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479 scra 462 January 23, 2006

GR No. 163075

AYALA INC versus RAY BURTON CORP

FACTS:
On December 1995, Ayala Inc. and Ray Burton Corp. entered into a contract
denominated as a Contract to Sell, with a Side Agreement of even date. In these contracts,
petitioner agreed to sell to respondent a parcel of land. Respondent paid thirty (30%) down
payment and the quarterly amortization. However, respondent notified petitioner in writing that it
will no longer continue to pay due to the adverse effects of the economic crisis to its business.
Respondent then asked for the immediate cancellation of the contract and for a refund of its
previous payments as provided in the contract. Petitioner refused to cancel the contract to sell.
Instead, it filed a complaint for specific performance against respondent, demanding from the
latter the payment of the remaining unpaid quarterly installments inclusive of interest and
penalties.

ISSUE:
Whether respondents non-payment of the balance of the purchase price may gave rise to
a cause of action on the part of petitioner to demand full payment of the purchase price

HELD:
Before the remedy of specific performance may be availed of, there must be a breach of
the contract. Under a contract to sell, the title of the thing to be sold is retained by the
seller untilthe purchaser makes full payment of the agreed purchase price. The non-fulfillment by
the respondent of his obligation to pay, which is a suspense condition to the obligation of the
petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and
without force and effect; failure of which is not really a breach, serious or otherwise, but an
event that prevents the obligation of the petitioners to convey title from arising, in accordance
with Article 1184 of the Civil Code. Here, the provisions of the contract to sell categorically
indicate that respondents default in the payment of the purchase price is considered merely as an
event, the happening of which gives rise to the respective obligations of the parties mentioned
therein.

May 26, 2005

G.R. No. 139523

CANNU versus GALANG

FACTS:
Respondent spouses Galang agreed to sell their house and lot subject to mortgage with
the National Home Mortgage Finance Corp (NHMFC). Petitioner Leticia Cannu agreed to buy
the property for P120,000.00 and to assume the mortgage obligations with the NHMFC. A deed
of sale and assumption of mortgage was executed and petitioners immediately took possession
and occupied the house & lot. Despite requests from Fernandina Galang to pay the balance or in
the alternative to vacate the property in question, petitioners refused to do so. Because the
Cannus, failed to fully comply with their obligations, respondent Galang, paid P233,000.00 as
full payment of her remaining mortgage loan with NHMFC. Eight (8) yrs. had already elapsed
and petitioners have not yet complied with the obligation. The Regional Trial Court ordered the
deed of sale with Assumption of Mortgage as rescinded as well as ordered mutual restitution.

ISSUE:
Whether or not the breach of obligation is substantial
Whether or not rescission is subsidiary

HELD:
Breach considered being substantial. Cannu failed to comply with her obligation to pay
the monthly amortizations due on the mortgage. Also, the tender made by Cannu only after the
filing of this case cannot be considered as an effective mode of payment. Resolution of a party to
an obligation under Article 1191 is predicated on a breach of faith by the other party that violates
the reciprocity between them. In the case at bar, Cannus failure to pay the remaining balances of
P45,000.00 to be substantial.
Rescission will not be permitted for a slight or casual breach of the contract. Rescission
may be had only for such breaches that are substantial and fundamental as to defeat the object of
the parties in making the agreement. The rescission in this case is not predicated on injury to
economic interests of the party plaintiff but on the breach of faith by the defendant, that violates
the reciprocity between the parties. It is not a subsidiary action. The rescission in Article 1191 is
a principal action retaliatory in character; it being unjust that a party be held bound to fulfill his
promises when the other violates his.

July 13, 2011

G.R. No. 185440

LALICON versus NATIONAL HOUSING AUTHORITY

FACTS:
On 1980, the National Housing Authority (NHA) executed a Deed of Sale with Mortgage
over a Quezon City lot in favor of the spouses Isidro and Flaviana Alfaro. It was provided in the
deed of sale that the Alfaros could sell the land within five years from the date of its release from
mortgage without NHAs prior written consent. Nine (9) years later Alfaros sold the land to their
son Victor Alfaro, who had a house built on the property and paid for the amortizations. On
March 21,1991, the NHA released the mortgage. After four and a half years since the mortgaged
was released Victor registered the sale of land in his favor, resulting in the cancellation of his
parents title. Afterward, Victor sold the property to Chua, one of the mortgagees, Moreover, a
year later the NHA instituted a case before the Quezon City Regional Trial Court (RTC) for the
annulment of the NHAs 1980 sale of the land to their son Victor and the subsequent sale of
Victor to Chua was a violation of NHA rules and regulations.

ISSUES:
Whether or not the NHAs right to rescind has prescribed

HELD:
An action for rescission can proceed from either Article 1191 or Article 1381. It has been
held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article
1124 of the Old Civil Code which uses the term "resolution." Resolution applies only to
reciprocal obligations; such that a breach on the part of one party constitutes an implied
resolutely condition which entitles the other party to rescission. Resolution grants the injured
party the option to pursue, as principal actions, either a rescission or specific performance of the
obligation, with payment of damages in either case. Recession under Article 1381, on the other
hand, is subsidiary action, not based on a party's breach of obligation. The four-year prescriptive
period provided in Article 1389 applies to rescissions under Article 1381. Here, the NHA sought
annulment of the Alfaros' sale to Victor because they violated the five-year restriction against
such sale provided in their contract. The NHA's right of action accrued when it learned of the
Alfaros' forbidden sale of the property to Victor. Since the NHA filed its action for annulment
of sale on April 10, 1998, it did so well within the 10-year prescriptive period.

399 SCRA 207, March 14, 2003

CATHAY PACIFIC AIRWAYS VS. VAZQUEZ

FACTS:
In respondents return flight to Manila from Hongkong, they were deprived of their
original seats in Business Class with their companions because of overbooking. Since
respondents were privileged members, their seats were upgraded to First Class. Respondents
refused but eventually persuaded to accept it. Upon return to Manila, they demanded that they be
indemnified in the amount of P1million for the humiliation and embarrassment caused by its
employees. Petitioners Country Manager failed to respond. Respondents instituted action for
damages.

ISSUES:
Whether or not the petitioners
(1) breached the contract of carriage,
(2) acted with fraud and
(3) were liable for damages.

HELD:
(1) YES. Although respondents have the priority of upgrading their seats, such priority
may be waived, as what respondents did. It should have not been imposed on them over their
vehement objection.
(2) NO. There was no evident bad faith or fraud in upgrade of seat neither on
overbooking of flight as it is within 10% tolerance. Ms. Chiu might have failed to consider the
remedy of offering the First Class seats to other passengers. But, we find no bad faith in her
failure to do so, even if that amounted to an exercise of poor judgment. Neither was the transfer
of the Vazquezes effected for some evil or devious purpose
(3) YES. Nominal damages (Art. 2221, NCC) were awarded in the amount of P5,000.00.

May 8, 2009
G.R. No. 174269

POLO PANTALEON versus AMERICAN EXPRESS INTERNATIONAL

INC.,

FACTS:
Polo Pantaleon went on a tour with his family in Europe. While they were in Amsterdam,
Mrs. Pantaleon decided to purchase some diamond pieces. Mr. Pantaleon used his AMEX credit
card to pay for the said diamonds. It took AMEX a total of 78minutes to approve the purchase
and to transmit the approval to the jewelry store. The travel companions of the Pantaleon
family got irritated because they had to cancel the city tour due to the delay in the purchase of
the diamonds. The same thing also happened when the family was in the US.

ISSUE:
Whether or not AMEX has committed a breach of its obligation to Pantaleon, and were
liable for damages

HELD:
Yes, AMEX committed a breach of its obligation. It is the obligation of the respondent,
as a debtor/obligor, to act on the purchase of the petitioner with timely dispatch. The culpable
failure of the respondent herein is not the failure to timely act on the same but the failure to
promptly informed petitioner the reason for the delay, and duly advised him that resolving the
same could take some time. Yes. The reason why Pantaleon is entitled to damages is not simply
because AMEX incurred delay, but because the delay, for which culpability lies under Article
1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages
are remunerative.

GR NO. 115129

BARZAGA versus COURT OF APPEALS

FACTS:
Petitoners wife was suffering from a disease and is almost dying. The wife requested
that upon her death, she wanted to be laid on her niche before December 25 since Christmas was

fast approaching and she dont want to burden her family with the wake. After her death,
petitioner bought materials from private respondent for the construction of the niche of his late
wife. Private respondent however failed to deliver said materials on time despite repeated follow
up. The niche was then completed on the afternoon of the 27th day of December, and his wife
was finally laid to rest.
ISSUE:
Whether or not theres a delay in the performance of the private respondents obligation
HELD:
Yes since respondent was negligent to his obligation and incurred a delay in the
performance of his contractual obligation, petitioner is entitled to be indemnified for the damages
he suffered as a consequence of the delay or contractual breach. Non performance reciprocal
obligation, as in contract of purchase and sale, petitioner had already done his part, in which he
already paid the materials needed. It was now the obligation of the respondent to deliver the
goods on time otherwise delay will attach.

GR NO. 145483

LORENZO SHIPPING CORPORATION versus BJ MARTHEL

FACTS:
Petitioner is a domestic corporatIon engaged in coast wise shipping. It used to own cargo
vessel M/v Badiangas Express. On the other hand, Respondent is a business entity engaged in
trading marketing and selling of various industrial commodities. It is also on importer and
distributor of different brands of engines.
From 1987 onwards, respondent supplied petitioner with spare parts for the latters
marine engine in 1989, petitioner asked respondent for quotation for various machine parts,
taking action with the request, respondent furnished petitioner with formal quotation and it was
stated that delivery is within two months from receipt of the firm order.

ISSUE:
Whether or not the period of time which lapsed in the contract causing the delay in
delivery of the cylinder liner is essential in the decision of the case at bar

HELD:
The court held respondent bound to the quotation it submitted to petitioner particularly
with respect to the terms of payment and delivery of cylinder liners. It also declared that
respondent agreed to the cancellation of the contract sale when it returned the postdated checks.

February 18, 2008

G.R. No. 170479

ANDRE T. ALMOCERA versus JOHNNY ONG

FACTS:
Johnny Ong tried to acquire a townhome from the defendants. In the contract to sell,
defendants agreed to sell the said townhouse to respondent for P3.4 Million. The down payment
was P1 Million while the balance of P2.4 Million was to be paid in full upon completion,
delivery and acceptance of the townhouse. Defendants agreed to complete and convey to
respondent the unit w/in 6 months from the signing thereof. Respondent was able to make down
payment of P1, 060.000.00 and that the defendants failed to complete the construction of, as well
as deliver to respondent the townhouse w/in six months from the signing of contract. Moreover,
respondent was not informed the defendants at the time of the perfection of their contract that the
subject townhouse was already mortgaged to LBP, it was then foreclosed and eventually sold at
public auction.
ISSUE:
Whether or not there is fraud on behalf of the Petitioner.
HELD:
In the light of the foregoing environmental circumstances and milieu, therefore, it appears
that the defendants are guilty of fraud in dealing with the plaintiff. They performed voluntary
and willful acts which prevent the normal realization of the prestation, knowing the effects which
naturally and necessarily arise from such acts. Their acts import a dishonest purpose or some
moral obliquity and conscious doing of a wrong. The said acts certainly give rise to liability for
damages. Article 1170 of the New Civil Code of the Philippines provides expressly that those
who in the performance of their obligations are guilty of fraud and those who in any manner
contravene the tenor thereof are liable for damages.

October 9, 2009
G.R. No. 181206

MEGAWORLD GLOBUS ASIA, INC. versus MILA S. TANSECO

FACTS:
Megaworld and respondent Tanseco entered into a Contract to Buy and Sell a 224 squaremeter condominium unit at a pre-selling project. The purchase price was to be paid by
installment provided that if the construction is completed earlier, Tanseco would pay the balance
within seven days from receipt of a notice of turn over.Tanseco paid all installments due leaving
unpaid the balance pending delivery of the unit. Megaworld, however, failed to deliver the unit
within the stipulated period three years later, Megaworld, by notice informed Tanseco that the
unit was ready for inspection preparatory to delivery. Tanseco replied that in view of
Megaworlds failure to deliver the unit on time, she was demanding the return of amount
representing the total installment payment she had made, with interest at 12% per annum.
Tanseco pointed out that none of the excepted causes of delay existed. In its Answer, Megaworld
attributed the delay to the 1997 Asian financial crisis which was beyond its control; and argued
that default had not set in.

ISSUE:
Whether or not a Financial Crisis is considered to be an excuse to delay contracts

HELD:
Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable. The 1997 Asian financial crisis cannot generalize to be unforeseeable and beyond the
control of a business corporation. A real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency
movements, as well as business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, hence, not an instance of caso
fortuito. Megaworlds excuse for its delay does not thus lie.

July 26, 2010

GR No. 176858

SOLAR HARVEST INC. versus DAVAO CORRUGATED CARTON

CORPORATION
FACTS:
In the 1st Quarter of 1998, Solar Harvest and Davao Corrugated entered into an unwritten
agreement. Solar Harvest placed orders for customized boxes for its business of exporting
bananas at USD 1.10 each. Petitioner made a full payment of USD 40,150.00. By Jan. 3, 2001
petitioner had not received any of the ordered boxes. On Feb. 19, 2001Davao Corrugated replied
that as early as April 3, 1998, order/boxes are completed and Solar Harvest failed to pick them
up from their warehouse within 30 days from completion as agreed upon. Respondent mentioned
that petitioner even placed additional order of 24,000.00 boxes, out of which, 14,000 had already
been manufactured without any advance payment from Solar Harvest. Davao Corrugated then
demanded that Solar Harvest remove boxes from their warehouse, pay balance of USD
15,400.00 for the additional boxes and P132, 000 as storage fee. On August 17, 2001 Solar
harvest filed complaint against Davao Corrugated for sum of money and damages claiming that
the agreement was for the delivery of the boxes, which Davao Corrugated did not do. Due to
Davao Corrugated failure to deliver, Solar Harvest had to cancel the order and demanded
payment and/or refund which Davao Corrugated refused to pay.
ISSUE:
Whether or not Davao Corrugated was responsible for breach of contract as Solar Harvest
had not yet demanded from it the delivery of the boxes?
HELD:
Respondent would not be liable for breach of contract as petitioner had not yet demanded
from it the delivery of the boxes. Furthermore, the claim for reimbursement is actually one for
rescission or resolution of contract under Article 1191 of the Civ. Code. The right to rescind
contracts arises once the party defaults in the performance of his obligation. Article 1191 should
be taken in conjunction with Article 1169: Those obliged to deliver or to do something in delay
from the time the obligee judicially or extra judicially demands form them the fulfillment of their
obligation. However the demand from creditor shall not be necessary in order that delay may
exist.:
1. When the obligation or the law expressly so declares, or
2. When from the nature and the circumstance of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract.

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139 SCRA 46

CENTRAL BANK versus COURT OF APPEALS

FACTS:
Island Savings Bank (ISB) approved the loan application for P80,000 of Sulpicio
Tolentino, who as a security for the loan, also executed a real estate mortgage over his 100-ha
land. The approved loan repayable in semi-annual installments for a period of 3 years, with 12%
interest. May 22, 1965 a mere P17,000 partial release of the loan was made by ISB, and
Tolentino and his wife Edita signed a promissory note. After being informed by ISB that there
was no fund yet available for the release of the P63, 000 balance. Monetary Board of the Central
Bank issued Resolution No. 1049, which prohibited ISB from making new loans and
investments, after finding that it was suffering liquidity problems. Aug. 1, 1968 ISB, in view of
non-payment of the P17,000 covered by the promissory note, filed an application for the extrajudicial foreclosure of the real estate mortgage covering the 100-ha land.
ISSUE:
Whether or not Tolentino is liable to pay the P17,000 debt covered by the promissory
note.
HELD:
YES. The bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000 loan. The promissory note gave rise to Tolentinos reciprocal obligation to pay such
loan when it falls due and his failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Art. 1191,CC). ISB has the right to
rescind the promissory note, being the aggrieved party. Since both parties were in default in the
performance of their reciprocal obligations, both are liable for damages. In case both parties have
committed a breach of their reciprocal obligations; the liability of the first infractor shall be
equitably tempered by the courts (Art. 1192, CC).

553 SCRA 741

SALUDAGA versus FAR EASTERN UNIVERSITY

FACTS:
It is the obligation of any college institution to provide a safe and secure environment for
every student. Far Eastern University failed to comply with their obligation when a student of
theirs, whose name is Joseph Saludaga was shot inside the campus by their security guard named
Alejandro Rosete. The victim petitioned a case against FEU and Edilberto C. De Jesus, president

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of FEU. The University also failed to check the qualifications of the security guards hired
through Galaxy, the third party which hires security guards for the university. From there, there
are also complaints for Galaxy being the first employers of Rosete. It is also said that the safety
of the university should not only be within the hands of the security guards. Damages are taken
by Saludaga by surprised including physical and moral damages obtained from the said
accidental shooting by Rosete who claimed that it was an accident.

ISSUE:
Whether or not Far Eastern University failed to comply with their obligation in
implementing a safe and secure learning environment
HELD:
Article 1170 of the Civil Code provides that those who are negligent in the performance
of their obligations are liable for damages. Accordingly, for breach of contract due to negligence
in providing a safe learning environment, respondent FEU is liable to petitioner for damages. It
is essential in the award of damages that the claimant must have satisfactorily proven during the
trial the existence of the factual basis of the damages and its causal connection to defendant's
acts. FEU was ordered to pay actual damage of interest per annum from the filing of the
case until the finality of decision. Moral damage, attorneys fees and litigation expense for
Galaxy was and its presidents were ordered to jointly and severely pay the respondent FEU
damages equivalent to the amount awarded to Saludaga.

March 4 2008
G.R No 158911

MERALCO versus RAMOY

FACTS:
On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection of
electric power supply to all residential and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City. Meralco decided to comply with NPC's request and
thereupon issued notices of disconnection to all establishments. Thereafter, a joint survey was
conducted and the NPC personnel pointed out the electric meters to be disconnected. In due time,
the electric service connection of the plaintiffs was disconnected. Ramoy testified that he and his
wife are the registered owners of a parcel of land covered. When the Meralco employees were
disconnecting plaintiffs' power connection, Ramoy objected by informing the Meralco foreman
that his property was outside the NPC property. However, he was threatened and told not to
interfere by the armed men who accompanied the Meralco employees. After the electric power in
Ramoy's apartment was cut off, the plaintiffs-lessees left the premises. During the ocular

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inspection by court ordered it was found out that the residence of plaintiffs-spouses Ramoy was
indeed outside the NPC property.
ISSUE:
Whether or not MERALCO is liable for damages
HELD:
Article 1170, those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for
damages.Article 1173 also provides that the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of the place.That, "as a public utility,
MERALCO has the obligation to discharge its functions with utmost care and diligence. Being a
public utility vested with vital public interest, MERALCO is impressed with certain obligations
towards its customers and any omission on its part to perform such duties would be prejudicial to
its interest. For in the final analysis, the bottom line is that those who do not exercise such
prudence in the discharge of their duties shall be made to bear the consequences of such
oversight. This being so, MERALCO is liable for damages under Article 1170 of the Civil Code

266 SCRA 78, June 29, 2001

G.R.No.125994

TANGULIG versus COURT OF APPEAL

FACTS:
Herce contracted Tanguilig to construct a windmill system for him, for consideration of
60,000.00. Pursuant to the agreement Herce paid the downpayment of 30,000.00 and installment
of.15,000.00.leaving.a.15,000.00.balance.
Herce refused to pay the balance because he had already paid this amount to SPGMI
which constructed a deep well to which the windmill system was to be connected since the
deepwell, and assuming that he owed the 15,000.00 this should be offset by the defects in the
windmill system which caused the structure to collapse after strong winds hit their place.
According to Tanguilig, the 60,000.00 consideration is only for the construction of the windmill
and the construction of the deep well was not part of it. The collapse of the windmill cannot be
attributed to him as well, since he delivered it in good and working condition and Herce accepted
it without protest. Herce contested that the collapse is attributable to a typhoon, a force majeure
that.relieved.him.of.liability.
The RTC ruled in favor of Tanguilig, but this decision was overturned by the Court of
Appeals
which.ruled.in.favor.of.Herce.

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ISSUES:
Can the collapse of the windmill be attributed to force majeure? Thus, extinguishing the
liability.of.Tanguilig?
HELD:
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE
JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with
interest at the legal rate from the date of the filing of the complaint. In return, petitioner is
ordered to "reconstruct subject defective windmill system, in accordance with the one-year
guaranty" and to complete the same within three (3) months from the finality of this decision.
Obligations.and.Contracts.Terms:
Fortuitous Events- Refers to an occurrence or happening which could not be foreseen,
or even if foreseen, is inevitable. It is necessary that the obligor is free from negligence.
Fortuitous events may be produced by two (2) general causes: (1) by Nature, such as but not
limited to, earthquakes, storms, floods, epidemics, fires, and (2) by the act of man, such as but
not limited to, armed invasion, attack by bandits, governmental prohibitions, robbery, provided
that they have the force of an imposition which the contractor or supplier could not have resisted.

144 SCRA 596, October 3, 1986

G.R. No. L-47851

JUAN F. NAPKIL ANS SON versus COURT OF APPEAL

FACTS:
The private respondent (Philippine Bar Association) hired the services of the petitioner
to make the plans and specifications for the construction of their office building. The building
was completed by the contractor but subsequently, an earthquake struck causing its partial
collapse and damage.
ISSUE:
Is the petitioner liable for damages in this case?
HELD:
Yes. The petitioner made substantial deviations from the plans and specifications and
failed to observe requisite workmanship standards in the construction of the building while their
architect drew plans that contain defects and other inadequacies. Both the contractor and the
architect cannot escape liability for damages when the building collapsed due to an earthquake.

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Other buildings in the area withstood the tremor. The lower court also found that the spirals in
one of the columns in the ground floor has been cut. One who creates a dangerous condition
cannot escape liability even if an act of God may have intervened as in this case. As such, the
liability of the contractor (herein petitioner) and the architect for the collapse of the building is
solidary.

266 SCRA 429, January 21, 1997

GR 119729

ACE AGRO versus COURT OF APPEAL

FACTS:
Ace-Agro had been cleaning soft drink bottles and repairing wooden shells for Cosmos
within its company premises in San Fernando, Pampanga. On April 25, 1990, a fire broke out in
the Cosmos plant. As a result, Ace-Agros work stopped. On May 15, 1990, Ace-Agro requested
Cosmos to resume its services but they were advised that on account of the fire destroying nearly
all the bottles and shells, Cosmos was terminating their contract. Ace-Agro requested Cosmos to
reconsider its decision but upon receiving no reply, they informed the employees of the
termination of their employment, which led the employees to file a complaint for illegal
dismissal before the Labor Arbiter against both Ace-Agro and Cosmos. Ace-Agro sent another
letter for reconsideration to Cosmos to which they replied that they could resume work but
outside company premises. Ace-Agro refused the offer, claiming that to work outside would
incur additional transportation costs.
Cosmos then advised Ace-Agro that they could resume work inside the company
premises but then Ace-Agro unjustifiably refused because it wanted and extension of the contract
to make up for the period of inactivity.
ISSUE:
Whether or not the period during which work has been suspended justify an extension of
the term of the contract?
HELD:
No. The suspension of work due to fire does not merit an automatic extension. The
stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed
suspended during the said period does not mean that it stops the running of the period the
contract has been agreed upon to run. The fact that the contract is subject to a resolutory period,
which relieves the parties of their respective obligations, does not stop the running of the period
of their contract.

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June 15, 2005

G.R. No. 154188

MONDRAGON LEISURE versus COURT OF APPEAL

FACTS:
Mondragon International Philippines, Inc., Mondragon Securities Corporation and herein
petitioner entered into a lease agreement with the Clark Development Corporation for the
development of what is now known as the Mimosa Leisure Estate.To help finance the project,
petitioner, entered into an Omnibus Loan and Security Agreement with respondent banks for a
syndicated term loan in the aggregate principal amount of US$20M. Under the agreement, the
proceeds of the loan were to be released through advances evidenced by promissory notes to be
executed by petitioner in favor of each lender-bank, and to be paid within a six-year period from
the date of initial advance inclusive of a one year and two quarters grace period. Petitioner,
which had regularly paid the monthly interests due on the promissory notes until October 1998,
thereafter failed to make payments. Consequently, written notices of default, acceleration of
payment and demand letters were sent by the lenders to the petitioner. Then, respondents filed a
complaint for the foreclosure of leasehold rights against petitioner. Petitioner moved for the
dismissal.of.the.complaint.but.was.denied.
ISSUE:
Whether or not respondents have a cause of action against the petitioner?
HELD:
Under the foregoing provisions of the Agreement, petitioner may be validly declared in
default for failure to pay the interest. As a consequence of default, the unpaid amount shall earn
default interest, and the respondent-banks have four alternative remedies without prejudice to the
application of the provisions on collaterals and any other steps or action which may be adopted
by the majority lender. The four remedies are alternative, with the right of choice given to the
lenders, in this case the respondents. Under Article 1201 of the Civil Code, the choice shall
produce no effect except from the time it has been communicated. In the present case, we find
that written notices were sent to the petitioner by the respondents. The notices clearly indicate
respondents choice of remedy: to accelerate all payments payable under the loan agreement It
should be noted that the agreement also provides that the choice of remedy is without prejudice
to the action on the collaterals. Thus, respondents could properly file an action for foreclosure of
the leasehold rights to obtain payment for the amount demanded.

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February 2, 2010

LEON versus ONG

FACTS:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land with
improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were
mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and
respondent executed a notarized deed of absolute sale with assumption of mortgage.
On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity
of the second sale and damages against petitioner and Viloria in the Regional Trial Court (RTC)
of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the
properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus,
petitioner fraudulently deprived her of the properties.
Petitioner, on the other hand, insisted that respondent did not have a cause of action
against him and consequently prayed for the dismissal of the complaint. He claimed that since
the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage),
they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from
RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely
dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed
the complaint allegedly with gross and evident bad faith.
ISSUE:
Whether or not the respondent is a purchaser in good faith making her the lawful owner
thereof.
HELD:
Since respondents obligation to assume petitioners outstanding balance with RSLAI
became impossible without her fault, she was released from the said obligation. Moreover,
because petitioner himself willfully prevented the condition vis--vis the payment of the
remainder of the purchase price, the said condition is considered fulfilled pursuant to Article
1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the condition of the payment
of the remainder of the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the
mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties
from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in
good faith. Hence, the rules on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the
properties with the registrar of deeds, the one who took prior possession of the properties shall be
the lawful owner thereof.

17

In this instance, petitioner delivered the properties to respondent when he executed the notarized
deed and handed over to respondent the keys to the properties. For this reason, respondent took
actual possession and exercised control thereof by making repairs and improvements thereon.
Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became
the lawful owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the purchase price
was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be
unjustly enriched at the expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This
is because the provisions, terms and conditions of the contract constitute the law between the
parties. Moreover, the deed itself provided that the assumption of mortgage was without any
further cost whatsoever. Petitioner, on the other hand, must deliver the certificates of title to
respondent. We likewise affirm the award of damages

June 01 2011
G.R. No. 188064

MILA A. REYES versus VICTORIA T. TUPARAN

FACTS:
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent). In her Complaint, petitioner
alleged, among others, that she was the registered owner of a 1,274 square meter residential and
commercial lot located in Karuhatan, Valenzuela City and that; in December 1989, respondent
leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop
business for a monthly rental of 4,000.00. A close friendship developed between the two which
led to the respondent investing thousands of pesos in petitioners financing/lending business
from February 7- MAY 27, 1990 , with interest at the rate of 6% a month; that on June 20, 1988,
petitioner mortgaged the subject real properties to the (FSL Bank). Petitioner then decided to sell
her real properties for at least 6,500,000.00 so she could liquidate her bank loan and finance her
businesses. As a gesture of friendship, respondent verbally offered to conditionally buy
petitioners real properties for 4,200,000.00 payable on installment basis without interest and to
assume the bank loan.The respondent counters that the subject Deed of Conditional Sale with
Assumption of Mortgage entered into between the parties is a contract to sell and not a contract
of sale because the title of the subject properties still remains with the petitioner as she failed to
pay the installment payments in accordance with their agreement.
ISSUE:
Whether or not the contract executed by petitioner and respondent is a contract to sell or
a contract of sale.

18

HELD:
The subject Deed of Conditional Sale with Assumption of Mortgage entered into by and
among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a
contract of sale.A contract of sale is defined in Article 1458 of the Civil Code, thus: Art. 1458.
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefore a price certain in money or
its equivalent.Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes shall take as the full payment of the purchase price. the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and, thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer.

GR. NO. 105774, April 25 2011

GREAT ASIAN versus COURT OF APPEAL

FACTS:
Great Asian is engaged in the business of buying and selling household appliances. In
March 1981, the board of directors of Great Asian approved a resolution authorizing its
Treasurer and GM, Arsenio Lim Piat, Jr. to secure a loan from Banc Asia in an amount not to
exceed P1M and also authorized Arsenio to sign all papers, documents or promissory notes
necessary to secure the loan. In Feb. 1982, the board of directors of Great Asian approved and
resolution authorizing Great Asian to secure a discounting line with Banc Asia in an amount not
exceeding P2M and also designated Arsenio as the authorized signatory to sign all instruments,
documents and checks necessary to secure the discounting line. Great Asian, through Arsenio,
signed 4 Deeds of Assignment of Receivables, assigning to Banc Asia 15 postdated checks
issued by various customers in payment for appliances and other merchandise. Arsenio endorse
all the 15 checks by signing his name at the back of the checks. Eight of the dishonored checks
bore the endorsement of Arsenio below the stamped name of Great Asian Sales Center, while
the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks
dishonored the fifteen checks on maturity when deposited for collection by Banc Asia, with any
of the following as reason for the dishonor: account closed, payment stopped, account
under garnishment, and insufficiency of funds. After the drawee bank dishonored the checks,
Banc Asia sent letters to Tan Chong Lin, notifying him of the dishonor and demanding payment
from him. Neither Great Asian nor Tan Chong Lin paid Banc Asia the dishonored checks.-In
June 1982, Banc Asia filed a complaint for collection of a sum of money against Great Asian and
Tan Chong Lin. Great Asian raised the alleged lack of authority of Arsenio to sign the Deeds of

19

Assignment as well as the absence of consideration and consent of all the parties to the Surety
Agreements signed by Tan Chong Lin.

ISSUE:
Whether or not Arsenio had authority to execute the Deeds of Assignment and thus bind
Great Asian

HELD:
YES. The Corporation Code of the Philippines vests in the board of directors the exercise
of the corporate powers of the corporation, save in those instances where the Code requires
stockholders approval for certain specific acts. In the ordinary course of business, a corporation
can borrow funds or dispose of assets of the corporation only on authority of the board of
directors. The board of directors normally designates one or more corporate officers to sign loan
documents or deeds of assignment for the corporation.-To secure a credit accommodation from
Bancasia, the board of directors of Great Asian adopted 2 board resolutions on different dates.
(text of resolutions shown in case) As plain as daylight, the 2 board resolutions clearly
authorized Great Asian to secure a loan or discounting line from Banc Asia. The 2 board
resolutions also categorically designated Arsenio as the authorized signatory to sign and deliver
all the implementing documents, including checks, for Great Asian. There is no iota of doubt
whatsoever about the purpose of the 2 board resolutions, and about the authority of Arsenio to
act and sign for Great Asian. Arsenio had all the proper and necessary authority from the board
of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated
checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great
Asian under an authority expressly granted by its board of directors. The signature of Arsenio on
the Deeds of Assignment is effectively also the signature of the board of directors of Great
Asian, binding on the board of directors and on Great Asian itself.

122 SCRA 280, May 16, 1983

G.R. No. L-58286

DUCUSIN versus COURT OF APPEAL

FACTS:
The Baliola spouses occupied the apartment for almost two (2) years, paying its rentals
when on January 18, 1977, petitioner Ducusin sent a "Notice to Terminate Lease Contract" to
private respondents Baliolas terminating the lease and giving them until March 15, 1977 within
which to vacate the premises for the reason that his two children were getting married and will
need the apartment for their own use and residence (Exhibit "B"). A second letter dated February

20

14, 1977 was thereafter sent by Ducusin to respondents Baliolas making an inquiry on any action
the latter had taken on the previous notice to terminate the lease contract. Respondents made no
reply to the "Notice to Terminate Lease Contract". Indeed, they wrote a letter to the Secretary of
National Defense dated February 12, 1977, reporting that Ducusin was intent on evicting them
from the leased premises (Exhibit "6").
So on April 14, 1977, petitioners filed an action for ejectment against the Baliola spouses
in the City Court of Manila, Branch XVI, alleging that having constructed the apartment
complex for the use and residence of his children (each to a unit) if and when they decide to
marry and live independently and that the apartment unit located at 3319-A MagistradoAraullo
St., Bacood, Manila having been allotted to his son, AgapitoDucusin, Jr., the said unit is now
needed by Agapito, Jr. who is getting married in the month of May, 1977 and that said Agapito,
Jr. has decided to live independently. The complaint for eviction further alleged that the lessees
have violated the terms of the contract by subleasing the premises; that the lessees have not used
the premises solely for residential purposes but have used the same as factory and/or
manufacturing premises for their commercial goods; and that they have neglected to undertake
repairs of the apartment and the premises according to their agreement.
The lessees denied the allegations of the lessor and claimed in their Answer that the ejectment
suit "is a well-planned scheme to rid the defendants and family out of their apartment, and to
circumvent the law prohibiting raising the rental of apartments and houses."
ISSUE:
Whether or not the happening of the resolutory condition re: the need of the immediate
members of the family of the lessor of the leased premises - has been established by a
preponderance of evidence.
HELD:
The intention to use the leased premises as the residence of Ducusin Jr. has been
satisfactorily and sufficiently proved by clear, strong, and substantial evidence found in the
records of the case. The testimony of the petitioner, Ducusin Sr., that his son needs the leased
premises as he was getting married and did in fact got married, for which reason petitioner sent
the "Notice to Terminate His Contract" (Exh. "B"); the testimony of Arturo Ducusin -that he had
an overseas telephone talk with his brother Agapito Jr. informing that the latter was coming
home and that he and his wife were preparing their documents and arriving within the month
(t.s.n., pp. 13, 17, June 5, 1979; p. 15, Records) and the documentary evidence (Exh. "F" and
"G") which is the letter of the private respondent AgapitoDucusin, Jr. where it stated that he
intended to settle in the Philippines instead of Canada where he was presently residing with his
wife (CA decision, p. 108, Records) - an these evidence clearly and competently prove the
intention of petitioner Agapito Ducusin, Jr. to re side in the Philippines and use the leased
premises for his residence and his wife.

21

151 SCRA 484

MILLARE versus HERNANDO

FACTS:
Petitioner Pacifica Millare as lessor and private respondent Elsa Co, as lessee executed a
5-year contract of lease. The parties agreed to rent out a commercial unit for a monthly rate of
P350. Before the expiration of the lease contract, the lessor informed them that the lessee can
continue renting the unit as they were amenable to paying increased rentals of P1,200.00 a
month. In response, a counteroffer of P700.00 a month was made by the lessee. At this point, the
lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since
"the matter is simple among us", which alleged remark was supposedly taken by the spouses Co
to mean that the Contract of Lease had been renewed. On 22 July 1980, Mrs. Millare wrote the
Co spouses requesting them to vacate the leased premises as she had no intention of renewing the
Contract of Lease. Lessees responded by reiterated their unwillingness to pay the Pl,200.00
monthly rentals and by depositing the P700 monthly rentals in court. on 1 September 1980, Mrs.
Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued, Abra.
The judge rendered a "Judgment by Default" ordering the renewal of the lease contract for a term
of 5 years counted from the expiration date of the original lease contract, and fixing monthly
rentals thereunder at P700.00 a month, payable in arrears.

ISSUE:
Whether or not private respondents have a valid cause of action against petitioner
Whether or not the trial court acquired jurisdiction over Civil Case No. 1434
HELD:
In the instant case, the lessor and the lessee conspicuously failed to reach agreement both
on the amount of the rental to be payable during the renewal term, and on the term of the
renewed contract. The respondent judge cited Articles 1197 and 1670 of the Civil Code to
sustain the "Judgment by Default" by which he ordered the renewal of the lease for another term
of five years and fixed monthly rentals thereunder at P700.00 a month. The first paragraph of
Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period
of five years. The second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the will of the lessee alone, but rather to the will of
both the lessor and the lessee. The implied new lease during the continued occupancy could not
possibly have a period of five years, but rather would have been a month-to-month lease since
the rentals (under the original contract) were payable on a monthly basis. It follows that the
respondent judge's decision requiring renewal of the lease has no basis in law or in fact since
courts have no authority to prescribe the terms and conditions of a contract for the parties.

22

OCTOBER 11, 1995

G.R. NO. 117009

SECURITY AND TRUST COMPANY AND R. MANHITVS CA AND

FERRER
FACTS:
Ferrer was contracted by the SBTC to construct a bldg in Davao. The contract provided
that it be finished within 200 working days, it was finished upon stipulated time but additional
expenses were incurred amounting to 300k on top of the original cost, these expenses were made
known to SBTC and timely demands for the payment of the increased cost were done by Ferrer
to SBTC, the latter only recommended that the verified cost is 200k. SBTC contend that in the
contract, should there be any increase in the expenses, the owner shall equitably make the
appropriate adjustment on mutual agreement of both parties. Ferrer filed for damages and the
trial court ruled in his favor, the defendants were ordered to pay. On appeal, CA affirmed the tcs
decision.
ISSUE:
Whether or not SBTC is liable for damages and payment of the additional expenses.
HELD:
Under article 1182 if the conditional obligation depends solely upon the will of the
debtor the obligation is void, in the instant case the mutual agreement the absence of which the
petitioner bank depend on to support their non-liability is in effect a conditional obligation purely
depends on the will of the petitioner bank. Art. 22 states that, Every person who through an act
or performance by another or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal ground, shall return the same to him.
It is not denied that private respondent incurred additional expenses in constructing petitioner
banks bldg due to a drastic and unexpected in construction cost. Hence, to allow petitioner bank
to acquire the constructed bldg at a price far below its actual cost would undoubtedly constitute
unjust enrichment for the bank to the prejudice of Ferrer, such cannot be allowed by law.

214 scra 665

RUSTAN PULP versus INTER APPELATE COURT

FACTS:
Petitioner Rustan established a pulp and paper mill in Baloi, Lanao del Norte.
Respondent Romeo A. Lluch propose to be Rustan's supplier of raw materials. Petitioner agreed
but on the following conditions:

23

a. The contract to supply is not exclusive and Rustan shall have the option to buy from other
qualified suppliers.
b. Seller has the priority to supply the materials to the buyer
c. Buyer shall have the right to stop delivery when supply has become sufficient until when said
materials become necessary, provided that the seller is given sufficient notice.
In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc.
recommended the acceptance of deliveries from other suppliers of materials. But during the test
run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw
materials piled up, which prompted the Japanese supplier of the machinery to recommend the
stoppage of the deliveries. A letter was sent to respondent asking to suspend delivery for 30 days.
Respondent sought to clarify the tenor of the letter as to whether stoppage of delivery or
termination of the contract of sale was intended, but the query was not answered by petitioners.
This led to the filing of a complaint for a breach of contract.

ISSUE:
Whether or not Rustan's condition invalidates the contract.

HELD:
Respondent Court found it ironic that petitioners had to exercise the prerogative
regarding the stoppage of deliveries because petitioners never really stopped accepting deliveries
from private respondents until December 23, 1968. The fact that appellees were buying and
accepting pulp wood materials from other sources other than the appellants even after September
30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that they
are unable to go into full commercial operation or that their machineries are defective or even
that the pulp wood materials coming from appellants are sub-standard. If the plant could not be
operated on a commercial scale, it would then be illogical for defendant Rustan to continue
accepting deliveries of raw materials. It would be unjust for the court a quo to rule that the
contract of sale be temporarily suspended until Rustan, et al., are ready to accept deliveries from
appellants. This would make the resumption of the contract purely dependent on the will of one
party Petitioner Rustan. Petitioners can stop delivery of pulp wood from private respondents if
the supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the
need arises as determined likewise by petitioners. There is no doubt that the contract speaks
loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the
condition attached to it which, as aforesaid, is dependent exclusively on their will for which
reason, We have no alternative but to treat the controversial stipulation as inoperative. We are
not inclined to follow the interpretation of petitioners that the suspension of delivery was merely
temporary since the nature of the suspension itself is again conditioned upon petitioner's
determination of the sufficiency of supplies at the plant. Neither are We prepared to accept
petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of
the New Civil Code, because petitioners continued from the suppliers. Petitioner Rustan Pulp
and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent
Court.

24

35 SCRA 102

UNIVERSITY OF THE PHILIPPINES versus DE LOS ANGELES

FACTS:
On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby the
latter was granted exclusive authority to cut, collect and remove timber from the Land Grant for
a period starting from the date of agreement to December 31, 1965, extendible for a period of 5
years.by.mutual.agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94. Despite
repeated demands, ALUMCO still failed to pay, so UP sent a notice to rescind the logging
agreement. On the other hand, ALUMCO executed an instrument entitled Acknowledgment of
Debt and Proposed Manner of Payments. It was approved by the president of UP, which
stipulated the following: 3. In the event that the payments called for are not sufficient to liquidate
the foregoing indebtedness, the balance outstanding after the said payments have been applied
shall be paid by the debtor in full no later than June 30, 1965. 5. In the event that the debtor fails
to comply with any of its promises, the Debtor agrees without reservation that Creditor shall
have the right to consider the Logging Agreement rescinded, without the necessity of any
judicial suit. ALUMCO continued its logging operations, but again incurred an unpaid account.
On July 19,1965, UP informed ALUMCO that it had, as of that date, considered rescinded and of
no further legal effect the logging agreement, and that UP had already taken steps to have
another concessionaire take over the logging operation. ALUMCO filed a petition to enjoin UP
from conducting the bidding. The lower court ruled in favor of ALUMCO, hence, this appeal.

ISSUE:
same

Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the
before
any
judicial
pronouncement
to
that
effect?

HELD:
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default by
the debtor, UP has the right and the power to consider the Logging Agreement of December 2,
1960 as rescinded without the necessity of any judicial suit. As to such special stipulation and in
connection with Article 1191 of the Civil Code, the Supreme Court, stated in Froilan vs. Pan
Oriental Shipping Co: There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation thereof, even
without court intervention. In other words, it is not always necessary for the injured party to
resort
to
court
for
rescission
of
the
contract.

25

175 scra 656

TAN versus COURT OF APPEALS

FACTS:
Tan Lee Siong, father of the petitioners, applied for life insurance in the amount of P
80,000.00 with Philamlife. It was approved. Tan Lee Siong died of hepatoma. Petitioners then
filed a claim for the proceeds. The company denied petitioners' claim and rescinded the policy by
reason of the alleged misrepresentation and concealment of material facts. The premiums paid on
the policy were refunded. The petitioners filed a complaint in the Insurance Commission. The
latter dismissed the complaint.
The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's
decision for lack of merit. Hence, this petition.
ISSUE:
Whether or not Philam didnt have the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of the insured within two years and prior to
the commencement of action.
HELD:
No. Petition dismissed.
The Insurance Code states in Section 48: Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been
in force during the lifetime of the insured for a period of two years from the date of its issue or of
its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.
The so-called "incontestability clause" in the second paragraph prevents the insurer from raising
the defenses of false representations insofar as health and previous diseases are concerned if the
insurance has been in force for at least two years during the insured's lifetime.
The policy was in force for a period of only one year and five months. Considering that the
insured died before the two-year period had lapsed, respondent company is not, therefore, barred
from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation.
The "incontestability clause" added by the second paragraph of Section 48 is in force for two
years. After this, the defenses of concealment or misrepresentation no longer lie.
The petitioners argue that no evidence was presented to show that the medical terms were
explained in a layman's language to the insured. They also argue that no evidence was presented
by respondent company to show that the questions appearing in Part II of the application for
insurance were asked, explained to and understood by the deceased so as to prove concealment

26

on his part. This couldnt be accepted because the insured signed the form. He affirmed the
correctness of all the entries.
The company records show that the deceased was examined by Dr. Victoriano Lim and
was found to be diabetic and hypertensive. He was also found to have suffered from hepatoma.
Because of the concealment made by the deceased, the company was thus misled into accepting
the risk and approving his application as medically fit.

312 SCRA 528, Aug 17, 1999

G.R. No. 112330,

Spouses Henry and Elizabeth Co. and Melody Co, petitioners, versus
Court of Appeals and Mrs. Adoracion Custodio, represented by her
Attorney-in-fact, Trinidad Kalagayan, respondents
FACTS:
On October 9, 1984, the spouses Co entered into a verbal contract with Custodio for her
purchase of the their house and lot worth $100,000.00. One week thereafter, and shortly before
she left for the United States she paid amounts of $1,000.00and P40,000.00 as earnest money, in
order that the same may be reserved for her purchase, said earnest money to be deducted from
the total purchase price. The purchase price of $100,000.00 is payable in two payments
$40,000.00 on December 4, 1984 and the balance of $60,000.00 on January 5, 1985. On January
25, 1985, although the period of payment had already expired, she paid to the defendant Melody
Co in the United States, the sum of $30,000.00, as partial payment of the purchase price. Spouses
Cos counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March15,1985,
demanding that she pay the balance of $70,000.00 and not receiving any response thereto, said
lawyer wrote another letter to plaintiff dated August 8,1986, informing her that she has lost her
option to purchase the property subject of this case and offered to sell her another property.
Atty. Estrella O. Laysa, counsel of Custodio, wrote a letter to Atty. Leopoldo Cotaco informing
him that Custodio is now ready to pay the remaining balance to complete the sum of
$100,000.00, the agreed amount as selling price and on October 24, 1986, plaintiff filed the
instant complaint.
The trial court ruled in favor of Custodio and ordered the spouses Co to refund the
amount of $30,000.00. Not satisfied with the decision, the spouses Co appealed to the Court of
Appeals, which affirmed the decision of the RTC. Hence, this appeal.
ISSUE:
Whether or not the Court of Appeals erred in ordering the Cos to return the $30,000.00
paid by Custodio pursuant to the option granted to her.

27

HELD:
An option is a contract granting a privilege to buy or sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may enter into
upon the consummation of the option. It must be supported by consideration. However, the
March 15, 1985 letter sent by the Cos through their lawyer to Custodio reveals that the parties
entered into a perfected contract of sale and not an option contract. A contract of sale is a
consensual contract and is perfected at the moment there is a meeting of the minds upon the
thing
which is the
object
of the
contract
and
upon the price. Fromsthat moment the partiessmay reciprocally demandtperformance subjecttto t
he provisions of the law governing the form of contracts. The elements of a valid contract of sale
under Article 1458 of the Civil Code are:
(1) consent or meeting of the minds;
(2) determinate subject matter; and
(3) price certain in money or its equivalent.
As evidenced by the March 15,1985 letter, all three elements of a contract of sale are
present in the transaction between the petitioners and respondent. Custodios offer to purchase
the property, subject of the sale at a price of $100,000.00 was accepted by the Cos. Even the
manner of payment of the price was set forth in the letter. Earnest money in the amounts of
US$1,000.00 and P40,000.00 was already received by the Cos. Under Article1482 of the Civil
Code,
earnest
money
given
in
a
sale
transactioniiscconsidereddpartoof the purchase priceaand proof of the perfectionoof the sale.
Despite the fact that Custodios failure to pay the amounts of US$40,000.00 and US$60,000.00
on or before December 4, 1984 and January 5,1985 respectively was a breach of her obligation
under Article 1191 of the Civil Code, the Cos did not sue for either specific performance or
rescission of the contract. The Cos were of the mistaken belief that Custodio had lost
heroption over the property when she failed to pay theremaining balance of $70,000.00
pursuant to their August 8, 1986 letter. In the absence of an express stipulation authorizing the
sellers to extra judicially rescind the contract of sale, the Cos cannot unilaterally and extra
judicially rescind the contract of sale. Accordingly, Custodio acted well within her rights when
she attempted to pay the remaining balance of $70,000.00 to complete the sum owed of
$100,000.00 as the contract was still subsisting at that time. When the Cos refused to accept said
paymentaandatoadeliveratheaproperty,Custodiooimmediatelyssueddforrtherrescission of the cont
ract of sale and prayed for the return of the $30,000.00 she had initially paid. Under Article 1385
of the Civil Code, rescission creates the obligation to return the things, which were the object of
the contract, but such rescission can only be carried out when the one who demands rescission
can return whatever he may be obliged to restore. This principle has been applied to rescission
of reciprocal obligations under Article 1191 of the Civil Code. The Court of Appeals therefore
did
not
err
in ordering the Cos to return
the amountooff$30,000.00ttooCustodio after ordering theerescissionoof the contractoof sale over
the property. Since it has been shown that the appellee who was not in default, was willing to
perform part of the contract while the appellants were not, rescission of the contract is in order.
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not
comply
with
what
is

28

incumbent upon him, (Article 1191, sameCode). Rescission creates the obligation to return the
things which were the object of the contract, together with their fruits, and the price with its
interest (Article1385, same Code). In the case at bar, the property involved has not been
delivered to the appellee. She has therefore nothing to return to the appellants. The price received
by the appellants has to be returned to the appellee as aptly ruled by the lower court, for such is a
consequence of rescission, which is to restore the parties in their former situations. Petition
denied. Decision affirmed.

September 21, 1983

G.R. No. L-56076

PALAY, INC. and ALBERT ONSTOTT, petitioner,

versus
JACOBO C. CLAVE, Presidential Executive Assistant
NATIONAL HOUSING AUTHORITY and NAZARIO
DUMPIT respondents.

FACTS:
That Palay, Inc., through its President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell for parcel of land payable with a down payment
and monthly installments until fully paid. Paragraph 6 of the contract provided for automatic
extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90
days from the expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid. Private respondent Dumpit paid the down payment and several
installments. However, Dumpit failed to continue paying the installments for almost 6 years.
Thereafter, Dumpit wrote petitioner offering to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners
replied that the Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract,
and that the lot had already been resold. Consequently, Dumpit filed a complaint questioning the
validity of the rescission with the National Housing Authority (NHA) for reconveyance with an
alternative prayer for refund. The NHA found the rescission void in the absence of either judicial
or notarial demand. Thus, it ordered Palay, Inc. and Alberto Onstott in his capacity as President
of the corporation, jointly and severally, to refund immediately to Dumpit the amount paid with
12% interest from the filing of the complaint. On appeal, respondent Clave, the Presidential
Executive Assistant affirmed. Hence, this petition.

29

ISSUE:
(1) Whether or not the doctrine of piercing the veil of corporate fiction applies.
(2) Whether or not petitioner Onstott is solidarily liable with Palay, Inc. for the refund.

HELD:
(1) No. The Supreme Court held that a corporation is invested by law with a personality
separate and distinct from those of the persons composing it as well as from that of any other
legal entity to which it may be related. As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be pierced when it is used
as a shield to further an end subversive of justice; or for purposes that could not have been
intended by the law that created it; or to defeat public convenience, justify wrong, protect fraud,
or defend crime; or to perpetuate fraud or confuse legitimate issues; or to circumvent the law or
perpetuate deception; or as an alter ego, adjunct or business conduit for the sole benefit of the
stockholders.
In this case, there was no finding of fraud on petitioners' part. They had literally relied,
although mistakenly, on paragraph 6 of its contract with private respondent when it rescinded the
contract to sell extra judicially and had sold it to a third person.
(2) No. The Supreme Court held that no sufficient proof exists on record that said
petitioner used the corporation to defraud private respondent. He cannot, therefore, be made
personally liable just because he "appears to be the controlling stockholder". Mere ownership by
a single stockholder or by another corporation is not of itself sufficient ground for disregarding
the separate corporate personality.

May 26, 2005

G.R. No. 139523

SPOUSES FELIPE AND LETICIA CANNU, petitioners, vs. SPS. GIL AND
FERNANDINA GALANG AND NATIONAL HOME MORTGAGE
FINANCE CORPORATION, respondents.
FACTS:
Respondent spouses Gil and Fernandina Galang agreed to sell their house and lot subject
to mortgage with the National Home Mortgage Finance Corp (NHMFC). Petitioner Leticia

30

Cannu agreed to buy the property for 120K & to assume the mortgage obligations with the
NHMFC. A deed of sale & assumption of mortgage was executed & petitioners immediately
took possession & occupied the house & lot. Despite requests from Adelina R. Timbang
(attorney-in-fact) and Fernandina Galang to pay the balance of P45,000.00 or in the alternative to
vacate the property in question, petitioners refused to do so. Because the Cannus failed to fully
comply with their obligations, respondent Fernandina Galang, on 21 May 1993, paid P233K as
full payment of her remaining mortgage loan with NHMFC. 8 years had already elapsed and
petitioners have not yet complied with the obligation.
The RTC ordered the deed of sale with Assumption of Mortgage as rescinded as well as ordered
mutual restitution.
ISSUE:
1.WON.the.breach.of.obligation.is.substantial?
2..WON.respondent.waived.their.right.of.rescission?
3. WON rescission is subsidiary? NO
HELD:
1.
We consider this breach to be substantial. Cannu failed to comply with her obligation to
pay the monthly amortizations due on the mortgage. Also, the tender made by Cannu only after
the filing of this case cannot be considered as an effective mode of payment.
Resolution of a party to an obligation under Article 1191 is predicated on a breach of faith by the
other party that violates the reciprocity between them. In the case at bar, Cannus failure to pay
the remaining balance of 45K to be substantial. To give petitioners additional time to comply
with their obligation will be putting premium on their blatant non-compliance of their obligation.
They had all the time to do what was required of them (i.e., pay the P45,000.00 balance and to
properly assume the mortgage loan with the NHMFC), but still they failed to comply. Despite
demands for them to pay the balance, no payments were made.
Rescission will not be permitted for a slight or casual breach of the contract. Rescission may be
had only for such breaches that are substantial and fundamental as to defeat the object of the
parties in making the agreement.
2.
The fact that Galang accepted payments in installments does not constitute waiver on
their part to exercise their right to rescind the Deed of Sale with Assumption of Mortgage.
Galang accepted the installment payments as an accommodation to petitioners since they kept on
promising they would pay. However, after the lapse of considerable time (18 months from last
payment) and the purchase price was not yet fully paid, Galang exercised their right of rescission
when they paid the outstanding balance of the mortgage loan with NHMFC. It was only after
petitioners stopped paying that respondents-spouses moved to exercise their right of rescission.
3.
The provision that applies in the case at bar is Article 1191. The subsidiary character of
the action for rescission applies to contracts enumerated in Articles 138148 of the Civil Code.

31

The rescission in this case is not predicated on injury to economic interests of the party plaintiff
but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is
not a subsidiary action. The rescission in 1191 is a principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his promises when the other violates his.

151 SCRA 661, June 30, 1987

G.R. No. 73893

MARGARITA SURIA AND GRACIA R. JOVEN, petitioners,

versus
HON. INTERMEDIATE APPELLATE COURT, HON. JOSE MAR
GARCIA (Presiding Judge of the RTC of Laguna, Branch XXIV, Bian,
Laguna), and SPOUSES HERMINIO A. CRISPIN and NATIVIDAD C.
CRISPIN
FACTS:
Plaintiffs entered into a Deed of Sale with Mortgage with defendants over a parcel
of land in Laguna. Defendants violated the terms and conditions of the contract by failing to pay
the stipulated installments and only one installment was made, despite repeated demands.
They formally offered to pay the outstanding balance under the Deed of Sale of Mortgage which
was rejected.

ISSUE:
Whether or not the subsidiary and equitable remedy of rescission available in the
presence of the remedy of foreclosure in the light of Art. 1383.

HELD:
The parties entered into a contract of sale where the vendor obligates himself to transfer
the ownership of and to deliver a determinate thing to the buyer, who is obligated to pay a price
certain in money or its equivalent. The respondents have complied with their part and parted with
the title. The buyer fulfilled his end of the bargain when he executed the deed of mortgage. The
relationship between the parties is no longer as buyer and seller, because the contract of sale has
been perfected and consummated and it is already of a mortgager and mortgagee. The
petitioners breach of obligation is not with respect to the perfected contract of sale but in the
obligations created by the mortgage contract. The remedy of rescission is not a principal action
retaliatory in character but becomes a subsidiary one which by law is available only in the
absence of any other legal remedy. Foreclosure here is not a remedy accorded by law but is a
specific provision found in the contract

32

G.R. No. 188064

MILA A. REYES versus VICTORIA T. TUPARAN

FACTS:
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for Rescission of
Contract with Damages against Victoria T. Tuparan (respondent) before the RTC. In her
Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 square
meter residential and commercial lot located in Karuhatan, Valenzuela City and that; in
December 1989, respondent leased from petitioner a space on the ground floor of the RBJ
Building for her pawnshop business for a monthly rental of 4,000.00. A close friendship
developed between the two which led to the respondent investing thousands of pesos in
petitioners financing/lending business from February 7, 1990 to May 27, 1990, with interest at
the rate of 6% a month; that on June 20, 1988, petitioner mortgaged the subject real properties to
the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank). Petitioner then decided to sell her
real properties for at least 6,500,000.00 so she could liquidate her bank loan and finance her
businesses. As a of friendship, respondent verbally offered to conditionally buy petitioners real
properties for 4,200,000.00 payable on installment basis without interest and to assume the
bank loan.
Respondent countered, among others, that the tripartite agreement erroneously designated
by the petitioner as a Deed of Conditional Sale of Real Property with Assumption of Mortgage
was actually a pure and absolute contract of sale with a term period. It could not be considered a
conditional sale because the acquisition of contractual rights and the performance of the
obligation therein did not depend upon a future and uncertain event. Moreover, the capital gains
and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were
supposed to be paid by petitioner but she failed to do so.
The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage
entered into between the parties is a contract to sell and not a contract of sale because the title of
the subject properties still remains with the petitioner as she failed to pay the installment
payments in accordance with their agreement.

ISSUE:
Whether or not the contract executed by the petitioner and the respondent is a contract to
sell or a contract of sale.

HELD:
The Court agrees with the ruling of the lower courts below that the subject Deed of
Conditional Sale with Assumption of Mortgage entered into by and among the two parties and
FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. A contract of
sale is defined in Article 1458 of the Civil Code, thus: Art. 1458. By the contract of sale, one of

33

the contracting parties obligates himself to transfer the ownership of and to deliver a determinate
thing, and the other to pay therefore a price certain in money or its equivalent. Sale, by its very
nature, is a consensual contract because it is perfected by mere consent. The essential elements
of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale
because the first essential element is lacking. In a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase price is delivered to him. In other
words, the full payment of the purchase price partakes of a suspensive condition, the nonfulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained
by the prospective seller without further remedies by the prospective buyer.

May 18, 2004

G.R. No. 157568

CHUA versus VICTORIO

FACTS:
Respondent Mutya Victorio is the owner of the property in Panganiban Street, Santiago,
Isabela where petitioners Chua and Yong Tian are lessees.
In 1990, Victorio effected an ejectment suit against the petitioners who were not fulfilling
their obligations as lessees, but a compromise agreement supervened this. In 1994, Victorio
raised the rentals and petitioners did not comply with such payments. She then again moved for
an ejectment suit. The RTC and CA ordered respondents to vacate the property. But this did not
happen because respondents agreed as to the new rentals and there again continued occupation of
the property.
In 1998, Victorio wanted to increase again the rentals. They again failed to pay such rents and
respondent filed again for ejectment suit.

34

Petitioners impugn such raises in rents, invoking the provisions of the compromise agreement
that the two parties executed sometime in 1991. They contend that there can be no increase of
more than 25% in a span of 4 years.

ISSUE:

1. WON the petitioners can invoke the provisions of the compromise agreement in order to hold
respondent
stopped
from
making
raises
in
leases
NO
2. WON Victorio may rescind the contract of lease? YES

HELD:
1.
The compromise agreement executed in 1991 is without moment as to petitioners claim.
Accordingly, in 1994, the juridical relation between the parties was severed when the CA
ordered ejectment of the petitioners. The lessors acceptance of the increased rentals in 1996 did
not have the effect of reviving the earlier contract of lease. Upon the moment of acquiescence by
respondents to the increased amount, an entirely new contract of lease was entered into, forging
an entirely new juridical relation. Since payment of rent was made on a monthly basis, and
pursuant to Article 1687 of the Civil Code, the period of this lease contract was monthly. Upon
the expiration of every month, the lessor could increase the rents and demand that the lessee
vacate the premises upon non-compliance with increased terms.
2.
The right of rescission is statutorily recognized in reciprocal obligations, such as
contracts of lease. In addition to the general remedy of rescission granted under Article 1191 of
the Civil Code, there is an independent provision granting the remedy of rescission for breach of
any of the lessor or lessees statutory obligations. Under Article 1659 of the Civil Code, the
aggrieved party may, at his option, ask for (1) the rescission of the contract; (2) rescission and
indemnification for damages; or (3) only indemnification for damages, allowing the contract to
remain in force.
Payment of the rent is one of a lessees statutory obligations. The law grants the lessor
the option of extrajudicially terminating the contract of lease by simply serving a written notice
upon the lessee. This extrajudicial termination has the same effect as rescission. Rescission of
lease contracts under Article 1659 of the Civil Code does not require an independent action,
unlike resolution of reciprocal obligations under Article 1191 of said Code.

35

314 SCRA 69, May 21, 1988

G.R. No. 77465

SPOUSES UY TONG & KHO PO GIOK, petitioners,

versus
HONORABLE COURT OF APPEALS, HONORABLE BIENVENIDO C.
EJERCITO, Judge of the Court of First Instance of Manila, Branch XXXVII
and BAYANIHAN AUTOMOTIVE CORPORATION, respondents

FACTS:
Spouses Tong failed to pay the balance of the purchased , due to Bayanihan, who filed an
action for specific performance against spouses. The trial court rendered a judgment in favor of
Bayanihan ordering the defendant to pay the balance to the plaintiff and in the event of failure to
do so , they are hereby to execute the deed of absolute sale and or the assignment of the
leasehold right. An order for execution pending appeal was issued by the trial court and a deed of
assignment was executed by the Spouses over the apartment together with the leasehold right
over the land on which the building stands. Notwithstanding the execution of the deed
of assignment the SPOUSES remained in possession of the premises. Despite the expiration of
the said period, the SPOUSES failed to surrender possession of the premises in favor of
BAYANIHAN. This prompted BAYANIHAN to file an ejectment case against them. This action
was however dismissed on the ground that BAYANIHAN was not the real party in interest, not
being the owner of the building. After demands to vacate the subject apartment made
by BAYANIHAN's counsel was again ignored by the SPOUSES, an action for recovery
of possession with damages was filed. The case was decided in favor of bayanihan. Not satisfied
with this decision, the SPOUSES appealed to the Court of Appeals. The respondent Court of
Appeals affirmed in toto the decision appealed from. A motion for reconsideration of the said
decision was denied by the respondent Court.

ISSUE:
Whether or not the deed of assignment is null and void because it is in the nature of
a Pactum commissorium and/or was borne out of the same.

HELD:
The prohibition on pactum commissorium stipulations is provided for by Article 2088 of
the Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of the same. Any stipulation to the contrary is null and void. The
aforequoted provision furnishes the two elements for pactum commissorium to exist:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way
of security for the payment of the principal obligation; and

36

(2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the
stipulated period. A perusal of the terms of the questioned agreement evinces no basis for the
application of the pactum commissorium provision. First, there is no indication of 'any contract
of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and
purchase of trucks. Second, there is no case of automatic appropriation of the property by
BAYANIHAN. When the SPOUSES defaulted in their payments of the second and third
installments of the trucks they purchased, BAYANIHAN filed an action in court for specific
performance. The trial court rendered favorable judgment for BAYANIHAN and ordered the
SPOUSES to pay the balance of their obligation and in case of failure to do so, to execute a deed
of assignment over the property involved in this case. The SPOUSES elected to execute the deed
of assignment pursuant to said judgment.

May 6, 2005
G.R. No. 157480

PRYCE CORPORATION (formerly PRYCE PROPERTIES

CORPORATION), petitioner, vs. PHILIPPINE AMUSEMENT AND
GAMING CORPORATION, respondent.
FACTS:
PAGCOR set up a casino in Pryce Plaza Hotel for a period of 3 years. However, there has
been interruptions in the operations which ultimately caused the operations to cease prematurely
upon order of the Office of the President.
The CA ruled that the PAGCOR'S pretermination of the Contract of Lease was
unjustified. The appellate court explained that public demonstrations and rallies could not be
considered as fortuitous events that would exempt the gaming corporation from complying with
the latter's contractual obligations. Therefore, the Contract continued to be effective until PPC
elected to terminate it on November 25, 1993.
Regarding the contentions of PPC, the CA held that under Article 1659 of the Civil Code, PPC
had the right to ask for (1) rescission of the Contract and indemnification for damages; or (2)
only indemnification plus the continuation of the Contract. These two remedies were alternative,
not cumulative, ruled the CA.
As PAGCOR had admitted its failure to pay the rentals for September to November 1993,
PPC correctly exercised the option to terminate the lease agreement.

ISSUE:
1. Whether or not Pryce is entitled to future rentals as provided in the contract even if PAGCOR
contends, as the CA ruled, that Article 1659 of the Civil Code governs; hence, PPC is allegedly
no longer entitled to future rentals, because it chose to rescind the Contract.

37

2. Whether or not PAGCOR should be exempt from complying with its contractual obligations
due to fortuitous events
3. Whether or not the future rentals constitute a penalty clause

HELD:
1. Pryce is entitled to future rentals as the provisions are not contrary to law, morals, public
order, or public policy.
The above provisions leave no doubt that the parties have covenanted:
A. to give PPC the right to terminate and cancel the Contract in the event of a default or breach
by the lessee; and
B. to make PAGCOR fully liable for rentals for the remaining term of the lease, despite the
exercise of such right to terminate. Plainly, the parties have voluntarily bound themselves to
require strict compliance with the provisions of the Contract by stipulating that a default or
breach, among others, shall give the lessee the termination option, coupled with the lessor's
liability for rentals for the remaining term of the lease. Article XX (c) provides that, aside from
the payment of the rentals corresponding to the remaining term of the lease, the lessee shall also
be liable "for any and all damages, actual or consequential, resulting from such default and
termination of this contract." Having entered into the Contract voluntarily and with full
knowledge of its provisions, PAGCOR must be held bound to its obligations. It cannot evade
further liability for liquidated damages.
2. PAGCOR is not exempt from complying with the provisions as rallies and demonstrations are
not considered fortuitous events. In this case, PAGCOR's breach was occasioned by events that,
although not fortuitous in law, were in fact real and pressing. From the CA's factual findings,
which are not contested by either party, we find that PAGCOR conducted a series of negotiations
and consultations before entering into the Contract. It did so not only with the PPC, but also with
local government officials, who assured it that the problems were surmountable. Likewise,
PAGCOR took pains to contest the ordinances before the courts, which consequently declared
them unconstitutional. On top of these developments, the gaming corporation was advised by the
Office of the President to stop the games in Cagayan de Oro City, prompting the former to cease
operations prior to September 1993.
Also worth mentioning is the CA's finding that PAGCOR's casino operations had to be
suspended for days on end since their start in December 1992; and indefinitely from July 15,
1993, upon the advice of the Office of President, until the formal cessation of operations in
September 1993. Needless to say, these interruptions and stoppages meant that PAGCOR
suffered a tremendous loss of expected revenues, not to mention the fact that it had fully
operated under the Contract only for a limited time.
3. Pryce's right to penalty is affirmed but proved iniquitous.
While petitioner's right to a stipulated penalty is affirmed, we consider the claim for future
rentals to the tune of P7,037,835.40 to be highly iniquitous. The amount should be equitably
reduced. Under the circumstances, the advanced rental deposits in the sum of P687,289.50
should be sufficient penalty for respondent's breach.

38

Accordingly, respondent is ordered to pay petitioner the additional amount of

P687,289.50 as penalty, which may be set off or applied against the former's advanced rental
deposits.
In legal contemplation, the termination of a contract is not equivalent to its rescission.
When an agreement is terminated, it is deemed valid at inception. Prior to termination, the
contract binds the parties, who are thus obliged to observe its provisions. However, when it is
rescinded, it is deemed inexistent, and the parties are returned to their status quo ante. Hence,
there is mutual restitution of benefits received. The consequences of termination may be
anticipated and provided for by the contract. As long as the terms of the contract are not contrary
to law, morals, good customs, public order or public policy, they shall be respected by courts.
The judiciary is not authorized to make or modify contracts; neither may it rescue parties from
disadvantageous stipulations. Courts, however, are empowered to reduce iniquitous or
unconscionable liquidated damages, indemnities and penalties agreed upon by the parties.

113 SCRA 21, March 25, 1982

G.R. No. L-49659

ROXAS versus ALCANTARA

FACTS:
This is an ejectment case which commenced in the Municipal Court of Tarlac, Tarlac
filed by herein petitioner Ruben Roxas, as lessor, against private respondent Ricardo Sy, as
lessee. On October 16, 1967 the petitioner and the respondent entered into a lease contract which
the latter agreed to occupy a two storey concrete building for ten (10) years with a monthly rental
of P550.00 per month, for his business named U.S. Hardware and Construction Material. In the
middle life of the contract the petitioner sent a letter-request to increase the rental of the said
building, but the defendant, in strict adherence to the contract, declined to which plaintiff
evidently succumbed. On august 11, 1977 wrote again a letter reminding the defendant the
upcoming termination of the lease contract and it will expiration or beginning on October 1977
in addition the rental will increase from P550.00 to P4,000.00 a month with three (3) years to be
paid in advance together with a yearly increase of 15% of the same rental. With the indecision of
the defendant the petitioner sent him again a letter demanding to vacate the premises within five
(5) days from receipt.
On appeal by both parties, the Court of First Instance of Tarlac, Branch I, rendered the
decision now before Us for review which modified the judgment of the Municipal Court by
ordering herein respondent-lessee Sy to pay to herein petitioner-lessor Roxas "the amount of
P1,500.00 monthly rental for ten (10) years effective October, 1977.

39

ISSUE:
Whether or not the petitioner has the right to increase the rental of the said premises.

HELD:
The rule is settled that the owner of the land leased has the right not only to terminate the
lease at the expiration of the term, but also to demand a new rate of rent. The tenant or lessee has
the option either to accept the new rent or vacate the premises. (Iturralde vs. Alfonso 7 Phil. 576;
Iturralde vs. Evangelista, 7 Phil., 588; Iturralde vs. Magcauas, 9 Phil. 599; Cortez vs. Ramos, 46
Phil. 189). As (lessees), after the termination of their lease, refused either to pay the new rent or
to vacate the lots after the termination of their lease, they have evidently become deforciants, and
can be ousted judicially without the need of a demand. (Co Tiamco vs. Diaz, 75 Phil., 672; Art.
1669, new Civil Code).

September 30, 2004

G.R. Nos. 154391-92

Spouses ISMAEL and TERESITA MACASAET, petitioners, vs. Spouses

VICENTE and ROSARIO MACASAET, respondents.
FACTS:
Petitioners Ismael and TeresitaMacasaet and Respondents Vicente and Rosario Macasaet
are first-degree relatives. Ismael is the son of respondents, and Teresita is his wife.
On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of
Lipa City an ejectment suit against the children. Respondents alleged that they were the owners
of two (2) parcels of land, situated at Banay-banay, Lipa City; that by way of a verbal lease
agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their
residence and the situs of their construction business; and that despite repeated demands,
petitioners failed to pay the agreed rental of P500 per week.
Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that
respondents had invited them to construct their residence and business on the subject lots in
order that they could all live near one other, employ Marivic (the sister of Ismael), and help in
resolving the problems of the family. They added that it was the policy of respondents to allot the
land they owned as an advance grant of inheritance in favor of their children. Thus, they
contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance
inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to
petitioners as payment for construction materials used in the renovation of respondents house.
The MTCC ruled in favor of respondents and ordered petitioners to vacate the premises. The
MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the

40

ground that successional rights were inchoate. Moreover, it disbelieved petitioners allegation
that the other parcel had been given as payment for construction materials.
On appeal, the regional trial court (RTC) upheld the findings of the MTCC. However, the RTC
allowed respondents to appropriate the building and other improvements introduced by
petitioners, after payment of the indemnity provided for by Article 448 in relation to Articles 546
and 548 of the Civil Code. It added that respondents could oblige petitioners to purchase the
land, unless its value was considerably more than the building. In the latter situation, petitioners
should pay rent if respondents would not choose to appropriate the building.
Upon denial of their individual Motions for Reconsideration, the parties filed with the CA
separate Petitions for Review, which were later consolidated.
ISSUE:
Whether or not Rules of Court on Judgment should apply in the rendition of the decision
in this case.
HELD:
The CA sustained the finding of the two lower courts that Ismael and Teresita had been
occupying the subject lots only by the tolerance of Vicente and Rosario. Thus, possession of the
subject lots by petitioners became illegal upon their receipt of respondents letter to vacate it.
Citing Calubayan v. Pascual, the CA further ruled that petitioners status was analogous to that
of a lessee or a tenant whose term of lease had expired, but whose occupancy continued by
tolerance of the owner. Consequently, in ascertaining the right of petitioners to be reimbursed for
the improvements they had introduced on respondents properties, the appellate court applied the
Civil Codes provisions on lease. The CA modified the RTC Decision by declaring that Article
448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same
Code, Ismael and Teresita had the right to be reimbursed for one half of the value of the
improvements made.
Not satisfied with the CAs ruling, petitioners brought this recourse to this Court.

July 29, 2005

G.R. Nos. 145156-57

SOLID HOMES, INC., petitioner, vs. SPOUSES ANCHETA K. TAN and

CORAZON DE JESUS TAN, respondents.
FACTS:
On April 7, 1980, Solid Homes sold to spouses Uy a subdivision lot and thereafter
spouses Uy sold the same lot to spouses Tan. From then on, respondents visited their property a
number of times, only to find out the said state of development thereat. There was no

41

infrastructure & utility system of water. Worse, squatters occupy their lot & its surrounding
areas.
On Dec. 18, 1995, respondents demanded on petitioner to provide the needed utility
system & clear the area of squatters by the end of January 1996. Having received no reply from
petitioner, respondent filed with the Housing & Land Use Regulatory Board (HLURB) a
complaint for specific performance which rendered judgment in favor of respondents.
ISSUE:
WON Respondents right to bring the instant case against petitioner has already prescribed.
WON in the event respondents opt to rescind the contract, should petitioner pay them the price
they paid for the lot plus interest or the current market value thereof.

HELD:
Petitioner argued that the 10 yrs prescriptive period should be reckoned from April 7,
1980 when they sold the lot to spouses Uy or at the latest on February 1985. The SC disagrees
because it is from the time an act is performed or an omission incurred which is violative of
plaintiffs right that signals the accrual of a case of action.
Thus, the period of prescription of any action is reckoned only from the date the cause of action
accrued. And a cause of action arises when that which should have been done is not done, or that
which should not have been done is done.
In law, a cause of action exists when the following requisites concur, to wit: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part on the defendant to respect such right; and (3) an act or omission on the
part of such defendant violative of the right of the plaintiff.
In this case, it was only on Dec. 18, 1995 when respondent made a written demand upon
petitioner to construct which are unquestionably in the nature of an obligation to do. Under Art.
1169, party who is under obligation to do something incurs delay only from the time the obligee
demands either judicially or extra judicially for the fulfillment of obligation. In this case,
respondent made their written demand upon petitioner to perform what is incumbent upon it only
on Dec. 18, 1995; it was only from that date when 10 yrs prescriptive period commenced to run.
Moreover, equity and justice dictate that the injured party should be paid the market value,
otherwise, respondent would enrich themselves at the expense of the lot owners when they sell
the same lot at the present market value.
Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. &
PuritaSoliven are made to pay only the purchase price plus interest. It is definite that the value of
the subject property already escalated after almost two decades from the time the petitioner paid
for it. Equity and justice dictate that the injured party should be paid the market value of the lot,
otherwise, respondents Solid Homes, Inc. & PuritaSoliven would enrich themselves at the
expense of herein lot owners when they sell the same lot at the present market value. Surely,
such a situation should not be countenanced for to do so would be contrary to reason and
therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence
that what is inconvenient or contrary to reason is not allowed in law.

42

June 29, 2010

G.R. No. 183374

MARSMAN DRYSDALE LAND, INC.,

versus
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES,
INC.,

FACTS:
Marsman Drysdale Land Inc & Gotesco Philippines Inc. entered into a joint venture
agreement. Marsman is obliged to deliver the property in a buildable condition, which means that
the old structures are to be demolished, while Gotesco is obliged to provide cash of P4,200,000.
As stipulated in the contract, Marsman shall not be obligated to fund the project and that all
funds advanced by the parties (or by 3rd parties) shall be paid by the joint venture (JV). The JV
engaged the services of Philippine Geoanalytics Inc (PGI) to provide geotechnical engineering.
When PGI billed the JV for its services, the JV failed to pay its obligations. Marsman contends
that Gotesco is liable since the latter was solely liable for the monetary expenses. Gotesco
protests that PGI had yet to complete its services in the contract. Marsman also failed to clear the
property, which prevented PGI from completing its work. The RTC ordered Gotesco and
Marsman to pay PGI jointly, while Gotesco is to reimburse Marsman of P535,353.50,
representing PGI's claims. The CA affirmed the decision of the lower court but it lowered the
reimbursed amount by 50%. The CA stated that the JV cannot avoid payment of 3rd persons
(PGI) since contracts cannot favor or prejudice a 3rd person.

ISSUE:
Who bears liability to pay PGI for its unpaid claims?

HELD:
The SC finds Marsman and Gotesco jointly liable. The only time the JVA may be made
to apply in the present petitions is when the liability of the JV would set in. The JVA is governed
by the rules of partnership, which means that each member or party is proportionately liable
according to its share or contribution in the partnership. The contract between the JV and PGI is
separate and distinct from the JVA entered by Gotesco and Marsman. PGI was never a party but
another party in the grotechnical engineering service contract. The SC finds no need to reimburse
the 50% of the sum due to PGI since that would be unjust enrichment on Marsman's part.

43

Feb. 23, 2011

G.R. No. 180257

EUSEBIO GONZALES
versus
PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK, EDNA
OCAMPO and ROBERTO NOCEDA,

FACTS:
This is an appeal via a Petition for Review on Certiorari under Rule 45 from the Decision
dated October 22, 2007 of the Court of Appeals.
Petitioner Eusebio Gonzales (Gonzales) was a client of PCIB for a good 15 years before he filed
the instant case. In October 30, 1995, Gonzales and his wife obtained a loan for PhP 500,000.
Subsequently, on December 26, 1995 and January 3, 1999, the spouses Panlilio and Gonzales
obtained two additional loans from PCIB in the amounts of PhP 1,000,000 and PhP 300,000,
respectively. These three loans amounting to PhP 1,800,000 were covered by three promissory
notes. To secure the loans, a real estate mortgage (REM) over a parcel of land covered by
Transfer Certificate of Title (TCT) No. 38012 was executed by Gonzales and the spouses
Panlilio. Notably, the promissory notes specified, among others, the solidary liability of
Gonzales and the spouses Panlilio for the payment of the loans. However, it was the spouses
Panlilio who received the loan proceeds of PhP 1,800,000. The monthly interest dues of the loans
were paid by the spouses Panlilio through the automatic debiting of their account with PCIB.
But the spouses Panlilio, from the month of July 1998, defaulted in the payment of the periodic
interest dues from their PCIB account which apparently was not maintained with enough
deposits. PCIB allegedly called the attention of Gonzales regarding the July 1998 defaults and
the subsequent accumulating periodic interest dues which were left still left unpaid.

ISSUE:
Whether or not that the liability arising from PROMISSORY NOTES pertained to
borrower PANLILIO Spouse and not
appellant as recognized and acknowledge by
RESPONDENT PHILIPPINE COMMERCIAL & INDUSTRIAL BANK (RESPONDENT
BANK).

HELD:
A close perusal of the records shows that the courts a quo correctly found Gonzales
solidarily liable with the spouses Panlilio for the three promissory notes. Gonzales admitted that
he merely accommodated the spouses Panlilio at the suggestion of Ocampo, who was then
handling his accounts, in order to facilitate the fast release of the loan. Moreover, the first note
for PhP 500,000 was signed by Gonzales and his wife as borrowers, while the two subsequent
notes showed the spouses Panlilio sign as borrowers with Gonzales. Second, the records of PCIB

44

indeed bear out, that the PhP 1,800,000 loan proceeds went to the spouses Panlilio. The fact that
the loans were undertaken by Gonzales when he signed as borrower or co-borrower for the
benefit of the spouses Panlilioas shown by the fact that the proceeds went to the spouses
Panlilio who were servicing or paying the monthly duesis beside the point. Third, as an
accommodation party, Gonzales is solidarily liable with the spouses Panlilio for the loans.
Fourth, the solidary liability of Gonzales is clearly stipulated in the promissory notes which
uniformly begin, For value received, the undersigned (the BORROWER) jointly and
severally promise to pay x x x. Solidary liability cannot be presumed but must be established
by law or contract. Article 1207 of the Civil Code pertinently states that there is solidary
liability only when the obligation expressly so states, or when the obligation requires solidarity.
This is true in the instant case where Gonzales, as accommodation party, is immediately, equally,
and absolutely bound with the spouses Panlilio on the promissory notes which indubitably
stipulated solidary liability for all the borrowers. Moreover, the three promissory notes serve as
the contract between the parties. Contracts have the force of law between the parties and must be
complied with in good faith.

May 16, 1983

G.R. No. L-28046

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO
DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA, MOISES
CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO
LEVISTE, GAVINO GONZALES, LOPE GEVANA and BONIFACIO
LAUREANA, defendants-appellees.
FACTS:
Appeal by PNB from the Order of the defunct Court of First Instance of Manila
dismissing PNB's complaint against several solidary debtors for the collection of a sum of money
on the ground that one of the defendants (Ceferino Valencia) died during the pendency of the
case (i.e., after the plaintiff had presented its evidence) and therefore the complaint, being a
money claim based on contract, should be prosecuted in the testate or intestate proceeding for the
settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules
of Court which reads: SEC. 6. Solidary obligation of decedent. The obligation of the decedent is
solidary with another debtor, the claim shall be filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to recover contribution from the other debtor.
In a joint obligation of the decedent, the claim shall be confined.to.the.portion.belonging.to.him.
The appellant assails the order of dismissal, invoking its right of recourse against one,
some or all of its solidary debtors under Article 1216 of the Civil Code ART. 1216. The
creditor may proceed against any one of the solidary debtors or some or all of them

45

simultaneously. The demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the debt has not been fully collected.

ISSUE:
Whether in an action for collection of a sum of money based on contract against all the solidary
debtors, the death of one defendant deprives the court of jurisdiction to proceed with the case
against the surviving defendants.

HELD:
It is now settled that the quoted Article 1216 grants the creditor the substantive right to
seek satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or
convenient for the protection of his interests; and if, after instituting a collection suit based on
contract against some or all of them and, during its pendency, one of the defendants dies, the
court retains jurisdiction to continue the proceedings and decide the case in respect of the
surviving
defendants.
Similarly, in PNB vs. Asuncion, A cursory perusal of Section 6, Rule 86 of the Revised
Rules of Court reveals that nothing therein prevents a creditor from proceeding against the
surviving solidary debtors. Said provision merely sets up the procedure in enforcing collection in
case a creditor chooses to pursue his claim against the estate of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this
matter. Said provision gives the creditor the right to 'proceed against anyone of the solidary
debtors or some or all of them simultaneously.' The choice is undoubtedly left to the solidary,
creditor to determine against whom he will enforce collection. In case of the death of one of the
solidary debtors, he (the creditor) may, if he so chooses, proceed against the surviving solidary
debtors without necessity of filing a claim in the estate of the deceased debtors. It is not
mandatory for him to have the case dismissed against the surviving debtors and file its claim in
the
estate
of
the
deceased
solidary
debtor
.
.
.
Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of
the New Civil Code, the former being merely procedural, while the latter, substantive.

46

153 SCRA 183, October 7, 1994

G.R. No. 104751

ISABEL RUBIO ALCASID, assisted by her husband DOMINGO A.

ALCASID, petitioners,
versus
THE HONORABLE COURT OF APPEALS and RUFINA L.
LIM, respondents.
FACTS
Petitioner is one of the co-owners of two parcels of land located in Calamba, Laguna.
Private respondent offered to purchase from petitioner and her co-owners the abovementioned
property. Petitioner was willing to sell her share for P4, 500,000.00 and only if all her co-owners
would sell their respective shares of the said land.
Petitioner engaged the services of Atty. Antonio A. Fernandez for the purpose of negotiating the
sale, without knowing that he was also representing private respondent.
Atty. Fernandez confirmed to petitioner that all her co-owners were already amenable to sell
their shares for P1, 500,000.00. Petitioner signed a Deed of Sale drafted by Atty. Fernandez.
Subsequently, petitioner learned that the other co-owners did not agree to sell their shares over
the subject property.

ISSUE
Whether or not private respondent is liable for the wrongful act of Atty. Antonio A.
Fernandez?

HELD
The finding of the Court of Appeals that petitioner executed the contract of her own free
will and choice and not from duress is fully supported by the evidence. Such finding should not
be disturbed.
Private respondent did not commit any wrongful act or omission which violated the
primary right of petitioner. Hence, petitioner did not have a cause of action
Petitioner could have avoided the alleged mistake had she exerted efforts to verify from her coowners if they really consented to sell their respective shares.

47

September 20, 2005

G.R. No. 138980

FILINVEST versus COURT OF APPEALS

FACTS:
Petitioner awarded to respondent Pacific Equipment Corp (Pecorp) development of its
residential subdivisions, a contract amounting to P12,470,000.00. Pecorp posted two surety
bonds to guarantee faithful compliance. Both agreed that liquidated damages of P15,000/day
shall be paid by Pecorp in case of delay. Petitioner claimed that Pecorp failed to complete the
works (94.53%) and claims for damages. Pecorp on the other hand contended that their work
stopped due to failure of petitioner to pay for certain completed portion. RTC assigned a
commissioner to evaluate the claims and counter-claims. The total amount due to Pecorp was
computed to be P1,881,867.66. Petitioner claimed that liquidated damages amounted to
P3,990,000.00 Both claims and counter-claims were dismissed. Court of Appeals affirmed the
ruling of RTC.

ISSUE:
Whether or not the penalty (liquidated damages) of P15,000.00 per day of delay shall be
binding upon mutual agreement of parties.

HELD:
No. As a general rule, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit as long as they are not contrary to law, morals,
good customs, public order or public policy. The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable (Art.1229, NCC). A penalty interest of P15,000.00 per day of delay as liquidated
damages or P3,990,000.00 (representing 32% penalty of the P12,470,000.00 contract price) is
unconscionable considering that the construction was already not far from completion.

48

January 22, 1997

G.R. No. 113074

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE

MOTOREN WERKE AKTIENGESELLSCHAFT (BMW), respondents.
FACTS:
Petitioner is a Filipino citizen doing business under the name of Hahn Manila. Private
respondent BMW is a non-resident corporation incorporated in Germany. Petitioner executed in
favor of private respondent a Deed of Assignment with a Special Power of Attorney which
constituted petitioner as the exclusive dealer of private respondent as long as the assignment of
its trademark and device subsisted. However, no formal contract was drawn between the two
parties. Thereafter, petitioner was informed that BMW was arranging to grant the exclusive
dealership of BMW cars and products to Columbia Motors Corp. (CMC). BMW expressed
dissatisfaction with various aspects of petitioners business but nonetheless also expressed
willingness to continue business relations with petitioner on the basis of a standard BMW
contract otherwise, if said offer was unacceptable to petitioner then BMW would terminate
petitioners exclusive dealership. Petitioner refused BMWs offer in which case BMW withdrew
its alternative offer and terminated petitioners exclusive dealership. Petitioner therefore filed an
action for specific performance and damages against BMW to compel it to continue the
exclusive dealership.
BMW moved to dismiss the case contending that the trial court did not acquire
jurisdiction over it through the service of summons on DTI because BMW is a foreign
corporation and is not doing business in the Philippines. The trial court deferred the resolution of
the motion for dismissal until after trial on the merits for the reason that the grounds advanced by
BMW did not seem indubitable. BMW appealed said order to the CA. The CA resolved that
BMW was not doing business in the country and therefore jurisdiction over it could not have
been acquired through the service of summons on DTI and it dismissed the petition.

ISSUE:
Whether or not BMW is doing business in the Philippines so as to enable the court to
acquire jurisdiction over it through the service of summons on the DTI.

HELD:
RA 7042 enumerates what acts are considered as doing business. Section 3(d)
enumerating such acts includes the phrase appointing representatives or distributors in the
Philippines but not when the representative or distributor transacts business in his own name
for his own account. In the case at bar, petitioner is private respondent BMWs agent and not
merely a broker. The record reveals that private respondent exercised control over petitioners
activities as a dealer and made regular inspections of petitioners premises to enforce its

49

standards. Since BMW is considered as doing business in the Philippines, the trial court validly
acquired jurisdiction over it by virtue of the service of summons on the DTI. Furthermore, it is
now settled that, for purposes of having summons served on a foreign corporation in accordance
with the Rules of Court, it is sufficient that it be alleged in the complaint that the foreign
corporation is doing business in the Philippines. The court need not go beyond the allegations in
the complaint in order to determine whether or not it acquired jurisdiction. Such determination
that the foreign corporation is doing business in the Philippines is only tentative and only for the
purpose of enabling the court to acquire jurisdiction. A contrary determination may be made
based on the courts findings or evidence presented.

June 30, 1987

G.R. No. L-30597

GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,

vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre
(Sp. Proc. 6921 of the Court of First Instance of Negros Occidental), and the
HONORABLE COURT OF APPEALS, respondents.
Facts
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in
NegrosOccidental to Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for
three (3) agricultural years beginning 1960. On March 30, 1960, when the first annual rent was
due, petitioner was not able to deliver possession of the leased property thus he waived
payment of that rental. Respondent only entered the premises on October 26, 1960 after paying
P7000, which was acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner
notified respondent that the contract of lease was deemed cancelled for violation of
the conditions of the contract. Earlier, in fact, the respondent had been ousted from the
possession of the 60 hectares of the leased premises and let with only 20 hectares of the original
area.

Issues
Whether or not the lease contract is deemed cancelled upon failure of the respondent to: Attach
the parcelary plan identifying the exact area subject of the contract, secure approval of PNB of
said contract and pay the rentals

Held

50

Parcelary Plan: The correct view is that there was an agreed subject-matter, although it was not
expressly defined because the plan was not annexed and never approved. There was still an
ascertainable object because the leased premises were sufficiently delineated and identified.
Failure to attach the plan was imputable to the petitioner himself because he was supposed to
prepare the said plan. Nevertheless, the identification of the lease area rendered the plan
unnecessary and its absence did not nullify the agreement.
PNBs approval: Petitioners claim that such possession was not delivered because the approval
of the PNB had not materialized due to respondent's neglect. Respondent was negotiating the
loan with PNB but the contract does not state upon whom fell the obligation to secure
the approval. Payment of Rent Petitioner contends that the payment of P7000, which was short
of P200, was a violation of the agreement thus the contract should be deemed cancelled. But the
petitioner unqualifiedly accepted the amount. The absence of any mention of the discrepancy in
the receipt nor any protest or demand to collect the remaining balance, means that
petitioner acknowledged the amount as the full payment for the rent. The SC affirms the decision
of the CA and petition is denied.
Note: The CA held that the amount of P200 had been condoned but the SC viewed it as a mere
reduction of the stipulated rental in consideration of the withdrawal from the leased premises
where the petitioner intended to graze his cattle.

217 scra 372 January 21, 1993

G.R. No. 102432

INTESTATE ESTATE OF THE LATE RICARDO P. PRESBITERO, SR.,

represented by its Administrator, RICARDO PRESBITERO, JR., petitioner,
versus
HONORABLE COURT OF APPEALS, and LEONARDO
CAOSO, respondents.
FACTS:
Ricardo Presbitero Sr. entered into 2 contracts with respondent Leonardo Canoso. On the
Conformity Agreement, respondent will negotiate with Land Bank of the Philippines (LBP)
and the Ministry of Agrarian Reform for the sale of Hacienda Maria. The documents must be
processed within a period of 120 days. In the Contract of Service, respondent will be
compensated 25% of the gross sale for his efforts. Original fee of 25% was reduced to 17.5%.
Upon approval of LBP, petitioner sent letters to release part of the proceeds to respondent in the
form of cash and bonds.
Petitioner sent a second letter saying that petitioner will personally release the cash and
bonds to respondent. Respondent was not given his share thus he filed a complaint. The RTC
ruled in favor of respondent. The CA modified the decision by reducing the amount from 25% to

51

17.5%. Petitioner contends that the respondent failed to complete the obligation within the
stipulated period thus the latter is not entitled to any compensation.
ISSUE:
Is respondent entitled to the compensation?

HELD:
The Supreme Court ruled that petitioner's letter authorizing the release of respondent's
compensation reinforces the latter's position that he has complied with the contract.
Petitioner also cannot use the 120-day period limit as a reason to refuse payment since the
payment of compensation is covered by a second, separate contract.
In the absence of obligee's defense and accepts performance knowing its irregularity, the
obligation is deemed fully complied with

127 SCRA 828, February 29, 1984

G.R. No. L-52807.

JOSE ARAAS and LUISA QUIJENCIO ARAAS, Petitioners, v. HON.

EDUARDO C. TUTAAN, as Judge of the Court of First Instance of Quezon
City, and UNIVERSAL TEXTILE MILLS, INC.,Respondents.
FACTS:
On May 3, 1971 the lower court declared that Petitioner Luisa Quijencio (and by her
spouse Jose Araas) was the owner of 400 shares including the stock dividends that accrued to
said shares, of respondent Universal Textile Mills, Inc. (UTEX) as defendant and Gene Manuel
and B. R. Castaeda as co-defendants, and subsequently ordered UTEX to cancel said
certificates and issue new ones in the name of Plaintiff and to deliver all dividends appertaining
to the same, whether in cash or in stocks. UTEX filed a motion for clarification whether the
phrase to deliver to her all dividends appertaining to the same, whether in cash or in stocks
meant dividends properly pertaining to plaintiffs after the courts declaration of plaintiff
ownership of said 400 shares of stock. Defendant UTEX has always maintained it would
rightfully abide by whatever decision may be rendered since such would be the logical
consequence after the ruling in respect to the rightful ownership of said shares of stock. The
motion was granted which ruled against UTEX, ordering it to pay plaintiff the cash dividends,
which accrued to the stocks in question after rendition of its current decision excluding cash
dividends already paid to Gene Manuel and B. R. Castaeda which accrued before its decision.
UTEX alleged that the cash dividends had already been paid thereby absolving it from payment
thereof.

52

ISSUE:
Was the contention of UTEX, alleging that the cash dividends of stock had already been
paid and thereby absolving it from any further payment, valid?

HELD:
No. The final and executory judgment against UTEX declared petitioners as the owners
of the questioned UTEX shares of stock against its co-defendants. It was further made clear in
the motion for clarification that all dividends accruing to the said shares after the rendition of the
decision of Aug. 7, 1971 rightfully belonged to petitioners. If UTEX nevertheless chose to pay
the wrong parties, notwithstanding its full knowledge and understanding of the final judgment, it
was still liable to pay the petitioners as the lawful declared owners of the questions shares of
stocks. The burden of recovering the supposed payment of the cash dividends made by UTEX to
the wrong parties Castaeda and Manuel falls upon itself by its own action and cannot be passed
by it to the petitioner as the innocent parties. It is elementary that payment made by a judgment
debtor to a wrong party cannot extinguish the judgment obligation of such debtor to its creditor.

101 SCRA 686, December 19, 1980

GR No. L-41764

New Pacific Timber & Supply Co, Inc versus Seneris,

FACTS:
Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for
collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent
Judge rendered a compromise judgment based on the amicable settlement entered by the parties
wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and
P6,000.00 as attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to
pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the
personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with
the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the
Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private
respondent refused to accept the check and the cash and requested for the auction sale to
proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of
P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of
satisfaction of judgment which was denied by the respondent Judge. Hence this present petition,
alleging that the respondent Judge capriciously and whimsically abused his discretion in not
granting the requested motion for the reason that the judgment obligation was fully satisfied

53

before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In
upholding the refusal of the private respondent to accept the check, the respondent Judge cited
Article 1249 of the New Civil Code which provides that payments of debts shall be made in the
currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act
which provides that checks representing deposit money do not have legal tender power. In
sustaining the contention of the private respondent to refuse the acceptance of the cash, the
respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot
be compelled to accept partial payment unless there is an express stipulation to the contrary.

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

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

June 4, 1993
G.R. No. 100290

TIBAJIA JR. versus COURT OF APPEALS

FACTS:
Tibajia spouses delivered to Sheriff the total money judgment in cashiers check and
cash. Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses
and instead insisted that the garnished funds deposited with the cashier of the Regional Trial
Court of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. Tibajias filed a
motion to lift the writ of execution on the ground that the judgment debt had already been paid.
The motion was denied.

54

ISSUE:
Whether or not payment by means of cashiers check is considered payment in legal
tender.

HELD:
NO. A check, whether a managers check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt
by the obligee or creditor. A check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a managers, cashiers or personal check. The Supreme Court
stressed that, We are not, by this decision, sanctioning the use of a check for the payment of
obligations over the objection of the creditor.

REPUBLIC ACT No. 7653

THE NEW CENTRAL BANK ACT
Section 60.
Legal Character

Checks representing demand deposits do not have legal tender power and their acceptance in the
payment of debts, both public and private, is at the option of the creditor:
Provided, however, That a check which has been cleared and credited to the account of the creditor
shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to
his account.

BANGKO SENTRAL NG PILIPINAS

CIRCULAR NO. 537
Series of 2006
Pursuant to Section 52 of Republic Act No. 7653 and Monetary Board Resolution No. 862 dated 6
July 2006, the maximum amount of coins to be considered as legal tender is adjusted as follows:
One thousand pesos (P1,000.00) for denominations of 1-Piso, 5-Piso and 10-Piso coins; and
One hundred pesos (P100.00) for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25sentimo coins.
This Circular shall take effect after fifteen (15) days following its publication in the Official Gazette
or in a newspaper of general circulation.

55

320 SCRA 625, December 14, 1999

G.R. No. 95897

FLORENCIA T. HUIBONHOA, petitioner, vs. COURT OF APPEALS,

Spouses Rufina G. Lim and ANTHONY LIM, LORETA GOJOCCO CHUA
and Spouses SEVERINO and PRISCILLA GOJOCCO, respondents.

FACTS:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with
siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that
Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at
Ilaya Street, Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer
Certificates of Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract
of lease of the same three lots for a period of fifteen (15) years commencing on July 1, 1983 and
renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T.
Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck,
according to plans and specifications approved by the City Engineer's Office." The parties agreed
that the lessee could let/sublease the building and/or its spaces to interested parties under such
terms and conditions as the lessee would determine and that all amounts collected as rents or
income from the property would belong exclusively to the lessee. The lessee undertook to
complete construction of the building "within eight (8) months from the date of the execution of
the contract of lease." The contract further provided as follows:
Good will Money and Rate of Monthly Rental: Upon the signing of this Contract of Lease,
LESSEE shall pay to each of the LESSOR the sum of P300,000.00 each or a total sum of
P900,000.00, as goodwill money.
LESSEE shall pay to each of the LESSOR the sum of P15,000.00 each or a total amount of
P45,000.00 as monthly rental for the leased premises, within the first five (5) days of each
calendar month, at the office of the LESSOR or their authorized agent; Provided, however, that
LESSEE's obligation to pay the rental shall start only upon completion of the building, but if it is
not completed within eight (8) months from date hereof as provided for in par. 4 above, the
monthly rental shall already accrue and shall be paid by LESSEE to LESSOR. In other words,
during the period of construction, no monthly rental shall be collected from LESSEE; Provided,
Finally, that the monthly rental shall be adjusted/increased upon the corresponding increase in
the rental of sub-leasees (sic) using the percentage increase in the totality of rentals of the subleasees (sic) as basis for the percentage increase of monthly rental that LESSEE will pay to
LESSOR.
The parties also agreed that upon the termination of the lease, the ownership and title to the
building thus constructed on the said lots would automatically transfer to the lessor, even without
any implementing document therefor. Real estate taxes on the land would be borne by the lessor
while that on the building, by the lessee, but the latter was authorized to advance the money
needed to meet the lessors' obligations such as the payment of real estate taxes on their lots. The
lessors would deduct from the monthly rental due all such advances made by the lessee.

56

After the execution of the contract, the Gojoccos executed a power of attorney granting
Huibonhoa the authority to obtain "credit facilities" in order that the three lots could be
mortgaged for a limited one-year period from July 1983. 1 Hence, on September 12, 1983,
Huibonhoa obtained from China Banking Corporation "credit facilities" not exceeding One
Million (P1,000.000.00) Pesos. Simultaneously, she mortgaged the three lots to the creditor
bank. Fifteen days later or on September 27, 1983, to be precise, Huibonhoa signed a contract
amending the real estate mortgage in favor of China Banking Corporation whereby the "credit
facilities" were increased to the principal sum of Three Million (P3,000,000.00) Pesos.
During the construction of the building which later became known as Poulex Merchandise
Center, former Senator Benigno Aquino, Jr. was assassinated. The incident must have affected
the country's political and economic stability. The consequent hoarding of construction materials
and increase in interest rates allegedly affected adversely the construction of the building such
that Huibonhoa failed to complete the same within the stipulated eight-month period from July 1,
1983. Projected to be finished on February 29, 1984, the construction was completed only in
September 1984 or seven (7) months later.
Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed
to do so. Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the
payment of rental arrearages and, for her to vacate the leased premises. On December 19, 1984,
lessors sent lessee a final letter of demand to pay the rental arrearages and to vacate the leased
premises. The former also notified the latter of their intention to terminate the contract of lease.

ISSUE:
Whether or not the reformation of the lease contract by Huibonhoa is valid.

HELD:
Once the minds of the contacting parties meet, a valid contract exists, whether it is
reduced to writing or not. When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such, there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and agreement of the parties. In such an
exception, one of the parties may bring an action for the reformation of the instrument to the end
that their true intention may be expressed.
Reformation is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties. As to its nature,
in Toyota Motor Philippines Corporation v. Court of Appeals, the Court said: An action for
reformation is in personam, not in rem, even when real estate is involved. . . . It is merely an
equitable relief granted to the parties where through mistake or fraud, the instrument failed to
express the real agreement or intention of the parties. While it is a recognized remedy afforded
by courts of equity it may not be applied if it is contrary to well-settled principles or rules. It is a
long-standing principle that equity follows the law. It is applied in the absence of and never
against statutory law. Courts are bound by rules of law and have no arbitrary discretion to

57

disregard them. Courts of equity must proceed with outmost caution especially when rights of
third parties may intervene.
Art. 1359 of the Civil Code provides that "(w)hen, there having been a meeting of the
minds of the parties to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the end that such
intention may be expressed. . . . "An action for reformation of instrument under this provision of
law may prosper only upon the concurrence of the following requisites: (1) there must have been
a meeting of the minds of the parties to the contact; (2) the instrument does not express the true
intention of the parties; and (3) the failure of the instrument to express the true intention of the
parties is due to mistake, fraud, inequitable conduct or accident.

483 SCRA 458, February 28, 2006

G.R. No. 132284

TELENGTAN BROTHERS & SONS, INC., Petitioner,

versus
UNITED STATES LINES, INC. and the COURT OF
APPEALS, Respondents.

FACTS:
Private respondent K-Line is a foreign shipping company doing biz in Plippines, its
shipping agent is respondent Smith, Bell & Co., Inc. It is a member of the Far East Conference,
the body which fixes rates by agreement of its member-ship owners. The conference is registered
with
the
U.S.
Federal
Maritime
Commission.
Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the
shipment of 468 rolls of container board liners from Georgia to Manila, consigned to herein
petitioner La Suerte Cigar. The contract of affreightment was embodied in Bill of Lading issued
by the carrier to the shipper. The expenses of loading and unloading were for the account of the
consignee (La Suerte). The shipment was packed in 12 container vans. At Tokyo, the cargo was
transhipped on two vessels of the K-Line. Ten (10) container vans were loaded on the 1st vessel,
while
two
(2)
were
loaded
on
another
vessel.
On June 11, the first vessel arrived at the port of Manila. La Suerte was notified in
writing of the ship's arrival, together with information that container demurrage would be
charged unless the consignee took delivery of the cargo within ten (10) days.
On June 21, the other vessel arrived and was discharged of its contents the next day. On
the same day the shipping agent Smith, Bell & Co. released the Delivery Permit for twelve (12)
containers to the broker upon payment of freight charges on the bill of lading. On June 22, La
Suertes broker presented the shipping documents to the Bureau of Customs. But the latter

58

refused to act on them because the manifest of the 1st vessel covered only 10 containers, whereas
the
bill
of
lading
covered
12
containers.
The broker therefore sent back the manifest to Smith, Bell & Co with the request that the
manifest be amended. Smith, Bell & Co. refused on the ground that an amendment would violate
the
Tariff
and
Customs
Code
relating
to
unmanifested
cargo.
Later however, it agreed to add a footnote reading "Two container vans carried by other
vessel to complete the shipment of twelve containers under the bill of lading."
The manifest was approved for release only on July 3. On July 11, when the broker tried
to secure the release of the cargo, it was informed by Smith, Belle, & Co. that the free time for
removing the containers from the container yard had expired on June 26 for the first vessel, and
on July 9, in the case of the 2nd vessel, and that demurrage charges had begun to run a day after
the
free
time,
respectively.
On July 13, La Suerte paid P47,680 representing the total demurrage charges on all the
containers, but it was not able to obtain its goods. It was able to obtain only a partial release of
the cargo because of the breakdown of the arrastre's equipment at the container yard. On July 16,
La Suerte sent a letter to Smith, Bell & Co. requesting reconsideration of the demurrage charges,
but was refused. Subsequently, La Suerte refused to pay any more demurrage charges on the
ground that the delay in the release of the cargo was not due to its fault but to the breakdown of
the
equipment
at
the
container
yard.
La Suerte filed this suit in the RTC for specific performance to compel respondents to
release
7
container
vans
consigned
to
it
free
of
charge.
In their answer, private respondents claimed that they were not free to waive these
charges because under the United States Shipping Act of 1916 it was unlawful for any common
carrier engaged in transportation involving the foreign commerce to charge or collect a greater or
lesser compensation that the rates and charges specified in its tariffs on file with the Federal
Maritime
Commission.
RTC dismissed petitioner's complaint. It cited the bill of lading which provided:
The ocean carrier shall have a lien on the goods, which shall survive delivery, for all
freight, dead freight, demurrage, damages, loss, charges, expenses and any other sums
whatsoever payable or chargeable to or for the account of the Merchant under this bill of lading .
. . . RTC likewise invoked clause 29 of the bill of lading which provided:
The terms of the ocean carrier's applicable tariff, including tariffs covering intermodal
transportation on file with the Federal Maritime Commission and the Interstate Commission or
any other regulatory body which governs a portion of the carriage of goods, are incorporated
herein.
The RTC held that the bill of lading was the contract between the parties and, therefore,
petitioner was liable for demurrage charges. It rejected petitioner's claim of force majeure in such
a way that the delay in the delivery of the containers was caused by the breaking down of the
equipment of the arrastre operator. The Court reasoned that still plaintiff has to pay the
corresponding demurrage charges. The possibility that the equipment would break down was not
only foreseeable, but actually, foreseen, and was not caso fortuito. CA affirmed.

59

ISSUE:
Whether or not La Suerte is liable for demurrage for delay in removing its cargo from
the containers - YES but only for the period July 3 - 13, 1979 with respect to ten containers and
from July 10 - July 13, 1979, in respect of two other containers

HELD:
Payment.of.demurrage La Suerte's contention is that the bill of lading does not provide
for the payment of container demurrage, as Clause 23 of the bill of lading only says
"demurrage," i.e., damages for the detention of vessels. Here there is no detention of vessels. It
invokes
a
case
where
SC
defined
"demurrage".as.follows:
Demurrage, in its strict sense, is the compensation provided for in the contract of
affreightment for the detention of the vessel beyond the time agreed on for loading and
unloading. Essentially, demurrage is the claim for damages for failure to accept delivery
Whatever may be the merit of petitioner's contention, the fact is that clause 29(a) also of the bill
of lading, in relation to Rule 21 of the Far East Conference Tariff , specifically provides for the
payment by the consignee of demurrage for the detention of containers and other equipment after
the
so-called
"free
time."
A bill of lading is both a receipt and a contract. As a contract, its terms and conditions are
conclusive on the parties, including the consignee. The enforcement of the rules of the Far East
Conference and the Federal Maritime Commission is in accordance with R.A. 1407 which
declares that the Philippines, in common with other maritime nations, recognizes the
international character of shipping in foreign trade and existing international practices in
maritime
transportation
and
that
it
is
part of the national policy to cooperate with other friendly nations in the maintenance and
improvement of such practices. Period of Demurrage With respect to the period of La Suertes
liability, La Suerte cannot be held liable for demurrage starting June 27 on the 10 containers
because the delay in obtaining release of the goods was not due to its fault.
The evidence shows that the Bureau of Customs refused to give an entry permit to
petitioner because the manifest issued by K-Line stated only 10 containers whereas the bill of
lading also issued by the K-Line showed there were 12 containers. For this reason, petitioner's
broker had to see Smith, Bell & Co. on June 22, but the latter did not immediately do something
to correct the manifest. Smith, Bell & Co. was asked to "amend" the manifest, but it refused to
do so on the ground that this would violate the law. It was only on June 29 that it thought of
adding instead a footnote, by which time the "free time" had already expired. Now June 29 was a
Friday. Again it is probable the correct manifest was presented to the Bureau of Customs only on
Monday, July 2, and therefore it was only on July 3 that it was approved.
It was therefore only from July 3 that La Suerte could have claimed its cargo and
charged for any delay With respect to the other two containers, demurrage was properly
considered to have accrued on July 10 since the "free time" expired on July 9. The period of
delay, however, for all the 12 containers must be deemed to have stopped on July 13, because on
this date petitioner paid P47,680.00. If it was not able to get its cargo from the container vans, it

60

was because of the breakdown of the shifter or cranes of the arrastre service operation. It would
be unjust to charge demurrage after July 13, since the delay in emptying the containers was not
due to the fault of La suerte In sum, we hold that petitioner can be held liable for demurrage only
for the period July 3-13, 1979 and that in accordance with the stipulation in its bill of lading.

GR No. 168646
LUZON DEVELOPMENT BANK vs. ENRIQUEZ
Delta Development & Management Services vs. ENRIQUEZ and Luzon Development
Bank
GR No. 168666
January 12, 2011

FACTS:
Luzon Development Bank (LDB) is a domestic financial corporation that extends loans to
subdivision developers/owners. While, DELTA is a domestic corporation engaged in the
business of developing and selling real estate properties, particularly Delta Homes I in Cavite.
Delta obtained a loan from the LDB for the express purpose of developing Delta Homes
I. To secure the loan, the spouses De Leon executed in favor of the LDB a real estate mortgage
(REM) on several of their properties, including Lot 4. Delta then obtained a Certificate of
Registration and a License to Sell from the HLURB.
Delta executed a Contract to Sell with respondent Enriquez over the house and lot in Lot
4 to which the latter has made a downpayment. However, Delta dafaulted on its obligation. LDB
agreed to a dation in payment or a dacion en pago. Unknown to Enriquez, among the properties
assigned to LDB was the house and lot of Lot 4, which is the subject of her Contract to Sell with
Delta.
Enriquez filed a complaint before the HLURB alleging that Delta violated the terms of its
License to Sell. HLURB upheld the validity of the purchase price and ordered Delta to accept
payment of the balance from Enriquez, and (upon such payment) to deliver to Enriquez the title
to the house and lot free from liens and encumbrances. Not amenable to the decision, Delta and
LDB appealed.
The Court of Appeals held that Delta conveyed its ownership over Lot 4 to Enriquez via
the Contract to Sell. However, Delta points out that the Contract to Sell contained a condition
that ownership shall only be transferred to Enriquez upon the latters full payment of the
purchase price. Since Enriquez has yet to comply with this suspensive condition, ownership is
retained by Delta. As the owner of Lot 4, Delta had every right to enter into a dation in payment
to extinguish its loan obligation with LDB. LDBs acceptance of the assignment, without any
reservation or exception, resulted in the extinguishment of the entire loan obligation; hence,
Delta has no more obligation to pay the value of Enriquezs house and lot to the LDB.

61

ISSUE:
Whether or not the Contract to Sell conveys ownership.
HELD:
No. The Court sustained both Delta and LDB that the Contract to Sell executed by Delta
in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one
where the prospective seller reserves the transfer of title to the prospective buyer until the
happening of an event, such as full payment of the purchase price. What the seller obliges
himself to do is to sell the subject property only when the entire amount of the purchase price has
already been delivered to him. In other words, the full payment of the purchase price partakes
of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from
arising and thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer. It does not, by itself, transfer ownership to the buyer.
However, the Court also upheld the decision of the HLURB in finding that Delta violated
Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to LDB
without prior clearance from the HLURB. This violation of Section 18 renders the mortgage
executed by Delta void. Because of the nullity of the mortgage, neither Delta nor LDB could
assert any right arising therefrom. LDBs loan to Delta has effectively become unsecured due to
the nullity of the mortgage. The said loan, however, was eventually settled by the two
contracting parties via a dation in payment.
Bound by the terms of the Contract to Sell, LDB is obliged to respect the same and honor
the payments already made by Enriquez for the purchase price of Lot 4. Thus, LDB can only
collect the balance of the purchase price from Enriquez and has the obligation, upon full
payment, to deliver to Enriquez a clean title over the subject property.

August 23, 2011

G.R. No. 138588,

FEBTC versus DIAZ REALTY

FACTS:
Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of
P720,000 at 12% interest p.a. which was increased thereafter. The said loan was secured with a
real estate mortgage over two parcels of land owned by Diaz Realty, herein respondent.
Subsequently, the loan account was purchased by the petitioner Far East Bank (FEBTC). Two
years after, the respondent through its President inquired about its obligation and upon learning
of the outstanding obligation, it tendered payment in the form of an Interbank check in the
amount of P1,450,000 in order to avoid the further imposition of interests. The payment was with
a notation for the full settlement of the obligation.

62

The petitioner accepted the check but it alleged in its defense that it was merely a deposit.
When the petitioner refused to release the mortgage, the respondent filed a suit. The lower court
ruled that there was a valid tender of payment and ordered the petitioner to cancel the mortgage.
Upon appeal, the appellate court affirmed the decision.
ISSUE:
Whether or not there was a valid tender of payment to extinguish the obligation of the
respondent
HELD:
Yes. Although jurisprudence tells us that a check is not a legal tender and a creditor may
validly refuse it, this dictum does not prevent a creditor from accepting a check as payment.
Herein, the petitioner accepted the check and the same was cleared.
A tender of payment is the definitive act of of offering the creditor what is due him or
her, together with the demand that he accepts it. More important is that there must be a
concurrence of intent, ability and capability to make good such offer, and must be absolute and
must cover the amount due. The acts of the respondent manifest its intent, ability and capability.
Hence, there was a valid tender of payment.
Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not involve an
effective novation but an assignment of credit. As such, the petitioner has the right to collect the
full value of the credit from the respondent subject to the conditions of the promissory note
previously executed.

January 11, 1993

GR No. 101163

State Investment House Inc. vs. CA

FACTS:
Nora Moulic issued to Corazon Victoriano, as security for pieces of jewellery to be sold on
commission, two postdated checks in the amount of fifty thousand each. Thereafter, Victoriano
negotiated the checks to State Investment House, Inc. When Moulic failed to sell the jewellry,
she returned it to Victoriano before the maturity of the checks. However, the checks cannot be
retrieved as they have been negotiated. Before the maturity date Moulic withdrew her funds from
the bank contesting that she incurred no obligation on the checks because the jewellery was

63

never sold and the checks are negotiated without her knowledge and consent. Upon presentment
of for payment, the checks were dishonoured for insufficiency of funds.

ISSUES:
1. Whether or not State Investment House inc. was a holder of the check in due course
2. Whether or not Moulic can set up against the petitioner the defense that there was failure or
absence of consideration

HELD:

Yes, Section 52 of the NIL provides what constitutes a holder in due course. The
evidence shows that: on the faces of the post dated checks were complete and regular; that State
Investment House Inc. bought the checks from Victoriano before the due dates; that it was taken
in good faith and for value; and there was no knowledge with regard that the checks were issued
as security and not for value. A prima facie presumption exists that a holder of a negotiable
instrument is a holder in due course. Moulic failed to prove the contrary.
No, Moulic can only invoke this defense against the petitioner if it was a privy to the
purpose for which they were issued and therefore is not a holder in due course.
No, Section 119 of NIL provides how an instruments be discharged. Moulic can only
invoke paragraphs c and d as possible grounds for the discharge of the instruments. Since Moulic
failed to get back the possession of the checks as provided by paragraph c, intentional
cancellation of instrument is impossible. As provided by paragraph d, the acts which will
discharge a simple contract of payment of money will discharge the instrument. Correlating
Article 1231 of the Civil Code which enumerates the modes of extinguishing obligation, none of
those modes outlined therein is applicable in the instant case. Thus, Moulic may not unilaterally
discharge herself from her liability by mere expediency of withdrawing her funds from the
drawee bank. She is thus liable as she has no legal basis to excuse herself from liability on her
check to a holder in due course. Moreover, the fact that the petitioner failed to give notice of
dishonor is of no moment. The need for such notice is not absolute; there are exceptions
provided by Sec 114 of NIL.

64

340 SCRA 155

ABELARDO VALARAO, GLORIOSA VALARAO AND CARLOS

VALARAO, PETITIONERS, VS. COURT OF APPEALS AND MEDEN A.
ARELLANO.

FACTS:
"On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos
Valarao as their attorney-in-fact, sold to [Private Respondent] Meden Arellano under a Deed of
Conditional Sale a parcel of land situated in the District of Diliman, Q.C., covered by TCT No.
152879 with an area of 1,504 square meters, for the sum of THREE MILLION TWO
HUNDRED TWENTY FIVE THOUSAND PESOS (P3,225,000.00) payable under a schedule of
payment
stated
therein.
"In the same Deed of Conditional Sale, the [private respondent] vendee obligated herself to
encumber by way of real estate mortgage in favor of [petitioners] vendors her separate piece of
property with the condition that upon full payment of the balance of P2,225,000.00, the said
mortgage shall become null and void and without further force and effect.
"It was further stipulated upon that should the vendee fail to pay three (3) successive monthly
installments or any one year-end lump sum payment within the period stipulated, the sale shall
be considered automatically rescinded without the necessity of judicial action and all payments
made by the vendee shall be forfeited in favor of the vendors by way of rental for the use and
occupancy of the property and as liquidated damages. All improvements introduced by the
vendee to the property shall belong to the vendors without any right of reimbursement.
"[Private respondent] appellant alleged that as of September , 1990, she had already paid the
amount of [t]wo [m]illion [t]wenty-[e]ight [t]housand (P2,028,000.00) [p]esos, although she
admitted having failed to pay the installments due in October and November, 1990. Petitioner,
however, [had] tried to pay the installments due [in] the said months, including the amount due
[in] the month of December, 1990 on December 30 and 31, 1990, but was turned down by the
vendors-[petitioners] thru their maid, Mary Gonzales, who refused to accept the payment
offered. [Private respondent] maintains that on previous occasions, the same maid was the one
who [had] received payments tendered by her. It appears that Mary Gonzales refused to receive
payment allegedly on orders of her employers who were not at home.
"[Private respondent] then reported the matter to, and sought the help of, the local barangay
officials. Efforts to settle the controversy before the barangay proved unavailing as vendors[petitioners] never appeared in the meetings arranged by the barangay lupon.
"[Private respondent] tried to get in touch with [petitioners] over the phone and was able to talk
with [Petitioner] Gloriosa Valarao who told her that she [would] no longer accept the payments
being offered and that [private respondent] should instead confer with her lawyer, a certain Atty.
Tuazon. When all her efforts to make payment were unsuccessful, [private respondent] sought
judicial action by filing this petition for consignation on January 4, 1991.

65

"On the other hand, vendors-[petitioners], thru counsel, sent [private respondent] a letter dated 4
January 1991 notifying her that they were enforcing the provision on automatic rescission as a
consequence of which the Deed of Conditional Sale [was deemed] null and void, and xxx all
payments made, as well as the improvements introduced on the property, [were] thereby
forfeited. The letter also made a formal demand on the [private respondent] to vacate the
property should she not heed the demand of [petitioners] to sign a contract of lease for her
continued stay in the property .
ISSUES:
I.whether the requirement of a judicial demand or a notarial act has been fulfilled.
"II Whether the automatic forfeiture clause is valid and binding between the parties."
"III Whether the action for consignation may prosper without actual deposit [in court] of the
amount due xxx [so as] to produce the effect of payment."

HELD:
1.
Art. 1592 of the new Civil Code (Art. 1504 of the old Civil Code) requiring demand by suit or
notarial act in case the vendor of realty wants to rescind does not apply to a contract to sell or
promise to sell, where title remains with the vendor until" full payment of the price.
In the present case, the Deed of Conditional Sale is of the same nature as a saleoninstallment or a
contract to sell, which is not covered by Article 1592.
Petitioners-vendors unmistakably reserved for themselves the title to the property until full
payment of the purchase price by the vendee. Clearly, the agreement was not a deed of sale, but
more in the nature of a contract to sell or of a sale on installments.[13] Even after the execution
of the Deed of Conditional Sale, the Torrens Certificate of Title remained with and in the name
of the vendors.
II.
As a general rule, a contract is the law between the parties.[15] Thus, "from the moment the
contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all consequences which, according to their nature, may be in keeping with
good faith, usage and law."[16] Also, "the stipulations of the contract being the law between the
parties, courts have no alternative but to enforce them as they were agreed [upon] and written,
there being no law or public policy against the stipulated forfeiture of payments already
made."[17] However, it must be shown that private respondent-vendee failed to perform her
obligation, thereby giving petitioners-vendors the right to demand the enforcement of the
contract.
We concede the validity of the automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the vendee to pay three

66

successive monthly installments or any one yearend lump sum payment. However, petitioners
failed to prove the conditions that would warrant the implementation of this clause.
It is clear that petitioners were not justified in refusing to accept the tender of payment
made by private respondent on December 30 and 31, 1990. Had they accepted it on either of said
dates, she would have paid all three monthly installments due. In other words, there was no
deliberate failure on her part to meet her responsibility to pay.[18] The Court takes note of her
willingness and persistence to do so, and, petitioners cannot now say otherwise. The fact is: they
refused to accept her payment and thus have no reason to demand the enforcement of the
automatic forfeiture clause. They cannot be rewarded for their own misdeed.
Because their maid had received monthly payments in the past,[19] it is futile for
petitioners to insist now that she could not have accepted the aforementioned tender of payment,
on the ground that she did not have a special power of attorney to do so. Clearly, they are
estopped from denying that she had such authority. Under Article 1241 of the Civil Code,
payment through a third person is valid "[I]f by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the payment."
III.
It would be inequitable to allow the forfeiture of the amount of more than two million
pesos already paid by private respondent, a sum which constitutes two thirds of the total
consideration. Because she did make a tender of payment which was unjustifiably refused, we
hold that petitioners cannot enforce the automatic forfeiture clause of the contract.

144 scra 693, February 17, 2005

G.R. No. 126780

MCLAUGHLIN versus CA
FACTS:
Maurice McLaughlin is an Australian national who comes to the Philippines for business.
During his trips he stays in Tropicana, a hotel recommended to him by Brunhilda Tan.
McLaughlin deposited cash and jewelry to the safety deposit box of the Hotel. The safety deposit
box cannot be opened unless the key of the guest and that of the management are present. Lainez
and Payam are employees of Tropicana who is charged with the custody of the keys. Thereafter,
McLaughlin found out that some of the money and jewelry he deposited were missing. Lainez
and Payam admitted that they assisted Tan to open his deposit box. Tan admitted that she stole
McLaughlins keys. Tan executed a promissory note to cover the amount of the stolen money
and
jewelry.
McLaughlin
wanted
to
make
the
management
liable.

67

ISSUE:
Whether or not a hotel may evade liability for the loss of items left with it for safekeeping
by its guests, by having these guests execute written waivers holding the establishment or its
employees free from blame for such loss in light of Article 2003 of the Civil Code which voids
such.waivers.

HELD:
The issue of whether the Undertaking For The Use of Safety Deposit Box executed by
McLaughlin is tainted with nullity presents a legal question appropriate for resolution in this
petition. Notably, both the trial court and the appellate court found the same to be null and void.
We find no reason to reverse their common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the
effect that he is not liable for the articles brought by the guest. Any stipulation between the hotelkeeper and the guest whereby the responsibility of the former as set forth in Articles 1998 to
2001
is
suppressed
or
diminished
shall
be
void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy
precisely to apply to situations such as that presented in this case. The hotel business like the
common carriers business is imbued with public interest. Catering to the public, hotelkeepers
are bound to provide not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The law in turn does not allow
such duty to the public to be negated or diluted by any contrary stipulation in so-called
undertakings that ordinarily appear in prepared forms imposed by hotel keepers on guests for
their signature.

142 SCRA 81 May 27, 1986

G. R. No. L-45510

LEGASPI versus COURT OF APPEALS

FACTS
Bernardo B. Legaspi is the registered owner of two parcels of land which he sold to his
son-in-law, Leonardo B. Salcedo on October 15, 1965 for the sum of Php25, 000 with the right
to repurchase the same within 5 years from the execution of the deed of sale. Before the expiry
date of the repurchase period Legaspi offered and tendered to Salcedo the amount of Php25,000
for the repurchase of the two parcels of land; that the tender of payment was refused by Salcedo
on the ground that the repurchase price should have been Php42,250 due to extraordinary
inflation. Salcedo, furthermore; refused to convey the property to Legaspi. As a result of
his refusal, Legaspi consigned with the CFI of Cavite the amount of Php25, 000.

68

ISSUE
Whether or not the prior offer and tender of payment of the amount of Php25, 000 is valid
as to warrant re conveyance of the parcels of land.
HELD
YES. Tender of payment is the manifestation made by the debtor to the creditor of his
desire to comply with his obligation, with the offer of immediate performance. Generally, it is an
act preparatory to consignation as an attempt to make a private settlement before proceeding to
the solemnities of consignation. Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or refuses to accept payment and it
generally requires a prior tender of payment. In instances where no debt is due and owing,
consignation is not proper. In the previous cases of Villegas v. Capistrano, 9 Phil. 416; Rosales
v. Reyes, et al., 25 Phil. 495; Paez, et al. v. Magno, 46 O.G. p. 5425, the Supreme Court held
that: Consignation is not required to preserve the right of repurchase as a mere tender
of payment is enough if made on time as a basis for an action to compel the vendee a retro to
resell the property.
Since the case at bar involves the exercise of the right to repurchase, a showing that
petitioner made a valid tender of payment is sufficient. It is enough that a sincere or genuine
tender of payment and not a mock or deceptive one was made. The fact that he deposited the
amount of the repurchase money with the Clerk of Court was simply an additional security for
the petitioner. It was not an essential act that had to be performed after tender of payment was
refused by the private respondent although it may serve to indicate the veracity of the desire to
comply with the obligation. Legaspi offered and tendered the amount to Salcedo within the five
year period that he is allowed to repurchase the property. The court held that the argument of
Salcedo in refusing.

121 SCRA 314

Vda. De Zulueta vs. Octaviano

FACTS
Olimpia Fernandez Vda. De Zulueta registered owner of 5.5 hectares of Riceland sold the
lot to Aurelio B. Octaviano subject to the vendor, her heirs, assigns, executors and administrators
sells, transfers, and conveys as it is hereby sold transferred and conveyed by way of absolute and
definite sale.On September 8, 1954 Aureliovsold the land to his brother Isauro a deed of absolute
sale. Olimpia through her lawyer wants to repurchase the Riceland from Isauro.

69

ISSUE
Whether or not Olimpia can repurchase the Riceland
HELD
No. The Court of Appeals ruled that the transaction between Olimpia and Aurelio was an
absolute sale, and declared Isauro the lawful and absolute owner of the lot in question.
Once the instrument of absolute sale is executed, the vendor can no longer reserved the
right of repurchase, and any right thereafter granted the vendor by the vendee,
pactumcommisssorium took part in the sale of Olimpia and Aurelio.
PactumCommisssoriumis a stipulation for automatic vesting of the title over the security
in the creditor in the case of the debtors default. It bears reiterating, however, that Olimpia was
not a debtor, but a vendor. She was so describe in the document; Olimpia owed nothing to
Aurelio, and offered nothing to him as security for the payment of any indebtedness.

147 SCRA 77
Hulganza versus Court of Appeals

FACTS
Matilde Collamar sold the lot 161 Pls 256 in Barrio Mina Otoc, Calatrava, Negros
Occidental to BasiliaGemarino in the amount of 10,000.00 Php. On April 13, 1972
MatildeCollamar filed a complaint to repurchase the said property under the provision of Sec.
119 of Public Land Act 141 as amended.
ISSUE
Whether or not Matilde Collamar has the right to repurchase the property?
HELD
YES, declaring that the plaintiff have the legal right to exercise of redemption over the lot
in question. Ordering the defendant to allow the plaintiff to exercise said right of legal
redemption out the original purchase price of 10,000.00 Php, which is the principal obligation
with accumulated interest, at the legal rate from the date of the execution of the deed of sale up
to and until the time of repurchase .
The formal offer to redeem, accompanied by a bona fide ender of the redemption price,
within the period of redemption prescribed by law, is only essential to preserve the right of
redemption for future enforcement be on d such period of redemption and within the period
prescribed for he action by the statute of limitation. Where as in instant case, the right to redeem
is exercise thru the filing of judicial action within the period of redemption prescribed by the

70

law, the formal offer to redeem accompanied by a bona fide tender of the redemption price,
might be proper, but is not essential. The filing of the action itself within the period of
redemption is equivalent to a formal offer to redeem. Any other construction, particularly with
reference to redemption of homestead conveyed to third parties, would work hardship on the
poor homesteaders who cannot be expected to know the subtleties of the law, and would defeat
the evident purpose of public land laws to give the homesteader or patentee every chance to
preserve for himself and his family the land that the state granted him as a reward for his labor in
cleaning and cultivating it.

DECEMBER 03, 2001

HEIRS OF LUIS BACUS versus CA

FACTS:
On June 1, 1984, Bacus leased to private respondent Faustino Duray a parcel of
agricultural land. The lease was for 6 years ending May 31, 1990. The contract contained an
option to buy clause which had the exclusive & irrevocable right to buy the property within 5 yrs
after the effectivity of contract. Close to the expiration, Bacus died. Duray informed the heir of
Bacus that they are willing & ready to purchase the property under option to buy. However,
Petitioner Bacus refuse to sell the property without first receiving the payment of purchase price
before the land would be delivered to Duray which the latter filed a complaint.
ISSUE:
WON Duray opted to buy the property covered by lease contract with option to buy, were they
already required to deliver the money or consign it in court before petitioner execute the deed of
transfer?
\
WON did Duray incur in delay when they did not deliver the purchase price or consign it in court
on or before the expiration of the contract?
HELD:
The obligation under option to buy is a reciprocal obligation. The performance of one
obligation is conditioned on the simultaneous fulfillment of the other obligation. The payment of
the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale
by the debtor.
In this case, private respondent Duray opted to buy the property, their obligation was to
advise petitioner of their decision & readiness to pay the price. They were not obliged to make
actual payment. Only upon execution of deed of sale were they required to pay.
Notice of the creditors decision to exercise his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to the owner of the property upon performance

71

of his part of the agreement. Consequently, since the obligation was not yet due, consignation in
court of the purchase price was not yet required (Nietes vs CA, 46 SCRA 654).
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender of
payment. Consignation is not proper because the debt is not due and owing.
Under Art. 1169, provides that reciprocal obligation, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper manner with what is incumbent upon
him. Only from the moment one of the parties fulfills his obligation, does delay by the other
begins.
In this case, private respondent Duray already communicated their interest to buy before
the contact expires & it was the petitioner who refused because they want the money first. Thus,
as there was no compliance yet with what is incumbent upon the petitioner, PR had not incurred
delay when the cashiers check was issued even after the contract expired.

February 24, 1994

G.R. No. 107112

NAGA TELEPHONE CO. VS. CA

FACTS:
NATELCO: telephone company rendering local and long distance services in Naga
entered into contract with Camarines Sur II Electric Cooperative (electrice power service): For
the use in operation of its telephone service, electric light posts of CASURECO II. Period: as
long as NATELCO needs electric light posts, CASURECO understands that contract will
terminate when they are forced to stop, abandon operation and remove lightposts.
CASURECO after 10 years filed for reformation of contract with damages, not conforming
to guidelines of National Electrification Administration (NEA)- reasonable compensation for use
of posts. Compensation is P10/posts but consumption of telephone cables costs
P2630. NATELCO used 319 posts without any contract at P10.00, refused to pay. Poor
servicing- damage not less than P100,000.

ISSUE:

WON Article 1267 is applicable,and has the filing of reformation of contract prescribed and is
the period of contract, as long as the party of the first part has need for electrive light posts
potestative?

72

HELD:
ARTICLE 1267, IS APPLICABLE. Art. 1267. When the service has become so
difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.
PRESCRIPTION HAS NOT YET LAPSED,What is reformed is not the contract itself,
but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the
determination of the period for prescription of the action to reform.

272 SCRA 183

PNCC VS. CA

FACTS:
On 18 November 1985, private respondents and petitioner entered into a contract of
lease of a parcel of land owned by the former. The terms and conditions of said contract of lease
are as follows: a) the lease shall be for a period of five (5) years which begins upon the issuance
of permit by the Ministry of Human Settlement and renewable at the option of the lessee under
the terms and conditions, b) the monthly rent is P20, 000.00 which shall be increased yearly by
5% based on the monthly rate, c) the rent shall be paid yearly in advance, and d) the property
shall be used as premises of a rock crushing plan.
On January 7, 1986, petitioner obtained permit from the Ministry which was to be valid
for two (2) years unless revoked by the Ministry. Later, respondent requested the payment of the
first annual rental. But petitioner alleged that the payment of rental should commence on the date
of the issuance of the industrial clearance not on the date of signing of the contract. It then
expressed its intention to terminate the contract and decided to cancel the project due to financial
and technical difficulties. However, petitioner refused to accede to respondents request and
reiterated their demand for the payment of the first annual rental. But the petitioner argued that it
was only obligated to pay P20, 000.00 as rental for one month prompting private respondent to
file an action against the petitioner for specific performance with damages before the RTC of
Pasig. The trial court rendered decision in favor of private respondent. Petitioner then appealed
the decision of the trial court to the Court of Appeals but the later affirmed the decision of the
trial court and denied the motion for reconsideration.

ISSUE:

73

Whether or not petitioner can avail of the benefit of Article 1267 of the New Civil Code.

HELD:
NO. The petitioner cannot take refuge of the said article. Article 1267 of the New Civil
Code provides that when the service has become so difficult as to manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part. This
article, which enunciates the doctrine of unforeseen events, is not, however an absolute
application of the principle of rebus sic stantibus, which would endanger the security of
contractual relations. The parties to the contract must be presumed to have assumed the risks of
unfavorable developments. It is therefore only in absolutely exceptional chances of
circumstances that equity demands assistance for the debtor. The principle of rebus sic stantibus
neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to
exist.
In this case, petitioner averred that three (3) abrupt change in the political climate of the
country after the EDSA Revolution and its poor financial condition rendered the performance of
the lease contract impractical and inimical to the corporate survival of the petitioner. However,
as held in Central Bank v. CA, mere pecuniary inability to fulfill an engagement does not
discharge a contractual obligation, nor does it constitute a defense of an action for specific
performance.

JUNE 28, 1988

G.R. No. L-67649
ENGRACIO FRANCIA versus INTERNATIONAL APPELLATE COURT

FACTS:
Francia owned a 328 square meters lot in Pasay, On October 15, 1977 the Republic of the
Philippines expropriated125 square meters of his lot for the sum of P 4,116.00, Francias real
property tax covering the year 1963 to 1977 was not paid, causing the City Treasure of Pasay to
sell it in a public auction pursuant to sce. 73 of PD 464. His delinquency amounted to P2, 400.00
Ho Fernandez was the highest bidder for the property.

74

ISSUE:
Whether or not, IAC committed a grave error of law in not holding Fracias obligation to
pay P2,400.00 for supposed tax delinquency off-set by the amount of P4,116.00 which the
government is indebted to him.

HELD:
There is no legal basis for the contention. By legal compensation, obligation of person
who in their own right are reciprocal debtors and creditors of each other, are extinguished (ART.
1278, CC). The circumstances of the case do not satisfy the requirements provided by Article.
1279.
The principal contention of the petitioner has no merit. (SC); we have consistently ruled
that there can be no off-setting of taxes against the claim that the taxpayer may have against the
Government. A person cannot refuse to pay tax on the ground that the government owes him an
amount equal to or greater than the tax was being collected. The collection of the tax cannot
await the result of the lawsuit against the government.

310 scra 657

EGV REALITY versus CA

FACTS:
Petitioner E.G.V. Realty Development Corporation is the owner/developer of a sevenstorey condominium building known as Cristina Condominium. Cristina Condominium
Corporation holds title to all common areas of Cristina Condominium and is in charge of
managing, maintaining and administering the condominiums common areas and providing for
the buildings security. Respondent Unisphere International, Inc. (hereinafter referred to as
Unisphere) is the owner/occupant of Unit 301 of said condominium. On November 28, 1981,
respondent Unispheres Unit 301 was allegedly robbed of various items valued at P6,165.00. The
incident was reported to petitioner CCC. On July 25, 1982, another robbery allegedly occurred at
Unit 301 where the items carted away were valued at P6,130.00, bringing the total value of items
lost to P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982,
respondent Unisphere demanded compensation and reimbursement from petitioner CCC for the
losses incurred as a result of the robbery. On January 28, 1987, petitioners E.G.V. Realty and
CCC jointly filed a petition with the Securities and Exchange Commission (SEC) for the
collection of the unpaid monthly dues in the amount of P13,142.67 against respondent
Unisphere.

75

ISSUE:
Whether or not set-off or compensation has taken place in the instant case.
HELD:
We fully agree with the appellate courts dissertation on the nature and character of a setoff or compensation. However, we cannot subscribe to its conclusion that a set-off or
compensation took place in this case.
In Article 1278 of the Civil Code, compensation is said to take place when two persons, in their
own right, are creditors and debtors of each other. Compensation is a mode of extinguishing to
the concurrent amount, the obligations of those persons who in their own right are reciprocally
debtors and creditors of each other and the offsetting of two obligations which are reciprocally
extinguished if they are of equal value, or extinguished to the concurrent amount if of different
values. Article 1279 of the same Code provides:
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
Absent any showing that all of these requisites exist, compensation may not take place.
WHEREFORE, respondent is hereby ordered to pay petitioner the rent. Further, petitioner is
hereby ordered to pay respondent the cost of the lost.

132 SCRA 448 (1984)

UY TONG versus SILVA
FACTS:
Spouses failed to pay the balance of the purchased, due to this Bayanihan filed an action
for specific performance. The trial court rendered a judgment in favor of Bayanihan ordering the
defendant to pay the balance to the plaintiff and in the event of failure to do so , they are hereby
to execute the deed of absolute sale and or the assignment of the leasehold right. An order for
execution pending appeal was issued by the trial court and a deed of assignment was executed by
the Spouses over the apartment together with the leasehold right over the land on which the
building stands. Notwithstanding the execution of the deed of assignment the SPOUSES
remained in possession of the premises. Despite the expiration of the said period, the SPOUSES
failed to surrender possession of the premises in favor of BAYANIHAN. This prompted

76

BAYANIHAN to file an ejectment case against them. This action was however dismissed on the
ground that BAYANIHAN was not the real party in interest, not being the owner of the building.
After demands to vacate the subject apartment made by BAYANIHAN's counsel was again
ignored by the SPOUSES, an action for recovery of possession with damages was filed. The case
was decided in favor of bayanihan. Not satisfied with this decision, the SPOUSES appealed to
the Court of Appeals. The respondent Court of Appeals affirmed in toto the decision appealed
from. A motion for reconsideration of the said decision was denied by the respondent Court.

ISSUE:
WON the deed of assignment is null and void because it is in the nature of a Pactum
commissorium and/or was borne out of the same.

HELD:
The prohibition on pactum commissorium stipulations is provided for by Article 2088 of
the Civil Code: Art. 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of the same. Any stipulation to the contrary is null and void. The
aforequoted provision furnishes the two elements for pactum commissorium to exist:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way
of security for the payment of the principal obligation; and
(2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
pledged or mortgaged in the event of non-payment of the principal obligation within the
stipulated period. A perusal of the terms of the questioned agreement evinces no basis for the
application of the pactum commissorium provision. First, there is no indication of 'any contract
of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and
purchase of trucks. Second, there is no case of automatic appropriation of the property by
BAYANIHAN. When the SPOUSES defaulted in their payments of the second and third
installments of the trucks they purchased, BAYANIHAN filed an action in court for specific
performance. The trial court rendered favorable judgment for BAYANIHAN and ordered the
SPOUSES to pay the balance of their obligation and in case of failure to do so, to execute a deed
of assignment over the property involved in this case. The SPOUSES elected to execute the deed
of assignment pursuant to said judgment.

77

232 SCRA 302 (1994)

Bank of Philippine Islands

vs
Court of Appeals
FACTS:
Benjamin Napiza maintains an account with the Bank of the Philippine Islands (BPI). In
1987, Napiza was approached by Henry Chan and the latter gave him a $2,500 Continental Bank
Managers check. Chan asked if Napiza can deposit the check to his (Napizas BPI account) by
way of accommodation and for the purpose of clearing the said check. Napiza agreed and so he
deposited the check on September 3, 1987. Napiza then delivered a signed blank withdrawal slip
to Chan with the condition that the $2,500.00 may only be withdrawn if the check cleared. For
some reason, the withdrawal slip ended up in the hands of one Ruben Gayon who went to BPI
and successfully withdrew the $2,500.00. At the time of the withdrawal, the check was not yet
cleared. Then days later, BPI was notified by the drawee bank named in the check that the check
is actually a counterfeit.
ISSUE:
Whether or not Napiza may be held liable to refund the amount of the check.

HELD:

No. The Supreme Court ruled that ordinarily, Napiza would have been liable because he
is an accommodation indorser. But due to the attendant circumstances, Napiza is discharged
from liability. The withdrawal slip indicates as well as the rules promulgated by BPI that
withdrawal from the bank should be accompanied by the presentment of the account holders
(Napizas) savings bankbook. This was not done so in the case at bar because Gayon was able to
withdraw without it. Further, BPI allowed the withdrawal even before the check cleared. BPI
already credited the $2,500.00 to Napizas account even without the drawee bank clearing the
check. This is contrary to common banking practices and because of such negligence and lack of
diligence, BPI, as the collecting bank, shall suffer the loss.

78

November 22, 2006

G.R. No. 152984

KWONG vs. GARGANTOS

FACTS:
Petitioner William G. Kwong is the owner of fifteen (15) lots. In a Deed of Conditional
Sale, petitioner sold said lots to respondents Anacleto Gargantos, Remy Santos and Lorna Arceo
for the sum of $137,255.00 payable in two installments, with $10,000.00 being paid by
respondents at the time of the execution of the contract, and the balance to be paid on or before
December 15, 1986. When respondents failed to pay the balance on the expected date, it was
subsequently agreed that the same shall be paid on a staggered basis starting March 1989.
Respondents, however, again failed to comply with their obligation.
On May 1, 1990, Atty. Ramon Gargantos (brother of respondent Anacleto Gargantos),
armed with a Special Power of Attorney executed by respondents, paid the amount of
P1,776,200.00. Thereafter, petitioner and Atty. Gargantos executed a notarized Deed of Absolute
Sale, wherein petitioner sold to respondent Gargantos 11 out of the 15 lots for the sum of
P500,000.00, and Atty. Gargantos signed a Promissory Note for the payment of the amount of
P373,074.95, on or before June 30, 1990, representing the unpaid balance of the purchase
covering the remaining four lots.
Again, respondent Gargantos failed to pay the agreed amount, forcing petitioner to write
subsequent demand letters on various dates. Respondent Gargantos, through counsel, finally
answered, claiming that it was petitioner who did not comply with his undertaking to transfer 11
of the 15 titles to respondents prior to the payment of the balance, with the remaining four titles
to be transferred afterwards.
On November 14, 1996, petitioner filed before the RTC a complaint for the rescission of
the Deed of Conditional Sale and forfeiture of all the payments made by respondents.

ISSUE:
Whether or not the said deed of conditional sale has been superseded or novated by the
subsequent execution of the deed of absolute sale dated May 1, 1990.

HELD:
Yes. Novation is the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first, either by changing the
object or principal conditions, or, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.

79

Under Article 1292 of the Civil Code, in order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point incompatible with each other. The parties
to a contract must expressly agree that they are abrogating their old contract in favor of a new
one. In the absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point.
In this case, an examination of the Deed of Absolute Sale and the Promissory Note, as
well as the surrounding circumstances of this case, shows that it was meant to novate and replace
the Deed of Conditional Sale.
The fact that the Deed of Absolute Sale of the 11 lots was executed even without
respondents having fully paid the purchase price for the entire 15 parcels of land covered by the
Deed of Conditional Sale enforces the conclusion that the parties intended to enter into a new
agreement and discard the old one; otherwise, petitioner could have enforced his right to rescind
the contract by filing a complaint instead of dealing anew with respondents and entering into the
succeeding agreements. What subsequently occurred was a segregated sale of the 11 lots, while
the Promissory Note covered the remaining four lots.

334 SCRA 186, June 22, 2000

G.R. No. 116805
MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and RENE G.
DIAZ, respondents

FACTS:
Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley
Condominium, Valley Golf Subdivision, Antipolo, Rizal. Respondent originally occupied the
condominium unit in question in 1987 as a lessee.[ While he occupied the premises as lessee,
petitioner agreed to sell the condominium unit to respondent by installments. The agreement to
sell was provisional as the consideration was payable in installments.On November 29, 1991,
Mario S. Espina and Rene G. Diaz executed a Provisional Deed of Sale, whereby the former sold
to the latter the aforesaid condominium unit for the amount of P100,000.00 to be paid upon the
execution of the contract and the balance to be paid through PCI Bank postdated checks.
On July 26, 1992, private respondent sent petitioner a "Notice of Cancellation" of the Provisional
Deed of Sale. However, despite the Notice of Cancellation from private respondent, the latter
accepted payment from petitioner per Metrobank Check No. 395694 dated and encashed on
October 28, 1992 in the amount of P 100,000.00.
On February 24, 1993, private respondent filed a complaint docketed as Civil Case No. 2104 for
Unlawful Detainer against petitioner before the Municipal Trial Court of Antipolo, Branch 1.

80

On November 12, 1993, the trial court rendered its decision ordering the defendant to vacate
unit , pay the total arrears of P126,000.00, covering the period July 1991 up to the filing (sic)
complaint, and to pay P7,000.00 every month thereafter as rentals unit (sic) he vacates the
premises; to pay the amount of P5,000.00 as and attorney's fees; the amount of P300.00 per
appearance, and costs of suit. However, the plaintiff may refund to the defendant the balance
from (sic) P400,000.00 after deducting all the total obligations of the defendant as specified in
the decision from receipt of said decision.
Petitioner filed with the Court of Appeals a petition for review but Court of Appeals
promulgated its decision reversing the appealed decision and dismissing the complaint for
unlawful detainer with costs against petitioner Espina.
Hence, this appeal via petition for review on certiorari

ISSUE:
Whether the Court of Appeals erred in ruling that the provisional deed of sale novated the
existing contract of lease and that petitioner had no cause of action for ejectment against
respondent Diaz.

HELD:
The question is, did the provisional deed of sale novate the existing lease contract? The
answer is no. The novation must be clearly proved since its existence is not presumed."In this
light, novation is never presumed; it must be proven as a fact either by express stipulation of the
parties or by implication derived from an irreconcilable incompatibility between old and new
obligations or contracts. Novation takes place only if the parties expressly so provide, otherwise,
the original contract remains in force. In other words, the parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one. Here there is no clear
agreement to create a new contract in place of the existing one, novation cannot be presumed to
take place, unless the terms of the new contract are fully incompatible with the former agreement
on every point. Thus, a deed of cession of the right to repurchase a piece of land does not
supersede a contract of lease over the same property.
In this case, the unpaid rentals constituted the more onerous obligation of the respondent
to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action
for ejectment survives. Thus, the Court of Appeals erred in ruling that the payment was
"additional payment" for the purchase of the property.
WHEREFORE, the Court GRANTS the petition for review on certiorari, and
REVERSES the decision of the Court of Appeals. No costs.

81

164 SCRA 247, August 11, 1988

G.R. No. L-29280

PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,

versus
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y
SYYAP, defendants-appellants.
FACTS:
On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an
undertaking in favor of the plaintiff whereby they both agreed to guarantee absolutely and
unconditionally and without the benefit of excussion the full and prompt payment of any
indebtedness to be incurred on account of credit commercial line in the amount of P900,000.00.
In view of the failure of the defendant corporation to make payment in accordance with the terms
and conditions agreed upon in the Commercial Credit Agreement the plaintiff started to foreclose
extrajudicially the chattel mortgage of defendant Syvel's Incorporated on its stocks of goods,
personal properties and other materials owned by it and located at its stores or warehouses in
Manila.
After the filing of the case and during its pendency defendant Antonio v. Syyap proposed to have
the case settled amicably and to that end a conference was held. Mr. Syyap requested that the
plaintiff dismiss this case because he did not want to have the goodwill of Syvel's Incorporated
impaired, and offered to execute a real estate mortgage on his real property located in Bacoor,
Cavite. But the defendants did not want to agree if the dismissal would mean also the dismissal
of their counterclaim against the plaintiff. Hence, trial proceeded.
The Court of First Instance of Manila, Branch XII ruled sentencing all the defendants to pay the
plaintiff jointly and severally the sum of P601,633.01 with interest thereon at the rate of 11% per
annum from June 17, 1967, until the whole amount is paid, plus 10% of the total amount due for
attorney's fees and the costs of suit. Should the defendants fail to pay the same to the plaintiff,
then it is ordered that all the effects, materials and stocks covered by the chattel mortgages be
sold at public auction in conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law,
and the proceeds thereof applied to satisfy the judgment herein rendered.
ISSUE:
Whether or not the lower court erred in not holding that the obligation secured by the
Chattel Mortgage sought to be foreclosed in the above-entitled case was novated by the
subsequent execution between appellee and appellant Antonio V, Syyap of a real estate mortgage
as additional collateral to the obligation secured by said chattel mortgage.

HELD:
Novation takes place when the object or principal condition of an obligation is changed
or altered. It is elementary that novation is never presumed; it must be explicitly stated or there
must be manifest incompatibility between the old and the new obligations in every aspect. It is

82

clear that the real estate mortgage was evidently taken as additional security for the performance
of the contract.
There is no dispute that the defendants Syyap guaranteed absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any indebtedness incurred by the
defendant corporation under the credit line granted it by the plaintiff.
Therefore this appeal is DISMISSED for lack of merit and the judgment appealed from is
AFFIRMED.

174 SCRA 80 June 8, 1989

G.R. No. 74553

SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, GALICANO
SITON AND JUDGE JUSTINIANO DE DUMO respondents
FACTS:
The private respondent Galicano Siton purchased from Car Traders Philippines, Inc. a
vehicle described as Mitsubishi Celeste two-door with air-conditioning, Engine 2M-62799,
Serial No. A73-2652 and paid P 25,000.00 as downpayment of the price. The remaining balance
of P 68,400.00, includes not only the remaining principal obligation but also advance interests
and premiums for motor vehicle insurance policies.
On August 14, 1979, Siton executed a promissory note in favor of Car Traders
Philippines, Inc. expressly stipulating that the face value of the note which is P 68,400. 00, shall
"be payable, without need of notice of demand, in installments of the amounts following and at
the dates hereinafter set forth, to wit: P 1,900.00 monthly for 36 months due and payable on the
14th day of each month starting September 14, 1979, thru and inclusive of August 14, 1982"
As further security, Siton executed a Chattel Mortgage over the subject motor vehicle in
favor of Car Traders Philippines, Inc.
Alleging that Siton failed to pay the part of the installment which fell due on November
2, 1981 as well as the subsequent installments which fell due on December 2, 1981 and January
2, 1982, respectively. The petitioner filed this action against Galicano Siton and "John Doe."
And to which SIton sold the the vehicle without the consent of Car Traders veichle to John
Doe which eventually turned out it to be Judge de Dumo.
The Regional Trial Court rendered a decision ordering defendants to pay jointly and
severally, the plaintiff, the remaining balance on the motor vehicle reckoned as of January 25,
1982, without additional interest and charges and the claim of one party against the other(s) for
damages, and vice-versa are hereby denied and dismissed. There is no pronouncement as to
costs.
Not satisfied with the decision of the trial court, the petitioner appealed to the
Intermediate Appellate Court. The intermediate Appellate Court affirmed the RTCs decision.

83

Hence, the instant petition was filed, praying for a reversal of the above-mentioned decision in
favor of private respondents.

ISSUE:
Whether or not the Honorable Respondent, the Intermediate Appellate Court erred and
gravely abused its discretion in concluding that there was a valid sale of the mortgaged vehicle
between Siton and De Dumo.
Whether or not the Honorable Respondent, the Intermediate Appellate Court erred and
gravely abused its discretion in holding that the petitioner (plaintiff) and its predecessors-ininterest are bound by the questionable and invalid unnotarized Deed of Sale between Siton and
De Dumo, even as neither petitioner (plaintiff) nor its predecessors-in-interest had knowledge
nor had they given their written or verbal consent thereto.
HELD:
The absence of the written consent of the mortgagee to the sale of the mortgaged property
in favor of a third person, therefore, affects not the validity of the sale but only the penal liability
of the mortgagor under the Revised Penal Code and the binding effect of such sale on the
mortgagee under the Deed of Chattel Mortgage.
The petition is GRANTED and the assailed decision of the Court of Appeals dated April 25,
1986 is hereby REVERSED and SET ASIDE, and a new one entered, ordering the private
respondents Galicano Siton and Justiniano de Dumo, jointly to pay to petitioner Servicewide
Specialists, Incorporated, the total sum of the remaining unpaid balance on the promissory note
with interest thereon at fourteen percent per annum from January 25, 1982 until fully paid, as
well as stipulated attorney's fees and liquidated damages; and to reimburse to petitioner the sum
of P 3,859.90 for the premium payments on the insurance policies over the subject vehicle. Costs
against private respondents.

December 29, 1986

Integrated Construction Services, Inc., et al. vs. Relova

FACTS:
Petitioners sued the respondent MWSS formerly NAWASA, breach of contract.
Meanwhile, the parties submitted the case to arbitration. The Arbitration Board, released the
decision-award which ordered MWSS to pay petitioners P15,518,383.61 - less P2,329,433.41, to
be set aside as a trust fund to pay creditors of the joint venture in connection with the project - or
a net award of P13,188,950.20 with interest.
Subsequently, however, petitioners agreed to give MWSS some discounts in
consideration of an early payment of the award. Upon MWSS' request, the petitioners signed

84

their "Conforme" to the said letter-agreement, and extended the period to pay the judgment less
the discounts. MWSS, however, paid only on December 22, 1972, the amount stated in the
decision but less the reductions provided for in the letter-agreement. Three years thereafter, after
the last balance of the trust fund had been released and used to satisfy creditors' claims, the
petitioners filed a motion for execution against MWSS for the balance due under the decisionaward. Respondent MWSS opposed execution setting forth the defenses of payment and
estoppels.

ISSUE:
Whether or not petitioners are now in estoppel to question the subsequent agreement,
suffice it to state that petitioners never acknowledged full payment.

HELD:
No. Petitioners refused MWSS' request for a conforme or quitclaim. Accordingly, the
award is still subject to execution by mere motion, which may be availed of as a matter of right
any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of
the Rules of Court.

August 9,2001

LICAROS versus GATMAITAN

FACTS:
Abelardo Licaros invested his money worth$150,000 with Anglo-Asean Bank, a money
market placement by way of deposit, based in the Republic of Venatu. Unexpectedly, he had a
hard time getting back his investments as well as the interest earned. He then sought the counsel
of Antonio Gatmaitan, a reputable banker and investor. They entered into an agreement,where a
non-negotiable promissory note was to be executed in favor of Licaros worth $150,000, and that
Gatmaitan would take over the value of the investment made by Licaros with the Anglo-Asean
Bank at the former's expense. When Gatmaitan contacted the foreign bank, it said they will look
into it, but it didn't prosper. Because of the inability to collect,Gatmaitan did not bother to pay
Licaros the value of the promissory note. Licaros, however, believing that he had a right to
collect from Gatmaitan regardless of the outcome, demanded payment, but was ignore. Licaros
filed a complaint against Gatmaitan for the collection of the note. The trial court ruled in favor of
Licaros, but CA reversed.

85

ISSUE:
Whether the memorandum of agreement between petitioner and respondent is one of
assignment of credit or one of conventional subrogation

HELD:
It is a conventional subrogation. An assignment of credit has been defined as the process
of transferring the right of the assignor to the assignee who would then have a right to proceed
against the debtor. Consent of the debtor is not required is not necessary to product its legal
effects, since notice of the assignment would be enough. On the other hand, subrogation of credit
has been defined as the transfer of all the rights of the creditor to a third person, who substitutes
him in all his rights. It requires that all the related parties thereto, the original creditor, the new
creditor and the debtor,enter into a new agreement, requiring the consent of the debtor of such
transfer of rights. In the case at hand, it was clearly stipulated by the parties in the memorandum
of agreement that the express conformity of the third party (debtor) is needed. The memorandum
contains a space for the signature of the Anglo-Asean Bank written therein "with our conforme".
Without such signature, there was no transfer of rights. The usage of the word "Assignment" was
used as a general term, since Gatmaitan was not a lawyer, and therefore was not well-versed with
the language of the law.

January 27, 2006

G.R. No. 146120

DEPARTMENT OF HEALTH vs HTMC ENGINEERS COMPANY,

FACTS:
Petitioner Department of Health (DOH) entered into four OwnerConsultant Agreements
with respondent HTMC Engineers Company involving various infrastructure projects. All four
consultancy agreements for the hospitals were similarly-worded, indicating therein that said
contracts were intended for the preparation of architectural and engineering (A & E) design plans
and bid documents/requirements, and for construction supervision (CS). Sometime in 1996,
respondent was able to complete the A & E services for all four hospitals and the necessary
documents were submitted to petitioner in accordance with the consultancy agreements.
Petitioner requested the amendments to the consultancy agreements which are to divide the
scope of works under the original contracts into two (2) separate contracts. It would seem,
however, that no clear settlement had been reached by the parties in connection with petitioners
proposed amendments to the consultancy agreements, thus, the DOH refused to issue the
necessary notices to proceed with the construction supervision in favor of HTMC.

86

Petitioner filed a complaint and contended that HTMCs refusal to accede to the formers request
for amendment of the consultancy contracts resulted in the rescission of the original agreements,
and that such rescission gave the DOH and its personnel the right to take over the construction
supervision of the projects and to refuse the payment of any amount due HTMC under the
agreements.
ISSUE:
Whether or Not HTMCs refusal to accede to the DOHs request for amendment of the
consultancy contracts resulted in the rescission of the original agreements.
HELD:
HTMCs failure to accept the amendment proposed by the DOH did not, in any way
affect the validity and the subsistence of the four consultancy contracts which bound both parties
upon its perfection. A contract properly executed between parties continue to be the law
between said parties and should be complied with in good faith. There being a perfected contract,
DOH cannot revoke or renounce the same without the consent of the other party. Just as nobody
can be forced to enter into a contract, in the same manner, once a contract is entered into, no
party can renounce it unilaterally or without the consent of the other. It is a general principle of
law that no one may be permitted to change his mind or disavow and go back upon his own acts,
or to proceed contrary thereto, to the prejudice of the other party. As no revision to the original
agreement was ever arrived at, the terms of the original contract shall continue to govern over
both the HTMC and the DOH with respect to the infrastructure projects as if no amendments
were ever initiated. In the absence of a new perfected contract between HTMC and DOH, both
parties shall continue to be bound by the stipulations of the original contract and all its natural
effects

462 SCRA 466 (2005)

GF EQUITY, INC. vs. VALENZONA

FACTS:
GF Equity hired Arturo Valenzona (Valenzona) as head basketball coach of Alaska team.
As head coach, Valenzona was required to comply to his duties such as coaching at all practices
and games scheduled for the team. Under their contract, Valenzona would receive P 35,000.00
monthly and GF Equity will provide him with a service vehicle and gasoline allowance. Under
paragraph 3 of the same contract it was stipulated there that;
If at any time during the contract, the COACH, in the sole opinion of the
CORPORATION, fails to exhibit sufficient skill or competitive ability to coach the team, the
CORPORATION may terminate this contract.

87

Subsequently, Valenzona was terminated. GF equity invoked paragraph 3 of the said

contract. Counsel of Valenzona demands for compensation arising from arbitrary and unilateral
termination of his employment. However, GF equity refused it. Valenzona filed a complaint
before the Regional Trial Court (RTC) of Manila against GF Equity for breach of contract.
Valenzona contends that the condition in paragraph 3 violates Article 1308 of New Civil Code
(NCC). But the RTC dismissed the complaint and affirmed the validity of paragraph 3 on the
grounds that Valenzona was fully aware of entering into a bad bargain.
On appeal, the Court of Appeals (CA) held that the questioned provision in the contract
merely confers upon GF Equity the right to fire its coach upon a finding of inefficiency, a
valid reason within the ambit of its management prerogatives, subject to limitations imposed by
law, although not expressly stated in the clause; and the right granted in the contract can
neither be said to be immoral, unlawful, or contrary to public policy. It concluded, however, that
while the mutuality of the clause is evident, GF Equity abused its right by arbitrarily
terminating Valenzonas employment and opened itself to a charge of bad faith.
ISSUE:
Whether or not paragraph 3 of the contract is violative of the principle of mutuality of
contracts

HELD:
The ultimate purpose of the mutuality principle is thus to nullify a contract containing a
condition which makes its fulfillment or pre-termination dependent exclusively upon the
uncontrolled will of one of the contracting parties.
The contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the contract
that if the coach, in the sole opinion of the corporation, fails to exhibit sufficient skill or
competitive ability to coach the team, the corporation may terminate the contract. The assailed
condition clearly transgresses the principle of mutuality of contracts. It leaves the determination
of whether Valenzona failed to exhibit sufficient skill or competitive ability to coach Alaska
team solely to the opinion of GF Equity. Whether Valenzona indeed failed to exhibit the required
skill or competitive ability depended exclusively on the judgment of GF Equity. In other words,
GF Equity was given an unbridled prerogative to pre-terminate the contract irrespective of the
soundness, fairness or reasonableness, or even lack of basis of its opinion.
To sustain the validity of the assailed paragraph would open the gate for arbitrary and illegal
dismissals, for void contractual stipulations would be used as justification therefor. The nullity of
the stipulation notwithstanding, GF Equity was not precluded from the right to pre-terminate the
contract. The pre-termination must have legal basis, however, if it is to be declared justified

88

September 18, 2009

G.R. No. 164549

PHILIPPINE NATIONAL BANK v. SPOUSES ROCAMORA

FACTS:
Respondent Spouses Rocamora obtained a loan from Philippine National Bank (PNB)
secured by deeds of real estate mortgage and of chattel mortgage. Both the promissory note and
the real estate mortgage deed contained an escalation clause that allowed PNB to increase the
12% interest rate at any time without notice, within the limits allowed by law, when respondents
defaulted in their payment, foreclosure proceedings followed. However, the recovered proceeds
were insufficient to cover the entire loan obligations of respondents; hence a complaint for
deficiency judgment was initiated by PNB.

ISSUE:
WON The PNBs unilateral increase of interest rates violated the principle of mutuality
of contracts

HELD:
YES
Any increase in the rate of interest made pursuant to an escalation clause must be the
result of an agreement between the parties. Thus, any change must be mutually agreed upon;
otherwise, the change carries no binding effect. The stipulation goes against the principle of
mutuality of contract under Article 1308 of the Civil Code. No matter how elaborately worded,
an unconsented increase in interest rates is ineffective if it transgresses the principle of mutuality
of contracts.

July 23, 2010

G.R. No. 171925

SOLIDBANK CORPORATION vs. PERMANENT HOMES,

INCORPORATED
FACTS:
The records disclose that PERMANENT HOMES is a real estate development company,
and to finance its housing project known as the Buena Vida Townhome located within

89

Merville Subdivision, Paraaque City, it applied and was subsequently granted by SOLIDBANK
with an Omnibus Line credit facility in the total amount of SIXTY MILLION PESOS. Of the
entire loan, FIFTY NINE MILLION as time loan for a term of up to three hundred sixty (360)
days, with interest thereon at prevailing market rates, and subject to monthly repricing.
The remaining ONE MILLION was available for domestic bills purchase. To secure the
aforesaid loan, PERMANENT HOMES initially mortgaged three (3) townhouse units within the
Buena Vida project in Paraaque. At the time, however, the instant complaint was filed against
SOLIDBANK, a total of thirty six (36) townhouse units were mortgaged with said bank. Of the
60 million available to PERMANENT HOMES, it availed of a total of 41.5 million pesos
covered by three (3) promissory notes. There was a standing agreement by the parties that any
increase or decrease in interest rates shall be subject to the mutual agreement of the parties. For
the three loan availments that PERMANENT HOMES obtained, the herein respondent argued
that SOLIDBANK unilaterally and arbitrarily accelerated the interest rates without any declared
basis of such increases, of which PERMANENT HOMES had not agreed to, or at the very least,
been informed of. On July 5, 2002, the trial court promulgated its Decision in favor of Solid
bank. Permanent then filed an appeal before the appellate court which was granted; in which
reversed and set aside the assailed decision dated July 5, 2002. Hence, the present petition.

ISSUES:
WON the Honorable Court of Appeals was correct in ruling that the increases in the
interest rates on Permanents loans are void for having been unilaterally imposed without basis.
WON the Honorable Court of Appeals was correct in ordering the parties to enter into
annex press agreement regarding the applicable interest rates on Permanents loan availments
subsequent to the initial thirty-day (30) period.

HELD:
Yes. Although interest rates are no longer subject to a ceiling, the lender still does not
have an unbridled license to impose increased interest rates. The lender and the borrower should
agree on the imposed rate, and such imposed rate should be in writing of which was not provided
by petitioner.
Yes. In order that obligations arising from contracts may have the force of law between
the parties, there must be mutuality between the parties based on their essential quality. A
contract containing a condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties is void. There was no showing that either
Solidbank or Permanent coerced each other to enter into the loan agreements. The terms of the
Omnibus Line Agreement and the promissory notes were mutually and freely agreed upon by the
parties.

90

155 SCRA 394 November 5, 1987

G.R. No. L-65425

Leal versus IAC

FACTS:
On March 21, 1941, a document entitled "Compraventa," written entirely in the Spanish
language, involving three parcels of land, was executed by the private respondent's predecessorsin-interest, Vicente Santiago and his brother, Luis Santiago, in favor of Cirilio Leal the deceased
father of some of the petitioners. In the document, it is stated: En caso de venta, no podran
vender a otros dichos tres lotes de terreno sino al aqui vendedor Vicente Santiago, o los
herederos o sucesores de este por el niismo precio de CINCO MIL SEISCIENTOS PESOS
(P5,600.00) siempre y cuando estos ultimos pueden hacer la compra. Which is admitted by
both parties that the phrase "they shall not sell to others these three lots but only to the seller
Vicente Santiago or to his heirs or successors" is an express prohibition against the sale of the
lots described in the "Compraventa" to third persons or strangers to the contract.
Cirilo Leal immediately took possession and exercised ownership over the said lands. When
Cirilo died on December 10, 1959, the subject lands were inherited by his six children, who are
among the petitioners, and who caused the consolidation and subdivision of the properties among
themselves.
Sometime before 1966-1967, Vicente Santiago approached the petitioners and offered rerepurchase the subject properties. Petitioners, however, refused the offer. Consequently, Vicente
Santiago instituted a complaint for specific performance before the then Court of First Instance
of
Quezon
City
on
August
2,
1967.
All the trial, the court a quo rendered its decision,-dismissing the complaint on the ground that
the same was still premature considering that there was, as yet, no sale nor any alienation
equivalent to a sale. Not satisfied with this decision, the respondent appealed and the
Intermediate Appellate Court reversed the decision ordering the petitioners to allow the
respondent
for
the
re-purchase.

ISSUE:

law,

Whether or not the clause for repurchase in the document Compraventa is contrary to
morals,
good
customs,
public
order,
or
public
policy.

HELD:
Yes. One such condition which is contrary to public policy is the present prohibition to
self to third parties, because the same virtually amounts to a perpetual restriction to the right of
ownership, specifically the owner's right to freely dispose of his properties. This, we hold that

91

any such prohibition, indefinite and stated as to time, so much so that it shall continue to be
applicable even beyond the lifetime of the original parties to the contract, is, without doubt, a
nullity.
WHEREFORE, in view of the foregoing, the Resolution dated September 27, 1983, of
the respondent court is SET ASIDE and the Decision promulgated on June 28, 1978 is hereby
REINSTATED.

February 28, 2007

G.R. No. 163512

DAISY B. TIU, vs. PLATINUM PLANS PHIL., INC.,

FACTS:
Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in
the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing
Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President
and Territorial Operations Head in charge of its Hongkong and Asean operations. The parties
executed a contract of employment valid for five years.
On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became
the Vice-President for Sales of Professional Pension Plans, Inc., a corporation engaged also in
the pre-need industry.Consequently, respondent sued petitioner for damages before the RTC of
Pasig City, Branch 261. Respondent alleged, among others, that petitioners employment with
Professional Pension Plans, Inc. violated the non-involvement clause in her contract
of employment,which prohibits the employee for two years in case of separation,
whether voluntary or for cause, to engage in or be involve with any pre-need corporation. In
upholding the validity of the non-involvement clause, the trial court ruled that contract in
restraint of trade is valid provided that there is a limitation upon either time or place. In the case
of the pre-need industry, the trial court found the two-year restriction to be valid and reasonable.
On appeal, the Court of Appeals affirmed the trial courts ruling. It reasoned that petitioner
entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only
what was expressly stipulated in the contract, but also all its consequences that were not against
good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting nonemployment for two years was valid and enforceable considering the natureof respondents
business. Petitioner moved for reconsideration but was denied.
ISSUE:
Plainly stated, the core issue is whether the non-involvement clause is valid.

HELD:

92

YES, Conformably then with the aforementioned pronouncements, a non-involvement

clause is not necessarily void for being in restraint of trade as long as there are reasonable
limitations as to time, trade, and place. In this case, the non-involvement clause has a time limit:
two years from the time
petitioners employment with respondent ends. It is also limited as to trade, since it
only prohibits petitioner from engaging in any pre-need business akin to respondents. More
significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations
Head in charge of respondents Hongkong and Asean operations, she had been privy
to confidential and highly sensitive marketing strategies.
This case is connected to article 1306 of Civil Code which says The contracting parties may
establish such stipulation, clauses, terms, or conditions, as they may deem convenient, provided
they are not contrary to laws, morals, good customs, public order or public policy.

G.R. No. 171586 January 25, 2010

NATIONAL POWER CORPORATION, Petitioner,
vs.
PROVINCE OF QUEZON and MUNICIPALITY OF PAGBILAO, Respondent.

FACTS:
The Province of Quezon assessed Mirant Pagbilao Corporation (Mirant) for unpaid real
property taxes in the amount of P1.5 Billion for the machineries located in its power plant in
Pagbilao, Quezon. Napocor, which entered into a Build-Operate-Transfer (BOT) Agreement
(entitled Energy Conversion Agreement) with Mirant, was furnished a copy of the tax
assessment.
Napocor protested the assessment before the Local Board of Assessment Appeals (LBAA),
claiming entitlement to the tax exemptions provided under Section 234 of the Local Government
Code (LGC).
The Courts ruled that Napocor is not entitled to any of these claimed tax exemptions and
privileges on the basis primarily of the defective protest filed by the Napocor. Napocor filed a
motion to Refer the Case to the Court En Banc considering that "the issues raised have farreaching consequences in the power industry, the countrys economy and the daily lives of the
Filipino people, and since it involves the application of real property tax provision of the LGC
against Napocor, an exempt government instrumentality."

ISSUE:
Whether Napocor has sufficient legal interest to protest the tax assessment because
without the requisite interest, the tax assessment stands, and no claim of exemption or privilege
can prevail.

93

HELD:
A BOT agreement is not a mere financing arrangement.
Under this concept, it is the project proponent who constructs the project at its own cost
and subsequently operates and manages it. The proponent secures the return on its investments
from those using the projects facilities through appropriate tolls, fees, rentals, and charges not
exceeding those proposed in its bid or as negotiated. At the end of the fixed term agreed upon,
the project proponent transfers the ownership of the facility to the government agency. Thus, the
government is able to put up projects and provide immediate services without the burden of the
heavy expenditures that a project start up requires. A reading of the provisions of the parties
BOT Agreement shows that it fully conforms to this concept. By its express terms, BPPC has
complete ownership both legal and beneficial of the project, including the machineries and
equipment used, subject only to the transfer of these properties without cost to NAPOCOR after
the lapse of the period agreed upon. As agreed upon, BPPC provided the funds for the
construction of the power plant, including the machineries and equipment needed for power
generation; thereafter, it actually operated and still operates the power plant, uses its machineries
and equipment, and receives payment for these activities and the electricity generated under a
defined compensation scheme. Notably, BPPC as owner-user is responsible for any defect in
the machineries and equipment.
If the BOT Agreement under consideration departs at all from the concept of a BOT
project as defined by law, it is only in the way BPPCs cost recovery is achieved; instead of
selling to facility users or to the general public at large, the generated electricity is purchased by
NAPOCOR which then resells it to power distribution companies. This deviation, however, is
dictated, more than anything else, by the structure and usages of the power industry and does not
change the BOT nature of the transaction between the parties.
Consistent with the BOT concept and as implemented, BPPC the owner-manageroperator of the project is the actual user of its machineries and equipment. BPPCs ownership
and use of the machineries and equipment are actual, direct, and immediate, while NAPOCORs
is contingent and, at this stage of the BOT Agreement, not sufficient to support its claim for tax
exemption. Thus, the CTA committed no reversible error in denying NAPOCORs claim for tax
exemption.
Given the special nature of a BOT agreement as discussed in the cited case, we find
Article 1503 inapplicable to define the contract between Napocor and Mirant, as it refers only to
ordinary contracts of sale.
For the foregoing reasons, we DENY the petitioners motion for reconsideration.

94

G.R. No. 134971

March 25, 2004

TAYAG vs. LACSON

FACTS:
Respondents Angelica Tiotuyco Vda. de Lacson and her children were the registered
owners of three parcels of land located in Mabalacat, Pampanga. The properties, which were
tenanted agricultural lands. On March 17, 1996, a group of original farmers individually
executed in favor of the petitioner separate Deeds of Assignment in which the assignees assigned
to the petitioner their respective rights as tenants/tillers of the landholdings possessed and tilled
by them for and in consideration of P50.00 per square meter. On July 24, 1996, the petitioner
called a meeting of the defendants-tenants but on August 8, 1996, the defendants-tenants wrote
the petitioner stating that they were not attending the meeting and instead gave notice of their
collective decision to sell all their rights and interests, as tenants/ lessees, over the landholding to
the respondents.
On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San
Fernando, Pampanga. The petitioner also prayed for a writ of preliminary injunction against the
defendants and the respondents therein. The respondents, thereafter, filed a Motion to
dismiss/deny the petitioners plea for injunctive relief, there petitioner opposed the motion,
contending that it was premature for the trial court to resolve his plea for injunctive relief. On
February 13, 1997, the court issued an Order19 denying the motion of the respondents for being
premature. It directed the hearing to proceed for the respondents to adduce their evidence. The
court ruled that the petitioner, on the basis of the material allegations of the complaint, was
entitled to injunctive relief.

ISSUE:
Whether or not the tiller contracted to sell to the respondent the land promised to the
petitioner is an act of fraud.

HELD:
In fine, one who is not a party to a contract and who interferes thereon is not necessarily
an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his
claim is the letter from the defendants-tenants informing him that they had decided to sell their
rights and interests over the landholding to the respondents, instead of honoring their obligation
under the deeds of assignment because, according to them, the petitioner harassed those tenants
who did not want to execute deeds of assignment in his favor, and because the said defendantstenants did not want to have any problem with the respondents who could cause their eviction for
executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D.

95

G.R.No.L-9356 February18,1915

Gilchrist vs. Cuddy

FACTS:
Cuddy was the owner of the film Zigomar. On April 24, He rented it to C. S. Gilchrist for
a week for P125. A few days to the date of delivery, Cuddy sent the money back to Gilchrist. He
rented the film to Espejo and his partner Zaldarriaga for P350 for the week knowing that it was
rented to someone else and that Cuddy accepted it because he was paying about three times as
much as he had contracted with Gilchrist but they didn't know the identity of the other party
Gilchrist filed for injunction against these parties. The Trial Court and CA, granted - there is a
contract between Gilchrist and Cuddy
ISSUE:
Whether or not Espejo and his partner Zaldarriaga are liable for damages though they do
not know the identity of Gilchrist

HELD:
YES. judgment is affirmed
That Cuddy was liable in an action for damages for the breach of that contract, there can
be no doubt. The mere right to compete could not justify the appellants in intentionally inducing
Cuddy to take away the appellee's contractual rights. Everyone has a right to enjoy the fruits and
advantages of his own enterprise, industry, skill and credit. He has no right to be free from
malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a
result of competition, or theexercise of like rights by others, it is damnum absque injuria(loss
without injury), unless some superior right by contract or otherwise is interfered with
Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting
the film in their theater. There was no malice beyond this desire; but this fact does not relieve
them of the legal liability for interfering with that contract and causing its breach.

So Ping Bun v. CA
FACTS:
In 1963, Tek Hua Trading Co. entered into lease agreements with lessor Dee C. Chuan
and Sons, Inc. involving four (4) premises in Binondo, which the former used to store textiles.
The agreements were for one (1) year, with provisions for month-to-month rental should the
lessee continue to occupy the properties after the term. In 1976, Tek Hua Trading Co. was
dissolved, and the former members formed Tek Hua Enterprises Corp., herein respondent. So

96

Pek Giok, managing partner of the defunct company, died in 1986. Petitioner So Ping Bun, his
grandson, occupied the warehouse for his own textile business, Trendsetter Marketing. On
March 1, 1991, private respondent Tiong sent a letter to petitioner, demanding that the latter
vacate the premises. Petitioner refused, and on March 4, 1992, he requested formal contracts of
lease with DCCSI. The contracts were executed. Private respondents moved for the nullification
of the contract and claimed damages. The petition was granted by the trial court, and eventually
by the Court of Appeals.

ISSUE:
(1) Whether So Ping Bun is guilty of tortuous interference of contract
(2) Whether private respondents are entitled to attorneys fees

HELD:
Damage is the loss, hurt, or harm which results from injury, and damages are the
recompense or compensation awarded for the damage suffered. One becomes liable in an action
for damages for a nontrespassory invasion of another's interest in the private use and enjoyment
of asset if (a) the other has property rights and privileges with respect to the use or enjoyment
interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a legal cause of the
invasion, and (d) the invasion is either intentional and unreasonable or unintentional and
actionable under general negligence rules. The elements of tort interference are: (1) existence of
a valid contract; (2) knowledge on the part of the third person of the existence of contract; and
(3) interference of the third person is without legal justification or excuse. Petitioner's
Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result
petitioner deprived respondent corporation of the latter's property right. Clearly, and as correctly
viewed by the appellate court, the three elements of tort interference above-mentioned are
present in the instant case.In the instant case, it is clear that petitioner So Ping Bun prevailed
upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation.
Though petitioner took interest in the property of respondent corporation and benefited from it,
nothing on record imputes deliberate wrongful motives or malice on him. Petitioner argues that
damage is an essential element of tort interference, and since the trial court and the appellate
court ruled that private respondents were not entitled to actual, moral or exemplary damages, it
follows that he ought to be absolved of any liability, including attorney's fees.

LAGON, vs. CA
FACTS:
On June 23, 1982, petitioner Jose Lagon purchased two parcels of land located at
Tacurong, Sultan Kudarat from theestate of Bai Tonina Sepi. A few months after the sale, private
respondent Menandro Lapuz filed a complaint for torts and damages against petitioner before

97

the Regional Trial Court (RTC) of Sultan Kudarat.Private respondent claimed that he entered
into a contract of lease with the late Bai Tonina Sepi over three parcels of land in Sultan Kudarat,
Maguindanao beginning 1964. It was agreed upon that private respondent will put up
commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by
those tenants would answer for the rent private respondent was obligated to pay Bai Tonina Sepi
for the lease of the land. In 1974, thelease contract ended but was allegedly renewed.When Bai
Tonina Sepi died, private respondent started remitting his rent to the court-appointed
administrator of her estate. But when the administrator advised him to stop collecting rentals
from the tenants of the buildings he constructed, he discovered that petitioner, representing
himself as the new owner of the property, had been collecting rentals from the tenants. He thus
filed a complaint against the latter, accusing petitioner of inducing theheirs of Bai Tonina Sepi to
sell the property to him, thereby violating his leasehold rights over it.Petitioner denied the
allegation, thus contending that the heirs were in dire need of money to pay off the obligationsof
the deceased. He also denied interfering with private respondent's leasehold rights as there was
no lease contractcovering the property when he purchased it; that his personal investigation and
inquiry revealed no claims or encumbrances on the subject lots.On July 29, 1986, the RTC
decided in favor of the private respondent.Petitioner appealed the judgment to the Court of
Appeals. The appellate court affirmed the ruling of the trial courtwith modification.

ISSUE:
Whether or not the purchase by petitioner of the subject property, during the supposed
existence of privaterespondent's lease contract with the late Bai Tonina Sepi, constituted tortuous
interference for which petitioner should be held liable for damages.

HELD:
The Supreme Court affirmed the petition and sets aside the decision of the appellate
court.Before the appellate court, petitioner disclaimed knowledge of any lease contract between
the late Bai Tonina Sepiand private respondent. On the other hand, private respondent insisted
that it was impossible for petitioner not toknow about the contract since the latter was aware that
he was collecting rentals from the tenants of the building.While the appellate court disbelieved
the contentions of both parties, it nevertheless held that, for petitioner to become liable for
damages, he must have known of the lease contract and must have also acted with malice or
badfaith when he bought the subject parcels of land.
Article 1314 of the Civil Code provides that any third person who induces another to violate his
contract shall beliable for damages to the other contracting party.The Court, in the case of
So Ping Bun v. Court of Appeals, laid down the elements of tortuous interference
withcontractual relations: (a) existence of a valid contract; (b) knowledge on the part of the third
person of the existenceof the contract and (c) interference of the third person without legal
justification or excuse.Private respondent presented in court a notarized copy of the purported
lease renewal to show the existence of avalid contract. While the contract appeared as duly
notarized, the notarization thereof, however, only proved its dueexecution and delivery but not

98

the veracity of its contents. Nonetheless, after undergoing the rigid scrutiny of petitioner's
counsel and after the trial court declared it to be valid and subsisting, the notarized copy of the
leasecontract presented in court appeared to be incontestable proof that private respondent and
the late Bai Tonina Sepiactually renewed their lease contract.The second element, on the other
hand, in this case, petitioner claims that he had no knowledge of the lease contract.His sellers
(the heirs of Bai Tonina Sepi) likewise allegedly did not inform him of any existing lease
contract. Eventhe registry of property had no record of the same.To sustain a case for tortuous
interference, the defendant must have acted with malice or must have been driven by purely
impious reasons to injure the plaintiff. In other words, his act of interference cannot be
justified.Furthermore, the records do not support the allegation of private respondent that
petitioner induced the heirs of BaiTonina Sepi to sell the property to him. The records show that
the decision of the heirs of the late Bai Tonina Sepi tosell the property was completely of their
own volition and that petitioner did absolutely nothing to influence their judgment. Private
respondent himself did not proffer any evidence to support his claim.Petitioner's purchase of the
subject property was merely an advancement of his financial or economic interests,absent any
proof that he was enthused by improper motives.In sum, inasmuch as not all three elements to
hold petitioner liable for tortuous interference are present, petitioner cannot be made to answer
for private respondent's losses.This case is one of damnun absque injuria or damage without
injury.

G.R. No. 157391. July 15, 2005

LIMITLESS vs. QUILALA

FACTS:
On October 20, 1987, the Roman Catholic Archbishop of Manila (RCAM), as lessor, and
Limitless Potentials, Inc. (LPI), as lessee, executed a Contract of Lease for advertising purposes
over certain areas, including Lot 28-B, in the property covered by TCT No. 328187where the
Our Lady of Guadalupe Minor Seminary Compound and the San Carlos Seminary Compound
are located.
LPI bound and obliged itself to pay a monthly rental of P11,000.00, with a 10% increase every
two years. Due to a pending case between RCAM and Advertising Associates, LPI was unable
to take possession of the premises. Thus, on November 14, 1989, RCAM and LPI executed an
Amendment to an Agreement, fixing the period for the lease of the premises from
February 1, 1990 to March 1, 1997, with a monthly rental of P12,000.00, to be increased by 10%
every year.
In the meantime, other advertising agencies, including ASTRO Advertising, Inc.
(ASTRO), applied to RCAM for the putting up of neon signs/billboards in the leased
premises. RCAM referred the applications to LPI.

99

LPI wrote RCAM that it would execute the appropriate contracts with the applicants, and
oversee the installation and operation of neon advertising signs; the overlapping of signboards
would be avoided and the area would not be rendered unsightly and unmanageable. It also stated
that the monthly rentals from the agencies shall go to the church to enable it to earn
more. RCAM agreed.
On January 18, 1990, LPI, as sublessor, and ASTRO, as sublessee, executed an
agreement (Sublease Agreement) in which LPI sublet Lot 28-B for a period of five (5) years
from February 1, 1990 to February 1, 1995.
Under the agreement, ASTRO was to remit the rentals for the property directly to
RCAM. RCAM, through a representative, was one of the two witnesses to the deed.
LPI paid the rentals to RCAM until August 1993. ASTRO also paid to RCAM the rentals due
under the Sublease Agreement from February 1, 1990 to July 1, 1993 totaling P832,920.00; LPI,
however, was not credited the rental payments made by ASTRO.
On September 28, 1993, RCAM and LPI executed a Memorandum of Agreement (MOA)
in which RCAM leased to LPI the areas/spaces subject of the lease agreement, including those
sublet to ASTRO for a period of four (4) years, from August 1, 1993 to July 31, 1997. LPI
agreed to pay RCAM monthly rentals in the amount of P60,783.96 payable within the first five
(5) days of the month, with ten (10%) percent annual interest. This MOA expressly cancelled
the prior agreements of the parties. It was, likewise, agreed upon that if the lease were to be
extended after the four-year period, LPI would pay a monthly rental of P97,084.15, payable
within the first five (5) days of the month, with 12% annual increment.
When the sublease to ASTRO expired in February 1995, RCAM did not turn over to LPI the
possession of the sublet advertising spaces/areas; instead, the said areas were leased to
Macgraphics Carranz International Corporation (MCIC) which erected its own billboards and
advertising signs thereon. In a Letter dated February 11, 1997, LPI informed MCIC that it was
the lessee of the premises previously sublet to ASTRO, and demanded that the said billboards be
removed within 24 hours. MCIC ignored the letter, but LPI did not file any action against
RCAM or MCIC.
On October 12, 1995, LPI received a letter from RCAM, informing it that it violated the
MOA, to wit:
1. Non-payment of rentals since March 1995.
2. The misuse of the property since November 1994.
3. The causing of inconvenience, disturbance or nuisance.
RCAM, likewise, declared that it considered the MOA rescinded as of October 31, 1995 and
demanded payment of the alleged back rentals from ASTRO, as well as increments thereof from
March to October 1995 and attorneys fees; and that LPI vacate the property and remove its
billboards or non-permanent structures by October 31, 1995, otherwise, RCAM would dismantle
the same. On October 19, 1995, LPI filed a Complaint against RCAM with the Regional Trial
Court (RTC) of Makati City, for consignation of the amount of P300,000.00 corresponding to the
rentals from March to October 1995, with a plea for a writ of preliminary injunction and
temporary restraining order.
LPI posited that during the second period (from August 1, 1993 to February 1, 1995 when the
sublease expired), ASTROs payments to RCAM had been credited to LPI. Hence, there was no
reason why ASTROs rental payments during the first period should not likewise be credited to
it.

100

ISSUES:
(a) whether or not LPI had overpaid RCAM for rentals due up to February 1, 1995 (insofar as
the sublet spaces are concerned) and October 5, 1995 (insofar as the rest of the leased premises
are concerned), and if so, how much LPI had overpaid;
(b) whether or not LPI had the right to continue to possess the property from the time RCAM
rescinded the MOA, until the expiration of the two-year period; and
(c) whether the amended decision of the RTC ordering RCAM to restore possession of the
property to LPI was immediately executory.

HELD:
On the first issue, the Court agrees with RCAM that LPI was obliged to continue paying
the rentals for the leased premises (except those previously sublet to ASTRO) from March 1995
until October 1995 and up to its eviction there from on October 5, 1996. This is so because LPI
continued to possess and use the same until October 6, 1996 despite the unilateral rescission of
the MOA by RCAM. However, the Court rejects the contention of RCAM that LPI is obliged to
pay rentals for the areas/spaces sublet to ASTRO after February 1995. It bears stressing that,
after the expiration of the sublease agreement between LPI and ASTRO in
February 1995, RCAM did not turn over the said areas/spaces to LPI; instead, it leased the said
areas/spaces to MCIC, in violation of its MOA with LPI. RCAM even dismantled the billboards
of LPI on October 6, 1996.
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except
in cases where the rights and obligations arising from the contracts are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
On the second issue, the appellate court reversed the ruling of the RTC ordering RCAM
to restore possession of the leased property to LPI for a period of 21 months corresponding to the
alleged unused portion of the period set in the MOA: from October 31, 1995 when RCAM
unilaterally rescinded the MOA, to July 31, 1997.
On the last issue, the Court finds and so holds that the RTC did not commit any grave
abuse of discretion in denying LPIs motion for execution of that portion of the amended
decision ordering RCAM to place it in possession of the subject areas/spaces. The execution of
the judgment pending appeal is proper only if the judgment is in favor of the plaintiff and against
the defendant, and not vice versa.

101

G.R. No. 141323 / June 8, 2005

PELAYO vs. PEREZ

FACTS:
David Pelayo (Pelayo),by a Deed of Absolute Sale executed on January 11, 1988,
conveyed to Melki Perez (Perez) two parcels of agricultural land (the lots) situated in Panabo,
Davao which are portions of Lot 4192, Cad. 276 covered by OCT P-16873.
Loreza Pelayo (Loreza), wife of Pelayo, and another one whose signature is illegible witnessed
the execution of the deed.
Loreza, however, signed only on the third page in the space provided for witnesses on
account of which Perez application for registration of the deed with the Office of the Register of
Deeds in Tagum, Davao was denied.
Perez thereupon asked Loreza to sign on the first and second pages of the deed but she
refused.

ISSUE:
Whether or not the deed of sale is null and void?

HELD:
The failure of respondent to register the instrument was not due to his fault or negligence
but can be attributed to Lorenzas unjustified refusal to sign two pages of the deed despite
several requests of respondent; and that therefore, the CA ruled that the deed of sale subject of
this case is valid under R.A. No. 6657.Respondent further maintains that the CA correctly held in
its assailed Decision that there was consideration for the contract and that Lorenza is deemed to
have given her consent to the deed of sale.
CA interpreted Section 4, in relation to Section 70 of R.A. No. 6657, to mean thus: The proper
interpretation of both sections is that under R.A. No. 6657, the sale or transfer of a private
agricultural land is allowed only when said land area constitutes or is a part of the landownerseller retained area and only when the total landholdings of the purchaser-transferee, including
the property sold does not exceed five (5) hectares.
Aside from declaring that the failure of respondent to register the deed was not of his own fault
or negligence, the CA ruled that respondents failure to register the deed of sale within three
months after effectivity of The Comprehensive Agrarian Reform Law did not invalidate the deed
of sale as "the transaction over said property is not proscribed by R.A. No. 6657."
Thus, under the principle of law of the case, said ruling of the CA is now binding on petitioners.
Such principle was elucidated in Cucueco vs. Court of Appeals, to wit:
Law of the case has been defined as the opinion delivered on a former appeal. It is a term applied
to an established rule that when an appellate court passes on a question and remands the case to
the lower court for further proceedings, the question there settled becomes the law of the case

102

upon subsequent appeal. It means that whatever is once irrevocably established as the controlling
legal rule or decision between the same parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long as the facts on which such decision
was predicated continue to be the facts of the case before the court.

244 SCRA 395

Villanueva v. CA
FACTS:
The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husband's sojourn in the United States
since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then
Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose
Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further
facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela
Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but
without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan
she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until
MiguelaVillanueva thereafter found out that new titles over the two (2) lots were already issued
in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original
titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were
again canceled and new titles issued in favor of Andres Sebastian, until finally new titles were
issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after being informed that
the lots were about to be sold at auction. The PVB told her that she can redeem the lots for the
price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the
filing of liquidation proceedings against the PVB on August of 1985.

ISSUE:
Do petitioners have a better right than private respondent Ildefonso Ong to purchase from
the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and
Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300
square meters, respectively?

103

HELD:
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for
this is that: [T]he contract is not perfected except by the concurrence of two wills which exist
and continue until the moment that they occur. The contract is not yet perfected at any time
before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity
before perfection prevents the contractual tie from being formed.
It has been said that where upon the insolvency of a bank a receiver therefor is appointed,
the assets of the bank pass beyond its control into the possession and control of the receiver
whose duty it is to administer the assets for the benefit of the creditors of the bank. Thus, the
appointment of a receiver operates to suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being reposed in the receiver, and in this
respect, the receivership is equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way.
In a nutshell, the insolvency of a bank and the consequent appointment of a receiver
restrict the bank's capacity to act, especially in relation to its property, applying Article 1323 of
the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB
became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the
purported contract of sale between them did not reach the stage of perfection. Corollarily, he
cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy
the disputed properties.

No. L-36249. VOL . 135, MARCH 29, 1985

OBAA vs. CA
FACTS:
On 11/21/1964 Sandoval (owner of Sandovals and Sons Rice Mill) was approached by a
certain Chan Lin who offered to purchase from him 170 cavans of rice at 37.25 per cavan. Both
parties verbally agreed and the following day, the 170 cavans of rice was delivered to La Union
to Petitioner Obaa. The driver of the truck, who was employed by respondent request for the
payment of the rice but Petitioner refused to pay alleging that he had already paid the said
amount to Mr. Chan Lin. Further demands having met with refusal, respondent filed a suit for
Replevin against petitioner. During the trial investigation showed that although Petitioner had
already paid the purchase price to Chan Lin, the latter returned the money to the petitioner.

ISSUE:
WON there is a perfected Contract of Sale.

104

HELD:
Article 1475 of the Civil Code lays down the general rule that there is perfection when
there is consent upon the subject matter and price, even if neither is delivered. There is already a
perfected Sale between Chan Lin and respondent.
Inasmuch as Chan Lin had repaid Obaa the sum of P5,600.00 regarding the rice sold by
the former to the latter but which Chan Lin had not yet returned to respondent the original seller,
petitioner cannot be permitted to unjustly enriched himself by keeping that money and the rice
too. Respondent is entitled to recover the rice, or the value thereof since he was not paid the price
thereof.

238 SCRA 20

PNB vs. CA
FACTS:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered enterprise,
obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine
National Bank (PNB) in the amount of Fifty Thousand (P50,000.00) Pesos, as evidenced by a
Credit Agreement. Under the Promissory Note covering the loan, the loan was to be amortized
over a period of three (3) years to end on March 29, 1985, at twelve (12%) percent interest
annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage over a 1.5542hectare parcel of unregistered agricultural land located at Cambang-ug, Toledo City, which was
appraised by the PNB at P1,062.52 and given a loan value of P531.26 by the Bank. In addition,
(private respondents) executed a Chattel Mortgage over a thermo plastic-forming machine,
which had an appraisal value of P8,800 and a loan value of P4,400.00.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time
without notice, beyond the stipulated rate of 12% but only "within the limits allowed by law.
The PNB informed (private respondents) "that the interest rate of your CIGLF loan
account with us is now 25% per annum plus a penalty of 6% per annum on past dues." The PNB
further increased this interest rate to 30% on October 15, 1984; and to 42% on October 25, 1984.
The records show that as of December 1985, (private respondents) had an outstanding
principal account of P81,000.00 of which P18,523.14 was credited to the principal, P57,488.89
to the interest, and the rest to penalty and other charges. Thus, as of said date, the unpaid
principal obligation of (private respondent) amounted to P62,830.32.

105

Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt the 12% interest and
to condone the present interest and penalties due; but to no avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance against
petitioner PNB and the NACIDA. It was docketed as Civil Case No. CEB-5610, and raffled to
the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7
On February 26, 1990, the trial court dismissed private respondents' complaint in Civil
Case No. CEB-5610. On October 15, 1992, the Court of Appeals reversed the dismissal with
respect to petitioner bank, and disallowed the increases in interest rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave error when it
ruled (1) that the increase in interest rates are unauthorized; (2) that the Credit Agreement and
the Promissory Notes are not the law between the parties; (3) that CB Circular No. 773 and CB
Circular

ISSUE:
Whether or not the actions of PNB is in violation of article 1308 of the Civil Code

HELD:
We cannot countenance petitioner bank's posturing that the escalation clause at bench
gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan.
That would completely take away from private respondents the right to assent to an important
modification in their agreement, and would negate the element of mutuality in contracts. In
Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held

. . . The unilateral action of the PNB in increasing the interest rate on the private respondent's
loan violated the mutuality of contracts ordained in Article 1308 of the Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
In order that obligations arising from contracts may have the force or law between the parties,
there must be mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during the term of the loan,
that license would have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with the character of a contract
of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave it" . . . . Such a contract is a

106

veritable trap for the weaker party whom the courts of justice must protect against abuse and
imposition.

G.R. No. 111238

January 25, 1995

ADELFA PROPERTIES, INC vs. CA et al

FACTS:
Private respondents and their brothers Jose and Dominador were the registered COOWNERS of a parcel of land in Las Pinas, covered by a TCT.
Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter,
Adelfa expressed interest in buying the western portion of the property from private respondents
herein. Accordingly, an exclusive Option to Purchase was executed between Adelfa and
Private respondents and an option money of 50,000 was given to the latter.
A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.
Before Adelfa could make payments, it received summons as a case was filed (RTC
Makati) against Jose and Dominador and Adelfa, because of a complaint in a civil case by the
nephews and nieces of private respondents herein. As a consequence, Adelfa, through a letter,
informed the private respondents that it would hold payment of the full purchase price and
suggested that they settle the case with their said nephews and nieces. Salud did not heed the
suggestion; respondents informed Atty. Bernardo that they are canceling the transaction. Atty
Bernardo made offers but they were all rejected.
RTC Makati dismissed the civil case. A few days after, private respondents executed a
Deed of Conditional Sale in favor of Chua, over the same parcel of land.
Atty Bernardo wrote private respondents informing them that in view of the dismissal of
the case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed
of Absolute Sale be executed. This was ignored by private respondents.
Private respondents sent a letter to Adelfa enclosing therein a check representing the
refund of half the option money paid under the exclusive option to purchase, and requested
Adelfa to return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of
title, hence the private respondents filed a civil case before the RTC Pasay, for annulment of
contract with damages. The trial court directed the cancellation of the exclusive option to
purchase. On appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.

ISSUE:
WON the agreement between Adelfa and Private respondents was strictly an option
contract

107

WON Article 1590 applies in this case, thereby justifiying the refusal by Adelfa to pay
the balance of the purchase price
WON Private respondents could unilaterraly and prematurely terminate the option period,
if indeed it is a option contract, as the option period has not lapsed yet.

HELD:
The judgement of the CA is AFFIRMED
1. NO. The agreement between the parties is a contract to sell, and not an option contract
or a contract of sale.
Contract to SELL
- by agreement the ownership is reserved in the vendor and is not to pass until the full payment
of the price
- title is retained by the vendor until the full payment of the price, such payment being a
positive
Contract of SALE
- the title passes to the vendee upon the delivery of the thing sold
- the vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded
There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price.
(1)
the exclusive option to purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a consequence of nonpayment. There is no stipulation anent reversion or reconveyance of the property to herein
private respondents in the event that petitioner does not comply with its obligation. With the
absence of such a stipulation, although there is a provision on the remedies available to the
parties in case of breach, it may legally be inferred that the parties never intended to transfer
ownership to the petitioner to completion of payment of the purchase price.

229 SCRA 60

Serra vs. CA
FACTS:
Petitioner is the owner of a 374 square meter parcel of land in Masbate, Masbate.
Sometime in 1975, private respondent Rizal Commercial Banking Corp., in its desire to put up a

108

branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered
property. On May 20, 1975, a contract of lease with option to buy was contracted by the parties.
Pursuant to said contract, a binding and other improvements were constructed on the land which
housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of
the contract, petitioner complied with his part of the agreement by having the property registered
and placed under the TORRENS SYSTEM, for which OCT was issued by the Register of Deeds
of the Province of Masbate. Petitioner alleges that as soon as he had the property registered, he
kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It
was not until September 4, 1984, however, when the respondent bank decided to exercise its
option and informed petitioner, of its intention to buy the property at the agreed price of not
greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the
respondent, petitioner replied that he is no longer selling the property.
Hence, a complaint for specific performance and damages were filed by respondent
against petitioner. In the complaint, respondent alleged that during the negotiations it made clear
to petitioner that it intends to stay permanently on property once its branch office is opened
unless the exigencies of the business requires otherwise. Aside from its prayer for specific
performance, it likewise asked for an award of P50,000.00 for attorneys tees PIOO,OOO.OO as
exemplary damages and the cost of the suit.

ISSUES:
1. Whether or not the disputed contract is a contract of adhesion.
2. Whether or not the petitioner may be compelled to exercise the option to buy before the time
expires.
3. Whether or not there was no consideration to support the option, distinct from the price, hence
the option cannot be exercised.

HELD:
1. No. A contract of adhesion is one wherein a party usually a corporation, prepares the
stipulations in the contract while the other party merely affixes his signature or his adhesion
thereto. These types of contract are as binding as ordinary contracts. Because in reality, the party
who adheres to the contract is free to reject it entirely although this Court will not hesitate to rule
out blind adherence to terms where facts and circumstances will show that it is basically onesided.
We do not find the situation in the present case to be inequitable. Petitioner is a highly educated
man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the
contract, was already a CPA, holding a respectable position with the Metropolitan Manila
Commission. It is evident that a man of his stature should have been more cautious in
transactions he enters into, particularly where it concerns valuable properties. He is amply
equipped to drive a hard bargain if he would be so minded to.
2. No. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already a

109

meeting of the minds of the parties as to the thing which is determinate and the price which is
certain. In which case, the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one party
the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a
certain merchandise or properly, at any time within the agreed period, at a fixed price. This being
his prerogative, he may not be compelled to exercise the option to buy before the time expires.
3. Yes. A price is considered certain if it is so with reference to another thing certain or when the
determination thereof is left to the judgment of a specified person or persons. And generally,
gross inadequacy of price does not affect a contract of sale. Contracts are to be construed
according to the sense ai1d meaning of the terms which the parties themselves have used. In the
present dispute, there is evidence to show that the intention of the parties is to peg the price at
P210 per square meter.

Gr No. 109125

238 SCRA 602

Ang Yu vs. CA
FACTS:
Ang Yu and Keh Tiong are tenants of a residential and commercial building owned by
the private respondents Bobby and Rose Ujieng and Jose Tan. They are occupying said space
since 1935 and they are paying their obligation religiously, sometime in October 9, 1986, private
respondents told them that they are selling offering to sell the premises and that they are given
the priority to acquire the same.
The defendants offered to them 6million as a selling price, but the plaintiffs made a
counter offer of 5 million instead. They were ordered to submit letter of request stating their
counter offer which they we able to comply with. The defendants replied and told them to
include the letter with terms and conditions on how they will settle said amount. Plaintiffs did the
same but received no response from them, later on they sent the same letter but sometime in
1987 they found out that defendants are about to sell the property to prospect buyer.

ISSUE:
WON defendants are obliged to sell the property to the plaintiffs alone

HELD:

110

If they decided to sell the property in the amount of 11 million below, plaintiff has the
option to purchase it or on the first refusal, defendants need not to offer the property to them if
the price is above 11 million. Since plaintiffs were able to make counter offer and complied with
what was asked from them, defendants are ordered to issue deed deed of sale in favor of the
plaintiffs with the consideration of 15 million in view of plaintiffs right of first refusal.

G.R. No. 106063/November 21, 1996

EQUATORIAL vs. MAYFAIR

FACTS:
Carmelo entered into a contract with respondent for the latter to lease a portion of the
2nd Floor of a 2-storey with a floor area of 1,610 square meters and the 2nd floor and mezzanine
of the two-storey building with a floor area of 150 square meters. The contract is set for the next
20 years.
Stipulated in the contract was; That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the
LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed
of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and
conditions thereof.
Sometime in 1974, Carmelo through Mr. Pascal by a telephone call told the respondent
that it is contemplating to sell the said property and that a certain Jose Araneta is willing to buy
the same for US$1,200,000. It also asked the respondent if its willing to the property for six to
seven million pesos. Respondent through Mr. Yang told the petitioner that it would respond once
a decision was made.
Four years later, on July 30, 1978, Carmelo sold its entire land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00.
Mayfair instituted the action a quo for specific performance and annulment of the sale of the
leased premises to Equatorial. Carmelos defense; as special and affirmative defense (a) that it
had informed Mayfair of its desire to sell the entire property and offered the same to Mayfair, but
the latter answered that it was interested only in buying the areas under lease, which was
impossible since the property was not a condominium; and (b) that the option to purchase
invoked by Mayfair is null and void for lack of consideration.

111

ISSUE:
Whether or not the OPTION CLAUSE IN THE CONTRACTS OF LEASE IS
ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO

HELD:
The SC agreed with the CA that the aforecited contractual stipulation provides for a right
of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a
contract of a right of first refusal.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the
following language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to B, certain securities or properties within a
limited time at a specified price.
The rule so early established in this jurisdiction is that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must, among other things, indicate the definite
price at which the person granting the option, is willing to sell.

Bible Baptist Church vs. CA

FACTS:
Petitioner Bible Baptist Church entered into a contract of lease with respondents Mr. &
Mrs. Elmer Tito Medina Villanueva who own the subject property, The pertinent stipulations in
the lease contract were:
That the lease shall take effect on June 7, 1985 and shall be for the period of Fifteen (15)
years. That upon signing of the LEASE AGREEMENT, the LESSEE shall pay the sum of
Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to be
paid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of
said property which is mortgaged by the LESSOR. That the LESSEE has the option to buy the
leased premises during the Fifteen (15) years of the lease. If the LESSEE decides to purchase the
premises the terms will be:
A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million),
Philippine Currency. B) A down payment agreed upon by both parties. C) The
balance of the selling price may be paid at the rate of One Hundred Twenty
Thousand Pesos (P120,000.00), Philippine Currency, per year.
Petitioner seeks to buy the leased premises from the spouses Villanueva, under the option
given to them. Petitioners claim that they (Baptist Church) agreed to advance the large amount

112

needed for the rescue of the property but, in exchange, it asked the Villanuevas to grant it a long
term lease and an option to buy the property for P1.8 million. However, the respondents did not
agree
saying
that
there
is
no
separate
consideration.
In this hand, the petitioners argue that there is a consideration the consideration
supporting the option was their agreement to pay off the Villanuevas P84,000 loan with the bank,
thereby freeing the subject property from the mortgage encumbrance. That they would not have
agreed to advance such a large amount as it did to rescue the property from bank foreclosure had
it not been given an enforceable option to buy that went with the lease agreement.
The Baptist Church states that [t]rue, the Baptist Church did not pay a separate and
specific sum of money to cover the option alone. But the P84,000 it paid the Villanuevas in
advance should be deemed consideration for the one contract they entered into the lease with
option to buy. Petitioners further insist that a consideration need not be a separate sum of money.
They posit that their act of advancing the money to rescue the property from mortgage and
impending foreclosure, should be enough consideration to support the option.
On the other hand, Respondents argue that the amount of P84,000 has been fully exhausted and
utilized by their occupation of the premises and there is no separate consideration to speak of
which
could
support
the
option.
The RTC and CA agree with the respondent.

ISSUE:
WON there is a separate consideration that would render the option contract valid and
binding.

HELD:
NO, An option contract, to be valid and binding, needs to be supported by a separate
consideration. The consideration need not be monetary but could consist of other things or
undertakings. However, if the consideration is not monetary, these must be things or
undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when
a consideration for an option contract is not monetary, said consideration must be clearly
specified as such in the option contract or clause.
Petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas
property from the mortgage should be deemed the separate consideration to support the contract
of option. It must be pointed out that said amount was in fact apportioned into monthly rentals
spread over a period of one year, at P7,000 per month. Thus, for the entire period of June 1985 to
May 1986, petitioner Baptist Churchs monthly rent had already been paid for, such that it only
again commenced paying the rentals in June 1986. This is shown by the testimony of petitioner
Pastor Belmonte where he states that the P84,000 was advance rental equivalent to monthly rent
of P7,000 for one year, such that for the entire year from 1985 to 1986 the Baptist Church did not
pay monthly rent.
First, this Court cannot find that petitioner Baptist Church parted with anything of value,
aside from the amount of P84,000 which was in fact eventually utilized as rental payments.
Second, there is no document that contains an agreement between the parties that petitioner

113

Baptist Churchs supposed rescue of the mortgaged property was the consideration which the
parties contemplated in support of the option clause in the contract. As previously stated, the
amount advanced had been fully utilized as rental payments over a period of one year. While the
Villanuevas may have them to thank for extending the payment at a time of need, this is not the
separate
consideration
contemplated
by
law.
This Court also notes that in the present case both the Regional Trial Court and the Court
of Appeals agree that the option was not founded upon a separate and distinct consideration and
that, hence, respondents Villanuevas cannot be compelled to sell their property to petitioner
Baptist.Church.
Having found that the option to buy granted to the petitioner Baptist Church was not
founded upon a separate consideration, and hence, not enforceable against respondents, this
Court finds no need to discuss whether a price certain had been fixed as the purchase price.

472 SCRA 165, October 5, 2005

G.R. No. 158812

Public Estates vs. Bolinao

FACTS:
On February 1, 1990, the PEA, a government corporation, entered into a Contract for
Security Services with Bolinao Security and Investigation Services, Inc. (Bolinao Security), to
secure and protect PEAs properties, personnel and premises at Villa Porta Vaga Subdivision,
Cavite City. The contract was effective February 1, 1990 until January 31, 1991, extendible at
the>option>of>PEA.
In December 1990, PEA published in several newspapers an Invitation to Bid, inviting
interested bidders to participate in the public bidding for Security Services of PEA. In the
invitation to bid, it is stated that PEA reserves the right to reject any proposal or waive any
defects or formality, impose additional terms and conditions and accept the proposal most
advantageous.to.the.Government.
After the contract with Bolinao Security expired on January 31, 1991, it was extended
monthly
by
PEA
up
to
July
29,
1991.
On April 10, 1991, the bids were opened. After bidding, PEAs Prequalification Bids and
Awards Committee (PBAC) issued a Bid evaluation report. The report, noting that Integrated
Security submitted the highest bid in terms of liquidated damages but had no SSS clearance and
Bolinao Security submitted the next highest bid but had no current license to operate,
recommended that Masada Security which proffered the third highest bid be considered the
winning
bidder.

114

Heeding the PBACs recommendation, PEA awarded the contract to Masada Security
effective September 1, 1991 up to April 30, 1993. Bolinao Security refused to turn over the PEA
properties in Cavite City, however, to Masada Security, prompting PEA to send a demand letter
to
Bolinao
Security
to
turn
over
the
property
to
Masada
Security.
Bolinao Security insisted to PEA, however, that it should be declared the winning
bidder. On September 16, 1991, Bolinao Security filed with the Regional Trial Court of Makati a
complaint for annulment of bid award, damages, injunction with special prayer for the issuance
of a temporary restraining order against PEA, averring that, among other things, the attempt of
Masada Security to take over the Cavite City premises from it based on the result of the bidding
was improper, illegal, criminal and violative of the provisions of the Anti-Graft and Corrupt
Practices Act.

ISSUE:

despite

Whether or not Bolinao Security and Investigation Service, Inc. is a qualified bidder
its
non-compliance
with
the
bidding
requirements.

HELD:
PEAs granting of extensions to Bolinao Security after its license expired cannot be
interpreted as a waiver of the requirement of a current license. Extension of the effectivity of the
security service contract cannot be interpreted as an extension of the effectivity of license to
operate
a
security
agency.
In Bureau Veritas v. Office of the President, this Court through the erudite expatiation of
Justice Melencio-Herrera discussed profoundly the legal implications of the right to reject any
or all bids in an invitation to bid, viz: the government has made its choice and unless an
unfairness or injustice is shown, the losing bidders have no cause to complain nor right to dispute
that choice. This is a well-settled doctrine in this jurisdiction and elsewhere. This discretion to
accept or reject a bid and award contracts is vested in the Government agencies entrusted with
that function. The discretion given to the authorities on this matter is of such wide latitude that
the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a
fraudulent
award.
Similarly, in National Power Corporation v. Philipp Brothers Oceanic, Inc., the Supreme Court
declared that where the right to reject is so reserved, the lowest bid or any bid for that matter may
be
rejected
on
a
mere
technicality.
So must Bolinao Security be disqualified.

115

G.R. No. 75120 April 28, 1994

CAYABYAB
vs.
IAC
FACTS:
Respondents Gabriel, Soledad and Francisca, all surnamed Landingin, are children of
respondent Faustino Landingin and the late Agapita Ferrer. Petitioner is the son of Agapita
Ferrer by her first husband, Ludovico Cayabyab, while respondent Amparo Francisco is
petitioner's niece, being the daughter of his sister, Nieves Cayabyab.
In their second amended complaint filed against petitioner before Branch VII of the Court of
First Instance of Pangasinan docketed as Civil Case No. D-5101, private respondents asked for
the annulment of the deeds of sale and the recovery of possession of four parcels of land with
damages. Two of the parcels of land (Lots [a] and [d]) are situated in Dagupan City while the
other two (Lots [b] and [c]) are situated in Barrio Botao, Sta. Barbara, Pangasinan.
ISSUE:
WON consent was attained through fraud?
HELD:
Petitioner's evidence show that: the one-third portion comprising 1,806 square meters
each of Lots (b) and (c) were sold on March 21, 1973 by the spouses to petitioner for a
consideration of P1,000.00 (Exh. "O"; Exh. "10"); the remaining two-thirds portion of the same
lots comprising 3,612 square meters each were sold to petitioner on April 21, 1977 for a total
consideration of P3,612.00 (Exh. "P"; Exh. "9"); and, on the same date, the spouses also sold Lot
(d) to petitioner for a consideration of P5,000.00 (Exh. "N"; Exh. 2). All these transactions were
evidenced by deeds of sale signed by respondent Faustino Landingin and thumbmarked by
Agapita Ferrer, which were witnessed by two persons and acknowledged by the vendors before a
notary public.
Indeed, the general rule is that whosoever alleges fraud or mistake in any transaction must
substantiate his allegation, since it is presumed that a person takes ordinary care for his concerns
and that private transactions have been fair and regular. This rule is especially applied when
fraud or mistake is alleged to annul notarial documents which are clothed with the prima
facie presumption of regularity and due execution (Revised Rules on Evidence, Rule 132 [B],
Sec. 30).
Nevertheless, the general rule admits of exceptions, one of which is Article 1332 of the Civil
Code which provides:
When one of the parties is unable to read, or if the contract is in a language not understood by
him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former.

116

Under the foregoing provision, where a party to a contract is illiterate, or can not read nor
understand the language in which the contract is written, the burden is on the party interested in
enforcing the contract to prove that the terms thereof are fully explained to the former in a
language understood by him.

449 SCRA 458

Yason v. Arciaga

FACTS:
Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay
Putatan, Muntinlupa City, with an area of 5,274 square meters covered by TCT No. 40913 of the
Registry of Deeds of Makati City. On March 28, 1983, they executed a Deed of Conditional Sale
whereby they sold Lot No. 303-B for P265,000.00 to spouses Dr. Jose and Aida Yason,
petitioners. They tendered an initial payment of P150,000.00. On April 19, 1983, upon payment
of the balance of P115,000.00, spouses Emilio and Claudia Arciaga executed a Deed of Absolute
Sale. That day, Claudia died. She was survived by her spouse and their six (6) children, namely:
Faustino, Felipe Neri, Domingo, Rogelio, Virginia, and Juanita.
Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati
City. They entrusted its registration to one Jesus Medina to whom they delivered the document
of sale and the amount of P15,000.00 as payment for the capital gains tax. Without their
knowledge, Medina falsified the Deed of Absolute Sale and had the document registered in the
Registry of Deeds of Makati City. He made it appear that the sale took place on July 2, 1979,
instead of April 19, 1983, and that the price of the lot was only P25,000.00, instead
of P265,000.00. On the basis of the fabricated deed, TCT No. 40913 in the names of spouses
Arciaga was cancelled and in lieu thereof, TCT No. 120869 was issued in the names of
petitioners.
Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT
No. 120869 was cancelled and in lieu thereof, TCT Nos. 132942 to 132964 were issued.
Petitioners then sold several lots to third persons, except the 13 lots covered by TCT Nos.
132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958,
132962 and 132963, which they retained.
Sometime in April 1989, spouses Arciagas children learned of the falsified document of
sale. Four of them, namely: Faustino, Felipe Neri, Domingo and Rogelio, herein respondents,
caused the filing with the Office of the Provincial Prosecutor of Makati City a complaint for
falsification of documents against petitioners, docketed as I.S No. 89-1966. It was only after
receiving the subpoena in April 1989 when they learned that the Deed of Absolute Sale was
falsified.
However, after the preliminary investigation, the Provincial Prosecutor dismissed the
complaint for falsification for lack of probable cause.
Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC),
Branch 62, Makati City, a complaint for annulment of the 13 land titles, mentioned earlier,

117

against petitioners. Respondents alleged inter alia that the Deed of Absolute Sale is void ab
initio considering that (1) Claudia Arciaga did not give her consent to the sale as she was then
seriously ill, weak, and unable to talk and (2) Jesus Medina falsified the Deed of Absolute Sale;
that without Claudias consent, the contract is void; and that the 13 land titles are also void
because a forged deed conveys no title.
In their answer, petitioners specifically denied the allegations in the complaint and averred that
they validly acquired the property by virtue of the notarized Deed of Conditional Sale and the
Deed of Absolute Sale executed by spouses Emilio and Claudia Arciaga, respondents parents.
The Deed of Absolute Sale was duly signed by the parties in the morning of April 19, 1983 when
Claudia was still alive. It was in the evening of the same day when she died. Hence, the contract
of sale is valid. Furthermore, they have no participation in the falsification of the Deed of
Absolute Sale by Medina. In fact, they exerted efforts to locate him but to no avail.
Issue: Whether or not the Deed of Absolute Sale dated April 19, 1983 is valid.
Held: Mere weakness of mind alone, without imposition of fraud, is not a ground for vacating a
contract. Only if there is unfairness in the transaction, such as gross inadequacy of consideration,
the low degree of intellectual capacity of the party, may be taken into consideration for the
purpose of showing such fraud as will afford a ground for annulling a contract. Hence, a person
is not incapacitated to enter into a contract merely because of advanced years or by reason of
physical infirmities, unless such age and infirmities impair his mental faculties to the extent that
he is unable to properly, intelligently and fairly understand the provisions of said contract.
Respondents failed to show that Claudia was deprived of reason or that her condition hindered
her from freely exercising her own will at the time of the execution of the Deed of Conditional
Sale.
It is of no moment that Claudia merely affixed her thumbmark on the document. The signature
may be made by a persons cross or mark even though he is able to read and write and is valid if
the deed is in all other respects a valid one.
In Chilianchin vs. Coquinco, this Court held that a notarial document must be sustained in full
force and effect so long as he who impugns it does not present strong, complete, and conclusive
proof of its falsity or nullity on account of some flaws or defects provided by law. Here,
respondents failed to present such proof.
It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption of
regularity, and it carries the evidentiary weight conferred upon it with respect to its execution

G.R. No. 163770. February 17, 2005

Dela Cruz vs. Sison

FACTS:
The herein petitioner claimed that in 1992 she discovered that her rice land in Pangasinan
was transferred and registered in the name of her nephew Eduardo Sison, herein respondent,
without her knowledge and consent. She therefore filed a complaint to declare the Deed Null and
Void. She alleged that respondent tricked her into signing the Deed of Sale. Respondent denied

118

the allegations and claimed that they purchased it from petitioner for P20,000.00. The MTC
ruled in favor of petitioner but the Court of Appeals reversed it.
ISSUE:
WON there was treachery in the Sale of the Land.

HELD:
The issue of whether fraud attended the execution of a contract is factual in nature.
Normally, this Court is bound by the appellate courts findings, unless they are contrary to those
of the trial court, in which case we may wade into the factual dispute to settle it with finality.
After a careful perusal of the records, we sustain the Court of Appeals ruling that the Deed of
Absolute Sale dated November 24, 1989 is valid. The party who alleges a fact has the burden of
proving it.
Although Art. 1330 of the Civil Code states that, a contract where consent is given
through mistake, fraud, violence, intimidation, undue influence and fraud is voidable; but
because of the overwhelming documentary evidence presented by respondents really proves that
they brought the said property. The documents are too varied from each other to have been
accomplished by means of trickery and fraud. Therefore, the rulings of the CA is hereby
affirmed.

31 August 2005

Paragas vs Heirs of Balacanos

FACTS:
Gregorio and Lorenza had three (3) children: Domingo, Catalino and Alfredo. Gregorio
died on July 29, 1996. Prior to his death, Gregorio Balacanos was admitted at the Veterans
General Hospital in Bayombong, Nueva Vizcaya and was subsequently transferred to the
Veterans Memorial Hospital in Quezon City where he was confined until his death. Gregorio
purportedly sold on July 22, 1996, a weed prior to his death, a portion of lot 1175-E and the
whole Lot 1175-F to Paragas spouses. The Paragas spouses then sold on October 17 1996 a
portion of Lot 1175-E to Catalino Balacano (one of Gregorios sons) for a consideration of
P60,000.00. Domingos children and Alfredo filed a complaint for annulment of sale and
partition against Catalino and the spouses Paragas.

ISSUE:
Whether or not the sale by Gregorio to the spouses Paragas was valid?

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HELD:
The sale was Null and Void. A person is not incapacitated to enter into a contract merely
because of advanced years or by reason of physical infirmities, unless such age and infirmities
impair his mental faculties to the extent that he is unable to properly, intelligently and fairly
understand the provisions of said contract.
The case at bar, given that Gregorio purportedly executed a deed during the last stages of
his battle against his disease, seriously doubt whether Gregorio could have read or fully
understood the contents of the documents he signed or of the consequence of his act. That
Gregorio was brought to the Veterans Hospital at Quezon City because of his condition had
worsened on or about the time the deed was allegedly signed.

30 June 2006

DBP v. Court of Appeals

FACTS:
DBP bought 91,188.30 square meters of land, consisting of 159 lots, in the proposed
Diliman Estate Subdivision of the PHHC. However, the sales of the lots to DBP, Lots 2 and 4,
which form part of said 159 lots, were still sold by PHHC to the spouses Nicandro, for which 2
deeds of sale were issued to them by PHHC. Upon learning of PHHCs previous transaction with
DBP, the spouses filed a complaint against DBP and the PHHC to rescind the sale of Lots 2 and
4 by PHHC in favor of DBP. The CFI held that the sale of Lots 2 and 4, to DBP is null and void,
for being in violation of Section 13 of the DBP Charter.

ISSUE:
Do the spouses possess the legal personality to question the legality of the sale?
HELD:
Yes. The spouses stand to be prejudiced by reason of their payment in full of the
purchase price for the same lots which had been sold to DBP by virtue of the transaction
in question.The general rule is that the action for the annulment of contracts can only be
maintained by those who are bound either principally or subsidiarily by virtue thereof. However,
a person who is not obliged principally or subsidiarily in a contract may exercise an action for
nullity of the contract if he is prejudiced in his rights with respect to one of the contracting
parties, and can show the detriment which could positively result to him from the contract in
which he had no intervention.

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11 August 2005

Manila bank v. Selvirio

FACTS
Purificacion Ver sold the properties to Ricardo C. Silverio, Sr. (Ricardo, Sr.) for
P1,036,475.00. The absolute deed of sale evidencing the transaction was not registered; hence,
title remained with the seller, Purificacion Ver.
On 22 February 1990, herein petitioner, The Manila Banking Corporation (TMBC), filed
a complaint with the RTC of Makati City for the collection of a sum of money with application
for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors
Corporation docketed as Civil Case No. 90-513. On 02 July 1990, by virtue of an Order of
Branch 62 of the RTC of Makati City, notice of levy on attachment of real property and writ of
attachment were inscribed. On 29 March 1993, the trial court rendered its Decision in favor of
TMBC and against Ricardo, Sr. and the Delta Motors Corporation. The Decision was brought up
to the Court of Appeals for review.
The herein private respondent, Edmundo S. Silverio (Edmundo), the nephew of judgment
debtor Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled
as the properties were no longer owned by Ricardo, Sr. This letter was referred to the Bangko
Sentral Ng Pilipinas, TMBCs statutory receiver. No steps were taken to have the annotations
cancelled. Thus, on 17 December 1993, Edmundo filed in the RTC of Makati City a case for
Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates
of Title. In his petition, Edmundo alleged that as early as 11 September 1989, the properties,
subject matter of the case, were already sold to him by Ricardo, Sr. As such, these properties
could not be levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no
longer the owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among
other things, that the sale in favor of Edmundo was void, therefore, the properties levied upon
were still owned by Ricardo, Sr., the debtor.
On 02 May 1995, after trial on the merits, the lower court rendered its Decision
dismissing Edmundos petition. TMBCs counterclaim was likewise dismissed for lack of
sufficient merit.
ISSUE:
Whether or not the contract is simulated or real is factual in nature, and the Court
eschews factual examination in a petition for review under Rule 45 of the Rules of Court.

HELD:
This rule, however, is not without exceptions, one of which is when there exists a conflict
between the factual findings of the trial court and of the appellate court, as in the case at bar.
The validity of the contract of sale being the focal point in the two courts decision, we begin our
analysis into the matter with two veritable presumptions: first, that there was sufficient

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consideration of the contract and, second, that it was the result of a fair and regular private
transaction. Between the disparate positions of the trial court and the Court of Appeals, we find
those of the trial court to be more in accord with the evidence on hand and the laws applicable
thereto.
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes
place when the parties do not intend to be bound at all. The characteristic of simulation is the fact
that the apparent contract is not really desired or intended to produce legal effects or in any way
alter the juridical situation of the parties. Thus, where a person, in order to place his property
beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to
divest himself of his title and control of the property; hence, the deed of transfer is but a sham.
Lacking, therefore, in a fictitious and simulated contract is consent which is essential to a valid
and enforceable contract.
Article 117 of the New Civil Code is very explicit that the right or remedy of the creditor
to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It
can only be availed of in the absence of any other legal remedy to obtain reparation for the
injury. Otherwise stated, the right of accion pauliana can be availed of only AFTER the creditor
have exhausted all the properties of the debtor not exempt from executions.
This fact is not present in this case. Not a single proof was offered to show that
oppositor-appellee had exhausted all the properties of Ricardo Silverio before it tried to question
the validity of the contract of sale. In fact, oppositor-appellee never alleged in its pleadings that
it had exhausted all the properties of Ricardo Silverio before it impugned the validity of the sale
made by Ricardo Silverio to petitioner-appellant.
This being the case, oppositor-appellee cannot and is not in the proper position to
question the validity of the sale of the subject properties by Ricardo Silverio to petitionerappellant. Oppositor-appellee has not shown that it has the material interest to question the sale.
Art. 1383 of the Civil Code, that such action can be instituted only when the party suffering
damage has no other legal means to obtain reparation for the same. The contract of sale before
us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is void ab initio
for lack of consent of the parties to be bound thereby. A void or inexistent

10 December 2004

Heirs of Balite v. Lim

FACTS:
The spouses Aurelio x x x and Esperanza Balite were the owners of a parcel of land,
located [at] Poblacion (Barangay Molave), Catarman, Northern Samar, with an area of seventeen
thousand five hundred fifty-one (17,551) square meters, and covered by Original Certificate of
Title [OCT] No. 10824. When Aurelio died intestate Esperanza Balite, and their children,
[petitioners] Antonio Balite, Flor Balite-Zamar, Visitacion Balite-Difuntorum, Pedro Balite,

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Pablo Balite, Gaspar Balite, Cristeta (Tita) Balite and Aurelio Balite, Jr., inherited the property
and became co-owners thereof, with Esperanza x x x inheriting an undivided share of 9,751
square meters.
They also executed, on the same day, a Joint Affidavit under which they declared that
the real price of the property was P1,000,000.00, payable to Esperanza x x x, by installments, as
follows:
1.
P30,000.00 upon signing today of the document of sale.
2.
P170,000.00 payable upon completion of the actual relocation survey of the land sold by
a Geodetic Engineer.
3.
P200,000.00 payable on or before May 15, 1996.
4.
P200,000.00 payable on or before July 15, 1996.
5.
P200,000.00 payable on or before September 15, 1996.
6.
P200,000.00 payable on or before December 15, 1996.
The petitioners had a Notice of Lis Pendens, dated June 23, 1997, annotated, on June
27, 1997, at the dorsal portion of OCT No. 10824.
In the meantime, the RD cancelled, on July 10, 1997, OCT No. 10824 and issued
Transfer Certificate of Title [TCT] No. 6683 to and under the name of Rodrigo over Lot
243. The Notice of Lis Pendens was carried over in TCT No. 6683.

ISSUE:
WON Deed of Absolute Sale dated April 16, 1996 is null and void on the grounds that it
is falsified; it has an unlawful cause; and it is contrary to law and/or public policy.
HELD:
We have before us an example of a simulated contract. Article 1345 of the Civil Code
provides that the simulation of a contract may either be absolute or relative. In absolute
simulation, there is a colorable contract but without any substance, because the parties have no
intention to be bound by it. An absolutely simulated contract is void, and the parties may
recover from each other what they may have given under the contract. On the other hand, if the
parties state a false cause in the contract to conceal their real agreement, such a contract is
relatively simulated. Here, the parties real agreement binds them.
In the present case, the parties intended to be bound by the Contract, even if it did not
reflect the actual purchase price of the property. That the parties intended the agreement to
produce legal effect is revealed by the letter of Esperanza Balite to respondent dated October 23,
1996 and petitioners admission that there was a partial payment of P320,000 made on the basis
of the Deed of Absolute Sale. There was an intention to transfer the ownership of over 10,000
square meters of the property . Clear from the letter is the fact that the objections of her children
prompted Esperanza to unilaterally withdraw from the transaction.
Since the Deed of Absolute Sale was merely relatively simulated, it remains valid and
enforceable. All the essential requisites prescribed by law for the validity and perfection of

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19 March 2002

Cruz v. Bancom Finance

FACTS:
The petitioners are the registered owners of an agricultural land. Candelaria Sanchez
introduced the petitioner to Norma Sulit who offered to buy the petitioners lot. The asking price
for the property is P7000,000 but Norma only has P25,000 which the petitioner accepted as an
earnest money with agreement that the title will be transferred in the name of Norma after she
pays the remaining balance. Norma failed to pay the balance but negotiated to transfer the title in
her name which the petitioner refused. However, through Candelaria Sanchez the title was
transferred to Norma upon the execution of a deed of sale made by the petitioner in favor of
Sanchez who obtained a bank loan using the petitioners land as collateral. She then executed on
the same day another deed of sale in favor of Norma. Both deed of sales reflect the amount of
only P150,000.00. Using the deed of sale Norma was able to register the property in her name.
Norma obtained a loan from Bancom while mortgaging the land title. Meanwhile, a special
agreement was entered into by petitioner and Norma. When Norma failed to pay the remaining
balance stipulated in their special agreement, the petitioner filed a complaint for the
reconveyance of the land. Bancom claimed priority as mortgagee in good faith. Norma defaulted
payment with the bank and the property was foreclosed and auctioned with Bancom as the
highest bidder.

ISSUES:
Whether or not the sale and mortgage are valid?
Whether or not the respondent is an innocent mortgagee in good faith?

HELD:
As a general rule, if the terms of the contract are clear and unambiguous its stipulations
shall control but when its words contravene with the intention of the parties, the intention shall
prevail over the words of the contract. Simulation of contract takes place when the parties do not
want the express words of the contract to have its legal effect. It may be absolute or relative.
When parties do not intend to be bound at all it is absolute simulated contract and considered
void. When the parties conceal their true agreement, it is a relative simulated contract and binds
the parties when it does not prejudice third persons and is not contrary to law, morals, good
custom, public order, and public policy. It was shown that although a deed of absolute sale was
executed in the amount of P150,000 no consideration was involved as no exchange of money
took place between them. Norma and Candelaria also did not assert their right to ownership over
the property. It was clear that the deed of sale was simulated in order to facilitate the bank loan to
be secured by Candelaria using the property as collateral. The fact that Norma obtained
registration of the property in her name does not entitle her to ownership since the simulated

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deed of sale produced no legal effect. A simulated contract is not a recognized mode of
transferring ownership.
With the contention of Bancom that it is a mortgagee in good faith, the court ruled
otherwise pointing out that it is a mortgagee-bank thus is expected to exercise greater care and
prudence when dealing with registered lands. Failure to observe due diligence was shown with
judicial notice that the bank did not conduct an ocular inspection on the property and did not
send a representative to investigate the ownership of the land, these being a standard procedure
before approving loans. It is also aware of the adverse claim because of the notice of lis pendens
annotated to the title. Because it was established that the two deeds of sale were simulated thus
null and void, it does not convey any right that may ripen into a valid title. The mortgage was
also null and void because Norma was not the owner of the property. The property cannot be
validly foreclosed by the respondent. The court declares the petitioner to remain as the valid
owner of the property.

151 SCRA 233

E. Razon v. Phil. Ports,

FACTS:
Petitioner E. Razon, Inc., also known as Metro Port Service, Inc. (MPSI), is a Philippine
corporation organized on June 21, 1962 for the main purpose of bidding for the contract to
manage all the piers in South Harbor, Manila. Co-petitioner Enrique Razon was allegedly the
100% equity owner, having paid for the subscriptions of the other incorporators who were mere
nominees.
After a public bidding, petitioner ERI was awarded in 1966 a five-year contract to
operate the arrastre service for Piers 3 and 5 at the South Harbor. Thereafter, it allegedly invested
millions of pesos in acquiring port-handling equipment upon assurance from the government that
its contract would be renewed without public bidding. Thus, when the Bureau of Customs
informed petitioner ERI in 1971 of its decision to call for a new bidding and accordingly issued
an invitation to bid for the operation of the arrastre service for any and all piers in South Harbor,
including Piers 3 and 5, petitioner ERI instituted a special civil action for certiorari, prohibition,
mandamus and injunction with preliminary and mandatory injunction and/or restraining order
before the then Court of First Instance of Manila against the Secretary of Finance, Commissioner
of Customs and members of the Bidding Committee to enjoin them from proceeding with the
bidding and to compel them to renew petitioner ERI's contract. The Court of First Instance,
presided by Judge Juan Bocar, issued the writ prayed for, whereupon then Secretary of Finance
Cesar Virata elevated the case before this Court in G.R. No. 33426 entitled.
In a resolution dated May 13, 1971, this Court ordered the holding of a public bidding for
all the piers, conditioned that no final award should be given until further orders from the court.

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ISSUE:
Whether or not the bureau of customs has acted with unlawful cause for calling a new
bidding despite of their arrangements with Razon.
HELD:
Yes. The court held that the petitioners are hereby directed to make the final award in
favor of E. Razon, Inc., as the best and most advantageous bidder of the contract to operate the
arrastre service for all the piers in the Manila South Harbor.

314 SCRA 69 (1999)

Uy vs Court of Appeals
FACTS:
Petitioners William Uy and Rodel Roxas are agents authorized to sell 8 parcels of land.
Petitioners offered to sell the land to NHA for a housing project. On February 14, 1989, NHA
passed a resolution approving the acquisition of said lands, and pursuant to this the parties
executed Deeds of Absolute Sale. However, only 5 out of 8 lands were paid for by NHA because
of a report from DENR that the remaining area is located at an active landslide area and are
therefore not conducive for housing. On November 22, 1991, NHA issued a resolution canceling
the sale of the remaining lands and offered P1.225 million to the landowners as daos perjuicios.
On March 9, 1992, petitioners filed a complaint for damages against NHA and its general
manager Robert Balao. The RTC declared the cancellation to be justified, but awarded the
amount offered by NHA. The Court of Appeals affirmed the decision, but deleted the award.

ISSUE:
Whether or not the cancellation is justified
HELD:
The cancellation was not a rescission. Rather, the cancellation was based on the negation
of the cause arising from the realization that the lands, which were the object of the sale, were
not suitable for housing. Cause is the essential reason which moves the contracting parties to
enter into it. In other words, the cause is the immediate, direct and proximate reason which
justifies the creation of an obligation through the will of the contracting parties.
We hold that the NHA was justified in canceling the contract. The realization of the mistake as
regards the quality of the land resulted in the negation of the motive/cause thus rendering the
contract inexistent.

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127 SCRA 512

Clarin v. Rulona
FACTS:
Clarin owned a 10 hectare land in Carmen, Bohol, said to be his share from the other coowners. In 1959, he executed a Contract of Sale with Rulona as he was selling the said land. The
agreed purchase price was P2500.00. A down payment would be P1000.00 and the remaining
balance would be paid monthly at P100.00 per month. Rulona paid the down payment as well as
the 1st installment but then later on Clarin returned the P1,100.00 against Rulonas will. Clarin
said he could not convince the other co-owners, which are his sisters in selling of his share.
Clarin also said there was no perfected sale between him and Rulona as he said that the sale was
subject to the condition that the other co-owners should give their consent to the sale.

ISSUE:
Whether or not there was a perfected contract of sale.

HELD:
Yes, there was. For a contract of sale is perfected at the moment there is meeting of
minds upon the thing which is the object of the contract and upon the price. Such contract is
binding in whatever form it may have been entered into.
During trial there were 3 documents shown. Exhibit A showed that upon payment of
P800.00 by Rulona, a survey of the land was authorized. Exhibit B showed that P200.00, part of
the down payment was paid to Clarin and that the 1st installment of P100.00 was also made.
Clarin agreed to sell and Rulona agreed to buy a definite object, that is a 10 hectares of land
which is part and parcel of Lot 20 PLD No. 4, owned in common by the Clarin and his sisters
although the boundaries of the 10 hectares would be delineated at a later date. There was also an
agreement of a definite price which is P2,500.00. Exhibit B further showed that Clarin had
received from Rulona as the amount of P800.00 as initial payment. It cannot be denied that there
was a perfected contract of sale between the parties and that such contract was already partially
executed when the petitioner received the initial payment of P800.00. Clarins acceptance of the
payment from Rulona clearly showed his consent to the contract thereby precluding him from
rejecting its binding effect. Though these exhibits are not the Contract of Sale, it showed that
there was a contract of sale between them.
With the contract being partially executed, the same is no longer covered by the
requirements of the Statute of Frauds in order to be enforceable. Therefore, with the contract
being valid and enforceable, the petitioner cannot avoid his obligation by interposing that Exhibit
A is not a public document. On the contrary, under Article 1357 of the Civil Code, the petitioner
can even be compelled by the respondent to execute a public document to embody their valid and
enforceable contract.

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215 SCRA 436 (1992)

NIA v. Gamit
FACTS:
On June 5, 1975, herein plaintiff and defendant, entered into a CONTRACT OF LEASE
and a RIGHT TO REPURCHASED, over plaintiffs urban parcel of land. Defendant acted
fraudulently and inequitably, taking advantage of the financial distress of herein plaintiff, when it
caused the unlawful insertion of the stipulation fixing of the price of the land to be purchased and
that upon payment of the rental amount of P25,000.00, herein plaintiff shall be deemed to have
conveyed the property to the defendant. On 23 January 1985, the plaintiff Estanislao Gamit filed
with the RTC of Roxas, Isabela, Branch XXIII,against the defendant National Irrigation
Administration (petitioner herein) for reformation of contract, recovery of possession and
damages.
ISSUE:
WON reformation of contract can be applied in the case at bar.
HELD:
Article 1362 of the Civil Code, provides: If one party was mistaken and the other acted
fraudulently or inequitably in such a way that the instrument does not show their true intention,
the former may ask for the reformation of the instrument.
Equity orders the reformation of an instrument in order that the true intention of the contracting
parties may be expressed. The courts do not attempt to make another contract for the parties. The
rationale of the doctrine of reformation is that it would be unjust and inequitable to allow the
enforcement of a written instrument which does not reflect or disclose the real meeting of the
minds of the parties. The rigor of the legalistic rule that a written instrument should be the final
and inflexible criterion and measure of the rights and obligations of the contracting parties is thus
tempered, to forestall the effect of mistake, fraud, inequitable conduct or accident.

320 SCRA 625

Huibonhoa v. CA
FACTS:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of agreement with
siblings Rufina Gojocco Lim, Severino Gojocco and Loreta Gojocco Chua stipulating that
Florencia T. Huibonhoa would lease from them (Gojoccos) three (3) adjacent commercial lots at

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Ilaya Street, Binondo, Manila, described as lot nos. 26-A, 26-B and 26-C, covered by Transfer
Certificates of Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the parties inked a contract
of lease of the same three lots for a period of fifteen (15) years commencing on July 1, 1983 and
renewable upon agreement of the parties. Subject contract was to enable the lessee, Florencia T.
Huibonhoa, to construct a "four-storey reinforced concrete building with concrete roof deck,
according to plans and specifications approved by the City Engineer's Office." The parties agreed
that the lessee could let/sublease the building and/or its spaces to interested parties under such
terms and conditions as the lessee would determine and that all amounts collected as rents or
income from the property would belong exclusively to the lessee. The lessee undertook to
complete construction of the building "within eight (8) months from the date of the execution of
the contract of lease." The contract further provided as follows:
5. Good will Money and Rate of Monthly Rental: Upon the signing of this Contract of Lease,
LESSEE shall pay to each of the LESSOR the sum of P300,000.00 each or a total sum of
P900,000.00, as goodwill money. LESSEE shall pay to each of the LESSOR the sum of
P15,000.00 each or a total amount of P45,000.00 as monthly rental for the leased premises,
within the first five (5) days of each calendar month, at the office of the LESSOR or their
authorized agent; Provided, however, that LESSEE's obligation to pay the rental shall start only
upon completion of the building, but if it is not completed within eight (8) months from date
hereof as provided for in par. 4 above, the monthly rental shall already accrue and shall be paid
by LESSEE to LESSOR. In other words, during the period of construction, no monthly rental
shall be collected from LESSEE; Provided, Finally, that the monthly rental shall be
adjusted/increased upon the corresponding increase in the rental of sub-leasees (sic) using the
percentage increase in the totality of rentals of the sub-leasees (sic) as basis for the percentage
increase of monthly rental that LESSEE will pay to LESSOR.
The parties also agreed that upon the termination of the lease, the ownership and title to the
building thus constructed on the said lots would automatically transfer to the lessor, even without
any implementing document therefor. Real estate taxes on the land would be borne by the lessor
while that on the building, by the lessee, but the latter was authorized to advance the money
needed to meet the lessors' obligations such as the payment of real estate taxes on their lots. The
lessors would deduct from the monthly rental due all such advances made by the lessee.
After the execution of the contract, the Gojoccos executed a power of attorney granting
Huibonhoa the authority to obtain "credit facilities" in order that the three lots could be
mortgaged for a limited one-year period from July 1983. 1 Hence, on September 12, 1983,
Huibonhoa obtained from China Banking Corporation "credit facilities" not exceeding One
Million (P1,000.000.00) Pesos. Simultaneously, she mortgaged the three lots to the creditor
bank. Fifteen days later or on September 27, 1983, to be precise, Huibonhoa signed a contract
amending the real estate mortgage in favor of China Banking Corporation whereby the "credit
facilities" were increased to the principal sum of Three Million (P3,000,000.00) Pesos.
During the construction of the building which later became known as Poulex Merchandise
Center, former Senator Benigno Aquino, Jr. was assassinated. The incident must have affected
the country's political and economic stability. The consequent hoarding of construction materials
and increase in interest rates allegedly affected adversely the construction of the building such
that Huibonhoa failed to complete the same within the stipulated eight-month period from July 1,
1983. Projected to be finished on February 29, 1984, the construction was completed only in
September 1984 or seven (7) months later.

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Under the contract, Huibonhoa was supposed to start paying rental in March 1984 but she failed
to do so. Consequently, the Gojoccos made several verbal demands upon Huibonhoa for the
payment of rental arrearages and, for her to vacate the leased premises. On December 19, 1984,
lessors sent lessee a final letter of demand to pay the rental arrearages and to vacate the leased
premises. The former also notified the latter of their intention to terminate the contract of lease.

ISSUE:
Whether or not the reformation of the lease contract by Huibonhoa is valid.
HELD:
Once the minds of the contacting parties meet, a valid contract exists, whether it is
reduced to writing or not. When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon. As such, there can be, between the parties
and their successors in interest, no evidence of such terms other than the contents of the written
agreement, except when it fails to express the true intent and agreement of the parties. In such an
exception, one of the parties may bring an action for the reformation of the instrument to the end
that their true intention may be expressed. Reformation is that remedy in equity by means of
which a written instrument is made or construed so as to express or conform to the real intention
of the parties. As to its nature, in Toyota Motor Philippines Corporation v. Court of Appeals, the
Court said: An action for reformation is in person, not in rem,. even when real estate is involved.
. . . It is merely an equitable relief granted to the parties where through mistake or fraud, the
instrument failed to express the real agreement or intention of the parties. While it is a
recognized remedy afforded by courts of equity it may not be applied if it is contrary to wellsettled principles or rules. It is a long-standing principle that equity follows the law. It is applied
in the absence of and never against statutory law. . . . Courts are bound by rules of law and have
no arbitrary discretion to disregard them. . . . Courts of equity must proceed with outmost caution
especially when rights of third parties may intervene. Art. 1359 of the Civil Code provides that
"(w)hen, there having been a meeting of the minds of the parties to a contract, their true intention
is not expressed in the instrument purporting to embody the agreement, by reason of mistake,
fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such intention may be expressed. . . . "An action for reformation of
instrument under this provision of law may prosper only upon the concurrence of the following
requisites: (1) there must have been a meeting of the minds of the parties to the contact; (2) the
instrument does not express the true intention of the parties; and (3) the failure of the instrument
to express the true intention of the parties is due to mistake, fraud, inequitable conduct or
accident.

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230 SCRA 315

Naga telephone v. Court of Appeals

FACTS:
NATELCO: telephone company rendering local and long distance services in Naga entered
into contract with Camarines Sur II Electric Cooperative (electrice power service): For the use
in operation of its telephone service, electric light posts of CASURECO II. Period: as long as
NATELCO needs electric light posts, CASURECO understands that contract will terminate
when they are forced to stop, abandon operation and remove lightposts.
CASURECO after 10 years filed for reformation of contract with damages, not conforming
to guidelines of National Electrification Administration (NEA)- reasonable compensation for use
of posts. Compensation is P10/posts but consumption of telephone cables costs
P2630. NATELCO used 319 posts without any contract at P10.00, refused to pay. Poor
servicing- damage not less than P100,000.
ISSUE:
WON Article 1267 is applicable,and has the filing of reformation of contract prescribed
and is the period of contract, as long as the party of the first part has need for electrive light
posts potestative?
HELD:
ARTICLE 1267, EVEN THOUGH NEVER RAISED BEFORE, IS APPLICABLE. Art.
1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part.
PRESCRIPTION HAS NOT YET LAPSED,What is reformed is not the contract itself,
but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the
determination of the period for prescription of the action to reform.

21 June 2006

Union Bank. V. Ong,

FACTS:
Spouses Alfredo and Susana Ong own the majority capital stock of Baliwag Mahogany
Corporation (BMC). On October 10, 1990, the spouses executed a Continuing Surety Agreement
in favor of Union Bank to secure aP40, 000,000.00-credit line facility made available to BMC.

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The agreement expressly stipulated a solidary liability undertaking. On October 22, 1991, the
spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in Greenhills, San Juan,
Metro Manila, together with the house and other improvements standing thereon, to their corespondent, Jackson Lee. The following day, Lee registered the sale and was then issued
Transfer Certificate of Title (TCT) No. 4746-R. At about this time, BMC had already availed
itself of the credit facilities, and had in fact executed a total of twenty-two (22) promissory notes
in favor of Union Bank. On November 22, 1991, BMC filed a Petition for Rehabilitation and for
Declaration of Suspension of Payments with the Securities and Exchange Commission (SEC).
To protect its interest, Union Bank lost no time in filing with the RTC of Pasig City an action for
rescission of the sale between the spouses Ong and Jackson Lee for purportedly being in fraud of
creditors.
ISSUE:
Whether or not the Ong-Lee contract of sale partakes of a conveyance to defraud Union
Bank
HELD:
The Ong-Lee contract of sale partakes a conveyance of bona fide transaction and not a
trick to defeat creditors. Contracts in fraud of creditors are those executed with the intention to
prejudice the rights of creditors. They should not be confused with those entered into without
such mal-intent, even if, as a direct consequence hereof, the creditor may suffer some damage. In
the present case, respondent spouses Ong, had sufficiently established the legitimacy of the sale.
It was supported by sufficient consideration. The disparity between the price and the real value
of the property was not as gross to support a conclusion of fraud. Furthermore, there was no
evidence to prove that the spouses Ong and Lee were conniving cheats. Even if the spouses Ong
did not leave the premises immediately after the sale, such action was supported by a valid
contract of lease. It could not also be contended that Lee was not financially capable of
purchasing the property, since mere income for a specific year is not sufficient to establish his
incapacity.
It is true that respondent spouses, as surety for BMC, bound themselves to answer for the
latters debt.
Nonetheless, for purposes of recovering what the eventually insolvent BMC owed the
bank, it behooved the petitioner to show that it had exhausted all the properties of the spouses
Ong. UB failed to show that it has no other legal recourse to obtain satisfaction for its claim;
hence, it is not entitled to the rescission asked. On a final note, the Insolvency Law cannot be
applied in this case. First, the spouses Ong had not filed a petition for a declaration of their own
insolvency; neither has one been filed against them. Second, the real debtor of petitioner bank in
this case is BMC. Third, the twin elements of good faith and valuable and sufficient
consideration have been duly established, giving no occasion to apply Section 70 of the
Insolvency Law, which considers transfers made within a month after the date of cleavage void,
except those made in good faith and for valuable pecuniary consideration.
WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of Appeals
is AFFIRMED.

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11 August 2005

Manila Bank vs. Silverios,

FACTS:
Purificacion Ver sold the properties to Ricardo C. Silverio, Sr. (Ricardo, Sr.) for
P1,036,475.00. The absolute deed of sale evidencing the transaction was not registered; hence,
title remained with the seller, Purificacion Ver.
On 22 February 1990, herein petitioner, The Manila Banking Corporation (TMBC), filed
a complaint with the RTC of Makati City for the collection of a sum of money with application
for the issuance of a writ of preliminary attachment against Ricardo, Sr. and the Delta Motors
Corporation docketed as Civil Case No. 90-513. On 02 July 1990, by virtue of an Order of
Branch 62 of the RTC of Makati City, notice of levy on attachment of real property and writ of
attachment were inscribed. On 29 March 1993, the trial court rendered its Decision in favor of
TMBC and against Ricardo, Sr. and the Delta Motors Corporation. The Decision was brought up
to the Court of Appeals for review.
The herein private respondent, Edmundo S. Silverio (Edmundo), the nephew of judgment
debtor Ricardo, Sr., requested TMBC to have the annotations on the subject properties cancelled
as the properties were no longer owned by Ricardo, Sr. This letter was referred to the Bangko
Sentral Ng Pilipinas, TMBCs statutory receiver. No steps were taken to have the annotations
cancelled. Thus, on 17 December 1993, Edmundo filed in the RTC of Makati City a case for
Cancellation of Notice of Levy on Attachment and Writ of Attachment on Transfer Certificates
of Title. In his petition, Edmundo alleged that as early as 11 September 1989, the properties,
subject matter of the case, were already sold to him by Ricardo, Sr. As such, these properties
could not be levied upon on 02 July 1990 to answer for the debt of Ricardo, Sr. who was no
longer the owner thereof. In its Answer with Compulsory Counterclaim, TMBC alleged, among
other things, that the sale in favor of Edmundo was void, therefore, the properties levied upon
were still owned by Ricardo, Sr., the debtor.
On 02 May 1995, after trial on the merits, the lower court rendered its Decision
dismissing Edmundos petition. TMBCs counterclaim was likewise dismissed for lack of
sufficient merit.
ISSUE:
Whether or not the contract is simulated or real is factual in nature, and the Court
eschews factual examination in a petition for review under Rule 45 of the Rules of Court.
HELD:
This rule, however, is not without exceptions, one of which is when there exists a conflict
between the factual findings of the trial court and of the appellate court, as in the case at bar.
The validity of the contract of sale being the focal point in the two courts decision, we begin our
analysis into the matter with two veritable presumptions: first, that there was sufficient
consideration of the contract and, second, that it was the result of a fair and regular private

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transaction. Between the disparate positions of the trial court and the Court of Appeals, we find
those of the trial court to be more in accord with the evidence on hand and the laws applicable
thereto.
An absolutely simulated contract, under Article 1346 of the Civil Code, is void. It takes
place when the parties do not intend to be bound at all. The characteristic of simulation is the fact
that the apparent contract is not really desired or intended to produce legal effects or in any way
alter the juridical situation of the parties. Thus, where a person, in order to place his property
beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to
divest himself of his title and control of the property; hence, the deed of transfer is but a sham.
Lacking, therefore, in a fictitious and simulated contract is consent which is essential to a valid
and enforceable contract.
Article 117 of the New Civil Code is very explicit that the right or remedy of the creditor
to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It
can only be availed of in the absence of any other legal remedy to obtain reparation for the
injury. Otherwise stated, the right of accion pauliana can be availed of only AFTER the creditor
have exhausted all the properties of the debtor not exempt from executions.
This fact is not present in this case. Not a single proof was offered to show that oppositorappellee had exhausted all the properties of Ricardo Silverio before it tried to question the
validity of the contract of sale. In fact, oppositor-appellee never alleged in its pleadings that it
had exhausted all the properties of Ricardo Silverio before it impugned the validity of the sale
made by Ricardo Silverio to petitioner-appellant.
This being the case, oppositor-appellee cannot and is not in the proper position to
question the validity of the sale of the subject properties by Ricardo Silverio to petitionerappellant. Oppositor-appellee has not shown that it has the material interest to question the sale.
Art. 1383 of the Civil Code, that such action can be instituted only when the party
suffering damage has no other legal means to obtain reparation for the same. The contract of
sale before us, albeit undertaken as well in fraud of creditors, is not merely rescissible but is void
ab initio for lack of consent of the parties to be bound thereby. A void or inexistent contract is
one which has no force and effect from the very beginning, as if it had never been entered into; it
produces no effect whatsoever either against or in favor of anyone.

7 October 1994

Alcasid v. CA
FACTS:
Petitioner engaged the services of Atty. Antonio A. Fernandez for the purpose of
negotiating the sale, without knowing that he was also representing private respondent.
Atty. Fernandez confirmed to petitioner that all her co-owners were already amenable to
sell their shares for P1, 500,000.00. Petitioner signed a Deed of Sale drafted by Atty. Fernandez.
Subsequently, petitioner learned that the other co-owners did not agree to sell their shares over
the subject property.

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ISSUE
Whether or not private respondent is liable for the wrongful act of Atty. Antonio A.
Fernandez?
HELD:
The finding of the Court of Appeals that petitioner executed the contract of her own free
will and choice and not from duress is fully supported by the evidence. Such finding should not
be disturbed.
Private respondent did not commit any wrongful act or omission which violated the primary right
of petitioner. Hence, petitioner did not have a cause of action
Petitioner could have avoided the alleged mistake had she exerted efforts to verify from her coowners if they really consented to sell their respective shares.

7 October 1994

Theis v. Court of Appeals

FACTS:
Private respondent Calsons Development Corporation is the owner of three (3) adjacent
parcels of land. In 1985, private respondent constructed a two-storey house on parcel no. 3. The
lots covered which are parcel no. 1 and parcel no. 2, respectively, remained idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands,
was erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while
the two idle lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4
instead (which was not owned by private respondent) and covered by TCT Nos. 15516 and
15684.
Unaware of the mistake by which private respondent appeared to be the owner of parcel
no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the
surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through
its authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.
Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of
Deeds of Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were
issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The
actual price agreed upon and paid, however, was P486,000.00. This amount was not immediately
paid to private respondent; rather, it was deposited in escrow in an interest-bearing account in its
favor with the United Coconut Planters Bank in Makati City. The P486,000.00 in escrow was
released to, and received by, private respondent on December 4, 1987.

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Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle
parcels of land purchased from private respondent. Instead, petitioners went to Germany.
In the early part of 1990, petitioners returned to the Philippines. When they went to
Tagaytay to look over the vacant lots and to plan the construction of their house thereon, they
discovered that parcel no. 4 was owned by another person. They also discovered that the lots
actually sold to them were parcel nos. 2 and 3 covered by TCT Nos. 15516 and 15684,
respectively. Parcel no. 3, however, could not have been sold to the petitioners by the private
respondents as a two-storey house, the construction cost of which far exceeded the price paid by
the petitioners, had already been built thereon even prior to the execution of the contract between
the disputing parties.
Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel
no. 3, and persisted in claiming that it was parcel no. 4 that private respondent sold to them.
However, private respondent could not have possibly sold the same to them for it did not own
parcel no. 4 in the first place.

ISSUE:
Whether or not there is voidable contract of sale between petitioners and private
respondent on the ground of mistake

HELD:
The law itself explicitly recognizes that consent of the parties is one of the essential
elements to the validity of the contract and where consent is given through mistake, the validity
of the contractual relations between the parties is legally impaired.
"Art. 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties:
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or
fraud.
In the case at bar, the private respondent obviously committed an honest mistake in
selling parcel no. 4. As correctly noted by the Court of Appeals, it is quite impossible for said
private respondent to sell the lot in question as the same is not owned by it. The good faith of the
private respondent is evident in the fact that when the mistake was discovered, it immediately
offered two other vacant lots to the petitioners or to reimburse them with twice the amount paid.
That petitioners refused either option left the private respondent with no other choice but to file
an action for the annulment of the deed of sale on the ground of mistake.
"Art. 1331.
In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract."
The petitioners cannot be justified in their insistence that parcel no. 3, upon which private
respondent constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house (P1,500,000.00) far exceeds the amount paid by the
petitioners to the private respondent (P486,000.00).

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19 April 2010

Alcantara vs Nido,
FACTS:
Revelen is the owner of an unregistered land with an area of 1,939 square meters located
in Cardona, Rizal. Sometime in March 1984, respondent (Revelens father) accepted the offer of
petitioners to purchase a 200-square meter portion of Revelens lot (lot) at P200 per square
meter. Petitioners paid P3,000 as downpayment and the balance was payable on installment.
Petitioners constructed their houses in 1985. By 1987, petitioners had already paid P17,5005
before petitioners defaulted on their installment payments.
On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a
complaint for recovery of possession with damages against petitioners with the RTC declaring
the contract to sell orally agreed by the plaintiff Brigida Nido, in her capacity as representative or
agent of her daughter Revelen Nido Srivastava, VOID and UNENFORCEABLE.
ISSUE:
WON there is a valid contract.
HELD:
Art. 1874 When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
The sale of the lot by respondent who did not have a written authority from Revelen is void. A
void contract produces no effect either against or in favor of anyone and cannot be ratified. A
special power of attorney is also necessary to enter into any contract by which the ownership of
an immovable is transmitted or acquired for a valuable consideration. Without an authority in
writing, respondent cannot validly sell the lot to petitioners. Hence, any sale in favor of the
petitioners is void.

29 June 2010

Orduna v. Fuetebella
FACTS:
Antonita Ordua purchased a residential lot from Gabriel Sr. payable in installments but
no deed of sale was executed. The installments were paid to Gabriel Sr. and later to Gabriel Jr.

137

after the death of the former. Improvements were there after introduced by petitioner and the
latter
even
paid
its
real
propertytax since 1979. Unknown to Ordua, the property has beensubject to further alienations
until the same was ceded torespondent, Fuentebilla, Jr. Ordua, after being demanded by
Fuentebilla to vacate the disputed land, and then filed a Complaint
forAnnulment of Sale, Title, and Conveyance with Damages with a prayer to acquire ownership
over the subject lot upon payment of their remaining balance. The Regional Trial Court
dismissed thepetition because the verbal sale between Gabriel Sr. and Orduawas unenforceable
under the Statute of Frauds. This was later affirmed by the Court of Appeals
ISSUE:
Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is unenforceable
under the Statute of Frauds
HELD:
No. It is a wellsettled rule that the Statute of Frauds asexpressed in Article 1403, par. (2),
of the Civil Code are applicable only to purely executory contracts and not to contracts which
have already been executed either totally or partially. Here, the verbal contract of sale has been
partially executed through the partial payments made by Ordua duly received by both
Gabriel Jr. and his father. The purpose of the Statute of Fraud isprevention fraud and perjury in
the
enforcement
of
obligationsdepending for their evidence on the unassisted memory of witnesses, by requiring so
me contracts and transactions to beevidenced by a writing signed by the party to be charged.
Since there is already ratification of the verbal contract through the acceptance of benefits
through the partial payments, it is thus withdrawn from the purview of the Statute of Frauds.

JUNE 8, 2005

Torcuator v. Bernabe,
FACTS;
Evidences on record further reveal that on December 18, 1980, the Salvadors sold the
parcel of land to the spouses Remigio and Gloria Bernabe (Bernabes, for expediency). Given the
above restrictions, the Salvadors concomitantly executed a special power of attorney authorizing
the Bernabes to construct a residential house on the lot and to transfer the title of the property in
their names.
The Bernabes, on the other hand, without making any improvement, contracted to sell the
parcel of land to the spouses Mario and Elizabeth Torcuator sometime in September of
1986. Then again, confronted by the Ayala Alabang restrictions, the parties agreed to cause the

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sale between the Salvadors and the Bernabes cancelled , in favor of (a) a new deed of sale from
the Salvadors directly to the Torcuators; (b) a new Irrevocable Special Power of Attorney
executed by the Salvadors to the Torcuators in order for the latter to build a house on the land in
question; and (c) an Irrevocable Special Power of Attorney from the Salvadors to the Bernabes
authorizing the latter to sell, transfer and convey, with power of substitution, the subject lot.
The Torcuators thereafter had the plans of their house prepared and offered to pay the
Bernabes for the land upon delivery of the sale contract. For one reason or another, the deed of
sale was never consummated nor was payment on the said sale ever effected. Subseuqently, the
Bernabes sold the subject land to Leonardo Angeles, a brother-in-law.

ISSUE:
WON contract agreed upon is valid.

HELD:
In order to declare the agreement void for being contrary to good customs and morals, it
must first be shown that the object, cause or purpose thereof contravenes the generally accepted
principles of morality which have received some kind of social and practical confirmation

MARCH 8, 2001

Rosencor v. Inquing
FACTS:
A two-story residential apartment located at No. 150 Tomas Morato Ave., Quezon City
covered by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease
was not covered by any contract. The lessees were renting the premises then for P150.00 a
month and were allegedly verbally granted by the lessors the pre-emptive right to purchase the
property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was
adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were
allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late spouses Tiangcos.
The lessees offered to buy the property from de Leon for the amount of
P1,000,000.00. De Leon told them that she will be submitting the offer to the other heirs. Since
then, no answer was given by de Leon as to their offer to buy the property. However, in
November 1990, Rene Joaquin came to the leased premises introducing himself as its new

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owner. The lessees received a letter from de Leon advising them that the heirs of the late spouses
Tiangcos have already sold the property to Rosencor.

ISSUE:
Whether or not respondents have satisfactorily proven their right of first refusal over the
property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner
Rosencor and Eufrocina de Leon?
HELD:
Respondents have adequately proven the existence of their right of first refusal. Federico
Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by
the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs a right of first
refusal over the property they were currently leasing should they decide to sell the
same. Moreover, respondents presented a letter dated October 9, 1990 where Eufrocina de Leon,
the representative of the heirs of the spouses Tiangco, informed them that they had received an
offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the
respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not
recognize respondents right of first refusal over the property they were leasing, then she would
not have bothered to offer the property for sale to the respondents.
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25,
1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996 of the Quezon City
Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for
rescission of the Deed of Absolute Sale dated September 4, 1990 and orders the payment of
monthly rentals of P1,000.00 per month reckoned from May 1990 up to the time respondents
leave the premises.

JANUARY 26, 2005

Menchavez v. Tevez,
FACTS:
On February 28, 1986, a Contract of Lease was executed by Jose S. Menchavez, Juan
S. Menchavez Sr., Juan S. Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo
Menchavez, Cesar Menchavez, Charito M. Maga, Fe M. Potot, Thelma R. Reroma, Myrna
Ybaez, Sonia S. Menchavez, Sarah Villaver, Alma S. Menchavez, and Elma S. Menchavez, as
lessors; and Florentino Teves Jr. as lessee.
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon
demolished the fishpond dikes constructed by respondent and delivered possession of the subject
property to other parties. As a result, he filed a Complaint for damages with application for

140

preliminary attachment against petitioners. In his Complaint, he alleged that the lessors had
violated their Contract of Lease, specifically the peaceful and adequate enjoyment of the
property for the entire duration of the Contract. He claimed P157,184.40 as consequential
damages for the demolition of the fishpond dikes, P395,390.00 as unearned income, and an
amount not less than P100,000.00 for rentals paid.
ISSUE:
WON the contract of lease between Teves and the petitioners is valid on the ground that
it was contracted with fraud.
HELD:
The parties do not dispute the finding of the trial and the appellate courts that the
Contract of Lease was void. Indeed, the RTC correctly held that it was the State, not petitioners
that owned the fishpond. The 1987 Constitution specifically declares that all lands of the public
domain, waters, fisheries and other natural resources belong to the State. Included here are
fishponds, which may not be alienated but only leased. Possession thereof, no matter how long,
cannot ripen into ownership. Being merely applicants for the lease of the fishponds, petitioners
had no transferable right over them. And even if the State were to grant their application, the law
expressly disallowed sublease of the fishponds to respondent. Void are all contracts in which the
cause, object or purpose is contrary to law, public order or public policy. A void contract is
equivalent to nothing; it produces no civil effect. It does not create, modify or extinguish a
juridical relation. On this premise, respondent contends that he can recover from petitioners,
because he is an innocent party to the Contract of Lease. Petitioners allegedly induced him to
enter into it through serious misrepresentation.

16 December 2008

Lopez v. Court of Appeals

FACTS:
Benito Lopez obtained a loan for P20,000 from Prudential Bank. He executed a
promissory note for the same amount. He also executed a surety bond in which he and
Philamgen bound themselves to repay prudential. Lopez also executed an indemnity agreement
in favor of Philamgen. He executed a deed of assignment of 4,000 shares of the Baguio Military
Institution entitled "Stock Assignment Separate from Certificate." With the execution of this
deed of assignment, Lopez endorsed and delivered it to Philamgen. Lopez, Emilio Abello (AVP
of Philamgen) and Atty. Timoteo Sumawang (AVP of Bonding Dept) that if he could not pay the
loan, Abello and Pio Pedrosa (Prudential Bank) would buy the shares of stocks and out of the
proceeds thereof, the loan would be paid to the Prudential Bank.

141

Lopez obligation matured without being settled. Prudential Bank filed a case against
Lopez and Philamgen. Atty. Sumawang confronted Abello and Pedrosa regarding their
commitment to buy the shares. Abello then instructed Sumawang to transfer the shares to
Philamgen and he made a commitment that they will buy the shares so the proceeds could be
paid to the bank.
The complaint was dismissed and later refilled. Lopez sent a letter to Philamgen inquiring
about the formers shares of stock, pledged to Philamgen. Philamgen was then forced to pay
Prudential Bank P27, 785.89. Prudential executed a subrogation receipt on the same day.
Philamgen brought an action against Lopez before the CIF of Manila. The court dismissed
the complaint as Lopez already transferred to Philamgen the shares and the certificate of stock
was already issued under the name of Philamgen. It is noteworthy that the transfer of stocks
was initiated by the plaintiffs officers. To go after Lopez again would amount to double
payment. The CA reversed and declared that the stock assignment was a mere pledge; that the
transfer of the stocks to Philamgen was not intended to make it the owner; that assuming that
Philamgen had appropriated the stocks, this appropriation is null and void as a stipulation
authorizing it is a pactum commissorium; and that pending payment, Philamgen is merely
holding the stock as a security for the payment of Lopez' obligation.
ISSUE:
WON Philamgen can still recover from Lopez
HELD:
Ratio: Considering the explicit terms of the deed denominated "Stock Assignment
Separate from Certificate, Lopez sold, assigned and transferred unto Philamgen the stocks
involved "for and in consideration of the obligations undertaken" by Philamgen "under the terms
and conditions of the surety bond executed by it in favor of the Prudential Bank" and "for value
received". On its face, it is neither pledge nor dation in payment. The document speaks of an
outright sale as there is a complete and unconditional divestiture of the incorporeal property
consisting of stocks from Lopez to Philamgen. The transfer appears to have been an absolute
conveyance of the stocks to Philamgen whether or not Lopez defaults in the payment of P20,
000.00 to Prudential Bank. While it is conveyance in consideration of a contingent obligation, it
is not itself a conditional conveyance. It is true that if Lopez should "well and truly perform and
fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated" in his
promissory note to Prudential Bank, the obligation of Philamgen under the surety bond would
become null and void. Corollarily, the stock assignment, which is predicated on the obligation
of Philamgen under the surety bond, would necessarily become null and void likewise, for want
of cause or consideration under Article 1352 CC. But this is not the case here because aside from
the obligations undertaken by Philamgen under the surety bond, the stock assignment had other
considerations referred to therein as "value received". Hence, based on the manifest terms
thereof, it is an absolute transfer. Notwithstanding the express terms of the "Stock Assignment
Separate from Certificate", however, we hold and rule that the transaction should not be regarded
as an absolute conveyance in view of the circumstances obtaining at the time of the execution
thereof. The indemnity agreement and the stock assignment must be considered together as
related transactions because in order to judge the intention of the contracting parties, their

142

contemporaneous and subsequent acts shall be principally considered. (Article1371 CC).

Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez
towards Philamgen while the stock assignment indicates a complete discharge of the
same obligation, the existence of the indemnity agreement whereby Lopez had to pay a premium
of P1,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and
all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent
with the theory of an absolute sale for and inconsideration of the same undertaking of Philamgen.

7 April 2009

Tala Reality v. Court Appeals

FACTS:
Banco Filipinos complaints commonly alleged that in 1979, expansion of its operations
required the purchase of real properties for the purpose of acquiring sites for more branches; that
as Sections 25(a) and 34 of the General Banking Act limit a banks allowable investments in real
estate to 50% of its capital assets, its board of directors decided to warehouse some of its existing
properties and branch sites. Thus, Nancy L. Ty, a major stockholder and director, persuaded
Pedro Aguirre and his brother Tomas Aguirre, both major stockholders of Banco Filipino, to
organize and incorporate Tala Realty to hold and purchase real properties in trust for Banco
Filipino; that after the transfer of Banco Filipino properties to Tala Realty, the Aguirres sister
Remedios prodded her brother Tomas to, as he did, endorse to her his shares in Tala Realty and
registered them in the name of her controlled corporation, Add International.
Thus, Nancy, Remedios, and Pedro Aguirre controlled Tala Realty, with Nancy
exercising control through her nominees Pilar, Cynthia, and Dolly, while Remedios exercised
control through Add International and her nominee Elizabeth. Pedro Aguirre exercised control
through his own nominees, the latest being Tala Realtys president, Rubencito del Mundo. In the
course of the implementation of their trust agreement, Banco Filipino sold to Tala Realty some
of its properties. Tala Realty simultaneously leased to Banco Filipino the properties for 20 years,
renewable for another 20 years at the option of Banco Filipino with a right of first refusal in the
event Tala Realty decided to sell them.Tala Realty repudiated the trust, claimed the titles for
itself, and demanded payment of rentals, deposits, and goodwill, with a threat to eject Banco
Filipino. Thus arose Banco Filipinos 17 complaints for reconveyance against Tala Realty.
ISSUE:
Whether or not the trust agreement is void.
HELD:
Yes. The Court held that an implied trust could not have been formed between the Bank
and Tala as the Court has held that where the purchase is made in violation of an existing statute

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and in evasion of its express provision, no trust can result in favor of the party who is guilty of
the fraud.The bank cannot use the defense of nor seek enforcement of its alleged implied trust
with Tala since its purpose was contrary to law. As admitted by the Bank, it warehoused its
branch site holdings to Tala to enable it to pursue its expansion program and purchase new
branch sites including its main branch in Makati, and at the same time avoid the real property
holdings limit under Sections 25(a) and 34 of the General Banking Act which it had already
reached.Clearly, the Bank was well aware of the limitations on its real estate holdings under the
General Banking Act and that its warehousing agreement with Tala was a scheme to
circumvent the limitation. Thus, the Bank opted not to put the agreement in writing and call a
spade a spade, but instead phrased its right to reconveyance of the subject property at any time as
a first preference to buy at the same transfer price. This agreement which the Bank claims to
be an implied trust is contrary to law. Thus, while the Court finds the sale and lease of the
subject property genuine and binding upon the parties, the Court cannot enforce the implied trust
even assuming the parties intended to create it. In the words of the Court in the Ramos case, the
courts will not assist the payor in achieving his improper purpose by enforcing a resultant trust
for him in accordance with the clean hands doctrine. The Bank cannot thus demand
reconveyance of the property based on its alleged implied trust relationship with Tala

13 August 2004

Ringor v. Ringor
FACTS:
The controversy involves lands in San Fabian, Pangasinan, owned by the late Jacobo
Ringor. By his first wife, Gavina Laranang, he had two children, Juan and Catalina. He did not
have offsprings by his second and third wives. Catalina predeceased her father Jacobo who died
sometime in 1935, leaving Juan his lone heir.
Juan married Gavina Marcella. They had seven (7) children, namely: Jose (the father and
predecessor-in-interest of herein petitioners), Genoveva, Felipa, Concordia, Agapito, Emeteria
and Espirita. Genoveva and Agapito are represented in this case by Teofilo Abalos and
Marcelina Ringor, their respective children. Espirita is represented by her children, Avelina,
Cresencia and Felimon Almasen.
Jacobo applied for the registration of his lands under the Torrens system. He filed three
land registration cases alone, with his son Juan, or his grandson Jose, applying jointly with him.
While trial of the case was in progress, Julio Monsis, alleging he was the only child of Macaria
Discipulo and Jacobo, filed a Complaint in Intervention. So did Leocadia Ringor, alleging she
was the only child of Jacobo with Marcelina Gimeno. When Julio died on February 3, 1977, he
was survived by his wife Felipa and their legitimate children Maria, Federico, Eusebio,
Paciencia, Panfilo and Fermin, all surnamed Monsis. On July 8, 1982, herein respondents filed
an Amendment to their Amended Complaint impleading as additional party-defendants, the
Heirs of Jose M. Ringor, Inc. Now before us the petitioners, in their Memorandum, raise the
followi ng

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ISSUES:
Whether or not there is a document, instrument, deed or any writing creating an express
trust and forming part of evidence on record which supports the findings of the trial court.

HELD:
Respondents, for their part, argue that Jacobo created an express trust. Respondents cite
the three applications for registration of the lands referred to the Expedientes 241,
244 and 4449 and the three Compraventas as documentary proofs that an express trust was
created by Jacobo. According to them, this conclusion can be gleaned clearly when Jacobo
exercised acts of ownership over all the disputed lands even after the alleged donation and deeds
of sale in favor of Jose, and when Jacobo religiously gave shares of the income and produce of
the disputed lands to the respondents, a practice Jose continued until three years before his death.

481 SCRA 384

Oco v. Limbaring
FACTS:
The pertinent facts are not disputed. Sometime in 1996, Sabas Limbaring subdivided
his Lot 2325-D, covered by Transfer Certificate of Title (TCT) No. 5268, into two lots
denominated as Lot Nos. 2325-D-1 and 2325-D-2. He then executed in favor of
Jennifer Limbaring a Deed of Sale for Lot 2325-D-2 for P60,000; and, in favor of Sarah
Jane Limbaring, another Deed for Lot 2325-D-1 for P14,440. Accordingly, TCT No. 5268 was
cancelled and TCT Nos. T-21921 and T-21920 were issued in the names of Jennifer and Sarah
Jane, respectively. Sensing some irregularities in the transaction, Percita Oco, the daughter of
Sabas Limbaring, left Puerto Princesa City and went to Ozamis City. She then filed a case of
perjury and falsification of documents against respondent, her uncle who was the father of
Jennifer and Sarah Jane. During the pre-litigation conference called by City
Prosecutor Luzminda Uy on July 1, 1996, the parties agreed that the two parcels of land should
be reconveyed to Percita, who was to pay respondent all the expenses that had been and would
be incurred to transfer the titles to her name.
ISSUE:
Whether respondent, who was the plaintiff in the trial court, was a real party in interest in
the suit to rescind the Deeds of Reconveyance.

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HELD:
Petitioners contend that respondent was not a trustor, and therefore not the real party in
interest and had no legal right to institute the suit. The real parties in interest were Jennifer and
Sarah Jane, to whom the subject properties had been given as gifts.
The controversy centers on Rule 3 of the Rules of Court, specifically an elementary rule in
remedial law, which is quoted as follows:
Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in the
name of the real party in interest.
As applied to the present case, this provision has two requirements: 1) to institute an
action, the plaintiff must be the real party in interest; and 2) the action must be prosecuted in the
name of the real party in interest. 3) To avoid a multiplicity of suits; and 4) to discourage
litigation and keep it within certain bounds, pursuant to sound public policy.

16 may 2005

Aznar brothers v. Aying,

FACTS:
The disputed property is Lot No. 4399 located at Lapu-Lapu City. Crisanta Maloloy-on
petitioned for the issuance of a cadastral decree in her favor over said parcel of land. After her
death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the
name of Crisanta Maloloy-ons eight children, namely: Juan, Celedonio, Emiliano, Francisco,
Simeon, Bernabe, Roberta and Fausta, all surnamed Aying. The certificate of title was, however,
lost during the war. Subsequently, all the heirs of the Aying siblings executed an Extrajudicial
Partition of Real Estate with Deed of Absolute Sale dated March 3, 1964, conveying the subject
parcel of land to herein petitioner Aznar Brothers Realty Company. Said deed was registered
with the Register of Deeds of Lapu-Lapu and since then, petitioner had been religiously paying
real property taxes on said property.
In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out
notices to vacate, addressed to persons occupying the property. Unheeded, petitioner then filed a
complaint for ejectment against the occupants before the Metropolitan Trial Court (MTC), LapuLapu City.On February 1, 1994, the MTC ordered the occupants to vacate the property.
Meanwhile, herein respondents, along with other persons claiming to be descendants of the eight
Aying siblings, all in all numbering around 220 persons, had filed a complaint for cancellation of
the Extrajudicial Partition with Absolute Sale, recovery of ownership, injunction and damages
with the RTC of Lapu-Lapu City. The complaint was dismissed twice without prejudice.
MTC and Court of Appeals ruled in favor of Petitioner.

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ISSUE:
WON the Extrajudicial Partition of Real Estate with Deed of Absolute Sale is valid.

HELD:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes.
Respondents alleged in their amended complaint that not all the co-owners of the land in
question signed or executed the document conveying ownership thereof to petitioner and made
the conclusion that said document is null and void. We agree with the ruling of the RTC and the
CA that the Extrajudicial Partition of Real Estate with Deed of Absolute Sale is valid and
binding only as to the heirs who participated in the execution thereof, hence, the heirs of
Emiliano, Simeon and Roberta Aying, who undisputedly did not participate therein, cannot be
bound by said document.
The amended complaint of the heirs of Roberta Aying is DISMISSED on the ground of
prescription. However, the heirs of Emiliano Aying and Simeon Aying, having instituted the
action for reconveyance within the prescriptive period, are hereby DECLARED as the LAWFUL
OWNERS of a 2/8 portion of the parcel of land covered by Certificate of Title No. RO-2856.

13 january 1989

Manila bank v. Teodoro,

FACTS:
On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly and
severally, executed in favor of plaintiff a Promissory Note (No. 11487) for the sum of
P10,420.00 payable in 120 days, or on August 25, 1966, at 12% interest per annum. Defendants
failed to pay the said amount inspire of repeated demands and the obligation as of September 30,
1969 stood at P 15,137.11 including accrued interest and service charge. On May 3, 1966 and
June 20, 1966, defendants Anastacio Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son)
executed in favor of plaintiff two Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and
P1,000.00 respectively, payable in 120 days at 12% interest per annum. Father and Son made a
partial payment on the May 3, 1966 promissory Note but none on the June 20, 1966 Promissory
Note, leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued
interest and service charge.The three Promissory Notes stipulated that any interest due if not paid
at the end of every month shall be added to the total amount then due, the whole amount to bear
interest at the rate of 12% per annum until fully paid; and in case of collection through an

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attorney-at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as
attorney's fees, which in no case shall be leas than P200.00.
ISSUE:
WON the deed of assignment is considered as dation or payment.
HELD:
The Deed of Assignment provided that it was for and in consideration of certain credits,
loans, overdrafts, and their credit accommodations in the sum of P10,000.00 extended to
appellants by appellee bank, and as security for the payment of said sum and the interest thereon;
that appellants as assignors, remise, release, and quitclaim to assignee bank all their rights, title
and interest in and to the accounts receivable assigned (lst paragraph).
Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be
said to have been constituted by virtue of a dation in payment for appellants' loans with the bank
evidenced by promissory note Nos. 11487, 11515 and 11699 which are the subject of the suit for
collection in Civil Case No. 78178. At the time the deed of assignment was executed, said loans
were non-existent yet. The deed of assignment was executed on January 24, 1964 (Exh. "G"),
while promissory note it was a dation in payment for P10,000.00, the amount of credit from
appellee bank indicated in the deed of assignment. At the time the assignment was executed,
there was no obligation to be extinguished except the amount of P10,000.00. Moreover, in order
that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other (Article 1292, New Civil Code).
Obviously, the deed of assignment was intended as collateral security for the bank loans of
appellants, as a continuing guaranty for whatever sums would owe by defendants to plaintiff, as
stated in stipulation No. 9 of the deed. In case of doubt as to whether a transaction is a pledge or
a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission
of rights and interests (Lopez v. Court of Appeals, supra).

13 August 2010

Tan v. Ramirez
FACTS:
On August 11, 1998, the petitioner, representing her parents (spouses Crispo and
Nicomedesa P. Alumbro), filed with the Municipal Circuit Trial Court (MCTC) of HindangInopacan, Leyte a complaint for the recovery of ownership and possession and/or quieting of title
of a one-half portion of the subject property against the respondents. The petitioner alleged that
her great-grandfather Catalino Jaca Valenzona was the owner of the subject property under a
1915 Tax Declaration (TD) No. 2724. Catalino had four children: GliceriaValentina, Tomasa,
and Julian; Gliceria inherited the subject property when Catalino died; Gliceria married Gavino

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Oyao, but their union bore no children; when Gliceria died on April 25, 1952, Gavino inherited a
one-half portion of the subject property, while Nicomedesa acquired the other half through
inheritance, in representation of her mother, Valentina, who had predeceased Gliceria, and
through her purchase of the shares of her brothers and sisters. In 1961, Nicomedesa constituted
Roberto as tenant of her half of the subject property; on June 30, 1965, Nicomedesa bought
Gavinos one-half portion of the subject property from the latters heirs, Ronito and Wilfredo
Oyao. August 3, 1965, Nicomedesa sold to Roberto this one-half portion in a Deed of Absolute
Sale of Agricultural Land and in 1997, Nicomedesa discovered that since 1974, Roberto had
been reflecting the subject property solely in his name under TD No. 4193.
ISSUE:
WON respondents owns the property in good faith
HELD:
Prescription, as a mode of acquiring ownership and other real rights over immovable
property,] is concerned with lapse of time in the manner and under conditions laid down by law,
namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted,
and adverse.] The party who asserts ownership by adverse possession must prove the presence of
the essential elements of acquisitive prescription. Acquisitive prescription of real rights may be
ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and
with just title for ten years. In extraordinary prescription, ownership and other real rights over
immovable property are acquired through uninterrupted adverse possession for thirty years
without need of title or of good faith. Possession in good faith consists in the reasonable belief
that the person from whom the thing is received has been the owner thereof, and could transmit
his ownership. There is just title when the adverse claimant came into possession of the
property through one of the modes recognized by law for the acquisition of ownership or other
real rights, but the grantor was not the owner or could not transmit any right