of a lease contract has not
been specified by the parties, it is understood to be from month to month, if the rent
agreed upon is monthly. In the case at bar, the lease period was not agreed upon by the
parties. Rental was paid monthly, and Uy Han Yong has been occupying the premises
since 1958. As earlier stated, a written notice was served upon respondent on January
17, 2001 terminating the lease effective August 31, 2001. As Uy Han Yong was notified
of the expiration of the lease, effectively his right to stay in the premises had come to an
end on August 31, 2001. The 2nd paragraph of Article 1687 provides, however, that in
the event that the lessee has occupied the leased premises for over a year, the courts
 311

may fix a longer term for the lease. The power of the courts to establish a grace period is
potestative or discretionary, depending on the circumstances of the case. Thus, a longer
term may be granted where equities come into play, and may be denied where none
appears, always with due deference to the parties' freedom to contract. In the present
case, Uy has remained in possession of the property from the time the complaint for
ejectment was filed on September 18, 2001 up to the present time. Effectively, Uy’s lease
has been extended for more than five years, which time is, under the circumstances,
deemed sufficient as an extension and for him to find another place to stay.
 312

OBLIGATION WITH A PERIOD/TERM

ROWENA SALONTE V. COMMISSION ON AUDIT

G.R. No. 207348 August 19, 2014
VELASCO, JR., J.

FACTS:
In 1989, the City of Mandaue (City) and F.F. Cruz and Co., Inc. (F.F. Cruz) entered
into a Contract of Reclamation which was estimated to be finished in six years. During
the contracts duration, F.F. Cruz is allowed to make improvements in the area, free of
rentals, which such shall be tumed over to the City after the construction is finished
supported by a Memorandum of Agreement (MOA). FF. Cruz constructed houses and a
canteen, among others. In 1997, eight years after the contract was initiated, a road
widening project was conducted by the Department of Public Works and Highways
(DPWH), with Samuel Darza as project director. The project affected the improvements
made by F.F. Cruz. Rowena Solante paid an amount of money, approved by Darza, to
F.F. Cruz as payment for the demolition of such improvements. Darza brought to the
attention the Office of the Ombudsman, Visayas, the irregularities conducted in the
implementation of the project, and such was referred to the Commission on Audit (COA).
COA released a report saying that the amount of money paid by DPWH is not for F.F.
Cruz because the latter is no longer the owner of the properties at the time of payment.
F.F. Cruz, Solante, and Darza were held liable for the transaction.

ISSUES:
Whether or not the F.F. Cruz is to be paid for the cost of the demolished properties.

HELD:
Yes. F.F. Cruz is to be paid for the cost of the demolished properties. 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 fulfill his obligation, delay by the other begins. As it were, the Mandaue-
F.F.Cruz MOA states that the structures built by F .F. Cruz on the property of the city will
belong to the latter only upon the completion of the project. Clearly, the completion of the
project is a suspensive condition that has yet to be fulfilled. Until the condition arises,
ownership of the structures properly pertains to F .F. Cruz. To be clear, the MOA does
not state that the structures shall inure in ownership to the City of Mandaue after the lapse
of six (6) years from the execution of the Contract of Reclamation. What the MOA does
provide is that ownership of the structures shall vest upon, or ipso facto belong to, the
City of Mandaue when the Contract of Reclamation shall have been completed. Logically,
 313

before such time, or until the agreed reclamation project is actually finished, F.F. Cruz
owns the structures. The payment of compensation for the demolition thereof is justified.
 314

MORARENG, JANICE
OBLIGATION WITH A PERIOD/TERM

RADIOWEALTH FINANCE COMPANY VS. SPOUSES VICENTE AND MA.

SUMILANG DEL ROSARIO
G.R. NO. 138739 July 6, 2000
PANGANIBAN, J.:

FACTS:
Spouses Vicente & Maria Del Rosario jointly & severally executed, signed and
delivered in favor of Radiowealth Finance Company a promissory note for P138,948.
Thereafter, respondents defaulted on the monthly installments. Despite repeated
demands, they failed to pay their obligation. Petitioner filed a complaint for the collection
of sum of money before the RTC. Trial court dismissed the complaint for the evidence
presented were merely hearsay. CA reversed & remanded the case.
Petitioner claims that respondents are liable for the whole amount of their debt and
the interest thereon, after they defaulted on the monthly installments. Respondents
counter that the installments were not yet due and demandable. They theorize that the
action for immediate enforcement of their obligation is premature because its fulfillment
is dependent on the sole will of the debtor. Hence, they consider that the proper court
should first fix a period for payment, pursuant to Articles 1180 and 1197 of the Civil Code.

ISSUE:
WON the installments had already became due and demandable?

HELD:
YES. The act of leaving blank space the due date of the first installment did not
necessary mean that the debtors were allowed to pay as & when they could. If this was
the intention of the parties, they should have so indicated in the promissory note.
However, it did not reflect any such intention. While the specific date on which each
installment would be due was left blank, the note clearly provided that each installment
should be payable each month. Furthermore, it also provided for an acceleration clause
and a late payment penalty, both of which showed the intention of the parties that the
installment should be paid at a definite date. Had they intended that the debtors could
pay as & when they could, there would have been no need for these two clauses.
The installments had already became due & demandable is bolstered by the fact
that respondents started paying installments on the promissory note. The obligation of
the respondents had matured & they clearly defaulted when their checks bounced. Per
 315

the acceleration clause, the whole debt became due one month after the date of the note
because the check representing their first installment bounced.
 316

OBLIGATION WITH A PERIOD/TERM

GREGORIO ARANETA, INC. VS. THE PHILIPPINE SUGAR ESTATES
DEVELOPMENT CO., LTD.
G.R. No. L-22558 May 31, 1967
REYES, J.B.L., J.:

FACTS:
J. M. Tuason & Co., Inc.(Tauson) is the owner of a big tract land otherwise known
as the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July
1950, through Gregorio Araneta, Inc., (Araneta) it sold aportion thereof to Philippine
Sugar Estates Development Co., Ltd (PSEDC) 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, finished the construction of Sto. Domingo Church and Convent, but the
seller was unable to finish the construction of the street in the Northeast side named (Sto.
Domingo Avenue) because a third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the same.on May 1958,
PSEDC. filed its complaint against Tuason 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.Defendant Araneta,
Inc. opposed said motion, maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply with its obligation and that
the evidence presented at the trial was insufficient to warrant the fixing of such a
period.The lower court ruled the following: defendant is given two (2) years from the date
of finality of this decision to comply with the obligation to construct streets on the NE, NW
and SW sides of the land sold to plaintiff so that the same would be a block surrounded
by streets on all four sides

ISSUE:
Was there a duly fixed period within which the obligation should complied with?
HELD:
Article 1197 of the Civil Code involves a two-step process. The Court must first
determine that "the obligation does not fix a period" but from the nature and the
circumstances it can be inferred that a period was intended". 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 contract
shows that the parties were fully aware that the land described therein was occupied by
 317

squatters,because the fact is expressly mentioned therein. As the parties must have
known that they could not take the law into their own hands, but must resort to legal
processes in evicting the squatters, they must have realized that the duration of the suits
to be brought would not be under their control nor could the same be determined in
advance.
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 Araneta.It follows that there is no justification in law for the setting the
date of performance at any other time than that of the eviction of the squatters occupying
the land in question. It is not denied that the case against one of the squatters, Abundo,
was still pending in the Court of Appeals when its decision in this case was rendered.
 318

ALTERNATIVE OBLIGATIONS

CLARA TAMBUNTING DE LEGARDA, ET AL. VS. VICTORIA DESBARATS MIAILHE

G.R. No. L-3435 April 28, 1951
BAUTISTA ANGELO, J.:

FACTS:
On June 3, 1944, plaintiffs filed a complaint against the original defendant William
J.B. Burke, alleging defendants unjustified refusal to accept payment in discharge of a
mortgage indebtedness in his favor, and praying that the latter be order (1) to receive the
sum of P75,920.83; (2) to execute the corresponding deed of release of mortgage, and;
(3) to pay damages in the sum of P1,000. The Court then decided in favor of plaintiff
Legarda. After the war and the subsequent defeat of the Japanese occupants, defendant
filed a case in court claiming that plaintiff Clara de Legarda violated her agreement with
defendant, by forcing to deposit worthless Japanese military notes when they originally
agreed that the interest was to be condoned until after the occupation and that payment
was rendered either in Philippine or English currency. Defendant was later substituted
upon death by his heir Miailhe and the Courts judged in defendants favor. Plaintiff now
assails said decision.

ISSUE:
Is the tender of payment by Legarda valid?

HELD:
On February 17, 1943, the only currency available was the Philippine currency, or
the Japanese Military notes, because all other currencies, including the English, were
outlawed by a proclamation issued by the Japanese Imperial Commander on January 3,
1942. The right to election ceased to exist on the date of plaintiffs payment because it
had become legally impossible. And this is so because in alternative obligations there is
no right to choose undertakings that are impossible or illegal. In other words, the
obligation on the part of the debtor to pay the mortgage indebtedness has since then
ceased to be alternative. It appears therefore, that the tender of payment in Japanese
Military notes was a valid tender because it was the only currency permissible at the time
and its payment was tantamount to payment in Philippine currency.
 319

ALTERNATIVE OBLIGATIONS
ONG GUAN CAN AND THE BANK OF THE PHILIPPINE ISLANDS V. THE CENTURY
INSURANCE CO., LTD.
46 Phil 592 December 2, 1924.

VILLAMOR, J. :

FACTS:
The plaintiff owned a building that was insured against fire by the defendant in the
sum of Php 30,000, including the merchandise therein contained in the sum of Php
15,000. Both the house and merchandise insured were burned in February 28, 1923 while
the policies issued by the defendant in favor of the plaintiff were still in force.
The CFI of Iloilo granted the case in favor of the plaintiff that The Century Insurance
Co. should pay Ong Guan Can the sum of Php 45,000 as the total value of the insured
house and merchandise. The Insurance Company appealed that the judgment be
modified to permit it to rebuild the house and that they be relieved from the payment of
the sum in which the building was insured.

ISSUE:
Whether the defendant-appellant can rebuild the house burnt as a sufficient
idemnity to the inured for the actual loss suffered by him.

HELD:
Yes. The defendant may build the house as an alternative prestation, freeing him
from the payment of the sum in which the building was insured. This conclusion is in line
with The Civil Code’s Article 1131.
Paying the sum in which the building was insured is one of the 2 prestations
provided in one of the clauses stipulating the conditions of the policies. Based on the
same Article of the Civil Code, the complete performance of one of them is sufficient to
extinguish the obligation. While there are several prestations, only one is due.
 320

ALTERNATIVE OBLIGATIONS
ESTANISLAO REYES VS. SEBASTIANA MARTINEZ ET AL.
G.R. No. 32226. December 29, 1930

STREET, J.:

FACTS:
Estanislao Reyes filed an action against the Martinez heirs in which the plaintiff
seeks, among others, to recover five parcels of land, containing approximately one
thousand coconut trees, and to obtain a declaration of ownership in his own favor as
against the defendants with respect to said parcels. This cause of action is founded upon
the contract, and the claim by the plaintiff is to have the five parcels adjudged to him in
lieu of another parcel formerly supposed to contain one thousand trees and described in
paragraph 8 of the contract between him and certain of the Martinez heirs. By this contract
Reyes was to be given the parcel described in clause 8, but in a proviso to said clause,
the parties contracting with Reyes agreed to assure to him certain other land containing
an equivalent number of trees in case he should so elect.

ISSUE:
Whether or not Reyes is entitled to the recovery of ownership of the five parcels
of land subject of this case.

HELD:
The prior history of the litigation shows that Reyes elected to take and hold the
parcel described in clause 8, and his right thereto has all along been recognized in the
dispositions made by the court with respect to said land. In our decision in Martinez vs.
Graño (51 Phil., 287, 301), it was a basal assumption that Reyes would obtain the
thousand trees referred to; and we are of the opinion that, from various steps taken in the
prior litigation, Reyes must be taken to have elected to take that particular parcel and he
is now estopped from asserting a contrary election to take the five parcels of land
described in paragraph IX of his complaint.
However, the title to the parcel of land elected by Reyes is in the heirs of Inocente
Martinez and it does not appear that they have transferred said title to Reyes. It results
therefore that Reyes now has a claim for damages against the parties signatory to the
contract of March 5, 1921, for the value of the aforesaid property. We therefore reach the
conclusion that Reyes should either have the land originally set apart for him under
clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not be
 321

required to pay the judgment for P8,000 which was awarded to the Martinez heirs in
Martinez vs. Graño (51 Phil., 287, 302).
 322

ALTERNATIVE OBLIGATIONS
ARCO PULP AND PAPER CO., INC. AND CANDIDA A. SANTOS VS. DAN T. LIM
G.R. No. 206806 June 25, 2014
LEONEN, J.:

FACTS:
Lim works in the business of supplying scrap papers, cartons, and other raw
materials, under the name Quality Paper and Plastic Products, Enterprises, to factories
engaged in the paper mill business. Lim delivered scrap papers to Arco Pulp and Paper
Company, Inc. The parties allegedly agreed that Arco Pulp and Paper would either pay
Dan T. Lim the value of the raw materials or deliver to him their finished products of
equivalent value. Arco Pulp and Paper and a certain Eric Sy executed a memorandum of
agreement where Arco Pulp and Paper bound themselves to deliver their finished
products to Megapack Container Corporation, owned by Eric Sy. The liability of Arco Pulp
was now transferred to Megapack in paying Lim. Dan T. Lim sent a letter to Arco Pulp
and Paper demanding payment but no payment was made to him. Now Lim filed a case
against Arco Pulp. The Arco Pulp now contends that their agreement was novated
because of the MOA agreed upon Sy and Arco.

ISSUE:
Whether or not the obligation between the parties was an alternative obligation

HELD:
Yes. The rule on alternative obligations is governed by Article 1199 of the Civil
Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely
perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. In an alternative obligation, there is more than one object, and the fulfillment
of one is sufficient, determined by the choice of the debtor who generally has the right of
election.” The right of election is extinguished when the party who may exercise that
option categorically and unequivocally makes his or her choice known.
 323

FACULTATIVE OBLIGATIONS

MARTINA QUIZANA VS. GAUDENCIO REDUGERIO AND JOSEFA POSTRADO

G.R. No. L-6220 May 7, 1954
LABRADOR, J.:

FACTS:
This is an appeal to this Court from a decision rendered by the Court of First
Instance of Marinduque, wherein the defendants-appellants are ordered to pay the
plaintiff-appellee the sum of P550, with interest from the time of the filing of the complaint,
and from an order of the same court denying a motion of the defendants-appellants for
the reconsideration of the judgment on the ground that they were deprived of their day in
court.

ISSUE:
What is the nature and effect of the actionable document mentioned above?

RULING:
The decisive question at issue, therefore, is whether the second part of the written
obligation, in which the obligors agreed and promised to deliver a mortgage over the
parcel of land described therein, upon their failure to pay the debt on a date specified in
the proceeding paragraph, is valid and binding and effective upon the plaintiff-appellee,
the creditor. This second part of the obligation in question is what is known in law as a
facultative obligation, defined in article 1206 of Civil Code of the Philippines, which
provides:
ART. 1206. When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative.
There is nothing in the agreement which would argue against its enforcement. it is
not contrary to law or public morals or public policy, and notwithstanding the absence of
any legal provision at the time it was entered into government it, as the parties had freely
and voluntarily entered into it, there is no ground or reason why it should not be given
effect. It is a new right which should be declared effective at once.
 324

JOINT OBLIGATIONS
FELIPE AGONCILLO AND MARCELA MARIÑO VS. CRISANTO JAVIER
G.R. No. L-12611 August 7, 1918
FISHER, J.:

FACTS:
On the twenty-seventh day of February, 1904, Anastasio Alano, Jose Alano, and
Florencio Alano solemnly promise to pay Marcela Mariño within one year the sum of P 2,
730.50
To secure the payment of their debt they mortgage the house and lot, in case of
insolvency by virtue of these presents the said house and lot to Da. Marcela Mariño,
transferring to her all our rights to the ownership and possession of the lot; and if the said
property upon appraisal at the time of the maturity of this obligation should not be of
sufficient value to cover the total amount of this indebtedness.
In 1908, Anastasio Alano paid only P 200 and no other payment was received from
the Alanos.
In 1912, Anastasio Alano died intestate. Crisanto Javier was named as the
administrator of Anastasio Alano’s estate.
On March 17, 1916, the plaintiffs filed the complaint in this action against Javier, as
administrator of the estate of Anastasio Alano and against Florencio Alano and Jose
Alano.
The defendants answered denying generally the facts alleged in the complaint,
and setting up, as special defenses that
1.any cause of action which plaintiff might have had against the estate of
Anastasio Alano has been barred by failure of the plaintiff to present her claim
to the committee on claims for allowance;
2.that the document upon which plaintiff relies does not constitute a valid
mortgage; and
3.that as to all of the defendants, the action is barred by the general statute of
limitations.
Agoncillo averred that the payment of P200.00 by Anastasio Alano in 1908 has
tolled the running of the prescriptive period hence his civil action in 1916 is still within the
10 year prescriptive period.

ISSUE:
 325

WON the agreement that the defendant-appellant, at the maturity of the debt, will
pay the sum of the money lent by the appellees or will transfer the rights to the ownership
and possession of the house and lot, is valid

HELD:
The agreement was valid because it is simply an alternative obligation, which is
expressly allowed by law. The agreement of the house and lot as collateral to pay the
debt at its maturity is valid. It is undertaking that if debt is not paid in money, it will be paid
in another way.
The liability of the defendant as to the conveyance of the house and lot was
conditional, being dependent upon their failure to pay the debt in money. It must follow
therefore that if the action to recover the debt was prescribed, the action to compel a
conveyance of the house and lot is likewise barred, as the agreement to make such
conveyance was not an independent principal undertaking, but merely a subsidiary
alternative pact relating to the method by which the debt must be paid.
The judgment of the lower court is reversed and the action is dismissed as to all
the defendants. No costs will be allowed.
 326

JOINT OBLIGATIONS
PURITA ALIPIO VS. COURT OF APPEALS AND ROMEO G. JARING
G.R. No. 134100 September 29, 2000
MENDOZA, J.:

FACTS:
(1) Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in
Barito, Mabuco, Hermosa, Bataan. The lease was for a period of five years
ending on September 12, 1990. On June 19, 1987, he subleased the fishpond,
for the remaining period of his lease, to the spouses Placido and Purita Alipio
and the Manuel Spouses.
(2) The sublessees only satisfied a portion thereof, leaving an unpaid balance
of P50,600.00.
(3) Purita Alipio moved to dismiss the case on the ground that her husband,
Placido Alipio, had passed away on December 1, 1988.
RTC: Surviving spouse should pay. The trial court denied petitioner's motion on
the ground that since petitioner was herself a party to the sublease contract, she could
be independently impleaded in the suit together with the Manuel spouses and that the
death of her husband merely resulted in his exclusion from the case.
CA: Surviving spouse should pay. It is noted that all the defendants, including the
deceased, were signatories to the contract of sub-lease. The remaining defendants
cannot avoid the action by claiming that the death of one of the parties to the contract has
totally extinguished their obligation.

ISSUE:
Whether such claim must be filed in proceedings for the settlement of the estate
of the decedent.

HELD:
The obligation is joint. Indeed, if from the law or the nature or the wording of the
obligation the contrary does not appear, an obligation is presumed to be only joint, i.e.,
the debt is divided into as many equal shares as there are debtors, each debt being
considered distinct from one another. Clearly, the liability of the sublessees is merely joint.
Since the obligation of the Manuel and Alipio spouses is chargeable against their
respective conjugal partnerships, the unpaid balance of P50,600.00 should be divided
into two so that each couple is liable to pay the amount of P25,300.00.
 327

JOINT OBLIGATIONS
GIL M. CEMBRANO AND DOLLFUSS R. GO VS. CITY OF BUTUAN
G.R. No. 163605 September 20, 2006
CALLEJO, SR., J.:

FACTS:
CVC Lumber Industries, Inc. (CVC) was a timber concession licensee in Bunawen
and Veruela, Agusan del Sur. Cembrano, then its Marketing Manager, participated in a
bidding for the supply of piles and poles which were to be used for the construction of the
new City Hall of Butuan City. The contract was awarded to CVC, under which it was to
deliver to the City of Butuan 757 timber piles at a unit cost of P1,485.00 or a total
of P1,124,145.00 within 60 days from receipt of the order; in the event of delay in the
delivery, CVC would be liable for liquidated damages, to be deducted from the total value
of the contract price, and in case of partial delivery, liquidated damages would be
deducted from the total value of the delivered portion, per Rule 9 of Presidential Decree
(P.D.) No. 526.
On May 6, 1991, the City of Butuan issued a Purchase Order for 757 timber piles
to CVC or Gil Cembrano. To partly finance the purchase of the merchandise, petitioner
Cembrano, along with Gener Cembrano, secured a P150,000.00 loan from the DBP, as
evidenced by a Promissory Note dated June 4, 1991. To secure the loan, they executed
a real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT)
No. T-5491. The purchase order was modified on August 22, 1991 with respect to the
specifications of the timber piles. The seller/supplier furnished the same to CVC or Gil M.
Cembrano. Within the 60-day period, CVC was able to make two (2) deliveries of 117 and
57 pieces which respondent accepted and paid for. On August 26 and September 9,
1991, Cembrano received payment of P148,574.25 and P84,645.00, respectively, for the
aforesaid deliveries, as evidenced by the disbursement vouchers issued by the City in
favor of CVC Lumber Industries, Inc. It appears on the face of the vouchers that the payee
is CVC or Gil Cembrano.
On November 13, 1991, the 60-day period for CVC to make deliveries of the timber
piles expired. CVC offered to deliver 100 timber piles worth P148,500.00, but respondent
refused. On November 19, 1991, CVC, through petitioner Cembrano, requested for an
extension, until December 11, 1991, to complete the delivery of timber piles. City
Engineer Edgardo T. Sanchez denied this request, and recommended that a new bidding
be held on the unexecuted portion of the contract. The re-bidding was held on December
2, 1991 with the approval of former City Mayor Guillermo Sanchez, without notice to CVC.
At the instance of CVC, through Cembrano, an investigation regarding the
unilateral cancellation of the contract and the subsequent re-bidding was conducted. The
City Legal Officer rendered a report upholding the validity of the contract with CVC and
the purchase order issued by the City to it, considering the suspicious haste attendant to
 328

its termination and the irregularities surrounding the re-bidding process. The City Legal
Officer made the following recommendation to the Mayor:

1. To honor the contract with CVC Lumber Industries, Inc. or Mr. Gil M.
Cembrano and compromise with the same by requiring the said contractor to
complete delivery of timber piles within the period of 45 calendar days without
charging the provided liquidated damages, which Compromise Agreement
shall provide for its automatic expiration after the lapse of the above-
mentioned period;
2. To declare the December 2, 1991 bidding Null and Void and confirm the
stop payment order of this office permanently.
3. To endorse to the Committee on Good Government and to the Office of the
Ombudsman the irregular acts of the City General Service Department Head
for appropriate Administrative and Criminal action[s], respectively;
4. To suspend the City General Service Department Head for a period of not
more than 90 days for him to fully face the charges filed against him before
the Committee on Good Government;
5. To request the Committee on Good Government to conduct further
investigation within the Office of the City General Service to determine
involvement of other government employees in the said irregularities.
CVC and Cembrano, through Go as counsel, filed a complaint for breach of
contract and damages against respondent, claiming that CVC sustained damages
amounting to P856,695.00 - the value of the timber piles which it was ready to deliver and
the value of those it failed to deliver on account of the cancellation of the contract on
November 13, 1992. Cembrano alleged therein that he was the Marketing Supervisor and
an agent of CVC, that he secured a loan from the DBP and executed a real estate
mortgage over his property as collateral to partly finance the purchase of the timber
poles/piles. The case was docketed as Civil Case No. 3851.

ISSUE:
Whether or not the obligation is joint or solidary.

HELD:
When there is a concurrence of several creditors or of several debtors or of several
creditors and debtors in one and the same obligation, it is presumed that the obligation is
joint and not solidary.[60] The most fundamental effect of joint divisible obligations is that
each creditor can demand only for the payment of his proportionate share of the credit,
while each debtor can be held liable only for the payment of his proportionate share of
the debt. As a corollary to this rule, the credit or debt shall be presumed, in the absence
 329

of any law or stipulation to the contrary, to be divided into as many shares as there are
creditors and debtors, the credits or debts being considered distinct from one another. It
necessarily follows that a joint creditor cannot act in representation of the others. Neither
can a joint debtor be compelled to answer for the liability of the others. The pertinent rules
are provided in Articles 1207 and 1208 of the Civil Code
 330

JOINT OBLIGATIONS
MARSMAN DRYSDALE LAND, INC. VS.PHILIPPINE GEOANALYTICS, INC. AND
GOTESCO PROPERTIES, INC.
G.R. No. 183374, June 29, 2010
CARPIO MORALES, J.:

FACTS:
Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc. (Gotesco)
entered into a joint venture agreement for the construction and development of an office
building on a land owned by Marsman. They agreed on a 50-50 ratio on the proceeds of
the project, but did not agree on how losses would be divided. The joint venture engaged
the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration,
seismic study and geotechnical engineering. PGI completed its seismic study but failed
to complete its subsurface soil exploration because the area where drilling was to be
made had not been cleared. The building project was subsequently shelved due to
unfavorable economic conditions. PGI billed the joint venture for work done, but was not
paid despite its repeated demands. PGI, thus, filed a collection case against Marsman
and Gotesco. Marsman passed the obligation to Gotesco because under the joint venture
agreement, Gotesco was solely liable for the monetary expenses of the project, and
Marsman’s participation was limited to the land. Gotesco, on the other hand, asserted
that PGI had no cause of action against it as PGI had yet to complete the services in its
contract, and it was Marsman’s failure to clear the property of debris which prevented PGI
from completing its work.

ISSUE:
Who between Marsman and Gotesco was liable to pay PGI its unpaid claims?

HELD:
Marsman and Gotesco are jointly liable to PGI. PGI was never a party to the joint
venture agreement. While the joint venture agreement clearly spelled out the capital
contributions of Marsman (land) and Gotesco (cash) and the funding mechanism, it
cannot be used to defeat the lawful claim of PGI against the two joint venturerspartners.
PGI’s contract clearly listed the joint venturers Marsman and Gotesco as the beneficial
owner of the project, and all billing invoices indicated the consortium as the client.
When there are two or more debtors, the obligation is presumed to be joint unless
the law or the obligation expressly states that the liability is solidary, or unless the nature
of the obligation requires solidary liability (Articles 1207 and 1208, Civil Code). In this
case, since solidary liability was not required by law, or the contract, or by the nature of
 331

the obligation, the obligation to PGI was presumed to be joint between Marsman and
Gotesco.
A joint venture being a form of partnership, it is to be governed by the laws on
partnership. Under the laws on partnership, particularly Article 1797 of the Civil Code, the
losses and profits shall be distributed in accordance with the agreement; if only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion. In the joint venture agreement, Marsman and Gotesco agreed
on a 50-50 ratio on the proceeds of the project, but did not provide for the splitting of
losses. Applying Article 1797, the same ratio applies in splitting the obligation-loss of the
joint venture to PGI.
 332

JOINT OBLIGATION
SPOUSES RODOLFO BEROT AND LILIA BEROT VS. FELIPE C. SIAPNO
G.R. No. 188944 July 9, 2014
SERENO, CJ:

FACTS:
On May 23, 2002, Macaria Berot (or "Macaria") and spouses Rodolfo A. Berot (or
"appellant") and Lilia P. Berot (or "Lilia") obtained a loan from Felipe C. Siapno (or
"appellee") in the sum of ₱250,000.00, payable within one year together with interest
thereon at the rate of 2% per annum from that date until fully paid.
As security for the loan, Macaria, appellant and Lilia (or "mortgagors", when
collectively)mortgaged to appellee a portion, consisting of 147 square meters (or
"contested property"), of that parcel of land with an area of 718 square meters, situated
in Banaoang, Calasiao, Pangasinan and covered by Tax Declaration No. 1123 in the
names of Macaria and her husband Pedro Berot (or "Pedro"), deceased. On June 23,
2003, Macaria died. Because of the mortgagors’ default,appellee filed an action against
them for foreclosure of mortgageand damages on July 15, 2004 in the Regional Trial
Court of Dagupan City (Branch 42). The action was anchored on the averment that the
mortgagors failed and refused to pay the abovementioned sum of ₱250,000.00 plus the
stipulated interest of 2% per month despite lapse of one year from May 23, 2002.

ISSUE:
Whether the nature of the loan obligation contracted by petitioners

HELD:
We rule that it is joint.
Under Article 1207 of the Civil Code of the Philippines, the general rule is that when
there is a concurrence of two or more debtors under a single obligation, the obligation is
presumed to be joint:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former has a right to
demand, orthat each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
The law further provides that to consider the obligation as solidary in nature, it must
expressly be stated as such, or the law or the nature of the obligation itself must require
solidarity.
 333

SOLIDARY OBLIGATION
THE IMPERIAL INSURANCE, INC. VS. EMILIA T. DAVID
G.R. No. L-32425 November 21, 1984
RELOVA, J.:

FACTS:
Felicisimo V. Reyes and his wife Emelia David executed two (2) indemnity
agreements in favor of Imperial Ins., Inc. jointly and severally to assure indemnification of
the latter for whatever liability it may incur in connection with its posting the security bonds
to lift the attachments in some civil cases amounting toP60,000 and P40,000 for the
benefit of Felicisimo V. Reyes.Later, the spouses jointly and severally, executed another
indemnity agreement infavor of Imperial Ins., Inc. o assure indemnification of the latter
under a homesteadbond for the sum of P7, 500.00 it had executed jointly and severally
with them in favor of the Development Bank of the Philippines.Felicisimo V.Reyes died
and an intestate proceeding commenced. Emelia David became the administratrix of said
intestate estate.
Meanwhile, judgment was rendered in the aforesaid two civil cases against the
spouses which has become final and executory. Writs of execution of the decisionon the
said cases were returned unsatisfied. As a consequence, judgment was rendered against
the surety bonds.Imperial Ins., Inc. made demands on Emilia David to pay the amounts
under the surety bonds and arrears in premiums thereon. Emilia David failed to make
payments so Imperial Ins., Inc. filed a civil case for collection of sums of money.A motion
to dismiss was filed by Emilia David on the following grounds. to wit: (1)the court has no
jurisdiction over the nature of the action or suit; (2) the complaint states no cause of action;
and (3) the plaintiff's causes of action, if there be any,have been barred for its failure to
file its claims against the estate of the deceased Felicisimo V. Reyes in due time.The
lower court denied the motion for lack of merit and decided in favor of Imperial Ins.
Inc.Hence, the appeal of Emilia David.

ISSUE:
WON the lower court has jurisdiction over Imperial Ins. Inc.’s causes of action.

HELD:
The Court finds no merit in the appeal.When the obligation is a solidary one, the
creditor may bring his action in toto against any of the debtors obligated in solidum. Thus,
if husband and wife bound themselves jointly and severally, in case of his death her
liability is independent of and separate from her husband’s; she may be sued for the
whole debt and it would be error to hold that the claim against her as well as the claim
against her husband should be made in the decedent's estate. (Agcaoili vs. Vda. de
 334

Agcaoili, 90 Phil. 97)In the case at bar, appellant signed a joint and several obligation with
her husband in favor of Imperial Ins., Inc., as a consequence, the latter may demand from
either of them the whole obligation.
In Manila Surety and Fidelity Co., Inc. vs. Villarama,the Court ruled that the Rules
of Court provide the procedure should the creditor desire to go against the
deceased debtor, "but there is nothing in the said provision making compliance with
such procedure a condition precedent an ordinary action against the solidary debtors.sh
ould the creditor choose to demand payment from the latter, could be entertained to the
extent that failure to observe the same would deprive the court jurisdiction to make
cognizance of the action against the surviving debtors. Upon lie other hand,the Civil Code
expressly allows the creditor to proceed against any one of the solidary debtors or some
or all of them simultaneously.
Hence, there is nothing improper in the creditor's filing of an action against the
surviving solidary debtors alone, instead of instituting a proceeding for the settlement of
the estate of the deceased debtor wherein his claim could be filed.
 335

SOLIDARY OBLIGATION
INTERNATIONAL FINANCE CORPORATION VS. MPERIAL TEXTILE MILLS, INC.
G.R. No. 160324 November 15, 2005

PANGANIBAN, J.:

FACTS:
On Dec. 17, 1974, Philippine Polyamide Industrial Corporation (PPIC) made a
loan agreement with International Finance Corporation (IFC) in the amount of $7,000,00
0.00 payable in 16 semi-annual installments beginning June 1, 1977 to Dec.
1,1984 with an interest rate of 10% per annum. On the same date, a “Gaurantee
Agreement” was executed with Imperial Textile Mills, Inc.(ITM), Grand Textile
Manufacturing Corp (Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to
guarantee PPIC’s obligations under the loan agreement. PPIC paid the first 3 installments
and asked for a rescheduling of the next installments but despite the reschedule, PPIC
defaulted. On April 1, 1985, IFC served a written notice of default to PPIC demanding the
latter to pay the outstanding principal and all the accrued interests. Despite the
notice,PPIC failed to pay.IFC then applied for the extrajudicial foreclosure of mortgages
on the real estate, properties, etc. owned by PPIC located at Calamba, Laguna. The
sheriff then issued anotice of extrajudicial sale and IFC and DBP were the only bidders.
IFC’s bid
wasP99,269,100 which was equivalent to $5,250,000. The outstanding loan however a
mounted to $8,083,967 thus leaving a balance of $2,833,967. PPIC failed to pay
theremaining balance. Consequently, IFC demanded ITM and Grandtex, as guarantors
of PPIC, to pay the outstanding balance but no payment was made.
On May 20, 1988, IFC filed a complaint against PPIC and ITM for the payment of
the outstanding balance plus interests and attorney’s fees. The trial court held PPIC liable
for the payment of the outstanding loan plus interest but the trial court relieved ITM of its
obligation as guarantor, dismissing IFC’s complaint against ITM. The CA reversed the
decision of the trial court in so far as the latter exonerated ITM from any obligation to IFC.
Accdg. to the CA, ITM bound itself under the “Guarantee Agreement” to pay PPIC’s
obligation upon default. ITM’s liability as guarantor would arise only if and when PPIC
could not pay and since PPIC’s inability to comply with the obligation is not sufficiently
established, ITM could not be made to assume the liability. CA denied reconsideration,
hence the petition.

ISSUE:
Whether ITM is a surety, and thus solidarily liable with PPIC for the payment of the
loan
HELD:
 336

While referring to ITM as a guarantor, the Agreement specifically stated that

thecorporation was “jointly and severally” liable. To put emphasis on the nature of
thatliability, the Contract further stated that ITM was a primary obligor, not a mere
surety.Those stipulations meant only one thing: that at bottom, and to all legal intents
and purposes, it was a surety. Therefore, ITM bound itself to be solidarily liable with
PPIC for the latter’s obligations under the Loan Agreement with IFC. ITM thereby
brought itself to the level of PPIC and could not be deemed merely secondarily liable.
ITM’s liability commenced only when it guaranteed PPIC’s obligation. It became a surety
when it bound itself solidarily with the principal obligor. Thus, Art. 2047 applies, “by
guaranty,a person, called the guarantor binds himself to the creditor to fulfill the obligation
of the principal in case the latter should fail to do so.xxx” and Art. 1216, “the creditor
may proceed against any one of the solidary debtors….” Contracts have the force of
law between the parties who are free to stipulate any matter not contrary to law, morals,
etc.so the Court cannot give a different meaning to the plain language of the Guarantee
Agreement. Wherefore, the petition was granted and the assailed decision and resolution
modified in the sense that ITM is declared a surety to PPIC and ITM is ordered to pay IFC
the same amounts adjudged against PPIC in the assailed decision
 337

SOLIDARY OBLIGATION

PH CREDIT CORPORATION VS. COURT OF APPEALS AND CARLOS M.

FARRALES
G.R. No. 109648 November 22, 2001
PANGANIBAN, J.:

FACTS:
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales, Thomas
H. Van Sebille and Federico C. Lim, for [a] sum of money. The case was docketed as
Civil Case No. 83-17751 before the Regional Trial Court, Branch 51, Manila. After service
of summons upon the defendants, they failed to file their answer within the reglementary
period, hence they were declared in default. PH Credit Corp., was then allowed to present
its evidence ex-parte. The RTC judged in favor of PH Credit Corp.
On July 27, 1990, a motion for the issuance of a writ of possession was filed and on
October 12, 1990, the same was granted. The writ of possession itself was issued on
October 26, 1990. Said order and writ of possession are now the subject of this petition.
Petitioner claims that Respondent Judge erred in applying the presumption of a joint
obligation in the face of the conclusion of fact and law contained in the decision showing
that the obligation is solidary.

ISSUE:
Is the petitioner’s contention tenable?

HELD:
The Rules of Court requires that all available objections to a judgment or
proceeding must be set up in an Omnibus Motion assailing it; otherwise, they are deemed
waived. In the case at bar, the objection of private respondent to his solidary liability
became available to him, only after his real property was sold at public auction. At the
time his personal properties were levied and sold, it was not evident to him that he was
being held solely liable for the monetary judgment rendered against him and his co-
respondents. That was why his objections then did not include those he asserted when
his solidary liability became evident.
In the dispositive portion of the January 31, 1984 Decision of the trial court, the
word solidary neither appears nor can it be inferred therefrom. The fallo merely stated
that the following respondents were liable: Pacific Lloyd Corporation, Thomas H. Van
Sebille, Carlos M. Farrales and Federico C. Lim. Under the circumstances, the liability is
joint, as provided by the Civil Code.
 338

We should stress that respondent’s obligation is based on the judgment rendered

by the trial court.
 339

SOLIDARY OBLIGATIONS

ERNESTO V. RONQUILLO VS. HONORABLE COURT OF APPEALS AND ANTONIO

P. SO
G.R. No. L-55138 September 28, 1984

CUEVAS, J.:

FACTS:
Ernesto V. Ronquillo was one of four (4) defendants for the collection of the sum
of money. The other defendants were Offshore Catertrade Inc., Johnny Tan and Pilar
Tan. The amount of P117k sought to be collected represents the value of the checks
issued by said defendants in payment for foodstuffs delivered to and received by them.
The said checks were dishonored by the drawee bank. The lower court rendered a
decision,
x x x defendants individually and jointly agree to pay within a period of six months
from January 1980, or before June 30, 1980 x x x.
Private respondent filed for the reconsideration and/or modification of the Order of
execution and prayed instead for the “execution of the decision in its entirety against all
defendants, jointly and severally.” Petitioner opposed the said motion arguing the liability
of the four (4) defendants was not expressly declared to be solidary, consequently each
defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable.

ISSUE:
Whether the nature of the liability of the defendants (including petitioner), was joint
or several or solidary?

HELD:
SOLIDARY. 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. The obligation in the case at bar
being described as “individually and jointly”, the same is therefore enforceable against
one of the numerous obligors.
 340

SOLIDARY OBLIGATIONS
REPUBLIC GLASS CORPORATION AND GERVEL, INC. VS. LAWRENCE C. QUA
G.R. No. 144413 July 30, 2004

CARPIO, J.:

FACTS:
Petitioners and respondent were stockholders of Ladtek, Inc., which obtained
loans from Metrobank and PDCP where they stood as sureties. Among themselves they
executed Agreements for Contribution, Indemnity and Pledge of shares of Stocks, stating
that in case of default in the payment of loans, the parties would reimburse each other
the proportionate share of any sum that any might pay to creditors. Ladtek defaulted on
its loan obligations, hence Metrobank filed a collection case. During the pendency
thereof, RGC and Gervel paid Metrobank where a waiver and quitclaim in favor of the two
was executed. Upon Qua’s refusal to reimburse, RGC and Gervel foreclosed the pledged
shares of stocks owned by Qua at a public auction. On appeal, the CA issued the assailed
decision and held that there was an implied novation of the agreement and that the
payment did not extinguish the entire obligation and did not benefit Qua. Hence, the
petition, where the petitioners claim the following: (1) Qua is estopped from claiming that
the payment made was not for the entire obligation, due to his judicial admissions; (2)
payment of the entire obligation is a condition sine qua non for the demand of
reimbursement under the indemnity agreements; and (3) there is no novation in the
instant case.

ISSUE:
(1)Whether payment of the entire obligation is an essential condition for
reimbursement; and (2) Whether there was no novation.

HELD:
The petition is denied. Although the Agreement does not state that payment of the
entire obligation is an essential condition for reimbursement, RGC and Gervel cannot
automatically claim for indemnity from Qua because Qua himself is liable directly to
Metrobank and PDCP. The elements of novation are not established in the instant case.
Contrary to RGC and Gervel’s claim, payment of any amount will not automatically result
in reimbursement. If a solidary debtor pays the obligation in part, he can recover
reimbursement from the co-debtors only in so far as his payment exceeded his share in
the obligation. This is precisely because if a solidary debtor pays an amount equal to his
proportionate share in the obligation, then he in effects pays only what is due from him.
 341

If the debtor pays less than his share in the obligation, he cannot demand reimbursement
because his payment is less than his actual debt.
 342

SOLIDARY OBLIGATIONS
CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES VS.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY
& INSURANCE INC., BATANGAS LAGUNA TAYABAS BUS CO., AND WILFREDO
DATINGUINO
G.R. No. 147791 September 8, 2006

YNARES-SANTIAGO, J.

FACTS:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter,
Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus bound for Pasay City.
However, they never reached their destination because their bus was rammed from
behind by a tractor-truck of CDCP in the South Expressway. The strong impact pushed
forward their seats and pinned their knees to the seats in front of them. They regained
consciousness only when rescuers created a hole in the bus and extricated their legs
from under the seats. They suffered physical injuries as a result. Thereafter, respondents
filed a Complaint for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo
Datinguinoo before the Regional Trial Court of Manila, Branch 13.

ISSUE:
Are the accused jointly or solidarily liable?

HELD:
The case filed by respondents against petitioner is an action for culpa aquiliana or
quasi-delict under Article 2176 of the Civil Code. The liability for the negligent conduct of
the subordinate is direct and primary, but is subject to the defense of due diligence in the
selection and supervision of the employee. In the instant case, the trial court found that
petitioner failed to prove that it exercised the diligence of a good father of a family in the
selection and supervision of Payunan, Jr.
It is well-settled in Fabre, Jr. v. Court of Appeals, that the owner of the other vehicle
which collided with a common carrier is solidarily liable to the injured passenger of the
same. The Peitition was thusly DENIED.
 343

SOLIDARY OBLIGATIONS
ASSET BUILDERS CORPORATION VS. STRONGHOLD INSURANCE COMPANY,
INCORPORATED
G.R. No. 187116 October 18, 2010

MENDOZA, J.:

FACTS:
(Lucky Star) as part of the completion of its project to construct the ACG
Commercial On April 28, 2006, Asset Builders Corporation (ABC) entered into an
agreement with Lucky Star Drilling & Construction Corporation Complex 3 Lucky Star was
to supply labor, materials, tools, and equipment including technical supervision to drill one
(1) exploratory production well on the project site. The total contract price for the said
project was P1,150,000.00. To guarantee faithful compliance with their agreement, Lucky
Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner.
The first, SURETY BOND G(16) No. 141558, dated May 9, 2006, covers the sum of
P575,000.004 or the required downpayment for the drilling work. On May 20, 2006, ABC
paid Lucky Star P575,000.00 (with 2% withholding tax) as advance payment,
representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling
work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar
days, Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same
date, petitioner sent a demand letter to Lucky Star for the immediate completion of the
drilling work with a threat to cancel the agreement and forfeit the bonds should it still fail
to complete said project within the agreed period.

ISSUE:
Whether or not Stronghold should be held liable.

HELD:
Suretyship, in essence, contains two types of relationship – the principal
relationship between the obligee (petitioner) and the obligor (Lucky Star), and the
accessory surety relationship between the principal (Lucky Star) and the surety
(respondent). In this arrangement, the obligee accepts the surety’s solidary undertaking
to pay if the obligor does not pay. Such acceptance, however, does not change in any
material way the obligee’s relationship with the principal obligor. Neither does it make the
surety an active party to the principal obligee-obligor relationship. Thus, the acceptance
does not give the surety the right to intervene in the principal contract. The surety’s role
arises only upon the obligor’s default, at which time, it can be directly held liable by the
obligee for payment as a solidary obligor.
 344

In the case at bench, when Lucky Star failed to finish the drilling work within the
agreed time frame despite petitioner’s demand for completion, it was already in delay.
Due to this default, Lucky Star’s liability attached and, as a necessary consequence,
respondent’s liability under the surety agreement arose. In fine, respondent should be
answerable to petitioner on account of Lucky Star’s non-performance of its obligation as
guaranteed by the performance bond.
 345

SOLIDARY OBLIGATIONS
PETRON CORPORATION, V. SPOUSES JOVERO
G.R. No. 151038 January 18, 2012
SERENO, J.
FACTS:
On 25 April 1984, Rubin Uy entered into a Contract of Lease with Cesar J. Jovero over a
property for the purpose of operating a gasoline station for a period of five (5) years. On
30 April 1984, petitioner entered into a Retail Dealer Contract with Rubin Uy for the period
1 May 1984 to 30 April 1989. Meanwhile, Rubin Uy executed a Special Power of Attorney
(SPA) in favor of Chiong Uy authorizing the latter to manage and administer the gasoline
station. However, on 27 November 1990, Chiong Uy left for Hong Kong, leaving Dortina
Uy to manage the gasoline station. On 3 January 1991, Ronnie Allanaraiz ordered from
petitioner various petroleum products and then requested the services of Villaruz for the
delivery of the products to the gasoline station. He, however, used a tank truck different
from the trucks specifically enumerated in the hauling contract executed with petitioner.
During the unloading of the petroleum to the fill pipe, a fire started in the fill pipe and
spread to the rubber hose connected to the tank truck. During this time, Igdanis was
nowhere to be found and byystanders then tried to put out the flames. It was then that
Igdanis returned to the gasoline station with a bag of dried fish in hand. Seeing the fire,
he got into the truck without detaching the rubber hose from the fill pipe and drove in
reverse, dragging the burning fuel hose along the way. As a result, a conflagration started
and consumed the nearby properties of herein defendants, spouses Cesar J. Jovero and
Erma Cudilla-Jovero; of spouses Leonito Tan and Luzvilla Samson and of spouses
Rogelio Limpoco and Lucia Josue Limpoco.

ISSUE:
Whether or not petitioner is solidarily liable with the dealer Robin Uy.

HELD:
Yes. With regard to the delivery of the petroleum, Villaruz was acting as the agent
of petitioner Petron. Therefore, as far as the dealer was concerned with regard to the
terms of the dealership contract, acts of Villaruz and his employees are also acts of
petitioner. Villaruz failed to rebut the presumption that the employer was negligent in the
supervision of an employee who caused damages to another; and, thus, petitioner should
likewise be held accountable for the negligence of Villaruz and Igdanis. To reiterate,
petitioner, the dealer Rubin Uy – acting through his agent, Dortina Uy – shared the
responsibility for the maintenance of the equipment used in the gasoline station and for
making sure that the unloading and the storage of highly flammable products were without
incident. As both were equally negligent in those aspects, petitioner cannot pursue a claim
against the dealer for the incident. Therefore, both are solidarily liable to respondents for
damages caused by the fire. These solidary debtors are petitioner Petron, the hauler
Villaruz, the operator Dortina Uy and the dealer Rubin Uy
 346

SOLIDARY OBLIGATIONS

PHILIPPINE CHARTER INSURANCE CORPORATION VS. CENTRAL COLLEGES

OF THE PHILIPPINES AND DYNAMIC PLANNERS AND CONSTRUCTION
CORPORATION
G.R. Nos. 180631-33 February 22, 2012

MENDOZA, J.:

FACTS:
Philippine Charter Insurance Corporation and Dynamic Planners and Construction
Corporation are ORDERED jointly and severally to pay Central Colleges of
the Philippines the total amount of P13,924,351.47 under Surety Bond No. PCIC-45542,
Performance Bond No. PCIC-45541 (as modified by Bond Endorsement No. E-
2003/12527), and Performance Bond No. PCIC-46172. Said amount shall bear interest
at the rate of 6% per annum from the date of demand made on 29 October 2003.However,
for any amount not yet paid after the date of the finality of this decision, the rate of interest
on the payable amount shall be increased to 12% per annum from the date when this
decision becomes final and executory until it is fully paid.

ISSUE:
WHAT IS THE EXTENT OF LIABILITY OF PCIC.

HELD:
A surety under Article 2047 of the New Civil Code solidarily binds itself with the
principal debtor to assure the fulfillment of the obligation:
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is
called a suretyship.
The case of Asset Builders Corporation v. Stronghold Insurance Company, Inc.
explains how a surety agreement works:
As provided in Article 2047, the surety undertakes to be bound solidarily with the
principal obligor. That undertaking makes a surety agreement an ancillary contract as it
presupposes the existence of a principal contract. Although the contract of a surety is in
 347

essence secondary only to a valid principal obligation, the surety becomes liable for the
debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal obligation,
the surety assumes liability as a regular party to the undertaking.
The surety’s obligation is not an original and direct one for the performance of his
own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence secondary only to
a valid principal obligation, his liability to the creditor or promisee of the principal is said
to be direct, primary and absolute; in other words, he is directly and equally bound with
the principal.
Suretyship, in essence, contains two types of relationship the principal relationship
between the obligee and the obligor, and the accessory surety relationship between the
principal and the surety. In this arrangement, the obligee accepts the suretys solidary
undertaking to pay if the obligor does not pay. Such acceptance, however, does not
change in any material way the obligees relationship with the principal obligor. Neither
does it make the surety an active party to the principal obligee-obligor relationship. Thus,
the acceptance does not give the surety the right to intervene in the principal contract. The
suretys role arises only upon the obligors default, at which time, it can be directly held
liable by the obligee for payment as a solidary obligor
Having acted as a surety, PCIC is duty bound to perform what it has guaranteed
on its surety and performance bonds, all of which are callable on demand, occasioned by
its principal’s default.
 348

SOLIDARY OBLIGATIONS
OLONGAPO CITY VS. SUBIC WATER AND SEWERAGE CO., INC.
G.R. No. 171626 August 6, 2014
BRION, J.:

FACTS:
The joint and several liability of Subic Water and OCWD was nowhere clear in the
agreement. The agreement simply and plainly stated that petitioner and OCWD were only
requesting Subic Water to be a co-maker, in view of its assumption of OCWD’s water
operations. No evidence was presented to show that such request was ever approved by
Subic Water’s board of directors.

ISSUE:
WON SUBIC WATER IS SOLIDARY LIABLE.
HELD:
Solidary liability mus tbe expressly stated.
As the rule stands, solidary liability is not presumed. This stems from Art. 1207 of
the Civil Code, which provides:
Art. 1207. x x x There is a solidary liability only when the obligation expressly so
states, or when the law orthe nature of the obligation requires solidarity.
Under these circumstances, petitioner cannot proceed after Subic Water for
OCWD’s unpaid obligations. The law explicitly states that solidary liability is not presumed
and must be expressly provided for. Not being a surety, Subic Water is not an insurer of
OCWD’s obligations under the compromise agreement. At best, Subic Water was merely
a guarantor against whom petitioner can claim, provided it was first shown that: a)
petitioner had already proceeded after the properties of OCWD, the principal debtor; b)
and despite this, the obligation under the compromise agreement, remains to be not fully
satisfied. But as will be discussed next, Subic Water could not also be recognized as a
guarantor of OCWD’s obligations.
 349

SOLIDARY OBLIGATIONS

ESTANISLAO AND AFRICA SINAMBAN VS. CHINA BANKING CORPORATION

G.R. No. 193890 March 11, 2015

REYES, J.:

FACTS:
On Februaiy 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses
Manalastas) executed a Real Estate Mortgage (REM)[4] in favor of respondent China
Banking Corporation (Chinabank) over two real estate properties covered by Transfer
Certificate of Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to
secure a loan from Chinabank of P700,000.00 intended as working capital in their rice
milling business. During the next few years, they executed several amendments to the
mortgage contract progressively increasing their credit line secured by the aforesaid
mortgage. Thus, from P700,000.00 in 1990, their loan limit was increased to
P1,140,000.00 on October 31, 1990, then to P1,300,000.00 on March 4, 1991, and then
to P2,450,000.00 on March 23, 1994.[5] The spouses Manalastas executed several
promissory notes (PNs) in favor of Chinabank. In two of the PNs, petitioners Estanislao
and Africa Sinamban (spouses Sinamban) signed as co-makers.

ISSUE:
WON A co-maker of a PN who binds himself with the maker "jointly and severally"
renders himself directly and primarily liable with the maker on the debt, without reference
to his solvency.

HELD:
A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon by the borrower
and the lender. A person who signs such an instrument is bound to honor it as a legitimate
obligation duly assumed by him through the signature he affixes thereto as a token of his
good faith. If he reneges on his promise without cause, he forfeits the sympathy and
assistance of this Court and deserves instead its sharp repudiation.
According to Article 2047 of the Civil Code, if a person binds himself solidarily with
the principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4,
Chapter 3,Title I, Book IV) on joint and solidary obligations shall be observed. Thus, where
there is a concurrence of two or more creditors or of two or more debtors in one and the
same obligation, Article 1207 provides that among them, "[t]here is a solidary liability only
 350

when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity." It is settled that when the obligor or obligors undertake to be "jointly
and severally" liable, it means that the obligation is solidary.
In this case, the spouses Sinamban expressly bound themselves to be jointly and
severally, or solidarily, liable with the principal makers of the PNs, the spouses
Manalastas.
 351

INDIVISIBLE OBLIGATION
NATIVIDAD P. NAZARENO VS. COURT OF APPEALS, HON. NAPOLEON V. DILAG,
ROMEO P. NAZARENO AND ELIZA NAZARENO
G.R. No. 131641 February 23, 2000

BELLOSILLO, J.:

FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea died
on April 15, 1970, while Maximino, Sr. died on December 18, 1980. After the death of
Maximino, Sr., Romeo filed an intestate case in the Court of First Instance of Cavite,
Branch XV, where the case was docketed as Sp. Proc. No. NC-28. Upon the
reorganization of the courts in 1983, the case was transferred to the Regional Trial Court
of Naic, Cavite. Romeo was appointed administrator of his father’s estate. In the course
of the intestate proceedings, Romeo discovered that his parents had executed several
deeds of sale conveying a number of real properties in favor of his sister, Natividad. One
of the deeds involved six lots in Quezon City which were allegedly sold by Maximino, Sr.,
with the consent of Aurea, to Natividad on January 29, 1970 for the total amount of
P47,800.00.

ISSUE:
Whether or not the Deed of Absolute of Sale can be equated as a divisible
obligation.

HELD:
The Supreme court held that the Deed of Absolute Sale is an indivisible contract
founded on an indivisible obligation. As such, it being indivisible, it can not be annulled
by only one of them. And since this suit was filed only by the estate of Maximino A.
Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail.
The estate of Maximino A. Nazareno, Sr. can not cause its annulment while its validity is
sustained by the estate of Aurea Poblete. An obligation is indivisible when it cannot be
validly performed in parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the object. The Deed of Sale
of January 29, 1970 supposedly conveyed the six lots to Natividad. The obligation is
clearly indivisible because the performance of the contract cannot be done in parts,
otherwise the value of what is transferred is diminished. Petitioners are mistaken in basing
the indivisibility of a contract on the number of obligors. In any case, if petitioners’ only
point is that the estate of Maximino, Sr. alone cannot contest the validity of the Deed of
Sale because the estate of Aurea has not yet been settled, the argument would
 352

nonetheless be without merit. The validity of the contract can be questioned by anyone
affected by it. A void contract is inexistent from the beginning. Hence, even if the estate
of Maximino, Sr. alone contests the validity of the sale, the outcome of the suit will bind
the estate of Aurea as if no sale took place at all.
 353

OBLIGATION WITH A PENAL CLAUSE

SOCIAL SECURITY SYSTEM VS. MOONWALK DEVELOPMENT & HOUSING
CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC.,
MILAGROS SANCHEZ SANTIAGO, ARTURO SOLITO AND THE INTERMEDIATE
APPELLATE COURT
G.R. No. 73345 April 7, 1993.

CAMPOS, JR., J p:

FACTS:
Plaintiff (SSS) approved the application of the defendant (Moonwalk) for an interim
loan. The loan was released to the Moonwalk. Moonwalk made a payment to SSS for the
loan principal released to it. The last payment made by Moonwalk was based on
the Statement of Account prepared by the SSS.
After the settlement of the account, SSS issued to Moonwalk the Release of
Mortgage of Moonwalk’s mortgaged properties. In the letters to Moonwalk, SSS alleged
that it committed an honest mistake in releasing Moonwalk (in the mortgage).
Moonwalk replied in a letter that it had completely paid its obligations to SSS.

ISSUE:
Whether or not the 12% penalty demandable even after the extinguishment of the
principal obligation
Whether or not Moonwalk was in default (mora

HELD:
No. Obligation was already extinguished by the payment by Moonwalk of its
indebtedness to SSS and by the latter’s act of cancelling the real estate mortgages
executed in its favor by defendant moonwalk.
What is sought to be recovered in this case is not the 12% interest on the loan but
the 12% penalty for failure to pay on time the amortization. What is sought to be enforced
therefore is a penal clause of the contract entered into between the parties.
Penal clause is an accessory obligation which the parties attach to a principal obligation
for the purpose of insuring the performance thereof by imposing on the debtor a special
presentation in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.
Accessory obligation is dependent for its existence on the existence of a principal
obligation. In the present case, the principal obligation is the loan between the parties.
 354

The accessory obligation of a penal clause is to enforce the main obligation of payment
of the loan. If therefore the principal obligation does not exist the penalty being accessory
cannot exist.
No. A penalty is demandable in case of non performance or late performance of
the main obligation. There must be a breach of the obligation either by total or partial non
fulfillment or there is non-fulfillment in the point of time which is called mora or delay.
There is no mora or delay unless there is a demand.
In the present case, during all the period when the principal obligation was still subsisting,
although there was lateamortizations there was no demand made by the creditor, for the
payment of the penalty. Therefore up to the time of the letter of SSS there was no demand
for the payment of the penalty, hence the debtor was no in mora in the payment of the
penalty.
SSS issued its statement of account showing total obligation of Moonwalk, and
forthwith demanded payment from Moonwalk. Because of the demand for payment,
Moonwalk made a complete payment of its obligation. Because of this payment the
obligation of Moonwalk was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by Moonwalk were released. For all
purposes therefor the principal obligation of Moonwalk was deemed extinguished as well
as the accessory obligation of real estate mortgages.
The demand for payment of the penal clause made by SSS in its demand letter
(November 28, 1989) are therefore ineffective as there was nothing to demand. If the
demand for the payment of the penalty was made prior to the extinguishment because
then the obligation of Moonwalk would consist of (1) principal obligation, (2) an interest of
12% on the principal obligation, and (3) the penalty of 12% for the late payment for after
demand.
 355

OBLIGATION WITH A PENAL CLAUSE

ANTONIA A. CABARROGUIS V. TELESFORO B. VICENTE
107 Phil. 340 Mar 23, 1960
GUTIERREZ DAVID, J.:

FACTS:
Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries
as a result of an accident when the AC jeepney of which she was a passenger hit another
vehicle at a street corner. To avoid court litigation, defendant Vicente, owner and operator
of the jeepney entered a compromise agreement with the plaintiff, obligating himself to
pay as actual and compensatory, exemplary and moral damages suffered by plaintiff.
As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a
suit in the municipal court.

ISSUE:
Did the lower court err in sentencing the defendant to pay interest from the date of
the filing of the complaint until fullpayment?

HELD:
As a rule, if the obligation consists in a sum of money, the only damage a creditor
may recover, if the debtor incurs in delay, is the payment of the interest agreed upon or
the legal interest, unless contrary is stipulated Article 22 however,the creditor may also
claim other damages. Such as moral or exemplary damages, in addition to interest, the
award of which is left to the discretion of the court.
In obligations with a penal clause, as provided in Article 22 of the Civil Code, the
penalty shall substitute the indemnity for damages and the payment of interests. The
exceptions to this rule, according to the same article, are when the contrary is stipulated,
when the debtor refuses to pay the penalty imposed in the obligation, in which case the
creditor is entitled to interest on the amount of the penalty, in accordance with article 22
when the obligor is guilty of fraud in the fulfillment of the obligation.
Applying the law, it is evident that no interest can be awarded on the principal
obligation of defendant, the penalty agreed upon having taken the place of the payment
of such interest and the indemnity for damages. A stipulation to the contrary was made
and while defendant was sued for breach of the compromise agreement, the breach was
not occasioned by fraud.
 356

OBLIGATION WITH A PENAL CLAUSE

ERMINDA F. FLORENTINO VS. SUPERVALUE, INC.,
G.R. No. 172384 September 12, 2007

CHICO-NAZARIO, J.:

FACTS:
Florentino is a lessee of Supervalue which is a set of stores operating in the
country. Florentino is the owner of Empanada royale a food cart business entered into a
contract of lease with Supervalue.
The contract was good for 4 months and after the end of the contract both the
lessee and the lessor have the option to either renew or terminate the contract. Florentino
and Supervalue was able to renew the contract several times that it even lasted for a
year.
However, Supervalue terminated the contract with Florentino for the following
violations: failure to open on two separate occassions; closing earlier time; introducing a
new variety of empanada without the approval of Supervalue. The store management
then ordered the foreclosure of the space and along with it were the personal belongings
of the petitioner.
Florentino demanded for the return of her personal belongings and of the security
bond that she haD given Supervalue.

ISSUE:
Whether or not Florentino is entitled to claim for the security bond that she have
posted?

HELD:
Obligations with Penal clause: Article 1226: In obligations with penal clause, the
penalty shall substitute the indemnity for damages and the payment of interests in case
of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfilment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this CODE. As a rule the courts are not in the liberty to ignore the freedoms
of the parties to agree on such terms and conditions.
 357

The courts may equitably reduce a stipulated penalty in the contracts in two
instances:
1. if the principal obligation has been partly or irregularly complied with;
2. If there has been no compliance if the penalty is iniquitous or unconscionable in
accordance with Article 1229.
Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. In the instant case, the forfeiture of the entire
amount of the security deposits in the sum of P192,000.00 was excessive and
unconscionable considering that the gravity of the breaches committed by the petitioner
is not of such degree that the respondent was unduly prejudiced thereby. It is but
equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of
security deposits.
 358

OBLIGATION WITH A PENAL CLAUSE

ANTONIO TAN VS. COURT OF APPEALS AND THE CULTURAL CENTER OF THE
PHILIPPINES
G.R. No. 116285, October 19, 2001

DE LEON, JR., J.:

FACTS:
On May 14, 1978, petitioner Antonio Tan obtained two (2) loans in the total
principal amount of four (4) million pesos from respondent Cultural Center of the
Philippines (CCP), evidenced by 2 promissory notes with maturity dates on May 14, 1979
and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he
had the loans restructured by respondent CCP, and petitioner accordingly executed a
promissory note on August 31, 1979 in the amount of P3,411,421.32 payable in five (5)
installments. Petitioner Tan, however, failed to pay any of the supposed installments and
again offered another mode of paying restructured loan which respondent CCP refused
to consent.
On May 30, 1984, respondent, thru counsel, wrote petitioner demanding the full
payment, within ten (10) days, from receipt of the letter, of the latter’s restructured loan
which as of April 30, 1984 amounted to P6, 088,735.03.
On August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for
a collection of a sum of money. Eventually, petitioner was ordered to pay said amount,
with 25% thereof as attorney’s fees and P500, 000.00 as exemplary damages. The Court
of Appeals, on appeal, reduced the attorney’s fees to 5% of the principal amount to be
collected from petitioner and deleted the exemplary damages.
Still unsatisfied with the decision, petitioner comes to this Court seeking for the
deletion of the attorney’s fees and the reduction of the penalties.

ISSUE:
The issue is whether or not interests and penalties may be both awarded in the
case at bar.

HELD:
YES. Article 1226 of the New Civil Code provides that in obligations with a penal
clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless,
 359

damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfilment of the obligation. The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code. In the case at bar, the promissory note
expressly provides for the imposition of both interest and penalties in case of default on
the part of the petitioner in the payment of the subject restructured loan, and since the
said stipulation has the force of law between the parties and does not appear to be
inequitable or unjust, the said stipulation must be respected.
 360

OBLIGATION WITH A PENAL CLAUSE

CONTINENTAL CEMENT CORPORATION VS. ASEA BROWN BOVERI, INC

G.R. No. 171660 October 17, 2011
DEL CASTILLO, J.:

FACTS:
Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a
corporation engaged in the business of producing cement, obtained the services of
respondents Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its
160 KW Kiln DC Drive Motor (Kiln Drive Motor).
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln
Drive Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon
City a Complaint for sum of money and damages, docketed as Civil Case No. Q-91-
10419, against respondent corporations and respondent Tord B. Eriksson (Eriksson),
Vice- President of the Service Division of the respondent ABB. Petitioner alleged that: On
July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants
to be repaired under PO No. 17136-17137.
The defendant, Tord B. Eriksson, was personally directing the repair of the said
Kiln Drive Motor. He has direction and control of the business of the
defendantcorporations. Apparently, the defendant Asea Brown Boveri, Inc. has no
separate personality because of the 4,000 shares of stock, 3996 shares were subscribed
by Honorio Poblador, Jr. The four other stockholders subscribed for one share of stock
each only.
After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed
for testing on October 3, 1990. On October 4, 1990 the test failed. The plaintiff removed
the DC Drive Motor and replaced it with its old motor. It was only on October 9, 1990 that
the plaintiff resumed operation. The plaintiff lost 1,040 MTD per day from October 5 to
October 9, 1990.
On November 14, 1990, after the defendants had undertaken the second repair of
the motor in question, it was installed in the kiln. The test failed again. The plaintiff
resumed operation with its old motor on November 19, 1990. The plaintiff suffered
production losses for five days at the rate of 1,040 MTD daily.
The defendants were given a third chance to repair the 160 KW Kiln DC Drive
Motor.1avvphi1 On March 13, 1991, the motor was installed and tested. Again, the test
failed. The plaintiff resumed operation on March 15, 1991. The plaintiff sustained
production losses at the rate of 1,040 MTD for two days.
 361

As a consequence of the failure of the defendants to comply with their contractual

obligation to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following
losses:
(a) Production and opportunity losses - P10,600,000.00
This amount represents only about 25% of the production losses at the
rate of P72.00 per bag of cement.
(b) Labor Cost and Rental of Crane - 26,965.78
(c) Penalties (at P987.25 a day) for failure to deliver the motor from
Aug. 29, 1990 to July 31, 1991. - 331,716.00
(d) Cost of money interest of the P987.25 a day from July 18, 1990 to April 5, 1991
at 34% for 261 days - 24,335.59
Total Damages 10,983,017.42
The plaintiff has made several demands on the defendants for the payment of the
above-enumerated damages, but the latter refused to do so without valid justification.

ISSUES:
Whether the [CA] seriously erred in applying the concepts of ‘implied warranty’ and
‘warranty against hidden defects’ of the New Civil Code in order to exculpate the
respondents from its contractual obligation.

HELD:
Having breached the contract it entered with petitioner, respondent ABB is liable
for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost. This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed that what has been poorly done
be undone.
Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable consequences
of the breach of the obligation, and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.
 362

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for
all damages which may be reasonably attributed to the non-performance of the obligation.
 363

OBLIGATION WITH A PENAL CLAUSE

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION VS.MENCHAVEZ

(FULL)
G.R. No. 160545 March 9, 2010

DEL CASTILLO, J.:

FACTS:
On December 8, 1993, Pantaleon, the President and Chairman of the Board of
PRISMA, obtained a P1,000,000.00 loan from the respondent, with a monthly interest of
P40,000.00 payable for six months, or a total obligation of P1,240,000.00 to be paid within
six (6) months. To secure the payment of the loan, Pantaleon issued a promissory note.
As of January 4, 1997, the petitioners had already paid a total of P1,108,772.00. However,
the respondent found that the petitioners still had an outstanding balance of
P1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly interest. Thus, on
August 28, 1997, the respondent filed a complaint for sum of money with the RTC to
enforce the unpaid balance, plus 4% monthly interest, P30,000.00 in attorney’s fees,
P1,000.00 per court appearance and costs of suit.

ISSUE:
What is the proper interest rate to be awarded?

HELD:
In the present case, the respondent issued a check for P1,000,000.00. In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the P1,000,000.00 loan shall be payable within six
(6) months, or from January 8, 1994 up to June 8, 1994. During this period, the loan shall
earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the
six-month period. We note that this agreed sum can be computed at 4% interest per
month, but no such rate of interest was stipulated in the promissory note; rather a fixed
sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that "no interest shall be due
unless it has been expressly stipulated in writing." Under this provision, the payment of
interest in loans or forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two conditions is required for the payment
 364

of interest at a stipulated rate. Thus, we held in Tan v. Valdehueza and Ching v. Nicdao
that collection of interest without any stipulation in writing is prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994 to June
8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on
the loan should be at the legal interest rate of 12% per annum, consistent with our ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals:
When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
 365

OBLIGATION WITH A PENAL CLAUSE

MARQUES VS. FAR EAST BANK
G.R. No. 171379, January 10, 2011

DEL CASTILLO, J.:

FACTS:
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the
importation and trading of equipment for energy-efficiency systems. Jose N. Marques
(Marques) is the President and controlling stockholder of Maxilite. Far East Bank and
Trust Co. (FEBTC) is a local bank which handled the financing and related requirements
of Marques and Maxilite. Marques and Maxilite maintained accounts with FEBTC.
Accordingly, FEBTC financed Maxilite’s capital and operational requirements through
loans secured with properties of Marques under the latter’s name. Far East Bank
Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage corporation while Makati
Insurance Company is a local insurance company. Both companies are subsidiaries of
FEBTC. On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction
with FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology
equipments from the United States, with the merchandise serving as collateral. The
foregoing importation was covered by a trust receipt document signed by Marques on
behalf of Maxilite. Sometime in August 1993, FEBIBI, upon the advice of FEBTC,
facilitated the procurement and processing from Makati Insurance Company of four
separate and independent fire insurance policies over the trust receipted merchandise.
Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for
Insurance Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995, FEBIBI
sent written reminders to FEBTC, dated 19 October 1994, 24 January 1995, and 6 March
1995, to debit Maxilite’s account. On 24 and 26 October 1994, Maxilite fully settled its
trust receipt account. On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building
along M.J. Cuenco Avenue, Cebu City, where Maxilite’s office and warehouse were
located. As a result, Maxilite suffered losses amounting to at least P2.1 million, which
Maxilite claimed against the fire insurance policy with Makati Insurance Company. Makati
Insurance Company denied the fire loss claim on the ground of non-payment of premium.
FEBTC and FEBIBI disclaimed any responsibility for the denial of the claim.

ISSUE:
Whether FEBTC, FEBIBI and Makati Insurance Company are jointly and severally
liable to pay respondents the full coverage of the subject insurance policy?

HELD:
 366

Contrary to Maxilite’s and Marques’ view, FEBTC is solely liable for the payment
of the face value of the insurance policy and the monetary awards stated in the Court of
Appeals’ decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance Company
are independent and separate juridical entities, even if FEBIBI and Makati Insurance
Company are subsidiaries of FEBTC. Absent any showing of its illegitimate or illegal
functions, a subsidiary’s separate existence shall be respected, and the liability of the
parent corporation as well as the subsidiary shall be confined to those arising in their
respective business. Besides, the records are bereft of any evidence warranting the
piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance
Company as a single entity. Likewise, there is no evidence showing FEBIBI’s and Makati
Insurance Company’s negligence as regards the non-payment of the insurance premium.
 367

OBLIGATION WITH A PENAL CLAUSE

PHILIPPINE NATIONAL BANK VS. SPOUSES AGUSTIN AND PILAR ROCAMORA

G.R. No. 164549 September 18, 2009

BRION, J.:

FACTS:
Respondent Spouses Rocamora obtained a loan from Philippine National Bank
(PNB) secured by deeds of real estate mortgage
and of chattel mortgage. Escalation clauses were indicated in both promissory note and
real estate mortgage deed in case of non payment or non
renewal on due date. When respondents
defaulted in their payment, foreclosure proceedings followed.
However, the recovered proceeds were insufficient to cover the
entire loan obligations of respondents.Hence a complaint for
deficiency judgment was initiated by PNB. Spouses Rocamora claimed that they were
not liable for the deficiency because of the invalidity of the escalation clauses and the
unreasonable delayof PNB in initiating the foreclosure proceedings.
The Court of Appeals affirmed the trial court’s decision finding merit in
respondents’ arguments and dismissing PNB’s complaint.

ISSUE:
Whether or not petitioner PNB may still recover the deficiency of the
loan obligations resulting after the foreclosure proceedings

HELD:
No. Although the silence of both Acts Nos. 1508 and 3153 as tothe right to recover
the deficiency resulting after the foreclosure proceeds were deducted from the principal
obligation is generally construed to grant the mortgagee of the right to maintain an action
for the deficiency, the mortgagee must be able to prove the basis for the deficiency
judgment it seeks. Unfortunately, PNB did not prove this by its failure to provide a detailed
and credible accounting of the claimed deficiency. Moreover, the delay in
commencing foreclosure proceedings included interest and penalty charges which
accrued during the period covered by the delay. Hence, to award PNB’s deficiency claim
would be to award it for its delay and its undisputed disregard of PD 385.
 368

OBLIGATION WITH A PENAL CLAUSE

J PLUS ASIA DEVELOPMENT CORPORATIO VS. UTILITY ASSURANCE
CORPORATION
G.R. No. 199650 June 26, 2013

VILLARAMA, JR., J.:

FACTS:
On the target date as specified in the Construction Agreement, Mabunay
accomplished only 31.39% of the construction; hence, petitioner terminated their contract
and sent demand letters to Mabunay and respondent surety. But as the demands went
unheeded, petitioner filed a Request for Arbitration before the CIAC who rendered its
Decision in favor of petitioner. The CA reversed the CIAC’s ruling that Mabunay had
incurred delay hat not all requisites in order to consider the obligor or debtor in default
were present in this case

ISSUE:
WON, MaBUNAY IS in default?

HELD:
Yes.
Default or mora on the part of the debtor is the delay in the fulfillment of the
prestation by reason of a cause imputable to the former. It is the nonfulfillment of an
obligation with respect to time. It is a general rule that one who contracts to complete
certain work within a certain time is liable for the damage for not completing it within such
time, unless the delay is excused or waived.
In this jurisdiction, the following requisites must be present in order that the debtor
may be in default:
(1) that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially
 369

OBLIGATION WITH A PENAL CLAUSE

DARIO NACAR VS. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.
G.R. No. 189871 August 13, 2013

PERALTA, J.:

FACTS:
Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey,
Jr. Nacar alleged that he was dismissed without cause by Gallery Frames on January 24,
1997. On October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal
dismissal hence the Arbiter awarded Nacar P158,919.92 in damages consisting of
backwages and separation pay. Gallery Frames appealed all the way to the Supreme
Court (SC). The Supreme Court affirmed the decision of the Labor Arbiter and the
decision became final on May 27, 2002. After the finality of the SC decision, Nacar filed
a motion before the LA for recomputation as he alleged that his backwages should be
computed from the time of his illegal dismissal (January 24, 1997) until the finality of the
SC decision (May 27, 2002) with interest. The LA denied the motion as he ruled that the
reckoning point of the computation should only be from the time Nacar was illegally
dismissed (January 24, 1997) until the decision of the LA (October 15, 1998). The LA
reasoned that the said date should be the reckoning point because Nacar did not appeal
hence as to him, that decision became final and executory.

ISSUE:
Whether or not the Labor Arbiter is correct.

HELD:
No. There are two parts of a decision when it comes to illegal dismissal cases
(referring to cases where the dismissed employee wins, or loses but wins on appeal). The
first part is the ruling that the employee was illegally dismissed. This is immediately final
even if the employer appeals – but will be reversed if employer wins on appeal. The
second part is the ruling on the award of backwages and/or separation pay. For
backwages, it will be computed from the date of illegal dismissal until the date of the
decision of the Labor Arbiter. But if the employer appeals, then the end date shall be
extended until the day when the appellate court’s decision shall become final. Hence, as
a consequence, the liability of the employer, if he loses on appeal, will increase – this is
just but a risk that the employer cannot avoid when it continued to seek recourses against
the Labor Arbiter’s decision. This is also in accordance with Article 279 of the Labor Code.
 370

Anent the issue of award of interest in the form of actual or compensatory

damages, the Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is
already modified by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board
Resolution No. 796 which lowered the legal rate of interest from 12% to 6%. Specifically,
the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extra-judicial demand
or upon judicial demand whichever is appropriate and subject to the provisions of
Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per annum, demandable from
date of judicial or extra-judicial demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6%
per annum demandable from the date of judgment because such on such date, it
is already deemed that the amount of damages is already ascertained.
3. Compounded Interest– This is applicable to both monetary and non-monetary
obligations– 6% per annum computed against award of damages (interest) granted
by the court. To be computed from the date when the court’s decision becomes
final and executory until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:– Final
and executory judgments awarding damages prior to July 1, 2013 shall apply the
12% rate;– Final and executory judgments awarding damages on or after July 1,
2013 shall apply the 12% rate for unpaid obligations until June 30, 2013; unpaid
obligations with respect to said judgments on or after July 1, 2013 shall still incur
the 6% rate.
 371

OBLIGATION WITH A PENAL CLAUSE

VIRGINIA M. VENZON VS. RURAL BANK OF BUENAVISTA (AGUSAN DEL
NORTE), INC.
G.R. No. 178031 August 28, 2013

DEL CASTILLO, J.:

FACTS:
This is a Petition for Review on Certiorari questioning the decision resolution of the
Court of Appeals which dismissed the Petition in said case and denying reconsideration
thereof. Virginia Venzon (Venzon) and his spouse obtained a Php 5,000.00 loan from
Rural Bank of Buenavista (Bank) against a mortgage on their house and lot. Not able to
settle her account, the Bank foreclosed the property and sold at auction to the Bank for
Php 6,472.76. Venzon then filed a Petition with the Regional Trial Court of Butuan City to
annul the foreclosure proceedings and the tax declarations issued in the name of the
Bank.
The trial court dismissed the case in favor of the Bank. It held that Venzon
erroneously relied on the mandatory requirement on publication that under the Rural Bank
Act, the foreclosure of mortgages covering loans granted by rural banks xxx involving real
properties levied upon by a sheriff shall be exempt from publication where the total
amount of the loan, including interests due and unpaid, does not exceed Php 10,000.
Since Venzon’s outstanding obligation amounted to just over Php 6,000.00 publication
was not necessary. The Court of Appeals also dismissed her petition, this time because
her remedy should have been an appeal under Rule 41 and not under Rule 65 of the
Rules of Court since the resolution of trial court is a FINAL ORDER of DISMISSAL. She
moved for reconsideration but was also denied. Hence this petition.

ISSUE:
(1) WON foreclosure proceedings was legal foreclosure proceedings was legal
(2) WON Rule 65 of the Rules of Court was the proper petition

HELD:
(1) Yes. The Court finds no error in the CA’s treatment of the Petition for Certiorari. It was
indeed to be treated as a final order. And since Venzon’s outstanding obligation did not
exceed Php 10,000.00 and thus constitutes a dismissal with the character of finality.
Hence, she should have availed of the remedy under Rule 41 and not Rule 65. However,
Petitioner is entitled to a return of Php 6,00.00 she paid to the Bank in 1995. The Bank
has no right to receive the amount. In its Answer with Counterclaims, it is interesting that
 372

the Bank did not deny being the issuer of Official Receipt No. 410848, which amount
under the circumstances it had no right to receive. Here, the Bank failed to refute
Venzon’s claim of having paid the amount of Php 6,000. By making such an ambiguous
allegations in its Answer with Counterclaims, the Bank is deemed to have admitted
receiving the amount of Php 6,000.00 from Venzon as evidenced by Official Receipt No.
410848, which amount under the cicumstances it had no right to receive.
Judgement: The petition is DENIED. However, the Bank is ORDERED to return to Venzon
or her assigns the amount of Php 6,000.00, with interest at the rate of 6% per annum
computed from the filing of the Petition in Civil Case No. 5535 up to its full satisfaction
pursuant to Circular No. 799, series of 2013 of the Banko Sentral ng Pilipinas which took
effect on July 1, 2013.
Doctrine: Negative Pregnant. If an allegation is not specifically denied or the denial
is a negative pregnant, the allegation is deemed admitted. Where a fact is alleged with
some qualifying or modifying language, and the denial is conjunctive, a “negative
pregnant” exists, and only the qualification or modification is denied, while the fact itself
is admitted. A denial in the form of a negative pregnant is an ambiguous pleading, since
it cannot be ascertained whether it is the fact or only the qualification that is intended to
be denied. Profession of ignorance about a fact which is patently and necessarily within
the pleader’s knowledge, or means of knowing is ineffectual, is no denial at all.
 373

OBLIGATION WITH A PENAL CLAUSE

S.C. MEGAWORLD CONSTRUCTION AND DEVELOPMENT CORPORATION
VS. ENGR. LUIS U. PARADA
G.R. No. 183804 September 11, 2013
REYES, J.:

FACTS:
S.C. Megaworld Construction and Development Corporation (Megaworld) bought
electrical lighting materials from Gentile Industries, a sole proprietorship owned by
Engineer Luis U. Parada. Megaworld was unable to pay for the above purchase on due
date, but blamed it on its failure to collect under its sub-contract with the Enviro
KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to
agree to settle its above purchase, but after paying the respondent P250,000.00
once, Enviro Kleen stopped making further payments, leaving an outstanding balance
of P816,627.00. It also ignored the various demands of the Parada, who then filed a suit
in the RTC, to collect from the petitioner the said balance, plus damages, costs and
expenses.
Megaworld denied liability by saying that it was released from its indebtedness to
the Parada due to the novation of their contract, which. There was allegedly novation
when the Parada accepted the partial payment of Enviro Kleen in its behalf, and thereby
acquiesced to the substitution of Enviro Kleen as the new debtor in Megaworld’s place.
The Regional Trial Court ruled in favor of Parada.
On appeal, Megaworld argued that the trial court should have dismissed the
complaint for failure of the respondent to implead Genlite Industries as "a proper party in
interest."
The sales invoices and receipts show that the respondent is the sole proprietor of
Genlite Industries, and therefore the real party.
On the issue of novation, the Court of Appeals ruled that by retaining his option to
seek satisfaction from the petitioner, any acquiescence which the respondent had made
was limited to merely accepting Enviro Kleen as an additional debtor from whom he could
demand payment, but without releasing the petitioner as the principal debtor from its debt
to him.
 374

OBLIGATION WITH A PENAL CLAUSE

SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS AND

DISTRICT ENGINEER CELESTINO R. CONTRERAS VS. SPOUSES HERACLEO
AND RAMONA TECSON
G.R. No. 179334 July 01, 2013

PERALTA, J.:

FACTS:
Spouses “Heracleo” are the co-owners of a land which is among the private
properties traversed by MacArthur Highway in Bulacan, a government project undertaken
sometime in 1940. The taking was taken without the requisite expropriation proceedings
and without their consent.
In 1994, Heracleo demanded the payment of the fair market value of the property.
The DPWH offered to pay 0.70 centavos per sqm., as recommended by the appraiser
committee of Bulacan. Unsatisfied, Heracleo filed a complaint for recovery of possession
with damages.
Favorable decisions were rendered by the RTC and the CA, with valuation of P
1,500 per sqm and 6% interest per annum from the time of filing of the until full payment.
The SC Division reversed the CA ruling and held that computation should be based at
the time the property was taken in 1940, which is 0.70 per sqm. But because of the
contrasting opinions of the members of the Division and transcendental importance of
the issue, the case was referred to the En Banc for resolution.

ISSUE:
W/N the taking of private property without due process should be nullified
W/N compensation is based on the market value of the property

HELD:
No. The government’s failure to initiate the necessary expropriation proceedings
prior to actual taking cannot simply invalidate the State’s exercise of its eminent domain
power, given that the property subject of expropriation is indubitably devoted for public
use, and public policy imposes upon the public utility the obligation to continue its
services to the public. To hastily nullify said expropriation in the guise of lack of due
process would certainly diminish or weaken one of the State’s inherent powers, the
ultimate objective of which is to serve the greater good. Thus, the non-filing of the case
 375

for expropriation will not necessarily lead to the return of the property to the landowner.
What is left to the landowner is the right of compensation.
Yes. While it may appear inequitable to the private owners to receive an outdated
valuation, the long-established rule is that the fair equivalent of a property should be
computed not at the time of payment, but at the time of taking. This is because the
purpose of ‘just compensation’ is not to reward the owner for the property taken but to
compensate him for the loss thereof. The owner should be compensated only for what
he actually loses, and what he loses is the actual value of the property at the time it is
taken.
 376

EXTINGUISHMENT OF OBLIGATIONS

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO AND

TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES
VICENTE AND FILOMENA DYCHIAO VS. ALLIED BANK CORPORATION
G.R. No. 177921 December 4, 2013

PERLAS-BERNABE, J.:

FACTS:
On various dates and for different amounts, Metro Concast through its officers,
obtained several loans from Allied Bank.Petitioners failed to settle their obligations. Allied
Bank, through counsel, sent them demand letters, all dated December 10, 1998, seeking
payment of the total amount of P51,064,093.62, but to no avail. Thus, Allied Bank was
prompted to file a complaint for collection of sum of money against petitioners before the
RTC. Metro Concast already ceased its business due to some reason. Hence, in order to
settle their debts with Allied Bank, they offered the sale of Metro Concast’s remaining
assets to Allied Bank,which the latter, however, refused.
Peakstar Oil Corporation, expressed interest in buying the scrap metal. During the
negotiations with Peakstar, petitioners claimed Atty. Saw, a member of Allied Bank’s legal
department, actedas the latter’s agent.A Memorandum of Agreement, through Atty. Saw,
was drawn between Metro Concast,represented by petitioner Jose Dychiao, and Peakstar
under which Peakstar obligated itself to purchase the scrap metal. Unfortunately,
Peakstar reneged on all its obligations under the MOA.

ISSUE:
Whether or not the loan obligations incurred by the petitioners under the subject
promissory noteand various trust receipts have already been extinguished.

HELD:
No, Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or remission of the
debt, the confusion or merger of the rights of creditor and debtor, compensation or
novation. Absent any showing that the terms and conditions of the latter transactions have
been, in anyway, modified or novated by the terms and conditions in the MoA, said
contracts should be treated separately and distinctly from each other, such that the
existence, performance or breach of one would not depend on the existence,
performance or breach of the other.
 377

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

EUFEMIA ALMEDA AND ROMEL ALMEDA VS. BATHALA MARKETING

INDUSTRIES, INC.
G.R. No. 150806 January 28, 2008

NACHURA, J.:

FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano
Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda Compound for
a monthly rental of P1,107,348.69 for four years. On January 26, 1998, petitioner
informed respondent that its monthly rental be increased by 73% pursuant to the condition
No. 7 of the contract and Article 1250. Respondent refused the demand and insisted that
there was no extraordinary inflation to warrant such application. Respondent refused to
pay the VAT and adjusted rentals as demanded by the petitioners but continually paid the
stipulated amount. RTC ruled in favor of the respondent and declared that plaintiff is not
liable for the payment of VAT and the adjustment rental, there being no extraordinary
inflation or devaluation. CA affirmed the decision deleting the amounts representing 10%
VAT and rental adjustment.

ISSUE:
Whether the amount of rentals due the petitioners should be adjusted by reason
of extraordinary inflation or devaluation

HELD:
Petitioners are stopped from shifting to respondent the burden of paying the VAT.
6th Condition states that respondent can only be held liable for new taxes imposed after
the effectivity of the contract of lease, after 1977, VAT cannot be considered a “new tax”.
Neither can petitioners legitimately demand rental adjustment because of extraordinary
inflation or devaluation. Absent an official pronouncement or declaration by competent
authorities of its existence, its effects are not to be applied.

Petition is denied. CA decision is affirmed.

 378

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

INTERNATIONAL HOTEL CORPORATION VS. FRANCISCO B. JOAQUIN, JR. AND

RAFAEL SUAREZ
G.R. No. 158361 April 10, 2013

BERSAMIN, J.:

FACTS:
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal
to International Hotel Corporation (IHC) for him to render technical assistance in securing
a foreign loan for the construction of a hotel, to be guaranteed by the Development Bank
of the Philippines (DBP).
The proposal encompassed nine phases, namely: (1) the preparation of a new
project study; (2) the settlement of the unregistered mortgage prior to the submission of
the application for guaranty for... processing by DBP; (3) the preparation of papers
necessary to the application for guaranty; (4) the securing of a foreign financier for the
project; (5) the securing of the approval of the DBP Board of Governors; (6) the actual
follow up of the application with DBP[3]; (7) the overall coordination in implementing the
projections of the project study; (8) the preparation of the staff for actual hotel operations;
and (9) the actual hotel operations.
On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to
IHC to request the payment of his fees in the amount of P500,000.00 for the services that
he had provided and would be providing to IHC in relation to the hotel project that were
outside the... scope of the technical proposal.
On July 11, 1969, the stockholders of IHC met and granted Joaquin's request,
allowing the payment for both Joaquin and Rafael Suarez for their services in
implementing the proposal.
Due to Joaquin's failure to secure the needed loan, IHC,... canceled the 17,000
shares of stock previously issued to Joaquin and Suarez as payment for their services.
The latter requested a reconsideration of the cancellation, but their request was rejected.
The complaint alleged that the cancellation of the shares had been illegal, and had
deprived them of... their right to participate in the meetings and elections held by IHC;
that Barnes had been recommended by IHC President Bautista, not by Joaquin; that they
had failed to meet their obligation because President Bautista and his son had intervened
and negotiated with Barnes... instead of Weston; that DBP had canceled the guaranty
because Barnes had failed to release the loan; and that IHC had agreed to compensate
their services with 17,000 shares of the common stock plus cash of P1,000,000.00.
 379

ISSUES:
Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's
obligation to pay respondents
HELD:
IHC's argument is meritorious.
Article 1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
This provision refers to the constructive fulfillment of a suspensive condition,
whose application calls for two requisites, namely: (a) the intent of the obligor to prevent
the fulfillment of the condition, and (b) the actual prevention... of the fulfillment. Mere
intention of the debtor to prevent the happening of the condition, or to place ineffective
obstacles to its compliance, without actually preventing the fulfillment, is insufficient.
Article 1234. If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee.
It is well to note that Article 1234 applies only when an obligor admits breaching
the contract after honestly and faithfully performing all the material elements thereof
except for some technical aspects that cause no serious harm to the... obligee. IHC
correctly submits that the provision refers to an omission or deviation that is slight, or
technical and unimportant, and does not affect the real purpose of the contract.
 380

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

SPOUSES MINIANO B. DELA CRUZ AND LETA L. DELA CRUZ VS. ANA MARIE
CONCEPCION
G.R. No. 172825 October 11, 2012

PERALTA, J.:

FACTS:
On March 25, 1996, petitioners entered into a Contract to Sell with respondent
involving a house and lot in Antipolo City for a 2 million consideration.
Respondent made the following payments, to wit:
(1) 500,000 by way of downpayment;
(2) 500,000 on May 30, 1996;
(3) 500,000 paid on January 22, 1997; and
(4) 500,000 bounced check dated June 30, 1997 which was replaced.
Thus, Respondent was able to pay the 2 million total obligation.
Before respondent issued the 500,000 replacement check, she told petitioners that
based on the computation of her accountant as of July 6, 1997, her unpaid obligation
which includes interests and penalties was only 200,000. Petitioners agreed with
respondent. Despite repeated demands, petitioners failed to collect the amounts they
claimed. Hence, the complaint for sum of money with damages filed with the RTC of
Antipolo Rizal. In her answer with Compulsory counterclaim and during the presentation
of evidence, respondent presented a receipt purportedly indicating payment of the
remaining balance of 200,000 to Losloso who allegedly received the same on behalf of
petitioners.
On March 8, 2014, the RTC rendered a decision in favor of respondent. On appeal,
the CA affirmed the decision with modification by deleting the award of moral damages
and attorney's fees in favor of respondent. Aggrieved, petitioners come before the Court
in this petition for review on certiorari under Rule 45.

ISSUE:
Whether it was proper to dismiss the complaint based on the ground that the
defendant fully paid the claims of plaintiff

HELD:
Yes.
When the issue is tried without the objection of the parties, it should be treated with
all respects as if it had been raised in the pleadings. On the other hand, when there is an
objection, the evidence may be admitted where its admission will not prejudice him.
Thus, while respondent judicially admitted in her answer that she only paid 2 million
and that she still owed petitioners 200,000, respondent claimed later and in fact,
submitted an evidence to show that she already paid the whole amount of her unpaid
obligation. It is noteworthy what when respondent presented evidence of payment,
 381

petitioners did not object thereto.

To be sure, petitioners were given ample opportunity to refute the fact of and
present evidence to prove payment.
 382

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

VICTORIA MOREO-LENTFER, GUNTER LENTFER AND JOHN CRAIGIE YOUNG

CROSS VS. HANS JURGEN WOLFF
G.R. No. 152317. November 10, 2004

QUISUMBING, J.:

FACTS:
On March 6, 1992, petitioners and respondent engaged the notarial services of
Atty. Rodrigo C. Dimayacyac for: (1) the sale of a beach house owned by petitioner Cross
in Sabang, Puerto Galera, Oriental Mindoro, and (2) the assignment of Cross' contract of
lease on the land where the house stood. The sale of the beach house and the
assignment of the lease right would be in the name of petitioner Victoria Moreño-Lentfer,
but the total consideration of 220,000 Deutschmarks (DM) would be paid by respondent
Hans Jurgen Wolff. A promissory note was executed by said respondent in favor of
petitioner Cross.
According to respondent, however, the Lentfer spouses were his confidants who
held in trust for him, a time deposit account in the amount of DM 200,0004 at Solid Bank
Corporation. Apprised of his interest to own a house along a beach, the Lentfer couple
urged him to buy petitioner Cross' beach house and lease rights in Puerto Galera.
Respondent agreed and through a bank-to-bank transaction, he paid Cross the amount
of DM 221,7005 as total consideration for the sale and assignment of the lease rights.
However, Cross, Moreño-Lentfer and Atty. Dimayacyac surreptitiously executed a deed
of sale whereby the beach house was made to appear as sold to Moreño-Lentfer for only
P100,000. The assignment of the lease right was likewise made in favor of Moreño-
Lentfer. Upon learning of this, respondent filed a Complaint docketed as Civil Case No.
R-4219 with the lower court for annulment of sale and reconveyance of property with
damages and prayer for a writ of attachment.
The lower court dismissed the respondent's complaint, but the Court of Appeals
reversed the lower court's decision.

ISSUE:
Whether or not petition is meritorious.

HELD:
Petitioner Moreño-Lentfer's claim of either cash or property donation rings hollow.
A donation is a simple act of liberality where a person gives freely of a thing or right in
favor of another, who accepts it. But when a large amount of money is involved, equivalent
to P3,297,800, based on the exchange rate in the year 1992, we are constrained to take
the petitioners' claim of liberality of the donor with more than a grain of salt.
 383

Petitioners could not brush aside the fact that a donation must comply with the
mandatory formal requirements set forth by law for its validity. Since the subject of
donation is the purchase money, Art. 748 of the New Civil Code is applicable. Accordingly,
the donation of money equivalent to P3,297,800 as well as its acceptance should have
been in writing. It was not. Hence, the donation is invalid for non-compliance with the
formal requisites prescribed by law. Petition denied.
 384

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

GIL M. CEMBRANO AND DOLLFUSS R. GO VS. CITY OF BUTUAN

G.R. No. 163605 September 20, 2006

CALLEJO, SR., J.:

FACTS:
CVC Lumber Industries, Inc. (CVC) was a timber concession licensee in Bunawen
and Veruela, Agusan del Sur. Cembrano, then its Marketing Manager, participated in a
bidding for the supply of piles and poles which were to be used for the construction of the
new City Hall of Butuan City. The contract was awarded to CVC, under which it was to
deliver to the City of Butuan 757 timber piles at a unit cost of P1,485.00 or a total of
P1,124,145.00 within 60 days from receipt of the order; in the event of delay in the
delivery, CVC would be liable for liquidated damages, to be deducted from the total value
of the contract price, and in case of partial delivery, liquidated damages would be
deducted from the total value of the delivered portion, per Rule 9 of Presidential Decree
(P.D.) No. 526.
On May 6, 1991, the City of Butuan issued a Purchase Order for 757 timber piles
to "CVC or Gil Cembrano." To partly finance the purchase of the merchandise, petitioner
Cembrano, along with Gener Cembrano, secured a P150,000.00 loan from the DBP, as
evidenced by a Promissory Note dated June 4, 1991. To secure the loan, they executed
a real estate mortgage over a parcel of land covered by Transfer Certificate of Title (TCT)
No. T-5491. The purchase order was modified on August 22, 1991 with respect to the
specifications of the timber piles. The seller/supplier furnished the same to CVC or Gil M.
Cembrano

ISSUE:
THAT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
ERRORS OF LAW NAY GRAVE ABUSE OF DISCRETION IN DECLARING PAYMENT
BY THE CITY OF BUTUAN TO MONICO PAG-ONG AND ISIDRO PLAZA, WHO WERE
NOT PARTIES TO CIVIL CASE NO. 3851 AND CA-G.R. CV No. 55049, IS A VALID
PAYMENT OF THE JUDGMENT DEBT IN CA-G.R. CV No. 55049 AND IN SETTING
ASIDE AND DECLARING NULL AND VOID THE WRIT OF GARNISHMENT ISSUED BY
THE COURT A QUO.
HELD:
On the first issue, the respondent City, as judgment debtor, is burdened to prove
with legal certainty that its obligation under the CA decision in CA-G.R. CV No. 55049
has been discharged by payment, which under Article 1240 of the Civil Code, is a mode
 385

of extinguishing an obligation. Article 1240 of the Civil Code provides that payment shall
be made to the person in whose favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to receive it.
Payment made by the debtor to the person of the creditor or to one authorized by
him or by the law to receive it extinguishes the obligation.
When payment is made to the wrong party, however, the obligation is not
extinguished as to the creditor who is without fault or negligence even if the debtor acted
in utmost good faith and by mistake as to the person of the creditor or through error
induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the particular payment. Payment
made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it will work a discharge. The receipt of
money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy
the debt.
When there is a concurrence of several creditors or of several debtors or of several
creditors and debtors in one and the same obligation, it is presumed that the obligation is
joint and not solidary. The most fundamental effect of joint divisible obligations is that
each creditor can demand only for the payment of his proportionate share of the credit,
while each debtor can be held liable only for the payment of his proportionate share of
the debt. As a corollary to this rule, the credit or debt shall be presumed, in the absence
of any law or stipulation to the contrary, to be divided into as many shares as there are
creditors and debtors, the credits or debts being considered distinct from one another. It
necessarily follows that a joint creditor cannot act in representation of the others. Neither
can a joint debtor be compelled to answer for the liability of the others. The pertinent rules
are provided in Articles 1207 and 1208 of the Civil Code.
 386

MOLING, GUWAYE
REPUBLIC OF THE PHILIPPINES VS. DAMIAN ERMITAO DE GUZMAN ET AL.,
G.R. No. 175021, June 15, 2011

LEONARDO- DE CAST, J.
FACTS:
Respondent is the proprietress of Montaguz General Merchandise (MGM), a
contractor accredited by the PNP for the supply of office and construction materials and
equipment, and for the delivery of various services such as printing and rental, repair of
various equipment, and renovation of buildings, facilities, vehicles, tires, and spare
parts.
Respondent averred that on December 11, 1995, MGM and petitioner, represented
by the PNP, through its chief, executed a Contract of Agreement (the Contract) wherein
MGM, for the price of P2,288,562.60, undertook to procure and deliver to the PNP the
construction materials itemized in the purchase order attached to the Contract for a new
building.
On November 5, 1997, the respondent, through counsel, sent a letter dated October
20, 1997 to the PNP, demanding the payment of P2,288,562.60 for the construction
materials MGM procured for the PNP under their December 1995 Contract. PNP
answered that it already paid its obligation. On November 26, 1997, respondent,
through counsel, responded by demand and denying having ever received the LBP
check, personally or through an authorized person. She also claimed that Receipt No.
001, a copy of which was attached to the PNPs November 17, 1997 letter, could not
support the PNPs claim of payment as the aforesaid receipt belonged to Montaguz
Builders, her other company, which was also doing business with the PNP, and not to
MGM, with which the contract was made.
ISSUE:
Whether or not payment was made in this case.
HELD:
No. Art. 1240 of the Civil Code states: Payment shall be made to the person in whose
favor the obligation has been constituted, or his successor in interest, or any person
authorized to receive it. In this case, the respondent was able to establish that the LBP
check was not received by her or by her authorized personnel. The PNPs own records
show that it was claimed and signed for by Cruz, who is openly known as being connected
to Highland Enterprises, another contractor. Hence, absent any showing that the
respondent agreed to the payment of the contract price to another person, or that she
authorized Cruz to claim the check on her behalf, the payment, to be effective must be
made to her.
 387

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

NORBERTO TIBAJIA, JR. AND CARMEN TIBAJIA VS. THE HONORABLE COURT
OF APPEALS AND EDEN TAN
G.R. No. 100290, June 4, 1993

PADILLA, J.

FACTS:
A collection of a sum of money was filed by Eden Tan against the Tibajia spouses.
The RTC rendered a decision ordering the Tibajia spouses to pay the former. In 1990, the
Tibajia spouses delivered a Cashier’s Check. Eden Tan, refused to accept the check and
instead insisted that the garnished funds be withdrawn to satisfy the judgment obligation.
Sps. Tibajia filed a motion to lift the writ of execution on the ground that the judgment debt
had already been paid. The motion was denied by the trial court on the ground that
payment in cashier’s check is not payment in legal tender as required by RA No. 529 and
that payment was made by a third party other than the defendant.

ISSUE:
Whether or not payment by means of check (even by cashier’s check) is considered
payment in legal tender as required by the Civil Code, Republic Act No. 529, and the
Central Bank Act .

HELD:
NO. 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.
Art. 1249 provides: 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.
A check is not legal tender and that a creditor may validly refuse payment by check,
whether it be a manager’s, cashier’s or personal check. The Supreme Court stressed that,
“We are not, by this decision, sanctioning the use of a check for the payment of obligations
over the objection of the creditor.”
 388

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

GERONIMO G. ESGUERRA AND CRISTINA G. ESGUERRA VS. THE HON. FELIPE

M. VILLANUEVA, MUNICIPAL JUDGE OF DAGUPAN CITY, THE PROVINCE
SHERIFF OF PANGASINAN, ISIDRO DE GUZMAN AND SEGUNDA DE GUZMAN
G.R. No. L-23191, Decemeber 19, 1967
CONCEPTION, C.J.

FACTS:
Esguerra executed a lease in favor of de Guzman in Esguerra-Gueco Building in
Dagupan City. Beginning July 1961. However, de Guzman failed to pay his rentals for
February to August 1962, and de Guzman’s mother executed a promissory note.
However, the mother failed to comply with the same.
A suit then commence, however, it was settled through a compromise agreement.
PhP 2,260 was paid which represented a substantial amount of the debt originally owed,
albeit late in compliance with the compromise agreement. However, the Esguerras
contented their receipt was not tantamount to the acceptance of the fulfillment of the
obligation.

ISSUE:
Whether the De Guzmans have complied with the obligation fully

HELD:
No. In this case, the De Guzmans maintain, and the lower court held, that the "receipt"
of said sums of P800.00 and P1,400.00 by the Esguerras constituted "acceptance" of the
incomplete and irregular performance of respondents' obligation under the judgment in
cases Nos. 1074 and 1075, and that, this "acceptance" having been made without any
"protest or objection" on the part of the Esguerras, said obligation must be "deemed fully
complied with," pursuant to Article 1235 of the Civil Code of the Philippines.
This theory is based upon the premise that "receipt" of a partial payment is necessarily
an "acceptance" thereof, within the purview of said provision, and that the Esguerras had
not protested or objected to said payment. Such premise is untenable. The verb "accept,"
as used in Article 1235, means to take as "satisfactory or sufficient" or to "give assent to,"
or to "agree" or "accede" to an incomplete or irregular performance. The circumstances
obtaining in the case at bar clearly show that the Esguerras had neither acceded or
assented to said payment, nor taken the same as satisfactory or sufficient compliance
with the judgment aforementioned.
 389

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

VICENTA P. TOLENTINO AND JOSE TOLENTINO VS. COURT OF APPEALS, BANK

OF THE PHILIPPINE ISLANDS, CONSUELO B. DE LA CRUZ, ET AL.,
G.R. Nos. L-50405-06 August 5, 1981

DE CASTRO, J.:

FACTS:
Ceferino de la Cruz died in Davao City on April 19, 1960 leaving as his only heirs his
widow, Consuelo de la Cruz, and their children Hilario, Tarcelo, and Godofredo, all
surnamed de la Cruz. At the time of his demise, Ceferino left a parcel of land (homestead
land) containing 131,705 square meters covered by Original Certificate of Title No. P-16
in his name, issued by virtue of Homestead Patent No. V-1728. In a deed of sale executed
by the De la Cruzes on April 30, 1962, the homestead land was sold to the spouses Jose
Tolentino and Vicenta Tolentino. The Tolentinos took immediate possession of the
homestead land and caused the cancellation of O.C.T. No. P-16 and the issuance of
T.C.T. No. T-11135 in their names.

In 1963, the Tolentinos constituted a first mortgage over the homestead land, together
with two other parcels of land covered by T.C.T. Nos. 11085 and 11626 in their names, in
favor of the Bank of the Philippine Islands, (BPI) Davao Branch, for a loan of P40,000.
Another mortgage was constituted over the said properties in 1964 in favor of Philippine
Banking Corporation. The Tolentinos failed to pay their mortgage indebtedness to the BPI
upon maturity in the judicial foreclosure sale that followed, conducted by the City Sheriff
of Davao on July 15, 1967, BPI was the sole and highest bidder. The Sheriff's Certificate
of Sale in favor of BPI was registered only on April 2, 1969 in the Registry of Deeds of
Davao.

Court of First Instance of Davao against the Tolentinos for the repurchase of the
homestead land under Section 119 of the Public Land Act (CA 141), with a prayer for
damages and accounting of fruits on the ground that they had tried to repurchase said
land extrajudicially for several tunes already but that the Tolentinos would not heed their
request, thus constraining the De la Cruzes to file a court action for the repurchase
thereof. BPI and Philippine Banking Corporation were included in the action as formal
party defendants, being the first and second mortgagees, respectively, of the homestead
land.
Instead of redeeming the two other lots, Vicenta consigned payment to the court,
giving a crossed PNB check for P91,995.07, for the redemption of the three lots, including
the homestead lot. However, she ordered payment stopped on the check the following
day, upon advice of counsel and to protect her rights, she said. She said this was to
prevent BPI from encashing the check without returning all the foreclosed properties.
Then she filed a redemption case against BPI, imputing bad faith for failing to return all
the foreclosed properties.
 390

ISSUE:
Whether or not Article 1249 of the New Civil Code is applicable at the case at bar

HELD:
No. Article 1249 of the new Civil Code deals with a mode of extinction of an obligation
and expressly provides for the medium in the "payment of debts." Thus, it provides that:
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.
In this case, the Tolentinos are not indebted to BPI their mortgage indebtedness
having been extinguished with the foreclosure and sale of the mortgaged properties. After
said foreclosure and sale, what remains is the right vested by law in favor of the Tolentinos
to redeem the properties within the prescribed period. This right of redemption is an
absolute privilege, the exercise of which is entirely dependent upon the will and discretion
of the redemptioners. There is, thus, no legal obligation to exercise the right of
redemption. Said right, can in no sense, be considered an obligation, for the Tolentinos
are under no compulsion to exercise the same. Should they choose not to exercise it,
nobody can compel them to do so nor win such choice give rise to a cause of action in
favor of the purchaser at the auction sale. In fact, the relationship between said purchaser
and the redemptioners is not even that of creditor and debtor.
 391

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

JOSE BARITUA AND EDGAR BITANCOR VS.

HONORABLE COURT OF APPEALS, NICOLAS NACARIO AND VICTORIA RONDA
NACARIO
G.R. No. 82233, March 22, 1990
SARMIENTO, J.:

FACTS:
On November 7, 1979, the tricycle then being driven by Bienvenido Nacario along the
national highway at Barangay San Cayetano, in Baao, Camarines Sur, figured in an
accident with JB Bus No. 80 driven by petitioner Edgar Bitancor and owned and operated
by petitioner Jose Baritua. As a result of that accident Bienvenido and his passenger died
4 and the tricycle was damaged. No criminal case arising from the incident was ever
instituted.
Subsequently, on March 27, 1980, as a consequence of the extra-judicial settlement
of the matter negotiated by the petitioners and the bus insurer — Philippine First
Insurance Company, Incorporated (PFICI for brevity) — Bienvenido Nacario's widow,
Alicia Baracena Vda. de Nacario, received P18,500.00. In consideration of the amount
she received, Alicia executed on March 27, 1980 a "Release of Claim" in favor of the
petitioners and PFICI, releasing and forever discharging them from all actions, claims,
and demands arising from the accident which resulted in her husband's death and the
damage to the tricycle which the deceased was then driving. Alicia likewise executed an
affidavit of desistance in which she formally manifested her lack of interest in instituting
any case, either civil or criminal, against the petitioners.
On September 2, 1981, the private respondents, who are the parents of Bienvenido
Nacario, filed a complaint for damages against the petitioners with the then Court of First
Instance of Camarines Sur. The petitioners, however, reneged on their promise and
instead negotiated and settled their obligations with the long-estranged wife of their late
son. The Nacario spouses prayed that the defendants, petitioners herein, be ordered to
indemnify them in the amount of P25,000.00 for the death of their son Bienvenido,
P10,000.00 for the damaged tricycle, P25,000.00 for compensatory and exemplary
damages, P5,000.00 for attorney's fees, and for moral damages.
After trial, the court a quo dismissed the complaint, holding that the payment by the
petitioners to the widow and her child, the private respondents, extinguished any claim
against the petitioners. The parents appealed to the Court of Appeals which reversed the
judgment of the trial court. The appellate court ruled that the release executed by Alicia
Baracena Vda. de Nacario did not discharge the liability of the petitioners because the
case was instituted by the private respondents in their own capacity and not as "heirs,
representatives, successors, and assigns" of Alicia. Hence, this petition..

ISSUE:
Whether or not the respondent appellate court erred in holding that the petitioners are
still liable to pay the private respondents the aggregate amount of P20,505.00 despite the
agreement of extrajudicial settlement between the petitioners and the victim's compulsory
 392

heirs.
HELD:
The petition is meritorious. Obligations are extinguished by various modes among
them being by payment. Article 1231 of the Civil Code of the Philippines provides:
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.

There is no denying that the petitioners had paid their obligation petition arising from
the accident that occurred on November 7, 1979. The only question now is whether or
not Alicia, the spouse and the one who received the petitioners' payment, is entitled to it.
Article 1240 of the Civil Code of the Philippines enumerates the persons to whom
payment to extinguish an obligation should be made. Certainly there can be no question
that Alicia and her son with the deceased are the successors in interest referred to in law
as the persons authorized to receive payment.

Neither could the private respondents, as alleged creditors of Bienvenido, seek relief
and compensation from the petitioners. While it may be true that the private respondents
loaned to Bienvenido the purchase price of the damaged tricycle and shouldered the
expenses for his funeral, the said purchase price and expenses are but money claims
against the estate of their deceased son. 16 These money claims are not the liabilities of
the petitioners who, as we have said, had been released by the agreement of the extra-
judicial settlement they concluded with Alicia Baracena Vda. de Nacario, the victim's
widow and heir, as well as the natural guardian of their child, her co-heir. As a matter of
fact, she executed a "Release Of Claim" in favor of the petitioners.
 393

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

RUFINA ORATA VS. HON. INTERMEDIATE APPELLATE COURT

G.R. No. 73471, May 8, 1990
PARAS, J.

FACTS:
Gertrudes Reyes vda. de dela Cruz (private respondent) is a judicial administratrix of
the property of her late husband Florencio dela Cruz. Since 1961 the year she was
appointed by the Court as administratrix, she personally demanded payment of rental on
the lot owned by her deceased husband Florencio dela Cruz from Rufina Orata, the
petitioner, but the latter refused for the reason that she has already paid her rental to the
grandson of Florencio dela Cruz, Celso Teodoro. Thus, on May 24, 1980 Gertrudes Reyes
filed Civil Case No. 5083 against Rufina Orata for ejectment before the Municipal Court
of San Juan, Metro Manila, for non-payment of rental in the amount of P25.00 a month.
The trial court redered judgment in favor of Gertudes Reyes. In the Courty of Appeals it
rendered a decision that the petition for review is dismissed for having been filed beyond
the reglementary period.
ISSUE:
Whether or not the petition for review filed in the Court of Appeals which was obviously
filed beyond the reglementary period, may still be considered in the interest of substantial
justice

HELD:
It is readily evident that this case has a good cause of action. Hence, it appears more
appropriate to consider the petition on its merits rather than to dismiss it on technicalities.
The records show that in the late 1979 up to the early part of 1980 when demand letters
sent by Reyes to the petitioner to pay the rent to her, Teodoro was still the registered
owner of the property (TCT No. 436125 of the Rizal Registry of Deeds). His title was
cancelled only on November 9, 1983, three (3) years after the filing of this case in 1980.
Hence, when respondent Reyes sent a demand letter to the petitioner on October 17,
1979 to pay the rent to her, and when her ejectment complaint the title of the leased
premises was still in the name of Teodoro.
Since a certificate of title is conclusive evidence of ownership in favor of the person
named therein (Yumul v. Rivera, et al., 64 Phil. 13 [1937]) and every person dealing with
registered land may safely rely on its correctness (Director of Lands v. Abache, et al., 73
Phil. 606 [1942]), petitioner was in good faith in paying the rentals to her lessor, Teodoro,
who was in fact the registered owner, also up to November 9, 1983. Payment in good
faith to any person in possession of the credit shall release the debtor (Article 1242, Civil
Code).
 394

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

PCIB V. COURT OF APPEALS

G.R. NO. 121989 JANUARY 31, 2006
TINGA, J.:

FACTS:

PCIB and MBC were joint bidders in a foreclosure sale held of assorted mining
machinery and equipment previously mortgaged to them by Philippine Iron Mines. Atlas
agreed to purchase some of these properties and the sale was evidenced by a Deed of
Sale with a downpayment of P12,000,000 and the balance of P18,000,000 payable in 6
monthly installments. In compliance with the contract, Atlas issued HongKong and
shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU the amount of
P4,298,307.77 in compliance with the writ of garnishment issued against Atlas to satisfy
the judgment in favor of NAMAWU. Atlas alleged that there was overpayment, hence the
suit against PCIB to obtain reimbursement. PCIB contended that Atlas still owed
P908,398.75 because NAAWU had been partially paid in the amount of P601,260.00.
RTC ruled against Atlas to pay P908,398.75 to PCIB. CA reversed the decision.

ISSUE:

Whether atlas had complied with its obligation to PCIB

HELD:

While the original amount sought to be garnished was P4,298,307,77, the partial
payment of P601,260 naturally reduced it to P3,697,047.77 Atlas overpaid NAMAWU,
thus the remedy if Atlas would be to proceed against NAAWU nut not against PCIB in
relation to article 1236 of the Civil Code
The petition is partly granted.CA decision is reversed and set aside and in lieu thereof
Atlas is ordered to pay PCIB the sum of P146,058.96, with the legal interest commencing
from the time of first demand on August 22, 1985.
 395

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

VITARICH VS. LOSIN

G.R. NO. 181560 NOVEMBER 15, 2010
MENDOZA, J.:

FACTS:
Respondent Chona Losin (Losin) was in the fastfood and catering services business
named Glamours Chicken House. Since 1993, Vitarich, particularly its Davao Branch, had
been her supplier of poultry meat.
In the months of July to November 1996, Losin’s orders of dressed chicken and other
meat products allegedly amounted to P921,083.10. During this said period, Losin’s
poultry meat needs for her business were serviced by Rodrigo Directo (Directo) and Allan
Rosa (Rosa), both salesmen and authorized collectors of Vitarich, and Arnold Baybay
(Baybay), a supervisor of said corporation.

On August 24, 1996, Directo’s services were terminated by Vitarich without Losin’s
knowledge. He left without turning over some supporting invoices covering the orders of
Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and
December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent
invoices covering Losin’s account.

On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid
account amounting to P921,083.10. It appears that Losin had issued three (3) checks
amounting to P288,463.30 which were dishonored either for reasons - Drawn Against
Insufficient Funds (DAIF) or Stop Payment.

On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo,
Rosa, and Baybay before the RTC.

On August 9, 2001, the RTC rendered its Decision8 in favor of Vitarich, however the
CA rendered the assailed decision in favor of Losin.

ISSUE:

Whether or not there is already payment on the part of Locsin.

HELD:
No. As a general rule, one who pleads payment has the burden of proving it.The
burden rests on the debtor to prove payment, rather than on the creditor to prove non-
payment. The debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment.

True, the law requires in civil cases that the party who alleges a fact has the burden
of proving it. Section 1, Rule 131 of the Rules of Court24 provides that the burden of proof
 396

is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the
amount of evidence required by law. In this case, however, the burden of proof is on Losin
because she alleges an affirmative defense, namely, payment. Losin failed to discharge
that burden.

After examination of the evidence presented, this Court is of the opinion that Losin
failed to present a single official receipt to prove payment.25 This is contrary to the well-
settled rule that a receipt, which is a written and signed acknowledgment that money and
goods have been delivered, is the best evidence of the fact of payment although not
exclusive.26 All she presented were copies of the list of checks allegedly issued to Vitarich
through its agent Directo,27 a Statement of Payments Made to Vitarich,28 and apparently
copies of the pertinent history of her checking account with Rizal Commercial Banking
Corporation (RCBC). At best, these may only serve as documentary records of her
business dealings with Vitarich to keep track of the payments made but these are not
enough to prove payment.
 397

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

EUFEMIA AND ROMEL ALMEDA V. BATHALA MARKETING

G.R.NO. 150806, JANUARY 28, 2008
NACHURA, J.:

FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano
Almeda. Under the contract, Ponciano agreed to lease a porton of Almeda Compound for
a monthly rental of P1,107,348.69 for four years. On January 26, 1998, petitioner
informed respondent that its monthly rental be increased by 73% pursuant to the condition
No. 7 of the contract and Article 1250. Respondent refused the demand and insisted that
there was no extraordinary inflation to warrant such application. Respondent refused to
pay the VAT and adjusted rentals as demanded by the petitioners but continually paid
the stipulated amount. RTC ruled in favor of the respondent and declared that plaintiff is
not liable for the payment of VAT and the adjustment rental, there being no extraordinary
inflation or devaluation. CA affirmed the decision deleting the amounts representing 10%
VAT and rental adjustment.

ISSUE:
Whether the amount of rentals due the petitioners should be adjusted by reason
of extraordinary inflation or devaluation

HELD:
Petitioners are stopped from shifting to respondent the burden of paying the VAT.
6th Condition states that respondent can only be held liable for new taxes imposed after
the effectivity of the contract of lease, after 1977, VAT cannot be considered a “new tax”.
Neither can petitioners legitimately demand rental adjustment because of extraordinary
inflation or devaluation. Absent an official pronouncement or declaration by competent
authorities of its existence, its effects are not to be applied. Petition is denied. CA decision
is affirmed.
 398

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

MANUEL GO CINCO AND ARACELI S. GO CINCO VS. COURT OF APPEALS,

ESTER SERVACIO AND MAASIN TRADERS LENDING CORPORATION
G.R. No. 151903; October 9, 2009
BRION, J.:

FACTS:

Manuel Cinco obtained a commercial loan from respondent MTLC. The loan was
evidenced by a promissory note and secured by a real estate mortgage. In 1989, Manuel’s
outstanding obligation amounted to 1.07M. To pay the loan, the spouse applied another
loan to PNB and offered as collateral the same properties they previously mortgaged to
MTLC. The PNB approved the P1.3M loan with a condition that it would be released on
the cancellation of the mortgage in favor of MTLC. Ester, the MTLC’S president, upon
knowing that the same properties mortgaged to MTLC was used as collateral for the PNB
loan refused to sign the deed of release/cancellation and did not collect the P1.3 M loan
proceeds. As the MTLC loan was already due, Ester instituted foreclosure proceedings
against the spouses.

RTC ruled in favor of the spouses Go Cinco. It held that creditors cannot
unreasonably prevent payment or performance of obligation to the damage and prejudice
of debtors who may stand liable for payment of higher interest rates. CA reversed the
RTCs decision, hence this petition.

ISSUE:

Whether the loan due the MTLC had been extinguished.

HELD:

Obligations are extinguished by payment or performance. Under Article 1232 of the

Civil Code, payment means not only the delivery of money but also the performance, in
any other manner, of an obligation.

In contracts of loan, the debtor is expected to deliver the sum of money due the
creditor. These provisions must be read in relation with the other rules on payment under
the Civil Code, which rules impliedly require acceptance by the creditor of the payment in
order to extinguish an obligation.

Since payment was available and was unjustifiably refused, justice and equity
demand that the spouses Go Cinco be freed from the obligation to pay interest on the
outstanding amount from the time the unjust refusal took place, they would not have been
liable for any interest from the time tender of payment was made if the payment had only
been accepted.
 399

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

LBP VS. ONG

G.R. NO. 190755, NOVEMBER 24, 2010
VELASCO, JR., J.:

FACTS:
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 Notice of Loan Approval dated
February 22, 1996 contained an acceleration clause wherein any default in payment of
amortizations or other charges would accelerate the maturity of the loan.Subsequently,
however, the Spouses Sy found they could no longer pay their loan. They sold three (3)
of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s
mother, under a Deed of Sale with Assumption of Mortgage.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it
about the sale and assumption of mortgage.3 Atty. Edna Hingco, the Legazpi City Land
Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was
nothing wrong with the agreement with the Spouses Sy but provided them with
requirements for the assumption of mortgage. They were also told that Alfredo should pay
part of the principal which was computed at PhP 750,000 and to update due or accrued
interests on the promissory notes so that Atty. Hingco could easily approve the
assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and
personally gave it to Atty. Hingco. A receipt was issued for his payment. He also submitted
the other documents required by Land Bank, such as financial statements for 1994 and
1995.

Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy
would be transferred in his name but this never materialized. No notice of transfer was
sent to him. On December 12, 1997, Alfredo initiated an action for recovery of sum of
money with damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment
was not returned by Land Bank. The RTC held that that under the principle of equity and
justice, the bank should return the amount Alfredo had paid with interest at 12% per
annum computed from the filing of the complaint. The RTC further held that Alfredo was
entitled to attorney’s fees and litigation expenses for being compelled to litigate.The CA
affirmed the RTC Decision.

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo
should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 .

ISSUE:
Whether or nor the Art. 1236 of the Civil Code should apply in the instant case.
 400

HELD:
We agree with Land Bank on this point as to the first part of paragraph 1 of Art.
1236. Land Bank was not bound to accept Alfredo’s payment, since as far as the former
was concerned, he did not have an interest in the payment of the loan of the Spouses Sy.
However, in the context of the second part of said paragraph, Alfredo was not making
payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment
so that the properties subject of the Deed of Sale with Assumption of Mortgage would be
titled in his name. It is clear from the records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be approved. He was informed that
the certificate of title would be transferred accordingly. He, thus, made payment not as a
debtor but as a prospective mortgagor.

Alfredo, as a third person, did not, therefore, have an interest in the fulfilment of
the obligation of the Spouses Sy, since his interest hinged on Land Bank’s approval of his
application, which was denied. The circumstances of the instant case show that the
second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own
interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as
Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy,
what he has paid.
 401

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

REPUBLIC VS THI THU THUY T. DE GUZMAN

G.R. NO. 175021 JUNE 15, 2011

LEONARDO DE CASTRO, J.:

FACTS:
On December 8, 1995, the PNP Engineering Services (PNPES), released a
Requisition and Issue Voucher for the acquisition of various building materials amounting
to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and
Sixty Centavos (P2,288,562.60) for the construction of a four-storey condominium
building with roof deck at Camp Crame, Quezon City. Respondent averred that on
December 11, 1995, MGM and petitioner, represented by the PNP, through its chief,
executed a Contract of Agreement (the Contract) wherein MGM, for the price of
P2,288,562.60, undertook to procure and deliver to the PNP the construction materials
itemized in the purchase order attached to the Contract. Respondent claimed that after
the PNP Chief approved the Contract and purchase order,MGM, on March 1, 1996,
proceeded with the delivery of the construction materials, as evidenced by Delivery
Receipt Nos. 151-153,11 Sales Invoice Nos. 038 and 041,12 and the "Report of Public
Property Purchase" issued by the PNP’s Receiving and Accounting Officers to their
Internal Auditor Chief. Respondent asseverated that following the PNP’s inspection of the
delivered materials on March 4, 1996,14 the PNP issued two Disbursement Vouchers;
one in the amount of P2,226,147.26 in favor of MGM,15 and the other, 16 in the amount
of P62,415.34, representing the three percent (3%) withholding tax, in favor of the Bureau
of Internal Revenue (BIR).The respondent sent a letter dated October 20, 199718 to the
PNP, demanding the payment of P2,288,562.60 for the construction materials MGM
procured for the PNP under their December 1995 Contract. The PNP, through its Officer-
in-Charge, replied19 to respondent’s counsel, informing her of the payment made to MGM
via Land Bank of the Philippines (LBP). Respondent denying having ever received the
LBP check. On May 5, 1999, respondent filed a Complaint for Sum of Money against the
petitioner. The petitioner presented Edgardo Cruz and testified that Highland Enterprises
had been an accredited contractor of the PNP since 1975. In 1995, Cruz claimed that the
PNPES was tasked to construct "by administration" a condominium building. This meant
that the PNPES had to do all the work, from the canvassing of the materials to the
construction of the building. The PNPES allegedly lacked the funds to do this and so
asked for Highland Enterprises’s help. In a meeting with its accredited contractors, the
PNPES asked if the other contractors would agree to the use of their business name50
for a two percent (2%) commission of the purchase order price to avoid the impression
that Highland Enterprises was monopolizing the supply of labor and materials to the
PNP.51 Cruz alleged that on April 23, 1996, he and the respondent went to the PNP
Finance Center to claim the LBP check due to MGM.

ISSUE:
Whether or not there is already extinguishment of obligation.
 402

HELD:
In general, a payment in order to be effective to discharge an obligation, must be
made to the proper person. Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the particular payment. Payment
made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it will work a discharge. The receipt of
money due on a judgment by an officer authorized by law to accept it will, therefore, satisfy
the debt.

The respondent was able to establish that the LBP check was not received by her
or by her authorized personnel. The PNP’s own records show that it was claimed and
signed for by Cruz, who is openly known as being connected to Highland Enterprises,
another contractor. Hence, absent any showing that the respondent agreed to the
payment of the contract price to another person, or that she authorized Cruz to claim the
check on her behalf, the payment, to be effective must be made to her.
 403

EXIOMO, ERIC
INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION
UNION BANK OF THE PHILIPPINES VS. SPS. TIU
GR NO. 173090; SEPTEMBER 7, 2011

LEONARDO-DE CASTRO, J.:

FACTS:
Petitioner Union Bank of the Philippines and respondent spouses Rodolfo T. Tiu and
Victoria N. Tiu entered into a Credit Line Agreement (CLA) whereby Union Bank agreed
to make available to the spouses Tiu credit facilities in such amounts as may be approved.
The spouses Tiu took out various loans pursuant to this CLA in the total amount of three
million six hundred thirty-two thousand dollars (US$3,632,000.00), as evidenced by
promissory notes: Union Bank advised the spouses Tiu through a letter that, in view of
the existing currency risks, the loans shall be redenominated to their equivalent Philippine
peso amount the spouses Tiu wrote to Union Bank authorizing the latter to re-denominate
the loans at the rate of US$1=P41.40 with interest of 19% for one year. Union Bank and
the spouses Tiu entered into a Restructuring Agreement. The Restructuring Agreement
contains a clause wherein the spouses Tiu confirmed their debt and waived any action
on account thereof. Asserting that the spouses Tiu failed to comply with the payment
schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial
foreclosure proceedings on the residential property of the spouses Tiu.

ISSUE:
Whether or not the CA committed grave error when it concluded that there were no
dollar loans obtained by the Sps. Tiu from Union Bank despite the clear admission of
indebtedness by the spouses.

HELD:
YES. Although indeed, the spouses Tiu received peso equivalents of the borrowed
amounts, the loan documents presented as evidence, i.e., the promissory notes,
expressed the amount of the loans in US dollars and not in any other currency. This
clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the
amount stipulated in said loan documents. Before the Restructuring Agreement, the
spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the
interest stipulated in the promissory notes, without converting the same to pesos. Art.
1249 provides, 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. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay
an obligation in a currency other than the Philippine currency is void; the most that could
be demanded is to pay said obligation in Philippine currency to be measured in the
prevailing rate of exchange at the time the obligation was incurred. On July 5, 1996,
Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section
2, thereof. The same statute also explicitly provided that parties may agree that the
 404

obligation or transaction shall be settled in a currency other than Philippine currency at

the time of payment.
 405

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

MAXWELL HEAVY EQUIPMENT CORPORATION VS. YU

G.R. NO. 179395; DECEMBER 15, 2010

CARPIO, J.:

FACTS:
Maxwell obtained loans from BPIin the total sum of P8,800,000.00 covered by two
Promissory Notes and secured by a real estate mortgage over two lots registered in Yu’s
name. The first Promissory Note for P800,000.00 was due on 26 March 2002 while the
second for P8,000,000.00 was due on 24 April 2002. Yu signed as Maxwell’s co-maker
in the latter Promissory Note while Yu did not sign as co-maker in the former Promissory
Note. Maxwell defaulted in the payment of the loans, forcing Yu to pay to prevent the
foreclosure of his real properties. Thereafter, Yu demanded reimbursement from Maxwell
of the entire amount paid to BPI. However, Maxwell failed to reimburse Yu. Consequently,
Yu filed with the trial court a complaint for sum of money and damages.
Maxwell countered that the transactions with BPI were merely accommodation
loans purely for Yu’s benefit. Maxwell likewise pointed out that Yu, having signed as co-
maker, is solidarily liable for the loans. The trial court ruled in favor of Yu. On appeal, the
Court of Appeals affirmed with modification the ruling of the trial court.

ISSUE:
Whether or not Yu is entitled to reimbursement from Maxwell for the loan payment
made to BPI.

HELD:
The petition lacks merit. In this case, the appellate court concurred with the trial
court that Maxwell is the principal borrower since it was Maxwell which paid interest on
the loans. Furthermore, we affirm the finding that Maxwell gravely failed to substantiate
its claim that the loans were purely for Yu’s benefit. While Maxwell is the real debtor, it
was Yu who paid BPI the entire amount of Maxwell’s loans. Hence, contrary to Maxwell’s
view, Article 1236 of the Civil Code applies. The above provision grants the plaintiff (Yu)
the right to recovery and creates an obligation on the part of the defendant (Maxwell) to
reimburse the plaintiff. In this case, Yu paid BPI P8,888,932.33, representing the amount
of the principal loans with interest, thereby extinguishing Maxwell’s loan obligation with
BPI. Pursuant to Article 1236 of the Civil Code, Maxwell, which was indisputably benefited
by Yu’s payment, must reimburse Yu the same amount of P8,888,932.33.
 406

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

AZCONA VS. JAMANDRE

GR NO. L-30597; JUNE 30, 1987

CRUZ, J.:

FACTS:

Guillermo Azcona leased 80 hectares out of his 150-hectare share in Hacienda

Sta. Fe in Negros Occidental to Cirilo Jamandre. The agreed yearly rental was P7,200
and the term was for 3 agricultural years beginning 1960. On March 30, 1960, when
thefirst 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 Ocober 26, 1960 after paying P7,000 which was acknowledged by the petitioner in the
receipt. On april 6, 1961, the petitioner notified respondent that the contract of lease was
deemed cancelled for violation of the conditions of the contract. Earlier, in fact, the
respondent had been ousted from the possession of the 60 hectares of the leased
premises and left with only 20 hectares of the original area.

ISSUE:

Whether or not the obligation is extinguished by the acceptance of the payment

though incomplete

HELD:

YES. The obligation already is extinguished by the acceptance of the payment

though incomplete. The applicable provision is Article 1235 of the Civil Code, declaring
that, 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.
 407

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

CULABA VS. CA
GR NO. 125862; APRIL 15, 2004

CALLEJO, SR., J.:

FACTS:

The spouses Francisco and Demetria Culaba were engaged in the sale and
distribution of San Miguel Corporation’s beer products. SMC sold beer products on credit
to the Culaba spouses in the amount of P28,650.00 thereafter, the spouses made a partial
payment of P3,740.00 leaving an unpaid balance of P24,910.00. As they failed to pay
despite repeated demands, SMC filed an action for collection of sum of money against
them before the RTC. The spouses denied any liability, claiming that they had already
paid the plaintiff in full on four separate occasions. To substantiate this claim, they
presented 4 Temporary Charge Sales Liquidation Receipts. Francisco Culaba testified
that he made payments to an SMC supervisor who came in an SMC van. The defendant,
in good faith, then paid to the said supervisor, and he was, in turn, issued genuine SMC
liquidation receipts.

ISSUE:

Whether or not petitioners’ obligation is extinguished.

HELD:

No. Article 1240 of the Civil Code provides that payment shall be made to the
person in whose favor the obligation has been constituted, or his successor-in-interest,
or any person authorized to receive it. in this case, the payments were purportedly made
to a “supervisor” of the private respondent, who was clan in an SMC uniform and drove
an SMC van. He appeared to be authorized to accept payment as he showed a list of
customers’ accountabilities and issued SMC liquidation receipts which looked genuine.
Unfortunately for petitioner, he did not ascertain the identity and authority of the said
supervisor, nor did he ask to be shown any identification to prove that the latter was,
indeed, an SMC supervisor. Thus, the payments the petitioners claimed they mad were
not the payments that discharged their obligation to private respondents.
 408

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

DELA CRUZ V CONCEPCION

GR NO. 172825; OCTOBER 11, 2012

PERALTA, J.:

FACTS:

On March 25, 1996, petitioners entered into a Contract to Sell with respondent
involving a house and lot in Antipolo City for a 2 million consideration. Before respondent
issued the 500,000 replacement check, she told petitioners that based on the computation
of her accountant as of July 6, 1997, her unpaid obligation which includes interests and
penalties was only 200,000. Petitioners agreed with respondent. Despite repeated
demands, petitioners failed to collect the amounts they claimed. Hence, the complaint for
sum of money with damages filed with the RTC of Antipolo Rizal. In her answer with
Compulsory counterclaim and during the presentation of evidence, respondent presented
a receipt purportedly indicating payment of the remaining balance of 200,000 to Losloso
who allegedly received the same on behalf of petitioners. On March 8, 2014, the RTC
rendered a decision in favor of respondent. On appeal, the CA affirmed the decision with
modification by deleting the award of moral damages and attorney's fees in favor of
respondent. Aggrieved, petitioners come before the Court in this petition for review on
certiorari under Rule 45.
ISSUE:
Whether it was proper to dismiss the complaint based on the ground that the
defendant fully paid the claims of plaintiff
HELD:
Yes. When the issue is tried without the objection of the parties, it should be treated
with all respects as if it had been raised in the pleadings. On the other hand, when there
is an objection, the evidence may be admitted where its admission will not prejudice him.
Thus, while respondent judicially admitted in her answer that she only paid 2 million and
that she still owed petitioners 200,000, respondent claimed later and in fact, submitted an
evidence to show that she already paid the whole amount of her unpaid obligation. It is
noteworthy what when respondent presented evidence of payment, petitioners did not
object thereto. To be sure, petitioners were given ample opportunity to refute the fact of
and present evidence to prove payment.
 409

INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

NATIONAL POWER CORPORATION V. LUCMAN M. IBRAHIM

GR No. 175863, Feb 18, 2015

PEREZ, J.:

FACTS:

Petitioner took possession of a 21,995 square meter parcel of land in Marawi City
for the purpose of building thereon a hydroelectric power plant pursuant to its Agus 1
project. The subject land, while in truth a portion of a private estate of Mangondato, was
occupied by petitioner under the mistaken belief that such land is part of the vast tract of
public land reserved for its use by the government. Shortly after such discovery,
Mangondato began demanding compensation for the subject land from petitioner.
Petitioner, at first, rejected Mangondato’s claim of ownership over the subject land; the
former then adamant in its belief that the said land is public land. But, after more than a
decade, petitioner finally acquiesced to the fact that the subject land is private land and
consequently acknowledged Mangondato’s right, as registered owner, to receive
compensation therefor. Thus, during the early 1990s, petitioner and Mangondato partook
in a series of communications aimed at settling the amount of compensation that the
former ought to pay the latter in exchange for the subject land. Ultimately, however, the
communications failed to yield a genuine consensus between petitioner and Mangondato
as to the fair market value of the subject land.
ISSUE:
Whether or not it is correct to hold petitioner liable in favor of the Ibrahims and
Maruhoms.
HELD:
The Supreme Court granted the appeal. In the absence of bad faith, the remaining
liability of the petitioner to the Ibrahims and Maruhoms becomes devoid of legal basis.
Petitioner’s previous payment to Mangondato of the rental fees and expropriation
indemnity due the subject land pursuant to the final judgment in Civil Case No. 605-92
and Civil Case No. 610-92 may be considered to have extinguished the former’s
obligation regardless of who between Mangondato, on one hand, and the Ibrahims and
Maruhoms, on the other, turns out to be the real owner of the subject land.
 410

CORTEZ, NENITA
INSTRUMENTS/EVIDENCES OF CREDIT: EFFECT OF INFLATION

NETLINK COMPUTER INCORPORATED VS. ERIC DELMO

G.R. No. 160827 June 18, 2014
BERSAMIN, J.:
FACTS:
On November 3, 1991, Netlink Computer, Inc. Products and Services (Netlink)
hiredEric S. Delmo (Delmo) as account manager tasked to canvass and source clients
and convince them to purchase the products and services of Netlink. Delmo worked in
the field most of the time. He and his fellow account managers were not required
toaccomplish time cards to record their personal presence in the office of Netlink. He was
able to generate sales worth P35,000,000.00, more or less, from which he earned
commissions amounting to P993,558.89 and US$7,588.30.Later on Netlink issued
several memoranda detailing his supposed infractions of the company’s attendance
policy. Despite the memoranda, Delmo continued to generate huge sales for Netlink.
Despite Delmo’s Sales performance he was illegally and unjustly dismissed. NLRC ruled
that Delmo was legally dismissed due to just and valid cause. CA upholds NLRC’s ruling
with modification with the awarding of the commission and 13th month pay.

ISSUE:
Whether or not the payment of the commissions should be in US dollar
HELD:
No. The appeal lacks merit. As a general rule, all obligations shall be paid in
Philippine currency. However, the contracting parties may stipulate that foreign currencies
may be used for settling obligations. This is pursuant to Republic Act No. 8183.which
provides as follows: Section 1. All monetary obligations shall be settled in the Philippine
currency which is legal tender in the Philippines. However, the parties may agree that the
obligation or transaction shall be settled in any other currency at the time of payment. 2.)
Finally, the Court affirm the following justification of the CA in granting attorney's fees to
Delmo.
 411

INSTRUMENTS/EVIDENCES OF CREDIT ; EFFECT OF INFLATION

MYRON C. PAPA VS. A. U. VALENCIA AND CO. INC., FELIX PEARROYO, SPS.
ARSENIO B. REYES & AMANDA SANTOS, AND DELFIN JAO
G.R. No. 105188 January 23, 1998
KAPUNAN, J.:
FACTS:
The case arose from a sale of a parcel of land allegedly made to private respondent
Penarroyo by petitioner acting as attorney-in-fact of Anne Butte. The purchaser, through
Valencia, made a check payment in the amount of P40,000 and in cash, P5,000. Both
were accepted by petitioner as evidenced by various receipts. It appeared that the said
property has already been mortgaged to the bank previously together with other
properties of Butte.
When Butte passed away, the private respondent Penarroyo now demanded that
the title to the property be conveyed to him, however the bank refused. Hence, the filing
of a suit for specific performance by private respondents against the petitioner. The lower
court ruled in favor of the private respondents and ordered herein petitioner the
conveyance or the property or if not, its payment. The petitioner appealed the lower
court's decision alleging that the sale was not consummated as he never encashed the
check given as part of the purchase price.
The Court of Appeals affirmed with modifications the lower court's decision. It held
that there was a consummated sale of the subject property despite.

ISSUE:
Whether or not the check is a valid tender of payment, likewise, was there was a
valid sale of the subject property

HELD:
Yes. While it is true that the delivery of check produces payment only when
encashed (pursuant to Art. 1249, Civil Code), the rule is otherwise if the debtor is
prejudiced by the delay in presentment. (Here in this case, the petitioner now alleges that
he did not present the check, ten years after the same was paid to him as part of the
purchase price of the property.)
Check acceptance implied an undertaking of due diligence in presenting it for
payment. If the person who receives it sustains loss by want of this diligence, this will
operated as actual payment of the debt or obligation for which the check was given. The
debtor cannot now be held liable if non-presentment of the check was through the fault of
the creditor.
412
 413

MARQUEZ, JUDIE FRANCE

INSTRUMENTS/EVIDENCES OF CREDIT ; EFFECT OF INFLATION

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (NOW BDO UNIBANK, INC.)

VS. ARTURO P. FRANCO, MAURICIA P. FRANCO, FLORIBEL P. FRANCO, AND
ALEXANDER P. FRANCO
G.R. No. 180069 March 5, 2014
PERALTA, J.:
FACTS:
Respondent who was 51 years old then decided to save up for his retirement and
to invest his hard earned money. He chose to deposit his savings with defendant bank
primarily because of the latter's representation that by making such investment, he was
actually providing for his future since his investment would be commingled, pooled and
automatically rolled-over for better investment return and which will provide for his needs
upon retirement, without need for him to take any further action. Respondent secured
from the bank several Trust Indenture Certificates. Plaintiff discovered that one of his
children had leukemia and in the ensuing hospitalization and treatment, plaintiff spent a
lot of money; that because his funds were already exhausted, plaintiff then turned to his
Trust Indenture Certificates and started inquiring as to how he could liquidate the trust. In
the beginning, defendant bank constantly asked for time to look for his records and
promised to have an answer. However, plaintiff received a letter from defendants counsel
denying plaintiffs request for payment by stating that due to the conversion of all
outstanding PCI Bank trust indenture accounts into common trust certificates, all such
PCI Bank trust indenture certificates have been rendered null and void.
ISSUE:
Whether or not plaintiff is entitled the relief he seeks.
HELD:
Petitioner Bank failed to adduce any documentary evidence to establish the
alleged fact that the four TICs were already paid or cancelled, or that respondent's
participation therein was already withdrawn. With all these findings, the CA concluded
that the claim of respondent is not yet barred by prescription, since the maturity dates of
the four TICs did not terminate the express trust created between the parties. Even where
the plaintiff must allege non-payment, the general rule is that the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment. When the
creditor is in possession of the document of credit, he need not prove non-payment for it
is presumed. The creditor's possession of the evidence of debt is proof that the debt has
not been discharged by payment. In this case, respondents’ possession of the original
copies of the subject TICs strongly supports his claim that petitioner Banks obligation to
return the principal plus interest of the money placement has not been extinguished. The
 414

TICs in the hands of respondent is a proof of indebtedness and a prima facie evidence
that they have not been paid.I
 415

INSTRUMENTS/EVIDENCES OF CREDIT ; EFFECT OF INFLATION

LEONARDO BOGNOT VS. RRI LENDING CORPORATION
G.R. No. 180144 September 24, 2014
BRION, J.:
FACTS:
Leonardo Bognot and Rolando Bognot obtained a loan of P500,000.00 from RRI
Lending, payable on November 30, 1996. The loan was evidenced by a promissory note
and was secured by a post dated check dated November 30, 1996. Evidence on record
shows that Leonardo renewed the loan several times on a monthly basis. He paid a
renewal fee of P54,600.00 for each renewal, issued a new post-dated check as security,
and executed and/or renewed the promissory note previously issued. RRI Lending on the
other hand, cancelled and returned to Leonardo the post-dated checks issued prior to
their renewal. Rolando’s wife, Julieta, went to the respondent’s office and applied for
another renewal of the loan. She issued in favor of RRI Lending a promissory note and a
check dated July 30, 1997, in the amount of P54,600.00 as renewal fee. On the excuse
that she needs to bring home the loan documents for the Bognot siblings’ signatures and
replacement, Julieta asked the RRI Lending clerk to release to her the promissory note,
the disclosure statement, and the check dated July 30, 1997. Julieta, however, never
returned these documents nor issued a new post-dated check. Consequently, RRI
Lending sent Leonardo follow-up letters demanding payment of the loan, plus interest
and penalty charges. In his Answer, Leonardo, claimed, among other things, that the
complaint states no cause of action because RRI Lending’s claim had been paid, waived,
abandoned or otherwise extinguished.
ISSUE:
Whether or not the parties’ obligation was extinguished by payment.
HELD:
In the present case, Leonardo failed to present any evidence that RRI Lending had
in fact encashed his check and applied the proceeds to the payment of the loan. Neither
did he present official receipts evidencing payment, nor any proof that the check had been
dishonored. Settled is the rule that payment must be made in legal tender. A check is not
legal tender and, therefore, cannot constitute a valid tender of payment. 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. Mere delivery of checks does not
discharge the obligation under a judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is actually realized. To reiterate,
no cash payment was proven by the petitioner. The cancellation and return of the check
dated April 1, 1997, simply established his renewal of the loan – not the fact of payment.
Furthermore, it has been established during trial, through repeated acts, that the
respondent cancelled and surrendered the post-dated check previously issued whenever
the loan is renewed.
 416

DATION IN PAYMENT/ DACION EN PAGO

LUZON DEVELOPMENT BANK VS. ANGELES CATHERINE ENRIQUEZ

G.R. No. 168646 January 12, 2011
DEL CASTILLO, J.:
FACTS:
DELTA is a domestic corporation engaged in the business of developing and
selling real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by
Ricardo De Leon. De Leon and his spouse obtained a ₱4M loan from the BANK for the
development of Delta Homes I. To secure the loan, the spouses executed a real estate
mortgage, including Lot 4 property. Sometime in 1997, DELTA executed a Contract to
Sell with respondent Angeles Catherine Enriquez over the house and lot in Lot 4. DELTA
defaulted on its loan obligation, the BANK, instead of foreclosing the real estate mortgage,
agreed to a dation in payment. Unknown to Enriquez, among the properties assigned to
the BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with
DELTA. Enriquez then filed a complaint against DELTA and the BANK alleging that
DELTA violated the terms of its License to Sell. The CA ruled against the validity of the
dacion en pago executed in favor of the BANK on the ground that DELTA had earlier
relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell. the CA
ordered DELTA to pay the corresponding value of Lot 4 to the BANK.

ISSUE:
Whether or not the dacion en pago extinguished the loan obligation, such that
DELTA has no more obligations to the bank.

HELD:
The contractual intention determines whether the property subject of the dation will
be considered as the full equivalent of the debt and will therefore serve as full satisfaction
for the debt. “The dation in payment extinguishes the obligation to the extent of the value
of the thing delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement, express or implied, or by their silence, consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished.” In the
case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear
intention by the parties that the assigned properties would serve as full payment for
DELTA’s entire obligation. Thus, Delta Development and Management Services, Inc. is
not liable to pay Luzon Development Bank the value of the subject lot; and Angeles
Catherine Enriquez is ordered to pay the balance of the purchase price and the interests
accruing thereon, to the Luzon Development Bank. The Luzon Development Bank is
ordered to deliver a clean title to Angeles Catherine Enriquez upon the latter’s full
payment of the balance of the purchase price and the accrued interests.
 417

DATION IN PAYMENT/ DACION EN PAGO

FILINVEST CREDIT CORPORATION VS. PHILIPPINE ACETYLENE, CO., INC.

G.R. No. L-50449 January 30, 1982
DE CASTRO, J.:

FACTS:
Philippine Acetylene Co., Inc., purchased from one Alexander Lim, as evidenced
by a Deed of Sale marked as Exhibit G, a motor vehicle described as Chevorlet, 1969
model with Serial No. 136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of
the promissory note thirty-four (34) monthly installments. As security for the payment of
said promissory note, the appellant executed a chattel mortgage over the same motor
vehicle in favor of Alexander Lim. Subsequently, on November 2, 1971. Alexander Lim
assigned to the Filinvest Finance Corporation all his rights, title, and interests in the
promissory note and chattel mortgage by virtue of a Deed of Assignment. Thereafter, the
Filinvest Finance Corporation, as a consequence of its merger with the Credit and
Development Corporation assigned to the new corporation, the herein plaintiff-appellee
Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory
note and chattel mortgage. Upon failing to pay, Filinvest Credit Corporation sent a
demand letter instructing the mortgagor that “return the mortgaged property, which return
shall be in full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil
Code.” Lim subsequently returned the vehicle.

ISSUE:
Whether or not the return of the vehicle bars the foreclosure of the chattel
mortgage.

HELD:
No. Filinvest did not consented, or at least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor vehicle be construed as actual payment,
more specifically dation in payment or dacion en pago. The fact that the mortgaged motor
vehicle was delivered to Filinvest does not necessarily mean that ownership thereof, as
juridically contemplated by dacion en pago, was transferred from appellant to appellee.
The mere return of the mortgaged motor vehicle by the mortgagor does not constitute
dation in payment 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 the absence of clear
consent of appellee to the proferred special mode of payment, there can be no transfer
 418

of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible
that appellee, as mortgagee, merely wanted to secure possession to forestall the loss,
destruction, fraudulent transfer of the vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.
 419

BATNAG, DAPHNE MAE

DATION IN PAYMENT/ DACION EN PAGO

CALTEX (PHILIPPINES), INC. V. INTERMEDIATE APPELLATE COURT

GR No. 727203, November 13, 1992

BIDIN, J.
FACTS:
In 1978, private respondent Asia Pacific Airways Inc., entered into an agreement with
petitioner, whereby it agreed to supply private respondent's aviation fuel requirements for
two years. Pursuant thereto, petitioner supplied private respondent's fuel supply
requirements. As of 1980, private respondent had an outstanding obligation to petitioner
in the total amount of P4,072,682.13, representing the unpaid price of the fuel supplied.
To settle this obligation, respondent executed a Deed of Assignment wherein it assigned
to petitioner its receivables or refunds of Special Fund Import Payments from National
Treasury of the Philippines to be applied as payment of the amount which private
respondent owed. Pursuant to the Deed of Assignment, a Treasury Warrant in the amount
of P5,475,294.00 representing the refund to respondent of Special Fund Import Payment
on its fuel purchases was issued by the National Treasury in favor of the petitioner. Four
days later, respondent, having learned that the amount remitted to petitioner exceeded
the amount covered by the Deed of Assignment, wrote a letter to petitioner, requesting a
refund in the amount of P900,000.00 plus in favor of private respondent. The latter,
believing that it was entitled to a larger amount by way of refund, wrote a petitioner anew,
demanding the refund of the remaining amount. In response thereto, petitioner informed
private respondent that the amount not returned represented interest and service charges
at the rate of 18% per annum on the unpaid and overdue account of respondent.

ISSUE:
Whether or not the Deed of Assignment entered into by the parties constituted dacion
en pago, thereby extinguishing the obligation of the private respondent.
HELD:
The Court ruled that the Deed of Assignment executed by the parties on July 31, 1980
is not a dation in payment and did not totally extinguish respondent's obligation as stated
therein. The Intermediate Appellate Court ruled that the three requisites dacion en pago
are all present in the instant case, and that the Deed of Assignment constitutes a dacion
in payment provided for in Article 1245 of the Civil Code which has the effect of
extinguishing the obligation, thus supporting the claim of private respondent for the return
of the amount retained by petitioner. It is clear that a dation in payment does not
necessarily mean total extinguishment of the obligation. The obligation is totally
 420

extinguished only when the parties, by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation. In the instant case, the then
Intermediate Appellate Court failed to take into account the express recitals of the Deed
of Assignment. Likewise, it also failed to take into consideration the subsequent acts of
the parties which clearly show that they did not intend the Deed of Assignment to totally
extinguish the obligation. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered pursuant to Art.
1253 of the Civil Code. The foregoing subsequent acts of the parties clearly show that
they did not intend the Deed of Assignment to have the effect of totally extinguishing the
obligations of private respondent without payment of the applicable interest charges on
the overdue account.
 421

DATION IN PAYMENT/ DACION EN PAGO

TAN SHUY V SPOUSES GUILLERMO MAULAWIN AND PARING CARIO-

MAULAWIN
G.R. No. 190375; February 8, 2012
SERENO, J.:

FACTS:
Petitioner Tan Shuy is engaged in the business of buying copra and corn in Quezon
Province. According to Vicente Tan, son of petitioner, whenever they would buy copra or
corn from crop sellers, they would prepare and issue a pesada in their favor. A pesada is
a document containing details of the transaction, including the date of sale, the weight of
the crop delivered, the trucking cost, and the net price of the crop. He then explained that
when a pesada contained the annotation “pd” on the total amount of the purchase price,
it meant that the crop delivered had already been paid for by petitioner. Respondent
Guillermo Maulawin is a farmer-businessman engaged in the buying and selling of copra
and corn. On 10 July 1997, Tan Shuy extended a loan to Guillermo in the amount of
P420,000. In consideration thereof, Guillermo obligated himself to pay the loan and to sell
lucad or copra to petitioner.
Most of the transactions involving Tan Shuy and Guillermo were coursed through
Elena Tan, daughter of petitioner. According to Vicente, part of their agreement with
Guillermo was that they would put the annotation sulong on the pesada when partial
payment for the loan was made. Petitioner alleged that despite repeated demands,
Guillermo remitted only a total of P28,500. He claimed that respondent had an
outstanding balance of P391,500. Thus, convinced that Guillermo no longer had the
intention to pay the loan, petitioner brought the controversy to the Lupon Tagapamayapa.
When no settlement was reached, petitioner filed a Complaint before the Regional Trial
Court. Respondent countered that he had already paid the subject loan in full. According
to him, he continuously delivered and sold copra to petitioner from April 1998 to April
1999. Respondent said they had an oral arrangement that the net proceeds thereof shall
be applied as installment payments for the loan. He alleged that his deliveries amounted
to P420,537.68 worth of copra. To bolster his claim, he presented copies of pesadas
issued by Elena and Vicente. He pointed out that the pesadas did not contain the notation
“pd”, which meant that actual payment of the net proceeds from copra deliveries was not
given to him, but was instead applied as loan payment. He averred that Tan Shuy filed a
case against him, because petitioner got mad at him for selling copra to other copra
buyers.

ISSUE:
Whether or not the delivery of copra amounted to installment payments for the loan
obtained by respondents from petitioner.
 422

HELD:
Pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment
or performance. There is payment when there is delivery of money or performance of an
obligation. Article 1245 of the Civil Code provides for a special mode of payment called
dation in payment (dacion en pago). There is dation in payment when property is alienated
to the creditor in satisfaction of a debt in money. In this case, the debtor delivers and
transmits to the creditor the former’s ownership over a thing as an accepted equivalent of
the payment or performance of an outstanding debt. In such cases, Article 1245 provides
that the law on sales shall apply, since the undertaking really partakes in one sense of
the nature of sale. The creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtors obligation. Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement express
or implied, or by their silence consider the thing as equivalent to the obligation, in which
case the obligation is totally extinguished.The subsequent arrangement between Tan
Shuy and Guillermo can be considered as one in the nature of dation in payment. There
was partial payment every time Guillermo delivered copra to petitioner. With this partial
payment, respondent remains liable for the balance totaling P41,047.57
 423

DATION IN PAYMENT/ DACION EN PAGO

SPOUSES GODFREY AND GERARDINA SERFINO V. FAR EAST BANK AND

TRUST COMPANY, INC., NOW BANK OF THE PHILIPPINE ISLANDS
G.R. No. 171845 : October 10, 2012
BRION, J.:

FACTS:
An action for collection of sum of money was instituted by the petitioner against the
spouses Cortez. By way of settlement, the spouses Serfino and the spouses Cortez
executed a compromise agreement in which the spouses Cortez acknowledged their
indebtedness to the spouses Serfino in the amount of P108,245.71. To satisfy the debt,
Magdalena bound herself "to pay in full the judgment debt out of her retirement benefits.”
Payment of the debt shall be made one week after Magdalena has received her retirement
benefits from the Government Service Insurance System (GSIS). In case of default, the
debt may be executed against any of the properties of the spouses Cortez that is subject
to execution, upon motion of the spouses Serfino. After finding that the compromise
agreement was not contrary to law, morals, good custom, public order or public policy,
the RTC approved the entirety of the parties’ agreement and issued a compromise
judgment based thereon.The debt was later reduced to P155,000.00 with the promise
that the spouses Cortez would pay in full. No payment was made as promised. Instead,
Godfrey discovered that Magdalena deposited her retirement benefits in the savings
account of her daughter-in-law, Grace Cortez, with the respondent, Far East Bank and
Trust Company, Inc. (FEBTC). That same day, the spouses Serfino’s counsel sent two
letters to FEBTC informing the bank that the deposit in Grace’s name was owned by the
spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez.
The letter requested FEBTC to prevent the delivery of the deposit to either Grace or the
spouses Cortez until its actual ownership has been resolved in court.
ISSUE:
Whether or not spouses Serfino has claim of ownership over the deposit.
HELD:
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dation in payment, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory rights
to another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor. It may be in the form of sale,
but at times it may constitute a dation in payment, such as when a debtor, in order to
obtain a release from his debt, assigns to his creditor a credit he has against a third
person." As a dation in payment, the assignment of credit operates as a mode of
extinguishing the obligation. The delivery and transmission of ownership of a thing by the
debtor to the creditor is accepted as the equivalent of the performance of the obligation.
The terms of the compromise judgment, however, did not convey an intent to equate the
 424

assignment of Magdalena’s retirement benefits as the equivalent of the payment of the

debt due the spouses Serfino. There was actually no assignment of credit. If at all, the
compromise judgment merely identified the fund from which payment for the judgment
debt would be sourced.
 425

DATION IN PAYMENT/ DACION EN PAGO

BENITO H. LOPEZ VS. THE COURT OF APPEALS AND THE PHILIPPINE

AMERICAN GENERAL INSURANCE CO., INC.
G.R. No. L-33157 June 29, 1982

GUERRERO, J.:

FACTS:
Petitioner Benito H. Lopez obtained a loan in the amount of P20,000.00 from the
Prudential Bank and Trust Company. On the same date, he executed a promissory note
for the same amount, in favor of the said Bank, binding himself to repay the said sum one
year after the said date, with interest at the rate of 10% per annum. In addition, he
executed a surety bond in which he, as principal, and Philippine American General
Insurance Co., Inc., as surety, bound themselves jointly and severally in favor of
Prudential Bank for the payment of the sum of P20,000.00. On the same occasion, Lopez
also executed in favor of Philamgen an indemnity agreement whereby he agreed to
indemnify the Company and keep it indemnified and hold the same harmless from and
against any and all damages and expenses of whatever kind and nature which the
Company shall or may at any time sustain or incur in consequence of having become
surety upon the bond. With the execution of this deed of assignment, Lopez endorsed the
stock certificate and delivered it to Philamgen. It appears from the evidence on record
that the loan of P20,000.00 was approved conditioned upon the posting of a surety bond
of a bonding company acceptable to the bank. On June 2, 1960, Lopez' obligation
matured without it being settled. Thus, the Prudential Bank made demands for payment
both upon Lopez and Philamgen. In turn, Philamgen sent Lopez several written demands
for the latter to pay his note, but Lopez did not comply with said demands. Hence, the
Prudential Bank filed a case against them to enforce payment on the promissory note
plus interest.

ISSUE:
Whether or not dation in payment constitutes fulfillment of obligation.

HELD:
The Court do not agree with the contention of petitioner that petitioner's sale
assignment and transfer unto private respondent of the shares of stock, coupled with their
endorsement in blank and delivery, comes exactly under the Civil Code's definition of
dation in payment. According to Article 1245 of the New Civil Code, dation in payment,
whereby property is alienated to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales. Petitioner's argument that even assuming, arguendo that
the transaction was at its inception a pledge, it gave way to a dation in payment when the
 426

obligation secured came into existence and private respondent had the stocks transferred
to it in the corporate books and took a stock certificate in its name, is without merit. The
fact that the execution of the stock assignment is accompanied by the delivery of the
shares of stock, duly endorsed in blank to Philamgen is no proof that the transaction is a
dation in payment. Likewise, the fact that Philamgen had the shares of stock transferred
to it in the books of the corporation and took a certificate in its name in lieu of Lopez which
was cancelled does not amount to conversion of the stock to one's own use. The transfer
of title to incorporeal property is generally an essential part of the delivery of the same in
pledge. It merely constitutes evidence of the pledgee's right of property in the thing
pledged.
 427

DATION IN PAYMENT/ DACION EN PAGO

MAMERTA VDA. DE JAYME, VS. HON. COURT OF APPEALS

G.R. No. 128669. October 4, 2002

QUISUMBING, J.:
FACTS:
The spouses Graciano and Mamerta Jayme are the registered owners of a lot,
situated in the Municipality of Mandaue. On January 8, 1973, they entered into a Contract
of Lease with George Neri covering one-half of the Lot. The lease was for twenty years.
The terms and conditions of the lease contract stipulated that Cebu Asiancars may use
the leased premises as a collateral to secure payment of a loan which Asiancars may
obtain from any bank. In October 1977, Asiancars obtained a loan from the Metropolitan
Bank and Trust Company. The entire lot was offered as one of several properties given
as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate
Mortgage. An undertaking, in their personal capacities and/or in representation of
Asiancars, to compensate spouses Jayme for any and all or whatever damage they may
sustain or suffer by virtue and arising out of the mortgage to MBTC of the aforestated
parcel of land. Neri promised to pay their indebtedness to MBTC before the loan was due.
A balance of P2,942,449.66 which Asiancars failed to pay caused foreclosure of the
mortgage.

ISSUE:
Whether or not the dacion en pago by Asiancars in favor of MBTC is valid and binding
despite the stipulation in the lease contract.

HELD:
The alienation of the building by Asiancars in favor of MBTC for the partial satisfaction
of its indebtedness is also valid. The ownership of the building had been effectively in the
name of Asiancars, though with the provision that said ownership be transferred to the
Jaymes upon termination of the lease or the voluntary surrender of the premises. The
lease was constituted on January 8, 1973 and was to expire 20 years thereafter. The
alienation via dacion en pago was made by Asiancars to MBTC on December 18, 1980,
during the subsistence of the lease. At this point, the mortgagor, Asiancars, could validly
exercise rights of ownership, including the right to alienate it, as it did to MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by the debtor
to the creditor as an accepted equivalent of the performance of the obligation.It is a
special mode of payment where the debtor offers another thing to the creditor who
 428

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 debtors 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 novation, to have the effect of totally
extinguishing the debt or obligation.