and which was filed earlier before the International Chamber of
Lafarge Cement v Continental Cement (2004)
Solidary Obligation
Doctrine: A solidary debtor may, in actions filed by the creditor, avail itself
of all defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible.
Facts: Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on behalf of its
affiliates and other qualified entities, including Petitioner Luzon Continental
Land Corporation (LCLC) -- agreed to purchase the cement business of
Respondent Continental Cement Corporation (CCC). Both parties entered into
a Sale and Purchase Agreement (SPA). At the time of the foregoing
transactions, petitioners were well aware that CCC had a case pending with the
Supreme Court.
In anticipation of the liability that the High Tribunal might adjudge against
CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from
the purchase price a portion of the contract price in the amount
of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be
deposited in an interest-bearing account in the First National City Bank of New
York (Citibank) for payment to APT.
However, petitioners allegedly refused to apply the sum to the payment to APT,
the repeated instructions of Respondent CCC. Fearful that nonpayment to APT
would result in the foreclosure, not just of its properties covered by the SPA
with Lafarge but of several other properties as well, CCC filed before them a
Complaint with Application for Preliminary Attachment against
petitioners. The Complaint prayed, among others, that petitioners be directed
to pay the APT Retained Amount referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the
prohibition on forum-shopping. Respondent CCC had allegedly made the
same claim it was raising in another action, which involved the same parties
Commerce. After the trial court denied the Motion to Dismiss, petitioners
elevated the matter before the Court of Appeals.
In the meantime, to avoid being in default and without prejudice to the
outcome of their appeal, petitioners filed their Answer and Compulsory
Counterclaims ad Cautelam before the trial court. In their Answer, they denied
the allegations in the Complaint. They prayed -- by way of compulsory
counterclaims against Respondent CCC, its majority stockholder
and president Gregory T. Lim, and its corporate secretary Anthony
A. Mariano -- for the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages,
(c) P100,000,000 each as moral damages, and (d) P5,000,000 each
as attorneys fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the
baseless Complaint in Civil Case No. Q-00-41103 and procured the Writ of
Attachment in bad faith. Relying on this Courts pronouncement in Sapugay v.
CA, petitioners prayed that both Lim and Mariano be held jointly and
solidarily liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive
pleading, CCC moved to dismiss petitioners compulsory
counterclaims on grounds that essentially constituted the very
issues for resolution in the instant Petition.
On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80)
dismissed petitioners counterclaims for several reasons, among which were
the following: a) the counterclaims against Respondents Lim and Mariano
were not compulsory; b) the ruling in Sapugay was not applicable; and c)
petitioners Answer with Counterclaims violated procedural rules on the
proper joinder of causes of action.
Issue: Whether or not the RTC gravely erred in ruling that petitioners
counterclaims against Respondents Lim and Mariano are not compulsory; and
whether or not the counterclaim for damages against Respondents CCC, Lim
and Mariano is joint and solidary, in character.
Ruling: In relation to the first issue, the court held using the compelling test
of compulsoriness, that, clearly, the recovery of petitioners counterclaims is
contingent upon the case filed by respondents; thus, conducting separate trials
thereon will result in a substantial duplication of the time and effort of the court
and the parties.
On the second issue, the court cited that obligations may be classified as either
joint or solidary. Joint or jointly or conjoint
means mancum or mancomunada or pro rata obligation; on the other hand,
solidary obligations may be used interchangeably with joint and several or
several. Thus, petitioners usage of the term joint and solidary is confusing
and ambiguous.
The ambiguity in petitioners counterclaims notwithstanding, respondents
liability, if proven, is solidary. This characterization finds basis in Article 1207
of the Civil Code, which provides that obligations are generally considered joint,
except when otherwise expressly stated or when the law or the nature of the
obligation requires solidarity. However, obligations arising from tort are, by
their nature, always solidary
In a joint obligation, each obligor answers only for a part of the whole
liability; in a solidary or joint and several obligation, the relationship
between the active and the passive subjects is so close that each of them must
comply with or demand the fulfillment of the whole obligation. The fact that
the liability sought against the CCC is for specific performance and tort, while
that sought against the individual respondents is based solely on tort does not
negate the solidary nature of their liability for tortuous acts alleged in the
counterclaims. Article 1211 of the Civil Code is explicit on this point:
o Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods
and conditions.
The solidary character of respondents alleged liability is precisely why
credence cannot be given to petitioners assertion. According to such assertion,
Respondent CCC cannot move to dismiss the counterclaims on grounds that
pertain solely to its individual co-debtors. In cases filed by the creditor, a
solidary debtor may invoke defenses arising from the nature of the obligation,
from circumstances personal to it, or even from those personal to its co-
debtors. Article 1222 of the Civil Code provides:
o A solidary debtor may, in actions filed by the creditor, avail itself
of all defenses which are derived from the nature of the
obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally
belong to the others, he may avail himself thereof only
as regards that part of the debt for which the latter are
responsible.
The act of Respondent CCC as a solidary debtor -- that of filing a motion to
dismiss the counterclaim on grounds that pertain only to its individual co-
debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that
Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did
not pray that the counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence teaches that if
the issues raised in the compulsory counterclaim are so intertwined with the
allegations in the complaint, such issues are deemed automatically joined.
Counterclaims that are only for damages and attorneys fees and that arise from
the filing of the complaint shall be considered as special defenses and need not
be answered.
While Respondent CCC can move to dismiss the counterclaims against it by
raising grounds that pertain to individual defendants Lim and Mariano, it
cannot file the same Motion on their behalf for the simple reason that it lacks
the requisite authority to do so. A corporation has a legal personality entirely
separate and distinct from that of its officers and cannot act for and on their
behalf, without being so authorized. Thus, unless expressly adopted by Lim
and Mariano, the Motion to Dismiss the compulsory counterclaim filed by
Respondent CCC has no force and effect as to them.
Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano)
may include, in a Motion to Dismiss, defenses available to their co-defendants;
nevertheless, the same Motion cannot be deemed to have been filed on behalf
of the said co-defendants.
ESTANISLAO and AFRICA SINAMBAN, petitioners, vs. CHINA BANKING
CORPORATION, respondent G.R. No. 193890 March 11, 2015
FACTS: The spouses Danilo and Magdalena Manalastas (spouses Manalastas)
executed a Real Estate Mortgage (REM) in favor of respondent China Banking
Corporation (Chinabank) over two real estate properties to secure a loan from
Chinabank as working capital in their rice milling business. During the next
few years, they executed several amendments to the mortgage contract
progressively increasing their credit line secured by the aforesaid mortgage.
The spouses Manalastas executed several promissory notes (PNs) in favor of
Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban
(spouses Sinamban) signed as co-makers. Chinabank filed a Complaint for sum
of money against the spouses Manalastas and the spouses Sinamban
(collectively called the defendants) before the RTC. The complaint alleged that
they reneged on their loan obligations under the PNs which the spouses
Manalastas executed in favor of Chinabank on different dates. They averred
that they do not recall having executed two PN's and had no participation in
the execution of one of the PN. They however admitted that they signed some
PN forms as co-makers upon the request of the spouses Manalastas who are
their relatives; although they insisted that they derived no money or other
benefits from the loans. They denied knowing about the mortgage security
provided by the spouses Manalastas, or that the latter defaulted on their loans.
They also refused to acknowledge the loan deficiency of P1,758,427.87 on the
PNs, insisting that the mortgage collateral was worth more than
P10,000,000.00, enough to answer for all the loans, interests and penalties.
They also claimed that they were not notified of the auction sale, and denied
that they knew about the Certificate of Sale and the Statement of Account and
insisted that Chinabank manipulated the foreclosure sale to exclude them
therefrom. By way of counterclaim, the Spouses Sinamban prayed for damages
and attorney's fees of 25%, plus litigation expenses and costs of suit
Issue:
Ruling: if a person binds himself solidarily with the principal debtor, the
provisions of Articles 1207 to 1222 of the Civil Code (Section 4, Chapter 3, Title
I, Book IV) on joint and solidary obligations shall be observed. Thus, where
there is a concurrence of two or more creditors or of two or more debtors in
one and the same obligation, Article 1207 provides that among them, "[t]here
is a solidary liability only when the obligation expressly so states, or when the
law or the nature of the obligation requires solidarity." It is settled that when
the obligor or obligors undertake to be "jointly and severally" liable, it means
that the obligation is solidary. 39 In this case, the spouses Sinamban expressly
bound themselves to be jointly and severally, or solidarily, liable with the
principal makers of the PNs, the spouses Manalastas Article 1216 of the Civil
Code provides that "[t]he creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against one
of them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected." Article 1252
42 of the Civil Code does not apply, as urged by the petitioners, because in the
said article the situation contemplated is that of a debtor with several debts
due, whereas the reverse is true, with each solidary debt imputable to several
debtors. ut as the Court has noted, by deducting the auction proceeds from the
aggregate amount of the three loans due, Chinabank in effect opted to apply
the entire proceeds of the auction simultaneously to all the three loans. This
implies that each PN will assume a pro rata portion of the resulting deficiency
on the total indebtedness as bears upon each PN's outstanding balance.
Contrary to the spouses Sinamban's insistence, none of the three PNs is more
onerous than the others to justify applying the proceeds according to Article
1254 of the Civil Code,in relation to Articles 1252 and 1253. 44 Since each loan,
represented by each PN, was obtained under a single credit line extended by
Chinabank for the working capital requirements of the spouses Manalastas'
rice milling business, which credit line was secured also by a single REM over
their properties, then each PN is simultaneously covered by the same mortgage
security, the foreclosure of which will also benefit them proportionately. No PN
enjoys any priority or preference in payment over the others, with the only
difference being that the spouses Sinamban are solidarily liable for the
deficiency on two of them.
LBP v Belle
Full Title: Land Bank of the Philippines vs Belle Corporation
Ref: G.R. No. 205271, September 02, 2015
Topic: Kinds of Obligations; According to Plurality of Subjects; Solidary
Respondent Belle Corporation (respondent) is engaged in the
development and operation of several leisure and recreational projects in
Tagaytay City.
 o Allegedly, respondent is the registered owner in possession of four
(4) parcels of land known as Lots 1 to 4 located at Barangay
Sungay, Tagaytay City.
o It received a demand letter from Florosa A. Bautistas counsel
which ordered the immediate stoppage of its occupation and use
of a substantial portion of the land that she purportedly owns.
She claimed that respondent had illegally constructed a
road on said property without her prior notice or
permission.
Bautista caused the posting of a signboard on the entrance
access road to Tagaytay Highlands notifying the public as
follows:
Please be informed that based on a geodetic re-
survey a substantial portion of this entrance road
leading to Tagaytay Highlands was found to be
inside the perimeter of a private property. Effective
November 1, 1996, the registered owner will enforce
her rights and entry and/or exit to her property
without her prior consent and approval will be
strictly prohibited.
o It filed a Complaint for Quieting of Title and Damages with Prayer
For TRO And/Or Preliminary Mandatory Injunction against
Florosa A. Bautista (Bautista) and the Register of Deeds of
Tagaytay City.
A copy of the TCT showed that it emanated from an
Original Certificate of Title (OCT) which, in turn, appears
to have been issued pursuant to a Free Patent. Respondent
thus sought to cancel the free patent for being null and
void, constituting a cloud on its own title.
To support its cause, respondent averred that its title over a portion of the
subject lot was originally registered as early as March 30, 1959 in the
name of Tagaytay Development Company and Patricia S. Montemayor.
o By reason of Montemayors death, the OCT was cancelled by a
TCT, which was registered in favor of Tagaytay Development
Company and the heirs of Montemayor. The land covered by the
TCT was thereafter partitioned and subdivided into five lots, two
of which, Lot Nos. 1-C and 2-B of the subdivision plan, were
assigned to Tagaytay Development Company.
o From 1989 to 1991, respondent began purchasing lands adjoining
the property for its various development projects in the area. To
gain access to these properties, it constructed an eight-meter wide
road, the entrance to which passes through a portion of the
property.
o On 1993, Tagaytay Highlands Corporation and respondent
merged, with the latter as the surviving corporation.
o In 1995, Lot Nos. 1-C and 2-B were consolidated with Lots 1 and 2.
After, the consolidated parcels of land were subdivided into five
lots under consolidation and subdivision plan. In view of this, TCT
Nos. T-24616 and P-578 were cancelled and replaced by TCT Nos.
P-1863 to P-1867, which were registered on December 12, 1995.14
Bautista filed an Answer with Compulsory Counterclaims and Opposition
to the Prayer for Issuance of Preliminary Mandatory Injunction.
o She countered that respondent should be bound and strictly
comply with the verification survey of the DENR. The survey
concluded that, if the dates of original registration are to be
considered as frame of reference, it is respondents title which
actually overlapped with Bautistas property. Specifically, Lot 1
extended beyond Lot 4123-B. Likewise, Bautista claimed that as
shown on the face of the TCT said title originated from a different
OCT pursuant to a Free Patent issued in the name of Paz M. Del
Rosario.
During the presentation of evidence by the defense, respondent was
informed that Bautista is no longer the owner of the property covered by
TCT No. P-671 as it was already foreclosed by petitioner Land Bank of
 the Philippines; that TCT No. P-3663 was issued in the banks name;
and, that the notice of lis pendens annotated in TCT No. P- 671 was not
carried over to the new title.
Respondent filed a Motion for Leave to File Amended Petition impleading
petitioner as indispensable party.
o Allegedly, Bautista mortgaged to petitioner the land covered by
TCT No. P-671 in order to secure a loan. Bautista defaulted in her
obligation resulting in the foreclosure of the property, with respect
to which respondent was not aware or notified. Upon Bautistas
failure to redeem the property and petitioners consolidation of
ownership, TCT No. P-671 was cancelled and TCT No. P-3663 was
registered.
The trial court granted respondents motion. Upon receiving the
summons, petitioner filed an Answer. Later, an Amended Answer was
filed to include a Third Party Complaint against Liezels
Garments, Inc., represented by its President and General
Manager Dolores E. Bautista. Petitioner contended that Liezels
Garments, Inc. should be made to pay its outstanding obligation of
P16,327,991.40, pursuant to the Omnibus Credit Line Agreement which
were secured by a real estate mortgage involving the disputed property.
o In response, Liezels Garments, Inc. filed an Answer (To the Third
Party Complaint). It stressed that the subject property is free from
all forms of liens and encumbrances when the mortgage contract
was executed with petitioner, since Bautista was then its absolute
and lawful owner with a clean and valid title. It reiterated
petitioners position that there is nothing from Bautistas title
which could arouse suspicion and, by reason thereof, the bank has
no obligation to look beyond what appears on the face of the
certificate of title.
Petitioner asserted that it observed due diligence and prudence expected
of it as a banking institution. It pointed out that prior to the approval of
the loan application, its representative verified the status of the collateral
covered by TCT No. P- 671, which revealed that the subject property was
registered in the name of Bautista and that the same is free and clear of
any lien or encumbrance. Also, upon ocular inspection, no adverse
ownership or interest was found. Therefore, in the absence of anything to
excite or arouse suspicion, petitioner is legally justified to rely on the
mortgagor and what appears on the face of her certificate of title.
After trial, the RTC ruled against respondent.
o The trial court relied on the testimony of Engr. Pangyarihan, who,
in conducting the DENR verification survey, based his findings on
what appeared to be the dates of registration of the mother titles of
the contending parties. It held that the land belonging to
respondent, which is covered by TCT No. P-1863 and originally
registered on February 14, 1977, overlapped the land belonging to
Bautista, which is covered by TCT No. T-671 and originally
registered on February 4, 1977. And since the title of Bautista was
issued earlier than that of respondent, the overlapping portion was
already private property and ceased to be part of the public
domain.
Upon appeal by respondent, the RTC Decision was annulled and set aside.
The CA Decision declared Belle Corporation as the legitimate owner of the
disputed property and ordered that Florosa A. Bautista and Third
Party Defendant Liezels Garments, Inc. to JOINTLY pay
Landbank of the Philippines the amount for which the disputed
property was sold to Landbank of the Philippines at the public
auction.
The CA did not find merit in the contention that petitioner is a mortgagee
in good faith. It noted that not once did the bank claim that it investigated
the status of the subject property despite the fact that the same forms part
of the ingress and egress of the well-known Tagaytay Highlands since
1990 or several years before it accepted the property as collateral from
Bautista. Since its negligence was the primary, immediate and overriding
reason, petitioner must bear the loss of the disputed property.
 Nonetheless, this is without prejudice to the recovery of P16,327,991.40
from Bautista and Liezels Garments, Inc., who both did not refute the
said amount.
Minor issue: Who is the rightful owner of the contested lots.
Held: respondent is the rightful owner of the contested 7,693 sq. m. portion of
the lot covered by TCT No. P-1863. Respondents title over such portion must
prevail since OCT No. O-216 and OCT No. 55 were registered on March 30,
1959 and July 31, 1941, respectively. In comparison, OCT No. OP-283, which is
the mother title of TCT No. P-671 in the name of Bautista, was registered much
later on February 4, 1977.
Minor issue: whether petitioner is a mortgagee in good faith and for value.
Held: No. Like the CA, We rule for respondent.
In general, the issue of whether a mortgagee is in good faith cannot be
entertained in a Rule 45 petition. This is because the ascertainment of good
faith or the lack thereof, and the determination of negligence are factual
matters which lay outside the scope of a petition for review on certiorari. Good
faith, or the lack of it, is a question of intention.
When the purchaser or the mortgagee is a bank, the rule on innocent
purchasers or mortgagees for value is applied more strictly. Being in the
business of extending loans secured by real estate mortgage, banks are
presumed to be familiar with the rules on land registration. Since the banking
business is impressed with public interest, they are expected to be more
cautious, to exercise a higher degree of diligence, care and prudence, than
private individuals in their dealings, even those involving registered lands.
Banks may not simply rely on the face of the certificate of title. Hence, they
cannot assume that, simply because the title offered as security is on its face
free of any encumbrances or lien, they are relieved of the responsibility of
taking further steps to verify the title and inspect the properties to be
mortgaged. As expected, the ascertainment of the status or condition of a
property offered to it as security for a loan must be a standard and
indispensable part of a banks operations. It is of judicial notice that the
standard practice for banks before approving a loan is to send its
representatives to the property offered as collateral to assess its actual
condition, verify the genuineness of the title, and investigate who is/are its real
owner/s and actual possessors.
It the instant case, petitioner readily admitted that during the appraisal and
inspection of the property it duly noted the observation that the subject
property was traversed by an access road leading to the Tagaytay Highlands.
However, it concluded, albeit erroneously, that the access road is still a part of
TCT No. P-671 because its existence cannot be established despite verifications
conducted by its property appraisers with the DENRs Land Management and
Tax Mapping Section of the Tagaytay City Assessors Office due to lack of
records of any survey plan delineating the portion occupied by the said road
from the subject property.
A person who deliberately ignores a significant fact that could create suspicion
in an otherwise reasonable person is not a mortgagee in good faith. A
mortgagee cannot close his eyes to facts which should put a reasonable man on
his guard and claim that he acted in good faith under the belief that there was
no defect in the title of the mortgagor. His mere refusal to believe that such
defect exists or the willful closing of his eyes to the possibility of the existence
of a defect in the mortgagor's title will not make him an innocent mortgagee
for value if it afterwards develops that the title was in fact defective, and it
appears that he had such notice of the defect as would have led to its discovery
had he acted with that measure of precaution which may reasonably be
required of a prudent man in a like situation.
Important topic: Whether or not the CA was correct in ordering Bautista
AND Liezels Garments, Inc. to JOINTLY pay petitioner P16,327,991.40, the
amount for which the disputed property was sold to petitioner at public
auction.
Held: No. Only Liezel's Garments, Inc. is liable to pay petitioner with the
amount of 1!16,327,991.40, which represents the sum for which the disputed
property was sold to petitioner at public auction.
It must be emphasized that Bautista is considered as a third-party or
accommodation mortgagor. She mortgaged her property to stand as security
for the indebtedness of Liezels Garments, Inc. She is not a party to the
principal obligation but merely secured the latter by mortgaging her own
property. In fact, it was only Dolores E. Bautista, then the President and
General Manager of Liezels Garments, Inc., who was the sole signatory of the
Omnibus Credit Line Agreement as well as the promissory note.
In Cerna v. Court of Appeals, 63 it was held:
There is x x x no legal provision nor jurisprudence in our jurisdiction
which makes a third person who secures the fulfillment of another's
 obligation by mortgaging his own property to be solidarily bound with
the principal obligor. x x x. The signatory to the principal contract
loan remains to be primarily bound. It is only upon the default of the
latter that the creditor may have recourse on the mortgagors by
foreclosing the mortgaged properties in lieu of an action for the
recovery of the amount of the loan. And the liability of the third-party
mortgagors extends only to the property mortgaged. Should there be
any deficiency, the creditor has recourse on the principal debtor.
Neither petitioner nor Liezels Garments, Inc. presented proof that Bautista is
a director, officer or employee of Liezels Garments, Inc. Although Bautista
acted as such, it is a basic rule that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and
in its behalf and from the people comprising it, who, in general, are not
personally liable for obligations incurred by the corporation unless the veil of
corporate fiction is pierced to justify that it is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues.
Note: please relate to SECTION 4; Joint and Solidary Obligations;
Article 1207
Article 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestation. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.
Rivelisa Realty v First Sta. Clara (2014)
Perlas-Bernabe, J.
Re: According to Sanction for Breach
DOCTRINE: Quantum meruit means that, in an action for work and labor,
payment shall be made in such amount as the plaintiff reasonably deserves
FACTS: Rivelisa Realty entered into a JVA with First Sta. Clara for the
construction and development of a residential subdivision located in
Cabanatuan City (project). According to its terms:
First Sta. Clara was to assume the horizontal development works in the
remaining 69% undeveloped portion of the project owned by Rivelisa
Realty, and complete the same within twelve (12) months from signing.
Upon its completion, 60% of the total subdivided lots shall be
transferred in the name of First Sta. Clara.
Also, since 31% of the project had been previously developed by Rivelisa
Realty which was assessed to have an aggregate worth
of P10,000,000.00, it was agreed that First Sta. Clara should initially
use its own resources (in the same aggregate amount
of P10,000,000.00) before it can start claiming additional funds from
the pre-sale of the 31% developed lots.
40% of the cost of additional works not originally part of the JVA was
to be shouldered by Rivelisa Realty, while 60% by First Sta. Clara.
During the course of the project, First Sta. Clara hired a subcontractor to
perform the horizontal development work as well as the additional works on
the riprap and the elevation of the road embankment. Since First Sta. Clara ran
out of funds after only two (2) months of construction, Rivelisa Realty was
forced to shoulder part of the payment due to the subcontractor.
First Sta. Clara manifested its intention to back out from the JVA and to
discontinue operations when Rivelisa Realty refused to advance any more
funds until 60% of the project had been accomplished. Rivelisa Realty readily
agreed to release First Sta. Clara from the JVA and estimated its actual
accomplishment at P4,000,000.00. First Sta. Clara, however, insisted on a
valuation of its accomplished works at P 4,578,142.10, which, less the cash
advances and subcontractors fees, should leave a net reimbursable amount
of P3,000,000.00 in its favor.
Rivelisa Realty agreed to reimburse First Sta. Clara the amount
of P3,000,000.00, emphasizing that the amount is actually over and beyond
its obligation under the JVA. However, the reimbursable amount of P
3,000,000.00 remained unpaid despite several demands. Hence, First Sta.
Clara filed a complaint for rescission of the JVA against Rivelisa Realty before
the RTC, claiming the payment of damages for breach of contract and delay in
the performance of an obligation. For its part, Rivelisa Realty asserted that it
was not obligated to pay First Sta. Clara any amount at all since the latter had
even failed to comply with its obligation to initially spend the equivalent
amount of P10,000,000.00 on the project before being entitled to cash
payments.
RTC dismissed the complaint. CA overturned the lower courts decision and
ruled that First Sta. Clara is entitled to compensation.
ISSUE: Whether First Sta. Clara is entitled to compensation for the
development works it had accomplished although it failed to fulfill its entire
obligation under the agreement.
HELD: YES. The Court concurs with the CA that First Sta. Clara is
entitled to be compensated for the development works it had
accomplished on the project based on the principle of quantum
meruit. Case law instructs that under this principle, a contractor is allowed to
recover the reasonable value of the thing or services rendered despite the lack
of a written contract, in order to avoid unjust enrichment. Quantum meruit
means that, in an action for work and labor, payment shall be made in such
amount as the plaintiff reasonably deserves. The measure of recovery should
relate to the reasonable value of the services performed because the principle
aims to prevent undue enrichment based on the equitable postulate that it is
unjust for a person to retain any benefit without paying for it. In this case, it is
undisputed that First Sta. Clara already performed certain works on the project
with an estimated value of P4,578, 152.10. Clearly, to completely deny it
payment for the same would result in Rivelisa Realty's unjust enrichment at
the former' s expense. Besides, as may be gleaned from the parties'
correspondence, Rivelisa Realty obligated itself to unconditionally reimburse
First Sta. Clara the amount of P3,000,000.00 (representing First Sta. Clara's
valuation of its accomplished works at P4,578,152.10, less the cash advances
and subcontractor's fees) after the JV A had already been terminated by them
through mutual assent. As such, Rivelisa Realty cannot unilaterally renege on
its promise by citing First Sta. Clara's non-fulfillment of the terms and
conditions of the terminated JVA. For all these reasons, the CA' s ruling must
be upheld.
Lambert v Fox
Obligations with a penal clause
Doctrine: The party to whom payment of the penalty is to be made is entitled
to recover the sum stipulated without the necessity of proving damages.
Facts: In 1911, the creditors of John R. Edgar & Co., including the plaintiff and
the defendant, agreed to take over the business, incorporate it and accept stock
therein in payment of their respective credits. The plaintiff and the defendant
became the 2 largest stockholders in the new corporation called John R. Edgar
& Co., Inc. After the incorporation was completed, plaintiff and defendant
entered into an agreement wherein the parties mutually and reciprocally agree
not to sell, transfer, or otherwise dispose of any part of their present holdings
of stock, till after 1 year. Either party violating this agreement shall pay to the
other P1,000 as liquidated damages, unless previous consent in writing to such
sale, transfer, or other disposition be obtained.
The defendant Fox on October 19, 1911, sold his stock to E. C. McCullough, a
strong competitor. This sale was made by the defendant against the protest of
the plaintiff and with the warning that he would be held liable under the
contract. In fact, the defendant offered to sell his shares of stock to the plaintiff
for the same sum that McCullough was paying them less P1,000, the penalty
specified in the contract. The trial court ruled in favor of Fox.
Fox urges that the plaintiff cannot recover because he did not prove damages,
and cites numerous American authorities to the effect that because stipulations
for liquidated damages are generally in excess of actual damages and so work
a hardship upon the party in default, courts are strongly inclined to treat all
such agreements as imposing a penalty and to allow a recovery for actual
damages only. He also cites authorities holding that a penalty, as such, will not
be enforced and that the party suing, in spite of the penalty assigned, will be
put to his proof to demonstrate the damages actually suffered by reason of
defendants wrongful act or omission.
Issue: Whether or not plaintiff may recover only upon proof of damages.
Ruling: No. In this jurisdiction penalties provided in contracts of this
character are enforced. It is the rule that parties who are competent to contract
may make such agreements within the limitations of the law and public policy
as they desire, and that the courts will enforce them according to their terms.
The only case recognized by the Civil Code in which the court is authorized to
intervene for the purpose of reducing a penalty stipulated in the contract is
when the principal obligation has been partly or irregularly fulfilled and the
court can see that the person demanding the penalty has received the benefit
of such or irregular performance. In such case the court is authorized to reduce
the penalty to the extent of the benefits received by the party enforcing the
penalty.
In this jurisdiction, there is no difference between a penalty and liquidated
damages, so far as legal results are concerned. Whatever differences exists
between them as a matter of language, they are treated the same legally. In
either case the party to whom payment is to be made is entitled to recover the
sum stipulated without the necessity of proving damages. Indeed one of the
primary purposes in fixing a penalty or in liquidating damages, is to avoid such
necessity.
SSS Moonwalk
G.R. No. 73345, April 7, 1993
TOPIC: According to Sanction for Breach; Obligations with a Penal
Clause, NCC 2226-2228
Doctrine: There has been a waiver of the penal clause as it was not
demanded before the full obligation was fully paid and extinguished.
Facts: "On February 20, 1980, the Social Security System, SSS for brevity, filed
a complaint in the Court of First Instance of Rizal against Moonwalk
Development & Housing Corporation, Moonwalk for short, alleging that the
former had committed an error in failing to compute the 12% interest due on
delayed payments on the loan of Moonwalk resulting in a chain of errors in
the application of payments made by Moonwalk and, in an unpaid balance on
the principal loan agreement in the amount of P7,053.77 and, also in not
reflecting in its statement or account an unpaid balance on the said penalties
for delayed payments in the amount of P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had the
opportunity to ascertain the truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference, the court
issued an order giving both parties thirty (30) days within which to submit a
stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the
submission by the parties on September 19, 1980 of the following stipulation
of Facts:
"1. On October 6, 1971, plaintiff approved the application of defendant
Moonwalk for an interim loan in the amount of THIRTY MILLION PESOS
(P30,000,000.00) for the purpose of developing and constructing a housing
project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00),
the sum of P9,595,000.00 was released to defendant Moonwalk as of
November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on December 18,
1973 Annex `D' providing for restructuring of the payment of the released
amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter
respectively, under paragraph 5 of the aforesaid Third Amended Deed of First
Mortgage substituted Associated Construction and Surveys Corporation,
Philippine Model Homes Development Corporation, Mariano Z. Velarde and
Eusebio T. Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the amount of
P2,659,700.00, made to defendant Moonwalk, defendant Moonwalk delivered
to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED
FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00)
Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and
Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan
principal of P12,254,700.00 released to it. The last payment made by
Moonwalk in the amount of P15,004,905.74 were based on the Statement of
Account, Annex "F" prepared by plaintiff SSS for defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued to
defendant Moonwalk the Release of Mortgage for Moonwalk's mortgaged
properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and
October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed
up by another letter dated December 17, 1979, plaintiff alleged that it
committed an honest mistake in releasing defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that
it had completely paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked as Annex
(sic) 'A' to 'O' inclusive, of the Complaint and the letter dated December 21,
1979 of the defendant's counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the complaint
on the ground that the obligation was already extinguished by the payment by
Moonwalk of its indebtedness to SSS and by the latter's act of cancelling the
real estate mortgages executed in its favor by defendant Moonwalk. The
Motion for Reconsideration filed by SSS with the trial court was likewise
dismissed by the latter.
These orders were appealed to the Intermediate Appellate Court. Respondent
Court reduced the errors assigned by the SSS into this issue: ". . . are
defendants-appellees, namely, Moonwalk Development and Housing
Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc. still liable
for the unpaid penalties as claimed by plaintiff-appellant or is their obligation
extinguished?" 3 As We have stated earlier, the respondent Court held that
Moonwalk's obligation was extinguished and affirmed the trial court.
Issue: Whether or not the penalty is demandable even after the
extinguishment of the principal obligation?
Held: No
Ratio: There has been a waiver of the penal clause as it was not demanded
before the full obligation was fully paid and extinguished.
Default begins from the moment the creditor demands the performance of the
obligation. In this case, although there were late amortizations there was no
demand made by SSS for the payment of the penalty hence Moonwalk is not in
delay in the payment of the penalty. No delay occurred and there was no
occasion when the penalty became demandable and enforceable.
Since there was no default in the performance of the main obligation-payment
of the loan- SSS was never entitled to recover any penalty.
If the demand for the payment of the penalty was made prior to the
extinguishment of the obligation which are: 1. the principal obligation 2. The
interest of 12% on the principal obligation 3.The penalty of 12% for late
payment for after demand, Moonwalk would be in delay and therefore liable
for the penalty.
Robes-Francisco v. CFI (October 30, 2978)
Topic: Obligations with a Penal Clause
Doctrine: To be considered an obligation with a penal clause, the clause must
actually convey a penalty. Otherwise, Art. 1226 of the Civil Code is not
applicable.
Facts: May 1962- petitioner company agreed to sell a parcel of land to Lolita
Millan worth P3,864 payable in installments. She complied with her obligation
finishing the payment on December 21, 1971. She made repeated demands for
the company to execute the deed of sale and transfer certificate title. It was
stipulated in their contract that this should be done within six months after the
full payment was made. If not, the vendee is entitled to refund with4% interest
per annum. The company failed to comply so Millan filed against them for
specific performance and damages. She asked that the deed of absolute sale be
executed as well as the transfer certificate title, or if not, pay her the present
value of the land which was around P27,000, and to pay her for damages.
Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title
within six months from the date of full payment, it shall refund to the vendee
the total amount paid for with interest at the rate of 4% per annum, hence, the
vendee is bound by the terms of the provision and cannot recover more than
what is agreed upon. Presumably, petitioner in invoking Article 1226 of the
Civil Code which provides that in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of interests in case
of noncompliance, if there is no stipulation to the contrary.
During trial, the court found that the company could not execute the deed of
sale nor the transfer certificate title because the same land was mortgaged to
the GSIS to secure a prior obligation of P10,000,000. Millan asks for the
compensatory damages despite the return rate of 4%interest in the contract.
Issue: WON Millan should be entitled to the P27,000 nominal damages
despite the stipulation in the contract of the 4% interest in the event of delay
or failure to deliver.
Held: No.
The foregoing argument of petitioner is totally devoid of merit. We would agree
with petitioner if the clause in question were to be considered as a penal clause.
Nevertheless, for very obvious reasons, said clause does not convey any
penalty, for even without it, pursuant to Article 2209 of the Civil Code, the
vendee would be entitled to recover the amount paid by her with legal rate of
interest which is even more than the 4% provided for in the clause.
It is therefore inconceivable that the aforecited provision in the deed of sale is
a penal clause which will preclude an award of damages to the vendee Millan.
In fact the clause is so worded as to work to the advantage of petitioner
corporation.
Though Millan failed to present evidence on the amount of damage caused to
her, she is still entitled to nominal damages because her right to acquire the
land she bought was violated. As the company acted in neglect, they are to be
held liable for damages to Millan. However, her right to claim the damages is
limited because the contract already covers for compensatory damages in such
an occasion of non-performance on the part of the company.
RIVERA VS SPOUSES CHUA
GR NO. 184458
JANUARY 14, 2015
FACTS:
The parties were friends and kumpadres for a long time already. Rivera
obtained a loan from the Spouses Chua evidenced by a Promissory Note. The
relevant parts of the note are the following:
(a)FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of One
Hundred Twenty Thousand Philippine Currency (_120,000.00) on
December 31, 1995.
 (b) It is agreed and understood that failure on my part to pay the
amount of (_120,000.00) One Hundred Twenty Thousand Pesos on
December 31, 1995. I agree to pay the sum equivalent to
FIVEPERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.
Three years from the date of payment stipulated in the promissory note,
Rivera, issued and delivered to Spouses Chua two (2) checks drawn against his
account at Philippine Commercial International Bank (PCIB) but upon
presentment for payment, the two checks were dishonored forthe reason
account closed. As of 31 May 1999, the amount due the Spouses Chua was
pegged at P366,000.00 covering the principal of P120,000.00 plus five percent
(5%) interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail. Because of Riveras unjustified refusal to pay,
the Spouses Chua were constrained to file a suit before the MeTC, Branch 30,
Manila.
The MeTC ruled against Rivera requiring him to pay the spouses Chua
P120,000.00 plus stipulated interest at the rate of 5% per month from 1
January 1996, and legal interest at the rate of 12% percent per annum fromn11
June 1999 and was affirmed by the RTC of Manila. The Court of Appeals further
affirmed the decision upon appeal of the two inferior courts but with
modification of lowering the stipulated interest to 12% per annum. Hence, a
petition at the Supreme Court.
ISSUES:
1. Whether or not the Promissory Note executed as evidence of loan falls
under Negiotiable Instruments Law.
2. Whether or not a demand from spouses Chua is needed to make Rivera
liable.
3. Whether or not the stipulated interest is unconscionable and should
really be lowered.
RULINGS:
1. NO, the Promissory Note executed as evidence of loan does not fall
under Negotiable Instruments Law. The instrument is still governed
by the Civil Code as to interpretation of their obligations. The Supreme
Court held that the Instrument was not able to meet the requisites laid
down by Section 1 of the Negotiable Instruments Law as the instrument
was made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua
as payees.
2. NO, a demand from spouses Chua is not needed to make Rivera liable.
Even if Riveras Promissory Note is not a negotiable instrument and
therefore outside the coverage of Section 70 of the NIL which provides
that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued. Article 1169 of the Civil Code explicitly
provides that the demand by the creditor shall not be necessary in order
that delay may exist when the obligation or the law expressly so declare.
The clause in the Promissory Note containing the stipulation of interest
(letter B in the above facts) which expressly requires the debtor (Rivera)
to pay a 5% monthly interest from the date of default until the entire
obligation is fully paid for. Theparties evidently agreed that the
maturity of the obligation at a date certain, 31 December 1995, will give
rise to the obligation to pay interest.
3. YES, the stipulated interest is unconscionable and should really be
lowered. The Supreme Court held that as observed by Rivera, the
stipulated interest of 5% per month or 60% per annum in addition to
legal interests and attorneys fees is, indeed, highly iniquitous and
unreasonable and stipulated interest rates if illegal and are
unconscionable the Court is allowed to temper interest rates when
 necessary. Since the interest rate agreed upon is void, the parties are
considered to have no stipulation regarding the interest rate, thus, the
rate of interest should be 12% per annum computed from the date of
judicial or extrajudicial demand. However, the 12% per annum rate of
legal interest is only applicable until 30 June 2013, before the advent
and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799,
Series of 2013 reducing the rate of legal interest to 6% per annum.
Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular No.
799 is prospectively applied from 1 July 2013.
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., VS. AMA
COMPUTER LEARNING CENTER, INC.,
AMA COMPUTER LEARNING CENTER, INC., PETITIONER, VS. NEW
WORLD DEVELOPERS AND MANAGEMENT, INC., RESPONDENT.
G.R. No. 187930 and G.R. No. 188250 | 2015-02-23
FIRST DIVISION
SERENO, C.J.:
Liquidated Damages
Facts:
New World is the owner of a commercial building located at No. 1104-1118
Espaa corner Paredes Streets, Sampaloc, Manila. In 1998, AMA agreed to
lease the entire second floor of the building for its computer learning center,
and the parties entered into a Contract of Lease covering the eight-year period
from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual
escalation rate equivalent to 15% for the succeeding years. It was also provided
that AMA may preterminate the contract by sending notice in writing to New
World at least six months before the intended date. In case of pretermination,
AMA shall be liable for liquidated damages in an amount equivalent to six
months of the prevailing rent.
On the evening of 6 July 2004, AMA removed all its office equipment and
furniture from the leased premises. The following day, New World received a
letter from AMA dated 6 July 2004[10] stating that the former had decided to
preterminate the contract effective immediately on the ground of business
losses due to a drastic decline in enrollment. AMA also demanded the refund
of its advance rental and security deposit.
Issue: Whether AMA is liable for liquidated damages
Held: Yes.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to
[New World] at least six (6) months before the intended date of pre-
termination, provided, however, that in such case, [AMA] shall be liable to
[New World] for an amount equivalent to six (6) months current rental as
liquidated damages;
Quite notable is the fact that AMA never denied its liability for the payment of
liquidated damages in view of its pretermination of the lease contract with New
World. What it claims, however, is that it is entitled to the reduction of the
amount due to the serious business losses it suffered as a result of a drastic
decrease in its enrollment.
xxx
It is quite easy to understand the reason why a lessor would impose liquidated
damages in the event of the pretermination of a lease contract. Pretermination
is effectively the breach of a contract, that was originally intended to cover an
agreed upon period of time. A definite period assures the lessor a steady
income for the duration. A pretermination would suddenly cut short what
would otherwise have been a longer profitable relationship. Along the way, the
lessor is bound to incur losses until it is able to find a new lessee, and it is this
loss of income that is sought to be compensated by the payment of liquidated
damages.