SUBJECT ELEMENTS
LAW
OCAMPO III. VS. PEOPLE
G.R Nos. 156547-51. February 4, 2008
FACTS:
The Department of Budget and Management released the amount
of Php 100 Million for the support of the local government unit of the
province of Tarlac. However, petitioner Ocampo, governor of Tarlac,
loaned out more than P 56.6 million in which he contracted with Lingkod
Tarlac Foundation, Inc., thus, it was the subject of 25 criminal charges
against the petitioner.
The Sandiganbayan convicted the petitioner of the crime of
malversation of public funds. However, the petitioner contended that the
loan was private in character since it was a loan contracted with the
Taralc Foundation.
ISSUE:
Whether or not the amount loaned out was private in nature.
RULING:
Yes, the loan was private in nature because Art. 1953 of the New
Civil Code provides that “a person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is bound to pay
the creditor an equal amount of the same kind and quality.”
The fact that the petitioner-Governor contracted the loan, the public
fund changed its nature to private character, thus it is not malversation
which is the subject of this case, instead it must be a simple collection of
money suit against the petitioner in case of non payment . Therefore, the
petitioner is acquitted for the crime of malversation.
SOURCES OF OBLIGATIONS
A.
1. LEUNG BEN VS. O’BRIEN, 38 PHIL 182
2. PELAYO VS. LAURON, 12 PHIL 453
3. NIKKO HOTEL VS. REYES, 452 SCRA 532
4. ST. MARY’S ACADEMY VS. CARPITANOS, FEB. 6, 2002
5. REGINO VS. PANGASINAN COLLEGE, NOV. 18, 2004
6. COSMO ENTERTAINMENT VS. LA VILLE, AUG. 20, 2004
LEUNG BEN; plaintiff,
VS. P. J. O’BRIEN, JAMES A. OSTRAND and GEO. R. HARVEY, Judges
of First Instance of the City of Manila, defendants
April 6, 1918
FACTS:
On December 12, 1917, an action was instituted in the Court of First
Instance of Manila by P.J. O’Brien to recover of Leung Ben the sum of P15,000, all
alleged to have been lost by the plaintiff to the defendant in a series of
gambling, banking, and percentage games conducted during the two or three
months prior to the institution of the suit. The plaintiff asked for an attachment
against the property of the defendant, on the ground that the latter was about to
depart from the Philippines with intent to defraud his creditors. This attachment
was issued. The provision of law under which this attachment was issued
requires that there should be a cause of action arising upon contract, express or
implied. The contention of the petitioner is that the statutory action to recover
money lost at gaming is not such an action as is contemplated in this provision,
and he insists that the original complaint shows on its face that the remedy of
attachment is not available in aid thereof; that the Court of First Instance acted
in excess of its jurisdiction in granting the writ of attachment; that the petitioner
has no plain, speedy, and adequate remedy by appeal or otherwise; and that
consequently the writ of certiorari supplies the appropriate remedy for this relief.
ISSUE:
Whether or not the statutory obligation to restore money won at gaming is
an obligation arising from contract, express or implied.
RULING:
 Yes. In permitting the recovery money lost at play, Act No. 1757 has
introduced modifications in the application of Articles 1798, 1801, and 1305 of
the Civil Code.
The first two of these articles relate to gambling contracts, while article
1305 treats of the nullity of contracts proceeding from a vicious or illicit
consideration. Taking all these provisions together, it must be apparent that the
obligation to return money lost at play has a decided affinity to contractual
obligation; and the Court believes that it could, without violence to the doctrines
of the civil law, be held that such obligations is an innominate quasi-contract.
RULING:
No. The Court held that the rendering of medical assistance is one of the
obligations to which spouses are bound by mutual support, expressly
determined by law and readily demanded. Therefore, there was no obligation on
the part of the in-laws but rather on the part of the husband who is not a party.
Thus, decision affirmed.

It is however, unnecessary to place the decision on this ground. In the

opinion of the Court, the cause of action stated in the complaint in the court
below is based on a contract, express or implied, and is therefore of such nature
that the court had authority to issue the writ of attachment. The application for
the writ of certiorari must therefore be denied and the proceedings dismissed.
LAW AS A SOURCE OF OBLIGATION

ARTURO PELAYO, plaintiff-appellant

VS. MARCELO LAURON, defendant-appellee
12 Phil 453 LAW AS A SOURCE OF OBLIGATION
January 12, 1909

FACTS: ASI CORPORATION, plaintiff-appellant VS.

EVANGELISTA, defendant-appellee
On November 23, 1906, Arturo Pelayo, a physician, filed a complaint February 14, 2008
against Marcelo and Juana Abella. He alleged that on October 13, 1906 at night,
Pelayo was called to the house of the defendants to assist their daughter-in-law
who was about to give birth to a child. Unfortunately, the daughter-in-law died
as a consequence of said childbirth. Thus, the defendant refuses to pay. The
FACTS:
defendants argue that their daughter-in-law lived with her husband
independently and in a separate house without any relation, that her stay there Private respondent Evangelista contracted Petitioner ASJ
was accidental and due to fortuitous event. Corporation for the incubation and hatching of eggs and by products
owned by Evangelista Spouses. The contract includes the scheduled
payments of the service of ASJ Corporation that the amount of installment
ISSUE: shall be paid after the delivery of the chicks. However, the ASJ
Corporation detained the chicks because Evangelista Spouses failed to
Whether or not the defendants should be held liable for the fees pay the installment on time.
demanded by the plaintiff upon rendering medical assistance to the defendants’
daughter-in-law.
ISSUE:
 Whether or not the detention of the alleged chicks valid and
recognized under the law?
RULING:
No, because ASJ Corporation must give due to the Evangelista
Spouses in paying the installment, thus, it must not delay the delivery of
the chicks. Thus, under the law, they are obliged to pay damages with
each other for the breach of the obligation.
Therefore, in a contract of service, each party must be in good faith
in the performance of their obligation, thus when the petitioner had
detained the hatched eggs of the respondents spouses, it is an implication
of putting prejudice to the business of the spouses due to the delay of
paying installment to the petitioner.
LAW AS A SOURCE OF OBLIGATION
RAMAS, plaintiff-appellant VS.
QUIAMCO, defendant-appellee
December 6, 2006
FACTS:
Quiamco has amicably settled with Davalan, Gabutero and
Generoso for the crime of robbery and that in return, the three had
surrendered to Quiamco a motorcycle with its registration. However, Atty.
Ramas has sold to Gabutero the motorcycle in installment but when the
latter did not able to pay the installment, Davalon continued the payment
but when he became insolvent, he said that the motorcycle was taken by
Quiamco’s men. However, after several years, the petitioner Ramas
together with policemen took the motorcycle without the respondent’s
permit and shouted that the respondent Quiamco is a thief of motorcycle.
Respondent then filed an action for damages against petitioner alleging
that petitioner is liable for unlawful taking of the motorcycle and
utterance of a defamatory remark and filing a baseless complaint. Also,
petitioners claim that they should not be held liable for petitioner’s
exercise of its right as seller-mortgagee to recover the mortgaged
motorcycle preliminary to the enforcement of its right to foreclose on the
mortgage in case of default.
ISSUE:
Whether or not the act of the petitioner is correct.
RULING:
No. The petitioner being a lawyer must know the legal procedure
for the recovery of possession of the alleged mortgaged property in which
said procedure must be conducted through judicial action. Furthermore,
the petitioner acted in malice and intent to cause damage to the
respondent when even without probable cause, he still instituted an act
against the law on mortgage.
LAW AS A SOURCE OF OBLIGATION
NIKKO HOTEL MANILA GARDEN AND RUBY LIM
VS. ROBERTO REYES a.k.a. “AMAY BISAYA”
2005 Feb 28
G.R. No. 154259
FACTS:
In the evening of October 13, 1994, while drinking coffee at the lobby of
Hotel Nikko, respondent was invited by a friend, Dr. Filart to join her in a party in
celebration of the birthday of the hotel’s manager. During the party and when
respondent was lined-up at the buffet table, he was stopped by Ruby Lim, the
Executive Secretary of the hotel, and asked to leave the party. Shocked and
embarrassed, he tried to explain that he was invited by Dr. Filart, who was
herself a guest. Not long after, a Makati policeman approached him and
escorted him out of her party.
Ms. Lim admitted having asked respondent to leave the party but not
under the ignominious circumstances painted by Mr. Reyes, that she did the act
politely and discreetly. Mindful of the wish of the celebrant to keep the party
intimate and exclusive, she spoke to the respondent herself when she saw him
by the buffet table with no other guests in the immediate vicinity. She asked
him to leave the party after he finished eating. After she had turned to leave,
the latter screamed and made a big scene.
Dr. Filart testified that she did not want the celebrant to think that she
invited Mr. Reyes to the party.
Respondent filed an action for actual, moral and/or exemplary damages
and attorney’s fees. The lower court dismissed the complaint. On appeal, the
Court of Appeals reversed the ruling of the trial court, consequently imposing
upon Hotel Nikko moral and exemplary damages and attorney’s fees. On motion
for reconsideration, the Court of Appeals affirmed its decision. Thus, this instant
petition for review.
ISSUES:
Whether or not Ms. Ruby Lim is liable under Articles 19 and 21 of the Civil
Code in asking Mr. Reyes to leave the party as he was not invited by the
celebrant thereof and whether or not Hotel Nikko, as the employer of Ms. Lim, be
solidarily liable with her.
RULING:
The Court found more credible the lower court’s findings of facts. There
was no proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and to
expose him to ridicule and shame. Mr. Reyes’ version of the story was
unsupported, failing to present any witness to back his story. Ms. Lim, not
having abused her right to ask Mr. Reyes to leave the party to which he was not
invited, cannot be made liable for damages under Articles 19 and 21 of the Civil
Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its
liability springs from that of its employees.
When a right is exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to another, a legal wrong is
thereby committed for which the wrongdoer must be responsible. Article 21
states that any person who willfully 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.
Without proof of any ill-motive on her part, Ms. Lim’s act cannot amount to
abusive conduct.
The maxim “Volenti Non Fit Injuria” (self-inflicted injury) was upheld by
the Court, that is, to which a person assents is not esteemed in law as injury,
that consent to injury precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger.
LAW AS A SOURCE OF OBLIGATION
ST. MARY’S ACADEMY, petitioner,
VS. WILLIAM CARPITANOS and LUCIA S. CARPITANOS, GUADA DANIEL,
JAMES DANIEL II, JAMES DANIEL, SR., and VIVENCIO VILLANUEVA,
respondents
February 6, 2002
FACTS:
From February 13 to 20, 1995, defendant-appellant St. Mary’s Academy of
Dipolog City conducted an enrollment drive for the school year 1995-1996. As a
student of St. Mary’s Academy, Sherwin Carpitanos was part of the campaigning
group. Accordingly, Sherwin, along with other high school students were riding
in a Mitsubishi jeep owned by defendant Vivencio Villanueva on their way to
Larayan Elementary School, Larayan, Dapitan City. The jeep was driven by
James Daniel II then 15 years old and a student of the same school. Allegedly,
the latter drove the jeep in a reckless manner and as a result the jeep turned
turtle. Sherwin Carpitanos died as a result of the injuries he sustained from the
accident.
The trial court ordered the defendants, St. Mary’s Academy principally
liable and the parents of James Daniel as subsidiarily liable for damages.

The Court of Appeals affirmed the decision of the trial court. The Court of
Appeals held petitioner St. Mary’s Academy liable for the death of Sherwin
Carpitanos under Articles 218 and 219 of the Family Code, pointing out that
petitioner was negligent in allowing a minor to drive and in not having a teacher
accompany the minor students in the jeep.
ISSUE:
Whether or not the appellant St. Mary’s Academy is principally liable for
damages for the death of Sherwin.
RULING:
No. Under Article 219 of the Family Code, if the person under custody is a
minor, those exercising special parental authority are principally and solidarily
liable for damages caused by the acts or omissions of the unemancipated minor
while under their supervision, instruction, or custody.
However, for petitioner to be liable, there must be a finding that the act or
omission considered as negligent was the proximate cause of the injury caused
because the negligence must have a causal connection to the accident.
Respondents Daniel spouses and Villanueva admitted that the immediate
cause of the accident was not the negligence of petitioner or the reckless driving
of James Daniel II, but the detachment of the steering wheel guide of the jeep.
Hence, liability for the accident, whether caused by the negligence of the
minor driver or mechanical detachment of the steering wheel guide of the jeep,
must be pinned on the minor’s parents primarily. The negligence of petitioner
St. Mary’s Academy was only a remote cause of the accident. Between the
remote cause and the injury, there intervened the negligence of the minor’s
parents or the detachment of the steering wheel guide of the jeep. Considering
that the negligence of the minor driver or the detachment of the steering wheel
guide of the jeep owned by respondent Villanueva was an event over which
petitioner St. Mary’s Academy had no control, and which was the proximate
cause of the accident, petitioner may not be held liable for the death resulting
from such accident.
SOURCES OF OBLIGATIONS
A. CONTRACTS
1. TSPI, INC., VS. TSPOC EMPLOYEES UNION 545 S 215
2. REGINO VS. CA, NOVEMBER 18, 1992
3. PSBA VS. CA, FEB. 4, 1992
4. COSMO ENTERTAINMENT VS. LA VILLE, 20 AUGUST 2004
5. AYALA CORP. VS. ROSA DIANA REALTY, 346 SCRA 663
6. BRICKTOWN DEVELOPMENT VS. AMOR TIERRA
DEVELOPMENT, 239 SCRA 126
7. PILIPINAS HINO VS. CA, 338 SCRA 355
TSPI, INCORPORATION VS. TSPIC EMPLOYEES UNION
G.R No. 163419. February 13, 2008
FACTS:
TSPI Corporation entered into a Collective Bargaining Agreement
with the corporation Union for the increase of salary for the latter’s
members for the year 2000 to 2002 starting from January 2000. thus, the
increased in salary was materialized on January 1, 2000. However, on
October 6, 2000, the Regional Tripartite Wage and production Board
raised daily minimum wage from P 223.50 to P 250.00 starting November
1, 2000. Conformably, the wages of the 17 probationary employees were
increased to P250.00 and became regular employees therefore receiving
another 10% increase in salary. In January 2001, TSPIC implemented the
new wage rates as mandated by the CBA. As a result, the nine employees
who were senior to the 17 recently regularized employees, received less
wages. On January 19, 2001, TSPIC’s HRD notified the 24 employees who
are private respondents, that due to an error in the automated payroll
system, they were overpaid and the overpayment would be deducted
from their salaries starting February 2001. The Union on the other hand,
asserted that there was no error and the deduction of the alleged
overpayment constituted diminution of pay.
ISSUE:
Whether the alleged overpayment constitutes diminution of pay as
alleged by the Union.
RULING:
Yes, because it is considered that Collective Bargaining Agreement
entered into by unions and their employers are binding upon the parties
and be acted in strict compliance therewith. Thus, the CBA in this case is
the law between the employers and their employees.
Therefore, there was no overpayment when there was an increase
of salary for the members of the union simultaneous with the increasing
of minimum wage for workers in the National Capital Region. The CBA
should be followed thus, the senior employees who were first promoted as
regular employees shall be entitled for the increase in their salaries and
the same with lower rank workers.
REGINO VS. PCST
G.R No. 156109. November 18, 2004
FACTS:
Petitioner Kristine Regino was a poor student enrolled at the
Pangasinan College of Science and Technology. Thus, a fund raising
project pertaining to a dance party was organized by PCST, requiring all
its students to purchase two tickets in consideration as a prerequisite for
the final exam.
Regino, an underprivileged, failed to purchase the tickets because
of her status as well as that project was against her religious belief, thus,
she was not allowed to take the final examination by her two professors.
ISSUE:
Was the refusal of the university to allow Regino to take the final
examination valid?
RULING:
No, the Supreme Court declared that the act of PCST was not valid,
though, it can impose its administrative policies, necessarily, the amount
of tickets or payment shall be included or expressed in the student
handbooks given to every student before the start of the regular classes
of the semester. In this case, the fund raising project was not included in
the activities to be undertaken by the university during the semester. The
petitioner is entitled for damages due to her traumatic experience on the
acts of the university causing her to stop studying sand later transfer to
another school.
CONTRACT AS A SOURCE OF OBLIGATION
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, ET AL. petitioners,
VS. COURT OF APPEALS, HON. REGINA ORDOÑEZ-BENITEZ, SEGUNDA R.
BAUTISTA, and ARSENIA D. BAUTISTA, respondents
 February 4, 1992
FACTS:
Carlitos Bautista was a third year student at the Philippine School of
Business Administration. Assailants, who were not members of the schools
academic community, while in the premises of PSBA, stabbed Bautista to death.
This incident prompted his parents to file a suit against PSBA and its corporate
officers for damages due to their alleged negligence, recklessness and lack of
security precautions, means and methods before, during and after the attack on
the victim.
The defendants filed a motion to dismiss, claiming that the compliant
states no cause of action against them based on quasi-delicts, as the said rule
does not cover academic institutions. The trial court denied the motion to
dismiss. Their motion for reconsideration was likewise dismissed, and was
affirmed by the appellate court. Hence, the case was forwarded to the Supreme
Court.
ISSUE:
Whether or not PSBA is liable for the death of the student.
RULING:
Because the circumstances of the present case evince a contractual
relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not
really govern. A perusal of Article 2176 shows that obligations arising from
quasi-delicts or tort, also known as extra-contractual obligations, arise only
between parties not otherwise bound by contract, whether express or implied.
However, this impression has not prevented this Court from determining the
existence of a tort even when there obtains a contract.
Article 2180, in conjunction with Article 2176 of the Civil Code, establishes
the rule in in loco parentis. Article 2180 provides that the damage should have
been caused or inflicted by pupils or students of the educational institution
sought to be held liable for the acts of its pupils or students while in its custody.
However, this material situation does not exist in the present case for, as earlier
indicated, the assailants of Carlitos were not students of the PSBA, for whose
acts the school could be made liable. But it does not necessarily follow that
PSBA is absolved form liability.
When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which
both parties is bound to comply with. For its part, the school undertakes to
provide the student with an education that would presumably suffice to equip
him with the necessary tools and skills to pursue higher education or a
profession. This includes ensuring the safety of the students while in the school
premises. On the other hand, the student covenants to abide by the school's
academic requirements and observe its rules and regulations.
Failing on its contractual and implied duty to ensure the safety of their
student, PSBA is therefore held liable for his death.
Petition denied.
CONTRACT AS A SOURCE OF OBLIGATION
COSMO ENTERTAINMENT MANAGEMENT, INC., Petitioner,
VS. LA VILLE COMMERCIAL CORPORATION, Respondent
G.R. No. 152801
20 August 2004
FACTS:
The respondent, La Ville Commercial Corporation, is the registered owner
of a parcel of land covered by Transfer Certificate of Title (TCT) No. 174250 of
the Registry of Deeds of Makati City together with the commercial building
thereon situated at the corner of Kalayaan and Neptune Streets in Makati City.
On March 17, 1993, it entered into a Contract of Lease with petitioner Cosmo
Entertainment Management, Inc. over the subject property for a period of seven
years with a monthly rental of P250 per square meter of the floor area of the
building and a security deposit equivalent to three monthly rentals in the
amount of P447,000 to guarantee the faithful compliance of the terms and
conditions of the lease agreement. Upon execution of the contract, the
petitioner took possession of the subject property.
The petitioner, however, suffered business reverses and was constrained
to stop operations in September 1996. Thereafter, the petitioner defaulted in its
rental payments. Consequently, on February 1, 1997, the respondent made a
demand on the petitioner to vacate the premises as well as to pay the accrued
rentals plus interests which, as of January 31, 1997, amounted to P740,478.91.
In reply to the demand, the petitioner averred that its unpaid rentals amounted
to P698,500 only and since it made a security deposit of P419,100 with the
respondent, the said amount should be applied to the unpaid rentals; hence, the
outstanding accounts payable would only be P279,400. The respondent
requested that the interest charges be waived and it be given time to find a
solution to its financial problems.
After negotiations between the parties failed, the respondent, on May 27,
1997, reiterated its demand on the petitioner to pay the unpaid rentals as well
as to vacate and surrender the premises to the respondent. When the petitioner
refused to comply with its demand, the respondent filed with the Metropolitan
Trial Court (MeTC) of Makati City.
The petitioner, in its answer to the complaint, raised the defense that,
under the contract, it had the right to sublease the premises upon prior written
consent by the respondent and payment of transfer fees. However, the
respondent, without any justifiable reason, refused to allow the petitioner to
sublease the premises.
After due proceedings, the MeTC rendered judgment in favor of the
respondent.
ISSUE:
Whether or not the contention of the petitioner is tenable.
RULING:
While petitioner pleads that a liberal, not literal, interpretation of the rules
should be our policy guidance, nevertheless procedural rules are not to be
disdained as mere technicalities. They may not be ignored to suit the
convenience of a party. Adjective law ensures the effective enforcement of
substantive rights through the orderly and speedy administration of justice.
Rules are not intended to hamper litigants or complicate litigation. But they help
provide for a vital system of justice where suitors may be heard in the correct
form and manner, at the prescribed time in a peaceful though adversarial
confrontation before a judge whose authority litigants acknowledge. Public order
and our system of justice are well served by a conscientious observance of the
rules of procedure.
In any case, the Court is convinced that the findings and conclusions of
the court a quo and the RTC are in order. These courts uniformly found that,
under the terms of the contract of lease, the respondent, as the owner-lessor of
the premises, had reserved its right to approve the sublease of the same. The
petitioner, having voluntarily given its consent thereto, was bound by this
stipulation. And, having failed to pay the monthly rentals, the petitioner is
deemed to have violated the terms of the contract, warranting its ejectment
from the leased premises. The Court finds no cogent reason to depart from this
factual disquisition of the courts below in view of the rule that findings of facts of
the trial courts are, as a general rule, binding on this Court. The petition is
DENIED.
CONTRACT AS A SOURCE OF OBLIGATION
AYALA CORPORATION
VS. ROSA DIANA REALTY
346 SCRA 633
FACTS:
In April 1976, appellant-petitioner entered into a transaction with Manuel
Sy and Sy Ka Kieng where former sold a lot in Salcedo Village in Makati. The
deed of sale had some encumbrances contained in the Special Conditions of Sale
(SCS) and Deed of Restrictions (DR), which should be followed by the vendees.
The stipulations in the SCS are:
a building proposal must be submitted to Ayala which must be in accordance
with the DR,
the construction of the building must be completed on or before 1979, and
that there will be no resale of the lot.
The DR specified the limits in height and floor area of the building to be
constructed. However, Sy and Kieng, failed to build a building but nonetheless
with the permission of Ayala, the vendees sold the said lot to the respondent,
Rosa Diana Realty. Respondent Company agreed to abode by the SCS and the
DR stipulations. Prior to the construction, Rosa Diana submitted a building plan
to Ayala complying with the DR but it also passed a different building plan to the
building administrator of Makati, which did not comply with the stipulations in
the DR. While the building, “The Peak,” was being constructed, Ayala filed a
case praying that: 1) Rosa Diana, be compelled to comply with the DR and build
the building in accordance with the building plan submitted to Ayala; or 2) on the
alternative, the rescission of the deed of sale.
The trial court ruled in favor of the respondent and thus, Rosa Diana was
able to complete the construction of “The Peak.” Undeterred, Ayala filed before
the Register of Deeds (RD) of Makati a cause of annotation lis pendens. RD
refused to grant Ayala such registration for in the lower court; the case is of
personal action for a specific performance and/or rescission. However, the Land
Registration Authority (LRA) reversed RD’s ruling. The appellate court upheld
the RD’s ruling stating that the case before the trial court is a personal action for
the cause of action arises from the alleged violation of the DR. The trial court
sustained the respondent’s point saying that Ayala was guilty of abandonment
and/or estoppels due to its failure to enforce the terms of the DR and SCS
against Sy and Kieng. Ayala discriminately chose which obligor would be made
to follow certain conditions, which is not fair and legal. On appeal, the CA
affirmed the lower court’s ruling. Hence, this petition.
ISSUE:
Whether or not Rosa Diana committed a breach of contract.
RULING:
Yes, the Supreme Court ruled that Rosa Diana committed a breach of
contract by submitting a building plan to Ayala complying with the DR and
submitting a different building plan to the building administrator of Makati, which
did not comply with the stipulations in the DR.
Contractual Obligations between parties have the force of law between
them and absent any allegation that the same are contrary to law, morals, good
customs, public order or public policy, they must complied with in good faith.
Thus, the assailed decision of the Court of Appeals is reversed and set
aside.
CONTRACT AS A SOURCE OF OBLIGATION
BRICKTOWN DEVELOPMENT CORP. and MARIANO Z. VERALDE
VS. AMOR TIERRA DEVELOPMENT CORPORATION and
the HON. COURT OF APPEALS
G.R. No. 112182
December 12, 1994
239 SCRA 127
FACTS:
Bricktown Development Corporation, represented by its President and co-
petitioner Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor
Tierra Development Corporation, represented in these acts by its Vice-President,
Moises G. Petilla, covering a total of 96 residential lots at the Multinational
Village Subdivision, La Huerta, Parañaque, Metro Manila.
The total price of P21,639,875.00 was stipulated to be paid by private
respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31
March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December
1981; and the balance of P11,500,000.00 to be paid by means of an assumption
by private respondent of petitioner corporation's mortgage liability to the
Philippine Savings Bank or, alternately, to be made payable in cash. On date,
March 31, 1981, the parties executed a Supplemental Agreement, providing that
private respondent would additionally pay to petitioner corporation the amounts
of P55,364.68, or 21% interest on the balance of down payment for the period
from 31 March to 30 June 1981, and of P390,369.37 representing interest paid
by petitioner corporation to the Philippine Savings Bank in updating the bank
loan for the period from 01 February to 31 March 1981.
Private respondent was only able to pay petitioner corporation the sum of
P1,334,443.21. However, the parties continued to negotiate for a possible
modification of their agreement, but nothing conclusive happened. And on
October 12, 1981, petitioner’s counsel sent private respondent a “Notice of
Cancellation of Contract” because of the latter’s failure to pay the agreed
amount.
Several months later, private respondent’s counsel, demanded the refund
of private respondent's various payments to petitioner corporation, allegedly
"amounting to P2,455,497.71," with interest within fifteen days from receipt of
said letter, or, in lieu of a cash payment, to assign to private respondent an
equivalent number of unencumbered lots at the same price fixed in the
contracts. When the demand was not heeded, Amor Tierra filed an action with
the court a quo which rendered a decion in its favor. The decision of the lower
court was affirmed in toto by the Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the contract was properly rescinded.
Whether or not Bricktown properly forfeited the payments of Amor Tierra.
RULING:
The contract between Bricktown and Amor Tierra was validly rescinded
because of the failure of the latter to pay the agreed amounts stipulated in the
contract on the proper date even after the sixty-days grace period.
Furthermore, the records showed that private respondent corporation paid less
than the amount agreed upon. The Supreme Court also added that such
cancellation must be respected. It may also be noteworthy to add that in a
contract to sell, the non-payment of the purchase price can prevent the
obligation to convey title from acquiring any obligatory force.
On the second issue, the Supreme Court ruled that since the private
respondent did not actually possessed the property under the contract, the
petitioner is then ordered to return to private respondent the amount remitted.
However, to adjudge any interest payment by petitioners on the amount to be
thus refunded, private respondent should not be allowed to totally free itself
from its own breach.
CONTRACT AS A SOURCE OF OBLIGATION
PILIPINAS HINO, INC. VS. COURT of APPEALS
G. R. No. 126570
August 18, 2000
338 SCRA 355
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 exercise 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.
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
weel 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
B. QUASI – CONTRACTS
obligation simultaneously and in good faith. In this case, petitioner, Titan-
1. TITAN-IKEDA CONNSTRUUCTION VS. Ikeda can not recover damages because it was found out there was no
PRIMETOWN PROPERTY, 544 S 466 solutio indebiti or mistake in payment in this case since the latter is just
2. PADCOM CONDOMINIUM VS. ORTIGAS, MAY 9, 2002 entitled to the actual services it rendered to the respondent and thus it is
3. MC ENGINEERING VS. CA, 380 SCRA 116 ordered to return the condominium units to the respondent.
4. BPI VS. PIÑEDA, 156 SCRA 404
5. STATE INVESTMENT VS. CA, 198 SCRA 392
QUASI-CONTRACT AS A SOURCE OF OBLIGATION

PADCOM CONDOMINIUM CORPORATION, petitioner,

TITAN-IKEDA VS. PRIMETOWN VS. ORTIGAS CENTER ASSOCIATION, INC., respondent
G.R No. 158768. February 12, 2008 G.R. No. 146807
May 9, 2002
382 SCRA 222

FACTS:
The respondent Primetown Property Corporation entered into
contract weith 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.
Howevere, in 1994, the respondent entered inot a contract of sale of the
tower in favor of the petitioner in a manner called full-swapping. Since the
FACTS:
Petitioner PADCOM CONDOMINIUM CORPORATION (PADCOM) bought a
land from Tierra Development Corporation with terms and conditions among
which is that the transferee and its successor-in-interest must become members
of an Association for realty owners and long-term lessees at Ortigas Center. The
Ortigas Center Association (OCA) which was subsequently formed levies
membership dues of P2,700.00 per month to all members. Petitioner refused to
pay the membership dues on the ground that it did not become automatic
member of the Association when it bought the land. Herein respondent OCA
filed a civil case for recovery of the amounts due, which was dismissed by the
Regional Trial Court and reversed on appeal. Petitioner PADCOM appealed for
review on certiorari at the Supreme Court.
ISSUE:
Whether or not petitioner PADCOM can be compelled to become a
member of the OCA and thus pay the membership dues based on the condition
of the Deed of Sale.
RULING:
PADCOM became automatically a member of the OCA by virtue of the
conditions of the Deed of Sale attached to its Title of the property. By voluntarily
buying the land with the conditions, it subscribed to such conditions which gave
rise to a quasi-contract between it and the OCA. Therefore, it could not avoid
payment of the membership dues without violating the underlying principles of
quasi-contract – which provides that certain lawful, unilateral, and voluntary act
gives rise to a juridical relation between the parties to the end that no one shall
be unjustly enriched of benefited at the expense of others.
Petition denied for lack of merit.
QUASI-CONTRACT AS A SOURCE OF OBLIGATION
MC ENGINEERING, INC. VS. THE COURT OF APPEALS, GERENT BUILDERS,
INC. and STRONGHOLD INSURANCE CO., INC.,
G.R. No. 104047
April 3, 2002
380 SCRA 116
FACTS:
On October 29, 1984, Mc Engineering, Inc. and Surigao Coconut
Development Corporation signed a contract for the restoration of the latter’s
building, land improvement, electrical, and mechanical equipment located at
Lipata, Surigao City, which was damaged by typhoon Nitang. The agreed
consideration was P5,150,000.00 of which P2,500,000.00 was for the restoration
of the damaged buildings and land improvement, while the P3,000,000.00 was
for the restoration of the electrical and mechanical works.
The next day, on October 30, 1984 defendant Mc Engineering and plaintiff
Gerent Builders, Inc. entered into an agreement wherein defendant
subcontracted to plaintiff the restoration of the buildings and land improvement
phase of its contract with Sucodeco but defendant retained for itself the
restoration of the electrical and mechanical works. The subcontracted work
covered the restoration of the buildings and improvement for P1,665,000.00.
Two (2) months later, on December 3, 1984, Sucodeco and defendant Mc
Engineering entered into an agreement amending provision No. VII, par 1 of their
contract dated October 29, 1984, by increasing the price of the civil works from
P2,250,000.00 to P3,104,851.51, or an increase of P854,851.51, with the express
proviso that ‘except for the amendment above specified, all the other provisions
of the original contract shall remain the same’.
The civil work aspect consisting of the building restoration and land
improvement from which plaintiff would get P1,665,000.00 was completed and
the corresponding certificate of acceptance was executed, but the electrical
works were cancelled. On January 2, 1985, plaintiff received from defendant the
amount of P1,339,720.00 as full payment of the sub-contract price, after
deducting earlier payments made by defendant to plaintiff, as evidenced by the
affidavit executed by plaintiff’s president, Mr. Narciso C. Roque wherein the
latter acknowledged complete satisfaction for such payment on the basis of the
Statement of Account which plaintiff had earlier forwarded to defendant.
Nevertheless, plaintiff is still claiming from defendant the sum of
P632,590.13 as its share in the adjusted contract cost in the amount of
P854,851.51, alleging that the sub-contract is subject to the readjustment
provided for in Section VII of the agreement, and also the sum of P166,252.00 in
payment for additional electrical and civil works outside the scope of the sub-
contract. Petitioner refused to pay respondent Gerent.
ISSUE:
Whether or not respondent Gerent Builders, Inc. can claim a share in the
adjusted contract cost between petitioner and Surigao Coconut Development
Corporation basing its claim from its assertion that the quitclaim executed by
plaintiff-appellant is vitiated with fraud.
RULING:
 Gerent Builders, Inc. cannot claim for a share in the adjusted contract cost
between petitioner and Sucodeco because petitioner was under no obligation to
disclose to respondent Gerent, a subcontractor, any price increase in petitioner’s
main contract with Sucodeco. Respondent Gerent is not a party to the main
contract. The subcontract between petitioner and respondent Gerent does not
require petitioner to disclose to Gerent any price increase in the main contract.
The non-disclosure by petitioner of the price increase cannot constitute fraud or
breach of any obligation on the part of petitioner.
Moreover, the record shows that the P139,720.30 representing final and
full payment of the subcontract price was paid by petitioner to respondent
Gerent based on the statement of account Gerent itself prepared and submitted
to petitioner.
QUASI-CONTRACT AS A SOURCE OF OBLIGATION
BANK OF THE PHILIPPINE ISLANDS
VS. BENJAMIN PINEDA
G.R. No. L-62441
156 SCRA 404
FACTS:
Southern Industrial Project (SIP) and/or Bacong purchased the vessels SS
"Southern Comet," SS "Southern Express" and SS "Southern Hope," thru
financing furnished by defendant Peoples Bank and Trust Company, now the
Bank of the Philippine Islands. To secure the payment of whatever amounts
maybe disbursed for the aforesaid purpose, the said vessels were mortgaged to
Peoples Bank and Trust Company. For the operation of the said vessels, these
were placed under the booking agency of defendant Interocean Shipping
Corporation, with the undertaking that the freight revenues from their charter
and operation shall be deposited with the Trust Department of Peoples Bank and
Trust Company and that disbursements made there from shall be covered by
vouchers bearing the approval of SIP. As Peoples Bank and Trust Company and
SIP were not satisfied with the amount of revenues being deposited with the said
Bank, it being suggested that diversions thereof were being made, Gregorio A.
Concon of SIP and/or Bacong and Roman Azanza of Peoples Bank and Trust
Company, organized S.A. Gacet, Inc. to manage and supervise the operation of
the vessels with Ezekiel P. Toeg as the manager thereof. Accordingly, on August
15, 1966, a Management Contract was entered into between SIP and GACET,
Inc., placing the supervision and management of the aforementioned vessels in
the hands of GACET, Inc., which was to run for a period of six (6) months,
renewable at the will of the parties, without however, terminating the booking
agency of Interocean Shipping Corporation. Likewise, under the terms of said
Management Contract, the Peoples Bank and Trust Company was designated as
depository of all revenues coming from the operation of the subject vessels
thereby enabling it to control all expenses of GACET, Inc., since they win all be
drawn against said deposit.
During the period comprising March 16, 1967 and August 25, 1967,
GACET and Interocean in performing their obligations under said Management
Contract, contracted the services of herein plaintiff-appellee, Benjamin Pineda
doing business under the name and style "Pioneer Iron Works," to carry out
repairs, fabrication and installation of necessary parts in said vessels in order to
make them seaworthy and in good working operation. Accordingly, repairs on
the vessels were made. Labor and materials supplied in connection therewith,
amounted to P84,522.70, P18,141.75 of which was advanced by Interocean,
thereby leaving a balance of P62,095.95. For this balance, Interocean issued
three checks and the third one for P 17,377.57. When these checks were
however presented to the drawee, Peoples Bank and Trust Company, they were
dishonored as defendant Interocean stopped payment thereon.
Meanwhile and by reason of the inability of SIP and/or Bacong to pay their
mortgage indebtedness which was past due since 1964, the mortgagee Peoples
Bank and Trust Company threatened to foreclose the mortgage on said vessels.
In order to avoid the inconvenience and expense of imminent foreclosure
proceedings, SIP and/or Bacong sold said vessels to Peoples Bank by way of
dacion en pago.
On October 1, 1968, plaintiff instituted the present action (Civil Case No.
74379) before the Court of First Instance of Manila, seeking to recover from SIP,
GACET, Interocean and the Peoples Bank and 'Trust Company the principal sum
of P62,095.92 with interests thereon from the respective dates of each repair
order until the same is fully paid, which amount was allegedly the total unpaid
balance of the cost of repairs, fabrication and installation of necessary parts
carried out by the said plaintiff on the a forenamed vessels.
Answering the complaint, defendants Peoples Bank and Trust Co., now
Bank of P.I. and Southern Industrial Projects, Inc. (SIP) alleged that the
abovementioned claim is the personal responsibility of Interocean Shipping
Corporation and/or Gacet, Inc. and deny liability thereof Defendant Bacong
Shipping Company, S.A.
 The trial court rendered a decision dismissing the compliant against
defendants Interocean Shipping Corporation and Gacet, Inc.
Defendants Bank of P.I. and Southern Industrial Projects, Inc. appealed to
the Court of Appeals but the latter, finding the aforequoted decision to be in
accordance with law and the evidence, affirmed the same.
ISSUE:
Whether or not People's Bank, now Bank of P.I. being the purchaser of said
vessels, is jointly and severally liable for the outstanding balance of said repairs,
admittedly a lien on the properties in question.
RULING:
There is no question that at the time subject obligation was incurred,
defendant Southern industrial Projects, Inc. owned the vessels although
mortgaged to People's Bank and Trust Company. Hence, the former as owner is
liable for the costs of repairs made on the vessels. On the other hand,
Interocean Shipping Corporation and S.A. Gacet undeniably mere agents of the
owner, a disclosed principal, cannot be held liable for repairs made on the
vessels to keep them in good running condition in order to earn revenue, there
being no showing that said agents exceeded their authority.
In view of the foregoing facts, it was aptly stated by the trial court and
affirmed by the Court of Appeals that when the parties executed the deed of
"Confirmation of Obligation" they really intended to confirm and acknowledge
the existing obligations for the purpose of the buyer assuming liability therefore
and charging them to the seller after proper accounting, verification and set offs
have been made. Indeed, there is merit in the trial court's view that if there was
no intention on the part of People's Bank (now Bank of P.I.) to assume
responsibility y for these obligations at the time of the sale of the vessels, there
is no sense in executing said Deed of Confirmation together with the deeds of
sale and the stipulations there under would be pointless. Finally, it is
indisputable that the repairs made on the vessels ultimately redounded to the
benefit of the new owner for without said repairs, those vessels would not be
seaworthy. Under Art. 2142 of the Civil Code, such acts "give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another."
QUASI-CONTRACT AS A SOURCE OF OBLIGATION
STATE INVESTMENT VS. COURT OF APPEALS
198 SCRA 392
FACTS:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged
certain shares of stock to petitioner State Investment House Inc. (“State”) in
order to secure a loan of P120,000.00. Prior to the execution of the pledge,
respondent spouses Jose and Marcelina Aquino signed an agreement with
petitioner State for the latter’s purchase of receivables amounting to
P375,000.00. When the 1st Account fell due, respondent spouses paid the same
partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as the 2 nd Account. This new
loan was secured by the same pledge agreement executed in relation to the 1 st
Account. When the new loan matured, State demanded payment. Respondents
expressed willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino has
remained unpaid.
On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a
Notice of Notarial Sale stating that upon request of State and by virtue of the
pledge agreement, he would sell at public auction the shares of stock pledged to
State. This prompted respondents to file a case before the Regional Trial Court
of Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under the 2nd Account became due, they had been
able and willing to pay the same, but petitioner had insisted that respondents
pay even the loan account of Jose and Marcelino Aquino, which had not been
secured by the pledge. It was further alleged that their failure to pay their loan
was excused because the Petitioner State itself had prevented the satisfaction of
the obligation.
On January 29, 1985, the trial court rendered a decision in favor of the
plaintiff ordering State to immediately release the pledge and to deliver to
respondents the share of stock upon payment of the loan. The CA affirmed in
toto the decision of the trial court.
ISSUES:
 Whether or not the phrase “upon payment” in the trial court’s decision D. DELICTS
means upon payment of spouses’ loan in the principal amount of P110,000.00
alone without interest, penalties and other charges. 1. PEOPLE VS. MALICSI, 543 S 93
2. PEOPLE VS. SIA, NOV. 21, 2001
Whether or not the conditions to be complied with by the debtor desirous 3. PEOPLE VS. DOCTOLERO, AUG. 20, 2001
of being released from his obligation in cases where the creditor unjustly refuses 4. PEOPLE VS. ABULENCIA, AUG. 22, 2001
to accept payment have been met by the spouses Aquino. 5. BERMUDEZ VS. MELECIO- HERRERA, FEB. 26, 1988
6. PEOPLE VS. RELOVA, MAR, 6, 1987
RULING: 7. MANANTAN VS. CA, JAN. 29, 2001
Anent the 1st issue, NO. The phrase “upon payment” as held by the 8. PEOPLE VS. BAYOTAS, 236 SCRA 239
Supreme Court means upon payment of the amount of P110,000.000 plus
seventeen percent (17%) per annum regular interest computed from the time of
maturity of the plaintiffs’ loan and until full payment of such principal and
interest to defendants. For respondent spouses to continue in possession of the PEOPLE VS. MALICSI
principal of the loan amounting to P110,000.00 and to continue to use the same G.R No. 175833. January 29, 2008
after maturity of the loan without payment of regular or monetary interest,
would constitute unjust enrichment on the part of the respondent spouses at the
expense of petitioner State even though the spouses had not been guilty of
FACTS:
mora.
The accused-appellant was accused for the crime of rape against
With respect to the 2nd issue, NO. The conditions had not been complied his niece. The incident was repeated trice by the appellant. The appellant
with. Article 1256 of the civil code states that: “ If the creditor to whom tender of contended that he and the victim were sweethearts but the trial court did
payment has been made refuses without just cause to accept it, the debtor shall not give weight to that theory.
be released from responsibility by consignation of the thing or sum due.” Where The trial court found appellant guilty of the crime of four counts of
the creditor unjustly refuses to accept payment, the debtor desirous of being qualified rape and was sentenced to suffer the penalty of death for each
released from his obligation must comply with two (2) conditions, viz: (a) tender count of rape, to pay P300,000.00 as civil indemnity (P75,000.00 for each
of payment; and (b) consignation of the sum due. Tender of payment must be count), and P200,000.00 as moral damages (P50,000.00 for each count).
accompanied or followed by consignation in order that the effects of payment The CA however modified the findings of the RTC declaring that appellant
may be produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a is guilty of four counts of simple rape and to suffer the penalty of
written tender of payment alone, without consignation in court of the sum due,
reclusion perpetua.
does not suspend the accruing of regular or monetary interest. In the instant
case, respondent spouses Aquino, while they are properly regarded as having
made a written tender of payment to petitioner state, failed to consign in court
the amount due at the time of the maturity of the 2nd Account No. It follows that ISSUE:
their obligation to pay principal-cum-regular or monetary interest under the Whether the award of damages was properly made.
terms and conditions of the said Account was not extinguished by such tender of
payment alone.
RULING:
No, because the Supreme Court declared that the crime committed
was four count of simple rape only and not qualified rape because the
SOURCES OF OBLIGATIONS: special aggravating circumstances of minority and relationship must be
alleged in the information but the prosecution failed to do so. Since it is
not included, four counts of simple rape should be undertaken. The
penalty imposed then should be reclusion perpetua. The appellate court
also correctly affirmed the award by the trial court of P200,000.00 for
moral damages. Moral damages are automatically granted to rape victim.
However, the award of civil indemnity is reduced to P200,000.00 in the
amount of P50,000.00 for each count of simple rape is automatically
granted.
DELICT AS A SOURCE OF OBLIGATION
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROSAURO SIA y DICHOSO, JOHNNY BALALIO y DEZA, JIMMY PONCE y
TOL and JOHN DOE @ PEDRO MUÑOZ (at large), accused-appellants
G.R. No. 137457
2001 Nov 21
FACTS:
The taxi was taken from the garage and driven by its regular driver,
Christian Bermudez, at about 6:00 a.m. on August 23, 1995. The taxi was last
seen at the vicinity of the Pegasus Night Club at about 10:30 p.m. on the said
date with the passenger who is the accused Rosauro Sia. Accused Rosauro Sia
appears to have tipped driver Christian Bermudez to service him the following
day in the morning and to be paid P150.00 per hour which was apparently
accepted because Rosauro gave instructions to accused Johnny Balalio and
Jimmy Ponce to wait for him (Christian) that following morning. When Christian
returned to Sia’s residence he was told to come back in the afternoon. When
Christian returned in the afternoon, he was asked to get inside. As soon as he
alighted from the taxi, his hands were tied by Johnny Balalio and was handed to
a certain “Pedro”, the accused Peter Doe who has not been arrested. Christian
was taken to accused Rosauro and shortly afterwards, the latter was seen
lugging with him a big carton box from which blood was dripping. Accused
Jimmy Ponce saw Rosauro hand the carton-wrapped lifeless body of Christian
inside the carnapped FX taxi. Before leaving with the lifeless body of Christian
loaded in the taxi, accused Sia gave P3,000.00 each to Jimmy Ponce, Johnny
Balalio and “Pedro” and admonished them not to say anything about what
happened. The ring taken from Christian was given to accused Jimmy Ponce by
Rosauro Sia.
On August 26, 1995, the lifeless body of Christian Bermudez was found
and retrieved from a fishpond in Meycauayan, Bulacan. This fact was broadcast
over the radio and, after hearing the same, Agripina Bermudez went to see the
lifeless body retrieved from the fishpond and confirmed it to be that of Christian,
whom she claims is her eldest son who was earning about P650.00 a day as a
taxi driver.
ISSUE:
Whether or not the trial court is correct in awarding the damages to the
heirs of the victim.
RULING:
The Court finds no reason to reverse the ruling of the court a quo insofar
as the crimes were committed. Anent the civil indemnity award, this Court finds
the amount of P50,000.00 as death indemnity proper, following prevailing
jurisprudence and in line with controlling policy. Award of civil indemnity may be
granted without any need of proof other than the death of the victim.
The victim’s heirs are likewise entitled to moral damages, pegged at
P50,000.00 by controlling case law, taking into consideration the pain and
anguish of the victim’s family brought about by his death. However, the award of
P200,000.00 as burial and other expenses incurred in connection with the death
of the victim must be deleted. The records are bereft of any receipt or voucher
to justify the trial court’s award of burial and other expenses incurred in
connection with the victim’s death.
The trial court was correct in awarding damages for loss of earning
capacity despite the non-availability of documentary evidence. Damages
representing net earning capacity have been awarded by the Court based on
testimony in several cases. However, the amount of the trial court’s award
needs to be recomputed and modified accordingly.
In determining the amount of lost income, the following must be taken
into account: (1) the number of years for which the victim would otherwise have
lived; and (2) the rate of the loss sustained by the heirs of the deceased. The
second variable is computed by multiplying the life expectancy by the net
earnings of the deceased, meaning total earnings less expenses necessary in the
creation of such earnings or income less living and other incidental expenses.
Considering that there is no proof of living expenses of the deceased, net
earnings are computed at fifty percent (50%) of the gross earnings. The formula
used by this Court in computing loss of earning capacity is:

Net Earning Capacity = [2/3 x (80 – age at time of death) x (gross annual
income – reasonable and necessary living expenses)]
In this case, the Court notes that the victim was 27 years old at the time
of his death and his mother testified that as a driver of the Tamaraw FX taxi, he
was earning P650.00 a day. Hence, the damages payable for the loss of the
victim’s earning capacity is computed thus:
Gross Annual Earnings = P650 x 261 working days in a year
= P169,650.00
Net Earning Capacity = 2/3 x (80-27) x [P169,650.00 – P84,825.00]
= 35.33 x 84,825.00
= P2,996,867.20
Based on the foregoing computation, the award of the trial court with
regard to lost income is thus modified accordingly.
DELICT AS A SOURCE OF OBLIGATION
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. CARLOS DOCTOLERO, SR., accused-appellant
G.R. No. 131866
2001 Aug 20
FACTS:
On November 20, 1996 at around 7:00 in the evening, Vicente Ganongan
Jr. and Roderick Litorco went to their friends’ boarding house on Honeymoon
Road, Baguio City. Thereat, Vicente Ganongan, Roderick Litorco, Regie
Daodaoan, Rex Tabanganay, Jeffrey Alimani and Florencio Dagson agreed to
drink gin in Sangatan Store. After two (2) hours, the group decided to go home.
They went down Honeymoon road towards Rimando road to get a taxi for
Litorco. Upon noticing that Litorco could not carry himself, they decided to bring
him to their boarding house. Dagson assisted Litorco and walked ahead of
Ganongan, Daodaoan, Tabanganay and Alimani. As the latter four neared the
Garcia store along Honeymoon road, Carlos Garcia, with three companions, told
them to stop, pointing a gun at them. Hearing the commotion, Dagson who was
walking about 5 to 7 meters ahead with Litorco rushed to the boarding house
and sought help. When Dagson came back, he was with Oliver Alimani, Arman
Alimani and Dexter Daggay. When they arrived, they saw Garcia pointing a gun
at the group of Ganongan, Daodaoan, Tabanganay and Jeffrey Alimani. Oliver
Alimani approached Garcia who in turn pointed his gun at Oliver and identified
himself as barangay kagawad. At this time, Carlos Doctolero Sr. was standing at
the edge of Honeymoon road. He then put his arm over Daodaoan’s shoulder.
Daoadaoan shoved Doctolero’s hand and retreated. Doctolero stepped back and
fired twice at Daodaoan but missed. Tabanganay asked Daodaoan if he was hit
and upon answering that he was not, Tabanganay shouted at his friends to run.
When Ganongan turned around to run, Doctolero fired at him, hitting him twice.
Oliver Alimani came to Ganongan’s aid when the latter yelled that he was hit.
Thereafter, they hailed a taxi and rushed Ganongan to Saint Louis University
Hospital where he expired.
Accused-appellant was convicted of murder after appreciating the
aggravating circumstance of treachery. He was sentenced to suffer the penalty
of reclusion perpetua and was ordered to indemnify the heirs of Ganongan the
amounts of P50,000.00 as civil indemnity, P227,808.00 as actual damages, and
P300,000.00 as moral damages plus costs.
ISSUE:
Whether or not the accused was guilty of murder and the damages
awarded to the heirs were proper.
RULING:
No. Since treachery was not proven to be resent in this case, the court
deemed it proper to convict the accused of the crime of homicide, instead of
murder thus damages were reduced to P112,413.40 representing funeral
expenses, which were duly proven and covered by receipts.
Expenses relating to the 9th day, 40th day and 1st year anniversaries
cannot be considered in the award of actual damages as these were incurred
after a considerable lapse of time from the burial of the victim. With respect to
the award of moral damages, the same is reduced to P50,000.00 in accordance
with existing jurisprudence
DELICT AS A SOURCE OF OBLIGATION
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROLLY ABULENCIA Y COYOS, defendant-appellant
2001 Aug 22
G.R. No. 138403
FACTS:
It is established from the testimony of prosecution witness Reynaldo
Garcia, Jr. that he met the appellant in the morning of that fateful day of August
4, 1998 and later, both engaged in a drinking spree; that they slept on the papag
of Garcia’s house in the afternoon of that day; that the victim Rebelyn, was also
in the same house at that time; that after waking up, the appellant left the house
at about 5:30 o’clock in the afternoon to buy dilis in the nearby store located 40
meters away, the victim tagging along; that the appellant and Rebelyn never
returned; that in the evening of the same day, the appellant surrendered to
Mayor Sevilleja, reporting that he was with the victim when the latter allegedly
fell from the bridge after he “accidentally tripped (napatid) her” off; that the
appellant admitted having raped the victim in a tape interview by Dennis
Mojares, another prosecution witness; that the victim was found dead the
following morning floating at the Colobong creek near the Aburido bridge; and
that the autopsy conducted on her cadaver shows that she was sexually abused
and, thereafter, brutally killed.
After the trial on the merits, the court a quo rendered its decision dated
March 16, 1999, convicting accused Rolly Abulencia of the crime as charged and
to suffer the penalty of death, to be implemented in the manner provided for by
law. Ordering the accused to indemnify the heirs of Rebelyn Garcia, the sum of
P75,000.00 damages, and another sum of P20,000.00 for exemplary damages
plus P6,425.00 as actual damages.
ISSUE:
Whether or not the court a quo’s award of civil liability is reasonable
based on the circumstances of the crime and whether circumstancial evidence is
sufficient to warrant a conviction.
RULING:
With regard to the civil indemnity, the trial court awarded only
P75,000.00. Current jurisprudence has fixed at P100,000.00 the civil indemnity
in cases of rape with homicide, which is fully justified and properly
commensurate with the seriousness of that special complex crime.
As regards to the sufficiency of circumstantial evidence to warrant
conviction, the Court held that the absence of direct evidence, however, does
not preclude the conviction of a person accused of the complex crime of rape
with homicide. Circumstantial evidence can be as potent as direct evidence to
sustain a conviction provided that there is a concurrence of all the requisites
prescribed in Section 5, Rule 133 of the Revised Rules on Evidence, thus:
“Circumstantial Evidence, when sufficient.- Circumstantial evidence is sufficient
for conviction if: (a) There is more than one circumstance; (b) The facts from
which the inferences are derived are proven; and (c) The combination of all the
circumstances is such as to produce a conviction beyond a reasonable doubt.”
Likewise this Court has held that an accused can be convicted based on
circumstantial evidence if the circumstances proven constitute an unbroken
chain which leads to a fair and reasonable conclusion pointing to the accused, to
the exclusion of all others, as the guilty person.
Thus, the appealed decision convicting Rolly Abulencia of the crime of
rape with homicide and sentencing him to suffer the penalty of death, is affirmed
with modification insofar as the civil aspect is concerned. Appellant is thus
ordered to pay the heirs of Rebelyn Garcia P100,000.00 as civil indemnity;
P50,000.00 as moral damages; P25,000.00 as exemplary damages; and
P6,425.00 as actual damages.
DELICT AS A SOURCE OF OBLIGATION
REYNALDO BERMUDEZ, SR., and,
ADONITA YABUT BERMUDEZ, petitioners-appellants,
VS. HON. JUDGE A. MELENCIO-HERRERA, DOMINGO PONTINO y TACORDA
and CORDOVA NG SUN KWAN, respondents-appellees
February 26, 1988
FACTS:
A cargo truck, driven by Domingo Pontino and owned by Cordova Ng Sun
Kwan, bumped a jeep on which Rogelio, a six-year old son of plaintiffs-
appellants, was riding. The boy sustained injuries which caused his death. As a
result, Criminal Case No. 92944 for Homicide Through Reckless Imprudence was
filed against Domingo Pontino. Plaintiffs-appellants filed on July 27, 1969 in the
said criminal case "A Reservation to File Separate Civil Action."
 On July 28, 1969, the plaintiffs-appellants filed a civil case for damages
against Domingo Pontino y Tacorda and Cordova Ng Sun Kwan.
Finding that the plaintiffs instituted the action "on the assumption that
defendant Pontino's negligence in the accident of May 10, 1969 constituted a
quasi-delict," the trial court stated that plaintiffs had already elected to treat the
accident as a "crime" by reserving in the criminal case their right to file a
separate civil action. That being so, the trial court decided to order the dismissal
of the complaint against defendant Cordova Ng Sun Kwan and to suspend the
hearing of the case against Domingo Pontino until after the criminal case for
Homicide Through Reckless Imprudence is finally terminated.
ISSUE:
Whether or not the present action is based on quasi-delict under the Civil
Code and therefore could proceed independently of the criminal case for
homicide thru reckless imprudence.
RULING:
In cases of negligence, the injured party or his heirs has the choice
between an action to enforce the civil liability arising from crime under Article
100 of the Revised Penal Code and an action for quasi-delict under Article 2176-
2194 of the Civil Code.
If a party chooses the latter, he may hold the employer solidarily liable for
the negligent act of his employee, subject to the employer's defense of exercise
of the diligence of a good father of the family.
In the case at bar, the action filed by appellant was an action for damages
based on quasi-delict. The fact that appellants reserved their right in the
criminal case to file an independent civil action did not preclude them from
choosing to file a civil action for quasi-delict.
The appellant precisely made a reservation to file an independent civil
action. In fact, even without such a reservation, the Court allowed the injured
party in the criminal case which resulted in the acquittal of the accused to
recover damages based on quasi-delict.
It does not follow that a person who is not criminally liable is also free
from civil liability. While the guilt of the accused in a criminal prosecution must
be established beyond reasonable doubt, only a preponderance of evidence is
required in a civil action for damages (Article 29, Civil Code). The judgment of
acquittal extinguishes the civil liability of the accused only when it includes a
declaration that the facts from which the civil liability might arise did not exist.
DELICT AS A SOURCE OF OBLIGATION
PEOPLE OF THE PHILIPPINES, petitioner,
VS. THE HONORABLE BENJAMIN RELOVA, and MANUEL OPULENCIA,
respondents
G.R. No. L-45129
March 6, 1987
FACTS:
On 1 February 1975, members of the Batangas City Police together with
personnel of the Batangas Electric Light System, equipped with a search warrant
issued by a city judge of Batangas City, searched and examined the premises of
the Opulencia Carpena Ice Plant and Cold Storage owned and operated by the
private respondent Manuel Opulencia. The police discovered that electric wiring,
devices and contraptions had been installed, without the necessary authority
from the city government, and "architecturally concealed inside the walls of the
building" owned by the private respondent. These electric devices and
contraptions were, in the allegation of the petitioner "designed purposely to
lower or decrease the readings of electric current consumption in the electric
meter of the said electric plant."
During the subsequent investigation, Manuel Opulencia admitted in a
written statement that he had caused the installation of the electrical devices "in
order to lower or decrease the readings of his electric meter." On 24 November
1975, an Assistant City Fiscal of Batangas City filed before the City Court of
Batangas City an information against Manuel Opulencia for violation of
Ordinance No. 1, Series of 1974, Batangas City. A violation of this ordinance
was, under its terms, punishable by a fine "ranging from Five Pesos (P5.00) to
Fifty Pesos (P50.00) or imprisonment, which shall not exceed thirty (30) days, or
both, at the discretion of the court."
 The accused Manuel Opulencia pleaded not guilty. On 2 February 1976,
he filed a motion to dismiss the information upon the grounds that the crime
there charged had already prescribed and that the civil indemnity there sought
to be recovered was beyond the jurisdiction of the Batangas City Court to award
which was dismissed by the judge.
Fourteen (14) days later, on 20 April 1976, the Acting City Fiscal of
Batangas City filed before the Court of First Instance of Batangas, Branch II,
another information against Manuel Opulencia, this time for theft of electric
power under Article 308 in relation to Article 309, paragraph (1), of the Revised
Penal Code. Before he could be arraigned thereon, Manuel Opulencia filed a
Motion to Quash, dated 5 May 1976, alleging that he had been previously
acquitted of the offense charged in the second information and that the filing
thereof was violative of his constitutional right against double jeopardy. By
Order dated 16 August 1976, the respondent Judge granted the accused's
Motion to Quash and ordered the case dismissed.
ISSUES:
Whether or not Manuel Opulencia can be tried for violation of the Revised
Penal Code after acquittal from the violation of an ordinance due to prescription
which were based from the same act and whether or not he may still be held
liable civilly.
RULING:
The Supreme Court held that the accused was placed in double jeopardy,
hence, could not be tried in the criminal case.
However, the civil liability aspects of this case are another matter.
Because no reservation of the right to file a separate civil action was made by
the Batangas City electric light system, the civil action for recovery of civil
liability arising from the offense charged was impliedly instituted with the
criminal action both before the City Court of Batangas City and the Court of First
Instance of Batangas.
The extinction of criminal liability whether by prescription or by the bar of
double jeopardy does not carry with it the extinction of civil liability arising from
the offense charged.
In the present case, accused Manuel Opulencia freely admitted during the
police investigation having stolen electric current through the installation and
use of unauthorized electrical connections or devices. While the accused
pleaded not guilty before the City Court of Batangas City, he did not deny having
appropriated electric power. However, there is no evidence in the record as to
the amount or value of the electric power appropriated by Manuel Opulencia, the
criminal informations having been dismissed both by the City Court and by the
Court of First Instance (from which dismissals the Batangas City electric light
system could not have appealed) before trial could begin. Accordingly, the
related civil action which has not been waived expressly or impliedly, should be
remanded to the Court of First Instance of Batangas City for reception of
evidence on the amount or value of the electric power appropriated and
converted by Manuel Opulencia and rendition of judgment conformably with
such evidence.
DELICT AS A SOURCE OF OBLIGATION
MANANTAN VS. COURT OF APPEALS
350 SCRA 387
January 29, 2001
FACTS:
On June 1, 1983, the Provincial Fiscal of Isabela filed an information
charging petitioner Manantan with reckless imprudence resulting to homicide,
allegedly committed on or about the 25th day of September 1982, in the
municipality of Santiago, Isabela. The said accused being then the driver and
person-in-charge of an automobile bearing Plate No. NGA-816 willfully and
unlawfully drove and operated the same while along the Daang Maharlika of the
said municipality, in a negligent manner causing the automobile to sideswipe a
passenger jeepney, thereby causing the said automobile to turn turtle twice
resulting to the death Ruben Nicolas passenger of the said automobile.
In its decision dated June 30, 1988, promulgated on August 4, 1988, the
trial court decided the criminal case in favor of Manantan.
Subsequently, the private respondent spouses Nicolas filed their notice of
appeal on the civil aspect of the trial court’s judgment. The Nicolas spouses
prayed that the decision appealed from be modified and that the appellee be
ordered to pay indemnity and damages. On its decision, the Court of Appeals
decided in favor of the private respondents. In finding petitioner civil liability,
the court a quo noted that at the time the accident occurred, Manantan was in a
state of intoxication, due to his having consume all in all a total amount of at
least twelve bottles of beer between 9 a.m. to 11 p.m.

The petitioner moved for reconsideration but the appellate court denied
the motion.
ISSUE:
Whether or not the acquittal of the accused also extinguished his civil
liability.
RULING:
NO. Our law recognizes two kinds of acquittal, with different effects on
the civil liability of the accused. First is an acquittal on the ground that the
accused is not the author of the act or omission complained of as a felony. This
instance closes the door to civil liability, for a person who has been found not to
be the perpetrator of any act or omission cannot and can never be held liable for
such act or omission. There being no delict, civil liability ex delicto is out of the
question, and the civil action, if any, which will be instituted must be based on
ground other than the delict complained of. The second instance is an acquittal
based on reasonable doubt on the guilt of the accused. In this case, even if the
guilt of the accused has not been satisfactorily established, he is not exempt
from civil liability which may be proved by preponderance of evidence only.
In the case at bar, the accused’s acquittal is based on reasonable doubt.
The decision of the trial court did not state in clear and equivocal terms that
petitioner was not recklessly imprudent or negligent. Hence, impliedly, the trial
court acquitted him on reasonable doubt. Since civil liability is not extinguished
in criminal cases if the accused acquittal is based on reasonable doubt, the
decision of the Court of Appeals finding that the defendant is civilly liable for his
negligent and reckless act of driving his car which was the proximate cause of
the vehicular accident, and sentenced him to indemnify plaintiff-appellants in
the amount of P74,400.00 for the death of Ruben Nicolas.
DELICT AS A SOURCE OF OBLIGATION
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROGELIO BAYOTAS Y CORDOVA, accused-appellant
G.R. No. 102007
Sept. 2, 1994
236 SCRA 239
FACTS:
Rogelio Bayotas was charged with rape and eventually convicted on June
19, 1991. While the appeal was pending, Bayotas died. The Supreme Court
dismissed the criminal aspect of the appeal; however, it required the Solicitor-
General to comment with regard to Bayotas’ civil liability arising from his
commission of the offense charged.
In his comment, the Solicitor-General expressed his view that the death of
accused-appellant did not extinguish his civil liability as a result of his
commission of the offense charged. This comment was opposed by the counsel
of accused-appellant, arguing that the death of the accused while judgment of
the conviction is pending appeal extinguishes both criminal and civil penalties,
he cited in support and invoked the ruling of the Court of Appeals in People v.
Castillo, which was held that the civil obligation in a criminal case takes root in
the criminal responsibility and therefore civil liability is extinguished if accused
should die before final judgment is rendered.
ISSUE:
Whether or not the death of the accused pending appeal of his conviction
extinguishes his civil liability.
RULING:
Yes, the death of the accused pending appeal of his conviction
extinguishes his civil liability because tire liability is based solely on the criminal
act committed. Corollarily, the claim for civil liability survives notwithstanding
the death of the accused, if the same may also be predicted as one source of
obligation other than delict.
Moreover, when a defendant dies before judgment becomes executory,
'there cannot be any determination by final judgment whether or not the felony
upon which the civil action might arise exists,' for the simple reason that `there
is no party defendant.' The Rules of Court state that a judgment in a criminal
case becomes final 'after the lapse of the period for perfecting an appeal or
when the sentence has been partially or totally satisfied or served, or the
defendant has expressly waived in writing his right to appeal.'
In addition, where the civil liability does not exist independently of the
criminal responsibility, the extinction of the latter by death, ipso facto
extinguishes the former, provided, of course, that death supervenes before final
judgment. As in this case, the right to institute a separate civil action is not
reserved, the decision to be rendered must, of necessity, cover 'both the
criminal and the civil aspects of the case.' The accused died before final
judgment was rendered, thus, he is absolved of both his criminal and civil
liabilities based solely on delict or the crime committed.
Appeal dismissed.
the road at high speed, and there was no showing that Barredo exercised the
diligence of a good father of a family.
Barredo’s theory of defense is that Fontanilla’s negligence being
punishable by the Revised Penal Code, that his liability as employer is only
subsidiary liable but Fontanilla was sued for civil liability, hence, Barredo claims
that he can not be held liable.

ISSUE:
Whether or not complainant’s liability as employer of Fontanilla was only
subsidiary and not as primarily and directly responsible under Article 1903 of the
Civil Code.
SOURCES OF OBLIGATIONS
RULING:
E. QUASI-DELICTS No, the Supreme Court ruled that complainant’s liability is not only
subsidiary but also primary liability. The Court affirmed the decision of the Court
1. BARREDO VS. GARCIA, 73 PHIL 607 of Appeals which ruled that the liability sought to be imposed upon Barredo in
2. DY TEBAN VS. CHING, 543 S 560 this action is not a civil obligation arising from a felony, but an obligation
3. SAFEGUARD SECURITY VS. TANGCO, 511 S 67 imposed in Article 1903 of the Civil Code by reason of his negligence in the
4. VILLANUEVA VS. DOMINGO, 438 S 485 selection or supervision of his servant or employee.
5. CALALAS VS. CA, 31 MAY 2000
6. LUDO AND LUYM CORP. VS. CA, FEB. 1, 2001 QUASI-DELICT OR CULPA AQUILIANA is a separate legal institution under
7. THERMOCHEM VS. NAVAL, OCT. 30, 2000 the Civil Code and is entirely distinct and independent from a delict or crime as
8. PICART VS. SMITH, 37 PHIL 813 punished under the Revised Penal Code (RPC). In this jurisdiction, the same
negligent act causing damage may produce civil liability (subsidiary) arising from
a crime under Art. 103 of the RPC; or create an action for the quasi delict or
culpa aquiliana (primary) and the parties injured are free to choice which course
FAUSTO BARREDO VS. SEVERINO GARCIA and TIMOTEO ALMARIO to take.
G.R. No. 48006
July 08, 1942 In the instant case, the negligent act of Fontanilla produced two liabilities
73 PHIL 607 of Barredo. First, a subsidiary one because of the civil liability of Fontanilla
arising from the latter’s criminal negligence; and second, Barredo’s primary and
FACTS: direct responsibility arising from his presumed negligence as an employer in the
On May 3, 1936, there was a head-on collision between a taxi of the selection of his employees or their supervision, under Art. 1903 of the Civil Code.
Malate Taxi driven by Fontanilla and a carretela guided by Dimapilis. The
carretela was overturned and a passenger, 16-year-old boy Garcia, suffered The parties instituted an action for damages under Art. 1903 of the Civil
injuries from which resulted to his death. A criminal action was filed against Code. Barredo was found guilty of negligence for carelessly employing
Fontanilla, and he was convicted. The court in the criminal case granted the Fontanilla, who had been caught several times for violation of the Automobile
petition to reserve the civil action against Barredo, the proprietor of the Malate Law and speeding violation. Thus, the petition is denied. Barredo must
Taxi and the employer of Fontanilla, making him primarily and directly indemnify plaintiffs under the provisions of Art. 1903 of the Civil Code.
responsible under culpa aquiliana. It was undisputed that Fontanilla’s
negligence was the cause of the accident as he was driving on the wrong side of
QUASI-DELICT AS A SOURCE OF OBLIGATION
DY TEBAN VS. LIBERTY FOREST
G.R No. 161803. February 4, 2008
FACTS:
A Prime Mover Trailer suffered a tire blow out during the night of its
travel at a national highway. The trailer was owned by the respondent
Liberty Forest. The driver allegedly put earl warning devices but the only
evidence being witnessed was a banana trunks and candles. Since the car
was placed at the right wing of the road, thus it cause the swerving of a
Nissan van owned by the petitioner when a passenger bus was coming in
between the trailer. The Nissan van owner claimed for damages against
the respondent. The trial court found that the proximate cause of the
three –way accident is the negligence and carelessness of driver of the
respondent . However reversed the decision of the trial court.
ISSUE:
Whether there was negligence on the part of the respondent.
RULING:
Yes. There was negligence on the part of the respondent when the
latter failed to put and used an early warning device because it was found
out that there was no early warning device being prescribed by law that
was used by the driver in order to warn incoming vehicle. Furthermore,
the proximate cause of the accident was due to the position of the trailer
where it covered a cemented part of the road, thus confused and made
trick way for other vehicles to pass by. Thus the respondent is declared
liable due to violation of road rules and regulations.
QUASI-DELICT AS A SOURCE OF OBLIGATION
SAFEGUARD SECURITY VS. TANGCO
G.R No. 165732. December 14, 2006
FACTS:
The victim Evangeline Tangco was depositor of Ecology Bank. She
was also a licensed-fire arm holder, thus during the incident, she was
entering the bank to renew her time deposit and along with her was her
firearm. Suddenly, the security guard of the bank, upon knowing that the
victim carries a firearm, the security guard shot the victim causing the
latter’s instant death. The heirs of the victim filed a criminal case against
security guard and an action against Safeguard Security for failure to
observe diligence of a goof father implied upon the act of its agent.
ISSUE:
Whether Safeguard Security can be held liable for the acts of its
agent.
RULING:
Yes. The law presumes that any injury committed either by fault or
omission of an employee reflects the negligence of the employer. In
quasi-delicts cases, in order to overcome this presumption, the employer
must prove that there was no negligence on his part in the supervision of
his employees.
It was declared that in the selection of employees and agents,
employers are required to examine them as to their qualifications,
experience and service records. Thus, due diligence on the supervision
and operation of employees includes the formulation of suitable rules and
regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with
whom the employer has relations through his employees. Thus, in this
case, Safeguard Security committed negligence in identifying the
qualifications and ability of its agents.
QUASI-DELICT AS A SOURCE OF OBLIGATION
 VILLANUEVA VS. DOMINGO
G.R No. 144274. September 20, 2004
FACTS:
In 1991, a collision was made by a green Mitsubishi lancer owned by
Ocfemia against a silver Mitsubishi lancer driven by Leandro Domingo and
owned by petitioner Priscilla Domingo. The incident caused the car of
Domingo bumped another two parked vehicles. A charged was filed
against Ocfemia and the owner Villanueva. Villanueva claimed that he
must not be held liable for the incident because he is no longer the owner
of the car, that it was already swapped to another car . however, the trial
court ordered the petitioner to pay the damages incurred by the silver
Mitsubishi lancer car.
ISSUE:
Whether the owner Villanueva be held liable for the mishap.
RULING:
Under the Motor Vehicle law, it was declared that the registered
owner of any vehicle is primary land directly liable for any injury it incurs
while it is being operated. Thus, even the petitioner claimed that he was
no longer the present owner of the car, still the registry was under his
name, thus it is presumed that he still possesses the car and that the
damages caused by the car be charge against him being the registered
owner. The primary function of Motor vehicle registration is to identify the
owner so that if any accident happens, or that any damage or injury is
caused by the vehicle, responsibility therefore can be fixed on a definite
individual, the registered owner.
QUASI-DELICT AS A SOURCE OF OBLIGATION
CALALAS VS. COURT OF APPEALS
G.R No. 122039. May 31, 2000
FACTS:
Eliza Sunga was a passenger of a jeepney owned and operated by
the petitioner Calalas. Private respondent Sunga sat in the rear protion of
the jeepney where the conductor gave Sunga an extension seat. When
the jeep stopped, Sunga gave way to a passenger going outside the jeep.
However, an Isuzu Truck driven by Verene and owned by Salva,
accidentally hit Sunga causing the latter to suffer physical injuries where
the attending physician ordered a three months of rest. Sunga filed an
action for damages against the petitioner for breach of contract of
common carriage by the petitioner.
On the other hand, the petitioner Calalas filed an action against
Salva, being the owner of the truck. The lower court ruled in favor of ther
petitioner, thus the truck owner is liable for the damage to the jeep of the
petitioner.
ISSUE:
Whether the petitionerr is liable.
RULING:
Yes. The petitioner is liable for the injury suffered by Sunga. Under
Article 1756 of the New Civil Code, it provides that common carriers are
presumed to have been at fault or to have acted negligently unless they
prove that they observed extraordinary diligence as defined in Arts. 1733
and 1755 of the Code. This provision necessarily shifts to the common
carrier the burden of proof.
In this case, the law presumes that any injury suffered by a
passenger of the jeep is deemed to be due to the negligence of the driver.
This is a case on Culpa Contractual where there was pre-existing
obligations and that the fault is incidental to the performance of the
obligation. Thus, it was clearly observed that the petitioner has
negligence in the conduct of his duty when he allowed Sunga to seat in
the rear portion of the jeep which is prone to accident.
QUASI-DELICT AS A SOURCE OF OBLIGATION

LUDO AND LUYM CORPORATION, petitioner,
VS. COURT OF APPEALS, GABISAN SHIPPING LINES, INC.
and/or ANSELMO OLASIMAN, respondents.
G.R. No. 125483
February 1, 2001
351 SCRA 35
FACTS:
Private respondent Anselmo Olasiman, as captain, was maneuvering the
ship MV Miguela owned by respondent Gabisan Shipping lines, at the pier owned
by petitioner Ludo and Luym Corporation when it rammed the pile cluster
damaging it and deforming the cable wires wound around it.
In an action for recovery of damages filed by Petitioner, the Regional Trial
Court ruled against respondents for incompetence and negligence. In an appeal
the Court of Appeals reversed the lower court’s decision, saying that the
petitioner’s witness Naval was incompetent to testify on the negligence of the
crew and that petitioner’s evidence did not positively identify that MV Miguela
caused the damage.
Thus, petitioner filed this petition for review.
ISSUE:
Whether or not the private respondents are responsible for the damage
done to the pier by the ship based on the doctrine of RES IPSA LOQUITOR.
RULING:
The Supreme Court sustained the Regional Trial Court decision partly on
the ground that the incompetence of eyewitness Naval was not an assigned
error at the appellate court.
The doctrine of RES IPSA LOQUITOR says that when the thing that causes
the damage is in the control and management of the respondent, and in the
ordinary course of things the accident does not happen if those who have the
management use proper care, it affords reasonable evidence, in the absence of
explanation, that the accident arose from want of care. The principle applies
here. The MV Miguela was in the exclusive control of respondent Olasiman, and
aside from petitioner’s witness testimony that the vessel rammed the pile
cluster, respondent did not show persuasively other possible causes of the
damage.
Therefore, respondents were responsible for the damage. Petition is
granted and the decision of the Regional Trial Court reinstated.
QUASI-DELICT AS A SOURCE OF OBLIGATION
THERMOCHEM INCORPORATED and JEROME O. CASTRO, petitioners,
VS. LEONORA NAVAL and THE COURT OF APPEALS, respondents
G.R. No. 131541
2000 Oct 20
FACTS:
On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was
driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards
Cainta. Prior to the collision, the taxicab was parked along the right side of
Ortigas Avenue, not far from the Rosario Bridge, to unload a passenger.
Thereafter, the driver executed a U-turn to traverse the same road, going to the
direction of EDSA. At this point, the Nissan Pathfinder traveling along the same
road going to the direction of Cainta collided with the taxicab. The point of
impact was so great that the taxicab was hit in the middle portion and was
pushed sideward, causing the driver to lose control of the vehicle. The taxicab
was then dragged into the nearby Question Tailoring Shop, thus, causing
damage to the said tailoring shop, and its driver, Eduardo Eden, sustained
injuries as a result of the incident.
Private respondent, as owner of the taxi, filed a damage suit against
petitioner, Thermochem Incorporated, as the owner of the Nissan Pathfinder, and
its driver, petitioner Jerome Castro.
After trial, the lower court adjudged petitioner Castro negligent and
ordered petitioners, jointly and severally, to pay private respondent actual,
compensatory and exemplary damages plus attorney's fees and costs of suit.
On appeal, the Court of Appeals affirmed the judgment of the court a quo.
Hence, this petition for review on certiorari.
ISSUE:
Whether or not the petitioners are liable based on quasi-delict.
RULING:
Yes. The Court held that the driver of the oncoming Nissan Pathfinder
vehicle was liable and the driver of the U-turning taxicab was contributorily
liable.
From petitioner Castro's testimonial admissions, it is established that he
was driving at a speed faster than 50 kilometers per hour. But as he allegedly
stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left
and consequently hit the taxicab. The sudden malfunction of the vehicle's brake
system is the usual excuse of drivers involved in collisions which are the result of
speedy driving. Malfunction or loss of brake is not a fortuitous event. The owner
and his driver are presumed to know about the conditions of the vehicle and is
duty bound to take care thereof with the diligence of a good father of the family.
A mechanically defective vehicle should avoid the streets.
Moreover, the record shows that the Nissan Pathfinder was on the wrong
lane when the collision occurred. This was a disregard of traffic safety rules.
The law considers what would be reckless, blameworthy or negligent in a man of
ordinary diligence and prudence and determines liability by that.
As mentioned earlier, the driver of the taxi is contributorily liable. U-turns
are not generally advisable particularly on major streets. The driver of the taxi
ought to have known that vehicles coming from the Rosario bridge are on a
downhill slope. Obviously, there was lack of foresight on his part, making him
contributorily liable.
Considering the contributory negligence of the driver of private
respondent's taxi, the award of P47,850.00, for the repair of the taxi, should be
reduced in half. All other awards for damages are deleted for lack of merit.
QUASI-DELICT AS A SOURCE OF OBLIGATION
PICART VS. SMITH
37 PHIL 813
FACTS:
Plaintiff was riding on his pony across the bridge. Before he had gotten
half-way across, the defendant approached from the opposite direction in an
automobile. As the defendant neared the bridge, he saw the plaintiff and blew
his horn to give warning. The plaintiff heard the warning signal but instead of
going to the let, he pulled the pony closely up against the railing on the right
side of the bridge. He averred that he thought he did not have sufficient time to
get over the other side. As the automobile approached, the defendant guided it
toward the plaintiff, without diminution to speed, assuming the horseman would
move to the other side. When he had gotten quite near, there being no
possibility o the horse getting across to the other side, the defendant quickly
turned his car sufficiently to the right to escape hitting the horse. However, the
horse was still hit and died while the rider was thrown off violently.
ISSUE:
Whether the defendant was negligent in maneuvering his car giving rise
to a civil obligation.
RULING:
Yes. The Court held that the control of the situation has shifted to the
defendant when the incident occurred. At first, he has the right to assume that
the horse and rider would pass over to the other side but as he moved to the
center, it was demonstrated that this would not be done. It was then his duty to
bring his car to an immediate stop or, seeing that there were no other person on
the bridge, to take the other side and ass sufficiently far away from the horse to
avoid the danger of collision. Instead of doing this, the defendant ran straight on
until he was almost upon the horse. When the defendant exposed the horse and
rider to this danger he was negligent in the eye of the law.
Conduct is said to be negligent when a prudent man in the position of the
tortfeasor would have foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing the conduct or guarding against its
consequences. Applying this test to the conduct of the defendant, it is clear that
negligence is established. A prudent man, laced in the position o the defendant,
would have recognized that the course which he was pursuing was fraught with
risk, and would therefore have foreseen harm to the horse and rider as a
reasonable consequence of that course. Under these circumstances the law
imposed on the defendant the duty to guard against the threatened harm.
The plaintiff on the other hand was guilty of antecedent negligence in
planting himself on the wrong side o the road. The negligent acts of the two
arties were not contemporaneous, since the negligence of the defendant
succeeded the negligence of the plaintiff by an appreciable interval. Under these
circumstances, the law is that the person who has the last fair chance to avoid
the impending harm and fails to do is chargeable wit the consequences, without
reference to the prior negligence of the other party.
 In sum, though the plaintiff was guilty of negligence or being on the wrong
side of the bridge, the defendant was civilly liable as he had fair chance to avoid
the accident.
NATURE AND EFFECT OF OBLIGATIONS
POSITIVE PERSONAL OBLIGATIONS / TO DO
1. FRANCISCO VS. CA, 401 SCRA 594
2. TANGUILING VS. CA, 266 SCRA 78
SPOUSES LORENZO G. FRANCISCO and LORENZA D. FRANCISCO,
petitioners,
VS. HONORABLE COURT OF APPEALS, and
BIENVENIDO C. MERCADO, respondents
April 25, 2003
401 SCRA 594
FACTS:
On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and
Engineer Bienvenido C. Mercado entered into a Contract of Development for the
development into a subdivision of several parcels of land in Pampanga.
Respondent committed to complete the construction within 27 months.
Respondent also advanced P200,000.00 for the initial expenses of the
development work. In return, respondent would receive 50% of the total gross
sales of the subdivision lots and other income of the subdivision. Respondent
also enjoyed the exclusive and irrevocable authority to manage, control and
supervise the sales of the lots within the subdivision.
On 5 August 1986, respondent secured from the Human Settlements
Regulatory Commission ("HSRC") an extension of time to finish the subdivision
development until 30 July 1987. On 8 August 1986, petitioners instructed
respondent to stop selling subdivision lots and collecting payments from lot
buyers.
On 20 January 1987, petitioners granted respondent an authority to
resume the sale of subdivision lots and the collection of payments subject to the
following conditions: (1) all collections shall be deposited in a joint account with
China Banking Corporation, San Fernando, Pampanga branch; (2) withdrawals
shall be limited to 50% of the total collections or to respondent's share, which
can only be used for development expenses, and any withdrawal shall be subject
to the approval of petitioners; (3) only Franda Village Subdivision receipts, duly
countersigned by petitioners, shall be used; (4) collections shall be subject to a
weekly or monthly audit; and (5) any violation of these conditions shall result in
the automatic cancellation of the authority.
Respondent filed an action to rescind the contract on the ground that
conditional authority issued by petitioners violated the Contract. Petitioners
countered that respondent breached the Contract by failing to finish the
subdivision within the 27 months agreed upon, and therefore respondent was in
delay. Petitioners also alleged that respondent sold one subdivision lot to two
different buyers.
The trial Court ruled that the petitioners breached the Contract by: (1)
hiring Rosales to do development work on the subdivision within the 27-month
period exclusively granted to respondent; (2) interfering with the latter’s
development work; and (3) stopping respondent from managing the sale of lots
and collection of payments.
Because petitioners were the first to breach the Contract and even
interfered with the development work, the trial court declared that respondent
did not incur delay even if he completed only 28% of the development work.
Further, the HSRC extended the Contract up to July 1987. Since the Contract
had not expired at the time respondent filed the action for rescission,
petitioners’ defense that respondent did not finish the development work on
time was without basis.
The Court of Appeals affirmed the decision.
ISSUE:
Whether or not the respondent incurred delay in not finishing the work in
the stipulated time.
RULING:
The Supreme Court finds no merit in petitioner’s claim that respondent
incurred delay in the performance of his obligation under the Contract. At that
time, the law authorized HSRC to grant extensions of time for completion of
subdivision projects.
The law provides that delay may exist when the obligor fails to fulfill his
obligation within the time expressly stipulated. In this case, the HSRC extended
the period for respondent to finish the development work until 30 July 1987.
Respondent did not incur delay since the period granted him to fulfill his
obligation had not expired at the time respondent filed the action for rescission
on 27 February 1987.
Moreover petitioners hampered and interfered with respondent’s
development work. Petitioners also stopped respondent from selling lots and
collecting payments from lot buyers, which was the primary source of
development funds. In effect, petitioners rendered respondent incapable, or at
least made it difficult for him, to develop the subdivision within the allotted
period. In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply with what is incumbent upon him. It is only
when one of the parties fulfills his obligation that delay by the other begins.
Respondent’s failure to submit the monthly report cannot serve as
sufficient basis for the cancellation of the Contract. The cancellation of a
contract will not be permitted for a slight or casual breach. Only a substantial
and fundamental breach, which defeats the very object of the parties in making
the contract, will justify a cancellation. In the instant case, the development
work continued for more than two years despite the lack of a monthly report.
POSITIVE PERSONAL OBLIGATIONS / TO DO
JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner.
VS. COURT OF APPEALS and VICENTE HERCE JR., respondents
G.R. No. 117190
January 2, 1997
266 SCRA 78
FACTS:
Sometime in April 1987, petitioner entered into a contract with herein
private respondent to construct windmill for the latter. After some negotiations
they agreed on the construction of the windmill for a consideration of P60,000.00
with a one-year guaranty from the date of completion and acceptance by
respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the
balance, petitioner filed a complaint to collect the amount. However, private
respondent claimed that petitioner did not build a deep well so he was not
entitled for payment and also such windmill was defective and was easily
destroyed by a typhoon. Petitioner, on the other hand, denied the inclusion of
the construction of a deep well in their contract and besides the destruction of
the windmill is due to a force majeure. In finding for plaintiff, the trial court held
that the construction of the deep well was not part of the windmill project as
evidenced clearly by the letter proposals submitted by petitioner to respondent.
The defects and the construction were not also clearly proven by the
respondent.
However, Court of Appeals reversed the trial court. It ruled that the
construction of the deep well was included in the agreement of the parties
because the term "deep well" was mentioned in both proposals. His motion for
reconsideration having been denied by the Court of Appeals, petitioner now
seeks relief from the Supreme Court.
ISSUES:
Whether or not petitioner is obliged to construct the deep well and is
obliged to repair the windmills.
RULING:
On the first issue, the Supreme Court held that petitioner is not obliged to
construct the deep well, sustaining the trial court to be correct that said deep
well is not stipulated in their contract. Notably, nowhere in either proposal is the
installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep
well. There is absolutely no mention in the two (2) documents that a deep well
pump is a component of the proposed windmill system.
In order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole
and proximate cause of the loss or destruction of the object of the contract. In
Nakpil vs. Court of Appeals, four (4) requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the
event must be either unforeseeable or unavoidable; (c) the event must be such
as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to
a fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated
that there was a "strong wind." But a strong wind in this case cannot be
fortuitous, unforeseeable or unavoidable. On the contrary, a strong wind should
be present in places where windmills are constructed, otherwise the windmills
will not turn.
BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS
1. PERIQUET VS. CA, 238 SCRA 697
2. LEGASPI OIL VS. CA, 224 SCRA 213
PERIQUET JR. VS. COURT OF APPEALS
238 SCRA 697
FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless so they
took in a son out of wedlock of Maria, Petra’s sister. The boy was given the
name Fernando Periquet Jr., though he was not legally adopted.
On March 20, 1966, Fernando Periquet died. He left a will wherein he
named his wife Petra as his universal heir. Accordingly, Petra instituted a
Special Proceeding for probate of her deceased spouse’s will. Unfortunately,
Petra died after only four months and eighteen days later. Prior to her untimely
death, she asked her lawyer to prepare her last will and testament. Petra left
her estate to petitioner and provided for certain legacies to her brother, sister
and children of her deceased siblings. However, she died before she could sign
it.
On August 3,1966, Felix Francisco executed a document of Assignment of
Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a
Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta
Zaragoza-Morgan.
On December 13, 1969, petitioner entered into a compromise agreement
with the Zaragozas and Periquets. The trial court approved the compromise
agreement. Also, an order for adjudication and transfer of the residue of the
estate to petitioner was issued.
On May 16, 1970, Felix Francisco filed an action to annul the Assignment
of Hereditary Rights he executed in favor of petitioner. The action for annulment
was based on gross misrepresentation and fraud, grave abuse of confidence,
mistake and undue influence and lack of cause and/or consideration in the
execution of the challenged Deed of Assignment.
The trial court declared the Assignment of Hereditary Rights executed by
Francisco in favor of Periquet Jr. valid and binding.
On appeal, the then Intermediate Appellate Court annulled and rescinded
the Assignment of Hereditary Rights. A motion for reconsideration was denied
for lack of merit.
ISSUES:
Whether or not the CA erred in disregarding and ignoring the trial court’s
strong and substantial findings of fact that no fraud, deception, gross
misrepresentation or undue influence attended the execution and signing of the
Deed of Assignment of Hereditary Rights.
Whether or not the Intermediate Appellate Court erred in disregarding the
trial court’s strong and substantial findings of fact that no fraud, deception, gross
misrepresentation or undue influence attended the execution and signing of the
deed of Assignment.
Whether or not the Intermediate Appellate Court erred in disturbing and
setting aside the Compromise Agreement.
RULING:
Anent the 1st issue, YES. No fraud was employed by herein petitioner.
Felix Francisco could not be considered to have been deceived into
signing the subject deed of assignment. The kind of fraud that will vitiate a
contract refers to those insidious words or machinations resorted to by one of
the contracting parties to induce the other to enter into a contract which without
them he would not have agreed to. It must have a determining influence on the
consent of the victim. The will of the victim, in effect, is maliciously vitiated by
means of a false appearance of reality.
In the case at bench, manifestations of fraud are non-existent.
Resultantly, the Assignment of Hereditary Rights executed by Felix Francisco in
favor of herein petitioner is valid and effective. Furthermore, the allegations of
fraud, deception, gross misrepresentation, or undue influence were not
established by full, clear and convincing evidence. The finding of the trial court
as to its existence or non-existence is final and cannot be reviewed save only
when the finding id clearly shown to be erroneous.
Anent the 2nd issue, YES. The fraud that vitiates a contract refers to those
insidious words or machinations resorted to by one of the contracting parties to
induce the other to enter into a contract which without them he would not have
agreed to. In the case at bench, no such fraud was employed by herein
petitioner. Clearly, Felix Francisco executed the document voluntarily and freely
basing it on the Trial Court’s findings. The finding of the Trial Court as to the
existence of fraud is final and cannot be reviewed save only when the finding is
clearly shown to be erroneous.
rd
Anent the 3 issue, YES. It cannot be denied that a compromise
agreement was entered into by the parties in that case in order to end the suit
already filed in court. The same was approved by the court, cannot and should
not be disturbed except for vices of consent or forgery, it being the obvious
purpose of such compromise agreement to settle, once and for all, the claims of
the parties, and bar all future disputes and controversies thereon.
BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS (Art. 1167, CC)
LEGASPI OIL CO., INC., petitioner,
VS. THE COURT OF APPEALS and BERNARD OSERAOS, respondents
G.R. No. 96505
July 1, 1993
224 SCRA 213
FACTS:
Respondent Bernard Oseraos acting through his authorized agents, had
several transactions with appellee Legaspi Oil Co. for the sale of copra to the
latter. The price at which appellant sells the copra varies from time to time,
depending on the prevailing market price when the contract is entered into. One
of his authorized agents, Jose Llover, had previous transactions with appellee for
the sale and delivery of copra. The records show that he concluded a sale for 70
tons of copra at P95.00 per 100 kilos on May 27, 1975 and another sale for 30
tons of P102.00 per 100 kilos on September 23, 1975. Subsequently, on
November 6, 1975, another designated agent signed a contract in behalf of
appellant for the sale of 100 tons of copra at P79.00 per 100 kilos with delivery
terms of 25 days effective December 15, 1975. At this point, it must be noted
that the price of copra had been fluctuating (going up and down), indicating its
unsteady position in the market.
On February 16, 1976, appellant's agent Jose Llover signed a contract for
the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20
days effective March 8, 1976. As compared to appellant's transaction on
November 6, 1975, the current price agreed upon is slightly higher than the last
contract. In all these contracts though, the selling price had always been stated
as "total price" rather than per 100 kilos. However, the parties have understood
the same to be per 100 kilos in their previous transactions.
After the period to deliver had lapsed, appellant sold only 46,334 kilos of
copra thus leaving a balance of 53,666 kilos as per running account card.
Accordingly, demands were made upon appellant to deliver the balance with a
final warning embodied in a letter dated October 6, 1976, that failure to deliver
will mean cancellation of the contract, the balance to be purchased at open
market and the price differential to be charged against appellant. On October
22, 1976, since there was still no compliance, appellee exercised its option
under the contract and purchased the undelivered balance from the open
market at the prevailing price of P168.00 per 100 kilos, or a price differential of
P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.
The petitioner then filed a complaint against private respondent for
breach of a contract and for damages. The trial court held Oseraos liable for
damages amounting to P48,152.76. The Appellate Court ordered the dismissal
of the case on appeal. Hence, the instant petition for review on certiorari.
ISSUE:
Whether or not private respondent Oseraos is liable for damages arising
from fraud or bad faith in deliberately breaching the contract of sale entered into
by the parties.

RULING:
Yes. The private respondent is guilty of fraud in the performance of his
obligation under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976.
However within the delivery period, Oseraos delivered only 46,334 kilograms of
copra to petitioner, leaving an undelivered thus a balance of 53,666 kilograms.
Petitioner made repeated demands upon private respondent to comply with his
contractual undertaking to deliver the balance of 53,666 kilograms but private
respondent elected to ignore the same.
In a letter dated October 6, 1976, petitioner made a final demand with a
warning that, should private respondent fail to complete delivery of the balance
of 53,666 kilograms of copra, petitioner would purchase the balance at the open
market and charge the price differential to private respondent. Still private
respondent failed to fulfill his contractual obligation to deliver the remaining
53,666 kilograms of copra. On October 22, 1976, since there was still no
compliance by private respondent, petitioner exercised its right under the
contract and purchased 53,666 kilograms of copra, the undelivered balance, at
the open market at the then prevailing price of P168.00 per 100 kilograms, a
price differential of P86.00 per 100 kilograms or a total price differential of
P46,152.76.
In general, fraud may be defined as the voluntary execution of a wrongful
act, or a wilfull omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in Article 1170
of the Civil Code of the Philippines is the deliberate and intentional evasion of
the normal fulfillment of obligation; it is distinguished from negligence by the
presence of deliberate intent, which is lacking in the latter. The conduct of
private respondent clearly manifests his deliberate fraudulent intent to evade his
contractual obligation for the price of copra had in the meantime more than
doubled from P82.00 to P168 per 100 kilograms.
Under Article 1170 of the Civil Code of the Philippines, those who in the
performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
Pursuant to said article, private respondent is liable for damages.
In case of fraud, bad faith, malice, or wanton attitude, the guilty party is
liable for all damages, which may be reasonably attributed to the non-
performance of the obligation. On account of private respondent's deliberate
breach of his contractual obligation, petitioner was compelled to buy the balance
of 53,666 kilos of copra in the open market at the then prevailing price of P168
per 100 kilograms thereby paying P46,152.76 more than he would have paid had
private respondent completed delivery of the copra as agreed upon.
Thus, private respondent is liable to pay respondent the amount of
P46,152.76 as damages. Thus, petition granted. The trial court ruling reinstated.
BREACH OF OBLIGATIIONS: DEFAULT (Mora) (Art. 1169, CC)
TITAN-IKEDA CONSTRUCTION VS. PRIMETOWN PROPERTY
544 S 466
FACTS:
In 1992, respondent Primetown Property Group, Inc. awarded
the contract for the structural works of its 32-storey Makati Prime Tower
(MPT) to petitioner Titan-Ikeda Construction and Development
Corporation. In September 1995, respondent engaged the services of
Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the
progress of the project. In its report, ITI informed respondent that
petitioner, at that point, had only accomplished 31.89% of the project (or
was 11 months and six days behind schedule). Meanwhile, petitioner and
respondent were discussing the possibility of the latter’s take over of the
project’s supervision. Despite ongoing negotiations, respondent did not
obtain petitioner’s consent in hiring ITI as the project’s construction
manager. Neither did it inform petitioner of ITI’s September 7, 1995
report.
Subsequently, both parties agreed that Primetown will take over the
project. Petitioner then demanded for the payment due him in relation to
its partial performance of its obligation. For failure of Primetown to pay
despite repeated demands, petitioner filed a case for specific
performance against Primetown. Meanwhile, Primetown demanded
reimbursement for the amount it spent in having the project completed.
ISSUE:
Whether or not Titan-Ikeda is responsible for the project’s delay.

RULING:
It was found that because respondent modified the MPT's
architectural design, petitioner had to adjust the scope of work. Moreover,
respondent belatedly informed petitioner of those modifications. It also
failed to deliver the concrete mix and rebars according to schedule. For
this reason, petitioner was not responsible for the project's delay. Mora or
delay is the failure to perform the obligation in due time because of dolo
(malice) or culpa (negligence). A debtor is deemed to have violated his
obligation to the creditor from the time the latter makes a demand. Once
the creditor makes a demand, the debtor incurs mora or delay.
Respondent never sent petitioner a written demand asking it to
accelerate work on the project and reduce, if not eliminate, slippage. In
view of the foregoing, we hold that petitioner did not incur delay in the
performance of its obligation.
NECESSITY OF DEMAND: EXTRAJUDICIAL OR JUDICIAL
PNB MADECOR VS. GERARDO C. UY
G.R. No. 129598
August 15, 2001
363 SCRA 128
FACTS:
Guillermo Uy, doing business under the name G.U. Enterprises, assigned
to respondent Gerardo Uy his receivables due from Pantranco North Express Inc.
(PNEI) amounting to P4,660,558.00. The deed of assignment included sales
invoices containing stipulations regarding payment of interest and attorney’s
fees. Thus, Uy filed with the RTC a collection suit with an application for the
issuance of a writ of preliminary attachment against PNEI.
A writ of preliminary attachment was issued on January 26, 1995,
commanding the sheriff “to attach the properties of the defendant, real or
personal, and/or (of) any person representing the defendant” in such amount as
to cover Gerardo Uy’s demand. On January 27, 1995, the sheriff issued a notice
of garnishment addressed to the Philippine National Bank (PNB) attaching the
“goods, effects, credits, monies and all other personal properties” of PNEI in the
possession of the bank, and requesting a reply within five days. PNB MADECOR
received a similar notice.
Petitioner then submitted a position paper stating that PNB MADECOR is a
creditor of PNEI with respect to the P8,784,227.48 and at the same time its
debtor with respect to the P7,884,000.00, PNB MADECOR and PNEI are therefore
creditors and debtors of each other and by force of the law on compensation,
both obligations of PNB MADECOR and PNEI are already considered
extinguished to the concurrent amount or up to P7,884,000.00 so that PNEI is
still obligated to pay PNB MADECOR the amount of P900,227.48
Uy filed an omnibus motion opposing PNB MADECOR’s claim of
compensation in which the latter argued that the letter of PNEI on September 28,
1984 was not a demand letter but merely a request for the implementation of
the arrangement for set-off receivables. Therefore, PNEI did not earn an interest
of 18% annually.
ISSUE:
Whether or not the letter of PNEI on September 28, 1984 to PNB
MADECOR was a demand letter.
RULING:
The Supreme Court observed that petitioner’s obligation to PNEI appears
to be payable on demand. Petitioner is obligated to pay the amount stated in
the promissory note upon receipt of a notice to pay from PNEI. Henceforth, if
petitioner fails to pay after such notice, the obligation will earn an interest of 18
percentum per annum.
The records showed that the letter was not a demand letter but one that
merely informed petitioner of the conveyance of a certain portion of its
obligation to PNEI per a dacion en pago arrangement between PNEI and PNB,
and the unpaid balance of obligation after deducting the amount conveyed to
PNB. The letter only connotes that PNEI was advising petitioner to settle the
matter of implementing the earlier arrangement with PNB.
WHEN DEMAND NOT NECESSARY
1. BARZAGA VS. CA, 268 S 105
2. TANGUILING VS, CA, 266 SCRA 78
3. TAYAG VS. CA, 219 SCRA 480
 4. PERIQUET VS. CA, 238 SCRA 697
IGNACIO BARZAGA, petitioner,
VS. COURT OF APPEALS and ANGELITO ALVIAR, respondents
G.R. No. 115129
February 12, 1997
268 SCRA 105
FACTS:
Petitioner Ignacio Barzaga bought from the hardware store of respondent
Angelito Alviar construction materials for the niche of his wife scheduled for
internment on December 24, 1990. He paid for the materials purchased but the
circumstances of delivery with the specific date (December 22), time (8 A.M.),
and place (Memorial Cemetery, Dasmarinas) were not indicated in the invoice
receipts but were verbally acknowledged by the store attendant. Respondent
was not able to deliver the materials on the specified date and time which
resulted to the delay in the construction of the niche and consequently to the
delay in the internment of petitioners wife. The delay caused the inability of the
petitioner to accede to the dying wishes of his wife that she be buried on the 24 th
of the month. She was buried 2 and ½ days later, after Christmas.
ISSUE:
Whether or not the respondent is liable for damages due to his non-
performance of his obligation to deliver the materials on the specified date and
time.
RULING:
Yes, private respondent is liable for damages. Respondent’s contention in
the appellate court that he did not incur delay in the performance of his
obligation to deliver the thing sold to petitioner since the time of delivery was
not indicated in the invoice receipt covering the sale could not be sustained in
view of the positive verbal commitment of the respondent’s employee. It was no
longer necessary to indicate the time of delivery. Respondent was negligent and
incurred delay in the performance of his contractual obligations. Respondent
had no right to manipulate petitioner’s timetable and substitute it with his own.
Therefore, he is liable for moral damage for causing further anguish and
pain, and suffering to the family of petitioner especially during Christmas day,
and for exemplary damages for not performing his obligation under the business
contract.
WHEN DEMAND NOT NECESSARY
TANGUILIG v. COURT of APPEALS
G. R. No. 117190
January 2, 1997
266 SCRA 78
FACTS:
In April 1987, petitioner Jacinto Tanguilig, ( J.M.T. Engineering and General
Merchandising), proposed to respondent Vicente Herce, Jr. to construct a
windmill system for him. After some negotiations, they agreed on the
construction of the windmill for a consideration of P60,000.00 with a one-year
guaranty from the date of completion and acceptance by Herce, Jr. of the
project. Pursuant to the agreement, Herce, Jr. paid Tanguilig a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of
P15,000.00. On March 14, 1988, due to the refusal and failure of respondent to
pay the balance, petitioner filed a complaint to the collect the amount. In his
Answer before the trial court, Herce, Jr. denied the claim saying that he had
already paid the amount to San Pedro General Merchandising, Inc. which the
windmill was to be connected. Since the deep well formed part of the system,
the payment Herce, Jr. tendered to SPGMI should be credited his account by
Tanguilig. Respondent also averred that assuming he owed petitioner a balance
of P15,000.00, this should be offset by the defects in the windmill which caused
the structure to collapse after a strong wind hit hteir place.
Tanguilig denied that the construction of a deep well was included in the
agreement to build the windmill sytem, for the contract price of P60,000.00 was
solely for the windmill assembly and its installation, exclusive of other incidental
materials needed for the project. Tanguilig also disowned any obligation to
repair or reconstruct the system and insisted that he delivered it in good and
working condition to respondent who accepted the same without protest. He
also contended that the collapse was attributable to a typhoon, a force majeure,
which relieved him of any liability.
ISSUE:
Whether or not the petitioner is under obligation to reconstruct the
windmill after it collapsed
RULING:
The Supreme Court held that when the windmill failed to function
properly, it becomes incumbent upon the petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract. Hence,
respondent cannot be said to have incurred in delay; instead it is the petitioner
who should bear the expenses for the reconstruction of the windmill. Thus, the
Supreme Court ruled that respondent Herce, Jr. should pay petitioner Tanguilig
the balance of P15,000.00 and likewise ordered petitioner Tanguilig to
reconstruct subject defective windmill system, in accordance with the one-year
guaranty.
WHEN DEMAND NOT NECESSARY
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN
GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,
VS. COURT OF APPEALS and ALBRIGIDO LEYVA, respondents
G.R. No. 96053
March 3, 1993
219 SCRA 418
FACTS:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr.,
prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva
involving the undivided one-half portion of a piece of land situated at Poblacion,
Guimba, Nueva Ecija is the subject matter of the present litigation between the
heirs of Juan Galicia, Sr. who assert breach of the conditions as against private
respondent’s claim anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific performance filed by
private respondent on account of the herein petitioner’s reluctance to abide by
the covenant, ruled in favor of the vendee while respondent court practically
agreed with the trial court except as to the amount to be paid to petitioners and
the refund to private respondent are concerned.
There is no dispute that the sum of P3,000.00 listed as first installment
was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to
be paid within ten days from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions from May 29, 1975,
up to November 3, 1979. Concerning private respondent’s assumption of the
vendor’s obligation to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference of the indebtedness came from Celerina
Labuguin. Moreover, petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was paid to them. Because of
the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the complaint for specific
performance.
ISSUE:
Whether or not private respondent correctly anchored on estopped or
waiver by acceptance of delayed payments.
RULING:
Both the trial and appellate courts were correct in sustaining the claim of
private respondent anchored on estopped or waiver by acceptance of delayed
payments under Article 1235 of the Civil Code in that:
“When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.”
considering that the heirs of Juan Galicia, Sr. accommodated private
respondently by accepting the latter’s delayed payments not only beyond the
grace periods but also during the pendency of the case for specific performance.
Indeed, the right to rescind is not absolute and will not be granted where there
has been substantial compliance by partial payments. By and large, petitioners’
actuation is susceptible of but one construction-that they are now estopped from
reneging from their commitment on account of acceptance of benefits arising
from overdue accounts of private respondent.
Now, as to the issue of whether payments had in fact been made, there is
no doubt that the second installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag’s admission in judicio that the sum of
P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose
that “the evidence in the records do not support this conclusion”. A contrario,
when the court of origin, as well as the appellate court, emphasized the frank
representation along this line of Josefina Tayag before the trial court, petitioners
chose to remain completely mute even at this stage despite the opportunity
accorded to them, for clarification. Consequently, the prejudicial aftermath of
Josefina Tayag’s spontaneous reaction may no longer be obliterated on the basis
of estoppel.
 Insofar as the third item of the contract is concerned, it may be recalled
that respondent court applied Article 1186 of the Civil Code on constructive
fulfillment which petitioners claim should not have been appreciated because
they are the obliges while the proviso in point speaks of the obligor.
But, petitioners must concede that in a reciprocal obligation like a contract of
purchase, both parties are mutually obligors and also obliges, and any of the
contracting parties may, upon non-fulfillment by the other privy of his part of the
prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code).
Petitioners argue that there was no valid tender of payment nor
consignation of the sum of P18,520.00 which they acknowledge to have been
deposited in court on January 22, 1981 five years after the amount of P27,000.00
had to be paid. This suggestion ignores the fact that consignation alone
produced the effect of payment in the case at bar because it was established
that two or more heirs of Juan Galicia, Sr. claimed the same right to collect.
Moreover, petitioners did not bother to refute the evidence on hand that,
aside from the P18,520.00. These two figures representing private respondent’s
payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid
by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of
P1,649.48 to private respondent as overpayment of the P27,000.00 balance.
WHEN DEMAND NOT NECESSARY
DR. FERNANDO PERIQUET, JR.,
VS. HONORABLE FOURTH CIVIL CASES DIVISION OF THE INTERMEDIATE
APPELLATE COURT and the HEIRS OF THE LATE FELIX R. FRANCISCO
G.R. No. 69996
December 5, 1994
238 SCRA 697
FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless so they
took in a son out of wedlock of Maria, Petra’s sister. The boy was given the
name Fernando Periquet Jr., though he was not legally adopted.
On March 20, 1966, Fernando Periquet died. He left a will wherein he
named his wife Petra as his universal heir. Accordingly, Petra instituted a
Special Proceeding for probate of her deceased spouse’s will. Unfortunately,
Petra died after only four months and eighteen days later. Prior to her untimely
death, she asked her lawyer to prepare her last will and testament. Petra left
her estate to petitioner and provided for certain legacies to her brother, sister
and children of her deceased siblings. However, she died before she could sign
it.
On August 3,1966, Felix Francisco executed a document of Assignment of
Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a
Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta
Zaragoza-Morgan.
On December 13, 1969, petitioner entered into a compromise agreement
with the Zaragozas and Periquets. The trial court approved the compromise
agreement. Also, an order for adjudication and transfer of the residue of the
estate to petitioner was issued.
On May 16, 1970, Felix Francisco filed an action to annul the Assignment
of Hereditary Rights he executed in favor of petitioner. The action for annulment
was based on gross misrepresentation and fraud, grave abuse of confidence,
mistake and undue influence and lack of cause and/or consideration in the
execution of the challenged Deed of Assignment.
The trial court declared the Assignment of Hereditary Rights executed by
Francisco in favor of Periquet Jr. valid and binding.
On appeal, the then Intermediate Appellate Court annulled and rescinded
the Assignment of Hereditary Rights. A motion for reconsideration was denied
for lack of merit.
ISSUE:
Whether or not the findings of the Court of Appeals that the assignment of
hereditary rights executed by Felix Francisco in favor of petitioner is void due to
fraud, deception, gross misrepresentation, or undue influence should be
sustained.
RULING:
The decision of the Court of Appeals was reversed and set aside for the
kind of fraud that will vitiate a contract refers to those insidious words or
machinations resorted to by one of the contracting parties to induce the other to
enter into a contract which without them he would not have agreed to.
In the case at bench, no such fraud was employed by herein petitioner.
Resultantly, the assignment of hereditary rights executed by Felix Francisco in
favor of herein petitioner is valid and effective.
And since, Felix is not a party to the compromise agreement; he cannot
be blinded by the same.
MORA SOLVENDI: EFFECTS
RIZAL COMMERCIAL BANKING CORPORATION
VS. COURT OF APPEALS and FELIPE LUSTRE
G.R. No. 133107
March 25, 1999
305 SCRA 449
FACTS:
On March 10, 1993, private respondent Atty. Felipe Lustre purchased a
Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of
P164,620.00, the balance of the purchase price to be paid in 24 equal monthly
installments. Private respondent thus issued 24 postdated checks for the
amount of P14, 976.00 each. The first was dated April 10, 1991; subsequent
checks were dated every 10th day of each succeeding month.
To secure the balance, private respondent executed a promissory note
and a contract of chattel mortgage over the vehicle in favor of Toyota Shaw, Inc.
The contract of chattel mortgage, in paragraph 11 thereof, provided for an
acceleration clause stating that should the mortgagor default in the payment of
any installment, the whole amount remaining unpaid shall become due. In
addition, the mortgagor shall be liable for 25% of the principal due as liquidated
damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests
in the chattel mortgage to petitioner Rizal Commercial Banking Corporation
(RCBC). All the checks dated April 10, 1991 to January 10, 1993 were thereafter
encashed and debited by RCBC from private respondent's account, except for
RCBC Check No. 279805 representing the payment for August 10, 1991, which
was unsigned. Previously, the amount represented by RCBC Check No. 279805
was debited from private respondent's account but was later recalled and re-
credited, to him. Because of the recall, the last two checks, dated February 10,
1993 and March 10, 1993, were no longer presented for payment. This was
purportedly in conformity with petitioner bank's procedure that once a client's
account was forwarded to its account representative, all remaining checks
outstanding as of the date the account was forwarded were no longer presented
for patent.
On the theory that respondent defaulted in his payments, the check
representing the payment for August 10, 1991 being unsigned, petitioner, in a
letter dated January 21, 1993, demanded from private respondent the payment
of the balance of the debt, including liquidated damages. The latter refused,
prompting petitioner to file an action for replevin and damages before the Pasay
City Regional Trial Court (RTC). Private respondent, in his Answer, interposed a
counterclaim for damages.
The RTC dismissed the petition. Likewise, the petition for appeal was
denied by the Court of Appeals. The Court of Appeals stated that the "default"
was not a case of failure to pay.
ISSUE:
Whether or not petitioner’s claim is meritorious.
RULING:
No. Petitioner's conduct, in the light of the circumstances of this case, can
only be described as mercenary. Petitioner had already debited the value of the
unsigned check from private respondent's account only to re-credit it much later
to him. Thereafter, petitioner encashed checks subsequently dated, and then
abruptly refused to encash the last two. More than a year after the date of the
unsigned check, petitioner, claiming delay, demanded from private respondent
payment of the value of said check and that of the last two checks, including
liquidated damages. As pointed out by the trial court, this whole controversy
could have been avoided if only petitioner bothered to call up private respondent
and ask him to sign the check. Good faith, not only in compliance with its
contractual obligations, but also in observance of the standard in human
relations, for every person "to act with justice, give everyone his due, and
observe honesty and good faith." behooved the bank to do so. Failing thus,
petitioner is liable for damages caused to private respondent. These include
moral damages for the mental anguish, serious anxiety, besmirched reputation,
wounded feelings and social humiliation suffered by the latter.

MORA ACCEPIENDI: EFFECTS
STATE INVESTMENT VS. COURT OF APPEALS
198 SCRA 392
FACTS:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged
certain shares of stock to petitioner State Investment House Inc. (“State”) in
order to secure a loan of P120,000.00. Prior to the execution of the pledge,
respondent spouses Jose and Marcelina Aquino signed an agreement with
petitioner State for the latter’s purchase of receivables amounting to
P375,000.00. When the 1st Account fell due, respondent spouses paid the same
partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as the 2 nd Account. This new
loan was secured by the same pledge agreement executed in relation to the 1 st
Account. When the new loan matured, State demanded payment. Respondents
expressed willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino has
remained unpaid.
On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a
Notice of Notarial Sale stating that upon request of State and by virtue of the
pledge agreement, he would sell at public auction the shares of stock pledged to
State. This prompted respondents to file a case before the Regional Trial Court
of Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under the 2nd Account became due, they had been
able and willing to pay the same, but petitioner had insisted that respondents
pay even the loan account of Jose and Marcelino Aquino, which had not been
secured by the pledge. It was further alleged that their failure to pay their loan
was excused because the Petitioner State itself had prevented the satisfaction of
the obligation.
On January 29, 1985, the trial court rendered a decision in favor of the
plaintiff ordering State to immediately release the pledge and to deliver to
respondents the share of stock upon payment of the loan. The CA affirmed in
toto the decision of the trial court.
ISSUE:
Whether or not the conditions to be complied with by the debtor desirous
of being released from his obligation in cases where the creditor unjustly refuses
to accept payment have been met by the spouses Aquino.
RULING:
NO. The conditions had not been complied with. Article 1256 of the civil
code states that: “ If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by consignation of the thing or sum due.” Where the creditor
unjustly refuses to accept payment, the debtor desirous of being released from
his obligation must comply with two (2) conditions, viz: (a) tender of payment;
and (b) consignation of the sum due. Tender of payment must be accompanied
or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a written
tender of payment alone, without consignation in court of the sum due, does not
suspend the accruing of regular or monetary interest. In the instant case,
respondent spouses Aquino, while they are properly regarded as having made a
written tender of payment to petitioner state, failed to consign in court the
amount due at the time of the maturity of the 2 nd Account No. It follows that
their obligation to pay principal-cum-regular or monetary interest under the
terms and conditions of the said Account was not extinguished by such tender of
payment alone.
COMPENSATIO MORAE - EFFECTS
1. BPI INVESTMENT VS. CA, 377 S 117
2. LEAÑO VS. CA, 369 SCRA 36
3. HEIRS OF BACUS VS. CA, 371 SCRA 295
4. INTEGRATED PACKING VS. CA, 333 SCRA 170
5. LAFORTEZA VS. MACHUCA, 333 SCRA 643
BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS
G.R. No. 133632. FEBRUARY 15, 2002
FACTS:
 Frank Roa obtained a loan at an interest rate of 16 1/4% per annum
from Ayala Investment and Development Corporation (AIDC), predecessor
of petitioner BPIIC for the construction of a house on his lot. Said house
and lot were mortgaged to AIDC to secure the loan. Sometime in 1980,
Roa sold the house and lot to private respondents ALS and Antonio
Litonjua. They paid P350,000 in cash and assumed the P500,000 balance
of Roa’s indebtedness with AIDC. The latter, however, was not willing to
extend the old interest rate to private respondents and proposed to grant
them a new loan of P500,000 to be applied to Roa’s debt and secured by
the same property, at an interest rate of 20% per annum. In June 1984,
BPIIC instituted foreclosure proceedings against private respondents on
the ground that they failed to pay the mortgage indebtedness. Private
respondents on the other hand alleged that they were not in arrears in
their payment, but in fact made an overpayment as of June 30, 1984.
ISSUE:
Whether or not petitioner may be held liable for moral and
exemplary damages.
RULING:
Petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the
foreclosure proceedings. It merely exercised its right under the mortgage
contract because private respondents were irregular in their monthly
amortization. Private respondents counter that BPIIC was guilty of bad
faith and should be liable for said damages because it insisted on the
payment of amortization on the loan even before it was released.
Further, it did not make the corresponding deduction in the monthly
amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents
failed to make timely payment. But as admitted by private respondents
themselves, they were irregular in their payment of monthly
amortization. Thus, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary
damages. However, in our view, BPIIC was negligent in relying merely on
the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to
private respondents and the date when it was released. Such negligence
resulted in damage to private respondents, for which an award of nominal
damages should be given in recognition of their rights which were
violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.
Lastly, we sustain the award of P50,000 in favor of private respondents as
attorney’s fees since they were compelled to litigate.
COMPENSATIO MORAE - EFFECTS
LEAÑO VS. COURT OF APPEALS
369 SCRA 36
FACTS:
On November 13, 1985, private respondent Hermogenes Fernando, as
vendor and petitioner Carmelita Leaño, as vendee entered into a contract
regarding the sale of a piece of land located at Baliuag, Bulacan.
Petitioner Leaño agreed to pay the total purchase price of P 107,750.00.
Further, P10,000.00 was agreed as a down payment and the balance of
P96,975.00 shall be paid within the period of 10 years at a monthly amortization
of P1,747.30 to commence on December 7, 1985 with interest of 18% per
annum based on balances. It was also provided in the contract that there is a
grace period of one month within which to make payments, together with the
one corresponding to the month of grace. Should the month of grace expire
without the installments for both months having been satisfied, an interest of
18% per annum will be charged on the unpaid installments. Further, should the
period of 90 days elapse from the expiration of the grace period without the
overdue and unpaid installments having been paid with the corresponding
interests up to that date, the vendor Fernando was authorized to declare the
cancellation of the contract and dispose of the parcel of land. The payments and
all other improvements made on the premises shall be considered as rents paid
for the use and occupation of the premises and as liquidated damages.
Eventually, the contract was executed and Leaño made several payments
in lump sum. She constructed thereafter a house on the lot valued at
P800,000.00. The last payment she tendered was on April 1, 1989.
 The trial court on September 16, 1991 rendered a decision on an
ejectment case filed by respondent Fernando, ordering Leaño to vacate the
premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until the petitioner vacated the
premises, attorney’s fees and cost of the suit. A writ of execution was thereafter
issued on August 24, 1993.
On September 27, 1993, the petitioner filed with the RTC of Bulacan a
compliant of specific performance with preliminary injunction. Petitioner
assailed the decision of the municipal trial court that it was violative of her right
to due process and for being in contrary with the intentions of RA 6552 regarding
the protection of buyers of lots on installments. She further deposited the
amount of P18,000.00 with the clerk of court to cover the balance of the total
cost of the contested lot. She also posted a cash bond of P50,000.00 and on
November 4, 1993, the trial court issued a writ of preliminary injunction on the
assailed decision of the municipal trial court.
On February 6, 1995, the trial court rendered a decision favoring the
petitioner, making the preliminary injunction permanent, ordering the plaintiff to
pay the defendant P103,090.70 corresponding to the outstanding obligation
under the contract executed which consists of the principal together with
interest and surcharges, plus interest thereon at the rate of 18% per annum in
accordance with the contract’s provision, ordering the defendant to pay the
plaintiff P10,000.00 by way of attorney’s fees and costs of suit.
On February 21, 1995, Fernando filed a motion for reconsideration and the
supplement thereto.
According to the trial court, the transaction was an absolute sale, making
the petitioner the owner of the contested lot upon actual and constructive
delivery thereof. Therefore, Fernando was divested of ownership and cannot
recover the same unless the contract is rescinded pursuant to Article 1592 of the
Civil Code which requires a judicial or notarial demand. Since there had been no
rescission, petitioner cannot be evicted.
Regarding the issue of delay, the trial court pointed out that the plaintiff
defaulted in the payment of the amortization due and therefore she should be
liable for the payment of the interest and penalties.
The trial court disregarded the petitioner’s claim that she gave a down
payment of P10,000.00 at the time of the execution of the contract. The trial
court relied on the statement of account and the summary prepared by the
respondent to determine the liability of the petitioner for the payment of the
liabilities and penalties. The trial court held that the petitioner’s consignation on
the amount of P18,000.00 did not produce a legal effect since it was not
undertaken in accordance with Articles 1176, 1177 and 1178 of the Civil Code.
The Court of Appeals affirmed in toto the trial court’s decision; hence, this
petition.
ISSUES:
1. Whether or not the transaction was an absolute and not a conditional sale.
2. Whether or not there was proper cancellation of the contract to sell.
3. Whether or not there was delay on the petitioner’s part in the payment of
the monthly amortization.
RULING:
1. NO, the transaction was not an absolute sale; rather, it was a conditional
sale. The very intention of the parties was to reserve the ownership of the land
in the seller (Fernando) until the buyer has paid the total purchase price. First,
the contract to sell makes the sale, cession and conveyance “subject to
conditions” set forth on the contract. Second, what was transferred was
possession and not ownership. Finally, the land is covered by the Torrens title,
the act of registration of the deed of sale was the operative act that could
transfer ownership over the lot. No deed could be registered in the case at bar
since as stipulated in the contract, such deed shall be executed upon completion
of payment by Leaño.
In a contract to sell real property on installments, full payment of the
purchase price is a positive suspensive condition and the failure of the payment
is not a breach but rather shall be an event that will prevent the obligation of the
seller to convey the title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the price.
In the case at bar, Leaño did not pay the installments after April 1, 1989,
which prevented the obligation of Fernando to convey the property. It brought
into effect the cancellation provision of the contract. Article 1592 of the Civil
Code is inapplicable in the case at bar. But the provisions of RA 6552 (The
Realty Installment Buyer Protection Act) governs the case at bar which
recognizes the right of the seller to cancel the contract upon non-payment of an
installment by the buyer.
2. NO, there was no proper cancellation of the contract to sell.
 Leaño did not pay the installments after April 1, 1989, which prevented the
obligation of Fernando to convey the property. It brought into effect the
cancellation provision of the contract. Nevertheless, what is controlling is not
Article 1592 of the Civil Code but the provisions of RA 6552 (The Realty
Installment Buyer Protection Act) which recognizes not only the right of the seller
to cancel the contract upon non-payment off an installment by the buyer but
also rights of the buyer in case of cancellation.
Although the ejectment case operated as the notice of cancellation required
under the provisions of RA 6552, petitioner was not given the cash surrender
value of the payments that she made; hence, there was no actual cancellation of
the contract.
Consequently, petitioner Leaño may still reinstate the contract by updating
the account during the grace p[period and before actual cancellation.
3. YES, there was delay on the petitioner’s part to pay the monthly
amortizations. Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
Since respondent Fernando performed his part of the obligation by
allowing Leaño to have possession over the property and the latter not having
paid the monthly amortization in accordance with the terms of the contract, the
petitioner incurred delay and therefore is liable for damages.
The Court affirmed the decision of the appellate court, in toto.
COMPENSATIO MORAE - EFFECTS
HEIRS OF BACUS VS. COURT OF APPEALS
371 SCRA 295
FACTS:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray
a parcel of agricultural land in Talisay, Cebu for 6 years, ending May 31, 1990.
The contract contained an option to buy clause where the lessee had the
exclusive and irrevocable right to buy 2,000 square meters of the property
within five (5) years from the year of the effectivity of the contract at P200 per
square meter the rate of which shall be proportionately adjusted depending on
the peso rate against the US dollar, which at the time of the execution of the
contract was P14.00.
On March 15, 1990, the Duray spouses signified their intention to Roque
Bacus, one the decedent’s heirs, that they were willing and ready to purchase
the property under the option to buy clause. On March 30, 1990, due to the
heirs’ refusal to sell the property to the respondents, Duray’s adverse claim was
annotated by the Register of Deeds of Cebu.
On April 5, 1990, Duray filed a complaint for specific performance against
the heirs of the decedent with the Lupon Tagapamayapa of their barangay,
asking that he be allowed to purchase the land agreed upon in the contract with
the decedent.
Having failed to come to an agreement, the private respondents filed a
complaint before the trial court, praying that the heirs: a) execute a deed of sale
over the subject property in favor of them; b) receive the payment of the
purchase price; and c) pay the damages.
Petitioners alleged that prior to the death of the decedent, respondents
conveyed to them their lack of interest to but the subject land for want of
sufficient funds. They even requested the respondents to pay in full the
purchase price but the respondents refused.
On October 30, 1990, private respondents manifested in court that they
caused the issuance of a cashier’s check in the amount of P 650,000 payable too
petitioners at anytime upon demand. On August 31, 1991, trail court rendered
its decision, favoring the private respondents. On appeal, the Court of appeals
denied the motion of the petitioners.
Petitioners ratiocinated that they cannot be compelled to sell the disputed
property by virtue of the nonfulfillment of the obligation under the option
contract of the private respondents. Respondents argued that the petitioners
are unclear if Rule 65 or 45 of the Rules of Court govern their petition.
Further, that questions of fact, which were actually raised by the
petitioners, cannot be entertained by the Supreme Court in a petition for review.
 Nonetheless, if the claim must be under Rule 45, the respondents opted to
exercise their option to buy as contained in the contract.
ISSUES:
1. Whether or not when the respondents opted to buy the property, were
they already required to deliver the money or consign it in court before
the execution of the deed of transfer.
2. Whether or not the private respondents incurred in delay when they did
not deliver the purchase price or consign it in court or before the
expiration of the contract.
RULING:
1. NO, the petitioners were not required to deliver the money or consign it in
court. Obligations under an option to buy are reciprocal obligations. The
performance of one obligation is conditioned on the simultaneous fulfillment of
the other obligation. In an option to buy, the payment of the purchase price by
the creditor is contingent upon the execution and delivery of a deed of sale by
the debtor. In the case at bar, the respondents were not yet obliged to make
actual payment. Consequently, since the obligation was not yet due,
consignation in court of the purchase price was not yet required.
2. NO, the private respondents did not incur delay when they did not deliver
the purchase price or consign it in court or before the expiration of the contract.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it requires a prior tender of payment. Petitioners’ contention that private
respondents failed to comply with their obligation under the option to buy
because they failed to actually deliver the purchase price or consign it in court
before the contract expired is not tenable. Ergo, the private respondents did not
incur any delay when they did not yet deliver payment or make consignation
before the expiration of the contract. In reciprocal obligations, neither party
incurs delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only from the moment one of the
parties fulfills his obligation, does delay by the other begins.
In the case at bar, as early as March 15, 1990, respondents
communicated with the petitioners that they intended to exercise their exclusive
right to buy the parcel of land stipulated in the contract but which was not given
due course by the petitioners unless there is delivery of the sum of money. As
there was no compliance with what was incumbent upon the petitioners under
the option to but, private respondents had not incurred in delay when the
cashier’s check was issued even after the contract expired.
The instant petition is denied and the Court of Appeal’s decision is
affirmed.
COMPENSATIO MORAE - EFFECTS
INTEGRATED PACKAGING CORPORATION VS. COURT OF APPEALS
333 SCRA 170
FACTS:
Petitioner Integrated Packaging Corporation (Integrated) entered into an
agreement with private respondent Fil-Anchor paper Co., Inc. (Fil-Anchor)
regarding the delivery of 3, 450 reams of printing papers in a staggered basis
from May to October 1979. Then, Integrated entered into a contract with
Philippine Appliance Corporation (Philacor) for the printing of a minimum of 300,
000 copies of books.
Out of the 3, 450 reams that were supposed to be delivered, Fil-Anchor
delivered only 1,097; so petitioner demanded immediate delivery of the rest of
the reams of paper. Fil-Anchor consequently delivered P766,101.00 worth of
printing papers to which Integrated encountered difficulties in its payment. The
former made a formal demand from the latter to settles its outstanding account.
Integrated made a partial payment totaling to P 97,200.00.
Integrated once again entered into an additional printing contract with
Philacor but failed to comply with what is incumbent upon it. Hence, Philacor
demanded compensation from Integrated for the delay and damages it suffered
on account of petitioner’s non-compliance with what was agreed upon in their
contract. Consequently, Fil-Anchor filed a collection suit against petitioner
totaling to P 766,101.70 which represents the unpaid purchase price of the
printing paper bought by Integrated.
Integrated denied the material allegations of the complaint and by way of
a counterclaim, it alleged that respondent breached when it failed to deliver
2,875 reams despite demand which made petitioner suffer actual damages and
failed to realized expected profits.

Eventually, the lower court rendered its judgment after due hearing and
trial. It ordered Integrated to pay P763,101.70 while it also ordered Fil-Anchor to
pay Integrated moral damages and compensatory damages of P790,324.30 for
the unrealized income of Integrated when Fil-Anchor failed to deliver the reams
of papers it needed for the printing of books. However, the CA affirmed the
decision of the lower court with respect only to Integrated liabilities and not with
Fil-Anchor’s liability to pay moral and compensatory damages.
ISSUES:
Whether or not private respondent violated the order agreement.
Whether or not private respondent is liable for petitioner’s breach of
contract with Philacor.
RULING:
Anent the 1st issue, NO. The transaction between the parties is a contract
of sale whereby Fil-Anchor obligates itself to deliver printing paper to Integrated
which, in turn, binds itself to pay a sum of money. Both parties conceded that
the order agreement gives rise to reciprocal obligations such that the obligation
of one is dependent upon the obligation of the other. Reciprocal obligations are
to be performed simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other. Fil-Anchor undertakes to deliver
printing paper of various quantities subject to petitioner’s corresponding
obligation to pay, on a maximum 90-day credit, for the materials. Petitioner
Integrated did not fulfill its side of the contract as its last payment in August
1981 could only cover materials covered by delivery invoices dated September
and October of 1980. Consequently, Fil-Anchor’s suspension of its deliveries to
petitioner whenever the latter failed to pay on time is legally justified. Fil-Anchor
has the right to cease making further delivery; hence, it did not violate the order
agreement. On the contrary, it was Integrated which breached the agreement
as it failed to pay on time the materials delivered by private respondent.
Anent the 2nd issue, NO. Fil-Anchor cannot be held liable under the
contracts entered into by petitioner with Philacor because it is not a party to said
agreements. It is also not a contract pour autriu. The contracts could not affect
third persons like private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof.
COMPENSATIO MORAE - EFFECTS
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z.
LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA,
petitioners,
VS. ALONZO MACHUCA, respondent
June 16, 2000
G.R. No. 137552
333 SCRA 643
FACTS:
On August 2, 1988, Lea Zulueta-Laforteza executed a Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza,
Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the
subject house and lot property and sign any document for the settlement of the
estate of the late Francisco Q. Laforteza. Likewise on the same day, Michael Z.
Laforteza executed a Special Power of Attorney in favor of Roberto and Gonzalo
Jr., likewise, granting the same authority. Both agency instruments contained a
provision that in any document or paper to exercise authority granted, the
signature of both attorneys-in-fact must be affixed. Dennis Laforteza also
executed Special Power of Attorneys on different dates.
In the exercise of the above authority, on January 20, 1989, the heirs of
the late Francisco Q. Laforteza represented by Roberto and Gonzalo entered into
a Memorandum of Agreement (Contract to Sell) with Alonzo Machuca over the
subject property for the sum of Six Hundred Thirty Thousand Only (P630,000.00)
to be payable as stipulated: P30,000 upon signing the agreement and the
remaining P600,000 upon issuance of the new certificate of title in the name of
the late Francisco Q. Laforteza and upon execution of an extra-judicial
settlement of the decedent’s estate with sale in favor of the plaintiff. On June
20, 1989, the defendant was able to pay P30,000 as stipulated in the agreement.
On September 18, 1989, defendants sent letter informing the defendant his
obligation to pay the remaining balance to be due after thirty (30) days, and the
reconstituted title, which the defendant received on the same date, of which on
October 18, 1983, asked for an extension until November 15, 1989. Roberto,
assisted by a lawyer, was the one who affirmed said request, but not Gonzalo.
On November 20, 1989, defendant informed the heirs that Roberto had
the payment for the balance, but said heirs refused to accept said payment.
Roberto declared the property not for sale for failure to comply with the
contractual obligations, and the agreement rescinded by the plaintiff-heirs.
Defendant insisted tender of payment but when the defendants refused to
accept such, an action for specific performance was filed in court. The trial court
ruled in favor of the defendant. When the petitioner-heirs appealed this to the
Court of Appeals, the decision was rendered against them. So, an appeal to the
Supreme Court was made.
ISSUE:
Whether or not the rescission of the agreement for failure by the private
respondent to fulfill his obligations was validly done.
RULING:
The Supreme Court ruled in the negative.
The issuance of the new certificate of title in the name of the late
Francisco Laforteza and the execution of an extrajudicial settlement of his estate
was not a condition which determined the perfection of the contract of sale.
Petitioners’ contention that since the condition was not met, they no longer had
an obligation to proceed with the sale of the house and lot is unconvincing. The
petitioners fail to distinguish between a condition imposed upon 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
the 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."
In the case at bar, there was already a perfected contract. The condition
was imposed only on the performance of the obligations contained therein.
Considering however that the title was eventually "reconstituted" and that the
petitioners admit their ability to execute the extrajudicial settlement of their
father’s estate, the respondent had a right to demand fulfillment of the
petitioners’ obligation to deliver and transfer ownership of the house and lot.
The Supreme Court did not subscribe to the petitioners’ view that the
Memorandum Agreement was a contract to sell. There is nothing contained in
the MOA from which it can reasonably be deduced that the parties intended to
enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the full payment of the price, such
payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force.
There is clearly no express reservation of title made by the petitioners
over the property, or any provision which would impose non-payment of the
price as a condition for the contract’s entering into force. Although the
memorandum agreement was also denominated as a "Contract to Sell", it held
that the parties contemplated a contract of sale. A deed of sale is absolute in
nature although denominated a conditional sale in the absence of a stipulation
reserving title in the petitioners until full payment of the purchase price. In such
cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof. The mere fact that the obligation of the
respondent to pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title of the house and
lot does not make the contract a contract to sell for such condition is not
inconsistent with a contract of sale.
The property in dispute, being an immovable property, is governed by
Article 1592 of the NCC, which needs the judicial or notarial act for its rescission.
It is not disputed that the petitioners did not make a judicial or notarial demand
for rescission. The November 20, 1989 letter of the petitioners informing the
respondent of the automatic rescission of the agreement did not amount to a
demand for rescission, as it was not notarized. It was also made five days after
the respondent’s attempt to make the payment of the purchase price. This offer
to pay prior to the demand for rescission is sufficient to defeat the petitioners’
right under article 1592 of the Civil Code.
Besides, the Memorandum Agreement between the parties did not contain
a clause expressly authorizing the automatic cancellation of the contract without
court intervention in the event that the terms thereof were violated. A seller
cannot unilaterally and extrajudicially rescind a contract of sale where there is
no express stipulation authorizing him to extrajudicially rescind. Neither was
there a judicial demand for the rescission thereof.
 Thus, when the respondent filed his complaint for specific performance,
the agreement was still in force inasmuch as the contract was not yet rescinded.
At any rate, considering that the six-month period was merely an
approximation of the time it would take to reconstitute the lost title and was not
a condition imposed on the perfection of the contract and considering further
that the delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay was granted
to him, the Court agreed with the CA’s ruling that the delay of one month in
payment was a mere casual breach that would not entitle the respondents to
rescind the contract. RESCISSION of a contract will not be permitted for a slight
or casual breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement.
DOLO INCIDENTE – EFFECTS:
1. INTERNATIONAL CORPORAL BANK VS. GUECO, 351 SCRA 516
2. REPUBLIC VS. COURT OF TAX APPEALS, 366 SCRA 516
INTERNATIONAL CORPORATE BANK VS. GUECO
351 SCRA 516
FACTS:
Respondents Gueco Spouses obtained a loan form petitioner International
Corporate Bank (now Union Bank of the Philippines) to obtain a car. In
consideration thereof, the Spouses executed promissory notes which were
payable in monthly installments and chattel mortgage over the car to serve as
security for the notes.
The Spouses defaulted in the payment of the installments and
consequently, the petitioner filed on August 7, 1995 a civil action for “Sum of
Money with Prayer for a Writ of Replivin.”
On August 25, 1995, Dr. Gueco was served summons and was fetched by
the sheriff and representative of the bank for a meeting in the bank premises.
The bank demanded payment of the amount of P184,000.00 which represents
the unpaid balance for the car loan which was lowered to P154,000.00 after
negotiations and recomputations. As a result of the non-payment of the reduced
amount on that date, the car was detained within the bank’s compound.
On August 28, 1995, Dr. Gueco further renegotiated for the reduction of
the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a manager’s check in the
amount of P150,000.00 but the car was not released because of his refusal to
sign the JOINT Motion to Dismiss.
After several demand letters and meetings with bank representatives, the
respondents initiated a civil action for damages which was dismissed for lack of
merit.
On appeal, the RTC ruled in favor of the Spouses, pointing out that there
was a meeting of the minds between the petitioner and the respondents as to
the reduction of the amount of indebtedness and the release of the car but said
agreement did not include the signing of the Joint Motion to Dismiss as a
condition sine qua non for the effectivity of the compromise.
On appeal, the Court of Appeals affirmed in toto the lower court’s
decision.
Hence, the petitioner comes to the Supreme Court by way of certiorari.
ISSUES:
Whether or not there was no agreement with respect to the execution of the
Joint Motion to Dismiss as a condition for the compromise agreement.
Whether or not the respondents should be granted moral, exemplary
damages and attorney’s fees.
Whether or not the Court of Appeals erred in holding that the petitioner
return the subject car to the respondents, without making any provision for the
issuance of the new manager’s/ cashier’s check by the respondents in favor of
the petitioner in lieu of the original cashier’s check that already became stale.
RULING:
1. NO, there was no agreement with respect to the execution of the Joint Motion
to Dismiss as a condition for the compromise agreement.
 Petitioner has the burden of proof that the oral compromise entered into
by the parties included the stipulation that the parties would joint file a motion to
dismiss. Factual findings of the lower court and the appellate court found no
evidence to acknowledge the contestation of the petitioner bank that there was
indeed such an agreement. Further, the only findings was that the
agreement between the parties was merely regarding the lowering of the price
and not anent the Joint Motion to Dismiss.
2. NO, the respondents are not entitled to the damages awarded by the Court of
Appeals. In awarding the damages, both the trial and appellate courts found
out that there was fraud, when in the findings of the Supreme Court, there
was none. Fraud is the deliberate intention to cause damage or prejudice. It
is the voluntary execution of a wrongful act, or the willful omission. Knowing
and intending the effects which naturally and necessarily arise from such act
or omission. There was no fraud on the part of the petitioner bank in
requiring the respondent to sign the joint motion to dismiss.
3. YES, the Court of Appeals committed the error anent the 3rd issue.
Respondents contend that the petitioner should return the car or its value
and that the latter, due to its own negligence, should suffer the loss
occasioned of the fact that the check had become stale. Respondents aver
that the delivery of the manager’s check produced the effect of payment;
thus, petitioner was negligent in opting not to deposit or use said check. The
Court is not persuaded.
A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless, and should not be paid.
In the case at bar, the check involved is not an ordinary bill of exchange
but a manager’s check which is drawn by the bank manager upon the bank
itself. In this case, the Gueco spouses have not alleged or shown that they or
the bank which issued the manager’s check has suffered damage or loss by the
delay or non-presentment. There is no doubt that the petitioner bank held on
the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. Hence, the Court is of the
opinion that there is no bad faith or negligence.
Premises considered, the decision of the Court of appeals affirming the
Trial court’s decision is set aside. Respondents are further ordered to pay the
original obligation amounting to P150,000 to the petitioner upon surrender or
cancellation of the manager’s check in the latter’s possession, afterwhich,
petitioner is to return the subject motor vehicle in good working condition.
DOLO INCIDENTE – EFFECTS:
REPUBLIC OF THE PHILIPPINES,
represented by the COMMISSIONER OF CUSTOMS, petitioner,
VS. THE COURT OF TAX APPEALS and AGFHA, INCORPORATED,
respondents
Oct 23, 2000
G.R. No. 139050
FACTS:
FIL-JAPAN, a shipping agent, requested for an amendment of the Inward
Foreign Manifest so as to correct the name of the consignee from that of GQ
GARMENTS, Inc., to that of AGFHA, Inc. when its shipment’s Inward Foreign
Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc.,
while the Clean Report of Findings issued by the Societe Generale de Surveilance
mention AGFHA, Incorporated, to be the consignee.
FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest
which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed
the document to the Customs Intelligence Investigation Services (CIIS). The CIIS
placed the subject shipment under hold on the ground that GQ GARMENTS, Inc.,
could not be located in its given address and was thus suspected to be a
fictitious firm. Forfeiture proceedings under the Tariff and Customs Code were
initiated.
AGFHA, Inc.’s motion for intervention contending that it is the lawful
owner and actual consignee of the subject shipment was granted. After hearing,
the Collector of Customs came up with a draft decision ordering the lifting of the
warrant of seizure and detention on the basis of its findings that GQ GARMENTS,
Inc., was not a fictitious corporation and that there was a valid waiver of rights
over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft
decision was submitted to the Deputy Commissioner for clearance and approval,
who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft
decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that
even if it did exist, its president, John Barlin, had no authority to waive the right
over the subject shipment in favor of AGFHA, Inc. The Deputy Commissioner
then rejected the draft decision of the Collector of Customs.
 GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for
reconsideration. Convinced that the evidence presented established the legal
existence of GQ GARMENTS, Inc., and finding that a resolution passed by the
Board of Directors of GQ GARMENTS, Inc., ratified the waiver of its president, the
Collector of Customs in another draft decision granted the joint motion. The
Office of the Commissioner of Customs, however, disapproved the new draft
decision and denied the release of the goods. In deference to the directive of
the Commissioner, the District Collector of Customs ordered the forfeiture of the
shipment. AGFHA, Inc., interposed an appeal to the Office of the Commissioner
of Customs but was dismissed.
AGFHA, Inc., therefore, filed a petition for review with the Court of Tax
Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in
the plea of appellants, the Court of Tax Appeals granted the petition and ordered
the release of the goods to AGFHA, Inc., however, the Commissioner of Customs
then challenged before the Court of Appeals the decision of the tax court but
was dismissed for lack of merit. The appellate court ruled that the Bureau of
Customs has failed to satisfy its burden of proving fraud on the part of the
importer or consignee. The Court of Appeals attributed the error in indicating GQ
GARMENTS, Inc., instead of AGFHA, Inc., in the Inward Foreign Manifest as being
the consignee of the subject shipment to the shipping agent. It also noted the
finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered
importer. The BOC instituted the instant petition for review under Rule 45 of the
Revised Rules of Court assailing the affirmance by the Court of Appeals of the
tax court's decision.
ISSUE:
Whether or not AGFHA, Inc. committed fraud in the importation of bales of
cloth.
RULING:
The requisites for the forfeiture of goods under the Tariff and Customs
Code are: (a) the wrongful making by the owner, importer, exporter or consignee
of any declaration or affidavit, or the wrongful making or delivery by the same
person of any invoice, letter or paper - all touching on the importation or
exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice,
letter
or paper; and (c) an intention on the part of the importer/consignee to evade the
payment of the duties due.
Petitioner asserts that all of these requisites are present in this case. It
contends that it did not presume fraud, rather the events positively point to the
existence of fraud. On the other hand, AGFHA, Inc. maintains that there has only
been an inadvertent error and not an intentional wrongful declaration by the
shipper to evade payment of any tax due.
Fraud must be proved to justify forfeiture. It must be actual, amounting to
intentional wrong-doing with the clear purpose of avoiding the tax. Mere
negligence is not equivalent to the fraud contemplated by law. What is here
involved is an honest mistake, not even directly attributable to private
respondent, which will not deprive the government of its right to collect the
proper tax. The Collector of Customs, Court of Tax Appeals and the Court of
Appeals are unanimous in concluding that no fraud has been committed by
AGFHA, Inc. in the importation of the bales of cloth. Therefore, the forfeiture
cannot be justified.
Petition denied. Decision affirmed.
NEGLIGENCE AS A QUESTION OF FACT
1. YAMBAO VS. ZUÑIGA, 18 SCRA 266
2. SMITH BELL DODWELL SHIPPING VS. BORJA, 383 SCRA 341
3. ILUSORIO VS. CA, 393 SCRA 89
4. NPC VS. CA, 161 SCRA 334
YAMBAO VS. ZUÑIGA
418 SCRA 266
FACTS:
On May 6, 1992 at around 3:30 P.M, the bus owned by petitioner Cecilia
Yambao was being driven by her driver, one Ceferino G. Venturina along EDSA.
Suddenly, the bus bumped Herminigildo Zuñiga, a pedestrian. Such was the
force of the impact that the left side of the front windshield of the bus was
cracked. Zuñiga was rushed to the Quezon City General Hospital where he was
given medical attention, but due to the massive injuries sustained, he
succumbed shortly thereafter.
 A complaint against petitioner and her driver for damages was filed at the
Regional Trial Court of Malolos City. In her answer, the petitioner vehemently
denied the material allegations of the complaint. She tried to shift the blame
upon the victim, theorizing that Herminigildo bumped into her bus, while
avoiding an unidentified woman who was chasing him. Furthermore, she alleged
that she was not liable for any damages because she exercised the proper
diligence of a good father of a family both in the selection and supervision of her
bus driver.
The trial court rendered its decision holding petitioner and her driver liable
for the untimely death of Zuñiga and to indemnify his legal heirs, the herein
respondents. The Court of Appeals affirmed the said decision of the RTC.
Petitioner duly moved for reconsideration, but her motion was denied for lack of
merit.
ISSUE:
Whether or not the petitioner exercised the diligence of a good father of a
family in the selection and supervision of her employees thus absolving her from
any liability.
RULING:
YES. Whether a person is negligent or not is a question of fact. It was
Venturina’s reckless and imprudent driving of petitioner’s bus, which is the
proximate cause of the victim’s death. It is thus evident that petitioner did not
exercise the diligence of a good father of a family in the selection and
supervision of her employees. The law governing petitioner’s liability, as the
employer of bus driver Venturina is Article 2180 of the Civil Code. The “diligence
of a good father” means diligence in the selection and supervision of employees.
Thus, when an employee, while performing his duties, causes damage to
persons or property due to his own negligence, there arises the juris tantum
presumption that the employer is negligent, either in the selection of the
employee or in the supervision over him after the selection. The presumption
juris tantum that there was negligence in the selection of her bus driver remains
unrebutted.
Having failed to rebut the legal presumption of negligence in the selection
and supervision of her driver is responsible for damages, the basis of the liability
being the relationship of pater familias or on the employer’s own negligence.
NEGLIGENCE AS A QUESTION OF FACT
SMITH BELL DODWELL SHIPPING AGENCY CORPORATION
VS. CATALINO BORJA and INTERNATIONAL TO WAGE AND TRANSPORT
CORPORATION
G.R. No. 143008
June 10, 2002
383 SCRA 341
FACTS:
On September 23, 1987, Smith Bell filed a written request with the Bureau
of Customs for the attendance of the latter’s inspection team on vessel M/T King
Family which was due to arrive at the port of Manila on September 24, 1987.
The vessel contained 750 metric tons of alkyl benzene and methyl methacrylate
monomer.
On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan
instructed respondent Catalino Borja to board said vessel and perform his duties
as inspector upon the vessel’s arrival until its departure. At that time, Borja was
a customs inspector of the Bureau of Customs.
At about 11 o’clock in the morning on September 24, 1987, while M/T King
Family was unloading chemicals unto two (2) barges owned by ITTC, a sudden
explosion occurred setting the vessels afire. Upon hearing the explosion, Borja,
who was at that time inside the cabin preparing reports, ran outside to check
what happened. Again, another explosion was heard. Seeing the fire and
fearing for his life, he hurriedly jumped over board to save himself. However,
the water was likewise on fire due mainly to the spilled chemicals. Despite the
tremendous heat, Borja swam his way for one hour until he was rescued by the
people living in the squatters’ area and sent to San Juan De Dios Hospital.
After weeks of intensive care at the hospital, his attending physician
diagnosed Borja was diagnosed to be permanently disabled due to the incident.
Thus, he made demands against Smith Bell and ITTC for the damages caused by
the explosion. However, both denied liabilities and attributed to each other
negligence.
After hearing, the trial court ruled in favor of respondent Borja and held
petitioner liable for damages and loss of income. On appeal, the same ruling
was also upheld. Hence this petition.
ISSUE:
Whether or not the RTC and the Court of Appeals labored under a
misapprehension of facts regarding the negligence committed.
RULING:
Petitioner avers that both lower courts labored under a misapprehension
of the facts. It claims that the documents adduced in the RTC conclusively
revealed that the explosion that caused the fire on M/T King Family had
originated from the barge ITTC-101. However, the Supreme Court find no cogent
reason to overturn factual findings of the RTC and the Court of Appeals since
such findings were supported by substantial evidences.
Negligence is a conduct that creates undue risk of harm to another. It is
the failure to observe that degree of care, precaution and vigilance that the
circumstances justly demand, whereby that other person suffers injury.
Petitioner’s vessel was carrying chemical cargo -- alkyl benzene and methyl
methacrylate monomer. While knowing that their vessel was carrying dangerous
inflammable chemicals, its officers and crew failed to take all the necessary
precautions to prevent an accident. Petitioner was, therefore, negligent.
The three elements of QUASI-DELICT are:
1. damages suffered by the plaintiff,
2. fault or negligence of the defendant, and
3. the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on the
plaintiff.
All these elements were established in this case.
As a result of the fire and the explosion during the unloading of the
chemicals from petitioner’s vessel, Respondent Borja suffered the following
damage: and injuries: (1) chemical burns of the face and arms; (2) inhalation of
fumes from burning chemicals; (3) exposure to the elements while floating in sea
water for about three (3) hours; (4) homonymous hemianopsia or blurring of the
right eye [which was of] possible toxic origin; and (5) cerebral infract with neo-
vascularization, left occipital region with right sided headache and the blurring of
vision of right eye.
Wherefore, the Petition is partly granted. The assailed Decision is
AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay the
heirs of the victim damages in the amount of P320,240 as loss of earning
capacity, moral damages in the amount of P100,000, plus another P50,000 as
attorney’s fees.
NEGLIGENCE AS A QUESTION OF FACT
ILUSORIO VS. COURT OF APPEALS
G. R. No. 139130
November 27, 2002
393 SCRA 89
FACTS:
Ramon Ilusorio is a prominent businessman, was the Managing Director of
Multinational Investment Bancorporation and the Chairman and/or President of
several other corporations he was a depositor in good standing of respondent
bank, the Manila Banking Corporation. As he was then running about 20
corporations, and was going out of the country a number of times, petitioner
entrusted to his secretary, Katherine Eugenio, his credit cards and checkbook
with blank checks. Eugenio was able to encash and deposit to her personal
account about seventeen checks drawn against the respondent bank. Petitioner
did not bother to check his statement of account until a business partner
apprised him that he saw Eugenio use his credit cards. Petitioner immediately
fired his secretary and filed a criminal case against her for estafa thru
falsification. Respondent bank also lodged a complaint for estafa thru
falsification against Eugenio on the basis of petitioner’s statement that his
signatures in the checks were forged. Petitioner then requested the respondent
bank to credit back and restore to its account the value of the checks which
were wrongfully encashed but the respondent bank refused. Thus, petitioner
filed the instant case. In addition, Manila Bank also sought the expertise of the
National Bureau Investigation in determining the genuineness of the signatures
appearing on the checks. However, in a letter, the NBI informed the trial court
that they could not conduct the desired examination since the standard
specimens were not sufficient for purposes of rendering a definitive opinion. The
NBI then suggested that petitioner be asked to submit seven or more additional
standard signatures; however, the petitioner failed to comply with this request.
After evaluating the evidence on both sides, the trial court dismissed the case
for lack of sufficient basis. On appeal, the Court of Appeals affirmed the decision
of the trial court.
ISSUE:
Whether or not the respondent bank was negligent in not determining the
genuineness of the signatures of the petitioner on the checks.

RULING:
The Supreme Court held that it was the petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent and reasonable
man would do. In the present case, it appears that petitioner accorded his
secretary unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts.
Petitioner’s failure to examine his bank statements appears as the
proximate cause of his own damage. Petitioner failed to examine his bank
statements not because he was prevented by some cause in not doing so, but
because he did not pay sufficient attention to the matter. In view of Article 2179
of the New Civil Code, when the plaintiff’s own negligence was the immediate
and proximate cause of his injury, no recovery could be had for damages.
Hence, the petition is dismissed.
NEGLIGENCE AS A QUESTION OF FACT
NATIONAL POWER CORPORATION VS. COURT OF APPEALS
161 SCRA 334
G.R. No. L-47379
May 16, 1988
FACTS:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with National Waterworks and
Sewerage Authority (NAWASA), whereby the former undertook to furnish all
tools, labor, equipment, and materials (not furnished by Owner), and to
construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and
to complete said works within eight hundred (800) calendar days from the date
the Constructor receives the formal notice to proceed.
The record shows that on November 4, 1967, typhoon “Welming” hit
Central Luzon, passing trough the defendant’s Angat Hydro-electric Project and
Dam at Ipo, Norzagaray, Bulacan. Strong winds struck the project area, and
heavy rains intermittently fell. Due to the heavy downpour, the water in the
reservoir of the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the dam, since the
water level had reached the danger height of 212 meters above sea level, the
defendant corporation caused the opening of the spillway gates”.
The appellate court sustained the findings of the trial court that the
evidence preponderantly established the fact that due to the negligent manner
with which the spillway gates of the Angat Dam were opened, an extraordinary
large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at the Ipo Site with terrific impact as a result of which
the latter’s stockpile of materials and supplies, camp facilities and permanent
structures and accessories were either washed away, lost or destroyed.
ISSUE:
Whether or not NAPOCOR is exempt from liability because the lost or
deterioration of ECI’s facilities was due to fortuitous event.
RULING:
It is clear from the CA”S ruling that the petitioner NPC was undoubtedly
negligent because it opened the spillway gates of the Angat Dam only at the
height of typhoon “Welming” when it knew very well that it was safer to have
opened the same gradually and earlier, as it was also undeniable that NPC knew
of the coming typhoon at least four days before it actually struck. And even
though the typhoon was an act of God or what we may call force majeure, NPC
cannot escape liability because its negligence was the proximate cause of the
loss and damage.
Petitions dismissed. Decision affirmed.
CULPA CONTRACTUAL
1. MUAJE-TUAZON VS. WENPHIL, 511 S 521
2. RCPI VS. VERCHEZ, 481 S 384
3. VICTORY LINER VS. GAMMAD, 444 S 355
4. FGU VS. SARMIENTO, 386 S 312
5. LRTA VS. NATIVIDAD, 397 S 75
6. RODZSSEN VS. FAR EAST BANK, 357 S 618
7. UNIVERSITY OF THE EAST VS. JADER, FEB. 17, 2000
8. BAYNE ADJUSTERS VS. CA, 323 SCRA 231

MUAJE-TUAZON vs. WENPHIL
G.R. No. 162447. DECEMBER 27, 2006
FACTS:
Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch managers
of the Wendy's food chains. In Wendy’s “Biggie Size It! Crew Challenge"
promotion contest, branches managed by petitioners won first and second
places, respectively. Because of its success, respondent had a second run of the
contest from April 26 to July 4, 1999. The Meycauayan branch won again. The
MCU Caloocan branch failed to make it among the winners. Before the
announcement of the third round winners, management received reports that as
early as the first round of the contest, the Meycauayan, MCU Caloocan, Tandang
Sora and Fairview branches cheated. An internal investigation ensued.
Petitioners were summoned to the main office regarding the reported anomaly.
Petitioners denied there was cheating. Immediately thereafter, petitioners were
notified, in writing, of hearings and of their immediate suspension. Thereafter,
petitioners were dismissed.
ISSUE:
Is the respondent guilty of illegal suspension and dismissal in the case at
bench?
RULING:
There is no denying that petitioners were managerial employees. They executed
management policies, they had the power to hire personnel and assign them
tasks; and discipline the employees in their branch. They recommended actions
on employees to the head office.Article 212 (m) of the Labor Code defines a
managerial employee as one who is vested with powers or prerogatives to lay
down and execute management policies and/or hire, transfer, suspend, lay-off,
recall, discharge, assign or discipline employees. Consequently, as managerial
employees, in the case of petitioners, the mere existence of grounds for the loss
of trust and confidence justify their dismissal. Pursuant to our ruling in Caoile v.
National Labor Relations Commission, as long as the employer has a reasonable
ground to believe that the managerial employee concerned is responsible for the
purported misconduct, or the nature of his participation renders him unworthy of
the trust and confidence demanded by his position, the managerial employee
can be dismissed.
In the present case, the tape receipts presented by respondents showed that
there were anomalies committed in the branches managed by the petitioners.
On the principle of respondeat superior or command responsibility alone,
petitioners may be held liable for negligence in the performance of their
managerial duties, unless petitioners can positively show that they were not
involved. Their position requires a high degree of responsibility that necessarily
includes unearthing of fraudulent and irregular activities. Their bare,
unsubstantiated and uncorroborated denial of any participation in the cheating
does not prove their innocence nor disprove their alleged guilt. Additionally,
some employees declared in their affidavits that the cheating was actually the
idea of the petitioners.
CULPA CONTRACTUAL
RCPI vs. VERCHEZ
G.R. No. 164349. JANUARY 31, 2006
FACTS:
Editha Hebron Verchez (Editha) was confined in the hospital due to an
ailment. Her daughter Grace immediately went to the Sorsogon Branch of RCPI
whose services she engaged to send a telegram to her sister Zenaida. As three
days after RCPI was engaged to send the telegram to Zenaida no response was
received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery
Service, reprimanding her for not sending any financial aid. Immediately after
she received Grace’s letter, Zenaida, along with her husband left for Sorsogon.
On her arrival at Sorsogon, she disclaimed having received any telegram.
The telegram was finally delivered to Zenaida 25 days later. On inquiry from
RCPI why it took that long to deliver it, RCPI claimed that delivery was not
immediately effected due to the occurrence of circumstances which were
beyond the control and foresight of RCPI.
ISSUE:
Whether or not RCPI is negligent in the performance of its obligation.
RULING:
Article 1170 of the Civil Code provides: Those who in the performance of
their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages. In culpa
contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the contractual undertaking
or a contravention of the tenor thereof.
Considering the public utility of RCPI’s business and its contractual obligation to
transmit messages, it should exercise due diligence to ascertain that messages
are delivered to the persons at the given address and should provide a system
whereby in cases of undelivered messages the sender is given notice of non-
delivery. Messages sent by cable or wireless means are usually more important
and urgent than those which can wait for the mail. RCPI argues, however,
against the presence of urgency in the delivery of the telegram, as well as the
basis for the award of moral damages. RCPI’s arguments fail. For it is its breach
of contract upon which its liability is, it bears repeating, anchored. Since RCPI
breached its contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption. For breach of contract then, RCPI is
liable to Grace for damages. RCPI’s liability as an employer could of course be
avoided if it could prove that it observed the diligence of a good father of a
family to prevent damage.
CULPA CONTRACTUAL
VICTORY LINER, INC. vs. GAMMAD
G.R. No. 159636. NOVEMBER 25, 2004
FACTS:
Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory
Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the
bus while running at a high speed fell on a ravine which resulted in the death of
Marie Grace and physical injuries to other passengers. On May 14, 1996,
respondent heirs of the deceased filed a complaint for damages arising from
culpa contractual against petitioner. In its answer, the petitioner claimed that
the incident was purely accidental and that it has always exercised extraordinary
diligence in its 50 years of operation.
ISSUE:
Whether petitioner should be held liable for breach of contract of carriage.
RULING:
Petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with
due regard to all the circumstances. In a contract of carriage, it is presumed
that the common carrier was at fault or was negligent when a passenger dies or
is injured. Unless the presumption is rebutted, the court need not even make an
express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence.
In the instant case, there is no evidence to rebut the statutory
presumption that the proximate cause of Marie Grace’s death was the
negligence of petitioner. Hence, the courts below correctly ruled that petitioner
was guilty of breach of contract of carriage.
CULPA CONTRACTUAL
FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION
G.R. No. 141910. AUGUST 6, 2002
FACTS:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver
refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the
plant site of Concepcion Industries, Inc. to the Central Luzon Appliances in
Dagupan City. While the truck was traversing the north diversion road along
McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal, resulting in damage to the
cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to
Concepcion Industries, Inc., the value of the covered cargoes. FGU, in turn,
being the subrogee of the rights and interests of Concepcion Industries, Inc.,
sought reimbursement of the amount it had paid to the latter from GPS. Since
the trucking company failed to heed the claim, FGU filed a complaint for
damages and breach of contract of carriage against GPS and its driver Lambert
Eroles. Respondents asserted that that the cause of damage was purely
accidental.
ISSUE:
Whether or not GPS is liable for damages arising from negligence.
RULING:
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding
right of relief. Respondent trucking corporation recognizes the existence of a
contract of carriage between it and petitioner and admits that the cargoes it has
assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation – in this case,
the delivery of the goods in its custody to the place of destination - gives rise to
a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has
failed to do so.
Respondent driver, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the
contract of carriage between petitioner and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered
into it or their successors who have assumed their personality or their juridical
position. Petitioner’s civil action against the driver can only be based on culpa
aquiliana, which, unlike culpa contractual, would require the claimant for
damages to prove negligence or fault on the part of the defendant.
CULPA CONTRACTUAL
LRTA vs. NAVIDAD
G.R. No. 145804. FEBRUARY 6, 2003
FACTS:
On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered
the EDSA LRT station. While Navidad was standing on the platform near the LRT
tracks, Junelito Escartin, the security guard assigned to the area approached
Navidad. A misunderstanding or an altercation between the two apparently
ensued that led to a fist fight. No evidence, however, was adduced to indicate
how the fight started or who, between the two, delivered the first blow or how
Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an
LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was
struck by the moving train, and he was killed instantaneously. The widow of
Nicanor, along with her children, filed a complaint for damages against Junelito
Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro
Transit), and Prudent for the death of her husband. LRTA and Roman filed a
counterclaim against Navidad and a cross-claim against Escartin and Prudent.
Prudent, in its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.
ISSUE:
Who, if any, is liable for damages in relation to the death of Navidad?
RULING:
The foundation of LRTA’s liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that contract by
reason of its failure to exercise the high diligence required of the common
carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of
carriage.
Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the
late Nicanor Navidad, this Court is concluded by the factual finding of the Court
of Appeals that “there is nothing to link Prudent to the death of Navidad, for the
reason that the negligence of its employee, Escartin, has not been duly proven.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty
of any culpable act or omission, he must also be absolved from liability.
CULPA CONTRACTUAL

RODZSSEN SUPPLY CO. INC. VS. FAR EAST BANK & TRUST CO.
GR No. 109087
May 9, 2001
357 SCRA 618
FACTS:
Petitioner Rodzssen Supply opened a letter of credit with respondent Far
East Bank for the payment of 5 loaders bought by petitioner from Ekman and Co.
The letter of credit had a validity of 30 days to expire February 15, 1979 but was
subsequently extended to October 16, 1979. Three of the loaders were
delivered to the petitioner and was paid by respondent. The two remaining
loaders were delivered to the petitioner belatedly but were still accepted by
petitioner on the ground that it was bound to do so under the trust receipt
arrangement with respondent bank.
The bank paid the two remaining loaders five months after the expiration
of the credit on March 1980. Petitioner refused to pay the P76,000 for the two
loaders since the bank paid for them beyond the expiration of the letter of
credit. Both the RTC and the CA ruled for the respondent. Thus, this petition for
review.
ISSUE:
Is the petitioner liable to pay respondent bank when the bank paid Ekman
only after 5 months beyond the expiration of the letter of credit?
RULING:
Yes. While respondent bank was negligent in paying the P76,000 to
Ekman within the validity of the letter of credit, petitioner voluntarily accepted
the late delivery of the equipment and used it for 3 years before respondent
demanded payment, without verifying the status of ownership or possession of
the loaders. By acknowledging receipt of the loaders, petitioner impliedly
accepted its obligation to pay the respondent bank even when the bank paid for
the delivery by Ekman after the expiration of the letter of credit.
When both parties are equally negligent in the performance of their
obligations under a contract, the fault of one cancels the negligent of the other.
Their rights and obligations may then be determined equally under the law
proscribing the unjust enrichment.
CULPA CONTRACTUAL
UNIVERSITY OF THE EAST, VS. ROMEO A. JADER,
2000 Feb 17
G.R. No. 132344
FACTS:
Plaintiff was enrolled in the defendants' College of Law from 1984 up to
1988. In the first semester of his last year (School year 1987-1988), he failed to
take the regular final examination in Practice Court I for which he was given an
incomplete grade. He enrolled for the second semester as fourth year law
student and on February 1, 1988 he filed an application for the removal of the
incomplete grade given him by Professor Carlos Ortega which was approved by
Dean Celedonio Tiongson after payment of the required fee. He took the
examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega
submitted his grade. It was a grade of five (5).
The plaintiff's name appeared in the Tentative List of Candidates for
graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester
(1987-1988) with the following annotation:
"JADER ROMEO A.
Def. Conflict of Laws - x-1-87-88, Practice Court I - Inc., 1-87-88. C-1 to submit
transcript with S.O.
In the invitation for graduation the name of the plaintiff appeared as one
of the candidates. At the foot of the list of the names of the candidates there
appeared however the following annotation:
This is a tentative list. Degrees will be conferred upon these candidates
who satisfactorily complete requirements as stated in the University Bulletin and
as approved of the Department of Education, Culture and Sports.
The plaintiff attended the investiture ceremonies during the program of
which he went up the stage when his name was called. He tendered a blow-out
that evening. And there were pictures taken too during the blow-out.
He thereafter prepared himself for the bar examination. He took a leave
of absence without pay from his job from April 20, 1988 to September 30, 1988
and enrolled at the pre-bar review class in Far Eastern University. Having
learned of the deficiency, he dropped his review class and was not able to take
the bar examination.
Consequently, respondent sued petitioner for damages alleging that he
suffered moral shock, mental anguish, serious anxiety, besmirched reputation,
wounded feelings and sleepless nights when he was not able to take the 1988
bar examinations arising from the latter's negligence. He prayed for an award of
moral and exemplary damages, unrealized income, attorney's fees, and costs of
suit.
ISSUE:
Whether or not respondent can claim damages from petitioner school.
RULING:
It is the contractual obligation of the school to timely inform and furnish
sufficient notice and information to each and every student as to whether he or
she had already complied with all the requirements for the conferment of a
degree or whether they would be included among those who will graduate.
Although commencement exercises are but a formal ceremony, it nonetheless is
not an ordinary occasion, since such ceremony is the educational institution's
way of announcing to the whole world that the students included in the list of
those who will be conferred a degree during the baccalaureate ceremony have
satisfied all the requirements for such degree. Prior or subsequent to the
ceremony, the school has the obligation to promptly inform the student of any
problem involving the latter's grades and performance and also most
importantly, of the procedures for remedying the same.
The college dean is the senior officer responsible for the operation of an
academic program, enforcement of rules and regulations, and the supervision of
faculty and student services. He must see to it that his own professors and
teachers, regardless of their status or position outside of the university, must
comply with the rules set by the latter. The negligent act of a professor who fails
to observe the rules of the school, for instance by not promptly submitting a
student's grade, is not only imputable to the professor but is an act of the
school, being his employer.
The University should have practiced what it inculcates in its students,
more specifically the principle of good dealings enshrined in Articles 19 and 20
of the Civil Code. Educational institutions are duty-bound to inform the students
of their academic status and not wait for the latter to inquire from the former.
The conscious indifference of a person to the rights or welfare of the
person/persons who may be affected by his act or omission can support a claim
for damages.
CULPA CONTRACTUAL
BAYNE ADJUSTERS AND SURVEYORS, INC. VS. COURT OF APPEALS AND
INSURANCE COMPANY OF NORTH AMERICA
323 SCRA 231
FACTS:
On May 1987, Colgate Palmolive Philippines imported alkyl benzene from
Japan valued at US $255,802.88. It is insured with private respondent Insurance
Company of North America. Petitioner was contracted by the consignee to
supervise the proper handling and discharge of the cargo from the chemical
tanker to the receiving barge until the cargo is pumped into the consignee’s
shore tank. When the cargo arrived, the pumping operation commenced at
2020 hours of June 27, 1987. Nevertheless, the pumping was interrupted for
several times due to mechanical problems with the pump. When the pump
broke down once again at about 1300 hours, the petitioner’s surveyors left the
premises without leaving any instruction with the barge foremen what to do in
event that the pump becomes operational again. No other surveyor was left in
the premises and the assigned surveyor did not seal the valves to the tank to
avoid unsupervised pumping of the cargo. Consignee asked petitioner to send
surveyor to conduct tank sounding. Thus, the petitioner sent Armando Fontilla, a
cargo surveyor, not a liquid bulk surveyor. Then after, it was agreed that
operation would resume the following day at 1030 hours. Fontanilla tried to
inform bargemen and surveyor about the agreement but he could not find them
so he left the premises. When the bargemen arrived, they found that the valves
of the tank are open and resumed pumping operation in the absence of any
instruction from the surveyor. The following morning, undetermined amount of
alkyl benzene was lost due to overflow.
Consignee filed a claim with the insurance company. A conference
transpired which the petitioner, consignee and Claimsmen Adjustment Company
attended. The compromise quantity of the alkyl benzene, which was lost, was
67.649 MT. The insurance company agreed to pay consignee the net amount of
P84, 609.53. Consequently, the insurance company instituted action for
collection of money as subrogee of the consignee after failure to extra judicially
settles the manner with Bayne Adjusters. Both the trial and appellate court
rendered a decision adverse to the petitioner for its failure to comply Standard
Operating Procedure for Handling Liquid Bulk Cargo.
ISSUE:
Whether or not the petitioner is liable for the loss of a certain amount of
alkyl benzene.
RULING:
Yes. The negligence of the obligor in the performance of the obligation
renders him liable for damages for the resulting loss suffered by the obligee.
The Supreme Court did not find that the trial court erred in holding the petitioner
liable because of its failure to exercise due diligence which is governed by the
Standard Operation Procedure in Handling Liquid Bulk Survey. Although the
cessation of the pumping operation in this case was not voluntarily requested by
the pumping operation in this case was not voluntarily requested by the
pumping operation in this case was not voluntarily requested by the consignee,
but was due to mechanical problems with the pump, there is greater reason to
comply with the SOP. The petitioner assigned surveyor disregarded SOP and left
the pump site without leaving any instruction or directive with the barge pump
operators.
The petition was dismissed.
CULPA CONTRACTUAL
CULPA ACQUILIANA
1. DELSAN TRANSPORT VS. C & A CONSORTIUM, OCT. 1,
2003
2. PCIB VS. CA, 350 SCRA 446
3. SMC VS. HEIRS OF OUANA VS. CA, JULY 4, 2002
DELSAN TRANSPORT LINES, INC., petitioner,
VS. C & A CONSTRUCTION, INC., respondent
G.R. No. 156034
October 1, 2003
FACTS:
Respondent C & A Construction, Inc. was engaged by the National Housing
Authority (NHA) to construct a deflector wall at the Vitas Reclamation Area in
Vitas, Tondo, Manila. The project was completed in 1994 but it was not formally
turned over to NHA.
On October 9, 1994, M/V Delsan Express, a ship owned and operated by
petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the
purpose of installing a cargo pump and clearing the cargo oil tank. At around
12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan
Express received a report from his radio head operator in Japan that a typhoon
was going to hit Manila in about eight (8) hours. At approximately 8:35 in the
morning of October 21, 1994, Capt. Jusep tried to seek shelter at the North
Harbor but could not enter the area because it was already congested. At 10:00
a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles
away from a Napocor power barge. At that time, the waves were already
reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to
counter the wind which was dragging the ship towards the Napocor power barge.
To avoid collision, Capt. Jusep ordered a full stop of the vessel. He succeeded in
avoiding the power barge, but when the engine was re-started and the ship was
maneuvered full astern, it hit the deflector wall constructed by respondent.
The trial court ruled that petitioner was not guilty of negligence because it
had taken all the necessary precautions to avoid the accident. Applying the
“emergency rule”, it absolved petitioner of liability because the latter had no
opportunity to adequately weigh the best solution to a threatening situation. It
further held that even if the maneuver chosen by petitioner was a wrong move,
it cannot be held liable as the cause of the damage sustained by respondent was
typhoon “Katring”, which is an act of God.
On appeal to the Court of Appeals, the decision of the trial court was
reversed and set aside. It found Capt. Jusep guilty of negligence in deciding to
transfer the vessel to the North Harbor only at 8:35 a.m. of October 21, 1994
and thus held petitioner liable for damages.
ISSUE:
Whether or not petitioner is solidarily liable under Article 2180 of the Civil
Code for the quasi-delict committed by Capt. Jusep.
RULING:
The Court of Appeals was correct in holding that Capt. Jusep was negligent in
deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994.
 As early as 12:00 midnight of October 20, 1994, he received a report from
his radio head operator in Japan that a typhoon was going to hit Manila after 8
hours. This, notwithstanding, he did nothing, until 8:35 in the morning of
October 21, 1994, when he decided to seek shelter at the North Harbor, which
unfortunately was already congested. The finding of negligence cannot be
rebutted upon proof that the ship could not have sought refuge at the North
Harbor even if the transfer was done earlier. It is not the speculative success or
failure of a decision that determines the existence of negligence in the present
case, but the failure to take immediate and appropriate action under the
circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit
Manila in 8 hours, complacently waited for the lapse of more than 8 hours
thinking that the typhoon might change direction. He cannot claim that he
waited for the sun to rise instead of moving the vessel at midnight immediately
after receiving the report because of the difficulty of traveling at night. The hour
of 8:35 a.m. is way past sunrise. Furthermore, he did not transfer as soon as the
sun rose because, according to him, it was not very cloudy and there was no
weather disturbance yet.
When he ignored the weather report notwithstanding reasonable foresight of
harm, Capt. Jusep showed an inexcusable lack of care and caution which an
ordinary prudent person would have observed in the same situation. Had he
moved the vessel earlier, he could have had greater chances of finding a space
at the North Harbor considering that the Navotas Port where they docked was
very near North Harbor. Even if the latter was already congested, he would still
have time to seek refuge in other ports.
The instant petition is denied.
CULPA ACQUILIANA
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA), petitioner,
VS. COURT OF APPEALS and FORD PHILIPPINES, INC.
and CITIBANK, N.A., respondents
2001 Jan 29
350 SCRA 446
FACTS:
The consolidated petitions herein involve several fraudulently negotiated
checks. The original actions a quo were instituted by Ford Philippines to recover
from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine
Commercial International Bank (PCIBank), the value of several checks payable to
the Commissioner of Internal Revenue, which were embezzled allegedly by an
organized syndicate.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March
27, 1995 Decision of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford
Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now
Philippine Commercial International Bank), and the August 8, 1995 Resolution
ordering the collecting bank, Philippine Commercial International Bank, to pay
the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15,
1996 Decision of the Court of Appeals and its March 5, 1997 Resolution in CA-
G.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto the judgment of the trial court
holding the defendant drawee bank, Citibank, N.A., solely liable to pay the
amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiff’s Citibank Check Numbers SN-10597 and 16508.
ISSUE:
Whether or not the petitioner Ford has the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue.
RULING:
In G.R. Nos. 121413 and 121479, the Court held that banking business
requires that the one who first cashes and negotiates the check must take some
precautions to learn whether or not it is genuine. And if the one cashing the
check through indifference or other circumstance assists the forger in
committing the fraud, he should not be permitted to retain the proceeds of the
check from the drawee whose sole fault was that it did not discover the forgery
or the defect in the title of the person negotiating the instrument before paying
the check. For this reason, a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the proceeds against the
drawee when the proceeds of the checks were afterwards diverted to the hands
of a third party.
In such cases the drawee bank has a right to believe that the cashing
bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who
encashed a check which had been forged or diverted and in turn received
payment thereon from the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on the drawee bank. The latter
may recover from the holder the money paid on the check. Having established
that the collecting bank’s negligence is the proximate cause of the loss,
the Court concludes that PCIBank is liable in the amount corresponding to the
proceeds of Citibank Check No. SN-04867.
In G.R. No. 128604, the pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers SN 10597 and 16508. He
passed the checks to a co-conspirator, an Assistant Manager of PCIBank’s
Meralco Branch, who helped Castro open a Checking account of a fictitious
person named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks.
The syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN 10597
and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities in their official
capacity or authority but for their personal and private gain or benefit. A bank
holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the
apparent course of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom.
For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent
scope of his employment or authority. And if an officer or employee of a bank, in
his official capacity, receives money to satisfy an evidence of indebtedness
lodged with his bank for collection, the bank is liable for his misappropriation of
such sum. But in this case, responsibility for negligence does not lie on
PCIBank’s shoulders alone. The evidence on record shows that Citibank as
drawee bank was likewise negligent in the performance of its duties. Citibank
failed to establish that its payment of Ford’s checks were made in due course
and legally in order. Citibank should have scrutinized Citibank Check Numbers
SN 10597 and 16508 before paying the amount of the proceeds thereof to the
collecting bank of the BIR. One thing is clear from the record: the clearing
stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing stamps.
Had this been duly examined, the switching of the worthless checks to Citibank
Check Nos. 10597 and 16508 would have been discovered in time. For this
reason, Citibank had indeed failed to perform what was incumbent upon it, which
is to ensure that the amount of the checks should be paid only to its designated
payee. The fact that the drawee bank did not discover the irregularity
seasonably, in our view, constitutes negligence in carrying out the bank’s duty to
its depositors. The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
Thus, invoking the doctrine of comparative negligence, the Court is of the
view that both PCIBank and Citibank failed in their respective obligations and
both were negligent in the selection and supervision of their employees resulting
in the encashment of Citibank Check Nos. SN 10597 and 16508. Thus, the Court
is constrained to hold them equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR.Time and again, the Court has stressed
that banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be very high, if not the highest, degree of
diligence.
A bank’s liability as obligor is not merely vicarious but primary, wherein
the defense of exercise of due diligence in the selection and supervision of its
employees is of no moment. Banks handle daily transactions involving millions
of pesos. By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.
Thus the Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 25017, are affirmed. PCIBank, is declared solely responsible for the loss of
the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41,
which shall be paid together with six percent (6%) interest thereon to Ford
Philippines Inc. from the date when the original complaint was filed until said
amount is fully paid. However, the Decision and Resolution of the Court of
Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are
adjudged liable for and must share the loss, (concerning the proceeds of Citibank
Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty
ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05,
with six percent (6%) interest thereon, from the date the complaint was filed
until full payment of said amount.

CULPA ACQUILIANA
SAN MIGUEL CORPORATION, petitioner,
VS. HEIRS OF SABINIANO INGUITO, and JULIUS OUANO, respondents
2002 Jul 4
G.R. No. 141716
FACTS:
SMC entered into a Time Charter Party Agreement (TCPA) with Julius
Ouano, of J. Ouano Marine Services. Under the terms of the agreement, SMC
chartered the M/V Doña Roberta for a period of two years for the purpose of
transporting SMC’s beverage products from its Mandaue City plant to various
points in Visayas and Mindanao. The TCPA provided, among others, that the
Ouano, the owner, warrants that the vessel is seaworthy and that there shall be
no employer-employee relations between the owner and/or its vessel’s crew on
one hand and the charterer on the other. The crew of the vessel shall continue
to be under the employ, control and supervision of the owner.
Consequently, damage or loss that may be attributable to the crew,
including loss of the vessel used shall continue to be the responsibility of, and
shall be borne, by the owner; the owner further covenants to hold the charterer
free from all claims and liabilities arising out of the acts of the crew and the
condition of the vessel; the owner shall be responsible to the charterer for
damages and losses arising from the incompetence and/or negligence of, and/or
the failure to observe the required extra-ordinary diligence by the crew.
On November 11, 1990, SMC issued sailing orders to the Master of the MN
Doña Roberta, Captain Inguito. Inguito obtained the necessary sailing clearance
from the Philippine Coast Guard. The vessel left Mandaue City at 6:00 a.rn. of
November 12. At 4:00 a.m., typhoon Ruping was spotted. At 7:00 a.m., SMC
Radio Operator Moreno contacted Inguito through the radio and advised him to
take shelter. Inguito replied that they will proceed since the typhoon was far
away from them, and that the winds were in their favor. At 2:00 p.m., Moreno
again communicated with Inguito and advised him to take shelter. The captain
responded that they can manage. Moreno again contacted Inguito at 4:00 p.m.
and reiterated the advice that it will be difficult to take shelter after passing
Balicasag Island because they were approaching an open sea. Still, the captain
refused to heed his advice.
At 11:40 p.m, Moreno made a series of calls to the M/V Doña Roberta but
he failed to get in touch with anyone in the vessel. At 1:15 a.m. of November
13, Inguito called Moreno over the radio and requested him to contact the son of
Julius Ouano because they needed a helicopter to rescue them. At 2:30 a.m. of
November 13, 1990, the M/V Doña Roberta sank. Out of the 25 officers and crew
on board the vessel, only five survived.
On November 24, 1990, Julius Ouano, in lieu of the captain who perished
in the sea tragedy, filed a Marine Protest. The heirs of the deceased captain
and crew, as well as the survivors, of the ill-fated M/V Doña Roberta filed a
complaint for tort against SMC and Julius Ouano before the RTC. Julius Ouano
alleged that the proximate cause of the loss of the vessel and its officers and
crew was the fault and negligence of SMC, which had complete control and
disposal of the vessel as charterer and which issued the sailing order for its
departure despite being forewarned of the impending typhoon. Thus, he prayed
that SMC indemnify him for the cost of the vessel and the unrealized rentals and
earnings thereof. SMC argued that the proximate cause of the sinking was
Ouano’s breach of his obligation to provide SMC with a seaworthy vessel duly
manned by competent crew. SMC interposed counterclaims against Ouano for
the value of the cargo lost in the sea tragedy.
The trial court ruled that the proximate cause of the loss of the M/V Doña
Roberta was attributable to SMC and was ordered and sentenced to pay to the
heirs of the deceased crew. The CA modified the decision appealed from,
declaring defendant-appellants SMC and Julian C. Ouano jointly and severally
liable to plaintiffs-appellees, except to the heirs of Capt. Inguito.
ISSUE:
Whether or not the finding of the appellate court was in order.
RULING:
Under the terms of the TCPA between the parties, the charterer, SMC,
should be free from liability for any loss or damage sustained during the voyage,
unless it be shown that the same was due
to its fault or negligence. The evidence does not show that SMC or its
employees were amiss in their duties. SMC’s Radio Operator Moreno, who was
tasked to monitor every shipment of its cargo, zealously contacted and advised
Capt. Inguito to take shelter from typhoon Ruping.
In contrast to the care exercised by Moreno, Rico Ouano tried to
communicate with the captain only after receiving the S.O.S. message. Neither
Ouano nor his son was available during the entire time that the vessel set out
and encountered foul weather. Considering that the charter was a contract of
affreightment, the shipowner had the clear duty to ensure the safe carriage and
arrival of goods transported on board its vessels. More specifically, Ouano
expressly warranted in the TCPA that his vessel was seaworthy. For a vessel to
be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew.
The proximate cause of the sinking of the vessel was the gross failure of
the captain of the vessel to observe due care and to heed SMC’s advice to take
shelter. Gilbert Gonsaga, Chief Engineer of Doña Roberta, testified that the ship
sank at 2:30 in the early morning of November 13th. On the other hand, from
the time the vessel left the port of Mandaue at six o’clock in the morning,
Captain Sabiniano Inguito was able to contact the radio operator of SMC. He was
fully apprised of typhoon "Ruping" and its strength. Due diligence dictated that
at any time before the vessel was in distress, he should have taken shelter in
order to safeguard the vessel and its crew.
Ouano is vicariously liable for the negligent acts of his employee, Capt.
Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers
are responsible for damages caused by the negligence of a servant or an
employee, the master or employer is presumed to be negligent either in the
selection or in the supervision of that employee. This presumption may be
overcome only by satisfactorily showing that the employer exercised the care
and the diligence of a good father of a family in the selection and the supervision
of its employee. Ouano miserably failed to overcome the presumption of his
negligence. He failed to present proof that he exercised the due diligence of a
bonus paterfamilias in the selection and supervision of the captain of the M/V
Doña Roberta. Hence, he is vicariously liable for the loss of lives and property
occasioned by the lack of care and negligence of his employee.
SMC is not liable for the losses. The contention that it was the issuance of
the sailing order by SMC which was the proximate cause of the sinking is
untenable. The fact that there was an approaching typhoon is of no moment. It
appears that on one previous occasion, SMC issued a sailing order to the captain
of the M/V Doña Roberta, but the vessel cancelled its voyage due to typhoon.
Likewise, it appears from the records that SMC issued the sailing order on
November 11, 1990, before typhoon "Ruping" was first spotted at 4:00 a.m. of
November 12, 1990.
Consequently, Ouano should answer for the loss of lives and damages
suffered by the heirs of the officers and crew who perished on board the M/V
Doña Roberta, except Captain Sabiniano Inguito. The award of damages granted
by the CA is affirmed only against Ouano, who should also indemnify SMC for the
cost of the lost cargo, in the total amount of P10,278,542.40.
Solidary vs. Independent Liability of Employer and/or
Employee
1. MERCURY DRUG VS. SPOUSES HUANG, 22 JUNE 2007
2. MENDOZA VS. SORIANO, 8 JUNE 2007
3. CEREZO VS. TUAZON, 426 S 167
MERCURY DRUG CORPORATION VS. HUANG
GR No. 172122 June 22, 2007
FACTS:
Petitioner Mercury Drug is the registered owner of a six-wheeler
1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario
as driver. Respondent spouses Richard and Carmen Huang are the
parents of respondent Stephen Huang and own the red 1991 Toyota
Corolla. These two vehicles figured in a road accident. At the time of the
accident, petitioner Del Rosario only had a Traffic Violation Receipt. A
driver’s license had been confiscated because he had been previously
apprehended for reckless driving. Respondent Stephen Huang sustained
massive injuries to his spinal cord, head, face and lung. He is paralyzed
for life from his chest down and requires continuous medical and
rehabilitation treatment. Respondent’s fault petitioner Del Rosario for
committing gross negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a good
father of a family in the selection and supervision of its driver.
The trial court found Mercury Drug and Del Rosario jointly and
severally liable to pay respondents. The Court of Appeals affirmed the
said decision.
ISSUE:
 Whether or not petitioner Mercury Drug is liable for the negligence
of its employee.
RULING:
Article 2176 and 2180 of the Civil Code provide:
“Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damages done.
Such fault or negligence, if there is no pre-existing contractual
relationship between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.”
“The obligation imposed by article 2176 is demandable not
only for one’s own acts or omissions, but also for those of persons for
whom one is responsible.”
The liability of the employer under Article 2180 is direct and
immediate. It is not conditioned on a prior recourse against the negligent
employee, or a prior showing of insolvency of such employee. It is also
joint and solidary with the employee. To be relieved f the liability,
petitioner should show that it exercised the diligence of a good father of a
family, both in the selection of the employee and in the supervision of the
performance of his duties.
In this case, the petitioner Mercury Drug does not provide for back-
up driver for long trips. As the time of the accident, Del Rosario has been
driving for more than thirteen hours, without any alternate. Moreover, Del
Rosario took the driving test and psychological exam for the position of
Delivery Man and not as Truck Man.
With this, petitioner Mercury Drug is liable jointly and severally
liable to pay the respondents.
Solidary vs. Independent Liability of Employer and/or Employee
MENDOZA VS. SORIANO
GR No. 164012 June 8, 2007
FACTS:
Sonny Soriano, while crossing Commonwealth Avenue near Luzon
Avenue, was hit by a speeding Tamaraw FX driven by Lomer Macasasa.
Soriano was thrown five meters away, while the vehicle stopped some 25
meters from the point of impact. Gerard Villaspin, one of Soriano’s
companions, asked Macasasa to bring Soriano to the hospital, but the first
flee. Respondent’s wife and daughter filed a complaint for damages
against Macasasa and petitioner Flordeliza Mendoza, the registered owner
of the vehicle.
Petitioner Mendoza contends that she was not liable since as owner
of the vehicle, she had exercised the diligence of a good father of a family
over her employee. Macasas.
The trial court dismissed the complaint against Macasasa and
Mendoza. It found Soriano negligent for crossing not in the pedestrian
overpass. The Court of Appeals, on the other hand, reversed the assailed
decision of the lower court.
ISSUE:
Whether or not petitioner is liable for damages.
RULING:
While the appellate court agreed that Soriano was negligent, it also
found Macasasa negligent for speeding, such that he was unable to avoid
hitting the victim. It observed that Soriano’s own negligence did not
preclude recovery for damages from Macasasa’s negligence. It further
held that since petitioner failed to present evidenced to the contrary and
conformably with Article 2180 of the Civil Code, the presumption of
negligence of the employer in the selection and supervision of employees
stood.
The records show that Macasasa violated two traffic rules under the
Land Transportation and Office Code. Under Article 2185 of the Civil Code,
a person driving a motor vehicle is presumed negligent if at the time of
the mishap, he was violating traffic regulations.
Further, under Article 2180, employers are liable for the damages
caused by their employees acting within the scope of their assigned tasks.
The liability arises due to the presumed negligence of the employers in
supervising their employees unless they prove that they observed all the
diligence of a good father of a family to prevent the damage. In this case
petitioner is held primarily and solidarily liable for the damages caused by
Macasasa.
However, Article 2179 states that “when the plaintiff’s own
negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendant’s lack
of due care, the plaintiff may recover damages, but the court shall
mitigate the damages awarded.
Ruling that Soriano was guilty of contributory negligence for not
using the pedestrian overpass, 20% reduction of the amount of the
damages awarded was awarded to petitioner.
Solidary vs. Independent Liability of Employer and/or Employee
CEREZO VS. TUAZON
GR No. 141538 March 23, 2004
FACTS:
Country Bus Lines passenger bus collided with a tricycle. Tricycle
driver Tuazon filed a complaint for damages against Mrs. Cerezo, as
owner of the bus line, her husband Attorney Juan Cerezo, and bus driver
Danilo A. Foronda.
After considering Tuazon’s testimonial and documentary evidence,
the trial court ruled in Tuazon’s favor. The trial court made no
pronouncement on Foronda’s liability because there was no service of
summons on him. The trial court did not hold Atty. Cerezo liable as
Tuazon failed to show that Mrs. Cerezo’s business benefited the family,
pursuant to Article 121(3) of the Family Code. The trial court held Mrs.
Cerezo solely liable for the damages sustained by Tuazon arising from the
negligence of Mrs. Cerezo’s employee, pursuant to Article 2180 of the
Civil Code.
ISSUE:
Whether petitioner is solidarily liable.
RULING:
Contrary to Mrs. Cerezo’s assertion, Foronda is not an indispensable
party to the case. An indispensable party is one whose interest is
affected by the court’s action in the litigation, and without whom no final
resolution of the case is possible. However, Mrs. Cerezo’s liability as an
employer in an action for a quasi-delict is not only solidary, it is also
primary and direct. Foronda is not an indispensable party to the final
resolution of Tuazon’s action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasi-
delict is solidary. Where there is a solidary obligation on the part of
debtors, as in this case, each debtor is liable for the entire obligation.
Hence, each debtor is liable to pay for the entire obligation in full. There
is no merger or renunciation of rights, but only mutual representation.
Where the obligation of the parties is solidary, either of the parties is
indispensable, and the other is not even a necessary party because
complete relief is available from either. Therefore, jurisdiction over
Foronda is not even necessary as Tuazon may collect damages from Mrs.
Cerezo alone.
Moreover, an employer’s liability based on a quasi-delict is primary
and direct, while the employer’s liability based on a delict is merely
subsidiary. The words “primary and direct,” as contrasted with
“subsidiary,” refer to the remedy provided by law for enforcing the
obligation rather than to the character and limits of the obligation.
Although liability under Article 2180 originates from the negligent act of
the employee, the aggrieved party may sue the employer directly.
When an employee causes damage, the law presumes that the
employer has himself committed an act of negligence in not preventing or
avoiding the damage. This is the fault that the law condemns. While the
employer is civilly liable in a subsidiary capacity for the employee’s
criminal negligence, the employer is also civilly liable directly and
separately for his own civil negligence in failing to exercise due diligence
in selecting and supervising his employee. The idea that the employer’s
liability is solely subsidiary is wrong.
 To hold the employer liable in a subsidiary capacity under a
delict, the aggrieved party must initiate a criminal action where the
employee’s delict and corresponding primary liability are established. If
the present action proceeds from a delict, then the trial court’s jurisdiction
over Foronda is necessary.
However, the present action is clearly for the quasi-delict of Mrs.
Cerezo and not for the delict of Foronda.
Thus, the petition was denied ordering the defendant Hermana
Cerezo to pay the plaintiff.
Presumption of Fault/Negligence of Employer
VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS
GR No. 54080 November 22, 2000
FACTS:
Defendant Alberto delos Santos was the driver of defendant
Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At
about 12:30 in the afternoon, he was driving said truck along the
National Highway within the vicinity of Gerona, Tarlac. The Viron
Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and
he swerved to the right shoulder of the highway, but as soon as he
occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus
swerved to his lane to avoid an incoming bus on its opposite
direction. With the driver of another truck dealing likewise in
vegetables, Dulnuan, the two of them and the driver of the Viron
bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the
private respondents.
ISSUE:
Whether the employer is liable to the negligence of his
employee.
RULING:
As employers of the bus driver, the petitioner is, under Article
2180 of the Civil Code, directly and primarily liable for the resulting
damages. The presumption that they are negligent flows from the
negligence of their employee. That presumption, however, is only
jusris tantum, not juris et de jure. Their only possible defense is that
they exercised all the diligence of a good father of a family to
prevent the damage.
In fine, when the employee causes damage due to his own
negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only
by proof of observance of the diligence of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal
presumption of negligence in the selection and supervision of
employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater
familias or on the employer’s own negligence. Hence, with the
allegations and subsequent proof of negligence against the bus
driver of petitioner, petitioner (employer) is liable for damages.
Proof of Employee’s Fault/Negligence
1. MERCURY DRUG VS. BAKING, 523 S 184
2. SAFEGUARD SECURITY VS. TANGCO, 511 S 67
3. PLEYTO VS. LOMBOY, 432 S 329
MERCURY DRUG CORPORATION VS. BAKING
GR No. 57435 May 25, 2007
FACTS:
 Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for
a medical check-up. Dr. Sy gave respondent two medical prescriptions –
Diomicron for his blood sugar and Benalize tablets for his triglyceride.
Respondent then proceeded to petitioner Mercury Drug Corporation
(Alabang Branch) to buy the prescribed medicines. However, the
saleslady misread the prescription Diamicron as a prescription for
Dormicum. Unaware that what was given to him was the wrong medicine,
respondent took one pill of dormicum on three consecutive days. On the
third day he took the medicine, and he figured in a vehicular accident.
The car he was driving collided with the car of one Jose Peralta.
Respondent fell asleep while driving he could not remember anything
about the collision nor felt its impact.
Suspecting that the tablet he took may have bearing on his physical
and mental state at the time of the collision, respondent returned to Dr.
Sy. Upon being shown the medicine, Dr. Sy was shocked to find that what
was sold to him was Dormicum, instead of the prescribed Diamicron
The RTC and CA rendered their decision in favor of respondent.
ISSUE:
Whether petitioner was negligent, and if so, whether such
negligence was the proximate cause of respondent’s accident.
RULING:
Article 2176 states that “whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for
the damages done. Such fault or negligence, if there is no pre-existing
contractual relationship between the parties, is called a quasi-delict…”
Obviously, petitioner’s employee was grossly negligent in selling
respondent domicrum, instead of the prescribed diamicron. Considering
that a fatal mistake could be a matter of life and death for a buying
patient, the employee should have been very cautious in dispensing
medicines.
Petitioner contends that the proximate cause of the accident was
respondent’s negligence in driving. The court disagrees. The accident
could have not occurred had petitioner’s employee been careful in
reading the prescription.
Article 2180 in complementing the preceding article states that “the
obligation imposed by articles 2176 is demandable not only for one’s own
acts or omissions, but also for those of persons for whom one is
responsible”
It is thus clear that the employer of a negligent employee is liable
for the damages caused by the latter. When an injury is caused by the
negligence of an employee, there instantly arises a presumption of the
law that there has been negligence on the part of the employer either in
the selection of the employee or the supervision over him, after such
selection. The presumption, however, may be rebutted by a clear showing
on the part of the employer that he has exercised the care and diligence
of a good father of a family in the selection and supervision of his
employee.
In this case, petitioner failed to prove such exercised of due
diligence of a good father of a family in the selection and supervision of
employee, thus making the petitioner solidarily liable for the damages.
Proof of Employee’s and Negligence
SAFEGUARD SECURITY V. TANGCO
GR No. 165732 December 14, 2006
FACTS:
Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan
Branch, Quezon City, to renew her time deposit per advise of the bank's
cashier as she would sign a specimen card. Evangeline, a duly licensed
firearm holder with corresponding permit to carry the same outside her
residence, approached security guard Pajarillo, who was stationed outside
the bank, and pulled out her firearm from her bag to deposit the same for
safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun
hitting her in the abdomen instantly causing her death.
Respondent filed a complaint for damages against Pajarillo for
negligently shooting Evangeline and against Safeguard for failing to
observe the diligence of a good father of a family to prevent the damage
committed by its security guard.
Petitioners denied the material allegations in the complaint and
alleged that Safeguard exercised the diligence of a good father of a family
in the selection and supervision of Pajarillo; that Evangeline's death was
not due to Pajarillo's negligence as the latter acted only in self-defense.
The RTC found respondents to be entitled to damages. It rejected
Pajarillo's claim that he merely acted in self-defense. The RTC also found
Safeguard as employer of Pajarillo to be jointly and severally liable with
Pajarillo. It ruled that while it may be conceded that Safeguard had
perhaps exercised care in the selection of its employees, particularly of
Pajarillo, there was no sufficient evidence to show that Safeguard
exercised the diligence of a good father of a family in the supervision of
its employee.
ISSUES:
1. Whether Pajarillo is guilty of negligence in shooting Evangeline;
and
2. Whether Safeguard should be held solidarily liable for the
damages awarded to respondents.
RULING:
ARTICLE 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties is called a quasi-delict and is governed by
the provisions of this Chapter.
Safeguard contends that it cannot be jointly held liable since it had
adequately shown that it had exercised the diligence required in the
selection and supervision of its employees. It claims that it had required
the guards to undergo the necessary training and to submit the requisite
qualifications and credentials which even the RTC found to have been
complied with; that the RTC erroneously found that it did not exercise the
diligence required in the supervision of its employee. Safeguard further
claims that it conducts monitoring of the activities of its personnel,
wherein supervisors are assigned to routinely check the activities of the
security guards which include among others, whether or not they are in
their proper post and with proper equipment, as well as regular
evaluations of the employees' performances; that the fact that Pajarillo
loaded his firearm contrary to Safeguard's operating procedure is not
sufficient basis to say that Safeguard had failed its duty of proper
supervision; that it was likewise error to say that Safeguard was negligent
in seeing to it that the procedures and policies were not properly
implemented by reason of one unfortunate event. The Supreme Court was
not convinced. Article 2180 of the Civil Code provides: The obligation
imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
As the employer of Pajarillo, Safeguard is primarily and solidarily
liable for the quasi-delict committed by the former. Safeguard is
presumed to be negligent in the selection and supervision of his employee
by operation of law. This presumption may be overcome only by
satisfactorily showing that the employer exercised the care and the
diligence of a good father of a family in the selection and the supervision
of its employee. In the selection of prospective employees, employers are
required to examine them as to their qualifications, experience, and
service records. On the other hand, due diligence in the supervision of
employees includes the formulation of suitable rules and regulations for
the guidance of employees and the issuance of proper instructions
intended for the protection of the public and persons with whom the
employer has relations through his or its employees and the imposition of
necessary disciplinary measures upon employees in case of breach or as
may be warranted to ensure the performance of acts indispensable to the
business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules
should be the constant concern of the employer, acting through
dependable supervisors who should regularly report on their supervisory
functions. To establish these factors in a trial involving the issue of
vicarious liability, employers must submit concrete proof, including
documentary evidence.

Proof of Employee’s and Negligence
PLEYTO VS. LOMBOY
GR No. 148737 December 16, 2004
FACTS:
Respondent Maria D. Lomboy of Calasiao, Pangasinan, is the
surviving spouse of the late Ricardo Lomboy, who died in Pasolingan,
Gerona, Tarlac, in a vehicular accident. The accident was a head-on
collision between the PRBL bus driven by petitioner Pleyto and the car
where Ricardo was a passenger. Carmela suffered injuries requiring
hospitalization in the same accident which resulted in her father’s death.
According to Rolly Orpilla, a witness and one of the bus passengers,
Pleyto tried to overtake Esguerra’s tricycle but hit it instead. Pleyto then
swerved into the left opposite lane. Coming down the lane, some fifty
meters away, was a southbound Mitsubishi Lancer car, driven by Arnulfo
Asuncion. The car was headed for Manila with some passengers. Seated
beside Arnulfo was his brother-in-law, Ricardo Lomboy, while in the back
seat were Ricardo’s 18-year old daughter Carmela and her friend, one
Rhino Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo
and Ricardo instantly. Carmela and Rhino suffered injuries, but only
Carmela required hospitalization.
The Court of Appeals found PRBL liable for Pleyto’s negligence
pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under
Article 2180, when an injury is caused by the negligence of a servant or
an employee, the master or employer is presumed to be negligent either
in the selection or in the supervision of that employee. This presumption
may be overcome only by satisfactorily showing that the employer
exercised the care and the diligence of a good father of a family in the
selection and the supervision of its employee.
ISSUE:
Did petitioner observed the proper diligence of a good father of a
family?
RULING:
The negligence and fault of appellant driver is manifest. He
overtook the tricycle despite the oncoming car only fifty (50) meters away
from him. Defendant-appellant’s claim that he was driving at a mere 30
to 35 kilometers per hour does not deserve credence as it would have
been easy to stop or properly maneuver the bus at this speed. The speed
of the bus, the drizzle that made the road slippery, and the proximity of
the car coming from the opposite direction were duly established by the
evidence. The speed at which the bus traveled, inappropriate in the light
of the aforementioned circumstances, is evident from the fact despite the
application of the brakes, the bus still bumped the tricycle, and then
proceeded to collide with the incoming car with such force that the car
was pushed beyond the edge of the road to the ricefield.
In the present case, petitioners presented several documents in
evidence to show the various tests and pre-qualification requirements
imposed upon petitioner Pleyto before his hiring as a driver by PRBL.
However, no documentary evidence was presented to prove that
petitioner PRBL exercised due diligence in the supervision of its
employees, including Pleyto. Citing precedents, the Court of Appeals
opined,
In order that the defense of due diligence in the selection and
supervision of employees may be deemed sufficient and plausible, it is
not enough for the employer to emptily invoke the existence of company
guidelines and policies on hiring and supervision. As the negligence of
the employee gives rise to the presumption of negligence on the part of
the employer, the latter has the burden of proving that it has been
diligent not only in the selection of employees but also in the actual
supervision of their work. The mere allegation of the existence of hiring
procedures and supervisory policies without anything more is decidedly
not sufficient to overcome such presumption.
Proof of Due Diligence

1. VIRON VS. DE LOS SANTOS, supra
2. SYKL VS. BEGASA, 414 S 237
3. YAMBAO VS. ZUNIGA, 418 S 266
VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS
GR No. 54080 November 22, 2000
FACTS:
Defendant Alberto delos Santos was the driver of defendant
Rudy Samidan of the latter’s vehicle, a Forward Cargo Truck. At
about 12:30 in the afternoon, he was driving said truck along the
National Highway within the vicinity of Gerona, Tarlac. The Viron
Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and
he swerved to the right shoulder of the highway, but as soon as he
occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus
swerved to his lane to avoid an incoming bus on its opposite
direction. With the driver of another truck dealing likewise in
vegetables, Dulnuan, the two of them and the driver of the Viron
bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the
private respondents.
ISSUE:
Whether the employer is liable to the negligence of his
employee.
RULING:
As employers of the bus driver, the petitioner is, under Article
2180 of the Civil Code, directly and primarily liable for the resulting
damages. The presumption that they are negligent flows from the
negligence of their employee. That presumption, however, is only
jusris tantum, not juris et de jure. Their only possible defense is that
they exercised all the diligence of a good father of a family to
prevent the damage.
In fine, when the employee causes damage due to his own
negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only
by proof of observance of the diligence of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal
presumption of negligence in the selection and supervision of
employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater
familias or on the employer’s own negligence. Hence, with the
allegations and subsequent proof of negligence against the bus
driver of petitioner, petitioner (employer) is liable for damages.
Proof of Due Diligence
SYKL VS. BEGASA
GR No. 149149 October 23, 2003
FACTS:
Respondent Salvador Begasa and his three companions flagged
down a passenger jeepney driven by Joaquin Espina and owned by Aurora
Pisuena. While respondent was boarding the passenger jeepney (his right
foot already inside while his left foot still on the boarding step of the
passenger jeepney), a truck driven by Elizalde Sablayan and owned by
petitioner Ernesto Syki bumped the rear end of the passenger jeepney.
Respondent fell and fractured his left thigh bone.
Respondent filed a complaint for damages for breach of common
carrier’s contractual obligations and quasi-delict against Aurora Pisuena,
the owner of the passenger jeepney;, herein petitioner Ernesto Syki, the
owner of the truck;, and Elizalde Sablayan, the driver of the truck.
After hearing, the trial court dismissed the complaint against Aurora
Pisuena, the owner and operator of the passenger jeepney, but ordered
petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay
respondent Salvador Begasa, jointly and severally
ISSUE:
1. Whether or not petitioner is liable for the act of his employee.
2. Whether he exercised the diligence of a good father of a family.
RULING:
1. Article 2180 of the Civil Code provides:
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business
or industry.
From the above provision, when an injury is caused by the
negligence of an employee, a legal presumption instantly arises that the
employer was negligent, either or both, in the selection and/or supervision
of his said employee duties. The said presumption may be rebutted only
by a clear showing on the part of the employer that he had exercised the
diligence of a good father of a family in the selection and supervision of
his employee. If the employer successfully overcomes the legal
presumption of negligence, he is relieved of liability. In other words, the
burden of proof is on the employer.
2. The question is: how does an employer prove that he had indeed
exercised the diligence of a good father of a family in the selection and
supervision of his employee. Making proof in its or his case, it is
paramount that the best and most complete evidence is formally entered.
In the case at bar, while there is no rule which requires that
testimonial evidence, to hold sway, must be corroborated by documentary
evidence, inasmuch as the witnesses’ testimonies dwelt on mere
generalities, we cannot consider the same as sufficiently persuasive proof
that there was observance of due diligence in the selection and
supervision of employees. Petitioner’s attempt to prove its “deligentissimi
patris familias” in the selection and supervision of employees through oral
evidence must fail as it was unable to buttress the same with any other
evidence, object or documentary, which might obviate the apparent
biased nature of the testimony.
In the selection of prospective employees, employers are required
to examine them as to their qualifications, experience, and service
records. On the other hand, with respect to the supervision of employees,
employers should formulate standard operating procedures, monitor their
implementation, and impose disciplinary measures for breaches thereof.
To establish these factors in a trial involving the issue of vicarious liability,
employers must submit concrete proof, including documentary evidence.
The employer must not merely present testimonial evidence to
prove that he had observed the diligence of a good father of a family in
the selection and supervision of his employee, but he must also support
such testimonial evidence with concrete or documentary evidence. The
reason for this is to obviate the biased nature of the employer’s testimony
or that of his witnesses.
In this case, petitioner’s evidence consisted entirely of testimonial
evidence. He testified that before he hired Elizalde Sablayan, he required
him to submit a police clearance in order to determine if he was ever
involved in any vehicular accident. He also required Sablayan to undergo
a driving test with conducted by his mechanic, Esteban Jaca. Petitioner
claimed that he, in fact, accompanied Sablayan during the driving test
and that during the test, Sablayan was taught to read and understand
traffic signs like “Do Not Enter,” “One Way,” “Left Turn,” and “Right
Turn.”
Petitioner’s mechanic, Esteban Jaca, on the other hand, testified
that Sablayan passed the driving test and had never figured in any
vehicular accident except the one in question. He also testified that he
maintained in good condition all the trucks of petitioner by checking the
brakes, horns and tires thereof before leaving for providing hauling
services.
Petitioner, however, never presented the alleged police clearance
given to him by Sablayan, nor the results of Sablayan’s driving test.
Petitioner also did not present records of the regular inspections that his
mechanic allegedly conducted.
In sum, the sole and proximate cause of the accident was the
negligence of petitioner’s driver who, as found by the lower courts, did
not slow down even when he was already approaching a busy intersection
within the city proper. The passenger jeepney had long stopped to pick up
respondent and his three companions and, in fact, respondent was
already partly inside the jeepney, when petitioner’s driver bumped the
rear end ofrear-ended it.
Since the negligence of petitioner’s driver was the sole and
proximate cause of the accident, in the present case, petitioner is liable,
under Article 2180 of the Civil Code, to pay damages to respondent
Begasa for the injuries sustained by latter.
Proof of Due Diligence
YAMBAO VS. ZUNIGA
GR No. 146173 December 11, 2003
FACTS:
The bus owned by the petitioner was being driven by her driver, one
Ceferino G. Venturina along the northbound lane of Epifanio delos Santos
Avenue (EDSA). With Venturina was the bus conductor, Fernando
Dumaliang. Suddenly, the bus bumped Herminigildo Zuñiga, a
pedestrian. Such was the force of the impact that the left side of the front
windshield of the bus was cracked. Zuñiga was rushed to the Quezon City
General Hospital where he was given medical attention, but due to the
massive injuries sustained, he succumbed shortly thereafter.
Private respondents, as heirs of the victim, filed a Complaint against
petitioner and her driver, Venturina, for damages. The complaint
essentially alleged that Venturina drove the bus in a reckless, careless
and imprudent manner, in violation of traffic rules and regulations,
without due regard to public safety, thus resulting in the victim’s
premature death.
The petitioner vehemently denied the material allegations of the
complaint. She tried to shift the blame for the accident upon the victim,
theorizing that Herminigildo bumped into her bus, while avoiding an
unidentified woman who was chasing him. She further alleged that she
was not liable for any damages because as an employer, she exercised
the proper diligence of a good father of a family, both in the selection and
supervision of her bus driver.
ISSUE:
Whether or not petitioner observed the diligence of a good father of
a family, so as not to be liable for the act committed by her employee?
RULING:
It held that this was a case of quasi-delict, there being no pre-
existing contractual relationship between the parties. The court a quo
then found the petitioner directly and primarily liable as Venturina’s
employer pursuant to Article 2180 of the Civil Code as she failed to
present evidence to prove that she has observed the diligence of a good
father of a family in the selection and supervision of her employees.
Art. 2180 states that “the obligation imposed by Article 2176 is
demandable not only for one’s own acts or omissions, but also for those of
persons for whom one is responsible”
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business
or industry.
Petitioner contends that as an employer, she observed the proper
diligence of a good father of a family, both in the selection and
supervision of her driver and therefore, is relieved from any liability for
the latter’s misdeed. To support her claim, she points out that when
Venturina applied with her as a driver in January 1992, she required him
to produce not just his driver’s license, but also clearances from the
National Bureau of Investigation (NBI), the Philippine National Police, and
the barangay where he resides. She also required him to present his
Social Security System (SSS) Number prior to accepting him for
employment. She likewise stresses that she inquired from Venturina’s
previous employer about his employment record, and only hired him after
it was shown to her satisfaction that he had no blot upon his record.
In sum, petitioner’s liability to private respondents for the negligent
and imprudent acts of her driver, Venturina, under Article 2180 of the Civil
Code is both manifest and clear. Petitioner, having failed to rebut the
legal presumption of negligence in the selection and supervision of her
driver, is responsible for damages, the basis of the liability being the
relationship of pater familias or on the employer’s own negligence.
Quasi-delictual liability even in the existence of a contract
between parties
1. REGINO VS. PANGASINAN COLLEGES, supra
2. YHT VS CA, 451 S 638
REGINO VS. PANGASINAN COLLEGES
GR No. 156109 November 18, 2004
FACTS:
Petitioner Khristine Rea M. Regino was a first year computer
science student at Respondent Pangasinan Colleges of Science and
Technology (PCST). In February 2002, PCST held a fund raising campaign
dubbed the “Rave Party and Dance Revolution,” the proceeds of which
were to go to the construction of the school’s tennis and volleyball courts.
Each student was required to pay for two tickets at the price of P100
each. The project was allegedly implemented by recompensing students
who purchased tickets with additional points in their test scores; those
who refused to pay were denied the opportunity to take the final
examinations. Financially strapped and prohibited by her religion from
attending dance parties and celebrations, Regino refused to pay for the
tickets. On March 14 and March 15, 2002, the scheduled dates of the
final examinations in logic and statistics, her teachers -- Respondents
Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from
taking the tests.
ISSUE:
Whether or not the purchased of the tickets are mandatory and are
part of the contract between school and student.
RULING:
Reciprocity of the School-Student Contract
The school-student relationship is also reciprocal. Thus, it has
consequences appurtenant to and inherent in all contracts of such kind --
it gives rise to bilateral or reciprocal rights and obligations. The school
undertakes to provide students with education sufficient to enable them
to pursue higher education or a profession. On the other hand, the
students agree to abide by the academic requirements of the school and
to observe its rules and regulations.
The terms of the school-student contract are defined at the moment
of its inception -- upon enrolment of the student. Standards of academic
performance and the code of behavior and discipline are usually set forth
in manuals distributed to new students at the start of every school year.
Further, schools inform prospective enrollees the amount of fees and the
terms of payment.
In practice, students are normally required to make a down
payment upon enrollment, with the balance to be paid before every
preliminary, midterm and final examination. Their failure to pay their
financial obligation is regarded as a valid ground for the school to deny
them the opportunity to take these examinations.
The foregoing practice does not merely ensure compliance with
financial obligations; it also underlines the importance of major
examinations. Failure to take a major examination is usually fatal to the
students’ promotion to the next grade or to graduation. Examination
results form a significant basis for their final grades. These tests are
usually a primary and an indispensable requisite to their elevation to the
next educational level and, ultimately, to their completion of a course.
Thus, students expect that upon their payment of tuition fees,
satisfaction of the set academic standards, completion of academic
requirements and observance of school rules and regulations, the school
would reward them by recognizing their “completion” of the course
enrolled in.
PCST imposed the assailed revenue-raising measure belatedly, in the
middle of the semester. It exacted the dance party fee as a condition for
the students’ taking the final examinations, and ultimately for its
recognition of their ability to finish a course. The fee, however, was not
part of the school-student contract entered into at the start of the school
year. Hence, it could not be unilaterally imposed to the prejudice of the
enrollees.
Quasi-delictual liability even in the existence of a contract between
parties
YHT REALTY VS. CA
GR. No. 126780 February 17, 2005
FACTS:
McLoughlin arrived from Australia and registered with Tropicana.
He rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips. As a
tourist, McLoughlin was aware of the procedure observed by Tropicana
relative to its safety deposit boxes. The safety deposit box could only be
opened through the use of two keys, one of which is given to the
registered guest, and the other remaining in the possession of the
management of the hotel. When a registered guest wished to open his
safety deposit box, he alone could personally request the management
who then would assign one of its employees to accompany the guest and
assist him in opening the safety deposit box with the two keys.
However, when he returned coming from a trip, he noticed that his
money in the envelope was lacking and that the jewelries were gone.
ISSUE:
Whether petitioner is liable for the loss of the personal properties of
respondent.
RULING:
Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are liable for
damages. Article 2180 provides that the owners and managers of an
establishment or enterprise are likewise responsible for damages caused
by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Also, this Court has ruled
that if an employee is found negligent, it is presumed that the employer
was negligent in selecting and/or supervising him for it is hard for the
victim to prove the negligence of such employer. Thus, given the fact
that the loss of McLoughlin’s money was consummated through the
negligence of Tropicana’s employees in allowing Tan to open the safety
deposit box without the guest’s consent, both the assisting employees
and YHT Realty Corporation itself, as owner and operator of Tropicana,
should be held solidarily liable.
Art. 2003. The hotel-keeper cannot free himself from responsibility
by posting notices to the effect that he is not liable for the articles
brought by the guest. Any stipulation between the hotel-keeper and the
guest whereby the responsibility of the former as set forth in Articles 1998
to 2001 is suppressed or diminished shall be void.
The hotel business like the common carrier’s business is imbued
with public interest. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called “undertakings”
that ordinarily appear in prepared forms imposed by hotel keepers on
guests for their signature.
In the case at bar, the responsibility of securing the safety
deposit box was shared not only by the guest himself but also by the
management since two keys are necessary to open the safety deposit
box. Without the assistance of hotel employees, the loss would not have
occurred.
Thus, Tropicana was guilty of concurrent negligence in allowing
Tan, who was not the registered guest, to open the safety deposit box of
McLoughlin, even assuming that the latter was also guilty of negligence in
allowing another person to use his key. To rule otherwise would result in
undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the
pretense of being a family member or a visitor of the guest, to have
access to the safety deposit box without fear of any liability that will
attach thereafter in case such person turns out to be a complete stranger.
This will allow the hotel to evade responsibility for any liability incurred by
its employees in conspiracy with the guest’s relatives and visitors.
Medical Malpractice/ Medical Negligence Cases
1. RAMOS VS. CA, 321 S 584
2. REYES VS. SISTERS OF MERCY, 3 OCTOBER 2000
3. NOGALES VS. CAPITOL MEDICAL CENTER, 511 S 204
4. PROFESSIONAL SERVICES VS. AGANA, 513 S 478
5. PROFESSIONAL SERVICES VS. CA, 544 S 170
RAMOS VS. CA
GR No. 124354 December 29, 1999
FACTS:
Plaintiff Erlinda Ramos was a robust woman Except for occasional
complaints of discomfort due to pains allegedly caused by the presence of
a stone in her gall bladder. Because the discomforts somehow interfered
with her normal ways, she sought professional advice. She was advised
to undergo an operation for the removal of a stone in her gall bladder.
Through the intercession of a mutual friend, Dr. Buenviaje she and her
husband Rogelio met for the first time Dr. Orlino one of the defendants in
this case, on June 10, 1985. They agreed that their date at the operating
table at the DLSMC (another defendant. Dr. Hosaka decided that she
should undergo a "cholecystectomy" operation after examining the
documents (findings from the Capitol Medical Center, FEU Hospital and
DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka
to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio
that he will get a good anesthesiologist. Dr. Hosaka charged a fee of
P16,000.00, which was to include the anesthesiologist's fee and which
was to be paid after the operation. A day before the scheduled date of
operation, she was admitted at one of the rooms of the DLSMC, located
along E. Rodriguez Avenue, Quezon City.
At around 7:30 A.M. of June 17, 1985 and while still in her room, she
was prepared for the operation by the hospital staff. Her sister-in-law,
Herminda Cruz, who was the Dean of the College of Nursing at the Capitol
Medical Center, was also there for moral support. Herminda was allowed
to stay inside the operating room.
At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look
for Dr. Hosaka who was not yet in Dr. Gutierrez thereafter informed
Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka.
Herminda then went back to the patient who asked, "Mindy, wala pa ba
ang Doctor"? The former replied, "Huwag kang mag-alaala, darating na
iyon. Thereafter, Herminda went out of the operating room and informed
the patient's husband, Rogelio, that the doctor was not yet around.
At about 12:15 P.M., Herminda Cruz, who was inside the operating
room with the patient, heard somebody say that "Dr. Hosaka is already
here." She then saw people inside the operating room "moving, doing
this and that, preparing the patient for the operation" As she held the
hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless
patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate
nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the
remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez
was doing. She thereafter noticed bluish discoloration of the nailbeds of
the left hand of the hapless Erlinda even as Dr. Hosaka approached her.
She then heard Dr. Hosaka issue an order for someone to call Dr.
Calderon, another anesthesiologist. After Dr. Calderon arrived at the
operating room, she saw this anesthesiologist trying to intubate the
patient. The patient's nailbed became bluish and the patient was placed
in a trendelenburg position - a position where the head of the patient is
placed in a position lower than her feet which is an indication that there is
a decrease of blood supply to the patient's brain. Immediately thereafter,
she went out of the operating room, and she told Rogelio E. Ramos "that
something wrong was happening". Dr. Calderon was then able to intubate
the patient.
Meanwhile, Rogelio, who was outside the operating room, saw a
respiratory machine being rushed towards the door of the operating room.
He also saw several doctors rushing towards the operating room. When
informed by Herminda Cruz that something wrong was happening, he told
her (Herminda) to be back with the patient inside the operating room.
Herminda immediately rushed back, and saw that the patient was
still in trendelenburg position. At almost 3:00 P.M. of that fateful day, she
saw the patient taken to the Intensive Care Unit (ICU). Doctors Gutierrez
and Hosaka were also asked by the hospital to explain what happened to
the patient. The doctors explained that the patient had bronchospasm.
Erlinda Ramos stayed at the ICU for a month. About four months
thereafter the patient was released from the hospital.
ISSUE:
1. Whether the respondent doctors are negligent.
2. Whether the respondent doctors and the hospital are solidarily
liable.
RULING:
Res ipsa loquitur is a Latin phrase which literally means "the thing
or the transaction speaks for itself." The phrase "res ipsa loquitur" is a
maxim for the rule that the fact of the occurrence of an injury, taken with
the surrounding circumstances, may permit an inference or raise a
presumption of negligence, or make out a plaintiff's prima facie case, and
present a question of fact for defendant to meet with an explanation
At the time of submission, Erlinda was neurologically sound and,
except for a few minor discomforts, was likewise physically fit in mind and
body. However, during the administration of anesthesia and prior to the
performance of cholecystectomy she suffered irreparable damage to her
brain. Thus, without undergoing surgery, she went out of the operating
room already decerebrate and totally incapacitated. Obviously, brain
damage, which Erlinda sustained, is an injury which does not normally
occur in the process of a gall bladder operation. In fact, this kind of
situation does not happen in the absence of negligence of someone in the
administration of anesthesia and in the use of endotracheal tube.
Normally, a person being put under anesthesia is not rendered
decerebrate as a consequence of administering such anesthesia if the
proper procedure was followed. Furthermore, the instruments used in the
administration of anesthesia, including the endotracheal tube, were all
under the exclusive control of private respondents, who are the
physicians-in-charge. Likewise, petitioner Erlinda could not have been
guilty of contributory negligence because she was under the influence of
anesthetics which rendered her unconscious.
With regard to Dra. Gutierrez, we find her negligent in the care of
Erlinda during the anesthesia phase. As borne by the records, respondent
Dra. Gutierrez failed to properly intubate the patient.
The Court finds that she omitted to exercise reasonable care in not
only intubating the patient, but also in not repeating the administration of
atropine without due regard to the fact that the patient was inside the
operating room for almost three (3) hours. For after she committed a
mistake in intubating the patient, the patient's nailbed became bluish and
the patient, thereafter, was placed in trendelenburg position, because of
the decrease of blood supply to the patient's brain. The evidence further
shows that the hapless patient suffered brain damage because of the
absence of oxygen in her (patient's) brain for approximately four to five
minutes which, in turn, caused the patient to become comatose.
On the part of Dr. Orlino Hosaka, this Court finds that he is liable for
the acts of Dr. Perfecta Gutierrez whom he had chosen to administer
anesthesia on the patient as part of his obligation to provide the patient a
`good anesthesiologist', and for arriving for the scheduled operation
almost three (3) hours late.
On the part of DLSMC (the hospital), this Court finds that it is liable
for the acts of negligence of the doctors in their `practice of medicine' in
the operating room. Moreover, the hospital is liable for failing through its
responsible officials, to cancel the scheduled operation after Dr. Hosaka
inexcusably failed to arrive on time.
In having held thus, this Court rejects the defense raised by
defendants that they have acted with due care and prudence in rendering
medical services to plaintiff-patient. For if the patient was properly
intubated as claimed by them, the patient would not have become
comatose. And, the fact that another anesthesiologist was called to try to
intubate the patient after her (the patient's) nailbed turned bluish, belie
their claim. Furthermore, the defendants should have rescheduled the
operation to a later date. This, they should have done, if defendants
acted with due care and prudence as the patient's case was an elective,
not an emergency case.
Wherefore judgment is rendered in favor of the plaintiffs and
against the defendants. Accordingly, the latter are ordered to pay, jointly
and severally.

Medical Malpractice/ Medical Negligence Cases
REYES VS. SISTERS OF MERCY HOSPITAL
GR No. 130547 October 3, 2000
FACTS:
Jorge Reyes was taken to the Mercy Community Clinic. He was
attended to by respondent Dr. Marlyn Rico, a resident physician and
admitting physician on duty, who gave Jorge a physical examination and
took his medical records. Typhoid fever was then prevalent in the locality.
Suspecting that Jorge could be suffering from this disease, Dr. Rico
ordered a Widal Test, a standard test for typhoid fever, to be performed
on Jorge. The results of the test from which Dr. Rico concluded that Jorge
was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr.
Rico indorsed Jorge to respondent Dr. Marivie Blanes.
Dr. Blanes also took the physical examination of Jorge. Antibiotics
being the accepted treatment for typhoid fever, she ordered that a
compatibility test with the antibiotic chloromycetin be done on Jorge. As
she did not observe any adverse reaction, she ordered the first 500 mg. of
said antibiotic. At around 1:00 in the morning, Dr. Blanes was called as
Jorge’s temperature rose to 41 degrees and then valium was
administered. However, the patient did not respond to the treatment and
slipped into cyanosis, a bluish or purplish discoloration of the skin or
mucous membrane due to deficient oxygenation of the blood. At around
2:00 a.m. Jorge died.
ISSUES:
Whether the death of Jorge Reyes was due to or caused by the
negligence, carelessness, imprudence, and lack of skill or foresight
on the part of the defendants.
RULING:
Petitioner’s action is for medical malpractice. It is a form of
negligence which consists in the failure of the physician or surgeon to
apply to his practice of medicine that degree of care and skill which is
ordinarily employed by the profession. Four elements involve in medical
negligence cases, namely: duty, breach, injury, and proximate causation.
In this case, there is no doubt that physician-patient relationship
existed between respondent doctors and Jorge Reyes. It is breach of this
duty which constitutes actionable malpractice. As to this aspect of
medical malpractice, the determination of reasonable level of care and
breach thereof, expert testimony is essential.
The petitioner presented Dr. Vacalares, Chief Pathologist of the
Northern Mindanao Training Hospital, Cagayan de Oro, who performed the
autopsy of Jorge. He testified that Jorge did not die of typhoid fever but of
shock undetermined, which could be due to allergic reaction or
chloromycetin overdose. The court was not persuaded. Although Dr.
Vacalares may have had extensive experience in performing autopsies,
he admitted that he had yet to do one on the body of a typhoid victim at
the time he conducted the post mortem of Jorge. It is also plain from his
testimony that he treated only about three cases of typhoid fever.
On the other hand, the two doctors presented by respondents
clearly were experts on the subject. They vouched for the correctness of
Dr. Rico’s diagnosis. Dr. Gotiong, a diplomate whose specialization is
infectious diseases and microbiology and an associate professor at the
Southern University College of Medicine and the Gullas College of
Medicine, testified that he has already treated over a thousand cases of
typhoid fever. According to him a case of typhoid fever is suspected using
the widal test, if the 1:320 results of the said test has been presented to
him. As to the treatment of the disease, he stated that chloromycetin was
the drug of choice. He also explained that despite the measures taken by
respondents and the intravenous administration of the two doses of
chloromycetin, complications of the disease could not be discounted.
Dr. Marilyn did not depart from the reasonable standard
recommended by the experts as she in fact observed the due care
required under the circumstances. Though the widal test is not conclusive,
it remains a standard diagnostic test for typhoid fever and, in the present
case, a greater accuracy through repeated testing was rendered
unobtainable by the early death of the patient. The results of the widal
test and the patient’s history of fever with chills for five days, taken with
the fact that typhoid fever was then prevalent, were sufficient to give
upon any doctor of reasonable skill the impression that the patient had
typhoid fever.
Medical Malpractice/ Medical Negligence Cases
NOGALES VS. CAPITOL MEDICAL CENTER
GR No. 45641 December 19, 2006
FACTS:
Pregnant with her fourth child, Corazon Nogales was under the
exclusive prenatal care of Dr. Estrada. While Corazon was on her lat
trimester of pregnancy, Dr. Estrada noted an increase in her blood
pressure and development of leg edema indicating preeclampsia, which is
dangerous complication of pregnancy. When Corazon started to
experience mild labor, he and her husband, prompted to see Dr. Estrada
at his home. After examining Corazon, he advised her to immediate
admission to the Capitol Medical Center. Upon admission at the CMC,
Rogelio Nogales executed and signed the Consent on Admission and
Agreement and Admission Agreement. Then Corazon was brought to the
labor room. Dr. Uy, a resident physician, conducted an internal
examination of Corazon and notified Dr. Estrada of her findings. Dr.
Estrada ordered for 10 mg. of valium to be administered immediately by
intramascular injection. Later he ordered that start of intravenous
administration of syntocinon admixed with dextrose, 5% in lactated
Ringers’ solution, at the rate of eight to ten micro-drops per minute.
Dr. Enriquez, an anesthesiologist, was notified of Corazon’s
admission. Subsequently he asked if Dr. Estrada needed his service but
the latter refused. Despite refusal he stayed to observe Corazon’s
condition.
Corazon’s water bag ruptured spontaneously and started to
experience convulsions. Dr. Estrada ordered the injectionof ten grams of
magnesium sulfate. However, Dr. Villaflor, who is assisting Dr. Estrada,
administered only 2.5 grams of magnesium sulfate. Dr. Estrada applied
low forceps to extract the baby. The baby came out in a weak and injured
condition and consequently had to be intubated and resuscitated.
Corazon began to manifest moderate vaginal bleeding which rapidly
became profuse. Dr. Estrada ordered blood typing and cross matching
with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology
Department of the CMC, was apprised of Corazon’s condition by
telephone. Upon being informed of Corazon’s profuse bleeding, Dr.
Espinola ordered immediate hysterectomy. Dr. Espinola, due to the
inclement weather, arrived about an hour late. he examined the patient
but despite his efforts Corazon died.
Petitioners filed a case against CMC personnel and physicians on
the ground that they were negligent in the treatment and management of
Corazon’s condition and charged CMC with negligence in the selection
and supervision of defendant physicians and hospital staff.
After more than 11 years the Trial Court rendered its judgment
finding Dr. Estrada solely liable for damages.
ISSUE:
Whether CMC is vicariously liable for the negligence of Dr. Estrada.
RULING:
In general, a hospital is not liable for the negligence of an
independent contractor-physician. However, the hospital may be held
liable if the physician is the “ostensible” agent of the hospital. This
exception is also known as the “doctrine of apparent authority”.
Under the doctrine of apparent authority a hospital can be held
vicariously liable for the negligent act of a physician providing care at eh
hospital, regardless of whether the physician is an independent
contractor, unless the patient knows, or should have known, that the
physician is an independent contractor.
The doctrine of apparent authority involves two factors to determine
the liability of an independent contractor-physician. First factor focuses on
the hospital’s manifestations and is sometimes described as an inquiry
whether the hospital acted in a manner which would lead a responsible
person to conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital. The second factor focuses on
the patient’s reliance. It is sometimes characterized as an inquiry on
whether the plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.
In this case, CMC impliedly held out Dr. Estrada as a member of its
medical staff. First, CMC granted staff privileges to Dr. Estrada when it
extended its medical staff and facilities. Upon request to admit Corazon,
through its personnel, readily accommodated the patient and updated Dr.
Estrada of the patient’s condition. Second, CMC made Rogelio sign a
consent forms printed in CMC letterhead. And third, Dr. Estrada’s referral
to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology
Department of CMC.
Wherefore the court finds respondent Capitol Medical Center
vicariously liable for the negligence of Dr. Oscar Estrada.
Medical Malpractice/ Medical Negligence Cases
PROFESSIONAL SERVICES VS. AGANA
GR No. 126467 February 11, 2008
FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical
City General Hospital because of difficulty of bowel movement and bloody
anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of
the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical
City, performed a surgery upon her. During the surgery, he found that the
malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividad’s husband to permit Dr. Fuentes to perform hysterectomy
upon Natividad. Dr. Fuentes performed and completed the hysterectomy.
Afterwards, Dr. Ampil took over, completed the operation and closed the
incision. The operation, however, appeared to be flawed as the attending
nurses entered in the corresponding Record of Operation that there were
2 lacking sponge and announced that it was searched by the surgeon but
to no avail.
After a couple of days, Natividad complained excruciating pain in
her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told
her that the pain was the natural consequence of the surgical operation
performed upon her. Dr. Ampil recommended that she consult an
oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment.
After 4 months she was told that she was free of cancer. They then flew
back to the Philippines. Two weeks thereafter , Natividad’s daughter
found a piece of gauze protruding from her vagina. Dr. Ampil saw
immediately informed. He proceeded to Natividad’s house where he
extracted by hand a piece of gauze. Natividad sought the treatment of
Polymedic General Hospital thereat Dr. Gutierrez detected a foreign
object in her vagina - a foul-smelling gauze which infected her vaginal
vault. A recto-vaginal fistula had formed in her reproductive organ which
forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City),
Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly
and severally liable. The CA affirmed said decision with modification that
Dr. Fuentes was dismissed.
ISSUE:
Whether the Court of Appeals erred in absolving Dr. Fuentes of any
liability.
RULING:
It was duly established that Dr. Ampil was the lead surgeon during
the operation of Natividad. He requested the assistance of Dr. Fuentes
only to perform hysterectomy when he (Dr. Ampil) found that the
malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes
performed the surgery and thereafter reported and showed his work to
Dr. Ampil. The latter examined it and finding everything to be in order,
allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed
operating on Natividad. He was about to finish the procedure when the
attending nurses informed him that two pieces of gauze were missing. A
"diligent search" was conducted, but the misplaced gauzes were not
found. Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and had, in
fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the
person in complete charge of the surgery room and all personnel
connected with the operation. Their duty is to obey his orders. As stated
before, Dr. Ampil was the lead surgeon. In other words, he was the
"Captain of the Ship." That he discharged such role is evident from his
following conduct. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
Here, the negligence was proven to have been committed by Dr.
Ampil and not by Dr. Fuentes.
Medical Malpractice/ Medical Negligence Cases
PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS
GR No. 126297 February 11, 2008
FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical
City General Hospital because of difficulty of bowel movement and bloody
anal discharge. Dr. Ampil diagnosed her to be suffering from “cancer of
the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical
City, performed a surgery upon her. During the surgery, he found that the
malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividad’s husband topermit Dr. Fuentes to perform hysterectomy
upon Natividad. Dr. Fuentes performed and completed the hysterectomy.
Afterwards, Dr. Ampil took over, completed the operation and closed the
incision. The operation, however, appeared to be flawed as the attending
nurses entered in the corresponding Record of Operation that there were
2 lacking sponge and announced that it was searched by the surgeon but
to no avail.
After a couple of days, Natividad complained excruciating pain in
her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told
her that the pain was the natural consequence of the surgical operation
performed upon her. Dr. Ampil recommended that she consult an
oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment.
After 4 months she was told that she was free of cancer. They then flew
back to the Philippines. Two weeks thereafter , Natividad’s daughter
found a piece of gauze protruding from her vagina. Dr. Ampil saw
immediately informed. He proceeded to Natividad’s house where he
extracted by hand a piece of gauze. Natividad sought the treatment of
Polymedic General Hospital thereat Dr. Gutierrez detected a foreign
object in her vagina - a foul-smelling gauze which infected her vaginal
vault. A recto-vaginal fistula had formed in her reproductive organ which
forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City),
Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly
and severally liable. The CA affirmed said decision with modification that
Dr. Fuentes was dismissed.
ISSUE:
Whether there is an employee-employer relationship in order to
hold PSI solidary liable.
RULING:
PSI contends that the proximate cause of Natividad’s injury was Dr.
Ampil’s negligence and that there is no employee-employer relationship
between them because Dr. Ampil is only a consultant of the said hospital.
The court held that there is an employee-employer relationship
between hospital and their attending and visiting physician. After a
physician is accepted, either as a visiting or attending consultant, he is
normally required to attend clinicopathological conferences, conduct
bedside rounds for clerks, interns and residents, moderate grand rounds
and patient audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital, and/or privilege
of admitting patients into the hospital. The physician’s performance is
generally evaluated and if said physician falls short of the minimum
standards he is normally terminated. In the said case, the hospital has a
control over its attending or visiting physician.
In general, a hospital is not liable for the negligence of an
independent contractor-physician. However, the hospital may be held
liable if the physician is the “ostensible” agent of the hospital. This
exception is also known as the “doctrine of apparent authority”.
The doctrine of apparent authority involves two factors to determine
the liability of an independent contractor-physician. First factor focuses on
the hospital’s manifestations and is sometimes described as an inquiry
whether the hospital acted in a manner which would lead a responsible
person to conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital. The second factor focuses on
the patient’s reliance. It is sometimes characterized as an inquiry on
whether the plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.
In this case, it has been proven that the two factors were present.
The hospital indeed made it appear that Dr. Ampil was its employee when
they advertise and displayed his name in the directory at the lobby of the
said hospital and that Natividad relied on such knowledge that Dr. Ampil
was indeed an employee of the hospital.
Wherefore PSI and Dr. Ampil are liable jointly and severally.
Malicious Prosecution
1. DIAZ VS. DAVAO LIGHT, 4 APRIL 2007
2. YASONNA VS. DE RAMOS, 440 S 154
DIAZ VS. DAVAO LIGHT
GR No. 160959 April 2, 2007
FACTS:
Plaintiff asks for damages for defendant’s alleged malicious
prosecution of a criminal case of theft of electricity against him, for
plaintiff’s filing of a charge of violation of P.D. 401 as amended after
dismissal of the theft case, the filing of a damage suit against him before
the RTC of Cebu City which was dismissed and the filing of another
damage suit before the same Cebu RTC which is still pending. Damages
are also being sought for defendant’s removal of Electric Meter, but this is
a subject matter of a case pending before Branch 13 of this Court and
therefore said court retains jurisdiction over the said cause of action.
The RTC held that while the City Prosecutor, and later the Secretary
of Justice, concluded that there was no probable cause for the crime of
theft, this did not change the fact that plaintiff made an illegal connection
for electricity. A person’s right to litigate should not be penalized by
holding him liable for damages.
On October 1, 2003, the CA affirmed the decision of the RTC. It
concluded that the evidence on hand showed good faith on the part of
DLPC in filing the subject complaints. It pointed out that Diaz had been
using the electrical services of DLPC without its consent. As to the effect
of the compromise agreement, the CA ruled that it did not bar the filing of
the criminal action. Thus, under the principle of damnum absque injuria,
the legitimate exercise of a person’s right, even if it causes loss to
another, does not automatically result in an actionable injury.
Diaz, now petitioner, comes before this Court in this petition for
review on certiorari
ISSUES:
1. Whether or not the compromise agreement entered into between
DLPC and Diaz barred the former from instituting further actions; and
2. Whether or not DLPC acted in bad faith in instituting the criminal
cases against Diaz
RULING:
The petition is without merit. Petitioner insists that the compromise
agreement as well as the decision of the CA already settled the
controversies between them; yet, DLPC instituted the theft case against
Diaz, and worse, instituted another action for violation of P.D. 401, as
amended by B.P. Blg. 876. Thus, the only conclusion that can be inferred
from the acts of DLPC is that they were designed to harass, embarrass,
prejudice, and ruin him. He further avers that the compromise agreement
completely erased litigious matters that could necessarily arise Moreover,
Diaz asserts that the evidence he presented is sufficient to prove the
damages he suffered by reason of the malicious institution of the criminal
cases.
The court does not agree. Article 2028 of the Civil Code defines a
compromise as a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced.
The purpose of compromise is to settle the claims of the parties and bar
all future disputes and controversies. However, criminal liability is not
affected by compromise for it is a public offense which must be
prosecuted and punished by the Government on its own motion, though
complete reparation should have been made of the damages suffered by
the offended party. A criminal case is committed against the People, and
the offended party may not waive or extinguish the criminal liability that
the law imposes for the commission of the offense. Moreover, a
compromise is not one of the grounds prescribed by the Revised Penal
Code for the extinction of criminal liability.
On the other hand, malicious prosecution has been defined as an
action for damages brought by or against whom a criminal prosecution,
civil suit or other legal proceeding has been instituted maliciously and
without probable cause, after the termination of such prosecution, suit, or
other proceeding in favor of the defendant therein. It is an established
rule that in order for malicious prosecution to prosper, the following
requisites must be proven by petitioner: (1) the fact of prosecution and
the further fact that the defendant (respondent) was himself the
prosecutor, and that the action finally terminated with an acquittal; (2)
that in bringing the action, the prosecutor acted without probable cause;
and (3) that the prosecutor was actuated or impelled by legal malice, that
is, by improper or sinister motive. The foregoing are necessary to
preserve a person’s right to litigate which may be emasculated by the
undue filing of malicious prosecution cases.
From the foregoing requirements, it can be inferred that malice and
want of probable cause must both be clearly established to justify an
award of damages based on malicious prosecution. DLPC was not
motivated by malicious intent or by a sinister design to unduly harass
petitioner, but only by a well-founded anxiety to protect its rights.
Respondent DLPC cannot therefore be faulted in availing of the remedies
provided for by law.
Malicious Prosecution
YASOÑA VS. DE RAMOS
GR No. 156339 October 6, 2004
FACTS:
Aurea Yasoña and her son, Saturnino, went to the house of Jovencio
de Ramos to ask for financial assistance in paying their loans to Philippine
National Bank (PNB), otherwise their residential house and lot would be
foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the
request. They agreed that, upon payment by Jovencio of the loan to PNB,
half of Yasoñas’ subject property would be sold to him. Jovencio paid
Aurea’s bank loan. As agreed upon, Aurea executed a deed of absolute
sale in favor of Jovencio over half of the lot consisting of 123 square
meters. Thereafter, the lot was surveyed and separate titles were issued
by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea and
Jovencio
Twenty-two years later, in August 1993, Aurea filed an estafa
complaint against brothers Jovencio and Rodencio de Ramos on the
ground that she was deceived by them when she asked for their
assistance in 1971 concerning her mortgaged property. In her complaint,
Aurea alleged that Rodencio asked her to sign a blank paper on the
pretext that it would be used in the redemption of the mortgaged
property
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B.
Zayenis dismissed the criminal complaint for estafa for lack of evidence.
On account of this dismissal, Jovencio and Rodencio filed a complaint for
damages on the ground of malicious prosecution. They alleged that the
filing of the estafa complaint against them was done with malice and it
caused irreparable injury to their reputation, as Aurea knew fully well that
she had already sold half of the property to Jovencio.
ISSUE:
Whether or not the filing of the criminal complaint for estafa by
petitioners against respondents constituted malicious prosecution?
RULING:
To constitute “malicious prosecution,” there must be proof that the
prosecution was prompted by a sinister design to vex or humiliate a
person, and that it was initiated deliberately by the defendant knowing
that his charges were false and groundless. Concededly, the mere act of
submitting a case to the authorities for prosecution does not make one
liable for malicious prosecution.
In this case, the records show that the sale of the property was
evidenced by a deed of sale duly notarized and registered with the local
Register of Deeds. After the execution of the deed of sale, the property
was surveyed and divided into two portions. Separate titles were then
issued in the names of Yasoña and Jovencio. Since 1973, Jovencio had
been paying the realty taxes of the portion registered in his name. In
1974, Aurea even requested Jovencio to use his portion as bond for the
temporary release of her son who was charged with malicious mischief.
Also, when Aurea borrowed money from the Rural Bank of Lumban in
1973 and the PNB in 1979, only her portion was mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged
Jovencio’s ownership of half of the property. Furthermore, it was only in
1993 when petitioners decided to file the estafa complaint against
respondents. If petitioners had honestly believed that they still owned the
entire property, it would not have taken them 22 years to question
Jovencio’s ownership of half of the property.
Malicious prosecution, both in criminal and civil cases, requires the
elements of (1) malice and (2) absence of probable cause.These two
elements are present in the present controversy. The complaint for estafa
was dismissed outright as the prosecutor did not find any probable cause
against respondents. A suit for malicious prosecution will prosper where
legal prosecution is carried out without probable cause.
ULPA CRIMINAL
PEOPLE VS. DE LOS SANTOS
G.R. No. 131588
March 27, 2001
355 SCRA 415
FACTS:
As part of the Special Counter Insurgency Operation Unit Training held at
Camp Damilag, Manolo Fortich, Bukidnon, several members of the Philippine
National Police were undergoing an “endurance run” on October 5, 1995 which
started at 2:20 am. The PNP trainees were divided into three columns and were
wearing black t-shirts, bl;ack short pants, and green and black combat shoes.
There were two rear guards assigned to each rear column. Their duty was to jog
backwards facing the oncoming vehicles and give hand signals for other
vehicles. From Alae to Maitum Highway, Puerto, Cagayan de Oro City, about 20
vehicles passed them, all of which slowed down and took the left portion of the
road when signaled to do so.
While they were negotiating Maitum Highway, they saw an Isuzu Elf truck
coming at high speed towards them. The vehicle lights were in the high beam.
At a distance of 100 meters, the rear security guards started waving their hands
for the vehicle to take the other side of the road, but the vehicle just kept its
speed, apparently ignoring their signals and coming closer and closer to them.
The rear guards told their co-trainees to “retract”. The guards jumped in
different directions. They saw their co-trainees being hit by the said vehicle,
falling like dominoes one after the other. Some were thrown, and others were
overrun by the vehicle. The driver, Glenn de los Santos did not reduce his speed
even after hitting the first and second columns.
After arraignment and trial, the court convicted accused-appellant guilty
of complex crime of multiple murder, multiple frustrated murder and multiple
attempted murder, with the use of motor vehicle as the qualifying circumstance.
ISSUE:
Whether or not the incident was a product of a malicious intent on the
part of accused-appellant
RULING:
 The Supreme Court held that the incident, tragic though it was in the light
of the number of persons killed and seriously injured, was an accident than of a
malicious intent on Glenn’s part. Glenn showed an inexcusable lack of
precaution. Since the place of the incident was foggy and dark, he should have
observed due care in accordance with the conduct of a reasonably prudent man,
such as by slackening his speed, applying his brakes, or turning to the left side
even if it would mean entering the opposite lane.
Wherefore, the Supreme Court convicted Glenn de Los Santos of one
complex crime of reckless imprudence resulting in multiple homicide with
serious physical injuries and less serious physical injuries and sentenced him to
suffer an indeterminate penalty of four years of prision correccional, as
minimum, to 10 years of prision mayor, as maximum; and 10 counts of reckless
imprudence resulting in slight physical injuries and sentenced for each count, to
the penalty of 2 months of arresto mayor. The awards of death indemnity for
each group of heirs of trainees are reduced to P50,000, and the awards in favor
of other victims are deleted.
CONTRAVENTION OF THE TERMS
VICTORINO D. MAGAT, petitioner,
VS. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents
G.R. No. L-37120
April 20, 1983
FACTS:
Sometime in September 1972, the defendant entered into a contract with
the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of
taxicabs, each taxicab to be provided with the necessary taximeter and a radio
transceiver for receiving and sending of messages from mobile taxicab to fixed
base stations within the Naval Base at Subic Bay, Philippines. Since herein
petitioner is known of his good reputation as a businessman, the defendant,
through his agent, entered into a contract with the former. In said contract, the
defendant must open a letter of credit in favor of the petitioner, since the latter
would also engage a foreign company for such taximeter.
Defendant and his agent have repeatedly assured plaintiff herein of the
defendant's financial capabilities to pay for the goods ordered by him and in fact
he accomplished the necessary application for a letter of credit with his banker,
but he subsequently instructed his banker not to give due course to his
application for a letter of credit and that for reasons only known to the
defendant, he fails and refuses to open the necessary letter of credit to cover
payment of the goods ordered by him. After some time, herein defendant failed
to comply with his obligation, and several demands were made by petitioner so
as to reinforce such contract, and even communicated if defendant would like to
rescind contract, but said defendant did not reply to such demands. The
defendant even used as a defense that the petitioner was delayed in delivering
the taximeters when the former was apprehended by U.S. Navy Exchange for not
complying with their agreement. As a consequence, petitioner filed a case
against the defendant but respondent judge dismissed such petition in a minute
order for lack of cause of action.
ISSUE:
Whether or not petitioner has a cause of action against the defendant for
the latter’s contravention of the terms of contract.
RULING:
Article 1170 of the Civil Code provides:
“Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof are liable
for damages.”
The phrase "in any manner contravene the tenor" of the obligation
includes any ilicit act or omission which impairs the strict and faithful fulfillment
of the obligation and every kind of defective performance. The damages which
the obligor is liable for includes not only the value of the loss suffered by the
obligee [daño emergente] but also the profits which the latter failed to obtain
[lucro cesante]. If the obligor acted in good faith, he shall be liable for those
damages that are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted; and in case of fraud, bad
faith, malice or wanton attitude, he shall be liable for all damages which may be
reasonably attributed to the non-performance of the obligation.
The same is true with respect to moral and exemplary damages. The
applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil
Code, allow the award of such damages in breaches of contract where the
defendant acted in bad faith. To our mind, the complaint sufficiently alleges bad
faith on the part of the defendant. In fine, the Supreme Court held that on the
basis of the facts alleged in the complaint, the court could render a valid
judgment in accordance with the prayer thereof.
SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC)
1. VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73
2. CO VS. CA, AUG. 17, 1999
VDA DE MISTICA VS. NAGUAIT
418 SCRA 73
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of
the parcel of land which was leased to respondent Bernardinio Naguiat.
Mistica entered into a contract to sell with respondent over a portion of
the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document. Pursuant to said agreement,
respondent gave a down payment of P2,000. He made another partial payment
of P1,000 on February 8, 1980. He failed to make any payments thereafter.
Mistica died sometime in October 1986.
On December 4,1991, petitioner filed a complaint for rescission alleging,
among others that the failure and refusal of respondent to pay the balance of
the purchase price constitute a violation of the contract which established her to
rescind the same. That respondent have been in possession of the subject
matter, should be ordered to vacate and surrender possession of the same.
ISSUE:
Whether or not the Court of Appeals erred in the application of Article
1191 of the Civil Code, as it ruled that there is no breach of obligation in spite of
the lapse of their stipulated period and the failure of the respondent to pay.
RULING:
NO. The failure of respondent to pay the value of the purchase price
within ten (10) years from execution of the deed did not amount to a substantial
breach.
In the agreement, it was stipulated that payment could be made even
after ten (10) years from execution provided that the vendee paid 12% interest.
The stipulation of the parties constitute the law between them, thus court have
no alternative but to enforce them as agreed upon and written. Thus, the
Supreme Court ruled that the Court of Appeals did not commit an error in
deciding this issue.
SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC)
SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners,
VS. COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented
by her Attorney-in-fact, TRINIDAD KALAGAYAN, respondents
Aug 17, 1999
G.R. No. 112330
FACTS:
On October 9, 1984, the spouses Co entered into a verbal contract with
Custodio for her purchase of the their house and lot worth $100,000.00. One
week thereafter, and shortly before she left for the United States she paid
amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same
may be reserved for her purchase, said earnest money to be deducted from the
total purchase price. The purchase price of $100,000.00 is payable in two
payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on
January 5, 1985. On January 25, 1985, although the period of payment had
already expired, she paid to the defendant Melody Co in the United States, the
sum of $30,000.00, as partial payment of the purchase price. Spouses Co’s
counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15,
1985, demanding that she pay the balance of $70,000.00 and not receiving any
response thereto, said lawyer wrote another letter to plaintiff dated August 8,
1986, informing her that she has lost her ‘option to purchase’ the property
subject of this case and offered to sell her another property.
Atty. Estrella O. Laysa, counsel of Custodio, wrote a letter to Atty.
Leopoldo Cotaco informing him that Custodio ‘is now ready to pay the remaining
balance to complete the sum of $100,000.00, the agreed amount as selling
price’ and on October 24, 1986, plaintiff filed the instant complaint.”
The trial court ruled in favor of Custodio and ordered the spouses Co to
refund the amount of $30,000.00. Not satisfied with the decision, the spouses
Co appealed to the Court of Appeals, which affirmed the decision of the RTC.
Hence, this appeal.
ISSUE:
Whether or not the Court of Appeals erred in ordering the Cos to return
the $30,000.00 paid by Custodio pursuant to the “option” granted to her.
RULING:
An option is a contract granting a privilege to buy or sell within an agreed
time and at a determined price. It is a separate and distinct contract from that
which the parties may enter into upon the consummation of the option. It must
be supported by consideration. However, the March 15, 1985 letter sent by the
COS through their lawyer to Custodio reveals that the parties entered into a
perfected contract of sale and not an option contract.
A contract of sale is a consensual contract and is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the contract
and upon the price. From that moment the parties may reciprocally demand
performance subject to the provisions of the law governing the form of
contracts.
The elements of a valid contract of sale under Article 1458 of the Civil
Code are (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent. As evidenced by the March 15,
1985 letter, all three elements of a contract of sale are present in the transaction
between the petitioners and respondent. Custodio’s offer to purchase the Beata
property, subject of the sale at a price of $100,000.00 was accepted by the Cos.
Even the manner of payment of the price was set forth in the letter. Earnest
money in the amounts of US$1,000.00 and P40,000.00 was already received by
the Cos. Under Article 1482 of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase price and proof of the perfection
of the sale.
Despite the fact that Custodio’s failure to pay the amounts of
US$40,000.00 and US$60,000.00 on or before December 4, 1984 and January 5,
1985 respectively was a breach of her obligation under Article 1191 of the Civil
Code, the Cos did not sue for either specific performance or rescission of the
contract. The Cos were of the mistaken belief that Custodio had lost her
“option” over the Beata property when she failed to pay the remaining balance
of $70,000.00 pursuant to their August 8, 1986 letter. In the absence of an
express stipulation authorizing the sellers to extrajudicially rescind the contract
of sale, the Cos cannot unilaterally and extrajudicially rescind the contract of
sale.
Accordingly, Custodio acted well within her rights when she attempted to
pay the remaining balance of $70,000.00 to complete the sum owed of
$100,000.00 as the contract was still subsisting at that time. When the Cos
refused to accept said payment and to deliver the Beata property, Custodio
immediately sued for the rescission of the contract of sale and prayed for the
return of the $30,000.00 she had initially paid.
Under Article 1385 of the Civil Code, rescission creates the obligation to
return the things, which were the object of the contract, but such rescission can
only be carried out when the one who demands rescission can return whatever
he may be obliged to restore. This principle has been applied to rescission of
reciprocal obligations under Article 1191 of the Civil Code. The Court of Appeals
therefore did not err in ordering the Cos to return the amount of $30,000.00 to
Custodio after ordering the rescission of the contract of sale over the property.
Since it has been shown that the appellee who was not in default, was
willing to perform part of the contract while the appellants were not, rescission
of the contract is in order. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him, (Article 1191, same Code). Rescission creates the
obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest x x x x (Article 1385, same Code).
In the case at bar, the property involved has not been delivered to the
appellee. She has therefore nothing to return to the appellants. The price
received by the appellants has to be returned to the appellee as aptly ruled by
the lower court, for such is a consequence of rescission, which is to restore the
parties in their former situations.
Petition denied. Decision affirmed.
RIGHT TO RESOLVE/RESCIND: REQUISITES
1. UFC VS. CA, 33 S 1
 2. UP VS. DELOS ANGELES, 35 S 102 RULING:
3. FRANCISCO VS. DEAC CONST. INC., 543 S 644
4. CANNU VS. GALANG, 459 S 80 The Court concluded that what was actually ceded and transferred was
5. VILLANUEVA VS. ESTATE OF GONZAGA, 498 S 285 only the use of the Mafran sauce formula. The fact that the trademark
6. PAGUYO VS. ASTORGA, 470 S 33
"Mafran" was duly registered in the name of the petitioner pursuant to the
7. CASINO VS. CA, 470 S 57
8. CARRASCOSO VS. CA, 477 S 666
Bill of Assignment, standing by itself alone, to borrow the petitioner's
9. GOLDENROD VS. CA, 299 S 141 language, is not sufficient proof that the respondent Francisco was
supposedly obligated to transfer and cede to the petitioner the formula
for Mafran sauce and not merely its use. For the said respondent allowed
the petitioner to register the trademark for purposes merely of the
UNIVERSAL FOOD CORPORATION VS. CA "marketing of said project."
L-29155 February 22, 1971

FACTS:

The petitioner contends that (a) under the terms of the Bill of
Assignment, exh. A, the respondent Magdalo V. Francisco ceded and
transferred to the petitioner not only the right to the use of the formula
for Mafran sauce but also the formula itself, because this, allegedly, was
the intention of the parties; (b) that on the basis of the entire evidence on
record and as found by the trial court, the petitioner did not dismiss the
respondent Francisco because he was, and still is, a member of the board RIGHT TO RESOLVE/RESCIND: REQUISITES
of directors, a stockholder, and an officer of the petitioner corporation,
and that as such, had actual knowledge of the resumption of production
by the petitioner, but that despite such knowledge, he refused to report
back for work notwithstanding the petitioner's call for him to do so; (c) UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES
that the private respondents are not entitled to rescind the Bill of L-28602 September 29, 1970
Assignment; and (d) that the evidence on record shows that the
respondent Francisco was the one not ready, willing and able to comply FACTS:
with his obligations under the Bill of Assignment, in the sense that he not
only irregularly reported for work but also failed to assign, transfer and UP and ALUMCO entered into a logging agreement under which the
convey to the petitioner of the said deed of conveyance. latter was granted exclusive authority, for a period starting from the date
of the agreement to 31 December 1965, extendible for a further period of
ISSUE: five (5) years by mutual agreement, to cut, collect and remove timber
from the Land Grant, in consideration of payment to UP of royalties, forest
Whether respondent Francisco ceded to the petitioner merely the fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8
use of the formula for Mafran sauce and not the formula itself. December 1964, it had incurred an unpaid account of P219,362.94, which,
despite repeated demands, it had failed to pay; that after it had received
notice that UP would rescind or terminate the logging agreement,
ALUMCO executed an instrument, entitled "Acknowledgment of Debt and
Proposed Manner of Payments," dated 9 December 1964, which was
approved by the president of UP. ALUMCO continued its logging
operations, but again incurred an unpaid account, for the period from 9
December 1964 to 15 July 1965, in the amount of P61,133.74, in addition
to the indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO
that it had, as of that date, considered as rescinded and of no further
legal effect the logging agreement that they had entered in 1960.
That before the issuance of the aforesaid preliminary injunction UP
had taken steps to have another concessionaire take over the logging
operation, and the concession was awarded to Sta. Clara Lumber
Company, Inc.
ISSUE:
Whether petitioner U.P. can treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial
pronouncement to that effect.
RULING:
Respondent ALUMCO contended, and the lower court, in issuing the
injunction order of 25 February 1966. apparently sustained it (although
the order expresses no specific findings in this regard), that it is only after
a final court decree declaring the contract rescinded for violation of its
terms that U.P. could disregard ALUMCO's rights under the contract and
treat the agreement as breached and of no force or effect.
UP and ALUMCO had expressly stipulated in the "Acknowledgment
of Debt and Proposed Manner of Payments" that, upon default by the
debtor ALUMCO, the creditor (UP) has "the right and the power to
consider the Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." "There is nothing in the law that
prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without
court intervention. In other words, it is not always necessary for the
injured party to resort to court for rescission of the contract."
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without previous
court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally
settle whether the action taken was or was not correct in law. But the law
definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by
the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages.
RIGHT TO RESOLVE/RESCIND: REQUISITES
FRANCISCO VS. DEAC CONSTRUCTION, INC.
GR No. 171312 February 4, 2008
FACTS:
Spouses Francisco obtained the services of DEAC Construction, Inc.
to construct a 3-storey residential building with mezzanine and roof deck
on their lot for a contract price of 3.5M. as agreed upon, a downpayment
of 2M should be paid upon signing of the construct of construction, and
the remaining balance of 1.5M was to be paid in two equal installments.
To undertake the said project, DEAC engaged the services of a sub-
contractor, Vigor Construction and Development Corporation, but
allegedly without the spouses’ knowledge and consent.
Even prior to the execution of the contract, spouses Francisco had
paid the downpayment. However, the said construction commenced
although DEAC had not yet obtained the necessary building permit for the
proposed construction and that the contractor deviated from the
approved plans.
 Spouses Francisco demanded DEAC to comply with the approved
plan, otherwise, they would be compelled to invoke legal remedies. Work
stoppage was issued against Lino Francisco pursuant to the previous
Notice of Violations. The plaintiffs then file civil case for Rescission of
Contract and Damages against DEAC.
ISSUE:
Whether or not spouses Francisco may rescind the contract.
RULING:
Article 1191 of the Civil Code provides that the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The rescission referred to in
this article, more appropriately referred to a resolution, is not predicated
on injury to economic interests on the part of the party plaintiff, but of
breach of faith by the defendant which is violative of the reciprocity
between the parties.
Given the fact that the construction in this case is already 75%
complete, that trial court was correct in ordering partial rescission of the
portion of the construction. Equitable considerations justify rescission of
the portion of the obligation which has not been delivered
RIGHT TO RESOLVE/RESCIND: REQUISITES
SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND
FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE
CORPORATION
G.R. No. 139523 2005 May 26
FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan
from Fortune Savings & Loan Association for P173,800.00 to purchase a
house and lot located at Pulang Lupa, Las Piñas, in the names of
respondents-spouses. To secure payment, a real estate mortgage was
constituted on the said house and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan Association for
P173,800.00. Petitioner Leticia Cannu agreed to buy the property for
P120,000.00 and to assume the balance of the mortgage obligations with
the NHMFC and with CERF Realty (the Developer of the property).
A Deed of Sale with Assumption of Mortgage Obligation dated 20
August 1990 was made and entered into by and between spouses
Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot and petitioners immediately took
possession and occupied the house and lot. However, despite requests
from Adelina R. Timbang and Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the property in question,
petitioners refused to do so. Because the Cannus failed to fully comply
with their obligations, respondent Fernandina Galang, on 21 May 1993,
paid P233,957.64 as full payment of her remaining mortgage loan with
NHMFC.
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang. Out of the
P250,000.00 purchase price which was supposed to be paid on the day of
the execution of contract in July, 1990 plaintiffs-appellants have paid, in
the span of eight (8) years, from 1990 to present, the amount of only
P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8) years have already
lapsed and plaintiffs-appellants have not yet complied with their
obligation.
ISSUE:
Whether or not the action for rescission was subsidiary, and that
there was a substantial breach of the obligation.
RULING:
 Rescission or, more accurately, resolution, of a party to an
obligation under Article 1191 is predicated on a breach of faith by the
other party that violates the reciprocity between them.
Art. 1191 states that the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible. The court shall
decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
Rescission will not be permitted for a slight or casual breach of the
contract. Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in
making the agreement. The question of whether a breach of contract is
substantial depends upon the attending circumstances and not merely on
the percentage of the amount not paid.
Thus, the petitioners’ failure to pay the remaining balance of
P45,000.00 is substantial. Even assuming arguendo that only said
amount was left out of the supposed consideration of P250,000.00, or
eighteen percent thereof, this percentage is still substantial. Their failure
to fulfill their obligation gave the respondents-spouses Galang the right to
rescission.
Also, there was no waiver on the part of petitioners to demand the
rescission of the Deed of Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their attorney-in-fact, payments
in installments does not constitute waiver on their part to exercise their
right to rescind the Deed of Sale with Assumption of Mortgage. Adelina
Timbang merely accepted the installment payments as an
accommodation to petitioners since they kept on promising they would
pay. However, after the lapse of considerable time (18 months from last
payment) and the purchase price was not yet fully paid, respondents-
spouses exercised their right of rescission when they paid the outstanding
balance of the mortgage loan with NHMFC. It was only after petitioners
stopped paying that respondents-spouses moved to exercise their right of
rescission.
The subsidiary character of the action for rescission applies to
contracts enumerated in Articles 1381 of the Civil Code. However, the
contract involved in the case is not one of those mentioned therein. The
provision that applies in the case at bar is Article 1191. Rescission under
Article 1191 is a principal action, while rescission under Article 1383 is a
subsidiary action. The former is based on breach by the other party that
violates the reciprocity between the parties, while the latter is not.
In the case at bar, the reciprocity between the parties was violated
when petitioners failed to fully pay the balance of P45,000.00 to
respondents-spouses and their failure to update their amortizations with
the NHMFC. Therefore, the Spouses Gil and Fernandina Galang are
ordered to return the partial payments made by petitioners in the amount
of P165,312.47.
RIGHT TO RESOLVE/RESCIND: REQUISITES
GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus
ESTATE OF GERARDO GONZAGA/ MA. VILLA GONZAGA in her
capacity as Administratrix
G.R. No. 15731 2006 August 09
FACTS:
On January 15, 1990, petitioners Generoso Villanueva and Raul
Villanueva, Jr., business entrepreneurs engaged in the operation of
transloading stations and sugar trading, and respondent Estate of Gerardo
L. Gonzaga, represented by its Judicial Administratrix, respondent Ma.
Villa J. Gonzaga, executed a MOA.
As stipulated in the agreement, petitioners introduced improvements after
paying P291,600.00 constituting sixty (60%) percent of the total purchase price
of the lots. Petitioners then requested permission from respondent
Administratrix to use the premises for the next milling season. Respondent
refused on the ground that petitioners cannot use the premises until full
payment of the purchase price. Petitioners informed respondent that their
immediate use of the premises was absolutely necessary and that any delay will
cause them substantial damages. Respondent remained firm in her refusal, and
demanded that petitioners stop using the lots as a transloading station to
service the Victorias Milling Company unless they pay the full purchase price. In
a letter-reply dated April 5, 1991, petitioners assured respondent of their
readiness to pay the balance but reminded respondent of her obligation to
redeem the lots from mortgage with the Philippine National Bank (PNB).
Petitioners gave respondent ten (10) days within which to do so.
On April 10, 1991, respondent Administratrix wrote petitioners informing
them that the PNB had agreed to release the lots from mortgage. She demanded
payment of the balance of the purchase price. Enclosed with the demand letter
was the PNB’s letter of approval dated April 8, 1991. Petitioners demanded that
respondent show the clean titles to the lots first before they pay the balance of
the purchase price. Respondent merely reiterated the demand for payment.
Petitioners stood pat on their demand.
On May 28, 1991, respondent Administratrix executed a Deed of
Rescission rescinding the MOA. In their Letter dated June 13, 1991, petitioners,
through counsel, formally demanded the production of the titles to the lots
before they pay the balance of the purchase price. The demand was ignored.
Consequently, on June 19, 1991, petitioners filed a complaint against
respondents for breach of contract, specific performance and damages before
the RTC-Bacolod City. The trial court decided the case in favor of respondents.
Petitioners filed a petition for review before the Court of Appeals. The Court of
Appeals affirmed the trial court’s decision but deleted the award for moral
damages on the ground that petitioners were not guilty of bad faith in refusing
to pay the balance of the purchase price.
ISSUE:
Whether there is legal, or even a factual, ground for the rescission of the
Memorandum of Agreement.
RULING:
There is no legal basis for the rescission. The remedy of rescission under
Art. 1191 of the Civil Code is predicated on a breach of faith by the other party
that violates the reciprocity between them. The court have held in numerous
cases that the remedy does not apply to contracts to sell.
In Santos v. Court of Appeals, in a contract to sell, title remains with the
vendor and does not pass on to the vendee until the purchase price is paid in
full. Thus, in a contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is not a mere breach,
casual or serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the
vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the
vendor remains the owner for as long as the vendee has not complied fully with
the condition of paying the purchase price. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing the contract
and not rescinding it.
The MOA between petitioners and respondents is a conditional contract to
sell. Ownership over the lots is not to pass to the petitioners until full payment of
the purchase price. Petitioners’ obligation to pay, in turn, is conditioned upon the
release of the lots from mortgage with the PNB to be secured by the
respondents. Although there was no express provision regarding reserved
ownership until full payment of the purchase price, the intent of the parties in
this regard is evident from the provision that a deed of absolute sale shall be
executed only when the lots have been released from mortgage and the balance
paid by petitioners. Since ownership has not been transferred, no further legal
action need have been taken by the respondents, except an action to recover
possession in case petitioners refuse to voluntarily surrender the lots.
The records show that the lots were finally released from
mortgage in July 1991. Petitioners have always expressed readiness to
pay the balance of the purchase price once that is achieved. Hence,
petitioners should be allowed to pay the balance now, if they so desire,
since it is established that respondents’ demand for them to pay in April
1991 was premature. However, petitioners may not demand production
by the respondents of the titles to the lots as a condition for their
payment. It was not required under the MOA. The MOA merely states that
petitioners shall pay the balance “upon approval by the PNB of the
release of the lots” from mortgage. Petitioners may not add further
conditions now. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.
 Thus, the petiotion is GRANTED, an the assailed decision is
REVERSED and SET ASIDE.
RIGHT TO RESOLVE/RESCIND: REQUISITES
SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga
and St. Andrew Realty, Inc.
G.R. No. 130982 2005 September 16
FACTS:
Spouses Domingo Paguyo and Lourdes Paguyo, were the owners of
a small five-storey building known as the Paguyo Building located at
Makati Avenue, corner Valdez Street, Makati City. The lot on which the
Paguyo Building stands was the subject of Civil Case wherein the RTC of
Makati City, Branch 57, rendered a decision on 20 January 1988 approving
a Compromise Agreement made between the Armases and the
petitioners. The compromise agreement provided that in consideration of
the total sum of One Million Seven Hundred Thousand Pesos
(P1,700,000.00), the Armases committed to execute in favor of petitioners
a deed of sale and/or conveyance assigning and transferring unto said
petitioners all their rights and interests over the parcel of land containing
an area of 299 square meters. In order for the petitioners to complete
their title and ownership over the lot in question, there was an urgent
need to make complete payment to the Armases, which at that time
stood at P917,470.00 considering that petitioners had previously made
partial payments to the Armases.
On 29 November 1988, in order to raise the much needed amount,
petitioner Lourdes Paguyo entered into an agreement captioned as
Receipt of Earnest Money with respondent Pierre Astorga, for the sale of
the former’s property consisting of the lot which was to be purchased
from the Armases, together with the improvements thereon, particularly,
the existing building known as the Paguyo Building. However, contrary to
their express representation with respect to the subject lot, petitioners
failed to comply with their obligation to acquire the lot from the Armas
family despite the full financial support of respondents. Nevertheless, the
parties maintained their business relationship under the terms and
conditions of the above-mentioned Receipt of Earnest Money.
On 12 December 1988, petitioners asked for and were given by
respondents an additional P50,000.00 to meet the former’s urgent need
for money in connection with their construction business. Thus, on 5
January 1989, the parties executed the four documents in question
namely, the Deed of Absolute Sale of the Paguyo Building, the Mutual
Undertaking, the Deed of Real Estate Mortgage, and the Deed of
Assignment of Rights and Interest. Simultaneously with the signing of the
four documents, respondents paid petitioners the additional amount of
P500,000.00. Thereafter, the respondents renamed the Paguyo Building
into GINZA Bldg. and registered the same in the name of respondent St.
Andrew Realty, Inc. at the Makati Assessor’s Office after paying accrued
real estate taxes in the total amount of P169,174.95.
On 06 October 1989, petitioners filed a Complaint for the rescission
of the Receipt of Earnest Money with the undertaking to return the sum of
P763,890.50. They also sought the rescission of the Deed of Real Estate
Mortgage, the Mutual Undertaking, the Deed of Absolute Sale of Building,
and the Deed of Assignment of Rights and Interest.
After trial, the RTC ruled in favor of respondents. The petition for
preliminary injunction is denied, and the court ordered the plaintiff
spouses Domingo and Lourdes Paguyo to pay the defendants Pierre
Astorga and St. Andrew Realty, Inc. on their counterclaim. On appeal, the
Court of Appeals affirmed the decision of the trial court
ISSUE:
Did the Court of Appeals err in upholding the trial court’s decision
denying petitioners’ complaint for rescission?
RULING:
 No. The right to rescind a contract involving reciprocal obligations is
provided for in Article 1191 of the Civil Code. Article 1191 states: The
power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him. The
injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should
become impossible. The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355.
Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence. Art. 1470. Gross inadequacy of price does not affect a contract
of sale, except as may indicate a defect in the consent, or that the parties
really intended a donation or some other act or contract.
Petitioners failed to prove any of the instances mentioned in Articles
1355 and 1470 of the Civil Code, which would invalidate, or even affect,
the Deed of Sale of the Building and the related documents. Indeed,
there is no requirement that the price be equal to the exact value of the
subject matter of sale. In sum, petitioners pray for rescission of the Deed
of Sale of the building and offer to repay the purchase price after their
liquidity position would have improved and after respondents would have
refurbished the building, updated the real property taxes, and turned the
building into a profitable business venture. The court stated however
that, it will not allow itself to be an instrument to the dissolution of
contract validly entered into, for a party should not, after its opportunity
to enjoy the benefits of an agreement, be allowed to later disown the
arrangement when the terms thereof ultimately would prove to operate
against its hopeful expectations.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with
MODIFICATION.
RIGHT TO RESOLVE/RESCIND: REQUISITES
BIENVENIDO M. CASIÑO, JR. versus THE COURT OF APPEALS and
OCTAGON REALTY DEVELOPMENT CORPORATION
G.R. No. 133803 2005 September 16
FACTS:
On October 2, 1991, respondent Octagon Realty Development
Corporation, filed a complaint for rescission of contract with damages
against petitioner Bienvenido M. Casiño, Jr., owner and proprietor of the
Casiño Wood Parquet and Sanding Services, relative to the parties’
agreement for the supply and installation by petitioner of narra wood
parquet ordered by respondent.
In its complaint, respondent alleges that on December 22, 1989, it
entered into a contract with petitioner for the supply and installation by
the latter of narra wood parquet (kiln dried) to the Manila Luxury
Condominium Project, of which respondent is the developer, for a total
price of P1,158,487.00; that the contract stipulated that full delivery by
petitioner of labor and materials was in May 1990; that in accordance with
the terms of payment in the contract, respondent paid to petitioner the
amount P463,394.50, representing 40% of the total contract price;
that after delivering only 26,727.02 sq. ft. of wood parquet materials,
petitioner incurred in delay in the delivery of the remainder of 34,245.98
sq. ft.; that petitioner misrepresented to respondent that he is qualified
to do the work contracted when in truth and in fact he was not and,
furthermore, he lacked the necessary funds to execute the work
as he was totally dependent on the funds advanced to him by
respondent; that due to petitioner’s unlawful and malicious refusal to
comply with its obligations, respondent incurred actual damages in the
amount of P912,452.39 representing estimated loss on the new price,
unliquidated damages and cost of money; that in order to minimize
losses, the respondent contracted the services of Hilvano Quality Parquet
and Sanding Services to complete the petitioner’s unfinished work,
respondent thereby agreeing to pay the latter P1,198,609.30.
 However, petitioner avers that the manner of payment, period of
delivery and completion of work and/or full delivery of labor and materials
were modified; that the delivery and completion of the work could not be
done upon the request and/or representations by the respondent because
he failed to make available and/or to prepare the area in a suitable
manner for the work contracted, preventing the petitioner from complying
with the delivery schedule under the contract; that petitioner delivered
the required materials and performed the work despite these constraints;
that the respondent failed to pay the petitioner’s second and third billings
for deliveries and work performed in the sum of P105,425.68, which
amount the petitioner demanded from the respondent with the warning of
suspension of deliveries or rescission for contract for non-payment; that it
was the respondent who failed to prepare the area suitable for the
delivery and installation of the wood parquet, respondent who advised or
issued orders to the petitioner to suspend the delivery and installation of
the wood parquet, which created a storage problem for the petitioner.
ISSUE:
Whether or not the rescission of the contract by the private
respondent is valid.
RULING:
Under the contract, petitioner and respondent had respective
obligations, i.e., the former to supply and deliver the contracted volume of
narra wood parquet materials and install the same at respondent’s
condominium project by May, 1990, and the latter, to pay for said
materials in accordance with the terms of payment set out under the
parties’ agreement. But while respondent was able to fulfill that which is
incumbent upon it by making a downpayment representing 40% of the
agreed price upon the signing of the contract and even paid the first
billing of petitioner, the latter failed to comply with his contractual
commitment. For, after delivering only less than one-half of the
contracted materials, petitioner failed, by the end of the agreed period, to
deliver and install the remainder despite demands for him to do so. Thus,
it is petitioner who breached the contract.
The petitioner therefore, has failed to comply with his prestations
under his contract with respondent, the latter is vested by law with the
right to rescind the parties’ agreement, conformably with Article 1191 of
the Civil Code.
However, the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a
contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. Contrary to petitioner’s
asseveration, the breach he committed cannot, by any measure, be
considered as “slight or casual”. For petitioner’s failure to make complete
delivery and installation way beyond the time stipulated despite
respondent’s demands, is doubtless a substantial and fundamental
breach, more so when viewed in the light of the large amount of money
respondent had to pay another contractor to complete petitioner’s
unfinished work.
Likewise, contrary to petitioner’s claim, it cannot be said that he
had no inkling whatsoever of respondent’s recourse to rescission. True,
“the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other party must be made known to the
other”. In the case, however, petitioner cannot feign ignorance of
respondent’s intention to rescind, fully aware, as he was, of his non-
compliance with what was incumbent upon him, not to mention the
several letters respondent sent to him demanding compliance with his
obligation. It is thus proper that respondent acted well within its rights in
unilaterally terminating its contract with petitioner and in entering into a
new one with a third person in order to minimize its losses, without prior
need of resorting to judicial action.
WHEREFORE, the petition is DENIED and the assailed Decision
and Resolution of the appellate court AFFIRMED.
RIGHT TO RESOLVE/RESCIND: REQUISITES

FERNANDO CARRASCOSO JR. versus COURT OF APPEALS, LAURO
LEVISTE, as Director and Minority Stockholder and On Behaf of
Other Stockholders of El Dorado Plantation Inc. and EL DORADO
PLANTATION, INC., represented by one of its minority
stockholders, Lauro P. Leviste
G.R. No. 123672 & G. R. No. 164489 December 14, 2005
FACTS:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a
parcel of land with an area of approximately 1,825 hectares covered by
Transfer Certificate of Title (TCT) No. T-93 situated in Sablayan,
Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorado’s Board of
Directors, a Resolution was passed authorizing Feliciano Leviste, then
President of El Dorado, to negotiate the sale of the property and sign all
documents and contracts bearing thereon. El Dorado, through Feliciano
Leviste, sold the property to Fernando O. Carrascoso, Jr. Under the Deed
of Sale, Carrascoso was to pay the full amount of the purchase price on
March 23, 1975.
On March 24, 1972, Carrascoso and his wife Marlene executed a
Real Estate Mortgage] over the property in favor of Home Savings Bank
(HSB) to secure a loan in the amount of P1,000,000.00. Of this amount,
P290,000.00 was paid to Philippine National Bank to release the
mortgage priorly constituted on the property and P210,000.00 was paid
to El Dorado pursuant to the terms and conditions of the Deed of Sale.
On May 18, 1972, the real estate mortgage in favor of HSB was
amended to include an additional three year loan of P70,000.00 as
requested by the spouses Carrascoso. However, the 3-year period for
Carrascoso to fully pay for the property on March 23, 1975 passed
without him having complied therewith. In the meantime, on July 11,
1975, Carrascoso and the Philippine Long Distance Telephone Company
(PLDT), through its President Ramon Cojuangco, executed an Agreement
to Buy and Sell whereby the former agreed to sell 1,000 hectares of the
property to the latter at a consideration of P3,000.00 per hectare or a
total of P3,000,000.00.
Lauro Leviste, a stockholder and member of the Board of Directors
of El Dorado, called the attention of the Board to Carrascoso’s failure to
pay the balance of the purchase price of the property amounting to
P1,300,000.00. Lauro’s desire to rescind the sale was reiterated in two
other letters addressed to the Board. Jose P. Leviste, as President of El
Dorado, later sent a letter of February 21, 1977 to Carrascoso informing
him that in view of his failure to pay the balance of the purchase price of
the property, El Dorado was seeking the rescission of the March 23, 1972
Deed of Sale of Real Property. For the failure of Carrascoso to give his
reply, Lauro and El Dorado finally filed a complaint for rescission of the
Deed of Sale. They also sought the cancellation of TCT No. T-6055 in the
name of Carrascoso and the revival of TCT No. T-93 in the name of El
Dorado, free from any liens and encumbrances.
In the meantime, Carrascoso, as vendor and PLDT, as vendee
forged on April 6, 1977 a Deed of Absolute Sale over the 1,000 hectare
portion of the property subject of their July 11, 1975 Agreement to Buy
and Sell. In turn, PLDT, by Deed of Absolute Sale conveyed the aforesaid
1,000 hectare portion of the property to its subsidiary, PLDT Agricultural
Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount
of P2,620,000.00 of which was payable to PLDT upon signing of said
Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for
Intervention which was granted by the trial court. PLDT and PLDTAC
thereupon filed their Answer In Intervention with Compulsory
Counterclaim and Crossclaim against Carrascoso. The RTC dismissed the
complaint. Carrascoso, PLDT and PLDTAC filed their respective appeals to
the Court of Appeals. The appellate court reversed the decision of the
trial court. Thereafter, different motions and actions were done by both
parties.
ISSUE:
Whether or not the rescission is valid.

RULING:
The right of rescission of a party to an obligation under Article 1191
is predicated on a breach of faith by the other party who violates the
reciprocity between them.
A contract of sale is a reciprocal obligation. The seller obligates
itself to transfer the ownership of and deliver a determinate thing, and
the buyer obligates itself to pay therefor a price certain in money or its
equivalent. The non-payment of the price by the buyer is a resolutory
condition which extinguishes the transaction that for a time existed, and
discharges the obligations created thereunder. Such failure to pay the
price in the manner prescribed by the contract of sale entitles the unpaid
seller to sue for collection or to rescind the contract.
In the case at bar, El Dorado already performed its obligation
through the execution of the March 23, 1972 Deed of Sale of Real
Property which effectively transferred ownership of the property to
Carrascoso. The latter, on the other hand, failed to perform his
correlative obligation of paying in full the contract price in the manner
and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was
to pay the balance of the purchase price of the property amounting to
P1,300,000.00 plus interest thereon at the rate of 10% per annum within
a period of three (3) years from the signing of the contract on March 23,
1972. When Jose Leviste informed him that El Dorado was seeking
rescission of the contract by letter of February 21, 1977, the period given
to him within which to fully satisfy his obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste
interposing no objection to Carrascoso’s mortgaging of the property to
any bank did not have the effect of suspending the period to fully pay the
purchase price, as expressly stipulated in the Deed, pending full payment
of any mortgage obligation of Carrascoso.
PLDT cannot shield itself from the notice of lis pendens because all that it
had at the time of its inscription was an Agreement to Buy and Sell with
Carrascoso, which in effect is a mere contract to sell that did not pass to
it the ownership of the property. Ownership was retained by Carrascoso
which El Dorado may very well recover through its action for rescission.
The appellate court’s decision ordering the rescission of the March 23,
1972 Deed of Sale of Real Property between El Dorado and Carrascoso
being in order, mutual restitution follows to put back the parties to their
original situation prior to the consummation of the contract. Between
Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the
latter acted in good faith. This is so because it was Carrascoso’s refusal
to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer
pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC
the P3,000,000.00 price of the farm plus legal interest from receipt
thereof until paid.
The exercise of the power to rescind extinguishes the obligatory
relation as if it had never been created, the extinction having a
retroactive effect. The rescission is equivalent to invalidating and
unmaking the juridical tie, leaving things in their status before the
celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require
both parties to surrender that which they have respectively received and
to place each other as far as practicable in his original situation, the
rescission has the effect of abrogating the contract in all parts.
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being
subject to the notice of lis pendens, and as the Court affirms the
declaration by the appellate court of the rescission of the Deed of Sale
executed by El Dorado in favor of Carrascoso, possession of the 1,000
hectare portion of the property should be turned over by PLDT to El
Dorado.
As regards the improvements introduced by PLDT on the 1,000
hectare portion of the property, a distinction should be made between
those which it built prior to the annotation of the notice of lis pendens
and those which it introduced subsequent thereto.
WHEREFORE, the petitions are DENIED.
RIGHT TO RESOLVE/RESCIND: REQUISITES
GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS,
INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY
QUE
G.R. No. 126812 1998 Nov 24
FACTS:
Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three
parcels of registered land with a total area of 18,500 square meters
located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with
the United Coconut Planters Bank (UCPB). In 1988, the obligation of the
corporation with UCPB remained unpaid making foreclosure of the
mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the
property from BARRETTO & SONS.
When the term of existence of BARRETTO & SONS expired, all its
assets and liabilities including the property located in Quiapo were
transferred to respondent Pio Barretto Realty Development, Inc.
Petitioner's offer to buy the property resulted in its agreement with
respondent BARRETTO REALTY that petitioner would pay P24.5 million
representing the outstanding obligations of BARRETTO REALTY with UCPB
on 30 June 1988, the deadline set by the bank for payment; and P20
million which was the balance of the purchase price of the property to be
paid in installments within a 3-year period with interest at 18% per
annum. However, petitioner did not pay UCPB the P24.5 million loan
obligation of BARRETTO REALTY on the deadline set for payment. It asked
for an extension of one month or up to 31 July 1988 to settle the
obligation, which the bank granted. Moreover, petitioner again requested
another extension of sixty days to pay the loan, but the bank demurred.
In the meantime BARRETTO REALTY was able to cause the
reconsolidation of the forty-three titles covering the property subject of
the purchase into two titles covering Lots 1 and 2. The reconsolidation of
the titles was made pursuant to the request of petitioner in its letter to
private respondents on 25 May 1988. Respondent BARRETTO REALTY
allegedly incurred expenses for the reconsolidation amounting to
P250,000.00.
On 30 August 1988 Alicia P. Logarta, President of Logarta Realty
and Development Corporation, which acted as agent and broker of
petitioner, wrote private respondent Anthony Que informing him on behalf
of petitioner that it could not go through with the purchase of the property
due to circumstances beyond its fault ( the denial by UCPB of its request
for extension of time to pay the obligation).
On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld
Trade Center Phils., Inc., Lot 2, one of the two consolidated lots, for the
price of P23 million. On 13 October 1988 respondent BARRETTO REALTY
executed a deed transferring by way of "dacion" the property
reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property
to ASIAWORLD for P24 million. Sometime after the said sale, Logarta
again wrote respondent Que demanding the return of the earnest money
to GOLDENROD, but to no avail. Petitioner then filed a complaint with the
RTC of Manila against private respondents for the return of the amount of
P1 million and the payment of damages including lost interests or profits.
ISSUE:
Whether or not the petitioner's extrajudicial rescission of its
agreement with private respondents was valid.
RULING:
Under Art. 1482 of the Civil Code, whenever earnest money is
given in a contract of sale, it shall be considered as part of the purchase
price and as proof of the perfection of the contract. Petitioner clearly
stated without any objection from private respondents that the earnest
money was intended to form part of the purchase price. It was an petitioner's payment of P1,000,000.00 and at the same time appropriate
advance payment which must be deducted from the total price. Hence, the proceeds of the second sale made to another.
the parties could not have intended that the earnest money or advance
payment would be forfeited when the buyer should fail to pay the balance
of the price, especially in the absence of a clear and express agreement
thereon. By reason of its failure to make payment petitioner, through its
agent, informed private respondents that it would no longer push through
with the sale. In other words, petitioner resorted to extrajudicial rescission
of its agreement with private respondents. EFFECTS OF RESOLUTION/RESCISSION

It was held in the case of University of the Philippines v. de los 1. SERRANO VS. CA, 417 SCRA 415
Angeles that the right to rescind contracts is not absolute and is subject 2. GIL VS. CA, 411 SCRA 18
3. REYES VS. LIM, 408 SCRA 560
to scrutiny and review by the proper court. It was held further that
4. ONG VS. TIU, FEB. 1, 2002
rescission of reciprocal contracts may be extrajudicially rescinded unless 5. EQUATORIAL REALTY VS. MAYFAIR THEATER, 370 SCRA 56
successfully impugned in court. If the party does not oppose the 6. VELARDE VS. CA, 361 SCRA 56
declaration of rescission of the other party, specifying the grounds 7. ASUNCION VS. EVANGELISTA, OCT. 13, 1999
therefor, and it fails to reply or protest against it, its silence thereon 8. UY VS. CA, SEPT. 9, 1999
suggests an admission of the veracity and validity of the rescinding
party's claim. A such, private respondents did not interpose any objection
to the rescission by petitioner of the agreement. As found by the Court of LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE
Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the PAWNSHOP, INC.
subject consolidated lots to another buyer, ASIAWORLD, one day after its G.R. No. 45125 1991 Apr 22
President Anthony Que received the broker's letter rescinding the sale.
Subsequently, on 13 October 1988 respondent BARRETTO REALTY also
conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to FACTS:
ASIAWORLD.
Sometime in early March 1968, petitioner Loreta Serrano bought
Article 1385 of the Civil Code provides that rescission creates the some pieces of jewelry for P48,500.00 from Niceta Ribaya. However, when
obligation to return the things which were the object of the contract petitioner was in need of money, she instructed her private secretary,
together with their fruits and interest. Therefore, by virtue of the Josefina Rocco, to pawn the jewelry. Josefina then went to private
extrajudicial rescission of the contract to sell by petitioner without respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for
opposition from private respondents who, in turn, sold the property to P22,000.00 with its principal owner and General Manager, Yu An Kiong,
other persons, private respondent BARRETTO REALTY, as the vendor, had and then absconded with said amount and the pawn ticket. The pawnshop
the obligation to return the earnest money of P1,000,000.00 plus legal ticket issued to Josefina Rocco stipulated that it was redeemable "on
interest from the date it received notice of rescission from petitioner, i.e., presentation by the bearer."
30 August 1988, up to the date of the return or payment. It would be most
inequitable if respondent BARRETTO REALTY would be allowed to retain Three months later, Gloria Duque and Amalia Celeste informed
Niceta Ribaya that a pawnshop ticket issued by private respondent was
being offered for sale. They told Niceta the ticket probably covered
jewelry once owned by the latter which jewelry had been pawned by one
Josefina Rocco. Suspecting that it was the same jewelry she had sold to
petitioner, Niceta informed the latter of this offer and suggested that
petitioner go to the Long Life pawnshop to check the matter out.
Petitioner claims she went to private respondent pawnshop, verified that
indeed her missing jewelry was pledged there and told Yu An Kiong not to
permit anyone to redeem the jewelry because she was the lawful owner
thereof. Petitioner claims that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to
report the loss, and a complaint first for qualified theft and later changed
to estafa was subsequently filed against Josefina Rocco. Thereafter, a
member of the Manila Police went to the pawnshop, showed Yu An Kiong
petitioner's report and left the latter a note asking him to hold the jewelry
and notify the police in case someone should redeem the same. However,
the next day, Yu An Kiong permitted one Tomasa de Leon, exhibiting the
appropriate pawnshop ticket, to redeem the jewelry.
On 4 October 1968, petitioner filed a complaint for damages against
private respondent Long Life for failure to hold the jewelry and for
allowing its redemption without first notifying petitioner or the police.
Hon. Luis B. Reyes, rendered a decision in favor of petitioner. The decision
was however reversed on appeal and the complaint dismissed by the
public respondent Court of Appeals.
ISSUE:
Whether or not the Court of Appeals committed reversible error in
rendering its Decision.
RULING:
Having been notified by petitioner and the police that jewelry
pawned to it was either stolen or involved in an embezzlement of the
proceeds of the pledge, private respondent pawnbroker became duty
bound to hold the things pledged and to give notice to petitioner and the
police of any effort to redeem them. Such a duty was imposed by Article
21 of the Civil Code. The circumstance that the pawn ticket stated that
the pawn was redeemable by the bearer, did not dissolve that duty. The
pawn ticket was not a negotiable instrument under the Negotiable
Instruments Law nor a negotiable document of title under Articles 1507 et
seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed
the things pledged a day after petitioner and the police had notified Long
Life, claimed to be owner thereof, the prudent recourse of the pawnbroker
was to file an interpleader suit, impleading both petitioner and Tomasa de
Leon. The respondent pawnbroker was, of course, entitled to demand
payment of the loan extended on the security of the pledge before
surrendering the jewelry, upon the assumption that it had given the loan
in good faith and was not a "fence" for stolen articles and had not
conspired with the faithless Josefina Rocco or with Tomasa de Leon.
Respondent pawnbroker acted in reckless disregard of that duty in
the instant case and must bear the consequences, without prejudice to its
right to recover damages from Josefina Rocco. Hence, the trial court
correctly held that private respondent was liable to petitioner for actual
damages which corresponded to the difference in the value of the jewelry
and the amount of the loan, or the sum of P26,500.00. Petitioner is
entitled to collect the balance of the value of the jewelry, corresponding
to the amount of the loan, in an appropriate action against Josefina Rocco.
Private respondent Long Life in turn is entitled to seek reimbursement
from Josefina Rocco of the amount of the damages it must pay to
petitioner.
EFFECTS OF RESOLUTION/RESCISSION
PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL
VS. HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO
MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO
CITY
G.R. No. 127206
September 12, 2003
411 SCRA 19
FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel
Villarica, were the co-owners of a parcel of commercial land with an area of 829
square meters in Davao City. The spouses Angel and Nieves Villarica had
constructed a two-storey commercial building on the property.
On October 13, 1953, Concepcion filed a complaint against her sister
Nieves with the then Court of First Instance of Davao City for specific
performance, to compel the defendant to cede and deliver to her an undivided
portion of the said property with an area of 256.2 square meters. After due
proceedings, the court rendered judgment on April 7, 1954 in favor of
Concepcion, ordering the defendant to deliver to the plaintiff an undivided
portion of the said property with an area of 256.2 square meters.
Nieves appealed to the Court of Appeals which affirmed the assailed
decision. The court issued a writ of execution. Nieves, however, refused to
execute the requisite deed in favor of her sister.
On April 27, 1956, the court issued an order authorizing ex-officio Sheriff
Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an
undivided portion of the property with a total area of 256.2 square meters.
Instead of doing so, the sheriff had the property subdivided into four lots namely,
Lot 59-C-1, with an area of 218 square meters; Lot 59-C-2, with an area of 38
square meters; Lot 59-C-3, with an area of 14 square meters; and Lot 59-C-4,
with an area of 560 square meters, all covered by a subdivision plan. The sheriff
thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot
59-C-2 with a total area of 256.2 square meters.
On October 24, 1956, Concepcion executed a deed of absolute sale over
Lot 59-C-1 in favor of Iluminada Pacetes for a purchase price of P21,600.00 upon
which P7,500.00 is to be paid upon signing of the contract and the balance of
P14,100.00 to be paid upon delivery of the Title. On March 16, 1966, spouses
Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale over
the disputed lots in favor Constancio Maglana. And on April 22, 1980, Maglana
ewecuted a deed of sale in favor of Emilio Matulac for the purchase price of
P150,000.00. And on August 4, 1959, Concepcion died, leaving all her
obligations to her heirs including the petitioners.
On June 11, 1993, the trial court rendered judgment in favor of the
defendants. The trial court ruled that this Court had affirmed, in G.R. No. 85538
and G.R. No. L-60690, the sales of the property from Concepcion Palma Gil to
Iluminada Pacetes, then to Constancio Maglana and to Emilio Matulac; hence,
the trial court was barred by the rulings of the Court. The plaintiffs appealed to
the Court of Appeals which affirmed the latter’s decision.
ISSUE:
Whether or not the trial court erred in not declaring the sale of the
properties in question from Iluminada Pacetes to Constancio Maglana, thence,
from Constancio Maglana to Emilio Matulac NULL and VOID for there was delay
incurred by Concepcion in not delivering the Title of the subject lands to Pacetes.
RULING:
Article 1191 in tandem with Article 1592 of the New Civil Code are central
to the issues at bar. Under the last paragraph of Article 1169 of the New Civil
Code, in reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him.
From the moment one of the parties fulfills his obligation, delay in the
other begins. Thus, reciprocal obligations are to be performed simultaneously so
that the performance of one is conditioned upon the simultaneous fulfillment of
the other. The right of rescission of a party to an obligation under Article 1191
of the New Civil Code is predicated on a breach of faith by the other party that
violates the reciprocity between them.
The petitioners therefore, as successors-in-interest of the vendor, are not
the injured parties entitled to a rescission of the deed of absolute sale. It was
Concepcion’s heirs, including the petitioners, who were obliged to deliver to the
vendee a certificate of title over the property under the latter’s name, free from
all liens and encumbrances within 120 days from the execution of the deed of
absolute sale on October 24, 1956, but had failed to comply with the obligation.
Furthermore, the consignation by the vendee of the purchase price of the
property is sufficient to defeat the right of the petitioners to demand for a
rescission of the said deed of absolute sale.
The petition for review was denied for lack of merit.
EFFECTS OF RESOLUTION/RESCISSION
SERRANO VS. COURT OF APPEALS
417 SCRA 415

FACTS
Petitioners spouses Arturo and Niceta Serrano are the owners of the
parcel of land and the house constructed thereon located in Quezon City and a
parcel of land located in Quezon City. The couple mortgaged said properties in
favor of Government Service Insurance System (GSIS) for a security loan of
P50,000. They were able to pay P18,000 on 1969. On the same year, the
spouses Serrano as vendors and respondents spouses Emilio and Evelyn Geli as
vendees executed a deed of absolute sale with partial assumption of the
mortgage for the price of P70,000. Spouses Geli paid the amount of P38,000
and the balance of P32,000 to be paid to GSIS. Emilio Geli and his children,
respondents herein, failed to settle the amount to the GSIS.
Petitioners filed a complaint for the rescission of the deed of absolute sale
with partial assumption of mortgage on September 6, 1984. The trial court
rendered a decision ordering rescission of the deed. Emilio and petitioners
appealed the decision to the Court of Appeals (CA). The GSIS foreclosed the
mortgage during the pendency of the appeal. A certificate of sale over the
property was issued in favor of the GSIS it being the highest bidder.
In 1987, Emilio paid the redemption price of P67,701.84 to GSIS.
Accordingly, the GSIS executed a deed of transfer and turned over to Emilio the
transfer certificate title (TCT) without informing Serrano and the CA. In 1991,
the CA dismissed Emilio and petitioners’ appeal for failure to pay the requisite
docket fees which became final and executory.
On February 15, 1994, the court granted the motion for execution of the
trial court’s September 6, 1984 decision upon the motion of the petitioners
which was not implemented. Defendant filed a motion to quash on September 6,
1996 claming for the first time that he had redeemed the said properties from
GSIS in 1988 which was denied by the court.
The trial court issued an alias writ of execution upon issuance of order
granting petitioners’ motion. The petitioners filed with the CA a petition for
certiorari and/or prohibition praying for the nullification of the trial court orders.
CA issued an order restraining the implementation of the alias writ of execution
and the notice to vacate issued by the trial court. CA on May 12, 1998 granted
the respondents’ motion.
ISSUE:
Whether or not the trial court’s September 6, 1984 judgment ordering the
rescission of the deed of absolute sale with partial assumption of mortgage
executed by petitioners and respondents is proper.
RULING:
YES. The payment by Emilio of the redemption price to the GSIS was
made pending appeal by the respondents from the trial court’s order and
concealed said payment to petitioners. The respondents’ appealed the decision
before the CA which was subsequently dismissed for failure to pay the requisite
docket fees. Neither did respondents file any motion for reconsideration for the
dismissal of the appeal. Consequently, the trial court’s decision became final
and executory.
With the rescission of the deed of sale, the rights of Emilio Geli under said
deed to redeem the property had been extinguished. The petitioners cannot
even be compelled to subrogate the respondents to their right under the real
estate mortgage over the property which the petitioners executed in favor of
GSIS since the payment of the redemption price was made without the
knowledge of the petitioners. The respondents, however, are entitled to be
reimbursed by the petitioners to the extent that the latter were benefited.
In sum, respondents are obliged to vacate the subject property. The
decision of the CA is reversed and set aside. The petitioners are obliged to
return the amount of P67,701.04 to be deducted from the amount due the
petitioners under said trial court’s decision.
EFFECTS OF RESOLUTION/RESCISSION
REYES VS. LIM
G. R. No. 134241
August 11, 2003
408 SCRA 560
FACTS:
Petitioner David Reyes, as seller, and Jose Lim, as buyer, entered into a
contract to sell a parcel of land located along F.B. Harrison Street, Pasay City on
November 7, 1994. Harrison Lumber occupied the property as lessee with a
monthly rental of P35,000.00. The contract provided that the total consideration
for the purchase of the property is P28,000,000.00 and upon signing of the
contract, P10,000,000.00 should be paid as down payment. The balance of
P18,000,000.00 shall be paid at a bank designated by the buyer but upon the
complete vacation of all the tenants or occupants of the property. The contract
also provided that in the event, the tenants or occupants of the premises shall
not vacate the premises on March 8, 1995, the vendee shall withhold the
payment of the balance of P18,000,000.00 and the vendor agrees to pay a
penalty of 4% per month to the vendee based on the down payment of
P10,000,000.00 until the complete vacation of the premises by the tenants.
Petitioner claimed that he had informed Harrison Lumber to vacate the
property before the end of January 1995. Reyes also informed Chuy Cheng Keng
and Harrison Lumber that if they failed to vacate by March 8, 1995, he would
hold them liable for the penalty of P400,000.00 a month as provided in the
contract to sell. His complaint also alleged that Lim connived with Harrison
Lumber not to vacate the property until the P400,000.00 monthly penalty would
have accumulated and equaled the unpaid purchase price of P18,000,000.00.
Keng and Harrison Lumber denied that Lim had connived with them.
Harrison Lumber alleged that Reyes approved their request for an extension of
time to vacate the property and that as of March 1995, it had already started
transferring some of its merchandise to its new business location in Malabon.
On the other hand, Lim filed his Answer stating that he was ready and
willing to pay the balance of the purchase price on or before March 8, 1995. Lim
requested a meeting with Reyes through the latter’s daughter but Reyes kept
postponing them. On March 9, 1995, Reyes offered to return the P10 million
down payment to Lim because Reyes was having problems in removing the
lessee from the property. Lim rejected Reyes’ offer and proceeded to verify the
status of Reyes’ title to the property. He learned that Reyes had already sold
the property to Line One Foods Corporation on March 1, 1995 for P16,782,480.
Lim also denied conniving with Keng and Harrison Lumber.
On November 2, 1995, Reyes filed a Motion for Leave to File Amended
Complaint due to the filing by Lim of a complaint for estafa against Reyes as well
as an action for specific performance and nullification of sale and title plus
damages before another trial court.
Meanwhile, Lim prayed for the cancellation of the Contract to Sell and for
the issuance of writ of preliminary attachment against Reyes but the court
denied the writ. Lim requested on March 6, 1997 in open court that Reyes be
ordered to deposit the P10 million down payment with the cashier of the trial
court and the court granted this motion.
The trial court denied Reyes’ motion to set aside the order dated March 6,
1997. On October 3, 1997, the court denied Reyes’ motion for reconsideration
and ordered Reyes to deposit the P10 million down payment on or before
October 30, 1997. Reyes file a petition for certiorari with the Court of Appeals
but the appellate court dismissed the petition for lack of merit.
ISSUE:
Whether or not the petitioner should deposit the P10 million down
payment to the custody of the trial court as an effect of rescission of the
Contract to Sell
RULING:
The Supreme Court held that an action for rescission could prosper only if
the party demanding rescission can return whatever he may be obliged to
restore should the court grant the rescission. The trial court in the exercise of its
equity jurisdiction may validly order the deposit of P10 million down payment in
court. The purpose of the exercise of equity jurisdiction in this case is to prevent
unjust enrichment and to ensure restitution. Reyes is seeking rescission of the
Contract to Sell.
To subscribe top Reyes’ contention will unjustly enrich Reyes at the
expense of Lim. Reyes sold to Line One Foods Corporation the property. Reyes
cannot claim ownership of the P10 million down payment because Reyes had
already sold to another buyer the property for which Lim made the down
payment. The Supreme Court find the equities weigh heavily in favor of Lim,
who paid the P10 million down payment in good faith only to discover later that
Reyes had subsequently sold the property to another buyer.
Hence, the appealed decision of the appellate court is affirmed and the
petition is dismissed.
EFFECTS OF RESOLUTION/RESCISSION
ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM
T. ONG, WILLIE T. ONG, And JULIE ONG ALONZO, petitioners, VS. DAVID
S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU,
 JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT
CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY
CITY, And the SECURITIES AND EXCHANGE COMMISSION, respondents
G.R. No. 144476
February 1, 2002
FACTS:
The Masagana Citimall, a commercial complex owned and managed by
the First Landlink Asia Development Corporation (FLADC) was threatened with
incompletion when its owner found in its financial distress in the amount of
P190M for being indebted to the Philippine National Bank (PNB). FLADC was
then fully owned by the Tiu Group composed of David S. Tiu, Cely Y. Tiu, Moly Yu
Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu. In order to
recover from its floundering finances, the Ong Group composed of Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julie Ong
Alonzo, were invited by the Tius to invest in FLADC. Hence, the execution of a
Pre-Subscription Agreement by and between the Tiu and Ong Groups on August
15, 1994.
By the Pre-Subscription Agreement, both parties agreed to maintain
equal shareholdings in FLADC with the Ongs investing cash while the Tius
contributing property. Specifically, the Ongs were to subscribe to 1 million
shares of FLADC at a par value of P100.00 per share while the Tius were to
subscribe to 549,800 shares more of FLADC at a par value of P100.00 per share
over and above their previous subscription of 450,200 shares in order to
complete a subscription of 1 million shares.
Commensurate to their proposed subscriptions, the Ongs were to pay
P100,000,000.00 in cash, while the Tius were to contribute the properties by
way of separate Deeds of Assignments.
The controversy between the two parties arose when the Ongs refused to
credit the number of FLADC shares in the name of Masagana Telamart, Inc.
commensurate to its 1,902.30 square meter property contribution; also when
they refused to credit the number of FLADC shares in favor of the Tius
commensurate to their 151 square meter property contribution; and when David
S. Tiu and Cely Y. Tiu were proscribed from assuming and performing their
duties as Vice-President and Treasurer, respectively of FLADC. These became
the basis of the Tius' unilateral rescission of the Pre-Subscription Agreement on
February.
ISSUE:
Whether Court of Appeals erred in ruling that the ‘Pre-Subscription
Agreement’ of the parties may be rescinded under Article 1191 of the New Civil
Code.
RULING:
No. The Court of Appeals did not err in ruling that the "Pre-Subscription
Agreement" of the parties dated August 15, 1994 may be rescinded under Article
1191 of the New Civil Code.The Ongs illustrate reciprocity in the following
manner: In a contract of sale, the correlative duty of the obligation of the seller
to deliver the property is the obligation of the buyer to pay the agreed price. In
the case at bar, the correlative obligation of the Tius to let the Ongs have and
exercise the functions of the positions of President and Secretary is the
obligation of the Ongs to let the Tius have and exercise the functions of Vice-
President and Treasurer. Moreover, the Ongs are now estopped from denying
the applicability of Art. 1191 to the present controversy. the Ongs allege that
rescission is applicable only to reciprocal obligations and the "Pre-Subscription
Agreement" does not provide for reciprocity, hence, the remedy of rescission is
not available.
The Ongs cited the case of Songcuan vs. IAC, to illustrate their point
that "As in the Songcuan case, there are here two (2) separate and distinct
obligations each independent of the other the obligation to subscribe to, and to
pay, 50% of the increased capital stock of FLADC; and the obligation to install
the Ongs and the Tius as members of the Board of Directors and to certain
corporate positions, but only after the Ongs and the Tius have subscribed each
to 50% of the increased capital stock of FLADC." In this petition, in lieu of Art.
1191, the Ongs invoke Articles 1156 and 1159 of the New Civil Code which state
–
"Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
"Art. 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith."
and that should there be any violation, those who failed to fulfill their obligations
should be required to perform their obligations under the agreement.Contrary to
the Ongs' assertion, the Songcuan case does not apply squarely to this case.
In the Songcuan case, the Court ruled that Art. 1191 to rescind the right of
the Alviars to repurchase does not apply because their corresponding obligations
can hardly be called reciprocal because the obligation of the Alviars to lease to
Songcuan the subject premise arises only after the latter had reconveyed the
realties to them. On the other hand, in the instant case, the obligations of the
two (2) groups to pay 50% of the increased capital stock of FLADC and to install
them as members of the Board of Directors and to certain corporate positions
are simultaneous and arise upon the execution of the pre-subscription
agreement.
The Ongs illustrate reciprocity in the following manner: In a contract of
sale, the correlative duty of the obligation of the seller to deliver the property is
the obligation of the buyer to pay the agreed price. In the case at bar, the
correlative obligation of the Tius to let the Ongs have and exercise the functions
of the positions of President and Secretary is the obligation of the Ongs to let the
Tius have and exercise the functions of Vice-President and Treasurer.
EFFECTS OF RESOLUTION/RESCISSION
EQUATORIAL REALTY DEVELOPMENT, INC. VS. MAYFAIR THEATER, INC.
GR No. 133879
November 21, 2001
FACTS:
In June 1967, Carmelo & Bauerman, Inc. entered into a Contract of Lease
with Mayfair Theater for a parcel of land with 2-storey building for 20 years. Two
years later in March, 1969, Carmelo entered into a second Contract with Mayfair
for another portion of the property also for 20 years. In both contracts, Mayfair
was given the right-of-first refusal to purchase the properties. However, on July
30, 1978, within the 20-year period, Carmelo sold the same properties to
Equatorial for P11,300,000. Mayfair sued Equatorial for specific performance
and annulment of the Deed of Absolute Sate with Carmelo. The trial court ruled
in favor of Mayfair but was reversed by the CA. The Supreme Court, however,
upheld the trial court, for which Mayfair filed a motion for execution. The Deed
of Absolute Sale was rescinded and the lot was registered in the name of
Mayfair.
However, in September 1997, Equatorial filed a collection suit for a sum of
money against Mayfair claiming payment of rentals or reasonable compensation
for the use of the properties AFTER its lease contracts had expired. The trial
court ruled in favor Mayfair holding that the Deed of Absolute Sale in the mother
case DID NOT confer on Equatorial any vested or residual property rights.
Hence, the present case.
ISSUES:
1. Did Equatorial obtain rights to the property when it entered into Deed
of Absolute Sale with Carmelo and hence, entitled to the fruits thereof?
2. Is the right of first refusal granted to Mayfair through the lease contracts
with Carmelo superior to that of Equatorial, and therefore a bar to the
consummation of the Deed of Absolute Sale between Carmelo and
Equatorial?
RULING:
1. No. Equatorial did not obtain right of ownership over the property
when it entered into the Deed of Absolute Sale. Ownership of the
property which the buyer acquires only upon the delivery of the thing
to him. There is delivery if the thing sold is placed in the control and
possession of the vendee. While the execution of a public instrument
of sale is recognized by law as the equivalent of delivery of the thing
sold, such constructive or symbolic delivery, being only presumptive, is
deemed negated by the failure of the vendee to take actual possession
of the property sold. Since Mayfair was in actual possession of the
property by virtue of the lease contract with Carmelo, there was no
consummation of the sale, and therefore, Equatorial did not get
ownership right (real right).
2. The Deed of Absolute Sale entered into by Carmelo and Equatorial was
a violation of the right of first refusal granted by Carmelo to Mayfair.
The execution of the deed of absolute sale as a form of constructive
delivery is a legal fiction. It holds true only if there is no legal
impediment that may prevent the passing of the property from the
vendor to the vendee. The right of first refusal held by Mayfair was
such legal impediment. Therefore, there was no transfer of ownership
from Camelot to Equatorial.
Dissenting opinion:
The Deed of Absolute Sale was deemed a rescissible contract and should
remain valid until rescinded. Since the Deed was not actually rescinded in the
decision of the mother case, then it was valid until it is rescinded in a proper
court decision. Since there was no actual rescission of the contract, then
Equatorial was deemed the own of the property from the signing of the Deed to
the time the property was legally transferred to Mayfair.
EFFECTS OF RESOLUTION/RESCISSION
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE
VS. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO
2001 Jul 11
G.R. No. 108346
FACTS:
David Raymundo is the absolute and registered owner of a parcel of land,
together with the house and other improvements thereon, located at 1918
Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177.
Defendant George Raymundo is David’s father who negotiated with plaintiffs
Avelina and Mariano Velarde for the sale of said property, which was, however,
under lease.
On August 8, 1986, a Deed of Sale with Assumption of Mortgage was
executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina
Velarde, as vendee, with terms and conditions one of which is:
‘That as part of the consideration of this sale, the VENDEE hereby assumes to
pay the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR,
and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI, including interests and other charges for late payment
levied by the Bank, as if the same were originally signed and executed by the
VENDEE.
The Vendee herby agreed that until such time as her assumption of the
mortgage obligations on the property purchased is approved by the mortgagee
bank, the Bank of the Philippine Islands, she shall continue to pay the said loan
in accordance with the terms and conditions of the Deed of Real Estate Mortgage
in the name of Mr. David A. Raymundo, the original Mortgagor. And further
agrees That, in the event there is violation in any of the terms and conditions of
the said Deed of Real Estate Mortgage, that the downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial declaration to
that effect, and Mr. David A Raymundo shall resume total and complete
ownership and possession of the property sold by way of Deed of Sale with
Assumption of Mortgage, and the same shall be deemed automatically cancelled
and be of no further force or effect, in the same manner as if (the) same had
never been executed or entered into.
Plaintiffs were advised that the Application for Assumption of Mortgage
with BPI was not approved. This prompted plaintiffs not to make any further
payment. Defendants, thru counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgage bank constituted non-performance of their
obligation
Plaintiffs, thru counsel, responded, that they are willing to pay the balance
in cash not later than January 21, 1987 provided: (a) there is deliver actual
possession of the property to her not later than January 15, 1987 for her
immediate occupancy; (b) defendant cause the release of title and mortgage
from the Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) defendant must execute an absolute deed of sale in
plaintiff’s favor free from any liens or encumbrances not later than January 21,
1987.
On January 8, 1987, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property allegedly due
to the latter’s failure to comply with the terms and conditions of the Deed of Sale
with Assumption of Mortgage
ISSUE:
Whether or not rescission should be granted in the case at bar.
RULING:
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the said provision is the
obligor’s failure to comply with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in
the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to
rescind the contract, because of the failure of petitioners to comply with their
obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the
purchase price one month after it became due; however, this was not equivalent
to actual payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by
private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the
right to rescind.
In the instant case, the breach committed did not merely consist of a
slight delay in payment or an irregularity; such breach would not normally defeat
the intention of the parties to the contract. Here, petitioners not only failed to
pay the P1.8 million balance, but they also imposed upon private respondents
new obligations as preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence,
private respondents were left with the legal option of seeking rescission to
protect their own interest.
EFFECTS OF RESOLUTION/RESCISSION
ASUNCION VS. EVANGELISTA
G.R. No. 133491
October 13, 1999
316 SCRA 848
FACTS:
Private respondent has been operating a piggery since 1970, which was
under the trade name of Embassy Farms. In 1981, private respondent’s wife,
together with three others, organized Embassy Farms, Inc. and registered it with
the Securirties and Exchange Commission. Private respondent was the majority
stockholder of the corporation, president and chief executive officer. On
September 9, 1980, he borrowed P500,000.00 from Paluwagan ng Bayan
Savings and Loan Association to use as working capital for the farm. He
executed a real estate mortgage on three of his properties as security for the
loan. On November 4, 1981, he mortgaged ten titles more in favor of PAIC
Savings and Mortgage Bank as security for another loan in the amount of
P1,712,000.00. On February 16, 1982, he obtained another loan in the amount of
P844,625.78 from Mercator Finance Corporation. It was secured by a real estate
mortgage on five other landholdings of private respondent, all situated in
Bulacan.
However, he defaulted in his loan payments. By June 1984, private
respondent debt had ballooned to almost six million pesos in overdue principal
payments, interests, penalties and other financial charges. On August 2, 1984,
petitioner and private respondent executed a Memorandum of Agreement that
states that petitioner will pay all of the loans of respondent provided that the
latter will transfer the title of the farm and properties, which were mortgaged in
favor of the petitioner.
The petitioner was able to pay partially the loans of respondent from the
three creditors as compliance to the MOA. For his part, private respondent was
obligated under the MOA to execute, sign, and deliver any and all documents
necessary for the transfer and conveyance of the mortgaged properties as well
as of the farm. However, more than a year after signing the MOA, the
landholdings of the respondent still remained titled in his name. Neither did he
inform said mortgages of the transfer of his lands.
On April 10, 1986, petitioner filed in the RTC a compliant for rescission of
the MOA with a prayer for damages. The trial court ruled in favor of the private
respondent. On July 12, 1994, a copy of the decision of the trial court was sent
by registered mail to petitioner’s counsel however, unknown to petitioner, his
counsel died while the case was pending. On February 2, 1998, CA affirmed the
decision of the trial court and ordered its immediate execution. Petitioner’s
motion for reconsideration was likewise denied.
ISSUE:
Whether or not rescission of the MOA is a valid remedy for the petitioner.
RULING:
 Yes. Article 1191 of the Civil Code governs the situation where there is
non-compliance by one party in case of reciprocal obligations.
The Supreme Court found that private respondent failed to perform his
substantial obligations under the MOA. Hence, petitioner sought the rescission
of the agreement and ceased infusing capital into the piggery business of private
respondent. He later justified his refusal to execute any deed of sale and deliver
the certificates of stock by accusing petitioner of having failed to assume his
debts.
The Court holds that the respondent’s insistence that petitioner execute a
formal assumption of mortgage independent and separate from his own
execution of a deed of cases is legally untenable, considering that a recorded
real estate mortgage is a lien inseparable from the property mortgaged and until
discharged, it follows the property.
The Court holds, in fine, that the MOA entered into by petitioner and
private respondent should indeed be rescinded. The respondent appellate court
erred in assessing damages against petitioner for his refusal to fully pay private
respondent’s overdue loans. Such refusal was justified, considering that private
respondent was the first to refuse to deliver to petitioner the lands and
certificates of stock that were the consideration for the almost 6M in debt that
petitioner was to assume and pay.
The effect of rescission is also provided in Article 1385 of the Civil Code.
The instant petition was granted. Decisions of the lower and appellate
courts were reversed and set aside. The MOA entered into by the parties is
declared rescinded.
EFFECTS OF RESOLUTION/RESCISSION
UY VS. COURT OF APPEALS
314 SCRA 69
September 9, 1999
FACTS:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight
(8) parcels of land by the owners thereof. By virtue of such authority, petitioners
offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent
National Housing Authority (NHA) to be utilized and developed as a housing
project.
On February 14, 1989, NHA approved the acquisition of the said parcels of
land with an area of 31.8231 hectares at the cost of P23.867 million, pursuant to
which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of lands, however, only five were paid for by
the NHA because of the report it received from the Land Geosciences Bureau of
the Department of Environment and Natural Resources that the remaining area
is located at an active landslide area and therefore, not suitable for development
into a housing project. NHA eventually cancelled the sale over the remaining
three (3) parcels of land.
On March 9, 1992, petitioners filed a complaint for damages. After trial,
the RTC of Quezon City rendered the cancellation of contract to be justified and
awarded P1.255 million as damages in favor of petitioners.
Upon appeal by petitioners, the Court of Appeals reversed the decision
and entered a new one dismissing the complaint including the award of
damages.
The motion for reconsideration having been denied, petitioners seek relief
from this court contending, inter alia, that the CA erred in declaring that NHA
had any legal basis to rescind the subject sale.
ISSUE:
Whether or not the contention of petitioner is correct.
RULING:
NO. Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Article 1191 of the Civil Code. The right to
rescission is predicated on a breach of faith by the other party that violates the
reciprocity between them. The power to rescind is given to the injured party. In
this case, the NHA did not rescind the contract. Indeed, it did not have the right
to do so for the other parties to the contract, the vendors did not commit any
breach of their obligation. The NHA did not suffer any injury. The cancellation
was not therefore a rescission under Article 1191. Rather, it was based on the
negation of the cause arising from the realization that the lands, which were the
objects of the sale, were not suitable for housing.

KINDS OF DAMAGES:
1. VICTORY LINER VS. HEIRS, 394 SCRA 520
2. GSIS VS. LABUNG-DEANG, 365 SCRA 341
3. BPI INVESTMENT VS. D.G. CARREON, 371 SCRA 58
VICTORY LINER, INC. petitioner,
VS. HEIRS OF ANDRES MALECDAN, respondents
2002 Dec 27
G.R. No. 154278
394 SCRA 520
FACTS:
Andres Malecdan was a 75 year-old farmer. On July 15, 1994, at around
7:00 p.m., while Andres was crossing the National Highway on his way home
from the farm, a Dalin Liner bus on the southbound lane stopped to allow him
and his carabao to pass. However, as Andres was crossing the highway, a bus of
petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin Bus.
In so doing, respondent hit the old man and the carabao on which he was riding.
As a result, Andres Malecdan was thrown off the carabao, while the beast
toppled over. The Victory Liner bus sped past the old man, while the Dalin bus
proceeded to its destination without helping him.
The incident was witnessed by Andres Malecdan’s neighbor, Virgilio
Lorena, who was resting in a nearby waiting shed after working on his farm.
Malecdan sustained a wound on his left shoulder, from which bone fragments
protruded. He was taken by Lorena and another person to the district hospital
where he died a few hours after arrival. The carabao also died soon afterwards.
Lorena executed a sworn statement before the police authorities. Subsequently,
a criminal complaint for reckless imprudence resulting in homicide and damage
to property was filed against the Victory Liner bus driver Ricardo Joson, Jr.
Private respondents brought the suit for damages in the RTC which found
the driver guilty of gross negligence in the operation of his vehicle and Victory
Liner, Inc. also guilty of gross negligence in the selection and supervision of
Joson, Jr. Petitioner and its driver were held liable jointly and severally for
damages as follows: a. P50,000.00 as death indemnity; b. P88,339.00 for actual
damages; c. P200,000.00 for moral damages; d. P50,000.00 as exemplary
damages; e. thirty percent (30%) as attorney’s fees of whatever amount that
can be collected by the plaintiff; and f. the costs of the suit.
On appeal, the decision was affirmed by the Court of Appeals, with the
modification that the award of attorney’s fees was fixed at P50,000.00.
ISSUES:
1. Whether or not the CA erred in affirming the appealed decision of the
RTC granting P200,000.00 as moral damages which is double the P100,000.00
as prayed for by the private respondents in their complaint and in granting
actual damages not supported by official receipts and spent way beyond the
burial of the deceased victim.
2. Whether or not the affirmation by the CA of the appealed decision of
the RTC granting the award of moral and exemplary damages and attorney’s
fees which were not proved and considering that there is no finding of bad faith
and gross negligence on the part of the petitioner was not established, is in
accord with law and jurisprudence.
RULING:
The Court found the appealed decision to be in order.
Article 2176 provides: “Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this
Chapter.” Article 2180 provides for the solidary liability of an employer for the
quasi-delict committed by an employee. The responsibility of employers for the
negligence of their employees in the performance of their duties is primary and,
therefore, the injured party may recover from the employers directly, regardless
of the solvency of their employees.
Employers may be relieved of responsibility for the negligent acts of their
employees acting within the scope of their assigned task only if they can show
that "they observed all the diligence of a good father of a family to prevent
damage." For this purpose, they have the burden of proving that they have
indeed exercised such diligence, both in the selection of the employee and in the
supervision of the performance of his duties.
In the selection of prospective employees, employers are required to
examine them as to their qualifications, experience and service records. With
respect to the supervision of employees, employers must formulate standard
operating procedures, monitor their implementation and impose disciplinary
measures for breaches thereof. These facts must be shown by concrete proof,
including documentary evidence.
In the instant case, petitioner presented the results of Joson, Jr.’s written
examination, actual driving tests, x-ray examination, psychological examination,
NBI clearance, physical examination, hematology examination, urinalysis,
student driver training, shop training, birth certificate, high school diploma and
reports from the General Maintenance Manager and the Personnel Manager
showing that he had passed all the tests and training sessions and was ready to
work as a professional driver. However, the trial court noted that petitioner did
not present proof that Joson, Jr. had nine years of driving experience. Petitioner
also presented testimonial evidence that drivers of the company were given
seminars on driving safety at least twice a year. However, the trial court noted
that there is no record of Joson, Jr. ever attending such a seminar. Petitioner
likewise failed to establish the speed of its buses during its daily trips or to
submit in evidence the trip tickets, speed meters and reports of field inspectors.
The finding of the trial court that petitioner’s bus was running at a very fast
speed when it overtook the Dalin bus and hit the deceased was not disputed by
petitioner. Thus it was held that the trial court did not err in finding petitioner to
be negligent in the supervision of its driver Joson, Jr.
To justify an award of actual damages, there should be proof of the actual
amount of loss incurred in connection with the death, wake or burial of the
victim. Receipts showing expenses incurred some time after the burial of the
victim, such as expenses relating to the 9th day, 40th day and 1st year death
anniversaries are not to be taken accounted for. In this case, the trial court
awarded P88,339.00 as actual damages. While these were duly supported by
receipts, these included the amount of P5,900.00, the cost of one pig which had
been butchered for the 9th day death anniversary of the deceased. The item
cannot be allowed.
The award of P200,000.00 for moral damages was reduced. The trial
court found that the wife and children of the deceased underwent "intense moral
suffering" as a result of the latter’s death. Under Art. 2206 of the Civil Code, the
spouse, legitimate children and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the
death of the deceased. Under the circumstances of this case an award of
P100,000.00 would be in keeping with the purpose of the law in allowing moral
damages.
The award of P50,000.00 for indemnity is in accordance with current
rulings of the Court. Art. 2231 provides that exemplary damages may be
recovered in cases involving quasi-delicts if the defendant acted with gross
negligence. Exemplary damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive
to curb socially deleterious actions. In this case, petitioner’s driver Joson, Jr. was
grossly negligent in driving at such a high speed along the national highway and
overtaking another vehicle which had stopped to allow a pedestrian to cross.
Worse, after the accident, Joson, Jr. did not stop the bus to help the victim.
Under the circumstances, the trial court’s award of P50,000.00 as exemplary
damages was proper.
EFFECTS OF RESOLUTION/RESCISSION
GOVERNMENT SERVICE INSURANCE SYSTEM
VS. SPOUSES GONZALO and MATILDE LABUNG-DEANG
G.R. No. 135644
September 17, 2001
365 SCRA 341
FACTS:
Sometime in December 1969, the spouses Deang obtained a housing loan
from the GSIS in the amount of eight thousand five hundred pesos (P8,500.00).
Under the agreement, the loan was to mature on December 23, 1979. The loan
was secured by a real estate mortgage constituted over the spouses’ property.
As required by the mortgage deed, the spouses Daeng deposited the owner’s
duplicate copy of the title with the GSIS.
On January 19, 1979, eleven (11) months before the maturity of the loan,
the spouses Deang settled their debt with the GSIS and requested for the release
of the owner’s duplicate copy of the title since they intended to secure a loan
from a private lender and use the land covered by it as collateral security for the
loan of fifty thousand pesos (P50,000.00) which they applied for with one
Milagros Runes. They would use the proceeds of the loan applied for the
renovation of the spouses’ residential house and for business. However,
personnel of the GSIS were not able to release the owner’s duplicate of the title
as it could not be found despite diligent search.
 Satisfied that the owner’s duplicate copy of the title was really lost, in
1979, GSIS commenced the reconstitution proceedings with the Court of First
Instance of Pampanga for the issuance of a new owner’s copy of the same.
On June 22, 1979, GSIS issued a certificate of release of mortgage. On
June 26, 1979, after the completion of judicial proceedings, GSIS finally secured
and released the reconstituted copy of the owner’s duplicate of Transfer
Certificate of Title No. 14926-R to the spouses Deang.
On July 6, 1979, the spouses Deang filed with the Court of First Instance,
Angeles City a complaint against GSIS for damages, claiming that as result of the
delay in releasing the duplicate copy of the owner’s title, they were unable to
secure a loan from Milagros Runes, the proceeds of which could have been used
in defraying the estimated cost of the renovation of their residential house and
which could have been invested in some profitable business undertaking.
The trial court rendered decision in favor of the spouses Labung-Deang.
The Court of Appeals also affirmed the decision of the lower court.
ISSUE:
Whether or not GSIS is liable for damages.
RULING:
Under the facts, there was a pre-existing contract between the parties.
GSIS and the spouses Deang had a loan agreement secured by a real estate
mortgage. The duty to return the owner’s duplicate copy of title arose as soon
as the mortgage was released. Negligence is obvious as the owners’ duplicate
copy could not be returned to the owners. Thus, GSIS is liable for damages.
First, in a breach of contract, moral damages are not awarded if the
defendant is not shown to have acted fraudulently or with malice or bad faith.
The fact that the complainant suffered economic hardship or worries and mental
anxiety is not enough.
Second, actual damages cannot be awarded as there is no factual basis
for such award. Actual damages to be compensable must be proven by clear
evidence. A court cannot rely on “speculation, conjecture or guess work” as to
the fact and amount of damages, but must depend on actual proof.
On the other hand, it is also apparent that the spouses Deang suffered
financial damage because of the loss of the owners’ duplicate copy of the title.
Temperate damages may be granted on the amount of P20, 000.00 as a
reasonable amount considering that GSIS spent for the reconstitution of the
owners’ duplicate copy of the title.
Wherefore the petition is denied.
EFFECTS OF RESOLUTION/RESCISSION
BPI INVESTMENT CORPORATION, petitioner,
VS. D. G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON,
AURORA J. CARREON, AND JOSEFA M. JECIEL, respondents
2001 Nov 29
371 SCRA 58
FACTS:
Petitioner BPI Investment Corporation (BPI Investments), formerly known
as “Ayala Investment and Development Corporation,” was engaged in money
market operations. Respondent D. G. Commercial Corporation was a client of
petitioner and started its money market placements in September, 1978. The
individual respondents, spouses Daniel and Aurora Carreon and Josefa M. Jeceil
also placed with BPI Investments their personal money in money market
placements.
On April 21, 1982, BPI Investments wrote respondents Daniel Carreon and
Aurora Carreon, demanding the return of the overpayment of P410,937.09. The
respondents asserted that there was no overpayment and asked for time to look
for the papers. Upon the request of BPI Investments, the spouses Daniel and
Aurora Carreon sent to BPI Investments a proposed memorandum of agreement,
dated May 7, 1982.
The agreement provided that respondent company, in the spirit of
goodwill, agreed to temporarily reimburse BPI the amount of P410,937.09 while
the said controversy (transactions of the placement) would be checked within
five years.
On May 10, 1982, BPI Investments, without responding to the
memorandum and proposal of D. G. Carreon filed with the Court of First Instance
of Rizal, Branch 36, Makati, a complaint for recovery of a sum of money against
D. G. Carreon with preliminary attachment. On May 14, 1982, the trial court
issued an order for preliminary attachment after submission of affidavit of merit
to support the petition, and the posting of a bond in the amount of P200,000.00.
However, on October 8, 1982, the trial court lifted the writ of attachment. On
October 28, 1982, BPI Investments moved for reconsideration, but the trial court
denied the motion after finding the absence of double payment to the
defendants.
On July 30, 1982, respondents D. G. Carreon filed with the trial court an
answer to the complaint, with counterclaim. D.G. Carreon asked for
compensatory damages in an amount to be proven during the trial; spouses
Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because
of the humiliation, great mental anguish, sleepless nights and deterioration of
health due to the filing of the complaint and indiscriminate and wrongful
attachment of their property, especially their residential house and payment of
their money market placement of P109,283.75. Josefa Jeceil asked for moral
damages of P500,000.00, because of sleepless nights and mental anguish, and
payment of her money market placement of P73,857.57; all defendants claimed
for exemplary damages and attorney’s fees of P100,000.00.
On May 25, 1993, the trial court rendered a decision dismissing both the
complaint and the counterclaim. Both parties appealed. On July 19,1996, the
Court of Appeals affirmed the dismissal of the complaint but reversed and set
aside the dismissal of the counterclaim thereby awarding respondents damages
amounting to more than P5M in sum.
ISSUE:
Whether or not respondents are entitled to damages as awarded by Court
of Appeals.
RULING:
No. The Court found petitioner not guilty of gross negligence in the
handling of the money market placement of respondents.
“Gross negligence implies a want or absence of or failure to exercise slight care
or diligence, or the entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.”
However, while petitioner BPI Investments may not be guilty of gross
negligence, it failed to prove by clear and convincing evidence that D. G.
Carreon indeed received money in excess of what was due them. “The alleged
payments in the complaint were admitted by plaintiff itself to be withdrawals
from validly issued commercial papers, duly verified and signed by at least two
authorized high-ranking officers of BPI Investments.”
The law on exemplary damages is found in Section 5, Chapter 3, Title
XVIII, Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages. They are recoverable in criminal cases as part of the
civil liability when the crime was committed with one or more aggravating
circumstances; in quasi-delicts, if the defendant acted with gross negligence;
and in contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
BPI Investments did not act in a wanton, fraudulent, reckless, oppressive,
or malevolent manner, when it asked for preliminary attachment. It was just
exercising a legal option. The sheriff of the issuing court did the execution and
the attachment. Hence, BPI Investments is not to be blamed for the excessive
and wrongful attachment.
The award of moral damages and attorney’s fees is also not in keeping
with existing jurisprudence. Moral damages may be awarded in a breach of
contract when the defendant acted in bad faith, or was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation.
Finally, with the elimination of award of moral damages, so must the award of
attorney’s fees be deleted. ”There is no doubt, however, that the damages
sustained by respondents were due to petitioner’s fault or negligence, short of
gross negligence.
Temperate or moderate damages may be recovered when the court finds
that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty. The Court deems it prudent to
award reasonable temperate damages to respondents under the circumstances.
As to the claim for payment of the money market placement of Josefa Jeceil, the
trial court may release the deposited amount of P73,857.57 to petitioner as the
consignation was not proper or warranted.
Thus, the decision of the Court of Appeals is affirmed with modification.
The award of moral, compensatory and exemplary damages and attorney’s fees
are deleted. BPI Investments is ordered to pay to the estate of Daniel G. Carreon
and Aurora J. Carreon the money market placement of P109,238.75, with legal
interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to
pay the estate of Josefa M. Jeceil, the money market placement in the amount of
P73,857.57, with legal interest at twelve (12%) percent per annum from maturity
on July 12, 1982, until fully paid. The petitioner may withdraw its deposit from
the lower court at its peril. BPI Investments is likewise ordered to pay temperate
damages to the estate of the late Daniel G. Carreon in the amount of
P300,000.00, and to the estate of Aurora J. Carreon in the amount of
P300,000.00, and to the estate of Josefa M. Jeceil in the amount of P150,000.00.
REMEDIES IN CASE OF BREACH: ACCION PAULIANA
KHE HONG CHENG VS. COURT OF APPEALS
355 SCRA 701
G.R. No. 144169
March 28, 2001
FACTS:
Petitioner Khe Hong Cheng, is the owner of Butuan Shipping Lines. Its
vessel M/V Prince Eric was used by Philippine Agricultural Trading Corporation to
ship 3,400 bags of Copra at Masbate for delivery to Dipolog. The shipment was
covered by a marine insurance policy issued by American Home Insurance
Company (eventually Philam). However, M/V Prince Eric sank, which resulted to
the total loss of the shipment. Insurer Philam paid the amount of P 354,000.00,
which is the value of the copra, to Philippine Agricultural Trading Corporation.
American Home was thereby subrogated unto the rights of the consignee and
filed a case to recover money paid to the latter, based on breach of common
carriage.
While the case was pending, Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children. As a consequence of a
favorable judgment for American Home, a writ of execution to garnish Khe Hong
Cheng’s property was issued. But the writ of execution could not be
implemented because Cheng’s property were already transferred to his children.
Consequently, American filed a case for the rescission of the deeds of donation
executed by petitioner in favor of children on the ground that they were made in
fraud of his creditors. Petitioner answered that the action should be dismissed
for it already prescribed. Petitioner posited that the registration of the donation
was on December 27, 1989 and such constituted constructive notice. And since
the complaint was filed only in 1997, more than four (4) years after registration,
the action is thereby barred by prescription.
ISSUES:
Whether or not the action for the rescission of the deed of donation has
prescribed, and whether or not accion pauliana/ rescission of the deed of
donation is proper.
RULING:
NO for the first issue. Although the Civil Code provides that “The action to
claim rescission must be commenced within four (4) years” is silent as to where
the prescriptive period would commence, the general rule is such shall be
reckoned from the moment the cause of action accrues; i.e., the legal possibility
of bringing the action.
Since accion pauliana is an action of last resort after all other legal
remedies have been exhausted and have been proven futile, in the case at bar,
it was only in February 25, 1997, barely a month from discovering that petitioner
Khe Hong Cheng had no other property to satisfy the judgment award against
him that the action for rescission accrued. So the contention of Khe Hong Cheng
that the action accrued from the time of the constructive notice; i.e., December
27, 1989, the date that the deed of donation was registered, is untenable.
YES for the second issue. For an accion pauliana to accrue, the following
requisites must concur: first, the plaintiff asking for rescission has a credit prior
to the alienation, although demandable late. Second, that the debtor has made
a subsequent contract conveying a patrimonial benefit to a third person. Third,
that the creditor has no other legal remedy to satisfy his claim; but would benefit
by rescission of the conveyance to the third person. Fourth, that the act being
impugned is fraudulent, and fifth, that the third person who received the
property conveyed, if by onerous title, has been an accomplice in the fraud. All
the above enumerated elements are presents in the case at bar.
FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES
1. SICAM VS. JORGE, 8 AUGUST 2007
2. HUIBONHOA VS. CA, DEC. 14, 1999
3. ACE AGRO VS. CA, 266 SCRA 429
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU
V. JORGE and CESAR JORGE
 G.R. NO. 159617 August 8, 2007
FACTS:
On different dates from September to October 1987, Lulu V. Jorge
pawned several pieces of jewelry with Agencia de R. C. Sicam located at
No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan
in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the pawnshop
vault. Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery incident
in the pawnshop. On November 2, 1987, respondent Lulu then wrote a
letter to petitioner Sicam expressing disbelief stating that when the
robbery happened, all jewelry pawned were deposited with Far East Bank
near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested
petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband,
Cesar Jorge, filed a complaint against petitioner Sicam with the Regional
Trial Court of Makati seeking indemnification for the loss of pawned
jewelry and payment of actual, moral and exemplary damages as well as
attorney's fees. However, petitioner Sicam contends that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping of the articles
pledged with it and could not be made liable for an event that is
fortuitous.
After trial ,the RTC rendered its Decision dismissing respondents’
complaint as well as petitioners’ counterclaim. The RTC held that robbery
is a fortuitous event which exempts the victim from liability for the loss
and under Art. 1174 of the Civil Code. It further held that the
corresponding diligence required of a pawnshop is that it should take
steps to secure and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted to its custody
as it derives earnings from the pawnshop trade which petitioners failed to
do and that robberies and hold-ups are foreseeable risks in that those
engaged in the pawnshop business are expected to foresee.
ISSUE:
Whether petitioners are liable for the loss of the pawned articles in
their possession.
RULING:
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event should
not have been foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected occurrence or of
the failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for
the debtor to fulfill obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation of the injury or
loss.
The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it. And, in order for a fortuitous event to
exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss.
It has been held that an act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury
was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person's participation -- whether
by active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God.
Petitioner Sicam had testified that there was a security guard in
their pawnshop at the time of the robbery and that when he started the
pawnshop business in 1983, he thought of opening a vault with the
nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be
stored in a vault inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the possibility of
robbery was not only foreseeable, but actually foreseen and anticipated.
The testimony, in effect, contradicts petitioners’ defense of fortuitous
event. Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It
does not foreclose the possibility of negligence on the part of herein
petitioners. The presentation of the police report of the Parañaque Police
Station on the robbery committed based on the report of petitioners'
employees is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault. Also, the robbery in this case took
place in 1987 when robbery was already prevalent and petitioners in fact
had already foreseen it as they wanted to deposit the pawn with a nearby
bank for safekeeping. Thus, petitioners are negligent in securing their
pawnshop.
FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES
FLORENCIA T. HUIBONHOA, petitioner,
VS. COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM,
LORETA GOJOCCO CHUA and Spouses SEVERINO and PRISCILLA
GOJOCCO, respondents
December 14, 1999
G.R. No. 95897
FACTS:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of
agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta
Gojocco Chua stipulating that Florencia T. Huibonhoa would lease from them
(Gojoccos) three (3) adjacent commercial lots at Ilaya Street, Binondo, Manila,
described as lot nos. 26-A, 26-B and 26-C, covered by Transfer Certificates of
Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the
parties inked a contract of lease of the same three lots for a period of fifteen (15)
years commencing on July 1, 1983 and renewable upon agreement of the
parties. Subject contract was to enable the lessee, Florencia T. Huibonhoa, to
construct a "four-storey reinforced concrete building with concrete roof deck,
according to plans and specifications approved by the City Engineer's Office."
The parties agreed that the lessee could let/sublease the building and/or
its spaces to interested parties under such terms and conditions as the lessee
would determine and that all amounts collected as rents or income from the
property would belong exclusively to the lessee. The lessee undertook to
complete construction of the building "within eight (8) months from the date of
the execution of the contract of lease." The parties also agreed that upon the
termination of the lease, the ownership and title to the building thus constructed
on the said lots would automatically transfer to the lessor, even without any
implementing document therefor. Real estate taxes on the land would be borne
by the lessor while that on the building, by the lessee, but the latter was
authorized to advance the money needed to meet the lessors' obligations such
as the payment of real estate taxes on their lots. The lessors would deduct from
the monthly rental due all such advances made by the lessee.
The construction of the building was not met on the date agreed upon due
to the assassination of the then Senator Benigno Aquino Jr. It was claimed that
increase in the value of the materials was a fortuitous event, which the lower
courts did not consider as such.
ISSUE:
Whether or not the assassination of Senator Benigno Aquino Jr., which
caused inflation, was a fortuitous event.
RULING:
The Supreme Court found no merit in petitioner’s submission that the
assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event that
justified a modification of the terms of the lease contract.
A fortuitous event is that which could not be foreseen, or which even if
foreseen, was inevitable. To exempt the obligor from liability for a breach of an
obligation due to an "act of God", the following requisites must concur: (a) the
cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
In the case under scrutiny, the assassination of Senator Aquino may
indeed be considered a fortuitous event. However, the said incident per se could
not have caused the delay in the construction of the building. What might have
caused the delay was the resulting escalation of prices of commodities including
construction materials. Be that as it may, there is no merit in Huibonhoa's
argument that the inflation borne by the Filipinos in 1983 justified the delayed
accrual of monthly rental, the reduction of its amount and the extension of the
lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a
corresponding increase in business transaction. There is inflation when there is
an increase in the volume of money and credit relative to available goods
resulting in a substantial and continuing rise in the general price level. While it
is of judicial notice that there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be considered
unforeseeable considering that since the 1970's we have been experiencing
inflation. It is simply a universal trend that has not spared our country.
Conformably, this Court upheld the petitioner's view in Occena v. Jabson that
even a worldwide increase in prices does not constitute a sufficient cause of
action for modification of an instrument. It is only when an extraordinary
inflation supervenes that the law affords the parties a relief in contractual
obligations. In Filipino Pipe and Foundry Corporation v. NAWASA, the Court
explained extraordinary inflation thus:
"Extraordinary inflation exists when 'there is a decrease or increase in the
purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency’, and such decrease or
increase could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.”
No decrease in the peso value of such magnitude having occurred,
Huibonhoa has no valid ground to ask this Court to intervene and modify the
lease agreement to suit her purpose. As it is, Huibonhoa even failed to prove by
evidence, documentary or testimonial, that there was an extraordinary inflation
from July 1983 to February 1984. Although she repeatedly alleged that the cost
of constructing the building doubled from P6 million to P12 million, she failed to
show by how much, for instance, the price index of goods and services had risen
during that intervening period. An extraordinary inflation cannot be assumed.
Hence, for Huibonhoa to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation
was the sole and proximate cause of the loss or destruction of the or, in this
case, of the delay in the construction of the building. Having failed to do so,
Huibonhoa's contention is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment of
Huibonhoa's obligation under the lease contract, she chose the wrong remedy in
filing the case for reformation of the contract. Instead, she should have availed
of the remedy of recission of contract in order that the court could release her
from performing her obligation under Arts. 1266 and 1267 of the Civil Code, so
that the parties could be restored to their status prior to the execution of the
lease contract.
FORTUITOUS EVENTS/ CASO FORTUITO – REQUISITES
ACE-AGRO DEVELOPMENT CORP. VS. CA
266 SCRA 429
FACTS:
Petitioner Ace-Agro Development Corporation and private respondent
Cosmos Bottling Corporation entered into a service contract covering the period
from January 1, 1990 to December 31, 1990. According to the agreement, the
former shall clean soft drink bottles and repair wooden shells for private
respondent. The service contract was suspended on account of a fire on April which relieved the parties of their respective obligations but did not stop the
25, 1990 which destroyed the area where petitioner did its work. running of the period of their contract.

Respondent terminated the service contract due to the fire. Petitioner

sent several letters for reconsideration, which the respondent willingly EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
considered through its letters dated August 29, 1990 and November 7, 1990
directing petitioner to resume its work. Petitioner, however, refused to continue 1. DIOQUINO VS. LAUREANO, 33 SCRA 65
its work on two reasons. First, the August 29 letter did not allow them to resume 2. BACHELOR EXPRESS VS. CA, 193 S 216
their work on respondent’s premises which will be quite costly for them. Second, 3. VASQUEZ VS. CA, 138 SCRA 558
petitioner requested for an extension of two (2) months for their contract on 4. YOBIDO VS. CA, OCT. 17, 1997
account of the fire which the respondent did not heed into. 5. JUNTILLA VS. FONTANAR, 136 SCRA 625
6. PHILAMGEN INSURANCE VS. MGG MARINE, MAR 8 , 2002
ISSUES: 7. MINDEZ VS. MORILLO, MAR. 12, 2002
1. Whether or not force majeure or fortuitous event is present in the case. 8. NAPOCOR VS. PHILLIP BROS, 369 SCRA 626
2. Whether or not the respondet was justified in unilaterally terminating the
contract due to a fortuitous event.
3. Whether or not the fortuitous event allows the extension of a contract.
PEDRO DIOQUINO, plaintiff-appellee,
RULING: VS. FEDERICO LAUREANO, AIDA DE LAUREANO, and
1. YES. Pursuant to Article 1174 of the Civil Code, “Except in cases expressly JUANITO LAUREANO, defendants-appellants
specified by law, or when it is otherwise declared by stipulation, or when the 33 SCRA 65
nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though FACTS:
foreseen, were inevitable.” The requisites for an event to be considered a Petitioner Dioquino met respondent Laureano at the MVO office when the
fortuitous event are as follows: First, the cause of breach must be former went to register his car at the said office. Respondent was a patrol
independent of the will of the obligor. Second, the event must be officer of the MVO office and at the time was waiting for a jeepney to take him to
unforeseeable or inevitable. Third, the event must be such as to render it the office of the Provincial Copmmander. Petitioner requested respondent to
impossible for the debtor to fulfill his obligation in a normal manner. And introduce him to one of the clerks in the MVO office, who could facilitate the
fourth, the debtor must be free from any participation in, or aggravation of, registration of his car and the request was graciously attended to. Afterwards,
the injury to the creditor. In this case, all the mentioned requisites are respondent rode on the car of petitioner with petitioner’s driver to the office of
present. the provincial commander. Along the way, some mischievous boys stoned the
car and its windshield was broken. Respondent chased and was able to catch
2. NO. The fortuitous event that happened in this case could not warrant a one of the boys and took him to petitioner. The petitioner, however, did not file
termination of the service contract; but rather, it only temporarily suspends charges against the boy and his parents because the stone throwing was merely
the performance of the obligation. The unilateral termination therefore accidental and due to force majeure. Respondent refused to pay the windshield
shifted on petitioner’s part when it unreasonably refused to continue its himself, even after petitioner tried to settle and even asked respondent’s wife to
services. convince her husband, since the same due to force majeure.

3. NO. Fortuitous events do not automatically warrant an extension for the Petitioner prevailed in the trial court. Hence, this appeal to the Court was
period of a contract, especially that this case is one which has a resolutory filed.
condition. The fact is that the contract was subject to a resolutory period
ISSUE:
Whether or not the respondent is liable for the broken windshield of
petitioner’s car.
RULING:
The damage to the windshield caused by the mischievous boys was a
fortuitous event resulting in a loss, which must be borne by the owner of the car.
Article 1174 of the Civil Code provides that if the nature of the obligation
requires the assumption risk, compels the conclusion that in the absence of a
legal provision or an express covenant, “no one should be held to account for
fortuitous cases.”
Where the risk is quite evident such that the possibility of danger is not
only foreseeable, but also actually foreseen, then it could be said that the nature
of the obligation is such that a party could rightfully be deemed to have
assumed it. It is not enough therefore that the event should not have been
foreseen or anticipated, but it must be one impossible to foresee or to avoid in
order that a party may be said to have assumed the risk resulting from the
nature of the obligation itself.
In the case, there is no assumption of risk by the borrower of a car to
respond to damages for the broken windshield caused by an accidental stone-
throwing incident by boys playing along the road. Decision reversed as to the
liability of respondent.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
Bachelor Express vs CA
GR. NO. 85691, July 31, 1990
FACTS:
On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and
driven by Cresencio Rivera, came from Davao City on its way to Cagayan
de Oro City passing Butuan City. While at Tabon-Tabon, Butuan City, the
bus picked up a passenger. About 15 minutes later, a passenger at the
rear portion suddenly stabbed a PC soldier which caused commotion and
panic among the passengers. When the bus stopped, passengers
Ornominio Beter and Narcisa Rautraut were found lying down the road,
the former already dead as a result of head injuries and the latter also
suffering from severe injuries which caused her death later. The
passenger-assailant alighted from the bus and ran toward the bushes but
was killed by the police.
Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut
(Ricardo Beter and Sergia Beter are the parents of Ornominio while Teofilo
Rautraut and Zotera Rautraut are the parents of Narcisa) filed a complaint
for “sum of money” against Bachelor Express, its alleged owner Samson
Yasay, and the driver Rivera. After due trial, the trial court issued an order
dated 8 August 1985 dismissing the complaint. The CA however reversed
the RTC decision.
ISSUES:
1. Whether or not the case at bar is within the context of force
majeure.
2. Should the petitioner be absolved from liability for the death of its
passengers?
RULING:
The sudden act o the passenger who stabbed another passenger in
the bus is within the context of force majeure. However, in order that a
common carrier may be absolved from liability in case of force majeure, it
is not enough that the accident was caused by force majeure. The
common carrier must still proves that it was not negligent in causing the
injuries resulting from such accident. Considering the factual findings in
this case, it is clear that petitioner has failed to overcome the
presumption of fault and negligence found in the law governing common
carriers. The argument that the petitioners are not insurers of their
passengers deserves no merit in view of the failure of the petitioners to
observe extraordinary diligence in transporting safely the passengers to
their destination as warranted by law.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
VASQUEZ VS. COURT OF APPEALS
138 SCRA 558
FACTS:
A vessel sailed from Manila to Cebu despite the knowledge by the captain
and officers that a typhoon was building up somewhere in Mindanao. When it
passed Tanguigui Island, the weather suddenly changed and the vessel struck a
reef, sustained leaks and eventually sunk. The ship sunk with the children of the
petitioners who sued for damages before the CFI of Manila, which was granted.
Respondents defense of force majeure to extinguish its liability were not
entertained. On appeal, the judgment was reversed.
ISSUE:
Whether or not the defense of force majeure is tenable.
RULING:
NO. A fortuitous event is constituted by the following: 1) The event must
be independent of the human will; 2) the occurrence must render it impossible
for the debtor to fulfill the obligation in a normal manner; and 3) the obligor
must be free of participation in the aggravation of the injury suffered by the
obligee or if it could be foreseen, it must have been impossible to avoid. There
must be an entire exclusion of human agency from the cause of the injury or
loss. Such is not the case at bar. The vessel still proceeded even though the
captain already knew that they were within the typhoon zone and despite the
fact that they were kept posted about the weather conditions. They failed to
exercise that extraordinary diligence required from them, explicitly mandated by
the law, for the safety of the passengers.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
YOBIDO VS. COURT OF APPEALS
281 SCRA 01
G.R. No. 113003
Oct. 17, 1997
FACTS:
On April 26, 1988, spouses Tito and Leny Tumboy and their minor children
named Ardee and Jasmin, boarded at Mangagoy , Surigao Del Sur, a Yobido Liner
bus bound for Davao City. Along Picop Road in Km. 17, Sta.Maria, Agusan del
Sur, the left front tire of the bus exploded. The bus fell into a ravine around
three (3) feet from the road and struck a tree. The incident resulted in the death
of 28-year-old Tito Tumboy and physical injuries to other passengers. On Nov.
21, 1988, a complaint for breach of contract of carriage, damages and attorney’s
fees was filed by Leny and her children against Alberta Yobido, the owner of the
bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao
City. When the defendants therein filed their answer to the complaint, they
raised the affirmative defense of caso fortuito. They also filed a third-party
complaint against Philippine Surety and Insurance, Inc. This third-party
defendant filed an answer with compulsory counterclaim. At the pre-trial
conference, the parties agreed to a stipulation of facts.
On August 29, 1991, the lower court rendered a decision dismissing the
action for lack of merit. On the issue of whether or not the tire blowout was a
caso fortuito, it found that “the falling of the bus to the cliff was a result of no
other outside factor than the tire bolw-out.” It held that the ruling in the La
Mallorca and Pampanga Bus Co. v. De Jesus that a tire blowout is a “mechanical
defect of the conveyance or a fault in its equipment which was easily
discoverable if the bus had been subjected to a more thorough or rigid check-up
before it took to the road that morning” is inapplicable to this case. It reasoned
out that in said case. It reasoned out that in said case, it was found that the
blowout was caused by the established fact that the inner tube of the left front
tire “was pressed between the inner circle of the left wheel and the rim which
had slipped out of the left wheel “. In this case, however,” the cause of the
explosion remains a mystery until at present.” As such, the court added, the tire
blowout was “a caso fortuito which is completely an extraordinary circumstance
independent of the will” of the defendants who should be relieved of “whatever
liability the plaintiffs may have suffered by reason of the explosion pursuant to
Article 1174 of the Civil Code.”
ISSUE:
Whether or not the Trial Court erred in their findings that the tire blowout
was a caso fortuito.
RULING:
On August 23, 1193, the Court of Appeals rendered the decision reversing
the decision of the trial court. Article 1755 provides that “(a) common carrier is
bound to carry the passenger safely as far as human care and foresight can
provide, using the utmost diligence very cautious persons, with a due regard for
all the circumstances”. Accordingly, in culpa contractual, once a passenger dies
or is injured, the carrier is presumed to have been at fault or to have acted
negligently. The disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligences as prescribed by Articles
1733, 1755 and 1756 of the Civil Code or that the injury of the passenger was
due to fortuitous event. Consequently, the court need make an express finding
of fault or negligence on the part of the carrier to hold it responsible for
damages sought by the passenger.
The decision of the Court of Appeals was affirmed subject to the
modification that petitioners shall, in addition to the monetary awards therein,
be liable for the award of exemplary damages in the amount of P20,000.00.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
ROBERTO JUNTILLA VS. CLEMENTE FONTANAR
136 SCRA 625
G.R. No. L-45637
FACTS:
The plaintiff was a passenger of the public utility jeepney on the course of
the trip from Danao City to Cebu City. The jeepney was driven by defendant
Berfol Camoro. It was registered under the franchise of defendant Clemente
Fontanar but was actually owned by defendant Fernando Banzon. When the
jeepney reached Mandaue City, the right rear tire exploded causing the vehicle
to turn turtle. The plaintiff who was sitting at the front seat was thrown out of
the vehicle and momentarily lost consciousness. When he came to his senses,
he found that he had a lacerated wound on his right palm and injuries on his left
arm, right thigh and on his back. Because of his shock and injuries, he went
back to Danao City but on the way, he discovered that his "Omega" wrist watch
was lost. Upon his arrival in Danao City, he immediately entered the Danao City
Hospital to attend to his injuries, and also requested his father-in-law to proceed
immediately to the place of the accident and look for the watch. In spite of the
efforts of his father-in-law, the wrist watch could no longer be found.
ISSUE:
Whether or not the accident that happened was due to a fortuitous event,
thereby, absolving the respondents from any obligation.
RULING:
NO. The accident was not due to a fortuitous event. There are specific
acts of negligence on the part of the respondents. The passenger jeepney
turned turtle and jumped into a ditch immediately after its right rear tire
exploded. It was running at a very high speed before the accident and was
overloaded. The petitioner stated that there were three (3) passengers in the
front seat and fourteen (14) passengers in the rear.
While the tire that blew-up was still good because the grooves were still
visible, this does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to avert possible
accidents. The blowing-up of the tire, therefore, could have been caused by too
much air pressure and aggravated by the fact that the jeepney was overloaded
and speeding at the time of the accident.
The accident was caused either through the negligence of the driver or
because of mechanical defects in the tire. Common carriers are obliged to
supervise their drivers and ensure that they follow rules and regulations such as
not to overload their vehicles, not to exceed safe and legal speed limits, and to
know the correct measures to take when a tire blows up.
The source of a common carrier's legal liability is the contract of carriage,
and by entering into the said contract, it binds itself to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with a due regard for all the circumstances.
The driver and the owner of the vehicle are liable for damages.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC,
VS. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN
 2002 Mar 8
G.R. No. 135645
FACTS:
On March 1, 1987, San Miguel Corporation insured several beer bottle
cases with an aggregate value of P5,836,222.80 with petitioner Philippine
American General Insurance Company. The cargo were loaded on board the M/V
Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del
Sur.
After having been cleared by the Coast Guard Station in Cebu the
previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur
on March 2, 1987. The weather was calm when the vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and
subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence
thereof, the cargo belonging to San Miguel Corporation was lost. Subsequently,
San Miguel Corporation claimed the amount of its loss from petitioner.
The Court of Appeals observed respondents from any liability because the
cargo was lost due to a fortuitous event; strong winds and huge waves caused
the vessel to sink.
ISSUE:
Whether the loss of the cargo was due to the occurrence of a natural
disaster, and if so, whether such natural disaster was the sole and proximate
cause of the loss or whether private respondents were partly to blame for failing
to exercise due diligence to prevent the loss of the cargo.
RULING:
Common carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them. Owing
to this high degree of diligence required of them, common carriers, as a general
rule, are presumed to have been at fault or negligent if the goods transported by
them are lost, destroyed or if the same deteriorated.
The parties do not dispute that on the day the M/V Peatheray Patrick-G
sunk, said vessel encountered strong winds and huge waves ranging from six to
ten feet in height. The vessel listed at the port side and eventually sunk at Cawit
Point, Cortes, Surigao del Sur.
In the case at bar, it was adequately shown that before the M/V Peatheray
Patrick-G left the port of Mandaue City, the Captain confirmed with the Coast
Guard that the weather condition would permit the safe travel of the vessel to
Bislig, Surigao del Sur. Thus, he could not be expected to have foreseen the
unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur.
It was the presence of the strong winds and enormous waves which caused the
vessel to list, keel over, and consequently lose the cargo contained therein. The
appellate court likewise found that there was no negligence on the part of the
crew of the M/V Peatheray Patrick-G. Since the presence of strong winds and
enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to be
the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and
the loss of the cargo belonging to San Miguel Corporation, private respondents
cannot be held liable for the said loss.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
MINDEZ RESOURCES DEVELOPMENT VS. MORILLO
379 SCRA 144
March 12, 2002
FACTS:
On February 1991 a verbal agreement was entered into between Ephraim
Morillo and Mindex Resources Corporation fro the lease of the former’s 6x6 10-
wheeler cargo truck for use in Mindex’s mining operations in Oriental Mindoro at
a stipulated rental of P300.00 per hour for a minimum of 8 hours a day or a total
of P2,400.00 daily. Mindex was paying its rentals until April 10, 1991. On April
11, unidentified persons burned the truck while it was parked unattended at San
Teodoro, Oriental Mindoro due to mechanical trouble. Upon learning the burning
incident, Morillo offered to sell the truck to Mindex but the latter refused.
Instead, it replaced the vehicle’s burned tires and had it towed to a shop for
repair and overhauling. On April 15, 1991, Morillo sent a letter to Mindex
proposing that he will entrust the said vehicle in the amount of P275,000.00 that
is its cost price without charging for the encumbrance of P76,800.00.
Mindex responded by a hand written letter expressing their reservations
on the above demands due to their tight financial situation. However, he made
counter offers which state that they will pay the rental of the 6x6 truck in the
amount of P76,000.00, repair and overhaul the truck on their own expenses and
return it to Morillo on good running condition after repair. April 18, Morillo
replied that he will relinquish to Mindex the damaged truck; that he is amenable
to receive the rental in the amount of P76, 000.00; and that Mindex will pay
P50,000.00 monthly until the balance of P275,000.00 is fully paid. Except for his
acceptance of the proffered P76,000.00 unpaid rentals. Morillo’s stand has not
been changed as he merely lowered the first payment on the P275,000.00
valuation of the truck from P150,000.00 to P50,000.00.
The parties had since remain intransigent and so on August, Morillo pulled
out the truck from the repair shop of Mindex and had it repaired elsewhere for
which he spent the amount of P132,750.00. The RTC found petitioner
responsible fro the destruction of loss of the leased 6x6 truck and ordered it to
pay respondent P76,000.00 as balance of the unpaid rental for the 6x6 truck
with interest of 12%, P132,750.00 representing the cost of repair and overhaul
of the truck with interest of 12% until fully paid; and P20,000.00 as attorney’s
fees.
The appellate court sustained RTC’s finding. The CA found petitioner was
not without fault for the loss and destruction of the truck and thus liable
therefore. However, it modified the 12% interest on the P76,000.00 rentals and
P132,750.00 repair cost to 6% per annum form June 22, 1994 to the date of
finality of the said decision. It affirmed the award of attorney’s fees.
ISSUE:
Whether or not the CA is correct in finding the petitioner liable due to
negligence and cannot be exonerated due to the defense of fortuitous event.
RULING:
YES. As stated by the Court of Appeals, “the burning of the subject truck
was impossible to foresee, but not impossible to avoid. Mindex could have
prevented the incident by immediately towing the truck to a motor shop for
repair.
In this case, petitioner was found negligent and thus liable for the loss or
destruction of the leased truck. Article 1174 of the Civil Code states that, “No
person shall be responsible for a fortuitous event that could not be foreseen or,
though foreseen, was inevitable. In other words, there must be an exclusion of
human intervention form the cause of injury on loss.” In this case, the petitioner
is contributory negligent to the incident.
Decision was denied. Deleting attorney’s fees, modified the RTC and CA’s
decision.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
NATIONAL POWER CORPORATION
VS. PHILIPP BROTHERS OCEANIC, INC.
G.R. No. 126204
November 20, 2001
369 SCRA 629
FACTS:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued
invitations to bid for the supply and delivery of 120,000 metric tons of imported
coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The
Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to
participate as one of the bidders. After the public bidding was conducted,
PHIBRO’s bid was accepted. NAPOCOR’s acceptance was conveyed in a letter
dated July 8, 1987, which was received by PHIBRO on July 15, 1987.
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes
might soon plague Australia, the shipment’s point of origin, which could seriously
hamper PHIBRO’s ability to supply the needed coal unless a “strike-free” clause
is incorporated in the charter party or the contract of carriage. In order to hasten
the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the
burden of a “strike-free” clause. NAPOCOR refused. On August 6, 1987, PHIBRO
received from NAPOCOR a confirmed and workable letter of credit. Instead of
delivering the coal on or before the thirtieth day after receipt of the Letter of
Credit, as agreed upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the
delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this
subsequent bidding but its application was denied for not meeting the minimum
requirements. However, PHIBRO found that the real reason for the disapproval
was its purported failure to satisfy NAPOCOR’s demand for damages due to the
delay in the delivery of the first coal shipment. Thus, PHIBRO filed an action for
damages with application for injunction against NAPOCOR with the Regional Trial
Court, Branch 57, Makati City. In its complaint, PHIBRO alleged that NAPOCOR’s
act of disqualifying it in the October 1987 bidding and in all subsequent biddings
was tainted with malice and bad faith. PHIBRO prayed for actual, moral and
exemplary damages and attorney’s fees.
 On the other hand NAPOCOR averred that the strikes in Australia could not
be invoked as reason for the delay in the delivery of coal because PHIBRO itself
admitted that as of July 28, 1987 those strikes had already ceased. Furthermore,
NAPOCOR claimed that due to PHIBRO’s failure to deliver the coal on time, it was
compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for
actual damages in the amount of P12,436,185.73, representing the increase in
the price of coal, and a claim of P500,000.00 as litigation expenses.
On January 16, 1992, the trial court rendered a decision in favor of
PHIBRO. Unsatisfied, NAPOCOR elevated the case to the Court of Appeals which
affirmed in toto the latter’s decision. Hence, this present petition.
ISSUE:
Whether or not the lower court erred in holding that PHIBRO’s delay in the
delivery of imported coal was due to force majeure.
RULING:
It was disclosed from the records of the case that what prevented PHIBRO
from complying with its obligation under the July 1987 contract was the
industrial disputes which besieged Australia during that time. The Civil Code
provides that no person shall be responsible for those events which could not be
foreseeen, or which, though foreseen, were inevitable. This means that when an
obligor is unable to fulfill his obligation because of a fortuitous event or force
majeure, he cannot be held liable for damages for non-performance.
In addition to the above legal precept, it is worthy to note that PHIBRO
and NAPOCOR explicitly agreed in Section XVII of the “Bidding Terms and
Specifications that “neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable
for any delay in or failure of the performance of its obligations, other than the
payment of money due, if any such delay or failure is due to Force
Majeure.” “Strikes” then are undoubtedly included in the force majeure clause
of the Bidding Terms and Specifications.
TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS
1. UNION BANK VS. SANTIBANEZ, 452 S 228
2. SAN AGUSTIN VS. CA, 371 SCRA 348
3. PROJECT BUILDERS, INC. VS. CA, 358 SCRA 626
UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAÑEZ
and FLORENCE SANTIBAÑEZ ARIOLA
G.R. No. 149926 2005 Feb 23
FACTS:
On May 31, 1980, the First Countryside Credit Corporation (FCCC)
and Efraim M. Santibañez entered into a loan agreement in the amount of
P128,000.00. The amount was intended for the payment of the purchase
price of one unit Ford 6600 Agricultural All-Purpose Diesel Tractor. In view
thereof, Efraim and his son, Edmund, executed a promissory note in favor
of the FCCC, the principal sum payable in five equal annual amortizations
of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to
May 31, 1985.
On December 13, 1980, the FCCC and Efraim entered into another
loan agreement, this time in the amount of P123,156.00. It was intended
to pay the balance of the purchase price of another unit of Ford 6600
Agricultural All-Purpose Diesel Tractor, with accessories, and one unit
Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund,
executed a promissory note for the said amount in favor of the FCCC.
Aside from such promissory note, they also signed a Continuing Guaranty
Agreement for the loan dated December 13, 1980.
Sometime in February 1981, Efraim died, leaving a holographic will.
Subsequently in March 1981, testate proceedings commenced before the
RTC of Iloilo City. On April 9, 1981, Edmund, as one of the heirs, was
appointed as the special administrator of the estate of the decedent.
During the pendency of the testate proceedings, the surviving heirs,
Edmund and his sister Florence Santibañez Ariola, executed a Joint
Agreement dated July 22, 1981, wherein they agreed to divide between
themselves and take possession of the three tractors; that is, two tractors
for Edmund and one tractor for Florence. Each of them was to assume the
indebtedness of their late father to FCCC, corresponding to the tractor
respectively taken by them.
On August 20, 1981, a Deed of Assignment with Assumption of
Liabilities was executed by and between FCCC and Union Savings and
Mortgage Bank, wherein the FCCC as the assignor, among others,
assigned all its assets and liabilities to Union Savings and Mortgage Bank.
Demand letters for the settlement of his account were sent by petitioner
Union Bank of the Philippines (UBP) to Edmund, but the latter failed to
heed the same and refused to pay. Thus, on February 5, 1988, the
petitioner filed a Complaint for sum of money against the heirs of Efraim
Santibañez, Edmund and Florence, before the RTC of Makati City.
ISSUE:
1. Whether in testate succession, there can be no valid partition
among the heirs.
2. Whether or not the heirs’ assumption of the indebtedness of the
deceased is binding.
3. Whether or not the petitioner can hold the heirs liable on the
obligation of the deceased.
RULING:
1. In testate succession, there can be no valid partition among the
heirs until after the will has been probated. The law enjoins the probate
of a will and the public requires it, because unless a will is probated and
notice thereof given to the whole world, the right of a person to dispose of
his property by will may be rendered nugatory. It presupposes that the
properties to be partitioned are the same properties embraced in the will.
The court then agrees with the appellate court that the provisions
stated in the will is an all-encompassing provision embracing all the
properties left by the decedent which might have escaped his mind at
that time he was making his will, and other properties he may acquire
thereafter. This being so, any partition involving the said tractors among
the heirs is not valid. The joint agreement executed by Edmund and
Florence, partitioning the tractors among themselves, is invalid, specially
so since at the time of its execution, there was already a pending
proceeding for the probate of their late father’s holographic will covering
the said tractors.
2. The heirs’ assumption of the indebtedness is not binding. The
assumption of liability was conditioned upon the happening of an event,
that is, that each heir shall take
possession and use of their respective share under the agreement. It was
made dependent on the validity of the partition, and that they were to
assume the indebtedness corresponding to the chattel that they were
each to receive. The partition being invalid, the heirs in effect did not
receive any such tractor. It follows then that the assumption of liability
cannot be given any force and effect.
3. Florence S. Ariola could not be held accountable for any liability
incurred by her late father. The documentary evidence presented,
particularly the promissory notes and the continuing guaranty agreement,
were executed and signed only by the late Efraim Santibañez and his son
Edmund. As the petitioner failed to file its money claim with the probate
court, at most, it may only go after Edmund as co-maker of the decedent
under the said promissory notes and continuing guaranty, of course,
subject to any defenses Edmund may have as against the petitioner.
However, the court had not acquired jurisdiction over the person of
Edmund. Also, the petitioner had not sufficiently shown that it is the
successor-in-interest of the Union Savings and Mortgage Bank to which
the FCCC assigned its assets and liabilities.
TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS
SAN AGUSTIN VS. COURT OF APPEALS
371 S 348
FACTS:
 On February 11, 1974, the Government Service Insurance System (GSIS)
sold to Macaria Vda de Caiquep, a parcel or residential land located in Pasig City,
part of the GSIS Low Cost Housing Project evidenced by a Deed of Absolute Sale.
On February 19, 1974, the Register of Deeds of Rizal issued in the name
of Caiquep, Transfer Certificate of Title. The next day, Caiquep sold the subject
lot to private respondent Maximo Menez. Sometime in 1979, for being
suspected as a subversive, military men ransacked Menez's’ house in Rizal. He
surrendered to the authorities and was detained for two years. When released,
another order for his arrest was issued so he hid in Mindanao for another four
years or until March 1984. In December 1990, he discovered that the subject
TCT was missing. He consulted a lawyer but the latter did not act immediately
on the matter. Upon consulting a new counsel, an Affidavit of Loss was filed with
the Register of Deeds and a certified copy of TCT was issued. Private respondent
also declared the property for tax purposes and obtained a certification thereof
from the Assessor’s office. His search for the registered owner to different parts
of the country failed prompting the former to file a petition for the issuance of
owner’s duplicate copy to replace the lost one.
During the hearing, only Menez and counsel were present because the
Register of Deeds and the Provincial Prosecutor were not notified. The trial court
granted his petition after Menez presented his evidence ex parte. San Agustin
claimed this was the first time he became aware of the case of his aunt Ma. Vda
de Caiquep and the present occupant of the property. He filed A Motion to
Reopen Reconstitution Proceedings but RTC denied said motion. Petitioner
moved for motion for reconsideration but was again denied.
ISSUE:
Whether or not petitioner is bound by the contract entered into by his
predecessor-in-interest.
RULING:
Yes, petitioner is bound by contracts entered into by his predecessor’s-in-
interest. Heirs are bound by contracts entered into by their predecessors-in-
interest. In this case, the GSIS has not filed any action for the annulment of Deed
of Absolute Sale of the lot the latter sold to Caiquep, nor the forfeiture of the lot
in question.
In the Court’s view, the contract of sale remains valid between the parties,
unless and until annulled in the proper suit filed by the rightful party, the GSIS.
For now, the said contract of sale is binding upon the heirs of Macaria Vda de
Caiquep., including petitioner who alleges to be one of her heirs, in line with the
rule that heirs are bound by contracts entered into by their predecessors-in-
interest.
TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS
PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO
ENRIQUEZ, petitioners, vs. THE COURT OF APPEALS and INDUSTRIAL
FINANCE CORPORATION, respondents
2001 Jun 19
358 SCRA 626
FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an
agreement whereby it was agreed that plaintiff would provide a maximum
amount of P2,000,000.00 against which said defendant would discount and
assign to plaintiff on a ‘with recourse non-collection basis’ its (PBI’s) accounts
receivable under the contracts to sell specified in said agreement. Eventually,
the same parties entered into an agreement whereby it was agreed that PBI’s
credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the
credit line of P5,000,000.00 granted includes the amount already
assigned/discounted.Against the above-mentioned ‘credit line,’ defendant PBI
discounted with plaintiff on different dates accounts receivables with different
maturity dates from different condominium-unit buyers. The total amount of
receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty
accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to
defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66
represents the discounting fee or finance fee.
To secure compliance with the terms and conditions of the agreement
defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account, plaintiff
foreclosed the mortgage and plaintiff was the highest bidder in the amount of
P3,500,000.00. The foreclosed property was redeemed a year later but after
application of the redemption payment, plaintiff claims that there is still a
deficiency in the amount of P1,323,053.08.
A collection suit was then filed by IFC against PBI. However, PBI denied
liability alleging that IFC has no case or right of action because the obligation is
fully paid out of the proceeds of foreclosure sale of its property. Further, it
alleged that a proper accounting of the transaction between the parties will show
that it is the IFC who is liable to PBI.
The trial court dismissed the complaint but the Court of Appeals reversed
it. It ordered PBI to pay IFC the deficiency in the amount of P1,237,802.48 and
the monetary interests.
ISSUE:
Whether or not said Republic Act No. 5980 should govern the transaction
between petitioners and private respondent which in reality was bilateral, not
trilateral, and respondent financing company was not really subrogated in the
place of the supposed seller or assignor.
RULING:
The assignment of the contracts to sell falls within the purview of the Act.
The term credit has been defined to - "(c) x x x mean any loan, mortgage, deed
of trust, advance, or discount; any conditional sales contract, any contract to
sell, or sale or contract of sale of property or service, either for present or future
delivery, under which, part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; any option,
demand, lien, pledge, or other claim against, or for the delivery of, property or
money, any purchase, or other acquisition of or any credit upon the security of,
any obligation or claim arising out of the foregoing; and any transaction or series
of transactions having a similar purpose or effect.”
An assignment of credit is an act of transferring, either onerously or
gratuitously, the right of an assignor to an assignee who would then be capable
of proceeding against the debtor for enforcement or satisfaction of the credit.
The transfer of rights takes place upon perfection of the contract, and ownership
of the right, including all appurtenant accessory rights, is thereupon acquired by
the assignee. The assignment binds the debtor only upon acquiring knowledge
of the assignment but he is entitled, even then, to raise against the assignee the
same defenses he could set up against the assignor. Where the assignment is
on account of pure liberality on the part of the assignor, the rules on donation
would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.
Upon an assignment of a contract to sell, the assignee is effectively
subrogated in place of the assignor and in a position to enforce the contract to
sell to the same extent as the assignor could.
An insistence of petitioners that the subject transaction should be
considered a simple loan since private respondent did not communicate with the
debtors, condominium unit buyers, to collect payment from them, is untenable.
In an assignment of credit, the consent of the debtor is not essential for its
perfection, his knowledge thereof or lack of it affecting only the efficaciousness
or inefficaciousness of any payment he might make.
The assignment, it might be pointed out, was "with recourse," and default
in the payment of installments had been duly established when petitioner
corporation foreclosed on the mortgaged parcels of land. The resort to
foreclosure of the mortgaged properties did not preclude private respondent
from collecting interest from the assigned Contracts To Sell from the time of
foreclosure to the redemption of the foreclosed property. The imposition of
interest was a mere enforcement or exercise of the right to the ownership of the
credit or receivables which the parties stipulated in the 1976 financing
agreement. Thus -"f. That the Assignor shall comply with all the terms and
conditions specified on the said Contracts to Sell, executed by the assignor and
its individual purchaser or customers, and assigned/discounted to Assignee.”
One of the provisions in the contracts to sell, subject matter of the
assignment agreement, related to the imposition of interest in the event of
default by the debtor in the payment of installments, to wit: "All payments shall
be made on or before their respective due dates without necessity of demand
therefor, and failure to make such payments on time shall entitle the Developer
to charge interest at the rate of one percent (1%) per month without prejudice to
the other remedies available to the Developer.” As owner of the account
receivables, private respondent was impressed with the entitlement over such
interest payment.
REQUISITES OF CONDITIONAL OBLIGATIONS (Art. 1179, CC)
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
VS. COURT OF APPEALS, Sps. NORMY D. CARPIO and CARMEN ORQUISA;
Sps. ROLANDO D. CARPIO and RAFAELA VILLANUEVA; Sps. ELISEO D.
CARPIO and ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C.
REYES,
JULIET REYES-RUBIN, respondents
1996 September 20
G.R. No. 118180
262 SCRA 245

FACTS:
Private respondents were the original owner of a parcel of agricultural
land covered by a TCT, with an area of 113,695 square meters, more or less. On
30 May 1977, Private respondents mortgaged said land to petitioner. When
private respondents defaulted on their obligation, petitioner foreclosed the
mortgage on the land and emerged as sole bidder in the ensuing auction sale.
Consequently, a TCT was eventually issued in petitioner's name. On 6 April 1984
petitioner and private respondents entered into a Deed of Conditional Sale
wherein petitioner agreed to reconvey the foreclosed property to private
respondents.
The Deed provided, among others, that: “the VENDEES offered to
repurchase and the VENDOR agreed to sell the above-described property,
subject to the terms and stipulations as hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down
payment of P8,900.00 and the balance of P64,800 shall be payable in six (6)
years on equal quarterly amortization plan at 18% interest per annum. The first
quarterly amortization of P4,470.36 shall be payable three months from the date
of the execution of the documents and all subsequent amortization shall be due
and payable every quarter thereafter. . .that, upon completion of the payment
herein stipulated and agreed, the Vendor agrees to deliver to the Vendee/s(,) his
heirs, administrators and assigns(,) a good and sufficient deed of conveyance
covering the property, subject matter of this deed of conditional sale, in
accordance with the provision of law.”
On 6 April 1990, upon completing the payment of the full repurchase
price, private respondents demanded from petitioner the execution of a Deed of
Conveyance in their favor. Petitioner then informed private respondents that the
prestation to execute and deliver a deed of conveyance in their favor had
become legally impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec.
1 of E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance
with damages against petitioner before the RTC. The trial court rendered
judgment ordering defendant to execute and deliver unto plaintiffs a deed of
final sale of there land subject of their deed of conditional sale.
Dissatisfied, petitioner appealed to the CA, still insisting that its obligation
to execute a Deed of Sale in favor of private respondents had become a legal
impossibility and that the non-impairment clause of the Constitution must yield
to the demands of police power. The CA rendered judgment dismissing
petitioner's appeal.
ISSUE:
Whether or not the petitioner’s prestation to execute and deliver a deed of
conveyance in favor of private respondents had become legally impossible in
view of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or
CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued 10 June 1990.
RULING:
If the obligation depends upon a suspensive condition, the demandability
as well as the acquisition or effectivity of the rights arising from the obligation is
suspended pending the happening or fulfillment of the fact or event which
constitutes the condition. Once the event which constitutes the condition is
fulfilled resulting in the effectivity of the obligation, its effects retroact to the
moment when the essential elements which gave birth to the obligation have
taken place. Applying this precept to the case, the full payment by the appellee
on April 6, 1990 retracts to the time the contract of conditional sale was
executed on April 6, 1984. From that time, all elements of the contract of sale
were present. Consequently, the contract of sale was perfected. As such, the
said sale does not come under the coverage of R.A. 6657.
Despite the mandate of Sec. 1, R.A. 6657, appellant continued to accept
the payments made by the appellant until it was fully paid on April 6, 1990. All
that the appellant has to do then is to execute the final deed of sale in favor of
the appellee. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
E.O. 407 can neither affect appellant's obligation under the deed of
conditional sale. Under the said law, appellant is required to transfer to the
Republic of the Philippines "all lands foreclosed" effective June 10, 1990. Under
the facts obtaining, the subject property has ceased to belong to the mass of
foreclosed property failing within the reach of said law. The property has
already been sold to herein appellees even before the said E.O. has been
enacted. On this same reason, the Court held that they need not delve on the
applicability of DBP Circular No. 11.
The Court ruled in favor of private respondents. In conditional obligations,
the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the
condition. The deed of conditional sale between petitioner and private
respondents was executed on 6 April 1984. Private respondents had religiously
paid the agreed installments on the property until they completed payment on 6
April 1990. Petitioner, in fact, allowed private respondents to fulfill the condition
of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after
private respondents, having fully paid the repurchase price, demanded the
execution of a Deed of Sale in their favor.
The Court ruled that the trial court and CA have correctly ruled that
neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the
obligation of contract petitioner had much earlier concluded with private
respondents. Petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act
6657 to set aside its obligations already existing prior to its enactment. In the
first place, said last paragraph clearly deals with "any sale, lease, management
contract or transfer or possession of private lands executed by the original
landowner." The original owner in this case is not the petitioner but the private
respondents. Petitioner acquired the land through foreclosure proceedings but
agreed thereafter to reconvey it to private respondents, albeit conditionally.
Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law
to small landowners. Since the property here involved is more or less ten (10)
hectares, it is then within the jurisdiction of the Department of Agrarian Reform
(DAR) to determine whether or not the property can be subjected to agrarian
reform. But this necessitates an entirely differently proceeding.
While DBP committed egregious error in interpreting Sec. 6 of RA 6657,
the same is not equivalent to gross and evident bad faith when it refused to
execute the deed of sale in favor of private respondents.
The petition was DENIED, and the decision of the CA was AFFIRMED with
the MODIFICATION that attorney's fees and nominal damages awarded to private
respondent were DELETED.
SUSPENSIVE CONDITIONS – MEANING
1. GONZALES VS. HEIRS, 314 SCRA 585
2. INSULAR LIFE VS. YOUNG, 373 SCRA 626
3. DIRECT FOUNDERS VS. LAVINA, 373 SCRA 645
FELIX L. GONZALES, petitioner,
VS. THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by
ELENA C. TALENS, respondents
G.R. No. 131784
19 September 1999
314 SCRA 585
FACTS:
On December 1, 1983, Paula Cruz together with the plaintiffs heirs of
Thomas and Paula Cruz, entered into a Contract of Lease/Purchase with the
defendant, Felix L. Gonzales, the sole proprietor and manager of Felgon Farms,
of a half-portion of a 'parcel of land containing an area of 12 hectares, more or
less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town,
Province of Rizal. The contract of Lease/Purchase contains the following
provisions:
'1.......The terms of this Contract is for a period of one year upon the
signing thereof. After the period of this Contract, the LESSEE shall purchase the
property on the agreeable price of One Million Pesos (P1,000,000.00) payable
within Two (2) Years period with an interest of 12% per annum subject to the
devalued amount of the Philippine Peso, according to the following schedule of
payment: Upon the execution of the Deed of Sale 50% - and thereafter 25%
every six (6) months thereafter, payable within the first ten (10) days of the
beginning of each period of six (6) months.
'2.......The LESSEE shall pay by way of annual rental an amount equivalent
to Two Thousand Five Hundred (P2,500.00) Pesos per hectare, upon the signing
of this contract on Dec. 1, 1983.
'9.......The LESSORS hereby commit themselves and shall undertake to
obtain a separate and distinct T.C.T. over the herein leased portion to the
LESSEE within a reasonable period of time which shall not in any case exceed
four (4) years, after which a new Contract shall be executed by the herein
parties which shall be the same in all respects with this Contract of
Lease/Purchase insofar as the terms and conditions are concerned.
The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00
annual rental on the half-portion of the property in accordance with the second
provision of the Contract of Lease/Purchase and thereafter took possession of
the property, installing thereon the defendant Jesus Sambrano as his caretaker.
The defendant Gonzales did not, however, exercise his option to purchase the
property immediately after the expiration of the one-year lease on November 30,
1984. He remained in possession of the property without paying the purchase
price provided for in the Contract of Lease/Purchase and without paying any
further rentals thereon.

A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to
defendant Gonzales informing him of the lessors' decision to rescind
Contract of Lease/Purchase due to a breach thereof committed by
defendant. The letter also served as a demand on the defendant to vacate
premises within 10 days from receipt of said letter.
The defendant Gonzales refused to vacate the property and continued
possession thereof.
As earlier noted, petitioner disagrees with the interpretation of the two
the courts and maintains that respondents were obligated to procure a TCT in their
the names before he could be obliged to purchase the property in question.
the
the Basic is the rule in the interpretation of contracts that if some stipulation
therein should admit of several meanings, it shall be understood as bearing that
import most adequate to render it effectual. Considering the antecedents of the
ownership of the disputed lot, it appears that petitioner's interpretation renders
clause nine most effectual.

The property subject of the Contract of Lease/Purchase is currently the
subject of an Extra-Judicial Partition. Title to the property remains in the name of
the plaintiffs' predecessors-in-interest, Bernardina Calixto and Severo Cruz.
Alleging breach of the provisions of the Contract of Lease/Purchase, the
plaintiffs filed a complaint for recovery of possession of the property - subject of
the contract with damages, both moral and compensatory and attorney's fees
and litigation expenses.
ISSUE:
Whether or not the trial court gravely erred in holding that plaintiffs-
appellants could not validly rescind and terminate the lease/purchase contract
and thereafter to take possession of the land in question and eject therefrom
defendants-appellees.
RULING:
Alleging that petitioner has not purchased the property after the lapse of
one year, respondents seek to rescind the Contract and to recover the property.
Petitioner, on the other hand, argues that he could not be compelled to purchase
the property, because respondents have not complied with paragraph nine,
which obligates them to obtain a separate and distinct title in their names. He
contends that paragraph nine was a condition precedent to the purchase of the
property.
Both the trial court and the Court of Appeals (CA) interpreted this
provision to mean that the respondents had obliged themselves to obtain a TCT
in the name of petitioner-lessee. The trial court held that this obligation was a
condition precedent to petitioner's purchase of the property. Since respondents
had not performed their obligation, they could not compel petitioner to buy the
parcel of land. The CA took the opposite view, holding that the property should
be purchased first before respondents may be obliged to obtain a TCT in the
name of petitioner-lessee-buyer.
The record shows that at the time the contract was executed, the land in
question was still registered in the name of Bernardina Calixto and Severo Cruz,
respondents' predecessors-in-interest. There is no showing whether respondents
were the only heirs of Severo Cruz or whether the other half of the land in the
name of Bernardina Calixto was adjudicated to them by any means. In fact, they
admit that extrajudicial proceedings were still ongoing. Hence, when the
Contract of Lease/Purchase was executed, there was no assurance that the
respondents were indeed the owners of the specific portion of the lot that
petitioner wanted to buy, and if so, in what concept and to what extent.
Thus, the clear intent of the ninth paragraph was for respondents to
obtain a separate and distinct TCT in their names. This was necessary to enable
them to show their ownership of the stipulated portion of the land and their
concomitant right to dispose of it. Absent any title in their names, they could not
have sold the disputed parcel of land.
SUSPENSIVE CONDITIONS: MEANING
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK
and JACINTO D. JIMENEZ
VS. ROBERT YOUNG, GABRIEL LA'O II, ARTHUR TAN, LOPE JUBAN, JR.,
MARIA LOURDES ONGPIN, ANTONIO ONGPIN, ELSIE DIZON, YOLANDA
BAYER, CECILIA VIRAY, MANUEL VIRAY and JOSE VITO BORROMEO
2002 Jan 16
G.R. No. 140964
FACTS:
In December, 1987, respondent Robert Young, together with his
associates and co-respondents, acquired by purchase Home Bankers Savings
and Trust Co., now petitioner Insular Savings Bank ("the Bank," for brevity), from
the Licaros family for P65,000,000.00. Young and his group obtained 55% equity
in the Bank, while Jorge Go and his group owned the remaining 45%.
However, Araneta backed out from the intended sale and demanded the
return of his downpayment.
On October 1, 1991, Insular Life and Insular Life Pension Fund formally
informed Young of their intention to acquire 30% and 12%, respectively, of the
Bank's outstanding shares, subject to due diligence audit and proper
documentation. On October 9, 1991, Insular Life and Young, authorized to
represent the other stockholders, entered into a Memorandum of Agreement
(MOA), wherein Insular Life and its Pension Fund agreed to purchase 830,860
common shares and 311,572 common shares, respectively, for a total
consideration of P198,000,000.00. Under its terms, the MOA is subject to
Young's representations and warranties that, as of September 30, 1991, the
Bank has (a) a total outstanding paid-in capital of P157,714,900.00, (b) a total
net worth of P114,801,539.00, and (c) total
loans with doubtful recovery of P60,000,000.00. The MOA is also subject to
these "condition precedents": (1) Young shall infuse additional capital of
P50,000,000.00 into the Bank, and (2) Insular Life and its Pension Fund shall
undertake a due diligence audit on the Bank to determine whether the provision
for P60,000,000.00 doubtful account made by Young is sufficient.
On October 21, 1991, Young signed a letter prepared by Atty. Jacinto
Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of
the Bank's Board of Directors, stating that due to business reverses, he shall not
be able to pay his obligations under the Credit Agreement between him and
Insular Life. Consequently, Young "unconditionally and irrevocably waive(s) the
benefit of the period" of the loan (up to December 26, 1991) and Insular "may
consider (his) obligations thereunder as defaulted." He likewise interposes no
objection to Insular Life's exercise of its rights under the said agreement.
Forthwith, Insular Life instructed its counsel to foreclose the pledge
constituted upon the shares. The latter then sent Young a notice informing him
of the sale of the shares in a public auction scheduled on October 28, 1991, and
in the event that the shares are not sold, a second auction sale shall be held the
next day, October 29.
From October 31, 1991 to December 27, 1991, Insular Life invested a total
of P325,000,000.00 in the Bank. Meanwhile, on November 27, 1991, its Board
of Directors, during its meeting, accepted the resignation of Young as President.
On January 7, 1992, Young and his associates filed with the Regional Trial Court
(RTC), Branch 142, Makati City, a complaint against the Bank, Insular Life and its
counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale, specific
performance and damages, docketed as Civil Case No. 92-049. The complaint
alleges, inter alia, that the notarial sale conducted by petitioner Atty. Jacinto
Jimenez is void as it does not comply with the requirement of notice of the
second auction sale; that Young was forced by the officers of Insular Life to sign
letters to enable them to have control of the Bank; that under the MOA, Insular
Life should apply the purchase price of P198,000,000.00 (corresponding to the
55% of the outstanding capital stock of the Bank) to Young's loan of
P200,000,000.00 and pay the latter P162,000,000.00, representing the
remaining 45% of its outstanding capital stock, which must be set-off against the
loans of the other respondents.
ISSUE:
Whether or not the respondent court erred in declaring the MOA dated
October 9, 1991 valid and enforceable between the parties despite respondent
Young's failure to comply with the terms and conditions thereof.
RULING:
Contrary to the findings of the Court of Appeals, the foregoing provisions
of the MOA negate the existence of a perfected contract of sale. The MOA is
merely a contract to sell since the parties therein specifically undertook to enter
into a contract of sale if the stipulated conditions are met and the representation
and warranties given by Young prove to be true. The obligation of petitioner
Insular Life to purchase, as well as the concomitant obligation of Young to
convey to it the shares, are subject to the fulfillment of the conditions contained
in the MOA. Once the conditions, representation and warranties are satisfied,
then it is incumbent upon the parties to perform their respective obligations
under the contract. Conversely, in the event that these conditions are not met
or complied with, no obligation on the part of either party arises. This is in
accord with Article 1181 of the Civil Code which provides that "(i)n conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which
constitutes the condition." And when the obligation assumed by a party to a
contract is expressly subjected to a condition, the obligation cannot be enforced
against him unless the condition is complied with.
Here, the MOA provides that Young shall infuse additional capital of
P50,000,000.00 into the Bank. It likewise specifies the warranty given by Young
that the doubtful accounts of petitioner Bank amounted to P60,000,000.00 only.
However, records show that Young failed to infuse the required additional
capital. Moreover, the due diligence audit shows that Young was involved in
fraudulent schemes like check-kiting which amounted to a staggering
P344,000,000.00. This belies his representation that the doubtful accounts of
petitioner Bank amounted only to P60,000,000.00. As a result of these
anomalous transactions, the reserves of the Bank were depleted and it had to
undergo a ten-year rehabilitation plan under the supervision of the Central Bank.
Significantly, respondents do not dispute petitioners’ assertion that Young
committed fraud, misrepresented the warranties and failed to comply with his
obligations under the MOA. Accordingly, no right in favor of Young's arose and
no obligation on the part of Insular Life was created.
Since no sale transpired between the parties, the Court of Appeals erred in
concluding that Insular Life purchased 55% of the total shares of the Bank under
the MOA. Consequently, its findings that the debt of Young has been fully paid
and that Insular Life is liable to pay for the remaining 45% equity have no basis.
It must be emphasized that the MOA did not convey title of the shares to Insular
Life. If ever there was delivery of the said shares to Insular Life, it was because
they were pledged by Young to Insular Life under the Credit Agreement.
It would be unfair on the part of Young to demand compliance by Insular
Life of its obligations when he himself was remiss in his own. Neither can he
feign ignorance of the stipulation in the MOA since it is presumed that he read
the same and was satisfied with its provisions before he affixed his signature
therein. The fact that no deed of sale was subsequently executed by the parties
confirms the conclusion that no sale transpired between them.
SUSPENSIVE CONDITIONS: MEANING
DIRECT FUNDERS HOLDINGS CORPORATION, petitioner,
VS. JUDGE CELSO D. LAVIÑA, PRESIDING JUDGE OF RTC- Pasig City,
Branch 71 and KAMBIAK Y. CHAN, JR., respondents
January 16, 2002
G. R. No. 141851
FACTS:
Herein petitioner was granted with a writ of possession. During the
hearing for the issuance of temporary restraining order filed by herein private
respondent, it was made clear to the respondent Judge that the property in
question was occupied by the petitioner by virtue of a writ of possession issued
by the Regional Trial Court of Pasig, Branch 157 in LRC Case No. R-5475 in a
petition for the issuance of writ of possession thereof way back on October 23,
1997.
Despite the lawful order of a coordinate and co-equal court, the
respondent Judge, presiding Regional Trial Court of Pasig, Branch 71, issued the
questioned orders to restore possession to private respondent Chan, alleging an
obviously grave abuse of discretion, tantamount to lack of jurisdiction. On the
same date on December 8, 1997, the temporary restraining order (TRO) was
issued, the Court Sheriff IV Cresencio Rabello, Jr. implemented the TRO and
submitted the Return on December 9, 1997. Then, on January 21, 1998, the
respondent Judge issued the questioned order granting the issuance of a writ of
preliminary injunction who subsequently denied the petitioner’s motion to
dismiss and supplemental motion to dismiss and the very urgent motion for
reconsideration on February 16, 1998.
On May 29, 1998, the motion for inhibition and the motion to dissolve the
writ of preliminary injunction were also denied. On August 5, 1998, petitioner
filed with the Court of Appeals a petition for certiorari and prohibition assailing
the trial court’s issuance of a writ of preliminary injunction. On September 28,
1999, the Court of Appeals promulgated a decision dismissing the petition ruling
that the trial court had jurisdiction to issue the injunction that did not interfere
with the writ of possession of a coordinate court. On October 19, 1999,
petitioner filed with the Court of Appeals a motion for reconsideration of the
decision. On February 2, 2000, the Court of Appeals denied petitioner’s motion
stating that the arguments advanced were “mere reiteration and restatements
of those contained in their pleadings. Hence, this appeal to the Supreme Court.
ISSUE:
Who between petitioner and respondent Kambiak Y. Chan, Jr. has a better
right to the possession of the subject property?
RULING:
The Supreme Court ruled in favor of petitioner. It found that the
conditional sale agreement is officious and ineffectual. First, it was not
consummated. Second, it was not registered and duly annotated on the Transfer
Certificate of Title (No. 12357) covering the subject property. Third, it was
executed about eight (8) years after the execution of the real estate mortgage
over the subject property.
 To emphasize, the mortgagee (United Savings Bank) did not give its
consent to the change of debtor. It is a fundamental axiom in the law on
contracts that a person not a party to an agreement cannot be affected thereby.
Worse, not only was the conditional sale agreement executed without the
consent of the mortgagee-creditor, United Savings Bank, the same was also a
material breach of the stipulations of the real estate mortgage over the subject
property. The conditions of the conditional sale agreement were not fulfilled,
hence, respondent’s claim to the subject property was as heretofore stated
ineffectual. Article 1181 of the Civil Code reads:
“Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishments or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.”
POTESTATIVE SUSPENSIVE CONDITIONS
1. VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73
2. HERMOSA VS. LONGARA, 93 PHIL 971
3. TRILLANA VS. QUEZON COLLEGES, 93 PHIL 383
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,
VS. Spouses BERNARDINO NAGUIAT and
MARIA PAULINA GERONA-NAGUIAT, respondents
December 11, 2003
G.R. No. 137909
418 SCRA 73
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of
a parcel of land, and a portion thereof was leased to Bernardino sometime in
1970. On April 5, 1979, Eulalio Mistica entered into a contract to sell with
Bernardino over a portion of the aforementioned lot containing an area of 200
square meters. This agreement was reduced to writing in a Kasulatan. Pursuant
to said agreement, Bernardino gave a downpayment of P2,000.00 and another
partial payment of P1,000.00 on February 7, 1980. However, he failed to make
any payments thereafter. Eulalio Mistica died sometime in October 1986.
On December 4, 1991, petitioner filed a complaint for rescission alleging
that the failure and refusal of respondents to pay the balance of the purchase
price constitutes a violation of the contract which entitles her to rescind the
same; that respondents have been in possession of the subject portion and they
should be ordered to vacate and surrender possession of the same to petitioner;
that the reasonable amount of rental for the subject land is P200.00 a month;
that on account of the unjustified actuations of respondents, petitioner has been
constrained to litigate where she incurred expenses for attorney’s fees and
litigation expenses.
On the other hand, respondents contended that the contract couldn’t be
rescinded on the ground that it clearly stipulates that in case of failure to pay the
balance as stipulated, a yearly interest of 12% is to be paid. Bernardino likewise
alleged that sometime in October 1986, during the wake of the late Eulalio
Mistica, he offered to pay the remaining balance to petitioner but the latter
refused and hence, there is no breach or violation committed by them and no
damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns
pursuant to the said document; that he is presently the owner in fee simple of
the subject lot having acquired the same by virtue of a Free Patent Title duly
awarded to him by the Bureau of Lands; and that his title and ownership had
already become indefeasible and incontrovertible. As counterclaim, respondents
pray for moral damages in the amount of P50,000.00; exemplary damages in the
amount of P30,000.00; attorney’s fees in the amount of P10,000.00 and other
litigation expenses.
The trial court dismissed the complaint and ordered the petitioner to pay
the respondents attorney’s fee and the cost of suit while ordering the
respondents to pay the heirs of the petitioner the balance of the purchase price
and reconveyance of the extra area of 58 square meters from the land in
question.
Disallowing rescission, the Court of Appeals held that respondents did not
breach the Contract of Sale. It explained that the conclusion of the ten-year
period was not a resolutory term, because the Contract had stipulated that
payment, with interest of 12 percent, could still be made if respondents failed to
pay within the period. Petitioner did not disprove the allegation of respondents
that they had tendered payment of the balance of the purchase price during her
husband’s funeral, which was well within the ten-year period. Moreover,
rescission would be unjust to respondents, because they had already transferred
the land title to their names. The proper recourse, the CA held, was to order
them to pay the balance of the purchase price, with 12 percent interest. As to
the matter of the extra 58 square meters, the CA held that its reconveyance was
no longer feasible, because it had been included in the title issued to them. The
appellate court ruled that the only remedy available was to order them to pay
petitioner the fair market value of the usurped portion.
ISSUE:
Whether or not there is a potestative suspensive condition in the
Kasulatan.
RULING:
The failure of respondents to pay the balance of the purchase price within
ten years from the execution of the Deed did not amount to a substantial
breach. It was stipulated that payment could be made even after ten years from
the execution of the Contract, provided the vendee paid 12 percent interest.
Moreover, it is undisputed that during the ten-year period, petitioner and
her deceased husband never made any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by respondents during her
husband’s funeral, thus showing that she was not exactly blameless for the lapse
of the ten-year period. Had she accepted the tender, payment would have been
made well within the agreed period.
If petitioner would like to impress upon the Court that the parties intended
otherwise, she has to show competent proof to support her contention. Instead,
she argues that the period cannot be extended beyond ten years, because to do
so would convert the buyer’s obligation to a purely potestative obligation that
would annul the contract under Article 1182 of the Civil Code.
The Code prohibits purely potestative, suspensive, conditional obligations
that depend on the whims of the debtor, because such obligations are usually
not meant to be fulfilled. Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtor’s will would be to sanction illusory obligations. The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that
payment of the purchase price is dependent upon whether respondents want to
pay it or not. Second, the fact that they already made partial payment thereof
only shows that the parties intended to be bound by the Kasulatan.
Affirmed with the modification that the payment for the extra 58-square
meter lot included in respondents’ title is deleted.
POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC)
HERMOSA VS. LONGARA
93 PHIL 971
FACTS:
Intestate Fernando Hermosa, Sr. asked for three (3) credit advances from
respondent Epifanio M. Longara. Two (2) of said credit advances were made
during his lifetime and in his favor and in his son while the last credit was made
after his death and in favor of his grandson. Evidences show that said credits
were asked by the intestate “on condition that their payment should be made by
him, as soon as he receives funds derived from the sale of his property in Spain.”
After the intestate’s death and upon authorization of the probate court,
the administration of the intestate’s property, his wife, sold the property and the
same was paid for subsequently. As a consequence, respondent filed an action
for the payment of the aforesaid credits which was upheld by the lower court
and by the Court of Appeals.
However, the same was contested by herein petitioners, heirs of the
intestate, on the ground that the obligation contracted by the intestate was
subject to a condition exclusively dependent upon the will of the debtor
condicion potestiva and therefore null and void, in accordance with article 1115
of the Old Civil Code.
ISSUE:
Whether or not the condition made in the obligation is a purely suspensive
condition dependent or potestative upon the exclusive will of the debtor.
RULING:
NO, the condition of the obligation was that the payment was to be made
“as soon as he (obligor) receives funds from the sale of his property in Spain.”
The will to sell on the part of the debtor (intestate) was present in fact or
presumed legally to exist although the price and other condition thereof were
still within his discretion and final approval. But in addition to this acceptability
of the sale to him (obligor), there were still other conditions that had to concur to
effect the sale, mainly that of the presence of a buyer, ready, able and willing to
purchase the property under the condition demanded by the vendor.
POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC)
 TRILLANA VS QUEZON COLLEGES
GR No. L-5003, June 27, 1953
FACTS:
On June 1, 1948, Damasa Crisostomo applied for 200 shares of
stock worth PhP100.00 each at Quezon Colleges, Inc. Within her letter of
application, she stipulated, “You will find (Babayaran kong lahat
pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial
payment and the balance payable in accordance with law and the rules
and regulations of the Quezon College.” Damasa died on October 26,
1948. Since no payment was rendered on the subscription made in the
foregoing letter, Quezon College presented a claim of PhP20,000.00 on
her intestate proceedings. The petitioner – administrator of the estate
then contests the validity of said proceedings?
ISSUE:
Is the condition laid down by Damasa Crisostomo valid?
RULING:
There is nothing in the record to show that the Quezon College, Inc.
accepted the term of payment suggested by Damasa Crisostomo, or that
if there was any acceptance the same came to her knowledge during her
lifetime. As the application of Damasa Crisostomo is obviously at variance
with the terms evidenced in the form letter issued by the Quezon College,
Inc., there was absolute necessity on the part of the College to express its
agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasa's promise to pay the
price of the subscription after she had caused fish to be caught. Thus, it
cannot be said that the letter ripened into a contract.
Indeed, the need for express acceptance on the part of the Quezon
College, Inc. becomes the more imperative, in view of the proposal of
Damasa Crisostomo to pay the value of the subscription after she has
harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void. Under the
Civil Code it is provided that if the fulfillment of the condition should
depend upon the exclusive will of the debtor, the conditional obligation
shall be void.
POSITIVE SUSPENSIVE CONDITIONS
1. VISAYAN SAWMILL VS. CA, 219 SCRA 378
2. LEANO VS. CA, 369 SCRA 36
VISAYAN SAWMILL COMPANY, INC. VS. COURT of APPEALS
G.R. No. 83851.
March 3, 1993
219 SCRA 378
FACTS:
On May 1, 1983, RJH Trading and Visayan Sawmill Company, Inc. entered
into a sale involving scrap iron located at the stockyard of petitioner company at
Cawitan, Sta. Catalina, Negros Oriental, subject to the condition that RJH Trading
will open a leter of credit in the amount of P250,000 in favor of petitioner
company on or before May 15, 1983. This is evidenced by a contract entitled
“Purchase and Sale of Scrap Iron” duly signed by both parties.
RJH Trading started to dig and gather scrap iron at the defendant-
appellant’s premises until May 30 when Visayan Sawmill Company Inc. allegedly
directed private respondent to desist from pursuing the work in view of an
alleged case filed against private respondent by a certain Alberto Pursuelo.
However, on May 23, 1983, petitioner company alleged that they sent a
telegram to private respondent canceling the contract of sale because of failure
of the latter to comply with the conditions. On May 24, 1983, RJH Trading
informed petitioner company by telegram that the letter of credit was opened
May 12, 1983 at BPI main office in Ayala, but that the transmittal was delayed.
On May 26, 1983, petitioner company received a letter of advice from the
Dumaguete City Branch of the BPI. On July 19, 1983, RJH Trading sent a series of
telegrams stating that the case filed against him by Pursuelo had been
dismissed and demanding that petitioner company comply with the Deed of
Sale, otherwise a case will be filed against them.
Petitioner company’s counsel on July 20, 1983 informed private
respondent’s counsel that petitioner company is unwilling to continue with the
sale due to private respondent’s failure to comply with essential preconditions of
the contract. Private respondent filed an action for specific performance and
damages with the trial court.
 The trial court rendered its decision in favor of the private respondent.
The petitioner appealed from said decision to the Court of Appeals; however, the
appellate court affirmed with modification the decision of the lower court.
Hence, this petition.
ISSUE:
Whether or not the private respondent’s non-compliance with essential
precondition justified the cancellation of the contract.
RULING:
The Supreme Court held that the nature of the transaction between the
petitioner company and the private respondent is a mere contract to sell, and
not a contract of sale. The petitioner company’s obligation is subject to a
positive suspensive condition, which is the private respondent’s opening, making
or indorsing of an irrevocable and unconditional letter of credit. The failure of
the private respondent to comply with the positive suspensive condition cannot
even be considered a breach but simply an event that prevented the obligation
of petitioner company to convey title from acquiring binding force. Hence, the
petition is granted and the assailed decision is reversed.
POSITIVE SUSPENSIVE CONDITIONS (Art. 1184, CC)
LEANO VS. COURT OF APPEALS
369 SCRA 36
G.R. No.129018
Nov. 15, 2001
FACTS:
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita
Leano, as vendee executed a contract to sell involving a piece of land, Lot No.
876-B, with an area of 431 square meters, located at Sto.Cristo, Baliuag,
Bulacan.
In the contract, Carmelita Leano bound herself to pay Hermogenes
Fernandez the sum of one hundred and fifty pesos (P107,750.00) as the total
purchase price of the lot.
The contract also provided for a grace period of one month within which to
make payments, together with the one corresponding the month of grace.
Should the month of grace be expired without the installments for both months
having been satisfied, an interest of 18% per annum will be charged on the
unpaid installments.
Should a period of (90) ninety days elapse from the expiration of the
grace period without the overdue and unpaid installments having been paid with
the corresponding interests up to that date, respondent Fernando, as vendor,
was authorized to declare the contract cancelled and to dispose of the parcel of
land, as if the contract had not been entered into. The payments made,
together with all the improvements made on the premises, shall be considered
as rents paid for the use and occupation of the premises and as liquidated
damages.
After the execution of the contract, Carmelita Leano made several
payments in lump sum. Thereafter, she constructed a house on the lot valued at
P800,000.00. The last payment that she made was on April 1, 1989.
On September 16, 1991, the Trial Court rendered a decision in an
ejectment case earlier filed by respondent Fernando ordering petitioner to
vacate the premises and to pay P250.00 per month by way of compensation for
the use and occupation of the property from May 27,1991 until she vacated the
premises, attorney’s fees and costs of the suit. On August 24, 1993, the trial
court issued a writ of execution which was duly served on petitioner Leano.
On November 4, 1993, 1993, after petitioner Leano posted acash bond of
P50000.00, the trial court issued a writ of preliminary injunction to stay the
enforcement of the decision of the municipal trial court.
ISSUE:
Whether or not the petitioner was in delay the payment of the monthly
amortizations.
RULING:
While the contract provided that the total purchase price shall be paid in
monthly installments by claiming that the ten-year period, the same contract
specified that the purchase price shall be paid in monthly installments for which
the corresponding penalty shall be imposed in case of default. Petitioner Leano
cannot ignore the provision on payment of monthly installments by claiming that
the ten-year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
In the case at bar, respondent Fernando performed his part of the
obligation by allowing petitioner Leano to continue in possession and use of the
property. Clearly, when petitioner Leano did not pay the monthly amortization in
accordance with the terms and conditions of the contract, she was in delay and
liable for damages. However, the default committed by the petitioner Leano in
respect of the obligation could be compensated by the interest and surcharges
imposed upon her under the contract in question. Petition denied, judgment
affirmed in toto.
EFFECTS OF NON-FULFILLMENT OF SUSPENSIVE CONDITION
HEIRS OF SANDEJAS, petitioners VS. LINA, respondent
351 SCRA 183
GR NO. 141634
FACTS:
Eliodoro Sandejas, Sr. filed a petition in the lower court praying that
letters of administration be issued in his favor for the settlement of the estate of
his wife, Remedios R. Sandejas. On July 1, 1981, Letters of Administration were
issued by the lower court appointing him as administrator of the estate of the
decedent. The records of the letter of administration given to Sandejas,
however, were burned when the Manila City Hall was destroyed by fire. Thus,
Sandejas Sr. filed a Motion for Reconstitution of the records, which motion was
granted.
An Omnibus Pleading for motion to intervene and petition-in-intervention
was filed by respondent Lina alleging among others that he and Administrator
Sandejas Sr., in his capacity as seller, bound and obligated himself, his heirs,
administrators, and assigns, to sell forever and absolutely and in their entirety
parcels of land which formed part of the estate.
Consequently, the lower court issued an Order granting the intervention of
respondent Lina. Sandejas Sr. filed a Manifestation alleging among others that
the administrator, Eliodoro P. Sandejas, Sr., died in Canada. He also alleged,
among others that the matter of the claim of Intervenor Lina becomes a money
claim to be filed in the estate of the late Sandejas, Sr.
The lower court issued an Order directing the counsel for the four heirs
and other heirs of Teresita R. Sandejas to move for the appointment of a new
administrator within fifteen (15) days from receipt of this Order.
Heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, filed a
Motion for Reconsideration and the appointment of another administrator, Mr.
Sixto Sandejas in lieu of respondent Lina stating that it was only lately that Mr.
Sixto Sandejas, a son and heir, expressed his willingness to act as a new
administrator. Thereafter, respondent Lina filed his Manifestation and Counter
Motion alleging that he had no objection to the appointment of Sixto Sandejas as
administrator provided that Sixto Sandejas be also appointed as administrator of
the intestate estate of his father, Eliodoro P. Sandejas, Sr. The lower court
granted the said Motion and substituted Alex Lina with Sixto Sandejas as
petitioner in the said Petitions. After the payment of the administrator's bond
and approval thereof by the court, Administrator Sixto Sandejas took his oath as
administrator of the estate of the deceased Remedios R. Sandejas and Eliodoro
P. Sandejas and was likewise issued Letters of Administration on the same.
On November 29, 1993, Intervenor filed an Omnibus Motion to approve
the deed of conditional sale executed between Plaintiff-in-lntervention Lina and
Elidioro Sandejas, Sr. on June 7, 1982; to compel the heirs of Remedios Sandejas
and Eliodoro Sandejas, Sr. thru their administrator, to execute a deed of absolute
sale in favor of Intervenor Lina pursuant to said conditional deed of sale to which
the administrator filed a Motion to Dismiss and/or Opposition to said omnibus
motion.
The lower court granted intervenor's Motion but was overturned by the
Court of Appeals.
ISSUE:
Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title
to the property referred to in the subject document which was found to be in the
nature of a contract to sell - where the suspensive condition set forth therein,
was not complied with.
RULING:
 Petitioners argue that the CA erred in ordering the conveyance of the
disputed 3/5 of the parcels of land, despite the nonfulfillment of the suspensive
condition -- court approval of the sale. They assert that because this condition
had not been satisfied, their obligation to deliver the disputed parcels of land
was converted into a money claim.
Petitioners admit that the agreement between the deceased Eliodoro
Sandejas Sr. and respondent was a contract to sell, in which case the payment of
the purchase price is a positive suspensive condition. The vendor's obligation to
convey the title does not become effective in case of failure to pay. On the
other hand, the agreement between Eliodoro Sr. and respondent is subject to a
suspensive condition -- the procurement of a court approval, not full payment.
There was no reservation of ownership in the agreement. Petitioners were
supposed to deed the disputed lots over to respondent. They could do this upon
the court's approval, even before full payment. Hence, their contract was a
conditional sale, rather than a contract to sell. When a contract is subject to a
suspensive condition, its birth or effectivity can take place only if and when the
condition happens or is fulfilled. Thus, the intestate court's grant of the Motion
for Approval of the sale filed by respondent resulted in petitioners' obligation to
execute the Deed of Sale of the disputed lots in his favor. The condition having
been satisfied, the contract was perfected. Henceforth, the parties were bound
to fulfill what they had expressly agreed upon.
PERIOD OR TERM, MEANING AND DEFINITION
1. CIR VS. PRIMETOWN, 28 AUGUST 2007 as compared to
2. NAMARCO VS. TECSON, 139 P 584
CIR VS PRIMETOWN
GR No. 162155. August 28, 2007
FACTS:
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown
Property Group, Inc., applied for the refund or credit of income tax
respondent paid in 1997. According to Yap, because respondent suffered
losses, it was not liable for income taxes. Nevertheless, respondent paid
its quarterly corporate income tax and remitted creditable withholding tax
from real estate sales to the BIR in the total amount of P26,318,398.32.
Therefore, respondent was entitled to tax refund or tax credit.
On May 13, 1999, revenue officer Elizabeth Y. Santos required
respondent to submit additional documents to support its claim.
Respondent complied but its claim was not acted upon. Thus, on April 14,
2000, it filed a petition for review in the Court of Tax Appeals (CTA). On
December 15, 2000, the CTA dismissed the petition as it was filed beyond
the two-year prescriptive period for filing a judicial claim for tax refund or
tax credit. Respondents now assail that decision for dismissal of the CTA.
ISSUE:
What is the expiration period for the filing of the action?
RULING:
Both Article 13 of the Civil Code and Section 31, Chapter VIII,
Book I of the Administrative Code of 1987 deal with the same subject
matter — the computation of legal periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular year or a leap year. Under
the Administrative Code of 1987, however, a year is composed of 12
calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code
of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of
the Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.
Following this formula, respondent’s petition (filed on April 14,
2000) was filed on the last day of the 24th calendar month from the day
respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
PERIOD OR TERM, MEANING AND DEFINITION
compared to
NAMARCO vs Tecson
GR No. L-29131. August 27, 1969

FACTS:
On a previous court case, the CFI rendered judgment:
(a) Ordering the defendants Miguel D. Tecson and Alto Surety
Insurance Co., Inc. to pay jointly and severally plaintiff PRATRA the sum of
P7,200.00 plus 7% interest from May 25, 1960 until the amount is fully
paid, plus P500.00 for attorney's fees, and plus costs;
(b) ordering defendant Miguel D. Tecson to indemnify his co-
defendant Alto Surety & Insurance Co., Inc. on the cross-claim for all the
amounts it would be made to pay in this decision, in case defendant Alto
Surety & Insurance Co., Inc. pay the amount adjudged to plaintiff in this
decision. From the date of such payment defendant Miguel D. Tecson
would pay the Alto Surety & Insurance Co., Inc., interest at 12% per
annum until Miguel D. Tecson has fully reimbursed plaintiff of the said
amount.
Defendant Miguel Tecson seeks the dismissal of the complaint on
the ground of lack of jurisdiction and prescription. This case was filed
exactly on December 21, 1965 but more than ten years have passed a
year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964
were both leap years so that when this present case was filed it was filed
two days too late.
ISSUE:
Should the complaint be dismissed on the grounds of prescription?
RULING:
In the language of this Court, in People vs. Del Rosario, with the
approval of the Civil Code of the Philippines (Republic Act 386) ... we have
reverted to the provisions of the Spanish Civil Code in accordance with
which a month is to be considered as the regular 30-day month ... and not
the solar or civil month," with the particularity that, whereas the Spanish
Code merely mentioned "months, days or nights," ours has added thereto
the term "years" and explicitly ordains that "it shall be understood that
years are of three hundred sixty-five days."
The decision was affirmed.
DISTINCTIONS: CONDITION VS. PERIOD/TERM
1. BERG VS. MAGDALENA ESTATES, 92 P 110
2. LIRAG VS. CA, 63 SCRA 375
3. DAGUHOY VS. PONCE, 96 PHIL 15
4. VICTORIA PLANTERS VS. VICTORIA MILLING, 97 PHIL 110
BERG VS. MAGDALENA ESTATES
92 PHIL 110
FACTS:
This is an action for partition of the property known as Crystal Arcade
situated in the City of Manila. The complaint avers that plaintiff and defendant
are co-owners of said property, the former being the owner of one-third interest
and the latter of the remaining two-thirds. The division is asked because plaintiff
and defendant are unable to agree upon the management of the property and
upon the partition thereof.
Defendant answered setting up a special defense and counterclaim. As a
special defense, defendant claims that on September 22, 1943, it sold to plaintiff
one-third of the property in litigation subject to the express condition that should
either vendor or vendee decide to sell his undivided share, the party selling
would grant to the other party first an irrevocable option to purchase the same
at the seller’s price. It avers that in January 1946, plaintiff fixed the sum of
P200,000 as the price of said share and offered to sell it to defendant, which
offer was accepted and for the payment of said price plaintiff gave defendant a
period of time which, including the extensions granted would expire on May 31,
1947. Defendant claims that in spite of its acceptance of the offer, plaintiff
refused to accept the payment of the price, and for this refusal defendant
suffered damages in the amount of P100,000. For these reasons, defendant
asks for specific performance.
ISSUE:
Whether or not the obligation is one subject to a term.
RULING:
NO, rather, the obligation is rather subject to a condition. Under Article
1125 of the old Civil Code, obligations with a term, for the fulfillment of which a
day certain has been fixed, shall be demandable only when the day arrives. A
day certain is understood to be that which must necessarily arrive, even though
it is not known when. In order that an obligation may be with a term, it is,
therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival
is uncertain, the obligation is conditional.
Viewing in this light the clause on which defendant relies for the
enforcement of its right to buy the property, it would seem that it is not a term,
but a condition. Considering the first alternative, that is, until defendant shall
have obtained a loan from the National City Bank of New York, it is clear that the
granting of such loan is not definite and cannot be held to come within the terms
“day certain.” And if it is considered that the period given was until such time as
defendant could raise money from other sources, then it is also to be indefinite
and contingent, and so it is also a condition and not a term within the meaning
of the law. In any event, it is apparent that the fulfillment of the condition
contained in this second alternative is made to depend upon defendant’s
exclusive will, and viewed in this light, the plaintiff’s obligation to sell did not
arise, for, under article 1115 of the old Civil Code, “when the fulfillment of the
condition depends upon the exclusive will of the debtor the conditional
obligation shall be void.”
DISTINCTIONS: CONDITION VS. PERIOD/TERM
LIRAG TEXTILE MILLS, INC. and FELIX K. LIRAG vs.COURT OF APPEALS
and CRISTAN ALCANTARA
G.R. No. L-30736
April 14, 1975
FACTS:
On May 11, 1960 and for sometime prior and subsequent thereto,
defendant Felix Lirag was a member of the Board of Directors of the Philippine
Chamber of Industries; and for about two months, more or less, prior to May 11,
1960, plaintiff Cristina Alcantara worked in a temporary capacity with defendant
Lirag Textile Mills, Inc. During this same period of time, defendant Felix Lirag
was a director and Chairman of the Board of Directors of defendant Lirag Textile
Mills, Inc. On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to
plaintiff (Alcantara) advising him that, effective May 11, 1960, his temporary
designation as Technical Assistant to the Administrative Officer was made
permanent and as Assistant to the Administrative Officer of the Lirag Textile
Mills, Inc. As of May 11, 1960, plaintiff received a salary of P400.00 and
allowance of P100.00 per month.
Plaintiff's tenure of employment, per defendant Lirag Textile Mills, Inc.'s
above letter of May 9, 1960 was to be 'for an indefinite period, unless sooner
terminated by reason of voluntary resignation or by virtue of a valid cause or
causes'.
On March 4, 1960, per letter of defendant Lirag Textile Mills, Inc. of that
date, signed by its Executive Vice President and General Manager, plaintiff was
advised that effective November 15, 1960 he (Alcantara) was promoted to the
position of Assistant Administrative Officer. Subsequently, on July 22, 1961,
defendant Lirag Textile Mills, Inc. wrote plaintiff (Alcantara) a letter advising him
that because the company 'has suffered some serious reverses, both in terms of
pecuniary loss and in market opportunities,' the company was terminating his
services and effecting his separation from defendant corporation effective at the
close of working hours of August 22, 1961.
Because of this, plaintiff Alcantara filed a complaint before the Regional
Trial Court against defendant Lirag Textile Mills Inc. for illegal dismissal as in
accordance with the employment contract between herein then plaintiff and
then defendant.
Respondent Court of Appeals affirmed the decision of the lower court in
Civil Case No. 6884 principally its conclusion that the trial court did not commit
any error in its evaluation of the evidence when it found that it was not true that
petitioner Lirag Textile Mills (then defendant) suffered pecuniary loss and in
market opportunities which it used as a justification to terminate the services of
plaintiff Alcantara; that it was not also true that the latter suffered from lack of
skill; that, therefore, there was a violation of the written contract of employment
executed by and between petitioners and private respondent Alcantara; that
petitioner (then defendant) Felix Lirag was responsible for inducing private
respondent Alcantara to leave his employment with the Philippine Chamber of
Industries where he was holding a permanent position and to accept
employment with petitioner (then defendant) Lirag Textile Mills; and that
appellee Alcantara was correctly awarded moral damages and attorney's fees.
ISSUE:
Whether or not there has been a violation of the written contract for a
period of employment between petitioner and private respondent.
RULING:
 The contract of employment was for an indefinite period as it shall
continue without ending, subject to a resolutory period, unless sooner
terminated by reason of voluntary resignation or by virtue of a valid cause or
causes (the resolutory period).
There is an indefinite period of time for employment agreed upon by and
between petitioners and the private respondent, subject only to the resolutory
period agreed upon which may end the indeterminate period of employment,
namely voluntary resignation on the part of private respondent Alcantara or
termination of employment at the option of petitioner Lirag Textile Mills, but for
a "valid cause or causes". It necessarily follows that if the petitioner-employer
Lirag Textile Mills terminates the employment without a "valid cause or causes",
as it admittedly did, it committed a breach of the contract of employment
executed by and between the parties. The measure of an employer's liability
provided for in Republic Act 1052, as amended by R. A. 1787, is solely intended
for contracts of employment without a stipulated period. It cannot possibly
apply as a limitation to an employer's liability in cases where the employer
commits a breach of contract by violating an indefinite period of employment
expressly agreed upon through his wrongful act of terminating said employment
without any valid cause or causes, which act may even amount to bad faith on
the employer's part.
The "indefinite period" of employment expressly agreed upon by and
between the parties in this case is really a resolutory period because the
employment is bound to terminate on a future "day certain" such as the
employee's resignation or employer's termination of employment upon a valid
cause or causes, like death of the employee or termination of employer's
corporate existence, although it may not be known when.
It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of
employment with private respondent Alcantara when the former terminated his
services without a valid cause. The act was attended with bad faith and deceit
because said petitioner made false allegations of a supposed valid cause
knowing them to be false, thus making itself liable for payment of actual, moral
and exemplary damages, plus attorneys fees to private respondent Alcantara.
Petitioner Lirag Textile Mills, Inc. cannot with impunity be allowed the absolute
and unilateral power to terminate without valid cause a contract of employment
with a definite period it voluntarily entered into merely on the basis of its whim
or caprice and under the false pretense of financial distress.
DISTINCTIONS: CONDITION VS. PERIOD/TERM
DAGUHOY ENTERPRISES, INC. VS. PONCE
96 Phil 15
FACTS:
In the year 1950, defendant-appellant Domingo Ponce was chairman and
manager and his son Buhay M. Ponce was secretary-treasurer of the plaintiff
corporation Daguhoy Enterprises, Inc. On June 24, Rita L. Ponce, wife of
Domingo, executed in favor of plaintiff corporation a deed of mortgage over a
parcel of land including the improvements thereon to secure the payment of a
loan of P5, 000 granted to her by said corporation, payable within six years with
interests at 12% annum. On March 10, 1951, Rita L. Ponce with the consent of
her husband Domingo executed another mortgage deed amending the first one,
whereby the loan was increased from P5,000 to P6,190, the terms and
conditions of the mortgage remaining the same. Rita and Domingo presented
the two mortgage deeds for registration in the office of the register of deeds for
registrations in the office of the register of deeds, but the said register advised
the two to cure the defects and furnish the necessary data. Instead of
complying with the suggestion and requirements, the two withdrew the two
mortgage deeds and then mortgaged the same parcel of land in favor of the
Rehabilitation Finance Corporation (RFC) to secure a loan.
Potenciano Gapol, the majority stockholder in the corporation, upon
learning that the deeds of mortgage were not registered and that they were
withdrawn from the office of the register of deeds and the land covered by the
two deeds was again mortgaged to RFC, he filed a civil case against the
respondents, not only for the amount of the loan of P6,190 but for other sums,
possibly on the theory that the loan in question was granted by Domingo and
Buhay as officers of the corporation.
To account for the amount of the loan, Domingo and his son filed in court
a check of RFC in the amount of P6,190 and an interesr of P266.10 in favor of the
company. Thereafter, Gapol petitioned the court for permission to withdraw the
amounts as payment of the loan. But because the defendants opposed said
petition, the court denied it. Gapol, agreeing to the cancellation of the mortgage
as soon as the amounts are withdrawn and deposited with the Bank of America,
in the name of the company, filed a second petition for withdrawal. However,
the defendants failed to agree, thus it was again denied.
ISSUE:
Whether or not the sum in the form of an RFC check and some interest
deposited in the civil case may be withdrawn to satisfy the judgment and to pay
the loan of P6,190 and part of the interest due.
RULING:
Yes. Although the original loan of P5,000 including the increase of P1,190
was payable within six years from June 1950 and so did not become due and
payable until 1956, the trial court held that under article 1198 of the Civil Code,
the debtor lost the benefit of the period by reason of her failure to give the
security in the form of the two deeds of mortgage and register them, including
defendant’s act in withdrawing said two deeds from the office of the register of
deeds and then mortgaging the same property in favor of the RFC; and so the
obligation became pure and without any condition and consequently, the loan
became due and immediately demandable. Likewise, even if the defendants
had already deposited a certain amount in favor of the corporation, they are not
yet relieved from the payment of interests from the time of the deposit because
the loan is not yet paid.
DISTINCTIONS: CONDITION VS. PERIOD/TERM
VICTORIAS PLANTERS VS. VICTORIAS MILLING
97 PHIL. 318
FACTS
From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros
Occidental, executed identical milling contracts, under which the sugar central
"North Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane
planters of the Manapla and Cadiz districts.
The sugar cane planters of Manapla and Cadiz, Negros Occidental had
executed with Miguel J. Ossorio, a contract whereby Ossorio was given a period
up to December 31, 1916 within which to make a study of and decide whether
he would construct a sugar central or mill with a capacity of milling 300 tons of
sugar cane every 24 hours and setting forth the mutual obligations and
undertakings of such central and the planters and the terms and conditions
under which the sugar cane produced by said planters would be milled in the
event of the construction of such sugar central by Ossorio. Such central was in
fact constructed by said Ossorio in Manapla, Negros Occidental, through the
North Negros Sugar Co., Inc., where after the standard form of milling contracts
were executed.
The parties cannot stipulate as to the milling contracts executed by the
planters by Victorias, Negros Occidental, other than as follows: 1) a number of
them executed such milling contracts with the North Negros Sugar Co., Inc.; 2)
while a number of them executed milling contracts with the Victorias Milling Co.,
Inc., which was likewise organized by Miguel J. Ossorio and which had
constructed another Central at Victorias, Negros Occidental. The North Negros
Sugar Co., Inc. had its first milling during the 1918-1919 crop years, and the
Victorias Milling Co., had its first milling during the 1921-1922 crop year.
Subsequent millings took place every successive crop year thereafter, except
the 6-year period, comprising 4 years of the last World War II and 2 years of
post-war reconstruction of respondent's central at Victorias, Negros Occidental.
After the liberation, the North Negros Sugar Co., Inc. did not reconstruct
its destroyed central at Manapla, Negros Occidental, and in 1946, it advised the
North Negros Planters Association, Inc. that it had made arrangements with the
respondent Victorias Milling Co., Inc. for said respondent corporation to mill the
sugar cane produced by the planters of Manapla and Cadiz holding milling
contracts with it. Thus, after the war, all the sugar cane produced by the
planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who
held milling contracts, were milled in only one central, that of the respondent
corporation at Victorias. Beginning with the year 1948, and in the following
years, when the planters-members of the North Negros Planters Association, Inc.
considered that the stipulated 30-year period of their milling contracts executed
in the year 1918 had already expired and terminated in the crop year 1947-
1948, and the planters-members of the Victorias Planters Association, Inc.
likewise considered the stipulated 30-year period of their milling contracts, as
having likewise expired and terminated in the crop year 1948-1949, under the
pertinent provisions of the standard milling contract. Notwithstanding the
repeated representations made by the herein petitioners with the respondent
corporation, the herein respondent has refused and still refuses to accede to the
same, contending that under the provisions of the milling contract.
ISSUE:
 Whether or not the trial court erred in rendering its disputed decision,
favoring the petitioner.
RULING:
NO. Fortuitous event relieves the obligor from fulfilling a contractual
obligation.
The fact that the contracts make reference to "first milling" does not make
the period of thirty (30) years one of thirty (30) milling years. The term "first
milling" used in the contracts under consideration was for the purpose of
reckoning the thirty-year period stipulated therein. Even if the thirty-year period
provided for in the contracts be construed as milling years, the deduction or
extension of six (6) years would not be justified. At most on the last year of the
thirty-year period stipulated in the contracts the delivery of sugar cane could be
extended up to a time when all the amount of sugar cane raised and harvested
should have been delivered to the appellant's mill as agreed upon.
Further, the parties stipulated that in the event of flood, typhoon,
earthquake, or other force majeure, war, insurrection, civil commotion,
organized strike, etc., the contract shall be deemed suspended during said
period, does not mean that the happening of any of those events stops the
running of the period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that time — the planters from
delivering sugar cane and the central from milling it.
In order that the central, the herein appellant, may be entitled to demand
from the other parties the fulfillment of their part in the contracts, the latter
must have been able to perform it but failed or refused to do so and not when
they were prevented by force majeure such as war. To require the planters to
deliver the sugar cane which they failed to deliver during the four (4) years of
the Japanese occupation and the two (2) years after liberation when the mill was
being rebuilt is to demand from the obligors the fulfillment of an obligation which
was impossible of performance at the time it became due. Nemo tenetur ad
impossibilia.
The obligee not being entitled to demand from the obligors the
performance of the latter’s part of the contracts under those circumstances
cannot later on demand its fulfillment. The performance of what the law has
written off cannot be demanded and required. The prayer that the plaintiffs be
compelled to deliver sugar cane to the appellant for six (6) years more to make
up for what they failed to deliver during those trying years, the fulfillment of
which was impossible, if granted, would in effect be an extension of the term of
the contracts entered into by and between the parties.
POTESTATIVE PERIOD
1. JESPAJO REALTY VS. CA, 390 SCRA 27
2. BORROMEO VS. CA, 47 SCRA 65
3. GONZALES VS. JOSE, 66 PHIL 369
JESPAJO REALTY CORPORATION, petitioner,
VS. HON. COURT OF APPEALS, TAN TE GUTIERREZ and CO TONG,
respondents
390 SCRA 27
FACTS:
The subject of this controversy is an apartment building owned by Jespajo
Realty Corporation. Said corporation, represented by its President, Jesus L. Uy,
entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. The
lease period shall be effective as of February 1, 1985 and shall continue for an
indefinite period provided the lessee is up-to-date in the payment of his monthly
rentals. The lessee may, at his option, terminate this contract any time by
giving sixty (60) days prior written notice of termination to the lessor. However,
violation of any of the terms and conditions of this contract shall be a sufficient
ground for termination thereof by the lessor. For the duration of the contract,
the lessee agrees to an automatic 20% yearly increase in the monthly rentals.
On January 2, 1990, the lessor corporation sent a written notice to the
lessees informing them of the formers’ intention to increase the monthly rentals
on the occupied premises to P3,500.00 monthly effective February 1, 1990. The
lessees through its counsel in a letter dated March 10, 1990 manifested their
opposition alleging that the same is in contravention of the terms of the contract
of lease as agreed upon. Due to the opposition and the failure of the lessees to
pay the increased monthly rentals in the amount of P3,500.00, the lessor
through its counsel in a letter dated April 10, 1990 demanded that the lessees
vacate the premises and pay the amount of P7,000.00 corresponding to the
months of February and March, 1990.
 The lessees exerted effort to pay the rentals due for the months of
February and March 1990 at the monthly rate stipulated in the contract but was
refused by the lessor so that on May 2, 1990, they instituted before the
Metropolitan Trial Court of Manila, Branch 16 a case for consignation.
The trial judge in the consignation case issued an order allowing the
plaintiffs therein to deposit with the City Treasurer of Manila the amount of
P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez
representing their respective rentals for thirteen (13) months from February,
1990 to January, 1991.
More than six (6) months from the filing of the case for consignation, the
lessor instituted an ejectment suit against the lessees before the Metropolitan
Trial Court of Manila Branch 20. The court in its decision dismissed the ejectment
suit for lack of merit. Regional Trial Court is constrained to reverse the appealed
decision and ordered another judgment to be entered in favor of appellant. This
was, however, reversed by the Court of Appeals
ISSUE:
Whether or not the subject contract of lease did not provide for a definite
period hence it falls under the ambit of Art. 1687 of the NCC, making the
agreement effective on a month-to-month basis since rental payments are made
monthly
RULING:
No. The Court held that Art. 1687 finds no application in the case at bar.
The lease contract between petitioner and respondents is with a period
subject to a resolutory condition. Art. 1687 provides that if the period for the
lease has not been fixed, it is understood to be from year to year, if the rent
agreed upon is annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to be paid daily.
However, even though a monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease after the lessee has
occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six months. In case of daily
rent, the courts may also fix a longer period after the lessee has stayed in the
place for over one month. The wording of the agreement is unequivocal: “The
lease period shall continue for an indefinite period provided the lessee is up-to-
date in the payment of his monthly rentals.” The condition imposed in order
that the contract shall remain effective is that the lessee is up-to-date in his
monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement
between the lessor and the lessees are therefore still subsisting, with the original
terms and conditions agreed upon, when the petitioner unilaterally increased the
rental payment to more than 20% or P3,500.00 a month.
POTESTATIVE PERIOD
BORROMEO VS. CA
47 SCRA 65
FACTS:
Before the year 1933, Jose A. Villamor was a distributor of lumber
belonging to Mr. Miller who was the agent of the Insular Lumber Company in
Cebu City. Defendant being a friend and former classmate of plaintiff,
Borromeo, used to borrow from the latter certain amounts from time to time. On
one occasion with some pressing obligation to settle with Mr. Miller, defendant
borrowed from plaintiff a large sum of money for which he mortgaged his land
and house in Cebu City. Mr. Miller filed civil action against the defendant and
attached his properties including those mortgaged to plaintiff, inasmuch as the
deed of mortgage in favor of plaintiff could not be registered because it was not
properly drawn up. Plaintiff then pressed the defendant for the settlement of his
obligation, but defendant instead offered to execute a document promising to
pay his indebtedness even after the lapse of ten (10) years.
Liquidation was made and defendant was found to be indebted to plaintiff
in the sum of P7,220, for which defendant signed a promissory note on
November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay-“as soon as I have money.” The note further stipulates that defendant
“hereby relinquish, renounce, or otherwise waive my rights to the prescriptions
established by our Code of Civil Procedure for the collection or recovery of the
above sum of P7,220.”
ISSUE:
Whether or not prescription extinguished the obligation.
RULING:
 NO. The obligation in this case is one which is subject to a potestative
condition, one which is dependent solely on the will of the debtor. The
statement “as soon as I have money” is the condition which is dependent on the
debtor’s will. Although this condition is void, it has been relied upon by the
creditor resulting to the delayed filing of the action.
Prescription in this case cannot be applied strictly for it will result to grave
injustice on the part of the creditor. For as was also made clear therein, there
had been since then verbal requests on the part of the creditor made to the
debtor for the settlement of the loan. Furthermore, plaintiff did not file any
complaint against the defendant within ten (10) years from the execution of the
document as there was no property registered in defendant’s name who
furthermore assured him that he could collect even after the lapse of ten years.
The debtor is therefore liable for the amount of the obligation plus interests.
“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 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 (10) 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.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

POTESTATIVE PERIOD (Art. 1180 in rel to Art. 1197, CC)
1. BALUYOT VS. POBLETE, 514 S 370
2. MALAYAN REALTY VS. UY, 10 NOVEMBER 2006
3. KASAPIAN NG MANGGAGAWA NG COCA-COLA VS. CA, 487 S
GONZALES VS. JOSE 487
66 PHIL 369 4. SANTOS-VENTURA VS. SANTOS, 441 SCRA 472
5. MELOTINDOS VS. TOBIAS, 391 SCRA 299
FACTS: 6. LL AND COMPANY VS. HUANG, 378 SCRA 612
Defendant Florentino de Jose executed two (2) promissory notes on June 7. BRENT SCHOOL VS. ZAMORA, FEB. 5, 1990
22, 1922 and September 13, 1922 in favor of plaintiff Benito Gonzales. The two 8. LIM VS. PEOPLE, NOV. 21, 1984
(2) promissory notes were both worded as follows: “I promise to pay Mr. Benito 9. PACIFIC BANKING VS. CA, MAY 5 1989
Gonzalez the sum of P (amount) as soon as possible.” 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 (30) days from the date of notification
of said decision, plus the costs. The defendant interposed the defense of BALUYUT VS POBLETE
prescription because the action was not filed by the plaintiff within the GR No. 144435.
prescriptive period prescribed by law.
February 6, 2007
ISSUE:
Whether or not the action has already prescribed. FACTS:
On July 20, 1981, Guillermina Baluyut, mortgaged her house to
RULING: secure a loan in the amount of PhP850,000.00 from the spouses Eulogio
NO. The words “as soon as possible” in the promissory notes denote that and Salud Poblete. The load was set to mature in one month. After a
such is an obligation subject to a potestative condition. Article 1128 of the Civil month had passed, she was unable to pay her indebtedness which led the
Code provides: spouses to extrajudicially foreclose the mortgage. The property was then
sold on Auction to the Poblete spouses who asked Baluyut to vacate the
premises. Baluyut instead filed an action for annulment of mortgage. His
claim was rejected by the RTC and the CA. Petitioner claims that based on
the testimony of Atty. Edwina Mendoza that the maturity of the loan
which she incurred is only for one year.
ISSUE:
Is petitioner’s contention tenable?
RULING:
Evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the operation of a
valid contract. In the instant case, aside from the testimony of Atty.
Mendoza, no other evidence was presented to prove that the real date of
maturity is one year.
The terms that were thusly reduced to writing is deemed to contain
all the terms agreed upon and no evidence of such terms can be admitted
other than the contents of the agreement itself. The promissory note is
the law between petitioner and private respondents and it clearly states
that the loan shall mature in one month from date of the said Promissory
Note.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
MALAYAN REALTY VS UY
GR No. 163763. November 10, 2006
FACTS:
Malayan Realty, Inc. (Malayan), is the owner of an apartment unit
known as 3013 Interior No. 90 (the property), located at Nagtahan Street,
Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract
with Uy Han Yong (Uy) over the property at a monthly rental of P262.00.
The monthly rental was increased yearly starting 1989, and by 2001, the
monthly rental was P4,671.65.
On July 17, 2001, Malayan sent Uy a written notice informing him
that the lease contract would no longer be renewed or extended upon its
expiration on August 31, 2001, and asking him to vacate and turn over
the possession of the property within five days from August 31, 2001, or
on September 5, 2001. Despite Uy’s receipt of the notice on June 18,
2001, he refused to vacate the property, prompting Malayan to file before
the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment,
docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof.
The Court ruled in favor of Uy and granted an extension period of five
years.
ISSUE:
Is respondent Uy entitled to a grant of extension by the Court?
RULING:
The 2nd paragraph of Article 1687 provides that in the event that the
lessee has occupied the leased premises for over a year, the courts may
fix a longer term for the lease.
The power of the courts to establish a grace period is potestative or
discretionary, depending on the particular circumstances of the case.
Thus, a longer term may be granted where equities come into play, and
may be denied where none appears, always with due deference to the
parties’ freedom to contract.
In the present case, respondent has remained in possession of the
property from the time the complaint for ejectment was filed on
September 18, 2001 up to the present time. Effectively, respondent’s
lease has been extended for more than five years, which time is, under the
circumstances, deemed sufficient as an extension and for him to find
another place to stay.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA
 GR No. 159828. April 19, 2006
FACTS:
On June 1998, a Collective Bargaining Agreement which was in
effect between petitioner union and private respondent company expired.
With the intervention of the NCMB Administrator, on December 26, 1998,
both parties executed and signed a MOA providing for salary increases
and other economic and non-economic benefits. As part of the MOA, 61
employees were regularized. Consequently, petitioner demanded the
payment and benefits of the newly regularized employees retroactive to
December 1, 1998. Petitioner then demanded renegotiation of the CBA
which private respondent refused. On December 9, 1999, despite the
pendency of petitioner’s complaint before the NLRC, private respondent
closed its Manila and Antipolo plants resulting in the termination of
employment of 646 employees. The affected employees were considered
on paid leave from December 9, 1999 to February 29, 2009 and were paid
their corresponding salaries. The Petitioners amended their complaint to
include union busting, illegal dismissal, etc.
ISSUE:
Is the closure of the Manila and Antipolo plants valid?
RULING:
Under Article 280 of the Labor Code, all those who have been with
the company for one year by said date must automatically be considered
regular employees by operation of law. The 61 employees all qualify as
regular employees by this provision.
The characterization of the employee’s services as no longer
necessary or sustainable, and therefore properly terminable, is an
exercise of business judgment on the part of the employer. The wisdom or
soundness of such characterizing or decision is not subject to
discretionary review on the part of the Labor Arbiter nor of the NLRC so
long, of course, as violation of law or merely arbitrary and malicious
action is not shown. As found by the NLRC, the private respondent’s
decision to close the plant was a result of a study conducted which
established that the most prudent course of action for the private
respondent was to stop operations in said plants and transfer production
to other more modern and technologically advanced plants of private
respondent.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
SANTOS VENTURA HOCORMA FOUNDATION, INC., Petitioner,
VS. ERNESTO V. SANTOS and RIVERLAND, INC., Respondents
November 4, 2000
G.R. No. 153004
FACTS:
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI)
were the plaintiff and defendant, respectively, in several civil cases filed in
different courts in the Philippines. On October 26, 1990, the parties executed a
Compromise Agreement which amicably ended all their pending litigations. The
pertinent portions of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the
following manner:
a) P1.5 Million immediately upon the execution of this agreement; and, b) the
balance of P13 Million shall be paid, whether in one lump sum or in installments,
at the discretion of the Foundation, within a period of not more than two (2)
years from the execution of this agreement; provided, however, that in the event
that the Foundation does not pay the whole or any part of such balance, the
same shall be paid with the corresponding portion of the land or real properties
subject of the aforesaid cases and previously covered by the notices of lis
pendens, under such terms and conditions as to area, valuation, and location
mutually acceptable to both parties; but in no case shall the payment of such
balance be later than two (2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the form of land aforesaid;
2. Immediately upon the execution of this agreement (and [the] receipt of
the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil
Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily
withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 88-
45366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the
aforesaid various notices of lis pendens on the real properties aforementioned
(by signing herein attached corresponding documents, for such lifting); provided,
however, that in the event that defendant Foundation shall sell or dispose of any
of the lands previously subject of lis pendens, the proceeds of any such sale, or
any part thereof as may be required, shall be partially devoted to the payment
of the Foundation’s obligations under this agreement as may still be subsisting
and payable at the time of any such sale or sales;
XXX
5. Failure of compliance of any of the foregoing terms and conditions by either
or both parties to this agreement shall ipso facto and ipso jure automatically
entitle the aggrieved party to a writ of execution for the enforcement of this
agreement.
In compliance with the Compromise Agreement, respondent Santos
moved for the dismissal of the aforesaid civil cases. He also caused the lifting of
the notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood
Corporation two real properties, which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner, respondent Santos sent a
letter to the petitioner demanding the payment of the remaining P13 million,
which was ignored by the latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62, issued a Decision approving the
compromise agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner
inquiring when it would pay the balance of P13 million. There was no response
from petitioner. Consequently, respondent Santos applied with the Regional
Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its
compromise judgment dated September 30, 1991. The RTC granted the writ.
Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner,
which were formerly subjects of the lis pendens. Petitioner, however, filed
numerous motions to block the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment even reached the Supreme
Court. All these efforts, however, were futile.
On November 22, 1994, petitioner’s real properties located in Mabalacat,
Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a Certificate of Sale covering the real
properties subject of the auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real properties of petitioner in Bacolod
City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale
issued for both properties provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for
Declaratory Relief and Damages alleging that there was delay on the part of
petitioner in paying the balance of P13 million. They further alleged that under
the Compromise Agreement, the obligation became due on October 26, 1992,
but payment of the remaining P12 million was effected only on November 22,
1994. Thus, respondents prayed that petitioner be ordered to pay legal interest
on the obligation, penalty, attorney’s fees and costs of litigation. Furthermore,
they prayed that the aforesaid sales be declared final and not subject to legal
redemption.
In its Answer, petitioner countered that respondents have no cause of
action against it since it had fully paid its obligation to the latter. It further
claimed that the alleged delay in the payment of the balance was due to its valid
exercise of its rights to protect its interests as provided under the Rules.
Petitioner counterclaimed for attorney’s fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision dismissing herein
respondents’ complaint and ordering them to pay attorney’s fees and exemplary
damages to petitioner. Respondents then appealed to the Court of Appeals. The
appellate court reversed the ruling of the trial court.
ISSUE:
Whether or not the Court of Appeals was correct in its decision, reversing
the trial court’s decision, regarding the legal interest of herein respondents on
aforementioned properties.
RULING:
The Supreme Court held the decision of the Court of Appeals correct. A
compromise is a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced. It is an
agreement between two or more persons, who, for preventing or putting an end
to a lawsuit, adjust their difficulties by mutual consent in the manner which they
agree on, and which everyone of them prefers in the hope of gaining, balanced
by the danger of losing. The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with respect to the matter
definitely stated therein, or which by implication from its terms should be
deemed to have been included therein. This holds true even if the agreement
has not been judicially approved.
In the case at bar, the Compromise Agreement was entered into by the
parties on October 26, 1990. It was judicially approved on September 30, 1991.
Applying existing jurisprudence, the compromise agreement as a consensual
contract became binding between the parties upon its execution and not upon
its court approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligations of the parties thereto. The
purpose of the compromise is precisely to replace and terminate controverted
claims. In accordance with the compromise agreement, the respondents asked
for the dismissal of the pending civil cases. The petitioner, on the other hand,
paid the initial P1.5 million upon the execution of the agreement. This act of the
petitioner showed that it acknowledges that the agreement was immediately
executory and enforceable upon its execution. As to the remaining P13 million,
the terms and conditions of the compromise agreement are clear and
unambiguous.
The two-year period must be counted from October 26, 1990, the date of
execution of the compromise agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. When respondents wrote a
demand letter to petitioner on October 28, 1992, the obligation was already due
and demandable. When the petitioner failed to pay its due obligation after the
demand was made, it incurred delay. Article 1169 of the New Civil Code
provides:
Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
Delay as used in this article is synonymous to default or mora which
means delay in the fulfillment of obligations. It is the non-fulfillment of the
obligation with respect to time. In order for the debtor to be in default, it is
necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.
In the case at bar, the obligation was already due and demandable after
the lapse of the two-year period from the execution of the contract. The two-
year period ended on October 26, 1992. When the respondents gave a demand
letter on October 28, 1992, to the petitioner, the obligation was already due and
demandable. Furthermore, the obligation is liquidated because the debtor
knows precisely how much he owes and when he should pay the amount due.
The second requisite is also present. Petitioner delayed in the
performance. It was able to fully settle its outstanding balance only on February
8, 1995, which is more than two years after the extra-judicial demand.
Moreover, it filed several motions and elevated adverse resolutions to the
appellate court to hinder the execution of a final and executory judgment, and
further delay the fulfillment of its obligation.
Third, the demand letter sent to the petitioner on October 28, 1992, was in
accordance with an extra-judicial demand contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance
of its obligation. This is provided for in Article 1170 of the New Civil Code. When
the debtor knows the amount and period when he is to pay, interest as damages
is generally allowed as a matter of right. The complaining party has been
deprived of funds to which he is entitled by virtue of their compromise
agreement. The goal of compensation requires that the complainant be
compensated for the loss of use of those funds. This compensation is in the form
of interest. In the absence of agreement, the legal rate of interest shall prevail.
The legal interest for loan as forbearance of money is 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
MANUEL D. MELOTINDOS
VS. MELECIO TOBIAS, represented by JOSEFINA PINEDA
G.R. No. 146658
28 October 2002
391 SCRA 299
FACTS:
Eighty-seven-year old petitioner, Atty. Manuel D. Melontindos, was the
lessee of the ground floor of a house in Malate, Manila. He had been renting the
place since 1983 on a month-to-month basis from its owner, respondent Melecio
Tobias, who was then residing in Canada.
Sometime in the last quarter of 1995, owing to his sickly mother who
needed constant medical attention and filial care, respondent demanded from
petitioner either to pay an increased rate of monthly rentals or else to vacate the
place so he and his mother could use the house during her regular medical
check-up in Manila. For two (2) years nothing came out of the demand to
vacate, hence, in 1997 respondent insisted upon raising the rental fee once
again.
On 1 June 1998 respondent asked petitioner to restore the premises to
him for some essential repairs of its dilapidated structure. This time he did not
offer petitioner anymore the option to pay higher rentals. The renovation of the
house was commenced but had to stop midway because petitioner refused to
vacate the portion he was occupying and worse he neglected to pay for the
lease for four (4) months from May to August 1998. Hence for the second time,
or on 19 October 1998, respondent demanded the payment of the rental arrears
as well as the restoration of the house to him. On 3 February 1999, since
petitioner was insisting on keeping possession of the house but did not pay the
rental for January 1999, although he had settled the arrears of four (4) months,
respondent was compelled to file a complaint for ejectment.
The MeTC of Manila decided the ejectment complaint in favor of
respondent and ordered petitioner to vacate the leased premises and to pay
rental arrears in the amount of P60,000.00 as of December 1998 and P6,000.00
for every month thereafter until he finally restored possession thereof to
respondent plus attorney’s fees of P15,000.00 and the costs of suit. The RTC of
Manila upheld in toto the MeTC Decision and denied the subsequent motion for
reconsideration for failure to set the date of hearing thereof not later than ten
(10) days from its filing. Petitioner’s recourse to the Court of Appeals by petition
for review was also unsuccessful since the assailed Decision was affirmed in its
entirety as the ensuing motion for reconsideration thereof was denied for late
filling, i.e., the motion was filed only on 30 October 2000 beyond the fifteen (15)
– day period from his receipt of the CA Decision on 9 October 2000 as shown by
the registry return receipt.
ISSUE:
Whether or not the lower courts erred in their rulings.
RULING:
It is not only the evidence on record but petitioner’s pleadings themselves
that confirm his default in paying the rental fees for more than three (3) months
in 1999 and 1998 prior to the filing of the ejectment complaint. There is also
sufficient basis for the courts a quo to conclude that respondent desperately
needed the property in good faith for his own family and for the repair and
renovation of the house standing thereon. These facts represent legal grounds
to eject a tenant.
The Petition for Review is DENIED for lack of merit.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION, petitioner,
VS. HUANG CHAO CHUN AND YANG TUNG FA, respondents
Mar 7, 2000
G.R. No. 142378
378 SCRA 612
FACTS:
The case originated from an unlawful detainer case filed by petitioner
before the trial court alleging that respondents Huang Chao Chun and Yang Tung
Fa violated their amended lease contract over a 1,112 square meter lot it owns,
when they did not pay the monthly rentals thereon in the total amount of
P4,322,900.00. It also alleged that the amended lease contract already expired
on September 16, 1996 but respondents refused to surrender possession thereof
plus the improvements made thereon, and pay the rental arrearages despite
repeated demands. The parties entered into the amended lease contract
sometime in August 1991. The same amended the lease contract previously
entered into by the parties on August 8, 1991.
Respondent were joined by the Tsai Chun International Resources Inc. in
their answer to the Complaint, wherein they alleged that the actual lessee is the
corporation. Respondents and the corporation denied petitioner’s allegations.
The MTC dismissed the case. The MTC ruled that the lessees could extend
the contract entered into by the parties unilaterally for another five years for
reasons of justice and equity. It also ruled that the corporation’s failure to pay
the monthly rentals as they fell due was justified by the fact that petitioner
refused to honor the basis of the rental increase as stated in their Lease
Agreement. This was affirmed by the RTC. It also held that the parties had a
reciprocal obligation: unless and until petitioner presented “the increased realty
tax,” private respondents were not under any obligation to pay the increased
monthly rental. The decision was likewise affirmed by the Court of Appeals.
ISSUE:
Whether or not the court could still extend the term of the lease, after its
expiration.
RULING:
In general, the power of the courts to fix a longer term for a lease is
discretionary. Such power is to be exercised only in accordance with the
particular circumstances of a case: a longer term to be granted where equities
demanding extension come into play; to be denied where none appear -- always
with due deference to the parties’ freedom to contract. Thus, courts are not
bound to extend the lease.
Article 1675 of the Civil Code excludes cases falling under Article 1673
from those under Article 1687. Article 1673 provides among others, that the
lessor may judicially eject the lessee upon the expiration of “the period agreed
upon or that, which is fixed for the duration of the leases.” Where no period has
been fixed by the parties, the courts, pursuant to Article 1687, have the
potestative authority to set a longer period of lease.
In the case, the Contract of Lease provided for a fixed period of five (5)
years -- “specifically” from September 16, 1991 to September 15, 1996.
Because the lease period was for a determinate time, it ceased, by express
provision of Article 1669 of the Civil Code, “on the day fixed, without need of a
demand.” Here, the five-year period expired on September 15, 1996, whereas
the Complaint for ejectment was filed on October 6, 1996. Because there was
no longer any lease that could be extended, the MeTC, in effect, made a new
contract for the parties, a power it did not have.
As stated in Bacolod-Murcia Milling v. Banco Nacional Filipino, “It is not the
province of the court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves, without regard to its wisdom or folly, as
the court cannot supply material stipulations or read into contract words which it
does not contain.”
Furthermore, the extension of a lease contract must be made before the
term of the agreement expires, not after. Upon the lapse of the stipulated
period, courts cannot belatedly extend or make a new lease for the parties, even
on the basis of equity. Because the Lease Contract ended on September
15, 1996, without the parties reaching any agreement for renewal, respondents
can be ejected from the premises.
On the other hand, respondents and the lower courts argue that the
Contract of Lease provided for an automatic renewal of the lease period. Citing
Koh v. Ongsiaco and Cruz v. Alberto, the MeTC -- upheld by the RTC and the CA
-- ruled that the stipulation in the Contract of Lease providing an option to renew
should be construed in favor of and for the benefit of the lessee. This ruling has
however, been expressly reversed in Fernandez v. CA and was recently
reiterated in Heirs of Amando Dalisay v. Court of Appeals. Thus, pursuant to
Fernandez, Dalisay and Article 1196 of the Civil Code, the period of the lease
contract is deemed to have been set for the benefit of both parties. Its renewal
may be authorized only upon their mutual agreement or at their joint will. Its
continuance, effectivity or fulfillment cannot be made to depend exclusively
upon the free and uncontrolled choice of just one party. While the lessee has
the option to continue or to stop paying the rentals, the lessor cannot be
completely deprived of any say on the matter. Absent any contrary stipulation
in a reciprocal contract, the period of lease is deemed to be for the benefit of
both parties.
In the instant case, there was nothing in the aforesaid stipulation or in the
actuation of the parties that showed that they intended an automatic renewal or
extension of the term of the contract. First, demonstrating petitioner’s
disinterest in renewing the contract was its letter dated August 23, 1996,
demanding that respondents vacate the premises for failure to pay rentals since
1993. As a rule, the owner-lessor has the prerogative to terminate the lease
upon its expiration. Second, in the present case, the disagreement of the parties
over the increased rental rate and private respondents’ failure to pay it
precluded the possibility of a mutual renewal. Third, the fact that the lessor
allowed the lessee to introduce improvements on the property was indicative,
not of the former’s intention to extend the contract automatically, but merely of
its obedience to its express terms allowing the improvements. After all, at the
expiration of the lease, those improvements were to “become its property.”
As to the contention that it is not fair to eject respondents from the
premises after only five years, considering the value of the improvements they
introduced therein, suffice it to say that they did so with the knowledge of the
risk -- the contract had plainly provided for a five-year lease period.

Parties are free to enter into any contractual stipulation, provided it is not
illegal or contrary to public morals. When such agreement, freely and voluntarily
entered into, turns out to be disadvantageous to a party, the courts cannot
rescue it without crossing the constitutional right to contract. They are not
authorized to extricate parties from the necessary consequences of their acts,
and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve the latter of their obligations.
Petition granted. Decision set aside. Respondents ordered to vacate the
premises, to restore peaceful possession thereof to petitioner, and to pay
accrued rentals.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
BRENT SCHOOL VS. ZAMORA
181 SCRA 702
FACTS:
The root of the controversy at bar is an employment contract in virtue of
which Doroteo R. Alegre as engaged as athletic director by Brent School, Inc. at
a yearly compensation of P20,000. The contract fixed a specific term for its
existence, five (5) years, i.e., from July 18, 1971, the date of execution of the
agreement, to July 17, 1976. Subsequent subsidiary agreements dated March
15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms
and conditions, including the expiry date, as those contained in the original
contract.
Some three (3) months before the expiration of the stipulated period, or
more precisely on April 20, 1976, Alegre was given a copy of the report filed by
Brent School with the Department of Labor advising of the termination of his
services effective on July 16, 1976.
Alegre objected to this termination of his employment contending that
since his services were necessary and desirable in the usual business of his
employer, and his employment had lasted for five (5) years, he had acquired the
status of a regular employee and could not be removed except for valid cause.
ISSUE:
Whether or not Alegre’s contention is tenable.
RULING:
NO. The provisions of the Labor Code recognize the existence and legality
of term employments. The case at bar is one which involves term employment.
Therefore, Alegre’s employment was terminated upon the expiration of his last
contract with Brent School on July 16, 1976 without the necessity of any notice.
The advance written advice given the Department of Labor with copy to said
petitioner was a mere reminder of the impending expiration of his contract, not a
letter of termination, nor an application for clearance to terminate which needed
the approval of the Department of Labor to make the termination of his services
effective. In any case, such clearance should properly have been given, not
denied.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
LOURDES VALERIO LIM VS. PEOPLE OF THE PHILIPPINES
G.R. No. L-34338
November 21, 1984
133 SCRA 333
FACTS:
On January 10, 1966, Lim (Appellant) went to the house of Maria Ayroso
and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The
appellant was to receive the overprice for which she could sell the tobacco.
Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment
of the balance of the value of the tobacco were made upon the appellant by
Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further
testified that she had gone to the house of the appellant several times, but the
appellant often eluded her; and that the 'camarin' of the appellant was empty.
Although the appellant denied that demands for payment were made upon her,
it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug stating
that she could not pay in full the amount of P799.50 because it is also hard to
demand payment from her “suki” in the market of Cabanatuan. Pursuant to this
letter, the appellant sent a money order for P100.00 on October 24, 1967, and
another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 or a
total of P240.00. As no further amount was paid, the complainant filed a
complaint against the appellant for estafa.
ISSUE:
Whether or not the Article 1197 of the Civil Code can be applied in this
case
RULING:
NO. It is clear in the agreement that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as soon as the tobacco was
disposed of. Hence, Article 1197 of the New Civil Code, which provides that the
courts may fix the duration of the obligation if it does not fix a period, does not
apply.
Anent the argument that petitioner was not an agent because the
agreement does not say that she would be paid the commission if the goods
were sold, the fact that appellant received the tobacco to be sold at P1.30 per
kilo and the proceeds to be given to complainant as soon as it was sold, strongly
negates transfer of ownership of the goods to the petitioner. The agreement
constituted her as an agent with the obligation to return the tobacco if the same
was not sold.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
PACIFIC BANKING CORPORATION VS. COURT of APPEALS
G. R. No. 45656
May 5, 1989
173 SCRA 102
FACTS:
On April 15, 1955, private respondents Joseph and Eleanor Hart
discovered an area consisting of 480 hectares of tidewater land in Tambac, Gulf
of Lingayen which had great potential for the cultivation of fish and saltmaking.
They organized Insular Farms, Inc., applied for and after eleven months,
obtained a lease from the Department of Agriculture for a period of 25 years,
renewable for another 25 years. Joseph Hart approached businessman John
Clarkin, then President of Pepsi-Cola Bottling Co. in Manila, for financial
assiatance.
On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of
Agreement. Due to financial difficulties, Insular Farms, Inc. borrowed from
Pacific Banking Corporation sometime in July 1956. On July 31, 1956, Insular
Farms, Inc. executed a Promissory Note of P250,000 to the bank payable on or
before July 1957. Such note provided that upon default in the payment of any
installment when due, all other installments shall become due and payable. This
loan was effected and the money released without any security except for the
Continuing Guaranty, executed on July 18, 1956, of John Clarkin, who owned
seven and half percent of the capital stock of the bank and his wife Helen.
Unfortunately, the business floundered; nevertheless, petitioner Pacific Banking
Corporation and its then Executive Vice President, petitioner Chester Babst, did
not demand payment for the initial July 1957 installment nor of the entire
obligation, but instead opted for more collateral in addition to the guaranty of
Clarkin. As the business further deteriorated, Hart agreed to Clarkin’s proposal
that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of
additional collateral and to insure and extension of the period to pay the July
1957 installment. On March 3, 1958, Pacific Farms, Inc. was organized to
engage in the same business as Insular Farms, Inc. The next day, Pacific
Banking Corporation, through petitioner Chester Babst wrote Insular Farms, Inc.
giving the latter 48 hours to pay its entire obligation.
On March 7, 1958, Hart received a notice that the pledged shared of
stocks of Insular Farms, Inc. would be sold at public auction on March 10, 1958
to satisfy Insular Farms’ obligation. Hart filed a complaint for reconveyance and
damages with prayer for a writ of preliminary injunction and the Court of First
Instance granted the writ. However, upon petitions for dissolution of preliminary
injunction filed by the petitioners PBC and Babst, the court lifted the writ of
preliminary injunction. On March 20, 1958, respondent Hart received a notice
from PBC signed by Babst that the shares of stocks on Insular Farms Inc. will be
sold at public auction on March 21, 1958. On March 21, 1958, PBC sold the 1,
000 shares of stocks of Insular Farms to Pacific Farms. The latter then sold its
shares of stocks to its own stockholders, who constituted themselves as
stockholders of Insular Farms and then resold back to Pacific Farms Inc. all of
Insular Farms assets except for a certificate of public convenience to operate an
ice plant. On September 28, 1959, Hart filed another case for recovery of sum of
money comprising his investments and earnings.
The trial court rendered a decision ordering Pacific Farms Inc. to pay
Joseph Hart for unpaid salaries and for loans made by private respondents to
Insular Farms, Inc. the private respondents, dissatisfied with the decision,
appealed to the Court of Appeals. The appellate court modified the lower
court’s decision, directing Pacific Banking Corporation to pay Joseph Hart
P100,000.00, subject to reimbursement from Babst.
ISSUES:
Whether or not the sale by the petitioner bank of the shares of stocks of
private respondent on March 21, 1958 is valid since the shares of stocks had
been pledged to insure an extension of the period to pay the July installment.
Whether or not the Court may fix a period in the parties’ agreement to
extend the payment of the loan, including the installment which was due on or
before July 1957 it being imprecise.
RULING:
The Supreme Court held that since there was an agreement to extend
indefinitely the payment of the installment of P50,000.00 in July 1957 as
provided in the promissory note, consequently, petitioner Pacific Banking
Corporation was precluded form enforcing the payment of the said installment of
July 1957, before the expiration of the indefinite period of extension, which
period had to be fixed by the court as provided in Article 1197 of the Civil Code.
Hence, the disputed foreclosure and subsequent sale was premature.
Wherefore, the petition is dismissed.
YES. In case the period of extension is not precise, the provisions of
Article 1197 of the Civil Code should apply. The pledge executed as collateral
security no longer contained a provision on installment due on or before July
1957. The pledge constituted on February 19, 1958 on the shares of stocks of
Insular was sufficient consideration for the extension, considering that pledge
was additional collateral required by the Pacific in addition to the continuing
guaranty of Carkin. Even the ledge did not provide for dates of payment of
installments; or any fixed date for maturity of the whole indebtedness.
Accordingly, the date of maturity of the indebtedness should be as may be
determined by the court under Article 1197 of the Civil Code.
ALTERNATIVE OBLIGATION: MEANING AND DEFINITION
1. AGONCILLO VS. JAVIER, 38 PHIL 124
2. ONG GUAN VS. CENTURY, 46 PHIL 592
AGONCILLO VS. JAVIER
38 PHIL 124
FACTS:
On February 27 1904, Anastasio Alano, Jlose Alano and Florencio Alano
executed in favor of the plaintiff, Dra. Marcela Marino a document stipulating
that the Alanos as testamentary heirs of deceased Rev. Anastacio Cruz, would
pay the sum of P2,730.50 within one (1) year with interest of 12 percent per
annum representing the amount of debt incurred by Cruz. Moreover, the
agreement provided that the Alanos are to convey the house and lot bequeathed
to them by Cruz in the event of failure to pay the debt in money at its maturity.
No part of interest or principal due has been paid except the sum of P200
paid in 1908 by Anastacio Alano. In 1912, Anastasio died intestate. On August
8, 1914, CFI of Batangas appointed Crisanto Javier as administrator of
Anastasio’s estate. On March 17, 1916, the plaintiffs filed the complaint against
Florencio, Jose and Crisanto praying that unless defendants pay the debt for the
recovery of which the action was brought, they be required to convey to
plaintiffs the house and lot described in the agreement, that the property be
appraised and if its value is found to be less than the amount of the debt, with
accrued interest at the stipulation rate, judgment be rendered in favor of the
plaintiffs for the balance.
ISSUE:
Whether or not the agreement that the defendant-appellant, at the
maturity of the debt, will pay the sum of the money lent by the appellees or will
transfer the rights to the ownership and possession of the house and lot
bequeathed to the former by the testator in favor of the appellees, is valid.
RULING:
YES, this stipulation is valid because it is simply an alternative obligation,
which is expressly allowed by law. The agreement to convey the house and lot
on an appraised value in the event of failure to pay the debt in money at its
maturity is valid. It is simply an undertaking that if debt is not paid in money, it
will be paid in another way. The agreement is not open to the objection that the
agreement is pacto comisorio. It is not an attempt to permit the creditor to
declare the forfeiture of the security upon the failure of the debtor to pay at its
maturity. It is simply provided that if the debt is not paid in money, it shall be
paid by the transfer of the property at a valuation. Such an agreement
unrecorded, creates no right in rem, but as between the parties, it is perfectly
valid and specific performance by its terms may be enforced unless prevented
by the creation of superior rights in favor of third persons.
The contract is not susceptible of the interpretation that the title to the
house and lot in question was to be transferred to the creditor ipso facto upon
the mere failure of the debtors to pay the debt at its maturity. The obligations
assumed by the debtors were in the alternative, and they had the right to elect
which they would perform. The conduct of parties shows that it was not their
understanding that the right to discharge the obligation by the payment of the
money was lost to the debtors by their failure to pay the debt at its maturity.
The plaintiff accepted the payment from Anastacio in 1908, several years after
the debt matured.
It is quite clear therefore that under the terms of the contract, and the
parties themselves have interpreted it, the liability of the defendant as to the
conveyance of the house and lot is subsidiary and conditional, being dependent
upon their failure to pay the debt in money. It must follow therefore that if the
action to recover the debt was prescribed, the action to compel a conveyance of
the house and lot is likewise barred, as the agreement to make such conveyance
was not an independent principal undertaking, but merely a subsidiary
alternative pact relating to the method by which the debt must be paid.
ALTERNATIVE OBLIGATION: MEANING AND DEFINITION
ONG GUAN CUAN AND
THE BANK OF THE PHILIPPINE ISLANDS, Plaintiff-appellees
VS. CENTURY INSURANCE COMPANY, defendant-appelant
46 SCRA 592
GR No. 22738
46 P 592
FACTS:
A building of plaintiff Ong Guan Cuan was insured with defendant Century
Insurance Company (Century) against fire for P30,000 as well as the
merchandise therein for P15,000. On February 28 1923, the building and the
merchandise were burned while the policies issued were in force. Under the
conditions of the policies, the defendant may at its option reinstate or replace
the destroyed property instead of paying for the amount of the loss and that it is
not bound to reinstate exactly or completely the damaged property.
Century proposed reconstruction of the house destroyed but plaintiff
denied that the new house which will be constructed would be smaller and of
materials of lower kind than those employed in the construction of the house
which was destroyed. Plaintiff filed a complaint compelling defendant to pay the
sum of P45,000, the value of the insurance of the building and the merchandise.
On April 19, 1924, the CFI of Iloilo City rendered judgment in favor of the
plaintiff.
Hence the defendant appealed from the judgment and prayed that it be
permitted to rebuild the house as provided in the conditions of the insurance
policies.
ISSUE:
Whether or not defendant Century may be allowed to rebuild the house as
its option instead of payment of the insured value as stipulated in the insurance
policies.
RULING:
NO. The conditions in the insurance policies that the parties entered into
allowed Century to either pay the insured value of the house, or rebuild it
making the obligation of the company an alternative one. In alternative
obligations, the debtor, Century, must notify the creditor of his election stating
which of the two prestations it is disposed to fulfill. The objective is to give the
creditor opportunity to give consent or deny the election of the debtor. Only
after said notice shall election take legal effect when consented by the creditor
(Article 120 Civil Code) or if impugned by the latter when declared proper by a
competent court. In the instant case, appellant company did not give formal
notice of its election to rebuild the house and the proposed reconstruction of the
house was rejected by the creditor.
In alternative obligations, the value of the prestations must be equivalent
or similar in value to each other. The proposed rebuilding of the house by the
insurance company would be of lesser value than the other prestation. The
petitioner would build a smaller house and of materials of lower kind than those
employed in the construction of the burned house. The other prestation is
payment of the amount of P45,000 corresponding to the value of the burned
building (P30, 000) and the value of the merchandise burned (P15,000).
Therefore, the only recourse of the insurer is to pay the stipulated value of the
insurance policy.
ALTERNATIVE OBLIGATIONS: EFFECTS: AS TO DEBTOR: RIGHT OF
CHOICE/ELECTION: NATURE AND LIMITATIONS (Art. 1200, 1202-1203, CC)
LEGARDA VS. MIAILHE
88 S 637
FACTS:
On June 3, 1944, plaintiffs filed a complaint against the original
defendant William J.B. Burke, alleging defendant’s unjustified refusal to
accept payment in discharge of a mortgage indebtedness in his favor, and
praying that the latter be order (1) to receive the sum of P75,920.83; (2)
to execute the corresponding deed of release of mortgage, and; (3) to pay
damages in the sum of P1,000. The Court then decided in favor of plaintiff
Legarda. After the war and the subsequent defeat of the Japanese
occupants, defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to deposit
worthless Japanese military notes when they originally agreed that the
interest was to be condoned until after the occupation and that payment
was rendered either in Philippine or English currency. Defendant was later
substituted upon death by his heir Miailhe and the Courts judged in
defendant’s favor. Plaintiff now assails said decision.
ISSUE:
Is the tender of payment by plaintiff valid?
RULING:
On February 17, 1943, the only currency available was the
Philippine currency, or the Japanese Military notes, because all other
currencies, including the English, were outlawed by a proclamation issued
by the Japanese Imperial Commander on January 3, 1942. The right to
election ceased to exist on the date of plaintiff’s payment because it had
become legally impossible. And this is so because in alternative
obligations there is no right to choose undertakings that are impossible or
illegal. In other words, the obligation on the part of the debtor to pay the
mortgage indebtedness has since then ceased to be alternative. It
appears therefore, that the tender of payment in Japanese Military notes
was a valid tender because it was the only currency permissible at the
time and its payment was tantamount to payment in Philippine currency.
However, payment with the clerk of court did not have any legal
effect because it was made in certified check, and a check does not meet
the requirements of legal tender. Therefore, her consignation did not have
the effect of relieving her from her obligation of the defendant.
ALTERNATIVE OBLIGATION: EFFECTIVITY OF CHOICE (Art. 12012, CC)
REYES VS. MARTINEZ
55 Phil 493
FACTS:
Estanislao Reyes filed an action before the Court of First Instance of
Laguna against the Martinez heirs upon four several causes of action in which
the plaintiff seeks to recover five parcels of land, containing proximately one
thousand coconut trees, and to obtain a declaration of ownership in his favor as
against the defendants with respect to said parcels; to recover from the
defendants the sum of P9,377.50, being the alleged proceeds of some coconut
trees; to recover from the defendants the sum of P43,000, as alleged value of
the proceeds of the lands involved in the receivership in the case of Martinez vs.
Grano, to which the plaintiff supposes himself to be entitled, but which have
gone, so he claims, to the benefit of the defendants in said receivership and
lastly, to recover the sum of the P10,000 from the defendants as damages
resulting from their improper meddling in the administration of the receivership
property.
The plaintiff has been laboring along for several years in an unsuccessful
legal battle with the defendants, springing from his claim to be the owner of the
property involved in the receivership. This cause of action is founded upon the
contract and the claim put forth by the plaintiff is to have the five parcels
adjudge to him in lieu of another parcel formerly supposed to contain one
thousand trees between him and certain of the Martinez heirs. By this contract,
Reyes was to be given the parcel described in clause 8, but in a proviso to said
clause, the parties contracting with Reyes agreed to assure to him certain other
land containing an equivalent number of trees in case he should so elect. The
litigation shows that the plaintiff elected to take and hold the parcel described in
clause 8, and his right thereto has all along been recognized in the dispositions
made by the court with respect to said land. Thus, Reyes must be taken to have
elected to take that particular parcel and he is now estopped from asserting a
contrary election to take the five parcels of land described in his complaint.
However, the title of the parcel is in the heirs of Inocente Martinez and it
does not appear that they have transferred said title to Reyes.
ISSUE:
Whether or not Reyes is entitled to the damages against the party’s
signatory to the contract of March 5, 1921 for the value of the said property.
RULING:
Yes. The claim of the defendants to the interest of P8,000 from July 31,
1926 cannot be conceded as the judgment itself bears interest at the lawful rate
from the date the same was rendered. The Martinez heirs are ordered to
procure the sufficient deed conveying to appellant Estanislao Reyes the parcels
of land mentioned in paragraph 8 of the contract. The judgment against Reyes
in favor of the Martinez heirs is enjoined.
ALTERNATIVE VS. FACULTATIVE OBLIGATION
QUIZANA VS. REDUGERIO
94 PHIL. 922
FACTS:
This is an appeal to the Court from a decision rendered by the Court of the
First Instance of Marinduque, wherein the defendant Gaudencio Redugerio was
to pay the plaintiff Martina Quizana the sum of P550 with the interest from the
time of the filing of the complaint and from an order of the same court denying a
motion of the defendant for the reconsideration of the judgment on the ground
that they were deprived of their day in court.
There were actionable documents attached to the complaint signed by the
defendant-appellant spouses Redugerio and Pastrado on October 4, 1948 and
containing the provision that Quizana is to be paid on January 1949 and in case
of failure, they will mortgage the coconut plantation in Sta. Cruz, Marinduque.
The defendants admitted that they offered the transfer of possession but was
eventually refused by the petitioner.
So eventually, the defendants appealed in the CFI which set the hearing
on August 16, 1951.
However, the counsel for defendants presented an “urgent motion for
continuance” for the date of hearing coincides with his appearance in two (2)
criminal cases previously set for trial before hearing on the aforesaid date.
The motion was not acted upon until the day of the trial.
The CFI denied the motion for continuance, and in the absence of
defendants, rendered its questioned decision.
ISSUE:
Whether or not the trial court was correct in ignoring the 2 nd part of the
written obligation and solely basing its decision on the last part of the 1 st part;
i.e., that payment should have been made on January 21, 1949.
RULING:
YES, the acceptance of plaintiff of the written obligation without objection
and protest and the fact that he kept and based his action therein, are concrete
and positive proof that he agreed and consented to all the terms, including the
paragraph on the constitution of the mortgage.
Article 1206 provides: When only one prestation has been agreed upon
but the obligation may render substitution, the obligation is facultative
obligation.
The defendant-appellant shall present a duly executed deed of mortgage
over the property in the written obligation, with a period of payment to be
agreed upon by the parties with the approval of the court.
JOINT OBLIGATIONS: HOW CREATED
ALIPIO VS. COURT OF APPEALS
341 SCRA 441
FACTS:
Respondent Romeo Jaring was the lessee of a 14.5 hectares fishpond in
Barilto, Bataan. The lease was for a period of five (5) years ending September
12, 1990. On June 19, he subleased the fishpond for the remaining period of his
lease to the spouses Placido and Purita Alipio and the spouses Bienvenido and
Remedons Manuel. The stipulated amount of the rent was P 485,600.00 payable
in two (2) installments of P300,00.00 and P185,600 with second installment
falling due on June 30, 1989. Each of the four sublease parties signed the
contract.
The first installment was duly paid, but the second installment the sub
lessees only satisfied a portion thereof, leaving an unpaid of P50,600.00.
Despite due demand, the lessees failed to comply with their obligation so that on
October 13,1989 private respondent sued Alipio and Manuel spouses for the
collection of the said amount before the RTC, and in the alternative, he prayed
for the rescission of the sublease contract should the defendant failed to pay the
balance.
Petitioner Purita moved to dismiss the case on the ground that her
husband had passed away on December 1988. She based her action on Rule 3
Section 31 of 1964 Rules of Court.
ISSUE:
Whether or not a creditor can sue the surviving spouses for the collection
of debt which is owned by the conjugal partnership of gains, and not in a
proceeding for the settlement of the estate of the decedent.
RULING:
NO, creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of the sum of money chargeable against the
conjugal partnership and that the proper remedy is for him to file a claim in the
settlement of the estate of the decedent.
Article 161(1) states that: All debts and obligation contracted by the
husband for the benefits of the conjugal partnership, and those contracted by
the wife, also for the same purpose, in the cases where she may legally bind the
partnership.
When petitioner’s husband died, their conjugal partnership was
automatically dissolved and debts chargeable against it are to be paid in the
settlement of estate proceeding in accordance with Rule 73 Section 2: When
marriage dissolved by death of the husband or wife, the community property
shall be inventoried, administered and liquidated, and the debts thereof paid in
the testate or intestate proceeding of the deceased spouse. If both spouses have
died, the conjugal partnership shall be liquidated in the testate or intestate
proceeding of either.
EFFECTS OF JOINT OBLIGATIONS
PH CREDIT CORPORATION, petitioner,
VS. COURT OF APPEALS and CARLOS M. FARRALES, respondents
2001 Nov 22
370 SCRA 441
FACTS:
I. CA-G.R. SP NO. 23324
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales,
Thomas H. Van Sebille and Federico C. Lim, for sum of money. After service of
summons upon the defendants, they failed to file their answer within the
reglementary period, hence they were declared in default. Judgment is rendered
in favor of plaintiff PH Credit Corporation.
After the aforesaid decision has become final and executory, a Writ of
Execution was issued and consequently implemented by the assigned Deputy
Sheriff. Personal and real properties of defendant Carlos M. Farrales were levied
and sold at public auction wherein PH Credit Corp. was the highest bidder.
Motion for the issuance of a writ of possession was filed and the same was
granted. Petitioner claims that she, as a third-party claimant with the court
below, filed an ‘Urgent Motion for Reconsideration and/or to Suspend the Order
dated October 12, 1990’, but without acting there[on], respondent Judge issued
the writ of possession on October 26, 1990. She claims that the actuations of
respondent Judge was tainted with grave abuse of discretion. Respondent Judge
issued an order considering the assailed Order as well as the writ of possession
as ‘of no force and effect’ thus the issue here has become moot and academic.
II. CA-G.R. SP NO. 25714
Petitioner claims that the respondent Judge’s Order dated January 31,
1991 was tainted with grave abuse of discretion based on the following grounds:
“1. Respondent Judge refused to consider as “waived” private respondent’s
objection that his obligation in the January 31, 1984 decision was merely joint
and not solidary with the defendants therein. According to petitioner, private
respondent assailed the levy on execution twice in 1984 and once in 1985 but
not once did the latter even mention therein that his obligation was joint for
failure of the dispositive portion of the decision to indicate that it was solidary.
Thus, private respondent must be deemed to have waived that objection,
petitioner concludes.
“2. The redemption period after the auction sale of the properties had long
lapsed so much [so] that the purchaser therein became the absolute owner
thereof. Thus, respondent Judge allegedly abused his discretion in setting aside
the auction sale after the redemption period had expired.
“3. Respondent Judge erred in applying the presumption of a joint obligation in
the face of the conclusion of fact and law contained in the decision showing that
the obligation is solidary.”
The Court of Appeals affirmed the trial court’s ruling declaring null and
void (a) the auction sale of Respondent Ferrales’ real property and (b) the Writ of
Possession issued in consequence thereof. It held that, pursuant to the January
31, 1984 Decision of the trial court, the liability of Farrales was merely joint and
not solidary. Consequently, there was no legal basis for levying and selling
Farrales’ real and personal properties in order to satisfy the whole obligation.
ISSUE:
Whether or not the Court of Appeals erred when it disregarded the body of
the decision and concluded that the obligation was merely a joint obligation due
to the failure of the dispositive portion of the decision dated 31 January 1984 to
state that the obligation was joint and solidary.
RULING:
No. A solidary obligation is one in which each of the debtors is liable for
the entire obligation, and each of the creditors is entitled to demand the
satisfaction of the whole obligation from any or all of the debtors. On the other
hand, a joint obligation is one in which each debtors is liable only for a
proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-entrenched rule is
that solidary obligations cannot be inferred lightly. They must be positively and
clearly expressed. A liability is solidary “only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so
requires.”
In the dispositive portion of the January 31, 1984 Decision of the trial
court, the word solidary neither appears nor can it be inferred therefrom. The
fallo merely stated that the following respondents were liable: Pacific Lloyd
Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim.
Under the circumstances, the liability is joint, as provided by the Civil Code,
which we quote:“ Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers[,] the contrary does not appear,
the credit or debt shall be presumed to be divided into as many equal shares as
there are creditors or debtors x x x.” Hence the execution must conform with
that which is ordained or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improperly and incorrectly
disregarded the body of the trial court’s Decision, which clearly stated as follows:
“To support the Promissory Note, a Continuing Suretyship Agreement was
executed by the defendants, Federico C. Lim, Carlos M. Farrales and Thomas H.
Van Sebille, in favor of the plaintiff corporation, to the effect that if Pacific Lloyd
Corporation cannot pay the amount loaned by plaintiff to said corporation, then
Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille will hold
themselves jointly and severally together with defendant Pacific Lloyd
Corporation to answer for the payment of said obligation.”
The only exception when the body of a decision prevails over the fallo is
when the inevitable conclusion from the former is that there was a glaring error
in the latter, in which case the body of the decision will prevail. In this instance,
there was no clear declaration in the body of the January 31, 1984 Decision to
warrant a conclusion that there was an error in the fallo. Nowhere in the former
can we find a definite declaration of the trial court that, indeed, respondent’s
liability was solidary. If petitioner had doubted this point, it should have filed a
motion for reconsideration before the finality of the Decision of the trial court.
SOLIDARY OBLIGATIONS: HOW CREATED
1. CDCP VS. ESTRELLA, 501 S 228
2. REPUBLIC GLASS CORP. VS. QUA, 30 JULY 2004
3. INDUSTRIAL MANAGEMENT VS. NLRC, 331 SCRA 640
4. METRO MANILA TRANSIT VS. CA, JUNE 21, 1993
CDCP VS ESTRELLA
GR No. 147791. September 8, 2006
FACTS:
On December 29, 1978, respondents Rebecca G. Estrella and her
granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus
bound for Pasay City. However, they never reached their destination
because their bus was rammed from behind by a tractor-truck of CDCP in
the South Expressway. The strong impact pushed forward their seats and
pinned their knees to the seats in front of them. They regained
consciousness only when rescuers created a hole in the bus and
extricated their legs from under the seats. They suffered physical injuries
as a result. Thereafter, respondents filed a Complaint for damages against
CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the
Regional Trial Court of Manila, Branch 13.
ISSUE:
Are the accused jointly or solidarily liable?
RULING:
The case filed by respondents against petitioner is an action
for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code. The
liability for the negligent conduct of the subordinate is direct and primary,
but is subject to the defense of due diligence in the selection and
supervision of the employee. In the instant case, the trial court found that
petitioner failed to prove that it exercised the diligence of a good father of
a family in the selection and supervision of Payunan, Jr.
It is well-settled in Fabre, Jr. v. Court of Appeals, that the
owner of the other vehicle which collided with a common carrier is
solidarily liable to the injured passenger of the same. The Peitition was
thusly DENIED.
SOLIDARY OBLIGATIONS: HOW CREATED
REPUBLIC GLASS CORPORATION v. QUA
G.R. No. 14413 July 30, 2004
FACTS:
Petitioners and respondent were stockholders of Ladtek, Inc., which
obtained loans from Metrobank and PDCP where they stood as sureties.
Among themselves they executed Agreements for Contribution, Indemnity
and Pledge of shares of Stocks, stating that in case of default in the
payment of loans, the parties would reimburse each other the
proportionate share of any sum that any might pay to creditors. Ladtek
defaulted on its loan obligations, hence Metrobank filed a collection case.
During the pendency thereof, RGC and Gervel paid Metrobank where a
waiver and quitclaim in favor of the two was executed. Upon Qua’s
refusal to reimburse, RGC and Gervel foreclosed the pledged shares of
stocks owned by Qua at a public auction. On appeal, the CA issued the
assailed decision and held that there was an implied novation of the
agreement and that the payment did not extinguish the entire obligation
and did not benefit Qua. Hence, the petition, where the petitioners claim
the following: (1) Qua is estopped from claiming that the payment made
was not for the entire obligation, due to his judicial admissions; (2)
payment of the entire obligation is a condition sine qua non for the
demand of reimbursement under the indemnity agreements; and (3)
there is no novation in the instant case.
ISSUES:
(1) Whether payment of the entire obligation is an essential
condition for reimbursement; and (2) Whether there was no novation.
RULING:
The petition is denied. Although the Agreement does not state that
payment of the entire obligation is an essential condition for
reimbursement, RGC and Gervel cannot automatically claim for indemnity
from Qua because Qua himself is liable directly to Metrobank and PDCP.
The elements of novation are not established in the instant case.
Contrary to RGC and Gervel’s claim, payment of any amount will not
automatically result in reimbursement. If a solidary debtor pays the
obligation in part, he can recover reimbursement from the co-debtors only
in so far as his payment exceeded his share in the obligation. This is
precisely because if a solidary debtor pays an amount equal to his
proportionate share in the obligation, then he in effects pays only what is
due from him. If the debtor pays less than his share in the obligation, he
cannot demand reimbursement because his payment is less than his
actual debt.

SOLIDARY OBLIGATIONS: HOW CREATED
INDUSTRIAL MANAGEMENT VS. NLRC
331 SCRA 640
FACTS:
In September 1984, private respondents Enrique Sulit, Socorro Mahinay,
Esmeralco Pegarido, Tita Bacusimo, Nierre, Virginia Bagus, Nemenzo, Dariogo
and Roberto filed a complaint with the DOLE, Regional Arbitration Branch No.111
in Cebu City against Filipinas Carbon Mining Corp, Genardo Sicaty, Gonzales,
Dhin Gin, Lo Kuan Chin petitioner Industrial Management Development
Corporation for payment of separation pay and unpaid wages.
Labor Arbiter judgment-ordering Filipinas, Gonzales, Lo Kuan Chin to pay
complainant Enrique Sulit total amount of P82,800.00.
On September 3, 1987 petitioner filed a motion to quash alias writ of
execution and set aside decision alleging among that the alias writ of execution
altered and charged the tenor of the decision by charging the liability of therein
respondent from joint to solidary by the insertion of the words ‘and/or’ between
Gonzales and Filipinas.
ISSUE:
Whether or not the petitioner’s liability pursuant to the decision of the
labor arbiter dated March 10, 1987 is solidary.
RULING:
NO, the liability pursuant to the decision of the labor arbiter dated March
10, 1987 should be as it is hereby, considered joint and petitioner’s payment
which has been accepted considered as full satisfaction of its liability, without
the prejudice to the enforcement of the awards against the other five
respondents in the said case.
A solidary or joint and several obligations is one in which each debtor is
liable for the entire obligation and each creditor is entitled to demand the
obligation. In a joint obligation each obligor answers only a part of the whole
liability and to each obligation belong only a part of the correlative rights.
There is solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so required.
When it is not provided in a judgment that the defendant are liable to pay jointly
and severally a certain sum of money, none of them may be compelled to satisfy
in full said judgment.
SOLIDARY OBLIGATIONS: HOW CREATED
METRO MANILA TRANSIT CORPORATION, petitioner,
VS. THE COURT OF APPEALS and NENITA CUSTODIO, respondents.
Jun 21, 1993
G.R. No. 104408
FACTS:
Plaintiff-appellant Nenita Custodio boarded as a passenger of a public
utility jeepney, then driven by defendant Agudo Calebag and owned by his co-
defendant Victorino Lamayo, bound for her work at Dynetics Incorporated
located in Bicutan, Taguig, Metro Manila, where she then worked as a machine
operator. While the passenger jeepney was travelling at along DBP Avenue,
Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila
Transit Corp. (MMTC) bus driven by defendant Godofredo C. Leonardo bound for
its terminal at Bicutan. As both vehicles approached the intersection of DBP
Avenue and Honeydew Road they failed to slow down and slacken their speed;
neither did they blow their horns to warn approaching vehicles. As a
consequence, a collision between them occurred. The collision impact caused
plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger
jeepney and was thrown out therefrom, falling onto the pavement unconscious
with serious physical injuries. She was brought to the Medical City Hospital
where she regained consciousness only after 1 week. Thereat, she was confined
for 24 days, and as a consequence, she was unable to work for three and one
half months 3 1/2. Defendants denied all the material allegations in the
complaint and pointed an accusing finger at each other as being the party at
fault for the negligence in the failure to exercise due diligence in the selection
and supervision of their respective employees.
By order of the trial court, defendant Calebag was declared in default for
failure to file an answer. Trial ensued after no amicable settlements were made.
The trial court found both drivers of the colliding vehicles concurrently negligent
for non-observance of appropriate traffic rules and regulations and for failure to
take the usual precautions when approaching an intersection. As joint
tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable
for damages sustained by plaintiff Custodio.

Plaintiff's motion to have that portion of the trial court's decision absolving
MMTC from liability reconsidered having been denied for lack of merit, an appeal
was filed by her with respondent appellate court. After consideration of the
appropriate pleadings on appeal and finding the appeal meritorious, the Court of
Appeals modified the trial court's decision by holding MMTC solidarily liable with
the other defendants for the damages awarded by the trial court because of
their concurrent negligence, hence, this appeal.
ISSUE:
Whether or not the appellate court erred in holding that MMTC should be
solidary liable with the other defendants.
RULING:
No, the appellate court did not err in its decision. Whether or not the
diligence of a good father of a family has been observed by petitioner is a matter
of proof which under the circumstances in the case at bar has not been clearly
established. It is not felt by the Court that there is enough evidence on record
as would overturn the presumption of negligence, and for failure to submit all
evidence within its control, assuming the putative existence thereof; petitioner
MMTC must suffer the consequences of its own inaction and indifference.
The mere formulation of various company policies on safety without
showing that they were being complied with is not sufficient to exempt petitioner
from liability arising from negligence of its employees. It is incumbent upon
petitioner to show that in recruiting and employing the erring driver the
recruitment procedures and company policies on efficiency and safety were
followed. As joint tortfeasors, all defendants, including MMTC will be solidarily
liable for damages awarded by the trial court. Decision affirmed.
ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS
1. INCIONG VS. CA, 257 SCRA 578
2. PHILIPPINE BLOOMING MILLS VS. CA, OCT. 15, 2003
BALDOMERO INCIONG, JR., petitioner,
VS. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents
G.R. No. 96405
June 26, 1996
FACTS:
Petitioner, together with Gregorio Pantanosas Jr., and Rene Naybe, had
their obligations arouse from the signing of a promissory note amounting to P50,
000 holding themselves jointly and severally liable to private respondent
Philippine Bank of Communications, Cagayan de Oro City branch. The
promissory note was due on May 5, 1983.
The promissors failed to fulfill their obligations despite demand by the
bank. As a consequence, an action to collect was filed with the court but was
dismissed due to failure to prosecute. Said dismissal was reconsidered by the
trial court and later ordered the sheriff to serve the summons. On January 27,
1987, the lower court dismissed the case against defendant Pantanosas as
prayed for by the private respondent herein. Meanwhile, only the summons
addressed to petitioner was served as the sheriff learned that defendant Naybe
had gone to Saudi Arabia.
Petitioner argued that said promissory note has vitiated his consent
through fraud and deceit which was later corroborated by Pantanosas for he only
signed for the amount of P5,000 on one of the copies of the promissory note,
and not the alleged amount, to buy chainsaw. He also claimed that since the
liabilities of Pantanosas and Naybe, his co-promissors, had extinguished, his
should also be extinguished, as provided for by Article 2080 of the Civil Code on
guarantors. The Regional Trial Court and the Court of Appeals rejected his
petitions and so a petition for review on certiorari was filed with the Supreme
Court.
ISSUE:
Whether or not the petitioner is solidary co-maker of the promissory note
in issue and not merely a guarantor.
RULING:
The Supreme Court held that the petitioner signed the promissory note as
a solidary co-maker and not as a guarantor. A solidary or joint and several
obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. On the other hand, Article
2047 of the Civil Code states:
“By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.”
 If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the
contract is called a suretyship. While a guarantor may bind himself solidarily
with the principal debtor, the liability of a guarantor is different from that of a
solidary debtor. Thus, Tolentino explains:
“A guarantor who binds himself in solidum with the principal debtor under the
provisions of the second paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a solidary co-debtor and a
fiador in solidum (surety). The latter, outside of the liability he assumes to pay
the debt before the property of the principal debtor has been exhausted, retains
all the other rights, actions and benefits which pertain to him by reason of the
fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.”
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more
debtors in one and the same obligation, the presumption is that the obligation is
joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidary liability only when the obligation expressly
so states, when the law so provides or when the nature of the obligation so
requires.
Because the promissory note involved in this case expressly states that
the three signatories therein are jointly and severally liable, any one, some or all
of them may be proceeded against for the entire obligation. The choice is left to
the solidary creditor to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Judge Pontanosas may not be
deemed as having discharged petitioner from liability as well. As regards
Naybe, suffice it to say that the court never acquired jurisdiction over him.
Petitioner, therefore, may only have recourse against his co-makers, as provided
by law.
ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS
PHILIPPINE BLOOMING MILLS VS. COURT OF APPEALS
413 SCRA 445
OCTOBER 15, 2003
FACTS:
Alfredo Ching (Ching) was the Senior Vice President of Philippine Blooming
Mills, Inc. (PBM). In his personal capacity and not as a corporate officer, Ching
signed a Deed of Suretyship dated 21 July 1977 binding himself solidarily liable
together with the debtor PBM.
On March 24 and August 6 1980, Traders Royal Bank (TRB) granted PBM
letters of Credit on application of Ching in his capacity as Senior Vice President
of PBM. Ching later accomplished and delivered to TRB trust receipts, which
acknowledged receipt in trust for TRB of the merchandise subject of the letters
of credit. Under the trust receipts, PBM had the right to sell the merchandise for
cash with the obligation to turn over the entire proceeds of the sale to TRB as
payment of PBM’s indebtedness.
Ching further executed an Undertaking for each trust receipt, which
uniformly granted the TRB the right to take possession of the goods at any time
to protect the TRB’s interests.
On 27 April 1981, PBM obtained a P3, 500,000 trust loan from TRB. Ching
signed as co-maker in the notarized Promissory Note evidencing said loan.
PBM defaulted in its payment of the two (2) trust receipts as well as the
trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of
payments with the Securities and Exchange Commission (SEC). The petition
sought to suspend payment of PBM’s obligations and prayed that the SEC allow
PBM to continue its normal business operations free from the interference of its
creditors. One of the listed creditors of PBM was TRB.
On 9 July 1982, the SEC placed all of PBM’s assets, liabilities, and
obligations under the rehabilitation receivership of Kalaw, Escaler and
Associates.
On 13 May 1983, ten months after the SEC placed PBM under
rehabilitation receivership, TRB filed with the trial court a complaint for collection
against PBM and Ching. TRB asked the trial court to order defendants to pay
solidarily the indebtedness of PBM.
On 25 May 1983, TRB moved to withdraw the complaint against PBM on
the ground that the SEC had already placed PBM under receivership. The trial
court thus dismissed the complaint against PBM.
 On 23 July 1983, PBM and Ching also moved to dismiss the complaint on
the ground that the trial court had no jurisdiction over the subject matter of the
case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all
of PBM’s assets and liabilities.
The trial court denied the motion to dismiss with respect to Ching and
affirmed its dismissal of the case with respect to PBM. The trial court stressed
that TRB was holding Ching liable under the Deed of Suretyship. As Ching’s
obligation was solidary, the trial court ruled that TRB could proceed against
Ching as surety upon default of the principal debtor PBM.
Upon the trial court’s denial of his Motion for Reconsideration, Ching filed
a Petition for Certiorari and Prohibition before the Court of Appeals. The
appellate court granted Ching’s petition and ordered the dismissal of the case.
The appellate court ruled that SEC assumed jurisdiction over Ching and PBM to
the exclusion of courts or tribunals of coordinate rank.
TRB assailed the Court of Appeal’s decision before the Supreme Court. In
Traders Royal Bank v. Court of Appeals, the highest tribunal upheld the TRB and
ruled that Ching was merely a nominal party in the SEC case. Creditors may sue
individual sureties of debtor corporations, like Ching, in a separate proceeding
before regular courts despite the pendency of a case before the SEC involving
the debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision approving a revised rehabilitation plan for PBM’s creditors. He further
claimed that even as a surety, he has the right to the defenses personal to PBM.
Thus, his liability as surety would attach only if, after the rehabilitation of
payments scheduled under the rehabilitation plan, there would remain a balance
of PBM’s debt to TRB.
The trial court ruled that Ching is liable to TB under the Deed of
Suretyship. On appeal, the Court of Appeals affirmed the decision of the lower
court. The Court of Appeals denied Ching’s Motion for Reconsideration for lack
of merit.
ISSUES:
Whether or not Ching is liable for obligations PBM contracted after the
execution of the Deed of Suretyship.
Whether or not Ching’s liability is limited to the amount stated in PBM’s
rehabilitation plan.
RULING:
Ching is liable for credit obligations contracted by PBM against TRB before
and after the execution of the 21 July 1977 Deed of Suretyship. This is evident
from the tenor of the deed itself, referring to amounts PBM “may now be
indebted or may hereafter become indebted” to TRB. The law expressly allows a
suretyship for “future debts” as provided for in Article 2053 of the Civil Code.
Under the Civil Code, a guaranty may be given to secure even future debts; the
amount of which may not be known at the time the guaranty is executed. A
continuing guaranty is one which is not limited to a single transaction, but which
contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked.
Anent the second issue, in granting the loan to PBM, TRB required Ching’s
surety precisely to insure full recovery of the loan in case PBM becomes
insolvent or fails to pay in full. Ching cannot invoke Article 1222 of the Civil
Code. Thus, Ching cannot use PBM’s failure to pay in full as justification for his
own reduced liability to TRB. TRB, as creditor, has the right under the surety to
proceed against Ching for the entire amount of PBM’s loan. This is clear from
Article 1216 of the Civil Code, which states that: “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.”
EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY
1. ESPARWA SECURITY VS. LICEO DE CAGAYAN, 508 S 373
2. DIMAYUGA VS. PCIB, AUG. 5, 1991
2. CERNA VS. CA, MAR. 30, 1993
EPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY
G.R. No. 150402 Nov 8, 2006

FACTS:
On 1 December 1997, Eparwa and LDCU, entered into a Contract for
Security Services. On 21 December 1998, 11 security guards (“security
guards”) whom Eparwa assigned to LDCU from 1 December 1997 to 30
November 1998, filed a complaint before the NLRC Regional Arbitration
Branch No. 10 in Cagayan de Oro City. The complaint was filed against
both Eparwa and LDCU for underpayment of salary, legal holiday pay,
13th month pay, rest day, service incentive leave, night shift differential,
overtime pay, and payment for attorney’s fees.
The Labor Arbiter found that the security guards are entitled to
wage differentials and premium for holiday and rest day work. The Labor
Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of
the Labor Code. LDCU filed an appeal before the NLRC. LDCU agreed
with the Labor Arbiter’s decision on the security guards’ entitlement to
salary differential but challenged the propriety of the amount of the
award. LDCU alleged that security guards not similarly situated were
granted uniform monetary awards and that the decision did not include
the basis of the computation of the amount of the award.
Eparwa also filed an appeal before the NLRC. For its part, Eparwa
questioned its liability for the security guards’ claims and the awarded
cross-claim amounts. The NLRC found that the security guards are
entitled to wage differentials and premium for holiday and rest day work.
Although the NLRC held Eparwa and LDCU solidarily liable for the wage
differentials and premium for holiday and rest day work, the NLRC did not
require Eparwa to reimburse LDCU for its payments to the security
guards. Eparwa and LDCU again filed separate motions for partial
reconsideration. In its Resolution NLRC declared that although Eparwa
and LDCU are solidarily liable to the security guards for the monetary
award, LDCU alone is ultimately liable.
LDCU filed a petition for certiorari before the appellate court
assailing the NLRC’s decision. The appellate court granted LDCU’s
petition and reinstated the Labor Arbiter’s decision. The appellate court
also allowed LDCU to claim reimbursement from Eparwa.
The appellate court denied Eparwa’s motion for
reconsideration.Hence, this petition.
ISSUE:
Is LDCU alone ultimately liable to the security guards for the wage
differentials and premium for holiday and rest day pay?
RULING:
Articles 106, 107 and 109 of the Labor Code read:
Art. 106. Contractor or subcontractor. — Whenever an employer
enters into a contract with another person for the performance of the
former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of
this Code.Article 107. Indirect employer. — The provisions of the
immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer,
contracts with an independent contractor for the performance of any
work, task, job or project.
Article 109. Solidary liability. — The provisions of existing laws to
the contrary notwithstanding, every employer or indirect employer shall
be held responsible with his contractor or subcontractor for any violation
of any provision of this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be considered as direct
employers.
This joint and several liability of the contractor and the principal is
mandated by the Labor Code to assure compliance of the provisions
therein including the statutory minimum wage [Article 99, Labor Code].
The contractor is made liable by virtue of his status as direct employer.
The principal, on the other hand, is made the indirect employer of the
contractor’s employees for purposes of paying the employees their wages
should the contractor be unable to pay them. This joint and several
liability facilitates, if not guarantees, payment of the workers’
performance of any work, task, job or project, thus giving the workers
ample protection as mandated by the 1987 Constitution. For the security
guards, the actual source of the payment of their wage differentials and
premium for holiday and rest day work does not matter as long as they
are paid. This is the import of Eparwa and LDCU’s solidary liability.
Creditors, such as the security guards, may collect from anyone of the
solidary debtors. Solidary liability does not mean that, as between
themselves, two solidary debtors are liable for only half of the payment.
 LDCU’s ultimate liability comes into play because of the expiration
of the Contract for Security Services. There is no privity of contract
between the security guards and LDCU, but LDCU’s liability to the security
guards remains because of Articles 106, 107 and 109 of the Labor Code.
Eparwa is already precluded from asking LDCU for an adjustment in the
contract price because of the expiration of the contract, but Eparwa’s
liability to the security guards remains because of their employer-
employee relationship. In lieu of an adjustment in the contract price,
Eparwa may claim reimbursement from LDCU for any payment it may
make to the security guards. However, LDCU cannot claim any
reimbursement from Eparwa for any payment it may make to the security
guards. Hence, the petition is granted.
EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY
CARLOS DIMAYUGA, petitioner, VS. PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK and COURT OF APPEALS, respondents
Aug 5, 1999
G.R. No. 42542
FACTS:
Petitioner is the defendant-appellant in a case for collection of sum of
money against whom the decision was rendered by the trial court on May 28,
1974. Plaintiff, who is now the respondent in the instant petition, is a banking
institution and is the creditor of petitioner.
On February 6, 1962, petitioner borrowed from the plaintiff the sum of
P10,000.00 as evidenced by a promissory note executed and signed by Pedro
Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7,
1962 with interest at the rate of 10% per annum in case of non-payment at
maturity as evidenced by and in accordance with the terms and conditions of the
promissory note executed jointly and severally by defendants. Carlos Dimayuga
bound himself to pay jointly and severally with Pedro Tanjuatco interest at the
rate of 10% per annum on the said amount of P10,000.00 until fully paid.
Moreover, both undertook to "jointly and severally authorize the respondent
Philippine Commercial and Industrial Bank, at its option to apply to the payment
of this note any and all funds, securities or other real or personal property of
value which hands (sic) on deposit or otherwise belonging to anyone or all of us."
Upon the default of the promissors to pay, bank filed a complaint for the
collection of a sum of money. Defendant Carlos Dimayuga, now petitioner,
however, had remitted to the respondent the P4,000.00 by way of partial
payments made from August 1, 1969 to May 7, 1970 as evidenced by
corresponding receipts thereto. These payments were nevertheless applied to
past interests, charges and partly on the principal.
The trial court held the defendants jointly and severally liable to pay the
plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid
plus P913.96 as attorneys' fees and costs against defendants. Petitioner then
filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973,
the money claim of the respondents should be dismissed and prosecuted against
the estate of the late Pedro Tanjuatco as provided in Sec. 5, Rule 86, New Rules
of Court. The trial court denied the motion for lack of merit. On appeal, the
Court of Appeals dismissed the appeal for failure of the Record on Appeal to
show on its face that the appeal was timely perfected.
ISSUE:
Whether or not the money claim of PCIB should be dismissed and
prosecuted against the estate of the late Tanjuatco.
RULING:
From the evidence presented, there can be no dispute that Carlos
Dimayuga bound himself jointly and severally with Pedro C. Tanjuatco, now
deceased, to pay the obligation with PCIB in the amount of P10,000.00 plus 10%
interest per annum. In addition, as above stated, in case of non-payment, they
undertook among others to jointly and severally authorize respondent bank, at
its option to apply to the payment of this note, any and all funds, securities, real
or personal properties, etc. belonging to anyone or all of them. Otherwise
stated, the promissory note in question provides in unmistakable language that
the obligation of petitioner Dimayuga is joint and several with Pedro C.
Tanjuatco.
It is well settled under the law and jurisprudence that when the obligation
is solidary, the creditor may bring his action in toto against the debtors obligated
in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor
may proceed against any one of the solidary debtors or some or all of them
simultaneously. "Hence, there is nothing improper in the creditor's filing of an
action against the surviving solidary debtors alone, instead of instituting a
proceeding for the settlement of the estate of the deceased debtor wherein his
claim could be filed." The notice is undoubtedly left to the solidary creditor to
determine against whom he will enforce collection.
Court of Appeals decision reversed and set aside. Trial court decision
affirmed.
EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY
CERNA VS. COURT OF APPEALS
220 SCRA 517
MARCH 30, 1993
FACTS:
Celerino Delgado and Conrad Leviste entered into a loan agreement on or
about October 16, 1972, which was evidenced by a promissory note. On the
same date, Delgado executed a chattel mortgage over a jeep owned by him.
And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna
(petitioner), he also mortgaged a “Taunus” car owned by the latter.
The period lapsed without Delgado paying the loan. This prompted
Leviste to file a collection suit against Delgado and petitioner as solidary
debtors. Petitioner filed a motion to dismiss. The grounds cited in the Motion
were lack of cause of action and the death of Delgado. Anent the latter,
petitioner claimed that the claim should be filed in the proceedings for the
settlement of the estate of Delgado as the action did not survive Delgado’s
death. Moreover, he also stated that since Leviste already opted to collect on
the note, he could no longer foreclose the mortgage. The trial court denied the
motion to dismiss.
The petitioner then filed a special civil action for certiorari, mandamus,
and prohibition with preliminary injunction on the ground that the respondent
judge committed grave abuse of discretion. However, the Court of Appeals
denied the petition because herein petitioner failed to prove the death of
Delgado and the consequent settlement of the latter’s estate.
On February 18, 1977, petitioner filed his second motion to dismiss. The
trial court again denied the said motion. Petitioner filed a motion to reconsider
the said order but this was denied. Then, petitioner filed another petition for
certiorari and prohibition with the Court of Appeals. The respondent court
dismissed the petition. The respondent court hold petitioner and Delgado were
solidary debtors.
ISSUE:
Whether or not petitioner is a co-debtor of Delgado; hence, liable to pay
the loan contracted by Delgado.
RULING:
NO, petitioner is not a co-debtor of Delgado. Nowhere did it appear in the
promissory note that petitioner was a co-debtor. Article 1311 of the Civil Code is
clear that “contracts take effect only between the parties…” Moreover, Article
1207 of the Civil Code states that “there is solidary liability only when the
obligation expressly so states, or when the law or nature of the obligation so
requires.” It was clear that petitioner had no part in the contract. It was
Delgado alone who signed the said agreement. Thus, nowhere could it be seen
from the agreement that petitioner was solidarily bound with Delgado for the
payment of the loan.
There is also no legal provision nor jurisprudence in our jurisdiction which
makes a third person who secures the fulfillment of another’s obligation by
mortgaging his own property solidarily bound with the principal obligor. A
chattel mortgage may be an “accessory contract” to a contract of loan, but that
fact alone does not make a third-party mortgagor solidarily bound with the
principal debtor in the fulfilling of the principal obligation that is, to pay the loan.
The signatory of the principal contract remains to be primarily bound. It is only
upon the default of the latter that the creditor may have recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action for
recovery of the amount of the loan. And the liability of the third-party
mortgagors extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.
INDIVISIBLE OBLIGATIONS: KINDS OF INDIVISIBILITY: NATURAL, LEGAL OR
CONVENTIONAL
NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR.
VS. COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR.,
ROMEO P. NAZARENO and ELIZA NAZARENO
G.R. No. 138842
October 18, 2000
343 SCRA 637
FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They
had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr.
Natividad and Maximino, Jr. are the petitioners in this case, while the estate of
Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents. During
their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in
Quezon City and in the Province of Cavite. Upon the reorganization of the courts
in 1983, the case was transferred to the RTC of Naic, Cavite. Romeo was
appointed administrator of his father’s estate. In the course of the intestate
proceedings, Romeo discovered that his parents had executed several deeds of
sale conveying a number of real properties in favor of his sister, Natividad. One
of the deeds involved six lots in Quezon City which were allegedly sold by
Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for
the total amount of P47,800.00.
Among the lots covered by the above Deed of Sale is Lot 3-B which is
registered under TCT No. 140946. This lot had been occupied by Romeo, his
wife Eliza, and by Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold
Lot 3-B on July 31, 1982 to Maximino, Jr., for which reason the latter was issued
TCT No. 293701 by the Register of Deeds of Quezon City. When Romeo found
out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out
of the house. On August 4, 1983, Maximino, Jr. brought an action for recovery of
possession and damages with prayer for writs of preliminary injunction and
mandatory injunction with the RTC of Quezon City. On December 12, 1986, the
trial court ruled in favor of Maximino, Jr. In CA-G.R. CV No. 12932, the CA
affirmed the decision of the trial court. On June 15, 1988, Romeo in turn filed, on
behalf of the estate of Maximino, Sr., the present case for annulment of sale with
damages against Natividad and Maximino, Jr. The case was filed in the RTC of
Quezon City. Romeo sought the declaration of nullity of the sale made on
January 29, 1970 to Natividad and that made on July 31, 1982 to Maximino, Jr. on
the ground that both sales were void for lack of consideration. On March 1,
1990, Natividad and Maximino, Jr. filed a third-party complaint against the
spouses Romeo and Eliza. They alleged that Lot 3, which was included in the
Deed of Absolute Sale of January 29, 1970 to Natividad, had been surreptitiously
appropriated by Romeo by securing for himself a new title in his name. They
alleged that Lot 3 is being leased by the spouses Romeo and Eliza to third
persons.
In the trial court, it rendered a decision declaring the nullity of the Deed of
Sale dated January 29, 1970 except as to lots 3, 3-b, 13 and 14 which had
passed on to third persons. On motion for reconsideration, the trial court
modified its decision. On appeal to the Court of Appelas, the decision of the trial
court was modified in the sense that the titles to Lot 3 (in the name of Romeo
Nazareno) and Lot 3-B ( in the name of Maximino Nazareno, Jr.), as well as to
Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino,
Sr.
ISSUE:
Whether or not the the Deed of Absolute Sale on January 29, 1970 is an
indivisible contract founded on an indivisible obligation
RULING:
An obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. In the present
case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because the performance of the
contract cannot be done in parts; otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors. The decision of the Court of Appeals is
AFFIRMED.
KINDS OF PENALTIES:
1. ALONZO VS. SAN JUAN, 451 SCRA 45
2. DAVID VS. CA, 316 SCRA 710
AURELIO P. ALONZO and TERESITA A. SISON
VS. JAIME and PERLITA SAN JUAN
G. R. No. 137549
February 11, 2005
451 SCRA 45
FACTS:
Petitioners Alonzo and Sison alleged that they are the registered owners
of a parcel of land located at Lot 3, Block 11, M. Agoncillo St., Novaliches,
Quezon City, evidenced by TCT No. 152153. At around June 1996, petitioners
discovered that a portion on the left side of the parcel of land was occupied by
the respondents San Juan, without their knowledge or consent. A demand letter
was sent to the respondents requiring them to vacate the said premises, but
they refused to comply. Petitioners then filed a complaint against the
respondents. During the pendency of the case, the parties agreed to enter into
a Compromise Agreement which the trial court approved in a judgment by
compromise dated May 7, 1997. In the Compromise Agreement, it was
expressly stipulated that should any two of the installments of the purchase
price be not paid by the respondents, the said agreement shall be considered
null and void. Alleging that the respondents failed to abide by the provisions of
the Compromise Agreement by their failure to pay the amounts due thereon,
petitioners then filed an Amended Motion for Execution. Petitioners alleged that
the respondents failed to pay the installments for July 31, 1997 and August 31,
1997 on their due dates, thus the Compromise Agreement submitted by the
parties became null and void. With this, the trial court found no reason to direct
the issuance of the writ of execution and denied the petitioners’ Amended
Motion for Execution. Petitioners filed their motion for reconsideration to which
the respondents opposed. The trial court likewise denied the petitioners’ motion
for reconsideration.
ISSUE:
Whether or not the petitioners have a right to enforce the provision on
Compromise Agreement by asking for the issuance of a writ of execution
because of the failure of the respondents to pay.
RULING:
The Supreme Court held that the items 11 and 12 of the Compromise
Agreement provided, in clear terms, that in case of failure to pay on the part of
the respondents, they shall vacate and surrender possession of the land that
they are occupying and the petitioners shall be entitled to obtain immediately
from the trial court the corresponding writ of execution for the ejectment of the
respondents. This provision must be upheld, because the Agreement supplanted
the complaint itself. When the parties entered into a Compromise Agreement,
the original action for recovery of possession was set aside and the action was
changed to a monetary obligation. Once approved judicially, the Compromise
Agreement cannot and must not be disturbed except for vices of consent or
forgery. For failure of the respondents to abide by the judicial compromise,
petitioners are vested with the absolute right under the law and the agreement
to enforce it by asking for the issuance of the writ of execution. Doctrinally, a
Compromise Agreement is immediately final and executory. Petitioners’ course
of action, asking for the issuance of a writ of execution was in accordance with
the very stipulation in the agreement that the lower court could not change.
Hence, the petition is granted.
KINDS OF PENALTIES:
JESUS T. DAVID, petitioner.
VS. THE COURT OF APPEALS HON. EDGARDO P. CRUZ, MELCHOR P.
PENA AND VALENTIN AFABLE, JR. respondents
G.R. NO. 115821
OCTOBER 13, 1999
FACTS:
The RTC of Manila, Branch 27, with Judge Ricardo Diaz, then presiding,
issued a writ of attachment over real properties covered by TCT Nos. 80718 and
10281 of private respondents. In his decision Judge Diaz ordered private
respondent Afable to pay petitioner until fully paid. Respondent Afable appealed
to the Court of Appeals and then to the Supreme Court. In both instances, the
decision of the lower court was affirmed. Entries of judgment were made and
the record of the case was remanded to Branch 27 presided at that time by
respondent Judge Cruz. Petitioners elevated said orders to the Court of Appeals
in a petition for certiorari, prohibition and mandamus. However, respondent
appellate court dismissed the petiton.
ISSUE:
Whether or not respondent appellate court erred in affirming the
respondent Judge’s order for the payment of simple interest only rather than the
compounded interest.
RULING:
Petitioner insists that in computing the interest due should be computed
at 6% on the principal sum pursuant to Article 2209 and then interest on the
legal interest should also be computed in accordance with the language of
article 2212 of the Civil Code. In view of this means Compound interest.
In cases where no interest had been stipulated by the parties, no accrued
conventional interest could further earn interest upon judicial demand.
The instant petition is denied. The decision of the Court of Appeals is
affirmed.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST
1. MACALALAG VS. PEOPLE, 511 S 400
2. TAN VS. CA, 367 S 571
3. EASTERN SHIPPING VS. CA, 234 S 78

THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES
G.R. No. 164358 December 20, 2006
FACTS:
On two separate occasions, particularly on 30 July 1995 and 16
October 1995, petitioner Theresa Macalalag obtained loans from Grace
Estrella (Estrella), each in the amount of P100,000.00, each bearing an
interest of 10% per month. Macalalag consistently paid the interests.
Finding the interest rates so burdensome, Macalalag requested Estrella
for a reduction of the same to which the latter agreed. On 16 April 1996
and 1 May 1996, Macalalag executed Acknowledgment/Affirmation
Receipts promising to pay Estrella the face value of the loans in the total
amount of P200,000.00 within two months from the date of its execution
plus 6% interest per month for each loan. Under the two
Acknowledgment/Affirmation Receipts, she further obligated herself to
pay for the two (2) loans the total sum of P100,000.00 as liquidated
damages and attorney's fees in the total sum of P40,000.00 as stipulated
by the parties the moment she breaches the terms and conditions
thereof.
As security for the payment of the aforesaid loans, Macalalag issued
two Philippine National Bank (PNB) Checks on 30 June 1996, each in the
amount of P100,000.00, in favor of Estrella. However, the said checks
were dishonored for the reason that the account against which the same
was drawn was already closed. Estrella sent a notice of dishonor and
demand to make good the said checks to Macalalag, but the latter failed
to do so. Hence, Estrella filed two criminal complaints for Violation of
Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC)
of Bacolod City.The MTCC found the accused Theresa Macalalag guilty
beyond reasonable doubt of the crime charged and is likewise ordered to
pay as civil indemnity the total amount of P200,000.00 with interest at the
legal rate from the time of the filing of the informations until the amount
is fully paid; less whatever amount was thus far paid and validly deducted
from the principal sum originally claimed. On appealed, the Court of
Appeals, affirmed the RTC and the MTCC decisions with modification to
the effect that accused was convicted only of one (1) count of Violation of
Batas Pambansa Blg. 22.
ISSUE:
Whether petitioner`s payments over and above the value of the
said checks would free her from criminal liability.
RULING:
The Court argued that, “Even if we agree with petitioner Macalalag
that the interests on her loans should not be imputed to the face value of
the checks she issued, petitioner Macalalag is still liable for Violation of
Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before
the institution of the two cases against her, she has made a total payment
of P156,000.00. Applying this amount to the first check (No. C-889835),
what will be left is P56,000.00, an amount insufficient to cover her
obligation with respect to the second check. As stated above, when
Estrella presented the checks for payment, the same were dishonored on
the ground that they were drawn against a closed account. Despite notice
of dishonor, petitioner Macalalag failed to pay the full face value of the
second check issued.
Only a full payment of the face value of the second check at the time of
its presentment or during the five-day grace period15 could have
exonerated her from criminal liability. A contrary interpretation would
defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the
interest of the banking system and the legitimate public checking account
user,16 as the drawer could very well have himself exonerated by the
mere expediency of paying a minimal fraction of the face value of the
check. Hence, the Petition is denied.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST
TAN VS. COURT OF APPEALS
367 SCRA 571
GR NO. 116285
FACTS:
On May 14, 1978, petitioner Antonio Tan obtained two loans in the total
amount of four million pesos from respondent Cultural Center of the Philippines
(CCP), evidenced by 2 promissory notes with maturity dates on May 14, 1979
and July 6, 1979, respectively. Petitioner defaulted but later he had the loans
restructured by respondent CCP. Petitioner accordingly executed a promissory
note on August 31, 1979 in the amount of P3,411,421.32 payable in five (5)
installments. Petitioner however, failed to pay any of the supposed installments
and again offered another mode of paying restructured loan which respondent
CCP refused to consent.
On May 30, 1984, respondent wrote petitioner demanding the full
payment, within ten (10) days, from receipt of the letter, of the latter’s
restructured loan which as of April 30, 1984 amounted to P6, 088,735. On
August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for a
collection of a sum of money. Eventually, petitioner was ordered to pay said
amount, with 25% thereof as attorney’s fees and P500, 000.00 as exemplary
damages. On appeal, the Court of Appeals, reduced the attorney’s fees to 5%
of the principal amount to be collected from petitioner and deleted the
exemplary damages.
Still unsatisfied with the decision, petitioner seeks for the deletion of the
attorney’s fees and the reduction of the penalties.
ISSUE:
Whether or not interests and penalties may be both awarded.
RULING:
YES. Article 1226 of the New Civil Code provides that in obligations with a
penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, 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.
In the case at bar, the promissory note expressly provides for the
imposition of both interest and penalties in case of default on the part of the
petitioner in the payment of the subject restructured loan. Since the said
stipulation has the force of law between the parties and does not appear to be
inequitable or unjust, it must be respected.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST
EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS
G.R. No. 97412 Jul 12, 1994
FACTS:
On December 4, 1981, two fiber drums of riboflavin were shipped
from Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by
defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (The
shipment was insured under plaintiff's Marine Insurance Policy No.
81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it
was discharged unto the custody of defendant Metro Port Services, Inc.
The latter excepted to one drum, said to be in bad order, which damage
was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant Metro Port Service,
Inc., one drum opened and without. On January 8 and 14, 1982, defendant
Allied Brokerage Corporation made deliveries of the shipment to the
consignees' warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake Plaintiff
contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same "As a consequence of the losses
sustained, plaintiff was compelled to pay the consignee P19,032.95 under
the aforestated marine insurance policy, so that it became subrogated to
all the rights of action of said consignee against defendants.
ISSUE:
a.)Whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or form the
date the decision appealed from is rendered; and b)Whether the
applicable rate of interest is twelve percent or six percent.
HELD:
When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor can
be held liable for damages. With regard particularly to an award of
interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 23 of the Civil
Code.
2. When a obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date of the judgment of the court
is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained).
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
ESCALATION CLAUSE VS. ACCELERATION CLAUSE
1. PCI VS. NG SHEUNG NGOR, 541 S 223
2. NSBC VS. PNB, 435 S 565
3. POLOTAN VS. CA, 296 S 247
PCI vs Ng Shueng Ngor
A.M. No. P-05-1973. March 18, 2005
FACTS:
Complainant EPCIB is the defendant in Civil Case No. CEB-26983
before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng
Sheung Ngor, doing business under the name and style ‘Ken Marketing,’
Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI
Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or
Reformation of Documents and Contracts.
Respondents Antonio A. Bellones and Generoso B. Regalado are the
sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City.
For garnishing accounts maintained by Equitable PCI Bank, Inc.
(EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation
(HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino
L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado.
There was an offer of other real property by petitioner.
ISSUE:
Did respondents violate the Rules of Court?
RULING:
By serving notices of garnishment on Citibank, N.A., HSBC and PNB,
Sheriff Regalado violated EPCIB’s right to choose which property may be
levied upon to be sold at auction for the satisfaction of the judgment debt.
Thus, it is clear that when EPCIB offered its real properties, it exercised its
option because it cannot immediately pay the full amount stated in the
writ of execution and all lawful fees in cash, certified bank check or any
other mode of payment acceptable to the judgment obligee.
In the case at bar, EPCIB cannot immediately pay by way of
Manager’s Check so it exercised its option to choose and offered its real
properties. With the exercise of the option, Sheriff Regalado should have
ceased serving notices of garnishment and discontinued their
implementation. This is not true in the instant case. Sheriff Regalado was
adamant in his posture even if real properties have been offered which
were sufficient to satisfy the judgment debt.
ESCALATION CLAUSE VS. ACCELERATION CLAUSE
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses
EDUARDO R. DEE and ARCELITA M. DEE
VS. PHILIPPINE NATIONAL BANK
2004 Jul 30
G.R. No. 148753
435 SCRA 565
FACTS:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was
approved by Petitioner NSBCI authorizing the company to x x x apply for or
secure a commercial loan with the PNB in an aggregate amount of P8.0M, under
such terms agreed by the Bank and the NSBCI, using or mortgaging the real
estate properties registered in the name of its President and Chairman of the
Board Petitioner Eduardo R. Dee as collateral; and authorizing petitioner-spouses
to secure the loan and to sign any and all documents which may be required by
Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors
who shall be jointly and severally liable with Petitioner NSBCI for the payment of
any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the
request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken
down into a revolving credit line of P7.7M and an unadvised line of P0.3M for
additional operating and working capital to mobilize its various construction
projects. The loan of Petitioner NSBCI was secured by a first mortgage on the
following: a) three (3) parcels of residential land located at Mangaldan,
Pangasinan; b) six (6) parcels of residential land situated at San Fabian,
Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan. The loan was further secured by the joint and several signatures of
Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as
accommodation-mortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory
notes. In addition, petitioner corporation also signed the Credit Agreement
dated August 31, 1989 relating to the ‘revolving credit line’ of P7.7 Million x x x
and the Credit Agreement dated September 5, 1989 to support the ‘unadvised
line’ of P300,000.00.
On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch
Manager reiterating his proposals for the settlement of Petitioner NSBCI’s past
due loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later
tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in
favor of Respondent PNB
Upon presentment, however, x x x check nos. 03500087 and 03500088
dated September 29 and October 29, 1991 were dishonored by the drawee bank
and returned due to a ‘stop payment’ order from petitioners. On November 12,
1991, PNB’s Mr. Carcamo wrote Petitioner Eduardo Dee informing him that
unless the dishonored checks were made good, said PNB branch ‘shall recall its
recommendation to the Head Office for the restructuring of the loan account and
refer the matter to its legal counsel for legal action. Petitioners did not heed
respondent’s warning and as a result, the PNB Dagupan Branch sent demand
letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E.
Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account.
Petitioners nevertheless failed to pay their loan obligations within the time
frame given them and as a result, Respondent PNB filed with the Provincial
Sheriff of Pangasinan at Lingayen a Petition for Sale. The sheriff foreclosed the
real estate mortgage and sold at public auction the mortgaged properties of
petitioner-spouses, with Respondent PNB being declared the highest bidder for
the amount of P10,334,000.00. Petitioners refused to pay the above deficiency
claim which compelled Respondent PNB to institute the instant Complaint for the
collection of its deficiency claim.
ISSUE:
Whether or not the escalation clause is valid and whether or not it is
violative of the principle of mutuality of contracts.
RULING:
In each drawdown, the Promissory Notes specified the interest rate to be
charged: 19.5 percent in the first, and 21.5 percent in the second and again in
the third. However, a uniform clause therein permitted respondent to increase
the rate “within the limits allowed by law at any time depending on whatever
policy it may adopt in the future x x x,” without even giving prior notice to
petitioners. The Court holds that petitioners’ accessory duty to pay interest did
not give respondent unrestrained freedom to charge any rate other than that
which was agreed upon. No interest shall be due, unless expressly stipulated in
writing. It would be the zenith of farcicality to specify and agree upon rates that
could be subsequently upgraded at whim by only one party to the agreement.
The “unilateral determination and imposition” of increased rates is
“violative of the principle of mutuality of contracts ordained in Article 1308 of
the Civil Code.” One-sided impositions do not have the force of law between the
parties, because such impositions are not based on the parties’ essential
equality.

Although escalation clauses are valid in maintaining fiscal stability and
retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would
completely take away from petitioners the “right to assent to an important
modification in their agreement” and would also negate the element of mutuality
in their contracts. The clause cited earlier made the fulfillment of the contracts
“dependent exclusively upon the uncontrolled will” of respondent and was
therefore void. Besides, the pro forma promissory notes have the character of a
contract d’adhésion, “where the parties do not bargain on equal footing, the
weaker party’s the debtor’s participation being reduced to the alternative ‘to
take it or leave it.’”
ESCALATION CLAUSE VS. ACCELERATION CLAUSE
POLOTAN VS CA
GR No. 119379. September 25, 1998
FACTS:
Private respondent Security Diners International Corporation
(Diners Club), a credit card company, extends credit accomodations to its
cardholders for the purchase of goods and other services from member
establishments. Said goods and services are reimbursed later on by
cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr. applied
for membership and credit accmodations with Diners Club in October
1985. The application form contained terms and conditions governing the
use and availment of the Diners Club card, among which is for the
cardholder to pay all charges made through the use of said card within
the period indicated in the statement of account and any remaining
unpaid balance to earn 3% interest per annum plus prime rate of Security
Bank & Trust Company. Notably, in the application form submitted by
petitioner, Ofricano Canlas obligated himself to pay jointly and severally
with petitioner the latter’s obligation to private respondent.
Upon acceptance of his application, petitioner was issued Diners
Club card No. 3651-212766-3005. As of May 8, 1987, petitioner incurred
credit charges plus appropriate interest and service charges in the
aggregate amount of P33,819.84 which had become due and
demandable. Demands for payment made against petitioner proved
futile. Hence, private respondent filed a Complaint for Collection of Sum
of Money against petitioner before the lower court.
ISSUE:
Is petitioner liable for payment of credit charges plus interest and
service charges?
RULING:
A contract of adhesion is one in which one of the contracting parties
imposes a ready-made form of contract which the other party may accept
or reject, but cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his
“adhesion” thereto, giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing. Nevertheless, these
types of contracts have been declared as binding as ordinary contracts,
the reason being that the party who adheres to the contract is free to
reject it entirely.
In this case, petitioner, in effect, claims that the subject contract is
one-sided in that the contract allows for the escalation of interests, but
does not provide for a downward adjustment of the same in violation of
Central Bank Circular 905. Admittedly, the second paragraph of the
questioned proviso which provides that “the Cardholder hereby authorizes
Security Diners to correspondingly increase the rate of such interest in
the event of changes in prevailing market rates x x x” is an escalation
clause. However, it cannot be said to be dependent solely on the will of
private respondent as it is also dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long
as they are not solely potestative but based on reasonable and
valid grounds. Obviously, the fluctuation in the market rates is beyond
the control of private respondent.
REDUCTION OF CONVENTIONAL PENALTIES
1. PNB VS. ESCINA, 544 S 608
2. IMPERIAL VS. JAUCIAN, 427 SCRA 517
 3. PABUGAIS VS. SAHIJWANI, 423 SCRA 596
4. LO VS. CA, 411 SCRA 523, SEPT. 23, 2003
5. LIGUTAN VS. CA, FEB. 12, 2002
6. PASCUAL VS. RAMOS, 384 S 105
7. FIRST METRO INVESTMENT VS. ESTE DEL SOL, 369 SCRA
99
8. DOMEL TRADING VS. CA, 315 SCRA 13
9. MEDEL VS. CA, 299 S 481
10. REFORMINA VS. TOMOL, 139 SCRA 260, OCT. 11, 1985
PNB VS. ENCINA
544 S 608
FACTS:
The Philippine National Bank (PNB) assails the Decision of the Court
of Appeals dated 15 May 2005, rendered in CA-G.R. CV No. 79094 which,
among others, declared null and void the interest rate imposed by PNB on
the loan obtained from it by respondents and the consequent extrajudicial
foreclosure of the properties offered as security for the loan.
Respondents Encina spouses acquired several loans from PNB from
which it failed to pay within due time. Encina avers that there ought to be
longer gestation periods on its part being engaged in a business of
agricultural character.
ISSUE:
Was there a violation of the Usury Law?
RULING:
As borne by the records, the Encina spouses never challenged the
validity of their loan and the accessory contracts with PNB on the ground
that they violated the principle of mutuality of contracts in view of the
provision therein that the interest rate shall be set by management. Their
only contention concerning the interest rate was that the charges
imposed by the bank violated the Usury Law. This was the essence of the
second cause of action alleged in the complaint.
It should be definitively ruled in this regard that the Usury Law had
been rendered legally ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of the Central Bank, and later by
Central Bank Circular No. 905 which took effect on 1 January 1983 and
removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the parties
to agree on any interest that may be charged on a loan. The virtual repeal
of the Usury Law is within the range of judicial notice which courts are
bound to take into account. After all, the fundamental tenet is that the law
is deemed part of the contract. Thus, the trial court was correct in ruling
that the second cause of action was without basis.
REDUCTION OF CONVENTIONAL PENALTIES
IMPERIAL VS. JAUCIAN
427 SCRA 517
2004 Apr 14
FACTS:
The present controversy arose from a case for collection of money, filed
by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The
complaint alleges, inter alia, that defendant obtained from plaintiff six (6)
separate loans for which the former executed in favor of the latter six (6)
separate promissory notes and issued several checks as guarantee for payment.
When the said loans became overdue and unpaid, especially when the
defendant’s checks were dishonored, plaintiff made repeated oral and written
demands for payment.
The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount
released to defendant because said face value already included the interest from
date of note to date of maturity. Said promissory notes indicate the interest of
16% per month, date of issue, due date, the corresponding guarantee checks
issued by defendant, penalties and attorney’s fees. The trial court’s clear and
detailed computation of petitioner’s outstanding obligation to respondent was
affirmed by the CA for being convincing and satisfactory. However, the CA held
that without judicial inquiry, it was improper for the RTC to rule on the
constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982.
ISSUES:
Whether or not the penalties charged per month is in the guise of hidden
interest.
Whether or not the reduction of attorney’s fees by the RTC is reasonable.
RULING:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorney’s fees are contrary to morals. Consequently, courts are granted
authority to reduce them equitably. If reasonably exercised, such authority shall
not be disturbed by appellate courts.
Article 1229 of the Civil Code states thus:
“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.”
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case. What
may be iniquitous and unconscionable in one may be totally just and equitable in
another. In the present case, iniquitous and unconscionable was the parties’
stipulated penalty charge of 5 percent per month or 60 percent per annum, in
addition to regular interests and attorney’s fees. Also, there was partial
performance by petitioner when she remitted P116,540 as partial payment of
her principal obligation of P320,000. Under the circumstances, the trial court
was justified in reducing the stipulated penalty charge to the more equitable rate
of 14 percent per annum.The Promissory Note carried a stipulation for attorney’s
fees of 25 percent of the principal amount and accrued interests. Strictly
speaking, this covenant on attorney’s fees is different from that mentioned in
and regulated by the Rules of Court. “Rather, the attorney’s fees here are in the
nature of liquidated damages and the stipulation therefor is aptly called a penal
clause.” So long as the stipulation does not contravene the law, morals, public
order or public policy, it is binding upon the obligor. It is the litigant, not the
counsel, who is the judgment creditor entitled to enforce the judgment by
execution.
Nevertheless, it appears that petitioner’s failure to comply fully with her
obligation was not motivated by ill will or malice. The twenty-nine partial
payments she made were a manifestation of her good faith. Again, Article 1229
of the Civil Code specifically empowers the judge to reduce the civil penalty
equitably, when the principal obligation has been partly or irregularly complied
with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees --
from 25 percent to 10 percent of the total amount due and payable -- is
reasonable.
REDUCTION OF CONVENTIONAL PENALTIES
TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI
G.R. No. 156846, February 23, 2004
FACTS:
Teddy G. Pabugais, agreed to sell to Dave P. Sahijwani a lot located
at North Forbes Park, Makati. Dave paid Teddy the amount of
P600,000.00 as option/reservation fee and the balance of P14,887,500.00
to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owner’s duplicate TCT in Dave’s name
and other required documents. Teddy failed to deliver the required
documents, and returned to Dave the option/reservation fee by way of
check, which was, however, dishonored. On August11, 1994, Teddy wrote
to Dave saying that he is consigning the mount tendered with the RTC of
Makati City. On August 15, 1994, Teddy filed a complaint for
consignation, alleging that he twice rendered to Dave, through his
counsel, the amount of P672,900.00 in the form of manager’s check, but
was refused. Dave’s counsel, on the other hand, admitted that his office
received petitioner’s letter, but claimed that no check was appended
thereto. He averred that there was no valid tender of payment because
no check was tendered and the computation of the amount to be
tendered was insufficient. The trial court declared the consignation
invalid for failure to prove that there was a prior tender of payment and
was refused by Dave. Teddy appealed the decision to the Court of
Appeals. Thereafter, he filed an Ex Parte Motion to Withdraw Consigned
Money, which was denied by the CA. On a motion for reconsideration, the
CA declared the consignation as valid, and thus held that Teddy cannot
withdraw his consignation. Unfazed, Teddy filed the present petition upon
the contention that he can withdraw the amount deposited with the trial
court as a matter of right since at the time he moved for the withdrawal,
the CA has yet to rule on its validity and Dave had not yet accepted the
same.

ISSUES:
(1) Whether or not there was a valid consignation; and (2) Whether
or not petitioner can withdraw the amount consigned as a matter of right?
RULING:
The petition for review is denied. Petitioner’s tender of payment is
valid. The amount consigned however can no longer be withdrawn
because respondent’s prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which
has the effect of extinguishing petitioner’s obligation. The amount
consigned with the trial court can no longer be withdrawn by petitioner
because respondent’s prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which
has the effect of extinguishing petitioner’s obligation. Moreover,
petitioner failed to manifest his intention to comply with the “Agreement
And Undertaking” by delivering the necessary documents and the lot
subject of the sale to respondent in exchange for the amount deposited.
Withdrawal of the money consigned would enrich petitioner and unjustly
prejudice respondent.
REDUCTION OF CONVENTIONAL PENALTIES
ANTONIO LO, petitioner,
VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS
COOPERATIVE MARKETING ASSOCIATION, INC., respondents
FACTS:
At the core of the present controversy are two parcels of land measuring
a total of 2,147 square meters, with an office building constructed thereon.
Petitioner acquired the subject parcels of land in an auction sale on November 9,
1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private
respondent National Onion Growers Cooperative Marketing Association, Inc., an
agricultural cooperative, was the occupant of the disputed parcels of land under
a subsisting contract of lease with Land Bank. The lease was valid until
December 31, 1995. Upon the expiration of the lease contract, petitioner
demanded that private respondent vacate the leased premises and surrender its
possession to him. Private respondent refused on the ground that it was, at the
time, contesting petitioner’s acquisition of the parcels of land in question in an
action for annulment of sale, redemption and damages.
Petitioner filed an action for ejectment before the MTC. He asked, inter
alia, for the imposition of the contractually stipulated penalty of P5,000 per day
of delay in surrendering the possession of the property to him. On September 3,
1996, the trial court decided the case in favor of petitioner. On appeal to the
RTC, the MTC decision was affirmed in toto. The CA rendered its assailed
decision affirming the decision of the trial court, with the modification that the
penalty imposed upon private respondent for the delay in turning over the
leased property to petitioner was reduced from P 5,000 to P 1000 per day.
ISSUE:
Whether or not the Court of Appeals erred in reducing the penalty
awarded by the trial court, the same having been stipulated by the parties.
RULING:
No. Generally, courts are not at liberty to ignore the freedom of the
parties to agree on such terms and conditions as they see fit as long as they are
not contrary to law, morals, good customs, public order or public policy.
Nevertheless, courts may equitably reduce a stipulated penalty in the contract if
it is iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with. This power of the courts is explicitly sanctioned by
Article 1229 of the Civil Code which provides:
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.
The question of whether a penalty is reasonable or iniquitous is addressed
to the sound discretion of the court and depends on several factors, including,
but not limited to, the following: the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties.
 In this case, the stipulated penalty was reduced by the appellate court for
being unconscionable and iniquitous. Petition denied; CA decision affirmed.
REDUCTION OF CONVENTIONAL PENALTIES
LIGUTAN VS. COURT OF APPEALS
376 SCRA 561
FEBRUARY 12, 2002
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11,
1981 a loan in the amount of P120,000.00 from respondent Security Bank and
Trust Company. Petitioners executed a promissory note binding themselves,
jointly and severally, to pay the sum borrowed with an interest of 15.189% per
annum upon maturity and to pay a penalty of 5% every month on the
outstanding principal and interest in case of default. In addition, petitioners
agreed to pay 10% of the total amount due by way of attorney’s fees if the
matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on September 8, 1981; the bank,
however, granted an extension but only until December 29, 1981. When
petitioners defaulted on their obligation, the bank filed on November 3, 1982
with the RTC a complaint for recovery of the due amount. On September 5,
1988, the trial court ruled in favor of the bank. It ordered the petitioners to pay,
jointly and severally, the sum of P114,416.00 with interest thereon at the rate of
15.189% per annum, 2% service charge and 5% per month penalty charge,
commencing on May 20, 1982 until fully paid.
The CA affirmed it but deleted the 2% service charge pursuant to Central
Bank Circular No. 783. Not fully satisfied with the decision, both parties moved
for reconsideration. Petitioners prayed for the reduction of the 5% penalty for
being unconscionable. The bank asked that the payment of interest and penalty
be commenced not from the date of filing of complaint but from the time of
default as so stipulated in the contract of the parties. On October 28, 1998, the
CA resolved the two (2) motions granting the prayer of the bank that the
payment of interest and penalty be commenced on the date when the obligation
became due and on the other hand held that a penalty of 3% per month or 36%
per annum would suffice.
The petitioner, before the Court, contended, among others that the
15.189% interest and the penalty of 3% per month or 36% per annum imposed
by private respondent bank on petitioner’s loan obligation are still manifestly
exorbitant, iniquitous and unconscionable. Respondent bank, which did not take
an appeal, would, however, have it that the penalty sought to be deleted by
petitioners was even insufficient to fully cover and compensate for the cost of
money brought about by the radical devaluation and decrease in the purchasing
power of the peso.
ISSUE:
Whether or not the penalty is reasonable and not iniquitous.
RULING:
NO, the penalty is not unreasonable. The Court held that the question of
whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily
confide to, the type, extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences, the supervening realities,
the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court. In Rizal
Commercial Banking Corp. v. Court of Appeals, for example, the Court has
tempered the penalty charges after taking into account the debtor’s pitiful
situation and its offer to settle the entire obligation with the creditor bank. The
stipulated penalty might likewise be reduced when a partial or irregular payment
is made by the payment. The stipulated penalty might even be deleted such as
when there has been substantial performance in good faith by the obligor, when
the penalty clause itself suffers from fatal infirmity, and when exceptional
circumstances so exist as to warrant it. In the case at bar, given the
circumstances, not to mention the repeated acts of breach by petitioners of their
contractual obligation, this Court sees no cogent ground to change the ruling of
the appellate court.
REDUCTION OF CONVENTIONAL PENALTIES
PASCUAL VS. RAMOS
384 S 105
FACTS:
 Ramos alleged that on 3 June 1987, for and in consideration of
P150,000, the Spouses Pascual executed in his favor a Deed of Absolute
Sale with Right to Repurchase over two parcels of land and the
improvements thereon located in Bambang, Bulacan, Bulacan. This
document was annotated at the back of the title. The Pascuals did not
exercise their right to repurchase the property within the stipulated one-
year period; hence, Ramos prayed that the title or ownership over the
subject parcels of land and improvements thereon be consolidated in his
favor.
In their Answer, the Pascuals admitted having signed the Deed of
Absolute Sale with Right to Repurchase for a consideration of P150, 000
but averred that what the parties had actually agreed upon and entered
into was a real estate mortgage. They further alleged that there was no
agreement limiting the period within which to exercise the right to
repurchase and that they had even overpaid Ramos. The trial court found
that the transaction between the parties was actually a loan in the
amount of P150,000, the payment of which was secured by a mortgage of
the property covered by TCT No. 305626. It also found that the Pascuals
had made payments in the total sum of P344,000, and that with interest
at 7% per annum, they had overpaid the loan by P141,500. Accordingly,
in its Decision of 15 March 1995 the trial court ruled in favor of the
defendants. The Pascuals interposed the following defenses: (a) the trial
court had no jurisdiction over the subject or nature of the petition; (b)
Ramos had no legal capacity to sue; (c) the cause of action, if any, was
barred by the statute of limitations; (d) the petition stated no cause of
action; (e) the claim or demand set forth in Ramos’s pleading had been
paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has
not complied with the required confrontation and conciliation before the
barangay.
The Court of Appeals affirmed in toto the trial court’s Orders of 5
June 1995 and 7 September 1995.
ISSUE:
Whether or not the contract entered into is a contract of loan.
RULING:
The Pascuals are actually raising as issue the validity of the
stipulated interest rate. It must be stressed that they never raised as a
defense or as basis for their counterclaim the nullity of the stipulated
interest. While overpayment was alleged in the Answer, no ultimate facts
which constituted the basis of the overpayment was alleged. In their pre-
trial brief, the Pascuals made a long list of issues, but not one of them
touched on the validity of the stipulated interest rate. Their own evidence
clearly shows that they have agreed on, and have in fact paid interest at,
the rate of 7% per month.
After the trial court sustained petitioners’ claim that their
agreement with RAMOS was actually a loan with real estate mortgage, the
Pascuals should not be allowed to turn their back on the stipulation in that
agreement to pay interest at the rate of 7% per month. The Pascuals
should accept not only the favorable aspect of the court’s declaration that
the document is actually an equitable mortgage but also the necessary
consequence of such declaration, that is, that interest on the loan as
stipulated by the parties in that same document should be paid. Besides,
when Ramos moved for a reconsideration of the 15 March 1995 Decision
of the trial court pointing out that the interest rate to be used should be
7% per month, the Pascuals never lifted a finger to oppose the claim.
Admittedly, in their Motion for Reconsideration of the Order of 5 June
1995, the Pascuals argued that the interest rate, whether it be 5% or 7%,
is exorbitant, unconscionable, unreasonable, usurious and inequitable.
However, in their Appellants’ Brief, the only argument raised by the
Pascuals was that Ramos’s petition did not contain a prayer for general
relief and, hence, the trial court had no basis for ordering them to pay
Ramos P511,000 representing the principal and unpaid interest. It was
only in their motion for the reconsideration of the decision of the Court of
Appeals that the Pascuals made an issue of the interest rate and prayed
for its reduction to 12% per annum.
It is a basic principle in civil law that parties are bound by the
stipulations in the contracts voluntarily entered into by them. Parties are
free to stipulate terms and conditions which they deem convenient
provided they are not contrary to law, morals, good customs, public order,
or public policy.
The interest rate of 7% per month was voluntarily agreed upon by
Ramos and the Pascuals. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when
they entered into the agreement with Ramos. Neither is there a showing
that in their contractual relations with Ramos, the Pascuals were at a
disadvantage on account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would entitle them to the
vigilant protection of the courts as mandated by Article 24 of the Civil
Code.
REDUCTION OF CONVENTIONAL PENALTIES
FIRST METRO INVESTMENT petitioner,
VS. ESTE DEL SOL MOUNTAIN RESERVE, INC, respondent
369 SCRA 99
FACTS:
Petitioner FMIC granted respondent Este del Sol a loan of Seven Million
Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to
finance the construction and development of the Este del Sol Mountain Reserve,
a sports/resort complex project. Under the terms of the Loan Agreement, the
proceeds of the loan were to be released on staggered basis. Interest on the
loan was pegged at sixteen (16%) percent per annum based on the diminishing
balance. The loan was payable in thirty-six (36) equal and consecutive monthly
amortizations to commence at the beginning of the thirteenth month from the
date of the first release in accordance with the Schedule of Amortization. In
case of default, an acceleration clause was, among others, provided and the
amount due was made subject to a twenty (20%) percent one-time penalty on
the amount due and such amount shall bear interest at the highest rate
permitted by law from the date of default until full payment thereof plus
liquidated damages at the rate of two (2%) percent per month compounded
quarterly on the unpaid balance and accrued interests together with all the
penalties, fees, expenses or charges thereon until the unpaid balance is fully
paid, plus attorney’s fees equivalent to twenty-five (25%) percent of the sum
sought to be recovered, which in no case shall be less than Twenty Thousand
Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with the
terms of the Loan Agreement, respondent Este del Sol executed several
documents as security for payment, among them, (a) a Real Estate Mortgage
and (b) individual Continuing Suretyship agreements by co-respondents Valentin
S. Daez, Jr., et al. Respondent Este del Sol also executed, as provided for by the
Loan Agreement, an Underwriting Agreement whereby petitioner FMIC shall
underwrite on a best-efforts basis the public offering of 120,000 common shares
of respondent Este del Sol’s capital stock for a one-time underwriting fee of
P200,000.00.
The Underwriting Agreement also provided that for supervising the public
offering of the shares, respondent Este del Sol shall pay petitioner FMIC an
annual supervision fee of 200,000.00 per annum for a period of four consecutive
years. The Underwriting Agreement also stipulated for the payment by
respondent Este del Sol to petitioner FMIC a consultancy fee of P332,500.00 per
annum for a period of four consecutive years. Simultaneous with the execution
of and in accordance with the terms of the Underwriting Agreement, a
Consultancy Agreement was also executed on January 31, 1978 whereby
respondent Este del Sol engaged the services of petitioner FMIC for a fee as
consultant to render general consultancy services. Since respondent Este del
Sol failed to meet the schedule of repayment in accordance with a revised
Schedule of Amortization, it appeared to have incurred a total obligation of
P12,679,630.98 per the petitioner’s Statement of Account dated June 23, 1980.
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real
estate mortgage on June 23, 1980. At the public auction, petitioner FMIC was
the highest bidder of the mortgaged properties for P9,000,000.00. Failing to
secure from the individual respondents, the payment of the alleged deficiency
balance, petitioner instituted the instant collection suit to collect the alleged
deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per
annum from June 24, 1980 until fully paid, and 25% percent thereof as and for
attorney’s fees and costs.
The trial court rendered its decision in favor of petitioner FMIC. CA
reversed the challenged decision of the trial court.
ISSUE:
Whether or not the appellate court erred in reversing the decision of the
trial court as regards to the payment of penalties.
RULING:
No. First, Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latter’s effectivity. Thus,
retroactive application of a Central Bank Circular cannot, and should not, be
presumed. Second, several facts and circumstances taken altogether show that
the Underwriting and Consultancy Agreements were simply cloaks or devices to
cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest. The Underwriting and Consultancy Agreements
which were executed and delivered contemporaneously with the Loan
Agreement on January 31, 1978 were exacted by petitioner FMIC as essential
conditions for the grant of the loan. An apparently lawful loan is usurious when
it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by
the borrower for the lender’s services which are of little value or which are not in
fact to be rendered, such as in the instant case. In this connection, Article 1957
of the New Civil Code clearly provides that: “Art. 1957. Contracts and
stipulations, under any cloak or device whatever, intended to circumvent the
laws against usury shall be void. The borrower may recover in accordance with
the laws on usury.” In usurious loans, the entire obligation does not become
void because of an agreement for usurious interest; the unpaid principal debt
still stands and remains valid but the stipulation as to the usurious interest is
void, consequently, the debt is to be considered without stipulation as to the
interest.
Thus, the Court agrees with the factual findings and conclusion of the
appellate court, wherein it held that the stipulated penalties, liquidated damages
and attorney’s fees, excessive, iniquitous and unconscionable. Accordingly, the
20% penalty on the amount due and 10% of the proceeds of the foreclosure sale
as attorney’s fees would suffice to compensate the appellee, especially so
because there is no clear showing that the appellee hired the services of counsel
to effect the foreclosure; it engaged counsel only when it was seeking the
recovery of the alleged deficiency.
Attorney’s fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or
public order, it is binding upon the parties. Nonetheless, courts are empowered
to reduce the amount of attorney’s fees if the same is “iniquitous or
unconscionable.”[46] Articles 1229 and 2227 of the New Civil Code provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75)
for the stipulated attorney’s fees equivalent to twenty-five (25%) percent of the
alleged amount due, as of the date of the auction sale on June 23, 1980, is
manifestly exorbitant and unconscionable. Accordingly, we agree with the
appellate court that a reduction of the attorney’s fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.
REDUCTION OF CONVENTIONAL PENALTIES
DOMEL TRADING CORPORATION, petitioner,
VS. HONORABLE COURT OF APPEALS and NDC-NACIDA RAW MATERIALS,
CORPORATION, respondents
September 22, 1999
G.R. No. 84813
FACTS:
On June 3, 1981, private respondent NDC-NACIDA Raw Materials
Corporation (NNRMC) ordered from petitioner Domel Trading Corporation
(DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be delivered
within 30 working days from the date of the opening of a letter of credit. On
June 4, 1981, private respondent again ordered 300,000 pieces of rattan poles at
P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60
days from the date of the opening of a letter of credit. The specifications and
provisions of both transactions, which served as their agreement, were printed in
two separate purchase orders.
In accordance with their agreement, NNRMC, on July 9, 1981, opened a
letter of credit with Philippine National Bank (PNB) in favor of DOMEL in the
amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles.
On July 13, 1981, NNRMC opened another letter of credit in favor of DOMEL in
the amount of P1,236,000.00 to cover the price of 93,057 pieces of rattan poles
and 22,000 bundles of buri midribs.
In violation of their agreement, DOMEL failed to deliver the buri midribs
and rattan poles within the stipulated period. Thus, on September 23, 1981,
DOMEL and NNRMC agreed to restructure the latter’s purchase orders in a
Memorandum of Agreement. Under the agreement, NNRMC extended the expiry
date of its two letters of credit to November 5, 1981. It also reduced the
quantity of the rattan poles from 300,000 to only 100,000 pieces while the
quantity of buri midribs remained at 22,000 bundles. Further, DOMEL undertook
to deliver the goods on or before October 31, 1981. However, no deliveries were
again made on the said date. Consequently, demands were made by NNRMC on
January 19, 1982 for the payment of damages, which demands were ignored by
DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial
Court of Pasig. After trial, judgment was rendered in favor of plaintiff and
against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate
petitions which have been consolidated before this Court. Based on the
pleadings submitted by the parties, this Court has resolved to give due course to
the petition and decides the same. DOMEL submits it has not breached its
contractual obligation to NNRMC inasmuch as it was the fault of the latter for not
inspecting and examining the rattan poles as well as the buri midribs already
shipped by the suppliers and stored in the former’s warehouse. In short, DOMEL
claims that NNRMC must first inspect the ordered items before delivery could be
made.
ISSUE:
Whether or not the decision of the Court of Appeals in CA-G.R. CV No.
08952 which modified the decision of the lower court granting private
respondent’s prayer for damages, was correct.
RULING:
While the Supreme Court did not agree with the Court of Appeals that the
failure of NNRMC to conduct the inspection mitigated DOMEL’s liability for
liquidated damages, nevertheless, it agreed in the reduction of the amount of
liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty
for every day of delay is excessive and unconscionable.
Article 1229 of the Civil Code states, thus:“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.”
Article 2227 of the Civil Code likewise states, thus: “Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.”
In determining whether a penalty clause is “iniquitous and
unconscionable,” a court may very well take into account the actual damages
sustained by a creditor who was compelled to sue the defaulting debtor, which
actual damages would include the interest and penalties the creditor may have
had to pay on its own from its funding source. In this case, NNRMC was only
able to prove that it incurred the amounts of P5,995.83 as opening charges on
the two Letters of Credit and an additional P1,911.85 as amendment charges on
the same Letters of Credit. Other than that, NNRMC failed to prove it had
suffered actual damages resulting from the nondelivery of the specified buri
midribs and rattan poles. In fact, what it allegedly suffered are what it calls
“Foregone Interest Income” and “Foregone Profit” from the two Letters of Credit.
Such could not be considered as actual damages.
The Court agreed with the following observation of the Court of Appeals:
“Necessarily, We discern some merit in the second assignment of error.
The trial court erred in holding the appellant liable for P908,966.72 in damages.
The said unitemized amounts and various types of damages is too much and has
to be reduced within reasonable limits. As already elaborated upon in
connection with the first assignment of error, the amount of liquidated damages
has to be lessened to P150,000.00. But the charges of P5,995.83 and P1,911.85
on the two letters of credit involved should be reimbursed by appellant. As
regards the alleged forgone profits of P206,943.00 testified on by Jose Victorioso
as the profit appellee could have realized had appellant been able to supply the
goods in question, we consider such amount of expected profit highly
conjectural and speculative. The aforesaid testimony regarding the matter of
profits is utterly lacking of the requisite details on how such huge amount of
profits could be made possible. Plaintiff-appellee’s witness did not detail out
how such huge amount of gain could have been derived from the would-be
exportation of buri midribs and rattan poles. Well-entrenched is the doctrine
that actual, compensatory and consequential damages must be proved, and
cannot be presumed. If, as in this case, the proof adduced thereon is flimsy and
insufficient, no damages will be allowed. Verily, the testimonial evidence on
alleged unrealized profits earlier referred to is not enough to warrant the award
of damages appealed from. It is too scanty, vague and unspecified to induce
faith and reliance. Absent the needed quantum of proof, We are of the sense
that, apart from the aforestated amount of liquidated damages and
reimbursement of the charges paid by appellee for the unutilized letters of
credit, no other damages can be granted.”

REDUCTION OF CONVENTIONAL PENALTIES
MEDEL VS COURT OF APPEALS
299 S 481
September 22, 1999
FACTS:
On June 3, 1981, private respondent NDC-NACIDA Raw Materials
Corporation (NNRMC) ordered from petitioner Domel Trading Corporation
(DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be
delivered within 30 working days from the date of the opening of a letter
of credit. On June 4, 1981, private respondent again ordered 300,000
pieces of rattan poles at P9.65 per piece for a total price of
P2,895,000.00, also to be delivered within 60 days from the date of the
opening of a letter of credit. The specifications and provisions of both
transactions, which served as their agreement, were printed in two
separate purchase orders.
In accordance with their agreement, NNRMC, on July 9, 1981, opened a
letter of credit with Philippine National Bank (PNB) in favor of DOMEL in
the amount of P1,997,000.00 to cover its order for 206,943 pieces of
rattan poles. On July 13, 1981, NNRMC opened another letter of credit in
favor of DOMEL in the amount of P1,236,000.00 to cover the price of
93,057 pieces of rattan poles and 22,000 bundles of buri midribs.
In violation of their agreement, DOMEL failed to deliver the buri midribs
and rattan poles within the stipulated period. Thus, on September 23,
1981, DOMEL and NNRMC agreed to restructure the latter’s purchase
orders in a Memorandum of Agreement. Under the agreement, NNRMC
extended the expiry date of its two letters of credit to November 5, 1981.
It also reduced the quantity of the rattan poles from 300,000 to only
100,000 pieces while the quantity of buri midribs remained at 22,000
bundles. Further, DOMEL undertook to deliver the goods on or before
October 31, 1981. However, no deliveries were again made on the said
date. Consequently, demands were made by NNRMC on January 19, 1982
for the payment of damages, which demands were ignored by DOMEL.
Hence, NNRMC filed a complaint for damages before the Regional Trial
Court of Pasig. After trial, judgment was rendered in favor of plaintiff and
against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate
petitions which have been consolidated before this Court. Based on the
pleadings submitted by the parties, this Court has resolved to give due
course to the petition and decides the same. DOMEL submits it has not
breached its contractual obligation to NNRMC inasmuch as it was the fault
of the latter for not inspecting and examining the rattan poles as well as
the buri midribs already shipped by the suppliers and stored in the
former’s warehouse. In short, DOMEL claims that NNRMC must first
inspect the ordered items before delivery could be made.
ISSUE:
Whether or not the decision of the Court of Appeals in CA-G.R. CV
No. 08952 which modified the decision of the lower court granting private
respondent’s prayer for damages, was correct.
RULING:
While the Supreme Court did not agree with the Court of Appeals
that the failure of NNRMC to conduct the inspection mitigated DOMEL’s
liability for liquidated damages, nevertheless, it agreed in the reduction of
the amount of liquidated damages to only P150,000.00. The amount of
P2,000.00 as penalty for every day of delay is excessive and
unconscionable.
Article 1229 of the Civil Code states, thus:“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.”
Article 2227 of the Civil Code likewise states, thus: “Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.”

In determining whether a penalty clause is “iniquitous and
unconscionable,” a court may very well take into account the actual
damages sustained by a creditor who was compelled to sue the defaulting
debtor, which actual damages would include the interest and penalties
the creditor may have had to pay on its own from its funding source. In
this case, NNRMC was only able to prove that it incurred the amounts of
P5,995.83 as opening charges on the two Letters of Credit and an
additional P1,911.85 as amendment charges on the same Letters of
Credit. Other than that, NNRMC failed to prove it had suffered actual
damages resulting from the nondelivery of the specified buri midribs and
rattan poles. In fact, what it allegedly suffered are what it calls “Foregone
Interest Income” and “Foregone Profit” from the two Letters of Credit.
Such could not be considered as actual damages.
REDUCTION OF CONVENTIONAL PENALTIES
MEDEL VS CA
G.R. No. 131622 November 27, 1998
FACTS:
The Medel spouses obtained several loans of which they were unable to
pay in full. On July 23, 1986, Servando and Leticia with the latter's
husband, Dr. Rafael Medel, consolidated all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986. They executed a promissory
note indicating payment for the balance.
On maturity of the loan, the borrowers failed to pay the
indebtedness of P500,000.00, plus interests and penalties, evidenced by
the above-quoted promissory note. On February 20, 1990, Veronica R.
Gonzales, joined by her husband Danilo G. Gonzales, filed with the
Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan including interests
and other charges.
ISSUE:
What is the interest that must be collected on the instant case?
RULING:
Basically, the issue revolves on the validity of the interest rate
stipulated upon. Thus, the question presented is whether or not the
stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. In
other words, is the Usury Law still effective, or has it been repealed by
Central Bank Circular No. 905, adopted on December 22, 1982, pursuant
to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at
5.5% per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the rate
"usurious" because this Court has consistently held that Circular No. 905
of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law and that the
Usury Law is now "legally inexistent".
Nevertheless, we find the interest at 5.5% per month, or 66% per
annum, stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if
not against the law. 20 The stipulation is void. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the
stipulation of the parties. Rather, we agree with the trial court that, under
the circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.
REDUCTION OF CONVENTIONAL PENALTIES
REFORMINA VS. TOMOL
139 SCRA 260
OCTOBER 11, 1985

FACTS:
This is a Petition for Review on certiorari of the Resolution of the Hon.
respondent Judge Valeriano P. Tomol, Jr. of the then Court of First Instance of
Cebu-Branch XI, an action for Recovery of Damages for injury to Person and Loss
of Property. The petitioners prayed for the setting aside of the said Resolution
and for a declaration that the judgment in their favor should bear legal interest
at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular
No. 416 dated July 29, 1974. The appellate court affirmed the decision but made
certain modifications. The said decision having become final on October 24,
1980, the case was remanded to the lower court for execution and this is where
the controversy started. In the computation of the "legal interest" decreed in
the judgment sought to be executed, petitioners claim that the "legal interest"
should be at the rate of twelve (12%) percent per annum, invoking in support of
their aforesaid submission, Central Bank of the Philippines Circular No. 416.
Upon the other hand, private respondents Shell and Michael, Incorporated insist
that said legal interest should be at the rate of six (6%) percent per annum only,
pursuant to and by authority of Article 2209 of the New Civil Code in relation to
Articles 2210 and 2211 thereof.
ISSUE:
Whether or not the petition is with merit.
RULING:
No. The petition is devoid of merit. Consequently, its dismissal is in order.
Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and
promulgated by the Monetary Board pursuant to the authority granted to the
Central Bank by P.D. No. 116, which amended Act No. 2655, otherwise known as
the Usury Law.
Acting pursuant to this grant of authority, the Monetary Board increased
the rate of legal interest from that of six (6%) percent per annum originally
allowed under Section I of Act No. 2655 to twelve (12%) percent per annum.
It will be noted that Act No. 2655 deals with interest on (1) loans; (2)
forbearances of any money, goods, or credits; and (3) rate allowed in
judgments.Hence, not all money judgments are included in the said act. The
judgments spoken of and referred to are Judgments in litigations involving loans
or forbearance of any 'money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank. The Monetary
Board may not tread on forbidden grounds. It cannot rewrite other laws. That
function is vested solely with the legislative authority. It is axiomatic in legal
hermeneutics that statutes should be construed as a whole and not as a series of
disconnected articles and phrases. In the absence of a clear contrary intention,
words and phrases in statutes should not be interpreted in isolation from one
another. A word or phrase in a statute is always used in association with other
words or phrases and its meaning may thus be modified or restricted by the
latter.
The instant petition is without merit, the same is DISMISSED with costs
against petitioners.
MEANING OF PAYMENT / PERFORMANCE (ART. 1232-1261, CC)
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC.,
respondent
2003 Oct 8
G.R. No. 149420
413 SCRA 182
FACTS:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation
engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing
business under the name and style San’s Enterprises, is a building contractor.
On February 22, 1990, petitioner ordered scaffolding equipments from
respondent worth P540,425.80. He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner. Petitioner was able
to pay the first two monthly installments. His business, however, encountered
financial difficulties and he was unable to settle his obligation to respondent
despite oral and written demands made against him.
On October 11, 1990, petitioner and respondent executed a Deed of
Assignment, whereby petitioner assigned to respondent his receivables in the
amount of P335,462.14 from Jomero Realty Corporation.
However, when respondent tried to collect the said credit from Jomero
Realty Corporation, the latter refused to honor the Deed of Assignment because
it claimed that petitioner was also indebted to it. On November 26, 1990,
respondent sent a letter to petitioner demanding payment of his obligation, but
petitioner refused to pay claiming that his obligation had been extinguished
when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for
recovery of a sum of money against the petitioner before the Regional Trial
Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.
During the trial, petitioner argued that his obligation was extinguished
with the execution of the Deed of Assignment of credit. Respondent, for its part,
presented the testimony of its employee, Almeda Bañaga, who testified that
Jomero Realty refused to honor the assignment of credit because it claimed that
petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision dismissing the
complaint on the ground that the assignment of credit extinguished the
obligation. Respondent appealed the decision to the Court of Appeals. On April
19, 2001, the appellate court rendered a decision reversing the appealed
Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the
plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred
Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with
legal interest of 6% per annum from January 10, 1991 (filing of the Complaint)
until fully paid and attorney’s fees equivalent to 10% of the amount due and
costs of the suit.
In finding that the Deed of Assignment did not extinguish the obligation of
the petitioner to the respondent, the Court of Appeals held that (1) petitioner
failed to comply with his warranty under the Deed; (2) the object of the Deed did
not exist at the time of the transaction, rendering it void pursuant to Article 1409
of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment
when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles.
Petitioner filed a motion for reconsideration of the said decision, which
was denied by the Court of Appeals. Hence, this petition for review.
ISSUE:
Whether or not the Court Of Appeals erred in holding that the deed of
assignment did not extinguish petitioner’s obligation on the wrong notion that
petitioner failed to comply with his warranty thereunder.
RULING:
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power
to enforce it to the same extent as the assignor could enforce it against the
debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the
debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. In order that there be a valid dation in
payment, the following are the requisites: (1) There must be the performance of
the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person;
(2) There must be some difference between the prestation due and that which is
given in substitution (aliud pro alio); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due. The
undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is
to be charged against the debtor’s debt. As such, the vendor in good faith shall
be responsible, for the existence and legality of the credit at the time of the sale
but not for the solvency of the debtor, in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature
of a sale of personal property, produced the effects of a dation in payment which
may extinguish the obligation. However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties. More specifically, the first
paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so expressly stipulated or
unless the insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to
warrant the existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to petitioner
since the latter also had an unpaid obligation to it, it essentially meant that its
obligation to petitioner has been extinguished by compensation. In other words,
respondent alleged the non-existence of the credit and asserted its claim to
petitioner’s warranty under the assignment. Therefore, it behooved on
petitioner to make good its warranty and paid the obligation.
Furthermore, the Court found that petitioner breached his obligation
under the Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost
and expense, execute and do all such further acts and deeds as shall be
reasonably necessary to effectually enable said ASSIGNEE to recover whatever
collectibles said ASSIGNOR has in accordance with the true intent and meaning
of these presents.
The decision of the Court of Appeals was affirmed with modification that
upon finality of the Decision, the rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become equivalent to a forbearance
of credit. The award of attorney’s fees is DELETED for lack of evidentiary basis.
REQUISITES OF PAYMENT/PERFORMANCE
PHILIPPINE NATIONAL BANK, petitioner,
VS. COURT OF APPEALS and LORETO TAN, respondents
April 02, 1996
G.R. No. 108630
256 SCRA 44
FACTS:
Private respondent Loreto Tan is the owner of a parcel of land in Bacolod
City. Expropriation proceedings were instituted by the government against
private respondent Tan and other property owners before a trial court in Negros
Occidental. Tan filed a motion requesting issuance of an order for the release to
him of the expropriation price of P32,480.00.
The trial court required petitioner PNB-Bacolod Branch to release to Tan
the amount of P32,480.00 deposited with it by the government. Through its
Assistant Branch Manager Juan Tagamolila, PNB issued a manager's check for
P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's
knowledge, consent or authority. Sonia Gonzaga deposited it in her account with
Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount.
Private respondent Tan subsequently demanded payment in the amount
of P32,480.00 from petitioner, but the same was refused on the ground that
petitioner had already paid and delivered the amount to Sonia Gonzaga on the
strength of a Special Power of Attorney (SPA) allegedly executed in her favor by
Tan.
When he failed to recover the amount from PNB, private respondent filed
a motion with the court to require PNB to pay the same to him. Petitioner filed
an opposition contending that Sonia Gonzaga presented to it a copy of the May
22, 1978 order and a special power of attorney by virtue of which petitioner
delivered the check to her. The petitioner was directed by the court to produce
the said special power of attorney thereat. However, petitioner failed to do so.
The court decided that there was need for the matter to be ventilated in a
separate civil action and thus private respondent filed a complaint with the
Regional Trial Court in Bacolod City against petitioner and Juan Tagamolila,
PNB's Assistant Branch Manager, to recover the said amount. In its defense,
petitioner contended that private respondent had duly authorized Sonia Gonzaga
to act as his agent. Tagamolila, in his answer, stated that Sonia Gonzaga
presented a Special Power of Attorney to him but borrowed it later with the
promise to return it, claiming that she needed it to encash the check.
The petitioner likewise filed a third-party complaint against the spouses
Nilo and Sonia Gonzaga praying that they be ordered to pay private respondent
the amount of P32,480.00. However, for failure of petitioner to have the
summons served on the Gonzagas despite opportunities given to it, the third-
party complaint was dismissed.
The trial court rendered judgment ordering petitioner and Tagamolila to
pay private respondent jointly and severally the amount of P32,480.00 with legal
interest, damages and attorney's fees. Both petitioner and Tagamolila appealed
the case to the Court of Appeals. However, the appellate court dismissed
Tagamolila's appeal for failure to pay the docket fee within the reglementary
period. The appellate court subsequently affirmed the trial court’s decision.
ISSUE:
Whether or not payment was made to Loreto Tan.
RULING:
There is no question that no payment had ever been made to private
respondent as the check was never delivered to him. When the court ordered
petitioner to pay private respondent the amount of P32,480.00, it had the
obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt
shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case
may be.
The burden of proof of such payment lies with the debtor. In the instant
case, neither the SPA nor the check issued by petitioner was ever presented in
court. The testimonies of petitioner's own witnesses regarding the check were
conflicting. Tagamolila testified that the check was issued to
the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira
Tibon, assistant cashier of PNB, stated that the check was issued to the order of
"Loreto Tan."
Furthermore, contrary to petitioner's contention that all that is needed to
be proved is the existence of the SPA, it is also necessary for evidence to be
presented regarding the nature and extent of the alleged powers and authority
granted to Sonia Gonzaga; more specifically, to determine whether the
document indeed authorized her to receive payment intended for private
respondent.
Considering that the contents of the SPA are also in issue here, the best
evidence rule applies. Hence, only the original document, which has not been
presented at all, is the best evidence of the fact as to whether or not private
respondent indeed authorized Sonia Gonzaga to receive the check from
petitioner. In the absence of such document, petitioner's arguments regarding
due payment must fail.
Decision affirmed with the modification that the award by the trial court of
P5,000.00 as attorney's fees is reinstated.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION
1. CITIBANK VS. SABENIANO, 504 S 378
2. TELENGTON BROS VS. US LINES, 583 S 458
3. CF SHARP VS. NORTHWEST AIRLINES, 381 S 314
4. PADILLA VS. PAREDES, 328 SCRA 434
5. TIBAJIA VS. CA, 223 S 163
6. DBP VS CA, 494 S 25
CITIBANK vs. SABENIANO
G.R.No. 156132, October 16, 2006
FACTS:
Petitioner Citibank is a banking corporation duly authorized
under the laws of the USA to do commercial banking activities n the
Philippines. Sabeniano was a client of both Petitioners Citibank and
FNCB Finance. Respondent filed a complaint against petitioners
claiming to have substantial deposits, the proceeds of which were
supposedly deposited automatically and directly to respondent’s
account with the petitioner Citibank and that allegedly petitioner
refused to despite repeated demands. Petitioner alleged that
respondent obtained several loans from the former and in default,
Citibank exercised its right to set-off respondent’s outstanding loans
with her deposits and money. RTC declared the act illegal, null and
void and ordered the petitioner to refund the amount plus interest,
ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the
respondent.
ISSUE:
Whether petitioner may exercise its right to set-off respondent’s
loans with her deposits and money in Citibank-Geneva
RULING:
Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal amount
of P318,897.34 and P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondent’s Citibank-
Geneva account is declared illegal, null and void, thus Citibank is
ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.
 3. Citibank to pay respondent moral damages of P300,000,
exemplary damages for P250,000, attorney’s fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding
loans of P1,069,847.40 inclusive off interest.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION
TELENGTAN BROTHERS and SONS vs. UNITED STATES LINES
G.R.No. 132284,February 28,2006
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.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION
CF SHARP VS. NORTHWEST AIRLINES
381 SCRA 314
FACTS:
On May 9, 1974, respondent, through its Japan Branch, entered an
International Passenger Sales Agency Agreement with petitioner, authorizing the
latter to sell its air transport tickets. Petitioner, however, failed to remit the
proceeds of the ticket sales, for which reason the respondent filed a collection
suit against petitioner before the Tokyo District Court.
The said court ordered petitioner to pay respondent including damages for
the delay. Unable to execute the decision in Japan, respondent filed a case to
enforce said judgment with the regional trial court of Manila which dismissed the
case. This was affirmed by the Court of Appeals, and was subsequently partly
affirmed by the Supreme Court. CF Sharp was then ordered to pay Northwest so
that the RTC issued a writ of execution of decision ruling that Sharp is to pay
Northwest the sum of 83,158,195 yen at the exchange rate prevailing on the
date of the foreign judgment plus 6% per annum until fully paid, 6% damages
and 6% interest.
 An appeal, the Court of Appeals reduced the interest and it ruled that the
basis of the conversion of petitioner’s liability in its peso equivalent should be
the prevailing rate at the time of payment and not the rate on the date of the
foreign judgment.
ISSUE:
Whether or not the basis for the payment of the amount due is the value
of the currency at the time of the establishment of the obligation.
RULING:
NO, the rule that the value of currency at the time of the establishment of
the obligation shall be the basis of payment finds application only when there is
an official pronouncement or declaration of the existence of an extraordinary
inflation or deflation. Hence, petitioners contention that Article 1250 of the Civil
Code which provides that “in case of an extra ordinary inflation or deflation of
the currency stipulated should supervene, the value of the currency at the time
of establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary” shall apply in this case is untenable.
OBLIGATIONS TO PAY MONEY
ALBERT R. PADILLA
VS. SPOUSES FLORESCO PAREDES and ADELINA PAREDES, and THE
HONORABLE COURT OF APPEALS
G.R. No. 124874
March 17, 2000
328 SCRA 434
FACTS:
On October 20, 1988, petitioner Albert R. Padilla and private respondents
Floresco and Adelina Paredes entered into a contract to sell involving a parcel of
land in San Juan, La Union. At that time, the land was untitled although private
respondents were paying taxes thereon. Under the contract, petitioner
undertook to secure title to the property in private respondents' names. Of the
P312,840.00 purchase price, petitioner was to pay a downpayment of
P50,000.00 upon signing of the contract, and the balance was to be paid within
ten days from the issuance of a court order directing issuance of a decree of
registration for the property.
On December 27, 1989, the court ordered the issuance of a decree of land
registration for the subject property. The property was titled in the name of
private respondent Adelina Paredes. Private respondents then demanded
payment of the balance of the purchase price.
Petitioner then made several payments to private respondents, some
even before the court issued an order for the issuance of a decree of registration
and they also offered to pay the land through a check. Still, petitioner failed to
pay the full purchase price even after the expiration of the period set. In a letter
dated February 14, 1990, private respondents, through counsel, demanded
payment of the remaining balance, with interest and attorney's fees, within five
days from receipt of the letter. Otherwise, private respondents stated they
would consider the contract rescinded.
On February 28, 1990, petitioner made a payment of P100,000.00 to
private respondents, still insufficient to cover the full purchase price. Shortly
thereafter, in a letter dated April 17, 1990 private respondents offered to sell to
petitioner one-half of the property for all the payments the latter had made,
instead of rescinding the contract. If petitioner did not agree with the proposal,
private respondents said they would take steps to enforce the automatic
rescission of the contract. Petitioner did not accept private respondents'
proposal. Instead, in a letter dated May 2, 1990, he offered to pay the balance
in full for the entire property, plus interest and attorney's fees. Private
respondents refused the offer.
On May 14, 1990, petitioner instituted an action for specific performance
against private respondents, alleging that he had already substantially complied
with his obligation under the contract to sell. He also averred that he had
already spent P190,000.00 in obtaining title to the property, subdividing it, and
improving its right-of-way. The lower court decided in favor of the petitioners
stating that the breach committed was only casual and slight but the Court of
Appeals reversed the ruling and favored respondents’ rescission of the contract
to sell.
ISSUE:
Whether or not the payment made by petitioner is one which is
contemplated on the contract.
RULING:
Petitioner’s offer to pay is clearly not the payment contemplated in the
contract. While he might have tendered payment through a check, this is not
considered payment until the check is encashed. Besides, a mere tender of
payment is not sufficient. Consignation is essential to extinguish petitioner's
obligation to pay the purchase price.
The Supreme Court also affirmed the decision of the Court of Appeals
where the respondents have the right to rescind the contract on the ground that
there is failure on the part of the petitioners to pay the balance within ten days
upon the conveyance of the Court of the Title of Land to respondents. Thus,
private respondents are under no obligation, and may not be compelled, to
convey title to petitioner and receive the full purchase price.
OBLIGATIONS TO PAY MONEY
SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN
G. R. No. 100290, June 4, 1993
FACTS:
A suit of collection of sum of money was filed by Eden Tan against
the spouses. A writ of attachment was issued, the Deputy Sheriff filed a
return stating that a deposit made by Tibajia in the amount of P442,750 in
another case, had been garnished by him. RTC ruled in favor of Eden Tan
and ordered the spouses to pay her an amount in excess of P3,000,000.
Court of Appeals modified the decision by reducing the amount for
damages. Tibajia Spouses delivered to Sheriff Bolima the total money
judgment of P398483.70. Tan refused to accept the payment and insisted
that the garnished funds be withdrawn to satisfy the judgment obligation.
ISSUE:
Whether or not payment by means of check is considered payment
in legal tender
RULING:
The ruling applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager’s check, cashier’s or personal
check. The decision of the court of Appeals is affirmed.
OBLIGATIONS TO PAY MONEY
DEVELOPMENT BANK OF THE PHILIPPINES v. COURT OF
APEEALS
G.R.No. 138703,June 30, 2006
FACTS:
In March 1968, DBP granted to private respondents an industrial
loan in the amount of P2,500,000 – P500,000 n cash and P2,000,000 in
DBP Progress Bank. It was evidenced by a promissory note and secured
by a mortgage executed by respondents over their present and future
properties. Another loan was granted by DBP in the for of a 5-year
revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth
DBP was restructured in view of failure to pay. Amounting to
P4,655,992.35 were consolidated into a single account. On the other
hand, all accrued interest and charges due amounting to P3,074,672.21
were denominated as “ Notes Taken for Interests” and evidenced by a
separate promissory note. For failure to comply with its obligation, DBP
initiated foreclosure proceedings upon its computation that respondent’s
loans were arrears by P62,954,473.68. Respondents contended that the
collection was unconscionable if not unlawful or usurious . RTC, as
affirmed by the CA, ruled in favor of the respondents.
ISSUE:
Whether the prestation to collect by the DBP is unconscionable or
usurious
RULING:
 It cannot be determined whether DBP in fact applied an interest rate
higher than what is prescribed under the law. Assuming it did exceed 12%
in addition to the other penalties stipulated in the note, this should be
stricken out for being usurious.
The petition is partly granted. Decision of the court of Appeals is
reversed and set aside. The case is remanded o the trial court for the
determination of the total amount of the respondent’s obligation based on
the promissory notes, according to the interest rate agreed upon by the
parties on the interest rate of 12% per annum, whichever is lower.
is obvious that Metrobank was remiss in the duty and violated that
fiduciary relationship with its clients as it appeared that there are material
alterations on the check that are visble to the naked eye but the bank
failed to detect such.
Petition is denied. Court of Appeals decision is affirmed with
modification that exemplary damages in the amount of P50,000 be
awarded.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

INSTRUMENTS/EVIDENCES OF CREDIT 1. ALMEDA VS. BATHALA MKTNG., 542 S 470

2. PCI VS. NG SHEUNG NGOR, 541 S 223
METROBANK v. CABLZO
G.R. No. 154469 December 6, 2006
EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING
FACTS:
G.R.No. 150806, January 28, 2008
Respondent Cabilzo was one of the Metrobank’s client who
maintained a current account. On November 12, 199, Cabilzo issued a
FACTS:
Metrobank check payable to cash in the amount of P1,000 and was paid
to a certain Mr. Marquez. The check was oresented to Westmont Bank or
In May 1997, Bathala Marketng, renewed its Contract of Lease
payment and in turn indorsed to etrobank for appropriate clearing. It was
with Ponciano Almeda. Under the contract, Ponciano agreed to lease a
discovered that the amount withdrawn wa P91,000, thus, the check was
porton of Almeda Compound for a monthly rental of P1,107,348.69 for
altered. Cabilzo re-credit the amount of P91,000 to his account but
four years. On January 26, 1998, petitioner informed respondent that its
Metrobank refused to comply despite demands. RTC ordered Metrobank
monthly rental be increased by 73% pursuant to the condition No. 7 of the
to pay the sum of P90,000 to Cabilzo. Court of Appeals affirmed the
contract and Article 1250. Respondent refused the demand and insisted
decision with modification.
that there was no extraordinary inflation to warrant such application.
Respondent refused to pay the VAT and adjusted rentals as demanded by
ISSUE:
the petitioners but continually paid the stipulated amount. RTC ruled in
Whether holding Metrobank, as drawee bank, liable for the
favor of the respondent and declared that plaintiff is not liable for the
alternations on the subject check bearing the authentic signature of the
payment of VAT and the adjustment rental, there being no extraordinary
drawer thereof
inflation or devaluation. CA affirmed the decision deleting the amounts
representing 10% VAT and rental adjustment.
RULING:
ISSUE:
The degree of diligence in the exercise of his tasks and the
Whether the amount of rentals due the petitioners should be
performance of his duties have been faithfully complied with by Cabilzo. It
adjusted by reason of extraordinary inflation or devaluation

RULING:
Petitioners are stopped from shifting to respondent the burden of
paying the VAT. 6th Condition states that respondent can only be held
liable for new taxes imposed after the effectivity of the contract of lease,
after 1977, VAT cannot be considered a “new tax”. Neither can petitioners
legitimately demand rental adjustment because of extraordinary inflation
or devaluation. Absent an official pronouncement or declaration by
competent authorities of its existence, its effects are not to be applied.
Petition is denied. CA decision is affirmed.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION
EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR
G.R.NO. 171545, December 19, 2007
FACTS:
On October 7, 2001, respondents Ngor and Go filed an action
for amendment and/or reformation of documents and contracts against
Equitable and its employees. They claimed that they were induced by the
bank to avail of its peso and dollar credit facilities by offering low interests
so they accepted and signed Equitable’s proposal. They alleged that they
were unaware that the documents contained escalation clauses granting
Equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange
rate in computing respondent’s dollar-denominated loans. CA granted the
Bank’s application for injunction but the properties were sold to public
auction.
ISSUE:
Whether or not there was an extraordinary deflation
RULING:
Extraordinary inflation exists when there is an unusual
decrease in the purchasing power of currency and such decrease could
not be reasonably foreseen or was beyond the contemplation of the
parties at the time of the obligation. Deflation is an inverse situation.
Despite the devaluation of the peso, BSP never declared a
situation of extraordinary inflation. Respondents should pay their dollar
denominated loans at the exchange rate fixed by the BSP on the date of
maturity.
Decision of lower courts are reversed and set aside.
INTEGRITY OF PRESTATION / SUBSTANTIAL PAYMENT
SIMPLICIO PALANCA
VS. ULYSSIS GUIDES joined by her husband LORENZO GUIDES
February 28, 2005
452 SCRA 461
FACTS:
On August 23, 1983, Simplicio Palanca executed a Contract to Sell a
parcel of land on installment with a certain Josefa Jopson for P11, 250.00. Jopson
paid the petitioner in the amount of P1, 650 as her down payment, leaving a
balance of P9, 600.00. Sometime in December 1983, Jopson assigned and
transferred all her rights and interests over the property in question in favor of
the respondent Ulyssis Guides.
In the deed of transfer, respondent undertook to assume the balance of
Jopson’s account and to pay the same in accordance with the terms and
conditions of the Contract to Sell. After reimbursing Jopson P1,650.00,
respondent acquired possession of the lot and paid petitioner the stipulated
amortizations which were in turn acknowledged by petitioner through receipts
issued in the name of respondent. Believing that she had fully paid the purchase
price of the lot, respondent verified the status of the lot with the Register of
Deeds, only to find out that title thereto was not in the name of the petitioner as
it was covered by Transfer Certificate of Title No. 105742 issued on 26
September 1978 in the name of a certain Carissa T. de Leon. Respondent went
to petitioner’s office to secure the title to the lot, but petitioner informed her that
she could not as she still had unpaid accounts. Thereafter, respondent, through
a lawyer, sent a letter to petitioner demanding compliance with his obligation demanded the payment of the alleged charges, respondent’s liability, if any for
and the release of the title in her name. said charges, is deemed fully satisfied. The petition is denied.

As petitioner did not heed her demands, respondent, joined by her

husband, filed a Complaint for specific performance with damages. Petitioner
sought the dismissal of the complaint on the ground of respondent’s alleged
failure to comply with the mandatory requirement of Presidential Decree (P.D.) WHO MAY DEMAND PAYMENT
No. 1508. Respondent alleged that she paid petitioner P14,880.00, which not
only fully settled her obligation to him, but in fact overpaid it by P3,620.00. In 1. PCIB VS. CA, 481 S 127
addition, she claimed that petitioner charged her devaluation charges and illegal 2. LAGON VS. HOOVEN COMALCO, 349 SCRA 363
interest. At the pre-trial in 1989, both parties admitted that Jopson assigned her 3. BPI VS. CA, 232 SCRA 302
rights over the property in favor of respondent and respondent paid petitioner
the subsequent monthly amortizations on installments. Petitioner likewise
acknowledged the payments made by respondent as stated in the statement of
accounts initiated by its manager, Oscar Rivera. On November 1996, the trial PCIB v. COURT OF APPEALS
court rendered its decision ordering the petitioner to execute in favor of the
G.R. NO. 121989 January 31, 2006
respondent a Deed of Sale. The petitioner appealed to the Court of Appeals;
however, it affirmed the decision of the lower court.
FACTS:
ISSUE:
PCIB and MBC were joint bidders in a foreclosure sale held of
Whether or not the petitioner has a right to claim for unpaid charges as
assorted mining machinery and equipment previously mortgaged to them
stipulated in the contract from the private respondent.
by Philippine Iron Mines. Atlas agreed to purchase some of these
RULING: properties and the sale was evidenced by a Deed of Sale with a
downpayment of P12,000,000 and the balance of P18,000,000 payable in
The Supreme Court held that primarily preventing petitioner from 6 monthly installments. In compliance with the contract, Atlas issued
recovering the amounts claimed from respondent is the effective waiver of these
HongKong and shanghai Bank check amounting to P12,000,000. Atlas
charges. Assuming that said charges are due, petitioner waived the same when
he accepted respondent’s payments without qualification, without any specific paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ
demand for the individual charges he now seeks to recover. The same goes true of garnishment issued against Atlas to satisfy the judgment in favor of
for the alleged forfeiture of the down payment made by Jopson. From its own NAMAWU. Atlas alleged that there was overpayment, hence the suit
Statements of Accounts and Payments Made, petitioner credited to respondent’s against PCIB to obtain reimbursement. PCIB contended that Atlas still
account the P1,650.00 down payment paid by Jopson at the commencement of owed P908,398.75 because NAAWU had been partially paid in the amount
the contract. There is no indication that he informed respondent of the alleged of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA
forfeiture, much more demanded the payment again of the amount previously reversed the decision.
paid by Jopson. Art. 1235 of the Civil Code which provides that “When the
obligee accepts the performance, knowing its incompleteness or irregularity, and ISSUE:
without expressing any protest or objection, the obligation is deemed fully
Whether atlas had complied with its obligation to PCIB
complied with,” is in point. Thus, when petitioner accepted respondent’s
installment payments despite the alleged charges incurred by the latter, and
without any showing that he protested the irregularity of such payment, nor RULING:
 While the original amount sought to be garnished was
P4,298,307,77, the partial payment of P601,260 naturally reduced it to
P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas would be
to proceed against NAAWU nut not against PCIB in relation to article 1236
of the Civil Code
The petition is partly granted.CA decision is reversed and set aside
and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96,
with the legal interest commencing from the time of first demand on
August 22, 1985.
WHO MAY DEMAND PAYMENT,
CREDITOR’S RIGHT OF PAYMENT (Art. 1240, CC)
JOSE V. LAGON, petitioner,
vs. HOOVEN COMALCO INDUSTRIES, INC., respondent
G.R. No. 135657
January 17, 2001
349 SCRA 363
FACTS:
Petitioner Jose V. Lagon is a businessman and owner of a commercial
building in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other is a
domestic corporation known to be the biggest manufacturer and installer of
aluminum materials in the country with branch office at E. Quirino Avenue,
Davao City.
Sometime in April 1981 Lagon and HOOVEN entered into two (2)
contracts, both denominated Proposal, whereby for a total consideration of P104,
870.00 HOOVEN agreed to sell and install various aluminum materials in Lagon’s
commercial building in Tacurong, Sultan Kudarat. Upon execution of the
contracts, Lagon paid HOOVEN P48,000.00 in advance.
Lagon, in his answer, denied liability and averred that HOOVEN was the
party guilty of breach of contract by failing to deliver and install some of the
materials specified in the proposals; that as a consequence he was compelled to
procure the undelivered materials from other sources; that as regards the
materials duly delivered and installed by HOOVEN, they were fully paid. He
counterclaimed for actual, moral, exemplary, temperate and nominal damages,
as well as for attorney’s fees and expenses of litigation.
ISSUE:
Whether or not all the materials specified in the contracts had been
delivered and installed by respondent in petitioner’s commercial building in
Tacurong, Sultan Kudarat.
RULING:
Firstly, the quantity of materials and the amounts sated in the delivery
receipts do not tally with those in the invoices covering them, notwithstanding
that, according to HOOVEN OIC Alberto Villanueva, the invoices were based
merely on the delivery receipts.
Secondly, the total value of the materials as reflected in all the invoices is
P117, 329.00 while under the delivery receipts it is only P112, 870.50, or a
difference of P4,458.00
Even more strange is the fact that HOOVEN instituted the present action
for collection of sum of money against Lagon only on 24 February 1987, or more
than five (5) years after the supposed completion of the project. Indeed, it is
contrary to common experience that a creditor would take its own sweet time in
collecting its credit, more so in this case when the amount involved is not
miniscule but substantial.
All the delivery receipts did not appear to have been signed by petitioner
or his duly authorized representative acknowledging receipt of the materials
listed therein. A closer examination of the receipts clearly showed that the
deliveries were made to a certain Jose Rubin, claimed to be petitioner’s driver,
Armando Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the
identities of these persons were never been established, and there is no way of
determining now whether they were indeed authorized representatives of
petitioner.
WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April
1997 is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven
Comalco Industries, Inc., P6, 377.66 representing the value of the unpaid
materials admittedly delivered to him. On the other hand, respondent is ordered
to pay petitioner P50,000.00 as moral damages, P30,000.00 as attorney’s fees
and P46,554.50 as actual damages and litigation expenses.
WHO MAY DEMAND PAYMENT,
CREDITOR’S RIGHT OF PAYMENT (Art. 1240, CC)
BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS
232 SCRA302
G.R. NO. 104612
MAY 10, 1994
FACTS:
Private respondents Eastern Plywood Corporation and Benigno Lim as
officer of the corporation, had an “AND/OR” joint account with Commercial Bank
and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank of the
Philippine Islands. Lim withdraw funds from such account and used it to open a
joint checking account (an “AND” account) with Mariano Velasco. When Velasco
died in 1977, said joint checking account had P662,522.87. By virtue of an
Indemnity Undertaking executed by Lim and as President and General Manager
of Eastern withdrew one half of this amount and deposited it to one of the
accounts of Eastern with CBTC.
Eastern obtained a loan of P73,000.00 from CBTC which was not secured.
However, Eastern and CBTC executed a Holdout Agreement providing that the
loan was secured by the “Holdout of the C/A No. 2310-001-42” referring to the
joint checking account of Velasco and Lim.
Meanwhile, a judicial settlement of the estate of Velasco ordered the
withdrawal of the balance of the account of Velasco and Lim.
Asserting that the Holdout Agreement provides for the security of the loan
obtained by Eastern and that it is the duty of CBTC to debit the account of
respondents to set off the amount of P73,000 covered by the promissory note,
BPI filed the instant petition for recovery. Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint account of Velasco and
Lim came from Eastern and therefore rightfully belong to Eastern and/or Lim.
Since the Holdout Agreement covers the loan of P73,000, then petitioner can
only hold that amount against the joint checking account and must return the
rest.
ISSUE:
Whether BPI can demand the payment of the loan despite the existence of
the Holdout Agreement and whether BPI is still liable to the private respondents
on the account subject of the withdrawal by the heirs of Velasco.
RULING:
Yes, for both issues. Regarding the first, the Holdout Agreement
conferred on CBTC the power, not the duty, to set off the loan from the account
subject of the Agreement. When BPI demanded payment of the loan from
Eastern, it exercised its right to collect payment based on the promissory note,
and disregarded its option under the Holdout Agreement. Therefore, its demand
was in the correct order.
Regarding the second issue, BPI was the debtor and Eastern was the
creditor with respect to the joint checking account. Therefore, BPI was obliged
to return the amount of the said account only to the creditor. When it allowed
the withdrawal of the balance of the account by the heirs of Velasco, it made the
payment to the wrong party. The law provides that payment made by the
debtor to the wrong party does not extinguish its obligation to the creditor who
is without fault or negligence. Therefore, BPI was still liable to the true creditor,
Eastern.
PAYMENT – WHO MUST PAY: DEBTOR
AUDION ELECTRIC CO., INC.,
VS. NATIONAL LABOR RELATIONS COMMISSION and NICOLAS MADOLID
1999 Jun 17
G.R. No. 106648
FACTS:
From the position paper and affidavit corroborated by oral testimony, it
appears that complainant was employed by respondent Audion Electric
Company on June 30, 1976 as fabricator and continuously rendered service
assigned in different offices or projects as helper electrician, stockman and
timekeeper. He has rendered thirteen (13) years of continuous, loyal and
dedicated service with a clean record. On August 3, complainant was surprised
to receive a letter informing him that he will be considered terminated after the
turnover of materials, including respondents’ tools and equipments not later
than August 15, 1989.
Complainant claims that he was dismissed without justifiable cause and
due process and that his dismissal was done in bad faith which renders the
dismissal illegal. For this reason, he claims that he is entitled to reinstatement
with full backwages. He also claims that he is entitled to moral and exemplary
damages. He includes payment of his overtime pay, project allowance,
minimum wage increase adjustment, proportionate 13th month pay and
attorney’s fees.
ISSUES:
Whether or not the respondent NLRC committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it ruled that private respondent
was a regular employee and not a project employee;
Whether or not petitioner was denied due process when all the money
claims of private respondent, i.e. overtime pay, project allowances, salary
differential, proportionate 13th month pay, moral and exemplary damages as
well as attorney’s fees, were granted.
RULING:
Respondent’s assigning complainant to its various projects did not make
complainant a project worker. As found by the Labor Arbiter, ‘it appears that
complainant was employed by respondent as fabricator and or projects as helper
electrician, stockman and timekeeper.’ Simply put, complainant was a regular
non-project worker.
Private respondent’s employment status was established by the
Certification of Employment dated April 10, 1989 issued by petitioner which
certified that private respondent is a bonafide employee of the petitioner from
June 30, 1976 up to the time the certification was issued on April 10, 1989. The
same certificate of employment showed that private respondent’s exposure to
their field of operation was as fabricator, helper/electrician,
stockman/timekeeper. This proves that private respondent was regularly and
continuously employed by petitioner in various job assignments from 1976 to
1989, for a total of 13 years. The alleged gap in employment service cited by
petitioner does not defeat private respondent’s regular status as he was rehired
for many more projects without interruption and performed functions which are
vital, necessary and indispensable to the usual business of petitioner.
Petitioner failed to present such employment contract for a specific
project signed by private respondent that would show that his employment with
the petitioner was for the duration of a particular project.
Moreover, notwithstanding petitioner’s claim in its reply that in taking
interest in the welfare of its workers, petitioner would strive to provide them with
more continuous work by successively employing its workers, in this case,
private respondent, petitioner failed to present any report of termination.
Petitioner should have submitted or filed as many reports of termination as there
were construction projects actually finished, considering that private respondent
had been hired since 1976. The failure of petitioner to submit reports of
termination supports the claim of private respondent that he was indeed a
regular employee.
The Court finds no grave abuse of discretion committed by NLRC in finding
that private respondent was not a project employee.
Private respondent clearly specified in his affidavit the specific dates in
which he was not paid overtime pay, that is, from the period March 16, 1989 to
April 3, 1989 amounting to P765.63, project allowance from April 16, 1989 to July
31, 1989 in the total amount of P255.00, wage adjustment for the period from
August 1, 1989 to August 14, 1989 in the amount of P256.50 and the
proportionate 13th month pay for the period covering January to May 1988,
November-December 1988, and from January to August 1989. This same
affidavit was confirmed by private respondent in one of the scheduled hearings
where he moved that he be allowed to present his evidence ex-parte for failure
of petitioner or any of his representative to appear thereat. On the other hand,
petitioner submitted its unverified Comment to private respondent’s complaint
stating that he had already satisfied the unpaid wages and 13th month pay
claimed by private respondent, but this was not considered by the Labor Arbiter
for being unverified.
Petitioner failed to rebut the claims of private respondent. It failed to
show proof by means of payroll or other evidence to disprove the claim of
private respondent. Petitioner was given the opportunity to cross-examine
private respondent yet petitioner forfeited such chance when it did not attend
the hearing, and failed to rebut the claims of private respondent.
However, the award of moral and exemplary damages must be deleted for
being devoid of legal basis. Moral and exemplary damages are recoverable only
where the dismissal of an employee was attended by bad faith or fraud, or
constituted an act oppressive to labor, or was done in a manner contrary to
morals, good customs or public policy. The person claiming moral damages
must prove the existence of bad faith by clear and convincing evidence for the
law always presumes good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, serious anxiety as the result of the actuations
of the other party. Invariably, such action must be shown to have been willfully
done in bad faith or with ill-motive, and bad faith or ill motive under the law
cannot be presumed but must be established with clear and convincing
evidence. Private respondent predicated his claim for such damages on his own
allegations of sleepless nights and mental anguish, without establishing bad P954,000 plus interest. There was no delay since there was no
faith, fraud or ill motive as legal basis therefor. demand.
Private respondent not being entitled to award of moral damages, an ISSUE:
award of exemplary damages is likewise baseless. Where the award of moral
Whether or not respondent incurred delay in performing its
and exemplary damages is eliminated, so must the award for attorney’s fees be
deleted. Private respondent has not shown that he is entitled thereto pursuant
obligation under the contract of sale
to Art. 2208 of the Civil Code.

WHEREFORE, the challenged resolutions of the respondent NLRC are RULING:

hereby AFFIRMED with the MODIFICATION that the awards of moral and
exemplary damages and attorney’s fees are DELETED. By accepting the cylinders when they were delivered to the
warehouse, petitioner waived the claimed delay in the delivery of
said items. Supreme Court geld that time was not of the essence.
There having been no failure on the part of the respondent to
WHERE PAYMENT MUST BE MADE perform its obligations, the power to rescind the contract is
unavailing to the petitioner.
LORENZO SHIPPING VS. BJ MARTHEL
443 S 163 Petition is denied. Court of appeals decision is affirmed.
November 19, 2004

FACTS:
SPECIAL FORMS OF PAYMENT:
Petitioner Lorenzo Shipping is engaged in coastwise
shipping and owns the cargo M/V Dadiangas Express. BJ Marthel is A. DACION EN PAGO / DATION IN PAYMENT
engaged in trading, marketing an dselling various industrial
commodities. Lorenzo Shipping ordered for the second time 1. ESTANISLAO VS. EAST-WEST BANKING CORP., 544 S 369
cylinder lines from the respondent stating the term of payment to 2. AQUINTEY VS. TIBONG, 511 S 414
be 25% upon delivery, the balance payable in 5 bi-monthly equal 3. VDA. DE JAYME VS. CA, 390 SCRA 380
installments, no again stating the date of the cylinder’s delivery. It 4. CALTEX VS. IAC, NOV. 13, 1992
was allegedly paid through post dated checks but the same was
dishonored due to insufficiency of funds. Despite due demands by
the respondent, petitioner falied contending that time was of the SPOUSES RAFAEL ESTANISLAO v. EASTWEST BANKING
essence in the delivery of the cylinders and that there was a delay CORPORATION
since the respondent committed said items “ within two months G.R. No. 178537,February 11, 2008
after receipt of fir order”. RTC held respondents bound to the
quotation with respect to the term of payment, which was reversed
by the Court of appeals ordering appellee to pay appellant FACTS:
 On July 24,1997, petitioner obtained a loan fro the respondent
in the amount of P3,925,000 evidenced by a promissory note and
secured by two deeds of chattel mortgage covering two dump
trucks and a bull dozer . Petitioner defaulted entire obligation
became due and demandable. A deed of assignment was drafted by
the respondent on October 6, 2000 and March 8, 2001 respectively.
Petitioners completed the delivery of heavy equipment mentioned
in the deed of assignment to respondent which accepted the same
without protest or objection. Respondent manifested to admit an
amended complaint for the seizure and delivery of two more heavy
equipment which are covered under the second deed of the chattel
mortgage. RTC ruled that the deed of assignment and the
petitioner’s delivery of the heavy equipment effectively
extinguished the petitioner’s obligation and respondent as stopped.
CA reversed the decision ordering the petitioner the outstanding
debt of P4,275,919.69 plus interests.
ISSUE:
Did the Deed of Assignment operate to extinguish petitioner’s
debt to the respondent such that the replevin suit could
no longer prosper?
RULING:
The deed of assignment was a perfected agreement which
extinguished petitioner’s total outstanding obligation to the
respondent. The nature of the assignment was a dacion en pago
whereby property is alienated to the creditor in the satisfaction of a
debt in money. Since the agreement was consummated by the
delivery of the last unit of heavy equipment under the deed,
petitioner’s are deemed to have been released from all their
obligations from the respondents.
SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT
AQUINTEY v. SPOUSES TIBONG
G.R. No. 166704,December 20, 2006
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.
SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT
VDA. DE JAYME VS. CA
390 SCRA 380
2002 Oct 4
FACTS:
On January 8, 1973, the spouses Graciano and Mamerta Jayme entered
into a Contract of Lease with George Neri, president of Airland Motors
Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700 owned and
registered to the former. The lease was for twenty (20) years. The terms and
conditions of the lease contract stipulated that Cebu Asiancars Inc. may use the
leased premises as a collateral to secure payment of a loan which Asiancars may
obtain from any bank, provided that the proceeds of the loan shall be used solely
for the construction of a building which, upon the termination of the lease or the
voluntary surrender of the leased premises before the expiration of the contract,
shall automatically become the property of the Jayme spouses (the lessors).
In October 1977, Asiancars obtained a loan of P6,000,000 from the
Metropolitan Bank and Trust Company. The entire Lot 2700 was offered as one
of several properties given as collateral for the loan. As mortgagors, the
spouses signed a Deed of Real Estate Mortgage dated November 21, 1977 in
favor of MBTC. It stated that the deed was to secure the payment of a loan
obtained by Asiancars from the bank. Meeting financial difficulties and incurring
an outstanding balance on the loan, Asiancars conveyed ownership of the
building on the leased premises to MBTC, by way of "dacion en pago." The
building was valued at P980,000 and the amount was applied as partial payment
for the loan. There still remained a balance of P2,942,449.66, which Asiancars
failed to pay. Eventually, MBTC extrajudicially foreclosed the mortgage.
A public auction was held on February 4, 1981. MBTC was the highest
bidder for P1,067,344.35. A certificate of sale was issued and was registered
with the Register of Deeds on February 23, 1981. Meanwhile, Graciano Jayme
died, survived by his widow Mamerta and their children. As a result of the
foreclosure, Graciano’s heirs filed a civil complaint, in January of 1982, for
Annulment of Contract with Damages with Prayer for Issuance of Preliminary
Injunction, against respondent Asiancars, its officers and incorporators and
MBTC. Later, in 1999, Mamerta Jayme also passed away.
The trial court ruled that the REM is valid and binding upon the Jaymes.
The CA affirmed with modifications. Both the trial and appellate courts found
that no fraud attended the execution of the deed of mortgage. The Motion for
Reconsideration was denied.
ISSUE:
Whether or not the dacion en pago by Asiancars in favor of MBTC is valid
and binding despite the stipulation in the lease contract that ownership of the
building will vest on the Jaymes at the termination of the lease.
RULING:
YES. The alienation of the building by Asiancars in favor of MBTC for the
partial satisfaction of its indebtedness is valid.
The ownership of the building had been effectively in the name of the
lessee-mortgagor (Asiancars), though with the provision that said ownership be
transferred to the Jaymes upon termination of the lease or the voluntary
surrender of the premises. The lease was constituted on January 8, 1973 and
was to expire 20 years thereafter, or on January 8, 1993. The alienation via
dacion en pago was made by Asiancars to MBTC on December 18, 1980, during
the subsistence of the lease. At this point, the mortgagor, Asiancars, could
validly exercise rights of ownership, including the right to alienate it, as it did to
MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the
obligation. It is a special mode of payment where the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is
the creditor is really buying the thing or property of the debtor, payment for
which is to be charged against
the debtor’s debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of
the performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. In any case, common
consent is an essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation. Private respondent MBTC is ordered
to pay petitioners rentals in the total amount of P602,083.33, with six (6)
percent interest per annum until fully paid.

SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT
CALTEX (PHILIPPINES), INC., petitioner, VS. The INTERMEDIATE
APPELLATE COURT and ASIA PACIFIC AIRWAYS, INC., respondents
November 13, 1992
G.R. No. 72703
FACTS:
On January 12, 1978, private respondent Asia Pacific Airways Inc. entered
into an agreement with petitioner Caltex (Philippines) Inc., whereby petitioner
agreed to supply private respondent's aviation fuel requirements for two (2)
years, covering the period from January 1, 1978 until December 31, 1979.
Pursuant thereto, petitioner supplied private respondent's fuel supply
requirements.
As of June 30, 1980, private respondent had an outstanding obligation to
petitioner in the total amount of P4,072,682.13, representing the unpaid price of
the fuel supplied. To settle this outstanding obligation, private respondent
executed a Deed of Assignment dated July 31, 1980, wherein it assigned to
petitioner its receivables or refunds of Special Fund Import Payments from the
National Treasury of the Philippines to be applied as payment of the amount of
P4,072,683.13 which private respondent owed to petitioner. On February 12,
1981, pursuant to the Deed of Assignment, Treasury Warrant No. B04708613 in
the amount of P5,475,294.00 representing the refund to respondent of Special
Fund Import Payment on its fuel purchases was issued by the National Treasury
in favor of petitioner. Four days later, on February 16, 1981, private respondent,
having learned that the amount remitted to petitioner exceeded the amount
covered by the Deed of Assignment, wrote a letter to petitioner, requesting a
refund of said excess.
Petitioner, acting on said request, made a refund in the amount of
P900,000.00 plus in favor of private respondent. The latter, believing that it was
entitled to a larger amount by way of refund, wrote petitioner anew, demanding
the refund of the remaining amount. In response thereto, petitioner informed
private respondent that the amount not returned (P510,550.63) represented
interest and service charges at the rate of 18% per annum on the unpaid and
overdue account of respondent from June 1, 1980 to July 31, 1981.
Thus, on September 13, 1982, private respondent filed a complaint
against petitioner in the Regional Trial Court of Manila, to collect the sum of
P510,550.63.00.
Petitioner (defendant in the trial court) filed its answer, reiterating that the
amount not returned represented interest and service charges on the unpaid
and overdue account at the rate of 18% per annum. It was further alleged that
the collection of said interest and service charges is sanctioned by law, and is in
accordance with the terms and conditions of the sale of petroleum products to
respondent, which was made with the conformity of said private respondent who
had accepted the validity of said interest and service charges.
On November 7, 1983, the trial court rendered its decision dismissing the
complaint, as well as the counterclaim filed by defendant therein. Private
respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On
August 27, 1985, a decision was rendered by the said appellate court reversing
the decision of the trial court, and ordering petitioner to return the amount of
P510,550.63 to private respondent.
ISSUE:
Whether or not there is a valid dation in payment in this case.
RULING:
The Supreme Court ruled that the Deed of Assignment executed by the
parties on July 31, 1980 is not a dation in payment and did not totally extinguish
respondent's obligations as stated therein.
The then Intermediate Appellate Court ruled that the three (3) requisites
of dacion en pago are all present in the instant case, and concluded that the
Deed of Assignment of July 31, 1980) constitutes a dacion in payment provided
for in Article 1245 of the Civil Code which has the effect of extinguishing the
obligation, thus supporting the claim of private respondent for the return of the
amount retained by petitioner.
The Supreme Court, speaking of the concept of dation in payment, in the
case of Lopez vs. Court of Appeals, among others, stated: "'The dation in
payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement, express or implied, or by their silence, consider the thing
as equivalent to the obligation, in which case the obligation is totally
extinguished."

From the above, it is clear that a dation in payment does not necessarily
mean total extinguishment of the obligation. The obligation is totally
extinguished only when the parties, by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation. In the instant
case, the then Intermediate Appellate Court failed to take into account the
express recitals of the Deed of Assignment.
"That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in
the amount of P4,072,682.13 as of June 30, 1980, plus any applicable interest on
overdue account. Now therefore in consideration of the foregoing premises,
ASSIGNOR by virtue of these presents, does hereby irrevocably assign and
transfer unto ASSIGNEE any and all funds and/or Refund of Special Fund
Payments, including all its rights and benefits accruing out of the same, that
ASSIGNOR might be entitled to, by virtue of and pursuant to the decision in BOE
Case No. 80-123, in payment of ASSIGNOR's outstanding obligation plus any
applicable interest charges on overdue account and other avturbo fuel lifting and
deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE, and
ASSIGNEE does hereby accepts such assignment in its favor."
Hence, it could easily be seen that the Deed of Assignment speaks of
three (3) obligations (1) the outstanding obligation of P4,072,682.13 as of June
30, 1980; (2) the applicable interest charges on overdue accounts; and (3) the
other avturbo fuel lifting and deliveries that assignor (private respondent) may
from time to time receive from assignee (Petitioner). As aptly argued by
petitioner, if it were the intention of the parties to limit or fix respondent's
obligation to P4,072.682.13, they should have so stated and there would have
been no need for them to qualify the statement of said amount with the clause
"as of June 30, 1980 plus any applicable interest charges on overdue account"
and the clause "and other avturbo fuel lifting and deliveries that ASSIGNOR may
from time to time receive from the ASSIGNEE".
The terms of the Deed of Assignment being clear, the literal meaning of its
stipulations should control. In the construction of an instrument where there are
several provisions or particulars, such a construction is, if possible, to be
adopted as will give effect to all.
Likewise, the then Intermediate Appellate Court failed to take into
consideration the subsequent acts of the parties which clearly show that they did
not intend the Deed of Assignment to totally extinguish the obligation: (1) After
the execution of the Deed of Assignment on July 31, 1980, petitioner continued
to charge respondent with interest on its overdue account up to January 31,
1981. This was pursuant to the Deed of Assignment which provides for
respondent's obligation for "applicable interest charges on overdue account".
The charges for interest were made every month and not once did respondent
question or take exception to the interest; and (2) In its letter of February 16,
1981, respondent addressed the following request to petitioner:
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered (Art.
1253, Civil Code). The foregoing subsequent acts of the parties clearly show that
they did not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent without payment of the
applicable interest charges on the overdue account.
Finally, the payment of applicable interest charges on overdue account,
separate from the principal obligation of P4,072,682.13 was expressly stipulated
in the Deed of Assignment. The law provides that "if the debt produces interest,
payment of the principal shall not be deemed to have been made until the
interests have been covered." (Art. 1253, Civil Code).
PAYMENT BY CESSION OR ASSIGNMENT
ANTONIO LO, petitioner,
VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS
COOPERATIVE MARKETING ASSOCIATION, INC., respondents
FACTS:
At the core of the present controversy are two parcels of land measuring
a total of 2,147 square meters, with an office building constructed thereon.
Petitioner acquired the subject parcels of land in an auction sale on November 9,
1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private
respondent National Onion Growers Cooperative Marketing Association, Inc., an
agricultural cooperative, was the occupant of the disputed parcels of land under
a subsisting contract of lease with Land Bank. The lease was valid until
December 31, 1995. Upon the expiration of the lease contract, petitioner
demanded that private respondent vacate the leased premises and surrender its
possession to him. Private respondent refused on the ground that it was, at the
time, contesting petitioner’s acquisition of the parcels of land in question in an 1. ASI CORP., VS. EVANGELISTA, 545 S 300
action for annulment of sale, redemption and damages. 2. PACULDO VS. REGALADO, 345 SCRA 134
3. CBC VS. CA, 265 SCRA 327
Petitioner filed an action for ejectment before the MTC. He asked, inter 4. MOBIL VS. CA, 272 SCRA 523
alia, for the imposition of the contractually stipulated penalty of P5,000 per day
of delay in surrendering the possession of the property to him. On September 3,
1996, the trial court decided the case in favor of petitioner. On appeal to the ASI CORP and ANTONIO SAN JUAN v. SPOUSES EFREN
RTC, the MTC decision was affirmed in toto. The CA rendered its assailed EVANGELISTA
decision affirming the decision of the trial court, with the modification that the
penalty imposed upon private respondent for the delay in turning over the
leased property to petitioner was reduced from P 5,000 to P 1000 per day.
FACTS:
ISSUE:
Whether or not the Court of Appeals erred in reducing the penalty Respondents are engaged in the large-scale business of
awarded by the trial court, the same having been stipulated by the parties. buying broiler eggs, hatching and selling them and egg by-products. For
incubation and hatchings, respondents availed of the hatching services of
RULING: ASJ Corp. They agreed o service fees of 80 centavos per egg. Service fees
No. Generally, courts are not at liberty to ignore the freedom of the were paid upon release. Fro consecutive times the respondents failed to
parties to agree on such terms and conditions as they see fit as long as they are pay the fee until such time that ASJ retained the chicks demanding full
not contrary to law, morals, good customs, public order or public policy. payment from the respondent. ASJ received P15,000 for partial payment
Nevertheless, courts may equitably reduce a stipulated penalty in the contract if but the chicks were still not released. RTC ruling, which was affirmed by
it is iniquitous or unconscionable, or if the principal obligation has been partly or the Court of Appeals holding that ASJ Corp and Antonio San Juan be
irregularly complied with. This power of the courts is explicitly sanctioned by
solidarily liable to the respondents.
Article 1229 of the Civil Code which provides:

Article 1229. The judge shall equitably reduce the penalty when the principal ISSUE:
obligation has been partly or irregularly complied with by the debtor. Even if Was petitioner’s retention of the chicks and by-products, on account
there has been no performance, the penalty may also be reduced by the courts of respondent’s failure to pay the corresponding fees
if it is iniquitous or unconscionable. unjustified?

The question of whether a penalty is reasonable or iniquitous is addressed RULING:

to the sound discretion of the court and depends on several factors, including,
but not limited to, the following: the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties.
In this case, the stipulated penalty was reduced by the appellate court for
being unconscionable and iniquitous. Petition denied; CA decision affirmed.
Respondents’ offer to partially satisfy their accounts is not
enough to extinguish their obligation. Respondents cannot substitute or
apply as their payment the value of the chicks and by-products they
expect to derive because it is necessary that all the debts be paid for the
same kind. The petition is partly granted. The Court of Appeals decision is
modified.

APPLICATION OF PAYMENTS

APPLICATION OF PAYMENTS
PACULDO VS. REGALADO
345 SCRA 134
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 equipments.

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.
APPLICATION OF PAYMENTS
CHINA BANKING CORPORATION, ATTYS. REYNALDO M. CABUSORA and
RENATO C. TAGUIAM, petitioners,
VS. COURT OF APPEALS, HON. PEDRO T. SANTIAGO, SPS. SO CHING and
CRISTINA SO, and NATIVE WEST INTERNATIONAL TRADING CORP.,
respondents
1996 December 05
G.R. No. 121158
FACTS:
China Banking Corporation (China Bank) extended several loans to Native
West International Trading Corporation (Native West) and to So Ching, Native
West's president. Native West in turn executed promissory notes in favor of
China Bank. So Ching, with the marital consent of his wife, Cristina So,
additionally executed two mortgages over their properties, viz., a real estate
mortgage executed on July 27, 1989 covering a parcel of land situated in Cubao,
Quezon City, under TCT No. 277797, and another executed on August 10, 1989
covering a parcel of land located in Mandaluyong, under TCT No. 5363. The
promissory notes matured and despite due demands by China Bank neither
private respondents Native West nor So Ching paid. Pursuant to a provision
embodied in the two mortgage contracts, China Bank filed petitions for the
extra-judicial foreclosure of the mortgaged properties before Notary Public Atty.
Renato E. Taguiam for TCT No. 277797, and Notary Public Atty. Reynaldo M.
Cabusora for TCT No. 5363, copies of which were given to the spouses So Ching
and Cristina So. After due notice and publication, the notaries public scheduled
the foreclosure sale of the spouses' real estate properties on April 13, 1993.
Eight days before the foreclosure sale, however, private respondents filed a
complaint with the Regional Trial Court for accounting with damages and with
temporary restraining order against petitioners alleging several grounds,
including Violation of Article 1308 of the Civil Code. On April 7, 1993, the trial
court issued a temporary restraining order to enjoin the foreclosure sale.
Petitioners moved for reconsideration, but it was denied in an Order dated
September 23, 1993. To annul the trial court's Orders of April 28, 1993 and
September 23, 1993, petitioners elevated the case through certiorari and
prohibition before public respondent Court of Appeals. In a decision dated
January 17, 1995, respondent Court of Appeals held that Administrative Circular
No. 3 is the governing rule in extra-judicial foreclosure of mortgage, which
circular petitioners however failed to follow, and with respect to the publication
of the notice of the auction sale, the provisions of P.D. No. 1079 is the applicable
statute, which decree petitioners similarly failed to obey. Respondent Court of
Appeals did not pass upon the other issues and confined its additional lengthy
discussion on the validity of the trial court's issuance of the preliminary
injunction, finding the same neither capricious nor whimsical exercise of
judgment that could amount to grave abuse of discretion. The Court of Appeals
accordingly dismissed the petition, as well as petitioners' subsequent motion for
reconsideration. Hence, the instant petition under Rule 45 of the Rules of Court
reiterating the grounds raised before respondent court.
ISSUE:
Whether or not there was a correct application of payment in this case.
RULING:
An important task in contract interpretation is the ascertainment of the
intention of the contracting parties which is accomplished by looking at the
words they used to project that intention in their contract, i.e., all the words, not
just a particular word or two, and words in context, not words standing alone.
Indeed, Article 1374 of the Civil Code, states “the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly." Applying the rule, we
find that the parties intent is to constitute the real estate properties as
continuing securities liable for future obligations beyond the amounts of P6.5
million and P3.5 million respectively stipulated in the July 27, 1989 and August
10, 1989 mortgage contracts. Thus, while the "whereas" clause initially provides
that "the mortgagee has granted, and may from time to time hereafter grant to
the mortgagors . . . credit facilities not exceeding six million five hundred
thousand pesos only (P6,500,000.00)" yet in the same clause it provides that
"the mortgagee had required the mortgagor(s) to give collateral security for the
payment of any and all obligations heretofore contracted/incurred and which
may thereafter be contracted/incurred by the mortgagor(s) and/or debtor(s), or
any one of them, in favor of the mortgagee" which qualifies the initial part and
shows that the collaterals or real estate properties serve as securities for future
obligations. The first paragraph which ends with the clause, "the idea being to
make this deed a comprehensive and all embracing security that it is" supports
this qualification.
Similarly, the second paragraph provides that "the mortgagee may take
further advances and all sums whatsoever advanced by the mortgagee shall be
secured by this mortgagee . . ." And although it was stated that "[t]he said credit
shall extend to any account which shall, within the said limit of P6,500,000.00
exclusive of interest", this part of the second sentence is again qualified by its
succeeding portion which provides that "this mortgage shall stand as security for
all indebtedness of the mortgagor(s) and/or debtor(s), or any one of them, at any
and all times outstanding . . ." Again, under the third paragraph, it is provided
that "the mortgagee may from time to time grant the mortgagor(s)/debtor(s)
credit facilities exceeding the amount secured by this mortgage . . ." The fourth
paragraph, in addition, states that ". . . all such withdrawals, and payments,
whether evidenced by promissory notes or otherwise, shall be secured by this
mortgage" which manifestly shows that the parties principally intended to
constitute the real estate properties as continuing securities for additional
advancements which the mortgagee may, upon application, extend. It is well
settled that mortgages given to secure future advancements or loans are valid
and legal contracts, and that the amounts named as consideration in said
contracts do not limit the amount for which the mortgage may stand as security
if from the four corners of the instrument the intent to secure future and other
indebtedness can be gathered.
The allegations stated are a clear admission that they were unable to
settle to the fullest their obligation. Foreclosure is valid where the debtors, as in
this case, are in default in the payment of their obligation. The essence of a
contract of mortgage indebtedness is that a property has been identified or set
apart from the mass of the property of the debtor-mortgagor as security for the
payment of money or the fulfillment of an obligation to answer the amount of
indebtedness, in case of default of payment. It is a settled rule that in a real
estate mortgage when the obligation is not paid when due, the mortgagee has
the right to foreclose the mortgage and to have the property seized and sold in
view of applying the proceeds to the payment of the obligation. In fact, aside
from the mortgage contracts, the promissory notes executed to evidence the
loans also authorize the mortgagee to foreclose on the mortgages. Thus: . . .
CHINA BANKING CORPORATION is hereby authorized to sell at public or private
sales such securities or things of value for the purpose of applying their
proceeds to such payments.
And while private respondents aver that they have already paid ten
million pesos, an allegation which has still to be settled before the trial court, the
same cannot be utilized as a shield to enjoin the foreclosure sale. A mortgage
given to secure advancements, is a continuing security and is not discharged by
repayment of the amount named in the mortgage, until the full amount of the
advancements are paid.
APPLICATION OF PAYMENTS
MOBIL OIL PHILIPPINES, INC., and CALTEX (PHILS.), INC., petitioners
VS. HON. COURT OF APPEALS and
CONTINENTAL CEMENT CORPORATION, respondents
G.R. No. 103052
23 May 2003
FACTS:
The petition for review on certiorari in the case at bar seeks the reversal
of the decision of the Court of Appeals, affirming that 2 of the Regional Trial
Court (RTC), Branch 101, of Quezon City, which found herein petitioners Mobil Oil
Philippines, Inc., and Caltex Philippines, Inc., jointly and severally liable to private
respondent Continental Cement Corporation in the amount of eight million pesos
(P8,000,000.00) for actual damages, plus ten percent (10%) thereof by way of
attorney’s fees, for having delivered water-contaminated bunker fuel oil to the
serious prejudice and damage of the cement firm.
Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. (MOPI), a firm
engaged in the marketing of petroleum products to industrial users, entered into
a supply agreement with private respondent Continental Cement Corporation
(CCC), a cement producer, under which the former would supply the latter’s
industrial fuel oil (IFO) or bunker fuel oil (BFO) requirements. MOPI extended to
CCC an unsecured credit line of P2,000,000.00 against which CCC’s purchases of
oil could initially be charged.
 MOPI had a “hauling contract” with Century Freight Services (CFS)
whereby CFS undertook the delivery of Mobil products to designated consignees
of MOPI. During the period starting from 12 July to 07 October 1982, MOPI made
a total of sixty-seven deliveries of BFO, each delivery consisting of 20,000 liters,
to CCC’s cement factory in Norzagaray, Bulacan. On 08 October 1982, CCC
discovered that what should have been MOPI’s 20,000 BFO delivery to CCC’s
Norzagaray plant, through CFS’s lorry truck, was, in fact, pure water. CCC at
once informed MOPI of this anomaly and of its intention to meanwhile hold in
abeyance all payments due to MOPI on its previous deliveries until such time as
the parties would have ascertained that those deliveries were not themselves
adulterated. CCC suggested that MOPI’s storage tank in the Norzagaray plant be
likewise investigated for possible contamination.
Alleging in the complaint it ultimately filed with the RTC that its factory
equipment broke down from 19 to 22 September 1982 due to the utilization of
the water-contaminated BFO supplied by MOPI; that on 23 September 1982, its
plant operations had to be stopped completely; and that it was able to resume
operations only after essential repairs had been undertaken on 02 October 1982;
CCC sought to recover consequential damages from MOPI. In answer, MOPI
averred that CCC had accepted each delivery of BFO in accordance with the
procedure for testing and acceptance of BFO deliveries; that it was only on 08
October 1982 that CCC brought to its attention the alleged anomalous delivery
of 20,000 liters of BFO under invoice No. 47587 through Mariano Rivera’s lorry
truck; that when the delivery was being inspected by CCC’s representatives, the
truck driver and helper fled; that Rivera acknowledged full liability for such
delivery; that Rivera promised to pay the amount of P42,730.00 for the 20,000
liters of BFO delivered; and that MOPI agreed to the water draining activity solely
for the purpose of maintaining good business relations with CCC but not to admit
any liability therefore. In its compulsory counterclaim, MOPI claimed that CCC
had an outstanding obligation to it, as of 30 November 1982, in the amount of
P1,096,238.51, and that as a consequence of the “frivolous and malicious suit:
which besmirched MOPI’s reputation, it suffered moral damages of not less than
P10,000,000.00, exemplary damages of the same amount, and the incurrence of
attorney’s fees.
ISSUES:
Whether or not Petitioner Mobil is stopped from claiming that no Mobil
BFO remained unused by Continental on 22 October 1982; and that the
deliveries of BFO made by Mobil to Continental before 8 October 1982 were not
contaminated with water.
Whether or not Petitioners can be held liable for the contaminated BFO
delivered on 8 October 1982 on the ground that Country Freight Service, as
carrier-hauler, was an agent of Mobil.
RULING:
The claim that the Court of Appeals “conveniently made an inference that
the subject Continental storage tank contained Mobil BFO deliveries only
because Mobil and Continental agreed to jointly examine the same, “and that
the appellate court had so misapprehended the facts, is unacceptable. The
factual finding that deliveries previous to 08 October 1982 were adulterated BFO
was supported by the 22 October 1982 “joint undertaking.” This document,
witnessed and signed by representatives of both MOPUI and CCC, clearly
showed that a “detailed verification of water contained on all BFO delivered by
MOBIL OIL PHILS., INC., except those that have already been used in cement
operation by CCC,: was undertaken. Implicit from this statement was that there
still was at the time an availability of BFO in the storage tank designated by CCC
for past Mobil deliveries. The same could be said of the second water draining
process, evidence by the second “joint undertaking.” Although done without the
participation of MOPI, the latter, nonetheless, was notified of the “counting”
thrice, the last of which had indicated that failure on MOPI’s part to send a
representative would be tantamount to a waiver of its right to participate
therein.
The appellate court may not thus be faulted for holding that petitioners
and barred from questioning the results of water draining processes conducted
on the MOPI tank in the CCC plant site, in the same manner that MOPI may not
belatedly question the testing procedure theretofore adopted. MOPI cannot be
allowed to turn its back to its own acts (or inactions) to the prejudice of CCC,
which, in good faith, relied upon MOPI’s conduct.
CFS was the contractor of MOPI, not CCC, and the contracted price of the
BFO that CCC paid to MOPI included hauling charges. The presumption laid
down under Article 1523 of the Civil Code that delivery to the carrier should be
deemed to be delivery to the buyer would have no application where, such as in
this case, the sale itself specifically called for delivery by the seller to the buyer
at the latter’s place of business.
WHEREFORE, the herein questioned decision of the Court of Appeals in
AFFIRMED in toto. Costs against petitioners.
TENDER OF PAYMENT OR CONSIGNATION
1. BENOS VS. LAWILAO, 509 S 549
2. PEOPLE’S INDUSTRIAL VS. CA, OCT. 24, 1997
3. ETERNAL GARDENS VS. CS, DEC. 9, 1997
4. RAYOS VS. REYES, 398 SCRA 24
5. CEBU INTERNATIONAL VS. CA, 316 SCRA 488
6. DE MESA VS. CA, OCT. 19, 1999
SPOUSES JAIME BENOS v. SPOUSES GREGORIO LAWILAO
G.R. No. 172259, December 5, 2006
FACTS:
On February 11,1999, petitioner-spouses Benos and
respondent Lawilao executed a Pacto de Retro Sale where Benos
sold their lot and the building erected thereon for P300,000, one-
half of which to be paid in cash to the Benos and the other half to
be paid to the bank to pay off the loans of the Benos which was
secured by the same lot and building. Under the contract, Benos
could redeem the property within 18 months from the date of
execution by returning the contract price, otherwise, the sale would
become irrevocable. After paying the P150,000, Lawilao took
possession of the property, restructured it twicw, eventually the
loan become due and demandable. On August 14, 2000, a son of
Benos and Lawilao paid the bankl but the bank refused. Lawilao
filed for consignation against the bank and deposited the amount of
P159,000.00. RTC declared Lawilao of the ownership of the subject
property, which was affirmed by the Court of Appeals.
ISSUE:
Whether or not the contract of Pacto de Retro Sale be
rescinded by the petitioner
RULING:
In the instant case, records show that Lawilao filed the
petition for consignation against the bank in Civil Case without
notifying the Benos. Hence, Lawilao failed to prove their offer to pay
the balance, even before the filing of the consignation case. Lawilao
never notified the Benos. Thus, as far as the Benos are concerned,
there was no full and complete payment of the contract price which
gives them the right to rescind.
Petition is granted. Court of Appeals decision is reversed
and set aside, that the Pacto de Retro Sale is rescinded and
petitioner are ordered to return the amount of P150,000 to
respondents.
TENDER OF PAYMENT OR CONSIGNATION
PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner
VS. COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION,
respondents.
Oct 24, 1997
G.R. No. 112733
FACTS:
Private respondent Mar-ick Investment Corporation is the exclusive and
registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29,
1961, private respondent entered into six agreements with petitioner People's
Industrial and Commercial Corporation sell to petitioner six subdivision lots. Five
of the agreements, involving similarly stipulate that the petitioner agreed to pay
private respondent for each lot, the amount of P7,333.20 with a down payment
of P480.00. The balance of P6,853.20 shall be payable in 120 equal monthly
installments of P57.11 every 30th of the month, for a period of ten years. With
respect to Lot No. 8, the parties agreed to the purchase price of P7,730.00 with a
down payment of P506.00 and equal monthly installments of P60.20.
After ten years, however, petitioner still had not fully paid for the six lots;
it had paid only the down payment and eight installments, even after private
respondent had given petitioner a grace period of four months to pay the
arrears. As of May 1, 1980, the total amount due to private respondent under
the contract was P214,418.00.
In his letter of March 30, 1980 to Mr. Tomas Siatianum, who signed the
agreements for petitioner, private respondent's counsel protested petitioner's
encroachment upon a portion of its subdivision. It added that petitioner had
failed to abide by its promise to remove the encroachment, or to purchase the
lots involved "at the current price or pay the rentals on the basis of the total
area occupied, all within a short period of time." It also demanded the removal
of the illegal constructions on the property that had prejudiced the subdivision
and its neighbors.
After a series of negotiations between the parties, they agreed to enter
into a new contract to sell 8 involving seven lots. The contract stipulates that
the previous contracts involving the same lots "have been cancelled due to the
failure of the purchaser to pay the stipulated installments." It states further that
the new contract was entered into "to avoid litigation, considering that the
purchaser has already made use of the premises since 1981 to the present
without paying the stipulated installments." The parties agreed that the contract
price would be P423,250.00 with a down payment of P42,325.00 payable upon
the signing of the contract and the balance of P380,925.00 payable in forty-eight
equal monthly amortization payments of P7,935.94. The new contract bears the
date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas
Siatianum issued the checks in the total amount of P37,642.72 to private
respondent.
Private respondent received but did not encash those checks. Instead filed
in the trial court a complaint for accion publiciana de posesion against petitioner
and Tomas Siatianum, as president and majority stockholder of petitioner.
The lower court rendered a decision finding that the original agreements
of the parties were validly cancelled in accordance with provision No. 9 of each
agreement. The parties did not enter into a new they did not sign the draft
contract. Receipt by private respondent of the five checks could not amount to
perfection of the contract because private respondent never encashed and
benefited from those checks, they represented the deposit under the new
contract because petitioner failed to prove that those were monthly installments
that private respondent refused to accept. Thus, the fact that the parties tried
to negotiate a new Contract indicated that they considered the first contract as
"already cancelled." This decision was affirmed by the Court of Appeals.
ISSUE:
Whether there was a tender of payment and consignation in the case.
RULING:
The parties' failure to agree on a fundamental provision of the contract
was aggravated by petitioner's failure to deposit the installments agreed upon.
Neither did it attempt to make a consignation of the installments. As held in the
Adelfa Properties case:
"The mere sending of a letter by the vendee expressing the intention to pay,
without the accompanying payment, is not considered a valid tender of
payment. Besides, a mere tender of payment is not sufficient to compel private
respondents to deliver the property and execute the deed of absolute sale. It is
consignation which is essential in order to extinguish petitioner's obligation to
pay the balance of the purchase price. The rule is different in case of an option
contract or in legal redemption or in a sale with right to repurchase, wherein
consignation is not necessary because these cases involve an exercise of a right
or privilege (to buy, redeem or repurchase) rather than the discharge of an
obligation, hence tender of payment would be sufficient to preserve the right or
privilege. This is because the provisions on consignation are not applicable
when there is no obligation to pay. A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the exercise of a privilege
or a right. Consequently, performance or payment may be effected not by
tender of payment alone but by both tender and consignation."
In the case, petitioner did not lift a finger towards the performance of the
contract other than the tender of down payment. There is no record that it even
bothered to tender payment of the installments or to amend the contract to
reflect the true intention of the parties as regards the number of lots to be sold.
Indeed, by petitioner's inaction, private respondent may not be judicially
enjoined to validate a contract that the former appeared to have taken for
granted. As in the earlier agreements, petitioner ignored opportunities to
resuscitate a contract to sell that were rendered moribund and inoperative by its
inaction.
Petition denied. Decision affirmed.
TENDER OF PAYMENT OR CONSIGNATION
ETERNAL GARDENS MEMORIAL PARK CORPORATION
VS. COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF THE
SEVENTH DAY ADVENTIST
1997 Dec 9
G.R. No. 124554
FACTS:
Petitioner EGMPC and private respondent NPUM entered into a Land
Development Agreement dated October 6, 1976. Under the agreement, EGMPC
was to develop a parcel of land owned by NPUM into a memorial park subdivided
into lots. The parties further agreed that EGMPC had the obligation to remit
monthly to NPUM forty percent (40%) of its net gross collection from the
development of a memorial park on property owned by NPUM. It also provides
for the designation of a depository/trustee bank to act as the depository/trustee
for all funds collected by EGMPC.
Later, two claimants of the parcel of land surfaced Maysilo Estate and the
heirs of a certain Vicente Singson Encarnacion. EGMPC thus filed an action for
interpleader against Maysilo Estate and NPUM. The Singson heirs in turn filed an
action for quieting of title against EGMPC and NPUM.
From these two cases, several proceedings ensued. One such case, from
the interpleader action, EGMPC assailed the appellate court's resolution
requiring "petitioner Eternal Gardens [to] deposit whatever amounts are due
from it under the Land Development Agreement with a reputable bank to be
designated by the respondent court."
The trial court dismissed the cases and the appellate court affirmed
insofar as it dismissed the claims of the intervenors, including the Maysilo
Estate, and the titles of NPUM to the subject parcel of land were declared valid;
and the trial court's decision favor of the Singson heirs was reversed and set
aside. Through the resolution issued by the Supreme Court resolution, the Court
of Appeals proceeded with the disposition of the case and required the parties to
appear at a scheduled hearing on June 16, 1994, "with counsel and accountants,
as well as books of accounts and related records,' to determine the remaining
accrued rights and liabilities of said parties."
The accounting of the parties' respective obligations was referred to the
Court's Accountant, Mrs. Carmencita Angelo, with the concurrence of the parties,
to whom the documents were to be submitted. NPUM prepared and submitted a
Summary of Sales and Total Amounts Due based on the following documents it
likewise submitted to the court. However, EGMPC did not submit any document
whatsoever to aid the appellate court in its mandated task. Thus, the appellate
court declared that EGMPC has waived its right to present the records and
documents necessarily for accounting, and that it will now proceed "to the
mutual accounting required to determine the remaining accrued rights and
liabilities of the said parties…and that the Court will proceed to do what it is
required to do on the basis of the documents submitted by the NPUMC. Ms.
Angelo submitted her Report dated January 31, 1995, to which the appellate
court required the parties to comment on. EGMPC took exception to the
appellate court's having considered it to have waived its right to present
documents. Considering EGMPC's arguments, the court set a hearing date
where NPUM would present its documents "according to the Rules [of Court], and
giving the private respondent [EGMPC] the opportunity to object thereto."
ISSUE:
Whether or not EGMPC is liable for interest because there was still the
unresolved issue of ownership over the property subject of the Land
Development Agreement of October 6, 1976.
RULING:
The Supreme Court held that the argument is without merit. EGMPC
under the agreement had the obligation to remit monthly to NPUM forty percent
(40%) of its net gross collection from the development of a memorial park on
property owned by NPUM. It also provides for the designation of a
depository/trustee bank to act as the depository/trustee for all funds collected by
EGMPC. There was no obstacle, legal or otherwise, to the compliance by EGMPC
of this provision in the contract, even on the affectation that it did not know to
whom payment was to be made.
Even disregarding the agreement, EGMPC cannot "suspend" payment on
the pretext that it did not know who among the subject property's claimants was
the rightful owner. It had a remedy under the New Civil Code of the Philippines
to give in consignation the amounts due, as these fell due.
Consignation produces the effect of payment. The rationale for
consignation is to avoid the performance of an obligation becoming more
onerous to the debtor by reason of causes not imputable to him. For its failure
to consign the amounts due, EGMPC’s obligation to NPUM necessarily became
more onerous as it became liable for interest on the amounts it failed to remit.
Thus, the Court of Appeals correctly held Eternal Gardens liable for
interest at the rate of twelve percent (12%). The withholding of the amounts
due under the agreement was tantamount to a forbearance of money.

TENDER OF PAYMENT OR CONSIGNATION
SPOUSES TEOFILO and SIMEONA RAYOS, and GEORGE RAYOS
VS. DONATO REYES, SATURNINO REYES, TOMASA R. BUSTAMANTE and
TORIBIA R. CAMELO
G.R. No. 150913
February 20, 2003
398 SCRA 25
FACTS:
At stake in this petition for review is the ownership of 3 parcels of
unregistered land with an area of approximately 130,947 square meters situated
in Brgy. Sapa, Burgos, Pangasinan, the identities of which are not disputed.
The 3 parcels were formerly owned by the spouses Francisco and
Asuncion Tazal who on 1 September 1957 sold them for P724.00 to respondents’
predecessor-in-interest, one Mamerto Reyes, with right to repurchase within 2
years from date thereof by paying to the vendee the purchase price and all
expenses incident to their reconveyance. After the sale the vendee a retro took
physical possession of the properties and paid the taxes thereon.
The otherwise inconsequential sale became controversial when 2 of the 3
parcels were again sold on 24 December 1958 by Francisco Tazal for P420.00 in
favor of petitioners’ predecessor-in-interest Blas Rayos without first availing of
his right to repurchase the properties.
In the meantime, on 1 September 1959 the conventional right of
redemption in favor of spouses Francisco and Asuncion Tazal expired without the
right being exercised by either the Tazal spouses or the vendee Blas Rayos.
After the expiration of the redemption period, Francisco Tazal attempted
to repurchase the properties from Mamerto Reyes by asserting that the 1
September 1957 deed of sale with right of repurchase was actually an equitable
mortgage and offering the amount of P724.00 to pay for the alleged debt. But
Mamerto Reyes refused the tender of payment and vigorously claimed that their
agreement was not an equitable mortgage.
On 9 May 1960 Francisco Tazal filed a complaint with the Court of First
Instance of Pangasinan against Mamerto Reyes for the declaration of the 1
September 1957 transaction as a contract of equitable mortgage. He also
prayed for an order requiring defendant Mamerto Reyes to accept the amount of
P724.00 which he had deposited on 31 May 1960 with the trial court as full
payment for his debt, and canceling the supposed mortgage on the 3 parcels of
land with the execution of the corresponding documents of reconveyance in his
favor. Defendant denied plaintiff’s allegations and maintained that their contract
was a sale with right of repurchase that had long expired.
On 22 June 1961 Francisco Tazal again sold the third parcel of land
previously purchased by Mamerto Reyes to petitioner-spouses Teofilo and
Simeona Rayos for P400.00. On 1 July 1961 petitioner-spouses bought from
Blas Rayos for P400.00 the 2 lots that Tazal had sold at the first instance to
Mamerto Reyes and thereafter to Blas Rayos. Curiously, these contracts of sale
in favor of petitioner-spouses were perfected while the aforementioned case was
pending before the trial court.
ISSUE:
Whether or not the consignation made by the petitioners is valid.
RULING:
In order that consignation may be effective the debtor must show that (a)
there was a debt due; (b) the consignation of the obligation had been made
because the creditor to whom a valid tender of payment was made refused to
accept it; (c) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (d) the amount due was placed
at the disposal of the court; and, (e) after the consignation had been made the
person interested was notified thereof.
In the instant case, petitioners failed, first, to offer a valid and
unconditional tender of payment; second, to notify respondents of the intention
to deposit the amount with the court; and third, to show the acceptance by the
creditor of the amount deposited as full settlement of the obligation, or in the
alternative, a declaration by the court of the validity of the consignation. The
failure of petitioners to comply with any of these requirements rendered the
consignation ineffective.
Mamerto Reyes was therefore within his right to refuse the tender of
payment offered by petitioners because it was conditional upon his waiver of the
two (2)-year redemption period stipulated in the deed of sale with right to
repurchase.
Wherefore, the petition for review is denied.

TENDER OF PAYMENT OR CONSIGNATION
CEBU INTERNATIONAL FINANCE CORPORATION VS. COURT of APPEALS
G. R. No. 123031. October 12, 1999
316 SCRA 488
FACTS:
Cebu International Finance Corporation (CIFC) is a quasi-banking
institution engaged in money market operations. On April 25, 1991, private
respondent Vicente Alegre invested with CIFC P500, 000.00 in cash. Petitioner
issued a promissory note to mature on May 27, 1991. The note for P516, 238. 67
covered private respondent’s placement plus interest at 20.5% for 32 days. On
May 27, 1991, CIFC issued BPI Check No. 513397 for P514, 390.94 in favor of the
private respondent as proceeds of his mature investment plus interest. The
check was drawn from petitioner’s current account maintained with Bank of the
Philippine Islands (BPI) main branch at Makati City. On June 17, 1991, private
respondent’s wife deposited the check with Rizal Commercial Banking Corp.
(RCBC) in Puerto Princesa, Palawan. BPI dishonored the check, that the check is
subject of an investigation. BPI took custody of the check pending an
investigation of several counterfeit checks drawn against CIFC’s checking
account. BPI used the check to trace the perpetrators of the forgery.
Immediately, private respondent notified CIFC of the dishonored check and
demanded that he be paid in cash. CIFC denied the request and instead
instructed private respondent to wait for its ongoing bank reconciliation with BPI.
Private respondent made a formal demand of his money market placement. In
turn, CIFC promised to replace the check but required an impossible condition
that the original check must first be surrendered.
On February 25, 1992, Alegre filed a complaint for recovery of sum of
money against petitioner. On July 13, 1992, CIFC sought to recover its lost funds
and formally filed against BPI a separate civil action for collection of a sum of
money with RTC- Makati Branch. It alleged that BPI unlawfully deducted from
CIFC’s checking account, counterfeit checks amounting to P1, 724, 364. 58. The
action included the prayer to collect the amount of the check paid to Alegre but
dishonored by BPI. CIFC in its response to Alegre’s complaint filed for leaver of
court and impleaded BPI to enforce a right, for contribution and indemnity. The
court granted CIFC’s motion but upon the motion to dismiss the third-party
complaint filed by BPI, the court dismissed the third-party complaint. During the
hearing, BPI through its Manager, testified that on July 16, 1993, BPI encashed
and deducted the said amount from the account of CIFC, but the proceeds, as
well as the check remained in BPI’s custody. This was alleged in accordance with
the Compromise Agreement it entered with CIFC to end the litigation in RTC-
Makati Branch. On July 27, 1993, BPI filed a separate collection suit against
Alegre, alleging that he had connived with other persons to forge several checks
of BPI’s client, amounting to P1, 724, 364.58. On September 27, 1993, RTC-
Makati Branch rendered its judgment in favor of private respondent. CIFC
appealed from the said decision, but the appellate court affirmed in toto the
decision of the lower court.
ISSUE:
Whether or not the petitioner is still liable for the payment of check even
though BPI accepted the instrument
RULING:
The Supreme Court held that the money market transaction between the
petitioner and private respondent is in the nature of loan. In a loan transaction,
the obligation to pay a sum certain in money may be paid in money, which is the
legal tender or, by the use of a check. A check is not a legal tender, and
therefore cannot constitute valid tender of payment. In effect, CIFC has not yet
tendered a valid payment of its obligation to the private respondent. Tender of
payment involves a positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the former’s obligation and
demanding that the latter accept the same. Tender of payment cannot be
presumed by a mere inference from surrounding circumstances. Hence, CIFC is
still liable for the payment of the check.
Wherefore, the assailed decision is affirmed and the petition is denied.
TENDER OF PAYMENT OR CONSIGNATION
DOLORES LIGAYA DE MESA, petitioner, vs. THE COURT OF APPEALS,
OSSA HOUSE, INC. AND DEVELOPMENT BANK OF THE
PHILIPPINES,respondents
G.R. No. 106467-68
October 19, 1999
FACTS:
Petitioner Dolores Ligaya de Mesa owns several parcels of land in Makati,
Pasay City, Cavite, and General Santos City which were mortgaged to the
Development Bank of the Philippines (DBP) as security for a loan she obtained
from the bank. Failing to pay her mortgage debt, all her mortgaged properties
were foreclosed and sold at public auction held on different days.
On April 30, 1977, the Makar property was sold and the corresponding
certificate of sale inscribed on March 10, 1978. On August 25, 1977, the Naic,
Cavite property was sold and the certificate of sale registered on the same day.
On August 30, 1977, the two (2) parcels of land in Makati were sold at public
auction and the certificate of sale was inscribed on November 25, 1977. And on
January 12, 1978, the three (3) parcels of land in Pasay City were also sold and
the certificate of sale was recorded on the same date. In all the said auction
sales, DBP was the winning bidder.
On October 23, 1978, Mrs. de Mesa, under a “Deed of Sale with Assumption
of Mortgage,” sold the foreclosed properties to private respondent OSSA under
the condition that the latter was to assume the payment of the mortgage debt
by the repurchase of all the properties mortgaged on installment basis, with an
initial payment of P90,000.00 representing 20% of the total obligation.
On March 11, 1981, petitioner de Mesa notified private respondent OSSA
that she was rescinding the Deed of Sale with Assumption of Mortgage she
executed in favor of the latter on the ground that OSSA failed to comply with the
terms and conditions of their agreement, particularly the payment of
installments to the Development Bank of the Philippines, the discharge and
cancellation of the mortgage on the property listed in item IV of the first whereas
clause, and the payment of the balance of more or less P45,000.00 to petitioner,
representing the difference between the purchase price of subject properties
and the actual obligation to the DBP.
On August 5, 1981, DBP refused to accept the 9th quarterly installment paid
by OSSA, prompting the latter to file against DBP and the petitioner, on August
11, 1981, Civil Case No. 42381 for specific performance and consignation, with
the then Court of First Instance of Pasig, Rizal, depositing in said case the
amount of P15,824.92.
After trial, the lower court came out with a Decision for the private
respondent OSSA. The petitioner appealed to the Court of Appeals which handed
down on March 31, 1992, its decision modifying the challenged decision.
ISSUE:
Whether or not the Court erred in ruling that the mandatory requirements
of the Civil Code on consignation can be waived by the trial court or whether or
not the requirements of Articles 1256 to 1261 can be 'relaxed' or 'substantially
complied with'.
RULING:
Petitioner argues that there was no notice to her regarding OSSA's
consignation of the amounts corresponding to the 12th up to the 20th quarterly
installments. The records, however, show that several tenders of payment were
consistently turned down by the petitioner, so much so that the respondent
OSSA found it pointless to keep on making formal tenders of payment and
serving notices of consignation to petitioner. Moreover, in a motion dated May
7, 1987, OSSA prayed before the lower court that it be allowed to deposit by way
of consignation all the quarterly installments, without
making formal tenders of payment and serving notice of consignation, which
prayer was granted by the trial court in the Order dated July 3, 1982. The
motion and the subsequent court order served on the petitioner in the
consignation proceedings sufficiently served as notice to petitioner of OSSA's
willingness to pay the quarterly installments and the consignation of such
payments with the court. For reasons of equity, the procedural requirements of
consignation are deemed substantially complied with in the present case.
Petitioner also insists that there was no valid tender of payment because
the amount tendered was P34,363.08, not P51,243.26, and assuming ex gratia
argumenti that it was the correct amount, the tender thereof was still not valid,
the same having been made by check. This claim, however, does not accord
with the records on hand. Thus, the Court of Appeals ratiocinated:
"The 'Deed of Sale with Assumption of Mortgage', was for a consideration
of P500,000.00, from which shall be deducted de Mesas's outstanding obligation,
with the DBP pegged as of May 10, 1978, by the parties themselves, at
P455,636.92. This amount of P455,636.92 owing DBP, is what OSSA agreed to
assume. What remained to be paid de Mesa was P44,636.08, but OSSA made an
advance payment of P10,000.00, hence the remaining amount payable to de
Mesa is P34,363.08, which OSSA tendered in cash. It is thus beyond cavil that
the respondent OSSA tendered the correct amount, the tender of which was in
cash and not by check, as theorized by petitioner.
The Court of Appeals erred not in affirming the decision of the trial court
of origin.
 The petition is DENIED and the assailed Decision of the Court of Appeals in
CA-G.R. Nos. 19145 and 19156 dated March 31, 1992 AFFIRMED.
LOSS OF THE PRESTATION: KINDS OF LOSS
1. OCCENA VS. CA, OCT. 29, 1976
2. ORTIGAS VS. FEATI BANK, 94 SCRA 533
OCCENA VS. JABSON, COURT OF APPEALS AND TROPICAL HOMES, INC
73 SCRA 637
NO. L-44349, OCTOBER 29, 1976
FACTS:
Private respondent Tropical Homes, Inc had a subdivision contract with
petitioners who are the owners of the land subject of subdivision development
by private respondent. The contract stipulated that the petitioners’ fixed and
sole share and participation is the land which is equivalent to forty percent of all
cash receipts from the sale of the subdivision lots. When the development costs
increased to such level not anticipated during the signing of the contract and
which threatened the financial viability of the project as assessed by the private
respondent, respondent filed at the lower court a complaint for the modification
of the terms and conditions of the contract by fixing the proper shares that
should pertain to the parties therein out of the gross proceeds from the sales of
the subdivision lots. Petitioners moved for the dismissal of the complaint for lack
of cause of action. The lower court denied the motion for dismissal which was
upheld by the CA based on the civil code provision that “when the service has
become so difficult as to be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in part”. Insisting that
the worldwide increase in prices cited by private respondent does not constitute
a sufficient cause of action for the modification of the terms and conditions of
the contract, petitioners filed the instant petition.
ISSUE:
Whether or not private respondent may demand modification of the terms
of the contract on the ground that the prestation has manifestly come beyond
the contemplation of the parties.
RULING:
If the prayer of the private respondent is to be released from its
contractual obligations on account of the fact that the prestation has become
beyond the contemplation of the parties, then private respondent can rely on
said provision of the civil code. But the prayer of the private respondent was for
the modification of their valid contract. The above-cited civil code provision
does not grant the court the power to remake, modify, or revise the contract or
to fix the division of the shares between the parties as contractually stipulated
with the force of law between the parties. Therefore, private respondent’s
complaint for modification of its contract with petitioner must be dismissed. The
decision of respondent court is reversed.
LOSS OF THE PRESTATION: KINDS OF LOSS
ORTIGAS & CO., LIMITED PARTNERSHIP VS. FEATI BANK AND TRUST CO.
G.R. No. L-24670
December 14, 1979
FACTS:
Plaintiff is a limited partnership and defendant Feati Bank and Trust Co., is
a corporation duly organized and existing in accordance with the laws of the
Philippines. Plaintiff is engaged in real estate business, developing and selling
lots to the public, particularly the Highway Hills Subdivision along EDSA,
Mandaluyong, Rizal. On March 4, 1952, plaintiff, as vendor, and Augusto Padilla
and Natividad Angeles, as vendees, entered into separate agreements of sale on
installments over two parcels of land. On July 19, 1962, the said vendees
transferred their rights and interests over the aforesaid lots in favor of one
Emma Chavez. Upon completion of payment of the purchase price, the plaintiff
executed the corresponding deeds of sale in favor of Emma Chavez. Both the
agreements (of sale on installment) and the deeds of sale contained some
stipulations or restrictions which were later annotated in TCT Nos. 101509 and
101511 of the Register of Deeds of Rizal, covering the said lots and issued in the
name of Emma Chavez. Eventually, defendant-appellee acquired Lots Nos. 5
and 6, with TCT Nos. 101613 and 106092 issued in its name, respectively and
the building restrictions were also annotated therein. Defendant-appellee
bought Lot No. 5 directly from Emma Chavez, "free from all liens and
encumbrances as stated in Annex 'D', 5 while Lot No. 6 was acquired from
Republic Flour Mills through a "Deed of Exchange," Annex "E". TCT No. 101719
in the name of Republic Flour Mills likewise contained the same restrictions,
although defendant-appellee claims that Republic Flour Mills purchased the said
Lot No. 6 "in good faith. free from all liens and encumbrances," as stated in the
Deed of Sale, Annex "F" between it and Emma Chavez.
 Plaintiff-appellant claims that the restrictions annotated on TCT Nos. With regard to the contention that said resolution cannot nullify the
101509, 101511, 101719, 101613, and 106092 were imposed as part of its contractual obligations assumed by the defendant-appellee referring to the
general building scheme designed for the beautification and development of the restrictions incorporated in the deeds of sale and later in the corresponding
Highway Hills Subdivision which forms part of the big landed estate of plaintiff- Transfer Certificates of Title issued to defendant-appellee, it should be stressed,
appellant where commercial and industrial sites are also designated or that while non-impairment of contracts is constitutionally guaranteed, the rule is
established. not absolute, since it has to be reconciled with the legitimate exercise of police
power.
Defendant-appellee, upon the other hand, maintains that the area along
Resolution No. 27, s-1960 declaring the western part of highway , now
the western part of EDSA from Shaw Boulevard to Pasig River, has been declared
EDSA, from Shaw Boulevard to the Pasig River as an industrial and commercial
a commercial and industrial zone, per Resolution No. 27, dated February 4, 1960
zone, was obviously passed by the Municipal Council of Mandaluyong, Rizal in
of the Municipal Council of Mandaluyong, Rizal. It alleges that plaintiff-appellant
the exercise of police power to safeguard or promote the health, safety, peace,
'completely sold and transferred to third persons all lots in said subdivision
good order and general welfare of the people in the locality. Judicial notice may
facing EDSA" and the subject lots thereunder were acquired by it "only on July
be taken of the conditions prevailing in the area, especially where lots Nos. 5
23, 1962 or more than two (2) years after the area ... had been declared a
and 6 are located. The lots themselves not only front the highway; industrial and
commercial and industrial zone. On or about May 5, 1963, defendant-appellee
commercial complexes have flourished about the place. EDSA, a main traffic
began laying the foundation and commenced the construction of a building on
artery which runs through several cities and municipalities in the Metro Manila
Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendant-
area, supports an endless stream of traffic and the resulting activity, noise and
appellee claims could also be devoted to, and used exclusively for, residential
pollution are hardly conducive to the health, safety or welfare of the residents in
purposes. The following day, plaintiff-appellant demanded in writing that
its route. Having been expressly granted the power to adopt zoning and
defendant-appellee stop the construction of the commerical building on the said
subdivision ordinances or regulations, the municipality of Mandaluyong, through
lots. The latter refused to comply with the demand, contending that the building
its Municipal 'council, was reasonably, if not perfectly, justified under the
was being constructed in accordance with the zoning regulations, defendant-
circumstances, in passing the subject resolution.
appellee having filed building and planning permit applications with the
Municipality of Mandaluyong, and it had accordingly obtained building and
The motives behind the passage of the questioned resolution being
planning permits to proceed with the construction.
reasonable, and it being a " legitimate response to a felt public need," not
whimsical or oppressive, the non-impairment of contracts clause of the
ISSUE:
Constitution will not bar the municipality's proper exercise of the power.
Whether or not Resolution No. 27 s-1960 is a valid exercise of police
power; and whether or not the said Resolution can nullify or supersede the
It is, therefore, clear that even if the subject building restrictions were
contractual obligations assumed by defendant-appellee.
assumed by the defendant-appellee as vendee of Lots Nos. 5 and 6, in the
corresponding deeds of sale, and later, in Transfer Certificates of Title Nos.
RULING:
101613 and 106092, the contractual obligations so assumed cannot prevail over
The validity of the resolution was admitted at least impliedly, in the
Resolution No. 27, of the Municipality of Mandaluyong, which has validly
stipulation of facts below when plaintiff-appellant did not dispute the same.
exercised its police power through the said resolution. Accordingly, the building
Granting that Resolution No. 27 is not an ordinance, it certainly is a regulatory
restrictions, which declare Lots Nos. 5 and 6 as residential, cannot be enforced.
measure within the intendment or ambit of the word "regulation" under the
provision. As a matter of fact the same section declares that the power exists
"(A)ny provision of law to the contrary notwithstanding ... "
REBUS SIC STANTIBUS
 1. MAGAT VS. CA, 337 SCRA 298
2. PNCC VS. CA, 272 SCRA 183
3. NATELCO VS. CA, 230 SCRA 351
MAGAT VS. COURT OF APPEALS
337 SCRA 298
FACTS:
Private respondent Santiago A. Guerrero was President and Chairman of
"Guerrero Transport Services", a single proprietorship. Sometime in 1972,
Guerrero Transport Services won a bid for the operation of a fleet of taxicabs
within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to
"provide radio-controlled taxi service within the U.S. Naval Base, Subic Bay,
utilizing as demand requires . . . 160 operational taxis consisting of four wheel,
four-door, four passenger, radio controlled, meter controlled, sedans, not more
than one year . . . "
On September 22, 1972, with the advent of martial law, President
Ferdinand E. Marcos issued Letter of Instruction No. 1.
On September 25, 1972, pursuant to the aforequoted Letter of Instruction,
the Radio Control Office issued Administrative Circular No. 4: Subject:
Suspending the acceptance and processing of applications for radio station
construction permits and for permits to own and/or possess radio transmitters or
transceivers.
On September 25, 1972, Guerrero and Victorino D. Magat, as General
Manager of Spectrum Electronic Laboratories, a single proprietorship, executed a
letter-contract for the purchase of transceivers at a quoted price of
US$77,620.59, FOB Yokohoma. Victorino was to deliver the transceivers within
60 to 90 days after receiving notice from Guerrero of the assigned radio
frequency, "taking note of Government Regulations.” The contract was signed
and Victorino contacted his Japanese supplier, Koide & Co., Ltd. and placed an
order for the transceivers.
On September 29, 1972, Navy Exchange Officer, A. G. Mason confirmed
that Guerrero won the bid for the commercial transportation contract. On
October 4, 1972, middle man and broker Isidro Q. Aligada of Reliance Group
Engineers, Inc. , wrote Victorino, informing him that a radio frequency was not
yet assigned to Guerrero and that government regulations might complicate the
importation of the transceivers. However, in the same letter, Victorino was
advised to advise his supplier "to proceed (with) production pending frequency
information." Victorino was also assured of Guerrero's financial capability to
comply with the contract. On October 6, 1972, Guerrero informed Aligada of the
frequency number assigned by Subic Naval Base authorities. Aligada was
instructed to "proceed with the order thru Spectrum Electronics Laboratories."
On October 7, 1972, Aligada informed Magat of the assigned frequency number.
Aligada also advised Victorino to "proceed with the order upon receipt of letter of
credit." On January 10, 1973, Guerrero applied for a letter of credit with the
Metropolitan Bank and Trust Company. This application was not pursued.
On March 27, 1973, Victorino, represented by his lawyer, Atty. Sinesio S.
Vergara, informed Guererro that the order with the Japanese supplier has not
been canceled. Should the contract be canceled, the Japanese firm would forfeit
30% of the deposit and charge a cancellation fee in an amount not yet known,
Guerrero to bear the loss. Further, should the contract be canceled, Victorino
would demand an additional amount equivalent to 10% of the contract price.
Unable to get a letter of credit from the Central Bank due to the refusal of
the Philippine government to issue a permit to import the transceivers, Guerrero
commenced operation of the taxicabs within Subic Naval Base, using radio units
borrowed from the U.S. government. Victorino thus canceled his order with his
Japanese supplier.
On May 22, 1973, Victorino filed with the Regional Trial Court, Makati a
complaint for damages arising from breach of contract against Guerrero. On
June 7, 1973, Guerrero moved to dismiss the complaint on the ground that it did
not state a cause of action. On June 16, 1973, the trial court granted the motion
and dismissed the complaint. On July 11, 1973, Victorino filed a petition for
review on certiorari with this Court assailing the dismissal of the complaint.
On April 20, 1983, the Supreme Court ruled that the complaint sufficiently
averred a cause of action. The Court set aside the order of dismissal and
remanded the case to the trial court for further proceedings. On November 27,
1984, the trial court ordered that the case be archived for failure of Victorino to
prosecute. On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia, Ronald
and Dennis Magat, moved to reinstate the case and to substitute Victorino in its
prosecution. Apparently, Victorino died on February 18, 1985. On April 29,
1985, the trial court granted the motion.
On July 12, 1991, the trial court decided in favor of the heirs of Victorino
and ordered Guerrero to pay temperate, moral and exemplary damages, and
attorney's fees. On August 21, 1991, Guerrero appealed to the Court of Appeals.
However it was dismissed. On October 26, 1995, the heirs of Victorino filed with
the Court of Appeals a motion for reconsideration. On March 12, 1996, the Court
of Appeals denied the motion for reconsideration.
ISSUES:
Whether or not the transceivers were contraband items prohibited by the
LOI and Administrative Circular to import; hence, the contract is void.
Whether or not the contract was breached.
RULING:
Anent the 1st issue, NO. The contract was not void ab initio. Nowhere in
the LOI and Administrative Circular is there an express ban on the importation of
transceivers. The LOI and Administrative Circular did not render “radios and
transceivers” illegally per se. The Administrative Circular merely ordered the
Radio Control Office to suspend the acceptance and processing… of
application… for permits to possess, own, transfer, purchase and sell radio
transmitters and transceivers… therefore; possession and importation of the
radio transmitters and transceivers was legal provided one had the necessary
license for it. The LOI and Administrative Circular did not render the transceivers
outside the commerce of man. They were valid objects of the contract.
Anent the 2nd issue, NO. The contract was not breached. Affirming the
validity of the contract, the law provides that when the service (required by the
contract) has become so manifestly beyond the contemplation of the parties, the
obligor may also be released there from in whole or in parts. Here, Guerrero’s
inability to secure a letter of credit and to comply with his obligation was a direct
consequence of the denial of the permit to import. For this, he cannot be
faulted. Even if the Court assumes that there was a breach of contract,
damages cannot be awarded. Damnum absque injuria comes into the fore.
REBUS SIC STANTIBUS
PNCC VS. CA
272 SCRA 183
FACTS:
On 18 November 1985, private respondents and petitioner entered into a
contract of lease of a parcel of land owned by the former. The terms and
conditions of said contract of lease are as follows: a) the lease shall be for a
period of five (5) years which begins upon the issuance of permit by the Ministry
of Human Settlement and renewable at the option of the lessee under the terms
and conditions, b) the monthly rent is P20, 000.00 which shall be increased
yearly by 5% based on the monthly rate, c) the rent shall be paid yearly in
advance, and d) the property shall be used as premises of a rock crushing plan.
On January 7, 1986, petitioner obtained permit from the Ministry which
was to be valid for two (2) years unless revoked by the Ministry. Later,
respondent requested the payment of the first annual rental. But petitioner
alleged that the payment of rental should commence on the date of the issuance
of the industrial clearance not on the date of signing of the contract. It then
expressed its intention to terminate the contract and decided to cancel the
project due to financial and technical difficulties. However, petitioner refused to
accede to respondent’s request and reiterated their demand for the payment of
the first annual rental. But the petitioner argued that it was only obligated to
pay P20, 000.00 as rental for one month prompting private respondent to file an
action against the petitioner for specific performance with damages before the
RTC of Pasig. The trial court rendered decision in favor of private respondent.
Petitioner then appealed the decision of the trial court to the Court of Appeals
but the later affirmed the decision of the trial court and denied the motion for
reconsideration.
ISSUE:
Whether or not petitioner can avail of the benefit of Article 1267 of the
New Civil Code.
RULING:
NO. The petitioner cannot take refuge of the said article. Article 1267 of
the New Civil Code provides that when the service has become so difficult as to
manifestly beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part. This article, which enunciates the
doctrine of unforeseen events, is not, however an absolute application of the
principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the
risks of unfavorable developments. It is therefore only in absolutely exceptional
chances of circumstances that equity demands assistance for the debtor. The
principle of rebus sic stantibus neither fits in with the facts of the case. Under
this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract also ceases to exist.
 In this case, petitioner averred that three (3) abrupt change in the political
climate of the country after the EDSA Revolution and its poor financial condition
rendered the performance of the lease contract impractical and inimical to the
corporate survival of the petitioner. However, as held in Central Bank v. CA,
mere pecuniary inability to fulfill an engagement does not discharge a
contractual obligation, nor does it constitute a defense of an action for specific
performance.
REBUS SIC STANTIBUS
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY,
petitioners, VS. THE COURT OF APPEALS AND CAMARINES SUR II
ELECTRIC COOPERATIVE, INC. (CASURECO II), respondents
1994 Feb 24
230 SCRA 351
FACTS:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company
rendering local as well as long distance service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private
corporation established for the purpose of operating an electric power service in
the same city.
On November 1, 1977, the parties entered into a contract for the use by
petitioners in the operation of its telephone service the electric light posts of
private respondent in Naga City. In consideration therefor, petitioners agreed to
install, free of charge, ten (10) telephone connections for the use by private
respondent. After the contract had been enforced for over ten (10) years,
private respondent filed with the Regional Trial Court against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided
in favor of petitioners; that it is not in conformity with the guidelines of the
National Electrification Administration (NEA); that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them thereon have
become much heavier with the increase in the volume of their subscribers; that
a post now costs as much as P2,630.00; so that justice and equity demand that
the contract be reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that starting with
the year 1981, petitioners have used 319 posts outside Naga City, without any
contract with it; that at the rate of P10.00 per post, petitioners should pay
private respondent for the use thereof the total amount of P267,960.00 from
1981 up to the filing of its complaint; and that petitioners had refused to pay
private respondent said amount despite demands. And as third cause of action,
private respondent complained about the poor servicing by petitioners.
The trial court ruled, as regards private respondent’s first cause of action,
that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the
telephones also in Naga City. And taking into consideration the guidelines of the
NEA on the rental of posts by telephone companies and the increase in the costs
of such posts, the trial court opined that a monthly rental of P10.00 for each post
of private respondent used by petitioners is reasonable, which rental it should
pay from the filing of the complaint in this case on January 2, 1989. And in like
manner, private respondent should pay petitioners from the same date its
monthly bills for the use and transfers of its telephones in Naga City at the same
rate that the public are paying.
On private respondent's second cause of action, the trial court found that
the contract does not mention anything about the use by petitioners of private
respondent's posts outside Naga City. Therefore, the trial court held that for
reason of equity, the contract should be reformed by including therein the
provision that for the use of private respondent's posts outside Naga City,
petitioners should pay a monthly rental of P10.00 per post, the payment to start
on the date this case was filed, or on January 2, 1989, and private respondent
should also pay petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989. And with respect to private
respondent's third cause of action, the trial court found the claim not sufficiently
proved.
The Court of Appeals affirmed the decision of the trial court, but based on
different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable
and (2) that the contract was subject to a potestative condition which rendered
said condition void.
ISSUE:
Whether or not the principle of Rebus Sic Stantibus is applicable in the
case at bar.
RULING:
 No. Article 1267 speaks of "service" which has become so difficult.
Taking into consideration the rationale behind this provision, the term "service"
should be understood as referring to the "performance" of the obligation.
In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a bare reading of this article reveals
that it is not a requirement thereunder that the contract be for future service
with future unusual change. According to Senator Arturo M. Tolentino, Article
1267 states in our law the doctrine of unforseen events. This is said to be based
on the discredited theory of rebus sic stantibus in public international law; under
this theory, the parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to exist.
Considering practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to relief in favor of
the party prejudiced.
The allegations in private respondent's complaint and the evidence it has
presented sufficiently made out a cause of action under Article 1267. The Court,
therefore, release the parties from their correlative obligations under the
contract. However, the disposition of the present controversy does not end
here. The Court has to take into account the possible consequences of merely
releasing the parties therefrom: petitioners will remove the telephone
wires/cables in the posts of private respondent, resulting in disruption of their
essential service to the public; while private respondent, in consonance with the
contract will return all the telephone units to petitioners, causing prejudice to its
business.
The Court shall not allow such eventuality. Rather, the Court requires, as
ordered by the trial court: 1) petitioners to pay private respondent for the use of
its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where petitioners use private respondent's
posts, the sum of ten (P10.00) pesos per post, per month, beginning January,
1989; and 2)private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989.
The peculiar circumstances of the present case, as distinguished further from
the Occeña case, necessitates exercise of a equity jurisdiction. By way of
emphasis, the Court reiterates the rationalization of respondent court that:
". . . In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to
avoid unjust enrichment by appellant at the expense of plaintiff . . . "
Decision affirmed.
REQUISITES OF CONDONATION – NOT INOFFICIOUS
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner,
VS. THE COURT OF APPEALS and ASSOCIATED BANK, respondents
1994 Aug 19
235 SCRA 494
FACTS:
Sometime in 1979, petitioner applied for and was granted several financial
accommodations amounting to P1,300,000.00 by respondent Associated Bank.
The loans were evidence and secured by four (4) promissory notes, a real estate
mortgage covering three parcels of land and a chattel mortgage over petitioner's
stock and inventories. Unable to settle its obligation in full, petitioner requested
for, and was granted by respondent bank, a restructuring of the remaining
indebtedness which then amounted to P1,057,500.00, as all the previous
payments made were applied to penalties and interests.
To secure the re-structured loan of P1,213,400.00, three new promissory
notes were executed by Trans-Pacific. The mortgaged parcels of land were
substituted by another mortgage covering two other parcels of land and a
chattel mortgage on petitioner's stock inventory. The released parcels of land
were then sold and the proceeds amounting to P1,386,614.20, according to
petitioner, were turned over to the bank and applied to Trans-Pacific's
restructured loan. Subsequently, respondent bank returned the duplicate
original copies of the three promissory notes to Trans-Pacific with the word
"PAID" stamped thereon. Despite the return of the notes, or on December 12,
1985, Associated Bank demanded from Trans-Pacific payment of the amount of
P492,100.00 representing accrued interest on PN No. TL-9077-82. According to
the bank, the promissory notes were erroneously released. Initially, Trans-
Pacific expressed its willingness to pay the amount demanded by respondent
bank. Later, it had a change of heart and instead initiated an action before the
Regional Trial Court for specific performance and damages. There it prayed that
the mortgage over the two parcels of land be released and its stock inventory be
lifted and that its obligation to the bank be declared as having been fully paid.
After trial, the court a quo rendered judgment in favor of Trans-Pacific. The
appellate court which, as aforesaid, reversed the decision of the trial court.
ISSUE:
Whether or not petitioner has indeed paid in full its obligation to
respondent bank.
RULING:
No. The Court found no reversible error committed by the appellate court
in disposing of the appealed decision. As gleaned from the decision of the court
a quo, judgment was rendered in favor of petitioner on the basis of
presumptions. The above disquisition finds no factual support, however, per
review of the records. The presumption created by the Art. 1271 of the Civil
Code is not conclusive but merely prima facie. If there be no evidence to the
contrary, the presumption stands. Conversely, the presumption loses its legal
efficacy in the face of proof or evidence to the contrary.
In the case at bar, the Court finds sufficient justification to overthrow the
presumption of payment generated by the delivery of the documents evidencing
petitioners’ indebtedness.
It may not be amiss to add that Article 1271 of the Civil Code raises a
presumption, not of payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally would be called for to
prove payment. The rationale for allowing the presumption of renunciation in
the delivery of a private instrument is that, unlike that of a public instrument,
there could be just one copy of the evidence of credit. Where several originals
are made out of a private document, the intendment of the law would thus be to
refer to the delivery only of the original rather than to the original duplicate of
which the debtor would normally retain a copy.
Petition denied
IMPLIED CONDONATION – PRESUMPTION OF DELIVERY
1. DALUPAN VS. HARDEN, NOV. 27, 1951
2. LOPEZ LISO VS. TAMBUNTING, 33 PHIL. 226
DALUPAN VS. HARDEN
1951 Nov 27
FACTS:
The case is an appeal taken from an order of the First Instance of Manila
dated May 19, 1950, setting aside the writs of execution and garnishment issued
to the sheriff of Manila commanding him to levy on two (2) checks, one for
P9,028.50, and another for P24,546.00, payable to Fred M. Harden which were
then in possession of the receiver appointed in case involving the liquidation of
the conjugal partnership of the spouses Fred M. Harden and Esperanza P. de
Harden.
On August 26, 1948, plaintiff filed an action against the defendant for the
collection of P113,837.17, with interest thereon from the filing of the complaint,
which represents fifty (50) per cent of the reduction plaintiff was able to secure
from the Collector of Internal Revenue in the amount of unpaid taxes claimed to
be due from the defendant. Defendant acknowledged this claim and prayed that
judgment be rendered accordingly. The receiver in the liquidation of case No. R-
59634 and the wife of the defendant, Esperanza P. de Harden, filed an answer in
intervention claiming that the amount sought by the plaintiff was exorbitant and
prayed that it be reduced to 10 per cent of the rebate. By reason of the
acquiescence of the defendant to the claim on one hand, and the opposition of
the receiver and of the wife on the other, an amicable settlement was concluded
by the plaintiff and the intervenor whereby it was agreed that the sum of
P22,767.43 be paid to the plaintiff from the funds under the control of the
receiver "and the balance of P91,069.74 shall be charged exclusively against the
defendant Fred M. Harden from whatever share he may still have in the conjugal
partnership between him and Esperanza P. de Harden after the final liquidation
and partition thereof, without pronouncement as to costs and interests." The
court rendered judgment in accordance with this stipulation.
Almost one year thereafter, plaintiff filed a motion for the issuance of a
writ of execution to satisfy the balance of P91, 069.74, which was favorably
acted upon. At that time the receiver had in his possession two (2) checks
payable to Fred M. Harden amounting to P33,574.50, representing part of the
proceeds of the sale of two (2) lots belonging to the conjugal partnership which
was ordered by the court upon the joint petition of the spouses in order that they
may have funds with which to defray their living and other similar expenses.
One-half of the proceeds was given to Mrs. Harden. The sheriff attempted to
garnish these two (2) checks acting upon the writ of execution secured by the
plaintiff, but the receivership court quashed the writ, stating however in the
order that it will be “without prejudice to the right of Francisco Dalupan to attach
the money of the defendant Fred M. Harden, after the same has been delivered
to the latter. When said checks were delivered to the latter.”
ISSUE:
Whether or not the proffer made by the plaintiff to the defendant is
binding.
RULING:
YES, the proffer made by the plaintiff to the defendant to the effect that
“in the event you lose your case with your wife, Mrs. Esperanza P. de Harden,
and that after adjudication of the conjugal property what is left with you will not
be sufficient for your livelihood. I shall be pleased to write off as bad debt the
balance of your account in the sum of P42, 069.74.” This proffer was contained
in a letter sent by the plaintiff to the defendant on March 23, 1949, which was
accepted expressly by Fred M. Harden. Harden regarded this proffer as a binding
obligation and acted accordingly, and for plaintiff to say now that proffer is but a
mere gesture of generosity or an act of Christian charity without any binding
legal effect is unfair to say at least. This is an added circumstance, which
confirms the Court’s view that the understanding between the plaintiff and the
defendant is really to defer payment of the balance of the claim until after the
final liquidation of the conjugal partnership.
IMPLIED CONDONATION – PRESUMPTION OF DELIVERY
LEONIDES LOPEZ LISO, plaintiff-appellee,
VS. MANUEL TAMBUNTING, defendant-appellant
1916 January 19
G.R. No. 9806
33 PHIL 226
FACTS:
These proceedings were brought to recover from the defendant the sum
of P2,000, amount of the fees, which, according to the complaint, are owing for
professional medical services rendered by the plaintiff to a daughter of the
defendant from March 10 to July 15, 1913, which fees the defendant refused to
pay, notwithstanding the demands therefor made upon him by the plaintiff. The
defendant denied the allegations of the complaint, and furthermore alleged that
the obligation which the plaintiff endeavored to compel him to fulfill was already
extinguished.
The Court of First Instance of Manila, after hearing the evidence
introduced by both parties, rendered judgment on December 17, 1913, ordering
the defendant to pay to the plaintiff the sum of P700, without express finding as
to costs. The defendant, after entering a motion for a new trial, which was
denied, appealed from said judgment and forwarded to this court the proper bill
of exceptions.
ISSUE:
Whether or not the obligation alleged in the complaint has already been
extinguished.
RULING:
No, the Supreme Court ruled that the obligation has not been
extinguished. The receipt signed by the plaintiff, for P700, the amount of his
fees he endeavored to collect from the defendant after he had finished rendering
the services in question was in the latter's possession, and this fact was alleged
by him as proof that he had already paid said fees to the plaintiff. The court,
after hearing the testimony, reached the conclusion that, notwithstanding that
the defendant was in possession of the receipt, the said P700 had not been paid
to the plaintiff.
Number 8 of section 334 of the Code of Civil Procedure provides as a legal
presumption "that an obligation delivered up to the debtor has been paid."
Article 1188 of the Civil Code also provides that the voluntary surrender by a
creditor to his debtor, of a private instrument proving a credit, implies the
renunciation of the right of action against the debtor; and article 1189 prescribes
that whenever the private instrument which evidences the debt is in the
possession of the debtor, it will be presumed that the creditor delivered it of his
own free will, unless the contrary is proven.
But the legal presumption established by the foregoing provisions of law
cannot stand if sufficient proof is adduced against it. In the case at bar the trial
court correctly held that there was sufficient evidence to the contrary, in view of
the preponderance thereof in favor of the plaintiff and of the circumstances
connected with the defendant's possession of said receipt. Furthermore, in
order that such a presumption may be taken into account, it is necessary, as
stated in the laws cited, that the evidence of the obligation be delivered up to
the debtor and that the delivery of the instrument proving the credit be made
voluntarily by the creditor to the debtor. In the present case, it cannot be said
that these circumstances concurred, inasmuch as when the plaintiff sent the
receipt to the defendant for the purpose of collecting his fee, it was not his
intention that that document should remain in the possession of the defendant if
the latter did not forthwith pay the amount specified therein.
By reason of the foregoing, the Court affirmed the judgment appealed
from, with the costs of this instance against the appellant.
CONFUSION OR MERGER OR RIGHTS
1. ESTATE OF MOTA VS. SERRA, 47 PHIL 464
2. YEK TN LIN VS. YUSINGCO, 64 PHIL 1062
ESTATE OF MOTA VS. SERRA
47 PHIL. 464
FACTS:
On February 1, 1919, plaintiffs and defendant entered into a contract of
partnership, for the construction and exploitation of a railroad line from the "San
Isidro" and "Palma" centrals to the place known as "Nandong." The original
capital stipulated was P150, 000. It was covenanted that the parties should pay
this amount in equal parts and the plaintiffs were entrusted with the
administration of the partnership. The agreed capital of P150,000, however, did
not prove sufficient, as the expenses up to May 15, 1920, had reached the
amount of P226,092.92, presented by the administrator and O.K.'d by the
defendant.
January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga, whereby
he sold to the latter the estate and central known as "Palma" with its running
business, as well as all the improvements, machineries and buildings, real and
personal properties, rights, choices in action and interests, including the sugar
plantation of the harvest year of 1920 to 1921, covering all the property of the
vendor. This contract was executed before a notary public of Iloilo.
Before the delivery to the purchasers of the hacienda thus sold, Eusebio R.
de Luzuriaga renounced all his rights under the contract of January 29, 1920, in
favor of Messrs. Venancio Concepcion and Phil. C. Whitaker. This gave rise to
the fact that on July 17, 1920, Venancio Concepcion and Phil. C. Whitaker and
the herein defendant executed before Mr. Antonio Sanz, a notary public in and
for the City of Manila, another deed of absolute sale of the said "Palma" Estate
for the amount of P1,695,961.90, of which the vendor received at the time of
executing the deed the amount of P945,861.90, and the balance was payable by
installments in the form and manner stipulated in the contract. The purchasers
guaranteed the unpaid balance of the purchase price by a first and special
mortgage in favor of the vendor upon the hacienda and the central with all the
improvements, buildings, machineries, and appurtenances then existing on the
said hacienda.
Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.
Whitaker bought from the plaintiffs the one-half of the railroad line pertaining to
the latter, executing therefore the document. The price of this sale was
P237,722.15, excluding any amount which the defendant might be owing to the
plaintiffs. Of the purchase price, Venancio Concepcion and Phil. C. Whitaker paid
the sum of P47,544.43 only. In the Deed, the plaintiffs and Concepcion and
Whitaker agreed, among other things, that the partnership "Palma" and "San
Isidro," formed by the agreement of February 1, 1919, between Serra, Lazaro
Mota, now deceased, and Juan J. Vidaurrazaga for himself and in behalf of his
brother, Felix and Dionisio Vidaurrazaga, should be dissolved upon the execution
of this contract, and that the said partnership agreement should be totally
cancelled and of no force and effect whatever.
Since the defendant Salvador Serra failed to pay one-half of the amount
expended by the plaintiffs upon the construction of the railroad line, that is,
P113,046.46, as well as Phil. C. Whitaker and Venancio Concepcion, the plaintiffs
instituted the present action praying: 1) that the deed of February 1, 1919, be
declared valid and binding; 2) that after the execution of the said document the
defendant improved economically so as to be able to pay the plaintiffs the
amount owed, but that he refused to pay either in part or in whole the said
amount notwithstanding the several demands made on him for the purpose; and
3) that the defendant be sentenced to pay plaintiffs the aforesaid sum of
P113, 046.46, with the stipulated interest at 10 per cent per annum beginning
June 4, 1920, until full payment thereof, with the costs of the present action.
Defendant set up three special defenses: 1) the novation of the contract
by the substitution of the debtor with the conformity of the creditors; 2) the
confusion of the rights of the creditor and debtor; and 3) the extinguishment of
the contract.
The court a quo in its decision held that there was a novation of the
contract by the substitution of the debtor, and therefore absolved the defendant
from the complaint with costs against the plaintiffs. With regard to the prayer
that the said contract be declared valid and binding, the court held that there
was no way of reviving the contract which the parties themselves in interest had
spontaneously and voluntarily extinguished.
ISSUES:
Whether or not there was a novation of the contract by the substitution of
the debtor with the consent of the creditor, as required by Article 1205 of the
Civil Code; and
Whether or not there was a merger of rights of debtor and creditor under
Article 1192 of the Civil Code.
RULING:
1. NO, there was no novation of the contract. It should be noted that in
order to give novation its legal effect, the law requires that the creditor
should consent to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation extinguishes the
personality of the first debtor who is to be substituted by new one, it
implies on the part of the creditor a waiver of the right that he had before
the novation which waiver must be express under the principle that
renuntiatio non praesumitur, recognized by the law in declaring that a
waiver of right may not be performed unless the will to waive is
indisputably shown by him who holds the right. The fact that Phil. C.
Whitaker and Venancio Concepcion were willing to assume the
defendant's obligation to the plaintiffs is of no avail, if the latter have not
expressly consented to the substitution of the first debtor. As has been
said, in all contracts of novation consisting in the change of the debtor,
the consent of the creditor is indispensable, pursuant to Article 1205 of
the Civil Code which reads as follows: Novation which consists in the
substitution of a new debtor in the place of the original one may be made
without the knowledge of the latter, but not without the consent of the
creditor.
2. NO, there was no merger of Rights. Another defense urged by the
defendant is the merger of the rights of debtor and creditor, whereby
under Article 1192 of the Civil Code, the obligation, the fulfillment of which
is demanded in the complaint, became extinguished. It is maintained in
appellee's brief that the debt of the defendant was transferred to Phil. C.
Whitaker and Venancio Concepcion by the document. These in turn
acquired the credit of the plaintiffs by virtue of the debt; thus, the rights of
the debtor and creditor were merged in one person. The argument would
at first seem to be incontrovertible, but if we bear in mind that the rights
and titles which the plaintiffs sold to Phil. C. Whitaker and Venancio
Concepcion refer only to one-half of the railroad line in question, it will be
seen that the credit which they had against the defendant for the amount
of one-half of the cost of construction of the said line was not included in
the sale. That the plaintiffs sold their rights and titles over one-half of the
line. The purchasers, Phil. C. Whitaker and Venancio Concepcion, to
secure the payment of the price, executed a mortgage in favor of the
plaintiffs on the same rights and titles that they had bought and also upon
what they had purchased from Mr. Salvador Serra. In other words, Phil. C.
Whitaker and Venancio Concepcion mortgaged unto the plaintiffs what
they had bought from the plaintiffs and also what they had bought from
Salvador Serra. If Messrs. Phil. C. Whitaker and Venancio Concepcion had
purchased something from Mr. Salvador Serra, the herein defendant,
regarding the railroad line, it was undoubtedly the one-half thereof
pertaining to Mr. Salvador Serra. This clearly shows that the rights and
titles transferred by the plaintiffs to Phil. C. Whitaker and Venancio
Concepcion were only those they had over the other half of the railroad
line. Therefore, as already stated, since there was no novation of the
contract between the plaintiffs and the defendant, as regards the
obligation of the latter to pay the former one-half of the cost of the
construction of the said railroad line, and since the plaintiffs did not
include in the sale, the credit that they had against the defendant, the
allegation that the obligation of the defendant became extinguished by
the merger of the rights of creditor and debtor by the purchase of Messrs.
Phil. C. Whitaker and Venancio Concepcion is wholly untenable.
CONFUSION OR MERGER OR RIGHTS
YEK TONG LIN VS. YUSINGCO
64 PHIL 473
FACTS:
The defendant Pelagio Yusingco was the owner of the steamship Yusingco
and, as such, he executed, on November 19, 1927, a power of attorney in favor
of Yu Seguios to administer, lease, mortgage and sell his properties, including
his vessels or steamships. Yu Seguios, acting as such attorneys in fact of Pelagio
Yusingco, mortgaged to the plaintiff Yek Tong Lin Fire & Marine Insurance Co.,
Ltd., with the approval of the Bureau of Customs, the steamship Yusingco
belonging to the defendant, to answer for any amount that said plaintiff might
pay in the name of the defendant on account of a promissory note for P45, 000
executed by it.
 One year and some months later, or in February, 1930, and in April, 1931,
the steamship Yusingco needed some repairs which were made by the Earnshaw
Docks & Honolulu Iron Works upon petition of A. Yusingco Hermanos which,
according to documentary evidence of record, was co-owner of Pelagio Yusingco.
The repairs were made upon the guaranty of the defendant and appellant
Vicente Madrigal at a cost of P8,244.66.
When neither A. Yusingco Hermanos nor Pelagio Yusingco could pay said
sum to the Earnshaw Docks & Honolulu Iron Works, the defendant and appellant
Vicente Madrigal had to make payment thereof with the stipulated interest
thereon, which was at the rate of 9 per cent per annum, on March 9, 1932,
because he was bound thereto by reason of the bond filed by him, the payment
then made by him having amounted to P8,777.60. Some days later, when said
defendant discovered that he was not to be reimbursed for the repairs made on
the steamship Yusingco, he brought an action against his co-defendant Pelagio
Yusingco and A. Yusingco Hermanos to compel them to reimburse him, which
resulted in a judgment favorable to him and adverse to the Yusingcos, as the
latter were ordered to pay him the sum of P3,269.66 plus interest thereon at
said rate of 9 per cent per annum from May 6, 1931, with the costs of the suit. It
was provided in the judgment that upon failure of the Yusingcos to pay the
above-stated amounts to Vicente Madrigal, a writ of execution would be issued
in order to have the steamship Yusingco sold at public auction for the purpose of
satisfying said amounts with the proceeds thereof.
Inasmuch as neither the defendant Pelagio Yusingco nor A. Yusingco
Hermanos paid the amount of the judgment rendered in civil case No. 41654, in
favor of the defendant and appellant Vicente Madrigal, the latter sought and
obtained from the Court of First Instance, which tried the case, the issuance of
the corresponding writ of execution. However, before the sale of the steamship
Yusingco, by virtue of the writ of execution so issued, was carried out, the
plaintiff and appellant filed with the defendant sheriff a third party claim
demanding said ship for himself, alleging that it had been mortgaged to him long
before the issuance of said writ and, therefore, he was entitled to the possession
thereof. The defendant sheriff then informed the defendant and appellant
Vicente Madrigal that if he wished to have the execution sought by him carried
out, he should file the indemnity bond required by section 451 of Act No. 190.
This was done by Vicente Madrigal, but in order to prevent him and the sheriff
from proceeding with the execution, the plaintiff and appellant instituted this
case in the court of origin and asked for the issuance of a writ of preliminary
injunction addressed to said two defendants to restrain them from selling the
steamship Yusingco at public auction. The writ of preliminary injunction, which
was issued on August 19, 1932, was later dissolved, the defendant and appellant
Vicente Madrigal having filed a bond of P5,000. This left the preliminary
injunction unimpaired and valid for the sale of the steamship Yusingco at public
auction. For this reason, said ship was sold at public auction on September 19,
1932, and was purchased, under the circumstances, by the plaintiff and
appellant itself, which was the highest bidder, having made the highest bid of
P12,000. Of said amount, the defendant sheriff turned over P10,195 to Vicente
Madrigal in payment of his judgment credit. It is said sum of P10,195 which the
lower court ordered Vicente Madrigal to turn over to the plaintiff.
ISSUE:
Whether or not the credit of the plaintiff, as mortgaged creditor of Pedagio
Yusingco, is superior to that of Vicente Madrigal, as judgment creditor of said
Pelagio Yusingco and A. Yusingco Hermones.
RULING:
NO, the defendant and appellant Vicente Madrigal enjoy preference in the
payment of his judgment credit.
After the steamship Yusingco had been sold by virtue of the judicial writ
issued in civil case No. 41654 for the execution of the judgment rendered in
favor of Vicente Madrigal, the only right left to the plaintiff was to collect its
mortgage credit from the purchaser thereof at public auction, inasmuch as the
rule is that a mortgage directly and immediately subjects the property on which
it is imposed, whoever its possessor may be, to the fulfillment of the obligation
for the security of which it was created (Article 1876, Civil Code); but it so
happens that it can not take such steps now because it was the purchaser of the
steamship Yusingco at public auction, and it was so with full knowledge that it
had a mortgage credit on said vessel. Obligations are extinguished by the
merger of the rights of the creditor and debtor (Articles 1156 and 1192, Civil
Code).
COMPENSATION – REQUISITES
1. EGV REALTY VS. CA, 20 JULY 1999
2. AEROSPACE CHEMICAL VS. CA, 23 SEPTEMBER 1999
3. APODCA VS. NLRC, 172 S 442

E.G.V. REALTY V CA
G.R.No. 120236 July 20, 1999
FACTS
Petitioner E.G.V. Realty Development Corporation is the
owner/developer of a seven-storey condominium building known as
Cristina Condominium. Cristina Condominium Corporation holds title to all
common areas of Cristina Condominium and is in charge of managing,
maintaining and administering the condominium’s common areas and
providing for the building’s security. Respondent Unisphere International,
Inc. (hereinafter referred to as Unisphere) is the owner/occupant of Unit
301 of said condominium. On November 28, 1981, respondent
Unisphere’s Unit 301 was allegedly robbed of various items valued at
P6,165.00. The incident was reported to petitioner CCC. On July 25, 1982,
another robbery allegedly occurred at Unit 301 where the items carted
away were valued at P6,130.00, bringing the total value of items lost to
P12,295.00. This incident was likewise reported to petitioner CCC. On
October 5, 1982, respondent Unisphere demanded compensation and
reimbursement from petitioner CCC for the losses incurred as a result of
the robbery. On January 28, 1987, petitioners E.G.V. Realty and CCC
jointly filed a petition with the Securities and Exchange Commission (SEC)
for the collection of the unpaid monthly dues in the amount of P13,142.67
against respondent Unisphere.
ISSUE
Whether or not set-off or compensation has taken place in the
instant case.
RULING
Compensation or offset under the New Civil Code takes place only
when two persons or entities in their own rights, are creditors and debtors
of each other. (Art. 1278).
A distinction must be made between a debt and a mere claim. A
debt is an amount actually ascertained. It is a claim which has been
formally passed upon by the courts or quasi-judicial bodies to which it can
in law be submitted and has been declared to be a debt. A claim, on the
other hand, is a debt in embryo. It is mere evidence of a debt and must
pass thru the process prescribed by law before it develops into what is
properly called a debt. Absent, however, any such categorical admission
by an obligor or final adjudication, no compensation or off-set can take
place. Unless admitted by a debtor himself, the conclusion that he is in
truth indebted to another cannot be definitely and finally pronounced, no
matter how convinced he may be from the examination of the pertinent
records of the validity of that conclusion the indebtedness must be one
that is admitted by the alleged debtor or pronounced by final judgment of
a competent court or in this case by the Commission.
There can be no doubt that Unisphere is indebted to the Corporation
for its unpaid monthly dues in the amount of P13,142.67. This is admitted.
COMPENSATION – REQUISITES
AEROSPACE CHEMICAL V CA
g.r.no. 108129 september 23, 1999
FACTS
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace)
purchased five hundred (500) metric tons of sulfuric acid from private
respondent Philippine Phosphate Fertilizer Corporation (Philphos). Initially
set beginning July 1986, the agreement provided that the buyer shall pay
its purchases in equivalent Philippine currency value, five days prior to
the shipment date. Petitioner as buyer committed to secure the means of
transport to pick-up the purchases from private respondent's loadports.
Per agreement, one hundred metric tons (100 MT) of sulfuric acid should
be taken from Basay, Negros Oriental storage tank, while the remaining
four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu,
but withdrew only 157.51 MT of sulfuric acid. Again, the vessel tilted.
Further loading was aborted. Two survey reports conducted by the
Societe Generale de Surveillance (SGS) Far East Limited, dated December
17, 1986 and January 2, 1987, attested to these occurrences. Later, on a
date not specified in the record, M/T Sultan Kayumanggi sank with a total
of 227.51 MT of sulfuric acid on board. Petitioner chartered another
vessel, M/T Don Victor, with a capacity of approximately 500 MT.6 [TSN,
September 1, 1989, pp. 28-29.] On January 26 and March 20, 1987,
Melecio Hernandez, acting for the petitioner, addressed letters to private
respondent, concerning additional orders of sulfuric acid to replace its
sunken purchases.
ISSUE
Should expenses for the storage and preservation of the purchased
fungible goods, namely sulfuric acid, be on seller's account pursuant to
Article 1504 of the Civil Code?
RULING
Petitioner tries to exempt itself from paying rental expenses and
other damages by arguing that expenses for the preservation of fungible
goods must be assumed by the seller. Rental expenses of storing sulfuric
acid should be at private respondent's account until ownership is
transferred, according to petitioner. However, the general rule that before
delivery, the risk of loss is borne by the seller who is still the owner, is not
applicable in this case because petitioner had incurred delay in the
performance of its obligation. Article 1504 of the Civil Code clearly states:
"Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that: (2) Where
actual delivery has been delayed through the fault of either the buyer or
seller the goods are at the risk of the party at fault."
On this score, we quote with approval the findings of the appellate
court, thus: The defendant [herein private respondent] was not remiss in
reminding the plaintiff that it would have to bear the said expenses for
failure to lift the commodity for an unreasonable length of time.But even
assuming that the plaintiff did not consent to be so bound, the provisions
of Civil Code come in to make it liable for the damages sought by the
defendant.
COMPENSATION – REQUISITES
APODACA V NLRC
G.R.No. 80039 April1 8, 1989
FACTS
Petitioner was employed in respondent corporation. On August 28,
1985, respondent Jose M. Mirasol persuaded petitioner to subscribe to
P1,500 shares of respondent corporation it P100.00 per share or a total of
P150,000.00. He made an initial payment of P37,500.00. On September 1,
1975, petitioner was appointed President and General Manager of the
respondent corporation. However, on January 2, 1986, he resigned.
On December 19, 1986, petitioner instituted with the NLRC a complaint
against private respondents for the payment of his unpaid wages, his cost
of living allowance, the balance of his gasoline and representation
expenses and his bonus compensation for 1986. Petitioner and private
respondents submitted their position papers to the labor arbiter. Private
respondents admitted that there is due to petitioner the amount of
P17,060.07 but this was applied to the unpaid balance of his subscript in
the amount of P95,439.93. Petitioner questioned the set-off alleging that
there was no call or notice for the payment of unpaid subscription and
that, accordingly, the alleged obligation is not enforceable.
ISSUE
Does the National Labor Relations Commission (NLRC) have
jurisdiction to resolve a claim for non-payment of stock subscriptions to a
corporation? Assuming that it has, can an obligation arising therefrom be
offset against a money claim of an employee against the employer?
RULING
Firstly, the NLRC has no jurisdiction to determine such intra-
corporate dispute between the stockholder and the corporation as in the
matter of unpaid subscriptions. This controversy is within the exclusive
jurisdiction of the Securities and Exchange Commission.
Secondly, assuming arguendo that the NLRC may exercise
jurisdiction over the said subject matter under the circumstances of this
case, the unpaid subscriptions are not due and payable until a call is
made by the corporation for payment. Private respondents have not
presented a resolution of the board of directors of respondent corporation
calling for the payment of the unpaid subscriptions. It does not even
appear that a notice of such call has been sent to petitioner by the
respondent corporation.
COMPENSATION – LEGAL; WHEN PROHIBITED (Art. 1287-1288)
1. PNB MANAGEMENT VS. R & R METAL, 373 SCRA 1
2. SILAHIS MARKETING VS. IAC, DEC. 7, 1989
3. FRANCIA VS. CA, JUNE 28, 1988
4. TRINIDAD VS. ACAPULCO, 494 S 179
PNB MANAGEMENT and DEVELOPMENT CORP. (PNB MADECOR),
petitioner,
VS. R&R METAL CASTING and FABRICATING, INC., respondent
January 2, 2002
G. R. No. 132245
FACTS:
On November 19, 1993, respondent R&R Metal Casting and Fabricating,
Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc.
(PNEI). PNEI was ordered to pay respondent P213,050 plus interest as actual
damages, P50,000 as exemplary damages, 25 percent of the total amount
payable as attorney’s fees, and the costs of suit. However, the writ of execution
was returned unsatisfied since the sheriff did not find any property of PNEI
recorded at the Registries of Deeds of the different cities of Metro Manila.
Neither did the sheriff receive a reply to the notice of garnishment he sent to
PNB-Escolta.
On March 27, 1995, respondent filed with the trial court a motion for the
issuance of subpoenae duces tecum and ad testificandum requiring petitioner
PNB Management and Development Corp. (PNB MADECOR) to produce and
testify on certain documents pertaining to transactions between petitioner and
PNEI from 1981 to 1995. From the testimony of the representative of PNB
MADECOR, it was discovered that NAREDECO, petitioner’s forerunner, executed
a promissory note in favor of PNEI for P7.8 million, and that PNB MADECOR also
had receivables from PNEI in the form of unpaid rentals amounting to more than
P7.5 million. On the basis of said testimony, respondent filed with the trial court
a motion for the application of funds or properties of PNEI, its judgment debtor,
in the hands of PNB MADECOR for the satisfaction of the judgment in favor of
respondent.
The trial court issued an order garnishing the amount owed by petitioner
to PNEI under the promissory note, to satisfy the judgment against PNEI and in
favor of respondent. On appeal, the Court of Appeals affirmed the decision. The
appellate court also denied petitioner’s motion for reconsideration.
ISSUE:
Whether or not the Court of Appeals erred when it ruled that the requisites
for legal compensation as set forth under articles 1277 and 1278 of the civil
code do not concur in the case at bar.
RULING:
NO. Legal compensation could not have occurred because of the absence
of one requisite in this case - that both debts must be due and demandable.
As observed by the Court of Appeals, under the terms of the promissory
note, failure on the part of NAREDECO (PNB MADECOR) to pay the value of the
instrument ‘after due notice has been made by PNEI would entitle PNEI to collect
an 18% interest per annum from date of notice of demand. Petitioner makes a
similar assertion in its petition. Petitioner’s obligation to PNEI appears to be
payable on demand. Petitioner is obligated to pay the amount stated in the
promissory note upon receipt of a notice to pay from PNEI. If petitioner fails to
pay after such notice, the obligation will earn an interest of 18 percent per
annum. Respondent alleges that PNEI had already demanded payment.
The Court agrees with petitioner that this letter was not one demanding
payment, but one that merely informed petitioner of (1) the conveyance of a
certain portion of its obligation to PNEI per a dacion en pago arrangement
between PNEI and PNB, and (2) the unpaid balance of its obligation after
deducting the amount conveyed to PNB. The import of this letter is not that PNEI
was demanding payment, but that PNEI was advising petitioner to settle the
matter of implementing the earlier arrangement with PNB.
Since petitioner’s obligation to PNEI is payable on demand, and there
being no demand made, it follows that the obligation is not yet due. Therefore,
this obligation may not be subject to compensation for lack of a requisite under
the law. Without compensation having taken place, petitioner remains obligated
to PNEI to the extent stated in the promissory note. This obligation may
undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment
debt.
There is another alleged demand letter on record, dated January 24, 1990.
It was addressed to Atty. Domingo A. Santiago, Jr., Senior Vice President and
Chief Legal Counsel of PNB, and signed by Manuel Vijungco, chairman of the
Board of Directors of PNEI. In said letter, PNEI requested offsetting of accounts
between petitioner and PNEI. However, PNEI’s own Assistant General Manager
for Finance at that time, Atty. Loreto N. Tang, testified that the letter was not a
demand letter. THUS, Petition denied. Decision affirmed
COMPENSATION –LEGAL; WHEN PROHIBITED
SILAHIS MARKETING CORPORATION, petitioner,
VS. INTERMEDIATE APPELLATE COURT and GREGORIO DE LEON, doing
business under the name and style of "MARK INDUSTRIAL SALES",
respondents.
1989 December 07
G.R. No. 74027
FACTS:
On various dates in October, November and December, 1975, Gregorio de
Leon doing business under the name and style of Mark Industrial Sales sold and
delivered to Silahis Marketing Corporation various items of merchandise covered
by several invoices in the aggregate amount of P22,213.75 payable within thirty
(30) days from date of the covering invoices.
Allegedly due to Silahis' failure to pay its account upon maturity despite
repeated demands, de Leon filed a complaint for the collection of the said
accounts including accrued interest thereon in the amount of P661.03 and
attorney's fees of P5,000.00 plus costs of litigation.
The answer admitted the allegations of the complaint insofar as the
invoices were concerned but presented as affirmative defenses; [a] a debit
memo for P22,200.00 as unrealized profit for a supposed commission that Silahis
should have received from de Leon for the sale of sprockets in the amount of
P111,000.00 made directly to Dole Philippines, Incorporated by the latter
sometime in August 1975; and [b] Silahis' claim that it is entitled to return the
stainless steel screen which was found defective by its client, Borden
International, Davao City, and to have the corresponding amount cancelled from
its account with de Leon.
ISSUE:
Whether or not private respondent is liable to the petitioner for the
commission or margin for the direct sale which the former concluded and
consummated with Dole Philippines, Incorporated without coursing the same
through herein petitioner.
RULING:
It must be remembered that compensation takes place when two persons,
in their own right, are creditors and debtors to each other. Article 1279 of the
Civil Code provides that: "In order that compensation may be proper, it is
necessary: [1] that each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other; [2] that both debts consist in a
sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated; [3] that the two debts
be due; [4] that they be liquidated and demandable; [5] that over neither of
them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor."
Undoubtedly, petitioner admits the validity of its outstanding accounts
with private respondent in the amount of P22,213.75 as contained in its answer.
But whether private respondent is liable to pay the petitioner a 20% margin or
commission on the subject sale to Dole Philippines, Inc. is vigorously disputed.
This circumstance prevents legal compensation from taking place.
The Court agrees with respondent appellate court that there is no
evidence on record from which it can be inferred that there was any agreement
between the petitioner and private respondent prohibiting the latter from selling
directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that
the debit memo was a contract binding between the parties considering that the
same, as correctly found by the appellate court, was not signed by private
respondent nor was there any mention therein of any commitment by the latter
to pay any commission to the former involving the sale of sprockets to Dole
Philippines, Inc. in the amount of P111,000.00.
Indeed, such document can be taken as self-serving with no probative
value absent a showing or at the very least an inference, that the party sought
to be bound assented to its contents or showed conformity thereto. Thus the
questioned decision of respondent appellate court is hereby affirmed.
COMPENSATION – LEGAL; WHEN PROHIBITED
ENGRACIO FRANCIA
VS. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ
G.R. No. L-67649
June 28, 1988
162 SCRA 753
FACTS:
Engracio Francia is the registered owner of a residential lot, 328 square
meters, and a two-story house built upon it situated at Barrio San Isidro, now
District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125
square meter portion of Francia's property was expropriated by the Republic of
the Philippines for the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977
inclusive, Francia failed to pay his real estate taxes. Thus, on December 5,
1977, his property was sold at public auction pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code in order to
satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for
the property. On March 20, 1979, Francia filed a complaint to annul the auction
sale. He later amended his complaint on January 24, 1980. The petitioner seeks
to set aside the auction sale of his property which took place on December 5,
1977, and to allow him to recover a 203 square meter lot which was sold at
public auction to Ho Fernandez and ordered titled in the latter's name. He
further averred that his tax delinquency of P2,400.00 has been extinguished by
legal compensation since the government owed him P4, 116.00 when a portion
of his land was expropriated.
The lower court rendered a decision in favor Fernandez which was
affirmed by the Intermediate Appellate Court . Hence, this petition for review.
ISSUE:
Whether or not the tax delinquency of Francia has been extinguished by
legal compensation.
RULING:
There is no legal basis for the contention. By legal compensation,
obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by Article
1279, to wit: (1) that each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other; (2) that the two debts be
due.
The Court had consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government owes him
an amount equal to or greater than the tax being collected. The collection of a
tax cannot await the results of a lawsuit against the government. In addition, a
taxpayer cannot refuse to pay his tax when called upon by the collector because
he has a claim against the governmental body not included in the tax levy.
There are also other factors which compelled the Court to rule against the
petitioner. The tax was due to the city government while the expropriation was
effected by the national government. Moreover, the amount of P4,116.00 paid
by the national government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale at public auction
of his remaining property. Notice of the deposit dated September 28, 1977 was
received by the petitioner on September 30, 1977. The petitioner admitted in
his testimony that he knew about the P4,116.00 deposited with the bank but he
did not withdraw it. It would have been an easy matter to withdraw P2,400.00
from the deposit so that he could pay the tax obligation thus aborting the sale at
public auction.
The petition for review was dismissed.
COMPENSATION – REQUISITES
TRINIDAD V ACAPULCO
G.R.No. 147477 June 27, 2006
FACTS
On May 6, 1991, respondent Estrella Acapulco filed a Complaint
before the RTC seeking the nullification of a sale she made in favor of
petitioner Hermenegildo M. Trinidad. She alleged: Sometime in February
1991, a certain Primitivo Cañete requested her to sell a Mercedes Benz for
P580,000.00. Cañete also said that if respondent herself will buy the car,
Cañete was willing to sell it for P500,000.00. Petitioner borrowed the car
from respondent for two days but instead of returning the car as
promised, petitioner told respondent to buy the car from Cañete for
P500,000.00 and that petitioner would pay respondent after petitioner
returns from Davao. Following petitioner’s instructions, respondent
requested Cañete to execute a deed of sale covering the car in
respondent’s favor for P500,000.00 for which respondent issued three
checks in favor of Cañete. Respondent thereafter executed a deed of sale
in favor of petitioner even though petitioner did not pay her any
consideration for the sale. When petitioner returned from Davao, he
refused to pay respondent the amount of P500,000.00 saying that said
amount would just be deducted from whatever outstanding obligation
respondent had with petitioner. Due to petitioner’s failure to pay
respondent, the checks that respondent issued in favor of Cañete
bounced, thus criminal charges were filed against her.[3] Respondent
then prayed that the deed of sale between her and petitioner be declared
null and void; that the car be returned to her; and that petitioner be
ordered to pay damages.
ISSUE
Whether or not petitioner’s claim for legal compensation was
already too late
RULING
The court ruled in favor of the petitioner. Compensation takes effect
by operation of law even without the consent or knowledge of the parties
concerned when all the requisites mentioned in Article 1279 of the Civil
Code are present.[26] This is in consonance with Article 1290 of the Civil
Code which provides that: Article 1290. When all the requisites
mentioned in article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the
compensation. Since it takes place ipso jure,[27] when used as a
defense, it retroacts to the date when all its requisites are fulfilled.
Petitioner’s stance is that legal compensation has taken place and
operates even against the will of the parties because: (a) respondent and
petitioner were personally both creditor and debtor of each other; (b) the
monetary obligation of respondent was P566,000.00 and that of the
petitioner was P500,000.00 showing that both indebtedness were
monetary obligations the amount of which were also both known and
liquidated; (c) both monetary obligations had become due and
demandable—petitioner’s obligation as shown in the deed of sale and
respondent’s indebtedness as shown in the dishonored checks; and (d)
neither of the debts or obligations are subject of a controversy
commenced by a third person.
NOVATION: SUBJECTIVE NOVATION; SUBSTITUION OF DEBTOR (Art. 1293)
(EXPROMISION VS. DELEGACION)
AQUINTEY V. TIBONG
G.R. No. 166704 December 20, 2006
FACTS
On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of
Baguio City, a complaint for sum of money and damages against the
respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that
Felicidad had secured loans from her on several occasions, at monthly
interest rates of 6% to 7%. Despite demands, the spouses Tibong failed
to pay their outstanding loan, amounting to P773,000.00 exclusive of
interests.
In their Answer with Counterclaim, spouses Tibong admitted that
they had secured loans from Agrifina. The proceeds of the loan were then
re-lent to other borrowers at higher interest rates. They, likewise, alleged
that they had executed deeds of assignment in favor of Agrifina, and that
their debtors had executed promissory notes in Agrifina’s favor. According
to the spouses Tibong, this resulted in a novation of the original obligation
to Agrifina. They insisted that by virtue of these documents, Agrifina
became the new collector of their debtors; and the obligation to pay the
balance of their loans had been extinguished.
ISSUE
Whether or not there is valid novation in the instant case?
RULING
Novation which consists in substituting a new debtor in the place of
the original one may be made even without the knowledge or against the
will of the latter but not without the consent of the creditor. Substitution
of the person of the debtor may be effected by delegacion, meaning, the
debtor offers, and the creditor, accepts a third person who consents to the
substitution and assumes the obligation. Thus, the consent of those three
persons is necessary. In this kind of novation, it is not enough to extend
the juridical relation to a third person; it is necessary that the old debtor
be released from the obligation, and the third person or new debtor take
his place in the relation. Without such release, there is no novation; the
third person who has assumed the obligation of the debtor merely
becomes a co-debtor or a surety. If there is no agreement as to solidarity,
the first and the new debtor are considered obligated jointly.
In the case at bar, the court found that respondents’ obligation to
pay the balance of their account with petitioner was extinguished, pro
tanto, by the deeds of assignment of credit executed by respondent
Felicidad in favor of petitioner. As gleaned from the deeds executed by
respondent Felicidad relative to the accounts of her other debtors,
petitioner was authorized to collect the amounts of P6,000.00 from
Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay
petitioner. Respondent Felicidad, likewise,unequivocably declared that
Cabang and Cirilo no longer had any obligation to her.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS
OF THE CREDITOR (LEGAL VS. CONVENTIONAL)
1. SWAGMAN VS. CA, 455 S 175
2. AZOLLA FARMS VS. CA, 11 NOVEMBER 2004
3. CALIFORNIA BUS LINES VS. STATE INVVESTMENT, 418 S 297
4. OCAMPO-PAULE VS. CA, 4 FEBRUARY 2002
5. REYES VS. CA, 383 S 471
6. BAUTISTA VS. PILAR DEVELOPMENT, 312 S 611
7. EVADEL REALTY VS. SORIANO, 357 S 395
SWAGMAN V CA
G.R.No. 161135 April 8, 2005
FACTS
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc.,
through Atty. Leonor L. Infante and Rodney David Hegerty, its president
and vice-president, respectively, obtained from private respondent Neal
B. Christian loans evidenced by three promissory notes dated 7 August
1996, 14 March 1997, and 14 July 1997. Each of the promissory notes is
in the amount of US$50,000 payable after three years from its date with
an interest of 15% per annum payable every three months. In a letter
dated 16 December 1998, Christian informed the petitioner corporation
that he was terminating the loans and demanded from the latter payment
in the total amount of US$150,000 plus unpaid interests in the total
amount of US$13,500. On 2 February 1999, private respondent Christian
filed with the Regional Trial Court of Baguio City, Branch 59, a complaint
for a sum of money and damages against the petitioner corporation,
Hegerty, and Atty. Infante. The petitioner corporation, together with its
president and vice-president, filed an Answer raising as defenses lack of
cause of action and novation of the principal obligations. According to
them, Christian had no cause of action because the three promissory
notes were not yet due and demandable.
ISSUE
Where there is a valid novation, may the original terms of contract which
has been novated still prevail?
HELD
The receipts, as well as private respondent’s summary of payments, lend
credence to petitioner’s claim that the payments were for the principal
loans and that the interests on the three consolidated loans were waived
by the private respondent during the undisputed renegotiation of the
loans on account of the business reverses suffered by the petitioner at the
time.
There was therefore a novation of the terms of the three promissory notes
in that the interest was waived and the principal was payable in monthly
installments of US$750. Alterations of the terms and conditions of the
obligation would generally result only in modificatory novation unless
such terms and conditions are considered to be the essence of the
obligation itself.[25] The resulting novation in this case was, therefore, of
the modificatory type, not the extinctive type, since the obligation to pay
a sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the
monthly installments conformably with their new agreement and even
continued paying during the pendency of the case, the private respondent
had no cause of action to file the complaint. It is only upon petitioner’s
default in the payment of the monthly amortizations that a cause of
action would arise and give the private respondent a right to maintain an
action against the petitioner.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)
AZOLLA FARMS V CA
G.R.No. 138085 November 11, 2004
FACTS
Petitioner Francis R. Yuseco, Jr., is the Chairman, President and
Chief Operating Officer of petitioner Azolla Farms International Philippines.
In 1982, Azolla Farms undertook to participate in the National Azolla
Production Program wherein it will purchase all the Azolla produced by the
Azolla beneficiaries in the amount not exceeding the peso value of all the
inputs provided to them. The project also involves the then Ministry of
Agriculture, the Kilusang Kabuhayan at Kaunlaran, and the Kiwanis. To
finance its participation, petitioners applied for a loan with Credit Manila,
Inc., which the latter endorsed to its sister company, respondent Savings
Bank of Manila (Savings Bank). The Board of Directors of Azolla Farms,
meanwhile, passed a board resolution on August 31, 1982, authorizing
Yuseco to borrow from Savings Bank in an amount not exceeding
P2,200,000.00.
The loan having been approved, Yuseco executed a promissory note
on September 13, 1982, promising to pay Savings Bank the sum of
P1,400,000.00 on or before September 13, 1983. the Azolla Farms project
collapsed. Blaming Savings Bank, petitioners Yuseco and Azolla Farms
filed on October 3, 1983 with the Regional Trial Court of Manila (Branch
25), a complaint for damages. In essence, their complaint alleges that
Savings Bank unjustifiably refused to promptly release the remaining
P300,000.00 which impaired the timetable of the project and inevitably
affected the viability of the project resulting in its collapse, and resulted in
their failure to pay off the loan. Thus, petitioners pray for P1,000,000.00
as actual damages, among others.
ISSUE
Whether the trial court erred in admitting petitioners’ amended
complaint
RULING
SEC. 5. Amendment to conform to or authorize presentation of
evidence .—When issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated in all respects, as if
they had been raised in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at any time,
even after judgment; but failure so to amend does not affect the result of
the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall do so freely when the
presentation of the merits of the action will be subserved thereby and the
objecting party fails to satisfy the court that the admission of such
evidence would prejudice him in maintaining his action or defense upon
the merits.
As can be gleaned from the records, it was petitioners’ belief that
respondent’s evidence justified the amendment of their complaint. The
trial court agreed thereto and admitted the amended complaint. On this
score, it should be noted that courts are given the discretion to allow
amendments of pleadings to conform to the evidence presented during
the trial.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)
CALIFORNIA BUS LINES V STATE INVESMENTS
G.R.No. 147950 December 11, 2003
FACTS
Sometime in 1979, Delta Motors Corporation—M.A.N. Division
(Delta) applied for financial assistance from respondent State Investment
House, Inc.
SIHI agreed to extend a credit line to Delta for P25,000,000.00 in three
separate credit agreements dated May 11, June 19, and August 22, 1979.
Delta eventually became indebted to SIHI to the tune of P24,010,269.32
From April 1979 to May 1980, petitioner California Bus Lines, Inc.
(hereafter CBLI), purchased on installment basis 35 units of M.A.N. Diesel
Buses and two (2) units of M.A.N. Diesel Conversion Engines from Delta.
To secure the payment of the purchase price of the 35 buses, CBLI and its
president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes
in favor of Delta on January 23 and April 25, 1980.[5] In each promissory
note, CBLI promised to pay Delta or order, P2,314,000 payable in 60
monthly installments starting August 31, 1980, with interest at 14% per
annum. CBLI further promised to pay the holder of the said notes 25% of
the amount due on the same as attorney’s fees and expenses of
collection, whether actually incurred or not, in case of judicial proceedings
to enforce collection. In addition to the notes, CBLI executed chattel
mortgages over the 35 buses in Delta’s favor. When CBLI defaulted on all
payments due, it entered into a restructuring agreement with Delta on
October 7, 1981, to cover its overdue obligations under the promissory
notes.CBLI continued having trouble meeting its obligations to Delta. This
prompted Delta to threaten CBLI with the enforcement of the
management takeover clause.
ISSUE
Whether the Restructuring Agreement dated October 7, 1981,
between petitioner CBLI and Delta Motors, Corp. novated the five
promissory notes Delta Motors, Corp. assigned to respondent SIHI.
RULING
Novation has been defined as the extinguishment of an obligation
by the substitution or change of the obligation by a subsequent one which
terminates the first, either by changing the object or principal conditions,
or by substituting the person of the debtor, or subrogating a third person
in the rights of the creditor.For novation to take place, four essential
requisites have to be met, namely, (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new
obligation.
In this case, the attendant facts do not make out a case of novation.
The restructuring agreement between Delta and CBLI executed on
October 7, 1981, shows that the parties did not expressly stipulate that
the restructuring agreement novated the promissory notes. Absent an
unequivocal declaration of extinguishment of the pre-existing obligation,
only a showing of complete incompatibility between the old and the new
obligation would sustain a finding of novation by implication.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)
OCAMPO-PAULE V CA
G.R.No. 145872 February 4, 2002
FACTS
During the period August, 1991 to April, 1993, petitioner received
from private complainant Felicitas M. Calilung several pieces of jewelry
with a total value of One hundred Sixty Three Thousand One hundred
Sixty Seven Pesos and Ninety Five Centavos (P163,167.95). The
agreement between private complainant and petitioner was that the
latter would sell the same and thereafter turn over and account for the
proceeds of the sale, or otherwise return to private complainant the
unsold pieces of jewelry within two months from receipt thereof. Since
private complainant and petitioner are relatives, the former no longer
required petitioner to issue a receipt acknowledging her receipt of the
jewelry.When petitioner failed to remit the proceeds of the sale of the
jewelry or to return the unsold pieces to private complainant, the latter
sent petitioner a demand letter. Notwithstanding receipt of the demand
letter, petitioner failed to turn over the proceeds of the sale or to return
the unsold pieces of jewelry. Private complainant was constrained to refer
the matter to the barangay captain of Sta. Monica, Lubao, Pampanga.
ISSUE
Whether or not there was a novation of petitioner’s criminal liability
when she and private complainant executed the Kasunduan sa Bayaran.
RULING
It is well-settled that the following requisites must be present for
novation to take place: (1) a previous valid obligation; (2) agreement of all
the parties to the new contract; (3) extinguishment of the old contract;
and (4) validity of the new one.
Novation, in its broad concept, may either be extinctive or modificatory. It
is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains compatible with
the amendatory agreement.
The execution of the Kasunduan sa Bayaran does not constitute a
novation of the original agreement between petitioner and private
complainant. Said Kasunduan did not change the object or principal
conditions of the contract between them. The change in manner of
payment of petitioner’s obligation did not render the Kasunduan
incompatible with the original agreement, and hence, did not extinguish
petitioner’s liability to remit the proceeds of the sale of the jewelry or to
return the same to private complainant.
An obligation to pay a sum of money is not novated, in a new
instrument wherein the old is ratified, by changing only the terms of
payment and adding other obligations not incompatible with the old one,
or wherein the old contract is merely supplemented by the new one.
In any case, novation is not one of the grounds prescribed by the
Revised Penal Code for the extinguishment of criminal liability.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)
REYES V CA
june 26, 2002
FACTS
This petition arose from a civil case for collection of a sum of money
with preliminary attachment filed by respondent Pablo V. Reyes against
his first cousin petitioner Arsenio R. Reyes and spouse Nieves S. Reyes.
According to private respondent, petitioner-spouses borrowed from him
P600,000.00 with interest at five percent (5%) per month, which totalled
P1,726,250.00 at the time of filing of the Complaint. The loan was to be
used supposedly to buy a lot in Parañaque. It was evidenced by an
acknowledgment receipt dated 15 July 1990 signed by the petitioner-
spouses Arsenio R. Reyes and Nieves S. Reyes and witness Romeo Rueda.
In their Answer petitioners admitted their loan from respondent but
averred that there was a novation so that the amount loaned was actually
converted into respondent's contribution to a partnership formed between
them on 23 March 1990.
ISSUE
Whether or not there was novation in the instant case?
RULING
For novation to take place, the following requisites must concur: (a)
there must be a previous valid obligation; (b) there must be an agreement
of the parties concerned to a new contract; (c) there must be the
extinguishment of the old contract; and, (d) there must be the validity of
the new contract.
In the case at bar, the third requisite is not present. The parties did
agree that the amount loaned would be converted into respondent's
contribution to the partnership, but this conversion did not extinguish the
loan obligation. The date when the acknowledgment receipt/promissory
note was made negates the claim that the loan agreement was
extinguished through novation since the note was made while the
partnership was in existence.
Significantly, novation is never presumed. It must appear by
express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken for anything else. An obligation to pay a sum
of money is not novated in a new instrument wherein the old is ratified by
changing only the terms of payment and adding other obligations not
incompatible with the old one, or wherein the old contract is merely
supplemented by the new one.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)
BAUTISTA V PILAR DEVELOPMENT
g.r.no. 135046 august 17, 1999
FACTS
In 1978, petitioner spouses Florante and Laarni Bautista purchased
a house and lot in Pilar Village, Las Pinas, Metro Manila. To partially
finance the purchase, they obtained from the Apex Mortgage & Loan
Corporation a loan in the amount of P100,180.00. They executed a
promissory note on December 22, 1978 obligating themselves, jointly and
severally, to pay the "principal sum of P100,180.00 with interest rate of
12% and service charge of 3%" for a period of 240 months, or twenty
years, from date, in monthly installments of P1,378.83. Late payments
were to be charged a penalty of one and one-half per cent (1 1/2%) of the
amount due. In the same promissory note, petitioners authorized Apex to
"increase the rate of interest and/or service charges" without notice to
them in the event that a law, Presidential Decree or any Central Bank
regulation should be enacted increasing the lawful rate of interest and
service charges on the loan. Payment of the promissory note was secured
by a second mortgage on the house and lot purchased by
petitioners.Petitioner spouses failed to pay several installments. On
September 20, 1982, they executed another promissory note in favor of
Apex. This note was in the amount of P142,326.43 at the increased
interest rate of twenty-one per cent (21%) per annum with no provision
for service charge but with penalty charge of 1 1/2% for late payments.
ISSUE
Whether or not there was valid novation in the case at bar?
RULING
Novation has four (4) essential requisites: (1) the existence of a
previous valid obligation; (2) the agreement of all parties to the new
contract; (3) the extinguishment of the old contract; and (4) the validity of
the new one. In the instant case, all four requisites have been complied
with. The first promissory note was a valid and subsisting contract when
petitioner spouses and Apex executed the second promissory note. The
second promissory note absorbed the unpaid principal and interest of
P142,326.43 in the first note which amount became the principal debt
therein, payable at a higher interest rate of 21% per annum. Thus, the
terms of the second promissory note provided for a higher principal, a
higher interest rate, and a higher monthly amortization, all to be paid
within a shorter period of 16.33 years. These changes are substantial and
constitute the principal conditions of the obligation. Both parties
voluntarily accepted the terms of the second note; and also in the same
note, they unequivocally stipulated to extinguish the first note. Clearly,
there was animus novandi, an express intention to novate. The first
promissory note was cancelled and replaced by the second note. This
second note became the new contract governing the parties' obligations.
NOVATION: SUBJECTIVE NOVATION; SUBROGATION OF THE RIGHTS OF THE
CREDITOR (LEGAL VS. CONVENTIONAL)

EVADEL REALTY V SORIANO
G.R.No. 144291 April 20, 2001
FACTS
On April 12, 1996, the spouses Antero and Virginia Soriano
(respondent spouses), as sellers, entered into a "Contract to Sell " with
Evadel Realty and Development Corporation (petitioner), as buyer, over a
parcel of land denominated as Lot 5536-C of the Subdivision Plan of Lot
5536 covered by Transfer Certificate of Title No. 125062 which was part of
a huge tract of land known as the Imus Estate. Upon payment of the first
installment, petitioner introduced improvements thereon and fenced off
the property with concrete walls. Later, respondent spouses discovered
that the area fenced off by petitioner exceeded the area subject of the
contract to sell by 2,450 square meters. Upon verification by
representatives of both parties, the area encroached upon was
denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-
04-092419 and was later on segregated from the mother title and issued
a new transfer certificate of title, TCT No. 769166, in the name of
respondent spouses. Respondent spouses successively sent demand
letters to petitioner on February 14, March 7, and April 24, 1997, to
vacate the encroached area. Petitioner admitted receiving the demand
letters but refused to vacate the said area.
ISSUE
Whether or not there was novation of contract?
RULING
Petitioner's claim that there was a novation of contract because
there was a "second" agreement between the parties due to the
encroachment made by the national road on the property subject of the
contract by 1,647 square meters, is unavailing. Novation, one of the
modes of extinguishing an obligation, requires the concurrence of the
following: (1) there is a valid previous obligation; (2) the parties
concerned agree to a new contract; (3) the old contract is extinguished;
and (4) there is valid new contract. Novation may be express or implied.
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal
terms (express novation) or that the old and the new obligations be on
every point incompatible with each other (implied novation).
In the instant case, there was no express novation because the
"second" agreement was not even put in writing. Neither was there
implied novation since it was not shown that the two agreements were
materially and substantially incompatible with each other. We quote with
approval the following findings of the trial court: Since the alleged
agreement between the plaintiffs [herein respondents] and defendant
[herein petitioner] is not in writing and the alleged agreement pertains to
the novation of the conditions of the contract to sell of the parcel of land
subject of the instant litigation, ipso facto, novation is not applicable in
this case since, as stated above, novation must be clearly proven by the
proponent thereof and the defendant in this case is clearly barred by the
Statute of Frauds from proving its claim.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
1. B & I REALTY VS. CASPE, 543 S 1
2. MESINA VS. GARCIA, 509 S 431
3. HEIRS OF GAUDIANE VS. CA, 11 MARCH 2004
4. LAUREANO VS. CA, 9 MARCH 2000
5. BANCO FILIPINO VS. CA, 30 MAY 2000
6. VDA. DE DELGADO VS CA, 28 MARCH 2001
7. MAESTRADO VS. CA, 9 MAMRCH 2000
B & I REALTY V. CASPE
G.R. No. 146972 January 29, 2008
FACTS
Consorcia L. Venegas was the owner of a parcel of land located in
Barrio Bagong-Ilog in Pasig, Rizal and covered by TCT No. 247434. She
delivered said title to, and executed a simulated deed of sale in favor of,
Datuin for purposes of obtaining a loan with the RCBC. Datuin claimed
that he had connections with the management of RCBC and offered his
assistance to Venegas in obtaining a loan from the bank. He issued a
receipt to the Venegases, acknowledging that the lot was to be used as a
collateral for bank financing and that the deed of sale was executed only
as a device to obtain the loan. However, Datuin prepared a deed of
absolute sale and, through forgery, made it appear that the spouses
Venegas executed the document in his favor. Venegas learned of Datuin's
fraudulent scheme when she sold the lot to herein respondents for
P160,000 in a deed of conditional sale. She, along with her husband,
instituted a complaint against Datuin in the then Court of First Instance
CFI of Rizal, Branch 11, docketed as Civil Case No. 188893, for recovery of
property and nullification of TCT No. 377734, with damages. However,
when the case was called for pre-trial, the Venegases' counsel failed to
appear and the complaint was eventually dismissed without prejudice.
ISSUE
Whether or not filing of Civil Case No. 36852 by the Venegases had
the effect of interrupting the prescriptive period for the filing of the
complaint for judicial foreclosure of mortgage?
RULING
We agree with the CA's ruling that Civil Case No. 36852 did not
have the effect of interrupting the prescription of the action for
foreclosure of mortgage as it was not an action for foreclosure but one for
annulment of title and nullification of the deed of mortgage and the deed
of sale. It was not at all the action contemplated in Article 1155 of the
Civil Code which explicitly provides that the prescription of an action is
interrupted only when the action itself is filed in court. Petitioner could
have protected its right over the property by filing a cross-claim for
judicial foreclosure of mortgage against respondents in Civil Case No.
36852. The filing of a cross-claim would have been proper there. All the
issues pertaining to the mortgage validity of the mortgage and the
propriety of foreclosure would have been passed upon concurrently and
not on a piecemeal basis. This should be the case as the issue of
foreclosure of the subject mortgage was connected with, or dependent
on, the subject of annulment of mortgage in Civil Case No. 36852. The
actuations clearly manifested that petitioner knew its rights under the law
but chose to sleep on the same.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
MESINA V. GARCIA
G.R. No. 168035 November 30, 2006
FACTS
Atty. Honorio Valisno Garcia and Felicisima Mesina, during their
lifetime, enstered into a Contract to Sell over a lot consisting of 235
square meters, situated at Diversion Road, Sangitan, Cabanatuan City,
covered and embraced by TCT No. T-31643 in the name of Felicisima
Mesina which title was eventually cancelled and TCT No. T-78881 was
issued in the name of herein petitioners. The Contract to Sell provides
that the cost of the lot is P70.00 per square meter for a total amount of
P16,450.00; payable within a period not to exceed 7 years at an interest
rate of 12% per annum, in successive monthly installments of P260.85 per
month, starting May 1977. Thereafter, the succeeding monthly
installments are to be paid within the first week of every month, at the
residence of the vendor at Quezon City, with all unpaid monthly
installments earning an interest of 1% per month. Instituting this case at
bar, respondent asserts that despite the full payment made on 7
February 1984 for the consideration of the subject lot, petitioners refused
to issue the necessary Deed of Sale to effect the transfer of the property
to her.
ISSUE
Whether or not respondent’s cause of action had already
prescribed?
RULING
Article 1155 of the Civil Code is explicit that the prescriptive period
is interrupted when an action has been filed in court; when there is a
written extrajudicial demand made by the creditors; and when there is
any written acknowledgment of the debt by the debtor.
The records reveal that starting 19 April 1986 until 2 January 1997
respondent continuously demanded from the petitioners the execution of
the said Deed of Absolute Sale but the latter conjured many reasons and
excuses not to execute the same. Respondent even filed a Complaint
before the Housing and Land Use Regulatory Board way back in June,
1986, to enforce her rights and to compel the mother of herein
petitioners, who was still alive at that time, to execute the necessary
Deed of Absolute Sale for the transfer of title in her name. On 2 January
1997, respondent, through her counsel, sent a final demand letter to the
petitioners for the execution of the Deed of Absolute Sale, but still to no
avail. Consequently, because of utter frustration of the respondent, she
finally lodged a formal Complaint for Specific Performance with Damages
before the trial court on 20 January 1997.
Hence, from the series of written extrajudicial demands made by
respondent to have the execution of the Deed of Absolute Sale in her
favor, the prescriptive period of 10 years has been interrupted.
Therefore, it cannot be said that the cause of action of the respondent has
already been prescribed.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
HEIRS OF GAUDIANE V CA
G.R.No. 119879 March 11, 2004
FACTS
The lot in controversy is Lot 4389 located at Dumaguete City and
covered by Original Certificate of Title No. 2986-A (OCT 2986-A) in the
names of co-owners Felix and Juana Gaudiane. Felix died in 1943 while
his sister Juana died in 1939. Herein respondents are the descendants of
Felix while petitioners are the descendants of Juana.
On November 4, 1927, Felix executed a document entitled Escritura de
Compra-Venta (Escritura, for brevity) whereby he sold to his sister Juana
his one-half share in Lot No. 4156 covered by Transfer Certificate of Title
No. 3317-A.
Petitioners’ predecessors-in-interest, Geronimo and Ines Iso (the
Isos), believed that the sale by Felix to their mother Juana in 1927
included not only Lot 4156 but also Lot 4389. In 1974, they filed a
pleading in the trial court seeking to direct the Register of Deeds of
Dumaguete City to cancel OCT 2986-A covering Lot 4389 and to issue a
new title in favor of the Isos. This was later withdrawn after respondents’
predecessors-in-interest, Procopio Gaudiane and Segundo Gaudiane,
opposed it on the ground that the Isos falsified their copy of the Escritura
by erasing “Lot 4156” and intercalating in its place “Lot 4389.”
ISSUE
Whether the court gravely erred in not giving due course to the
claim of petitioners and legal effect of prescription and laches adverted by
defendants-appellants in their answer and affirmative defenses proven
during the hearing by documentary and testimonial evidence.
RULING
As a general rule, ownership over titled property cannot be lost
through prescription.[12] Petitioners, however, invoke our ruling in
Tambot vs. Court of Appeals[13] which held that titled property may be
acquired through prescription by a person who possessed the same for 36
years without any objection from the registered owner who was obviously
guilty of laches.
Petitioners’ claim is already rendered moot by our ruling barring
petitioners from raising the defense of exclusive ownership due to res
judicata. Even assuming arguendo that petitioners are not so barred,
their contention is erroneous. As correctly observed by the appellate
court.
As explained earlier, only Lot No. 4156 was sold. It was through this
misrepresentation that appellees’ predecessor-in-interest succeeded in
withholding possession of appellees’ share in Lot No. 4389. Appellees
cannot, by their own fraudulent act, benefit therefrom by alleging
prescription and laches.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
LAUREANO V CA
G.R.No. 114776 February 2, 2000
FACTS;
Petitioner was employed in the singapore airlines limited as the pilot
captain of B-707. Sometime in 1982, defendant, hit by a recession,
initiated cost-cutting measures. Seventeen expatriate captains in the
Airbus fleet were found in excess of the defendant's requirement.
Consequently, defendant informed its expatriate pilots including plaintiff
of the situation and advised them to take advance leaves. Realizing that
the recession would not be for a short time, defendant decided to
terminate its excess personnel. It did not, however, immediately
terminate it's A-300 pilots. It reviewed their qualifications for possible EXTINCTIVE PRESCRIPTION: INTERRUPTION
promotion to the B-747 fleet. Among the 17 excess Airbus pilots reviewed,
twelve were found qualified. Unfortunately, plaintiff was not one of the
twelve. Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal
dismissal before the Labor Arbiter. Defendant moved to dismiss on
jurisdictional grounds. Before said motion was resolved, the complaint BANCO FILIPINO vs. COURT OF APPEALS
was withdrawn. 332 SCRA 241

ISSUE ; FACTS:
What is the prescriptive period for money claims arising from
employer-employee relationship?
RULING;
Article 291. Money claims. - All money claims arising from
employee-employer relations accruing during the effectivity of this Code
shall be filed within three (3) years from the time the cause of action
accrued; otherwise they shall be forever barred.
It should be noted further that Article 291 of the Labor Code is a
special law applicable to money claims arising from employer-employee
relations; thus, it necessarily prevails over Article 1144 of the Civil Code, a
general law. Basic is the rule in statutory construction that 'where two
statutes are of equal theoretical application to a particular case, the one
designed therefore should prevail.'
In the instant case, the action for damages due to illegal
termination was filed by plaintiff-appellee only on January 8, 1987 or more
than four (4) years after the effectivity date of his dismissal on November
1, 1982. Clearly, plaintiff-appellee's action has already prescribed.
Elsa Arcilla and her husband, Calvin Arcilla secured on three
occasions, loans from the Banco Filipino Savings and Mortgage bank in
the amount of Php.107,946.00 as evidenced by the “Promissory Note”
executed by the spouses in favor of the said bank. To secure payment of
said loans, the spouses executed “Real Estate Mortgages” in favor of the
appellants (Banco Filipino) over their parcels of land. The appellee
spouses failed to pay their monthly amortization to appellant. On
September 2, 1985 the appellee’s filed a complaint for “Annulment of the
Loan Contracts, Foreclosure Sale with Prohibitory and Injunction” which
was granted by the RTC. Petitioners appealed to the Court of Appeals,
but the CA affirmed the decision of the RTC.
ISSUE:
Whether or not the CA erred when it held that the cause of action of
the private respondents accrued on October 30, 1978 and the filing of
their complaint for annulment of their contracts in 1085 was not yet
barred by the prescription/
RULING:
The court held that the petition is unmeritorious. Petitioner’s claim
that the action of the private respondents have prescribed is bereft of
merit. Under Article 1150 of the Civil Code, the time for prescription of all
kinds of action where there is no special provision which ordains
otherwise shall be counted from the day they may be brought. Thus the
period of prescription of any cause of action is reckoned only from the
date of the cause of action accrued. The period should not be made to
retroact to the date of the execution of the contract, but from the date
they received the statement of account showing the increased rate of
interest, for it was only from the moment that they discovered the
petitioner’s unilateral increase thereof.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
VDA. DE DEL GADO vs. COURT OF APPEALS
363 SCRA 58
FACTS:
Carlos Delgado was the absolute owner of a parcel of land with an
area of 692,549 square meter situated in the Municipality of Catarman
Samar. Carlos Delgado granted and conveyed by way of donation with
quitclaim all rights, title, interest claim and demand over a portion of land
with an area of 165,000 square meter in favor of the Commonwealth of
the Philippines. The acceptance was then made to President Quezon in
his capacity as Commander-in-Chief. The Deed of Donation was executed
with a condition that the said land will be used for the formation of the
National Defense of the Philippines. The said parcel of land then covered
by the Torrens System of the Philippines and was registered in the name
of Commonwealth of the Philippines for a period of 40 years. The land
was registered under TCT 0-2539-160 in favor of the Commonwealth
however without any annotation.
Upon declaration of independence, the Commonwealth was
replaced by Republic of the Philippines which took over the subject land
and turned over to Civil Aeronautics Administration, later named Bureau
of Air Transportation Office. The said agency utilizes the said land a
domestic airport.
Jose Delgado filed a petition for reconveyance for a violation of the
condition. The RTC ruled in favor of the plaintiff Delgado. But the CA
reversed the said decision because of prescription. The petitioner filed
only before 24 years o discovery which the law only requires 10 years of
filing.
ISSUE:
Whether or not the petitioner’s action for reconveyance is already
barred by prescription.
RULING:
The Supreme Court denied the petition and affirmed the decision of
the Court of Appeals because the time of filing has been prescribed.
Under Article 1144 of the Civil Code on Prescription based on written
contracts, the filing of action for reconveyance is within 10 years from the
time the condition in the Deed of Donation was violated. The petitioner
herein filed only 24 years in the first action and 43 years in the second
filing of the 2nd action.
The action for reconveyance on the alleged excess of 33, 607
square meter mistakenly included in the title was also prescribed Article
1456 of the Civil Code states, if property is acquired through mistake or
fraud, the person obtaining it is, by force of law, considered a trustee of
an implied trust for the benefits of the person from whom the property
comes, if within 10 years such action for reconveyance has not been
executed.
EXTINCTIVE PRESCRIPTION: INTERRUPTION
MAESTRADO vs. COURT OF APPEALS
 327 SCRA 678
FACTS:
These consolidated cases involve Lot No. 5872 and the rights of the
contending parties thereto. The lot has an area of 57.601 sq.m. and is
registered in the name of the deceased spouses Ramon and Rosario
Chaves. The spouses died intestate in 1943 and 1944, respectively. They
were survived by six heirs. To settle the estate of said spouse, Angel
Chaves, one of the heirs, initiated intestate proceedings and was
appointed administrator of said estates in the process. An inventory of the
estates was made and thereafter, the heirs agreed on a project partition.
The court approved the partition but a copy of said decision was missing.
Nonetheless, the estate was divided among the heirs. Subsequently, in
1956, the partition case effected and the respective shares of the heirs
were delivered to them.
Significantly, Lot No.5872 was not included in a number of
documents. Parties offered different explanations as to the omission of
said lot in the documents. Petitioners maintain the existence of an oral
partition agreement entered into by all heirs after the death of their
parents. To set things right, petitioners then prepared a quitclaim to
confirm the alleged oral agreement. Respondents dispute voluntariness of
their consent to the quitclaims.
Six years after the execution of the quitclaims, respondents discovered
that indeed subject lot was still a common property in the name of the
deceased spouses. Eventually, an action for Quieting of Title was filed by
petitioners on December 22, 1983.
The trial court considered Lot No. 5872 as still a common property
and therefore must be divided into six parts, there being six heirs.
Petitioners appealed to the Court of Appeals which sustained the decision
of the trial court.
ISSUE:
Whether or not the action for quieting of title had already
prescribed.
RULING:
The Supreme Court ruled that an action for quieting of title is
imprescriptible especially if the plaintiff is in possession of the property
being litigated. One who is in actual possession of a land, claiming to be
the owner thereof may wait until his possession is disturbed or his title is
attacked before making steps to vindicate his right because his
undisturbed possession gives him a continuing right to seek the aid of the
courts to ascertain the nature of the adverse claim and its effect on his
title. Moreover, the Court held that laches is inapplicable in this case. This
is because, as mentioned earlier, petitioners’ possession of the subject lot
has rendered their right to bring an action for quieting of title
imprescriptible.
ESTOPPEL (ART. 143-1439)
1.) DEFINITION AND MEANING
1. TANAY RECREATION VS. FAUSTO, 455 S 436
2. MENDOZA VS. CA, 9 MARCH 2000
3. LIM VS. QUEENSLAND, 373 S 31
TANAY RECREATION CENTER AND DEVELOPMENT CORP.
vs. CATALINA MATIENZO FAUSTO
April 12, 2005
FACTS:
Petitioner Tanay Recreation Center and Development Corp. (TRCDC)
is the lessee of a 3,090-square meter property located in Sitio Gayas,
Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of
Lease. On this property stands the Tanay Coliseum Cockpit operated by
petitioner. The lease contract provided for a 20-year term, subject to
renewal within sixty days prior to its expiration. The contract also
provided that should Fausto decide to sell the property, petitioner shall
have the “priority right” to purchase the same.
On June 17, 1991, petitioner wrote Fausto informing her of its
intention to renew the lease. However, it was Fausto’s daughter,
respondent Anunciacion F. Pacunayen, who replied, asking that petitioner
remove the improvements built thereon, as she is now the absolute owner
of the property. It appears that Fausto had earlier sold the property to
Pacunayen and title has already been transferred in her name. Petitioner
filed an Amended Complaint for Annulment of Deed of Sale, Specific
Performance with Damages, and Injunction
In her Answer, respondent claimed that petitioner is estopped from
assailing the validity of the deed of sale as the latter acknowledged her
ownership when it merely asked for a renewal of the lease. According to
respondent, when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the property, and it
even asked for grace period to vacate the premises.
ISSUE:
The contention in this case refers to petitioner’s priority right to
purchase, also referred to as the right of first refusal.
RULING:
When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price until
after he has made an offer to sell to the latter at a certain price and the
lessee has failed to accept it. The lessee has a right that the lessor's first
offer shall be in his favor. Petitioner’s right of first refusal is an integral
and indivisible part of the contract of lease and is inseparable from the
whole contract. The consideration for the lease includes the consideration
for the right of first refusal and is built into the reciprocal obligations of
the parties.
It was erroneous for the CA to rule that the right of first refusal does
not apply when the property is sold to Fausto’s relative. When the terms
of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can be, between the
parties and their successors in interest, no evidence of such terms other
than the contents of the written agreement, except when it fails to
express the true intent and agreement of the parties. In this case, the
wording of the stipulation giving petitioner the right of first refusal is plain
and unambiguous, and leaves no room for interpretation. It simply means
that should Fausto decide to sell the leased property during the term of
the lease, such sale should first be offered to petitioner. The stipulation
does not provide for the qualification that such right may be exercised
only when the sale is made to strangers or persons other than Fausto’s
kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has
the legal duty to petitioner not to sell the property to anybody, even her
relatives, at any price until after she has made an offer to sell to
petitioner at a certain price and said offer was rejected by petitioner.
DEFINITION AND MEANING
ROMEO MENDOZA vs. COURT OF APPEALS
February 18, 2005
FACTS:
Manotok was the administrator of a parcel of land which it leased to
Benjamin Mendoza; that the contract of lease expired on December 31,
1988; that even after the expiration of the lease contract, Benjamin
Mendoza, and after his demise, his son, Romeo, continued to occupy the
premises and thus incurred a total of P44,011.25 as unpaid rentals from
January 1, 1989 to July 31, 1996; that on July 16, 1996, Manotok made a
demand on Benjamin Mendoza to pay the rental arrears and to vacate the
premises within fifteen (15) days from receipt of the demand letter; that
despite receipt of the letter and after the expiration of the 15-day period,
the Mendozas refused to vacate the property and to pay the rentals. The
complaint prayed that the court order Mendoza and those claiming rights
under him to vacate the premises and deliver possession thereof to
Manotok, and to pay the unpaid rentals from January 1, 1989 to July 31,
1996 plus P875.75 per month starting August 1, 1996, subject to such
increase allowed by law, until he finally vacates the premise.
ISSUE:
Whether or not the Honorable Court of Appeals committed error in
giving efficacy to a lease contract signed in 1988 when the alleged
signatory was already dead since 1986.
RULING:
This is a case for unlawful detainer. It appears that respondent
corporation leased the property subject of this case to petitioner’s father.
After expiration of the lease, petitioner continued to occupy the property
but failed to pay the rentals. On July 16, 1996, respondent corporation
made a demand on petitioner to vacate the premises and to pay their
arrears.
An action for unlawful detainer may be filed when possession by a
landlord, vendor, vendee or other person of any land or building is
unlawfully withheld after the expiration or termination of the right to hold
possession by virtue of a contract, express or implied. The only issue to
be resolved in an unlawful detainer case is physical or material possession
of the property involved, independent of any claim of ownership by any of
the parties involved. In the case at bar, petitioner lost his right to possess
the property upon demand by respondent corporation to vacate the
rented lot. Petitioner cannot now refute the existence of the lease
contract because of his prior admissions in his pleadings regarding his
status as tenant on the subject property.
DEFINITION AND MEANING
JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC.
January 4, 2002
FACTS:
Sometime in 1992, Benjamin Shia, a market analyst and trader of
Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia,
one of his employees. Marissa’s father was a former employee of Lim’s
father. Shia suggested that Lim invest in the Foreign Exchange Market,
trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark
and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign
exchange was really lucrative. They conducted mock tradings without
money involved. As the mock trading showed profitability, Lim decided to
invest with a marginal deposit of US$5,000 in manager’s check. The
marginal deposit represented the advance capital for his future tradings.
It was made to apply to any authorized future transactions, and answered
for any trading account against which the deposit was made, for any loss
of whatever nature, and for all obligations, which the investor would incur
with the broker.
Petitioner Lim was then allowed to trade with respondent company
which was coursed through Shia by virtue of blank order forms all signed
by Lim. Respondent furnished Lim with the daily market report and
statements of transactions as evidenced by the receiving forms, some of
which were received by Lim.
Meanwhile, on October 22, 1992, respondent learned that it would
take seventeen (17) days to clear the manager’s check given by
petitioner. Shia returned the check to petitioner who informed Shia that
petitioner would rather replace the manager’s check with a traveler’s
check. Shia noticed that the traveler’s check was not indorsed but Lim
told Shia that Queensland could sign the endorsee portion. Because Shia
trusted the latter’s good credit rating, and out of ignorance, he brought
the check back to the office unsigned. Inasmuch as that was a busy
Friday, the check was kept in the drawer of respondent’s consultant.
Later, the traveler’s check was deposited with Citibank.
On October 27, 1992, Citibank informed respondent that the
traveler’s check could not be cleared unless it was duly signed by Lim, the
original purchaser of the traveler’s check. A Miss Arajo, from the
accounting staff of Queensland, returned the check to Lim for his
signature, but the latter, aware of his P44,465 loss, demanded for a
liquidation of his account and said he would get back what was left of his
investment.
ISSUE:
Whether or not the CA erred in reversing the decision of the RTC
which dismissed the respondent’s complaint
RULING:
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts or at
least calculated to convey the impression that the facts are otherwise
than, and inconsistent with, those which the party subsequently attempts
to assert; (2) intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (3) knowledge,
actual or constructive, of the real facts. ere, it is uncontested that
petitioner had in fact signed the Customer’s Agreement in the morning of
October 22, 1992, knowing fully well the nature of the contract he was
entering into. The Customer’s Agreement was duly notarized and as a
public document it is evidence of the fact, which gave rise to its execution
and of the date of the latter.
Next, petitioner paid his investment deposit to respondent in the
form of a manager’s check in the amount of US$5,000 as evidenced by
PCI Bank Manager’s Check No. 69007, dated October 22, 1992. All these
are indicia that petitioner treated the Customer’s Agreement as a valid
and binding contract.
2.) KINDS OF ESTOPPEL
1. PLACEWELL VS. CAMOTE, 26 JUNE 2006
2. HEIRS OF RAGUA VS. CA, 31 JANUARY 2000
PLACEWELL INTERNATIONAL SERVICES CORP. vs. CAMOTE
G.R. No. 169973, June 26, 2006
FACTS:
Petitioner Placewell International Services Corporation (PISC)
deployed respondent Ireneo B. Camote to work as building carpenter for
SAAD Trading and Contracting Co. (SAAD) at the Kingdom of Saudi Arabia
(KSA) for a contract duration of two years, with a corresponding salary of
US$370.00 per month. At the job site, respondent was allegedly found
incompetent by his foreign employer; thus the latter decided to terminate
his services. However, respondent pleaded for his retention and
consented to accept a lower salary of SR 800.00 per month. Thus, SAAD
retained respondent until his return to the Philippines two years after.
On November 27, 2001, respondent filed a sworn Complaint for
monetary claims against petitioner alleging that when he arrived at the
job site, he and his fellow Filipino workers were required to sign another
employment contract written in Arabic under the constraints of losing
their jobs if they refused; that for the entire duration of the new contract,
he received only SR 590.00 per month; that he was not given his overtime
pay despite rendering nine hours of work everyday; that he and his co-
workers sought assistance from the Philippine Embassy but they did not
succeed in pursuing their cause of action because of difficulties in
communication.
ISSUE:
Whether there is estoppel by laches
HELD:
R.A. No. 8042 explicitly prohibits the substitution or alteration to the
prejudice of the worker, of employment contracts already approved and
verified by the Department of Labor and Employment (DOLE) from the
time of actual signing thereof by the parties up to and including the
period of the expiration of the same without the approval of the DOLE.
The subsequently executed side agreement of an overseas contract
worker with her foreign employer which reduced her salary below the
amount approved by the POEA is void because it is against our existing
laws, morals and public policy. The said side agreement cannot
supersede her standard employment contract approved by the POEA.
Petitioner’s contention that respondent is guilty of laches is without
basis. Laches has been defined as the failure of or neglect for an
unreasonable and unexplained length of time to do that which by
exercising due diligence, could or should have been done earlier, or to
assert a right within reasonable time, warranting a presumption that the
party entitled thereto has either abandoned it or declined to assert it.
Thus, the doctrine of laches presumes that the party guilty of negligence
had the opportunity to do what should have been done, but failed to do
so. Conversely, if the said party did not have the occasion to assert the
right, then, he can not be adjudged guilty of laches. Laches is not
concerned with the mere lapse of time; rather, the party must have been
afforded an opportunity to pursue his claim in order that the delay may
sufficiently constitute laches.
In the instant case, respondent filed his claim within the three-year
prescriptive period for the filing of money claims set forth in Article 291 of
the Labor Code from the time the cause of action accrued. Thus, we find
that the doctrine of laches finds no application in this case.
KINDS OF ESTOPPEL
HEIRS OF RAGUA vs. COURT OF APPEALS
G.R. Nos. 88521-22
FACTS:
These consolidated cases involve a prime lot consisting of
4,399,322 square meters, known as the Diliman Estate, situated in
Quezon City. On this 439 hectares of prime land now stand the following:
the Quezon City Hall, Philippine Science High School, Quezon Memorial
Circle, Visayas Avenue, Ninoy Aquino Parks and Wildlife, portions of UP
Village and East Triangle, the entire Project 6 and Vasha Village, Veterans
Memorial Hospital and golf course, Department of Agriculture,
Department of Environment and Natural Resources, Sugar Regulatory
Administration, Philippine Tobacco Administration, Land Registration
Authority, Philcoa Building, Bureau of Telecommunications, Agricultural
Training Institute building, Pagasa Village, San Francisco School, Quezon
City Hospital, portions of Project 7, Mindanao Avenue subdivision, part of
Bago Bantay resettlement project, SM City North EDSA, part of Phil-Am
Life Homes compound and four-fifths of North Triangle. This large estate
was the subject of a petition for judicial reconstitution originally filed by
Eulalio Ragua in 1964, which gave rise to protracted legal battles between
the affected parties, lasting more than thirty-five (35) years.
ISSUE:
Whether estoppel by laches exists on the part of petitioner
HELD:
Petitioners filed the petition for reconstitution of OCT 632 nineteen
(19) years after the title was allegedly lost or destroyed. We thus consider
petitioners guilty of laches. Laches is negligence or omission to assert a
right within a reasonable time, warranting the presumption that the party
entitled to assert it either has abandoned or declined to assert it.
3.) ESTOPPEL BY DEED
1. METROBANK VS. CA, 8 JUNE 2000
2. SPS. MANUEL VS. CA, 1 FEBRUARY 2001
METROPOLITAN BANK & TRUST COMPANY vs. COURT OF APPEALS
June 8, 2000
FACTS:
Mr. Chia offered the subject property for sale to private respondent
G.T.P. Development Corporation (hereafter, GTP), with assumption of the
mortgage indebtedness in favor of petitioner METROBANK secured by the
subject property. Pending negotiations for the proposed sale, Atty.
Bernardo Atienza, acting in behalf of respondent GTP, went to
METROBANK to inquire on Mr. Chia's remaining balance on the real estate
mortgage. METROBANK obliged with a statement of account of Mr. Chia
amounting to about P115,000.00 as of August ,1980. The deed of sale and
the memorandum of agreement between Mr. Chia and respondent GTP
were eventually executed and signed. Atty. Atienza went to METROBANK
Quiapo Branch and paid one hundred sixteen thousand four hundred
sixteen pesos and seventy-one centavos (P116,416.71) for which
METROBANK issued an official receipt acknowledging payment. This
notwithstanding, petitioner METROBANK refused to release the real estate
mortgage on the subject property despite repeated requests from Atty.
Atienza, thus prompting respondent GTP to file an action for specific
performance against petitioner METROBANK and Mr. Chia.
ISSUE:
Whether or not the CA erred in reversing the decision of the lower
court.
RULING:
The Court found no compelling reasons to disturb the assailed
decision. All things studiedly viewed in proper perspective, the Court are
of the opinion, and so rule, that whatever debts or loans mortgagor Chia
contracted with Metrobank after September 4, 1980, without the
conformity of plaintiff-appellee, could not be adjudged as part of the
mortgage debt the latter so assumed. We are persuaded that the contrary
ruling on this point in Our October 24, 1994 decision would be unfair and
unjust to plaintiff-appellee because, before buying subject property and
assuming the mortgage debt thereon, the latter inquired from Metrobank
about the exact amount of the mortgage debt involved.
Petitioner METROBANK is estopped from refusing the discharge of
the real estate mortgage on the claim that the subject property still
secures "other unliquidated past due loans."
ESTOPPEL BY DEED
SPOUSES DEL CAMPO vs. COURT OF APPEALS
February 1, 2001
FACTS:
Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita,
all surnamed Bornales, were the original co-owners of the lot in question.
On July 14, 1940, Salome sold part of her 4/16 share to Soledad
Daynolo. Thereafter, Soledad Daynolo immediately took possession of the
land described above and built a house thereon. A few years later,
Soledad and her husband, Simplicio Distajo, mortgaged the subject
portion of the lot as security for a debt to Jose Regalado, Sr. This
transaction was evidenced by a Deed of Mortgage.
On April 14, 1948, three of the eight co-owners of Lot 162,
specifically, Salome, Consorcia and Alfredo, sold 24,993 square meters of
said lot to Jose Regalado, Sr. On May 4, 1951, Simplicio Distajo, heir of
Soledad Daynolo who had since died, paid the mortgage debt and
redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr. The
latter, in turn, executed a Deed of Discharge of Mortgage in favor of
Soledad’s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita
Distajo-Regalado. On same date, the said heirs sold the redeemed portion
of Lot 162 for P1,500.00 to herein petitioners, the spouses Manuel Del
Campo and Salvacion Quiachon.
ISSUE:
Whether or not the sale of the subject portion constitutes a sale of a
concrete or definite portion of land owned in common does not absolutely
deprive herein petitioners of any right or title thereto.
RULING:
There can be no doubt that the transaction entered into by Salome
and Soledad could be legally recognized in its entirety since the object of
the sale did not even exceed the ideal shares held by the former in the
co-ownership. As a matter of fact, the deed of sale executed between the
parties expressly stipulated that the portion of Lot 162 sold to Soledad
would be taken from Salome’s 4/16 undivided interest in said lot, which
the latter could validly transfer in whole or in part even without the
consent of the other co-owners. Salome’s right to sell part of her
undivided interest in the co-owned property is absolute in accordance
with the well-settled doctrine that a co-owner has full ownership of his
pro-indiviso share and has the right to alienate, assign or mortgage it, and
substitute another person in its enjoyment.
4.)ESTOPPEL IN PAIS: MEANING AND REQUISITES
1. CUENCO VS. CUENCO,458 S 496
2. LAUREL VS. DESIERTO, 383 S 493
3. HANOPOL VS. SM, 390 S 439’
4. TERMINAL FACILITIES VS. PPA, 378 S 82
5. MENDOZA VS. CA, 390 S 71
6. ROBLETT CONSTRUCTION VS. CA
CUENCO vs. CUENCO
G.R. No. 149844, October 13, 2004
FACTS:
On September 19, 1970, the [respondent] filed the initiatory
complaint herein for specific performance against her uncle [Petitioner]
Miguel Cuenco which averred, inter alia that her father, the late Don
Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed
the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931,
the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases
entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and
‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a
dispute among relatives over ownership of lot 903 of the Banilad Estate
which is near the Cebu Provincial Capitol; that records of said cases
indicate the name of the [petitioner] alone as counsel of record, but in
truth and in fact, the real lawyer behind the success of said cases was the
influential Don Mariano Jesus Cuenco; that after winning said cases, the
awardees of Lot 903 subdivided said lot into three (3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees
Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees
Lot 903-C: 54,000 [square meters]: Solon’s retention
Petitioner later claimed the property after the death of his brother.
ISSUES:
Whether Petitioner is in is estoppel
Whether laches barred the right of action of respondent
HELD:
From the time Lot 903-A was subdivided and Mariano’s six children
-- including Concepcion -- took possession as owners of their respective
portions, no whimper of protest from petitioner was heard until 1963. By
his acts as well as by his omissions, Miguel led Mariano and the latter’s
heirs, including Concepcion, to believe that Petitioner Cuenco respected
the ownership rights of respondent over Lot 903-A-6. That Mariano acted
and relied on Miguel’s tacit recognition of his ownership thereof is evident
from his will, executed in 1963. Indeed, as early as 1947, long before
Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña
Extension, Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had
been subdivided and distributed to his six children in his first marriage.
Having induced him and his heirs to believe that Lot 903-A-6 had already
been distributed to Concepcion as her own, petitioner is estopped from
asserting the contrary and claiming ownership thereof. The principle of
estoppel in pais applies when -- by one’s acts, representations,
admissions, or silence when there is a need to speak out -- one,
intentionally or through culpable negligence, induces another to believe
certain facts to exist; and the latter rightfully relies and acts on such
belief, so as to be prejudiced if the former is permitted to deny the
existence of those facts.
Petitioner claims that respondent’s action is already barred by
laches. Laches is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to it
has either abandoned or declined to assert it.[40] In the present case,
respondent has persistently asserted her right to Lot 903-A-6 against
petitioner. Concepcion was in possession as owner of the property from
1949 to 1969. When Miguel took steps to have it separately titled in his
name, despite the fact that she had the owner’s duplicate copy of TCT No.
RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse
claim annotated on the title in 1967. When petitioner ousted her from her
possession of the lot by tearing down her wire fence in 1969, she
commenced the present action on September 19, 1970, to protect and
assert her rights to the property. We find that she cannot be held guilty
of laches, as she did not sleep on her rights.
ESTOPPEL IN PAIS
LAUREL vs. HON. ANIANO A. DESIERTO
July 1, 2002
FACTS:
Petitioner Salvador H. Laurel moves for a reconsideration of this
Court’s decision declaring him, as Chair of the National Centennial
Commission (NCC), a public officer. Petitioner also prays that the case be
referred to the Court En Banc.
ISSUE:
Whether or not Laurel is a public officer as Chair of the NCC
RULING:
The issue in this case is whether petitioner, as Chair of the NCC, is a
public officer under the jurisdiction of the Ombudsman. Assuming, as
petitioner proposes, that the designation of other members to the NCC
runs counter to the Constitution, it does not make petitioner, as NCC
Chair, less a public officer. Such “serious constitutional repercussions” do
not reduce the force of the rationale behind this Court’s decision.
Second, petitioner invokes estoppel. He claims that the official acts of
the President, the Senate President, the Speaker of the House of
Representatives, and the Supreme Court, in designating Cabinet
members, Senators, Congressmen and Justices to the NCC, led him to
believe that the NCC is not a public office.
The contention has no merit. In estoppel, the party representing
material facts must have the intention that the other party would act
upon the representation. It is preposterous to suppose that the President,
the Senate President, the Speaker and the Supreme Court, by the
designation of such officials to the NCC, intended to mislead petitioner
just so he would accept the position of NCC Chair. Estoppel must be
unequivocal and intentional. Moreover, petitioner himself admits that the
principle of estoppel does not operate against the Government in the
exercise of its sovereign powers.
Third, as ground for the referral of the case to the Court En Banc,
petitioner submits that our decision in this case modified or reversed
doctrines rendered by this Court, which can only be done by the Court En
Banc.It is argued that by designating three of its then incumbent
members to the NCC, the Court took the position that the NCC was not a
public office. The argument is a bit of a stretch. Section 4 (3), Article VIII
of the Constitution provides that “no doctrine or principle of law laid down
by the court in a decision rendered en banc or in division may be modified
or reversed except by the court sitting en banc.” In designating three of
its incumbent members to the NCC, the Court did not render a “decision,”
in the context of said constitutional provision, which contemplates an
actual case. Much less did the Court, by such designation, articulate any
“doctrine or principle of law.” Invoking the same provision, petitioner
asserts that the decision in this case reversed or modified Macalino vs.
Sandiganbayan, holding that the Assistant Manager of the Treasury
Division and the Head of the Loans Administration & Insurance Section of
the Philippine National Construction Corporation (PNCC) is not a public
officer under Republic Act No. 3019. This contention also has no merit.
The rationale for the ruling in Macalino is that “the PNCC has no original
charter as it was incorporated under the general law on corporations.”
However, as we pointed out in our decision, a conclusion that EXPOCORP
is a government-owned or controlled corporation would not alter the
outcome of this case because petitioner’s position and functions as Chief
Executive Officer of EXPOCORP are by virtue of his being Chairman of the
NCC. The other issues raised by petitioner are mere reiterations of his
earlier arguments. The Court, however, remains unswayed thereby.
ESTOPPEL IN PAIS
SPOUSES HANOPOL vs. SHOEMART INCORPORATED
October 4, 2002
FACTS:
Shoemart, Inc., is a corporation duly organized and existing under
the laws of the Philippines engaged in the operation of department stores.
On December 4, 1985, Shoemart, through its Executive Vice-President,
Senen T. Mendiola, and spouses Manuel R. Hanopol and Beatriz T.
Hanopol executed a Contract of Purchase on Credit.
Under the terms of the contract, Shoemart extended credit
accommodations, in the amount of Three Hundred Thousand Pesos
(P300,000.00), for purchases on credit made by holders of SM Credit Card
issued by spouses Hanopol for one year, renewable yearly thereafter.
Spouses Hanopol were given a five percent (5%) discount on all purchases
made by their cardholders, deductible from the semi-monthly payments
to be made to Shoemart by spouses Hanopol.
For failure of spouses Hanopol to pay the principal amount of One
Hundred Twenty-Four Thousand Five Hundred Seventy-One Pesos and
Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart
instituted extrajudicial foreclosure proceedings against the mortgaged
properties.
Spouses Hanopol alleged that Shoemart breached the contract
when the latter failed to furnish the former with the requisite documents
by which the former’s liability shall be determined, namely: charge
invoices, purchase booklets and purchase journal, as provided in their
contract; that without the requisite documents, spouses Hanopol had no
way of knowing that, in fact, they had already paid, even overpaid,
whatever they owed to Shoemart; that despite said breach, Shoemart
even had the audacity to apply for extrajudicial foreclosure with the
Sheriff.
ISSUE:
Whether or not Shoemart acted with manifest bad faith in pursuing
with the foreclosure and auction sale of the property of spouses Hanopol,
and, accordingly, should be held liable for damages.
RULING:
All the three (3) elements for litis pendentia as a ground for
dismissal of an action are present, namely: (a) identity of parties, or at
least such parties who represent the same interest in both actions; (b)
identity of rights asserted and relief prayed for, the relief being founded
on the same facts; and (c) the identity, with respect to the two (2)
preceding particulars in the two (2) cases, in such that any judgment that
may be rendered in the pending case, regardless of which party is
successful, would amount to res judicata in the other.
In the case at bench, the parties are the same; the relief sought in
the case before the Court of Appeals and the trial court are the same, that
is, to permanently enjoin the foreclosure of the real estate mortgage
executed by spouses Hanopol in favor of Shoemart; and, both are
premised on the same facts. The judgment of the Court of Appeals would
constitute a bar to the suit before the trial court.
ESTOPPEL IN PAIS

TERMINAL FACILITIES vs. PPA
378 SCRA 82
FACTS:
Before us are two (2) consolidated petitions for review, one filed by
the Terminal Facilities and Services Corporation (TEFASCO) and the other
by the Philippine Ports Authority (PPA). TEFASCO is a domestic corporation
organized and existing under the laws of the Philippines with principal
place of business at Barrio Ilang, Davao City. It is engaged in the business
of providing port and terminal facilities as well as arrastre, stevedoring
and other port-related services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the
construction of a specialized terminal complex with port facilities and a
provision for port services in Davao City. To ease the acute congestion in
the government ports at Sasa and Sta. Ana, Davao City, PPA welcomed
the proposal and organized an inter-agency committee to study the plan.
The committee recommended approval.
On April 21, 1976 the PPA Board of Directors passed Resolution No.
7 accepting and approving TEFASCO's project proposal.
Long after TEFASCO broke round with massive infrastructure work,
the PPA Board curiously passed on October 1, 1976 Resolution No. 50
under which TEFASCO, without asking for one, was compelled to submit
an application for construction permit. Without the consent of TEFASCO,
the application imposed additional significant conditions.
The series of PPA impositions did not stop there. Two (2) years after
the completion of the port facilities and the commencement of TEFASCO's
port operations, or on June 10, 1978, PPA again issued to TEFASCO
another permit, under which more onerous conditions were foisted on
TEFASCO's port operations. In the purported permit appeared for the first
time the contentious provisions for ten percent (10%) government share
out of arrastre and stevedoring gross income and one hundred percent
(100%) wharfage and berthing charges.
On February 10, 1984 TEFASCO and PPA executed a Memorandum
of Agreement (MOA) providing among others for (a) acknowledgment of
TEFASCO's arrears in government share at Three Million Eight Hundred
Seven Thousand Five Hundred Sixty-Three Pesos and Seventy-Five
Centavos (P3,807,563.75) payable monthly, with default penalized by
automatic withdrawal of its commercial private port permit and permit to
operate cargo handling services; (b) reduction of government share from
ten percent (10%) to six percent (6%) on all cargo handling and related
revenue (or arrastre and stevedoring gross income); (c) opening of its pier
facilities to all commercial and third-party cargoes and vessels for a
period coterminous with its foreshore lease contract with the National
Government; and, (d) tenure of five (5) years extendible by five (5) more
years for TEFASCO's permit to operate cargo handling in its private port
facilities. In return PPA promised to issue the necessary permits for
TEFASCO's port activities. TEFASCO complied with the MOA and paid the
accrued and current government share.
On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and
Port Officer in Davao City for refund of government share it had paid and
for damages as a result of alleged illegal exaction from its clients of one
hundred percent (100%) berthing and wharfage fees. The complaint also
sought to nullify the February 10, 1984 MOA and all other PPA issuances
modifying the terms and conditions of the April 21, 1976 Resolution No. 7
above-mentioned.
PPA appealed the decision of the trial court to the Court of Appeals.
The appellate court in its original decision recognized the validity of the
impositions and reversed in toto the decision of the trial court. TEFASCO
moved for reconsideration which the Court of Appeals found partly
meritorious. Thus the Court of Appeals in its Amended Decision partially
affirmed the RTC decision only in the sense that PPA was directed to pay
TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand
Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty
percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One
Thousand Nine Hundred Sixty-Four Pesos and Six Centavos
(P3,961,964.06) representing thirty percent (30%) berthing fees which
TEFASCO could have earned as private port usage fee from 1977 to 1991.
The Court of Appeals held that the one hundred percent (100%) berthing
and wharfage fees were unenforceable because they had not been
approved by the President under P.D. No. 857, and discriminatory since
much lower rates were charged in other private ports as shown by PPA
issuances effective 1995 to 1997. Both PPA and TEFASCO were unsatisfied
with this disposition hence these petitions.
ISSUE:
Whether or not the collection by PPA of one hundred percent
(100%) wharfage fees and berthing charges; (c) the propriety of the
award of fifty percent (50%) wharfage fees and thirty percent (30%)
berthing charges as actual damages in favor of TEFASCO for the period
from 1977 to 1991 is valid.
RULING:
The imposition by PPA of ten percent (10%), later reduced to six
percent (6%), government share out of arrastre and stevedoring gross
income of TEFASCO is void. This exaction was never mentioned in the
contract, much less is it a binding prestation, between TEFASCO and PPA.
What was clearly stated in the terms and conditions appended to PPA
Resolution No. 7 was for TEFASCO to pay and/or secure from the proper
authorities "all fees and/or permits pertinent to the construction and
operation of the proposed project." The government share demanded and
collected from the gross income of TEFASCO from its arrastre and
stevedoring activities in TEFASCO's wholly owned port is certainly not a
fee or in any event a proper condition in a regulatory permit. Rather it is
an onerous "contractual stipulation" which finds no root or basis or
reference even in the contract aforementioned.
ESTOPPEL IN PAIS
MENDOZA vs. COURT OF APPEALS
June 25, 2001
FACTS:
Petitioner Danilo D. Mendoza is engaged in the domestic and
international trading of raw materials and chemicals. He operates under
the business name Atlantic Exchange Philippines (Atlantic), a single
proprietorship registered with the Department of Trade and Industry (DTI).
Sometime in 1978 he was granted by respondent Philippine National Bank
(PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One
Million Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may
thereinafter be granted, petitioner mortgaged to respondent PNB the
following: 1) three (3) parcels of land with improvements in F. Pasco
Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3)
several pieces of machinery and equipment in his Pasig coco-chemical
plant.
Petitioner executed in favor of respondent PNB three (3) promissory
notes covering the Five Hundred Thousand Pesos (P500,000.00) credit
line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos
(P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos
(P40,000.00); and the last dated September 27, 1979 for One Hundred
Fifty Thousand Pesos (P150,000.00).
Petitioner made use of his LC/TR line to purchase raw materials
from foreign importers. He signed a total of eleven (11) documents
denominated as "Application and Agreement for Commercial Letter of
Credit," on various dates
In a letter dated January 3, 1980 and signed by Branch Manager Fil
S. Carreon Jr., respondent PNB advised petitioner Mendoza that effective
December 1, 1979, the bank raised its interest rates to 14% per annum,
in line with Central Bank's Monetary Board Resolution No. 2126 dated
November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting
for the restructuring of his past due accounts into a five-year term loan
and for an additional LC/TR line of Two Million Pesos (P2,000,000.00).
According to the letter, because of the shut-down of his end-user
companies and the huge amount spent for the expansion of his business,
petitioner failed to pay to respondent bank his LC/TR accounts as they
became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on
behalf of the respondent bank and required petitioner to submit the
following documents before the bank would act on his request: 1) Audited
Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in -
cash out) for five (5) years detailed yearly; and 3) List of additional
machinery and equipment and proof of ownership thereof. Cura also
suggested that petitioner reduce his total loan obligations to Three Million
Pesos (P3,000,000.00).
On September 25, 1981, petitioner sent another letter addressed to
PNB Vice-President Jose Salvador, regarding his request for restructuring
of his loans. He offered respondent PNB the following proposals: 1) the
disposal of some of the mortgaged properties, more particularly, his
house and lot and a vacant lot in order to pay the overdue trust receipts;
2) capitalization and conversion of the balance into a 5-year term loan
payable semi-annually or on annual installments; 3) a new Two Million
Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange
Philippines to operate at full capacity; 4) assignment of all his receivables
to PNB from all domestic and export sales generated by the LC/TR line;
and 5) maintenance of the existing Five Hundred Thousand Pesos
(P500,000.00) credit line.
The petitioner testified that respondent PNB Mandaluyong Branch
found his proposal favorable and recommended the implementation of
the agreement. However, Fernando Maramag, PNB Executive Vice-
President, disapproved the proposed release of the mortgaged properties
and reduced the proposed new LC/TR line to One Million Pesos
(P1,000,000.00). Petitioner claimed he was forced to agree to these
changes and that he was required to submit a new formal proposal and to
sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following
revised proposals to respondent bank: 1) the restructuring of past due
accounts including interests and penalties into a 5-year term loan,
payable semi-annually with one year grace period on the principal; 2)
payment of Four Hundred Thousand Pesos (P400,000.00) upon the
approval of the proposal; 3) reduction of penalty from 3% to 1%; 4)
capitalization of the interest component with interest rate at 16% per
annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR
line against the mortgaged properties; 6) assignment of all his export
proceeds to respondent bank to guarantee payment of his
Petitioner failed to pay the subject two (2) Promissory Notes Nos.
127/82 and 128/82 as they fell due. Respondent PNB extra-judicially
foreclosed the real and chattel mortgages, and the mortgaged properties
were sold at public auction to respondent PNB, as highest bidder, for a
total of Three Million Seven Hundred Ninety Eight Thousand Seven
Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed a complaint for specific performance,
nullification of the extra-judicial foreclosure and damages against
respondents PNB. He alleged that the Extrajudicial Foreclosure Sale of the
mortgaged properties was null and void since his loans were restructured
to a five-year term loan; hence, it was not yet due and demandable. On
March 16, 1992, the trial court rendered judgment in favor of the
petitioner and ordered the nullification of the extrajudicial foreclosure of
the real estate mortgage, the Sheriff’s sale of the mortgaged real
properties by virtue of consolidation thereof and the cancellation of the
new titles issued to PNB; that PNB vacate the subject premises in Pasig
and turn the same over to the petitioner; and also the nullification of the
extrajudicial foreclosure and sheriff's sale of the mortgaged chattels, and
that the chattels be returned to petitioner Mendoza if they were removed
from his Pasig premises or be paid for if they were lost or rendered
unserviceable.
The trial court decided for the petitioner. Upon appeal, the Court of
Appeals reversed the decision of the trial court and dismissed the
complaint.
ISSUE:
Whether or not respondent promised to be bound by the proposal of
the petitioner for a five-year restructuring of his overdue loan.
RULING:
No. Respondent Court of Appeals held that there is no evidence of a
promise from respondent PNB, admittedly a banking corporation, that it
had accepted the proposals of the petitioner to have a five-year
restructuring of his overdue loan obligations. It found and held, on the
basis of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's responses were
not categorical that the appellee's request had been favorably accepted
by the bank."
Nowhere in those letters presented by the petitioner is there a
categorical statement that respondent PNB had approved the petitioner’s
proposed five-year restructuring plan. It is stretching the imagination to
construe them as evidence that his proposed five-year restructuring plan
has been approved by the respondent PNB which is admittedly a banking
corporation. Only an absolute and unqualified acceptance of a definite
offer manifests the consent necessary to perfect a contract. If anything,
those correspondences only prove that the parties had not gone beyond
the preparation stage, which is the period from the start of the
negotiations until the moment just before the agreement of the parties.
The doctrine of promissory estoppel is an exception to the general
rule that a promise of future conduct does not constitute an estoppel. In
some jurisdictions, in order to make out a claim of promissory estoppel, a
party bears the burden of establishing the following elements: (1) a
promise reasonably expected to induce action or forebearance; (2) such
promise did in fact induce such action or forebearance, and (3) the party
suffered detriment as a result.
It is clear from the forgoing that the doctrine of promissory estoppel
presupposes the existence of a promise on the part of one against whom
estoppel is claimed. The promise must be plain and unambiguous and
sufficiently specific so that the Judiciary can understand the obligation
assumed and enforce the promise according to its terms. For petitioner to
claim that respondent PNB is estopped to deny the five-year restructuring
plan, he must first prove that respondent PNB had promised to approve
the plan in exchange for the submission of the proposal. As discussed
earlier, no such promise was proven, therefore, the doctrine does not
apply to the case at bar. A cause of action for promissory estoppel does
not lie where an alleged oral promise was conditional, so that reliance
upon it was not reasonable. It does not operate to create liability where it
does not otherwise exist.
ESTOPPEL IN PAIS
ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION
vs. COURT OF APPEALS
266 SCRA 71
FACTS:
On 23 September 1986 respondent Contractors Equipment
Corporation (CEC) instituted an action for a sum of money against
petitioner Roblett Industrial Construction Corporation (RICC) before the
Regional Trial Court of Makati alleging that in 1985 it leased to the latter
various construction equipment which it used in its projects. As a result
RICC incurred unpaid accounts amounting to P342,909.38.
On 19 December 1985 RICC through its Assistant Vice President for
Finance Candelario S. Aller Jr. entered into an Agreement with CEC where
it confirmed petitioner's account. As an off-setting arrangement
respondent received from petitioner construction materials worth
P115,000.00 thus reducing petitioner's balance to P227,909.38.
A day before the execution of their Agreement, or on 18 December
1985, RICC paid CEC P10,000.00 in postdated checks which when
deposited were dishonored. As a consequence the latter debited the
amount to petitioner's account of P227,909.38 thus increasing its balance
to P237,909.38.
On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC,
sent a letter of demand to petitioner through its Vice President for Finance
regarding the latter's overdue account of P237,909.38 and sought
settlement thereof on or before 31 July 1986. In reply, petitioner
requested for thirty (30) days to have enough time to look for funds to
substantially settle its account.
Traversing the allegations of respondent, Candelario S. Aller Jr.
declared that he signed the Agreement with the real intention of having
proof of payment. In fact Baltazar Banlot, Vice President for Finance of
petitioner, claimed that after deliberation and audit it appeared that
petitioner overpaid respondent by P12,000.00 on the basis of the latter's
Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected
a total obligation of only P103,000.00. He claimed however that the
Agreement was not approved by the Board and that he did not authorize
Aller Jr. to sign thereon.
On rebuttal, Manaligod Jr. declared that petitioner had received a
statement of account covering the period from 28 March to 12 July 1985
in the amount of P376,350.18 which it never questioned. From this
amount P3,440.80, based on respondent's account with petitioner and
P30,000.00, representing payments made by the latter, were deducted
thus leaving a balance of P342,909.38 as mentioned in the Agreement.
On 19 December 1990 the trial court rendered judgment ordering
petitioner to pay respondent
ISSUE:
Whether or not the agreement between the parties is binding upon
them.
RULING:
Yes. It must be emphasized that the same agreement was used by
plaintiff as the basis for claiming defendant's obligation of P237,909.38
and also used by defendant as the same basis for its alleged payment in
full of its obligation to plaintiff. But while plaintiff treats the entire
agreement as valid, defendant wants the court to treat that portion which
treats of the offsetting of P115,000.00 as valid, whereas it considers the
other terms and conditions as "onerous, illegal and want of prior consent
and Board approval." This Court cannot agree to defendant's contention.
It must be stressed that defendant's answer was not made under oath,
and therefore, the genuineness and due execution of the agreement
which was the basis for plaintiff's claim is deemed admitted (Section 8,
Rule 8, Rules of Court). Such admission, under the principle of estoppel, is
rendered conclusive upon defendant and cannot be denied or disproved
as against plaintiff (Art. 1431, Civil Code). Either the agreement is valid or
void. It must be treated as a whole and not to be divided into parts and
consider only those provisions which favor one party (in this case the
defendant). Contracts must bind both contracting parties, its validity or
compliance cannot be left to the will of one of them (Art. 1308, New Civil
Code).
5.)ESTOPPEL BY LACHES
1. METROBANK VS. CABILZO
2. MESINA VS. GARCIA
3. PAHAMATONG VS. PNB
4. SHOPPER’S PARADISE VS. ROQUE
5. MEATMASTERS VS. LELIS INTEGRATED
6. LARENA VS. MAPILI
7. SANTOS VS. SANTOS
METROBANK vs. CABILZO
510 SCRA 259
FACTS:
On 12 November 1994, Cabilzo issued a Metrobank Check No.
985988, payable to “CASH” and postdated on 24 November 1994 in the
amount of One Thousand Pesos (P1, 000.00). The check was drawn
against Cabilzo’s Account with Metrobank Pasong Tamo Branch under
Current Account No. 618044873-3 and was paid by Cabilzo to a certain
Mr. Marquez, as his sales commission. Subsequently, the check was
presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the
entries thereon were examined, including the availability of funds and the
authenticity of the signature of the drawer, Metrobank cleared the check
for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
On 16 November 1994, Cabilzo’s representative was at Metrobank
Pasong Tamo Branch to make some transaction when he was asked by
bank personnel if Cabilzo had issued a check in the amount of P91,
000.00 to which the former replied in the negative. On the afternoon of
the same date, Cabilzo himself called Metrobank to reiterate that he did
not issue a check in the amount of P91, 000.00 and requested that the
questioned check be returned to him for verification, to which Metrobank
complied. Upon receipt of the check, Cabilzo discovered that Metrobank
Check No. 985988 which he issued on 12 November 1994 in the amount
of P1, 000.00 was altered to P91, 000.00 and the date 24 November 1994
was changed to 14 November 1994.Hence, Cabilzo demanded that
Metrobank re-credit the amount of P91, 000.00 to his account.
Metrobank, however, refused reasoning that it has to refer the matter first
to its Legal Division for appropriate action. Repeated verbal demands
followed but Metrobank still failed to re-credit the amount of P91, 000.00
to Cabilzo’s account
On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand
to Metrobank for the payment of P90, 000.00, after deducting the original
value of the check in the amount of P1, 000.00. Such written demand
notwithstanding, Metrobank still failed or refused to comply with its
obligation. Consequently, Cabilzo instituted a civil action for damages
against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan
Bank and Trust Company, Cabilzo prayed that in addition to his claim for
reimbursement, actual and moral damages plus costs of the suit be
awarded in his favor.
ISSUE:
Whether equitable estoppel can be appreciated in favor of
petitioner
HELD:
The degree of diligence required of a reasonable man in the
exercise of his tasks and the performance of his duties has been faithfully
complied with by Cabilzo. In fact, he was wary enough that he filled with
asterisks the spaces between and after the amounts, not only those
stated in words, but also those in numerical figures, in order to prevent
any fraudulent insertion, but unfortunately, the check was still
successfully altered, indorsed by the collecting bank, and cleared by the
drawee bank, and encashed by the perpetrator of the fraud, to the
damage and prejudice of Cabilzo.
Metrobank cannot lightly impute that Cabilzo was negligent and is
therefore prevented from asserting his rights under the doctrine of
equitable estoppel when the facts on record are bare of evidence to
support such conclusion. The doctrine of equitable estoppel states that
when one of the two innocent persons, each guiltless of any intentional or
moral wrong, must suffer a loss, it must be borne by the one whose
erroneous conduct, either by omission or commission, was the cause of
injury. Metrobank’s reliance on this dictum is misplaced. For one,
Metrobank’s representation that it is an innocent party is flimsy and
evidently, misleading. At the same time, Metrobank cannot asseverate
that Cabilzo was negligent and this negligence was the proximate cause
of the loss in the absence of even a scintilla proof to buttress such claim.
Negligence is not presumed but must be proven by the one who alleges it,
which petitioner failed to.
ESTOPPEL BY LACHES
MESINA vs. GARCIA
509 SCRA 431
FACTS:
 Atty. Honorio Valisno Garcia and Felicisima Mesina, during their
lifetime, or on 26 April 1977, to be exact entered into a Contract to Sell
over a lot consisting of 235 square meters, situated at Diversion Road,
Sangitan, Cabanatuan City, covered and embraced by TCT No. T-31643 in
the name of Felicisima Mesina which title was eventually cancelled and
TCT No. T-78881 was issued in the name of herein petitioners. Atty.
Honorio Valisno Garcia is the deceased husband of [herein respondent
Gloria C. Garcia] while the late Felicisima Mesina is the mother of Danilo,
Simeon, and Melanie, all surnamed Mesina.
The Contract to sell provides that the cost of the lot is P70.00 per
square meter for a total amount of P16, 450.00; payable within a
period not to exceed seven (7) years at an interest rate of 12% per
annum, in successive monthly installments of P260.85 per month, starting
May 1977. Thereafter, the succeeding monthly installments are to be
paid within the first week of every month, at the residence of the vendor
at Quezon City, with all unpaid monthly installments earning an interest of
one percent (1%) per month.
The Contract also stipulated, among others, that: Should the
spouses Garcia fail to pay five (5) successive monthly installments,
Felicisima Mesina shall have a right to rescind the Contract to Sell. All
paid installments to be recomputed as rental for usage of lot shall be at
the rate of P100.00 a month and that Felicisima Mesina shall have the
further option to return the downpayment plus whatever balance spouses
Garcia paid, thereby rescinding the Contract to Sell. Upon rescission of
the Contract to sell, spouses Garcia agree to remove all the
improvements built on the lot within three (3) months from rescission of
this contract, spouses Garcia shouldering all expenses of said removal.
Instituting this case at bar, respondent asserts that despite the full
payment made on February 7, 1984 for the consideration of the subject
lot, petitioners refused to issue the necessary Deed of Sale to effect the
transfer of the property to her
ISSUES:
Whether respondent’s cause of action had already prescribed
Whether petitioners are in estoppel
HELD:
In the case at bar, as pointed out by the Court of Appeals, the right
of action of the respondent accrued on the date that the full and final
payment of the contract price was made. Accordingly, as the full
payment of the purchase price on the subject Contract to Sell had been
effected on 7 February 1984 thus, respondent had from said date until
February 7, 1994 within which to bring an action to enforce the written
contract, the Contract to Sell. It was then the contention of the
petitioners that when the respondent instituted her Complaint for Specific
Performance with Damages on 20 January 1997, the same had already
been barred by prescription. The contention of the petitioners is
untenable. Article 1155 of the Civil Code is explicit that the prescriptive
period is interrupted when an action has been filed in court; when there is
a written extrajudicial demand made by the creditors; and when there is
any written acknowledgment of the debt by the debtor. Hence the action
has not yet prescribed.
With respect to the issue on estoppel, this Court, upon reviewing
the records of the case at bar, finds no reason to overturn the findings of
the appellate court that, indeed, petitioners are estopped from avowing
that they never had knowledge as to the acceptance of the delayed
payments made by the respondent, and that they never induced
respondent to believe that she had validly effected full payment. Evidence
on record show that petitioners can no longer deny having accepted the
late payments made by the respondent because in a letter dated April 10,
1986 sent to petitioner Simeon Mesina by Engineer Danilo Angeles, who is
the husband of petitioners’ authorized collection agent Angelina Angeles,
he told petitioner Simeon Mesina that the title and the Deed of Sale were
both ready for their signature, and respondent was willing and ready to
pay for the excess area. Hence, if petitioners did not accept the late
payments of the respondent, and if they did not consider such as full
payment of the purchase price on the subject property as they claimed it
to be, the title as well as the Deed of Sale could not have been prepared
for their signature. In the same way, respondent could not have sent a
demand letter to ask for the execution of those documents had they not
been induced to believe that the late payments were validly accepted and
that the purchase price had already been paid in full. There were
statements, which were made under oath, which made it crystal clear that
the late payments were accepted by the petitioners, and that the
payments corresponded to the purchase value of the subject property;
therefore, petitioners cannot deny the fact that the full payment of the
purchase value of the lot in question had in fact been made by the
respondent.
ESTOPPEL BY LACHES
PAHAMOTANG VS. PNB
G.R. No. 156403, March 21, 2005
FACTS:
On July 1, 1972, Melitona Pahamotang died. She was survived by
her husband Agustin Pahamotang, and their eight (8) children, namely:
Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein
petitioners Josephine and Eleonor, all surnamed Pahamotang. On
September 15, 1972, Agustin filed with the then Court of First Instance of
Davao City a petition for issuance of letters administration over the estate
of his deceased wife. The petition, docketed as Special Case No. 1792,
was raffled to Branch VI of said court, hereinafter referred to as the
intestate court. In his petition, Agustin identified petitioners Josephine and
Eleonor as among the heirs of his deceased spouse. It appears that
Agustin was appointed petitioners' judicial guardian in an earlier case -
Special Civil Case No. 1785 – also of the CFI of Davao City, Branch VI. On
December 7, 1972, the intestate court issued an order granting Agustin’s
petition.
The late Agustin then executed several mortgages and later sale of
the properties with the PNB and Arguna respectively. The heirs later
questioned the validity of the transactions prejudicial to them. The trial
court declared the real estate mortgage and the sale void but both were
valid with respect to the other parties. The decision was reversed by the
Court of Appeals; to the appellate court, petitioners committed a fatal
error of mounting a collateral attack on the foregoing orders instead of
initiating a direct action to annul them.
ISSUE:
Whether the Court of Appeals erred in reversing the decision of the
trial court
RULING:
In the present case, the appellate court erred in appreciating laches
against petitioners. The element of delay in questioning the subject orders
of the intestate court is sorely lacking. Petitioners were totally unaware of
the plan of Agustin to mortgage and sell the estate properties. There is no
indication that mortgagor PNB and vendee Arguna had notified petitioners
of the contracts they had executed with Agustin. Although petitioners
finally obtained knowledge of the subject petitions filed by their father,
and eventually challenged the July 18, 1973, October 19, 1974, February
25, 1980 and January 7, 1981 orders of the intestate court, it is not
clear from the challenged decision of the appellate court when they
(petitioners) actually learned of the existence of said orders of the
intestate court. Absent any indication of the point in time when
petitioners acquired knowledge of those orders, their alleged delay in
impugning the validity thereof certainly cannot be established. And the
Court of Appeals cannot simply impute laches against them.
ESTOPPEL BY LACHES
SHOPPER'S PARADISE REALTY & DEVELOPMENT CORPORATION
vs. EFREN ROQUE
January 13, 2004
FACTS:
 On 23 December 1993, petitioner Shopper's Paradise Realty &
Development Corporation, represented its president, Veredigno Atienza,
entered into a twenty-five year lease with Dr. Felipe C. Roque, now
deceased, over a parcel of land, Petitioner issued to Dr. Roque a check for
P250,000.00 by way of "reservation payment." Simultaneously, petitioner
and Dr. Roque likewise entered into a memorandum of agreement for the
construction, development and operation of a commercial building
complex on the property. Conformably with the agreement, petitioner
issued a check for another P250,000.00 "downpayment" to Dr. Roque.
The annotations, however, were never made because of the
untimely demise of Dr. Felipe C. Roque. The death of Dr. Roque on 10
February 1994 constrained petitioner to deal with respondent Efren P.
Roque, one of the surviving children of the late Dr. Roque, but the
negotiations broke down due to some disagreements. In a letter, dated 3
November 1994, respondent advised petitioner "to desist from any
attempt to enforce the aforementioned contract of lease and
memorandum of agreement". On 15 February 1995, respondent filed a
case for annulment of the contract of lease and the memorandum of
agreement, with a prayer for the issuance of a preliminary injunction.
Efren P. Roque alleged that he had long been the absolute owner of the
subject property by virtue of a deed of donation inter vivos executed in
his favor by his parents, Dr. Felipe Roque and Elisa Roque, on 26
December 1978, and that the late Dr. Felipe Roque had no authority to
enter into the assailed agreements with petitioner. The donation was
made in a public instrument duly acknowledged by the donor-spouses
before a notary public and duly accepted on the same day by respondent
before the notary public in the same instrument of donation. The title to
the property, however, remained in the name of Dr. Felipe C. Roque, and
it was only transferred to and in the name of respondent sixteen years
later, or on 11 May 1994, while he resided in the United States of
America, delegated to his father the mere administration of the property.
Respondent came to know of the assailed contracts with petitioner only
after retiring to the Philippines upon the death of his father. On 9 August
1996, the trial court dismissed the complaint of respondent; it explained:
Ordinarily, a deed of donation need not be registered in order to be
valid between the parties. Registration, however, is important in binding
third persons. Thus, when Felipe Roque entered into a lease contract with
defendant corporation, plaintiff Efren Roque (could) no longer assert the
unregistered deed of donation and say that his father, Felipe, was no
longer the owner of the subject property at the time the lease on the
subject property was agreed upon. "The registration of the Deed of
Donation after the execution of the lease contract did not affect the latter
unless he had knowledge thereof at the time of the registration which
plaintiff had not been able to establish. Plaintiff knew very well of the
existence of the lease. He, in fact, met with the officers of the defendant
corporation at least once before he caused the registration of the deed of
donation in his favor and although the lease itself was not registered, it
remains valid considering that no third person is involved. Plaintiff cannot
be the third person because he is the successor-in-interest of his father,
Felipe Roque, the lessor, and it is a rule that contracts take effect not only
between the parties themselves but also between their assigns and heirs
(Article 1311, Civil Code) and therefore, the lease contract together with
the memorandum of agreement would be conclusive on plaintiff Efren
Roque. He is bound by the contract even if he did not participate therein.
Moreover, the agreements have been perfected and partially executed by
the receipt of his father of the downpayment and deposit totaling to
P500,000.00." The trial court ordered respondent to surrender TCT No.
109754 to the Register of Deeds of Quezon City for the annotation of the
questioned Contract of Lease and Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the trial
court and held to be invalid the Contract of Lease and Memorandum of
Agreement. While it shared the view expressed by the trial court that a
deed of donation would have to be registered in order to bind third
persons, the appellate court, however, concluded that petitioner was not
a lessee in good faith having had prior knowledge of the donation in favor
of respondent, and that such actual knowledge had the effect of
registration insofar as petitioner was concerned. The appellate court
based its findings largely on the testimony of Veredigno Atienza during
cross-examination.
ISSUE:
 Whether or not the respondent is barred by laches and estoppel
from denying the contracts.
RULING:
The Court cannot accept petitioner's argument that respondent is
guilty of laches. Laches, in its real sense, is the failure or neglect, for an
unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier; it is
negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has
abandoned or declined to assert it. Respondent learned of the contracts
only in February 1994 after the death of his father, and in the same year,
during November, he assailed the validity of the agreements. Hardly,
could respondent then be said to have neglected to assert his case for an
unreasonable length of time.
Neither is respondent estopped from repudiating the contracts. The
essential elements of estoppel in pais, in relation to the party sought to be
estopped, are: 1) a clear conduct amounting to false representation or
concealment of material facts or, at least, calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; 2) an intent or, at least,
an expectation, that this conduct shall influence, or be acted upon by, the
other party; and 3) the knowledge, actual or constructive, by him of the
real facts. With respect to the party claiming the estoppel, the conditions
he must satisfy are: 1) lack of knowledge or of the means of knowledge of
the truth as to the facts in question; 2) reliance, in good faith, upon the
conduct or statements of the party to be estopped; and 3) action or
inaction based thereon of such character as to change his position or
status calculated to cause him injury or prejudice. 12 It has not been
shown that respondent intended to conceal the actual facts concerning
the property; more importantly, petitioner has been shown not to be
totally unaware of the real ownership of the subject property. Altogether,
there is no cogent reason to reverse the Court of Appeals in its assailed
decision.
ESTOPPEL BY LACHES
MEATMASTER vs. LELIS INTEGRATED
452 SCRA 626
FACTS:
On November 11, 1993, petitioner Meatmasters International
Corporation engaged the services of respondent Lelis Integrated
Development Corporation to undertake the construction of a
slaughterhouse and meat cutting and packing plant. The Construction
Agreement provided that the construction of petitioner’s slaughterhouse
should be completed by March 10, 1994. Respondent failed to finish the
construction of the said facility within the stipulated period, hence,
petitioner filed a complaint for rescission of contract and damages on
August 9, 1996 before the Regional Trial Court.
On November 23, 1998, the trial court rendered decision
RESCINDING the Construction Agreement between plaintiff Meatmaster
Int’l. Corp. and defendant Lelis Integrated Dev’t. Corp. with both parties
shouldering their own respective damage.
A copy of the decision was received by the respondent on
December 9, 1998. A motion for reconsideration was filed by respondent
on December 22, 1998, but the same was denied. A copy of the
resolution denying the motion for reconsideration was received on March
25, 1999. Respondent filed its notice of appeal on March 29, 1999.
Initially, the trial court dismissed the appeal for failure of the
respondent to pay the requisite docket fees within the reglementary
period. Upon motion by the respondent however, the trial court
reconsidered and gave due course to the notice of appeal because
respondent paid the docket fees.
In a motion to dismiss filed before the appellate court, the petitioner
alleged that respondent’s appeal suffers from jurisdictional infirmity
because of late payment of docket fees.
 CA set aside the decision of the trial court and directed petitioner to
pay respondent the amount of P1,863,081.53. Petitioner’s motion for
reconsideration was denied Hence, the instant petition.
ISSUE:
Whether or not the Court of Appeals erred in entertaining the
appeal of respondent despite the finality of the trial court’s decision.
RULING:
Yes. It is well-established that the payment of docket fees within the
prescribed period is mandatory for the perfection of an appeal. This is so
because a court acquires jurisdiction over the subject matter of the action
only upon the payment of the correct amount of docket fees regardless of
the actual date of filing of the case in court. The payment of the full
amount of the docket fee is a sine qua non requirement for the perfection
of an appeal. The court acquires jurisdiction over the case only upon the
payment of the prescribed docket fees.
In the case at bar, the respondent seasonably filed the notice of appeal
but it paid the docket fees one (1) month after the lapse of the appeal
period. As admitted by the respondent, the last day for filing the notice of
appeal was on March 29, 1999, but it paid the docket fees only on April
30, 1999 because of oversight. Obviously, at the time the said docket
fees were paid, the decision appealed from has long attained finality and
no longer appealable.
Respondent’s contention that the petitioner is now estopped from
raising the issue of late payment of the docket fee because of his failure
to assail promptly the trial court’s order approving the notice of appeal
and accepting the appeal fee, is untenable. Estoppel by laches arises
from the negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either
has abandoned or declined to assert it. In the case at bar, petitioner
raised at the first instance the non-payment of the docket fee in its
motion for reconsideration before the trial court. Petitioner reiterated its
objection in the motion to dismiss before the appellate court and finally, in
the instant petition. Plainly, petitioner cannot be faulted for being remiss
in asserting its rights considering that it vigorously registered a persistent
and consistent objection to the Court of Appeals’ assumption of
jurisdiction at all stages of the proceedings.
ESTOPPEL BY LACHES
MANIPOR vs. RICAFORT
407 SCRA 298
FACTS:
Respondent spouses Pablo and Antonia Ricafort instituted an action
for annulment of Transfer of Certificate of Title in the name of spouses
Renato and Teresita Villareal covering a 299 sq.m. lot. The Ricaforts
alleged that they are co-owners of said property together with Abelardo,
the father and predecessor of Renato as evidenced by an agreement
whereby Abelardo recognized their ownership of ½ portion of the lot.
Respondents also claim that, in violation of the agreement, Abelardo
obtained during his lifetime Original Certificate of Title over the lot
without their knowledge and consent. When Abelardo died in 1993,
Renato and Teresita transferred the title over the land in their name and
were issued a TCT.
In the course of the proceedings, parties entered into a compromise
settlement wherein the Villareals admitted the genuineness and due
execution of the agreement between respondents and Abelardo. Hence,
they agreed to physically divide the lot into half. They also agreed to
cause a relocation survey and the expenses will be borne equally by
them.
The trial court approved the compromise agreement but not long
thereafter, respondents filed a motion to cite the Villareals in contempt of
court for refusing to comply with the terms of the agreement. Eventually,
herein petitioners who are all siblings of Renato filed a motion for
intervention and substitution of parties alleging that spouses Renato and
Teresita have waived their interest in the disputed lot in their favor.
Petitioners availed of various remedies only to pursue the endeavor for
the annulment of the compromise judgment. Most of them were denied
until they resorted to this review before the Supreme Court.
ISSUE:
Whether or not the petitioners are estopped from seeking the
annulment of the compromise judgment.
RULING:
Yes, note that in a Sinumpaang Salaysay, petitioners admitted that
they acquiesced to have the subject lot donated and registered in
Renato’s name. In view of such admission, petitioners are estopped from
denying Renato’s absolute title to the lot. Under the principle of estoppel,
an admission or representation is rendered conclusive upon the person
making it and cannot be denied against the person relying thereon. Verily,
since petitioners admitted that they donated the lot to Renato, they
cannot now be allowed to defeat respondent’s claim by conveniently
asserting that they are co-owners of the lot. Otherwise, respondents, who
rightfully relied on the Certificate of Title, would be prejudiced by
petitioner’s misleading conduct.
ESTOPPEL BY LACHES
LARENA vs. MAPILI
408 SCRA 484
FACTS:
Hipolito Mapili during his lifetime owned a parcel of unregistered
land declared for taxation purposes in his name. The property had
descended by succession from Hipolito to his only son Magno and on to
the latter’s own widow and children. These heirs, the herein respondents,
took possession of the property up to the outbreak of World War II when
they evacuated to the hinterlands.
On the other hand, petitioner Aquilina Larena took possession of the
property in the1970’s alleging that she had purchased it from her aunt
(Filomena Larena) on February 17, 1968. Filomena Larena in turn claimed
to have bought it from Hipolito on October 28, 1949, as evidence by the
Affidavit of Transfer of Real Property executed on the same date. The
Regional Trial Court, however, declared the said affidavit as spurious
because Hipolito was already dead when the alleged transfer was made to
Filomena Larena.
On appeal, the Court of Appeals declared that respondents had
never lost their right to the land in question as they were the heirs to
whom the property had descended upon the death of the original
claimant and possessor.
ISSUE:
Whether or not Filomena Larena acquired the subject property by
means of sale, prescription, and/or laches.
RULING:
No, Filomena did not acquire said property by means of sale,
prescription and/or laches. First, the tax declarations are not a conclusive
evidence of ownership, but a proof that the holder has a claim of title over
the property. It is good indicia of possession in the concept of owner. It
may strengthen Aquilina’s bona fide claim of acquisition of ownership.
However, petitioners failed to present the evidence needed to tack the
date of possession on the property in question.
Second, acquisitive prescription is a mode of acquiring ownership by
a possessor through the requisite lapse of time. Since the claims of
purchase were unsubstantiated, petitioners’ acts of possessory character
have been merely tolerated by the owner. Hence, it did not constitute
possession. Moreover, there is lack of just title on the part of Aquilina and
therefore, ordinary acquisitive prescription of ten (10) years as provided
under Article 1134 of the Civil Code cannot be applied. Under Article 1137
of the Civil Code, the lapse of time required for extra-ordinary acquisitive
prescription is thirty (30) years, and records show that the lapse of time
was only twenty-seven (27) years—a period that was short of three (3)
years, when the complaint was filed.
Finally, laches is a failure or neglect for an unreasonable and
unexplained length of time to do that which could or should have been
done earlier through the exercise of due diligence. The filing by
respondents of the complaint in 1977 completely negates the decision
that the latter were negligent in asserting their claim.
STOPPEL BY LACHES
SANTOS vs. SANTOS
366 SCRA 395
FACTS:
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a
brother of private respondents Calixto, Alberto, Antonio, all surnamed
Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia were the parents of the respondents
and the husband of the petitioner. The spouses owned a parcel of
registered land with a four-door apartment administered by Rosalia who
rented them out. On January 19, 1959, the spouses executed a deed of
sale of the properties in favor of their children Salvador and Rosa. Rosa in
turn sold her share to Salvador on November 20, 1973, which resulted in
the issuance of new TCT. Despite the transfer of the property to Salvador,
Rosalia continued to lease and receive rentals from the apartment units.
On January 9, 1985, Salvador died, followed by Rosalia who died the
following month. Shortly after, petitioner Zenaida, claiming to be
Salvador’s heir, demanded the rent from Antonio Hombrebueno, a tenant
of Rosalia. When the latter refused to pay, Zenaida filed an ejectment suit
against him with the Metropolitan Trial Court of Manila, which eventually
decided in Zenaida’s favor.
On January 5, 1989, private respondent instituted an action for
reconveyance of property with preliminary injunction against petitioner in
the Regional Trial Court of Manila, where they alleged that the two deeds
of sale were simulated for lack of consideration. The petitioner on the
other hand denied the material allegations in the complaint and that she
further alleged that the respondents’ right to reconveyance was already
barred by prescription and laches considering the fact that from the date
of sale from Rosa to Salvador up to his death, more or less twelve (12)
years had lapsed, and from his death up to the filing of the case for
reconveyance, four (4) years has elapsed. In other words, it took
respondents about sixteen (16) years to file the case. Moreover, petitioner
argues that an action to annul a contract for lack of consideration
prescribes in ten (10) years and even assuming that the cause of action
has not prescribed, respondents are guilty of laches for their inaction for a
long period of time.
The trial court decided in favor of private respondents in as much as
the deeds of sale were fictitious, the action to assail the same does not
prescribe.
Upon appeal, the Court of Appeals affirmed the trial court’s
decision. It held that the subject deeds of sale did not confer upon
Salvador the ownership over the subject property, because even after the
sale, the original vendors remained in dominion, control, and possession
thereof.
ISSUE:
Whether or not the cause of action of the respondents had
prescribed and/or barred by laches.
RULING:
 No, the cause of action by the respondents had not prescribed nor is
it barred by laches.
First, the right to file an action for the reconveyance of the subject
property to the estate of Rosalia has not prescribed since deeds of sale
were simulated and fictitious. The complaint amounts to a declaration of
nullity of a void contract, which is imprescriptible. Hence, respondents’
cause of action has not prescribed.
Second, neither is their action barred by laches. The elements of
laches are: 1) conduct on the part of the defendant, or of one under whom
he claims, giving rise to the situation of which the complainant seeks a
remedy; 2) delay in asserting the complainant’s rights, the complainant
having knowledge or notice of the defendant’s conduct as having been
afforded an opportunity to institute a suit; 3) lack of knowledge or notice
on the part of the defendant that the complainant would assert the right
in which he bases his suit; and 4) injury or prejudice to the defendant in
the event relief is accorded to the complainant, or the suit is not held
barred. These elements must all be proved positively. The lapse of four
(4) years is not an unreasonable delay sufficient to bar respondent’s
action. Moreover, the fourth (4th) element is lacking in this case. The
concept of laches is not concerned with the lapse of time but only with the
effect of unreasonable lapse. The alleged sixteen (16) years of
respondents’ inaction has no adverse effect on the petitioner to make
respondents guilty of laches.
ESTOPPEL BY LACHES
VILLANUEVA- MIJARES ET. AL. vs. COURT OF APPEALS
April 12, 2000
FACTS:
Felipe Villanueva left a 15,336-square-meter parcel of land in
Kalibo, Capiz to his eight children: Simplicio, Benito, Leon, Eustaquio,
Camila, Fausta and Pedro. In 1952, Pedro declared under his name 1/6
portion of the property (1,905 sq. m.). He held the remaining properties in
trust for his co-heirs who demanded the subdivision of the property but to
no avail. After Leon’s death in 1972, private respondents discovered that
the shares of Simplicio, Nicolasa, Fausta and Maria Baltazar had been
purchased by Leon through a deed of sale dated August 25, 1946 but
registered only in 1971. In July 1970, Leon also sold and partitioned the
property in favor of petitioners, his children, who thereafter secured
separate and independent titles over their respective pro- indiviso shares.
Private respondents, who are also descendants of Felipe, filed an
action for partition with annulment of documents and/or reconveyance
and damages against petitioners. They contended that Leon fraudulently
obtained the sale in his favor through machinations and false pretenses.
The RTC declared that private respondents’ action had been barred by res
judicata and that petitioners are the “legal owners of the property in
question in accordance with the individual titles issued to them.
ISSUE:
Whether or not laches apply against the minor’s property that was
held in trust.
RULING:
No. At the time of the signing of the Deed of Sale of August
26,1948, private respondents Procerfina, Prosperedad, Ramon and Rosa
were minors. They could not be faulted for their failure to file a case to
recover their inheritance from their uncle Leon, since up to the age of
majority, they believed and considered Leon their co-heir administrator. It
was only in 1975, not in 1948, that they became aware of the actionable
betrayal by their uncle. Upon learning of their uncle’s actions, they filed
for recovery. Hence, the doctrine of stale demands formulated in Tijam
cannot be applied here. They did not sleep on their rights, contrary to
petitioner’s assertion.
Furthermore, when Felipe Villanueva died, an implied trust was
created by operation of law between Felipe’s children and Leon, their
uncle, as far as the 1/6 share of Felipe. Leon’s fraudulent titling of Felipe’s No. The Supreme Court the contention of CREBA, that the imposition of
1/6 share was a betrayal of that implied trust. the VAT on the sales and leases of real estate by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision of
AUTONOMY OF CONTRACTS non-impairment of contracts, is only slightly less abstract but nonetheless
hypothetical. It is enough to say that the parties to a contract cannot, through
1. TOLENTINO VS. SECRETARY, 235 SCRA 630 the exercise of prophetic discernment, fetter the exercise of the taxing power of
2. DUNCAN VS. GLAXO the State. For not only are existing laws read into contracts in order to fix
3. STARPAPER VS. SIMBOL obligations as between parties, but the reservation of essential attributes of
4. TIU VS. PLATINUM PLANS sovereign power is also read into contracts as a basic postulate of the legal
5. AVON COSMETICS VS. LUNA order. The policy of protecting contracts against impairment presupposes the
6. DEL CASTILLO VS. RICHMOND maintenance of a government which retains adequate authority to secure the
7. ARWOOD VS. DM CONSUNJI, 394 SCRA 11 peace and good order of society. In truth, the Contract Clause has never been
8. PASCUAL VS. RAMOS, 384 SCRA 105 thought as a limitation on the exercise of the State's power of taxation save only
where a tax exemption has been granted for a valid consideration.

ARTURO M. TOLENTINO
VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE
1994 Aug 25
G.R. No. 115455
235 SCRA 630
FACTS:
The valued-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale or
exchange of services. Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National
Internal Revenue Code.
The Chamber of Real Estate and Builders Association (CREBA) contends
that the imposition of VAT on sales and leases by virtue of contracts entered into
prior to the effectivity of the law would violate the constitutional provision of
“non-impairment of contracts.”
ISSUE:
Whether R.A. No. 7716 is unconstitutional on ground that it violates the
contract clause under Art. III, sec 10 of the Bill of Rights.
Such is not the case of PAL in G.R. No. 115852, and the Court does not
understand it to make this claim. Rather, its position, as discussed above, is that
the removal of its tax exemption cannot be made by a general, but only by a
specific, law.
Further, the Supreme Court held the validity of Republic Act No. 7716 in
its formal and substantive aspects as this has been raised in the various cases
before it. To sum up, the Court holds:
(1) That the procedural requirements of the Constitution have been
complied with by Congress in the enactment of the statute;
(2) That judicial inquiry whether the formal requirements for the
enactment of statutes - beyond those prescribed by the Constitution -
have been observed is precluded by the principle of separation of powers;
(3) That the law does not abridge freedom of speech, expression or the
press, nor interfere with the free exercise of religion, nor deny to any of
the parties the right to an education; and
(4) That, in view of the absence of a factual foundation of record, claims
that the law is regressive, oppressive and confiscatory and that it violates
vested rights protected under the Contract Clause are prematurely raised
and do not justify the grant of prospective relief by writ of prohibition.
WHEREFORE, the petitions are DISMISSED.

RULING: AUTONOMY OF CONTRACTS


DUNCAN ASSOCIATION OF DETAILMAN PTGW vs. GLAXOWELLCOM
PHILIPPINES
G.R. No. 162994, September 17, 2004
FACTS:
Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo
Wellcome Philippines, Inc. (Glaxo) as medical representative on October
24, 1995, after Tecson had undergone training and orientation.
Thereafter, Tecson signed a contract of employment which stipulates,
among others, that he agrees to study and abide by existing company
rules; to disclose to management any existing or future relationship by
consanguinity or affinity with co-employees or employees of competing
drug companies and should management find that such relationship
poses a possible conflict of interest, to resign from the company.
The Employee Code of Conduct of Glaxo similarly provides that an
employee is expected to inform management of any existing or future
relationship by consanguinity or affinity with co-employees or employees
of competing drug companies. If management perceives a conflict of
interest or a potential conflict between such relationship and the
employee’s employment with the company, the management and the
employee will explore the possibility of a “transfer to another department
in a non-counterchecking position” or preparation for employment outside
the company after six months. Tecson was initially assigned to market
Glaxo’s products in the Camarines Sur-Camarines Norte sales area.
Subsequently, Tecson entered into a romantic relationship with Bettsy, an
employee of Astra Pharmaceuticals (Astra), a competitor of Glaxo. Bettsy
was Astra’s Branch Coordinator in Albay. She supervised the district
managers and medical representatives of her company and prepared
marketing strategies for Astra in that area.
Even before they got married, Tecson received several reminders from his
District Manager regarding the conflict of interest which his relationship
with Bettsy might engender. Still, Tec son married Bettsy in September
1998. Tecson was later reassigned at Butuan-Surigao-Agusan area to
prevent conflict of interest but he refused and argued that he was
constructively dismissed.
ISSUE:
Whether the Court of Appeals erred in ruling that Glaxo’s policy
against its employees marrying employees from competitor companies is
valid
HELD:
Glaxo has a right to guard its trade secrets, manufacturing
formulas, marketing strategies and other confidential programs and
information from competitors, especially so that it and Astra are rival
companies in the highly competitive pharmaceutical industry. The
prohibition against personal or marital relationships with employees of
competitor companies upon Glaxo’s employees is reasonable under the
circumstances because relationships of that nature might compromise the
interests of the company. In laying down the assailed company policy,
Glaxo only aims to protect its interests against the possibility that a
competitor company will gain access to its secrets and procedures.
That Glaxo possesses the right to protect its economic interests
cannot be denied. No less than the Constitution recognizes the right of
enterprises to adopt and enforce such a policy to protect its right to
reasonable returns on investments and to expansion and growth. Indeed,
while our laws endeavor to give life to the constitutional policy on social
justice and the protection of labor, it does not mean that every labor
dispute will be decided in favor of the workers. The law also recognizes
that management has rights which are also entitled to respect and
enforcement in the interest of fair play.
In this case, there were notices and advises given to the petitioner
regarding his romantic relationship to his marriage regarding the conflict
of interest.
Hence the petition was denied.
AUTONOMY OF CONTRACTS
STAR PAPER vs. SIMBOL
487 SCRA 228
FACTS:
Petitioner was the employer of the respondents. Under the policy of
Star Paper the employees are:
1. New applicants will not be allowed to be hired if in case he/she has a
relative, up to the 3rd degree of relationship, already employed by the
company.
2. In case of two of our employees (singles, one male and another female)
developed a friendly relationship during the course of their employment
and then decided to get married, one of them should resign to preserve
the policy stated above.
Respondents Comia and Simbol both got married to their fellow
employees. Estrella on the other hand had a relationship with a co-
employee resulting to her pregnancy on the belief that such was
separated. The respondents allege that they were forced to resign as a
result of the implementation of the said assailed company policy.
The Labor Arbiter and the NLRC ruled in favor of petitioner. The
decision was appealed to the Court of Appeals which reversed the
decision.
ISSUE:
Whether the prohibition to marry in the contract of employment is
valid
HELD:
It is significant to note that in the case at bar, respondents were
hired after they were found fit for the job, but were asked to resign when
they married a co-employee. Petitioners failed to show how the marriage
of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an
employee of the Repacking Section, could be detrimental to its business
operations. Neither did petitioners explain how this detriment will happen
in the case of Wilfreda Comia, then a Production Helper in the Selecting
Department, who married Howard Comia, then a helper in the cutter-
machine. The policy is premised on the mere fear that employees married
to each other will be less efficient. If we uphold the questioned rule
without valid justification, the employer can create policies based on an
unproven presumption of a perceived danger at the expense of an
employee’s right to security of tenure.
Petitioners contend that their policy will apply only when one
employee marries a co-employee, but they are free to marry persons
other than co-employees. The questioned policy may not facially violate
Article 136 of the Labor Code but it creates a disproportionate effect and
under the disparate impact theory, the only way it could pass judicial
scrutiny is a showing that it is reasonable despite the discriminatory,
albeit disproportionate, effect. The failure of petitioners to prove a
legitimate business concern in imposing the questioned policy cannot
prejudice the employee’s right to be free from arbitrary discrimination
based upon stereotypes of married persons working together in one
company.
Lastly, the absence of a statute expressly prohibiting marital
discrimination in our jurisdiction cannot benefit the petitioners. The
protection given to labor in our jurisdiction is vast and extensive that we
cannot prudently draw inferences from the legislature’s silence that
married persons are not protected under our Constitution and declare
valid a policy based on a prejudice or stereotype. Thus, for failure of
petitioners to present undisputed proof of a reasonable business
necessity, we rule that the questioned policy is an invalid exercise of
management prerogative. Corollary, the issue as to whether respondents
Simbol and Comia resigned voluntarily has become moot and academic.
 In the case of Estrella, the petitioner failed to adduce proof to justify
her dismissal. Hence, the Court ruled that it was illegal.
Petition was denied.
AUTONOMY OF CONTRACTS
TIU vs. PLATINUM PLANS PHILIPPINES
G.R. No. 163512, February 28, 2007
FACTS:
Respondent Platinum Plans Philippines, Inc. is a domestic
corporation engaged in the pre-need industry. From 1987 to 1989,
petitioner Daisy B. Tiu was its Division Marketing Director. On January 1,
1993, respondent re-hired petitioner as Senior Assistant Vice-President
and Territorial Operations Head in charge of its Hong Kong and Asean
operations. The parties executed a contract of employment valid for five
years.
On September 16, 1995, petitioner stopped reporting for work. In
November 1995, she became the Vice-President for Sales of Professional
Pension Plans, Inc., a corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages before the
RTC of Pasig City, Branch 261. Respondent alleged, among others, that
petitioner’s employment with Professional Pension Plans, Inc. violated the
non-involvement clause in her contract of employment. In upholding the
validity of the non-involvement clause, the trial court ruled that a contract
in restraint of trade is valid provided that there is a limitation upon either
time or place. In the case of the pre-need industry, the trial court found
the two-year restriction to be valid and reasonable. On appeal, the Court
of Appeals affirmed the trial court’s ruling. It reasoned that petitioner
entered into the contract on her own will and volition. Thus, she bound
herself to fulfill not only what was expressly stipulated in the contract, but
also all its consequences that were not against good faith, usage, and law.
The appellate court also ruled that the stipulation prohibiting non-
employment for two years was valid and enforceable considering the
nature of respondent’s business.
ISSUE:
Whether the Court of Appeals erred in sustaining the validity of the
non-involvement clause
HELD:
In this case, the non-involvement clause has a time limit: two years
from the time petitioner’s employment with respondent ends. It is also
limited as to trade, since it only prohibits petitioner from engaging in any
pre-need business akin to respondent’s. More significantly, since
petitioner was the Senior Assistant Vice-President and Territorial
Operations Head in charge of respondent’s Hongkong and Asean
operations, she had been privy to confidential and highly sensitive
marketing strategies of respondent’s business. To allow her to engage in
a rival business soon after she leaves would make respondent’s trade
secrets vulnerable especially in a highly competitive marketing
environment. In sum, The Court finds the non-involvement clause not
contrary to public welfare and not greater than is necessary to afford a
fair and reasonable protection to respondent. Hence the restraint is valid
and such stipulation prevails.
AUTONOMY OF CONTRACTS
AVON COSMETICS vs. LUNA
511 SCRA 376
FACTS:
The present petition stemmed from a complaint[3] dated 1
December 1988, filed by herein respondent Luna alleging, inter alia¸ that
she began working for Beautifont, Inc. in 1972, first as a franchise dealer
and then a year later, as a Supervisor. Sometime in 1978, Avon
Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the
management and operations of Beautifont, Inc. Nonetheless, respondent
Luna continued working for said successor company. Aside from her work
as a supervisor, respondent Luna also acted as a make-up artist of
petitioner Avon’s Theatrical Promotion’s Group, for which she received a
per diem for each theatrical performance.
The contract was that:
The Company agrees:
1) To allow the Supervisor to purchase at wholesale the products of
the Company.
The Supervisor agrees:
1) To purchase products from the Company exclusively for resale and
to be responsible for obtaining all permits and licenses required to sell the
products on retail.
The Company and the Supervisor mutually agree:
1) That this agreement in no way makes the Supervisor an employee
or agent of the Company, therefore, the Supervisor has no authority to
bind the Company in any contracts with other parties.
2) That the Supervisor is an independent retailer/dealer insofar as
the Company is concerned, and shall have the sole discretion to
determine where and how products purchased from the Company will be
sold. However, the Supervisor shall not sell such products to stores,
supermarkets or to any entity or person who sells things at a fixed place
of business.
3) That this agreement supersedes any agreement/s between the
Company and the Supervisor.
4) That the Supervisor shall sell or offer to sell, display or promote
only and exclusively products sold by the Company.
5) Either party may terminate this agreement at will, with or without
cause, at any time upon notice to the other.
Later, respondent Luna entered into the sales force of Sandre
Philippines which caused her termination for the alleged violation of the
terms of the contract. The trial court ruled in favor of Luna that the
contract was contrary to public policy thus the dismissal was not proper.
The Court of Appeals affirmed the decision, hence this petition.
ISSUE:
Whether the Court of Appeals erred in ruling that the Supervisor’s
Agreement was invalid for being contrary to public policy
Whether there was subversion of the autonomy of contracts by the
lower courts
HELD:
Agreements in violation of orden público must be considered as
those which conflict with law, whether properly, strictly and wholly a
public law (derecho) or whether a law of the person, but law which in
certain respects affects the interest of society. Plainly put, public policy is
that principle of the law which holds that no subject or citizen can lawfully
do that which has a tendency to be injurious to the public or against the
public good. As applied to contracts, in the absence of express legislation
or constitutional prohibition, a court, in order to declare a contract void as
against public policy, must find that the contract as to the consideration
or thing to be done, has a tendency to injure the public, is against the
public good, or contravenes some established interests of society, or is
inconsistent with sound policy and good morals, or tends clearly to
undermine the security of individual rights, whether of personal liability or
of private property.
 From another perspective, the main objection to exclusive dealing is
its tendency to foreclose existing competitors or new entrants from
competition in the covered portion of the relevant market during the term
of the agreement. Only those arrangements whose probable effect is to
foreclose competition in a substantial share of the line of commerce
affected can be considered as void for being against public policy. The
foreclosure effect, if any, depends on the market share involved. The
relevant market for this purpose includes the full range of selling
opportunities reasonably open to rivals, namely, all the product and
geographic sales they may readily compete for, using easily convertible
plants and marketing organizations.
Applying the preceding principles to the case at bar, there is
nothing invalid or contrary to public policy either in the objectives sought
to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting
respondent Luna, and all other Avon supervisors, from selling products
other than those manufactured by petitioner Avon.
Having held that the “exclusivity clause” as embodied in paragraph
5 of the Supervisor’s Agreement is valid and not against public policy, we
now pass to a consideration of respondent Luna’s objections to the
validity of her termination as provided for under paragraph 6 of the
Supervisor’s Agreement giving petitioner Avon the right to terminate or
cancel such contract. The paragraph 6 or the “termination clause” therein
expressly provides that:
The Company and the Supervisor mutually agree:
6) Either party may terminate this agreement at will, with or without
cause, at any time upon notice to the other.
In the case at bar, the termination clause of the Supervisor’s
Agreement clearly provides for two ways of terminating and/or canceling
the contract. One mode does not exclude the other. The contract provided
that it can be terminated or cancelled for cause, it also stated that it can
be terminated without cause, both at any time and after written notice.
Thus, whether or not the termination or cancellation of the Supervisor’s
Agreement was “for cause,” is immaterial. The only requirement is that of
notice to the other party. When petitioner Avon chose to terminate the
contract, for cause, respondent Luna was duly notified thereof.
Worth stressing is that the right to unilaterally terminate or cancel
the Supervisor’s Agreement with or without cause is equally available to
respondent Luna, subject to the same notice requirement. Obviously, no
advantage is taken against each other by the contracting parties.
Hence, the petition was granted.
AUTONOMY OF CONTRACTS
DEL CASTILLO vs. RICHMOND
45 PHIL. REPORTS 679
FACTS:
The plaintiff alleges that the provisions and conditions contained in
the third paragraph of their contract constitute an illegal and
unreasonable restriction upon his liberty to contract, are contrary to
public policy, and are unnecessary in order to constitute a just and
reasonable protection to the defendant; and asked that the same be
declared null and void and of no effect. The defendant interposed a
general and special defense. In his special defense he alleges that during
the time the plaintiff was in the defendant's employ he obtained
knowledge of his trade and professional secrets and came to know and
became acquainted and established friendly relations with his customers
so that to now annul the contract and permit plaintiff to establish a
competing drugstore in the town of Legaspi, as plaintiff has announced
his intention to do, would be extremely prejudicial to defendant's
interest." The defendant further, in an amended answer, alleges that this
action not having been brought within four years from the time the
contract referred to in the complaint was executed, the same has
prescribed.
ISSUE:
 Whether the contract is valid and the autonomy of contracts be
upheld
HELD:
Considering the nature of the business in which the defendant is
engaged, in relation with the limitation placed upon the plaintiff both as to
time and place, The Court is of the opinion, and so decide, that such
limitation is legal and reasonable and not contrary to public policy,
otherwise, the autonomy of the contract will be subverted.
AUTONOMY OF CONTRACTS
ARWOOD INDUSTRIES, INC. VS. D.M. CONSUNJI, INC.
G.R No. 142277
December 11, 2002
394 SCRA 11
FACTS:
Petitioner Arwood Industries and resppndent DM Consunji, as owner and
contractor, respectively, entered into a Civil, Structural and Architectural Works
Agreement on February 6, 1989 for the construction of petitioner’s Westwood
Condominium at No. 23 Eisenhower St. Greenhills, San Juan, Metro Manila. The
contract price for the project aggregated to P20,800,000.00
Despite completion of the project, the amount of P962,434.78 remained
unpaid by petitioner. Demands were made by respondent for petitioner to pay
went unheeded.
Thus, on August 13, 1993, respondent filed a complaint for the recovery of
the balance of the contract price and for damages against petitioner. It prayed
for the payment of the a) amount of P962, 434.78 with interest of 2% per month
or a fraction thereof, from November 1990 up to the time of payment; b) the
payment of P250, 000 as attorney’s fees and litigation expenses; c) amount of
P150, 000 as exemplary damages and d) costs of suit.
The trial court and the Court of Appelas ruled in favor of DM Consunji.
Hence, this petition.
ISSUE:
Whether or not the trial court and the CA correctly granted the imposition
of the monetary interest of 2% per month on the amount of P962,434
RULING:
The Agreement or the contract between the parties is the formal
expression of the parties rights, duties, and obligations. It is the best evidence of
the intention of the parties. Thus, “when the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and
there can be, between the parties and their successors in interest, no evidence
of such terms other than the contents of the written agreement.”
It must be noted that the Agreement provided the respondent-contractor
two options in case of delay in monthly payments, to wit: a) suspend work on the
project until payment is remitted by the owner or b) continue the work but the
owner shall be required to pay the interest at a rate of 2% per month or fraction
thereof. Evidently, respondent the second option, as the condominium project
was in fact already completed. The payment of 2% then cannot be rejected.
Therefore, since the Agreement stands as the law between the parties,
the Court cannot ignore the existence of such provision providing for a penalty
for every month’s delay. Neither can petitioner impugn the Agreement to which
it willingly gave its consent.
Wherefore the petition is denied.
AUTONOMY OF CONTRACTS
SPOUSES SILVESTRE and CELIA PASCUAL VS. RODRIGO RAMOS
G. R. No. 144712
FACTS:
On June 3, 1987, spouses Silvestre and Celia Pascual executed in favor of
Rodrigo Ramos a Deed of Absolute Sale with Right to Repurchase over two
parcels of land located in Bambang, Bulacan, Bulacan for and in consideration of
P150,000.00. The Pascuals did not exercixe their right to repurchase the
property within the stipulated one-year period; thus, Ramos filed with the trial
court a petition that the title or ownership over the subject parcels and
improvements thereon be consolidated in his favor. In their answer, the
Pascuals averred that what the parties had actually agreed upon and entered
into was a real estate mortgage and that they had even overpaid Ramos. The
Pascuals prayed that Ramos be ordered to execute a Deed of Cancellation,
Release or Discharge of the Absolute Sale with Right to Repurchase or a Deed of
Real Estate Mortgage and for the award of damages. Among the documents
offered in evidence by Ramos during the trial was a document denominated as
Sinumpaang Salaysay signed by Ramos and Silvestre Pascual, but not notarized.
On the other hand, the Pascuals presented documentary evidence consisting of
acknowledgement receipts to prove the payments they had made. The trial
court found that the transaction was actually a loan in the amount of P150, 000,
the payment of which was secured by a mortgage of the property. It also found
that the Pascuals had made payments in the total sum of P344,000, and that
with interest at 7% per annum, the Pascuals had overpaid the loan by P141,500.
The trial court rendered its decision dismissing Ramos’ petition and
awarding the Pascuals the sum of P141,500 as overpayments on the loan and
interests.
Ramos moved for the reconsideration of the decision, alleging that the
trial court erred in using an interest rate of 7% pert annum in the computation of
the total amount of obligation since what was expressly stipulated in the
Sinumpaang Salaysay was 7% per month. Thus the total interest due was
P643,000 was still due as interest. Adding the latter to the principal sum of
P150,000, the total amount due from the Pascuals as of April 3, 1995, was
P793,000.
Finding merit in Ramos’ motion for reconsideration, which was not
opposed by the Pascuals, the trial court issued an order modifying its decision. It
deleted the award of P141,500 to the Pascuals and ordered them to pay Ramos
P511,000. The trial court noted that during the trial, the Pascuals never disputed
the stipulated interest which is 7% per month. However, the court declared it is
too burdensome and onerous, thus reducing the interest rate at 5% per month.
The Pascuals filed a motion to reconsider the Order of June 5, 1995 and
Ramos opposed the motion of the Pascuals. The Pascuals appealed to the Court
of Appeals but the appellate court affirmed in toto the trial court’s orders.
Hence, this petition.
ISSUE:
Whether or not the Pascuals are liable for 5% interest per month from
June 3, 1987 to April 3, 1995.
RULING:
The Supreme Court held that parties are bound by the stipulation in the
contracts voluntarily entered into by them. Parties are free to stipulate terms
and conditions which they deem convenient provided they are not contrary to
law, morals, good customs, public order or public policy. The interest rate of 7%
per month was voluntarily agreed upon by Ramos and the Pascuals. There is
nothing from the records and no allegation showing that petitioners were victims
of fraud when they entered into the agreement with Ramos. With the
suspension of the Usury Law and the removal of interest ceiling, the parties are
free to stipulate the interest to be imposed on loans. Absent any evidence of
fraud, undue influence, or any vice of consent exercised by Ramos on the
Pascuals, the interest agreed upon them is binding upon them. The Court is not
in a position to impose upon parties contractual stipulations different from what
they have agreed upon. The Court cannot supplant the interest rate, which was
reduced to 5% per month without opposition on the part of Ramos.
Hence, the Pascuals are liable for 5% interest per month from June 3,
1987 to April 3, 1995. The assailed decision is therefore affirmed and the petition
is denied.
OBLIGATORY FORCE OF CONTRACTS
MAXIMA HEMEDES, petitioner,
VS. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND
CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B
INSURANCE CORPORATION, respondents
G.R. No. 108472
October 8, 1999
FACTS:
The instant controversy involves a question of ownership over an
unregistered parcel of land, identified as Lot No. 6, plan Psu-111331, with an
area of 21,773 square meters, situated in Sala, Cabuyao, Laguna. It was
originally owned by the late Jose Hemedes, father of Maxima Hemedes and
Enrique D. Hemedes. On March 22, 1947 Jose Hemedes executed a document
entitled “Donation Inter Vivos With Resolutory Conditions” whereby he conveyed
ownership over the subject land, together with all its improvements, in favor of
his third wife, Justa Kausapin. Maxima Hemedes, through her counsel, filed an
application for registration and confirmation of title over the subject unregistered
land. Subsequently, Original Certificate of Title (OCT) No. (0-941) 0-198 was
issued in the name of Maxima Hemedes married to Raul Rodriguez by the
Registry of Deeds of Laguna on June 8, 1962, with the annotation that “Justa
Kausapin shall have the usufructuary rights over the parcel of land herein
described during her lifetime or widowhood.”
On February 28, 1979, Enrique D. Hemedes sold the property to
Dominium Realty and Construction Corporation (Dominium). On April 10, 1981,
Justa Kausapin executed an affidavit affirming the conveyance of the subject
property in favor of Enrique D. Hemedes as embodied in the “Kasunduan” dated
May 27, 1971, and at the same time denying the conveyance made to Maxima
Hemedes.
On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint
with the Court of First Instance of Binan, Laguna for the annulment of TCT No.
41985 issued in favor of R & b Insurance and/or the reconveyance to Dominium
of the subject property. Specifically, the complaint alleged that Dominium was
the absolute owner of the subject property by virtue of the February 28, 1979
deed of sale executed by Enrique D. Hemedes, who in turn obtained ownership
of the land from Justa Kausapin, as evidenced by the “Kasunduan” dated May
27, 1971. The Plaintiffs asserted that Justa Kausapin never transferred the land
to Maxima Hemedes and that Enrique D. Hemedes had no knowledge of the
registration proceedings initiated by Maxima Hemedes.
After considering the merits of the case, the trial court rendered judgment
on February 22, 1989 in favor of plaintiffs Dominium and Enrique D. Hemedes.
Both R & B Insurance and Maxima Hemedes appealed from the trial court’s
decision. On September 11, 1992 the Court of Appeals affirmed the assailed
decision in toto and on December 29, 1992, it denied R & Insurance’s motion for
reconsideration. Thus, Maxima Hemedes and R & B Insurance filed their
respective petitions for review with this Court on November 3, 1992 and
February 22, 1993, respectively.
ISSUE:
Which of the two conveyances by Justa Kausapin, the first in favor of
Maxima Hemedes and the second in favor of Enrique D. Hemedes, effectively
transferred ownership over the subject land?
RULING:
Public respondent’s finding that the “Deed of Conveyance of Unregistered
Real Property By Reversion” executed by Justa Kausapin in favor of Maxima
Hemedes is spurious is not supported by the factual findings in this case. It is
grounded upon the mere denial of the same by Justa Kausapin.
A party to a contract cannot just evade compliance with his contractual
obligations by the simple expedient of denying the execution of such contract.
If, after a perfect and binding contract has been executed between the parties, it
occurs to one of them to allege some defect therein as a reason for annulling it,
the alleged defect must be conclusively proven, since the validity and fulfillment
of contracts cannot be left to the will of one of the contracting parties.
In upholding the deed of conveyance in favor of Maxima Hemedes, the
Court must concomitantly rule that Enrique D. Hemedes and his transferee,
Dominium, did not acquire any rights over the subject property.
Justa Kausapin sought to transfer to her stepson exactly what she had
earlier transferred to Maxima Hemedes – he ownership of the subject property
pursuant to the first condition stipulated in the deed of donation executed by her
husband. Thus, the donation in favor of Enrique D. Hemedes is null and void for
the purported object thereof did not exist at the time of the transfer, having
already been transferred to his sister.
Similarly, the sale of the subject property by Enrique D. Hemedes to
Dominium is also a nullity for the latter cannot acquire more rights than its
predecessor-in-interest and is definitely not an innocent purchaser for value
since Enrique D. Hemedes did not present any certificate of title upon which it
relied.
The Court upheld petitioner R & B Insurance’s assertion of ownership over
the property in dispute, as evidenced by TCT No. 41985, subject to the
usufructuary rights of Justa Kausapin, which encumbrance has been properly
annotated upon the said certificate of title.
RIGHTS OF FIRST REFUSAL
1. VILLEGAS VS. CA
2. EQUATORIAL REALTY VS. CARMELO
3. PUP VS. CA
4. LITONJUA VS. L &R
JOSELITO VILLEGAS and DOMINGA VILLEGAS vs. COURT OF
APPEALS
 G.R. No. 129977. February 1, 2001
FACTS:
Before September 6, 1973, Lot B-3-A, with an area of 4 hectares
was registered under TCT No. 68641 in the names of Ciriaco D. Andres
and Henson Caigas. This land was also declared for real estate taxation
under Tax Declaration No. C2-4442. On September 6, 1973, Andres and
Caigas, with the consent of their respective spouses, Anita Barrientos and
Consolacion Tobias, sold the land to Fortune Tobacco Corporation for
P60,000.00. Simultaneously, they executed a joint affidavit declaring that
they had no tenants on said lot. On the same date, the sale was
registered in the Office of the Register of Deeds of Isabela. TCT No. 68641
was cancelled and TCT No. T-68737 was issued in Fortune’s name. On
August 6, 1976, Andres and Caigas executed a Deed of Reconveyance of
the same lot in favor of Filomena Domingo, the mother of Joselito Villegas,
defendant in the case before the trial court. Although no title was
mentioned in this deed, Domingo succeeded in registering this document
in the Office of the Register of Deeds on August 6, 1976, causing the
latter to issue TCT No. T-91864 in her name. It appears in this title that
the same was a transfer from TCT No. T-68641. On April 13, 1981,
Domingo declared the lot for real estate taxation under Tax Declaration
No. 10-5633. On December 4, 1976, the Office of the Register of Deeds of
Isabela was burned together with all titles in the office. On December 17,
1976, the original of TCT No. T-91864 was administratively reconstituted
by the Register of Deeds. On June 2, 1979, a Deed of Absolute Sale of a
portion of 20,000 square meters of Lot B-3-A was executed by Filomena
Domingo in favor of Villegas for a consideration of P1,000.00. This
document was registered on June 3, 1981 and as a result TCT No. T-
131807 was issued by the Register of Deeds to Villegas. On the same
date, the technical description of Lot B-3-A-2 was registered and TCT No.
T-131808 was issued in the name of Domingo. On January 22, 1991, this
document was registered and TCT No. 154962 was issued to the
defendant, Joselito Villegas.
On April 10, 1991, the trial court upon a petition filed by Fortune
ordered the reconstitution of the original of TCT No. T-68737. After trial on
the merits, the trial court rendered its assailed decision in favor of Fortune
Tobacco, declaring it to be entitled to the property. Petitioners thus
appealed this decision to the Court of Appeals, which affirmed the trial
court’s decision.
ISSUES:
Whether or not the Court of Appeals was correct in affirming the
trial court’s decision.
RULING:
Even if Fortune had validly acquired the subject property, it would
still be barred from asserting title because of laches. The failure or
neglect, for an unreasonable length of time to do that which by exercising
due diligence could or should have been done earlier constitutes laches. It
is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it has either
abandoned it or declined to assert it. While it is by express provision of
law that no title to registered land in derogation of that of the registered
owner shall be acquired by prescription or adverse possession, it is
likewise an enshrined rule that even a registered owner may be barred
from recovering possession of property by virtue of laches.
Hence, petition was GRANTED and the Decision of the Court of
Appeals was REVERSED.
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO &
BAUERMANN, INC vs. MAYFAIR THEATER, INC
G.R. No. 106063 1996 Nov 21 264 SCRA 483
FACTS:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon. On June 1, 1967 Carmelo entered into a
contract of lease with Mayfair for the latter’s lease of a portion of
Carmelo’s property. Two years later, on March 31, 1969, Mayfair entered
into a second contract of lease with Carmelo for the lease of another
portion of Carmelo’s property.
 Both contracts of lease provide identically worded paragraph 8,
which reads:
‘That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it hereby
binds and obligates itself, to stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.
Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation that Carmelo was desirous of
selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a
certain Jose Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy
the property for Six to Seven Million Pesos.
Under your company’s two lease contracts with our client, it is uniformly
provided:
‘8. That if the LESSOR should desire to sell the leased premises the
LESSEE shall be given 30-days exclusive option to purchase the same. In
the event, however, that the leased premises is sold to someone other
than the LESSEE, the LESSOR is bound and obligated, as it here binds and
obligates itself, to stipulate in the Deed of Sale thereof that the purchaser
shall recognize this lease and be bound by all the terms and conditions
hereof.
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased premises
but ‘the entire building and other improvements if the price is reasonable.
However, both Carmelo and Equatorial questioned the authenticity of the
second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto
Avenue land and building, which included the leased premises housing
the ‘Maxim’ and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of
Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. It dismissed the complaint with costs against the plaintiff. The
Court of Appeals reversed the decision of the trial court.
RULING:
Whether or not the decision of the Court of Appeals’ decision was
correct.
RULING:
The Court agrees with the Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract of
a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at a
predetermined fixed price.
Further, what Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention to
sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo,
however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair’s right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full process to
ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the “30-day exclusive option” time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire Claro
M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to be
a purchaser in good faith, and, therefore, rescission lies.
Hence, the petition was denied.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vs. COURT OF
APPEALS and FIRESTONE CERAMICS, INC.
G.R. No. 143513. November 14, 2001
NATIONAL DEVELOPMENT CORPORATION
vs. FIRESTONE CERAMICS INC
G.R. No. 143590. November 14, 2001
FACTS:
In the early sixties, petitioner National Development Corporation
(NDC), had in its disposal a ten-hectare property located along Pureza St.,
Sta. Mesa, Manila. The estate was popularly known as the NDC compound
and covered by Transfer Certificates of Title Nos. 92885, 110301 and
145470. Private respondent Firestone Ceramics Inc. manifested its desire
to lease a portion of the property for its ceramic manufacturing business.
NDC and FIRESTONE entered into a contract of lease denominated as
Contract No. C-30-65 covering a portion of the property measured at
2.90118 hectares for use as a manufacturing plant for a term of ten years,
renewable for another ten years under the same terms and conditions. In
consequence of the agreement, FIRESTONE constructed on the leased
premises several warehouses and other improvements needed for the
fabrication of ceramic products. Three and a half years later, FIRESTONE
entered into a second contract of lease with NDC over the latter's four-
unit pre-fabricated reparation steel warehouse stored in Daliao, Davao.
FIRESTONE agreed to ship the warehouse to Manila for eventual assembly
within the NDC compound. The second contract, denominated as Contract
No. C-26-68, was for similar use as a ceramic manufacturing plant and
was agreed expressly to be "co-extensive with the lease of LESSEE with
LESSOR on the 2.60 hectare-lot. The parties signed a similar contract
concerning a six-unit pre-fabricated steel warehouse which, as agreed
upon by the parties, would expire on 2 December 1978. Prior to the
expiration of the aforementioned contract, FIRESTONE wrote NDC
requesting for an extension of their lease agreement. Consequently, the
Board of Directors of NDC adopted the Resolution extending the term of
the lease, subject to several conditions among which was that in the
event NDC "with the approval of higher authorities, decide to dispose and
sell these properties including the lot, priority should be given to the
LESSEE". In pursuance of the resolution, the parties entered into a new
agreement for a ten-year lease of the property, renewable for another ten
years, expressly granting FIRESTONE the first option to purchase the
leased premises in the event that it decided "to dispose and sell these
properties including the lot”.
The parties' lessor-lessee relationship went smoothly until early
1988 when FIRESTONE, cognizant of the impending expiration of their
lease agreement with NDC, informed the latter through several letters
and telephone calls that it was renewing its lease over the property. While
its letter of 17 March 1988 was answered by Antonio A. Henson, General
Manager of NDC, who promised immediate action on the matter, the rest
of its communications remained unacknowledged. FIRESTONE's
predicament worsened when rumors of NDC's supposed plans to dispose
of the subject property in favor of petitioner Polytechnic University of the
Philippines came to its knowledge. Forthwith, FIRESTONE served notice
on NDC conveying its desire to purchase the property in the exercise of its
contractual right of first refusal. Apprehensive that its interest in the
property would be disregarded, FIRESTONE instituted an action for
specific performance to compel NDC to sell the leased property in its
favor. Following the denial of its petition, FIRESTONE amended its
complaint to include PUP and Executive Secretary Catalino Macaraeg, Jr.,
as party-defendants, and sought the annulment of Memorandum Order
No. 214.
After trial, judgment was rendered declaring the contracts of lease
executed between FIRESTONE and NDC covering the 2.60-hectare
property and the warehouses constructed thereon valid and existing until
2 June 1999. The Court of Appeals affirmed the decision of the trial court
ordering the sale of the property in favor of FIRESTONE.
ISSUE:
Whether or not the Court of Appeals decided a question of
substance in a way definitely not in accord with law or jurisprudence.
RULING:
The courts a quo did not hypothesize, much less conjure, the sale of
the disputed property by NDC in favor of petitioner PUP. Aside from the
fact that the intention of NDC and PUP to enter into a contract of sale was
clearly expressed in the Memorandum Order No. 214, a close perusal of
the circumstances of this case strengthens the theory that the
conveyance of the property from NDC to PUP was one of absolute sale, for
a valuable consideration, and not a mere paper transfer as argued by
petitioners.
A contract of sale, as defined in the Civil Code, is a contract where
one of the parties obligates himself to transfer the ownership of and to
deliver a determinate thing to the other or others who shall pay therefore
a sum certain in money or its equivalent. It is therefore a general requisite
for the existence of a valid and enforceable contract of sale that it be
mutually obligatory, i.e., there should be a concurrence of the promise of
the vendor to sell a determinate thing and the promise of the vendee to
receive and pay for the property so delivered and transferred. The Civil
Code provision is, in effect, a "catch-all" provision which effectively brings
within its grasp a whole gamut of transfers whereby ownership of a thing
is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one
party involved in the questioned transaction. Petitioners NDC and PUP
have their respective charters and therefore each possesses a separate
and distinct individual personality.
Hence, the petition was denied.
SPS. LITONJUA vs. L & R CORPORATION
G.R. No. 130722. December 9, 1999
320 SCRA 405
FACTS:
This stems from loans obtained by the spouses Litonjua from L&R
Corporation in the aggregate sum of P400,000.00; P200,000.00 of which
was obtained on August 6, 1974 and the remaining P200,000.00 obtained
on March 27, 1978. The loans were secured by a mortgage constituted by
the spouses upon their two parcels of land and the improvements thereon
The mortgage was duly registered with the Register of Deeds.
Spouses Litonjua sold to Philippine White House Auto Supply, Inc.
(PWHAS) the parcels of land they had previously mortgaged to L & R
Corporation for the sum of P430,000.00. Meanwhile, with the spouses
Litonjua having defaulted in the payment of their loans, L & R Corporation
initiated extrajudicial foreclosure proceedings with the Ex-Oficio Sheriff of
Quezon City. The mortgaged properties were sold at public auction to L &
R Corporation as the only bidder for the amount of P221,624.58.
The Deputy Sheriff informed L & R Corporation of the payment by
PWHAS of the full redemption price and advised it that it can claim the
payment upon surrender of its owner’s duplicate certificates of title. The
spouses Litonjua presented for registration the Certificate of Redemption
issued in their favor to the Register of Deeds of Quezon City. The
Certificate also informed L & R Corporation of the fact of redemption and
directed the latter to surrender the owner’s duplicate certificates of title
within five days.
On April 22, 1981, L & R Corporation wrote a letter to the Sheriff, copy
furnished to the Register of Deeds, stating: (1) that the sale of the
mortgaged properties to PWHAS was without its consent, in contravention
of paragraphs 8 and 9 of their Deed of Real Estate Mortgage; and (2) that
it was not the spouses Litonjua, but PWHAS, who was seeking to redeem
the foreclosed properties, when under Articles 1236 and 1237 of the New
Civil Code, the latter had no legal personality or capacity to redeem the
same.
 On the other hand, the spouses Litonjua asked the Register of
Deeds to annotate their Certificate of Redemption as an adverse claim on
the titles of the subject properties on account of the refusal of L & R
Corporation to surrender the owner’s duplicate copies of the titles to the
subject properties. With the refusal of the Register of Deeds to annotate
their Certificate of Redemption, the Litonjua spouses filed a Petition on
July 17, 1981 against L & R Corporation for the surrender of the owner’s
duplicate of Transfer Certificates of Title No. 197232 and 197233 before
the then CFI.
While the said case was pending, L & R Corporation executed an
Affidavit of Consolidation of Ownership. The Register of Deeds cancelled
Transfer Certificates of Title No. 197232 and 197233 and in lieu thereof,
issued Transfer Certificates of Title No. 280054 and 28055 in favor of L &
R Corporation, free of any lien or encumbrance. A complaint for Quieting
of Title, Annulment of Title and Damages with preliminary injunction was
filed by the spouses Litonjua and PWHAS against herein respondents
before the then CFI.
ISSUE:
Whether or not the Court of Appeals erred in its decision.
RULING:
In the case at bar, PWHAS cannot claim ignorance of the right of
first refusal granted to L & R Corporation over the subject properties since
the Deed of Real Estate Mortgage containing such a provision was duly
registered with the Register of Deeds. As such, PWHAS is presumed to
have been notified thereof by registration, which equates to notice to the
whole world. Thus, the Decision appealed from was AFFIRMED with the
following MODIFICATIONS.
MUTUALITY OF CONTRACT
JOSEFA VS. ZHANDONG TRADING CORPORATION
417 SCRA 269
G.R. NO. 150903
DECEMBER 8, 2003
FACTS:
Respondent Zhandong delivered to petitioner Josefa, who was introduced
to it as a client by Mr. Tan, the total volume of 313 crates of boards valued at
P4,558,100.00 payable within 60 days from delivery. Instead of paying
respondent, however, petitioner remitted his payments to Tan who in turn
delivered various checks to respondent, who accepted them upon Tan’s
assurance that said checks came from petitioner. When a number of the checks
bounced, Tan issued his own checks and those of his mother, but Tan later
stopped payments. Respondent demanded payment from Tan and petitioner but
was ignored; hence he filed the instant complaint.
In his answer petitioner averred that he had already paid all his
obligations to respondent through Tan. Furthermore, he claimed he is not privy
to the agreements between Tan and respondent, and hence, in case his
payments were not remitted to respondent, then it was not his (petitioner) fault
and that respondent should bear the consequences.
ISSUE:
Whether or not petitioner is liable for payment of the boards to
respondent when he did not negotiate the transaction with it, rather through Tan
as intermediary.
RULING:
No. The transaction was negotiated between Tan and petitioner who only
received the goods delivered by respondent. Petitioner was not privy to the
arrangement between Tan and respondent. Petitioner has fully paid for the
goods to Tan with whom he had arranged the transaction.
Contracts take effect only between the parties, their successors in
interest, heirs, and assigns. When there is no privity of contract, there is likewise
no obligation or liability and thus, no cause of action arises. Petitioner, being not
privy to the transaction between Tan and respondent, should not be made liable
for the failure of Tan to deliver the payment to respondent.
Therefore, respondent should recover the payment from Tan.

PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION
1. PCI VS. NG SHEUNG NGOR
2. DIO VS. ST.FERDINAND MEMORIAL
3. PILTEL VS.TECSON
4. PAL VS. CA, 255 SCRA 48
5. ERMITANO VS. CA, 306 SCRA 218
PCI VS NG SHUENG NGOR
A.M. No. P-05-1973. March 18, 2005
FACTS:
Complainant EPCIB is the defendant in Civil Case No. CEB-26983
before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng
Sheung Ngor, doing business under the name and style ‘Ken Marketing,’
Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI
Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or
Reformation of Documents and Contracts.
Respondents Antonio A. Bellones and Generoso B. Regalado are the
sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City.
For garnishing accounts maintained by Equitable PCI Bank, Inc.
(EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation
(HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino
L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado.
There was an offer of other real property by petitioner.
ISSUE:
Did respondents violate the Rules of Court?
RULING:
By serving notices of garnishment on Citibank, N.A., HSBC and PNB,
Sheriff Regalado violated EPCIB’s right to choose which property may be
levied upon to be sold at auction for the satisfaction of the judgment debt.
Thus, it is clear that when EPCIB offered its real properties, it exercised its
option because it cannot immediately pay the full amount stated in the
writ of execution and all lawful fees in cash, certified bank check or any
other mode of payment acceptable to the judgment obligee.
In the case at bar, EPCIB cannot immediately pay by way of
Manager’s Check so it exercised its option to choose and offered its real
properties. With the exercise of the option, Sheriff Regalado should have
ceased serving notices of garnishment and discontinued their
implementation. This is not true in the instant case. Sheriff Regalado was
adamant in his posture even if real properties have been offered which
were sufficient to satisfy the judgment debt.
PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION
TERESITA DIO vs. ST. FERDINAND MEMORIALPARK, INC.
G.R. No. 169578 November 30, 2006
509 SCRA 453
FACTS:
On December 11, 1973, Teresita Dio agreed to buy, on installment
basis, a memorial lot from the St. Ferdinand Memorial Park, Inc. (SFMPI) in
Lucena City. The purchase was evidenced by a Pre-Need Purchase
Agreement. She obliged herself to abide by all such rules and regulations
governing the SFMPI dated May 25, 1972. SFMPI issued a Deed of Sale
and Certificate of Perpetual. The ownership of Dio over the property was
made subject to the rules and regulations of SFMPI, as well as the
government, including all amendments, additions and modifications that
may later be adopted. According to the Rules (Rule 69) Mausoleum
building and memorials should be constructed by the Park Personnel. Lot
Owners cannot contract other contractors for the construction of the said
buildings and memorial, however, the lot owner is free to give their own
design for the mausoleum to be constructed, as long as it is in accordance
with the park standards. The construction shall be under the close
supervision of the Park Superintendent.
The mortal remains of Dio’s husband, father and daughter were
interred in the lot at her own expense, without the knowledge and
intervention of SFMPI..
 In October 1986, Dio informed SFMPI, through its president and
controlling stockholder, Mildred F. Tantoco, that she was planning to build
a mausoleum on her lot and sought the approval thereof. Dio showed to
Tantoco the plans and project specifications accomplished by her private
contractor at an estimated cost of P60,000.00. The plans and
specifications were approved, but Tantoco insisted that the mausoleum
be built by it or its agents at a minimum cost of P100,000.00 as provided
in Rule 69 of the Rules and Regulations the SFMPI issued on May 25,
1972. The total amount excluded certain specific designs in the approved
plan which if included would cost Dio much more. Dio, through counsel,
demanded that she be allowed to construct the mausoleum within 10
days, otherwise, she would be impelled to file the necessary action/s
against SFMPI and Tantoco. Dio filed a Complaint for Injunction with
Damages against SFMPI and Tantoco before the RTC. She averred that
she was not aware of Rule 69 of the SFMPI Rules and Regulations; the
amount of P100,000.00 as construction cost of the mausoleum was
unconscionable and oppressive. She prayed that, after trial, judgment be
rendered in her favor, granting a final injunction perpetually restraining
defendants from enforcing the invalid Rule 69 of SFMPI’s “Rules for
Memorial Work in the Mausoleum of the Park” or from refusing or
preventing the construction of any improvement upon her property in the
park. The court issued a cease and desist order against defendants.
The trial court rendered judgment in favor of defendants. On
appeal, the CA affirmed the decision of the trial court.
ISSUE:
Whether or not petitioner had knowledge of Rule 69 of SFMPI Rules
and Regulations for memorial works in the mausoleum areas of the park
when the Pre-Need Purchase Agreement and the Deed of Sale was
executed and whether the said rule is valid and binding upon petitioner.
RULING:
Plaintiff’s allegation that she was not aware of the said Rules and
Regulations lacks credence. Admittedly, in her Complaint and during the
trial, plaintiff testified that she informed the defendants of her intention to
construct a mausoleum. Even counsel for the plaintiff, who is the son of
the plaintiff, informed the Court during the trial in this case that her
mother, the plaintiff herein, informed the defendants of her plan to
construct and erect a mausoleum. This act of the plaintiff clearly shows
that she was fully aware of the said rules and regulations otherwise she
should not consult, inform and seek permission from the defendants of
her intention to build a mausoleum if she is not barred by the rules and
regulations to do the same. When she signed the contract with the
defendants, she was estopped to question and attack the legality of said
contract later on.
Further, a contract of adhesion, wherein one party imposes a
readymade form of contract on the other, is not strictly against the law. A
contract of adhesion is as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it entirely.
Contrary to petitioner’s contention, not every contract of adhesion is an
invalid agreement.
Thus, the petition was denied.
PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION
PILIPINO TELEPHONE CORPORATION vs. DELFINO TECSON
G.R. No. 156966. May 7, 2004
FACTS:
On various dates in 1996, Delfino C. Tecson applied for 6 cellular
phone subscriptions with petitioner Pilipino Telephone Corporation
(PILTEL), a company engaged in the telecommunications business, which
applications were each approved and covered, respectively, by six
mobiline service agreements. On 05 April 2001, respondent filed with the
Regional Trial Court a complaint against petitioner for a “Sum of Money
and Damages.” Petitioner moved for the dismissal of the complaint on the
ground of improper venue, citing a common provision in the mobiline
service agreements to the effect that - “Venue of all suits arising from this
Agreement or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber shall be in the proper courts
of Makati, Metro Manila. Subscriber hereby expressly waives any other
venues.” The Regional Trial Court of Iligan City, Lanao del Norte, denied
petitioner’s motion to dismiss and required it to file an answer within 15
days from receipt thereof.
Petitioner filed a petition for certiorari before the Court of Appeals.
The Court of Appeals saw no merit in the petition and affirmed the
assailed orders of the trial court.
ISSUE:
Whether or not the Court of Appeals erred in affirming the orders of
the trial court.
RULING:
The contract herein involved is a contract of adhesion. But such an
agreement is not per se inefficacious. The rule instead is that, should
there be ambiguities in a contract of adhesion, such ambiguities are to be
construed against the party that prepared it. If, however, the stipulations
are not obscure, but are clear and leave no doubt on the intention of the
parties, the literal meaning of its stipulations must be held controlling. A
contract of adhesion is just as binding as ordinary contracts. It is true that
this Court has, on occasion, struck down such contracts as being
assailable when the weaker party is left with no choice by the dominant
bargaining party and is thus completely deprived of an opportunity to
bargain effectively. Nevertheless, contracts of adhesion are not
prohibited even as the courts remain careful in scrutinizing the factual
circumstances underlying each case to determine the respective claims of
contending parties on their efficacy. In the case at bar, respondent
secured 6 subscription contracts for cellular phones on various dates. It
would be difficult to assume that, during each of those times, respondent
had no sufficient opportunity to read and go over the terms and
conditions embodied in the agreements. Respondent continued, in fact, to
acquire in the pursuit of his business subsequent subscriptions and
remained a subscriber of petitioner for quite sometime.
Hence, the petition was granted by the Court and the decision of
the Court of Appeals is reversed and set aside. The Civil Case pending
before the Regional Trial Court of Iligan City, Branch 4, was DISMISSED
without prejudice to the filing of an appropriate complaint by respondent
against petitioner with the court of proper venue.
PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION
PHILIPPINE AIRLINES VS. COURT OF APPEALS
G.R. No. 119706
March 14, 1996
255 SCRA 48
FACTS:
On January 27, 1990, plaintiff Gilda C. Mejia shipped thru defendant,
Philippine Airlines, one (1) unit microwave oven under PAL Air Waybill No. 0-79-
1013008-3, with a gross weight of 33 kilograms from San Francisco, U.S.A. to
Manila, Philippines. Upon arrival, however, of said article in Manila, Philippines,
plaintiff discovered that its front glass door was broken and the damage
rendered it unserviceable. Demands both oral and written were made by
plaintiff against the defendant for the reimbursement of the value of the
damaged microwave oven, and transportation charges paid by plaintiff to
defendant company. But these demands fell on deaf ears. This is because,
according to petitioner, was filed out of time under paragraph 12, a (1) of the Air
Waybill which provides: "(a) the person entitled to delivery must make a
complaint to the carrier in writing in case: (1) of visible damage to the goods,
immediately after discovery of the damage and at the latest within 14 days from
the receipt of the goods.
On September 25, 1990, Gilda C. Mejia filed an action for damages against
the petitioner in the lower court. The latter rendered a decision rendering PAL
liable to pay, actual, moral and exemplary damages as well as attorney’s fees.
On appeal, the Court of Appeals similarly ruled in favor of private respondent by
affirming in full the trial court's judgment, with costs against petitioner.
ISSUE:
Whether or not the respondent court erred in affirming the conclusions of
the trial court that since the air waybill is a contract of adhesion, its provisions
should be strictly construed against herein petitioner.
RULING:
The Supreme Court affirmed the appealed decision.
The trial court relied on the ruling in the case of Fieldmen's Insurance Co.,
Inc. vs. Vda. De Songco, et al. in finding that the provisions of the air waybill
should be strictly construed against petitioner. More particularly, the court below
stated its findings thus:
“In this case, it is seriously doubted whether plaintiff had read the printed
conditions at the back of the Air Waybill, or even if she had, if she was given a
chance to negotiate on the conditions for loading her microwave oven. Instead
she was advised by defendant's employee at San Francisco, U.S.A., that there is
no need to declare the value of her oven since it is not brand new. Further,
plaintiff testified that she immediately submitted a formal claim for P30,000.00
with defendant. But their claim was referred from one employee to another then
told to come back the next day, and the next day, until she was referred to a
certain Atty. Paco. When they got tired and frustrated of coming without a
settlement of their claim in sight, they consulted a lawyer who demanded from
defendant on August 13, 1990”.
Respondent appellate court approved said findings of the trial court in this
manner: “We cannot agree with defendant-appellant's above contention. Under
our jurisprudence, the Air Waybill is a contract of adhesion considering that all
the provisions thereof are prepared and drafted only by the carrier. The only
participation left of the other party is to affix his signature thereto. In the earlier
case of Angeles v. Calasanz, the Supreme Court ruled that the terms of a
contract of adhesion must be interpreted against the party who drafted the
same.”
PRINCIPLE OF EQUALITY / CONTRACTS OF ADHESION
ERMITAÑO VS. COURT OF APPEALS
306 SCRA 218
FACTS:
Petitioner Luis Ermitaño applied for a credit card from private respondent
BPI Express Card Corp. (BECC) on October 8, 1986 with his wife, Manuelita, as
extension card holder. The spouses were given credit limit of P10, 000.00. They
often exceeded this credit limit without protest from BCC.
On August 9, 1989, Manuelita’s bag was snatched from her as she was
shopping at the greenbelt mall in Makati, Metro Manila. Among the items inside
the bag was her BECC credit card. That same night she informed, by telephone,
BECC of the loss. The call was received by BECC offices through a certain Gina
Banzon. This was followed by a letter dated August 30, 1989. She also
surrendered Luis’ credit card and requested for replacement cards. In her letter,
Manuelita stated that she “shall not be responsible for any and all charges
incurred [through the use of the lost card] After August 29, 1989.
However, when Luis received his monthly billing statement from BECC
dated September 20,1989, the charges included amounts for purchases were
made, one amounting to P2,350.05 and the other, P607.50. Manuelita received a
billing statement dated October 20,1989 which required her to immediately pay
the total amount of P3,197.70 covering the same (unauthorized) purchases.
Manuelita wrote again BECC disclaiming responsibility for those charges, which
were made after she had served BECC with notice of loss of her card.
However, BECC, in a letter dated July 13, 1990, pointed to Luis the
following stipulation in their contract:
In his reply dated July 18, 1990, Luis stressed that the contract BECC was
referring to was a contract of adhesion and warned that if BECC insisted on
charging him and his wife for the unauthorized purchases, they will sue BECC
continued to bill the spouses for said purchases.
The trial court only opined that the only purpose for the suspension of the
spouses’ credit privileges was to compel them to pay for the unauthorized
purchases. The trial court ruled that the latter portion of the condition in the
parties’ contract, which states the liability for purchases made after a card is lost
or stolen shall be for the account of the cardholder until after notice of the lost or
theft has been given to BECC and after the latter has informed its member
establishments, is void for being contrary to public policy and for being
dependent upon the sole will of the debtor.
ISSUE:
Whether or not the Court of Appeals gravely erred in relying on the case
of Serra v. Court of appeals, 229 SCRA 60, because unlike that case, petitioners
have no chance at all to contest the stipulations appearing in the credit card
application that was drafted entirely by private respondent, thus, a clear
contract of adhesion.
RULING:
At the outset, we note that the contract between the parties in this case is
indeed a contract of adhesion, so-called because its terms are prepared by only
one party while the other party merely affixes his signature signifying his
adhesion thereto. Such contracts are not void in themselves. They are as
binding as ordinary contracts. Parties who enter in to such contracts are free to
reject the stipulations entirely.

In this case, the cardholder, Manuelita, has complied with what was
required of her under the contract with BECC, She immediately notified BECC of
loss of her card on the same day it was lost and, the following day, she sent a
written notice of the loss to BECC.
Clearly, what happened in this case was that BECC failed to notify
promptly the establishment in which the unauthorized purchases were made
with the use of Manuelita’s lost card. Thus, Manuelita was being liable for those
purchases, even if there is no showing that Manuelita herself had signed for said
purchases, and after notice by her concerning her card’s loss was already given
to BECC.
NON-BINDING TO THIRD PARTIES
1. UNIWIDE VS. TITAN-IKEDA
2. HEIRS OF SALASVS. LAPERAL
3. MEDRANO VS. CA
4. TAN VS. GULLAS
UNIWIDE SALES REALTY AND RESOURCES CORPORATION,
vs. TITAN-IKEDA CONSTRUCTIONAND DEVELOPMENT
CORPORATION
G.R. No. 126619 December 20, 2006
511 SCRA 335
FACTS:
PROJECT 1. The first agreement was a written “Construction
Contract” entered into by Titan and Uniwide sometime in May 1991
whereby Titan undertook to construct Uniwide’s Warehouse Club and
Administration Building in Libis, Quezon City for a fee of P120,936,591.50,
payable in monthly progress billings to be certified to by Uniwide’s
representative. The parties stipulated that the building shall be completed
not later than 30 November 1991. As found by the CIAC, the building was
eventually finished on 15 February 1992 and turned over to Uniwide.
PROJECT 2. Sometime in July 1992, Titan and Uniwide entered into
the second agreement whereby the former agreed to construct an
additional floor and to renovate the latter’s warehouse located at the
EDSA Central Market Area in Mandaluyong City. There was no written
contract executed between the parties for this project. Construction was
allegedly to be on the basis of drawings and specifications provided by
Uniwide’s structural engineers. The parties proceeded on the basis of a
cost estimate of P21,301,075.77 inclusive of Titan’s 20% mark-up. Titan
conceded in its complaint to having received P15,000,000.00 of this
amount. This project was completed in the latter part of October 1992 and
turned over to Uniwide.
PROJECT 3. The parties executed the third agreement in May 1992.
In a written “Construction Contract,” Titan undertook to construct the
Uniwide Sales Department Store Building in Kalookan City for the price of
P118,000,000.00 payable in progress billings to be certified to by
Uniwide’s representative. It was stipulated that the project shall be
completed not later than 28 February 1993. The project was completed
and turned over to Uniwide in June 1993.
Uniwide asserted in its petition that: (a) it overpaid Titan for
unauthorized additional works in Project 1 and Project 3; (b) it is not liable
to pay the Value-Added Tax for Project 1; (c) it is entitled to liquidated
damages for the delay incurred in constructing Project 1 and Project 3;
and (d) it should not have been found liable for deficiencies in the
defectively constructed Project 2.
The decision:
On Project 1 – Libis: Uniwide is absolved of any liability for the
claims made by [Titan] on this Project.
Project 2 – Edsa Central: Uniwide is absolved of any liability for
VAT payment on this project, the same being for the account of Titan. On
the other hand, Titan is absolved of any liability on the counterclaim for
defective construction of this project. Uniwide is held liable for the unpaid
balance in the amount of P6,301,075.77 which is ordered to be paid to the
Titan with 12% interest per annum commencing from 19 December 1992
until the date of payment.
 On Project 3 – Kalookan: Uniwide is held liable for the unpaid
balance in the amount of P5,158,364.63 which is ordered to be paid to
Titan with 12% interest per annum commencing from 08 September 1993
until the date of payment. Uniwide is held liable to pay in full the VAT on
this project, in such amount as may be computed by the Bureau of
Internal Revenue to be paid directly thereto. The BIR is hereby notified
that Uniwide Sales Realty and Resources Corporation has assumed
responsibility and is held liable for VAT payment on this project. This
accordingly exempts Claimant Titan-Ikeda Construction and Development
Corporation from this obligation.
ISSUE:
Whether or not the decision rendered is correct.
RULING:
The petition is DENIED and the Decision of the Court of Appeals was
AFFIRMED.
NON-BINDING TO THIRD PARTIES
HEIRS OF AUGUSTO L. SALAS, JR. vs. LAPERAL REALTY
CORPORATION
G.R. NO. 135362. December 13, 1999
FACTS:
Salas, Jr. was the registered owner of a vast tract of land in Lipa
City, Batangas spanning 1,484,354 square meters. On May 15, 1987, he
entered into an Owner-Contractor Agreement with respondent Laperal
Realty Corporation to render and provide complete (horizontal)
construction services on his land. On September 23, 1988, Salas, Jr.
executed a Special Power of Attorney in favor of respondent Laperal
Realty to exercise general control, supervision and management of the
sale of his land, for cash or on installment basis. On June 10, 1989, Salas,
Jr. left his home in the morning for a business trip to Nueva Ecija. He
never returned.On August 6, 1996, Teresita Diaz Salas filed with the
Regional Trial Court a verified petition for the declaration of presumptive
death of her husband, Salas, Jr., who had then been missing for more than
seven (7) years. It was granted on December 12, 1996.
Meantime, respondent Laperal Realty subdivided the land of Salas,
Jr. and sold subdivided portions thereof to respondents Rockway Real
Estate Corporation and South Ridge Village, Inc. on February 22, 1990; to
respondent spouses Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus
Vicente Capalan on June 4, 1996.
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the
Regional Trial Court a Complaint for declaration of nullity of sale,
reconveyance, cancellation of contract, accounting and damages against
herein respondents. Laperal Realty filed a Motion to Dismiss on the ground
that petitioners failed to submit their grievance to arbitration as required
under Article VI of the Agreement. Spouses Abrajano and Lava and
respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim
praying for dismissal of petitioners’ Complaint for the same reason.
The trial court issued an Order dismissing petitioners’ Complaint for
non-compliance with the arbitration clause.
ISSUE:
Whether or not the trial court erred in dismissing the complaint.
RULING:
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as well
as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr.,
and respondent Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty, had assigned its rights under the Agreement
to a third party, making the former, the assignor, and the latter, the
assignee, such assignee would also be bound by the arbitration provision
since assignment involves such transfer of rights as to vest in the
assignee the power to enforce them to the same extent as the assignor
could have enforced them against the debtor or in this case, against the
heirs of the original party to the Agreement. However, respondents
Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami
Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not
assignees of the rights of respondent Laperal Realty under the Agreement
to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of
the land that respondent Laperal Realty was given the authority to
develop and sell under the Agreement. As such, they are not “assigns”
contemplated in Art. 1311 of the New Civil Code which provides that
“contracts take effect only between the parties, their assigns and heirs”.
Laperal Realty, as a contracting party to the Agreement, has the
right to compel petitioners to first arbitrate before seeking judicial relief.
However, to split the proceedings into arbitration for respondent Laperal
Realty and trial for the respondent lot buyers, or to hold trial in abeyance
pending arbitration between petitioners and respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous procedure and
unnecessary delay. On the other hand, it would be in the interest of
justice if the trial court hears the complaint against all herein respondents
and adjudicates petitioners’ rights as against theirs in a single and
complete proceeding.
Hence, the trial court’s decision was nullified and set aside. Said
court was ordered to proceed with the hearing.
NON-BINDING TO THIRD PARTIES
BIENVENIDO R. MEDRANO and IBAAN RURAL BANK vs. CA, PACITA
G. BORBON, JOSEFINA E. ANTONIO and ESTELA A. FLOR
G.R. No. 150678. February 18, 2005
FACTS:
Bienvenido R. Medrano was the Vice-Chairman of Ibaan Rural Bank,
a bank owned by the Medrano family. In 1986, Mr. Medrano asked Mrs.
Estela Flor, a cousin-in-law, to look for a buyer of a foreclosed asset of the
bank, a 17-hectare mango plantation priced at P2,200,000.00. Mr.
Dominador Lee, a businessman from Makati City, was a client of
respondent Mrs. Pacita G. Borbon, a licensed real estate broker. Borbon
relayed to her business associates and friends that she had a ready buyer
for a mango orchard. Flor then advised her that her cousin-in-law owned a
mango plantation which was up for sale. She told Flor to confer with
Medrano and to give them a written authority to negotiate the sale of the
property. Thus, Medrano issued the Letter of Authority in favor of Pacita
G. Borbon and Josefina E. Antonio.
A Deed of Sale was eventually executed between the bank,
represented by its President/General Manager Teresa M. Ganzon (as
Vendor) and KGB Farms, Inc., represented by Dominador Lee (as Vendee),
for the purchase price of P1,200,000.00. Since the sale of the property
was consummated, the respondents asked from the petitioners their
commission, or 5% of the purchase price. The petitioners refused to pay
and offered a measly sum of P5,000.00 each. Hence, the respondents
were constrained to file an action against herein petitioners.
The trial court rendered a Decision in favor of the respondents. It
found that the letter of authority was valid and binding as against
Medrano and the Ibaan Rural bank. Medrano signed the said letter for and
in behalf of the bank, and as owner of the property, promising to pay the
respondents a 5% commission for their efforts in looking for a purchaser
of the property. He is, therefore, estopped from denying liability on the
basis of the letter of authority he issued in favor of the respondents. The
trial court further stated that the sale of the property could not have been
possible without the representation and intervention of the
respondents. As such, they are entitled to the broker’s commission of 5%
of the selling price of P1,200,000.00 as evidenced by the deed of sale. On
appeal, the CA affirmed the trial court’s decision.
ISSUE:
Whether or not the Court of Appeals erred in affirming the trial
court’s decision.
RULING:
There can be no other conclusion than the respondents are indeed
the procuring cause of the sale. If not for the respondents, Lee would not
have known about the mango plantation being sold by the
petitioners. The sale was consummated. The bank had profited from such
transaction. It would certainly be iniquitous if the respondents would not
be rewarded their commission pursuant to the letter of authority. Hence,
the Court of Appeal’s decision is affirmed.
NON-BINDING TO THIRD PARTIES
MANUEL B. TAN, GREGG M. TECSON and ALEXANDER SALDAÑA,
vs. EDUARDO R. GULLAS and NORMA S. GULLAS
G.R. No. 143978. December 3, 2002
FACTS:
Spouses Eduardo R. Gullas and Norma S. Gullas, were the registered
owners of a parcel of land measuring 104,114 sq. m., with Transfer
Certificate of Title No. 31465. On June 29, 1992, they executed a special
power of attorney authorizing petitioners Manuel B. Tan, a licensed real
estate broker, and his associates Gregg M. Tecson and Alexander
Saldaña, to negotiate for the sale of the land at P550.00 per square
meter, at a commission of 3% of the gross price. The power of attorney
was non-exclusive and effective for one month from June 29, 1992. On the
same date, petitioner Tan contacted Engineer Ledesma, construction
manager of the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of
Mary), a religious organization interested in acquiring a property.
On 1, 1992, petitioner Tan visited the property with Engineer
Ledesma. Thereafter, the two men accompanied Sisters Michaela Kim and
Azucena Gaviola, representing the Sisters of Mary, who had seen and
inspected the land, found the same suitable for their purpose and
expressed their desire to buy it. However, they requested that the selling
price be reduced to P530.00 per square meter instead of P550.00 per
square meter. Private respondent Eduardo Gullas referred the prospective
buyers to his wife.
It was the first time that the buyers came to know that private
respondent Eduardo Gullas was the owner of the property. Private
respondents agreed to sell the property to the Sisters of Mary, and
subsequently executed a special power of attorney in favor of Eufemia
Cañete, giving her the special authority to sell, transfer and convey the
land at a fixed price of P200.00 per square meter. Attorney-in-fact Cañete
executed a deed of sale in favor of the Sisters of Mary for the price of
P20,822,800.00, or at the rate of P200.00 per square meter. The buyers
subsequently paid the corresponding taxes. Thereafter, the Register of
Deeds of issued TCT No. 75981 in the name of the Sisters of Mary of
Banneaux, Inc.
Earlier, on July 3, 1992, petitioners went to see private respondent
Eduardo Gullas to claim their commission, but the latter told them that he
and his wife have already agreed to sell the property to the Sisters of
Mary. Private respondents refused to pay the broker’s fee and alleged
that another group of agents was responsible for the sale of land to the
Sisters of Mary.
petitioners filed a complaint against the defendants for recovery of
their broker’s fee in the sum of P1,655,412.60, as well as moral and
exemplary damages and attorney’s fees. They alleged that they were the
efficient procuring cause in bringing about the sale of the property to the
Sisters of Mary, but that their efforts in consummating the sale were
frustrated by the private respondents who, in evident bad faith, malice
and in order to evade payment of broker’s fee, dealt directly with the
buyer whom petitioners introduced to them. They further pointed out that
the deed of sale was undervalued obviously to evade payment of the
correct amount of capital gains tax, documentary stamps and other
internal revenue taxes.
In their answer, private respondents countered that, contrary to
petitioners’ claim, they were not the efficient procuring cause in bringing
about the consummation of the sale because another broker, Roberto
Pacana, introduced the property to the Sisters of Mary ahead of the
petitioners. Private respondents maintained that when petitioners
introduced the buyers to private respondent Eduardo Gullas, the former
were already decided in buying the property through Pacana, who had
been paid his commission. Private respondent Eduardo Gullas admitted
that petitioners were in his office on July 3, 1992, but only to ask for the
reimbursement of their cellular phone expenses.
 After trial, the lower court rendered judgment in favor of petitioners.
Eduardo and Norma Gullas were ordered to pay jointly and severally
plaintiffs Manuel Tan, Gregg Tecson and Alexander Saldaña the sum of
P624,684.00 as broker’s fee with legal interest at the rate of 6% per
annum from the date of filing of the complaint; and the sum of P50,000.00
as attorney’s fees and costs of litigation.
The Court of Appeals reversed and set aside the lower court’s
decision and rendered another judgment dismissing the complaint.
ISSUE:
Whether or not the Court of Appeals erred in dismissing the
complaint.
RULING:
It is readily apparent that private respondents are trying to evade
payment of the commission which rightfully belongs to petitioners as
brokers with respect to the sale. There was no dispute as to the role that
petitioners played in the transaction. At the very least, petitioners set the
sale in motion. They were not able to participate in its consummation only
because they were prevented from doing so by the acts of the private
respondents. In the case of Alfred Hahn v. Court of Appeals and
Bayerische Motoren Werke Aktiengesellschaft (BMW) the SC ruled that,
“An agent receives a commission upon the successful conclusion of a
sale. On the other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually made.” Clearly,
therefore, petitioners, as brokers, should be entitled to the commission
whether or not the sale of the property subject matter of the contract was
concluded through their efforts.
ENFORCEABILITY
JESUS M. GOZUN vs. JOSE TEOFILO T. MERCADO
G.R. No. 167812 December 19, 2006
FACTS:
In the local elections of 1995, respondent vied for the gubernatorial
post in Pampanga. Upon respondent’s request, petitioner, owner of JMG
Publishing House, a printing shop, submitted to respondent draft samples
and price quotation of campaign materials.
By petitioner’s claim, respondent’s wife had told him that
respondent already approved his price quotation and that he could start
printing the campaign materials, hence, he did print campaign materials.
Given the urgency and limited time to do the job order, petitioner availed
of the services and facilities of Metro Angeles Printing and of St. Joseph
Printing Press, owned by his daughter Jennifer Gozun and mother Epifania
Macalino Gozun, respectively.
Petitioner delivered the campaign materials to respondent’s
headquarters.
On March 31, 1995, respondent’s sister-in-law, Lilian Soriano
obtained from petitioner “cash advance” of P253,000 allegedly for the
allowances of poll watchers who were attending a seminar and for other
related expenses. Lilian acknowledged on petitioner’s 1995 diary receipt
of the amount.
Petitioner later sent respondent a Statement of Account in the total
amount of P2,177,906 itemized as follows: P640,310 for JMG Publishing
House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph
Printing Press; and P253,000, the “cash advance” obtained by Lilian.
Respondent’s wife partially paid P1,000,000 to petitioner who issued a
receipt therefor. Despite repeated demands and respondent’s promise to
pay, respondent failed to settle the balance of his account to petitioner.
Petitioner thus filed with the RTC a complaint against respondent to
collect the remaining amount of P1,177,906 plus “inflationary
adjustment” and attorney’s fees. The trial court rendered judgment in
favor of the petitioner. The CA however, reversed the trial court’s decision
and dismissed the complaint for lack of cause of action.
ISSUE:
 Whether or not the Court of Appeals erred in reversing the trial
courts’ decision.
RULING:
Petitioner is the real party in interest in this case. The trial court’s
findings on the matter were affirmed by the appellate court. It erred,
however, in not declaring petitioner as a real party in interest insofar as
recovery of the cost of campaign materials made by petitioner’s mother
and sister are concerned, upon the wrong notion that they should have
been, but were not, impleaded as plaintiffs.
RELATIVITY: PRIVITY: EXCEPTIONS (Art. 1311, CC)
JOSEPH CHAN, WILSON CHAN and LILY CHAN VS. BONIFACIO S.
MACEDA,·JR
2003 Apr 30
G.R. No. 142591
402 SCRA 352
FACTS:
On July 28, 1976, Bonifacio S. Maceda, Jr., herein respondent, obtained a
P7.3 million loan from the Development Bank of the Philippines for the
construction of his New Gran Hotel Project in Tacloban City. Thereafter, on
September 29, 1976, respondent entered into a building construction contract
with Moreman Builders Co., Inc. They agreed that the construction would be
finished not later than December 22, 1977. Respondent purchased various
construction materials and equipment in Manila. Moreman, in turn, deposited
them in the warehouse of Wilson and Lily Chan, herein petitioners. The deposit
was free of charge. Unfortunately, Moreman failed to finish the construction of
the hotel at the stipulated time. Hence, on February 1, 1978, respondent filed
with the then CFI an action for rescission and damages against Moreman. On
November 28, 1978, the CFI rendered its Decision rescinding the contract
between Moreman and respondent and awarding to the latter P445,000.00 as
actual, moral and liquidated damages; P20,000.00 representing the increase in
the construction materials; and P35,000.00 as attorney’s fees. Moreman
interposed an appeal to the Court of Appeals but the same was dismissed on
March 7, 1989 for being dilatory. He elevated the case to this Court via a
petition for review on certiorari. In a Decision dated February 21, 1990, the
Court denied the petition. On April 23, 1990 an Entry of Judgment was issued.
Meanwhile, during the pendency of the case, respondent ordered
petitioners to return to him the construction materials and equipment which
Moreman deposited in their warehouse. Petitioners, however, told them that
Moreman withdrew those construction materials in 1977. Hence, on December
11, 1985, respondent filed with the RTC an action for damages with an
application for a writ of preliminary attachment against petitioners.
ISSUE:
Whether or not respondent have the right to demand the release of the
said materials and equipment or claim for damages.
RULING:
At the outset, the case should have been dismissed outright by the trial
court because of patent procedural infirmities. Even without such serious
procedural flaw, the case should also be dismissed for utter lack of merit. Under
Article 1311 of the Civil Code, contracts are binding upon the parties (and their
assigns and heirs) who execute them. When there is no privity of contract, there
is likewise no obligation or liability to speak about and thus no cause of action
arises. Specifically, in an action against the depositary, the burden is on the
plaintiff to prove the bailment or deposit and the performance of conditions
precedent to the right of action. A depositary is obliged to return the thing to the
depositor, or to his heirs or successors, or to the person who may have been
designated in the contract.
In the present case, the record is bereft of any contract of deposit, oral or
written, between petitioners and respondent. If at all, it was only between
petitioners and Moreman. And granting arguendo that there was indeed a
contract of deposit between petitioners and Moreman, it is still incumbent upon
respondent to prove its existence and that it was executed in his favor.
However, respondent miserably failed to do so. The only pieces of evidence
respondent presented to prove the contract of deposit were the delivery
receipts. Significantly, they are unsigned and not duly received or authenticated
by either Moreman, petitioners or respondent or any of their authorized
representatives. Hence, those delivery receipts have no probative value at all.
While our laws grant a person the remedial right to prosecute or institute a civil
action against another for the enforcement or protection of a right, or the
prevention or redress of a wrong, every cause of action ex-contractu must be
founded upon a contract, oral or written, express or implied. Moreover,
respondent also failed to prove that there were construction materials and
equipment in petitioners’ warehouse at the time he made a demand for their
return. Considering that respondent failed to prove (1) the existence of any
contract of deposit between him and petitioners, nor between the latter and
Moreman in his favor, and (2) that there were construction materials in
petitioners’ warehouse at the time of respondent’s demand to return the same,
we hold that petitioners have no corresponding obligation or liability to
respondent with respect to those construction materials.
STIPULATION pour autrui
TIMOTEO BALUYOT, JAIME BENITO, BENIGNO EUGENIO, ROLANDO
GONZALES, FORTUNATO FULGENCIO and CRUZ-NA-LIGAS HOMESITE
ASSOCIATION, INC., petitioners,
VS. THE HONORABLE COURT OF APPEALS, THE QUEZON CITY
GOVERNMENT and UNIVERSITY OF THE PHILIPPINES, respondents
1999 Jul 22
FACTS:
Petitioners are residents of Barangay Cruz-na-Ligas. Diliman, Quezon City.
The Cruz-na-Ligas Homesite Association, Inc. is a non-stock corporation of which
petitioners and other residents of Barangay Cruz-na-Ligas are members.
Petitioners filed a complaint for specific performance and damages
against private respondent University of the Philippines before the RTC of
Quezon City. The complaint was later on amended to include private respondent
Quezon City government as defendant. As amended, the complaint alleged:
that plaintiffs and their ascendants are owners since memory can no
longer recall of that parcel of riceland known Sitio Libis, Barrio Cruz-na-Ligas,
Quezon City (now Diliman, Quezon City), while the members of the plaintiff
Association and their ascendants have possessed since time immemorial openly,
adversely, continuously and also in the concept of an owner, the rest of the area
embraced by and within the Barrio Cruz-na-Ligas, Diliman, Quezon City;
that since October 1972, the claims of the plaintiffs and/or members of
plaintiff Association have been the subject of quasi-judicial proceedings and
administrative investigations in the different branches of the government
penultimately resulting in the issuance of that Indorsement dated May 7, 1975
by the Bureau of Lands, and ultimately, in the issuance of the Indorsement of
February 12, 1985, by the office of the President of the Rep. of the Philippines
confirming the rights of the bonafide residents of Barrio Cruz-na-Ligas to the
parcel of land they have been possessing or occupying;
that defendant UP, pursuant to the said Indorsement from the Office of
the President of the Rep. of the Philippines, issued that Reply Indorsement
wherein it approved the donation of about 9.2 hectares of the site, directly to the
residents of Brgy. Krus Na Ligas. After several negotiations with the residents,
the area was increased to 15.8 hectares (158,379 square meters);
that, however, defendant UP backed-out from the arrangement to donate
directly to the plaintiff Association for the benefit of the qualified residents and
high-handedly resumed to negotiate the donation thru the defendant Quezon
City Government under the terms disadvantageous or contrary to the rights of
the bonafide residents of the Barrio; that plaintiff Association forthwith amended
its petition and prayed for a writ of preliminary injunction to restrain defendant
UP from donating the area to the defendant Quezon City Government which was
granted;
that in the hearing of the Motion for Reconsideration filed by defendant
UP, plaintiff Association finally agreed to the lifting of the said Order granting the
injunction after defendant UP made an assurance in their said Motion that the
donation to the defendant Quezon City Government will be for the benefit of the
residents of Cruz-Na-Ligas;
that, however, defendant UP took exception to the aforesaid Order lifting
the Order of Injunction and insisted on the dismissal of the case;
that plaintiff manifested its willingness to the dismissal of the case,
provided, that the area to be donated thru the defendant Quezon City
government be subdivided into lots to be given to the qualified residents
together with the certificate of titles, without cost;
that defendant UP failed to deliver the certificate of title covering the
property to be donated thus the defendant Quezon City Government was not
able to register the ownership so that the defendant Quezon City Government
can legally and fully comply with their obligations under the said deed of
donation;that upon expiration of the period of eighteen (18) months, for alleged
non-compliance of the defendant Quezon City Government with terms and
conditions quoted in par. 16 hereof, defendant UP thru its President, Mr. Jose
Abueva, unilaterally, capriciously, whimsically and unlawfully issued that
Administrative Order No. 21 declaring the deed of donation revoked and the
donated property be reverted to defendant UP.
The petitioners, then, prayed that a writ of preliminary injunction or at
least a temporary restraining order be issued, ordering defendant UP to observe
status quo; thereafter, after due notice and hearing, a writ of preliminary
injunction be issued; (a) to restrain defendant UP or to their representative from
ejecting the plaintiffs from and demolishing their improvements on the riceland
or farmland situated at Sitio Libis; (b) to order defendant UP to refrain from
executing another deed of donation in favor another person or entity and in
favor of non-bonafide residents of Barrio Cruz-na-Ligas different from the Deed
of Donation, and after trial on the merits, judgment be rendered:declaring the
Deed of Donation as valid and subsisting and ordering the defendant UP to abide
by the terms and conditions thereof.
The Court of Appeals reversed the decision of the trial court.
ISSUE:
Whether or not defendant UP could execute another deed of donation in
favor of third person.
RULING:
The Court found all the elements of a cause of action contained in the
amended complaint of petitioners. While, admittedly, petitioners were not
parties to the deed of donation, they anchor their right to seek its enforcement
upon their allegation that they are intended beneficiaries of the donation to the
Quezon City government. Art. 1311, second paragraph, of the Civil Code
provides:
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred
a favor upon a third person.
Under this provision of the Civil Code, the following requisites must be
present in order to have a stipulation pour autrui:(1) there must be a stipulation
in favor of a third person; (2) the stipulation must be a part, not the whole of the
contract;(3) the contracting parties must have clearly and deliberately conferred
a favor upon a third person, not a mere incidental benefit or interest; (4) the
third person must have communicated his acceptance to the obligor before its
revocation; and (5) neither of the contracting parties bears the legal
representation or authorization of the third party.
The allegations in the following paragraphs of the amended complaint are
sufficient to bring petitioners’ action within the purview of the second paragraph
of Art. 1311 on stipulations pour autrui:
1. Paragraph 17, that the deed of donation contains a stipulation that the
Quezon City government, as donee, is required to transfer to qualified residents
of Cruz-na-Ligas, by way of donations, the lots occupied by them;
2. The same paragraph, that this stipulation is part of conditions and obligations
imposed by UP, as donor, upon the Quezon City government, as donee;
3. Paragraphs 15 and 16, that the intent of the parties to the deed of donation
was to confer a favor upon petitioners by transferring to the latter the lots
occupied by them;
4. Paragraph 19, that conferences were held between the parties to convince UP
to surrender the certificates of title to the city government, implying that the
donation had been accepted by petitioners by demanding fulfillment thereof and
that private respondents were aware of such acceptance; and
5. All the allegations considered together from which it can be fairly inferred
that neither of private respondents acted in representation of the other; each of
the private respondents had its own obligations, in view of conferring a favor
upon petitioners.
The amended complaint further alleges that respondent UP has an
obligation to transfer the subject parcel of land to the city government so that
the latter can in turn comply with its obligations to make improvements on the
land and thereafter transfer the same to petitioners but that, in breach of this
obligation, UP failed to deliver the title to the land to the city government and
then revoked the deed of donation after the latter failed to fulfill its obligations
within the time allowed in the contract. For the purpose of determining the
sufficiency of petitioners’ cause of action, these allegations of the amended
complaint must be deemed to be hypothetically true. So assuming the truth of
the allegations, we hold that petitioners have a cause of action against UP.
It is hardly necessary to state that our conclusion that petitioners’
complaint states a cause of action against respondents is in no wise a ruling on
the merits. That is for the trial court to determine in light of respondent UP’s
defense that the donation to the Quezon City government, upon which
petitioners rely, has been validly revoked. Respondents contend, however, that
the trial court has already found that the donation (on which petitioners base
their action) has already been revoked.
This contention has no merit. The trial court’s ruling on this point was
made in connection with petitioners’ application for a writ of preliminary
injunction to stop respondent UP from ejecting petitioners. The trial court denied
injunction on the ground that the donation had already been revoked and
therefore petitioners had no clear legal right to be protected. It is evident that
the trial court’s ruling on this question was only tentative, without prejudice to
the final resolution of the question after the presentation by the parties of their
evidence.
The decision of the Court of Appeals is reversed and the case is remanded
to the RTC of Quezon City for trial on the merits.
CONTRACTS CREATING REAL RIGHTS
SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO
vs.
SPOUSES RENATO CUYCO and FILIPINA CUYCO
G.R. No. 168736 April 19, 2006
FACTS:
Petitioners obtained a loan in the amount of P1,500,000.00 from
respondents payable within one year at 18% interest per annum, and
secured by a Real Estate Mortgage over a parcel of land with
improvements thereon situated in Cubao, Quezon City covered by a TCT.
Subsequently, petitioners obtained additional loans from the
respondents in the aggregate amount of P1,250,000.00, broken down as
follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on July 1,
1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October
29, 1992; and (5) P250,000.00 on January 13, 1993.
Petitioners made payments amounting to P291,700.00, but failed to
settle their outstanding loan obligations. Respondents filed a complaint for
foreclosure of mortgage with the RTC. They alleged that petitioners’ loans
were secured by the real estate mortgage; that as of August 31, 1997,
their indebtedness amounted to P6,967,241.14, inclusive of the 18%
interest compounded monthly; and that petitioners’ refusal to settle the
same entitles the respondents to foreclose the real estate mortgage.
Petitioners filed a motion to dismiss on the ground that the
complaint states no cause of action which was denied by the RTC for lack
of merit. Petitioners admitted their loan obligations but argued that only
the original loan of P1,500,000.00 was secured by the real estate
mortgage at 18% per annum and that there was no agreement that the
same will be compounded monthly.
The RTC rendered judgment in favor of the respondents and
ordered the petitioners to pay to the Court or to the respondents the
amounts of P6,332,019.84, plus interest until fully paid, P25,000.00 as
attorney’s fees, and costs of suit, within a period of 120 days from the
entry of judgment, and in case of default of such payment and upon
proper motion, the property shall be ordered sold at public auction to
satisfy the judgment.
The CA partially granted the petition and modified the RTC decision
insofar as the amount of the loan obligations secured by the real estate
mortgage. It held that by express intention of the parties, the real estate
mortgage secured the original P1,500,000.00 loan and the subsequent
loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and
September 5, 1992, respectively. As regards the loans obtained on May
31, 1992, October 29, 1992 and January 13, 1993 in the amounts of
P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate
tribunal held that the parties never intended the same to be secured by
the real estate mortgage.
Hence, this petition.
ISSUE:
Whether or not petitioners must pay respondents legal interest of
12% per annum on the stipulated interest of 18% per annum, computed
from the filing of the complaint until fully paid.
RULING:

Applying the rules in the computation of interest, the principal
amount of loans subject of the real estate mortgage must earn the
stipulated interest of 18% per annum, which interest, as long as unpaid,
also earns legal interest of 12% per annum, computed from the date of
the filing of the complaint on September 10, 1997 until finality of the
Court’s Decision. Such interest is not due to stipulation but due to the
mandate of the law as embodied in Article 2212 of the Civil Code. From
such date of finality, the total amount due shall earn interest of 12% per
annum until satisfied
Certainly, the computed interest from the filing of the complaint on
September 10, 1997 would no longer be true upon the finality of this
Court’s decision. In accordance with the rules laid down in Eastern
Shipping Lines, Inc. v. Court of Appeals, the SC derived the following
formula for the RTCs guidance:
TOTAL AMOUNT DUE = [principal + interest + interest on interest] -
partial payments made
Interest = principal x 18 % per annum x no. of years from due date
until finality of judgment
Interest on interest = Interest computed as of the filing of the
complaint (September 10, 1997) x 12% x no. of years until finality of
judgment
Total amount due as of the date of finality of judgment will earn an
interest of 12% per annum until fully paid.
Hence, the SC affirmed the CA decision with modifications. It
ordered petitioners to pay the respondents (1) the total amount due, as
computed by the RTC in accordance with the formula specified above, (2)
the legal interest of 12% per annum on the total amount due from such
finality until fully paid, (3) the reasonable amount of P25,000.00 as
attorney’s fees, and (4) the costs of suit, within a period of not less than
90 days nor more than 120 days from the entry of judgment, and in case
of default of such payment the property shall be sold at public auction to
satisfy the judgment.
TORTIOUS INTERFERENCE
1. SO VS. CA, SEPT. 21, 1999
2. TAYAG VS. CA, 25 MARCH 2004
SO PING BUN VS. COURT OF APPEALS
314 SCRA 751
FACTS:
In 1963, Tek Hua Trading Co., through its managing partner, So Pek Giok,
entered into lease agreements with lessor Dee C. Chuan and Sons Inc (DCCSI).
Subjects of four (4) lease contracts were premises located at Nos. 930, 930- Int.,
924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store
its textiles. The contracts each had a one year term. They provided that should
the lessee continue to occupy the premises after the term, the lease shall be on
a month to month basis.
When the contracts expired, the parties did not renew the contracts, but
Tek Hua continued to occupy the premises in 1976 Tek Hua Trading Corp. was
dissolved. Later, the original members of Tek Hua Trading Co., including Manuel
C.Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek
Giok’s grandson, petitioner So Ping Bun, occupied the warehouse for his own
textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua
enterprises, informing the latter of the 25% increase in rent effective September
1, 1989. The rent increase was later on reduced to 20% effective January 1,
1990, upon other lessees’ demand. Again on December 1, 1990, the lessor
implemented a 30% rent increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of the lessee to accomplish the
contracts shall be deemed as lack of interest on the lessee’s part, and
agreement to the termination of the lese. Private respondents did not answer
any of these letters. Still, the lease contracts were not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to petitioner
asking Mr. So Ping Bun to vacate the premise because he used a warehouse.
Petitioner refused to vacate. On March 4, 1992, petitioner requested
formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun
claimed that after the death of his grandfather, So Pek Giok, he had been
occupying the premises for his textile business and religiously paid rent. DCCSI
acceded to petitioner’s request. The lease contracts in favor of Trendsetter were
executed.
ISSUE:
Whether the appellate court erred in affirming the trial court’s decision
finding So Ping Bun guilty of tortuous interference of contact.
RULING:
In the instant case, it is clear that petitioner So Ping Bun prevailed upon
DCCSI to lease the warehouse to his enterprise at the expense of respondent
corporation. Though petitioner took interest in the property of respondent
corporation and benefited from it, nothing on record imputes deliberate wrongful
motives or malice on him.
A duty which the law of torts is concerned with is respect for the property
of others, and cause of action ex delicto may be predicated upon an unlawful
interference by one person of the enjoyment by the other of his private property.
This may pertain to a situation where a third person induces a party to renege
on or violate his undertaking under a contract. In the case before us, petitioner’s
Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and
as a result petitioner deprived respondent corporation of the latter’s property
right. Clearly, and as correctly viewed by the appellate court, the three
elements of tort interference above mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the
defendant acts for the sole purpose of furthering his own financial or economic
interest. One view is that, as a general rule, justification for interfering with the
business relations of another exist where the actor’s motive is to benefit himself.
Such justification does not exist where his sole motive is to cause harm to the
other. Added to this, some authorities believe that it is not necessary that the
interferer’s interest outweigh that of the party whose rights are invaded, and
that an individual acts under an economic interest that is substantial, not merely
I de minimis for he acts in self protection. Moreover, justification for protecting
ones financial position should not be made to depend on a comparison of his
economic interest in the subject matter with that of others. It is sufficient if the
impetus of his conduct lies in a proper business interest rather than in wrongful
motives.
As early as Gilchrist vs. Cuddy we held that where there was no malice in
the interference of a contract, and the impulse behind one’s conduct lies in a
proper business interest rather than in wrongful motives, a party cannot be a
malicious interferer. Where the alleged interferer is financially interested and
such interest motivates his conduct it cannot be said that he is an officious or
malicious intermeddler.
TORTIOUS INTERFERENCE
TAYAG VS. COURT OF APPEALS
219 SCRA 481
FACTS:
Petitioners are the heirs of Juan Galicia, Sr. who are seeking to rescind the
deed of conveyance executed by Galicia, Sr. together with Celerina Labuguin, in
favor of Albrigido Leyva, respondent involving the undivided one-half portion of a
piece of land situated at Poblacion, Guimba, Nueva Ecija. They contend that
respondent is in breach of the conditions of the deed. Contained in the deed
were stipulations regarding the payment and settlement of the purchase price of
the land. The respondent however did not strictly comply this with. Despite the
posterior payments however, petitioners accepted them. Respondent, on the
contention that he fulfilled his obligation to pay filed this case for specific
performance by the petitioners.
The court of origin which tried the suit for specific performance on account
of the herein petitioner’s reluctance to abide by the covenant, ruled in favor of
the vendee while respondent court practically agreed with the trial court except
as to the amount to be paid to petitioners and the refund to private respondent
are concerned.
ISSUE:
The issue is whether or not petitioners’ prayer for the rescission of the
deed can prosper.
RULING:
The Supreme Court affirmed the decision of the lower courts.
The suggestion of petitioners that the covenant must be cancelled in the
light of private respondent’s so-called breach seems to overlook petitioners’
demeanor who, instead of immediately filing the case precisely to rescind the
instrument because of non-compliance, allowed private respondent to effect
numerous payments posterior to the grace periods provided in the contract.
This apathy of petitioners, who even permitted private respondent to take the
initiative in filing the suit for specific performance against them, is akin to waiver
of abandonment of the right to rescind.
STAGES IN THE EXECUTION OF A CONTRACT – CONSUMMATION/TERMINATION
METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner,
VS. JANCOM ENVIRONMENTAL CORPORATION and JANCOM
INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED OF AUSTRALIA,
respondents
January 30, 2002
G.R. No. 147465
FACTS:
The Philippine Government under the Ramos Administration, and through
the Metro Manila Development Authority (MMDA) Chairman, and the Cabinet
Officer for Regional Development-National Capital Region (CORD-NCR), entered
into a contract with herein respondent JANCOM, on waste-to-energy projects for
the waste disposal sites in San Mateo, Rizal and Carmona, Cavite under the
build-operate-transfer (BOT) scheme.
However, before President Ramos could have signed the said contract,
there was a change in the Administration and EXECOM. Said change caused the
passage of the law, the Clean Air Act, prohibiting the incineration of garbage and
thus, against the contents of said contract. The Philippine Government, through
the MMDA Chairman, declared said contract inexistent for several reasons.
Herein respondent filed a suit against petitioner. The Regional Trial Court ruled
in favor of the respondent. Instead of filing an appeal to the decision, petitioner
filed a writ of certiorari on the Court of Appeals, which the latter granted. The
Regional Trial Court declared its decision final and executory, for which the
petitioner appealed to the CA, which the CA denied such appeal and affirming
RTC’s decision.
ISSUE:
Whether or not a valid contract is existing between herein petitioner and
respondent.
RULING:
Under Article 1305 of the Civil Code, “a contract is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to
give something or to render some service.” A contract undergoes three distinct
stages - preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting
parties manifest their interest in the contract and ends at the moment of
agreement of the parties. The perfection or birth of the contract takes place
when the parties agree upon the essential elements of the contract. The last
stage is the consummation of the contract wherein the parties fulfill or perform
the terms agreed upon in the contract, culminating in the extinguishment
thereof. Article 1315 of the Civil Code, provides that a contract is perfected by
mere consent. Consent, on the other hand, is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute
the contract. In the case at bar, the signing and execution of the contract by the
parties clearly show that, as between the parties, there was a concurrence of
offer and acceptance with respect to the material details of the contract, thereby
giving rise to the perfection of the contract. The execution and signing of the
contract is not disputed by the parties. As the Court of Appeals aptly held:
Contrary to petitioners’ insistence that there was no perfected contract, the
meeting of the offer and acceptance upon the thing and the cause, which are to
constitute the contract (Arts. 1315 and 1319, New Civil Code), is borne out by
the records.
Admittedly, when petitioners accepted private respondents’ bid proposal
(offer), there was, in effect, a meeting of the minds upon the object (waste
management project) and the cause (BOT scheme). Hence, the perfection of the
contract. In City of Cebu vs. Heirs of Candido Rubi, the Supreme Court held that
“the effect of an unqualified acceptance of the offer or proposal of the bidder is
to perfect a contract, upon notice of the award to the bidder.
In fact, in asserting that there is no valid and binding contract between
the parties, MMDA can only allege that there was no valid notice of award; that
the contract does not bear the signature of the President of the Philippines; and
that the conditions precedent specified in the contract were not complied with.
In asserting that the notice of award to JANCOM is not a proper notice of
award, MMDA points to the Implementing Rules and Regulations of Republic Act
No. 6957, otherwise known as the BOT Law, which require that i) prior to the
notice of award, an Investment Coordinating Committee clearance must first be
obtained; and ii) the notice of award indicate the time within which the awardee
shall submit the prescribed performance security, proof of commitment of equity
contributions and indications of financing resources.
 Admittedly, the notice of award has not complied with these
requirements. However, the defect was cured by the subsequent execution of
the contract entered into and signed by authorized representatives of the
parties; hence, it may not be gainsaid that there is a perfected contract existing
between the parties giving to them certain rights and obligations (conditions
precedents) in accordance with the terms and conditions thereof. We borrow
the words of the Court of Appeals:
Petitioners belabor the point that there was no valid notice of award as to
constitute acceptance of private respondent’s offer. They maintain that former
MMDA Chairman Oreta’s letter to JANCOM EC dated February 27, 1997 cannot be
considered as a valid notice of award as it does not comply with the rules
implementing Rep. Act No. 6957, as amended. The argument is untenable.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
1. ROCKLAND VS. MID-PASIG LAND DEVELOPMENT
2. MANILA METAL VS. PNB
3. MONTECILLO VS. REYNES, 385 SCRA 244
4. SOLER VS. CA, 358 SCRA 57
5. PALATTAO VS. CA, MAY 7, 2002
6. ABS-CBN VS. CA, JAN. 21, 1999
ROCKLAND CONSTRUCTION COMPANY, INC vs. MID-PASIG LAND
DEVELOPMENT CORPORATION
G.R. No. 164587, February 04, 2008
Rockland Construction Company, Inc. in a letter dated March 1,
2000, offered to lease from Mid-Pasig Land Development Corporation the
latter’s 3.1-hectare property in Pasig City. This property is covered by
Transfer Certificate of Title Nos. 469702 and 337158 under the control of
the Presidential Commission on Good Government. Upon instruction of
Mid-Pasig to address the offer to the PCGG, Rockland wrote the PCGG on
April 15, 2000. The letter, addressed to PCGG Chairman Magdangal Elma,
included Rockland’ proposed terms and conditions for the lease. This
letter was also received by Mid-Pasig on April 18, 2000, but Mid-Pasig
made no response.
Again, in another letter dated June 8, 2000 addressed to the
Chairman of Mid-Pasig, Mr. Ronaldo Salonga, Rockland sent a Metropolitan
Bank and Trust Company Check No. 2930050168 for P1 million as a sign
of its good faith and readiness to enter into the lease agreement under
the certain terms and conditions stipulated in the letter. Mid-Pasig
received this letter on July 28, 2000.
In a subsequent follow-up letter dated February 2, 2001, Rockland
then said that it presumed that Mid-Pasig had accepted its offer because
the P1 million check it issued had been credited to Mid-Pasig’s account on
December 5, 2000.
Mid-Pasig, however, denied it accepted Rockland’s offer and
claimed that no check was attached to the said letter. It also vehemently
denied receiving the P1 million check, much less depositing it in its
account.
In its letter dated February 6, 2001, Mid-Pasig replied to Rockland
that it was only upon receipt of the latter’s February 2 letter that the
former came to know where the check came from and what it was for.
Nevertheless, it categorically informed Rockland that it could not
entertain the latter’s lease application. Mid-Pasig reiterated its refusal of
Rockland’s offer in a letter dated February 13, 2001.
Rockland then filed an action for specific performance. Rockland
sought to compel Mid-Pasig to execute in Rockland’s favor, a contract of
lease over a 3.1-hectare portion of Mid-Pasig’s property in Pasig City.
The RTC’s decision:
1. the plaintiff and the defendant have duly agreed upon a valid and
enforceable lease agreement of subject portions of defendant’s
properties comprising an area of 5,000 square meters, 11,000
square meters and 15,000 square meters, or a total of 31,000
square meters;
2. the principal terms and conditions of the aforesaid lease agreement
are as stated in plaintiff’s June 8, 2000 letter;
3. defendant to execute a written lease contract in favor of the plaintiff
containing the principal terms and conditions mentioned in the
next-preceding paragraph, within sixty (60) days from finality of this
judgment, and likewise ordering the plaintiff to pay rent to the
defendant as specified in said terms and conditions;
4. defendant to keep and maintain the plaintiff in the peaceful
possession and enjoyment of the leased premises during the term
of said contract;
 5. defendant to pay plaintiff attorney’s fees in the sum of One Million
Pesos (P1,000,000.00), plus P2,000.00 for every appearance made
by counsel in court;
6. The temporary restraining order dated April 2, 2001 is made
PERMANENT;
7. Dismissed defendant’s counterclaim.
The Court of Appeals reversed the trial court’s decision.
ISSUES:
1. Was there a perfected contract of lease?
2. Had estoppel in pais set in?
RULING:
1. A close review of the events in this case, in the light of the
parties’ evidence, shows that there was no perfected contract of lease
between the parties. Mid-Pasig was not aware that Rockland deposited
the P1 million check in its account. It only learned of Rockland’s check
when it received Rockland’s February 2, 2001 letter. Mid-Pasig, upon
investigation, also learned that the check was deposited at the Philippine
National Bank San Juan Branch, instead of PNB Ortigas Branch where Mid-
Pasig maintains its account. Immediately, Mid-Pasig wrote Rockland on
February 6, 2001 rejecting the offer, and proposed that Rockland apply
the P1 million to its other existing lease instead. These circumstances
clearly show that there was no concurrence of Rockland’s offer and Mid-
Pasig’s acceptance.
2. Mid-Pasig is also not in estoppel in pais. The doctrine of
estoppel is based on the grounds of public policy, fair dealing, good faith
and justice, and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they were
directed and who reasonably relied thereon. Since estoppel is based on
equity and justice, it is essential that before a person can be barred from
asserting a fact contrary to his act or conduct, it must be shown that such
act or conduct has been intended and would unjustly cause harm to those
who are misled if the principle were not applied against him.
Hence, the petition was denied.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
METROPOLITAN MANILA DEVELOPMENT AUTHORITY, VS. JANCOM
ENVIRONMENTAL CORPORATION
G.R. No. 147465 January 30, 2002
FACTS:
The Philippine Government under the Ramos Administration, and
through the Metro Manila Development Authority (MMDA) Chairman, and
the Cabinet Officer for Regional Development-National Capital Region
(CORD-NCR), entered into a contract with respondent JANCOM, on waste-
to-energy projects for the waste disposal sites in San Mateo, Rizal and
Carmona, Cavite under the build-operate-transfer (BOT) scheme.
However, before President Ramos could have signed the said contract,
there was a change in the Administration and EXECOM. Said change caused the
passage of the law, the Clean Air Act, prohibiting the incineration of garbage and
thus, against the contents of said contract. The Philippine Government, through
the MMDA Chairman, declared said contract inexistent for several reasons.
Herein respondent filed a suit against petitioner. The Regional Trial Court ruled
in favor of the respondent. Instead of filing an appeal to the decision, petitioner
filed a writ of certiorari on the Court of Appeals, which the latter granted. The
Regional Trial Court declared its decision final and executory, for which the
petitioner appealed to the CA, which the CA denied such appeal and affirming
RTC’s decision.
ISSUE:
Whether or not a valid contract is existing between herein petitioner
and respondent.
RULING:
Under Article 1305 of the Civil Code, “a contract is a meeting of
minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.” A contract
undergoes three distinct stages- preparation or negotiation, its perfection,
and finally, its consummation. Negotiation begins from the time the
prospective contracting parties manifest their interest in the contract and
ends at the moment of agreement of the parties. The perfection or birth
of the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in
the contract, culminating in the extinguishment thereof. Article 1315 of
the Civil Code, provides that a contract is perfected by mere consent.
Consent, on the other hand, is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the
contract. In the case at bar, the signing and execution of the contract by
the parties clearly show that, as between the parties, there was a
concurrence of offer and acceptance with respect to the material details
of the contract, thereby giving rise to the perfection of the contract. The
execution and signing of the contract is not disputed by the parties. As
the Court of Appeals aptly held: Contrary to petitioners’ insistence that
there was no perfected contract, the meeting of the offer and acceptance
upon the thing and the cause, which are to constitute the contract (Arts.
1315 and 1319, New Civil Code), is borne out by the records.
Admittedly, when petitioners accepted private respondents’ bid
proposal (offer), there was, in effect, a meeting of the minds upon the
object (waste management project) and the cause (BOT scheme). Hence,
the perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi,
the Supreme Court held that “the effect of an unqualified acceptance of
the offer or proposal of the bidder is to perfect a contract, upon notice of
the award to the bidder.
In fact, in asserting that there is no valid and binding contract
between the parties, MMDA can only allege that there was no valid notice
of award; that the contract does not bear the signature of the President of
the Philippines; and that the conditions precedent specified in the
contract were not complied with.
In asserting that the notice of award to JANCOM is not a proper
notice of award, MMDA points to the Implementing Rules and Regulations
of Republic Act No. 6957, otherwise known as the BOT Law, which require
that i) prior to the notice of award, an Investment Coordinating
Committee clearance must first be obtained; and ii) the notice of award
indicate the time within which the awardee shall submit the prescribed
performance security, proof of commitment of equity contributions and
indications of financing resources.
Admittedly, the notice of award has not complied with these
requirements. However, the defect was cured by the subsequent
execution of the contract entered into and signed by authorized
representatives of the parties; hence, it may not be gainsaid that there is
a perfected contract existing between the parties giving to them certain
rights and obligations (conditions precedents) in accordance with the
terms and conditions thereof. We borrow the words of the Court of
Appeals:
Petitioners belabor the point that there was no valid notice of award
as to constitute acceptance of private respondent’s offer. They maintain
that former MMDA Chairman Oreta’s letter to JANCOM EC dated February
27, 1997 cannot be considered as a valid notice of award as it does not
comply with the rules implementing Rep. Act No. 6957, as amended. The
argument is untenable.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
MONTECILLO VS. REYNES
385 SCRA 244
FACTS:
Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984 a
complaint for Declaration of Nullity and Quieting of Title against petitioner Rico
Montecillo. Reynes asserted that she is the owner of a lot situated in Mabolo,
Cebu City. In 1981 Reynes sold 185 square meters of the Mabolo Lot to the
Abucay Spouses who built a residential house on the lot they bought.
 Reynes alleged further that on March 1, 1984, she signed a Deed of Sale
of the Mabolo Lot in favor of Montecillo. Reynes, being illiterate signed by
affixing her thumb- mark on the document. Montecillo promised to pay the
agreed P47,000.00 purchase price within one month from the signing of the
Deed of Sale.
Reynes further alleged that Montecillo failed to pay the purchase price
after the lapse of the one-month period, prompting Reynes to demand from
Montecillo the return of the Deed of Sale. Since Montecillo refused to return the
Deed of Sale, Reynes executed a document unilaterally revoking the sale and
gave a copy of the document to Montecillo.
Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring
to the Abucay Spouses the entire Mabolo Lot, at the same time confirming the
previous sale in 1981 of a 185 square meter portion of the lot.
Reynes and the Abucay Spouses alleged that on June 18, 1984 they
received information that the Register of Deeds of Cebu City issued Certificate of
Title No. 90805 in the name of Montecillo for the Mabolo Lot.
Reynes and the Abucay Spouses argued that “for lack for consideration
there (was) no meeting of the minds) between Reynes and Montecillo. Thus, the
trial court should declare null and void ab initio Monticello’s Deed of sale, and
order the cancellation of certificates of title No. 90805 in the name of Montecillo.
In his Answer, Montecillo a bank executive with a BS Commerce degree,
claimed he was a buyer in good faith and had actually paid the P47,000.00
consideration stated on his Deed of Sale. Montecillo however admitted he still
owned Reynes a balance of P10,000.00. He also alleged that he paid P50,000.00
for the release of the chattel mortgage which he argued constituted a lien on the
Mabolo Lot. He further alleged that he paid for the real property tax as well as
the capital gains tax on the sale of the Mabolo Lot.
In their reply, Reynes and the Abucay Spouses contended that Montecillo
did not have authority to discharge the chattel mortgage especially after Reynes
revoked Montecillo’s Deed of Sale and gave the mortgagee a copy of the
document of revocation. Reynes and the Abucay Spouses claimed that
Montecillo secured the release of the chattel mortgage through machination.
They further asserted that Montecillo took advantage of the real property taxes
paid by the Abucay Spouses and surreptitiously caused the transfer of the title to
the Mabolo Lot in his name.
During pre-trial Montecillo claimed that the consideration for the sale of
the Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage
Corporation for the mortgage debt. Of Bienvenido Jayag. Montecillo argued that
the release of the mortgage was necessary since the mortgage constituted a lien
on the Mabolo Lot.
Reynes, however stated that she had nothing to do with Jayag’s mortgage
debt except that the house mortgaged by Jayag stood on a portion of the Mabolo
Lot. Reynes further stated that the payment by Montecillo to release the
mortgage on Jayag’s house is a matter between Montecillo and
Jayag. The mortgage on the house being a chattel mortgage could not be
interpreted in any way as an encumbrance on the Mabolo Lot. Reynes further
claimed that the mortgage debt had long prescribed since the P47,000.00
mortgage debt was due for payment on January 30,1967.
ISSUE:
Whether or not there was a valid consent in the case at bar to have a valid
contract.
RULING:
One of the three essential requisites of a valid contract is consent of the
parties on the object and cause of the contract. In a contract of sale, the parities
must agree not only on the p[rice, but also on the manner of payment of the
price. An agreement on the price but a disagreement on the manner of its
payment will not result in consent, thus preventing the existence of a valid
contract for a lack of consent. This lack of consent is separate and distinct for
lack of consideration where the contract states that the price has been paid
when in fact it has never been paid.
Reynes expected Montecillo to pay him directly the P47, 000.00 purchase
price within one month after the signing of the Deed of Sale. On the other hand,
Montecillo thought that his agreement with Reynes required him to pay the P47,
000.00-purchase price to Cebu Ice Storage to settle Jayag’s mortgage debt.
Montecillo also acknowledged a balance of P10, 000.00 in favor of Reynes
although this amount is not stated in Montecillo’s Deed of Sale. Thus, there was
no consent or meeting of the minds, between Reynes and Montecillo on the
manner of payment. This prevented the existence of a valid contract because of
lack of consent.
In summary, Montecillo’s Deed of Sale is null and void ab initio not only for
lack of consideration, but also for lack of consent. The cancellation of TCT No.
90805 in the name of Montecillo is in order as there was no valid contract
transferring ownership of the Mabolo Lot from Reynes to Montecillo.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
JASMIN SOLER, petitioner,
VS. COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and
NIDA LOPEZ, respondents
May 2, 2001
G.R. No. 123892
FACTS:
Petitioner is a professional interior designer. In November 1986, her friend
Rosario Pardo asked her to talk to Nida Lopez, who was manager of the
COMBANK Ermita Branch for they were planning to renovate the branch offices.
Even prior to November 1986, petitioner and Nida Lopez knew each other
because of Rosario Pardo, the latter’s sister. During their meeting, petitioner
was hesitant to accept the job because of her many out of town commitments,
and also considering that Ms. Lopez was asking that the designs be submitted by
December 1986, which was such a short notice. Ms. Lopez insisted, however,
because she really wanted petitioner to do the design for renovation. Petitioner
acceded to the request. Ms. Lopez assured her that she would be compensated
for her services. Petitioner even told Ms. Lopez that her professional fee was
P10,000.00, to which Ms. Lopez acceded.
During the November 1986 meeting between petitioner and Ms. Lopez,
there were discussions as to what was to be renovated. Ms. Lopez again assured
petitioner that the bank would pay her fees. After a few days, petitioner
requested for the blueprint of the building so that the proper design, plans and
specifications could be given to Ms. Lopez in time for the board meeting in
December 1986. Petitioner then asked her draftsman Jackie Barcelon to go to
the jobsite to make the proper measurements using the blue print. Petitioner
also did her research on the designs and individual drawings of what the bank
wanted. Petitioner hired Engineer Ortanez to make the electrical layout,
architects Frison Cruz and De Mesa to do the drafting. For the services rendered
by these individuals, petitioner paid their professional fees. Petitioner also
contacted the suppliers of the wallpaper and the sash makers for their quotation.
So come December 1986, the lay out and the design were submitted to Ms.
Lopez. She even told petitioner that she liked the designs.
Subsequently, petitioner repeatedly demanded payment for her services
but Ms. Lopez just ignored the demands. In February 1987, by chance petitioner
and Ms. Lopez saw each other in a concert at the Cultural Center of the
Philippines. Petitioner inquired about the payment for her services, Ms. Lopez
curtly replied that she was not entitled to it because her designs did not conform
to the bank’s policy of having a standard design, and that there was no
agreement between her and the bank.
Petitioner, through her lawyers, who wrote Ms. Lopez, demanding
payment for her professional fees in the amount of P10,000.00 which Ms. Lopez
ignored. The lawyers wrote Ms. Lopez once again demanding the return of the
blueprint copies petitioner submitted which Ms. Lopez refused to return. The
petitioner then filed at the trial court a complaint against COMBANK and Ms.
Lopez for collection of professional fees and damages.
In its answer, COMBANK stated that there was no contract between
COMBANK and petitioner; that Ms. Lopez merely invited petitioner to participate
in a bid for the renovation of the COMBANK Ermita Branch; that any proposal
was still subject to the approval of the COMBANK’s head office.
The trial court rendered judgment in favor of plaintiff. On appeal, the
Court of Appeals reversed the decision. Hence, this petition.
ISSUE:
Whether or not the Court of Appeals erred in ruling that there was no
contract between petitioner and respondents, in the absence of the element of
consent.
RULING:
A contract is a meeting of the minds between two persons whereby one
binds himself to give something or to render some service to bind himself to give
something to render some service to another for consideration. There is no
contract unless the following requisites concur: 1. Consent of the contracting
parties; 2. Object certain which is the subject matter of the contract; and 3.
Cause of the obligation which is established.
In the case at bar, there was a perfected oral contract. When Ms. Lopez
and petitioner met in November 1986, and discussed the details of the work, the
first stage of the contract commenced. When they agreed to the payment of the
P10,000.00 as professional fees of petitioner and that she should give the
designs before the December 1986 board meeting of the bank, the second stage
of the contract proceeded, and when finally petitioner gave the designs to Ms.
Lopez, the contract was consummated. Petitioner believed that once she
submitted the designs she would be paid her professional fees. Ms. Lopez
assured petitioner that she would be paid.
It is familiar doctrine that if a corporation knowingly permits one of its
officers, or any other agent, to act within the scope of an apparent authority, it
holds him out to the public as possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agent’s authority.
Also, petitioner may be paid on the basis of quantum meruit. "It is
essential for the proper operation of the principle that there is an acceptance of
the benefits by one sought to be charged for the services rendered under
circumstances as reasonably to notify him that the lawyer performing the task
was expecting to be paid compensation therefor. The doctrine of quantum
meruit is a device to prevent undue enrichment based on the equitable postulate
that it is unjust for a person to retain benefit without paying for it."
The designs petitioner submitted to Ms. Lopez were not returned. Ms.
Lopez, an officer of the bank as branch manager used such designs for
presentation to the board of the bank. Thus, the designs were in fact useful to
Ms. Lopez for she did not appear to the board without any designs at the time of
the deadline set by the board.
Decision reversed and set aside. Decision of the trial court affirmed.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
PALATTAO VS. COURT OF APPEALS
381 SCRA 681
MAY 7, 2002
FACTS:
Petitioner Yolanda Palattao interred into a lease contract whereby she
leased to private respondent a house and a 490-square-meter lot located in
101 Caimito Road, Caloocan City, covered by Transfer Certificate of Title No.
247536 and registered in the name of petitioner. The duration of the lease
contract was for three years, commencing from January 1, 1991, to December
31, 1993, renewable at the option of the parties. The agreed monthly rental was
P7,500.00 for the first year; P 8,000.00 for the second year: and P8,500.l00 for
the third year. The contract gave respondent lessee the first option to purchase
the leased property.
During the last year of the contract, the parties began negotiations for the
sale of the leased premises to private respondent. In a letter dated April 2, 1993,
petitioner offered to sell to private respondents 413.28 square meters of the
leased lot at P 7,800.00 per square meter, or for the total amount of
P3,223,548.00. private respondents replied on April 15, 1993 wherein he
informed petitioner that he “shall definitely exercise his option to buy” the
leased property. Private respondent, however, manifested his desire to buy the
whole 490-square meters inquired from petitioner the reason why only 413.28
square meters of the leased lot were being offered for sale. In a letter dated
November 6, 1993, petitioner made a final offer to sell the lot at P 7,500.00 per
square meter with a down payment of 50% upon the signing of the contract of
conditional sale, the balance payable in one year with a monthly lease/interest
payment P 14,000.00 which must be paid on or before the fifth day every month
that the balance is still outstanding. On November 7, 1993, private respondents
accepted petitioners offer and reiterated his request for respondent accepted
petitioner’s offers and reiterated his request for clarification as to the size of the
lot for sale. Petitioner acknowledged private respondent’s acceptance of the
offer in his letter dated November 10, 1993.
Petitioner gave private respondent on or before November 24, 1993,
within which to pay the 50% downpayment in cash or manager’s check.
Petitioner stressed that failure to pay the downpayment on the stipulated period
will enable petitioner to freely sell her property to others. Petitioner likewise
notified private respondent, that she is no longer renewing the lease agreement
upon its expiration on December 31, 1993.
Private respondent did not accept the terms proposed by petitioner.
Neither were there any documents of sale nor payment by private respondent of
the required downpayment. Private respondent wrote a letter to petitioner on
November 29, 1993 manifesting his intention to exercise his option to renew
their lease contract for another three years, starting January 1, 1994 to
December 31, 1996. This was rejected by petitioner, reiterating that she was no
longer renewing the lease. Petitioner demanded that private respondent vacate
the premises, but the latter refused.
Hence, private respondent filed with the Regional Trial Court of Caloocan,
Branch 127, a case for specified performance, docketed as Civil Case No, 16287,
seeking to compel petitioner to sell to him the leased property. Private
respondent further prayed for the issuance of a writ preliminary injunction to
prevent petitioner from filing an ejectment case upon the expiration of the lease
contract on December 31, 1993.
During the proceedings in the specific performance case, the parties
agreed to maintain the status quo. After they failed to reach an amicable
settlement, petitioner filed the instant ejectment case before the Metropolitan
Trial Court of Caloocan City, Branch 53. In his answer, private respondent
alleged that he refused to vacate the leased premises because there was a
perfected contract of sale of the leased property between him and petitioner.
Private respondent argued that he did not abandon his option to buy the leased
property and that his proposal to renew the lease was but an alternative
proposal to the sale. He further contended that the filing of the ejectment case
violated their agreement to maintain the status quo.
ISSUE:
Whether or not there was a valid consent in the case at bar.
RULING:
There was no valid consent in the case at bar.
Contracts that are consensual in nature, like a contract of sale, are
perfected upon mere meeting of the minds. Once there is concurrence between
the offer and the acceptance upon the subject matter, consideration, and terns
of payment, a contract is produced. The offer must be certain. To convert the
offer into a contract, the acceptance must be absolute and must not qualify the
terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuals the
offer.
In the case at bar, while it is true that private respondent informed
petitioner that he is accepting the latter’s offer to sell the leased property, it
appears that they did not reach an agreement as to the extent of the lot subject
of the proposed sale.
Letters reveal that private respondent did not give his consent to buy only
413.28 square meters of the leased lot, as he desired to purchase the whole 490
square-meter- leased premises which, however, was not what was exactly
proposed in petitioner’s offer. Clearly, therefore, private respondent’s
acceptance of petitioner’s offer was not absolute, and will consequently not
generate consent that would perfect a contract.
ELEMENTS OF CONSENT: OFFER AND ACCEPTANCE
ABS-CBN BROADCASTING CORPORATION
VS. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP.,
VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO
G.R. No. 128690
January 21, 1999
301 SCRA 573
FACTS:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films. Viva,
through defendant Del Rosario, offered ABS-CBN, through its vice-president
Charo Santos-Concio, a list of three (3) film packages (36 title) from which ABS-
CBN may exercise its right of first refusal under the afore-said agreement. ABS-
CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the
list) "we can purchase" and therefore did not accept said list. The titles ticked off
by Mrs. Concio are not the subject of the case at bar except the film "Maging
Sino Ka Man."
On February 27, 1992, defendant Del Rosario approached ABS-CBN’s Ms.
Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on
television) including the 14 titles subject of the present case, as well as 104 re-
runs (previously aired on television) from which ABS-CBN may choose another
52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over
this package of 52 originals and 52 re-runs for P60,000,000.00 of which
P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots.
On April 2, 1992, defendant Del Rosario and ABS-CBN’s general manager,
Eugenio Lopez III, met at the Tamarind Grill Restaurant in Quezon City to discuss
the package proposal of VIVA. Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14)
films for a total consideration of P36 million; that he allegedly put this
agreement as to the price and number of films in a "napkin" and signed it and
gave it to Mr. Del Rosario. On the other hand, Del Rosario denied having made
any agreement with Lopez regarding the 14 Viva films; denied the existence of a
napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva’s film package offer of 104 films (52
originals and 52 re-runs) for a total price of P60 million.
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-
president for Finance discussed the terms and conditions of Viva’s offer to sell
the 104 films, after the rejection of the same package by ABS-CBN. On the
following day, Del Rosario received a draft contract from Ms. Concio which
contains a counter-proposal of ABS-CBN on the offer made by VIVA including the
right of first refusal to 1992 Viva Films. However, the proposal was rejected by
the Board of Directors of VIVA and such was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Viva’s President Teresita
Cruz, in consideration of P60 million, signed a letter of agreement dated April 24,
1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired
films including the fourteen (14) films subject of the present case.
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or temporary
restraining order against private respondents Republic Broadcasting System
(now GMA Network Inc.) On 28 May 1992, the RTC issued a temporary
restraining order.
The RTC then rendered decision in favor of RBS and against ABS-CBN. On
appeal, the same decision was affirmed. Hence, this decision.
ISSUE:
Whether or not there exists a perfected contract between ABS-CBN and
VIVA.
RULING:
A contract is a meeting of minds between two persons whereby one binds
himself to give something or render some service to another [Art. 1305, Civil
Code.] for a consideration. There is no contract unless the following requisites
concur:
(1) consent of the contracting parties;
(2) object certain which is the subject of the contract; and
(3) cause of the obligation, which is established. [Art. 1318, Civil Code.]
A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining rending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of
the terms agreed upon in the contract.
Contracts that are consensual in nature are perfected upon mere meeting
of the minds. Once there is concurrence between the offer and the acceptance
upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must
be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in the offer,
such acceptance is not sufficient to generate consent because any modification
or variation from the terms of the offer annuls the offer.
In the present case, when Mr. Del Rosario of Viva met Mr. Lopez of ABS-
CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films, said
package of 104 VIVA films was VIVA’s offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal
in the form a draft contract proposing exhibition of 53 films for a consideration of
P35 million. This counter-proposal could be nothing less than the counter-offer
of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant.
Clearly, there was no acceptance of VIVA’s offer, for it was met by a counter-
offer which substantially varied the terms of the offer.
Furthermore, ABS-CBN made no acceptance of VIVA’s offer hence, they
underwent period of bargaining. ABS-CBN then formalized its counter-proposals
or counter-offer in a draft contract. VIVA through its Board of Directors, rejected
such counter-offer. Even if it be conceded arguendo that Del Rosario had
accepted the counter-offer, the acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the specific authority to do so.
WHEREFORE, the instant petition is GRANTED.
REQUISITES OF OFFER AS DISTINGUISHED FROM OPTION

LOURDES ONG LIMSON VS. COURT of APPEALS, et al
G. R. No. 135929
April 20, 2001
357 SCRA 209
FACTS:
In July 1978, respondent spouses Lorenzo de Vera and Asuncion Santos-de
Vera, through their agent Marcosa Sanchez, offered to sell to petitioner Lourdes
Ong Limson a parcel of land situated in Barrio San Dionisio, Paranaque, Metro
Manila. The respondent spouses were the owners of the subject property.
On July 31, 1978, she agreed to but the property at the price of P34. 00
per square meter and gave P20, 000.00 as “earnest money”. The respondent
spouses signed a receipt thereafter and gave her a 10-day option period to
purchase the property. Respondent spouses informed petitioner that the subject
property was mortgaged to Emilio Ramos and Isidro Ramos. Petitioner was asked
to pay the balance of the purchase price to enable the respondent spouses to
settle their obligation with the Ramoses. Petitioner agreed to meet respondent
spouses and the Ramoses on August 5, 1978, to consummate the transaction;
however, the respondent spouses and the Ramoses did not appear, same with
their second meeting.
respondent spouses exemplary and nominal damages and attorney’s fees.
Hence, this petition.
ISSUE:
Whether or not the agreement between petitioner and respondent
spouses was a mere option or a contract to sell.
RULING:
The Supreme Court held that the agreement between the parties was a
contract of option and not a contract to sell. An option is continuing offer or
contract by which the owner stipulates with another that the latter shall have the
right to buy the property at a fixed price within a time certain, or under, or in
compliance with, certain terms and conditions, or which gives the owner of the
property the right to sell or demand a sale. It is also sometimes called an
“unaccepted offer”. An option is not of itself a purchase, but merely secures the
privilege to buy. It is not a sale of property but a sale of the right to purchase. Its
distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer.
Hence, the assailed decision is affirmed, with the modification that the
award of nominal and exemplary damages as well as attorney’s fees is deleted.
The petition is denied.

On August 23, 1978, petitioner allegedly gave respondent spouses three

checks for the settlement the back taxes of property. On September 5, 1978,
the agent of the respondent spouses informed petitioner that the property was VICES OF CONSENT
the subject of a negotiation for the sale to respondent Sunvar Realty
Development Corporation. 1. CATALAN VS. BASA
2. DOMINGO VS. CA
Petitioner alleged that it was only on September 15, 1978, that TCT No. S- 3. MENDOZONA VS. OZAMIZ
72946 covering the property was issued to respondent spouses. On the same 4. LIM VS. CA
day, petitioner filed and Affidavit of Adverse Claim with the Office of the Registry 5. RUIZ VS. CA
of Deeds of Makati, Metro Manila. The Deed of Sale between respondent spouses 6. DELA CRUZ VS. CA
and respondent Sunvar was executed on September 15, 1978 and TCT No. S- 7. RURAL BANK OF STA. MARIA VS. CA
72377 was issued in favor of Sunvar on September 26, 1978 with the Adverse
Claim of petitioner annotated thereon. CATALAN vs. BASA
JULY 31, 2007
Respondent spouses and Sunvar filed their Answers and Answers to Cross-
Claim, respectively. On appeal, the Court of Appeals completely reversed the FACTS:
decision of the trial court and ordered the Register of Deeds of Makati City to lift
the Adverse Claim and ordered petitioner to pay respondent Sunvar and
 On October 20, 1948, FELICIANO CATALAN Feliciano was discharged
from active military service. The Board of Medical Officers of the
Department of Veteran Affairs found that he was unfit to render military
service due to his “schizophrenic reaction, catatonic type, which
incapacitates him because of flattening of mood and affect,
preoccupation with worries, withdrawal, and sparse and pointless
speech.”
On September 28, 1949, Feliciano married Corazon Cerezo.
On June 16, 1951, a document was executed, titled “Absolute Deed
of Donation,” wherein Feliciano allegedly donated to his sister MERCEDES
CATALAN one-half of the real property described, viz:
A parcel of land located at Barangay Basing, Binmaley, Pangasinan.
Bounded on the North by heirs of Felipe Basa; on the South by Barrio
Road; On the East by heirs of Segundo Catalan; and on the West by
Roman Basa. Containing an area of Eight Hundred One (801) square
meters, more or less. The donation was registered with the Register of
Deeds.
On December 11, 1953, People’s Bank and Trust Company filed a
Special Proceedings before the Court of First Instance to declare Feliciano
incompetent. On December 22, 1953, the trial court issued its Order for
Adjudication of Incompetency for Appointing Guardian for the Estate and
Fixing Allowance of Feliciano. The following day, the trial court appointed
People’s Bank and Trust Company as Feliciano’s guardian. People’s Bank
and Trust Company has been subsequently renamed, and is presently
known as the Bank of the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots
1 and 3 of their property, registered under Original Certificate of Title
(OCT) No. 18920, to their son Eulogio Catalan.
Mercedes sold the property in issue in favor of her children Delia
and Jesus Basa. The Deed of Absolute Sale was registered with the
Register of Deeds and a Tax Declaration was issued in the name of
respondents.
Feliciano and Corazon Cerezo donated Lot 2 of the aforementioned
property registered under OCT No. 18920 to their children Alex Catalan,
Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano
and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT
No. 18920 to Eulogio and Florida Catalan.
BPI, acting as Feliciano’s guardian, filed a case for Declaration of
Nullity of Documents, Recovery of Possession and Ownership, as well as
damages against the herein respondents. BPI alleged that the Deed of
Absolute Donation to Mercedes was void ab initio, as Feliciano never
donated the property to Mercedes. In addition, BPI averred that even if
Feliciano had truly intended to give the property to her, the donation
would still be void, as he was not of sound mind and was therefore
incapable of giving valid consent. Thus, it claimed that if the Deed of
Absolute Donation was void ab initio, the subsequent Deed of Absolute
Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes
Catalan had no right to sell the property to anyone. BPI raised doubts
about the authenticity of the deed of sale, saying that its registration long
after the death of Mercedes Catalan indicated fraud. Thus, BPI sought
remuneration for incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint
was amended to substitute his heirs in lieu of BPI as complainants in Civil
Case No. 17666.
The trial court found that the evidence presented by the
complainants was insufficient to overcome the presumption that Feliciano
was sane and competent at the time he executed the deed of donation in
favor of Mercedes Catalan. Thus, the court declared, the presumption of
sanity or competency not having been duly impugned, the presumption of
due execution of the donation in question must be upheld. The Court of
Appeals upheld the trial court’s decision.
ISSUE:
Whether said decision of the lower courts is correct.
RULING:
Petitioners questioned Feliciano’s capacity at the time he donated
the property, yet did not see fit to question his mental competence when
he entered into a contract of marriage with Corazon Cerezo or when he
executed deeds of donation of his other properties in their favor. The
presumption that Feliciano remained competent to execute contracts,
despite his illness, is bolstered by the existence of these other contracts.
Competency and freedom from undue influence, shown to have existed in
the other acts done or contracts executed, are presumed to continue until
the contrary is shown.
Needless to state, since the donation was valid, Mercedes had the
right to sell the property to whomever she chose. Not a shred of evidence
has been presented to prove the claim that Mercedes’ sale of the property
to her children was tainted with fraud or falsehood. It is of little bearing
that the Deed of Sale was registered only after the death of Mercedes.
What is material is that the sale of the property to Delia and Jesus Basa
was legal and binding at the time of its execution. Thus, the property in
question belongs to Delia and Jesus Basa.
petitioners raised the issue of prescription and laches for the first
time on appeal before this Court. It is sufficient for this Court to note that
even if the present appeal had prospered, the Deed of Donation was still a
voidable, not a void, contract. As such, it remained binding as it was not
annulled in a proper action in court within four years.
IN VIEW WHEREOF, there being no merit in the arguments of the
petitioners, the petition is DENIED. The CA decision was affirmed in toto.
VICES OF CONSENT
DOMINGO V. COURT OF APPEALS
G.R. No. 127540. October 17, 2001
FACTS:
Paulina Rigonan owned three parcels of land including the house and
warehouse on one parcel. She allegedly sold them to private respondents,
the spouses Felipe and Concepcion Rigonan, who claim to be her
relatives. In 1966, petitioners who claim to be her closest surviving
relatives, allegedly took possession of the properties by means of stealth,
force and intimidation, and refused to vacate the same. According to
defendants, the alleged deed of absolute sale was void for being spurious
as well as lacking consideration. They said that Paulina Rigonan did not
sell her properties to anyone. As her nearest surviving kin within the fifth
degree of consanguinity, they inherited the three lots and the permanent
improvements thereon when Paulina died. They said they had been in
possession of the contested properties for more than 10 years.
ISSUE:
1.) Whether or not the consideration in Deed of Sale can be used to
impugn the validity of the Contract of Sale.
2.) Whether or not the alleged Deed of Sale executed by Paulina Rigonan
in favor of the private respondents is valid.
RULING:
1.) Consideration is the why of a contract, the essential reason which
moves the contracting parties to enter into the contract. The Court had
seen no apparent and compelling reason for her to sell the subject 9
parcels of land with a house and warehouse at a meager price of P850
only. On record, there is unrebutted testimony that Paulina as landowner
was financially well off. She loaned money to several people.
Undisputably, the P850.00 consideration for the nine (9) parcels of land
including the house and bodega is grossly and shockingly inadequate, and
the sale is null and void ab initio.
2.) The Curt ruled in the negative. Private respondents presented only a
carbon copy of this deed. When the Register of Deeds was subpoenaed to
produce the deed, no original typewritten deed but only a carbon copy
was presented to the trial court. None of the witnesses directly testified
to prove positively and convincingly Paulina’s execution of the original
deed of sale. The carbon copy did not bear her signature, but only her
alleged thumbprint. Juan Franco testified during the direct examination
that he was an instrumental witness to the deed. However, when cross-
examined and shown a copy of the subject deed, he retracted and said
that said deed of sale was not the document he signed as witness.
VICES OF CONSENT

MENDOZANA, ET AL. V. OZAMIZ ET AL.
G.R. No. 143370, February 6, 2002
FACTS:
Petitioner spouses Mario J. Mendezona and Teresita M. Mendezona,
petitioner spouses Luis J. Mendezona and Maricar L. Mendezona, and
petitioner Teresita Adad Vda. de Mendezona own a parcel of land each
with almost similar areas of 3,462 square meters, 3,466 square meters
and 3,468 square meters. The petitioners ultimately traced their titles of
ownership over their respective properties from a notarized Deed of
Absolute Sale executed in their favor by Carmen Ozamiz. The petitioners
initiated the suit to remove a cloud on their said respective titles caused
by the inscription thereon. The respondents opposed the petitioners’
claim of ownership of the said parcels of land alleging that the titles
issued in the petitioners’ names are defective and illegal, and the
ownership of the said property was acquired in bad faith and without
value inasmuch as the consideration for the sale is grossly inadequate
and unconscionable. Respondents further alleged that at the time of the
sale as alleged, Carmen Ozamiz was already ailing and not in full
possession of her mental faculties; and that her properties having been
placed in administration, she was in effect incapacitated to contract with
petitioners. They argue that the Deed of Absolute sale is a simulated
contract.
ISSUE:
Whether or not the Deed of Absolute Sale in the case at bar was
simulated.
RULING:
The Court ruled that the Deed in the case at bar is not a simulated
contract. Simulation is defined as “the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for
the purposes of deception, the appearances of a juridical act which does
not exist or is different from what that which was really executed.” The
requisites of simulation are:
(a) an outward declaration of will different from the will of the parties; (b)
the false appearance must have been intended by mutual agreement;
and (c) the purpose is to deceive third persons.
None of these were clearly shown to exist in the case at bar. The Deed of
Absolute Sale is a notarized document duly acknowledged before a notary
public. As such, it has in its favor the presumption of regularity, and it
carries the evidentiary weight conferred upon it with respect to its due
execution. It is admissible in evidence without further proof of its
authenticity and is entitled to full faith and credit upon its face. The
burden fell upon the respondents to prove their allegations attacking the
validity and due execution of the said Deed of Absolute Sale. Respondents
failed to discharge that burden; hence, the presumption in favor of the
said deed stands.
VICES OF CONSENT
LIM VS. COURT OF APPEALS
229 SCRA 616
FACTS:
The case involves the partition of the properties of the deceased spouses
Tan Quico and Josefa Oraa. The former died on May 11, 1932 and the latter on
August 6, 1932. Both died intestate. They left some ninety six hectares of land
located in the municipality of Guinobatan and Camalig, Albay. The late spouses
were survived by four children; Cresencia, Lorenzo, Hermogenes and Elias. Elias
died on May 2, 1935, without issue. Cresencia died on December 20, 1967. She
was survived by her husband, Lim Chay Sing, and children, Mariano, Jaime, Jose
Jovita, Anacoreta, Antonietta, Ruben, Benjamin and Rogelio. They are the
petitioners in the case at bench. The sad spectacle of the heirs squabbling over
the properties of their deceased parents was again replayed in the case at
bench. The protagonists were the widower and children of Cresencia on one
side, and Lorenzo and Hermogenes on the other side.
The late Cresencia and Lorenzo had contrasting educational background.
Cresencia only reached the second grade of elementary school. She could not
read or write in English. On the other hand, Lorenzo is a lawyer and a CPA.
Heirs of Cresencia alleged that since the demise of the spouses Tan Quico and
Josefa Oraa, the subject properties had been administered by respondent
Lorenzo. They claimed that before her death, Cresencia had demanded their
partition from Lorenzo. After Cresencia’s death, they likewise clamored for their
partition. Their effort proved fruitless.
Respondents Lorenzo and Hermogenes’ adamant stance against partition
is based on various contentions. Principally, they urge: 1) that the properties
had already been partitioned, albeit, orally; and 2) during her lifetime, the late
Cresencia had sold and conveyed all her interests in said properties to
respondent Lorenzo. They cited as evidence the “Deed of Confirmation of Extra
Judicial Settlement of the Estate of Tan Quico and Josefa Oraa” and a receipt of
payment.
ISSUE:
Whether or not there is error in the signing of the Deed.
RULING:
In the petition at bench, the questioned Deed is written in English, a
language not understood by the late Cresencia an illiterate. It was prepared by
the respondent Lorenzo, a lawyer and CPA. Respondent Lorenzo did not cause
the notarization of the Deed. Considering these circumstances, the burden was
on private respondents to prove that the content of the Deed was explained to
the illiterate Cresencia before she signed it. In this regard, the evidence
adduced by the respondents failed to discharge their burden.
The conclusion drawn by the Honorable of Appeals that there was no
undue influence exerted on Cresencia O. Tan by her (Lawyer-CPA) brother
Lorenzo O. Tan based on facts stated in the questioned judgment is clearly
incorrect. As it is contrary to the provision of Art. 1337, Civil Code.
The respondent court, reversing the trial court, held that the evidence
failed to establish that it was signed by the late Cresencia as a result of fraud,
mistake or undue influence. The Court upheld this ruling erroneous.
In calibrating the credibility of the witnesses on this issue, we take our
mandate from Article 1332 of the Civil Code which provides: “When one of the
parties is unable to read, or if the contract is in a language not understood by
him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former.”
This substantive law came into being due to the finding of the Code
Commission that there is still a fairly large number of illiterates in this country,
and documents are usually drawn up in English or Spanish. It is also in accord
with our state policy of promoting social justice. It also supplements Article 24 of
the Civil Code which calls on court to be vigilant in the protection of the rights of
those who are disadvantaged in life. In the petition at bench, the questioned
Deed is written in English, a language not understood by the late Cresencia an
illiterate.
VICES OF CONSENT:
RUIZ VS. COURT OF APPEALS
401 SCRA 410
G.R. NO. 146942
APRIL 22, 2003
FACTS:
Petitioner Corazon Ruiz is engaged in the business of buying and selling
jewelry. She obtained loans from private respondent Consuelo Torres on
different occasions and in different amounts. Prior to their maturity, the loans
were consolidated under 1 promissory note dated March 22, 1995.
The consolidated loan of P750, 000.00 was secured by a real estate
mortgage on a lot in Quezon City, covered by Transfer of Certificate of Title No.
RT-96686, and registered in the name of petitioner. The mortgage was signed by
petitioner for herself and as attorney-in-fact of her husband Rogelio. It was
executed on 20 March 1995, or 2 days before the execution of the subject
promissory note.
Thereafter, petitioner obtained 3 more loans from private respondent,
under the following promissory notes: 1) promissory note dated 21 April 1995, in
the amount of P100,000.00; 2) promissory note dated 23 May !995 in the
amount of P100,000.00, and 3) promissory note dated 21 December 1995, in the
amount of P100,000.00. These combined loans of P300,000.00 were secured by
P571,000.00 worth of jewelry pledged by petitioner to private respondent.
From April 1995 to March 1996, petitioner paid the stipulated 3% monthly
interest on the P750,000.00 loan, amounting to P270,000. After March 1996,
petitioner was unable to make interest payments as she had difficulties
collecting from her clients in her jewelry business.
Because of petitioner’s failure to pay the principal loan of P750,000.00, as
well as the interest payment for April 1996, private respondent demanded
payment not only of the P750,000.00 loan but also of the P300,000.00 loan.
When petitioner failed to pay, private respondent sought the extrajudicial
foreclosure of the aforementioned real estate mortgage.
ISSUE:
Whether or not there is undue influence in the signing of the promissory
note, which determines if foreclosure proceedings could proceed.
RULING:
The promissory note in question did not contain any fine print provision
which could have escaped the attention of the petitioner. Petitioner had all the
time to go over and study the stipulations embodied in the promissory note.
Aside from the March 22, 1995 promissory note for P750,000.00, three other
promissory notes of different dates and amounts were executed by petitioner in
favor of private respondent. These promissory notes contain similar terms and
conditions, with a little variance in the terms of interests and surcharges. The
fact that petitioner and private respondent had entered into not only one but
several loan transactions shows that petitioner was not in any way compelled to
accept the terms allegedly imposed by private respondent. Moreover, petitioner,
in her complaint dated October 7, 1996 filed with the trial court, never claimed
that she was forced to sign the subject note. Therefore, the foreclosure
proceedings may now proceed.
VICES OF CONSENT
EPIFANIA DELA CRUZ, substituted by LAUREANA V. ALBERTO
VS. SPS. EDUARDO C. SISON and EUFEMIA S. SISON
G.R. No. 163770
February 17, 2005
FACTS:
Initially, the complainant in this case was Epifania S. Dela Cruz (Epifania),
but she died on November 1, 1996, while the case was pending in the Court of
Appeals. Upon her demise, she was substituted by her niece, Laureana V.
Alberto.
Epifania claimed that sometime in 1992, she discovered that her rice land
in Salomague Sur, Bugallon, Pangasinan, has been transferred and registered in
the name of her nephew, Eduardo C. Sison, without her knowledge and consent,
purportedly on the strength of a Deed of Sale she executed on November 24,
1989.
Epifania thus filed a complaint before the Regional Trial Court of Lingayen,
Pangasinan, to declare the deed of sale null and void. She alleged that Eduardo
tricked her into signing the Deed of Sale, by inserting the deed among the
documents she signed pertaining to the transfer of her residential land, house
and camarin, in favor of Demetrio, her foster child and the brother of Eduardo.
Respondents, spouses Eduardo and Eufemia Sison (Spouses Sison), denied
that they employed fraud or trickery in the execution of the Deed of Sale. They
claimed that they purchased the property from Epifania for P20,000.00. They
averred that Epifania could not have been deceived into signing the Deed of
Absolute Sale because it was duly notarized before Notary Public Maximo V.
Cuesta, Jr.; and they have complied with all requisites for its registration, as
evidenced by the Investigation Report by the Department of Agrarian Reform
(DAR), Affidavit of Seller/Transferor, Affidavit of Buyer/Transferee, Certification
issued by the Provincial Agrarian Reform Officer (PARO), Letter for the Secretary
of Agrarian Reform, Certificate Authorizing Payment of Capital Gains Tax, and
the payment of the registration fees. Some of these documents even bore the
signature of Epifania, proof that she agreed to the transfer of the property.
ISSUES:
Whether the deed of absolute sale is valid.
Whether fraud attended the execution of a contract.
RULING:
On the issue of whether fraud attended the execution of a contract is
factual in nature. Normally, this Court is bound by the appellate court’s findings,
unless they are contrary to those of the trial court, in which case we may wade
into the factual dispute to settle it with finality. After a careful perusal of the
records, we sustain the Court of Appeals’ ruling that the Deed of Absolute Sale
dated November 24, 1989 is valid.
 There being no evidence adduced to support her bare allegations, thus,
Epifania failed to satisfactorily establish her inability to read and understand the
English language.
Although Epifania was 79 years old at the time of the execution of the
assailed contract, her age did not impair her mental faculties as to prevent her
from properly and intelligently protecting her rights. Even at 83 years, she
exhibited mental astuteness when she testified in court. It is, therefore,
inconceivable for her to sign the assailed documents without ascertaining their
contents, especially if, as she alleges, she did not direct Eduardo to prepare the
same.
A comparison of the deed of sale in favor of Demetrio and the deed of sale
in favor Eduardo, draws out the conclusion that there was no trickery employed.
One can readily see that the first deed of sale is in all significant respects
different from the second deed of sale. A casual perusal, even by someone as
old as Epifania, would enable one to easily spot the differences. Epifania could
not have failed to miss them.
Indeed, if the intention was to deceive, both deeds of sale should have
been mirror images as to mislead Epifania into thinking that she was signing
what appeared to be the same document.
In addition, the questioned deed of sale was duly notarized. It is a settled
rule that one who denies the due execution of a deed where one’s signature
appears has the burden of proving that, contrary to the recital in the jurat, one
never appeared before the notary public and acknowledged the deed to be a
voluntary act. Epifania never claimed her signatures as forgeries. In fact,
Epifania never questioned the deed of sale in favor of Demetrio, accepting it as a
valid and binding document. It is only with respect to the deed of sale in favor of
Eduardo that she denies knowledge of affixing her signature. Unfortunately, for
both parties, the notary public, Atty. Maximo V. Cuesta, Jr. before whom they
appeared, died prior to the filing of the case.
KINDS OF FRAUD HOW COMMITTED
RURAL BANK OF ST. MARIA, PANGASINAN VS. COURT OF APPEALS
314 SCRA 255
FACTS:
Manuel Behis mortgaged a land in favor of RBS, Pangasinan, in a Real
Estate Mortgage dated October 23, 1978 as a security for loans obtained
amounting to P156,270.00. Unfortunately thereafter, Manuel, being a delinquent
in paying his debts, sold the land. And so a Deed of Absolute Sale with
Assumption of Mortgage was executed between him as vendor/assignor and
Rayandayan and Arceño as vendees/assignees for the sum of P250,000.00. On
the same day, Rayandayan and Arceño, together with Manual Behis executed
another Agreement embodying the consideration of the sale of the land in the
sum of P2.4 million. The land, however, remained in the name of Behis because
the former did not present to the Register of Deeds the contracts.
Meanwhile, the loan, still in the name of Behis, accumulated an account
amounting to P316,368.13 in a Statement of Account sent to Behis on May, 30,
1985.
Thereafter, Rayandaran and Arceño presented the Deed of Absolute Sale
to the bank and negotiated with the principal stockholder of the bank, Engr. E.
Natividad, in Manila for the assumption of the indebtedness of Manuel Behis and
the subsequent release of the mortgage on the property by the bank.
Rayandaran and Arceño did not show to the bank the agreement with Manuel
Behis providing for the real consideration of P2.4 million. Subsequently, the
bank consented to the substitution of plaintiffs as mortgage debtors in place of
Manuel Behis in a Memorandum of Agreement between private respondents and
the bank with restricted and liberalized terms for the payment of the mortgage
debt including the initial payment of P143,782.22.
The bank discontinued to comply with the Memorandum of Agreement
due to the appearance of Christina Behis, Manuel’s wife and a co-signatory in the
mortgaged land, who claimed that her signature was forged. For this reason, the
bank considered the MA as void.
On January 7, 1986, plaintiffs demanded in a letter that the bank comply
with its obligation under the Memorandum of Agreement to which the latter
denied. Petitioner bank argued that the Memorandum of Agreement is voidable
on the ground that its consent to enter said agreement was vitiated by fraud
because private respondents withheld from petitioner bank the material
information that the real consideration for the sale with assumption of mortgage
of the property by Manuel Behis to Rayandayan and Arceño is P2,400,000.00,
and not P250,000.00 as represented to petitioner bank. According to petitioner
bank, had it known for the real consideration for the sale, i.e. P2.4 million, it
would not have consented into entering the Memorandum of Agreement with
Rayandayan and Arceño as it was put in the dark as to the real capacity and
financial standing of private respondents to assume the mortgage from Manuel
Behis. Petitioner bank pointed out that it would not have assented to the
agreement, as it could not expect the private respondents to pay the bank the
approximately P343,000.00 mortgage debt when private respondents have to
pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.
ISSUE:
Whether or not there existed a fraud in the case at bar.
RULING:
NO. The kind of fraud that will vitiate a contract refers to those insidious
words or machinations resorted to by one of the contracting parties to induce to
the other to enter into a contract which without them he would not have agreed
to. Simply stated, the fraud must be determining cause of the contract, or must
have caused the consent to be given. It is believed that the non-disclosure to
the bank of the purchase price of the sale of the land between private
respondents and Manuel Behis cannot be the “fraud” contemplated by Article
1338 of the Civil Code. From the sole reason submitted by the petitioner bank
that it was kept in the dark as to the financial capacity of private respondents,
we cannot see how the omission or concealment of the real purchase price could
have induced the bank into giving its consent to the agreement; or that the bank
would not have otherwise given its consent had it known of the real purchase
price.
Pursuant to Art. 1339 of the Code, silence or concealment, by itself, does
not constitute fraud unless there is a special duty to disclose certain facts. In
the case at bar, private respondents had no duty to do such.
ESSENTIAL REQUISITES OF CONTRACT: LICIT OBJECT
CHAVEZ VS. PUBLIC ESTATES AUTHORITY
415 SCRA 403
SYNOPSIS:
This case involves a government contract conveyed to a private entity
(Amari), where 157.84 hectares of reclaimed public lands along Roxas Boulevard
were sold at a negotiated price of P 1,200/ square meter. Reports place the
market price of land in that area at a high of P 90, 000/ square meter. The
difference is a mammoth P 140.16 B from the purchase price of the actual sale,
equivalent to the Judiciary’s budget for 17 years and three times the Marcos’
Swiss deposits forfeited in favor of the government as decided by the Supreme
Court. At the end, the contract was voided for Amari, the private entity, was
proven to have inveigled the Public Estates Authority to sell the reclaimed lands
without public bidding, in violation of the Government Code.
FACTS:
Two Senate Committees, the Senate Blue Ribbon Committee and
Committee on Accountability of Public Officers, conducted extensive public
hearings to determine the actual market value of the public lands; and found out
that the sale of such was grossly undervalued based on official documents
submitted by the proper government agencies during the investigations. It was
found out that the Public Estates Authority (PEA), under the Joint Venture
Agreement (JVA), sold to Amari Coastal Bay Development Corporation 157.84
hectares of reclaimed public lands totaling to P 1.89 B or P 1,200 per square
meter. However during the investigation process, the BIR pitted the value at P
7,800 per square meter, while the Municipal Assessor of Parañaque at P 6,000
per square meter and by the Commission on Audit (COA) at P21,333 per square
meter. Based on the official appraisal of the COA, the actual loss on the part of
the government is a gargantuan value of P 31.78 B. However, PEA justified the
purchase price based from the various appraisals of private real estate
corporations, amounting from P 500 – 1,000 per square meter. Further, it was
also found out that there were various offers from different private entities to
buy the reclaimed public land at a rate higher than the offer of Amari, but still,
PEA finalized the JVA with Amari. During the process of investigation, Amari did
not hide the fact that they agreed to pay huge commissions and bonuses to
various persons for professional efforts and services in successfully negotiating
and securing for Amari the JVA. The amount constituting the commissions and
bonuses totaled to a huge P 1.76 B; an indicia of great bribery.
ISSUE:
Whether or not the sale between PEA and Amari is unconstitutional.
RULING:
YES, it is unconstitutional for what was sold or alienated are lands of the
public domain. Further, the Ponce doctrine, to which the respondent seeks
refuge and sanctuary, does not fall squarely in the case.
First, the subject of the sale was a submerged land; i.e., 78% of the total
area sold by PEA to Amari is still submerged land. Submerged lands, like
foreshore lands, is of the public domain and cannot be alienated. As
unequivocally stated in Article XII, Section 2 of the Constitution, all lands of the
public domain, waters, minerals, coals, petroleum, forces which are potential
energies, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources, with the exception of agricultural lands, are inalienable. Submerged
lands fall within the scope of such provision.
Second, in the Ponce case, the “irrevocable option” to purchase portions
of the foreshore lands shall be enforceable only upon reclamation, not prior to
reclamation. In the case at bar, even without actual reclamation, the submerged
lands were immediately transferred and sold to Amari.
Third, the Ponce doctrine has been superseded by the provisions of the
Government Auditing Code, which has been bolstered by the provisions of the
Local Government Code, which states that any sale of the public land must be
made only thru a public bidding. There being no public bidding in the subject
sale of land; the amended JVA is a negotiated contract in patent violation of such
law.
Fourth, the Ponce doctrine which involved the validity to reclaim foreshore
lands based on RA 1899 (authorizing municipalities and chartered cities to
reclaim foreshore lands) is not applicable in the instant case because what is
involved in the case at bar are submerged lands.
Fifth, in the Ponce case, the City of Cebu was sanctioned to reclaim
foreshore lands under RA 1899 for it is a qualified end user government agency;
therefore, can sell patrimonial property to private parties. But PEA is not an end
user agency with respect to reclaimed lands under the amended JVA for
reclaimed lands are public and therefore are inalienable.
Finally, the Ponce case was decided under the 1935 Constitution (1965-
66), which allowed private corporations to acquire alienable lands of the public
domain. The case at bar falls within the ambit of the 1987 Constitution which
prohibits corporations from acquiring alienable lands of the public domain.
Ergo, the submerged lands, being inalienable and outside the commerce
of man, could not be the subject of the commercial transactions specified in the
Amended JVA. Hence, the contract between Amari and the PEA is void.
REQUISITE OF CONTRACT – DETERMINATE OBJECT
MELLIZA VS. CITY OF ILOILO
23 SCRA 477
FACTS:
Juliana Melliza during her lifetime owned three parcels of residential land
in Iloilo City. On 1932, she donated to the then Municipality of Iloilo a certain lot
to serve as site for the municipal hall. The donation was however revoked by
the parties for the reason that area was found inadequate to meet the
requirements of the development plan. Subsequently the said lot was divided
into several divisions.
Sometime in 1938, Juliana Melliza sold her remaining interest on the said
lot to Remedios San Villanueva. Remedios in turn transferred the rights to said
portion of land to Pio Sian Melliza. The transfer Certificate of title in Melliza’s
name bears on annotation stating that a portion of said lot belongs to the
Municipality of Iloilo.
Later the City of Iloilo, which succeeds to the Municipality of Iloilo, donated
the city hall sit to the University of the Philippines, Iloilo Branch. On 1952, the
University of the Philippines enclosed the site donated with a wire fence.
Pio Sian Melliza then filed action in the Court of First Instance of Iloilo
against Iloilo City and the University of the Philippines for recovery of the parcel
of land or of its value specifically LOT 1214-B.
Petitioner contends that LOT 1214-B was not included in those lots which
were sold by Juliana Melliza to the then municipality of Iloilo and to say he would
render the Deed of Sale invalid because the law requires as an essential element
of sale, determinate object.
ISSUE:
Whether or not IF Lot 1214 – B is included in the Deed of Sale, it would
render the contract invalid because the object would allegedly not be
determinate as required by law.
RULING:
NO. The requirement of the law specifically Article 1460 of the Civil Code,
that the sale must have for its object a determinate thing, is fulfilled as long as,
at the time the contract is entered into, the object of the sale is cable of being
determinate without the necessity of a new or further agreement between the
parties.
 The specific mention of some of the lots plus the statement that the lots
object of the sale are the ones needed for city hall site sufficient provides a
basis, as of the time, of the execution of the contract, for rendering determinate
said lots without the need of a new further agreement of the parties.
ABSENCE OF CAUSE VS. FAILURE/INADEQUACY OF CAUSE
ASKAY, plaintiff-appellant, VS. FERNANDO A. COSALAN, defendant-
appellee
1924 September 15
46 PHIL 179
FACTS:
The plaintiff in this case is Askay, an illiterate Igorrote between 70 and 80
years of age, residing in the municipal district of Tublay, Province of Benguet,
who at various times has been the owner of mining property. The defendant is
Fernando A. Cosalan, the nephew by marriage of Askay, and municipal president
of Tublay, who likewise has been interested along with his uncle in mining
enterprises
About 1907, Askay obtained title to the Pet Kel Mineral Claim located in
Tublay, Benguet. On November 23, 1914, if we are to accept defendant's Exhibit
1, Askay sold this claim to Cosalan. Nine years later, in 1923, Askay instituted
action in the Court of First Instance of Benguet to have the sale of the Pet Kel
Mineral Claim declared null, to secure possession of the mineral claim, and to
obtain damages from the defendant in the amount of P10,500. Following the
presentation of various pleadings including the answer of the defendant, and
following trial before Judge of First Instance Harvey, judgment was rendered
dismissing the complaint and absolving the defendant from the same, with costs
against the plaintiff. On being informed of the judgment of the trial court,
plaintiff attacked it on two grounds: The first, jurisdictional, and the second,
formal. Both motions were denied and an appeal was perfected.
ISSUE:
Whether or not the plaintiff has established his cause of action by a
preponderance of the evidence.
RULING:
Plaintiff contends that the sale of the Pet Kel Mineral Claim was
accomplished through fraud and deceit on the part of the defendant. Plaintiff
may be right but in our judgment he has failed to establish his claim. Fraud must
be both alleged and proved. One fact exists in plaintiffs favor, and this is the
age and ignorance of the plaintiff who could be easily by the defendant, a man
of greater intelligence. Another fact is the inadequacy of the consideration for
the transfer which, according to the conveyance, consisted of P1 and other
valuable consideration, and which, according to the oral testimony, in reality
consisted of P107 in cash, a bill-fold, one sheet, one cow, and two carabaos.
Gross inadequacy naturally suggest fraud is some evidence thereof, so that it
may be sufficient to show it when taken in connection with other circumstances,
such as ignorance or the fact that one of the parties has an advantage over the
other. But the fact that the bargain was a hard one, coupled with mere
inadequacy of price when both parties are in a position to form an independent
judgment concerning the transaction, is not a sufficient ground for the
cancellation of a contract.
Against the plaintiff and in favor of the defendant, the Court had the
document itself executed in the presence of witnesses and before a notary
public and filed with the mining recorder. The notary public, Nicanor Sison, and
one of the attesting witnesses, Apolonio Ramos, testified to the effect that in the
presence of the plaintiff and the defendant and of the notary public and the
subscribing witnesses, the deed of sale was interpreted to the plaintiff and that
thereupon he placed his thumb mark on the document. Two finger print experts,
Dr. Charles S. Banks and A. Simkus, have declared in depositions that the thumb
mark on exhibit is that of Askay. No less than four other witnesses testified that
at various times Askay had admitted to them that he had sold the Pet Kel Mine
to Fernando A. Cosalan.
Having in mind of these circumstances, how can the plaintiff expect the
courts to nullify the deed of sale on mere suspicion? Having waited nine years
from the date when the deed was executed, nine years from the time Fernando
A. Cosalan started developing the mine, nine years from the time Askay himself
had been deprived of the possession of the mine, and nine years permitting of a
third party to obtain a contract of lease from Cosalan, how can the court
overlook plaintiff's silent acquiescence in the legal rights of the defendant? On
the facts of record, the trial judge could have done nothing less than dismiss the
action.
The Court concludes, therefore, that the complaint was properly
dismissed. As a result, judgment is affirmed
CAUSE: TRUE/REAL: SIMULATION OF CONTRACTS

HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE VS. LIM
446 SCRA 57
FACTS:
The spouses Aurelio and Esperanza Balite were the owners of a parcel of
land at Catarman, Northern Samar. When Aurelio died intestate, his wife
Esperanza and their children inherited the subject property and became co-
owners thereof. In the meantime, Esperanza became ill and was in dire need of
money fro her hospital expenses. She, through her daughter, Cristeta, offered to
sell to Rodrigo Lim, her undivided share for the price of P1,000,000.00.
Esperaza and Rodrigo agreed that under the Deed of Absolute Sale, it will be
made to appear that the purchase price of the property would be P150,000.00
although the actual price agreed upon by them for the property was
P1,000,000.00. On April 16, 1996, Esperanza executed a Deed of Absolute Sale
in favor of Rodrigo. They also executed on the same day a Joint Affidavit under
which they declared that the real price of the property was P1,000,000.00
payable to Esperanza by installments. Only Esperanza and two of her children
Antonio and Cristeta knew about the said transaction. When the rest of the
children knew of the sale, they wrote to the Register of Deeds saying that their
mother did not inform them of the sale of a portion of the said property nor did
they give consent thereto. Nonetheless, Rodrigo made partial payments to
Antonio who is authorized by his mother through a Special Power of Attorney.
On October 23, 1996, Esperanza signed a letter addressed to Rodrigo
informing the latter that her children did not agree to the sale of the property to
him and that she was withdrawing all her commitments until the validity of the
sale is finally resolved. On October 31, 1996, Esperanza died intestate and was
survived by her children. Meanwhile, Rodrigo caused to be published in the
Samar Reporter the Deed of Absolute Sale.
On June 27, 1997, petitioners filed a complaint against Rodrigo with the
Regional Trial Court for the annulment of sale, quieting of title, injunction and
damages. Subsequently, Rodrigo secured a loan from the Rizal Commercial
Banking Corporation in the amount of P2,000,000.00 and executed a Real Estate
Mortgage over the property as security thereof. On motion of the petitioners,
they were granted leave to file an amended complaint impleading the bank as
additional party defendant. On March 30, 1998, the court issued an order
rejecting the amended complaint of the petitioners. Likewise, the trial court
dismissed the complaint. It held that pursuant to Article 493 of the Civil Code, a
co-owner is not invalidated by the absence of the consent of the other co-
owners. Hence, the sale by Esperanza of the property was valid; the excess from
her undivided share should be taken from the undivided shares of Cristeta and
Antonio, who expressly agreed to and benefit from the sale. The Court of
Appeals likewise held that the sale was valid and binding insofar as Esperanza
Balite’s undivided share of the property was concerned. It affirmed the trial
court’s ruling that the lack of consent of the co-owners did not nullify the sale.
ISSUE:
Whether or not the Deed of Absolute Sale is null and void on the ground
that it is falsified; it has an unlawful cause; and it is contrary to law and/or public
policy.
RULING:
No. The contract is an example of a simulated contract. Article 1345 of
the Civil Code provides that the simulation of a contract may either be absolute
or relative. In absolute simulation, there is a colorable contract but without any
substance, because the parties have no intention to be bound by it. An
absolutely simulated contract is void, and the parties may recover from each
other what they may have given under the “contract”. On the other hand, if the
parties state a false cause is relatively simulated. Here, the parties’ real
agreement binds them. In the present case, the parties intended to be bound by
the Contract, even if it did not reflect the actual purchase price of the property.
The letter of Esperanza to respondent and petitioner’s admission that there was
partial payment made on the basis of the Absolute Sale reveals that the parties
intended the agreement to produce legal effect.
Since the Deed of Absolute Sale was merely relatively simulated, it
remains valid and enforceable. All the essential requisites prescribed by law for
the validity and perfection of contracts is present. However, the parties shall be
bound by their real agreement for a consideration of P1,000,000 as reflected by
their Joint Affidavit.
The petition is DENIED and the assailed decision AFFIRMED.
CAUSE: TRUE/REAL: SIMULATION OF CONTRACTS
SUNTAY V. COURT OF APPEALS
G.R. No. 114950, December 19, 1995
FACTS:
Respondent Federico Suntay is the owner of a parcel of land and a
rice mill, warehouse, and other improvements situated in the said land. A
rice miller, Federico, in a letter applied as a miller-contractor of the
National Rice and Corn Corporation (NARIC). He informed the NARIC that
he had a daily rice mill output of 400 cavans of palay and warehouse
storage capacity of 150,000 cavans of palay. His application, although
prepared by his nephew-lawyer, Rafael Suntay, was disapproved, because
at that time he was tied up with several unpaid loans.
For purposes of circumvention, he had thought of allowing Rafael to
make the application for him. Rafael prepared an absolute deed of sale
whereby Federico, for and in consideration of P20,000.00 conveyed to
Rafael said parcel of land with all its existing structures. Said deed was
notarized as Document No. 57 and recorded on Page 13 of Book 1, Series
of 1962, of the Notarial Register of Atty. Herminio V. Flores. Less than
three months after this conveyance, a counter sale was prepared and
signed by Rafael who also caused its delivery to Federico. Through this
counter conveyance, the same parcel of land with all its existing
structures was sold by Rafael back to Federico for the same consideration
of P20,000.00. Although on its face, this second deed appears to have
been notarized as Document No. 56 and recorded on Page 15 of Book 1,
Series of 1962, of the notarial register of Atty. Herminio V. Flores, an
examination thereof will show that, recorded as Document No. 56 on Page
13, is not the said deed of sale but a certain "real estate mortgage on a
parcel of land with TCT No. 16157 to secure a loan of P3,500.00 in favor of
the Hagonoy Rural Bank."
Nowhere on page 13 of the same notarial register could be found
any entry pertaining to Rafael's deed of sale. Testifying on this
irregularity, Atty. Flores admitted that he failed to submit to the Clerk of
Court a copy of the second deed. Neither was he able to enter the same
in his notarial register. Even Federico himself alleged in his Complaint
that, when Rafael delivered the second deed to him, it was neither dated
nor notarized.
Upon the execution and registration of the first deed, Certificate of
Title No. 0-2015 in the name of Federico was cancelled and in lieu thereof,
TCT No. T-36714 was issued in the name of Rafael. Even after the
execution of the deed, Federico remained in possession of the property
sold in concept of owner. Significantly, notwithstanding the fact that
Rafael became the titled owner of said land and rice mill, he never made
any attempt to take possession thereof at any time, while Federico
continued to exercise rights of absolute ownership over the property.
In a letter, dated August 14, 1969, Federico, through his new
counsel, Agrava & Agrava, requested that Rafael deliver his copy of TCT
No. T-36714 so that Federico could have the counter deed of sale in his
favor registered in his name. The request having been obviously turned
down, Agrava & Agrava filed a petition with the Court of First Instance of
Bulacan asking Rafael to surrender his owner's duplicate certificate of TCT
No. T-36714. In opposition thereto, Rafael chronicled the discrepancy in
the notarization of the second deed of sale upon which said petition was
premised and ultimately concluded that said deed was a counterfeit or "at
least not a public document which is sufficient to transfer real rights
according to law." On September 8, 1969, Agrava & Agrava filed a motion
to withdraw said petition, and, on September 13, 1969, the Court granted
the same.
On July 8, 1970, Federico filed a complaint for reconveyance and
damages against Rafael. In his answer, Rafael scoffed at the attack
against the validity and genuineness of the sale to him of Federico's land
and rice mill. Rafael insisted that said property was "absolutely sold and
conveyed . . . for a consideration of P20,000.00, Philippine currency, and
for other valuable consideration".
While the trial court upheld the validity and genuineness of the
deed of sale executed by Federico in favor of Rafael, which deed is
referred to above as Exhibit A, it ruled that the counter-deed, referred to
as Exhibit B, executed by Rafael in favor of Federico, was simulated and
without consideration, hence, null and void ab initio.
Moreover, while the trial court adjudged Rafael as the owner of the
property in dispute, it did not go to the extent of ordering Federico to pay
back rentals for the use of the property as the court made the evidential
finding that Rafael simply allowed his uncle to have continuous
possession of the property because or their understanding that Federico
would subsequently repurchase the same.
From the aforecited decision of the trial court, both Federico and
Rafael appealed. The Court of Appeals rendered judgment affirming the
trial court's decision, with a modification that Federico was ordered to
surrender the possession of the disputed property to Rafael. Counsel of
Federico filed a motion for reconsideration of the aforecited decision.
While the motion was pending resolution, Atty. Ricardo M. Fojas entered
his appearance in behalf of the heirs of Rafael who had passed away on
November 23, 1988. Atty. Fojas prayed that said heirs be substituted as
defendants-appellants in the case. The prayer for substitution was duly
noted by the court in a resolution dated April 6, 1993. Thereafter, Atty.
Fojas filed in behalf of the heirs an opposition to the motion for
reconsideration. The parties to the case were heard on oral argument on
October 12, 1993. On December 15, 1993, the Court of Appeals reversed
itself and rendered an amended judgment.
ISSUE:
Whether or not the deed of sale executed by Federico in favor of
Rafael is simulated and fictitious and, hence, null and void.
RULING:
In the aggregate, the evidence on record demonstrate a
combination of circumstances from which may be reasonably inferred
certain badges of simulation that attach themselves to the deed of sale in
question. The complete absence of an attempt on the part of the buyer to
assert his rights of ownership over the land and rice mill in question is the
most protuberant index of simulation.
The deed of sale executed by Federico in favor of his now deceased
nephew, Rafael, is absolutely simulated and fictitious and, hence, null and
void, said parties having entered into a sale transaction to which they did
not intend to be legally bound. As no property was validly conveyed
under the deed, the second deed of sale executed by the late Rafael in
favor of his uncle, should be considered ineffective and unavailing.
The allegation of Rafael that the lapse of seven years before
Federico sought the issuance of a new title in his name necessarily makes
Federico's claim stale and unenforceable does not hold water. Federico's
title was not in the hands of a stranger or mere acquaintance; it was in
the possession of his nephew who, being his lawyer, had served him
faithfully for many years. Federico had been all the while in possession of
the land covered by his title and so there was no pressing reason for
Federico to have a title in his name issued. Even when the relationship
between the late Rafael and Federico deteriorated, and eventually ended,
it is not at all strange for Federico to have been complacent and
unconcerned about the status of his title over the disputed property since
he has been possessing the same actually, openly, and adversely, to the
exclusion of Rafael. It was only when Federico needed the title in order to
obtain a collaterized loan that Federico began to attend to the task of
obtaining a title in his name over the subject land and rice mill.
CAUSE VS. MOTIVE
UY VS. COURT OF APPEALS
314 SCRA 69
SEPTEMBER 9, 1999
FACTS:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight
(8) parcels of land by the owners thereof. By virtue of such authority, petitioners
offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent
National Housing Authority (NHA) to be utilized and developed as a housing
project.
On February 14, 1989, NHA approved the acquisition of the said parcels of
land with an area of 31.8231 hectares at the cost of P23.867 million, pursuant to
which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of lands, however, only five were paid for by
the NHA because of the report it received from the Land Geosciences Bureau of
the Department of Environment and Natural Resources that the remaining area
is located at an active landslide area and therefore, not suitable for development
into a housing project. NHA eventually cancelled the sale over the remaining
three (3) parcels of land.
On March 9, 1992, petitioners filed a complaint for damages. After trial,
the RTC of Quezon City rendered the cancellation of contract to be justified and
awarded P1.255 million as damages in favor of petitioners.
Upon appeal by petitioners, the Court of Appeals reversed the decision
and entered a new one dismissing the complaint including the award of
damages.
 The motion for reconsideration having been denied, petitioners seek relief
from this court contending, inter alia, that the CA erred in declaring that NHA
had any legal basis to rescind the subject sale.
ISSUE:
Whether or not the contention of petitioner is correct.
Whether or not a party’s entry into a contract affects the validity of the
contract.
RULING:
Anent the 1st issue, NO. Petitioners confuse the cancellation of the
contract by the NHA as a rescission of the contract under Article 1191 of the Civil
Code. The right to rescission is predicated on a breach of faith by the other
party that violates the reciprocity between them. The power to rescind is given
to the injured party. In this case, the NHA did not rescind the contract. Indeed,
it did not have the right to do so for the other parties to the contract, the
vendors did not commit any breach, much less a substantial breach, of their
obligation. The NHA did not suffer any injury. The cancellation was not
therefore a rescission under Article 1191. Rather, it was based on the negation
of the cause arising from the realization that the lands, which were the objects of
the sale, were not suitable for housing.
Anent the 2nd issue, as a general rule, a party’s motives for entering into a
contract do not affect the contract. However, when the motive predetermines
the cause, the motive may be regarded as the cause. As held in Liguez v. CA, ...
It is well to note, however, that Manresa himself, while maintaining the
distinction and upholding the inoperativess of the motives of the parties to
determine the validity of the contract, expressly excepts from the rule those
contracts that are conditioned upon the attainment of the motives of either
party. The same view is held by the Supreme Court of Spain, in its decisions of
Fevruary 4, 1941 and December 4, 1946, holdinmg that the motive may be
regarded as causa when it predermones the purpose of the contract.
GRATUITOUS CAUSE
1. LIGUEZ VS. CA, 102 PHIL 577
2. PHILBANK VS. LUI SHE, 21 SCRA 52
CONCHITA LIGUEZ, petitioner, VS. THE HONORABLE COURT OF APPEALS,
MARIA NGO VDA. DE LOPEZ, ET AL., respondents
102 P 577
December 18, 1957
G.R. No. L-11240
FACTS:
The case began upon complaint filed by petitioner-appellant against the
widow and heirs of the late Salvador P. Lopez to recover a parcel of 51.84
hectares of land, situated in Barrio Bogac-Linot, of the municipality of Mati,
Province of Davao. Plaintiff averred to be its legal owner, pursuant to a deed of
donation of said land, executed in her favor by the late owner, Salvador P. Lopez,
on 18 May 1943. The defense interposed was that the donation was null and
void for having an illicit causa or consideration, which was plaintiff's entering
into marital relations with Salvador P. Lopez, a married man; and that the
property had been adjudicated to the appellees as heirs of Lopez by the Court of
First Instance, since 1949.
The Court of Appeals found that the deed of donation was prepared by the
Justice of the Peace of Mati, Davao, before whom it was signed and ratified on
the date aforesaid. At the time, appellant Liguez was a minor, only 16 years of
age. Salvador donated it to Liguez out of his love and affection to her. The Court
of Appeals found that when the donation was made, Lopez had been living with
the parents of appellant for barely a month; that the donation was made in view
of the desire of Salvador P. Lopez, a man of mature years to have sexual
relations with appellant Conchita Liguez; that Lopez had confessed to his love for
appellant to the instrumental witnesses, with the remark that her parents would
not allow Lopez to live with her unless he first donated the land in question; that
after the donation, Conchita Liguez and Salvador P. Lopez lived together in the
house that was built upon the latter's orders, until Lopez was killed on July 1st,
1943, by some guerrillas who believed him to be pro-Japanese.
It was also ascertained by the Court of Appeals that the donated land
originally belonged to the conjugal partnership of Salvador P. Lopez and his wife,
Maria Ngo; that the latter had met and berated Conchita for living maritally with
her husband, sometime during June of 1943; that the widow and children of
Lopez were in possession of the land and made improvements thereon; that the
land was assessed in the tax rolls first in the name of Lopez and later in that of
his widow; and that the need of donation was never recorded.
Upon these facts, the Court of Appeals held that the deed of donation was
inoperative, and null and void (1) because the husband, Lopez, had no right to
donate conjugal property to the plaintiff appellant; and (2) because the donation
was tainted with illegal causa or consideration, of which donor and donee were
participants.
Appellant vigorously contends that the Court of First Instance as well as
the Court of Appeals erred in holding the donation void for having an illicit causa
or consideration. It is argued that under Article 1274 of the Civil Code of 1889
(which was the governing law in 1943, when the donation was executed), "in
contracts of pure beneficence the consideration is the liberality of the donor",
and that liberality per se can never be illegal, since it is neither against law or
morals or public policy.
ISSUE:
Whether or not the deed of donation made by Lopez in favor of Liguez was
valid.
RULING:
Under Article 1274, liberality of the donor is deemed causa only in those
contracts that are of "pure" beneficence; that is to say, contracts designed solely
and exclusively to procure the welfare of the beneficiary, without any intent of
producing any satisfaction for the donor; contracts, in other words, in which the
idea of self-interest is totally absent on the part of the transferor.
For this very reason, the same Article 1274 provides that in remuneratory
contracts, the consideration is the service or benefit for which the remuneration
is given; causa is not liberality in these cases because the contract or
conveyance is not made out of pure beneficence, but "solvendi animo." In
consonance with this view, the Court in Philippine Long Distance Co. vs. Jeturian*
G. R. L-7756, July 30, 1955, like the Supreme Court of Spain in its decision of 16
Feb. 1899, has ruled that bonuses granted to employees to excite their zeal and
efficiency, with consequent benefit for the employer, do not constitute donation
having liberality for a consideration.
Here the facts as found by the Court of Appeals, which the Supreme Court
could not vary, demonstrate that in making the donation in question, the late
Salvador P. Lopez was not moved exclusively by the desire to benefit appellant
Conchita Liguez, but also to secure her cohabiting with him, so that he could
gratify his sexual impulses. This is clear from the confession of Lopez to the
witnesses Rodriguez and Ragay, that he was in love with appellant, but her
parents would not agree unless he donated the land in question to her. Actually,
therefore, the donation was but one part of an onerous transaction (at least with
appellant's parents) that must be viewed in its totality. Thus considered, the
conveyance was clearly predicated upon an illicit causa.
Appellant seeks to differentiate between the alleged liberality of Lopez, as
causa for the donation in her favor, and his desire for cohabiting with appellant,
as motives that impelled him to make the donation, and quotes from Manresa
and the jurisprudence of this Court on the distinction that must be maintained
between causa and motives. It is well to note, however, that Manresa himself,
while maintaining the distinction and upholding the inoperativeness of the
motives of the parties to determine the validity of the contract, expressly
excepts from the rule those contracts that are conditioned upon the attainment
of the motives of either party.
Appellees, as successors of the late donor, being thus precluded from
pleading the defense of immorality or illegal causa of the donation, the total or
partial ineffectiveness of the same must be decided by different legal principles.
In this regard, the Court of Appeals correctly held that Lopez could not donate
the entirety of the property in litigation, to the prejudice of his wife Maria Ngo,
because said property was conjugal in character, and the right of the husband to
donate community property is strictly limited by law.
The situation of the children and forced heirs of Lopez approximates that
of the widow. As privies of their parent, they are barred from invoking the
illegality of the donation. But their right to a legitime out of his estate is not
thereby affected, since the legitime is granted them by the law itself, over and
above the wishes of the deceased. Hence, the forced heirs are entitled to have
the donation set aside in so far as inofficious: i.e., in excess of the portion of free
disposal , computed as provided in Articles 818 and 819, and bearing in mind
that "collationable gifts" under Article 818 should include gifts made not only in
favor of the forced heirs, but even those made in favor of strangers, as decided
by the Supreme Court of Spain in its decisions of 4 May 1899 and 16 June 1902.
So that in computing the legitimes, the value of the property donated to herein
appellant, Conchita Liguez, should be considered part of the donor's estate.
Only the court of origin has the requisite date to determine whether the donation
is inofficious or not. With regard to the improvements in the land in question,
the same should be governed by the rules of accession and possession in good
faith, it being undisputed that the widow and heirs of Lopez were unaware of the
donation in favor of the appellant when the improvements were made.
 Appellant Conchita Liguez was declared by the Supreme Court entitled to
so much of the donated property as may be found, upon proper liquidation, not
to prejudice the share of the widow Maria Ngo in the conjugal partnership with
Salvador P. Lopez or the legitimes of the forced heirs of the latter.
GRATUITOUS CAUSE
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-appellant,
VS. LUI SHE, in her own behalf and as administratrix of the
intestate of Wong Heng, deceased, defendant-appellant
21 SCRA 52
FACTS:
Justina Santos and her sister Lorenza were the owners in common of a
piece of land in Manila. In it are two residential houses. The sisters lived in one
of the houses, while Wong Heng, a Chinese, lived with his family in the
restaurant. Wong had been a long time lessee of a portion of the property,
paying monthly rentals. On September 22, 1957, Justina became the owner of
the entire property as her sister died with no other heir.
On November 1, 1957, Justina executed a contract of lease in favor of
Wong, covering a portion already leased to him and another portion of the
property. The lease was for 50 years, although the lessee was give the right to
withdraw at anytime from the agreement with a stipulated monthly rental.
On December 1, she executed another contract giving Wong the option to
buy the leased premises for P120,000 payable within 10 years at monthly
installment of P1,000. The option was conditioned on his obtaining Philippine
citizenship, which was then pending. His application for naturalization was
withdrawn when it was discovered that he was a resident of Rizal.
On November 18,1958, she executed two other contracts one extending
the term to 99 years and the term fixing the term of the option of 50 years. In
the two wills, she bade her legatees to respect the contract she had entered into
with Wong, but it appears to have a change of heart in a codicil. Claiming that
the various contracts were made because of her machinations and inducements
practiced by him, she now directed her executor to secure the annulment of the
contracts.
On November 18, the action was filed in the CFI of Manila. The complaint
alleged that Wong obtained the contracts through fraud. Wong denied having
taken advantage of her trust in order to secure the execution of the contracts on
question. He insisted that the various contracts were freely and voluntarily
entered into by the parties.
The lower court declared all the contracts null and void with the exception
of the first, which is the contract of lease of November 15, 1957. From this
decision, both parties appealed directly to the Court. After the case were
submitted for decision, both parties died, Wong on 1962, and Justina on 1964.
Wong as substituted by his wife Lui She while Justina by the Philippine Banking
Corporation.
ISSUE:
Whether or not the contracts entered into by the parties are void being in
violation of the Constitutional prohibition on transfer of lands to aliens or those
who are not citizens of the Philippines.
RULING:
YES. The Court held the lease and the rest of the contracts were obtained
with the consent of Justina freely given and voluntarily. However the contacts
are not necessarily valid on the ground that it circumvents the Constitutional
prohibition against the transfer of lands to aliens. The illicit purpose then
becomes the illegal causa, rendering the contracts void.
It does not follow from what has been said that because the parties are in
pari delicto they will be left where they are, without relief. For one thing, the
original parties who were guilty of violation of fundamental charter have died
and have since substituted by their administrators to whom it would e unjust to
impute their guilt. For another thing, Article 1416 of the Civil Code provides an
exception to the pari de licto, that when the agreement is not illegal per se but is
merely prohibited, and the prohibition of the law is designed for the protection of
the plaintiff, he may recover what he has paid or delivered.
FORM AS ESSENTIAL ELEMENT OF CONTRACTS
SONIA F. LONDRES, ARMANDO V. FUENTES, CHI-CHITA FUENTES
QUINTIA, ROBERTO V. FUENTES, LEOPOLDO V. FUENTES, OSCAR V.
FUENTES and MARILOU FUENTES ESPLANA petitioners, vs. THE COURT
OF APPEALS, THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,
THE DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, ELENA
ALOVERA SANTOS and CONSOLACION ALIVIO ALOVERA, respondents
Dec 17, 2002
G.R. No. 136427
FACTS:
The present case stemmed from a battle of ownership over Lots 1320 and
1333 both located in Barrio Baybay, Roxas City, Capiz. Paulina originally owned
these two parcels of land. After Paulina’s death, ownership of the lots passed to
her daughter, Filomena. The surviving children of Filomena, namely, Sonia
Fuentes Londres, Armando V. Fuentes, Chi-Chita Fuentes Quintia, Roberto V.
Fuentes, Leopoldo V. Fuentes and Marilou Fuentes Esplana, herein petitioners,
now claim ownership over Lots 1320 and 1333. On the other hand, private
respondents Consolacion and Elena anchor their right of ownership over Lots
1320 and 1333 on the Absolute Sale executed by Filomena on April 24, 1959.
Filomena sold the two lots in favor of Consolacion and her husband, Julian. Elena
is the daughter of Consolacion and Julian.
On March 30, 1989, petitioners filed a complaint for the declaration of
nullity of contract, damages and just compensation. Petitioners sought to nullify
the Absolute Sale conveying Lots 1320 and 1333 and to recover just
compensation from public respondents DPWH and DOTC. Petitioners claimed
that as the surviving children of Filomena, they are the owners of Lots 1320 and
1333. Petitioners claimed that these two lots were never sold to Julian.
Petitioners doubt the validity of the Absolute Sale because it was tampered. The
cadastral lot number of the second lot mentioned in the Absolute Sale was
altered to read Lot 1333 when it was originally written as Lot 2034. Petitioners
pointed out that Lot 2034, situated in Barrio Culasi, Roxas City, Capiz, was also
owned by their grandmother, Paulina. And that it was only recently that they
learned of the claim of private respondents when Consolacion filed a petition for
the judicial reconstitution of the original certificates of title of Lots 1320 and
1333 with the Capiz Cadastre. Upon further inquiry, petitioners discovered that
there exists a notarized Absolute Sale executed on April 24, 1959 registered only
on September 22, 1982 in the Office of the Register of Deeds of Roxas City. The
private respondents’ copy of the Absolute Sale was tampered so that the second
parcel of lot sold, Lot 2034 would read as Lot 1333. However, the Records
Management and Archives Office kept an unaltered copy of the Absolute Sale.
This other copy shows that the objects of the sale were Lots 1320 and 2034.
Private respondents maintained that they are the legal owners of Lots
1333 and 1320. Julian purchased the lots from Filomena in good faith and for a
valid consideration. Private respondents explained that Julian was deaf and
dumb and as such, was placed in a disadvantageous position compared to
Filomena. Julian had to rely on the representation of other persons in his
business transactions. After the sale, Julian and Consolacion took possession of
the lots. Up to now, the spouses’ successors-in-interest are in possession of the
lots in the concept owners. Private respondents claimed that the alteration in the
Absolute Sale was made by Filomena to make it conform to the description of
the lot in the Absolute Sale. Private respondents filed a counterclaim with
damages.
The cross-claim of petitioners against public respondents was for the
recovery of just compensation. Petitioners claimed that during the lifetime of
Paulina, public respondents took a 3,200-square meter portion of Lot 1320. The
land was used as part of the Arnaldo Boulevard in Roxas City without any
payment of just compensation. In 1988, public respondents also appropriated a
1,786-square meter portion of Lot 1333 as a vehicular parking area for the Roxas
City Airport. Sonia, one of the petitioners, executed a deed of absolute sale in
favor of the Republic of the Philippines over this portion of Lot 1333. According
to petitioners, the vendee agreed to pay petitioners P214,320.00. Despite
demands, the vendee failed to pay the stipulated amount.
The trial court issued its decision upholding the validity of the Absolute
Sale. This was affirmed by the Court of Appeals.
ISSUE
Whether or not the notarized copy should prevail.
RULING
Among others, petitioners harp on the fact that the notarized and
registered copy of the Absolute Sale should have, been correspondingly
corrected. Petitioners believe that the notarized and archived copy should
prevail. We disagree. A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon
the price. Being consensual, a contract of sale has the force of law between the
contracting parties and they are expected to abide in good faith with their
respective contractual commitments. Article 1358 of the Civil Code, which
requires certain contracts to be embodied in a public instrument, is only for
convenience, and registration of the instrument is needed only to adversely
affect third parties. Formal requirements are, therefore, for the purpose of
binding or informing third parties. Non-compliance with formal requirements
does not adversely affect the validity of the contract or the contractual rights
and obligations of the parties.
Decision affirmed with the modification that the cross-claim against public
respondents is dismissed.
FORM FOR CONVENIENCE OF CONTRACTS (Art. 1358, CC)
1. BALATBAT VS. CA
2. UNIVERSAL ROBINA VS. HEIRS OF TEVES
CLARA M. BALATBAT
VS. COURT OF APPEALS and Spouses JOSE REPUYAN and AURORA
REPUYAN
G.R. No. 109410
August 28, 1996
261 SCRA 128
FACTS:
The lot in question covered by Transfer Certificate of Title No. 51330 was
acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union
and the house constructed thereon was likewise built during their marital union.
Out of their union, plaintiff and Maria Mesina had four children. When Maria
Mesina died on August 28, 1966, the only conjugal properties left are the house
and lot above stated of which plaintiff herein, as the legal spouse, is entitled to
one-half share pro-indiviso thereof. With respect to the one-half share pro-
indiviso now forming the estate of Maria Mesina, plaintiff and the four children,
the defendants here, are each entitled to one-fifth (1/5) share pro-indiviso.
Aurelio Roque then entered into a contract of Absolute Sale with the
spouses Aurora and Jose Repuyan. However, on August 20, 1980, Aurelio filed a
complaint for Rescission of Contract against Spouses Repuyan for the latter’s
failure to pay the balance of the purchase price. A deed of absolute sale was
then executed on February 4, 1982 between Aurelio S. Roque, Corazon Roque,
Feliciano Roque, Severa Roque and Osmundo Roque and Clara Balatbat, married
to Alejandro Balatbat. On April 14, 1982, Clara Balatbat filed a motion for the
issuance of a writ of possession which was granted by the trial court on
September 14, 1982 "subject, however, to valid rights and interest of third
persons over the same portion thereof, other than vendor or any other person or
persons privy to or claiming any rights or interests under it." The corresponding
writ of possession was issued on September 20, 1982.
The lower court then rendered judgment in favor of the Spouses Repuyan
and declared the Deed of Absolute Sale as valid. On appeal by petitioner
Balatbat, the Court of Appeals affirmed the lower court’s decision.
ISSUE:
Whether or not the delivery of the owner’s certificate of title to spouses
Repuyan by Aurelio Roque is for convenience or for validity or enforceability.
RULING:
The Supreme Court found that the sale between Aurelio and the Spouses
Repuyan is not merely for the reason that there was no delivery of the subject
property and that consideration/price was not fully paid but the sale as
consummated, hence, valid and enforceable.
The non-delivery of the possession of the subject property to the private
respondent, suffice it to say that ownership of the thing sold is acquired only
from the time of delivery thereof, either actual or constructive. Article 1498 of
the Civil Code provides that when the sale is made through a public instrument,
the execution thereof shall be equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary does not appear or cannot
be inferred. The execution of the public instrument, without actual delivery of
the thing, transfers the ownership from the vendor to the vendee, who may
thereafter exercise the rights of an owner over the same. In the instant case,
vendor Roque delivered the owner's certificate of title to herein private
respondent. It is not necessary that vendee be physically present at every
square inch of the land bought by him, possession of the public instrument of the
land is sufficient to accord him the rights of ownership. Thus, delivery of a
parcel of land may be done by placing the vendee in control and possession of
the land (real) or by embodying the sale in a public instrument (constructive).
The provision of Article 1358 on the necessity of a public document is only for
convenience, not for validity or enforceability. It is not a requirement for the
validity of a contract of sale of a parcel of land that this be embodied in a public
instrument.
A contract of sale being consensual, it is perfected by the mere consent of
the parties. Delivery of the thing bought or payment of the price is not
necessary for the perfection of the contract; and failure of the vendee to pay the
price after the execution of the contract does not make the sale null and void for
lack of consideration but results at most in default on the part of the vendee, for
which the vendor may exercise his legal remedies. Tthe petition for review is
hereby dismissed for lack of merit.
FORM FOR CONVENIENCE OF CONTRACTS (Art. 1358, CC)
UNIVERSAL ROBINA SUGAR MILLING CORPORATION, petitioner,
VS. HEIRS OF ANGEL TEVES, respondents
2002 Sep 18
G.R. No. 128574
389 SCRA 316
FACTS:
Andres Abanto owned two parcels of land situated in Campuyo, Manjuyod,
Negros Oriental. One lot is registered in his name and the other lot is
unregistered. When he died, his heirs executed an "Extrajudicial Settlement of
the Estate of the Deceased and Simultaneous Sale." In this document, Abanto's
heirs adjudicated unto themselves the two lots and sold the unregistered lot to
the United Planters Sugar Milling Company, Inc. (UPSUMCO), and the registered
lot to Angel M. Teves, for a total sum of P115,000.00. The sale was not
registered.
Out of respect for his uncle Montenegro, who was UPSUMCO's founder and
president, Teves verbally allowed UPSUMCO to use the registered lot for pier and
loading facilities, free of charge, subject to the condition that UPSUMCO shall
shoulder the payment of real property taxes and that its occupation shall be co-
terminus with its corporate existence. UPSUMCO then built a guesthouse and
pier facilities on the property. Years later, UPSUMCO’s properties were acquired
by the Philippine National Bank (PNB). Later, PNB transferred the same
properties to the Asset Privatization Trust (APT) which, in turn, sold the same to
the Universal Robina Sugar Milling Corporation (URSUMCO). URSUMCO then took
possession of UPSUMCO’s properties, including Teves' lot.
Upon learning of the acquisition of his lot, Teves formally asked the
corporation to turn over to him possession thereof or the corresponding rentals.
He stated in his demand letters that he merely allowed UPSUMCO to use his
property until its corporate dissolution; and that it was not mortgaged by
UPSUMCO with the PNB and, therefore, not included among the foreclosed
properties acquired by URSUMCO.
URSUMCO refused to heed Teves' demand, claiming that it acquired the
right to occupy the property from UPSUMCO which purchased it from Andres
Abanto; and that it was merely placed in the name of Angel Teves, as shown by
the "Deed of Transfer and Waiver of Rights and Possession" dated November 26,
1987. Under this document, UPSUMCO transferred to URSUMCO its application
for agricultural and foreshore lease. The same document partly states that the
lands subject of the foreshore and agricultural lease applications are bounded on
the north by the "titled property of Andres Abanto bought by the transferor
(UPSUMCO) but placed in the name of Angel Teves". URSUMCO further claimed
that it was UPSUMCO, not Teves, which has been paying the corresponding
realty taxes.
Consequently, Teves filed a complaint for recovery of possession of real
property with damages against URSUMCO. However, on September 4, 1992,
Teves died and was substituted by his heirs. On April 6, 1994, the RTC held that
URSUMCO has no personality to question the validity of the sale of the property
between the heirs of Andres Abanto and Angel Teves since it is not a party
thereto; that Teves' failure to have the sale registered with the Registry of Deeds
would not vitiate his right of ownership, unless a third party has acquired the
land in good faith and for value and has registered the subsequent deed; that
the list of properties acquired by URSUMCO from the PNB does not include the
disputed lot and, therefore, was not among those conveyed by UPSUMCO to
URSUMCO.
On appeal by URSUMCO, the Court of Appeals affirmed the RTC decision,
holding that the transaction between Angel Teves and Andres Abanto's heirs is a
contract of sale, not one to sell, because ownership was immediately conveyed
to the purchaser upon payment of P115,000.00. On October 29, 1996, URSUMCO
filed a motion for reconsideration but was denied by the Appellate Court. Hence,
the instant petition for review on certiorari.
ISSUE:
Whether or not the respondents have established a cause of action
against petitioner.
RULING:
 No. Petitioner URSUMCO contends that respondents have no cause of
action because the "Extrajudicial Settlement of the Estate of the Deceased
Andres Abanto and Simultaneous Sale" is merely a promise to sell and not an
absolute deed of sale, hence, did not transfer ownership of the disputed lot to
Angel Teves. Assuming that the document is a contract of sale, the same is void
for lack of consideration because the total price of P115,000.00 does not
specifically refer to the registered lot making the price uncertain. Furthermore,
the transaction, being unregistered, does not bind third parties.
Petitioner's contentions lack merit. As held by the RTC and the Court of
Appeals, the transaction is not merely a contract to sell but a contract of sale. In
a contract of sale, title to the property passes to the vendee upon delivery of the
thing sold; while in a contract to sell, ownership is, by agreement, reserved in
the vendor and is not to pass to the vendee until full payment of the purchase
price. In the case at bar, the subject contract, duly notarized, provides that the
Abanto heirs sold to Teves the lot covered by TCT No. H-37. There is no showing
that the Abanto heirs merely promised to sell the said lot to Teves.
The absolute ownership over the registered land was indeed transferred
to Teves is further shown by his acts subsequent to the execution of the
contract. As found by the trial court, it was Teves, not Andres Abanto's heirs,
who allowed UPSUMCO to construct pier facilities and guesthouse on the land.
When the property was erroneously included among UPSUMCO's properties that
were transferred to petitioner URSUMCO, it was Teves, not the heirs of Andres
Abanto, who informed petitioner that he owns the same and negotiated for an
arrangement regarding its use. Teves even furnished petitioner documents and
letters showing his ownership of the lot, such as a copy of the "Extrajudicial
Settlement of the Estate of the Deceased Andres Abanto and Simultaneous Sale"
and a certified true copy of TCT No. H-37 covering the disputed lot. Indeed, the
trial court and the Court of Appeals correctly ruled that Teves purchased the lot
from the Abanto heirs.
That the contract of sale was not registered does not affect its validity.
Being consensual in nature, it is binding between the parties, the Abanto heirs
and Teves. Article 1358 of the New Civil Code, which requires the embodiment
of certain contracts in a public instrument, is only for convenience, and the
registration of the instrument would merely affect third persons. Formalities
intended for greater efficacy or convenience or to bind third persons, if not done,
would not adversely affect the validity or enforceability of the contract between
the contracting parties themselves. Thus, by virtue of the valid sale, Angel Teves
stepped into the shoes of the heirs of Andres Abanto and acquired all their rights
to the property.
Thus, petition is denied.
REFORMATION OF INSTRUMENTS: WHEN PROHIBITED (Art. 1366-
1367, CC)
1. SARMING VS. DY, JUNE 6, 2002
2. CEBU VS. CA, 407 SCRA 154
SARMING VS. DY
383 SCRA 131
JUNE 6, 2002
FACTS:
Petitioners are the succesors-in-interest of original defendant Silveria
Flores, while respondents Cresencio Dy and Ludivina Dy-Chan are the succesors-
in-interest of the original plaintiff Alejandra Delfino, the buyer of one of the lots
subject of this case. They were joined in this petition by the successors-in-
interest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad
themselves, all surnamed Flores, who were also the original plaintiffs in the
lower court. They are the descendants of Venancio and Jose, the brothers of the
original defendant Silveria Flores.
A controversy arose regarding the sale of Lot 4163 which was half-owned
by the original defendant, Silveria Flores, although it was solely registered under
her name. The other half was originally owned by Silveria’s brother, Jose. On
January 1956, the heirs of Jose entered into a contract with plaintiff Alejandra
Delfino, for the sale of their one-half share of Lot 4163 after offering the same to
their co-owner, Silveria, who declined for lack of money. Silveria did not object
to the sale of said portion to Alejandra.
Atty. Deogracias Pinili, Alejandra’s lawyer then prepared the document of
sale. In the preparation of the document however, OCT no. 4918-A, covering Lot
5734, and not the correct title covering Lot 4163 was the one delivered to Pinili.
 Unaware of the mistake committed, Alejandra immediately took
possession of Lot 4163 and introduced improvements on the said lot.
Two years later, when Alejandra Delfino purchased the adjoinin portion of
the lot she had been occupying, she discovered that what was designated in the
deed, Lot 5734, was the wrong lot. Thus, Alejandra and the vendors filed for the
feformation of the Deed of Sale.
ISSUE:
Whether or not reformation is proper in this case.
RULING:
YES. Reformation is that remedy in equity by means of which a written
instrument is made or construed so as to express or inform to the real intention
of the parties.
An action for reformation of instrument under this provision of law may
prosper only upon the concurrence of the following requisites: (1) there must
have been a meeting of the minds of the parties to the contract; (2) the
instrument does not express the true intention of the parties; and (3) the failure
of the instrument to express the true intention of the parties is due to mistake,
fraud, inequitable conduct or accident.
All of these requesites are present in this case. There was a meeting of
the minds between the parties to the contract but the deed did not express the
true intention ot the parties due to the designation of the lot subject of the deed.
There is no dispute as to the intention of the parties to sell the land to Alejandra
Delfino but there was a mistake as to the designation of the lot intended to be
sold as stated in the Settlement of Estate and Sale.
REFORMATION OF INSTRUMENTS: WHEN PROHIBITED (Art. 1366-1367,
CC)
CEBU CONTRACTORS CONSORTIUM CO., petitioner,
VS. COURT OF APPEALS and
MAKATI LEASING & FINANCE CORPORATION, respondents
G.R. No. 107199
July 22, 2003
FACTS:
The instant Petition for Review on Certiorari stems from a complaint for
collection of a sum of money with replevin filed by respondent Makati Leasing
and Finance Corporation (MLFC) against petitioner Cebu Contractors Consortium
Company (CCCC) before the Regional Trial Court of Makati.
MLFC alleges that on August 25, 1976 a lease agreement relating to
various equipment was entered into between MLFC, as lessor, and CCCC, as
lessee. The terms and conditions of the lease were defined in said agreement
and in two lease schedules of payment. To secure the lease rentals, a chattel
mortgage, and a subsequent amendment thereto, were executed in favor of
MLFC over other various equipment owned by CCCC.
On June 30, 1977, CCCC began defaulting on the lease rentals, prompting
MLFC to send demand letters. When the demand letters were not heeded, MLFC
filed a complaint for the payment of the rentals due and prayed that a writ of
replevin be issued in order to obtain possession of the equipment leased and to
foreclose on the equipment mortgaged.
CCC’s position is that it is no longer indebted to MLFC because the total
amounts collected by the latter from the Ministry of Public Highways, by virtue of
the deed of assignment, and from the proceeds of the foreclosed chattels were
more than enough to cover CCC’s liabilities. CCC submits that in any event, the
deed of assignment itself already freed CCC from its obligation to MLFC.
The trial court rendered decision upholding the lease agreement and
finding CCC liable to MLFC in lease rentals. On appeal, the appellate court
affirmed the trial court’s decision.
ISSUE:
Whether or not respondent court erred in upholding the so- called sale-
lease back scheme of the private respondent when the same is in reality nothing
but an equitable mortgage.
RULING:
The Court finds in favor of CCC.
MLFC’s own evidence discloses that it offers two types of financing lease:
a direct lease and a sale- lease back. The client sells to MLFC equipment that it
owns, which will be leased back to him. The transaction between CCC and MLFC
involved the second type of financing lease.CCC argues that the sale and lease
back scheme is nothing more than an equitable mortgage and consequently,
asks for its reformation. The right of action for reformation accrued from the
date of execution of the contract of lease in 1976. This was properly exercised
by CCC when it filed its answer with counterclaim to MLFC’s complaint in 1978
and asked for the reformation of the lease contract.
Wherefore, the decision appealed from is hereby affirmed.
INTERPRETATION OF CONTRACT – LITERAL INTERPRETATION
ADR SHIPPING SERVICESS, INC, Petitioner,
VS. MARCELINO GALLARDO AND Court OF APPEALS, Respondent
G.R. No. 134873
September 17, 2002
FACTS:
Petitioner ADR Shipping Services, Inc. entered into a contract with private
respondent Gallardo for the use of the former’s vessel MV Pacific Breeze to
transport logs to Taiwan. The logs were the subject of a sales agreement
between private respondent as seller being a timber concessionaire and log
dealer, and Stywood Philippines, as buyer. Private respondent paid an advance
charter fee of P242,000 representing ten percent of the agreed charter fee.
Under the charter agreement, the boat should be ready to load by February 5,
1988.
The boat failed to arrive on time, prompting private respondent to notify
petitioner of its cancellation of the charter contract and the withdrawal of the
advance payment deposited to the account of ADR shipping. ADR Shipping
refused to return the advance payment to Gallardo claiming that the agreement
on the date of February 5, 1988 was just the “reference commencing date” and
the true loading date was February 16, 1988. This prompted the latter to file a
case for sum of money and damages. The Regional Trial Court ordered ADR
Shipping to pay Gallardo the advance payment with 6 percent interest per
annum and attorney’s fees. The decision of the trial court was affirmed by the
Court of Appeals. Hence, this petition.
ISSUE:
Whether or not private respondent is entitled to the refund of the advance
payment representing his deposit for the charter of the ship provided by
petitioner.
RULING:
Yes. Private respondent is entitled to the refund of the advance payment
it made to petitioner.
There was ambiguity in the interpretation of the contract provisions as to
the date of the loading of the ship. Ambiguities in a contract are interpreted
strictly, albeit not unreasonably, against the drafter thereof when justified in
light of the operative facts and surrounding circumstances. In this case,
ambiguity must be construed strictly against ADR which drafted and caused the
inclusion of the ambiguous provisions.
The charter agreement explicitly states that February 5, 1988 is the
intended date when the ship is expected ready to load while February 16, 1988
is merely the canceling date. Considering that the subject contract contains the
foregoing express provisions, the parties have no other recourse but to apply the
literal meaning of the stipulations. The cardinal rule is that when the terms of
the contract are clear, leaving no doubt as to the intention of the parties, the
literal meaning of its stipulations is controlling.
Pursuant to the provision of Art 1191 of the Civil Code, the power to
rescind obligations is implied in reciprocal ones in case one of the obligors
should not comply with what is incumbent upon him, and the injured party may
rescind the obligation, with payment of damages. In this case the private
respondent is entitled to the return of his down payment, subject to a legal
interest of 6 percent per annum, and to the payment of damages.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
1. TSPIC CORP, VS. TSPIC EMPLOYEES UNION
2. ESTANISLAO VS. EAST-WEST BANKING CORP.
3. AQUINTEY VS. TIBONG
4. CRUZ VS. CA, 456 SCRA 165
5. GONZALEZ VS. CA, 454 SCRA 8
6. ALMIRA VS. CA, 399 SCRA 351
TSPIC CORPORATION V. TSPIC EMPLOYEES UNION
G.R. No. 163419, February 13, 2008
FACTS:
 TSPIC is engaged in the business of designing, manufacturing, and
marketing integrated circuits to serve the communication, automotive,
data processing, and aerospace industries. TSPIC Employees Union
(Union), on the other hand, is the registered bargaining agent of the rank-
and-file employees of TSPIC. TSPIC and the Union entered into a Collective
Bargaining Agreement. As a result all the regular rank-and-file employees
of TSPIC received a 10% increase in their salary. A wage order was issued
by the National Capital Region which raised the daily minimum wage from
PhP 223.50 to PhP 250, hence, the wages of 17 probationary employees
were increased to PhP 250.00. TSPIC implemented the new wage rates as
mandated by the CBA. As a result several employees received fewer
wage. A few weeks after the salary increase for the year 2001 became
effective, TSPIC notified some of their employees were overpaid and the
overpayment would be deducted from their salaries in a staggered basis.
ISSUE:
Whether or not deduction of the alleged overpayment from the
salaries of the affected members of the Union constitute diminution of
benefits in violation of law.
RULING:
The deduction of the alleged overpayment from the salaries of the
respondents is a valid act.
The CBA provided in its provision in the computation for the
increase in TSPIC’s employees, hence, the intention therein must be
pursued basing on the principle that littera necat spiritus vivificate. The
fundamental doctrine in labor law that the CBA is the law between the
parties and they are obliged to comply with its provisions. Therefore, the
error found by TSPIC in pursuance to the terms in the CBA must be
sustained.
The Court also agrees that TSPIC in charging the overpayments
made to the respondents through staggered deductions from their
salaries does not constitute diminution of benefits. Any amount given to
the employees in excess of what they were entitled to, as computed
above, may be legally deducted by TSPIC from the employees’ salaries
because on the first place that excess was not vested in them legally as a
right because that will amount to unjust enrichment.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
ESTANISLAO V. EAST WEST BANKING CORPORATION
G.R. No. 178537, February 11, 2008
FACTS:
Spouses Rafael and Zenaida Estanislao obtained a loan from East West
Banking Corporation videnced by a promissory note and secured by two
deeds of chattel mortgage of two dump trucks and a bulldozer for the first
and bulldozer and a wheel loader for the other. Spouses defaulted in the
amortizations and the entire obligation became due and demandable. The
bank filed a suit for replevin with damages but subsequently, the bank
moved for suspension of the proceedings on account of an earnest
attempt to arrive at an amicable settlement of the case. Both parties
executed a Deed of Assignment, drafted by the bank, where it provides
that the two dump trucks and the bulldozer shall be transferred, assigned
and conveyed for the full payment of the debt. But the bank, for an
unknown reason failed to sign on the deed, but it accepted the three
heavy vehicles freely and voluntarily upon delivery made by the
petitioner. After some time, the bank file a petition in court praying for the
deliver of the other heavy vehicles mortgaged in the second chattel
mortgage. The regional trial court dismissed the complaint for lack of
merit but it was reversed and set aside by the court of appeals.
ISSUE:
Whether or not the Deed of Assignment, unsigned by private respondent,
extinguishes the whole and full obligation of the petitioner.
RULING:

The deed of assignment was a perfected agreement which
extinguished petitioner’s total outstanding obligation to the respondent.
The deed explicitly provides that the assignor (petitioners), in full
payment of its obligation, shall deliver the three units of heavy equipment
to the assignee (respondent), which accepts the assignment in full
payment of the above-mentioned debt. This could only mean that should
petitioners complete the delivery of the three units of heavy equipment
covered by the deed, respondent’s credit would have been satisfied in
full, and petitioner’s aggregate indebtedness would then be considered
to have been paid in full as well.
The nature of the assignment was a dation in payment, whereby
property is alienated to the creditor in satisfaction of a debt in money.
Such transaction is governed by the law on sales. Even if we were to
consider the agreement as a compromise agreement, there was no need
for respondent’s signature on the same, because with the delivery of the
heavy equipment which the latter accepted, the agreement was
consummated. Respondent’s approval may be inferred from its
unqualified acceptance of the heavy equipment.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
QUINTEY V.TIBONG
G.R. No. 166704, December 20, 2006
FACTS:
Agrifina Aquintey filed a complaint for sum of money and damages
against the respondents, spouses Felicidad and Rico Tibong. Agrifina
alleged that Felicidad had secured loans from her on several occasions, at
monthly interest rates. Despite demands, the spouses Tibong failed to
pay their outstanding loan exclusive of interests. Spouses Tibong
admitted that they had secured loans from Agrifina. The proceeds of the
loan were then re-lent to other borrowers at higher interest rates. They,
likewise, alleged that they had executed deeds of assignment in favor of
Agrifina, and that their debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong, this resulted in a
novation of the original obligation to Agrifina. They insisted that by virtue
of these documents, Agrifina became the new collector of their debtors;
and the obligation to pay the balance of their loans had been
extinguished.
ISSUE:
Whether or not consent is necessary in novation.
RULING:
Novation which consists in substituting a new debtor (delegado) in
the place of the original one (delegante) may be made even without the
knowledge or against the will of the latter but not without the consent of
the creditor. Substitution of the person of the debtor may be effected by
delegacion, meaning, the debtor offers, and the creditor (delegatario),
accepts a third person who consents to the substitution and assumes the
obligation. Thus, the consent of those three persons is necessary. In this
kind of novation, it is not enough to extend the juridical relation to a third
person; it is necessary that the old debtor be released from the obligation,
and the third person or new debtor takes his place in the relation. Without
such release, there is no novation; the third person who has assumed the
obligation of the debtor merely becomes a co-debtor or a surety. If there
is no agreement as to solidarity, the first and the new debtor are
considered obligated jointly.
Therefore, the Court agrees with the appellate court’s decision that
respondents' obligation to pay the balance of their account with petitioner
was extinguished, pro tanto, by the deeds of assignment of credit
executed by respondent Felicidad in favor of petitioner.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ, GERRY E. CRUZ and
NERISSA CRUZ-TAMAYO vs. THE HONORABLE COURT OF APPEALS,
SUMMIT FINANCING CORP., VICTOR STA. ANA, MAXIMO C. CONTRERAS,
RAMON G. MANALASTAS and VICENTE TORRES
G.R. NO.122904
 April 15,2005
FACTS:
Herein petitioner is the mother of her co petitioners Thelma Cruz, Gerry
Cruz and Nerissa Cruz-Tamayo, as well as Arnel Cruz, who was one of the
defendants in Civil Case No. 49466. Petitioners files said case on February 11,
1983 against Arnel Cruz and herein private respondents Summit Financing
Corporation (“Summit”), Victor S. Sta. Ana and Maximo C. Contreras, the last two
in their capacity as deputy sheriff and ex-officio sheriff of Rizal, respectively, and
Ramon G. Manalastas in his capacity as Acting Register of Deeds of Rizal.
The Complaint alleged that petitioners and Arnel Cruz were co-owners of a
parcel of land situated in Taytay, Rizal. Yet the property, which was then covered
by Transfer Certificate of Title (TCT) No. 495225, was registered only in the
name of Arnel Cruz. According to petitioners, the property was among the
properties they and Arnel Cruz inherited upon the death of Delfin Cruz, husband
of Adoracion Cruz.
On August 22, 1977, petitioners and Arnel Cruz executed a Deed of Partial
Partition, distributing to each of them their shares consisting of several lots
previously held by them in common. Among the properties adjudicated to
defendant Cruz was the parcel of land covered at the time by TCT No. 495225. It
is the subject of this case.
Subsequently, the same parties to the Deed of Partition agreed in writing
to share equally in the proceeds of the sale of the properties although they have
been subdivided and individually titled in the names of the former co-owners
pursuant to the Deed of Partition. This arrangement was embodied in a
Memorandum of Agreement executed on August 23, 1977 or a day after the
partition. The tenor of the Memorandum of Agreement was annotated at the
back of the TCT No. 495225 on September 1, 1977.
Sometime in January 1983, petitioner Thelma Cruz discovered that TCT
No. 514477 was issued on October 18, 1982 in the name of Summit. Upon
investigation, petitioners learned that Arnel Cruz had executed a Special Power
of Attorney on May 16, 1980 in favor of one Nelson Tamayo, husband of
petitioner Nerissa Cruz Tamayo, authorizing him to obtain a loan in the amount
of One Hundred Four Thousand Pesos from respondent Summit, to be secured by
a real estate mortgage on the subject parcel of land.
Since the loan remained outstanding on maturity, Summit instituted extra-
judicial foreclosure proceedings, and at the foreclosure sale, it was declared the
highest bidder. Consequently, Sheriff Sta. Ana issued a Certificate of Sale to
respondent Summit which more than a year later consolidated its ownership of
the foreclosed property. Upon presentation of the affidavit of consolidation of
ownership, the Acting Register of Deeds of Rizal cancelled TCT No. 495225 and
issued and in lieu thereof, TCT No. 514477 in the name of respondent Summit.
In their complaint before the RTC, petitioners asserted that they co-owned
the properties with Arnel Cruz, as evidenced by the Memorandum of Agreement.
Hence, they argued that the mortgage was void since they did not consent to it.
ISSUE:
Whether or not the real estate mortgage on the property then covered by
TCT No. 495225 is valid and whether the mortgaged property was the exclusive
property of Arnel Cruz when it was mortgaged.
RULING:
A reading of the provisions of the Deed of Partition, no other meaning can
be gathered other than that petitioners and Arnel Cruz had put an end to the co-
ownership. In the aforesaid deed, the shares of petitioners and Arnel Cruz’s in
the mass of co-owned properties were concretely determined and distributed to
each of them. In particular, to Arnel Cruz was assigned the disputed property.
There is nothing from the words of said deed which expressly or impliedly stated
that petitioners and Arnel Cruz intended to remain as co-owners with respect to
the disputed property or to any of the properties for that matter.
Petitioners do not question the validity or efficacy of the Deed of Partial
Partition. In fact, they admitted its existence in their pleadings and submitted it
as a part of their evidence. Thus, the deed is accorded its legal dire effect.
Since a partition legally made confers upon each heir their exclusive ownership
of the property adjudicated to him, it follows that Arnel Cruz acquired absolute
ownership over the specific parcels of land assigned to him in the Deed of Partial
Partition, including the property subject of this case. As the absolute owner
thereof then, Arnel Cruz had the right to enjoy and dispose of the property, as
well as the right to constitute a real estate mortgage over the same without
securing the consent of the petitioners.
On the other hand, there is absolutely nothing in the Memorandum of
Agreement which diminishes the right of Arnel Cruz to alienate or encumber the
properties allotted to him in the deed of partition.
 As correctly held by the Court of Appeals, the parties only bound
themselves to share in the proceeds of the sale of the properties. The
agreement does not direct reconveyance of the properties to reinstate the
common ownership of the properties.
Moreover, to ascertain the intent of the parties in a contractual
relationship, it is imperative that the various stipulations provided for in the
contracts be construed together, consistent with the parties contemporaneous
and subsequent acts as regards the execution of the contract. Subsequent to
the execution of the Deed of Partition and Memorandum of Agreement, the
properties were titled individually in the names of the co-owners to which they
were respectively adjudicated, to the exclusion of the other co-owners.
Petitioners Adoracion Cruz and Thelma Cruz separately sold the properties
distributed to them as absolute owners thereof. Being clear manifestations of
sole and exclusive dominion over the properties affected, the acts signify total
incongruence with the state of co-ownership claimed by the petitioners.
The real estate mortgage on the disputed property is valid and does not
contravene the agreement of the parties.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
GONZALES VS. COURT OF APPEALS
354 SCRA 8
FACTS:
Private respondents, Mr. and Mrs. Gabriel Caballero, are the registered
owneres of two parcels of land situated in Cubao, Quezon City described in
Transfer Certificate fo Title No. 247309 (Lot 1) and TCT No. 247310 (Lot 2). The
spouses’ residence stood in Lot 2.
Sometime in 1979, they obtained a loan from the Cavite Development
Bank in the amount of P225,000.00. The two lots were mortgaged to secure
their loan. The loan matured in 1984. To pay the loan they offered Lot 1 for
sale. The offer was advertised in the Bulletin Today. However, offers to
purchase from prospective buyers did not materialize.
On October 24, 1985, a certain Mrs. Lagrimas approached the spouses
offering to broker the sale to an interested buyer. Initially, the spouses told the
broker that they were selling only to direct buyers. Nonetheless, Mrs. Lagrimas
brought to the spouses her buyer, herein petitioner Napoleon H. Gonzales, who
turned out to be Mrs. Lagrimas’ relative.
Petitioner offered to buy the vacant lot for P470,000.00. Initially,
respondents refused to reduce their asking price. Petitioner bargained for a
lower price with the suggestion that on paper the price will be markedly lower so
the spouses would pay lower capital gains tax. Petitioner assured the spouses
this could be done since he had connections with the Bureau of Internal
Revenue. The spouses agreed to sell at P470.000.00. Petitioners paid the bank
P375,000.00, to be deducted from the purchase price. After the mortgage was
cancelled and upon release of the two titles, Gonzales asked for the deeds of
sale of the two lots and delivery of the titles to him. Defendants signed the deed
of sale covering only Lot 1 but refused to deliver its title until petitioner paid the
remaining balance of P70,000.00
This prompted petitioner to file a complaint for specific performance and
damages.
ISSUE:
Whether or not the sale involved only Lot 1 and not both Lots.
RULING:
YES. Principally, the issue here is whether the contract of sale between
the parties involved Lot 1 and 2 as claimed by petitioner or only Lot 1 as private
respondents contend. In a case where we have to judge conflicting claims on
the intent of the parties, as in this instance, judicial determination of the parties’
intention is mandated. Contemporaneous and subsequent acts of the parties
material to the case are to be considered.
Petitioner admits he himself caused the preparation of the deed of sale
presented before the lower court. Yet he could not explain why I referred only to
the sale of Lot 1 and not to the two lots, if the intention of the parties was really
to cover the sale of two lots. As the courts a quo observed, even if it were true
that two lots were mortgaged and were about to be foreclosed, the ads private
respondents placed in the Bulletin Today offered only Lot 1 and was strong
indication that they did not intend to sell Lot 2. The 501 sq.m. lot was offered for
P1,150.00 per sq.m. It alone would have fetched P576,150.00. The loan still to
be paid the bank was only P375,000.00 which was what petitioner actually paid
the bank. As the trial court observed, it was incomprehensible why the spouses
would part with two lots, one with a 2-storey house, and both situated at a prime
commercial district for less than the price of one lot. Contrary to what petitioner
would make us believe, the sale of Lot 1 valued at P576,150.00 for P470,000.00,
with petitioner assuming the bank loan of P375,000.00 as well as payment of the
capital gains tax, appears more plausible.
INTERPRETATION OF CONTRACTS: IN CASE OF DOUBT
ALMIRA VS. COURT OF APPEALS
399 SCRA 351
FACTS:
Petitioners are the wife and the children of the late Julio Garcia who
inherited from his mother, Ma. Alibudbud, a portion of a 90,655 square meter
property denominated as lot 1642 of the Sta. Rosa Estate in Brgy. Caingin Sta.
Rosa Laguna. The lot was co-owned and registered in the names of three
persons with the following shares: Vicente de Guzman (1/2), Enrique Hemedes
(1/4) and Francisco Alibudbud, the father of Ma. Alibudbud (1/4). Although there
wad no separate title in the name of Julio Garcia, there were tax declaration in
his name to the intent of his grandfather’s share covering the area of 21460
square meter.
On July 5, 1984, petitioner as heirs of Julio Garcia, and respondent
Federico Brines entered a Kasunduan ng Pagbibilihan (Kasunduan for Brevity)
over the 21460 square meter portion for the sum of P150.000.00. Respondent
paid P65, 000.00 upon execution of the contract while the balance of P85,
000.00 was made payable within six (6) months from the date of the execution
of the instrument. The time of the execution of the kasunduan, petitioners
allegedly informed respondent that TCT No. RT-1076 was in the possession of
their cousin, Conchila Alibudbud, who having bought Vicente de Guzman’s ½
shares, owned the bigger portion of lot 1642. This standing notwithstanding,
respondent willingly entered into the Kasunduan provided that the full payment
of the purchase price will be made upon delivery to him of the title.
Respondent took possession of the property subject of the Kasunduan and
made various payments to petitioiners amountiong to P58500.00. However upon
failure of petitionere to deliver to him a separate title to the property in the
name of Julio Garcia he refused to make further payments, prompting petitioner
to file a civil action before the RTC for a rescission of the Kasunduan, return by
respondent to petitioner of the possession of the subject parcel of land, and
payment by respondent of damages in favour of petitioners.
ISSUE
Whether or not the petitioner may rescind the Kasunduan pursuant to
Article 1191 of the Civil Code for the failure of respondent to give full payment of
the balance of the purchase price.
RULING:
NO, the right of the parties are governed by the terms ands the nature of
the contract they entered. Hence, although the nature of the Kasunduan was
never places in dispute by both parties, it is necessary to ascertain whether the
Kasunduan is a contract to sell or a contract of Sale. Although both parties have
consistency referred to the Kasunduan as a contract to Sell, a careful reading of
the provision of the Kasunduan reveals that it is a contract of Sale. A deed of
sale is absolute in nature in the absence of an any stipulation reserving title to
the vendor until full payment of the purchase price. The delivery of a separation
title in the name of Julio Garcia was a condition imposed on respondent’s
obligation to pay the balance of the purchase price. It was not a condition
imposed in the perfection of the contract of Sale.
The rescission will not prosper since the power to rescind is only given to
the injured party. The injured party is the party who has faithfully fulfilled his
obligation. In the case at bar, the petitioners were not ready, willing and able to
comply with their obligation to deliver a separate title in the name of Julio Garcia
to respondent therefore, thy are not in a position to ask for rescission. Failure to
comply with a condition imposed on the performance of an obligation gives the
other party the option either to refuse to proceed with the sale or to waive the
condition under Art 1545 of the civil code. Hence it is the respondent who has
the option.
DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED
TOGETHER”
1. PHIL. BANK OF COMMUNICATIONS VS. LIM, 455 SCRA 436
2. RIGOR VS. CONSOLIDATED LEASING, 387 SCRA 437
3. VELASQUEZ VS. CA, JUNE 30, 1999
PHILIPPINE BANK OF COMMUNICATIONS
VS. ELENA LIM, RAMON CALDERON and TRI-ORO INTERNATIONAL
TRADING &MANUFACTURING CORPORATION
G.R. NO. 158138
April 12, 2005
FACTS:
On September 3, 1999, petitioner filed a complaint against respondents
fo0r the collection of a deficiency amounting to P4,014,297.23 exclusive of
interest. Petitioner alleged that respondents obtained a loan from it and
executed a continuing surety agreement dated November 16, 1995 in favor of
petitioner for all loans, credits, etc., that were extended or may be extended in
the future to respondents. Petitioner granted a renewal of said loan upon
respondent’s request, the most recent being on January 21, 1998 as evidenced
by a promissory note renewal BD-Variable No. 8298021001 on the amount of
P3,000,000.00. it was expressly stipulated therein that the venue for any legal
action that may arise out of said promissory note shall be Makati City “to the
excklusion of all other courts.” Respondent allegedly failed to pay said
obligation upon maturity. Thus petitioner foreclosed the real estate mortgage
executed by the respondents valued at P1,081,600.00 leaving a deficiency
balance of P4,014,297.23 as of August 31, 1999.
Respondents moved to dismiss the complaint on the ground of improper
venue, invoking the stipulation contained in the last paragraph of the promissory
note with respect to the restriction/exclusive venue. The trial court denied said
motion asseverating that petitioners had separate causes of action arising from
the promissory note and the continuing surety agreement. Thus, under Rule 4,
Section 2 of the 1997 Rules of Civil Procedure, as amended, venue was properly
laid in Manila. The trial court supported its order with cases where venue was
held to be permissive. A motion for reconsideration of said order was likewise
denied.
ISSUE:
Whether or not the “complementary-contracts-construed together”
principle is applicable in the case at bar.
RULING:
According to this principle, an accessory contract must be read in its
entirety and together with the principal agreement. This principle is used in
construing contractual stipulations in order to arrive at their true meaning;
certain stipulations cannot be segregated and then made to control. This no-
segregation principle is based on Article 1374 of the Civil Code.
The aforementioned doctrine is applicable to the present case. In capable
of standing by itself, the surety agreement can be enforced only in conjuction
with the promissory note. The latter documents the debt that is sought to be
collected in the action against the sureties.
The factual milieu of the present case shows that the surety agreement
was entered into to facilitate existing and future loan agreements. Petitioner
approved the loan covered by the promissory note, partly because of the surety
agreement that assured the payment of the principal obligation. The
circumstances that relate to the issuance of the promissory note and the surety
agreement are so intertwined that neither one could be separated from the
other. It makes no sense to argue that the parties to the surety agreement were
not bound by the stipulations in the promissory note.
Notably, the promissory note was a contract of adhesion that petitioner
required the principal debtor to execute as a condition of the approval of the
loan. It was made in the form and language prepared by the bank. By inserting
the provision of that Makati City would be the “venue for any legal action that
may arise out of the promissory note,” petitioner also restricted the venue of
actions against the sureties. The legal action against the sureties arose not only
from the security agreement but also from the promissory note.
DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED TOGETHER”
SPOUSES EFREN N. RIGOR and ZOSIMA D. RIGOR, for themselves and as
owners of CHIARA CONSTRUCTION, petitioners,
VS. CONSOLIDATED ORIX LEASING and FINANCE CORPORATION,
respondent
2002 Aug 20
FACTS:
Petitioners obtained a loan from private respondent Consolidated Orix
Leasing and Finance Corporation in the amount of P1,630,320.00. Petitioners
executed a promissory note on July 31, 1996 promising to pay the loan in 24
equal monthly installments of P67,930.00 every fifth day of the month
commencing on September 5, 1996. The promissory note also provides that
default in paying any installment renders the entire unpaid amount due and
payable. To secure payment of the loan, petitioners executed in favor of private
respondent a deed of chattel mortgage over two dump trucks.
Petitioners failed to pay several installments despite demand from private
respondent.
On January 5, 1998, private respondent sought to foreclose the chattel
mortgage by filing a complaint for Replevin with Damages against petitioners
before the Regional Trial Court of Dagupan City.After service of summons,
petitioners moved to dismiss the complaint on the ground of improper venue
based on a provision in the promissory note which states that, x x x all legal
actions arising out of this note or in connection with the chattels subject hereof
shall only be brought in or submitted to the proper court in Makati City,
Philippines. Private respondent opposed the motion to dismiss and argued that
venue was properly laid in Dagupan City where it has a branch office based on a
provision in the deed of chattel mortgage which states that, x x x in case of
litigation arising out of the transaction that gave rise to this contract, complete
jurisdiction is given the proper court of the city of Makati or any proper court
within the province of Rizal, or any court in the city, or province where the
holder/mortgagee has a branch office, waiving for this purpose any proper
venue. After a further exchange of pleadings, the Dagupan trial court denied
petitioners’ motion to dismiss Not satisfied with the orders, petitioners filed a
petition for certiorari before the Court of Appeals imputing grave abuse of
discretion by the Dagupan trial court in denying the motion to dismiss which was
denied.
ISSUE:
Whether or not venue was properly laid under the provisions of the chattel
mortgage contract in the light of Article 1374 of the Civil Code.
RULING:
Yes. Art. 1374 provides that the various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly.
Applying the doctrine to the instant case, we cannot sustain petitioners’
contentions. The promissory note and the deed of chattel mortgage must be
construed together. Private respondent explained that its older standard
promissory notes confined venue in Makati City where it had its main office.
After it opened a branch office in Dagupan City, private respondent made
corrections in the deed of chattel mortgage, but due to oversight, failed to make
the corresponding corrections in the promissory notes. Petitioners affixed their
signatures in both contracts. The presumption is applied that a person takes
ordinary care of his concerns. It is presumed that petitioners did not sign the
deed of chattel mortgage without informing themselves of its contents. As aptly
stated in a case, they being of age and businessmen of experience, it must be
presumed that they acted with due care and have signed the documents in
question with full knowledge of their import and the obligation they were
assuming thereby. In any event, petitioners did not contest the deed of chattel
mortgage under Section 8, Rule 8 of the Revised Rules of Civil Procedure.
As held in Velasquez, this omission effectively eliminated any defense
relating to the authenticity and due execution of the deed, e.g. that the
document was spurious, counterfeit, or of different import on its face as the one
executed by the parties; or that the signatures appearing thereon were
forgeries; or that the signatures were unauthorized. Clearly, the Court of
Appeals did not err in ruling that venue was properly laid in Dagupan City as
provided in the deed of chattel mortgage. The Court holds that private
respondent is not barred from filing its case against petitioners in Dagupan City
where private respondent has a branch office as provided for in the deed of
chattel mortgage.
Petition denied.
DOCTRINE OF “COMPLEMENTARY CONTRACTS CONSTRUED TOGETHER”
RODOLFO P. VELASQUEZ, petitioner,
VS. COURT OF APPEALS, and PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, INC., respondents
G.R. No. 124049
June 30, 1999
FACTS:
The case arose from a complaint for a sum of money with preliminary
attachment filed with the Regional Trial Court of Makati City by private
respondent Philippine Commercial International Bank (PCIB) against petitioner
Rodolfo P. Velasquez together with Mariano N. Canilao Jr., Inigo A. Nebrida, Cesar
R. Dean and Artemio L. Raymundo.
Sometime in December 1994 the Pick-up Fresh Farms, Inc. (PUFFI), of
which petitioner Velasquez was an officer and stockholder, filed an application
for a loan of P7,500,000.00 with PCIB under the government's Guarantee Fund
for Small and Medium Enterprises (GFSME). On 16 April 1985 the parties
executed the corresponding loan agreement. As security for the loan,
promissory notes numbered TL 121231 and TL 121258 for the amounts of
P4,000,000.00 and P3,500,000.00, respectively, were signed by Inigo A. Nebrida
and Mariano N. Canilao, Jr. as officers of and for both PUFFI and Aircon and
Refrigeration Industries, Inc. (ARII). A chattel mortgage was also executed by
ARII over its equipment and machineries in favor of PCIB. Petitioner along with
Nebrida and Canilao, Jr. also executed deeds of suretyship in favor of PCIB.
Separate deeds of suretyship were further executed by Cesar R. Dean and
Artemio L. Raymundo. When PUFFI defaulted in the payment of its obligations
PCIB foreclosed the chattel mortgage. The proceeds of the sale amounted to
P678,000.00.
Thus, PCIB filed an action to recover the remaining balance of the entire
obligation including interests, penalties and other charges. Exemplary damages
and attorney’s fees of 25% of the total amount due were also sought. On 9
October 1989 a writ of preliminary attachment was granted by the trial court.
On 20 June 1990 the trial court rendered a summary judgment in favor of PCIB
holding petitioner and Canilao solidarily liable to pay P7,227,624.48 plus annual
interest of 17%, and P700,000.00 as attorney’s fees and the costs of suit. The
case was dismissed without prejudice with regard to the other defendants as
they were not properly served with summons. On appeal, the Court of Appeals
on 28 September 1995 affirmed in toto the RTC judgment. Petitioner’s motion
for reconsideration was thereafter denied. Hence this petition.
ISSUE:
Whether or not the appellate court committed reversible error in
sustaining or affirming the summary judgment despite the existence of genuine
triable issues of facts and in refusing to set aside the default order against
petitioner.
RULING:
The more appropriate doctrine in this case is that of the “complementary
contracts construed together” doctrine. The surety bond must be read in its
entirety and together with the contract between the NPC and the contractors.
The provisions must be construed together to arrive at their true meaning.
Certain stipulations cannot be segregated and then made to control.
That the “complementary contracts construed together” doctrine applies
in this case finds support in the principle that the surety contract is merely an
accessory contract and must be interpreted with its principal contract, which in
this case was the loan agreement. This doctrine closely adheres to the spirit of
Art. 1374 of the Civil Code which states that
Art. 1374. The various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.
Applying the “complementary contracts construed together” doctrine
leaves no doubt that it was the intention of the parties that petitioner would be
personally liable in the deed of suretyship because the loan agreement, among
others, provided to further secure the obligations of the BORROWER to the
LENDER, Messrs. Nebrida, Raymundo, Canilao, Dean and Velasquez and Aircon
and Refrigeration Ind. Inc. shall each execute a suretyship agreement in favor of
the LENDER in form and substance acceptable to the LENDER.
WHEREFORE, the petition is DENIED. The Decision of 28 September 1995
of the Court of Appeals affirming the 20 June 1990 judgment of the RTC- Br. 61,
Makati City, ordering petitioner Rodolfo P. Velasquez and Mariano N. Canilao, Jr.
to solidarily pay respondent Philippine Commercial and Industrial Bank (PCIB) the
amount of P7,227,624.48 with annual interest of 17% and attorney’s fees of
P700,000.00 plus costs of suit as well as its Resolution of 19 February 1995
denying reconsideration, is AFFIRMED.
RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL
RESTITUTION
1. EQUATORIAL REALTY VS. MAYFAIR THEATER, 370 SCRA 56
2. SIGUAN VS. LIM, NOVEMBER 19, 1999
3. KHE KONG VS. CA, 355 SCRA 701
4. SUNTAY VS. CA, 251 SCRA 430
EQUATORIAL REALTY DEVELOPMENT, INC.
VS. MAYFAIR THEATER, INC.
370 SCRA 56
FACTS:
Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land,
together with two two-storey buildings constructed thereon. On June 1, 1967,
Carmelo entered into a lease with Mayfair Theater, Inc. (Mayfair) for a period of
20 years. The lease covered a portion of the second floor and mezzanine. Two
(2) years later, Mayfair entered into a second lease with Carmelo for the lease of
another property, a part of the second floor and two spaces on the ground floor.
The lease was also for a period of twenty (20) years. Both leases contained a
provision granting Mayfair a right of first refusal to purchase the said properties.
However, on July 30, 1978, within the 20-year-lease term, Carmelo sold the
subject properties to Equatorial Realty Development, Inc. (Equatorial) for the
sum of P11.3M without their first being offered to Mayfair.
 As a result, Mayfair filed a complaint for specific performance and
damages. After trial, the court ruled in favor of Equatorial. On appeal, the Court
of Appeals (CA) reversed and set aside the judgment of the lower court. On
November 21, 1996, the Supreme Court denied Equatorial’s petition for review
and declared the contract between Carmelo and Equatorial rescinded. The
decision became final and executory and Mayfair filed a motion for its execution,
which the court granted on April 25, 1997. However, Carmelo could no longer be
located thus Mayfair deposited with the court its payment to Carmelo. The lower
court issued a deed of reconveyance in favor of Carmelo and issued new
certificates in the name of Mayfair.
On September 18, 1997, Equatorial filed an action for the collection of
sum of money against Mayfair claiming payment of rentals or reasonable
compensation for the defendant’s use of the premises after its lease contracts
had expired. The lower court debunked the claim of the petitioner for unpaid
rentals, holding that the rescission of the Deed of Absolute Sale in the mother
case did not confer on Equatorial any vested or residual proprietary rights, even
in expectancy.
ISSUE:
Whether or not Equatorial may collect rentals or reasonable compensation
for Mayfair’s use of subject premises after its lease contracts had expired.
RULING:
NO. Rent is a civil fruit that belongs to the owner of the property
producing it by right of accession. Consequently and ordinarily, the rentals that
fell due from the time of the perfection of the sale to petitioner until its
rescission by final judgment should belong to the owner of the property during
that period.
Petitioner never took actual control and possession of the property sold, in
view of the respondent’s timely objection to the sale and continued actual
possession of the property. The objection took the form of a court action
impugning the sale that was rescinded by a judgment rendered by the Court in
the mother case. It has been held that the execution of a contract of sale as a
form of constructive delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the hands of the
vendor into those of the vendee. When there is such impediment, fiction yields
to reality; the delivery has not been effected. Hence, respondent’s opposition to
the transfer of property by way of sale to Equatorial was a legally sufficient
impediment that effectively prevented the passing of the property into the
latter’s hands.
Article 1386 of the Civil Code provides rescission, which creates the
obligation to return the things, which were the object of the contract, together
with their fruits, and the price with its interest, but also the rentals paid, if any,
had to be returned by the buyer.
RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION
MARIA ANTONIA SIGUAN, petitioner,
VS. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents
1999 Nov 19
G.R. No. 134685
FACTS:
On 25 and 26 August 1990, Lim issued two Metrobank checks in the sums
of P300,000 and P241,668, respectively, payable to "cash." Upon presentment
by petitioner with the drawee bank, the checks were dishonored for the reason
"account closed." Demands to make good the checks proved futile. As a
consequence, a criminal case for violation of Batas Pambansa Blg. 22, docketed
as Criminal Cases Nos. 22127-28, were filed by petitioner against LIM with
Branch 23 of the Regional Trial Court (RTC) of Cebu City.
In its decision dated 29 December 1992, the court a quo convicted Lim as
charged. The case is pending before this Court for review and docketed as G.R.
No. 134685. It also appears that on 31 July 1990, Lim was convicted of estafa by
the RTC of Quezon City in Criminal Case No. Q-89-22162 filed by a certain
Victoria Suarez. This decision was affirmed by the Court of Appeals. On appeal,
however, the Supreme Court, in a decision promulgated on 7 April 1997,
acquitted Lim but held her civilly liable in the amount of P169,000, as actual
damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation conveying parcels of land
and purportedly executed by Lim on 10 August 1989 in favor of her children,
Linde, Ingrid and Neil, was registered with the Office of the Register of Deeds of
Cebu City. New transfer certificates of title were thereafter issued in the names
of the donees.
On 23 June 1993, petitioner filed an accion pauliana against Lim and her
children before Branch 18 of the RTC of Cebu City to rescind the questioned
Deed of Donation and to declare as null and void the new transfer certificates of
title issued for the lots covered by the questioned Deed. The complaint was
docketed as Civil Case No. CEB-14181. Petitioner claimed therein that sometime
in July 1991, Lim, through a Deed of Donation, fraudulently transferred all her
real property to her children in bad faith and in fraud of creditors, including her;
that Lim conspired and confederated with her children in antedating the
questioned Deed of Donation, to petitioner's and other creditors' prejudice; and
that Lim, at the time of the fraudulent conveyance, left no sufficient properties
to pay her obligations.
On the other hand, Lim denied any liability to petitioner. She claimed that
her convictions in Criminal Cases Nos. 22127-28 were erroneous, which was the
reason why she appealed said decision to the Court of Appeals. As regards the
questioned Deed of Donation, she maintained that it was not antedated but was
made in good faith at a time when she had sufficient property. Finally, she
alleged that the Deed of Donation was registered only on 2 July 1991 because
she was seriously ill.
In its decision of 31 December 1994 the trial court ordered the rescission
of the questioned deed of donation; (2) declared null and void the transfer
certificates of title issued in the names of private respondents Linde, Ingrid and
Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and
to reinstate the previous titles in the name of Rosa Lim; and (4) directed the
LIMs to pay the petitioner, jointly and severally, the sum of P10,000 as moral
damages; P10,000 as attorney's fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a promulgated on 20 February 1998,
reversed the decision of the trial court and dismissed petitioner's accion
pauliana. It held that two of the requisites for filing an accion pauliana were
absent, namely, (1) there must be a credit existing prior to the celebration of the
contract; and (2) there must be a fraud, or at least the intent to commit fraud, to
the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was
executed and acknowledged before a notary public, appears on its face to have
been executed on 10 August 1989. Under Section 23 of Rule 132 of the Rules of
Court, the questioned Deed, being a public document, is evidence of the fact
which gave rise to its execution and of the date thereof. No antedating of the
Deed of Donation was made, there being no convincing evidence on record to
indicate that the notary public and the parties did antedate it.
Since Lim's indebtedness to petitioner was incurred in August 1990, or a
year after the execution of the Deed of Donation, the first requirement for accion
pauliana was not met.
Anent petitioner's contention that assuming that the Deed of Donation
was not antedated it was nevertheless in fraud of creditors because Victoria
Suarez became Lim’s creditor on 8 October 1987, the Court of Appeals found the
same untenable, for the rule is basic that the fraud must prejudice the creditor
seeking the rescission.
ISSUE:
Whether or not the deed of donation is valid.
RULING:
The Supreme Court upheld the validity of the deed of donation.
Article 1381 of the Civil Code enumerates the contracts which are
rescissible, and among them are "those contracts undertaken in fraud of
creditors when the latter cannot in any other manner collect the claims due
them."
The action to rescind contracts in fraud of creditors is known as accion
pauliana. For this action to prosper, the following requisites must be present: (1)
the plaintiff asking for rescission has a credit prior to the alienation, although
demandable later; (2) the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person; (3) the creditor has no other legal remedy
to satisfy his claim; (4) the act being impugned is fraudulent; (5) the third person
who received the property conveyed, if it is by onerous title, has been an
accomplice in the fraud.
The general rule is that rescission requires the existence of creditors at
the time of the alleged fraudulent alienation, and this must be proved as one of
the bases of the judicial pronouncement setting aside the contract. Without any
prior existing debt, there can neither be injury nor fraud. While it is necessary
that the credit of the plaintiff in the accion pauliana must exist prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even
if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted.
In the instant case, the alleged debt of Lim in favor of petitioner was
incurred in August 1990, while the deed of donation was purportedly executed
on 10 August 1989.
The Supreme Court is not convinced with the allegation of the petitioner
that the questioned deed was antedated to make it appear that it was made
prior to petitioner's credit. Notably, that deed is a public document, it having
been acknowledged before a notary public. As such, it is evidence of the fact
which gave rise to its execution and of its date, pursuant to Section 23, Rule 132
of the Rules of Court.
In the present case, the fact that the questioned Deed was registered only
on 2 July 1991 is not enough to overcome the presumption as to the truthfulness
of the statement of the date in the questioned deed, which is 10 August 1989.
Petitioner's claim against Lim was constituted only in August 1990, or a year
after the questioned alienation. Thus, the first two requisites for the rescission
of contracts are absent.
Even assuming arguendo that petitioner became a creditor of Lim prior to
the celebration of the contract of donation, still her action for rescission would
not fare well because the third requisite was not met. Under Article 1381 of the
Civil Code, contracts entered into in fraud of creditors may be rescinded only
when the creditors cannot in any manner collect the claims due them. Also,
Article 1383 of the same Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same. The term
"subsidiary remedy" has been defined as "the exhaustion of all remedies by the
prejudiced creditor to collect claims due him before rescission is resorted to." It
is, therefore, essential that the party asking for rescission prove that he has
exhausted all other legal means to obtain satisfaction of his claim. Petitioner
neither alleged nor proved that she did so. On this score, her action for the
rescission of the questioned deed is not maintainable even if the fraud charged
actually did exist." The fourth requisite for an accion pauliana to prosper is not
present either.
RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION
RAFAEL G. SUNTAY, substituted by his heirs, namely: ROSARIO,
RAFAEL, JR., APOLINARIO, RAYMUND, MARIA VICTORIA, MARIA ROSARIO
and MARIA LOURDES, all surnamed SUNTAY, petitioners,
VS. THE HON. COURT OF APPEALS and FEDERICO C. SUNTAY, respondents
G.R. No. 114950
December 19, 1995
FACTS:
Respondent Federico Suntay was the registered owner of a parcel of land
with an area in Bulacan. On the land may be found: a rice mill, a warehouse,
and other improvements. A rice miller, Federico, in a letter, dated September
30, 1960, applied as a miller-contractor of the then National Rice and Corn
Corporation (NARIC). He informed the NARIC that he had a daily rice mill output
of 400 cavans of palay and warehouse storage capacity of 150,000 cavans of
palay. His application, although prepared by his nephew-lawyer, petitioner
Rafael Suntay, was disapproved, obviously because at that time he was tied up
with several unpaid loans.
For purposes of circumvention, he had thought of allowing Rafael to make
the application for him. Rafael prepared an absolute deed of sale whereby
Federico, for and in consideration of P20,000.00 conveyed to Rafael said parcel
of land with all its existing structures. Said deed was notarized as Document No.
57 and recorded on Page 13 of Book 1, Series of 1962, of the Notarial Register of
Atty. Herminio V. Flores. Less than three months after this conveyance, a
counter sale was prepared and signed by Rafael who also caused its delivery to
Federico. Through this counter conveyance, the same parcel of land with all its
existing structures was sold by Rafael back to Federico for the same
consideration of P20,000.00. Although on its face, this second deed appears to
have been notarized as Document No. 56 and recorded on Page 15 of Book 1,
Series of 1962, of the notarial register of Atty. Herminio V. Flores, an
examination thereof will show that, recorded as Document No. 56 on Page 13, is
not the said deed of sale but a certain "real estate mortgage on a parcel of land
with TCT No. 16157 to secure a loan of P3,500.00 in favor of the Hagonoy Rural
Bank."
Nowhere on page 13 of the same notarial register could be found any
entry pertaining to Rafael's deed of sale. Testifying on this irregularity, Atty.
Flores admitted that he failed to submit to the Clerk of Court a copy of the
second deed. Neither was he able to enter the same in his notarial register.
Even Federico himself alleged in his Complaint that, when Rafael delivered the
second deed to him, it was neither dated nor notarized.
Upon the execution and registration of the first deed, Certificate of Title
No. 0-2015 in the name of Federico was cancelled and in lieu thereof, TCT No. T-
36714 was issued in the name of Rafael. Even after the execution of the deed,
Federico remained in possession of the property sold in concept of owner.
Significantly, notwithstanding the fact that Rafael became the titled owner of
said land and rice mill, he never made any attempt to take possession thereof at
any time, while Federico continued to exercise rights of absolute ownership over
the property.
 In a letter, dated August 14, 1969, Federico, through his new counsel,
Agrava & Agrava, requested that Rafael deliver his copy of TCT No. T-36714 so
that Federico could have the counter deed of sale in his favor registered in his
name. The request having been obviously turned down, Agrava & Agrava filed a
petition with the Court of First Instance of Bulacan asking Rafael to surrender his
owner's duplicate certificate of TCT No. T-36714. In opposition thereto, Rafael
chronicled the discrepancy in the notarization of the second deed of sale upon
which said petition was premised and ultimately concluded that said deed was a
counterfeit or "at least not a public document which is sufficient to transfer real
rights according to law." On September 8, 1969, Agrava & Agrava filed a motion
to withdraw said petition, and, on September 13, 1969, the Court granted the
same.
On July 8, 1970, Federico filed a complaint for reconveyance and damages
against Rafael. In his answer, Rafael scoffed at the attack against the validity
and genuineness of the sale to him of Federico's land and rice mill. Rafael
insisted that said property was "absolutely sold and conveyed . . . for a
consideration of P20,000.00, Philippine currency, and for other valuable
consideration".
While the trial court upheld the validity and genuineness of the deed of
sale executed by Federico in favor of Rafael, which deed is referred to above as
Exhibit A, it ruled that the counter-deed, referred to as Exhibit B, executed by
Rafael in favor of Federico, was simulated and without consideration, hence, null
and void ab initio.
Moreover, while the trial court adjudged Rafael as the owner of the
property in dispute, it did not go to the extent of ordering Federico to pay back
rentals for the use of the property as the court made the evidential finding that
Rafael simply allowed his uncle to have continuous possession of the property
because or their understanding that Federico would subsequently repurchase
the same.
From the aforecited decision of the trial court, both Federico and Rafael
appealed. The Court of Appeals rendered judgment affirming the trial court's
decision, with a modification that Federico was ordered to surrender the
possession of the disputed property to Rafael. Counsel of Federico filed a motion
for reconsideration of the aforecited decision. While the motion was pending
resolution, Atty. Ricardo M. Fojas entered his appearance in behalf of the heirs of
Rafael who had passed away on November 23, 1988. Atty. Fojas prayed that
said heirs be substituted as defendants-appellants in the case. The prayer for
substitution was duly noted by the court in a resolution dated April 6, 1993.
Thereafter, Atty. Fojas filed in behalf of the heirs an opposition to the motion for
reconsideration. The parties to the case were heard on oral argument on
October 12, 1993. On December 15, 1993, the Court of Appeals reversed itself
and rendered an amended judgment.
ISSUE:
Whether or not the deed of sale executed by Federico in favor of Rafael is
simulated and fictitious and, hence, null and void.
RULING:
In the aggregate, the evidence on record demonstrate a combination of
circumstances from which may be reasonably inferred certain badges of
simulation that attach themselves to the deed of sale in question. The complete
absence of an attempt on the part of the buyer to assert his rights of ownership
over the land and rice mill in question is the most protuberant index of
simulation.
The deed of sale executed by Federico in favor of his now deceased
nephew, Rafael, is absolutely simulated and fictitious and, hence, null and void,
said parties having entered into a sale transaction to which they did not intend
to be legally bound. As no property was validly conveyed under the deed, the
second deed of sale executed by the late Rafael in favor of his uncle, should be
considered ineffective and unavailing.
The allegation of Rafael that the lapse of seven years before Federico
sought the issuance of a new title in his name necessarily makes Federico's
claim stale and unenforceable does not hold water. Federico's title was not in the
hands of a stranger or mere acquaintance; it was in the possession of his
nephew who, being his lawyer, had served him faithfully for many years.
Federico had been all the while in possession of the land covered by his title and
so there was no pressing reason for Federico to have a title in his name issued.
Even when the relationship between the late Rafael and Federico deteriorated,
and eventually ended, it is not at all strange for Federico to have been
complacent and unconcerned about the status of his title over the disputed
property since he has been possessing the same actually, openly, and adversely,
to the exclusion of Rafael. It was only when Federico needed the title in order to
obtain a collaterized loan that Federico began to attend to the task of obtaining
a title in his name over the subject land and rice mill.
Decision affirmed. Petitioners, the heirs of Rafael G. Suntay, were ordered
to reconvey to private respondent Federico G. Suntay the property described in
paragraph 2.1 of the complaint, within 10 days from the finality of the Decision,
and to surrender to him within the same period the owner's duplicate copy of
Transfer Certificate of Title No. T-36714 of the Registry of Deeds of the Province
of Bulacan. In the event that the petitioners fail or refuse to execute the
necessary deed of reconveyance as herein directed, the Clerk of Court of the
Regional Trial Court of Bulacan was ordered to execute the same at the expense
of the aforesaid heirs.
RESCISSIBLE CONTRACTS-NATURE AND EFFECTS-MUTUAL RESTITUTION
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and
RAY STEVEN KHE, petitioners,
VS. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY
and PHILAM INSURANCE CO., INC., respondents
G.R. No. 144169
28 March 2001
355 SCRA 701
FACTS:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines to which the Philippine Agricultural Trading Corporation used its
vessel M/V Prince Eric Corporation to ship 3,400 bags of Copra at Masbate for
delivery to Dipolog. Such shipping of 3, 400 bags was covered by a marine
insurance policy issued by American Home Insurance Company (eventually
Philam). However, M/V Prince Eric sank somewhere between Negros Island and
Northern Mindanao which resulted to the total loss of the shipment. Insurer
Philam paid the amount of P 354, 000.00, which is the value of the copra, to
Philippine Agricultural Trading Corporation. American Home was thereby
subrogated unto the rights of the consignee and filed a case to recover money
paid to the latter, based on breach of common carriage.
While the case was pending, Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children. As a consequence of a
favorable judgment for American Home, a writ of execution to garnish Khe Hong
Cheng’s property was issued but the sheriff failed to implement the same for
Cheng’s property were already transferred to his children. Consequently,
American home filed a case for the rescission of the deeds of donation executed
by petitioner in favor of children for such were made in fraud of his creditors.
Petitioner answered saying that the action should be dismissed for it already
prescribed. Petitioner posited that the registration of the donation was on
December 27, 1989 and such constituted constructive notice. And since the
complaint was filed only in 1997, more than four (4) years after registration, the
action is thereby barred by prescription.
ISSUE:
Whether or not the action for the rescission of the deed of donation has
prescribed.
RULING:
An accion pauliana accrues only when the creditor discovers that he has
no other legal remedy for the satisfaction of his claim against the debtor other
than an accion pauliana. The accion pauliana is an action of a last resort. For
as long as the creditor still has a remedy at law for the enforcement of his claim
against the debtor, the creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and between the debtor
and another person or persons. Indeed, an accion pauliana presupposes a
judgment and the issuance by the trial court of a writ of execution for the
satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy
the judgment of the court. It presupposes that the creditor has exhausted the
property of the debtor. The date of the decision of the trial court against the
debtor is immaterial. What is important is that the credit of the plaintiff
antedates that of the fraudulent alienation by the debtor of his property. After
all, the decision of the trial court against the debtor will retroact to the time
when the debtor became indebted to the creditor.
Although Article 1389 of the Civil Code provides that “The action to claim
rescission must be commenced within four (4) years” is silent as to where the
prescriptive period would commence, the general rule is such shall be reckoned
from the moment the cause of action accrues; i.e., the legal possibility of
bringing the action. Since accion pauliana is an action of last resort after all
other legal remedies have been exhausted and have been proven futile, in the
case at bar, it was only in February 25, 1997, barely a month from discovering
that petitioner Khe Hong Cheng had no other property to satisfy the judgment
award against him that the action for rescission accrued. So the contention of
Khe Hong Cheng that the action accrued from the time of the constructive
notice; i.e., December 27, 1989, the date that the deed of donation was
registered, is untenable.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
1. VDA. DE APE VS. CA, 456 SCRA 193
2. FRANCISCO VS. HERRERA, 392 SCRA 317
3. BRAGANZA VS. VILLA ABRILLE, 105 PHIL. 456
 4. MIAILHE VS. CA, 354 SCRA 675
5. KATIPUNAN VS. KATIPUNAN, JANUARY 30, 2002
6. JUMALON VS. CA, JANUARY 30, 2002
PERPETUA VDA. DE APE, petitioner,
VS. THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT VDA.
DE LUMAYNO, respondents
G.R. No. 133638
April 15, 2005
FACTS:
Cleopas Ape was the registered owner of a parcel of land (Lot No. 2319)
which is covered by Original Certificate of Title (OCT) No. RP 1379 (RP-154
[300]). Upon Cleopas Ape’s death sometime in 1950, the property passed on to
his wife, Maria Ondoy, and their eleven (11) children, namely: Fortunato,
Cornelio, Bernalda, Bienvenido, Encarnacion, Loreta, Lourdes, Felicidad, Adela,
Dominador, and Angelina. On 15 March 1973, private respondent, joined by her
husband, Braulio, instituted a case for “Specific Performance of a Deed of Sale
with Damages” against Fortunato and his wife Perpetua (petitioner herein). It
was alleged in the complaint that on 11 April 1971, private respondent and
Fortunato entered into a contract of sale of land under which for a consideration
of P5,000.00, Fortunato agreed to sell his share in Lot No. 2319 to private
respondent. The agreement was contained in a receipt prepared by private
respondent’s son-in-law, Andres Flores, at her behest.
As private respondent wanted to register the claimed sale transaction, she
supposedly demanded that Fortunato executes the corresponding deed of sale
and to receive the balance of the consideration. However, Fortunato
unjustifiably refused to heed her demands. Private respondent, therefore,
prayed that Fortunato be ordered to execute and deliver to her “a sufficient and
registrable deed of sale involving his one-eleventh (1/11) share; to pay
P5,000.00 in damages; P500.00 reimbursement for litigation expenses as well as
additional P500.00 for every appeal made; P2,000.00 for attorney’s fees; and to
pay the costs.
Fortunato and petitioner denied the material allegations of the complaint
and claimed that Fortunato never sold his share in Lot No. 2319 to private
respondent and that his signature appearing on the purported receipt was
forged. By way of counterclaim, the defendants below maintained having
entered into a contract of lease with respondent involving Fortunato’s portion of
Lot No. 2319.
In their reply, the private respondent and her husband alleged that they
had purchased from Fortunato’s co-owners, as evidenced by various written
instruments, their respective portions of Lot No. 2319. By virtue of these sales,
they insisted that Fortunato was no longer a co-owner of Lot No. 2319 thus, his
right of redemption no longer existed.
At the trial court level, Fortunato died and was substituted by his children
named Salodada, Clarita, Narciso, Romeo, Rodrigo, Marieta, Furtunato, Jr., and
Salvador, all surnamed Ape.
During the trial, private respondent contended that her husband caused
the annotation of an adverse claim on the certificate of title of Lot No. 2319. In
addition, she and her husband had the whole Lot No. 2319 surveyed by a certain
Oscar Mascada who came up with a technical description of said piece of land.
Significantly, private respondent alleged that Fortunato was present when the
survey was conducted.
After due trial, the court a quo rendered a decision dismissing both the
complaint and the counterclaim. The Court of Appeals, reversed and set aside
the trial court’s dismissal of the private respondent’s complaint but upheld the
portion of the court a quo’s decision ordering the dismissal of petitioner and her
children’s counterclaim. It upheld private respondent’s position that Exhibit “G”
which is the receipt of partial payment had all the earmarks of a valid contract of
sale.
ISSUE:
Whether the receipt signed by Fortunato proves the existence of a
contract of sale between him and private respondent.
RULING:
No, the Court ruled that the records of this case betray the stance of
private respondent that Fortunato Ape entered into such an agreement with her.
A contract of sale is a consensual contract, thus, it is perfected by mere
consent of the parties. Upon its perfection, the parties may reciprocally demand
performance, that is, the vendee may compel the transfer of the ownership and
to deliver the object of the sale while the vendor may demand the vendee to pay
the thing sold. For there to be a perfected contract of sale, however, the
following elements must be present: consent, object, and price in money or its
equivalent.
 To be valid, consent: (a) should be intelligent; (b) should be free and (c)
should be spontaneous. Intelligence in consent is vitiated by error; freedom by
violence, intimidation or undue influence; spontaneity by fraud.
In this jurisdiction, the general rule is that he who alleges fraud or mistake
in a transaction must substantiate his allegation as the presumption is that a
person takes ordinary care for his concerns and that private dealings have been
entered into fairly and regularly. The exception to this rule is provided for under
Article 1332 of the Civil Code which provides that “when one of the parties is
unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that
the terms thereof have been fully explained to the former.”
In this case, as private respondent is the one seeking to enforce the
claimed contract of sale, she bears the burden of proving that the terms of the
agreement were fully explained to Fortunato Ape who was an illiterate. This she
failed to do. While she claimed in her testimony that the contents of the receipt
were made clear to Fortunato, such allegation was debunked by Andres Flores
himself when the latter took the witness stand.
Flores testified that, while he was very much aware of Fortunato’s inability
to read and write in the English language, he did not bother to fully explain to
the latter the substance of the receipt (Exhibit “G”). He even dismissed the idea
of asking somebody else to assist Fortunato considering that a measly sum of
thirty pesos was involved. Evidently, it did not occur to Flores that the document
he himself prepared pertains to the transfer altogether of Fortunato’s property to
his mother-in-law. It is precisely in situations such as this when the wisdom of
Article 1332 of the Civil Code readily becomes apparent which is “to protect a
party to a contract disadvantaged by illiteracy, ignorance, mental weakness or
some other handicap.” Thus, the Court annuls the contract of sale between
Fortunato and private respondent on the ground of vitiated consent.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
1. SANCHES VS. MAPALAD
2. OESMER VS. PDC
3. VDA. DE APE VS. CA
4. BRAGANZA VS. VILLA ABRILLLE
5. MIALHE VS. CA
6. KATIPUNAN VS. KATIPUNAN
7. JUMALON VS. CA
SANCHEZ vs. MAPALAD
541 SCRA 397
FACTS:
Respondent Mapalad was the registered owner of four (4) parcels of
land located along Roxas Boulevard, Baclaran, Parañaque
The PCGG issued writs of sequestration for Mapalad and all its properties.
Josef, Vice president/treasurer and General Manager of Mapalad
discovered that the 4 TCTs were missing, however the four missing tcts
turned out to be in possession of Nordelak Development Corporation.
Nordelak came into possession of the 4 TCTs by deed of sale purportedly
executed by Miguel Magsaysay in his capacity as President and Board
Chairman of Mapalad.
Mapalad filed an action for annulment of deed of sale and reconveyance
of title with damages against Nordelak.
RTC ruled in favour of Nordelak. The Ca reversed the decision of RTC.
ISSUE:
Whether or not there was a valid sale between Mapalad and
Nordelak.
RULING:
In the present case, consent was purportedly given by Miguel Magsaysay,
the person who signed for and in behalf of Mapalad in the deed of
absolute sale dated November 2, 1989. However, as he categorically
stated on the witness stand during trial, he was no longer connected with
Mapalad on the said date because he already divested all his interests in
said corporation as early as 1982. Even assuming, for the sake of
argument, that the signatures purporting to be his were genuine, it would
still be voidable for lack of authority resulting in his incapacity to give
consent for and in behalf of the corporation.
Lack of consideration makes a contract of sale fictitious. A fictitious sale is
void ab initio.
The alleged deed of absolute sale dated November 2, 1989
notwithstanding, the contract of sale between Mapalad and Nordelak is
not only voidable on account of lack of valid consent on the part of the
purported seller, but also void ab initio for being fictitious on account of
lack of consideration.
WHEREFORE, the petition is hereby DENIED and the appealed Court of
Appeals decision AFFIRMED in toto.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
RIZALINO, substituted by his heirs, JOSEFINA, ROLANDO and
FERNANDO, ERNESTO, LEONORA, BIBIANO, JR., LIBRADO and
ENRIQUETA, all surnamed OESMER, Petitioners,
vs PARAISO DEVELOPMENT CORPORATION, Respondent.
G.R. No. 157493 February 5, 2007
FACTS:
Petitioner Ernesto to meet with a certain Sotero Lee, President of
respondent Paraiso Development Corporation, at Otani Hotel in Manila.
The said meeting was for the purpose of brokering the sale of petitioners’
properties to respondent corporation.
A Contract to Sell was drafted. A check in the amount of P100,000.00,
payable to Ernesto, was given as option money. Sometime thereafter,
Rizalino, Leonora, Bibiano, Jr., and Librado also signed the said Contract to
Sell. However, two of the brothers, Adolfo and Jesus, did not sign the
document. However petitioners informed respondent corporation about
their intention to rescind the Contract to Sell and to return the amount of
Php 100,000.00. respondent did not respond to the aforesaid letter.
Petitioners, therefore, filed a complaint for Declaration of Nullity or for
Annulment of Option Agreement or Contract to Sell with damages.
The RTC rendered its decision in favor to respondent. CA affirmed the
decision of RTC with modification.
ISSUE:
Whether ot not Contract to Sell is void considering that on of the
heirs did not sign it as to indicate its consent to be bound by its terms.
RUKING:
It is well-settled that contracts are perfected by mere consent, upon the
acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and
law. To produce a contract, the acceptance must not qualify the terms of
the offer. However, the acceptance may be express or implied. For a
contract to arise, the acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn or revoked before it is
made known to the offeror.13
In the case at bar, the Contract to Sell was perfected when the petitioners
consented to the sale to the respondent of their shares in the subject
parcels of land by affixing their signatures on the said contract. Such
signatures show their acceptance of what has been stipulated in the
Contract to Sell and such acceptance was made known to respondent
corporation when the duplicate copy of the Contract to Sell was returned
to the latter bearing petitioners’ signatures.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
PERPETUA VDA. DE APE, petitioner,
vs.THE HONORABLE COURT OF APPEALS and GENOROSA CAWIT
VDA. DE LUMAYNO, respondents
G.R. No. 133638 April 15, 2005
FACTS:
Generosa Cawit de Lumayno (private respondent herein), joined by her
husband, Braulio,3 instituted a case for "Specific Performance of a Deed
of Sale with Damages" against Fortunato and his wife Perpetua (petitioner
herein).
She supposedly demanded that Fortunato execute the corresponding
deed of sale and to receive the balance of the consideration. However,
Fortunato unjustifiably refused to heed her demands. Private respondent,
therefore, prayed that Fortunato be ordered to execute and deliver to her
"a sufficient and registrable deed of sale involving his one-eleventh (1/11)
share or participation in Lot No. 2319 of the Escalante Cadastre
Private respondent testified that Fortunato went to her store at the time
when their lease contract was about to expire. He allegedly demanded
the rental payment for his land but as she was no longer interested in
renewing their lease agreement, they agreed instead to enter into a
contract of sale which Fortunato acceded to provided private respondent
bought his portion of Lot No. 2319 for P5,000.00. Thereafter, she asked
her son-in-law Flores to prepare the aforementioned receipt.
ISSUE:
Whether or not the receipt signed by Fortunato proves the
existence of a contrct of sale between him and private respondent.
RUKING:
Under Article 1332 of the Civil Code which provides that "[w]hen one of
the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained
to the former."
As can be gleaned from Flores's testimony, while he was very much aware
of Fortunato's inability to read and write in the English language, he did
not bother to fully explain to the latter the substance of the receipt
(Exhibit "G"). He even dismissed the idea of asking somebody else to
assist Fortunato considering that a measly sum of thirty pesos was
involved. Evidently, it did not occur to Flores that the document he
himself prepared pertains to the transfer altogether of Fortunato's
property to his mother-in-law. It is precisely in situations such as this
when the wisdom of Article 1332 of the Civil Code readily becomes
apparent which is "to protect a party to a contract disadvantaged by
illiteracy, ignorance, mental weakness or some other handicap
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
JULIAN FRANCISCO, ET. AL. VS. PASTOR HERRERA
G.R. No. 139982
November 21, 2002
392 SCRA 317
FACTS:
Eligio Herrera, Sr., the father of respondent, was the owner of two parcels
of land, one consisting of 500 sq. m. and another consisting of 451 sq. m.,
covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497, respectively.
Both were located at Barangay San Andres, Cainta, Rizal.
On January 3, 1991, petitioner Julian Francisco bought from said
landowner the first parcel, covered by TD No. 01-00495, for the price of
P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.
And on March 12, 1991, petitioner bought the second parcel covered by TD No.
01-00497, for P750,000.
Contending that the contract price for the two parcels of land was grossly
inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera,
Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase
the purchase price. When petitioner refused, herein respondent then filed a
complaint for annulment of sale, with the RTC of Antipolo City. In his complaint,
respondent claimed ownership over the second parcel allegedly by virtue of a
sale in his favor since 1973. He likewise claimed that the first parcel was subject
to the co-ownership of the surviving heirs of Francisca A. Herrera, the wife of
Eligio, Sr., considering that she died intestate on April 2, 1990, before the
alleged sale to petitioner. Finally, respondent also alleged that the sale of the
two lots was null and void on the ground that at the time of sale, Eligio, Sr. was
already incapacitated to give consent to a contract because he was already
afflicted with senile dementia, characterized by deteriorating mental and
physical condition including loss of memory.
The RTC rendered decision declaring the contract null and void. The Court
of Appeals affirmed the decision of the RTC, hence, this appeal.
ISSUE:
Whether or not the contract is void or merely voidable.
RULING:
A void or inexistent contract is one which has no force and effect from the
very beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification. There are two types of
void contracts: (1) those where one of the essential requisites of a valid contract
as provided for by Article 1318 of the Civil Code is totally wanting; and (2) those
declared to be so under Article 1409 of the Civil Code. By contrast, a voidable or
annullable contract is one in which the essential requisites for validity under
Article 1318 are present, but vitiated by want of capacity, error, violence,
intimidation, undue influence, or deceit.
Article 1318 of the Civil Code states that no contract exists unless there is
a concurrence of consent of the parties, object certain as subject matter, and
cause of the obligation established. Article 1327 provides that insane or
demented persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is that the contract
is voidable or annullable as specifically provided in Article 1390.
In the present case, it was established that the vendor Eligio, Sr. entered
into an agreement with petitioner, but that the former’s capacity to consent was
vitiated by senile dementia. Hence, we must rule that the assailed contracts are
not void or inexistent per se; rather, these are contracts that are valid and
binding unless annulled through a proper action filed in court seasonably.
An annullable contract may be rendered perfectly valid by ratification,
which can be express or implied. Implied ratification may take the form of
accepting and retaining the benefits of a contract. This is what happened in this
case. As found by the trial court and the Court of Appeals, upon learning of the
sale, respondent negotiated for the increase of the purchase price while
receiving the installment payments. It was only when respondent failed to
convince petitioner to increase the price that the former instituted the complaint
for reconveyance of the properties. Clearly, respondent was agreeable to the
contracts, only he wanted to get more. Further, there is no showing that
respondent returned the payments or made an offer to do so. This bolsters the
view that indeed there was ratification.
One cannot negotiate for an increase in the price in one breath and in the
same breath contend that the contract of sale is void.
WHEREFORE, the instant petition is GRANTED. The two contracts of sale
covering lots under TD No. 01-00495 and No. 01-00497 are hereby declared
VALID.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
BRAGANZA VS. VILLA ABRILLE
105 PHIL 456
FACTS:
Petitioners Braganza and her two sons, Rodolfo and Guillermo appears to
have received from Villa Abrille, as a loan, on October 30, 1944 P70, 000 in
Japanese war note and in consideration thereof, promised in writing to pay him
P10, 000 in legal currency on the P.I. two years after the cessation of the present
hostilities or as soon as International Exchange has been established in the
Philippines, plus 2% per annum.
Because of no payment had been made, Abrille sued them on March 1949.
In their answer, defendants claimed to have received P40, 000 only instead of
P70, 000 as plaintiff asserted. Also they raised the defense of minority because
at the time they signed the promissory notes, Rodolfo and Guillermo were only
16 and 18 yrs. of age. The lower court rendered judgment whereby the
defendants were required solidarily to pay Abrille the sum of P10, 000 plus 2%
interest from October 30, 1944, which was affirmed by the CA.
ISSUE:
Whether or not petitioners are excused from complying with their
monetary obligation on account of minority of the two consigners.
RULING:
NO. Petitioners are not absolved from monetary responsibility. In
accordance with the provisions of the Civil Code, even if the contract is
unenforceable because of non-age, they shall make restitution to the extent that
they may have profited by the money they received. There is testimony that the
funds delivered to them by Abrille were used for their support during the
Japanese occupation. Such being the case, it is but fair to hold that they had
profited to the extent of the value of such money, which value has been
authoritatively established in the so-called Ballantine Schedule: in October
1944, P40.00 Japanese notes were equivalent to P1.00 of current Philippine
money.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
WILLIAM ALAIN MIALHE, petitioner,
VS. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES,
respondent
G.R. No. 10899
March 20, 2001
FACTS:
On March 23, 1990, William Alain Mialhe, on his own behalf and on behalf
of Victoria Desbarats-Mialhe, Momique Mialhe-Sichere and Elaine Mialhe-
Lencquesaing filed a Complaint for Annulment of Sale, Reconveyance and
Damages against Republic of the Philippines and defendant Development Bank
of the Philippines before the court.
On May 25, 1990 filed its Answer denying the substantial facts allrged in
the complaint and raising, as special and affirmative defenses, that there was no
forcible take-over of the subject properties and that the amount paid to private
respondents was fair and reasonable Defendant DBP also filed its Answer raising
as Special and Affirmative Defense that action had already prescribed.
On September 11, 1992, the court issued an Order.
The Court of Appeals ruled that petitioner’s action had prescribed. A suit
to annul a voidable contract may be filed within four (4) years from the time the
defect ceases.
The CA also ruled that Article 1155 of the Civil Code, according to which a
written extrajudicial demand by the creditors would interrupt prescription,
referred only to a creditor-debtor relationship, which is not the case here.
ISSUE:
Whether or not the action for the annulment of the Contract of Sale has
prescribed.
RULING:
CA correctly set aside the Order of the trial court.
The records in this case indubitably show the lapse of the prescriptive
period, thus warranting the immediate dismissal of the Complaint.
The suit before the trial court was an action for the annulment on the
Contract of Sale on the alleged ground of vitiation of consent by intimidation.
The reconveyance of the three parcels of land, which the petitioner half-heatedly
espouses as the real nature of the action, can prosper only if and when the
Contract of Sale covering the subject lots is annulled. Thus, the reckoning period
for prescription would be that pertaining to an action for the annulment of
contract; that is, four years from the time the defect in the consent ceases.
There is as yet no obligation in existence. Respondent has no obligation to
reconvey the subject lots because of the existing Contract of Sale. Although
allegedly voidable, it is binding unless annulled by a proper action in court. Not
binding a determinate conduct that can be extra judicially demanded, it cannot
be considered as an obligation either. Since Article 1390 of the Civil Code states
that voidable “contracts are binding, unless they are annulled by a proper action
in court,” it is clear that the defendant were not obligated to accede to any extra
judicial demand to annul the Contract of Sale.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
KATIPUNAN VS. KATIPUNAN
375 SCRA 199
FACTS:
Respondent is the owner of a lot and a five-door apartment constructed
thereon occupied by lessees. On December 29, 1985, respondent, assisted by
his brother, petitioner, entered into a Deed of Absolute Sale with their other
brothers (co-petitioners, represented by their father, Atty. Balguma involving the
subject property for P187, 000. 00. Consequently, respondent’s title to the
property was cancelled and in lieu thereof, a new TCT was issued in favor of
petitioners.
Thereafter, respondent filed with the RTC a complaint for annulment of
the above Deed of Absolute Sale on the ground that petitioners, with evident bad
faith, conspired with one another in taking advantage of his ignorance, he being
only a third grader and through insidious words and machinations, they made
him sign a document purportedly a contract of employment, which turned out to
be a Deed of Absolute Sale.
The lower court dismissed the complaint holding that respondent failed to
prove his causes of action since he admitted that: 1.) He obtained loans from the
Balgumas; 2.) He signed the Deed of Absolute Sale; and 3.) He acknowledged
selling the property and that he stopped collecting the rentals.
The said decision was however reversed by the Court of Appeals.
ISSUE:
Whether or not the subject contract is void ab initio or voidable on the
ground that one of the parties is incapable of giving consent or where consent is
vitiated by mistake, fraud, or intimidation.
RULING:
A contract of sale is born from the moment there is meeting of minds
upon the thing which is the object of the contract and upon the price. This
meeting of minds speaks of the intent of the parties in entering into the contract
respecting the subject matter and the consideration thereof. Thus, the elements
of a contract of sale are consent, object, and price in money or its equivalent.
Under Article 1330 of the Civil Code, consent may be vitiated by any of the
following: 1.) mistake, 2.) violence, 3.) intimidation, 4.) undue influence, and 5.)
fraud. The presence of any of these vices renders the contract voidable.
A contract where one of the parties is incapable of giving consent or
where the consent is vitiated by mistake, fraud, or intimidation, is not void ab
initio but only voidable and is binding upon the parties unless annulled by proper
court action. The effect of annulment is to restore the parties to the status quo
ante in so far as legally and equitably possible. As an exception, however, to the
principle of mutual restitution, Article 1399 provides that when the defect of the
contract consists in the incapacity of one of the parties, the incapacitated
person is not obliged to make restitution, except when he has been benefited by
the things or price received by him. Since the Deed of Absolute Sale between
Respondent and the Balguma brothers is voidable, and hereby annulled, then
the restitution of the property and its fruits to respondent is just and proper.
Therefore, the petitioners are hereby ordered to turn over to respondent
Braulio Katipunan, Jr. the rentals they received for the five-door apartment
corresponding to the period from January, 1986 up to the time the property shall
have been returned to him, with interest at the legal rate.
EFFECTS OF ANNULMENT OF VOIDABLE CONTRACTS
JUMALON VS. COURT OF APPEALS
375 SCRA 175
JANUARY 30, 2002
FACTS:
On July 16, 1991, petitioner and complainant entered into a Conditional
Sales Agreement whereby the latter purchased from the former a house and lot.
On July 24, 1991, petitioner executed in favor of complainant a Deed of Absolute
Sale. Title was transferred to complainant on July 29, 1991.
Thereafter, complainant learned from neighboring residents that the
presence of high-tension wires in the subdivision where the house and lot is
located generate tremendous static electricity and produce electric sparks
whenever it rains. Upon complainant’s inquiries to the Meralco and HLURB, he
found out that the subject house and lot was built within the 30-meter right of
way of Meralco wherein high tension wires carrying 115, 000 volts are located
which posed serious risks on the property and its occupants.
Consequently, sometime in November 1992, complainant filed a case for
declaration of nullity or annulment of sale of real property before the R.T.C.. The
lower court dismissed the case. Thereafter, complainant filed before the HLURB
a complaint before the HLURB seeking the rescission of the Conditional Sales
Agreement and the Absolute Deed of Sale on the ground of fraud. HLURB
rendered decision in favor of complainant which was upheld by the Court of
Appeals, hence this petition.
ISSUE:
 Whether or not there was fraud on the part of petitioner as to warrant the
rescission of the Conditional Sales Agreement and of the Absolute Deed of Sale.
RULING:
The Supreme Court found the petition without merit for it involved
questions of fact which is not reviewable unless it is within the ambit of
exceptions.
Nonetheless, SC agrees with the Court of Appeals that respondent de Leon
was entitled to annul the sale. There was fraud in the sale of the subject house.
It is not safely habitable. It is built in a subdivision area where there is an
existing 30-meter right of way of the Manila Electric Company (Meralco) with
high-tension wires over the property, posing a danger to life and property. The
construction of houses underneath the high tension wires is prohibited as
hazardous to life and property because the line carries 115,000 volts of
electricity, generates tremendous static electricity and produces electric sparks
whenever it rained.
CABALES, ET. AL vs COURT OF APPEALS
August 31, 2007
FACTS:
Saturnina and her children Bonifacio, Albino, Francisco, Leonara,
Alberto and petitioner Rito inherited a parcel of land. They sold such
property to Dr. Cayetano Corrompido with a right to repurchase within 8
years.
Alberto secured a note from Dr. Corrompido in the amount of Php
300.00.
Alberto died leaving a wife and son, petitioner Nelson.
Within the 8-year redemption period, Bonifacio and Albino tendered
their payment to Dr. Corrompido. But Dr. Corrompido only released the
document of sale with pacto de retro after Saturnina paid the share of her
deceased son, Alberto, plus the note.
Saturnina and her children executed an affidavit to the effect that
petitioner Nelson would only receive the amount of Php 176.34 from
respondents-spouses when he reaches the age if 21 considering that
Saturnina paid Dr. Corrompido Php 966.66 for the obligation of petitioner
Nelson’s late father Alberto.
ISSUE:
Whether or not the slae entered into is valid and binding.
RUKING:
The legal guardian only has the plenary power of administration of
the minor’s property. It does not include the power to alienation which
needs judicial authority. Thus when Saturnina, as legal guardian of
petitioner Rito, sold the latter’s pro indiviso share in subject land, she did
not have the legal authority to do so. The contarct of sale as to the pro
indiviso share of Petitioner Rito was unenforceable. However when he
acknowledged receipt of the proceeds of the sale on July24, 1986,
petitioner Rito effectively ratified it. This act of ratification rendered the
sale valid and binding as to him.
NECESSITY OF WRITING
1. SHOEMAKER VS. LA TONDENA
2. PNB VS. PVOC
SHOEMAKER vs. LA TONDEMA
68 Phil 24
FACTS:
Defendant company, La tondena, Inc. entered into a written
contract of lease of services with plaintiff Harry Ives Shoemaker for a
period of 5 years, with a compensation consisting of 8% of the net
earnings of defendant. That during each year that the contract was in
force, plaintiff would receive monthly during the period of the contract of
the sum of Php 1,500.00 or Php 18,000.00 per annum as minimum
compensation if 8% of the net earnings of the aforementioned alleged
business would not reach the amount.
 The defendant company alleged that there were changes in the
contract in which both the parties agreed upon.
Plaintiff filed a complaint against defendant company. The
defendant interposed a demurrer based on the ground that the facts
therein alleged do not constitute a cause of action, since it is not averred
that the alleged mutual agreement modifying the contract of lease of
services, has been put in writing, whereas it states that its terms and
conditions may only be modified upon the written consent of both parties.
ISSUE:
Whether or not the ocurt a quo ered in sustaining the demurrer
interposed by the defendant company to the second amended complaint
filed by plaintiff, on the ground that the facts alleged therein do not
constitute a couse of action.
RUKING:
When in an oral contract which by its terms, is not to be performed
within 1 year from the execution thereof, one of the contracting parties
has complied within the year with the obligations imposed on him said
contract, the other party cannot avoid the fulfillment of what is incumbent
on him under the same contract by invoking the statute of frauds because
the latter aims to prevent and not to protect fraud.
EXECUTORY VS. EXECUTED
PNB vs. PHILIPPINE VEGETABLE OIL COMPANY
49 Phil 897
FACTS:
This appeal involves the legal right of the PNB to obtain a judgement
against Vegetable Oil Co., Inc., for Php 15,812,454 and to foreclose a
mortgage on the property of the PVOC for Php 17,000,000.00 and the
legal right of the Phil C. Whitaker as intervenor to obtain a judgement
declaring the mortgage which the PNB seeks to foreclose to be without
force and effect, requiring an accouting from the PNB of the sales of the
property and assets of the Vegetable Co. and ordering the PVOC and the
PNB to pay him the sum of Php 4,424,418.37
In 1920, the Vegetable Oil Company, found itself in financial straits. It was
in debt to the extent of approximately Php 30,000,000.00. The PNB was
the largest creditor. The VOC owed the bank Php 17,000,000.00. The PNB
was securedly principally by a real and chattel mortgage in favor of the
bank on its vessels Tankerville and H.S. Everett to guarantee the payment
of sums not exceed Php 4,000,000.00
ISSUE:
Whether or not the plaintiff had failed to comply with the contract, that it
was alleged to have celebrated with the defendant and the intervenor,
that it would furnish funds to the defendant so that it could continue
operating its factory.
RUKING:
In the present instance, it is found that the Board of Directors of the PNB
had not consented to an agreement for practically unlimited backing of
the V corporation and had not ratified any promise to trhat effect made by
its general manager.
All the evidence, documentary and oral, pertinent to the issue considered
and found to disclose no binding promise, tacit, or express made by the
PNB to continue indefinitely the operation of the V corporation.
Accordingly, intervenor Whitaker is not entitled to recover damages from
the bank.
EXECUTORY VS. EXECUTED
TAN vs VILLAPAZ
475 SCRA 720 November 22, 2005
FACTS:
 Respondent Carmelito Villapaz issued a Philippine Bank of
Communications (PBCom) crossed check in the amount of P250,000.00,
payable to the order of petitioner Tony Tan.
The Malita, Davao del Sur Police issued an invitation-request to
petitioner Antonio Tan inviting him to appear before the Deputy Chief of
Police Office on June 27, 1994 at 9:00 o’clock in the morning “in
connection with the request of [herein respondent] Carmelito Villapaz, for
conference of vital importance.”
The invitation-request was received by petitioner Antonio Tan on
June 22, 1994 but on the advice of his lawyer, he did not show up at the
Malita, Davao del Sur Police Office.
Respondent filed a Complaint for sum of money against petitioners-
spouses, alleging that, , his issuance of the February 6, 1992 PBCom
crossed check which loan was to be settled interest-free in six (6) months;
on the maturity date of the loan or on August 6, 1992, petitioner Antonio
Tan failed to settle the same, and despite repeated demands, petitioners
never did.
Petitioners alleged that they never received from respondent any demand
for payment, be it verbal or written, respecting the alleged loan; since the
alleged loan was one with a period — payable in six months, it should
have been expressly stipulated upon in writing by the parties but it was
not.
ISSUE:
Whether or not Honorable Court of Appeals erred in concluding
that the transaction in dispute was a contract of loan and not a mere
matter of check encashment as found by the trial court.
RUKING:
At all events, a check, the entries of which are no doubt in writing,
could prove a loan transaction.
That petitioner Antonio Tan had, on February 6, 1992, an
outstanding balance of more than P950,000.00 in his account at PBCom
Monteverde branch where he was later to deposit respondent’s check did
not rule out petitioners’ securing a loan. It is pure naivete to believe that
if a businessman has such an outstanding balance in his bank account, he
would have no need to borrow a lesser amount.
In fine, as petitioners’ side of the case is incredible as it is
inconsistent with the principles by which men similarly situated are
governed, whereas respondent’s claim that the proceeds of the check,
which were admittedly received by petitioners, represented a loan
extended to petitioner Antonio Tan is credible, the preponderance of
evidence inclines on respondent.
EXECUTORY VS. EXECUTED
SPOUSES VENANCIO DAVID and PATRICIA MIRANDA DAVID and
FLORENCIA VENTURA VDA. DE BASCO, petitioners,
vs. ALEJANDRO and GUADALUPE TIONGSON, respondents.
G.R. No. 108169 August 25, 1999
FACTS:
Three sets of plaintiffs, namely spouses Ventura, spouses David and
Vda. De Basco, filed a complaint for specific performance with damges,
against private respondents spouses Tiongson, alleging that the latter
sold to them lots located in Pampanga.
The parties expressly agredd that in case of payment has been fully
paid respondents would execute an individual deed of absolute sale in
plaintiffs flavor.
The respondents demanded the executuion of a deed of sale and
issuance of certificate of titile but the respondents refused to issue the
same.
The trial court rendered its decision in favor of the respondents.
However the CA ruled that contract of sale was not been perfrected
between spouses David and/or Vda. De Basco and respondents. As with
regard to the spouses Ventura, the CA affirmed the RTC.
ISSUE:
 Whether or not contract of sale has not been perfected but
petitioners and respondents. Whether or not Statute of Frauds applies in this case.

RUKING: RUKING:

The SC ruled that there was a perfected contact. However, the
statute of frauds is inapplicable. The rule is settled that the statute of
frauds applies only to executor and not to completed, executed or
partially executed contract. In the case of spouses David, the payment
made rendered the sales contract beyong the ambit of the statutre of
frauds/
The CA erred in concluding that there was no perfected contract of
sale. However, in view of the stipulation of the parties that the deed of
sale and corresponding certificate of title would be issued after full
payment, then, they ad entered into a contract to sell and not a contract
of sale.
The CA and respondent Miranda stress the absence of a “written
memorandum of the alleged contract between the parties”. Respondent
implicity agrues that the alleged contract is unenforceable under the
Statute of Frauds however, the statute of frauds applies only to executor
and not to completed, executed, or partially executed contracts. Thus,
were one party has performed one’s obligation, oral evidence will be
admitted to prove the agreement. In the present case, it has already been
established that petitioner had delivered the rattan poles to respondent.
The contract was partially executed, the Statute of Frauds does not apply.

EXECUTORY VS. EXECUTED

GENARO CORDIAL, petitioner, vs. DAVID MIRANDA, respondent.

December 14, 2000

FACTS:

David Miranda, a businessman from Angeles City, was engaged in

rattan business. Gener Buelva was the supplier of David but the former
met an accident and died. Genero Cordial and Miranda met through
Buelva’s widow, Cecilla.
They agreed that Cordial will be his supplier of rattan poles. Cordial
shipped rattan poles as to the agreed number of pieces and sizes
however Miranda refused to pay the cost of the rattan poles delivered.
Miranda alleged that there exist no privity of contract between Miranda
and Cordial.
Cordial filed a complaint againt Miranda. The RTC rendered its
decision in favor of the petitioner. The CA reversed the decision of the
RTC.

ISSUE:
EXECUTORY VS. EXECUTED
VILLANUEVA-MIJARES petitioners,
vs.THE COURT OF APPEALS, respondents.
G.R. No. 108921 April 12, 2000
FACTS:
During the lifetime, Felipe, owned real property, a parcel of land
situated at Estancia, Kalibo, Capiz. Upong Felipe’s death, ownership of the
land was passed on to his children. Pedro, on of the children, got his
share. The remaining undivided portion of the land was held in trust by
leon. His co-heirs made several seasonable and lawful demands upon him
to subdivide the partition the property, but no subdivision took place.
After the death of Leon, private respondents discovered that the
shares of four of the heirs of Felipe was purchased by Leon as evidenced
by Deed of Sale.
ISSUE:
Whether or not the appellate court erred in declaring the Deed of
Sale unenforceable against the private respondent fro being unauthorized
contract.
RUKING:
The court has ruled that the nullity of the unenforceable contract is
of a permanent nature and it will exist as long the unenforceable contract
is not duly ratifired. The mere lapse of time cannot igve efficacy to such a
contract. The defect is such that it cannot be cured except by the
subsequent ratification of the unenforceable contract by the person in
whose name the contract was executed. In the instant case, there is no
showing of any express or implied ratification of the assailed Deed of Sale
by the private respondents Procerfina, Ramon,. Prosperidad, and Rosa.
Thus, the said Deed of Sale must remain unenforceable as to them.
REMEDIES
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN,
petitioners,
vs.PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
G.R. No. 140479 March 8, 2000
FACTS:
Plaintiffs and plaintiffs-intervenors averred that they are the lessess since
1971 of a two-story residential apartment and owned by spouses Faustino
and Cresencia Tiangco. The lease was nocovered by any contract. The
lesses were renting the premises then for Php 150.00 a month and were
allegedly verbally granted by the lessors the pre-emptive right to
purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangco, the management of the property
was adjudicated to their heirs who were represented by Eufrocina deLeon.
The lessees received a letter from de Leon advising them that the heirs of
the late spouses have already sold the property to Resencor.
The lessees filed an action f\before th RTC praying for the following: a)
rescission of the Deed of Absolute Sale between de Leon and Rocencor, b)
the defendants Rosencor/Rene Joaquin be ordered to reconvey the
property to de Leon, c) de Leon be ordered to reimburse the plaintiffs for
the repair of the property or apply the said amount as part of the
purchase of the property.
The RTC dismissed the complaint while the Ca reversed the decision of
the RTC.
ISSUE:
Whether or not a right of first refusal is indeed covered by the
provisions of the NCC on the Statute of Frauds.
RUKING:
A right of first refusal is not among those listed as unenforceable
under the statute of frauds. Furthermore, the application of Article 1403,
par. 2(e) of the NCC, presupposes the existence of a perfected, albeit
unwritten, contract of sale. A right of first refusal, such as the one
involved in the instant case, is not by any means a perfected contract of
sale of real property. At best, it is a contractual grant, not of the sale of
the real property involed byt of the right of first refusal over the property
sought to be sold.
It is thus evident that the statute of frauds does not contemplate
cases involving a right of right of first refusal. As such, a right of first
refusal need not be written to be enforceable and may be proven by oral
evidence.
REMEDIES VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY

SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners, 1. HEIRS OF M. DORONIO VS. HEIERS OF F. DORONIO
2. GURREA VS. SUPLICO
3. FRENZEL VS. CATITO
vs.UKAL ENTERPRISES AND DEVELOPMENT CORPORATION, 4. LA BUGA’AL-BLAAN VS. RAMOS
respondent. 5. AGAN VS. PIATCO, JANUARY 21, 2004
G.R. No. 146608 October 23, 2003 6. COMELEC VS. QUIJANO-PADILLA, 389 SCRA 353
7. JAWORSKI VS. PAGCOR, JAN. 14, 2004
8. CAUTON VS. SALUD, JAN. 27, 2004
FACTS:
HEIRS OF M. DORONIO vs. HEIR OF F. DORONIO
Petitioner Spouses Firme are the registered owner of a parcel of 541 SCRA 479
land located on Dahlia Avenue, Fairview Park, Quezon City.
Bukal Enterprises filed a complaint for specific performance and FACTS:
damges with the trial court, aleeging that the Spouses Firme reneged on
their agreement to sell the property. The complaint asked the trial court Petitioners are the heirs of Maralino Doronio, while respondents are
to order the Spouses Firme to execute the deed of sale and to delover the the heirs of Fortunato Doronio.
title of the property to Bukal Enterpises upon payment of the agreed The property in dispute is one of a private deed of donation propter
purchase price. nuptias who was executed by Spouses Simeon Doronio and Cornelia
The RTC rendered its decision against Bukal. The CA reversed and Gante in facor of Maralino Doronio and his wife Veronica Pico.
set aside the decision of the RTC. The heirs of Fortuanto Doronio contended that only the half of the
property was actually incorporated in the deed of donation because it
ISSUE: stated that Fortunato is the owner of the adjacent property. Eager to
obtain the entire property, the heirs of Marcelino filed a petition “For the
Whether or not Statute of Frauds is applicable. Registration of a Private Deed of Donation”. The RTC granted the petition.
The heirs of Fortunato files a pleading in the form of petition. In the
RUKING: petition, they prayed that an order be issued declaring null and void the
registration of the private deed of donation.
The CA held that partial performance of the contract of sale takes The RTC ruled in favor of the heirs of Marcelino. The CA reversed
the oral contract out of the scope of Statute of Frauds. This conclusion the decision of RTC>
arose from the appellate court’s erronoues finding that there was a
perfected contract of sale. The recors shoe that there was no perfected ISSUE:
contract of sale. There is therefore no basis for the application of the
Stature of Frauds. The application of the Statute of Frauds presupposes Whether or not the donation propter nuptias is valid.
the existence of a perfected contract.
RUKING:
 Article 633 of the OCC provides that figts of real property , in order
to be valid, must appear in a public document. It is settled that a donation
of real estate propter nuptias is void unless made by public instrument.
In the instant case, the donation propter nuptias did not become
valid. Neither did it create any right because it was not made in a public
instrument. Hence, it conveyed no title to the land in question to
petitioner’s predecessors.

VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
NATIVIDAD ARIAGA VDA. DE GURREA, CARLOS GURREA, JULIETA
GURREA, TERESA GURREA-RODRIGUEZ, RICARDO GURREA, Jr., MA.
VICTORIA GURREA-CANDEL, and RAMONA GURREA-MONTINOLA,
Petitioners,
vs ENRIQUE SUPLICO, Respondent
G.R. No. 144320 April 26, 2006
FACTS:
The petition arose from a complaint for anuulment of tilte with
prayer for preliminary injunction filed with the court of First Instance by
Rosalina Gurrea in her capacity as attorney-in-fact of the heirs of Ricardo
Gurrea. The complaint was filed against Atty. Enrique Suplico.
Atty. Suplico alleged that the property in dispurte was for the
payment of his services rendered to the late Ricardo Gurrrea which the
offered to him as payment.
ISSUE:
Whether or not petitioner’s are entitled to the cancellation of
respondent attorney’s title over the subject property and the
reconveyance thereof to the herein petitioners or to be the estate of the
Late Ricardo.
RUKING:
Having been established that the subject property was still the object of
litigation at the time the subject deed of Transfer of Rights and Interest
was executed, the assignment of rights and interest over the subject
property in favor of respondent is null and void for being violative of the
provisions of Article 1491 of the Civil Code which expressly prohibits
lawyers from acquiring property or rights which may be the object of any
litigation in which they may take part by virtue of their profession.
It follows that respondent’s title over the subject property should be
cancelled and the property reconveyed to the estate of Ricardo, the same
to be distributed to the latter?s heirs. This is without prejudice, however,
to respondent?s right to claim his attorney?s fees from the estate of
Ricardo, it being undisputed that he rendered legal services for the latter.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
ALFRED FRITZ FRENZEL, petitioner, vs.EDERLINA P. CATITO,
respondent.
G.R. No. 143958 July 11, 2003
FACTS:
Alfred Frenzel and Ederlina Catito had an amorous relationship
which started in King’s Cross, a night spot in Sydney.
During their relationship Alfred bought properties in the Philippines
in the name of Ederlina. Their relationship started to deteriorate when the
husband of Ederlina threatened Ederlina that he would file a bigamy case
against her for having an illicit affair with Alfred, who was also married.
Alfred filed a complaint against Ederlina for specific performance,
declaration of real and personal properties, sum of money and damages.
ISSUE:
Whether or not acquisition of a parcel of land is valid.
RUKING:
The sales of three parcels of land in favor of the petitioner who is a
foreigner is illegal per se. The transactions are void ab initio because they
were entered into in violation of the Constitution. Thus, to allow the
petitioner to recover the properties or the money used in the purchase of
the parcels of land would be subversive of public policy.
An action for recovery of what has been paid without just cause has been
designated as an accion in rem verso. This provision does not apply if, as
in this case, the action is proscribed by the Constitution or by the
application of the pari delicto doctrine. 68 It may be unfair and unjust to
bar the petitioner from filing an accion in rem verso over the subject
properties, or from recovering the money he paid for the said properties,
but, as Lord Mansfield stated in the early case of Holman vs. Johnson:69
"The objection that a contract is immoral or illegal as between the plaintiff
and the defendant, sounds at all times very ill in the mouth of the
defendant. It is not for his sake, however, that the objection is ever
allowed; but it is founded in general principles of policy, which the
defendant has the advantage of, contrary to the real justice, as between
him and the plaintiff."
 VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
LA BUGA’AL-BLAAN vs RAMOS
December 1, 2004
FACTS:
The Petition for Prohibition and Mandamus before the Court challenges
the constitutionality of (1) Republic Act No. [RA] 7942 (The Philippine
Mining Act of 1995); (2) its Implementing Rules and Regulations (DENR
Administrative Order No. [DAO] 96-40); and (3) the FTAA dated March 30,
1995, executed by the government with Western Mining Corporation
(Philippines), Inc. (WMCP).
On January 27, 2004, the Court en banc promulgated its Decision granting
the Petition and declaring the unconstitutionality of certain provisions of
RA 7942, DAO 96-40, as well as of the entire FTAA executed between the
government and WMCP, mainly on the finding that FTAAs are service
contracts prohibited by the 1987 Constitution.
ISSUE:
Whether or nor it is a void contract.
RULING:
Section 7.9 of the WMCP FTAA has effectively given away the State's
share without anything in exchange. Moreover, it constitutes unjust
enrichment on the part of the local and foreign stockholders in WMCP,
because by the mere act of divestment, the local and foreign stockholders
get a windfall, as their share in the net mining revenues of WMCP is
automatically increased, without having to pay anything for it.Being
grossly disadvantageous to government and detrimental to the Filipino
people, as well as violative of public policy, Section 7.9 must therefore be
stricken off as invalid.
Section 7.8(e) of the WMCP FTAA likewise is invalid, since by allowing the
sums spent by government for the benefit of the contractor to be
deductible from the State's share in net mining revenues, it results in
benefiting the contractor twice over. This constitutes unjust enrichment
on the part of the contractor, at the expense of government. For being
grossly disadvantageous and prejudicial to government and contrary to
public policy, Section 7.8(e) must also be declared without effect. It may
likewise be stricken off without affecting the rest of the FTAA.
HEIRS OF THE LATE SPOUSES AURELIO AND ESPERANZA BALITE
VS. RODRIGO N. LIM,
G.R. No. 152168, December 10, 2004
446 SCRA 56
FACTS:
The spouses Aurelio and Esperanza Balite were the owners of a parcel of
land, located at Poblacion Barangay Molave, Catarman, Northern Samar, with an
area of 17,551 square meters. When Aurelio died intestate in 1985, his wife,
Esperanza Balite, and their children, petitioner Antonio Balite, Flor Balite-Zamar,
Visitacion Balite-Difuntorum, Pedro Balite, Pablo Balite, Gaspar Balite, Cristeta
Balite and Aurelio Balite, Jr., inherited the subject property and became co-
owners thereof, with Esperanza inheriting an undivided share of 9,751 square
meters.
In the meantime, Esperanza became ill and was in dire need of money for
her hospital expenses. She, through her daughter, Cristeta, offered to sell to
Rodrigo Lim, her undivided share for the price of P1,000,000.00. Esperanza and
Rodrigo agreed that, under the “Deed of Absolute Sale”, to be executed by
Esperanza over the property, it will be made to appear that the purchase price of
the property would be P150,000.00, although the actual price agreed upon by
them for the property was P1,000,000.00.
Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. learned of the sale, and on
August 21, 1996, they wrote a letter to the Register of Deeds [RD] of Northern
Samar, saying that they were not informed of the sale of a portion of the said
property by their mother nor did they give their consent thereto, and requested
the RD to hold the approval of any application for the registration of title of
ownership in the name of the buyer of said lot which has not yet been
partitioned judicially or extrajudicially, until the issue of the legality/validity of
the above sale has been cleared.
On October 23, 1996, Esperanza signed a letter addressed to Rodrigo
informing the latter that her children did not agree to the sale of the property to
him and that she was withdrawing all her commitments until the validity of the
sale is finally resolved. On October 31, 1996, Esperanza died intestate and was
survived by her children.
On June 27, 1997, petitioners filed a complaint against Rodrigo with the
Regional Trial Court of Northern Samar for “Annulment of Sale, Quieting of Title,
Injunction and Damages.
The trial court dismissed the Complaint. The Court of Appeals held that
the sale was valid and binding insofar as Ezperanza Balite’s undivided share of
the property was concerned.
Hence, this Petition.
ISSUE:
Whether or not the heirs of Esperanza has the right to question the said
contract.
RULING:
The Supreme Court held that the petitioners cannot be permitted to
unmake the Contract voluntarily entered into by their predecessor, even if the
stated consideration included therein was for an unlawful purpose. The binding
force of a contract must be recognized as far as it is legally possible to do so.
Article 1345 of the Civil Code provides that the simulation of a contract
may either be absolute or relative. In absolute simulation, there is a colorable
contract but without any substance, because the parties have no intention to be
bound by it. An absolutely simulated contract is void, and the parties may
recover from each other what they may have given under the “contract.” On the
other hand, if the parties state a false cause in the contract to conceal their real
agreement, such a contract is relatively simulated. Here, the parties’ real
agreement binds them.
In the present case, the parties intended to be bound by the Contract,
even if it did not reflect the actual purchase price of the property. That the
parties intended the agreement to produce legal effect is revealed by the letter
of Esperanza Balite to respondent dated October 23, 1996 and petitioners’
admission that there was a partial payment of P320,000 made on the basis of
the Deed of Absolute Sale. There was an intention to transfer the ownership of
over 10,000 square meters of the property. The Deed of Absolute Sale was
merely relatively simulated, it remains valid and enforceable between the
parties and their successors in interest since all the essential requisites
prescribed by law for the validity and perfection of contracts are present.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
ALEJANDRIA PINEDA and SPOUSES ADEODATO DUQUE, JR., and
EVANGELINE MARY JANE DUQUE, petitioners,
VS. COURT OF APPEALS and SPOUSES NELSON BAÑEZ and
MERCEDES BAÑEZ, respondents
2002 Feb 6
FACTS:
The appellees and the petitioner, Pineda, executed an Agreement to
Exchange Real Properties. The appellees exchanging their property at White
Plains with that of the Pinedas located in California. At the time of the execution
of the agreement, the white plains property was mortgaged with the GSIS, while
the California property also had a mortgaged obligation. As stated in the
exchange agreement, Pineda paid the appellees the total amount of $12, 000.
Pineda and the spouses Duque executed an agreement to sell over the white
plains property, whereby Pineda sold the property in the amount of P1.6M.
Pineda paid the mortgage of the white plains property and requested the
appellees for a written authority for the release of the title from GSIS. The
appellees gave Pineda the authority with the understanding that Pineda will
deliver the title to the appellees. Upon their return to the Philippines, the
appellees discovered that the spouses Duque were occupying the white plains
property and a fictitious deed of sale in the name of Pineda. In a civil case filed
by the appellees, the trial court declared them as the absolute owners of the
property located in White Plains.
ISSUE:
Whether petitioners validly acquired the subject property.
RULING:
No. The Court denies the petition. It appears that the Bañez spouses
were the original owners of the parcel of land and improvements located at 32
Sarangaya St., White Plains, Quezon City. On January 11, 1983, the Bañez
spouses and petitioner Pineda executed an agreement to exchange real
properties. However, the exchange did not materialize. Petitioner Pineda’s
"sale" of the property to petitioners Duque was not authorized by the real
owners of the land, respondent Bañez. The Civil Code provides that in a sale of a
parcel of land or any interest therein made through an agent, a special power of
attorney is essential. This authority must be in writing; otherwise the sale shall
be void. In his testimony, petitioner Adeodato Duque confirmed that at the time
he "purchased" respondents’ property from Pineda, the latter had no Special
Power of Authority to sell the property.
A special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired for a valuable
consideration. Without an authority in writing, petitioner Pineda could not validly
sell the subject property to petitioners Duque. Hence, any "sale" in favor of
petitioners Duque is void. Further, Article 1318 of the Civil Code lists the
requisites of a valid and perfected contract, namely: (1) consent of the
contracting parties; (2) object certain which the subject matter of the contract;
(3) cause of the obligation which is established. Pineda was not authorized to
enter into a contract to sell the property. As the consent of the real owner of the
property was not obtained, no contract was perfected. Consequently, petitioner
Duque failed to validly acquire the subject property.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
LA BUGAL-B’LAAN TRIBAL ASSOCIATION, INC. et al VS. RAMOS
G.R. No. 127882
December 1, 2004
445 SCRA 1
FACTS:
Petitioners challenged constitutionality of Republic Act No. 7942 (The
Philippine Mining Act of 1995) and its Implementing Rules and Regulations and
the Financial and Technical Assistance Agreement dated March 30, 1995,
executed by the government with Western Mining Corporation (Philippines), Inc.
On January 27, 2004, the Supreme Court en banc promulgated its decision
declaring the unconstitutionality of certain provisions of RA 7942 as well as of
the entire FTAA executed between the government and WMCP, mainly on the
finding that FTAAs are service contracts prohibited by the 1987 Constitution.
Subsequently, respondents filed separate Motions for Reconsideration.
In a Resolution dated March 9, 2004, the Supreme Court required
petitioners to comment. The case was set for Oral Argument on June 29, 2004.
After hearing the opposing sides, the Court required the parties to submit their
respective memoranda in amplification of their arguments. On the same day, the
Court noted inter alia, the Manifestation and Motion for Intervention filed by the
Office of the Solicitor General on behalf of public respondents. The OSG said that
it was not interposing any objection to the Motion for Intervention filed by the
Chamber of Mines of the Philippines, Inc. and was in fact joining and adopting
the latter’s Motion for Reconsideration. Memoranda were accordingly filed by the
intervenor as well as by petitioners, public respondents, and private respondent,
dwelling at length on three issues, namely, (1) mootness of the case by the sale
of WMC shares in WMCP to Sagittarius which 60% its equity is owned by Filipinos
and by the subsequent transfer and registration of the FTAA from WMCP to
Sagittarius; (2) constitutionality of the assailed provisions of the Mining Law, its
Implementing Rules and Regulations and the WMCP FTAA; and, (3) proper
interpretation of the phrase “agreements involving either technical of financial
assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution.
Among the assailed provisions of the Mining Law were Section 80 and the
colatilla in Section 84, as well as Section 112. The petitioners alleged that these
sections limit the State’s share in a mineral production-sharing agreement to just
the excise tax on the mineral product and the WMCP FTAA contains a provision
which grants the contractor unbridled and automatic authority to convert the
FTAA into MPSA (mineral production-sharing agreements. However, the Court
ruled that these were not argued upon by the parties in their respective
pleadings. Also, the Court stated that these particular provisions do not come
within issues that were defined and delineated by during the Oral Argument,
particularly the third issue, which pertained exclusively to FTAAs.
Later, WMCP submitted its Reply Memorandum, while the OSG, in
compliance to the order of the Supreme Court, filed a Compliance submitting
copies of more FTAAs entered into by the government.
ISSUE:
Whether or not petitioners have a right to assail the statutory provisions
(Sections 80, 84 and 112) for its unconstitutionality.
RULING:
The Supreme Court held that it cannot rule on mere surmises and
hypothetical assumptions, without firm factual anchor, in relation to the assailed
provisions. Stated in Article 1421, “The defense of illegality of contracts is not
available to third persons whose interests are not directly affected.” The Court
thus held that due process requires hearing the parties who have a real legal
interests in the MPSAs (i.e. the parties who executed them) before the MPSAs
can be reviewed, or worse, struck down by the Court.
Thus, the petitioners have no right to question the assailed provisions.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
COMMISSION ON ELECTIONS, COMELEC CHAIRMAN ALFREDO L.
BENIPAYO, COMELEC COMMISSIONERS RESURRECCION Z. BORRA and
FLORENTINO A. TUASON, JR., petitioners,
VS. JUDGE MA. LUISA QUIJANO-PADILLA, REGIONAL TRIAL COURT OF
QUEZON CITY, BRANCH 215 and PHOTOKINA MARKETING CORP.,
respondents
September 18, 2002
G.R. No. 151992
FACTS:
In 1996, the Philippine Congress passed Republic Act No. 8189, otherwise
known as the "Voter's Registration Act of 1996," providing for the modernization
and computerization of the voters' registration list and the appropriate of funds
therefor "in order to establish a clean, complete, permanent and updated list of
voters."
Pursuant thereto, the Commission on Elections (COMELEC) promulgated
Resolution No. 00-0315 approving in principle the Voter's Registration and
Identification System Project [(VRIS) Project]. The VRIS Project envisions a
computerized database system for the May 2004 Elections. The idea is to have
a national registration of voters whereby each registrant's fingerprints will be
digitally entered into the system and upon completion of registration, compared
and matched with other entries to eliminate double entries. A tamper-proof and
counterfeit-resistant voter's identification card will then be issues to each
registrant as a visual record of the registration.
On September 9, 1999, the COMELEC issued invitations to pre-qualify and
bid for the supply and installations of information technology equipment and
ancillary services for its VRIS Project. Private respondent Photokina Marketing
Corporation (PHOTOKINA) pre-qualified and was allowed to participate as one of
the bidders, and eventually won. A contract was perfected between the parties,
but COMELEC failed to comply with the contract due to insufficiency of funds.
Respondent filed a suit against petitioner, of which respondent judge granted the
writ of prohibitory injunction to private respondent. Upon motion for
reconsideration of both parties, respondent judge granted the writ of mandatory
injunction of respondent and denying the Omnibus Motion of petitioner. Hence,
the instant petition for certiorari filed by the Office of the Solicitor General (OSG)
in behalf of then COMELEC. PHOTOKINA filed a Comment with Motion to Dismiss,
the present petition, on two procedural grounds. First, the petition violates the
doctrine of hierarchy of courts. And second, the OSG has no authority and/or
standing to file the petition considering that the petitioners have not been
authorized by the COMELEC en banc to take such action. Without the
concurrence of at least a majority of the members of the COMELEC, neither
petitioners nor the OSG could file the petition in behalf of the COMELEC.
ISSUE:
Whether or not the Office of the Solicitor-General has no authority and/or
standing to file the petition considering that the petitioners have not been
authorized by the COMELEC en banc to take such action.
RULING:
The OSG is an independent office. Its hands are not shackled to the
cause of its client agency. In the discharge of its task, the primordial concern of
the OSG is to see to it that the best interest of the government is upheld. This is
regardless of the fact that what it perceived as the "best interest of the
government" runs counter to its client agency’s position. Endowed with a broad
perspective that spans the legal interest of virtually the entire government
officialdom, the OSG may transcend the parochial concerns of a particular client
agency and instead, promote and protect the public wealth. The Supreme
Court’s ruling in Orbos vs. Civil Service Commission, is relevant, thus:
"x x x It is incumbent upon him (Solicitor General) to present to the court what
he considers would legally uphold the best interest of the government although
it may run counter to a client’s position. x x x."
In the present case, it appears that after the Solicitor General studied the
issues he found merit in the cause of the petitioner based on the applicable law
and jurisprudence. Thus, it is his duty to represent the petitioner as he did by
filing this petition. He cannot be disqualified from appearing for the petitioner
even if in so doing his representation runs against the interests of the CSC.
 This is not the first time that the Office of the Solicitor General has taken a
position adverse to his clients like the CSC, the National Labor Relations
Commission, among others, and even the People of the Philippines. x x x"
Hence, while petitioners’ stand is contrary to that of the majority of the
Commissioners, still, the OSG may represent the COMELEC as long as in its
assessment, such would be for the best interest of the government. For, indeed,
in the final analysis, the client of the OSG is not the agency but no less than the
Republic of the Philippines in whom the plenum of sovereignty resides.
Moreover, it must be emphasized that petitioners are also public officials
entitled to be represented by the OSG. Under Executive Order No. 292 and
Presidential Decree No. 478, the OSG is the lawyer of the government, its
agencies and instrumentalities, and its officials or agents. Surely, this mandate
includes the three petitioners who have been impleaded as public respondents
in Special Civil Action No. Q-01-45405.
Anent the alleged breach of the doctrine of hierarchy of courts, suffice it
to say that it is not an iron-clad dictum. On several instances where this Court
was confronted with cases of national interest and of serious implications, it
never hesitated to set aside the rule and proceed with the judicial determination
of the case. The case at bar is of similar import. It is in the interest of the State
that questions relating to government contracts be settled without delay. This is
more so when the contract, as in this case, involves the disbursement of public
funds and the modernization of our country’s election process, a project that has
long been overdue.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
MANSUETO CUATON, petitioner,
VS. REBECCA SALUD and
COURT OF APPEALS (Special Fourteenth Division), respondents
G.R. No. 158382
January 27, 2004
FACTS:
On January 5, 1993, respondent Rebecca Salud, joined by her husband
Rolando Salud, instituted a suit for foreclosure of real estate mortgage with
damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton,
with the trial court. The trial court rendered a decision declaring the mortgage
constituted on October 31, 1991 as void, because it was executed by Mansueto
Cuaton in favor of Rebecca Salud without expressly stating that he was merely
acting as a representative of Conchita Cuaton, in whose name the mortgaged lot
was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the
loan secured by the mortgage in the amount of P1,000,000 plus a total
P610,000.00 representing interests of 10% and 8% per month for the period
February 1992 to August 1992.
Both parties filed their respective notices of appeal.
The Court of Appeals affirmed the judgment of the trial court. Petitioner
filed a motion for partial reconsideration of the trial court’s decision with respect
to the award of interest in the amount of P610,000.00, arguing that the same
was iniquitous and exorbitant. This was denied by the Court of Appeals.
ISSUE:
Whether or not the excessive interest rates cannot be considered as an
issue presented for the first time on appeal.
RULING:
The contention regarding the excessive interest rates cannot be considered
as an issue presented for the first time on appeal. The records show that
petitioner raised the validity of the 10% monthly interest in his answer filed with
the trial court. To deprive him of his right to assail the imposition of excessive
interests would be to sacrifice justice to technicality. Furthermore, an appellate
court is clothed with ample authority to review rulings even if they are not
assigned as errors. This is especially so if the court finds that their consideration
is necessary in arriving at a just decision of the case before it. The Court has
consistently held that an unassigned error closely related to an error properly
assigned, or upon which a determination of the question raised by the error
properly assigned is dependent, will be considered by the appellate court
notwithstanding the failure to assign it as an error. Since respondents pointed
out the matter of interest in their Appellants’ Brief before the Court of Appeals,
the fairness of the imposition thereof was opened to further evaluation. The
Court therefore is empowered to review the same.
Petition granted. Decision modified. The interest rates of 10% and 8% per
month imposed by the trial court is reduced to 12% per annum, computed from
the date of the execution of the loan on October 31, 1991 until finality of this
decision. After the judgment becomes final and executory until the obligation is
satisfied, the amount due shall further earn interest at 12% per year.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
DEMOSTHENES P. AGAN, JR., et al., petitioners, VS.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA,
respondents
G.R. No. 155001
January 21, 2004
FACTS:
On October 5, 1994, Asia’s Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the Philippine
Government through the Department of Transportation and Communication (DOTC) and Manila International Airport Authority
(MIAA) for the construction and development of the NAIA IPT III under a build-operate-and-transfer arrangement pursuant to
R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). In accordance with the BOT Law and its Implementing Rules and
Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative proposals
to the unsolicited proposal of AEDC.
On September 20, 1996 a consortium composed of the People’s Air Cargo and Warehousing Co., Inc. (Paircargo),
Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium),
submitted their competitive proposal to the Prequalification Bids and Awards Committee (PBAC).After finding that the Paircargo
Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by AEDC to match the said bid, the
DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which later organized into herein
respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the “Concession Agreement for the Build-Operate-and-Transfer Arrangement of the
Ninoy Aquino International Airport Passenger Terminal III” (1997 Concession Agreement).
On November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession
Agreement (ARCA) containing certain revisions and modifications from the original contract. A series of supplemental
agreements was also entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the
Second Supplement on September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997
Concession Agreement, ARCA and the Supplements collectively referred to as the PIATCO Contracts).On September 17, 2002,
various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA and the
Supplements and to prohibit the public respondents DOTC and MIAA from implementing them.
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement,
the ARCA and the Supplements null and void.Respondent PIATCO, respondent-Congressmen and respondents-intervenors now
seek the reversal of the May 5, 2003 decision and pray that the petitions be dismissed. In the alternative, PIATCO prays that
the Court should not strike down the entire 1997 Concession Agreement, the ARCA and its supplements in light of their
separability clause.
Respondent-Congressmen and NMTAI also pray that in the alternative, the cases at bar should be referred to
arbitration pursuant to the provisions of the ARCA. PIATCO-Employees pray that the petitions be dismissed and remanded to
the trial courts for trial on the merits or in the alternative that the 1997 Concession Agreement, the ARCA and the Supplements
be declared valid and binding.
ISSUE:
Whether or not that petitioners lack legal personality to file the cases at bar as they are not real parties in interest
who are bound principally or subsidiarily to the PIATCO Contracts.
RULING:
The determination of whether a person may institute an action or become a party to a suit brings to fore the
concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these three concepts are
different although commonly directed towards ensuring that only certain parties can maintain an action. As defined in the
Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in the suit or the
party entitled to the avails of the suit.Capacity to sue deals with a situation where a person who may have a cause of action is
disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability that
would prevent him from maintaining an action unless represented by a guardian ad litem.
Legal standing is relevant in the realm of public law. In certain instances, courts have allowed private parties to
institute actions challenging the validity of governmental action for violation of private rights or constitutional principles. In
these cases, courts apply the doctrine of legal standing by determining whether the party has a direct and personal interest in
the controversy and whether such party has sustained or is in imminent danger of sustaining an injury as a result of the act
complained of, a standard which is distinct from the concept of real party in interest. Measured by this yardstick, the
application of the doctrine on legal standing necessarily involves a preliminary consideration of the merits of the case and is
not purely a procedural issue.
Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that
the petitioners have the requisite legal standing. The petitioners in G.R. Nos. 155001 and 155661 are employees of service
providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service
providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO
Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the
NAIA IPT III, NAIA Passenger Terminals I and II will cease to be used as international passenger terminals. Further, the ARCA
provides:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement
relative to any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger
Terminal I, or extend any concession agreement which may expire subsequent hereto, except to the extent that
the continuation of the existing services and operations shall lapse on or before the In-Service Date.
Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors
denounce as unconstitutional and illegal, would deprive them of their sources of livelihood.
Under settled jurisprudence, one's employment, profession, trade, or calling is a property right and is protected from
wrongful interference. It is also self evident that the petitioning service providers stand in imminent danger of losing legitimate
business investments in the event the PIATCO Contracts are upheld.
Over and above all these, constitutional and other legal issues with far-reaching economic and social implications
are embedded in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of
RepresentativesFirst, at stake is the build-operate-and–transfer contract of the country’s premier international airport with a
projected capacity of 10 million passengers a year. Second, the huge amount of investment to complete the project is
estimated to be P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and
interpretation of the Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in
previous cases. They can chart the future inflow of investment under the BOT Law.
The Court notes the bid of new parties to participate in the cases at bar as respondents-intervenors, namely, (1) the
PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors). After the Court’s Decision, the New
Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging prejudice and direct injury.
PIATCO employees claim that “they have a direct and personal interest [in the controversy]... since they stand to lose their jobs
should the government’s contract with PIATCO be declared null and void.” NMTAI, on the other hand, represents itself as a
corporation composed of responsible tax-paying Filipino citizens with the objective of “protecting and sustaining the rights of
its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good, conscientious and honest
government.”
The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to
Intervene should be filed “before rendition of judgment....” The New Respondents-Intervenors filed their separate motions after
a decision has been promulgated in the present cases. They have not offered any worthy explanation to justify their late
intervention. Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to
await litigants who sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel
arguments.
VOID/ INEXISTENT CONTRACTS: WHO MAY BRING ACTION FOR
DECLARATION OF NULLITY
SENATOR ROBERT S. JAWORSKI, petitioner, vs. PHILIPPINE AMUSEMENT
AND GAMING CORPORATION and SPORTS AND GAMES ENTERTAINMENT
CORPORATION, respondents
2004 Jan 14
G.R. No. 144463
FACTS:
 On March 31, 1998, PAGCOR’s board of directors approved an instrument of the government there must be an unmistakable showing that the challenged
denominated as “Grant of Authority and Agreement for the Operation of Sports official act affects or impairs his rights and prerogatives as legislator. However
Betting and Internet Gaming”, which granted SAGE the authority to operate and in a number of cases, the Court clarified that where a case involves an issue of
maintain Sports Betting station in PAGCOR’s casino locations, and Internet utmost importance, or one of overreaching significance to society, the Court, in
Gaming facilities to service local and international bettors, provided that to the its discretion, can brush aside procedural technicalities and take cognizance of
satisfaction of PAGCOR, appropriate safeguards and procedures are established the petition. Considering that the instant petition involves legal questions that
to ensure the integrity and fairness of the games. may have serious implications on public interests, petitioner has the requisite
legal standing to file this petition.
Petitioner, in his capacity as member of the Senate and Chairman of the
Senate Committee on Games, Amusement and Sports, files the instant petition, The instant petition is GRANTED. The “Grant of Authority and Agreement
praying that the grant of authority by PAGCOR in favor of SAGE be nullified. He to Operate Sports Betting and Internet Gaming” executed by PAGCOR in favor of
maintains that PAGCOR committed grave abuse of discretion amounting to lack SAGE is declared NULL and VOID.
or excess of jurisdiction when it authorized SAGE to operate gambling on the
internet. He contends that PAGCOR is not authorized under its legislative
franchise, P.D. 1869, to operate gambling on the internet for the simple reason
that the said decree could not have possibly contemplated internet gambling PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE
since at the time of its enactment on July 11, 1983 the internet was yet PARTY IS INNOCENT / DISADVANTAGED
inexistent and gambling activities were confined exclusively to real-space.
Further, he argues that the internet, being an international network of 1. INFORMATION TECH. FOUNDATION VS. COMELEC, JAN. 13,
computers, necessarily transcends the territorial jurisdiction of the Philippines, 2004
and the grant to SAGE of authority to operate internet gambling contravenes the 2. PABUGAIS VS. SAHIJWANI, 423 SCRA 596
limitation in PAGCOR’s franchise, under Section 14 of P.D. No. 1869. According 3. LIGUEZ VS. CA, 102 PHIL 577
to petitioner, internet gambling does not fall under any of the categories of the 4. PHILBANK VS. LUI SHE, 21 SCRA 52
authorized gambling activities enumerated under Section 10 of P.D. No. 1869 5. EPG CONSTRUCTION VS. VIGILAR, 354 SCRA 566
which grants PAGCOR the “right, privilege and authority to operate and maintain 6. GO CHAN VS. YOUNG, 354 SCRA 566
gambling casinos, clubs, and other recreation or amusement places, sports 7. FRANCISCO VS. HERRERA, 392 SCRA 317
gaming pools, within the territorial jurisdiction of the Republic of the Philippines.” 8. MENDEZONA VS. OZAMIZ, 376 SCRA 482

Respondents argue that petitioner does not have the requisite personal
and substantial interest to impugn the validity of PAGCOR’s grant of authority to
SAGE.
ISSUE:
Whether or not the petitioner has legal standing to file the instant petition
as a concerned citizen or as a member of the Philippine Senate.
RULING:
Objections to the legal standing of a member of the Senate or House of
Representative to maintain a suit and assail the constitutionality or validity of
laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities are not without precedent. Ordinarily, before a member of
Congress may properly challenge the validity of an official act of any department
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES
VS. COMMISSION ON ELECTIONS
2004 Jan 13
G.R. No. 159139
FACTS:
On June 7, 1995, Congress passed Republic Act 8046, which authorized
Comelec to conduct a nationwide demonstration of a computerized election
system and allowed the poll body to pilot-test the system in the March 1996
elections in the Autonomous Region in Muslim Mindanao (ARMM). On December
22, 1997, Congress enacted Republic Act 8436authorizing Comelec to use an
automated election system (AES) for the process of voting, counting votes and
canvassing/consolidating the results of the national and local elections. It also
mandated the poll body to acquire automated counting machines (ACMs),
computer equipment, devices and materials; and to adopt new electoral forms
and printing materials.
Initially intending to implement the automation during the May 11, 1998
presidential elections, Comelec eventually decided against full national
implementation and limited the automation to the Autonomous Region in Muslim
Mindanao (ARMM). However, due to the failure of the machines to read correctly
some automated ballots in one town, the poll body later ordered their manual
count for the entire Province of Sulu.
In the May 2001 elections, the counting and canvassing of votes for both
national and local positions were also done manually, as no additional ACMs had
been acquired for that electoral exercise allegedly because of time constraints.
On October 29, 2002, Comelec adopted in its Resolution 02-0170 a
modernization program for the 2004 elections. It resolved to conduct biddings
for the three (3) phases of its Automated Election System; namely, Phase I -
Voter Registration and Validation System; Phase II - Automated Counting and
Canvassing System; and Phase III - Electronic Transmission.
On January 24, 2003, President Macapagal-Arroyo issued EO No. 172,
which allocated the sum of P2.5 billion to fund the AES for the May 10, 2004
elections. Upon the request of Comelec, she authorized the release of an
additional P500 million.
On January 28, 2003, the Commission issued an “Invitation to Apply for
Eligibility and to Bid.
On February 17, 2003, the poll body released the Request for Proposal
(RFP) to procure the election automation machines. The Bids and Awards
Committee (BAC) of Comelec convened a pre-bid conference on February 18,
2003 and gave prospective bidders until March 10, 2003 to submit their
respective bids.
Among others, the RFP provided that bids from manufacturers, suppliers
and/or distributors forming themselves into a joint venture may be entertained,
provided that the Philippine ownership thereof shall be at least 60 percent. Joint
venture is defined in the RFP as “a group of two or more manufacturers,
suppliers and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract.” Basically, the public bidding was to be conducted
under a two-envelope/two stage system. The bidder’s first envelope or the
Eligibility Envelope should establish the bidder’s eligibility to bid and its
qualifications to perform the acts if accepted. On the other hand, the second
envelope would be the Bid Envelope itself.
Out of the 57 bidders, the BAC found MPC and the Total Information
Management Corporation (TIMC) eligible. For technical evaluation, they were
referred to the BAC’s Technical Working Group (TWG) and the Department of
Science and Technology (DOST).
In its Report on the Evaluation of the Technical Proposals on Phase II,
DOST said that both MPC and TIMC had obtained a number of failed marks in the
technical evaluation. Notwithstanding these failures, Comelec en banc, on April
15, 2003, promulgated Resolution No. 6074 awarding the project to MPC. The
Commission publicized this Resolution and the award of the project to MPC on
May 16, 2003.
On May 29, 2003, five individuals and entities (including the herein
Petitioners Information Technology Foundation of the Philippines, represented by
its president, Alfredo M. Torres; and Ma. Corazon Akol) wrote a letter to Comelec
Chairman Benjamin Abalos Sr. They protested the award of the Contract to
Respondent MPC “due to glaring irregularities in the manner in which the bidding
process had been conducted.” Citing therein the noncompliance with eligibility
as well as technical and procedural requirements (many of which have been
discussed at length in the Petition), they sought a re-bidding. However, the
Comelec chairman -- speaking through Atty. Jaime Paz, his head executive
assistant -- rejected the protest and declared that the award “would stand up to
the strictest scrutiny.”
Hence, the present Petition.
ISSUE:
Whether or not the Commission on Elections, the agency vested with the
exclusive constitutional mandate to oversee elections, gravely abused its
discretion when, in the exercise of its administrative functions, it awarded to
MPC the contract for the second phase of the comprehensive Automated Election
System.
RULING:
Yes. There is grave abuse of discretion (1) when an act is done contrary
to the Constitution, the law or jurisprudence; or (2) when it is executed
whimsically, capriciously or arbitrarily out of malice, ill will or personal bias. In
the present case, the Commission on Elections approved the assailed Resolution
and awarded the subject Contract not only in clear violation of law and
jurisprudence, but also in reckless disregard of its own bidding rules and
procedure.
For the automation of the counting and canvassing of the ballots in the
2004 elections, Comelec awarded the Contract to “Mega Pacific Consortium” an
entity that had not participated in the bidding. Despite this grant, the poll body
signed the actual automation Contract with “Mega Pacific eSolutions, Inc.,” a
company that joined the bidding but had not met the eligibility requirements.
Comelec awarded this billion-peso undertaking with inexplicable haste,
without adequately checking and observing mandatory financial, technical and
legal requirements. It also accepted the proferred computer hardware and
software even if, at the time of the award, they had undeniably failed to pass
eight critical requirements designed to safeguard the integrity of elections,
especially the following three items: (a) They failed to achieve the accuracy
rating criteria of 99.9995 percent set-up by the Comelec itself, (b) They were not
able to detect previously downloaded results at various canvassing or
consolidation levels and to prevent these from being inputted again and (c) They
were unable to print the statutorily required audit trails of the count/canvass at
different levels without any loss of data
Because of the foregoing violations of law and the glaring grave abuse of
discretion committed by Comelec, the Court declared null and void the assailed
Resolution and the subject Contract. The illegal, imprudent and hasty actions of
the Commission have not only desecrated legal and jurisprudential norms, but
have also cast serious doubts upon the poll body’s ability and capacity to
conduct automated elections. Truly, the pith and soul of democracy -- credible,
orderly, and peaceful elections -- has been put in jeopardy by the illegal and
gravely abusive acts of Comelec.
The letter-protest is sufficient compliance with the requirement to exhaust
administrative remedies particularly because it hews closely to the procedure
outlined in Section 55 of RA 9184. And even without that May 29, 2003 letter-
protest, the Court still holds that petitioners need not exhaust administrative
remedies in the light of Paat v. Court of Appeals. Paat enumerates the instances
when the rule on exhaustion of administrative remedies may be disregarded, as
follows: “(1) when there is a violation of due process, (2) when the issue involved
is purely a legal question, (3) when the
administrative action is patently illegal amounting to lack or excess of
jurisdiction, (4) when there is estoppel on the part of the administrative
agency concerned, (5) when there is irreparable injury, (6) when the respondent
is a department secretary whose acts as an alter ego of the President bears the
implied and assumed approval of the latter, (7) when to require exhaustion of
administrative remedies would be unreasonable, (8) when it would amount to a
nullification of a claim, (9) when the subject matter is a private land in land case
proceedings, (10) when the rule does not provide a plain, speedy and adequate
remedy, and (11) when there are circumstances indicating the urgency of
judicial intervention.”
The present controversy precisely falls within the exceptions listed as Nos.
“(7) when to require exhaustion of administrative remedies would be
unreasonable; (10) when the rule does not provide a plain, speedy and adequate
remedy, and (11) when there are circumstances indicating the urgency of
judicial intervention.” As already stated, Comelec itself made the exhaustion of
administrative remedies legally impossible or, at the very least, “unreasonable.”
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI
G.R. No. 156846
February 23, 2004
423 SCRA 596
FACTS:
Pursuant to an “Agreement And Undertaking” on December 3, 1993,
petitioner Teddy G. Pabugais, in consideration of the amount of P15,487,500.00,
agreed to sell to respondent Dave P. Sahijwani a lot containing 1,239 square
meters located at Jacaranda Street, North Forbes Park, Makati, Metro Manila.
Respondent paid petitioner the amount of P600,000.00 as option/reservation fee
and the balance of P14,887,500.00 to be paid within 60 days from the execution
of the contract, simultaneous with delivery of the owner’s duplicate Transfer
Certificate of Title in respondent’s name the Deed of Absolute Sale; the
Certificate of Non-Tax Delinquency on real estate taxes and Clearance on
Payment of Association Dues. The parties further agreed that failure on the part
of respondent to pay the balance of the purchase price entitles petitioner to
forfeit the P600,000.00 option/reservation fee; while non-delivery by the latter
of the necessary documents obliges him to return to respondent the said
option/reservation fee with interest at 18% per annum.
Petitioner failed to deliver the required documents. In compliance with
their agreement, he returned to respondent the latter’s P600,000.00
option/reservation fee by way of Far East Bank & Trust Company Check, which
was, however, dishonored.
Petitioner claimed that he twice tendered to respondent, through his
counsel, the amount of P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per annum computed from December 3,
1993 to August 3, 1994) in the form of Far East Bank & Trust Company
Manager’s Check No. 088498, dated August 3, 1994, but said counsel refused to
accept the same. On August 11, 1994, petitioner wrote a letter to respondent
saying that he is consigning the amount tendered with the Regional Trial Court
of Makati City. On August 15, 1994, petitioner filed a complaint for consignation.
Respondent’s counsel, on the other hand, admitted that his office received
petitioner’s letter dated August 5, 1994, but claimed that no check was
appended thereto. He averred that there was no valid tender of payment
because no check was tendered and the computation of the amount to be
tendered was insufficient, because petitioner verbally promised to pay 3%
monthly interest and 25% attorney’s fees as penalty for default, in addition to
the interest of 18% per annum on the P600,000.00 option/reservation fee.
On November 29, 1996, the trial court rendered a decision declaring the
consignation invalid for failure to prove that petitioner tendered payment to
respondent and that the latter refused to receive the same. Petitioner appealed
the decision to the Court of Appeals. Petitioner’s motion to withdraw the amount
consigned was denied by the Court of Appeals and the decision of the trial court
was affirmed.
On a motion for reconsideration, the Court of Appeals declared the
consignation as valid in an Amended Decision dated January 16, 2003. It held
that the validity of the consignation had the effect of extinguishing petitioner’s
obligation to return the option/reservation fee to respondent. Hence, petitioner
can no longer withdraw the same.
Unfazed, petitioner filed the instant petition for review contending that he
can withdraw the amount deposited with the trial court as a matter of right
because at the time he moved for the withdrawal thereof, the Court of Appeals
has yet to rule on the consignation’s validity and the respondent had not yet
accepted the same.
ISSUE:
Whether or not assigning the amount of P672, 900.00 to Atty. De Guzman
is prohibited.
RULING:
The amount consigned with the trial court can no longer be withdrawn by
petitioner because respondent’s prayer in his answer that the amount consigned
be awarded to him is equivalent to an acceptance of the consignation, which has
the effect of extinguishing petitioner’s obligation.
Moreover, petitioner failed to manifest his intention to comply with the
“Agreement And Undertaking” by delivering the necessary documents and the
lot subject of the sale to respondent in exchange for the amount deposited.
Withdrawal of the money consigned would enrich petitioner and unjustly
prejudice respondent.
The withdrawal of the amount deposited in order to pay attorney’s fees to
petitioner’s counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil Code
which forbids lawyers from acquiring by assignment, property and rights which
are the object of any litigation in which they may take part by virtue of their
profession. Furthermore, Rule 10 of the Canons of Professional Ethics provides
that “the lawyer should not purchase any interest in the subject matter of the
litigation which he is conducting.” The assailed transaction falls within the
prohibition because the Deed assigning the amount of P672,900.00 to Atty. De
Guzman, Jr., as part of his attorney’s fees was executed during the pendency of
this case with the Court of Appeals. In his Motion to Intervene, Atty. De Guzman,
Jr., not only asserted ownership over said amount, but likewise prayed that the
same be released to him. That petitioner knowingly and voluntarily assigned the
subject amount to his counsel did not remove their agreement within the ambit
of the prohibitory provisions. To grant the withdrawal would be to sanction a
void contract.
WHEREFORE, in view of all the foregoing, the instant petition for review is
DENIED.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
 LIGUEZ VS. COURT OF APPEALS
102 PHIL 577
FACTS:
Petitioner filed a complaint for the recovery of parcel of land against the
widow and heirs of Salvador Lopez. Petitioner averred that he is the owner of the
aforementioned parcel of land pursuant to a Deed of Donation executed in her
favor by the late owner, Salvador Lopez. The defense interposed that the
donation was null and void for having illicit cause or consideration which was the
petitioner’s entering into a marital relations with Salvador, a married man, and
that the property had been adjudicated to the appellees as heirs of Salvador
Lopez by the Court of First Instance.
Meanwhile, the Court of Appeals found that the Deed of Donation was
prepared by a Justice of Peace and was ratified and signed when petitioner
Liquez was still a minor, 16 years of age. It was the ascertainment of the Court of
Appeals that the donated land belonged to the conjugal partnership of Salvador
and his wife and that the Deed of Donation was never recorded. Hence, the
Court of Appeals held that the Deed of Donation was inoperative and null and
void because the donation was tainted with illegal cause or consideration.
ISSUE:
Whether or not the Deed of Donation is void for having illicit cause or
consideration.
RULING:
NO. Under Article 1279 of the Civil Code of 1989, which was the
governing law during the execution of the Deed of Donation, the liberality of the
donor is deemed cover only in those contracts that are pure beneficence. In
these contracts, the idea of self interest is totally absent in the part of the
transferee. Here, the facts as found demonstrated that in making the donation,
Salvador Lopez was not moved exclusively by the desire to benefit the petitioner
but also to secure her cohabiting with him. Petitioner seeks to differentiate
between the liberality of Lopez as cause and his desire as a motive. However,
motive may be regarded as cause when it predetermined the purpose of the
contract. The Court of Appeals rejected the claim of petitioner on the ground on
the rule on pari delicto embodied in Article 1912 of the Civil Code. However, this
rule cannot be applied in the case because it cannot be said that both parties
had equal guilt where petitioner was a mere minor when the donation was made
and that it was not shown that she was fully aware of the terms of the said
donation.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
PHILBANK VS. LUI SHE
21 SCRA 52
FACTS:
Justinia Santos was the owner of the property where a restaurant owned
by Weng Heng is located. Being 90 years of age, without any surviving relatives,
delivered to Weng being closed to her then, various sum of money for
safekeeping. Subsequently, she executed a contract of lease in favor of Weng
for a period of 50 years. However, the lessee was given the right to withdraw at
any time from the agreement. Subsequently, she again executed another
contract giving Weng the option to buy the premises. The option was
conditioned on Weng’s obtaining a Filipino citizenship, which however, Weng
failed to obtain. After which, Justinia again executed two other contracts,
extending the term of the lease to 99 years and another fixing the term of the
option to 50 years. However, a year later, she filed a complaint before the trial
court alleging that the various contracts were executed by her because of
machination, and inducement practiced by Weng, thereby she directed her
executor to secure the annulment of the contract.
ISSUE:
Whether or not the various contracts were void.
RULING:
Article 1308 of the Civil Code creates no impediment to the insertion in a
contract of a resolutory condition permitting the cancellation of the contract by
one of the parties. Such a stipulation does not make either the validity or the
fulfillment of the contract dependent upon the will of the party to whom It
conceded the privilege of the cancellation.
In the case, the lease for an alien for a reasonable period is valid. So is
the option giving the alien the right to buy the real property subject to the
condition that he must obtain Filipino citizenship. Since alien’s residence in the
Philippines is temporary, they may be grated temporary rights such as a lease
contract which is not forbidden. However, if the alien is given not only the lease
of, but also the option to buy a piece of land by virtue of which the Filipino owner
cannot sell, or otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership. As such,
the constitutional ban against alien landholding is in grave peril.
However, it does not follow that because the parties are in pari delicto,
they will be left where they are without relief. Article 1416 of the Civil Code
provides an exception when the agreement is not illegal per se but is merely
prohibited, and the prohibition by law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he had paid
on delivery.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
EPG CONSTRUCTION VS. VIGILAR
259 SCRA 566
FACTS:
In 1989, the Ministry of Human Settlement through the BLISS
Development Corporation, initiated a housing project on a government property.
For this purpose, the MHS entered into a Memorandum of Agreement (MOA)
with the Ministry of Public Works (MPWH) and Highway where the latter
undertook to develop the housing site and construct therein 145 housing units.
By virtue of the MOA, the MPWH forged individual contracts with petitioners for
the construction of the housing units. Under the contracts, the scope of
construction covered only 2/3 of each housing unit. After complying, the MPWH
undersecretary made a verbal request for the additional construction, for the
completion of the housing units, which the petitioner agreed.
Subsequently, petitioner received payment for the construction work duly
covered by the individual contracts, however, the amount covering the
additional contracts were unpaid. The petitioner then sent a demand letter. The
MPWH assistant secretary averred that the money claim should be based on
quantum meruit to be forwarded to the COA. The amount of money was finally
released, however, the MPWH secretary denied the subject money claim, which
prompted the petitioner to file a case before the RTC. However, the trial court
dismissed the case.
ISSUE:
Whether or not the petitioner has the right to be compensated for the
public works housing project by virtue of the implied contract which was verbally
executed.
RULING:
YES, the petitioner has the right to be compensated for the additional
construction applying the principle of quantum meruit. Notably, the peculiar
circumstances present in the instant case buttress petitioner’s claim for
compensation for the additional construction, despite the illegality and void
nature of the “implied contracts” forged between the MPWH and petitioners. In
this matter, it is bear stressing that, the illegality of the subject contracts
proceeds from the express declaration or prohibition of the law, and not for any
intrinsic illegality. Stated differently, the subject contracts are not illegal per se.
The Court cannot sanction an injustice so patent on its face and allow
itself to be an instrument in the perpetration thereof. Justice and equity
demands that the State’s cloak of invincibility against suit be shred in this
particular case and that the petitioners-contractors be duly compensated, on the
basis of quantum meruit, for the construction done on the public housing project.
Petition is granted. Accordingly, the Commission on Audit is hereby
directed to determine as ascertain with dispatch the total compensation due
petitioners for the additional constructions on the housing project and to allow
payment thereof.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
GO CHAN VS. YOUNG
354 SCRA 201
FACTS:
Gochan Realty was registered with the Security and Exchange
Commission with Felix Gochan Sr., Maria Tiong, Pedro Gochan, Tomasa Gochan,
Esteban Gochan and Crispo Gochan as its incorporators. Later, Felix Gochan
Sr.’s daughter, Alice, mother of herein respondents, inherited 50 shares of stocks
in Gochan Realty from the former. Alice subsequently died leaving the 50 shares
to her husband, John Young Sr. Sometime in 1962, the RTC adjudicated 6/14 of
these shares to her children. When her children, herein respondents, reached
the age of majority, their father requested Gochan Realty to partition the shares
of his late wife by canceling the stock certificate in his name and issuing, in lieu
thereof, a new stock certificate in favor of his children. The Realty however,
refused.
Meanwhile, fifteen years later, Cecilia Uy and Miguel Uy filed a complaint
with the SEC for issuance of shares of stocks to the rightful owners, nullification
of shares of stock, reconveyance of the property impressed with trust and
damages. The petitioners moved to dismiss the complaint. The SEC thereafter
held that the Youngs were not shown to have been stockholders stock holders of
Gochan Realty to confer them with the legal capacity to bring and maintain their
action. That is why the case cannot be considered as an intra-corporate
controversy within the jurisdiction of the Commission. The Court of Appeals, on
appeal, held that the SEC had no jurisdiction over the case as far as the heirs of
Alice Gochan were concerned; however, it upheld the capacity of Cecilia Gochan
Uy and her spouse, Miguel Uy.
ISSUE:
Whether or not the spouses Uy have personality to file the suit before the
Security and Exchange Commission.
RULING:
YES, the spouses have the personality. As a general rule, the jurisdiction
of a court or tribunal over the subject matter is determined by the allegation in
the complaint. The spouse averment in the complaint that the purchase of her
stocks by the corporation was null and void ab initio was deemed admitted. It is
elementary that a void contract produces no effect either against or in favor of
anyone; it cannot create, modify or extinguish the juridical relations to where it
attaches. Thus, Cecilia remains a stockholder of the corporation in view of the
nullity of the contract of sale. Although she was no longer registered as a stock
holder in the corporate record, the admitted allegation in the complaint made
her still a bona fide stock holder of the corporation.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
FRANCISCO VS. HERRERA
392 SCRA 317
FACTS:
Eligio Herrera Sr. was the owner of 2 parcels of land located in Cainta,
Rizal. On January 3, 1991, petitioner Julian Francisco bought from Herrera the
first parcel of land covered by tax Declaration No. 01-00495 for P1M pain in
installments from November 30, 1990 to August 10, 1991. Eventually, Francisco
bought the second parcel of land covered by TD No. 01-00497 for P750T.
Thereafter, the children of Eligio Sr. tried to negotiate with petitioner to
increase the purchase price contending that it was grossly inadequate. When
petitioner refused, respondent Pastor Herrera, son of Eligio, filed a complaint for
annulment of sale. He claimed ownership over the second parcel of land
allegedly by virtue of a sale in his favor since 1973. Moreover, he claimed that
the first lot was subject to co-ownership of the surviving heirs of his parents
before the alleged sale to Francisco. Ultimately, Pastor alleged that the sale of
the 2 parcels of land was null and void on the ground that at the time of sale,
Eligio Sr. was already incapacitated to give consent to a contract because of
Senile Dementia which is characterized by deteriorating mental and physical
condition including loss of memory.
At variance, Francisco alleged that respondent was estopped from
assailing the sale of the lots because respondent had effectively ratified both
sales by receiving the consideration offered in each transaction.
On November 14, 1994, the trial court declared the Deeds of Sale null and
void. Francisco was ordered to return the lots in question including all
improvements. Concomitantly, Herrera was ordered to return the purchase price
of the lots sold.
ISSUE:
Whether or not the assailed contracts of sale are void or merely voidable
and hence capable of being ratified.
RULING:
YES, the Supreme Court ruled that the contracts are merely voidable or
annullable. Note that Article 1390 of the Civil Code specifically provides that
when an insane or demented person enters into a contract, the legal effect is
that the contract is voidable, not void or inexistent per se. Therefore, the
contracts of sale entered into by Eligio Sr. are valid and binding unless annulled
through a proper action filed in court seasonably. Furthermore, the questioned
annullable contract was rendered perfectly valid in this case because of
respondent’s acts of ratification. He actually received the payments on behalf of
his father further manifesting that he was agreeable to the contracts. Similarly,
respondent’s previous negotiation for an increase in the price bolster that indeed
there was ratification of what he himself questions as a void contract.
PROHIBITED CONTRACTS: EFFECTS AND REMEDIES IN CASE ONE PARTY
IS INNOCENT / DISADVANTAGED
MENDEZONA VS. OZAMIZ
376 SCRA 482
2002 Feb 6
FACTS:
A civil case for quieting of title was instituted on September 25, 1991 by
petitioner spouses Mendezona as plaintiffs.
In their complaint, the petitioners, as plaintiffs therein, alleged that
petitioner spouses own a parcel of land each with almost similar areas covered
and described in Transfer Certificates of Title (TCT). The petitioners ultimately
traced their titles of ownership over their respective properties from a notarized
Deed of Absolute Sale dated April 28, 1989 executed in their favor by Carmen
Ozamiz for and in consideration of the sum of One Million Forty Thousand Pesos
(P1,040,000.00).
The petitioners initiated the suit to remove a cloud on their said
respective titles caused by the inscription thereon of a notice of lis pendens,
which came about as a result of an incident in a Special Proceeding of the RTC.
This Special Proceeding is a proceeding for guardianship over the person and
properties of Carmen Ozamiz.
In the course of the guardianship proceeding, the petitioners and the
oppositors thereto agreed that Carmen Ozamiz needed a guardian over her
person and her properties, and thus respondent Montalvan was designated as
guardian over the person of Carmen Ozamiz while petitioner Mendezona,
respondents Roberto J. Montalvan and Julio H. Ozamiz were designated as joint
guardians over the properties of the said ward.
The respondents opposed the petitioners’ claim of ownership of the Lahug
property and alleged that the titles issued in the petitioners names are defective
and illegal, and the ownership of the said property was acquired in bad faith and
without value inasmuch as the consideration for the sale is grossly inadequate
and unconscionable. Respondents further alleged that at the time of the sale on
April 28, 1989 Carmen Ozamiz was already ailing and not in full possession of
her mental faculties; and that her properties having been placed in
administration, she was in effect incapacitated to contract with petitioners.
Trial on the merits ensued and the lower court ruled in favor of
petitioners. The appellate court reversed the factual findings of the trial court
and ruled that the Deed of Absolute Sale dated April 28, 1989 was a simulated
contract since the petitioners failed to prove that the consideration was actually
paid, and, furthermore, that at the time of the execution of the contract the
mental faculties of Carmen Ozamiz were already seriously impaired. Thus, the
appellate court declared that the Deed of Absolute Sale of April 28, 1989 is null
and void. It ordered the cancellation of the certificates of title issued in the
petitioners’ names and directed the issuance of new certificates of title in favor
of Carmen Ozamiz or her estate. The motion for reconsideration was denied.
ISSUE:
Whether or not the CA erred in ruling that the Deed of Absolute Sale dated
on April 28, 1989 was a Simulated Contract.
RULING:
YES. Simulation is defined as "the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce, for the
purposes of deception, the appearances of a juridical act which does not exist or
is different from what that which was really executed." The requisites of
simulation are: (a) an outward declaration of will different from the will of the
parties; (b) the false appearance must have been intended by mutual
agreement; and (c) the purpose is to deceive third persons. None of these were
clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a simulated
contract cannot be inferred from the mere non-production of the checks. It was
not the burden of the petitioners to prove so. It is significant to note that the
Deed of Absolute Sale dated April 28, 1989 is a notarized document duly
acknowledged before a notary public. As such, it has in its favor the
presumption of regularity, and it carries the evidentiary weight conferred upon it
with respect to its due execution.
It is admissible in evidence without further proof of its authenticity and is
entitled to full faith and credit upon its face.
 Payment is not merely presumed from the fact that the notarized Deed of
Absolute Sale dated April 28, 1989 has gone through the regular procedure as
evidenced by the transfer certificates of title issued in petitioners’ names by the
Register of Deeds.
Considering that Carmen Ozamiz acknowledged, on the face of the
notarized deed, that she received the consideration at One Million Forty
Thousand Pesos (P1,040,000.00), the appellate court should not have placed too
much emphasis on the checks, the presentation of which is not really necessary.
Besides, the burden to prove alleged non-payment of the consideration of the
sale was on the respondents, not on the petitioners. Also, between its conclusion
based on inconsistent oral testimonies and a duly notarized document that
enjoys presumption of regularity, the appellate court should have given more
weight to the latter. Spoken words could be notoriously unreliable as against a
written document that speaks a uniform language.
It has been held that a person is not incapacitated to contract merely
because of advanced years or by reason of physical infirmities. Only when such
age or infirmities impair her mental faculties to such extent as to prevent her
from properly, intelligently, and fairly protecting her property rights, is she
considered incapacitated. The respondents utterly failed to show adequate proof
that at the time of the sale on April 28, 1989 Carmen Ozamiz had allegedly lost
control of her mental faculties.
A person is presumed to be of sound mind at any particular time and the
condition is presumed to continue to exist, in the absence of proof to the
contrary. Competency and freedom from undue influence, shown to have existed
in the other acts done or contracts executed, are presumed to continue until the
contrary is shown.
WHEREFORE, the instant petition is hereby GRANTED and the assailed
Decision and Resolution of the Court of Appeals are hereby REVERSED and SET
ASIDE. The Decision dated September 23, 1992 of the Regional Trial Court of
Cebu City, Branch 6, in Civil Case No. CEB-10766 is REINSTATED. No
pronouncement as to costs.
NATURAL OBLIGATIONS: KINDS (1424-1430)
1. MANZANILLA VS. CA, MARCH 15, 1990
2. RURAL BANK OF PARAÑAQUE VS. REMOLADO, MARCH 18,
1985
MANZANILLA VS. COURT OF APPEALS
183 SCRA 207
FACTS:
In 1963, spouses Celedonio and Dolores Manzanilla sold on installment an
undivided one-half portion of their residential house and lot. At the time of the
sale, the said property was mortgaged to the Government Service Insurance
System (GSIS), which fact was known to the vendees, spouses Magdaleno and
Justina Campo. The Campo spouses took possession of the premises upon
payment of the first installment. Some payments were made to petitioners while
some were made directly to GSIS.
On May 17, 1965, the GSIS filed its application to foreclose the mortgage
on the property for failure of the Manzanilla spouses to pay their monthly
amortizations.
On October 11, 1965, the property was sold at public auction where GSIS
was the highest bidder.
Two months before the expiration of the period to redeem or on August
31, 1966, the Manzanilla spouses executed a Deed of Absolute Sale of the
undivided one half portion of their property in favor of the Campo spouses.
Upon the expiration of the period to redeem without the Manzanilla
spouses exercising their right of redemption, title to the property was
consolidated in favor of the GSIS and a new title issued in its name.
In January 1969, the Manzanilla spouses made representations and
succeeded in re-acquiring the property form the GSIS. Upon full payment of the
purchase price, an Absolute Deed Of Sale was executed by GSIS in favor of the
Manzanilla spouses.
On May 14, 1973, the Manzanilla spouses mortgaged the property to the
Biñan Rural Bank. On September 7, 1973, petitioner Ines Carpio purchased the
property from the Manzanilla spouses and agreed to assume the mortgage in
favor of Biñan Rural Bank.
On November 12, 1973, private respondent Justina Campo registered her
adverse claim over the said lot.

On October 3, 1977, petitioner Carpio filed an ejectment case against
private respondent Justina Campo.
On July 31, 1979, private respondent Justina Campo (already a widow)
filed a complaint for quieting of title against the Manzanilla spouses and Ines
Carpio praying among others, for the issuance to her of a certificate of title over
the undivided one-half portion of the property.
The trial court rendered its decision in favor of Campo. The decision was
appealed by petitioners to the Court of Appeals; however it only affirmed the
decision of the trial court. Petitioners’ Motion for reconsideration was denied.
ISSUE:
Whether or not petitioners are under any legal duty to reconvey the
undivided one-half portion of the property to private respondent Justina Campo.
RULING:
NO, there may be a moral duty on the part of petitioners to convey the
one-half portion of the property previously sold to private respondent. However,
they are under no legal obligation to do so. Hence, the action to quiet title filed
by private respondent must fail.
NATURAL OBLIGATIONS: KINDS (1424-1430)
RURAL BANK OF PARAÑAQUE, INC., petitioner,
VS. ISIDRA REMOLADO and COURT OF APPEALS, respondents
1985 March 18
FACTS:
This case is about the repurchase of mortgaged property after the period
of redemption had expired. Isidra Remolado, 64, a widow, and resident of
Makati, Rizal, owned a lot with an area of 308 square meters, with a bungalow
thereon, which was leased to Beatriz Cabagnot. In 1966 she mortgaged it to the
Rural Bank of Parañaque, Inc. as security for a loan of P15,000. She paid the
loan. On April 17, 1971 she mortgaged it again to the bank. She eventually
secured loans totalling P18,000. The loans become overdue. The bank
foreclosed the mortgage on July 21, 1972 and bought the property at the
foreclosure sale for P22,192.70. The one-year, period of redemption was to
expire on August 21, 1973. On August 8, 1973 the bank advised Remolado that
she had until August 23 to redeem the property. On August 9, 1973 or 14 days
before the expiration of the one-year redemption period, the bank gave her a
statement showing that she should pay P25,491.96 for the redemption of the
property on August 23. No redemption was made on that date. On September
3, 1973 the bank consolidated its ownership over the property. Remolado's title
was cancelled. A new title, TCT No. 418737, was issued to the bank on
September 5. On September 24, 1973, the bank gave Remolado up to ten
o'clock in the morning of October 31, 1973, or 37 days, within which to
repurchase (not redeem since the period of redemption had expired) the
property. The bank did not specify the price.
On October 26, 1973 Remolado and her daughter, Patrocinio Gomez,
promised to pay the bank P33,000 on October 31 for the repurchase of the
property. Contrary to her promise, Remolado did not repurchase the property on
October 31. Five days later, or on November 5, Remolado and her daughter
delivered P33,000 cash to the bank's assistant manager as repurchase price.
The amount was returned to them the next day, November 6, 1973. At that
time, the bank was no longer willing to allow the repurchase. Remolado filed an
action to compel the bank to reconvey the property to her for P25,491.96 plus
interest and other charges and to pay P35,000 as damages. The repurchase
price was not consigned. A notice of lis pendens was registered. On November
15, the bank sold the property to Pilar Aysip for P50,000. A new title was issued
to Aysip with an annotation of lis pendens
The trial court ordered the bank to return the property to Remolado upon
payment of the redemption price of P25,491.96 plus interest and other bank
charges and to pay her P15,000 as damages. The Appellate Court affirmed the
judgment.
ISSUE:
Whether or not the appellate court erred in reconveying the disputed
property to Remolado.
RULING:
Yes. We hold that the trial court and the Appellate Court erred in ordering
the reconveyance of the property. There was no binding agreement for its
repurchase. Even on the assumption that the bank should be bound by its
commitment to allow repurchase on or before October 31, 1973, still Remolado
had no cause of action because she did not repurchase the property on that
date.
Justice is done according to law. As a rule, equity follows the law. There
may be a moral obligation, often regarded as an equitable consideration
(meaning compassion), but if there is no enforceable legal duty, the action must
fail although the disadvantaged party deserves commiseration or sympathy.
The choice between what is legally just and what is morally just, when these two
options do not coincide, is explained by Justice Moreland in Vales vs. Villa, 35
Phil. 769, 788 where he said: "Courts operate not because one person has been
defeated or overcome by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make ridiculous contracts, use
miserable judgment, and lose money by them - indeed, all they have in the
world; but not for that alone can the law intervene and restore. There must be,
in addition, a violation of law, the commission of what the law knows as an
actionable wrong before the courts are authorized to lay hold of the situation
and remedy it."
In the instant case, the bank acted within its legal rights when it refused
to give Remolado any extension to repurchase after October 31, 1973. It had
given her about two years to liquidate her obligation. She failed to do so. Thus,
the Appellate Court's judgment is reversed and set aside.
KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST
1. HUANG VS. CA, 236 SCRA 420
2. VDA. DE ESCONDE VS. CA, 253 SCRA 66
3. ANCOG VS. CA, JUNE 30, 1997
4. MORALES VS. CA, JUNE 19, 1997
5. TALA REALTY VS. BANCO FILIPINO, 392 SCRA 506
SPS. RICARDO AND MILAGROS HUANG, Petitioner,
VS. COURT OF APPEALS,Et. al, Respondents
G.R. No. 108525
September 13, 1994
FACTS:
Private respondents Dolores and Aniceto Sandoval wanted to buy two lots
in Dasmarinas Village, Makati but was allowed to buy only one lot per policy of
the subdivision owner. Private respondents bought Lot 21 and registered it in
their name. Respondents also bought Lot 20 but the deed of sale was in the
name of petitioner Ricardo Huang and registered in his name. Respondents
constructed a house on Lot 21 while petitioners were allowed by respondents to
build a house on Lot 20. Petitioners were also allowed to mortgage the Lot 20 to
the SSS to secure a loan. Respondents actually financed the construction of the
house, the swimming pool, and the fence surrounding the properties on the
understanding that the petitioners would merely hold title in trust for the
respondents’ beneficial interest.
Petitioner Huangs leased the property to Deltron Corporation for its official
quarters without the permission of the respondents. But later, the lessees
prohibited the use of the swimming pool by the respondents, and the Huangs
began challenging the respondents’ ownership of the property. Thus,
respondents filed a complaint before the trial court for the nullification of the
deed of sale to the petitioners and the quieting of title of Lot 20.
The trial court found that the respondents were the real owners of the Lot
20 and therefore ordered the petitioners to vacate the property and to remit to
the respondents the rentals earned from Lot 20. The Court of Appeals affirmed
the lower court’s decision. Hence, the instant recourse.
ISSUE:
Whether or not petitioners can claim ownership of the property registered
in their name but for which was paid by the respondents.
RULING:
No. Respondent Sandoval provided the money for the purchase of Lot 20
but the corresponding deed of sale and transfer certificate of title were placed in
the name of petitioner Huang. Through this transaction, a resulting trust was
created. Petitioner became the trustee of Lot 20 and its improvements for the
benefit of respondent as owner. Article 1448 of the New Civil Code provides that
there is an implied trust when property is sold and the legal estate is granted to
one party but the price is paid by another for the purpose of having the
beneficial interest for the property. A resulting trust arises because of the
presumption the he who pays for a thing intends a beneficial therein for himself.
Given these provisions of law, petitioner was only a trustee of the property
in question for the benefit of the respondent who is the real owner. Therefore,
petitioner cannot claim ownership of the property even when it was registered in
his name. Thus, petition is denied. The decision of the trial court as sustained
by the Court of Appeals is affirmed, with costs against petitioners.
KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST
 CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE
PERALTA, ELENITA ESCONDE and BENJAMIN ESCONDE, petitioners,
VS. HONORABLE COURT OF APPEALS and PEDRO ESCONDE,
respondents
1996 February 01
G.R. No. 103635
FACTS:
Petitioners Constancia, Benjamin and Elenita, and private respondent
Pedro, are the children of the late Eulogio Esconde and petitioner Catalina Buan.
Eulogio Esconde was one of the children and heirs of Andres Esconde. Andres is
the brother of Estanislao Esconde, the original owner of the disputed lot who
died without issue on April 1942. Survived by his only brother, Andres, Estanislao
left an estate consisting of four (4) parcels of land in Samal, Bataan.
Eulogio died in April, 1944 survived by petitioners and private respondent.
At that time, Lazara and Ciriaca, Eulogio's sisters, had already died without
having partitioned the estate of the late Estanislao Esconde.
On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio executed a
deed of extrajudicial partition, with the heirs of Lazara identified therein as the
Party of the First Part, that of Ciriaca, the Party of the Second Part and that of
Eulogio, the Party of the Third Part. Since the children of Eulogio, with the
exception of Constancia, were then all minors, they were represented by their
mother and judicial guardian, petitioner Catalina Buan vda. de Esconde who
renounced and waived her usufructuary rights over the parcels of land in favor of
her children in the same deed. The deed bears the thumbmark of Catalina Buan
and the signature of Constancia Esconde, as well as the approval and signature
of Judge Basilio Bautista.
Pursuant to the same deed, transfer certificates of title were issued to the
new owners of the properties. Transfer Certificate of Title No. 394 for Lot No.
1700 was issued on February 11, 1947 in the name of private respondent but
Catalina kept it in her possession until she delivered it to him in 1949 when
private respondent got married.
Meanwhile, Benjamin constructed the family home on Lot No. 1698-B
which is adjacent to Lot No. 1700. A portion of the house occupied an area of
twenty (20) square meters, more or less, of Lot No. 1700. Benjamin also built a
concrete fence and a common gate enclosing the two (2) lots, as well as an
artesian well within Lot No. 1700.
Sometime in December, 1982, Benjamin discovered that Lot No. 1700 was
registered in the name of his brother, private respondent. Believing that the lot
was co-owned by all the children of Eulogio Esconde, Benjamin demanded his
share of the lot from private respondent. However, private respondent asserted
exclusive ownership thereof pursuant to the deed of extrajudicial partition and,
in 1985 constructed a "buho" fence to segregate Lot No. 1700 from Lot No.
1698-B.
Hence, on June 29, 1987, petitioners herein filed a complaint before the
Regional Trial Court of Bataan against private respondent for the annulment of
TCT No. 394. They further prayed that private respondent be directed to enter
into a partition agreement with them, and for damages (Civil Case No. 5552).
In its decision of July 31, 1989, the lower court dismissed the complaint
and the counterclaims. It found that the deed of extrajudicial partition was an
unenforceable contract as far as Lot No. 1700 was concerned because petitioner
Catalina Buan vda. de Esconde, as mother and judicial guardian of her children,
exceeded her authority as such in "donating" the lot to private respondent or
waiving the rights thereto of Benjamin and Elenita in favor of private respondent.
Because of the unenforceability of the deed, a trust relationship was created
with private respondent as trustee and Benjamin and Elenita as beneficiaries
However, the lower court ruled that the action had been barred by both
prescription and laches. Lot No. 1700 having been registered in the name of
private respondent on February 11, 1947, the action to annul such title
prescribed within ten (10) years on February 11, 1957 or more than thirty (30)
years before the action was filed on June 29, 1987.
Thus, even if Art. 1963 of the old Civil Code providing for a 30-year
prescriptive period for real actions over immovable properties were to be
applied, still, the action would have prescribed on February 11, 1977. Hence,
petitioners elevated the case to the Court of Appeals which affirmed the lower
court's decision. The appellate court held that the deed of extrajudicial partition
established "an implied trust arising from the mistake of the judicial guardian in
favoring one heir by giving him a bigger share in the hereditary property." It
stressed that "an action for reconveyance based on implied or constructive
trust" prescribes in ten (10) years "counted from the registration of the property
in the sole name of the co-heir."
ISSUE:
 Whether or not the action was already barred with laches and
prescription.
RULING:
Trust is the legal relationship between one person having an equitable
ownership in property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the performance
of certain duties and the exercise of certain powers by the latter. Trusts are
either express or implied. An express trust is created by the direct and positive
acts of the parties, by some writing or deed or will or by words evidencing an
intention to create a trust. No particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended.
On the other hand, implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as matters of intent
or which are superinduced on the transaction by operation of law as matters of
equity, independently of the particular intention of the parties. In turn, implied
trusts are either resulting or constructive trusts. These two are differentiated
from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest and are
presumed always to have been contemplated by the parties. They arise from the
nature or circumstances of the consideration involved in a transaction whereby
one person thereby becomes invested with legal title but is obligated in equity to
hold his legal title for the benefit of another. On the other hand, constructive
trusts are created by the construction of equity in order to satisfy the demands
of justice and prevent unjust enrichment. They arise contrary to intention
against one who, by fraud, duress or abuse of confidence, obtains or holds the
legal right to property which he ought not, in equity and good conscience, to
hold.
While the deed of extrajudicial partition and the registration of Lot No.
1700 occurred in 1947 when the Code of Civil Procedure or Act No. 190 was yet
in force, the Supreme Court held that the trial court correctly applied Article
1456.
A deeper analysis of Article 1456 reveals that it is not a trust in the
technical sense for in a typical trust, confidence is reposed in one person who is
named a trustee for the benefit of another who is called the cestui que trust,
respecting property which is held by the trustee for the benefit of the cestui que
trust. A constructive trust, unlike an express trust, does not emanate from, or
generate a fiduciary relation. While in an express trust, a beneficiary and a
trustee are linked by confidential or fiduciary relations, in a constructive trust,
there is neither a promise nor any fiduciary relation to speak of and the so-called
trustee neither accepts any trust nor intends holding the property for the
beneficiary.
In the case at bench, petitioner Catalina Buan vda. de Esconde, as mother
and legal guardian of her children, appears to have favored her elder son,
private respondent, in allowing that he be given Lot No. 1700 in its entirety in
the extrajudicial partition of the Esconde estate to the prejudice of her other
children. Although it does not appear on record whether Catalina intentionally
granted private respondent that privileged bestowal, the fact is that, said lot was
registered in private respondent's name. After TCT No. 394 was handed to him
by his mother, private respondent exercised exclusive rights of ownership
therein to the extent of even mortgaging the lot when he needed money.
If, as petitioners insist, a mistake was committed in allotting Lot No. 1700
to private respondent, then a trust relationship was created between them and
private respondent. However, private respondent never considered himself a
trustee. If he allowed his brother Benjamin to construct or make improvements
thereon, it appears to have been out of tolerance to a brother.
Consequently, if indeed, by mistake, private respondent was given the
entirety of Lot No. 1700, the trust relationship between him and petitioners was
a constructive, not resulting, implied trust. Petitioners, therefore, correctly
questioned private respondent's exercise of absolute ownership over the
property. Unfortunately, however, petitioners assailed it long after their right to
do so had prescribed.
The rule that a trustee cannot acquire by prescription ownership over
property entrusted to him until and unless he repudiates the trust, applies to
express trusts and resulting implied trusts. However, in constructive implied
trusts, prescription may supervene even if the trustee does not repudiate the
relationship. Necessarily, repudiation of the said trust is not a condition
precedent to the running of the prescriptive period.
Since the action for the annulment of private respondent's title to Lot No.
1700 accrued during the effectivity of Act No. 190, Section 40 of Chapter III
thereof applies. It provides: Sec. 40. Period of prescription as to real estate. An
action for recovery of title to, or possession of, real property, or an interest
therein, can only be brought within ten years after the cause of such action
accrues.
Thus, in Heirs of Jose Olviga v. Court of Appeals, the Court ruled that the
ten-year prescriptive period for an action for reconveyance of real property
based on implied or constructive trust which is counted from the date of
registration of the property, applies when the plaintiff is not in possession of the
contested property. In this case, private respondent, not petitioners who
instituted the action, is in actual possession of Lot No. 1700. Having filed their
action only on June 29, 1987, petitioners' action has been barred by prescription.
Not only that. Laches has also circumscribed the action for, whether the implied
trust is constructive or resulting, this doctrine applies. 23 As regards
constructive implied trusts, the Court held in Diaz, et al. v. Gorricho and Aguado
that:
. . . in constructive trusts (that are imposed by law), there is neither promise nor
fiduciary relation; the so-called trustee does not recognize any trust and has no
intent to hold for the beneficiary; therefore, the latter is not justified in delaying
action to recover his property. It is his fault if he delays; hence, he may be
estopped by his own laches.
It is tragic that a land dispute has once again driven a wedge between
brothers. However, credit must be given to petitioner Benjamin Esconde for
resorting to all means possible in arriving at a settlement between him and his
brother in accordance with Article 222 of the Civil Code. Verbally and in two
letters, he demanded that private respondent give him and his sisters their
share in Lot No. 1700. He even reported the matter to the barangay authorities
for which three conferences were held. Unfortunately, his efforts droved
fruitless. Even the action he brought before the court was filed too late.
On the other hand, private respondent should not be unjustly enriched by
the improvements introduced by his brother on Lot No. 1700 which he himself
had tolerated. He is obliged by law to indemnify his brother, petitioner Benjamin
Esconde, for whatever expenses the latter had incurred.
KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST
JOVITA YAP ANCOG, and GREGORIO YAP, JR., petitioners,
VS. COURT OF APPEALS, ROSARIO DIEZ, and CARIDAD YAP, respondents
G.R. No. 112260
June 30, 1997
FACTS:
The land, with improvements thereon, was formerly the conjugal property of the spouses Gregorio Yap and Rosario
Diez. In 1946, Gregorio Yap died, leaving his wife, private respondent Rosario Diez, and children, petitioners Jovita Yap Ancog
and Gregorio Yap, Jr., and private respondent Caridad Yap as his heirs. In 1954 and again 1958, Rosario Diez obtained loans
from the Bank of Calape, secured by a mortgage on the disputed land, which was annotated on its Original Certificate of Title
No. 622. When Rosario Diez applied again for a loan to the bank, offering the land in question as security, the bank’s lawyer,
Atty. Narciso de la Serna, suggested that she submit an extrajudicial settlement covering the disputed land as a means of
facilitating the approval of her application. The suggestion was accepted and on April 4, 1961, Atty. de la Serna prepared an
extrajudicial settlement, which the heirs, with the exception of petitioner Gregorio Yap, Jr., then only 15 years old, signed. As a
result, OCT No. 622 was cancelled and Transfer Certificate of Title No. 3447 (T-2411) was issued on April 13, 1961. On April 14,
1961, upon the execution of a real estate mortgage on the land, the loan was approved by the bank. Rosario Diez exercised
rights of ownership over the land. In 1985, she brought an ejectment suit against petitioner Jovita Yap Ancog’s husband and
son to evict them from the ground floor of the house built on the land for failure to pay rent. Shortly thereafter, petitioner
Jovita Ancog learned that private respondent Rosario Diez had offered the land for sale.Petitioner Ancog immediately informed
her younger brother, petitioner Gregorio Yap, Jr., who was living in Davao, of their mother’s plan to sell the land. On June 6,
1985, they filed this action for partition in the Regional Trial Court of Bohol where it was docketed as Civil Case No. 3094. As
private respondent Caridad Yap was unwilling to join in the action against their mother, Caridad was impleaded as a defendant.
Petitioners alleged that the extrajudicial instrument was simulated and therefore void. They claimed that in signing
the instrument they did not really intend to convey their interests in the property to their mother, but only to enable her to
obtain a loan on the security of the land to cover expenses for Caridad’s school fees and for household repairs. The trial court
rendered judgment dismissing petitioners’ action. It dismissed petitioners’ claim that the extrajudicial settlement was
simulated and held it was voluntarily signed by the parties. Observing that even without the need of having title in her name
Rosario Diez was able to obtain a loan using the land in question as collateral, the court held that the extrajudicial settlement
could not have been simulated for the purpose of enabling her to obtain another loan. Petitioners failed to overcome the
presumptive validity of the extrajudicial settlement as a public instrument.
The court instead found that petitioner Ancog had waived her right to the land, as shown by the fact that on February
28, 1975, petitioner’s husband, Ildefonso Ancog, leased the property from private respondent Diez. Furthermore, when the
spouses Ancog applied for a loan to the Development Bank of the Philippines using the land in question as collateral, they
accepted an appointment from Rosario Diez as the latter’s attorney-in-fact. The court also found that the action for
partition had already prescribed.On appeal, the Court of Appeals upheld the validity of the extrajudicial settlement and
sustained the trial court’s dismissal of the case. The appellate court emphasized that the extrajudicial settlement could not
have been simulated in order to obtain a loan, as the new loan was merely “in addition to” a previous one which private
respondent Diez had been able to obtain even without an extrajudicial settlement. Neither did petitioners adduce evidence to
prove that an extrajudicial settlement was indeed required in order to obtain the additional loan. The appellate court held that
considering petitioner Jovita Yap Ancog’s educational attainment (Master of Arts and Bachelor of Laws), it was improbable that
she would sign the settlement if she did not mean it to be such. Hence, this petition.
ISSUE:
Whether or not the appellate court erred in ruling that petitioner Gregorio Yap, Jr., one of the co-owners of the
litigated property, had lost his rights to the property through prescription or laches.
RULING:
In this case, the trial court and the Court of Appeals found no evidence to show that the extrajudicial settlement was
required to enable private respondent Rosario Diez to obtain a loan from the Bank of Calape. Petitioners merely claimed that
the extrajudicial settlement was demanded by the bank.To the contrary, that the heirs (Jovita Yap Ancog and Caridad Yap)
meant the extrajudicial settlement to be fully effective is shown by the fact that Rosario Diez performed acts of dominion over
the entire land, beginning with its registration, without any objection from them. Instead, petitioner Jovita Ancog agreed to
lease the land from her mother, private respondent Rosario Diez, and accepted from her a special power of attorney to use the
land in question as collateral for a loan she was applying from the DBP. Indeed, it was private respondent Diez who paid the
loan of the Ancogs in order to secure the release of the property from mortgage Petitioner Jovita Yap Ancog contends that she
could not have waived her share in the land because she is landless. For that matter, private respondent Caridad Yap is also
landless, but she signed the agreement. She testified that she did so out of filial devotion to her mother. Thus, what the record
of this case reveals is the intention of Jovita Ancog and Caridad Yap to cede their interest in the land to their mother Rosario
Diez. It is immaterial that they had been initially motivated by a desire to acquire a loan. Under Art. 1082 of the Civil Code,
every act which is intended to put an end to indivision among co-heirs is deemed to be a partition even though it should
purport to be a sale, an exchange, or any other transaction.
 The Supreme Court held that the Court of Appeals erred in ruling that the claim of petitioner Gregorio Yap, Jr. was
barred by laches. In accordance with Rule 74, §1 of the Rules of Court, as he did not take part in the partition, he is not bound
by the settlement. It is uncontroverted that, at the time the extrajudicial settlement was executed, Gregorio Yap, Jr. was a
minor. For this reason, he was not included or even informed of the partition. Instead, the registration of the land in Rosario
Diez’s name created an implied trust in his favor by analogy to Art. 1451 of the Civil Code, which provides: “When land passes
by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication
of law for the benefit of the true owner.” In the case of O’Laco v. Co Cho Chit, Art. 1451 was held as creating a resulting trust,
which is founded on the presumed intention of the parties. As a general rule, it arises where such may be reasonably
presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the
transaction out of which it is sought to be established. In this case, the records disclose that the intention of the parties to the
extrajudicial settlement was to establish a trust in favor of petitioner Yap, Jr. to the extent of his share. Rosario Diez testified
that she did not claim the entire property, while Atty. de la Serna added that the partition only involved the shares of the three
participants.
A cestui que trust may make a claim under a resulting trust within 10 years from the time the trust is repudiated.
Although the registration of the land in private respondent Diez’s name operated as a constructive notice of her claim of
ownership, it cannot be taken as an act of repudiation adverse to petitioner Gregorio Yap, Jr.’s claim, whose share in the
property was precisely not included by the parties in the partition. Indeed, it has not been shown whether he had been
informed of her exclusive claim over the entire property before 1985 when he was notified by petitioner Jovita Yap Ancog of
their mother’s plan to sell the property.This Court has ruled that for prescription to run in favor of the trustee, the trust must be
repudiated by unequivocal acts made known to the cestui que trust and proved by clear and conclusive evidence.
Furthermore, the rule that the prescriptive period should be counted from the date of issuance of the Torrens certificate of title
applies only to the remedy of reconveyance under the Property Registration Decree. Since the action brought by petitioner Yap
to claim his share was brought shortly after he was informed by Jovita Ancog of their mother’s effort to sell the property,
Gregorio Yap, Jr.’s claim cannot be considered barred either by prescription or by laches.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION that this case is REMANDED
to the Regional Trial Court for the determination of the claim of petitioner Gregorio Yap, Jr.
KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST
RODOLFO MORALES, represented by his heirs, and PRISCILA MORALES,
petitioners,
VS. COURT OF APPEALS (Former Seventeenth Division), RANULFO
ORTIZ, JR., and ERLINDA ORTIZ, respondents
Jun 19, 1997
G.R. No. 117228
FACTS:
This is an action for recovery of possession of land and damages with a
prayer for a writ of preliminary mandatory injunction filed by private respondents
herein, spouses Ranulfo Ortiz, Jr. and Erlinda Ortiz, against Rodolfo Morales. The
complaint prayed that private respondents be declared the lawful owners of a
parcel of land and the two-storey residential building standing thereon, and that
Morales be ordered to remove whatever improvements he constructed thereon,
vacate the premises, and pay actual and moral damages, litigation expenses,
attorney's fees and costs of the suit.
Priscila Morales, one of the daughters of late Rosendo Avelino and Juana
Ricaforte, filed a motion to intervene in the case. No opposition thereto having
been filed, the motion was granted on March 4, 1988. On November 30, 1988
Rodolfo Morales passed away. The trial court allowed his substitution by his
heirs, Roda, Rosalia, Cesar and Priscila, all surnamed Morales. The trial court
rendered its decision in favor of plaintiffs, private respondents herein.
Dissatisfied with the trial court's decision, defendants heirs of Rodolfo Morales
and intervenor Priscila Morales, petitioners herein, appealed to the Court of
Appeals which in turn affirmed the decision.
ISSUE:
Whether or not Celso Avelino purchase the land in question from the
Mendiolas as a mere trustee for his parents and siblings.
RULING:
Trusts are either express or implied.
Express trusts are created by the intention of the trustor or of the parties,
while implied trusts come into being by operation of law, either through
implication of an intention to create a trust as a matter of law or through the
imposition of the trust irrespective of, and even contrary to, any such intention.
In turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest and are
presumed always to have been contemplated by the parties. They arise from
the nature or circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another.
On the other hand, constructive trusts are created by the construction of
equity in order to satisfy the demands of justice and prevent unjust enrichment.
They arise contrary to intention against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property which he ought not, in
equity and good conscience, to hold.
In the instant case, petitioners' theory is that Rosendo Avelino owned the
money for the purchase of the property and he requested Celso, his son, to buy
the property allegedly in trust for the former. The fact remains, however, that
title to the property was conveyed to Celso. Accordingly, the situation is
governed by or falls within the exception under the third sentence of Article
1448, “However, if the person to whom the title is conveyed is a child, legitimate
or illegitimate, of the one paying the price of the sale, no trust is implied by law,
it being disputably presumed that there is a gift in favor of the child.”
 The preponderance of evidence, as found by the trial court and affirmed
by the Court of Appeals, established positive acts of Celso Avelino indicating,
without doubt, that he considered the property he purchased from the Mendiolas
as his exclusive property. He had its tax declaration transferred in his name,
caused the property surveyed for him by the Bureau of Lands, and faithfully paid
the realty taxes. Finally, he sold the property to private respondents. The
theory of implied trust with Celso Avelino as the trustor and his parents Rosendo
Avelino and Juan Ricaforte as trustees is not even alleged, expressly or impliedly.
Decision affirmed.
KINDS OF TRUSTS: EXPRESS TRUST VS. IMPLIED TRUST
TALA REALTY SERVICES CORPORATION, petitioner,
VS. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, respondent
2004 Jan 29
G.R. No. 143263
FACTS:
In 1979, Banco Filipino, respondent, had to unload some of its branch sites
since it has reached its allowable limit under Section 25(a) and 34 of Republic
Act 337, as amended, otherwise known as the General Banking Act.
The major stockholders of Banco Filipino formed a corporation known as
TALA Realty Services Corporation, herein petitioner. TALA stands for the names
of Banco Filipino’s four major stockholders, namely, Antonio Tiu, Tomas Aguirre,
Nancy Lim and Pedro Aguirre.
On August 25, 1981, respondent bank executed in favor of petitioner TALA
eleven deeds of sale transferring to the latter its branch sites. In turn, petitioner
leased these branch sites to respondent through separate contracts of lease for
a period of twenty years, renewable for another twenty years, at the option of
respondent, with a monthly rental of P12,000.00 and require respondent bank to
pay petitioner P602,500.00 as advance rentals.
That day, another lease contract was executed by the parties covering
each branch site providing for a period of eleven years, renewable for another
nine years at the option of respondent. And respondent bank was required to
pay P602,500.00 as security deposit for the performance of the terms and
conditions of the contract.
In August 1992, petitioner wrote respondent informing it of the expiration
of the 11-year lease contract. They failed to reach an agreement. Thus, on April
14, 1994, petitioner notified respondent that the lease shall no longer be
renewed and demanded that it vacate the premises and pay the rents in arrears
amounting to P2,057,600.00. Respondent did not heed such demand, prompting
petitioner to file civil case for illegal detainer.
On February 5, 1998, the RTC rendered its Decision dismissing petitioner’s
complaint for ejectment for lack of merit. On appeal via a petition for review,
the Court of Appeals, on July 23, 1999, had dismissed the petition and upholding
the 20-year lease contract between the parties.
ISSUE:
Whether respondent may be ejected from the leased premises for non-
payment of rent.
RULING:
No, the Supreme Court ruled that the parties deliberately circumvented
the real estate investment limit under Sections 25(a) and 34 of the General
Banking Act. Being in pari delicto, they should suffer the consequences of their
deception by denying them any affirmative relief. Equity dictates that Tala
should not be allowed to collect rent from the Bank. Both the Bank and Tala
participated in the deceptive creation of a trust to circumvent the real estate
investment limit under Sections 25(a) and 34 of the General Banking Act.
Upholding Tala’s right to collect rent from the period during which the Bank was
arbitrarily closed would allow Tala to benefit from the illegal ‘warehousing
agreement.’ This would result in the application of the Bank’s advance rentals
covering the eleventh to the twentieth years of the lease, to the rentals due for
the period during which the Bank was arbitrarily closed. With the advance
rentals already used up, and the Bank having stopped payment of the rent on
the thirteenth year of the lease or in April 1994, rentals would be due Tala from
the time the Bank stopped paying rent in April 1994 up to the expiration of the
lease period. The Bank should not be allowed to dispute the sale of its lands to
Tala nor should Tala be allowed to further collect rent from the Bank. The clean
hands doctrine will not allow the creation or the use of a juridical relation such as
a trust to subvert, directly or indirectly, the law. Neither the Bank nor Tala came
to court with clean hands; neither will obtain relief from the court as one who
seeks equity and justice must come to court with clean hands
Thus, the petition is DENIED. The challenged Decision of the Court of
Appeals dated July 23, 1999 and its Resolution dated May 16, 2000, are
REVERSED and SET ASIDE.

IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION
ENFORCE IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
1. HEIRS OF KIONISALA VS. HEIRS OF DACUT, 378 SCRA 206
2. RAMOS VS. RAMOS, 61 SCRA 284
3. INTESTATE ESTATE OF TY VS. CA, 356 SCRA 661
4. VDA. DE RETERTO VS. BARZ, 372 SCRA 712
5. CHIA LIONG TAN VS. CA, 228 SCRA 75
6. O’LACO VS. CO CHO CHIT, 220 SCRA 656
HEIRS OF AMBROCIO KIONISALA, namely, ANA, ISABEL, GRACE, JOVEN
and CARMELO, all surnamed KIONISALA v
VS. HEIRS OF HONORIO DACUT
G.R. No. 147379
February 27, 2002
378 SCRA 206
FACTS:
On 19 December 1995 private respondents filed a complaint for
declaration of nullity of titles, reconveyance and damages against petitioners in
the Regional Trial Court of Manolo Fortich, Bukidnon. This complaint involved 2
parcels of land known as Lot No. 1017 and Lot No. 1015 with areas of 117,744
square meters and 69,974 square meters respectively, located in Pongol, Libona,
Bukidnon. On 7 September 1990 Lot No. 1017 was granted a free patent to
petitioners Heirs of Ambrocio Kionisala under Free Patent No. 603393, and on 13
November 1991 Lot 1015 was bestowed upon Isabel Kionisala, one of the
impleaded heirs of Ambrocio Kionisala under Free Patent No. 101311-91-904.
Thereafter, on 19 November 1990 Lot 1017 was registered under the Torrens
system and was issued Original Certificate of Title No. P-19819 in petitioners’
name, while on 5 December 1991 Lot No. 1015 was registered in the name of
Isabel Kionisala under Original Certificate of Title No. P-20229.
In support of their causes of action for declaration of nullity of titles and
reconveyance, private respondents claimed absolute ownership of Lot 1015 and
1017 even prior to the issuance of the corresponding free patents and
certificates of title.
After the hearing on 3 December 1996 the trial court dismissed the
complaint on the ground that the cause of action of private respondents was
truly for reversion so that only the Director of Lands could have filed the
TO complaint. On 23 December 1996 private respondents moved for
reconsideration of the order of dismissal but on 3 June 1997 the motion was
denied by the trial court.
On 7 June 1997 private respondents appealed the order of dismissal to the
Court of Appeals. On 15 February 2000 the appellate court promulgated its
assailed Decision reversing the order of dismissal. On 7 March 2000 petitioners
moved for reconsideration of the CA Decision. On 22 January 2001 the appellate
court denied the motion for lack of merit, hence this petition for review.
ISSUE:
Whether or not the action for nullity of free patents and certificates of title
of Lot 1015 and Lot 1017 or the action for reconveyance based on implied trust
of the same lots has prescribed.
RULING:
The Supreme Court ruled that neither the action for declaration of nullity
of free patents and certificates of title of Lot 1015 and Lot 1017 nor the action
for reconveyance based on an implied trust of the same lots has prescribed. It
ruled that “a free patent issued over private land is null and void, and produces
no legal effects whatsoever. Moreover, private respondents’ claim of open,
public, peaceful, continuous and adverse possession of the 2 parcels of land and
its illegal inclusion in the free patents of petitioners and in their original
certificates of title also amounts to an action for quieting of title which is
imprescriptible.
The action for reconveyance based on implied trust, on the other hand,
prescribes only after 10 years from 1990 and 1991 when the free patents and
the certificates of title over Lot 1017 and Lot 1015, respectively, were registered.
Obviously the action had not prescribed when private respondents filed
their complaint against petitioners on 19 December 1995. At any rate, the
action for reconveyance in the case at bar is also significantly deemed to be an
action to quiet title for purposes of determining the prescriptive period on
account of private respondents’ allegations of actual possession of the disputed
lots. In such a case, the cause of action is truly imprescriptible.
 Wherefore, the instant petition for review is denied.
IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE
IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
RAMOS VS. RAMOS
61 SCRA 284
FACTS:
Spouses Martin Ramos and Candida Tanate died on October 4, 1906 and
October 26, 1880, respectively. They were survived by their 3 children.
Moreover, Martin was survived by his 7 natural children. In December 1906, a
special proceeding for the settlement of the intestate estate of said spouses was
conducted. Rafael Ramos, a brother of Martin, administered the estate for more
than 6 years. Eventually, a partition project was submitted which was signed by
the 3 legitimate children and 2 of the 7 natural children. A certain Timoteo
Zayco signed in representation of the other 5 natural children who were minors.
The partition was sworn to before a justice of peace.
The conjugal hereditary estate was appraised at P74,984.93, consisting of
18 parcels of land, some head of cattle and the advances to the legitimate
children. ½ thereof represented the estate of Martin. 1/3 thereof was the free
portion or P12,497.98. The shares of the 7 natural children were to be taken
from that 1/3 free portion. Indeed, the partition was made in accordance with the
Old Civil code. Thereafter, Judge Richard Campbell approved the partition
project. The court declared that the proceeding will be considered closed and
the record should be archived as soon as proof was submitted that each he3ir
had received the portion adjudicated to him.
On February 3, 1914, Judge Nepumoceno asked the administrator to
submit a report showing that the shares of the heirs had been delivered to them
as required by the previous decision. Nevertheless, the manifestation was not in
strict conformity with the terms of the judge’s order and with the partition
project itself. 8 lots of the Himamaylan Cadastre were registered in equal shares
in the names of Gregoria (widow of Jose Ramos) and her daughter, when in fact
the administrator was supposed to pay the cash adjudications to each of them as
enshrined in the partition project. Plaintiffs were then constrained to bring the
suit before the court seeking for the reconveyance in their favor their
corresponding participations in said parcels of land in accordance with Article
840 of the old Civil Code. Note that 1/6 of the subject lots represents the 1/3
free portion of martin’s shares which will eventually redound to the shares of his
7 legally acknowledged natural children. The petitioners’ action was predicated
on the theory that their shares were merely held in trust by defendants.
Nonetheless, no Deed of Trust was alleged and proven. Ultimately, the lower
court dismissed the complaint on the grounds of res judicata, prescription and
laches.
ISSUE:
Whether or not the plaintiffs’ action was barred by prescription, laches
and res judicata to the effect that they were denied of their right to share in their
father’s estate.
RULING:
YES, there was inexcusable delay thereby making the plaintiffs’ action
unquestionably barred by prescription and laches and also by res judicata.
Inextricably interwoven with the questions of prescription and res judicata is the
question on the existence of a trust. It is noteworthy that the main thrust of
plaintiffs’ action is the alleged holding of their shares in trust by defendants.
Emanating from such, the Supreme Court elucidated on the nature of trusts and
the availability of prescription and laches to bar the action for reconveyance of
property allegedly held in trust. It is said that trust is the right, enforceable
solely in equity to the beneficial enjoyment of property, the legal title to which is
vested in another. It may either be express or implied. The latter ids further
subdivided into resulting and constructive trusts. Applying it now to the case at
bar, the plaintiffs did not prove any express trust. Neither did they specify the
kind of implied trust contemplated in their action. Therefore, its enforcement
maybe barred by laches and prescription whether they contemplate a resulting
or a constructive trust.
IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE
IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the
Administratrix, SYLVIA S. TE, petitioner,
VS. COURT OF APPEALS, HON. ILDEFONSO E. GASCON,
and ALEJANDRO B. TY, respondents
G.R. No. 112872
April 19, 2001
FACTS:
Petitioner Sylvia S. Tywas married to Alexander T. Ty, son of private
respondent Alejandro b. ty, on January 11, 1981. Alexander died of leukemia on
May 19, 1988 and was survived by his wife, petitioner Silvia, and only child,
Krizia Katrina. In the settlement of his estate, petitioner was appointed
administratrix of her late husband’s intestate estate.
On November 4, 1992, petitioner filed a motion for leave to sell or
mortgage estate property in order to generate funds for the payment of
deficiency estate taxes in the sum of P4,714,560.00.
Privite respondent Alejandro Ty then filed two complaints for the recovery
of the above-mentioned property, praying for the declaration of nullity of the
deed of absolute sale of the shares of stock executed by private respondent in
favor of the deceased Alexander, praying for the recovery of the pieces of
property that were placed in the name of deceased Alexander, they were
acquired through private-respondent’s money, without any cause or
consideration from deceased Alexander.
The motions to dismiss were denied. Petitioner then filed petitions for
certiorari in the Courts of Appeals, which were also dismissed for lack of merit.
Thus, the present petitions now before the Court.
ISSUE:
Whether or not an express trust was created by private respondent when
he transferred the property to his son.
RULING:
Private respondent contends that the pieces of property were transferred
in the name of the deceased Alexander for the purpose of taking care of the
property for him and his siblings. Such transfer having been effected without
cause of consideration, a resulting trust was created.
WHEREFORE, the petition for certiorari in G.R. No. 112872 is DISMISSED,
having failed to show that grave abuse of discretion was committed in declaring
that the regional trial court had jurisdiction over the case. The petition for
review on certiorari in G.R. 114672 is DENIED, having found no reversible error
was committed.
IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE
IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
VDA. DE RETUERTO VS. BARZ
372 SCRA 712
FACTS:
Petitioners are the heirs of Panfilo Retuerto, while respondents are the
heirs of Pedro Barz who is the sole heir of Juana Perez Barz. Juana Perez Barz
was the original owner of Lot No. 896 having an area of 13,160 square meters.
Before her death on April 16, 1929, Juana Perez executed a Deed of Absolute
Sale in favor of Panfilo Retuerto over a parcel of land, identified as Lot No. 896-A,
a subdivision of Lot No. 896, with an approximate area of 2,505 square meters.
On July 22, 1940, the Court issued an Order directing the Land Registration
Commission for the issuance of the appropriate Decree in favor of Panfilo
Retuerto over the said parcel of land. However, no such Decree was issued as
directed by the Court because, by December 8, 1941, the Second World War
ensued in the Pacific. However, Panfilo failed to secure the appropriate decree
after the war.
Sometime in 1966, Pedro Barz, as the sole heir of Juana Perez, filed and
application, with the then CFI of Cebu for the confirmation of his title over Lot
896 which included the Lot sold to Panfilo Retuerto. The Court ruled in his favor
declaring him the lawful owner of the said property, and thus Original Certificate
of Title No. 521 was issued. Lot No. 896-A however was continuously occupied
by the petitioners. Thus, a confrontation arose and as a result respondents filed
an action on September 5, 1989 for “Quieting of Title, Damages and Attorney’s
Fees.” In their answer, petitioners claimed that they were the owners of a
portion of the lot which was registered under the name of Pedro Barz and
therefore the issuance of the Original Certificate of Title in Pedro Barz’s name did
not vest ownership but rather it merely constituted him as a trustee under a
constructive trust. Petitioners further contend that Pedro Barz misrepresented
with the land registration court that he inherited the whole lot thereby
constituting fraud on his part.
ISSUE:
Whether or not petitioners’ defense is tenable.
RULING:
NO, the contention is bereft of merit. Constructive trusts are created in
equity to prevent unjust enrichment, arising against one who, by fraud, duress or
abuse of confidence, obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold. Petitioners failed to substantiate
their allegation that their predecessor-in-interest had acquired any legal right to
the property subject of the present controversy. Nor had they adduced evidence
to show that the certificate of title of Pedro Barz was obtained through fraud.
 Even assuming arguendo that Pedro Barz acquired title to the property
through mistake or fraud, petitioners are nonetheless barred from filing their
claim of ownership. An action for reconveyance based on an implied or
constructive trust prescribes within ten years from the time of its creation or
upon the alleged fraudulent registration of the property. Since registration of
real property is considered a constructive notice to all persons, then the ten-year
prescriptive period is reckoned from the time of such registering, filing or
entering. Thus, petitioners should have filed an action for reconveyance within
ten years from the issuance of OCT No. 521 in November 16, 1968. This, they
failed to do so.
IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE
IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
CHIAO LIONG TAN VS. COURT OF APPEALS
228 SCRA 75
FACTS:
Petitioner Chiao Liong Tan claims to be the owner of a motor vehicle,
particularly described as Isuzu Elf van, 1976 Model that he purchased in March
1987. As owner thereof, petitioner says he has been in possession, enjoyment
and utilization of the said motor vehicle until his older brother, Tan Ban Yong,
the private respondent, took it from him.
Petitioner relies principally on the fact that the van is registered in his
name under Certificate of Registration. He claims in his testimony before the
trial court that the said motor vehicle was purchased from Balintawak Isuzu
Motor Center for a price of over P100, 000. 00; that he sent his brother to pay for
the van and the receipt fro payment was placed in his name because it was his
money that was used to pay for the vehicle; that he allowed his brother to use
the van because the latter was working for his company, the CLT Industries; and
that his brother later refused to return the van to him and appropriated the
same for himself.
On the other hand, private respondent testified that CLT Industries is a
family business that was placed in petitioner’s name because at that time he
was then leaving for the United Stated and petitioner remaining Filipino in the
family residing in the Philippines. When the family business needed a vehicle in
1987 for use in the deliver of machinery to its customers, he asked petitioner to
look for a vehicle and gave him the amount of P5,000.00 to be deposited as
down payment for the van, which would be available in about a month. After a
month, he himself paid the whole price out of a loan of P140, 000.00 from his
friend Tan Pit Sin. Nevertheless, respondent allowed the registration of the
vehicle in petitioner’s name. It was also their understanding that he would keep
the van for himself because CLT Industries was not in a position to pay him.
Hence, from the time of the purchase, he had been in possession of the vehicle
including the original registration papers thereof, but allowing petitioner from
time to time to use the van for deliveries of machinery.
After hearing, the trial court found for the private respondent. Finding no
merit in the appeal, the Court of Appeals affirmed the decision of the trail court.
ISSUE:
Whether or not the petitioner-appellant established proof of ownership
over the subject motor vehicle.
RULING:
No. Petitioner did not have in his possession the Certificate of
Registration of the motor vehicle and the official receipt of payment for the
same, thereby lending credence to the claim of private respondent who has
possession thereof, that he owns the subject motor vehicle. A certificate of
registration of a motor vehicle in one’s name indeed creates a strong
presumption of ownership. For all practical purposes, the person in whose favor
it has been issued is virtually the owner thereof unless proved otherwise. In
other words, such presumption is rebuttable by competent proof.
The New Civil Code recognizes cases of implied trusts other than those
enumerated therein. Thus, although no specific provision could be cited to apply
to the parties herein, it is undeniable that an implied trust was created when the
certificate of registration of the motor vehicle was placed in the name of the
petitioner although the price thereof was not paid by him but by private
respondent. The principle that a trustee who puts a certificate of registration in
his name cannot repudiate the trust relying on the registration is one of the well-
known limitations upon a title. A trust, which derives its strength from the
confidence one reposes on another especially between brothers, does not lose
that character simply because of what appears in a legal document.
WHEREFORE, the instant petition for review is hereby DENIED for lack of
merit.
IMPLIED TRUSTS: PRESCRIPTIVE PERIODS OF ACTION TO ENFORCE
IMPLIED TRUSTS: IN ACTIONS TO QUIET TITLE
O'LACO VS. CO CHO CHIT
220 SCRA 656
1993 Mar 31
FACTS:
This Case involves half-sisters each claiming ownership over a parcel of
land. While petitioner Emilia O'Laco asserts that she merely left the certificate of
title covering the property with private respondent O Lay Kia for safekeeping,
the latter who is the former's older sister insists that the title was in her
possession because she and her husband bought the property from their
conjugal funds.
The trial court declared that there was no trust relation of any sort
between the sisters. The Court of Appeals ruled otherwise. Hence, the instant
petition for review on certiorari of the decision of the appellate court together
with its resolution denying reconsideration.
ISSUE:
Whether a resulting trust was intended by them in the acquisition of the
property; Whether Prescription has set in.
HELD:
I. YES. By definition, trust relations between parties may either be
express or implied.
Express trusts are those which are created by the direct and positive acts
of the parties, by some writing or deed, or will, or by words evincing an intention
to create a trust. Implied trusts are those which, without being express, are
deducible from the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties. Implied trusts may
either be resulting or constructive trusts, both coming into being by operation of
law.
A resulting trust was indeed intended by the parties under Art. 1448 of the
New Civil Code which states ----
"Art. 1448. There is an implied trust when property is sold, and the legal
estate is granted to one party but the price is paid by another for the purpose of
having the beneficial interest of the property. The former is the trustee, while
the latter is the beneficiary . . ."
II. As differentiated from constructive trusts, where the settled rule is
that prescription may supervene, in resulting trust, the rule of imprescriptibility
may apply for as long as the trustee has not repudiated the trust. Once the
resulting trust is repudiated, however, it is converted into a constructive trust
and is subject to prescription.
A resulting trust is repudiated if the following requisites concur: (a) the
trustee has performed unequivocal acts of repudiation amounting to an ouster of
the cestui qui trust; (b) such positive acts of repudiation have been made known
to the cestui qui trust; and, (c) the evidence thereon is clear and convincing.
In Tale v. Court of Appeals, the Court categorically ruled that an action for
reconveyance based on an implied or constructive trust must perforce prescribe
in ten (10) years, and not otherwise, thereby modifying previous decisions
holding that the prescriptive period was four (4) years.
Neither the registration of the Oroquieta property in the name of
petitioner Emilia O'Laco nor the issuance of a new Torrens title in 1944 in her
name in lieu of the alleged loss of the original may be made the basis for the
commencement of the prescriptive period. For, the issuance of the Torrens title
in the name of Emilia O'Laco could not be considered adverse, much less
fraudulent. Precisely, although the property was bought by respondent-spouses,
the legal title was placed in the name of Emilia O'Laco. The transfer of the
Torrens title in her name was only in consonance with the deed of sale in her
favor. Consequently, there was no cause for any alarm on the part of
respondent-spouses. As late as 1959, or just before she got married, Emilia
continued to recognize the ownership of respondent-spouses over the Oroquieta
property.
Thus, until that point, respondent-spouses were not aware of any act of
Emilia which would convey to them the idea that she was repudiating the
resulting trust. The second requisite is therefore absent. Hence, prescription did
not begin to run until the sale of the Oroquieta property, which was clearly an
act of repudiation. But immediately after Emilia sold the Oroquieta property
which is obviously a disavowal of the resulting trust, respondent-spouses
instituted the present suit for breach of trust. Correspondingly, laches cannot lie
against them.
 After all, so long as the trustee recognizes the trust, the beneficiary may
rely upon the recognition, and ordinarily will not be in fault for omitting to bring
an action to enforce his rights. There is no running of the prescriptive period if
the trustee expressly recognizes the resulting trust. Since the complaint for
breach of trust was filed by respondent-spouses two (2) months after acquiring
knowledge of the sale, the action therefore has not yet prescribed.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision
of the Court of Appeals of 9 April 1981, which reversed the trial court, is
AFFIRMED. Costs against petitioners.
THE END
Note: This is page 188A of Casebook (Part I-Obligations)
IDENTITY OF PRESTATION (WHERE PAYMENT MUST BE MADE)
BINALBAGAN VS. COURT OF APPEALS
G.R. No. 100594
March 10, 1993
FACTS:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her
capacity as Judicial Administrator of the intestate estate of Luis B. Puentevella,
executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots
within the Phib-Khik Subdivision of the Puentevella family, conveying and
transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to
as Binalbagan). In turn Binalbagan, through its president, petitioner Hermilo J.
Nava (hereinafter referred to as Nava), executed an Acknowledgment of Debt
with Mortgage Agreement, mortgaging said lots in favor of the estate of
Puentevella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said
petitioner took possession of the lots and the building and improvements
thereon. Binalbagan started operating a school on the property from 1967 when
the titles and possession of the lots were transferred to it.
It appears that there was a pending case, Civil Case No. 7435 of Regional
Trial Court stationed at Himamaylan, Negros Occidental. In this pending case
the intestate estate of the late Luis B. Puentevella, thru Judicial Administratrix,
Angelina L. Puentevella sold said aforementioned lots to Raul Javellana with the
condition that the vendee-promisee would not transfer his rights to said lots
without the express consent of Puentevella and that in case of the cancellation
of the contract by reason of the violation of any of the terms thereof, all
payments therefor made and all improvements introduced on the property shall
pertain to the promissor and shall be considered as rentals for the use and
occupation thereof.
Javellana having failed to pay the installments for a period of five years,
Civil Case No. 7435 was filed by defendant Puentevella against Raul Javellana
and the Southern Negros Colleges which was impleaded as a party defendant it
being in actual possession thereof, for the rescission of their contract to sell and
the recovery of possession of the lots and buildings with damages.
Accordingly, after trial, judgment was rendered in favor of Puentevella.
Came December 29, 1965 when the plaintiffs in the instant case on appeal filed
their Third-Party Claim based on an alleged Deed of Sale executed in their favor
by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert
physical possession of the premises to counteract the fictitious and
unenforceable claim of herein plaintiffs.

Upon the filing of the instant case for injunction and damages on January
3, 1966, an ex-parte writ of preliminary injunction was issued by the Honorable
Presiding Judge Carlos Abiera, which order, however, was elevated to the
Honorable Court of Appeals which issued a writ of preliminary injunction ordering
Judge Carlos Abiera or any other person or persons in his behalf to refrain from
further enforcing the injunction issued by him in this case and from further
issuing any other writs or prohibitions which would in any manner affect the
enforcement of the judgment rendered in Civil Case 7435, pending the finality of
the decision of the Honorable Court of Appeals in the latter case. Thus,
defendant Puentevella was restored to the possession of the lots and buildings
subject of this case. However, plaintiffs filed a petition for review with the
Supreme Court which issued a restraining order against the sale of the
properties claimed by the spouses-plaintiffs.
When the Supreme Court dissolved the aforesaid injunction issued by the
Court of Appeals, possession of the building and other property was taken from
petitioner Binalbagan and given to the third-party claimants, the de la Cruz
spouses. Petitioner Binalbagan transferred its school to another location. In the
meantime, the defendants in Civil Case No. 293 with the Court of Appeals
interposed an appeal. On October 30, 1978, the Court of Appeals rendered
judgment, reversing the appealed decision in Civil Case No. 293. On April 29,
1981, judgment was entered in CA-G.R. No. 42211, and the record of the case
was remanded to the court of origin on December 22, 1981. Consequently, in
1982 the judgment in Civil Case No. 7435 was finally executed and enforced,
and petitioner was restored to the possession of the subdivision lots an May 31,
1982. It will be noted that petitioner was not in possession of the lots from 1974
to May 31, 1982.
After petitioner Binalbagan was again placed in possession of the
subdivision lots, private respondent Angelina Echaus demanded payment from
petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a
statement of account as of September 1982 showing a total amount due of
P367,509.93, representing the price of the land and accrued interest as of that
date.
As petitioner Binalbagan failed to effect payment, private respondent
Angelina P. Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional
Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros
Occidental against petitioners for recovery of title and damages. Private
respondent Angelina P. Echaus filed an amended complaint by including her
mother, brothers, and sisters as co-plaintiffs, which was admitted by the trial
court on March 18, 1983.
The trial court rendered a decision in favor of the petitioner because of
prescription. Nonetheless, the Court of Appeals reversed said decision.
ISSUE:
Whether or not the petition is with merit.
RULING:
No. A party to a contract cannot demand performance of the other party's
obligations unless he is in a position to comply with his own obligations.
Similarly, the right to rescind a contract can be demanded only if a party thereto
is ready, willing and able to comply with his own obligations there under (Art.
1191, Civil Code).
In a contract of sale, the vendor is bound to transfer the ownership of and
deliver, as well as warrant, the thing which is the object of the sale (Art. 1495,
Civil Code); he warrants that the buyer shall, from the time ownership is passed,
have and enjoy the legal and peaceful possession of the thing. As afore-stated,
petitioner was evicted from the subject subdivision lots in 1974 by virtue of a
court order in Civil Case No. 293 and reinstated to the possession thereof only in
1982. During the period, therefore, from 1974 to 1982, seller private respondent
Angelina Echaus' warranty against eviction given to buyer petitioner was
breached though, admittedly, through no fault of her own. It follows that during
that period, 1974 to 1982, private respondent Echaus was not in a legal position
to demand compliance of the prestation of petitioner to pay the price of said
subdivision lots. In short, her right to demand payment was suspended during
that period, 1974-1982.
The prescriptive period within which to institute an action upon a written
contract is ten years (Art. 1144, Civil Code). The cause of action of private
respondent Echaus is based on the deed of sale afore-mentioned. The deed of
sale whereby private respondent Echaus transferred ownership of the
subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for
recovery of title and damages only on October 8, 1982. From May 11, 1967 to
October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-year
prescriptive period had expired before she brought her action to recover title.
However, the period 1974 to 1982 should be deducted in computing the
prescriptive period for the reason that, as above discussed, from 1974 to 1982,
private respondent Echaus was not in a legal position to initiate action against
petitioner since as afore-stated, through no fault of hers, her warranty against
eviction was breached. In the case of it was held that a court order deferring
action on the execution of judgment suspended the running of the 5-year period
for execution of a judgment. Here the execution of the judgment in Civil Case
No. 7435 was stopped by the writ of preliminary injunction issued in Civil Case
No. 293. It was only when Civil Case No. 293 was dismissed that the writ of
execution in Civil Case No. 7435 could be implemented and petitioner
Binalbagan restored to the possession of the subject lots.

Deducting eight years (1974 to 1982) from the period 1967 to 1982, only
seven years elapsed. Consequently, Civil Case No. 1354 was filed within the 10-
year prescriptive period. Working against petitioner's position too is the
principle against unjust enrichment, which would certainly be the result if
petitioner were allowed to own the 42 lots without full payment thereof.

WHEREFORE, the petition is DENIED and the decision of the Court of

Appeals in CA-G.R. CV No. 24635 is AFFIRMED.