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- Rules of interpretation: the literal meaning of the stipulations

FACTS shall control if the terms of the contract are clear and leave no
- Petitioner leased a 56-square meter parcel of land. The lease doubt upon the intention of the contracting parties. However,
contract was for a period of fifteen years to commence on 1 if the terms of the agreement are ambiguous resort is made to
June 1979 and to end on 1 June 1994 "subject to renewal for contract interpretation which is the determination of the
another ten (10) years, under the same terms and conditions." meaning attached to written or spoken words that make the
-Petitioner then constructed a building and paid the required contract. Also, to ascertain the true intention of the parties,
monthly rental of P200. Private respondents, later demanded their actions, subsequent or contemporaneous, must be
a gradual increase in the rental until it reached P400 in 1985. principally considered.
For July and August 1991, petitioner paid private respondents
P1,000 as monthly rental. - *The phrase "subject to renewal for another ten (10) years"
is unclear on whether the parties contemplated an automatic
- On 6 December 1991, private respondents' counsel wrote renewal or extension of the term, or just an option to renew
petitioner informing her of the increase in the rent to the contract; and if what exists is the latter, who may exercise
P1,576.58 effective January 1992 pursuant to the provisions of the same or for whose benefit it was stipulated.
the Rent Control Law. Petitioner, however, tendered checks -There is nothing in the stipulations in the contract and the
dated 5 October 1991, 5 November 1991, 5 December 1991, parties' actuation that shows that the parties intended an
5 January 1992, 31 May 1992, and 2 January 1993 for only automatic renewal or extension of the term of the contract.
P400 each. Private respondents refused to accept the same. The fact that the lessee was allowed to introduce
- Petitioner filed with the RTC of Manila a complaint for specific improvements on the property is not indicative of the
performance with prayer for consignation, that private intention of the lessors to automatically extend the contract.
respondents be ordered to accept the rentals in accordance Neither the filing of the complaint a year before the expiration
with the lease contract and to respect the lease of fifteen of the 15-year term nor private respondents' acceptance of
years, which was renewable for another ten years, at the rate the increased rentals has any bearing on the intention of the
of P200 a month. parties regarding renewal. It must be recalled that the filing of
the complaint was even spawned by private respondents'
- In their Answer, private respondents countered that refusal to accept the payment of monthly rental in the amount
petitioner had already paid the monthly rent of P1,000 for July of only P400.
and August 1991. Under Republic Act No. 877, as amended,
rental payments should already be P1,576.5810 per month; - Fernandez v. CA is applicable to the case at bar, thus:
hence, they were justified in refusing the checks for P400 that In a reciprocal contract like a lease, the period must be
petitioner tendered. Moreover, the phrase in the lease deemed to have been agreed upon for the benefit of
contract authorizing renewal for another ten years does not both parties, absent language showing that the term
mean automatic renewal; rather, it contemplates a mutual was deliberately set for the benefit of the lessee or
agreement between the parties. lessor alone. It was not specifically indicated who may
exercise the option to renew, neither was it stated that
- During the pendency of the controversy, counsel for private the option was given for the benefit of herein
respondents wrote petitioner reminding her that the contract petitioner. Thus, pursuant to the Fernandez ruling and
expired on 1 June 1994 and demanding that she pay the Article 1196 of the Civil Code, the period of the lease
rentals in arrears, which then amounted to P33,000. contract is deemed to have been set for the benefit of
both parties. Renewal of the contract may be had only
- RTC declared the lease contract automatically renewed for upon their mutual agreement or at the will of both of
ten years and considered as evidence thereof (a) the them. Since the private respondents were not
stipulations in the contract giving the lessee the right to amenable to a renewal, they cannot be compelled to
construct buildings and improvements and (b) the filing by execute a new contract when the old contract
petitioner of the complaint almost one year before the terminated on 1 June 1994. It is the owner-lessor's
expiration of the initial term of fifteen years. It then fixed the prerogative to terminate the lease at its expiration.
monthly rent at P400 from 1 June 1990 to 1 June 1994; P1,000
from 1 June 1994 until 1 June 1999; and P1,500 for the rest of 2. YES
the period or from 1 June 2000 to 1 June 2004, reasoning that - After the lease terminated on 1 June 1994 without any
the continuous increase of rent from P200 to P250 then P300, agreement for renewal being reached, petitioner became
P400 and finally P1,000 caused "an inevitable novation of subject to ejectment from the premises. It must be noted,
their contract." however, that private respondents did not include in their
Answer with Counterclaim a prayer for the restoration of
- Court of Appeals reversed the decision of the RTC, and possession of the leased premises. The Court of Appeals went
ordered petitioner to immediately vacate the leased premises beyond the bounds of its authority when after interpreting the
on the ground that the contract expired on 1 June 1994 questioned provision of the lease contract in favor of the
without being renewed and to pay the rental arrearages at the private respondents it proceeded to order petitioner to vacate
rate of P1,000 monthly. the subject premises. Disposition Petition is partly GRANTED.

- The Court of Appeals denied petitioner's motion for The decision of the CA is REVERSED insofar as it ordered the
reconsideration. Hence this petition. petitioner to immediately vacate the leased premises, without
prejudice, however, to the filing by the private respondents of
ISSUES an action for the recovery of possession of the subject
1. WON the parties intended an automatic renewal of the
lease contract when they agreed that the lease shall be for a
period of fifteen years "subject to renewal for another ten (10)

2. WON CA erred in ordering the petitioner to vacate the land

upon expiration of the lease contract.

Country Bankers Insurance Corp. v. CA GR 85161, Sep.
11, 1991 The CA cor- rectly sustained the trial court in holding that the
bond shall and may answer only for damages which OVEC
FACTS: Lessor Ventanilla and Lessee Sy, entered into a lease may suffer as a result of the injunction. The arrears in rental,
agreement over a theater. The lease was for six years. After the unremit- ted amounts of the amusement tax delinquency,
more than two years of the operation of the theaters, the amount of P100,000 (P10,000 portions of each monthly
Ventanilla made demands for the repossession of the leased rental which were not deducted from plaintiffs cash deposit
properties in view of Sys arrears in monthly rentals and non- from Feb. to Nov. 1980 after the forfeiture of said cash deposit
payment of amusement taxes. In pursuance of their latter on Feb. 11, 1980) and attorneys fees which were all charged
agreement, Sys arrears in rental in the amount of P125,445 against Sy were correct and considered by the CA as damages
was reduced to P71,028. which OVEC sustained not as a result of the injunction.

However, the accrued amusement tax liability of the three

theaters to the City Government had accumulated to P84,000
despite the fact that Sy had been deducting the amount of
P4,000 from his monthly rental with the obligation to remit the
said deductions to the city government.

Hence, letters of demand were sent to Sy demanding

payment of the arrears in rentals and amusement tax
delinquency. When Sy failed to pay the amounts in full,
despite demands, Ventanilla padlocked the gates of the three
theaters under lease and took possession thereof. Sy filed an
action for reformation and injunction. By virtue of the
injunction, Sy regained possession of the theater. The trial
court held that Sy is not entitled to reformation. On the
counterclaim, the court found that Ventanilla was deprived of
the enjoyment of the leased premises and suffered damages
as a result of the filing of the case by Sy and his violation of
the terms and conditions of the agreement. It held that
Ventanilla is entitled to recover the damages in addition to the
arrears in rentals and amusement tax delinquency of Sy and
the accrued interest thereon.

It found that as of the end of Nov. 1980, when Ventanilla

regained possession of the three theaters, Sys unpaid rentals
and amusement tax liability amounted to P289,534. In
addition, it held Sy under obligation to pay P10,000 every
month from Feb. to Nov. 1980 or the total amount of P100,000
with interest on each amount of P10,000 from the time the
same became due.

Thus, P10,000 portion of the monthly lease rental was

supposed to come from the remaining cash deposit of Sy but
with the consequent forfeiture of the remaining cash deposit
of P290,000, there was no more cash deposit from which said
amount could be deducted further. It adjudged Sy to pay attor-
neys fees equivalent to 10% of the amounts above-

Finally, the court held Sy thru the injunction bond liable to pay
P10,000 every month from Feb. to Nov. 1980. The amount
represents the supposed increase in rental from P50,000 to
P60,000 in view of the offer of someone to lease the three
theat- ers involved for P60,000 a month. The Court of Appeals
(CA) sustained the trial court.

HELD: The Supreme Court affirmed the CAs decision and held
that inasmuch as the forfeiture clause provides that the
deposit shall be deemed forfeited, without prejudice to any
other obligation still owing by the lessee to the lessor, the
penalty cannot substitute for the P100,000 supposed damage
resulting from the issuance of the injunction against the
P29,000 remain- ing cash deposit.

This supposed damage suffered by OVEC was the alleged

P10,000 a month increase in rental (from P50,000 to P60,000),
which OVEC failed to realize for ten months from Feb. to Nov.
1980 in the total sum of P100,000.

This opportunity cost which was duly proven before the trial
court, was correctly made chargeable by the said court
against the injunction bond posted by CISCO. The undertaking
assumed by CISCO under subject injunction refers to all such
damages as such party may sustain by reason of the PONCE DE LEON V SYJUCO
injunction if the Court should finally decide that the Plaintiff
was not entitled thereto.
FACTS: the consignation have been given to the person interested in
1. Philippine National Bank, was the owner of two parcels of the performance of the obligation;
land in Negros Occidental. On March 9, 1936 the Bank (4) that the amount due was placed at the disposal of the
executed a contract to sell the said properties to Jose Ponce court; and (5) that after the consignation had been made the
de Leon for the total price of P26,300. person interested was notified thereof.

2. Ponce de Leon obtained a loan from Santiago Syjuco, Inc., In the instant case, while it is admitted a debt
in the amount of P200,000 in Japanese Military Notes, payable existed, that the consignation was made because of the
within 1 year. It was also provided in said promissory note that refusal of the creditor to accept it, and the filing of the
Ponce de Leon could not pay, and Syjuco could not demand, complaint to compel its acceptance on the part of the creditor
the payment of said note except within the aforementioned can be considered sufficient notice of the consignation to the
period. To secure the payment of said obligation, Ponce de creditor, nevertheless, it appears that at least two of the
Leon mortgaged in favor of Syjuco the parcels of land which above requirements have not been complied with.
he agreed to purchase from PNB.
it appears that plaintiff, before making the consignation with
3. May 6, 1944: Ponce de Leon paid the Bank of the balance of the clerk of the court, failed to give previous notice thereof to
the purchase price amounting to P23,670 in Japanese Military the person interested in the performance of the obligation. It
notes and, on the same date, the Bank executed in favor of also appears that the obligation was not yet due and
Ponce de Leon, a deed of absolute sale of the aforementioned demandable when the money was consigned.
parcels of land.
it cannot be contended that plaintiff is justified in
4. July 31, 1944: Ponce de Leon obtained an additional loan accelerating the payment of the obligation because he was
from Syjuco in the amount of P16,000 in Japanese Military willing to pay the interests due up to the date of its maturity,
notes and executed a promissory note similar to the previous because in a monetary obligation contracted with a period,
one. the presumption is that the same is deemed constituted in
favor of both the creditor and the debtor unless from its tenor
5. October, 1944: Ponce de Leon tendered to Syjuco the or from other circumstances it appears that the period has
amount of P254,880 in Japanese military notes as full been established for the benefit of either one of them. No
payment of his debt. The amount tendered included the such exemption or special circumstance exists.
interest up to the time of the tender plus all the interest up to
May 5, 1948. Ponce de Leon also wrote to Syjuco a letter It may be argued that the creditor has nothing to lose but
tendering the payment of his indebtedness, including interests everything to gain by the acceleration of payment of the
up to May 5, 1948, Syjuco, however, refused to accept such obligation because the debtor has offered to pay all the
repeated tenders. interests up to the date it would become due, but this
argument loses force if we consider that the payment of
6. Because of Syjucos refusal to accept the payment, Ponce interests is not the only reason why a creditor cannot be
de Leon deposited with CFI Manila the amount of P254,880 forced to accept payment contrary to the stipulation. Unless
and filed a complaint consigning the amount so deposited to the creditor consents, the debtor has no right to accelerate
Syjuco. However, the records of this case were destroyed by the time of payment even if the premature tender "included
the war. an offer to pay principal and interest in full.

7. Ponce de Leon then filed a petition with CFI Negros

II. YES. When the creditor and the debtor have agreed on a
Occidental for the reconstitution of transfer of the certificates
term within which payment of the obligation should be paid
of the lots in the name of PNB, which was granted by the
and on the currency in which payment should be made, that
court. Syjuco filed an answer to the complaint claiming that
stipulation should be given force and effect unless it appears
Ponce de Leon, by reconstituting the titles in the name PNB,
contrary to law, moral or public order.
by causing the Register of Deeds to have the said titles
transferred in his name, and by subsequently mortgaging the
IV. YES. The mortgage claim of the defendant Syjuco is
said properties to the Bank as a guaranty for his overdraft
entitled to priority over that of the Philippine National Bank.
account, had violated the conditions of the mortgage which
Ponce de Leon has executed in its favor during the Japanese
It appears that the mortgage executed in favor of
occupation. Syjuco prayed that the mortgage executed by
Syjuco is prior in point of time and in point of registration to
Ponce de Leon in favor of the Bank be declared null and void.
that executed in favor of the PNB, let alone the fact that when
the later mortgage was executed, PNB must have known, as it
8. The lower court rendered a decision absolving Syjuco from
was its duty to find out, that there was a warning appearing in
Ponce de Leon's complaint and condemning Ponce de Leon to
reconstituted titles that the same were subject to whatever
pay Syjuco the total amount of P23,130 with interest at the
encumbrance may exist which for one reason or another does
legal rate from May 6, 1949, until fully paid. Both Ponce de
not appear in said titles.
Leon and Syjuco file their appeal from this decision.
and when PNB accepted as security the titles offered by the
plaintiff without any further inquiry, it assumed the risk and
the consequences resulting therefrom.
1. Is the consignation made by the plaintiff valid in the
light of the law and the stipulations agreed upon in the two
promissory notes signed by the plaintiff? NO.
2. Whether the lower court erred in reducing the
amount of the loans by applying the Ballantyne schedule. YES.
I. NO. In order that consignation may be effective, the debtor
must first comply with certain requirements prescribed by law.

The debtor must show

(1) that there was a debt due;
(2) that the consignation of the obligation had been made
bacause the creditor to whom tender of payment was made ARANETA V. PHIL. SUGAR ESTATES DEVELOPMENT CO.
refused to accept it, or because he was absent for LTD.
incapacitated, or because several persons claimed to be
entitled to receive the amount due; (3) that previous notice of Facts:
- On July 28, 1950, J. M. Tuason & Co. sold a portion of its land judgment. The last paragraph of Article 1197 is clear that the
in Sta. Mesa Heights Subdivision, Q.C. to Phil. Sugar Estates period can not be set arbitrarily. The law expressly prescribes
Development (PSED) Co., Ltd., through Gregorio Araneta Inc. that the courts shall determine such period as may under the
(GAI) for P 430, 514. In their contract of purchase and sale, circumstance have been probably contemplated by the
the parties stipulated that the buyer will build the Sto. parties.
Domingo Church and the seller will construct streets on the NE
and NW and SW sides of the land. All that the trial court's amended decision says is that the
proven facts precisely warrant the fixing of such a period,
- The buyer PSED finished the construction of the church but which is insufficient to explain how the two- year period
the seller, GAI, was unable to finish the construction of the given to petitioner herein was arrived at. The trial
street in the NE side because a certain third party, Manuel court appears to have pulled the two-year period set in
Abundo, who has been physically occupying a middle part its decision out of thin air, no circumstances are
thereof, refused to vacate the same. mentioned to support it.

-On May 7, 1958, PSED filed a complaint against J. M. Tuason The contract shows that the parties were fully aware that the
& Co, Inc., and GAI in CFI Manila, seeking to compel the latter land described was occupied by squatters. As the parties must
to comply with their obligation and/or to pay damages in the have known that they could not take the law into their own
event they failed or refused to perform the obligation. hands and must resort to legal processes in evicting the
squatters, they must have realized that the duration of the
- Both defendants answered the complaint with GAI setting up suits to be brought would not be under their control nor could
the principal defense that the action was premature since its the same be determined in advance. The conclusion is thus
obligation to construct the streets in question was without a forced that the parties must have intended to defer the
definite period which needs to be fixed first by the court in a performance of the obligations under the contract until the
proper suit for that purpose before a complaint for specific squatters were duly evicted, as contended by the petitioner
performance will prosper. GAI.

- After the lower court dismissed the complaint, PSED moved

for a reconsideration praying that the court fix a period within
which defendants will comply with their obligation to construct
the streets in question. Defendant GAI opposed said motion,
maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply
with its obligation and that the evidence presented at the trial
was insufficient to warrant the fixing of such a period.

- On July 16, 1960, the lower court amended its previous

decision and, after finding that the proven facts warrant the
fixing of such a period, rendered judgment giving defendant
GAI, a period of Two (2) Years from notice within which
to comply with its obligation under the contract: to
construct streets on the NE, NW and SW sides of the
land sold to plaintiff so that the same would be a block
surrounded by streets on all four sides.

ISSUE: WON the trial court and the CA erred in setting the
date for the performance of the contract

HELD: The decision of the CA, affirming that of the CFI is

legally untenable. It does not lie within them to fix the period
of the performance of the obligation.

Article 1197 is predicated on the absence of any period

fixed by the parties and it involves a two-step process.
The court must first determine that the obligation
does not fix a period (or that the period is made to
depend upon the will of the debtor), but from the
nature and the circumstances it can be inferred that a
period was intended. The court must then proceed to
the second step, and decide what period was
probably contemplated by the parties.

- In no case can it be logically held that the intervention of the

court to fix the period for performance was warranted, for
even on the assumption that the court should have found that
no reasonable time or no period at all had been fixed (the trial
court's amended decision nowhere declared any such fact)
still, the complaint not having sought that the court should set
a period, the court could not proceed to do so unless the
complaint was first amended; for the original decision is clear
that the complaint proceeded on the theory that the period for
performance had elapsed already, that the contract had been
breached and defendant was already answerable in damages. 4. Quiombing v CA

-Granting, however, that it lay within the Court's power to fix Facts: A Construction and Service Agreement was concluded
the period of performance, still the amended decision is by Nicencio Tan Quiombing and Dante Biscocho, as the First
defective in that no basis is stated to support the conclusion Party, jointly and severally bound themselves to construct a
that the period should be set at two years after finality of the house for private respondents Francisco and Manuelita Saligo,
as the Second Party, for the contract price of P137,940.00, ISSUE: WON Inciong and Pantanosas can be held liable with
which the latter agreed to pay. Manuelita Saligo then, in a Naybe, who allegedly employed fraud and misrepresentation
second agreement, acknowledge the completion of the project
and promised to pat plaintiffs the stipulated amount on or HELD: Yes. The stated points are factual, which should be
before December 31, 1984. On October 9, 1986, Quiombing determined in the lower court not in this court.
filed a complaint for recovery of the said amount, plus charges
and interests. Saligo, instead of filing an Answer, moved to - By alleging fraud in his answer, petitioner was in the right
dismiss the complaint contending that Biscocho was an direction towards proving that he agreed to a loan of P5k only.
indispensable party and therefore should have been included However, fraud must be established by clear and convincing
as a co-plaintiff.. The RTC dismissed the complaint. The CA evidence. Mere preponderance of evidence is not adequate -
upheld the RTC ruling. On his argument that since the complaint against Naybe was
dismissed, his should be dismissed as well: It is to be noted,
Issue: May one of the two solidary creditors sue by himself however, that petitioner signed the promissory note as a
alone for the recovery of amounts due to both of them without solidary co-maker and not as a guarantor. While a guarantor
joining the other creditor as a co-plaintiff? may bind himself solidarily with the principal debtor, the
liability of a guarantor is different from that of a solidary
Held: Yes. A solidary obligation is one in which each debtor is debtor
liable for the entire obligation, and each creditor is entitled to
demand the whole obligation; each creditor may enforce the When there are two or more debtors in one and the same
entire obligation, and each debtor may be obliged to pay it in obligation, the presumption is that the obligation is joint so
full. that each of the debtors is liable only for a proportionate part
of the debt. There is a solidarily liability only when the
The essence of active solidarity consists in the authority of obligation expressly so states, when the law so provides or
each creditor to claim and enforce the rights of all, with the when the nature of the obligation so requires.
resulting obligation of paying every one what belongs to him;
there is no merger, much less a renunciation of rights, but A solidary or joint and several obligation is one in which each
only mutual representation. debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation.
It would follow from these observations that the question of
who should sue the private respondents was a personal issue - Because the promissory note involved in this case expressly
between Quiombing and Biscocho in which the spouses Saligo states that the three signatories therein are jointly and
had no right to interfere; hence, it was not necessary for both severally liable, any one, some or all of them may be
Quiombing and Biscocho to file the complaint. Inclusion of proceeded against for the entire obligation
Biscocho as a co-plaintiff, when Quiombing was competent to
sue by himself alone, would be a useless formality. - The choice is left to the solidary creditor to determine
against whom he will enforce collection.
Article 1212 of the Civil Code provides:
(Tolentino) explains: "A guarantor who binds himself in
Each one of the solidary creditors may do whatever may be solidum with the principal debtor under the provisions of the
useful to the others, but not anything which may be prejudice second paragraph does not become a solidary co-debtor to all
to the latter. intents and purposes. There is a difference between a solidary
co- debtor, and a fiador in solidum (surely). The later, outside
Suing for the recovery of the contract price is certainly a of the liability he assumes to pay the debt before the property
useful act that Quiombing could do by himself alone. If of the principal debtor has been exhausted, retains all the
Quiombing eventually collects the amount due from the other rights, actions and benefits which pertain to him by
solidary debtors, Biscocho may later claim his share thereof. reason of the fiansa; while a solidary co-debtor has no other
As far as respondents are concerned, payment of the rights than those bestowed upon him in Section 4, Chapter 3,
judgment debt to the complainant will be considered payment title 1, Book IV of the Civil Code.
to the other solidary creditor even if the latter was not a party -
to the suit.

6. Inciong v CA

- RTC ordered Inciong to pay Phil. Bank of Communications

(PBC) P50,000 w/ interest. His liability resulted from the
promissory note (P50,000) w/c he signed w/ Rene Naybe and
Gregorio Pantanosas on Feb. 3, 1983 holding themselves
jointly and severally liable to private respondent PBC. The
promissory note was due on May 5, 1983. The due date
expired w/o the promissors having paid their obligation

After few demands, they still failed to settle their obligation;

hence, PBC brought the case to the court. Only the summon
addressed to Inciong was served bec. Naybe was already in
Saudi Arabia. In his answer, petitioner Inciong alleged that he
was persuaded by Campos to act as a co-maker by trickery,
fraud and misrepresentation that he signed a note stating that
he is liable for P5,000.00 only, but in actuality was made liable
for the amount of P50,000.00. JAUCIAN v QUEROL
Pantanosas, in his affidavit, he supports the allegation that - In October, 1908, Lino Dayandante and Hermenegilda
they were induced to sign the promissory note on the belief Rogero executed a private writing in which they acknowledged
that it was only for P5,000. He also said that the promissory themselves to be indebted to Roman Jaucian in the sum of
note should be declared bull and void also on the grounds P13,332.33. In the first clause, it was stated that the obligors
that: jointly and secerally acknowledge their indebtednesss.
- In November, 1909, Hermenegilda Rogero brought an action had been presented to the committee for allowance, it would
in the Court of First Instance of Albay against Jaucian, asking have been rejected and that the decision of the committee
that the document in question be cancelled as to her upon the would have been sustained by the CFI, the rights of the
ground that her signature was obtained by means of fraud. creditor could have been protected by an appeal from that
- In his answer to the complaint, Jaucian, by way of cross- decision.
complaint, asked for judgment against the plaintiff for the
amount due upon the obligation, which appears to have The only concrete illustration of a contingent claim given in
matured at that time. section 746 of the Code of Civil Procedure is the case where a
person is liable as surety for the deceased, that is, where the
- While the case was pending in the Supreme Court, principal debtor is dead. In the case before us, it is the surety
Hermenegilda Rogero died and the administrator of her estate who is dead. In the illustration put in section 746-where the
was Querol. On November 25, 1913, the Supreme Court principal debtor is dead and the surety is the party preferring
rendered its decision reversing the judgment of the trial court the claim against the estate of the deceased-it is obvious that
and holding that the disputed claim was valid. the surety has no claim against the estate of the principal
debtor, unless he himself satisfies the obligation in whole or in
Upon these facts Jaucian prayed the court for an order part upon which both are bound. It is at this moment, and not
directing the administrator of the Rogero estate to pay him before, that the obligation of the principal to indemnify the
the principal sum plus its interest because Dayandante is surety arises (art. 1838, Civil Code); and by virtue of such
already insolvent and failed to pay him P100.00. payment the surety is subrogated in all the rights which the
creditor had against the debtor (art. 1839, same Code).
CFI held that: "Hermenegilda Rogero having been simply
surety for Lino Dayandante, the administrator has a right to - It is possible that "contingency," in the cases contemplated
require that Roman Jaucian produce a judgment for his claim in section 746, may depend upon other facts than those which
against Lino Dayandante. It seemingly ruled that whatever relate to the creation or inception of liability. It may be, for
rights Jaucian might have against the estate of Rogero were instance, that the circumstance that a liability is subsidiary,
subject to the performance of a condition precedent, namely,
that he should first exhaust this remedy against Dayandante.

ISSUE: WON the liability of Rogero / Querol is that of a

principal or a surety

Held: Respondent has solidarity liability, as in the document it

appeared that they bould themselves severally and jointly
liable. Hence, Jaucian can bring action against the estate of
Rogero. The Civil Code provides:

- Art 1822: By security a person binds himself to pay or

perform for a third person in case the latter should fail to do
so. If the surety binds himself jointly with the principal debtor,
the provisions of section fourth, chapter third, title first, of this
book shall be observed."

- Art 1144: "A creditor may sue any of the joint and several
(solidarios) debtors or all of them simultaneously. The claims
instituted against one shall not be an obstacle for those that
may be later presented against the others, as long as it does
not appear that the debt has been collected in full."

The foregoing articles of the Civil Code make it clear that

Hermenegilda Rogero was liable absolutely and
unconditionally for the full amount of the obligation without
any right to demand the exhaustion of the property of the
principal debtor previous to its payment. Her position so far as
the creditor was concerned was exactly the same as if she
had been the principal debtor.
Aection 698 of the Code of Civil Procedure, which provides:
"When two or more persons are indebted on a joint contract,
or upon a judgment founded on a joint contract, and either of
them dies, his estate shall be liable therefor, and it shall be
allowed by the committee as if the contract had been with
him alone or the judgment against him alone. But the estate
shall have the right to recover contribution from the other
joint debtor." Continental Cement Corporation v Asea Brown Boveri,

- Hermenegilda Rogero, and her estate after her death, was Sometime in July 1990, petitioner Continental Cement
liable absolutely for the whole obligation, under section 698 of Corporation (CCC), a corporation engaged in the business of
the Code of Civil Procedure; and if the claim had been duly producing cement, obtained the services of respondents Asea
presented to the committee for allowance it should have been Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to
allowed, just as if the contract had been with her alone. repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor).

- There is no force, in our judgment, in the contention that the

On October 23, 1991, due to the repeated failure of
pendency of the suit was a bar to the presentation of the
respondents to repair the Kiln Drive Motor, petitioner filed with
claim against the estate. The fact that the lower court had
Branch 101 of the Regional Trial Court (RTC) of Quezon City a
declared the document void was not conclusive, as its
judgment was not final, and even assuming that if the claim
Complaint for sum of money and damages. They alleged that
ABB must pay
Art. 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.
(a) Production and opportunity losses - P10,600,000.00

Art. 2201. In contracts and quasi-contracts, the damages for

This amount represents only about 25% of the production
which the obligor who acted in good faith is liable shall be
losses at the rate of P72.00 per bag of cement.
those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen
(b) Labor Cost and Rental of Crane - 26,965.78 or could have reasonably foreseen at the time the obligation
was constituted.
(c) Penalties (at P987.25 a day) for
failure to deliver the motor from In case of fraud, bad faith, malice or wanton attitude, the
Aug. 29, 1990 to July 31, 1991. - 331,716.00 obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the
(d) Cost of money interest of the
P987.25 a day from July 18, 1990
Based on the foregoing, a repairman who fails to perform his
to April 5, 1991 at 34% for 261 days - 24,335.59
obligation is liable to pay for the cost of the execution of the
Total Damages 10,983,017.42
obligation plus damages.
Attorneys fees of 20% of the amount sought to be recovered
As per Purchase Order Nos. 17136-37, petitioner is entitled to
penalties in the amount of P987.25 per day from the time of
Respondents, however, claimed that under Clause 7 of the
delay, August 30, 1990, up to the time the Kiln Drive Motor
General Conditions,[11] attached to the letter of offer[12]
was finally returned to petitioner.
dated July 4, 1990 issued by respondent ABB to petitioner, the
liability of respondent ABB does not extend to consequential
Under Article 1226[39] of the Civil Code, the penalty clause
damages either direct or indirect.
takes the place of indemnity for damages and the payment of
interests in case of non-compliance with the obligation, unless
On August 30, 1995, the RTC rendered a Decision[15] in favor
there is a stipulation to the contrary. In this case, since there
of petitioner. The RTC rejected the defense of limited liability
is no stipulation to the contrary, the penalty in the amount of
interposed by respondents since they failed to prove that
P987.25 per day of delay covers all other damages (i.e.
petitioner received a copy of the General Conditions.[16]
production loss, labor cost, and rental of the crane) claimed by
Consequently, the RTC granted petitioners claims for
production loss, labor cost and rental of crane, and attorneys
Article 1226 of the Civil Code further provides that if the
obligor refuses to pay the penalty, such as in the instant case,
On appeal, the CA reversed the ruling of the RTC. The CA
[40] damages and interests may still be recovered on top of
applied the exculpatory clause in the General Conditions and
the penalty. Damages claimed must be the natural and
ruled that there is no implied warranty on repair work; thus,
probable consequences of the breach, which the parties have
the repairman cannot be made to pay for loss of production as
foreseen or could have reasonably foreseen at the time the
a result of the unsuccessful repair.
obligation was constituted. But except for the Summary of
Claims for Damages,[43] no other evidence was presented by
petitioner to show that it had indeed rented a crane or that it
incurred labor cost to install the motor.
Held: Petitioner and respondent ABB entered into a contract
for the repair of petitioners Kiln Drive Motor, evidenced by
Without these production reports, it cannot be determined
Purchase Order Nos. 17136-37,[33] with the following terms
with reasonable certainty whether petitioner indeed incurred
and conditions:
production losses during the said period. It may not be amiss
to say that competent proof and a reasonable degree of
a) Total Price: P197,450.00 certainty are needed to justify a grant of actual or
compensatory damages; speculations, conjectures, assertions
or guesswork are not sufficient.
b) Delivery Date: August 29, 1990 or six (6) weeks from
receipt of order and down payment[34]
Besides, consequential damages, such as loss of profits on
account of delay or failure of delivery, may be recovered only
c) Penalty: One half of one percent of the total cost or Nine if such damages were reasonably foreseen or have been
Hundred Eighty Seven Pesos and Twenty five centavos brought within the contemplation of the parties as the
(P987.25) per day of delay. probable result of a breach at the time of or prior to
contracting.[48] Considering the nature of the obligation in
the instant case, respondent ABB, at the time it agreed to
Respondent ABB, however, not only incurred delay in
repair petitioners Kiln Drive Motor, could not have reasonably
performing its obligation but likewise failed to repair the Kiln
foreseen that it would be made liable for production loss.
Drive Motor; thus, prompting petitioner to sue for damages.
Respondent ABB is ORDERED to pay petitioner the amount of
Having breached the contract it entered with petitioner,
P129,329.75, with interest at 6% per annum to be computed
respondent ABB is liable for damages pursuant to Articles
from the date of the filing of the complaint until finality of this
1167, 1170, and 2201 of the Civil Code, which state:
Decision and 12% per annum thereafter until full payment.
Art. 1167. If a person obliged to do something fails to do it, vs.
the same shall be executed at his cost. EMPIRE INSURANCE CO

Facts: On March 31, 1959, the Makati Development

This same rule shall be observed if he does it in contravention
Corporation sold to Rodolfo P. Andal a lot, with an area of
of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
1,589 square meters, in the Urdaneta Village, Makati, Rizal, to the probable damages which might be anticipated as a
for P55,615.1wph1.t result of a breach of the terms of the contract, or, in other
words, where the indemnity provided for is essentially a mere
A so-called "special condition" contained in the deed of sale penalty having for its object the enforcement of compliance
provides that "[T]he VENDEE/S shall commence the with the contract.
construction and complete at least 50% of his/her/their/its
residence on the property within two (2) years from March 31, The penal clause in this case was inserted not to indemnify
1959 to the satisfaction of the VENDOR and, in the event of the Makati Development Corporation for any damage it might
his/her/their/its failure to do so, the bond which the VENDEE/S suffer as a result of a breach of the contract but rather to
has delivered to the VENDOR in the sum of P11,123.00 and compel performance of the so-called "special condition" and
evidenced by a cash bond receipt dated April 10, 1959 will be thus encourage home building among lot owners in the
forfeited in favor of the VENDOR by the mere fact of failure of Urdaneta Village.
the VENDEE/S to comply with this special condition." To insure
faithful compliance with this "condition," Andal gave a surety Indeed the stipulation in this case to commence the
bond on April 10, 1959 wherein he, as principal, and the construction and complete at least 50 per cent of the
Empire Insurance Company, as surety, jointly and severally, vendee's house within two years cannot be construed as
undertook to pay the Makati Development Corporation the imposing a strictly personal obligation on Andal. To adopt such
sum of P12,000 in case Andal failed to comply with his a construction would be to limit Andal's right to dispose of the
obligation under the deed of sale. lot.

Andal was not able to build the house, and sold the same to
Juan Carlos n January 18, 1960. As neither Andal nor Juan
Carlos built a house on the lot within the stipulated period, the
Makati Development Corporation, on April 3, 1961, that is,
three days after the lapse of the two-year period, sent a
notice of claim to the Empire Insurance Co. advising it of
Andal's failure to comply with his undertaking. Demand for the
payment of P12,000 was refused, whereupon the Makati
Development Corporation filed a complaint in the Court of
First Instance of Rizal on May 22, 1961 against the Empire
Insurance Co. to recover on the bond in the full amount, plus
attorney's fees.

Hearing was held and, on March 28, 1963, the lower court
rendered judgment, sentencing the Empire Insurance Co. to
pay the Makati Development Corporation the amount of
P1,500, with interest at the rate of 12% from the time of the
filing of the complaint until the amount was fully paid, and to
pay attorney's fees in the amount of P500, and the
proportionate part of the costs. MDC appealed directly to the


To begin with, the so-called "special condition" in the deed of

sale is in reality an obligation1 to build a house at least 50
per cent of which must be finished within two years. It was to
secure the performance of this obligation that a penal clause
was inserted.

While it is true that in obligations with a penal sanction the

penalty takes the place of "damages and the payment of
interest in case of non-compliance"2 and that the obligee is
entitled to recover upon the breach of the obligation without
the need of proving damages,3 it is nonetheless true that in
certain instances a mitigation of the obligor's liability is
allowed. Thus article 1229 of the Civil Code states:

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.

Here the trial court found that Juan Carlos had finished more
than 50 per cent of his house by April, 1961, or barely a
month after the expiration on March 31, 1961 of the stipulated
period. There was therefore a partial performance of the
obligation within the meaning and intendment of article 1229.

Indeed, it has been held that where there has been partial or
irregular compliance with the provisions in a contract for
special indemnification in the event of failure to comply with
its terms, courts will rigidly apply the doctrine of strict
construction against the enforcement in its entirety of the
indemnification, where it is clear from the contract that the
amount or character of the indemnity is fixed without regard YNCHAUSTI V YULO (1914)
with interest at 10% per annum, on that date
FACTS: aggregating to P42,944.76.
- Teodoro Yulo, a property owner of Iloilo, for the exploitation
and cultivation of his numerous haciendas in the province of - On May 12, 1911, Francisco, Manuel, and Carmen Yulo y
Negros Occidental, had been borrowing money from the firm Regalado executed in favor of Inchausti & Co. another notarial
of Inchausti & Company under specific conditions. instrument in recognition of the debt and the obligation of
payment in the following terms: "First, the debt is reduced
- On April 9, 1903, Teodoro Yulo died testate. His widow and for them to P225,000; second, the interest is likewise
children held the conjugal property in common and at the reduced for them to 6% per annum, from March 15,
death of Gregoria (wife), these children (Pedro, Francisco, 1911; third, the installments are increased to 8, the
Teodoro, Manuel, Gregorio, Mariano, Carmen, first of P20,000, beginning on June 30, 1911, and the
Concepcion, and Jose .Of these children Concepcion rest of P30,000 each on the same date of each
and Jose were minors, while Teodoro was mentally successive year until the total obligation shall be
incompetent. preserved the same relations under the finally and satisfactorily paid on June 30, 1919," it being
name of Hijos de T. Yulo continuing their current expressly agreed "that if any of the partial payments specified
account with Inchausti & Company until said balance in the foregoing clause be not paid at its maturity, the amount
amounted to P200,000 upon which the creditor firm tried to of the said partial payment together with its interest shall
obtain security for the payment of the money. bear interest at the rate of 15% per annum from the date of
said maturity, without the necessity of demand until its
- Gregorio Yulo, for himself and in representation of his complete payment;" that "if during two consecutive years
brothers Pedro, Francisco, Manuel, Mariano, and the partial payments agreed upon be not made, they
Carmen, executed on June 26, 1908, a notarial shall lose the right to make use of the period granted
document whereby all admitted their indebtedness to to them for the payment of the debt or the part thereof
Inchausti & Company in the sum of P203,221.27 and, in order which remains unpaid, and that Messrs. Inchausti & Co.
to secure the same with interest thereon at 10% per annum, may consider the total obligation due and demandable,
they especially mortgaged an undivided six-ninth of their 38 and proceed to collect the same together with the
rural properties, their remaining urban properties, lorchas, and interest for the delay above stipulated through all legal
family credits which were listed, obligating themselves to means."
make a formal inventory and finally to extend by the
necessary formalities the mortgage over the remaining three- - Stipulated in addition: Inchausti & Co. should include in their
ninths part of all the property and rights belonging to their suit brought in the CFI of Iloilo against Gregorio Yulo, his
other brothers, the incompetent Teodoro, and the minors brother and joint co-obligee, Pedro Yulo, and they will procure
Concepcion and Jose. by all legal means and in the least time possible a judgment in
their favor against Gregorio and Pedro, sentencing the latter
On January 11, 1909, Gregorio Yulo in representation of Hijos to pay the total amount of the obligation acknowledged by
de T. Yulo answered a letter of the firm of Inchausti & them in the instrument of August 12, 1909; with the
Company in these terms: "With your favor of the 2d inst. we understanding that if they should deem it convenient for their
have received an abstract of our current account with your interests, Francisco, Manuel, and Carmen Yulo may appoint an
important firm, closed on the 31st of last December, with attorney to cooperate with the lawyers of Inchausti & Co. in
which we desire to express our entire conformity as also with the proceedings of the said case. [Traitors!]
the balance in your favor of P271,863.12." On July 17, 1909,
Inchausti & Company informed Hijos de T. Yulo of the - On July 10, 1911, Gregorio Yulo answered the complaint and
reduction of the said balance to P253,445.42, with which alleged as defenses: first, that an accumulation of interest had
balance Hijos de T. Yulo expressed its conformity by means of taken place and that compound interest was asked for in
a letter of the 19th of the same month and year. Regarding Philippine currency at par with Mexican; second, that in the
this conformity a new document evidencing the mortgage instrument of August 12, 1909, two conditions were agreed
credit was formalized. one of which ought to be approved by the CFI, and the other
- ratified and confirmed by the other brother Mariano Yulo,
On August 12, 1909, Gregorio, for himself and in neither of which was complied with; third, that with regard to
representation of his brother Manuel, and in their own the same debt claims were presented before the
behalf Pedro, Francisco, Carmen, and Concepcion, the commissioners in the special proceedings over the
latter being of age at the time, ratified all the contents of inheritances of Teodoro Yulo and Gregoria Regalado, though
the prior document of June 26, 1908, severally and later they were dismissed, pending the present suit; fourth
jointly acknowledged and admitted their indebtedness and finally, that the instrument of August 12, 1909, was
to Inchausti & Company for the net amount of novated by that of May 12, 1911, executed by Manuel,
P253,445.42 which they obligated themselves to pay, Francisco and Carmen Yulo.
with interest at 10% per annum, in five installments at the
rate of P50,000. - The CFI of Iloilo decided the case "in favor of the defendant
- without prejudice to the plaintiff's bringing within the proper
- Among other clauses, they expressly stipulated the time another suit for his proportional part of the joint debt,
following: and that the plaintiff pay the costs."
- The default in payment of any of the installments or
the noncompliance of any of the other obligations will ISSUES
result in the maturity of all the said installments, and 1. WON the plaintiff can sue Gregorio Yulo alone, there being
Inchausti & Co. may exercise at once all the rights and other obligors
actions in order to obtain the immediate and total 2. WON plaintiff lost this right by the fact of its having agreed
payment of our debt. with the other obligors in the reduction of the debt, the
- All the obligations will be understood as having been proroguing of the obligation and the extension of the time for
contracted in solidum by all the Yulos, brothers and sisters. payment, in accordance with the instrument of May 12, 1911
- This instrument was neither ratified nor confirmed by 3. WON the contract with the three obligors constitutes a
Mariano Yulo. novation of that of August 12, 1999, entered into with the six
debtors who assumed the payment of P253,445.42
- The Yulos did not pay the first installment of the 4. If in the negative, WON it has any effect in the action
obligation. brought and in this present suit
- On March 27, 1911, Inchausti & Co. brought an
ordinary action in the CFI of Iloilo, against Gregorio HELD
Yulo for the payment of the balance of P253,445.42
1. Yes.. The debtors having obligated themselves in solidum, But as regards Francisco, Manuel, and Carmen Yulo, none of
the creditor can bring its action in toto against any one of the installments payable under their obligation, contracted
them. later, had as yet matured. The first payment, as already
This was surely the purpose in demanding that the obligation stated, was to mature on June 30, 1912. This exception or
contracted should be solidary having in mind the principle of personal defense of Francisco, Manuel, and Carmen Yulo "as to
law that, "when the obligation is constituted as a conjoint and that part of the debt for which they were responsible" can be
solidary obligation each one of the debtors is bound to set up by Gregorio Yulo as a partial defense to the action. The
perform in full the undertaking which is the subject matter of part of the debt for which these three are responsible is three-
such obligation." sixths of P225,000 or P112,500, so that Gregorio may claim
that, even acknowledging that the debt for which he is liable
2. No. Solidarity may exist even though the debtors are is P225,000, nevertheless not all of it can now be demanded
not bound in the same manner and for the same of him, for that part of it which pertained to his co-debtors is
periods and under the same conditions. Even though not yet due, a state of affairs which not only prevents any
the creditor may have stipulated with some of the action against the persons who were granted the term which
solidary debtors diverse installments and conditions, has not yet matured, but also against the other solidary
as in this case, Inchausti & Co. did with its debtors debtors who being ordered to pay could not now sue for a
Manuel, Francisco, and Carmen Yulo through the contribution, and for this reason the action will be only as to
instrument of May 12, 1911, this does not lead to the the P112,500.
conclusion that the solidarity stipulated in the
instrument of August 12, 1909 is broken. Against the propriety and legality of a judgment against
Gregorio Yulo for this sum, to wit, the three-sixths part of the
3. No. An obligation to pay a sum of money is not novated in a debt which forms the subject matter of the suit, we do not
new instrument wherein the old is ratified, by changing only think that there was any reason or argument offered which
the term of payment and adding other obligations not sustains an opinion that for the present it is not proper to
incompatible with the old one. First, because in order that an order him to pay all or part of the debt, the object of the
obligation may be extinguished by another which substitutes action.
it, it is necessary that it should be so expressly declared or
that the old and the new be incompatible in all points; and the Disposition We therefore sentence the defendant Gregorio
instrument of May 12, 1911, far from expressly declaring that Yulo to pay the plaintiff Inchausti & Co. P112,500, with the
the obligation of the three who executed it substitutes the interest stipulated in the instrument of May 12, 1911, from
former signed by Gregorio and the other debtors, expressly March 15, 1911, and the legal interest on this interest due,
and clearly stated that the said obligation of Gregorio to pay from the time that it was claimed, without any special finding
the P253,445.42 sued for exists, stipulating that the suit must as to costs. The judgment appealed from is reversed. So
continue its course and, if necessary, these three parties ordered.
would cooperate in order that the action against Gregorio
might prosper. It is always necessary to state that it is the
intention of the contracting parties to extinguish the former
obligation by the new one. There exist no incompatibility
between the old and the new obligation.

4. Yes. Total amount and amount due and demandable,

The obligation being solidary, the remission of any part of the
debt made by a creditor in favor of one or more of the solidary
debtors necessarily benefits the others. Although the contract
of May 12, 1911, has not novated that of August 12, 1909, it
has affected that contract and the outcome of the suit brought
against Gregorio alone for the sum of P253,445.42; and in
consequence, the amount stated in the contract of August 12,
1909, cannot be recovered but only that stated in the contract
of May 12, 1911, by virtue of the remission granted to the
three of the solidary debtors in this instrument. He cannot
be ordered to pay the P253,445.42 claimed from him in
the suit here, because he has been benefited by the
remission made by the plaintiff to three of his co-
debtors. Consequently, the debt is reduced to 225,000

Before the performance of the condition, or before the

execution of a term which affects one debtor alone,
proceedings may be had against him or against any of the
others for the remainder which may be already demandable
but the conditional obligation or that which has not yet LAFARGE CEMENT PHLIPPINES, INC. V CONTINENTAL CEMENT
matured cannot be demanded from any one of them. CORPORATION

Gregorio Yulo cannot allege as a defense to the action that it FACTS

is premature. When the suit was brought on March 27, 1911, - 8/11/98: in a Letter of Intent (LOI), petitioner Lafargeon
the first installment of the obligation had already matured as behalf of its affiliates including Petitioner Luzon Continental
of June 30, 1910, and not having been paid, the whole debt Land Corp. (LCLC) agreed to purchase respondent Continental
had become mature, according to the express agreement of Cement Corporation (CCC). At the time, CCC were
the parties, independently of the resolutory condition which respondents in a pending case against Asset Privatization
gave the creditor the right to demand the immediate payment Trust (APT) [GR No. 119712]
of the whole debt upon the expiration of the stipulated term of - 10/21/98: both parties entered into a Sale and Purchase
one week allowed to secure from Mariano Yulo the ratification Agreement (SPA)
and confirmation of the contract of August 12, 1909. - under clause 2 of the SPA the parties allegedly agreed to
retain P117,020,846.84 from the purchase price to be
deposited in an interest-bearing account in Citibank NY for 2. They are also the plaintiffs co-joint tortfeasors in the
payment to APT commission of complained acts and as such are jointly and
- petitioners allegedly refused to pay APT; fearing foreclosure, solidarily liable
CCC filed w/ the RTC of QC a Complaint w/ Application for 3.
Preliminary Attachment against petitioners [CC No. Q-00- A2010 page 70 Prof. Labitag
41103] Lim and Mariano should pay P5M each for counsel fees and
- petitioners moved to dismiss the complaint on the grounds litigation costs. For damage to the reputations of defendants,
of forum-shopping to avoid being in default, petitioners filed a sum of P100M each for moral damages is prayed for
their Answer and Compulsory Counterclaims ad Cautelam - since the alleged damages suffered by the defendants were
against Respondent CCC, its majority stockholder Gregory a consequence of petiitioners actions, the requisites for
Lim, and its corporate secretary Anthony Mariano, praying for compulsory counterclaim are met.
the sums of P2.7M as actual damages, P100M as exemplary 1(b) In the Sugapay case, Respondent Mobil Phils. filed an
damages, P100M as moral damages and P5M as attys fees action for replevin against the sps Sugapay. The sps failed to
and costs each keep their end of a Dealership Agreement; they answered with
- petitioners allege that the Writ of Attachment was procured a counterclaim alleging the plaintiff refused to give them gas.
in bad faith They still had a post surety bond w/c they couldnt claim w/o
- the RTC dismissed petitioners counterclaims since the the Agreement, later discovering Mobil and its manager,
counterclaims against Lim and Mariano were not compulsory, Cardenas, intended all along to award the agreement to Island
the Sapugay ruling wasnt applicable, and the Counterclaims Air Product Corp.
violated procedural rules on the proper joinder of causes of - an issue raised was whether Cardenas, who wasnt a party to
action the original action, could be impleaded in the counterclaim
- acting for MFR, the TC admitted an error in pronouncing the - the Court held that new parties may be brought to the action
counterclaim was against Lim and Mariano only; the RTC to accord complete relief to all in a single action and to avert a
clarified that it impleaded the two, even if CCC was included multiplicity of suits
then - respondent CCC contends that as a corporation with a
ISSUES separate legal personality, it has the juridical capacity to
1. WON the RTC gravely erred in ruling that (a) petitioners indemnify petitioners even w/o Lim and Mariano; the Court
counterclaims against Respondents Lim and Mariano are not however points out that the inclusion of the co-defendants is
compulsory; (b) Sapugay v. Court of Appeals is inapplicable not premised on the assumption of CCCs financial ability but
here; and (c) petitioners violated the rule on joinder of causes on the allegations of fraud and bad faith against them, making
of action. them indispensable parties
2. WON the RTC gravely erred in refusing to rule that - in Sagupay, Cardenas was furnished w/ a copy of the Answer
Respondent CCC has no personality to move to dismiss w/ Counterclaim but he did not respond. Hence the Court
petitioners compulsory counterclaims on Respondents Lim considered his apparent acquiescence, despite his active
and Marianos behalf. participation in the trial, and adopted as his answer the
HELD allegations in the complaint, and is deemed to have submitted
1. to the TCs jurisdiction. Sec 12 Rule 6 of the Rules of Court
1(a) Sec 6 Rule 6 of the Rules of Civil Procedure states: (A state that only upon service of summons can the TC obtain
counterclaim is) any claim which a defending party may have jurisdiction over them.
against an opposing party - in the instant case, no records show that Lim and Mariano
- they are generally allowed to facilitate the disposition of the are aware of the counterclaims or that they actively
whole controversy in a single action participated in the proceeding. So unlike in Sagupay, the court
- a counterclaim is permissive if it is not necessarily connected cannot be said to have treated CCCs motion to dismiss as
w/ the subject matter of the opposing partys claim and may having been filed on their behalf
be filed in a separate case 1(c) CCC claims that while the original complaint was a suit for
- a counterclaim is compulsory if it arises out of the specific performance based on a contract, the counterclaim
transaction or occurrence of the subject matter was based on tortuous acts of the respondents, violating the
- compulsory counterclaims must be set up in the same action rule on joinder of causes of action as stated in S5 Rule 2 and
or be barred forever NAMARCO v. Fed of United Namarco Dist. S6 Rule 3 of the Rules of Civil Procedure
lays down the criteria to determine counterclaim type: -these rules are founded on practicalitydismissing the
1. are issues of fact and law raised by the claim and by the counterclaim for damages would likely only lead to a separate
counterclaim largely the same? case re-filing it. Nevertheless, the two are indispensable
2. Would res judicata bar a subsequent suit on defendants parties
claim, absent the compulsory counterclaim rule? 2. Art 1207 of the Civil Code provides that obligations are
3. Will substantially the same evidence support or refute generally considered joint unless expressly stated or when the
plaintiffs claim/counterclaim? nature of the obligation requires solidarity. Obligations arising
4. Is there any logical relation b/w the claim and counterclaim? from tort, however, are always solidary.
- a positive answer to all four would indicate it is compulsory -the fact that liability sought against CCC is for specific
- The court then examined petitioners basis for their performance and tort, while those against Lim and Mariano
allegations using these criteria: are based solely on tort does not negate the solidary nature of
1. Lim and Mariano were responsible for making the bad faith their liablility
decisions and causing the plaintiff to file this baseless suit and -petitioners assertion that CCC cannot move to dismiss the
procure an unwarranted Writ of Attachment counterclaims on the grounds that pertain solely to its
individual co-debtors cannot be given credence. A1222 of the
CC provides:

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