ANG YU ASUNCION VS CA, 238 SCRA 602 (1994)

Facts:

July 29, 1987: An amended Complaint for Specific Performance was filed by petitioners Ang Yu
Asuncion and others against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before RTC.

Petitioners (Ang Yu) alleged that:

> they are the tenants or lessees of residential and commercial spaces owned by Bobby Unijeng and
others located in Binondo, Manila (since 1935)

> that on several occasions before October 9, 1986, the lessors informed the lessees (petitioners)
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 they made a
counter offer of P5-million;

> that they 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;

The RTC found that Cu Unjiengs’ offer to sell was never accepted by the petitioners (Ang Yu) for the
reason that they did not agree upon the terms and conditions of the proposed sale, hence, there
was no contract of sale at all. The Court of Appeals affirmed the decision of the lower court. This
decision was brought to the Supreme Court by petition for review on certiorari which subsequently
denied the appeal on May 6, 1991 “for insufficiency in form and substance”. (Referring to the first
case filed by Ang Yu)

November 15, 1990: While the case was pending consideration by this Court, the Cu Unjieng spouses
executed a Deed of Sale transferring the subject petitioner to petitioner Buen Realty and
Development Corporation.

Petitioner Buen Realty and Development Corporation, as the new owner of the subject property,
wrote a letter to the lessees demanding that the latter vacate the premises.

August 30, 1991: the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the
property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of petitioners’ right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer. The court also set aside the title issued to
Buen Realty Corporation for having been executed in bad faith. On September 22, 1991, the Judge
issued a writ of execution.

The CA reversed the RTC ruling.

Issue:

WON Buen Realty can be bound by the writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter’s
purchase of the property on 15 November 1991 from the Cu Unjiengs. NO.
Held:

Right of first refusal is not a perfected contract of sale under Article 1458 of the Civil Code

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.

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.

The proper action for violation of the right of first refusal is to file an action for damages and NOT
writ of execution

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a “right of
first refusal” in favor of petitioners (Ang Yu et. al). The consequence of such a declaration entails no
more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are
aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a
writ of execution on the judgment, since there is none to execute, but an action for damages in a
proper forum for the purpose.

Unconditional mutual promise to buy vs. Accepted unilateral promise

An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be
exacted.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . .

An accepted unilateral promise to buy or to 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. (1451a)

Observe, however, that the option is not the contract of sale itself. The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a
breach of the option, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.

Buen Realty cannot be ousted from the ownership and possession of the property

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged
purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any
case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058
are matters
that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first
being duly afforded its day in court.
SAGRADA ORDEN VS NACOCO, 91 PHIL 503 (1953)

FACTS:

The land in question belongs to plaintiff Sagrada Orden in whose name the title was registered
before the war

On January 4, 1943, during the Japanese military occupation, the land was acquired by a Japanese
corporation by the name of Taiwan Tekkosho

After liberation on April 4, 1946, the Alien Property Custodian of the United States of America took
possession, control, and custody of the property pursuant to the Trading with the Enemy Act

The property was occupied by the Copra Export Management Company under a custodian
agreement with US Alien Property Custodian. When it vacated the property, it was occupied by
defendant National Coconut Corporation

The plaintiff made claim to the said property before the Alien Property Custodian. Alien Property
Custodian denied such claim

It bought an action in court which resulted to the cancellation of the title issued in the name of
Taiwan Tekkosho which was executed under threats, duress, and intimidation; reissuance of the title
in favor of the plaintiff; cancellation of the claims, rights, title, interest of the Alien Property
Custodian; and occupant National Coconut Corporation’s ejection from the property. A right was
also vested to the plaintiff to recover from the defendants, rentals for its occupation of the land
from the date it vacated.

Defendant contests the rental claims on the defense that it occupied the property in good faith and
under no obligation to pay rentals.

ISSUE:

Whether or not the defendant is obliged to pay rentals to the plaintiff

HELD:

No. Nacoco is not liable to pay rentals prior the judgment. If defendant-appellant is liable at all, its
obligations, must arise from any of the four sources of obligations, namely, law, contract or quasi-
contract, crime, or negligence. (Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of
any offense at all, because it entered the premises and occupied it with the permission of the entity
which had the legal control and administration thereof, the Alien Property Administration. Neither
was there any negligence on its part.
PE VS CA, 195 SCRA 137 (1991)

Plaintiff spouses Francisco and Anita Monasterio Pe were the registered owners of several parcels of
land, designated as Lots Nos. 40, 41, 42, 45 and 47 of the Cadastral Survey of Iloilo and two buildings
on Lot 40 and 41, all situated in the City of Iloilo, Philippines.

The above-mentioned parcels of land were mortgaged with different banking institutions. Lots Nos.
40 and 41 were mortgaged to the Philippine Veterans Bank for P351,162.59; Lots Nos. 42 and 45
were mortgaged to the Development Bank of the Philippines for P189,322.49; and Lot No. 47 to
Philippine Commercial and Industrial Bank for P57,000.00. Also mortgaged with the same bank were
a tractor and one set of "Ransomed Model II, Offset Discharrow Category II-18-24 diameter" for
P118,242.00.

Sometime in September 1976, the Pe spouses and the spouses Ong Su Fu alias Ong To An and Luisa
Yu negotiated for the purchase of the five (5) parcels of land.

On September 14, 1976, Ong Su Fu issued in favor of Francisco Pe a check for P 30,000.00 as earnest
money and as partial payment for the price of the lots.

Thereafter, on September 20, 1976, the Pe spouses as First Party, executed a contract to sell, but it
was in favor of defendant Domingo Sy (son-in-law of Ong Su Fu). Said contract was prepared by the
Ong Su Fu's counsel. The pertinent portions of the said contract are quoted hereunder:

WITNESSETH

That the FIRST PARTY is the registered owner of five (5) parcels of land, more particularly described
as follows:

xxx xxx xxx

That the FIRST PARTY intends to sell the above-described parcels of land and the SECOND PARTY is
likewise desirous of buying the same for the total consideration of SIX HUNDRED TWENTY
THOUSAND (P620,000.00) PESOS, Philippine Currency, under the following terms and conditions, to
with (sic):

1. That the SECOND PARTY shall pay to the FIRST PARTY the sum of THIRTY THOUSAND
(P30,000.00) PESOS, upon the signing of the agreement which shall serve as partial payment of the
total consideration, receipt of which is hereby acknowledged by the FIRST PARTY as shown by his
signature appearing hereinbelow.

2. That since the above-described parcels of land are presently incumbered (sic) with different
banking institutions it is the agreement of the parties that as soon as the incumbrance (sic)
appertaining to the respective lots is paid and the mortgage herein released, the FIRST PARTY shall
execute the corresponding final deed of sale for said lots in favor of the SECOND PARTY, it being
understood that the SECOND PARTY shall procure the payment of the said bank obligation which
payment shall be considered payment of that particular lots; that this procedure shall be followed
with respect to the other lots herein involved;

xxx xxx xxx

(Roll of Exhibits, pp. 1 and 2)

Thereafter, Domingo Sy transferred his rights under the contract to sell to Jose Juan Tong with
respect to Lots Nos. 40 and 41.

On October 4, 1976, after payment by Jose Juan Tong of the Pe spouses' account with the Philippine
Veterans Bank in the amount of P 351,162.59, pursuant to the contract, the latter executed in favor
of the former a deed of sale covering Lots Nos. 40 and 41 and the two buildings thereon.

However, the deed of sale stated that the consideration was P 95,000.00. The titles to the two
parcels of land were subsequently transferred to spouses Jose Juan Tong and Lily Lim.

On the same date, the Pe spouses executed in favor of Domingo Sy a deed of sale over Lots Nos. 42
and 45, after payment by the latter of the former's account with the Development Bank of the
Philippines in the amount of P189,322.49.

Again, the deed of sale stated a different consideration which is P30,000.00 and thereafter, the
respective titles were issued in favor of Domingo Sy and his spouse.

Consequently, a contract to sell and a corresponding deed of sale covering Lot No. 47 were prepared
for Dionisio Sy (brother of Domingo Sy), but the deed did not materialize as the former's offer of P
49,454.92, as payment for the remaining parcel of land (Lot No. 47) was rejected by the Pe spouses,
the latter insisting on the full payment of their obligation with the Philippine Commercial and
Industrial Bank (PCIB) in the amount of P383,615.97 and P620,000.00 as the alleged consideration
stipulated in the Contract to Sell.

Thereafter, the Pe spouses failed to settle their account with the PCIB, hence, the mortgages on Lot
No. 47, the tractor and the "Offset Discharrow" were foreclosed and the properties were sold at
public auction. After the foreclosure and sale of the properties, the Pe spouses were asked to pay
the deficiency in the amount of P 110,095.08 as of April 5, 1979, and the overdue balance in several
promissory notes.

On November 25, 1976, the Pe spouses commenced a complaint for specific performance and/or
rescission of contract and reconveyance of property with damages, with the Court of First Instance
of Iloilo.

After a careful perusal of the facts and circumstances of the case, the trial court reached the
conclusion that the questioned stipulation in the contract "is clear and could not be construed
otherwise." (Record on Appeal, p. 109) In addition, the court found that there was partial novation
through the substitution of spouses Jose Juan Tong and his wife for Domingo Sy in the purchase of
Lots 40 and 41 and the two buildings thereon. Accordingly, the trial court rendered a decision on
August 3, 1981, the dispositive portion is hereunder quoted as follows:

WHEREFORE, the above-entitled case is dismissed. With costs against the plaintiffs.

SO ORDERED. (Record on Appeal, p. 111)

From said decision, the Pe spouses interposed an appeal before the respondent Intermediate
Appellate Court (now Court of Appeals). The respondent court affirmed the trial court's decision and
rendered judgment on December 27, 1985, to wit:

WHEREFORE, the decision appealed from is hereby AFFIRMED. With costs.

SO ORDERED. (Rollo, p. 24)

On March 1, 1986, the Pe spouses filed a motion for reconsideration of the aforementioned
Intermediate Appellate Court's (now Court of Appeals) decision. However, respondent court in a
resolution dated May 7, 1986 denied the motion for lack of merit.

Hence, this present petition raising this lone issue:

WHETHER THE ENTIRE CONSIDERATION OF THE CONTRACT TO SELL IS P620,000.00 OR

P1,544,161.05 (Rollo, p. 8)

However, the petitioners raised four (4) assignment of errors, which are as follows:

I THE LOWER COURT ERRED IN GIVING THE DEFENDANTS THE BENEFITS OF NOVATION AS A
DEFENSE NOTWITHSTANDING THAT NO SUCH SPECIAL OR AFFIRMATIVE DEFENSE HAS EVER BEEN
INTERPOSED IN THEIR ANSWER AND THUS DEEMED WAIVED BY THEM.

II THE LOWER COURT ERRED IN DEALING WITH ISSUES THAT WERE NEITHER RAISED IN THE
PLEADING NOR INCIDENTAL TO THE ISSUE JOINED THEREBY WHICH HAD BEEN AGREED UPON BY
THE PARTIES IN THE PRE-TRIAL CONFERENCE AS THE ONLY ONE TO BE RESOLVED BY THE COURT.

III THE LOWER COURT ERRED IN NOT FINDING THAT THE PREPONDERANCE OF EVIDENCE IS IN
FAVOR OF THE PLAINTIFFS.

IV THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT.

Petitioners allege that the consideration of the Contract to Sell is P1,544,161.05 and thereby submit
the following grounds as the basis for its allegation, to wit:

1. The wordings of the Contract itself point to the consideration of P l,544,161.05. . . . (Rollo, p. 9)

xxx xxx xxx

The petitioners insist that the questioned stipulations of the contract mean

that 'Second Party' (private respondents) shall first pay the total bank obligations of the five (5) lots
to the three (3) banks (Development Bank of the Philippines, Philippine Veterans Bank and Philippine
Commercial and Industrial Bank) and thereafter, pay the amount of P620,000.00 to the first party
(petitioners). Since the total obligations to the three (3) banks is P 924,161.05, the total
consideration is that amount plus P620,000.00 which is P 1,544,161.05. (Rollo, pp. 9-10).

2. ...

To limit the consideration to only P 620,000.00 is senseless and absurd because the bank obligations
alone amounted to P924,161.05—very much more than P 620,000.00. (Rollo, p. 10)

3. ...

To insist on P 620,000.00 is to make ineffective the terms and conditions providing for the payment
of the bank obligations — an interpretation which would contradict the clear and positive stipulation
of the contract. (Rollo, p. 10)

xxx xxx xxx

4. The logic and common sense of the contract point to P1,544,161.05 as the consideration.
(Rollo, p. 11)
xxx xxx xxx

5. ...

If the consideration is only P 620,000.00, why did the two private respondents pay the obligations
covering Lots Nos. 40, 41, 42 and 45 with the banks? They had no business doing that because they
would eventually be paying more—P 924,161.05 (the total bank obligations). (Rollo, p. 11)

6. ...

The market value of the lots in 1976 must be twice its value in 1967, hence,

it is very far from the version of the private respondent which is P 620,000.00. (Rollo, p. 11)

On petitioners' first assignment of error, they contend that "novation was never raised in the
pleadings nor in the pre-trial conference," hence, the lower court erred in giving the defendants the
benefit of novation as a defense.

For its second assignment of error, petitioners allege that "the respondent court has no jurisdiction
to invent its own issues. It is not only the parties who are bound by the issues stated in the pre-trial
order but the court is equally bound thereby." (Rollo, p. 14)

On the other hand, respondents argue that the questioned stipulations in the Contract to Sell are
undoubtedly clear and unambiguous and insisted that only the petitioners injected doubtful
interpretation to said stipulations.

In response to petitioners' first and second assignment of error, the respondents contend that "the
records of the case will show that novation was pleaded in the answer; thus, having been properly
pleaded the issued novation was unquestionably within the jurisdiction of the Honorable lower court
to resolve." (Rollo, pp. 121-122)

The Court finds petitioners' first and second assignment of errors meritorious.

In the recent case of General Insurance and Surety Corporation v. Union Insurance Society of Canton
(G.R. Nos. 30475-76, 22 November 1989, 179 SCRA 530), the Court citing Section 2, Rule 9 of the
Revised Rules of Court ruled that "defenses and objections not pleaded either in a motion to dismiss
or in the answer are deemed waived, the only exceptions recognized under the rule being: (1) a
failure to state a cause of action, and (2) lack of jurisdiction."

In contradiction to respondents' contention, We rule that novation was never pleaded in the
respondents' answer, hence, such defense is deemed waived.

Time and again, We stress that "courts of justice have no jurisdiction or power to decide a question
not in issue." (Viajar v. Court of Appeals, G.R. No. 77294, 12 December 1988, 168 SCRA 405, 411
citing Lim Toco vs. Go Fay, 80 Phil. 166) A judgment going outside the issues and purporting to
adjudicate something upon which the parties were not heard is not merely irregular, but
extrajudicial and invalid. (Viajar vs. Court of Appeals, supra citing Salvante vs. Cruz, 88 Phil. 236-244,
Lazo vs. Republic Surety and Insurance Co., Inc., 31 SCRA 329, 334).

Thus, the lower court erred in discussing novation, an issue which is neither raised in the pleadings
nor material to the controversy. The lower court is hereby admonished in dealing and discussing
issues that were neither raised in the pleadings, incidental or material to the controversy at bar.
Notwithstanding such error, We still rule that the findings of facts of the lower court considering the
fact that such were affirmed by the appellate court should be given full credit.

The Supreme Court is not a trier of facts. It leaves these matters to the lower court, which have
more opportunity and facilities to examine these matters. The Supreme Court has no jurisdiction as
a rule to reverse the lower court's findings. (Korean Airlines Ltd. vs. Court of Appeals, G.R. No.
61418, 24 September 1987, 154 SCRA 211) As a rule, findings of fact of the Court of Appeals are final
and conclusive and cannot be reviewed on appeal, provided, they are borne out by the record or are
based on substantial evidence. However, this rule admits of certain exceptions, as when the findings
of facts are conclusions without citation of specific evidence on which they are based; or the
appellate court's findings are contrary to those of the trial court. (Sese vs. Intermediate Appellate
Court, G.R. No. 66168, 31 July 1987,152 SCRA 585)

The findings of fact of both courts are conclusions based on substantial evidence and the appellate
court's findings are not in any way contrary to that of the lower court, therefore, such factual
findings are conclusive and should be given great weight.

The lower court's decision is based on the specific provisions of the contract. It ruled that "this
particular stipulation is clear and could not be construed otherwise. Plaintiff Francisco Pe is a holder
of the degree of Bachelor of Science in Commerce with twenty six years of experience as
businessman. He could have realized the import of the document he signed." (Record on Appeal, p.
64)

Article 1370 of the New 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 stipulation shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former.

After a thorough examination of the provisions of the Contract to Sell, the Court finds petitioners'
contention devoid of merit. The words of the contract are clear and leave no doubt upon the true
intention of the contracting parties. The condition laid down in paragraph (2) of the Contract to Sell
does not provide for an additional consideration but only provides for the manner in which the
consideration is to be applied. It clearly provides that the payment shall be applied to petitioners'
obligations with the bank where the respective properties were mortgaged and upon their release,
petitioners shall execute the final deed of sale. The subsequent acts of the parties conformed with
this condition. Thus, the parties should be bound by such written contract.

It should also be noted that at the time of the execution of the Contract to Sell, the total obligation
due to the PCIB as regards Lot No. 47 was only P99,374.89. The rise of the same obligation to P
383,615.96 (Record on Appeal, p. 98) was brought about by subsequent loans the petitioners
obtained with the same bank for which the tractor and an "Offset Discharrow" were given as
additional security.

Contracts are respected as the law between the contracting parties.1âwphi1 The parties may
establish such stipulations, clauses, terms and conditions as they may want to include. As long as
such agreements are not contrary to law, morals, good customs, public policy or public order they
shall have the force of law between them. (Mercantile Insurance Co., Inc. vs. Ysmael Jr. and Co., Inc.
G.R. No. 43862, 13 January 1989, 169 SCRA 66)
PERLA COMPANIA DEL SEGURO VS SOURT OF APPEALS, 185 SCRA 741 (1990)

FACTS:

Cayas was the registered owner of a Mazda bus which was insured with petitioner PERLA COMPANIA
DE SEGUROS, INC (PCSI). The bus figured in an accident in Cavite, injuring several of its passengers.
One of them, Perea, sued Cayas for damages in the CFI, while three others agreed to a settlement of
P4,000.00 each with Cayas. After trial, the court rendered a decision in favor of Perea, Cayas ordered
to compensate the latter with damages. Cayas filed a complaint with the CFI, seeking reimbursement
from PCSI for the amounts she paid to ALL victims, alleging that the latter refused to make such
reimbursement notwithstanding the fact that her claim was within its contractual liability under the
insurance policy. The decision of the CA affirmed in toto the decision of the RTC of Cavite, the
dispositive portion of which states:

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to pay plaintiff
Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance policy; …

In this petition for review on certiorari, petitioner seeks to limit its liability only to the payment
made by private respondent to Perea and only up to the amount of P12,000.00. It altogether denies
liability for the payments made by private respondents to the other 3 injured passengers totaling
P12,000.00.

ISSUE:

How much should PCSI pay?

HELD:

The decision of the CA is modified, petitioner only to pay Cayas P12,000,000.00

The insurance policy provides:

5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company …

It being specifically required that petitioner’s written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking
reimbursement of the payments made to the other 3 victims in view of her failure to comply with
the condition contained in the insurance policy. Also, the insurance policy involved explicitly limits
petitioner’s liability to P12,000.00 per person and to P50,000.00 per accident Clearly, the
fundamental principle that contracts are respected as the law between the contracting parties finds
application in the present case. Thus, it was error on the part of the trial and appellate courts to
have disregarded the stipulations of the parties and to have substituted their own interpretation of
the insurance policy. We observe that although Cayas was able to prove a total loss of only
P44,000.00, petitioner was made liable for the amount of P50,000.00, the maximum liability per
accident stipulated in the policy. This is patent error. An insurance indemnity, being merely an
assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any accident
victim or claimant as an instrument of enrichment by reason of an accident.
GF EQUITY VS VALENZONA, GR NO 156841 JUNE 30, 2005

Mutuality is one of the characteristics of a contract, its validity or performance or compliance of

which cannot be left to the will of only one of the parties.

FACTS:

GF Equity hired Arturo Valenzona (Valenzona) as head basketball coach of Alaska team. As head
coach, Valenzona was required to comply to his duties such as coaching at all practices and games
scheduled for the team. Under their contract, Valenzona would receive P 35,000.00 monthly and GF
Equity will provide him with a service vehicle and gasoline allowance. Under paragraph 3 of the
same contract it was stipulated there that;

“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.”

Subsequently, Valenzona was terminated. GF equity invoked paragraph 3 of the said contract.
Counsel of Valenzona demands for compensation arising from arbitrary and unilateral termination of
his employment. However, GF equity refused it. Valenzona filed a complaint before the Regional
Trial Court (RTC) of Manila against GF Equity for breach of contract. Valenzona contends that the
condition in paragraph 3 violates Article 1308 of New Civil Code (NCC). But the RTC dismissed the
complaint and affirmed the validity of paragraph 3 on the grounds that Valenzona was fully aware of
entering into a bad bargain.

On appeal, the Court of Appeals (CA) held that the questioned provision in the contract ―merely
confers upon GF Equity the right to fire its coach upon a finding of inefficiency, a valid reason within
the ambit of its management prerogatives, subject to limitations imposed by law, although not
expressly stated in the clause; and ―the right granted in the contract can neither be said to be
immoral, unlawful, or contrary to public policy. It concluded, however, that while ―the mutuality of
the clause‖ is evident, GF Equity ―abused its right by arbitrarily terminating Valenzona‘s
employment and opened itself to a charge of bad faith.

ISSUE:

Whether or not paragraph 3 of the contract is violative of the principle of mutuality of contracts

HELD:

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.

The contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the contract — that
―if 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 the contract.‖ The assailed condition
clearly transgresses the principle of mutuality of contracts. It leaves the determination of whether
Valenzona failed to exhibit sufficient skill or competitive ability to coach Alaska team solely to the
opinion of GF Equity. Whether Valenzona indeed failed to exhibit the required skill or competitive
ability depended exclusively on the judgment of GF Equity. In other words, GF Equity was given an
unbridled prerogative to pre-terminate the contract irrespective of the soundness, fairness or
reasonableness, or even lack of basis of its opinion.

To sustain the validity of the assailed paragraph would open the gate for arbitrary and illegal
dismissals, for void contractual stipulations would be used as justification therefor. The nullity of the
stipulation notwithstanding, GF Equity was not precluded from the right to pre-terminate the
contract. The pre-termination must have legal basis, however, if it is to be declared justified.
PELAYO VS LAURON, 12 PHIL 452

FACTS:

Petitioner Pelayo, a physician, rendered a medical assistance during the child delivery of the
daughter-in-law of the defendants. The just and equitable value of services rendered by him was
P500.00 which the defendants refused to pay without alleging any good reason. With this, the
plaintiff prayed that the judgment be entered in his favor as against the defendants for the sum of
P500.00 and costs.

The defendants denied all of the allegation of the plaintiff, contending that their daughter-in-law
had died in consequence of the child-birth, and that when she was alive, she lived with her husband
independently and in a separate house, that on the day she gave birth she was in the house of the
defendants and her stay there was accidental and due to fortuitous circumstances.

ISSUE:

Whether or not the defendants are obliged to pay the petitioner for the medical assistance rendered
to their daughter-in-law.

HELD:

According to Article 1089 of the Old Civil Code (now 1157), obligations are created by law, by
contracts, by quasi-contracts, by illicit acts and omissions or by those which any kind of fault or
negligence occurs. Obligations arising from law are not presumed. Those expressly determined in
the Code or in special law, etc., are the only demandable ones.

The rendering of medical assistance in case of illness is comprised among the mutual obligations to
which the spouses are bound by way of mutual support as provided by the law or the Code.
Consequently, the obligation to pay the plaintiff for the medical assistance rendered to the
defendant’s daughter-in-law must be couched on the husband.

In the case at bar, the obligation of the husband to furnish his wife in the indispensable services of a
physician at such critical moments is especially established by the law and the compliance therewith
is unavoidable.
PILIPINAS HINO VS CA, GR NO 126570, AUGUST 18, 2000

FACTS:

On or about August 14, 1989, a contract of lease was entered into between Pilipinas Hino, Inc. and
herein respondents, under which the respondents, as lessors, leased real property located at
Bulacan to Pilipinas Hino, Inc. for a term of two years from August 16, 1989 to August 15, 1991.
Pursuant to the contract of lease, petitioner deposited with the respondents the amount of
P400,000.00 to answer repairs and damages that may be caused by the lessee on the leased
premises during the period of lease.

After the expiration of the contract, the petitioner and respondents made a joint inspection of the
premises to determine the extent of damages thereon. Both agreed that the cost or repairs would
amount to P60,000.00 and that the amount of P340,000.00 shall be returned to petitioner. However,
respondents returned only the amount of P200,000.00 leaving a balance of P140,000.00.
Notwithstanding repeated demands, respondents averred that the true and actual damage
amounted to P298,738.90.

On August 10, 1990, petitioner and respondents entered into a contract to sell denominated as
Memorandum of Agreement to sell whereby the latter agreed to sell to the former the leased
property in the amount of P45,611,000.00. The said Memorandum of Agreement to sell granted the
owner (respondents) the option to rescind the same upon failure of the buyer to pay any of the first
six installments with the corresponding obligation to return to the buyer the amount paid by the
buyer in excess of the down payment as stated in paragraphs 7 and 9 of the Memorandum of
Agreement. Pilipinas Hino, Inc. remitted on August 10, 1990 to the respondents the amount of
P1,811,000.00 as down payment. Subsequently, petitioner paid the first and second installments in
the amount of P1,800,000.00 and P5,250,000.00, respectively, totaling the down payment of
P7,050,000.00.

Unfortunately, petitioner failed to pay the third installment and subsequent installments.
Respondents decided to rescind and terminate the contract and promised to return to petitioner all
the amounts paid in excess of the down payment after deducing the interest due from third to sixth
installments, inclusive. From the amount of P7,050,000.00 due to be returned to the petitioner,
respondents deducted P924,000.00 as interest and P220,000.00 as rent for the period from February
15 to March 15, 1991, returning to the petitioner the amount of P5,906,000.00 only.

After trial, the lower court rendered judgment stating that the petitioner has no cause of action to
demand the return of the balance of the deposits in the amount P140,000.00 and the respondents
have the legal right to demand accrued interest on the unpaid installments in the amount of
P924,00.00. The Court of Appeals affirmed the decision of the trial court. Hence, this petition.

ISSUE:

Whether or not the petitioner is entitled to demand the balance of the deposits in the amount of
P140,000.00 and to the return of the amount of P924,000.00.
RULING:

The Supreme Court held that the petitioner failed to prove his first cause of action that the damages
to the leased property amounted to more than P60,000.00. In contrast, respondents were able to
prove their counterclaim that the damage to the leased property amounted to P338,732.50, as
testified by their witness who is an experienced contractor. The trial court did not hold petitioner
liable for the whole amount of P384,732.50, but only for the amount of P200,000.00.

On the other hand, the Supreme Court held that both lower and appellate court failed to consider
paragraph 9 contained in the same memorandum of agreement entered into by the parties. Said
paragraphs provides in very clear terms that “when the owner exercises their option to forfeit the
down payment, they shall return to the buyer any amount paid by the buyer in excess of the down
payment with no obligation to pay interest thereon.” The private respondents’ withholding of the
amount corresponding to the interest violated the specific and clear stipulation in paragraph 9 of the
said memorandum. The parties are bound by their agreement.

Hence, the decision of the Court of Appeals is modified in that private respondent is ordered to
return to the petitioner the amount of P924,000.00 representing the accrued interest for the unpaid
installments and the decision appealed is affirmed in all other respects.
TITAN-IKEDA CONST. VS PRIMETOWN PROPERTY, 544 SCRA 467 (2008)

FACTS:

The respondent Primetown Property Corporation entered into contract with the petitioner Titan-
Ikeda Construction Corporation for the structural works of a 32-storey prime tower. After the
construction of the tower, respondent again awarded to the petitioner the amount of P
130,000,000.00 for the tower’s architectural design and structure. However, in 1994, the respondent
entered into a contract of sale of the tower in favor of the petitioner in a manner called full-
swapping. Since the respondent had allegedly constructed almost one third of the project as weel as
selling some units to third persons unknown to the petitioner. Integrated Inc. took over the project,
thus the petitioner is demanding for the return of its advanced payment in the amount of
P2,000,000.00 as well as the keys of the unit.

ISSUE:

Whether or not the petitioner is entitled to damages.

RULING:

No, because in a contract necessarily that there is a meeting of the minds of the parties in which this
will be the binding law upon them. Thus, in a reciprocal obligation. Both parties are obliged to
perform their obligation simultaneously and in good faith. In this case, petitioner, Titan-Ikeda cannot
recover damages because it was found out there was no solutio indebiti or mistake in payment in
this case since the latter is just entitled to the actual services it rendered to the respondent and thus
it is ordered to return the condominium units to the respondent.
RAMI TEXTILES VS MATHAY, 89 SCRA 586 (1979)

FACTS:

Ramie Textiles, Inc. has been voluntary paying real estate taxes on its plant machinery and
equipment used in Bagbaguin, Valenzuela, Bulacan, and since its existence in 1959, it reached the
amount of P78,041.17. On 19 May 1967, the petitioner said that under the Assessment Law, said
machineries are exempt from realty tax so they claim for refund through the Provincial Assessor of
Bulacan the amount of P78,041.17. The Provincial Treasurer denied the claim on the ground that
under Section 359 of the Revised Manual of Instructions to treasurers, “a claim for refund of taxes
erroneously paid or illegally collected or assessed should be presented within two (2) years from
date of payment. Petitioner replied alleging that Section 359 is inapplicable because said provision
refers only to municipal ordinances which were subsequently declared illegally assessed.

ISSUE:

Whether or not Ramie Textiles, Inc. is entitled for a refund.

RULING:

The Court held that Ramie Textiles, Inc. is allowed to recover the amount paid thru error. The fact
that petitioner paid thru error or mistake and the government accepted the payment, gave rise to
the application of the principle of solutio indebiti under Article 2154 of the New Civil Code, which
provides that, “if something is received when there is no right to demand it and it was unduly
delivered through mistake, the obligation to return it arises”. There is, therefore, created a tie or
juridical relation in the nature of solutio indebiti expressly classified as quasi-contract under Section
2, Chapter I of Title XVII of the New Civil Code.

The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle
that no one shall enrich himself unjustly at the expense of another. Hence, it would seem unedifying
for the government that knowing it has no right at all to collect or to receive money for alleged taxes
paid by mistake, it would be reluctant to return the same.
DIANA VS BATANGAS TRANSPORTATION CO, 93 PHIL 391

Facts:

• Plaintiffs are heirs of Florenio Diana. While Diana was riding a truck, belonging to BTC, driven
by Vivencio Bristol, the truck ran into a ditch at Laguna resulting in the death of Diana and other
passengers.

• Bristol was convicted of multiple homicide through reckless imprudence and ordered to
indemnify the heirs of Diana in the amount of P2000. A writ of execution was issued to satisfy the
indemnity but the sheriff filed a return because the accused had no visible leviable property.

• A complaint was filed when BTC failed to pay the indemnity under its subsidiary liability. BTC
filed a motion to dismiss on ground that there was another action pending between the same
parties for the same cause in which the plaintiffs sought to recover from the same defendant the
amount of P4500 as damages for the death of Diana. The action referred to by BTC was predicated
on culpa aquiliana.

• Plaintiffs filed a written opposition to the motion to dismiss. The court dismissed the
complaint. MR was likewise denied.

Issue:

WON the court properly dismissed the complaint on ground of another action pending between the
same parties for the same cause.

Held:

• In order that this ground may be invoked, there must be between the action under
consideration and the other action, (1) identity of parties, or at least such as representing the same
interest in both actions; (2) identity of rights asserted and relief prayed for, the relief being found on
the same facts; and (3) the identity on the two preceding particulars should be such that any
judgment which may be rendered on the other action will, regardless of which party is successful,
amount to res adjudicate in the action under consideration.

• There is no doubt with regard to the identity of parties. In both cases, the plaintiffs and the
defendant are the same. With regard to the identity of reliefs prayed for, a different consideration
should be made. It should be noted that the present case stems from a criminal case in which the
driver of the defendant was found guilty of multiple homicide through reckless imprudence and was
ordered to pay an indemnity of P2, 000 for which the defendant is made subsidiarily liable under
article 103 of the Revised Penal Code, while the other case is an action for damages based on culpa
aquiliana which underlies the civil liability predicated on articles 1902 to 1910 of the old Civil Code.
These two cases involve two different remedies. As this court aptly said: "A quasi-delict or culpa
aquiliana is a separate legal institution under the Civil Code, with substantivity all its own, and
individuality that is entirely apart and independent from a delict or crime. * * *. A distinction exists
between the civil liability arising from a crime and the responsibility for cuasi-delictos or culpa extra-
contractual. The same negligent act causing dam- ages may produce civil liability arising from a crime
under article 100 of the Revised Penal Code, or create an action for quasi-delito or culpa extra-
contractual under articles 1902-1910 of the Civil Code . The other differences pointed out between
crimes and culpa aquiliana are:

1. That crimes affect the public interest, while cuasi-delitos are only of private concern.

2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by
means of indemnification, merely repairs the damage.

3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a
penal law clearly covering them, while the latter, cuasi-delitos, include all acts in which 'any kind of
fault or negligence intervenes. (P. 611, supra.).

• Considering the distinguishing characteristics of the two cases, which involve two different
remedies, it can hardly be said that there is identity of reliefs in both actions as to make the present
case fall under the operation of Rule 8, section 1(d) of the Rules of Court. In other words, it is a
mistake to say that the present action should be dismissed because of the pendency of another
action between the same parties involving the same cause. Evidently, both cases involve different
causes of action. In fact, when the Court of Appeals dismissed the action based on culpa aquiliana
(civil case No. 8023), this distinction was stressed. It was there said that the negligent act committed
by defendant's employee is not a quasi-crime, for such negligence is punishable by law. What
plaintiffs should have done was to institute an action under article 103 of the Revised Penal Code
(CA-G.R. No. 3632-R). And this is what plaintiffs have done. To deprive them now of this remedy,
after the conviction of defendant's employee, would be to deprive them altogether of the indemnity
to which they are entitled by law and by a court decision, which injustice it is our duty to prevent.
ELCANO VS HILL, 77 SCRA 98

Torts and Damages – Civil Liability from Quasi Delicts vs Civil Liability from Crimes

FACTS:

Reginald Hill, a minor, caused the death of Agapito (son of Elcano). Elcano filed a criminal case
against Reginald but Reginald was acquitted for “lack of intent coupled with mistake.” Elcano then
filed a civil action against Reginald and his dad (Marvin Hill) for damages based on Article 2180 of the
Civil Code. Hill argued that the civil action is barred by his son’s acquittal in the criminal case; and
that if ever, his civil liability as a parent has been extinguished by the fact that his son is already an
emancipated minor by reason of his marriage.

ISSUE:

Whether or not Marvin Hill may be held civilly liable under Article 2180.

HELD:

Yes. The acquittal of Reginald in the criminal case does not bar the filing of a separate civil action. A
separate civil action lies against the offender in a criminal act, whether or not he is criminally
prosecuted and found guilty or acquitted, provided that the offended party is not allowed, if accused
is actually charged also criminally, to recover damages on both scores, and would be entitled in such
eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. In
other words, the extinction of civil liability referred to in Par. (e) of Section 3, Rule 111, refers
exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil
liability for the same act considered as a quasi-delict only and not as a crime is not extinguished even
by a declaration in the criminal case that the criminal act charged has not happened or has not been
committed by the accused. Briefly stated, culpa aquiliana includes voluntary and negligent acts
which may be punishable by law.

While it is true that parental authority is terminated upon emancipation of the child (Article 327,
Civil Code), and under Article 397, emancipation takes place “by the marriage of the minor child”, it
is, however, also clear that pursuant to Article 399, emancipation by marriage of the minor is not
really full or absolute. Thus “Emancipation by marriage or by voluntary concession shall terminate
parental authority over the child’s person. It shall enable the minor to administer his property as
though he were of age, but he cannot borrow money or alienate or encumber real property without
the consent of his father or mother, or guardian. He can sue and be sued in court only with the
assistance of his father, mother or guardian.” Therefore, Article 2180 is applicable to Marvin Hill –
the SC however ruled since at the time of the decision, Reginald is already of age, Marvin’s liability
should be subsidiary only – as a matter of equity.
BAKSH VS COURT OF APPEALS, 219 SCRA 115 (1993)

FACTS:

In August 1986, while working as a waitress in Dagupan City, Pangasinan, Marilou Gonzales, then 21
years old, met Gashem Shookat Baksh, a 29-year-old exchange student from Iran who was studying
medicine in Dagupan. The two got really close and intimate. On Marilou’s account, she said that
Gashem later offered to marry her at the end of the semester. Marilou then introduced Gashem to
her parents where they expressed their intention to get married. Marilou’s parents then started
inviting sponsors and relatives to the wedding. They even started looking for animals to slaughter for
the occasion.

Meanwhile, Marilou started living with Gashem in his apartment where they had sexual intercourse.
But in no time, their relationship went sour as Gashem began maltreating Marilou. Gashem
eventually revoked his promise of marrying Marilou and he told her that he is already married to
someone in Bacolod City. So Marilou went home and later sued Gashem for damages.

The trial court ruled in favor of Marilou and awarded her P20k in moral damages. The Court of
Appeals affirmed the decision of the trial court.

On appeal, Gashem averred that he never proposed marriage to Marilou and that he cannot be
adjudged to have violated Filipino customs and traditions since he, being an Iranian, was not familiar
with Filipino customs and traditions.

ISSUE:

Whether or not the Court of Appeals is correct.

HELD:

Yes. Gashem is liable to pay for damages in favor of Marilou not really because of his breach of
promise to marry her but based on Article 21 of the Civil Code which provides:

Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

Breach of promise to marry is not an actionable wrong per se. In this case, it is the deceit and fraud
employed by Gashem that constitutes a violation of Article 21 of the Civil Code. His promise of
marrying Marilou was a deceitful scheme to lure her into sexual congress. As found by the trial
court, Marilou was not a woman of loose morals. She was a virgin before she met Gashem. She
would not have surrendered herself to Gashem had Gashem not promised to marry her. Gashem’s
blatant disregard of Filipino traditions on marriage and on the reputation of Filipinas is contrary to
morals, good customs, and public policy. As a foreigner who is enjoying the hospitality of our country
and even taking advantage of the opportunity to study here he is expected to respect our traditions.
Any act contrary will render him liable under Article 21 of the Civil Code.

The Supreme Court also elucidated that Article 21 was meant to expand the concepts of torts and
quasi delict. It is meant to cover situations such as this case where the breach complained of is not
strictly covered by existing laws. It was meant as a legal remedy for the untold number of moral
wrongs which is impossible for human foresight to specifically enumerate and punish in the statute
books – such as the absence of a law penalizing the breach of promise to marry.

The Supreme Court however agreed with legal luminaries that if the promise to marry was made and
there was carnal knowledge because of it, then moral damages may be recovered (presence of
moral or criminal seduction), Except if there was mutual lust; or if expenses were made because of
the promise (expenses for the wedding), then actual damages may be recovered.
AIR FRANCE VS CARROSCOSO, GR NO L-21438 SEPTEMBER 28, 1996

FACTS:

In March 1958, Rafael Carrascoso and several other Filipinos were tourists en route to Rome from
Manila. Carrascoso was issued a first class round trip ticket by Air France. But during a stop-over in
Bangkok, he was asked by the plane manager of Air France to vacate his seat because a white man
allegedly has a “better right” than him. Carrascoso protested but when things got heated and upon
advise of other Filipinos on board, Carrascoso gave up his seat and was transferred to the plane’s
tourist class.

After their tourist trip when Carrascoso was already in the Philippines, he sued Air France for
damages for the embarrassment he suffered during his trip. In court, Carrascoso testified, among
others, that he when he was forced to take the tourist class, he went to the plane’s pantry where he
was approached by a plane purser who told him that he noted in the plane’s journal the following:

First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene

The said testimony was admitted in favor of Carrascoso. The trial court eventually awarded damages
in favor of Carrascoso. This was affirmed by the Court of Appeals.

Air France is assailing the decision of the trial court and the CA. It avers that the issuance of a first
class ticket to Carrascoso was not an assurance that he will be seated in first class because allegedly
in truth and in fact, that was not the true intent between the parties.

Air France also questioned the admissibility of Carrascoso’s testimony regarding the note made by
the purser because the said note was never presented in court.

ISSUE 1:

Whether or not Air France is liable for damages and on what basis.

ISSUE 2:

Whether or not the testimony of Carrasoso regarding the note which was not presented in court is
admissible in evidence.

HELD 1:

Yes. It appears that Air France’s liability is based on culpa-contractual and on culpa aquiliana.

Culpa Contractual

There exists a contract of carriage between Air France and Carrascoso. There was a contract to
furnish Carrasocoso a first class passage; Second, That said contract was breached when Air France
failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when Air
France’s employee compelled Carrascoso to leave his first class accommodation berth “after he was
already, seated” and to take a seat in the tourist class, by reason of which he suffered
inconvenience, embarrassments and humiliations, thereby causing him mental anguish, serious
anxiety, wounded feelings and social humiliation, resulting in moral damages.

The Supreme Court did not give credence to Air France’s claim that the issuance of a first class ticket
to a passenger is not an assurance that he will be given a first class seat. Such claim is simply
incredible.

Culpa Aquiliana

Here, the SC ruled, even though there is a contract of carriage between Air France and Carrascoso,
there is also a tortuous act based on culpa aquiliana. Passengers do not contract merely for
transportation. They have a right to be treated by the carrier’s employees with kindness, respect,
courtesy and due consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any rule or
discourteous conduct on the part of employees towards a passenger gives the latter an action for
damages against the carrier. Air France’s contract with Carrascoso is one attended with public duty.
The stress of Carrascoso’s action is placed upon his wrongful expulsion. This is a violation of public
duty by the Air France — a case of quasi-delict. Damages are proper.

HELD 2:

Yes. The testimony of Carrascoso must be admitted based on res gestae. The subject of inquiry is not
the entry, but the ouster incident. Testimony on the entry does not come within the proscription of
the best evidence rule. Such testimony is admissible. Besides, when the dialogue between
Carrascoso and the purser happened, the impact of the startling occurrence was still fresh and
continued to be felt. The excitement had not as yet died down. Statements then, in this
environment, are admissible as part of the res gestae. The utterance of the purser regarding his
entry in the notebook was spontaneous, and related to the circumstances of the ouster incident. Its
trustworthiness has been guaranteed. It thus escapes the operation of the hearsay rule. It forms part
of the res gestae.
CRUZADO VS BUSTOS, 34 PHIL 17

Case:

An appeal from the judgment of CFI Pampanga allowing declaring defendant Bustos as the rightful
owner of the property in question.

Bustos and Escaler who has said to be detaining such land, refused to deliver the possession thereof
to plaintiff and refused to recognize his ownership of the same.

Facts:

Agapito Cruzado was a poor man living in Pampanga, he had a job in court but was still not enough
to support his family. He aspired to hold the office of procurador in the CFI of Pampanga but he was
unable to give the required bond, an indispensable condition for his appointment.

Since Cruzado was friends with Bustos, a rich woman in their place. He begged the latter to simulate
a mortgage deed of a certain property and have it executed in court in his favor only to pose that he
has real property to enable him to qualify to such position of procurador. In truth, the said mortgage
was a front and fraudulent but was effected by making a pretended contract which bore the
appearance of truth.

It is unquestionable that the contract of sale was perfect and binding upon both contracting parties
since their names both appear in that instrument to have agreed upon the thing sold. But it is also
undeniable that the said contract was not consummated. 1.) Cruzado did not pay the purchase price
of P2,200 2.) he never took possession of the land apparently sold in the said deed. All that the
vendee did was to pledge the land as a security for the faithful discharge of the duties of his office.

Santiago Cruzado, the son, brought an action for recovery of possession, founded on the right
transmitted to him by his father at his death – a right arising from the said simulated deed of sale of
the land in question.

Issue:

W/N the said deed of sale was simulated, not with the intent to defraud 3rd persons, but for the sole
purpose of making it appear that Agapito Cruzado has real property?

W/N rights of transmission acquired by Santiago Cruzado from the death of his father, pertaining to
the said land in contest is valid and without defect?

Ruling:

Under the law, the contract of purchase and sale, as consensual, is perfected by consent as to the
price and the thing and is consummated by the reciprocal delivery of the one and the other. Full
ownership of the thing sold being conveyed to the vendee, from which moment the right of action
derived from this right may be exercised. – the record discloses that there was no payment made by
Cruzado to Bustos, thus, rendering the contract not to be consummated.
Art 1164 states that, a creditor has a right to the fruits of the time the obligation to deliver it arise.
However, he shall not acquire a property right thereto until it has been delivered to him.

Besides the failure to pay the purchase price, neither the vendee nor his heirs, had at any time taken
possession of the land. Seven witnesses attest to the fact, Bustos and her husband while still living,
continued to possess the said land supposedly sold to Agapito Cruzado and cultivated it, as she had
done long before the sale of September 1875 to September 1891, the date of complaint by Santiago
Cruzado.

Consequently, at the death of Agapito, he could not have transmitted to the Santiago as his
successor any greater right than a personal right to exact fulfillment of a contract, as plaintiff was
not the owner of the said land, he could not validly register it. This fulfillment of a right has already
prescribed since, under the law, prescription towards real property shall be 30 years. In the case at
bar, the action to recover took 34 years to bring it to court, thus has already prescribed.

Petition is denied.
PENACO VS RUAYA, 110 SCRA 49 (1988)

Appeal from the decision of the Courts of First Instance of Misamis Occidental in Civil Case No. OZ-
110, entitled: "Elias L. Penaco, plaintiff, versus Zoilo H. Ruaya and Felicitas E. Ruaya, defendants," the
dispositive portion of which reads, as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants,
ordering the latter to convey, relinquish and transfer all their rights, interests and participation over
a portion of Lot No. 373, Misamis Cadastre, on which the building mentioned in the pacto de retro
sale dated January 14, 1957 (Doc. No. 4, Page 75, Book VI, series of 1957, Notary Public Valeriano S.
Kaamino) is constructed in favor of the plaintiff. If thirty days after the finality of this decision, the
defendants fail or neglect to convey and relinquish said rights, they shall be considered as having so
relinquished, conveyed and transferred said rights to the plaintiff. The defendants are furthermore
ordered to pay to the plaintiff the sum of P200.00 as attorney's fees, and pay to the costs. 1

There is no question as to the facts. On January 14, 1957, the defendants, spouses Zoilo H. Ruaya
and Felicitas E. Ruaya, executed a document donominated: "PACTO DE RETRO SALE OF RESIDENTIAL
BUILDING WITH GUARANTY TO RELINQUISH RIGHTS AS PUBLIC LAND APPLICANT ON THE LOT ON
WHICH CONSTRUCTED," the terms and conditions of which are as follows:

That we, ZOILO H. RUAYA and FELICITAS E. RUAYA, husband and wife, both 41 years old, Filipinos
and residents of the City of Ozamis for and in consideration of the sum of One Thousand Pesos
(Pl,000.00), Philippine Currency, receipt whereof in full is hereby acknowledged and to us paid by
PERSHING TAN QUETO, 44 years old, married to Cristina Yap Sick Tin Filipino citizen and resident of
the City of Ozamis, do by these presents hereby sell, cede and convey by way of PACTO DE RETRO
unto the said Pershing Tan Queto, his heirs, successors and assigns, one (1) two-storey residential
building of 88 square meters floor area declared for taxation purposes under Tax Dec. No. 36964 in
the name of Zoilo H. Ruaya and therein assessed at P 1,500.00 and erected on a public land along
the road to the wharf, City of Ozamis, claimed by herein vendors with a right as actual claimant-
applicant given standing and recognition by the Bureau of Lands in B.L. Claim No. 181 (N), Portion of
Lot 373 of the Misamis Cadastre, as per the decision of the Director of Lands dated June 8, 1954,
certified true copy of which is hereto attached as Annex 'A' and made an integral part of the
document; and which residential building we are the absolute owners with a perfect right to convey
the same and that it is free of all liens charges and encumbrances and we hereby warrant to defend
the rights of the herein vendee against the lawful claims of any persons whomsoever on the same.

IT IS A CONDITION OF THIS SALE that we hereby reserve unto ourselves, our heirs, successors and
assigns the right to repurchase the herein conveyed building by paying back and returning to the
vendee, Pershing Tan Queto, his heirs, successors and assigns the agreed purchase price of
P1,000.00 within the period of one (1) year after the lapse of one (1) year from the date of the
execution hereof; and that upon our failure to exercise the right of repurchase within the period
herein stipulated, title to the building shall pass to and become vested unto the vendee, his heirs,
successors and assigns, as in the law made and provided; and in the event of consolidation of title to
the building unto the vendee, we hereby promise, covenant and guarantee to relinquish and effect
complete legal transfer of an our rights, interests and participation in and to the lot on which the

building is constructed, as public land claimants thereof by virtue of the decision of the Bureau of
Lands hereto attached as Annex "A". 2
The vendors a retro failed to exercise their right to repurchase within the stipulated period so that
the vendee a retro filed an action with the Court of First Instance of Misamis Occidental, docketed
therein as Civil Case No. 2263, for consolidation of title. On September 30, 1960, the trial court
rendered judgment declaring that the title of the building sold a retro is consolidated in the vendee a
retro Pershing Tan Queto. On April 18, 1961, Pershing Tan Queto assigned his rights and interests
over the property in favor of the herein plaintiff Elias L. Penaco, in consideration of the amount of
P2,800.00. 3 Thereafter, Elias L. Penaco demanded that the defendants relinquish and effect
complete legal transfer of all their rights, interests and participation over the land on which the
residential land sold a retro is constructed, and when the defendants refused, this action for specific
performance was filed with the Court of First Instance of Misamis Occidental on November 3, 1965.
The defendants answered that the condition in the contract of sale with pacto de retro whereby
they promised, covenanted and guaranteed to relinquish and transfer all their rights, interests and
participation in the lot on which the building sold a retro is constructed upon the consolidation of
title in the vendee a retro is void and unenforceable for want of consideration, there being no price
mentioned therein. 4 On June 20, 1967, the Court of First Instance of Misamis Occidental rendered
the decision adverted to. Hence, the present recourse wherein the defendants maintain that the
promise to relinquish rights and interests over the land on which the building sold a retro is
constructed is null and void for want of consideration; and that the parcel of land which is sought to
be transferred has not been Identified.

The first contention is clearly without merit. It is based upon the premise that there were two (2)
contracts entered into by and between the appellants and Pershing Tan Queto, viz: (1) a pacto de
retro sale of a residential building; and (2) a promise, covenant and guarantee to relinquish and
transfer to the vendee a retro all the rights and interests the appellants have on the lot on which the
building sold a retro is constructed, which is false because there was only one (1) contract entered
into by and between the appellants and Pershing Tan Queto and which is a sale of a residential
building for P1,000.00 with the conditions that: (1) the vendors may repurchase the same within the
period of one (1) year after the lapse of one (1) year from the execution of sale, by paying back and
returning to the vendee the amount of P1,000.00; (2) upon the failure of the vendors to exercise
their right to repurchase within the stipulated period, title to the building shall pass and become
vested in the vendee, and (3) in the event of consolidation of title in the vendee, the vendors shall
transfer, relinquish and effect legal transfer of all their rights over the lot on which the building is
constructed to the vendee or his assigns. In reciprocal contracts, like the one in question, the
obligation or promise of each party is the consideration for that of the other. In the language of
Article 1350 of the Civil Code, "in onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service by the other." Besides, under
Article 1354 of the Civil Code, it is presumed that consideration exists and is lawful, unless the
debtor proves the contrary. In the instant case, the appellants failed to present evidence to disprove
the presumption.

The appellants, nevertheless, contend that the consideration is for the house only since the lot on
which it is constructed is public land which they cannot sell, and in view of the inadequacy of the
price, the building alone having an assessed value of P1,500.00, and the land is too cheap for
P5,000.00.

Indeed, the lot on which the building sold a retro is constructed is public land and the appellants
have no right to sell it. What is sought to be transferred and ceded, however, is not the ownership of
the land, but the rights, interests and participation of the appellants "as public land claimants
thereof by virtue of the decision of the Bureau of Lands, " which rights could be waived, transferred
or alienated. By their contract, the appellants have undertaken to effect legal transfer of all their
rights over the lot to the vendee a retro and his assigns upon the consolidation of the title over the
building in the vendee, and whether or not the herein appellee is qualified to acquire that land of
the public domain claimed by the appellants depends upon the Director of Lands who has executive
control over the concession and disposition of the lands of the public domain. For this reason, the
question of the qualification of the appellee to acquire the land should be raised in the
administrative proceedings.

The inadequacy of the price is not sufficient proof that the consideration of P1,000.00 was for the
house alone. The vendee a retro could not have possibly bought the house alone without securing
from the vendors a retro a specific and fixed arrangement regarding the lot on which the house is
built, otherwise, he could be ejected therefrom at the will of the vendors a retro. Besides, "a
valuable consideration, however small or nominal, if given or stipulated in good faith is, in the
absence of fraud, sufficient. A stipulation in consideration of one dollar is just as effectual and
valuable a consideration as a larger sum stipulated for or paid."

The second contention that the parcel of land on which the building sold a retro is constructed has
not been Identified is likewise without merit. The terms and language of the contract are clear and
explicit and leave no doubt as to the intention of the parties that the vendors a retro are obligated
to transfer to the vendee a retro and his assigns all their rights, interests and participation, as public
land claimants, in and to the lot on which the building sold a retro is constructed, after the vendee a
retro has consolidated his title over the building sold a retro. In the contract of pacto de retro sale,
the appellants described the land on which the building is constructed as "a public land along the
road to the wharf, City of Ozamis, claimed by herein vendors with a right as actual claimant-
applicant given standing and recognition by the Bureau of Lands to B.L. Claim No. 181 (N), Portion of
Lot 373 of the Misamis Cadastre, as per the decision of the Director of Lands dated June 8, 1954,
certified true copy of which is hereto attached as Annex 'A' and made an integral part of the
document." Such description is sufficient, as reference to the decision of the Director of Lands of
June 8, 1954, adverted to, which in all probability had delineated the parcel of land applied for by
the appellants in metes and bounds would pinpoint the lot in question.

WHEREFORE, there being no error committed in the judgment appealed from, the said judgment
should be, as it is hereby, AFFIRMED. With costs against the appellants.
ALMOCERA VS ONG, GR NO 170479, FEBRUARY 18, 2008

Facts:

> 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
P3,400,000.00 pesos - to which Johnny Ong was able to pay = 1.060M

> Prior to full payment - Respondent allege that petitioner and First Builders concealed the fact that
before and at the time of the perfection:

> property was mortgaged and encumbered to Land Bank

> construction of the house has long been delayed and remains unfinished

> Petitioner asserts that on March 20, 1995, First Builders Multi-purpose Coop. Inc., borrowed
money in the amount of P500,000.00 from Tommy Ong, respondent’s brother.

> This money will be used to finance the documentation requirements of the LBP for the funding of
the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which
Tommy Ong may eventually purchase from the project.

> When the project was under way, Tommy Ong wanted to buy another townhouse for his brother,
Johnny Ong, respondent herein, which then, the amount of P150,000.00 was given as additional
partial payment.

> January 10, 1997 - Tommy Ong identified Unit No. 4 as respondent’s chosen unit and again
tendered P350,000.00 as his third partial payment.

> When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another
contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose
whichever unit he might decide to have.

> Later, Tommy Ong informed then that he will go with Unit 5, but upon knowing that Unit 4 will be
sold to another person for 4 million pesos, then the latter informed petitioners that he will choose
Unit 4 again.

> In trying to recover his down payment, Tommy Ong filed a complaint for damaged with the RTC of
Cebu City

RTC’s Decision - FOR RESPONDENT

> Petitioners acted in bad faith and did not comply fully with their obligations

> Petitioners failed to complete the construction of, as well as deliver to respondent, the townhouse
within six months from the signing of the contract.

> Respondent was not informed by petitioners at the time of the perfection of their contract that the
subject townhouse was already mortgaged to LBP.

CA’s Decision - FOR RESPONDENT

> Petitioners incurred delay when they failed to deliver the townhouse unit to the respondent within
six months from the signing of the contract to sell.
> nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such
delay and the fact that the property subject of the case was foreclosed and auctioned.

ISSUES:

> WON petitioner has incurred delay in the fulfilment of his obligation.

> WON it was proper for respondent not to pay the remaining balance.

HELD:

SC - AFFIRM ruling of CA

> Contract was a CONTRACT TO SELL - ownership of the townhouse has not passed to respondent.

> Serrano v. Caguiat - contract to sell is akin to a conditional sale where the efficacy or obligatory
force of the vendor’s obligation to transfer title is subordinated to the happening of a future and
uncertain event, so that if the suspensive condition does not take place, the parties would stand as if
the conditional obligation had never existed. The suspensive condition is commonly full payment of
the purchase price.

> It is clear that petitioner and FBMC had the obligation to complete the townhouse unit within six
months from the signing of the contract. Upon compliance therewith, the obligation of respondent
to pay the balance of P2,400,000.00 arises.

> The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to
complete and deliver the townhouse within the six-month period.

> The contract subject of this case contains reciprocal obligations which were to be fulfilled by the
parties, i.e., to complete and deliver the townhouse within six months from the execution of the
contract to sell on the part of petitioner and FBMC, and to pay the balance of the contract price
upon completion and delivery of the townhouse on the part of the respondent.

> The obligation of petitioner and FBMC which is to complete and deliver the townhouse unit within
the prescribed period, is determinative of the respondent’s obligation to pay the balance of the
contract price therefore they cannot insist that respondent comply with his obligation. Where one
of the parties to a contract did not perform the undertaking to which he was bound by the terms of
the agreement to perform, he is not entitled to insist upon the performance of the other party.

> 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.

> Respondent is justified in refusing to pay the balance of the contract price.

> He was never in possession of the townhouse unit and he can no longer be its owner since
ownership thereof has been transferred to a third person who was not a party to the proceedings
below.

> To allow this would result in the unjust enrichment of petitioner and FBMC.

> What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that
the subject townhouse which he was going to purchase was already mortgaged to LBP at the time of
the perfection of their contract.
TAN VS GVT ENGINEERING SERVICES, GR NO 153057, AUGUST 7, 2006

FACTS:

> 18 October 1989 – spouses George and Susan Tan entered into a contract with GVT Engineering
Services, through its manager/owner Gerino Tactaquin for the construction of their residential house
at Ifugao St., La Vista, Quezon City. The contract price was P1.7M.

> Tan have no knowledge about building construction so they hired Engr. Rudy Cadag to supervise
the said construction.

> In the course of the construction, Tan caused several changes in the plans and specifications and
ordered the deletion of some items in GVT’s scope of work.

> These changes brought about differences between Tan and Cadag and Tactaquin. Subsequently,
Tactaquin stopped the construction of the subject house.

> 4 December 1990 – GVT, through Tactaquin, filed a complaint for specific performance and
damages against Tan and Cadag with the QC RTC contending that due to the changes in the plans
and specifications of the construction project, GVT was forced to borrow money from 3rd persons at
exorbitant interest; that several portions of their contract were deleted only to be awarded later to
other contractors; and that due to Tan’s delay in the delivery of construction materials on the
jobsite, GVT suffered tremendous delay in the completion of the project these acts caused undue
damage and prejudice to GVT

> Tan and Cadag filed their Answer with Counterclaims alleging that GVT performed several
defective works and to avert further losses, Tan deleted some portions of the project covered by
GVT’s contract and awarded other portions to another contractor and that the changes were agreed
upon by the parties; It was also alleged that GVT is a single proprietorship and cannot be a party in a
civil action.

> The trial court ruled that Tan’s and Cadag’s conclusions as to the workmanship and competence of
GVT are unsupported and without basis and that their act of deleting several major items from GVT’s
scope of work is uncalled for, if not done in bad faith and these acts forced GVT to withdraw from
the project. Tan and Cadag were ordered to pay GVT jointly and severally and their counterclaims
were dismissed:

a. the sum of P366,340.00 representing the balance of the contract price;

b. the amount of P49,578.56 representing the 5% retention fee;

c. the amount of P45,000.00 as moral damages;

d. the amount of P100,000.00 for and as attorney’s fees; and

e. the amount of P17,000.00 as litigation expenses.

> Tan appealed with the CA contending that the trial court erred in its decision. The CA affirmed the
judgment of the trial court with modification the case against Cadag was dismissed and the awards
for moral damages, attorney’s fees and litigation expenses were deleted.

> Both parties moved for partial reconsideration but these were denied by the CA.
> Tan filed a petition for review on certiorari to the Supreme Court.

ISSUE(S):

Whether or not Cadag is liable to GVT

HELD:

There was no allegation that Cadag exceeded his authority as agent of Tan. As agent, all his acts are
considered as those of his principal, the spouses Tan, who are, therefore, the ones answerable for
such acts.

RATIO:

Petitioner’s arguments:

> Tactaquin consented and acquiesced to the changes and alterations made in the plan of the
subject house, he cannot complain and discontinue the construction of the said house. Tan asserted
that it would be unfair and unjust for them to be required to pay the amount of the cost of the
remaining unfinished portion of the house after it was abandoned by Tactaquin unjust enrichment
at their expense.

> Retention fee is payable only after the house is completed and turned over to them. GVT never
completed the house and therefore, not entitled to the retention fee.

> GVT failed to prove that it is entitled to actual damages.

> Tan only relied upon and followed the advice and instructions of Cadag whom they hired to
supervise the construction of their house.

> GVT is a sole proprietorship and has no legal personality to institute the complaint with the trial
court.

> Under their contract, GVT agreed that they can employ only labor in the construction of the
subject house and that Tan shall supply the materials. It was an error on the part of the CA and the
trial court to award the remaining balance of the contract price to GVT despite the fact the some
items from the GVT’s scope of work were deleted with its consent and due to deletion, GVT should
not be compensated for the work it has not accomplished.

> The value of the deleted items should be deducted from the original contract price.

> The delay in the construction is due to GVT’s failure to pay wages of its workers who in turn,
refused to work; Tan were forced to pay the workers’ wages.

Respondent’s arguments:

> The CA and the trial court both found that the petitioners are the ones responsible for breach of
contract, for unjustified deletion of items agreed upon and delay in delivery of construction
materials never rebutted by contrary evidence.
> The dismissal of the case against Cadag is based on the fact that there is no privity of contract
between him and respondent.

Liability of Cadag – (related to ATP)

Tan could not argue that since Cadag was absolved by the court from liability, Tan should not also be
held liable.

The Court finds no error on the part of the CA in ruling that it is a basic principle in civil law that
contracts can only bind the parties who had entered into it and it cannot favor or prejudice 3rd
persons. Contracts take effect only between the parties, their successors in interest, heirs and
assigns. Every cause of action ex contractu must be founded upon a contract, oral or written, either
express or implied.

In this case, GVT’s complaint was based on Tan’s failure to faithfully comply with the provisions of
their contract. Cadag is not a party to this contract. He did not enter into any contract with GVT
regarding the construction of the said house. Considering that GVT’s cause of action was breach of
contract and since there is no privity of contract between GVT and Cadag, Cadag should not be made
to answer for Tan’s default.

Cadag was employed by the spouses to supervise the construction of their house. His role is merely
that of an agent. The essence of agency being the representation of another, it is evident that the
obligations contracted are for and on behalf of the principal. A consequence of this representation is
the liability of the principal for the acts of his agent performed within the limits of his authority that
is equivalent to the performance by the principal himself who should answer therefor. In the present
case, since there is neither allegation nor evidence that Cadag exceeded his authority, all his acts are
considered as those of his principal, the spouses Tan, who are, therefore, the ones answerable for
such acts.

CASE LAW/ DOCTRINE:

Lack of legal personality to sue

It is true that GVT is not vested with a legal personality to bring suit or defend an action in court.
Records show that the case was captioned as GVT acting through its owner/manager Gerino V.
Tactaquin. However, several allegations in the complaint show that the suit is actually brought by
Tactaquin. Averments therein refere to the plaintiff as a natural person. In fact, one of the prayers in
the complaint is for the recovery of moral damages. It is a settled rule that juridical persons are not
entitled to moral damages because it cannot experience physical suffering or sentiments. From such
prayer, it can be inferred that it was actually Tactaquin who is the complainant and the proper
caption should be “Gerino Tactaquin doing business under the name and style of GVT….” However,
there are matters of form and this defect is found to me technical only which does not affect
jurisdiction.
Breach of Contract

GVT did not refute Tan’s contention that he consented and acquiesced to Tan’s decision to change
or alter the construction plan of the subject house but respondent contended that he did not agree
to the deletion of some of the items of work covered

by their contract. The Court upheld the factual findings of the trial court and CA with respect to Tan’s
liability for breach of contract factual findings of the trial court, when affirmed by the CA are
generally binding on SC.

There is no question that petitioners are liable for damages for breach of contract (Art. 1170 of the
Civil Code). Moreover, the Court agreed with the trial court that GVT performed its obligations in
good faith and entitled to recover as though there had been strict and fulfillment less damages
suffered by the obligee (Art. 1234 of the Civil Code). It is not disputed that GVT withdrew from the
project on 23 November 1990. It gave Tan its 22nd billing on 29 October 1990 where the
approximated percentage of work completed as 74% and the portion of the contract paid by Tan so
far was P1,265,660.60. This was not disputed by Tan.

Petitioners are also guilty of breach of contract by deleting items from GVT’s scope of work and
value of those items should be credited in GVT’s favor.

Retention fee

GVT was not able to complete the project but this failure was not due to his fault but because he
was forced to withdraw therefrom by reason of the breach committed by petitioners. At the time
GVT withdrew from the contract, it has already performed in good faith a substantial portion of his
obligation. Considering that he was not at fault, the law provides that he is entitled to recover s
though there has been a strict and complete fulfillment of his obligation. Therefore, GVT is entitled
to the recovery of 5% retention fee.
PHIL EXPORT AND FOREIGN LOAN GUARANTEE CORP VS VP EUSEBIO CONST, GR NO 140047, JULY
13, 2004

Facts:

1. The State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq
awarded the construction of the Institute of Physical Therapy-Medical Rehabilitation Center in Iraq
to Ayjal Trading and Contracting Company for a total contract price of about $18M.

2. Spouses Santos, in behalf of 3-Plex International, Inc., a local contractor engaged in construction
business, entered into a joint venture agreement with Ayjal wherein the former undertook the
execution of the entire a project, while the latter would be entitled to a commission of 4%.

3. 3-Plex not accredited by the Philippine Overseas Construction Board (POCB) assigned and
transferred all its rights and interests to VPECI.

4. The SOB required the contractors to submit a performance bond representing 5% of the total
contract price, an advance payment bond representing 10% of the advance payment to be released
upon signing of the contract. To comply with these requirements 3-Plex and VPECI applied for a
guarantee with Philguarantee, a government financial institution empowered to issue guarantees for
qualified Filipino contractors.

5. But what SOB required was a guarantee from the Rafidain Bank of Baghdad so Rafidain Bank
issued a performance bond in favor of SOB on the condition that another foreign bank (not Phil
Guarantee) would issue the counter-guarantee. Hence, Al Ahli Bank of Kuwait was chosen to provide
the counter guarantee.

6.Afterwards, SOB and the joint venture of VPECI and Ayjal executed the service contract. Under the
contract, the joint venture would supply manpower and materials, SOB would refund 25% of the
project cost in Iraqi Dinar and 75% in US dollars at an exchange rate of 1 Dinar to $3.37.

7.The project was not completed. Upon seeing the impossibility of meeting the deadline, the joint
venture worked for the renewal or extension (12x) of the performance bond up to December 1986.

8. In October 1986, Al Ahli Bank sent a telex call demanding full payment of its performance bond
counter-guarantee. Upon receipt, VPECI requested Iraq Trade and Economic Development Minister
Fadhi Hussein to recall the telex for being in contravention of its mutual agreement that the penalty
will be held in abeyance until completion of the project. It also wrote SOB protesting the telex since
the Iraqi government lacks foreign exchange to pay VPECI and the non-compliance with the 75%
billings in US dollars.

9. Philguarantee received another telex from Al Ahli stating that it already paid to Rafidain Bank. The
Central Bank authorized the remittance to Al Ahli Bank representing the full payment of the
performance counter-guarantee for VPECI's project in Iraq.

10. Philguarantee sent letters to respondents demanding the full payment of the surety bond.
Respondents failed to pay so petitioner filed a civil case for collection of sum of money.
11. Trial Court ruling: Dismissed. Philguarantee had no valid cause of action against the respondents.
The joint venture incurred no delay in the execution of the project considering that SOB's violations
of the contract rendered impossible the performance of its undertaking.

12. CA: Affirmed.

Issue:

What law should be applied in determining whether or not contractor (joint venture) has defaulted?

Held:

The question of whether there is a breach of the agreement which includes default pertains to the
INTRINSIC validity of the contract.

No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule
followed by most legal systems is that the intrinsic validity of a contract must be governed by lex
contractus (proper law of the contract). This may be the law voluntarily agreed upon by the parties
(lex loci voluntatis) or the law intended by them either expressly or implicitly (lex loci intentionis).
The law selected may be implied from factors such as substantial connection with the transaction, or
the nationality or domicile of the parties. Philippine courts adopt this: to allow the parties to select
the law applicable to their contract, SUBJECT to the limitation that it is not against the law, morals,
public policy of the forum and that the chosen law must bear a substantive relationship to the
transaction.

In the case, the service contract between SOB and VPECI contains no express choice of law. The laws
of Iraq bear substantial connection to the transaction and one of the parties is the Iraqi government.
The place of performance is also in Iraq. Hence, the issue of whether VPECI defaulted may be
determined by the laws of Iraq.

BUT! Since foreign law was not properly pleaded or proved, processual presumption will apply.

According to Art 1169 of the Civil Code: In reciprocal obligations, neither party incurs in delay if the
other party does not comply or is not ready to comply in a proper manner what is incumbent upon
him.

As found by the lower courts: the delay or non-completion of the project was caused by factors not
imputable to the Joint Venture, it was rather due to the persistent violations of SOB, particularly its
failure to pay 75% of the accomplished work in US dollars. Hence, the joint venture does not incur in
delay if the other party(SOB) fails to perform the obligation incumbent upon him.
SALUDAGA VS FEU, GR NO 179337, APRIL 30, 2008

FACTS:

Petitioner Joseph Saludaga was a sophomore law student of (FEU) when he was shot by Alejandro
Rosete, one of the security guards on duty at the school premises on August 18, 1996. Petitioner was
rushed to FEU Hospital due to the wound he sustained. Meanwhile, Rosete was brought to the
police station where he explained that the shooting was accidental. He was eventually released
considering that no formal complaint was filed against him.

Saludaga thereafter filed with RTC Manila 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 Dvpt and Mgt Corp. (Galaxy), the
agency contracted by 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.

On Nov.10, 2004, the trial court ruled in favor of Saludaga, the dispositive portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing
of the complaint until fully paid; moral damages xxx, exemplary damages xx, attorney's fees xx and
cost of the suit;

2. Galaxy Corp. and its president, Col. Mariano Imperial to indemnify jointly and severally 3rd party
plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned
amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to
costs.

Respondents appealed to the CA which ruled in its favor, reversing the RTC decision, dismissing the
complaint, and also denying Saludaga’s subsequent MR. Hence, the instant petition based on the
following grounds:

THE CA SERIOUSLY ERRED....IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A GUNSHOT
WOUND SUFFERED BY THE PETITIONER.....IN VIOLATION OF THEIR....CONTRACTUAL OBLIGATION TO
PETITIONER.......TO PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. ALEJANDRO ROSETE....IS NOT FEU’S EMPLOYEE.....; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD
PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.
ISSUES:

WON Saludaga may claim damages from FEU for breach of student-school contract for a safe
learning environment

Whether FEU’s liability is based on quasi-delict or on contract

From what source of obligation did the other claims arose?

HELD:

1) Yes.

2) FEU’s liability is based on contract, not quasi-delict.

3) Quasi-delict – vicarious liability between Galaxy Agency and security guard Rosete

Quasi-delict – but SC held that there is no vicarious liability between FEU and Rosete

Quasi-delict – damage to FEU due to the negligence of Galaxy Agency in supplying FEU with an
unqualified guard (Imperial, the president of Galaxy is solidarily liable with the agency)

It is undisputed that Saludaga was enrolled as a sophomore law student in FEU. As such, there was
created a contractual obligation between the two parties. On Saludaga's part, he was obliged to
comply with the rules and regulations of the school. On the other hand, FEU, as a learning institution
is mandated to impart knowledge and equip its students with the necessary skills to pursue higher
education or a profession. At the same time, it is obliged to ensure and take adequate steps to
maintain peace and order within the campus.

It is settled that 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. In the instant case when
Saludaga was shot inside the campus by no less the security guard who was hired to maintain peace
and secure the premises, there is a prima facie showing that FEU failed to comply with its obligation
to provide a safe and secure environment to its students.

In order to avoid liability, however, FEU alleged that the shooting incident was a fortuitous event
because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he
was not their employee; and that they complied with their obligation to ensure a safe learning
environment for their students by having exercised due diligence in selecting the security services of
Galaxy.

After a thorough review of the records, the SC found that FEU failed to discharge the burden of
proving that they exercised due diligence in providing a safe learning environment for their students.
They failed to prove that they ensured that the guards assigned in the campus met the requirements
stipulated in the Security Service Agreement. Certain documents about Galaxy were presented
during trial; however, no evidence as to the qualifications of Rosete as a security guard for the
university was offered. FEU also failed to show that they undertook steps to ascertain and confirm
that the security guards assigned to them actually possess the qualifications required in the Security
Service Agreement.
Consequently, FEU's defense of force majeure must fail. In order for force majeure to be considered,
FEU 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. 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.

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.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In
Powton Conglomerate, Inc. v. Agcolicol, we held that:

... Personal liability of a corporate director, trustee or officer along (although not necessarily) with
the corporation may so validly attach, as a rule, only when - (1) he assents to a patently unlawful act
of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or
when there is a conflict of interest resulting in damages to the corporation, its stockholders or other
persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to
hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific
provision of law personally answerable for his corporate action.

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus
should not be held solidarily liable with respondent FEU.

Incidentally, although the main cause of action in the instant case is the breach of the school-student
contract, petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of
the Civil Code. However, 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.

As to the Third Party Claim against Galaxy, evidence duly supports that Galaxy is negligent not only in
the selection of its employees but also in their supervision. Indeed, no administrative sanction was
imposed against Rosete despite the shooting incident; moreover, he was even allowed to go on
leave of absence which led eventually to his disappearance. Galaxy also failed to monitor petitioner's
condition or extend the necessary assistance. 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.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly
negligent in directing the affairs of the security agency. It was Imperial who assured petitioner that
his medical expenses will be shouldered by Galaxy but said representations were not fulfilled.
UST VS DESCALS, 38 PHIL 267

On the 13th of February 1843, a house in Intramuros, was subjected, exclusive of the land of which it
was erected, to a censo (annuity, or perhaps more accurately, a ground rent) in favor of the
University of Santo Tomas. The censo was created in a public document, duly registered, wherein
the value of the capital was expressly stipulated to be P2,000, and the pension to be paid on account
thereof was fixed at 5 per centum per annum upon that amount.

On the 14th of October 1905, one Salvador Farre bought the house and the land on which it stood,
apparently in ignorance of the censo to which the house was subjected, and refused to recognize the
rights of the University in the premises. The University instituted an action, wherein, upon appeal to
this court, the right of the University in and to the censo was maintained, and judgment was entered
against Farre for the amount of the payments due thereunder. (R. G. No. 6408, decided the 6th of
November, 1911)

Execution was levied upon the house (exclusive of the land upon which it stood) under which this
judgment, and at the sheriff's sale in the month of June, 1912, it was bought in by the University of
the sum of P50.

On July 3, 1912, Valentin Descals, the defendant in this action, who had previously acquired Farre's
right of redemption in the property, redeemed the house from the University, by the payment of the
amount for which it had been purchased at the sheriff's sale.

On April 2, 1913, Descals paid the University P100, that being the amount due under the censo for
the year 1912.

In July 1913, the city authorities ordered the house torn down, because of the dangerous and
dilapidated condition in which it was found to be upon an official inspection by the municipal
officers charged with such matters.

Not long thereafter, the University, having been apprized of the issuance of this order, formally
requested Descals to put the house in repair so as to avoid the necessity for its destruction under
the municipal order. Descals made no attempt to put the house in repair, and for its destruction
under imperative directions to do so without further delay.

This action was brought by the University to recover from Descals damages in the sum of P2,000, the
stipulated capital on account of which the censo was created, for his failure to maintain the house in
a proper state of repair, which, as plaintiff alleges, resulted in its total destruction by order of the
municipal authorities.

The defendant offered to turn over the ruins of the building to the University, and thus extinguish
the censo. The offer having been declined, the stone, lumber and other materials of which it was
constructed were sold under authority of the court, and the net proceeds, after paying for the
demolition of the building, amounting in all to P16, was deposited with the clerk of the court.

The trial judge gave judgment in favor of the plaintiff for P16, the value of the materials of which the
house was constructed, and declared that the censo had been extinguished by the destruction of the
house.
Counsel for the University (the censualista) contends that under the terms of the instrument
creating the censo, it was the duty of the owner of the house (the censatario) to keep it in repair,
and that he should therefore be required to indemnify the University for damages suffered by it, as
censualista, as a result of the destruction of the property subjected to the censo, by orders of the
municipal authorities, the measure of these damages being the capital (P2,000) with relation to
which the censo was created.

Counsel for the defendant contends that through the ravages of time the house had fallen into such
a state of deterioration and decay, before it came into his hands, that no ordinary repairs, short of
substantially rebuilding the entire structure would be sufficient to render it safe and fit for human
habitation; and, that the obligation to keep the house in repair expressly stipulated in the
instrument creating the censo did not impose upon him a duty to rebuild or replace the house in the
event of its destruction.

This contention as to the condition of the building is fully sustained by the record. The experts who
examined it at the time when it was condemned by the municipal authorities were of opinion that
the only practicable dispositon which could be made of the house was to tear it down and rebuild, or
sell the materials for what they were worth. The municipal building inspector and an experienced
contractor were of opinion that the new material necessary to put the house in good condition
would amount to 60 per cent of the whole building when completed, and that, through the lapse of
time, and the deterioration and decay of the materials of which it was constructed, it could not be
rendered habitable and secure without being substantially rebuilt.

The correctness of their views as to the conditions of decay into which the building had fallen is
confirmed by the action of the University authorities themselves, who made no attempt to put the
house in repair or to save it from destruction, although they had authority under the instrument
creating the censo to make necessary repairs at the expense of the owner of the house should he
neglect to do so. It appears that at their request the municipal order for its destruction was
temporarily suspended, in order that they might have an opportunity to take such measures as they
might deem proper to protect the interests of the University in the building, and that after careful
examination of the condition in which they found it, no attempt was made to repair the house,
presumably, because its clear that through the ravages of time, and as a result of the deterioration
and decay of materials of which it was constructed, a considerable part of the building had become
wholly useless and uninhabitable, and that the entire building had become dangerous and unfit for
human habitation, at the time when it was ordered torn down by the municipal authorities; and
further, that short of tearing down and rebuilding the greater part of the house, it was impracticable
to put it in repair so as to make it safe and fit for human habitation.

The respective rights and liabilities of the parties are to be determined from the provisions of article
1625 of the Civil Code, which is as follows:

When an estate charged with an annuity is totally destroyed or rendered useless by force majeure or
by a fortuitous event, the annuity shall be extinguished, the payment of the pension discountinuing.

If it is destroyed in part only, the person paying the annuity shall not be exempt from the payment of
the pension, unless he prefers to abandon the estate to the annuitant.

When there is fault on the part of the person paying the annuity, he shall be bound, in either case, to
indemnify for losses and damages.
If it can be said that the property subject to a censo, which has been totally or partially "destroyed"
or "rendered useless" by the deterioration and decay incident to the lapse of time, has been thus
totally or partially destroyed or rendered useless by " force majeure or by a fortuitous event," it is
manifested that the contentions of the University are not well-founded, and cannot be maintained.

We are of opinion and so hold that the deterioration and decay in the materials of which a building
is constructed, incident to the lapse of time, are causes embraced within the term " force majeure or
by a fortuitous event" as those terms are used in article 1625 of the Code, and in support of our
ruling it will be sufficient to insert here some extract from the commentaries upon this article of the
code by the learned Spanish author Manresa:

By the words force majeure or fortuitous event used in the first paragraph of article 1625, as already
stated, the law alludes to every cause independent of the will of the annuitant, of every fault on his
part. There is nothing else to do but to so admit, not only because the Code opposes to the
annuitant no other defense except fortuitous event and fault, without making other distinctions, but
also because in reality every cause foreign, if that term may be used, to the annuitant, juridically and
reasonably demands the same solution, and because all these causes can be reduced to a fortuitous
event, or to force majeure.

The garden is lost in a flood, the terrace disappears during an earthquake, the house is burned, the
structure falls and is transformed into ruins. If the loss or ruin is complete, if the estate, the subject
matter of the right, is lacking, the annuity is completely extinguished. Therefore, the lessor loses
both the capital and the rents, and the annuitant, that which may correspond to him.

The solution is just. In default of all, the lessor cannot demand anything. The estate, the capital, the
rents, the thing itself and the obligation formed an inseparable whole. If the lessor loses much, the
annuitant also loses much. This is an application to annuity of the general doctrine regarding the
extinction of real rights, by the loss of the objects which they charged.

When the loss was complete, the annuity does not revive; nothing remains and the lessor cannot
further allege any right over anything. (Vol. 11, pp. 93, 94.)

"Just as in the case of the complete loss of the estate so in the case of partial loss, the Code concerns
itself only with two suppositions — the fault of the annuitant and a fortuitous event or force
majeure. Fault comprises reasonably fraud and the volition of the annuitant. The fortuitous event or
force majeure must comprise every cause which is not volition, the fraud or the simple fault of the
annuitant himself. The gradual diminution by reason of the nature of the productive forces of the
estate of the natural deterioration of the same which, taken from the Mortgage Law, are cited as
foreign in part to those supposed by the Code are facts essentially alike, because to the annuitant
who in no way can avoid them they always represent a case of force majeure included, without
shadow of doubt, in paragraphs 1 and 2 of article 1625. Can the legislator be required to use always
the same words to express his idea or condescend to expound in detail all the cases which he deems
comprised in a general conception? Can it be dreamed that the law may adopt one solution for a
case of fortuitous event or force majeure, and a different one for the natural deterioration of the
estate or the gradual diminution of its productive forces?

If we pay attention not to the words of the law but to its concept, not to its letter but to its spirit, we
can do no less than admit that the suppositions distinguished in the Mortgage Law are essentially
the same ones that are separated in the Civil Code and, and the solutions being different, we shall
necessarily have to deduce that one cannot be preserved with the other, that one or the other has
to disappear; and in such conflict it is inevitable to sacrifice articles 151 and 152 of the Mortgage Law
to the clear and express wording of article 1625 of the Civil Code.

That the Code respects in general the enforcement of the Mortgage Law and expressly orders that
this governs with regard to the nature, form and effects of the inscription, or to the extension,
requisites and effects of the mortgage, means nothing. Articles 151 and 152 deal with principles of a
civil nature, properly belonging to the Civil Code, rights regulated by same in a definite manner, and
its doctrine, as posterior and enunciated within its own proper sphere of action, cannot but be
preferred. Whenever a later law contradicts the provisions of a former one on the same subject and
instance, the repeal is evident. This is the case in which we now find ourselves.

When an estate charged with an annuity is totally destroyed, rendered useless in part, damaged, or
made less productive, by a fortuitous event or force majeure, in short, by any cause which is not the
fraud, fault or the volition of the annuitant, the latter cannot in any case legally demand the
reduction of the rent. His right consists solely in giving up the estate to the lessor, if he does not
wish, or cannot continue paying the whole rent. Notwithstanding this, the lessor and the annuitant
can voluntarily agree to the reduction of the rents, or adopt a distinct solution.

There is no necessity of investigating or proving whether or not there is left in the state any value or
product sufficient to cover or pay the rent. Whatever may be left, the annuitant better than any
body else can appreciate his situation, and when the day arrives in which it does not suit him to pay
the whole rent, either because the estate does not produce sufficiently, or because his scant gain
does not compensate his work, or because it seems insignificant to him, he has the right to give up
the estate, to relinquish it to the lessor, in order that he may keep it, or lease it, or sell it, or make of
it the use which seems best to him. The abandonment, therefore, represents the extinction of the
annuity.

The absolute terms with which article 1625 is expressed admits of no other solution. It can be said
that by it the abandonment of the estate is erected, and therefore the extinction of the annuity, in a
right of the annuitant; but aside from the fact that the law requires the immovable to be lost or in
part damaged, there exists the interest of the annuitant himself who will only resort to such extreme
remedy when he really cannot pay the rent with some relief, in which case the solution is just, for
however great may be the loss to the lessor, that of the annuitant is even greater for with him
nothing remains. Furthermore, by common agreement, another remedy may be selected, and the
greater the value that remains in the estate the more advantageous will the cession be to the lessor,
(pp. 99-101, supra.)

The trial judge appears to have treated the condition into which the house had fallen as one of
"partial" destruction, exempting the defendant from payment of the pension upon his abandonment
of the material to the University. We do not deem it necessary to consider whether, under the
peculiar circumstances of this case (wherein the house, apart from the land on which it was erected
was subjected to the censo), the unsafe and uninhabitable condition of the house necessitating its
destruction should be held to be a total or a partial destruction of the tenement as these terms are
used in the statute, because no appeal was taken from the judgment of the trial court directing the
payment to the University of the net proceeds of the sale of the materials of which the house was
composed.

Although the censo under consideration in this case was created in the year 1843, counsel for both
appellant and appellee based their arguments as to the respective rights of the parties upon the
express provisions of the Civil Code of 1889, without discussing the question from the standpoint of
the law in existence whom the censo was created. As we have disposed of the contentions of the
parties by reference to the provisions of the Civil Code cited herein and the doctrine to be derived
therefrom, it may be well to indicate that we have done so not merely because counsel have
proceeded on the assumption that the code provisions are applicable; but rather on the grounds set
forth in the following citation from the learned Spanish author whom we have already cited at
length in this opinion:

TRANSITORY RIGHT.

In our opinion, articles 151 to 152 of the former Mortgage Law have been repealed by the Civil Code.
However, they constitute the former law on the subject. The Code legislates only over the annuities
constituted after its publication inasmuch as those constituted before that date are not expressly
referred to nor determined therein. There are many in this condition which exist and, considering
the nature of the annuities, will subsist for a long time. When the estates charged with the annuity
prior to the Code suffer damage, must the principles of the Mortgage Law or those of the Civil Code
be applied? Can the annuitant for example demand the reduction of the rents?

We believe, that the second transitory provision should be applied, but holding that the annuitant,
by the mere fact of the constitution of the annuity, had not really acquired the rights established in
the said articles of the Mortgage Law; that these rights are born and can be exercised only at the
happening of the damage to the estate subjected to the annuity; and that the date of the damage is
therefore that which determines whether said law or articles 1625 and 1627 of the Civil Code should
be applied. (Vol. 11, Manresa, p. 106).
NECESITO VS PARAS, 104 PHIL 75

RELATED LAW:

Civil Code: ART. 1755. A common carrier is bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for
the all the circumstances.

FACTS:

Severina Garces and her son Precillano Necesito boarded a passenger truck of the Philippine Rabbit
Bus Lines driven by Francisco Bandonell. The truck entered a wooden bridge, but the front wheels
swerved to the right. The driver lost control, and after wrecking the bridge's wooden rails, the truck
fell on its right side into a creek where water was breast deep. Garces died due to drowning while
Necesito suffered injuries.

Two actions for damages and attorney's fees totalling over P85,000 were filed with the Tarlac CFI
against the carrier. The carrier pleaded that the accident was due to "engine or mechanical trouble"
independent or beyond the control of the defendants or of the driver Bandonell.

RTC’s RULING:

The trial court found that the bus was proceeding slowly due to the bad condition of the road and
that accident was due to the fracture of the truck’s right steering knuckle which could not be known
by the carrier. Thus, it dismissed the complaints holding that the accident was exclusively due to
fortuitous events.

ISSUE:

Whether or not the carrier is liable for the manufacturing defect of the steering knuckle, and
whether the evidence discloses that in regard thereto the carrier exercised the diligence required by
law.

SC’s RULING:

Yes. While the carrier is not an insurer of the safety of the passengers, a passenger is entitled to
recover damages from a carrier for an injury resulting from a defect in an appliance purchased from
a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it
had exercised the degree of care which under the circumstances was incumbent upon it, with regard
to inspection and application of the necessary tests. In this connection, the manufacturer of the
defective appliance is considered in law the agent of the carrier, and the good repute of the
manufacturer will not relieve the carrier from liability. The rationale of the carrier’s liability is the
fact that the passenger has no privity with the manufacturer of the defective equipment; hence, he
has no remedy against him, while the carrier usually has. Carrier’s liability rests upon negligence, his
failure to exercise the "utmost" degree of diligence that the law requires, and in case of a
passenger's death or injury the carrier bears the burden of satisfying the court that he has duly
discharged the duty of prudence required.
SOUTHEASTERN COLLEGE VS COURT OF APPEALS, 292 SCRA 422 (1998)

Facts:

After a typhoon a complaint of culpa aquiliana was filed against the School for the reason that one of
their buildings was considered a structural hazard and the reason of inhabitability of the nearby
houses .The complaint is rooted to the claim that the school has a defective roofing structure and
that they have been remiss on the maintenance of such building. The school (petitioner) averred
that subject school building had withstood several devastating typhoons and other calamities in the
past, without its roofing or any portion thereof giving way; that it has not been remiss in its
responsibility to see to it that said school building, which houses school children, faculty members,
and employees, is "in tip-top condition"; and furthermore, typhoon "Saling" was "an act of God and
therefore beyond human control" such that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.

Issue:

Whether or not the destruction of the nearby houses was caused by a fortuitous event.

Held:

It was held that petitioner has not been shown negligent or at fault regarding the construction and
maintenance of its school building in question and that typhoon "Saling" was the proximate cause of
the damage suffered by private respondents' house.
ANGEL WAREHOUSING VS CHELDA

FACTS: Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of alleged
unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the complaint,
plus attorney’s fees of P5,000.00. Alleging that postdated checks issued by defendants to pay said
account were dishonored, that defendants’ industrial partner, Chellaram I. Mohinani, had left the
country, and that defendants have removed or disposed of their property, or are about to do so,
with intent to defraud their creditors, preliminary attachment was also sought.

Answering, defendants averred that they obtained four loans from plaintiff in the total amount of
P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff
charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per month,
and, consequently, plaintiff has no cause of action against defendants and should not be permitted
to recover under the law. A counterclaim for P2,000.00 attorney’s fees was interposed.

Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or the
price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply with his promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule
of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against
each other. Said rule, however, appellants add, is modified as to the borrower, by express provision
of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the
interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he
cannot recover on the contract. So — they continue — the New Civil Code provisions must be
upheld as against the Usury Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: “Usurious contracts shall be governed by the
Usury Law and other special laws, so far as they are not inconsistent with this Code.” (Emphasis
ours.)

ISSUE: Whether or not the illegal terms as to payment of interest likewise renders a nullity the legal
terms as to payments of the principal debt.

HELD: Article 1420 of the New Civil Code provides in this regard: “In case of a divisible contract, if
the illegal terms can be separated from the legal ones, the latter may be enforced.”

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.
MANILA TRADING SUPPLY CO VS MEDINA

Facts:

Prior to May 7, 1956, Mariano Medina had certain accounts with Manila Trading & Supply Co. On
January 8, 1957, Manila Trading & Supply Co. filed a complaint against Medina in the Court of First
Instance of Manila, claiming that Medina had failed to meet the installments due on the note for the
months of September, 1956 up to and including January 7, 1957.

Medina averred that the genuine receipts dated January 1957 should raise the presumption that
prior installments were paid.

Issue:

Whether or not the Medina was correct in saying that genuine receipts dated January 1957 raise the
presumption that prior installments were paid.

Held:

No. Such receipts did not indicate that they were issued for the installments corresponding to the
month of January, 1957. And even if such recital had been made, the resulting presumption would
only be prima facie.
ESTATE OF HEMADY VS LUZON SURETY

Civil Law – Wills and Succession – Transmissible Obligations

FACTS:

Luzon Surety filed a claim against the estate of K.H. Hemady based on indemnity agreements
(counterbonds) subscribed by distinct principals and by the deceased K.H. Hemady as surety
(solidary guarantor). As a contingent claim, Luzon Surety prayed for the allowance of the value of the
indemnity agreements it had executed. The lower court dismissed the claim of Luzon Surety on the
ground that “whatever losses may occur after Hemady’s death, are not chargeable to his estate,
because upon his death he ceased to be a guarantor.”

ISSUES:

What obligations are transmissible upon the death of the decedent? Are contingent claims
chargeable against the estate?

HELD:

Under the present Civil Code (Article 1311), the rule is that “Contracts take effect only as 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.” While in our
successional system the responsibility of the heirs for the debts of their decedent cannot exceed the
value of the inheritance they receive from him, the principle remains intact that these heirs succeed
not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the New
Civil Code expressly so provide, thereby confirming Article 1311.

In Mojica v. Fernandez, the Supreme Court ruled — “Under the Civil Code the heirs, by virtue of the
rights of succession are subrogated to all the rights and obligations of the deceased (Article 661)
and cannot be regarded as third parties with respect to a contract to which the deceased was a
party, touching the estate of the deceased x x x which comes in to their hands by right of
inheritance; they take such property subject to all the obligations resting thereon in the hands of
him from whom they derive their rights.” The third exception to the transmissibility of obligations
under Article 1311 exists when they are ‘not transmissible by operation of law.’ The provision makes
reference to those cases where the law expresses that the rights or obligations are extinguished by
death, as is the case in legal support, parental authority, usufruct, contracts for a piece of work,
partnership and agency. By contrast, the articles of the Civil Code that regulate guaranty or
suretyship contain no provision that the guaranty is extinguished upon the death of the guarantor or
the surety.

The contracts of suretyship in favor of Luzon Surety Co. not being rendered intransmissible due to
the nature of the undertaking, nor by stipulations of the contracts themselves, nor by provision of
law, his eventual liability therefrom necessarily passed upon his death to his heirs. The contracts,
therefore, give rise to contingent claims provable against his estate. A contingent liability of a
deceased person is part and parcel of the mass of obligations that must be paid if and when the
contingent liability is converted into a real liability. Therefore, the settlement or final liquidation of
the estate must be deferred until such time as the bonded indebtedness is paid.
GALAR VS ISASI

FACTS:

Luis Galar borrowed Php 15,000 from Juan Isasi for which the former drew two promissory notes. As
a payment, Galar paid to PNB on behalf of Aberri Inc., which was controlled by Isasi and his wife, the
outstanding balance of Php 15,848.90. In turn, PNB cancelled the indebtedness of Aberri Inc.,
released the mortgage that had been constituted, and delivered the title to Galar.

Upon notifying Isasi of the payment made, Isasi refused to recognize the payment of Galar to PNB.
Hence the attorney of Galar advised Isasi that they would consign in the court the sum of Php
20,000, representing the face value of the promissory notes. They then filed a case in the court to
declare the promissory notes paid and discharged.

Isasi, on the other hand, tendered the sum of Php 15,848.90 paid by Galar to the PNB for the
account and in the name of Aberri Inc. Upon refusal by Galar, Isasi, on behalf of the company,
consigned the amount in the CFI of Manila and filed a complaint, praying that Galar be ordered to
restore to Aberri Inc. all documents relative to the obligation formerly due to the PNB and to
reimburse the amount paid by Galar to the bank be considered cancelled in view of the
consignation.

ISSUE:

1. Can Luis Galar legally pay the debt without awaiting the demand on the part of Isasi?

2. Should Galar’s payment of the debt of Aberri Inc. to the bank be set off against the notes?

RULING:

1. Yes. A demand note was subject neither to suspensive condition nor a suspensive period. The
demand was not a condition precedent since the effectivity and binding effect of the note does not
depend upon the making of the demand. The note was binding even before the demand is made.
Neither did the note constitute an implied suspensive period since there was nothing to prevent the
creditor for making demand at any time. It follows, therefore, that the demand note was strictly a
pure obligation as defined in Article 1179. The periods of 15 and 30 days after demand stipulated in
the promissory notes could have no other purpose but to protect the debtor by giving him sufficient
time to raise money to meet the demand. The period being solely for the debtor’s protection and
benefit, the debtor could renounce it validly at any time. Galar was lawfully entitled to make
payment even if no demand had yet been made by Isasi.

2. Yes. The payment of Galar of the indebtedness of Aberri Inc to the PNB redounded to the benefit
of Isasi who had absolute control of said corporation. Thus, said payment was valid and discharged
the obligation, even if such payment was not authorized by Isasi or Aberri Inc., for which Galar had
the right to demand reimbursement for the amount paid. However, such reimbursement was
unnecessary. Such reimbursement was extinguished by its total absorption in the larger amount due
from Galar to Isasi. The consignation, therefore, of Isasi was invalid since it no longer had any
obligation towards Galar. On the other hand, the balance of Php 4,151.10 due and owing from Galar
to Isasi was extinguished upon the consignation of Galar in the court the sum of Php 20,000.
REYES VS CALTEX

This action was brought in the Court of First Instance of Rizal to annul a contract of lease and to
recover P6,900 as rent. Judgment was for defendant.

The contract in question was executed on the 23rd day of December, 1940, whereby Toribio Reyes,
the plaintiff, leased to Caltex (Philippines) Inc., the now defendant, two parcels of land situated in
the barrio of Baclaran, municipality of Parañaque, Province of Rizal, for a period of 10 years
renewable for another 10 years at the option of the lessee, at the agreed monthly rental of P120
during the first 10 years and P150 a month for the subsequent period should the lease be extended,
said monthly rental to be paid in advance within the first 10 days of each month. The contract
further provides in paragraph 6 that, "Should the structures on said premises be destroyed by fire or
storm, or should lessee, for any reason, be prevented from establishing or continuing the business of
distributing petroleum products on said premises, or should said business, for any reason, in lessee’s
judgment, become unduly burdensome, lessee may terminate this lease upon 30 days’ written
notice, in which event the rental shall be prorated to the date of such termination."

Upon the entry of Japanese troops, in December, 1941, these seized the premises and used them
throughout the period of occupation as a sentry post. The officers of the lessee corporation, being
American citizens, were interned by the invaders and the said company was closed throughout that
period. After liberation the lessee again took over the premises but tendered payment for rent from
February, 1945, only; it had not paid rent from January, 1942.

This nonpayment is the basis of the present suit.

The trial court applied article 1554 and article 1575 of the Civil Code which read:

"ART. 1554. The lessor is obligated:

"1. To deliver to the lessee the thing which is the object of the contract.

"2. To make thereon, during the lease, all the necessary repairs in order to preserve it in serviceable
condition for the purpose for which it was intended.

"3. To maintain the lessee in the peaceful enjoyment of the lease during all the time of the contract.

"ART. 1575. The lessee shall have no right to a reduction of the rent on account of the sterility of the
land leased or on account of the loss of the fruits through ordinary fortuitous events; but he shall
have said right in case of loss of more than one-half of the fruits through extraordinary and
unforeseen fortuitous events, saving always a special agreement to the contrary.

"By extraordinary fortuitous events shall be understood fire, war, pestilence, extraordinary floods,
locusts, earthquakes, or any other equally unusual events, which the contracting parties could not
have reasonably foreseen."cralaw virtua1aw library

Article 1575, it will be noted, deals with leases of agricultural land. The property in question is not
devoted to agricultural uses, but was leased for the express purpose of being used, as it was and is
now being used, as gasoline stations. Moreover, there is no evidence that the lessee suffered a loss
of more than one-half of the fruits thereof. Other requisites of the article are lacking. It is plain
article 1575 has no bearing.

The applicable provision is article 1560 in relation to article 1554. Article 1560 provides:
"ART. 1560. The lessor shall not be obliged to answer for the mere fact of a trespass made by a third
person in the use of the thing leased, but the lessee shall have a direct action against the trespasser.

"The fact of trespass does not exist if the third person, whether he be an agent of the Government
or a private individual, has acted by virtue of a right belonging to him."

Manresa (10 Codigo Civil Español, 4.a Edicion) elucidates on the meaning of the term "mere fact of a
trespass" (perturbacion de mero hecho) as distinguished from legal trespass (perturbacion de
derecho) and treats of its legal effects, citing other noted writers. The comment so fits into the
various phases of the present case and is so nearly wholly determinative thereof as to be worth
quoting at length

The trespass in our case was in no way imputable to the lessor or to any defect in the title to the
property. At best, it was a fortuitous circumstance; regardless of any other considerations it was a
fact that there was no gasoline or any other oil products to sell or distribute; at the worst, the
occupancy of the premises by the Japanese was motivated by the nationality of the lessee. In neither
case was the lessor to blame, and the lessee cannot evade payment of the rent. From whatever
angle we look at the case we cannot avoid the conclusion that the stoppage of the defendant’s
business was a "perturbacion de mero hecho." It sprang from an impossibility in fact, not one
inherent in the nature of the thing to be performed. It is not true, as alleged, that the lessor refused
or neglected to give defendant possession of the property. He did not in any way interfere with the
lessee’s possession, which it was enjoying when war broke out. He did not reoccupy the premises
nor did he give them to the Japanese. Under the circumstances, as between the lessor and the
lessee the latter must shoulder the loss resulting from the Japanese seizure. Lessee’s remedy is
against the Japanese.

As Goyena says, according to Manresa, supra, "en ningun contrato hay responsabilidad por los casos
fortuitos, y tal debe reputarse la turbacion de mero hecho, como si se introducen rebaños ajenos en
el prado que tengo en arriendo, o se me arrebatan de noche los frutos, o se me expele
violentamente de la casa que ocupo." Manresa disagrees with Goyena’s opinion, "que mientras el
ataque no se dirija contra la propiedad misma de la cosa y judicialmente, el arrendatario es el solo
atacado y a el solo toca defenderse." Manresa contends, correctly, we think, that the attack need
not be made through judicial proceedings to produce the effect of relieving the obligor of the
assumed obligation. But the disturbance in the case at bar did not grow out of any assertion or
pretense of paramount title or of any right antagonistic to that of the lessor. Goyena’s opinion which
Manresa criticizes does not therefore concern us. On the other hand, this opinion goes to show that
there are reputable authorities in civil law who would go further than Manresa and others in
restricting the lessor’s liability for trespasses on the leased property.

Looking for precedents of our own we find that this Court, speaking through Mr. Chief Justice
Arellano in Goldstein v. Roces, 34 Phil., 562, has laid down this rule: "Si el hecho perturbador no va
acompañado ni precedido de nada que revele una intencion propiamente juridica en el que lo
realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho material desnudo de toda
forma o motivacion de derecho, entendemos que se trata de una perturbacion de mero
hecho."cralaw virtua1aw library

English and American decisions sustain the plaintiff’s theory in respect of the obligation of the lessee
to pay rent in cases analogous to this. As these cases are grounded, we believe, on the same
principle which underlies the provisions of the Civil Code on the subject of lease, we will briefly refer
to them.
In Paradin v. Jane, Alyn, 26, an English case, the lessee defended the action on a covenant to pay
rent on the ground that, during the civil wars of England, prince Rupert, an alien born, with a hostile
army, had driven him out of the premises. The court overruled the plea.

In Pollard v. Shaefer, 1 Dall. (Pa.) , 210, the lessee defended against an action for rent, upon the
ground that he was deprived of the use of the premises by an alien enemy, namely the British, but
the court followed the principle announced in Paradin v. Jane, supra, and held the lessee liable for
the entire rent. The principle upon which the court based its decision was (1) that the covenant to
pay the entire rent was express; and (2) that since, by the lease, the lessee was to have the
advantage of casual profits of the leased premises, he should run the hazard of casual losses during
the term and not lay the whole burden of them upon the lessor.

See also the more recent cases of Hasley v. Lowenhill (1916), 2 K. B. (Eng.) , 707; London and
Northern Estates Co. v. Schlessinger (1916), 1 K. B., 20.

The general rule on performance of contracts is graphically set forth in American treatises, which is
also the rule, in our opinion, obtaining under the Civil Code.

Where a person by his contract charges himself with an obligation possible to be performed, he
must perform it, unless its performance is rendered impossible by the act of God, by the law, or by
the other party, it being the rule that in case the party desires to be excused from performance in
the event of contingencies arising, it is his duty to provide therefor in his contract. Hence,
performance is not excused by subsequent inability to perform, by unforeseen difficulties, by
unusual or unexpected expenses, by danger, by inevitable accident, by the breaking of machinery, by
strikes, by sickness, by failure of a party to avail himself of the benefits to be had under the contract,
by weather conditions by financial stringency, or by stagnation of business. Neither is performance
excused by the fact that the contract turns out to be hard and improvident, unprofitable or
impracticable, ill advised, or even foolish, or less profitable, or unexpectedly burdensome." (17 C. J.
S., 946-948.)

In the absence of a statute to the contrary, conditions arising from a state of war in which the
country is engaged, will not ordinarily constitute an excuse for non-performance of contract; and
impossibility of performance arising from the acts of the legislature and the executive branch of
government in war time does not, without more, constitute an excuse for nonperformance. (17 C. J.
S., 953, 954.)

A few words are in order to straighten out the apparent confusion that exists regarding the influence
of fortuitous events in contracts; when they excuse performance and when not.

In considering the effect of impossibility of performance on the rights of the parties, it is necessary
to keep in mind the distinction between: (1) Natural impossibility, preventing performance from the
nature of the thing; and (2) impossibility in fact, in the absence of inherent impossibility in the
nature of the thing stipulated to be performed. (17 C. J. S., 951.) In the words of one court,
impossibility must consist in the nature of thing to be done and not in the inability of the party to do
it. (City of Montpelier v. National Surety Co., 122 A. 484; 97 Vt., III. 33 A. L. R., 489.) As others have
put it, to bring the case within the rule of impossibility, it must appear that the thing to be done
cannot by any means be accomplished, for if it is only improbable or out of the power of the obligor,
it is not in law deemed impossible. (17 C. J. S., 442.) The first class of impossibility goes to the
consideration and renders the contract void. The second, which is the class of impossibility that we
have to do here, does not. (17 C. J. S., 951, 952.)
For the illustration, where the entire product of a manufacturer was taken by the government under
orders pursuant to a commandeering statute during the World War, it was held that such action
excused nonperformance of a contract to supply civilian trade. (40 S. Ct., 5; 253 U. S., 498; 64 Law.
ed., 1031.) Another example: where a party obligates himself to deliver certain things and the things
perish through war or in a shipwreck, performance is excused, the destruction operating as a
rescission or dissolution of the covenant. But if the promisor is unable to deliver the goods promised
and his inability arises, not from their destruction but from, say, his inability to raise money to buy
them due to sickness, typhoon, or the like, his liability is not discharged. In the first case, the doing of
the thing which the obligor finds impossible is the foundation of the undertaking. (C. J. S., 951, note.)
In the second, the impossibility partakes of the nature of the risk which the promisor took within the
limits of his undertaking of being able to perform. (C. J. S. supra, 946, note,) It is a contingency which
he could have taken due precaution to guard against in the contract.

Summoning the above principles to our aid, and by way of hypothesis, the defendant-appellee here
would be relieved from the obligation to pay rent if the subject matter of the lease, were this
possible, had disappeared, for the personal occupation of the premises is the foundation of the
contract, the consideration that induced it (lessee) to enter into the agreement. But a mere trespass
with which the landlord had nothing to do is a casual disturbance not going to the essence of the
undertaking. It is a collateral incident which might have been provided for by a proper stipulation.

There is one factor in this case which immeasurably strengthens the position of the lessor. It is the
fact that the long-term contract gives the lessee the right to terminate the lease at any time. The
lessee could have put an end to the contract if it believed that the same was proving unprofitable or
burdensome; but far from rescinding the lease it resumed business on the same premises and will, in
all probability, continue to do so for the rest of the 20 years. The mere recital of this situation
reveals the unfairness of the lessee’s stand. It wants to hold on to the contract for the rest of its long
life, paying rent that was fixed on pre-war standards, but would not assume the casual loss
occasioned by a temporary paralyzation of its business.

We do not agree however with plaintiff that the nonpayment of rent worked to rescind the contract.
The failure of the defendant to pay rent during the war was due to impossibility inherent in the
nature of the thing to be performed. In this aspect of the contract the payment was the very thing
promised by the lessee, the very foundation, the sole consideration of the contract for the lessor,
and the lessee’s failure to make good the promise was due to causes over which it had no control
and for which it was in no manner at fault. The war led to its officers’ incarceration or internment
and prevented them from receiving cash from their principal or from working to earn money. There
is no difference in the animating principle involved between this case and that of a promisor who is
unable to fulfill a promise to sell a house because the house was burned down.

It will perhaps be contended that after liberation the defendant was in a position to pay the rent in
arrears and yet did not do so. This failure, in our opinion, should not operate as a forfeiture of the
right of the lessee under the contract. Its refusal was not due to any notion of bad faith, but to an
honest belief that it was not under obligation to pay. This claim for exemption can not be dubbed
frivolous in the face of the fact that the lower court sustained it and of the vehemence with which
the proposition is urged by counsel upon us.

The judgment of the lower court is reversed as to the obligation of the defendant to pay rent from
December, 1941. to the date preceding the first payment after January, 1945. The decision is
affirmed regarding the prayer to rescind the contract. There will be no special pronouncement as to
costs in either instance.
CHENG VS GENATO

Facts:

Genato is the owner of two parcels of land. He entered into an agreement with the Da Jose Spouses
over said land. The agreement culminated in the execution of a contract to sell in a public instrument
and contained the stipulation that: “after 30 days, after having satisfactorily verified and confirmed the
truth and authenticity of documents… vendee shall pay the vendor the full payment of the purchase
price.” The Da Jose Spouses asked for an extension of 30 days. Pending effectivity of said extension
period, and without due notice to Spouses Da Jose, Genato executed an affidavit to annul the
Contract to Sell. This was not annotated at the back of his titles.

Cheng expressed interest in buying the properties. Genato showed Cheng the copies of his titles and
the annotations at the back thereof of his contract to sell with the Da Jose Spouses, and the affidavit
to annul contract to sell. Cheng issued a check for P50,000 upon the assurance that the previous
contract will be annulled.

Genato later continued with the contract for Da Jose spouses, and informed Cheng of his decision
and returned to the latter, the downpayment paid. Cheng however contended that their contract to sell
said property had already been perfected.

Lower Court – There was a sale between Cheng and Genato, and there was a valid rescission of the
Contract to Sell (between Genato and Spouses Da Jose)

CA – Reversed the lower court declaring that the Contract to Sell in favor of Spouses Da Jose was
not validly rescinded.

Issue:
Who has the better right to the land?

Held:
The Spouses Da Jose. The contention of the Da Jose spouses that no further condition was agreed
when they were granted the 30-day extension period from October 7, 1989 in connection with clause
3 of their contract to sell should be upheld. Also, Genato could have sent at least a notice of such fact,
and there being no stipulation authorizing him for automatic rescission, so as to finally clear the
encumbrance on his titles and make it available to other would be buyers, it bolstered that there was
no default on the part of the Da Jose Spouses. Genato is not relieved from the giving of a notice,
verbal or written, to the Da Jose spouses for his decision to rescind their contract.

The Court ruled that if it was assumed that the receipt is to be treated as a conditional contract of
sale, it did not acquire any obligatory force since it was subject to suspensive condition that the earlier
contract to sell between Genato and the Da Jose spouses should first be cancelled or rescinded — a
condition never met.

Note: "Registration", as defined by Soler and Castillo, means any entry made in the books of the
registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and
even marginal notes. In its strict acceptation, it is the entry made in the registry which records
solemnly and permanently the right of ownership and other real rights.

Spouses Da Jose made annotation on the title of Genato. Since Cheng was fully aware, or could have
been if he had chosen to inquire, of the rights of the Da Jose spouses under the Contract to Sell duly
annotated on the transfer certificates of titles of Genato, Cheng was in bad faith when he registered
his claim.
LIM VS CA

Private respondent Liberty Luna is the owner of a piece of land located at the corner of G. Araneta
Avenue and Quezon Avenue in Quezon City. The land, consisting of 1,013.6 square meters, is
covered by TCT No. 193230 of Registry of Deeds of Quezon City. On September 2, 1988 private
respondent sold the land to petitioners Vicente and Michael Lim for P3,547,600.00. As prepared by
petitioners broker, Atty. Rustico Zapata of the Zapata Realty Company, the receipt embodying the
agreement read as follows:

RECEIPT

RECEIVED from ZAPATA REALTY CO. INC., through Mr. Edmundo Kaimo of 101 Kaimo Building,
Metrobank Cashiers Check No. 020583, Dasmarias branch, in the sum of TWO HUNDRED THOUSAND
(P200,000.00) PESOS, as earnest money for the purchase of a parcel of land at the corner of G.
Araneta Avenue and Quezon Avenue, Quezon City, with an area of 1,013.6 sq. m. covered by TCT
193230, Registry of Deeds for Quezon City, at the price of P3,547,600.00, subject to the following
conditions:

1. This sum of P200,000.00 shall form part of the purchase price;

2. The balance of P3,347,600.00 shall be paid in full after the squatters/occupants have totally
vacated the premises;

3. The seller assumes full responsibility to eject the squatters/occupants within a period of sixty (60)
days from the date of receipt of the earnest money; and in case the seller shall fail in her
commitment to eject the squatters/occupants within said period, the seller shall refund to the buyer
this sum of P200,000.00 [plus another sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as
liquidated damages]; however, if the buyer shall fail to pay the balance after the seller has ejected
the squatters/occupants, this sum of P200,000.00 shall be forfeited by the seller;

4. Capital gains tax, documentary stamps tax and brokers commission shall be for sellers account
while transfer and registration fees shall be for buyers account.

5. That Zapata Realty Co. Inc. and Edmundo F. Kaimo are the exclusive brokers of the buyers Vicente
& Michael Lim.

6. Buyer assumes responsibility of the premises immediately upon eviction of the squatters.

However, when private respondent signed the receipt, she crossed out the bracketed portion in
paragraph 3 providing for the payment by private respondent of the amount of P100,000.00 as
liquidated damages in the event she failed to eject the squatters sixty (60) days after the signing of
the agreement. Thereafter, a check for P200,000.00 was given to private respondent as earnest
money, leaving a balance of P3,347,600.00 to be paid in full after the squatters are ejected.

Private respondent Luna failed to eject the squatters from the land despite her alleged efforts to do
so. It appears that private respondent asked the help of a building official and a city engineers to
effect ejectment. Nonetheless, petitioners did not demand the return of their earnest money.

On January 17, 1989, the parties met at the office of Edmundo Kaimo to negotiate a price increase to
facilitate the ejectment of the squatters. The parties agreed to an increase of P500.00 per square
meter, by rounding off the total purchase price to P4,000,000.00, with the remaining 13.6 square
meters of the 1.013.6 square meters given as a discount. Less the P200,000.00 given as earnest
money, the balance to be paid by petitioners was P3,800,000.00.

After a few days, private respondent tried to return the earnest money alleging her failure to eject
the squatters. She claimed that as a result of her failure to remove the squatters from the land, the
contract of sale ceased to exist and she no longer had the obligation to sell and deliver her property
to petitioners. As petitioners had refused to accept the refund of the earnest money, private
respondent wrote them on February 22, 1989 that the amount would be deposited in court by
consignation. On March 10, 1989, private respondent filed a complaint for consignation against
petitioners.

Private respondent alleged that it was her obligation to return the earnest money under paragraph 3
of the receipt since the condition of ejecting the squatters had not been fulfilled but petitioners
unjustly refused to accept the refund. She claimed that although she tried her best to eject the
squatters, she failed in her efforts.

Petitioners, on the other hand, argued in their answer that the legal requisites for a valid
consignation were not present and, therefore the consignation was improper. They claimed that
private respondent never really intended to eject the squatters, as evidence by the absence of a case
for ejectment. Petitioners charged that private respondent has used her own failure as an excuse to
get out of her contract.

Private respondent testified that she had wanted to return the earnest money after realizing that
she could not successfully eject the squatters but that she was not able to do so because petitioners
broker, Zapata Realty Company, refused to give her petitioners address.[3] In her cross examination,
she claimed that the primary reason for the January 17, 1989 meeting was for her to return the
money and to withdraw from the sale and that the idea of increasing the price came from
petitioners to convince her to continue with the sale.[4] She later admitted, however, that the price
increase and decision to proceed with the sale were mutually agreed upon by her and petitioner
Vicente Lim. Her admission was confirmed by her broker, Edmundo Kaimo, who testified that the
purpose of the meeting was to discuss ways of carrying out the sale, considering that private
respondent was having difficulty ejecting the squatters and that what he private respondent
proposed to petitioners was to increase the purchase price to facilitate the ejectment.

Testifying in their turn, petitioner Vicente Lim denied that the January 17, 1989 meeting was held at
their instance. He said that he was reluctant to agree to the price increase but was prevailed upon to
do so by his broker, Zapata Realty Company, and by Edmundo Kaimo. This testimony was
corroborated by Atty. Rustico Zapata and Francisco Zapata of the Zapata Realty Company.

On December 28, 1992 the trial court rendered a decision holding that there was a perfected
contract of sale between the parties and that pursuant to Art. 1545 of the Civil Code, although the
failure of private respondent to eject the squatters was a breach of warranty, the performance of
warranty could be waived by the buyer, as petitioners did in this case. It found private respondent to
have acted in bad faith by not exerting earnest efforts to eject the squatters, in order to get out of
the contract. The dispositive portion of its decision reads:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in
favor of the defendants and against plaintiff:

1. The complaint is dismissed.

2. Perforce, plaintiff is ordered to comply with the Receipt Agreement dated September 02, 1988
regarding the sale to the defendants of the property covered by Transfer Certificate of Title No. T-
193230 of the Registry of Deeds of Quezon City, upon payment by the defendants of the balance of
P3,800,000.00.

3. Plaintiff is ordered to pay the defendants the sum of P500,000.00 as moral damages.

4. Plaintiff to pay defendants the sum of P50,000.00 by way of attorneys fees.

5. Plaintiff to pay the cost.

SO ORDERED.

The private respondent appealed to the Court of Appeals, which reversed the trial court and allowed
the complaint for consignation. It held that as a result of the nun-fulfillment of the condition of
ejecting the squatters, petitioners lost the right to demand from the private respondent the sale of
the land to them. The appellate court described the sale in this case as a contract with a conditional
obligation whereby the private respondents obligation to sell and deliver and the petitioners
obligation to pay the balance of the purchase price depended on the fulfillment of the condition that
the squatters be removed within 60 days.

The Court of Appeals held:

Under such conditions, upon the ejectment of the squatters plaintiff would acquire the right to
demand that defendants proceed with the sale and pay the balance of the purchase price; and, on
the other hand, should the event not happen, defendants would lose the right they had acquired by
giving the earnest money to plaintiff to demand that the latter sell said land to them.

It also ruled that consignation was proper as the obligation to refund earnest money was a clear
debt and that contrary to the finding of the trial court, the facts show that private respondent
exerted earnest efforts to eject the squatters and was, therefore, not in bad faith.

The petitioners filed this petition for review on the following grounds.

I. THE RULING OF THE COURT OF APPEALS THAT THE NON-FULFILLMENT OF THE CONDITION OF
EJECTING THE SQUATTERS RESULTED IN DEFENDANTS LOSING THE RIGHT (ACQUIRED BY VIRTUE OF
THE EARNEST MONEY) TO DEMAND THAT PLAINTIFF SELL THE LAND TO THEM IS PATENTLY AGAINST
THE SPECIFIC LAW ON SALES, AND IS A DISTORTED AND CLEARLY ERRONEOUS APPLICATION OF THE
GENERAL PROVISIONS OF THE LAW ON OBLIGATIONS AND CONTRACTS.

II. THE RULING OF THE COURT OF APPEALS IS A DISTORTION OF THE CONTRACT BETWEEN THE
PARTIES, WAY OF JUSTICE ITSELF BECAUSE IT REWARDS RATHER THAN SANCTIONS THE NON-
PERFORMANCE OF A CONTRACTED OBLIGATION.

III. THE QUESTION OF WHETHER OR NOT RESPONDENT LUNA EXERTED EARNEST EFFORTS TO EJECT
THE SQUATTERS DOES NOT PERTAIN TO THE ISSUE OF THE PROPRIETY OF CONSIGNATION BUT
REFERS TO THE MATTER OF WHETHER OR NOT RESPONDENT LUNA WAS IN BAD FAITH AND IS
THEREFORE LIABLE FOR DAMAGES INFLICTED UPON THE PETITIONERS; AND THE RULING THAT SUCH
EARNEST EFFORTS WAS PRESENT IS CONTRARY TO UNCONTRADICTED EVIDENCE.

The petition is well taken. The first question is whether as a result of private respondents failure to
eject the squatters from the land, petitioners, as the Court of Appeals ruled, lost the right to demand
that the land be sold to them. We hold that they did not and that the appellate court erred in
holding otherwise. The agreement, as quoted, shows a perfected contract of sale. Under Art. 1475 of
the Civil Code, there is a perfected contract of sale if there is a meeting of the minds on the subject
and the price. A sale is a consensual contract requiring only the consent of the parties on these two
points. In this case, the parties agreed on the subject, the 1,013.6 square meter lot and on the
purchase price of P4,000,000.00. No particular form is required for the validity of their contract and,
therefore, upon its perfection. The parties can reciprocally demand performance of their respective
obligations.

Indeed, the earnest money given is proof of the perfection of the contract. As Art. 1482 of the Civil
Code states, Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract. This perfected contract imposed reciprocal
obligations on the parties. Petitioners obligation was to pay the balance of the price, while private
respondents obligation was to deliver the property to petitioners upon payment of the price. It is
true that private respondent undertook to eject the squatters before the delivery of the property
within a certain period and that for her failure to carry out her obligation she could be ordered to
refund the P200,000.00 earnest money. But whether she would be obliged to do so depends on
petitioners who can waive the condition and opt to proceed with the sale instead.

Private respondent Luna contends that as the condition of ejecting the squatters was not met, she
no longer has an obligation to proceed with the sale of her lot. This contention is erroneous. Private
respondent fails to distinguish between a condition imposed on the perfection of the contract and a
condition imposed on the performance of an obligation. Failure to comply with the first condition
results in the failure of a contract, while failure to comply with the second condition only gives the
other party the option either to refuse to proceed with the sale or to waive the condition. Thus, Art.
1545 of the Civil Code states:

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. If the other party has promised that the condition should happen or
be performed, such first mentioned party may also treat the nonperformance of the condition as a
breach of warranty.

Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller
of his obligation to deliver the same as described and as warranted expressly or by implication in the
contract of sale as a condition of the obligation of the buyer to perform his promise to accept and
pay for the thing. (Emphasis added)

In this case, there is already a perfected contract. The condition was imposed only on the
performance of the obligation. Hence, petitioners have the right to choose whether to demand the
return of P200,000.00 which they have paid as earnest money or to proceed with the sale. They
have chosen to proceed with the sale and private respondent cannot refuse to do so.

Indeed, private respondent is not the injured party. She cannot rescind the contract without
violating the principle of mutuality of contracts, which prohibits allowing the validity and
performance of contracts to be left to the will of one of the parties. Thus in a case on all fours with
this case, this Court held:

Under the agreement, private respondent is obligated to evict the squatters on the property. The
ejectment of the squatters is a condition the operative act of which sets into motion the period of
compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private
respondents failure to remove the squatters from the property within the stipulated period gives
petitioner the right to either refuse to proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to
private respondent.

In any case, private respondents action for rescission is not warranted. She is not the injured party.
The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party that violates the reciprocity between them. It is private
respondent who has failed in her obligation under the contract.

The second question is whether private respondent is liable for damages to petitioners. The trial
court correctly found private respondent guilty of breach of contract and awarding moral damages
and attorneys fees to petitioners. The court held:

The failure of the plaintiff (Luna) to eject the squatters which is her full responsibility and
commitment" under the contract of sale, aggravated by her persistence in evading the obligation to
deliver the property on the basis of her very own failure, the persistence culminating in the instant
case for consignation, show not just a breach of contract but a breach in bad faith. . . .

The Court finds that the defendant may be awarded moral damages in the amount they prayed for,
which is P500,000.00 considering that it was the same amount which the parties have determined as
the cost of the removal of the squatters. The clear absence of merit of plaintiffs position, which at
[the] bottom is an attempt to profit from ones own breach, compels this court to award attorneys
fees, defendants having been unnecessary dragged into a litigation.

Indeed, the evidence shows that private respondent made little more than token effort to seek the
ejectment of squatters from the land, revealing her real intention to be finding a way of getting out
of her contract. Her failure to eject the squatters despite sufficient time and funds given to her by
petitioners, her offer to return the earnest money only a month after their meeting on January 17,
1989 in which she agreed to proceed with the sale in consideration of which the purchase price was
increased by almost P500,000.00 and her consignation of the earnest money despite petitioners
insistence that the sale should go on even if she had failed to eject the squatters all these betray
private respondents failure to comply with her obligation. Private respondents lack of intention to
really comply with her obligation under the contract is underscored by her failure to seek the
assistance of courts in ejecting the squatters. It might be granted that, at first, she thought going to
the city engineers office was the expedient way of ejecting the squatters. However, having seen the
futility of such recourse and having been given money, private respondent had no excuse for filing
the action below. Her failure to make use of her resources and her insistence on rescinding the sale
shows quite clearly that she was indeed just looking for away to get out of her contractual obligation
by pointing to her own abject failure to rid the land of squatters.

The Court of Appeals erred in holding that private respondent had made earnest efforts in
discharging her obligation, relying for this purpose on the testimony of Domingo Tapay, Building
Official of Quezon City. Edgardo C. Julian, Civil Engineer in charge of demolition in the Office of the
Building Official of Quezon City, testified that though a request for demolition had been made by
private respondent Luna, no demolition actually took place and that the attempt to do so was made
only sometime in mid-1989.[15] This confirms the letter dated April 24, 1989 of the City Engineers
Office of Quezon City to petitioner that as of that date there was no record in that office of any
request for the ejectment of squatters from the land.[16]

The trial court awarded P500,000.00 to petitioners as moral damages for suffering, delay and
inconvenience they experienced as a result of private respondents failure in bad faith to proceed
under the contract. This amount corresponds to the price increase agreed to be paid to private
respondent to facilitate the ejectment of the squatters.

The award of moral damages is in accordance with Art. 2220 of the Civil Code which provides that
moral damages may be awarded in case of a breach of contract where the defendant acted
fraudulently or in bad faith. However, the amount awarded is in our opinion excessive. To be sure
the amount to be awarded depends upon the discretion of the court based on the circumstances of
each case but, having regard for the purposes for awarding such damages, we think that fixing the
amount equivalent to the increase given to private respondent would be contrary to the rule that
moral damages are not intended to enrich the complainant at the expense of the defendant[17] or
to penalize the defendant. Under the circumstance an award of P100,000.00 would be fair and
reasonable.

This Court also agrees with the award of attorneys fees by the trial court. As found by the trial court,
there was clear absence of merit in private respondents position thus unnecessarily forcing
petitioners to litigate. Under Art. 2208(4)(5) of the Civil Code, attorneys fees may be recovered when
the civil action or proceeding against the plaintiff is clearly unfounded and where defendant acted in
gross and evident bad faith in refusing to satisfy the plaintiffs claim.
LAO LIM VS CA

This case is with regard to Art 1182 of the NCC- Potestative Condition- Stipulation dependent upon
the sole will of the debtor

FACTS OF THE CASE:

Records show that Francisco Lim, entered into a contract of lease with Benito Dy for a period of 3
years, from 1976 to 1979. After the stipulated term expired the respondent refused to leave the
premises, so Francisco Lim filed an ejectment suit against Benito Dy. This case was then taken over
by a judicially approved compromise agreement which provides an automatic increase in rent of
20% every 3 years. On 1985 Dy, informed Lim of his intention to renew the lease up to 1988, Lim did
not agree to the renewal.

In 1987 another ejectment suit was filed by Lim after the failure of Dy to vacate the premises. It was
dismissed by the RTC and later affirmed by the CA for the following reasons: (1) the stipulation in the
compromise agreement which allows the lessee (Benito Dy) to stay on the premises as long as he
needs it and can pay rents is valid, being a resolutory condition, and therefore beyond the ambit of
art 1308 of the NCC; and (2) the compromise agreement has the effect of res judicata.

ISSUES OF THE CASE:

Was the stipulation in the compromise agreement which allows the lessee to stay on the premises
as long as he needs it and can pay rents is valid?

- No, since the stipulation “for as long as the defendant needed the premises and can meet and pay
said increases” is a purely potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee.

- The continuance, effectivity, and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing payment of the
rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in
such a contract of lease and no equality exists between the lessor and the lessee.

HELD:

The decision of the Court of Appeals is REVERSED AND SET ASIDE. Benito Dy is ordered to
immediately vacate and return the possession of the premises and pay the monthly rentals due
thereon in accordance with the compromise agreement until he shall have actually vacated the
same. This Judgment is immediately executory.

Obligations and Contracts Terms:

• Potestative Condition- This can be found in Art 1182 of the NCC. A potestative condition speaks of
fulfillment of an obligation rests solely upon the will of the debtor. An obligation which is subject to
a suspensive potestative condition is non- demandable, hence it is void. If it is the debtor himself
who determines the fulfillment of the condition, such an agreement produces no juridical effect that
can be enforced, and thus null
HEIRS OF ANTONIO BERNABE VS CA

FACTS:

A COMPLAINT FOR SPECIFIC PERFORMANCE WAS FILED BY TITAN CONSTRUCTION CORPORATION

(TITAN) ON SEPTEMBER 11 1990 BEFORE THE RTC AND AGAINST petitioners’ predecessor-in-interest,
Antonio F. Bernabe, and his siblings Patricio, Jose and Cecilia (the defendants), who are co-owners of
an undivided one-half (½) share in two (2) parcels of land located in La Huerta, Parañaque, Metro
Manila. In an undated Deed of Sale of Real Estate entered into by Titan and the defendants, the
latter sold their one-half (½) share in the properties to Titan for P17,700,00.00 and payment is
supposed to be made by ONE MILLION (P1,000,000.00) PESOS upon the signing by the VENDORS for
this DEED OF SALE. BALANCE SHALL BE PAID WITHIN 60 DAYS AFTER ACQUIITION BY THE VENDEE OF
A RIGHT OF WAY FROM THE Municipal Government of Parañaque, Metro Manila, and upon the
presentation by the VENDORS of an agreement with the ERIBERTA DEVELOPMENT CORPORATION
that the latter has agreed that VENDOR’S share is the northern half and had waived the right of First
Refusal as provided for in the DEED OF PARTITION OF REAL ESTATE. FURTHERMORE, A violation by
the VENDORS of the provision of this paragraph shall be a ground for cancellation of this Deed title

DEFENDANTS WERE NOT ABLE TO COMPLY WITH THEIR OBLIGATIONS AND TITAN PRAYED
JUDGEMENT OREDRING THEM TO DO SO SINCE TITAN HAS ALREADY paid a substantial portion of
the down payment. Titan then received a letter from the defendants’ counsel, Atty. Samuel A.
Arcamo, (Atty. Arcamo) cancelling and revoking the deed of sale allegedly in view of Titan’s failure to
comply with the terms of the deed. Insisting that it was the defendants who had incurred in default,
Titan also sought the award of damages.

On 26 December 1991, while the case was pending, Jose died without leaving any heir except his co-
defendants.

By virtue of the compromise agreement entered by both parties, similar Deeds of Conditional Sale
dated 3 March 1994 were separately entered into by respondent Titan as vendee, and defendants
Patricio, Cecilia, and Antonio, who is represented by his attorneys-in-fact, as vendors of their
undivided shares in the two properties.

Though Antonio denied entering into a compromise agreement, it was later found out that it was his
children who did so by virtue of a Special Power of Attorney (SPA) that Antonio himself had
executed.

Later, on 16 August 1994, defendant Antonio died and left herein petitioners — his surviving spouse
Evelyn Cruz and her children, Jose III, Shirley Ann, Gregory and Michael — as his heirs.

Titan subsequently filed a supplemental complaint. Petitioners denied on their Answer that a
consummated sale was made between Titan and the original defendants since only an unconcluded
negotiation is reflected in the Deed of Sale of Real Estate and that the fact that the negotiations did
not push through is shown by the absence of the signatures of defendants Patricio and Cecilia.
Petitioners also questioned the genuineness of the Deed of Conditional Sale, pointing out that it had
been signed only later by Titan’s representative. They argued that, hence, the Deed of Conditional
Sale is null and void and if found otherwise, should be cancelled and rescinded for failure of Titan to
comply with its undertaking.
The RTC ordered the heirs of Antonio to execute a registrable Deed of Absolute Sale over the one-
third (1/3) share of Antonio in the property covered by TCT No. 86793 of the Register of Deeds of
Parañaque, pursuant to the Deed of Conditional Sale, upon Titan’s payment to them of the amount
of P3,431,058.42 representing the balance of the purchase price.

Petitioners appealed the RTC decision to the Court of Appeals. The appeal was dismissed in the
Decision dated 22 January 2002, and the RTC decision was affirmed in toto. Petitioners’ motion for
reconsideration was denied in the Resolution dated 16 July 2002.

ISSUES:

(1) Under a deed of conditional sale of a parcel of land, may the vendee compel the vendors to
execute a registerable deed of sale based on the allegation that it had paid a substantial portion of
the P1 million down payment of the total consideration of P17,700,000.00, where it was expressly
stipulated that the vendors would execute the necessary deed of absolute sale in favor of the
vendee only upon full payment?

(2) May the vendors in a deed of conditional sale ask for rescission of contract for failure of the
vendee to pay in full the agreed consideration?

RULING:

1. Yes. The vendee may compel the vendors to execute a registerable deed of sale based on
payment of substantial portion as down payment. When the parties entered into a compromise,
they executed new contracts involving the shares of Patricio, Cecilia and Antonio in the properties.
These new contracts are the three deeds of conditional sale entered into by Titan with Patricio,
Cecilia and Antonio, the last represented by his attorneys-in-fact. These contracts, all entitled Deed
of Conditional Sale, are contracts to sell.

Titan has a cause of action since it has already partially performed the contract by making down and
other payments on the purchase price, as well as effecting and spending for the segregation and
titling of the shares of petitioners and their co-owners in the properties.

2. No. The vendors cannot seek for rescission on the contract for failure of the vendee to pay in
full the agreed consideration. The demand for rescission based on the contention that Titan failed to
pay the remainder of the purchase price is based on Article 1191 of the New Civil Code. This article
refers to rescission applicable to reciprocal obligations. Under the Deed of Conditional Sale, the
balance of the purchase price should be paid within sixty (60) days from the fulfillment of several
conditions. At the time of the filing of the supplemental complaint, only three of the four conditions
had been carried out. Thus, at that point, the balance of the purchase price had not yet become due
and so, too, petitioners’ obligation to execute a registerable deed of absolute sale had not yet
arisen.

petitioners cannot ask for rescission of the Deed of Conditional Sale since it has been proven that far
from violating the conditions of the deed, Titan was ready and willing to perform its contractual
obligations. That the balance had not yet become due and demandable is a result of the appeal
from the RTC and CA decisions, and is not due to Titan’s alleged refusal to comply with the contract.
Accordingly, the Deed of Conditional Sale remains valid, but petitioners cannot be compelled by
specific performance to execute the deed of absolute sale in favor of Titan until and unless Titan
settles the balance of the purchase price as agreed upon.
WHEREFORE, in view of the foregoing, the petition is DENIED. Respondent Titan Construction
Corporation is ORDERED to PAY petitioners Heirs of Antonio F. Bernabe the amount of
P3,431,058.42 representing the balance of the purchase price thereof. The amount due was
affirmed by the Court of Appeals which found that based on the admitted exhibits, vouchers, checks,
compromise agreement/partial judgments, the total payments already made by Titan
isP2,458,274.58 which, if subtracted from the agreed purchase price of P5,889,333.00, would yield
P3,431,058.42. It is this amount that Titan should pay to petitioners sixty (60) days from the
fulfillment of the conditions in order to compel petitioners to execute the deed of absolute sale in its
favor.

within sixty (60) days from the finality of this decision. Petitioners are ORDERED to ACCEPT the
payment and thereupon EXECUTE the proper deed of absolute sale. Both parties are ORDERED to
COMPLY with the other stipulations in the Deed of Conditional Sale. No pronouncement as to costs.
SPS FRANCISCO VS DEAC CONST INC

Facts:

Spouses Francisco obtained the services of DEAC Construction, Inc. to construct a 3-storey
residential building on their lot located at Tondo, Manila for a contract price of P3.5M.

P2M upon signing of the contract of construction

P750K upon completion of the foundation structure and ground floor

P750K upon completion of the second floor

The construction of the residential building commenced without the necessary building permit.
Because of this, the spouses Francisco were criminally charged with the violation of the National
Building Code (PD 1096). To facilitate the approval of the permit, the signatures of Guia Francisco
were forged by DEAC’s representative.

The building inspector also observed, after periodic inspections of the construction site, that the
contractor deviated on some specifications from the approved plans.

The RTC ordered partial rescission since the subject building was already 70% to 75% completed at
the time of the proceedings.

Issue:

WON partial rescission was properly ordered by the RTC? YES

Held:

DEAC, to whom the obligation of securing the building permit pertained, should obviously have
ensured compliance with the requirements set forth by law. It should have informed the Spouses
that the building permit had not yet been issued especially that they had already received a
substantial amount of money from the latter and had already started the construction of the
building.

Respondents’ mistake in identifying the exact location of the property which led to the delay in the
issuance of a building permit and forgery of petitioner Guia Francisco’s signature on the building
plan exhibits a proclivity for error and taking the easy way out. The Spouses Francisco should be
allowed to rescind the contract to the extent that this is possible under the circumstances.

The filing of a criminal case against respondent Dadula and the subsequent filing of this civil case for
rescission and damages within a reasonable time after the Spouses Francisco had learned that
construction of their building commenced without the necessary building permit and discovered
that there were deviations from the building plan demonstrate the vigilance with which they
guarded their rights.

Given the fact that the construction in this case is already 75% complete, it is correct to order partial
rescission only of the undelivered or unfinished portion of the construction. Equitable considerations
justify rescission of the portion of the obligation which had not been delivered.
BOSQUE VS YU CHIPCO

FACTS:

Yu Chipco, defendant, entered into a contract to construct a house and to complete the same within
four (4) months after the contract was signed and delivered for Juan Bosque, plaintiff. The
construction was actually commenced. However, Bosque made changed in and additions to the
original plans of the house, which changes were agreed to by Chipco, and a new contract was made.

Yet, Chipco was prevented from continuing his work because Bosque failed to secure a permit to
make the additions. Thus, Chipco was delayed for several weeks.

Expenses: Timber (Bosque) – Php132.00; labor and additions (Chipco) – Php500.00

Under the first agreement, Bosque was to make four (4) equal payments for the construction of the
house, each payment to be made when the house was in a certain state of completion. The evidence
sustains that it had passed the state of completion when the Bosque was to make the first payment
upon the original contract. Bosque does not allege nor attempt to prove that he made any payments
upon the second contract for the addition to the original building.

Consequently, the house was totally destroyed by a baguio before its completion.

LOWER COURT’S RULING:

Each of the parties failed to comply with their respective obligation; “the plaintiff will not have his
building and the defendant will not receive his contract price.” The lower court refused to allow
either one a judgment since it balances the failure of one of the parties to comply with his obligation
with the failure of the other to comply with his part of the original contract.

The defendant may recover of the plaintiff the sum of Php368.00, being the difference between
Php200 and Php132.

SC’S RULING:

Affirmed. Even though the court did not expressly pronounce that the parties were absolved from
any further obligation, yet, by the very terms of the judgment the said parties must necessarily be
absolved from any further action upon the said contract. It is clear that Bosque did not perform the
undertaking which he was bound by the terms of his agreement to perform; consequently, he is not
entitled to insist upon the performance of the contract by the defendant or to recover damages by
reason of his own breach.
UNIVERSITY OF THE PHILIPPINES VS DE LOS ANGELES

FACTS:

> UP and ALUMCO entered into a logging agreement under which ALUMCO was granted exclusive
authority from the date of agreement (Nov. 2, 1960) to Dec. 31, 1965 (extendible by 5 years by
mutual agreement), to cut, collect and remove timber from the Land Grant (situated at the Lubayat
areas in Laguna and Quezon), in consideration of payment to UP of royalties and forest fees, etc.

> As of Dec. 8 1964, ALUMCO incurred an unpaid account of P219,362.94 which it had failed to pay
despite repeated demands.

> After UP sent a notice of rescission or termination of the logging agreement, ALUMCO executed an
instrument entitled “Acknowledgement of Debt and Proposed Manner of Payments” dated Dec. 9,
1964 which was approved by the UP president. The instrument stipulated the following:

> “5. 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 (P50,000.00) by way of and for liquidated damages;”

> After ALUMCO again incurred an additional unpaid account amounting to P61 133.74, UP informed
ALUMCO on Jul 19, 1965 that UP considered the logging agreement as rescinded and of no further
legal effect.

> UP filed a complaint for the collection of money in accordance to the stipulations in the
instrument.

> UP also began looking for another concessionaire to take over the logging operation by advertising
an invitation to bid.

> ALUMCO filed a petition to enjoin UP from conducting the bidding which was granted by the CFI.

> When UP had received the order, it had already concluded its contract with Sta. Clara Lumber
Company, Inc. and the latter had started logging operations.

> On motion by ALUMCO, the court declared UP in contempt of court and prohibited Sta. Clara from
continuing logging operations in the concession (pending before CA).

> Before the SC, ALUMCO repeated its defenses in the court below, including: UP's unilateral
rescission of the logging contract, without a court order, was invalid. The CFI agreed with ALUMCO
on this point

ISSUES:

> WoN UP can treat its contract with ALUMCO rescinded and disregard the same before any judicial
pronouncement to that effect

> YES. The stipulation between UP and ALUMCO’s instrument gave UP the right and power to render
the logging agreement as rescinded without the necessity of a judicial suit.
> This stipulation is in connection with Art. 1191 of the Civil Code and the SC’s ruling in Froilan v. Pan
Oriental Shipping Co.: “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.”

> However, if one party treats a contract as cancelled by virtue of infractions of the other, it must be
made known to the latter. It is also provisional and can be subject to scrutiny 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.

> 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 (Art. 2203).

> (a) In the light of the foregoing principles, and considering that the complaint of UP made out a
prima facie case of breach of contract and defaults in payment by ALUMCO, to the extent that the
court below issued a writ of preliminary injunction stopping ALUMCO's logging operations, and
repeatedly denied its motions to lift the injunction; (b) that it is not denied that ALUMCO had
profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of
Debt and Proposed Manner of Payment"); (c) that the excuses offered in the second amended
answer, such as the misconduct of its former manager Cesar Guy, and the rotten condition of the
logs in ALUMCO’s pond, which ALUMCO was in a better position to know when it executed the
acknowledgment of indebtedness, do not constitute on their face sufficient excuse for non-payment;
(d) and considering that whatever prejudice may be suffered by ALUMCO is susceptibility of
compensation in damages, the acts of the court below in enjoining UP’s measures to protect its
interest without first receiving evidence on the issues tendered by the parties, and in subsequently
refusing to dissolve the injunction, were in grave abuse of discretion, correctible by certiorari.
BOYSAW VS INTERPHIL PROMOTIONS

FACTS:

> On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
Promotions, Inc., represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a
boxing contest for the junior lightweight championship of the world.

> They stipulated that (a) the fight will be held on Sept. 30, 1961 or not later than 30 days thereafter,
should a postponement be mutually agreed upon and, (b) Boysaw would not engage in any other
contest before the bout without Interphil's written consent.

> On May 3, 1961, a supplemental agreement on certain details not covered by the principal
contract was entered into by Ketchum and Interphil. Thereafter, Interphil signed Elorde to a similar
agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30,
1961.

> On June 19, 1961, Boysaw fought and defeated Louis Avila in Las Vegas.

> On July 2, 1961, Ketchum assigned to J. Amado Araneta his managerial rights over Boysaw.

> On July 31, 1961, Boysaw arrived in the Philippines.

> On September 1, 1961, Araneta assigned his managerial rights to Alfredo J. Yulo, Jr.

> On September 5, 1961, Yulo wrote to Sarreal, informing him of his acquisition of the managerial
rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of
May 1, 1961.

> On the same date, on behalf of Interphil, Sarreal wrote a letter to the Games and Amusement
Board [GAB] expressing concern over reports that there had been a switch of managers in the case
of Boysaw, of which he had not been formally notified, and requesting that Boysaw be called to an
inquiry to clarify the situation.

> The GAB called a series of conferences of the parties concerned culminating in the issuance of its
decision to schedule the Elorde-Boysaw fight for November 4, 1961. The USA National Boxing
Association which has supervisory control of all world title fights approved the date set by the GAB.

> Yulo, Jr. refused to accept the change in the fight date, even after Sarreal on September 26, 1961,
offered to advance the fight date to October 28, within the 30-day period of allowable
postponements provided in the principal boxing contract.

> Early in October 1961, Yulo exchanged communications with Mamerto Besa, a local boxing
promoter, for a possible promotion of the projected Elorde-Boysaw title bout. Yulo informed Besa
that he was willing to approve the fight date of November 4, 1961 provided the same was promoted
by Besa.

> While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961
boxing contract never materialized.

> As a result, Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. for damages
allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr., then
GAB Chairman, to honor their commitments under the boxing contract of May 1, 1961.
> Boysaw left the country without informing the court and, as alleged, his counsel. Thus, he was not
able to take the witness stand.

> When defendants’ counsel was about to present their case, plaintiffs' counsel after asking the
court's permission, took no further part in the proceedings. The lower court ordered plaintiffs to
jointly and severally awarded Nieto P25,000.00, broken down into P20,000.00 as moral damages and
P5,000.00 as attorney's fees; Interphil and Sarreal, P250,000.00 as unrealized profits, P33,369.72 as
actual damages and P5,000.00 as attorney's fees; and Sarreal, the P20,000.00 as moral damages
aside from costs.

- The plaintiffs moved for a new trial. The motion was denied, hence, this appeal taken
directly to this Court by reason of the amount involved.

ISSUES:

> WON there was a violation of the fight contract of May 1, 1961, and if there was, who was guilty of
such violation

> YES, and Boysaw violated the contract. He fought Avila without Interphil's consent. While the
contract imposed no penalty for such violation, this does not grant any of the parties the unbridled
liberty to breach it with impunity. Our law on contracts recognizes the principle that actionable
injury inheres in every contractual breach (A1170; A1191, par.1).

> The power to rescind is given to the injured party. "Where the plaintiff is the party who did not
perform the undertaking which he was bound by the terms of the agreement to perform, he is not
entitled to insist upon the performance of the contract by the defendant, or recover damages by
reason of his own breach." (Seva vs. Alfredo Berwin)

> Another violation of the contract in question was the assignment and transfer, first to Araneta, and
subsequently, to Yulo, Jr., of the managerial rights over Boysaw without Interphil’s knowledge or
consent. The assignments were in fact novations of the original contract which, to be valid, should
have been consented to by Interphil (A1293).

> Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of
the obligor by another, the aggrieved creditor is not bound to deal with the substitute.

> The defendants, instead of availing themselves of the options given to them by law of rescission or
refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an
injury that Elorde sustained in a recent bout. That defendants had the justification to renegotiate the
original contract, particularly the fight date is undeniable from the facts. Under the circumstances,
the defendants’ desire to postpone the fight date could neither be unlawful nor unreasonable.

> The refusal of plaintiffs to accept a postponement without any other reason but the
implementation of the terms of the original boxing contract entirely overlooks the fact that by virtue
of the violations they have committed of the terms thereof, they have forfeited any right to its
enforcement.

> WoN there was legal ground for the postponement of the fight date from September 1, 1961, as
stipulated in the May 1, 1961 boxing contract, to November 4, 1961.

> YES. Yulo himself admitted that it was the GAB Board that set the questioned fight date. Also, it
must be stated that one of the strongest presumptions of law is that official duty has been regularly
performed.
EARTH MINERALS VS MACARAIG

Zambales Chromite Mining Co., Inc. (Zambales Chromite, for short) is the exclusive owner of ten (10)
patentable chromite mining claims located in the Municipality of Sta. Cruz, Zambales. On September
11, 1980, Zambales Chromite, as claim-owner, on one hand, and Philzea Mining and Development
Corporation (Philzea Mining, for short, herein private respondent) as operator, on the other, entered
into a "Contract of Development, Exploitation and Productive Operation" on the ten (10) patentable
mining claims (Annex "C", Rollo, p. 120). During the lifetime of such contract, Earth Minerals
Exploration, Inc. (Earth Minerals, for short, herein petitioner) submitted a Letter of Intent on June
30, 1984 to Zambales Chromite whereby the former proposed and the latter agreed to operate the
same mining area subject of the earlier agreement between Zambales Chromite and Philzea Mining
(Annex "D", Rollo, p. 111). On August 10, 1984, Zambales Chromite and Earth Minerals concretized
their aforementioned Letter of Intent when they entered into an "Operating Agreement" (Annex "E",
Rollo, p. 112) for the latter to operate the same mining area. Consequently, the same mining
property of Zambales Chromite became the subject of different agreements with two separate and
distinct operators. On November 29, 1984, petitioner Earth Minerals filed with the Bureau of Mines
and Geo-Sciences (BMGS, for short) a petition for cancellation of the contract between Zambales
Chromite and Philzea Mining, pursuant t Section 7, P.D. 1281 which provides, inter alia:

Section 7. In addition to its regulatory and adjudicative functions over companies, partnerships or
persons engaged in mining exploration, development and exploitation, the Bureau of Mines shall
have original and exclusive jurisdiction to hear and decide cases involving:

(a) a mining property subject of different agreements entered into by the claim holder thereof
with several mining operators;

(b) ....

(c) cancellation and/or enforcement of mining contracts due to the refusal of the
claimowner/operator to abide by the terms and conditions thereof.

In its petition, Earth Minerals alleged, among others, that Philzea Mining committed grave and
serious violations of the latter's contract with Zambales Chromite among which are: failure to
produce the agreed volume of chromite ores; failure to pay ad valorem taxes; failure to put up assay
buildings and offices, all resulting in the non-productivity and non-development of the mining area.

On December 10, 1984, Philzea Mining filed a motion to dismiss on the grounds that Earth Minerals
is not the proper party in interest and that the petition lacks cause of action. The motion to dismiss
was, however, denied by the BMGS in an order dated January 24, 1985 holding that "there appears
some color of right" on Earth Minerals to initiate the petition for cancellation (Annex "G", Rollo, p.
120). A motion for reconsideration was filed but the same was denied by the BMGS in an order
dated March 4, 1985. Thereafter, Philzea Mining elevated the case to then Ministry (now
Department) of Natural Resources (MNR, for short) which in its order of April 23, 1985 dismissed the
appeal for the reason that the order of the BMGS was an interlocutory order that could not be the
proper subject of an appeal.

On May 2, 1985, Philzea Mining appealed to the Office of the President the order of MNR dated April
23, 1985. During the pendency thereof, Earth Minerals filed with the MNR a motion for execution of
the MNR order of April 23, 1985.
On May 30, 1985, the MNR issued an order directing the BMGS to conduct the necessary
investigation in order to hasten the development of the mining claims in question (Rollo, p. 93). In
compliance therewith, the BMGS on June 7, 1985, ordered the private respondent Philzea Mining to
file its answer to Earth Mineral's petition for rescission. Philzea Mining moved to reconsider but the
motion was denied.

Philzea Mining did not submit its answer. Accordingly, the BMGS resolved the petition for rescission
on the basis of documents submitted ex parte by herein petitioner. Finding that Philzea Mining
grossly violated the terms and conditions of the mining contract between Philzea Mining and
Zambales Chromite, the BMGS rendered a decision on July 23,1985, cancelling said mining contract,
the dispositive portion of which reads:

In view of all the foregoing, this Office finds and so holds that the Operating Agreement dated
September 11, 1980 executed by and between Zambales Chromite and Philzea Mining should be, as
is hereby cancelled. Accordingly, respondent is hereby ordered to immediately vacate the mining
area subject of the instant case and turn over the possession thereof to the claimowner and/or
herein petitioner. (Annex "K", Rollo, p. 130).

Aggrieved by the decision of the BMGS, Philzea Mining, aside from filing a notice of appeal to the
MNR on July 29, 1985, also filed a petition for certiorari with the then Intermediate Appellate Court
(now Court of Appeals) on July 30,1985, docketed as AC-G.R. Sp. No. 06715, to annul or set aside the
decision of the BMGS.

On November 4, 1985, the Office of the President promulgated a decision dismissing the appeal of
Philzea Mining from the decision of the MNR dated April 23, 1985, on the ground that an order
denying a motion for reconsideration is interlocutory in nature and cannot be the subject of an
appeal (Annex "L", Rollo, p. 137).

On November 7, 1985, the MNR on the other hand, issued another order this time dismissing the
appeal of Philzea Mining from the decision of the BMGS dated July 23, 1985.

On November 18, 1985 Philzea Mining appealed the aforementioned November 7, 1985 decision of
the MNR to the Office of the President.

Meanwhile, on December 26,1985, the then Intermediate Appellate Court dismissed the petition
filed by Philzea Mining in AC-G.R. Sp. No. 06715.

Back to the appeal of Philzea Mining to the Office of the President, the disputed decision dated June
27, 1986 was issued by the then Deputy Executive Secretary Fulgencio Factoran, Jr., the dispositive
portion of which reads:

Wherefore, the orders of the Minister of Natural Resources and the Director of Mines and Geo-
Sciences, dated November 7 and July 23, 1985, respectively, are hereby set aside. (Annex "A", Rollo,
p. 92).

A motion for reconsideration dated July 12,1986 (Annex "U", Rollo, p. 190) was filed by petitioner
Earth Minerals which, however, was denied by the then Deputy Executive Secretary Catalino
Macaraig in his resolution dated May 5, 1987, which reads in part:

Wherefore, the instant motion for reconsideration by appellee Earth Minerals is hereby denied for
lack of merit and the Decision of this Office dated June 27, 1986 is hereby reiterated. (Annex "B",
Rollo, p. 98).
Hence, this petition.

In the resolution of the Court dated July 1989, the Court resolved: (a) to give due course to the
petition and (b) to require the parties to submit simultaneously their respective memoranda (Rollo,
p. 382).

The principal issues in the case at hand are as follows: (a) whether or not the appeal of the private
respondent Philzea Mining from the decision of the MNR dated November 7,1985 to the Office of
the President was made out of time and (b) whether or not the petitioner Earth Minerals is the
proper party to seek cancellation of the operating agreement between Philzea Mining and Zambales
Chromite.

The petitioner contends that the last day to appeal the decision of the MNR dated November 7,
1985 fell on November 16, 1985, that is five (5) days from the date of its receipt by the private
respondent on November 11, 1985 and since the notice of appeal dated November 15,1985 was
filed on November 18, 1985, the appeal was taken beyond the five-day reglementary period.

Public respondent counters that the ground invoked by the petitioner is too technical in view of the
fact that November 16, 1985 was a Saturday and the following day (November 17, 1985) was a
Sunday.

The Court, in the case of Atlas Consolidated Mining and Development Corporation v. Factoran, Jr.
(154 SCRA 49 [1987]) resolved the same issue in this wise:

Saturday was observed as a legal holiday in the Office of the President pursuant to Sec. 29 of the
Revised Administrative Code as amended.

The same law provides:

Sec. 31. Pretermission of holiday — Where the day or the last day, for doing any act required or
permitted by law falls on a holiday, the act may be done on the next succeeding business day.

Apart from the fact that the law is clear and needs no interpretation, this Court in accordance
therewith has invariably held that in case the last day for doing an act is a legal holiday, the last day
for doing the same, the act may be done on the next succeeding business day (Gonzaga v. De David,
110 Phil. 463 [1960]; Calano v. Cruz, 91 Phil. 247 [1957]; Austria et al. v. Solicitor General, 71 Phil.
288 [1941]).

In the case under consideration, as the next working day after November 16, 1985 was November
18, 1985 — a Monday, it is evident that the private respondent's appeal was filed on time.

Be that as it may, the private respondent's appeal within the reglementary period to the Office of
the President does not help them much in the instant case.

The public respondent argues that the petitioner Earth Minerals is not the proper party to file the
petition for cancellation of the contract between Zambales Chromite and Philzea Mining citing
Article 1311 of the Civil Code which provides that a contract takes effect only between the parties,
their assigns and heirs.

The contention is untenable.

Indeed, a contract takes effect only between the parties who made it, and also their assigns and
heirs, except in cases where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law (Article 1311, New Civil Code). Since a
contract may be violated only by the parties thereto as against each other, in an action upon that
contract, the real parties in interest, either as plaintiff or as defendant must be parties to said
contract. In relation thereto, Article 1397 of the Civil Code lays the general rule that an action for the
annulment of contracts can only be maintained by those who are bound either principally or
subsidiarily by virtue thereof. The rule, however, admits of an exception. The Court, in Teves v.
People's Homesite and Housing Corporation (23 SCRA 1141 [1968]) held that a person who is not
obliged principally or subsidiarily in a contract may exercise an action for nullity of the contract if he
is prejudiced in his rights with respect to one of the contracting parties, and can show the detriment
which could positively result to him from the contract in which he had no intervention. This
exception to the rule has been applied in Banez v. CA (59 SCRA 15 [1974]; Development Bank of the
Philippines v. CA, 96 SCRA 342 [1980]; Dilson Enterprises Inc. v. IAC, 170 SCRA 676 [1989]).

Petitioner Earth Minerals seeks the cancellation of the contract between Zambales Chromite and
Philzea Mining, not as a party to the contract but because his rights are prejudiced by the said
contract. The prejudice and detriment to the rights and interest of petitioner stems from the
continued existence of the contract between Zambales Chromite and private respondent Philzea
Mining. Unless and until the contract between Zambales Chromite and Philzea Mining is cancelled,
petitioner's contract with the former involving the same mining area cannot be in effect and it
cannot perform its own obligations and derive benefits under its contract. The Director of Mines and
Geo-Sciences in his order denying Philzea Mining's motion to dismiss the petition for cancellation of
the operating agreement between Philzea Mining and Zambales Chromite stated:

From the documentary evidence submitted by the petitioner, i.e., the Letter of Intent and Operating
Agreement between Zambales Chromite and Earth Minerals, it may be gleaned that, at least, there
appears some color of right on the part of petitioner to request for cancellation/rescission of the
contract dated September 11, 1980 between Zambales Chromite and Philzea Mining.

Moreover, the record amply shows that the decision of the Director of Mines as affirmed by the
Minister of Natural Resources was supported by substantial evidence. As found by the Bureau of
Mines in its decision dated July 23, 1985, the violations committed by Philzea Mining were not only
violations of its operating agreement with Zambales Chromite but of mining laws as well.

In affirming the abovementioned decision, the Minister of Natural Resources made the following
statements:

Moreover, the appellant by filing a Manifestation on October 1, 1985 wherein it prayed that the
decision appealed from be reviewed motu propio by this Office, is an implied admission that it has
no justification whether in fact or in law, for its appeal; otherwise, it could have specified them in
the appeal memorandum that it is bound by law to file. (p. 142, Rollo)

In such cases, the Court has uniformly held that, it is sufficient that administrative findings of fact are
supported by evidence (Ang Tibay v. CIR, 69 Phil. 635 [1940]). Still in later cases, the Court continued
that such finding will not be disturbed so long as they are supported by substantial evidence, even if
not overwhelming or preponderant (Police Commission v. Lood, 162 SCRA 762 [1984]; Atlas
Consolidated v. Factoran, Jr., supra).

The decision, therefore, of the Deputy Executive Secretary reversing the decisions of the Minister of
Natural Resources and Director of Mines cannot be sustained. This is in line with the pronouncement
of the Court that the factual findings of the Secretary should be respected in the absence of any
illegality, error of law, fraud or imposition, none of which was proved by the public and private
respondents (Heirs of Santiago Pastoral v. Secretary of Public Works and Highways, 162 SCRA 619
[1988]).

Regarding the issue of forum shopping, the records show that on July 29, 1985, after Philzea Mining
had filed its notice of appeal to MNR from the July 23, 1985 decision of the BMGS, it also filed a
petition for certiorari with the Intermediate Appellate Court on July 30, 1985, docketed as AC-G.R.
Sp. No. 06715 praying for the annulment of the same July 23, 1985 decision of the BMGS. When the
MNR rendered its November 7, 1985 decision affirming the July 23, 1985 decision of the BMGS,
private respondent Philzea Mining, notwithstanding the pendency of its petition for certiorari with
the Intermediate Appellate Court, filed its notice of appeal to the Office of the President from the
said decision of the MNR stating therein that its appeal was "without prejudice to the pending
petition with the Intermediate Appellate Court docketed as AC-G.R. Sp. No. 06715" (Rollo, p. 80).

The foregoing facts show a case of forum shopping.

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a
favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with
respect to suits filed in the courts but also in connection with litigations commenced in the courts
while an administrative proceeding is pending, as in this case, in order to defeat administrative
processes and in anticipation of an unfavorable court ruling (Crisostomo v. Securities and Exchange
Commission, G.R. Nos. 89095 and 89555, November 6, 1989).

One last point, the motion to dismiss filed by Philzea before this Court on September 5, 1989, on the
ground that the petition has become moot and academic in view of the expiration on August 10,
1989 of the five (5) year term contract between Zambales Chromite and Earth Minerals executed by
August 10, 1984 should be denied.

The contract between Zambales Chromite and Earth Minerals provides, inter alia:

5. Others.

A. During the existence of this agreement, Earth Minerals is free to look for, and negotiate with, an
interested party who is financially capable of operating the CLAIMS on a much bigger scale . . . and in
connection therewith, may assign this agreement in favor of said party; . . . .

In view of such provision, Earth Minerals and Zambales Chromite jointly entered into a "Mining
Agreement", dated June 16, 1988, with Acoje Mining Co., Inc., the salient provisions of which reads:

ZCMC and EMEI jointly desire to protect Acoje from any and all claims (present or future) against it
(Acoje) with respect the title and/or possession of the PROPERTIES and this protection against all
claims of third parties or entities during the life of this Mining Agreement is one of the main
considerations why Acoje agreed to enter into this Agreement.

Sec. 1. . . . provided, however, that EMEI obligates itself to continue representing its interest as
party in the aforesaid cases pending with the Supreme Court. (Annex "1", Rollo, p. 397).

The mining agreement between Zambales Chromite and Earth Minerals, on one hand, and Acoje
Mining, on the other, expressly recognizes the pendency of the case at bar, so that herein petitioner
Earth Minerals has the right to pursue the case to its logical conclusion, and during the effectivity of
such Mining Agreement, both Earth Minerals and Zambales Chromite are under obligation to assure
peaceful possession of the mining properties from the claims of third parties.
Makati Developmental Corp vs. Empire Insurance Corp

FACTS:

MAKATI SOLD TO Rodolfo P. Andal a lot

SPECIAL CONDITION:

i. VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its
residence on the property within two (2) years from March 31, 1959 to the satisfaction of the
VENDOR

ii. Failure to do so, the bond which the VENDEE/S has delivered to the VENDOR in the sum of
P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959 will be forfeited in favor of
the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition."

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

i. Did not build his house; instead he sold the lot to Juan Carlos

ii. Neither built a house on the lot within the stipulated period

iii. MAKATI sent a notice of claim to the Empire Insurance Co. advising it of Andal's failure to
comply with his undertaking.

iv. Demand for the payment of P12,000 was refused

MAKATI FILED COMPLAINT against the Empire.

EMPIRE filed answer with a third-party complaint against Andal.

i. To order Andal to pay the Empire Insurance Co. whatever amount it maybe ordered to pay the
Makati Development Corporation, plus interest at 12%, from the date of the filing of the complaint
until said amount was fully reimbursed, and attorney's fees.

ii. Andal admitted the execution of the bond but alleged that the "special condition" in the deed of
sale was contrary to law, morals and public policy.

1. He averred that Juan Carlos had started construction of a house on the lot.

LOWER COURT SENTENCED Empire to pay MAKATI P1,500, with interest at the rate of 12% from the
time of the filing of the complaint until the amount was fully paid, and to pay attorney's fees in the
amount of P500, and the proportionate part of the costs.

Andal should in turn pay EMPIRE P1,500 with interest at 12% from the time of the filing of the
complaint to the time of payment and to pay attorney's fees in the sum of P500 and proportionate
part of the costs.

MAKATI APPEALED.

COURT REDUSED ANDAL’S LIABILITY BECAUSE THERE WAS ONLY REALLY A LITTLE DELAY.

There was indication of owner's desire to construct his house with the least possible delay.
MAKATI argues that Andal became liable for the full amount of his bond upon his failure to build a
house within the two-year period which expired on March 31, 1961

Trial court has no authority to reduce Andal's liability on the basis of Carlos' construction of a house
a month after the stipulated period because there was no contract between Carlos and the Makati
Development Corporation.

ISSUE:

WON court erred in mitigating the obligor’s liability considering obligor failed to commit obligation
within stipulated time.

WON 3rd party’s commencement of stipulated condition can be counted in commitment of the
contract.

HELD:

Accordingly, the decision appealed from is affirmed, at appellant's cost.

SPECIAL CONDITION = OBLIGATION

MITIGATION OF OBLIGOR’S LIABILITY IS ALLOWED:

ART 1229 of the Civil Code states:

i. 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.

JUAN CARLOS FINISHED 50% OF HOUSE ONE MONTH AFTER EXPIRATION OF STIPULATED PERIOD.

The penal clause in this case was inserted not to indemnify for any damage but rather to compel
performance of the so-called "special condition" and encourage home building among lot owners in
the Urdaneta Village.

ON CARLOS NO CONTRACTUAL RELATION WITH MAKATI:

Indeed the stipulation in this case to commence the construction and complete at least 50 per cent
of the vendee's house within two years cannot be construed as imposing a strictly personal
obligation on Andal –BECAUSE IT WOULD ANDAL’S RIGHT TO DISPOSE THE LOT.

There is nothing in the deed of sale restricting Andal's right to sell the lot at least within the two-year
period.

Such limitation should be expressed if ever and not left to mere inference.
BUCE VS COURT OF APPEALS

FACTS:

Petitioner Anita Buce leased a 56 square meter of land located at Quirino Avenue, Pandacan, Manila.
The lease was for a period of 15 years to commence on June 1, 1979 and subject to renewal for
another 10 years,under the same terms and conditions. Respondent Jose Tiongco, demanded a
gradual increase in the rent for Php 1,000 on 1991. On December 1991, respondent wrote petitioner
informing the increase of rent pursuant to the Rent Control Law, effective on January 1992.
However, petitioner tendered checks dated October 1991 to January 1993 for only Php 400 payable
to respondent as administrator which the latter refused to accept. Petitioner filed a complaint for
specific performance which the trial court ruled in favor of petitioner. Appellate court reversed the
decision.

ISSUE:

Whether or not the clause “subject to renewal for another ten years” is an automatic renewal or just
an option to renew the contract

HELD:

The court held that nothing in the contract expresses automatic renewal. Allowance on
improvements and constructions are not indicative of extension of contract. It was not, in fact,
indicated who may exercise the option to renew. Thus, a period of lease should be set for the
benefit of both parties upon mutual agreement. Since respondents were not amenable of the
renewal, they cannot be compelled to execute new. It is their prerogative to terminate lease at its
expiration.
PONCE DE LEON VS SYJUCO

FACTS :

The appellee, Philippine National Bank, was the owner of two parcels of land in Negros Occidental.
On March 9, 1936 the Bank executed a contract to sell the said properties to Jose Ponce de Leon for
the total price of P26,300.

Subsequently, Ponce de Leon obtained a loan from Santiago Syjuco, Inc in the amount of P200,000 in
Japanese Military Notes, payable within one (1) year from May 5, 1948. It was also provided that the
Ponce de Leon could not pay, and Syjuco could not demand, the payment of said note except within
the aforementioned period. To secure the payment of said obligation, Ponce de Leon mortgaged the
parcels of land which he agreed to purchase from the Bank. Using the loan, Ponce de Leon was able
to pay the Bank and a deed of absolute sale was executed in his name.

Ponce de Leon further obtained an additional loan from Syjuco. On several occasions in October,
1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in Japanese military notes in full
payment of his indebtedness which was refused by Syjuco which Ponce de Leon deposited with the
Clerk of Court of the CFI. He then filed a petition with the CFI for the reconstitution of transfer of the
certificates of the lot in the name of the Bank which was granted by the court. Syjuco filed a second
amended answer to Ponce de Leon's complaint claiming that Ponce de Leon, by reconstituting the
titles in the name of the Bank, by causing the Register of Deeds to have the said titles transferred in
his name, and by subsequently mortgaging the said properties to the Bank as a guaranty for his
overdraft account, had violated the conditions of the morgage which Ponce de Leon has executed in
its favor during the Japanese occupation. Syjuco prayed that the mortgage executed by Ponce de
Leon in favor of the Bank be declared null and void.

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's
complaint and condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest
at the legal rate from May 6, 1949, until fully paid

ISSUE :

Is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon
in the two promissory notes signed by the plaintiff?

RULING :

No. In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made bacause the creditor to whom tender of payment was
made refused to accept it, or because he was absent for incapacitated, or because several persons
claimed to be entitled to receive the amount due (Art. 1176); (3) that previous notice of the
consignation have been given to the person interested in the performance of the obligation (Art.
1177); (4) that the amount due was placed at the disposal of the court (Art 1178); and (5) that after
the consignation had been made the person interested was notified thereof (Art. 1178). In the
instant case, while it is admitted a debt existed, that the consignation was made because of the
refusal of the creditor to accept it, and the filing of the complaint to compel its acceptance on the
part of the creditor can be considered sufficient notice of the consignation to the creditor,
nevertheless, it appears that at least two of the above requirements have not been complied with.
Thus, it appears that plaintiff, before making the consignation with the clerk of the court, failed to
give previous notice thereof to the person interested in the performance of the obligation. It also
appears that the obligation was not yet due and demandable when the money was consigned,
because, as already stated, by the very express provisions of the document evidencing the same, the
obligation was to be paid within one year after May 5, 1948, and the consignation was made before
this period matured. The failure of these two requirements is enough ground to render the
consignation ineffective. And it cannot be contended that plaintiff is justified in accelerating the
payment of the obligation because he was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary obligation contracted with a period, the
presumption is that the same is deemed constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it appears that the period has been established for
the benefit of either one of them (Art. 1127). Here no such exception or circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of
payment of the obligation because the debtor has offered to pay all the interests up to the date it
would become due, but this argument loses force if we consider that the payment of interests is not
the only reason why a creditor cannot be forced to accept payment contrary to the stipulation.
There are other reasons why this cannot be done. One of them is that the creditor may want to keep
his money invested safely instead of having it in his hands. Another reason is that the creditor by
fixing a period protects himself against sudden decline in the purchasing power of the currency
loaned specially at a time when there are many factors that influence the fluctuation of the
currency. And all available authorities on the matter are agreed that, unless the creditor consents,
the debtor has no right to accelerate the time of payment even if the premature tender "included an
offer to pay principal and interest in full."
GONZALES VS JOSE

This action was instituted by the plaintiff to recover from the defendant the amount of two
promissory notes worded as follows:

"I promise to pay Mr. Benito Gonzalez the sum of four hundred three pesos and fifty-five centavos
(P403.55) as soon as possible.

Anterior ........................................................................... P71.10

474.65

Sept. 12, 1922 .................................................................. 300.00

Balance .................................................................174.65

"Manila, June 22, 1922.

(Sgd.) "Florentino de Jose

"Quezon, Nueva Ecija"

"I promise to pay Mr. Benito Gonzalez the sum of three hundred and seventy-three pesos and thirty
centavos (P373.30) as soon as possible.

"In Manila, this 13th day of September, 1922.

(Sgd.) "Florentino de Jose"

Defendant appealed from the decision of the Court of First Instance of Manila ordering him to pay
the plaintiff the sum of P547.95 within thirty days from the date of notification of said decision, plus
the costs.

In his answer the defendant interposed the special defenses that the complaint is uncertain
inasmuch as it does not specify when the indebtedness was incurred or when it was demandable,
and that, granting that the plaintiff has any cause of action, the same has prescribed in accordance
with law. Resolving the defense of prescription, the trial court held that the action for the recovery
of the amount of the two promissory notes has not prescribed in accordance with article 1128 of the
Civil Code, which provides:

"ART. 1128. If the obligation does not specify a term, but it is to be inferred from its nature and
circumstances that it was intended to grant the debtor time for its performance, the period of the
term shall be fixed by the court.

"The court shall also fix the duration of the term when it has been left to the will of the debtor."

It is practically admitted by the parties that the obligations arising from the two promissory notes
should be governed by said article, inasmuch as it was the intention of the plaintiff, evidenced by the
terms of the said notes, to grant the debtor a period within which to pay the debts. The four errors
assigned by the defendant turn on the applicability of article 1128 and on the prescription of the
action brought by the plaintiff. The defendant contends that article 1113 of the Civil Code should be
applied inasmuch as the obligations derived from the promissory notes were demandable from the
time of their execution, and adds that even supposing that article 1128 is applicable, the action to
ask the court to fix the period had already prescribed in accordance with section 43 (1) of the Code
of Civil Procedure.

We hold that the two promissory notes are governed by article 1128 because under the terms
thereof the plaintiff intended to grant the defendant a period within which to pay his debts. As the
promissory notes do not fix this period, it is for the court to fix the same. (Eleizegui vs. Manila Lawn
Tennis Club, 2 Phil., 309; Barretto vs. City of Manila, 7 Phil., 416; Floriano vs. Delgado, 11 Phil., 154;
Levy Hermanos vs. Paterno, 18 Phil., 353.) The action to ask the court to fix the period has already
prescribed in accordance with section 43 (1) of the Code of Civil Procedure. This period of
prescription is ten years, which has already elapsed from the execution of the promissory notes until
the filing of the action on June 1, 1934. The action which should be brought in accordance with
article 1128 is different from the action for the recovery of the amount of the notes, although the
effects of both are the same, being, like other civil actions, subject to the rules of prescription.

The action brought by the plaintiff having already prescribed, the appealed decision should be
reversed and the defendant absolved from the complaint, without special pronouncement as to the
costs in both instances. So ordered.
AGONCILLO VS JAVIER

Civil Law – Obligations and Contracts – Obligations of Parties – How Extinguished – Prescription

FACTS:

In 1897, one Anastasio Cruz incurred a P2,730.50 loan from Marcela Mariño, wife of Felipe Agoncillo.
Cruz however died. Later, in February 1904, the heirs of Cruz, namely: Jose Alano, Anastasio Alano
(for his children), and Florencio Alano executed a document whereby they promised to pay Marcela
the said debt. The debt is scheduled to mature on February 27, 1905. In 1908, Anastasio Alano paid
P200.00 pesos to Marcela. The payment was received as “payment made on the account of the debt
o Anastacio Alano”. Apparently, other than the P200.00 payment from Anastasio Alano, no other
payment was received from the Alanos.

In 1912, Anastasio Alano died. Crisanto Javier was named as the administrator of Anastasio Alano’s
estate.

In March 1916, Agoncillo and Marcela filed a civil case against the Javier as administrator of
Anastasio Alano’s estate. Florencio and Jose were impleaded.

In the main, Javier et al invoked the defense of prescription; that Agoncillo’s claim is barred by the
statute of limitations; that Agoncillo has ten years from the date of maturity (February 1905) to
collect hence his collection effort in 1916 is already way beyond the prescriptive period.

Agoncillo averred that the payment of P200.00 by Anastasio Alano in 1908 has tolled the running of
the prescriptive period hence his civil action in 1916 is still within the 10 year prescriptive period.

ISSUE: Whether or not Agoncillo’s claim is barred by the statute of limitations.

HELD: Yes. One mode of extinguishing an obligation is by prescription. It cannot be said that the
payment made by Anastasio Alano in 1908 suspended the running of the period of prescription. For
one, it is doubtful that he was ever personally liable to the document executed in February 1904
because he signed the same on behalf of his children (Leonina, Anastacio, Leocadio) – who were not
made parties to this case. At any rate, assuming arguendo that the it did toll the running of the
statute of limitations, it only suspended it as regards to him alone and it did not bind his brothers
(Jose and Florencio). This is because there was no showing that Anastasio Alano made the P200.00
payments with the authority of Florencio and Jose or for the benefit of the two. Further, the
payment was received by Marcela as “payment made on the account of the debt o Anastacio Alano”.
QUIZANA VS REDOGERIO

Facts:

Redugerio was ordered by the CFI of Marinduque to pay P550 to Quizana with interest.
However, Redugerio asserted that his mortgage on the loan be foreclosed instead to satisfy the
claim. On the other hand, Quizana refused to foreclose such mortgage contending that the mortgage
was not binding on her for she did not sign the document (promissory note) containing the promise
to pay and stipulation that in case of failure to pay a land will serve as a security; said document was
signed by Redugerio but it was not signed by Quizana but Quizana accepted said document and kept
it.

Issue:

Was there a valid mortgage?

Held:

Yes. The reason adduced by Quizana claiming that the agreement was not binding upon her
deserves scant consideration. When plaintiff-appellee received the document, without any objection
on his part to the paragraph thereof in which the obligors offered to deliver a mortgage on a
property of theirs in case they failed to pay the debt on the day stipulate, she thereby accepted the
said condition of the agreement. The acceptance by her of the written obligation without objection
and protest, and the fact that she kept it and based her action thereon, are concrete and positive
proof that she agreed and consented to all its terms, including the paragraph on the constitution of
the mortgage.
CEMBRANO VS CITY OF BUTUAN

FACTS:

CVC Lumber Industries, Inc. (CVC) was a timber concession licensee while Gil Cembrano
(Cembrano) was CVC’s Marketing Manager. CVC, through Cembrano, participated in a bidding for
the supply of piles and poles which were to be used for the construction of the new City Hall of
Butuan City (City). The contract was awarded to CVC, under which it was to deliver to Butuan, 757
timber piles amounting to P1,124,145.00 within 60 days from receipt of the order. In 1991, the City
of Butuan issued a Purchase Order for the timber piles to “CVC or Gil Cembrano.” To partly finance
the purchase of the merchandise, petitioner Cembrano, along with Gener Cembrano, secured a loan
from the DBP and executed a real estate mortgage over his property. Within the 60-day period, CVC
was able to make 2 deliveries of 174 pieces which the Mayor of Butuan accepted and paid for.
Months later, Cembrano received corresponding payment evidenced by the disbursement vouchers
issued by the City in favor of CVC. It appears on the face of the vouchers that the payee is “CVC or Gil
Cembrano.”

When the 60-day period to make deliveries of the timber piles expired, CVC offered to
deliver 100 timber piles, but respondent refused. Thereafter, CVC, through Cembrano, requested for
an extension, until December to complete the delivery of timber piles but was again denied by the
City Engineer. He then recommended that a new bidding be held on the unexecuted portion of the
contract. The re-bidding was held with the approval of former City Mayor but without notice to CVC.

CVC and Cembrano filed a complaint for breach of contract and damages against City and
Cembrano alleged therein that he was the Marketing Supervisor and an agent of CVC; that he
secured a loan from the DBP and executed a real estate mortgage over his uncle Dollfuss Go’s (Go)
property as collateral to partly finance the purchase of the timber poles/piles. Meanwhile, during a
meeting of the CVC Board of Directors, Monico Pag-Ong (Pag-Ong) was elected President and Isidro
Plaza (Plaza) as Corporate Secretary.

RTC ruled dismissed the case stating that the contract had already been terminated for
failure of CVC and Cembrano to complete deliveries on the original period. Since the request for
extension by the plaintiff was denied, the Butuan City was no longer obliged to accept any delivery
as said acceptance can be considered a waiver or abandonment of the right to rescind. CA reversed
RTC’s decisions ordering Butuan City to pay its liability and affirming the report made by the City
Legal Officer, and CVC’s entitlement to damages.

In 2002, Cembrano executed a Deed of Assignment covering ½ of the monetary award of the
CA in favor of Go, his uncle. Months later, City signed a check with “CVC LUMBER INDUSTRIES,
INC/MONICO E. PAG-ONG” as payee. The check was received by Pag-Ong for CVC. Thereafter, Atty.
Go, acting as counsel for CVC and Cembrano, filed a filed a separate case to enforce execution of
payment but were told that the City had already remitted the amount. The CA ruled that either
respondent Cembrano or Pag-Ong could receive the award of P926,845.00 for respondent CVC,
reversing the RTC’s decision. Moreover, the City of Butuan acted in good faith in delivering the
check to the Pag-Ong, hence, the City was released of its obligation.

Go and Cembrano filed a Motion for Reconsideration alleging that the transaction was
between Cembrano and the City of Butuan, Pag-Ong had no participation or involvement therein
whatsoever. Cembrano maintained that it was he who funded the purchase and delivery of the
timber poles and piles to the City of Butuan, since he secured a loan from the DBP, the amount CVC
used to finance the purchase of timber poles and piles.

For its part, the respondent City of Butuan avers that it complied with the decision when it
remitted the full amount of P926,845.00 to respondent CVC. It further maintains that it acted on its
honest belief that respondent Pag-Ong, as CVC president, was authorized to receive payment in
behalf of said corporation. For their part, respondents Pag-Ong and Plaza aver that as president of
CVC and chief executive officer, Pag-ong was authorized to receive the amount of P926,845.00 from
respondent Butuan City.

ISSUES:

Whether or not the remittance of the P926,845.00 made by City to CVC, through Pag-Ong,
released it from its obligation

HELD:

The SC held that the respondent City, as judgment debtor, is burdened to prove that its
obligation under the CA decision has been discharged by payment, which under Article 1240 of the
Civil Code, is a mode of extinguishing an obligation. Article 1240 of the Civil Code provides that
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.

In general, a payment in order to be effective to discharge an obligation, must be made to

the proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. When there is a concurrence of
several creditors or of several debtors or of several creditors and debtors in one and the same
obligation, it is presumed that the obligation is joint and not solidary. Hence, City of Butuan is
directed to pay the plaintiffs the total sum of P926,845.00 plus legal interest of 6% since petitioner
Cembrano did not receive any centavo out of the P926,845.00 remitted to respondent CVC, the
obligation to remit one-half of the amount to petitioner Cembrano was not extinguished.

Since respondent CVC was entitled to only P490,605.955 but received P926,845.00, there
was an overpayment of P490,605.955 made by respondent City. Thus, respondent CVC is obliged to
return the amount of P490,605.955 to respondent City. Since petitioner Cembrano had already
assigned P490,609.955 to petitioner Go, the latter likewise had the right to receive the P490,609.955
from DBP. Petitioner Cembrano should thus be made to return the amount of P490,609.955 he
received from the DBP to respondent City.
CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES VS ESTRELLA

FACTS:

From San Pablo City, Rebecca Estrella and her granddaughter Rachel Fletcher boarded a BLTB bus
(driven by Wilfredo Datinguinoo) for Pasay City, but they did not reach their destination because a
tractor-truck owned by CDCP (driven by Espiridion Payunan), rammed the bus from behind.

As a result of the accident, both Rebecca and Rachel sustained several injuries, wounds and
fractures. They then filed a complaint for damages in the RTC, alleging that both drivers were
negligent in their duties and did not obey traffic rules. They also included the drivers’ employers –
BLTB and CDCP for not exercising due diligence when it came to the proper selection and training of
their employees, and for lack of vehicle maintenance. CDCP included a third-party complaint against
Philippine Phoenix Surety and Insurance Inc.

The RTC ruled in favor of the plaintiffs, ordering BLTB and Datinguinoo jointly and severally liable to
pay a total of Php 89,254.43 as actual damages and attorney’s fees. This includes a 6% interest per
annum which is counted from the day of judicial demand (or filing of the complaint) which was
pegged on February 1980.

CDCP and Payunan on the other hand are ordered to pay exemplary damages worth Php 20,000
each to Rachel and Rebecca, with an additional Php 80,000 to Rachel as moral damages. The third-
party complaint of CDCP to Philippine Phoenix is however dropped.

CDCP raised an appeal to the CA, contending that the award of damages are excessive and
unfounded since both plaintiffs are passengers of BLTB, hence BLTB and Datinguinoo should be
solely liable based on culpa contractual. They also appealed the RTC’s decision of dropping Philippine
Phoenix from any liability, since they are entitled to recover expenses therefrom by virtue of their
insurance. The CA affirmed the RTC’s findings.

ISSUE:

Whether or not CDCP is liable for damages.

HELD:

Yes. The Supreme Court held that CDCP and Payunan are liable under quasi-delict (culpa aquilania).
However, the Supreme Court disagreed on the ruling of the lower courts regarding the
commencement of the 6% legal interest rate. It should not be on the day of the filing of the
complaint, but rather on the day of judgment – which was on February 1993. This is because the
amount of damages is still unknown and uncertain unless the court renders its judgment. In
addition, the Supreme Court says that if the liabilities are still not satisfied from the time of final
judgment, the total amount will earn an additional interest rate of 12% per annum.
INDUSTRIAL MANAGEMENT INTERNATIONAL VS NLRC

FACTS:

The Labor Arbiter rendered a decision awarding separation pay and backwages to the respondents
and no appeal was filed therefore the decision became final and executory. The LA then issued a writ
of execution but it was returned unsatisfied. He then issued an alias writ of execution to which the
petitioner filed a motion to quash, arguing that the writ changed the liability by making the
petitioners’ solidarity liable instead of joint by adding and/or to the writ. The NLRC upheld the
validity of the writ saying that according to the facts, they are solidarity liable and that they may
waive any error, defect or irregularity in any proceeding before them.

ISSUE:

Whether or not the liability of the petitioner is solidarity or joint.

HELD:

The Court held that since the dispositive potion of the LA’s decision failed to state that the liability
was solidary, it should be joint. Solidary liability cannot be lightly interfered. Once the decision
becomes final and executory it is removed from the jurisdiction of the body rendering the decision.
The LA can no longer amend the decision. The liability is only joint.
CONSTANTE AMOR DE CASTRO VS CA

FACTS:

Private respondent Artigo sued petitioners Constante and Amor De Castro to collect the unpaid
balance of his broker’s commission from the De Castros.

The appellants, De Castros, were co-owners of 4 lots in Cubao, Quezon City. The appellee, Artigo,
was authorized by appellants to act as real estate broker in the sale of these properties for the
amount of P23,000,000.00, 5% of which will be given to the agent as commission. Appellee first
found the Times Transit Corporation and 2 lots were sold. In return, he received P48,893.76 as
commission.

Appellee apparently felt short changed because according to him, his total commission should be
P352,500.00 which is 5% of the agreed price of P7,050,000.00 paid by Times Transit Corporation to
appellants for the 2 lots and that it was he who introduced the buyer to appellants and unceasingly
facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued to
collect the balance of P303,606.24 after having received P48,893.76 in advance.

Appellants argued that appellee is selfishly asking for more than what he truly deserved as
commission to the prejudice of other agents who were more instrumental to the consummation of
the sale and that there were more or less 18 others who took active efforts.

The De Castros argued that Artigo’s complaint should have been dismissed for failure to implead all
the co-owners of the 2 lots.. The De Castros contend that failure to implead such indispensable
parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with
funds co-owned by the four co-owners.

It was shown also that Constante Amor De Castro signed the authorization of Artigo as owner and
representative of the co-owners.

ISSUE:

Whether or not the complaint merits dismissal for failure to implead other co-owners as
indispensable parties

HELD:

No. The De Castros’ contentions are devoid of legal basis. The CA explained that it is not necessary to
implead the co-owners since the action is exclusively based on a contract of agency between Artigo
and Constante. The rule on mandatory joinder of indispensable parties is not applicable to the
instant case.

Constante signed the note as owner and as representative of the other co-owners. Under this note,
a contract of agency was clearly constituted between Constante and Artigo. Whether Constante
appointed Artigo as agent, in Constante’s individual or representative capacity, or both, the De
Castros cannot seek the dismissal of the case for failure to implead the other co-owners as
indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the
contract of agency, citing Article 1915 of the Civil Code, which reads:

Art. 1915. If two or more persons have appointed an agent for a common transaction or
undertaking, they shall be solidarily liable to the agent for all the consequences of the agency.

The solidary liability of the four co-owners, however, militates against the De Castros’ theory that
the other co-owners should be impleaded as indispensable parties.

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled to pay the entire obligation. The agent may
recover the whole compensation from any one of the co-principals, as in this case.

Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors.
This article reads:

Art. 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.
ICHAUSTI VS YULO

FACTS:

Suit is for recovery balance of a current account opened Inchausti & Company with Teodoro Yulo
and after his death continued with his widow and children, whose principal representative is
Gregorio Yulo.

TEODORO YULO: property owner of Iloilo, for exploitation of haciendas in Occidental Negros, had
been borrowing money from Inchausti & Company under specific conditions.

Died and appointed widow and SONS as administrators including GREGORIO YULO

i. Held conjugal property in common

ii. At the death of widow, Gregoria Regalado, children preserved the same relations under the
name of HIJOS DE T. YULO

1. Continued current account with Inchausti & Company until balance amounted to P200,000. In for
the payment of the disbursements of money which until that time it had been making in favor of its
debtors, the Yulos.

Children are: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose
Yulo y Regalado.

i. Concepcion and Jose were minors

ii. Teodoro was mentally incompetent.

1908, GREGORIO YULO (representing his brothers Pedro, Manuel and Carme, executed notarial
document whereby all admitted their indebtedness to Inchausti & Company in the sum of
P203,221.27.

i. To secure with 10% interest per annum, they mortgaged an undivided 6/9th of their 38 rural
properties, remaining urban properties, lorchas, and family credits which were listed

1. Obligated themselves to make a formal inventory and to describe all properties, and to cure all
defects which might prevent the inscription of the said contract in the registry of property and to
extend by the necessary formalities the aforesaid mortgage over the remaining 3/9th of all the
property and rights belonging to their other brothers, the incompetent Teodoro, and the minors
Concepcion and Jose.

1909, GREGPRIO YULO, REPRESENTING HIJOS DE YULO ANSWERED LETTER OF INCHAUSTI IN THESE
TERMS:

i. "With your favor of the 2d inst. we have received an abstract of our current account with your
important firm, closed on the 31st of last December, with which we desire to express our entire
conformity as also with the balance in your favor of P271,863.12.”

ii. INCHAUSTI informed Hijos de T. Yulo of the reduction of balance to P253,445.42.

1. HIJOS T. YULO expressed its conformity by means of a letter, proving that mortgage credit was
formalized.
1909, GREGORIO YULO, FOR HIMSELF AND REPRESENTING MANUEL and PEDRO, FRANCISCO,
CARMEN AND CONCEPCION in their OWN BEHALF (now of legal age) executed affidavit ratifying
their admission on their indebtedness to INCHAUSTI:

i. P253,445.42 with 10% interest per annum

ii. To be paid in 5 installments at the rate of P50,000, except last being P53,445.42

iii. Payment beginning June 30, 1910, continuing successively on the 30th of each June until the
last payment on June 30, 1914.

iv. Among other clauses, they expressly stipulated the following:

1. Default in payment of any of the installments or the noncompliance of any of the other
obligations will result in the maturity of all the said installments

2. INCHAUSTI may exercise at once all the rights and actions to obtain the immediate and total
payment of debt, in same manner that they would have so done at the maturity of the said
installments.

3. All the obligations will be understood as having been contradicted in solidum by all of us, the
Yulos, brothers and sisters.

4. Agreed that this instrument shall be confirmed and ratified in all its parts, within the present
week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be
binding on INCHAUSTI who can make use of their rights to demand and obtain immediate payment
of their credit without any further extension or delay, in accordance with what we have agreed.

5. This instrument was neither ratified nor confirmed by Mariano Yulo.

YULOS did not pay the first installment of the obligation.

INCHAUSTI brought an ordinary action against Gregorio Yulo for the payment of P253,445.42 with
10% interest per annum on that date aggregating P42,944.76.

1911, FRANCISCO, MANUEL, and CARMEN Yulo executed another affidavit in recognition of the debt
and obligation of payment in the following terms:

Debt is reduce for them to P225,000

Interest is reduced 6% per annum from March 15, 1911

Installments are increase to eight, 1st of P20,000, beginning on June 30, 1911, and the rest of
P30,000 each on the same date of each successive year until the total obligation shall be finally and
satisfactorily paid on June 30, 1919

If any of the partial payments specified in the foregoing clause be not paid at its maturity, the
amount of the said partial payment together with its interest shall bear 15% interest per annum
from the date of said maturity, without the necessity of demand until its complete payment

If during 2 consecutive years the partial payments agreed upon be not made, they shall lose the right
to make use of the period granted to them for the payment of the debt or the part thereof which
remains unpaid, and INCHAUSTI may consider the total obligation due and demandable, and
proceed to collect the same together with the interest for the delay above stipulated through all
legal means.
ADDITION STIPULATION: Inchausti & Co. should include in their suit brought in the CFI of Iloilo
against Gregorio Yulo, his brother and joint co-obligee, Pedro Yulo:

i. FRANCISCO, MANUEL AND CARMEN will procure by all legal means and in the least time possible
a judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to pay
the total amount of the obligation acknowledged by them in August 12, 1909 affidavit

ii. If they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doña
Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti & Company in the
proceedings of the said case.

GREGORIO YULO ANSWERED THE COMPLAINT:

An accumulation of interest had taken place and that compound interest was asked for the
Philippine currency at par with Mexican

IN August 21, 1909 affidavit, 2 conditions were agreed (one approved by Court of First Instance) and
the other ratified and confirmed by the other brother Mariano Yulo, neither of which was complied
with

With regard to the same debt claims were presented before the commissioners in the special
proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were
dismissed, pending the present suit

August 12, 1909 affidavit, was novated by that of May 12, 1911, executed by Manuel, Francisco and
Carmen Yulo.

COURT DECIDED IN FAVOR OF GREGORIO/MARIANO YULO. INCHAUSTI pay with costs.

ISSUE:

WON INCHAUSTI can sue Gregorio alone, here being other obligors. YES.

WON INCHAUSTI lost its right for agreeing with other obligors in the reduction of debt, proroguing
(discontinuing) the obligation and the extension for time of payment, in accordance with May 12
1911 affidavit. NO.

WON THE CONTRACT with the 3 obligors constitute a novation (substitution) of Aug 12 1909
affidavit, entered into the 6 debtors who assumed the payment of P253,445.42. NO.

If not, WON it has any effect in the action brought and in this present suit. YES.

HELD:

GREGORIO YULO TO PAY INCHAUSTI P112, 500 WITH INTEREST STIPULATD IN MAY 12 1911
AFFIDAVIT, FROM MARCH 15 1911 AND THE LEGL INTEREST ON THIS INTEREST DUE, JUDGMENT
APPEALED FROM IS REVERSED. NO SPECIAL FINDING AS TO COST.

WON INCHAUSTI CAN SUE GREGORIO ALONE? YES.

Debtors having obligated themselves in solidum, creditor can bring action to any one of them.
i. When the obligation is constituted as a conjoint and solidary obligation, each one of debtors is
bound to perform in full the undertaking which is the subject matter of the obligation.

WON INCHAUSTI lost its right for agreeing with other obligors? NO.

Even though the creditor may have stipulated with some of the solidary debtors diverse installments
and conditions, as in this case, INCHAUSTI did with its debtors Manuel, Francisco, and Carmen Yulo
through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity
stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that
"solidarity may exist even though the debtors are not bound in the same manner and for the same
periods and under the same conditions."

WON THE CONTRACT with the 3 obligors constitute a novation (substitution) of Aug 12 1909
affidavit? NO.

The May 12 1911 contract does not substitute the former one (Aug 1909) because:

i. “In order that an obligation may be extinguished by another which substitutes it, it is necessary
that it should be so expressly declared or that the old and the new be incompatible in all points"
(Civil Code, article 1204)

May 12, 1911 instrument, far from expressly declaring that the obligation of the three who executed
it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated
that the said obligation of Gregorio Yulo to pay P253,000 sued for exists.

The suit must continue its course and, if necessary, these three parties who executed the contract of
May 12, 1911, would cooperate in order that the action against Gregorio Yulo might prosper, with
other undertakings concerning the execution of the judgment which might be rendered against
Gregorio Yulo in this same suit.

"It is always necessary to state that it is the intention of the contracting parties to extinguish the
former obligation by the new one" (Judgment in cassation, July 8, 1909).

There exist no incompatibility between the old and the new obligation.

If not, WON it has any effect in the action brought and in this present suit. Total amount; amount
due; demandable amount respectively.

"What effect could this contract have over the rights and obligations of the defendant Gregorio Yulo
with respect to the plaintiff company?

i. The obligation being solidary, the remission of any part of the debt made by a creditor in favor of
one or more of the solidary debtors necessarily benefits the others, and therefore there can be no
doubt that, in accordance with the provision of article 1143 of the Civil Code, the defendant has the
right to enjoy the benefits of the partial remission of the debt granted by the creditor."

May 12, 1911 contract has not novated that of August 12, 1909

i. It has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for
the sum of P253,445.42;

ii. In consequence the amount stated in the contract of August 12, 1909, cannot be recovered but
only that stated in the contract of May 12, 1911
iii. By virtue of the remission granted to the three of the solidary debtors in this instrument, in
conformity with what is provided in article 1143 of the Civil Code, cited by the creditor itself.

If the later contract is recognized over the earlier one, should such efficacy not likewise be
recognized concerning the maturity of the same?

If Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense
of the non-maturity of the installments since the first installment did not mature until June 30, 1912,
and without the least doubt the defense would have prospered, and the three would have been
absolved from the suit.

Cannot this defense of the prematurity of the action, which is implied in the last special defense set
up in the answer of the defendant Gregorio Yulo be made available to him in this proceeding?

i. Gregorio Yulo cannot allege “prematurity of contract” as defense.

1. When the suit was brought on March 27, 1911, the first installment of the obligation had already
matured of June 30, 1910, and with the maturity of this installment, the first not having been paid,
the whole debt had become mature, according to the express agreement of the parties,
independently of the resolutory condition which gave the creditor the right to demand the
immediate payment of the whole debt upon the expiration of the stipulated term of one week
allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12,
1909.

ii. Cannot invoke exception for the shares of his solidary co-debtors Pedro and Concepcion Yulo,
they being in identical condition as he.

iii. None of Francisco, Manuel, and Carmen Yulo’s obligations have been matured.

iv. The part of the debt for which these three are responsible is three-sixths of P225,000 or
P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is
liable is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which
pertained to his co-debtors is not yet due, a state of affairs which not only prevents any action
against the persons who were granted the term which has not yet matured, but also against the
other solidary debtors who being ordered to pay could not now sue for a contribution, and for this
reason the action will be only as to the P112,500.

v. Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the
three-sixths part of the debt which forms the subject matter of the suit, we do not think that there
was any reason or argument offered which sustains an opinion that for the present it is not proper
to order him to pay all or part of the debt, the object of the action.
BARBASA VS TOQUERO

Petitioner assails the Decision1 dated July 29, 2003 and the Resolution2 dated May 21, 2004 of the
Court of Appeals in CA-G.R. SP No. 62610, which dismissed his petition for certiorari and denied his
motion for reconsideration, respectively. The appellate court had found no reason to reverse the
Resolution3 of the Secretary of Justice ordering the City Prosecutor of Manila to move for the
dismissal of Criminal Case No. 336630 against private respondents.

Petitioner avers that he is the president of Push-Thru Marketing, Inc., which leases commercial stalls
CS-PL 05, 19 and 30 in Tutuban Center, owned by Tutuban Properties, Inc., (TPI). On June 30, 1999,
Angelina Hipolito, merchandising officer of Push-Thru Marketing, received a notice of disconnection
of utilities from private respondent Grace Guarin, the Credit and Collection Manager of TPI, for
failure of Push-Thru Marketing to settle its outstanding obligations for Common Usage and Service
Area (CUSA) charges, utilities, electricity and rentals.

Petitioner settled the charges for CUSA, utilities and electricity, which payment was accepted by
private respondent Guarin, but petitioner failed to pay the back rentals. Thus, on July 1, 1999,
private respondents Guarin, Nestor Sangalang, engineering manager of TPI, and Victor Callueng, TPI
head of security, together with several armed guards, disconnected the electricity in the stalls
occupied by Push-Thru Marketing.

Aggrieved, petitioner filed a criminal complaint for Grave Coercion against TPI and its officers, David
Go, Robert Castanares, Buddy Mariano, Art Brondial, and herein private respondents before the
Office of the City Prosecutor of Manila.4 The complaint dated July 13, 1999 alleged that TPI and its
officers cut off the electricity in petitioner’s stalls "in a violent and intimidating manner"5 and by
unnecessarily employing "several armed guards to intimidate and frighten"6 petitioner and his
employees and agents.

The respondents in the criminal complaint filed separate counter-affidavits7 which presented a
common defense: that the July 1, 1999 cutting off of electrical supply was done peacefully; that it
was an act performed in the lawful performance of their assigned duties, and in accordance with the
covenants set forth in the written agreements previously executed between petitioner and TPI; that
petitioner was not present when the alleged acts were committed; and that petitioner had
outstanding accumulated unpaid rentals, CUSA billings, electrical and water bills, unpaid interest and
penalty charges (from June 1998 to May 1999) in the amount of P267,513.39 for all his rented stalls,
as reflected in three Interest-Penalty Reports8 duly sent to him. Petitioner was likewise given
demand letter-notices in writing at least three times wherein it was stated that if he did not settle
his arrears in full, electricity would be cut.9 Of the total amount due from him, petitioner paid only
P127,272.18 after receipt of the third notice. Accordingly, private respondents proceeded with the
power cut-off, but only after sending a "Notice of Disconnection of Utilities"10 to petitioner’s stalls
informing him of the impending act.

Private respondents also pointed out that aside from the above arrears, petitioner has outstanding
accountabilities with respect to "Priority Premium Fees" in the amount of P5,907,013.10.11

They likewise stressed that their Agreement12 with petitioner contains the following stipulations:
CONTRACT OF LEASE

Prime Block Cluster Stall

xxxx

PRIORITY PREMIUM : P *2,367,750.00

xxxx

RENT PER MONTH : P *******378.00 per sq. m (Plus P*******37.80 10% VAT)

xxxx

OTHER FEES AND EXPENSES CHARGEABLE

TO THE LESSEE:

xxxx

B. COMMON USAGE AND SERVICE AREA (CUSA) CHARGES

Minimum rate of P190.00/sq. m./mo. to cover expenses stipulated in Section 6 hereof, subject to
periodic review and adjustment to reflect actual expenses.

C. INDIVIDUAL UTILITIES

ELECTRIC CONSUMPTION : metered + reasonable service

(meter to be provided by the LESSOR, for the account of the LESSEE)

OTHER SERVICES : metered and/or reasonable

service charge

xxxx

7. PAYMENTS

xxx

In cases where payments made by the LESSEE for any given month is not sufficient to cover all
outstanding obligations for said period, the order of priority in the application of the payments made
is as follows:

a. Penalties

b. Interests

c. Insurance

d. CUSA Charges

e. Rent

f. Priority Premium

xxxx

21. PENALTY CLAUSE

xxxx

It is also expressly agreed that in case the LESSEE fails to pay at any time the installments on the
priority premium, lease rentals or CUSA and utility charges corresponding to a total of three (3)
months, even if not consecutively incurred, the LESSOR is hereby granted the option to cut off power
and other utility services to the LESSEE until full payment of said charges, expenses, penalty and
interest is made, without prejudice to any other remedies provided under this Contract, including
the termination of this Contract.

Petitioner filed his Reply Affidavit,13 claiming that Go, Castanares, Mariano, Brondial, Guarin and
Sangalang, while not personally present at the scene at the time, were to be held liable as the
authors of the criminal design since they were the ones who ordered the cutting off of petitioner’s
electricity. Petitioner admitted that none of the armed personnel drew his gun, much more aimed or
fired it, but insisted that he was unduly prevented from using electricity to the detriment of his
business and his person. He claimed that the officers of TPI were unable to show the amount and
extent of his unpaid bills; that as to the electric bills, the same were paid; and that there was an
ongoing negotiation with respect to the matter of rentals and for reformation of the lease
agreements.14

The Office of the City Prosecutor of Manila, through Prosecutor Venus D. Marzan, dismissed the
complaint against David Go, Roberto Castanares, Buddy Mariano and Art Brondial but found
probable cause against private respondents Grace Guarin, Nestor Sangalang and Victor Callueng. On
January 13, 2000, an Information15 for grave coercion was filed in court, but proceedings therein
were deferred when the private respondents filed an appeal to the Secretary of Justice.

On August 23, 2000, the Secretary of Justice reversed the City Prosecutor’s Resolution, as follows:

WHEREFORE, the assailed resolution is hereby REVERSED and SET ASIDE. The City Prosecutor is
directed to move, with leave of court, for the dismissal of Criminal Case No. 336630 of the
Metropolitan Trial Court of Manila and to report the action taken within ten (10) days from receipt
hereof.

SO ORDERED.16

His motion for reconsideration having been denied, petitioner assailed the Resolution of the
Secretary of Justice before the Court of Appeals through a petition for certiorari, which was,
however, dismissed by the appellate court for lack of merit. The appellate court likewise denied his
motion for reconsideration. Hence this petition.

Petitioner raises the sole issue of whether private respondents’ act of disconnecting the supply of
electricity to petitioner’s stalls and the manner by which it was carried out constitute grave coercion.

After carefully considering petitioner’s appeal, we are in agreement to deny it for utter lack of merit.

The crime of grave coercion has three elements: (a) that a person is prevented by another from
doing something not prohibited by law, or compelled to do something against his or her will, be it
right or wrong; (b) that the prevention or compulsion is effected by violence, either by material force
or such a display of it as would produce intimidation and, consequently, control over the will of the
offended party; and (c) that the person who restrains the will and liberty of another has no right to
do so; in other words, that the restraint is not made under authority of law or in the exercise of any
lawful right.17
Petitioner’s appeal gives us no sufficient reason to deviate from what has already been found by the
Secretary of Justice and the Court of Appeals.

The records show that there was no violence, force or the display of it as would produce intimidation
upon petitioner’s employees when the cutting off of petitioner’s electricity was effected. On the
contrary, it was done peacefully and after written notice to petitioner was sent. We do not subscribe
to petitioner’s claim that the presence of armed guards were calculated to intimidate him or his
employees. Rather, we are more inclined to believe that the guards were there to prevent any
untoward or violent event from occurring in the exercise of TPI’s rights under the lease agreements.
If the respondents desired a violent result, they would have gone there unannounced or cut
petitioner’s electricity through less desirable and conspicuous means.

It is likewise clear from the penalty clause in the Contracts of Lease entered into by the parties that
TPI is given the option to cut off power and other utility services in petitioner’s stalls in case
petitioner fails to pay at any time the installments on the priority premium, lease rentals or CUSA
and utility charges corresponding to a total of three months until full payment of said charges,
expenses, penalty and interest is made.18 The stipulation under said clause is clear; there is no
ambiguity in what is stated. There could be no grave coercion in the private respondents’ act of
exercising in behalf of TPI a right afforded to TPI under the solemn and unequivocal covenants of a
contract to which petitioner had agreed and which he did execute and sign.

As held by this Court in a previous case which we find instructive:

Contracts constitute the law between the parties. They must be read together and interpreted in a
manner that reconciles and gives life to all of them. The intent of the parties, as shown by the clear
language used, prevails over post facto explanations that find no support from the words employed
by the parties or from their contemporary and subsequent acts showing their understanding of such
contracts.19

We could not see how the Office of the City Prosecutor of Manila, through Prosecutor Venus D.
Marzan, could have made a finding of probable cause to file a criminal case for grave coercion
against private respondents, in light of the evidence then and now prevailing, which will show that
there was a mutual agreement, in a contract of lease, that provided for the cutting off of electricity
as an acceptable penalty for failure to abide faithfully with what has been covenanted. Although the
propriety of its exercise may be the subject of controversy, mere resort to it may not so readily
expose the lessor TPI to a charge of grave coercion. Considering that petitioner owed TPI the total
amount of more than P5 million, which was undisputed, we find that the resort to the penalty clause
under the lease agreements was justified. As held in Pryce Corporation v. Philippine Amusement and
Gaming Corporation:

A penal clause is "an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special prestation
(generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled."

Quite common in lease contracts, this clause functions to strengthen the coercive force of the
obligation and to provide, in effect, for what could be the liquidated damages resulting from a
breach. There is nothing immoral or illegal in such indemnity/penalty clause, absent any showing
that it was forced upon or fraudulently foisted on the obligor.20 (Emphasis supplied.)
In this connection, counsels must be reminded that equally important, as their duty to clients, is
their duty as officers of the court to see to it that the orderly administration of justice is not unduly
impeded or delayed. Counsel needs to advise a client, ordinarily a layman unaccustomed to the
intricacies and vagaries of the law, concerning the objective merit of his case. If counsel finds that his
client’s cause lacks merit, then it is his bounden duty to advise accordingly. Indeed a lawyer’s oath to
uphold the cause of justice may supersede his duty to his client’s cause; for such fealty to ethical
concerns is indispensable to the success of the rule of law.21
FLORENTINO VS SUPERVALUE INC

FACTS:

Florentino is a lessee of Supervalue (SM). Florentino is the owner of Empanada Royale, a food cart
business entered into a contract of lease with SM. The contract was good for 4 months and after the
end of the contract, both parties had the option to either renew or terminate the contract.
Florentino and SM was able to renew the contract several times that it even lasted for a year.
However, SM terminated the contract with Florentino for the following violations: failure to open on
two separate occasions; closing before mall closing time; introducing a new variety of empanada
without the approval of SM. The store management then ordered the foreclosure of the space and
along with it were the personal belongings of the petitioner. Florentino demanded for the return of
her personal belongings and of the security deposit that she has given SM.

ISSUE:

1.Whether or not Florentino can claim for reimbursement on the improvements that she has made?

2.Whether or not Florentino is entitled to claim for the security bond that she has posted?

HELD:

(1) Florentino is no longer entitled for reimbursment on the improvements that she has done on her
stall.

Article 1678: If the lessee makes in good faith, useful improvements which are suitable to the use for
which the lease is intended, without altering the form or substance of the property leased,the lessor
upon the termination of the lease shall pay the lessee one-half of the of the improvements at that
time. Should the lessor refused to reimburse said amount the lessee may remove the improvements,
even though the principal thing may suffer damages thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary."

As stated in Geminiano vs CA: "Being mere lessees, the private respondents knew that their
occupation of the premises would continue only for the life of the lease. Plainly, they cannot be
considered as possessors nor builders in good faith"

(2) Florentino is entitled to half of the security deposits made with SM because it would
unconscionable for the former to be imposed such penalty.

Obligations with Penal clause:

Article 1226: In obligations with penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this
code.
As a rule, the courts are not in the liberty to ignore the freedoms of the parties to agree on such
terms and conditions. The courts may equitably reduce a stipulated penalty in the contracts in two
instances:

1. if the principal obligation has been partly or irregularly complied with;

2. If there has been no compliance if the penalty is iniquitous or unconscionable in

accordance with Article 1229:

Article 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.
BACHRACH MOTOR CO VS ESPIRITU

Facts:

1. This is a consolidated case (Cases no. 28497 and 28948) involving two separate sale
transactions. One made in Feb. 18, 1925 (case 28498), when the defendant earlier bought a truck on
instalment from the petitioner and said truck was mortgaged together with the two others (no.
77197 & 92744 in the the subsequent sale transaction dated July 28, 1925. The said two of the other
trucks were also purchased (but already paid previously) from the plaintiff. The defendant failed to
pay the balance. In July 1925, defendant again purchased another truck from Bachrach. The said
truck, together with the 3 other vehicles were mortgaged to the plaintiff to secure the remaining
balance. The defendant failed to pay the balance for the latest truck obtained.

2. It was agreed in both sales that 12% interest will be paid on the unpaid price, and in case of the
non-payment of the total debt at maturity, 25% shall be the penalty. The defendant also signed a
promissory note solidarily with his brother Rosario (acting as intervenor), the sums secured by the
mortgages. Rosario is alleged to be the owner of the two white trucks no. 77197 & 92744
mortgaged.

3. While these two cases were pending in the lower court the mortgaged trucks were sold by
virtue of the mortgage, all of them together bringing in, after deducting the sheriff's fees and
transportation charges to Manila, the net sum of P3,269.58.

4. The lower court ordered the defendants and the intervenor to pay plaintiff in case 28497 the
sum of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until fully
paid, and 25 per cent thereof in addition as penalty. In case 28498, the trial court ordered the
defendant and the intervenor to pay plaintiff the sum of P4,208.28 with interest at 12 per cent per
annum from December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

5. The appellants contend that trucks 77197 and 92744 were not mortgaged, because, when the
defendant signed the mortgage deeds these trucks were not included in those documents, and were
only put in later, without defendant's knowledge. Appellants also alleged that on February 4, 1925,
the defendant sold his rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the
latter did not sign the mortgage deeds, such trucks cannot be considered as mortgaged.

6. But there is positive proof that they were included at the time the defendant signed these
documents. Besides, there were presented two of defendant's letters to Hidalgo, an employee of the
plaintiff's written a few days before the transaction, acquiescing in the inclusion of all his White
trucks already paid for, in the mortgage (Exhibit H-I).

Issue: W/N the 25% penalty upon the debt in addition to the 25% p.a. is usurious

Ruling: No, Article 1152 of the Civil Code permits the agreement upon a penalty apart from the
interest. Should there be such an agreement, the penalty, as was held in the case of Lopez vs.
Hernaez (32 Phil., 631), does not include the interest, and which may be demanded separately. The
penalty is not to be added to the interest for the determination of whether the interest exceeds the
rate fixed by the law, since said rate was fixed only for the interest. But considering that the
obligation was partly performed, and making use of the power given to the court by article 1154 of
the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt. The penalty is however
reduced from 25 % upon the sum owed, the defendants need pay only 10 % thereon as penalty.
(Judgment appealed from is affirmed in all other respects).
DAE HENG BANK INC VS LAIGO

Facts:

Spouses Laigo obtained a loan from Dao Heng Bank Inc. As a security 3 real estate mortgages were
executed. As of 2000, the Laigos failed to pay on time so as a remedy, they verbally agreed to cede
one of the mortgaged property to Dao Heng by way of dacion en pago (dation in payment). In
August 2000, Dao Heng, thru a letter informed the Laigos that there total obligation amounts to 10.8
million. the Laigos took no action so their property was foreclosed. They now contend that the
foreclosure was illegal since there was a verbal agreement for dacion en pago. Dao Heng however
contends that the dacion en pago falls under the statute of fraud therefore it is not enforceable. The
Laigo’s counter this by stating that the dacion is an exception since it is no longer executory but had
undergone partial performance when the titles to the property were delivered to Dao Heng.

Issue:

1. Is the dacion en pago covered by the Statues of Fraud?

2. Is the foreclosure valid?

Held:

1. There is no showing that the dacion en pago has been accepted by both parties. Since there is no
mutual consent, there is no dacion Dacion en pago as a mode of extinguishing an existing obligation
partakes of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt
in money. It is an objective novation of the obligation, hence, common consent of the parties is
required in order to extinguish the obligation. Being likened to that of a contract of sale, dacion en
pago is governed by the law on sales. The partial execution of a contract of sale takes the transaction
out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the
contracting parties, object and cause of the obligation concur and are clearly established to be
present. In the case at bar, the titles to the property were delivered as a security for the mortgage.

2. The foreclosure is valid. It is the proper remedy for securing payment for a mortgage. The law
clearly provides that the debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value, or more valuable than that which is due (Article 1244,
New Civil Code). The obligee is entitled to demand fulfillment of the obligation or performance as
stipulated. The power to decide whether to foreclose on the mortgage is the sole prerogative of the
mortgagee
HAW PIA VS CHINA BANKING CORP

Facts:

Plaintiff-appellant’s indebtedness to the defendant-appellee China Banking Corporation in the sum

of P5,103.35 by way of overdraft in current account payable on demand together with its interests,
has been completely paid, on different occasions to the defendant Bank China Banking Corporation
through the defendant Bank of Taiwan, Ltd., that was appointed by the Japanese Military authorities
as liquidator of the China Banking Corporation.

The trial court held that, as there was no evidence presented to show that the defendant Bank had
authorized the Bank of Taiwan, Ltd., to accept the payment of the plaintiff’s debt to the said
defendant, and said Bank of Taiwan, as an agency of the Japanese invading army, was not authorized
under the international law to liquidate the business of the China Banking Corporation, the payment
has not extinguished the indebtedness of the plaintiff to the said defendant under Article 1162 of
the Civil Code.

Issues:

1. Whether or not the Japanese Military Administration had authority to order the liquidation or
winding up of the business of defendant-appellee China Banking Corporation, and to appoint the
Bank of Taiwan liquidator authorized as such to accept the payment by the plaintiff-appellant to said
defendant-appellee; and

2. Whether or not such payment by the plaintiff-appellant has extinguished her obligation to said
defendant-appellee.

Ruling:

1. YES. The Japanese military authorities had power, under the international law, to order the
liquidation of the China Banking Corporation and to appoint and authorize the Bank of Taiwan as
liquidator to accept the payment in question, because such liquidation is not confiscation of the
properties of the bank appellee, but a mere sequestration of its assets which required the
liquidation or winding up of the business of said bank. The sequestration or liquidation of enemy
banks in occupied territories is authorized expressly by the United States Army and Navy Manual of
Military Government and Civil Affairs F.M. 2710 OPNAV 50-E-3.

2. YES. It having been shown above that the Japanese Military Forces had power to sequestrate and
impound the assets or funds of the China Banking Corporation, and for that purpose to liquidate it
by collecting the debts due to said bank from its debtors, and paying its creditors, and therefore to
appoint the Bank of Taiwan as liquidator with the consequent authority to make the collection, it
follows evidently that the payments by the debtors to the Bank of Taiwan of their debts to the China
Banking Corporation have extinguished their obligation to the latter. Said payments were made to a
person, the Bank of Taiwan, authorized to receive them in the name of the bank creditor under
article 1162, of the Civil Code. Because it is evident the words “a person authorized to receive it,” as
used therein, means not only a person authorized by the same creditor, but also a person authorized
by law to do so, such as guardian, executor or administrator of estate of a deceased, and assignee or
liquidator of a partnership or corporation, as well as any other who may be authorized to do so by
law (Manresa, Civil Code, 4th ed. p. 254.)

The fact that the money with which that debts have been paid were Japanese war notes does not
affect the validity of the payments. The power of the military governments established in occupied
enemy territory to issue military currency in the exercise of their governmental power is based, not
only on the occupant’s general power to maintain law and order recognized in article 43 of the
Hague Regulations (Feilchenfeld of Belligerent Occupation, paragraph 6), but on military necessity as
shown by the history of the use of money or currency in wars.
NEW PACIFIC TIMBER AND SUPPLY CO VS SENERIS

FACTS:

Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of
money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a
compromise judgment based on the amicable settlement entered by the parties wherein petitioner
will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorney’s fee
of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a
writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner.
Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the
Ex-Officio Sheriff P50,000.00 in Cashier’s Check of the Equitable Banking Corporation and P13,130.00
in cash for a total of P63,130.00. Private respondent refused to accept the check and the cash and
requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest
bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance
of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence this
present petition, alleging that the respondent Judge capriciously and whimsically abused his
discretion in not granting the requested motion for the reason that the judgment obligation was
fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio
Sheriff. In upholding the refusal of the private respondent to accept the check, the respondent Judge
cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the
currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which
provides that checks representing deposit money do not have legal tender power. In sustaining the
contention of the private respondent to refuse the acceptance of the cash, the respondent Judge
cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept
partial payment unless there is an express stipulation to the contrary.

ISSUE:

Can the check be considered a valid payment of the judgment obligation?

RULING:

Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a
Cashier’s Check is deemed cash. Moreover, since the check has been certified by the drawee bank,
this certification implies that the check is sufficiently funded in the drawee bank and the funds will
be applied whenever the check is presented for payment. The object of certifying a check is to
enable the holder to use it as money. When the holder procures the check to be certified, it operates
as an assignment of a part of the funds to the creditors. Hence, the exception provided in Section 63
of the Central Bank Act which states that checks which have been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to
that which is credited to his account. The Cashier’s Check and the cash are valid payment of the
obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of
the check and cash as full payment of the obligation
AQUINTEY VS TIBONG

FACTS:

On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint for sum of money and
damages against respondents. Agrifina alleged that Felicidad secured loans from her on several
occasions at monthly interest rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their
outstanding loans of P773,000,00 exclusive of interests. However, spouses Tiong alleged that they
had executed deeds of assignment in favor of Agrifina amounting to P546,459 and that their debtors
had executed promissory notes in favor of Agrifina. Spouses insisted that by virtue of these
documents, Agrifina became the new collector of their debts. Agrifina was able to collect the total
amount of P301,000 from Felicdad’s debtors. She tried to collect the balance of Felicidad and when
the latter reneged on her promise, Agrifina filed a complaint in the office of the barangay for the
collection of P773,000.00. There was no settlement. RTC favored Agrifina. Court of Appeals affirmed
the decision with modification ordering defendant to pay the balance of total indebtedness in the
amount of P51,341,00 plus 6% per month.

ISSUE:

Whether or not the deeds of assignment in favor of petitioner has the effect of payment of the
original obligation that would partially extinguish the same

RULING:

Substitution of the person of the debtor ay be affected by delegacion. Meaning, the debtor offers,
the creditor accepts a third person who consent of the substitution and assumes the obligation. It is
necessary that the old debtor be released fro the obligation and the third person or new debtor
takes his place in the relation . Without such release, there is no novation. Court of Appeals correctly
found that the respondent’s obligation to pay the balance of their account with petitioner was
extinguished pro tanto by the deeds of credit. CA decision is affirmed with the modification that the
principal amount of the respondents is P33,841.
TELENGTAN BROS AND SONS INC VS UNITED STATES LINE INC

FACTS:

Petitioner is a domestic corporation while US Lines is a foreign corporation engaged in overseas

shipping. It was made applicable that consignees who fail to take delivery of their containerized
cargo within the 10-day free period are liable to pay demurrage charges. On June 22, 1981, US Lines
filed a suit against petitioner seeking payment of demurrage charges plus interest and damages.
Petitioner incurred P94,000 which the latter refused to pay despite repeated demands. Petitioner
disclaims liability alleging that it has never entered into a contract nor signed an agreement to be
bound by it. RTC ruled that petitioner is liable to respondent and all be computed as of the date of
payment in accordance with Article 1250 of the Civil Code. CA affirmed the decision.

ISSUE:

Whether the re-computation of the judgment award in accordance with Article 1250 of the Civil
Code proper

RULING:

The Supreme Court found as erroneous the trial court’s decision as affirmed y the Court of Appeals.
The Court holds that there has been an extraordinary inflation within the meaning of Article 1250 of
the Civil Code. There is no reason for ordering the payment of an obligation in an amount different
from what has been agreed upon because of the purported supervention of an extraordinary
inflation.

The assailed decision is affirmed with modification that the order for re-computation as of the date
of payment in accordance with the provisions of Article 1250 of New Civil Code is deleted.
PAL VS CA

FACTS:

Amelia Tan was found to have been wronged by Philippine Air Lines (PAL). She filed her complaint in
1967. After ten (10) years of protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case. Almost twenty-two (22) years later, Ms. Tan has not seen a centavo
of what the courts have solemnly declared as rightfully hers. Through absolutely no fault of her own,
Ms. Tan has been deprived of what, technically, she should have been paid from the start, before
1967, without need of her going to court to enforce her rights. And all because PAL did not issue the
checks intended for her, in her name. Petitioner PAL filed a petition for review on certiorari the
decision of Court of Appeals dismissing the petition for certiorari against the order of the Court of
First Instance (CFI) which issued an alias writ of execution against them. Petitioner alleged that the
payment in check had already been effected to the absconding sheriff, satisfying the judgment.

ISSUE:

Whether or not payment by check to the sheriff extinguished the judgment debt.

RULING:

NO. The payment made by the petitioner to the absconding sheriff was not in cash or legal tender
but in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.In the absence of an agreement, either express or implied, payment means the
discharge of a debt or obligation in money and unless the parties so agree, a debtor has no rights,
except at his own peril, to substitute something in lieu of cash as medium of payment of his debt.
Strictly speaking, the acceptance by the sheriff of the petitioner’s checks, in the case at bar, does
not, per se, operate as a discharge of the judgment debt. The check as a negotiable instrument is
only a substitute for money and not money, the delivery of such an instrument does not, by itself,
operate as payment. A check, whether a manager’s check or ordinary cheek, 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. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par. 3).
PACULDO VS REGALADO

FACTS: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado
entered into a contract of lease over a parcel of land with a wet market building, located at Fairview
Park, Quezon City. The contract was for twenty five (25) years, commencing on January 1, 1991 and
ending on December 27, 2015. For the first five (5) years of the contract beginning December 27,
1990, Nereo would pay a monthly rental of P450,000, payable within the first five (5) days of each
month with a 2% penalty for every month of late payment.

Aside from the above lease, petitioner leased eleven (11) other property from the respondent, ten
(10) of which were located within the Fairview compound, while the eleventh was located along
Quirino Highway Quezon City. Petitioner also purchased from respondent eight (8) units of heavy
equipment and vehicles in the aggregate amount of Php 1, 020,000.

On account of petitioner’s failure to pay P361, 895.55 in rental for the month of May, 1992, and the
monthly rental of P450, 000.00 for the months of June and July 1992, the respondent sent two
demand letters to petitioner demanding payment of the back rentals, and if no payment was made
within fifteen (15) days from the receipt of the letter, it would cause the cancellation of the lease
contract.

Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject of
the lease contract, including the improvements which petitioner introduced into the land amounting
to P35, 000,000.00, to Monte de Piedad Savings Bank, as a security for a loan.

On August 12, 1992, and the subsequent dates thereafter, respondent refused to accept petitioner’s
daily rental payments.

Subsequently, petitioner filed an action for injunction and damages seeking to enjoin respondents
from disturbing his possession of the property subject of the lease contract. On the same day,
respondent also filed a complaint for ejectment against petitioner.

The lower court rendered a decision in favor of the respondent, which was affirmed in toto by the
Court of Appeals.

ISSUE:

Whether or not the petitioner was truly in arrears in the payment of rentals on the subject property
at the time of the filing of the complaint for ejectment.

RULING:

NO, the petitioner was not in arrears in the payment of rentals on the subject property at the time of
the filing of the complaint for ejectment.

As found by the lower court there was a letter sent by respondent to herein petitioner, dated
November 19, 1991, which states that petitioner’s security deposit for the Quirino lot, be applied as
partial payment for his account under the subject lot as well as to the real estate taxes on the
Quirino lot. Petitioner interposed no objection, as evidenced by his signature signifying his
conformity thereto.

Meanwhile, in an earlier letter, dated July 15, 1991, respondent informed petitioner that the
payment was to be applied not only to petitioner’s accounts under the subject land and the Quirino
lot but also to heavy equipment bought by the latter from respondent. Unlike in the November
letter, the July letter did not contain the signature of petitioner.

Petitioner submits that his silence is not consent but is in fact a rejection.

As provided in Article 1252 of the Civil Code, the right to specify which among his various obligations
to the same creditor is to be satisfied first rest with the debtor.

In the case at bar, at the time petitioner made the payment, he made it clear to respondent that
they were to be applied to his rental obligations on the Fairview wet market property. Though he
entered into various contracts and obligations with respondent, all the payments made, about
P11,000,000.00 were to be applied to rental and security deposit on the Fairview wet market
property. However, respondent applied a big portion of the amount paid by petitioner to the
satisfaction of an obligation which was not yet due and demandable- the payment of the eight heavy
equipment.

Under the law, if the debtor did not declare at the time he made the payment to which of his debts
with the creditor the payment is to be applied, the law provided the guideline; i.e. no payment is to
be applied to a debt which is not yet due and the payment has to be applied first to the debt which
is most onerous to the debtor.

The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar.

Consequently, the petition is granted.

PREMIERE DEVELOPMENT BANK VS CENTRAL SURETY AND INSURANCE CO INC

FACTS:

Respondent Central Surety & Insurance Company (Central Surety) acquired an industrial loan worth
six million pesos from petitioner Premiere Development Bank, evidenced by Promissory Note.
Should Central Surety fail to pay, it would be liable to Premiere Bank for: (1) unpaid interest up to
maturity date; (2) unpaid penalties up to maturity date; and (3) unpaid balance of the principal. To
Secure Payment for the loan Central Surety executed a Deed of Assignment with Pledge in favor of
Premier Bank its proprietary share in Wack Wack and golf and country Club. Central Surety had
another commercial loan with Premiere Bank worth 40,898,000.00 pesos, again by Promissory Note.
To secure payment of the loan they were secured a real estate mortgage over a Condominium
Certificate. This was availed through a renewal of Central Surety’s prior loan. It was stipulated in the
contract that Premiere Bank as creditor would have the right to decide to which the payment would
be applied, and that there is no need for an express demand from the creditor to make the
obligations due and demandable. Central Surety issued a check worth 6,000,000.00 pesos and
payable to Premiere Bank. However, the latter returned such check and sent a letter, as part of a
normal bank procedure, demanding payment and threatening foreclosure of Central Surety’s
securities, the pledge and real estate mortgage, should it fail to pay within ten days from date of
receipt. This was alleged by the latter to be an act of waiving Premiere Bank’s right to apply
payments. Central Surety moves for the release of the Wack Wack Membership pledge for their
supposed paid loan. The lower court ruled in favor of Premiere Bank, while the Court of Appeals
reversed the prior decision of the lower court.

ISSUE:

(1) Whether or not Premiere Bank waived its right of application of payments on the loans of Central

Surety; (2) Whether the release of the Wack Wack Membership pledge is in order.

HELD:

(1) No. Relevant to the case is the statutory provision on application of payments, particularly Article
1252 of the Civil Code. “He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the same must be
applied. xxx” The debtor’s right to apply payment is only directory, and not mandatory, as
manifested by the use of the word “may”. Such right may be waived or even granted to the creditor
if both parties agree on such circumstance. In the instant case, it was stipulated in the contract that
the right to apply payments would be enjoyed by the Premiere Bank. It cannot be understood that
such granted right was waived by Premiere Bank. As all debts were already due, the subsequent
demand made by Premiere Bank cannot be equated with a waiver of the right to demand payment
of all the matured obligations of Central Surety to Premiere Bank. The Court also recognized the
standard practice in commercial transactions to send demand letters before default may set in. The
demand cannot be considered a waiver for a waiver must be positively demonstrated, and
voluntary, made knowingly, intelligently and with sufficient awareness of relevant circumstances and
likely consequences. Also any inference of a waiver made by Premiere Bank is denied by the
provision of the Promissory Note that “no failure on the part of Premiere Bank to exercise, and no
delay in exercising any right hereunder, shall operate as a waiver thereof.” When Central Surety
issued a check as payment to Premiere Bank, it knew very well that it had several loans which
granted Premiere Bank the right to apply its payment.

(2) No. Considering that the parties are bound by a contract of adhesion, where Central Surety
imposed a readymade contract on Premiere Bank, the latter had freedom to reject or adhere to the
contract. Central Surety, being a well-established personality, would also not be considered as a
disadvantaged party. The contract between the parties falls on the dragnet clause, which is one
“specifically phrased to subsume all debts of past and future origins.” The security clause in the
instant case is that of a continuing pledge, wherein the Wack Wack Membership served as security
for the standing obligation, also for future advancements. Such security worth 15,000,000.00 pesos
was clearly worth more than the industrial loan worth 6,000,000.00 pesos, which was understood to
secure the ballooning debt of the Central Surety. As all demandable obligations are yet to be
fulfilled, the release of the Wack Wack membership as security cannot yet to be done as prayed for
by Central Surety. Wherefore, the instant petition is partially granted. The decision of the Court of
Appeals is set aside and the decision of the Regional Trial Court of Makati is reinstated with
modification.