7.

KINDS OF OBLIGATION

A. PURE AND CONDITIONAL

B. WITH A PERIOD ARTS. 1193 TO 1180

I. KINDS OF PERIOD/TERM

II. EFFECTS OF PERIOD

III. LOSS, DETERIORATION AND IMPROVEMENT

BEFORE ARRIVAL OF PERIOD

IV. WHEN COURTS MAY FIX PERIOD ART. 1197

CASES:

RADIOWEALTH FINANCE COMPANY, petitioner, vs . Spouses

VICENTE and MA. SUMILANG DEL ROSARIO, respondents.

[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]

PANGANIBAN, J:

FACTS:

On March 2, 1991, Sps Vicente and Maria Sumilang del Rosario.

(respondents), jointly and severally executed, signed and delivered in
favor of Radiowealth Finance Company (herein petitioner), a Promissory
Note for sum of (P138,948.00) to be paid on installment basis.
Thereafter, the respondent defaulted on monthly installments.

On the course of trial the respondent had a judicial admissions of

established their indebtedness to the petitioner, on the grounds that they
admitted the due execution of the Promissory Note, and that their only
defense was the absence of an agreement on when the installment
payments were to begin.
ISSUE/S:

When the obligation became due and demandable

RULING:

Respondents theorize that the action for immediate enforcement of

their obligation is premature because its fulfillment is dependent on the
sole will of the debtor. Hence, they consider that the proper court should
first fix a period for payment, pursuant to Articles 1180 and 1197 of the
Civil Code.

This contention is untenable. The act of leaving blank the due date
of the first installment did not necessarily mean that the debtors were
allowed to pay as and when they could. If this was the intention of the
parties, they should have so indicated in the Promissory Note.

However, it did not reflect any such intention.

Verily, the contemporaneous and subsequent acts of the parties

manifest their intention and knowledge that the monthly installments
would be due and demandable each month. In this case, the conclusion
that the installments had already became due and demandable is
bolstered by the fact that respondents started paying installments on the
Promissory Note, even if the checks were dishonored by their drawee
bank. We are convinced neither by their avowals that the obligation had
not yet matured nor by their claim that a period for payment should be
fixed by a court.
 ROSARIO C. BUCCAT, plaintiff-appellee, vs. LIBRADA ROSALES
DISPO, Assisted by Her Husband PROCESO DISPO, defendants-
appellants

[G.R. No. L-44338. April 15, 1988.]

SARMIENTO, J:

FACTS:

Feb. 1953, Buccat and Dispo entered into a contract of lease, the
expiration date of which was August 31, 1967, Dispo constructed the
National Business Institute, a small vocational school on the parcel of
land subject of the lease agreement. In 1958, nine years before the
expiration of the contract, the parties entered into another lease
agreement over the same parcel of land substantially modifying the
duration of the lease as shown by the following provision, to wit:

Par. 3: "That the lease contract shall remain in full force and
effect as long as the land will serve the purpose for which it is
intended as a school site of the National Business Institute but the
rentals now stipulated shall be subject to review every after ten
(10) years by mutual agreement of the parties."

Eight months after the supposed expiration date of the first

contract, Buccat filed a complaint for Unlawful Detainer against the
Dispo, the basis of which was the expiration obuccatf the first lease
contract, as the second agreement, according to the plaintiff-appellee,
was null and void for being simulated and for want of consideration.

The Court of Appeals was resolved in favor of the validity of the

second lease contract, but the provision as to the duration of the
contract was interpreted by the Court of Appeals as one that was left to
the will of Dispo so that the period of lease was indefinite.
ISSUE/S:

When the right of action for the fixing of the period of lease
accrued?

RULING:

We hold that it was only in November 1972 that the cause of action
for the fixing of the period of lease accrued. This is as it should be
because prior to that, the validity of the second contract of lease was
being challenged. The case for unlawful detainer filed by the plaintiff-
appellee became in fact a case questioning the validity of the second
contract on the grounds that the said contract was simulated and that
there was no consideration. The plaintiff-appellee could not have been
expected to file an action for the fixing of the period of the lease before
the Court of Appeals promulgated its decision because she was not yet
aware that the said paragraph of the second contract was a provision
that called for an indefinite period. For the reason that the very
existence, and subsequently, the interpretation of the second contract of
lease, particularly par. 3 thereof, were put in issue in the unlawful
detainer case, the court trying the case was required to interpret the
provisions of, and consequently, rule on the validity of the said contract.
This was precisely what the trial court's decision which was affirmed by
the Court of Appeals, in fact, resolved. And in conformity with the
suggestion of the said court, the plaintiff-appellee filed the present case.
The remedy or the cause of action for the filing of a case for the fixing of a
period in the contract, therefore, only accrued when the court finally
declared the second contract valid but that the provision as to the period
was indefinite and hence, an action for the fixing of the period of the
contract had to be filed. Furthermore, should the plaintiff-appellee have
opted to file a case for the fixing of the period of the lease contract before
the termination of the unlawful detainer case, the latter case would have
been rendered moot and academic and the plaintiff-appellee would have
inevitably and unwittingly ratified the second contract. No person in his
right mind would have done such.
 V. LOSS OF THE BENEFIT OF PERIOD ART. 1198

DAGUHOY ENTERPRISES, INC., plaintiff-appellee, vs. RITA L.PONCE,

with whom is joined her husband, DOMINGO PONCE

[G.R. No. L-6515. October 18, 1954.]

MONTEMAYOR, J:

FACTS:

On June 24th , Rita L. Ponce, wife of Domingo, executed in favor of

plaintiff corporation a deed of mortgage over a parcel of land including
the improvements thereon, situated in Manila, to secure the payment of
a loan of P5,000 granted to her by said corporation, payable within six
years with interest at 12 per cent per annum. On March 10, 1951, Rita
L. Ponce with the consent of her husband Domingo executed another
mortgage deed amending the first one, whereby the loan was increased
from P5,000 to P6,190, the terms and conditions of the mortgage
remaining the same. Rita and Domingo presented the two mortgage
deeds for registration in the office of the register of deeds, but the said
register after going over the papers noted defects and deficiencies and
advised Rita and Domingo to cure the defects and furnish the necessary
data Instead of complying with the suggestion and requirements, the two
withdrew the two mortgage deeds and then mortgaged the same parcel of
land in favor of the Rehabilitation Finance Corporation (RFC) to secure a
loan. Potenciano Gapol was the majority stockholder in the Daguhoy
Enterprises, Inc. and naturally was interested in the security of the
payment of the loan aforesaid. Upon learning that the deeds of mortgage
were not registered and what is more, that they were withdrawn from the
office of the register of deeds and the land covered by the two deeds was
again mortgaged to the RFC, he filed Civil Case No. 13753 entitled
"Potenciano Gapol, for and on behalf of Daguhoy Enterprises, Inc. vs.
Domingo Ponce and Buhay M. Ponce"
ISSUE/S:

Whether or not the loan became due and demandable?

RULINGS:

Although the original loan, including its increased amount, was

payable within six years, and so did not become due and payable until
the expiration thereof, the debtor lost the benefit of the period by reason
of her failure to give and register the security agreed upon in the form of
the two deeds of mortgage; and so the obligation became pure and
without any condition. Consequently, the loan became due and
immediately demandable.

C. ALTERNATIVE AND FACULTATIVE ARTS. 1199 TO 1206

D. JOINT AND SOLIDARY ARTS. 1207 TO 1222

PHILIPPINE NATIONAL BANK, petitioner, vs. HONORABLE ELIAS B.

ASUNCION, FABAR INCORPORATED, JOSE MA. BARREDO, CARMEN
B. BORROMEO and TOMAS L. BORROMEO, respondents

[G.R. No. L-46095. November 23, 1977.]

MAKASIAR, J:

FACTS:

PNB on January 16, 1963, granted in favor of respondent Fabar

Inc.various credit accommodations and advances in the form of a
discounting line, overdraft line, temporary overdraft line and letters of
credit covering the importation of machinery and equipment. Petitioner
likewise made advances by way of insurance premiums covering the
chattels subject matter of a mortgage securing the aforementioned credit
accommodations. Said credit accommodations had an outstanding
balance of P8,449,169.98 as of May 13, 1977.

For failure of private respondents to pay their obligations

notwithstanding repeated demands, petitioner instituted a case for
collection against all private respondents.

ISSUE:

Whether the respondent Court erred in dismissing the case against

all the defendants, instead of dismissing the case only as against the
deceased defendant?

RULING:

Petitioner's contention is well taken. Respondent Court's reliance

on Section 6, Rule 86 of the Revised Rules of Court was erroneous.

Article 1216 of the New Civil Code gives the creditor the right to
"proceed against anyone of the solidary debtors or some or all of them
simultaneously."

The choice is undoubtedly left to the solidary creditor to determine

against whom he will enforce collection. In case of the death of one of the
solidary debtors, he (the creditor) may, if he so chooses, proceed against
the surviving solidary debtors without necessity of filing a claim in the
estate of the deceased debtors. It is not mandatory for him to have the
case dismissed as against the surviving debtors and file its claim against
the estate of the deceased solidary debtor, as was made apparent in the
aforequoted decision. For to require the creditor to proceed against the
estate, making it a condition precedent for any collection action against
the surviving debtors to prosper, would deprive him of his substantive
rights provided by Article 1216 of the New Civil Code.
 INCHAUSTI & CO., plaintiff-appellant, vs . GREGORIO YULO,

[G.R. No. 7721. March 25, 1914.]

ARRELLANO. J:

FACTS:

This suit is brought for the recovery of a certain sum of money, the
balance of a current account opened by the firm of Inchausti & Company
with Teodoro Yulo and after his death continued with his widow and
children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a
property owner of Iloilo, for the exploitation andcultivation of his
numerous haciendas in the province of Occidental Negros, had been
borrowing money from the Inchausti & Company under specific
conditions. On April 9, 1903, Teodoro Yulo died testate and for the
execution of the provisions of his will he had appointed as administrators
his widow and 5 of his sons, Gregorio Yulo being one of the latter. He
thus left a widow, Gregoria Regalado, who died on October 22d of the
following year, 1904, there remaining of the marriage the following
legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio,
Mariano, Carmen, Conception, and Jose Yulo y Regalado. Of these
children Conception and Jose were minors, while Teodoro was mentally
incompetent. At the death of their predecessor in interest, Teodoro Yulo,
his widow and children held the conjugal property in common and at the
death of this said widow, Gregoria Regalado, these children preserved the
same relations under the name of Hijos de T. Yulo continuing their
current account with Inchausti & Company in the best and most
harmonious reciprocity until said balance amounted to two hundred
thousand pesos. In this state of affairs the creditor firm tried to obtain
security for the payment of the disbursements of money which until that
time it had been making in favor of its debtors, the Yulos.

ISSUE:

Whether the plaintiff can sue Gregorio Yulo alone, there being
other Obligors?
RULING:

When the obligation is a solidary one, the creditor may bring his
action in toto against any of the debtors obligated in solidum and
although the creditor may have, by means of a subsequent instrument,
covenanted with some of the solidary debtors different periods of
payment and different conditions, not on this account may it be
understood that the solidarity stipulated in the previous instrument has
been broken.

E. DIVISIBLE AND INDIVISIBLE ARTS. 1223 TO 1225

F. WITH A PENAL CLAUSE ARTS. 1226 TO 1230

MAKATI DEVELOPMENT CORPORATION, plaintiff-appellant, vs.

EMPIRE INSURANCE CO., defendant-appellee, RODOLFO P. ANDAL,
third-party, defendant-appellee

[G.R. No. L-21780. June 30, 1967.]

FACTS:

On March 31, 1959, the Makati Development Corporation sold to

Rodolfo P. Andal a lot, with an area of 1,589 square meters, in the
Urdaneta Village, Makati, Rizal, for P55,615.

A so-called "special condition" contained in the deed of sale

provides that

"[T]he VENDEE/S shall commence the construction and

complete at least 50% of his/her/their/ its residence on the
property within two (2) years from March 31, 1959 to the
satisfaction of the VENDOR and, in the event of his/her/their/its
failure to do so, the bond which the VENDEE/S has delivered to
the VENDOR in the sum of P11,123.00 and evidenced by a cash
bond receipt dated April 10, 1959 will be forfeited in favor of the
 VENDOR by the mere fact of failure of the VENDEE/S to comply
with this special condition."

To insure faithful compliance with this "condition," Andal gave a

surety bond he, as principal, and the Empire Insurance Company as
surety, jointly and severally, undertook to pay the Makati Development
Corporation the sum of P12,000 in case Andal failed to comply with his
obligation under the deed of sale.

Andal did not build his house; instead he sold the lot to Juan
Carlos on January 18, 1960. As neither Andal nor Juan Carlos built a
house on the lot within the stipulated period, the Makati Development
Corporation, on April 3, 1961, that is, three days after the lapse of the
two-year period, sent a notice of claim to the Empire Insurance Co.
advising it of Andal's failure to comply with his undertaking. Demand for
the payment of P12,000 was refused, whereupon the Makati
Development Corporation filed a complaint.

Andal defense ws such stipulation is contrary to morals, public

policy and law.

ISSUE:

Whether the special condition imposed on the contract is binding?

RULING:

Where a contract of sale of real property imposes a "special

condition" upon the vendee to construct a house thereon and complete at
least 50% of such construction within two years otherwise the surety
bond of P12,000.00 would be forfeited in favor of the vendor, such
"special condition" is in reality an obligation with a penal clause, and the
obligor's liability may be mitigated pursuant to Article 1229 of the Civil
Code, considering that such penalty is intended not to indemnify the
vendor for any damage it might suffer as a result of a breach of contract,
but rather to compel performance and thus encourage home building
among lot owners in the Urdaneta Village.
 COMMERCIAL CREDIT CORPORATION OF CAGAYAN DE ORO,
petitioner, vs. THE COURT OF APPEALS and THE CAGAYAN DE ORO
COLISEUM, INC., respondents.

[G.R. No. 78315. January 2, 1989.]

GANGAYCO,J:

FACTS:

Sometime in 1978 private respondent Cagayan De Oro Coliseum,

Inc. executed a promissory note in the amount of P329,852.54 in favor of
petitioner Commercial Credit Corporation of Cagayan de Oro, payable in
36 monthly installments. The note is secured by a real estate mortgage
duly executed by private respondent in favor of petitioner. As said
respondent defaulted in the payment of the monthly installments due,
petitioner proceeded with the extrajudicial foreclosure of the real estate
mortgage in September, 1979.

In due course a compromise agreement was entered into by the

parties on the basis of which a compromise judgment was rendered by
the trial court on March 11, 1980.

However as private respondent failed to comply with the terms of

the judgment for failure to pay several installments in the amount of
P70,152.65 which matured on July 13, 1982, petitioner filed an ex-parte
motion for the issuance of a writ of execution on March 4, 1983.

ISSUE:

Whether the honorable court of appeals committed grave and

reversible error when it modified the effects of the 3% penalty interest
and attorney's fees, after it upheld the legality of the compromise
judgment of the trial court?
RULING:

Article 1229 of the Civil Code applies only to obligations or

contract, subject of a litigation, the condition being that the same has
been partly or irregularly complied with by the debtor. The provision also
applies even if there has been no performance, as long as the penalty is
iniquituous or unconscionable. It cannot apply to a final and executory
judgment. When the parties entered into the said compromise agreement
and submitted the same for the approval of the trial court, its terms and
conditions must be the primordial consideration why the parties
voluntarily entered into the same. The trial court approved it because it
is lawful, and is not against public policy or morals. Even the respondent
Court of Appeals upheld the validity of the said compromise agreement.
Hence, the respondent court has no authority to reduce the penalty and
attorney's fees therein stipulated which is the law between the parties
and is res judicata.

RADIOWEALTH FINANCE COMPANY, petitioner, vs . Spouses

VICENTE and MA. SUMILANG DEL ROSARIO, respondents.

[G.R. No. 138739. 335 SCRA 288 July 6, 2000.]

PANGANIBAN, J:

FACTS:

On March 2, 1991, Sps Vicente and Maria Sumilang del Rosario.

(respondents), jointly and severally executed, signed and delivered in
favor of Radiowealth Finance Company (herein petitioner), a Promissory
Note for sum of (P138,948.00) to be paid on installment basis.
Thereafter, the respondent defaulted on monthly installments.

On the course of trial the respondent had a judicial admissions of

established their indebtedness to the petitioner, on the grounds that they
admitted the due execution of the Promissory Note, and that their only
defense was the absence of an agreement on when the installment
payments were to begin.
ISSUE/S:

Whether or not the debtor shall pay penalty?

RULING:

Petitioner, in its Complaint, prayed for "14% interest per annum

from May 6, 1993 until fully paid." We disagree. The Note already
stipulated a late payment penalty of 2.5 percent monthly to be added to
each unpaid installment until fully paid. Payment of interest was not
expressly stipulated in the Note. Thus, it should be deemed included in
such penalty.

8. EXTINGUISHMENT OF OBLIGATIONS

A. MODES ART. 1231

MILAGROS TEJUCO, plaintiff-appellant, vs . E. R. SQUIBB & SON

PHILIPPINE CORPORATION, ET AL., defendants-appellees

[G.R. No. L-11052. April 30, 1958.]

PARAS, J:

FACTS:

A civil complaint was filed in the Court of First Instance of Manila

by theappellant, alleging that the appellees, her former employers wrote
her a libelous letter of separation, a copy of which was posted in the
company's bulletin board.
 As the appellant admits that the complaint was filed one year and
six months after the publication of the libelous letter on October 18,
1954.

ISSUE:

Whether or not the obligation arising from the crime of libel already
extinguished?

RULING:

Concerning extinguishment of obligations arising from felonies,

Article 112 of the Revised Penal Code provides that "civil liability
established in Articles 100, 101, 102 and 103 of this Code shall be
extinguished in the same manner as other obligations in accordance with
the provisions of the Civil Law." Upon the other hand, Article 1231 of the
Civil Code is to the effect that ". . . other causes of extinguishment of
obligations, such as annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in this Code." On the
matter of prescription, the applicable provision is Article 1129 of the Civil
Code which states that "actions prescribe by mere lapse of time fixed by
law." This necessarily leads us to Article 1147 of the Civil Code which
requires that an action for defamation must be filed within one year. The
broad term "defamation" in the absence of any other specific provisions,
includes libel.
 SAURA IMPORT & EXPORT CO., INC., plaintiff-appellee, vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant

[G.R. No. L-24968. April 27, 1972.]

MAKALINTAL, J:

FACTS:

In July 1953 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; 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.

Parenthetically, it may be mentioned that the jute mill machinery

had already been purchased by Saura on the strength of a letter of credit
extended by the Prudential Bank and Trust Co., and arrived in Davao
City in July 1953; and that to secure its release without first paying the
draft, Saura, Inc. executed a trust receipt in favor of the said bank.

On January 7, 1954 RFC passed Resolution No. 145 approving the

loan application for P500,000.00, to be secured by a first mortgage on
the factory buildings to be constructed, the land site thereof, and the
machinery and equipment to be installed.

Saura, Inc. wrote a letter to RFC, requesting a modification of the

terms laid down by it, namely: that in lieu of having China Engineers,
Ltd. sign as co-maker on the corresponding promissory notes, Saura,
Inc. would put up a bond for P123,500.00, an amount equivalent to such
subscription; and that Maria S. Roca would be substituted for Inocencia
Arellano as one of the other co-makers, having acquired the latter's
shares in Saura, Inc.

In view of such request RFC approved Resolution No. 736

ISSUE:

Whether there is an extinguishment of obligation in the case at

bar?

RULING:

When RFC turned down the request of Saura Inc., 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, which was done on June 15, 1955. 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
by the parties can create a contract, mutual disagreement by the parties
can cause its extinguishment.

B. PAYMENT OR PERFORMANCE ART. 1232

I. CHARACTERISTICS

1. INTEGRITY OF PAYMENT ART. 1233

A. EXCEPTIONS ARTS. 1234 AND 1235

2. IDENTITY OF PAYMENT ART. 1244

A. EXCEPTION ART. 1245

3. INDIVISIBILITY OF PAYMENT ART. 1248

A. EXCEPTION ART. 1245

II. WHO CAN MAKE P AYMENT ARTS. 1236 TO 1239

 MARIANO GONZAGA ET AL., plaintiffs-appellants, vs. FELISA

GARCIA ET AL., defendants-appellees.

[G.R. No. 8254. March 3, 1914.]

TRENT,J:

FACTS:

Rufino Francisco acquired the land in question by inheritance from

the registered owner. On August 20, 1909, he sold it with the right to
repurchase the same within one year and with the understanding that
the time could be extended one year more, to Vicente San Martin. On
August 30, 1909, Francisco's right to repurchase was attached by one
Del Rosario. This right of repurchase was sold under execution on
December 29, 1909, at a sheriff's sale, Del Rosario being the purchaser.
The certificate of sale was registered January 6, 1910, and Francisco
having failed to exercise his right of redemption within one year, the
sheriff issued his deed to Del Rosario for the interest of Francisco in the
land thus sold at the execution sale. On November 9, 1908, Francisco
sold the same land to Jose de Lavengco. The document evidencing this
sale was never registered. The opponents are the widow and minor
children of Jose de Lavengco. Neither Jose nor the opponents ever
entered into the possession of the property. The appellants knew nothing
of the sale by Rufino Francisco to Jose de Lanvengco.

ISSUE:

Did the appellants acquire a registerable title?

RULING:

The right to repurchase real estate sold under pacto de retro is

subject to execution and may be sold at public auction to satisfy a
judgment against the owner of such a right. By virtue of the sheriff's sale
of December 29, 1909, Del Rosario acquired the right to repurchase the
land in question from Martin. In November or December, 1911, Del
Rosario sold all of his interest to the appellants. The only interest
acquired by Del Rosario at the sheriff's sale was the right to repurchase
from Martin because this was the only interest that Francisco had at that
time. Francisco repurchased the land several months before Del Rosario
sold his interest to the appellants. It is therefore clear that the appellants
acquired no interest whatever in the land unless the repurchase made by
Francisco vested the title in Del Rosario, the then owner of the right to
repurchase. We think that Francisco's repurchase did not have this
effect. When Francisco's right to repurchase was sold at public auction
the judgment against him was completely satisfied, and he was therefore
a stranger to the proceedings. But it is said that under the provisions of
article 1158 of the Civil Code the repurchase by Francisco was a
payment for Del Rosario and that the former may recover from the latter
the price paid. Del Rosario was not a debtor. He was under no
obligations to repurchase the land from Martin. He had a right to do so
but whether he exercised this right or not depended upon his own
volition. Article 1158 is not for these reasons applicable.

The judgment appealed from is therefore affirmed, with costs against the
appellants.

TOMAS SISON and LEODEGARIO AZARRAGA, plaintiffs-appellants,

vs . ALEJANDRO BALGOS, defendant-appellee.

[G.R. No. 10305. September 5, 1916.]

ARELLANO, CJ:

FACTS:

Isidro Azarraga was guardian of certain minors named Maria Felisa

and JesusBellosillo. During his administration, as the result of a writ of
wxecution issued by the Court of First Instance of Capiz, the sheriff of
Capiz sold at public auction. This land was knocked down to Alejandro
Balgos for P126.
 On May 17, 1911, the period for redemption was to expire. But it
happened that Isidro Azarraga died on May 2, 1911, the minors thus
being left without any guardian. Notwithstanding this, on the every last
day of the period for redemption, May 17, 1911, Leodegario Azarraga, an
uncle of said minors, deposited with the sheriff the sum of P141.12 in
refund of the principal paid by the purchaser and the interest thereon.
The sheriff notified the latter of the deposit in order that he might receive
the money and turn over the land. But the purchaser refused and still
refuses to allow the redemption.

ISSUE:

Whether Leodegario Azzarraga, the uncle of the minors

repurchase the parcel of land in question?

RULING:

Any person, whether he has an interest or not in the fulfillment of

the obligation, and whether the debtor knows approves it or is not aware
thereof, can make the payment. (Civil Code, art. 1158.)

III. TO WHOM CAN PAYMENT BE MADE ARTS. 1240 TO

1243

IV. PAYMENT OF DEBTS IN MONEY ART. 1249

1. SEC. 1 OF RA 529 (EFFECTIVITY: 16 JUNE

1950), AS AMENDED BY RA 4100

2. SEC. 1 AND 2 OF RA 8183 (11 JUNE 1996)

LILY SAN BUENAVENTURA and JOHN DOE, petitioners, vs. COURT OF
APPEALS and EVEREST TEXTILE CO., INC., respondents.

[G.R. No. L-43830. January 22, 1990.]

FERNAN, J:

FACTS:

On November 21 December 21 year 1967 and January 3, 1968,

petitioner San Buenaventura purchased directly on credit textile
materials and other allied goods from private respondent in the total
amount of US$14,612.20, which purchases were to be paid by petitioner
within thirty (30) days from the date of sale.

On April 19, 1969 and in September of 1969, petitioners paid

directly to private respondent the total amount of US $7,500.00, thereby
reducing their undisputed principal obligation of US $14,612.20 to US
$7,112.20. Ten percent (10%) of the balance was added as collection
charges, giving a total balance of US $7,823.42; which petitioner Lily San
Buenaventura, on February 19, 1970, acknowledged and promised to
pay through the Syquia Law Offices.

Thereafter, petitioners made several partial installment payments

amounting to a total sum of P32,812.00 which according to private
respondent, if computed at the floating market rate of the US dollar at
the time of the said payment would only amount to $5,209.00. Allegedly,
this amount if deducted from the original balance of $7,823.42 as
reflected in the aforequoted letter agreement dated February 19, 1970
would leave an unpaid balance of $2,614.42. On the other hand,
petitioners contend that the amount of $7,823.42 had been fully paid
through the Syquia Law Offices retained by private respondent for
collection purposes.

ISSUE:

Whether the rate of exchange of the U.S. Dollar to the Philippine

Peso should be applied in converting petitioner's monetary obligation to
private respondent in the amount of US $2,614.42 to its equivalent value
in Philippine Peso. Is it the rate of exchange prevailing at the time the
obligation was incurred or that prevailing at the time of its payment?

RULING:

An agreement to pay an obligation in a currency other than

Philippine currency is null and void as contrary to public policy, what the
law specifically prohibits is payment in currency other than legal tender
but does not defeat a creditor's claim for payment. A contrary rule would
allow a person to profit or enrich himself inequitably at another's
expense. With regard to obligations incurred prior to the effectivity of
Republic Act No. 529 requiring payment in a particular kind of coin or
currency other than Philippine currency, it is specifically provided that
the same shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred except
in case of a loan made in a foreign currency stipulated to be payable in
the same currency in which case the rate of exchange prevailing at the
stipulated date of payment shall prevail. In the case before Us,
petitioners' obligation was incurred after the enactment of Republic Act
No. 529, as amended. As held in Kalalo vs. Luz (supra) and as correctly
relied upon by respondent appellate court, the rate of exchange should
be that prevailing at the time of payment.

3. LEGAL TENDER SECS. 31 AND 32 OF PD72 (11

NOVEMBER 1972)

A. COINS CIRCULAR NO. 537

 V. PAYMENT IN MERCANTILE DOCUMENT 2ND PARAGRAPH
OF ART. 1249

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner, vs.

HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO
SHERIFF HAKIM S. ABDULWAHID, respondents.

[G.R. No. L-41764. December 19, 1980.]

CONCEPCION, JR., J p

FACTS:

On July 19, 1974, a compromise judgment was rendered by the

respondent Judge in accordance with an amicable settlement entered
into by the parties. For failure of petitioner to comply with his judgment
obligation, the respondent Judge, upon motion of the private respondent,
issued an order for the issuance of a writ of execution on December 21,
1974. Accordingly, writ of execution was issued for the amount of
P63,130.00

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, private

respondent through counsel, refused to accept the check as well as the
cash deposit. In the same letter, private respondent requested the
scheduled auction sale on January 15, 1975 to proceed if the petitioner
cannot produce the cash.

ISSUE:

Whether or not the private respondent can validly refuse

acceptance of the payment of the judgment obligation made by the
petitioner consisting of P50,000.00 in Cashier's Check and P13,130.00 in
cash which it deposited with the Ex-Officio Sheriff before the date of the
scheduled auction sale?
RULING:

We find the petition to be impressed with merit.

In upholding private respondent's claim that he has the right to

refuse payment by means of a check, the respondent Judge cited the
following:

Section 63 of the Central Bank Act:

"Sec. 63. Legal Character. Checks representing deposit

money do not have legal tender power and then acceptance in
payment of debts, both public and private, is at the option of the
creditor, Provided, however, that a check which has been cleared
and credited to the account of the creditor shall be equivalent to a
delivery to the creditor in cash in an amount equal to the amount
credited to his account."

Article 1249 of the New Civil Code:

"Art. 1249. The payment of debts in money shall be made

in the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.

"The delivery of promissory notes payable to order, or bills of

exchange or other mercantile documents shall produce the effect of
payment only when they have been cashed, or when through the fault of
the creditor they have been impaired.

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners, vs.

THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

[G.R. No. 100290. June 4, 1993.]

PADILLA, J:

FACTS:

Suit for collection of a sum of money filed by Eden Tan against the
Tibajia spouses. A writ of attachment was issued by the trial court on 17
August 1987 and on 17 September 1987, the Deputy Sheriff filed a
return stating that a deposit made by the Tibajia spouses in the Regional
Trial Court of Kalookan City in the amount of (P442,750.00) in another
case, had been garnished by him.

ISSUE:

Whether or not payment by means of check (even by cashier's

check)is considered payment in legal tender as required by the Civil
Code, Republic Act No. 529, and the Central Bank Act?

RULING:

In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals

and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate
Court, this Court held that "A check, whether a manager's check or
ordinary check, is not legal tender, and an offer of a check in payment of
a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor." The ruling in these two (2) cases merely applies the
statutory provisions which lay down the rule that a check is not legal
tender and that a creditor may validly refuse payment by check, whether
it be a manager's, cashier's or personal check. Petitioners erroneously
rely on one of the dissenting opinions in the Philippine Airlines case to
support their cause. The dissenting opinion however does not in any way
support the contention that a check is legal tender but, on the contrary,
states that "If the PAL checks in question had not been encashed by
Sheriff Reyes, there would be no payment by the PAL and, consequently,
no discharge or satisfaction of its judgment obligation." Moreover, the
circumstances in the Philippine Airlines case are quite different from
those in the case at bar for in that case the checks issued by the
judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who
encashed the checks but failed to deliver the proceeds of said
encashment to the judgment creditor. In the more recent case of
Fortunado vs. Court of Appeals, this 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."

ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO

and RAMON A. GONZALES, petitioners, vs. COURT OF APPEALS,
BASILISA CAMPANO, as City Sheriff of Iligan City, REGISTER OF
DEEDS, Iligan City, ANGEL L. BAUTISTA and NATIONAL STEEL
CORPORATION, respondents.

[G.R. No. 78556. April 25, 1991.]

FACTS:

On April 21, 1981, the RTC QC rendered judgment in Civil Case

No. Q-22367, entitled "Alfaro Fortunado vs. Angel Bautista," ordering the
defendant to pay damages to the plaintiff. Pursuant to the said
judgment, respondent Basilisa Campano, City Sheriff of Iligan City,
levied upon two parcels of land registered in the name of Bautista located
at Iligan City and covered by TCT Nos. T-7625 and T-14133. The latter
lot had already been purchased by respondent National Steel
Corporation as of August 17, 1983, but had not yet been registered in its
name.

After due notice, these lots were sold at public auction to the
petitioners as the only bidder on April 23, 1984. They were issued a
certificate of sale which was registered on April 25, 1984 On March 21,
1985, Bautista sent the sheriff a letter bearing NSC's conformity in which
he availed himself of NSC's check, which was sufficient to cover the full
redemption price for both lots, to redeem the other lot covered by TCT
No. T-7625

The sheriff acknowledged receipt of the check as redemption

money for the two parcels of land on March 21, 1985, and on March 22,
1985, issued a certificate of redemption in favor of NSC and Bautista.

ISSUE:

Whether the payment of check constitute legal tender?

RULING:

We are not, by this decision, sanctioning the use of a check for the
payment of obligations over the objection of the creditor. What we are
saying is that a check may be used for the exercise of the right of
redemption, the same being a right and not an obligation. The tender of a
check is sufficient to compel redemption but is not in itself a payment
that relieves the redemptioner from his liability to pay the redemption
price. In other words, while we hold that the private respondents
properly exercised their right of redemption, they remain liable, of
course, for the payment of the redemption price.

LETICIA CO, assisted by her husband MUI YUK KONG, in

substitution of CITADEL INSURANCE & SURETY CO., INC.,
plaintiffappellee, vs. PHILIPPINE NATIONAL BANK, defendant-
appellant

[G.R. No. L-51767. June 29, 1982.]

BARREDO, J:

FACTS:

On November 10, 1961, the STANDARD, executed a real estate

mortgage in favor of PNB, over properties covered by TCT Nos. T-5108
and T-5320, both situated in Baguio City, as collateral for a loan
consideration of P500,000.00. On February 20, 1963, the same debtor
corporation executed an amended real estate mortgage to include as
collateral for the increase of the above loan to P1,000,000.00 a property
located at Pasong Tamo Extension.

Additionally, on February 20, 1963, the same corporation executed

in favor of PNB a chattel mortgage of its personal properties listed on
pages 96 to 108 of the Record on Appeal. On pages 6-7 of appellant's
brief it is stated that as of July 19, 1974, the "borrowed loan" of
STANDARD totaled P4,296,803.56, and that the said obligation was
secured, as aforementioned, by the mortgages on the Baguio and Makati
real estates of STANDARD and the chattel mortgage on its personal
properties above referred to.

When STANDARD failed to pay its obligation, PNB extra-judicially

foreclosed the mortgage on the Baguio properties as well as the chattel
mortgage on July 19, 1974, with PNB as the highest bidder for
P1,514,305.00. Subsequently, on August 8, 1974, PNB also foreclosed
the mortgage on the Makati property and purchased the same, as highest
bidder, for P1,363,000.00.

ISSUE:

What is the law applicable to this case as to the period of

redemption?

RULING:

Republic Act 1300 entitled "An Act Revising the Charter of the
Philippine National Bank" was approved and made effective on June 16,
1955. It was therefore the law when in 1963 the mortgage here in dispute
was executed. It was the very law that the above-quoted paragraph (g) of
the mortgage contract made reference to. In this connection, evidently
overlooked by counsel for PNB is that Republic Act 1300 does not
contemplate extrajudicial procedure. Clearly indicative of this is Section
20 thereof which provides:

"Sec. 20. Right of redemption of property foreclosed. The

mortgagor shall have the right, within the year after the sale of real
estate as a result of the foreclosure of a mortgage, to redeem the
property by paying the amount fixed by the court in the order of
execution, with interest thereon at the rate specified in the
mortgage, and all the costs and other judicial expenses incurred by
the Bank by reason of the execution and sale and for the custody
of said property."
 Indeed, conventional legal and banking business sense dictates
that it must have been because of such omission that paragraph (g)
above had to expressly incorporate Act 3135 which provides for
extrajudicial foreclosure. We cannot, therefore, escape the conclusion
that what STANDARD agreed to in respect to the possible foreclosure of
its mortgage was to subject the same to the provisions of Act 3135
should the PNB opt to utilize said law instead of Republic Act 1300.

NATIONAL MARKETING CORPORATION, plaintiff-appellee, vs.

FEDERATION OF UNITED NAMARCO DISTRIBUTORS, INC.,
defendant appellant.

[G.R. No. L-22578. January 31, 1973.]

ANTONIO, J:

FACTS:

On November 16, 1959, the NAMARCO and the FEDERATION

entered into a Contract of Sale.

NAMARCO instituted the present action (Civil Case No. 46124)

alleging, among others, that the FEDERATION'S act or omission in
refusing to satisfy the former's valid, just and demandable claim has
compelled it to file the instant action; and praying that the FEDERATION
be ordered to pay the NAMARCO the sum of P611,053.35, representing
the cost of merchandise mentioned in the preceding paragraph, with
interest thereon at the legal rate from the date of delivery of the
merchandise in question, until the whole obligation is paid; P20,000.00
as attorney's fees and other expenses of litigation, plus costs.

ISSUE:

Whether the delivery of negotiable documents does constitute

payment?
RULING:

The mere delivery by FEDERATION of the domestic letters of credit

to NAMARCO did not operate to discharge the debt of FEDERATION. As
shown by the appealed judgment, NAMARCO accepted the three letters
of credit "to insure the payment of those goods by the FEDERATION . . ."
They were given therefore as mere guarantee for the payment of the
merchandise. The delivery of promissory notes payable to order, or bills
of exchange or drafts or other mercantile document shall produce the
effect of payment only when realized, or when by the fault of the creditor,
the privileges inherent in their negotiable character have been impaired

VI. EXTRA-ORDINARY INFLATION OR DEFLATION OF THE

CURRENCY ART. 1250

FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,

vs. NATIONAL WATERWORKS AND SEWERAGE AUTHORITY,
defendant-appellee.

[G.R. No. L-43446. May 3, 1988.]

GRIO-AQUINO, J p:

FACTS:

On June 12, 1961, the NAWASA entered into a contract with the
plaintiff FPFC for the latter to supply it with 4" and 6" diameter
centrifugally cast iron pressure pipes worth P270,187.50 to be used in
the construction of the Anonoy Waterworks in Masbate and the Barrio
San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in
installments on various dates, a total of (P134,680.00) leaving a balance
of (P135,507.50) excluding interest. Having completed the delivery of the
pipes, the plaintiff demanded payment from the defendant of the unpaid
balance of the price with interest in accordance with the terms of their
contract.

When the NAWASA failed to pay the balance of its account, the
plaintiff filed a collection suit on March 16, 1967.

ISSUE:

whether, on the basis of the continuously spiralling price index

indisputably shown by the plaintiff, there exists an extraordinary
inflation of the currency justifying an adjustment of defendant-appellee's
unpaid judgment obligation to the plaintiff-appellant?

RULING:

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.

MOBIL OIL PHILIPPINES, INC., petitioner, vs. THE HONORABLE

COURT OF APPEALS and FERNANDO A. PEDROSA, respondents.

[G.R. No. 58122. December 29, 1989.]

PARAS, J:

FACTS:

Plaintiff is a dealer of defendant's petroleum products and

accessories, operating a Mobil gasoline service station under the name of
Anne Marie Mobil Service Station located at Aurora Blvd., San Juan,
Metro Manila. The contractual relationship between plaintiff and
defendant is governed by a Retail Dealer Contract, Exh. A, also Exh. 1.

In the later part of 1973, an international oil crisis came about by reason
of the concerted action of principal oil producing countries to increase
the oil prices. The Philippines was not spared of this economic scourge,
and to meet the emergency, as the commodity became scarce while the
demand therefore remained the same.

On February 15, 1974 a Friday while there was still this oil
crisis, plaintiff placed with defendant a pre-paid order for 8,000 liters of
premium gasoline and 2,000 liters of regular gasoline paying therefore a
PBTC Cashier's Check in the amount of P4,610.00 was received.

Mr. Alberto Latuno further states that the order, Exh. B, did not come
back to him for invoicing that Friday afternoon (February 15, 1974); it
was on February 19, 1974 that he received again the order, because the
processing thereof by one coupon comptroller was completed only on
that day, the reason for the delay being that on February 18 there was a
price increase and they had to give priority to the recall of invoices
already with their warehouse and dispatcher for re-pricing.

ISSUE:

Whether or not the company should be liable for amountof

inflation of the gasoline price?

RULING:

On the second issue for adjustment claims, private respondent has

no basis in contract or in law. Parenthetically, the principle We laid down
in the case of Commissioner of Public Highways vs. Burgos (96 SCRA
831) can be applied here, to wit: ". . . 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." (pp. 837-838 emphasis supplied)
Moreover, in his concurring opinion in the same case, Justice Claudio

Teehankee stated: "I concur in the result with the observation that
the statements in the main opinion re the applicability or non-
applicability of Article 1250 of the Civil Code should be taken as obiter
dicta, since said article may not be invoked nor applied without a proper
declaration of extraordinary inflation or deflation of currency by the
competent authorities. In the case at bar, the obligation of the petitioner,
if any, is based on law since the same calls for the application of the Civil
Code provisions on damages. Moreover, there has been no official
pronouncement or declaration of the existence of extraordinary inflation
or deflation.

2. WHEN ARTICLE 1250 DOES NOT APPLY (OBLIGATIONS,

NOT CONTRACTUAL)::

PEDRO J. VELASCO, plaintiff-appellant, vs. MANILA ELECTRIC CO.,

ET AL., defendants-appellees.

[G.R. No. L-18390. December 20, 1971.]

REYES, JBL;

FACTS:

The thrust of this motion is that the decision has incorrectly

assessed appellant's damages and unreasonably reduced their amount.
It is first argued that the decision erred in not taking into account, in
computing appellant's loss of income, the appellant's undeclared income
of P8,338.20, assessed by BIR for the year 1954, in addition to his
declared income for that year (P10,975), it being argued that appellant
never claimed any other source of income besides his professional
earnings Several circumstances of record disprove this claim. (1) That the
amount of P8,338.20 was kept apart from the ordinary earnings of
appellant for the year 1954 (P10,975), and not declared with it, is in itself
circumstantial evidence that it was not of comparable character. (2) If it
was part of his ordinary professional income, appellant was guilty of
fraud in not declaring it and he should not be allowed to derive
advantage from his own wrongdoing. (3) The decision pointed out that by
including the undeclared amount in appellant's disclosed professional
earnings for 1954, to a grand total of P19,313.20, the income for said
year becomes abnormally high (in fact, more than double), as compared
to appellant's earnings for the three preceding years, 1951-1953, that
averaged not more than P7,000 per annum. Such abnormality justifies
the Court's refusal to consider the undisclosed P8,338.20 as part of
appellant's regular income for the purpose of computing the reduction in
his earnings as a result of the complained acts of appellee. (4) Finally,
the true source of the undeclared amount lay in appellant's own
knowledge, but he chose not to disclose it; neither did he call upon the
assessing revenue officer to reveal its character.

ISSUE:

Whether Art. 1250 of Civil Code is applicable in the case at bar?

RULING:

We do not deem the rules invoked to be applicable. Article 1250 of

the Civil Code is to the effect that:

"ART. 1250. In case an extraordinary inflation or deflation of

the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be
the basis of payment, unless there is an agreement to the
contrary."

It can be seen from the employment of the words "extraordinary

inflation or deflation of the currency stipulated" that the legal rule
envisages contractual obligations where a specific currency is selected by
the parties as the medium of payment; hence it is inapplicable to
obligations arising from tort and not from contract, as in the case at bar,
besides there being no showing that the factual assumption of the article
has come into existence As to the Pantoja ruling, the regard paid to the
decreasing purchase of the peso was considered a factor in estimating
the indemnity due for loss of life, which in itself is not susceptible of
accurate estimation. It should not be forgotten that the damages
awarded to herein appellant were by no means full compensatory
damages, since the decision makes clear that appellant, by his failure to
minimize his damages by means easily within his reach, was declared
entitled only to a reduced award for the nuisance sued upon (Steel vs.
Rail & River Coal Co., 43 Ohio App. 228, 182 N.E. 552); and the amount
granted him had already taken into account the changed economic
circumstances. Nor is the fact that appellant lost a chance to sell his
house for P95,000 to Jose Valencia constitute a ground for an award of
damages in that amount. As remarked in the main decision, there is no
adequate proof of loss, since there is no evidence of the depreciation in
the market value of the house in question caused by the acts of
defendant Meralco. The house, after all, has remained with appellant,
and he admits in his motion for reconsideration (page 48) that properties
have increased in value by 200% since then.

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 Victoria Amigable,
respondents

[G.R. No. L-36706. March 31, 1980.]

DE CASTRO, J:

FACTS:

Victoria Amigable is the owner of parcel of land situated in Cebu

City with an area of 6,167 square meters. Sometime in 1924, the
Government took this land for road-right-of way purpose. The land had
since become streets known as Mango Avenue and Gorordo Avenue in
Cebu City.

Victoria Amigable filed in the CFI of Cebu City a complaint, to

recover ownership and possession of the land, and for damages in the
sum of P50,000.00 for the alleged illegal occupation of the land by the
Government, moral damages in the sum of P25,000.00, and attorney's
fees in the sum of P5,000.00, plus costs of suit. The complaint was
docketed as Civil Case No. R-5977 of the Court of First Instance of Cebu,
entitled "Victoria Amigable vs. Nicolas Cuenca, in his capacity as
Commissioner of Public Highways and Republic of the Philippines."

ISSUE:

whether or not the provision of Article 1250 of the New Civil Code
is applicable in determining the amount of compensation to be paid to
respondent Victoria Amigable for the property taken is raised because
the respondent court applied said Article by considering the value of the
peso to the dollar at the time of hearing, in determining due
compensation to be paid for the property taken. The Solicitor General
contends that in so doing, the respondent court violated the order of this
Court, in its decision in G.R. No. L-26400, February 29, 1972, to make
as basis of the determination of just compensation the price or value of
the land at the time of the taking.

RULING:

It is to be noted that respondent judge did consider the value of the

property at the time of the taking, which as proven by the petitioner was
P2.37 per square meter in 1924.

However, applying Article 1250 of the New Civil Code, and

considering that the value of the peso to the dollar during the hearing in
1972 was P6.775 to a dollar, as proven by the evidence of the private
respondent Victoria Amigable, the Court xed the value of the property
at the deated value of the peso in relation, to the dollar, and came up
with the sum of P49,459.34 as the just compensation to be paid by the
Government. To this action of the respondent judge, the Solicitor General
has taken exception.

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 ination or deation.
 "ART. 1250. In case extra-ordinary ination or deation 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 view in the
case of Velasco vs. Manila Electric Co., et al., L-19390, December 29,
1971.

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 ination 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 ination 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. LLjur

We hold, therefore, that under the law, in the absence of any

agreement to the contrary, even assuming that there has been an
extraordinary ination within the meaning of Article 1250 of the New
Civil Code, a fact We decline to declare categorically, the value of the
peso at the time of the establishment of the obligation, which in the
instant case is when the property was taken possession of by the
Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to
speak of because the obligation of the Government sought to be enforced
in the present action does not originate from contract, but from law
which, generally is not subject to the will of the parties. And there being
no other legal provision cited which would justify a departure from the
rule that just compensation is determined on the basis of the value of the
property at the time of the taking thereof in expropriation by the
Government, the value of the property as it is when the Government took
possession of the land in question, not the increased value resulting from
the passage of time which invariably brings unearned increment to
landed properties, represents the true value to be paid as just
compensation for the property taken.

ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant, vs.

MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC.,
WILHELM WILHELMSEN, MANILA PORT SERVICE and/or MANILA
RAILROAD COMPANY, defendants-appellees.

[G.R. No. L-27796. March 25, 1976.]

ANTONIO, J:

FACTS:

On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila

and discharged its aforesaid shipment into the custody of Manila Port
Service, the arrastre contractor for the Port of Manila. The said shipment
was discharged complete and in good order with the exception of one (1)
drum and several cartons which were in bad order condition. Because
consignee failed to receive the whole shipment and as several cartons of
medicine were received in bad order condition, the consignee filed the
corresponding claim in the amount of P1,109.67 representing the C.I.F.
value of the damaged drum and cartons of medicine with the carrier,
herein defendants-appellees and the Manila Port Service. However, both
refused to pay such claim. Consequently, the consignee filed its claim
with the insurer, St. Paul Fire & Marine Insurance Co., and the
insurance company, on the basis of such claim, paid to the consignee the
insured value of the lost and damaged goods, including other expenses in
connection therewith, in the total amount of $1,134.46 U.S. currency
ISSUE:

Whether or not, in case of loss or damage, the liability of the

carrier to the consignee is limited to the C.I.F. value of the goods which
were lost or damaged?

RULING:

The limitation of the carrier's liability is sanctioned by the freedom

of the contracting parties to established such stipulations, clauses,
terms, or conditions as they may deem convenient, provide they are not
contrary to law, morals, good customs and public policy. A stipulation
fixing or limiting the sum that may be recovered from the carrier on the
loss or deterioration of the goods is valid provide it is (a) reasonable and
just under the circumstances, and (b) has been fairly and freely agreed
upon.

VII. FORMS OF PAYMENT

1. APPLICATION OF PAYMENT ARTS. 1252 TO 1254

REPARATIONS COMMISSION, plaintiff-appellants, vs. UNIVERSAL

DEEP-SEA FISHING CORPORATION and MANILA

[G.R. Nos. L-21901 and L-21996. June 27, 1978.]

CONCEPTION, J:

FACTS:

UNIVERSAL was awarded six (6) trawl boats by the Reparations

Commission as end-user of reparations goods. These fishing boats, were
delivered to UNIVERSAL on November 20, 1958, and the contract of
Conditional Purchase and Sale of Reparations Goods, executed by and
between the parties on February 12, 1960, provided among others, that
"the first installment representing 10% of the amount or (P53,642.84)
shall be paid within 24 months from the date of complete delivery
thereof, the balance shall be paid in the manner herein stated in the
contract.

To guarantee the faithful compliance with the obligations under

said contract, a performance bond in the amount of P53,643.00, with
UNIVERSAL as principal and the Manila Surety & Fidelity Co., Inc., as
surety, was executed in favor of the Reparations Commission. A
corresponding indemnity agreement was executed to indemnify the
surety company for any damage, loss charges, etc., which it may sustain
or incur as a consequence of having become a surety upon the
performance bond.

On August 10, 1962, the Reparations Commission instituted the

present action against UNIVERSAL and the surety company to recover
various amounts of money due under these contracts. In answer,
UNIVERSAL claimed that the amounts of money sought to be collected
are not yet due and demandable.

ISSUE:

Whether or not the first installments under the three (3) contracts
of conditional purchase and sale of reparations goods were already due
and demandable when the complaint was filed?

RULING:

The rules contained in Articles 1252 to 1254 of the Civil Code

apply to a person owing several debts of the same kind to a single
creditor. They cannot be made applicable to a person whose obligation as
a mere surety is both contingent and singular, which in this case is the
full and faithful compliance with the terms of the contract of conditional
purchase and sale of reparations goods. The obligation included the
payment, not only of the first installment in the amount of P53,643.00,
but also of the ten (10) equal yearly installments of P56,597.20 per
annum. The amount of P10,000.00 was, indeed, deducted from the
amount of P53,643.00, but then the first of the ten (10) equal yearly
installments had also accrued; hence, no error was committed in holding
the surety company to the full extent of its undertaking.

MAGDALENA ESTATES, INC., plaintiff-appellee, vs. ANTONIO A.

RODRIGUEZ and HERMINIA C. RODRIGUEZ, defendants-appellants.

[G.R. No. L-18411. December 17, 1966.]

REGALA, J:

FACTS:

The appellants bought from the appellee a parcel of land in QC

known as Lot 7-K- 2-G, Psd-26193. In view of an unpaid balance of
P5,000.00 on account of the purchase price of the lot, the appellants
executed on January 4, 1957, the following promissory note representing
the said account.

The alleged accumulated interests on the principal of P5,000.00.

Due to the refusal of the appellants to pay the said interest, the appellee
started this suit in the MTC of Manila to enforce the collection thereof.
The said court, on February 5, 1959, rendered judgment in favor of the
appellee and against the appellants, ordering the latter to pay jointly and
severally the appellee the sum of P655.89 with interest thereon at the
legal rate from November 10, 1958, the date of the filing of the complaint,
until the whole amount is fully paid. Not satisfied with that judgment,
appellants appealed to the CFI of Manila, where the case was submitted
for decision on the pleadings. The CFI of Manila rendered the judgment
stated at the outset of this decision.

ISSUE:

Whether the sum constitute full payment?

RULING:

We do not agree with the contention of the appellants. It is very

clear in the promissory note that the principal obligation is the balance
of the purchase price of the parcel of land known as Lot 7-K-2-C, Psd-
26193, which is the sum of P5,000.00, and in the surety bond, the Luzon
Surety Co., Inc. undertook "to pay the amount of P5,000.00 representing
balance of the purchase price of a parcel of land known as Lot 7-K-2-C,
Psd-26193, . . ." The appellee did not protest nor object when it accepted
the payment of P5,000.00 because it knew that was the complete amount
undertaken by the surety as appearing in the contract. The liability of a
surety is not extended, by implication, beyond the terms of his contract.
It is for the same reason that the appellee cannot apply a part of the
P5,000.00 as payment for the accrued interest. Appellants are relying on
Article 1253 of the Civil Code, but the rules contained in Articles 1252 to
1254 of the Civil Code apply to a person owing several debts of the same
kind of* a single creditor. They cannot be made applicable to a person
whose obligation as a mere surety is both contingent and singular; his
liability is confined to such obligation, and he is entitled to have all
payments made applied exclusively to said application and to no other.
Besides, Article 1253 of the Civil Code is merely directory, and not
mandatory. Inasmuch as the appellee cannot protest for non-payment of
the interest when it accepted the amount of P5,000.00 from the Luzon
Surety Co., Inc., nor apply a part of that amount as payment for the
interest, we cannot now say that there was a waiver or condonation on
the interest due.

It is claimed that there was a novation and/or modification of the

obligation of the appellants in favor of the appellee because the appellee
accepted without reservation the subsequent agreement set forth in the
surety bond despite its failure to provide that it also guaranteed payment
of accruing interest.

The rule is settled that novation by presumption has never been

favored. To be sustained, it needs to be established that the old and new
contracts are incompatible in all points, or that the will to novate
appears by express agreement of the parties or in acts of similar import.

The rules contained in Arts. 1252 and 1254 of the Civil Code applies to a
person owing several debts of the same kind of a single creditor. They
cannot be made applicable to a person whose obligation as a mere surety
is both contingent and singular; his liability is confined to such
obligation, and he is entitled to have all payments made applied
exclusively to said application and to no other. Besides Art. 1253 of the
Civil Code is merely directory, and not mandatory

THE BACHRACH GARAGE AND TAXICAB CO. (INC.), plaintiff-

appellee, vs . VICENTE GOLINGCO, defendant-appellant.

[G.R. No. 13761. July 12, 1919.]

AVANCEA, J p:

FACTS:

This case is brought for the recovery of a sum of money. Three

causes of action are alleged. By the first cause of action, the plaintiff
claims the amount of P7,583.93 with interests thereon from December
14th (the year not being mentioned therein), till the date it is fully paid in
addition to the 25 per cent of the total amount. By the second cause of
action, he claims the amount of P1,059.17 with interests thereon until
fully paid plus the 25 per cent of the total amount; by the third cause of
action, the amount of P1,534.75 with legal interests thereon. The lower
court rendered judgment sentencing the defendant, for the first cause of
action, to pay the amount of P7,583.93 with 10 percent interest thereon
from January 19, 1917, plus 12 1/2 percent on the said amount; for the
second cause of action P1,059.17 with the same interest from the said
date plus 12 1/2 percent on the same amount; for the third, P154.75
with legal interest from January 19, 1917. From this judgment, the
defendant appealed.

ISSUE:

Whether, as alleged by the defendant, the payment of P7,000

which appears in Exhibit 1 is on the account of the promissory note for
P8,750?
RULING:

He who owes several debts of the same kind to a single creditor

may declare, at the time of making a payment, to which of them it is to
be applied. (Article 1172 Civil Code.) If, in making use of this right, the
defendant applied the payment of P7,000 to a debt, he cannot claim that
it be applied to another debt.

THE COMMONWEALTH OF THE PHILIPPINES, plaintiff-appellee, vs .

THE FAR EASTERN SURETY & INSURANCE COMPANY,
defendantappellant.

[G.R. No. L-979. April 13, 1949.]

BENGZON, J:

FACTS:

On August 20 and October 1, 1935, the Vda. de Tiu Seng and Tan
Kiang, a sociedad en comandita, as principal and the Far Eastern Surety
& Insurance Co., Inc., as surety executed two bonds by which they
bound themselves jointly and severally to pay the government the sum of
P10,000 which was the amount due from Tiu Seng (for the sake of
brevity we shall use the name Tiu Seng for the Vda. de Tiu Seng and Tan
Kiang) as internal revenue taxes and surcharge. These bonds were filed
before the indebtedness was accurately ascertained. It was afterwards
found by the Collector of Internal Revenue that the amount due from Tiu
Seng was P30,512.64. Demand for payment of this amount was made,
but without success. However, a compromise was effected on November
6, 1936, by which the tax due was reduced to P12,874.17.

Paid P2,874.17 on January 30, 1937, and the balance of P10,000

on monthly payments of P500 each, beginning February 17, 1937.
Finally, it was agreed that the payment be made as follows: P2,874.17 on
January 20, 1937 and the balance of P10,000 within a period of 10
months at the rate of P1,000 per month. Under this agreement, Tiu Seng
has paid the Collector the total amount of P11,644.12 leaving a balance
of P1,230.05, the amount which the plaintiff now seeks to recover from
the defendant, the Far Eastern Surety & Insurance Co., Inc.

ISSUE:

Whether said sum of P1,230.05 is covered by the two bonds above

mentioned?

RULING:

Within the framework of the above statement of facts attorney for

appellant vigorously argues the proposition that it merely guaranteed the
payment of P10,000 to the Commonwealth of the Philippines (now the
Republic), without undertaking to pay any balance of the obligation of
the principal debtor, and that after such sum had been fully satised, as
in this case, it had no further liability. It is an admitted circumstance
that Tin Seng had delivered, after the execution of the bonds, the total
amount of P11,644.12 to the Bureau of Internal Revenue.

It must be observed, however, at this juncture that the trial judge

upheld the plaintiff's contention that the amounts paid should be applied
rst to the unsecured portion of Tin Seng's liability, thus leaving unpaid
and covered by the bonds the sum of P1,230.05, which may legally be
collected from defendant as a solidary surety.

Appellant's proposition, which is the crux of this appeal, would

undoubtedly be unassailable had all the payments been made
specically on account of the debt secured by the bond. But although it
is agreed that the payments were made on account of taxes there is no
proof as to the imputation thereof. This point is decisive; for, in effect Tiu
Seng had two liabilities to the Commonwealth: one for the sum not
covered by the bonds and another for the sum secured thereby.
Parenthetically it should be observed that under the law (article 1826,
Civil Code) the obligation of the guarantor may be less than that of the
principal.
 2. PAYMENT BY CESSION (ART. 1255) VS. DATION IN
PAYMENT/DACION EN PAGO (ART. 1245)

A. KINDS OF PAYMENT BY CESSION

B. DATION IN PAYMENT AND PAYMENT BY CESSION

DISTINGUISHED

3. TENDER OF PAYMENT AND CONSIGNATION - ARTS. 1256

TO 1261

A. SPECIAL REQUISITES OF CONSIGNATION

SOLEDAD DALTON, petitioner, vs . FGR REALTY AND

DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA
R. DAYRIT or FLORA REGNER, respondents.

[G.R. No. 172577. January 19, 2011.]

CARPIO

FACTS:

Petitioner (Dalton), Clemente Sasam, Romulo Villalonga, Miguela

Villarente, Aniceta Fuentes, Perla Pormento, Bonifacio Cabajar,
Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary
Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased
portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty

and Development Corporation (FGR). In August 1985, Dayrit and FGR
stopped accepting rental payments because they wanted to terminate the
lease agreements with Dalton and Sasam, et al.

In a complaint dated 11 September 1985, Dalton and Sasam, et

al. consigned the rental payments with the RTC. They failed to notify
Dayrit and FGR about the consignation. In motions dated 27 March
1987, 10 November 1987, 8 July 1988, and 28 November 1994, Dayrit
and FGR withdrew the rental payments. In their motions, Dayrit and
FGR reserved the right to question the validity of the consignation.
Dayrit, FGR and Sasam, et al. entered into compromise agreements
dated 25 March 1997 and 20 June 1997. In the compromise agreements,
they agreed to abandon all claims against each other. Dalton did not
enter into a compromise agreement with Dayrit and FGR.

ISSUE:

Whether the consignation was void?

RULING:

The petition is unmeritorious.

Dalton claims that, "the issue as to whether the consignation made

by the petitioner is valid or not for lack of notice has already been
rendered moot and academic with the withdrawal by the private
respondents of the amounts consigned and deposited by the petitioner as
rental of the subject premises."

The Court is not impressed. First, in withdrawing the amounts

consigned, Dayrit and FGR expressly reserved the right to question the
validity of the consignation. In Riesenbeck v. Court of Appeals, the Court
held that:

A sensu contrario, when the creditor's acceptance of the

money consigned is conditional and with reservations, he is not
deemed to have waived the claims he reserved against his debtor.
Thus, when the amount consigned does not cover the entire
obligation, the creditor may accept it, reserving his right to the
balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p.
317, citing 3 Llerena 263). The same factual milieu obtains here
because the respondent creditor accepted with reservation the
amount consigned from raising his other claims, as he did in his
answer with special defenses and counterclaim against petitioner-
debtor.

As respondent-creditor's acceptance of the amount consigned was

with reservations, it did not completely extinguish the entire
indebtedness of the petitioner-debtor. It is apposite to note here that
consignation is completed at the time the creditor accepts the same
without objections, or, if he objects, at the time the court declares that it
has been validly made in accordance with law. (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is

mandatory. Failure to comply strictly with any of the requisites will
render the consignation void. Substantial compliance is not enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc. ,

the Court enumerated the requisites of a valid consignation: (1) a debt
due; (2) the creditor to whom tender of payment was made refused
without just cause to accept the payment, or the creditor was absent,
unknown or incapacitated, or several persons claimed the same right to
collect, or the title of the obligation was lost; (3) the person interested in
the performance of the obligation was given notice before consignation
was made; (4) the amount was placed at the disposal of the court; and (5)
the person interested in the performance of the obligation was given
notice after the consignation was made.

B. WHEN TENDER NOT NECESSARY 2ND PARAGRAPH

OF ART. 1256

C. LOSS OF THE THING DUE ARTS. 1262 TO 1269

I. DEFINITION ART. 1189 (2)

II. LOSS IN OBLIGATION TO DO ART. 1266

III. THEORY OF IMPREVISIBILITY (FRUSTRATION

OF ENTERPRISE) ART. 1267

JESUS V. OCCEA and EFIGENIA C. OCCEA , petitioners, vs. HON.

RAMON V. JABSON, Presiding Judge of the Court of First Instance of
Rizal, Branch XXVI; COURT OF APPEALS and TROPICAL HOMES,
INC., respondents.

[G.R. No. L-44349. October 29, 1976.]

TEEHANKEE, J:
FACTS:

On February 25, 1975 private respondent Tropical Homes, Inc.filed

a complaint for modication of the terms and conditions of its
subdivision contract with petitioners (landowners of a 55,330 square
meter parcel of land in Davao City), Under the subdivision contract,
respondent "guaranteed (petitioners as landowners) as the latter's xed
and sole share and participation an amount equivalent to forty (40%) per
cent of all cash receipts from the sale of the subdivision lots"

Respondent prayed of the Rizal court of rst instance that "after

due trial, this Honorable Court render judgment modifying the terms and
conditions of the contract . . . by fixing the proper shares that should
pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision"

Petitioners moved to dismiss the complaint principally for lack of

cause of action, and upon denial thereof and of reconsideration by the
lower court elevated the matter on certiorari to respondent Court of
Appeals.

Respondent court in its questioned resolution of June 28, 1976 set

aside the preliminary injunction previously issued by it and dismissed
petition on the ground that under Article 1267 of the Civil Code which
provides that.

"ART. 1267. 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."

". . . a positive right is created in favor of the obligor to be

released from the performance of an obligation in full or in part
when its performance 'has become so difficult as to be manifestly
beyond the contemplation of the parties'."

ISSUE:

Whether or not Art. 1267 is applicable?

RULING:

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
respondent's complaint and dismissal of the petition would be justifiable
under the cited codal article. Without said article, respondent would
remain bound by its contract under the theretofore prevailing doctrine
that performance therewith is not excused "by the fact that the contract
turns out to be hard and improvident, unprofitable or impracticable, ill
advised or even foolish, or less profitable, or unexpectedly burdensome",
since in case a party desires to be excused from performance in the event
of such contingencies arising, it is his duty to provide therefor in the
contract.

But respondent's complaint seeks not release from the subdivision

contract but that the court "render judgment modifying the terms and
conditions of the contract . . . by fixing the proper shares that should
pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision". The cited article does not grant
the courts this authority to remake, modify or revise the contract or to fix
the division of shares between the parties as contractually stipulated
with the force of law between the parties, so as to substitute its own
terms for those covenanted by the parties themselves.

Respondent's complaints 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.

IV. WHO BEARS THE RISK OF LOSS ARTS. 1262,

1269, 1189

1. SEE ALSO ARTS. 1504, 1655, 1717 AND

1191

D. CONDONATION OR REMISSION OF DEBT ARTS.

1270 TO 1274

E. CONFUSION OR MERGER ARTS. 1275 TO 1277

F. COMPENSATION ARTS. 1278 TO 1290

I. KINDS OF COMPENSATION

II. REQUISITES FOR LEGAL COMPENSATION

ART. 1279

III. WHEN COMPENSATION NOT PROPER ART.

1287 AND 1288

ENGRACIO FRANCIA, petitioner, vs. INTERMEDIATE APPELLATE

COURT and HO FERNANDEZ, respondents.

[G.R. No. 67649. June 28, 1988.]

GUITERREZ, JR;

FACTS:
 Engracio Francia is the registered owner of a residential lot and a
two-story house built upon it situated at Barrio San Isidro, now District
of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about
328 square meters, is described and covered by TCT No. 4739 (37795) of
the Registry of Deeds of Pasay City.

On October 15, 1977, a 125 square meter portion of Francia's

property was expropriated by the Republic of the Philippines for the sum
of P4,116.00 representing the estimated amount equivalent to the
assessed value of the aforesaid portion.

Since 1963 up to 1977 inclusive, Francia failed to pay his real

estate taxes. Thus, on December 5, 1977, his property was sold at public
auction by the City Treasurer of Pasay City pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code in
order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the
highest bidder for the property

Francia was not present during the auction sale since he was in
Iligan City at that time helping his uncle ship bananas.

On March 3, 1979, Francia received a notice of hearing of LRC

Case No. 1593-P "In re: Petition for Entry of New Certificate of Title" filed
by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and
the issuance in his name of a new certificate of title. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been
issued in favor of Ho Fernandez by the City Treasurer on December 11,
1978. The auction sale and the final bill of sale were both annotated at
the back of TCT No. 4739 (37795) by the Register of Deeds.

On March 20, 1979, Francia filed a complaint to annul the auction

sale. He later amended his complaint on January 24, 1980.

ISSUE:

Whether respondent intermediate appellate court committed a

grave error of law in not holding that petitioner's obligation to pay
P2,400.00 for supposed tax delinquency was set-off by the amount of
p4,116.00 which the government is indebted to the former?
RULING:

We gave due course to the petition for a more thorough inquiry into
the petitioner's allegations that his property was sold at public auction
without notice to him and that the price paid for the property was
shockingly inadequate, amounting to fraud and deprivation without due
process of law.

A careful review of the case, however, discloses that Mr. Francia

brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the facts
militate against the grant of his petition. We are constrained to dismiss
it.

Francia contends that his tax delinquency of P2,400.00 has been

extinguished by legal compensation. He claims that the government owed
him P4,116.00 when a portion of his land was expropriated on October
15, 1977. Hence, his tax obligation had been set-off by operation of law
as of October 15, 1977.

There is no legal basis for the contention. By legal compensation,

obligations of persons, who in their own right are reciprocally debtors
and creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by
Article 1279, to wit:

"(1) that each one of the obligors be bound principally and

that he be at the same time a principal creditor of the other;

xxx xxx xxx

"(3) that the two debts be due.

xxx xxx xxx

This principal contention of the petitioner has no merit. We have

consistently ruled that 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.
 G. NOVATION ARTS. 1291 TO 1304

I. KINDS: EXTINCTIVE AND MODIFICATORY

1. EXTINCTIVE

A. REQUISITES OF EXTINCTIVE NOVATION

B. SUBSTITUTION OF DEBTORS ARTS.

1293 AND 1295

C. EXPROMISSION ART. 1294

D. DELEGACION ART. 1295

E. SUBROGATION ART. 1300 TO 1304

I. LEGAL ART. 1302

II. CONVENTIONAL ART. 1301

2. MODIFICATORY

REBECCA YOUNG, assisted by her husband ANTONIO GO v. CA, PH

CREDIT CORP., PHIL. HOLDING, INC., FRANCISCO VILLAROMAN,
FONG YOOK LU, ELLEN YEE FONG, and THE REGISTER OF DEEDS
OF MANILA

G.R. No. 79518 January 13, 1989

FACTS:

The Compromise Agreement between Rebeccas dad and Ph

Holding conferring to Antonio the right of first refusal to purchase is not
pour autrui in favor of Rebecca. The intention of the parties was not to
include her where her involvement was subject to her being impleaded in
the civil action and to her affixing her signature in the agreement, both of
which were unsatisfied. Hence, Rebecca does not have such right since
she is not a third party beneficiary nor a party to the agreement.
ISSUE:

Whether or not novation took place?

RULING:

Order of Demolition obtained by Ph. Holding, Inc. over its building

~ occupied by Antonio Young, his daughter Rebecca Young, and Sps.
FoongYook Lu and Ellen Yee Fong, among others > Action for Annulment
of the Demolition Order by Antonio Young ~ Compromise Agreement
(submitted September 24, 1981) where Antonio and Rebecca would
voluntarily vacate their tenanted units in 60d but would have the right of
first refusal should Ph Holding decide to sell the property > Sale of the
property (September 17, 1981) by way of dacion by Ph Holding to Ph
Credit Corporation ~ Latter subdivided the property (November 9, 1982)
into two parcels and sold it to Blessed Land Development Corporation
(Antonio Young, President; December 8, 1982) and to Sps. Fong Yook Lu
and Ellen Yee Fong (September 16, 1983)

SUIT for Annulment of Sale (to Sps. Fong) and Specific

Performance by Rebecca Young, among others > Contention of Rebecca:
Right of first refusal to purchase the property sold to Sps. Fong > RTC
Dismissed: (1) Rebecca not a party to the Compromise Agreement; (2)
Even if agreement pour autrui, lack of notice to the obligor of her
acceptance of her right of first refusal; (3) Lack of evidence of exercise of
right of first refusal > Rebecca has no right of first refusal > (1)
Compromise agreement not pour autrui> WHY: Intention of Antonio and
Holding: not to include Rebecca in the beneficient provisions of the
agreement > though impleaded in the compromise agreement (Antonio
Young and Holding agree to implead in this action as necessary party-
plaintiff, Rebecca Youngwhose written conformity appears hereunder),
it was subject to her being impleaded in the civil case and to her written
conformity which was unsatisfied ~ not impleaded by either Antonio or
Holding and no signature; (2) Rebecca not a party to the compromise
agreement and hence, not entitled to enforce it which is granted and
binding only to the parties
CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR.,
and MARGARITA H. MALVAR, petitioners, vs . WILFREDO
HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION,
PROJECT MOVERS REALTY AND DEVELOPMENT CORPORATION,
MARIO P. VILLAMOR and LAND BANK OF THE PHILIPPINES,
respondents.

[G.R. No. 171165. February 14, 2011.]

PERALTA, J:

FACTS:

Project Movers Realty & Development Corporation (PMRDC), one of

the respondents herein, is a duly organized domestic corporation
engaged in real estate development. Sometime in 1995, it entered
through its president, respondent Mario Villamor (Villamor), into various
agreements with co-respondents Home Insurance & Guaranty
Corporation (HIGC) and Land Bank of the Philippines (LBP), in
connection with the construction of the Isabel Homes housing project in
Batangas and of the Monumento Plaza commercial and recreation
complex in Caloocan City. In its Asset Pool Formation Agreement,
PMRDC conveyed to HIGC the constituent assets of the two projects, 6
whereas LBP agreed to act as trustee of the resulting Asset Pool 7 for a
consideration. The execution of the projects would be funded largely
through securitization, a method of sourcing development funds by the
issuance of participation certicates against the direct backing assets of
the projects, whereby LBP would act as the nominal issuer of such
certicates with the Asset Pool itself acting as the real issuer. 10 HIGC,
in turn, would provide guaranty coverage to these participation
certicates in accordance with its Contract of Guaranty with PMRDC
and LBP.

On November 13, 1997, PMRDC entered into a Memorandum of

Agreement (MOA) whereby it was given the option to buy pieces of land
owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita
H. Malvar (Margarita) and Demetrio P. Hernandez, Jr. (Demetrio).
Demetrio, under authority of a Special Power of Attorney to Sell or
Mortgage, 12 signed the MOA also in behalf of Carolina and Margarita. In
the aggregate, the realty measured 4,580,451 square meters and was
segregated by agreement into Area I and Area II, respectively pertaining
to the parcels covered by Transfer Certicate of Title (TCT) Nos. T-3137,
T-3138, T-3139 and T-3140 on the one hand, and on the other by TCT
Nos. T-3132, T-3133, T-3134, T-3135 and T-3136, all

ISSUE:

Whether or not novation took place?

RULING:

The Court denies the petition. Petitioners' cause stems from the
failure of PMRDC to restore to petitioners the possession of the TCTs of
the lands within Area II upon its failure to exercise the option to
purchase within the 12-month period stipulated in the MOA.
Respondents maintain, however, that said obligation, dependent as it is
on the exercise of the option to purchase, has altogether been expressly
obliterated by the terms of the DAC whereby petitioners, through
Demetrio as attorney-in-fact, have agreed to novate the terms of the MOA
by extinguishing the core obligations of PMRDC on the payment of option
money. This seems to suggest that with the execution of the DAC,
PMRDC has already entered into the exercise of its option except that its
obligation to deliver the option money has, by subsequent agreement
embodied in the DAC, been substituted instead by the obligation to issue
participation certicates in Demetrio's name but which, likewise, has not
yet been performed by PMRDC. But petitioners stand against the validity
of the DAC on the ground that the signature of Demetrio therein was
spurious.
EUSEBIO S. MILLAR, petitioner, vs. THE HON. COURT OF APPEALS
and ANTONIO P. GABRIEL, respondents.

[G.R. No. L-29981. April 30, 1971.]

CASTRO, J:

FACTS:

Millar obtained a favorable condemning Antonio P. Gabriel to pay

him the sum of P1,746.98 with interest at 12% per annum from the date
of the filing of the complaint, the sum of P400 as attorney's fees, and the
costs of suit. The lower court issued the writ of execution on the basis of
which the sheriff seized the respondent's Willy's Ford jeep. The
respondent, however, pleaded with the petitioner to release the jeep
under an arrangement whereby the respondent, to secure the payment of
the judgment debt, agreed to mortgage the vehicle in favor of the
petitioner. The petitioner agreed to the arrangement; thus, the parties
executed a chattel mortgage on the jeep. Resolution of the controversy
posed by the petition at bar hinges entirely on a determination of
whether or not the subsequent agreement of the parties as embodied in
the deed of chattel mortgage impliedly novated the judgment obligation.

ISSUE:

Whether or not the subsequent agreement of the parties as

embodied in the deed of chattel mortgage impliedly novated the judgment
obligation in civil case 27116?

RULING:

No substantial incompatibility between the mortgage obligation

and the judgment liability of the respondent sufficient to justify a
conclusion of implied novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel mortgage serves only to
provide an express and specific method for its extinguishment
payment in two equal installments. The chattel mortgage simply gave the
respondent a method and more time to enable him to fully satisfy the
judgment indebtedness. The chattel mortgage agreement in no manner
introduced any substantial modification or alteration of the judgment.
Instead of extinguishing the obligation of the respondent arising from the
judgment, the deed of chattel mortgage expressly ratified and confirmed
the existence of the same, amplifying only the mode and period for
compliance by the respondent.

The defense of implied novation requires clear and convincing

proof of complete incompatibility between the two obligations. The law
requires no specific form for an effective novation by implication. The test
is whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they
can stand together, no incompatibility results and novation does not take
place.

MACONDRAY & CO., INC., plaintiff-appellant, vs . ANTONIO E. RUIZ

and ERNESTO CUISIA, defendants-appellees.

[G.R. No. 44671. November 26, 1938.]

IMPERIAL, J;

On January 21, 1932 plaintiff sold to the defendant Antonio E.

Ruiz an automobile "De Sotto De Luxe Sedan" for P,572. They agreed
that defendant would pay in cash P302 and for the balance of P3,270 he
would execute several promissory notes in different amounts maturing
on different dates. The defendant executed jointly with one Ramon
Borromeo 27 promissory notes wherein both undertook to pay jointly and
severally the value of said notes on the dates of their maturity. In
addition, Ruiz mortgaged the automobile, executing the corresponding
deed. Ruiz made some payments on account of his promissory notes and
his indebtedness was reduced to P2,246.18. On March 15, 1934 the
parties agreed to execute another contract excluding Ramon Borromeo,
whereby Ruiz and another person would sign the promissory notes for
the balance. Consequently, on said date Ruiz and the other defandant,
Ernesto Cuisia, signed another promissory note whereby they promised
jointly and severally to pay the plaintiff the sum of P2,246.18 with
interest thereon at 12 per cent per annum. In this latter contract the
parties stipulated that the mortgage of the automobile would be left to
stand. Ruiz again made other payments and his indebtedness was
reduced to P2.088.89 plus the interest thereon. As the defendants failed
to pay some of the installments upon their maturity, the plaintiff
foreclosed the mortgage and the sheriff sold the automobile at public
auction, awarding it to the plaintiff for the sum of P500. After the
account of the defendants had been liquidated and the proceeds of the
public sale of the automobile together with the expenses of the
proceeding had been deducted, it appeared that the defendants were
owing the plaintiff the sum of P1,696.20. In order to recover this amount
plus the interest thereon and the penalty agreed upon, the plaintiff
brought this action against the defendants. After trial the court absolved
the defendants from the complaint, without costs. The plaintiff appealed
from the decision and timely filed the bill of exceptions which was
approved and certified.

ISSUE:

Whether the court did commit the alleged error, for it clearly
appears that the first contract was substituted in its entirety by the
second, because the stipulations contained in the first were substantially
altered by other stipulations that were inserted in the second?

RULING:

The court absolved the defendants because in its opinion the first
mortgage and the promissory notes signed by Ruiz and Ramon Borromeo
on January 21, 1932 were substituted and novated by the deed executed
by Ruiz and Ernesto Cuisia on March 14, 1934, and because on this
latter date Act No. 4122 was already in force, under which the plaintiff
cannot maintain the present action for the recovery from the defendants
of the balance owing after it had elected to foreclose the mortgage. In its
first assignment of error plaintiff contends that the court erroneously
applied the law in considering as novated the first mortgage and the
promissory notes which were then executed. We hold that the court did
not commit the alleged error, for it clearly appears that the first contract
was substituted in its entirety by the second, because the stipulations
contained in the first were substantially altered by other stipulations that
were inserted in the second. According to article 1203 of the Civil Code
obligations are modified by altering their object or principal conditions,
by substituting another in place of the debtor, or by subrogating a third
person to the rights of the creditor; and article 1204 provides that in
order that an obligation may be extinguished by another which
substitutes it, it shall be necessary that it be so declared expressly, or
that the old and new obligations be incompatible in every respect In the
first contract the debtors were Ruiz and Borromeo and they were
answerable jointly and severally for the sum of P3,270. In the second
contract the debtors were the same Ruiz and Ernesto Cuisia and the
amount for which they 'were liable was only P2,246.18. In the latter
contract the dates of the maturity of the obligations were changed due to
the lapse of time and to the partial payments made by the former
debtors. These facts show at a glance that the first contract was in its
terms substituted by the second, and that the latter is incompatible with
the former. With respect to the first mortgage, the principal obligation,
consisting of the previous indebtedness, having been extinguished, its
terms and conditions should be understood as subject to those of the
contract subsequently entered into.

INCHAUSTI & CO., plaintiff-appellant, vs . GREGORIO YULO,

[G.R. No. 7721. March 25, 1914.]

ARRELLANO. J:

FACTS:

This suit is brought for the recovery of a certain sum of money, the
balance of a current account opened by the firm of Inchausti & Company
with Teodoro Yulo and after his death continued with his widow and
children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a
property owner of Iloilo, for the exploitation andcultivation of his
numerous haciendas in the province of Occidental Negros, had been
borrowing money from the Inchausti & Company under specific
conditions. On April 9, 1903, Teodoro Yulo died testate and for the
execution of the provisions of his will he had appointed as administrators
his widow and 5 of his sons, Gregorio Yulo being one of the latter. He
thus left a widow, Gregoria Regalado, who died on October 22d of the
following year, 1904, there remaining of the marriage the following
legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio,
Mariano, Carmen, Conception, and Jose Yulo y Regalado. Of these
children Conception and Jose were

minors, while Teodoro was mentally incompetent. At the death of their

predecessor in interest, Teodoro Yulo, his widow and children held the
conjugal property in common and at the death of this said widow,
Gregoria Regalado, these children preserved the same relations under the
name of Hijos de T. Yulo continuing their current account with Inchausti
& Company in the best and most harmonious reciprocity until said
balance amounted to two hundred thousand pesos. In this state of affairs
the creditor firm tried

to obtain security for the payment of the disbursements of money which

until that time it had been making in favor of its debtors, the Yulos.

ISSUE:

Whether the plaintiff can sue Gregorio Yulo alone, there being
other Obligors?

RULING:

When the obligation is a solidary one, the creditor may bring his
action in toto against any of the debtors obligated in solidum and
although the creditor may have, by means of a subsequent instrument,
covenanted with some of the solidary debtors different periods of
payment and different conditions, not on this account may it be
understood that the solidarity stipulated in the previous instrument has
been broken.
 KABANKALAN SUGAR CO., INC., plaintiff-appellant, vs . JOSEFA
PACHECO, defendant-appellee.

[G.R. No. 33654. December 29, 1930.]

VILLA-REAL, J:

FACTS:

Josefa Pacheco binds herself to acknowledge in favor of the

Kabankalan Sugar Co., Inc., all the easements which the Kabankalan
may consider convenient and necessary for its railroad on the
Hilabagan estate belonging to the Pacheco; the only differences being
that the term of the contract of November 1, 1920, is twenty years, while
that of the contract entered into on September 29, 1922, is seven crops
(one of the stipulations of the contract).

ISSUE:

Whether the contract of September 29, 1922, has extinguished the

contract of November 1, 1920, by novation?

RULING:

When an easement of right way is one of the principal conditions of

a contract, and the duration of said easement is specified, the reduction
of said period in a subsequent contract, wherein the same obligation is
one of the principal conditions, constitutes a novation and to that extent
extinguishes the former contractual obligation.

In the contract of November 1, 1920, the duration of the right of

way which the defendant bound herself to impose upon her estate in
favor of the plaintiff was twenty years, while in the contract of September
29, 1922, that period was reduced to seven crops which is equivalent to
seven years. There can be no doubt that these two contracts, in so far as
the duration of the right of way is concerned, are incompatible with each
other, for the second contract reduces the period agreed upon in the first
contract, and so both contracts cannot subsist at the same time. The
duration of the right of way is one of the principal conditions of the first
as well as of the second contract, and inasmuch as said principal
condition has been modified, the contract has been novated, in
accordance with the provision quoted above.

B. CONCEPT ART. 1159

C. CHARACTERISTICS (TENETS) OF CONTRACTS:

I. AUTONOMY ART. 1306

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs.

HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance
of Manila, Branch XXXI and FLORANTE DEL VALLE, respondents.
[G.R. No. L-46591. July 28, 1987.]
MELENCIO-HERRERA, J:

FACTS:

On May 20, 1975, respondent Florante del Valle (the BORROWER)

obtained a loan secured by a real estate mortgage (the LOAN, for short)
from petitioner BANCO FILIPINO in the sum of (P41,300.00) Pesos,
payable and to be amortized within (15) years at (12%) per cent interest
annually. Hence, the LOAN still had more than 730 days to run by
January 2, 1976, the date when CIRCULAR No. 494 was issued by the
Central Bank.

Stamped on the promissory note evidencing the loan is an

Escalation Clause, reading as follows:
 "I/We hereby authorize Banco Filipino to correspondingly
increase the interest rate stipulated in this contract without
advance notice to me/us in the event a law should be enacted
increasing the lawful rates of interest that may be charged on this
particular kind of loan."

The Escalation Clause is based upon Central Bank CIRCULAR No.

494 issued on January 2, 1976, the pertinent portion of which reads:

"3. The maximum rate of interest, including commissions,

premiums, fees and other charges on loans with maturity of more
than seven hundred thirty (730) days, by banking institutions,
including thrift banks and rural banks, or by financial
intermediaries authorized to engage in quasi-banking functions
shall be nineteen per cent (19%) per annum.

"xxx xxx xxx

For its part, BANCO FILIPINO maintained that the Escalation

Clause signed by the BORROWER authorized it to increase the interest
rate once a law was passed increasing the rate of interest and that its
authority to increase was provided for by CIRCULAR No. 494.

In its judgment, respondent Court nullied the Escalation Clause

and ordered BANCO FILIPINO to desist from enforcing the increased rate
of interest on the BORROWER's loan. It reasoned out that P.D. No. 116
does not expressly grant the Central Bank authority to maximize interest
rates with retroactive effect and that BANCO FILIPINO cannot legally
impose a higher rate of interest before the expiration of the 15-year
period in which the loan is to be paid other than the 12% per annum in
force at the time of the execution of the loan.

It is from that Decision in favor of the BORROWER that BANCO

FILIPINO has come to this instance on review by Certiorari. We gave due
course to the Petition, the question being one of law.

RULING:

In Banco Filipino Savings and Mortgage Bank vs. Navarro, 15

SCRA 346 (1987), this Court disauthorized the bank from raising the
interest rate on the borrowers' loan from 12% to 17% despite an
escalation clause in the loan agreement signed by the debtors
authorizing Banco Filipino "to correspondingly increase the interest rate
stipulated in this contract without advance notice to me/us in the event
a law should be enacted increasing the lawful rates of interest that may
be charged on this particular kind of loan." (emphasis supplied.)

In the Banco Filipino case, the bank relied on Section 3 of CB

Circular No. 494 dated July 1, 1976 (72 O.G. No. 3, p. 676-J) which
provided that "the maximum rate of interest, including commissions
premiums, fees and other charges on loans with a maturity of more than
730 days by banking institution . . . shall be 19%.

FLAVIO K. MACASAET & ASSOCIATES, INC., petitioner, vs.

COMMISSION ON AUDIT and PHILIPPINE TOURISM AUTHORITY,
respondents.

[G.R. No. 83748. May 12, 1989.]

MELENCIO-HERRERA, J p:

FACTS:

On 15 September 1977 respondent Philippine Tourism Authority

(PTA) entered into a Contract for "Project Design and Management
Services for the development of the proposed Zamboanga Golf and
Country Club, Calarian, Zamboanga City" with petitioner company, but
originally with Flavio K. Macasaet alone (hereinafter referred to simply as
the "Contract").

Under the Contract, PTA obligated itself to pay petitioner a

professional fee of seven (7%) of the actual construction cost, Pursuant to
the foregoing Schedule, the PTA made periodic payments of the
stipulated professional fees to petitioner. And, upon completion of the
project, PTA paid petitioners what it perceived to be the balance of the
latter's professional fees. It turned out, however, that after the project
was completed, PTA paid Supra Construction Company, the main
contractor, the additional sum of P3,148,198.26 representing the
escalation cost of the contract price due to the increase in the price of
construction materials.

Upon learning of the price escalation, petitioner requested payment

of P219,302.47 additional professional fee representing seven (7%)
percent of P3,148,198.26.

On 3 July 1985 PTA denied payment on the ground that "the

subject price escalation referred to increased cost of construction
materials and did not entail additional work on the part of petitioner as
to entitle it to additional compensation under Article VI of the contract"

Reconsiderations sought by the petitioner, up to respondent COA,

were to no avail. The latter expressed the opinion that "to allow subject
claim in the absence of a showing that extra or additional services had
been rendered by claimant would certainly result in overpayment to him
to the prejudice of the Government"

ISSUE:

Whether petitioner's entitlement to additional professional fees,

which, in turn, hinges on whether or not the price escalation should be
included in the "final actual project cost."?

RULING:

The terminologies in the contract being clear, leaving no doubt as

to the intention of the contracting parties, their literal meaning control
(Article 1370, Civil Code).

The price escalation cost must be deemed included in the final

actual project cost and petitioner held entitled to the payment of its
additional professional fees. Obligations arising from contract have the
force of law between the contracting parties and should be complied with
in good faith (Article 1159, Civil Code).
PHILIPPINE NATIONAL BANK , petitioner, vs. THE HON. COURT OF
APPEALS and AMBROSIO PADILLA, respondents.

[G.R. No. 88880. April 30, 1991.]

GRIN0-AQUINO, J:

FACTS:

In July 1982, the private respondent applied for, and was granted
by petitioner PNB, a credit line of 321.8 million, secured by a real estate
mortgage, for a term of two (2) years, with 18% interest per annum.
Private respondent executed in favor of the PNB a Credit Agreement, two
(2) promissory notes in the amount of P900,000.00 each, and a Real
Estate Mortgage Contract. The Credit Agreement provided that

"9.06 Other Conditions. The Borrowers hereby agree to be

bound by the rules and regulations of the Central Bank and the
current and general policies of the Bank and those which the Bank
may adopt in the future, which may have relation to or in any way
affect the Line, which rules, regulations and policies are
incorporated herein by reference as if set forth herein in full.
Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and
instruments, in form and substance satisfactory to the Bank, in
order to effectuate or otherwise comply with such rules,
regulations and policies."

The Promissory Notes, in turn, uniformly authorized the PNB to

increase the stipulated 18% interest per annum "within the limits
allowed by law at any time depending on whatever policy it [PNB] may
adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board."

The Real Estate Mortgage Contract likewise provided that:

"(k) INCREASE OF INTEREST RATE "The rate of interest

charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be
 subject during the life of this contract to such an increase within
the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors." (p. 86, Rollo;
emphasis supplied.)

Four (4) months advance interest and incidental expenses/charges

were deducted from the loan, the net proceeds of which were released to
the private respondent by crediting or transferring the amount to his
current account with the bank.

ISSUE:

Whether the bank, within the term of the loan which it granted to
the private respondent, may unilaterally change or increase the interest
rate stipulated therein at will and as often as it pleased?

RULING:

The answer to that question is no. In the first place, although

Section 2, PD. No. 116 of January 29, 1973, authorizes the Monetary
Board to prescribe the maximum rate or rates of interest for loans or
renewal thereof and to change such rate or rates whenever warranted by
prevailing economic and social conditions, it expressly provides that
"such changes shall not be made oftener than once every twelve months."

Besides violating P.D. 116, the unilateral action of the PNB in

increasing the interest rate on the private respondent's loan, violated the
mutuality of contracts ordained in Article 1308 of the Civil Code: "ART.
1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

PNB's successive increases of the interest rate on the private

respondent's loan, over the latter's protest, were arbitrary as they
violated an express provision of the Credit Agreement (Exh. 1) Section
9.01 that its terms "may be amended only by an instrument in writing
signed by the party to be bound as burdened by such amendment." The
increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that "no interest shall be due unless it has been expressly
stipulated in writing."

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, vs. PHILIPPINE

LONG DISTANCE TELEPHONE COMPANY, defendant-appellant.

[G.R. No. L-18841. January 27, 1969.]

REYES, J.B.L;

FACTS:

The Bureau of Telecommunications had a contract with PLDT;

that the Bureau would pay PLDT for the use the trunk lines of PLDT to
establish phone lines in all government offices in the country. However,
after sometime, the Bureau extended its services for commercial use as
PLDT could not cope with the demands of the public for phone line
connections. PLDT knew about the actuations of the Bureau but it took
PLDT a long time to file a complaint for the Bureaus act.

ISSUE:

Whether can be coerced to enter into a contract where no

agreement is had between them as to the principal terms and conditions
of the contract?

RULING:

We agree with the court below that parties cannot be coerced to

enter into a contract where no agreement is had between them as to the
principal terms and conditions of the contract. Freedom to stipulate such
terms and conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if tainted by
violence, intimidation, or undue influence. But the court a quo has
apparently overlooked that while the Republic may not compel the PLDT
to celebrate a contract with it, the Republic may, in the exercise of the
sovereign power of eminent domain, require the telephone company to
permit interconnection of the government telephone system and that of
the PLDT, as the needs of the government service may require, subject to
the payment of just compensation to be determined by the court.
Nominally, of course, the power of eminent domain results in the taking
or appropriation of title to, and possession of, the expropriated property;
but no cogent reason appears why the said power may not be availed of
to impose only a burden upon the owner of condemned property, without
loss of title and possession. It is unquestionable that real property may,
through expropriation, be subjected to an easement of right of way. The
use of the PLDT's lines and services to allow inter-service connection
between both telephone systems is not much different. In either case
private property is subjected to a burden for public use and benefit. If,
under section 6, Article XIII, of the Constitution, the State may, in the
interest of national welfare, transfer utilities to public ownership upon
payment of just compensation, there is no reason why the State may not
require a public utility to render services in the general interest, provided
just compensation is paid therefor. Ultimately, the beneficiary of the
interconnecting service would be the users of both telephone systems, so
that the condemnation would be for public use.

LITA ENTERPRISES, INC., petitioner, vs. SECOND CIVIL CASES

DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M.
OCAMPO and FRANCISCA P. GARCIA, respondents.

[G.R. No. 64693. April 27, 1984.]

ESCOLIN, J;

FACTS:

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca

Garcia, herein private respondents, purchased in installment from the
Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be
used as taxicabs. Since they had no franchise to operate taxicabs, they
contracted with petitioner Lita Enterprises, Inc., through its
representative, Manuel Concordia, for the use of the latter's certificate of
public convenience in consideration of an initial payment of P1,000.00
and a monthly rental of P200.00 per taxicab unit. To effectuate said
agreement, the aforesaid cars were registered in the name of petitioner
Lita Enterprises, Inc. Possession, however, remained with the spouses
Ocampo who operated and maintained the same under the name Acme
Taxi, petitioner's trade name.

About a year later, on March 18, 1967, one of said taxicabs driven
by their employee, Emeterio Martin, collided with a motorcycle whose
driver, one Florante Galvez, died from the head injuries sustained
therefrom. A criminal case was eventually filed against the driver
Emeterio Martin, while a civil case for damages was instituted by Rosita
Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises,
Inc., as registered owner of the taxicab. In the latter case, Civil Case No.
72067 of the Court of First Instance of Manila, petitioner Lita
Enterprises, Inc. was adjudged liable for damages in the amount of
P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued.

One of the vehicles of respondent spouses with Engine No. 2R- 914472
was levied upon and sold at public auction for P2,150.00 to one Sonnie
Cortez, the highest bidder. Another car with Engine No. 2R-915036 was
likewise levied upon and sold at public auction for P8,000.00 to a certain
Mr. Lopez. Li

Thereafter, in March 1973, respondent Nicasio Ocampo decided to

register his taxicabs in his name. He requested the manager of petitioner
Lita Enterprises, Inc. to turn over the registration papers to him, but the
latter allegedly refused. Hence, he and his wife filed a complaint against
Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety &
Insurance Co. and the Sheriff of Manila for reconveyance of motor
vehicles with damages, docketed as Civil Case No. 90988 of the Court of
First Instance of Manila.

ISSUE:

Whether void contracts, cannot be cured by ratification or

prescription?
RULING:

The defect of inexistence of a contract is permanent and incurable,

and cannot be cured by ratification or by prescription. As this Court said
in Eugenio vs. Perdido, 97 Phil. 41, "the mere lapse of time cannot give
efficacy to contracts that are null and void."

EMETERIO CUI, plaintiff-appellant, vs. ARELLANO UNIVERSITY,

defendant-appellee.

[G.R. No. L-15127. May 30, 1961.]

CONCEPCION, J:

FACTS:

Cui was a law scholar at the Arellano University; he paid the

tuition fees but it was returned to him at the end of every semester.
Before Arellano awarded the scholarship grant, Cui was made to sign a
contract covenant and agreement saying that he waives his right to
transfer to another school in consideration of the scholarship grant and
if he transfers, he shall pay the tuition fees awarded to him while being a
scholar. He transferred to another school to finish his last term in law
school. When he was about to take the Bar, his TOR at Arellano was not
issued unless he pays the amount of the tuition fees that were returned
to him when he was still their scholar. He paid under protest.

ISSUE:

Whether the above quoted provision of the contract between

plaintiff and the defendant whereby the former waived his right to
transfer to another school without refunding to the latter the equivalent
of his scholarships in cash, is valid or not?
RULING:

The waiver signed by Cui was void as it was contrary to public

policy; it was null and void.

The stipulation in a contract, between a student and the school,

that the student's scholarship is good only if he continues in the same
school, and that he waives his right to transfer to another school without
refunding the equivalent of his scholarship in cash, is contrary to public
policy and, hence, null and void, because scholarships are awarded in
recognition of merit and to help gifted students in whom society has an
established interest or a first lien, and not to keep outstanding students
in school to bolster its prestige and increase its business potential.

ARIEL NON, REX MAGANA, ALVIN AGURA, NORMANDY OCCIANO,

JORGE DAYAON, LOURDES BANARES, BARTOLOME IBASCO,
EMMANUEL BARBA, SONNY MORENO, GIOVANI PALMA, JOSELITO
VILLALON, LUIS SANTOS, and DANIEL TORRES, petitioners, vs.
HON. SANCHO DAMES II, in his capacity as the Presiding Judge of
5th Regional Trial Court, Br. 38, Daet, Camarines Norte; and MABINI
COLLEGES, INC., represented by its president ROMULO ADEVA and
by the chairman of the Board of Trustees, JUSTO LUKBAN,
respondents.

[G.R. No. 89317. May 20, 1990.]

CORTEZ, J:

FACTS:

Petitioners, students in private respondent Mabini Colleges, Inc.

were not allowed to re-enroll by the school for the academic year 1988-
1989 for leading or participating in student mass actions against the
school in the preceding semester. The subject of the protests is not,
however, made clear in the pleadings.
 The trial court dismissed the petition referring to the ruling in
Alcuaz vs. PSBA stating, that being a mere privilege and not a legal right
for a student to be enrolled or re-enrolled, respondent Mabini College is
free to admit or not admit the petitioners for re-enrollment in view of the
academic freedom enjoyed by the school.

The respondents, in justifying their action, stated that 8 of the

petitioners have incurred failing grades. In response, the petitioners
stated that: (a) three of them were graduating. (b) Their academic
deficiencies do not warrant non-readmission. (c) The improper conduct
attributed to them was during the exercise of the cognate rights of free
speech and peaceable assembly. (d) There was no due investigation that
could serve as basis for disciplinary action. (e) Respondent school is their
choice institution near their places of residence, which they can afford to
pay for tertiary education.

ISSUE:

Whether or not the school has the right not to re-admit the
petitioners?

RULING:

The Supreme Court ruled that the trial court cannot anchor the
Termination of Contract theory the contract between the school and the
student is not an ordinary contract. It is imbued with public interest,
considering the high priority given by the Constitution to education and
the grant to the State of supervisory and regulatory powers over all
educational institutions. It is intended merely to protect schools wherein
tuition fees are collected and paid on installment basis. It cannot be
construed to mean that a student shall be enrolled for only one semester.

The right of an institution of higher learning to set academic

standards cannot be utilized to discriminate against students who
exercise their constitutional rights to speech and assembly, for otherwise
there will be a violation of their right to equal protection. It provides that
every student has the right to enroll in any school college or university
upon meeting its specific requirements and reasonable regulations; . . .
and that the student is presumed to be qualified for enrollment for the
entire period he is expected to complete the course, without prejudice to
his right to transfer.

CAPITOL MEDICAL CENTER, INC., and DRA. THELMA NAVARRETE

CLEMENTE, petitioners, vs. THE COURT OF APPEALS, HON. IGNACIO
SALVADOR, in his capacity as Presiding Judge of Branch 77 of the
Regional Trial Court o the National Capital Region (Quezon City),
MONINA REYESVALENZUELA, PABLO L. DAMASO, LINA M. ABLANG,
MA. TERESITA ROQUE, AMBROSIO LAZOL, DIOSDADO YAP,
FLORDELIZA SINGSON, SARAH P. PELOBELLO, JOEL H. GILLEGO,
AGNES A. DE VEGA, NORAIDA Y. MAGALONG, AUGENCIO PAPA,
IMELDA SIMBILLO, MAXIMO CALDERON and ROSALIE FLORIDA C.
ILAGA, respondents.

[G.R. No. 82499. October 13, 1989.]

GRIO-AQUINO, J p:

FACTS:

On December 2, 1987, fifteen (15) students and parents purporting

to represent the 900 students of the CMCC filed a class suit (Civil Case
No. 52429) against "Capitol Medical Center College" and petitioner Dr.
Clemente, in the Regional Trial Court of Quezon City praying for the
reopening of the Capitol Medical Center College which had been closed
effective at the end of the first semester of the school year 1987-1988 (p.
208, Rollo).

As the complaint prayed for the issuance of a writ of preliminary

mandatory injunction, the court set the hearing of the application on
December 9, 1987. As agreed at the hearing, an opposition was filed by
CMCC on December 14, 1987.
 On the same day, the lower court granted the writ of preliminary
mandatory injunction and directed the defendants "to reopen (the) school
and allow plaintiffs students to enroll in their respective course[s] . . ." It
fixed the plaintiffs' bond in the sum of P50,000.

The petitioners filed a motion for reconsideration of the above order

but the court denied their motion. In due time, the petitioners elevated
the order to the Court of Appeals on a petition for certiorari with
preliminary injunction. The Court of Appeals issued a restraining order
and directed the respondents to comment on the petition.

After hearing the parties in oral argument, the Court of Appeals

rendered a decision on February 15, 1988 holding that the respondent
RTC Judge did not abuse his discretion in issuing the order of
preliminary mandatory injunction because the petitioners had no right to
suddenly close the school for the enrollment of the students created a
binding contract between them and the school for the latter to continue
operating until the former shall have finished their courses.

On February 26, 1988, the petitioners filed a motion for

reconsideration and rehearing which was held on March 3, 1988.

Nevertheless, on March 8, 1988, the Court of Appeals denied

petitioner's motion for reconsideration. Hence, this petition for review.

ISSUE:

Whether a school that, after due notice to the Secretary of

Education, Culture and Sports, closed at the end of the first semester of
the school year 1987-1988, because its teachers and students declared a
strike, refusing to hold classes and take examinations, may be forced to
reopen by the courts at the instance of the striking students?

RULING:

The petition for review has merit.

 The sole object of a preliminary injunction, whether prohibitory or
mandatory, is to preserve the status quo until the merits of the case can
be heard. The status quo is the last actual peaceable uncontested status
which preceded the controversy (Rodulfa vs. Alfonso, 76 Phil. 225). It
may only be resorted to by a litigant for the preservation or protection of
his rights or interests and for no other purpose during the pendency of
the principal action (Calo vs. Roldan, 76 Phil. 445). It should only be
granted if the party asking for it is clearly entitled thereto (Climaco vs.
Macaraeg, 4 SCRA 930; Subido vs. Gopengco, 27 SCRA 455; Police
Commission vs. Bello, 37 SCRA 230).

Inasmuch as a mandatory injunction tends to do more than to

maintain the status quo, it is generally improper to issue such an
injunction prior to the final hearing (Manila Electric Railroad and Light
Co. vs. Del Rosario, 22 Phil. 433). It may, however, issue "in cases of
extreme urgency; where the right is very clear; where considerations of
relative inconvenience bear strongly in complainant's favor; where there
is a willful and unlawful invasion of plaintiffs right against his protest
and remonstrance, the injury being a continuing one; and where the
effect of the mandatory injunction is rather to reestablish and maintain a
preexisting continuing relation between the parties, recently and
arbitrarily interrupted by the defendant, than to establish a new relation.
Indeed, the writ should not be denied the complainant when he makes
out a clear case, free from, doubt and dispute." (Commissioner of
Customs vs. Cloribel, et al., 19 SCRA 235.)

II. CONSENSUALITY ARTS. 1305 AND 1315; SEE

ALSO ART. 448

III. MUTUALITY ART. 1308

PHILIPPINE NATIONAL BANK , petitioner, vs. THE HON. COURT OF

APPEALS and AMBROSIO PADILLA, respondents.

[G.R. No. 88880. April 30, 1991.]

GRIN0-AQUINO, J:

FACTS:
 In July 1982, the private respondent applied for, and was granted
by petitioner PNB, a credit line of 321.8 million, secured by a real estate
mortgage, for a term of two (2) years, with 18% interest per annum.
Private respondent executed in favor of the PNB a Credit Agreement, two
(2) promissory notes in the amount of P900,000.00 each, and a Real
Estate Mortgage Contract. The Credit Agreement provided that

"9.06 Other Conditions. The Borrowers hereby agree to be

bound by the rules and regulations of the Central Bank and the
current and general policies of the Bank and those which the Bank
may adopt in the future, which may have relation to or in any way
affect the Line, which rules, regulations and policies are
incorporated herein by reference as if set forth herein in full.
Promptly upon receipt of a written request from the Bank, the
Borrowers shall execute and deliver such documents and
instruments, in form and substance satisfactory to the Bank, in
order to effectuate or otherwise comply with such rules,
regulations and policies." (p. 85, Rollo.)

The Promissory Notes, in turn, uniformly authorized the PNB to

increase the stipulated 18% interest per annum "within the limits
allowed by law at any time depending on whatever policy it [PNB] may
adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board."

The Real Estate Mortgage Contract likewise provided that:

"(k) INCREASE OF INTEREST RATE "The rate of interest

charged on the obligation secured by this mortgage as well as the
interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provisions hereof, shall be
subject during the life of this contract to such an increase within
the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors." (p. 86, Rollo;
emphasis supplied.)

Four (4) months advance interest and incidental expenses/charges

were deducted from the loan, the net proceeds of which were released to
the private respondent by crediting or transferring the amount to his
current account with the bank.
ISSUE:

Whether the bank, within the term of the loan which it granted to
the private respondent, may unilaterally change or increase the interest
rate stipulated therein at will and as often as it pleased.

RULING:

The answer to that question is no. In the first place, although

Section 2, PD. No. 116 of January 29, 1973, authorizes the Monetary
Board to prescribe the maximum rate or rates of interest for loans or
renewal thereof and to change such rate or rates whenever warranted by
prevailing economic and social conditions, it expressly provides that
"such changes shall not be made oftener than once every twelve months."

Besides violating P.D. 116, the unilateral action of the PNB in

increasing the interest rate on the private respondent's loan, violated the
mutuality of contracts ordained in Article 1308 of the Civil Code: "ART.
1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them."

PNB's successive increases of the interest rate on the private

respondent's loan, over the latter's protest, were arbitrary as they
violated an express provision of the Credit Agreement (Exh. 1) Section
9.01 that its terms "may be amended only by an instrument in writing
signed by the party to be bound as burdened by such amendment." The
increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that "no interest shall be due unless it has been expressly
stipulated in writing."
 VICENTE SINGSON ENCARNACION, PLAINTIFF-APPELLEE, VS .
JACINTA BALDOMAR, ET AL., DEFENDANTS-APPELLANTS.

[G.R. No. L-264. October 4, 1946.]

HIDALGO. J:

FACTS:

Vicente Singson Encarnacion, owner of the house numbered 589

Legarda Street, Manila, some six years ago leased said house to Jacinta
Baldomar and her son, Lefrado Fernando, upon a month-to-month basis
for the monthly rental of P35. After Manila was liberated in the last war,
specifically on March 16, 1945, and on April 7, of the same year, plaintiff
Singson Encarnacion notified defendants, the said mother and son, to
vacate the house above-mentioned on or before April 15, 1945, because
plaintiff needed it for his offices as a result of the destruction of the
building where said plaintiff had said offices before. Despite this demand,
defendants insisted on continuing their occupancy. When the original
action was lodged with the Municipal Court of Manila on April 20, 1945,
defendants were in arrears in the payment of the rental corresponding to
said month, the agreed rental being payable within the first five days of
each month.

That rental was paid prior to the hearing of the case in the
municipal court, as a consequence of which said court entered judgment
for restitution and payment of rentals at the rate of P35 a month from
May 1, 1945, until defendants completely vacate the premises. Although
plaintiff included in said original complaint a claim for P500 damages per
month, that claim was waived by him before the hearing in the municipal
court, on account of which nothing was said regarding said damages in
the municipal court's decision.
ISSUE:

Whether continuance and fulfillment of the contract of lease can be

made to depend solely and exclusively upon the free and uncontrolled
choice of the lessees?

RULING:

The continuance and fulfillment of the contract of lease cannot be

made to depend solely and exclusively upon the free and uncontrolled
choice of the lessees between continuing paying the rentals or not,
completely depriving the owner of all say in the matter. For if this were
allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to
discontinue it; conversely, although the owner should desire the lease to
continue, the lessees could effectively thwart his purpose if they should
prefer to terminate the contract by the simple expedient of stopping
payment of the rentals. This, of course, is prohibited by article 1256 of
the Civil Code.