Civ Digest - 1249-1307

CIVILLAWREVIEWDIGESTSBalane
Alcisso,Antonio,Arriola,Cajucom,Calalang,Claudio,Escueta,Fajardo,Imperial,Juaquino,Martin,Martinez,Mendoza,Noel,PlazoRaso,Rosales,Sia,Siron,Venzuela
ARTICLE 1249
TIBAJIA v CA
FACTS: EdenTanfiledacollectioncaseagainstthespousesNorbertoandCarmenTibajiadocketed ascivilcaseno.54863intheRTCofPasig.Awritofpreliminaryattachmentissuedbythetrial court and the sheriff made a return stating that a deposit made by the Tibajia spouses in anothercase(RTCCaloocan)hadbeengarnished.RTCPasigrenderedadecisionagainstthe spousesTibajiaandorderedthemtopayEdenTananamountinexcessofPhp300,000.00. This decision became final after it was affirmed with modification (amount of moral and exemplary damages only) by the CA. Thus Eden Tan filed a motion for execution and the garnishedfundswereleviedupon. Spouses Tibajia then paid to Deputy Sheriff Bolima the amount of Php 398,483.70. Php 262,750.00wasintheformofacashierscheck.EdenTanrefusedpaymentandinsistedthat thegarnishedfundsbewithdrawnfromtosatisfyjudgment.SpousesTibajiamovedthatthe RTCliftthewritofexecutioncontendingthatthejudgmentdebthadalreadybeenpaid.RTC deniedthemotionsayingthatpaymentbycheckisnotvalidasacheckisnotlegaltender.CA affirmedtheRTCruling. ISSUE: Whetherornotacheck(evenacashierscheck)islegaltender. HELD: NO. Theapplicablelawstothecaseatbarareasfollows: Art.1249.Thepaymentofdebtsinmoneyshallbemadeinthecurrencystipulated,andifit is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. Thedeliveryofpromissorynotespayabletoorder,orbillsofexchangeorothermercantile documentsshallproducetheeffectofpaymentonlywhentheyhavebeencashed,orwhen throughthefaultofthecreditortheyhavebeenimpaired.
Inthemeantime,theactionderivedfromtheoriginalobligationshallbeheldinabeyance. b.Section1ofRepublicActNo.529,asamended,whichprovides: Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require paymentingoldorinanyparticularkindofcoinorcurrencyotherthan Philippine currency or in an amount of money of the Philippines measuredthereby,shallbeasitisherebydeclaredagainstpublicpolicy nullandvoid,andofnoeffect,andnosuchprovisionshallbecontained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto,shallbedischargeduponpaymentinanycoinorcurrencywhich atthetimeofpaymentislegaltenderforpublicandprivatedebts. c.Section63ofRepublicActNo.265,asamended(CentralBankAct)whichprovides: Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the accountofthecreditorshallbeequivalenttoadeliverytothecreditorof cashinanamountequaltotheamountcreditedtohisaccount. AlsoinPALvs.CAandRomanCatholicBishopofMalolosvs.IAC,theSupremeCourtsaid: Acheck,whetheramanager'scheckorordinarycheck,isnotlegaltender,andanofferofa checkinpaymentofadebtisnotavalidtenderofpaymentandmayberefusedreceipt
bytheobligeeorcreditor. CITIBANK v SABENIANO

***disclaimer:Imadeadigestforthe2006casesincethatsthedatestatedinthesyllabus butthereisalreadya2008caseofCitibankv.Sabeniano.Also, itisaverylongcase.Ionly discussedtheissuepertinenttoArticle1249oftheCivilCode. FACTS:
Petitioner Citibank, NA (formerly known as the First National City Bank) is a banking corporation duly authorized and existing under the laws of the USA and licensed to do commercial banking activities and perform trust functions in the Philippines. Petitioner Investors Finance Corporation, which did business under the name and style of FNCB Finance, was an affiliate company of Citibank, specifically handling money market placementsforitsclients. RespondentSabenianowasaclientofbothCitibankandFNCB. SabenianofiledacomplaintforAccounting,SumofMoneyandDamagesagainstpetitioners before the RTC of Makati City. Sabeniano claimed to have substantial deposits and money marketplacementswiththepetitionersaswellasmoneymarketplacementswiththeAyala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondents accounts with petitioner Citibank. Respondent alleged tat petitioners refused to return her deposits and the proceeds of her moneymarketplacementsdespiteherrepeateddemands. Intheirjointanswer,petitionersadmittedthatrespondenthaddepositsandmoneymarket placements with them including dollar accounts. However, they allege that the respondent later obtained several loans from Citibank for which she executed Promissory notes and secured by a declaration of pledge for her dollar account in CitibankGeneva and Deeds of Assignment for her money market placements with petitioner FNCB Finance. When respondentfailedtopayherloansdespiterepeateddemandsbyCitibank,Citibankexercised its right to offset or compensate respondents outstanding loans with her deposits and money market placement pursuant to the declaration of pledge and deeds of assignment. Citibank claimed that they informed respondent of the foregoing compensation through letters.Theyweresurprisedwhen6yearslater,respondentmaderepeatedrequestsforthe withdrawal of respondents deposit and money market placements with petitioners. Petitioners,thus,prayedfordismissaloftheComplaintandfortheawardofAMEdamages andattorneysfees. TCdeclaredillegal,nullandvoidthesetoffeffectedbyCitibankofSabenianosdollardeposit with Citibank and ordered Citibank to refund the said amount to the plaintiff with legal interest.TCalsodeclaredthatSabenianowasindebtedtoCitibankandorderSabenianoto pay.However,Sabenianowasnotrequiredtopayinterestandpenaltychargesfromthetime theillegalsetoffwaseffected. CA ISSUE:Whetherchecksarelegaltender Ruling:NOInsupportofrespondent'sassertionthatshehadalreadypaidwhateverloansshe may have had with petitioner Citibank, she presented as evidence Provisional Receipts No. 19471,dated11August1978,andNo.12723,dated10November1978,bothofpetitioner Citibank and signed by Mr. Tan, for the amounts ofP500,744.00 andP500,000.00, respectively.WhiletheseprovisionalreceiptsdidstatethatMr.Tan,onbehalfofpetitioner Citibank,receivedrespondent'schecksaspaymentforherloans,theyfailedtospecifically identify which loans were actually paid. Petitioner Citibank was able to present evidence thatrespondenthadexecutedseveralPNsintheyears1978and1979tocovertheloansshe securedfromthesaidbank.PetitionerCitibankdidadmitthatrespondentwasabletopayfor someofthesePNs,andwhatitidentifiedasthefirstandsecondsetsofPNswereonlythose which remained unpaid. It thus became incumbent upon respondent to prove that the checksreceivedbyMr.TanwereactuallyappliedtothePNsineitherthefirstorsecondset; afactthat,unfortunately,cannotbedeterminedfromtheprovisionalreceiptssubmittedby respondent since they only generally stated that the checks received by Mr. Tan were paymentforrespondent'sloans. Mr. Tan, in his deposition, further explained that provisional receipts were issued when payment to the bank was made using checks, since the checks would still be subject to clearing.Thepurposefortheprovisionalreceiptswasmerelytoacknowledgethedeliveryof the checks to the possession ofthe bank, but not yet of payment. This bank practice finds legitimacyinthepronouncementofthisCourtthatacheck,whetheranMCoranordinary check, is not legal tender and, therefore, cannot constitute valid tender of payment. InPhilippineAirlines,Inc.v.CourtofAppeals,thisCourtelucidatedthat: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whetheramanager'scheckorordinarycheck,isnotlegaltender,andanofferofa checkinpaymentofadebtisnotavalidtenderofpaymentandmayberefused receiptbytheobligeeorcreditor.Meredeliveryofchecksdoesnotdischargethe obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249,CivilCode,par.3). Inthecaseatbar,theissuanceofanofficialreceiptbypetitionerCitibankwouldhavebeen dependent on whether the checks delivered by respondent were actually cleared and paid forbythedraweebanks.
BPI v ROXAS
FACTS GregorioRoxas,astrader,deliveredstocksofvegetableoiltoSpousesRodrigoandMarissa Cawili. As payment to Roxas, the latter signed a personal check amounting to PHP348,805.50whichwasdishonoredbythedraweebankwhenrespondenttriedtoencash. The Petitioner Spouses Cawili thereafter begged understanding and replaced the bounced checkwithacashier'scheckfromBankofthePhilippineIslands. Thecashier'scheckwasdrawnagainsttheaccountofMarissaCawili.TheCashierCheckswas senttorespondentbyRodrigoCawili. Again, when Gregorio tried to encash the Cashier Check, it was dishonored on the ground thattheaccountofMarissawasclosedonthesamedatethatrespondenttriedtoencash. GregoriothereafterfiledacomplaintwiththeRegionalTrialCourtforcollectionprayingthat SpousesCawilipayhimtheamountofthechack,damagesandcostofthesuit. The RTC in its decision held that Petitioner is liable to pay the face value of the cashier's checkamountingtoPHP384,805.50. On appeal, the CA affirmed the decision of the RTC. Hence, the filingof the Petition for Certioraribythepetitioner. ISSUE (thecaseisrepletewitharenegotiableinstrumentsissues,butourconcernisarticle1249)1 w/n BPI is liable to the Spouses Cawili for the Cashiers check that was drawn upon the accountofMarissasclosedaccount. HELD BPIisliable. TheSCemphasizesthatthedisputedcheckisacashierscheck.InInternationalCorporate Bankv.SpousesGueco,Courtheldthatacashierscheckisreallythebanksowncheckand maybetreatedasapromissorynotewiththebankasthemaker.Thecheckbecomesthe primary obligation of the bank which issues it and constitutes a written promise to pay upondemand. TheSCthencitedInNewPacificTimber&SupplyCo.Inc.v.Seeris,whereitstatedwell known and accepted practice in the business sector that a cashiers check is deemed as cash. This is because the mere issuance of a cashiers check is considered acceptance thereof. Inviewoftheabovepronouncements,BPIbecameliabletorespondentfromthemomentit issued the cashiers check. Having been accepted by Cawili, subject to no condition whatsoever, BPI should have paid the same upon presentment by the former. This is notwithstandingthefactthatMarissasaccountwasclosed.
Art.1249.Thepaymentofdebtsinmoneyshallbemadeinthecurrencystipulated,andifitisnot possibletodeliversuchcurrency,theninthecurrencywhichislegaltenderinthePhilippines.
Thedeliveryofpromissorynotespayabletoorder,orbillsofexchangeorothermercantiledocuments shallproducetheeffectofpaymentonlywhentheyhavebeencashed,orwhenthroughthefaultofthe creditortheyhavebeenimpaired. Inthemeantime,theactionderivedfromtheoriginalobligationshallbeheldintheabeyance.(1170)
ARTICLE 1250
TELANGTAN v US LINES
FACTS: On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking paymentofdemurragechargesplusinterestanddamages. Thecomplaintallegedthatbetweentheyears1979and1980,goodsbelongingtopetitioner Telengtanloadedoncontainersaboardits(respondent's)vesselsarrivedinManilafromU.S. ports.After the 10day free period, petitioner still failed to withdraw its goods from the containerswhereinthegoodshadbeenshipped.Continuing,respondentU.S.Linesalleged that petitioner incurred on all those shipments a demurrage in the total amount of P94,000.00whichthelatterrefusedtopaydespiterepeateddemands. In its amended answer with compulsory counterclaim, petitioner Telengtan, as defendant, disclaims liability for the demanded demurrage, alleging that it has never entered into a contract nor signed an agreement to be bound by any rule on demurrage. Petitioner Telengtan likewise maintains that, absent an obligation to pay respondent who made no properorlegaldemandsinthefirstplace,thereisjustifiablereasontorefusepaymentofthe latter'sunwarrantedclaims. By way of counterclaim, petitioner states that, upon arrival of the conveying vessels, it presented the Bills of Lading (B/Ls) and all other pertinent documents covering seven shipmentsanddemandedfromrespondentdeliveryofallthegoodscoveredbytheaforesaid B/Ls,onlytobeinformedthatrespondentUSLineshadalreadyunloadedthegoodsfromthe containervans,strippedthemoftheircontentsandthenstoredinwarehouses. Petitioner Telengtan further states that respondent had refused to deliver the goods covered by the B/Ls and required petitioner to pay the amount of P123,738.04 before the goods can be released. Petitioner demands that respondent be ordered to pay the aforestatedamountwithinterest. After due proceedings, the trial court ruled for respondent U.S. Lines, as plaintiff therein, andaccordinglyrenderedjudgment,asfollows: WHEREFORE, in view of all the foregoing, the Court finds [petitioner] liable to [respondent]fordemurrageincurredintheamountofP99,408.00whichsumwill bear interest at the legal rate from the date of the filing of the complaint till full paymentthereofplusattorney'sfeesintheamountof20%ofthetotalsumdue,all
of which shall be recomputed as of the date of payment in accordance with the provisions of Article 1250 of the Civil Code.Exemplary damages in the amount of P80,000.00 are also granted.The counterclaim is dismissed.Costs against [petitioner] Undaunted, Petitioner raised the issue to the CA. Unfortunately, the CA affirmed the RTC decision. ISSUE: w/nArt1250comesintoplayintorecomputingtheamountsowedbyTelengtantoUSLines2 HELD: The SC denies the application of Art 1250 in the instant case. No extraordinary inflation occurred during these periods. The devaluation of the Philippine Peso was a standard and normaldepreciation. NotethatincallingfortheapplicationofArt1250,respondentUSLinesurgedthatjudicial notice be taken of the succeeding devaluations of the peso visvis the US dollar since the time the proceedings began in 1981. According to respondent, the computation of the amountthusduefromthepetitionershouldfactorinsuchpesodevaluations. Extraordinary inflation or deflation, as the case may be, exists when there is an unusual increase or decrease in the purchasing power of the Philippine peso which is beyond the commonfluctuationinthevalueofsaidcurrency,andsuchincreaseordecreasecouldnot havebeenreasonablyforeseenorwasmanifestlybeyondthecontemplationofthepartiesat the time of the establishment of the obligation. Extraordinary inflation can never be assumed;hewhoallegestheexistenceofsuchphenomenonmustprovethesame. The Court holds that there has been no extraordinary inflation within the meaning of Article 1250 of the Civil Code. Accordingly,there is no plausible reason for ordering the paymentofanobligationinanamountdifferentfromwhathasbeenagreeduponbecause ofthepurportedsuperventionofextraordinaryinflation.
Art.1250.Incaseanextraordinaryinflationordeflationofthecurrencystipulatedshouldsupervene, thevalueofthecurrencyatthetimeoftheestablishmentoftheobligationshallbethebasisof payment,unlessthereisanagreementtothecontrary.
Asitwere,respondentwasunabletoprovetheoccurrenceofextraordinaryinflationsinceit filed its complaint in 1981. Indeed, the record is bereft of any evidence, documentary or testimonial,thatinflation,especiallyanextraordinaryone,existed.Evenifthepriceindexof goods and services may have risen during the intervening period, this increase, without more, cannot be considered as resulting to 'extraordinary inflation as to justify the applicationofArticle1250. TheerosionofthevalueofthePhilippinepesointhepastthreeorfourdecades,startingin themidsixties,ischaracteristicsofmostcurrencies.AndwhiletheCourtmaytakejudicial noticeofthedeclineinthepurchasingpowerofthePhilippinecurrencyinthatspanoftime, suchdownwardtrendofthepesocannotbeconsideredastheextraordinaryphenomenon contemplated by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by competent authorities of the existence of extraordinary inflationduringagivenperiod,ashere,theeffectsofextraordinaryinflation,ifthatbethe case,arenottobeapplied. Lestitbeoverlooked,Article1250clearlyprovidesthatthevalueofthepesoatthetimeof the establishment of the obligation shall control and be the basis of payment of the contractual obligation, unless there is agreement to the contrary.It is only when there is a contrary agreement that extraordinary inflation will make the value of the currency at the timeofpayment,notatthetimeoftheestablishmentofobligation,thebasisforpayment. Tobesure,neitherthetrialcourt,theCAnorrespondenthaspointedtoanyprovisionofthe coveringB/Lswhencerespondentsourceditscontractualrightunderthepremiseswherethe definingagreementtothecontraryissetforth.Needlesstostress,theCourtseesnoneedto speculateastotheexistenceofsuchagreement,theburdenofproofonthisregardbeingon respondent. ULTIMATELY,theSCaffirmedthedecisionoftheCArequiringthatTelengtanpayUSLinesas sumofmoneyBUTwiththeMODIFICATIONthattheorderforrecomputationasofthedate ofpaymentinaccordancewiththeprovisionsofArticle1250oftheCivilCodebedeleted.
ARTICLE 1256
SOCO v MILITANTE
FACTS: OnJanuary1973,Soco leasedhercommercialbuildingtoFrancsicoforamonthlyrentalof P800foraperiodof10years.Aftersometime,FrancisconoticedthatSocodidnotanymore sendhercollectorforthepaymentofrentalsandattimestherewerepaymentsmadebutno receiptswereissued.ThispromptedFranciscotosendhispaymentovertoSocothroughan arrangementwithhisbank,CommercialBankandTrustCompany,whereinthebankwould issuechecksinfavorofSocoanddeliverthesamethroughthemessengerialservicesofFAR Corporation.StartingMay1977however,Sococlaimedthatshehadnotreceivedanyrental paymentsfromFrancisco. In view of this alleged nonpayment of rent, Soco through her lawyer sent a letter dated November23,1978toFranciscoservingnoticetothelatter'tovacatethepremisesleased.' Inanswer,FranciscoinformedSocothatallpaymentsofrentaldueherwereinfactpaidby CommercialBankandTrustCompanythroughtheClerkofCourtoftheCityCourtofCebu. However,SocostillfiledthecaseofIllegalDetaineragainstFrancisco. Duringtrial,itwasallegedthatwhenSocolearnedthatFranciscohadsubleasedaportionof thebuildingtoNACIDAatamonthlyrentalofmorethanP3,000,shetriedtolookforways and means to terminate the contract. The CFI found that due to Socos intent to eject Francisco, she did not accept the latters payments delivered by FAR Corporation, which prompted Francisco to instruct the Bank to deposit the rentals with the Court. It was also proventhatSocowasnotifiednumeroustimesofthefactofdepositoftherentalpayments. Furthermore, during crossexamination, Soco admitted that she knew that the rental payments were deposited in court but she qualified that the said deposit did not include payments for the months of May, June, July and August of 1977. Nonetheless, for the aforesaidmonths,theCFIfoundthecertificationoftheBankthattherentalswereproperly paidandreceivedbySocomorecredible. Thus, the City Court (MTC) ruled in favor of Soco. On appeal, the CFI ruled in favor of Franciscoandfoundthattherewassubstantialcomplianceoftherequisitesofconsignation, hence his payments were valid and effective. Consequently, Francisco cannot be ejected fromtheleasedpremisesfornonpaymentofrentals. ISSUE: W/Ntheconsignationoftherentalswasvalidandeffective.
HELD:NO. The essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, Arts. 1256 to 1261 of the Civil Code. These Articles must be accordedamandatoryconstructionsincetheverylanguageofthecodalprovisionsrequires absolutecompliancewiththeessentialrequisites.Substantialcomplianceisnotenoughfor thatwouldrenderonlyadirectoryconstructiontothelaw.Theuseofthewords"shall"and "must"whichareimperative,operatingtoimposeadutywhichmaybeenforced,positively indicatethatalltheessentialrequisitesofavalidconsignationmustbecompliedwith.The CivilCodeArticlesexpresslyandexplicitlydirectwhatmustbeessentiallydoneinorderthat consignationshallbevalidandeffectual. Art.1256,oftheCivilCodeprovidesthatifthecreditortowhomtenderofpaymenthasbeen maderefuseswithoutjustcausetoacceptit,thedebtorshallbereleasedfromresponsibility bytheconsignationofthethingorsumdue.Consignationistheactofdepositingthething duewiththecourtorjudicialauthoritieswheneverthecreditorcannotacceptorrefusesto acceptpaymentanditgenerallyrequiresapriortenderofpayment. However, in the following cases, consignation alone shall release the debtor from responsibility:(1)Whenthecreditorisabsentorunknown,ordoesnotappearattheplaceof payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When,withoutjustcause,herefusestogiveareceipt;(4)Whentwoormorepersonsclaim thesamerighttocollect;(5)Whenthetitleoftheobligationhasbeenlost. In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) thattheconsignationoftheobligationhadbeenmadebecausethecreditortowhomtender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code);(3)thatpreviousnoticeoftheconsignationhadbeengiventothepersoninterestedin theperformanceoftheobligation(Art.1177,CivilCode);(4)thattheamountduewasplaced at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had beenmadethepersoninterestedwasnotifiedthereof(Art.1178,CivilCode).Failureinany oftheserequirementsisenoughgroundtorenderaconsignationineffective. Without the notice first announced to the persons interested in the fulfillment of the obligation,theconsignationasapaymentisvoid. Inordertobevalid,thetenderofpaymentmustbemadeinlawfulcurrency.Whilepayment incheckbythedebtormaybeacceptableasvalid,ifnopromptobjectiontosaidpaymentis made the fact that in previous years payment in check was accepted does not place its creditorinestoppelfromrequiringthedebtortopayhisobligationincash.Thus,thetender ofachecktopayforanobligationisnotavalidtenderofpaymentthereof.
In this case, the SC found that Francisco failed to fulfill the required processes before consignationcanbemadebecauseof: (1) Failuretotenderpaymentofthemonthlyrentals,exceptthatofJune1977. (2) FailuretonotifySocopriortoconsignation.Thepurposeofthisnoticeisinordertogive thecreditoranopportunitytoreconsiderhisunjustifiedrefusalandtoacceptpayment thereby avoiding consignation and the subsequent litigation. This previous notice is essentialtothevalidityoftheconsignationanditslackinvalidatesthesame. (3) FailuretonotifySocoafterconsignationhasbeenmade.Thisrequirementistoenable thecreditortowithdrawthegoodsormoneydeposited.Itwouldbeunjusttomakehim suffer the risk for any deterioration, depreciation or loss of such goods or money by reasonoflackofknowledgeoftheconsignation (4) Failure to prove actual deposit or consignation of the monthly rentals, except for the monthsofMayandJune1977. Thus,theSCruledinfavorofSoco. NOTE:Todistinguish Tender of payment is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempttomakeaprivatesettlementbeforeproceedingtothesolemnitiesofconsignation. RTC upon appeal, court affirmed nonpayment is unjustified. However, Ms. Bautista,evenw/oaboardresolution,apparentlyhasapparentauthorityfromher position as General Manager/Treasurer. Ordered petitioners to vacate property andpayrentalsandattorneysfees. CAaffirmedRTCbutdeletedattorneysfees. SC petitioners insist that respondent company has no standing to sue as a juridicalpersoninviewofthesuspensionandeventualrevocationofitscertificate of registration. Mainissue:W/Npetitionerwasjustifiedtorefusepaymentofrentals Held:No.PetitionersshouldhaveavailedofArt.1256 Article 1256.If the creditor to whom tender of payment has been made refuses withoutjustcausetoacceptit,thedebtorshallbereleasedfromresponsibilityby theconsignationofthethingorsumdue. Consignationaloneshallproducethesameeffectinthefollowingcases: xxxx (4)Whentwoormorepersonsclaimthesamerighttocollect; xxxx In the instant case, consignation alone would have produced the effect of payment of the rentals.Therationaleforconsignationistoavoidtheperformanceofanobligationbecoming moreoneroustothedebtorbyreasonofcausesnotimputabletohim.Petitionersclaimthat they made a written tender of payment and actually prepared vouchers for their monthly rentals.But that was insufficient to constitute a valid tender of payment.Even assuming thatitwasvalidtender,still,itwouldnotconstitutepaymentforwantofconsignationofthe amount.Wellsettled is the rule that tender of payment must be accompanied by consignationinorderthattheeffectsofpaymentmaybeproduced. OtherIssue:W/Nrespondentcorporationhadcapacitytosue. YES. Although SEC revoked its license, records show that it commenced the action long beforetherevocationofitslicense.Besides,SEClatersetasideitsorderofsuspensionand revocationofrespondentscertificate,renderingtheissuemootandacademic. Ms.Bautistahadcapacitytosue.AlthoughMs.Bautistainitiallyfailedtoshowthatshehad the capacity to sign the verification and institute the ejectment case on behalf of the company, when confronted with such question, she immediately presented the Secretarys Certificateconfirmingherauthoritytorepresentthecompany.
PASRICHA v LUIS DIZON REALTY

Facts:ContractofLeasebetweenPetitionersandRespondentforRooms22, 24,32,33,34, 35 (San Luis Building in Ermita, Manila). The general manager dealing with the petitioner changed from Francis Pacheco to Roswinda Bautista. After which, petitioners continuously refusedtopayrentwhichaccruedtoatotalofP916,585.58.Afterfinaldemandofalawyer, respondentfiledejectmentwiththeMeTC. Petitioners claim they refused to pay rentals because of the internal squabble in the companyofwhoisauthorizedtoreceiverent.Infact,theypreparedthemonthlyvouchers for the rentals. Moreover, they were prevented to use some of the rooms and this constitutesaswaiverforthecompanytocollectrentals.Petitionersfurtheraverredthatthe controversyhasntbeenreferredtoabarangayconciliation. MeTCpetitionersnonpaymentofrentalsisunjustified.Petitionersshouldhave depositedtheirpaymentinthenameofrespondentcompany.However,casewas dismissedbecauseofMs.Bautistasallegedlackofauthoritytosueonbehalfofthe corporation.
GO CINCO v CA
Facts:SpousesGoCincoobtainedaP700,000loanfromMaasinTradersLendingCorporation (MTLC). With the 3% monthly interest (36% annual interest) payable within 6 months, the loanballoonedtoP1,071,256.66.Theloanwasalsosecuredbyarealestatemortgage. Manuel Cinco, the husband,applied for a loanwith PNB and offered thesame property as collateral.PNBgavetheconditionthattheREMbyMTLCshouldbereleasedfirstbeforethe bankcanreleasethefunds. Manuel approached Ester Servacio, MTLCs President, informing her of the loan from PNB thatwillbeusedtopaytheloantohercompany.ManuelexecutedSPAtoauthorizeEsterto collectthefundsfromPNB.However,whenshecametoPNBtocollect,shewasoutragedby thefactthatthesamepropertywasusedascollateralandsherefusedtoreleasetheREM.As theloanwasalreadydue,shenstitutedforeclosureproceedingsagainstthespouses. Spouses Go Cinco filed an action for specific performance, damages, and preliminary injunctionbeforetheRTC.TheyclaimedthattheassignmentoftheproceedsofthePNBloan amountedtothepaymentoftheMTLCloan. Esterclaimsthatsheonlyauthorizedtocollecttheproceedsoftheloanandnottoapplyitas paymenttohercompanysloan. Issue:W/NassignmentofthePNBloanproceedsalreadyamountedtopaymentoftheMTLC loan. Ruling: ARTICLE 1256. If the creditor to whom tender of payment has been maderefuses without justcausetoacceptit,thedebtorshallbereleasedfromresponsibilitybytheconsignationof thethingorsumdue. The court finds that Esters refusal of the payment was without basis. A subsequent mortgageisrecognizedasvalidbylawandbycommercialpractice,subjecttothepriorrights ofpreviousmortgages.
demand that the spouses Go Cinco befreed from the obligation to pay interest on the outstandingamountfromthetimetheunjustrefusaltookplace
However, court cannot agree with Manuels position that this refusal had the effect of payment that extinguished his obligation to MTLC. In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of paymentandconsignation. No completed tender of payment and consignation took place sufficient to constitute payment.However,courtalsofindsthatunderthecircumstances,thespousesGoCincohave undertaken, at the very least,the equivalent of a tender of paymentthat cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and equity
ARTICLE 1267
LAGUNA v MANABAT
FACTS: OnJanuary20,1956,acontractwasexecutedwherebytheBianTransportationCompany leasedtotheLagunaTayabasBusCompanyatamonthlyrentalofP2,500.00itscertificates of public convenience over the lines known as ManilaBian, ManilaCanlubang and Sta. RosaManila, and to the Batangas Transportation Company its certificate of public convenience over the line known as ManilaBatangas Wharf, together with one "International" truck, for a period of five years, renewable for another similar period, to commencefromtheapprovaloftheleasecontractbythePublicServiceCommission.Onthe same date the Public Service Commission provisionally approved the lease contract on condition that the lessees should operate on the leased lines in accordance with the prescribedtimescheduleandthatsuchapprovalwassubjecttomodificationorcancellation andtowhateverdecisionthatinduetimemightberenderedinthecase. Sometime after the execution of the lease contract, the plaintiff Bian Transportation Company was declared insolvent in Special Proceedings No. B30 of the Court of First Instance of Laguna, and Francisco C. Manabat was appointed as its assignee. From time to time,thedefendantspaidtheleaserentalsuptoDecember,1957,withtheexceptionofthe rental for August 1957, from which there was deducted the sum of P1,836.92 without the consentoftheplaintiff.Thisdeductionwasbasedonthegroundthattheemployeesofthe defendantsontheleasedlineswentonstrikefor6daysinJuneandanother6daysinJuly, 1957,andcausedalossofP500foreachstrike,oratotalofP1,000.00;andthatinCivilCase No.696oftheCourtofFirstInstanceofBatangas,BranchII,judgmentwasrenderedinfavor ofdefendantBatangasTransportationCompanyagainsttheBianTransportationCompany for the sum of P836.92. The assignee of the plaintiff objected to such deduction, claiming thatthecontractofleasewouldbesuspendedonlyifthedefendantscouldnotoperatethe leasedlinesduetotheactionoftheofficers,employeesorlaborersofthelessorbutnotof the lessees, and that the deduction of P836.92 amounted to a fraudulent preference in the insolvencyproceedingsaswhateverjudgmentmighthavebeenrenderedinfavorofanyof the lessees should have been filed as a claim in said proceedings. The defendants neither refunded the deductions nor paid the rentals beginning January, 1958, notwithstanding demandsthereformadefromtimetotime.Atfirst,thedefendantsassuredtheplaintiffthat theleaserentalswouldbepaid,althoughitmightbedelayed,butintheendtheyfailedto complywiththeirpromise.
On February 18, 1958, the Batangas Transportation Company and LagunaTayabas Bus Company separately filed with the Public Service Commission a petition for authority to suspendtheoperationonthelinescoveredbythecertificatesofpublicconvenienceleased to each of them by the Bian Transportation Company. The defendants alleged as reasons thereductionintheamountofdollarsallowedbytheMonetaryBoardoftheCentralBankof thePhilippinesforthepurchaseofsparepartsneededintheoperationoftheirtrucks,the alleged difficulty encountered in securing said parts, and their procurement at exorbitant costs, thus rendering the operation of the leased lines prohibitive. The defendants further alleged that the high cost of operation, coupled with the lack of passenger traffic on the leasedlinesresultedinfinanciallosses.Forthesereasonstheyaskedpermissiontosuspend theoperationoftheleasedlinesuntilsuchtimeastheoperatingexpenseswererestoredto normal levels so as to allow the lessees to realize a reasonable margin of profit from their operation.PSCgrantedthesuspension. On May 19, 1959, plaintiff Bian Transportation Company represented by Francisco C. Manabat, assignee, filed this action against defendants Laguna Tayabas Bus Company and BatangasTransportationCompanyfortherecoveryofthesumofP42,500representingthe accrued rentals for the lease of the certificates of public convenience of the former to the latter,correspondingtotheperiodfromJanuary1958,toMay1959,inclusive,plusthesum ofP1,836.92whichwasdeductedbythedefendantsfromtherentalsdueforAugust,1957, together with all subsequent rentals from June, 1959, that became due and payable; P5,000.00forattorney'sfeesandsuchcorrectiveandexemplarydamagesasthecourtmay findreasonable. ISSUE: W/NPetitionerisentitledtoareducedamountofrentalsonthesubjectmatterofthelease was allegedly not used by them as a result of the suspension of operations on the lines authorizedbythePublicServiceCommission?N RULING: Whereapersonbyhiscontractchargeshimselfwithanobligationpossibletobeperformed, hemustperformit,unlesstheperformanceisrenderedimpossiblebytheactofGod,bythe law,orbytheotherparty,itbeingtherulethatincasethepartydesirestobeexcusedfrom theperformanceintheeventofcontingenciesarising,itishisdutytoprovidethereforinhis contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits tobe had under the contract, by weather conditions, by financial
stringencyorbystagnationofbusiness.Neitherisperformanceexcusedbythefactthatthe contractturnsouttobehardandimprovident,unprofitable,orimpracticable,illadvised, orevenfoolish,orlessprofitable,unexpectedlyburdensome. Petitioners, it must be recalled, promised to pay the accrued rentals in due time. Later, however,whentheybelievedtheyfoundaconvenientexcuseforescapingtheirobligation, they reneged on their earlier promise. Moreover, petitioners' option to suspend operation ontheleasedlinesappearsmalicious. Since, by the lease, the lessee was to have the advantage of casual profits of the leased premises,heshouldrunthehazardofcasuallossesduringthetermandnotlaythewhole burdenuponthelessor. The suspension of operation on the leased lines was conceived as a scheme to lessen operationcostswiththeexpectationofgreaterprofit.Thepetitionersarethusnotentitled toreducedrentals. Issue/Held: Does the increase in prices constitute a sufficient cause of action of for modificationofthesubdivisioncontract?No. Rationale: ART.1267oftheCivilCode: When the service has become so difficult as to be manifestly beyond the contemplationoftheparties,theobligormayalsobereleasedtherefrom,inwhole orinpart. Respondent'scomplaintformodificationofcontractmanifestlyhasnobasisinlaw and therefore states no cause of action. Under the particular allegations of respondent'scomplaintandthecircumstancesthereinaverred,thecourtscannot eveninequitygrantthereliefsought. WhilerespondentcourtcorrectlycitedinitsdecisiontheCodeCommission'sreport givingtherationaleforArticle1267oftheCivilCode,towit:[t]hegeneralruleis thatimpossibilityofperformancereleasestheobligor.However,itissubmittedthat when the service has become so difficult as to be manifestly beyond the contemplationoftheparties,thecourtshouldbeauthorizedtoreleasetheobligor inwholeorinpart.Theintentionofthepartiesshouldgovernandifitappearsthat theserviceturnsouttobesodifficultashavebeenbeyondtheircontemplation,it wouldbedoingviolencetothatintentiontoholdtheobligorstillresponsible,the respondentcourtmisappliedthesametorespondent'scomplaint. If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could show at the trial that the service undertakencontractuallybyithad"becomesodifficultastobemanifestlybeyond the contemplation of the parties", then respondent court's upholding of respondent'scomplaintanddismissalofthepetitionwouldbejustifiableunderthe cited codal article. Without said article, respondent would remain bound by its contractundertheprevailingdoctrinethatperformancetherewithisnotexcused "bythefactthatthecontractturnsouttobehardandimprovident,unprofitable, or unexpectedly burdensome",since in case a party desires to be excused from performanceintheeventofsuchcontingenciesarising,itishisdutytoprovideitin thecontract. However,respondent'scomplaintseeksnotreleasefromthesubdivisioncontract but that the court render judgment in modifying the terms and conditions of the contractbyfixingthepropersharesthatshouldpertaintothehereinpartiesoutof thegrossproceedsfromthesalesofsubdividedlotsofsubjectsubdivision. The cited article does not grant the courts this authority to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law between the parties, so as to substituteitsowntermsforthosecovenantedbythepartiesthemselves.
OCCENA v JABSON (borrowed from A)

Facts:
Private respondent Tropical Homes, Inc. entered into a subdivision contract with petitionerswhereinrespondentguaranteedpetitioners(aslandownersofa55,330 squaremeterparceloflandinDavaoCity)anamountequivalentto40%ofallcash receipts from the sale of the subdivision lots. Respondent filed a complaint for modificationofthetermsandconditionsofthecontractwithpetitioners,alleging that: - due to the increase in price of oil and its derivatives and the concomitant worldwidespirallingofprices,whicharenotwithinthecontrolofplaintiff,ofall commodities including basis raw materials required for such development work, the cost of development has risen to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at the timesaidagreementwasenteredintoandtosuchadegreethattheconditions andfactorswhichformedtheoriginalbasisofsaidcontract,havebeentotally changed; - furtherperformancebytheplaintiffunderthecontractwillresultinsituation where defendants would be unustly enriched at the expense of the plaintiff; will cause an inequitous distribution of proceeds from thesales of subdivided lotsinmanifestactuallyresultintheunjustandintolerableexposureofplaintiff to implacable losses, all such situations resulting in an unconscionable, unjust andimmoralsituationcontrarytoandinviolationoftheprimordialconceptsof goodfaith,fairnessandequitywhichshouldpervadeallhumanrelations. Petitioners insist that the worldwide increase in prices cited by respondent does not constitute a sufficient cause of action for modification of the subdivision contract.
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NAGA TELEPHONE v CA
Facts: NagaTelephoneCo.,Inc.(NATELCO)isatelephonecompanyrenderinglocalaswellaslong distance telephone service in Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operatinganelectricpowerserviceinthesamecity.Thepartiesenteredintoacontract(Exh. "A")fortheusebypetitionersintheoperationofitstelephoneservicetheelectriclightposts 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. The contractprovidedthat: (a) Thatthetermorperiodofthiscontractshallbeaslongasthepartyofthefirstpart has need for the electric light posts of the party of the second part it being understoodthatthiscontractshallterminatewhenforanyreasonwhatsoever,the partyofthesecondpartisforcedtostop,abandoned[sic]itsoperationasapublic serviceanditbecomesnecessarytoremovetheelectriclightpost;xxx Theprovisionspeaksofservice(meaningperformanceoftheobligation)w/chasbecomeso difficult.Itdoesntrequirethatthecontractbeforfutureservicew/futureunusualchange. Rather, it speaks of unforeseen events or the discredited theory of rebus sic stantibus in publicinternationallawwhereinpartiesstipulateinthelightofcertainprevailingconditions &oncetheseconditionsceasetoexistthecontractalsoceases.Equity&goodfaithdemand thatwhenbasisofthecontractdisappears,theprejudicedpartyhasarighttorelief. Factthatthisprovisionwasnotraisedbythepartiesintheirpleadings&wasneversubjectof trialisimmaterial.Courthasdiscretiontoconsideranunassignederrorthatiscloselyrelated to an error properly assigned as long as the consideration is necessary in arriving at a just decision.Thematerialallegationsoffactinthecomplaint&notthelegalconclusionmadeor theprayerthatdeterminestherelieftow/ctheplaintiffisentitledandplaintiffisentitledto asmuchreliefasthefactswarrantalthoughthatreliefisnotspecificallyprayedfor.NATELCO wasgiventheopportunitytopresentitsevidenceWRTthismatterwhentheyweregiven Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplationoftheparties,theobligormayalsobereleasedtherefrom,inwholeorinpart. ThechancetoanswertheissueofWONthecontracthasbecometooonesidedinitsfavor& tooiniquitous,unfair&disadvantageoustoCASURECO. 2. No. The case provides that Art. 1267 doesnt authorize the courts to remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulatedw/theforceoflawbetweentheparties.Complaintforthemodificationofcontract wasdismissedforfailuretostateacauseofaction. Inthiscase,CASURECOscomplaint&evidenceitpresentedsufficientlymadeoutacauseof actionunderArt.1267. Parties are released from their correlative obligations under the contract. But taking into accountthepossibleconsequencesofmerelyreleasingthepartiesfromthecontract,theSC decidedtoupholdthetrialcourtrulingWRTpaymentforuseofpostandthephonelinesso asnotdisruptthebasic&essentialservicesbeingrenderedbybothcompaniesandtoavoid unjustenrichmentbyNATELCOattheexpenseofCASURECO
After the contract had been enforced for over ten (10) years, private respondent filed on January2,1989withtheRegionalTrialCourtofNagaCity(Br.28)C.C.No.891642against petitionersforreformationofthecontractwithdamages,onthegroundthatitistooone sidedinfavorofpetitioners;thatitisnotinconformitywiththeguidelinesoftheNational Electrification Administration (NEA) which direct that the reasonable compensation for the useofthepostsisP10.00perpost,permonth;thataftereleven(11)yearsofpetitioners'use oftheposts,thetelephonecablesstrungbythemthereonhavebecomemuchheavierwith theincreaseinthevolumeoftheirsubscribers,worsenedbythefactthattheirlinemenbore holes through the posts at which points those posts were broken during typhoons; that a postnowcostsasmuchasP2,630.00;sothatjusticeandequitydemandthatthecontractbe reformedtoabolishtheinequitiesthereon. Issue: 1. 2. Ruling: 1. Yes. NATELCO claims its not since contract in this case doesnt involve rendition of service/personal prestation and its not for future service w/future unusual change. It invokesOccenavs.Jabson.AndthearticlewasneverraisedbyCASURECO. WhetherornotArt.1267isapplicable. WhetherornottherulinginOccenaisapplicable.
MAGAT v CA
Facts: SantiagoGuerrerowasthePresidentofGuerreroTransportServices,whichwonthebidfor theoperationofafleetoftaxicabsinSubic.Guerreroistoprovide160radiocontrolledtaxi
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servicewithintheNavalBase.WhenPres.MarcosproclaimedMartialLaw,heissuedLOINo. 1 which mandated the seizure and control of all privately owned newspapers, magazines, RADIO, and television facilities and other media of communication. Pursuant to this, the RadioControl OfficeissuedAdmin.Circ.4whichsuspendedtheapplicationtheacceptance and processing of application for radio station construction and permits to own radio transmittersortransceivers. Guerrero and Victorino Magat, GM of Spectrum Electronic Laboratories, entered into a contract for the purchase of transceivers FOB Yokohama. Magat was to deliver the transceivers within 6090 days after receiving notice from Guerrero of the assigned radio frequencytakingnoteoftheGovtregulations.AnavalofficerconfirmedthatGuerrerowon the bid [for the operation in Subic]. Isidro Aligada of Reliance Group Engineers, informed MagatthataradiofrequencyhasnotyetbeenassignedtoGuerrerobutheadvisedMagatto proceed Magat to inform the supplier to proceed with production pending frequency information. Guerrero then informed Aligada of the frequency assigned by the Subic Naval BaseauthoritiesandinstructedhimtoproceedwiththeorderthruSpectrum.Aligadathen relayed this information to Magat. Guerrero then applied for a letter of credit with Metrobankbutthiswasnotpursued.MagatinformedGuerrerothatshouldthecontractwith theJapanesesupplierbecancelled,thelatterwouldforfeit30%ofthedepositandchargea cancellationfee.Unabletogettheletterofcredit, thecontractwascancelled. Magatthen filed a complaint for damages against Guerrero for breach of contract. Guerrero moved to dismissthecomplaintwhichtheRTCgranted.MagatfiledapetitionforreviewwiththeSC which reversed and remanded the case. The RTC ruled in favor of the Heirs of Magat [Victorino died so he was substituted by the heirs]. On appeal the CA dismissed the complainthencethecaseatbar. Issue:W/Nthecontractwasvoidbecausethesubjectmatter[transceivers]werecontraband itemsprohibitedbytheLOIandAdminCiricular Held:NO!Contractvalid.TransceiversNOTcontraband Contraband refers to any property which is unlawful to produce or to possess or to goods whichareexported/importedtoacountryagainstitslaws.TherewasnothingintheLOIor theCircularwhichprohibitstheimportationoftransceivers.TheLOIandtheCirculardidnot render them illegal per se. It only suspended the acceptance and processing of the applications for. Processing and importation were legal provided one has the necessary license for it. Transceivers were not prohibitedbut merely regulated goods. The LOI or the Circular did not render the transceivers outside the commerce of man. they were valid objectsofthecontract. Astothebreachofcontract Guerrero was prevented from securing a letter of credit because a permit to import the transceivers was denied by the Radio Control Board. The office of the Pres also explained that radios were banned like guns during martial law. The law however provides that when the service required by the contract has become so manifestly beyond the contemplation of the parties, the obligor may be released therefrom in whole or in part. Guerreros inability to secure a L/C and to comply with his obligation was a direct consequenceofthedenialofthepermittoimport.Hencehecannotbefaulted.Evenifthere wasbreach,thereshouldnotbeanyawardofdamagesastherewasnobadfaithonhispart.
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ARTICLE 1291
FOUNDATION SPECIALISTS v BETONVAL
FACTS On separate dates, Foundation Specialists, Inc. (FSI) and Betonval Ready Concrete, Inc. (Betonval)executed3contractsforthedeliveryofreadymixedconcretebyBetonvaltoFSI. Thebasicstipulationswere: (a)forFSItosupplythecementtobemadeintoreadymixedconcrete; (b)forFSItopayBetonvalwithinsevendaysafterpresentationoftheinvoicesplus 30%interestp.a.incaseofoverduepaymentsand (c)acreditlimitofP600,000forFSI. BetonvaldeliveredthereadymixedconcretepursuanttothecontractsbutFSIfailedtopay its outstanding balances. As an accommodation to FSI, Betonval extended the 7 day credit periodto45days. BetonvalinformedFSIthatfurtherdefaultswouldleaveitnootherchoicebuttoimposethe stipulatedinterestforlatepaymentsandtakeappropriatelegalactiontoprotectitsinterest. FSIsentBetonvalaproposedscheduleofpaymentsdevisedwithaliabilityforlatepayments fixed at 24% p.a. Thereafter, FSI paid Betonval according to the terms of its proposed schedule of payments. It was able to reduce its debt, inclusive of the 24% annual interest computed from the due date of the invoices. Nevertheless, it failed to fully settle its obligation. BetonvalthereafterfiledanactionforsumofmoneyanddamagesintheRTC.Italsoapplied fortheissuanceofawritofpreliminaryattachmentallegingthatFSIemployedfraudwhenit contractedwithBetonvalandthatitwasdisposingofitsassetsinfraudofitscreditors.FSI denied Betonvals allegations and moved for the dismissal of the complaint. The amount claimed was allegedly not due and demandable because they were still reconciling their respectiverecords.RTCruledforBetonval. FSIandStrongholdseparatelyfiledmotionsforreconsiderationwhileBetonvalfiledamotion forclarificationandreconsideration.RTCdeniedthemotionsforreconsiderationofBetonval andStronghold.AllpartiesappealedtotheCourtofAppeals(CA). Initsappeal,Betonvalassailedtheawardofactualdamagesaswellastheimpositionoflegal interest at only 12%, instead of 24% as agreed on. CA upheld the RTC order with modification.ThatFSIshouldpayBetonvalthevalueofunpaidreadymixedconcreteat24% p.a.interestpluslegalinterestat12%. ISSUE:WetherthegranttoFSIofa45daycreditextensionnovatedthecontractsinsofaras FSIsobligationtopayanyinterestwasconcerned?NO RATIO:
1.
NOVATION. Novation is one of the modes of extinguishing an obligation. It is done by thesubstitutionorchangeoftheobligationbyasubsequentonewhichextinguishesthe first,eitherbychangingtheobjectorprincipalconditions,orbysubstitutingtheperson ofthedebtor,orbysubrogatingathirdpersonintherightsofthecreditor. Novationmayeitherbeextinctiveormodificatory,muchbeingdependentonthenature ofthechangeandtheintentionoftheparties.
A. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates thattheincompatibilitybetweentheoldandnewobligationbetotaloneverypoint suchthattheoldobligationiscompletelysupercededbythenewone.Thetestof incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligationwouldalsoextinguishthefirst. Anextinctivenovationwouldthushavethetwineffectsof,first,extinguishingan existing obligation and, second, creating a new one in its stead. This kind of novationpresupposesaconfluenceoffouressentialrequisites:(1)apreviousvalid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishmentoftheoldobligation,and(4)thebirthofavalidnewobligation.
Novation is merely modificatory where the change brought about by any subsequentagreementismerelyincidentaltothemainobligation(e.g.,achangein interestratesoranextensionoftimetopay;inthisinstance,thenewagreement willnothavetheeffectofextinguishingthefirstbutwouldmerelysupplementitor supplantsomebutnotallofitsprovisions.) The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatiblewiththeoldonesorthenewcontractmerelysupplementstheoldone. 2. CASEATBAR.ThegrantbyBetonvaltoFSIofa45daycreditextensiondidnotnovate thecontractssoastoextinguishthelatter.Therewasnoincompatibilitybetweenthem. Therewasnointentionbythepartiestosupersedetheobligationsunderthecontracts. In fact, the intention of the 45day credit extension was precisely to revive the old obligationaftertheoriginalperiodexpiredwiththeobligationunfulfilled.Thegrantofa 45day credit period merely modified the contracts by extending the period within whichFSIwasallowedtosettleitsobligation.Sincethecontractsremainedthesource of FSIs obligation to Betonval, the stipulation to pay 30% p.a. interest likewise remained. B.
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Parties are bound by the express stipulations of their contract as well as by what is required by the nature of the obligation in keeping with good faith, usage and law. Corollarily,ifpartiestoacontractexpresslyprovideforaparticularrateofinterest,then thatinterestshallbeapplied. It is clear that Betonval and FSI agreed on the payment of interest. It is beyond comprehension how Betonvals prayer for a 24% interest on FSIs balance could have resulted in a situation as if no interest rate had been agreed upon. Besides, FSIs proposedscheduleofpaymentsreferringtoBetonvalsstatementofaccount,contained computationsofFSIsarrearsandbillingswith24%p.a.interest. TherecanbenootherconclusionbutthatBetonvalhadreducedtheimposableinterest ratefrom30%to24%p.a.andthisreducedinterestratewasaccepted,albeitimpliedly, by FSI when it proposed a new schedule of payments and, in fact, actually made payments to Betonval with 24% p.a. interest. By its own actions, therefore, FSI is estoppedfromquestioningtheimposablerateofinterest. Theimpositionofa12%p.a.interestontheawardtoBetonval(inadditiontothe24% p.a. interest) in the assailed judgment is proper. When the judgment of the court awardingasumofmoneybecomesfinalandexecutory,therateoflegalinterestshall be12%p.a.fromsuchfinalityuntilitssatisfaction,thisinterimperiodbeingdeemedto bebythenanequivalenttoaforbearanceofcredit.
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ARTICLE 1306
REPUBLIC v PLDT
Facts: Sometimein1933,thedefendant,PLDT,andtheRCACommunications,Inc.,enteredintoan agreement whereby telephone messages, coming from the United States and received by RCA's domestic station, could automatically be transferred to the lines of PLDT; and vice versa.PLDTgavenoticetoRCAtoterminatetheircontracton2February1958. Soon after its creation in 1947, the Bureau of Telecommunications set up its own Government Telephone System by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT to enable government offices to call private parties. Its application for the use of these trunk lines was in the usual form of applications for telephone service, containing a statement, above the signature of the applicant, that the latterwillabidebytherulesandregulationsofthePLDT.Oneofthemanyrulesprohibitsthe publicuseoftheservicefurnishedthetelephonesubscriberforhisprivateuse. On5March1958,theplaintiff,throughtheDirectorofTelecommunications,enteredintoan agreement with RCA Communications, Inc., for a joint overseas telephone service whereby the Bureau would convey radiotelephone overseas calls received by RCA's station to and fromlocalresidents. On7April1958,thedefendantPhilippineLongDistanceTelephoneCompany,complainedto theBureauofTelecommunicationsthatsaidbureauwasviolatingtheconditionsreferringto the rented trunk lines, for the Bureau had used the trunk lines not only for the use of governmentofficesbuteventoserveprivatepersonsorthegeneralpublic, incompetition withthebusinessofthePLDT.WhenthePLDTreceivednoreply,itdisconnectedthetrunk linesbeingrentedbytheBureau. At that time, the Bureau was maintaining 5,000 telephones and had 5,000 pending applicationsfortelephoneconnection.ThePLDTwasalsomaintaining60,000telephonesand hadalso20,000pendingapplications. PlaintiffRepubliccommencedsuitagainstthedefendant,PhilippineLongDistanceTelephone Company, in the Court of First Instance of Manila praying in its complaint for judgment commandingthePLDTtoexecuteacontractwithplaintiff,throughtheBureau,fortheuseof thefacilitiesofdefendant'stelephonesystemthroughoutthePhilippinesundersuchterms and conditions as the court might consider reasonable, and for a writ of preliminary
injunctionagainstthedefendantcompanytorestraintheseveranceoftheexistingtelephone connectionsand/orrestorethosesevered. Issue: 1.WhetherPLDTmaybecompelledtoenterintoanagreementwiththeRepublic 2. Whether PLDT was justified in disconnecting the lines of the Republic for the alleged violationofusingthelinesforpublicuse Ruling: 1. NO. The parties cannot be coerced to enter into a contract where no agreement is had betweenthemastotheprincipaltermsandconditionsofthecontract.Freedomtostipulate suchtermsandconditionsisoftheessenceofourcontractualsystem. HOWEVER, the lower court has apparently overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnectionofthegovernmenttelephonesystemandthatofthePLDT,astheneedsof the government service may require, subject to the payment of just compensation to be determinedbythecourt.Itisunquestionablethatrealpropertymay,throughexpropriation, besubjectedtoaneasementofrightofway.TheuseofthePLDT'slinesandservicestoallow interservice connection between both telephone systems is not much different. In either case private property is subjected to a burden for public use and benefit. Ultimately, the beneficiaryoftheinterconnectingservicewouldbetheusersofbothtelephonesystems,so thatthecondemnationwouldbeforpublicuse. The Bureau of Telecommunications, under section 78 (b) of Executive Order No. 94, may operate and maintain wire telephone or radio telephone communications throughout the Philippinesbyutilizingexistingfacilitiesincities,towns,andprovincesundersuchtermsand conditionsorarrangementwithpresentownersoroperatorsasmaybeagreedupontothe satisfactionofallconcerned;butthereisnothinginthissectionthatwouldexcluderesortto condemnationproceedingswhereunreasonableorunjusttermsandconditionsareexacted, totheextentofcripplingorseriouslyhamperingtheoperationsofsaidBureau. 2. NO. Executive Order No. 94, Series of 1947, reorganizing the Bureau of Telecommunications, expressly empowered the latter in its Section 79, subsection (b), to "negotiate for, operate and maintain wire telephone or radio telephone communication servicethroughoutthePhilippines",and,insubsection(c),"toprescribe,subjecttoapproval by the Department Head, equitable rates of charges for messages handled by the system
15
and/or for time calls and other services that may be rendered by the system". Nothing in these provisions limits the Bureau to noncommercial activities or prevents it from serving thegeneralpublic.Itisawellknownrulethaterroneousapplicationandenforcementofthe lawbypublicofficersdonotblocksubsequentcorrectapplicationofthestatuteandthatthe Governmentisneverestoppedbymistakeorerroronthepartofitsagents.. Also, there are other reasons to allow the Republic for continuing its telephone lines with PLDT.First,thecompetitionismerelyhypothetical,thedemandfortelephoneservicebeing verymuchmorethanthesupposedcompetitorscansupply.Aspreviouslynoted,thePLDT had 20,000 pending applications at the time, and the Bureau had another 5,000. The telephone company's inability to meet the demands for service are notorious even now. Second,thecharterofthedefendantexpresslyprovidesSEC.14.Therightshereingranted shallnotbeexclusive,andtherightsandpowertogranttoanycorporation,associationor person other than the grantee franchise for the telephone or electrical transmission of message or signals shall not be impaired or affected by the granting of this franchise. And third,asthetrialcourtcorrectlystated,"whentheBureauofTelecommunicationssubscribed to the trunk lines, defendant knew or should have known that their use by the subscriber wasmoreorlesspublicandallembracinginnature,thatis,throughoutthePhilippines,ifnot abroad."Theacceptancebythedefendantofthepaymentofrentals,despiteitsknowledge that the plaintiff had extended the use of the trunk lines to commercial purposes, continuously since 1948, implies assent by the defendant to such extended use. Since this relationship has been maintained for a long time and the public has patronized both telephonesystems,andtheirinterconnectionistothepublicconvenience,itistoolatefor thedefendanttoclaimmisuseofitsfacilities,anditisnotnowatlibertytounilaterallysever thephysicalconnectionofthetrunklines.Whereprivatepropertyisbytheconsentofthe ownerinvestedwithapublicinterestorprivilegeforthebenefitofthepublic,theownercan no longer deal with it as private property only, but must hold it subject to the right of the publicintheexerciseofthatpublicinterestorprivilegeconferredfortheirbenefit. It is clear that the main reason for the objection of the PLDT lies in the fact that said appellant did not expect that the Bureau's telephone system would expand with such rapidityasithasdone;butthisexpansionisnogroundforthediscontinuanceoftheservice agreedupon. Law of Abad Santos, Cui followed. After graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issuetohimtheneededtranscripts.Thedefendantrefuseduntilafterhehadpaidbackthe P1,03387whichwashistuitionwhenhewasstillenrolledwithArellano. Beforehewasactuallygivenhisscholarship,Cuihadtosignthefollowingagreement: "InconsiderationofthescholarshipgrantedtomebytheUniversity,Iherebywaive my right to transfer to another school without having refunded to the University (defendant)theequivalentofmyscholarshipcash. (Sgd.)EmeterioCui". It is admitted that, on August 16, 1949, the Director of Private Schools issued MemorandumNo.38,seriesof1949,onthesubjectof"Scholarship,"addressedto "Allheadsofprivateschools,collegesanduniversities,"reading: XXX 2. When students are given full or partial scholarships, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution.Scholarshipsshouldnotbeofferedmerelytoattractandkeepstudents inaschool. XXX Notwithstanding,theUniversityrefusedtoissuesaidtranscriptofrecords,unlesssaidrefund weremade.Asabovestated,plaintiffwas,accordingly,constrainedtopay,anddidpayunder protest,saidsumofP1,033.87,inorderthathecouldtakethebarexamination. Issue: Whether the above quoted provision of the contract between plaintiff and the defendant, wherebytheformerwaivedhisrighttotransfertoanotherschoolwithoutrefundingtothe lattertheequivalentofhisscholarshipsincash,isvalidornot.
CUI v ARELLANO UNIVERSITY

Facts: PlaintiffCuienrolledwithDefendantUniversityasascholarforhispreparatorylawcourse. Whenhisuncle,DeanCapistranoleftArellanoUniversityasDeanandwenttotheCollegeof
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Ruling:NO. Inordertodeclareacontractvoidasagainstpublicpolicy,acourtmustfindthatthecontract astoconsiderationorthethingtobedone,contravenessomeestablishedinterestofsociety, or is inconsistent with sound policy and good morals or tends clearly to undermine the securityofindividualrights.ThepolicyenunciatedinMemorandumNo.38,s.1949issound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in schooltobolsteritsprestige.Intheunderstandingofthatuniversityscholarshipsawardisa businessschemedesignedtoincreasethebusinesspotentialofaneducationinstitution.Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals?Manresahasthisdefinition.Itisgoodcustoms;thosegenerallyacceptedprinciples ofmoralitywhichhavereceivedsomekindofsocialandpracticalconfirmation.Thepractice ofawardingscholarshipstoattractstudentsandkeeptheminschoolisnotgoodcustomsnor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. In these institutions scholarships are granted not to attractandtokeepbrilliantstudentsinschoolfortheirpropagandaminebuttorewardmerit orhelpgiftedstudentsinwhomsocietyhasanestablishedinterestorafirstlien. commerceofman.Amongthemarethepoliticalrightsconferreduponcitizens,including, but not limited to, once's right to vote, the right to present one's candidacy to the people andtobevotedtopublicoffice,provided,however,thatallthequalificationsprescribedby law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for theyareconferrednotforindividualorprivatebenefitoradvantagebutforthepublicgood andinterest. Constitutional and statutory provisions fix the qualifications of persons who may be eligibleforcertainelectivepublicoffices.Saidrequirementsmayneitherbeenlargednor reduced by mere agreements between private parties. A voter possessing all the qualificationsrequiredtofillanofficemay,byhimselforthroughapoliticalpartyorgroup, presenthiscandidacywithoutfurtherlimitationsthanthoseprovidedbylaw. In the case at hand, we certainly cannot entertain plaintiff's action, which would result in limitingthechoiceoftheelectorstoonlythosepersonsselectedbyasmallgrouporbyparty boses.
REGINO v PANGASINAN COLLEGES

FACTS: Thisisapetitionforreviewunderrule45onpurequestionsoflaw.PetitionerKhristineRea M.ReginowasafirstyearcomputersciencestudentatRespondentPangasinanCollegesof Science and Technology (PCST). During the second semester ofschool year 20012002, she enrolled in the subjects logic and statistics under Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers. That semester, PCST held a fund raising campaign dubbed the "Rave Party and Dance Revolution," the proceeds of which were to go to the constructionoftheschool'stennisandvolleyballcourts. EachstudentwasrequiredtopayfortwoticketsatthepriceofP100each.Theprojectwas allegedly implemented by recompensing students who purchased tickets with additional pointsintheirtestscores;thosewhorefusedtopayweredeniedtheopportunitytotakethe finalexaminations.Financiallystrappedandprohibitedbyherreligionfromattendingdance parties and celebrations, Regino refused to pay for the tickets. As a result, Gamurot and Baladad allegedly disallowed her from taking the tests.The two teachers unrelentingly defendedtheirpositionsascompliancewithPCST'spolicy. Petitioner thus failed a Complaint for damages against PCST, Gamurot and Baladad. Respondents filed a Motion to Dismiss6on the ground of Petitioner's failure to exhaust administrativeremedies.Theactionwasdismissedonthegroundoflackofcauseofaction. The trial court noted that the instant controversy involved a higher institution of learning, twoofitsfacultymembersandoneofitsstudents.Thus,itarguedthatanactionshouldhave beenfiledfirstwiththeCHED.Reginothusfiledthepresentpetitionessentiallyquestioning
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SAURA v SINDICO
candidate of the Nacionalista Party in the 4th district of Pangasinan in the congressional elections.Thepartiesenteredintoawrittenagreement,containingapledgethat Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall eitherrunasarebelorindependentcandidateafterlosinginsaidconvention. In the provincial convention held by the Nacionalista Party, Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed her certificate of candidacy for the same office with the COMELEC, and she openly and actively campaigned forherelection.Wherefore,Sauracommencedthissuitfortherecoveryofdamages. Thelowercourtdismissedthecomplaintonthebasisthattheagreementsueduponisnull andvoid,inthat(1)thesubjectmatterofthecontract,beingapublicoffice,isnotwithinthe commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchiseandthereforeagainstpublicpolicy. ISSUE:w/ntheagreementisnullandvoid. YES. Amongthosethatmaynotbethesubjectmatter(object)ofcontractsarecertainrightsof individuals, which the law and public policy have deemed wise to exclude from the
Ramon Saura and Estela Sindico were contesting for nomination as the official
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the application by the trial court of the principle of exhaustionof administrative remedies. Nevertheless, the Supreme Court implied from the petition a second issue of whether the Complaintstatedsufficientcause(s)ofaction. ISSUE: 1. 2. 3. 4. HELD: 1. No.PetitionerisnotaskingforthereversalofthepoliciesofPCST.Neitherisshe demandingittoallowhertotakeherfinalexaminations;shewasalreadyenrolled inanothereducationalinstitution.Areversaloftheactscomplainedofwouldnot adequatelyredresshergrievances;underthecircumstances,theconsequencesof respondents' acts could no longer be undone or rectified. Also, Administrative agenciesarenotcourts;theyareneitherpartofthejudicialsystem,norarethey deemedjudicialtribunals.Specifically,theCHEDdoesnothavethepowertoaward damages.Hence, petitioner could not have commenced her case before the Commission.Lastly,theissueispurelylegalandwellwithinthejurisdictionofthe trialcourt.17Petitioner'sactionfordamagesinevitablycallsfortheapplicationand the interpretation of the Civil Code, a function that falls within the jurisdiction of thecourts. Yes. In previous cases, the Court has characterized the relationship between the school and the student as a contract in which a student, once admitted by the school, is considered enrolled for one semester. This was modified by a holding that the contractual relationship between the school and the student is not only semestralinduration,butfortheentireperiodthelatterisexpectedtocomplete it. The schoolstudent relationship is also reciprocal. Thus, it has consequences appurtenanttoandinherentinallcontractsofsuchkinditgivesrisetobilateral orreciprocalrightsandobligations.Theschoolundertakestoprovidestudentswith educationsufficienttoenablethemtopursuehighereducationoraprofession.On theotherhand,thestudentsagreetoabidebytheacademicrequirementsofthe school and to observe its rules and regulations. The terms of the schoolstudent contract are defined at the moment of its inception upon enrolment of the student. Standards of academic performance and the code of behavior and disciplineareusuallysetforthinmanualsdistributedtonewstudentsatthestart ofeveryschoolyear.Further,schoolsinformprospectiveenrolleestheamountof feesandthetermsofpayment.Thus,studentsexpectthatupontheirpaymentof tuition fees, satisfaction of the set academic standards, completion of academic Is the dismissal based on the principle of exhaustion of administrative remedies proper? DoesPetitionerhaveacauseofactionbasedoncontract? Doesshehaveacauseofactionbasedontort? IstheprincipleofacademicfreedomaproperdefenseforRespondents? requirements and observance of school rules and regulations, the school would reward them by recognizing their "completion" of the course enrolled in. Corollarily, the Court has also held that barring any violation of the rules on the partofthestudents,aninstitutionofhigherlearninghasacontractualobligationto afforditsstudentsafairopportunitytocompletethecoursetheyseektopursue. Nevertheless,inapreviouscase,theCourtrecognizedtheneedofaschooltofund its facilities and to meet astronomical operating costs. In that case, the Court upheld the imposition by school of a "land purchase deposit" in the amount of P50,000 per student to be used for the "purchase of a piece of land and for the construction of new buildings and other facilities x x x which the school would transfer [to] and occupy after the expiration of its lease contract over its present site. Thedifferenceofthatsaidcasefromthepresentone,however,isthefactthatin the former, the imposition of the fee was made only after prior consultation and approval by the parents of the students. In the present case, the Respondents imposed the assailed revenueraising measure belatedly, in the middle of the semester.Itexactedthedancepartyfeeasaconditionforthestudents'takingthe final examinations, and ultimately for its recognition of their ability to finish a course.Thefee,however,wasnotpartoftheschoolstudentcontractenteredinto atthestartoftheschoolyear.Hence,itcould notbeunilaterallyimposedtothe prejudice of the enrollees. The Court also hinged its ruling on the fact that the schoolstudentcontractisimbuedwithpublicinterest,consideringthehighpriority givenbytheConstitutiontoeducation. Yes.Generally,liabilityfortortarisesonlybetweenpartiesnototherwiseboundby acontract.Anacademicinstitution,however,maybeheldliablefortortevenifit hasanexistingcontractwithitsstudents,sincetheactthatviolatedthecontract may also be a tort. The Court cited the case of Cangco, thus: When such a contractual relation exists the obligor may break the contract under such conditionsthatthesameactwhichconstitutesabreachofthecontractwouldhave constituted the source of an extracontractual obligation had no contract existed betweentheparties. No.TheCourtsaidthatonceaschoolhas,inthenameofacademicfreedom,set its standards, these should be meticulously observed and should not be used to discriminate against certain students. After accepting them upon enrollment, the school cannot renege on its contractual obligation on grounds other than those madeknownto,andacceptedby,studentsatthestartoftheschoolyear.Inthe end, the Court instructed the trial court to reinstate the complaint and proceed withthecase.
3.
2.
4.
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DUNCAN v GLAXO
Facts: Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome Philippines, Inc. (Glaxo) as medical representative where he had undergone training and orientation. Thereafter,Tecsonsignedacontractofemploymentwhichstipulates,amongothers,thathe agreestostudyandabidebyexistingcompanyrules;todisclosetomanagementanyexisting or future relationship by consanguinity or affinity with coemployees or employees of competing drug companies and should management find that such relationship poses a possibleconflictofinterest,toresignfromthecompany. Subsequently,TecsonenteredintoaromanticrelationshipwithBettsy,anemployeeofAstra Pharmaceuticals(Astra),acompetitorofGlaxo.TecsonandBettsysubsequentlygotmarried. ThisledGlaxototerminateTecson: GlaxogaveTecsontheoptiontoconvinceBettsytoresign Tecsonaskedfortimetocomplysincetheyarewaitingforagoodredundancyofferof AstratoBesty TecsonsubsequentlyrequestedtotransfertomilkdivisionofGlaxo,butdenied Broughttheissuebeforethegrievancemachinery,butfailedtoagree Brought the matter for conciliation before the National Conciliation and Mediation Boardbutstillfailedtoagree.GlaxoofferedPhp50kasseparationpay. TecsonfiledaPetitionforCertiorariwiththeCArulinginfavorofGlaxo. Petitionersargument:PetitionerscontendthatGlaxospolicyagainstemployeesmarrying employeesofcompetitorcompaniesviolatestheequalprotectionclauseoftheConstitution becauseitcreatesinvaliddistinctionsamongemployeesonaccountonlyofmarriage.They claimthatthepolicyrestrictstheemployeesrighttomarry. Respondentsargument:InitsCommentonthepetition,Glaxoarguesthatthesaidpolicyis a valid exercise of its management prerogatives and does not violate the equal protection clause.Glaxoinsiststhatithasagenuineinterestinensuringthatitsemployeesavoidany activity,relationshiporinterestthatmayconflictwiththeirresponsibilitiestothecompany. It likewise asserts that the policy does not prohibit marriageper sebut only proscribes existing or future relationships with employees of competitor companies, and is therefore not violative of the equal protection clause. It maintains that considering the nature of its business,theprohibitionisbasedonvalidgrounds.Glaxosaidthatthemarriageposedareal andpotentialconflictofinterest.Astrasproductswereindirectcompetitionwith67%ofthe productssoldbyGlaxo.Hence,GlaxosenforcementoftheforegoingpolicyinTecsonscase wasavalidexerciseofitsmanagementprerogatives.Inanycase,Tecsonwasgivenseveral monthstoremedythesituation,andwasevenencouragednottoresignbuttoaskhiswife toresignformAstrainstead. Glaxo also points out that Tecson can no longer question the assailed company policy because when he signed his contract of employment, he was aware that such policy was stipulated therein. In said contract, he also agreed to resign from respondent if the managementfindsthathisrelationshipwithanemployeeofacompetitorcompanywouldbe detrimentaltotheinterestsofGlaxo.(Pleaserefertotheoriginalsregardingthestipulationin thecontract) Issue: Whether the condition in the employment contract regarding the Glaxos policy prohibitingitsemployeesfrommarryinganemployeeofacompetitorcompanyisvalid
Ruling:Yes. Ratio: Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing strategiesandotherconfidentialprogramsandinformationfromcompetitors,especiallyso thatitandAstraarerivalcompaniesinthehighlycompetitivepharmaceuticalindustry. The prohibition against personal or marital relationships with employees of competitor companies upon Glaxos employees is reasonable under the circumstances because relationshipsofthatnaturemightcompromisetheinterestsofthecompany.Inlayingdown the assailed company policy, Glaxo only aims to protect its interests against the possibility thatacompetitorcompanywillgainaccesstoitssecretsandprocedures. That Glaxo possesses the right to protect its economic interests cannot be denied. No less thantheConstitutionrecognizestherightofenterprisestoadoptandenforcesuchapolicy 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 justiceandtheprotectionoflabor,itdoesnotmeanthateverylabordisputewillbedecided infavoroftheworkers.Thelawalsorecognizesthatmanagementhasrightswhicharealso entitledtorespectandenforcementintheinterestoffairplay. Inanyevent,fromthewordingsofthecontractualprovisionandthepolicyinitsemployee handbook,itisclearthatGlaxodoesnotimposeanabsoluteprohibitionagainstrelationships between its employees and those of competitor companies. Its employees are free to cultivate relationships with and marry persons of their own choosing. What the company merelyseekstoavoidisaconflictofinterestbetweentheemployeeandthecompanythat mayariseoutofsuchrelationships.Assuccinctlyexplainedbytheappellatecourt,thus: The policy being questioned is not a policy against marriage. An employee of the company remains free to marry anyone of his or her choosing. The policy is not aimed at restricting a personal prerogative that belongs only to the individual. However, an employees personal decision does not detract the employer from exercising management prerogatives to ensure maximum profit and business success...
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TheCourtofAppealsalsocorrectlynotedthattheassailedcompanypolicywhichformspart ofrespondentsEmployeeCodeofConductandofitscontractswithitsemployees,suchas thatsignedbyTescon,wasmadeknowntohimpriortohisemployment.Tecson,therefore, wasawareofthatrestrictionwhenhesignedhisemploymentcontractandwhenheentered into a relationship with Bettsy. Since Tecson knowingly and voluntarily entered into a contractofemploymentwithGlaxo,thestipulationsthereinhavetheforceoflawbetween them and, thus, should be complied with in good faith."29He is therefore estopped from questioningsaidpolicy. requirementisthatapolicymustbereasonableunderthecircumstancestoqualifyasavalid exerciseofmanagementprerogative.Thereisnoreasonablenecessityinthiscase. Petitionerssolecontentionthat"thecompanydidnotjustwanttohavetwo(2)ormoreof its employees related between the third degree by affinity and/or consanguinity" is lame. Thatthesecondparagraphwasmeanttogiveteethtothefirstparagraphofthequestioned ruleisevidentlynotthevalidreasonablebusinessnecessityrequiredbythelaw.Petitioners contendthattheirpolicymayappeartobecontrarytoArticle136oftheLaborCodebutit assumesanewmeaningifreadtogetherwiththefirstparagraphoftherule.Theruledoes notrequirethewomanemployeetoresign.Theemployeespouseshavetherighttochoose who between them should resign. Further, they are free to marry persons other than co employees. Hence, it is not the marital status of the employee, per se, that is being discriminated.Thisdoesnotinspireassent.Thepolicystillfailsthetestofreasonableness. The policy is premised on themere fear that employees married to each other will be less efficient. If we uphold the questioned rule the employer can create policies based on an unproven presumption of a perceived danger at the expense of an employees right to securityoftenure. Lastly,theabsenceofastatuteexpresslyprohibitingmaritaldiscriminationinourjurisdiction cannotbenefitthepetitioners.Theprotectiongiventolaborinourjurisdictionisvastandwe cannotprudentlydrawinferencesfromthelegislaturessilencethatmarriedpersonsarenot 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 businessnecessity,werulethatthequestionedpolicyisaninvalidexerciseofmanagement prerogative.
STAR PAPER v SIMBOL

FACTS:StarPaperCorporationhadanantinepotismcompanypolicythatprovidedthatthe company:1.Couldnothireanyonerelatedtoanemployeewithinthe3rdcivildegree,and2. If two employees decided to get married, one would have to resign. Ronald Simbol fell for Alma Dayrit and resigned prior to the marriage because of the policy. Wilfreda Comia resigned immediately after marrying Howard Comia. Lorna Estrella resigned after being impregnated by Luisito Zuniga, a married man. According to these respondents, they were compelledbythecompanytoresign. Subsequently, they filed a complaint for unfair labor practice, constructive dismissal, separationpay.TheyaverredthattheisillegalandcontravenesArticle136oftheLaborCode [It shall be unlawful for an employer to require as a condition of employment or continuation of employment that a woman employee shall not get married, or to stipulate expresslyortacitlythatupongettingmarried,awomanemployeeshallbedeemedresigned orseparated,ortoactuallydismiss,discharge,discriminateorotherwiseprejudiceawoman employeemerelybyreasonofhermarriage.] The Labor Arbiter dismissed their claim, saying that the policy was a valid exercise of management prerogative, and that an employer is free to regulate, according to his own discretionandjudgmentalltheaspectsofemployment.TheNLRCupheldthedecision.The CA reversed the decision of the NLRC and LA and ordered Simbol, Dayrit and Estrella reinstatedwithbackwages. ISSUE:WhetherthepolicyisviolativeofArticle136oftheLaborCode. HELD: The policy is illegal. Unless the employer can prove that the reasonable demands of thebusinessrequireadistinctionbasedonmaritalstatusandthereisnobetteravailableor acceptable policy which would accomplish the business purpose, an employer may not discriminate against an employee based on the identity of the employees spouse. This is knownasthebonafideoccupationalqualificationexception. To justify a bona fide occupational qualification, the employer must prove two factors: (1) thattheemploymentqualificationisreasonablyrelatedtotheoperationofthejobinvolved; and,(2)thatthereisafactualbasisforbelievingthatallorsubstantiallyallpersonsmeeting the qualification would be unable to properly perform the duties of the job. Another
ACOL v PCCCI
FACTS: PetitionerAcolappliedandwasissuedbyrespondentaBankardcreditcardandextensions. Forseveralyears,heregularlyusedthiscarduntilitwaslost.Thedayaftertheloss,hecalled uprespondent'sofficeandreportedit.Hereiteratedhisreportandwasadvisedtoputinto writingthenoticeoflossandtosubmititandtheextensioncards.Petitionerpromptlywrote a letter confirming the loss and sent it to respondent. A day before receiving the written notice, respondent issued a special cancellation bulletin informing its accredited establishmentsofthelossofthecardsoftheenumeratedholders,includingpetitioner's. Unfortunately,somebodyusedpetitioner'scardtobuycommoditiesworthP76Kwhichwas billedtopetitioner.Petitionerrefusedtopayandconfirmedhisexceptionstothebillingin writing.Atfirst,respondentagreedtoreversethedisputedbillings,andafteraninvestigation
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andreview,therespondentconfirmedthatitwasnotthepetitionerwhousedhisBankard forsaidpurchases. Nonetheless, respondent reversed its earlier position and insisted on collecting citing provision no. 1 of the "Terms and Conditions Governing The Issuance and Use of the Bankard"foundatthebackoftheapplicationform: xxx Holder's responsibility for all charges made through the use of the card shall continueuntiltheexpirationoritsreturntotheCardIssueroruntilareasonable timeafterreceiptbytheCardIssuerofwrittennoticeoflossoftheCardandits actualinclusionintheCancellationBulletin.xxx RespondentfiledsuitintheRTCofManilaagainstpetitionerforthecollectionofP76K,plus interest and penalty charges. The RTC dismissed the case and denied the MR. The CA reversedanddeniedtheMR.Thus,thispetitionforreviewoncertiorari. ISSUE: W/N provision no. 1 of the Terms and Conditions was valid and binding on the petitioner? NO. RATIO: Thestipulationinquestioniscontrarytopublicpolicy.Aspetitionerpointsout,theeffectivity of the cancellation of the lost card rests on an act entirely beyond the control of the cardholder.Worse,thephrase"afterareasonabletime"givestheissuertheopportunityto actuallyprofitfromunauthorizedchargesdespitereceiptofimmediatewrittennoticefrom thecardholder. Undersuchastipulation,petitionercouldhavetheoreticallydoneeverythinginhispowerto give respondent the required written notice. But if respondent took a "reasonable" time (which could be indefinite) to include the card in its cancellation bulletin, it could still hold the cardholder liable for whatever unauthorized charges were incurred within that span of time. Article 1306 of the Civil Codeprohibits contracting parties from establishing stipulationscontrarytopublicpolicy.Theassailedprovisionwasjustsuchastipulation. ordertoincreaseitscreditlimittoP635,000becauseheandhisfamilywasgoingtotakean Asiantour. Using his credit card, petitioner purchased the plane tickets worth P237,000 and leftfortheirdestinations.Whileontour,heusedhiscreditcardinseveralestablishmentsbut wasdishonoured.AndwhenhetriedtousehiscreditcardtopurchaseplaneticketstoBali in Ingtan Agency, it was again dishonoured for reason that it was allegedly blacklisted. He was forced to use cash and was even allegedly insulted by Ingtan Agency personnel by brandingthemasswindlersforusingablacklistedcard. When he returned in the Phils, he lodged a complaint before the RTC against respondent for blacklisting his credit card and also asked for damages for humiliation. To support his claim, he presented computer printout, denominated as ONLINE AUTHORIZATIONS FOREIGN ACCOUNT ACTIVITY REPORT (Report), issued to him by Ingtan Agency with the signature of one Victrina Elnado Nubi (Nubi)which shows that his card in questionwas"DECLOVERLIMIT"ordeclaredoverthelimit. Citibank denied the allegation that it blacklisted Aznars card. It also contended that under the terms and conditions governing the issuance and use of its credit cards, Citibankisexemptfromanyliabilityforthedishonorofitscardsbyanymerchantaffiliate, andthatitsliabilityforanyactionorincidentwhichmaybebroughtagainstitinrelationto theissuanceanduseofitscreditcardsislimitedtoP1,000.00ortheactualdamageproven whicheverislesser. Initially, the RTC ruled in favour of respondent for failure to prove the due executionandgenuinenessoftheReportpresentedbyAznar.Respondentwasalsoableto presentamonthlybulletincontainingthenamesofblacklistedclientsbutnowhereinthelist wasthenameofAznar.Betweenthereportandthebulletin,thecourtgavemorecredence tothebulletin.ThiscasewasreraffledtoanotherRTCjudgewhoreconsideredthedecision andruledinfavourofAznar.TheCAreversedandfoundforrespondent. ISSUE TherearealotofissuesrelatedtoevidencebuttheonepertinenttoArt1306is:
AZNAR v CITIBANK
Facts: PetitionerAznarisaholderofaPreferredMasterCreditCardissuedbyrespondent Citibank.IthasacreditlimitofP150,000.PetitionerdepositedP485,000tohiscreditcardin
Whether the stipulation limiting the liability of any action to P1,000 and at the sametimeexemptingrespondentfromanyliabilityduetothedishonourofthecardbyany merchantaffiliateisvalid. HELD:
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No. While it is true that Citibank may have no control of all the actions of its merchantaffiliates,andshouldnotbeheldliabletherefor,itisincorrect,however,togiveit blanket freedom from liability if its card is dishonored by any merchant affiliatefor any reason. Such phrase renders the statement vague and as the said terms and conditions constituteacontractofadhesion,anyambiguityinitsprovisionsmustbeconstruedagainst the party who prepared the contract,in this case Citibank. (Cotract of adhesion refers to a contractwhereonlyonepartypreparesitandtheotherpartycanjustacceptorrejectit.) Citibank also invokes paragraph 15 of its terms and conditions which limits its liabilitytoP1,000.00ortheactualdamageproven,whicheverislesser. Again,suchstipulationcannotbeconsideredasvalidforbeingunconscionableasit precludes payment of a larger amount even though damage may be clearly proven. This Court is not precluded from ruling out blind adherence to the terms of a contract if the attendantfactsandcircumstancesshowthattheyshouldbeignoredforbeingobviouslytoo onesided. The invalidity of the terms and conditions being invoked by Citibank, notwithstanding,theCourtstillcannotawarddamagesinfavorofpetitioner.Theunderlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law; thus there must first be a breach before damages may be awarded and the breach of such duty should be the proximate cause of the injury. Inculpa contractualorbreachofcontract,moraldamagesarerecoverableonlyifthedefendanthas acted fraudulently or in bad faith, or is found guilty of gross negligence amounting to bad faith,orinwantondisregardofhiscontractualobligations. Wedonotdisputethefindingsofthelowercourtthatprivaterespondentsuffered damages as a result of the cancellation of his credit card. However, there is a material distinctionbetweendamagesandinjury.Injuryistheillegalinvasionofalegalright;damage istheloss,hurt,orharmwhichresultsfromtheinjury;anddamagesaretherecompenseor compensationawardedforthedamagesuffered.Thus,therecanbedamagewithoutinjury tothoseinstancesinwhichthelossorharmwasnottheresultofaviolationofalegalduty. Insuchcases,theconsequencesmustbebornebytheinjuredpersonalone,thelawaffords no remedy for damages resulting from an act which does not amount to a legal injury or wrong.Thesesituationsareoftencalleddamnumabsqueinjuria. Inthiscase,petitionerwasnotabletosubstantiatethedueexecutionoftheReport ofCreditoverlimit.HewasnotabletoshowthatNUBIwastheonewhoactuallyprepared thereportandinwhatcapacitywhichcouldfallundertheexceptionintheRulesofEvidence Rule130Sec.43asonedoneinthecourseofordinarybusiness.Alsothefactthat,hewas able to purchase plane tickets for the Asian tour worth P 237,000 above his original credit limit of P150,000 means that respondent did not act in bad faith in not crediting his initial deposit. MACALINAO v BPI FACTS PetitionerIleanaMacalinaowasanapprovedcardholderofBPIMastercard,oneofthecredit card facilities of respondent.She made some purchases through the use of the said credit card and defaulted in paying for said purchases. She subsequently received a letter from respondent,demandingpaymentoftheamountofPhP141,518.34. UndertheTermsandConditionsGoverningtheIssuanceandUseoftheBPICreditandBPI Mastercard (TCGIUBCBM), the charges or balance thereof remaining unpaid after the paymentduedateindicatedonthemonthlyStatementofAccountsshallbearinterestatthe rateof3%permonthandanadditionalpenaltyfeeequivalenttoanother3%permonth. For failure of petitioner to settle her obligations, respondent sued her and her husband, DaniloSJMacalinao,forcollectionofsumofmoney,beforetheMeTCofMakati. MeTCinfavorofrespondent;interestrateandpenaltychargeof2%permonth RTCaffirmedtheabovedecisionintoto CA only petitioner appealed since her husband already passed away; affirmed with modification:interestandpenaltychargesof3%permonth ISSUE Whethertheinterestrateandpenaltychargestipulatedinthecontractbetweentheparties andfollowedbytheCAshouldbeapplied. RULING NO.Theinterestrateandpenaltychargeof3%permonthshouldbeequitablyreducedto2% permonthor24%perannum. IntheTCGIUBCBM,therewasastipulationonthe3%interestrate.Nevertheless,itshouldbe notedthatthisisnotthefirsttimethatthisCourthasconsideredtheinterestrateof36%per annumasexcessiveandunconscionable.InChuavs.Timan, The stipulated interest rates of 7% and 5% per month imposed on respondentsloansmustbeequitablyreducedto1%permonthor12% per annum. We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and
22
higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulationsarevoidforbeingcontrarytomorals,ifnotagainstthelaw. While C.B. Circular No. 90582, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular couldpossiblybereadasgrantingcarteblancheauthoritytolendersto raiseinterestratestolevelswhichwouldeitherenslavetheirborrowers orleadtoahemorrhagingoftheirassets. Since the stipulation on the interest rate is void, it is as if there was no express contract thereon.Hence,courtsmayreducetheinterestrateasreasonandequitydemand. The same is true with respect to the penalty charge. Under the TCGIUBCBM, it was also stated therein that respondent BPI shall impose an additional penalty charge of 3% per month.Pertinently,Article1229oftheCivilCodestates: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor.Eveniftherehasbeennoperformance,thepenaltymayalsobe reducedbythecourtsifitisiniquitousorunconscionable. In exercising this power to determine what is iniquitous and unconscionable, courts must considerthecircumstancesofeachcasesincewhatmaybeiniquitousandunconscionablein onemaybetotallyjustandequitableinanother. In the instant case, the records would reveal that petitioner Macalinao made partial paymentstorespondentBPI,asindicatedinherBillingStatements.Further,thestipulated penaltychargeof3%permonthor36%perannum,inadditiontoregularinterests,isindeed iniquitousandunconscionable. In 1999, the Spouses Castro instituted foreclosure proceeding to which they became the highestbidders.Thustitlewasconsolidatedintheirnamesandafterawritofpossessionwas issued,theSheriffejectedtheSpousesTan. The Spouses Tan then filed a complaint to the RTC of Bulacan for the nullification of the mortgage and foreclosure plus damages alleging that the interest contained in their agreementwasunconscionable. TheTrialCourtrenderedadecisioninfavoroftheSpousesCastrobutreducedtheinterestto 12% per annum (as opposed to 5% per month or 60% per annum). The CA upheld the decisionoftheTrialCourt,hencethispetitionforCertiorari PetitionersallegethattheKasulatanwasenteredintobythepartiesfreelyandvoluntarily. Theymaintainthattherewasalreadyameetingofthemindsbetweenthepartiesasregards theprincipalamountoftheloan,theinterestthereonandthepropertygivenassecurityfor thepaymentoftheloan,whichmustbecompliedwithingoodfaith.Hence,theyassertthat theCourtofAppealsshouldhavegivenduerespecttotheprovisionsoftheKasulatan.They alsostressthatitisasettledprinciplethatthelawwillnotrelieveapartyfromtheeffectsof anunwise,foolishordisastrouscontract,enteredintowithalltherequiredformalitiesand withfullawarenessofwhathewasdoing. ISSUE WhetherornottheCourtgravelyabuseditsdiscretioninloweringtheinterestrateto12% perannum. HELD.NO. While we agree with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate, it is also worth stressing that interest rates whenever unconscionablemaystillbedeclaredillegal. Freedom of contract is not absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, morals, safety and welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows the contractingpartiesto"establishsuchstipulations,clauses,termsandconditionsastheymay deemconvenient,providedtheyarenotcontrarytolaw,morals,goodcustoms,publicorder orpublicpolicy."
CASTRO v TAN
FACTS: Spouses Tan mortgage a certain parcel of land to Spouses Castro in exchange for P30,000 loan.Theyagreedthattheinterestwouldbe5%permonthcompoundedmonthly.Theyalso agreedthattheloanwillbepaidwithin6months. Spouses Tan was not able to pay the loan because the husband died. Thereafter, the wife offeredtopaytheP30,000loanandtheportionoftheinterestbutSpousesCastrorefused anddemandedthathebepaidtheaccumulatedsumofP359,000.
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Weholdthe5%monthlyinteresttobeexcessive,iniquitous,unconscionableandexorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306. Inanyevent,Article1306oftheCivilCodeprovidesthatpartiestoacontractmayestablish suchstipulations,clauses,termsandconditionsastheymaydeemconvenient,providedthey arenotcontrarytolaw,morals,goodcustoms,publicorder,orpublicpolicy. Article1159ofthesameCodealsoprovidesthatobligationsarisingfromcontractshavethe force of law between the contracting parties and should be complied with in good faith. Courtscannotstipulateforthepartiesnoramendtheiragreementwherethesamedoesnot contravenelaw,morals,goodcustoms,publicorderorpublicpolicy,fortodosowouldbeto altertherealintentoftheparties,andwouldruncontrarytothefunctionofthecourtsto give force and effect thereto. Not being contrary to public policy, the noninvolvement clause, which petitioner and respondent freely agreed upon, has the force of law between them,andthus,shouldbecompliedwithingoodfaith.
TIU v PLATINUM PLANS

FACTS: PPIisadomesticcompanyengagedinthepreneedindustry.TiuwasitsDivisionMarketing Directorfrom19871989.In1993,TiuwasagainrehiredasSeniorAssistantVP&Territorial Operations Head for its HK and Asean operations. They executed an employment contract validfor5years. However,in1995,Tiustoppedreportingforwork.Laterthatyear,itwasfoundthatshewas nowtheVPforSalesofProfessionalPensionPlans,Inc.,PPIsdirectcompetitor.PPIsoughta claim for damages for Tius breach of contract, specifically the NonInvolvement Clause, whichprohibitsherfromjoiningacompetitorwithin2yearsfromherseparationfromPPI. ThetrialcourtruledinfavorofPPI,statingthatanoninvolvementclauseisvalid,provided, thereisalimitationuponeitherthetimeortheplace.TheCAaffirmed,asTiuagreedtothe contractanditsentiretyonherownvolition.Thus,bindingherselftofulfillnotonlywhatwas expresslystipulatedinthecontract,butalsoallitsconsequencesthatwerenotagainstgood faith,usage,andlaw. ISSUE: W/Nthenoninvolvementclauseisvalid? HELD: Yes.Thenoninvolvementclauseisvalid. A noninvolvement clause is not necessarily void for being in restraint of trade as long as therearereasonablelimitationsastotime,tradeandplace.Thenoninvolvementclausehas atimelimit:2yearsfromthetimepetitionersemploymentwithrespondentends.Itisalso limitedastotrade,sinceitonlyprohibitspetitionerfromengaginginanypreneedbusiness akintorespondents.Petitionerheldapositionwhichshewasprivytoconfidentialandhighly sensitive marketing strategies. To allow her to engage in a rival business soon after she leaves would make respondents trade secrets vulnerable, specially in a highly competitive marketingenvironment.
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Civ Digest - 1249-1307

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CIVILLAWREVIEWDIGESTSBalane

bytheobligeeorcreditor. CITIBANK v SABENIANO

Thedeliveryofpromissorynotespayabletoorder,orbillsofexchangeorothermercantiledocuments shallproducetheeffectofpaymentonlywhentheyhavebeencashed,orwhenthroughthefaultofthe creditortheyhavebeenimpaired. Inthemeantime,theactionderivedfromtheoriginalobligationshallbeheldintheabeyance.(1170)

Art.1250.Incaseanextraordinaryinflationordeflationofthecurrencystipulatedshouldsupervene, thevalueofthecurrencyatthetimeoftheestablishmentoftheobligationshallbethebasisof payment,unlessthereisanagreementtothecontrary.

PASRICHA v LUIS DIZON REALTY

OCCENA v JABSON (borrowed from A)

CUI v ARELLANO UNIVERSITY

REGINO v PANGASINAN COLLEGES

STAR PAPER v SIMBOL

TIU v PLATINUM PLANS

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