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Tax 1 Lex Talionis Fraternitas Inc.

Taxation 1
Case Digests

Pepsi-Cola vs Mun. of Tanauan (G.R. No. L-31156 Feb 27, 1976)


The legislative power to create political corporations for purposes of local self-government courts with it the power to confer on such local government agencies the power to tax.

political corporations for purposes of local self-government courts with it the power to confer on such local government agencies the power to tax. The constitution grants local government the autonomous authority to create their own sources of revenue and to levy taxes. b) No, the difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." The limitation applies, particularly to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. But, the imposition of "a tax of one centavo (P0.01) on each gallon of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume

of sales and the amount of the tax. Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. Soft drink is not one of those specified. c) The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, cannot be considered unjust and unfair. An increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the rates of imposable taxes. This is in line with the constitutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. CIR vs. Algue Inc. (G.R. No. L-28896 Feb 17, 1988)
Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

Pepsi commenced a complaint with preliminary injunction before the CFI of Leyte for that court to declare Section 2 of R.A. 2264 (Local Autonomy Act) unconstitutional as an undue delegation of taxing authority as well as declare Municipal Ordinance Nos. 23 & 27 series of 1962 of Municipality of Tanauan, Leyte null and void. Municipal Ordinance 23 levies and collects from softdrinks producers and manufacturers a tai of 1/16th of a centavo for every bottle of softdrink corked. On the other hand, Municipal Ordinance 27 levies and collects on softdrinks produced or manufactured within the territorial jurisdiction of the municipality a tax of 1 centavo on each gallon of volume capacity. Both are denominated as municipal production tax. Issues: a) WoN section 2 of R.A. 2264 is an undue delegation of power b) WoN Ordinances 23 & 27 constitute double taxation and impose percentage or specific tax c) WoN Ordinances 23 and 27 are unjust and unfair Held: a) No, it is true that power of taxation is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers but the exception lies in the case of municipal corporations to which the said theory does not apply. Legislative concerns may be delegated to local governments in respect of matters of local concerns. By necessary implication, the legislative power to create

Philippine Sugar Estate Development Company appoints Algue as its agent authorizing it to sell its land, factories and oil manufacturing process. Family members Guevara et al

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worked for the formation of Vegetable Oil Investment Corp inducing persons to invest in it. After its incorporation largely through the promotion of Guevara et al, VOIC purchased PSEDC properties. For the sale, Algue received as agent a commission of 126k and it was from this commission that the 75k promotional fees were paid to Guevara et al. Issue: WON Sunga the collector of Internal Revenue correctly disallowed the 75k deduction claimed by private respondent Algue as legitimate business expensed in its income tax returns Held: No, claimed deduction was an ordinary reasonable or necessary business expense. Amount has been legitimately paid by Algue for actual services rendered. The payment was in the form of promotional fee and collected by the payees for their in the creation of VOIC and its subsequent purchase of the properties of the PSEDC. It is immaterial that it was paid to the family members owning Algue who rendered services as the promotional fee was not excessive. Although the Solicitor General is correct when he said that the burden is on the taxpayer to prove the validity of claimed deduction. In the present case, however, SC find that the onus has been discharged satisfactorily. Algue has proved that the payment of fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involved themselves in a new business requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently recompensed. It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that the law has not been observed. Maceda vs ERB (G.R. No. 95203-05 Dec 18, 1990)
The Energy Regulatory Board order authorizing the proceeds generated by the increase in the prices of petroleum products to be deposited to the Oil Price Stabilization Fund is not an act of taxation.

The petitioners pray for injunctive relief, to stop the Energy Regulatory Board from implementing its Order, dated September 21, 1990, mandating a provisional increase in the prices of petroleum and petroleum products. The petitioner, Senator Ernesto Maceda, also submits that the same was issued without proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172; that the Board, in decreeing an increase, had created a new source for the Oil Price Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested in the legislature, and/or that it had "re-collected", by an act of taxation, ad valorem taxes on oil which Republic Act No. 6965 had abolished. Issue: WON the Board authorizing the proceeds generated by the increase to be deposited to the OPSF is an act of taxation Held. No. The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137. Anent claims that oil companies cannot charge new prices for oil

purchased at old rates, suffice it to say that the increase in question was not prompted alone by the increase in world oil prices arising from tension in the Persian Gulf. What the Court gathers from the pleadings as well as events of which it takes judicial notice, is that: (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to reach $1 Billion; (4) our trade deficit is at $2.855 Billion as of the first nine months of the year. Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF as provided by Presidential Decree No. 1956, and hence, there was no available alternative but to hike existing prices. The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding designed to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt that oil firms make money from it. As we held there, however, the OPSF was established precisely to protect the consuming public from the erratic movement of oil prices and to preclude oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market.
Paras (dissenting): Anent the unconstitutional use of the taxing power, the decision of the majority says that "the Board Order authorizing the proceeds generated by the increases" is "authorized by Presidential Decree No. 1456, as amended by Executive Order No. 137". Assuming that such is authorized by law, still a law, no matter how imperative, cannot prevail over the Constitution which grants only to Congress the power to tax. And indeed, there can be no denying the fact that when revenue is earned by the government from the consuming public (except when only licenses are concerned) there is an exercise of the taxing power.

Victorias Milling vs PPA (G.R. No. 73705 Aug 27, 1987)


Berthing charges against a vessel are collectible regardless of the fact that mooring or berthing is made from a private pier or wharf. This is because the government maintains bodies of water in navigable condition and it is

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to support its operations in this regard that dues and charges are imposed for the use of piers and wharves regardless of their ownership.

On April 28, 1981, the Iloilo Port Manager of respondent Philippine Ports Authority (PPA for short) wrote petitioner Victorias Milling Co., requiring it to have its tugboats and barges undergo harbor formalities and pay entrance/ clearance fees as well as berthing fees effective May 1, 1981. PPA, likewise, requiring petitioner to secure a permit for cargo handling operations at its Da-an Banua wharf and remit 10% of its gross income for said operations as the government's share. To these demands, petitioner sent two (2) letters, both dated June 2, 1981, wherein it maintained that it is exempt from paying PPA any fee or charge because: (1) the wharf and an its facilities were built and installed in its land; (2) repair and maintenance thereof were and solely paid by it; (3) even the dredging and maintenance of the Malijao River Channel from Guimaras Strait up to said private wharf are being done by petitioner's equipment and personnel; and (4) at no time has the government ever spent a single centavo for such activities. Petitioner further added that the wharf was being used mainly to handle sugar purchased from district planters pursuant to existing milling agreements. Issue: WON Victorias is exempted from the claimed fees and charges due to the fact that the port is privately owned Held: No, as correctly stated by the Solicitor General, the fees and charges PPA collects are not for the use of the wharf that petitioner owns but for the privilege of navigating in public waters, of entering and leaving public harbors and berthing on public streams or waters. In Compaia General de Tabacos de Filipinas vs. Actg. Commissioner of Customs (23 SCRA 600), this Court laid down the rule that berthing charges against a vessel are collectible regardless of the fact that mooring or berthing is made from a private pier or wharf. This is because the government maintains bodies of water in navigable condition and it is to support its

operations in this regard that dues and charges are imposed for the use of piers and wharves regardless of their ownership. As to the requirement to remit 10% of the handling charges, Section 6B-(ix) of the Presidential Decree No. 857 authorized the PPA "To levy dues, rates, or charges for the use of the premises, works, appliances, facilities, or for services provided by or belonging to the Authority, or any organization concerned with port operations." This 10% government share of earnings of arrastre and stevedoring operators is in the nature of contractual compensation to which a person desiring to operate arrastre service must agree as a condition to the grant of the permit to operate. CIR vs Ateneo de Manila (G.R. No. 115349 Apr 18, 1997)
While it is conceded that statutes providing for election contests are to be liberally construed to the end that the will of the people in the choice of public officers may not be defeated by mere technical questions, the rule likewise stands, that in an election protest, the protestant must stand or fall upon the issues he had raised in his original or amended pleading filed prior to the lapse of the statutory period for filing of the protest.

filed with the latter a memorandum contesting the validity of the assessments. Issue: WON Ateneo de Manila University, through its auxiliary unit or branch, the Institute of Philippine Culture, performing the work of an independent contractor and thus subject to the 3% contractor's tax levied by then Section 205 of the National Internal Revenue Code? Held: No, Petitioner Commissioner of Internal Revenue erred in applying the principles of tax exemption without first applying the well-settled doctrine of strict interpretation in the imposition of taxes. It is obviously both illogical and impractical to determine who are exempted without first determining who are covered by the aforesaid provision. The Commissioner should have determined first if private respondent was covered by Section 205, applying the rule of strict interpretation of laws imposing taxes and other burdens on the populace, before asking Ateneo to prove its exemption therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the interpretation of tax laws that "(a) statute will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously . . . (A) tax cannot be imposed without clear and express words for that purpose. Accordingly, the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication." Parenthetically, in answering the question of who is subject to tax statutes, it is basic that "in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. To fall under its coverage, Section 205 of the National Internal Revenue Code requires that the independent contractor be engaged in the business of selling its services. Hence, to impose the three percent contractor's tax on Ateneo's Institute of Philippine Culture, it should be sufficiently proven that the private respondent is

Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies. On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax, and an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31, 1978. Denying said tax liabilities, private respondent sent petitioner a letter-protest and subsequently

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indeed selling its services for a fee in pursuit of an independent business. And it is only after private respondent has been found clearly to be subject to the provisions of Sec. 205 that the question of exemption therefrom would arise. Only after such coverage is shown does the rule of construction that tax exemptions are to be strictly construed against the taxpayer come into play, contrary to petitioner's position. There is no evidence to prove that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. Figuerres vs Mandaluyong (G.R. No. 119172 Mar 25, 1999)
The presumption of validity in favor of a tax ordinance, its constitutionality or legality should be upheld in the absence of evidence showing that the procedure prescribed by law was not observed in their enactment.

and 1996. Petitioner brought a prohibition suit in the Court of Appeals against the Assessor, the Treasurer, and the Sangguniang Bayan to stop them from enforcing the ordinances in question on the ground that the ordinances were invalid for having been adopted allegedly without public hearings and prior publication or posting and without complying with the implementing rules yet to be issued by the Department of Finance. Issue: WON the contention of Figuerres is tenable Held: No, although the petitioner is right in contending that public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes, R.A. No. 7160, 186 provides that an ordinance levying taxes, fees, or charges "shall not be enacted without any prior public hearing conducted for the purpose." However, it is noteworthy that apart from her bare assertions, petitioner Figuerres has not presented any evidence to show that no public hearings were conducted prior to the enactment of the ordinances in question. On the other hand, the Municipality of Mandaluyong claims that public hearings were indeed conducted before the subject ordinances were adopted, although it likewise failed to submit any evidence to establish this allegation. However, in accordance with the presumption of validity in favor of an ordinance, their constitutionality or legality should be upheld in the absence of evidence showing that the procedure prescribed by law was not observed in their enactment. The lack of a public hearing is a negative allegation essential to petitioner's cause of action in the present case. Hence, as petitioner is the party asserting it, she has the burden of proof. Since petitioner failed to rebut the presumption of validity in favor of the subject ordinances and to discharge the burden of proving that no public hearings were conducted prior to the enactment thereof, we are constrained to uphold their constitutionality or legality. Philex Mining vs CIR (G.R. No. 125704 Aug 28, 1998)

That taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity.

Petitioner Belen C. Figuerres is the owner of a parcel of land, covered by Transfer Certificate of Title No. 413305, and located at Amarillo Street, Barangay Mauway, City of Mandaluyong. In 1993, she received a notice of assessment, dated October 20, 1993, from the municipal assessor of the then Municipality of Mandaluyong. The assessment, effective in the year 1994, was based on Ordinance Nos. 119 and 125, series of 1993, and Ordinance No. 135, series of 1994, of the Sangguniang Bayan of Mandaluyong. Ordinance No. 119, series of 1993, which was promulgated on April 22, 1993, contains a schedule of fair market values of the different classes of real property in the municipality. Ordinance No. 125, series of 1993, which was promulgated on November 11, 1993, on the other hand, fixes the assessment levels applicable to such classes of real property. Finally, Ordinance No. 135, series of 1994, which was promulgated on February 24, 1994, amended Ordinance No. 119, 6 by providing that only one third (1/3) of the increase in the market values applicable to residential lands pursuant to the said ordinance shall be implemented in the years 1994, 1995,

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52. In a letter dated August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities. In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex's position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994. In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities since both had already become "due and demandable, as well as fully liquidated;" hence, legal compensation can properly take place. ISSUE: WoN Philexs contention is tenable

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Held: No, Philexs contention is not tenable. In several instances prior to the instant case, SC have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. We find no cogent reason to deviate from the aforementioned distinction. Prescinding from this premise, in Francia v. Intermediate Appellate Court, we categorically held that taxes cannot be subject to set-off or compensation, thus: We have consistently ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit, which reiterated that: a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. CIR vs Central Vegetable (G.R. No. 107135 Feb 23, 1999)
Tax burdens are not to be imposed or presumed to be imposed beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.

and packaging materials for its edible oil from its suppliers and paid the sales tax due thereon. After an investigation conducted by respondent's Revenue Examiner, Assessment Notice No. FAS-B-86-88-001661-001664 dated April 22, 1988 was issued against petitioner for deficiency miller's tax in the total amount of P1,575,514.70. On June 29, 1988, CENVOCO filed with CIR a letter dated June 27, 1988 requesting for reconsideration of the above deficiency miller's tax assessments, contending that the final provision of Section 168 of the Tax Code does not a apply to sales tax paid on containers and packaging materials, hence, the amount paid therefor should have been credited against the miller's tax assessed against it. CIR contends that Sec. 188 of the Tax Code provides that sales, miller's or excise taxes paid on raw materials or supplies used in the milling process shall not be allowed against the miller's tax due. Issue: WoN the sales tax paid by CENVOCO when it purchased containers and packaging materials for its milled products can be credited against the deficiency millers tax due thereon Held: Yes, it can be credited against the deficiency millers tax due thereon. The law relied upon by the BIR Commissioner as the basis for not allowing Cenvoco's tax credit is just a proviso of Section 168 of the old Tax Code. The restriction in the said proviso, however, is limited only to sales, miller's or excise taxes paid "on raw materials used in the milling process". Under the rules of statutory construction, exceptions, as a general rule, should be strictly but reasonably construed. They extend only so far as their language fairly warrants, and all doubts should be resolved in favor of the general provisions rather than the exception. Where a general rule is established by statute with exceptions, the court will not curtail the former nor add to the latter by implication. The exception provided for in Section 168 of the old Tax Code should thus be strictly construed. Conformably, the sales, miller's and excise taxes paid on all other materials (except on raw materials used in

the milling process), such as the sales taxes paid on containers and packaging materials of the milled products under consideration, may be credited against the miller's tax due therefor. It is a basic rule of interpretation that words and phrases used in the statute, in the absence of a clear legislative intent to the contrary should be given their plain, ordinary and common usage or meaning. From the disquisition and rationalization aforequoted, containers and packaging materials are certainly not raw materials. Cans and tetrakpaks are not used in the manufacture of Cenvoco's finished products which are coconut, edible oil or coprameal cake. Such finished products are packed in cans and tetrapaks. It bears stressing that tax burdens are not to be imposed or presumed to be imposed beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.

CIR vs Firemans Fund (G.R. No. L-30644 Mar 9, 1987)


There is no justification for the government which has already realized the revenue which is the object of the imposition of subject stamp tax, to require the payment of the same tax for the same documents. Enshrined in our basic legal principles is the time honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the government is not exempted from the application of this doctrine.

CENVOCO is a manufacturer of edible and coconut/coprameal cake and such other coconut related oil subject to the miller's tax of 3%. Petitioner also manufactures lard, detergent and laundry soap subject to the sales tax of 10%. In 1986, petitioner purchased a specified number of containers

From January, 1952 to December, 1958, herein private respondent Fireman's Fund Insurance Company entered into various insurance contracts involving casualty, fire and marine risks, for which the corresponding insurance policies were issued. From January, 1952 to 1956, documentary stamps were bought and affixed to the monthly statements of policies issues; and from 1957 to 1958 documentary stamps were bought and affixed to the corresponding pages of the policy register, instead of on the insurance policies issued. On July 3, 1959, respondent company discovered that its monthly statements of business and policy register were lost. The loss was reported to the Building Administration of Ayala Building and the National Bureau of Investigation on

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July 6, 1959. Herein petitioner was also informed of such loss by respondent company, through the latter's auditors, Sycip, Gorres and Velayo, in a letter dated July 14, 1959. After conducting an investigation of said loss, petitioner's examiner ascertained that respondent company failed to affix the required documentary stamps to the insurance policies issued by it and failed to preserve its accounting records within the time prescribed by Section 337 of the Revenue Code by using loose leaf forms as registers of documentary stamps without written authority from the Commissioner of Internal Revenue as required by Section 4 of Revenue Regulations No. V-1. As a consequence of these findings, petitioner, in a letter dated December 7, 1962, assessed and demanded from petitioner the payment of documentary stamp taxes for the years 1952 to 1958 in the total amount of P 79,806.87 and plus compromise penalties, a total of P 81,406.87. Issue: WON respondent company may be required to pay again the documentary stamps it has actually purchased, affixed and cancelled Held: No, as correctly pointed out by respondent Court of Tax Appeals, under the National Internal Revenue Code, documentary tax is deemed paid by: (a) the purchase of documentary stamps; (b) affixture of documentary stamps to the document or instrument taxed or to such other paper as may be indicated by law or regulations; and (c) cancellation of the stamps as required by law. It will be observed however, that the over-riding purpose of these provisions of law is the collection of taxes. The three steps abovementioned are but the means to that end. Thus, the purchase of the stamps is the form of payment made; the affixture thereof on the document or instrument taxed is to insure that the corresponding tax has been paid for such document while the cancellation of the stamps is to obviate the possibility that said stamps will be reused for similar documents for similar purposes. In the case at bar, there appears to be no dispute on the fact that the documentary stamps corresponding to the various policies were purchased and paid for by the respondent Company. Neither is there any argument that the same were cancelled as required by law. It is a general rule in the interpretation of statutes levying taxes or duties, that in case of doubt, such statutes are to be construed most strongly against the government and in favor of the subjects or citizens, because burdens are not to be imposed or presumed to be imposed beyond what statutes expressly and clearly import. There is no justification for the government which has already realized the revenue which is the object of the imposition of subject stamp tax, to require the payment of the same tax for the same documents. Enshrined in our basic legal principles is the time honored doctrine that no person shall unjustly enrich himself at the expense of another. It goes without saying that the government is not exempted from the application of this doctrine.

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refinanced the matured obligation and granted 3 foreign currency denominated loans. Apart from interest, there are additional charges and penalties in case of default. After 10 years, DBP initiated for forclosure of mortgaged prop and the balance shoot up to P63M. Resp claim that reason for nonpayment is because financial rehabilitation from a contract with the military didnt push thru. Issue: WON the resp can claim without fault in default of the non-happening of the contract with the military. Held: NO. DBP is no party to resp and AFPs contract. Resp can claim from AFP but without prejudice to its contract with DBP. DBP has given Resp all the possible options for payment. Source: Contract II. NATURE AND EFFECTS OF OBLIGATION A. Obligation to give Extinguised based on delicts. Art. 89(1) of RPC, death of convict occurs before final judgment, extinguished. But only criminal liability is extinguished and also the civil liability directly arising from and based solely on offense. Claim for Civil liability survives if the same may also be predicated on a source of oblig other than delict. Source: Crimes or Delicts. Acts or omission. DBP vs CA Restructuring of Debt DBP granted PHUMACO and PHILICO an industrial loan for P2.5M, 2M in bonds and 500k in cash. Promissory note executed and a mortgage over their present and future properties. DBP granted another loan of 1.7M reflected in the amended mortgage contract. After 7 yrs the outstanding balance was restructured bec Resp failed to pay. Resp still failed to pay under the restructured payment. DBP 1. Determinate Thing Equatorial vs. MayfairRight of First Refusal Carmelo owned a parcel of land with 2-storey building and leased said portions to Mayfair. On their contract, stipulation that Mayfair has 30-day exclusive option to purchase the same should the lessor decide to sell the leased premises. But Carmelo wanted to sell the whole property. He sold entire prop to Equatorial. Mayfair filed for annulment of sale bec of lack of consideration. Mayfair claimed that he told Carmelo that it is willing to purchase the same and that it has the right of first refusal. Issue: WON the sale can be nullified because of Mayfairs action Held: The contract is deemed rescinded. Rescission a relief allowed for protection of one of the contracting parties and even 3rd persons from injury or to protect some incompatible and preferred right by the contract. Mayfair has the opportunity to negotiate. Determinate Thing: There is a problem because determination cannot be made bec prop is indivisible. You cannot pinpoint which is the 25% of the property. Determination of the exact portion of the building. De Leon vs. Sorianobigyan ng palay si nanay. Natural children of Soriano agreed that they are to deliver certain number of cavanes of palay each year to Soriano and shall only cease upon death of mother. But deliveries were of 3,400 cavanes and children claimed that due to Huk troubles in Central Luzon. Issue: WON inability to deliver was permissible due to force majeure Held: No. The object to be delivered was generic and set no bounds or limits to the palay to be paid. Any palay of the same quality can replace. Impossibility must consist in the nature of the thing to be done and not the inability of the party to do it.

Norkis vs. CAAko ang bumili ng motor iba ang gumamit. Nepales bought a motorcycle from Norkis and issued a chattel mortgage in favor of DBP. Invoice was issued and motorcycle was registered by Norkis evidenced by receipts of registration. Motor was delivered to a certain Julian Nepales and an accident happened while being driven by a certain Payba. Norkis claims it cannot be held liable since ownership

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was already transferred to Nepales evidenced by the receipts and the invoice. Issue: WON ownership was transferred to Nepales. Held: No. No actually delivery nor constructive one. The receipts of reg fees and the invoice is nothing but a detailed statement of the nature and quantity sold and not a bill of sale. Intent considered. Intent was not to transfer ownership but to facilitate execution of chattel mortgage. Determinate Thing: The motorcycle was a generic thing. (?) Heirs of Juan San Andres vs. RodriguezBinili ko na ang nakapaligid na lupa. JSA sold 345 sqm lot to Rodriguez. There was a deed of sale. JSA died and Rodriguez appointed administrator. The heirs engaged services of a geodetic engg and found out that resp has encroached the lot by 509 sqm. They sent letter to vacate. Resp claimed they bought the said portion of the lot the ff day when they first bought the 345 sqm lot. Proof of sale was attached and that payable in 5 years. Resp deposited the balance in court. Issue: WON there was a contract of sale. Held: Yes. There was a contract of sale which transferred the ownership to resp. Pet claimed that the object cannot be determined with sufficient certainty. Court held that it is capable of being determined w/o need for new contract and the receipts showed that payment was to the lot adjoining the prev paid lot on three sides thereof. The land is determinate or determinable. Ownership transferred by constructive delivery which is the execution of public document. Determinate Thing: The lot. 2. Generic Thing Norkis vs. CA Generic thing: motorcycle PLDT vs. JeturianPension bago gera. PLDT adopted in 1923 a Plan for Emloyees Pension. In 1945 the BOD adopted a resolution discontinuing the pension plan. Hence this action of Resp. Issue: WON the pre-war employees are entitled to the pension. Held: Yes. But with the exception of those who died or left before the outbreak of the war. The pension plan was not a gratuity but an inducement for employees to continue indefinitely in service. The plan ripened into a binding contract upon its implied acceptance of the employees. Acceptance is inferred from their entering the employ of the company and staying after the plan was made known. PLDT argues that it can only be held liable under the conditions expressly set in the pension plan. But the Court held that the Company that violated the contract with its employees, by discontinuing the plan without their consent, is not in the position to insist upon the terms of the very contract they have breached. Issue: WON Resp will be liable for the carnapping. Held: Yes. It was due to negligence premised on delay which is the basis of the complaint. Carnapping cannot be considered as fortuitous. It must be proved and established that it is an act of God. No other evidence but the police report. Even when Pet agreed to resked repair, cant be taken as waiver bec he really has no other choice but to leave it since he cant have it run. 3. Effect of Loss Bunge vs. CamenforteCopra ko sayo binenta ko. Plaintiffs filed to recover certain damages from the def bec of the latters failure to deliver Phil copra they agreed to deliver. A contract was entered into where the VPC sold 500 tons of Phil Copra to BC. The vendor would ship the copra to USA but even with demands, failed to do so. The vendee however believed in good faith that it shall be delivered so it sold the expected copra to EDOW. Bec vendor failed, vendee suffered damages. VPC denies contract and said that Vicente, the manager who contracted had no authority to do so. Force majeure is also claimed since a storm destroyed the bodega. Issue: WON VPC is held liable. CO vs. CApinagawa kong kotse, na-carnap. Pet entrusted his car to Resp to make same job repair services and supply of parts which was to be returned after 3 days as per the contract. Pet paid in full. After 3 days the vehicle cant still be released due to failed battery so pet bought battery. When Pet was about to get it, resp said the Held: Yes. Subject matter is Phil Copra, does not refer to any particular or specific copra. Since generic, obligation cant be deemed extinguished by the destruction/disappearance. Obligation subsists as long as commodity is available. Pet can also sell the copra which they expect to acquire in the future for purposes of speculation. Effect: Subsistence of obligation since generic object. car was carnapped while being road-tested. Resp claims force majeure.

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demand if unsold. The rings were not sold nor returned after demand. Thus this action. Issue: WON the contract was of sale or agency. Held: Of agency. There is no evidence that would tell that is was of sale. Their contracts stipulation does not show it was of sale. Although resp was willing to give a different object, the debtor cannot compel the creditor to receive a diff object. To do: Deliver the rings, the specific rings. Chavez vs. GonzalesDahil sa typewriter. P delivered to D a typewriter for D to repair. D was not able to repair the typewriter and asked for P6 for spare parts. P went to D and demanded the typewriter which D gave in a wrapped package. When P opened it at home, he saw that the typewriter had missing parts and found it in shambles. P demanded missing parts, interior cover and P6. P brought it to a diff repair shop and spent P89.95. P filed for payment of P90 and damages. Issue: WON D is liable for damages. Held: Yes. 1167 states that when a person is obliged to do something and fails to do the same, it shall be executed at his cost. What is poorly done be undone. D claims no period but Court held that fixing a period would only be a mere formality and would serve no purpose than to delay. Liable under 1170. To do: Specific performance repair typewriter. Oceana vs Jabsonsubdivision kontrata, maling akala. To do: To give 40% of the cash receipts from sale of subdivision lots.

Ocena vs. Jabsonsubdivision na kontrata, maling akala. Resp filed a complaint for modification of the terms and conditions of its subdivision contract with petitioners. Allegations are that price in oil and derivatives have increased, not within the control of the plaintiff. It will cause unjust enrichment to the pet. In the contract, the pet are guaranteed as landowners and that they will receive 40% of all cash receipts from the sale of the subdivision lots. Resp hinged their argument on 1267 when the service has become so difficult beyond contemplation, release from obligation. Issue: WON there is a sufficient cause of action for modification of the subdivision contract. Held: No. Cited article does not grant the courts this authority to remake, modify or revise the contract. Their contract has a force of law and should there be substitution or modification, it should be amongst the parties themselves. A showing of mere inconvenience, unexpected impediments or increased expenses is not enough. Equity cannot relieve from bad bargains simply bec they are such. Effect: The contract has the force of law.

**Woodhouse vs. HaliliMission Softdrinks P and D entered into an agreement that they will form a partnership for the bottling and distribution of Mission softdrinks, P as manager and D as capitalist. When the bottling plant was in operation P wants to execute the partnership papers but D refuses. D claims that he was made to believe that P has the exclusive ownership of the bottling franchise. Issue: WON the misrepresentation of P can vitiate the contract. Held: No. Although P was guilty of misrepresentation, it was not the causal consideration or the principal inducement that led defendant to enter into the partnership. D may not be compelled to carry out the agreement which is to execute the partnership papers. The defendant has obligation to do and not to give. The D reduced the percentage of P from 30% to 15% bec of his misrepresentation. Obligation to do: Execute partnership contract. Ong vs. BognalbalShe wants her Kenzo Tiles, now na. Bognalbal was an architect hired by Ong who was a businesswoman to construct her boutique. Bog agrees to furnish labor within 45 days and owner to pay every 2 weeks based on the accomplishment of work value. 4th billing came and Ong refused to pay but reason was not clear on the record. She wanted to change Vinyl tiles to Kenzo flooring. Ong claimed Bog abandoned job. Issue: WON Bog be liable for abandoning job. Held: No. He is not liable but is not justified for doing so. 1191, it was a reciprocal obligation and there is power to rescind it in case one doesnt comply with what is incumbent upon him. But this article should be judicially invoked.

B. Obligation to do Hahn vs. CAI want these diamond rings. Santos received 2 diamond rings with a total amount of 47K. She issued separate receipts therefore in which she acknowledged that they have been delivered by Letty Hahn for sale on commission and that they would be returned upon

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Novation is not presumed. There must be an express stipulation. Novation a. change of obj or principal conditions, b. substituting person of debtor c. subrogating 3rd person in the rights of creditor. Liability is on the first infractor, 1192. There has been no contract novation that required Bog to finish the Kenzo flooring before the 4th billing shall be paid. 1186. Condition shall be deemed fulfilled when the obligor voluntarily prevents the fulfillment. To do: Pay 4th billing. (Reciprocal-di mo ginawa di ko rin gagawin-pero sabi nga ng court hindi pa rin yun justification, but only the first infractor shall be liable). C. Obligation not to do Fajardo vs. Freedom to BuildWag dagdagan kung hindi bawasan! FTB, owner-developer and seller of low-cost housing, sold to petitioner-spouses a house and lot. Restrictive covenant was contained in the contract, easement. No upward and front expansion which is contained in their Transfer Certificate. Pets children are to wed so extended their house thus contravening the terms of contract. Pet filed, demolish the unauth structures. Issue: WON resp has the auth to ask for demolition since ownership already transferred to the prop owners or homeowners association. Held: Yes. Restrictive covenant should still be followed. Although courts generally view restrictive covenant with disfavor but sustain them if reasonable, not contrary to public policy, law etc. Intent of developer was to provide safety, aesthetic and decent living conditions and prevent overcrowding. Art. 1168, when ob consists in not doing, obligor does what was forbidden, shall be undone at his expense.

Not to do: Expand structures of house. D. Effect of Breach 1. Delay in Performance Villaruel vs. Manila MotorsKasalanan ng lawyer, naningil ng renta nung may gera. Manila Motors and Villaruel entered into a contract whereby the former agreed to convey by lease to the latter some premises. The term of lease is 5 years. The premises were invaded by the Japanese and then the American occupied the same building. The occupants paid the same rate as the defendants after which they have vacated the premises. Def renewed contract for addtl 5 yrs. Pet, as per his lawyers advise, demanded for rental from the Def for the period when the Jap and the Americans occupied the premises. The premises was set on fire and the reason was unknown. Issue: WON Pet has power to demand rentals and recover the same due to default. Held: No. Art. 1554 of CC of Spain states the duties of a lessor. A. deliver to the lessee the subject matter b. make thereon, during the lease, all repairs necessary and maintain serviceable condition c. maintain lessee in peaceful enjoyment of lease. 1560, lessor shall not be liable for any act of mere disturbance of 3rd person but lessee would have direct action against trespassers. No lessee would agree to pay rent for premises he could not enjoy. Delay in performance: It was the creditor who was in default or delay when it refused to get the payment given by the resp. Lopez vs. Tan TiocoIbenta mo ang asukal pag sinabi kong ibenta mo.

Lopez and Tan Tioco entered into a verbal contract that shell deliver certain sugar to Tan Tioco which he obligated himself to store until he receives instructions from her to sell them. She delivered the piculs of sugar and instructed to sell in on Sept 1904 but def did not do so. Pet filed action. Def denies allegations. Issue: WON the defendant was in default. Held: Yes. He was in default from the time the Pet demanded to deliver or do something, or the fulfillment of the obligation. Neither the contract nor the law demands to make judicial demand than extrajudicial. The price of the sugar should be from the time she instructed the def to sell them. Delay in Performance: Delay in selling the sugar upon instructions. Dela Rosa vs. BPIAtat sa announcement ng winners ng design contest. BPI held this contest of designs and plans for the construction of a building. Prizes would be awarded not later than Nov. 30, 1921. Plaintiff took part in the said contest and after the date stipulated, the bank didnt award prize nor made any announcement. Plaintiff filed. Issue: WON BPI was in default when it did not release the announcement on the date stipulated. Held: The bank cannot be held in default through the mere lapse of time. Plaintiff never demanded from bank and just filed the case in Court. A binding obligation may originate from advertisements addressed to the general public. Demand will not be necessary only in certain conditions, but demand is indispensable as a general rule. Plaintiff has no cause of action bec he alleges that the contest didnt push

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thru but in consideration of the evidence, the materials are on their way to New York and were sent to a technical committee. Delay: Bank was not in default. No demand. Lizares vs. HernaezCamarin was burned and lessee wont pay. Lizares and Hernaez entered into a contract, the former became the lessee of the two haciendas. Pet used one of the improvements there which was a roofed camarin used in manufacture of sugar. A fire occurred and destroyed the camarin. Pet demanded from Def that he reconstruct camarin. Def refused. Pet did not pay the rentals bec of nonconstruction of the camarin. Def claims Pet should be liable for the fire since he is the lessee when the fire occurred. Issue: WON plaintiff has responsibility to the damages caused by fire. Held. No. And so is the def. Force Majeure. But the plaintiff is in default with regard to the non-payment of rentals due to non-construction of camarin. Although there is presumption against lessee when loss in the leased prop occurs, proof is necessary to prove he is not responsible. 1183. When a thing is lost while in the possession of the debtor, it is presumed that it loss occurred by his fault and not by fortuitous even in the absence of the contrary. Delay: Not in the Def for non-construction but in Plaintiff in non-payment of rentals. Def executed and delivered to the plaintiff a promissory note payable in installments which represents the balance of one white chasses purchased by def from pet. The truck was delivered to the def. After the outbreak of war, the truck was one of the trucks that were commandeered by the USAFEE. Neither the plaintiff not def filed an official claim from the US govt. Issue: WON the commandeering of the truck exempts the def from payment of the obligation represented by the prom note. Held: No. There is no principle of law by which the obligation was extinguished. The interest was not reduced due to suspension since the pet was generous enough to compute only from 1948, the truck was commandeered in 1941. Def could have filed a claim from the US govt and he would have been paid but he failed to do so. Delay: Non-payment of the prom note. Lawyers Coop Pub vs. Taborabumili ng law books, nasunog. Tabora bought books from Pet and made partial payment. It was delivered to his law office. On the same date, a fire broke out in the office and destroyed the building including the books. Def doesnt want to pay balance since the books were loss due to force majeure and the ownership has not been transferred to him yet. Issue: WON force majeure can be claimed by defendant from his non-fulfillment of obligation. Held: No. Ownership was already transferred to the buyer. Although there has been an agreement that the ownership shall remain with the seller until the price has been fully paid, it was only for the security of payment but in the very contract in was expressly agreed that the loss or damage after delivery to the buyer shall be borne by the buyer. Exemptions from liability due to fortuitous event: 1. determinate thing (in the present case, pecuniary in nature) 2. No stipulation holding him liable even in case of fortuitous Delay: Non-payment of balance. Equatorial vs. Mayfairright of first refusal Delay: ***By not giving to Mayfair the 30-day period of which it is entitled to exercise right of first refusal upon communication of Carmelo that he would sell the property. Co vs. CA--carnap Delay: Delay in delivering the car to Co after demand which is the premise of negligence of resp. Aerospace vs. CASulfuric Acid na ayaw pang kunin. Pet purchased from resp Philphos 500 MT of Sulfuric Acid. In their contract it was pets responsibility to get the acid from resp. Philphos demanded that pet get the acid and pet chartered a vessel MT Sultan but the vessel was not able to get the whole volume bec it tilted. Resp sent a demand letter that the acid should be emptied or else petitioner will be liable for the storage and other incremental expenses if pet fails to do so. Pet chartered MT Sultan again but it tilted so never gotten the whole volume. Chartered another vessel Don Victor and asked Resp to deliver additional orders. Resp did not do so unless the remaining acid be emptied and that pet pay the maintenance and storage. Pet filed and contended Resp is in default. Issue: WON the Resp is in default. Held: No. The obligation to withdrew the 500MT of H2SO4 before Aug. 1989 and the resp was already ready to deliver

Bachrach Motor vs. Lee TayKinuha ng Kano ang truck niya, ayaw na niyang magbayad.

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the same but it was Plaintiffs fault for not chartering another vessel which has the capacity to withdraw the volume. It has the duty of emptying the acid. Pet claim that it was due to a storm thats why it cant empty the storage but evidence proved that it was of the incapability of the vessels. There was an obligation on the pet to empty the storage. They were the ones in delay. Delay: Pet for not emptying the storage. Selegna vs. UCPBcredit facility which ballooned. Selegna, rep by spouses Edgardo and Zenaida Angeles were granted a credit facility for P70M by UCPB. As a security, pet executed real estate mortgages over several parcels of land. Pet also executed prom note every time they avail of credit facility. In their credit agreement, it was stipulated that failure to pay any availment of the accommodation or interest or any sum due shall constitute an event of default which shall allow resp bank to declare as immediate and payable all outstanding availments together with accrued interest. Pet increased credit facility and they agreed to 21.75% interest per annum. Demand letters were sent upon failure to pay. Pet paid 10M as partial payment of accrued interest. UCPB applied for extra-judicial foreclosure of petitioners mortgaged properties. The obligation has ballooned to 132M and pet alleged that 10M as payment had the effect of updating and thereby averting the maturity of the obligation. Issue: WON the Pet were in default. Held: Yes. The contract is the law and the resp is justified in invoking the acceleration clause declaring the entire oblig due and payable. The resp had the right to foreclose the mortgages extra-judicially. Failure to furnish a detailed statement of account doesnt ipso facto result in unliquidated obligation. Pet was in default.

Delay: Non-payment of availement of accommodation. 2. Non-fulfillment Chavez vs. Gonzales Non-fulfillment: The typewriter was not fixed. Telefast vs. Castrodahil sa telegrama, mag-isa lang nang ilibing ang mama. Consolacion Bravo-Castro died in Pangasinan and on the same day the daughter sent a telegram to the US to inform the other siblings and dad about death of Mom. The Mom was interred by daughter alone. When she came back to the states, she found out that the telegram never reached her siblings. Telefast claimed force majeure bec of technical and atmospheric factors but no evidence to support. Issue: WON force majeure applies. Held: No. No evidence to support. And even so, def should have informed the plaintiff that it cannot transmit the telegram. 1170 and 2176, guilty of fraud, negligence or delay. 2217 for moral damages. Non-fulfillment: Sending of telegram. Tanguiling vs. CAwindmill na nasira sa wind. A case involving proper interpretation of contract. JMI Engr and GM proposed to resp Vicente to construct windmilling system for him. They agreed on the construction for P60K. P30K DP and P15K installment. Vincente didnt pay the remaining P15K bec he paid it to SPGMI who constructed the deep well to which the windmill would be attached. And even assuming that he owes pet P15K, it should have been offset by the collapse after a strong wind.

Issue: a. WON agreement to construct windmill included in the installation of a deep well. b. WON the pet is under the obligation to reconstruct the windmill. Held: a. No. It was not included in the agreement. Intention of the parties must be accorded primordial consideration and in case of doubt, contemporaneous and subsequent acts shall be principally considered. b. Yes. Pet claimed there is a strong wind but this is actually necessary for the windmill to turn. It was just newly constructed, it should have not collapsed. Non-fulfillment: Payment of last installment. Perez vs. CAniloko yung businessman at pinaalaga ang fishpond. Juan Perez usufructuary of a parcel of land called Papaya Fishpond with other usufructuaries. The usufructuaries entered into a contract leasing the fishpond to Luis Keh for a period of 5 years. The contract states that the lessee cannot sublease the fishpond nor assign his rights to anyone. But Crisostomo was persuaded by the pet Keh to take over the Papaya fishpond bec Cris is a businessman. Executed a written agreement. Cris even paid the rentals until 1985, 10 years of taking care of the fishpond. In 1979 however, pet with armed men went to fishpond and showed that Keh surrendered the fishpond to the usufructuaries. Issue: WON the resp is a sublessee of Keh which is barred by the lease contract. Held: Yes. He was a sublessee. But Perez and his counsel knew and acquiesced to that arrangement by their act of receiving from the resp rentals evidenced by the receipts which puts the pet in estoppelwhich arises when one by his acts and representations and admission or by his own silence

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when he is obliged to speak out, intentionally or thru culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such beliefs so that he will be prejudiced if the former is permitted to deny the existence of such facts. 1168: Oblig is in not doing and obligor has done what is forbidden, shall be done at his expense. Non-fulfillment: of the obligation not to do which is to sublease the fishpond. 3. Fraud Board of Liquidators vs. Heirs of Maximo KalawCopra Trading, hindi na kelangan ng pirma ng Board of Directors. Nacoco is for the protection, preservation and development of the coconut industry. Kalaw is the manager and board chairman. Nacoco embarked on copra trading activities, thus entering into contracts. For 3 years, profited 3M but after 4 typhoons, left the coconut lands devastated throughout the country. It was not able to fulfill the contracts it has engaged in. Nacoco paid damages to one of the parties. Nacoco now sues Kalaw for having approved the contracts. Issue: WON Kalaw is guilty of negligence for entering into contracts without prior approval of the Board of Directors. Held: No. Consideration of practice. Corporate officer entrusted with the gen management and control of business has implied authority to make any contract or do other act wichi is necessary or appropriate to the conduct of the ordinary business of the corporation. But there is a citation on the Nacocos by-laws requiring prior directorate approval of Nacoco contracts. Court considered practice of trade of short-sellling or forward sales. Prev contracts without prior auth from Board. And evidence showed that Kalaw actually handled the corp well for it to profit. Force majeure reason. Fraud: There is no fraud because Kalaw didnt need the Boards approval due to practice of trade. No negligence too on his part. ICB vs. GuecoJoint Motion to Dismiss for the car. Gueco spouses obtained a loan from UPC to purchase car and executed prom note which were payable in mnthly installments and chattel mortgage over car to serve as security over the notes. Spouses defaulted in payment. The payment was lowered but still no payment. Car was detained inside the banks compound. Gueco went to bank and negotiated and issued a managers check. But car was not released bec Gueco doesnt want to sign Joint Motion to Dismiss claiming not in the contract that they have to sign. Issue: WON the bank in not informing the spouses to sign motion to dismiss liable for damages for not releasing car. Held: No. Joint Motion to Dismiss for the spouses benefit and not for the bank. It would only state that the case would be dropped and that the spouses had fully settled his obligation thus the dismissal of the case. There is no fraudno intentional and deliberate evasion of the normal fulfillment of obligations. Fraud: In not stating that they have to sign Joint Motion to Dismiss but this is not considered Fraud. No intent and for the benefit of the Plaintiff. Action against owners and operators of the commom carrier known as the Phil Rabbit Bus Lines filed by one passenger and the heirs of another who were injured as a result of the fall into a river in which they were riding. The mother of the pet drowned and the son Necessito was injured. Issue: WON the carrier is liable for damages. Held: Yes. Although resp claims that force majeure since knuckles were the reason for the accident and they have inspected the knuckles, does exercised diligence. Carrier claims liability of manufacturer. Court said that the inspection done was merely visual and not meeting the requirement of expected due diligence. Negligence: In not exercising the proper diligence required. 5. Contravention of the tenor of the obligation Arrieta vs. NaricBurmese Rice, di naman pala kayang mag-open ng Letter of Credit. Pet participated in the public bidding by Naric for the supply of 20K MT of Burmese rice. Her bidding being the highest, she was awarded the contract. In 1952, entered into contract, Naric and Pet, sale of rice. Pet obligated herself to deliver to the latter the tons os Burmese rice and in turn corp has to pay for the imported rice by means of an irrevocable, confirmed and assignable letter of credit in US currency. It was only In July that def took first step to open letter of credit. Pet already made a tender to her supplier a 5% and this will be confiscated if L/C will not be received before Aug. 4. PNB informed Naric that L?C approved but has a condition that the 50% marginal cash deposit be paid. Naric was not in any financial position to meet the condition and wrote the pet about it. L/C was opened in Sept thus 5% deposit was forfeited. When appellee failed to restore cancelled Burmese rice she offered a sub but Naric rejected.

4. Negligence Necessito vs. ParasKnuckles killed the passengers.

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Issue: WON Naric should be liable for damages. Held: Yes. Failure of the letter of credit to be opened in the contemplated period. Immediate cause of damages. No necessary data but pet would not win bid had she not furnish them with it. Waiver bec Pet suggested to sub it Thai rice. Waiver are not presumed. Express stipulation. Contravention: That Burmese Rice should be delivered and should not deliver another thing. Chavez vs. Gonzales Contravention: That they agree that after 3 days, typewriter would be usable. E. Effect of fortuitous event Necessito vs. Paras Effect: Not fortuitous since knuckles should have been inspected more than the visual inspection done. Ampang vs. Guincothe bus that skidded. Held: The accident was caused by an accident which was unforeseen and beyond the control of the company on its driver. Victoria Planters vs. Victorias Milling30 years contract suspended due to Japanese Invasion. Held: 1174 relieves obligor from fulfilling a contractual obligation (fortuitous event). The stipulation in the contract that in the event of force majeure, the contract shall be deemed suspended during the said period does not mean that the happening of those events stops the running of the period agreed upon. It only relieves the parties from fulfilling their obligation that time. To require the pet to deliver the sugarcane during the 6 yrs of suspension was impossible of being performed. 6 yrs cant be deducted from 30 yrs. La Mallorca vs. De Jesustire blow-out. Held: Cause of the blow-out was known. It was a mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took the road that day. The bus was driving fast as was evidenced in the trial. Nakpil vs. CAEngr/Archi pati Contractors liable sa pagguho ng bldg. Phil Bar Assoc decided to construct its building in INtramuros Manila. Construction was undertaken by UCCI on administration basis and the plans and specifications of the building were prepared by another party Nakpil. It was completed in June 1966. In 1968, a strong earthquake hit Manila and building sustained major damages. As temporary remedy UCCI shoved up the building at its own expense. PBA commenced action against UCCI for the partial collapse of the building. Allegations were that there was a failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. Def then filed against 3rd party-architects who prepared plans and specifications alleging collapse was due to the defect of it. Issue: WON UCCI and Nakpil be held liable. Held: Yes. The case was referred to the Commissioner and found out that there were defects in plans and specifications and that contractors failed to observe requisite of workmanship and even the owners failed to observe requisite degree of supervision in the construction. Fortuitous even will not be applied bec there is negligence. 1723 will apply. Engineer/ arch who drew up plans and spec liable for damages. Contractor liable if edifice falls within the same period on acct of defects in the construction or the use of materials of inferior quality. Engr/archi will be held solidary liable if supervises construction. Fortuitous Event: Will not apply bec there is negligence. Austria vs. CANaglakad mag-isa sa gabi, nanakawan ng diamond pendant. Abad acknowledged receiving from Austria one pendant with diamonds valued at P4,500 to be sold on commission basis or to be returned on demand. While walking home, Abad was robbed and her things were taken including pendant. Estafa. RTC ruled negligence. CA held that robbery was established, fortuitous event. Issue: WON Abad is liable for the loss of the pendant. Held: No. It was undisputed that Abad was a victim of robbery. Even when she walked alone at night knowing that she had with her the pendant and a large amount of money, the crimes then were not as prevalent as the present time. Fortuitous event: Robbery was unforeseen and evidence established that it happened. Vasquez vs. CAsinabi na sa captain na may bagyo, tumuloy pa rin. Lumubog. Pioneer Cebu left the port of Manila. The vessel encountered a typhoon and struck a reef and subsequently sank. Plaintiffs seek the recovery of damages due to the loss of children and other people due to voyage. There was a storm as def claims but it was established that the captain knew about it but still proceeded. Issue: WON fortuitous event shall be considered and exempt def from liability.

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Held: No. They already knew the risk they were taking. They already receive report of the typhoon but proceeded anyway. Def claim Art. 587 Code of Commerce, loss of vessel exempt liability. But it is cited there that the liability of the owner is limited to the value of the vessel or to the insurance thereon. It was held that the insurance of the vessel would be liable for the damages that the shipowner or agent be liable for the death of the passengers. Fortuitous Event: Will not apply bec captain had knowledge of the event thus making it not unforeseen. F. Usurious transactions Angel Jose Warehousing Co vs. CheldaLoans with usurious interest, principal still enforced but interest not. (P20K+) Angel Jose filed against Chelda, its capitalist partner for the recovery of the unpaid loans with legal interest and attys fees (P20K+). Def paid bal of P5.6K. Plaintiff charged and deducted from the loan usurious interest at the rate of 2% and 2.5% PER MONTH and consequently, as claimed by def should not be permitted to recover under the law. RTCP1048.15 usurious interest which the payment was deducted from the interest and def claims that it should have been deducted from the principal obligation. Issue: a. WON in loans with usurious interest, the plaintiff may still recover the principal of the loan. b. WON the illegal terms as to the payment of interest renders nullity as to the payment of the principal debt. Held: a. Yes. Creditor may still recover principal of the loan. Loans with usurious interest are not totally void but only as to the interest. Renunciation of the principal would extinguish accessory but waiver of the accessory would not extinguish the principal. b. Yes. Divisible contract, that which is illegal can be separated from legal ones and the latter may be enforced. Interest which would be allowed is the interest bec of delay and default due to the general provisions of the law. Usurious obligation: Principal only, usurious interest not enforced. Briones vs. CammayoP1500 lang utang pero interest P300 per year-usurious. Briones filed against Cammayo to recover P1500. They executed a real mortgage as security for the loan of P1200 given by Cammayo upon usurious agreement and reserved to himself P300 payment of interest for a year. Plaintiff paid total sum of P330 but Cammayo refused to acknowledge it as payment for principal but for interest of loan for a year. Issue: WON creditor entitled to collect the principal obligation and interest. Held: Yes. But only as to the principal. Ruling of Angel vs. Chelda. Usurious obligation: Principal only, usurious interest not enforced. G. Presumption of interest and installments ***Hill vs. Veloso ***Vda De Ongsiako vs. Cabatuando H. Action Subrogation Accion Subrogatoria: action which the creditor may exercise in the place of his negligent debtor in order to preserve or recover for the patrimony of the debtor the product of such action, and then obtain therefrom the satisfaction of his own credit. Double function: conserving the patrimony of the debtor by bringing into it property abandoned or neglected by him AND of making execution on such property effective thereafter. Debtors debtor is my own debtor. Debtor who is sued may set up against the plaintiff the same defense he could set up against his own creditor. If the action succeeds, the plaintiff is entitled only to so much as is needed to satisfy his credit; if there is any balance, it shall pertain to his debtor. Goldstar Minig vs. Lim Jimenamining claims pinondohan, hindi na siya binayaran sa usapan. Jimena lent to Lincallo money to purchase mining claims and they agreed that f the proceeds shall be given to Jimena. Mining rights over part of the claim were assigned to Gold Star before WWII and copr paid Lincallo P5000 royalties. Lincallo entered contracts without the knowledge of Jimeana. Marquez contracted with Gold Mining and 45% should go to Lincallo. Another company contracted and stipulated 43% would go to Lincallo. Jimena demanded part but he was not paid. Issue: WON Jimena has a cause of action against Gold Mine when it contracted only with Lincallo. Held: Yes. Art. 1177 provides that creditors after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter (debtor) for the same purpose, save which are inherent in his person. 1883: the principal may sue the person with whom the agent dealt with in his own name, when the transaction involves things belonging to the principal. AS: File against debtor of his debtor.

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Estate of Hernandez vs. Luzon Suretynamatay yung guarantor, namana rin yung utang niya. Luzon Surety filed against estate of Hemady based on 20 different indemnity agreements and couterbounds by the deceased in consideration of guaranteeing various principals in favor of different creditors. Hemady died and estate claim not liable bec of death. Issue: WON death extinguishes obligation of the estate. Held: No. Obligations extinguished by death are: a. support b. parental auth c. usufruct d. contracts for a piece of work d. partnership e. agency. Articles that regulate guaranty or suretyship contain no provision that the guaranty is extinguished upon the death of guarantor. Art. 774 and 776 (succession and inheritance) state that heir succeed no only to the rights but also to the obligations. AS: Obligation was subrogated to the heirs of the dead person. III. KINDS OF OBLIGATION A. PURE AND CONDITIONAL OBLIGATIONS 1. Pure Obligations Pay vs. Palancananingil nagprescribe. ng utang after 15 yrs, Lichauco vs. Figueras-HermanosLorchas, emergency and regular use. Held: The amendment to the contract bet the plaintiff and def was expressly conditioned on the defs being the successful bidders at the letting and they were not the winners. Second contract has no force but the first one. No showing that they have given new life to the agreement. Wise & Co vs. Kellyhindi naman sinabi na ibenta yung goods sa ganitong halaga. Held: No proof that Kelly has not turned over all the money received from the sale of the merchandize so that Lim, the surety, has no liability. The condition is that Lim will pay if Kelly has not turned over all the sales of the merchandise but not that he shall pay if all the sales has not amounted to the original amount of obligation. There is no stipulation that the goods were to be sold at a certain price, or not less than what it should be. Santiago vs. Millarnanalo sa sweepstakes pero nawala ang ticket. Held: The ticket sold has a notation that prize will be paid upon the surrender of the ticket. The surrender or presentation of the ticket is a condition precedent of payment. Parks vs. Prov of Tarlacnagdonate ng land for school and public park in 6 mos pero hindi ginawa. Cirer and Hill were owners of parcels of land and donated it to the municipality of Tarlac on the condition that erection of a public school and a public park shall be commenced within the period of 6 months. Tarlac failed. Cicer and Hill sold land to Parks. Parks pray for annulment of donation. Issue: WON Parks is the owner of the land bec of nonperformance of the condition of the mun of tarlac. Held: No. The action for revocation of a donation is 10 yrs. They have filed case after 14 yrs. Although condition was not complied with, revocation should have been made before the sale of the land. Req: 1. consent of the donee of the revocation 2. judicially decreed. Onerous donations, 10 yrs prescription. CPU vs. CAnagdonate ng land for medical school pero hindi ginawa. No period but 50 yrs na nakalipas di pa rin ginawa. Don Lopez donated land to CPU on the condition that it would be used for the establishment of a medical school and that CPU cannot sell or convey the land to any party. CPU failed to do so and even exchanged land with another with the NHA. Heirs filed for annulment of donation. Issue: WON donation annulled. Held: No. Although there is a need to fix a period bec the contract did not stipulate period when to commence condition. However, in consideration of the facts, 50 years have lapsed for the condition to be complied with and CPU was not able to perform. SC ruled to reconvey to heirs the land. Aguilar vs. Cititrustyung hindi ko maintindihang kaso or baka hindi lang siya talaga relevant under this title. b. Potestative Mixed Conditions Shotwell vs. Manila MotorBanks were chartered to accept liability.

Held: Every obligation whose performance does not depend upon a future or uncertain event or upon a past unknown to the parties, it is demandable at once. 2. Conditional Obligations a. with suspensive/resolutory conditions

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Held: The banks will not be liable since they didnt accept that they will should liability. The lease was extinguished by the fire that occurred and the chartered banks being a sublessee of the Manila Motor which contracted lease also from Shotwell, will not be liable for the construction of the destroyed buildings. No potestative condition. Lease for the enjoyment of the premises. No fault on part of anyone. Smith Bell vs. Sotello Mattii-deliver yung equipment pero depende sa gobyerno. Held: The conditions did not depend upon the will of the debtor alone. There is no delay since there existed rigid restrictions during the that time of world war. It is a mixed one because dependent also of the will of the third person or the US govt whether to allow the delivery or not. Held: If the statement found in the acknowledgement should be regarded as a condition, it was a condition dependent upon the exclusive will of the debtor, and is, therefore, void. The acknowledgement, therefore, was an absolute acknowledgement of the obligation and was sufficient to prevent the statute of limitations from barring the action upon the original contract. Hermosa vs. Longaraas soon as I receive funds derived from the sale of my property in Spain. Held: The condition implies that the obligor has already decided to sell his house or at least that he had made his creditors to pay his indebtedness demandable is that the sale be consummated and the price thereof remitted to the islands. Not a purely potestative one, depending upon the will of the obligor, but partly upon chance, i.e. presence of the buyer of the property for the price and under conditions desired by the obligor. c. Impossible and Illicit conditions Luneta Motor Co. vs. Abadif I recovered judgment in the action but he died during the trial. Held: The obligation is subject to the condition that when the plaintiff recovered judgment, they shall deliver the property so released to the officer of the court for the payment of said judgment of in default, pay its full value. Since Abad died, it has become a legal impossibility since no judgment shall be rendered. Galang vs. CAyou pay 25% within 3 months or upon the removal of the encargado. Held: The removal of the encargado was not a condition precedent to the fulfillment of the contract. What we have is a contract to sell wherein the ownership is retained or title until the fulfillment of a positive condition, normally the payment of the purchase price in the manner agreed upon. It was just an alternative period for the payment of the second installment. d. positive and negative conditions 3. Constructive Fulfillment Taylor vs. Uy Tiengdapat may trabaho siya pero binawi ni Uy Tieng dahil di maganda sitwasyon. FOR ANY REASON Held: Should the machinery to be installed in the said factory fail, for ANY REASON, 6 months from the date hereof, this contract may be cancelled. The def can rescind the contract bec their reason falls under any reason. But there is no constructive fulfillment on this case. Constructive fulfillment: condition shall be deemed fulfilled if the obligor intentionally impedes its fulfillment, has no application to the cases of the resolutory provision giving to the obligor a right to cancel contract upon contingency within the control of the obligor. Herrera vs. LevisteGSIS and Leviste Case. Teehankees Dissent. Tehankees Dissent: Leviste was guilty of bad faith and violated the terms of the contract thus there is constructive fulfillment. Herrera was required by GSIS to submit papers to support his assumption but could not be approved until Herrera could submit a final deed of sale and Leviste did not execute this deed. He prevented the assumption of Herrera of the mortgage. Not only that, Leviste is in arrears for 14 months in its amortization and Herrera did not know that. 1186 and 1169 (reciprocal obligations). Tayag vs. CAestopped bec receipt of payments and knowledge of irregularities.

Trillana vs. Quezon Collegesif I harvested fish. The stipulation in this case was that the obligor would pay the full value of a subscription for shares in the Quezon College after she had harvested fish. Held: This condition is obviously depended upon the sole will of the obligor, and the conditional obligation is void, because it would have served to create an obligation to pay, the whole obligation is void. **When conditional obligation is void, then it would convert the obligation to a pure obligation which would be demandable at once. Osmena vs. RamaIf the house of strong materials is sold, I will pay my debt.

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Held: The acceptance of the petitioners of the various payments even beyond the periods agreed upon, was perceibved by the lower court as tantamount to faithful performance of the obligation. 1186 applies to both obligees and obligors in reciprocal obligations even when the proviso only speaks of the obligor. Pet accepted the performance knowing its incompleteness and irregularity and without expressing any protest or objection, the obligation is deemed to be complied with. Coronel vs. CAReceipt of Downpayment Held: Intent of the parties has to be considered. It was a contract of sale and not a contract to sell. Contract of sale ownership already transferred upon fulfillment of the suspensive condition. Absolute sale. Contract to sell-although suspensive condition was complied with, ownership will not automatically transfer. There is still a need to convey title to the prospective buyer by entering into a contract of absolute sale. 4. Retroactivity of Obligation Padilla vs. Paterno-his mom is the universal heir and not his wife-paraphernal. Held: The ownership of the land is retained by the wife until she is paid the value of the lot, as a result of the liquidation of the conjugal partnership. There mere construction of the building from common funds does not automatically convey the ownership of the wifes land to the conjugal partnership. The properties conversion from paraphernal to conjugal assets would be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, the time before the death of Narcisso Padilla that ended the partnership. The acquisition by the partnership of theses properties was subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted. Coronel vs. CADownpayment Retroactive: From the moment the obligation was constituted, upon payment of full balance, retroact to that date. 5.Preservation of Creditors Rights Art. 1188: The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. 6. Rescission in Reciprocal Obligations Ocejo vs. Interbankmaswerteng assignee. Yung asukal na nasa ibang warehouse na kinuha ng banko. Held: The thing sold not subject to condition that the buyer was the pay the price before the delivery. On demandability: No term having been stipulated on payment, it should be demandable at the time and place of the delivery of the thing sold. Demandable at once and failure to do so would entitle obligor either performance or rescission. But rescission should be applied to the court for a decree for the rescission of the contract. No rescission was made before the insolvency of plaintiff, the assignee standing on the shoes of the buyer has a better right. Albert vs. University Publishingpublishing the Revised Penal Code. Held: It was the defendant corporation who had breached the contract. The plaintiff has written letters reminding the corp that the contract will be deemed rescinded if the corp would not fulfill its obligation. Accg to Tolentiono: Rescission must be judicially invoked. Unless there is a stipulation of period when the contract would be deemed rescinded. If one party is willing to perform and the other is not extra-judicial rescission would suffice if there is stipulation. However, if there has been a performance already by one of the parties, rescission should already be judicially invoked regardless whether there is a stipulation or none, especially if the other party rejects rescission. UP vs. Delos Angelesaward of logging rights; rescission without need of judicial suit. Held: In the agreement, there is a stipulation that UP has the right and power to consider the Logging Agreement date Dec 2 1960 rescinded without the necessity of a judicial suit. 1191s consideration: There is nothing in the law that prohibits that parties from entering into agreement that violation of the terms of contract would cause cancellation thereof even without court intervention. BUT PROCEEDS AT ITS RISK. Extra-judicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription. Roque vs. Lapuz10 yrs to pay, I can pay anytime within the 10 years. Held: Qualification for rescission: so substantial and fundamental to defeat the object of the parties. Absence of a formal deed of conveyance is a very strong indication that the parties did not intend immediate transfer of ownership and title, but only a transfer after full payment of the price.

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Intent of the parties was to have the obligation be paid in monthly installment. Herrera vs. Leviste Tehankees dissent: Upon Levistes refusal to execute the deed of sale, Herrera has the option of specific performance or the rescission of the contract. Zulueta vs. MarianoAvellana a movie director made movies for Zulueta for his political campaign, automatic rescission clause. Held: There is an automatic rescission clause in the contract and the fact that pet has cancelled contract, resp has no right to remain in the premises. Extra-judicial rescission shall only take legal effect where the other party does not oppose it. Delta Motor Corp vs. Genuinodelivery of black iron pipes for iceplant and storage. Held: Power to rescind under 1191 is not absolute. The act of a part in treating a contract as canceled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional subject to the scrutiny and review by the proper court. Delta no manifestation that it had opted to rescind contract, it has possession of the two irons and the downpayment and has waived the performance of conditions of the contract when they opted to go on with the contract only with a much higher price. Ong vs. Bognalbal Rescission: Upon the infraction of Ong, Bognalbal could have filed rescission of the contract or the performance of it. Carrascoso vs. CAnotice of lis pendence but continued with the sale of the land. 1972-El Dorado sold to Carrascoso the parcel of land July 1975- Buy and Sell bet Carrasco and PLDT April 1977- Carrasco to PLDT May 30, 1977 PLDT to PLDTAC May 15, 1977-notice of lis pendens Held: Notice of Lis pendens, but still PLDT conveyed land to PLDTAC. Where a contract is rescinded it is the duty of the Court to require both parties to surrender that which they may have respectively received and to place each other as far as practicable in his original situation. The exercise of the power to rescind extinguished the obligatory relation as if it had never been created, the extinction having a retroactive effect. B. OBLIGATIONS WITH A PERIOD PNB vs. Lopez Vitoloan of spouses when there is a condition and a period stipulated. Held: The non-fulfillment of the conditions of the contract renders the period ineffective, and makes the obligation demandable at the will of the creditor. Failure to pay would make the entire obligation due and demandable, so regardless of the period of other installments, def has to pay the entire obligation. Smith Bell vs. Matti Held: There also was a stipulated period however there is also a condition which states that delivery would depend upon the US govt. Upon the lapse of the period and the condition bars the performance, def will not be liable. Gaite vs. Fonacierexpiration of the surety, debtor loses the benefit of the period. Mining claim case. Held: 1198 states when debtor loses the benefit of the period. The surety contract expired and Fonacier didnt renew or replaced the surety. Sale of the ore was not a suspensive condition but a suspensive period, fixing the future date of the payment. Qui vs. CAfactory was razed to the ground and failure of lease to rebuild the building of the lessee. (the building to be constructed shall belong to the resp lessor after 20 yrs). Held: 1197. If obligation does not fix a period but from its nature and circumstance it can be inferred that a period was intended , the courts may fix the duration thereof. Will also fix period when it depends upon will of the debtor. In determining period, courts will have to consider the circumstances and see if period was contemplate. The contract doesnt stipulate a period, thus the court held that resp has to institute a judicial action to fix the period. (this case is an ejectment case so fixing a period was not alleged in the case). Sarmiento vs. Villasenorloan with a pledge of a medal with a diamond in the center with 10 diamonds surrounding it, pair of diamond earrings, comb with 22 diamds, and two diamond rings! Daming diamonds!!! Held: In a contract of loan with interest wherein a term was fixed for the payment thereof, it is presumed that said terms was established for the benefit of the creditor as well as that of the debtor, unless from its tenor or other circumstances it appears to have been stipulated for the benefit of one only. In such a case the debtor has no right to pay the debt before the lapse of said period, without the consent of the creditor, and demand the devolution of the goods that were pledged to secure the payment. Only after the expiration of said

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period may the debtor make payment, and, therefore, the action for the recovery of the goods pledged arises only after the lapse of said for the purpose of the computation for he period of prescription of said actions. Daguhoy Enterprises vs. Poncenagsecure ng mortgage as guaraty sa loan sa isang corp tapos after ibigay yung loan, withdrew mortgaged properties then mortgage them again sa ibang corp for another loan. Madaya. Held: Although the contract stipulates that loan payable in 6 years, but because of the failure to give and register the security agreed upon in the form of two deeds of mortgage, the obligation becomes pure and without condition thus due and immediately demandable. 1198, lost the benefit of the period. Victorias Planter, supra De Leon vs. Syjucogusto ng magbayad ng debtor pero ayaw pang tanggapin ng creditor. Held: Consignation was not valid. Req: a. debt due b. consignation has been made bec creditor to whom payment is made refused to accept, or was absent or incapacitated c. prev notice of consignation to the person interested in the performance d. amount due placed at the disposal of the court 3. after consignation had been made, the person interested was notified thereof. Reasons why creditor cant be forced to accept payment a. may want to keep his money invested safely instead of having it in his hands. B. to protect himself of sudden decline on the purchasing power of the currency loaned. Unless creditor consents, debtor cannot accelerate payment. Millare vs. Hernandoyung bahay niya gusting gawing resto e ayaw niya nga. Held: An agreement to extend the time of payment in order to be valid must be for a definite time. The cause of action was for the fixing of the period. Song Fo vs. Orialaunch was sold but was shipwrecked, Song Fo did not insure and Oria did not secure. Held: The launch was with Oria already and knowing that the launch has not been insured yet, sent it from Manila to Samar and on the trip it was shipwrecked. The contract stipulates quarterly installments. Since the vessel is lost, Oria doesnt want to pay. That unpaid installments of the purchase price of the launch, which under the express terms of the contract had not become due and payable at the time of the loss of the vessel, became due and payable under the provisions of article 1129 of the Civil Code, upon the failure of the purchaser, within a reasonable time after the loss of the launch, to offer either satisfactory security or to give bond to secure the payment of the unpaid installment of the purchase price. Held: On the contract, it is stipulated that the lease may be renewed after a period of 5 years under the terms and conditions as will be mutually agreed upon by the parties at the time of the renewal. 1197 and 1670 of the CC (fixing of period, and after 15 days of occupying the leased property and without any notice from lessor, contract shall be renewed). It is understood that there is an implied new lease, not for the period of the original contract, but for the time established by 1682 and 1687. The other terms of the contract shall be revived. After the expiration of the contract, the implied new lease could not possibly have the period of 5 years, but rather would have been a month-tomonth lease since the rentals were payable on a monthly basis. Pacific Banking Corp vs. CAnegosyo sa cultivation of fish and saltmaking bumagsak.

C. ALTERNATIVE AND FACULTATIVE OBLIGATIONS Agoncillo vs. JavierAnastacio property to pay the debt. Alano mortgaging his

Held: Anastacio was only a rep of his children, and his partial payment does not affect prescription not for the benefit of the other debtors. The mortgage was never recorded therefore invalid. Action to recover has prescribed, the action to compel a conveyance of the house and lot is likewise barred as the agreement to make such conveyance was not an independent principal undertaking, but merely a subsidiary alternative pact relating to the method by which the debt might be paid. Ong Guan Can vs. Centurythe insurance company doesnt want to rebuild with the same materials. Held: On the contract the insurance company obligated itself to either pay the amount to which the house was insured or rebuild it. The debtor must notify the creditor of his election, stating which prestation he is disposed to fulfill. The effect of notice is to give the creditor, that is, the plaintiff in the instant case, opportunity to express his consent, or to impugn the election made by the debtor, and only after said notice shall the election take legal effect when consented by the creditor, or impugned by the latter, when declared improper by the competent court. D. JOINT AND SOLIDARY Jaucian vs. Queroisurety was solidarily liable, then surety died. Held: The right of a guarantor or surety to insist on the exhaustion of the property of the principal debtor, before his

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own shall be taken in execution does not exist where the guarantor or surety is jointly and severally bound with the principal debtor. Ramos vs. GibbonMining Claims, Possessory Rights of a Qualified Locator. Held: The concurrence of two or more creditors or of two or more debtors with respect to the same obligation does not imply that each of the former is entitled to demand the performance of the obligation in its entirety or that each of the latter is bound to perform it. This shall be the case only when the expressly so provided by the terms of the obligation, and the parties are bound in solido. The presumption, in the absence of the stipulation as to how certain debtors are bound, is that they are bound jointly. Versoza vs. LimCollision of Perla and Ban Yek. Held: Where a collision occurs between tow sea-going vessels, caused exclusively by the carelessness of the navigating officers in charge of one of the vessels, both the owner and the operating company directly in charge of the offending vessel are liable for the damage done. The rule that joint obligations are apportionable unless otherwise specially provided has no application to obligations arising from tort. Persons who cooperate in the tortuous infliction of damage are jointly and severally liable. Contractual Obligations-joint Tortuous act-joint and severally liable Ronquillo vs. CAfoodstuff, individually and jointly, auction of furnitures on same day of hearing for reconsideration. Held: Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants obligated themselves to pay their obligation, individually and jointly. The term individually has the same meaning as collectively, separately, distinctively, respectively, and severally. An agreement to be individually liable undoubtedly creates a several obligation and a several obligation is one by which one individual binds himself to perform the whole obligation. Oritz vs. CayanonBartolome Ortiz, ayaw umalis sa premises dahil sa mga improvements na ginawa niya at hindi siya nakasama sa bidding. Nangolekta pa ng toll. Held: Presumption when two persons are liable under a contract or judgment and no mention of the specific liability of each for the entire obligation. With respect to the amount of reimbursement to be paid by Comintan, it appears that the dispositive portion of the decision was lacking in specificity, as it merely provided Zamora and Comintan jointly liable therefore. When two persons are liable under a contract or under a judgment, no words appear in the contract or judgment to make each liable for the entire obligation, the presumption is that their obligation is mancommunada, and each debtor is liable only for a proportionate part of the obligation. The judgment debt of 13K should be pro-rated in equal shares to Comintan and Zamora. Imperial Insurance vs. Davidspouses bound themselves to be solidary and jointly liable, husband died. Held: If husband and wife bound themselves jointly and severally, in case of his death her liability is still solidary and may be sued for the whole debt. The Rules of Court provide the procedure should the creditor desire to go against the deceased debtor, but there is nothing in the said provision making compliance with such procedure a condition precedent before an ordinary action against the surviving solidary debtors, should the creditor choose to demand payment from the latter, could be entertained to the extent that failure to observe the same would deprive the court jurisdiction to take cognizance of the action against the surviving debtors. CIVIL Code allows the creditor to proceed against any of the solidary debtors or some or all of them simultaneously. Hence, there is nothing improper in the creditors filing of an action against the surviving solidary debtors alone, instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein his claim could be filed. Inchausti vs. Yulomagkakapatid na hindi pa nagkasundo sa remission na binigay. Held: The remission of any part of the debt, made by the creditor in favor of one or more his solidary debtors, inures to the benefit of the rest of them, and these latter may utilize in their favor the defense of remission. The solidary debtor unconditionally obligated or whose period for payment has expired, may not, with respect to the part of the debt he is liable, plead the defense of prematurity of the action, which is personal to his co-debtors. BPI vs. McCoyMcCoy paid all the debts and was subrogated with the rights to contribution from his codebtors. Held: Where one of the several persons who are sued upon a joint and several liability elects to pay the whole, such person is subrogated to the rights of the common creditor and may properly substituted in the same action as plaintiff for the purpose of enforcing contribution from his former associates under art. 1145. **But Maam said, this is not the same meaning of real subrogation of rights. Chinese Chamber of Commerce vs. Pua Te ChingSurety was jointly ans severally liable, principal died. Held: The surety may use against the creditors all the defenses which the principal debtor is entitled and that are

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inherent in the debt, but not those purely personal to the debtor, to wit, those which may contribute to weaken or destroy the juridical bond existing between the creditor and the principal debtor, not any means of defense which may invalidate the original contract from which the tight or the action of the creditor against the security arises in this class of actins is not included the means of defense as to how the trial may be continued and the writ of execution issued in case of the death of the principal debtor which can not affect the original contract nor destroy the bond existing bet the creditor and the principal debtor, it being, therefore, an exception or means of defense no inherent in the debt, but at the most, a purely personal one of the debtor or the successors-in-interest of the debtor. Intl Finance vs. Imperial Textileguarantee vs. surety Held: Although it states Guarantee, the stipulations of the contract make it clear that jointly and severally phrase is the one used in the contract. Surety: person binds himself solidary with the principal debtor, primary liability Guaranty: contract whereby a person binds himself to the creditor to fulfill the obligation of the principal in case the latter should fail to do so, secondary liability. Construction Dev. Vs. EstrellaBus was rammed and their knees are pinned to the seats in front of them. Held: The bus company, its driver, the operator of the other vehicle and the driver of the vehicle were jointly and severally liable to the injured passenger or the latters heirs. Nor should it make any difference that the liability of pet (bus owner) springs from contract while that of respondents (owner and driver of other vehicle) arises from quasi-delict. Bus owner-contract, owner and owner of other vehicle-quasidelict : both jointly and severally liable.

E. DIVISIBLE AND INDIVISIBLE OBLIGATION Art. 1223-1225 F. OBLIGATION WITH A PENAL CAUSE Manila Racing vs. Manila Jockeyforfeiture of what was partially paid. Held: The clause of the contract referring to the forfeiture of the P100,00 already paid, should the purchases C fail to pay the subsequent installments, is valid, It is in the nature of a penal clause which be legally established by the parties. In its double purpose of insuring compliance with the contract and of otherwise measuring beforehand the damages which may result from non-compliance, it is not contrary to law, morals or public order bec it was voluntarily and knowingly agreed upon by the parties. Viewing concretely the true effects thereof in the present case, the amount forfeited constitutes only 8% of the stipulated price, which is not excessive if considered as the profit which would have been obtained had the contract been complied with. There is, moreover, evidence that the defendants, because of this contract with C, had to reject other propositions to buy the same property. At any rate, the penal clause does away with the duty to prove the existence and measure of the damages caused by the breach. Caridad Est. vs. Santeroloan to be paid in 60 days and failure to do so, those already paid shall be forfeited. Antichresis: a contract whereby the creditor acquires the right to receive the fuirts of an immovable of his debtor with the obligation to apply them to the payment of interest if owing and thereafter to the principal of his credit. Penal ClauseL generally intended to substitute the indemnity for damages and the payment of interests in case of noncompliance of the obligation.

Held: The provisions in which the parties have indicated in the contract is a penal clause which carries the express waiver of the vendee to any all sums he had paid when the vendor, upon his inability to comply with his duty, seeks to recover passions of the property, a conclusive recognition of the right of the vendor to the said sums, and avoid unnecessary litigation designed to enforce fulfillment of the terms and conditions agreed upon. Said provisions are not unjust or inequitable and does not, as appellant contends, make the vendor unduly rich at his cost and expense. Bachrach Motors vs. Espirituobligation partly performed, 25% penalty, reduced. WHITE TRUCKS. Held: Interest and penalty are not the same. When the obligation has been partly performed, the CC authorizes the court to reduce the penalty thereon. Cabbarroguis vs. Vicentejeep accident. Held: The refusal of the defendant to pay when the demand was made by plaintiff entitles the latter to interest on the penalty. 2210 provides that in the discretion of the court, interest may be allowed upon damages warded for breach of contract. This interest is recoverable from the time of delay, that is to say, from the date of demand, either judicial or extrajudicial. And if there is no showing as to when demand for payment was made, plaintiff must be considered to have made such demand only from the filing of the complaint. Hodges vs. Javellana--iceplant machinery, softdrint, ice drop and fixture. Held: The provisions in the contract between the parties relative to the compounding of interest partake the nature of a penal clause and under 1229, may be reduced by court if iniquitous or unconscionable.

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Pamintuan vs. CAplastic sheetings Held: The theory that penal and liquidated damages are the same cannot be sustained where the obligor is guilty of fraud in the fulfillment of his obligation. The penalty clause is strictly penal or cumulative in character and does not partake the nature of liquidated damages when the parties agree. Concurring Antonio: A creditor in case of fraud by the obligor is entitled only to the stipulated penalty plus the difference bet the proven damages and such stipulated penalty. Robes-Francisco Realty vs. CFJ Held: A contract of sale which stipulate payment of interest at 4% per annum in case vendor fails to issue a certificate of title to vendee is not a penal clause because even without it vendee would be entitled to interest at the legal rate of 6% per annum. It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which will preclude an award of damages to the vendee Millan. Makati Devt Corp vs. Empire Insurance Co.you should build a house on the lot or else. Held: Mitigation of the penalty is allowed where there is partial payment of the obligation, the reduction of the penalty is justified. This is true where the indemnity provided for is essentially a mere penalty , having for its object to compel compliance with the contract. Umali vs. Miclatcreation of an advertisement LAGRIMAS Held: Under the law, a penalty takes the place of interests only if there is no stipulation to the contrary, and even then, damages may still be collected if the obligor refuses to pay the penalty.

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