ObliCon Case Digests - Amber Gagajena PDF

OBLICON CASES: Articles 1156-1174
Case 1: Ayala Life Assurance, Inc. vs. Ray Burton Development Corporation
CONTRACT TO SELL vs. CONTRACT OF SALE
Case about Specific Performance with Damages
Facts:
Ayala Life and Ray Burton entered into a contract to sell of a parcel of land in Madrigal Business Park, Ayala Alabang,
Muntinlupa City worth P93M (1,691 square meters x P55,000 per square).
The contract to sells term includes 30% down payment and the remaining balance to be paid in quarterly installments for
5 years.
The contract contains a stipulation in paragraphs 3 and 3.1 for an "Event of Default." It provides that in case the purchaser
(respondent) fails to pay any installment for any reason not attributable to the seller (petitioner), the latter has the right to
assess the purchaser a late penalty interest on the unpaid installment at two (2%) percent per month, computed from the
date the amount became due until full payment thereof. And if such default continues for a period of six (6) months, the
seller has the right to cancel the contract without need of court declaration by giving the purchaser a written notice of
cancellation. In case of such cancellation, the seller shall return to the purchaser the amount he received, less penalties,
unpaid charges and dues on the property.
On August 12, 1998, the purchaser informed the seller in writing that it wont be able to complete payments anymore
because of economic crisis affecting its business, and thus asked for refund through Event of Default stipulations.
Instead of refunding, the seller sued for SPECIFIC PERFORMANCE in Makati RTC.
Makati RTC ruled in favor of the seller but the CA ruled in favor of purchaser (reversed RTC decision). CA emphasized
that there is no breach of contract in contract to sell as opposed to contract of sale. Moreover, 12% interest per annum for
unpaid amount was included.
Seller escalated the case to the Supreme Court and said that CA erred in its decision.
Issues:
W/N respondents non-payment of the balance of the purchase price gave rise to a cause of action on the part of petitioner
to demand full payment of the purchase price; and
W/N petitioner should refund respondent the amount the latter paid under the contract to sell.
Held:
No. Evidently, before the remedy of specific performance may be availed of, there must be a breach of the contract. Under
a contract to sell, the title of the thing to be sold is retained by the seller until the purchaser makes full payment of the
agreed purchase price. Such payment is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect. Thus, a cause of action for specific
performance does not arise.
Yes. In the event of respondents default in payment, petitioner, under the above provisions of the contract, has the right to
retain an amount equivalent to 25% of the total payments. As stated by the Court of Appeals, petitioner having been
informed in writing by respondent of its intention not to proceed with the contract on August 12, 1998, or prior to incurring
delay in payment of succeeding installments,15 the provisions in the contract relative to penalties and interest find no
application.
Case 2: Cannu vs. Galang and National Home Mortgage Finance Corporation
RESCISSION OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE
Case about Resolution with Damages
Oblicon Concept:
Settled is the rule that rescission or, more accurately, resolution, of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party that violates the reciprocity between them. Article 1191 reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be had only for such
breaches that are substantial and fundamental as to defeat the object of the parties in making the agreement. The
question of whether a breach of contract is substantial depends upon the attending circumstances and not merely on the
percentage of the amount not paid.
Facts:
Respondents-spouses Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan Association for P173,800
to purchase a house and lot. To secure payment, a real estate mortgage was constituted on the said house and lot in
favor of Fortune Savings & Loan Association. In early 1990, NHMFC purchased the mortgage loan of respondents-
spouses from Fortune Savings & Loan Association for P173,800.
Respondent Fernandina Galang authorized4 her attorney-in-fact, Adelina R. Timbang, to sell the subject house and lot.
Petitioner Leticia Cannu agreed to buy the property for P120,000 (P75,000 paid, P45,000 remaining balance unpaid) and
Amber Gagajena Oblicon Digests Block 1F

to assume the balance of the mortgage obligations with the NHMFC and with CERF Realty5 (the Developer of the
property).
A Deed of Sale with Assumption of Mortgage Obligation dated 20 August 1990 was made and entered into by and
between spouses Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe Cannu (vendees) over the house
and lot. In the Deed of Sale, the contract price is P200,000. There was confusion but since the contract does not show the
real intent of the parties (as evidenced in their testimonies and pleadings), the P120,000 price was followed.
Petitioners made payment to NHMFC amounting to P55,312 only. This payment is insufficient even to cover arrears and
penalties. Petitioners paid the "equity" or second mortgage to CERF Realty.
Despite requests from Adelina R. Timbang and Fernandina Galang to pay the balance of P45,000 or in the alternative to
vacate the property in question, petitioners refused to do so.
Petitioners formal assumption of mortgage was not approved by the NHMFC because the Cannus failed to fully comply
with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233,957 as full payment of her remaining
mortgage loan with NHMFC.
Thereupon, a Complaint for Specific Performance and Damages was filed asking, among other things, that petitioners
(plaintiffs therein) be declared the owners of the property involved subject to reimbursements of the amount made by
respondents-spouses (defendants therein) in preterminating the mortgage loan with NHMFC.
RTC and CA decided in favor of respondents.
Issue:
W/N the petitioners breach of the obligation was substantial.
W/N there was no substantial compliance with the obligation to pay the monthly amortization of NHMFC.
W/N the CA erred when it failed to consider the other facts and circumstance that militate against rescission.
W/N the action for rescission is subsidiary.
Held:
Yes. In the case at bar, we find petitioners failure to pay the remaining balance of P45,000 to be substantial. Even
assuming arguendo that only said amount was left out of the supposed consideration of P250,000, or eighteen (18%)
percent thereof, this percentage is still substantial.
Yes. The Court finds that petitioners were not religious in paying the amortization with the NHMFC. As admitted by them,
in the span of three years from 1990 to 1993, their payments covered only thirty months. This, indeed, constitutes another
breach or violation of the Deed of Sale with Assumption of Mortgage. On top of this, there was no formal assumption of
the mortgage obligation with NHMFC because of the lack of approval by the NHMFC on account of petitioners non-
submission of requirements in order to be considered as assignees/successors-in-interest over the property covered by
the mortgage obligation.
No. There is sufficient evidence showing that demands were made from petitioners to comply with their obligation. Adelina
R. Timbang, attorney-in-fact of respondents-spouses, per instruction of respondent Fernandina Galang, made constant
follow-ups after the last payment made on 28 November 1991, but petitioners did not pay.
No. The Court held that petitioners reliance on Article 1383 is misplaced. The subsidiary character of the action for
rescission applies to contracts enumerated in Articles 1381 of the Civil Code. The contract involved in the case before us
is not one of those mentioned therein. The provision that applies in the case at bar is Article 1191.
The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action,
and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to
anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory
in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in
the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is
purely secondary.
Case 3: Lalicon vs. National Housing Authority

RIGHT OF RESCISSION
Case about Resolution with Damages
Facts:
This case is about (a) the right of the National Housing Authority to seek annulment of sales made by housing
beneficiaries of lands they bought from it within the prohibited period and (b) the distinction between actions for rescission
instituted under Article 1191 of the Civil Code and those instituted under Article 1381 of the same code.
On November 25, 1980 the National Housing Authority (NHA) executed a Deed of Sale with Mortgage over a Quezon City
lot1 in favor of the spouses Isidro and Flaviana Alfaro.
The deed of sale provided, among others, that the Alfaros could sell the land within five years from the date of its
release from mortgage without NHAs prior written consent. The mortgage and the restriction on sale were
annotated on the Alfaros title.
The Alfaros sold the same to their son, Victor Alfaro, who had taken in a common-law wife, Cecilia, with whom he had two
daughters, petitioners Vicelet and Vicelen Lalicon (the Lalicons).
On December 14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida See.
Subsequently, on February 14, 1997 Victor sold the property to Chua.
A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the
annulment of the NHAs 1980 sale of the land to the Alfaros, the latters 1990 sale of the land to their son Victor, and the
subsequent sale of the same to Chua, made in violation of NHA rules and regulations.

RTC ruled in favor of the Alfaros while the CA reversed the RTC decision and found the NHA entitled to rescission. The
CA declared TCT in the name of the Alfaros and all subsequent titles and deeds of sale null and void. It ordered Chua to
reconvey the subject land to the NHA but the latter must pay the Lalicons the full amount of their amortization, plus
interest, and the value of the improvements they constructed on the property.
Issue:
W/N the CA erred in holding that the Alfaros violated their contract with the NHA;
W/N the NHAs right to rescind has prescribed; and
W/N the subsequent buyers of the land acted in good faith and their rights, therefore, cannot be affected by the rescission.
Held:
No. The contract between the NHA and the Alfaros forbade the latter from selling the land within five years from the date
of the release of the mortgage in their favor. But the Alfaros sold the property to Victor on November 30, 1990 even before
the NHA could release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the five-year restriction,
thus entitling the NHA to rescind the contract.
No. The CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that
provided in Article 1144 which is 10 years from the time the right of action accrues. The NHAs right of action accrued on
February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for
annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.
No. The Court also agrees with the CA that the Lalicons and Chua were not buyers in good faith. Since the five-year
prohibition against alienation without the NHAs written consent was annotated on the propertys title.
Case 4: Cathay Pacific vs. Vazquez

BREACH OF CONTRACTUAL OBLIGATION: NOVATION
Case about Claim of Damages Only
Facts:
Spouses Vazquez together with their 2 good friends and 1 maid went to Hong Kong. The spouses are members of
Cathays Marco Polo Club. One of the benefits is the involuntary promotion to better seats in flights.
Maid will fly in Economy class while Vazquezes and 2 friends will fly in Business Class.
Upon check-in, the Vazquezes were informed that they were upgraded to First Class. They refused but the airline insisted.
There was a commotion but in the end, the Vazquezes was succumbed because of the risk that they wont be allowed to
board the aircraft.
Upon arriving in the Philippines, they filed a demand for apology and damages from the airline but the demand was not
acted upon so they filed the case with the RTC.
RTC ruled in favor of Vazquezes by allowing moral, exemplary, nominal damages and attorneys fees. CA also ruled in
their favor but decreased the amount of damages.
Issues:
W/N by upgrading the seat accommodation of the Vazquezes from Business Class to First Class Cathay breached its
contract of carriage with the Vazquezes;
W/N the upgrading was tainted with fraud or bad faith; and
W/N the Vazquezes are entitled to damages.
Held:
Yes. However odd it might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their boarding passes. They clearly waived their priority
or preference when they asked that other passengers be given the upgrade. It should not have been imposed on them
over their vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.
No. The Court finds no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the
upgrading through insidious words or deceitful machination or through willful concealment of material facts. It is clear from
this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does not
amount to bad faith.
Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for
damages is limited to the natural and probable consequences of the breach of the obligation which the parties had
foreseen or could have reasonably foreseen. In such a case the liability does not include moral and exemplary damages.
And where the awards for moral and exemplary damages are eliminated, so must the award for attorneys fees. There
should be bad faith for these to apply. The most that can be adjudged in favor of the Vazquezes for Cathays breach of
contract is an award for nominal damages (P5,000) under Article 2221 of the Civil Code.
Case 5: Saludaga vs. FEU

CONTRACT BETWEEN STUDENT AND SCHOOL
Case about Breach of Contract Based on Negligence
Facts:
Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot
by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996.
Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation
to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn,
filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted
by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President,
to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the
suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.
RTC ruled in favor of Saludaga but CA reversed the decision.
Issues:
W/N the shooting incident is a fortuitous event;
W/N the respondents are not liable for damages for the injury resulting from a gunshot wound suffered by the petitioner
from the hands of no less than their own security guard in violation of their built in contractual obligation to petitioner, being
their law student at that time, to provide him with a safe and secure educational environment;
W/N the security guard who shot petitioner while he was walking on his way to the law library of respondent FEU is not
their employee by virtue of the contract for security services between Galaxy and FEU notwithstanding the fact that
petitioner, not being a party to it, is not bound by the same under the Principle of Relativity of Contracts; and
W/N the respondent exercised due diligence in selecting Galaxy as the agency which would provide security services
within the premises of respondent FEU.
Held:
No. Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of
such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a person's participation - whether by active
intervention, neglect or failure to act - the whole occurrence is humanized and removed from the rules applicable to acts of
God.
Liable. Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment,
respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must have
satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to
defendant's acts. Medical expenses, temperate damages of P20,000, moral damages of P100,000 and attorneys fees of
P50,000. Exemplary damages deleted.
Not employee. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages
under Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by
Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no
more than requests commonly envisaged in the contract for services entered into by a principal and a security agency.
They cannot be construed as the element of control as to treat respondents as the employers of Rosete.
No. FEU did not examine Rosetes medical records. They just accepted whoever the agency provided. For these acts of
negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to the latter's
breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the
above-mentioned amounts awarded to petitioner.
Case 6: Meralco vs. Ramoy

SERVICE CONTRACT TO SUPPLY ELECTRICITY: CULPA CONTRACTUAL
Case about Breach of Contract
Oblicon Concept:
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.
Expectation Interest - which is his interest in having the benefit of his bargain by being put in as good a position as he
would have been in had the contract been performed.
Reliance Interest - which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as
good a position as he would have been in had the contract not been made.
Restitution Interest - which is his interest in having restored to him any benefit that he has conferred on the other party.
Facts:
This is a Petition for Review on Certiorari on CAs decision of ordering petitioner Manila Electric Company (MERALCO) to
pay Leoncio Ramoy moral and exemplary damages and attorney's fees.
The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the MTC
Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon
City. Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar.
The MTC rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or remove the building
and structures they built on the land of the plaintiff and to vacate the premises.
On June 20, 1990 NPC wrote Meralco requesting for the immediate disconnection of electric power supply to all
residential and commercial establishments beneath the NPC transmission lines.
Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC property in
view of the fact that "the houses in the area are very close to each other.
In due time, the electric service connection of the plaintiffs [herein respondents] was disconnected. After the electric power
in Ramoy's apartment was cut off, the plaintiffs-lessees left the premises.
During the ocular inspection ordered by the Court and attended by the parties, it was found out that the residence of
plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property.
The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages, exemplary damages
and attorney's fees. However, the RTC ordered MERALCO to restore the electric power supply of respondents.
Issues:
W/N Meralco acted negligently when it disconnected the subject electric service of respondents.
W/N the CA gravely erred when it awarded moral and exemplary damages and attorneys fees against Meralco under the
circumstances that the latter acted in good faith in the disconnection of the electric services of the respondents.
Held:
Yes. MERALCO admits that respondents are its customers under a Service Contract whereby it is obliged to supply
respondents with electricity. Clearly, respondents' cause of action against MERALCO is anchored on culpa contractual or
breach of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code. In culpa
contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof.
o The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the
utmost degree of care and diligence required of it. To repeat, it was not enough for MERALCO to merely rely on
the Decision of the MTC without ascertaining whether it had become final and executory.
Yes to Moral Damages since Ramoy testified in Court about his mental anguish. In the present case, MERALCO wilfully
caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were
entitled under the Service Contract. Electricity is a basic necessity the generation and distribution of which is imbued with
public interest, and its provider is a public utility subject to strict regulation by the State in the exercise of police power.
Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right.
o No to Exemplary Damages since Article 2232 of the Civil Code provides that in contracts and quasi-contracts, the
court may award exemplary damages if the defendant, in this case MERALCO, acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner, while Article 2233 of the same Code provides that such damages
cannot be recovered as a matter of right and the adjudication of the same is within the discretion of the court
o No to Attorneys Fees since the Court does not deem it proper to award exemplary damages in this case, then
the CA's award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in the
absence of stipulation, attorney's fees cannot be recovered except in cases provided for in said Article.
Case 7: Pantaleon vs. American Express International, Inc.
Case about Delay of Credit Card Company in its Obligation to Cardholders
Oblicon Concept:
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a
counter-offer.
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
Facts:
In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian Roberto), went on a
guided European tour. On October 25, 1991, the tour group arrived in Amsterdam. Due to their late arrival, they postponed
the tour of the city for the following day.
The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster Diamond House (Coster). To
have enough time for take a guided city tour of Amsterdam before their departure scheduled on that day, the tour group
planned to leave Coster by 9:30 a.m. at the latest.
While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of US$13,826. Pantaleon
presented his American Express credit card to the sales clerk to pay for this purchase. He did this at around 9:15 a.m. The
sales clerk swiped the credit card and asked Pantaleon to sign the charge slip, which was then electronically referred to
AMEXs Amsterdam office at 9:20 a.m.
At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon asked the store clerk to
cancel the sale. The store manager, however, convinced Pantaleon to wait a few more minutes. Subsequently, the store
manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving the names of his
Philippine depository banks.
At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not approved the purchase.
Since the city tour could not begin until the Pantaleons were onboard the tour bus, Coster decided to release at around
10:05 a.m. the purchased items to Pantaleon even without AMEXs approval.
When the Pantaleons finally returned to the tour bus, they found their travel companions visibly irritated. This irritation
intensified when the tour guide announced that they would have to cancel the tour because of lack of time as they all had
to be in Calais, Belgium by 3 p.m. to catch the ferry to London.
In all, it took AMEX a total of 78 minutes to approve Pantaleons purchase and to transmit the approval to the jewelry
store.

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon experienced delay in
securing approval for purchases using his American Express credit card on two separate occasions. He experienced the
first delay when he wanted to purchase golf equipment in the amount of US$1,475 at the Richard Metz Golf Studio in New
York on October 30, 1991. Another delay occurred when he wanted to purchase childrens shoes worth US$87 at the
Quiency Market in Boston on November 3, 1991.
RTC ruled in favor of petitioner and held respondent as guilty of delay. CA ruled in favor of respondent. SC ruled in favor
of petitioner and SC, upon reconsideration, ruled in favor of the respondent.
Issues:
W/N AMEX has an obligation to grant petitioners credit transaction?
W/N AMEX is guilty of culpable delay?
W/N AMEX has the obligation to act on the offer within a specific period of time?
W/N AMEX acted with good faith?
W/N petitioners actions was the proximate cause of his injury?
Held:
No. This view finds support in the reservation found in the card membership agreement itself, particularly paragraph 10,
which clearly states that AMEX "reserve[s] the right to deny authorization for any requested Charge." By so providing,
AMEX made its position clear that it has no obligation to approve any and all charge requests made by its card holders.
No. Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot claim that
AMEX defaulted in its obligation. Before the credit card issuer accepts this offer, no obligation relating to the loan
agreement exists between them. A demand presupposes the existence of an obligation between the parties.
No. Every time Pantaleon charges a purchase on his credit card, the credit card company still has to determine whether it
will allow this charge, based on his past credit history. This right to review a card holders credit history, although not
specifically set out in the card membership agreement, is a necessary implication of AMEXs right to deny authorization for
any requested charge. There is no provision in this agreement that obligates AMEX to act on all cardholder purchase
requests within a specifically defined period of time.
Yes. Although it took AMEX some time before it approved Pantaleons three charge requests, we find no evidence to
suggest that it acted with deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence to AMEXs claim that its review procedure was done to ensure
Pantaleons own protection as a cardholder and to prevent the possibility that the credit card was being fraudulently used
by a third person.
Yes. The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury") refers to self-
inflicted injury or to the consent to injury which precludes the recovery of damages by one who has knowingly and
voluntarily exposed himself to danger, even if he is not negligent in doing so. When Pantaleon made up his mind to push
through with his purchase, he must have known that the group would become annoyed and irritated with him. This was the
natural, foreseeable consequence of his decision to make them all wait.
Case 8: Barzaga vs. CA and Alviar
Case about Non-importance of Demand in Obligations where Time is of the Essence
Oblicon Concept:
The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay
and those who in any manner contravene the tenor thereof, are liable for damages.
Facts:
The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December
Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending
physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family
from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer.
Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife,
Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her
dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that
forthwith gave him and his family their gloomiest Christmas ever.
On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respondent Angelito
Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also
asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify
if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be
delivered the following day. With that reply petitioner left.
At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his
purchase of construction materials. He told the store employees that the materials he was buying would have to be
delivered at the Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were
already at the burial site and time was of the essence.
The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in
sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery
truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over
to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for
the materials.

After hours of waiting which seemed interminable to him Barzaga became extremely upset. He decided to dismiss
his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar.
RTC ruled in favor of petitioner saying that respondent incurred legal delay. CA reversed the decision and said that there
was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts
covering the sale. SC ruled in favor of petitioner.
Issues:
W/N respondent incurred legal delay?
W/N the respondent encountered fortuitous event resulting to the delay?
W/N petitioner is entitled to be indemnified?
Held:
Yes. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay
in the performance of his contractual obligation. Contrary to the appellate court's factual determination, there was a
specific time agreed upon for the delivery of the materials to the cemetery. The argument that the invoices never indicated
a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently
it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the
cemetery.
No. Flattening of the tires can be foreseen and as such should have been reasonably guarded against. The nature of
private respondent's business requires that he should be ready at all times to meet contingencies of this kind.
Yes. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of
delay or a contractual breach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and
his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the
remains of their loved one who could not be laid to rest on the date she herself had chosen. We also affirm the grant of
exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised
supervisory authority indicates gross negligence in the fulfillment of his business obligations. We delete however the
award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than
compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with certainty.
Case 9: Lorenzo Shipping Corp vs. BJ Marthel International, Inc.
Case about Non-requirement of Demand in Obligations which are time is of the essence but not communicated to the
debtor.
Oblicon Concept:
No Demand or Notice Necessary
Facts:
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine engines.
Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this request,
respondent furnished petitioner with a formal quotation.
Petitioner thereafter issued to respondent Purchase Order, dated 02 November 1989, for the procurement of one set of
cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express.
Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten postdated
checks to be drawn against the former's account with Allied Banking Corporation. The checks were supposed to represent
the full payment of the aforementioned cylinder liner. Subsequently, petitioner issued another purchase order dated 15
January 1990, for yet another unit of cylinder liner. Like the purchase order of 02 November 1989, the second purchase
order did not state the date of the cylinder liner's delivery.
On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the same
was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were eventually
returned by respondent to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd., by
opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The sales
invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under which the
signature of Eric Go, petitioner's warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the other items listed in
said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20 April 1990
remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter dated 02
January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects of this case. Instead of
heeding the demand of respondent for the full payment of the value of the cylinder liners, petitioner sent the former a letter
dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said letter, petitioner claimed that as the
cylinder liners were delivered late and due to the scrapping of the M/V Dadiangas Express, it (petitioner) would have to
sell the cylinder liners in Singapore and pay the balance from the proceeds of said sale.
The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms of
payment and delivery of the cylinder liners.

Issues:
W/N time is of the essence in the delivery of the cylinder liner?
Held:
No. It was not included in the contract counter-offered by Lorenzo shipping after BJ sent a quotation. Moreover, even if
time is of the essence, BJ was not informed of the urgency of delivery. BJ delivered within reasonable time.
Case 10: Almocera vs. Johnny Ong
Case about Delay when Demand is Useless
Oblicon Concept:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
Facts:
Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in
Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000 pesos, for a lot area of eighty-
eight (88) square meters with a three-storey building.
Out of the purchase price, plaintiff was able to pay the amount of P1,060,000. Prior to the full payment of this amount,
plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the
time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the
Land Bank of the Philippines (LBP).
In addition, the construction of the house has long been delayed and remains unfinished.
On March 13, 1999, Lot 4-a covered by TCT, covering the unit was advertised in a local tabloid for public auction for
foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the mortgage
and encumbrance by defendants, he would have not entered into the contract to sell.
In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint
for Damages before the RTC of Cebu City against defendants Andre T. Almocera and FBMC alleging that defendants
were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging
that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines
(LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third
person.
RTC decided in favor of Ong. Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000, together with
a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Ordering
the defendants to solidarily pay to the plaintiff the sum of P100,000 as moral damages, the sum of P50,000 as attorneys
fee and the sum of P15,619 as expenses of litigation.
Issues:
W/N Almocera has incurred in delay?
W/N Ong should pay the remaining balance of purchase price?
W/N Almocera is solidary liable with the cooperative for the damages to Ong?
Held:
Yes. The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to complete and deliver the
townhouse within the six-month period. With petitioner and FBMCs non-fulfillment of their obligation, respondent refused
to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him,
but merely asks that the amount or down payment he had made be returned to him. Demand is not necessary in the
instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and
FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse
would not have been foreclosed and thereafter sold to a third person.
No. the obligation of respondent to pay the balance of the contract price was conditioned on petitioner and FBMCs
performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the
townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to
assume and perform the obligation imposed on him, the other party does not incur delay.
Yes. This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the
first time before the Court of Appeals which ruled that it was too late in the day to raise the same.
Case 11: Megaworld Globus Asia, Inc. vs. Tanseco
Case about delay without need of demand because demand is Useless (debtor cant accomplish obligation of condo unit
with or without demand)
Oblicon Concept:
Article 1169 of the Civil Code, no judicial or extrajudicial demand is needed to put the obligor in default if the contract, as in
the herein parties contract, states the date when the obligation should be performed.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be
foreseen, or which, though foreseen, were inevitable.

Facts:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S. Tanseco (Tanseco) entered
into a Contract to Buy and Sell a 224 square-meter (more or less) condominium unit at a pre-selling project, "The Salcedo
Park," located along Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037, to be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611,
by postdated check payable on July 14, 1995; (2) P9,241,120 through 30 equal monthly installments of P308,037 from
August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305 on October 31, 1998, the stipulated delivery date
of the unit; provided that if the construction is completed earlier, Tanseco would pay the balance within seven days from
receipt of a notice of turnover.
The construction of the Project and the unit/s herein purchased shall be completed and delivered not later than October
31, 1998 with additional grace period of six (6) months within which to complete the Project and the unit/s, barring delays
due to fortuitous events.
Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of P2,520,305 pending delivery of the
unit. Megaworld, however, failed to deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999, the
last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of turnover), informed Tanseco that
the unit was ready for inspection preparatory to delivery. Tanseco replied through counsel, by letter of May 6, 2002, that in
view of Megaworlds failure to deliver the unit on time, she was demanding the return of P14,281,731 representing the
total installment payment she had made, with interest at 12% per annum from April 30, 1999, the expiration of the six-
month grace period. Tanseco pointed out that none of the excepted causes of delay existed.
Her demand having been unheeded, Tanseco filed on June 5, 2002 with the Housing and Land Use Regulatory Boards
(HLURB) Expanded National Capital Region Field Office a complaint against Megaworld for rescission of contract, refund
of payment, and damages.
In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued
that default had not set in, Tanseco not having made any judicial or extrajudicial demand for delivery before receipt of the
notice of turnover.
HLURB ruled in favor of Megaworld while CA ruled in favor of Tanseco.
Issues:
W/N Megaworld has incurred legal delay?
W/N Megaworld is entitled to defense of fortuitous event?
Held:
Yes. That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does not abate her cause.
For demand would have been useless, Megaworld admittedly having failed in its obligation to deliver the unit on the
agreed date. The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and deliver the
condominium unit on October 31, 1998 or six months thereafter on the part of Megaworld, and to pay the balance of the
purchase price at or about the time of delivery on the part of Tanseco. Compliance by Megaworld with its obligation is
determinative of compliance by Tanseco with her obligation to pay the balance of the purchase price. Megaworld having
failed to comply with its obligation under the contract, it is liable therefor.
No. The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the control of a business
corporation. A real estate enterprise engaged in the pre-selling of condominium units is concededly a master in projections
on commodities and currency movements, as well as business risks.
Case 12: Solar Harvest, Inc vs. Davao Corrugated
Case about Rescission despite LACK of DEMAND
Oblicon Concept:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
Facts:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an agreement with respondent, Davao Corrugated
Carton Corporation, for the purchase of corrugated carton boxes, specifically designed for petitioners business of
exporting fresh bananas, at US$1.10 each. The agreement was not reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998, US$40,150 in respondents US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent. On January 3, 2001, petitioner wrote a
demand letter for reimbursement of the amount paid. On February 19, 2001, respondent replied that the boxes had been
completed as early as April 3, 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from
completion, as agreed upon. Respondent mentioned that petitioner even placed an additional order of 24,000 boxes, out
of which, 14,000 had been manufactured without any advanced payment from petitioner. Respondent then demanded
petitioner to remove the boxes from the factory and to pay the balance of US$15,400 for the additional boxes and
P132,000 as storage fee.
In its Answer with Counterclaim, respondent insisted that, as early as April 3, 1998, it had already completed production of
the 36,500 boxes, contrary to petitioners allegation. According to respondent, petitioner, in fact, made an additional order
of 24,000 boxes, out of which, 14,000 had been completed without waiting for petitioners payment. Respondent stated
that petitioner was to pick up the boxes at the factory as agreed upon, but petitioner failed to do so. Respondent averred
that, on October 8, 1998, petitioners representative, Bobby Que (Que), went to the factory and saw that the boxes were
ready for pick up. On February 20, 1999, Que visited the factory again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid 14,000 boxes, because petitioners transaction to ship bananas to China
did not materialize. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be
made to pay storage fee at P60 per square meter for every month from April 1998. As counterclaim, respondent prayed
that judgment be rendered ordering petitioner to pay $15,400, plus interest, moral and exemplary damages, attorneys
fees, and costs of the suit.
Issue:
W/N respondent has incurred legal delay in fulfilling its obligation.
W/N petitioner has the right of rescission to reimburse the money paid.
Held:
Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and deliver the boxes. The Complaint only alleged that petitioner made a
"follow-up" upon respondent, which, however, would not qualify as a demand for the fulfillment of the obligation.
Petitioners witness also testified that they made a follow-up of the boxes, but not a demand. Note is taken of the fact that,
with respect to their claim for reimbursement, the Complaint alleged and the witness testified that a demand letter was
sent to respondent. Without a previous demand for the fulfillment of the obligation, petitioner would not have a cause of
action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation.
We also believe that the agreement between the parties was for petitioner to pick up the boxes from respondents
warehouse, contrary to petitioners allegation. Thus, it was due to petitioners fault that the boxes were not delivered to
TADECO. In sum, the Court finds that petitioner failed to establish a cause of action for rescission, the evidence having
shown that respondent did not commit any breach of its contractual obligation. As previously stated, the subject boxes are
still within respondents premises. To put a rest to this dispute, we therefore relieve respondent from the burden of having
to keep the boxes within its premises and, consequently, give it the right to dispose of them, after petitioner is given a
period of time within which to remove them from the premises.
Case 13: Cortes vs CA and Villa Esperanza Development Corporation
This is a Case about Delay of Both Parties or Compensatio Morae
Oblicon Concept:
ART. 1169. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the
other begins.
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
Facts:
The antecedents show that for the purchase price of P3,700,000, the Corporation as buyer, and Cortes as seller, entered
into a contract of sale over the lots covered by Transfer Certificate of Title located at Baclaran, Paraaque, Metro Manila.
On various dates in 1983, the Corporation advanced to Cortes the total sum of P1,213,000. Sometime in September 1983,
the parties executed a deed of absolute sale.
Said Deed was retained by Cortes for notarization.
On January 14, 1985, the Corporation filed the instant case for specific performance seeking to compel Cortes to deliver
the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and
ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for the award of
damages, attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents.
In his Answer with counterclaim, Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to
the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the
subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However,
due to the Corporation's failure to pay in full the sum of P2,200,000, he in turn failed to fully pay the disturbance fee of the
lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the outstanding
balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000 partial down payment, with
damages in either case.
RTC ruled in favor of Cortes by rescinding the contract (right of rescission applicable when one party has already
accomplish his obligation and the other did not). CA ruled in favor of the Corporation by specific performance of the
contract. The parties agreed that the Corporation will fully pay the balance of the down payment upon Cortes' delivery of
the three TCTs to the Corporation. The records show that no such delivery was made, hence, the Corporation was not
remiss in the performance of its obligation and therefore justified in not paying the balance.
Issues:
W/N there is delay in the performance of the parties' obligation that would justify the rescission of the contract of sale?
Held:
No. Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the
TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation
alone that was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their
obligation was reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation
therefore gave rise to a compensation morae or default on the part of both parties because neither has completed their
part in their reciprocal obligation.
Case 14: Tanguilig and JMT Engineering and General Merchandising vs. CA and Vicente Herce, Jr.
Case about Interpretation of Contracts and Fortuitious Event
Oblicon Concept:
Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss or destruction of the object of the
contract.
In Nakpil vs. Court of Appeals, four (4) requisites must concur:
o (a) the cause of the breach of the obligation must be independent of the will of the debtor;
o (b) the event must be either unforeseeable or unavoidable;
o (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner;
and,
o (d) the debtor must be free from any participation in or aggravation of the injury to the creditor.
Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, the same shall
be executed at his cost. IF PETITIONER DOESNT WANT TO REPAIR IT.
Facts:
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and
General Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some
negotiations they agreed on the construction of the windmill for a consideration of P60,000 with a one-year guaranty from
the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000 and an installment payment of P15,000, leaving a balance of P15,000.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect
the amount. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount
to the San Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was
to be connected. According to respondent, since the deep well formed part of the system the payment he tendered to
SPGMI should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a balance of P15,000,
this should be offset by the defects in the windmill system which caused the structure to collapse after a strong wind hit
their place.
Petitioner also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and
working condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a
typhoon, a force majeure, which relieved him of any liability.
Issues:
W/N the agreement to construct the windmill system included the installation of a deep well?
W/N the petitioner is under obligation to reconstruct the windmill after it collapsed?
Held:
No. The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not
included in the proposals of petitioner to construct a windmill system for respondent. While the words "deep well" and
"deep well pump" are mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely
describe the type of deep well pump for which the proposed windmill would be suitable. As correctly pointed out by
petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea
that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent
of petitioner was to include a deep well in the agreement to construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their meaning they
should not be disturbed.
Yes. A strong wind in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong wind
should be present in places where windmills are constructed, otherwise the windmills will not turn. The appellate court
correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had there been
no inherent defect in it which could only be attributable to the appellee." When the windmill failed to function properly it
became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract.
Case 15: Juan F. Nakpil & Sons and United Construction Company, Inc. vs. CA
Case about Inability of Fortuitous Event Defense When The Defendants Acted with Wanton Negligence.
Oblicon Concept:
if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape liability.
It has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is not
exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from liability
for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss or
damage may have been occasioned.
Facts:
The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided to
construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by
plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans and
specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in
question sustained major damage. The front columns of the building buckled, causing the building to tilt forward
dangerously. The tenants vacated the building in view of its precarious condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at the cost of P13,661.
On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial collapse
of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as defendants.
Plaintiff alleges that the collapse of the building was accused by defects in the construction, the failure of the contractors to
follow plans and specifications and violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications, alleging
in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta, the
then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included
Juan J. Carlos, President of the United Construction Co., Inc. as party defendant.
Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the parties agreed
to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed
by the trial court, assumed his office as Commissioner, charged with the duty to try the technical issues.
After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with the findings
that while the damage sustained by the PBA building was caused directly by the August 2, 1968 earthquake whose
magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the
third-party defendants' architects, deviations from said plans and specifications by the defendant contractors and failure of
the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects and
even the owners to exercise the requisite degree of supervision in the construction of subject building.
On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the Philippine Institute of
Architects filed with the Court a motion to intervene as amicus curiae. They proposed to present a position paper on the
liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent
views on the design and plans as submitted by the experts procured by the parties. The motion having been granted, the
amicus curiae were granted a period of 60 days within which to submit their position.
Issues:
W/N the petitioners can use the defense of fortuitous event (i.e., Earthquake) for the damage incurred by the building they
constructed and sold to Philippine Bar Association?
Held:
No. It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the plans and
specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2, 1968 and
the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the
design of the structure. In other words, these defects and deficiencies not only tend to add but also to multiply the effects
of the shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies in the
construction contributed greatly to the damage which occurred.
Case 16: Ace-agro vs. CA and Cosmos Bottling Company
Case about Unilateral Extinguishment of Obligation Due to Fortuitous Event
ObliCon Concept:
Extinguishment of Obligation Due to Fortuitous Event
Resolutory Period
Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as
a mode of extinguishment of obligation but, according to Tolentino, "there are other causes of extinguishment of
obligations which are not expressly provided for.
Facts:
Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations duly
organized and existing under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the manufacture of
soft drinks. Since 1979 petitioner Ace-Agro Development Corp. (Ace-Agro) had been cleaning soft drink bottles and
repairing wooden shells for Cosmos, rendering its services within the company premises in San Fernando, Pampanga.
The parties entered into service contracts which they renewed every year. On January 18, 1990, they signed a contract
covering the period January 1, 1990 to December 31, 1990. Private respondent had earlier contracted the services of Aren
Enterprises in view of the fact that petitioner could handle only from 2,000 to 2,500 cases a day and could not cope with
private respondent's daily production of 8,000 cases. Unlike petitioner, Aren Enterprises rendered service outside private
respondent's plant.

On April 25, 1990, fire broke out in private respondent's plant, destroying, among other places, the area where petitioner
did its work. As a result, petitioner's work was stopped.
On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that on
account of the fire, which had "practically burned all old soft drink bottles and wooden shells," private respondent was
terminating their contract.
Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to
reconsider its decision and allow petitioner to resume its work in order to "cushion the sudden impact of the unemployment
of many of [its] workers."
In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of wooden
shells under terms similar to those contained in its contract but work had to be done outside the company premises.
Petitioner refused the offer, claiming that to do its work outside the company's premises would make it (petitioner) incur
additional costs for transportation which "will eat up the meager profits that [it] realizes from its original contract with
Cosmos."
On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside the plant in
accordance with its original contract with Cosmos. But the petitioner did not gave its consent because it wanted to secure
extension of the contract which is subject to a RESOLUTORY PERIOD.
Issues:
W/N Cosmos is justified in unilaterally terminating the contract on account of force majeure?
W/N the Cosmos is guilty of breach of contract?
Held:
Yes. The reason given by defendant-appellant for unilaterally terminating the agreement was because the April 25, 1990
fire practically burned all of the softdrink bottles and wooden shells which plaintiff-appellee was working on under the
agreement. What defendant-appellant was trying to say was that the prestation or the object of their agreement had been
lost and destroyed in the above-described fire. Obligations may be extinguished by the happening of unforeseen events,
under whose influence the obligation would never have been contracted, because in such cases, the very basis upon
which the existence of the obligation is founded would be wanting.
No. Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the
question is whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can
only lead to the conclusion that the appealed decision is correct. As a matter of fact, it is the petitioner who is guilty of
breach because it wanted an extension of its contract to compensate for the suspension of work.
Case 17: Mondragon Leisure vs. CA
Case about Foreclosure of Collaterals (Leasehold Rights); Acceleration Clause
Oblicon Concept:
Forum Shopping, Res Judicata
Fortouitous Event on Asian Economic Crisis thats why the petitioner failed to pay on time
Facts:
On February 28, 1994, Mondragon International Philippines, Inc. (MIPI), Mondragon Securities Corporation (MSC) and
herein petitioner entered into a lease agreement with the Clark Development Corporation (CDC) for the development of
what is now known as the Mimosa Leisure Estate.
To help finance the project, petitioner, on June 30, 1997, entered into an Omnibus Loan and Security Agreement
(hereafter Omnibus Agreement) with respondent banks for a syndicated term loan in the aggregate principal amount of
US$20M. Under the agreement, as amended on January 19, 1999, the proceeds of the loan were to be released through
advances evidenced by promissory notes to be executed by petitioner in favor of each lender-bank, and to be paid within a
six-year period from the date of initial advance inclusive of a one year and two quarters grace period.
To secure the repayment of the loan, petitioner pledged in favor of respondents US$20M worth of MIPI shares of stocks;
assigned, transferred and delivered all rights, title to and interest in the pledged shares; and assigned by way of security
its leasehold rights over the project and all the rights, title, interests and benefits in, to and under any and all agreements
in connection with the project.
On July 3, 1997, petitioner fully availed of and received the full amount of the syndicated loan agreement. Petitioner, which
had regularly paid the monthly interests due on the promissory notes until October 1998, thereafter failed to make
payments. Consequently, on January 6 and February 5, 1999, written notices of default, acceleration of payment and
demand letters were sent by the lenders to the petitioner. Then on August 27, 1999, respondents filed a complaint,
docketed as Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner.
Issues:
W/N the default of interest payments is due to fortuitous event?
W/N the certificate of forum shopping was defective because there was no proof as to the authority of the signatories
(Board of Directors) to file the complaint?
W/N the respondent banks engage in forum shopping?
W/N respondents have a cause of action against the petitioner?
Held:

No. As pointed out by the respondents, the loan agreement was entered into on June 30, 1997, or when the Asian
economic crisis had already started. Petitioner, as a long established corporation, should have been well aware of the
economic environment at that time, yet it still took the risk to expand operations. Likewise, the closure of the Mimosa
Regency Casino was not an unforeseeable or unavoidable event, in the context of the contract of lease between petitioner
and CDC. Every business venture involves risks. Risks are not unforeseeable; they are inherent in business.
No. The issue concerning the signatories authorization was never raised before it. Likewise, the appellate court did not err
in refusing to take cognizance of the issue, since the parties did not raise it beforehand. Issues not raised in the trial court
cannot be raised for the first time on appeal.
No. Civil Case No. 9510 pertains to an Omnibus Credit and Security Agreement executed by and between the petitioner
and respondent UCPB on November 23, 1995. This is separate and distinct from the Omnibus Agreement involved in Civil
Case No. 9527. Moreover, respondents Asian Bank and Far East Bank are not among the parties to Civil Case No. 9510.
Yes. Respondents counter that the Omnibus Agreement defines, as an event of default, the failure of petitioner to pay
when due at stated maturity, by acceleration or otherwise, any amount payable under the loan documents. Since petitioner
is also required to pay interest, respondents posit that non-payment thereof constituted a clear and unmistakable case of
default. Respondents add that they had properly advised the petitioner that it had been declared in default, referring to the
January 6 and February 5, 1999 letters as their compliance with the notice requirement. The respondent-banks have four
alternative remedies without prejudice to the application of the provisions on collaterals and any other steps or action
which may be adopted by the majority lender.
ARTICLES 1179 and 1181
Case 18. De Leon vs. Ong
Case about Perfected Contract of Sale (Respondents Argument - W) or Contract To Sell Subject to a Suspensive
Condition of Full Payment (Petitioners Argument)
Specific Performance with Damages for Ong in the RTC. De Leon is questioning decisions of RTC and CA - DENIED
Oblicon Concept:
In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should
the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the
contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition.
On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership
of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the
seller can only sue for damages.
Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed of sale is equivalent to the
delivery of a thing sold.
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Article 1544. If the same thing should have been sold to different vendees (DOUBLE SALE), the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in
the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
Facts:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land with improvements situated in Antipolo,
Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association,
Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage
stating:
o That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million),
Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction
of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and
irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings
and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms
and conditions:
o P415,000 Full Payment to Petitioner
o P684,500 Assumption of Real Estate Mortgage Payment to RSLAI.
Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the
keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent
and release the certificates of title.
Thereafter, respondent undertook repairs and made improvements on the properties. Respondent likewise informed
RSLAI of her agreement with petitioner for her to assume petitioners outstanding loan. RSLAI required her to undergo
credit investigation.
Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10,
1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire
about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken
back the certificates of title.
Respondent persistently contacted petitioner but her efforts proved futile.
Respondent argued that it is a contract of sale, thus, petitioner doesnt have the right to sell it to someone else anymore.
Petitioner already conveyed full ownership of the subject properties upon the execution of the deed
Petitioner argued that it is a contract to sell subject to suspensive condition of RSLAI approval. Since it was not approved,
the contract was not perfected.
RTC ruled in favor of the petitioner, while CA ruled in favor of the respondent. SC decision is in favor of the respondent
with modification as to the amount to be reimbursed by the respondent to the petitioner.
Issues:
W/N the contract is a perfected contract of sale or a contract to sell subject to suspensive condition?
Held:
Contract of sale. The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to
respondent "in a manner absolute and irrevocable" for a sum of P1.1 million. With regard to the manner of payment, it
required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance payable
directly to RSLAI (on behalf of petitioner) within a reasonable time. Nothing in said instrument implied that petitioner
reserved ownership of the properties until the full payment of the purchase price. On the contrary, the terms and
conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution
of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions
pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership.
Case 19. Reyes vs. Tuparan
Case about Perfected Contract of Sale (Petitioners Argument) or Contract To Sell Subject to a Suspensive Condition of
Full Payment (Respondents Argument - W)
Order for Rescission of Contract DENIED because the agreement is Contract To Sell not subject to Breach
Oblicon Concept:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price. A contract to sell may thus be defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
Facts:
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of Contract with Damages against
Victoria T. Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among others, that she was the
registered owner of a 1,274 square meter residential and commercial lot located in Karuhatan, Valenzuela City, and
covered by TCT No. V-4130; that on that property, she put up a three-storey commercial building known as RBJ Building
and a residential apartment building; that since 1990, she had been operating a drugstore and cosmetics store on the
ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the
sidewalks were being leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop
business for a monthly rental of 4,000. A close friendship developed between the two which led to the respondent
investing thousands of pesos in petitioners financing/lending business from February 7, 1990 to May 27, 1990, with
interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc.
(FSL Bank) to secure a loan of 2,000,000 payable in installments. On November 15, 1990, petitioners outstanding
account on the mortgage reached 2,278,078. Petitioner then decided to sell her real properties for at least 6,500,000 so
she could liquidate her bank loan and finance her businesses. As a gesture of friendship, respondent verbally offered to
conditionally buy petitioners real properties for 4,200,000 payable on installment basis without interest and to assume
the bank loan.
After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks
approval for respondent to assume her (petitioners) outstanding bank account. The assumption would be part of
respondents purchase price for petitioners mortgaged real properties. FSL Bank approved their proposal on the condition
that petitioner would sign or remain as co-maker for the mortgage obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real
Properties with Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties
chose not to reduce into writing the other terms of their agreement mentioned in paragraph 11 of the complaint. Besides,
FSL Bank did not want to incorporate in the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any
other side agreement between petitioner and respondent.
o a) 278,078 received in cash by the First Party but directly paid to the Third Party as partial payment of the
mortgage obligation of the First Party in order to reduce the amount to 2,000,000 only as of November 15,
1990;
o b) 721,921 received in cash by the First Party as additional payment of the Second Party;
o c) 1,200,000 to be paid in installments as follows: Note: All the installments shall not bear any interest.
1. 200,000 payable on or before January 31, 1991;
2. 200,000 payable on or before June 30, 1991;
3. 800,000 payable on or before December 31, 1991;

o d) 2,000,000 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby
assumed by the Second Party.
o 3. That the Third Party hereby acknowledges receipts from the Second Party P278,078 as partial payment of the
loan obligation of First Party in order to reduce the account to only 2,000,000 as of November 15, 1990 to be
assumed by the Second Party effective November 15, 1990.
Respondent, however, defaulted in the payment of her obligations on their due dates.
Issues:
W/N the contract is a perfected contract of sale or a contract to sell subject to suspensive condition, thus, there is no legal
basis for rescission?
W/N there was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to
comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the 1,200,000
balance?
W/N the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment of 805,000 from the
date of the delinquency?
W/N the petitioner has a claim for damages and back rentals amounting to P29,609?
Held:
Contract To Sell. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a
breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding
force. Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. With this circumstance, there can be no rescission or fulfillment of an
obligation that is still non-existent, the suspensive condition not having occurred as yet. Emphasis should be made that the
breach contemplated in Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already
extant, not a failure of a condition to render binding that obligation.
o In the contract of sale, the seller has lost and cannot recover the ownership of the property unless he takes action
to set aside the contract of sale. In the contract to sell, the title simply remains in the seller if the buyer does not
comply with the condition precedent of making payment at the time specified in the contract. Here, it is quite
evident that the contract involved was one of a contract to sell since the Reyes, as seller, was able to retain title
of ownership to the land until respondent Tuparan, the buyer, has paid the agreed price. Indeed, there seems no
question that the parties understood this to be the case. There can be no rescission of an obligation (to turn over
title) that did not yet exist since the suspensive condition had not taken place.
Slight breach only since the remaining P805,000 is insignificant to the total price paid already by the respondent
amounting to P3,400,000.
No. Petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly interest
on the 805,000.00 from the date of delinquency, December 31, 1991.
No. Aside from petitioners self-serving statements, there is not enough evidence on record to prove that respondent acted
fraudulently and maliciously against the petitioner.
Case 20. Great Asian and Tan Chong Lin vs. CA and Bancasia Finance and Investment Corporation
Case about Obligations of Assignor and Persons Entering into Surety Agreement in the Case of Non-Payment of the
Principal Debtor (a Suspension Condition) in Assigning/Factoring of Accounts Receivables
Oblicon Concept:
Obligations arising from Suspensive Conditions
Under Article 1215 of the Civil Code, what releases a solidary debtor is a novation, compensation, confusion or remission
of the debt made by the creditor with any of the solidary debtors.
Facts:
Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances.
On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General
Manager, Arsenio Lim Piat, Jr. (Arsenio for brevity) to secure a loan from Bancasia in an amount not to exceed P1
million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to
secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing
Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2 million. The second board
resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary
to secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of
Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety
Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin
signed two surety agreements (Surety Agreements for brevity) in favor of Bancasia.
Great Asian, through its Treasurer and General Manager Arsenio, signed 4 Deeds of Assignment of Receivables (Deeds
of Assignment for brevity), assigning to Bancasia 15 postdated checks. Nine of the checks were payable to Great Asian,
three were payable to New Asian Emp., and the last three were payable to cash. Various customers of Great Asian
issued these postdated checks in payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a
total face value of P244,225, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were
dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four
postdated checks with a total face value of P312,819, with maturity dates not later than April 1, 1982. All these four
checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering
eight postdated checks with a total face value of P344,475, with maturity dates not later than April 30, 1982. All these
eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982
covering one postdated check with a face value of P200,000, with maturity date on March 18, 1982. This last check was
also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face
value of the checks.
Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored
checks bore the endorsement of Arsenio below the stamped name of Great Asian Sales Center, while the rest of the
dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when
deposited for collection by Bancasia, with any of the following as reason for the dishonor: account closed, payment
stopped, account under garnishment, and insufficiency of funds. The total amount of the fifteen dishonored checks is
P1,042,005.
After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer,
Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the
dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16,
1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither
Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under
oath by its Corporate Secretary, Mario Tan. Attached to the verified petition was a Schedule and Inventory of Liabilities
and Creditors of Great Asian Sales Center Corporation, listing Bancasia as one of the creditors of Great Asian in the
amount of P1,243,632.
On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin.
Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer,
Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and
unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently
withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the
Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements
signed by Tan Chong Lin.
Issues:
W/N Arsenio had the authority to execute the Deeds of Assignment and thus bind Great Asian?
W/N Great Asian is liable to Bancasia under the Deeds of Assignment for Breach of Contract pursuant to the Civil Code,
independent to the Negotiable Instruments Law?
W/N Tan Chong Lin is liable to Great Asian under the Surety Agreements?
Held:
Yes. As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line from
Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver
all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the
purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second
board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting
line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia,
and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions
specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or
discounting line.
Yes. Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were
negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt the with recourse
stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law.
Yes. Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian,
if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lins obligation hinged had
happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great
Asian.
ARTICLES 1182
Case 21. Catungal vs. Rodriguez
Case about the fulfillment of the condition depending upon the sole will of the debtor (Potestative Condition).
Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order filed by the respondent GRANTED.
Oblicon Concept:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the
provisions of this Code.
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may waive performance of the condition.
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends
upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
Facts:
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of
65,246 square meters, covered by Original Certificate of Title in her name situated in the Barrio of Talamban, Cebu City.
The said property was allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell with respondent
Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed of Sale dated July 26,
1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.
Payment Scheme: P25M TOTAL - P500,000 down payment, P4,500,000 and P5,000,000x4 upon respondents
negotiation of Road Right of Way [suspensive condition depending partly between respondent and third party (owners of
right of way)].
In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and
through his efforts, the properly was reclassified from agricultural land into residential land which he claimed substantially
increased the property's value. He likewise alleged that he actively negotiated for the road right of way as stipulated in the
contract.
Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of P5,000,000 on the
purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was
not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the
Catungals were offering the property for sale to third parties.
In a letter dated November 4, 1990, Rodriguez registered his objections to what he termed the Catungals' unwarranted
demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of
way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez
purportedly received a letter dated November 9, 1990 from Atty. Catungal, stating that the contract had been cancelled
and terminated.
Contending that the Catungals' unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and
unwarranted, Rodriquez filed a complaint in RTC.
Thereafter, the spouses Catungal filed their opposition to the issuance of a writ of preliminary injunction and later filed a
motion to dismiss on the ground of improper venue. According to the Catungals, the subject property was located in Cebu
City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to
dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed
of Sale, and not title to, or possession of real property.
From the filing of the appellants' brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were represented by
appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo),
entered his appearance before the Court of Appeals on September 2, 1997.
During the pendency of the case with the Court of Appeals, Agapita Catungal passed away and thus, her husband, Jose,
filed on February 17, 1999 a motion for Agapita's substitution by her surviving children.
In a Motion for Reconsideration dated August 21, 2000, counsel for the Catungals, Atty. Borromeo, argued for the first
time that paragraphs 1(b) and 5 of the Conditional Deed of Sale, whether taken separately or jointly, violated the principle
of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted to the
cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his position that
this issue may be raised for the first time on appeal.
Issues:
W/N petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time on appeal?
W/N paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts under Article
1308 of the Civil Code?
Held:
No. This is a situation where a party completely changes his theory of the case on appeal and abandons his previous
assignment of errors in his brief, which plainly should not be allowed as anathema to due process. We have also
previously ruled that "courts of justice have no jurisdiction or power to decide a question not in issue. Thus, a judgment
that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is not only
irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play.
No. We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a
"potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the
Civil Code but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the
squatters and government agencies and personnel concerned." We must hasten to add, however, that where the so-
called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself.
Case 22. Del Castillo vs. Naguiat
Case about Potestative Condition Subject to the Will of the Debtor (Payment of the Purchase Price in Contract To Sell) -
DENIED
Oblicon Concept:
Art. 1182. The Code prohibits purely potestative, suspensive, conditional obligations that depend on the whims of the
debtor, because such obligations are usually not meant to be fulfilled.
Art 1191. Rescission of Contracts

Facts:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at Malhacan,
Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over a portion of the
aforementioned lot containing an area of 200 square meters. This agreement was reduced to writing in a document
entitled Kasulatan sa Pagbibilihan.
Payment Scheme: P20,000 TOTAL PRICE P2,000 Down Payment, P18,000 Payable in 10 years with 12% interest
AFTER 10 years.
On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and refusal of
[respondents] to pay the balance of the purchase price constitutes a violation of the contract which entitles her to rescind
the same; that [respondents] have been in possession of the subject portion and they should be ordered to vacate and
surrender possession of the same to [petitioner] ; that the reasonable amount of rental for the subject land is P200 a
month; that on account of the unjustified actuations of [respondents], [petitioner] has been constrained to litigate where
she incurred expenses for attorneys fees and litigation expenses in the sum of P20,000.
In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on the ground that it
clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest of 12% is to be paid.
[Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986, during the wake of the late Eulalio
Mistica, he offered to pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns
pursuant to the said document; that he is presently the owner in fee simple of the subject lot having acquired the same by
virtue of a Free Patent Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already
become indefeasible and incontrovertible.
RTC and CA ruled in favor of the respondent. Therefore, rescission DENIED.
Issues:
W/N there is a breach of the obligation due to lapse of the stipulated period and the failure of the private respondents to
pay?
W/N action for rescission should still be feasible despite the certificate of title had already been issued in favor of the
private respondents?
W/N the 58 sq. m. portion in excess is covered by a certificate of title in the names of private respondents, thus,
reconveyance is no longer feasible and proper?
Held:
No. The transaction between Eulalio Mistica and respondents, as evidenced by the Kasulatan, was clearly a Contract of
Sale. The failure of respondents to pay the balance of the purchase price within ten years from the execution of the Deed
did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be made even after ten
years from the execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the contract
constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed upon and written.
This is not a potestative condition subject to the will of the debtor since nowhere is it stated in the Deed that payment of
the purchase price is dependent upon whether respondents want to pay it or not. Moreover, it is undisputed that during the
ten-year period, petitioner and her deceased husband never made any demand for the balance of the purchase price.
Petitioner even refused the payment tendered by respondents during her husbands funeral, thus showing that she was
not exactly blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have been made
well within the agreed period.
No. A certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in direct
proceedings in accordance with law.
No. It appears that an action for cancellation/annulment of patent and title and for reversion was already filed by the State
in favor of petitioner and the heirs of her husband. Hence, there is no need in this case to pass upon the right of
respondents to the registration of the subject land under their names.
Case 23. Rustan Pulp vs. IAC
Case about Potestative Condition Subject to the Will of the Debtor (Ask for Delivery of Pulp upon Full Operation in a
Commercial Scale of Baloi Plant) DENIED. Condition is VOID.
Oblicon Concept:
Art. 1182. Purely Potestative Condition Dependent Upon the Will of the Debtor
Facts:
When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the latter pursuant to a
contract of sale between them, private respondents sued for breach of their covenant. The court of origin dismissed the
complaint but at the same time enjoined petitioners to respect the contract of sale if circumstances warrant the full
operation in a commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries of pulp wood
products from Romeo Lluch.
Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March 20, 1967,
respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of
raw materials by the former to the latter.
That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are
qualified and holder of appropriate government authority or license to sell and dispose pulp wood.
These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale
whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30 per cubic
meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte.
That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by this
contract when supply of the same shall become sufficient until such time when need for said raw materials shall
have become necessarily provided, however, that the SELLER is given sufficient notice.
In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the
acceptance of deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were
made. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw
materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries.
The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners to private respondents.
Despite the notice, petitioner is still accepting deliveries from other suppliers which is ILLOGICAL and INCONSISTENT.
Issues:
W/N the petitioners decision to suspend taking delivery of pulp from respondent, which was prompted by serious and
unforeseen defects in the mill, is a lawful exercise of its rights under the contract of sale?
W/N petitioners Tantoco and Vergara should be personally liable under the contract of sale?
Held:
No. We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp wood materials.
First, We find it preposterous for a business company like the appellee to accumulate stockpiles of cut wood even after its
letter to appellants dated September 30, 1968 stopping the deliveries because the supply of raw materials has become
sufficient. The fact that appellees were buying and accepting pulp wood materials from other sources other than the
appellants even after September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that
they are unable to go into full commercial operation or that their machineries are defective or even that the pulp wood
materials coming from appellants are sub-standard.
No. Tantoco and Vergara should not have been adjudged to pay moral damages and attorney's fees because Tantoco
merely represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract
of sale. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are
absent and wanting.
ARTICLES 1190-1192
Case 24. UP vs. De Los Angeles
Case about Automatic Rescission Expressly Stipulated, Thus, No More Need for Judicial Decree
Oblicon Concept:
Art 1191. The parties may validly enter into an agreement that violation of the terms of the contract would cause
cancellation thereof even without judicial intervention or permission. Where a contract itself contains such stipulation, the
right to rescind is not implied but expressly recognized by the parties. Hence, Art 1191 is not applicable.
Facts:
Three orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be
annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP) against
the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land Grant),
situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967,
adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights
or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied reconsideration
of the order of contempt.
That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an
institution of higher learning, to be operated and developed for the purpose of raising additional income for its support,
pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was
granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a
further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of P219,362, which, despite repeated demands, it had failed to pay;
that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an
instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was
approved by the president of UP, and which stipulated the following:
o In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the
foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said
payments have been applied shall be paid by the DEBTOR in full no later than June 30, 1965;
o In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the
DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the
Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the
CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50,000) by way of and for liquidated
damages
ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to
15 July 1965, in the amount of P61,133, in addition to the indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon
City), for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore
specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary
attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take
over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was
awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966.
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary injunction; and, on 25 February 1966, respondent judge issued
the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara Lumber Company, Inc.,
and said company had started logging operations.
Issues:
W/N U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement
to that effect?
W/N UP should be held in contempt of court?
Held:
Yes. There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for
the injured party to resort to court for rescission of the contract. In other words, the party who deems the contract violated
may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party
injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit
until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to
minimize its own damages.
The Court abstained because it is under a different case.
Case 25. Tan vs. CA
Case about Action for Rescission After Substantial Breach - DENIED
Oblicon Concept:
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
Article 1191 of the Civil Code, the Court is given a discretionary power to allow a period within which a person in default
may be permitted to perform his obligation.
Facts:
The evidence shows that defendants-appellants spouses (private respondents herein) are the owners of a house and lot
located at No. 34 Easter Road, Baguio City, and covered by T.C.T., which were then for sale. On June 14, 1984, plaintiff-
appellee together with her agent went to see said spouses at their residence regarding the property. After appellants had
shown appellee around the house and had conversation about the encumbrances and/or liens on the property, the parties
finally agreed on the price of P1,800,000, with appellee to advance earnest money of P200,000 to enable appellants to
secure the cancellation of the mortgage and lien annotated on the title of the property and the balance of the price to be
paid by appellee on June 21, 1984. Forthwith, appellee handed to appellants a check for P200,000.00 and thereupon the
parties signed a receipt.
In turn, appellants handed to appellee a xerox copy of the title and other papers pertaining to the property as well as an
inventory of the furnishings of the house that are included in the sale. There (3) days thereafter, i.e., on June 17, 1984,
appellee returned to appellants' house together with her daughter Corazon and one Ines, to ask for a reduction of the price
to P1,750,000 and appellants spouses agreed, and so another receipt entitled "Agreement" was signed by the parties.
On July 9, 1984, the DBP executed a cancellation of mortgage, which was registered with the Registry of Property of
Baguio City in July 12, 1984. Appellants also paid all the taxes due and in appears on the property.
On June 25, 1984, appellee accompanied by her daughter Corazon and her lawyer, Atty. Vicente Quitoriano, went to
Baguio City to inquire about the status of the property and appellants told her that the Development Bank of the
Philippines was taking some time processing their payments and preparing the deed of cancellation of the mortgage. On
that occasion, the parties agreed on an extension of two (2) weeks for the execution of the deed of sale.
Immediately, upon execution by the DBP of the deed of cancellation of mortgage of July 9, 1984, appellants tried to
contact appellee and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to
no avail. Instead, appellants received a telegram from Atty. Quitoriano cancelling the sale and demanding the return of the
P200,000 earnest money.
Before appellants could make good their threat, appellee "jumped the gun", so to speak, upon them by filing in court on
August 27, 1984 the case for recovery of sum of money with damages.
RTC ruled in favor of petitioner. CA ruled in favor of respondents. SC ruled in favor of respondents.
Issues:
W/N the private respondents committed a substantial breach of their obligation so as to warrant petitioner's exercise of her
right to rescind the contract of sale?
Held:
No. The alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in
clearing the title to the property, cannot be considered substantial enough to warrant rescission of the contract. A thorough
review of the records clearly indicates that private respondents had substantially complied with their undertaking of
clearing the title to the property. A court, in determining whether rescission is warranted, must exercise its discretion
judiciously considering that the question of whether a breach of a contract is substantial depends upon the attendant
circumstances. However, just a few days after, or on July 12, 1984, the cancellation of the DBP mortgage was entered by
the Register of Deeds and duly noted on the title. Time not being of the essence in the agreement, a slight delay on the
part of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the
agreement. The fact that said notice had not yet been cancelled by the Register of Deeds as of June 25, 1984 cannot
prejudice the sellers who must be deemed to have substantially complied with their obligation. The rule in this jurisdiction
is that where the fulfillment of the condition (in a conditional obligation) does not depend on the will of the obligor, but on
that of a third person, the obligor's part of the contract is complied with, if he does an that is in his power and it then
becomes incumbent upon the other contracting party to comply with the terms of the contract.
o Inasmuch as the private respondents are ready, willing and able to comply with their obligation to deliver title to
the property subject of the sale and had already demanded that petitioner pay the full amount of the purchase
price, the petitioner must be considered as having incurred in delay. This conclusion is warranted by the clear
provision of Article 1169 of the Civil Code. Petitioner having failed to comply with her obligation of paying the
balance of the purchase price despite demands by private respondents, private respondents were clearly entitled
to their counterclaim for specific performance, as correctly adjudged by the respondent court.
Considering the huge amount of money involved in this sale, the Court, in the exercise of its sound discretion, hereby fixes
a period of ninety (90) days within which petitioner shall pay the balance of the purchase price amounting to one million
and five hundred fifty thousand pesos (Pl,550,000) plus interest thereon at the legal rate from finality of this judgment until
fully paid. After such payment has been made, the private respondents are ordered to sign and execute the necessary
absolute deed of sale in favor of petitioner.
Case 26. Spouses Co vs. CA and Adoracion Custodio
Case about Rescission (Resolution) by An Injured Party in Reciprocal Obligations from Contract of Sale
One Party Ready to Perform while the Other is Not
Oblicon Concept:
Art 1191. Rescission of reciprocal obligations
Art 1479. Option Contract
Article 1385. Rescission creates the obligation to return the things which were the object of the contract but such
rescission can only be carried out when the one who demands rescission can return whatever he may be obliged to
restore.
Facts:
Sometime on October 9, 1984, plaintiff entered into a verbal contract with defendant for her purchase of the latters house
and lot located at 316 Beata St., New Alabang Village, Muntinlupa, Metro Manila, for and in consideration of the sum of
$100,000. One week thereafter, and shortly before she left for the United States, plaintiff paid to the defendants the
amounts of $1,000 and P40,000 as earnest money, in order that the same may be reserved for her purchase, said earnest
money to be deducted from the total purchase price. The purchase price of $100,000 is payable in two payments $40,000
on December 4, 1984 and the balance of $60,000 on January 5, 1985. On January 25, 1985, although the period of
payment had already expired, plaintiff paid to the defendant Melody Co in the United States, the sum of $30,000, as partial
payment of the purchase price. Defendants counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15,
1985, demanding that she pay the balance of $70,000 and not receiving any response thereto, said lawyer wrote another
letter to plaintiff dated August 8, 1986, informing her that she has lost her option to purchase the property subject of this
case and offered to sell her another property.
Under date of September 5, 1986, Atty. Estrella O. Laysa, counsel for plaintiff, wrote a letter to Atty. Leopoldo Cotaco
informing him that plaintiff is now ready to pay the remaining balance to complete the sum of $100,000, the agreed
amount as selling price and on October 24, 1986, plaintiff filed the instant complaint.
RTC and CA ruled in favor of Custodio (buyer) by granting rescission. The courts ordered Spouses Co to return the
$30,000 already paid by Custodio. In return, they can forfeit for themselves the $1,000 and P40,000 option money.
Issues:
W/N the Court of Appeals erred in ordering the COS to return the $30,000 paid by CUSTODIO pursuant to the option
granted to her over the Beata property?

Held:
No. Since it has been shown that the appellee who was not in default, was willing to perform part of the contract while the
appellants were not, rescission of the contract is in order. The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him, (Article 1191, same Code). Rescission
creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with
its interest x x x x (Article 1385, same Code). In the case at bar, the property involved has not been delivered to the
appellee. She has therefore nothing to return to the appellants. The price received by the appellants has to be returned to
the appellee as aptly ruled by the lower court, for such is a consequence of rescission, which is to restore the parties in
their former situations.
o We cannot uphold the forfeiture clause contained in the petitioners August 8, 1986 letter. It appears that such
condition was unilaterally imposed by the COS and was not agreed to by CUSTODIO. It cannot therefore be
considered as part of the contract of sale as it lacks the consent of CUSTODIO.
Case 27. Palay, Inc. and Albert Onstott vs. Jacobo Clave, Presidential Executive Assistant, National Housing Authority
and Nazario Dumpit
Case about Need of Notice in Automatic Rescission Stipulations in Contracts
Oblicon Concept:
Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and
conditions.
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their
fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore.
Facts:
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private respondent,
Nazario Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights Subdivision in Antipolo,
Rizal, with an area of 1,165 square meters and owned by said corporation. The sale price was P23,300 with 9% interest
per annum, payable with a downpayment of P4,660 and monthly installments of P246.42 until fully paid. Paragraph 6 of
the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the
lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all
installments paid.
Respondent Dumpit paid the downpayment and several installments amounting to P13,722. The last payment was made
on December 5, 1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his overdue
accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He
followed this up with another letter dated June 20, 1973 reiterating the same request. Replying petitioners informed
respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had
already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National Housing
Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 2167). In a Resolution, dated July 10,
1979, the NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund immediately to Nazario
Dumpit the amount of P13,722 with 12% interest from the filing of the complaint on November 8, 1974. Petitioners' Motion
for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979.
On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law (O.P. Case No.
1459), respondent Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of the NHA. Reconsideration
sought by petitioners was denied for lack of merit.
Issues:
W/N notice or demand is not mandatory under the circumstances and, therefore, may be dispensed with by stipulation in a
contract to sell?
W/N petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. Dumpit?
W/N the doctrine of piercing the veil of corporate fiction has application to the case at bar?
W/N respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of
respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent
Nazario M. Dumpit thereby denying substantial justice to the petitioners, particularly petitioner Onstott?
Held:
Mandatory. Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved in
account of infractions by the other contracting party must be made known to the other and is always provisional being ever
subject to scrutiny and review by the proper court. If the other party denies that rescission is justified it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
Yes. As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the
same should be replaced by another acceptable lot. However, considering that the property had already been sold to a
third person and there is no evidence on record that other lots are still available, private respondent is entitled to the
refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. 10
It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time
appropriate the proceeds of the second sale to another.
No to issues 3 and 4. We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on
paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
Case 28. Margarita Suria and Gracia Joven Vs. IAC, Hon. Jose Mar Garcia and Spouses Crispin
Case about Subsidiarity of Remedy of Rescission When There Is Mortgage
Oblicon Concept:
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances
as "rescission" without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated
"resolution" for breach of stipulations from "rescission" by reason of lesion or damage. But the terminological vagueness
does not justify confusing one case with the other, considering the patent difference in causes and results of either action.
Facts:
That on March 31, 1975, respondents being the owners of a parcel of land situated at Barrio San Antonio, San Pedro,
Laguna, entered into a contract denominated as DEED OF SALE WITH MORTGAGE, with herein petitioners.
That the petitioners violated the terms and conditions of the contract by failing to pay the stipulated installments and in fact
only one installment due in July 1975 (paid very late in the month of September, 1975) was made all the others remaining
unsettled to the present time.
That repeated verbal and written demands were made by respondents upon the petitioners for the payment of the
installments, some of said written demands having been made on September 24, 1981, February 7, 1982, February 24,
1983, March 13, 1983, and April 12, 1983, but petitioners for no justifiable reason failed to comply with the demands of
respondents.
Respondents won the cases in the RTC and CA but the SC ruled in favor of the petitioners.
Issues:
W/N the subsidiary and equitable remedy of rescission available in the presence of a remedy of foreclosure in the light of
the express provision of Art 1383 of the Civil Code that : 'THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT
BE INSTITUTED EXCEPT WHEN THE PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN
REPARATION FOR THE SAME?
W/N the seller can legally demand rescission of the deed of sale with mortgage without offering to restore to the buyer
what he has paid, as required by Art 1385, or complying with the requirements of the Maceda Law (RA 6552) granting the
buyer a grace period to pay without interest, and, in case of cancellation in case the buyer still could not pay within the
grace period requiring the seller to order payment of the cash surrender value before the cancellation may legally take
effect?
Held:
No. There is, therefore, no cause for the resolution of the sale as prayed for by the plaintiff. His action, at all events, should
have been one for the foreclosure of the mortgage, which is not the action brought in this case. By the contract of sale, the
vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn, is
obligated to pay a price certain in money or its equivalent (Art. 1458, Civil Code). From the respondents' own arguments,
we note that they have fully complied with their part of the reciprocal obligation. As a matter of fact, they have already
parted with the title as evidenced by the transfer certificate of title in the petitioners' name as of June 27, 1975. The buyer,
in tum, fulfilled his end of the bargain when he executed the deed of mortgage. The payments on an installment basis
secured by the execution of a mortgage took the place of a cash payment. In other words, the relationship between the
parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated. It is
already one of a mortgagor and a mortgagee. In consideration of the petitioners' promise to pay on installment basis the
sum they owe the respondents, the latter have accepted the mortgage as security for the obligation.
No.
Case 29. Leonardo Chua and Heirs of Yong Tian Vs. Mutya Victorio
Case about Non-Importance of Judicial Rescission for Lessors to Evict Lessees
Oblicon Concept:
Article 1659. The aggrieved party may, at his option, ask for (1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for damages.
Art. 1673. The lessor may judicially eject the lessee for any of the following causes:
o (1) When the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687,
has expired;
o (2) Lack of payment of the price stipulated;
o (3) Violation of any of the conditions agreed upon in the contract;

o (4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration
thereof; or if he does not observe the requirement in No. 2 of article 1657, as regards the use thereof.
Vda. de Pamintuan v. Tiglao. Upon non-payment of rent by the lessee, the lessor may elect to treat the contract as
rescinded and thereby determine the right of the lessee to continue in possession; and this right to recover possession
may be enforced in an action of unlawful detainer. It is not necessary, in such situation, that an independent action for the
rescission of the lease should first be instituted in the CFI [now RTC], for the purpose of putting an end to the right of the
tenant to remain in possession under the lease.
Facts:
There were ejectment cases filed by respondent Mutya Victorio, the owner of certain commercial units located on
Panganiban Street, Santiago City, Isabela, against petitioners herein. Leonardo Chua is currently the occupant of one unit,
while petitioners Heirs of Yong Tian are the occupants of two units.
It appears that these were not the first ejectment cases filed by respondent against petitioners. An earlier ejectment case
ended in a compromise between the parties, approved by the trial court, whereby they agreed that: (1) Rent be increased
by 100% effective August 1990; (2) That rental increases shall be reviewed every after (sic) four (4) years based on the
then prevailing rental rates at commercial establishments along Panganiban Street, Santiago, Isabela, but in no case shall
be increased by more than twenty-five (25%) percent; etc.
Sometime in September of 1994, respondent (through her attorney-in-fact), made a rental survey of other commercial
establishments along Panganiban Street. On the basis of this survey, a 25% rental increase was demanded from
petitioners.
Petitioners refused to pay the increased rentals which compelled respondent to file unlawful detainer cases against both
lessees. This shows that the Compromise Agreement was already SEVERED. But the respondent agreed with to accept
monthly payment at the new rate. There came a new contract (i.e., monthly period).
Subsequently, on October 10, 1998, respondent wrote a letter to petitioners informing them of her intention to increase the
monthly rentals effective November 1, 1998, from P6,551 per unit to a sum more than double that, namely, P15,000 per
unit. Petitioners refused to pay this amount, contending that it was beyond the allowable rental increase embodied in the
compromise agreement.
RTC and MTCC ruled in favor of petitioners but CA and SC ruled in favor of the respondent.
Issues:
W/N the Compromise Agreement between the lessor and lessees is still in effect?
Held:
No. The SC affirmed the CA ruling that the compromise agreement, which set a definite period of four years for the lease
contract, had been abrogated by petitioners refusal to pay the increased rentals in 1994. Accordingly, in 1994, the juridical
relation between the parties was severed. When respondent accepted payment of the increased monthly amount, an
entirely new contract of lease was entered into between the parties. Since payment of rent was made on a monthly basis,
and pursuant to Article 1687 of the Civil Code, the period of this lease contract was monthly. Upon the expiration of every
month, the lessor could increase the rents and demand that the lessee vacate the premises upon non-compliance with
increased terms.
o In exercise of equity, however, the Court of Appeals granted petitioners an extension of one year from finality of
the decision within which to vacate the premises. The SC changed this to 1 month considering the length of time
of the case (i.e., 3 years pending). It held that there is enough time for the lessees to look for other commercial
spaces.
Payment of the rent is one of a lessees statutory obligations, and, upon non-payment by petitioners of the increased rental
in September 1994, the lessor acquired the right to avail of any of the three remedies outlined above.
Ordinarily, an obligees remedies upon breach of an obligation are judicial in nature. This is implicit in the third paragraph
of Article 1191, and in Article 1659 of the Civil Code. Thus, the mere failure by the lessees to comply with the increased
rental did not ipso jure produce the rescission of the contract of lease.
However, although the lessor did not resort to judicial action to specifically avail of any of the three remedies in Article
1659, this does not mean that the compromise agreement continues in force. In certain exceptional cases, the law
recognizes the availability of extrajudicial remedies, which exist in addition to the judicial remedies given above.
Case 30. William Uy and Rodel Roxas Vs. CA, Hon. Robert Balao and National Housing Authority
Case about Agents Interest in the Cancellation of Contract of Sale of Parcel of Land Between their Principals and NHA.
Oblicon Concept:
Article 1311. Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. If a
contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
Art. 1318. There is no contract unless the following requisites concur:
o (1) Consent of the contracting parties;
o (2) Object certain which is the subject matter of the contract;
o (3) Cause of the obligation which is established.

Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof. By
virtue of such authority, petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent National
Housing Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands, with an area
of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute
Sale covering the subject lands. Of the eight parcels of land, however, only five were paid for by the NHA because of the
report it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources (DENR)
that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing
project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of land. The NHA,
through Resolution No. 2394, subsequently offered the amount of P1.225 million to the landowners as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for Damages against
NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court
nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to
petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing
the complaint. It held that since there was sufficient justifiable basis in cancelling the sale, it saw no reason for the
award of damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the
real parties-in-interest in the action before the trial court.
Issues:
W/N the petitioners are entitled to file the case in lieu of their principals without indicating the real party in interest (i.e.,
principals)?
W/N the NHA had any legal basis for rescinding the sale involving the last 3 parcels of land?
Held:
No. Petitioners are not parties to the contract of sale between their principals and NHA. They are mere agents of the
owners of the land subject of the sale. As agents, they only render some service or do something in representation or on
behalf of their principals. The rendering of such service did not make them parties to the contracts of sale executed in
behalf of the latter. Since a contract may be violated only by the parties thereto as against each other, the real parties-in-
interest, either as plaintiff or defendant, in an action upon that contract must, generally, either be parties to said contract.
o The fact that an agent who makes a contract for his principal will gain or suffer loss by the performance or
nonperformance of the contract by the principal or by the other party thereto does not entitle him to maintain an
action on his own behalf against the other party for its breach. An agent entitled to receive a commission from
his principal upon the performance of a contract which he has made on his principals account does not, from this
fact alone, have any claim against the other party for breach of the contract, either in an action on the contract or
otherwise. An agent who is not a promisee cannot maintain an action at law against a purchaser merely because
he is entitled to have his compensation or advances paid out of the purchase price before payment to the
principal.
Yes. We hold that the NHA was justified in cancelling the contract. The realization of the mistake as regards the quality of
the land resulted in the negation of the motive/cause thus rendering the contract inexistent. The cancellation, therefore,
was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause arising from the
realization that the lands, which were the object of the sale, were not suitable for housing. Cause is the essential reason
which moves the contracting parties to enter into it. In other words, the cause is the immediate, direct and proximate
reason which justifies the creation of an obligation through the will of the contracting parties. Cause, which is the essential
reason for the contract, should be distinguished from motive, which is the particular reason of a contracting party which
does not affect the other party.
o In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the
lands not suitable for housing. In other words, the quality of the land was an implied condition for the NHA to
enter into the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the
sale. Motive preceded the cause.
Case 28. Pryce Corporation Vs. PAGCOR
Case about Difference of Termination from Rescission; Ability of Courts to Reduce Unconscionable Penalty
Oblicon Concept:
Article 1159 of the Civil Code provides that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
Facts:
Sometime in the first half of 1992, representatives from Pryce Properties Corporation (PPC for brevity) made
representations with the Philippine Amusement and Gaming Corporation (PAGCOR) on the possibility of setting up a
casino in Pryce Plaza Hotel in Cagayan de Oro City. A series of negotiations followed. PAGCOR representatives went to
Cagayan de Oro City to determine the pulse of the people whether the presence of a casino would be welcomed by the
residents. Some local government officials showed keen interest in the casino operation and expressed the view that
possible problems were surmountable. Their negotiations culminated with PPCs counter-letter proposal dated October
14, 1992.
On November 11, 1992, the parties executed a Contract of Lease involving the ballroom of the Hotel for a period of three
(3) years starting December 1, 1992 and until November 30, 1995.
Various resolutions and ordinances were promulgated by Sangguniang Panlungsod ng Cagayan De Oro to deter the
casino in the city. Permit of the hotel to operate was threatened together with imposition of penalties.
In the afternoon of December 18, 1992 and just hours before the actual formal opening of casino operations, a public rally
in front of the hotel was staged by some local officials, residents and religious leaders. Barricades were placed which
prevented some casino personnel and hotel guests from entering and exiting from the Hotel. PAGCOR was constrained
to suspend casino operations because of the rally. An agreement between PPC and PAGCOR, on one hand, and
representatives of the rallyists, on the other, eventually ended the rally on the 20th of December, 1992.
In the meantime, PAGCOR resumed casino operations on July 15, 1993, against which, however, another public rally was
held. Casino operations continued for some time, but were later on indefinitely suspended due to the incessant
demonstrations. Per verbal advice from the Office of the President of the Philippines, PAGCOR decided to stop its casino
operations in Cagayan de Oro City. PAGCOR stopped its casino operations in the hotel prior to September, 1993. In two
Statements of Account dated September 1, 1993, PPC apprised PAGCOR of its outstanding account for the quarter
September 1 to November 30, 1993. PPC sent PAGCOR another Letter dated September 3, 1993 as a follow-up to the
parties earlier conference. PPC sent PAGCOR another Letter dated September 15, 1993 stating its Board of Directors
decision to collect the full rentals in case of pre-termination of the lease.
PAGCOR sent PPC a letter dated September 20, 1993 stating that it was not amenable to the payment of the full rentals
citing as reasons unforeseen legal and other circumstances which prevented it from complying with its obligations.
PAGCOR further stated that it had no other alternative but to pre-terminate the lease agreement due to the relentless and
vehement opposition to their casino operations. In a letter dated October 12, 1993, PAGCOR asked PPC to refund the
total of P1,437,582 representing the reimbursable rental deposits and expenses for the permanent improvement of the
Hotels parking lot. In a letter dated November 5, 1993, PAGCOR formally demanded from PPC the payment of its claim
for reimbursement.
In a letter dated November 25, 1993, PPC informed PAGCOR that it was terminating the contract of lease due to
PAGCORs continuing breach of the contract and further stated that it was exercising its rights under the contract of lease
pursuant to Article 20 (a) and (c) thereof.
Issues:
W/N Pryces action is termination or rescission?
W/N Pryce was entitled to future rentals or lease payments for the unexpired period of the contract of lease?
W/N the Court is entitled to reduce the penalty?
W/N Pryce is entitled to damages even if theres a penalty clause already?
Held:
Termination. There is a distinction in law between cancellation of a contract and its rescission. To rescind is to declare a
contract void in its inception and to put an end to it as though it never were. It is not merely to terminate it and release
parties from further obligations to each other but to abrogate it from the beginning and restore the parties to relative
positions which they would have occupied had no contract ever been made. The termination or cancellation of a contract
would necessarily entail enforcement of its terms prior to the declaration of its cancellation in the same way that before a
lessee is ejected under a lease contract, he has to fulfill his obligations thereunder that had accrued prior to his ejectment.
However, termination of a contract need not undergo judicial intervention.
o In this case, the actions and pleadings of petitioner show that it never intended to rescind the Lease Contract
from the beginning. This fact was evident when it first sought to collect the accrued rentals from September to
November 1993 because, as previously stated, it actually demanded the enforcement of the Lease Contract prior
to termination.
Yes. The Court classified this as penalty clause which is legal in contracts. However, with the circumstances that
PAGCOR encountered, collecting the remaining rental payments by Pryce will lead to unjust enrichment. Also worth
mentioning is the CAs finding that PAGCORs casino operations had to be suspended for days on end since their start in
December 1992; and indefinitely from July 15, 1993, upon the advice of the Office of President, until the formal cessation
of operations in September 1993. Needless to say, these interruptions and stoppages meant that PAGCOR suffered a
tremendous loss of expected revenues, not to mention the fact that it had fully operated under the Contract only for a
limited time.
Yes. The due to the circumstances, the Court find the penalty unconscionable.
Yes. In obligations with a penal clause, the general rule is that the penalty serves as a substitute for the indemnity for
damages and the payment of interests in case of noncompliance; that is, if there is no stipulation to the contrary, in which
case proof of actual damages is not necessary for the penalty to be demanded. There are exceptions to the
aforementioned rule, however, as enumerated in paragraph 1 of Article 1226 of the Civil Code: 1) when there is a
stipulation to the contrary, 2) when the obligor is sued for refusal to pay the agreed penalty, and 3) when the obligor is
guilty of fraud. In these cases, the purpose of the penalty is obviously to punish the obligor for the breach. Hence, the
obligee can recover from the former not only the penalty, but also other damages resulting from the nonfulfillment of the
principal obligation. The contract fell under 1).

Case 32. Solid Homes Vs. Spouses Tan
Case about Rescission of the Contract Where Price is No Longer Updated and May Lead to Unjust Enrichment
Case about Subdivision without infrastructure and utility systems
Oblicon Concept:
Article 1144. The following actions must be brought within ten years from the time the right of action accrues:
o (1) Upon a written contract;
o (2) Upon an obligation created by law;
o (3) Upon a judgment (Emphasis supplied).
In law, a cause of action exists when the following requisites concur, to wit: (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises or is created; (2) an obligation on the part on the defendant to respect such right;
and (3) an act or omission on the part of such defendant violative of the right of the plaintiff.
Facts:
On April 7, 1980, petitioner Solid Homes, Inc., sold to the spouses Joe Uy and Myrna Uy a subdivision lot with an area of
1,069 square meters, more particularly identified as Lot 18, Block 2, located at petitioners Loyola Grand Villas
Subdivision, Quezon City. Thereafter, the lot was registered in the name of the Uys under Transfer Certificate of Title.
Sometime in February, 1985, the spouses Uy sold the same lot to herein respondents, the spouses Ancheta K. Tan and
Corazon de Jesus-Tan, by reason of which the former title covering the lot was cancelled and replaced by TCT in
respondents name.
From then on, respondents visited their property a number of times, only to find out the sad state of development thereat.
There was no infrastructure and utility systems for water, sewerage, electricity and telephone, as announced in the
approved plans and advertisements of the subdivision. Worse, squatters occupy their lot and its surrounding areas. In
short, there has been no development at all.
Accordingly, in a letter dated December 18, 1995, respondents demanded on petitioner to provide the needed utility
systems and clear the area of squatters and other obstructions by the end of January, 1996 to enable them to start the
construction of their house thereon and to allow other lot owners in the area a full access to and peaceful possession of
their respective lots, conformably with P.D. No. 957 which requires an owner or developer of a subdivision project to
develop the same within one year from the issuance of its license.
Having received no reply from petitioner, respondents filed with the Field Office of the Housing and Land Use Regulatory
Board (HLURB), NCR a complaint for specific performance and damages therein praying, inter alia, that petitioner be
ordered to provide the needed facilities in the premises and rid the same of squatters; or, in the alternative, for petitioner to
replace respondents property with another lot in the same subdivision where there are facilities and sans squatters.
After due proceedings, the Housing and Land Use Arbiter, in a decision dated September 17, 1996, rendered judgment for
the respondents by directing petitioner to perform its obligation to provide subdivision facilities in the subject premises and
to rid the premises of squatters. In the alternative, at the option of complainants to replace subject lot with a lot of similar
size and with available facilities, located in the subject subdivision.
Upon appeal to the Office of the President, the department added that if no other lot is available, Solid Homes can just
reimburse the respondents the purchase price, with legal rate of interest from February 1985, until fully paid.
Upon appeal to the CA, the price was changed to current market value.
Issues:
W/N the respondents right to bring the instant case against petitioner has already prescribed?
W/N in the event respondents opt to rescind the contract, should petitioner pay them merely the price they paid for the lot
plus interest or the current market value thereof?
Held:
No. Thus, the period of prescription of any action is reckoned only from the date the cause of action accrued. And a cause
of action arises when that which should have been done is not done, or that which should not have been done is done.
Time and again, we have emphasized that it is only upon the happening of the last element when it can be said that a
cause of action has arisen. In short, it is from the time an act is performed or an omission incurred which is violative of the
plaintiffs right, that signals the accrual of a cause of action. And it is from that time that the 10-year prescriptive period
commences to run.
o The debtor, therefore, violates the obligation in point of time if there is mora or delay. Now, there is no mora or
delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal
obligation was still subsisting, although there were late amortizations there was no demand made by the creditor,
plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there
was no demand for the payment of the penalty, hence the debtor was not in mora in the payment of the penalty.
The cause of action only arose upon demand of Spouses Tan.
Market Value. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise,
respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they
sell the same lot at the present market value. Petitioners invoked Art 1385. Rescission in which parties merely RETURNS
what they have received therefore it should just pay the purchase price with legal interest.
o Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only
the purchase price plus interest. It is definite that the value of the subject property already escalated after almost
two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be
paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich
themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely,
such a situation should not be countenanced for to do so would be contrary to reason and therefore,

unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or
contrary to reason is not allowed in law.
ARTICLE 1193-1197: Obligations with a Period
Case 33. Radiowealth Finance Company Vs. Spouses Del Rosario
Case about Court Fixing a Period in Obligations Subject to Period Solely Dependent Upon the Will of the Debtor.
Case about the Promissory Note Not Indicating when the first installment is due
Oblicon Concept:
Sec 33 of the Rules of Court on Demurrer of Evidence
Art 1197. Court Fixing a Period in Obligations Subject to Period Solely Dependent Upon the Will of the Debtor
Facts:
On March 2, 1991, Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed,
signed and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory Note for P138,948.
Pertinent provisions of the Promissory Note read: P11,579 payable for 12 consecutive months starting on [date not
indicated respondent claims that the obligation is not yet due because Court should first insert date]; 2.5% per month
penalty charge for non-payment; 25% attorneys fee in case of court case; 10% liquidated damages.
Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to pay their
obligations under their Promissory Note.
On June 7, 1993, petitioner filed a Complaint for the collection of a sum of money before the Regional Trial Court of
Manila, Branch 14. During the trial, Jasmer Famatico, the credit and collection officer of petitioner, presented in evidence
the respondents check payments, the demand letter dated July 12, 1991, the customers ledger card for the respondents,
another demand letter and Metropolitan Bank dishonor slips. Famatico admitted that he did not have personal knowledge
of the transaction or the execution of any of these pieces of documentary evidence, which had merely been endorsed to
him.
On July 4, 1994, the trial court issued an Order terminating the presentation of evidence for the petitioner. Thus, the latter
formally offered its evidence and exhibits and rested its case on July 5, 1994.
Respondents filed on July 29, 1994 a Demurrer to Evidence for alleged lack of cause of action. On November 4, 1994,
the trial court dismissed the complaint for failure of petitioner to substantiate its claims, the evidence it had presented
being merely hearsay.
On appeal, the Court of Appeals (CA) reversed the trial court (because the respondents admitted the genuineness of the
PN) and remanded (re-trial which is a waste of time and resources) the case for further proceedings.
Petitioner claims that respondents are liable for the whole amount of their debt and the interest thereon, after they
defaulted on the monthly installments.
Respondents, on the other hand, counter that the installments were not yet due and demandable. Petitioner had allegedly
allowed them to apply their promotion services for its financing business as payment of the Promissory Note. This was
supposedly evidenced by the blank space left for the date on which the installments should have commenced. In other
words, 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.
RTC ruled in favor of respondents. CA and SC ruled in favor of petitioner.
Issues:
W/N the CA erred in ruling that re-trial should be done because of the Demurrer of Evidence signed by the respondents?
W/N the Court should first fix the period of the first installment payment for the obligation to become due and demandable?
Held:
Yes. Sec 33 of the Rules of Court provides that after the plaintiff has completed the presentation of his evidence, the
defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief.
If his motion is denied, he shall have the right to present evidence. If the motion is granted but on appeal the order of
dismissal is reversed he shall be deemed to have waived the right to present evidence. The respondents case will now
depend on the weakness of the petitioners evidence.
No. 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. Furthermore, it also provided for an acceleration clause and a late payment
penalty, both of which showed the intention of the parties that the installments should be paid at a definite date. Had they
intended that the debtors could pay as and when they could, there would have been no need for these two clauses.
o 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.

Case 34. Spouses Ismael and Teresita Macasaet Vs. Spouses (Parents) Vicente and Rosario Macasaet
Case about Resolutory Period vs Resolutory Condition (tolerance of parents)

Case about Land Eviction but there are improvements (bldg) done in good faith
Oblicon Concept:
Art 448. How to resolve accessions in principal land.
Art 1197. Courts fixing the period if not indicated.
Facts:
Petitioners Ismael and Teresita Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives.
Ismael is the son of respondents, and Teresita is his wife.
On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment suit
against the children. Respondents alleged that they were the owners of two (2) parcels of land situated at Banay-banay,
Lipa City; that by way of a verbal lease agreement, Ismael and Teresita occupied these lots in March 1992 and used them
as their residence and the situs of their construction business; and that despite repeated demands, petitioners failed to
pay the agreed rental of P500 per week.
Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had invited them
to construct their residence and business on the subject lots in order that they could all live near one other, employ Marivic
(the sister of Ismael), and help in resolving the problems of the family. They added that it was the policy of respondents to
allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot
covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by
TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used in the renovation of
respondents house.
The MTCC ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael and
Teresita had occupied the lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente and Rosario. As their
stay was by mere tolerance, petitioners were necessarily bound by an implied promise to vacate the lots upon demand.
The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that
successional rights were inchoate. Moreover, it disbelieved petitioners allegation that the other parcel had been given as
payment for construction materials.
On appeal, the regional trial court (RTC) upheld the findings of the MTCC. However, the RTC allowed respondents to
appropriate the building and other improvements introduced by petitioners, after payment of the indemnity provided for by
Article 448 in relation to Articles 546 and 548 of the Civil Code. It added that respondents could oblige petitioners to
purchase the land, unless its value was considerably more than the building. In the latter situation, petitioners should pay
rent if respondents would not choose to appropriate the building.
Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for Review,
which were later consolidated.
Issues:
W/N the complaint should have been dismissed because of the non-appearance of the respondents in pre-trial?
W/N Article 1678 of the Civil Code should apply to the case on the matters of improvements, or is it Article 447 of the Civil
Code in relation to the Article 453 and 454 thereof that should apply, if ever to apply the Civil Code?
W/N petitioners should be rejected in the property?
W/N the Court should fix a period for the duration of stay of the petitioners?
Held:
No. Appearance by representatives with special authorization is good. Lawyers are duly represented.
No. Art 448 (Rights of a Builder in Good Faith) should apply.
o The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546
and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that
of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and
in case of disagreement, the court shall fix the terms thereof
Yes. In the present case, petitioners failed to justify their right to retain possession of the subject lots, which respondents
own. Since possession is one of the attributes of ownership, respondents clearly are entitled to physical or material
possession. To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding
possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law,
provided the said pleading is couched in a language adequately stating that the withholding of possession or the refusal to
vacate has become unlawful.
o Petitioners argument that the lots are given as advance inheritance and dation in payment for former debts is not
recognized by the courts.
No. Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be
inferred from the facts of the present case. To repeat, when Vicente and Rosario invited their children to use the lots, they
did so out of parental love and a desire for solidarity expected from Filipino parents. No period was intended by the
parties. Their mere failure to fix the duration of their agreement does not necessarily justify or authorize the courts to do
so.
o Based on respondents reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded
that the agreement subsisted as long as the parents and the children mutually benefited from the arrangement.

ARTICLE 1207-1222: Joint and Solidary Obligations
Case 35. Marsman Drysdale Vs. Philippine Geoanalytics, Inc. and Gotesco Properties, Inc.
Case about Presumption of Joint Obligations in Contracts (Joint Venture Agreement) where there is no stipulation or law
or nature of the obligation requiring Solidarity.
In the eyes of third party, JV partners are considered as one party only. Relativity of Contracts!
Rules on Partnership Applicable to JVA.
Oblicon Concept:
Art 1207 and 1208 Presumption of Joint Obligation
Art 1797 Partnerships sharing of profits and losses is same proportion unless specified otherwise
Facts:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco) entered
into a Joint Venture Agreement (JVA) for the construction and development of an office building on a land owned by
Marsman Drysdale in Makati City.
JVA contains provisions for:
o 50-50% sharing in capital and profits
o Marsman to contribute land in BUILDABLE condition (420k)
o Gotesco to contribute cash (420k)
o Marsman shall not be obligated to fund the Project as its contribution is limited to the Property.
o All funds advanced by a Party (or by third parties in substitution for advances from a Party) shall be repaid by the
JV.
Via Technical Services Contract (TSC) dated July 14, 1997, the joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study and geotechnical
engineering for the project. PGI, was, however, able to drill only four of five boreholes needed to conduct its subsurface
soil exploration and laboratory testing, justifying its failure to drill the remaining borehole to the failure on the part of the
joint venture partners to clear the area where the drilling was to be made. PGI was able to complete its seismic study
though.
PGI then billed the joint venture on November 24, 1997 for P284,553 representing the cost of partial subsurface soil
exploration; and on January 15, 1998 for P250,800 representing the cost of the completed seismic study. Total of P535k.
Despite repeated demands from PGI, the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the planned building
project was eventually shelved.
PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages at the Regional
Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying PGI to Gotesco
which, under the JVA, was solely liable for the monetary expenses of the project.
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to complete the services
enumerated in the contract; and that Marsman Drysdale failed to clear the property of debris which prevented PGI from
completing its work.
Both RTC and CA ruled in favor of PGI.
Issues:
W/N the JV is required to pay PGI for its services?
W/N the obligation of the partners are joint of solidary?
Held:
Yes. The Court is convinced that PGI had more than sufficiently established its claims against the joint venture. In fact,
Marsman Drysdale had long recognized PGIs contractual claims when it (PGI) received a Certificate of Payment from the
joint ventures project manager which was endorsed to Gotesco for processing and payment.
Joint. PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA
clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the
funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the
two joint venturers-partners. The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial
owner of the project, and all billing invoices indicated the consortium therein as the client.
o Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear case of unjust enrichment at Gotescos expense.
The grant by the lower courts of Marsman Drysdale cross-claim against Gotesco was thus erroneous.
Case 36. Eusebio Gonzales Vs. Philippine Commercial and International Bank, Ocampo and Noceda
Case about Solidary Obligation when stipulated in the contract

Accommodation Party
Extra Diligence of Banks
Oblicon Concept:
Art 1207 Presumption rebutted by stipulation, law or nature of obligation

Sec 29 of NegoLaw Accommodation party is a person who has signed the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for the purpose of lending his name to some other person.
Facts:
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed the instant case. His
account with PCIB was handled by respondent Edna Ocampo (Ocampo) until she was replaced by respondent Roberto
Noceda (Noceda).
In October 1992, PCIB granted a credit line to Gonzales through the execution of a Credit-On-Hand Loan Agreement
(COHLA), in which the aggregate amount of the accounts of Gonzales with PCIB served as collateral for and his availment
limit under the credit line. Gonzales drew from said credit line through the issuance of check. At the institution of the
instant case, Gonzales had a Foreign Currency Deposit (FCD) of USD 8,715.72 with PCIB.
On October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000. Subsequently, on December 26, 1995 and
January 3, 1999, the spouses Panlilio and Gonzales obtained two additional loans from PCIB in the amounts of
P1,000,000 and P300,000, respectively. These three loans amounting to P1,800,000 were covered by three promissory
notes. To secure the loans, a real estate mortgage (REM) over a parcel of land covered by Transfer Certificate of Title
(TCT) No. 38012 was executed by Gonzales and the spouses Panlilio. Notably, the promissory notes specified, among
others, the solidary liability of Gonzales and the spouses Panlilio for the payment of the loans. However, it was the
spouses Panlilio who received the loan proceeds of P1,800,000.
The monthly interest dues of the loans were paid by the spouses Panlilio through the automatic debiting of their account
with PCIB. But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic interest dues
from their PCIB account which apparently was not maintained with enough deposits. PCIB allegedly called the attention of
Gonzales regarding the July 1998 defaults and the subsequent accumulating periodic interest dues which were left still left
unpaid.
In the meantime, Gonzales issued a check dated September 30, 1998 in favor of Rene Unson (Unson) for P250,000
drawn against the credit line (COHLA). However, on October 13, 1998, upon presentment for payment by Unson of said
check, it was dishonored by PCIB due to the termination by PCIB of the credit line under COHLA on October 7, 1998 for
the unpaid periodic interest dues from the loans of Gonzales and the spouses Panlilio. PCIB likewise froze the FCD
account of Gonzales.
Consequently, Gonzales had a falling out with Unson due to the dishonor of the check. They had a heated argument in
the premises of the Philippine Columbian Association (PCA) where they are both members, which caused great
embarrassment and humiliation to Gonzales. Thereafter, on November 5, 1998, Unson sent a demand letter to Gonzales
for the P250,000. And on December 3, 1998, the counsel of Unson sent a second demand letter to Gonzales with the
threat of legal action. With his FCD account that PCIB froze, Gonzales was forced to source out and pay the P250,000 he
owed to Unson in cash.
On January 28, 1999, Gonzales, through counsel, wrote PCIB insisting that the check he issued had been fully funded,
and demanded the return of the proceeds of his FCD as well as damages for the unjust dishonor of the check. PCIB
replied on March 22, 1999 and stood its ground in freezing Gonzales accounts due to the outstanding dues of the loans.
On May 26, 1999, Gonzales reiterated his demand, reminding PCIB that it knew well that the actual borrowers were the
spouses Panlilio and he never benefited from the proceeds of the loans, which were serviced by the PCIB account of the
spouses Panlilio.
PCIBs refusal to heed his demands compelled Gonzales to file the instant case for damages with the RTC, on account of
the alleged unjust dishonor of the check issued in favor of Unson.
RTC and CA ruled in favor of the bank but SC considered the petitioner partly meritorious.
Issues:
W/N Gonzales liability to PCIB for the 3 promissory notes is joint or solidary?
W/N PCIB properly dishonored the check of Gonzales drawn against the COHLA he had with the bank?
Held:
Solidary. As an accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans. Moreover, the
solidary liability of Gonzales is clearly stipulated in the promissory notes which uniformly begin, For value received, the
undersigned (the BORROWER) jointly and severally promise to pay x x x. Solidary liability cannot be presumed but
must be established by law or contract.
No. We find PCIB negligent in not properly informing Gonzales, who is an accommodation party, about the default and the
exact outstanding periodic interest dues. Without being properly apprised, Gonzales was not given the opportunity to
properly act on them. Likewise, PCIB failed to inform Gonzales of the fact that his credit line has been terminated. Thus,
we find PCIB grossly negligent in the termination, revocation, or suspension of the credit line under the COHLA. While
PCIB invokes its right on the so-called cross default provisions, it may not with impunity ignore the rights of Gonzales
under the COHLA (i.e., upon prior notice served on CLIENT).
Case 37. Lafarge Cement Philippines, Inc. and affiliates Vs. Continental Cement Corporation (CCC), Lim and Mariano
Case about Solidarity of Obligations in Torts
Oblicon Concept:
Art 1207 Presumption of Joint except upon stipulation, LAW or nature
Permissive and Compulsory Counterclaims
Facts:

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August
11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified
entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of
Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and
Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case
pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v.
Court of Appeals and Continental Cement Corporation.
In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA,
allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846 -- the
equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City
Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the
Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that
nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a Complaint
with Application for Preliminary Attachment against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint
prayed, among others, that petitioners be directed to pay the APT Retained Amount referred to in Clause 2 (c) of the
SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent
CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the
same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the
Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR
SP No. 68688.
In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their
Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer,
they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent
CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the
sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each
as moral damages, and (d) P5,000,000 each as attorneys fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the baseless Complaint in Civil Case No. Q-00-41103
and procured the Writ of Attachment in bad faith. Relying on this Courts pronouncement in Sapugay v. CA, petitioners
prayed that both Lim and Mariano be held jointly and solidarily liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners compulsory
counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.
Issues:
W/N respondents obligation is joint or solidary?
W/N petitioners counterclaims against Respondents Lim and Mariano are not compulsory?
W/N Sapugay v. Court of Appeals is inapplicable here?
W/N petitioners violated the rule on joinder of causes of action?
W/N Respondent CCC has no personality to move to dismiss petitioners compulsory counterclaims on Respondents Lim
and Marianos behalf?
Held:
Solidary. Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of
them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for
the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined
with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of
the others.
No, it is compulsory. Using the compelling test of compulsoriness, we find that, clearly, the recovery of petitioners
counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a
substantial duplication of the time and effort of the court and the parties.
No it is applicable. Sapugay v. Court of Appeals finds application in the present case. The inclusion of a corporate officer
or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that
the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with
individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said
individual may not seek refuge therein, but may be held individually and personally liable for his or her actions.
o The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both
were not parties in the original Complaint.

Yes. While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual
defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite
authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot
act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion
to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them.

Case 38. Boston Equity Resources, Inc. Vs. CA and Lolita Toledo
Case about Right of Creditor to Choose Who among the Debtors subject to solidary obligation he would demand
fulfillment.
o The Creditor may not choose the debtors already deceased.
Personal defense of solidary debtors cannot be adopted by others
Oblicon Concept:
Article 1216 - "The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the
others, so long as the debt has not been fully collected."
Facts:
On 24 December 1997, petitioner filed a complaint for sum of money (P1.4M solidary obligation of spouses) with a prayer
for the issuance of a writ of preliminary attachment against the spouses Manuel and Lolita Toledo. Herein respondent filed
an Answer dated 19 March 1998 but on 7 May 1998, she filed a Motion for Leave to Admit Amended Answer in which she
alleged, among others, that her husband and co-defendant, Manuel Toledo (Manuel), is already dead. The death
certificate of Manuel states "13 July 1995" as the date of death. As a result, petitioner filed a motion, dated 5 August 1999,
to require respondent to disclose the heirs of Manuel. In compliance with the verbal order of the court during the 11
October 1999 hearing of the case, respondent submitted the required names and addresses of the heirs. Petitioner then
filed a Motion for Substitution, dated 18 January 2000, praying that Manuel be substituted by his children as party-
defendants. It appears that this motion was granted by the trial court in an Order dated 9 October 2000.
The trial of the case then proceeded. Herein petitioner, as plaintiff, presented its evidence and its exhibits were thereafter
admitted.
On 26 May 2004, the reception of evidence for herein respondent was cancelled upon agreement of the parties. On 24
September 2004, counsel for herein respondent was given a period of fifteen days within which to file a demurrer to
evidence. However, on 7 October 2004, respondent instead filed a motion to dismiss the complaint, citing the following as
grounds:
o (1) that the complaint failed to implead an indispensable party or a real party in interest; hence, the case must be
dismissed for failure to state a cause of action;
o (2) that the trial court did not acquire jurisdiction over the person of Manuel pursuant to Section 5, Rule 86 of the
Revised Rules of Court;
o (3) that the trial court erred in ordering the substitution of the deceased Manuel by his heirs; and
o (4) that the court must also dismiss the case against Lolita Toledo in accordance with Section 6, Rule 86 of the
Rules of Court.
The trial court, in an Order dated 8 November 2004, denied the motion to dismiss for having been filed out of time, citing
Section 1, Rule 16 of the 1997 Rules of Court which states that: "Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made x x x." Respondents motion for reconsideration
of the order of denial was likewise denied on the ground that "defendants attack on the jurisdiction of this Court is now
barred by estoppel by laches" since respondent failed to raise the issue despite several chances to do so.
Aggrieved, respondent filed a petition for certiorari with the Court of Appeals alleging that the trial court seriously erred and
gravely abused its discretion in denying her motion to dismiss despite discovery, during the trial of the case, of evidence
that would constitute a ground for dismissal of the case. CA ruled in favor of respondent setting aside decision of the RTC.
Issues:
W/N Respondent is already estopped from questioning the trial courts jurisdiction?
W/N Petitioner never failed to implead an indispensable party as the estate of Manuel is not an indispensable party?
W/N the inclusion of Manuel as party-defendant is a mere misjoinder of party not warranting the dismissal of the case
before the lower court; and
W/N since the estate of Manuel is not an indispensable party, it is not necessary that petitioner file its claim against the
estate of Manuel.
o In essence, what is at issue here is the correctness of the trial courts orders denying respondents motion to
dismiss.
W/N the other solidary debtors can use the personal defense of death?
Held:
Yes. This case is about jurisdiction over parties and jurisdiction over subject matter which may be questionned anytime.
Jurisdiction over the person of a defendant is acquired through a valid service of summons; trial court did not acquire
jurisdiction over the person of Manuel Toledo.
Dispensable party since the creditor may choose other solidary debtors to fulfill the whole obligation. It is clear that the
estate of Manuel is not an indispensable party to the collection case, for the simple reason that the obligation of Manuel
and his wife, respondent herein, is solidary.
Based on the last sentence of the afore-quoted provision of law, a misjoined party must have the capacity to sue or be
sued in the event that the claim by or against the misjoined party is pursued in a separate case. In this case, therefore, the
inclusion of Manuel in the complaint cannot be considered a misjoinder, as in fact, the action would have proceeded
against him had he been alive at the time the collection case was filed by petitioner. This being the case, the remedy
provided by Section 11 of Rule 3 does not obtain here. The name of Manuel as party-defendant cannot simply be dropped
from the case. Instead, the procedure taken by the Court in Sarsaba v. Vda. de Te, whose facts, as mentioned earlier,
resemble those of this case, should be followed herein. There, the Supreme Court agreed with the trial court when it
resolved the issue of jurisdiction over the person of the deceased Sereno in this wise. As a result, the case, as against
Manuel, must be dismissed.
Yes. Manuel died even before the case was filed, thus, he or his estate doesnt have personality for these purposes.
Substitution can only happen if a party died during the case. Since the proper course of action against the wrongful
inclusion of Manuel as party-defendant is the dismissal of the case as against him, thus did the trial court err when it
ordered the substitution of Manuel by his heirs. Substitution is proper only where the party to be substituted died during
the pendency of the case
No.
ARTICLES 1226-1230: Obligations with a Penal Clause
Case 39. Filinvest Land, Inc. vs. CA, Pacific Equipment Corp and Phil American General Insurance Company
Case about Courts Discretion to Lower Penalties which are excessive, iniquitous and unconscionable in obligations which
are partially fulfilled.
Penal clause purposes: 1) Actual and Liquidated damages and 2) Penalty
Oblicon Concept:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
Facts:
On 26 April 1978, Filinvest Land, Inc. a corporation engaged in the development and sale of residential subdivisions,
awarded to defendant Pacific Equipment Corporation the development of its residential subdivisions consisting of two (2)
parcels of land located at Payatas, Quezon City, the terms and conditions of which are contained in an Agreement. To
guarantee its faithful compliance and pursuant to the agreement, defendant Pacific posted two (2) Surety Bonds in favor of
plaintiff which were issued by defendant Philippine American General Insurance.
Notwithstanding three extensions granted by plaintiff to defendant Pacific, the latter failed to finish the contracted works.
On 16 October 1979, plaintiff wrote defendant Pacific advising the latter of its intention to takeover the project and to hold
said defendant liable for all damages which it had incurred and will incur to finish the project.
On 26 October 1979, plaintiff submitted its claim against defendant Philamgen under its performance and guarantee bond
but Philamgen refused to acknowledge its liability for the simple reason that its principal, defendant Pacific, refused to
acknowledge liability therefore. Hence, this action.
In defense, defendant Pacific claims that its failure to finish the contracted work was due to inclement weather and the fact
that several items of finished work and change order which plaintiff refused to accept and pay for caused the disruption of
work. Since the contractual relation between plaintiff and defendant Pacific created a reciprocal obligation, the failure of
the plaintiff to pay its progressing bills estops it from demanding fulfillment of what is incumbent upon defendant Pacific.
The acquiescence by plaintiff in granting three extensions to defendant Pacific is likewise a waiver of the formers right to
claim any damages for the delay. Further, the unilateral and voluntary action of plaintiff in preventing defendant Pacific
from completing the work has relieved the latter from the obligation of completing the same.
On the other hand, Philamgen contends that the various amendments made on the principal contract and the deviations in
the implementation thereof which were resorted to by plaintiff and co-defendant Pacific without its (defendant Philamgens)
written consent thereto, have automatically released the latter from any or all liability within the purview and contemplation
of the coverage of the surety bonds it has issued. Upon agreement of the parties to appoint a commissioner to assist the
court in resolving the issues confronting the parties, on 7 July 1981, an order was issued by then Presiding Judge
Segundo M. Zosa naming Architect Antonio Dimalanta as Court Commissioner from among the nominees submitted by
the parties to conduct an ocular inspection and to determine the amount of work accomplished by the defendant Pacific
and the amount of work done by plaintiff to complete the project.
On 28 November 1984, the Court received the findings made by the Court Commissioner. In arriving at his findings, the
Commissioner used the construction documents pertaining to the project as basis. According to him, no better basis in the
work done or undone could be made other than the contract billings and payments made by both parties as there was no
proper procedure followed in terminating the contract, lack of inventory of work accomplished, absence of appropriate
record of work progress (logbook) and inadequate documentation and system of construction management.
Based on the billings of defendant Pacific and the payments made by plaintiff, the work accomplished by the former
amounted to P11,788,282 with the exception of the last billing (which was not acted upon or processed by plaintiff) in the
amount of P844,396. The total amount of work left to be accomplished by plaintiff was based on the original contract
amount less value of work accomplished by defendant Pacific in the amount of P681,717 (12,470,000-11,788,282.42).
RTC and CA decided in favor of respondent.
Issue:
W/N the Court can decrease the penalties (which are iniquitous and unconscionable) agreed upon by the parties?
Held:
Yes. The ruling of the Court of Appeals. It must be remembered that the Court of Appeals not only held that the penalty
should be reduced because there was partial compliance but categorically stated as well that the penalty was
unconscionable. There has been substantial compliance in good faith on the part of Pecorp which renders unconscionable
the application of the full force of the penalty especially if we consider that in 1979 the amount of P15,000 as penalty for
delay per day was quite steep indeed. Nothing in the records suggests that Pecorps delay in the performance of 5.47% of
the contract was due to it having acted negligently or in bad faith. Finally, we factor in the fact that Filinvest is not free of
blame either as it likewise failed to do that which was incumbent upon it, i.e., it failed to pay Pecorp for work actually

performed by the latter in the total amount of P1,881,867. Thus, all things considered, we find no reversible error in the
Court of Appeals exercise of discretion in the instant case.
Case 40. Go Cinco Spouses vs. CA, Ester Servacio and Maasin Traders Lending Corporation
Case about Payment as Mode of Extinguishment of Obligation

Case of Creditor Unjustly Refusing Acceptance of Payment Abusing his Right to Accept (Art 19 and 20 of CC)
Court decided this case using Equity
Oblicon Concept:
Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an
obligation.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists
has been completely delivered or rendered, as the case may be.
Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due.
Facts:
In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of P700,000 from
respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December
11, 1987, and secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cincos land and
4-storey building located in Maasin, Southern Leyte.
Under the terms of the promissory note, the P700,000 loan was subject to a monthly interest rate of 3% or 36% per annum
and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989, Manuels
outstanding obligation with MTLC amounted to P1,071,256, which amount included the principal, interest, and penalties.
To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank,
Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The
PNB approved the loan application for P1.3 Million through a letter dated July 8, 1989; the release of the amount,
however, was conditioned on the cancellation of the mortgage in favor of MTLC.
On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLCs President, to inform her that
there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the
information, but she claimed that the banks officers informed her that Manuel had no pending loan application with them.
When she told Manuel of the banks response, Manuel assured her there was money with the PNB and promised to
execute a document that would allow her to collect the proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special Power of Attorney (SPA) authorizing Ester to collect the proceeds of his
PNB loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the banks officers confirmed
the existence of the P1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage
before they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties
mortgaged to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the P1.3 Million loan
proceeds.
As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24,
1989.
To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages,
and preliminary injunction before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go
Cinco alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels
obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment
of the MTLC loan. Esters refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the
PNB loan were, to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan
to obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC. She claimed that she had
no explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC; the
SPA merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go
Cinco to require the release of the mortgage to MTLC when no actual payment of the loan had been made.
Issue:
W/N the petitioners acts are equivalent to payment that extinguished the MTLC loan? OR W/N the loan due the MTLC
had been extinguished?
W/N the creditors have the correlative duty to accept the payment?
Held:
Yes. Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB loan an act that
would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery of the SPA
was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to accept it as
payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the already-
approved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan. Had Ester
presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of the sum of money
would have been effected and the obligation extinguished. As the records show, Ester refused to collect and allow the
cancellation of the mortgage.

o There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage on a
property already mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice,
subject to the prior rights of previous mortgages.
Yes. A refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation. The
spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that cannot but have legal
effect. Since payment was available and was unjustifiably refused, justice and equity demand that the spouses Go Cinco
be freed from the obligation to pay interest on the outstanding amount from the time the unjust refusal took place.
Case 41: International Hotel Corporation vs. Joaquin and Suarez
Case about Substantial Fulfillment of Obligations work left should be technical, insignificant and unimportant.
Quantum Meruit
Oblicon Concept:
Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had
been a strict and complete fulfillment, less damages suffered by the obligee.
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Facts:
On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the
International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction
of a hotel, to be guaranteed by the Development Bank of the Philippines (DBP). The proposal encompassed nine phases.
The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on
February 11, 1969, and earmarked P2,000,000 for the project. Anent the financing, IHC applied with DBP for a foreign
loan guaranty. DBP processed the application, and approved it on October 24, 1969 subject to several conditions.
On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees
in the amount of P500,000 for the services that he had provided and would be providing to IHC in relation to the hotel
project that were outside the scope of the technical proposal. Joaquin intimated his amenability to receive shares of stock
instead of cash in view of IHCs financial situation.
On July 11, 1969, the stockholders of IHC met and granted Joaquins request, allowing the payment for both Joaquin and
Rafael Suarez for their services in implementing the proposal.
On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign
financiers. He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended
that the Board of Directors consider Materials Handling Corporation based on the more beneficial terms it had offered. His
recommendation was accepted.
Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued.
While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with
another financier, the Weston International Corporation (Weston), to explore possible financing. When Barnes failed to
deliver the needed loan, IHC informed DBP that it would submit Weston for DBPs consideration. As a result, DBP
cancelled its previous guaranty through a letter dated December 6, 1971.
On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development to DBP on
June 26, 1972. However, DBP denied the application for guaranty for failure to comply with the conditions contained in its
November 12, 1971 letter.
Due to Joaquins failure to secure the needed loan, IHC, through its President Bautista, canceled the 17,000 shares of
stock previously issued to Joaquin and Suarez as payment for their services. The latter requested a reconsideration of the
cancellation, but their request was rejected.
Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages and injunction
by a complaint dated December 6, 1973 in the Regional Trial Court in Manila (RTC), impleading IHC and the members of
its Board of Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin
J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes. The complaint alleged that the cancellation of
the shares had been illegal, and had deprived them of their right to participate in the meetings and elections held by IHC;
that Barnes had been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet their
obligation because President Bautista and his son had intervened and negotiated with Barnes instead of Weston; that
DBP had canceled the guaranty because Barnes had failed to release the loan; and that IHC had agreed to compensate
their services with 17,000 shares of the common stock plus cash of P1,000,000.
IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed an answer
claiming that the shares issued to Joaquin and Suarez as compensation for their "past and future services" had been
issued in violation of Section 16 of the Corporation Code; that Joaquin and Suarez had not provided a foreign financier
acceptable to DBP; and that they had already received P96,350 as payment for their services.
RTC and CA ruled in favor of respondents. CA also ruled in favor of respondents but with significant modifications.
Issues:
W/N IHC raises questions of law?
W/N Article 1186 (debtor stopping the happening of the suspensive condition) and Article 1234 (substantial fulfillment of
debtor entitles him for compensation) of the Civil Code are the sources of IHCs obligation to pay respondents?
W/N IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation?
Quantum meruit should apply in the absence of an express agreement on the fees?
Held:
Yes. Considering that what IHC seeks to review is the CAs application of the law on the facts presented therein, there is
no doubt that IHC raises questions of law. The basic issue posed here is whether the conclusions drawn by the CA were
correct under the pertinent laws.
No. IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with
Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting
their undertaking. Such absence of any intention negated the basis for the CAs reliance on Article 1186 of the Civil Code.
o No. Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties
contract, so that the failure to completely satisfy such obligation could not be characterized as slight and
unimportant as to have resulted in Joaquin and Suarezs substantial performance that consequentially benefitted
IHC. Whatever benefits IHC gained from their services could only be minimal, and were even probably
outweighed by whatever losses IHC suffered from the delayed construction of its hotel. Consequently, Article
1234 did not apply.
Yes. Considering that the respondents were able to secure an agreement with Weston, and subsequently tried to reverse
the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled their obligation.
o The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the obligor did all
in his power to comply with the obligation, the condition should be deemed satisfied.
Yes. Under the established circumstances, we deem the total amount of P200,000 to be reasonable compensation for
respondents services under the principle of quantum meruit.
Case 42: Manila International Airport Authority vs. Ding Velayo Sports Center, Inc.
Case about Obligee accepting performance knowing its incompleteness or irregularity, and without expressing any protest
or objection, the obligation is deemed fully complied with.
Case about dependence of lease renewal depending solely on the will of the LESSEE.
MIAA is lessor. DVSC is the lessee. DVSC is tasked to develop the land.
Oblicon Concept:
Article 1235 of the Civil Code states that when the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with.
Article 2 of the Civil Code which provides that laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided.
Facts:
On February 15, 1967, petitioner (then still called the Civil Aeronautics Administration or CAA) and Salem Investment
Corporation (Salem) entered into a Contract of Lease whereby petitioner leased in favor of Salem a parcel of land known
as Lot 2-A, with an area of 76,328 square meters, located in front of the Manila International Airport (MIA) in Pasay City.
Petitioner and Salem entered into said Contract of Lease. Contains provisions of 25 year term which is subject to
EXCLUSIVE RIGHT OF RENEWAL BY LESSEE.
Subsequently, in a Transfer of Lease Rights and Existing Improvements dated September 30, 1974, Salem conveyed in
favor of Ding Velayo Export Corporation (Velayo Export), for the consideration of P1,050,000, its leasehold rights over a
portion of Lot 2-A, measuring about 15,534 square meters, with the improvements thereon, consisting of an unfinished
cinema-theater. Accordingly, petitioner and Velayo Export executed a Contract of Lease dated November 26, 1974
pertaining to the aforementioned leased portion of Lot 2-A.
In turn, Velayo Export executed a Transfer of Lease Rights dated April 27, 1976 by which it conveyed to respondent, for
the consideration of P500,000, its leasehold rights over an 8,481-square meter area (subject property) out of the 15,534-
square meter portion it was leasing from petitioner. As a result, petitioner and respondent executed another Contract of
Lease dated May 14, 1976 covering the subject property.
The Contract of Lease dated May 14, 1976 between petitioner (as lessor) and respondent (as lessee) specified how
respondent shall develop and use the subject property.
Issues:
W/N MIAA has the right to refuse the renewal of the lease even if the respondent has the exclusive right to renew under
the Contract of Lease?
W/N the violations of the lessee of the provisions of the contract gave MIAA the right to refuse?
o subleasing of the premises
o failure to ease the problems of parking congestion at the Domestic Airport and to provide a shopping center and
sports facilities, such as an oval track and a swimming pool
o failure to pay monthly lease rentals in the form of royalties equivalent to 1% of the gross income of respondent or
in accordance with the rates fixed in the administrative orders of petitioner
Held:
No. The right to renew is part of the consideration for the lessee to enter into the contract. The contract between the
parties has the force of law.
No. DVSC did not sublease the land of MIAA. What it subleased is the improvements (i.e., building) that it owned. Thus,
no violation.
No. As aptly observed by the RTC, paragraphs 9 and 10 of the Contract of Lease likewise expressly require respondent to
submit, for prior approval by petitioner, all construction plans on the subject property; and to complete the contemplated
improvements thereon within a year. The Contract of Lease was executed on May 14, 1976, and the one-year period
expired on May 14, 1977. Yet, petitioner did not register any protest or objection to the alleged incompleteness of or
irregularity in the performance by respondent of its obligation to build and develop improvements on the subject property.
In fact, upon the expiration of the original 25-year lease period in February 1992, petitioner was already ready and willing
to accept and appropriate as its own the improvements built on the subject property in 1992. Petitioner only raised the
issue of the purported incompleteness/irregularity of the said improvements when it was brought to court by respondent for
refusing to renew the lease.
Petitioner later demanded an increase in lease rentals based on subsequent administrative issuances raising the rates for
the rental of its properties. But the RTC found that the adverted administrative orders were not published in full, thus, the
same were legally invalid within the context of Article 2 of the Civil Code.
Case 43: Spouses Carandang vs. Heirs of Quirino De Guzman
Case about Payment of Third Persons to Debtors Obligation Third Persons has the right to be reimbursed by the debtor
in the amount that benefitted him.
Pre-incorporation agreement making the loan gratuitous?
Oblicon Concept:
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guarantee, or penalty.
Facts:
[Quirino de Guzman] and [the Spouses Carandang] are stockholders as well as corporate officers of Mabuhay
Broadcasting System (MBS for brevity), with equities at fifty four percent (54%) and forty six percent (46%) respectively.
On November 26, 1983, the capital stock of MBS was increased, from P500,000 to P1.5 million and P345,000 of this
increase was subscribed by [the spouses Carandang]. Thereafter, on March 3, 1989, MBS again increased its capital
stock, from P1.5 million to P3 million, [the spouses Carandang] yet again subscribed to the increase. They subscribed to
P93,750 worth of newly issued capital stock.
[De Guzman] claims that, part of the payment for these subscriptions were paid by him, P293,250 for the November 26,
1983 capital stock increase and P43,125 for the March 3, 1989 Capital Stock increase or a total of P336,375. Thus, on
March 31, 1992, [de Guzman] sent a demand letter to [the spouses Carandang] for the payment of said total amount.
[The spouses Carandang] refused to pay the amount, contending that a pre-incorporation agreement was executed
between [Arcadio Carandang] and [de Guzman], whereby the latter promised to pay for the stock subscriptions of the
former without cost, in consideration for [Arcadio Carandangs] technical expertise, his newly purchased equipment, and
his skill in repairing and upgrading radio/communication equipment therefore, there is no indebtedness on their part [sic].
On June 5, 1992, [de Guzman] filed his complaint, seeking to recover the P336,375 together with damages.
Issues:
W/N the RTC Decision is void for failing to comply with Section 16, Rule 3 of the Rules of Court?
W/N the RTC should have dismissed the case for failure to state a cause of action, considering that Milagros de Guzman,
allegedly an indispensable party, was not included as a party-plaintiff?
W/N Whether or not respondents were able to prove the loan sought to be collected from petitioners?
Held:
No. The RTC Decision is valid despite the failure to comply with Section 16, Rule 3 of the Rules of Court, because of the
express waiver of the heirs to the jurisdiction over their persons, and because there had been, before the promulgation of
the RTC Decision, no further proceedings requiring the appearance of de Guzmans counsel.
No. Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the spouses Carandang,
seems to be either an indispensable or a necessary party. If she is an indispensable party, dismissal would be proper. If
she is merely a necessary party, dismissal is not warranted, whether or not there was an order for her inclusion in the
complaint pursuant to Section 9, Rule 3.
o We therefore hold that Milagros de Guzman is not an indispensable party in the action for the recovery of the
allegedly loaned money to the spouses Carandang. As such, she need not have been impleaded in said suit, and
dismissal of the suit is not warranted by her not being a party thereto.
Yes. The spouses Carandang are mistaken. If indeed a Mr. "A" decides to pay for a Mr. "Bs" obligation, the presumption
is that Mr. "B" is indebted to Mr. "A" for such amount that has been paid. This is pursuant to Articles 1236 and 1237 of the
Civil Code. There is proof of existence of the loan but there is no proof of the pre-incorporation agreement.
o Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa Carandang even contradicted the
existence of a pre-incorporation agreement because when they were asked by their counsel regarding the matter
of the check payments made by the late Quirino A. de Guzman, Sr. in their behalf, they said that they had already
paid for it thereby negating their own defense that there was a pre-incorporation agreement excusing themselves
from paying Mr. de Guzman the amounts he advanced or loaned to them.

Case 44: Republic of Phil and Chief of PNP vs. De Guzman
Case about Payment to Proper Party

Collusion of Government Bidders
Oblicon Concept:
Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Facts:
Respondent is the proprietress of Montaguz General Merchandise (MGM), a contractor accredited by the PNP for the
supply of office and construction materials and equipment, and for the delivery of various services such as printing and
rental, repair of various equipment, and renovation of buildings, facilities, vehicles, tires, and spare parts.
On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher for the
acquisition of various building materials amounting to P2,288,562 for the construction of a four-storey condominium
building with roof deck at Camp Crame, Quezon City.
Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief,
executed a Contract of Agreement (the Contract) wherein MGM, for the price of P2,288,562, undertook to procure and
deliver to the PNP the construction materials itemized in the purchase order attached to the Contract. Respondent
claimed that after the PNP Chief approved the Contract and purchase order, MGM, on March 1, 1996, proceeded with the
delivery of the construction materials, as evidenced by Delivery Receipt Nos. 151-153, Sales Invoice Nos. 038 and 041,
and the Report of Public Property Purchase issued by the PNPs Receiving and Accounting Officers to their Internal
Auditor Chief. Respondent asseverated that following the PNPs inspection of the delivered materials on March 4, 1996,
the PNP issued two Disbursement Vouchers; one in the amount of P2,226,147 in favor of MGM, and the other, in the
amount of P62,415, representing the three percent (3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR).
5, 1997, the respondent, through counsel, sent a letter dated October 20, 1997 to the PNP, demanding the payment of
P2,288,562 for the construction materials MGM procured for the PNP under their December 1995 Contract.
On November 17, 1997, the PNP, through its Officer-in-Charge, replied to respondents counsel, informing her of the
payment made to MGM via Land Bank of the Philippines (LBP) Check No. 0000530631, as evidenced by Receipt No. 001,
issued by the respondent to the PNP on April 23, 1996.
On November 26, 1997, respondent, through counsel, responded by reiterating her demand and denying having ever
received the LBP check, personally or through an authorized person. She also claimed that Receipt No. 001, a copy of
which was attached to the PNPs November 17, 1997 letter, could not support the PNPs claim of payment as the
aforesaid receipt belonged to Montaguz Builders, her other company, which was also doing business with the PNP, and
not to MGM, with which the contract was made.
On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner, represented by the Chief of the
PNP, before the RTC.
There was a judicial admission of petitioner that there was contract of supply of materials from respondent. There was also
delivery. What is left for the Court to decide is if the respondent received it.
Issues:
W/N petitioners payment to third party (CRUZ) constitutes extinguishment of obligation?
Held:
No. The respondent was able to establish that the LBP check was not received by her or by her authorized personnel.
The PNPs own records show that it was claimed and signed for by Cruz, who is openly known as being connected to
Highland Enterprises, another contractor. Hence, absent any showing that the respondent agreed to the payment of the
contract price to another person, or that she authorized Cruz to claim the check on her behalf, the payment, to be effective
must be made to her.
Case 45: New Pacific Timber & Supply Company, Inc. vs Judge Seneris, Ricardo Tong and Ex-Officio Sheriff Abdulwahid
Case about CERTIFIED CROSSED CHECK as tender of payment Petition GRANTED!

Non-acceptance of the creditor of payment by CERTIFIED CASHIERS CHECK (P50k) and cash (P13,130)
Levy of properties and Auction Sale
Oblicon Concept:
Sec. 63. Legal Character. - Checks representing deposit money do not have legal tender power and their 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.
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.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
presentations in which the obligation consists. Neither may the debtor be required to make partial payment. However,
when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the
payment of the former without waiting for the liquidation of the latter.

Facts:
Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private respondent. On July
19, 1974, a compromise judgment was rendered by the respondent Judge in accordance with an amicable settlement
entered into by the parties the terms and conditions.
For failure of the 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 pursuant to which, the Ex-Officio Sheriff levied upon the following personal
properties of the petitioner and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975,
petitioner deposited with the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-Officio Sheriff
of Zamboanga City, the sum of P63,130 for the payment of the judgment obligation, consisting of the following:
o P50.000 in Cashier's Check No. S-314361 dated January 3, 1975 of the Equitable Banking Corporation; and
o P13,130 in cash
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. The auction was postponed to the next morning.
In the course of the proceedings, Deputy Sheriff Castro sold the levied properties item by item to the private respondent as
the highest bidder in the amount of P50,000. As a result thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.
7Thereafter, on January 16, 1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor of the private
respondent.
Subsequently, on January 17, 1975, petitioner filed an ex-parte motion for issuance of certificate of satisfaction of
judgment. This motion was denied by the respondent Judge in his order dated August 28, 1975. In view thereof, petitioner
now questions said order by way of the present petition alleging in the main that said respondent Judge capriciously and
whimsically abused his discretion in not granting the motion for issuance of certificate of satisfaction of judgment.
Issues:
W/N the private respondent can validly refuse acceptance of the payment of the judgment obligation made by the
petitioner consisting of P50,000 in Cashier's Check and P13,130 in cash?
W/N the auction sale was invalid for lack of proper notice to the petitioner and its counsel?
Held:
No. Considering that the whole amount deposited by the petitioner consisting of Cashier's Check of P50,000 and P13,130
in cash covers the judgment obligation of P63,000 as mentioned in the writ of execution, then, We see no valid reason for
the private respondent to have refused acceptance of the payment of the obligation in his favor. It is to be emphasized in
this connection that the check deposited by the petitioner in the amount of P50,000 is not an ordinary check but a
Cashier's Check of the Equitable Banking Corporation, a bank of good standing and reputation. As testified to by the Ex-
Officio Sheriff with whom it has been deposited, it is a certified crossed check. It is a well-known and accepted practice in
the business sector that a Cashier's Check is deemed as cash. Moreover, since the said check had been certified by the
drawee bank, by the certification, the funds represented by the check are transferred from the credit of the maker to that of
the payee or holder, and for all intents and purposes, the latter becomes the depositor of the drawee bank, with rights and
duties of one in such situation. Where a check is certified by the bank on which it is drawn, the certification is equivalent to
acceptance.
o 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.
Yes.
Case 46: Spouses Tibajia vs CA and Eden Tan
Case about CERTIFIED CROSSED CHECK as tender of payment Petition DENIED!

Non-acceptance of the creditor of payment by CERTIFIED CASHIERS CHECK (P262k) and cash (P135k)
Garnishment of levied amount from the other case
Oblicon Concept:
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.
Sec. 1 of RA 529. Every provision contained in, or made with respect to, any obligation which purports to give the obligee
the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an
amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void,
and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred.
Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein
or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is
legal tender for public and private debts.
Facts:
Case No. 54863 was a 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
in another case, had been garnished by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro
Manila rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay
her an amount in excess of Three Hundred Thousand Pesos (P300,000). On appeal, the Court of Appeals modified the
decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of
the Regional Trial Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the
following form:
o Cashier's Check P262,750
o Cash 135,733
o Total P398,483
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the
garnished funds deposited with the cashier of the Regional Trial Court of Pasig, Metro Manila be withdrawn to satisfy the
judgment obligation. On 15 January 1991, defendant spouses (petitioners) filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the
ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other
than the defendant.
Issues:
W/N payment by means of check (even by cashier's check) is considered payment in legal tender as required by the Civil
Code, Republic Act No. 529, and the Central Bank Act?
Held:
No. A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
o We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of
the creditor.
Case 47: Citibank, NA, Investors Finance Corporation vs. Modesta Sabeniano
Case about adjusting value of payment in times of inflation DENIED!

Case about compensation of USD deposit of respondent in other foreign branch to her liabilities to the local branch
Contract of Adhesion
Oblicon Concept:
Article 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.
Facts:
Respondent was a client of petitioners. She had several deposits and market placements with petitioners, among which
were her savings account with the local branch of petitioner Citibank (Citibank-Manila); money market placements with
petitioner FNCB Finance; and dollar accounts with the Geneva branch of petitioner Citibank (Citibank-Geneva). At the
same time, respondent had outstanding loans with petitioner Citibank, incurred at Citibank-Manila, the principal amounts
aggregating to P1,920,000, all of which had become due and demandable by May 1979. Despite repeated demands by
petitioner Citibank, respondent failed to pay her outstanding loans. Thus, petitioner Citibank used respondents deposits
and money market placements to off-set and liquidate her outstanding obligations, as follows:
o Respondents outstanding obligation (principal and interest as of 26 October 1979) P2,156,940
o FNCB Finance (principal and interest as of 5 September 1979) - (1,022,916)
o Deposits in respondents bank accounts with petitioner Citibank - (31,079)
o Proceeds of respondents money market placements and dollar accounts with Citibank-Geneva (peso equivalent
as of 26 October 1979) - (1,102,944)
o Balance of respondents obligation P 0
Respondent, however, denied having any outstanding loans with petitioner Citibank. She likewise denied that she was
duly informed of the off-setting or compensation thereof made by petitioner Citibank using her deposits and money market
placements with petitioners. Hence, respondent sought to recover her deposits and money market placements.
Respondent instituted a complaint for "Accounting, Sum of Money and Damages" against petitioners, docketed as Civil
Case No. 11336, before the Regional Trial Court (RTC) of Makati City.
Issues:
W/N the compensation of the petitioner of the respondents USD account in another foreign branch is legal?
W/N the USD to be reimbursed should be adjusted for inflation?
W/N the respondents Declaration of Pledge is valid and binding?
W/N the promissory notes executed by the respondent assigning its other deposits to the petitioner and allowing
compensation without notice is enforceable?
Held:
No. Without the Declaration of Pledge, petitioner Citibank had no authority to demand the remittance of respondents
dollar accounts with Citibank-Geneva and to apply them to her outstanding loans. It cannot effect legal compensation
under Article 1278 of the Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct and
separate entity. As for the dollar accounts, respondent was the creditor and Citibank-Geneva is the debtor; and as for the

outstanding loans, petitioner Citibank was the creditor and respondent was the debtor. The parties in these transactions
were evidently not the principal creditor of each other.
No. While there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such
cannot be considered as extraordinary; rather, it is a normal erosion of the value of the Philippine peso which is a
characteristic of most currencies. Moreover, this Court has held that the effects of extraordinary inflation are not to be
applied without an official declaration thereof by competent authorities.
No. Court cannot make a categorical finding that respondents signature on the original copy of the pledge was forged, it is
persuaded that petitioner Citibank willfully suppressed the presentation of the original document, and takes into
consideration the presumption that the evidence willfully suppressed would be adverse to petitioner Citibank if produced.
o First of all, it escapes this Court why petitioner Citibank took care to have the Deeds of Assignment of the PNs
notarized, yet left the Declaration of Pledge unnotarized.
o Second, petitioner Citibank was unable to establish the date when the Declaration of Pledge was actually
executed. The photocopy of the Declaration of Pledge submitted by petitioner Citibank before the RTC was
undated.
o Third, the Declaration of Pledge was irregularly filled-out. The pledge was in a standard printed form.
No. PNs can be considered a contract of adhesion, the PNs being in standard printed form prepared by petitioner Citibank.
Generally, stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts
almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called
contracts of adhesion, because the only participation of the party is the affixing of his signature or his "adhesion" thereto.
This being the case, the terms of such contract are to be construed strictly against the party which prepared it.
Case 48: Equitable PCI Bank, Aimee Yu and Bejan Apas vs. Ng Sheung Ngor Ken Marketing, Ken Appliance Division,
Inc. and Benjamin Go
Case about Extra-Ordinary Deflation

Case about Escalation Clause of Interest Rate in Promissory Notes
Oblicon Concept:
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. The participation of the
other party is limited to affixing his signature or his "adhesion" to the contract. For this reason, contracts of adhesion are
strictly construed against the party who drafted it.
For this reason, we have consistently held that a valid escalation clause provides:
o that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by
the Monetary Board; and
o that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or
by the Monetary Board (de-escalation clause).
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, 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.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven:
o that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas
(BSP);
o that the obligation was contractual in nature; and
o that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.
Facts:
On October 7, 2001, respondents Ng Sheung Ngor, Ken Appliance Division, Inc. and Benjamin E. Go filed an action for
annulment and/or reformation of documents and contracts against petitioner Equitable PCI Bank (Equitable) and its
employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City. They claimed
that Equitable induced them to avail of its peso and dollar credit facilities by offering low interest rates so they accepted
Equitable's proposal and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however,
were unaware that the documents contained identical escalation clauses granting Equitable authority to increase interest
rates without their consent.
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the
promissory notes. In fact, they continuously availed of and benefited from Equitable's credit facilities for five years.
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured
respondents' loans amounting to US$228,200 and P1,000,000. The trial court, however, invalidated the escalation clause
contained therein because it violated the principle of mutuality of contracts. Nevertheless, it took judicial notice of the steep
depreciation of the peso during the intervening period and declared the existence of extraordinary deflation. Consequently,
the RTC ordered the use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans. Lastly,
because the business reputation of respondents was allegedly severely damaged when Equitable froze their accounts, the
trial court awarded moral and exemplary damages to them.
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit and
ordered the issuance of a writ of execution in favor of respondents. According to the RTC, because respondents did not
move for the reconsideration of the previous order (denying due course to the parties notices of appeal), the February 5,
2004 decision became final and executory as to both parties and a writ of execution against Equitable was in order.
A writ of execution was thereafter issued and three real properties of Equitable were levied upon.
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. It, however, withdrew that
petition on March 30, 2004 and instead filed a petition for certiorari with an application for an injunction in the CA to enjoin
the implementation and execution of the March 24, 2004 omnibus order.
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was
correspondingly issued.
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on
July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them.
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the
sale in contempt for proceeding with the auction despite the injunction order of the CA.
Issues:
W/N petitioner is guilty of forum shopping?
W/N Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, 2004 Orders?
W/N The Promissory Notes Were Valid?
W/N Escalation Clause Violated The Principle Of Mutuality Of Contracts?
W/N There Was No Extraordinary Deflation?
Held:
No. Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action.
The petition for relief from the denial of its notice of appeal was based on the RTCs judgment or final order preventing it
from taking an appeal by "fraud, accident, mistake or excusable negligence." On the other hand, its petition for certiorari in
the CA, a special civil action, sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by
the RTC.
Yes. The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al. from
appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with indecent haste,
effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter how we look at it, the RTC
committed grave abuse of discretion in rendering those orders.
Yes. If the terms and conditions offered by Equitable had been truly prejudicial to respondents, they would have walked
out and negotiated with another bank at the first available instance. But they did not. Instead, they continuously availed of
Equitable's credit facilities for five long years.
Yes. Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had
no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation
clause did not contain the necessary provisions for validity, that is, it neither provided that the rate of interest would be
increased only if allowed by law or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation
clause was void.
Yes. Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although
the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation). The RTC never mentioned that there was such stipulation either in the promissory note or loan
agreement. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on
the date of maturity.
Case 49: Luzon Development Bank vs. Angeles Catherine Enriquez
Case about Dacion en Pago as mode of extinguishing obligations

Case about subdivision lot under Contract to Sell (not registered in its TCT for protection) which was then conveyed to the
Bank as payment in lieu of loan balance
Oblicon Concept:
The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon
by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally extinguished.
Facts:
The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and
Condominium Buyers Protective Decree will not be defeated by someone who is not an innocent purchaser for value. The
lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in
every transaction which threatens its fruition. "For a statute derives its vitality from the purpose for which it is enacted and
to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law.
The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.
Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties,
particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De Leon (De Leon), who is the registered owner of a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province of
Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases.
On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing
Delta Homes I. To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on
several of their properties, including Lot 4. Subsequently, this REM was amended by increasing the amount of the secured
loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183.
DELTA then obtained a Certificate of Registration and a License to Sell from the Housing and Land Use Regulatory Board
(HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the
house and lot in Lot 4 for the purchase price of P614,950. Enriquez made a downpayment of P114,950. The Contract to
Sell contained the following provisions:

o That the warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to
pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and
void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner
as liquidated damages and expenses for documentations.
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or
a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that
DELTA "assigns, transfers, and conveys and sets over to the assignee that real estate with the building and improvements
existing thereon x x x in payment of the total obligation owing to [the Bank] x x x." Unknown to Enriquez, among the
properties assigned to the BANK was the house and lot of Lot 4, which is the subject of her Contract to Sell with DELTA.
DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to
Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez
upon the latters full payment of the purchase price to DELTA. Since Enriquez has yet to comply with this suspensive
condition, ownership is retained by DELTA. As the owner of Lot 4, DELTA had every right to enter into a dation in payment
to extinguish its loan obligation to the BANK. The BANKs acceptance of the assignment, without any reservation or
exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the
value of Enriquezs house and lot to the BANK.
Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTAs
ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until
Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained ownership
over Lot 4 and could validly convey the same to the BANK via dacion en pago.
o Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the
BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan
obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4
cannot be delivered to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4s value.
Issues:
W/N the mortgage contract is void?
W/N the contract to sell does not transfer ownership?
W/N Dacion en pago extinguished the loan obligation?
Held:
Yes. As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging
the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. We have held
before that "a mortgage contract executed in breach of Section 18 of PD 957 is null and void." Considering that "PD 957
aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices," we have
construed Section 18 thereof as "prohibitory and acts committed contrary to it are void."
Yes. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the
happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the
subject property only when the entire amount of the purchase price has already been delivered to him.
Yes. The Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned
properties would serve as full payment for DELTAs entire obligation. Without any reservation or condition, the Dacion
stated that the assigned properties served as full payment of DELTAs "total obligation" to the BANK. The BANK accepted
said properties as equivalent of the loaned amount and as full satisfaction of DELTAs debt. The BANK cannot complain if,
as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted
earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the
nature of DELTAs business, of the location of the assigned properties within DELTAs subdivision development, and the
possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957.
ARTICLES 1256-1269
TENDER OF PAYMENT AND CONSIGNATION
Case 50: Far East Bank and Trust Company vs. Diaz
Case about personal check as legal tender when accepted by the creditor as deposit and transferred it to another branch
of the bank.
The steps done by the debtor showed that he is ready, willing and able to pay. The three requisites are also present: (1)
INTENT; (2) CAPABILITY; (3) POSITIVE AND CONDITIONAL ACT
Oblicon Concept:
For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due. Though a check is not legal tender, and a creditor may
validly refuse to accept it if tendered as payment, one who in fact accepted a fully' funded check after the debtor's
manifestation that it had been given to settle an obligation is estopped from later on denouncing the efficacy of such
tender of payment.
Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to
the obligee for the former's obligation and demanding that the latter accept the same.
Facts:

Sometime in August 1973, Diaz and Company got a loan from the former PaBC [Pacific Banking Corporation] in the
amount of P720,000, with interest at 12% per annum, later increased to 14%, 16%, 18% and 20%.
The loan was secured by a real estate mortgage over two parcels of land owned by the plaintiff Diaz Realty, both located
in Davao City.
In 1981, Allied Banking Corporation rented an office space in the building constructed on the properties covered by the
mortgage contract, with the conformity of mortgagee PaBC, whereby the parties agreed that the monthly rentals shall be
paid directly to the mortgagee for the lessor's account, either to partly or fully pay off the aforesaid mortgage
indebtedness.
Pursuant to such contract, Allied Bank paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the
Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos as its liquidator.
Sometime in December 1986, appellant FEBTC purchased the credit of Diaz & Company in favor of PaBC, but it was not
until March 23, 1988 that Diaz was informed about it.
According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz (President of Diaz & Company and
Vice-President of Diaz Realty), on March 23, 1988, he went to office of PaBC which by then housed FEBTC and was told
that the latter had acquired PaBC; that Cashier Ramon Lim told him that as of such date, his loan was P1,447,142; that he
(Diaz) asked the defendant to make an accounting of the monthly rental payments made by Allied Bank; that on
December 14, 1988, Diaz tendered to FEBTC the amount of P1,450,000.00 through an Interbank check, in order to
prevent the imposition of additional interests, penalties and surcharges on its loan; that FEBTC did not accept it as
payment; that instead, Diaz was asked to deposit the amount with the defendant's Davao City Branch Office, allegedly
pending the approval of Central Bank Liquidator Renan Santos; that in the meantime, Diaz wrote the defendant, asking
that the interest rate be reduced from 20% to 12% per annum, but no reply was ever made; that subsequently, the
defendant told him to change the P1,450,000 deposit into a money market placement, which he did; that the money
market placement expired on April 14, 1989; that when there was still no news from the defendant whether or not it would
accept his tender of payment, he filed this case at the Regional Trial Court of Davao City.
The check was subsequently cleared and honored by Interbank, as shown by the Certification it issued on January 20,
1992.
Issues:
W/N there is valid legal tender of payment?
Held:
Yes. True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a creditor may validly
refuse it. It must be emphasized, however, that this dictum does not prevent a creditor from accepting a check as
payment. In other words, the creditor has the option and the discretion of refusing or accepting it. In the present case,
petitioner bank did not refuse respondent's check. On the contrary, it accepted the check which, it insisted, was a deposit.
As earlier stated, the check proved to be fully funded and was in fact honored by the drawee bank. Moreover, FEBTC was
in possession of the money for several months. There must be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due.
Case 51: State Investment House, Inc. vs. CA and Judge Tirona, Rafael and Refugio Aquino
Case about proper tender of payment but no consignation in court resulting to continuance of regular interest but no
default penalty. ISSUE ON WHAT INTEREST TO INCLUDE.
Tender of payment by SHOWING and HANDING of money. Any act short of this is not tender of payment.
Tender of payment does not extinguish an obligation. Acceptance of the creditor or consignation in court extinguishes it.
Oblicon Concept:
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due.
Facts:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged certain shares of stock to petitioner State
Investment House, Inc. ("State") in order to secure a loan of P120,000 designated as Account No. IF-82-0631-AA (LOAN
1).
Prior to the execution of the pledge, respondent-spouses, as an accommodation to and together with the spouses Jose
and Marcelina Aquino, signed an agreement (Account No. IF-82-1379-AA LOAN 2) with petitioner State for the latter's
purchase of receivables amounting to P375,000.
When Account No. IF-82-0631-AA (LOAN 1) fell due, respondent spouses paid the same partly with their own funds and
partly from the proceeds of another loan which they obtained also from petitioner State designated as Account No. IF-82-
0904-AA (LOAN 3). This new loan was secured by the same pledge agreement executed in relation to Account No. IF-
820631-AA (LOAN 1).
When the new loan (LOAN 3) matured, State demanded payment.
Respondents expressed willingness to pay, requesting that upon payment, the shares of stock pledged be released.
Petitioner State denied the request on the ground that the loan (LOAN 2) which it had extended to the spouses Jose and
Marcelina Aquino (Account No. IF-82-1379- AA) had remained unpaid.
Upon remand of the records of the case to the trial court for execution, there developed disagreement over the amount
which respondent spouses Rafael and Refugio Aquino should pay to secure the release of the shares of stock
petitioner State contending that respondents should also pay interest and respondents arguing they should not.
Respondent spouses then filed a motion with the trial court to clarify the Fortun decision praying that an order issue

clarifying the phrase "upon payment of plaintiffs' loan" to mean upon payment of plaintiff' loan in the principal amount of
P110,000 alone, "without interest, penalties and other charges.
Hence, this Petition for Review contending that no manifest ambiguity existed in the decision penned by Judge Fortun;
that the trial court through Judge Tirona, erred in clarifying the decision of Judge Fortun; and that the amendment sought
to be introduced in the Fortun decision by respondents may not be made as the same was substantial in nature and the
Fortun decision had become final.
Issues:
if respondent Aquino spouses were not in delay, what should they have been held liable for in accordance with law?
Held:
Regular interest only. We believe and so hold that since respondent Aquino spouses were held not to have been in delay,
they were properly liable only for: (a) the principal of the loan or P110,000; and (b) regular or monetary interest in the
amount of seventeen percent (17%) per annum. They were not liable for penalty or compensatory interest, fixed by the
promissory note in Account No. IF-82-0904-AA at two percent (2%) per month or twenty-four (24%) per annum. There is
valid tender of payment (thus not in delay for penalty interest) but no consignation (thus the debtor was able to use the
money therefore he should pay regular interest.
o Tender of payment must be accompanied or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a written tender of payment alone, without
consignation in court of the sum due, does not suspend the accruing of regular or monetary interest.
Case 52: Legaspi vs. CA and Salcedo
Case about tender of payment as sufficient when done within the pacto de retro period but consignation is done outside
the period. EXEMPTION
Tender of payment as sufficient to preserve a RIGHT but not extinguishes the obligation.
Oblicon Concept:

Facts:
On February 8, 1971, the plaintiff now petitioner filed a complaint with the Court of First Instance of Cavite, docketed as
Civil Case No. N-1595 for reconveyance to enforce his right to repurchase two parcels of land, Lots Nos. 3962 and 3963
of the Imus Estate covered by TCT Nos. T-4388 and T-4389, respectively, which he sold to the defendant, now private
respondent, pursuant to a sale with pacto de retro as evidenced by a Deed of Sale with the Right to Repurchase dated
October 15, 1965.
The complaint alleged, among others, that Bernardo B. Legaspi is the registered owner of the aforementioned two parcels
of land which he sold to his son-in-law, Leonardo B. Salcedo, on October 15, 1965 for the sum of P25,000 with the right to
repurchase the same within five years from the execution of the deed of sale; that before the expiry date of the repurchase
period which was on October 15, 1970, Legaspi offered and tendered to Salcedo the sum of P25,000 for the repurchase of
the two parcels of land; that the tender of payment was refused (because according to Salcedo devalued already) by
Salcedo without justifiable or legal cause; that Salcedo refused to convey the properties to Legaspi as requested by the
latter; that on October 15, 1970, Legaspi deposited in the Office of the Clerk of Court of First Instance of Cavite City the
amount of P25,125 as evidenced by Official Receipt No. 2698797-k marked as Exhibit "B"; that despite earnest efforts
towards a compromise after consignation of the repurchase money had been made, Salcedo refused to reconvey the
properties in question.
Issues:
W/N the petitioner validly exercised his right to repurchase the properties within the five-year period as stipulated in the
sale with pacto de retro entered into between the petitioner as vendor a retro and private respondent as vendee a retro?
Held:
Yes. Consignation is not required to preserve the right of repurchase as a mere tender of payment is enough if made on
time as a basis for an action to compel the vendee a retro to resell the property. Since the case at bar involves the
exercise of the right to repurchase, a showing that petitioner made a valid tender of payment is sufficient. It is enough that
a sincere or genuine tender of payment and not a mock or deceptive one was made. The fact that he deposited the
amount of the repurchase money with the Clerk of Court was simply an additional security for the petitioner. It was not an
essential act that had to be performed after tender of payment was refused by the private respondent although it may
serve to indicate the veracity of the desire to comply with the obligation.

Case 53: Hulganza vs. CA and Gemarino
Case about sufficiency of ACTION filed in court to preserve a right. EXEMPTION

Tender and Consignation not essential to redeem. Hulganza showed intention to pay by filing a case.
Filing of action is equivalent to the formal offer to redeem.
Facts:
Before Nicomedez Hulganza died leaving as his heirs herein petitioners, he and his wife Matilde had sold the said property
on April 21, 1971 in favor of the defendant Basilia Gemarino in the amount of P10,000 and by virtue of the sale the original
title was cancelled and a new one issued (T-5082) in the name of private respondent Basilia Gemarino.
Since that date, up to the present private respondent has been in possession of the property peacefully, openly or publicly,
adversely and without interruption in the concept of owner.
But on April 13, 1972, petitioners filed a complaint in court seeking to repurchase the property from said respondent under
the provisions of Section 119 of Public Land Act 141 as amended.
In its decision dated February 25, 1975, the same court rendered judgment in favor of the plaintiffs (herein petitioners)
declaring that they have the legal right to exercise the right of redemption and ordering among other things, the defendant
(herein private respondent) to allow the former to exercise said right at the original purchase price of P10,000 with interest.
The Court of Appeals reversed the decision of the lower court.
In the instant case is bears repeating that plaintiffs-appellees failed to consign the amount due at the time they filed the
complaint, four days before the lapse of the five-year period, and in fact it was only on the date of the trial more than three
years later that the lower court was informed of the alleged existence of the money available in the hands of Isidro
Hulganza who was then in Mindanao.
Issues:
W/N it is necessary that the formal offer to redeem the land in question be accompanied by a bona fide tender of the
redemption price, or the repurchase price be consigned in Court, within the period of redemption even if the right is
exercised through the filing of a judicial action?
Held:
No. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem. In view of the
foregoing consideration, it appears evident that the bona fide tender of the redemption price or its equivalent
consignation of said price in court is not essential or necessary in the case at bar where the filing of the action itself is
equivalent to a formal offer to redeem.
Case 54: Heirs of Luis Bacus vs. CA and Spouses Duray
Case about sufficiency of NOTICE to secure the Option To Buy

There is no tender (bank certification of loan ready is not tender) or consignation (debt not yet due) done but the option to
buy is secured.
Facts:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land in Bulacao, Talisay,
Cebu.
The lease was for six years, ending May 31, 1990. The contract contained an option to buy clause. Under said option, the
lessee had the exclusive and irrevocable right to buy 2,000 square meters of the property within five years from a year
after the effectivity of the contract, at P200 per square meter. That rate shall be proportionately adjusted depending on the
peso rate against the US dollar, which at the time of the execution of the contract was fourteen pesos.
Close to the expiration of the contract, Luis Bacus died on October 10, 1989. Thereafter, on March 15, 1990, the Duray
spouses informed Roque Bacus, one of the heirs of Luis Bacus, that they were willing and ready to purchase the property
under the option to buy clause. They requested Roque Bacus to prepare the necessary documents, such as a Special
Power of Attorney authorizing him to enter into a contract of sale, on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino Duray's adverse claim was annotated by
the Register of Deeds of Cebu, at the back of TCT, covering the segregated 2,000 square meter portion of the lot.
Subsequently, on April 5, 1990, Duray filed a complaint for specific performance against the heirs of Luis Bacus with the
Lupon Tagapamayapa of Barangay Bulacao, asking that he be allowed to purchase the lot specifically referred to in the
lease contract with option to buy.
At the hearing, Duray presented a certification from the manager of Standard Chartered Bank, Cebu City, addressed to
Luis Bacus, stating that at the request of Mr. Lawrence Glauber, a bank client, arrangements were being made to allow
Faustino Duray to borrow funds of approximately P700,000 to enable him to meet his obligations under the contract with
Luis Bacus.
RTC and CA ruled in favor of the private respondents (lessees).
Issues:
W/N when private respondents opted to buy the property covered by the lease contract with option to buy, were they
already required to deliver the money or consign it in court before petitioner executes a deed of transfer?
Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on or before the
expiration of the contract?

Held:
No. Obligations under an option to buy are reciprocal obligations. The performance of one obligation is conditioned on the
simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by
the creditor (lessee) is contingent upon the execution and delivery of a deed of sale by the debtor (lessor). In this case,
when private respondents opted to buy the property, their obligation was to advise petitioners of their decision and their
readiness to pay the price. They were not yet obliged to make actual payment. Only upon petitioners' actual execution and
delivery of the deed of sale were they required to pay.
o Consequently, since the obligation was not yet due, consignation in court of the purchase price was not yet
required.
No. Private respondents did not incur in delay when they did not yet deliver payment nor make a consignation before the
expiration of the contract. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. Only from the moment one of the parties fulfills his
obligation, does delay by the other begin.
Case 55: Soledad Dalton vs. FGR Realty and Development Corporation
Case about mandatory fulfillment of all the 5 steps of consignation to make it valid. NOTICE BEFORE AND AFTER
CONSIGNATION TO INTERESTED PARTIES.
Oblicon Concept:

Facts:
Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street
in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, (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. WITHDRAWAL WITH CONDITION OR RESERVATION.
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.
Issues:
W/N 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?
Held:
Not valid. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to question the validity
of the consignation. When the creditors acceptance of the money consigned is conditional and with reservations, he is not
deemed to have waived the claims he reserved against his debtor. As respondent-creditors 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.
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.
Case 56: NATELCO vs. CA and CASURECO II
Case about obligations of CASURECO II which has become so difficult to perform after 11 yrs.
Telephone lines of NATELCO attached to electric posts of CASURECO II in exchange of 10 units of telephones with free
usage.
Oblicon Concept:
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.
Facts:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance
telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a
private corporation established for the purpose of operating an electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its
telephone service the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to
install, free of charge, ten (10) telephone connections for the use by private respondent.
Said contract also provided:
o (a) That the term or period of this contract shall be as long as the party of the first part has need for the electric
light posts of the party of the second part it being understood that this contract shall terminate when for any
reason whatsoever, the party of the second part is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric light post.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional
Trial Court against petitioners for reformation of the contract with damages, on the ground that it is too one-sided in favor
of petitioners; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) which direct
that the reasonable compensation for the use of the posts is P10 per post, per month; that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier with the increase in
the volume of their subscribers, worsened by the fact that their linemen bore holes through the posts at which points those
posts were broken during typhoons; that a post now costs as much as P2,630; so that justice and equity demand that the
contract be reformed to abolish the inequities thereon.
Private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns of Pili, Canaman,
Magarao and Milaor, Camarines Sur, all outside Naga City, without any contract with it.
Private respondent complained about the poor servicing by petitioners of the ten (10) telephone units which had caused it
great inconvenience and damages to the tune of not less than P100,000.
Issues:
W/N whether the continued enforcement of the contract between the parties has, through the years (since 1977), become
too inequitous or disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution must
be found to relieve plaintiff from the continued operation of said agreement and to prevent defendant-appellant from
further unjustly enriching itself at plaintiff's expense?
Held:
Yes. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation, constraining the
latter to go to court. But although plaintiff cannot, as we have held, correctly invoke reformation of contract as a proper
remedy (there having been no showing of a mistake or error in said contract on the part of any of the parties so as to result
in its failure to express their true intent), this does not mean that plaintiff is absolutely without a remedy in order to relieve
itself from a contract that has gone far beyond its contemplation and has become so highly inequitous and
disadvantageous to it through the years because of the expansion of defendant-appellant's business and the increase in
the volume of its subscribers. And as it is the duty of the Court to administer justice, it must do so in this case in the best
way and manner it can in the light of the proven facts and the law or laws applicable thereto.
Case 57: Philippine National Construction Corporation vs. CA and Raymundo
Case about nonpayment of PNCC of advance rental due to alleged impossibility of performance
Oblicon Concept:
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the obligor.
Article 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.
Facts:
PNCC contracted a lease contract with private respondents for the use of the land for rock crushing activities.
This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial clearance by the
Ministry of Human Settlements, renewable for a like or other period at the option of the LESSEE under the same terms
and conditions.
LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY THOUSAND PESOS (P20,000), Philippine
Currency, in the manner set forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%) based on
the agreed monthly rate of P20,000.
The rent stipulated in Paragraph 2 above shall be paid yearly in advance by the LESSEE. The first annual rent in the
amount of TWO HUNDRED FORTY THOUSAND PESOS (P240,000), Philippine currency, shall be due and payable upon
the execution of this Agreement and the succeeding annual rents shall be payable every twelve (12) months thereafter
during the effectivity of this Agreement.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use Permit for the proposed
rock crushing project. The permit was to be valid for two years unless sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual rental in the amount of
P240,000 which was due and payable upon the execution of the contract. They also assured the latter that they had
already stopped considering the proposals of other aggregates plants to lease the property because of the existing
contract with petitioner.
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental would commence on
the date of the issuance of an industrial clearance by the Ministry of Human Settlements, and not from the date of signing
of the contract. It then expressed its intention to terminate the contract, as it had decided to cancel or discontinue with the
rock crushing project "due to financial, as well as technical, difficulties." IMPOSSIBILITY (Art 1266) / DIFFICULTY (Art
1267) OF FULFILLMENT DAW
Private respondents refused to accede to petitioner's request for the pretermination of the lease contract. They insisted on
the performance of petitioner's obligation and reiterated their demand for the payment of the first annual rental.
Petitioner objected to private respondents' claim and argued that it was "only obligated to pay . . . the amount of P20,000
as rental payments for the one-month period of lease, counted from 07 January 1986 when the Industrial Permit was
issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination was served" on
private respondents.
There were multiple delays/postponements caused by the defendant in hearings.
Issues:
W/N the issuance of an industrial clearance (as opposed to Temporary Use Permit) is a suspensive condition without
which the rights under the contract would not be acquired?
W/N PNCC should be released from the obligatory force of the contract of lease because the purpose of the contract did
not materialize due to unforeseen events and causes beyond its control, i.e., due to the abrupt change in political climate
after the EDSA Revolution and financial difficulties?
Held:
No. Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial clearance
contemplated in the contract. See second to the last bullet in facts above. The "Industrial Permit" mentioned in the said
letter could only refer to the Temporary Use Permit issued by the Ministry of Human Settlements on 7 January 1986. And
it can be gleaned from this letter that petitioner has considered the permit as industrial clearance; otherwise, petitioner
could have simply told private respondents that its obligation to pay rentals has not yet arisen because the Temporary Use
Permit is not the industrial clearance contemplated by them. Instead, petitioner recognized its obligation to pay rentals
counted from the date the permit was issued.
No. Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations "to do,"
and not to obligations "to give."
o Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist.
o Petitioner PNCC entered into the contract of lease with private respondents with open eyes of the deteriorating
conditions of the country.
ARTICLES 1278-1290
COMPENSATION
Case 58: Mondragon Personal Sales, Inc. vs. Victoriano Sola, Jr.
Case about the requisite of legal compensation which is PRINCIPAL DEBTORS

Mr. Sola became primary (solidary) debtor with his wife who is the one with debt to Mondragon
Mondragon pays Mr. Sola commission on use of bodega cum office for product stockroom and office.
Oblicon Concept:
Compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and
as principals are reciprocally debtors and creditors of each other.
Legal compensation takes place by operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual obligations even in the absence of
some requisites.
Facts:
Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products
through a network of sales representatives, entered into a Contract of Services with respondent Victoriano S. Sola, Jr. for
a period of three years commencing on October 2, 1994 up to October 1, 1997.
Under the said contract, respondent, as service contractor, would provide service facilities, i.e., bodega cum office, to
petitioner's products, sales force and customers in General Santos City and as such, he was entitled to commission or
service fee.
Prior to the execution of the contract, however, respondents wife, Lina Sola, had an existing obligation with petitioner
arising from her Franchise Distributorship Agreement with the latter.
On January 26, 1995, respondent wrote a letter addressed to Renato G. de Leon, petitioner's Vice-President for Finance,
wherein he acknowledged and confirmed his wifes indebtedness to petitioner in the amount of P1,973,154 (the other
accountability in the sum of P1,490,091 was still subject to reconciliation) and, together with his wife, bound himself
(BECAME PRINCIPAL DEBTOR THRU LETTER) to pay on installment basis the said debt.
Consequently, petitioner withheld the payment of respondent's service fees from February to April 1995 and applied the
same as partial payments to the debt which he obligated to pay.
On April 29, 1995, respondent closed and suspended operation of his office cum bodega where petitioner's products were
stored and customers were being dealt with.
Issues:
W/N petitioner breached its contract with respondent and that there is no compensation in accordance to Article 1279 of
the Civil Code?
W/N respondent assume the obligation of his wife?
Held:
No breach and we find the presence of all the requisites for legal compensation:
o Petitioner and respondent are both principal obligors and creditors of each other.
o Their debts to each other consist in a sum of money.
o Respondent acknowledged and bound himself to pay petitioner the amount of P1,973,154 which was already
due, while the service fees owing to respondent by petitioner become due every month.
o Respondent's debt is liquidated and demandable, and petitioner's payments of service fees are liquidated and
demandable every month as they fall due.
o Finally, there is no retention or controversy commenced by third persons over either of the debts. Thus,
compensation is proper up to the concurrent amount where petitioner owes respondent P125,040 for service
fees, while respondent owes petitioner P1,973,154.
Yes. A reading of the letter shows that respondent becomes a co-debtor of his wife's accountabilities with petitioner.
Notably, the last paragraph of his letter which states "I fully understand and voluntarily agree to the above undertaking with
full knowledge of the consequences which may arise therefrom" and which was signed by respondent alone, shows that
he solidarily bound himself to pay such debt. Based on the letter, respondent's wife had an account with petitioner in the
amount of P3,463,173, out of which only the amount of P1,973,154 was confirmed while the remaining amount of
P1,490,019 would still be subject to reconciliation. As respondent bound himself to pay the amount of P1,973,154, he
becomes petitioner's principal debtor to such amount.
Case 59: Insular Investment and Trust Corporation vs. Capital One Equities Corp and Planters Development Bank
Case about Legal Compensation when parties are PRINCIPAL debtors and creditors of each other
Insular claims that is acted as a mere conduit on Capital and PDBs contract of sale transaction of government treasury
bills.
Oblicon Concept:
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Art. 1279. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other.
Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law,
and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation.
Facts:
Petitioner Insular Investment and Trust Corporation (IITC) and respondents Capital One Equities Corporation (COEC) and
Planters Development Bank (PDB) are regularly engaged in the trading, sale and purchase of Philippine treasury bills.
On various dates in 1994, IITC purchased from COEC treasury bills with an aggregate face value of P260,683,392. The
purchase price for the said treasury bills were fully paid by IITC to COEC which was able to deliver P121,050,000 worth of
treasury bills to IITC. (1st transaction)
On May 2, 1994, COEC purchased treasury bills with a face value of P186,774,739. In order to have T-bills to sell, IITC
will have to purchase from PDB T-bills amounting to P186,790,000. (2nd transaction)
COEC is asking for legal compensation but IITC would not allow it because it is alleging that it is a mere conduit to the
second transaction.
Issues:
W/N IITC acted as a conduit in the transaction between COEC and PDB?
W/N COEC can set-off its obligation to IITC as against the latters obligation to it?
W/N PDB has the obligation to deliver treasury bills to IITC?
Held:
No. IITC did not act as conduit. The issue raised by IITC is factual in nature as it requires the Court to delve into the
records and review the evidence presented by the parties to determine the validity of the findings of both the RTC and the
CA as to IITCs role in the transactions in question. These are purely factual issues which this Court cannot review. There
is nothing in the documents which mentions that IITC merely acted as a conduit in the sale and purchase of treasury bills
between PDB and COEC. On the contrary, the confirmations of sale and of purchase all clearly and expressly indicate that
IITC acted as a principal seller to COEC and as a principal buyer from PDB.
Yes. Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the above-quoted
Article 1279 should be present, as in the case at bench. The lower courts have already determined, to which this Court
concurs, that IITC acted as a principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of
the COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale of the COEC T-Bills
and IITC T-Bills, respectively.
Yes. PDB has an obligation to deliverthe treasury bills to IITC. It would be the height of injustice to hold IITC accountable
for the delivery of the COEC T-Bills to COEC without similarly holding PDB liable for the release of the treasury bills worth
P186,790,000 to IITC, which cannot be accomplished without allowing IITCs alternative cause of action against PDB to
prosper.

Case 60: Asia Trust Development Bank vs. Carmelo Tuble
Case about inappropriate legal compensation when one debt is not yet liquidated or determinable (Tubles Deferred
Incentive Plan)
The bank foreclosed one of the debts of Tuble but the redemption price included other debts, interests and charges.
Oblicon Concept:
Article 1279 of the Civil Code requires that the debts be liquidated and demandable.
Facts:
The CA affirmed the Regional Trial Court (RTC) Decision in Civil Case No. 67973, which granted to respondent the refund
of P845,805.49 representing the amount he had paid in excess of the redemption price.
Respondent Carmelo H. Tuble, who served as the vice-president of petitioner Asiatrust Development Bank, availed
himself of the car incentive plan and loan privileges offered by the bank. He was also entitled to the banks Senior
Managers Deferred Incentive Plan (DIP) [to be given only after clearance] and final pay and 13th month worth P25,797.
Tuble has 3 loans from the bank:
o Nissan Vanette car - obligation
o Real estate loan with maturity date of January 1, 1999. No interest stipulated. P421,800
o Consumption loan with 18% interest. P100,000
o Salary loan P16,250
On 30 March 1995, he resigned. Subsequently, he was given the option to either return the vehicle without any further
obligation or retain the unit and pay its remaining book value (obligation 1).
Respondent claimed that since he and the bank were debtors and creditors of each other, the offsetting of loans could
legally take place. He then asked the bank to simply compute his DIP and apply his receivables to his outstanding loans.
However, instead of heeding his request, the bank sent him a demand letter obliging him to pay his debts. The bank also
required him to return the Nissan Vanette. Despite this demand, the vehicle was not surrendered.
Tuble wrote the bank again to follow up his request to offset the loans. This letter was not immediately acted upon. The
bank finally allowed the offsetting of his various claims and liabilities. As a result, his liabilities were reduced to P970,691
plus the unreturned value of the vehicle.
In order to recover the Nissan Vanette, the bank filed a Complaint for replevin against Tuble. Petitioner obtained a
favorable judgment. Then, to collect the liabilities of respondent, it also filed a Petition for Extra-judicial Foreclosure of real
estate mortgage over his property. The Petition was based only on his real estate loan, which at that time amounted to
P421,800. His other liabilities to the bank were excluded. The foreclosure proceedings terminated, with the bank emerging
as the purchaser of the secured property.
Thereafter, Tuble timely redeemed the property on 17 March 1997 for P1,318,401. Notably, the redemption price
increased to this figure, because the bank had unilaterally imposed additional interest and other charges.
With the payment of P1,318,401, Tuble was deemed to have fully paid his accountabilities. Thus, three years after his
payment, the bank issued him a Clearance necessary for the release of his DIP share. Subsequently, he received a
Managers Check in the amount of P166,049 representing his share in the DIP funds.
Despite his payment of the redemption price, Tuble questioned how the foreclosure basis of P421,800 ballooned to
P1,318,401 in a matter of one year. Belatedly, the bank explained that this redemption price included the Nissan Vanettes
book value, the salary loan, car insurance, 18% annual interest on the banks redemption price of P421,800, penalty and
interest charges on Promissory Note No. 0142, and litigation expenses. By way of note, from these items, the amounts
that remained to be collected as stated in the Petition before us, are (1) the 18% annual interest on the redemption price
and (2) the interest charge on Promissory Note No. 0142.
Issues:
W/N legal compensation is valid and to how much only?
W/N the bank is entitled to the 18% annual interest, other charges and other debts TO BE INCLUDED TO THE
REDEMPTION PRICE.
Held:
Yes but up to P25k final pay and 13th month only since the pro-rata DIP is not yet liquidated.
No. The Court ruled that the appellate court correctly deleted the 18% annual interest charges, albeit for different reasons.
First, the interest cannot be imposed, because any reference to it under the Real Estate Mortgage Contract is misplaced,
as the contract is already extinguished. Second, the said interest cannot be collected without any basis in terms of Tuble's
redemption rights. Third, assuming that the Real Estate Mortgage Contract subsists, the bank cannot collect the interest
because of the contract's ambiguity. Fourth, the dragnet clause referred to in the contract cannot be presumed to include
the 18% annual interest specified in the consumption loan. Fifth, with respect to the compensatory interest claimed by the
bank, we hold that neither is the interest due, because Tuble cannot be deemed to be in default of his obligations.

ARTICLES 1278-1290
COMPENSATION
Case 63: United Planters Sugar Milling Co., Inc. vs. CA, Philippine National Bank, Asset Privatization Trust (as trustee of
the Republic of the Philippines
Case about Conventional Compensation which may still be effective despite lack of some requisites
Compensation by PNB and United Planters. PNB is debtor of United Planters deposits. United, on the other hand, is the
debtor of PNBs takeoff loans and operational loans.
Oblicon Concept:
Art 1282. (Conventional Compensation) The parties may agree upon the compensation of debts which are not yet due.
Facts:
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in the business of milling sugar. In 1974, as
UPSUMCO commenced operations, it obtained a set of loans from respondent Philippine National Bank (PNB). These
loans, referred herein as the "takeoff loans," were intended to finance the construction of a sugar milling plant and
operational loans were oriented towards financing the operations of the Company.
The loans are covered by various real and chattel mortgages. These were soon sold at P450M.
As a condition to the loans, UPSUMCO agreed to "open and/or maintain a deposit account with the [PNB] and the bank is
authorized at its option to apply to the payment of any unpaid obligations of the client any/and all monies, securities which
may be in its hands on deposit.
On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights, titles and interests" over
UPSUMCO, among several other assets. The Deed of Transfer acknowledged that said assignment was being
undertaken "in compliance with Presidential Proclamation No. 50." The Government subsequently transferred these
"rights, titles and interests" over UPSUMCO to the respondent Asset and Privatization Trust (APT).
Thereafter, APT and UPSUMCO entered into talks concerning the disposal of UPSUMCOs mortgaged assets. The parties
then agreed to an "uncontested or friendly foreclosure of these mortgaged assets, in exchange for UPSUMCOs waiver of
its right of redemption."
Soon, a Petition for Extrajudicial Foreclosure Sale dated 28 July 1987 was filed with the Ex-Officio Regional Sheriff, with
PNB identified therein as "Mortgagee" and APT as "Assignee and Transferee of PNBs rights, titles and interests." PNB
and APT manifested in the petition their intent to foreclose on the real estate and chattel mortgages which notably were
executed to secure the take-off loans. The foreclosure sale was conducted on 27 August 1987, whereby APT purchased
the auctioned properties for P450 Million.
Seven (7) days after the foreclosure sale, or on 3 September 1987, UPSUMCO executed a Deed of Assignment wherein it
assigned to APT its right to redeem the foreclosed properties, in exchange for or in consideration of APT "condoning any
deficiency amount it may be entitled to recover from the Corporation under the Credit Agreement.
On even date, the Board of Directors of UPSUMCO agreed to a Board Resolution authorizing Joaquin Montenegro, its
President, to enter into the said Deed of Assignment.
Issues:
W/N the loans condoned include the operational loans?
W/N the Deed of Assignment has retroactive effect on date of foreclosure?
W/N APT can use compensation even if its not a PRINCIPAL party (it is not PNB were United Planters has deposits)?
Held:
No. Only the takeoff loans because it is what is indicated in the Board Resolution.
No. Not explicitly indicated. (parol evidence)
Yes. We recognize the concept of conventional compensation, defined as occurring "when the parties agree to
compensate their mutual obligations even if some requisite is lacking, such as that provided in Article 1282." It is intended
to eliminate or overcome obstacles which prevent ipso jure extinguishment of their obligations. Legal compensation takes
place by operation of law when all the requisites are present, as opposed to conventional compensation which takes place
when the parties agree to compensate their mutual obligations even in the absence of some requisites. The only requisites
of conventional compensation are (1) that each of the parties can dispose of the credit he seeks to compensate, and (2)
that they agree to the mutual extinguishment of their credits. The right of PNB to set-off payments from UPSUMCO arose
out of conventional compensation rather than legal compensation, even though all of the requisites for legal compensation
were present as between those two parties. The determinative factor is the mutual agreement between PNB and
UPSUMCO to set-off payments. Even without an express agreement stipulating compensation, PNB and UPSUMCO
would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were present.
Case 64: Corazon Perez vs. CA and Mever Films, Inc.
Case about movement of debts in money market transactions.

No LEGAL COMPENSATION because the two debts of MOJICA was rolled over, thus, these are NOT YET DUE and not
subject to compensation.
Ability of the debtor to question legal compensation on assignment of his debt.

Oblicon Concept:
ART. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person,
cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor
was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.
The money market is a market dealing in standardized short-term credit instruments (involving large amounts) where
lenders and borrowers do not deal directly with each other but through a middle man or dealer in the open market." It
involves "commercial papers" which are instruments "evidencing indebtedness of any person or entity . . ., which are
issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". 4
The fundamental function of the money market device in its operation is to match and bring together in a most impersonal
manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal
considerations." 5 The market mechanism is intended to provide quick mobility of money and securities."
Facts:
CONGENERIC Development & Finance Corporation is, or was, a company engaged in "money market" operations.
There are 4 debts in this case.
st
o 1 : Creditor = Ramon Mojica; Debtor = Congeneric; Amount = P111,974
o 2nd: Creditor = Ramon Mojica; Debtor = Congeneric; Amount = P208,667
o 3rd: Creditor = Congeneric; Debtor = Mever Films, Inc.; Amount = P500,000
th
o 4 : Creditor = Corazon Perez; Debtor = Congeneric; Amount = P200,000
On 3rd debts due date, Mever paid P100k to Congeneric. Congeneric, in turn, paid it with interest to Perez. Balance of 3 rd
and 4th debts are P400,000 and P100,000, respectively after this.
On due dates (August 6 and 13, 1974), interests on 1st and 2nd debts were paid but the principals were rolled over.

st nd
On September 9, 1974, MOJICA assigned 1 and 2 debts to MEVER through a notarized deed.

st nd
On October 3, 1974, MEVER surrendered the originals of 1 and 2 debts to CONGENERIC, and asked the latter to
compute the balance of the account of MEVER with CONGENERIC, taking account of the amounts of the debts, which
balance MEVER would then pay (Legal Compensation for Mever). Mever is saying that he is
On the same date of October 7, 1974, CONGENERIC advised MEVER by telephone that of the original amount of
P500,000.00 of 3rd debt, the sum of P200,000.00 was sold on July 3, 1974 to a third party, Perez.
On November 15, 1974, MEVER turned over to the Provincial Sheriff of Rizal (Exhibit "5"), the sum of P79,359.75, which
MEVER had computed as the amount it was still owing CONGENERIC and which was subject to garnishment.
Trial court decided against Mever. CA decided in favor of Mever. SC decided against Mever.
Issues:
W/N there is legal compensation in this case?
Held:
No. Because 1st and 2nd debts, which were rolled over are NOT YET DUE. Since, on the respective dates of maturity,
specifically, August 6, 1974 and August 13, 1974, respectively, Ramon C. Mojica was still the holder of those bills, it can
be safely assumed that it was he who had asked for the roll-overs on the said dates. MEVER was bound by the roll-overs
since the assignment to it was made only on September9, 1974. The inevitable result of the roll-overs of the principals was
that Bill No. 1298 and Bill No. 1419 were not yet due and demandable as of the date of their assignment by MOJICA to
MEVER on September 9, 1974,nor as of October 3, 1974 when MEVER surrendered said Bills to CONGENERIC. As a
consequence, no legal compensation could have taken place because, for it to exist, the two debts, among other
requisites, must be due and demandable.
ARTICLES 1291-1304: NOVATION
Case 65: William Kwong vs. Atty. Gargantos, Anacleto Gargantos, Sps Santos and Sps Arceo
Case about Implied Novation

Deed of Conditional Sale is INCOMPATIBLE with Deed of Absolute Sale and Promissory Note
Test of Incompatibility
From 15 lots to 11 lots
Oblicon Concept:
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place
of the debtor, or by subrogating a third person in the rights of the creditor.
Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other.
Facts:
Kwong agreed to sell his real properties, consisting of 15 lots, to defendant for $137,255 U.S. Currency or in Philippine
Currency at the rate of P20.40 per dollar (P2.8M), as evidenced by a deed of conditional sale dated November 1986.
That on the date the conditional sale was executed, defendants paid $10,000 U.S. Currency or P204,000.00, Philippine
Currency thereby leaving a balance of $127,255.00 or P2,596,002 Philippine Currency which shall be paid on December
15, 1986 without interest.
However, despite repeated demands, the balance was not paid.
On May 1, 1990, Atty. Ramon Gargantos (brother of respondent Anacleto Gargantos), armed with a Special Power of
Attorney executed by respondents, paid the amount of P1,776,200.
Thereafter, petitioner and Atty. Gargantos executed a notarized Deed of Absolute Sale, wherein petitioner sold to
respondent Gargantos 11 out of the 15 lots for the sum of P500,000 and Atty. Gargantos signed a Promissory Note for the
payment of the amount of P373,075, on or before June 30, 1990, representing the unpaid balance of the purchase
covering the remaining four lots.
Issues:
W/N there was a valid IMPLIED NOVATION? W/N it was the parties intention to supersede the Deed of Conditional Sale
with the Deed of Absolute Sale?
Held:
Yes. An examination of the Deed of Absolute Sale and the Promissory Note, as well as the surrounding circumstances of
this case, shows that it was meant to novate and replace the Deed of Conditional Sale. Logically, the Deed of Conditional
Sale and the Deed of Absolute Sale cannot co-exist as these are of different nature and provide for separate and distinct
obligations.
o The fact that the Deed of Absolute Sale of the 11 lots was executed even without respondents having fully paid
the purchase price for the entire 15 parcels of land covered by the Deed of Conditional Sale enforces the
conclusion that the parties intended to enter into a new agreement and discard the old one
Case 66: Anamer Salazar vs. JY Brothers Marketing Corporation
Case about change in the object or principal conditions. This does not included change of MODE OF PAYMENT.
Salazar as accommodation indorser. Still liable.
Extinctive vs Modificatory Novation.
300 cavans of rice for P214,000.
Oblicon Concept:
Art. 1231. Obligations are extinguished thru (6) Novation.
Facts:
J.Y. Brothers Marketing is a corporation engaged in the business of selling sugar, rice and other commodities.
On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if
she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros.
As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Nena Jaucian Timario in the
amount of P214,000.00 with the assurance that the check is good as cash. Salazar negotiated and indorsed this check
(became an accommodation indorser).
However, upon presentment, the check was dishonored due to "closed account.
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank
Check again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to
insufficient funds.
A criminal case (i.e., Estafa) was filed against Salazar and Timario but the criminal case failed, leaving only the civil case.
RTC ruled in favor of Salazar but CA and SC ruled against her.
Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in
replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that
respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had the
effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or indorser of
the Prudential Bank check would have incurred in the issuance thereof in the amount of P214,000.00; and that a check is
a contract which is susceptible to a novation just like any other contract.
Issues:
W/N the change of checks (mode of payment) is equivalent to change in object or principal conditions subject to novation?
Held:
No. The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely supplements
the old one. Neither is there incompatibility because both checks were given precisely to terminate a single obligation.
Respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to
novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay
respondent the amount of P214,000.00 as payment for the 300 bags of rice. As we said, novation is never presumed,
there must be an express intention to novate. In fact, when the Solid Bank check was delivered to respondent, the same
was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay
P214,000.00 subject of the replaced Prudential Bank check.

Case 67: Philippine National Bank vs. Lilian Soriano
Case about no implied novation in criminal cases (violation of Trust Receipts Law)
Estafa under Floor Stock Line (FSL) with Trust Receipts vs Ordinary Omnibus Loan
Oblicon Concept:
The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original
obligation.
Facts:
On March 20, 1997, PNB extended a credit facility in the form of a Floor Stock Line (FSL) in the increased amount of
Thirty Million Pesos (30 Million) to Lisam Enterprises, Inc.
Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAMs Transactions with
PNB.
On various dates, LISAM made several availments of the FSL in the total amount of P29,645,944, the proceeds of which
were credited to its current account with PNB. For each availment, LISAM through Soriano, executed 52 Trust Receipts
(TRs). In addition to the promissory notes, showing its receipt of the items in trust with the duty to turn-over the proceeds
of the sale thereof to PNB.
Sometime on January 21-22, 1998, PNBs authorized personnel conducted an actual physical inventory of LISAMs motor
vehicles and motorcycles and found that only four (4) units covered by the TRs amounting to 158,100.00 remained
unsold.
Out of the 29,644,944 as the outstanding principal balance of the total availments on the line covered by TRs, LISAM
should have remitted to PNB, 29,487,844. Despite several formal demands, respondent Soriano failed and refused to
turn over the said amount to the prejudice of PNB.
The Court looked to whether there is an incompatibility between the Floor Stock Line secured by TRs and the subsequent
restructured Omnibus Line which was supposedly approved by PNB.
Prosecutor found that Soriano is chargeable of 51 counts of Estafa but Secretary of DOJ reversed it and ordered the trial
court to force the prosecutor to drop charges. CA also took the stand of DOJ but SC ruled in favor of PNB and reinstated
the decision of the prosecutor.
Issues:
W/N the Court of Appeals gravely erred in affirming the DOJs ruling that the restructuring of LISAMs loan secured by trust
receipts extinguished Sorianos criminal liability?
W/N Sorianos right to Double Jeopardy was abused?
Held:
Yes. The purported restructuring of the loan agreement did not constitute novation and there is also no waiver to trustor-
trustee relationship. We have scoured the records and found no incompatibility between the Floor Stock Line and the
purported restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject
to conditions precedent such as the payment of interest and other charges, and the submission of the titles to the real
properties in Tandang Sora, Quezon City. These conditions precedent imposed on the restructured Omnibus Line were
never refuted by Soriano who, oddly enough, failed to file a Memorandum. To our mind, Sorianos bare assertion that the
restructuring was approved by PNB cannot equate to a finding of an implied novation which extinguished Sorianos
obligation as entrustee under the TRs.
No. The withdrawal of the criminal cases did not include a categorical dismissal thereof by the RTC. Double jeopardy had
not set in because Soriano was not acquitted nor was there a valid and legal dismissal or termination of the fifty one (51)
cases against her. It stands to reason therefore that the fifth requisite which requires conviction or acquittal of the accused,
or the dismissal of the case without the approval of the accused, was not met.
Case 68: Cresencio Milla vs. People of the Phil and Market Pursuits, Inc. and Carlo Lopez
Case about no implied novation in criminal cases (Estafa, Falsification of Public Documents, Swindling)
Milla misrepresented himself as an authorized agent of Spouses Handog who possess the property in Makati
He is saying that he is no longer criminally liable because his debt was novated thru the issuance of Equitable PCI checks
to return the P2M.
Oblicon Concept:
The changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.
Facts:
Respondent Carlo Lopez was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI).
In March 2003, Milla represented himself as a real estate developer from Ines Anderson Development Corporation, which
was engaged in selling business properties in Makati, and offered to sell MPI a property therein located.
For this purpose, he showed Lopez a photocopy of TCT registered in the name of spouses Farley and Jocelyn Handog
(Sps. Handog), as well as a Special Power of Attorney purportedly executed by the spouses in favor of Milla.
Lopez verified with the Registry of Deeds of Makati and confirmed that the property was indeed registered under the
names of Sps. Handog.
Since Lopez was convinced by Millas authority, MPI purchased the property for P2 million, issuing Security Bank and
Trust Co. Check in the amount of P1.6 million.
After receiving the check, Milla gave Lopez (1) a notarized Deed of Absolute Sale dated 25 March 2003 executed by Sps.
Handog in favor of MPI and (2) an original Owners Duplicate Copy of TCT.
Consequently, Lopez demanded the return of the amount of P2 million from Milla, who then issued 2 Equitable PCI Check
in the amount of P1 million each. However, these checks were dishonored for having been drawn against insufficient
funds.
Milla contends that his issuance of Equitable PCI Checks before the institution of the criminal complaint against him
novated his obligation to MPI, thereby enabling him to avoid any incipient criminal liability and converting his obligation into
a purely civil one.
RTC and CA ruled against Milla. SC ruled against him too.
Issues:
W/N the negligence of counsel deprived Milla of due process of law?
W/N the principle of novation can exculpate Milla from criminal liability?
W/N the factual findings of the trial court, as affirmed by the appellate court, should be reviewed on appeal?
Held:
No. The general rule is that the mistake of a counsel binds the client, and it is only in instances wherein the negligence is
so gross or palpable that courts must step in to grant relief to the aggrieved client. Milla was given opportunities to defend
his case and was granted concomitant reliefs. Thus, it cannot be said that the mistake and negligence of his former
counsel were so gross and palpable to have deprived him of due process.
No. It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby
criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal liability
or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to
penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to.
o The changes alluded to by petitioner consists only in the manner of payment.
No. Factual findings of the trial court, especially when affirmed by the appellate court, are binding on and accorded great
respect by this Court.
Case 69: Abelardo Licaros vs. Antonio Gatmaitan
Case about CONVENTIONAL SUBROGATION
Oblicon Concept:
Conventional Subrogation.
Facts:
The Anglo-Asean Bank and Trust Limited is a foreign private bank. Its business consists primarily in receiving fund
placements by way of deposits from institutions and individual investors from different parts of the world and thereafter
investing such deposits in money market placements and potentially profitable capital ventures in Hongkong, Europe and
the United States for the purpose of maximizing the returns on those investments.
Licaros, a Filipino businessman, decided to make a fund placement with said bank.
After having invested in Anglo-Asean, Licaros encountered tremendous and unexplained difficulties in retrieving, not only
the interest or profits, but even the very investments he had put in Anglo-Asean.
Licaros then decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment manager who had
been extending managerial, financial and investment consultancy services to various firms and corporations both here and
abroad.
Gatmaitan was only too willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Aseans
indebtedness to Licaros subject to certain terms and conditions. In order to effectuate and formalize the parties
respective commitments, the two executed a notarized MEMORANDUM OF AGREEMENT.
Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier executed by him and Licaros for the purpose
of collecting the latters placement thereat of $150,000. Albeit the officers of Anglo-Asean allegedly committed themselves
to look into [this matter], no formal response was ever made by said bank to either Licaros or Gatmaitan. To date,
Anglo-Asean has not acted on Gatmaitans monetary claims.
Because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore to make good his promise to pay
Licaros the amount stated in his promissory note. Licaros, however, thought differently. He felt that he had a right to collect
on the basis of the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July 1996,
Licaros, thru counsel, addressed successive demand letters to Gatmaitan demanding payment of the latters obligations
under the promissory note.
Issues:
W/N Licaros can collect from Gatmaitan? W/N the MOA is effective?
Held:
No. The Court agrees with the finding of the Court of Appeals that the Memorandum of Agreement was in the nature of a
conventional subrogation which requires the consent of the debtor, Anglo-Asean Bank, for its validity. The structure of the
MOA is that of conventional subrogation (whereas clause and conforme) which requires the consent/signature of the

debtor (bank). But since there is no consent/signature from the debtor, the MOA is not effective and Licaros has no right to
collect.
It is true that conventional subrogation has the effect of extinguishing the old obligation and giving rise to a new one.
However, the extinguishment of the old obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional subrogation may not be created. As such, it is
not determinative of whether or not a contract of conventional subrogation was constituted.
ARTICLES 1305-1317: CERTAIN RULES ON CONTRACTS
A. CONTRACT IS THE LAW BETWEEN PARTIES
Case 70: Department of Health vs HTMC Engineers Company
Case about noncompliance by DOH of the Owner-Consultant Agreement because HTMC did not agree to the
restructuring of a subsequent contract.
There being no new contract or meeting of the minds, the original contract subsists and the parties are bound thereby.
Executive Order No. 1008, also known as the "Construction Industry Arbitration Law"
Oblicon Concept:
Art 1308. The contract must bind both contracting parties, its validity or compliance cannot be left to the will of one of
them.
A contract properly executed between parties continue to be the law between said parties and should be complied with in
good faith.
Facts:
On various dates in May 1996, petitioner Department of Health (DOH) entered into four OwnerConsultant Agreements
with respondent HTMC Engineers Company (HTMC) involving various infrastructure projects for East Avenue Medical
Center, Rizal Medical Center, Amang Rodriguez Medical Center, and Tondo Medical Center.
All four consultancy agreements for the above-named hospitals were similarly-worded, indicating therein that said
contracts were intended for the preparation of architectural and engineering (A & E) design plans and bid
documents/requirements, and for construction supervision (CS).
Moreover, Under Article 5.1 of the consultancy contracts, the professional fee of HTMC is 7.5% of the project fund
allocation.
Sometime in July and August 1996, respondent was able to complete the A & E services for all four hospitals and the
necessary documents were submitted to petitioner in accordance with the consultancy agreements.
On 29 November 1996, petitioner requested the amendments to the consultancy agreements pursuant to the guidelines
issued by the National Economic Development Authority (NEDA).
In response to the proposed amendments, on 24 January 1997, HTMC sent the DOH a position paper expressing their
opinion on the matter.
It would seem, however, that no clear settlement had been reached by the parties in connection with petitioners proposed
amendments to the consultancy agreements, thus, the DOH refused to issue the necessary notices to proceed with the
construction supervision in favor of HTMC (these were done by DOH employees themselves).
On 22 April 1998, respondents counsel sent a demand letter to the DOH.
o it is hereby requested that the balance of the Consultants Fee for the above four (4) referred projects in the
amount of P2,102,469 be paid.
For petitioners continued refusal to heed respondents demand for payment and issuance of notices to proceed, on 26
October 1998, HTMC filed a claim against DOH and requested for arbitration with the CIAC.
CIAC, CA and SC decided against DOH.
Issues:
W/N CIAC has jurisdiction?
W/N the monetary award provided by the CIAC is in accord with the tenor of the consultancy agreements?
Held:
Yes it is expressly provided in their contract (Articles 12.1 and 12.2). Upon the signing of said agreements in May 1996 by
DOH and HTMC, both parties have explicitly agreed that after a dispute arising from said agreements has been passed
upon by the Health Secretary, said controversy involving the consultancy agreements shall be submitted to voluntary
arbitration, jurisdiction over which is granted by law to the CIAC. It is clear that prior to the filing of the controversy for
arbitration before the CIAC, HTMC, through counsel, had repeatedly appealed the matter before the DOH, through the
Department Secretary, but the latter failed to act upon HTMCs request.
Yes. The perfected consultancy agreements between DOH and HTMC are valid, and therefore, under the stipulations
contained therein, DOH is under obligation to pay HTMC the unpaid sum of its consultancy fees which according to the
findings of the CIAC, as affirmed by the appellate court, amounts to P3,543,630 (A & E services), reimbursement for the
salaries of the three engineers engaged by HTMC to perform construction supervision in the amount of P576,000.00, and
damages in the form of unrealized profit in the amount of P310,544.00, or the total amount of P4,430,174.00 with interest.

B. MUTUALITY OF CONTRACTS
Case 71: GF Equity, Inc. vs Arturo Valenzona
Case about abuse of rights (Art 19 of CC) regarding void provision of the Employment Contract of basketball coach. This
leads to award of damages under Art 20 of the CC.
Case about mutuality of contracts and not leaving the compliance to the will of one of the contracting parties.
Oblicon Concept:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall indemnify the latter for
the same.
Art 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.
o The ultimate purpose of the mutuality principle is thus to nullify a contract containing a condition which makes its
fulfillment or pre-termination dependent exclusively upon the uncontrolled will of one of the contracting parties.
Laches has been defined as the failure or neglect for an unreasonable and unexplained length of time to do that which by
exercising due diligence, could or should have been done earlier, thus giving rise to a presumption that the party entitled
to assert it either has abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay,
standing alone, is insufficient to constitute laches.
Facts:
GF Equity, represented by its Chief Financial Officer, Steven Uytengsu, hired Valenzona as Head Coach of the Alaska
basketball team in the Philippine Basketball Association (PBA) under a Contract of Employment.
Under the contract, GF Equity would pay Valenzona the sum of Thirty Five Thousand Pesos (P35,000) monthly, net of
taxes, and provide him with a service vehicle and gasoline allowance.
While the employment period agreed upon was for two years commencing on January 1, 1988 and ending on December
31, 1989, the last sentence of paragraph 3 of the contract carried the following condition:
o If at any time during the contract, the COACH, in the sole opinion of the CORPORATION, fails to exhibit sufficient
skill or competitive ability to coach the team, the CORPORATION may terminate this contract.
During his stint as Alaskas head coach, the team placed third both in the Open and All-Filipino PBA Conferences in 1988.
Valenzona was later advised by the management of GF Equity by letter of September 26, 1988 of the termination of his
services.
Close to six years after the termination of his services, Valenzonas counsel, by letter of July 30, 1994, demanded from GF
Equity payment of compensation arising from the arbitrary and unilateral termination of his employment.
RTC decided in favor of GF Equity, CA and SC decided in favor of Valenzona.
Issues:
W/N the parapgraph 3 of the Employment Contract is void?
W/N GF Equity abused its right in terminating the contract?
W/N GF Equitys defense of laches on account of Valenzonas invocation of his right under the contract only after the
lapse of six years is valid?
Held:
Yes. It is against the mutuality of contracts (Art 1308), Art 19 and Art 20 of the CC.
Yes. Since the pre-termination of the contract was anchored on an illegal ground, hence, contrary to law, and GF Equity
negligently failed to provide legal basis for such pre-termination, e.g. that Valenzona breached the contract by failing to
discharge his duties thereunder, GF Equity failed to exercise in a legitimate manner its right to pre-terminate the contract,
thereby abusing the right of Valenzona to thus entitle him to damages under Art. 19 in relation to Article 20 of the Civil
Code.
No. Laches applies in equity, whereas prescription applies at law. Our courts are basically courts of law, not courts of
equity. Laches cannot thus be invoked to evade the enforcement of an existing legal right (10 years prescription for
contracts). Equity, which has been aptly described as a justice outside legality, is applied only in the absence of, and
never against, statutory law.
Case 72: Philippine National Bank vs Spouses Agustin and Pilar Rocamora
Case about violation of mutuality of contracts in ESCALATION CLAUSES (of 12% to 42% interest) without the consent of
the other party. -VOID
Case about PNBs deficiency judgment case on remaining balance of loan plus interest and charges after foreclosure.
Oblicon Concept:
them.
Facts:
On September 25, 1981, the spouses Rocamora obtained a loan from PNB in the aggregate amount of P100,000 under
the Cottage Industry Guarantee and Loan Fund (CIGLF). The loan was payable in five years, under the following terms:
o P35,000 payable semi-annually and P65,000 payable annually.
o In addition to the principal amount, the spouses Rocamora agreed to pay interest at the rate of 12% per annum,
plus a penalty fee of 5% per annum in case of delayed payments.
o The spouses Rocamora signed two promissory notes evidencing the loan.
To secure their loan obligations, the spouses Rocamora executed two mortgages: a real estate mortgage over a property
covered by TCT in the amount of P10,000, and a chattel mortgage over various machineries in the amount of P25,000.
Payment of the remaining P65,000 was under the CIGLF guarantee, with the spouses Rocamora paying the required
guarantee fee.
Both the promissory note and the real estate mortgage deed contained an escalation clause that allowed PNB to increase
the 12% interest rate at anytime without notice, within the limits allowed by law. It also contains de-escalation clause.
The PNB claimed that the outstanding principal balance as of foreclosure date (September 19, 1990) was P79,484.65,
plus interest and penalties, for a total due and demandable obligation of P250,812. Allegedly, after deducting the P75,500
proceeds of the foreclosure sale, the spouses Rocamora still owed the bank P206,297.
The spouses Rocamora refused to pay the amount claimed as deficiency. They alleged that the PNB practically created
the deficiency by (a) increasing the interest rates from 12% to 42% per annum, and (b) failing to immediately foreclose the
mortgage pursuant to Presidential Decree No. 385 (PD 385 or the Mandatory Foreclosure Law) to prevent the interest and
penalty charges from accruing.
RTC, CA and SC decided against PNB.
Issues:
W/N PNB can escalate the interest rate anytime without the consent of Spouses Ricamora?
W/N PNB failed to sufficiently and satisfactorily prove the amount of P250,812?
W/N PNB failed to comply with the immediate and mandatory foreclosure required under PD 385?
Held:
No. Any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement
between the parties. The minds of all the parties must meet on the proposed modification as this modification affects an
important aspect of the agreement. There can be no contract in the true sense in the absence of the element of an
agreement, i.e., the parties mutual consent. Thus, any change must be mutually agreed upon, otherwise, the change
carries no binding effect.
o Even with a de-escalation clause, no matter how elaborately worded, an unconsented increase in interest rates is
ineffective if it transgresses the principle of mutuality of contracts.
Yes. Both the RTC and the CA found that PNB failed to prove the claimed deficiency; its own testimonial and documentary
evidence in fact contradicted one another. The PNB alleged that the spouses Rocamoras obligation at the time of
foreclosure (September 19, 1990) amounted to P250,812.10, yet its own documentary evidence showed that, as of that
date, the total obligation was only P206,664; the PNBs own witness, Mr. Reynaldo Caso, testified that the amount due
from the spouses Rocamora was only P206,664.
Yes. Under PD 385, government financial institutions which was PNBs status prior to its full privatization in 1996 are
mandated to immediately foreclose the securities given for any loan when the arrearages amount to at least 20% of the
total outstanding obligation. PNB foreclosed only after 3 years of default by the spouses.
Case 73: Solidbank Corporation vs Permanent Homes, Inc.
Case about validity of changing interest rates depending on fluctuations in local and international markets.
Case about validity of changing interest rates based on NOTICE given to debtor by the creditor.
Lastly, the changing of interest rates is valid because it is expressly provided in the contract.
Oblicon Concept:
them.
The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These
circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these
circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law
is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer
subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates. The lender and
the borrower should agree on the imposed rate, and such imposed rate should be in writing.
Facts:
PERMANENT HOMES is a real estate development company, and to finance its housing project known as the "Buena
Vida Townhomes" located within Merville Subdivision, Paraaque City.
It applied and was subsequently granted by SOLIDBANK with an "Omnibus Line" credit facility in the total amount of
P60M. Of the entire loan, P59M as time loan for a term of up to three hundred sixty (360) days, with interest thereon at
prevailing market rates, and subject to monthly repricing. The remaining P1M was available for domestic bills purchase.
PERMANENT HOMES initially mortgaged 3 townhouse units within the Buena Vida project in Paraaque. At the time,
however, the instant complaint was filed against SOLIDBANK, a total of 36 townhouse units were mortgaged with said
bank.
Of the P60M available to PERMANENT HOMES, it availed of a total of P41.5M, covered by three (3) promissory notes,
WITH PROVISIONS FROM MONTHLY REPRICING OF INTEREST RATES AFTER NOTICE TO PERMANENT. These
amount to P19.6M, P18M and P3.9M.

Contrary to the specific provisions as afore-quoted, there was a standing agreement by the parties that any increase or
decrease in interest rates shall be subject to the mutual agreement of the parties.
RTC and SC decided in favor of Solidbank. CA ruled in favor of Permanent.
Issues:
W/N the increases in the interest rates on Permanents loans are void for having been unilaterally imposed without basis?
W/N the parties need to enter into an express agreement regarding the applicable interest rates on Permanents loan
availments subsequent to the initial thirty-day (30) period?
Held:
No. The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations;
(2) repricing takes effect only upon Solidbanks written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate.
The phrases "irrevocably authorize," "at any time" and "adjustment of the interest rate shall be effective from the date
indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent,"
emphasize that Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest
rates. SC ordered that the change of interest rates should be recomputed at the time Permanent received notice.
o Moreover, Solidbanks range of lending rates were consistent with "prevailing rates in the local or international
capital markets."
o The interest rate repricing happened at the height of the Asian financial crises in late 1997, when banks clamped
down on lendings because of higher credit risks across industries, particularly the real estate industry.
No. Receipt of notice is enough. If Permanent feels that it is excessive, it has the option to pre-pay.
C. AUTONOMY OF CONTRACTS
Case 74: Daisy Tiu vs Platinum Plans Phil., Inc.
Case about stipulations in contracts which should not be contrary to law, morals, good customs, public order and public
policy.
Case about validity of non-involvement clause which is limited as to trade, time and place.
Oblicon Concept:
Article 1306 provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Article 1159 provides that obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
Facts:
Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to
1989, petitioner Daisy B. Tiu was its Division Marketing Director.
On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and Territorial Operations Head in
charge of its Hongkong and Asean operations. The parties executed a contract of employment valid for 5 years.
On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for
Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages before the RTC. Respondent alleged, among others, that
petitioners employment with Professional Pension Plans, Inc. violated the non-involvement clause in her contract of
employment. It contained provisions prohibiting the employee from working in the same business (i.e., pre-need industry)
as her employer for 2 years. The liquidated damage is set at P100k.
Petitioner avers that the non-involvement clause is offensive to public policy since the restraint imposed is much greater
than what is necessary to afford respondent a fair and reasonable protection. She adds that since the products sold in the
pre-need industry are more or less the same, the transfer to a rival company is acceptable. Petitioner also points out that
respondent did not invest in her training or improvement. At the time she joined respondent, she already had the
knowledge and expertise required in the pre-need industry. Finally, petitioner argues that a strict application of the non-
involvement clause would deprive her of the right to engage in the only work she knows.
Issues:
W/N the non-involvement clause is valid?
Held:
Yes. A non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable
limitations as to time, trade, and place. The non-involvement clause has a time limit: two years from the time petitioners
employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-
need business akin to respondents. She had been privy to confidential and highly sensitive marketing strategies of
respondents business. To allow her to engage in a rival business soon after she leaves would make respondents trade
secrets vulnerable especially in a highly competitive marketing environment.
The Court finds the non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair
and reasonable protection to respondent.

D. RELATIVITY OF CONTRACTS
1. To defraud creditors (Accion Pauliana)

2. Pledge notarized
Case 75: National Power Corporation vs Province of Quezon and Municipality of Pagbilao
Case about Relativity of Contracts

NPC has no legal interest in operations and machineries of Mirant, thus, NPC cant avail of tax-exemption on real property
tax from the Local Government Code.
Oblicon Concept:
Art. 1311. If the contract should contain some stipulation in favor of a third person, he may demand its fulfilment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.
Facts:
The NPC is a government-owned and controlled corporation mandated by law to undertake, among others, the production
of electricity from nuclear, geothermal, and other sources, and the transmission of electric power on a nationwide basis.
To pursue this mandate, the NPC entered into an Energy Conversion Agreement (ECA) with Mirant on November 9, 1991.
The ECA provided for a build-operate-transfer (BOT) arrangement between Mirant and the NPC.
Mirant will build and finance a coal-fired thermal power plant on the lots owned by the NPC in Pagbilao, Quezon for the
purpose of converting fuel into electricity, and thereafter, operate and maintain the power plant for a period of 25 years.
The NPC, in turn, will supply the necessary fuel to be converted by Mirant into electric power, take the power generated,
and use it to supply the electric power needs of the country.
At the end of the 25-year term, Mirant will transfer the power plant to the NPC without compensation.
Among the obligations undertaken by the NPC under the ECA was the payment of ALL TAXES that the government may
impose on Mirant.
In a letter dated March 2, 2000, the Municipality of Pagbilao assessed Mirants real property taxes on the power plant and
its machineries in the total amount of P1,538,076,000 for the period of 1997 to 2000. The Municipality of Pagbilao
furnished the NPC a copy of the assessment letter.
NPC filed a case with the Local Board of Assessment Appeals (LBAA) to avail of GOCCs tax exemptions (ON
MACHINERIES AND EQUIPMENTS ACTUALLY, DIRECTLY AND EXCLUSIVELY USED) under Section 234, paragraphs
(c) and (e) of the LGC.
LBAA, CBAA, CTA and SC ruled against NPC.
Issues:
W/N NPC can question CBAAs jurisdiction?
W/N NPC was not the proper party to protest the real property tax assessment, as it did not have the requisite "legal
interest"?
W/N NPC is using the subject machineries actually, directly, and exclusively?
Held:
No. Petitioner is bound by the appellate jurisdiction of the CBAA under the principle of equitable estoppel. In this regard,
NPC is in no position to question the appellate jurisdiction of the CBAA as it is the same party which sought its jurisdiction
and participated in the proceedings therein.
Yes. The entity liable for tax has the right to protest the assessment (The owner of the real property or the person having
legal interest therein). NPC is neither the owner nor the possessor/user of the subject machineries (subject to condition
only after 25 years which may or may not happen).
No. The government-owned or controlled corporation claiming exemption must be the entity actually, directly, and
exclusively using the real properties, and the use must be devoted to the generation and transmission of electric power.
Neither the NPC nor Mirant satisfies both requirements. Although the plants machineries are devoted to the generation of
electric power, by the NPCs own admission and as previously pointed out, Mirant a private corporation uses and
operates them. That Mirant operates the machineries solely in compliance with the will of the NPC only underscores the
fact that NPC does not actually, directly, and exclusively use them. The machineries must be actually, directly, and
exclusively used by the government-owned or controlled corporation for the exemption under Section 234(c) to apply.
3. Tortuous Interference
Case 76: Herminio Tayag vs Lacson
Oblicon Concept:

Facts:
Respondents Lacson et al. are owners of 3 parcels of land in Pampanga and these properties were tenanted agricultural
lands administered by Renato Espinosa for the owner. A group of original farmers and another group individually executed
in favor of the petitioner(Tayag) separate Deeds of Assignment in which the assignees assigned to the petitioner
respective rights as tenants of the land for a consideration of P50/sq.mtr. The certain amount was made payable when the
legal impediments to the sale of the property no longer existed Petitioner also granted exclusive right to buy the property if
and when the respondents(Lacson), with the concurrence of the defendants-tenants(the farmers), agreed to sell the
property. Petitioner gave varied sums of money to the tenants and the latter issued receipts for the petitioner Petitioner
called a meeting with the tenants to work out the implementation of the agreements but the tenants did not go to the
meeting saying that they decided to sell all their rights and interests as tenants to the respondents. Petitioner filed a
complaint with the RTC for the court to fix a period within which to pay the purchase price (50 per sqmtr.) as provided for
in the Deeds of Assignments RTC held that petitioner was entitled to injunctive relief unless the respondents and tenants
adduced controverting evidence Repondents appealed to CA CA ruled against the petitioner annulling and setting aside
the assailed orders of the trial court Ca ruled that the respondents could not be enjoined from alienating or encumbering
their property since they were not privies to the deeds of assignment executed by the tenants. These tenants were not yet
owners of the properties and therefore, they had nothing to assign to the petitioner The deeds assigned were contrary to
PD no. 27 and Rep. Act no. 6657.
Issues:
W/N
Held:

Case 77: Gilchrist vs Cuddy, Jose Espejo and Mariano Zaldarriaga
Case about Tortuous Interference

This is the landmark case. Here, malice is not yet required for award of damages to injured party. Mere interference (even
for furtherance of financial interest) is subject to damages. If there is malice then the award of damages will be higher.
Oblicon Concept:
The only motive for interference by the third party in that case was the desire to make a profit to the injury of one of the
parties of the contract. There was no malice in the case beyond the desire to make an unlawful gain to the detriment of
one of the contracting parties.
Facts:
Cuddy was the owner of the Zigomar.
Gilchrist was the owner of a cinematograph theater in Iloilo.
In accordance with the terms of the contract entered into between Cuddy and Gilchrist the former leased to the latter the
"Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913.
Cuddy willfully violate his contract in order that he might accept the appellant's offer of P350 for the film for the same
period. Did the other respondents know that they were inducing Cuddy to violate his contract with a third party when they
induced him to accept the P350?
Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter from his agents in Manila dated
April 26, assuring him that he could not get the film for about six weeks.
The arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May were
perfected after April 26, so that the six weeks would include and extend beyond May 26. The appellants must necessarily
have known at the time they made their offer to Cuddy that the latter had booked or contracted the film for six weeks from
April 26.
Therefore, the inevitable conclusion is that the appellants knowingly induced Cuddy to violate his contract with another
person. But there is no specific finding that the appellants knew the identity of the other party.
Cuddy is liable for breach of contract. Other respondents liable for tortuous interference.
Issues:
W/N
Held:
The only motive for the interference with the Gilchrist Cuddy contract on the part of the appellants was a desire to make
a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of
the legal liability for interfering with that contract and causing its breach. It is, therefore, clear, under the above authorities,
that they were liable to Gilchrist for the damages caused by their acts.
Case 78: Jose Lagon vs CA and Menandro Lapuz
Case about Tortuous Interference 2nd requirement of KNOWLEDGE of the valid contract.
No malice on the part of Lagon because he exercised due diligence in finding out existing attachments to land before
contracting with the heirs.
Oblicon Concept:
Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall be liable for
damages to the other contracting party. The tort recognized in that provision is known as interference with contractual
relations. The interference is penalized because it violates the property rights of a party in a contract to reap the benefits
that should result therefrom.
Facts:
On June 23, 1982, Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate court, two parcels of
land located at Sultan Kudarat. A few months after the sale, private respondent Menandro Lapuz filed a complaint for torts
and damages against petitioner. Respondent is claiming that petitioner induced the heirs to contract with him.
Private respondent claimed that he entered into a contract of lease with the late Bai Tonina Sepi Mengelen Guiabar over
three parcels of land in Sultan Kudarat, beginning 1964. One of the provisions agreed upon was for private respondent to
put up commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by those tenants would
answer for the rent private respondent was obligated to pay Bai Tonina Sepi for the lease of the land.
In 1974, the lease contract ended but since the construction of the commercial buildings had yet to be completed, the
lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed administrator of her estate.
But when the administrator advised him to stop collecting rentals from the tenants of the buildings he constructed, he
discovered that petitioner, representing himself as the new owner of the property, had been collecting rentals from the
tenants.
Petitioner conducted due diligence before contracting with the heirs.
Issues:
W/N the petitioner is liable for interference of contractual relation under Article 1314 of the New Civil Code?
W/N the petitioner liable for actual damages and attorney's fees?
Held:
No. Petitioner had no knowledge of the lease contract. He conducted his own personal investigation and inquiry, and
unearthed no suspicious circumstance that would have made a cautious man probe deeper and watch out for any
conflicting claim over the property. An examination of the entire property's title bore no indication of the leasehold interest
of private respondent. Even the registry of property had no record of the same.
No because there is no malice. In our view, petitioner's purchase of the subject property was merely an advancement of
his financial or economic interests, absent any proof that he was enthused by improper motives. Being in the concept of
actual damages, the award for attorney's fees must have clear, factual and legal bases which, in this case, do not exist.
Case 79: So Ping Bun vs CA, Tek Hua Enterprises Corp and Manuel Tiong
Case about lack of damages in Tortuous Interference without malice (only business interest).
Oblicon Concept:
The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the
existence of contract; and (3) interference of the third person is without legal justification or excuse.
A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may
be predicated upon an unlawful interference by one person of the enjoyment by the other of his privateproperty. This may
pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract.
Facts:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee
C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts. Tek Hua used the areas to store its textiles. The
contracts each had a one-year term. They provided that should the lessee continue to occupy the premises after the term,
the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. In
1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co. including Manuel C. Tiong,
formed Tek Hua Enterprising Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So Ping Bun,
occupied the warehouse for his own textile business, Trendsetter Marketing.
Manuel Tiong, president of Tek Hua Enterprising Corp. demanded So Ping Bun to vacate the premises because it will use
it for its own business (being the rightful lessee).
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor
Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying
the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's request. The lease contracts
in favor of Trendsetter were executed.
Issues:
W/N So Ping Bun is guilty of tortuous interference?
W/N the award of attorneys fees against petitioner is valid despite the lack of malice?
Held:
Yes. Petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner
deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the
three elements of tort interference above-mentioned are present in the instant case.
Yes. NO DAMAGE TO BE AWARDED. While we do not encourage tort interferers seeking their economic interest to
intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not
transcend the limits forbidding an obligatory award for damages in the absence of any malice. The business desire is there

to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does
not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. The respondent
appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and
Trendsetter Marketing, without awarding damages. The injunction saved the respondents from further damage or injury
caused by petitioner's interference.
4. Stipulation Pour Autrui
Case 80: Limitless Potentials, Inc. vs Judge Quilala and Roman Catholic Archbishop of Manila
Case about Stipulation Pour Autri in favor of a third person.

Lease and sublease of billboards and payment in favor of the lessor not creditable to the lessee.
Oblicon Concept:
The definition of a stipulation pour autrui is set forth in the second paragraph of the above provision. The requisites for
such stipulation are the following: (a) the stipulation in favor of a third person, the third-party beneficiary which should be a
part, not the whole, of the contract; (b) the contracting parties must have clearly and deliberately conferred a favor upon a
third person, not a mere incidental benefit or interest; (c) the favorable stipulations should not be conditioned or
compensated by any kind of obligation whatsoever; (d) the third person must have communicated his acceptance to the
obligor before its revocation; and (e) neither of the contracting parties bear the legal representation or authorization of the
third party.
The third-party may be (a) a donee beneficiary; (b) a creditor beneficiary; or (c) an incidental beneficiary.
The intent of the promisee to benefit a third person as a primary party-in-interest is generally said to be controlling.
Facts:
LPI had a lease contract with Roman Catholic Archbishop of Manila for advertising purposes over certain areas where the
Our Lady of Guadalupe Minor Seminary Compound and the San Carlos Seminary Compound are located.
Other advertising agencies, including ASTRO Advertising, Inc. (ASTRO), applied to RCAM for the putting up of neon
signs/billboards in the leased premises. RCAM referred the applications to LPI.
LPI wrote RCAM that it would execute the appropriate contracts with the applicants, and oversee the installation and
operation of neon advertising signs; the overlapping of signboards would be avoided and the area would not be rendered
unsightly and unmanageable. It also stated that the monthly rentals from the agencies shall go to the church to enable it to
earn more. RCAM agreed.
On January 18, 1990, LPI, as sublessor, and ASTRO, as sublessee, executed an agreement (Sublease Agreement) in
which LPI sublet Lot 28-B for a period of five (5) years from February 1, 1990 to February 1, 1995.
Under the agreement, ASTRO was to remit the rentals for the property directly to RCAM.
LPI paid the rentals to RCAM until August 1993. ASTRO also paid to RCAM the rentals due under the Sublease
Agreement from February 1, 1990 to July 1, 1993 totaling P832,920.00; LPI, however, was not credited the rental
payments made by ASTRO.
When the sublease to ASTRO expired in February 1995, RCAM did not turn over to LPI the possession of the sublet
advertising spaces/areas; instead, the said areas were leased to Macgraphics Carranz International Corporation (MCIC)
which erected its own billboards and advertising signs thereon.
Issues:
W/N LPI had overpaid RCAM for rentals due up to February 1, 1995 (insofar as the sublet spaces are concerned) and
October 5, 1995 (insofar as the rest of the leased premises are concerned), and if so, how much LPI had overpaid?
W/N LPI had the right to continue to possess the property from the time RCAM rescinded the MOA, until the expiration of
the two-year period?
W/N amended decision of the RTC ordering RCAM to restore possession of the property to LPI was immediately
executory?
Held:
No. Without any solicitation therefor, LPI informed RCAM, through a letter, that it would earn more from monthly rentals
from ASTRO, and that such rentals "shall go to the church." Thus, ASTROs payments should not be creditable to LPIs
payments since it is clear that this is a STIPULATION POUR AUTRI. Acceptance need not be written. Under the sublease
agreement between LPI and ASTRO, the latter is obliged to remit its rental payments directly to RCAM, and not to LPI.
RCAM accepted the offer of LPI and indeed, received all the rentals of ASTRO from February 1990 to July 1993. RCAM
did not credit the said rentals to LPI. For its part, LPI paid the rentals under its lease agreement with RCAM, without
deducting therefrom the rental payments of ASTRO for the said period. LPI never demanded that RCAM credit it for the
rental payments of ASTRO. It was only when LPI sued RCAM for consignation, and the latter filed a suit for ejectment that
LPI claimed the crediting of ASTROs rental payments from February 1990 to July 1993 for the first time.
Yes. A lessee unlawfully evicted by the lessor is entitled to be restored to the possession of the property leased for the
"unused" period of the lease contract, counted from his eviction; such "unexpired portion" of the contract cannot be
affected by the lapse of the period pending the final resolution of the complaint for ejectment filed by the lessor.
No. The execution of the judgment pending appeal is proper only if the judgment is in favor of the plaintiff and against the
defendant, and not vice versa.

ARTICLES 1318-1324: Essential Requisites of a Contract
CONSENT
Case 81: Spouses David and Lorenzana Pelayo vs Melki Perez
Case about presence of cause even if not equitable and just. The Court could not always protect a capacitated person
from entering private transactions.
Consensual contracts are valid upon perfection. The transaction is not under the requirements of RA 6656 or
Comprehensive Agrarian Reform Law.
Oblicon Concept:
Sale is a consensual contract that is perfected by mere consent, which may either be express or implied. A wifes consent
to the husbands disposition of conjugal property does not always have to be explicit or set forth in any particular
document, so long as it is shown by acts of the wife that such consent or approval was indeed given.
Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or
through the mediation of another:
o (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of
the principal has been given;
Facts:
David Pelayo, by a Deed of Absolute Sale executed on January 11, 1988, conveyed to Melki Perez two parcels of
agricultural land situated in Davao.
Loreza Pelayo, wife of David, and another one whose signature is illegible witnessed the execution of the deed.
Loreza, however, signed only on the third page in the space provided for witnesses on account of which Perez application
for registration of the deed with the Office of the Register of Deeds in Tagum, Davao was denied.
Perez thereupon asked Loreza to sign on the first and second pages of the deed but she refused, hence, he instituted on
August 8, 1991 the instant complaint for specific performance against her and her husband Pelayo.
The defendants claimed that as the lots were occupied illegally by some persons against whom they filed an ejectment
case, they and Perez who is their friend and known at the time as an activist/leftist, hence feared by many, just made it
appear in the deed that the lots were sold to him in order to frighten said illegal occupants, with the intentional omission of
Lorezas signature so that the deed could not be registered; and that the deed being simulated and bereft of consideration
is void/inexistent.
Perez countered that the lots were given to him by defendant Pelayo in consideration of his services as his attorney-in-fact
to make the necessary representation and negotiation with the illegal occupants-defendants in the ejectment suit.
Issues:
W/N the deed of sale was null and void on the following grounds:
o (a) for not complying with the provision in R.A. No. 6657 that such document must be registered with the Register
of Deeds within three months after the effectivity of said law;
o (b) for lack of marital consent;
o (c) for being prohibited under Article 1491 (2) of the Civil Code; and
o (d) for lack of consideration.
Held:
No. The issue of whether or not the deed of sale is null and void under R.A. No. 6657, for respondents failure to register
said document with the Register of Deeds within three months after the effectivity of R.A. No. 6657, had been resolved
with finality by the CA in its Decision dated November 24, 1994 in CA-G.R. SP No. 38700. Herein petitioners no longer
elevated said CA Decision to this Court and the same became final and executory on January 7, 1995. This is now the law
of the case.
No. Although it appears on the face of the deed of sale that Lorenza signed only as an instrumental witness,
circumstances leading to the execution of said document point to the fact that Lorenza was fully aware of the sale of their
conjugal property and consented to the sale.
No. Petitioners, by signing the Deed of Sale in favor of respondent, are also deemed to have given their consent to the
sale of the subject property in favor of respondent, thereby making the transaction an exception to the general rule that
agents are prohibited from purchasing the property of their principals.
No. The element of consideration for the sale is indeed present. Petitioners, in adopting the trial courts narration of
antecedent facts in their petition, thereby admitted that they authorized respondent to represent them in negotiations with
the "squatters" occupying the disputed property and, in consideration of respondents services, they executed the subject
deed of sale. Aside from such services rendered by respondent, petitioners also acknowledged in the deed of sale that
they received in full the amount of Ten Thousand Pesos. Evidently, the consideration for the sale is respondents services
plus the aforementioned cash money.
Case 82: Miguela Villanueva and Children vs CA, Central Bank, Philippine Veterans Bank and Ildefonso Ong
Case about no perfected contract when one party becomes INSOLVENT before acceptance of offer.
Miguela (defrauded) has better title because Ongs offer not perfected.

Oblicon Concept:
Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before
acceptance is conveyed. The reason for this is that:
The contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they
occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either
party or his loss of capacity before perfection prevents the contractual tie from being formed.
Facts:
The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva.
Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB branch
in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots
as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela
Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her
husband Celestino. Miguela Villanueva, however, never got the loan she was expecting.
Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles
over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that
the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were again
canceled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PVB after
the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at
auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of
the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985.
In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through
foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00. His offer was not yet accepted
when the PVB became insolvent and went under receivership.
Issues:
W/N Ong has a better title to the 2 parcels of disputed land?
Held:
No. The Court of Appeals erred when it held that Ong had a better right than the petitioners to the purchase of the
disputed lots. The insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property, applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots
became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge.
Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the
resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties.
Case 83: Federico Serra vs CA and Rizal Commercial Banking Corporation
Case about Certainty of Price where the description is not greater than P210.
Case about Contract of Lease with Option to Buy.
Oblicon Concept:
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised.
Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.
Facts:
Petitioner is the owner of a parcel of land located at Quezon St., Masbate.
Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, negotiated with petitioner for the
purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead
forged by the parties.
The LESSOR leases unto the LESSEE, the LESSEE hereby accepts in lease, the parcel of land, to have and to hold the
same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000.
The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the
date of the signing of this Contract at a price not greater than P210.00 per square meter.
For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the
TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account.
Rent is P700 per month.
Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect
the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided
to exercise its option and informed petitioner, through a letter, of its intention to buy the property at the agreed price of not
greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner
replied that he is no longer selling the property.
Issues:
W/N the disputed contract is a contract of adhesion?
W/N there was no consideration to support the option, distinct from the price, hence the option cannot be exercised?
W/N there should be currency adjustment on the already eroded value of the stipulated rentals for twenty-five years?
W/N the price of purchase is certain?
Held:
No. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the
contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts
and circumstances will show that it is basically one-sided.
No there was consideration. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by
the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is
determinate and the price which is certain. In which case, the parties may then reciprocally demand performance.
o The consideration is even more onerous on the part of the lessee since it entails transferring of the building
and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the
period stipulated.
No. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by
themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of
the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in
an extraordinary inflation.
Yes. Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have
used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per
square meter. This was confirmed by petitioner himself in his testimony.
Case 84: Ang Yu Asuncion, Arthur Go and Keh Tiong vs CA and Buen Realty Development Corporation
Case about about unavailability of Motion for Execution in Right of First Refusal.
This right cant be enforced because it lacks elements of a valid contract. This should be a case on action for damages.
Oblicon Concept:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver
a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
Facts:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong,
et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court in Civil Case No. 87-
41058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by
defendants; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying
with all the conditions of the lease contract;
That on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises
and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-
million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in
writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986
asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request;
That since defendants failed to specify the terms and conditions of the offer to sell and because of information received
that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell
the property to them.
Petitioners received favorable decision from the RTC and CA about their Right of First Refusal.
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and
Development Corporation for P15M.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter
vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of
lis pendens regarding Civil Case No. 87-41058.
The lessees filed a Motion for Execution.
Issues:
W/N the application of Writ of Execution in this case is valid?
Held:
No. In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article
1479, aforequoted, or possibly of an offer under Article 1319 of the same Code. An option or an offer would require,
among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. In a
right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent
not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including
the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a
class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum

juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot
justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would
it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the
perfection of contracts. It is not to say, however, that the right of first refusal would be inconsequential for, such as already
intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 of the Civil
Code, can warrant a recovery for damages.
Case 85: Equitorial Realty Development, Inc. vs Mayfair Theater, Inc.
Case about Right of First Refusal vs Option Contract

Case about rescission of contracts upon injury
The doctrine enunciated in Ang Yu Asuncion vs. Court of Appeals should be modified, if not amplified under the peculiar
facts of this case.
Oblicon Concept:
In Right of First Refusal, the lessor-seller should always notify first the lessee that he is intending to sell the property at a
price, if he wants to match it then he can exercise his right of first refusal. Lessor-seller is not bound by the lessees
counter-offer.
In this case, lessor-seller notified the lessee that he will sell at P7M. After 4 years, he sold the property for P11.3M to a
third person. He should have notified the lessee again of the new price. If the lessee rejects, he will lose the right of first
refusal.
In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30-days exclusive
option to purchase the (leased premises)," was meant to provide Mayfair the opportunity to purchase and acquire the
leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the
implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter
a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third
parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered
the sale of the leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from
third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer.
Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies
its invalidation for reasons of equity.
A purchaser in good faith and for value is one who buys the property of another without notice that some other person has
a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he
has notice of the claim or interest of some other person in the property. CANT BE RESCINDED pag ganito.
Facts:
Carmelo owned a parcel of land, together with two 2-storey buildings.
On June 1, 1967 Carmelo entered into 2 contracts of lease with Mayfair for the latter's lease of a portion of Carmelo's
property for use by Mayfair as a motion picture theater (Maxim and Miramar) and for a term of 20 years.
Both contracts of lease provides identically worded paragraph 8, which reads:
o That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive
option to purchase the same. RIGHT OF FIRST REFUSAL
o In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is
bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the
purchaser shall recognize this lease and be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of selling the entire property. Mr. Pascal told Mr. Yang that a certain
Jose Araneta was offering to buy the whole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter
was willing to buy the property for Six to P7M.
Mayfair wrote a letter of intent to buy.
Four years later, on July 30, 1978, Carmelo sold its entire land and building, which included the leased premises housing
the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11.3M.
Carmelo and Equitorial acted in bad faith. Carmelo abandoned the negotiations without giving Mayfair full opportunity to
negotiate within the 30-day period.
Issues:
W/N the right of Mayfair is an option contract or right of first refusal?
W/N Mayfair failed to exercise its right which is only 30 days from notice?
Held:
Right of first refusal. We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for
a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is not also correct to say that
there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of
lease. The consideration for the lease includes the consideration for the right of first refusal.
No. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We
agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts

because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore, rescission lies (can still be exercised by Mayfair).
o Since Mayfair has a right of first refusal (it can buy at P11.3M too because after this case, the propertys price
skyrocketed already), it can exercise the right only if the fraudulent sale is first set aside or rescinded.
Case 86: Bible Baptist and Pastor Reuben Belmonte vs CA and Spouses Elmer Medina
Case about the need for consideration (whether monetary or not) for validity of option contracts
Oblicon Concept:
An option contract needs to be supported by a separate consideration. The consideration need not be monetary but could
consist of other things or undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an
option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.
Facts:
On June 7, 1985, the Bible Baptist Church entered into a contract of lease with Mr. & Mrs. Elmer Tito Medina Villanueva.
The latter are the registered owners of a property located at Leon Guinto St., Malate, Manila. The pertinent stipulations in
the lease contract were:
That the lease shall take effect on June 7, 1985 and shall be for the period of 15 years.
That LESSEE shall pay the LESSOR within five (5) days of each calendar month, beginning Twelve (12) months from the
date of this agreement, a monthly rental of P10,000, plus 10% escalation clause per year starting on June 7, 1988.
That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of P84,000. Said sum is to be paid directly
to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of said property which is mortgaged by the
LESSOR.
That the LESSEE has the option to buy the leased premises during the 15 years of the lease. If the LESSEE decides to
purchase the premises the terms will be:
o A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), Philippine Currency.
o A down payment agreed upon by both parties.
o The balance of the selling price may be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00),
Philippine Currency, per year.
When Bible Baptist decided to exercise the option, the spouses Villanueva did not sell.
Petitioners claim that the Baptist Church "agreed to advance the large amount needed for the rescue of the property but,
in exchange, it asked the Villanuevas to grant it a long term lease and an option to buy the property for P1.8 million." They
argue that the consideration supporting the option was their agreement to pay off the Villanueva's P84,000 loan with the
bank, thereby freeing the subject property from the mortgage encumbrance.
Issues:
W/N the option to buy given to the Baptist Church is founded upon a consideration?
W/N by the terms of the lease agreement, a price certain for the purchase of the land had been fixed?
W/N the Baptist Church is entitled to an award for attorney's fees?
Held:
No. The Baptist Church did not pay a separate and specific sum of money to cover the option alone. This Court agrees
with respondents that the amount of P84,000 has been fully exhausted and utilized by their occupation of the premises
and there is no separate consideration to speak of which could support the option.
No. In view of this Court's finding that the option contract is not enforceable for being without consideration, the
respondents Villanueva spouses' refusal to comply with it cannot be the basis of a claim for attorney's fees.
Case 87: Public Estates Authority and Manuel Berina, Jr. vs Bolinao Security and Investigation Service, Inc.
Case about government not duty bound to accept the highest bidder.
The qualifications should be first be approved before the government can consider their bid.
Oblicon Concept:
Waiver is defined as the relinquishment of a known right with knowledge of its existence and an intention to relinquish it.
Extension of the effectivity of the security service contract cannot be interpreted as an extension of the effectivity of license
to operate a security agency. Neither can the new license issued to Bolinao Security be given retroactive effect without
running afoul of the rule in public biddings that qualifications of bidders shall be determined at the time of the opening of
the bids, and not at any other time. The "National Accounting and Auditing Manual" is explicit on the matter.
Facts:
On February 1, 1990, the PEA, a government corporation, through its then Acting General Manager Luis B. Pangilinan,
Jr., entered into a Contract for Security Services with Bolinao Security and Investigation Services, Inc., to secure and
protect PEAs properties, personnel and premises at Villa Porta Vaga Subdivision, Cavite City. The contract was effective
February 1, 1990 until January 31, 1991, extendible at the option of PEA.
In December 1990, PEA published in several newspapers an Invitation to Bid for the services of 307 regular and well-
trained guards for its establishments, facilities, and other properties in Metro Manila including those in Cavite City.

PEA reserves the right to reject any proposal or waive any defects or formality, impose additional terms and conditions
and accept the proposal most advantageous to the Government.
The Terms of Reference (TOR) for Security Services listed the documents which an interested party should submit to PEA
to qualify to bid. One of which is Xerox copy of CURRENT LICENCE to operate.
In the meantime, after the contract with Bolinao Security expired on January 31, 1991, it was extended monthly by PEA up
to July 29, 1991.

nd
The result of the bid shows that the 2 highest bidders (Bolinao placed 2 ) were disqualified for lacking requisites. The bid
rd
was awarded to the 3 highest bidder, Masada Security.
Bolinao Security insisted to PEA, however, that it should be declared the winning bidder. But PEA explained that the bid of
Bolinao Security was rejected because it failed to submit a current license to operate.
Issues:
W/N the thrashing out of Bolinao Securitys bid in favor of Masada Security was justified by PEA in view of the formers
lack of "current license to operate" at the time of the opening of the bids on April 10, 1991 and PEAs "right to reject any or
all bids" stipulation in the Invitation to Bid?
Held:
No. The lower courts rulings constituted an unjustified judicial intervention over purely executive matters and functions;
where the invitation to bid provides that the government may reject any or all bids or any part thereof or waive any defects
contained therein and accept an offer most advantageous to the government, the highest or lowest bidder, as the case
may be, cannot claim the award as a matter of right; it should not be considered in estoppel by opening and reading the
bids of Bolinao Security since it (PEA) declared, aside from its published reservation, that it reserved the right to reject any
bid; and at all events, Bolinao Security failed to submit the most advantageous bid.
ARTICLES 1327-1349: CONSENT
Case 88. Jose and Aida Yason vs. Arciaga
Case about presumption of capacity to enter into contracts.

Those who are questioning the capacity has the burden of proof to show that there is no capacity.
Oblicon Concept:
Notarial document must be sustained in full force and effect so long as he who impugns it does not present strong,
complete, and conclusive proof of its falsity or nullity on account of some flaws or defects provided by law.
A notarized Deed of Absolute Sale has in its favor the presumption of regularity, and it carries the evidentiary weight
conferred upon it with respect to its execution.
Facts:
Spouses Emilio and Claudia Arciaga were owners of land situated in Muntinlupa City.
On March 28, 1983, they executed a Deed of Conditional Sale whereby they sold the land for P265,000.00 to petitioners.
They tendered an initial payment of P150,000.
On April 19, 1983, upon payment of the balance of P115,000, spouses Emilio and Claudia Arciaga executed a Deed of
Absolute Sale.
That day, Claudia died. She was survived by her spouse and their six children.
Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City. They entrusted its
registration to one Jesus Medina to whom they delivered the document of sale and the amount of P15,000 as payment for
the capital gains tax. Without their knowledge, Medina falsified the Deed of Absolute Sale and had the document
registered in the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2, 1979, instead of
April 19, 1983, and that the price of the lot was only P25,000, instead of P265,000.
Sometime in April 1989, spouses Arciagas children learned of the falsified document of sale. Four of them caused the
filing of a complaint for falsification of documents against petitioners. It was only after receiving the subpoena in April 1989
when they (petitioners) learned that the Deed of Absolute Sale was falsified.
Respondents content that Claudia Arciaga (1) did not give her consent to the sale as she was then seriously ill, weak, and
unable to talk and (2) Jesus Medina falsified the Deed of Absolute Sale; that without Claudias consent, the contract is
void.
Issues:
W/N the Claudia Arciaga has the capacity to contract when she placed her thumb mark on the documents?
Held:
Yes. While it is true that Claudia was sick and bedridden, respondents failed to prove that she could no longer understand
the terms of the contract and that she did not affix her thumbmark thereon. Unfortunately, they did not present the doctor
or the nurse who attended to her to confirm that indeed she was mentally and physically incapable of entering into a
contract. Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a contract. Only if there is
unfairness in the transaction, such as gross inadequacy of consideration, the low degree of intellectual capacity of the
party, may be taken into consideration for the purpose of showing such fraud as will afford a ground for annulling a
contract. Hence, a person is not incapacitated to enter into a contract merely because of advanced years or by reason of
physical infirmities, unless such age and infirmities impair his mental faculties to the extent that he is unable to properly,
intelligently and fairly understand the provisions of said contract. Respondents failed to show that Claudia was deprived of

reason or that her condition hindered her from freely exercising her own will at the time of the execution of the Deed of
Conditional Sale.
Case 89. Epifania Dela Cruz vs. Spouses Sison
Case about presumption of validity to notarized documents and other public documents.
Party claiming FRAUD should be the one to procure evidence to prove such.
Oblicon Concept:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained
to the former.
Documents acknowledged before notaries public are public documents which are admissible in evidence without necessity
of preliminary proof as to their authenticity and due execution. They have in their favor the presumption of regularity, and
to contradict the same, there must be evidence that is clear, convincing and more than merely preponderant. The burden
of proof to overcome the presumption of due execution of a notarial document lies on the one contesting the same.
Facts:
Epifania claimed that sometime in 1992, she discovered that her rice land in Pangasinan, has been transferred and
registered in the name of her nephew, Eduardo C. Sison, without her knowledge and consent, purportedly on the strength
of a Deed of Sale.
Epifania thus filed a complaint before the RTC to declare the deed of sale null and void. She alleged that Eduardo tricked
her into signing the Deed of Sale, by inserting the deed among the documents she signed pertaining to the transfer of her
residential land, house and camarin, in favor of Demetrio, her foster child and the brother of Eduardo.
Respondents, spouses Eduardo and Eufemia Sison, denied that they employed fraud or trickery in the execution of the
Deed of Sale. They claimed that they purchased the property from Epifania for P20,000.
They averred that Epifania could not have been deceived into signing the Deed of Absolute Sale because it was duly
notarized before Notary Public Maximo V. Cuesta, Jr.; and they have complied with all requisites for its registration, as
evidenced by the Investigation Report by the Department of Agrarian Reform (DAR); Affidavit of Seller/Transferor, Affidavit
of Buyer/Transferee, Certification issued by the Provincial Agrarian Reform Officer (PARO), Letter for the Secretary of
Agrarian Reform, Certificate Authorizing Payment of Capital Gains Tax, and the payment of the registration fees. Some of
these documents even bore the signature of Epifania, proof that she agreed to the transfer of the property.
Petitioner claims that she could not read but her testimony said that she examined Demetrios Deed of Sale.
Issues:
W/N the Deed of Absolute Sale is valid?
Held:
Yes. These contradictory statements do not establish the fact that Epifania was unable to read and understand the English
language. There being no evidence adduced to support her bare allegations, thus, Epifania failed to satisfactorily establish
her inability to read and understand the English language. It is well settled that a party who alleges a fact has the burden
of proving it.
o Although Epifania was 79 years old at the time of the execution of the assailed contract, her age did not impair
her mental faculties as to prevent her from properly and intelligently protecting her rights. Even at 83 years, she
exhibited mental astuteness when she testified in court. It is, therefore, inconceivable for her to sign the assailed
documents without ascertaining their contents, especially if, as she alleges, she did not direct Eduardo to prepare
the same.
Case 89. Spouses Paragas vs. Heirs of Dominador Balacano
Case about incapacity to contract because one of the parties already at his death bed.
Case about testimony of false witnesses.
Oblicon Concept:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained
to the former.
Facts:
Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of 2 huge lots.
Prior to his death, Gregorio was admitted at the Veterans General Hospital in Bayombong, Nueva Vizcaya on June 28,
1996 and stayed there until July 19, 1996. He was transferred in the afternoon of July 19, 1996 to the Veterans Memorial
Hospital in Quezon City where he was confined until his death.
Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E and the whole Lot
1175-F to the Spouses Rudy and Corazon Paragas for the total consideration of P500,000. This sale appeared in a deed
of absolute sale notarized by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on the same date July 22,
1996 and witnessed by Antonio Agcaoili and Julia Garabiles . Gregorios certificates of title over Lots 1175-E and 1175-F
were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to
Catalino for the total consideration of P60,000.
Petitioners claimed that: (1) the deed of sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22,
1996; (2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on July 18, 1996 to notarize
the deed of sale already subject of a previously concluded covenant between Gregorio and the Spouses Paragas; (3) at
the time Gregorio signed the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F were
Gregorios separate capital and the inscription of Lorenzas name in the titles was just a description of Gregorios marital
status; (5) the entire area of Lots 1175-E and 1175-F were sold to the Spouses Paragas.
Issues:
W/N the Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano is void?
Held:
Yes. We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact that there was a prior
agreement between Gregorio and the Spouses Paragas on the sale of Lots 1175-E and 1175-F. This testimony does not
conclusively establish the meeting of the minds between Gregorio and the Spouses Paragas on the price or consideration
for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared that he was asked by Gregorio to prepare a
deed; he did not clearly narrate the details of this agreement.
We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely on his testimony because of his
tendency to commit falsity. To us, Atty. de Guzmans propensity to distort facts in the performance of his public functions
as a notary public, in utter disregard of the significance of the act of notarization, seriously affects his credibility as a
witness in the present case.
Given that Gregorio purportedly executed a deed during the last stages of his battle against his disease, we seriously
doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the
consequences of his act. We note in this regard that Gregorio was brought to the Veterans Hospital at Quezon City
because his condition had worsened on or about the time the deed was allegedly signed. This transfer and fact of death
not long after speak volumes about Gregorios condition at that time. We likewise see no conclusive evidence that the
contents of the deed were sufficiently explained to Gregorio before he affixed his signature.
Case 90. Development Bank of the Philippines and Privatization and Management Office vs. CA, Philippine United
Foundry and Machinery Corp. and Philippine Iron Manufacturing Company
Case about no UNDUE INFLUENCE of the bank to the company to refinance and restructure their loan.
Oblicon Concept:
Art 1330. A contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.
Refinancing is an exchange of an old debt for a new debt, as by negotiating a different interest rate or term or by repaying
the existing loan with money acquired from a new loan.
Restructuring, as applied to a debt, implies not only a postponement of the maturity but also a modification of the essential
terms of the debt (e.g., conversion of debt into bonds or into equity, or a change in or amendment of collateral security) in
order to make the account of the debtor current.
Facts:
Sometime in March 1968, the DBP granted to respondents Philippine United Foundry and Machineries Corporation and
Philippine Iron Manufacturing Company, Inc. an industrial loan in the amount of P2,500,000 consisting of P500,000 in
cash and P2,000,000 in DBP Progress Bonds.
The loan was evidenced by a promissory note dated June 26, 1968 and secured by a mortgage executed by respondents
over their present and future properties such as buildings, permanent improvements, various machineries and equipment
for manufacture.
Subsequently, DBP granted to respondents another loan in the form of a five-year revolving guarantee amounting to
P1,700,000 which was reflected in the amended mortgage contract dated November 20, 1968. According to respondents,
the loan guarantee was extended to them when they encountered difficulty in negotiating the DBP Progress Bonds.
Respondents were only able to sell the bonds in 1972 or about five years from its issuance for an amount that was 25%
less than its face value.
On September 10, 1975, the outstanding accounts of respondents with DBP were restructured in view of their failure to
pay. Thus, the outstanding principal balance of the loans and advances amounting to P4,655,992.35 were consolidated
into a single account. The restructured loan was evidenced by a new promissory note dated November 12, 1975. At
around 1980s, the respondents obligations were again refinanced and restructured.
Sometime in October 1985, DBP initiated foreclosure proceedings upon its computation that respondents loans were in
arrears by P62,954,473. According to DBP, this figure already took into account the intermittent payments made by
respondents between 1968 and 1981 in the aggregate amount of P5,150,827.
However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to December
1986 upon the representations of respondents that a financial rehabilitation fund arising from a contract with the military
was forthcoming. On December 23, 1986, before DBP could proceed with the foreclosure proceedings, respondents
instituted the present suit for injunction.
On January 6, 1987, the complaint was amended to include the annulment of mortgage.
Issues:
W/N the binding and obligatory force of contracts is the law between the parties?
W/N the petitioners exerted UNDUE INFLUENCE?
W/N contracts take effect only between the parties? Respondent linked the parties contract with its contract with the AFP.
W/N DBP and APT can foreclose the mortgages on respondents properties?
Held:
Yes. As correctly pointed out by PMO, the original loans alluded to by respondents had been refinanced and restructured
in order to extend their maturity dates. DBP accommodated respondents request to restructure and refinance their
account twice in view of the financial difficulties the latter were experiencing. Thus, respondents should follow their revised
contracts.
No. The fact that the representatives were "forced" to sign the promissory notes and mortgage contracts in order to have
respondents original loans restructured and to prevent the foreclosure of their properties does not amount to vitiated
consent. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a
contracting party as to destroy the latters free agency, making such party express the will of another rather than its own.
The alleged lingering financial woes of a debtor per se cannot be equated with the presence of undue influence.
o The threat to foreclose the mortgage would not in itself vitiate consent as it is a threat to enforce a just or legal
claim through competent authority.
Yes. Its contract with DBP is independent from its contract with AFP. Respondents must honor their contract with DBP.
Yes. A mortgage is a mere accessory contract and its validity would depend on the validity of the loan secured by it. The
debtor cannot escape the consequences of the mortgage contract once the validity of the loan is upheld.
Case 91. The Manila Banking Corporation vs. Edmundo Silverio and CA
Case about Absolute Simulation of Contract vs Fraudulent Alienation subject to Accion Pauliana (acts to defraud creditors)
Oblicon Concept:
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes place when the parties do not
intend to be bound at all. The characteristic of simulation is the fact that the apparent contract is not really desired or
intended to produce legal effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to
place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the deed of transfer is but a sham. Lacking, therefore, in a fictitious
and simulated contract is consent which is essential to a valid and enforceable contract.
The validity of the contract of sale being the focal point in the two courts decision, we begin our analysis into the matter
with two veritable presumptions: first, that there was sufficient consideration of the contract and, second, that it was the
result of a fair and regular private transaction.
Facts:
On 22 February 1990, herein petitioner, TMBC, filed a complaint with the RTC for the collection of a sum of money with
application for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation.
On 02 July 1990, by virtue of an Order of the RTC, notice of levy on attachment of real property and writ of attachment
were inscribed on TCTs.
On 29 March 1993, the trial court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the Delta Motors
Corporation. The Decision was brought up to the Court of Appeals for review.
In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio, the nephew of judgment debtor
Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled as the properties were no
longer owned by Ricardo, Sr. No steps were taken to have the annotations cancelled.
On 17 December 1993, Edmundo filed in the RTC of Makati City a case for "Cancellation of Notice of Levy on Attachment
and Writ of Attachment on Transfer Certificates of Title.
In his petition, Edmundo alleged that as early as 11 September 1989, the properties, subject matter of the case, were
already sold to him by Ricardo, Sr. As such, these properties could not be levied upon on 02 July 1990 to answer for the
debt of Ricardo, Sr. who was no longer the owner thereof.
In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that the sale in favor of Edmundo was
void (SIMULATED CONTRACT), therefore, the properties levied upon were still owned by Ricardo, Sr., the debtor.
Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and sale of properties
belonging to a third party are void.16 At the pith of the controversy, therefore, is the issue of ownership of the subject
properties at the time of the levy thereof as the right of petitioner TMBC, as creditor, depends on whether such properties
were still owned by its debtor, Ricardo, Sr., and not by Edmundo, who is concededly not a debtor of TMBC. If the
properties were validly transferred to Edmundo before the levy thereof then cancellation of the annotation is in order. If,
however, the sale was absolutely simulated and was entered into between uncle and nephew for the lone reason of
removing the properties from the reach of TMBC, then the annotation should stay.
Issues:
W/N the contract of sale to Edmundo is simulated?
W/N TMBC (a third party) can question the validity of the sale?
W/N the notice of levy should be cancelled?
Held:
Yes. In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but refuse to give
the sale validity and legitimacy.
o There is no proof that the said sale took place prior to the date of the attachment. The notarized deed of sale,
which would have served as the best evidence of the transaction, did not materialize until 22 July 1993, or three
(3) years after TMBC caused the annotation of its lien on the titles subject matter of the alleged sale.
o If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed deed of
sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten personally handing
P3,109,425.00 to the seller.
o As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence of an attempt in
any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. In herein
case, Edmundo did not attempt to have the 1989 deed of sale registered until 1993.
Yes. The remedy of accion pauliana is available when the subject matter is a conveyance, otherwise valid undertaken in
fraud of creditors. Such a contract is governed by the rules on rescission which prescribe, under Art. 1383 of the Civil
Code, that such action can be instituted only when the party suffering damage has no other legal means to obtain
reparation for the same. The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely
rescissible but is void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is one
which has no force and effect from the very beginning, as if it had never been entered into; it produces no effect
whatsoever either against or in favor of anyone.
No. Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the annotation of such lien
for the reasons stated in his petition.
Case 92. Heirs of Balite vs. Rodrigo Lim
Case about Relatively Simulated Contract where the only irregularity is the price or consideration but all the other
elements of a valid contract are present.
Oblicon Concept:
Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative.
In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be
bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have
given under the "contract."
On the other hand, if the parties state a false cause in the contract to conceal their real agreement, such a contract is
relatively simulated. Here, the parties real agreement binds them.
Facts:
The spouses Aurelio and Esperanza Balite were the owners of a parcel of land with an area of 17,551 square meters.
When Aurelio died intestate [in 1985, his wife], Esperanza Balite, and their children inherited the subject property and
became co-owners thereof, with inheriting an undivided share of 9,751 square meters.
In the meantime, Esperanza ill and was in dire need of money for her hospital expenses. She, through her daughter,
Cristeta, offered to sell to Rodrigo Lim, her undivided share for the price of P1,000,000. Esperanza and Rodrigo agreed
that, under the "Deed of Absolute Sale", to be executed by Esperanza over the property, it will be made to appear that the
purchase price of the property would be P150,000 to avoid capital gains tax, although the actual price agreed upon by
them for the property was P1,000,000.
On April 16, 1996, Esperanza executed a "Deed of Absolute Sale" in favor of Rodrigo N. Lim over a portion of the property
with an area of 10,000 square meters, for the price of P150,000.
They also executed, on the same day, a "Joint Affidavit" under which they declared that the real price of the property was
P1,000,000, payable to Esperanza, by installments.
Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. (co-owners) learned of the sale, and on August 21, 1996, they wrote a
letter to the Register of Deeds, saying that they were not informed of the sale of a portion of the said property by their
mother nor did they give their consent thereto.
On October 23, 1996, Esperanza signed a letter addressed to Rodrigo informing the latter that her children did not agree
to the sale of the property to him and that she was withdrawing all her commitments until the validity of the sale is finally
resolved.
On October 31, 1996, Esperanza died intestate and was survived by her aforenamed children.
Issues:
W/N the Deed of Sale is valid?
W/N there is still any sum for which respondent is liable?
Held:
Yes. A deed of sale that allegedly states a price lower than the true consideration is nonetheless binding between the
parties and their successors in interest. Furthermore, a deed of sale in which the parties clearly intended to transfer
ownership of the property cannot be presumed to be an equitable mortgage under Article 1602 of the Civil Code. Finally,
an agreement that purports to sell in metes and bounds a specific portion of an unpartitioned co-owned property is not
void; it shall effectively transfer the sellers ideal share in the co-ownership.
No answer. This Court is not a trier of facts.
Case 93. Fr. Edilberto Cruz and Simplicio Cruz vs. Bancom Finance Corporation
Case about Absolutely Simulated Contract, thus, transferring no new title to the transferee who wont be able to use it as
mortgage asset.
Banks should exercise extra ordinary diligence.

Oblicon Concept:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to
be bound at all; the latter when the parties conceal their true agreement.
Art. 1346. An absolutely simulated contract is void. A relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs, public order or public policy binds the parties to their
agreement.
Facts:
Brothers Rev. Fr. Edilberto Cruz and Simplicio Cruz were the registered owners of a 339,335 square meter parcel of land
together with.
Sometime in May 1978, defendant Norma Sulit, after being introduced by Candelaria Sanchez to Fr. Cruz, offered to
purchase the land. Petitioners asking price for the land was P700,000.00, but Norma only had P25,000.00 which Fr. Cruz
accepted as earnest money with the agreement that titles would be transferred to Norma upon payment of the balance of
P675,000.00.
Norma failed to pay the balance and proposed to Fr. Cruz to transfer the property to her but the latter refused, obviously
because he had no reason to trust Norma. But capitalizing on the close relationship of Candelaria Sanchez with the
plaintiffs, Norma succeeded in having the plaintiffs execute a document of sale of the land in favor of Candelaria who
would then obtain a bank loan in her name using the plaintiffs land as collateral.
On the same day, Candelaria executed another Deed of Absolute Sale over the land in favor of Norma. In both
documents, it appeared that the consideration for the sale of the land was only P150,000. Pursuant to the sale, Norma
was able to effect the transfer of the title to the land in her name.
Evidence shows that aside from the P150,000, Candelaria undertook to pay the plaintiffs the amount of P655,000.00
representing the balance of the actual price of the land.
In a Special Agreement dated September 1, 1978, Norma assumed Candelarias obligation, stipulating to pay the plaintiffs
the said amount within six months on pain of fine or penalty in case of non-fulfillment.
Unknown to the plaintiffs, Norma managed to obtain a loan from Bancom in the amount of P569,000.00 secured by a
mortgage over the land now titled in her name.
On account of Normas failure to pay the amount stipulated in the Special Agreement and her subsequent disappearance
from her usual address, plaintiffs were prompted to file the herein complaint for the reconveyance of the land.
Norma filed an Answer on February 11, 1980 but failed to appear in court and was eventually declared in default. On May
20, 1980, Bancom filed a motion for leave to intervene which was granted by the trial court. In its Answer in Intervention,
Bancom claimed priority as mortgagee in good faith; and that its contract of mortgage with Norma had been executed
before the annotation of plaintiffs interest in the title.
Meanwhile in the middle of 1980, Norma defaulted in her payment to the Bank and her mortgage was foreclosed. At the
subsequent auction sale, Bancom was declared the highest bidder and was issued the corresponding certificate of sale
over the land.
Issues:
W/N the Deed of Sale is null and void?
W/N Bank is a mortgagee in good faith?
Held:
Yes. An absolutely simulated contract of sale is void ab initio and transfers no ownership right. The purported buyer, not
being the owner, cannot validly mortgage the subject property. Consequently, neither does the buyer at the foreclosure
sale acquire any title thereto. Although the Deed of Sale between petitioners and Sanchez stipulated a consideration of
P150,000, there was actually no exchange of money between them. Another telling sign of simulation was the complete
absence of any attempt on the part of the buyers -- Sanchez and Sulit -- to assert their alleged rights of ownership over the
subject property. This fact was confirmed by respondent which, however, tried to justify the non-occupancy of the land by
Sanchez and Sulit. Supposedly, because the two failed to pay the purchase price of the land, they could not force
petitioners to vacate it.
o Clearly, the Deeds of Sale were executed merely to facilitate the use of the property as collateral to secure a loan
from a bank. Being merely a subterfuge, these agreements could not have been the source of any consideration
for the supposed sales. Indeed, the execution of the two documents on the same day sustains the position of
petitioners that the Contracts of Sale were absolutely simulated, and that they received no consideration therefor.
No. Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private individuals, it is
expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status
or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations.
ARTICLES 1350-1379
CAUSE OF CONTRACTS
Case 94. E. Razon, Inc. and Enrique Razon vs Philippine Ports Authority, Solis, Jr. Suazo, Jr. and Marina Port Services,
Inc.
Case about Unlawful Cause (Romualdez to be able to contract with the government which was prohibited by law) making
the Management Contract VOID.
Exception that Motive precedes the cause which predetermines the contract.

Oblicon Concept:
Unlawful cause makes the contract void.
While the general rule is that the causa of the contract must not be confused with the motives of the parties, this case
squarely fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the
contract.
Facts:
Petitioner E. Razon, Inc., also known as Metro Port Service, Inc. (MPSI), is a Philippine corporation organized on June 21,
1962 for the main purpose of bidding for the contract to manage all the piers in South Harbor, Manila. Co-petitioner
Enrique Razon was allegedly the 100% equity owner.
In 1978 to secure extension of its Management Contract, ERI transferred 60% shares of stock to Alfredo "Bejo"
Romualdez, the Marcos brother-in-law.
On December 31, 1978, the contract of petitioner ERI/MPSI expired. It was extended in 1979 to June 31, 1980, during
which month respondent PPA executed a new contract in favor of ERI for a term of eight (8) years, beginning July 1, 1980.
It is alleged that on February 26, 1986, after the ouster of the former government administration, petitioner Razon went to
South Harbor and took active control, supervision and management of MPSI.
On the same day, July 19, 1986, respondent PPA informed petitioner ERI/MPSI thru a letter of even date that it was
canceling the management contract and taking over the cargo handling operations as well as the equipment of petitioner
"effective immediately".
On July 21, 1986, respondent PPA appointed Marina Port Services, Inc. as interim operator of the arrastre service at
South Harbor.
Issues:
W/N the Management Contract is Void?
W/N ERIs right to due process was violated?
Held:
Yes. The transfer of the shares of stock of petitioner E. Razon, Inc. representing 60% equity to persons fronting for Alfredo
"Bejo" Romualdez was null and void. The invalidity springs not from vitiated consent nor absolute want of monetary
consideration, but for its having had an unlawful cause that of obtaining a government contract in violation of law. While
the general rule is that the causa of the contract must not be confused with the motives of the parties, this case squarely
fits into the exception that the motive may be regarded as causa when it predetermines the purpose of the contract.
o On the part of Romualdez, the motive was to be able to contract with the government which he was then
prohibited by law from doing, and on petitioner Razon's part, to be able to renew his management contract. For it
is scarcely disputable that Enrique Razon would not have transferred said shares of stock to Romualdez without
an assurance from the latter that he would be unduly favored with a renewal of the Management Contract. Thus,
it came to pass that by transferring 60% of the shares in his company to Romualdez, petitioner Enrique Razon
was able to secure an eight-year contract with respondent PPA and for six years before its cancellation benefit
from the proceeds thereof.
o Being the direct consequence and result of a previous illegal contract, the Management Contract itself is null and
void as provided in Article 1422 of the Civil Code.
No. Elementary in the law of contracts is the principle that no judicial action is necessary for the annulment of a void
contract. Any such action would be merely declaratory. It was well within the rights of respondent PPA to unilaterally
cancel and treat as avoided the Management Contract and no arbitrariness may be attached to its exercise of this right.
Case 95. William Uy and Rodel Roxas Vs. CA, Hon. Robert Balao and National Housing Authority
Case about the exception when Motive precedes the Cause which determines the contract.
Case about Agents Interest in the Cancellation of Contract of Sale of Parcel of Land Between their Principals and NHA.
Oblicon Concept:
Article 1311. Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or by stipulation, or by provision of law. If a
contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation (Stipulation Pour Autrui). A mere incidental benefit or
interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.
Art. 1318. There is no contract unless the following requisites concur:
o (1) Consent of the contracting parties;
o (2) Object certain which is the subject matter of the contract;
o (3) Cause of the obligation which is established.
Facts:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of land by the owners thereof. By
virtue of such authority, petitioners offered to sell the lands, located in Benguet to respondent National Housing Authority
(NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the acquisition of said lands, with an area
of 31.8231 hectares, at the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of Absolute
Sale covering the subject lands. Of the eight parcels of land, however, only five were paid for by the NHA because of the
report it received from the Land Geosciences Bureau of the Department of Environment and Natural Resources (DENR)
that the remaining area is located at an active landslide area and therefore, not suitable for development into a housing
project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale over the three parcels of land. The NHA,
through Resolution No. 2394, subsequently offered the amount of P1.225 million to the landowners as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for Damages against
NHA and its General Manager Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract to be justified. The trial court
nevertheless awarded damages to plaintiffs in the sum of P1.255 million, the same amount initially offered by NHA to
petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court and entered a new one dismissing
the complaint. It held that since there was sufficient justifiable basis in cancelling the sale, it saw no reason for the
award of damages. The Court of Appeals also noted that petitioners were mere attorneys-in-fact and, therefore, not the
real parties-in-interest in the action before the trial court.
Issues:
W/N the NHA had any legal basis for rescinding the sale involving the last 3 parcels of land?
Held:
Yes. We hold that the NHA was justified in cancelling the contract. The realization of the mistake as regards the quality of
the land resulted in the negation of the motive/cause thus rendering the contract inexistent. The cancellation, therefore,
was not a rescission under Article 1191. Rather, the cancellation was based on the negation of the cause arising from the
realization that the lands, which were the object of the sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties to enter into it (KUNG ANO MAKUKUHA). In other
words, the cause is the immediate, direct and proximate reason which justifies the creation of an obligation through the will
of the contracting parties. Cause, which is the essential reason for the contract, should be distinguished from motive,
which is the particular reason of a contracting party which does not affect the other party.
o In this case, it is clear, and petitioners do not dispute, that NHA would not have entered into the contract were the
lands not suitable for housing. In other words, the quality of the land was an implied condition for the NHA to
enter into the contract. On the part of the NHA, therefore, the motive was the cause for its being a party to the
sale. Motive preceded the cause.
FORM OF CONTRACTS
Case 96. Estate and Heirs of Pedro Gonzales vs Heirs of Marcos Perez
Case about validity of written contracts (even if not in public document because this is for convenience only) for transfer of
real properties following Statute of Frauds.
Case about nature and effect of provincial governors power to approve contracts entered into by the municipal
government.
Oblicon Concept:
SECTION 2196. Execution of deeds. When the government of a municipality is a party to a deed or an instrument which
conveys real property or any interest therein or which creates a lien upon the same, such deed or instrument shall be
executed on behalf of the municipal government by the mayor, upon resolution of the council, with the approval of the
governor (considered as voidable only which can be sold before voiding).
Art. 1358. The following must appear in a public document:
o (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403,
No. 2 and 1405;
Art. 1403. The following contracts are unenforceable, unless they are ratified:
o (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents:
(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of
an interest therein;
Facts:
On January 14, 1966, the Municipal Council of Marikina passed Resolution No. 9, series of 1966 which authorized the sale
through public bidding of Municipal Lots A and C.
On April 25, 1966, a public bidding was conducted wherein Pedro Gonzales was the highest bidder. Two days thereafter,
or on April 27, 1966, the Municipal Council of Marikina issued Resolution No. 75 accepting the bid of Pedro. Thereafter, a
deed of sale was executed in favor of the latter which was later forwarded to the Provincial Governor of Rizal for his
approval. The Governor, however, did not act upon the said deed.
Sometime in September 1966, Pedro sold to Marcos Perez a portion of Lot C, denominated as Lot C-3. The contract of
sale was embodied in a Deed of Sale which, however, was not notarized.
On February 7, 1992, the Municipality of Marikina, through its then Mayor Rodolfo Valentino, executed a Deed of Absolute
Transfer of Real Property over Lots A and C in favor of the Estate of Pedro C. Gonzales.
On October 1, 1992, herein respondents sent a demand letter to one of herein petitioners asking for the reconveyance of
the subject property. However, petitioners refused to reconvey the said lot. As a consequence, respondents filed an action
for "Annulment and/or Rescission of Deed of Absolute Transfer of Real Property x x x and for Reconveyance with
Damages."
Issues:
W/N Marcos, who is respondents' predecessor-in-interest, could not have legally bought the disputed parcel of land from
petitioners' predecessor-in-interest?
W/N the Deed of Sale is invalid on the ground that it does not appear in a public document?
Held:
No. The approval by the provincial governor of contracts entered into and executed by a municipal council, as required in
Section 2196 of the Revised Administrative Code, is part of the system of supervision that the provincial government
exercises over the municipal governments. The absence of the approval, therefore, does not per se make the contracts
null and void. And since absence of such approval does not necessarily render the contract entered into by the
municipality null and void, the transaction remains voidable until such time when by subsequent unfavorable action of the
governor, for reasons of public interest, the contract is thereby invalidated.
No. Under Article 1403(2), the sale of real property should be in writing and subscribed by the party charged for it to be
enforceable. In the case before the Court, the Deed of Sale between Pedro and Marcos is in writing and subscribed by
Pedro and his wife Francisca; hence, it is enforceable under the Statute of Frauds.
o However, not having been subscribed and sworn to before a notary public, the Deed of Sale is not a public
document and, therefore, does not comply with Article 1358 of the Civil Code.
o Nonetheless, it is a settled rule that the failure to observe the proper form prescribed by Article 1358 does not
render the acts or contracts enumerated therein invalid. It has been uniformly held that the form required under
the said Article is not essential to the validity or enforceability of the transaction, but merely for convenience.
REFORMATION
Case 97. Flordeliza Emilio vs Bilma Rapal
Case about Reformation where the petitioner claims that it should be a LOAN and not Deed of Sale.
Oblicon Concept:
For an action for reformation of instrument to prosper, the following requisites must concur:
o (1) there must have been a meeting of the minds of the parties to the contract;
o (2) the instrument does not express the true intention of the parties; and
o (3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident.
The onus probandi (burden of proof) is upon the party who insists that the contract should be reformed.
Facts:
Since 1989, Bilma Rapal (respondent) had been leasing a portion of the house of the petitioner. In 1993, she leased an
adjoining room in the house.
In early 1996, petitioner borrowed P10,000 from respondent. By petitioners claim, she accepted respondents offer to
extend her an additional P60,000.00 loan upon the condition that respondent would not pay the monthly rentals from
February 1996 until December 1998, as the total amount of P70,000.00 would serve as advance rentals.
Atty. Patricio Balao-Ga of the Public Attorneys Office (PAO) notarized a document entitled Sale and Transfer of Rights
over a Portion of a Parcel of Land executed by petitioner whereby she sold to respondent 27 sq. m. of her lot, together
with the house constructed thereon, for a consideration of P90,000.00.
Petitioner was later to claim that she signed the deed, without its contents having been explained to her. She thus filed a
complaint on July 11, 2002 with the Regional Trial Court for reformation of document alleging that the deed of sale and
transfer must be reformed, there being no intention on her part to sell the property as she could not do so without the
consent of the NHA.
Issues:
W/N the Deed of Sale clearly expressed the intention of the parties?
Held:
Yes. Petitioner having admitted the existence and execution of the instrument, what remains to be resolved is whether the
contract expressed the true intention of the parties; if not, whether it was due to mistake, fraud, inequitable conduct or
accident. The onus probandi is upon the party who insists that the contract should be reformed. Since she was not able to
prove the defect then the plain meaning of the contract is followed which is the law between the contracting parties.
Case 98. PCI Leasing and Finance, Inc. vs Trojan Metal Industries, Inc., Walfrido Dizon, Elizabeth Dizon and John Doe
Case about Reformation where the Sale and Leaseback Transaction is contrary to law and the correct transaction should
be one of loan with chattel mortgage.

Oblicon Concept:
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true intention is not expressed
in the instrument purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct, or accident, one
of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.
In a true financial leasing, whether under RA 5980 or RA 8556, a finance company purchases on behalf of a cash-
strapped lessee the equipment the latter wants to buy but, due to financial limitations, is incapable of doing so. The
finance company then leases the equipment to the lessee in exchange for the latters periodic payment of a fixed amount
of rental.
Article 1144 of the Civil Code, the prescriptive period for actions based upon a written contract and for reformation of an
instrument is ten years.
Facts:
Sometime in 1997, respondent Trojan Metal Industries, Inc. came to petitioner PCI Leasing and Finance, Inc. to seek a
loan.
Instead of extending a loan, PCILF offered to buy various equipment TMI owned. Hard-pressed for money, TMI agreed.
PCILF and TMI immediately executed deeds of sale evidencing TMIs sale to PCILF of the various equipment in
consideration of the total amount of P2,865,070.00.
PCILF and TMI then entered into a lease agreement, dated 8 April 1997, whereby the latter leased from the former the
various equipment it previously owned. Pursuant to the lease agreement, TMI issued postdated checks representing 24
monthly installments.
The lease agreement required TMI to give PCILF a guaranty deposit of P1,030,350.00, which would serve as security for
the timely performance of TMIs obligations under the lease agreement, to be automatically forfeited should TMI return
(voluntary and not replevin) the leased equipment before the expiration of the lease agreement.
To obtain additional loan from another financing company, TMI used the leased equipment as temporary collateral. PCILF
considered the second mortgage a violation of the lease agreement. At this time, TMIs partial payments had reached
P1,717,091.00.
On 8 December 1998, PCILF sent TMI a demand letter for the payment of the latters outstanding obligation.
On 7 September 1999, the RTC issued the writ of replevin PCILF prayed for, directing the sheriff to take custody of the
leased equipment. Not long after, PCILF sold the leased equipment to a third party and collected the proceeds amounting
to P1,025,000.
Issues:
W/N the sale with lease agreement the parties entered into was a financial lease or a loan secured by chattel mortgage?
W/N PCILF should pay TMI, by way of refund, the amount of P1,166,826?
Held:
Loan secured by chattel mortgage. In this case, however, TMI already owned the subject equipment before it transacted
with PCILF. Therefore, the transaction between the parties in this case cannot be deemed to be in the nature of a financial
leasing as defined by law. The Court went on to explain that where the client already owned the equipment but needed
additional working capital and the finance company purchased such equipment with the intention of leasing it back to him,
the lease agreement was simulated to disguise the true transaction that was a loan with security. In that instance,
continued the Court, the intention of the parties was not to enable the client to acquire and use the equipment, but to
extend to him a loan.
Yes. Records show that PCILF paid TMI P2,865,070 as consideration for acquiring the mortgaged equipment. In turn, TMI
gave PCILF a guaranty deposit of P1,030,350.00. Thus, the amount of the principal loan was P1,834,720.00, which was
the net amount actually received by TMI (proceeds of the sale of the equipment to PCILF minus the guaranty deposit).
Against the principal loan of P1,834,720.00 plus the applicable interest should be deducted loan payments, totaling
P1,717,091. Since PCILF sold the mortgaged equipment to a third party for P1,025,000., the proceeds of the said sale
should be applied to offset the remaining balance on the principal loan plus applicable interest.
ARTICLES 1380-1389: RESCISSIBLE CONTRACTS
Case 99. Union Bank vs Spouses Ong and Jackson Lee
Case about presumption of validity for contracts vs Badges of Fraud attending sale
Case about the alleged Rescissibility of the Ong-Lee contract because done in Fraud of Creditors (alienation presumed in
fraud of creditors.
Oblicon Concept:
Article 1381. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claim due them.
Art. 1387(2). Alienation by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment
need not refer to the property alienated, and need not have been obtained by the party seeking rescission.
When the validity of sales contract is in issue, two veritable presumptions are relevant: first, that there was sufficient
consideration of the contract; and, second, that it was the result of a fair and regular private transaction.
Facts:
The spouses Alfredo Ong and Susana Ong, own the majority capital stock of Baliwag Mahogany Corporation (BMC).
On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union Bank to secure a P40M-
credit line facility made available to BMC. The agreement expressly stipulated a solidary liability undertaking.
On October 22, 1991, or about a year after the execution of the surety agreement, the spouses Ong, for P12.5M, sold their
lot located in Greenhills, San Juan, together with the house and other improvements standing thereon, to their co-
respondent, Jackson Lee. The following day, Lee registered the sale and was then issued TCT.
At about this time, BMC had already availed itself of the credit facilities, and had in fact executed a total of 22 promissory
notes in favor of Union Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with the
SEC. To protect its interest, Union Bank lost no time in filing with the RTC of an action for rescission of the sale between
the spouses Ong and Jackson Lee for purportedly being in fraud of creditors.
Badges of Fraud alleged:
o Consideration is inadequate (adequate because slight difference only to FMW - Not as gross to support a
conclusion of fraud).
o Petitioner used a case where a suit has been instituted against seller (not applicable in this case).
o Sale upon credit by insolvent debtor (BMC is separate from Spouses Ong Corporate Veil not pierced).
o Failure of the vendee to take exclusive possession of the property (Because Lee leased it to Spouses for 1 year
at P25k - either when he himself physically occupies the same or when another person who recognizes his right
as owner is in such occupancy).
Issue:
W/N the Ong-Lee contract of sale partakes of a conveyance to defraud Union Bank?
W/N Lee is buyer in good faith?
Held:
No. Respondent spouses Ong had sufficiently established the validity and legitimacy of the sale in question. The
conveying deed, a duly notarized document, carries with it the presumption of validity and regularity. The sale was duly
recorded and annotated on the title of the property owners, the spouses Ong. As the transferee of said property,
respondent Lee caused the transfer of title to his name. The rescissory action to set aside contracts in fraud of creditors is
accion pauliana, essentially a subsidiary remedy accorded under Article 1383 of the Civil Code which the party suffering
damage can avail of only when he has no other legal means to obtain reparation for the same. It does not appear in this
case that the petitioner sought other properties of the spouses other than the subject Greenhills property. For a contract to
be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted maliciously so as to
prejudice the creditors who were prevented from collecting their claims.
Yes. The twin elements of good faith and valuable and sufficient consideration have been duly established.
Case 100. The Manila Banking Corporation vs. Edmundo Silverio and CA
Case about Absolute Simulation of Contract (VOID) vs Fraudulent Alienation subject to Accion Pauliana (acts to defraud
creditors) - RESCISSIBLE
Case about Badges of Fraud where thing under litigation is alienated without the defendant and courts knowledge and
approval.
Oblicon Concept:
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes place when the parties do not
intend to be bound at all. The characteristic of simulation is the fact that the apparent contract is not really desired or
intended to produce legal effects or in any way alter the juridical situation of the parties. Thus, where a person, in order to
place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the deed of transfer is but a sham. Lacking, therefore, in a fictitious
and simulated contract is consent which is essential to a valid and enforceable contract.
The validity of the contract of sale being the focal point in the two courts decision, we begin our analysis into the matter
with two veritable presumptions: first, that there was sufficient consideration of the contract and, second, that it was the
result of a fair and regular private transaction.
Facts:
On 22 February 1990, herein petitioner, TMBC, filed a complaint with the RTC for the collection of a sum of money with
application for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors Corporation.
On 02 July 1990, by virtue of an Order of the RTC, notice of levy on attachment of real property and writ of attachment
were inscribed on TCTs.
On 29 March 1993, the trial court rendered its Decision in favor of TMBC and against Ricardo, Sr. and the Delta Motors
Corporation. The Decision was brought up to the Court of Appeals for review.
In the meantime, on 22 July 1993, herein private respondent, Edmundo S. Silverio, the nephew of judgment debtor
Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled as the properties were no
longer owned by Ricardo, Sr. No steps were taken to have the annotations cancelled.
On 17 December 1993, Edmundo filed in the RTC of Makati City a case for "Cancellation of Notice of Levy on Attachment
and Writ of Attachment on Transfer Certificates of Title.
In his petition, Edmundo alleged that as early as 11 September 1989, the properties, subject matter of the case, were
already sold to him by Ricardo, Sr. As such, these properties could not be levied upon on 02 July 1990 to answer for the
debt of Ricardo, Sr. who was no longer the owner thereof.
In its Answer with Compulsory Counterclaim, TMBC alleged, among other things, that the sale in favor of Edmundo was
void (SIMULATED CONTRACT), therefore, the properties levied upon were still owned by Ricardo, Sr., the debtor.
Basic is the rule that only properties belonging to the debtor can be attached, and an attachment and sale of properties
belonging to a third party are void.16 At the pith of the controversy, therefore, is the issue of ownership of the subject
properties at the time of the levy thereof as the right of petitioner TMBC, as creditor, depends on whether such properties
were still owned by its debtor, Ricardo, Sr., and not by Edmundo, who is concededly not a debtor of TMBC. If the
properties were validly transferred to Edmundo before the levy thereof then cancellation of the annotation is in order. If,
however, the sale was absolutely simulated and was entered into between uncle and nephew for the lone reason of
removing the properties from the reach of TMBC, then the annotation should stay.
Issues:
W/N the contract of sale to Edmundo is simulated?
W/N TMBC (a third party) can question the validity of the sale?
W/N the notice of levy should be cancelled?
Held:
Yes. In herein case, badges of fraud and simulation permeate the whole transaction, thus, we cannot but refuse to give
the sale validity and legitimacy.
o There is no proof that the said sale took place prior to the date of the attachment. The notarized deed of sale,
which would have served as the best evidence of the transaction, did not materialize until 22 July 1993, or three
(3) years after TMBC caused the annotation of its lien on the titles subject matter of the alleged sale.
o If it were true that money indeed changed hands on 11 September 1989 as evidenced by the assailed deed of
sale, then, at the very least, Edmundo, as buyer, would definitely not have forgotten personally handing
P3,109,425 to the seller.
o As correctly pointed out by TMBC, an indication of simulation of contract is the complete absence of an attempt in
any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. In herein
case, Edmundo did not attempt to have the 1989 deed of sale registered until 1993.
Yes. The remedy of accion pauliana is available when the subject matter is a conveyance, otherwise valid undertaken in
fraud of creditors. Such a contract is governed by the rules on rescission which prescribe, under Art. 1383 of the Civil
Code, that such action can be instituted only when the party suffering damage has no other legal means to obtain
reparation for the same. The contract of sale before us, albeit undertaken as well in fraud of creditors, is not merely
rescissible but is void ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is
one which has no force and effect from the very beginning, as if it had never been entered into; it produces no effect
whatsoever either against or in favor of anyone.
No. Edmundo, who has no legal interest in these properties, cannot cause the cancellation of the annotation of such lien
for the reasons stated in his petition.
VOIDABLE CONTRACTS
Case 101. The Roman Catholic Church vs Regino Pante
Case about alleged Voidable Contract of Sale due to fraud.

Case about Double Sale.
Oblicon Concept:
Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the
contracting parties:
o (1) Those where one of the parties is incapable of giving consent to a contract;
o (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.
Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.
o Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
o Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession (whether thru actual or constructive delivery Pante did this); and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
Facts:
The Church owned a 32-square meter lot that measured 2x16 meters located in Camarines Sur.
On September 25, 1992, the Church contracted with respondent Regino Pante for the sale of the lot (thru a Contract to
Sell and to Buy) on the belief that the latter was an actual occupant of the lot. The contract between them fixed the
purchase price at P11,200.00, with the initial P1,120.00 payable as down payment, and the remaining balance payable in
three years or until September 25, 1995.
On June 28, 1994, the Church sold in favor of the spouses Nestor and Fidela Rubi a 215-square meter lot that included
the lot previously sold to Pante.
The spouses Rubi asserted their ownership by erecting a concrete fence over the lot sold to Pante, effectively blocking
Pante and his familys access from their family home to the municipal road.
As no settlement could be reached between the parties, Pante instituted with the RTC an action to annul the sale between
the Church and the spouses Rubi, insofar as it included the lot previously sold to him.
The Church filed its answer with a counterclaim, seeking the annulment of its contract with Pante. The Church alleged that
its consent to the contract was obtained by fraud when Pante, in bad faith, misrepresented that he had been an actual
occupant of the lot sold to him, when in truth, he was merely using the 32-square meter lot as a passageway from his
house to the town proper.
It contended that it was its policy to sell its lots only to actual occupants. Since the spouses Rubi and their predecessors-
in-interest have long been occupying the 215-square meter lot that included the 32-square meter lot sold to Pante, the
Church claimed that the spouses Rubi were the rightful buyers.
Issue:
W/N the contract of sale is voidable for fraud?
Held:
No. No misrepresentation existed vitiating thesellers consent and invalidating the contract. The actual occupancy or
residency of a buyer over the land does not appear to be a necessary qualification that the Church requires before it could
sell its land. Had this been indeed its policy, then neither Pante nor the spouses Rubi would qualify as buyers of the 32-
square meter lot, as none of them actually occupied or resided on the lot. We note in this regard that the lot was only a
2x16-meter strip of rural land used as a passageway from Pantes house to the municipal road. The surrounding
circumstances (being in the same brgy and verifiable) actually indicate that the Church was aware that Pante was using
the lot merely as a passageway.
From another perspective, any finding of bad faith, if one is to be made, should be imputed to the Church. Without
securing a court ruling on the validity of its contract with Pante, the Church sold the subject property to the spouses Rubi.
Article 1390 of the Civil Code declares that voidable contracts are binding, unless annulled by a proper court action. From
the time the sale to Pante was made and up until it sold the subject property to the spouses Rubi, the Church made no
move to reject the contract with Pante; it did not even return the down payment he paid. The Churchs bad faith in selling
the lot to Rubi without annulling its contract with Pante negates its claim for damages.
Case 102. Spouses Fernando and Lourdes Villoria vs Continental Airlines, Inc.
Case about alleged VOIDABLE contract due to fraud.

Case about agency.
Oblicon Concept:
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with
knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right
to invoke it should execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of
the contract; or by acceptance and retention of benefits flowing therefrom.
Facts:
On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, 2 round
trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased
the tickets at US$400 each from a travel agency called "Holiday Travel" and was attended to by a certain Margaret Mager.
According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no
available seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets, Spouses
Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997.
Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager
informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round
trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526 per passenger and would mean
traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are
non-refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within 1 year from
the date the subject tickets were issued. Fernando decided to reserve 2 seats with Frontier Air.
As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an
Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak
anytime and any day he pleased. Fernando then purchased 2 tickets for Washington, D.C.
In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request for a refund and advised him that he
may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within 2 years from the
date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of
payment for the purchase of another Continental ticket, albeit with a re-issuance fee.
On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue, Makati City to have the subject tickets
replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that
Lourdes ticket was non-transferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed
that a round trip ticket to Los Angeles was US$1,867 so he would have to pay what will not be covered by the value of his
San Diego to Newark round trip ticket.
Issue:
W/N a principal-agent relationship exist between CAI and Holiday Travel?
W/N assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday
Travels agents and employees such as Mager?
W/N the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent
of Spouse Viloria in the purchase of the subject tickets?
W/N CAI justified in insisting that the subject tickets are non-transferable and non-refundable?
W/N CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando?

W/N CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets in the purchase
of new ones when it refused to allow Fernando to use Lourdes ticket and in charging a higher price for a round trip ticket
to Los Angeles?
Held:
Yes. A principal-agent relationship exists between CAI and Holiday Travel. All the elements of an agency exist in this
case.
It depends on evidence. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its
agents employees if it has been established by preponderance of evidence that the principal was also at fault or negligent
or that the principal exercise control and supervision over them.
No. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a
refund. Magers statement cannot be considered a causal fraud that would justify the annulment of the subject contracts
that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets.
No. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts. Accordingly,
by pursuing the remedy of rescission under Article 1191 (Valid Not Voidable), the Vilorias had impliedly admitted the
validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and
claim rights or obligations under it and at the same time impugn its existence or validity.
No. Contracts cannot be rescinded for a slight or casual breach.
No. CAI has the discretion on how much it will charge and the newspaper ad of another airline is not admissible for
comparison.
Case 103. Eduardo Manzano vs. Antonio Lazaro
Case about alleged VOIDABLE contract thru MISTAKE or FRAUD but IMPLIEDLY/TACITLY RATIFIED.
Oblicon Concept:
Implied Ratification
Facts:
On February 16, 1998, petitioner Eduardo B. Manzano and respondent Antonio B. Lazaro entered into a Professional
Services Contract pertaining to the former's candidacy for the Vice-Mayoralty post in Makati City.
Subsequently, petitioner won as Vice-Mayor of Makati. Respondent, thereafter, learned in a transmittal letter dated June
16, 1998 representing the last payroll of certain individuals, which included him, that he would be paid the amount of P15k
only and the balance of P20k shall be forwarded only upon his final inventory of materials used during the campaign.
Hence, respondent, in his letter dated July 3, 1998 to petitioner, wrote that he had already turned over the equipment used
for the campaign. Respondent then demanded the payment of P20k as balance of his compensation and the P200k bonus
pay agreed upon.
Petitioner acknowledged respondent's demand letter and the delivery of the campaign equipment and furniture in his
letter dated July 17, 1998, but wrote that he needed to receive the liquidation of the expenses incurred during the
campaign, which task was requested shortly after the May 11, 1998 elections.
In his letter dated July 30, 1998, respondent wrote that the preparation of the audited financial report of the campaign was
not part of his responsibilities as he was not in charge of the management of campaign funds; that such function was
assigned to Robert Gomez and Soliman Cruz (Cruz) who acted as petitioner's Director for Finance with petitioner's
brother, Angie Manzano (Angie), as the auditor. He reiterated the payment of P220k due him.
In his defense, petitioner argued that he hired respondent's services because of the latter's representation of being a
seasoned and an experienced campaign manager. However, during the campaign period, he discovered that respondent
had no expertise or capacity for political organization and was often absent during campaign sorties and public meetings;
that he failed to provide petitioner with poll watchers to safeguard his chances of winning against electoral fraud.
Issue:
W/N the contract is RESCISSIBLE?
W/N the contract is VOIDABLE?
W/N petitioner ratified the voidable contract?
Held:
Not. Petitioner's claim of breach of obligation consisted only of his uncorroborated and self-serving statement which was
contradicted by the evidence on record. SC is bound by the facts of the RTC when adopted by the CA. Noteworthy to
mention is the fact that petitioner had even paid respondent his salary for the three-month period with only a balance of
P20,000.00, conditioned upon respondent's delivery of the inventory of campaign equipment. Such payment established
that indeed respondent had performed his responsibilities under the contract. We, therefore, agree with the RTC's
conclusion that petitioner's claim of breach of contract was merely used as an excuse to evade payment of the amounts
due respondent.
Yes. The alleged fraud committed by appellee upon appellant made the contract for professional services a voidable
contract. Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action
to annul it is extinguished and the contract is cleansed from all its defects. But if the contract is annulled, the contracting
parties are restored to their respective situations before the contract and mutual restitution follows as a consequence.
Assuming that its voidable, the petitioner impliedly ratified. No action was taken by appellant to annul the professional
service contract. Appellant also did not confront appellee regarding the latter's poor campaign services. This silence, taken
together with appellant's demand for appellee to make an inventory of equipment and a liquidation of the funds used

during the campaign, constitutes in itself an effective ratification of the original agreement in accordance with Article 1393
of the Civil Code.
UNENFORCEABLE CONTRACTS
Case 99. Spouses Alcantara and Spouses Rubi vs Brigida Nido, as atty-in-fact of Revelen Srivastava
Case about VOID contract due to lack of authority of the agent to sell real property.
Case about UNAUTHORIZED CONTRACTS which are unenforceable.
Case about original jurisdiction of the MTC in dispositions of immovable with value below P20k and P50k for Metro Manila.
Oblicon Concept:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following cases:
o (5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
Facts:
Revelen, who is respondents daughter and of legal age, is the owner of an unregistered land with an area of 1,939 square
meters located in Rizal.
Sometime in March 1984, respondent (agent) accepted the offer of petitioners to purchase a 200-square meter portion of
Revelens lot (lot) at P200 per square meter.
Petitioners paid P3,000 as downpayment and the balance was payable on installment. Petitioners constructed their
houses in 1985. In 1986, with respondents consent, petitioners occupied an additional 150 square meters of the lot. By
1987, petitioners had already paid P17,500 before petitioners defaulted on their installment payments.
On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery of
possession with damages and prayer for preliminary injunction against petitioners with the RTC.
Issue:
W/N the contract entered into by respondent, in representation of her daughter, and former defendant Eduardo Rubi
(deceased), is void?
W/N the General Power of Attorney executed by Revelen in the US can authorize her agent?
W/N the petitioners are entitled to their counterclaims, particularly specific performance?
W/N the RTC has original jurisdiction?
Held:
Yes. Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property.
Based on a review of the records, there is absolutely no proof of respondents written authority to sell the lot to petitioners.
In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot,
petitioners were of the belief that respondent was the owner of lot. Petitioners only knew that Revelen was the owner of
the lot during the hearing of this case. Consequently, the sale of the lot by respondent who did not have a written authority
from Revelen is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified.
No. Since the General Power of Attorney was executed and acknowledged in the United States of America, it cannot be
admitted in evidence unless it is certified as such in accordance with the Rules of Court by an officer in the foreign service
of the Philippines stationed in the United States of America. Hence, this document has no probative value.
No. Petitioners are not entitled to claim for specific performance. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear, certain and specific proof. To reiterate,
there is a clear absence of proof that Revelen authorized respondent to sell her lot.
No. The appellate court correctly ruled that even if the complaint filed with the RTC involves a question of ownership, the
MTC still has jurisdiction because the assessed value of the whole lot as stated in Tax Declaration is P4,890.
Case 105. Orduna vs Fuentebella, Cid and Gabriel, Jr.
Case about Enforceability of the Contract To Sell even if not written down (in accordance with Statute of Frauds) because
the contract is a PARTIALLY EXECUTED CONTRACT and the sellers received benefits from the sale (i.e., installment
payments).
Oblicon Concept:
Article 1403 par 2 of the Civil Code applies only to executory contracts, i.e., those where no performance has yet been
made. Stated a bit differently, the legal consequence of non-compliance with the Statute does not come into play where
the contract in question is completed, executed, or partially consummated.
Facts:
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to petitioner Antonita Ordua, but no formal deed was
executed to document the sale. The contract price was apparently payable in installments as Antonita remitted from time
to time and Gabriel Sr. accepted partial payments. One of the Orduas would later testify that Gabriel Sr. agreed to
execute a final deed of sale upon full payment of the purchase price.
As early as 1979, however, Antonita and her sons, Dennis and Anthony Ordua, were already occupying the subject lot.
After the death of Gabriel Sr., his son and namesake, respondent Gabriel Jr., secured TCT over the subject lot and
continued accepting payments from the petitioners.
Despite all those payments made for the subject lot, Gabriel Jr. would later sell it to Bernard Banta obviously without the
knowledge of petitioners. Bernard then sold to the Cids, which in turn also sold to Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos and Benjamin, and finally Eduardo, checked, so each
claimed, the title of their respective predecessors-in-interest with the Baguio Registry and discovered said title to be free
and unencumbered at the time each purchased the property. Furthermore, respondent Eduardo, before buying the
property, was said to have inspected the same and found it unoccupied by the Orduas.
Sometime in May 2000, or shortly after his purchase of the subject lot, Eduardo, through his lawyer, sent a letter
addressed to the residence of Gabriel Jr. demanding that all persons residing on or physically occupying the subject lot
vacate the premises or face the prospect of being ejected.
The respondents won in the RTC and CA but lost in the SC.
Issue:
W/N the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable under the Statute of Frauds?
W/N the sale has adequate consideration?
W/N the instant action has already prescribed?
W/N the respondents are purchasers in good faith?
Held:
No. The Statute of Frauds, in context, provides that a contract for the sale of real property or of an interest therein shall be
unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent.
However, where the verbal contract of sale has been partially executed through the partial payments made by one party
duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute.
Yes. The Court, therefore, cannot see its way clear as to how the RTC arrived at its simplistic conclusion about the
transaction between Gabriel Sr. and Antonita being without "adequate consideration." RTC and CA equated incomplete
payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law
concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable
contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered
into, save perhaps when the inadequacy is shocking to the conscience.
No. The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned from the
date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in possession of
the property. Thus, one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his
possession is disturbed or his title is attacked before taking steps to vindicate his right. As it is, petitioners action for
reconveyance is imprescriptible.
No. The act of registration by any of the three respondent-purchasers was not coupled with good faith. At the minimum,
each was aware or is at least presumed to be aware of facts which should put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor (i.e., the seller is not in actual possession of
the property sold).
Case 106. Spouses Torcuator vs Spouses Bernabe and Spouses Salvador
Case about Special Power of Attorney as NOT notes and memoranda contemplated in Art. 1403.
Oblicon Concept:
Art. 1403. The following contracts are unenforceable unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
o (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or an interest
therein;
Facts:
The subject of this action is Lot 17, Block 5 of the Ayala Alabang Village. The lower court found that the above parcel of
land was purchased by the spouses Salvador from the developers of Ayala Alabang subject, among others, to the
following conditions:
o "It is part of the condition of buying a lot in Ayala Alabang Village
o (a) that the lot buyer shall deposit with Ayala Corporation a cash bond (about P17,000.00 for the Salvadors)
which shall be refunded to him if he builds a residence thereon within two (2) years of purchase, otherwise the
deposit shall be forfeited,
o (b) architectural plans for any improvement shall be approved by Ayala Corporation, and
o (c) no lot may be resold by the buyer unless a residential house has been constructed thereon (Ayala
Corporation keeps the Torrens Title in their sic possession).
Evidences on record further reveal that on December 18, 1980, the Salvadors sold the parcel of land to the spouses
Bernabe. Given the above restrictions, the Salvadors concomitantly executed a special power of attorney authorizing the
Bernabes to construct a residential house on the lot and to transfer the title of the property in their names.
The Bernabes, on the other hand, without making any improvement, contracted to sell the parcel of land to the spouses
Torcuator sometime in September of 1986.

Then again, confronted by the Ayala Alabang restrictions, the parties agreed to cause the sale between the Salvadors and
the Bernabes cancelled in favor of (a) a new deed of sale from the Salvadors directly to the Torcuators; (b) a new
Irrevocable Special Power of Attorney executed by the Salvadors to the Torcuators in order for the latter to build a house
on the land in question; and (c) an Irrevocable Special Power of Attorney from the Salvadors to the Bernabes authorizing
the latter to sell, transfer and convey, with power of substitution, the subject lot.
The Torcuators thereafter had the plans of their house prepared and offered to pay the Bernabes for the land upon
delivery of the sale contract. For one reason or another, the deed of sale was never consummated nor was payment on
the said sale ever effected.
Subsequently, the Bernabes sold the subject land to Leonardo Angeles, a brother-in-law. The document however is not
notarized. As a result, the Torcuators commenced the instant action against the Bernabes and Salvadors for Specific
Performance or Rescission with Damages.
Issue:
W/N the CA may dismiss their appeal on the strength of issues which were neither pleaded nor proved?
W/N the contract is a contract of sale or contract to sell?
Held:
Yes.
Contract to sell. First, the agreement imposed upon petitioners the obligation to fully pay the agreed purchase price for the
property. That ownership shall not pass to petitioners until they have fully paid the price is implicit in the agreement.
Secondly, the parties clearly intended the construction of a residential house on the property as another suspensive
condition which had to be fulfilled. Ayala Corporation retained title to the property and the Salvador spouses were
precluded from selling it unless a residence had been constructed thereon. Thirdly, there was neither actual nor
constructive delivery of the property to petitioners. Apart from the fact that no public document evidencing the sale was
executed, which would have been considered equivalent to delivery, petitioners did not take actual, physical possession of
the property. The special power of attorney, which petitioners count on as evidence that they took possession of the
property, can by no means be interpreted as delivery or conveyance of ownership over the property.
o In the instant case, petitioners present as written evidence of the agreement the special power of attorney
executed in their favor by the Salvadors and the summary of agreement allegedly initialed by respondent
Remigio Bernabe. These documents do not suffice as notes or memoranda as contemplated by Article
1403 of the Civil Code.
Case 107. Rosencor Development Corporation and Rene Joaquin vs Inquing, Guillermo, Bantugan, Magbanua and
Tiangco
Case about EXCLUSIVITY of the list of Statute of Frauds (Right of First Refusal is not one of them).
Rescission not available in case of purchaser in good faith.
Oblicon Concept:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
o e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest
therein;
Facts:
Respondents averred that they are the lessees since 1971 of a two-story residential apartment located at Tomas Morato
Ave., Quezon City and owned by spouses Tiangco.
The lease was not covered by any contract. The lessees were renting the premises then for P150 a month and were
allegedly verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to sell
the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were
represented by Eufrocina de Leon.
The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge
that this right was extended to the former by the late spouses Tiangcos.
The lessees continued to stay in the premises and allegedly spent their own money amounting from P50,000 to P100,000
for its upkeep. These expenses were never deducted from the rentals which already increased to P1,000.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the premises so that the
demolition of the building be undertaken.
They received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for P2,000,000.
The lessees offered to buy the property from de Leon for the amount of P1,000,000. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer was given by de Leon as to their offer to buy the property.
However, in November 1990, Rene Joaquin came to the leased premises introducing himself as its new owner.
A month thereafter, the lessees received a letter from de Leon advising them that the heirs of the late spouses Tiangcos
have already sold the property to Rosencor. The following month Atty. Aguila wrote them another letter demanding the
rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have
promised them. They also asked for a copy of the deed of sale between her and the new owners thereof but she refused
to heed their request. In the same manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned
down their request and instead Atty. Aguila wrote them several letters demanding that they vacate the premises. The
lessees offered to tender their rental payment to de Leon but she refused to accept the same.
It was also at this instance that the lessees were furnished with a copy of the Deed of Sale and discovered that they were
deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de
Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees
also noted that the property was sold only for P726,000.
Issue:
W/N the right of first refusal is indeed covered by the provisions of the New Civil Code on the statute of frauds?
W/N the respondents have satisfactorily proven their right of first refusal over the property subject of the Deed of Absolute
Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon?
W/N the contract of sale entered into in violation of a third partys right of first refusal be rescinded in order that such third
party can exercise said right?
Held:
No. A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code presupposes the existence of a perfected, albeit unwritten,
contract of sale. A right of first refusal, such as the one involved in the instant case, is not by any means a perfected
contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the
right of first refusal over the property sought to be sold.
Yes. Respondents have adequately proven the existence of their right of first refusal. Federico Bantugan, Irene Guillermo,
and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and Crescencia Tiangco
and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell
the same.
No. We hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale
over the disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to
the sale of the property on September 4, 1990, petitioners were aware or had notice of the oral right of first refusal. The
acquisition by Rosencor of the property subject of the right of first refusal is an obstacle to the action for its rescission
where, as in this case, it was shown that Rosencor is in lawful possession of the subject of the contract and that it did not
act in bad faith.
VOID CONTRACTS
Case 108. Menchavez vs Tevez, Jr.
Case about IN PARI DELICTO in void contracts. Both party will be left by the court. Neither will be entitled to legal
protection.
Oblicon Concept:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
o (1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the others undertaking;
o (2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may
demand the return of what he has given without any obligation to comply with his promise.
Lease of fishponds-Public lands available for fishpond development including those earmarked for family-size
fishponds and not yet leased prior to November 9, 1972 shall be leased only to qualified persons, associations,
cooperatives or corporations, subject to the following conditions.
o 1. The lease shall be for a period of twenty five years (25), renewable for another twenty five years;
o 2. Fifty percent of the area leased shall be developed and be producing in commercial scale within three
years and the remaining portion shall be developed and be producing in commercial scale within five years;
both periods begin from the execution of the lease contract;
o 3. All areas not fully developed within five years from the date of the execution of the lease contract shall
automatically revert to the public domain for disposition of the bureau; provided that a lessee who failed to
develop the area or any portion thereof shall not be permitted to reapply for said area or any portion thereof
or any public land under this decree; and/or any portion thereof or any public land under this decree;
o 4. No portion of the leased area shall be subleased.
Facts:
On February 28, 1986, a Contract of Lease was executed by Jose S. Menchavez, Sr. and Florentino Teves Jr. as
lessee.
Lessor alleged that they are the absolute and lawful co-owners of a fishpond (which really belonged to the State thru
Regalian Doctrine). Its application is still subject to approval by the Fisheries Regional Office.
On June 2, 1988, Cebu RTC Sheriffs demolished the fishpond dikes constructed by respondent and delivered
possession of the subject property to other parties.
As a result, he filed a Complaint for damages with application for preliminary attachment against petitioners. In his
Complaint, he alleged that the lessors had violated their Contract of Lease, specifically the peaceful and adequate
enjoyment of the property for the entire duration of the Contract. He claimed P157,184 as consequential damages for
the demolition of the fishpond dikes, P395,390 as unearned income, and an amount not less than P100,000 for
rentals paid.
Respondent further asserted that the lessors had withheld from him the findings of the trial court in Civil Case entitled
Eufracia Colongan and Paulino Pamplona v. Juan Menchavez Sr. and Sevillana S. Menchavez. In that case
involving the same property, subject of the lease, the Menchavez spouses were ordered to remove the dikes illegally
constructed and to pay damages and attorneys fees.
Issues:
W/N the Contract of Lease is valid?
W/N both parties are in pari delicto?
W/N the liquidated damages should be awarded to the respondent?
Held:
No it is void. Being a patent nullity, petitioners could not give any rights to Florentino Teves, Jr. under the principle:
ONE CANNOT GIVE WHAT HE DOES NOT HAVE, considering that this property in litigation belongs to the State
and not to petitioners.
Yes. The defendants ought to have known that they cannot lease what does not belong to them for as a matter of
fact, they themselves are still applying for a lease of the same property under litigation from the government. On the
other hand, Florentino Teves, being fully aware that petitioners were not yet the owners, had assumed the risks and
under the principle of - He who voluntarily assumes a risk, does not suffer damages thereby. As a consequence,
when Teves leased the fishpond area from petitioners- who were mere holders or possessors thereof, he took the risk
that it may turn out later that his application for lease may not be approved.
No. In the present case, it was stipulated that the party responsible for the violation of the terms, conditions and
warranties of the Contract would pay not less than P50,000 as liquidated damages. Since the principal obligation was
void, there was no contract that could have been breached by petitioners; thus, the stipulation on liquidated damages
was inexistent. The nullity of the principal obligation carried with it the nullity of the accessory obligation of liquidated
damages.
ARTICLES 1440-1457: TRUSTS
Case 109. Richard Lopez, in his capacity as trustee of the trust estate of late Juliana Lopez-Manzano vs CA and heirs of
Jose Lopez Manzano
Case about prescription of implied trust due to mistake or fraud.
Oblicon Concept:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee
of an implied trust for the benefit of the person from whom the property comes.
Implied trusts are either resulting or constructive trusts.
o Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the
nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes
invested with legal title but is obligated in equity to hold his legal title for the benefit of another.
o Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.
o A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in
the nature of their transaction but not expressed in the deed itself. Specific examples of resulting trusts may be
found in the Civil Code, particularly Arts. 1448, 1449, 1451, 1452 and 1453.
o A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law
in order to satisfy the demands of justice and to prevent unjust enrichment. It is raised by equity in respect of
property, which has been acquired by fraud, or where although acquired originally without fraud, it is against
equity that it should be retained by the person holding it. Constructive trusts are illustrated in Arts. 1450, 1454,
1455 and 1456.
Facts:
The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B. Lopez in his capacity as
trustee of the estate of the late Juliana Lopez Manzano to recover from respondents several large tracts of lands allegedly
belonging to the trust estate of Juliana.
The decedent, Juliana, was married to Jose Lopez Manzano. Their union did not bear any children. Juliana was the owner
of several properties, among them, the properties subject of this dispute. The disputed properties totaling more than 1,500
hectares consist of six parcels of land, which are all located in Batangas. They were the exclusive paraphernal properties
of Juliana together with a parcel of land situated in Mindoro and a fractional interest in a residential land on Balayan,
Batangas.
On 23 March 1968, Juliana executed a notarial will, whereby she expressed that she wished to constitute a trust fund for
her paraphernal properties, denominated as Fideicomiso, to be administered by her husband.
If her husband were to die or renounce the obligation, her nephew, Enrique Lopez, was to become administrator and
executor of the Fideicomiso.
As to her conjugal properties, Juliana bequeathed the portion that she could legally dispose to her husband, and after his
death, said properties were to pass to her great grandchildren.
Jose filed for a petitioner for partition in which he was able to transfer properties in trust to his own exclusive properties.
Mistake by the court.
The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the disputed properties in his
name partly as his conjugal share and partly as his inheritance from his wife Juliana, which is the complete reverse of the
claim of the petitioner, as the new trustee, that the properties are intended for the beneficiaries of the Fideicomiso.
Furthermore, the exclusion of the disputed properties from the Fideicomiso was approved by the probate court and,
subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the disputed properties in the
name of Jose was actually pursuant to a court order. The apparent mistake in the adjudication of the disputed properties
to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso.
Issues:
W/N the trust is express or implied?
W/N action has prescribed?
Held:
Implied. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the
constructive variety in favor of the beneficiaries of the Fideicomiso.
Yes. The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to extinctive
prescription. An action for reconveyance based on implied or constructive trust prescribes in 10 years. This period is
reckoned from the date of the issuance of the original certificate of title or transfer certificate of title. Since such issuance
operates as a constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at that time.
Case 110. Tala Realty Services Coporation vs CA and Banco Filipino Savings and Mortgage Bank
Case about alleged implied trust of Banco Filipino with Tala to circumvent the law is VOID for being contrary to law.
Oblicon Concept:

Facts:
Banco Filipinos complaints commonly alleged that in 1979, expansion of its operations required the purchase of real
properties for the purpose of acquiring sites for more branches; that as Sections 25(a) and 34 of the General Banking Act
limit a banks allowable investments in real estate to 50% of its capital assets, its board of directors decided to warehouse
some of its existing properties and branch sites.
Thus, Nancy, a major stockholder and director, persuaded Pedro Aguirre and his brother Tomas Aguirre, both major
stockholders of Banco Filipino, to organize and incorporate Tala Realty to hold and purchase real properties in trust for
Banco Filipino; that after the transfer of Banco Filipino properties to Tala Realty, the Aguirres sister Remedios prodded
her brother Tomas to, as he did, endorse to her his shares in Tala Realty and registered them in the name of her
controlled corporation, Add International.
Thus, Nancy, Remedios, and Pedro Aguirre controlled Tala Realty.
In implementation of their trust agreement, Banco Filipino sold to Tala Realty some of its properties. Tala Realty
simultaneously leased to Banco Filipino the properties for 20 years, renewable for another 20 years at the option of Banco
Filipino with a right of first refusal in the event Tala Realty decided to sell them.
In August 1992, Tala Realty repudiated the trust, claimed the titles for itself, and demanded payment of rentals, deposits,
and goodwill, with a threat to eject Banco Filipino.
Thus arose Banco Filipinos 17 complaints (subject to forum shopping) for reconveyance against Tala Realty.
Issues:
W/N the trust agreement between Tala and the bank is void and unenforceable?
Held:
Yes. In the eyes of the law, however, this implied trust is inexistent and void for being contrary to law. An implied trust
could not have been formed between the Bank and Tala as this Court has held that "where the purchase is made in
violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty
of the fraud.
Clearly, the Bank was well aware of the limitations on its real estate holdings under the General Banking Act and that its
"warehousing agreement" with Tala was a scheme to circumvent the limitation. Thus, the Bank opted not to put the
agreement in writing and call a spade a spade, but instead phrased its right to reconveyance of the subject property at any
time as a "first preference to buy" at the "same transfer price." This agreement which the Bank claims to be an implied
trust is contrary to law. Thus, while we find the sale and lease of the subject property genuine and binding upon the
parties, we cannot enforce the implied trust even assuming the parties intended to create it. In the words of the Court in
the Ramos case, "the courts will not assist the payor in achieving his improper purpose by enforcing a resultant trust for
him in accordance with the clean hands doctrine." The Bank cannot thus demand reconveyance of the property based on
its alleged implied trust relationship with Tala. Parties are in pari delicto.

Case 111. Heirs of Jose Ringor vs Heirs of Jacobo Ringor
Case about explicit trust depending on the intention of the parties and need not be in writing.
Case about imprescriptibility of explicit trusts.
Case about Torrens title not conveying ownership but only confirms one already existing.
Oblicon Concept:
Article 1443. No express trust concerning an immovable or any interest therein may be proved by parol evidence.
Art 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate
is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.
Facts:
The controversy involves lands in Pangasinan, owned by the late Jacobo Ringor. By his first wife, Gavina Laranang, he
had two children, Juan and Catalina. He did not have offsprings by his second and third wives. Catalina predeceased her
father Jacobo who died sometime in 1935, leaving Juan his lone heir.
Juan married Gavina Marcella. They had seven (7) children, namely: Jose (the father and predecessor-in-interest of
herein petitioners) and others.
Jacobo applied for the registration of his lands under the Torrens system. He filed three land registration cases alone, with
his son Juan, or his grandson Jose, applying jointly with him.
Expedientes 241 and 4449 were allegedly sold to Jose. SC finds the deeds of sale as invalid and simulated.
Expedientes 244 were allegedly donated to Jose. SC finds this invalid because no deed of donation shown.
During trial, witnesses attested that even after the decisions in the three land registration cases and the Compraventas,
Jacobo remained in possession of the lands and continued administering them as he did prior to their registration. He
unfailingly gave a share of the produce to all the 7 children of his son Juan. According to witness Julio Monsis, Jacobo did
not partition the lands since the latter said that he still needed them. When
Jacobo died on June 7, 1935, the lands under the three land registration applications, including those which petitioners
sought to partition in their counterclaim before the trial court, remained undivided.
Jose, as the eldest grandchild, assumed and continued the administration of the lands. He also conscientiously gave his 5
younger sisters and only brother Agapito, their share in the produce and income from the lands.
Herein respondents claim they repeatedly asked Jose for partitioning of the land; however, every time they did, Jose
always answered that it was not going to be easy because there would be "big and small shares." Respondents explained
that they did not zealously press for the immediate partition of the lands because Jose constantly assured them that he
would never cheat them and because they respected him highly.
Jose died on April 30, 1971. Respondents demanded from Jose's children, herein petitioners, the partition and delivery of
their share in the estate left by Jacobo and under Jose's administration. The petitioners refused and attempts at amicable
settlement failed.
Issues:
W/N the factual findings of the lower and appellate courts supported by evidence on record?
W/N there a valid express trust established by Jacobo Ringor?
W/N parol evidence can be used as proof of the establishment of the express trust?
W/N the court in effect nullify the Torrens titles over the disputed parcels of land?
W/N respondents' action barred by prescription and laches?
Held:
Yes. SC cant overturn the facts of the RTC when affirmed by the CA.
Yes. The oral testimonies of witnesses Emeteria Ringor, Julio Monsis and Teofilo Abalos - - which the appellate court also
relied on to arrive at the conclusion that an express trust exists. What is crucial is the intention to create a trust. While
oftentimes the intention is manifested by the trustor in express or explicit language, such intention may be manifested by
inference from what the trustor has said or done, from the nature of the transaction, or from the circumstances surrounding
the creation of the purported trust.
Yes. Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the
settlor or the trustor by some writing, deed, or will, or oral declaration. It is created not necessarily by some written
words, but by the direct and positive acts of the parties. No particular words are required, it being sufficient that a trust was
clearly intended. Oral testimony is allowed to prove that a trust exists. It is not error for the court to rely on parol evidence
No. A Torrens Certificate of Title in Jose's name did not vest ownership of the land upon him. The Torrens system does
not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the
true owner. The Torrens system was not intended to foment betrayal in the performance of a trust. It does not permit one
to enrich himself at the expense of another. Where one does not have a rightful claim to the property, the Torrens system
of registration can confirm or record nothing. Petitioners cannot rely on the registration of the lands in Jose's name nor in
the name of the Heirs of Jose M. Ringor, Inc., for the wrong result they seek.
No. Generally, resulting trusts do not prescribe except when the trustee repudiates the trust. Further, the action to
reconvey does not prescribe so long as the property stands in the name of the trustee. To allow prescription would be
tantamount to allowing a trustee to acquire title against his principal and true owner. Here, Jose did not repudiate the trust,
and the titles of the disputed lands are still registered in Jose's name or in the name of the Heirs of Jose M. Ringor, Inc.

Case 112. Oco vs Victor Limbaring
Case about purchase of things for children presumed as gift and not trust.
Oblicon Concept:
ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is
paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is
the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying
the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.
Sec. 2 of the Rules of Court. Parties in interest. A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these
Rules, every action must be prosecuted or defended in the name of the real party in interest.
Facts:
Sometime in 1996, Sabas Limbaring subdivided his Lot into two lots. He then executed in favor of Jennifer Limbaring a
Deed of Sale for P60,000; and, in favor of Sarah Jane Limbaring, another Deed for P14,440.
Sensing some irregularities in the transaction, Percita Oco, the daughter of Sabas Limbaring, left Puerto Princesa City and
went to Ozamis City. She then filed a case of perjury and falsification of documents against respondent, her uncle who
was the father of Jennifer and Sarah Jane.
During the pre-litigation conference called by City Prosecutor Luzminda Uy on July 1, 1996, the parties agreed that the two
parcels of land should be reconveyed to Percita, who was to pay respondent all the expenses that had been and would be
incurred to transfer the titles to her name.
Respondent demanded P30,000 for the estimated expenses for documentation, capital gains, and documentary stamp
taxes; registration fees for the Register of Deeds; and other incidental expenses for clearances from the Department of
Agrarian Reform (DAR). Percita succeeded in lowering the amount to P25,000, for which she executed an undertaking.
Pursuant to their agreement, respondent facilitated the transfer of the titles to her from the names of his daughters. After
the transfer had been effected, Percita left for Puerta Princesa, without paying the P25,000. Several demands were made,
but she refused to pay.
Issues:
W/N the Victor Limbaring is a real party in interest?
W/N Victor Limbaring is a trustor of his daughters?
Held:
No. Respondent is not a real party in interest. He was not a party to the contracts and has not demonstrated any material
interest in their fulfillment. Evidently, the allegations in the Complaint do not show that the properties would be conveyed to
him, even if Percita were to be proven to have committed a breach of the subject agreements.
No. Under the last sentence of Article 1448, respondents alleged acts -- paying the price of the subject properties and, in
the titles, naming his children as owners -- raise the presumption that a gift was effected in their favor. Respondent failed
to rebut this presumption. Absent any clear proof that a trust was created, he cannot be deemed a real party in interest.
That he should be deemed a trustor on the basis merely of having paid the purchase price is plainly contradicted by the
presumption based on Article 1448 of the Civil Code "that there is a gift in favor of the child," not a trust in favor of the
parent.
Case 113. Aznar Brothers Realty Company vs Heirs of Aying
Case about implied trust in cases of mistake or fraud.
Oblicon Concept:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee
of an implied trust for the benefit of the person from whom the property comes.
A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express
trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a
promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the
property for the beneficiary.
Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust
enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds
the legal right to property which he ought not, in equity and good conscience, to hold.
Facts:
The disputed property is a lotwith an area of 34,325 square meters located at Lapu-Lapu City. Crisanta Maloloy-on
petitioned for the issuance of a cadastral decree in her favor over said parcel of land. After her death in 1930, the
Cadastral Court issued a Decision directing the issuance of a decree in the name of Crisanta Maloloy-ons eight children
all surnamed Aying. The certificate of title was, however, lost during the war.
Subsequently, all the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute
Sale dated March 3, 1964, conveying the subject parcel of land to herein petitioner Aznar Brothers Realty Company. Said
deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964 under Act No. 3344 (the law
governing registration for unregistered land), and since then, petitioner had been religiously paying real property taxes on
said property.

In 1988, herein petitioner filed a Petition for Reconstitution of the Original Title as the original title over the subject property
had been lost during the war. On April 12, 1988, the court granted said petition, thereby directing the Register of Deeds of
Lapu-Lapu City to issue a reconstituted title in the name of the abovementioned Aying siblings. Thus, OCT was issued.
In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out notices to vacate, addressed to
persons occupying the property. Unheeded, petitioner then filed a complaint for ejectment against the occupants before
the Metropolitan Trial Court (MTC), Lapu-Lapu City.
After trial, the RTC rendered a Decision ruling that respondents evidence failed to prove that the extra-judicial partition
with deed of absolute sale was a totally simulated or fictitious contract and concluded that said document is valid, thus,
effectively conveying to petitioner the property in question. It further held that respondents action had prescribed in that
the action is considered as one for reconveyance based on implied or constructive trust.
The CA held instead that herein respondents action had not prescribed but upheld the validity of the Extra-Judicial
Partition of Real Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon and Roberta
(3/8), who did not participate in the execution of said document.
Issues:
W/N the respondents cause of action is imprescriptible?
W/N assuming imprescriptible, may the principle of laches apply?
Held:
No. An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not
otherwise. It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the
deed or the date of the issuance of the certificate of title over the property, but if the person claiming to be the owner
thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to quiet title to the
property, does not prescribe.
o In the present case, respondents Wenceslao Sumalinog, an heir of Roberta Aying; Laurencio Aying, an heir of
Emiliano Aying; and Paulino Aying, an heir of Simeon Aying, all testified that they had never occupied or been in
possession of the land in dispute. Hence, the prescriptive period of ten years would apply to herein
respondents. The question then arises as to the date from which the ten-year period should be reckoned,
considering that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act
No. 3344 and not under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already
titled under Act No. 496 in the names of the Aying siblings at the time the subject document was executed.
o In this case, since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act
No. 3344 and not under Act No. 496, said document is deemed not registered. Accordingly, the ten-year
prescriptive period cannot be reckoned from March 6, 1964, the date of registration of the subject document
under Act No. 3344. The prescriptive period only began to run from the time respondents had actual notice of the
Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.
No. With regard to respondent heirs of Roberta Aying who had knowledge of the conveyance as far back as 1967, their
cause of action is already barred by prescription when said amended complaint was filed as they only had until 1977
within which to bring action. As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their
action for reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period
reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property.
Case 114. The Manila Bank Corporation vs Teodoro
Case about guarantee or pledge.
Oblicon Concept:

Facts:
On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly and severally, executed in favor of plaintiff a
Promissory Note for the sum of P10,42 payable in 120 days, or on August 25, 1966, at 12% interest per annum.
Defendants failed to pay the said amount inspite of repeated demands and the obligation as of September 30, 1969 stood
at P15,137 including accrued interest and service charge.
On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. and Anastacio Teodoro, Jr. executed in favor of
plaintiff additional two Promissory Notes for P8,000.00 and P1,000.00 respectively, payable in 120 days at 12% interest
per annum.
Father and Son made a partial payment on the May 3, 1966 promissory Note but none on the June 20, 1966 Promissory
Note, leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued interest and service
charge.
The three Promissory Notes stipulated that any interest due if not paid at the end of every month shall be added to the
total amount then due, the whole amount to bear interest at the rate of 12% per annum until fully paid; and in case of
collection through an attorney-at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as
attorney's fees, which in no case shall be less than P200.00.
It appears that on January 24, 1964 (before the PNs), the Son executed in favor of plaintiff a Deed of Assignment of
Receivables from the defunct Emergency Employment Administration in the sum of P44,635. The Deed of Assignment
provided that it was for and in consideration of certain credits, loans, overdrafts and other credit accommodations
extended to defendants as security for the payment of said sum and the interest thereon, and that defendants do hereby
remise, release and quitclaim all its rights, title, and interest in and to the accounts receivables.

Non-payment of the notes was due to the failure of the Commission to pay defendants after the latter had complied with
their contractual obligations; and that the President of plaintiff Bank took steps to collect from the Commission, but no
collection was effected.
Issues:
W/N the plaintiff claim is already considered paid by the Deed of Assign of Receivables by the Son?
W/N the plaintiff who should directly sue the Philippine Fisheries Commission for collection?
Held:
No. At the time the assignment was executed, there was no obligation to be extinguished except the amount of
P10,000.00. Moreover, in order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.
No. The obligation of appellants under the promissory notes not having been released by the assignment of receivables,
appellants remain as the principal debtors of appellee bank rather than mere guarantors. The deed of assignment merely
guarantees said obligations. That the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all
the property of the debtor, and has resorted to all the legal remedies against the debtor, under Article 2058 of the New
Civil Code does not therefore apply to them. It is of course of the essence of a contract of pledge or mortgage that when
the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the principal debtors and
the pledgors or mortgagors. Resort to one is, therefore, resort to the other.
PRESCRIPTION
Case 116. Rosario Tan vs. Heirs of Roberto Ramirez
Case about ordinary acquisitive prescription
Oblicon Concept:
Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of
time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an
owner, public, peaceful, uninterrupted, and adverse. The party who asserts ownership by adverse possession must prove
the presence of the essential elements of acquisitive prescription.
Acquisitive prescription of real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires
possession in good faith and with just title for ten years.
In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted
adverse possession for thirty years without need of title or of good faith.
Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the
owner thereof, and could transmit his ownership. There is "just title" when the adverse claimant came into possession of
the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the
grantor was not the owner or could not transmit any right.
Facts:
On August 11, 1998, the petitioner, representing her parents (spouses Alumbro), filed with the MCTC of Inopacan, Leyte a
complaint for the recovery of ownership and possession and/or quieting of title of a one-half portion of the subject property
against the respondents.
The petitioner alleged that her great-grandfather Catalino Jaca Valenzona was the owner of the subject property under a
1915 Tax Declaration. Catalino had four children: Gliceria, Valentina, Tomasa, and Julian; Gliceria inherited the subject
property when Catalino died; Gliceria married Gavino Oyao, but their union bore no children; when Gliceria died on April
25, 1952, Gavino inherited a one-half portion of the subject property, while Nicomedesa acquired the other half through
inheritance, in representation of her mother, Valentina, who had predeceased Gliceria, and through her purchase of the
shares of her brothers and sisters.
In 1961, Nicomedesa constituted Roberto as tenant of her half of the subject property; on June 30, 1965, Nicomedesa
bought Gavinos one-half portion of the subject property from the latters heirs, Ronito and Wilfredo Oyao, evidenced by a
Deed of Absolute Sale of Agricultural Land; on August 3, 1965, Nicomedesa sold to Roberto this one-half portion in a
Deed of Absolute Sale of Agricultural Land; and in 1997, Nicomedesa discovered that since 1974, Roberto had been
reflecting the subject property solely in his name under TD No. 4193.
On January 9, 1975, a certain Santa Belacho, claiming to be Gavinos natural child, filed a complaint with the Court of First
Instance of Baybay, Leyte against Roberto, Nicomedesa, Ronito and Wilfredo Oyao for recovery of possession and
ownership of 2 parcels of land, including the subject property.
On September 16, 1977, Roberto bought the subject property from Belacho through a Deed of Absolute Sale of Land; and
on October 5, 1977, Roberto and Nicomedesa entered into a Compromise Agreement with Belacho to settle Civil Case.
Belacho agreed in this settlement to dismiss the case and to waive her interest over the subject property in favor of
Roberto, and the other parcel of land in favor of Nicomedesa in consideration of P1,800.
Issues:
W/N the CA erred in relying upon the compromise agreement and the contract of sale to conclude that the respondents
had been possessors in good faith and with just title and could acquire the subject property through ordinary acquisitive
prescription?

Held:
Yes. Compromise agreement not a valid basis of possession in good faith and just title. No right can arise from the
compromise agreement because the parties executed the same only to buy peace and to write finis to the controversy; it
did not create or transmit ownership rights over the subject property. In executing the compromise agreement, the parties,
in effect, merely reverted to their situation before Civil Case was filed.
Contract of sale cannot supportclaim of good faith and just title. Roberto, therefore, had actual knowledge that Belachos
claim to ownership of the subject property, as Gavinos purported heir, was disputed because he (Roberto) and
Nicomedesa were the defendants in Civil Case. Roberto even admitted that he bought the subject property from Belacho
to "avoid any trouble." He, thus, cannot claim that he acted in good faith under the belief that there was no defect or
dispute in the title of the vendor, Belacho.
Not being a possessor in good faith and with just title, the ten-year period required for ordinary acquisitive prescription
cannot apply in Robertos favor. Even the thirty-year period under extraordinary acquisitive prescription has not been met
because of the respondents claim to have been in possession, in the concept of owner, of the subject property for only
twenty-four years, from the time the subject property was tax declared in 1974 to the time of the filing of the complaint in
1998.

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OBLICON CASES: Articles 1156-1174

Case about Specific Performance with Damages

Case about Resolution with Damages

Amber Gagajena Oblicon Digests Block 1F

Case 3: Lalicon vs. National Housing Authority

Case about Resolution with Damages

Amber Gagajena Oblicon Digests Block 1F

Case 4: Cathay Pacific vs. Vazquez

Case about Claim of Damages Only

Case 5: Saludaga vs. FEU

Case about Breach of Contract Based on Negligence

Case 6: Meralco vs. Ramoy

Case about Breach of Contract

Case 7: Pantaleon vs. American Express International, Inc.

Case about Delay of Credit Card Company in its Obligation to Cardholders

Amber Gagajena Oblicon Digests Block 1F

Case 8: Barzaga vs. CA and Alviar

Case about Non-importance of Demand in Obligations where Time is of the Essence

Amber Gagajena Oblicon Digests Block 1F

Case 9: Lorenzo Shipping Corp vs. BJ Marthel International, Inc.

Case 10: Almocera vs. Johnny Ong

Case about Delay when Demand is Useless

Case 11: Megaworld Globus Asia, Inc. vs. Tanseco

Amber Gagajena Oblicon Digests Block 1F

Case 12: Solar Harvest, Inc vs. Davao Corrugated

Case about Rescission despite LACK of DEMAND

Case 13: Cortes vs CA and Villa Esperanza Development Corporation

This is a Case about Delay of Both Parties or Compensatio Morae

Case about Interpretation of Contracts and Fortuitious Event

Case 16: Ace-agro vs. CA and Cosmos Bottling Company

Case about Unilateral Extinguishment of Obligation Due to Fortuitous Event

Amber Gagajena Oblicon Digests Block 1F

Case 17: Mondragon Leisure vs. CA

Case about Foreclosure of Collaterals (Leasehold Rights); Acceleration Clause

Amber Gagajena Oblicon Digests Block 1F

ARTICLES 1179 and 1181

Case 18. De Leon vs. Ong

Case 19. Reyes vs. Tuparan

Amber Gagajena Oblicon Digests Block 1F

Case 21. Catungal vs. Rodriguez

Case 22. Del Castillo vs. Naguiat

Amber Gagajena Oblicon Digests Block 1F

Case 23. Rustan Pulp vs. IAC

Case 24. UP vs. De Los Angeles

Case 25. Tan vs. CA

Case about Action for Rescission After Substantial Breach - DENIED

Case 26. Spouses Co vs. CA and Adoracion Custodio

Amber Gagajena Oblicon Digests Block 1F

Case about Need of Notice in Automatic Rescission Stipulations in Contracts

Case about Subsidiarity of Remedy of Rescission When There Is Mortgage

Case about Non-Importance of Judicial Rescission for Lessors to Evict Lessees

Amber Gagajena Oblicon Digests Block 1F

Amber Gagajena Oblicon Digests Block 1F

Case 28. Pryce Corporation Vs. PAGCOR

Amber Gagajena Oblicon Digests Block 1F

Amber Gagajena Oblicon Digests Block 1F

ARTICLE 1193-1197: Obligations with a Period

Case 33. Radiowealth Finance Company Vs. Spouses Del Rosario

Amber Gagajena Oblicon Digests Block 1F

Case about Resolutory Period vs Resolutory Condition (tolerance of parents)

Amber Gagajena Oblicon Digests Block 1F

Case about Solidary Obligation when stipulated in the contract

Amber Gagajena Oblicon Digests Block 1F