Conditional Obligation

4. Herrera instituted suit against Leviste for "Injunction, Damages, and Cancellation of
M.D. Taylor (Plaintiff-Appelant) vs. Uy Tieng Piao & Tan Liuan (Defendant-Appellant) 43 phil 873, Annotation."
FACTS: On December 12, 1918, the plaintiff contracted his services to Tan Liuan & Co., as 1. Trial Court rendered lack of basis in fact and in law:
superintendent of an oil factory which the latter establishing in this city. The period of the contract i. Ordered payments made by petitioner to Leviste forfeited pursuant to their contract providing for
extended over two years from the date mentioned and the salary drate salary rate of P600 per month automatic forfeiture "in the event of failure to comply with any of the conditions contained therein,
during 1st year and P700 per month during the second year, with electric light and water for domestic particularly the payment of the scheduled amortizations."
consumption and a residence to live or in leu thereof of 60 per month at the time.
At the time this agreement was made, the machinery for the factory had not been acquired, though ten ISSUE:
expellers had been ordered from the U.S. as agreed, for any reason the machinery failed to arrived in the Can Herrera file petition for lack of merit?
city of Manila for the period of six months from the date given, the contract may be canceled by the party
of the second part. HELD:
The machinery stated in the contract did not arrive in the city of manila within the six month after the HERRERAS PETITION FOR RECONSIDERATION DENIED.
making of the contract, and other equipment necessary for the factory. June 28,1919, the defendants
informed the plaintiff that they had decided to rescind the contract effective June 30th. The plaintiff 1. The GSIS has not benefited in any way at the expense of Herrera. What it received, by way of
instituted the action to recover damages in the amount of P13,000.00 covering salary and perquisite under redemption from Marcelo, was the mortgage loan it had extended plus interest and sundry charges.
the contract. 1. Neither has Marcelo and Leviste did not benefit due to expenses on mortgage.
ISSUE: Whether or not that the plaintiff-appellant may demand perquisites under the rescinded contract. 2. Herreras loss is attributable to his fault in:
HELD: Yes, it has been concluded that the Court of First Instance committed no error in rejecting the i. Not having been able to submit collateral to GSIS in substitution of the Paranaque Property;
plaintiff claim in so far as damages are sought for the period subsequent to the expiration of the first six ii. Not paying off the mortgage debt when GSIS decided to foreclose; and
months, but in the assessment of damages due for six months period, the trial judge evidently overlooked iii. Not making an earnest effort to redeem the property as a possible redemptioner.
the item of P60 specified in the plaintiff fourth assignment of error, which represent commutation of house
rental for the month of June 1919. this amount the plaintiff is clearly entitled to recover, in addition to the 2. HERRERA did not comply to the conditions of contract.
P300 awarded in the lower court. 1. He was not able to substitute the Paraaque Property with another collateral for the
The judgment of CFI is modified, the defendant shall pay the plaintiff the sum of P360 instead of P300 as GSIS loan.
allowed by the lower court.
3. Leviste was not in a financial position to redeem the foreclosed property
Herrera vs. Leviste 1. Has no other alternative, but to assign the right of redemption to a person willing
GR L-55744 and capable to assume the same, if only to protect his interest in the said property.
2. Appellant could have preserved and protected whatever right he may have to the
FACTS: LEVISTE OBTAINED LOAN FROM GSIS P1,900,000. Mortgaged 2 lots. property by tendering the redemption price to Marcelo.
Sold Buendia property to Herrera for P3,750,000.
CONDITIONS:
1. Pay Leviste P11,900,000. Reciprocal Obligations
2. Assume Levistes indebtedness P1,900,000 to GSIS
3. Substitute Paranaque property with his own in 6 months. G.R. No. 188064, June 01 2011
ii. Leviste arranged conformity of GSIS to petitioners assumption of obligation. MILA A. REYES , Petitioner, VS. VICTORIA T. TUPARAN, Respondent.
1. CONTRACT TO SELL: failyre to comply shall render contract automatically cancelled, all payments
forfeited, plus rental and damages. FACTS: Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against
2. HERRERA only remitted P300,000 to GSIS despite receiving rentals P21,000 monthly and Victoria T. Tuparan (respondent) before the RTC.In her Complaint, petitioner alleged, among others, that
P800,000 in 4 years. she was the registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan,
1. Requested GSIS for restructuring of the mortgage obligation because of his own Valenzuela City, and covered by TCT No. V-4130.
arrarages in the payment of the amortizations
2. GSIS replied that as a matter of policy, it could not act on his request unless he first Petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
made proper substitution of property, updated the account, and paid 20% thereof to the GSIS. Bank) to secure a loan. Petitioner then decided to sell her real properties so she could liquidate her bank
loan and finance her businesses. As a gesture of friendship, respondent verbally offered to conditionally
3. GSIS sent notice to Leviste to foreclose mortgage by reason of default in payment of buy petitioner's real properties.
amortizations.
1. Application for foreclosure filed, properties sold at public auction with certificate in The parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with
favor of GSIS. Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties
2. Leviste assigned its right to redeem both foreclosed properties to respondent Jose chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the
Marcelo, Jr. (Marcelo for brevity). complaint.
3. Marcelo redeemed the properties from the GSIS by paying it the sum of
P3,232,766.94 for which he was issued a certificate of redemption. Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the
i. Paranaque property turned over to Levisted for P250,000.00 amounts due in lump sum on their respective maturity dates, respondent paid petitioner in small amounts
ii. Herrera informed GSIS of his right to redeem the foreclosed properties and asking that he be allowed to do from time to time.
so in installments.
1. GSIS had not favorably acted thereon.
Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner
as a Deed of Conditional Sale of Real Property with Assumption of Mortgage was actually a pure and
absolute contract of sale with a term period. It could not be considered a conditional sale because the
acquisition of contractual rights and the performance of the obligation therein did not depend upon a
future and uncertain event.
Respondent further averred that she successfully rescued the properties from a definite foreclosure by
paying the assumed mortgage plus interest and other finance charges.
The RTC handed down its decision finding that respondent failed to pay in full the total purchase price of
the subject real properties. It stated that the checks and receipts presented by respondent refer to her
payments of the mortgage obligation with FSL Bank. The RTC also considered the Deed of Conditional
Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank
a contract to sell, and not a contract of sale.
The CA rendered its decision affirming with modification the RTC Decision.The CA agreed with the RTC
that the contract entered into by the parties is a contract to sell but ruled that the remedy of rescission
could not apply because the respondent's failure to pay the petitioner the balance of the purchase was not a
breach of contract, but merely an event that prevented the seller (petitioner) from conveying title to the
purchaser (respondent).
ISSUE: Whether the agreement is a contract to sell and not a contract of sale.
HELD: YES. The Court agrees with the ruling of the courts below that the subject Deed of Conditional
Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank on November
26, 1990 is a contract to sell and not a contract of sale.
The title and ownership of the subject properties remains with the petitioner until the respondent fully pays
the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then
issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the
corresponding deed of absolute sale in favor of the respondent.
Accordingly, the petitioner's obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent's full payment of the purchase
price. Without respondent's full payment, there can be no breach of contract to speak of because petitioner
has no obligation yet to turn over the title. Respondent's failure to pay in full the purchase price is not the
breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that
prevents the petitioner from being bound to convey title to the respondent.
Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase price of
the subject property in the amount of ?4,200,000.00, the remaining unpaid balance of Tuparan
(respondent) is only ?805,000.00, a substantial amount of the purchase price has already been paid.It is
only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes."
Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason
that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the
obligation.
Out of the P1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of P200,000.00 each. She, however, failed to pay the third and last installment of P800,000.00
due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay
the amount of P751,000.00, which was rejected by petitioner for the reason that the actual balance was
P805,000.00 excluding the interest charges.
Considering that out of the total purchase price of P4,200,000.00, respondent has already paid the
substantial amount of P3,400,000.00, more or less, leaving an unpaid balance of only P805,000.00, it is
right and just to allow her to settle, within a reasonable period of time, the balance of the unpaid purchase
price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to
comply with her obligation when she offered to pay the petitioner the amount of P751,000.00.
PETITION DENIED.
Lalicon v National Housing Authority
GR No. 185440
July 13, 2011
RESCISSION & PRESCRIPTION
FACTS: (1) On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale
with Mortgage over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro (the Alfaros). The
deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of
its release from mortgage without NHA's prior written consent. Thus:
x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any part thereof, cannot
be alienated, transferred or encumbered within five (5) years from the date of release of herein mortgage
without the prior written consent and authority from the VENDOR-MORTGAGEE (NHA). x x x
The mortgage and the restriction on sale were annotated on the Alfaros' title on April 14, 1981.
(2) About nine years later or on November 30, 1990, while the mortgage on the land subsisted, the Alfaros
sold the same to their son, Victor Alfaro.
(3) After full payment of the loan or on March 21, 1991 the NHA released the mortgage.
(4) Six days later or on March 27 Victor transferred ownership of the land to his illegitimate daughters. (5)
On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida
See.
(6) Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the mortgagees.
RTC: 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua, made in
violation of NHA rules and regulations. It ruled that, although the Alfaros clearly violated the five-year
prohibition, the NHA could no longer rescind its sale to them since its right to do so had already
prescribed, applying Article 1389 of the New Civil Code. The NHA and the Lalicons, who intervened,
filed their respective appeals to the Court of Appeals (CA).
CA: CA reversed the RTC decision and found the NHA entitled to rescission. The CA declared TCT
277321 in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered
Chua to reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their
amortization, plus interest, and the value of the improvements they constructed on the property.
ISSUE: Whether or not the subsequent sales constituted breach in the obligation and may give rise to
rescission
APPLICABLE LAW/S:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
HELD: (1) Lalicons' request for exemption from the five-year restriction was not granted. Resale without
NHA's consent is a substantial breach.
The five-year restriction against resale, counted from the release of the property from the NHA mortgage,
measures out the desired hold that the government felt it needed to ensure that its objective of providing
cheap housing for the homeless is not defeated by wily entrepreneurs. The restriction clause is more of a
condition on the sale of the property to the Alfaros rather than a condition on the mortgage constituted on
it. The Lalicons claim that the NHA unreasonably ignored their letters that asked for consent to the
resale of the subject property. They also claim that their failure to get NHA's prior written consent was
not such a substantial breach that warranted rescission. But the NHA had no obligation to grant the
Lalicons' request for exemption from the five-year restriction as to warrant their proceeding with the sale
when such consent was not immediately forthcoming. And the resale without the NHA's consent is a
substantial breach. The essence of the government's socialized housing program is to preserve the
beneficiary's ownerships for a reasonable length of time, here at least within five years from the time he
acquired it free from any encumbrance.
(2) Action has not prescribed.
NHA sought annulment of the Alfaros' sale to Victor because they violated the five-year restriction against
such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article
1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the
time the right of action accrues. The NHA's right of action accrued on February 18, 1992 when it learned
of the Alfaros' forbidden sale of the property to Victor. Since the NHA filed its action for annulment of
sale on April 10, 1998, it did so well within the 10-year prescriptive period.
(3) Lalicons and Chua were not buyers in good faith.
Since the five-year prohibition against alienation without the NHA's written consent was annotated on the
property's title, the Lalicons very well knew that the Alfaros' sale of the property to their father, Victor,
even before the release of the mortgage violated that prohibition.
(4) Lastly, since mutual restitution is required in cases involving rescission under Article 1191, the NHA
must return the full amount of the amortizations it received for the property, plus the value of the
improvements introduced on the same, with 6% interest per annum from the time of the finality of this
judgment.
Alternative Obligations
ESTANISLAO REYES vs. SEBASTIANA MARTINEZ ET AL.,
G.R. No. 32226 . DECEMBER 29, 1930.
FACTS: Estanislao Reyes filed an action against the Martinez heirs in which the plaintiff seeks, among
others, to recover five parcels of land, containing approximately one thousand coconut trees, and to obtain
a declaration of ownership in his own favor as against the defendants with respect to said parcels. This
cause of action is founded upon the contract, and the claim by the plaintiff is to have the five parcels
adjudged to him in lieu of another parcel formerly supposed to contain one thousand trees and described in
paragraph 8 of the contract between him and certain of the Martinez heirs. By this contract Reyes was to
be given the parcel described in clause 8, but in a proviso to said clause, the parties contracting with Reyes
agreed to assure to him certain other land containing an equivalent number of trees in case he should so
elect.
ISSUE:Whether or not Reyes is entitled to the recovery of ownership of the five parcels of land subject
of this case.
RULING:The prior history of the litigation shows that Reyes elected to take and hold the parcel described
in clause 8, and his right thereto has all along been recognized in the dispositions made by the court with
respect to said land. In our decision in Martinez vs. Grao (51 Phil., 287, 301), it was a basal assumption
that Reyes would obtain the thousand trees referred to; and we are of the opinion that, from various steps
taken in the prior litigation, Reyes must be taken to have elected to take that particular parcel and he is
now estopped from asserting a contrary election to take the five parcels of land described in paragraph IX
of his complaint.
However, the title to the parcel of land elected by Reyes is in the heirs of Inocente Martinez and it
does not appear that they have transferred said title to Reyes. It results therefore that Reyes now has a
claim for damages against the parties signatory to the contract of March 5, 1921, for the value of the
aforesaid property. We therefore reach the conclusion that Reyes should either have the land originally set
apart for him under clauses 4 and 8 of the contract, or, in case his right thereto should fail, he should not
be required to pay the judgment for P8,000 which was awarded to the Martinez heirs in Martinez vs.
Grao (51 Phil., 287, 302).
[G.R. No. 206806. June 25, 2014.]
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, petitioners, vs. DAN T. LIM,
doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, respondent.
FACTS: Dan T. Lim (Lim) works in the business of supplying scrap papers, cartons, and other raw
materials, under the name and Quality Paper and Plastic Products, Enterprises, to factories engaged in the
paper mill business. He delivered scrap papers to Arco Pulp and Paper Company, Inc. (Arco Pulp and
Paper) through its CEO and President, Candida A. Santos. The parties allegedly agreed that Arco Pulp and
Paper would either pay Lim the value of the raw materials or deliver to him their finish products of
equivalent value. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a
post-dated check, with the assurance that the check would not bounce. When he deposited the check, it
was dishonored for being drawn against a closed account.
On the same day, Arco Pulp and Paper, and a certain Eric Sy executed a memorandum of agreement where
Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corp.,
owned by Eric Sy. According to the memorandum, the raw materials would be supplied by Lim, through
his company, Quality Paper and Plastic Products.
Lim sent a demand letter to Arco Pulp and Paper but no payment was made to him. Hence, he filed a
complaint for collection of sum of money.
The RTC rendered a judgment in favor of Arco Pulp and Paper and dismissed the complained, holding that
when Arco Pulp and Paper and Eric Sy and entered into the memorandum of agreement, novation took
place, which extinguished Arco Pulp and Paper;s obligation to Lim.
On appeal, Lim argued that novation did not take place since the memorandum of agreement between
Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them.
The CA reversed the RTC decision and ruled that the facts and circumstances in this case clearly showed
the existence of an alternative obligation.
ISSUE: Whether the obligation between the parties was an alternative obligation.
HELD: Yes. The obligation between the parties was an alternative obligation. The rule on alternative
obligation is governed by Article 1199 of the Civil Code.
In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient,
determined by the choice of debtor who generally has the right of election. The right of election is
extinguished when the party who may exercise that option categorically and unequivocally makes his or
her choice known. The choice of the debtor must also be communicated to the creditor who must receive
notice of it since the object of this notice is to give the creditor opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the election take legal effect when
consented by the creditor, or if impugned by the latter, when declared proper by a competent court.
According to the factual findings of the trial court and appellate court, the original contract between the
parties was for respondent to deliver scrap papers worth Php7,220,968.31 to petitioner Arco Pulp and
Paper. The payment for this delivery became petitioner Arco Pulp and Papers obligation. By agreement,
petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pay the price or (2) deliver the
finished products of equivalent value of respondent.
The appellate court, therefore, correctly identified the obligation between the parties as an alternative
obligation, whereby petitioner, Arco Pulp and Paper, after receiving the raw materials from respondent,
would either pay him the price of the raw materials or in the alternative, deliver to him the finished
products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap
papers, they exercised their options to pay the price. Respondents receipt of the check and his subsequent
act of depositing it constituted his notice of petitioner Arco Pulp and Papers option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was executed on the
same day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Papers
finished products would be to a third person, thereby extinguishing the option to deliver the finished
product of equivalent value to respondent.
DISPOSITIVE: WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709
is AFFIRMED.
Obligation with a Penal Clause
Social Security System v. Moonwalk Development & Housing Corporation G.R. No. 73345 (April 7,
1993)
Facts: Plaintiff (SSS) approved the application of the defendant (Moonwalk) for an interim loan. The loan
was released to the Moonwalk. Moonwalk made a payment to SSS for the loan principal released to it.
The last payment made by Moonwalk was based on the Statement of Account prepared by the SSS.
After the settlement of the account, SSS issued to Moonwalk the Release of Mortgage of Moonwalks
mortgaged properties.
In the letters to Moonwalk, SSS alleged that it committed an honest mistake in releasing Moonwalk (in the
mortgage).
Moonwalk replied in a letter that it had completely paid its obligations to SSS.
Issue/s:
Whether or not the 12% penalty demandable even after the extinguishment of the principal obligation
Whether or not Moonwalk was in default (mora)
Ruling: No. Obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS
and by the latters act of cancelling the real estate mortgages executed in its favor by defendant moonwalk.
What is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for
failure to pay on time the amortization. What is sought to be enforced therefore is a penal clause of the
contract entered into between the parties.
Penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special presentation in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled. Accessory obligation is dependent for its existence
on the existence of a principal obligation. In the present case, the principal obligation is the loan between
the parties. The accessory obligation of a penal clause is to enforce the main obligation of payment of the
loan. If therefore the principal obligation does not exist the penalty being accessory cannot exist.
No. A penalty is demandable in case of non performance or late performance of the main obligation. There
must be a breach of the obligation either by total or partial non fulfillment or there is non-fulfillment in the
point of time which is called mora or delay. There is no mora or delay unless there is a demand.
In the present case, during all the period when the principal obligation was still subsisting, although there
was late amortizations there was no demand made by the creditor, for the payment of the penalty.
Therefore up to the time of the letter of SSS there was no demand for the payment of the penalty, hence
the debtor was no in mora in the payment of the penalty.
SSS issued its statement of account showing total obligation of Moonwalk, and forthwith demanded
payment from Moonwalk. Because of the demand for payment, Moonwalk made a complete payment of
its obligation. Because of this payment the obligation of Moonwalk was considered extinguished, and
pursuant to said extinguishment, the real estate mortgages given by Moonwalk were released. For all
purposes therefor the principal obligation of Moonwalk was deemed extinguished as well as the accessory
obligation of real estate mortgages.
The demand for payment of the penal clause made by SSS in its demand letter (November 28, 1989) are
therefore ineffective as there was nothing to demand. If the demand for the payment of the penalty was
made prior to the extinguishment because then the obligation of Moonwalk would consist of (1) principal
obligation, (2) an interest of 12% on the principal obligation, and (3) the penalty of 12% for the late
payment for after demand.
Moonwalk is not in default since there was no mora prior to the demand.
CABARROGUIS VS. VICENTE
107 PHIL 340
FACTS: Plaintiff Cabarroguis, a registered nurse and midwife, sustained physical injuries as a result of an
accident when the AC jeepney of which she was a passenger hit another vehicle at a street corner. To avoid
court litigation, defendant Vicente, owner and operator of the jeepney entered a compromise agreement
with the plaintiff, obligating himself to pay 2,500 as actual and compensatory, exemplary and moral
damages suffered by plaintiff. Defendant has paid a total amount of 1,500 leaving a balance of 1,000. It
was stipulated in the agreement that should defendant fail to complete payment within 60 days, he would
pay an additional amount of 200.00 as liquidated damages.
 As defendant failed to pay, notwithstanding repeated demands, plaintiff brought a suit in the
Municipal Court of Davao and rendered judgment in favor of plaintiff. Defendant appealed to the Court of
First Instance which ordered the defendant to pay the plaintiff the amount of 1,200 with interest at legal
rate from the date of the filing of the complaint until full payment.
ISSUE: Did the lower court err in sentencing the defendant to pay interest from the date of the filing of
the complaint until full payment?
RULING: No. As a rule, if the obligation consists in a sum of money, the only damage a creditor may
recover, if the debtor incurs in delay, is the payment of the interest agreed upon or the legal interest, unless
contrary is stipulated (Article 2209). However, the creditor may also claim other damages. Such as moral
or exemplary damages, in addition to interest, the award of which is left to the discretion of the court.
In obligations with a penal clause, as provided in Article 1226 of the Civil Code, the penalty shall
substitute the indemnity for damages and the payment of interests. The exceptions to this rule, according
to the same article, are: (1) when the contrary is stipulated; (2) when the debtor refuses to pay the penalty
imposed in the obligation, in which case the creditor is entitled to interest on the amount of the penalty, in
accordance with article 2209; and (3) when the obligor is guilty of fraud in the fulfillment of the
obligation.
Applying the law, it is evident that no interest can be awarded on the principal obligation of
defendant, the penalty of 200.00 agreed upon having taken the place of the payment of such interest and
the indemnity for damages. No stipulation to the contrary was made and while defendant was sued for
breach of the compromise agreement, the breach was not occasioned by fraud.
This case, however, takes a different aspect with respect to the penalty attached to the principal
obligation. It has been held that in obligations for the payment of a sum of money when a penalty is
stipulated for default, both the principal obligation and the penalty can be demanded by the creditor.
Defendant having refused to pay when demand was made by plaintiff, the latter clearly is entitled to
interest on the amount of the penalty. It is well observe that Article 2210 of the Civil Code provides that in
the discretion of the court, interest may be alleged upon damages awarded for breach of contract. This
interest is recoverable from the time of delay that is to say, from the date of demand, either judicial or
extrajudicial. And if there is no showing as to when demand for payment was made, plaintiff must be
considered to have made such demand only from the filing of the complaint.
Wherefore, with the modification that the interest shall be allowed on the amount of the penalty,
the decision appealed from is affirmed.
V. Extinguishment of Obligations (Payment/ Performance)
Tibajia Jr. v. Court of Appeals
[G.R. No. 100290. June 4, 1993]
FACTS:Tibajia spouses delivered to Sheriff the total money judgment in cashiers check and cash.Private
respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that
the garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be
withdrawn to satisfy the judgment obligation. Tibajias filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. The motion was denied.
ISSUE: Whether or not payment by means of cashiers check is considered payment in legal tender.
RULING: NO. 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 refused receipt by the obligee or
creditor. A check is not legal tender and that a creditor may validly refuse payment by check, whether it be
a managers, cashiers or personal check. The Supreme Court stressed that, We are not, by this decision,
sanctioning the use of a check for the payment of obligations over the objection of the creditor.