SOLAR HARVEST INC V.

DAVAO CORRUGATED CARTON CORP,

G.R. NO 176868 (2010)
FACTS: In 1998, Solar Harvest Inc. entered into an agreement with
Davao Corrugated Carton Corp for the purchase of corrugated
carton boxes, for Solars business of exporting fresh bananas. To
get the production underway, Solar Harvest made a full payment
for the ordered boxes
1. Despite such payment, Solar Harvest did not receive any
boxes. In Jan 2001, petitioner wrote a demand letter for
reimbursement of the amount it paid. Davao Corrugated
replied that the boxes had been completed as early as April
1998, but petitioner failed to pick them up from Davaos
warehouse. Respondent, then, demanded petitioner to
remove the boxes and pay for the storage fee
2. As such, petitioner filed an action for sum of money against
Davao Corrugated.
3. RTC ruled that respondent did not commit any breach of
faith that would justify rescission of the contract and the
consequent
ISSUE: WON Davao Corrugated was responsible for breach of
contract as Solar had not yet demanded delivery of the boxes
HELD: No. Petitioners claim for reimbursement is actually one for
rescission (resolution). As provided by Art 1191 NCC, the right to
rescind contracts arises once the party defaults in the performance
of his obligation. The obligor incurs delay, according to Art 1169,
from the time the obligee makes a demand judicially or
extrajudicially the fulfillment of the obligation. However, demand is
not necessary in order that delay may exist in the following
circumstances:
CA held that it was unthinkable that petitioner merely followed up
and did not demand the delivery of the boxes after the lapse of 2
years. Assuming arguendo that Davao Corrugated was to deliver
the boxes, it would still not be liable for breach as Solar Harvest
had yet to demand the delivery. Art 1169 NCC provides that the
creditor need not make a demand for delay to exist when:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and circumstance of the obligation it
appears that the designation of the time when the thing is
to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or

(3) When the demand would be useless, as when the obligor

has rendered it beyond his power to perform
In reciprocal obligations, the general rule is that the fulfilment of
the parties respective obligations should be simultaneous. No
demand is necessary because once a party fulfills his obligation
and the other party fails to do his, the latter automatically incurs
delay. When dates are set, the default for each obligation is
determined by the rules given in the 1 st paragraph of the article.
Thus even in reciprocal obligations, if the period for the fulfilment
of the obligation is fixed, demand from the obligee is still necessary
before the obligor can be considered in default and before a cause
of action for rescission will accrue. In the case of Solar Harvest,
merely following up the order was not the same as demanding for
the boxes.

NATIONAL POWER CORP V. COURT OF APPEALS, 161 SCRA

334 (1988)
FACTS: Engineering Construction Inc entered into a contract with
the National Waterworks and Sewerage Authority (NAWASA) for the
construction of the Ipo-Bicti Tunnel in Bulacan
1. On Nov 4, 1967, typhoon Welming hit Central Luzon,
passing through NPCs Angat hydroelectric project and as a
result, the water had reached a critical level
2. To prevent an overflow of water from the dam, NPC caused
the opening of the spillway gates
3. The extraordinary large volume of water released from the
dam hit the construction works of ECI, as a result of which
the latters stockpile of materials and supplies were
washed away or destroyed. As such, ECI filed an action
against NPC for the damages it sustained from the release
of the water
4. The trial court NPC liable citing that NPC opened the
spillway gates only when the typhoon was already at its
height, in a vain effort to prevent the overflow of water
ISSUE: WON NPC can be held liable despite the occurrence of a
fortuitous event
HELD: Yes. It is clear from the appellate court's decision that based
on its findings of fact and that of the trial court's, petitioner NPC
was undoubtedly negligent because it opened the spillway gates of
the Angat Dam only at the height of typhoon "Welming" when it
knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew of
the coming typhoon at least four days before it actually struck. And

even though the typhoon was an act of God or what we may call
force majeure, NPC cannot escape liability because its negligence
was the proximate cause of the loss and damage.
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
Thus, it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person is not
exempt from liability by showing that the immediate cause of the
damage was the act of God. To be exempt from liability for loss
because of an act of God, he must be free from any previous
negligence or misconduct by which the loss or damage may have
been occasioned.

MAGDALENA ESTATE V. MYRICK, 71 PHIL 344 (1941)

FACTS: Magdalena Estate sold to Myrick a parcel of land in Rizal
for P7,953 payable in 120 monthly installments. Simultaneously,
Myrick executed a promissory note which provides that incase the
vendee defaults in the payment of the monthly installment, the
entire unpaid balance shall be immediately due and demandable
1. Myrick made monthly payments to Magdalena Estate until
Oct 4, 1930. Because reason of his default, KH Hemady
(president of Magdalena Estate) notified Myrick that
because of his failure to comply with the terms of their
contract, said agreement was cancelled and that all prior
payments he had already made were forfeited in favor of
the vendor
ISSUE: WON the default of the vendee authorized the forfeiture of
the purchase price paid
HELD: 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. Under Art
1124 NCC, 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 by
ordering the return of the things which were the subject of the
contract, with their fruits and of the price, with its interest (Art
1295 NCC), computed from the date of the institution of the action.

signed Elorde to a similar agreement, i.e. to engage Boysay in a

title fight
1. The contract provides that the boxing match would be held
at the Rizal Memorial Stadium on Sept 30, 1961 or not later
than 30 days thereafter should a postponement be
mutually agreed upon
2. The managerial rights over Boysaw was assigned and
eventually reassigned to Alfredo Yulo Jr. without the
consent of Interphil (in violation of their contract).
3. When informed of the change, Interphil referred the matter
to the Games and Amusement Board (GAB) culminating in
a decision by the board to approve a new date for the
match
4. Yulo protested against the new date even when another
proposed date was within the 30-day allowable
postponements
5. As such, Boysaw and Yulo filed an action for breach of
contract when the fight contemplated in the original boxing
contract did not materialize
ISSUE: May the offending party in a reciprocal obligation compel
the other party for specific performance
HELD: No. 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"
In a reciprocal obligation, 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, he is not entitled to insist upon the
performance of the contract by the defendant, or recover damages
by reason of his own breach.

BOYSAW V. INTERPHIL PROMOTIONS, 148 SCRA 635 (1987)

FACTS: Solomon Boysaw signed with Interphil Promotions Inc, a
contract to engage Gabriel Flash Elorde in a boxing match for the
junior lightweight championship of the world. Thereafter, Interphil

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. The assignments, from
Ketchum to Araneta, and from Araneta to Yulo, were in fact
novations of the original contract which, to be valid, should have
been consented to by Interphil.

Novation which consists in substituting a new debtor in the place of

the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
creditor." Art 1923 NCC)
That Yulo, Jr., through a letter, advised Interphil on September 5,
1961 of his acquisition of the managerial rights over Boysaw
cannot change the fact that such acquisition, and the prior
acquisition of such rights by Araneta were done without the
consent of Interphil. There is no showing that Interphil, upon
receipt of Yulo's letter, acceded to the "substitution" by Yulo of the
original principal obligor, who is Ketchum. The logical presumption
can only be that, with Interphil's letter to the GAB expressing
concern over reported managerial changes and requesting for
clarification on the matter, the Interphil et al were not reliably
informed of the changes of managers. Not being reliably informed,
appellees cannot be deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by another, the
aggrieved creditor is not bound to deal with the substitute.

P3,691.20 with 10% interest per annum, payable on installment

basis
1. The contract stipulates:
a. That upon failure of the vendee to pay the monthly
installment, she shall be given 1 month grace period to
pay the monthly installment with the monthly
installment due during the grace period.
b. For failure to pay both monthly installments, Javier
shall pay an additional 10% interst
c. After 90 days from the grace period, petitioner JM
Tuason can rescind the contract and prior payments
shall be considered as rentals
2. Javier subsequently defaulted on her obligation and failed
to pay the monthly installments during the grace period. JM
Tuason, then, notified Javier that the contract had been
rescinded and asked the latter to vacate said property
3. Having failed or refused to vacate the property, JM Tuason
filed an ejectment suit against Javier.
4. In her answer, Javier contended that while she was in
default in her obligation to pay, Tuason cannot unilaterally
rescind the contract
ISSUE: WON JM Tuason may rescind the contract

J.M. TUASON V. JAVIER, 31 SCRA 829 (1970)

FACTS: In Sept 1954, JM Tuason (vendor) & Javier (vendee)entered
into a contract of sale over a parcel of land in Sta. Mesa for

HELD: No. Plaintiff has not been denied substantial justice, for,
according to Art 1234 NCC: "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."
CAB: It should be noted that, apart from the initial installment of
P396.12, paid upon the execution of the contract, on September 7,
1954, Javier religiously satisfied the monthly installments accruing
thereafter, for a period of almost 8 years, or up to January 5, 1962;
that, although the principal obligation under the contract was
P3,691.20, the total payments made by Javier up to January 5,
1962, including stipulated interest, aggregated P4,134.08; that the
defendant has offered to pay all of the installments overdue
including the stipulated interest, apart from reasonable attorney's
fees and the costs; and that, accordingly, the trial court sentenced
the defendant to pay all such installments, interest, fees and costs.
Thus, plaintiff will thereby recover everything due thereto,
pursuant to its contract with the defendant, including such
damages as the former may have suffered in consequence of the
latter's default. Under these circumstances, in the interest of

justice and equity, the decision appealed from may be upheld upon
the authority of Art 1234 NCC

should it not be paid at maturity, it shall draw interest at 12% per

annum, without demand
1. Afable et al paid to make good on their obligation and as
such, Ponce filed a collection suit against the former
2. The trial court held Afable et al solidarily liable to pay
Ponce P814,868.42 with 12% interest per annum
3. Afable appealed; she contended that the contract under
consideration involved the payment of dollars and was,
therefore, illegal; and under the pari delicto rule, since both
parties are guilty of violating the law, neither one can
recover
ISSUE: WON Ponce may recover
HELD: Yes. While an agreement to pay in dollars is declared as null
and void and of no effect, what the law specifically prohibits is
payment in currency other than legal tender. It does not defeat a
creditor's claim for payment, as it specifically provides that "every
other domestic obligation . . . whether or not any such provision as
to payment is contained therein or made with respect thereto, shall
be discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts." A
contrary rule would allow a person to profit or enrich himself
inequitably at another's expense.
CAB: The promissory note provided on its face for payment of the
obligation in Philippine currency. While the agreement between the
parties originally involved a dollar transaction and that petitioners
expected to be paid in the amount of US $194,016.29, petitioners
are not now insisting on their agreement with respondent Afable
for the payment of the obligation in dollars. 2 It may likewise be
pointed out that the Promissory Note contains no provision "giving
the obligee the right to require payment in a particular kind of
currency other than Philippine currency," which is what is
specifically prohibited by RA No. 529.

PONCE V. COURT OF APPEALS, 90 SCRA 533 (1979)

FACTS: Private respondents Jesusa Afable, Felisa Mendoza and Ma.
Aurora Dino executed a promissory note in favor of Nelia Ponce in
the sum of P814,868.42, Philippine currency, payable, without
interest, on or before July 31, 1969. Said note also provides that

Assuming arguendo that the note required payment in other

currency, petitioners can still recover the amount of US
$194,016.29, which respondent Afable and her co-debtors do not
deny having received, in its peso equivalent. As held in Eastboard
Navigation v. Juan Ysmael & Co: if there is any agreement to pay
an obligation in a currency other than Philippine legal tender, the
same is null and void as contrary to public policy, pursuant to
Republic Act No. 529, and the most that could be demanded is to

pay said obligation in Philippine currency. In other words, what is

prohibited by RA No. 529 is the payment of an obligation in dollars,
meaning that a creditor cannot oblige the debtor to pay him in
dollars, even if the loan were given in said currency. In such a case,
the indemnity to be allowed should be expressed in Philippine
currency on the basis of the current rate of exchange at the time of
payment

1.
2.

3.

4.

In 1959, Amigable filed before CFI Cebu a complaint to

recover ownership and possession of the land and
damages
In its answer, the Republic alleged that the land was either
donated or sold by its owners to the province of Cebu to
enhance its value, and that in any case, the right of the
owner, if any, was already barred by estoppel and the
statute of limitations
During the trial, 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 Peso-Dollar conversion rate was
$1 = P6.775
Public respondent judge Burgos ruled in favor of Amigable
and directed the Republic to pay Amihable the value of the
property taken with interest at 6% and attorneys fees

ISSUE: WON Art 1250 NCC is applicable in determining the amount

of compensation to be paid to Amigable for the property taken
HELD: No. Article 1250 of the New Civil Code seems to be the only
provision in our statutes which provides for payment of an
obligation in an amount different from what has been agreed upon
by the parties because of the supervention of extra-ordinary
inflation or deflation. Thus, the Article provides:
"ART. 1250.
In case extra-ordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary."
It is clear that the foregoing provision applies only to cases where a
contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contract. The
taking of private property by the Government in the exercise of its
power of eminent domain does not give rise to a contractual
obligation.
COMMISSIONER V. BURGOS, 96 SCRA 831 (1980)
FACTS: Victoria Amigable owned a parcel of land in Cebu city.
Sometime in 1924, the Government took the subject property for
road-right-of-way purpose. The land became Mango avenue and
Gorordo avenue

The law as quoted, clearly provides that the value of the currency
at the time of the establishment of the obligation shall be the basis
of payment which, in cases of expropriation, would be the value of
the peso at the time of the taking of the property when the
obligation of the Government to pay arises. 12 It is only when there
is an "agreement to the contrary" that the extraordinary inflation

will make the value of the currency at the time of payment, not at
the time of the establishment of the obligation, the basis for
payment. In other words, an agreement is needed for the effects of
an extraordinary inflation to be taken into account to alter the
value of the currency at the time of the establishment of the
obligation which, as a rule, is always the determinative element, to
be varied by agreement that would find reason only in the
supervention of extraordinary inflation or deflation.

1.

2.

3.
4.
5.
6.

Claiming that par 11 of the Lease Contract was not in fact

part of the contract because it was cancelled, Soco filed a
civil case before CFI Cebu seeking the annulment and/or
reformation of the contract
Sometime before the filing of the civil case, Francisco
noticed that Soco no longer sent her collector for payment
of rentals and at times there payments made but not
rececipts were issued. This prompted Francisco to write
Soco in 195
After sending the letter, Francisco sent his payment for
rentals by checks issued by the Commercial Bank & Trust
Co
It appears that Soco discovered that Francisco subleased a
portion of the building to NACIDA at P3,000 per month
In view of the alleged non-payment of the monthly rentals
from May 1977, Soco wrote a letter demanding Francisco to
vacate the premises
In his answer, Francisco informed Soco that all payments
due her were in fact paid by Commercial Bank & Trust Co
through the Clerk of Court of CFI Cebu. Nonetheless, Soco
filed an ejectment suit against Francisco

ISSUE: WON there was a valid and effective consignation

HELD: No. Art 1256 NCC provides that if the creditor to whom
tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due. Consignation alone shall
produce the same effect in the following cases: (1) When the
creditor is absent or unknown, or does not appear at the place of
payment; (2) When he is incapacitated to receive the payment at
the time it is due; (3) When, without just cause, he refuses to give
a receipt; (4) When two or more persons claim the same right to
collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior tender
of payment.
SOCO V. MILITANTE, 123 SCRA 160 (1983)
FACTS: Soco and Francisco entered into a contract of lease in
1973, whereby Soco leased her commercial building and lot to
Francisco for a monthly rental of P800 for 10 years, renewable for
another 10 years at the option of the lessee

In order that consignation may be effective, the debtor must first

comply with certain requirements prescribed by law. The debtor
must show (1) that there was a debt due; (2) that the consignation
of the obligation had been made because the creditor to whom

tender of payment was made refused to accept it, or because he

was absent or incapacitated, or because several persons claimed
to be entitled to receive the amount due; (3) that previous notice
of the consignation had been given to the person interested in the
performance of the obligation; (4) that the amount due was placed
at the disposal of the court; and (5) that after the consignation had
been made the person interested was notified thereof. Failure in
any of these requirements is enough ground to render a
consignation ineffective.

first is the attempt to make a private settlement before proceeding

to the solemnities of consignation

Without the notice first announced to the persons interested in the

fulfillment of the obligation, the consignation as a payment is void.
In order to be valid, the tender of payment must be made in lawful
currency. While payment in check by the debtor may be acceptable
as valid, if no prompt objection to said payment is made the fact
that in previous years payment in check was accepted does not
place its creditor in estoppel from requiring the debtor to pay his
obligation in cash. Thus, the tender of a check to pay for an
obligation is not a valid tender of payment thereof.
CAB: Not all the requisites for a valid consignation were met. As
found by the SC:
(1) Francisco fialed to prove the first notice to the lessor prior
to consignation
(2) He failed to prove the second notice, i.e. after consignation
has been made, to the lessor
(3) From the testimony of the bank comptroller, it is clear that
the bank did not send notice to Soco that the checks will
be deposited in consignation with the Clerk of Court (first
notice) and also the bank did not send notice to Soco that
the checks were in fact deposited (second notice) because
no instructions were given by the depositor (Francisco)
(4) Francisco failed to prove there was actual deposit or
consignation of the monthly rentals (except the 2 cashiers
checks). No copies of the official receipts issued by the
Clerk of Court were presented
Tender of payment must be distinguished from consignation.
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor
desires or seeks to obtain. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the

BANK OF THE PHILIPPINE ISLANDS V. COURT OF APPEALS,

G.R. NO 136202 (2007)
FACTS: Salazar had in her possession 3 crossed checks with an
aggregate amount of P267,692.50. the checks were payable to JRT
COnstruciton & Trading, which was the name of Templonuevos
business.

1.
2.

3.

4.

Despite lack of knowledge and endorsement of

Templonuevo, Salazar was able to deposit the checks in her
personal savings account with BPI and encash the same.
The 3 checks were deposited in 3 different occasions in a
span of 8 months. A year after the last encashment,
Templonuevo protested the purportedly unauthorized
encashments and demanded from BPI the aggregate
amount of the checks
BPI complied with Templonuevos demand. Since the
money could no longer be debited from the account of
Salazar where she deposited the checks, they froze her
other account with them
Later, BPI issued a cashiers check in favor of Templonuevo
for the aggregate amount and debited P267,707.70 from
Salazars account representing the aggregate amount and
the bank charges for the cashiers check

ISSUE: WON the bank is correct in offsetting the amount a

different account belonging to the depositor
HELD: Yes. BPI, as the collecting bank, had the right to debit
Salazar's 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.
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. Art 1980 NCC provides that
"fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loan."
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation
under Art 1278 NCC ay take place "when all the requisites
mentioned in Art 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)
(3)
(4)
(5)

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;
That the two debts be due;
That they be liquidated and demandable;
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 BPI had the right of set-off over
the amount it paid to Templonuevo against the deposit of Salazar,
the issue of whether it acted judiciously is an entirely different
matter. 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. In this
regard, petitioner was clearly remiss in its duty to private
respondent Salazar as its depositor.
CAB: Despite the obvious lack of indorsement thereon, BPI
permitted the encashment of these checks three times on three
separate occasions. This negates petitioner's claim that it merely
made a mistake in crediting the value of the checks to Salazar's
account and instead bolsters the conclusion of the CA that
petitioner recognized Salazar's 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. The taking
and collection of a check without the proper indorsement amount
to a conversion of the check by the bank.
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 petitioner's
assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy
between her and Templonuevo.

2.

Lutero died in 1971. His heirs institute testate estate

proceedings of the deceased, presided by public
respondent judge Del Rosario.
3. Respondent judge issued an order stating that in order to
protect the estate, the administrator was authorized to
scout among the testamentary heirs who is financially in a
position to pay all the unpaid obligations of the estate, with
right to subrogation
4. Juanito Lutero (Tiburcios grandson and heir) paid PNB
P25,000 as partial settlement of the deceaseds
obligations.
5. Thereafter Juanito filed a motion before the testate court
for reimbursement from Solinap of the amount he paid. He
argued that the said amount should have been paid by
Solinap as stipulated in the lease contract
ISSUE: WON the obligation of Solinap to Lutero may be
compensated or setoff against the amount sought to be recovered
in an action for sum of money filed by the former against the latter
HELD: No. Petitioner contends that the 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 Art 1278 NCC to the effect that compensation shall take
place when two persons, on their own right, are creditors and
debtors of each other. The argument fails to consider Art 1279 NCC
provides that compensation can take place if both obligations are
liquidated.

SOLINAP V. DEL ROSARIO, 123 SCRA 640 (1983)

FACTS: Spouses Tiburcio Lutero and Asuncion Magalona, owners of
Hacienda Tambal, leased the said property to petitioner Solinap for
10 years at P50,000 a year.
1. The contract also provided that the sum of P25,000 should
be paid by Solinap to PNB to amortize the indebtedness of
the spouses Lutero

CAB: Solinaps against the respondent Luteros in Civil Case No.

12397 is still pending determination by the court. Upon this
premise, his claim in that case cannot be categorized as liquidated
credit which may properly be set-off against his obligation. As the
Supreme Court ruled in Mialhe vs. Halili "compensation cannot take
place where one's claim against the other is still the object of court
litigation. It is a requirement, for compensation to take place, that
the amount involved be certain and liquidated."
JAPAN AIRLINES V. SIMANGAN, G.R. NO 170141 (2008)
FACTS: In 1991, Jesus Simangan decided to donate a kidney to his
cousin in UCLA School of Medicine in California. Fortunately, the
tests proved that he was a match with his cousin
1. To facilitate his travel to the US, UCLA wrote a letter to the
American Consulate in Manila to arrange for his visa and
was subsequently issued an emergency US visa

2.

Simangan, then, purchased a roundtrip ticket from JAL for

$1,485.00 for July 29, 1992
3. While on board the plane, JALs airline crew suspected
Simangan of carrying falsified travel documents and that
his trip to the US was just a pretext to stay and work in
Japan.
4. As a result, Simangan was bumped off the flight and was
left behind. Afterwards, he was informed that his travel
documents were, indeed, in order and was refunded the
cost of the plane ticket
5. Aggrieved, Simangan filed an action for damages against
JAL with RTC Valenzuela
6. In its answer, JAL contended that its failure to allow
respondent to fly on his scheduled departure was due to a
need to authenticate his travel documents and that
respondent agreed to be rebooked on July 30, 1992
7. The trial court ruled in favor of Simangan. On appeal, CA
affirmed the order. It held that JALs belated theory of
novation, i.e. JALs original obligation to carry Simangan to
Narita and Los Angeles on July 29, 1992, was extinguished
when Simangan and JAL agreed that he would instead take
the flight to Narita on the following day

had before the novation, such waiver must be express. It cannot be

supposed, without clear proof, that respondent had willingly done
away with his right to fly on July 29, 1992.

ISSUE: WON there was a valid novation that extinguished the

obligation
HELD: No. JAL did not allow respondent to fly. It informed
respondent that there was a need to first check the authenticity of
his travel documents with the U.S. Embassy. As admitted by JAL,
"the flight could not wait for Mr. Simangan because it was ready to
depart."
Since JAL definitely declared that the flight could not wait for
respondent, it gave respondent no choice but to be left behind. The
latter was unceremoniously bumped off despite his protestations
and valid travel documents and notwithstanding his contract of
carriage with JAL. Damage had already been done when
respondent was offered to fly the next day on July 30, 1992. Said
offer did not cure JAL's default.
Considering that respondent was forced to get out of the plane and
left behind against his will, he could not have freely consented to
be rebooked the next day. In short, he did not agree to the alleged
novation. Since novation implies a waiver of the right the creditor

SANDICO V. PIGUING, 42 SCRA 322 (1971)

FACTS: Spouses Carlos Sandico and Enrica Timbol, and Teopisto
Timbol (administrator of the estate of Sixta Paras) obtained a
judgment in their favor against Desiderio Paras in a civil case
involving easement and damages
1. Sandico moved for the issuance of a writ of execution to
enforce the CAs judgment which acquired finality

2.
3.
4.

5.

Meanwhile, Sandico et al and Paras reached a settlement,

finally agreeing to the reduction of the money judgment
from P6,000 to P4,000.
As such, Paras paid petitioners Sandico P3,000 and later
paid the remaining balance of P1,000
Subsequently, Sandico sent Paras a letter demanding
compliance with the portion of the judgment in the civil
case relative to the reconstruction and reopening of the
irrigation canal
Upon failure and refusal of Paras to rebuild and reopen the
irrigation canal, Sandico filed with CFI Pampanga

ISSUE: WON the reduction of the amount of money to paid is

tantamount to novation
HELD: No. Novation results in two stipulations one to extinguish
an existing obligation, the other to substitute a new one in its
place. Fundamental it is that novation effects a substitution or
modification of an obligation by another or an extinguishment of
one obligation by the creation of another. In the case at hand,
there is no new or modified obligation that arose out of the
payment by the respondent Paras of the reduced amount of P4,000
and substituted the monetary liability for P6,000 under the
appellate court's judgment. Additionally, to sustain novation
necessitates that the same be so declared in unequivocal terms
clearly and unmistakably shown by the express agreement of the
parties or by acts of equivalent import or that there is complete
and substantial incompatibility between the two obligations.

PEOPLES BANK V. SYVELS, 164 SCRA 247 (1988)

FACTS: Syvels obtained a credit commercial line with Peoples
Bank for P900,00. To secure the obligation, Syvels executed a
chattel mortgage in favor of Peoples Bank on its stocks of goods,
personal properties, and other materials it owned
1. Subsequently, Antonio Syyap and Angel Syyap executed an
undertaking to guarantee absolutely and without benefit of
excussion the full amount

2.

3.
4.

In view of Syvels failure to pay its obligation, the bank

started to foreclose extrajudicially the chattel mortgage.
However because of an attempt to have the matter settled,
the extrajudicial foreclosure did not push through. As no
payment had been made, the bank filed an action against
Syvels
Pending the case, Syyap and the bank agreed to settle the
case: Syyap was to executed a real estate mortgage over
his real property in favor of Peoples Bank
Syvels argument: the obligation secured by the chattel
mortgage sought to be foreclosed was novated by the
subsequent execution of real estate mortgage

ISSUE: WON there was novation in this case

HELD: No. Novation takes place when the object or principal
condition of an obligation is changed or altered. It is elementary
that novation is never presumed; it must be explicitly stated or
there must be manifest incompatibility between the old and the
new obligations in every aspect.
CAB: There is nothing in the Real Estate Mortgage which supports
appellants' submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every point
between the "old and the "new" agreements as the second
contract evidently indicates that the same was executed as new
additional security to the chattel mortgage previously entered into
by the parties.
Moreover, records show that in the real estate mortgage,
appellants agreed that the chattel mortgage "shall remain in full
force and shall not be impaired by this (real estate) mortgage."
The pertinent provision of the contract is quoted as follows:
"That the chattel mortgage executed by Syvel's Inc; real estate
mortgage executed by Angel V. Syyap and Rita V. Syyap shall
remain in full force and shall not be impaired by this mortgage
(par. 5, Exhibit 'A,' emphasis ours)."
It is clear, therefore, that a novation was not intended. The real
estate mortgage was evidently taken as additional security for the
performance of the contract