Pamintuan vs. CA 94 SCRA 556 Facts: Jose Valeriano commenced a civil case against Pedro D.

Pamintuan, to eject him from a property of Valerians. In due course, said court rendered judgment sentencing Pamintuan to vacate said property and to pay a sum of money for its use, plus attorney's fees and costs. Soon later, however, Pamintuan reoccupied the property, allegedly by force. After appropriate proceedings, Pamintuan was, accordingly, adjudged guilty of contempt of court, and sentenced accordingly. Subsequently, on motion of Valeriano, the Municipal Judge ordered the issuance of an alias writ of execution directing the Sheriff to eject Pamintuan once more and to collect from him the amount of the money judgment. Therefore an appeal by certiorari from a decision of the Court of Appeals Pamintuan's prayed that 1. The defendants from proceeding with the said order of the Municipal Court ordering the herein plaintiff to vacate within four (4) days. 2. After trial making the injunction above-mentioned permanent and ordering the defendant not to eject the herein plaintiff without first filing a suit for ejectment based on the new contract created into between the herein plaintiff and the herein defendant; and3. Other relief that may be found just and equitable under the premises; Hon. Juan P. Enriquez, Judge, rendered judgment dismissing Pamintuan's complaint and sentencing him to pay P500 to Valeriano as attorney's fees and costs, and dissolving the writ of preliminary injunction aforementioned, as well as sentencing Pamintuan and his surety to pay Valeriano P500, as damages for the issuance of said writ. Pamintuan thereupon filed with the Court of Appeals a petition However, the Court of Appeals rendered a decision sustaining the view of Judge Barcelona and, consequently, dismissing Pamintuan's petition for certiorari and mandamus. A reconsideration of this decision of the Court of Appeals having been denied, Pamintuan now seeks a review thereof by certiorari. Issue: Whether or not the Court gravely abuse its discretion in resolving the case base on the nature of the case of action set forth. Held: Yes, Pamintuan merely relied in his complaint, upon a contract he allegedly had with Valeriano, after the rendition of the decision of the municipal court and the partial execution thereof, whereby Valeriano had agreed to re-let and to sell the property in question to Pamintuan.The complain stated that it was "for set forth in Pamintuan's complain was actually one for injunction and so was the prayer in the said pleading regardless of whether or not the relief he should have applied for was certiorari so that he had 30days from the notice to asail on the said decision. The complaint could be considered as one either of injuction or of certiorari. MINDANAO TERMINAL AND BROKERAGESERVICE, INC.versus -PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO., INC G.R. No. 162467 May 8, 2009 Tinga, J.: FACTS:Del Monte Philippines, Inc. contractedpetitioner Mindanao Terminal and BrokerageService, Inc., a stevedoring company, to loadand stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202cartons of fresh pineapples belonging to DelMonte Fresh Produce International, Inc. into thecargo hold of the vessel M/V Mistrau . Thevessel was docked at the port of Davao Cityand the goods were to be transported by it tothe port of Inchon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produceinsured the shipment under an "open cargopolicy" with private respondent PhoenixAssurance Company of New York , a non-lifeinsurance company, and private respondentMcGee & Co. Inc. (McGee), the underwritingmanager/agent of Phoenix. The vessel set sail from the port of Davao Cityand arrived at the port of Inchon, Korea. It

wasthen discovered upon discharge that some of the cargo was in bad condition. The MarineCargo Damage Surveyor of Incok Loss andAverage Adjuster of Korea, through itsrepresentative Byeong Yong Ahn (Byeong),surveyed the extent of the damage of theshipment. In a survey report, it was stated that16,069 cartons of the banana shipment and2,185 cartons of the pineapple shipment wereso damaged that they no longer hadcommercial value.Mindanao Terminal loaded and stowed thecargoes aboard the M/V Mistrau . The vessel setsail from the port of Davao City and arrived atthe port of Inchon, Korea. It was thendiscovered upon discharge that some of thecargo was in bad condition.Del Monte Produce filed a claim under the opencargo policy for the damages to its shipment.McGees Marine Claims Insurance Adjusterevaluated the claim and recommended thatpayment in the amount of $210,266.43 bemade. Phoenix and McGee instituted an actionfor damages against Mindanao TerminalAfter trial, the RTC held that the onlyparticipation of Mindanao Terminal was to loadthe cargoes on board the M/V Mistrau underthe direction and supervision of the shipsofficers, who would not have accepted thecargoes on board the vessel and signed theforemans report unless they were properlyarranged and tightly secured to withstandvoyage across the open seas. Accordingly,Mindanao Terminal cannot be held liable forwhatever happened to the cargoes after it hadloaded and stowed them. Moreover, citing thesurvey report, it was found by the RTC that thecargoes were damaged on account of atyphoon which M/V Mistrau had encounteredduring the voyage. It was further held thatPhoenix and McGee had no cause of actionagainst Mindanao Terminal because the latter,whose services were contracted by Del Monte,a distinct corporation from Del Monte Produce,had no contract with the assured Del MonteProduce. The RTC dismissed the complaint andawarded the counterclaim of Mindanao Terminal in the amount of P83,945.80 as actualdamages and P100,000.00 as attorneys fees.ISSUE:Whether or not Phoenix and McGeehave a cause of action and whether Mindanao Terminal is liable for not having exercisedextraordinary diligence in the transport andstorage of the cargo.RULING:No, in the present case, Mindanao Terminal, as a stevedore, was only chargedwith the loading and stowing of the cargoesfrom the pier to the ships cargo hold; it wasnever the custodian of the shipment of DelMonte Produce. A stevedore is not a commoncarrier for it does not transport goods orpassengers; it is not akin to a warehousemanfor it does not store goods for profit. **Phoenix and McGee appealed to the Court of Appeals. The appellate court reversed and set aside the decision The same court ordered Mindanao Terminal to pay Phoenix and McGee"the total amount of $210,265.45 plus legalinterest from the filing of the complaint untilfully paid and attorneys fees of 20% of theclaim." It sustained Phoenixs and McGeesargument that the damage in the cargoes wasthe result of improper stowage by MindanaoTerminal.** Mindanao Terminal filed a motion for reconsideration, which the Court of Appealsdenied in its 26 February 2004 resolution.Hence, the present petition for review Agcaoili vs GSIS 1988 (Art 1169; Compensatio Morae; pg 109) Facts: In 1964, plaintiff Agcaoili applied with the defendant GSIS to purchase a house and lot in Marikina. In the following year in a letter, respondent approved petitioners application with the advise to occupy the said house immediately and failure to occupy the same from the receipt of the notice, plaintiffs application shall be considered disapproved and will be awarded to another applicant. Plaintif lost no time in occupying the house. However, he could not stay in it and had to leave the following day because the house was nothing more than a shell, in such a state of incompleteness that civilized occupation was not possible. Agcaoili did however

ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no avail. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance and damages. The CFI ruled in favor of Agcaoili declaring the cancellation of the award illegal and viod and ordering GSIS to respect and enforce the aforesaid award, and to complete the house in question to make the same habitable and authorizing GSIS to collect the monthly amortization only after said house shall have been completed. Hence this present appeal. GSIS argued the following: 1. Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit, since said unit had been sold in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award. 2. Perfection of the contract of sale between it and Agcaoili being conditioned upon the latters immediate occupancy of the house subject thereof, and the latter having failed to comply with the condition, no contract ever came into existence between them. Issues: 1. Whether or not Agcaoli may suspend payment of amortization on account of the incompleteness of his housing unit, since said unit had been sold in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award? Whether or not there was a valid contract of sale between Agcaoili and GSIS? 2. Whether or not Agcaolili repudiated his contract with GSIS? Held: On the first issue, Yes, because Art. 1169 of the Civil Code provides that 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. Certainly, the prestation of the contract which was ratified upon approval of GSIS (presupposing the meeting of the minds of GSIS and Agcaoli) is the house and lot, on the condition that the house should be habitable. Thus: There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to reciprocally demand performance. There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was intended by the parties, since the contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoilis suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that (i)n 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. 15

Office of the Government Corporate Counsel for defendantappellant.

NARVASA, J.: The appellant Government Service Insurance System, (GSIS, for short) having approved the application of the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal, subject to the condition that the latter should forthwith occupy the house, a condition that Agacoili tried to fulfill but could not for the reason that the house was absolutely uninhabitable; Agcaoili, after paying the first installment and other fees, having thereafter refused to make further payment of other stipulated installments until GSIS had made the house habitable; and appellant having refused to do so, opting instead to cancel the award and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of First Instance of Manila for specific performance with damages and having obtained a favorable judgment, the case was appealled to this Court by the GSIS. Its appeal must fail. The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General Manager, reading as follows: Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka, Marikina, Rizal, has been approved by this Office. Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to you. You are, therefore, advised to occupy the said house immediately. If you fail to occupy the same within three (3) days from receipt of this notice, your application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant. Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very next day, because the house was nothing more than a shell, in such a state of incompleteness that civilized occupation was not possible: ceiling, stairs, double walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did however ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of the house. Agcaoili thereafter complained to the GSIS, to no avail. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance and damages. 5 Pending the action, a written protest was lodged by other awardees of housing units in the same subdivision, regarding the failure of the System to complete construction of their own houses. 6 Judgment was in due course rendered , 7 on the basis of the evidence adduced by Agcaoili only, the GSIS having opted to dispense with presentation of its own proofs. The judgment was in Agcaoili's favor and contained the following dispositions, 8 to wit: 1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal and void; 2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No. 26, Block No. (48) 2 of the Government Service Insurance System (GSIS) low cost housing project at Nangka Marikina, Rizal; 3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it (defendant) to collect the monthly amortization thereon only after said house shall have been completed under the terms and conditions mentioned in Exhibit A ;and 4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's fees, and costs.

G.R. No. L-30056 August 30, 1988 MARCELO AGCAOILI, plaintiff-appellee vs. GOVERNMENT SERVICE INSURANCE SYSTEM, defendantappellant. Artemio L. Agcaoili for plaintiff-appellee.

Appellant GSIS would have this Court reverse this judgment on the argument that? 1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit, since said unit had been sold "in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he found it when he accepted the award;" and assuming indefiniteness of the contract in this regard, such circumstance precludes a judgment for specific performance. 9 2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy of the house subject thereof, and the latter having failed to comply with the condition, no contract ever came into existence between them ; 10 3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at the same time of the reasonable rental value of the property. 11 Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled "Application to Purchase a House and/or Lot." Agcaoili filled up the form, signed it, and submitted it. 12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the GSIS. As already mentioned, this form sent to Agcaoili, duly filled up, advised him of the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to you." Neither the application form nor the acceptance or approval form of the GSIS ? nor the notice to commence payment of a monthly amortizations, which again refers to "the house and lot awarded" ? contained any hint that the house was incomplete, and was being sold "as is," i.e., in whatever state of completion it might be at the time. On the other hand, the condition explicitly imposed on Agcaoili ? "to occupy the said house immediately," or in any case within three (3) days from notice, otherwise his "application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant" ? would imply that construction of the house was more or less complete, and it was by reasonable standards, habitable, and that indeed, the awardee should stay and live in it; it could not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude wilderness, making do with whatever he found available in the envirornment. There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56 per month, and from that moment the parties acquired the right to reciprocally demand performance. 13 It was, to be sure, the duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated , 14 in other words, to deliver the house subject of the contract in a reasonably livable state. This it failed to do. It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale. Under the circumstances there can hardly be any doubt that the house contemplated was one that could be occupied for purposes of residence in reasonable comfort and convenience. There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was intended by the parties, since the contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that "(i)n 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." 15 Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied with the condition of occupying the house within three (3) days. The record shows that Agcaoili did try to fulfill the condition; he did try

to occupy the house but found it to be so uninhabitable that he had to leave it the following day. He did however leave a friend in the structure, who being homeless and hence willing to accept shelter even of the most rudimentary sort, agreed to stay therein and look after it. Thus the argument that Agcaoili breached the agreement by failing to occupy the house, and by allowing another person to stay in it without the consent of the GSIS, must be rejected as devoid of merit. Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili; it was after all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase, that offer being contained in a printed form supplied by the GSIS. Said appellant having caused the ambiguity of which it would now make capital, the question of interpretation arising therefrom, should be resolved against it. It will not do, however, to dispose of the controversy by simply declaring that the contract between the parties had not been validly cancelled and was therefore still in force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract until and unless it had first completed construction of the house. This would leave the contract hanging or in suspended animation, as it were, Agcaoili unwilling to pay unless the house were first completed, and the GSIS averse to completing construction, which is precisely what has been the state of affairs between the parties for more than twenty (20) years now. On the other hand, assuming it to be feasible to still finish the construction of the house at this time, to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded, without modifying the price therefor, would not be quite fair. The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate, unrealistic. The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may render complete justice to both parties. As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579, 589 [1978]). "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent so to do. Equity regards the spirit of and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts... " 16 In this case, the Court can not require specific performance of the contract in question according to its literal terms, as this would result in inequity. The prevailing rule is that in decreeing specific performance equity requires 17 ? ... not only that the contract be just and equitable in its provisions, but that the consequences of specific performance likewise be equitable and just. The general rule is that this equitable relief will not be granted if, under the circumstances of the case, the result of the specific enforcement of the contract would be harsh, inequitable, oppressive, or result in an unconscionable advantage to the plaintiff . . In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the circumstances obtaining at the time of rendition of judgment, when these are significantly different from those existing at the time of generation of those rights. The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought, but will give relief appropriate to events occuring ending the suit. 18 While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the suit is filed, the relief to be accorded by the decree is governed by the conditions which are shown to exist at the time of making thereof, and not by the circumstances attending the inception of the litigation. In making up the final decree in an equity suit the judge may rightly consider matters arising after suit was brought. Therefore, as a general rule, equity will administer such relief as the nature, rights, facts and exigencies of the case demand at the close of the trial or at the time of the making of the decree. 19 That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with justice, give

everyone his due, and observe honesty and good faith. 20 Adjustment of rights has been held to be particularly applicable when there has been a depreciation of currency. Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the court in withholding specific performance or at least conditioning it upon payment of the actual value of the property contracted for. Thus, in an action for the specific performance of a real estate contract, it has been held that where the currency in which the plaintiff had contracted to pay had greatly depreciated before enforcement was sought, the relief would be denied unless the complaint would undertake to pay the equitable value of the land. (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21 In determining the precise relief to give, the Court will "balance the equities" or the respective interests of the parties, and take account of the relative hardship that one relief or another may occasion to them .22 The completion of the unfinished house so that it may be put into habitable condition, as one form of relief to the plaintiff Agcaoili, no longer appears to be a feasible option in view of the not inconsiderable time that has already elapsed. That would require an adjustment of the price of the subject of the sale to conform to present prices of construction materials and labor. It is more in keeping with the realities of the situation, and with equitable norms, to simply require payment for the land on which the house stands, and for the house itself, in its unfinished state, as of the time of the contract. In fact, this is an alternative relief proposed by Agcaoili himself, i.e., "that judgment issue . . (o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable amortization of payment on the basis of the present actual unfinished and uncompleted condition, worth and value of the said house. 23 ARRIETA VS. NARIC(1964) 10 SCRA 79 FACTS: Paz Arrieta was awarded by NARIC the contract of delivery of 20,000 metric tons of Burmese rice at $203 per metric ton. On the other hand, the corporation committed itself to pay for the imported rice by means of an irrevocable, confimed, and assignable letter of credit in US currency in favor of Arrieta or supplier in Burma immediately. However, the corporation took the first step to open a letter of credit a full month from the execution of the contract only July 30, 1952. On the same day, Arrieta advised the corporation of the extreme necessity for the immediate opening of the letter of credit since she had by then made a tender to her supplier in Ragoon Burma. Consequently, the credit instrument applied for was opened only on September 8, 1952, since the corporation was not in financial capacity to pay the 50% marginal cash deposit when the credit instrument was approved on August 4, 1952. As a result of the delay, the allocation of Arrieta was cancelled and the 5% deposit, approximately Php 200,000, was forfeited. Arrieta tried to restore the cancelled Burmese rice allocation, but failed. Arrieta then instead offered to substitute Thailand rice to NARIC, communicating that such was a solution which should be beneficial for both parties. However, the corporation rejected the substitution. Hence, Arrieta sent a letter to the corporation, demanding for the compensation for the damages caused her. ISSUE: 1. Was the failure to open immediately the letter of credit in dispute amounted to a breach of the contract for which the corporation should be held liable? 2. Was there any waiver on the part of Arrieta? 3. Whether NARIC can be held liable for damages? RULING: 1. Yes. It was clear from the records that the sole and principal reason for the cancellation of the allocation contracted by Arrieta in Ragoon, Burma was the failure of the letter of credit to be opened. The failure, therefore, was the immediate cause for the consequent damage which resulted. It was clear from the records that the delay in the opening of the letter of credit was due to the inability of the corporation to meet the condition imposed by the bank for the granting the same.

Furthermore, the liability of the corporation stemmed not alone from failure or inability to satisfy the requirements of the bank, but its culpability arose from is willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the prestation. Under Article 1170, those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable in damages. The terms in any manner contravene the tenor thereof includes any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind or defective performance. In general also, every debtor who fails in the performance of his obligation is bound to indemnify for the losses and damages caused thereby. The payment for damages or the award to be given should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred pursuant to RA 527. 2. No. The subsequent offer to substitute the Thailand rice for the originally contracted Burmese did not constitute a waiver. Waivers are not presumed. It must be clearly and convincingly shown either by express stipulations or acts admitting no other reasonable explanation. In this case, no such intent to waive had been established. 3. Yes, NARIC is liable for damages. Under the Civil Code, Art. 1170 makes those who contravene the tenor liable for damages. In the case at bar, NARIC was obviously not in the financial position to shoulder the expenses of importing rice when it entered into the contract, hence, there was a delay. That being the case, they are liable for the damages incurred by the petitioners. Telefast vs. Castro 158 SCRA 445 (1988) FACTS: Respondents contracted the services of petitioner Telefast, which is a telegram company. The respondents sent a telegram to the children of the deceased in the U.S. with the purpose of informing them that their mother had already passed and that she would be interred soon. The telegram never reached its destination. The respondents are seeking for actual and moral damages. ISSUE/S: Whether or not petitioner is liable for actual and moral damages. HELD/RATIO: Yes, the petitioner can be held liable for actual and moral damages. Under the Civil Code, Art. 1170 states that those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Moreover, Art. 2176 states that whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Regarding moral damages, Art. 2217 states that Moral damages include physical suffering, mental, anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendants wrongful act or omission. In the case at bar, the wrongful act of the petitioner is the proximate cause of the moral damage. G.R. No. 71049 May 29, 1987 On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram was accepted by the defendant in its Dagupan office, for transmission, after payment of the required fees or charges. The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in attendance. Neither the husband nor any of the other children of the deceased, then all residing in the United States, returned for the burial. When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send, had not been received. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No. 15356. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and atmospheric factors beyond its control." 1 No

evidence appears on record that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit the telegram. The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the plaintiffs (now private respondents) damages, as follows, with interest at 6% per annum: Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00 to each of the plaintiffs and costs. 2 On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the private respondents as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each. 3 Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages should be eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness." In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee thereof. Petitioner's contention is without merit. Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did not do, despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission." (Emphasis supplied). Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents had to undergo. As the appellate court properly observed: [Who] can seriously dispute the shock, the mental anguish and the sorrow that the overseas children must have suffered upon learning of the death of their mother after she had already been interred, without being given the opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the justification for the award of moral damages. 4 We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony. The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers.

JIMENEZ, vs. CITY APPELLATE COURT

OF

MANILA

and

INTERMEDIATE

FACTS: The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15, 1974 he, together with his neighbors, went to Sta. Ana public market to buy "bagoong" at the time when the public market was flooded with ankle deep rainwater. After purchasing the "bagoong" he turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty rainwater, causing a dirty and rusty four- inch nail, stuck inside the uncovered opening, to pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches. After administering first aid treatment at a nearby drugstore, his companions helped him hobble home. He felt ill and developed fever and he had to be carried to Dr. Juanita Mascardo. Despite the medicine administered to him by the latter, his left leg swelled with great pain. He was then rushed to the Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and severe pain. Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His injury prevented him from attending to the school buses he is operating. As a result, he had to engage the services of one Bienvenido Valdez to supervise his business for an aggregate compensation of nine hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-20). Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the Sta. Ana Public Market had been placed by virtue of a Management and Operating Contract (Rollo, p. 47). The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate Court erred in not ruling that respondent City of Manila should be jointly and severally liable with Asiatic Integrated Corporation for the injuries petitioner suffered. As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff suffered injuries when he fell into a drainage opening without any cover in the Sta. Ana Public Market. Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated Corporation tries to minimize the extent of the injuries, claiming that it was only a small puncture and that as a war veteran, plaintiff's hospitalization at the War Veteran's Hospital was free. Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the petitioner because under the Management and Operating Contract, Asiatic Integrated Corporation assumed all responsibility for damages which may be suffered by third persons for any cause attributable to it. It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of Republic Act No. 409 as amended (Revised Charter of Manila) which provides: The City shall not be liable or held for damages or injuries to persons or property arising from the failure of the Mayor, the Municipal Board, or any other City Officer, to enforce the provisions of this chapter, or any other law or ordinance, or from negligence of said Mayor, Municipal Board, or any other officers while enforcing or attempting to enforce said provisions. This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968]) where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general rule regulating the liability of the City of Manila for "damages or injury to persons or property arising from the failure of city officers" to enforce the provisions of said Act, "or any other law or ordinance or from negligence" of the City "Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said provisions." Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that: Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by any person by reason of defective conditions of roads, streets, bridges, public buildings and other public works under their control or supervision. constitutes a particular prescription making "provinces, cities and municipalities ... liable for damages for the death of, or injury suffered by any person by reason" ? specifically ? "of the defective condition of roads, streets, bridges, public buildings, and other

public works under their control or supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in general, regardless of the object, thereof, while Article 2189 of the Civil Code governs liability due to "defective streets, public buildings and other public works" in particular and is therefore decisive on this specific case. In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is not necessary for the liability therein established to attach, that the defective public works belong to the province, city or municipality from which responsibility is exacted. What said article requires is that the province, city or municipality has either "control or supervision" over the public building in question. In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management and Operating Contract between respondent City and Asiatic Integrated Corporation remained under the control of the former. For one thing, said contract is explicit in this regard, when it provides: II That immediately after the execution of this contract, the SECOND PARTY shall start the painting, cleaning, sanitizing and repair of the public markets and talipapas and within ninety (90) days thereof, the SECOND PARTY shall submit a program of improvement, development, rehabilitation and reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY. (Rollo, p. 44) xxx xxx xxx VI That all present personnel of the City public markets and talipapas shall be retained by the SECOND PARTY as long as their services remain satisfactory and they shall be extended the same rights and privileges as heretofore enjoyed by them. Provided, however, that the SECOND PARTY shall have the right, subject to prior approval of the FIRST PARTY to discharge any of the present employees for cause. (Rollo, p. 45). VII That the SECOND PARTY may from time to time be required by the FIRST PARTY, or his duly authorized representative or representatives, to report, on the activities and operation of the City public markets and talipapas and the facilities and conveniences installed therein, particularly as to their cost of construction, operation and maintenance in connection with the stipulations contained in this Contract. (lbid) The fact of supervision and control of the City over subject public market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads: These cases arose from the controversy over the Management and Operating Contract entered into on December 28, 1972 by and between the City of Manila and the Asiatic Integrated Corporation, whereby in consideration of a fixed service fee, the City hired the services of the said corporation to undertake the physical management, maintenance, rehabilitation and development of the City's public markets and' Talipapas' subject to the control and supervision of the City. xxx xxx xxx It is believed that there is nothing incongruous in the exercise of these powers vis-a-vis the existence of the contract, inasmuch as the City retains the power of supervision and control over its public markets and talipapas under the terms of the contract. (Exhibit "7A") (Emphasis supplied.) (Rollo, p. 75). In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary duty is to take direct supervision and control of that particular market, more specifically, to check the safety of the place for the public. Finally, Section 30 (g) of the Local Tax Code as amended, provides: The treasurer shall exercise direct and immediate supervision administration and control over public markets and the personnel thereof, including those whose duties concern the maintenance

and upkeep of the market and ordinances and other pertinent rules and regulations. (Emphasis supplied.) (Rollo, p. 76) The contention of respondent City of Manila that petitioner should not have ventured to go to Sta. Ana Public Market during a stormy weather is indeed untenable. As observed by respondent Court of Appeals, it is an error for the trial court to attribute the negligence to herein petitioner. More specifically stated, the findings of appellate court are as follows: ... The trial court even chastised the plaintiff for going to market on a rainy day just to buy bagoong. A customer in a store has the right to assume that the owner will comply with his duty to keep the premises safe for customers. If he ventures to the store on the basis of such assumption and is injured because the owner did not comply with his duty, no negligence can be imputed to the customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19). As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of a good father of a family. (Art. 1173 of the Civil Code). There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the public market reasonably safe for people frequenting the place for their marketing needs. While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods, it must however, be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances. For instance, the drainage hole could have been placed under the stalls instead of on the passage ways. Even more important is the fact, that the City should have seen to it that the openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already uncovered, and five (5) months after the incident happened, the opening was still uncovered. (Rollo, pp. 57; 59). Moreover, while there are findings that during floods the vendors remove the iron grills to hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17), there is no showing that such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it shown that any sign had been placed thereabouts to warn passersby of the impending danger. To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil Code, respondent City having retained control and supervision over the Sta. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts Petitioner had the right to assume that there were no openings in the middle of the passageways and if any, that they were adequately covered. Had the opening been covered, petitioner could not have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury suffered, the City is therefore liable for the injury suffered by the peti- 4 petitioner. Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code. PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221.90 actual medical expenses, P900.00 for the amount paid for the operation and management of the school bus, P20,000.00 as moral damages due to pain, sufferings and sleepless nights and P10,000.00 as attorney's fees. SO ORDERED. Juan Nakpil & Sons vs. CA 144 SCRA 597 (1986) FACTS: The Philippine Bar Association entered into a contract with United Construction Inc. (UCI), wherein the latter would construct a building in consideration for a sum. The plans and specifications for the building were made by petitioners Juan Nakpil & Sons. After two years of completion, the building collapsed after a strong earthquake with a magnitude of 7.3 occurred. The Philippine Bar Association filed this case to recover damages from UCI, who in turn filed a case against Nakpil & Sons. ISSUE/S: Whether there is any liability and who shall be liable.

HELD: Both United Construction Inc. and Nakpil & Sons are liable for damages. It was established that the two were negligent when they constructed the building. UCI made substantial deviations from the plans and specifications, and they failed to observe the requiste workmanship in the construction as well as to exercise the requisite degree of supervision; while Nakpil & Sons were found to have inadequacies or defects in the plans and specifications prepared by them. Under the Civil Code, Art. 1723 makes engineers and architects liable for 15 years for any buildings that they have constructed. In Art. 1174, there is no liability where a force majeure causes damage to an obligation. However, under Art. 1170, any negligence on the part of the obligor makes him liable for damages. UNIVERSAL FOOD CORPORATION VS. CA 33 SCRA 1 FACTS: This is a petition for certiorari by the UFC against the CA decision of February 13, 1968 declaring the BILL OF ASSIGNMENT rescinded, ordering UFC to return to Magdalo Francisco his Mafran sauce trademark and to pay his monthly salary of P300.00 from Dec. 1, 1960 until the return to him of said trademark and formula. In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the manufacture of a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce. It was used commercially since 1942, and in the same year plaintiff registered his trademark in his name as owner and inventor with the Bureau of Patents. However, due to lack of sufficient capital to finance the expansion of the business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations, formed with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1). On May 31, 1960, Magdalo Francisco entered into contract with UFC stipulating among other things that he be the Chief Chemist and Second Vice-President of UFC and shall have absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals used in the preparation of said Mafran sauce and that said positions are permanent in nature. In line with the terms and conditions of the Bill of Assignment, Magdalo Francisco was appointed Chief Chemist with a salary of P300.00 a month. Magdalo Francisco kept the formula of the Mafran sauce secret to himself. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a Memorandum duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being until the corporation should resume its operation. On December 3, 1960, President and General Manager Tirso T. Reyes, issued a memorandum to Victoriano Francisco ordering him to report to the factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the corporation's various distributors and dealers, and with instructions to take only the necessary daily employees without employing permanent employees. Again, on December 6, 1961, another memorandum was issued by the same President and General Manager instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected in the production of Mafran Sauce and also some additional daily employees for the production of Porky Pops. On December 29, 1960, another memorandum was issued by the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast operation. Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his services were terminated on November 30, 1960. On January 9 and 16, 1961, UFC, acting thru its President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its trademarks, formula and assets at a price of not less than P300,000.00. Due to these successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, he filed the present action on February 14, 1961. Then in a letter dated March 20, 1961, UFC requested said plaintiff to report for duty, but the latter declined the request because the present action was already filed in court.

ISSUES: 1. Was the Bill of Assignment really one that involves transfer of the formula for Mafran sauce itself? 2. Was petitioners contention that Magdalo Francisco is not entitled to rescission valid? RULING: 1. No. Certain provisions of the bill would lead one to believe that the formula itself was transferred. To quote, the respondent patentee "assign, transfer and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN trademark and mafran formula." However, a perceptive analysis of the entire instrument and the language employed therein would lead one to the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce formula. This was the precise intention of the parties. The SC had the following reasons to back up the above conclusion. First, royalty was paid by UFC to Magdalo Francisco. Second, the formula of said Mafran sauce was never disclosed to anybody else. Third, the Bill acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of said trademark shall automatically revert back to Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the transfer of the use of the Mafran sauce and not the formula itself which was admitted by UFC in its answer. Fifth, the facts of the case undeniably show that what was transferred was only the use. Finally, our Civil Code allows only the least transmission of right, hence, what better way is there to show the least transmission of right of the transfer of the use of the transfer of the formula itself. 2. No. Petitioners contention that Magdalo Franciscos petition for rescission should be denied because under Article 1383 of the Civil Code of the Philippines rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, was of no merit because it is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq. This was a case of reciprocal obligation. Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder was subordinated to anything other than the culpable breach of his obligations by the defendant. Hence, the reparation of damages for the breach was purely secondary. Simply put, unlike Art. 1383, Art. 1191 allows both the rescission and the payment for damages. Rescission is not given to the party as a last resort, hence, it is not subsidiary in nature.

MAGDALENA ESTATE VS. MYRICK 71 PHIL. 346

FACTS: Magdalena Estate, Inc. sold to Louis Myrick lots No. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision, San Juan, Rizal. Their contract of sale provides that the Price of P7,953 shall be payable in 120 equal monthly installments of P96.39 each on the second day of every month beginning the date of execution of the agreement. In pursuance of said agreement, the vendee made several payments amounting to P2,596.08, the last being due and unpaid was that of May 2, 1930. By reason of this, the vendor, through its president, notified the vendee that, in view of his inability to comply with the terms of their contract, said agreement had been cancelled, relieving him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor of the vendor. To this communication, the vendee did not reply, and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price. ISSUE: Was the purchase petitioner authorized price to forfeit the paid?

RULING: No. The contract of sale contains no provision authorizing the vendor, in the event of failure of the vendee to continue in the payment of the stipulated monthly installments, to retain the amounts paid to him on account of the purchase price. The claim therefore, of the petitioner that it has the right to forfeit said sums in its favor is untenable. Under Article 1124 of the Civil Code, however, he may choose between demanding the fulfillment of the contract or its resolution. These remedies are alternative and not cumulative, and the petitioner in this case, having elected to cancel the contract cannot avail himself of the other remedy of exacting performance. As a consequence of the resolution, the parties should be restored, as far as practicable, to their original situation which can be approximated only be ordering the return of the things which were the object of the contract, with their fruits and of the price, with its interest, computed from the date of institution of the action.

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.

ZULUETA VS. MARIANO 111 SCRA 206 FACTS: Petitioner Zulueta was the owner of a house and lot in Antonio Subdivision, Pasig Rizal, while private respondent is a movie director. They entered into a Contract to Sell the said property of petitioner for P75,000 payable in 20 years with respondent buyer assuming to pay a down payment of P5,000 and a monthly installment of P630 payable in advance before the 5th day of the corresponding month, starting with December, 1964. One of their stipulations was that upon failure of the buyer to fulfill any of the conditions being stipulated, the buyer automatically and irrevocably authorizes owner to recover extrajudicially, physical possession of the land, building and other improvements, which were the subject of the said contract, and to take possession also extra-judicially whatever personal properties may be found within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations buyer may have with owner. Demand was also waived. On the allegation that private respondent failed to comply with the monthly amortizations stipulated in the contract, despite demands to pay and to vacate the premises, and that thereby the contract was converted into one of lease, petitioner commenced an Ejectment suit against respondent before the Municipal Court of Pasig, praying that judgment be rendered ordering respondent to 1) vacate the premises; 2) pay petitioner the sum of P11, 751.30 representing respondents balance owing as of May, 1966; 3) pay petitioner the sum of P630 every month after May, 1966, and costs. Private respondent contended that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract. ISSUE: Was the action before the Municipal Court essentially one for rescission or annulment of a contract? RULING: Yes. According to the Supreme Court, ...proof of violation is a condition precedent to resolution or rescission. It is only when the violation has been established that the contract can be declared resolved or rescinded. Upon such rescission in turn, hinges a pronouncement that possession of the realty has become unlawful. The Supreme Court, in Nera vs. Vacante (3 SCRA 505), also said, A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or rescind it. Also, according to the book of Tolentino, Civil Code of the Phil., Vol. IV, 1962 ed. P. 168, citing Magdalena Estate vs. Myrick, 71 Phil. 344 (1941), extra-judicial rescission has legal effect when the parties does not oppose it. If it is objected to, judicial determination of the issue is still necessary. With regards to the jurisdictions of inferior courts, the Supreme Court said that the CFI correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal. However, the CFI erred in assuming original jurisdiction, in the face of the objection interposed by petitioner. Section 11, Rule 40, leaves no room for doubt on this point. Section 11 of Rule 40: Section 11. Lack of jurisdiction. A case tried by an inferior court without jurisdiction over the subject matter shall be dismissed on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance may try the case on the merits, if the parties therein file their pleadings and go to trial without any objection to such jurisdiction.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES 35 SCRA 102 FACTS: On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the latter was granted exclusive authority to cut, collect and remove timber from the Land Grant for a period starting from the date of agreement to December 31, 1965, extendible for a period of 5 years by mutual agreement. On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite repeated demands, ALUMCO still failed to pay, so UP sent a notice to rescind the logging agreement. On the other hand, ALUMCO executed an instrument entitled Acknowledgment of Debt and Proposed Manner of Payments. It was approved by the president of UP, which stipulated the following: 3. In the event that the payments called for are not sufficient to liquidate the foregoing indebtedness, the balance outstanding after the said payments have been applied shall be paid by the debtor in full no later than June 30, 1965. 5. In the event that the debtor fails to comply with any of its promises, the Debtor agrees without reservation that Creditor shall have the right to consider the Logging Agreement rescinded, without the necessity of any judicial suit ALUMCO continued its logging operations, but again incurred an unpaid account. On July 19,1965, UP informed ALUMCO that it had, as of that date, considered rescinded and of no further legal effect the logging agreement, and that UP had already taken steps to have another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal. ISSUE: Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect? RULING: Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by the debtor, UP has the right and the power to consider the Logging Agreement of December 2, 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, the Supreme Court, stated in Froilan vs. Pan Oriental Shipping Co: There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause

PALAY, INC. vs. CLAVE

Facts: Palay, Inc., through its President, AlbertOnstott executed in favor of Nazario Dumpit, aContract to Sell a parcel of Land of the CrestviewHeights Subdivision in Antipolo, Rizal, owned by said corporation. The sale price was P23,300.00 with 9%interest per annum, payable with a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the contract provided forautomatic extrajudicial rescission upon default inpayment of any monthly installment after the lapseof 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967.Almost 6 years later, Dumpit wrote petitioner offeringto update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying petitioners informed respondent that his Contract toSell had long been rescinded pursuant to paragraph6 of the contract, and that the lot had already been resold. Dumpit questioned the validity of the rescission of the contract with the NHA. NHA found the rescission void in the absence of either judicial ornotarial demand, ordered Palay, Inc. and AlbertoOnstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 . Issue: WON Onstott, as the President, should be solidarily liable with Palay Inc to refund theamountHeld: No. Only Palay Inc should refund the payment made by Dumpit It is important to note that even though there has-been a stipulation of automatic rescission of the contract in case of default of payment of installments, still, a notice should be given. This was not done in the case at bar. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as when as from that of any other legal entity to which it may be related. As a general rule, a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice; or for purposes that could not have been intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud, or defend crime or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders. We find no badges of fraud on petitioners' part. Theyhad literally relied, albeit mistakenly, on paragraph 6of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. In this case, petitioner Onstott was made liable because he was then the President of the corporationand he was the controlling stockholder. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. Hecannot, therefore, be made personally liable just because he "appears to be the controlling stockholder". Mere ownership by a single stockholderor by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. ANGELES VS. CALASANZ 135 SCRA 323 FACTS: On December 19, 1957, defendants-appellants Ursula Torres Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P41.20 until fully paid, the installment being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a letter requesting the remittance of past due accounts. On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs failed to meet subsequent payments. The plaintiffs letter with their plea for reconsideration of the said cancellation was denied by the defendants. The plaintiffs-appellees filed a case before the Court of First Instance to compel the defendant to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out that they have already paid the total amount including interests, realty taxes and incidental expenses. The defendants alleged in their answer that the plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay monthly installments corresponding to the month of August, 1966 for more than 5 months, thereby constraining the defendants to cancel the said contract. The Court of First Instance rendered judgment in favor of the plaintiffs, hence this appeal. ISSUE: Has the Contract to Sell been automatically and validly cancelled by the defendants-appellants? RULING: No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay the defendants the sum of P3,920 plus 7% interest per annum, it is likewise true that under par 12 the seller is obligated to transfer the title to the buyer upon payment of the said price. The contract to sell, being a contract of adhesion, must be construed against the party causing it. The Supreme Court agree with the observation of plaintiffsappellees to the effect that the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and its entirety is most unfair to the buyers. Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendant must immediately execute the final deed of sale in favor of the plaintiffs and execute the necessary transfer of documents, as provided in par.12 of the contract.

the

BOYSAW VS. INTERPHIL PROMOTIONS 148 SCRA 635 FACTS: Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest,

engage in any other such contest without the written consent of Interphil Promotions, Inc. However, before September 30, 1961, Boysaw entered into a nontitle bout on June 19, 1961 and without consent from Interphil, Ketchum assigned to Amado Araneta the managerial rights over Boysaw. Amado Araneta in turn transferred the earlier acquired managerial rights to Alfredo again without the consent from Interphil. Yulo thereafter informed Interphil Boysaws readiness to comply with the boxing contract of May 1, 1961. The GAB after a series of conferences of both parties scheduled the ElordeBoysaw fight on November 4, 1961. Yulo refused to accept the charge in the fight date even after Sarreal offered to advance the fight date to October 28, 1961. However, he changed his mind and decided to accept the fight date on November 4, 1961. While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized. As a result, Yulo and Boysaw sued Interphil for damages allegedly due to the latters refusal to honor their commitments under the boxing contract of May 1, 1961. ISSUES: 1. 2. Was there a violation of the fight contract of May 1, 1961? In reciprocal obligations, who has the power to rescind?

accepting payment and by sending letters advising private respondents of the balances due, thus, looking forward to receiving payments thereon. Said decision was affirmed on appeal. Hence, this Petition For Review on Certiorari, ISSUE: whether or not the Contract to Sell was rescinded, under the automatic rescission clause contained therein. HELD: In case the rescission is found unjustified under the circumstances, still in the instant case there is a clear waiver of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private respondents by the petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic rescission." The assailed decision is affirmed. Article 1192 Central Bank vs. CA 139 SCRA 46 Facts: Island Savings Bank upon favorable recommendation of its legal department approved the loan application for P80,000.00 of Sulpicio Tolentino, who as a security loan executed on the same day a real estate mortgage over his 100 hectare land. The approved loan application called for a lump sum P80,000.00 loan repayable in semi-annual installments for a period of 3years with 12% interest. A mere P17,000.00 was made by the Bank. Tolentino and his wife Editha signed the promissory note for P17,000.00 at 12% interest payable within 3years fromthe date of execution of the contract at semi-annual installments. The Bank, thru its Vice President and Treasurer promised repeatedly the release of the P63,000.00 balance. The Monetary Board of the Central Bank after finding Island Savings Bank was suffering liquidity problem issued Resolution which prohibits the Bank from doing business in Philippines and instructed the Acting Superintendent Bank to take charge. Tolentino filed a petition with the Court of first Instance of Agusan but the court rendered its decision against petitioner while the Court of Appeal modified the said decision affirming on the dismissal of Tolentinos petition. Hence, this petition for review is instituted. Issue: Whether or not the action of Tolentinos petition would prosper. Held: Yes, Island Savings Bank was in default in not fulfilling the reciprocal obligation under the loan agreement. Tolentino under Article 1191 of the Civil Code may choose between specific performance or recission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution, it cannot be granted said specific performance in favor of Tolentino. Rescission is the only alternative left. The rescission is only for the balance of 63,000.00 balance of 80,000.00 loan. The promissory note gave rise to Tolentinos reciprocal obligation to pay 17,000.00. His failure to pay overdue amortization under the promissory note made him a party in default. Meanwhile, Art.1192 of the Civil Code provides that in case both parties have committed a breach in their reciprocal obligation the liability of the first infraction shall be equitable tempered by the court. Thus, the liability of Island Savings Bank for damages is offset by the liability of Tolentino in the form of penalties and sub charges for not paying his debts. Art. 1935: xxx if any compensation is to be paid by him who acquires the use, the contract ceases to be a commodatum. DELIVERY - perfects the contract Central Bank of the Philippines v. CA, 139 SCRA 46 (1985) Tolentino made a loan from Island Savings Bank secured by a mortgage. The Bank did not release the whole amount but only a portion thereof. Later, the Bank experienced liquidity problems and the Monetary Board of Central Bank prohibited it from making new loans and much later, from doing business in the Philippines. Thereafter, the Acting Superintendent of Central Bank took charge of its assets. Upon expiration of the loan term, the Bank filed extrajudicial foreclosure of the mortgage. Was there a perfected contract of loan when only a portion of the amount was delivered? The Supreme Court held that there was only partial delivery. As such, the contract is deemed perfect only in so far as what has been delivered. The mortgage cannot be entirely foreclosed, except for up to the amount of the actual amount released, but the Bank can recover the interest of the partial loan. Tolentino cannot

RULING: 1. Yes. On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact during the trial. Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. 2. 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. There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other"The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach " On the validity of the fight postponement, the violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate such contract altogether. That they sought to seek an adjustment of one particular covenant of the contract, is under the circumstances, within the appellee's rights. Pilipinas Bank vs IAC June 30, 1987 FACTS: Hacienda Benito, Inc. as vendor, and private respondents, as vendees executed Contract to Sell No. over a parcel of land on monthly installments subject to the condition: The contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay when due, three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof During the contract, petitioner sent series of notices to private respondents (PR) for thei latters balances/arrearages. From time to time, PR partially complied with this and requested for extensions. On May 19, 1970, the petitioner, for the last time, reminded the PR to pay their balance. After more than two years, PR sent a letter expressing their desire to settle their desire to fully settle their obligation. On March 27, 1974, petitioner wrote a letter to PR , informing them that the contract to sell had been rescinded. PR filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale. After trial, the lower court rendered a decision in PRs favor, holding that petitioner could not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by

10

anymore demand the remaining amount of the loan from the Bank because he defaulted on his payment. His liability offsets the liability of the Bank to him. SAURA VS. DBP G.R. No. L-24968 April 27, 1972 FACTS: Plaintiff Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. It was also stated in the loan, among others, that China Engineers, Ltd. will be one of the joint signatories of the loan, and Saura, Inc. will use local raw materials in the manufacture of jute sacks. Saura, Inc. had already purchased the jute mill machinery on the strength of the letter of credit extended by Prudential Bank and Trust Co. At first, China Engineers, Ltd. did not want to sign the said contract and instead Saura, Inc. suggested that in lieu of that, Saura, Inc. will put up a bond of Php123,500.00, equivalent to China Engineers, Ltd.s subscription. But later on, agreed to sign the contract. However, RFC reduced the said loan from Php500,000.00 to Php300,000.00 despite the formal execution of the loan agreement. Then, China Engineers, Ltd. withdrew its signature to the said loan. Thereafter, Saura, Inc. demanded the release of the originally approved loan of Php500,000.00 and China Engineers, Ltd. will reinstate its signature to the said loan. RFC agreed but the loan was subject to the condition that Saura, Inc. will get the necessary certification from Department of Agriculture and Natural Resources that there will be enough supply of raw materials and will there be an increase of production of the said raw materials in its vicinity. Saura, Inc. was not able to get the necessary certification and instead requested to release the loan as follows: (1) P250,000.00 for the payment of the receipt for jute mill machineries with Prudential Bank &Trust Company , (2) P182,413.91 for the purchase of materials and equipment per attached list to enable the jute mill to operate 182,413.91, (3) P67,586.09 for raw materials and labor {(a) P25,000.00 to be released on the opening of the letter of credit for raw jute for $25,000.00, (b) P25,000.00 to be released upon arrival of raw jute, and (c) P17,586.09 to be released as soon as the mill is ready to operate.} RFC, afterward, denied such request which prompted Saura, Inc. to execute a deed of cancellation of the mortgage. Due to Saura, Inc.s failure to proceed with the said loan with RFC, Prudential Bank and Trust Co. sued them for their failure to pay its obligation with said bank. After almost nine years, Saura, Inc. filed a suit alleging that owing to RFCs failure to release the proceeds of the said loan thereby preventing them from paying their obligation in regards to the jute mill project. The trial court rendered judgment for the plaintiff. Hence this petition. ISSUE: Was there a perfected contract between Saura, Inc. and RFC? RULING: Yes. However, when RFC turned down the request in its letter, the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by both parties was in the nature of mutual desistance, what Manresa terms "mutuo disenso", which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. It was nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages. All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance, and that on the initiative of the plaintiff-appellee itself. J.M. TUASON & CO., INC. VS. JAVIER G.R. NO. L-28569 February 27, 1970

FACTS: On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya Javier a parcel of land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be payable upon execution of the contract, and an installment of Php43.92 monthly for a period of ten (10) years. It was further stipulated in the contract, particularly the sixth paragraph, that upon failure of respondent to pay the monthly installment, she is given a one month grace period to pay such installment together with the monthly installment falling on the said grace period. Furthermore, failure to pay both monthly installments, respondent will pay an additional 10% interest. And after 90 days from the end of the grace period, petitioner can rescind the contract, the payments made by respondent will be considered as rentals. Upon the execution of the contract, respondent religiously paid the monthly installment until January 5, 1962. Respondent, however, was unable to the pay the monthly installments within the grace period which petitioner, subsequently, sent a letter to respondent on May 22, 1964 that the contract has been rescinded and asked the respondent to vacate the said land. So, upon failure of respondent to vacate the said land, petitioner filed an action to the Court of First Instance of Rizal for the rescission of the contract. The CFI rendered a decision in favor of respondent in applying Article 1592 of the New Civil Code. Hence, petitioner made an appeal to the Supreme Court alleging that since Article 1592 of the New Civil applies only to contracts of sale and not in contracts to sell. ISSUE: Did the CFI erroneously apply Article 1592 of the New Civil Code? RULING: Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been denied substantial justice under Article 1234 of the New Civil Code. In this connection, respondent religiously satisfied the monthly installments for almost eight (8) years or up to January 5, 1962. It has been shown that respondent had already paid Php4,134.08 as of January 5, 1962 which is beyond the stipulated amount of Php3,691.20. Also, respondent has offered to pay all installments overdue including the stipulated interest, attorneys fees and the costs which the CFI accordingly sentenced respondent to pay such installment, interest, fees and costs. Thus, petitioner will be able recover everything that was due thereto. Under these circumstances, the SC feel that, in the interest of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the New Civil Code. LEGARDA VS. SALDAA G.R. No. L-26578, January 28, 1974 FACTS: Saldaa had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly installments with 10% interest per annum. Saldaa paid for eight consecutive years but did not make any further payments due to Legardas failure to make the necessary improvement on the said lot which was promised by their representative, the said Mr. Cenon. Saldaa already paid a total of Php3,582.06. The statement of account shows that Saldaa paid Php1,682.28 of the principal and Php1,889.78 for the interest. It did not distinguish which of the two said lots was paid. Petitioner, then, rescinded the contract based on the stipulation of the contract that payments made by respondent shall be considered as rentals and any improvements made shall be forfeited in favor of the petitioner. The lower court ruled sustaining petitioners cancellation of contract. So respondent appealed and judgment was reversed in favor of the respondent ordering petitioners to deliver to plaintiff one of the two lots at the choice of the defendant and execute the deed of conveyance. Hence this petition. ISSUE: Was the cancellation of the sale of contract valid? RULING: No, even though it was stipulated that failure to complete the payment would result to the cancellation of the contract, it was still not valid. As clearly shown in the statement of account, Saldaa was able to pay one of the two said lots. Under Article 1234 of the New Civil Code, if the obligation has been substantially performed

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in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Hence, under the authority of Article 1234 of the New Civil Code, Saladaa is entitled to one of the two lots of his choice and the interest paid shall be forfeited in favor of the petitioners. LEGARDA VS. SALDAA G.R. No. L-26578, January 28, 1974 FACTS: Saldaa had entered into two written contracts with Legarda, a subdivision owner, whereby Legarda agreed to sell to him two of his lots for 1,500 per lot, payable over a span of 10 years on 120 monthly installments with 10% interest per annum. Saldaa paid for eight consecutive years but did not make any further payments due to Legardas failure to make the necessary improvement on the said lot which was promised by their representative, the said Mr. Cenon. Saldaa already paid a total of Php3,582.06. The statement of account shows that Saldaa paid Php1,682.28 of the principal and Php1,889.78 for the interest. It did not distinguish which of the two said lots was paid. Petitioner, then, rescinded the contract based on the stipulation of the contract that payments made by respondent shall be considered as rentals and any improvements made shall be forfeited in favor of the petitioner. The lower court ruled sustaining petitioners cancellation of contract. So respondent appealed and judgment was reversed in favor of the respondent ordering petitioners to deliver to plaintiff one of the two lots at the choice of the defendant and execute the deed of conveyance. Hence this petition. ISSUE: Was the cancellation of the sale of contract valid? RULING: No, even though it was stipulated that failure to complete the payment would result to the cancellation of the contract, it was still not valid. As clearly shown in the statement of account, Saldaa was able to pay one of the two said lots. Under Article 1234 of the New Civil Code, if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Hence, under the authority of Article 1234 of the New Civil Code, Saladaa is entitled to one of the two lots of his choice and the interest paid shall be forfeited in favor of the petitioners LEGARDA v SALDANA FACTS: Saldana entered into a contract with Legarda Hermanos. Legarda agreed to sell 2 equal lots for P1,500each, payable in 120 equal installments over a period of10 years at 10% per annum. Saldana paid 95 of the 120installments over 8 years, which was recorded in hisaccount with Legarda, but without stating as to which lots the payments were made. The said account stated that Saldana still owed 1,311.72 for the 2 lots, althoughhe had already pain more the P1,500, the value of onelot.After 5 years, Saldana contacted Legardo Hermanosstating that he was interested in building a house on thelots, however, he was prevented from doing such because Hermanos failed to introduce the stipulated improvements on the subdivision (roads to his lots). Hefurther indicated his intentions to continue his payments.In his reply, Legarda Hermanos said that since Saldana failed to complete the 120 payments in time, as they have previously stipulated, all the amounts paid,together with the improvements on the premises havebeen considered as rents paid and as payment fordamages. Furthermore, the sale was cancelled.Saldana then filed an action demanding the delivery ofthe 2 lots and for the execution of the correspondingdeed of conveyance after payment of the outstanding balance.Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and the twolots were among those allotted to Jose Legarda (co-respondent).The lower court sustained Legarda Hermanoscancellation of the contracts and dismissed Saldanas complaint. The CA eventually reversed this.The CA ordered Legarda Hermanos to deliver toSaldana one of the two lots, at his option. Furthermore, Hermanos was told to execute the deed of conveyance. ISSUE: Should the claim of Hermanos Legarda be upheld?He claims that the payment should be considered asrent and that the sale should be cancelled? No. HELD: The SC applied the principles of equity and justice, as correctly held by the CA. considering that Saldana had already paid the total sum of P3, 582.06including interests, which is even more than the value ofthe two lots. And even if the sum applied to the principal alone were to be considered, which was of the total ofP1,682.28, the same was already more than the value of one lot,

which is P1,500.00. The only balance due on both lots was P1,317.72, which was even less than thevalue of one lot. By this, the court ruled that Saldana had already paid for at least one lot. And he is given the choice as to which one. Even considering that Saldana as having defaulted after February 1956, when he suspended payments after the 95th installment, he had as of the already paid byway of principal (P1,682.28) more than the full value of one lot (P1,500.00). Furthermore, regardless of the propriety of applying Article 1592 thereto, Legarda Hermanos was not denied substantial justice. According to ART. 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, and that in the interest of justice and equity, the decision appealed from may be upheld upon the authority of ART. 1234. Azcona v. Jamandre 127 SCRA 828 Facts Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960. On March 30, 1960, when the first annual rent was due,petitioner was not able to deliver possession of the leased property thus he waived payment of that rental. Respondent only entered the premises on October 26, 1960 after paying P7000, whichwas acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notifiedrespondent that the contract of lease was deemed cancelled for violation of the conditions of thecontract. Earlier, in fact, the respondent had been ousted from the possession of the 60 hectaresof the leased premises and let with only 20 hectares of the original area. Issues Whether or not the lease contract is deemed cancelled upon failure of the respondent to: 1. Attach the parcelary plan identifying the exact area subject of the contract 2. Secure approval of PNB of said contract 3. Pay the rentals Ruling Parcelary Plan The correct view is that there was an agreed subject-matter, although it was not expressly defined because the plan was not annexed and never approved. There was still an ascertainable object because the leased premises were sufficiently delineated and identified. Failure to attach the plan was imputable to the petitioner himself because he was supposed to prepare the said plan. Nevertheless, the identification of the lease area rendered the plan unnecessary and its absence did not nullify the agreement. PNB Approval Petitioners claim that such possession was not delivered because the approval of by the PNB had not materialized due to respondent's neglect. Respondent was negotiating the loan with PNB but the contract does not state upon whom fell the obligation to secure the approval. Payment of Rent. Petitioner contends that the payment of P7000, which was short of P200, was a violation of the agreement thus the contract should be deemed cancelled. But the petitioner unqualifiedly accepted the amount. The absence of any mention of the discrepancy in the receipt nor any protest or demand to collect the remaining balance, means that petitioner acknowledged the amount as the full payment for the rent. The SC affirms the decision of the CA and petition is denied.Note: The CA held that the amount of P200 had been condoned but the SC viewed it as a mere reduction of the stipulated rental in consideration of the withdrawal from the leased premises where the petitioner intended to graze his cattle. Relevant Articles/ Jurisprudence Art 1235 When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. KALALO VS. LUZ GR 27782 July 31, 1970 FACTS: On November 17, 1959, Octavio A. Kalalo (appellee) entered into an agreement with Alfredo J . Luz (appellant) whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. Pursuant to said agreement, appellee rendered engineering services to appellant.

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On December 11, 1961, appellee sent to appellant a statement of account, to which was attached an itemized statement of defendant-appellant's account, according to which the total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant. amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to accept as full payment of the balance of the fees due him. The appellant further contended that the appellees services were not complete or were performed in violation of the agreement and otherwise unsatisfactory. In order to settle the dispute, and upon agreement of the parties, the trial court authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant. ISSUES: 1. Was the recommendation in the Report that the payment of the amount due to Kalalo in dollars legally permissible? 2. If not, what rate of exchange should it be in pesos? RULING: 1. No. Under the agreement,Kalalo was entitled to 20% of $140,000.00, or the amount of $28,000.00. Kalalo, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. 2. Under Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred.Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment for such contracts. NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS 10 SCRA 686 FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit made by the petitioner to the ExOfficio Sheriff. In upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be

compelled to accept partial payment unless there is an express stipulation to the contrary. ISSUE: Can the check be considered a valid payment of the judgment obligation? RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a Cashiers Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is credited to his account. The Cashiers Check and the cash are valid payment of the obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of the check and cash as full payment of the obligation. Roman Catholic Bishop of Malolos v. IAC (1990) FACTS: July 7, 1971: A contract over the land was executed between the Roman Catholic Bishop of Malolos (bishop) as vendor and the through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930 and the balance of P100,000 plus 12% interest per annum to be paid within 4 years from execution of the contract. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in case of failure to pay within the period March 12, 1973: private respondent, through its new president, Atty. Adalia Francisco, addressed a letter 6 to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the subject contract and the supporting documents July 17, 1975: after the expiration of the stipulated period for payment, Atty. Francisco wrote the formal request that her company be allowed to pay the principal amount of P100,000 in 3 equal installments of 6 months each with the 1st installment and the accrued interest of P24,000 to be paid immediately upon approval July 29, 1975: Bishop through its counsel, Atty. Carmelo Fernandez, formally denied the request but granted a grace period of 5 days from the receipt of the denial to pay the total balance of P124,000 August 4, 1975: private respondent, through its president, Atty. Francisco, wrote the counsel of the petitioner requesting an extension of 30 days from to fully settle its account. - denied RTC: favored Bishop declaring the down payment as forfeited ISSUE: W/N there is tender of payment by issuance of a certified check HELD: NO. RTC reinstated. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers obligation and demanding that the latter accept the same. tender of payment cannot be presumed by a mere inference from surrounding circumstances sheer proof of sufficient available funds to meet more than the total obligation within the grace period - NOT sufficient On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings of fact made by the trial court which are entitled to great weight on appeal

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and should be accorded full consideration and respect and should not be disturbed unless for strong and cogent reasons certified personal check which is not legal tender nor the currency stipulated, and therefore, can not constitute 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 Tibajia vs. CA, 1993 Facts: A suit for collection of sum of money was ruled in favor of Eden Tan and against thespouses Norberto Jr. and Carmen Tibajia. After the decision was made final, Tan filed amotion for execution and levied upon the garnished funds which were deposited by thespouses with the cashier of the Regional Trial Court of Pasig. The spouses, however,delivered to the deputy sheriff the total money judgment in the form of Cashiers Check (P262,750) and Cash (P135,733.70). Tan refused the payment and insisted upon thegarnished funds to satisfy the judgment obligation. The spouses filed a motion to lift thewrit of execution on the ground that the judgment debt had already been paid. The motionwas denied. Issue: Whether the spouses have satisfied the judgment obligation after the delivery of the cashiers check and cash to the deputy sheriff. Held: A check, whether a managers 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 refusedreceipt by the obligee or creditor (Philippine Airlines vs. Court of Appeals; Roman CatholicBishop of Malolos vs. Intermediate Appellate Court). The court is not, by decision,sanctioning the use of a check for the payment of obligations over the objection of thecreditor (Fortunado vs. Court of Appeals) Facts: Case 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses (Norberto Jr. and Carmen). A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the RTC Kalookan City in the amount of P442,750.00 in another case, had been garnished by him. On 10 March 1988, the RTC, Branch 151 of Pasig, Metro Manila rendered its decision in Civil Case 54863 in favor of Tan, ordering the Tibajia spouses to pay her an amount in excess of P300,000.00. On appeal, the Court of Appeals modified the decision by reducing the award of moral and exemplary damages. The decision having become final, Tanfiled the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of the RTC Pasig, Metro Manila, were levied upon. On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the form of Cashier's Check (P262,750.00) and Cash (P135,733.70). Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of the RTC Pasig be withdrawn to satisfy the judgment obligation. On 15 January 1991, the spouses filed a motion to lift the writ of executionon the ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other than thedefendant. A motion for reconsideration was denied on 8 February 1991.Thereafter, the spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals (CA GR SP 24164).The appellate court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not payment in legal tender as required by RA 529. The motion for reconsideration was denied on 27 May 1991. Hence, the petition for review. Held: The Supreme Court denied the petition, and affirmed the appealed decision, with costs against the spouses.1. Article 1249 of the Civil Code Article 1249 of the Civil Code 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 havebeen cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from theoriginal obligation shall be held in abeyance."

CIVIL LAW:CONTRACTS; EXTRAORDINARY INFLATION It is only when an extraordinary inflation supervenes that the law affords the parties a relief in contractual obligations.Art. 1250 of the Civil Code provides that in case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of the payment, unless there is an agreement to the contrary. In Filipino Pipe and Foundry Corporation v. NAWASA, the Court explained extraordinary inflation thus: Extraordinary inflation exists when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value of said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. (Tolentino, Commentaries and Jurisprudence on the Civil Code, Vol. IV, p. 284.) Commissioner of Public Highways vs. Burgos Commissioner of Public Highways, petitioner, vs. Hon. Francisco P. Burgos, in his capacity as Judge of the Court of First Instance of Cebu City, Branch II, and Victor Amigable, respondents. March 31, 1980 De Castro, J: Facts: On 1924, the government took private respondent Victor Amigable's land for road-right-of-way purpose. On 1959, Amigable filed in the Court of First Instance a complaint to recover the ownership and possession of the land and for damages for the alleged illegal occupation of the land by the government (entitled Victor Amigable vs. Nicolas Cuenco, in his capacity as Commissioner of Public Highways and Republic of the Philippines). Amigable's complaint was dismissed on the grounds that the land was either donated or sold by its owners to enhance its value, and that in any case, the right of the owner to recover the value of said property was already barred by estoppel and the statute of limitations. Also, the non-suability of the government was invoked. In the hearing, the government proved that the price of the property at the time of taking was P2.37 per square meter. Amigable, on the other hand, presented a newspaper showing that the price was P6.775. The public respondent Judge ruled in favor of Amigable and directed the Republic of the Philippines to pay Amigable the value of the property taken with interest at 6% and the attorney's fees. Issue: Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount of compensation to be paid to private respondent Amigable for the property taken. Held: Not applicable. Ratio: Article 1250 of the NCC provides that the value of currency at the time of the establishment of the obligation shall be the basis of payment which would be the value of peso at the time of taking of the property when the obligation of the government to pay arises. It is only when there is an agreement that the inflation will make the value of currency at the time of payment, not at the time of the establishment, the basis for payment. The correct amount of compensation would be P14,615.79 at P2.37 per square meter, not P49,459.34, and the interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its decision as was awarded by the said court should accordingly be reduced. COMMISSIONER VS. BURGOS G.R. No. L-36706 March 31, 1980 FACTS: Private Respondent Victoria Amigable is an owner of a parcel of land in Cebu City that was taken by the Government sometime in 1924 for road-right-of-way purpose. In 1959, private respondent filed a complaint to recover ownership and possession of the said

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land, damages for illegal occupation of the Government of the same said land and Php5,000.00 for attorneys fees. Petitionerdefendant, in its answer, alleged that the above-mentioned land was either donated or sold by its owners to the province of Cebu, also private respondent is already barred by estoppel and statute of limitations, and invoked the non-suitability of the Government. Based on the allegations of the petitioner-defendant, the trial court rendered a decision for the petitioner-defendant. However, on appeal to the Supreme Court, the Court reversed the decision and remanded the case to the court of origin for the determination of the compensation to be made to private respondent and attorneys fees. During the hearing for the determination of the compensation, the Government proved the value of the land through the certification issued by the Bureau of Records Management that the value of the said land was only Php2.37 per square meter. On the other hand, private respondent presented a newspaper clipping of Manila Times showing that the value of peso was Php6.775 to a dollar during the middle of 1972. Upon consideration, the trial court rendered a decision directing the Government to pay private respondent Php49,459.34 for the value of the land with 6% interest per annum and 10% attorneys fees of the total amount due, totaling to Php214,356.75. Thereafter, the Solicitor General, representing the Government, appealed to the Supreme Court contending that the trial court erred in applying Article 1250 in the case at bar. ISSUE: Should Article 1250 be applied in determining the compensation for the disputed land? RULING: No. It is clear that Article 1250 applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation. Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time of the taking of the property when the obligation of the Government to pay arises. It is only when there is an "agreement to the contrary" that the extraordinary inflation will make the value of the currency at the time of payment, not at the time of the establishment of the obligation, the basis for payment. In other words, an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation. The correct amount of compensation due private respondent for the taking of her land for a public purpose would be not P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167 square meters when it was taken in 1924. The interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its decision, as was awarded by the said court should accordingly be reduced. FILINVEST CREDIT vs. PHILIPPINE ACETYLENE G.R. No. L-50449 January 30, 1982 FACTS: Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as Chevorlet 1969 model for P55K to be paid in installments. As security for the payment of said promissory note, the appellant executed a chattel mortgage over the same motor vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment. Phil Acetylene defaulted in the payment of nine successive installments. Filinvest sent a demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the mortgaged property, which return shall be in full satisfaction of its indebtedness. So the vehicle was returned to the Filinvest together with the document Voluntary Surrender with Special Power of Attorney To Sell. Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle. Filinvest requested the appellant to update its account by paying the installments in arrears and accruing interest. Filinvest offered to deliver back the

motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for collection of a sum of money with damages. Phil Acetylenes defense: The delivery of the motor vehicle to Filinvest extinguished its money obligation as it amounted to a dation in payment. Assuming arguendo that the return did not extinguish, it was justified in refusing payment since the appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim. ISSUE: W/N there was dation in payment that extinguished Phil Acetylenes obligation? NO. HELD: 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 dacion, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the 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 innovation to have the effect of totally extinguishing the debt or obligation. The evidence on the record fails to show that the Filinvest consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant. As to the strength of the Voluntary Surrender with Special Power of Attorney To Sell, it only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. Filinvest in essence was constituted as a mere agent to sell the motor vehicle which was delivered not as its property. If it were, he would have full power of disposition of the property, not only to sell it. Article 1245 Citizens Surety and Insurance Company vs. CA G.R. No. L-48958 Facts: On December 4, 1959, the petitioner issued two surety bonds to the defendant to ensurethe compliance of the latter while he entered a transaction with Singer Sewing Machine Co.The respondent also put up collaterals such as his lumber stock worth P400,000 and a secondreal estate mortgage to reimburse the cost paid by the petitioner in case that the respondentwill not comply to the agreement. The respondent failed to comply with his obligations toSinger Sewing Machine Co. and the petitioner paid payments as a result of non-compliance of the respondent. The respondent failed to reimburse the petitioner due to the losses heencountered thereby the petitioner filed a claim of the sum of the money against the estate of the respondent. Respondent opposed the money claim by stating that the surety bonds and theindemnity agreements had been extinguished by the execution of the deed of assignment.Thus, after the trial, the lower declared that the collateral is jointly and severally liable to the petitioner, hereby, requiring respondent to pay the required amount with 10%

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interest per annum. The decision of the lower court was reversed by the Court of Appeals when therespondent appealed. Issue: Whether or not administrators obligation under the surety bonds agreements had beenextinguished through execution of the deed of assignment. Held: Obligation under the surety bonds had not been extinguished by reason on the executionof deed of assignment. The deed of assignment was intended as a collateral security for the issuance of two (2) surety bonds by the petitioner towards respondent as evidenced by thelatters subsequent acts. These are partial payments made by respondent after the executionthe deed of assignment to pay his indebtedness. Moreover, with the execution of the secondmortgage by respondent, it follows that there is no extinguishment of obligation sinceindemnity bonds still existed by virtue of its execution.Thus, upon the failure of the respondent to comply with its obligation under the contract if sale of goods towards Singer Sewing Machine Co., the petitioner is still adequately protected by the lumber collateral which worth P400,000, more than enough to guaranty the obligations.Here, the Supreme Court dismissed the appeal and money claim by the petitioner. Soco vs. Hon. Militante, et al. June 28, 1983 [GRN 58961 June 28, 1983] FACTS: The plaintiff-appellee-Soco (lessor) and the defendantappellant-Francisco (lessee) entered into a contract of lease on for commercial building and lot for a monthly rental of P800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. One time, Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts were issued. Soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look for ways and means to terminate the contract. Taking into account the factual background setting of this case, the Court holds that there was in fact a tender of payment of the rentals made by Francisco to Soco through Comtrust and since these payments were not accepted by Soco evidently because of her intention to evict Francisco, by all means, Francisco was impelled to deposit the rentals with the Clerk of Court of the City Court of Cebu, Soco was notified of this deposit. She was further notified of these payments by consignation. The City Court declared the payments of rentals valid and effective. ISSUE: Whether or not the consignation was valid and effective. HELD: In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective. SC ruled that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, as Articles 1256 to 1261, New Civil Code say. Substantial compliance is not enough for that would render only a directory construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid and effectual, as the law provides in Art 1257, 1258, 1249. SC held that the respondent lessee has utterly failed to prove the requisites of a valid consignation. PEOPLE vs.NATIVIDAD FRANKLIN G.R. No. L-21507 June 7, 1971

FACTS: Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the Court of First Instance of Pampanga dated April 17, 1963, forfeiting the bail bond posted by it for the provisional release of Natividad Franklin, the accused in Criminal Case No. 4300 of said court, as well as from the latter's orders denying the surety company's motion for a reductions of bail, and its motion for reconsideration thereof. It appears that an information filed with the Justice of the Peace Court of Angeles, Pampanga, docketed as Criminal Case No. 5536, Natividad Franklin was charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc. in the amount of P2,000.00, she was released from custody. After the preliminary investigation of the case, the Justice of the Peace Court elevated it to the Court of First Instance of Pampanga where the Provincial Fiscal filed the corresponding information against the accused. The Court of First Instance then set her arraignment on July 14, 1962, on which date she failed to appear, but the court postponed the arraignment to July 28 of the same year upon motion of counsel for the surety company. The accused failed to appear again, for which reason the court ordered her arrest and required the surety company to show cause why the bail bond posted by it should not be forfeited. On September 25, 1962, the court granted the surety company a period of thirty days within which to produce and surrender the accused, with the warning that upon its failure to do so the bail bond posted by it would be forfeited. On October 25, 1962 the surety company filed a motion praying for an extension of thirty days within which to produce the body of the accused and to show cause why its bail bond should not be forfeited. As not withstanding the extension granted the surety company failed to produce the accused again, the court had no other alternative but to render the judgment of forfeiture. Subsequently, the surety company filed a motion for a reduction of bail alleging that the reason for its inability to produce and surrender the accused to the court was the fact that the Philippine Government had allowed her to leave the country and proceed to the United States on February 27, 1962. The reason thus given not being to the satisfaction of the court, the motion for reduction of bail was denied. The surety company's motion for reconsideration was also denied by the lower court on May 27, 1963, although it stated in its order that it would consider the matter of reducing the bail bond "upon production of the accused." The surety company never complied with this condition. ISSUE: Appellant now contends that the lower court should have released it from all liability under the bail bond posted by it because its failure to produce and surrender the accused was due to the negligence of the Philippine Government itself in issuing a passport to said accused, thereby enabling her to leave the country. In support of this contention the provisions of Article 1266 of the New Civil Code are invoked. HELD: Appellant's contention is untenable. The abovementioned legal provision does not apply to its case, because the same speaks of the relation between a debtor and a creditor, which does not exist in the case of a surety upon a bail bond, on the one hand, and the State, on the other. In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that: The rights and liabilities of sureties on a recognizance or bail bond are, in many respects, different from those of sureties on ordinary bonds or commercial contracts. The former can discharge themselves from liability by surrendering their principal; the latter, as a general rule, can only be released by payment of the debt or performance of the act stipulated. In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:By the mere fact that a person binds himself as surety for the accused, he takes charge of, and absolutely becomes responsible for the latter's custody, and under such circumstances it is incumbent upon him, or rather, it is his inevitable obligation not merely a right, to keep the accused at all times under his surveillance, inasmuch as the authority emanating from his character as surety is no more nor less than the Government's authority to hold the said accused under preventive imprisonment. In allowing the accused Eugenio Uy Tuising to leave the jurisdiction of the Philippines, the appellee necessarily ran the risk of violating and in fact it clearly violated the terms of its bail bonds because it failed to produce the said accused when on January 15, 1932, it was required to do so. Undoubtedly, the result of the obligation assumed by the appellee to hold the accused at all

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times to the orders and processes of the lower court was to prohibit said accused from leaving the jurisdiction of the Philippines because, otherwise, said orders and processes would be nugatory and inasmuch as the jurisdiction of the court from which they issued does not extend beyond that of the Philippines, they would have no binding force outside of said jurisdiction. It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused, thereby assuming the obligation to keep the latter at all times under his surveillance, and to produce and surrender him to the court upon the latter's demand. That the accused in this case was able to secure a Philippine passport which enabled her to go to the United States was, in fact, due to the surety company's fault because it was its duty to do everything and take all steps necessary to prevent that departure. This could have been accomplished by seasonably informing the Department of Foreign Affairs and other agencies of the government of the fact that the accused for whose provisional liberty it had posted a bail bond was facing a criminal charge in a particular court of the country. Had the surety company done this, there can be no doubt that no Philippine passport would have been issued to Natividad Franklin. UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts, with costs. LAURO IMMACULATA vs. HON. PEDRO C. NAVARRO G.R. No. L-42230 April 15, 1988 PARAS, J.: Petitioner's Motion for Reconsideration of Our decision dated November 26, 1986 asks Us to consider a point inadvertently missed by the Court the matter of legal redemption of a parcel of land previously obtained by petitioner Lauro Immaculata thru a free patent. The reconsideration of this issue is hereby GRANTED. While res judicata may bar questions on the validity of the sale in view of alleged insanity and intimidation (and this point is no longer pressed by counsel for the petitioner) still the question of the right of legal redemption has remained unresolved. Be it noted that in an action (Civil Case No. 20968) filed on March 24, 1975 before the defunct Court of First Instance of Rizal, petitioner presented an alternative cause of action or prayer just in case the validity of the sale would be sustained. And this alternative cause of action or prayer is to allow petitioner to legally redeem the property. We hereby grant said alternative cause of action or prayer. While the sale was originally executed sometime in December, 1969, it was only on February 3, 1974 when, as prayed for 1 by private respondent, and as ordered by the court a quo, a "deed of conveyance" was formally executed. Since offer to redeem was made on March 24, 1975, this was clearly within the five-year period of legal redemption allowed by the Public Land Act (See Abuan v. Garcia, 14 SCRA 759, 761). The allegation that the offer to redeem was not sincere, because there was no consignation of the amount in Court is devoid of merit. The right to redeem is a RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v. Garcia, C.A. 47 O.G. 2406; Resales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. Capistrano, 9 Phil. 416). WHEREFORE, as prayed for by the petitioner Lauro Immaculata (represented by his wife, Amparo Velasco, as Guardian ad litem) the decision of this Court dated November 26, 1986 is hereby MODIFIED, and the case is remanded to the court a quo for it to accept payment or consignation 2 (in connection with the legal redemption which We are hereby allowing the petitioner to do) by the herein petitioner of whatever he received from respondent at the time the transaction was made. OCCENA v JABSON (digest) October 29, 1976 Tropical Homes Inc. agreed to develop a subdivision on the land owned by Jesus and Efigenia Occea, wherein Tropical Homes would be paid only 40% of the sale of the subdivision lots. Tropical Homes seeks revision of the contract on the Basis of Art 1267 of the Civil Code (CC). They are asking for modification of the terms and conditions of the subdivision contract, due to increase in costs. Art. 1267 CC: 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. Held: The CC authorizes the release of an obligor when the service has become so difficult as to be manifestly beyond the contemplation of the parties but does not authorize the Courts to modify or revise the subdivision contract between the parties or to fix a different sharing ratio from that contractually stipulated with the force of law.Tropical Homes complaint for modification of the contract has no basis in law and must be dismissed. JESUS V. OCCENA and EFIGENIA C. OCCENA vs.HON. RAMON V. JABSON, G.R. L-44349 Oct.29, 1976 The Court reverses the CA appealed resolution. The Civil Code authorizes the release of an obligor when the service has become so difficult as to be manifestly beyond the contemplation of the parties but does not authorize the courts to modify or revise the subdivision contract between the parties or fix a different sharing ratio from that contractually stipulated with the force of law between the parties. Private respondent's complaint for modification of the contract manifestly has no basis in law and must therefore be dismissed for failure to state a cause of action. On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision contract with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the allegations:"That due to the increase in price of oil .. and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of said contract, have been totally changed; 'That further performance by the plaintiff under the contract will result in situation where defendants would be unustly enriched at the expense of the plaintiff; Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's fixed and sole share and participation an amount equivalent to forty (40%) percent of all cash receipts from the sale of the subdivision lots" The petition must be granted. While respondent court correctly cited in its decision the Code Commission's report giving the rationale for Article 1267 of the Civil Code, to wit;The general rule is that impossibility of performance releases the obligor. However, it is submitted that when the service has become so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the obligor in whole or in part. The intention of the parties should govern and if it appears that the service turns out to be so difficult as have been beyond their contemplation, it would be doing violence to that intention to hold the obligor still responsible. ... It misapplied the same to respondent's complaint. If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could show at the trial that the service undertaken contractually by it had "become so difficult as to be manifestly beyond the contemplation of the parties", then respondent court's upholding of respondet's complaint and dismissal of the petition would be justifiable under the cited codal article. Without said article, respondent would remain bound by its contract under the theretofore prevailing doctrine that performance therewith is ot excused "by the fact that the contract turns out to be hard and improvident, unprofitable, or unespectedly burdensome", 3 since in case a party desires to be excuse from performance in the event of such contingencies arising, it is his duty to provide threfor in the contract. But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment I modifying the terms and Conditions of the Contract by fixing the proper shares that should pertain to the herein parties out of the gross proceed., from the sales of subdivided lots of subject subdivision". The cited article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted by the partiesthemselves. Respondent's complaint for modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought. A final procedural note. Respondent cites the general rule that an erroneous order denying a motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal in due course. This case however manifestly falls within the recognized exception that certiorari will lie when appeal would not prove to be a speedy

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and adequate remedy.' Where the remedy of appeal would not, as in this case, promptly relieve petitioners from the injurious effects of the patently erroneous order maintaining respondent's baseless action and compelling petitioners needlessly to go through a protracted trial and clogging the court dockets by one more futile case, certiorari will issue as the plain, speedy and adequate remedy of an aggrieved party. ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition for certiorari is granted and private respondent's complaint in the lower court is ordered dismissed for failure to state a sufficient cause of action. With costs in all instances against private respondent. BANK OF THE PHILIPPINE ISLANDS vs. COURT OF APPEALS G.R. No. 136202; January 25, 2007 AZCUNA, J.: This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision[1] dated April 3, 1998, and the Resolution[2] dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241. The facts[3] are as follows: A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and attorneys fees. Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-1187-67) without his knowledge and corresponding endorsement. Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this account was already closed by private respondent Salazar or had an insufficient balance. Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the issuance of a cashiers check to Templonuevo. In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was effectively closed, was not his concern. After trial, the RTC rendered a decision, the dispositive portion of which reads thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to pay as follows:

1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount is fully paid; 2. The amount of P30,000.00 as and for actual damages; 3. The amount of P50,000.00 as and for moral damages; 4. The amount of P50,000.00 as and for exemplary damages; 5. The amount of P30,000.00 as and for attorneys fees; and 6. Costs of suit. The counterclaim is hereby ordered DISMISSED for lack of factual basis. The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit. Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of factual basis. SO ORDERED.[4] On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading[5] actually belonged to Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.[6] Petitioner therefore filed this petition on these grounds: I. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence. II. The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil Code in favor of BPI. III. The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality. IV. The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal account and that BPI was privy to this agreement. V. The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her business standing was eroded. VI. The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing SALAZARs complaint. VII. The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI.[7] The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to another account that she later closed? Petitioner argues thus: 1. There is no presumption in law that a check payable to order, when found in the possession of a person who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA should not have presumed that Salazar was a transferee for value within the contemplation of Section 49 of the Negotiable Instruments Law,[8] as the latter applies only to a holder defined under Section 191of the same.[9] 2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful despite her allegations that these checks were deposited pursuant to a prior internal arrangement with Templonuevo and that petitioner was privy to the arrangement.

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3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course of its business. 4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was proper even though the value of the checks had been originally credited to the personal account of Salazar because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had no separate and distinct personality from Salazar. 5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed petitioners third-party complaint against Templonuevo because the latter would have the legal duty to return to petitioner the proceeds of the checks which he previously received from it. 6. There was no factual basis for the award of damages to Salazar. The petition is partly meritorious. First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following: (a) That Salazar previously had in her possession the following checks: (1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50; (2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and, (3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount of P154,800.00; (b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT Construction and Trading, the name and style under which Templonuevo does business; (c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to deposit the checks in her personal savings account with petitioner and encash the same; (d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight months in 1990; and (e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the lapse of one year from the date of the last check.[10] Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to this claim and concluded that petitioners actions were deliberate, in view of its admission that the mistake was committed three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo. The CA explained thus: It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee. For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most finicky over accepting checks for deposit without the corresponding

indorsement by their payee. In fact, they hesitate to accept indorsed checks for deposit if the depositor is not one they know very well.[11] The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal arrangement between them, ratiocinating as follows: If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of the total amount of P267,692.50. A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this.[12] Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.[13] Factual findings of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court.[14] Such questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight all these are issues of fact which are not reviewable by the Court.[15] This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion.[16] In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the Negotiable Instruments Law. Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made. [17] It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is

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that a valid transfer of ownership of the negotiable instrument in question has taken place. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred.[18] The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting ownership over the checks especially considering that it was readily apparent on the face of the instruments[19] that these were crossed checks. In State Investment House v. IAC,[20] the Court enumerated the effects of crossing a check, thus: (1) that the check may not be encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose so that such holder must inquire if the check has been received pursuant to that purpose. Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right.[21] The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient consideration will not inure to the benefit of Salazar because the term given does not pertain merely to a transfer of physical possession of the instrument. The phrase given or indorsed in the context of a negotiable instrument refers to the manner in which such instrument may be negotiated. Negotiable instruments are negotiated by transfer to one person or another in such a manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by delivery.[22] The present case involves checks payable to order. Not being a payee or indorsee of the checks, private respondent Salazar could not be a holder thereof. It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.[23] Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated payee cannot be denied. Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole proprietorship which had no separate and distinct personality from her, and the latter being her personal account. The right of set-off was explained in Associated Bank v. Tan:[24]

A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. While, however, it is conceded that petitioner had the right of setoff over the amount it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an entirely different matter.[25] As businesses affected with public interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous care, always having in mind the fiduciary nature of their relationship.[26] In this regard, petitioner was clearly remiss in its duty to private respondent Salazar as its depositor. To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon, petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct. [27] The taking and collection of a check without the proper indorsement amount to a conversion of the check by the bank.[28] More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account would remain untouched, pending the resolution of the controversy between her and Templonuevo.[29] In this connection, the CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to private respondent Salazar informing her that her account had been frozen, thus: From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R. Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit 8) and debited said amount from Ms. Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor. The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent Salazars claim of damages in this regard: The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and

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Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits D, E and F respectively)[30] These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without informing her that it had already done so. For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation.[31] Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages are awarded. It is proper where depositors are compelled to litigate to protect their interest.[32] WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED. No costs. SO ORDERED. GAN TION vs. CA G.R. No. L-22490 May 21, 1969 The sole issue here is whether or not there has been legal compensation between petitioner Gan Tion and respondent Ong Wan Sieng. Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an ejectment case against the former, alleging non-payment of rents for August and September of that year, at P180 a month, or P360 altogether. The defendant denied the allegation and said that the agreed monthly rental was only P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a favorable judgment in the municipal court (of Manila), but upon appeal the Court of First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint, and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees. That judgment became final. On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a period from August 1961 to October 1963. In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The appellate court accepted the petition but eventually decided for the respondent, holding that although "respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for the benefit of the lawyer, which would have to be turned over by the client to his counsel." In the opinion of said court, the requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their own right (Art. 1278, Civil Code) and

that each one of them must be bound principally and at the same time be a principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's counsel. This is not an accurate statement of the nature of an award for attorney's fee's. The award is made in favor of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code.1 It is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000. WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution issued by the Court of First Instance of Manila in its Civil Case No. 49535 is set aside. Costs against respondent. PHILIPPINE NATIONAL BANKvs.VDA. DE ONG ACERO G.R. No. L-69255 February 27, 1987 NARVASA, J.: Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Corporation, opened with the Philippine National Bank on March 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims, sought to be definitively resolved in the proceedings at bar. 1 One claim is asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the depositor (hereafter simply referred to as ISABELA) who seek to enforce against said savings account the final and executory judgment rendered in their favor by the Court of First Instance of Rizal QC Br. XVI). The other claim has been put forth by the Philippine National Bank (hereafter, simply PNB) which claims that since ISABELA was at some point in time both its debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had occurred a mutual set-off between them, which effectively precluded the ACEROS' recourse to that deposit. The controversy was decided by the Intermediate Appellate Court adversely to the PNB. It is this decision that the PNB would have this Court reverse. The ACEROS' claim to the bank deposit is more specifically founded upon the garnishment thereof by the sheriff, effected in execution of the partial judgment rendered by the CFI at Quezon City in their favor on November 18, 1979. The partial judgment ordered payment by ISABELA to the ACEROS of the amount of P1,532,000.07. 2Notice of garnisment was served on the PNB on January 9, 1980, pursuant to the writ of execution dated December 23, 1979. 3 This was followed by an Order issued on February 15, 1980 directing PNB to hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Not quite two months later, or on April 8, 1980, a second (and the final and complete judgment) was promulgated by the CFI in favor of the ACEROS and against ISABELA. On the other hand, PNB's claim to the two-million-peso deposit in question is made to rest on an agreement between it and ISABELA in virtue of which, according to PNB: (1) the deposit was made by ISABELA as "collateral" in connection with its indebtedness to PNB as to which it (ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's failure to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness. The facts upon which PNB's theory stands are summarized in the Order of CFI Judge Solano dated October 1, 1982, 5 relevant portions of which are here reproduced: On October 13, 1977, Isabela Wood Construction and Development Corporation ** entered into a Credit Agreement with PNB. Under the agreement PNB, having approved the application of defendant (Isabela & c.) for the establishment for its account of a deferred letter of credit in the amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg (MAN) of Germany from whom defendant purchased thirty-five (35) units of MAN trucks, defendant corporation agreed to put up, as collaterals, among others, the following:

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4. The CLIENT shall assign to the BANK the proceeds of its contract with the Department of Public Works for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan. This particular proviso in the aforesaid agreement was to be subsequently confirmed by Faustino Dy, Jr., as president of defendant corporation, in a letter to the PNB, dated February 21, 1970, quoted in full as follows: Gentlemen: This is to confirm our arrangement that the treasury warrant in the amount of P2,704 millon in favor of Isabela Wood Construction and Development Corporation to be delivered either by the Commission on Audit or the Ministry of Public Highways, shall be placed in a savings account with your bank to the extent of P 2 million. The said amount shall remain in the savings account until we are able to comply with the delivery and registration of the mortgage in favor of the Philippine National Bank of our Paranaque property, and the securing from Metropolitan Bank and Home Owners Savings and Loan Association to snow PNB a second mortgage on the properties of Isabela Wood Construction Group, Inc., presently under first mortgage with them. Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement, quoted above, PNB thru its International Department opened the savings account in question, under Account No. 01058768-D, with an initial deposit of P2,000,000.00, proceeds of a treasury warrant delivered to PNB (EXHIBIT 3-A). xxx xxx xxx Since defendant corporation failed to deliver to PNB by way of mortgage its Paranaque property, neither was defendant corporation able to secure from Metropolitan Bank and Home Owners Savings and Loan Association its consent to allow PNB a second mortgage, and considering that the obligation of defendant corporation to PNB have been due and unsettled, PNB applied the amount of P 2,102804.11 in defendant's savings account of PNB. It was upon this version of the facts, and its theory thereon based on a mutual set-off, or compensation, between it and ISABELA in accordance with Articles 1278 et al. of the Civil Code that PNB intervened in the action between the ACEROS and ISABELA on or about February 28, 1980 and moved for reconsideration of the Order of February 15, 1980 (requiring it to turn over to the sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met with no success. It was denied by the Lower Court (Hon. Judge Apostol, presiding) by Order dated May 14, 1980. 6 And a motion for the reconsideration of that Order of May 14, 1980 was also denied, by Order dated August 11, 1980. PNB again moved for reconsideration, this time of the Order of August 11, 1980; it also pleaded for suspension in the meantime of the enforcement of the Orders of February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court (now presided over by Hon. Judge Solano), directed on October 9, 1980 the setting aside of the said Orders of May 14, and August 11, 1980, and set for hearing PNB's first motion for the reconsideration of the Order of February 15, 1980. 7 Several months afterwards, or more precisely on October 1, 1982, the Order of February 15, 1980 was itself also struck down, 8 the Lower Court opining that under the circumstances, there had been a valid assignment by ISABELA to PNB of the amount deposited, which effectively placed that amount beyond the reach of the ACE ROS, viz: When the two million or so treasury warrant, proceeds of defendant's contract with the government was delivered to PNB, said amount, per agreement aforequoted, had already been assigned by defendant corporation to PNB, as collateral. The said amount is not a pledge.

The assignment is valid. The defendant need not be the owner thereof at the time of assignment. An assignment of credit and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475. The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the interest and upon its price. It is not necessary for the perfection of the contract of sale that the thing be delivered and that the price be paid. Neither is it necessary that the thing should belong to the vendor at the time of the perfection of the contract, it being sufficient that the vendor has the right to transfer ownership thereof at the time it is delivered. The shoe was now on the other foot. It was the ACEROS' turn to move for reconsideration, which they did as regards this Order of October 1, 1982; but by Order promulgated on December 14, 1982, the Court declined to modify its resolution. The ACEROS then appealed to the Intermediate Appellate Court which, after due proceedings, sustained them. On September 14, 1984, it rendered judgment the dispositive part whereof reads as follows: WHEREFORE, the Orders of October 1 and December 14, 1982 of the Court a quo are hereby REVERSED and SET ASIDE, and in their stead, it is hereby adjudged: 1. That the Order of February 15, 1980 of the Court a quo is hereby ordered reinstated; 2. That intervenor PNB must deliver the amount stated in the Order of February 15, 1980 with interest thereon at 12% from February 15, 1980 until delivered to appellants, the amount of interest to be paid by PNB and not to be deducted from the deposit of Isabela Wood; 3. That intervenor PNB must pay attorney's fees and expenses of litigation to appellants in the amount of P10,000.00 plus the costs of suit. 9 This dispositive part was subsequently modified at the ACEROS' instance, by Resolution dated November 8, 1984 which inter alia "additionally ** (ordered) PNB to likewise deliver to appellants the balance of the deposit of Isabela Wood Construction and Development Corporation after first deducting the amount applied to the partial judgment of P1,532,000.00 in satisfaction of appeallants' final judgment." 10 PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in that amount. 11 So that when ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became at the same time creditors and debtors of each other, compensation automatically took place between them, in accordance with Article 1278 of the Civil Code. The amounts due from each other were, in its view, applied by operation of law to satisfy and extinguish their respective credits. More specifically, the P2M owed by PNB to ISABELA was automatically applied in payment and extinguishment of PNB's own credit against ISABELA. This having taken place, that amount of P2M could no longer be levied on by any other creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to satisfy their judgment against ISABELA.

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Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two persons, in their own right, are creditors and debtors of each other. " Also true is that compensation may transpire by operation of law, as when all the requisites therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can not apply to PNB's advantage under the circumstances of the case at bar. The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by which upon firmly established rules even this Court is bound, 12 that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence present by PNB towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA. Quite obviously, as the IAC has further observed, the most persuasive evidence of these facts i.e., ISABELA's availment of the credit, as well as the actual delivery of the goods covered by and shipped pursuant to the letter of credit-assuming these facts to have occurred, would naturally and logically have been in PNB's possession and could have been readily submitted to the Court, to wit: 1. The document of availment by the foreign creditor of the letter of credit. 2. The document of release of the amounts mentioned in the agreement. 3. The documents showing that the trucks (transported to the Philippines by the foreign creditor [MAN] were shipped to ** and received by Isabela. 4. The trust receipts by which possession was given to Isabela of the 35 (Imported) trucks. 5. The chattel mortgages over the trucks required under No. 3 of II Collaterals of the Credit Agreement (Exhibit 1). 6. The receipt by Isabela of the standing accounts sent by PNB. 7. There receipt of the letter of demand by Isabela Wood. 13 It bears stressing that PNB did not at all lack want for opportunity to produce these documents, if it does indeed have them. Judge Solano, it should be recalled, specifically allowed PNB to introduce evidence in relation to its Motion for Reconsideration filed on August 26, 1980, 14 and thus furnished the occasion for PNB to prove, among others, ISABELA's debt to it. PNB unaccountably failed to do so. Moreover, PNB never even attempted to offer or exhibit such evidence, in the course of the appellate proceedings before the IAC, which is a certain indication, in that Court's view, that PNB does not really have these proofs at ala For this singular omission PNB offers no explanation except that it saw no necessity to submit the Documents in evidence, because sometime on March 14, 1980, the ACEROS's attorney had been shown those precise documents setting forth ISABELA's loan obligations, such as the import bills and the sight draft covering drawings on the L/C for ISABELA's account and after all, the ACEROS had not really put this indebtedness in issue. 15The explanation cannot be taken seriously. In the picturesque but forceful language of the Appellate Court, the explanation "is silly as you do not prove a fact in issue by showing evidence in support thereof to the opposing counsel; you prove it by submitting evidence to the proper court." The fact is that the record does not disclose that the ACEROS have ever admitted the asserted theory of ISABELA's indebtedness to PNB. At any rate, not being privies to whatever transactions might have generated that indebtedness, they were clearly not in a position to make any declaration on the matter. The fact is, too, that the avowed indebtedness of ISABELA was an essential element of PNB's claim to the former's P2 million deposit and hence, it was incumbent on the latter to demonstrate it by competent evidence if it wished its claim to be judicially recognized and enforced. This, it has failed to do. The failure is fatal to its claim.

PNB has however deposited an alternative theory, which is that the P2M deposit had been assigned to it by ISABELA as "collateral," although not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of its indebtedness; and that PNB had in fact applied the deposit to the payment of ISABELA's debt on February 26, 1980, in concept of voluntary compensation. 16 This second, alternative theory, is as untenable as the first. In the first place, there being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any mutual set-off, or compensation, whether it be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e., which can only take place by agreement of the parties. 17 In the second place, the documents indicated by PNB as constitutive of the claimed assignment do not in truth make out any such transaction. While the Credit Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to "assign to the BANK the proceeds of its contract with the Department of Public Works for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," 18 it does not appear that that intention was adhered to, much less carried out. The letter of ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem to indicate the abandonment of that intention, in the light of the statements therein that the amount of P2M (representing the bulk of the proceeds of its contract referred to) "shall be placed in a savings account" and that "said amount shall remain in the savings account until ** (ISABELA is) able to comply with" specified commitments these being: the constitution and registration of a mortgage in PNB's favor over its "Paranaque property," and the obtention from the first mortgage thereof of consent for the creation of a second lien on the property. 19 These statements are to be sure inconsistent with the notion of an assignment of the money. In addition, there is yet another circumstance militating against the actuality of such an assignment-the "most telling argument" against it, in fact, in the line of the Appellate Court-and that is, that PNB itself, through its International Department, deposited the whole amount of ?2 million, not in its name, but in the name of ISABELA,20 without any accompanying statement even remotely intimating that it (PNB) was the owner of the deposit, or that an assignment thereof was intended, or that some condition or lien was meant to burden it. Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply the P2M deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the application was attempted to be made by PNB only on February 26, 1980, that essayed application was ineffectual and futile because at that time, the deposit was already in custodia legis, notice of garnishment thereof having been served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the Court of First Instance on December 23, 1979 for the enforcement of the partial judgment in the ACEROS' favor rendered on November 18,1979). One final factor precludes according validity to PNB's arguments. On the assumption that the P 2M deposit was in truth assigned as some sort of "collateral" to PNB although as PNB insists, it was not in the form of a pledge the agreement postulated by PNB that it had been authorized to assume ownership of the fund upon the coming into being of ISABELA s indebtedness is void ab initio, it being in the nature of a pactum commisoruim proscribed as contrary to public policy. 21 WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant appeal, being fully in accord with the facts and the law, is hereby affirmed in toto. Costs against petitioner. SO ORDERED. Francia vs. Intermediate Appellate Court GR L-67649, 28 June 1988 Third Division, Gutierrez Jr. (J): 4 concur Facts: Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from 1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Issue:

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Whether the expropriation payment may compensate for the real estate taxes due Held: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. Internal revenue taxes cannot be the subject of compensation. The Government and the taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim of taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Furthermore, the tax was due to the city government. While the expropriation effected by the national government. In fact, the expropriation payment was already deposited with the PNB long before the sale at public auction of his property was conducted. LORETO J. SOLINAP vs.HON. AMELIA K. DEL ROSARIO G.R. No. L-50638 July 25, 1983 Posed for resolution in this petition is the issue of whether or not the obligation of petitioners to private respondents may be compensated or set- off against the amount sought to be recovered in an action for a sum of money filed by the former against the latter. The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental of P50,000.00 a year. It was further agreed in the lease contract that out of the aforesaid annual rental, the sum of P25,000.00 should be paid by Solinap to the Philippine National Bank to amortize the indebtedness of the spouses Lutero with the said bank. Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate proceedings of the deceased, docketed as Sp. Proc. No. 1870 of the Court of First Instance of Iloilo, presided by respondent Judge Amelia K. del Rosario. In the course of the proceedings, the respondent judge, upon being apprized of the mounting interest on the unpaid account of the estate, issued an order, stating, among others, "that in order to protect the estate, the administrator, Judge Nicolas Lutero, is hereby authorized to scout among the testamentary heirs who is financially in a position to pay all the unpaid obligations of the estate, including interest, with the right of subrogation in accordance with existing laws." On the basis of this order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the Philippine National Bank the sum of P25,000.00 as partial settlement of the deceased's obligations. Whereupon the respondents Lutero filed a motion in the testate court for reimbursement from the petitioner of the amount thus paid. They argued that the said amount should have been paid by petitioner to the PNB, as stipulated in the lease contract he had entered into with the deceased Tiburcio Lutero; and that such reimbursement to them was proper, they being subrogees of the PNB. Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in the Court of First Instance of Iloilo a separate action against the spouses Juanito Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00, docketed as Civil Case No. 12397. Petitioner alleged in the complaint that on April 25, 1974 the defendants Lutero borrowed from him the sum of P45,000.00 for which they executed a deed of real estate mortgage; that on July 2, 1974, defendants obtained an additional loan of P3,000.00, evidenced by a receipt issued by them; that defendants are further liable to him for the sum of P23,000.00, representing the value of certain dishonored checks issued by them to the plaintiff; and that defendants refused and failed to settle said accounts despite demands. In their answer, the respondents Lutero traversed the material averments of the complaint and set up legal and factual defenses. They further pleaded a counterclaim against petitioners for the total sum of P 125,000.00 representing unpaid rentals on Hacienda Tambal. Basis of the counterclaim is the allegation that they had purchased one-half [1/2] of Hacienda Tambal, which their predecessors, the spouses Tiburcio Lutero and Asuncion Magalona, leased to the plaintiff for a rental of P50,000.00 a year; and that plaintiffs had failed to pay said rentals despite demands. At the pre-trial, the parties defined the issues in that case as follows:

(1) Whether or not the defendants [Luteros] are indebted to the plaintiff and, if so, the amount thereof; (2) Whether or not the defendants are the owners of one-half [1/2] of that parcel of land known as 'Hacienda Tambal' presently leased to the plaintiff and, therefore, entitled to collect from the latter one-half [1/2] of its lease rentals; and in the affirmative, the amount representing the unpaid rental by plaintiff in favor of the defendant. 1 On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, granting the respondent Lutero's motion for reimbursement from petitioner of the sum of P25,000.00 plus interest, as follows: WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses Juanito Lutero and Hardivi R. Lutero the sum of P25,000.00 with interest at 12% per annum from June 17, 1975 until the same shall have been duly paid. Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-48776, assailing the above order. This Court, however, in a resolution dated January 4, 1979 dismissed the petition thus: L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this case as well as the comment thereon of respondents and the reply of petitioner to said comment, the Court Resolved to DISMISS the petition for lack of merit, anyway, the P25,000.00 to be paid by the petitioner to the private respondent Luteros may well be taken up in the final liquidation of the account between petitioner as and the subject estate as lessor. Thereafter the respondent Luteros filed with the respondent court a "Motion to Reiterate Motion for Execution of the Order dated June 14, 1978." Petitioner filed a rejoinder to said motion, raising for the first time the thesis that the amount payable to private respondents should be compensated against the latter's indebtedness to him amounting to P71,000.00. Petitioner attached to his rejoinder copies of the pleadings filed in Civil Case No. 12397, then pending before Branch V of the Court of First Instance of Iloilo. This motion was denied by respondent judge on the ground that "the claim of Loreto Solinap against Juanito Lutero in Civil Case No. 12397 is yet to be liquidated and determined in the said case, such that the requirement in Article 1279 of the New Civil Code that both debts are liquidated for compensation to take place has not been established by the oppositor Loreto Solinap." Petition filed a motion for reconsideration of this order, but the same was denied. Hence, this petition. The petition is devoid of merit. Petitioner contends that respondent judge gravely abused her discretion in not declaring the mutual obligations of the parties extinguished to the extent of their respective amounts. He relies on Article 1278 of the Civil Code to the effect that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. The argument fails to consider Article 1279 of the Civil Code which provides that compensation can take place only if both obligations are liquidated. In the case at bar, the petitioner's claim against the respondent Luteros in Civil Case No. 12379 is still pending determination by the court. While it is not for Us to pass upon the merits of the plaintiffs' cause of action in that case, it appears that the claim asserted therein is disputed by the Luteros on both factual and legal grounds. More, the counterclaim interposed by them, if ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized as liquidated credit which may properly be set-off against his obligation. As this Court ruled in Mialhe vs. Halili, 2 " compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount involved be certain and liquidated." WHEREFORE, the petition is dismissed, with costs against petitioner.

G.R. No. L-30187 June 25, 1980 REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN ADMINISTRATION vs. HON. WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of First Instance of Rizal, Branch IV, Quezon City and MARCELO STEEL CORPORATION CONCEPCION JR., J.: Petition for certiorari and prohibition, with preliminary injunction to annul and set aside the order of the respondent Judge in Civil

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Case No. Q-9384 of the Court of First Instance of Rizal Branch IV, Quezon City, entitled "Petra R. Farin, et al., petitioners, versus Benito Macrohon, et al., respondents," dated December 23, 1967, ordering "the Rice and Corn Administration and all other business concerns holding offices at the building known as 'Doa Petra Building,' through their proper representative ... to channel or pay directly to herein respondent Meralco Steel Corporation, at its main office at Malabon, Rizal the rents for the use of the said building, offices, and/or premises," as well as the orders dated April 3, 1968, May 14, 1968, and December 19, 1968, all affirming the said order of December 23, 1967. It appears that on October 29, 1964, the spouses Petra R. Farin and Benjamin Farin obtained a loan from the Marcelo Steel Corporation in the amount of P600,000.00, and as security therefor, the said spouses constituted, in favor of the said corporation, a real estated mortgage upon their parcel of land situated at Quezon City covered by TCT No. 42589 of the Registry of Deeds of Quezon City. 1 On July 24, 1965, the mortgagee wrote the Sheriff of Quezon City requesting the extrajudicial foreclosure of the aforesaid mortgage. 2 Accordingly, the sheriff advertised and scheduled the extra-judicial foreclosure sale of the mortgaged property for August 26, 1965. However, on August 21, 1965, the mortgagors filed a petition for prohibition with injunction and damages against Benito Macrohon, as sheriff of Quezon City, and the Marcelo Steel Corporation, with the Court of First Instance of Rizal docketed therein as Civil Case No. Q-9384, wherein they prayed that the respondent Sheriff be permanently enjoined from proceeding with the scheduled sale at public auction of the mortgaged property, and that the respondent Corporation be condemned to pay the petitioners P200,000.00 as actual and moral damages and P50,000.00 as penal and compensatory damages and P30,000.00 as attorney's fees, upon the ground that they have not been in default in the payment of their obligation. 3 Acting upon the petition, the herein respondent Judge Walfrido de los Angeles, issued an order commanding the respondent Sheriff and the respondent Corporation to desist from proceeding with the public auction sale of the property scheduled on August 26, 1965. 4 While the above case was pending, Petra Farin lease portions of the "Doa Petra Building situated on the mortgaged premises, to the Rice and Corn Administration, (RCA, for short), for the amount of P11,500.00 per month, payable on or before the 5th day of the incoming month. 5 On December 9, 1967, the Meralco Steel Corporation invoking paragraph 5 of the mortgage contract, 6 filed a motion praying that an order be issued directing and/or authorizing the Rice and Corn Administration (RCA) and an other business concerns holding offices at the Doa Petra Building to channel or pay directly to it the rents for the use of the building. 7 On December 23, 1967, the respondent Judge of first instance issued the questioned order, the dispositive portion of which reads, as follows: AS PRAYED FOR, the Rice and Corn Administration and all other business concerns holding offices at the be known as 'Doa Petra Building', through their proper representative and the petitioners as well are ordered to channel or pay directly to herein respondent, Marcelo Steel Corporation, at its main office at Malabon, Rizal the rents for the use of the said building, offices, and/or premisee. 8 The RCA filed a motion for the reconsideration of said order, praying that it be excluded therefrom, for the reasons that (a) the rents due Petra Farin had been assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra Farin has an outstanding obligation with the RCA in the amount of P263,062.40, representing rice shortages incurred by her as a bonded warehouse under contract with the RCA, which should be compensated with the rents due and may be due; and (c) RCA was never given an opportunity to be heard on these matters. 9 Petra and Benjamin Farin filed a similar motion for the reconsideration of the disputed order of December 23, 1967, alleging that (a) the lessees of the Doa Petra Building are not such amounts collected and received in payment of the interest on the obligation of all expenses of whatever kind and nature by the MORTGAGEE in connection with this mortgage, and on the

principal obligation in the order they are enumerated and all acts done in conformity with the power herein granted are hereby ratified." Parties to the case and were not served with a copy of the motion of Marcelo Steel Corporation, filed on December 9, 1967, so that the Court has no jurisdiction over them; (b) Petra Farin has assigned a portion of the monthly rental due from RCA to Vidal A. Tan, who has acquired proprietary rights thereto, and (c) under the power of attorney provided for in the real estate mortgage contract, the rents collected shall be applied to the interest on he obligation, and the legality of the additional interest at the rate of 12% per annum of the total amount of the mortgage indebtedness in addition to the 12% annual interest being charged by the Marcelo Steel Corporation on said indebtedness is directly at issue in the case, so that to enforce the disputed portion of the real estate mortgage contract and allow the Marcelo Steel Corporation to collect rents and apply the same to the interests on the loan would be premature. 10 The trial court denied both motions for reconsideration on April 3, 1968, 11 and on April 17, 1968 the RCA filed a second motion for reconsideration, insisting that the claim of Marcelo Steel Corporation for rents has no legal basis because even a mortgagee who has successfully foreclosed a mortgage is not entitled to the fruits and rents of the property during the one-year redemption period, and that Marcelo Steel Corporation, after it had chosen to foreclose the mortgage, cannot resort to the provision of the mortgage contract authorizing the mortgagee to collect and receive rents and to apply said amounts to the payment of the principal obligation and the interests thereon; and that no rents are due Petra Farin because she has an accountability with the RCA in the amount of P263,062.40, which amount should be compensated with the rents due. 12 No action appears to have been taken on this motion. On May 10, 1968, Petra Farin filed an urgent ex parte motion to authorize the RCA to release the rentals corresponding to the months of December, 1967, January and February, 1968, amounting to P37,500.00 so as to enable her to make the necessary repairs on the air conditioning system of the Doa Petra Building, stating, among others, that "That RCA is ready, willing and able to release to the petitioners the rentals mentioned above.13 The respondent Judge granted the motion, saying. Considering the urgent ex-parte motion, etc. dated May 10, 1968 filed by the plaintiff, thru counsel and finding the reasons alleged therein to be well-founded; AS PRAYED FOR, the Rice and Corn Administration (RCA) is hereby authorized to deliver to the herein Petitioners their rentals for the use of portions of the Dofia Petra Building corresponding to December, 1967; January 30, February, 1968, all amounting to P37,500.00, to enable the petitioners to forthwith effect the necessary repairs of the air-conditioning system of the said building Doa Petra Building. However, all succeeding rentals should be delivered to the Marcelo Steel Corporation as previously ordered in the order of December 23, 1967. 14 On May 17, 1968, the RCA filed a motion to set aside the said order, c g that the allegations contained in the motion dated May 10, 1968, that "The RCA is ready, willing and able to release to the petitioners the rentals mentioned above is unauthorized and gratuitous, and the delivery of the withheld rentals to Petra R. Farin would defeat its claim without giving the corporation its day in court. 15 But, the trial court denied the motion, saying: Considering the motion to set aside the order of May 14, 1968, filed by the Rice and Corn Administration and finding the same to be without merit, the same is thereby DENIED. The records does not show any proof that the plaintiff, Petra Farin, is indebted to the aforesaid movant, RCA, as allegedly in the said motion and assuming that the herein plaintiff is really indebted to the RCA, the records further does not show that a case has been filed

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against her for the payment of such obligation, and therefore, there is no apparent legal ground to hold the payment of the rentals due the plaintiff. 16 On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to pay rentals to Marcelo Steel Corporation, reiterating therein the grounds alleged in its motion for reconsideration dated January 19, 1968, and in its second motion for reconsideration dated April 17, 1968, which has remained unacted upon. In said motion, the RCA emphasized that it is not a party to the case; that it had been denied due process for lack of notice and the right to be heard; that compensation took place by operation of law pursuant to Art. 1286 of the Civil Code without the need of a case against Petra R. Farin, or a decision rendered against her for the payment of such obligation; and that the provisions of the Rules of Court permitting a judgment creditor to reach money or property in the hands of third persons file the RCA, all purpose a final judgment, and not a mere interlocutory order. 17 The motion was denied on December 19, 1968, 18 and when the RCA received a letter from counsel for the Marcelo Steel Corporation, dated January 2, 1969, requesting compliance with the order of December 23, 1967, and the payment of accrued rentals, 19 the petitioner instituted the present recourse. Insofar as it recognized the right of the herein private respondent, Marcelo Steel Corporation, to collect and receive rentals from the lessees of the Doa Petra Building, the order of December 23, 1967 was within the competence of the respondent Judge, since the lessor-mortgagor, Petra Farin, had empowered the said corporation to collect and receive any interest, dividend, rents, profits or other income or benefit produced by or derived from the mortgaged property under the terms of the real estate mortgage contract executed by them. But, the respondent Judge exceeded his jurisdiction in ordering or compelling the lessees of the said building, the RCA among others, to pay the rentals to the respondent Corporation, without giving the lessees an opportunity to be heard. The said lessees are not parties to the case between the lessor and the Marcelo Steel Corporation. The RCA, in particular, was not furnished with a copy of the motion of the respondent Corporation, dated December 9, 1967, praying that an order be issued directing and/or authorizing the RCA and other lessees to channel or pay directly to the said corporation the rents for the use of the Doa Petra Building, so that the RCA was deprived of its day in court and precluded it from presenting the defenses that it has against the lessor which, in this case, are: (1) that the rents due to Petra Farin had been assigned by her to Vidal A. Tan with the acquiescence of the RCA, who has acquired proprietary rights thereto and would be deprived of his property without due process of law; and (2) that the lessor Petra R. Farin has an outstanding obligation to the RCA in the amount of P263,062.40 which should be compensated with the rentals already due or may be due. The said order clearly violated the constitutional provision against depriving a person of his property without due process of law. 20 While there may be rents due the lessor for the use of portions of the Doa Petra Building, otherwise there would be no claim of compensation, the collection of said rents should not be done in an arbitrary and illegal manner. Certain ruled should be observed and justice accorded the parties whose property rights would be adversely affected thereby. Since the order of December 23, 1967 was issued in executive s of jurisdiction, the said order is null and void and of no legal t effect. The respondent Judge also erred in denying the claim of the RCA that compensation of debts had taken place allegedly because "The records does not show any proof that the plaintiff is indebted to the aforesaid movant, RCA, as alleged in the said motion and assuming that the herein plaintiff is really indebted to the RCA, the records further does not show that a case has been filed against her, or a decision has been rendered against her for the payment of such obligation." Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may be required. In the instant case, the claim of the RCA that Petra R. Farin has an outstanding obligation to the RCA in the amount of P263,062.40 which should be compensated against the rents already due or may be due, was raised by the RCA in its motion for the reconsideration of the order of December 23, 1967. A copy of said motion was duly furnished counsel for Petra R. Farin and although the said Petra R. Farin subsequently filed a similar motion for the reconsideration of the order of December 23, 1967, she did not dispute nor deny such claim Neither did the Marcelo Steel Corporation dispute such claim of compensation in its opposition to the motion for the

reconsideration of the order of December 23, 1967. 21 The silence of Petra R. Farin, order of December 23, 1967. although the declaration is such as naturally one to call for action or comment if not true, could be taken as an admission of the existence and validity of such a claim. Therefore, since the claim of the RCA is undisputed, proof of its liquidation is not necessary. At any rate, if the record is bereft of the proof mentioned by the respondent Judge of first instance, it is because the respondent Judge did not call for the submission of such proof. Had the respondent Judge issued an order calling for proof, the RCA would have presented sufficient evidence to the satisfaction of the court. WHEREFORE, the petition is granted and the order issued on December 23, 1967 in Civil Case No. Q-9384 of the Court of First Instance of Rizal, Quezon City, Branch IV, entitled: Petra R. Farin, et al. petitioners, versus Benito Macrohon, et al., respondents," as well as the orders dated April 3, 1968, May 14, 1968, and December 19, 1968, all affirming the said order of December 23, 1967, should be, as they are hereby, annulled and set aside. With costs against the respondent Marcelo Steel Corporation.

Sycip v. CA, 134 SCRA 317 G.R. No. L-38711, January 31, 1985 RELOVA, J.: On August 25, 1970, the then Court of First Instance of Manila rendered a decision convicting the herein petitioner Francisco Sycip of the crime of estafa and sentencing him to an indeterminate penalty of three (3) months of arresto mayor, as minimum to one (1) year and eight (8) months of prision correccional, as maximum; to indemnify complainant Jose K. Lapuz the sum of P5,000.00, with subsidiary imprisonment in case of insolvency; and to pay the costs. The then Court of Appeals affirmed the trial court's decision but deleted that part of the sentence imposing subsidiary imprisonment. The facts of the case as found by respondent appellate court read: ... [I]n April 1961, Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock of the Republic Flour Mills, Inc., covered by Certificate No. 57 in the name of Dwight Dill who had left for Honolulu. Jose K. Lapuz "was supposed to sell his (the shares) at present market value out of which I (he) was supposed to get certain commission." According to Jose K. Lapuz, the accused-appellant approached him and told him that he had good connections in the Stock Exchange, assuring him that he could sent them at a good price. Before accepting the offer of the accused-appellant to sent the shares of stock, Jose K. Lapuz made it clear to him that the shares of stock did not belong to him and were shortly entrusted to him for sale. He then gave the shares of stock to the accused-appellant who put them in the market. Thereafter, Jose K. Lapuz received a letter from the accusedappellant, dated April 25, 1961 (Exhibit "A"), the latter informing him that "1,758 shares has been sold for a net amount of P29,000.00," but that the transaction could not be concluded until they received the Power of Attorney duly executed by Dwight Dill, appointing a person to endorse the certificate of stock, and a resolution from the Biochemical Research Laboratory, Inc., authorizing the transfer of the certificate. Jose K. Lapuz signed his conformity to the contents of the letter. Jose K. Lapuz declared that he "was able to secure a power of attorney of Dr. Dwight Dill, and gave it to the accused-appellant." The power of attorney authorized the sale of 1,758 shares only; the difference of 242 shares were given back to Biochemical Research Laboratory, Inc. Of the 1,758 shares of stock, the accused-appellant sold 758 shares for P12,128.00 at P16.00 a share, for which Jose K. Lapuz issued a receipt, dated May 23, 1961 (Exhibit "C"). On the same day, Jose K. Lapuz turned over to Albert Smith the sum of P9,981.40 in payment of 758 shares of P14.00 a share (Exhibits "D" and "E"). On May 30, 1961, Jose K. Lapuz received a letter from the accused-appellant (Exhibit "F"), the latter informing him that "although the deal (relative to the 1,000 shares) has been closed, actual delivery has been withheld pending receipt of payment ..., I have chose(n) to return the shares ...," enclosing Certificate No. 955 for 500 shares, Certificate No. 952 for 50 shares in name of Felix Gonzales, and the photostat of Certificate No. 953 for 208

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shares, which had been sold to Trans Oceanic Factors and Company, for which a check would be issued "within the next few days." He promised to deliver the 242 shares as soon as he would have received them from one Vicente Chua. "The next day (May 31, 1961), Jose K. Lapuz wrote a letter to the accused-appellant (Exhibit "C"), stating therein, "Per our conversation this morning, I hereby authorize you to sell 1,000 shares of Republic Flour Mills." Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated June 1, 1961 (Exhibit "I"), confirming their conversation on that date that "500 shares out of the 1,000 shares of the Republic Flour ... has been sold," and stating further that "pending receipt of the payment, expected next week, we are enclosing herewith our draft to cover the full value of 500 shares." He asked in that letter, "Please give me the 50 shares in the name of Mr. Felix Gonzales and the photostat of 208 shares in the name of Trans Oceanic Factors and Company." The date of the letter (Exhibit "I") is disputed, the prosecution contending that it should be July 1, 1961, not June 1, 1961. The contention of the prosecution has the support of the date of the draft (Exhibit "J") mentioned in the letter. The accused-appellant sold and paid for the other 500 shares of stock, for the payment of which Jose K. Lapuz issued in his favor a receipt, dated June 9, 1961 (Exhibit "H"). The draft (Exhibit "J") for P8,000.00, "the full value of the 500 shares' mentioned in the letter of the accused-appellant (Exhibit "I"), was dishonored by the bank, for lack of funds. Jose K. Lapuz then "discovered from the bookkeeper that he got the money and he pocketed it already, so I (he) started hunting for Mr. Sycip" (accused-appellant). When he found the accused-appellant, the latter gave him a check in the amount of P5,000.00, issued by his daughter on July 12, 1961 (Exhibit "K"). This also was dishonored by the bank for lack of sufficient funds to cover it (Exhibits "K-l" and "K-2"). When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa case (in the) fiscals office ... against him' unless he raise [the] balance left eight thousand" (Exhibit "L"), the accusedappellant answered him by sending a wire, "P5,000 remitted ask boy check Equitable (Exhibit "M"). But "the check was never made good," so Jose K. Lapuz testified. He had to pay Albert Smith the value of the 500 shares of stock." (Petitioner's brief, pp. 58-62) Coming to this Court on a petition for review on certiorari, petitioner claims that respondent appellate court erred (1) in denying petitioner of a hearing, as provided under Section 9, Rule 124, Rules of Court; (2) in not upholding due process of law (Sections 1 and 17), Article IV, Bill of Rights, Constitution; (3) in refusing to uphold the provisions on compensation, Articles 1278 and 1279, Civil Code; (4) in not dismissing the complaint, even granting arguendo, that compensation does not apply; (5) in not ruling that a consummated contract (Deed of Sale, Exhibit '10') is not covered by the Statute of Frauds and that its decision is not in accordance with Section 4, Rule 51, Rules of Court; and, (6) in ignoring the ruling case promulgated by this Honorable Supreme Court in People vs. Benitez, G.R. No. L-15923, June 29, 1960, in its applicability to offenses under Article 315, paragraph 1 (b) of the Penal Code. Petitioner in his first and second assigned errors argues that respondent Court of Appeals erred in denying him his day in court notwithstanding his motion praying that the appealed case be heard. He invokes Section 9 of Rule 124 of the Revised Rules of Court and relates it to Sections 1 and 17 of Article IV of the New Constitution. This contention is devoid of merit. Petitioner was afforded the right to be present during every step in the trial before the Court of First Instance, that is, from the arraignment until the sentence was promulgated. On appeal, he cannot assert as a matter of right to be present and to be heard in connection with his case. It is the procedure in respondent court that within 30 days from receipt of the notice that the evidence is already attached to the record, the appellant shall file 40 copies of his brief with the clerk accompanied by proof of service of 5 copies upon the appellee (Section 3, Rule 124 of the Revised Rules of Court). Within 30 days from receipt of appellant's brief, the appellee shall file 40 copies of his brief with the clerk accompanied by proof of service of 5 copies upon the appellant (Section 4, Rule 124 of the Revised Rules of Court). Each party may be allowed extensions of time to file brief for good and sufficient cause. Thereafter, the appellate court may reverse, affirm or modify the judgment, increase or reduce the penalty imposed, remand the case for new trial or re-trial or dismiss the case (Section 11, Rule 124 of the Revised Rules of Court). It is discretionary on its part whether or not to set a case for oral argument. If it desires to hear the parties

on the issues involved, motu propio or upon petition of the parties, it may require contending parties to be heard on oral arguments. Stated differently, if the Court of Appeals chooses not to hear the case, the Justices composing the division may just deliberate on the case, evaluate the recorded evidence on hand and then decide it. Accused-appellant need not be present in the court during its deliberation or even during the hearing of the appeal before the appellate court; it will not be heard in the manner or type of hearing contemplated by the rules for inferior or trial courts. In his third and fourth assigned errors, petitioner contends that respondent Court of Appeals erred in not applying the provisions on compensation or setting-off debts under Articles 1278 and 1279 of the New Civil Code, despite evidence showing that Jose K. Lapuz still owed him an amount of more than P5,000.00 and in not dismissing the appeal considering that the latter is not legally the aggrieved party. This contention is untenable. Compensation cannot take place in this case since the evidence shows that Jose K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their own right are creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same time a principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not consent to the off-setting of his obligation with petitioner's obligation to pay for the 500 shares. Anent the fifth assigned error, petitioner argues that the appellate court erred in not ruling that the deed of sale is a consummated contract and, therefore, not covered by the Statute of Frauds. It must be pointed out that the issue on whether or not the alleged contract of sale is covered by the Statute of Frauds has not been raised in the trial court or with the Court of Appeals. It cannot now be raised for the first time in this petition. Thus, there is no need for respondent court to make findings of fact on this matter. With respect to the sixth assigned error, petitioner points out that the Court of Appeals erred in affirming the decision of the trial court convicting him of the crime charged. Petitioner mentions that in People vs. Benitez, G.R. No. L-15923, June 30, 1960 (108 Phil. 920), We have ruled that to secure conviction under Article 315, paragraph 1 (b), Revised Penal Code, it is essential that the following requirements be present: (a) existence of fraud; (b) failure to return the goods on demand; and (c) failure to give any reason or explanation to the foregoing. He claims that nowhere in the decision was he found to have any particular malice or intent to commit fraud, or, that he failed to return the shares on any formal demand made by Jose K. Lapuz to him, and/or was he unable to make any explanation thereto. On this score, We only have to quote from the decision of the respondent court, as follows: The "malice or intent to commit fraud" is indicated in that part of the decision herein before quoted, that is, the accused- appellant "received from Jose K. Lapuz the 500 shares in question (a part of 1,758 shares) for sale, and that, although the same had already been sold, the accused ... failed to turn over the proceeds thereof to Jose K. Lapuz." The abuse of confidence in misappropriating the funds or property after they have come to the hands of the offender may be said to be a fraud upon the person injured thereby (U.S. vs. Pascual, 10 Phil. 621). xxx xxx xxx The accused-appellant having informed Jose K. Lapuz that the "500 shares out of the 1000 shares ... has been sold" (Exhibit "I"), for which he issued a draft for P8,000.00 (Exhibit "J"), the latter cannot be expected to make a demand for the return of the 500 shares. His demand was for the payment of the shares when the draft was dishonored by the bank. The delivery of a worthless check in the amount of P5,000.00 by the accused-appellant to Jose K, Lapuz, after the latter's "hunting" for him is even a circumstance indicating intent to commit fraud. (pp. 48-49, Rollo) xxx xxx xxx His explanation of his inability to return the 500 shares of stock is not satisfactory. ... If it is true that he gave the 500 shares of stock to his creditor, Tony Lim, he is nonetheless liable for the crane of estafa, he having received the 500 shares of stock to be sold on commission. By giving the shares to his creditor, he thereby committed estafa by conversion. (pp. 49-50, Rollo) Indeed, Jose K. Lapuz demanded from petitioner the amount of P5,000.00 with a notice that in the event he (petitioner) would fail to pay the amount, Lapuz would file an estafa case against him.

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By and large, respondent Court of Appeals has not overlooked facts of substance and value that, if considered, would alter the result of the judgment. WHEREFORE, for lack of merit the petition is hereby DISMISSED. SO ORDERED.

WHEREFORE, since only questions of law are involved and there is no factual issue left for us to determine, let the records of the appeal in this case be certified to the Honorable Supreme Court for determination. After considering the briefs of the parties in the appellate court and the additional pleadings required of them by this Court, the Court finds merit in the appeal and sets aside the appealed orders of June 26 and August 28, 1978 of the Court of First Instance (now Regional Trial Court) of Manila, Branch XX. It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corporation (appellant) and respondent Pacweld Steel Corporation (appellee), were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the Court of First Instance in two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of attorney's fees. The two (2) obligations, therefore, respectively offset each other, compensation having taken effect by operation of law and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic compensation "even though the creditors and debtors are not aware of the compensation" were duly present.** Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for amendment of the judgment of September 14, 1976 against Mindanao Portland Cement Corporation so as to make the award therein of P10,000.00 as attorney's fees payable directly to himself as counsel of Pacweld Steel Corporation instead of payable directly to said corporation as provided in the judgment, which had become final and executory long before the issuance of said "amendatory" order was a void alteration of judgment. It was a substantial change or amendment beyond the trial court's jurisdiction and authority and it could not defeat the compensation or set-off of the two (2) obligations of the corporations to each other which had already extinguished both debts by operation of law. ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs. ANAMER SALAZAR VS. PEOPLE AND J.Y. BROTHERS MARKETING CORP. G.R. No. 151931, September 23, 2003 Facts: Petitioner Anamer Salazar purchased 300 cavans of rice from J.Y. Brothers Marketing. As payment for these, she gave a check drawn against the Prudential Bank by one Nena Timario. J.Y. accepted the check upon the petitioners assurance that it was good check. Upon presentment, the check was dishonored because it was drawn under a closed account. Upon being informed of such dishonor, petitioner replaced the check drawn against the Solid Bank, which, however, was returned with the word DAUD (Drawn against uncollected deposit). After the prosecution rested its case, the petitioner filed a Demurrer to Evidence with Leave of Court. The trial court rendered judgment acquitting the petitioner of the crime charged but ordering her to pay, as payment of her purchase. The petitioner filed a motion for reconsideration on the civil aspect of the decision with a plea that she be allowed to present evidence pursuant to Rule 33 of the Rules of Court, but the court denied the motion. Issues: 1) Does the acquittal of the accused in the criminal offense prevent a judgment against her on the civil aspect of the case? 2) Was the denial of the motion for reconsideration proper? Held: 1) The rule on the Criminal Procedure provides that the extension of the penal action does not carry with it the extension of the civil action. Hence, the acquittal of the accused does not prevent a judgment against him on the civil aspect of the case where a) the acquittal is based on reasonable doubt as only preponderance of evidence is required; b) where the court declared that the liability of the accused is only civil; c) where the civil liability of the accused does not arise from or is not based upon the crime of which the accused was acquitted. 2) No, because after an acquittal or grant of the demurrer, the trial shall proceed for the presentation of evidence on the civil aspect of the case. This is so because when the accused files a demurrer to evidence, the accused has not yet adduced evidence both on the criminal and civil aspect of the case. The only evidence on record

MINDANAO PORTLAND CEMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P. LAQUIHON respondents. G.R. No. L-62169 February 28, 1983 TEEHANKEE, J.: The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal therein as defendant-appellant, docketed as C.A.-G.R. No. 65102 thereof, to this Court as involving only questions of law in its Resolution of August 31, 1982, reading as follows: The 'Statement of the Case and the Statement of Facts' contained in appellant's brief follow: STATEMENT OF FACTS On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation (Pacweld for short) as the latter's attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff Mindanao Portland Cement Corporation (MPCC) for short), herein appellant, entitled 'motion to direct payment of attorney's fee to counsel' (himself ), invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-9). On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that said amount is set-off by a like sum of P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of attorney's fees which MPCC recovered from the same Court of First Instance of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld Steel Corporation, et al. writ of execution to this effect having been issued by said court (Record on Appeal, pp, 2,10- 14). On June 26, 1978 the court issued the order appealed from (Record on Appeal, pp. 24-25) and despite MPCCs motion for reconsideration of said order, citing the law applicable and Supreme Court decisions (Record on Appeal, pp. 26-33), denied the same in its order of August 28, 1978 (Record on Appeal, p. 37), also subject matter of this appeal. The writ of execution referred to above which MPCC has invoked to set- off the amount sought to be collected by Pacweld through the latter's lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in full. In his brief, appellee comments that the statements in appellant's brief are 'substantially correct,' as follows: STATEMENT OF THE CASE This is an appeal from the Order of the Court of First Instance of Manila (Branch X dated June 26, 1978 ordering the appellant (MINDANAO PORTLAND CEMENT CORPORATION) to pay the amount of P10,000.00 attorney's fees directly to Atty. Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from the Order dated August 28, 1978 denying appellant's motion for reconsideration (Record on Appeal, p. 37). There was no trial or submission of documentary evidence. Against the orders of June 26. 1978, and August 28, 1978, appellant has brought this appeal to this Court, contending that: The lower court erred in not holding that the two obligations are extinguished reciprocally by operation of law.' (p. 6, Appellant's Brief) This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil Code, as urged by the appellant. Another question is: The judgment in Civil Case No. 75179 being already final at the time the motion under consideration was filed, does not the order of June 26, 1976 constitute a change or alteration of the said judgment, though issued by the very same court that rendered the judgment?

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is the evidence for the prosecution. What the trial court should do is to set the case for continuation of the trail for the petitioner to adduce evidence on the civil aspect and for the private offended party adduce evidence by way of rebuttal as provided for in Sec.11, Rule 119 of the Revised Rules on Criminal Procedure. Otherwise, it would be a nullity for the reason that the constitutional right of the accused to due process is thereby violated. Dishonor; acceptance as resulting in novation. Petitioners claim that respondents acceptance of the Solid Bank check which replaced the dishonored Prudential bank check resulted to novation which discharged the latter check is unmeritorious. In Nyco Sales Corporation v. BA Finance Corporation, we found untenable petitioner Nycos claim that novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a Security Bank check. In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Anamer Salazar vs. J.Y. Brothers Marketing Corporation, G.R. No. 171998, October 20, 2010. Dishonor; liability of accommodation indorser. Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such instruments. We have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein. The change in the mode of paying the obligation was not a change in any of the objects or principal condition of the contract for novation to take place. Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check was not extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error committed by the CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored Prudential Bank check. Anamer Salazar vs. J.Y. Brothers Marketing Corporation, G.R. No. 171998, October 20, 2010.

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