Elements of an Obligation

2. Deganos vs people

Facts: Narciso Deganos received several pieces of gold and jewelry from spouses Atty. Jose
Bordador and Lydia Bordador. Deganos was supposed to sell the items at a profit and remit the
proceeds and return the unsold items. He was not able to pay the balance nor returned any of
the unsold items. Deganos signed a compromise agreement with the Bordados and thus
obligating himself to pay, on installment basis, the balance of his account plus interest. But,
Deganos failed to comply and was charged and found guilty of the crime estafa.

Issue: Whether or not novation had converted the liability of the accused into civil one.

Held: The Supreme Court found Deganos guilty of estafa and his argument that when
Bordados accepted his partial payments before criminal information was filed in court would
extinguish his criminal liability is untenable. Novation is never presumed, whether totally or
partially, must appear by express agreement of the parties, or their acts that are too clear and
unequivocal to be mistaken.

Rescission

118. Angeles vs Calazans

Ursula and Tomas Calazans sold a piece of land to Buenaventura Angeles and Teofila Juani
covered by a contract to sell. Angeles paid a downpayment upon the execution of the contract
and started paying the balance in monthly installments and paid for nine years with only a few
remaining installments left to pay. Calasanz demanded payment of past due accounts, but did
not receive any. Eventually, Calasanz canceled the said contract because Angeles failed to pay
the subsequent payments. Angeles filed a case to compel the Calasanz to execute in their favor
the final deed of sale alleging that they have already fully paid the total price of the property.

Issue: Was the contract to sell validly cancelled?

Held: No. The rule that it is not always necessary for injured party to resort to court recession of
the contract when the contract itself provides was qualified in the court.The general rule is that
rescission of a contract will not be permitted for slight or casual breach, but only for substantial
and fundamental breach. The breach of the contract alleged by Calasanz is so slight
considering that Angeles had already paid monthly installments for almost nine years, the entire
obligation would have been paid. To sanction the recission made by Calasanz will work injustice
to Angeles and unjustly enrich Calasanz.
Extinguishment of Obligations

60. Saura Import and Export Co., INC vs DBP

Facts: The Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan.
In Resolution No. 145, the loan was approved to be secured first by mortgage on the factory
building. The mortgage was registered and documents for the promissory note were executed.
But then, later on, was cancelled to make way for the registration of the mortgage contract over
the same property in favor of Prudential Bank and Trust Co.. After almost nine years, Saura Inc,
commenced an action against RFC, alleging failure on the latter to comply with its obligations to
release the loan applied for the approved, thereby preventing the plaintiff from completing or
paying contractual commitments it had entered. The trial court ruled in favor of Saura, ruling that
there was a perfected contract between the parties and that the RFC was guilty of breach
thereof.

Issue: Whether or not there was a perfected contract between the parties.

Held: When an application for a loan of money was approved by resolution of the respondent
corporation and the responding mortgage was executed and registered, there arises a perfected
consensual contract; but it should be noted that RFC imposed two conditions which Saura, Inc.
was in no position to comply with RFC’s conditions and Saura Inc. asked that the mortgage be
cancelled. The action thus taken by both parties was in nature of mutual desistance which is a
mode of extinguishing obligations. It is a concept that derives from the principle that since
mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment. The judgment appealed from is reversed and complaint dismissed.

Relativity, Privity of Contracts

176. Metropolitan Bank and Trust Company vs Rogelio Reynado

Facts: Petitioner Metropolitan Bank and Trust Company charged respondents before the office
of the City Prosecutor of Manila with the crime of estafa against Reynado. It was alleged that
respondent perpetrated fraudulent transactions in Port Area branch in connivance with client
Universal Converter Philippines, Inc.. Meanwhile, petitioner and Universal entered into Debt
Settlement Agreement whereby the latter acknowledged its indebtedness to the former.

Issue: Whether or not respondent is a party in the agreement.

Held: Respondents are not parties to the agreement, nor assigns or heirs of either of the parties
but who rely on the debt settlement agreement petitioner and Universal to preclude prosecution
of the offense of estafa or prevent the incipience of any liability that may arise from the criminal
offense. The civil law principle of relativity of contracts provides that “contracts can only bind the
parties who entered into it, and it cannot favour or prejudice a third person, even if he is aware
of such contract and has acted with knowledge thereof.”