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Obligations and Contracts

Definitions, Elements

Cause in a Contract

PNOC AND PNOC DOCKYARD AND ENGINEERING CORP. VS. KEPPEL PHILIPPINES HOLDINGS, INC.

G.R. NO. 202050 JULY 25, 2016

BRION, J.

FACTS:

Keppel entered into a lease agreement with Luzon Stevedoring Co. for 25 years for P2.1M. At the option
of Luzsteveco, the rental fee could be totally or partially converted into equity shares in Keppel. At the
end of the agreement, Keppel was given the option to purchase the land for P4.09M provided that it
acquired the necessary qualification. However, Keppel at the time of the agreement was not qualified
because less than 60% of its shareholding was Filipino-owned. If at the end of the agreement, Keppel
was still unqualified, the lease agreement would automatically be renewed for another 25 years. After
which, Keppel was again give the option to purchase the land up to the 30th year of the lease.

Luzsteveco warranted not to sell the land or assign rights for the duration of the agreement unless
Keppel consents. PNOC acquired the land, and Keppel did not object so long as the agreement was
annotated on PNOCs title, to which, the latter consented. When Keppel qualified to acquire the land, it
expressed its intention to purchase the land several times, but PNOC did not favourably respond. PNOC
stated that the agreement was illegal for circumventing the constitutional prohibition against aliens
holding lands in the Philippines. It also asserted that the option contract was void, as it was unsupported
by a separate valuable consideration and that it was not privy to the agreement.

ISSUE: Whether the option contract is void if it not supported by a separate value consideration,

HELD:

No. An option contract is a contract where one person grants to another person the right or privilege to
buy or to sell a determinate thing at a fixed price, if he or she chooses to do so within an agreed period.
It must necessarily have the essential elements of a contract. The consideration in an option contract
may be anything of value, unlike in a sale where the purchase price must be in money or its equivalent.
However, when the consideration is not monetary, the consideration must be clearly specified as such in
the option contract or clause. When the written agreement itself does not state the consideration for
the option contract, the offeree or promisee bears the burden of proving the existence of a separate
consideration for the option.

On the contrary, the option to convert the purchase price for shares should be deemed part of the
consideration for the contract of sale itself, since the shares are merely an alternative to the actual cash
price. The absence of consideration supporting the option contract, however, does not invalidate the
offer to buy or sell. An option unsupported by a separate consideration stands as an unaccepted offer to
buy or sell which, when properly accepted, ripens into a contract to sell. Accordingly, when an option to
buy or to sell is not supported by a consideration separate from the purchase price, the option
constitutes as an offer to buy or to sell, which may be withdrawn by the offeror at any time prior to the
communication of the offeree's acceptance. When the offer is duly accepted, a mutual promise to buy
and to sell under the first paragraph of Article 1479 of the Civil Code ensues and the parties' respective
obligations become reciprocally demandable. The court ruled that the offer to buy the land was timely
accepted by Keppel. As early as 1994, Keppel expressed its desire to exercise its option to buy the land.
Instead of rejecting outright Keppel's acceptance, PNOC referred the matter to the Office of the
Government Corporate Counsel (OGCC). Thus, when Keppel communicated its acceptance, the offer to
purchase the Bauan land stood, not having been withdrawn by PNOC. The offer having been duly
accepted, a contract to sell the land ensued which Keppel can rightfully demand PNOC to comply with.
Sources of Obligations Prima facie execution and authenticity of deed of sale.

DAMASO T. AMBRAY AND CEFERINO T. AMBRAY, JR. VS. SYLVIA A. TSOUROUS, ET. AL.

G. R. NO. 209264, JULY 5, 2016

PERLAS-BERNABE, J.

FACTS:

During their lifetime, Ceferino, Sr. and Estela owned several properties, one of which was a parcel of
land located in San Pablo City denominated as Lot 2. On December 28, 1977, Ceferino, Sr. mortgaged Lot
2 with Manila Bank for the amount of P180,000.00. Prior to the discharge of the mortgage, Lot 2 was
subdivided into three lots: Lot 2-A, Lot 2-B, and the subject property, Lot 2- C. Lot 2-C was registered in
Ceferino, Sr.s name. In June 1996, respondent Maristela discovered that the title covering Lot 2-C was
cancelled and another was issued in the name of petitioners. It appears that by virtue of a notarized
Deed of Absolute Sale date January 16, 1978, Ceferino, Sr. allegedly sold such portion of Lot 2 to
petitioners for a consideration of P150,000.00. This prompted the respondents to file a criminal case for
falsification of public document against petitioners before the MTCC of San Pablo City. The MTCC
acquitted the petitioners of the charge for failure of the prosecution to prove their guilt beyond
reasonable doubt. Thereafter, respondents filed the instant complaint for annulment of title,
reconveyance, and damages against petitioners alleging that the certificate of title and the Deed of Sale
were null and void because the signatures of Ceferino, Sr. and Estela thereon were forgeries.

ISSUE: Whether a delay in the registration of the sale is a ground to invalidate the Deed of Sale

HELD:

As a rule, forgery cannot be presumed and must be proved by clear, positive and convincing evidence,
and the burden of proof lies on the party alleging forgery. As against direct evidence consisting of the
testimony of a witness who was physically present at the signing of the contract and who had personal
knowledge thereof, the testimony of an expert witness constitutes indirect or circumstantial evidence at
best. Between the questioned documents report presented by the respondents and the testimony given
by Estela in the falsification case in support of petitioners defense, the Court finds greater evidentiary
weight in favor of the latter. Estela gave the positive testimony that Ceferino, Sr. himself who signed the
Deed of Sale that conveyed Lot 2-C to petitioners and likewise verified her signature thereon. By virtue
of these declarations, she confirmed the genuineness and authenticity of the questioned signatures.
Thus, it follows that the Deed of Sale itself is valid and duly executed, contrary to the finding of the RTC,
as affirmed by the CA, that it was of spurious nature.

Further lending credence to the validity of the Deed of Sale is the well-settled principle that a duly
notarized contract enjoys prima facie presumption of authenticity and due execution as well as the full
faith and credence attached to a public instrument. The delay in the registration of the sale in favor of
petitioners neither affects nor invalidates the same, in light of the authenticity of the Deed of Sale itself.
Civil Liability

PNB V. PABLO RAYMUNDO

G.R. NO. 208672 DECEMBER 7, 2016

PERALTA, J,

FACTS:

Raymundo, then the Assistant Department Manager of PNB, approved for deposit a foreign draft check
payable to Merry May Juan. Ms. Juan drew and negotiated 6 (six) checks and were approved for
payment on the same day by Raymundo, without waiting for the foreign draft check, intended to fund
the issued check, to be cleared by the PNB Foreign Currency Clearing Unit. Subsequently, the foreign
draft check was dishonored for being fraudulent. For irregularly approving the payment of the six (6)
checks issued by Ms. Juan, without waiting for the foreign draft check to be cleared, Raymundo, as then
Department Manager of PNB San Pedro Branch, was administratively charged by PNB for Conduct
Prejudicial to the Interest of the Service and/or Gross Violation of Bank's Rules and Regulations. The RTC
held that it would be too harsh and inequitable to impose criminal liability upon Raymundo, who
approved the withdrawal because of his belief that the checks were funded, due to the absence of the
stamp mark "Returned Check'' on the checks, and check return slips. Considering that Raymundo's
duties as Branch Manager entailed a lot of responsibility, the RTC found it almost unreasonable to
expect him to directly and personally check the books of accounts of each particular client every time a
check is presented to the bank for payment and for his approval. Aggrieved, the PNB appealed from the
civil aspect of the RTC Decision

ISSUE: Whether the respondent may be held civilly liable despite his acquittal in the criminal action

HELD:

Our law recognizes two kinds of acquittal, with different effects on the civil liability of the accused. First
is an acquittal on the ground that the accused is not the author of the act or omission complained of.
This instance closes the door to civil liability. The second instance is an acquittal based on reasonable
doubt on the guilt of the accused. In this case, even if the guilt of the accused has not been satisfactorily
established, he is not exempt from civil liability which may be proved by preponderance of evidence
only. Raymundo can still be held civilly liable for the charge of violation of Section 3(e) of R.A. No. 3019
because he was only acquitted for failure of the prosecution to establish his guilt beyond reasonable
doubt. Raymundos gross negligence was shown through the complaints and affidavits submitted to the
court. It was shown that he violated the proper protocol on such kind of transactions. Raymundo's act of
approving the deposit to Ms. Juan's newly-opened peso checking account of the peso conversion
[P4,752,689.65] of the foreign check prior to the lapse of the 21-day clearing period is the proximate
cause why the six (6) checks worth P4,000,000.00 were later encashed, thereby causing the PNB undue
injury.
Nature and Effects of Obligations Kinds of Obligations

Solidary Obligation

AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFPRSBS) VS. EDUARDO SANVICTORES

G.R. NO. 207586, AUGUST 17, 2016

MENDOZA, J.

FACTS:

Sometime in 1994, PEPI, formerly Antipolo Properties, Inc., offered to Sanvictores for sale on installment
basis a parcel of land in Village East Executive Homes situated in Binangonan, Rizal. On April 20, 1994,
Sanvictores paid the required down payment of 81,949.04; that on June 9, 1994, a Contract to Sell was
executed by and between PEPI and AFPRSBS, as the seller, and Sanvictores, as the buyer on February 27,
1999, Sanvictores paid in full the purchase price of the subject property in the amount of 534,378.79.
Despite the full payment, PEPI and AFPRSBS failed to execute the corresponding deed of absolute sale
on the subject property and deliver the corresponding title thereto; that on September 6, 2000,
Sanvictores demanded from PEPI the execution of the deed of sale and the delivery of the transfer
certificate of title. PEPI claimed that the title of the subject property was still with the Philippine
National Bank (PNB) and could not be released due to the economic crisis. However, despite several
follow-ups with PEPI, the latter did not communicate with Sanvictores for a period of four (4) years.
Thereafter, Sanvictores filed a complaint for rescission of the contract to sell, refund of payment,
damages, and attorney's fees against PEPI and AFPRSBS as being the subdivision developer and Espina
as the treasurer of PEPI.

ISSUE: Whether the nature of the obligation of the parties under the contract to sell was solidary despite
the absence of stipulation

HELD:

A solidary obligation as one in which each of the debtors is liable for the entire obligation, and each of
the creditors is entitled to demand the satisfaction of the whole obligation from any or all of the
debtors. On the other hand, a joint obligation is one in which each debtor is liable only for a
proportionate part of the debt, and the creditor is entitled to demand only a proportionate part of the
credit from each debtor. The well-entrenched rule is that solidary obligations cannot be inferred lightly.
They must be positively and clearly expressed. A liability is solidary "only when the obligation expressly
so states, when the law so provides or when the nature of the obligation so requires." In this regard,
Article 1207 of the Civil Code provides: The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the prestation. There
is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.

In this case, there was thus no delineation as to the rights and obligations of PEPI and AFPRSBS. The
Court held that there is no doubt that the nature of the obligation of PEPI and AFPRSBS under the
subject contract to sell was solidary. In the said contract, PEPI and AFPRSBS were expressly referred to
as the "SELLER" while Sanvictores was referred to as the "BUYER." Indeed, the contract to sell did not
state "SELLERS" but "SELLER." This could only mean that PEPI and AFPRSBS were considered as one
seller in the contract. Being that said, there could be no other conclusion except that PEPI and AFPRSBS
came to the contracting table with the intention to be bound jointly and severally.

Also, the signatories were Espina, representing PEPI; Mena, representing AFPRSBS; and Sanvictores.
Espina signed under PEPI as seller while Mena signed under AFPRSBS also as seller. Furthermore, the
signatures of Espina and Mena were affixed again in the last portion of the Deed of Restrictions under
the word "OWNER" with Espina signing for PEPI and Mena for AFPRSBS. AFPRSBS is estopped from
denying Mena's authority to represent it. It is quite obvious that AFPRSBS clothed Mena with apparent
authority to act on its behalf in the execution of the contract to sell.
Payment of solidary debtors

PHIL-NIPPON KYOEI, CORP. VS. ROSALIA T. GUDELOSAO, ET. AL.

G. R. NO. 181375 JULY 13, 2016

JARDELEZA, J.

FACTS:

Petitioner purchased a Ro-Ro passenger/cargo vessel MV Mahlia in Japan in February 2003. For the
vessels one-month conduction voyage from Japan to the Philippines, petitioner, as local principal, and
TMCL, as foreign principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crew
members. They were hired through the local manning agency of TMCL, TEMMPC. Petitioner secured a
Marine Insurance Policy from SSSICI over the vessel for P10,800,000.00 against loss, damage, and third
party liability or expense, arising from the occurrence of the perils of the sea for the voyage of the vessel
from Onomichi, Japan to Batangas, Philippines. On February 24, 2003, while still in Japanese waters, the
vessel sank due to extreme bad weather condition. Only the Chief Engineer survived the incident.

Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for
death benefits and other damages against petitioner. On August 5, 2004, the Labor Arbiter rendered a
Decision finding solidary liability among petitioner, TEMMPC, TMCL and Capt. Orbeta. On appeal, the
NLRC absolved petitioner, TEMMPC, TMCL, and Capt. Orbeta from any liability based on the limited
liability rule.

ISSUE: Whether the liability of petitioner is extinguished upon SSSICI's payment of insurance proceeds to
the heirs and beneficiaries of the deceased employees

HELD:

Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the POEA-SEC. The
basis of the solidary liability of the principal with the local manning agent is found in the second
paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act of 1995, which provides that
the liability of the principal/employer and the recruitment/placement agency for any and all claims
under this section shall be joint and several. The rule is that the release of one solidary debtor
redounds to the benefit of the others. Considering that petitioner is solidarily liable with TEMMPC and
TMCL, the court holds that the Release and Quitclaim executed by respondents in favor of TEMMPC and
TMCL redounded to the petitioners benefit. Accordingly, the liabilities of petitioner under Section
20(A)(1) and (4)(c) of the POEA-SEC to respondents are now deemed extinguished.
Joint Obligations

SPS. AMADO AND ESTHER IBAEZ V. JAMES HARPER G.R. No. 194272 February 15, 2017

JARDELEZA, J.

FACTS:

Sps. Amado and Ibaez borrowed the amount of P1,300.00 payable in three months, with the interest
rate of 3% a month. The Sps. Ibaez issued a Promissory Note binding themselves jointly and severally to
pay Ma. Consuelo and Consuelo the loan amount with interest. As security, Sps. Ibaez executed a Deed
of Real Estate Mortgage in favor of Ma. Consuelo and Consuelo over a parcel of land and its
improvements covered by TCT No. 202978 and the mortgage contained the same terms as the
promissory note. All conditions of the mortgage have been violated and that all check payments were
dishonored by the drawees and they applied for foreclosure of the real estate mortgage. The parties
filed a Joint Motion for Approval of Amended Compromise Agreement signed by the Sps. Ibaez and
Francisco, for himself and on behalf of Ma. Consuelo and Consuelo. The compromise agreement was
later on approved by the RTC.

ISSUE: Whether the subsequent compromise agreement binds the parties to be liable solidarily as
previously stipulated in the promissory note.

HELD:

The compromise agreement is binding on the contractual parties, being expressly acknowledged as
juridical agreement between them, and has the effect and authority of res judicata. There is nothing in
the Amended Compromise Agreement which shows a declaration that the obligation created was
solidary. Pursuant to Article 1207, there is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity. In this case, given that
solidarity could not be inferred from the agreement, the presumption under the law applies the
obligation is joint.

As defined in Article 1208, a joint obligation is one where there is a concurrence of several creditors, or
of several debtors, or of several debtors, or of several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the debtors is bound to render compliance with his
proportionate part of the prestation which constitutes the object of the obligation. Each debtor answers
only for a part of the whole liability and to each oblige belongs only a part of the correlative rights as it is
only in solidary obligations that payment made to any one of the solidary creditors extinguishes the
entire obligation. This means that Francisco, Ma. Consuelo and Consuelo are each entitled to equal
shares in the P3,000,000 agreed upon in the Amended Compromise Agreement and that payment to
Consuelo and Ma. Consuelo will not have the effect of discharging the obligation with respect to
Francisco.
Quantum Meruit

PHILIPPINE SCIENCE HIGH SCHOOL-CAGAYAN VALLEY CAMPUS (PSHS) VS. PIRRA CONSTRUCTION

ENTERPRISES G.R. NO. 204423 SEPTEMBER 14, 2016

DEL CASTILLO, J.

Facts:

PIRRA is engaged in contracting and a licensed contractor. It bid and won in constructing the PSHSs
construction projects which consisted of Project A and Project C. Project A was accepted as substantially
completed. As such, PIRRA asked for the payment of the completed project. It stated that the payment
thereof could not yet be made pending correction of the noted defects and remaining work activities,
the final inspection of the concerned agencies, among other reasons. Project A was subjected by
inspection of the COA. However, PIRRA was absent during such inspection. A joint inspection agreement
was entered into by the parties for COAs reinspection but it did not materialize. PSHS informed PIRRA
that it was taking over Project A in the interest of the government and to prepare for its occupancy for
the incoming school year. PIRRA questioned the taking over as well as the inspection made by the COA.

On Project C, PIRRA requested for several time suspensions because of the several problems that
occurred. The parties entered into a joint inspection agreement but still the project was delayed to
which PSHS attributed to the non-response of PIRRA. PIRRA suspended the work without approval. PSHS
terminated the contract because of the events that occurred. PIRRA questioned such termination. PIRRA
filed a complaint against PSHS before the CIAC for damages.

ISSUE: Is PIRRA entitled to compensation despite the fact that it was not able to complete the project
entered into with PSHH-CVC?

HELD:

Yes. The Court agreed that Project A had been substantially completed, thus, payment must be made to
PIRRA. When PIRRA requested substantial acceptance and completion of Project A, PSHS did not object
to such a request. It acted upon it and even created an Inspectorate Team for punch listing, and for the
purpose of determining PIRRA's Billing Statement. The existence of the of the defective or undelivered
items was not an excuse to avoid payment of the progress billing, as the payment was due on the
performed items that were completed or were otherwise performed, save for the defects. Pursuant to
Article 1234 of the Civil Code, if the obligation had been substantially performed in good faith, the
obligor, in this case, PIRRA, may recover as if it had strictly and completely fulfilled its obligation, less the
damages suffered by the obligee or in this instance, PSHS. Hence, PSHS should pay PIRRA for the services
that it rendered.

It was held that PIRRA PIRRA incurred delay, suspended work without PSHS approval, and abandoned
the project. Because of such, PSHS may terminate the contract since such was stipulated in the contract.
Nonetheless, PIRRA is entitled to the value of the work done on Project C pursuant to the principle of
quantum meruit and to avoid unjust enrichment on the part of PIRRA. Quantum meruit means that, in
an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves
as it is unjust for a person to retain any benefit without paying for it.". To deny payment thereof would
result in unjust enrichment of PSHS at the expense of PIRRA.
Contracts

Indivisibility of contracts

SPOUSES ALEXANDER AND JULIE LAM v. KODAK PHILIPPINES, LTD. G.R. No. 167615 January 11, 2016

LEONEN, J.:

FACTS:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement for the sale
of three (3) units of the Kodak Minilab System 22XL6 in the amount of P1,796,000.00 per unit. Kodak
Philippines, Ltd. delivered one (1) unit of the Minilab Equipment in Tagum, Davao Province. The Lam
Spouses issued postdated checks amounting to P35,000.00 each for 12 months as payment for the first
delivered unit. The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated
due to insufficiency of funds. However, both checks were negotiated by Kodak Philippines, Ltd. and were
honored by the depository bank. The 10 other checks were subsequently dishonored after the Lam
Spouses ordered the depository bank to stop payment. Kodak Philippines, Ltd. canceled the sale and
demanded that the Lam Spouses return the unit it delivered together with its accessories. The Lam
Spouses ignored the demand but also rescinded the contract through the letter dated November 18,
1992 on account of Kodak Philippines, Ltd.'s failure to deliver the two (2) remaining Minilab Equipment
units.

ISSUE: Whether the contract between petitioners and respondent pertained to obligations that are
severable, divisible, and susceptible to partial performance

HELD:

The intention of the parties to bind themselves to an indivisible obligation can be further discerned
through their direct acts in relation to the package deal. This intent must prevail even though the
articles involved are physically separable and capable of being paid for and delivered individually. An
obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of the
thing which is the object thereof. The indivisibility refers to the prestation and not to the object thereof.

The Agreement between the parties contained an indivisible obligation. It contained a package deal"
involving three (3) units of the Kodak Minilab System 22XL. The intention of the parties is for there to be
a single transaction covering all three (3) units of the Minilab Equipment. Respondent's obligation was to
deliver all products purchased under a "package," and, in turn, petitioners' obligation was to pay for the
total purchase price, payable in installments. The intention of the parties to bind themselves to an
indivisible obligation can be further discerned through their direct acts in relation to the package deal.
The Letter Agreement specified only one purpose for the buyer, which was to obtain these units for
three different outlets. If the intention of the parties were to have a divisible contract, then separate
agreements could have been made for each Minilab Equipment unit instead of covering all three in one
package deal.

Furthermore, the 19% multiple order discount as contained in the Letter Agreement was applied to all
three acquired units. There is no indication in the Letter Agreement that the units petitioners ordered
were covered by three (3) separate transactions.
Reformation of Instruments

B.F. CORPORATION AND HONORIO PINEDA V. FORM-EZE SYSTEMS, INC. G.R. NO. 192948

DECEMBER 07, 2016

PEREZ, J.

FACTS:

On 29 August 2006, SM Prime Holdings, Inc. awarded the contract for general construction of the SM
City-Marikina mall to BFC. In turn, BFC engaged Form-Eze for the lease of formwork system and related
equipment for and needed by the Project. Five (5) contracts and two (2) letter agreements were
executed by the BFC. On 30 March 2007, Form-Eze filed a Request for Arbitration before the CIAC. In its
Complaint, Form-Eze alleged that BFC has an unpaid obligation amounting to P9,189,024.58; that BFC
wanted to re-negotiate the equipment leases; and that it was not complying with the contractual and
supplemental agreements in effect. BFCs contention is that the Contract #1 must be reformed to
incorporate a provision that BFC shall deduct from said billing the cost of labor supplied by it for the
fabrication and assembly of the forming system and for the stripping, cleaning, resetting thereof at the
rate of P60.00 per man-hour. BFC also demanded the refund of P5,773,440.00 as expenses for the
manufacture of additional hardware to complete the 7,000 square meters of formwork required in
Contract #1. BFC explained that Form-Eze had only furnished 4,682.4 square meters of formwork.

ISSUE: Whether the contract expressed their true intention; and, if not, whether it was due to mistake,
fraud, inequitable conduct or accident

Is reformation of contract proper to incorporate a provision that BFC shall furnish the labor needed by
assembling and that it shall deduct therefrom the agreed cost of labor since it has been the intention
and agreement of the parties?

HELD:

Yes. Reformation is a remedy in equity, whereby a written instrument is made or construed so as to


express or conform to the real intention of the parties, where some error or mistake has been
committed. BFC relies on the Form-Eze Proposed SM Marikina Mall Project Elevated Beam and Slab
Formwork dated 7 December 2006 to support its contention that Contract No. 1 should have a provision
on the cost of labor. Indeed, in the proposal, BFC has agreed "to furnish the labor required for
fabrication and assembly of the forming equipment" and that "BFC will deduct from the total contract
amount 50.00 per man-hour each carpenter or laborer supplied to Form-Eze."

Notably, Contracts No. 2 and 3 contain labor-guarantee provisions considering that BFC has committed
to provide the necessary labor for both contracts. The admission by Form-Eze bolsters the conclusion
that the parties intended to include a labor guarantee provision in Contract No. 1. Both Contracts No. 2
and 3 set the labor rate at P60.00 per carpenter man-hour. Considering that both parties admitted that
there should be a labor guarantee clause in Contract No. 1, it can be reasonably inferred that the failure
to include said provision was due to mistake. A reformation is in order to include a cost of labor
provision in Contract No. 1.
Amendment of Contract

BASES CONVERSION DEVELOPMENT AUTHORITY V. DMCI PROJECT DEVELOPERS, INC.

G.R. NO. 173137 JANUARY 11, 2016

LEONEN, J.

FACTS:

On June 10, 1995, Bases Conversion Development Authority entered into a Joint Venture Agreement
with Philippine National Railways and other foreign corporations. Under the Joint Venture Agreement,
the parties agreed to construct a railroad system from Manila to Clark with possible extensions to Subic
Bay and La Union and later, possibly to Ilocos Norte and Nueva Ecija. BCDA organized and incorporated
Northrail. Northrail was registered with the Securities and Exchange Commission on August 22, 1995. On
February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its
nominee as party. The conflict arose when Northrail withdrew from the SEC its application for increased
authorized capital stock. On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail
the return of its P300 million deposit. DMCI-PDI cited Northrail's failure to increase its authorized capital
stock as reason for the demand. However, BCDA and Nortrail refused to do so. On August 17, 2005,
DMCIPDI served a demand for arbitration to BCDA and Northrail, citing the arbitration clause in the June
10, 1995 Joint Venture Agreement. BCDA and Northrail failed to respond.

ISSUE: Whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration when the former
was not a party to the agreement containing the arbitration clause.

HELD:

DMCI-PDI may compel BCDA and Northrail to submit to arbitration proceedings in light of the policy in
favor of arbitration. BCDA and Northrail assail DMCI-PDI's right to compel them to submit to arbitration
based on the assumption that DMCI-PDI was not a party to the agreement containing the arbitration
clause. However, three documents represent the agreement between BCDA, Northrail, and D.M.
Consunji, Inc. Among the three documents, only the Joint Venture Agreement contains the arbitration
clause. DMCI-PDI was allegedly not a party to the Joint Venture Agreement.

Amendments or supplements to the agreement may be executed by contracting parties to address the
circumstances or issues that arise while a contract subsists. When an agreement is amended, some
provisions are changed. Certain parts or provisions may be added, removed, or corrected. These
changes may cause effects that are inconsistent with the wordings of the contract before the changes
were applied. In that case, the old provisions shall be deemed to have lost their force and effect, while
the changes shall be deemed to have taken effect. Provisions that are not affected by the changes
usually remain effective. When a contract is supplemented, new provisions that are not inconsistent
with the old provisions are added. The nature, scope, and terms and conditions are expanded. A reading
of all the documents of agreement shows that they were executed by the same parties. Initially, the
Joint Venture Agreement was executed only by BCD A, PNR, and the foreign corporations. When the
Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee, D.M.
Consunji, Inc. and/or its nominee were deemed to have been also a party to the original Joint Venture
Agreement executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its
nominee became bound to the terms of both the Joint Venture Agreement and its amendment.

Each document of agreement represents a step toward the implementation of the project, such that the
three agreements must be read together for a complete understanding of the parties' whole agreement.
The Joint Venture Agreement, the amended Joint Venture Agreement, and the Memorandum of
Agreement should be treated as one contract because they all form part of a whole agreement. Hence,
the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable only to
the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of or a
continuation of the Joint Venture Agreement. The arbitration clause should extend to all the agreements
and its parties since it is still consistent with all the terms and conditions of the amendments and
supplements.
Interpretation of Contracts

Literal Application; Contracts

TERESITA I. BUENAVENTURA VS. METROPOLITAN BANK AND TRUST COMPANY

G.R. NO. 167082 AUGUST 3, 2016

BERSAMIN, J.

FACTS:

On January 20, 1997 and April 17, 1997, Teresita Buenaventura executed Promissory Notes each

in the amount of P 1,500,000.00 and payable to Metrobank with interest and credit evaluation

and supervision fee. Both PNs provide for penalty of 18% per annum on the unpaid principal from

date of default until full payment of the obligation. Despite demands, there remained unpaid on

PN Nos. 232663 and 232711 the amounts of P2,061,208.08 and P1,492,236.37, respectively, as

of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an action against

appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional

Trial Court of Makati City. Petitioner averred that she is just a guarantor to the obligation of his

nephew Rene Imperial and cannot be held liable unless the respondent exhausted all the

properties of imperial. Petitioner also claimed that the Promissory Notes are contact of adhesion

and must be construed against the respondent.

HELD:

The Promissory Notes were valid. First, the terms and conditions of the Promissory Notes were

clear and unambiguous. Hence, the Court only needs to literally apply the contracts. While it is

true that the Promissory Notes were considered contract of adhesion, such fact would not

necessarily entitle the petitioner to bar their literal enforcement against her. Contracts of

adhesion, such as in this case have the same validity and enforceability with that of ordinary

contracts.

Also, the claim of the petitioner that the Promissory Notes were meant as guaranties to secure

the payment of the checks by Rene imperial was also denied. The Court ruled that a contract of

guaranty is one where a person, the guarantor, binds himself or herself to another, the creditor,

to fulfill the obligation of the principal debtor in case of failure of the latter to do so. It cannot be

presumed, but must be express and in writing to be enforceable, especially as it is considered a


special promise to answer for the debt, default or miscarriage of another. It being clear that the

promissory notes were entirely silent about the supposed guaranty in favor of Imperial, we must

read the promissory notes literally due to the absence of any ambiguities about their language

and meaning. In other words, the petitioner could not validly insist on the guaranty.Construction of
words and phrases in the contract

CENTURY PROPERTIES, INC. VS. EDWIN J. BABIANO AND EMMA B. CONCEPCION

G. R. NO. 220978 JULY 5, 2016

PERLAS-BERNABE, J.

FACTS:

Babiano was hired by CPI as Director of Sales, and was eventually appointed as Vice President for

Sales effective September 1, 2007. During that same period, Concepcion was initially hired as

Sales Agent by CPI and was eventually promoted as Project Director on September 1, 2007. As

such, she signed an employment agreement, denominated as Contract of Agency for Project

Director which provided, among others, that she would directly report to Babiano.

After receiving reports that Babiano, among others, spread false information regarding CPI and

for being absent without official leave for five days, CPI sent Babiano a Notice to Explain. On

February 25, 2009, Babiano tendered his resignation and revealed that he had been accepted as

Vice President of First Global BYO Development Corporation, a competitor of CPI.

Respondents filed a complaint for non-payment of commissions and damages against CPI before

the NLRC. The labor arbiter decided in CPIs favor. On appeal, however, the NLRC ruled in favor

of the respondents. The CA later affirmed the NLRC ruling.

HELD:

Article 1370 of the Civil Code provides that if the terms of a contract are clear and leave no

doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall

control. In this case, the assailed Confidentiality of Documents and Non-Compete Clause found

in Babianos employment contract. Such clause states that Babiano is barred to work for

whatsoever capacity with any person whose business is in direct competition with CPI while he

is employed and for a period of one year for the date of his resignation or termination from the

company, it also expressly provided that should Babiano breach any term of the contract, forms
of compensation will be forfeited.

Clearly, when Babiano sought and eventually accepted the position with First Global, he was still

employed by CPI as he has not formally resigned at that time. Such act was a clear violation of

the Confidentiality of Documents and Non-Complete Clause in his employment contract with

CPI, thus, justifying the forfeiture of his unpaid commissions.Ambiguity in contracts; harmonize

POWER SECTOR ASSETS AND LIABLITIES MANAGEMENT CORPORATION VS. SEM-SALACA POWER

CORPORATION GR. NO. 204719, DEC. 5, 2016

PERALTA, J.

FACTS:

The Electric Power Industry Reform Act of 2001 (EPIRA), or Republic Act (R.A.) No. 9136, which

was signed into law by then President Gloria Macapagal Arroyo on June 8, 2001, was intended to

provide a framework for the restructuring of the electric power industry, including the

privatization of the assets of the National Power Corporation (NPC), the transition to the desired

competitive structure and the definition of the responsibilities of the various government

agencies and private entities with respect to the reform of the electric power industry which

included the creation of petitioner Power Sector Assets and Liabilities Management Corporation

(PSALM), a government-owned and controlled corporation which took over ownership of the

generation assets, liabilities, independent power producer (IPP) contracts, real estate and other

disposable assets of the NPC.

Among the assets put on sale by PSALM was the 600-MW Batangas Coal-Fired Thermal Power

Plant in Calaca, Batangas (Calaca Power Plant). In July 2009, DMCI Holdings, Inc. (DMCI) was

declared the highest bidder in the sale.] The sale was effected through an Asset Purchase

Agreement (APA) executed by PSALM and DMCI on July 29, 2009, and became effective on August

3, 2009. DMCI transferred all of its rights and obligations under the APA and the Land Lease

Agreement (also called Final Transaction Documents) to herein respondent SEM-Calaca Power

Corporation (SCPC) by entering into an Amendment, Accession and Assumption Agreement that

was signed by PSALM, DMCI and SCPC.

SCPC contends that it is obliged to supply 10.841% of MERALCO's total requirement but not to

exceed 169,000 kW in any hourly interval. However, PSALM holds a different view and contends
that SCPC is bound to supply the entire 10.841% of what MERALCO requires, without regard to

any cap or limit.

HELD:

Among the key principles in the interpretation of contracts is that espoused in Article 1370,

The rule means that the contract's meaning should be determined from its clear terms without

reference to extrinsic facts or aids. The intention of the parties must be gathered from the

contract's language, and from that language alone. Stated differently, where the language of a

written contract is clear and unambiguous, the contract must be taken to mean that which, on

its face, it purports to mean, unless some good reason can be assigned to show that the words

should be understood in a different sense.In the case at bar, the Court finds that ambiguity indeed
surrounds the figures 10.841% and

169,000 kW found in the contract, the former because it does not indicate a base value with a

specific quantity and a definite unit of measurement and the latter because there is uncertainty

as to whether it is a cap or limit on the party's obligation or not. These were similarly the findings

of both the ERC and

the appellate court. Even to the casual observer, it is obvious that the plain language alone of

Schedule W does not shed light on these figures.

Then, case law is also settled on the rule that contracts should be so construed as to harmonize

and give effect to its different provisions. The legal effect of a contract is not determined alone

by any particular provision disconnected from all others, but from the whole read together. In

simple terms, that SCPC is not accountable for any shortfall once it had delivered 169,000 kW at

any given hour, the same being the responsibility of NPC. SCPC becomes liable only whenever it

fails to deliver whichever is lower of 169,000 kW or 10.841% of MERALCO's requirements, at any

given hour.Stipulation on interest

IBM PHILIPPINES, INC. VS. PRIME SYSTEMS PLUS, INC.

G.R. NO. 203192, AUGUST 15, 2016

DEL CASTILLO, J

FACTS:

Petitioner entered into an agreement with respondent whereby the former will deliver 45
automated teller machines (ATMs) and several computer hardware to respondent's customers.

Thereafter, petitioner instituted a Complaint for sum of money against respondent. In the said

Complaint, petitioner sought to have respondent pay the former respondent's unpaid obligation

with 3% monthly interest. Respondent denied the allegations in the Complaint. Respondent also

alleged that 'it had fully paid for the fifty six (56) ATMs it purchased from petitioner during the

period covering December 1997 to February 1998. The Regional Trial Court ordered respondent

to pay the amount with interest at 6% per annum from March 15, 2006. The appellate court

meanwhile ordered respondent to pay petitioner the amount with 6% annual interest from the

time of filing of the Complaint. Petitioner claimed that the interest should be 3% as expressed in

the agreement, hence the petition to the Supreme Court.

HELD:

It has been a long-standing rule that for interest to become due and demandable, two requisites

must be present: (1) that there must be an express stipulation for the payment of interest and

(2) the agreement to pay interest is reduced in writing. In this case, the amount of interest was

never reduce to writing.

The 3% interest was never agreed upon. The evidence points to respondent's lack of consent to

a 3% monthly interest. Petitioner adamantly claims that respondent's act of requesting for a

lower interest rate shows the latter's agreement to a 3% monthly interest. However,

respondent's authorized representative never assented to petitioner's letter. Based on the

evidence presented, to accept petitioner's misplaced argument that the parties mutually agreed

to a 3% monthly interest when respondent subsequently ordered ATMs despite receiving

petitioner's letter imposing a 3% monthly interest will render the second condition - that the

agreement be reduced in writing - futile. Although respondent did agree to the imposition of

interest per se, the fact that there was never a clear rate of interest still leaves room to guess as

to how much interest respondent will pay. Thus, the legal rate of interest shall prevail which is

6% interest per annum.Stipulation on breach of contract

UNIVERSAL INTERNATIONAL INVESTMENT (BVI) LIMITED V. RAY BURTON DEVELOPMENT

CORPORATION G.R. NO. 182201 NOVEMBER 14, 2016

SERENO, C.J.
FACTS:

RBDC owned and developed Elizabeth Place, a condominium located at H.V. De la Costa St.,

Salcedo Village, Makati City. On 18 October 1996, respondent and petitioner entered into

separate Contracts to Sell covering the purchase of 10 condominium units and 10 parking slots

in the building and in February 1999, petitioner paid respondent the full purchase price of these

properties amounting to P52,836,781.50. Universal issued a letter dated 23 August 2000 to RBDC

demanding the cancellation of the sales transaction after the latter failed to deliver possession

of the properties and reneged on its obligation to transfer the Condominium Certificates of Title

(CCTs) to petitioner's name but RBDC ultimately failed to satisfy the demand of Universal to

deliver the properties. Thereafter, petitioner discovered that the mother title to the lot of

Elizabeth Place had been mortgaged to China Banking Corporation (China Bank) since 31 July

1991.

HELD:

The contract between the parties contain a stipulation when breach has been committed. RBDC

counters that it cannot be considered in breach of the agreement, since Universal failed to pay

the transfer charges. The CA agreed with respondent's reasoning and thus rejected petitioner's

demand for liquidated damages. The Supreme Court concurs with the CA's rejection of liquidated

damages, but for a different reason.

If the terms of the contract are clear and leave no doubt upon the intention of the contracting

parties, the literal meaning of its stipulations shall control. In this case, the very words of Section

6 of the Contracts to Sell refer only to situations of (1) force majeure or (2) substantial delay in

the condominium project, Elizabeth Place.

Universal is not alleging either of these two circumstances. Rather, it is claiming damages for

RBDC's failure to deliver possession of the condominium units, parking slots, and their CCTs.

Hence, Section 6 of the Contracts to Sell is clearly inapplicable to petitioner's cause of action.

Again, respondent had two obligations specified in Section 3 of the Contracts to Sell: (1) to deliver

the deeds of absolute sale; and (2) to give the corresponding CCTs. RBDC admittedly failed to

perform these obligations, but invoked the excuse that Universal had defaulted on the payment

of transfer charges under Section 5(a) of the Contracts to Sell. Thus, petitioner is awarded
temperate damages in lieu of actual damages.Unenforceable Contracts

IGLESIA FILIPINA INDEPENDIENTE VS. HEIRS OF BERNARDINO TAEZA G.R. NO. 179597 FEBRUARY

3, 2017

PERALTA, J.

FACTS:

IFI owned a parcel of land and was subdivided into 4 lots. One of the four lots was sold to

Bienvenido. 2 of the lots were also sold to Bernardino whose payment was made through

installments with mortgage to secure the payment. Bernardino allegedly completed the

payments. Thereafter, a complaint for annulment of the deed of sale with mortgage to

Bernardino was filed by the Parish Council. The complaint was dismissed because of the lack of

personality to file the case. An action for annulment of the sale was again filed by the IFI against

Bernardino which was dismissed again without prejudice upon the determination of the elected

Supreme Bishop. In the meantime, Bernardino caused the registration of the lots under his name.

For the third time, a case for annulment of the sale to Bernardino was filed by the Supreme

Bishop of IFI.

HELD:

The sale made between the then Supreme Bishop and Bernardino was declared by the Supreme

Court as unenforceable. Even if the Supreme Bishop had the authority to contract the sale, the

laymens committee objected to such sale. The Canons state that all the church entities listed

must give their approval to the transaction. When the Supreme Bishop executed the contract of

sale despite the opposition made by the laymens committee, he acted beyond his powers. Since

the property had already been transferred in the name of Bernardino, he becomes the trustor of

the property. The prescription of such trust is within 10 years from such registration. The action

was filed well within the prescriptive period so the property must be reconveyed to its true

owner, IFI.Void and Inexistent Contracts

Simulated Contract

TERESITA I. BUENAVENTURA VS. METROPOLITAN BANK AND TRUST COMPANY

G.R. NO. 167082 AUGUST 03, 2016

BERSAMIN, J.
FACTS:

On January 20, 1997 and April 17, 1997, Teresita Buenaventura executed Promissory Notes each

in the amount of P 1,500,000.00 and payable to Metrobank with interest and credit evaluation

and supervision fee. Both PNs provide for penalty of 18% per annum on the unpaid principal from

date of default until full payment of the obligation. Despite demands, there remained unpaid on

PN Nos. 232663 and 232711 the amounts of P2,061,208.08 and P1,492,236.37, respectively, as

of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an action against

appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional

Trial Court of Makati City. Petitioner averred that she is just a guarantor to the obligation of his

nephew Rene Imperial and cannot be held liable unless the respondent exhausted all the

properties of imperial. Petitioner also claimed that the Promissory Notes are contact of adhesion

and must be construed against the respondent.

HELD:

There was no sufficiency of evidence to show that the promissory notes were simulated. Based

on Article 1345 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute;

and (2)relative. Simulation is absolute when there is a contract but without any substance, the

parties not intending to be bound thereby. It is relative when the parties come to an agreement

that they hide or conceal in the guise of another contract. The effects of simulated contracts are

in Article 1346 of the Civil Code: An absolutely simulated or fictitious 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 real

agreement. The burden of showing that a contract is simulated rests on the party impugning the

contract. This is because of the presumed validity of the contract that has been duly executed.

The proof required to overcome the presumption of validity must be convincing and

preponderant. Without such proof, therefore, the petitioner's allegation that she had been made

to believe that the promissory notes would be guaranties for the rediscounted checks, not

evidence of her primary and direct liability under loan agreements, could not stand. Moreover,

the issue of simulation of contract was not brought up in the RTC. It was raised for the first time
only in the CA. Such belatedness forbids the consideration of simulation of contracts as an
issue.Remedies in case of Breach of Contract

Annulment of Contract

DESIDERIO RANARA, JR. VS. ZACARIAS DE LOS ANGELES, JR.

G.R. NO. 200765 AUGUST 08, 2016

REYES, J

FACTS:

Leonor Parada loaned from De Los Angeles, Sr. an amount of money, to finance her migration to

Canada which was actually from his son- Zacarias De Los Angeles, Jr. As security for the loan,

Parada mortgaged an agricultural land to respondent, with the stipulation that the possession

and farming of such land shall only be meant to pay for the interests of the loan. Allegedly, Parada

executed a deed of sale with a right to repurchase the land, which was given to the respondent.

When respondents father became sick, he demanded Parada to exercise her right of redemption

and buy back the land as he badly needed money for his fathers hospital expenses. However

Parada did not do so, claiming that the land was never sold to respondent. Because of this,

respondent sold the land to petitioner Ranara. The dispute reached the courts and the Regional

Trial Court decided in favour of Parada finding that the contract entered into between Parada

and respondent was one of an equitable mortgage. The appellate court affirmed the trial courts

decision, hence the petition to the Supreme Court under rule 45 of the Rules of Court with an

issue as to whether the parties are in pari delicto.

HELD:

First, the Court said that the question of whether parties are in pari delicto are not covered by a

Rule 45 petition. Second, such rule is inapplicable to this case. The Court held that the Latin for

"in equal fault," in pari delicto connotes that two or more people are at fault or are guilty of a

crime. This doctrine finds expression in the maxims "ex dolo malo non oritur actio" and "in pari

delicto potior est condition defendentis. This doctrine is governed by the Civil Code specifically:

When the nullity proceeds from the illegality of the cause or object of the contract, and the act

constitutes a criminal offense, both parties being in pari delicto, they shall have no action against

each other, and both shall be prosecuted (Article 1411); and, If the act in which the unlawful or
forbidden cause consists does not constitute a criminal offense, the following rules shall be

observed: 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 other's

undertaking(Article 1412). Thus the doctrine applies to contracts which are void for illegality of

subject matter and not to contracts rendered void for being simulated, or those in which the

parties do not really intend to be bound thereby. There is no illegal or unlawful cause in this case

to make the doctrine applicable. The petitioner is mistaken in the application of the doctrine ofin pari
delicto. The Court ruled that the petitioner cannot claim reimbursement for any expense

incurred in the improvements on the lot.Rescission

PHILIPPINE ECONOMIC ZONE AUTHORITY AND PILHINO SALES CORPORATION

G.R. NO. 185765 SEPTEMBER 28, 2016

LEONEN, J.

FACTS:

PEZA published an invitation to bid for its acquisition of two

(2) brand new fire truck units with complete accessories. 3 companies participated in the

bidding and Pilhino was able to secure the contract. The contract stipulated that Pilhino was to

deliver to the Philippine Economic Zone Authority two (2) FF3HP brand fire trucks within 45 days

of receipt of a purchase order from the Philippine Economic Zone Authority as well as payment

of a penalty. Pilhino failed to deliver which prompted PEZA to issue formal demands which were

not complied with. A complaint for rescission and damages was filed. Pilhino countered that

there was no starting date stipulated where its obligation to deliver was reckoned upon,

considering that the Complaint supposedly failed to allege acceptance by Pilhino of the purchase

order.

HELD:

A contract of sale entails reciprocal obligations. Rescission on account of breach of reciprocal

obligations is provided for in Article 1191 of the Civil Code which states that 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 court sided with Pilhino that the rescission of a contract results in mutual restitution.
However, mutual restitution under Article 1191 is not a license for the negation of contractually

stipulated liquidated damages. Petitioner already suffered damage by respondent's mere delay.

The very same breach or delay in the performance that triggers rescission is what makes damages

due. When contracting parties, by their own free acts of will, agreed on what these damages

ought to be, they established the law between themselves. Pilhino cannot balk at the natural

result of its own breach. The exigencies that impelled petitioner to obtain fire trucks i.e. El Nio

made it imperative for respondent to act with dispatch. Instead, it dragged its feet, left petitioner

with inadequate means for addressing the very emergencies that engendered the need for fire

trucks, and forced it into litigation to enforce its rights.STA. FE REALTY, INC. AND VICTORIA SANDEJAS
FABREGAS VS. JESUS M. SISON

G.R. NO. 199431 AUGUST 31, 2016

REYES, J

FACTS:

SFRI agreed to sell to Sison the south eastern portion of the land covered by TCT No. 61132. On

October 19, 1989, SFRI executed a Deed of Sale over the subject property to Fabregas for the

amount of P10,918.00. Fabregas, then, executed another deed of sale in favor of Sison for the

same amount. This sale was authorized by SFRI in a Board Resolution and was then adopted by

its Board of Directors together with the corresponding Secretary's Certificate. Thus he subdivided

the land and built on a portion thereof. In the interim, Sta. Fe Realty also subdivided the parcels

of land it owned and sold a subdivided portion to Fabregas. Sison claimed that said subdivided

portion was the land sold by the realty to him. Fabregas claimed that she had extrajudicially

rescinded the contract between her and Sison thus Sison had no rights over the land. The

Regional Trial Court ruled in favour of Sison. The appellate court affirmed such ruling. Hence the

petition to the Supreme Court, with petitioners claiming that the deed of sale between Sison and

Fabregas was simulated and that there was rescission of the contract.

HELD:

The Court ruled that the unilateral rescission of the sale presupposes an implied admission of the

validity of the deed of sale which the petitioners were claiming to be simulated. In any case, the

remedy of rescission is based on the fulfilment of the obligation by the party and it is not on the
alleged lack of consideration of the contract. Here, it appears that Fabregas failed to judicially

rescind the contract. The Court had already ruled that in the absence of a stipulation, a party

cannot unilaterally and extrajudicially rescind a contract. A judicial or notarial act is necessary

before a valid rescission can take place. The party entitled to rescind should apply to the court

for a decree of rescission. The right cannot be exercised solely on a party's own judgment that

the other committed a breach of the obligation. The operative act which produces thy resolution

of the contract is the decree of the court and not the mere act of the vendor. 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.

While the petitioners claim that Sison did not pay the price of the subject property, the notice of

rescission that Fabregas allegedly sent to Sison declaring her intention to rescind the sale did not

operate to validly rescind the contract because there is absolutely no stipulation giving Fabregas

the right to unilaterally rescind the contract in case of non-payment. Consequently, the unilateral

rescission she made is of no effect.CONCHITA A. SONLEY VS. ANCHOR SAVINGS BANK/EQUICOM


SAVINGS BANK

G.R. NO. 205623 AUGUST 10, 2016

DEL CASTILLO, J

FACTS:

Conchita Sonley entered into a Contract to Sell agreement over a parcel of land with Anchor

Savings Bank. Upon her failure to pay her monthly obligations under the contract, Anchor

rescinded the Contract to sell. However a compromise agreement was entered into whereby

Conchita agreed to repurchase the land. Conchita however failed to pay her obligations as well

under the compromise agreement, thus the bank rescinded such agreement. Thus a case was

filed against Conchita before the Regional Trial Court which decided in favour of the bank. The

appellate court ruled against Conchita as well. Hence the petition to the Supreme Court. Conchita

contends that the bank has no right to exercise rescission.

HELD:
Under Article 2041 of the Civil Code, "if one of the parties fails or refuses to abide by the

compromise, the other party may either enforce the compromise or regard it as rescinded and

insist upon his original demand." "The language of this Article 2041 denotes that no action for

rescission is required and that the party aggrieved by the breach of a compromise agreement

may, if he chooses, bring the suit contemplated or involved in his original demand, as if there had

never been any compromise agreement, without bringing an action for rescission thereof. He

need not seek a judicial declaration of rescission, for he may regard the compromise agreement

already rescinded.

The Compromise Agreement between the parties states: This shall be without prejudice to the

right of the defendant to rescind this Compromise Agreement as provided under the "Contract

to Sell". The Contract to Sell also states that the seller shall be entitled, as a matter of right, to

rescind the contract. Pursuant to the stipulations of the contract, respondent has the right to

rescind the agreement. Petitioners failure to abide by the agreement should result in execution,

cancellation and rescission of the Compromise Agreement and Contract to Sell, and her eviction

from the property.SPOUSES JAIME AND MATILDE POON VS. PRIME SAVINGS BANK G. R. NO. 183794
JUNE 13, 2016

SERENO, CJ.

FACTS:

Petitioners owned a commercial building in Naga City, which they used for their bakery business.

On November 3, 2006, Matilde Poon and respondent executed a 10-year Contract of Lease over

the building for the latters use as its branch office in Naga City.

Paragraph 24 of the Contract provides:

24. Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR

shall have the right to terminate the lease without the necessity of serving a court order and to

immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the

leased premises in the presence of a representative of the LESSEE (or of the proper authorities)

for the purpose of taking a complete inventory of all furniture, fixtures, equipment and/or other

materials or property found within the leased premises.

Barely three years later, however, the BSP placed respondent under the receivership of the
Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board Resolution No.

22. On May 12, 2000, respondent vacated the leased premises and surrendered them to

petitioners. Subsequently, the PDIC issued petitioners a demand letter asking for the return of

the unused advance rental on the ground that paragraph 24 of the lease agreement had become

inoperative, because respondents closure constituted force majeure. Petitioners, however,

refused the PDIC's demand. They maintained that they were entitled to retain the remainder of

the advance rentals following paragraph 24 of their Contract. Due to their refusal to PDICs

demand, respondents filed for the partial rescission of the contract and recovery of sum of money

before the RTC of Naga City. The RTC granted the petition.

Held:

The legal remedy of rescission is not limited to those enumerated in Articles 1381 and 1382 of

the Civil Code. The Civil Code uses rescission in two different contexts, namely: 1) rescission on

account of breach of contract under Article 1191; and 2) rescission by reason of lesion or

economic prejudice under Article 1381. In this case, the action instituted by the respondent was

for the rescission of reciprocal obligations under Article 1191. Moreover, the closure of business

of the respondent was neither a fortuitous nor an unforeseen event which rendered the lease

functus officio.

The period during which the bank cannot do business due to insolvency is not a fortuitous event,

unless it is shown that the governments action to place a bank under receivership or liquidation

proceedings is tainted with arbitrariness, or that the regulatory body has acted withoutjurisdiction.
There is no indication or allegation that the BSP's action in this case was tainted with

arbitrariness or bad faith. Instead, its decision to place respondent under receivership and

liquidation proceedings was pursuant to Section 30 of Republic Act No. 7653. Moreover,

respondent was partly accountable for the closure of its banking business. It cannot be said, then,

that the closure of its business was independent of its will as in the case of Provident Savings

Bank. Mere inconvenience, unexpected impediments, increased expenses, or even pecuniary

inability to fulfill an engagement, will not relieve the obligor from an undertaking that it has

knowingly and freely contracted. Besides, nothing has prevented petitioners from putting their

building to other profitable uses, since respondent surrendered the premises immediately after
the closure of its business.Novation

EVER ELECTRICAL MANUFACTURING INC., VICENTE C. GO AND GEORGE C. GO VS. PHILIPPINE

BANK OF COMMUNICATIONS (PBCOM) G.R. NOS. 187822-23, AUGUST 03, 2016

REYES, J.

FACTS:

Ever is a duly organized domestic corporation with a history of transacting with respondent

Philippine Bank of Communications (PBCom), a domestic commercial bank. The parties had been

involved in litigation for collection of a sum of money where PBCom was able to get a favorable

Partial Judgment dated July 23, 2001 issued by the Regional Trial Court (RTC) of Manila, Branch

24.

It loaned the amount of 65 million pesos from PBCom, a banking institution. The loan was secured

by a real estate mortgage over two parcels of land and a promissory note, where it was indicated

in the latter the maturity date of the loan and the interest rate. Ever was unable to pay at the

agreed maturity date, thus a compromise agreement was entered into among Ever, PBCom, and

Vicente Go, whereby Vicente would fully assume the past obligations of Ever to PBCom via

instalment payments. The agreement further adds that failure of Vicente to pay the instalments

agreed upon shall make the whole unpaid amount immediately demandable. However, Vicente

was not able to make the necessary payments as stipulated in the compromise agreement.

HELD:

There was no novation Partial Judgment dated July 23, 2001. The elements of Novation under

the Civil Code are as follows: 1) There must be a previous valid obligation; 2) There must be an

agreement of the parties concerned to a new contract; 3) There must be the extinguishment of

the old contract; and, 4) There must be the validity of the new contract.

In this case not all of the elements of novation were present. The Court held that the compromise

agreement entered into by the parties does not contain any provision releasing Ever from its

liability to PBCom. By virtue of the agreement, there is nothing to be construed from it releasing

Ever from its obligation. Under the terms of the agreement, Vicente is an additional person who

would ensure that the loan of Ever to PBCom would be paid and under the rules of novation, the

mere act of adding another person to be personally liable, who in this case is Vicente, did not
constitute novation since there was no agreement to release Ever from its responsibility to

PBCom. Ever is still liable to PBCom. Since there was no novation, PBCom may proceed to collect

from the original debtor, Ever, under the terms of the original loan agreement.Damages

Liability of educational institutions in enrollment contracts; damages

ST. LUKES COLLEGE OF MEDICINE-WILLIAM QUASHA MEMORIAL FOUNDATION VS. SPS. PEREZ

AND SPS.QUINTOS G.R. NO. 222740 SEPTEMBER 28, 2016

PEREZ, J.

FACTS:

The CHR issued a memorandum which required medical students to undergo rotating clinical

clerkship in their fourth year. Petitioner entered into a Memorandum of Intent with the

Municipality of Cabiao, Nueva Ecija for the construction of a community clinic. 4 medical students

(Jessa, Cecille, Jerillie, and Miguel) were required to complete the clerkship rotation.

While they were sleeping, Miguel heard one of them shout that there was a fire on the other side

of their room. They tried to extinguish it but to no avail. They called for help and after sometime,

they were rescued. Unfortunately, the daughters of the respondents died. St. Lukes gave money

from the insurance proceeds. After some investigation, NBI declared that the construction of the

Cabiao Community Clinic building was in violation of the provisions of Republic Act No. 9514 (R.A.

No. 9514) or the Revised Fire Code of the Philippines, that the cause of the fire was due to faulty

electrical wiring, and that St. Luke's negligence is criminal in nature. Respondents filed a

complaint for damages.

HELD:

The Municipality of Cabiao is only a necessary party. The case is between a school and its students

with their relationship based on the enrollment contracts. Institutions of learning have the builtin
obligation of their students with an atmosphere that promotes or assists in attaining its

primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies of

physics or higher mathematics or explore the realm of the arts and other sciences when bullets

are flying or grenades exploding in the air or where there looms around the school premises a

constant threat to life and limb. Necessarily, the school must ensure that adequate steps are

taken to maintain peace and order within the campus premises and to prevent the breakdown
thereof.

In the case at bar, the Cabiao Community Clinic is to be considered as part of the campus premises

of St. Luke's. In the course description of the clerkship program in preventive and community

medicine, it is stated that the Cabiao Community Clinic serves as the base operation of the

clerkship program. As such, petitioner had the same obligation to their students, even though

they were stationed in the Cabiao Community Clinic, and it was incumbent upon petitioners to

ensure that said Clinic was conducive for learning, that it had no constant threats to life and limb,and
that peace and order was maintained thereat. After all, although away from the main campus

of St. Luke's, the students were still under the same protective and supervisory custody of

petitioners as the ones detailed in the main campus.

Another point is that the victims were in the Cabiao Community Clinic because it was a

requirement of petitioners. The students were complying with an obligation under the

enrollment contract they were rendering medical services in a community center as required

by petitioners. It was thus incumbent upon petitioners to comply with their own obligations

under the enrollment contract - to ensure that the community center where they would

designate their students is safe and secure, among others. Petitioners failed to take the necessary

precautions to guard their students against foreseeable harm. The petitioners were obviously

negligent in detailing their students to a virtual fire trap. As found by the NBI, the Clinic was

unsafe and was constructed in violation of numerous provisions of the Revised Fire Code of the

Philippines. It had no emergency facilities, no fire exits, and had no permits or clearances from

the appropriate government offices.Sales

Nature and Form of Contract

Sale in Lump Sum

ANITA U. LORENZANA VS. RODOLFO LELINA G.R. NO. 187850 AUGUST 17, 2016

JARDELEZA, J.

FACTS:

On April 1, 1975, Ambrosia Lelina (Ambrosia), married to Aquilino Lelina (Aquilino), executed a

Deed of Absolute Sale over one-half (1/2) of an undivided parcel of land covered by Tax

Declaration (TD) No. 14324-C (property) in favor of her son, the respondent. The Deed of
Absolute Sale, however, specified only an area of 810 sq. m. as the one-half (1/2) of the property

covered by the tax declaration. Respondent immediately took possession of the property and

that his tenants continue to give his share of the produce of the property.

Around 1996, respondent and the tenants were invited to the Municipal Agrarian Office in Ilocos

Sur. There, they were informed that informed that the property is already owned by petitioner

by virtue of a Deed of Final Conveyance in the name of the petitioner. Petitioner claims that she

became the judgment creditor in a case for collection of sum of money (collection case) she filed

against Aquilino. The property was auctioned and the petitioner was adjudged as the highest

bidder. She obtained the certificate of sale and she subsequently had that registered under her

name.

HELD:

Respondent rightfully owned his portion of the land. Petitioner does not question the validity of

the Deed of Sale but merely the admissibility of the deed. As such, the deed was admitted in

evidence as to its contents.

Where land is sold for a lump sum and not so much per unit of measure or number, the

boundaries of the land stated in the contract determine the effects and scope of the sale, and

not its area. This is consistent with Article 1542 of the Civil Code which provides: In the sale of

real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or

number, there shall be no increase or decrease of the price, although there be a greater or lesser

areas or number than that stated in the contract. The same rule shall be applied when two or

more immovables are sold for a single price; but if, besides mentioning the boundaries, which is

indispensable in every conveyance of real estate, its area or number should be designated in the

contract, the vendor shall be bound to deliver all that is included within said boundaries, evenwhen it
exceeds the area or number specified in the contract; and, should he not be able to do

so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number,

unless the contract is rescinded because the vendee does not accede to the failure to deliver

what has been stipulated.

In this case, the land covered by TD No. 14324-C in the Deed of Absolute Sale, from where the

one-half (1/2) portion belonging to respondent is taken, has the following boundaries: North by
Constancio Batac & National Highway; East by Cecilio Lorenzana; South by Creek; and West by

Andres Cuaresma. This description should prevail over the area specified in the Deed of Absolute

Sale.Nature of pacto de retro

SPOUSES ARCHIBAL LATOJA AND CHARITO LATOJA VS. HONORABLE ELVIE LIM, ET. AL.

G. R. NO. 198925, JULY 13, 2016

SERENO, CJ.

FACTS:

On May 21, 1997, respondent Teresita Cabe, together with Donato A. Cardona II (Cardona II),

executed a Deed of Sale with Pacto de Retro over a parcel of land registered under the Heirs of

Donato Cardona represented by Jovita T. Cardona. For failure of Cardona II to repurchase the

property from her within one year as agreed upon in the deed, Cabe filed a Petition for

Consolidation of Ownership pursuant to Article 1607 of the Civil Code to the RTC. The petition

was granted. Cardona II questioned the trial courts decision by filing with the Court of Appeals a

petition for certiorari which was dismissed by the CA. Cardona II also appealed to the Supreme

Court which was also denied.

Thereafter, respondent Cabe filed a motion for execution of the RTC decision in the consolidation

case which was granted. Cabe prayed for the issuance of a Writ of Possession which was granted

by Judge Lim of RTC Branch 2. Petitioners allege grave abuse of discretion on the part of Judge

Lim contending that Judge Lim wrongly granted the motion for the issuance of a Writ of

Possession to Cabe.

HELD:

The consolidation of title prescribed in Article 1607 of the Civil Code is merely for the purpose of

registering and consolidating title to the property in case of a vendor a retros failure to redeem.

Judge Lim overlooked the nature of the Pacto de Retro sale entered into by Cabe and Cardona II.

It is basic that in a pacto de retro sale, the title and ownership of the property sold are

immediately vested in the vendee a retro. As a result, the vendee a retro has a right to the

immediate possession of the property sold, unless otherwise agreed upon. Therefore, the right

of respondent Cabe to possess the subject property must be founded on the terms of the Pacto

de Retro Sale itself, and not on the decision in the consolidation case.Contract to Sell
THELMA RODRIGUEZ VS. SPOUSES SIOSON, ET AL.

G.R. NO. 199180 JULY 27, 2016

REYES, J.

FACTS:

The Municipality of Orani, Bataan purchased a land with an area of about 1.7 hectare of Lot 398

to be used for the extension of the public market from Neri delos Reyes. They also agreed that

upon full payment of the purchase price, Neri will surrender the mother title for the subdivision

of the property on the condition that Neri will equitably share in the expense thereof.

The lot was subdivided into 5 lots: Lot 398-A to Lot 398-E. Lots C and D were the portions sold to

the Municipality and Lot E is a road lot. Lot A and B were the lots to which Neri maintained

absolute title, registered in the name of Neri delos Reyes, married to Violeta Lacuata.

Neri alleged that the Municipal Mayor suggested that he sell Lot A to his aunt, petitioner Thelma.

The Municipality would then expropriate the same from Thelma, to which Neri agreed.

It was agreed that Thelma will pay in instalments, the purchase price of P1.2M but was only able

to pay about P400,000. About the same time when she caused the annotation of an adverse

claim, she saw an advertisement that a new common terminal would be built on Lot A without

having any agreement that the same can already be used.

HELD:

The real character of the contract is not the title given, but the intention of the parties. Despite

the denomination of their agreement as one of sale, the circumstances tend to show that Neri

agreed to sell the subject property to Thelma on the condition that title and ownership would

pass or be transferred upon the full payment of the purchase price. This is the very nature of a

contract to sell, which is a "bilateral contract whereby the prospective seller, while expressly

reserving the ownership of the property despite delivery thereof to the prospective buyer, binds

himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition

agreed upon, i.e., the full payment of the purchase price." As stated by the Court, the agreement

to execute a deed of sale upon full payment of the purchase price "shows that the vendors

reserved title to the subject property until full payment of the purchase price. The alleged

delivery of the property, even if true, is irrelevant considering that in a contract to sell, ownership
is retained by the registered owner in spite of the partial payment of the purchase price and

delivery of possession of the property.