1938
settlement of the debts of the deceased, pays a legacy in
OBLIGATIONS
A. In general
1. Definition
Article 1156. An obligation is a juridical necessity to
give, to do or not to do. (n)
2. Kinds of obligations
as to basis and
enforceability
Aticle 1423. Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a
right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason
thereof. Some natural obligations are set forth in the
following articles.
Article 1424. When a right to sue upon a civil obligation
has lapsed by extinctive prescription, the obligor who
voluntarily performs the contract cannot recover what he
has delivered or the value of the service he has rendered.
Article 1425. When without the knowledge or against the
will of the debtor, a third person pays a debt which the
obligor is not legally bound to pay because the action
thereon has prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot recover
what he has paid.
Article 1426. When a minor between eighteen and
twenty-one years of age who has entered into a contract
without the consent of the parent or guardian, after the
annulment of the contract voluntarily returns the whole
thing or price received, notwithstanding the fact that he
has not been benefited thereby, there is no right to
demand the thing or price thus returned.
Article 1427. When a minor between eighteen and
twenty-one years of age, who has entered into a contract
without the consent of the parent or guardian, voluntarily
pays a sum of money or delivers a fungible thing in
fulfillment of the obligation, there shall be no right to
recover the same from the obligee who has spent or
consumed it in good faith. (1160A)
Article 1428. When, after an action to enforce a civil
obligation has failed the defendant voluntarily performs
the obligation, he cannot demand the return of what he
has delivered or the payment of the value of the service
he has rendered.
Article 1429. When a testate or intestate heir
voluntarily pays a debt of the decedent exceeding the
value of the property which he received by will or by the
law of intestacy from the estate of the deceased, the
payment is valid and cannot be rescinded by the payer.
Article 1430. When a will is declared void because it has
not been executed in accordance with the formalities
required by law, but one of the intestate heirs, after the
compliance with a clause in the defective will, the
payment is effective and irrevocable.
Article 1139. Actions prescribe by the mere lapse of time
fixed by law. (1961)
Article 1140. Actions to recover movables shall
prescribe eight years from the time the possession thereof
is lost, unless the possessor has acquired the ownership
by prescription for a less period, according to articles
1132, and without prejudice to the provisions of articles
559, 1505, and 1133. (1962a)
Article 1141. Real actions over immovables prescribe
after thirty years.
This provision is without prejudice to what is established
for the acquisition of ownership and other real rights by
prescription. (1963)
Article 1142. A mortgage action prescribes after ten
years. (1964a)
Article 1143. The following rights, among others
specified elsewhere in this Code, are not extinguished by
prescription:
(1) To demand a right of way, regulated in article
649;
(2) To bring an action to abate a public or private
nuisance. (n)
Article 1144. The following actions must be brought
within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Article 1145. The following actions must be commenced
within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Article 1146. The following actions must be instituted
within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act,
activity, or conduct of any public officer involving the
exercise of powers or authority arising from Martial Law
including the arrest, detention and/or trial of the
plaintiff, the same must be brought within one (1) year.
(As amended by PD No. 1755, Dec. 24, 1980.)
Article 1147. The following actions must be filed within
one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Article 1148. The limitations of action mentioned in
articles 1140 to 1142, and 1144 to 1147 are without
prejudice to those specified in other parts of this Code, in
the Code of Commerce, and in special laws. (n)
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Article 1149. All other actions whose periods are not
fixed in this Code or in other laws must be brought within
five years from the time the right of action accrues. (n)
Article 1150. The time for prescription for all kinds of
actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be
brought. (1969)
Article 1151. The time for the prescription of actions
which have for their object the enforcement of obligations
to pay principal with interest or annuity runs from the
last payment of the annuity or of the interest. (1970a)
Article 1152. The period for prescription of actions to
demand the fulfillment of obligation declared by a
judgment commences from the time the judgment
became final. (1971)
Article 1153. The period for prescription of actions to
demand accounting runs from the day the persons who
should render the same cease in their functions.
The period for the action arising from the result of the
accounting runs from the date when said result was
recognized by agreement of the interested parties. (1972)
Article 1154. The period during which the obligee was
prevented by a fortuitous event from enforcing his right
is not reckoned against him. (n)
Article 1155. The prescription of actions is interrupted
when they are filed before the court, when there is a
written extrajudicial demand by the creditors, and when
there is any written acknowledgment of the debt by the
debtor. (1973a)
VILLAROEL V. ESTRADA
Nature: Complaint for sum of money
Ponente: AVANCEÑA
Date: December 19, 1940
DOCTRINE: The rule that a new promise to pay a debt
must be made by the same person obligated or otherwise
legally authorized by it, is not applicable to this case since
there was voluntarily assumption of the obligation.
FACTS:
Relevant Provision of Law:
On May 9, 1912, Alexandra F. Callao, mother of defendant
John F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1, 000 payable after
seven years. Alexandra died, leaving as the only heir the
defendant. Spouses Mariano Estrada and Severina died
too, leaving as the only heir to the plaintiff Bernardino
Estrada. On August 9, 1930, the defendant signed a
document which states in duty to the plaintiff the amount
of P1, 000, with an interest of 12 percent per year. This
action relates to the collection of this amount.
LC: condemn the defendant to pay the claimed amount
of P1, 000 with legal interest of 12 percent per year from
the August 9, 1930 until fully pay.
ISSUE:
RULING:
Although the action to recover the original debt has
prescribed and when the lawsuit was filed in this case.
However, this action is based on the original obligation
contracted by the mother of the defendant, who has
prescribed, but in which the defendant contracted the
August 9, 1930 (Exhibito B) to assume the fulfillment of
that obligation, as prescribed. Being the only defendant
of the primitive herdero debtor entitled to succeed him in
his inheritance, that debt legally brought by his mother,
but lost its effectiveness by prescription, it is now,
however, for a moral obligation, which is
consideration enough to create and effective and
enforceable his obligation voluntarily contracted the
August 9, 1930 in Exhibito B.
The rule that a new promise to pay a debt prrescrita must
be made by the same person obligated or otherwise
legally authorized by it, is not applicable to this case that
does not require compliance with the mandatory
obligation orignalmente but from which they would
voluntarily assume the obligation.
NOTE: The case is in Spanish.
ANSAY V. NDC
Nature: Complaint for 20% Christmas bonus
Ponente: PARAS, C. J.
Date: April 29, 1960
DOCTRINE: Civil obligations are a right of action to
compel their performance. Natural obligations, not
being based on positive law but on equity and natural law,
do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the
obligor, they authorize the retention of what has been
delivered or rendered by reason thereof".
FACTS:
Relevant Provision of Law: Article 1423 of the New
Civil Code
On July 25, 1956, appellants filed against appellees in the
Court of First Instance of Manila a complaint praying for
a 20% Christmas bonus for the years 1954 and 1955.
TC dismissed the complaint, and held, among others:
the Court does not see how petitioners may have a
cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes
it that it is not within its judicial powers to command
respondents to be liberal;
(b) Petitioners admit that respondents are not under
legal duty to give such bonus but that they had only
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ask that such bonus be given to them because it is a
moral obligation of respondents to give that but as
this Court understands, it has no power to compel a
party to comply with a moral obligation (Art. 142,
New Civil Code.).
Appellants contend that there exists a cause of action in
their complaint because their claim rests on moral
grounds or what in brief is defined by law as a natural
obligation.
ISSUE: W/N a Christmas bonus is a demandable
obligation.
RULING:
Generally, a Christmas bonus, being a natural obligation,
is not demandable.
Article 1423 of the New Civil Code classifies obligations
into civil or natural. "Civil obligations are a right of
action to compel their performance. Natural
obligations, not being based on positive law but on
equity and natural law, do not grant a right of action to
enforce their performance, BUT after voluntary
fulfillment by the obligor, they authorize the retention of
what has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural
obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention
can be ordered but only after there has been voluntary
performance. But here there has been no voluntary
performance. In fact, the court cannot order the
performance.
Philippine Education Co. vs. CIR: From the legal
point of view a bonus is not a demandable and
enforceable obligation. It is so when it is made a part of
the wage or salary compensation.
H. E. Heacock vs. National Labor Union: Even if a
bonus is not demandable for not forming part of the
wage, salary or compensation of an employee, the same
may nevertheless, be granted on equitable consideration
as when it was given in the past, though withheld in
succeeding two years from low salaried employees due to
salary increases.
Still the facts in said Heacock case are not the same as in
the instant one, and hence the ruling applied in said case
cannot be considered in the present action.
DBP V. CONFESOR
Nature: Complaint for payment of loan
Ponente: GANCAYCO, J.
Date: May 11, 1989
DOCTRINE:
FACTS:
Relevant Provision of Law: Art. 165 of the CC
[1st PN] On February 10, 1940 spouses Patricio Confesor
and Jovita Villafuerte obtained an agricultural loan
from the Agricultural and Industrial Bank (AIB), now the
Development of the Philippines (DBP), in the sum of
P2,000.00, Philippine Currency, as evidenced by a
promissory note of said date whereby they bound
themselves jointly and severally to pay the account in ten
(10) equal yearly amortizations.
[2nd PN] As the obligation remained outstanding and
unpaid even after the lapse of the aforesaid ten-year
period, Confesor (only the H), who was by then a
member of the Congress of the Philippines, executed a
second promissory note on April 11, 1961 expressly
acknowledging said loan and promising to pay the same
on or before June 15, 1961. The new promissory note
reads as follows —
I hereby promise to pay the amount covered by my
promissory note on or before June 15, 1961. Upon my
failure to do so, I hereby agree to the foreclosure of
my mortgage. It is understood that if I can secure a
certificate of indebtedness from the government of
my back pay I will be allowed to pay the amount out
of it.
Said spouses not having paid the obligation on the
specified date, the DBP filed a complaint against the
spouses for the payment of the loan.
CITY COURT: ordered the defendants Patricio
Confesor and Jovita Villafuerte Confesor to pay the
plaintiff Development Bank of the Philippines, jointly
and severally the sum of P5,760.96 plus additional daily
interest, etc
CFI: reversed; dismissed the complaint
 in signing the promissory note alone, respondent
Confesor cannot thereby bind his wife,
respondent Jovita Villafuerte, pursuant to Article
166 of the New Civil Code which provides:
Art. 166. Unless the wife has been declared a non
compos mentis or a spend thrift, or is under civil
interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real
property of the conjugal partnership without, the
wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m
grant the same.
Petitioner Bank contends,
 that the right to prescription may be renounced or
waived; and
 that in signing the second promissory note
respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became
liable in his personal capacity.
ISSUE: W/N the right to prescription may be renounced
or waived
RULING:
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YES. The right to prescription may be waived or
renounced.
Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property
may renounce prescription already obtained, but not
the right to prescribe in the future.
Prescription is deemed to have been tacitly
renounced when the renunciation results from acts
which imply the abandonment of the right acquired.
There is no doubt that prescription has set in as to the
first promissory note of February 10, 1940. However,
when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised
to pay the amount covered by the previous promissory
note on or before June 15, 1961, and upon failure to do so,
agreed to the foreclosure of the mortgage, said
respondent thereby effectively and expressly renounced
and waived his right to the prescription of the action
covering the first promissory note.
This is not a mere case of acknowledgment of a debt that
has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-
existing obligation under the first promissory note. The
statutory limitation bars the remedy but does not
discharge the debt.
... It is this new promise, either made in express terms or
deduced from an acknowledgement as a legal
implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy (which
by lapse of time had become extinct) and thus enabling
the creditor to recover upon his original contract.
ISSUE #2: W/N the debt is chargeable against the
conjugal partnership considering that the husband,
alone, signed the 2nd PN
RULING:
YES. The debt in favor of the bank is chargeable to the
conjugal partnership.
Under Article 165 of the Civil Code, the husband is the
administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the
husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership.
3. Elements of
obligations
B. Sources of civil obligations
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
1. Law
Article 1158. Obligations derived from law are not
presumed. Only those expressly determined in this Code
or in special laws are demandable, and shall be regulated
by the precepts of the law which establishes them; and as
to what has not been foreseen, by the provisions of this
Book. (1090)
2. Contracts
Article 1159. Obligations arising from contracts have
the force of law between the contracting parties and
should be complied with in good faith. (1091a)
Article 1305. A contract is a meeting of minds between
two persons whereby one binds himself, with respect to
the other, to give something or to render some service.
(1254a)
3. Quasi-contracts
Article 1160. Obligations derived from quasi-contracts
shall be subject to the provisions of Chapter 1, Title XVII,
of this Book. (n)
Article 2142. Certain lawful, voluntary and unilateral
acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or
benefited at the expense of another. (n)
Article 2143. The provisions for quasi-contracts in this
Chapter do not exclude other quasi-contracts which may
come within the purview of the preceding article. (n)
SECTION 1
Negotiorum Gestio
Article 2144. Whoever voluntarily takes charge of the
agency or management of the business or property of
another, without any power from the latter, is obliged to
continue the same until the termination of the affair and
its incidents, or to require the person concerned to
substitute him, if the owner is in a position to do so. This
juridical relation does not arise in either of these
instances:
(1) When the property or business is not
neglected or abandoned;
(2) If in fact the manager has been tacitly
authorized by the owner.
In the first case, the provisions of articles 1317, 1403, No.
1, and 1404 regarding unauthorized contracts shall
govern.
In the second case, the rules on agency in Title X of this
Book shall be applicable. (1888a)
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Article 2145. The officious manager shall perform his
duties with all the diligence of a good father of a family,
and pay the damages which through his fault or
negligence may be suffered by the owner of the property
or business under management.
The courts may, however, increase or moderate the
indemnity according to the circumstances of each case.
(1889a)
Article 2146. If the officious manager delegates to
another person all or some of his duties, he shall be liable
for the acts of the delegate, without prejudice to the direct
obligation of the latter toward the owner of the business.
The responsibility of two or more officious managers
shall be solidary, unless the management was assumed to
save the thing or business from imminent danger.
(1890a)
Article 2147. The officious manager shall be liable for
any fortuitous event:
(1) If he undertakes risky operations which the
owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of
the owner;
(3) If he fails to return the property or business
after demand by the owner;
(4) If he assumed the management in bad faith.
(1891a)
Article 2148. Except when the management was
assumed to save property or business from imminent
danger, the officious manager shall be liable for
fortuitous events:
(1) If he is manifestly unfit to carry on the
management;
(2) If by his intervention he prevented a more
competent person from taking up the
management. (n)
Article 2149. The ratification of the management by the
owner of the business produces the effects of an express
agency, even if the business may not have been
successful. (1892a)
Article 2150. Although the officious management may
not have been expressly ratified, the owner of the
property or business who enjoys the advantages of the
same shall be liable for obligations incurred in his
interest, and shall reimburse the officious manager for
the necessary and useful expenses and for the damages
which the latter may have suffered in the performance of
his duties.
The same obligation shall be incumbent upon him when
the management had for its purpose the prevention of an
imminent and manifest loss, although no benefit may
have been derived. (1893)
Article 2151. Even though the owner did not derive any
benefit and there has been no imminent and manifest
danger to the property or business, the owner is liable as
under the first paragraph of the preceding article,
provided:
(1) The officious manager has acted in good faith,
and
(2) The property or business is intact, ready to be
returned to the owner. (n)
Article 2152. The officious manager is personally liable
for contracts which he has entered into with third
persons, even though he acted in the name of the owner,
and there shall be no right of action between the owner
and third persons. These provisions shall not apply:
(1) If the owner has expressly or tacitly ratified
the management, or
(2) When the contract refers to things pertaining
to the owner of the business. (n)
Article 2153. The management is extinguished:
(1) When the owner repudiates it or puts an end
thereto;
(2) When the officious manager withdraws from
the management, subject to the provisions of
article 2144;
(3) By the death, civil interdiction, insanity or
insolvency of the owner or the officious manager.
(n)
SECTION 2
Solutio Indebiti
Article 2154. If something is received when there is no
right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. (1895)
Article 2155. Payment by reason of a mistake in the
construction or application of a doubtful or difficult
question of law may come within the scope of the
preceding article. (n)
Article 2156. If the payer was in doubt whether the debt
was due, he may recover if he proves that it was not due.
(n)
Article 2157. The responsibility of two or more payees,
when there has been payment of what is not due, is
solidary. (n)
Article 2158. When the property delivered or money
paid belongs to a third person, the payee shall comply
with the provisions of article 1984. (n)
Article 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or which
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or
impairment of the thing from any cause, and for damages
to the person who delivered the thing, until it is
recovered. (1896a)
Article 2160. He who in good faith accepts an undue
payment of a thing certain and determinate shall only be
responsible for the impairment or loss of the same or its
accessories and accessions insofar as he has thereby been
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benefited. If he has alienated it, he shall return the price
or assign the action to collect the sum. (1897)
Article 2161. As regards the reimbursement for
improvements and expenses incurred by him who unduly
received the thing, the provisions of Title V of Book II
shall govern. (1898)
Article 2162. He shall be exempt from the obligation to
restore who, believing in good faith that the payment was
being made of a legitimate and subsisting claim,
destroyed the document, or allowed the action to
prescribe, or gave up the pledges, or cancelled the
guaranties for his right. He who paid unduly may proceed
only against the true debtor or the guarantors with regard
to whom the action is still effective. (1899)
Article 2163. It is presumed that there was a mistake in
the payment if something which had never been due or
had already been paid was delivered; but he from whom
the return is claimed may prove that the delivery was
made out of liberality or for any other just cause. (1901)
SECTION 3
Other Quasi-Contracts
Article 2164. When, without the knowledge of the
person obliged to give support, it is given by a stranger,
the latter shall have a right to claim the same from the
former, unless it appears that he gave it out of piety and
without intention of being repaid. (1894a)
Article 2165. When funeral expenses are borne by a
third person, without the knowledge of those relatives
who were obliged to give support to the deceased, said
relatives shall reimburse the third person, should the
latter claim reimbursement. (1894a)
Article 2166. When the person obliged to support an
orphan, or an insane or other indigent person unjustly
refuses to give support to the latter, any third person may
furnish support to the needy individual, with right of
reimbursement from the person obliged to give support.
The provisions of this article apply when the father or
mother of a child under eighteen years of age unjustly
refuses to support him.
Article 2167. When through an accident or other cause
a person is injured or becomes seriously ill, and he is
treated or helped while he is not in a condition to give
consent to a contract, he shall be liable to pay for the
services of the physician or other person aiding him,
unless the service has been rendered out of pure
generosity.
Article 2168. When during a fire, flood, storm, or other
calamity, property is saved from destruction by another
person without the knowledge of the owner, the latter is
bound to pay the former just compensation.
Article 2169. When the government, upon the failure of
any person to comply with health or safety regulations
concerning property, undertakes to do the necessary
work, even over his objection, he shall be liable to pay the
expenses.
Article 2170. When by accident or other fortuitous
event, movables separately pertaining to two or more
persons are commingled or confused, the rules on co-
ownership shall be applicable.
Article 2171. The rights and obligations of the finder of
lost personal property shall be governed by articles 719
and 720.
Article 2172. The right of every possessor in good faith
to reimbursement for necessary and useful expenses is
governed by article 546.
Article 2173. When a third person, without the
knowledge of the debtor, pays the debt, the rights of the
former are governed by articles 1236 and 1237.
Article 2174. When in a small community a majority of
the inhabitants of age decide upon a measure for
protection against lawlessness, fire, flood, storm or other
calamity, any one who objects to the plan and refuses to
contribute to the expenses but is benefited by the project
as executed shall be liable to pay his share of said
expenses.
Article 2175. Any person who is constrained to pay the
taxes of another shall be entitled to reimbursement from
the latter.
CRUZ V. TUASON AND CO.
Nature: complaint for recovery of improvements and
conveyance of land
Ponente: BARREDO, J
Date: April 29, 1977
DOCTRINE: a presumed qauasi-contract cannot
emerge as against one party when the subject matter
thereof is already covered by an existing contract with
another party.
FACTS:
Relevant Provision of Law: Art 2141, CC (quasi-
contract)
Faustino Cruz filed a complaint for recovery of
improvements and conveyance of land. He alleged two
separate causes of action, namely:
(1) that upon request of the Deudors (the family of
Telesforo Deudor who laid claim on the land in
question on the strength of an "informacion
posesoria" ) plaintiff made permanent
improvements valued at P30,400.00 on said
land having an area of more or less 20 quinones
and for which he also incurred expenses in the
amount of P7,781.74, and since defendants-
appellees are being benefited by said
improvements, he is entitled to reimbursement
from them of said amounts and
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(2) that in 1952, defendants availed of plaintiff's
services as an intermediary with the Deudors to
work for the amicable settlement of Civil Case
No. Q-135, then pending also in the Court of First
Instance of Quezon City, and involving 50
quinones of land, of Which the 20 quinones
aforementioned form part, and notwithstanding
his having performed his services, as in fact, a
compromise agreement entered into on March
16, 1963 between the Deudors and the
defendants was approved by the court, the latter
have refused to convey to him the 3,000 square
meters of land occupied by him, (a part of the 20
quinones above) which said defendants had
promised to do "within ten years from and after
date of signing of the compromise agreement", as
consideration for his services.
Defendants filed a MD on the following grounds:
(1) As regards that improvements made by plaintiff,
that the complaint states no cause of action, the
agreement regarding the same having been made
by plaintiff with the Deudors and not with the
defendants, hence the theory of plaintiff based on
Article 2142 of the Code on unjust enrichment is
untenable; and
(2) anent the alleged agreement about plaintiffs
services as intermediary in consideration of
which, defendants promised to convey to him
3,000 square meters of land, that the same is
unenforceable under the Statute of Frauds, there
being nothing in writing about it, and, in any
event,
(3) that the action of plaintiff to compel such
conveyance has already prescribed.
CFI: dismissed the complaint on three grounds: (1)
failure of the complaint to state a cause of action
(defendant is not privy to the agreement between plaintiff
and the Deudors); (2) the cause of action of plaintiff is
unenforceable under the Statute of Frauds; and (3) the
action of the plaintiff has already prescribed.
ISSUE: W/N plaintiff’s claim (2nd COA) is unenforceable
under the State of Frauds
RULING:
No. Statute of Frauds is inapplicable. Nevertheless,
plaintiff still cannot claim from defendant.
It is elementary that the Statute refers to specific kinds of
transactions and that it cannot apply to any that is not
enumerated therein.
The contract is not a sale of real property or any interest
therein: In the instant case, what appellant is trying to
enforce is the delivery to him of 3,000 square meters of
land which he claims defendants promised to do in
consideration of his services as mediator or intermediary
in effecting a compromise of the civil action, Civil Case
No. 135, between the defendants and the Deudors. In no
sense may such alleged contract be considered as being a
"sale of real property or of any interest therein." Indeed,
not all dealings involving interest in real property come
under the Statute.
There is already partial execution of the agreement:
Moreover, appellant's complaint clearly alleges that he
has already fulfilled his part of the bargains to induce the
Deudors to amicably settle their differences with
defendants as, in fact, on March 16, 1963, through his
efforts, a compromise agreement between these parties
was approved by the court. In other words, the agreement
in question has already been partially consummated, and
is no longer merely executory. And it is likewise a
fundamental principle governing the application of the
Statute that the contract in dispute should be purely
executory on the part of both parties thereto.
We cannot, however, escape taking judicial
notice, in relation to the compromise agreement
relied upon by appellant, that in several cases We
have decided, We have declared the same
rescinded and of no effect. Thus, viewed from what
would be the ultimate conclusion of appellant's case, We
entertain grave doubts as to whether or not he can
successfully maintain his alleged cause of action against
defendants, considering that the compromise agreement
that he invokes did not actually materialize and
defendants have not benefited therefrom
ISSUE #2 (TOPICAL): W/N plaintiff can claim based
on a quasi-contract (unjust enrichment).
RULING:
No. Art 2142, CC is not applicable.
Art. 2142 states,
Certain lawful, voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end
that no one shall be unjustly enriched or benefited at
the expense of another.
From the very language of this provision, it is obvious that
a presumed qauasi-contract cannot emerge as against
one party when the subject matter thereof is already
covered by an existing contract with another party.
Predicated on the principle that no one should be allowed
to unjustly enrich himself at the expense of another,
Article 2124 creates the legal fiction of a quasi-contract
precisely because of the absence of any actual agreement
between the parties concerned. Corollarily, if the one who
claims having enriched somebody has done so pursuant
to a contract with a third party, his cause of action should
be against the latter, who in turn may, if there is any
ground therefor, seek relief against the party benefited.
It is essential that the act by which the defendant is
benefited must have been voluntary and unilateral on the
part of the plaintiff. As one distinguished civilian
(Ambrosio Padilla) puts it, "The act is voluntary, because
the actor in quasi-contracts is not bound by any pre-
existing obligation to act. It is unilateral, because it arises
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from the sole will of the actor who is not previously bound
by any reciprocal or bilateral agreement. The reason why
the law creates a juridical relation and imposes certain
obligation is to prevent a situation where a person is able
to benefit or take advantage of such lawful, voluntary and
unilateral acts at the expense of said actor."
In the case at bar, since appellant has a clearer and more
direct recourse against the Deudors with whom he had
entered into an agreement regarding the improvements
and expenditures made by him on the land of appellees.
it Cannot be said, in the sense contemplated in Article
2142, that appellees have been enriched at the expense of
appellant.
SIDE ISSUE (Procedural): the impugned main order was
issued on August 13, 1964, while the appeal was made on
September 24, 1964 or 42 days later. Clearly, this is
beyond the 30-day reglementary period for appeal.
Hence, the subject order of dismissal was already final
and executory when appellant filed his appeal.
GUTIERREZ HERMANOS V. ORENSE
Nature: Complaint to compel defendant to execute an
instrument transferring all the right, interest, title and
share which the defendant has in the subject property.
Ponente: TORRES, J.
Date: December 4, 1914
DOCTRINE:
FACTS:
Relevant Provision of Law: Article 1259 of the Civil
Code
On March 5, 1913, counsel for Gutierrez Hermanos filed
a complaint, afterwards amended, against Engacio
Orense, in which he set forth,
 that on and before February 14, 1907, the
defendant Orense had been the owner of a parcel
of land, with the buildings and improvements
thereon (masonry house with the nipa roof),
situated in the pueblo of Guinobatan, Albay, xxx;
 hat the said property has up to date been
recorded in the new property registry in the
name of the said Orense xxx;
 that, on February 14, 1907, Jose Duran, a
nephew of the defendant, with the latter's
knowledge and consent, executed before a notary
a public instrument whereby he sold and
conveyed to the plaintiff company, for P1,500,
the aforementioned property, the vendor Duran
reserving to himself the right to repurchase it for
the same price within a period of four years from
the date of the said instrument;
 that the plaintiff company had not entered into
possession of the purchased property, owing to
its continued occupancy by the defendant and his
nephew, Jose Duran, by virtue of a contract of
lease executed by the plaintiff to Duran, which
contract was in force up to February 14, 1911;
 that the said instrument of sale of the property,
executed by Jose Duran, was publicly and freely
confirmed and ratified by the defendant Orense;
 that, in order to perfect the title to the said
property, but that the defendant Orense refused
to do so, without any justifiable cause or reason,
wherefore he should be compelled to execute the
said deed by an express order of the court, xxx
 that the defendant had been occupying the said
property since February 14, 1911, and refused to
pay the rental thereof, notwithstanding the
demand made upon him for its payment at the
rate of P30 per month, the just and reasonable
value for the occupancy of the said property, the
possession of which the defendant likewise
refused to deliver to the plaintiff company, in
spite of the continuous demands made upon him,
the defendant, with bad faith and to the prejudice
of the firm of Gutierrez Hermanos, claiming to
have rights of ownership and possession in the
said property.
CFI: ordered the defendant to make immediate delivery
of the property in question, through a public instrument,
by transferring and conveying to the plaintiff all his rights
in the property described in the complaint
(FACTS WHICH LED TO THE FILING OF CIVIL CASE)
After the lapse of the four years stipulated for the
redemption, the defendant refused to deliver the property
to the purchaser, the firm of Gutierrez Hermanos, and to
pay the rental thereof. His refusal was based on the
allegations
 that he had not executed any written power of
attorney to Jose Duran, nor had he given the
latter any verbal authorization to sell the said
property to the plaintiff firm in his name; and
 that, prior to the execution of the deed of sale, the
defendant performed no act such as might have
induced the plaintiff to believe that Jose Duran
was empowered and authorized by the defendant
to effect the said sale.
The plaintiff firm, therefore, charged Jose Duran, in the
Court of First Instance of the said province, with estafa
(CRIMINAL CASE). CFI acquitted Duran since Orense,
when called to the witness stand, stated that he had
consented to the sale of the property. Thus, plaintiff firm
filed the present civil case.
ISSUE: W/N defendant must fulfill the obligation
contracted by his nephew.
RULING:
YES. The owner of the property consented to the sale
made by the nephew.
It having been proven at the trial that he gave his consent
to the said sale, it follows that the defendant conferred
verbal, or at least implied, power of agency upon his
nephew Duran, who accepted it in the same way by selling
Page 8 of 112
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the said property. The principal must therefore
fulfill all the obligations contracted by the agent,
who acted within the scope of his authority. (Civil
Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted
subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action
of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r
ratification produced the effect of an express
authorization to make the said sale. (Civil Code, arts.
1888 and 1892.)
Article 1259 of the Civil Code prescribes:
"No one can contract in the name of another without
being authorized by him or without his legal
representation according to law.
A contract executed in the name of another by one
who has neither his authorization nor legal
representation shall be void, unless it should be
ratified by the person in whose name it was executed
before being revoked by the other contracting party.
The sale of the said property made by Duran to Gutierrez
Hermanos was indeed null and void in the beginning, but
afterwards became perfectly valid and cured of the defect
of nullity it bore at its execution by the confirmation
solemnly made by the said owner upon his stating under
oath to the judge that he himself consented to his nephew
Jose Duran's making the said sale.
If the defendant Orense acknowledged and admitted
under oath that he had consented to Jose Duran's selling
the property in litigation to Gutierrez Hermanos, it is not
just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave
P1,500 for the said property.
ADILLE V. CA
Nature: Action for partition with accounting
Ponente: SARMIENTO, J
Date: January 29, 1988
DOCTRINE:
FACTS:
Relevant Provision of Law: Art. 1456, implied trust
The land in question Lot 14694 of Cadastral Survey of
Albay located in Legaspi City with an area of some 11,325
sq. m. originally belonged to one Felisa Alzul as her own
private property; she married twice in her lifetime;
 the first, with one Bernabe Adille, with whom she
had as an only child, herein defendant Rustico
Adille;
 in her second marriage with one Procopio Asejo,
her children were herein plaintiffs,
[sale] Now, sometime in 1939, said Felisa sold the
property in pacto de retro to certain 3rd persons, period
of repurchase being 3 years, but she died in 1942 without
being able to redeem and after her death, but during the
period of redemption, herein defendant (child of 1st M)
repurchased, by himself alone, and after that, he
executed a deed of extra-judicial partition representing
himself to be the only heir and child of his mother Felisa
with the consequence that he was able to secure title in
his name alone also, so that OCT. No. 21137 in the name
of his mother was transferred to his name, that was in
1955.
After some efforts of compromise had failed, his half-
brothers and sisters, herein plaintiffs, filed present case
for partition with accounting on the position that he
was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned
out that one of plaintiffs, Emeteria Asejo was occupying a
portion, defendant counterclaimed for her to vacate.
LC: defendant was and became absolute owner, he was
not a trustee, and therefore, dismissed case and also
condemned plaintiff occupant, Emeteria to vacate
CA: reversed TC;
Petitioner (defendant) contends,
the property subject of dispute devolved upon him
upon the failure of his co-heirs to join him in its
redemption within the period required by law. He
relies on the provisions of Article 1515 of the old Civil
Article 1613 of the present Code, giving the vendee a
retro the right to demand redemption of the entire
property.
ISSUE: May petitioner, as a co-owner, acquire exclusive
ownership over the property held in common?
If not, whether petitioner acts as a TRUSTEE or a
NEGOTIORUM GESTOR.
RULING:
No, petitioner cannot acquire exclusive ownership under
the circumstances. Since there is fraud, petitioner is a
mere trustee of the property. The doctrine of negotiorum
gestio cannot apply in the case at bar.
The right of repurchase may be exercised by a co-
owner with respect to his share alone.
Necessary expenses may be incurred by one co-owner,
subject to his right to collect reimbursement from the
remaining co-owners. There is no doubt that redemption
of property entails a necessary expense. Under the Civil
Code:
ART. 488. Each co-owner shall have a right to compel
the other co-owners to contribute to the expenses of
preservation of the thing or right owned in common
and to the taxes. Any one of the latter may exempt
himself from this obligation by renouncing so much
of his undivided interest as may be equivalent to his
share of the expenses and taxes. No such waiver shall
be made if it is prejudicial to the co-ownership.
Page 9 of 112
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The result is that the property remains to be in a
condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, "may not be compelled to
consent to a partial redemption," the redemption by one
co-heir or co-owner of the property in its totality does not
vest in him ownership over it. Failure on the part of all
the co-owners to redeem it entitles the vendee a retro to
retain the property and consolidate title thereto in his
name. ut the provision does not give to the redeeming co-
owner the right to the entire property. It does not provide
for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had
succeeded in securing title over the parcel in his
name terminate the existing co-ownership.
Registration of property is not a means of acquiring
ownership. It operates as a mere notice of existing title,
that is, if there is one.
The petitioner must then be said to be a trustee of
the property on behalf of the private
respondents. The Civil Code states:
ART. 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the
benefit of the person from whom the property comes.
The petitioner's pretension that he was the sole heir to the
land in the affidavit of extrajudicial settlement he
executed preliminary to the registration thereof betrays a
clear effort on his part to defraud his brothers and sisters
and to exercise sole dominion over the property.
RE: negotiorum gestio
It is the view of the CA that the petitioner, in taking over
the property, did so either on behalf of his co-heirs, in
which event, he had constituted himself a negotiorum
gestor under Article 2144 of the Civil Code, OR for his
exclusive benefit, in which case, he is guilty of fraud, and
must act as trustee, the private respondents being the
beneficiaries, under the Article 1456.
The evidence, of course, points to the second alternative
(TRUST) the petitioner having asserted claims of
exclusive ownership over the property and having acted
in fraud of his co-heirs. He cannot therefore be said to
have assume the mere management of the property
abandoned by his co-heirs, the situation Article 2144 of
the Code contemplates. In any case, as the CA itself
affirms, the result would be the same whether it is one or
the other. The petitioner would remain liable to the
Private respondents, his co-heirs.
RE: prescription
This Court is not unaware of the well-established
principle that prescription bars any demand on property
(owned in common) held by another (co-owner)
following the required number of years. In that event, the
party in possession acquires title to the property and the
state of co-ownership is ended. In the case at bar, the
property was registered in 1955 by the petitioner, solely
in his name, while the claim of the private respondents
was presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of
terminating a relation of co-ownership, must have been
preceded by repudiation (of the co-ownership). (No
repudiation on the part of the private
respondents/plaintiffs.
ANDRES v. MANTRUST
Ponente: CORTES, J.
Date: September 15, 1989
DOCTRINE: Requisites of solution indebiti:
(1) that he who paid was not under obligation to do so;
and,
(2) that payment was made by reason of an essential
mistake of fact
FACTS:
Relevant Provision of Law: Art. 2154, CC
Petitioner, using the business name "Irene's Wearing
Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for
local and foreign buyers. Among its foreign buyers was
Facets Funwear, Inc. (hereinafter referred to as FACETS)
of the United States.
In the course of the business transaction between the two,
FACETS from time to time remitted certain amounts of
money to petitioner in payment for the items it had
purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey,
Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via PNB.
Acting on said instruction, FNSB instructed private
respondent Manufacturers Hanover and Trust
Corporation to effect the above- mentioned transfer
through its facilities and to charge the amount to the
account of FNSB with private respondent. Although
private respondent was able to send a telex to PNB to pay
petitioner $10,000.00 through the Pilipinas Bank, where
petitioner had an account, the payment was not effected
immediately because the payee designated in the telex
was only "Wearing Apparel." Upon query by PNB, private
respondent sent PNB another telex dated August 27,
1980 stating that the payment was to be made to "Irene's
Wearing Apparel." On August 28, 1980, petitioner
received the remittance of $10,000.00 through Demand
Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the
delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On
September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private
respondent about the delay and at the same time
amended its instruction by asking it to effect the payment
Page 10 of 112
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through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware
that petitioner had already received the remittance of
$10,000.00 from PNB instructed the PCIB to pay
$10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent (Mantrust) asked petitioner for the
return of the second remittance of $10,000.00 but the
latter refused to pay.
LC: in favor of petitioner as defendant; Art. 2154 of the
New Civil Code is not applicable to the case because the
second remittance was made not by mistake but by
negligence and petitioner was not unjustly enriched by
virtue thereof
CA: Art 2154 is applicable; reversed CFI
ISSUE: W/N petitioner has an obligation to return the
$10,000.
RULING:
Art. 2154 of the New Civil Code provides that:
Art. 2154. If something received when there is no
right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil
Code which provided that:
Art. 1895. If a thing is received when there was no
right to claim it and which, through an error, has
been unduly delivered, an obligation to restore it
arises.
Article 1895 [now Article 2154] of the Civil Code
abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of
solution indebiti, is one of the concrete manifestations
of the ancient principle that no one shall enrich himself
unjustly at the expense of another.
For this article to apply the following requisites must
concur:
(1) that he who paid was not under obligation to do so;
and,
(2) that payment was made by reason of an essential
mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563
(1960)].
Petitioner: he had the right to demand and therefore to
retain the second $10,000.00 remittance. It is alleged
that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the
latter allegedly still had a balance of $49,324.00. Hence,
it is argued that the last $10,000.00 remittance being in
payment of a pre-existing debt, petitioner was not
thereby unjustly enriched.
SC: The contract of petitioner, as regards the sale of
garments and other textile products, was with FACETS.
It was the latter and not private respondent which was
indebted to petitioner. On the other hand, the contract for
the transmittal of dollars from the United States to
petitioner was entered into by private respondent with
FNSB. Petitioner, although named as the payee was not
privy to the contract of remittance of dollars. There being
no contractual relation between them, petitioner has no
right to apply the second $10,000.00 remittance
delivered by mistake by private respondent to the
outstanding account of FACETS.
Petitioner: the payment by respondent bank of the
second $10,000.00 remittance was not made by mistake
but was the result of negligence of its employees.
SC: The Court holds that the finding by the Court of
Appeals that the second $10,000.00 remittance was
made by mistake, being based on substantial evidence, is
final and conclusive. CA held:
The fact that Facets sent only one remittance of
$10,000.00 is not disputed. In the written
interrogatories sent to the First National State Bank
of New Jersey through the Consulate General of the
Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank
testified that a request to remit a payment for Facet
Funwear Inc. was made in August, 1980. That there
was a mistake in the second remittance of US
$10,000.00 is borne out by the fact that both
remittances have the same reference invoice number
which is 263 80.
Petitioner: when one of two innocent persons must
suffer by the wrongful act of a third person, the loss must
be borne by the one whose negligence was the proximate
cause of the loss.
SC: The rule is that principles of equity cannot be applied
if there is a provision of law specifically applicable to a
case.
PUYAT AND SONS V. MANILA
Nature: action for refund
Ponente: PAREDES, J
Date: April 30, 1963
DOCTRINE: (Citing a US case) It is too well settled in
this state to need the citation of authority that if money
be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained
by the party receiving it, it may be recovered. Both law
and sound morality so dictate
Page 11 of 112
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FACTS:
Relevant Provision of Law:
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons,
Inc., filed an action for refund of Retail Dealerls Taxes
paid by it, corresponding to the first Quarter of 1950 up
to the third Quarter of 1956, amounting to P33,785.00,
against the City of Manila and its City Treasurer. The case
was submitted on the following stipulation of facts, to
wit—
"1. That the plaintiff is a corporation duly organized and
existing according to the laws of the Philippines, with
offices at Manila; while defendant City Manila is a
Municipal Corporation duly organized in accordance
with the laws of the Philippines, and defendant Marcelino
Sarmiento is the duly qualified incumbent City Treasurer
of Manila;
"2. That plaintiff is engaged in the business of
manufacturing and selling all kinds of furniture xxx
"3. That acting pursuant to the provisions of Sec. 1. group
II, of Ordinance No. 3364, defendant City Treasurer of
Manila assessed from plaintiff retail dealer's tax
corresponding to the quarters hereunder stated on the
sales of furniture manufactured and sold by it at its
factory site, all of which assessments plaintiff paid
without protest in the erroneous belief that it was liable
therefor xxx
"4. That plaintiff, being a manufacturer of various kinds
of furniture, is exempt from the payment of taxes
imposed under the provisions of Sec. 1, Group II, of
Ordinance No. 3364, which took effect on September
24, 1956, on the sale of the various kinds of furniture
manufactured by it pursuant to the provisions of Sec.
18(n) of Republic Act No. 409 (Revised Charter of
Manila), as restated in Section 1 of Ordinance No.3816.
xxx
"6. That on October 30, 1956, the plaintiff filed with
defendant City Treasurer of Manila, a formal request
for refund of the retail dealer's taxes unduly paid by it.
"7. That on July 24, 1958, the defendant City Treasurer of
Manila definitely denied said request for refund.
LC: ordered the defendants to refund the amount of
P29,824.00; Of the payments made by the plaintiff, only
that made on October 25, 1950 in the amount of
P1,250.00 has prescribed Payments made in 1951 and
thereafter are still recoverable since the extra-judicial
demand made on October 30, 1956 was well within the
six-year prescriptive period of the New Civil Code.
CITY OF MANILA (defendants): the taxes in
question were voluntarily paid by appellee company and
since, in this jurisdiction, in order that a legal basis arise
for claim of refund of taxes erroneously assessed,
payment thereof must be made under protest, and this
being a condition sine qua non, and no protest having
been made, -- verbally or in writing, thereby indicating
that the payment was voluntary, the action must fail.
PUYAT AND SONS: the payments could not have been
voluntary. At most, they were paid "mistakenly and in
good faith" and "without protest in the erroneous belief
that it was liable thereof." Voluntariness is incompatible
with protest and mistake. It submits that this is a simple
case of "solutio indebiti"
ISSUE: W/N the amounts paid by plaintiff-appelele, as
retail dealer's taxes under Ordinance 1925, as amended
by Ordinance No. 3364of the City of Manila, without
protest, are refundable
RULING:
Plaintiff-Appellee is entitled to the refund.
Appellants do not dispute the fact that appellee-company
is exempted from the payment of the tax in question.
Newport v. Ringo (US case): "It is too well settled in
this state to need the citation of authority that if money
be paid through a clear mistake of law or fact, essentially
affecting the rights of the parties, and which in law or
conscience was not payable, and should not be retained
by the party receiving it, it may be recovered. Both law
and sound morality so dictate. Especially should this be
the rule as to illegal taxation…”
RE: Requirement of protest
In the opinion of the Secretary of Justice (Op. 90,Series
of 1957, in a question similar to the case at bar, it was held
that the requiredment of protest refers only to the
payment of taxes which are directly imposed by the
charter itself, that is, real estate taxes, which view was
sustained by judicial and administrative precedents, one
of which is the case of Medina, et al., v. City of Baguio,
G.R. No. L-4269, Aug. 29, 1952. In other words, protest
is not necessary for the recovery of retail dealer's taxes,
like the present, because they are not directly imposed by
the charter.
ISSUE #2: IF yes on #1, W/N the claim for refund filed
in October 1956, in so far as said claim refers to taxes paid
from 1950 to 1952 has already prescribed
CITY OF MANILA: article 1146 (NCC), which provides
for a period of four (4) years (upon injury to the rights of
the plaintiff), apply to the case.
PUYAT AND SONS: provisions of Act 190 (Code of Civ.
Procedure) should apply, insofar as payments made
before the effectivity of the New Civil Code on August 30,
1950, the period of which is ten (10) years, (Sec. 40,Act
No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article
1145 (NCC), for payments made after said effectivity,
Page 12 of 112
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providing for a period of six (6) years (upon quasi-
contracts like solutio indebiti).
RULING:
Even if the provisions of Act No. 190 should apply to
those payments made before the effectivity of the new
Civil Code, because "prescription already running before
the effectivity of of this Code shall be govern by laws
previously in force xxx " (Art. 1116, NCC), Still payments
made before August 30, 1950 are no longer
recoverable in view of the second paragraph of
said article (1116), which provides:
"but if since the time this Code took effect the entire
period herein required for prescription should elapse
the present Code shall be applicable even though by
the former laws a longer period might be required".
Anent the payments made after August 30, 1950, it is
obvious that the action has prescribed with respect to
those made before October 30, 1950 only, considering the
fact that the prescription of action is interrupted xxx
when is a written extra-judicial demand x x x" (Art. 1155,
NCC), and the written demand in the case at bar was
made on October 30, 1956 (Stipulation of Facts).
MODIFIED in the sense that only payments made on or
after October 30, 1950 should be refunded, the decision
appealed from is affirmed, in all other respects.
4. Acts or omissions
punished by law
Article 1167. If a person obliged to do something fails to
do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone. (1098)
Article 2177. Responsibility for fault or negligence
under the preceding article is entirely separate and
distinct from the civil liability arising from negligence
under the Penal Code. But the plaintiff cannot recover
damages twice for the same act or omission of the
defendant.(n)
RPC Article 100. Civil liability of a person guilty of
felony. - Every person criminally liable for a felony is also
civilly liable.
RPC Article 104. What is included in civil liability. -
The civil liability established in Articles 100, 101, 102, and
103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
5. Quasi-delicts
Article 1162. Obligations derived from quasi-delicts
shall be governed by the provisions of Chapter 2, Title
XVII of this Book, and by special laws. (1093a)
Article 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter. (1902a)
SALUDAGA V. FEU
Nature: Complaint for damages
Ponente: YNARES-SANTIAGO, J.
Date: April 30, 2008
DOCTRINE:
FACTS:
Relevant Provision of Law:
Petitioner Joseph Saludaga was a sophomore law student
of respondent Far Eastern University (FEU) when he was
shot by Alejandro Rosete (Rosete), one of the security
guards on duty at the school premises on August 18, 1996.
Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical
Foundation (FEU-NRMF) due to the wound he
sustained. Meanwhile, Rosete was brought to the police
station where he explained that the shooting was
accidental. He was eventually released considering that
no formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages
against respondents on the ground that they breached
their obligation to provide students with a safe and secure
environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party
Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any;
and to pay attorney's fees and cost of the suit. On the
other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.
TC: held FEU and GALAXY liable
CA: reversed; dismissed the complaint; shooting was a
fortuitous event
ISSUE: W/N FEU is liable based on the contract
between it and its student
RULING:
YES. FEU is liable (culpa contractual).
PSBA v CA: When an academic institution accepts
students for enrollment, there is established a contract
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between them, resulting in bilateral obligations which
both parties are bound to comply with. For its part, the
school undertakes to provide the student with an
education that would presumably suffice to equip him
with the necessary tools and skills to pursue higher
education or a profession. On the other hand, the student
covenants to abide by the school's academic
requirements and observe its rules and regulations.
It is settled that in culpa contractual, the mere proof of
the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of
relief. In the instant case, we find that, when petitioner
was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the
premises, there is a prima facie showing that
respondents failed to comply with its obligation
to provide a safe and secure environment to its students.
Re: Force majeure
Respondents failed to discharge the burden of proving
that they exercised due diligence in providing a safe
learning environment for their students. They failed to
prove that they ensured that the guards assigned in the
campus met the requirements stipulated in the Security
Service Agreement. Indeed, certain documents about
Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a
security guard for the university was offered.
It was not proven that they examined the clearances,
psychiatric test results, 201 files, and other vital
documents enumerated in its contract with Galaxy. Total
reliance on the security agency about these matters or
failure to check the papers stating the qualifications of the
guards is negligence on the part of respondents. A
learning institution should not be allowed to completely
relinquish or abdicate security matters in its premises to
the security agency it hired. To do so would result to
contracting away its inherent obligation to ensure a safe
learning environment for its students.
Consequently, respondents' defense of force
majeure must fail. In order for force majeure to be
considered, respondents must show that no
negligence or misconduct was committed that
may have occasioned the loss. An act of God cannot
be invoked to protect a person who has failed to take steps
to forestall the possible adverse consequences of such a
loss. One's negligence may have concurred with an act of
God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is
found to be partly the result of a person's participation -
whether by active intervention, neglect or failure to act -
the whole occurrence is humanized and removed from
the rules applicable to acts of God
Re: Damages
Article 1170 of the Civil Code provides that those who are
negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract
due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for
damages.
DISPOSITIVE:
a. respondent Far Eastern University (FEU)
is ORDERED to pay petitioner actual damages in the
amount of P35,298.25, plus 6% interest per annum from
the filing of the complaint until the finality of this
Decision. After this decision becomes final and executory,
the applicable rate shall be twelve percent (12%) per
annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner
temperate damages in the amount of P20,000.00;
moral damages in the amount of P100,000.00; and
attorney's fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus
(Prfesident of FEU) is DISMISSED. The counterclaims
of respondents are likewise DISMISSED.
SAGRADA ORDEN VS NACOCO
Nature: Action to recover the possession of a parcel of
land and the warehouses, as well as the rentals for its
occupation and use
Ponente: Labrador
Date: June 30, 1952
DOCTRINE: In order for an obligation to exist, it
must be created by law, contract, quasi-contract,
delicts, or quasi-delicts.
FACTS:
Relevant Provision of Law:
Old Civil Code Article 1089. Obligations are created by
law, by contracts, by quasi-contracts, and by illicit acts
and omissions or by those in which any kind of fault or
negligence occur
On January 4, 1942, during the Japanese occupation, a
Japanese corporation by the name of Taiwan Tekkosho
acquired a certain parcel of land owned by the plaintiff
for the sum of Php140,000.00, and title was issued in its
name. After the end of World War 2, the Alien Property
Custodian of the USA took possession, control and
custody thereof for the reason that the land belonged to
an enemy national. Afterwards the property was occupied
by the Copra Export Management Company, which later
vacated it in favor of the National Coconut Corporation.
Sagrada Orden made a claim of the property before the
Alien Property Custodian but this was denied, so it
brought an action at the CFI of Manila to annul the sale
of the property to Taiwan Tekkosho and to recover its
possession.
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The case did not come to trial as the parties presented a
joint petition where it was claimed that the sale in favor
of Taiwan Tekkosho was null and voide because it was
executed under threats, duress, and intimidation, and it
was agreed that the title should be re-issued in favor of
Sagrada Orden. The parties also prayed that NACOCO
and the Alien Property Administration be released from
PEOPLE’S CAR INC. VS COMMANDO SECURITY
liability, and that NACOCO would pay rentals.
SERVICE AGENCY
CFI released NACOCO from any liability but denied
Nature: Action for damages
plaintiff the right to recover reasonable rentals.
Ponente: Teehankee
Date: May 22, 1973
Plaintiff appeals to recover reasonable rentals from
August 1946, which as when NACOCO began occupying
DOCTRINE: Obligations arising from contracts
the premises, and to vacate it.
have the force of law between the contracting
parties and should be complied with in good faith
Respondent, on the other hand, admits rentals but only
starting February 28, 1949, when the judgment of the CFI
FACTS:
was issued. It defends itself by saying it occupied the
Relevant Provision of Law:
property in good faith, and had no obligation whatsoever
NCC Article 1159. Obligations arising from contracts
to pay rentals for the use and occupation of the
have the force of law between the contracting parties
warehouse.
and should be complied with in good faith.
ISSUE:
People’s Car Inc and Commando Security Service Agency
Whether or not NACOCO is liable for rentals from the
entered into a Guard Service Contract where the latter
time of its occupancy or from the time of the judgment of
would safeguard and protect the business premises of
the CFI.
People’s Car from theft, pilferage, robbery, vandalism
and all other unlawful acts of any person or persons
RULING: It is not liable for rentals at all.
prejudicial to the interest of the plaintiff.
If defendant is liable at all, its obligations must arise from
any of the four sources of obligations: law, contract or
On April 5, 1970, at around 1AM, one of the security
quasi-contract, crime, or negligence.
guards, without any authority or consent whatsoever,
brought out of the compound of the plaintiff a car
NACOCO is not guilty of any offense at all since it entered
belonging to Joseph Luy, a customer, and eventually lost
the premises and occupied the same with the permission
control of the said car, causing the same to fall into a
of the Alien Property Administration, which had legal
ditch. Plaintiff filed a complaint of qualified theft against
control and administration. It’s not negligent of anything
the security guard; plaintiff alleges that it had to suffer
either. There was no privity of contract or obligation
damages by way of payment for the repairs of the car in
between the Alien Property Custodian and Taiwan
the amount of Php7,079, as well as car rental value in the
Tekkosho such that the Alien Property Custodian or its
sum of Php1,410 as plaintiff had to loan a car to Joseph
permittee (NACOCO) can be held responsible for the
Luy for 47 days while the car was being repaired. As such,
illegal occupation by Taiwan Takkosho. Note: the Alien
plaintiff incurred a total of Php8,489.10 in damages.
Property Custodian did not occupy the property as
successor to the interests of Taiwan Tekkosho, but by
Plaintiff claimed that the entire amount is imputable to
expression provision of the law. When NACOCO took
Commando Security as, under paragraph 5 of their
possession of the property, the Alien Property
contract, defendant assumed liability for acts done
Administration had the absolute control of the property
during their watch hours by guards, while Commando
as the trustee of the US Government; as such, if NACOCO
alleges, under paragraph 4 of the contract, that its
is liable for rentals, it would accrue to the US Government
liability should not exceed Php1,000.
and not to Sagrada Orden.
TC ruled in favor of the interpretation of Commando
Furtehrmore, there was no agreement between the Alien
Security.
Property Custodian and NACOCO for the payment of
rentals on the property. The predecessor of NACOCO,
ISSUE: What is the extent of the liability of Commando
Copra Export, did not pay any rentals or had to pay any
Security in light of the contract that the parties entered
compensation of any kind. When the NACOCO succeeded
into
Copra Export, it must have also been free from payment
of rentals, especially since it’s a Government corporation.
RULING: It is liable for the entire Php8,489.10.
The limitation to Php1,000 per guard post is only
As such, there is no basis on any of the sources of
applicable for loss or damage “through the negligence of
obligations to find that NACOCO is liable for rentals to
its guards during watch hours” provided that the same is
Sagrada Orden.
duly reported to the plaintiff within 24 hours of the
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occurrence and the negligence is verified after proper
investigation with the attendance of both contracting
parties. It’s inapplicable in this case as the property of the
plaintiff was not lost or damaged at its premises, and was
there just mere negligence of the security guard.
Rather, this case involves a security guard who willfully
and unlawfully drove out a car and lost control of the
same, causing the plaintiff to incur actual damages in the
amount of Php8,489.10. Consequently, defendant is
liable for the entire damages under paragraph 5, where
the defendant assumes “liability for the acts during their
watch hours” and that it “releases plaintiff from any and
all liabilities to the third parties arising from acts or
omissions done by guards during their tour of duty.” As
the act here is wanton and unlawful, the defendant is
liable.
Contrary to TC’s determination, plaintiff was not
required to tell Luy that it was not liable under the Guard
Service Contract with Commando, and that it should have
brought the action in court. The TC also required that Luy
would file a third-party complaint (rather than dismiss
the action vs. plaintiff) or to have plaintiff file a
crossclaim (if Luy did not opt to dismiss the action). The
recommendations of the TC are unduly technical and
unrealistic
Plaintiff was in law liable to Luy for the damages caused
by the security guard, but it was also justified in making
good such damages and relying in turn on the defendant’s
honoring its contract. Plaintiff couldn’t tell its customer
that it was not liable since the customer could not hold
defendant to account for damages as the customer had no
privity of contract with the defendant.
CANGCO VS MANILA RAILROAD
Nature: Action for damages based on quasi-delict
Ponente: Fisher
Date: October 4, 1918
DOCTRINE: The liability arising from culpa aquillana
is based on a voluntary act or omission, which, without
willful intent but by mere negligence, has caused damage
to another. An employer who exercises all possible care
in the selection and direction of his employee would not
occur any liability. For the liability to exist, there should
actually be some fault attributable to the defendant
personally.
FACTS:
Relevant Provision of Law:
Civil Code ART. 1903. The obligation imposs=ed by the
next preceding articles is enforceable not only for
personal acts and omissions, but also for those of persons
for whom another is responsible..
Jose Cango was an employee of the Mania Railroad
Company as a clerk. To travel from his home to his place
of work, he used a pass, as supplied by the company,
which entitled him to ride on the company’s trains for
free.
On January 20, 1915, at around 7 to 8PM, Cangco was
about to disembark from the slowing train, when one or
both of his feet came in contact with sack of watermelons
resulting in him falling violently on the platform; his body
rolled from the platform and was drawn under the
moving car where his right arm was badly crushed and
lacerated. The platform was dimly lit so that it was
difficult to discern the objects on the platform.
Pit appears that the sack of melons were on the platform
as it was customary season for harvesting and a large lot
had been brought to the station for the shipment to the
market. They were contained in numbers sacks, which
had been piled on the platform in a row upon another
near the edge of the platform.
As a result of the accident, Cangco had to undergo two
surgeries resulting in the amputation of his arm until
near the shoulder, and he expended actual medical
damages in the amount of Php790.25. He thus filed an
action with the CFI of Manila to recover damages based
on the negligence of the employees in leaving the sacks of
watermelons at the edge of the platform.
CFI ruled that while negligence was attributable to the
defendant, the plaintiff had failed to exercise due caution
in alighting from the train and so was precluded from
recovering
ISSUE: Whether or not Cangco is entitled to
recover damages from MRR for the negligent
actions of MRR’s employees in placing the sacks
of watermelons at the edge of the platform
RULING: Yes, Manila railroad is liable for
damages for breach of contract of carriage.
It cannot be doubted that the employees of the railroad
company were negligent in piling the sacks on the
platform and that their presence caused the plaintiff to
suffer his injuries; as such, they constituted an effective
legal cause of the injuries sustained by the plaintiff.
However, it must still be weighed against the
contributory negligence of the plaintiff.
The foundation of the legal liability of the defendant is the
contract of carriage; the obligation to respond for the
damage arises from the failure of the defendant to
exercise due care in its performance. The liability of is
direct and immediate, and differs from the presumptive
responsibility for the negligence of its employees as
imposed by Civil Code Article 1903, which can be
rebutted by proof of the exercise of due care in the
selection and supervision of employees. Article 1903 is
not applicable to contractual obligations (culpa
contractual), but only to extra-contractual obligations
(culpa aquiliana).
Court cites precedent in the Rakes case where the Court
stated that Article 1903 of the Civil Code is inapplicable
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to acts of negligence which constitute the breach of
contract; they would be subject instead to articles 1101,
1103 and 1104.
The distinction is important as the liability imposed on
employers for damages based on the negligence of the
employees is not based on respondeat superior – which
would impose the master liable in every case and
unconditionally – but on the principle in Article 1902,
which imposes upon all persons who by their own fault or
negligence cause injury to another, the obligation to
indemnify the damages. As such, the employer would not
be liable for damages done by a negligent employee if the
employer were not negligent in the selection and
direction of the employee, and the act did not amount to
breach of the contract between the third person and the
employer.
The liability arising from culpa aquillana is based on a
voluntary act or omission, which, without willful intent
but by mere negligence, has caused damage to another.
An employer who exercises all possible care in the
selection and direction of his employee would not occur
any liability. For the liability to exist, there should
actually be some fault attributable to the defendant
personally.
On the other hand, the liability of masters and employers
for the negligent acts or omissions of their servants or
agents, when such acts or omissions cause damages
which amount to the breach of a contact, is not based
upon a mere presumption of the master's negligence in
their selection or control, and proof of exercise of the
utmost diligence and care in this regard does not relieve
the master of his liability for the breach of his contract.
The Court describes extra-contractual obligations arise
from the breach or omission of the mutual duties which
civilized society imposes on its members such that the
breach of these will result in the obligation to indemnify.
The viniculum juris is the wrongful or negligent act or
omission itself, while in contractual relations, the
viniculum exists independently from the breach of the
voluntary duty.
The positions of parties who have taken a contract with
each other versus those who haven’t are different. The
burden of proof is on the plaintiff to show the negligence
in culpa aquillana, while in a contract, it is sufficient to
prove the contract and the nonperformance.
Here: the duty was based on a contract of carriage, which
is direct and immediate, and its non-performance could
not be excused by proof that the fault was morally
imputable to defendant’s employees.
Defendant’s allegation that the plaintiff should not have
gotten off from the train prior to its slowing down is
insufficient to deny damages as it is not negligence per se
for a passenger to alight from a moving train. The train
here was “barely moving” and it seems to be a common
practice to do so without any injury. Any contributory
negligence on the part of the plaintiff would still be on the
negligence of the defendant as the platform was dark and
dimly lit.
Dissent: J. Malcolm
The contributory negligence of the plaintiff, in attempting
to alight from a moving train should absolve defendant
from liability.
GUTIERREZ VS. GUTIERREZ
Nature: Action to recover damages from physical
injuries from an automobile accident
Ponente: Malcolm
Date: September 23, 1931
DOCTRINE: The head of the house, the owner of an
automobile, who maintains it for the general use of the
family, is liable for its negligent operation by one of his
children where the car is occupied and being used at the
time of the injury for the pleasure of other members of
the owner’s family.
FACTS:
Relevant Provision of Law:
Spanish Civil Code ART. 1903. The obligation imposed
by the next preceding articles is enforceable not only for
personal acts and omissions, but also for those of
persons for whom another is responsible.
The father, and, in case of his death or
incapacity, the mother, are liable for any damages
caused by the minor children who live with them.
On February 2, 1930, a passenger truck, and an
automobile, driven by Bonifacio Gutierrez and owned by
his parents, Mr. and Mrs. Manuel Gutierrez, collided with
one another as they were passing on the Talon Bridge on
the Manila South Road. Narciso was a passenger on the
truck, and he suffered a fracture in his right leg, which
required medical attendance and had not yet healed at
the date of the trial.
The parties conceded that the collusion was caused by
negligence. However, the plaintiff blames both sets of
drivers, while the truck owner blames the automobile
driver, while the automobile owners blame the truck
driver.
ISSUE: Who among the defendants are liable – the truck
owner or the automobile owner?
RULING:
Bonifacio, at the time of the accident, was only 18 and was
driving at an excessive rate and so contributed to the
accident by his negligence. As such, based on article 1903
of the Civil Code, the father would be liable for damages
caused by the minor.
Citing US cases as precedent, the Court ruled that it has
been held that the head of the house, the owner of an
automobile, who maintains it for the general use of the
family, is liable for its negligent operation by one of his
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children where the car is occupied and being used at the
time of the injury for the pleasure of other members of
the owner’s family.
On the other hand, the liability of Cortez, the owner of the
passenger truck, and Velasco, the drier, rests on a
contract, which was sufficiently proven in evidence. The
trial court found that the speed of the truck at the time
and lack of care of the driver also contributed to the
accident.
Cortez and Velasco’s contention that Narciso contributed
to the accident by sticking his leg outside the truck can’t
be counted on as it was not pleaded in court and there was
no evidence presented.
NOTES: Villa-Real had a concurring opinion which
merely voted for an indemnity of Php7,500.
C. Compliance with obligations
Article 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
good faith.
Article 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the stipulation
of the parties requires another standard of care. (1094a)
Article 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him. (1095)
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
Article 1244. The debtor of a thing cannot compel the
creditor to receive a different one, although the latter may
be of the same value as, or more valuable than that which
is due.
In obligations to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance
against the obligee's will. (1166a)
Article 1246. When the obligation consists in the
delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other circumstances
shall be taken into consideration. (1167a)
Article 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain
in force. (1180)
Article 440. The ownership of property gives the right
by accession to everything which is produced thereby, or
which is incorporated or attached thereto, either
naturally or artificially. (353)
Article 442. Natural fruits are the spontaneous
products of the soil, and the young and other products of
animals.
Industrial fruits are those produced by lands of any kind
through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of
lands and other property and the amount of perpetual or
life annuities or other similar income. (355a)
D. Kinds of civil obligations
1. As to perfection and
extinguishment
a. Pure
Article 1179. Every obligation whose performance does
not depend upon a future or uncertain event, or upon a
past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition
shall also be demandable, without prejudice to the effects
of the happening of the event. (1113)
Article 1197. If the obligation does not fix a period, but
from its nature and the circumstances it can be inferred
that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. (1128a)
(NOTE: My syllabus is cut and I don’t know what
follows after these provisions, I’m sorry. Macel)
PAY VS PALANCA
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Nature: Action for a sum of money based on a
promissory note
Ponente: Fernando
Date: June 28, 1974
DOCTRINE: An obligation that does not depend on a
future or uncertain event, or upon a past event unknown
to the parties, is demandable at once. The filing of an
action only 15 years after is too late to enforce.
FACTS:
Relevant Provision of Law:
NCC 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once
George Pay is a creditor of the late Justo Palanca. Pay’s
claim is based on a promissory noted dated January 30,
1952, wherein Justo Palanca and Rosa Palanca promised
to pay the amount of Php26,900.00. Pay comes to the
court seeking that Segunda, the widow, be appointed as
the administratrix under the belief that once a certain
parcel of land is under her administration, Pay, as the
creditor, could seek his claim against the administratrix.
Palanca denies stating that she had refused to be
appointed as the administratrix, that the property no
longer belonged to the deceased, and that the rights of
Pay on the instrument had already prescribe; the note
had been executed 15 years prior.
TC ruled in favor of Palanca and dismissed the case
ISSUE: Whether a creditor is barred by prescription in
his attempted to collect on a promissory note executed
more than 15 years earlier.
RULING: Yes.
Based on the evidence presented, the only argument that
merits the attention of the Court is that of prescription.
As noted by NCC 1179, any obligation that does not
depend on a future or uncertain event, or upon a past
event unknown to the parties is demandable at once.
As the obligation was due and demandable, the filing of
the suit after 15 years was much too late. The Civil Code
additionally states that the prescriptive period of a
written contract is 10 years.
SMITH BELL VS SOTELO MATTI
Nature: Specific Performance – payment of goods and
to receive the same
Ponente: Romualdez
Date: March 9, 1922
FACTS:
Relevant Provision of Law:
Civil Code 1125. Obligations for the performance of
which a day certain has been fixed shall be demandable
only when the day arrives.
A day certain is understood to be one which
must necessarily arrive, even though its date be
unknown.
If the uncertainty should consist in the arrival or
non-arrival of the day, the obligation is conditional and
shall be governed by the rules of the next preceding
section.
In August 1918, Smith Bell and Sotelo entered into
contracts whereby the former obligated itself to sell to
Sotelo two steel tanks for the price of Php21,000, the
tanks were to be shipped from New York and delivered at
Manila within 3-4 months; two expellers for the price of
Php25,000, which were to be shipped from San Francisco
in the month of September 1918 or as soon as possible;
and two electric motors at the price of Php2,000 each –
the delivery stipulation read “approximate delivery
within 90 days – this is not guaranteed.” All of the
contracts were subject to contingencies such as the sellers
not being responsible for delays caused by force majeure.
The tanks arrived on April 27, 1919, the expellers on
October 26 1918, and the motors on February 27, 1919.
Plaintiff notified Sotelo of the arrival of the goods, but he
refused to receive and pay for them.
Smith Bell alleges that it immediately notified Sotelo of
the arrival of the goods yet Sotelo has refused to receive
any of them to pay for their price.
Sotelo counters that the he made the contracts as the
manager of the Manila Oil Refining and By-Products
Company, and that it was only in May 1919 that he was
notified of the arrival of the goods, which arrived
incomplete and long after the dates stipulated. They
allege that the delay in the delivery resulted in suffering
damages for the non-delivery of the tanks (P116,783.91)
and on the expellers and motors (P21,250)
TC absolved the defendant from paying for the tanks and
motors but ordered that defendant pay P50,000 for the
expellers, which includes legal interest
ISSUE: Whether or not under the contracts entered into
and the circumstances established in record, the plaintiff
fulfilled its obligation to bring the goods and in due time.
RULING: Yes, the obligations were conditional.
None of the contracts fixed a specific date for the delivery
of goods – they stated “within 3-4 months”, “in
September 1918, or as soon as possible” or “approximate
delivery within 90 days – this is not guaranteed” and all
of them were subject to the clause that force majeure was
a possible defense in case of delays.
The record discloses that the contracts were executed at
the time of World War I, which mean that there were rigid
restrictions on exports from the USA of articles such as
machinery in question, and that transportation was
difficult, which was known to the parties.
Considering these contracts in light of civil law, the Court
ruled that the term the parties attempted to fix is so
uncertain that one cannot tell whether or not the goods
Page 19 of 112
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could actually be brought to Manila, so the obligations
must be considered as conditional.
The export of the machinery was contingent on the sellers
obtaining certificate of priority and permission of the US
Government, so it was subject to a condition that
depended on the effort of Smith Bell and on the will of
third persons who could in no way be compelled to fulfill
the obligation. The obligor is considered as having
sufficiently performed his part of the obligation if he has
done all in his power, even if the condition has not been
fulfilled.
As such, Soleto is sentenced to accept and receive the
machinery and to pay Php96,000.00 including legal
interest from the date of the filing of the complaint until
fully paid.
CHAVES VS GONZALES
Nature: Action for damages
Ponente: Reyes
Date: April 30, 1970
DOCTRINE: When the time for compliance of an
obligation had evidently expired, even if a term was not
properly fixed by the parties, there is a breach of contract
by non-performance.
FACTS:
Relevant Provision of Law:
NCC 1167. If a person obliged to do something fails to do
it, the same shall be executed at his cost.
The same shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone
NCC 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.
NCC 1197. If the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that
a period was intended, the courts may fix the duration
thereof.
The courts shall also fix the duration of the
period when it depends upon the will of the debtor.
In every case, the courts shall determine such
period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
In July 1963, Chaves delivered to Gonzales a typewriter
for routine cleaning and servicing. Gonzales was unable
to finish the job after some time in spite of repeated
reminders made by Chaves. Instead, he constantly gave
assurances.
In October 1963, defendant asked from plaintiff the sum
of P6.00 for the purchase of spare parts, which plaintiff
gave. On October 26, finally fed up with the delay,
plaintiff demanded that the typewriter be returned. The
defendant returned the same in a wrapped package; the
plaintiff discovered that the same was completely in
shames with the interior cover and some parts and screws
missing. Plaintiff sent a letter formally demanded the
return of the missing parts, the interior cover and P6.00.
The next day, defendant returned some of the missing
parts, the interior cover and P6.00
The plaintiff had his typewriter repaired by Freixas
Business Machines, which was successful in doing so for
the cost of P89.85.
Plaintiff commenced an action at the CFI of Manila,
asking for P90 as actual damages, P100 as temperate,
P500 for moral, and P500 as attorney’s fees.
TC ruled that the defendant should not be liable for the
repairs made by Freixas, but should only be liable for the
value of the missing parts. As such it ordered the
defendant to pay the sum of P31.10, and the costs of the
suit.
Plaintiff alleges that based on NCC 1167, he should be
entitled to the whole cost of labor and materials that went
into the repair of the machine.
Defendant alleges that it should not be held liable as his
contract with the plaintiff did not contain a period under
NCC 1197, such that the plaintiff should have first filed an
action to fix the period, within which he should have
complied with the contract before he is liable for breach
ISSUE: Whether or not defendant is liable to plaintiff
for the cost of actually repairing the typewriter, which it
had failed to do
RULING:
The Court ruled that there was a perfected contract for
cleaning and servicing a typewriter, which was properly
intended that the defendant finish it at a future time
though it was not specified. Furthermore, some time had
passed without the work having been finished, and the
defendant returned the typewriter “cannibalized” and
unrepaired, which is a breach of his contract, and he did
so without asking for more time to finish the job or for
compensation for the work he had done.
Consequently, the Court rules that the time for
compliance had evidently expired and there was already
breach of contract by non-performance. Defendant
cannot invoke NCC 1197 as the fixing of a period would be
a mere formality and would only serve as a delay.
Page 20 of 112
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Clear that the defendant breached his obligation, so he is stop paying in order to terminate the lease. The Court
liable under NCC 1167 for the cost of the execution of the states that this is void according to 1256 of the Spanish
obligation in the proper manner, which is P89.85 He is Civil Code.
also liable under NCC 1170 for the cost of the missing
parts for his negligence in returning the typewriter in the
same condition in which he had received it.

The other damages were correctly rejected as they were

not alleged in his complaint.

ENCARNACION VS BALDOMAR

Nature:
Ponente: Hilado
Date: October 4, 1946

DOCTRINE: The validity and fulfillment of a contract of

lease cannot be left solely and exclusively to the will of
one of the parties – here the lessees – as it would deprive
the owner from being able discontinue the lease

FACTS:
Encarnacion leased a house to Jacinto Baldomar and her
son Lefrado Fernando on a month-to-month basis for the
monthly rental of P35. After the end of World War 2,
Encarnacion informed Baldomar and her son to vacate
the house by April 15, 1945 as he needed it for his offices
as a result of the destruction of the building where his
office previously was. In spite of his demand, the
defendants insisted on their occupancy.

Baldomar and Fernanco contend that Encarnacion

authorized them to continue their occupancy indefinitely
while they are able to faithfully fulfill their obligation with
respect to the payment of rentals.

Encarnacion contends that the lease had always been on

a month-to-moth basis.

CFI ruled in favor of Encarnacion

ISSUE: Whether or not Encarnacion is justified in

ordering the ejectment of Baldomar and Fernando from
the house that he leased to them

RULING: Yes. The Court puts more credit on the

witness of Encarnacion that the lease was for a month to
month basis.

The defense set up by Fernando basically left the validity

and fulfillment of the contract of lease solely and
exclusively to the will of one of the parties – whether or
not they would continue paying rentals or not – and
would deprive the owner from any say in the matter. If
this defense were allowed, the owner could potentially
never be able to discontinue the lease. Conversely, if the
owner wished the lease to continue, the lessees could just
Page 21 of 112
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ELEIZEGUI VS MANILA LAWN TENNIS CLUB
Nature: Action for ejectment
Ponente: Arellano
Date: May 19, 1903
DOCTRINE:
FACTS:
Relevant Provision of Law:
Art 1128 Should the obligation not fix a period, but it can
be inferred from its nature and circumstances that there
was an intention to grant it to the debtor, the courts shall
fix the duration of the same.
The court shall also fix the duration of the period
when it may have been left to the will of the debtor.
Eleizegui leased a parcel of land for a fixed consideration
and to endure at the will of the lessee, who was authorized
to make improvements upon the land such as erecting
buildings of both permanent and temporary character, by
making fills, laying pipes, and making such other
improvements as may be desirable for the comfort and
amusement of the members.
Eleizegui later tried to terminate the lease by sending
notice to the Tennis Club but this was ignored. As such,
he filed an action to recover the land. Elezegui contends
that, based on Article 1569 of the Spanish Civil Code, the
lessor may judicially dispossess the lessee upon the
expiration of the conventional term or of the legal term.
TC ruled in favor of Eleizegui contending that the lease
was on a per month basis
ISSUES
(1) Whether or not there was a conventional term
RULING: Yes, so 1581 which imposes a legal term
is not applicable
The Court notes that there are clauses, which do stipulate
a term, so the legal term as imposed by 1581 cannot be
applied.
Clause 3 of the contract states that “Mr. Williamson, or
whoever may succeed him as secretary of the club, may
terminate this lease whenever desired without other
formality other than that of giving a month’s notice. The
owners of the land undertake to maintain the club as
tenant as long as the latter shall see fit.”
As such, the contract of lease cannot be considered as
being one without a conditional term as there is one,
which is dependent on the lessee. As such, the lease could
not be considered terminated by the notice given by
Eleizegui as this notice is necessary only when it becomes
necessary to have recourse to the legal term.
It is also evident that the lessors did not intend to reserve
to themselves the right to rescind which they expressly
conferred upon the lessee by establishing it exclusively
with the latter.
(2) Whether or not the lease depends upon the will of the
lessee.
RULING:
However, It cannot be concluded that the termination of
the contract is to be left completely at the will of the lessee
simply because it has been stipulated that its duration is
to be left to his will.
The Civil Code has made provision for such a case in all
kinds of obligations. In speaking in general of obligations
with a term it has supplied the deficiency of the former
law with respect to the "duration of the term when it has
been left to the will of the debtor," and provides that in
this case the term shall be fixed by the courts. (Art. 1128,
sec. 2.) In every contract, as laid down by the authorities,
there is always a creditor who is entitled to demand the
performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral
contracts the contracting parties are mutually creditors
and debtors. Thus, in this contract of lease, the lessee is
the creditor with respect to the rights enumerated in
article 1554, and is the debtor with respect to the
obligations imposed by articles 1555 and 1561. The term
within which performance of the latter obligation is due
is what has been left to the will of the debtor. This term it
is which must be fixed by the courts.
The only action which can be maintained under the terms
of the contract is that by which it is sought to obtain from
the judge the determination of this period, and not the
unlawful detainer action which has been brought — an
action which presupposes the expiration of the term and
makes it the duty of the judge to simply decree an
eviction. To maintain the latter action it is sufficient to
show the expiration of the term of the contract, whether
conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge
to look into the character and conditions of the mutual
undertakings with a view to supplying the lacking
element of a time at which the lease is to expire.
The lower court’s judgment is erroneous and therefore
reversed and the case was remanded with directions to
enter a judgment of dismissal of the action in favor of
the defendant, the Manila Lawn Tennis Club.
SEPARATE OPINION: Concurring by J. Willard:
Willard contends that 1128 should apply generally to
unilateral contracts – those in which the credit parted
with something of value, leaving it to the debtor to say
when it should be returned. It should not be applied to
the contract of lease. But he agrees that 1581 is
inapplicable
PHILIPPINE BANKING representing estate of
JUSTINA SANTOS v. LUI SHE as administratrix
of WONG HENG
Nature: Annulment of contract
Ponente: Castro
Date: 12 September 1962
Page 22 of 112
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DOCTRINE: Contracts at bar cannot be annulled on
the ground of 1308 – that “the contract must bind both
contracting parties; its validity or compliance cannot be
left to the will of one of them.” At bar, the contract of
lease was not dependent on Wong’s will, as there was a
fixed term.
FACTS:
Relevant Provision of Law: 1308, 1416
Santos and her sister Lorenzo both owned a Manila
compound. Wong was their lessor. He had a restaurant
on the compound and also lived therein.
When Lorenzo died, Santos exclusively owned the
property. It was at this time when she became close
with Wong’s children. Wong himself was the trusted
man to whom she delivered various amounts for
safekeeping, including rentals from her property. He
also took care of the payment; in her behalf, of taxes,
lawyers' fees, funeral expenses, masses, salaries of maids
and security guard, and her household expenses.
Santos and Wong then entered into several contracts
with each other:
1. Contract of lease covering the area already leased to
Wong and an additional area for 50 years, with right to
lessee to withdraw. The contract was then amended to
include the entire compound of Santos, including the
very house where she loved;
2. An option to buy the leased premises in favor of
Wong. This was conditioned on his obtaining Filipino
citizenship;
3. A contract extending the lease to 99 years; and
4. Another fixing the option to buy at 50 years.
Santos then executed two wills where she asked her
heirs to respect the contracts made.
However, a codicil later executed said differently: it
claimed that the contracts were made only because of
inducement and machination employed by Wong.
Santos then filed a case to annul the above contracts and
for collection of unpaid rentals.
CFI ruled for Santos, and annulled all contracts except
the first contract of lease. At this point, the original
parties passed away.
ISSUE: W/N contracts should be annulled
RULING: Yes, they should be.
1. But they cannot be annulled on the ground of 1308 –
that “the contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of
them.” At bar, the contract of lease was not dependent
on Wong’s will, as there was a fixed term.
2. They cannot also be annulled on the ground that
Santos was not the owner. When Lorenzo died, the
entire property became Santos’ therefore she could
validly dispose.
3. Neither can they be annulled because a fiduciary
relationship existed between Santos and Wong, with the
latter as agent, contrary to article 1646, in relation to
article 1941 of the Civil Code, which disqualifies "agents
(from leasing) the property whose administration or sale
may have been entrusted to them." Wong was never an
agent of Justina Santos.
4. Cannot annul based on fraud. There was no fraud
employed, as Santos dictated the terms of these
contracts to her lawyer with Wong’s aid. The lawyer
fully explained the effects of the contracts.
5. Neither can these contracts be annulled on the
grounds that Santos was blind, and that the contracts
were in English, which she did not understand. Nor can
they be voided because of an alleged mistaken belief that
Wong rescued Santos and her sister from a fire.
6. But they are invalidated because of an illegal cause!
Contracts were executed to circumvent the
constitutional prohibition against alien ownership of
land. If an alien is given not only a lease of, but also an
option to buy, a piece of land, by virtue of which the
Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear
that the arrangement is a virtual transfer of ownership.
But pari delicto does not avail at bar because: 1) the
parties are dead; and 2) article 1416 of the Civil Code
provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely
prohibited, and the prohibition by law is designed for
the protection of the plaintiff, he may, if public policy is
thereby enhanced, recover what he has paid or
delivered."
Further, if the pari delicto rule were to apply and
neither party may have recourse against the other, then
this would further defeat the constitutional prohibition.
Since all contracts are annulled, the property is returned
to the Santos estate.
LIM V. PEOPLE
Nature: Estafa
Ponente: Relova
Date: 21 November 1984
DOCTRINE: Since the agreement fixed a period, Article
1197 of the New Civil Code, which provides that the courts
may fix the duration of the obligation if it does not fix a
period, does not apply.
FACTS:
Relevant Provision of Law: 1197
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Lim was a businesswoman. She went to the home of
Maria Ayroso and offered to sell the latter’s tobacco. They
agreed that Lim would receive the overprice for which she
would sell the tobacco for. The product was then loaded
in Lim’s jeep. Lim eventually only paid for part of the
tobacco she took. Ayroso demanded payment for the rest.
But Lim alleges that the contract between them was not
one of agency but one of sale. She alleged that since a sale
took place, ownership was now vested in her and she is
not obligated to remit anything further to Ayroso.
The CFI found Lim guilty of estafa. CA affirmed, and in
doing so stated that the contract contained a fixed period
so the obligation was immediately demandable as soon as
the tobacco was sold.
ISSUE: W/N Lim is guilty of estafa
RULING: Yes, Lim is guilty.
From the agreement of Lim and Ayroso, it is clear that the
proceeds of the sale of the tobacco should be turned over
to the Ayroso as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the
tobacco was disposed of. Hence, Article 1197 of the New
Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does
not apply.
The fact that appellant received the tobacco to be sold at
P1.30 per kilo and the proceeds to be given to
complainant as soon as it was sold, strongly negates
transfer of ownership of the goods to the petitioner. Their
agreement constituted Lim as an agent with the
obligation to return the tobacco if the same was not sold.
ARANETA V. PHILIPPINE SUGAR ESTATES
DEVT. CO. LTD
Nature: Specific performance
Ponente: Reyes, JBL
Date: 31 May 1967
DOCTRINE: 1197 provides a two-step process:
1. 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."
2. This preliminary point settled, the court must then
proceed to the second step, and decide what period was
"probably contemplated by the parties."
FACTS:
Relevant Provision of Law: 1197
Araneta sold part of its Sta. Mesa Hts. Subdivision to Phil.
Sugar. The contract included an obligation on the seller’s
end to construct roads on the NE, NW and SW sides of
the buyer’s land within a reasonable time. However, the
respondent already finished constructing a church and
convent but the NE street was not yet constructed. They
filed action to compel petitioner to fulfill its end of the
deal.
Petitioner attempts to excuse itself by reasoning that such
failure is because of a squatter, Abundo who still refuses
to vacate.
The CFI and CA ruled in favor of respondent, even fixing
a two-year period for petitioner to comply with its
obligation to construct the NE street. Petitioner
questions this ruling.
ISSUE: W/N the lower courts were correct to impose a
period
RULING: No.
The contract between petitioner and respondent granted
the former “reasonable time within which to comply” –
the lower courts should not have imposed their own
period of two years. Instead, they should have limited
themselves to ruling whether or not this “reasonable
period” had lapsed. If it did, then there is breach, if not,
then the action should be dismissed for it was filed
prematurely.
Further, the two-year period was arbitrarily set. 1197
provides a two-step process:
1. 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."
2. This preliminary point settled, the court must then
proceed to the second step, and decide what period was
"probably contemplated by the parties."
This process was not followed. The two-year period was
made out of thin air.
At bar, the parties were both aware that squatters existed.
This, the conclusion is that the parties must have
intended to defer the performance of the obligations
under the contract until the squatters were duly evicted.
MILLARE V. HERNANDO
Nature: To order renewal of lease
Ponente: Feliciano
Date: 30 June 1987
DOCTRINE: The first paragraph of Article 1197 is
inapplicable when the contract fixes a period. The second
paragraph of Article 1197 is equally inapplicable when the
duration of the renewal period was not left to the will of
one party alone.
Relevant Provision of Law: 1197. If the obligation
does not fix a period, but from its nature and the
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circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them
FACTS:
The Cos were lessees to Millare under a lease contract for
a five-year period. In May 1980, Millare informed the Cos
that they could continue leasing so long as they were
amenable to paying creased rentals of P1,200.00 a
month. In response, a counteroffer of P700.00 a month
was made and to this, Millare allegedly stated that the
amount of monthly rentals could be resolved at a later
time since "the matter is simple among us." This led the
spouses Co to think that the lease had been renewed, but
Millare thought otherwise and demanded that they
vacate the property.
Paragraph 13 of the lease contract states the following:
This contract of lease is subject to the laws and
regulations of the government; and that this contract of
lease may be renewed after a period of five (5) years under
the terms and conditions as will be mutually agreed upon
by the parties at the time of renewal.
The Co spouses went to court to ask for the renewal of the
lease contract at P700 for 10 years. The CFI ruled on their
behalf. The lower court judge interpreted paragraph 13
to mean that since the original lease was fixed for five
years, it follows, therefore, that the lease contract is
renewable for another five.
ISSUE: W/N the lease was renewed.
RULING: No.
The lease contract (paragraph 13) can only mean that the
lessor and lessee may agree to renew the contract upon
their reaching agreement on the terms and conditions.
Failure to reach agreement will of course prevent the
contract from being renewed at all. In the instant case,
the lessor and the lessee conspicuously failed to reach
agreement both on the amount of the rental to be payable
during the renewal term, therefore there was no renewal.
The first paragraph of Article 1197 is clearly inapplicable,
since the Contract of Lease did in fact fix an original
period of five years, which had expired. The second
paragraph of Article 1197 is equally clearly inapplicable
since the duration of the renewal period was not left to
the will of the lessee alone, but rather to the will of both
the lessor and the lessee. Most importantly, Article 1197
applies only where a contract of lease clearly exists. Here,
the contract was not renewed at all, there was in fact no
contract at all the period of which could have been fixed.
Even if an implied lease took place, this would not be for
an entire five-year period, but only for month-to-month.
2. As to plurality of
prestation
a. Conjunctive
b. Alternative
ARTICLE 1199. A person alternatively bound by
different prestations shall completely perform one of
them.
The creditor cannot be compelled to receive part of one
and part of the other undertaking. (1131)
Article 1200. The right of choice belongs to the debtor,
unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations
which are impossible, unlawful or which could not have
been the object of the obligation. (1132)
Article 1201. The choice shall produce no effect except
from the time it has been communicated. (1133)
Article 1202. The debtor shall lose the right of choice
when among the prestations whereby he is alternatively
bound, only one is practicable. (1134)
Article 1203. If through the creditor's acts the debtor
cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with
damages. (n)
Article 1204. The creditor shall have a right to
indemnity for damages when,
through the fault of the debtor, all the things which are
alternatively the object of the obligation have been lost,
or the compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a basis the value of
the last thing which disappeared, or that of the service
which last became impossible.
Damages other than the value of the last thing or service
may also be awarded. (1135a)
Article 1205. When the choice has been expressly given
to the creditor, the obligation shall cease to be alternative
from the day when the selection has been communicated
to the debtor.
Until then the responsibility of the debtor shall be
governed by the following rules:
(1) If one of the things is lost through a fortuitous
event, he shall perform the obligation by
delivering that which the creditor should choose
from among the remainder, or that which
remains if only one subsists;
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim any
of those subsisting, or the price of that which,
through the fault of the former, has disappeared,
with a right to damages;
(3) If all the things are lost through the fault of
the debtor, the choice by the creditor shall fall
Page 25 of 112
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upon the price of any one of them, also with
indemnity for damages.
The same rules shall be applied to obligations to do or not
to do in case one, some or all of the prestations should
become impossible. (1136a)
c. Facultative
Article 1206. When only one prestation has been agreed
upon, but the obligor may render another in substitution,
the obligation is called facultative.
The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been
made, the obligor is liable for the loss of the substitute on
account of his delay, negligence or fraud. (n)
3. As to rights and
obligations of
multiple parties
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. (1137a)
Article 1208. If from the law, or the nature or the
wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt
shall be presumed to be divided into as many shares as
there are creditors or debtors, the credits or debts being
considered distinct from one another, subject to the Rules
of Court governing the multiplicity of suits. (1138a)
Article 1209. If the division is impossible, the right of
the creditors may be prejudiced only by their collective
acts, and the debt can be enforced only by proceeding
against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
(1139)
Article 1210. The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility. (n)
Article 1211. Solidarity may exist although the creditors
and the debtors may not be bound in the same manner
and by the same periods and conditions. (1140)
Article 1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything
which may be prejudicial to the latter. (1141a)
Article 1213. A solidary creditor cannot assign his rights
without the consent of the others. (n)
Article 1214. The debtor may pay any one of the solidary
creditors; but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to
him. (1142a)
Article 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to
them. (1143)
Article 1216. The 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. (1144a)
Article 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose
which offer to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the
interest for the payment already made. If the payment is
made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors,
in proportion to the debt of each. (1145a)
Article 1218. Payment by a solidary debtor shall not
entitle him to reimbursement from his co-debtors if such
payment is made after the obligation has prescribed or
become illegal. (n)
Article 1219. The remission made by the creditor of the
share which affects one of the solidary debtors does not
release the latter from his responsibility towards the co-
debtors, in case the debt had been totally paid by anyone
of them before the remission was effected. (1146a)
Article 1220. The remission of the whole obligation,
obtained by one of the solidary debtors, does not entitle
him to reimbursement from his co-debtors. (n)
Article 1221. If the thing has been lost or if the
prestation has become impossible without the fault of the
solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall
be responsible to the creditor, for the price and the
Page 26 of 112
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payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall
apply. (1147a)
Article 1222. A solidary debtor may, in actions filed by
the creditor, avail himself 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.
(1148a)
a. Joint
b. Solidary
Article 927. If two or more heirs take possession of the
estate, they shall be solidarily liable for the loss or
destruction of a thing devised or bequeathed, even
though only one of them should have been negligent. (n)
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership
under articles 1822 and 1823. (n)
Article 1911. Even when the agent has exceeded his
authority, the principal is solidarily liable with the agent
if the former allowed the latter to act as though he had full
powers. (n)
Article 1915. If two or more persons have appointed an
agent for a common transaction or undertaking, they
shall be solidarily liable to the agent for all the
consequences of the agency. (1731)
Article 1945. When there are two or more bailees to
whom a thing is loaned in the same contract, they are
liable solidarily. (1748a)
Article 2157. The responsibility of two or more payees,
when there has been payment of what is not due, is
solidary. (n)
Article 2194. The responsibility of two or more persons
who are liable for quasi-delict is solidary. (n)
Article 2146. If the officious manager delegates to
another person all or some of his duties, he shall be liable
for the acts of the delegate, without prejudice to the direct
obligation of the latter toward the owner of the business.
The responsibility of two or more officious managers
shall be solidary, unless the management was assumed to
save the thing or business from imminent danger.
(1890a)
Family Code—
Art. 94. The absolute community of property shall be
liable for:
(1) The support of the spouses, their common children,
and legitimate children of either spouse; however, the
support of illegitimate children shall be governed by the
provisions of this Code on Support;
(2) All debts and obligations contracted during the
marriage by the designated administrator-spouse for the
benefit of the community, or by both spouses, or by one
spouse with the consent of the other;
(3) Debts and obligations contracted by either spouse
without the consent of the other to the extent that the
family may have been benefited;
(4) All taxes, liens, charges and expenses, including major
or minor repairs, upon the community property;
(5) All taxes and expenses for mere preservation made
during marriage upon the separate property of either
spouse used by the family;
(6) Expenses to enable either spouse to commence or
complete a professional or vocational course, or other
activity for self-improvement;
(7) Antenuptial debts of either spouse insofar as they
have redounded to the benefit of the family;
(8) The value of what is donated or promised by both
spouses in favor of their common legitimate children for
the exclusive purpose of commencing or completing a
professional or vocational course or other activity for self-
improvement;
(9) Antenuptial debts of either spouse other than those
falling under paragraph (7) of this Article, the support of
illegitimate children of either spouse, and liabilities
incurred by either spouse by reason of a crime or a quasi-
delict, in case of absence or insufficiency of the exclusive
property of the debtor-spouse, the payment of which shall
be considered as advances to be deducted from the share
of the debtor-spouse upon liquidation of the community;
and
(10) Expenses of litigation between the spouses unless
the suit is found to be groundless.
If the community property is insufficient to cover the
foregoing liabilities, except those falling under paragraph
(9), the spouses shall be solidarily liable for the unpaid
balance with their separate properties. (161a, 162a, 163a,
202a-205a)
Art. 121. The conjugal partnership shall be liable for:
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(1) The support of the spouse, their common children,
and the legitimate children of either spouse; however, the
support of illegitimate children shall be governed by the
provisions of this Code on Support;
(2) All debts and obligations contracted during the
marriage by the designated administrator-spouse for the
benefit of the conjugal partnership of gains, or by both
spouses or by one of them with the consent of the other;
(3) Debts and obligations contracted by either spouse
without the consent of the other to the extent that the
family may have benefited;
(4) All taxes, liens, charges, and expenses, including
major or minor repairs upon the conjugal partnership
property;
(5) All taxes and expenses for mere preservation made
during the marriage upon the separate property of either
spouse;
(6) Expenses to enable either spouse to commence or
complete a professional, vocational, or other activity for
self-improvement;
(7) Antenuptial debts of either spouse insofar as they
have redounded to the benefit of the family;
(8) The value of what is donated or promised by both
spouses in favor of their common legitimate children for
the exclusive purpose of commencing or completing a
professional or vocational course or other activity for self-
improvement; and
(9) Expenses of litigation between the spouses unless the
suit is found to groundless.
If the conjugal partnership is insufficient to cover the
foregoing liabilities, the spouses shall be solidarily liable
for the unpaid balance with their separate properties.
(161a)
Revised Penal Code—
Article 100. Civil liability of a person guilty of
felony. - Every person criminally liable for a felony is
also civilly liable.
Article 101. Rules regarding civil liability in
certain cases. - The exemption from criminal liability
established in subdivisions 1, 2, 3, 5 and 6 of Article 12
and in subdivision 4 of Article 11 of this Code does not
include exemption from civil liability, which shall be
enforced subject to the following rules:
First. In cases of subdivisions 1, 2, and 3 of Article 12, the
civil liability for acts committed by an imbecile or insane
person, and by a person under nine years of age, or by one
over nine but under fifteen years of age, who has acted
without discernment, shall devolve upon those having
such person under their legal authority or control, unless
it appears that there was no fault or negligence on their
part.
Should there be no person having such insane, imbecile
or minor under his authority, legal guardianship or
control, or if such person be insolvent, said insane,
imbecile, or minor shall respond with their own property,
excepting property exempt from execution, in accordance
with the civil law.
Second. In cases falling within subdivision 4 of Article 11,
the persons for whose benefit the harm has been
prevented shall be civilly liable in proportion to the
benefit which they may have received.
The courts shall determine, in sound discretion, the
proportionate amount for which each one shall be liable.
When the respective shares cannot be equitably
determined, even approximately, or when the liability
also attaches to the Government, or to the majority of the
inhabitants of the town, and, in all events, whenever the
damages have been caused with the consent of the
authorities or their agents, indemnification shall be made
in the manner prescribed by special laws or regulations.
Third. In cases falling within subdivisions 5 and 6 of
Article 12, the persons using violence or causing the fears
shall be primarily liable and secondarily, or, if there be no
such persons, those doing the act shall be liable, saving
always to the latter that part of their property exempt
from execution.
Article 102. Subsidiary civil liability of innkeepers,
tavernkeepers and proprietors of establishments. - In
default of the persons criminally liable, innkeepers,
tavernkeepers, and any other persons or corporations
shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of
municipal ordinances or some general or special police
regulation shall have been committed by them or their
employees.
Innkeepers are also subsidiarily liable for the restitution
of goods taken by robbery or theft within their houses
from guests lodging therein, or for the payment of the
value thereof, provided that such guests shall have
notified in advance the innkeeper himself, or the person
representing him, of the deposit of such goods within the
inn; and shall furthermore have followed the directions
which such innkeeper or his representative may have
given them with respect to the care and vigilance over
such goods. No liability shall attach in case of robbery
with violence against or intimidation of persons unless
committed by the innkeeper's employees.
Article 103. Subsidiary civil liability of other
persons. - The subsidiary liability established in the
next preceding article shall also apply to employers,
teachers, persons, and corporations engaged in any kind
of industry for felonies committed by their servants,
pupils, workmen, apprentices, or employees in the
discharge of their duties.
c. Disjunctive
Page 28 of 112
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CALANG V. PEOPLE
Nature: Criminal, reckless imprudence
Ponente: Brion
Date: 3 August 2010
DOCTRINE: Since the charge was criminal, it was error
for the lower courts to hold Philtranco jointly and
severally liable under Articles 2176 and 2180 on quasi
delicts.
FACTS:
Relevant Provision of Law: 2168, 2180, RPC 102, 103
Calang was driving a Philtranco bus when its rear left side
hit the front left of a Sarao jeep coming from the opposite
direction. As a result of the collision, the jeep driver
Pinohermoso lost control and bumped and killed
bystander Mabansag. Two jeep passengers were also
killed and others injured.
RTC ruled that Calang was guilty of multiple homicide,
multiple physical injuries and damage to property
through reckless imprudence. It ordered that Calang be
liable jointly and severally with Philtranco to pay
damages. CA affirmed this ruling.
ISSUE: W/N the lower courts were correct in imposing
joint and several liability
RULING: No. Philtranco should not be held jointly
and severally liable with Calang. The charge against
Calang was criminal, therefore it was error for the
lower courts to hold Philtranco jointly and severally
liable under Articles 2176 and 2180 on quasi delicts.
If at all, Philtranco’s liability may only be subsidiary
under RPC, Articles 102 and 103. These liabilities are
deemed written into the judgments in cases to which they
are applicable. Thus, in the dispositive portion of its
decision, the trial court need not expressly pronounce the
subsidiary liability of the employer.
Nonetheless, before the employers’ subsidiary liability is
enforced, adequate evidence must exist establishing that
(1) they are indeed the employers of the convicted
employees; (2) they are engaged in some kind of industry;
(3) the crime was committed by the employees in the
discharge of their duties; and (4) the execution against
the latter has not been satisfied due to insolvency.
RONQUILLO V. CA and SO
Nature: Collection suit and execution thereof
Ponente: Cuevas
Date: 28 September 1984
DOCTRINE: The obligation in the case at bar being
described as "individually and jointly", the same is
therefore enforceable against one of the numerous
obligors.
FACTS:
Relevant Provision of Law: None mentioned
Ronquillo was one of four defendants in a collection case
filed by private respondent So. A compromise agreement
was reached between the parties, which stated that the
debtors obligated themselves to pay their obligation
“individually and jointly.”
In a motion for modification of the order to execute the
compromise, So prayed that the execution be done
against all defendants, jointly and severally.
The writ of execution was then issued for the satisfaction
of P 82,500, with debtors (including petitioner) “singly or
jointly liable.”
ISSUE: How should payment be enforced?
RULING: Individually and jointly.
The term "individually" has the same meaning as
"collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable"
undoubtedly creates a several obligation, and a "several
obligation is one by which one individual binds himself to
perform the whole obligation. The obligation in the case
at bar being described as "individually and jointly", the
same is therefore enforceable against one of the
numerous obligors.
MALAYAN INSURANCE V. CA
Nature: Action for damages
Ponente: Padilla
Date: 26 September 1988
DOCTRINE: Direct liability of the insurer under
indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the
insured is based on tort.
FACTS:
Relevant Provision of Law: 1217, 2180, 2184
Malayan issued an insurance policy for respondent Sio
Choy covering a jeep. While the policy was in effect, the
insured jeep, while driven by Campollo (employee of San
Leon Rice Mill), collided with a Pantranco bus, causing
injuries to jeep passenger Vallejos and driver Campollo,
as well as damage to the jeep.
Vallejos filed an action for damages against Sio Choy,
Malayan, and San Leon Rice Mill, praying that they be
held jointly and severally liable. The RTC and CA ruled
in Vallejos’ favor finding all three solidarily liable.
Page 29 of 112
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1st ISSUE: W/N Malayan should be held solidarily liable
alongside Sio Choy and San Leon Rice Mill
RULING: No. Only respondents Sio Choy and San Leon
Rice Mill are solidarily liable to respondent Vallejos for
the damages. Respondents Sio Choy and San Leon Rice
Mill are the principal tortfeasors who are primarily liable
to respondent Vallejos. The law states that the
responsibility of two or more persons who are liable for a
quasi-delict is solidarily (2180, 2184).
While it is true that where the insurance contract
provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however,
the direct liability of the insurer under indemnity
contracts against third party liability does not mean that
the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based
on tort.
2nd ISSUE: W/N Malayan is entitled to be reimbursed
by respondent San Leon Rice Mill, Inc. even if the latter
respondent is not privy to the contract of insurance
RULING: Yes, Malayan is entitled to reimbursement.
Since Malayan paid Vallejos, it has become the subrogee
of the insured, the respondent Sio Choy; as such, it is
subrogated to whatever rights the latter has against
respondent San Leon Rice Mill. Article 1217 of the Civil
Code gives to a solidary debtor who has paid the entire
obligation the right to be reimbursed by his co-debtors for
the share which corresponds to each.
PNB V. INDEPENDENT PLANTERS ASSN.
Nature: Collection suit
Ponente: Plana
Date: 16 May 1983
DOCTRINE: In case of the death of one of the solidary
debtors, the creditor may, if he so chooses, proceed
against the surviving solidary debtors without necessity
of filing a claim in the estate of the deceased debtors
FACTS:
Relevant Provision of Law: 1216
PNB filed a complaint with the CFI against several
solidary debtors for the collection of a sum of money. But
the CFI dismissed this because one of the defendants
(Ceferino Valencia) died. CFI directed PNB to instead file
a money claim in the testate or intestate proceeding for
the settlement of the estate of the deceased.
PNB challenged this decision based on Art. 1216, where
the creditor may proceed against any one, some
or all of the solidary debtors.
ISSUE: W/N CFI was correct to dismiss case because of
the death of one debtor
RULING: No. CFI was wrong.
The choice is undoubtedly left to the creditor to
determine against whom he will enforce collection. In
case of the death of one of the solidary debtors, the
creditor may, if he so chooses, proceed against the
surviving solidary debtors without necessity of filing a
claim in the estate of the deceased debtors. It is not
mandatory for him to have the case dismissed against the
surviving debtors and file its claim in the estate of the
deceased solidary debtor.
4. As to performance of
prestation
Article 1221. If the thing has been lost or if the
prestation has become impossible without the fault of the
solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall
be responsible to the creditor, for the price and the
payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall
apply. (1147a)
Article 1222. A solidary debtor may, in actions filed by
the creditor, avail himself 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.
(1148a)
Article 1223. The divisibility or indivisibility of the
things that are the object of obligations in which there is
only one debtor and only one creditor does not alter or
modify the provisions of Chapter 2 of this Title. (1149)
Article 1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The
debtors who may have been ready to fulfill their promises
shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the
value of the service in which the obligation consists.
(1150)
Article 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not
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susceptible of partial performance shall be deemed to be payment on both trucks. After the securities were sold
indivisible. and the proceeds applied to the loan:

When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of
work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it
shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall
be determined by the character of the prestation in each
particular case. (1151a)
Article 1209. If the division is impossible, the right of
the creditors may be prejudiced only by their collective
acts, and the debt can be enforced only by proceeding
against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
(1139)
Article 1210. The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity of
itself imply indivisibility. (n)
Case 28497: Balance of P7,732.09 with interest at the rate
of 12 per cent per annum from May 1, 1926 until fully
paid, and 25 per cent thereof in addition as penalty.
Case 28498: Balance of P4,208.28 with interest at 12 per
cent per annum from December 1, 1925 until fully paid,
and 25 per cent thereon as penalty.
Espiritu assails the 25 % penalty upon the debt, in
addition to the interest of 12 % per annum. He claims the
contract is usurious.
ISSUE: W/N the contract is usurious
RULING: No, it is not usurious. Article 1152 of the Civil
Code permits the agreement upon a penalty apart from
the interest. Should there be such an agreement, the
penalty does not include the interest, and may be
demanded separately. The penalty is not to be added to
the interest for the determination of whether the interest
exceeds the rate fixed by the law, since said rate was fixed
only for the interest. But considering that the obligation
was partly performed, and making use of the power given
to the court by article 1154 of the Civil Code, this penalty
is reduced to 10 per cent of the unpaid debt.

a. Divisible ROBES-FRANCISCO v. CFI

b. Indivisible
c. Joint indivisible Nature: Direct appeal on questions of law
d. Solidary indivisible Ponente: J. Munoz Palma
Date: October 30, 1978

DOCTRINE: A stipulation in a deed of absolute sale that

5. As to presence of an should the vendor fail to issue the transfer certificate of
accessory undertaking in title within six months from date of full payment, the
case of breach vendor shall refund to the vendee the total amount
a. With a penal clause; cannot be considered a penal clause in contemplation of
Distinguish from Article 1226 of the New Civil Code as to preclude recovery
liquidated damages of damages. For obvious reasons, the clause does not
convey any penalty, for even without it, pursuant to
THE BACHRACH MOTOR CO. INC. V. ESPIRITU Article 2209 of the Civil Code, the vendee would still
recover the amount paid by her with legal rate of interest
Nature: Collection suit which is even more than the 4% provided for in the
Ponente: Avanceña clause.
Date: 6 November 1928
FACTS:
Relevant Provision of Law: Article 1226 and 2209
DOCTRINE: Article 1152 of the Old Civil Code permits (Civil Code)
the agreement upon a penalty apart from the interest.
Should there be such an agreement, the penalty does not Private respondent Millan bought a lot from petitioner
include the interest, and may be demanded separately. Robes Realty corporation in May, 1962, and paid in full
her installments on December 22, 1971, but it was only on
FACTS: March 2, 1973, that a deed of absolute sale was executed
in her favor.
Relevant Provision of Law: Article 1152, Old Civil
Code
The deed had the provision:
- The seller warrants that the TCT shall be
Espiritu purchased two white trucks from petitioner.
transferred in the name of the buyer within 6
Both were secured by mortgage on other trucks and by
months from full payment.
promissory notes. However, Espiritu failed to make full
Page 31 of 112
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- In case the seller fails to issue the TCT, the seller
bears the obligation to refund the total amount
already paid, plus 4% per annum interest.
Notwithstanding the lapse of almost three years since she
made her last payment, petitioner still failed to convey
the corresponding transfer certificate of title to private
respondent who accordingly was compelled to file a
complaint for specific performance. The complaint prays:
Judgment ordering the reformation of the deed of
absolute sale; Judgment ordering the seller corporation
to deliver the TCT; or, if not possible, pay buyer Millan
the value of the lot and Judgment ordering the seller corp
to pay damages, corrective and actual (P15k).
Seller corp answered. They want the complaint to be
dismissed because the deed of absolute sale was
voluntarily executed between them and the interest of the
buyer Millan was protected by the provision of interest at
4% per annum.
The case was submitted for decision on the pleadings.
The trial court awarded nominal damages for P20,000.
PETITIONER - 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. Article 1226 of the Civil: 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.
ISSUE: WON the award of nominal damages was proper
under the circumstances
RULING: The trial court did not err in awarding
nominal damages; however, the circumstances of the case
warrant a reduction of the amount to P10,000.
A stipulation in a deed of absolute sale that should the
vendor fail to issue the transfer certificate of title within
six months from date of full payment, the vendor shall
refund to the vendee the total amount cannot be
considered a penal clause in contemplation of Article
1226 of the New Civil Code as to preclude recovery of
damages. For obvious reasons, the clause does not convey
any penalty, for even without it, pursuant to Article 2209
of the Civil Code, the vendee would still recover the
amount paid by her with legal rate of interest which is
even more than the 4% provided for in the clause.
Under Articles 2221 and 2222 of the New Civil Code,
nominal damages are not intended as indemnification for
the loss suffered but for the vindication or recognition of
a right violated or invaded. They are recoverable where
some injury has been done the amount of which the
evidence fails to show, the assessment of damages being
left to the discretion of the court. Nominal damages are
by their very nature small sums fixed by the court without
regard to the extent of the harm done to the injured party.
A nominal damage is a substantial claim if based upon the
violation of a legal right; in such case the law presumes a
damage, although actual or compensatory damages are
not proven ; in truth, nominal damages are damages in
name only, and not in fact and are allowed, not as an
equivalent of a wrong inflicted, but simply in recognition
of the existence of a technical injury. It cannot co-exist
with compensatory or exemplary damages. The
circumstances of a particular case determine whether or
not the amount assessed as nominal damages is within
the scope or intention of Article 2221 of the Civil Code.
Bad faith is not to be presumed. Thus, the fact that the
reality corporation failed to convey a transfer certificate
of title to the buyer because the subdivision property was
mortgaged does not itself show that there was bad faith
or fraud; especially where the vendor expected that
arrangements were possible from the mortgagee to make
partial releases of the subdivision lots from the overall
real estate mortgage but the vendor did not simply
succeed in that regard.
The amount of P20,000 awarded as nominal damages
against realty corporation for failure to convey a transfer
certificate of title to the buyer who had fully paid the
purchase price of the lot is excessive. Nor may such award
be considered in the nature of exemplary damages where
the failure to convey the transfer certificate of title was
not attended by fraud or bad faith, because in breach of a
contract exemplary damages are awarded if the guilty
party acted in wanton, fraudulent, reckless, oppressive or
malevolent manner. Exemplary or corrective damages
are imposed by way of example or correction for the
public good only if the injured party has shown that he is
entitled to recover moral, temperate or compensatory
damages.
PAMINTUAN v. CA
Nature: Complaint for Damages
Ponente: J. Aquino
Date: December 14, 1979
DOCTRINE: Responsibility arising from fraud is
demandable in all obligations.
FACTS:
Relevant Provision of Law: Article 1171 (Civil
Code)
In 1960, Pamintuan was the holder of a barter license
wherein he was authorized to export to Japan 1,000
metric tons of white flint corn valued at 47,000 US dollars
in exchange for a collateral importation of plastic
sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to
ship his corn to Tokyo Menka Kaisha, Ltd. of Osaka,
Japan in exchange for plastic sheetings. He contracted to
sell the plastic sheetings to Yu Ping Kun Co., Inc. for
Page 32 of 112
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P265,550. The company undertook to open an
irrevocable domestic letter of credit for that amount in
favor of Pamintuan.
It was further agreed that Pamintuan would deliver the
plastic sheetings to the company at its bodegas in Manila
or suburbs directly from the piers "within one month
upon arrival of" the carrying vessels. Any violation of the
contract of sale would entitle the aggrieved party to
collect from the offending party liquidated damages in
the sum of P10,000.
Upon receipt of the letter from the Manila branch of
Tokyo Menka confirming the acceptance by Japanese
suppliers of firm offers for the consignment to Pamintuan
of plastic sheetings, the company immediately secured an
irrevocable letter of credit for Pamintuan.
On September 27 and 30 and October 4, 1960, the
Japanese suppliers shipped to Pamintuan, through Toyo
Menka Kaisha, Ltd., the plastic sheetings in four
shipments. The plastic sheetings arrived in Manila and
were received by Pamintuan. Out of the shipments,
Pamintuan delivered to the company's warehouse only a
part of the shipments.
He withheld delivery of (1) 50 cases of plastic sheetings
containing 26,000 yards valued at $5,200; (2) 37 cases
containing 18,440 yards valued at $2,305; (3) 60 cases
containing 30,000 yards valued at $5,400 and (4) 83
cases containing 40,850 yards valued at $5,236.97. While
the plastic sheetings were arriving in Manila, Pamintuan
informed the president of Yu Ping Kun Co., Inc. that he
was in dire need of cash with which to pay his obligations
to the PNB. Inasmuch as the computation of the prices of
each delivery would allegedly be a long process,
Pamintuan requested that he be paid immediately.
Pamintuan and the president of the company agreed to
fix the price of the plastic sheetings at P0.782 a yard,
regardless of the kind, quality or actual invoice value
thereof. The parties arrived at that figure by dividing the
total price of P265,550 by 339,440 yards, the aggregate
quantity of the shipments.
After Pamintuan had delivered 224,150 yards of
sheetings of inferior quality valued at P163,.047.87, he
refused to deliver the remainder of the shipments with a
total value of P102,502.13. As justification for his refusal,
Pamintuan said that the company failed to comply with
the conditions of the contract and that it was novated
with respect to the price.
The company filed its amended complaint for damages.
RTC awarded the company actual damages for unrealized
profits and overpayment as well as (a) P10,000 as
stipulated liquidated damages, (b) P10,000 as moral
damages, (c) Pl,102.85 as premium paid by the company
on the bond of P102,502.13 for the issuance of the writ of
preliminary attachment and (d) P10,000 as attorney's
fees, or total damages of P110,559.28.
CA found that the contract of sale between Pamintuan
and the company was partly consummated. The company
fulfilled its obligation to obtain the Japanese suppliers'
confirmation of their acceptance of firm offers totalling
$47,000. Pamintuan reaped certain benefits from the
contract. Hence, he is estopped to repudiate it; otherwise,
he would unjustly enrich himself at the expense of the
company.
PETITIONER: The buyer, Yu Ping Kun Co., Inc., is
entitled to recover only liquidated damages based on the
stipulation "that any violation of the provisions of this
contract (of sale) shall entitle the aggrieved party to
collect from the offending party liquidated damages in
the sum of P10,000 ". In obligations with a penal clause,
the penalty shall substitute the indemnity for damages
and the payment of interests in case of non-compliance,
if there is no stipulation to the contrary " (1st sentence of
Art. 1226, Civil Code).
ISSUE: WON the buyer is entitled to recover only
liquidated damages
RULING: NO. The second sentence of article 1226 itself
provides that I nevertheless, damages shall be paid if the
obligor ... is guilty of fraud in the fulfillment of the
obligation". "Responsibility arising from fraud is
demandable in all obligations" (Art. 1171, Civil Code). "In
case of fraud, bad faith, malice or wanton attitude, the
obligor shall be responsible for an damages which may be
reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).
The trial court and the Court of Appeals found that
Pamintuan was guilty of fraud because he did not make a
complete delivery of the plastic sheetings and he
overpriced the same. That factual finding is conclusive
upon this Court.
There is no justification for the Civil Code to make an
apparent distinction between penalty and liquidated
damages because the settled rule is that there is no
difference between penalty and liquidated damages
insofar as legal results are concerned and that either may
be recovered without the necessity of proving actual
damages and both may be reduced when proper (Arts.
1229, 2216 and 2227, Civil Code. See observations of
Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p.
251).
Castan Tobeñas notes that the penal clause in an
obligation has three functions: "1. Una funcion coercitiva
o de garantia, consistente en estimular al deudor al
complimiento de la obligacion principal, ante la amenaza
de tener que pagar la pena. 2. Una funcion liquidadora
del daño, o sea la de evaluar por anticipado los perjuicios
que habria de ocasionar al acreedor el incumplimiento o
cumplimiento inadecuado de la obligacion. 3. Una
funcionestrictamente penal, consistente en sancionar o
castigar dicho incumplimiento o cumplimiento
inadecuado, atribuyendole consecuencias mas onerosas
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para el deudor que las que normalmente lleva aparejadas
la infraccion contractual. " (3 Derecho Civil Espanol, 9th
Ed., p. 128).
[Rough Translation] Castan Tobeñas notes that the penal
clause in an obligation has three functions: "1. A coercive
function or warranty, of stimulating the debtor to comply
with the principal obligation, under the threat of having
to pay the penalty. 2. A liquidation of the damage
function, ie to evaluate in advance the damages that the
creditor would have to cause the failure or inadequacy of
the obligation. 3 A criminal function consisting of a
sanction or punish such failure or inadequate
performance, attributing more onerous consequences for
the debtor that normally carries with it the contractual
breach.”
The penalty clause is strictly penal or cumulative in
character and does not partake of the nature of liquidated
damages (pena sustitutiva) when the parties agree "que
el acreedor podra pedir, en el supuesto incumplimiento o
mero retardo de la obligacion principal, ademas de la
pena, los danos y perjuicios. Se habla en este caso de pena
cumulativa, a differencia de aquellos otros ordinarios, en
que la pena es sustitutiva de la reparacion ordinaria."
(Ibid, Castan Tobenas, p. 130).
[Rough Translation] The penalty clause is strictly penal
or cumulative in character and does not partake of the
nature of liquidated damages (pena sustitutiva) when the
parties agree that the creditor may request, assuming
there is mere breach or delay principal obligation, in
addition to the sentence, damages, where the penalty is a
substitute for the ordinary repair.
In this case, Yu Ping Kun Co., Inc. is allowed to recover
only the actual damages proven and not to award to it the
stipulated liquidated damages of ten thousand pesos for
any breach of the contract. The proven damages
supersede the stipulated liquidated damages.
E. Breach of obligations
Article 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
Manner of breach—
1. Fraud
Article 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action for
future fraud is void. (1102a)
Article 1338. There is fraud when, through insidious
words or machinations of one of the contracting parties,
the other is induced to enter into a contract which,
without them, he would not have agreed to. (1269)
Article 1344. In order that fraud may make a contract
voidable, it should be serious and should not have been
employed by both contracting parties.
Incidental fraud only obliges the person employing it to
pay damages. (1270)
2. Negligence
Article 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an action for
future fraud is void. (1102a)
Article 1172. Responsibility arising from negligence in
the performance of every kind of obligation is also
demandable, but such liability may be regulated by the
courts, according to the circumstances. (1103)
Article 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall
apply.
If the law or contract does not state the diligence which is
to be observed in the performance, that which is expected
of a good father of a family shall be required. (1104a)
3. Delay
Article 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declare; or
(2) When from the nature and the circumstances
of the obligation it appears that the designation
of the time when the thing is to be delivered or
the service is to be rendered was a controlling
motive for the establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay
by the other begins. (1100a)
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
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If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Article 1786. Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which he
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound with
respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered,
without the need of any demand. (1681a)
Article 1788. A partner who has undertaken to
contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he
should have complied with his obligation.
The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use.
(1682)
Article 1896. The agent owes interest on the sums he
has applied to his own use from the day on which he did
so, and on those which he still owes after the
extinguishment of the agency. (1724a)
Article 1942. The bailee is liable for the loss of the thing,
even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose
different from that for which it has been loaned;
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case
of a fortuitous event;
(4) If he lends or leases the thing to a third
person, who is not a member of his household;
(5) If, being able to save either the thing
borrowed or his own thing, he chose to save the
latter. (1744a and 1745)
4. Any other manner of
contravention
Excuse for non-performance—
1. Fortuitous event
Article 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, were inevitable. (1105a)
Article 552. A possessor in good faith shall not be liable
for the deterioration or loss of the thing possessed, except
in cases in which it is proved that he has acted with
fraudulent intent or negligence, after the judicial
summons.
A possessor in bad faith shall be liable for deterioration
or loss in every case, even if caused by a fortuitous event.
(457a)
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Article 2147. The officious manager shall be liable for
any fortuitous event:
(1) If he undertakes risky operations which the
owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of
the owner;
(3) If he fails to return the property or business
after demand by the owner;
(4) If he assumed the management in bad faith.
(1891a)
Article 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or which
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or
impairment of the thing from any cause, and for damages
to the person who delivered the thing, until it is
recovered. (1896a)
2. Acts of creditor
SICAM v. JORGE
Nature: Complaint for indemnification for the loss of
pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees Ponente:
J. Austria-Martinez
Date: August 8, 2007
DOCTRINE: The burden of proving that the loss was
due to a fortuitous event rests on him who invokes it. And,
in order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the
loss.
When the effect is found to be partly the result of a
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person's participation -- whether by active intervention,
neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts
of God.
FACTS:
Relevant Provision of Law: Article 1174 (Civil
Code)
Lulu Jorge pawned several pieces of jewelry with Agencia
de R. C. Sicam to secure a loan. On October 19, 1987, two
armed men entered the pawnshop and took away
whatever cash and jewelry were found inside the
pawnshop vault. Sicam sent respondent Lulu a letter
informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. Respondent Lulu expressed
disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near
the pawnshop since it had been the practice that before
they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank.
Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on but
petitioner Sicam failed to return the jewelry.
Respondent Lulu is seeking indemnification for the loss
of pawned jewelry and payment of damages. Petitioner is
interposing the defense of caso fortuito on the robbery
committed against the pawnshop.
ISSUE: WON petitioners are liable for the loss of the
pawned articles in their possession
RULING: YES. Fortuitous events by definition are
extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to
foresee the same.
To constitute a fortuitous event, the following elements
must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must
be free from any participation in the aggravation of the
injury or loss.
The burden of proving that the loss was due to a
fortuitous event rests on him who invokes it. And, in
order for a fortuitous event to exempt one from liability,
it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss.
An act of God cannot be invoked to protect a person who
has failed to take steps to forestall the possible adverse
consequences of such a loss. When the effect is found to
be partly the result of a person's participation -- whether
by active intervention, neglect or failure to act -- the
whole occurrence is humanized and removed from the
rules applicable to acts of God.
Here, petitioner failed to prove that the robbery was a
fortuitous event. Robbery per se, just like carnapping, is
not a fortuitous event. It does not foreclose the possibility
of negligence on the part of herein petitioners.
Pawnshops’ Responsibility
Art. 2123 of the Civil Code provides that with regard to
pawnshops and other establishments which are engaged
in making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Art. 2099, provides
that the creditor shall take case of the thing pledged with
the diligence of a good father of a family. This means that
the petitioners (Sicam and his incorporated pawnshop)
must take care of the pawns the way a prudent person
would as to his own property.
Sicam was Negligent
Negligence is the omission to do something which a
reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would
do; or the doing of something which a prudent and
reasonable man would not do. It is want of care required
by the circumstances.
Petitioners were guilty of negligence in the operations of
their pawnshop business. There were no security
measures adopted by petitioners in the operations of the
pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the
pawnshop from unlawful intrusion. There was no clear
showing that there was any security guard at all. Or if
there was one, that he had sufficient training in securing
a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent
any untoward incident or to ensure that no suspicious
individuals were allowed to enter the premises. In fact, it
is even doubtful that there was a security guard, since it
is quite impossible that he would not have noticed that
the robbers were armed with calibre .45 pistols each,
which were allegedly poked at the employees.
Furthermore, petitioner Sicam’s admission that the vault
was open at the time of robbery is clearly a proof of
petitioners’ failure to observe the case, precaution and
vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was
open, the combination to the vault was already off.
Instead of taking the precaution to protect them, they let
open the vault, providing no difficulty for the robbers to
cart away the pawned articles.
The robbery in this case took place in 1987 when robbery
was already prevalent and petitioners in fact had already
foreseen it as they wanted to deposit the pawn with a
nearby bank for safekeeping. Moreover, unlike in Austria
v. CA [148-A Phil. 462 (1971)], where no negligence was
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committed, we found petitioners negligent in securing in the disconnection of the electric services of the
their pawnshop as earlier discussed. respondents

MERALCO v. RAMOY RULING:

(1) NO. The Court agrees with the CA that
Nature: Case for Ejectment under the factual milieu of the present case,
Ponente: J. Austria-Martinez MERALCO failed to exercise the utmost degree
Date: March 4, 2008 of care and diligence required of it, pursuant to
Articles 1170 & 1173 of the Civil Code. It was not
DOCTRINE: Article 1173 provides that the fault or enough for MERALCO to merely rely on the
negligence of the obligor consists in the omission of that Decision of the MTC without ascertaining
diligence which is required by the nature of the obligation whether it had become final and executory.
and corresponds with the circumstances of the persons, Verily, only upon finality of the said Decision can
of the time and of the place. it be said with conclusiveness that respondents
have no right or proper interest over the subject
FACTS: property, thus, are not entitled to the services of
Relevant Provision of Law: Article 1170 (Civil MERALCO.
Code)
(2) Should be moral damages only.
In the year 1987, the National Power Corporation (NPC) MERALCO willfully caused injury to Leoncio
filed with the MTC Quezon City a case for ejectment Ramoy by withholding from him and his tenants
against several persons allegedly illegally occupying its the supply of electricity to which they were
properties in Baesa, Quezon City. Among the defendants entitled under the Service Contract. This is
in the ejectment case was Leoncio Ramoy, one of the contrary to public policy because, MERALCO,
plaintiffs in the case at bar. On April 28, 1989 the MTC being a vital public utility, is expected to exercise
rendered judgment for MERALCO, to demolish or utmost care and diligence in the performance of
remove the building and structure they built on the land its obligation. Thus, MERALCO’s failure to
of the plaintiff and to vacate the premises. On June 20, exercise utmost care and diligence in the
1999 NPC wrote to MERALCO requesting the immediate performance of its obligation to Leoncio Ramoy
disconnection of electric power supply to all residential is tantamount to bad faith. Leoncio Ramoy
and commercial establishments beneath the NPC testified that he suffered wounded feelings
transmission lines along Baesa, Quezon City. In a letter because of MERALCO’s actions. Furthermore,
dated August 17, 1990 MERALCO requested NPC for a due to the lack of power supply, the lessees of his
joint survey to determine all the establishments which are four apartments on subject lot left the premises.
considered under NPC property. In due time, the electric Clearly, therefore Leoncio Ramoy is entitled to
service connection of the plaintiffs was disconnected. moral damages in the amount awarded by the
During the ocular inspection ordered by the Court, it was CA. Nevertheless, Leoncio is the soleperson
found out that the residence of the plaintiffs-spouses was entitled to moral damages as he is the only who
indeed outside the NPC property. testified on the witness stand of his wounded
feelings. Pursuant to Article 2232 of the Civil
Plaintiff Leoncio Ramoy testified that he and his wife are Code, exemplary damages cannot be awarded as
the registered owners of a parcel of land covered by TCT MERALCO’s acts cannot be considered wanton,
No. 326346. When the MERALCO employees were fraudulent, reckless, oppressive or malevolent.
disconnecting plaintiffs' power connection, plaintiff Since the Court does not deem it proper to award
Leoncio Ramoy objected by informing the Meralco exemplary damages in this case then the CA’s
foreman that his property was outside the NPC property award of attorney’s fees should likewise be
and pointing out the monuments showing the boundaries deleted, as pursuant to Article 2208 of the Civil
of his property. However, he was threatened and told not Code of which grounds were not present.
to interfere by the armed men who accompanied the
MERALCO employees. After the electric power in SOLAR HARVEST, INC. v. DAVAO
Ramoy's apartment was cut off, the plaintiffs-lessees left CORRUGATED CARTON CORP.
the premises.
Nature: Complaint for sum of money and damages
Ponente: J. Nachura
ISSUES:
Date: July 26, 2010
(1) WON the Court of Appeals gravely erred when it
found MERALCO negligent when it disconnected
DOCTRINE: Even in reciprocal obligations, if the
the subject electric service of respondents
period for the fulfillment of the obligation is fixed,
(2) WON the Court of Appeals gravely erred when it
demand upon the obligee is still necessary before the
awarded moral and exemplary damages and
obligor can be considered in default and before a cause of
attorney’s fees against MERALCO under the
action for rescission will accrue.
circumstances that the latter acted in good faith

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FACTS:
Relevant Provision of Law: Articles 1191 and 1169
(Civil Code)
In the 1st Quarter of 1998, Solar Harvest and Davao
Corrugated entered into an unwritten agreement. Solar
Harvest placed orders for customized boxes for its
business of exporting bananas at USD 1.10 each.
Petitioner made a full payment of USD 40,150.00. By
Jan. 3, 2001 petitioner had not received any of the
ordered boxes. On Feb. 19, 2001, Davao Corrugated
replied that as early as April 3, 1998, order/boxes are
completed and Solar Harvest failed to pick them up from
their warehouse within 30 days from completion as
agreed upon. Respondent mentioned that petitioner even
placed additional order of 24,000.00 boxes, out of which,
14,000 had already been manufactured without any
advance payment from Solar Harvest. Davao Corrugated
then demanded that Solar Harvest remove boxes from
their warehouse, pay balance of USD 15,400.00 for the
additional boxes and P132,000 as storage fee. On August
17, 2001 Solar harvest filed complaint against Davao
Corrugated for sum of money and damages claiming that
the agreement was for the delivery of the boxes, which
Davao Corrugated did not do. They further alleged that
whenever repeated follow-up was made to Davao
Corrugated, they would only see sample boxes and get
promise of delivery. Due to Davao Corrugated’s failure to
deliver, Solar Harvest had to cancel the order and
demanded payment and/or refund which Davao
Corrugated refused to pay. Davao Corrugated
counterclaimed that they had already completed
production of the 36,500 boxes plus an additional 14,000
boxes (which was part of the additional 24,000 order that
is unpaid). The agreement was for Solar Harvest to pick
up the boxes, which they did not do. They even averred
that on Oct. 8, 1998 Solar Harvest’s representative Bobby
Que even went to the warehouse to inspect and saw that
indeed boxes were ready for pick up. On Feb. 20, 1999,
Que visited the factory again and said that they ought to
sell the boxes to recoup some of the costs of the 14,000
additional orders because their transaction to ship the
bananas did not materialize. Solar Harvest denies that
they made the additional order. On March 20, 2004, the
RTC ruled in favor of Davao Corrugated. CA denied the
appeal. In this petition, petitioner insists that respondent
did not completely manufacture the boxes and that it was
respondent which was obliged to deliver the boxes to
TADECO.
ISSUE: WON Davao Corrugated was responsible for
breach of contract as Solar Harvest had not yet demanded
from it the delivery of the boxes
RULING: NO.
The CA held that it was unthinkable that for around 2
years petitioner merely followed up and did not demand
the delivery of the boxes. Even assuming that the
agreement is for delivery by Davao Corrugated,
respondent would not be liable for breach of contract as
petitioner had not yet demanded from it the delivery of
the boxes. There is no error in the decision of the RTC.
Furthermore, the claim for reimbursement is actually one
for rescission or resolution of contract under Article 1191
of the Civil Code. The right to rescind contracts arises
once the party defaults in the performance of his
obligation. Article 1191 should be taken in conjunction
with Article 1169: Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands form them the
fulfilment of their obligation. However the demand from
creditor shall not be necessary in order that delay may
exist: 1. When the obligation or the law expressly so
declares,; 2. When from the nature and the circumstance
of the obligation it appears that the designation of the
timewhen the thing is to be delivered or the service is to
be rendered was a controlling motive for
theestablishment of the contract; OR 3. When the
demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, as in a contract of sale, the
general rule is that the fulfillment of the parties’
respective obligations should be simultaneous. Hence,
no demand is generally necessary because, once a party
fulfills his obligation and the other party does not fulfill
his, the latter automatically incurs in delay. But when
different dates for performance of the obligations are
fixed, the default for each obligation must be determined
by the rules given in the first paragraph of Article
1169, that is, the other party would incur in delay only
from the moment the other party demands fulfillment of
the former’s obligation. Thus, even in reciprocal
obligations, if the period for the fulfillment of the
obligation is fixed, demand upon the obligee is still
necessary before the obligor can be considered in default
and before a cause of action for rescission will accrue.
In the case of Solar Harvest, merely following up the
order was not the same as demanding for the boxes. The
SC held that Solar Harvests petition is denied and that
Davao Corrugated did not commit breach of contract and
may remove the boxes from their premises after
petitioner is given a period of time to remove them from
their warehouse as they deem proper. The Court gave 30-
day period to comply with this.
MINDANAO TERMINAL v. PHOENIX
ASSURANCE
Nature: Complaint for Damages
Ponente: J. Tinga
Date: May 8, 2009
DOCTRINE: If the law or contract does not state the
degree of diligence which is to be observed in the
performance of an obligation then that which is expected
of a good father of a family or ordinary diligence shall be
required.
FACTS:
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Relevant Provision of Law: Article 1173 (Civil
Code)
Del Monte Philippines, Inc. contracted petitioner
Mindanao Terminal and Brokerage Service, Inc., a
stevedoring company, to load and stow a shipment of
146,288 cartons of fresh green Philippine bananas and
15,202 cartons of fresh pineapples belonging to Del
Monte Fresh Produce into the cargo hold of the
vessel M/V Mistrau. The vessel was docked at the port of
Davao City and the goods were to be transported by it to
the port of Incheon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment
under an “open cargo policy” with private respondent
Phoenix Assurance Company of New York, a non-life
insurance company, and private respondent McGee & Co.
Inc. (McGee), the underwriting manager/agent
of Phoenix.
Upon arrival of the vessel at the port of Incheon, Korea, it
was discovered upon discharge that some of the cargo
was in bad condition. The Marine Cargo Damage
Surveyor of Incok Loss and Average Adjuster of Korea,
through its representative Byeong Yong Ahn (Byeong),
surveyed the extent of the damage of the shipment. In a
survey report, it was stated that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple
shipment were so damaged that they no longer had
commercial value.
Del Monte Produce filed a claim under the open cargo
policy for the damages to its shipment. A check for the
recommended amount was sent to Del Monte Produce;
the latter then issued a subrogation
receipt to Phoenix and McGee. Phoenix and McGee
instituted an action for damages in the RTC Davao City.
RTC dismissed the complaint holding that the only
participation of Mindanao Terminal was to load the
cargoes on board the M/V Mistrau under the direction
and supervision of the ship’s officers, who would not have
accepted the cargoes on board the vessel and signed the
foreman’s report unless they were properly arranged and
tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable
for whatever happened to the cargoes after it had loaded
and stowed them. It was further held that Phoenix and
McGee had no cause of action against Mindanao
Terminal because the latter, whose services were
contracted by Del Monte, a distinct corporation from Del
Monte Produce, had no contract with the assured Del
Monte Produce.
CA reversed and set aside. MR denied.
ISSUES:
(1) WON Phoenix and McGee have a cause of action
against Mindanao Terminal
(2) WON Mindanao Terminal, as a stevedoring
company, is under obligation to observe the same
extraordinary degree of diligence in the conduct
of its business as required by law for common
carriers and warehousemen
(3) WON Mindanao Terminal observed the degree of
diligence required by law of a stevedoring
company
RULING:
(1) YES.
The present action is based on quasi-delict, arising from
the negligent and careless loading and stowing of the
cargoes belonging to Del Monte Produce. Even assuming
that both Phoenix and McGee have only been subrogated
in the rights of Del Monte Produce, who is not a party to
the contract of service between Mindanao Terminal and
Del Monte, still the insurance carriers may have a cause
of action in light of the Court’s consistent ruling that the
act that breaks the contract may be also a tort. In fine, a
liability for tort may arise even under a contract, where
tort is that which breaches the contract. In the present
case, Phoenix and McGee are not suing for damages for
injuries arising from the breach of the contract of service
but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes belonging to Del
Monte Produce. Despite the absence of contractual
relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the
defendant should be sufficient to establish a cause of
action arising from quasi-delict.
Article 1173 of the Civil Code is very clear that if the law
or contract does not state the degree of diligence which is
to be observed in the performance of an obligation then
that which is expected of a good father of a family or
ordinary diligence shall be required. Mindanao Terminal,
a stevedoring company which was charged with the
loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor
provider in the case at bar. There is no specific provision
of law that imposes a higher degree of diligence than
ordinary diligence for a stevedoring company or one who
is charged only with the loading and stowing of cargoes.
It was neither alleged nor proven by Phoenix and McGee
that Mindanao Terminal was bound by contractual
stipulation to observe a higher degree of diligence than
that required of a good father of a family. We therefore
conclude that following Article 1173, Mindanao Terminal
was required to observe ordinary diligence only in
loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau.
(2) NO. There is a distinction between an
arrastre and a stevedore. Arrastre, a Spanish
word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf
or between the establishment of the consignee or
shipper and the ship's tackle. The responsibility
of the arrastre operator lasts until the delivery of
the cargo to the consignee. The service is usually
performed by longshoremen. On the other hand,
stevedoring refers to the handling of the cargo in
the holds of the vessel or between the ship's
tackle and the holds of the vessel. The
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responsibility of the stevedore ends upon the
loading and stowing of the cargo in the vessel.
In the present case, Mindanao Terminal, as a stevedore,
was only charged with the loading and stowing of the
cargoes from the pier to the ship’s cargo hold; it was never
the custodian of the shipment of Del Monte Produce. A
stevedore is not a common carrier for it does not
transport goods or passengers; it is not akin to a
warehouseman for it does not store goods for profit. The
loading and stowing of cargoes would not have a far
reaching public ramification as that of a common carrier
and a warehouseman; the public is adequately protected
by our laws on contract and on quasi-delict. The public
policy considerations in legally imposing upon a common
carrier or a warehouseman a higher degree of diligence is
not present in a stevedoring outfit which mainly provides
labor in loading and stowing of cargoes for its clients.
(3) YES. The only participation of
Mindanao Terminal was to load the cargoes on
board M/V Mistrau. It was not disputed
by Phoenix and McGee that the materials, such
as ropes, pallets, and cardboards, used in lashing
and rigging the cargoes were all provided by M/V
Mistrau and these materials meets industry
standard. Mindanao Terminal loaded and
stowed the cargoes of Del Monte Produce aboard
the M/V Mistrau in accordance with the stowage
plan, a guide for the area assignments of the
goods in the vessel’s hold, prepared by Del Monte
Produce and the officers of M/V Mistrau. The
loading and stowing was done under the
direction and supervision of the ship officers. The
said ship officers would not have accepted the
cargoes on board the vessel if they were not
properly arranged and tightly secured to
withstand the voyage in open seas. They would
order the stevedore to rectify any error in its
loading and stowing. A foreman’s report, as proof
of work done on board the vessel, was prepared
by the checkers of Mindanao Terminal and
concurred in by the Chief Officer of M/V
Mistrau after they were satisfied that the cargoes
were properly loaded.
However, there is no basis for an award of attorney’s fees.
AGCAOILI v. GSIS
Nature: Action for Specific Performance and Damages
Ponente: J. Narvasa
Date: August 30, 1988
DOCTRINE: In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent
upon him.
Relevant Provision of Law: Article 1169 (Civil
Code)
FACTS: The appellant Government Service Insurance
System (GSIS) approved the application of the appellee
Marcelo Agcaoili for the purchase of the house and lot in
the GSIS Housing Project in Nangka, Marikina, Rizal, but
said application was subject to the condition that the
latter should forthwith occupy the house. Agcaoili lost no
time in occupying the house but he could not stay in it
and had to leave the very next day because the house was
nothing more than a shell, in such a state that civilized
occupation was not possible: ceiling, stairs, double
walling, lighting facilities, water connection, bathroom,
toilet, kitchen, drainage, were inexistent. Agcaoili did,
however, ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending
the completion of the construction of the house. He
thereafter complained to the GSIS, but to no avail.
Subsequently, the GSIS asked Agcaoili to pay the monthly
amortizations of P35.36 and other fees. He paid the first
monthly amortizations and incidental fees but he refused
to make further payments until and unless the GSIS
completed the housing unit. Thereafter, GSIS cancelled
the award and required Agcaoili to vacate the premises.
The house and lot was consequently awarded to another
applicant. Agcaoili reacted by instituting suit in the CFI
Manila for specific performance and damages. Judgment
was rendered in favor of Agcaoili. GSIS then appealed
from that judgment.
ISSUES: WON the cancellation by the GSIS of the award
in favor of petitioner Agcaoili just and proper
RULING: NO. Respondent GSIS did not fulfill its
obligation to deliver the house in a habitable state,
therefore, it cannot invoke the petitioner’s suspension of
payment as a cause to cancel the contract between them.
There was a perfected contract of sale, it was then the
duty of GSIS as seller to deliver the thing sold in a
condition suitable for its enjoyment by the buyer and for
the purpose contemplated. The house contemplated was
one that could be occupied for purpose of residence in
reasonable comfort and convenience. There would be no
sense in requiring the awardee to immediately occupy
and live in a shell of a house, the structure consisting only
of four walls with openings, and a roof.
Since GSIS did not fulfill the obligation, and was not
willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortizations
as cause to cancel the contract between them. In
reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him.
The contract between the parties relative to the property
should be modified by adding to the cost of the land, as of
the time of perfection of the contract, the cost of the house
in its unfinished state also as of the time of perfection of
the contract, and correspondingly adjusting the
amortizations to be paid by petitioner Agcaoili, the
modification to be effected after determination by the
Court a quo of the value of said house on the basis of the
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agreement of the parties, or if this is not possible by such
commissioner or commissioners as the Court may
appoint.
ARRIETA v. NARIC
Nature: Complaint for Damages
Ponente: J. Regala
Date: January 24, 1964
DOCTRINE: One who assumes a contractual obligation
and fails to perform the same on account of his inability
to meet certain bank requirements, which inability he
knew and was aware of when he entered into the contract,
should be held liable in damages for breach of contract.
FACTS:
Relevant Provision of Law: Article 1170 (Civil
Code)
On May 19, 1952, Paz and Vitaliado Arrieta participated
in the public bidding called by NARIC for the supply of
20,000 metric tons of Burmese rice. As her bid of $203
per metric ton was the lowest, she was awarded the
contract for the same.
On July 1, 1952, Arrieta and NARIC entered into a
Contract of Sale of Rice under the term of which Arrieta
obligated hersef to deliver to NARIC 20,000 metric tons
of Burmese rice at $203,000 per metric ton. In turn, the
defendant corporation committed itself to pay for the
imported rice "by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the
plaintiff-appellee and/or supplier in Burma,
immediately."
However, it was only on July 30, 1952, or a full month
from the execution of the contract, that the defendant
corporation took the first to open a letter of credit by
forwarding to the PNB its Application for Commercial
Letter Credit.
On the same day, Arrieta thru counsel, advised NARIC of
the extreme necessity for the immediate opening of the
letter credit since she had by then made a tender to her
supplier in Rangoon, Burma, equivalent to 5% of the
F.O.B. price of 20,000 tons at $180.70 and in compliance
with the regulations in Rangoon this 5% will be
confiscated if the required letter of credit is not received
by them before August 4, 1952.
On August 4, 1952, PNB informed NARIC that its
application for a letter of has been approved by the Board
of Directors with the condition that 50% marginal cash
deposit be paid and that drafts are to be paid upon
presentment. It turned out, however, NARIC was not in a
financial position to meet the condition.
As a result of the delay in the opening of the letter of
credit by NARIC, the allocation of Arrieta’s supplier in
Rangoon was cancelled and the 5% deposit amounting to
an equivalent of P200,000 was forfeited. Arrieta
endeavored but failed to restore the cancelled Burmese
rice allocation, and thus offered Thailand rice instead.
Such offer was rejected by NARIC. Subsequently, Arrieta
sent a letter to NARIC, demanding compensation for the
damages caused her in the sum of US$286,000
representing unrealized profit. The demand having been
rejected, she instituted the case.
ISSUES:
(1) WON NARIC is liable for damages
(2) WON the rate of exchange to be applied in the
conversion is that prevailing at the time of
breach, or at the time the obligation was
incurred, or on the promulgation of the decision
RULING:
(1) YES. One who assumes a contractual
obligation and fails to perform the same on
account of his inability to meet certain bank
requirements, which inability he knew and was
aware of when he entered into the contract,
should be held liable in damages for breach of
contract.
Under Article 1170 of the Civil Code, not only debtors
guilty of fraud, negligence or default but also every
debtor, in general, who fails in the performance of his
obligations is bound to indemnify for the losses and
damages caused thereby.
The phrase "in any manner contravene the tenor" of the
obligation in Art. 1170, Civil Code, includes any illicit task
which impairs the strict and faithful fulfillment of the
obligation, or every kind of defective performance.
Waivers are not presumed, but must be clearly and
convincingly shown, either by express stipulation or acts
admitting of no other reasonable explanation.
(2) In view of Republic Act 529 which
specifically requires the discharge of obligations
only "in any coin or currency which at the time of
payment is legal tender for public and private
debt", the award of damages in U.S. dollars made
by the lower court in the case at bar is modified
by converting it into Philippine pesos at the rate
of exchange prevailing at the time the obligation
was incurred or when the contract in question
was executed.
As pronounced in Eastboard Navigation vs. Ismael, if
there is any agreement to pay an obligation in the
currency other than Philippine legal tender, the same is
null and void as contrary to public policy (RA 529), and
the most that could be demanded is to pay said obligation
in Philippine currency to be measured in the prevailing
rate of exchange at the time the obligation was incurred.
Herein, the rate of exchange to be applied is that of 1 July
1952, when the contract was executed.
TELEFAST v. CASTRO
Page 41 of 112
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Nature: Complaint for Damages
Ponente: J. Padilla
Date: February 29, 1988
DOCTRINE: Art. 1170 of the Civil Code provides that
"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." Art. 2176 also provides that "whoever by act or
omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
FACTS:
Relevant Provision of Law: Article 1170 (Civil
Code)
The petitioner is a company engaged in transmitting
telegrams. The plaintiffs are the children and spouse of
Consolacion Castro who died in the Philippines. One of
the plaintiffs, Sofia was in the Philippines for vacation
when their mother died. On the same day, Sofia sent a
telegram thru Telefast to her father and other siblings in
the USA to inform about the death of their mother. The
defendants, after receiving the required fees and charges,
accepted the telegram for transmission.
Unfortunately, the deceased had already been interred
but not one from the relatives abroad was able to pay
their last respects. Sofia found out upon her return in the
US that the telegram was never received. Hence, the
present suit for damages on the ground of breach of
contract. The only defense of defendants was that the
failure was due to “the technical and atmospheric factors
beyond its control.” The defendant-petitioner argues that
it should only pay the actual amount paid to it.
No evidence appeared on record that the defendant ever
made any attempt to advise Sofia as to why they could not
transmit the telegram.
The lower court ruled in favor of the plaintiffs and
awarded compensatory, moral, exemplary, damages to
each of the plaintiffs with 6% interest per annum plus
attorney’s fees. The Court of Appeals affirmed this ruling
but modified and eliminated the compensatory damages
to Sofia and exemplary damages to each plaintiff, it also
reduced the moral damages for each. The petitioner
appealed contending that, it can only be held liable for P
31.92, the fee or charges paid by Sofia C. Crouch for the
telegram that was never sent to the addressee, and that
the moral damages should be removed since defendant's
negligent act was not motivated by "fraud, malice or
recklessness.”
ISSUE: WON the award of the moral, compensatory and
exemplary damages is proper
RULING: YES. There was a contract between
the petitioner and private respondent Sofia C. Crouch
whereby, for a fee, petitioner undertook to send said
private respondent's message overseas by telegram.
Petitioner failed to do this despite performance by said
private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of
contravening its and is thus liable for damages. This
liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would
result in an inequitous situation where petitioner will
only be held liable for the actual cost of a telegram fixed
thirty (30) years ago.
Art. 1170 of the Civil Code provides that "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." Art.
2176 also provides that "whoever by act or omission
causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
Award of Moral, compensatory and exemplary
damages is proper
The petitioner's act or omission, which amounted to gross
negligence, was precisely the cause of the suffering
private respondents had to undergo. Art. 2217 of the Civil
Code states: "Moral damages include physical suffering,
mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Though incapable of
pecuniary computation, moral damages may be
recovered if they are the proximate results of the
defendant's wrongful act or omission."
Then, the award of P16,000.00 as compensatory
damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the
United States to testify before the trial court. Had
petitioner not been remiss in performing its obligation,
there would have been no need for this suit or for Mrs.
Crouch's testimony.
The award of exemplary damages by the trial court is
likewise justified and, therefore, sustained in the amount
of P1,000.00 for each of the private respondents, as a
warning to all telegram companies to observe due
diligence in transmitting the messages of their
customers.
NPC v. CA
Nature: Action for damages
Ponente: Gutierrez, J.
Date: May 16, 1988
DOCTRINE: When the negligence of a person concurs
with an act of God in producing a loss, such person is not
exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt
from liability for loss because of an act of God, he must be
free from any previous negligence or misconduct by
which the loss or damage may have been occasioned.
FACTS:
Engineering Construction, Inc. (ECI), being a successful
bidder, executed a contract with the National
Waterworks and Sewerage Authority (NAWASA),
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whereby the former undertook to furnish all tools, labor,
equipment, and materials, and to construct the proposed
2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at
Norzagaray, Bulacan, and to complete said works within
800 calendar days from the date the Contractor receives
the formal notice to proceed.
The project involved 2 major phases: the first phase
comprising, the tunnel work covering a distance of 7
kilometers, passing through the mountain, from the Ipo
river, a part of Norzagaray, Bulacan, where the Ipo Dam
of the defendant National Power Corporation is located,
to Bicti; the other phase consisting of the outworks at
both ends of the tunnel.
ECI already had completed the first major phase of the
work. Some portions of the outworks at the Bicti site were
still under construction. As soon as the ECI had finished
the tunnel excavation work at the Bicti site, all the
equipment no longer needed there were transferred to
the Ipo site where some projects were yet to be
completed.
Typhoon 'Welming' hit Central Luzon, passing through
National Power Corporation's (NPC) Angat Hydro-
electric Project and Dam at lpo, Norzagaray, Bulacan.
Strong winds struck the project area, and heavy rains
intermittently fell. Due to the heavy downpour brought
about by typhoon “Welming,” the water in the reservoir
of the Angat Dam was rising perilously at the rate of 60
centimeters per hour. To prevent an overflow of water
from the dam, NPC caused the opening of the spillway
gates.
ECI sued NPC for damages. The trial court and the CA
found that NPC was negligent when it opened the gates
only at the height of the typhoon holding that it could
have opened the spill gates gradually and should have
done so before the ‘typhoon’ came. Both courts awarded
ECI for damages.
NPC assails the decision of the CA as being erroneous on
the grounds, inter alia, that the loss sustained by ECI was
due to force majeure. The rapid rise of water level in the
reservoir due to heavy rains brought about by the
typhoon is an extraordinary occurrence that could not
have been foreseen. On the other hand, ECI assails the
decision of the court of appeals modifying the decision of
the trial court eliminating the awarding of exemplary
damages.
ISSUES
(1) WON NPC is liable for damages in light of the
typhoon which hit the area
RULING: YES. NPC was undoubtedly negligent because
it opened the spillway gates of the Angat Dam only at the
height of typhoon "Welming" when it knew very well that
it was safer to have opened the same gradually and
earlier, as it was also undeniable that NPC knew of the
coming typhoon at least four days before it actually
struck. And even though the typhoon was an act of God
or what we may call force majeure, NPC cannot escape
liability because its negligence was the proximate cause
of the loss and damage.
As was held in Nakpil & Sons v. CA:
Thus, if upon the happening of a fortuitous event
or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or
contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the
Civil Code, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God
doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature
and human agencies are to be excluded from
creating or entering into the cause of the
mischief. When the effect, the cause of which is
to be considered, is found to be in part the result
of the participation of man, whether it be from
active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it
was, and removed from the rules applicable to
the acts of God. (1 Corpus Juris, pp. 1174-1175).
(2) WON ECI is entitled to exemplary damages?
RULING: NO. CA did not err in eliminating the award
since it found that there was no bad faith on the part of
NPC and that neither can the latter's negligence be
considered gross. In Dee Hua Liong Electrical Equipment
Corp. v. Reyes, the Court ruled:
Neither may private respondent recover
exemplary damages since he is not entitled to
moral or compensatory damages, and again
because the petitioner is not shown to have acted
in a wanton, fraudulent, reckless or oppressive
manner (Art. 2234, Civil Code)
______________________________________
_______________
JIMENEZ v. CITY OF MANILA
Nature: Action for Damages
Ponente: Paras, J.
Date: May 29, 1987
DOCTRINE: Under Article 2189 of the Civil Code, it is
not necessary for the liability therein established to
attach, that the defective public works belong to the
province, city or municipality from which responsibility
is exacted. What said article requires is that the province,
city or municipality has either "control or supervision"
over the public building in question.
FACTS:
Relevant Provision of Law:
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Art. 2189, Civil Code. Provinces, cities and
municipalities shall be liable for damages for the death
of, or injuries suffered by, any person by reason of the
defective condition of roads, streets, bridges, public
buildings, and other public works under their control or
supervision.
In the morning of August 15, 1974 Bernardino Jimenez,
together with his neighbors, went to the Sta. Ana Public
Market to buy bagoong. The market was flooded with
ankle-deep rainwater. After purchasing the bagoong, he
turned around to return home but he stepped on an
uncovered opening which could not be seen because of
the dirty rainwater, causing a dirty and rusty four- inch
nail which was stuck inside the uncovered opening to
pierce his left leg, penetrating to a depth of about one and
a half inches.
After administering first aid treatment at a nearby
drugstore, his companions helped him hobble home. He
felt ill and developed fever and he had to be carried to Dr.
Juanita Mascardo; despite the medicine administered,
his left leg swelled with great pain. He was then rushed to
the Veterans Memorial Hospital where he had to be
confined for 20 days due to high fever and severe pain.
Upon his discharge from the hospital, he had to walk
around with crutches for 15 days. His injury prevented
him from attending to the school buses he was operating;
he had to engage the services of one Bienvenido Valdez to
supervise his business, paying him P900.
Jimenez sued the City of Manila and the Asiatic
Integrated Corp., under whose administration the Sta.
Ana Public Market had been placed by virtue of a
Management and Operating Contract, for damages.
The lower court decided in favor of the City of Manila and
Asiatic Integrated Corp. On appeal, the Intermediate
Appellate Court held that Asiatic Integrated Corp liable
for damages but absolved the City of Manila from any
liability.
ISSUE: WON the City of Manila should be held jointly
and severally liable with Asiatic for damages
RULING: YES. There is no question that the Sta. Ana
Public Market, despite the Management and Operating
Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former,
and as such it is liable under Art. 2189 of the Civil Code.
The Management and Operating Contract is explicit in
this regard when its several provisions impose
obligations on the Asiatic Integrated Corp., but still
subject to the control of the City:
 “start the painting, cleaning, sanitizing and
repair of the public markets and talipapas...
submit a program of improvement,
development, rehabilitation and reconstruction
of the city public markets and talipapas subject to
prior approval of the FIRST PARTY (the City)”
 “all present personnel of the City public markets
and talipapas shall be retained by the SECOND
PARTY (Asiatic Integrated Corp.) as long as their
services remain satisfactory and they shall be
extended the same rights and privileges as
heretofore enjoyed by them”
 “the SECOND PARTY may from time to time be
required by the FIRST PARTY, or his duly
authorized representative or representatives, to
report, on the activities and operation of the City
public markets and talipapas and the facilities
and conveniences installed therein, particularly
as to their cost of construction, operation and
maintenance”
Also, the fact of supervision and control of the City over
subject public market was admitted by Mayor Ramon
Bagatsing in his letter to Secretary of Finance Cesar
Virata wherein it is stated that “the City retains the power
of supervision and control over its public markets and
talipapas under the terms of the contract.” In fact, the
City of Manila employed a market master for the Sta. Ana
Public Market whose primary duty is to take direct
supervision and control of that particular market, more
specifically, to check the safety of the place for the public.
The contention of respondent City of Manila that
petitioner should not have ventured to go to Sta. Ana
Public Market during a stormy weather is indeed
untenable. As a defense against liability on the basis of a
quasi-delict, one must have exercised the diligence of a
good father of a family. (Art. 1173 of the Civil Code). While
it may be conceded that the fulfillment of such duties is
extremely difficult during storms and floods, it must
however, be admitted that ordinary precautions could
have been taken during good weather to minimize the
dangers to life and limb under those difficult
circumstances.
For instance, the drainage hole could have been placed
under the stalls instead of on the passageways. Even more
important is the fact, that the City should have seen to it
that the openings were covered. Sadly, the evidence
indicates that long before petitioner fell into the opening,
it was already uncovered, and 5 months after the incident
happened, the opening was still uncovered. Moreover,
while there are findings that during floods the vendors
remove the iron grills to hasten the flow of water, there is
no showing that such practice has ever been prohibited,
much less penalized by the City of Manila. Neither was it
shown that any sign had been placed thereabouts to warn
passersby of the impending danger.
Petitioner had the right to assume that there were no
openings in the middle of the passageways and if any, that
they were adequately covered. Had the opening been
covered, petitioner could not have fallen into it. Thus the
negligence of the City of Manila is the proximate cause of
the injury suffered; the City is therefore liable for the
injury suffered by the petitioner.
Page 44 of 112
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Respondent City of Manila and Asiatic Integrated
Corporation being joint tort-feasors are solidarily liable
under Article 2194 of the Civil Code.
______________________________________
_______________
NAKPIL & SONS v. CA
Nature: Action for Damages
DOCTRINE: If upon the happening of a fortuitous event
or an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any
manner of the tenor of the obligation as provided for in
Article 1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability.
FACTS:
Relevant Provision of Law:
Art. 1723, Civil Code. The engineer or architect who
drew up the plans and specifications for a building is
liable for damages if within fifteen years from the
completion of the structure, the same should collapse by
reason of a defect in those plans and specifications, or
due to the defects in the ground. The contractor is
likewise responsible for the damages if the edifice falls,
within the same period, on account of defects in the
construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of
the contract. If the engineer or architect supervises the
construction, he shall be solidarily liable with the
contractor.
Acceptance of the building, after completion, does not
imply waiver of any of the cause of action by reason of
any defect mentioned in the preceding paragraph.
The action must be brought within ten years following
the collapse of the building.
Art. 1174, Civil Code. Except in cases expressly specified
by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, were inevitable.
The Philippine Bar Association (PBA) decided to
construct an office building on its 840 square meter lot.
It engaged the services of United Construction Inc., as
contractor, and the architect was Juan F. Nakpil & Sons.
The building was completed in June, 1966.
In the early morning of August 2, 1968, an unusually
strong earthquake hit Manila and the building sustained
major damage. The front columns of the building
buckled, causing the building to tilt forward dangerously.
On November 29, 1968 PBA commenced action or the
recovery of damages arising from the partial collapse of
the building. PBA claims that the collapse was due to
defects in the construction, the failure of contractors to
follow plans and specifications and violations by the
defendants of the terms of the contract. On the other
hand, United Construction Inc. filed a third-party
complaint against the Nakpils, alleging in essence that
the collapse of the building was due to the defects in the
architects" plans, specifications and design.
PBA moved twice for the demolition of the building on
the ground that it would topple down in case of a strong
earthquake. Three more earthquakes occurred and with
the PBA’s request for demolition was granted.
The appointed Commissioner, Hizon, submitted his
report which stated that the damage sustained by the PBA
building was directly caused by the earthquake and was
also caused by the defects in the plans and specifications
prepared by the architects, deviations from said plans
and specifications by the contractor and failure of the
contractor to observe the requisite workmanship in the
construction of the building.
The trial court agreed with the findings of the
Commissioner. Thus, it held that United is entitled to the
claim for damages. CA affirmed the decision of the trial
court but modified the decision by granting PBA an
additional P200,000 to be paid by the contractor and
architects jointly. The parties appealed from the decision
of the CA.
The United Architects of the Philippines and The
Philippine Institute of Architects intervened as amicus
curiae and submitted a position paper which said that the
plans and specifications of the Nakpils were not defective.
When asked by the Court to comment, the Commissioner
reiterated his findings and said that there were
deficiencies in the design of the architects which
contributed to the collapse of the building.
Petitioners Nakpil and UCCI on the other hand claimed
that it was an act of God that caused the failure of the
building which should exempt them from responsibility.
ISSUE: WON the defendants are exempt from liability
(WON an act of God-an unusually strong earthquake-
which caused the failure of the building, exempts from
liability, parties who are otherwise liable because of their
negligence.)
RULING: NO. The negligence of the defendants was
established beyond dispute. United Construction Co.,
Inc. was found to have made substantial deviations from
the plans and specifications. and to have failed to observe
the requisite workmanship in the construction as well as
to exercise the requisite degree of supervision; while the
Nakpils were found to have inadequacies or defects in the
plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction
and in the plans and specifications were the proximate
causes that rendered the PBA building unable to
withstand the earthquake.
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There is no dispute that the earthquake is a fortuitous
event or an act of God. To exempt the obligor from
liability under Article 1174 of the Civil Code, for a breach
of an obligation due to an "act of God," the following must
concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event
must be either unforseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or
aggravation of the injury to the creditor.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively
by the violence of nature and all human agencies are to be
excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active
intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and
removed from the rules applicable to the acts of God. (1
Corpus Juris, pp. 1174-1175).
NOTES: The defendants filed Motions for
Reconsideration from the decision of the 2nd Division of
the Supreme Court. The Court held:
ISSUE: Article 1723 does not apply in view of the findings
of the Commissioner that the building did not collapse as
a result of the earthquake.
COURT: In the assasiled decision, the Court is in
complete accord with the findings of the trial court and
affirmed by the CA, that after the earthquake the building
was not totally lost, the collapse was only partial and the
building could still be restored. But after the subsequent
earthquakes on there was no question that further
damage was caused to the property resulting in an
eventual and unavoidable collapse or demolition
(compete collapse). Note that a needed demolition is in
fact a form of "collapse".
The bone of contention is therefore, not on the fact of
collapse but on who should shoulder the damages
resulting from the partial and eventual collapse. As ruled
by this Court in said decision, there should be no question
that the NAKPILS and UNITED are liable for the damage.
ISSUE: The finding of bad faith is not warranted in fact
and is without basis in law.
COURT: A careful study of the decision will show that
there is no contradiction between the above finding of
negligence by the trial court which was formed by the CA
and the ruling of this Court. On the contrary, on the basis
of such finding, it was held that such wanton negligence
of both the defendant and the third-party defendants in
effecting the plans, designs, specifications, and
construction of the PBA building is equivalent to bad faith
in the performance of their respective tasks.
****************************************************
********************
F. Remedies for breach of obligations
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)
Article 1167. If a person obliged to do something fails to
do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone. (1098)
Article 1168. When the obligation consists in not doing,
and the obligor does what has been forbidden him, it shall
also be undone at his expense. (1099a)
Article 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
Article 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them.
(1111)
Article 1178. Subject to the laws, all rights acquired in
virtue of an obligation are transmissible, if there has been
no stipulation to the contrary. (1112)
Article 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
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This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1192. In case both parties have committed a
breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. (n)
Article 2236. The debtor is liable with all his property,
present and future, for the fulfillment of his obligations,
subject to the exemptions provided by law. (1911a)
Article 302. Neither the right to receive legal support
nor any money or property obtained as such support or
any pension or gratuity from the government is subject to
attachment or execution. (n)
Article 1708. The laborer's wages shall not be subject to
execution or attachment, except for debts incurred for
food, shelter, clothing and medical attendance.
FC Art. 153. The family home is deemed constituted on
a house and lot from the time it is occupied as a family
residence. From the time of its constitution and so long
as any of its beneficiaries actually resides therein, the
family home continues to be such and is exempt from
execution, forced sale or attachment except as hereinafter
provided and to the extent of the value allowed by law.
(223a)
FC Art. 155. The family home shall be exempt from
execution, forced sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution of
the family home;
(3) For debts secured by mortgages on the
premises before or after such constitution; and
(4) For debts due to laborers, mechanics,
architects, builders, materialmen and others who
have rendered service or furnished material for
the construction of the building. (243a)
RULE 39, ROC—
Sec. 13. Property exempt from
execution. Except as otherwise expressly
provided by law, the following property, and no
other, shall be exempt from execution:
(a) The judgment obligor's family home as
provided by law, or the homestead in which he
resides, and land necessarily used in connection
therewith;
(b) Ordinary tools and implements personally
used by him in his trade, employment, or
livelihood;
(c) Three horses, or three cows, or three
carabaos, or other beasts of burden such as the
judgment obligor may select necessarily used by
him in his ordinary occupation;
(d) His necessary clothing and articles for
ordinary personal use, excluding jewelry;
(e) Household furniture and utensils necessary
for housekeeping, and used for that purpose by
the judgment obligor and his family, such as the
judgment obligor may select, of a value not
exceeding one hundred thousand pesos;
(f) Provisions for individual or family use
sufficient for four months;
(g) The professional libraries and equipment of
judges, lawyers, physicians, pharmacists,
dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding
three hundred thousand pesos in value;
(h) One fishing boat and accessories not
exceeding the total value of one hundred
thousand pesos owned by a fisherman and by
the lawful use of which he earns his livelihood;
(i) So much of the salaries, wages, or earnings of
the judgment obligor of his personal services
within the four months preceding the levy as are
necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies benefits, privileges, or annuities
accruing or in any manner growing out of any
life insurance;
(l) The right to receive legal support, or money
or property obtained as such support, or any
pension or gratuity from the Government;
(m) Properties specially exempt by law.
But no article or species of property mentioned in his
section shall be exempt from execution issued upon a
judgment recovered for its price or upon a judgment of
foreclosure of a mortgage thereon.
1. Extra judicial remedies
a. Expressly granted by
law
Article 1786. Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which he
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound with
respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered,
without the need of any demand. (1681a)
Article 1788. A partner who has undertaken to
contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he
should have complied with his obligation.
The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use.
(1682)
Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may
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have passed to the buyer, the unpaid seller of goods, as
such, has:
(1) A lien on the goods or right to retain them for
the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right
of stopping the goods in transitu after he has
parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited
by this Title.
Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to his other
remedies a right of withholding delivery similar to and
coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer. (n)
b. Stipulated
2. Judicial remedies
a. Principal remedies
Article 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law. (1124)
Article 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
b. Subsidiary remedies
Article 1380. Contracts validly agreed upon may be
rescinded in the cases established by law. (1290)
Article 1177. The creditors, after having pursued the
property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them.
(1111)
c. Ancillary remedies – Rules of
Court
***************************************************
*******************
UNLAD RESOURCES DEVELOPMENT v.
DRAGON
Nature: Rescission of the agreement and the return of
control and management of the Rural Bank, plus
damages
Ponente: Nachura J.
Date: July 28, 2008
DOCTRINE: Rescission has the effect of “unmaking a
contract, or its undoing from the beginning, and not
merely its termination.” Hence, rescission creates the
obligation to return the object of the contract. It can be
carried out only when the one who demands rescission
can return whatever he may be obliged to restore.
FACTS:
Relevant Provision of Law:
Art. 1389, Civil Code. The action to claim rescission must
be commenced within four years. x x x
Art. 1144. The following actions must be brought within
ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever
the wards whom they represent suffer lesion by more
than one-fourth of the value of the things which are the
object thereof;
(2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims due
them;
(4) Those which refer to things under litigation if they
have been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission.
Article 1191, Civil Code. The power to rescind reciprocal
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
Page 48 of 112
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accordance with Articles 1385 and 1388 and the
Mortgage Law.
On December 29, 1981, Respondents and Unlad
Resources, through its Chairman, Helena Benitez,
entered into a Memorandum of Agreement wherein it is
provided that respondents, as controlling stockholders of
the Rural Bank of Noveleta shall allow Unlad Resources
to invest P4,800,000.00 in the Rural Bank in the form of
additional equity. On the other hand, Unlad Resources
bound itself to invest the said amount in the Rural Bank;
upon signing, it was, likewise, agreed that Unlad
Resources shall subscribe to a minimum P480,000
common or preferred non-voting shares of stock; that the
respondents, upon the signing of the said agreement shall
transfer control and management over the Rural Bank to
Unlad Resources.
Immediately after the signing of the agreement, the
respondents complied with their obligation and
transferred control of the Rural Bank to Unlad Resources
and its nominees and the Bank was renamed the Unlad
Rural Bank of Noveleta, Inc. However, they claim that
despite repeated demands, Unlad Resources has failed
and refused to comply with their obligation under the
said Memorandum of Agreement
On July 3, 1987, respondents filed before the RTC of
Makati City, a Complaint for rescission of the agreement
and the return of control and management of the Rural
Bank from petitioners to respondents, plus damages.
RTC declared that the MOA is rescinded and that the
Unlad should return control and management of the
Rural Bank to the respondents. CA affirmed the decision
of the RTC.
Hence, the present petition. Petitioners argue, inter alia,
that the action for rescission has prescribed under Article
1398 of the Civil Code. Also, they argue that they have
fully complied with their undertaking, but that the
undertaking has become a “legal and factual
impossibility” because the authorized capital stock of the
Rural Bank was increased from P1.7 million to only P5
million, and could not accommodate the subscription by
petitioners of P4.8 million worth of shares. Such
deficiency, petitioners contend, is with the knowledge
and approval of respondent Renato P. Dragon and his
nominees to the Board of Directors.
ISSUES:
(1) WON the action for rescission has prescribed
RULING: NO. The prescriptive period applicable to
rescission under Articles 1191 and 1592, is found in
Article 1144, which provides that the action upon a
written contract should be brought within ten years from
the time the right of action accrues.
Article 1389 specifically refers to rescissible contracts as,
clearly, this provision is under the chapter entitled
“Rescissible Contracts.”
In the case of Iringan, the Court has held that Article 1389
applies to rescissible contracts, as enumerated and
defined in Articles 1380 and 1381. The “rescission” in
Article 1381 is not akin to the term “rescission” in Article
1191 and Article 1592. In Articles 1191 and 1592, the
rescission is a principal action which seeks the resolution
or cancellation of the contract while in Article 1381, the
action is a subsidiary one limited to cases of rescission for
lesion as enumerated in said article.
The MOA does not fall under the enumeration in Article
1381. Accordingly, the prescriptive period that should
apply to this case is that provided for in Article 1144 for
written contracts (10 years)
The action was commenced on July 3, 1987, while the
MOA was entered into on December 29, 1981. Article
1144 specifically provides that the 10-year period is
counted from “the time the right of action accrues.” The
right of action accrues from the moment the breach of
right or duty occurs. Thus, the original Complaint was
filed well within the prescriptive period.
(2) WON the trial court correctly ruled for the rescission
of the Agreement
RULING: NO. Petitioners failed to fulfill their end of the
agreement, and thus, there was just cause for rescission.
With the contract thus rescinded, the parties must be
restored to the status quo ante, that is, before they
entered into the Memorandum of Agreement.
It is true that respondents increased the Rural Bank’s
authorized capital stock to only P5 million, which was not
enough to accommodate the P4.8 million worth of stocks
that petitioners were to subscribe to and pay for.
However, respondents’ failure to fulfill their undertaking
would have given rise to the scenario contemplated by
Article 1191 of the Civil Code.
Thus, petitioners should have exacted fulfillment from
the respondents or asked for the rescission of the contract
instead of simply not performing their part of the
Agreement. But in the course of things, it was the
respondents who availed of the remedy under Article
1191, opting for the rescission of the Agreement in order
to regain control of the Rural Bank.
Mutual restitution is required in cases involving
rescission under Article 1191. This means bringing the
parties back to their original status prior to the inception
of the contract. Article 1385 of the Civil Code provides,
thus:
ART. 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obligated to restore.
Page 49 of 112
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Neither shall rescission take place when the
things which are the object of the contract are
legally in the possession of third persons who did
not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
To rescind is to declare a contract void at its inception and
to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further
obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative
positions as if no contract has been made.
______________________________________
_______________
UNIVERSAL FOOD CORP. v. CA
Nature: Action for Rescission of Contract
Ponente: Castro, J.
Date: May 13, 1970
DOCTRINE: In Art. 1191 (unlike in Art. 1383), the
power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what
is incumbent upon him.
FACTS:
Relevant Provision of Law:
ART. 1191, Civil Code. The power to rescind obligations
is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission even
after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 of the Mortgage
Law.
ART. 1383, Civil Code. The action for rescission is
subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain
reparation for the same.
ART. 1384, Civil Code. Rescission shall be only to the
extent necessary to cover the damages caused.
As far back as 1938, Magdalo Francisco, Sr. discovered or
invented a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly
known as MAFRAN sauce.
Due to lack of sufficient capital to finance the expansion
of the business, in 1960, he secured the financial
assistance of Tirso Reyes who, after a series of
negotiations, formed with others defendant Universal
Food Corporation eventually leading to the execution on
May 11, 1960 a "Bill of Assignment".
Conformably with the terms and conditions, Magdalo
Francisco, Sr. was appointed Chief Chemist and his son,
Victoriano Francisco, was appointed auditor and
superintendent. Since the start of the operation of the
corporation, Magdalo Francisco, Sr., when preparing the
secret materials inside the laboratory, never allowed
anyone, not even his own son, or the President and
General Manager Tirso Reyes, of defendant, to enter the
laboratory in order to keep the formula secret to himself.
Thereafter, however, due to the alleged scarcity and high
prices of raw materials, Secretary-Treasurer Ciriaco de
Guzman of Universal Food issued a Memorandum, that
only Supervisor Ricardo Francisco should be retained in
the factory and that the salary of Magdalo Francisco, Sr.,
should be stopped for the time being until the corporation
should resume its operation.
Magdalo Francisco, Sr. received his salary as Chief
Chemist in the amount of P300.00 a month only until his
services were terminated. After a few days, the president
issued another memorandum to allow the supervisor,
now assistant chief chemist, to recall some employees to
produce the sauce and Porky Pops.
Within a month, the corporation through its president
authorized Zarraga and Bacula to look for a buyer of the
corporation including its formula, trademarks and assets
at a price not less than P300.00 without Francisco being
recalled back to work. Because of this, Magdalo
Francisco filed an action for rescission of the contract
called “Bill of Assignment” in the CFI against Universal
Food, rejecting the subsequent offer of the corporation to
recall him to work after the action was filed.
The CFI dismissed the case but the CA reversed the
decision, rescinding the contract and ordering the
corporation to return the trademark and formula of the
sauce to Francisco and pay him his salary until those were
returned.
Hence, the present petition. The corporation appealed
the decision, saying that Francisco is not entitled to
rescission under Art. 1191 of the Civil Code.
ISSUE: WON Magdalo Francisco is entitled to the
rescission of the Bill of Assignment
RULING: YES. The dismissal of the respondent
patentee Magdalo Francisco, Sr. as the permanent chief
chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. Thus, apart
from the legal principle that the option — to demand
performance or ask for rescission of a contract — belongs
to the injured party, the fact remains that the
respondents-appellees had no alternative but to file the
present action for rescission and damages.
Page 50 of 112
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In accordance with the provisions of the Bill of
Assignment, what was ceded and transferred by
Francisco was only the use of the Mafran sauce formula.
The word royalty was used in the contract which means
compensation paid by the licensee to the licensor for the
use of the licensor’s invention. Moreover, it is stipulated
that in case of the dissolution of the corporation, the
property rights over the trademark and formula shall
revert back to Francisco.
First, royalty was paid by UFC to Magdalo Francisco.
Second, the formula of said Mafran sauce was never
disclosed to anybody else. Third, the Bill acknowledged
the fact that upon dissolution of said Corporation, the
patentee rights and interests of said trademark shall
automatically revert back to Magdalo Francisco. Fourth,
paragraph 3 of the Bill declared only the transfer of the
use of the Mafran sauce and not the formula itself which
was admitted by UFC in its answer. Fifth, the facts of the
case undeniably show that what was transferred was only
the use. Finally, the Civil Code allows only “the least
transmission of right, hence, what better way is there to
show the least transmission of right of the transfer of the
use of the transfer of the formula itself.”
The facts indicate that the petitioner, acting through its
corporate officers, schemed and maneuvered to ease out,
separate and dismiss the said respondent from the
service as permanent chief chemist, in flagrant
violation of paragraph 5-(a) and (b) of the Bill of
Assignment. The late request to call him back to work
was only to placate Francisco.
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him. The injured party may
choose between fulfillment and rescission of the
obligation, with payment of damages in either case. There
is no controversy that the provisions of the Bill of
Assignment are reciprocal in nature. The petitioner
corporation violated the Bill of Assignment, specifically
paragraph 5-(a) and (b), by terminating the services of
the respondent patentee Magdalo V. Francisco, Sr.,
without lawful and justifiable cause.
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the
very object of the parties in making the agreement. 12 The
question of whether a breach of a contract is substantial
depends upon the attendant circumstances.
The petitioner contends that rescission of the Bill of
Assignment should be denied, because under article
1383, rescission is a subsidiary remedy which cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
However, in this case the dismissal of the respondent
patentee Magdalo Francisco, Sr. as the permanent chief
chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment.
Thus, apart from the legal principle that the option — to
demand performance or ask for rescission of a contract —
belongs to the injured party, the fact remains that the
respondents-appellees had no alternative but to file the
present action for rescission and damages. It is to be
emphasized that the respondent patentee would not have
agreed to the other terms of the Bill of Assignment were
it not for the basic commitment of the petitioner
corporation to appoint him as its Second Vice-President
and Chief Chemist on a permanent basis; that in the
manufacture of Mafran sauce and other food products he
would have "absolute control and supervision over the
laboratory assistants and personnel and in the purchase
and safeguarding of said products;" and that only by all
these measures could the respondent patentee preserve
effectively the secrecy of the formula, prevent its
proliferation, enjoy its monopoly, and, in the process
afford and secure for himself a lifetime job and steady
income.
The salient provisions of the Bill of Assignment, namely,
the transfer to the corporation of only the use of the
formula; the appointment of the respondent patentee as
Second Vice-President and chief chemist on a permanent
status; the obligation of the said respondent patentee to
continue research on the patent to improve the quality of
the products of the corporation; the need of absolute
control and supervision over the laboratory assistants
and personnel and in the purchase and safekeeping of the
chemicals and other mixtures used in the preparation of
said product — all these provisions of the Bill of
Assignment are so interdependent that violation of one
would result in virtual nullification of the rest.
______________________________________
_______________
MAGDALENA ESTATE v. MYRICK
Nature: Action for Collection
Ponente: Laurel, J.
Date: March 14, 1941
DOCTRINE: Under Art. 1124 of the old Civil Code (basis
of Article 1191, New Civil Code), the injured party may
choose between demanding the fulfillment of the contract
or its resolution. These remedies are alternative and not
cumulative.
FACTS:
The Magdalena Estate, Inc., sold to Louis Myrick lots
Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan
Subdivision, San Juan Rizal, their contract of sale No. SJ-
639 providing that the price of P7,953 shall be payable in
120 equal monthly installments of P96.39 each on the
second day of every month beginning the date of
execution of the agreement. Simultaneously, the vendee
executed and delivered to the vendor a promissory note
for the whole purchase price.
In pursuance of said agreement, the vendee made several
monthly payments amounting to P2,596.08, the last
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being on October 4, 1930, although the first installment
due and unpaid was that of May 2, 1930. By reason of this
default, the vendor, through its president, K.H. Hemady,
on December 14, 1932, notified the vendee that, in view
of his inability to comply with the terms of their contract,
said agreement had been cancelled as of that date,
thereby relieving him of any further obligation
thereunder, and that all amounts paid by him had been
forfeited in favor of the vendor, who assumes the absolute
right over the lots in question. To this communication,
the vendee did not reply, and it appears likewise that the
vendor thereafter did not require him to make any further
disbursements on account of the purchase price.
Louis Myrick commenced the present action in the CFI,
praying for an entry of judgment against the Magdalena
Estate, Inc. for the sum of P2,596.08 with legal interest
thereon from the filing of the complaint until its payment,
and for costs of the suit.
CFI rendered its decision ordering the defendant to pay
the plaintiff the sum of P2,596.08 with legal interest from
December 14, 1932 until paid and costs, and dismissing
defendant's counterclaim. CA confirmed the decision of
the lower court, with the only modification that the
payment of interest was to be computed from the date of
the filing of the complaint instead of from the date of the
cancellation of the contract.
Hence, the present petition. It is argued that the contract
being a bilateral agreement, in the absence of a
stipulation permitting its cancellation, may not be
resolved by the mere act of the petitioner.
ISSUE: WON forfeiture of the payments was valid
RULING: NO. The contract of sale contains no provision
authorizing the vendor, in the event of failure of the
vendee to continue in the payment of the stipulated
monthly installments, to retain the amounts paid to him
on account of the purchase price
The fact that the contracting parties herein did not
provide for resolution is now of no moment, for the
reason that the obligations arising from the contract of
sale being reciprocal, such obligations are governed by
article 1124 of the Civil Code which declares that the
power to resolve, in the event that one of the obligors
should not perform his part, is implied.
Upon the other hand, where, as in this case, the petitioner
cancelled the contract, advised the respondent that he
has been relieved of his obligations thereunder, and led
said respondent to believe it so and act upon such belief,
the petitioner may not be allowed, in the language of
section 333 of the Code of Civil Procedure (now section
68 (a) of Rule 123 of the New Rules of Court), in any
litigation the course of litigation or in dealings in nais, be
permitted to repudiate his representations, or occupy
inconsistent positions, or, in the letter of the Scotch law,
to "approbate and reprobate."
The claim, therefore, of the petitioner that it has the right
to forfeit said sums in its favor is untenable. Under article
1124 of the Civil Code, however, he may choose between
demanding the fulfillment of the contract or its
resolution. These remedies are alternative and not
cumulative, and the petitioner in this case, having to
cancel the contract, cannot avail himself of the other
remedy of exacting performance.
As a consequence of the resolution, the parties should be
restored, as far as practicable, to their original situation
which can be approximated only by ordering, as we do
now, the return of the things which were the object of the
contract, with their fruits and of the price, with its interest
(article 1295, Civil Code), computed from the date of the
institution of the action.
UP v. DE LOS ANGELES
Nature: Petition for Injunction
Ponente: Reyes, J.B.L., J.
Date: September 29, 1970
DOCTRINE: Article 1191 of the Civil Code allows that
the resolution of reciprocal contracts may be made extra-
judicially unless successfully impugned in court. This
gives the obligee the opportunity to prevent imminent
losses which may be incurred due to the blatant
negligence of the obligor.
FACTS:
UP and Associated Lumber Manufacturing Company,
Inc. (ALUMCO) entered into a logging agreement under
which the latter was granted exclusive authority, for a
period starting from the date of the agreement to 31
December 1965, extendible for a further period of 5 years
by mutual agreement, to cut, collect and remove timber
from the Land Grant, in consideration of payment to UP
of royalties, forest fees, etc..
As of 8 December 1964, ALUMCO had incurred unpaid
account which, despite repeated demands, it had failed to
pay. ALUMCO received notice that UP would rescind or
terminate the logging agreement, thus, it executed an
instrument, entitled "Acknowledgment of Debt and
Proposed Manner of Payments," in which it guaranteed
that it would pay its debt otherwise they would agree to
the rescission of the contract without necessity of suit and
shall pay the creditor P 50,ooo in liquidated damages.
Despite this, ALUMCO continued its operations and
incurred another debt in addition to the previous one.
On 19 July 1965, UP informed ALUMCO that it had
considered as rescinded and of no further legal effect the
logging agreement that they had entered into. UP filed a
complaint against ALUMCO in the CFI, for the collection
or payment of the debts and for preliminary attachment
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and preliminary injunction restraining ALUMCO from
continuing its logging operations.
Before the issuance of the aforesaid preliminary
injunction UP had awarded a concession to Sta. Clara
Lumber Company, Inc.; the logging contract was signed
on 16 February 1966.
ALUMCO filed a petition for injunction to enjoin UP from
conducting the bidding. The respondent judge issued the
orders, enjoining UP from awarding logging rights over
the concession to any other party.
ALUMCO contended, that it is only after a final court
decree declaring the contract rescinded for violation of its
terms that UP could disregard ALUMCO's rights under
the contract and treat the agreement as breached and of
no force or effect.
ISSUE: WON UP can treat its contract with ALUMCO
rescinded, and may disregard the same before any
judicial pronouncement to that effect.
RULING: YES. UP and ALUMCO had expressly
stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" that, upon default by the debtor
ALUMCO, UP has "the right and the power to consider,
the Logging Agreement dated 2 December 1960 as
rescinded without the necessity of any judicial suit."
It was held in Froilan vs. Pan Oriental Shipping Co., as to
such special stipulation, and in connection with Article
1191 of the Civil Code, that:
there is nothing in the law that prohibits the
parties from entering into agreement that
violation of the terms of the contract would cause
cancellation thereof, even without court
intervention. In other words, it is not always
necessary for the injured party to resort to court
for rescission of the contract.
The act of a party in treating a contract as cancelled or
resolved on account of infractions by the other
contracting party must be made known to the other and
is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action
in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the
resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
There is no conflict between the present ruling and the
previous jurisprudence of the Court invoked by
respondent declaring that judicial action is necessary for
the resolution of a reciprocal obligation, since in every
case where the extrajudicial resolution is contested only
the final award of the court of competent jurisdiction can
conclusively settle whether the resolution was proper or
not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation,
unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Even without express provision conferring the power of
cancellation upon one contracting party, the Supreme
Court of Spain, in construing the effect of Article 1124 of
the Spanish Civil Code (of which Article 1191 of the Civil;
Code is practically a reproduction), has repeatedly held
that, a resolution of reciprocal or synallagmatic contracts
may be made extrajudicially unless successfully
impugned in court.
The acts of the court a quo in enjoining petitioner's
measures to protect its interest without first receiving
evidence on the issues tendered by the parties, and in
subsequently refusing to dissolve the injunction, were in
grave abuse of discretion, correctible by certiorari, since
appeal was not available or adequate. Such injunction,
therefore, must be set aside.
______________________________________
_______________
ZULUETA v. MARIANO
Nature: Ejectment suit
Ponente: Melencio-Herrera, J.
Date: January 30, 1982
DOCTRINE: A stipulation entitling one party to
take possession of the land and building if the other
party violates the contract does not ex proprio vigore
confer upon the former the right to take possession
thereof if objected to without judicial intervention
and' determination.
FACTS:
Petitioner Jose Zulueta is the registered owner of a
residential house and lot situated within the Antonio
Subdivision, Pasig, Rizal.
Zulueta and private respondent Lamberto Avellana, a
movie director, entered into a "Contract to Sell" the
aforementioned property for P75,000.00 payable in
twenty years with respondent buyer assuming to pay a
down payment of P5,000.00 and a monthly installment
of P630.00 payable in advance before the 5th day of the
corresponding month, starting with December, 1964.
It was stipulated, among others, that upon failure of the
buyer to fulfill any of the conditions being stipulated, the
buyer automatically and irrevocably authorizes owner to
recover extrajudicially, physical possession of the land,
building and other improvements, which were the subject
of the said contract, and to take possession also extra-
judicially whatever personal properties may be found
within the aforesaid premises from the date of said failure
to answer for whatever unfulfilled monetary obligations
buyer may have with owner. Demand was also waived.
Upon the allegation that Avellana had failed to comply
with the monthly amortizations, despite demands to pay
Page 53 of 112
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and to vacate the premises, and that thereby the contract
was converted into one of lease, petitioner commenced an
Ejectment suit against respondent before the Municipal
Court of Pasig, praying that judgment be rendered
ordering respondent 1) to vacate the premises; 2) to pay
petitioner the sum of P11,751.30 representing
respondent's balance owing as of May, 1966; 3) to pay
petitioner the sum of P 630.00 every month after May,
1966, and costs. Respondent controverted by contending
that the Municipal Court had no jurisdiction over the
nature of the action as it involved the interpretation
and/or rescission of the contract.
Municipal Court ruled in favor of Zulueta. The conclusion
was premised on title finding that breach of any of the
conditions by private respondent converted the
agreement into a lease contract.
Upon appeal, CFI Judge dismissed the case on the ground
of lack of jurisdiction of the Municipal Court.
ISSUE: WON the action before the Municipal Court is
essentially for detainer and, therefore, within its
exclusive original jurisdiction, or one for rescission or
annulment of a contract, which should be litigated before
the CFI
RULING: RESCISSION. The basic issue is not
possession but one of rescission or annulment of a
contract. which is beyond the jurisdiction of the
Municipal Court to hear and determine.
The Municipal Court of Pasig was bereft of jurisdiction to
take cognizance of the case filed before it. In his
Complaint, petitioner had alleged violation by respondent
Avellana of the stipulations of their agreement to sell and
thus unilaterally considered the contract rescinded.
Respondent Avellana denied any breach on his part and
argued that the principal issue was one of interpretation
and/or rescission of the contract as well as of set-off.
Under those circumstances, proof of violation is a
condition precedent to resolution or rescission. It is only
when the violation has been established that the contract
can be declared resolved or rescinded. Upon such
rescission, in turn, hinges a pronouncement that
possession of the realty has become unlawful.
True, the contract between the parties provided for
extrajudicial rescission. This has legal effect, however,
where the other party does not oppose it. Where it is
objected to, a judicial determination of the issue is still
necessary.
But while respondent Judge correctly ruled that the
Municipal Court had no jurisdiction over the case and
correctly dismissed the appeal, he erred in assuming
original jurisdiction, in the face of the objection interposed
by petitioner. Section 11, Rule 40, leaves no room for doubt
on this point:
Section 11. Lack of jurisdiction —A case tried by an
inferior court without jurisdiction over the subject
matter shall be dismiss on appeal by the Court of
First Instance. But instead of dismissing the case,
the Court of First Instance may try the case on the
merits, if the parties therein file their pleadings
and go to trial without any objection to such
jurisdiction.
There was no other recourse left for respondent Judge,
therefore, except to dismiss the appeal. If an inferior court
tries a case without jurisdiction over the subject-matter on
appeal, the only authority of the CFI is to declare the
inferior court to have acted without jurisdiction and
dismiss the case, unless the parties agree to the exercise by
the CFI of its original jurisdiction to try the case on the
merits.
_______________________________________
_______________
PALAY, INC v. CLAVE
Nature: Complaint for Reconveyance with alternative
prayer for Refund
Ponente: Melencio-Herrera, J.
Date: September 21, 1983
DOCTRINE: A written notice is required to be sent to
the defaulter for the rescission of a contract even though
the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions.
FACTS:
Relevant Provision of Law:
ART. 1385, Civil Code. Rescission creates the obligation
to return the things which were the object of the
contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when
he who demands rescission can return whatever he may
be obliged to restore.
Neither sham rescission take place when the things
which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
Palay, Inc., through its President, Albert Onstott executed
in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land of the Crestview Heights
Subdivision in Antipolo, Rizal,. Paragraph 6 of the
contract provided for automatic extrajudicial rescission
upon default in payment of any monthly installment after
the lapse of 90 days from the expiration of the grace
period of one month, without need of notice and with
forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last payment
was made on December 5, 1967 for installments up to
September 1967.
On May 10, 1973, or almost 6 years later, private
respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter
Page 54 of 112
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reiterating the same request. Replying petitioners
informed respondent that his Contract to Sell had long
been rescinded pursuant to paragraph 6 of the contract,
and that the lot had already been resold.
Respondent filed a letter complaint with the National
Housing Authority (NHA) for reconveyance with an
altenative prayer for refund. NHA, finding the rescission
void in the absence of either judicial or notarial demand,
ordered Palay, Inc. and Alberto Onstott in his capacity as
President of the corporation, jointly and severally, to
refund Nazario Dumpit immediately.
On appeal to the Office of the President, upon the
allegation that the NHA Resolution was contrary to law,
respondent Presidential Executive Assistant, affirmed
the Resolution of the NHA.
Petitioners argue that it was justified in cancelling the
contract to sell without prior notice or demand in view of
paragraph 6 of the Contract to Sell.
ISSUES:
(1) WON demand was necessary before the Contract to
Sell may be rescinded
RULING: YES. Resolution by petitioners of the contract
was ineffective and inoperative against private
respondent for lack of notice of resolution, as held in the
U.P. vs. Angeles case.
Well-settled is the rule, as held in previous jurisprudence,
that judicial action for the rescission of a contract is not
necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and
conditions. However, even in these cases, there was at
least a written notice sent to the defaulter informing him
of the rescission. As stressed in UP vs. De Los Angeles the
act of a party in treating a contract as cancelled should be
made known to the other.
Of similar import is the ruling in Nera vs. Vacante,
reading:
A stipulation entitling one party to take
possession of the land and building if the other
party violates the contract does not ex propio
vigore confer upon the former the right to take
possession thereof if objected to without judicial
intervention and determination.
This was reiterated in Zulueta vs. Mariano where the
Court held that extrajudicial rescission has legal effect
where the other party does not oppose it. Where it is
objected to, a judicial determination of the issue is still
necessary.
In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in
Court. If the debtor impugns the declaration, it shall be
subject to judicial determination.
In this case, private respondent has denied that rescission
is justified and has resorted to judicial action. It is now
for the Court to determine whether resolution of the
contract by petitioners was warranted.
Petitioner relies on Torralba vs. De los Angeles where it
was held that "there was no contract to rescind in court
because from the moment the petitioner defaulted in the
timely payment of the installments, the contract between
the parties was deemed ipso facto rescinded." However,
it should be noted that even in that case notice in writing
was made to the vendee of the cancellation and
annulment of the contract although the contract entitled
the seller to immediate repossessing of the land upon
default by the buyer.
The indispensability of notice of cancellation to the buyer
was to be later underscored in Republic Act No. 6551
entitled "An Act to Provide Protection to Buyers of Real
Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract
shall take place after thirty days from receipt by
the buyer of the notice of cancellation or the
demand for rescission of the contract by a
notarial act and upon full payment of the cash
surrender value to the buyer.
The contention that private respondent had waived his
right to be notified under paragraph 6 of the contract is
neither meritorious because it was a contract of adhesion,
a standard form of petitioner corporation, and private
respondent had no freedom to stipulate. A waiver must
be certain and unequivocal, and intelligently made; such
waiver follows only where liberty of choice has been fully
accorded. Moreover, it is a matter of public policy to
protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to
buyers of real estate on installment payments.
(2) WON petitioners may be held liable for the refund of
the installment payments made by respondent Nazario
Dumpit.
RULING: YES. Indemnity for damages may be
demanded from the person causing the loss under Article
1385 of the Civil Code.
As a consequence of the resolution by petitioners, rights
to the lot should be restored to private respondent or the
same should be replaced by another acceptable lot.
However, considering that the property had already been
sold to a third person and there is no evidence on record
that other lots are still available, private respondent is
entitled to the refund of installments paid plus interest at
the legal rate of 12% computed from the date of the
institution of the action. 10 It would be most inequitable
if petitioners were to be allowed to retain private
respondent's payments and at the same time appropriate
the proceeds of the second sale to another.
Page 55 of 112
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Page 56 of 112
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ANGELES V CALASANZ
Nature: Action to compel execution of deed of sale
Ponente: Gutierrez
Date: March 18, 1985
Doctrine: The general rule is that rescission of a
contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in
making the agreement. The question of whether a breach
of a contract is substantial depends upon the attendant
circumstances.
FACTS:
Ursula and Tomas Calasanz and plaintiffs Buenaventura
Angeles and Teofila Juani entered into a contract to sell a
piece of land in Cainta, Rizal for the amount of
P3,920.The plaintiffs made a downpayment of P392.00
upon the execution of the contract. They promised to pay
the balance in monthly installments of P 41.20 until fully
paid which they paid monthly until July 1966, when their
aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted
and received delayed installment payments. The
Calasanzes then cancelled the contract because the
plaintiffs failed to meet subsequent payments. Plaintiffs
seek to compel the defendants to execute in their favor
the final deed of sale alleging that after computing all
subsequent payments, they have already paid the total
amount of P4,533.38. Defendants alleged that plaintiffs
violated par. 6 of the contract to sell when they failed and
refused to pay and/or offer to pay the monthly
installments, constraining the defendants-appellants to
cancel the said contract.
ISSUE: WON the contract to sell has been automatically
and validly cancelled by the defendants. NO
The defendants argue that the plaintiffs failed to pay the
August, 1966 installment despite demands for more than
4 months, thus he may automatically cancel a contract to
sell on the strength of a provision or stipulation
(paragraph 6) of the contract in this case. Also, they
alleged that they had the right to cancel the contract to
sell under Article 1191.
SC RULING: Article 1191 is explicit. In reciprocal
obligations, either party the right to rescind the contract
upon the failure of the other to perform the obligation
assumed thereunder. Moreover, there is nothing in the
law that prohibits the parties from entering into an
agreement that violation of the terms of the contract
would cause its cancellation even without court
intervention. Well settled is, however, the rule that a
judicial action for the rescission of a contract is not
necessary where the contract provides that it may be
revoked and cancelled for violation of any of its terms and
conditions. However, the right to rescind the contract for
non-performance of one of its stipulations, therefore, is
not absolute. The general rule is that rescission of a
contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in
making the agreement. The question of whether a breach
of a contract is substantial depends upon the attendant
circumstances.
Here, the breach of the contract adverted to by the
defendants is so slight and casual when we consider that
apart from the initial downpayment of P392.00 the
plaintiffs-appellees had already paid the monthly
installments for a period of almost nine (9) years. To
sanction the rescission made by the defendants-
appellants will work injustice to the plaintiffs. It would
unjustly enrich the defendants.
______________________________________
_______________
BOYSAW V. INTERPHIL PROMOTIONS
Nature: Action for damages
Ponente: Fernan
Date: March 20, 1987
DOCTRINE: While the contract imposed no penalty for
such violation, this does not grant any of the parties the
unbridled liberty to breach it with impunity. Our law on
contracts recognizes the principle that actionable injury
inheres in every contractual breach. Thus, Art. 1170 and
1191 of the Civil Code. Under the law when a contract is
unlawfully novated by an applicable and unilateral
substitution of the obligor by another, the aggrieved
creditor is not bound to deal with the substitute.
FACTS:
Solomon Boysaw and his then Manager, Willie Ketchum,
signed with Interphil Promotions, Inc. represented by
Lope Sarreal, Sr., a contract to engage Gabriel "Flash"
Elorde in a boxing contest for the junior lightweight
championship of the world. It was stipulated that the
bout would be held at the Rizal Memorial Stadium in
Manila on September 30, 1961 or not later than 30 days
thereafter should a postponement be mutually agreed
upon, and that Boysaw would not, prior to the date of the
boxing contest, engage in any other such contest without
the written consent of Interphil Promotions, Inc.
Afterwards, Ketchum assigned to J. Amado Araneta who
then assigned to Yulo the managerial rights over Solomon
Boysaw. Boysaw arrived in the Philippines. Yulo then
wrote to Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his and
Boysaw's readiness to comply with the boxing contract.
Sarreal wrote a letter to the Games and Amusement
Board expressing concern over reports that there had
been a switch of managers in the case of Boysaw. Thus,
GAB decided to schedule the Elorde-Boysaw fight for
November 4, 1961. Yulo, Jr. refused to accept the change
in the fight date. While an Elorde-Boysaw fight was
eventually staged, the fight contemplated in the May 1,
1961 boxing contract never materialized.
Page 57 of 112
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ISSUE 1: Whether or not there was a violation of the
fight contract; who was guilty of such violation. YES.
BOYSAW IS GUILTY.
On the issue pertaining to the violation of the May 1, 1961
fight contract, the evidence established that the contract
was violated by appellant Boysaw himself when, without
the approval or consent of Interphil, he fought Louis
Avila on June 19, 1961 in Las Vegas Nevada. While the
contract imposed no penalty for such violation, this does
not grant any of the parties the unbridled liberty to
breach it with impunity. Our law on contracts recognizes
the principle that actionable injury inheres in every
contractual breach. Thus, Art. 1170 and 1191 of the Civil
Code.
The power to rescind is given to the injured party. "Where
the plaintiff is the party who did not perform the
undertaking which he was bound by the terms of the
agreement to perform 4 he is not entitled to insist upon
the performance of the contract by the defendant, or
recover damages by reason of his own breach "
Another violation of the contract in question was the
assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial
rights over Boysaw without the knowledge or consent of
Interphil. The assignments, from Ketchum to Araneta,
and from Araneta to Yulo, were in fact novations of the
original contract which, to be valid, should have been
consented to by Interphil.
Under the law when a contract is unlawfully novated by
an applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with
the substitute.
From the evidence, it is clear that the appellees, instead
of availing themselves of the options given to them by law
of rescission or refusal to recognize the substitute obligor
Yulo, really wanted to postpone the fight date owing to an
injury that Elorde sustained in a recent bout. That the
appellees had the justification to renegotiate the original
contract, particularly the fight date is undeniable from
the facts aforestated. Under the circumstances, the
appellees' desire to postpone the fight date could neither
be unlawful nor unreasonable.
ISSUE 2: Whether or not there was legal ground for the
postponement of the fight date from September 1, 1961,
as stipulated in the May 1, 1961 boxing contract, to
November 4,1961. YES. Since all the rights on the matter
rested with the appellees, and appellants' claims, if any,
to the enforcement of the contract hung entirely upon the
former's pleasure and sufferance, the GAB did not act
arbitrarily in acceding to the appellee's request to reset
the fight date to November 4, 1961.
PILIPINAS BANK V IAC
Nature: Complaint for Specific Performance with
Damages to compel petitioner to execute a deed of sale
Ponente: Paras
Date: June 30, 1987
DOCTRINE: There is a clear WAIVER of the stipulated
right of "automatic rescission," as evidenced by the many
extensions and the fact that the petitioner never called
attention to the proviso on "automatic rescission.".
FACTS:
Hacienda Benito, Inc. (petitioner's predecessor-in-
interest) as vendor, and private respondents, as vendees
executed a Contract to Sell over a parcel of land in
Antipolo with a provision that “the contract shall be
considered automatically rescinded and cancelled and of
no further force and effect upon failure of the vendee to
pay when due, three or more consecutive installments as
stipulated therein or to comply with any of the terms and
conditions thereof, in which case the vendor shall have
right to resell the said parcel of land to any person
interested…” Eventually, petitioner sent private
respondents a simple demand letter showing a
delinquency in their monthly amortizations for 19
months. They then again sent private respondents a
demand letter showing total arrearages of 20 months as
of April 1965, but this time advising that unless they up-
date their installment payments, petitioner shall be
constrained to avail of the automatic rescission clause.
Respondents made a partial payment with the request for
an extension (repeated a number of times). However,
private respondents failed to update their arrearages and
did not request for any further extension of time within
which to update their account. Petitioner then wrote a
letter to private respondents, informing them that the
contract to sell had been rescinded/cancelled by a
notarial act, to which letter was annexed a "Demand for
Rescission of Contract".
TC: Petitioner could not rescind the contract to sell,
because: (a) petitioner waived the automatic rescission
clause by accepting payment on September 1967, and by
sending letters advising private respondents of the
balances due, thus, looking forward to receiving
payments thereon.
ISSUE: WON the contract was rescinded or cancelled,
under the automatic rescission clause contained therein.
NO.
While it is true that the Supreme Court reiterated among
other things that a contractual provision allowing
"automatic rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID, the
remedy of one who feels aggrieved being to go to Court
for the cancellation of the rescission itself, in case the
rescission is found unjustified under the circumstances,
still in the instant case there is a clear WAIVER of the
stipulated right of "automatic rescission," as evidenced by
the many extensions granted private respondents by the
petitioner. In all these extensions, the petitioner never
called attention to the proviso on "automatic rescission."
______________________________________
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Page 58 of 112
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CENTRAL BANK V CA
Nature: Petition for injunction, specific performance or
rescission, and damages with preliminary injunction.
Ponente: Makasiar
Date: October 3, 1985
DOCTRINE: When one is in default in fulfilling its
reciprocal obligation under their loan agreement, the
other party, under Article 1191 of the Civil Code, may
choose between specific performance or rescission with
damages in either case. But since the defaulting party is
already prohibited from fulfilling its obligation,
rescission is the only alternative remedy left.
FACTS:
Island Savings Bank approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security
for the loan, executed on the same day a real estate
mortgage over his 100-hectare land in Agusan. The
approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments
for a period of 3 years. It was required that Tolentino shall
use the loan proceeds solely as an additional capital to
develop his other property into a subdivision. A mere
P17,000.00 partial release of the P80,000.00 loan was
made by the Bank. An advance interest for the
P80,000.00 loan covering a 6-month period amounting
to P4,800.00 was deducted from the partial release of
P17,000.00.
The Monetary Board of the Central Bank, after finding
Island Savings Bank was suffering liquidity problems,
issued Resolution No. 1049, which prohibited the bank
from making new loans and investments excluding
extensions or renewals of already approved loans,
provided that such extensions or renewals shall be
subject to review by the Superintendent of Banks,
Island Savings Bank, in view of non-payment of the
P17,000.00 covered by the promissory note, filed an
application for the extra-judicial foreclosure of the real
estate mortgage. Tolentino filed for injunction, specific
performance or rescission alleging that since Island
Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver
the P63,000.00 and if said balance cannot be delivered,
to rescind the real estate mortgage.
ISSUE 1: WON the action for specific performance may
prosper? NO, only rescission.
Island Savings Bank and Tolentino undertook reciprocal
obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the
other and when one party has performed or is ready and
willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to
perform incurs in delay (Art. 1169 of the Civil Code). The
promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to
furnish the P80,000.00 loan. The Bank's delay in
furnishing the entire loan lasted for a period of 3 years or
when the Monetary Board of the Central Bank issued
Resolution No. 967. Such resolution made it legally
impossible for Island Savings Bank to furnish the
P63,000.00 balance.
Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement,
Sulpicio M. Tolentino, under Article 1191 of the Civil
Code, may choose between specific performance or
rescission with damages in either case. But since Island
Savings Bank is now prohibited from doing further
business by Monetary Board Resolution No. 967, WE
cannot grant specific performance in favor of Sulpicio M,
Tolentino.
Rescission is the only alternative remedy left. WE rule,
however, that rescission is only for the P63,000.00
balance of the P80,000.00 loan, because the bank is in
default only insofar as such amount is concerned, as there
is no doubt that the bank failed to give the P63,000.00.
As far as the partial release of P17,000.00, which Sulpicio
M. Tolentino accepted and executed a promissory note to
cover it, the bank was deemed to have complied with its
reciprocal obligation to furnish a P17,000.00 loan. The
promissory note gave rise to Sulpicio M. Tolentino's
reciprocal obligation to pay the P17,000.00 loan when it
falls due. His failure to pay the overdue amortizations
under the promissory note made him a party in default,
hence not entitled to rescission (Article 1191 of the Civil
Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings
Bank.
RE: DAMAGES AND REAL ESTATE MORTGAGE
Since both parties were in default in the performance of
their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to
furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt
within 3 years as stipulated, they are both liable for
damages.
We hold, however, that the real estate mortgage of
Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P 17,000.00 debt. When there is partial failure
of consideration, the mortgage becomes unenforceable to
the extent of such failure.
****************************************************
********************
G. Modes of extinguishment of obligations
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
Page 59 of 112
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(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code. (1156a)
****************************************************
********************
SAURA V DBP
Nature: Action for damages
Ponente: Makalintal
Date: April 27, 1972
DOCTRINE: Mutual desistance or "mutuo disenso" is a
mode of extinguishing obligations. It is a concept that
derives from the principle that since mutual agreement
can create a contract, mutual disagreement by the parties
can cause its extinguishment.
FACTS:
Saura, Inc applied to the Rehabilitation Finance
Corporation (RFC), before its conversion into DBP, for an
industrial loan of P500,000.00, to be used as follows:
P250,000.00 for the construction of a factory building
(for the manufacture of jute sacks); P240,900.00 to pay
the balance of the purchase price of the jute mill
machinery and equipment; and P9,100.00 as additional
working capital. RFC passed Resolution No. 145
approving the loan application for P500,000.00, to be
secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and
equipment to be installed. In a meeting of the RFC Board
of Governors it was decided to reduce the loan from
P500,000.00 to P300,000.00. F.R. Halling, who had
signed the promissory note for China Engineers Ltd.
jointly and severally with the other RFC that his company
no longer to of the loan and therefore considered the
same as cancelled as far as it was concerned. On
December 17, 1954 RFC passed Resolution No. 9083,
restoring the loan to the original amount of
P500,000.00, "it appearing that China Engineers, Ltd. is
now willing to sign.
The action thus taken was communicated to Saura, Inc.
in a letter of RFC dated December 22, 1954, wherein it
was explained that the certification by the Department of
Agriculture and Natural Resources was required "as the
intention of the original approval (of the loan) is to
develop the manufacture of sacks on the basis of locally
available raw materials." Saura, Inc. does not deny that
the factory he was building in Davao was for the
manufacture of bags from local raw materials. The
explanatory note on page 1 of the same brochure states
that, the venture "is the first serious attempt in this
country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in
theIsland of Mindanao where the proposed jutemill is
located ..." This fact, according to defendant DBP, is what
moved RFC to approve the loan application in the first
place.
ISSUE: WON there was a perfected contract to speak of.
YES but there was mutual desistance.
We hold that there was indeed a perfected consensual
contract, as recognized in Article 1934 (An accepted
promise to deliver something, by way of commodatum or
simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted
until the delivery of the object of the contract.) There was
undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the
corresponding mortgage was executed and registered.
But this fact alone falls short of resolving the basic claim
that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan
application of Saura, Inc. on the assumption that the
factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute
about this. It was in line with such assumption that when
RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of
P500,000.00. it imposed two conditions, to wit: "(1) that
the raw materials needed by the borrower-corporation to
carry out its operation are available in the immediate
vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the
requirements of the factory." The imposition of those
conditions was by no means a deviation from the terms of
the agreement, but rather a step in its implementation.
Evidently Saura, Inc. realized that it could not meet the
conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be able
in sufficient quantity this year or probably next year," and
asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor."
This was a deviation from the terms laid down in
Resolution No. 145 and embodied in the mortgage
contract, implying as it did a diversion of part of the
proceeds of the loan to purposes other than those agreed
upon. When RFC turned down the request in its letter of
January 25, 1955 the negotiations which had been going
on for the implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position to
comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura,
Inc. asked that the mortgage be cancelled, which was
done on June 15, 1955. The action thus taken by both
parties was in the nature of mutual desistance — what
Manresa terms "mutuo disenso" 1 — which is a mode of
extinguishing obligations. It is a concept that derives
from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can
cause its extinguishment.
The subsequent conduct of Saura, Inc. confirms this
desistance. It did not protest against any alleged breach
of contract by RFC, or even point out that the latter's
stand was legally unjustified. Its request for cancellation
Page 60 of 112
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of the mortgage carried no reservation of whatever rights
it believed it might have against RFC for the latter's non-
compliance. In 1962 it even applied with DBP for another
loan to finance a rice and corn project, which application
was disapproved. It was only in 1964, nine years after the
loan agreement had been cancelled at its own request,
that Saura, Inc. brought this action for damages.All these
circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance
— and that on the initiative of the plaintiff-appellee itself.
****************************************************
********************
1. Payment or performance
Article 1232. Payment means not only the delivery of
money but also the performance, in any other manner, of
an obligation. (n)
Article 1233. A debt shall not be understood to have
been paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be. (1157)
Article 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee. (n)
Article 1235. When the obligee accepts the
performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the
obligation is deemed fully complied with. (n)
Article 1236. The creditor is not bound to accept
payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is
a stipulation to the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor. (1158a)
Article 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or
penalty. (1159a)
Article 1238. Payment made by a third person who does
not intend to be reimbursed by the debtor is deemed to
be a donation, which requires the debtor's consent. But
the payment is in any case valid as to the creditor who has
accepted it. (n)
Article 1239. In obligations to give, payment made by
one who does not have the free disposal of the thing due
and capacity to alienate it shall not be valid, without
prejudice to the provisions of article 1427 under the Title
on "Natural Obligations." (1160a)
Article 1240. Payment shall be made to the person in
whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive
it. (1162a)
Article 1241. Payment to a person who is incapacitated
to administer his property shall be valid if he has kept the
thing delivered, or insofar as the payment has been
beneficial to him.
Payment made to a third person shall also be valid insofar
as it has redounded to the benefit of the creditor. Such
benefit to the creditor need not be proved in the following
cases:
(1) If after the payment, the third person acquires
the creditor's rights;
(2) If the creditor ratifies the payment to the
third person;
(3) If by the creditor's conduct, the debtor has
been led to believe that the third person had
authority to receive the payment. (1163a)
Article 1242. Payment made in good faith to any person
in possession of the credit shall release the debtor. (1164)
Article 1243. Payment made to the creditor by the
debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
Article 1244. The debtor of a thing cannot compel the
creditor to receive a different one, although the latter may
be of the same value as, or more valuable than that which
is due.
In obligations to do or not to do, an act or forbearance
cannot be substituted by another act or forbearance
against the obligee's will. (1166a)
Article 1246. When the obligation consists in the
delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other circumstances
shall be taken into consideration. (1167a)
Article 1247. Unless it is otherwise stipulated, the
extrajudicial expenses required by the payment shall be
for the account of the debtor. With regard to judicial
costs, the Rules of Court shall govern. (1168a)
Article 1248. Unless there is an express stipulation to
that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor
may effect the payment of the former without waiting for
the liquidation of the latter. (1169a)
Article 1249. The payment of debts in money shall be
made in the currency stipulated, and if it is not possible
to deliver such currency, then in the currency which is
legal tender in the Philippines.
Page 61 of 112
1938
The delivery of promissory notes payable to order, or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed,
or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original
obligation shall be held in the abeyance. (1170)
Article 1250. In case an extraordinary inflation or
deflation of the currency stipulated should supervene, the
value of the currency at the time of the establishment of
the obligation shall be the basis of payment, unless there
is an agreement to the contrary. (n)
Article 1251. Payment shall be made in the place
designated in the obligation.
There being no express stipulation and if the undertaking
is to deliver a determinate thing, the payment shall be
made wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the
domicile of the debtor.
If the debtor changes his domicile in bad faith or after he
has incurred in delay, the additional expenses shall be
borne by him.
These provisions are without prejudice to venue under
the Rules of Court. (1171a)
Article 1302. It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the
effects of confusion as to the latter's share.
(1210a)
Republic Act No. 529, as repealed by RA 8183
June 16, 1950
AN ACT TO ASSURE UNIFORM VALUE TO
PHILIPPINE COIN
AND CURRENCY
Be it enacted by the Senate and House of Representatives
of the Philippines in Congress assembled;
WHEREAS, the value of Philippine coin and currency
affects public interest and is subject to regulation by the
Congress of the Philippines; and
WHEREAS, it has been disclosed that the provisions of
certain obligations contracted in the Philippines purport
to give the obligee the right to require payment in gold or
in a particular kind of coin or currency or in an amount
in money of the Philippines measured thereby, thus
obstructing the power of the Congress to regulate the
value of the money of the Philippines and contravening
the policy of the Congress, here declared, to maintain at
all times the equal and stable power of every peso coined
or issued by the Philippines, in the markets and in the
payment of debts; Now, therefore.
Section 1. Every provision contained in, or made with
respect to, any obligation which provision purports to
give the obligee the right to require payment in gold or in
a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against
public policy, and null, void and of no effect, and no such
provision shall be contained in, or made with respect to,
any obligation hereafter incurred. Every obligation
heretofore or hereafter incurred, whether or not any such
provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment
in any coin or currency which at the time of payment is
legal tender for public and private debts: Provided, That,
if the obligation was incurred prior to the enactment of
this Act and required payment in a particular kind of coin
or currency other than Philippine currency, it shall be
discharged in Philippine currency measured at the
prevailing rates of exchange at the time the obligation
was incurred, except in case of a loan made in a foreign
currency stipulated to be payable in the same currency in
which case the rate of exchange prevailing at the time of
the stipulated date of payment shall prevail. All coin and
currency, including Central Bank notes, heretofore or
hereafter issued and declared by the Government of the
Philippines shall be legal tender for all debts, public and
private.
Section 2. All acts and parts of acts inconsistent with
this Act are hereby repealed.
Section 3. This Act shall take effect upon its approval.
Approved: June 16, 1950
Republic Act No. 8183, Repealing RA 529
June 11, 1996
AN ACT REPEALING REPUBLIC ACT
NUMBERED FIVE HUNDRED TWENTY-NINE
AS AMENDED, ENTITLED
"AN ACT TO ASSURE THE UNIFORM VALUE OF
PHILIPPINE COIN AND CURRENCY."
Be it enacted by the Senate and House of Representatives
of the Philippines in Congress assembled;
Section 1. All monetary obligations shall be settled in
the Philippine currency which is legal tender in the
Philippines. However, the parties may agree that the
obligation or transaction shall be settled in any other
currency at the time of payment.
Page 62 of 112
1938
Sec. 2. Republic Act Numbered Five Hundred Twenty-
Nine (R.A. No. 529), as amended entitled "An Act to
Assume the Uniform Value of Philippine Coin and
Currency," is hereby repealed.
Sec. 3. This Act shall take effect fifteen (15) days after its
publication in the Official Gazette or in two (2) national
newspapers of general circulation. The Bangko Sentral ng
Pilipinas and the Department of Finance shall conduct an
intensive information campaign on the effect of this Act.
Approved: June 11, 1996
PD 72
Section 31. Section fifty-four of the same Act is hereby
amended to read as follows: "Sec. 54. Legal tender
power. All notes and coins issued by the Central Bank
shall fully guaranteed by the Government of the
Republic of the Philippines and shall be legal tender in
the Philippines for all debts, both public and private:
Provided, however, That coins shall be legal tender in
amounts not exceeding fifty pesos for denominations
from ten centavos to one peso, and in amounts not
exceeding twenty pesos for denominations of five
centavos or less."
PD 72 Section 32. Section sixty-three of the same Act is
hereby amended to read as follows: "Sec. 63. Legal
character. Checks representing deposit money do not
have legal tender power and their acceptance in the
payment of debts, both public and private, is at the
option of the creditor: Provided, however, That a check
which has been cleared and credited to the account of the
creditor shall be equivalent to a delivery to the creditor
of cash in an amount equal to the amount credited to his
account."
LANDBANK V ONG
Nature: Action for recovery of sum of money with
damages
Ponente: Velasco
Date: November 24, 2010
DOCTRINE: The second paragraph of Art. 1236 does
not apply to a third person who does not have an interest
in the fulfillment of the obligation.
FACTS:
Sps Johnson and Evangeline Sy secured a loan from Land
Bank in the amount of PhP 16 million. The loan was
secured by three 3 residential lots, 5 cargo trucks, and a
warehouse. Under the loan agreement, PhP 6 million of
the loan would be short-termwhile the balance of PhP 10
million would be payable in 7 years. Spouses Sy found
they could no longer pay their loan, they sold three 3 of
their mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangeline’s mother, under a Deed
of Sale with Assumption of Mortgage. Evangeline’s
father, petitioner Alfredo Ong, later went to Land Bank to
inform it about the sale and assumption of mortgage.
They were also told that Alfredo should pay part of the
principal which was computed at PhP 750,000 so Alfredo
issued a check for PhP 750,000 and personally gave it to
Atty. Hingco. Alfredo later found out that his application
for assumption of mortgage was not approved by Land
Bank after a credit investigation. Land Bank foreclosed
the mortgage of the Spouses Sy after several months.
Alfredo only learned of the foreclosure when he saw the
subject mortgage properties included in a Notice of
Foreclosure of Mortgage and Auction Sale at the RTC.
Issue: WON Art. 1236 of the Civil Code is applicable.
Partly
Land Bank contends that Art. 1236 of the Civil Code backs
their claim that Alfredo should have sought recourse
against the Spouses Sy instead of Land Bank. Art. 1236
provides:
The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.1avvphi1
We agree with Land Bank on this point as to the first part
of paragraph 1 of Art. 1236. Land Bank was not bound to
accept Alfredo’s payment, since as far as the former was
concerned, he did not have an interest in the payment of
the loan of the Spouses Sy. However, in the context of the
second part of said paragraph, Alfredo was not making
payment to fulfill the obligation of the Spouses Sy.
Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of
Mortgage would be titled in his name. It is clear from the
records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be
approved. He was informed that the certificate of title
would be transferred accordingly. He, thus, made
payment not as a debtor but as a prospective mortgagor.
But the trial court stated that the contract was not
perfected or consummated because of the adverse finding
in the credit investigation which led to the disapproval of
the proposed assumption. Alfredo, as a third person, did
not, therefore, have an interest in the fulfillment of the
obligation of the Spouses Sy, since his interest hinged on
Land Bank’s approval of his application, which was
denied. The circumstances of the instant case show that
the second paragraph of Art. 1236 does not apply. As
Alfredo made the payment for his own interest and not
on behalf of the Spouses Sy, recourse is not against the
latter. And as Alfredo was not paying for another, he
cannot demand from the debtors, the Spouses Sy, what
he has paid.
Page 63 of 112
1938
ISSUE 2: WON there was a novation. NO
We do not agree with the CA in holding that there was a
novation in the contract between the parties. Not all the
elements of novation were present. Novation must be
expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the absence
of any express disclosure or circumstances with which to
deduce a clear and unequivocal intent by the parties to
novate the old agreement.15 Land Bank is thus correct
when it argues that there was no novation in the
following:
[W]hether or not Alfredo Ong has an interest in the
obligation and payment was made with the knowledge or
consent of Spouses Sy, he may still pay the obligation for
the reason that even before he paid the amount of
P750,000.00 on January 31, 1997, the substitution of
debtors was already perfected by and between Spouses Sy
and Spouses Ong as evidenced by a Deed of Sale with
Assumption of Mortgage executed by them on December
9, 1996. And since the substitution of debtors was made
without the consent of Land Bank – a requirement which
is indispensable in order to effect a novation of the
obligation, it is therefore not bound to recognize the
substitution of debtors. Land Bank did not intervene in
the contract between Spouses Sy and Spouses Ong and
did not expressly give its consent to this substitution.
______________________________________
_______________
JM TUASON V JAVIER
action to the Court of First Instance of Rizal for the
rescission of the contract. The CFI rendered a decision in
favor of respondent in applying Article 1592 of the New
Civil Code. Hence, petitioner made an appeal to the
Supreme Court alleging that since Article 1592 of the New
Civil applies only to contracts of sale and not in contracts
to sell.
ISSUE: Did the CFI erroneously apply Article 1592 of the
New Civil Code?
Yes. Regardless, however, of the propriety of applying
Article 1592, petitioner has not been denied substantial
justice under Article 1234 of the New Civil Code. In this
connection, respondent religiously satisfied the monthly
installments for almost eight (8) years or up to January
5, 1962. It has been shown that respondent had already
paid Php4,134.08 as of January 5, 1962 which is beyond
the stipulated amount of Php3,691.20. Also, respondent
has offered to pay all installments overdue including the
stipulated interest, attorney’s fees and the costs which the
CFI accordingly sentenced respondent to pay such
installment, interest, fees and costs. Thus, petitioner will
be able recover everything that was due thereto. Under
these circumstances, the SC feel that, in the interest of
justice and equity, the decision appealed from may be
upheld upon the authority of Article 1234 of the New Civil
Code.
NOTE: I couldn’t find a copy online of this case. I got this
from other online digests.

DOCTRINE: When a party religiously satisfied the

monthly installments and already paid beyong the
stipulated amount, he may be able to recover everything
due thereto in the interest of justice and equity in accord
with Art. 1234.
FACTS:
On September 7, 1954, petitioner J.M. Tuason & Co., Inc.
entered a contract to sell with respondent Ligaya Javier a
parcel of land known as Lot No. 28, Block No. 356, PSD
30328, of the Sta. Mesa Heights Subdivision for the sum
of Php3,691.20 with 10% interest per annum; Php396.12
will be payable upon execution of the contract, and an
installment of Php43.92 monthly for a period of ten (10)
years. It was further stipulated in the contract,
particularly the sixth paragraph, that upon failure of
respondent to pay the monthly installment, she is given a
one month grace period to pay such installment together
with the monthly installment falling on the said grace
period. Furthermore, failure to pay both monthly
installments, respondent will pay an additional 10%
interest. And after 90 days from the end of the grace
period, petitioner can rescind the contract, the payments
made by respondent will be considered as rentals. Upon
the execution of the contract, respondent religiously paid
the monthly installment until January 5, 1962.
Respondent, however, was unable to the pay the monthly
installments within the grace period which petitioner,
subsequently, sent a letter to respondent on May 22, 1964
that the contract has been rescinded and asked the
respondent to vacate the said land. So, upon failure of
respondent to vacate the said land, petitioner filed an
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LEGARDA V SALDANA
Nature: Complaint for delivery of land
Ponente: Teehankee
Date: January 28, 1974
DOCTRINE: A defaulting party may be
granted lesser benefits, since no rescission of
contractmay be permitted, for, according to Art. 1234 of
said Code: 'If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
FACTS:
The action originated as a complaint for delivery of two
parcels of land in Sampaloc, Manila and for execution of
the corresponding deed of conveyance after payment of
the balance still due on their purchase price. Private
respondent entered into two written contracts with
petitioner subdivision owner, whereby the latter agreed
to sell to him 2 lots for the sum of P1,500.00 per lot,
payable over the span of ten years divided into 120 equal
monthly installments of P19.83. Subsequently, Legarda
Hermanos partitioned the subdivision among the
brothers and sisters, and the two lots were among those
allotted to co-petitioner Jose Legarda. Respondent
faithfully paid for eight continuous years about 95 (of the
stipulated 120) monthly installments totalling P3,582.06
up to the month of February, 1956. After that, respondent
did not make further payments, leaving a balance of
P1,317.72. Almost five years later, respondent wrote
petitioners stating that his desire to build a house on the
lots was prevented by their failure to introduce
improvements on the subdivision as "there is still no road
to these lots," and requesting information of the amount
owing to update his account as "I intend to continue
paying the balance due on said lots."
Petitioners replied that cancellation was in order
ISSUE: WON defendants be compelled to allow plaintiff
to complete payment of the purchase price of the two lots
in dispute and to execute the final deeds of conveyance.
NO. However, 1 lot should be given.
The Court finds that the appellate court's judgment
finding that of the total sum of P3,582.06 already paid by
respondent (which was more than the value of two lots),
the sum applied by petitioners to the principal alone in
the amount of P1,682.28 was already more than the value
of one lot of P1,500.00 and hence one of the two lots as
chosen by respondent would be considered as fully paid,
is fair and just and in accordance with law and equity. The
monthly payments for eight years made by respondent
were applied to his account without specifying or
distinguishing between the two lots subject of the two
agreements under petitioners' own statement of account.
Even considering respondent as having defaulted after
February 1956, he had as of the already paid by way
of principal (P1,682.28) more than the full value
of one lot (P1,500.00).
The Court's doctrine in J.M. Tuason & Co. Inc. vs.
Javier is applicable, with the respondent at bar being
granted lesser benefits, since no rescission of contract
was therein permitted. There, the Court held that
"Regardless, however, of the propriety of applying said
Art. 1592 thereto, We find that plaintiff herein has not
been denied substantial justice, for, according to Art.
1234 of said Code: 'If the obligation has
been substantially performed in good faith, the obligor
may recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee,'" and "that in the interest of justice and equity,
the decision appealed from may be upheld upon the
authority of Article 1234 of the Civil Code."
________________________________________________________
____________________
AZCONA V JAMANDRE
Nature: Action for damages
Ponente: Cruz
Date: June 30, 1987
DOCTRINE: The applicable provision is Article 1235 of
the Civil Code, declaring that: Art. 1235. When the obligee
accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
FACTS:
Through a contract, Guillermo Azcona leased 80 hectares
of his 150-hectarepro indiviso share in Hacienda Sta. Fe
in Escalante, Negros Occidental, to Cirilo Jamandre. The
agreed yearly rental was P7,200.00. The lease was for
three agricultural years beginning 1960, extendible at the
lessee's option to two more agricultural years. The first
annual rental was due but because the petitioner did not
deliver possession, he "waived" payment. The respondent
actually entered the premises. Petitioner notified the
respondent that the contract of lease was deemed
cancelled, terminated pursuant to its paragraph 8, for
violation of the conditions specified in the said
agreement. Earlier, in fact, the respondent had been
ousted from the possession of 60 hectares of the leased
premises.
ISSUE 1: WON the lack of the parcelary plan nullified
the contract. NO
According to the petitioners, the parcelary plan was never
agreed upon or annexed to the contract, which thereby
became null and void under Article 1318 of the Civil Code
for lack of a subject matter. The correct view, as we see it,
is that there was an agreed subject-matter, to wit, the 80
hectares of the petitioner's share in the Sta. Fe hacienda,
although it was not expressly defined because the
parcelary plan was not annexed and never approved by
the parties. Despite this lack, however, there was an
ascertainable object because the leased premises were
sufficiently Identified and delineated as the petitioner
admitted in his amended answer and in his direct
testimony. Moreover, it appears that the failure to attach
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the parcelary plan to the contract is imputable to the
petitioner himself because it was he who was supposed to
cause the preparation of the said plan. The Identification
of the 80 hectares being leased rendered the parcelary
plan unnecessary, and its absence did not nullify the
agreement.
ISSUE 2: WON respondent has fully paid the rentals in
the amount of 7,200 (not 7,000). YES
When the parties agreed on the lease for the succeeding
agricultural year 1961-62, the respondent paying and the
petitioner receiving therefrom the sum of
P7,000.00…Citing the stipulation in the lease contract
for an annual rental of P7,200.00, the petitioner now
submits that there was default in the payment thereof by
the respondent because he was P200.00 short of such
rental. That deficiency never having been repaired, the
petitioner concludes, the contract should be deemed
cancelled in accordance with its paragraph 8.
Court holds that the amount of P7,000.00 paid to by the
respondent and received by the petitioner represented
payment in full of the rental for the agricultural year 1961-
62. The language is clear enough: "The amount of
P7,000.00, Philippine Currency, as payment for the
rental corresponding to crop year 1961-62 ... to the rental
due on or before January 30, 1961, as per contract." The
conclusion should be equally clear. The words "as per
contract" are especially significant as they suggest that
the parties were aware of the provisions of the agreement,
which was described in detail elsewhere in the receipt.
The rental stipulated therein was P7,200.00. The
payment being acknowledged in the receipt was
P7,000.00 only. Yet no mention was made in the receipt
of the discrepancy and, on the contrary, the payment was
acknowledged "as per contract." We read this as meaning
that the provisions of the contract were being maintained
and respected except only for the reduction of the agreed
rental.
The respondent court held that the amount of P200.00
had been condoned, but we do not think so. The
petitioner is correct in arguing that the requisites of
condonation under Article 1270 of the Civil Code are not
present. What we see here instead is a mere reduction of
the stipulated rental in consideration of the withdrawal
from the leased premises of the 16 hectares where the
petitioner intended to graze his cattle.
It seems to us that this meaning was adequately conveyed
in the acknowledgment made by the petitioner that this
was "payment for the rental corresponding to crop year
1961-62" and "corresponds to the rentals due on or before
January 30, 1961, as per contract.
The applicable provision is Article 1235 of the Civil Code,
declaring that: Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the
obligation is deemed fully complied with.
______________________________________
_______________
ARAÑAS VS. TUTAAN
FACTS:
On May 3, 1971 the lower court declared thatPetitioner
Luisa Quijencio (and by her spouse Jose Arañas)was the
owner of 400 shares including the stock dividendsthat
accrued to said shares, of respondent Universal Textile
Mills, Inc. (UTEX) as defendant and Gene Manueland B.
R. Castañeda as co-defendants, and subsequently
ordered UTEX to cancel said certificates and issue new
ones in the name of Plaintiff and to deliver all
dividendsappertaining to the same, whether in cash or in
stocks.UTEX filed a motion for clarification whether
thephrase “to deliver to her all dividends appertaining to
thesame, whether in cash or in stocks” meant dividends
properly pertaining to plaintiffs after the
court’sdeclaration of plaintiff ownership of said 400
shares of stock. Defendant UTEX has always maintained
it would rightfully abide by whatever decision may be
rendered since such would be the logical consequence
after the ruling in respect to the rightful ownership of said
shares of stock. The motion was granted which ruled
against UTEX, ordering it to pay plaintiff the cash
dividends, which accrued to the stocks in question after
rendition of its current decision excluding cash dividends
already paid to Gene Manuel and B. R. Castañeda which
accrued before its decision. UTEX alleged that the cash
dividends had already been paid thereby absolving it
from payment thereof.
ISSUE: Was the contention of UTEX, alleging that the
cash dividends of stock had already been paid and
thereby absolving it from any further payment, valid?
RULING: No. The final and executory judgment against
UTEX declared petitioners as the owners of the
questioned UTEX shares of stock against its co-
defendants. It was further made clear in the motion for
clarification that all dividends accruing to the said shares
after the rendition of the decision of Aug. 7, 1971
rightfully belonged to petitioners. If UTEX nevertheless
chose to pay the wrong parties, notwithstanding its full
knowledge and understanding of the final judgment, it
was still liable to pay the petitioners as the lawful declared
owners of the questions shares of stocks. The burden of
recovering the supposed payment of the cash dividends
made by UTEX to the wrong parties Castañeda and
Manuel falls upon itself by its own action and cannot be
passed by it to the petitioner as the innocent parties. It is
elementary that payment made by a judgment debtor to
a wrong party cannot extinguish the judgment obligation
of such debtor to its creditor.
KALALO vs. LUZ
NATURE: Collection of Sum of Money and Damages
Zaldivar, J.
July 31, 1970
Page 66 of 112
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DOCTRINE: If an obligation was incurred prior to the
enactment of the Act and require payment in a
particular kind of coin or currency other than the
Philippine currency the same shall be discharged in
Philippine currency measured at the prevailing
Rate of exchange at the time the obligation was incurred.
FACTS:
PROVISION/S: RA 529
- On November 17, 1959, appellee Kalalo, a licensed civil
engineer doing business under the firm name of O. A.
Kalalo and Associates, entered into an agreement with
appellant Luz, a licensed architect, doing business under
the firm name of AJ. Luz and Associates, whereby the
former was to render engineering design services to the
latter for fees, as stipulated in the agreement. The
services included design computation and sketches,
contract drawing and technical specifications of all
engineering phases of the project designed by O.A. Kalalo
and Associates, bill of quantities and cost estimate, and
consultation and advice during construction relative to
the work. Pursuant to said agreement, appellee rendered
engineering services to appellant in the following
projects:(a)Fil-American Life Insurance Building at
Legaspi City;(b)Fil-American Life Insurance Building at
Iloilo City;(c)General Milling Corporation Flour Mill at
Opon, Cebu;(d)Menzi Building at Ayala Blvd., Makati,
Rizal;(e)International Rice Research Institute, Research
Center, Los Baños, Laguna;(f)Aurelia's Building at
Mabina, Ermita, Manila;(g)Far East Bank's Office at Fil-
American Life Insurance Building at Isaac Peral,Ernita,
Manila;(h)Arthur Young's residence at Forbes Park,
Makati, Rizal;(i) L & S Building at Dewey Blvd., Manila;
and (j)Stanvac Refinery Service Building at Limay,
Bataan.
- On December 11, 1961, appellee sent to appellant a
statement of account to which was attached an itemized
statement of defendant-appellant's account, according to
which the total engineering fee asked by appellee for
services rendered amounted to P116,565.00 from which
sum was to be deducted the previous payments made in
the amount of P57,000.00, thus leaving a balance due in
the amount of P59,565.00. On May 18, 1962 appellant
sent appellee a resume of fees due to the latter. Said fees,
according to appellant, amounted to P10,861.08 instead
of the amount claimed by the appellee. On June 14, 1962
appellant sent appellee a check for said amount, which
appellee refused to accept as full paymentof the balance
of the fees due him.
- On August 10, 1962, appellee filed a complaint against
appellant, containing four causes of action. In the first
cause of action, appellee alleged that for services
rendered in connection with the different projects therein
mentioned there was due him fees in sums consisting of
$28,000 (U.S.) and P100,204.46, excluding interests, of
which sums only P69,323.21 had been paid, thus leaving
unpaid the $28,000.00 and the balance of P30,881.25. In
the second cause of action, appellee claimedP17,000.00
as consequential and moral damages; in the third cause
of action he claimed P55,000.00 as moral damages,
attorney's fees and expenses of litigation; and in the
fourth cause of action he claimed P25,000.00 as actual
damages, and also for attorney's fees and expenses of
litigation.
- In his answer, appellant admitted that appellee
rendered engineering services, as alleged in the first
cause of action, but averred that some of appellee's
services were not in accordance with the agreement and
appellee's claims were not justified by the services
actually rendered, and that the aggregate amount actually
due to appellee was only P80,336.29, of which P69,475.21
had already been paid, thus leaving a balance of only
P10,861.08. Appellant denied liability for any damage
claimed by appellee to have suffered, as alleged in the
second, third and fourth causes of action. Appellant set
up affirmative and special defenses, alleging that appellee
had no cause of action, that appellee was in estoppel
because of certain acts, representations, admissions
and/or silence, which led appellant to believe certain
facts to exist and to act upon said facts, that appellee's
claim regarding the Menzi project was premature
because appellant had not yet been paid for said project,
and that appellee's services were not complete or were
performed in violation of the agreement and/or
otherwise unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for such
amount as the court may deem fair to assess, and for
attorney's fees of P10,000.00.- Inasmuch as the
pleadings showed that the appellee's right to certain fees
for services rendered was not denied, the only question
being the assessment of the proper fees and the balance
due to appellee after deducting the admitted payments
made by appellant, the trial court, upon agreement of the
parties, authorized the case to be heard before a
Commissioner. The Commissioner rendered a report
which, in resume, states that the amount due to appellee
was $28,000.00 (U.S.) as his fee in the International
Research Institute Project which was 20% of
the$140,000.00 that was paid to appellant, and
P51,539.91 for the other projects, less the sum of
P69,475.46 which was already paid by the appellant. The
trial court ruled in favor of Kalalo by ordering Luz to pay
him the sum of P51,539.91 and$28,000.00, the latter to
be converted into the Philippine currency on the basis
of the current rate of exchange at the time of the payment
of this judgment, as certified to by the Central Bank of the
Philippines.
ISSUE: WON payment of the amount due to the appellee
in dollars is legally permissible, and if not, at what rate of
exchange it should be paid in pesos
RULING:
NO. Payment in dollars is prohibited by Republic
Act (RA) No. 529 which provides that if the
obligation was incurred prior to the enactment of
the Act and require payment in a particular kind
of coin or currency other than the Philippine
currency the same shall be discharged in
Philippine currency measured at the prevailing
Rate of exchange at the time the obligation was
incurred. RA No. 529 was enacted on June 16, 1950. In
the case now before Us the obligation of appellant to pay
appellee the 20% of $140,000.00, or the sum of
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$28,000.00, accrued on August 25, 1961, or after the
enactment of RA No. 529. It follows that the provision of
RA No. 529 which requires payment at the prevailing rate
of exchange when the obligation was incurred cannot be
applied. RA No. 529 does not provide for the rate of
exchange for the payment of obligation incurred after the
enactment of said Act. The logical conclusion, therefore,
is that the rate of exchange should be that prevailing at
the time of payment. This view finds support in the ruling
of this Court in the case of Engel vs. Velasco & Co. where
this Court held that even if the obligation assumed by the
defendant was to pay the plaintiff a sum of money
expressed in American currency, the indemnity to be
allowed should be expressed in Philippine currency at the
rate of exchange at the time of judgment rather than at
the rate of exchange prevailing on the date of defendant's
breach. Therefore, appellant should pay the appellee the
equivalent in pesos of the $28,000.00 at the free market
rate of exchange at the time of payment. The trial court
did not err when it held that herein appellant should pay
appellee$28,000.00 to be converted into the Philippine
currency on the basis of the current rate of exchange at
the time of payment of this judgment, as certified to by
the Central Bank of the Philippines.
______________________________________
_______________
PONCE vs. CA
NATURE: Recovery of sum of money
Melencio Herrera, J.
May 31, 1979
DOCTRINE: While an agreement to pay in dollars is
declared as null and void and of no effect, what the law
specifically prohibits is payment in currency other than
legal tender.
FACTS:
PROVISION/S: RA 529 (cited below)
June 3, 1969, private respondent Jesusa B. Afable,
together with Felisa L. Mendoza and Ma. Aurora C. Diño
executed a promissory note in favor of petitioner Nelia G.
Ponce in the sum of P814,868.42, Philippine Currency,
payable, without interest, on or before July 31, 1969. It
was further provided therein that should the
indebtedness be not paid at maturity, it shall draw
interest at 12% per annum, without demand; that should
it be necessary to bring suit to enforce pay ment of the
note, the debtors shall pay a sum equivalent to 10% of the
total amount due for attorney's fees; and, in the event of
failure to pay the indebtedness plus interest in
accordance with its terms, the debtors shall execute a first
mortgage in favor of the creditor over their properties or
of the Carmen Planas Memorial, Inc
For failure to comply w/Ø, a Complaint was filed by
PONCE at CFI-Manila for the recovery of the principal
sum of P814,868.42, plus interest and damages
Trial Court rendered judgment ordering respondent
Afable and her co-debtors, Felisa L. Mendoza and Ma.
Aurora C. Diño , to pay petitioners, jointly and severally,
the sum of P814,868.42, plus 12% interest per annum
from July 31, 1969 until full payment, and a sum
equivalent to 10% of the total amount due as attorney's
fees and costs
From said Decision, by respondent Afable appealed to the
Court of Appeals. She argued that the contract under
consideration involved the payment of US dollars and
was, therefore, illegal; and that under the in pari delicto
rule, since both parties are guilty of violating the law,
neither one can recover. It is to be noted that said defense
was not raised in her Ans
CA affirmed TC. MR denied. CA’s holding: the agreement
is null and void and of no effect under Republic Act No.
529. Under the doctrine of pari delicto, no recovery can
be made in favor of the plaintiffs for being themselves
guilty of violating the law
ISSUE: WON the subject matter of the transaction is
illegal and against public policy, thus, doctrine of pari
delicto applies.
RULING: NO. It is to be noted that while an
agreement to pay in dollars is declared as null
and void and of no effect, what the law
specifically prohibits is payment in currency
other than legal tender. It does not defeat a creditor's
claim for payment, as it specifically provides that "every
other domestic obligation ... whether or not any such
provision as to payment is contained therein or made
with respect thereto, shall be discharged upon payment
in any coin or currency which at the time of payment is
legal tender for public and private debts." A contrary rule
would allow a Section 1 of Republic Act No. 529,
which was enacted on June 16, 1950:
Section 1. Every provision contained in, or made with
respect to, any domestic obligation to wit, any obligation
contracted in the Philippines which provision
purports to give the obligee the right to require
payment in gold or in a particular kind of coin
or currency other than Philippine currency or in
an amount of money of the Philippines
measured thereby, be as it is hereby declared
against public policy, and null and void and of
no effect and no such provision shall be
contained in, or made with respect to, any
obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions were the
funds involved are the proceeds of loans or investments
made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their
agencies and instrumentalities, and international
financial and banking institutions so long as the funds are
Identifiable, as having emanated from the sources
enumerated above; (b) transactions affecting high
priority economic projects for agricultural industrial and
power development as may be determined by the
National Economic Council which are financed by or
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through foreign funds; (c) forward exchange transactions
entered into between banks or between banks and
individuals or juridical persons; (d) import-export and
other international banking financial investment and
industrial transactions. With the exception of the cases
enumerated in items (a) (b), (c) and (d) in the foregoing
provision, in, which cases the terms of the parties'
agreement shall apply, every other domestic
obligation heretofore or hereafter incurred
whether or not any such provision as to
payment is contained therein or made with-
respect thereto, shall be discharged upon
payment in any coin or currency which at the
time of payment is legal tender for public and
private debts: Provided, That if the obligation
was incurred prior to the enactment of this Act
and required payment in a particular kind of coin
or currency other than Philippine currency, it
shall be discharge in Philippine currency
measured at the prevailing rates of exchange at
the time the obligation was incurred, except in
case of a loan made in foreign currency
stipulated to be payable in the currency in which
case the rate of exchange prevailing at the time of
the stipulated date of payment shall prevail All
coin and currency, including Central Bank notes,
heretofore and hereafter issued and d by the
Government of the Philippines shall be legal
tender for all debts, public and private. (As
amended by RA 4100, Section 1, approved June
19, 1964)
As the Court of Appeals itself found, the promissory note
in question provided on its face for payment of the
obligation in Philippine currency, i.e., P814,868.42. So
that, while the agreement between the parties originally
involved a dollar transaction and that petitioners
expected to be paid in the amount of US$194,016.29,
petitioners are not now insisting on their agreement with
respondent Afable for the payment of the obligation in
dollars. On the contrary, they are suing on the basis of the
promissory note whereby the parties have already agreed
to convert the dollar loan into Philippine currency at the
rate of P4.20 to $1.00. It may likewise be pointed out that
the Promissory Note contains no provision "giving the
obligee the right to require payment in a particular kind
of currency other than Philippine currency, " which is
what is specifically prohibited by RA No. 529.
At any rate, even if we were to disregard the promissory
note providing for the payment of the obligation in
Philippine currency and consider that the intention of the
parties was really to provide for payment of the obligation
would be made in dollars, petitioners can still recover the
amount of US$194,016.29, which respondent Afable and
her co-debtors do not deny having received, in its peso
equivalent. As held in Eastboard Navigation, Ltd. vs.
Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta
vs. National Rice & Corn Corp., if there is any agreement
to pay an obligation in a currency other than Philippine
legal tender, the same is nun and void as contrary to
public policy, pursuant to Republic Act No. 529, and the
most that could be demanded is to pay said obligation in
Philippine currency. In other words, what is prohibited
by RA No. 529 is the payment of an obligation in dollars,
meaning that a creditor cannot oblige the debtor to pay
him in dollars, even if the loan were given in said
currency. In such a case, the indemnity to be allowed
should be expressed in Philippine currency on the basis
of the current rate of exchange at the time of payment.
______________________________________
_______________
NEW PACIFIC TIMBER vs. SENERIS
NATURE: Collection of Money
Concepcion, J.
December 19, 1980
DOCTRINE: It is well known & accepted practice in the
business sector that a Cashier's check is deemed as cash
FACTS:
PROVISION/S: Sec. 63 CB Act
Petitioner, New Pacific Timber & Supply Co. Inc. was the
defendant in a complaint for collection of money filed by
private respondent, Ricardo A. Tong. In this complaint,
respondent Judge rendered a compromise judgment
based on the amicable settlement entered by the parties
wherein petitioner will pay to private respondent
P54,500.00 at 6% interest per annum and P6,000.00 as
attorney’s fee of which P5,000.00 has been paid. Upon
failure of the petitioner to pay the judgment obligation, a
writ of execution worth P63,130.00 was issued levied on
the personal properties of the petitioner. Before the date
of the auction sale, petitioner deposited with the Clerk of
Court in his capacity as the Ex-Officio Sheriff P50,000.00
in Cashier’s Check of the Equitable Banking Corporation
and P13,130.00 in cash for a total of
P63,130.00. Private respondent refused to accept the
check and the cash and requested for the auction sale to
proceed. The properties were sold for P50,000.00 to the
highest bidder with a deficiency of P13,130.00. Petitioner
subsequently filed an ex-parte motion for issuance of
certificate of satisfaction of judgment which was denied
by the respondent Judge. Hence this present petition,
alleging that the respondent Judge capriciously and
whimsically abused his discretion in not granting the
requested motion for the reason that the judgment
obligation was fully satisfied before the auction sale with
the deposit made by the petitioner to the Ex-Officio
Sheriff. In upholding the refusal of the private
respondent
to accept the check, the respondent Judge cited Article
1249 of the New Civil Code which provides that payments
of debts shall be made in the currency which is the legal
tender of the Philippines and Section 63 of the Central
Bank Act which provides that checks representing
deposit money do not have legal tender power. In
sustaining the contention of the private respondent to
refuse the acceptance of the cash, the respondent Judge
cited Article 1248 of the New Civil Code which provides
that creditor cannot be compelled to accept partial
payment unless there is an express stipulation to the
contrary.
Page 69 of 112
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ISSUE: Can the check be considered a valid payment of
the judgment obligation?
RULING: YES. It is to be emphasized that the check
deposited by the petitioner in the amount of P50,000 is not
an ordinary check but a Cashier's check of the Equitable
Banking Corp., a bank of good standing & reputation. It
was even a certified crossed check. It is well known &
accepted practice in the business sector that a Cashier's
check is deemed as cash
Moreover, since the said check has been certified by the
drawee bank, by the certification, the funds represented by
the check are transferred fr. the credit of the maker to that
of the payee or holder, & for all intents & purposes, the
latter becomes the depositor of the drawee bank, w/ rights
& duties of one in such situation. Where a check is
certified by the bank on w/c it is drawn, the
certification is equivalent to acceptance. Said
certification "implies that the check is drawn upon
sufficient funds in the hands of the drawee, that
they have been set apart fort its satisfaction, & that
they shall be so applied whenever the check is
presented for payment. It is an understanding that the
check is good then, & shall continue to be good, & this
agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of
the depositor, or any other obligation it can assume. The
object of certifying a check, as regards both parties, is to
enable the holder to use it as money." When the holder
procures the check to be certified, "the check operates as
an assignment of a part of the funds to the creditors."
Hence, the exception to the rule enunciated under Sec. 63
of the CB Act shall apply in this case:
Sec. 63. Legal Character – Checks representing deposit
do not have legal tender power and their acceptance in
payment of debts, both pub & priv, is at the option of the
Cr. Provided, however that a check w/c has been
cleared & credited to the account of the creditor
shall be equivalent to a delivery to the creditor in
cash in an amount equal to the amount credited to
his account. The Cashier’s Check and the cash are valid
payment of the obligation of the petitioner. The private
respondent has no valid reason to refuse the acceptance
of the check and cash as full payment of the obligation
ROMAN CATHOLIC BISHOP OF MALOLOS,
INC. vs. IAC
NATURE: Specific performance with damages
SARMIENTO, J.
Nov. 16, 1990
DOCTRINE: Tender of payment involves a positive and
unconditional act by the obligor of offering legal tender
currency as payment to the obligee for the former’s
obligation and demanding that the latter accept the same.
FACTS:
PROVISION/S: NCC 1249
The property subject matter of the contract consists of a
parcel of land in the Province of Bulacan, issued and
registered in the name of the petitioner which it sold to
the private respondent.
On July 7, 1971, the subject contract over the land in
question was executed between the petitioner as vendor
and the private respondent through its then president,
Mr. Carlos F. Robes, as vendee, stipulating for a
downpayment of P23,930.00 and the balance of
P100,000.00 plus 12% interest per annum to be paid
within four (4) years from execution of the contract. The
contract likewise provides for cancellation, forfeiture of
previous payments, and reconveyance of the land in
question in case the private respondent would fail to
complete payment within the said period.
After the expiration of the stipulated period for payment,
Atty. Adalia Francisco (president of the company who
bought land) wrote the petitioner a formal request that
her company be allowed to pay the principal amount of
P100,000.00 in three (3) equal installments of six (6)
months each with the first installment and the accrued
interest of P24,000.00 to be paid immediately upon
approval of the said request.
The petitioner formally denied the said request of the
private respondent, but granted the latter a grace period
of five (5) days from the receipt of the denial to pay the
total balance of P124,000.00. The private respondent
wrote the petitioner requesting an extension of 30 days
from said date to fully settle its account but this was still
denied.
Consequently, Atty. Francisco wrote a letter directly
addressed to the petitioner, protesting the alleged refusal
of the latter to accept tender of payment made by the
former on the last day of the grace period. But the private
respondent demanded the execution of a deed of absolute
sale over the land in question
Atty. Fernandez, wrote a reply to the private respondent
stating the refusal of his client to execute the deed of
absolute sale so the petitioner cancelled the contract and
considered all previous payments forfeited and the land
as ipso facto reconveyed.
From a perusal of the foregoing facts, SC found that both
the contending parties have conflicting versions on the
main question of tender of payment.
According to the trial court:
. . . What made Atty. Francisco suddenly decide to pay
plaintiff’s obligation on tender her payment, when her
request to extend the grace period has not yet been acted
upon? Atty. Francisco’s claim that she made a tender of
payment is not worthy of credence.
The trial court considered as fatal the failure of Atty.
Francisco to present in court the certified personal check
allegedly tendered as payment or, at least, its xerox copy,
or even bank records thereof.
Not satisfied with the said decision, the private
respondent appealed to the IAC. The IAC reversed the
Page 70 of 112
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decision of the trial court. The IAC, in finding that the
private respondent had sufficient available funds, ipso
facto concluded that the latter had tendered payment.
ISSUE1: WON a finding that private respondent had
sufficient available funds on or before the grace period for
the payment of its obligation proof that it (private
respondent) did a tender of payment for its said
obligation within the said period?
RULING1: No. Tender of payment involves a
positive and unconditional act by the obligor of
offering legal tender currency as payment to the
obligee for the former’s obligation and
demanding that the latter accept the same. Thus,
tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most,
sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the
bargain. But whether or not the obligor avails himself of
such funds to settle his outstanding account remains to
be proven by independent and credible evidence. Tender
of payment presupposes not only that the obligor is able,
ready, and willing, but more so, in the act of performing
his obligation. Ab posse ad actu non vale illatio. “A proof
that an act could have been done is no proof that it was
actually done.”
The respondent court was therefore in error to have
concluded from the sheer proof of sufficient available
funds on the part of the private respondent to meet more
than the total obligation within the grace period, the
alleged truth of tender of payment. The same is a classic
case of non-sequitur.
ISSUE2: Whether or not an offer of a check is a valid
tender of payment of an obligation under a contract
which stipulates that the consideration of the sale is in
Philippine Currency.
RULING2: No. In the case of Philippine Airlines v.
Court of Appeals: Since a negotiable instrument is only a
substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary
check, is not legal tender, and an offer of a check
in payment of a debt is not a valid tender of
payment and may be refused receipt by the
obligee or creditor. Hence, where the tender of
payment by the private respondent was not valid for
failure to comply with the requisite payment in legal
tender or currency stipulated within the grace period and
as such, was validly refused receipt by the petitioner, the
subsequent consignation did not operate to discharge the
former from its obligation to the latter. In view of the
foregoing, the petitioner in the legitimate exercise of its
rights pursuant to the subject contract, did validly order
therefore the cancellation of the said contract, the
forfeiture of the previous payment, and the reconveyance
ipso facto of the land in question.
______________________________________
_______________
TIBAJIA, JR. vs. CA
NATURE: Motion to lift writ of execution
Padilla, J.
June 4, 1993
DOCTRINE: Payment by means of check (even by
cashier's check) is not considered payment in legal tender
as required by the Civil Code, Republic Act No. 529, and
the Central Bank Act.
FACTS:
PROVISION/S: RA 265 Sec. 63, RA 529 Sec. 1, Art.
1249, NCC
Case No. 54863 was a suit for collection of a sum of
money filed by Eden Tan against the Tibajia spouses. A
writ of attachment was issued by the trial court on 17
August 1987 and on 17 September 1987, the Deputy
Sheriff filed a return stating that a deposit made by the
Tibajia spouses in RTC Kalookan City in the amount of
P442,750.00 in another case, had been garnished by him.
On 10 March 1988, the RTC of Pasig, rendered its
decision in Civil Case No. 54863 in favor of the plaintiff
Eden Tan, ordering the Tibajia spouses to pay her an
amount in excess of P300,000.00. On appeal, the CA
modified the decision by reducing the award of moral and
exemplary damages. The decision having become final,
Eden Tan filed the corresponding motion for execution
and thereafter, the garnished funds which by then were
on deposit with the cashier of the RTC Pasig, were levied
upon.
On 14 December 1990, the Tibajia spouses delivered to
Deputy Sheriff Eduardo Bolima the total money
judgment in the following form:
Cashier's Check
P262,750.00
Cash 135,733.70
————
Total P398,483.70
Private respondent, Eden Tan, refused to accept the
payment made by the Tibajia spouses and instead
insisted that the garnished funds deposited with the
cashier of Pasig RTC be withdrawn to satisfy the
judgment obligation. On 15 January 1991, defendant
spouses (petitioners) filed a motion to lift the writ of
execution on the ground that the judgment debt had
already been paid. On 29 January 1991, the motion was
denied by the trial court on the ground that payment in
cashier's check is not payment in legal tender and that
payment was made by a third party other than the
defendant. A motion for reconsideration was denied on 8
February 1991. Thereafter, the spouses Tibajia filed a
petition for certiorari, prohibition and injunction in the
Court of Appeals. The appellate court dismissed the
petition on 24 April 1991 holding that payment by
cashier's check is not payment in legal tender as required
by Republic Act No. 529. The motion for reconsideration
was denied on 27 May 1991.
Page 71 of 112
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ISSUE: Whether or not payment by means of check
(even by cashier's check) is considered payment in legal
tender as required by the Civil Code, Republic Act No.
529, and the Central Bank Act.
HELD: The provisions of law applicable to the case at bar
are the following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in
money shall be made in the currency
stipulated, and if it is not possible to
deliver such currency, then in the
currency which is legal tender in the
Philippines.
The delivery of promissory notes payable
to order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they have
been cashed, or when through the fault
of the creditor they have been impaired.
In the meantime, the action derived from
the original obligation shall be held in
abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which
provides:
Sec. 1. Every provision contained in, or
made with respect to, any obligation
which purports to give the obligee the
right to require payment in gold or in any
particular kind of coin or currency other
than Philippine currency or in an
amount of money of the Philippines
measured thereby, shall be as it is hereby
declared against public policy null and
void, and of no effect, and no such
provision shall be contained in, or made
with respect to, any obligation thereafter
incurred. Every obligation heretofore
and hereafter incurred, whether or not
any such provision as to payment is
contained therein or made with respect
thereto, shall be discharged upon
payment in any coin or currency which at
the time of payment is legal tender for
public and private debts.
c. Section 63 of Republic Act No. 265, as amended
(Central Bank Act) which provides:
Sec. 63. Legal character — Checks
representing deposit money do not have
legal tender power and their acceptance
in the payment of debts, both public and
private, is at the option of the creditor:
Provided, however, that a check which
has been cleared and credited to the
account of the creditor shall be
equivalent to a delivery to the creditor of
cash in an amount equal to the amount
credited to his account.
From the aforequoted provisions of law, it is clear that
this petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court
of Appeals and Roman Catholic Bishop of Malolos, Inc.
vs. Intermediate Appellate Court, this Court held that —
A check, whether a manager's check or
ordinary check, is not legal tender, and
an offer of a check in payment of a debt
is not a valid tender of payment and may
be refused receipt by the obligee or
creditor.
The ruling in these 2 cases merely applies the statutory
provisions which lay down the rule that a check is not
legal tender and that a creditor may validly refuse
payment by check, whether it be a manager's, cashier's or
personal check.
______________________________________
_______________
VELASCO vs. MERALCO
(Note: Case cited in the syllabus is a resolution of an MR.
Hence, no facts are indicated. However, the doctrine is
clear in this case.)
NATURE: MR from the decision of the Court
Reyes, JBL
December 20, 1971
DOCTRINE: It can be seen from the employment of the
words "extraordinary inflation or deflation of the
currency stipulated" that the legal rule envisages
contractual obligations where a specific currency is
selected by the parties as the medium of payment; hence
it is inapplicable to obligations arising from tort and not
from contract
FACTS:
PROVISION/S: Art. 1250 NCC
Both appellant Velasco and appellee Manila Electric have
filed their respective motions to reconsider the decision
of the Court dated 6 August 1971.
The only motion relevant to this case is that of the
appellant. The thrust of this motion is that the decision
has incorrectly assessed appellant's damages and
unreasonably reduced their amount. It is first argued that
the decision erred in not taking into account, in
computing appellant's loss of income, the appellant's
undeclared income of P8,338.20, assessed by the Bureau
of Internal Revenue for the year 1954, in addition to his
declared income for that year (P10,975), it being argued
Page 72 of 112
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that appellant never claim any other source of income
besides his professional earnings. Court ruled however
that several circumstances of record disprove this claim.
Appellant further urges that the damages awarded
him are inadequate considering the present high
cost of living, and calls attention to Article 1250
of the present Civil Code, and to the doctrines laid
down in People vs. Pantoja.
ISSUE: WON legal rule contemplated in Sec. 1249 of the
NCC is applicable to obligations arising from tort.
RULING: NO. It can be seen from the
employment of the words "extraordinary
inflation or deflation of the currency stipulated"
that the legal rule envisages contractual
obligations where a specific currency is selected
by the parties as the medium of payment; hence
it is inapplicable to obligations arising from tort
and not from contract, as in the case at bar,
besides there being no showing that the factual
assumption of the article has come into existence. As to
the Pantoja ruling, the regard paid to the decreasing
purchase of the peso was considered a factor in
estimating the indemnity due for loss of life, which in
itself is not susceptible of accurate estimation. It should
not be forgotten that the damages awarded to herein
appellant were by no means full compensatory damages,
since the decision makes clear that appellant, by his
failure to minimize his damages by means easily within
his reach, was declared entitled only to a reduced award
for the nuisance sued upon and the amount granted him
had already taken into account the changed economic
circumstances.
COMMISSIONER VS. BURGOS
NATURE: Complaint for recovery of ownership and
possession of land
De Castro, J.
March 31, 1980
DOCTRINE: Art. 1250 applies only to cases where a
contract or agreement is involved. It does not apply where
the obligation to pay arises from law, independent of
contracts.
FACTS:
PROVISION/S: 1250, NCC
On 1924, the government took private respondent Victor
Amigable's land for road-right-of-way purpose.
On 1959, Amigable filed in the Court of First Instance a
complaint to recover the ownership and possession of the
land and for damages for the alleged illegal occupation of
the land by the government (entitled Victor Amigable vs.
Nicolas Cuenco, in his capacity as Commissioner of
Public Highways and Republic of the Philippines).
Amigable's complaint was dismissed on the grounds that
the land was either donated or sold by its owners to
enhance its value, and that in any case, the right of the
owner to recover the value of said property was already
barred by estoppel and the statute of limitations. Also, the
non-suability of the government was invoked.
In the hearing, the government proved that the price of
the property at the time of taking was P2.37 per square
meter. Amigable, on the other hand, presented a
newspaper showing that the price was P6.775.
The public respondent Judge ruled in favor of Amigable
and directed the Republic of the Philippines to pay
Amigable the value of the property taken with interest at
6% and the attorney's fees.
ISSUE: WON Article 1250 is applicable in determining
just compensation payable to Amigable from the taking
in 1924.
HELD: No. Art. 1250 applies only to cases where a
contract or agreement is involved. It does not
apply where the obligation to pay arises from law,
independent of contracts. It is to be noted that
respondent judge did consider the value of the property
at the time of the taking, which as proven by the
petitioner was P2.37 per square meter in 1924. However,
applying Article 1250 of the New Civil Code, and
considering that the value of the peso to the dollar during
the hearing in 1972 was P6.775 to a dollar, as proven by
the evidence of the private respondent Victoria Amigable
the Court fixed the value of the property at the deflated
value of the peso in relation, to the dollar, and came up
with the sum of P49,459.34 as the just compensation to
be paid by the Government. To this action of the
respondent judge, the Solicitor General has taken
exception.
Article 1250 of the New Civil Code seems to be the only
provision in our statutes which provides for payment of
an obligation in an amount different from what has been
agreed upon by the parties because of the supervention of
extra-ordinary inflation or deflation. It is clear that the
provision applies only to cases where a contract or
agreement is involved. It does not apply where the
obligation to pay arises from law, independent of
contract. The taking of private property by the
Government in the exercise of its power of eminent
domain does not give rise to a contractual obligation.
Moreover, the law as quoted, clearly provides that the
value of the currency at the time of the establishment of
the obligation shall be the basis of payment which, in
cases of expropriation, would be the value of the peso at
the time of the taking of the property when the obligation
of the Government to pay arises. It is only when there is
an "agreement to the contrary" that the extraordinary
inflation will make the value of the currency at the time
of payment, not at the time of the establishment of the
obligation, the basis for payment. In other words, an
agreement is needed for the effects of an extraordinary
Page 73 of 112
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inflation to be taken into account to alter the value of the
currency at the time of the establishment of the obligation
which, as a rule, is always the determinative element, to
be varied by agreement that would find reason only in the
supervention of extraordinary inflation or deflation.
Under the law, in the absence of any agreement to the
contrary, even assuming that there has been an
extraordinary inflation within the meaning of Article
1250 of the New Civil Code, a fact SC declines to declare
categorically, the value of the peso at the time of the
establishment of the obligation, which in the instant case
is when the property was taken possession of by the
Government, must be considered for the purpose of
determining just compensation. Obviously, there can be
no "agreement to the contrary" to speak of because the
obligation of the Government sought to be enforced in the
present action does not originate from contract, but from
law which, generally is not subject to the will of the
parties. And there being no other legal provision cited
which would justify a departure from the rule that just
compensation is determined on the basis of the value of
the property at the time of the taking thereof in
expropriation by the Government, the value of the
property as it is when the Government took possession of
the land in question, not the increased value resulting
from the passage of time which invariably brings
unearned increment to landed properties, represents the
true value to be paid as just compensation for the
property taken.
In the present case, the unusually long delay of private
respondent in bringing the present action-period of
almost 25 years which a stricter application of the law on
estoppel and the statute of limitations and prescription
may have divested her of the rights she seeks on this
action over the property in question, is an added
circumstance militating against payment to her of an
amount bigger-may three-fold more than the value of the
property as should have been paid at the time of the
taking. For conformably to the rule that one should take
good care of his own concern, private respondent should
have commenced proper action soon after she had been
deprived of her right of ownership and possession over
the land, a deprivation she knew was permanent in
character, for the land was intended for, and had become,
avenues in the City of Cebu. A penalty is always visited
upon one for his inaction, neglect or laches in the
assertion of his rights allegedly withheld from him, or
otherwise transgressed upon by another.
______________________________________
_______________
FILIPINO PIPE & FOUNDRY CORP. vs.
NAWASA
NATURE: Complaint seeking for adjustment of unpaid
balance
Grino Aquino, J
June 3, 1988
DOCTRINE: Extraordinary inflation exists "when there
is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the
common fluctuation in the value said currency, and such
decrease or increase could not have reasonably foreseen
or was manifestly beyond contemplation the parties at
the time of the establishment of the obligation.”
FACTS:
PROVISION/S: NCC 1250
On June 12,1961, the NAWASA entered into a contract
with the plaintiff FPFC for the latter to supply it with 4"
and 6" diameter centrifugally cast iron pressure pipes
worth P270,187.50 to be used in the construction of the
Anonoy Waterworks in Masbate and the Barrio San
Andres-Villareal Waterworks in Samar. Defendant
NAWASA paid in instalments on various dates, a total of
P134,680.00 leaving a balance of P135,507.50 excluding
interest. Having completed the delivery of the pipes, the
plaintiff demanded payment from the defendant of the
unpaid balance of the price with interest in accordance
with the terms of their contract. When the NAWASA
failed to pay the balance of its account, the plaintiff filed
a collection suit on March 16, 1967 which was docketed as
Civil Case No. 66784 in the Court of First Instance of
Manila.
On November 23, 1967, the trial court rendered judgment
in Civil Case No. 66784 ordering the defendant to pay the
unpaid balance of P135,507.50 in NAWASA negotiable
bonds, redeemable after ten years from their issuance
with interest at 6% per annum, P40,944.73 as interest up
to March 15, 1966 and the interest accruing thereafter to
the issuance of the bonds at 6% per annum and the costs.
Defendant, however, failed to satisfy the decision. It did
not deliver the bonds to the judgment creditor. On
February 18, 1971, the plaintiff FPFC filed another
complaint which was docketed as Civil Case No. 82296,
seeking an adjustment of the unpaid balance in
accordance with the value of the Philippine peso when the
decision in Civil Case No. 66784 was rendered on
November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss
the complaint on the ground that it is barred by the 1967
decision in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the
motion to dismiss on the ground that the bar by prior
judgment did not apply to the case because the causes of
action in the two cases are different: the first action being
for collection of the defendant's indebtedness for the
pipes, while the second case is for adjustment of the value
of said judgment due to alleged supervening
extraordinary inflation of the Philippine peso which has
reduced the value of the bonds paid to the plaintiff.
Article 1250 of the Civil Code provides:
Page 74 of 112
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In case an extraordinary inflation or
deflation of the currency stipulated
should supervene, the value of the
currency at the time of the establishment
of the obligation shall be the basis of
payment, unless there is an agreement to
the contrary..
The court suggested to the parties during the trial that
they present expert testimony to help it in deciding
whether the economic conditions then, and still
prevailing, would justify the application of Article 1250 of
the Civil Code. The plaintiff presented voluminous
records and statistics showing that a spiralling inflation
has marked the progress of the country from 1962 up to
the present. There is no denying that the price index of
commodities, which is the usual evidence of the value of
the currency, has been rising.
The trial court pointed out, however, than this is a
worldwide occurrence, but hardly proof that the inflation
is extraordinary in the sense contemplated by Article
1250 of the Civil Code, which was adopted by the Code
Commission to provide "a just solution" to the
"uncertainty and confusion as a result of Malabanan
contracts entered into or payments made during the last
war."
Noting that the situation during the Japanese Occupation
"cannot be compared with the economic conditions
today," the Malabanan trial court, on September 5, 1973,
rendered judgment dismissing the complaint.
ISSUE: WON on the basis of the continuously spiralling
price index indisputably shown by the plaintiff, there
exists an extraordinary inflation of the currency justifying
an adjustment of defendant appellee's unpaid judgment
obligation the plaintiff-appellant.
HELD: NO. Extraordinary inflation exists "when
there is a decrease or increase in the purchasing
power of the Philippine currency which is
unusual or beyond the common fluctuation in the
value said currency, and such decrease or
increase could not have reasonably foreseen or
was manifestly beyond contemplation the parties
at the time of the establishment of the obligation.
an example of extraordinary inflation is the following
description of what happened to the Deutschmark in
1920:
More recently, in the 1920's Germany
experienced a case of hyperinflation. In
early 1921, the value of the German mark
was 4.2 to the U.S. dollar. By May of the
same year, it had stumbled to 62 to the
U.S. dollar. And as prices went up
rapidly, so that by October 1923, it had
reached 4.2 trillion to the U.S. dollar!
(Bernardo M. Villegas & Victor R. Abola,
Economics, An Introduction [Third
Edition]).
As reported, "prices were going up every week, then every
day, then every hour. Women were paid several times a
day so that they could rush out and exchange their money
for something of value before what little purchasing
power was left dissolved in their hands. Some workers
tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who
would rush to upload the nearly worthless paper. A
postage stamp cost millions of marks and a loaf of bread,
billions."
While appellant's voluminous records and statistics
proved that there has been a decline in the purchasing
power of the Philippine peso, this downward fall of the
currency cannot be considered "extraordinary." It is
simply a universal trend that has not spared our country.
______________________________________
_______________
DEL ROSARIO vs. SHELL
Nature: Complaint to compel payment of increased
monthly rentals
Ponente: Paras
Date: August 19, 1988
DOCTRINE: In the interpretation of the contract of
lease between the parties, the term “devaluation” was
held to be synonymous to “depreciation” because the
Court interpreted it in the layman’s point of view even
though they have different technical meanings.
FACTS:
Relevant Provision of Law: None used.
On September 20, 1960, the parties entered into a least
agreement wherein the herein plaintiff leased a parcel of
land in Albay from defendant with a monthly rate of
250php. Paragraph 14 of their contract provides that in
the event of an official “devaluation” or appreciation of
the Philippine Peso, the rental shall be adjusted in
accordance with the provisions of any law or decree
declaring such devaluation or appreciation as may
specifically apply to rentals.
On November 6, 1965, President Diosdado Macapagal
promulgated E.O. No. 195 which changed the par value of
the peso from $0.5 to $0.2564103. Because of the enacted
EO, plaintiff demanded that the rent be increased from
250php to 487.50php a month. Defendant refused so
plaintiff filed a complaint with the CFI of Manila praying
that defendant be ordered to pay the increased rent. She
also asked for damages.
However, the CFI dismissed the complaint. It stated that
the EO has not officially devalued the peso because the
changing of the par value did not change the gold value of
the Philippine Peso which at the time was set at 7-13/21
grains of gold 0.900 fine.
Page 75 of 112
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Plaintiff appeals stating that by virtue of the EO there has
been an effective “devaluation” or “depreciation” of the
peso which justifies the increase in rent.
ISSUE: Should the rent be increased because of the
enactment of the EO?
RULING: Yes. The Court defined the important terms
found in the contract which is mainly “devaluation” and
“appreciation.” According to Sloan and Zurcher’s classic
treatise, “A Dictionary of Economics”, devaluation is a
reduction in its metallic content as determined by law
resulting in the lowering of the value of one nation’s
currency in terms of the currencies of other nations’. In
the book of Samuelson and Nordhaus, devaluation is
when a country’s official exchange rate relative to gold or
another currency is lowered. Gerardo Sicat states that
depreciation (opposite of appreciation) occurs when a
currency’s value falls in relation to foreign currencies.
The Court also noted that devaluation is an official act of
the government which refers to a reduction in metallic
content while depreciation can take place with or without
an official act and does not depend on metallic content.
time of making the payment, to which of them the same
must be applied. Unless the parties so stipulate, or when
the application of payment is made by the party for whose
benefit the term has been constituted, application shall
not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which
an application of the payment is made, the former cannot
complain of the same, unless there is a cause for
invalidating the contract. (1172a)
Article 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made until
the interests have been covered. (1173)
Article 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application can
not be inferred from other circumstances, the debt which
is most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature and burden, the
payment shall be applied to all of them proportionately.
(1174a)

Although the contract uses the term devaluation and

admittedly the EO did not decrease the gold equivalent of
the peso, the Court ruled that there has been a diminution
or lessening in the purchasing power of the peso. When
the laymen who are unskilled in economics use the term
devaluation or depreciation, they mean them in their
ordinary signification which is decrease in value.
Therefore, devaluation in the contract should be held
synonymous with depreciation because they refer both to
a decrease in the value of the currency. Therefore, the
rentals should be adjusted accordingly.

****************************************************
********************
Special forms of payment

a. Dation in payment

Article 1245. Dation in payment, whereby property is

alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)

b. Application of payments
Article 1248. Unless there is an express stipulation to
that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor
may effect the payment of the former without waiting for
the liquidation of the latter. (1169a)

Article 1252. He who has various debts of the same kind

in favor of one and the same creditor, may declare at the
Page 76 of 112
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c. Payment by cession
or assignment
Article 1255. The debtor may cede or assign his
property to his creditors in payment of his debts. This
cession, unless there is stipulation to the contrary, shall
only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on
the effect of the cession, are made between the debtor and
his creditors shall be governed by special laws. (1175a)
d. Tender of payment
and consignation
Article 1256. If the creditor to whom tender of payment
has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in the
following cases:
(1) When the creditor is absent or unknown, or
does not appear at the place of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to give a
receipt;
(4) When two or more persons claim the same
right to collect;
(5) When the title of the obligation has been lost.
(1176a)
Article 1257. In order that the consignation of the thing
due may release the obligor, it must first be announced to
the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made
strictly in consonance with the provisions which regulate
payment. (1177)
Article 1258. Consignation shall be made by depositing
the things due at the disposal of judicial authority, before
whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested
parties shall also be notified thereof. (1178)
Article 1259. The expenses of consignation, when
properly made, shall be charged against the creditor.
(1179)
Article 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the thing
or the sum deposited, allowing the obligation to remain
in force. (1180)
Article 1261. If, the consignation having been made, the
creditor should authorize the debtor to withdraw the
same, he shall lose every preference which he may have
over the thing. The co-debtors, guarantors and sureties
shall be released. (1181a)
***************************************************
*******************FILINVEST VS. PHIL.
ACETYLENE
Nature: Collection of a sum of money with damages
Ponente: De Castro
Date: January 30, 1982
DOCTRINE: The mere return of the mortgaged motor
vehicle by the mortgagor, the herein appellant, to the
mortgagee, the herein appellee, does not constitute
dation in payment or dacion en pago in the absence,
express or implied of the true intention of the parties.
FACTS:
Relevant Provision of Law: Articles 1484, 1232, 1245
and 1497 of the Civil Code
Article 1484. Civil Code. - In a contract of sale of personal property the
price of which is payable in installments, the vendor may exercise any
of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement
to the contrary shall be void.
Article 1232. Payment means not only the delivery of money but also
the performance, in any manner, of an obligation.
Article 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the
law of sales.
Article 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee.
On October 30, 1971, the Philippine Acetylene Co. (PAC)
purchased from Alexander Lim (Lim), as evidenced by a
deed of sale, a 1969 Chevrolet for 55,257.80php. PAC paid
a down payment of 20,000php and the balance was
payable, according to the promissory note PAC issued, at
a monthly installment for 34 months which was due and
payable at the first day of each month. Any unpaid
installment will earn 12% interest per annum.
As security, PAC executed a chattel mortgage over the
vehicle in favor of Lim. Subsequently, Lim assigned to
Filinvest Finance Corporation (FFC) all his rights, title
and interests in the promissory note and chattel
mortgage by virtue of a deed of assignment.
Subsequently, FFC merged with the Credit and
Development Corporation (CDC) and FFC assigned all its
rights to the promissory note and chattel mortgage to the
new corporation formed by the merger, Filinvest Credit
Corporation (FCC). In effect, FCC financed the unpaid
balance owed by PAC to Lim such that Lim became fully
paid.
PAC defaulted and failed to pay 9 successive installments.
FCC sent a demand letter where its counsel asked that the
amount be paid in full with interests and charges or that
Page 77 of 112
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the vehicle be returned. PAC wrote FCC stating that it
decided to merely return the vehicle as full satisfaction of
its indebtedness pursuant to Article 1484 of the Civil
Code. PAC returned the vehicle and gave FCC a document
entitled “Voluntary Surrender with Special Power of
Attorney to Sell.”
FCC subsequently wrote PAC that it cannot sell the
vehicle because of unpaid taxes in the sum of 70,122php
so it asked that PAC pay the corresponding indebtedness
instead. FCC offered to give back the vehicle to PAC but
PAC refused to accept it. FCC then filed a case for
collection of sum of money with damages with the CFI of
Manila.
PAC states in its answer that FCC has no cause of action
because its return of the vehicle satisfied all its
indebtedness to FCC and assuming that it didn’t, that
FCC still cannot recover because of the original vendor
Lim’s breach of warranty for the unpaid taxes. CFI ruled
in favor of FCC and ordered PAC to pay and accept the
vehicle.
ISSUE: Did the return by PAC of the mortgaged vehicle
extinguish the obligation?
RULING: No. PAC argues that FCC already chose its
remedy when it accepted the return of the vehicle which
is tantamount to foreclosing the chattel mortgage. PAC
states that FCC then is precluded from exercising any of
the other remedies in Article 1484. PAC also argues that
its return of the vehicle is already a mode of payment by
virtue of dacion en pago citing Articles 1232, 1245, and
1497 of the Civil Code.
Court ruled however that there was no dacion en pago in
this case because there is an absence of the express or
implied intention of the parties. Dacion en pago,
according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. In
dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be
charged against the debtor's debt. As such, the essential
elements of a contract of sale, namely, consent, object
certain, and cause or consideration must be present. In
its modern concept, what actually takes place in dacion
en pago is an objective novation of the obligation where
the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object
of the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an
essential prerequisite, be it sale or innovation to have the
effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the
mortgagee, the herein appellee, consented, or at least
intended, that the mere delivery to, and acceptance by
him, of the mortgaged motor vehicle be construed as
actual payment, more specifically dation in payment or
dacion en pago. The fact that the mortgaged motor
vehicle was delivered to him does not necessarily mean
that ownership thereof, as juridically contemplated by
dacion en pago, was transferred from appellant to
appellee. In the absence of clear consent of appellee to the
proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle
from appellant to appellee. If at all, only transfer of
possession of the mortgaged motor vehicle took place, for
it is quite possible that appellee, as mortgagee, merely
wanted to secure possession to forestall the loss,
destruction, fraudulent transfer of the vehicle to third
persons, or its being rendered valueless if left in the hands
of the appellant.
Moreover, the document given which is denominated as
a “Voluntary Surrender with Power of Attorney to Sell”
shows clearly that it was never the intention of the parties
to transfer ownership. If it was, then there would be no
need for such power of attorney because FCC would have
full power to dispose of the vehicle as it sees fit.
FCC is also not estopped to ask for payment when it
accepted the return of the vehicle. Such return only
extinguishes the obligation if the mortgagee causes the
foreclosure sale. If the mortgagee desisted on his own
initiative, such desistance is a timely disavowal of the
remedy and the vendor can still sue for specific
performance.
On the issue of the breach of warranty, it is Lim who
should be held liable and not FFC. The assignment
between Lim and FFC has a specific provision absolves
FFC of any liability. The taxes on the vehicle is a burden
on the property and therefore should be borne by owner
which is PAC. Although PAC may have an action against
Lim, the original vendor, such remedy though cannot be
held against FFC.
______________________________________
_______________
CITIZENS SURETY VS. CA
Nature: Action for a sum of money
Ponente: Gutierrez Jr.
Date: June 28, 1988
DOCTRINE: A deed of assignment the content of which
purports to be an absolute deed of assignment cannot be
held to be a valid dacion en pago when it is clear from the
circumstances and subsequent action of the parties that
the intention was to make it a security. Moreover, it
cannot be a valid dacion en pago when at the date of the
assignment, there was no obligation yet to be fulfilled.
FACTS:
Relevant Provision of Law: Article 1245 of the Civil
Code
Page 78 of 112
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Article 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the
law of sales. (n)
Pascual M. Perez Enterprises (Enterprises) purchased
some goods from Singer Sewing Machine Co. under a
Contract of Sale of Goods. Petitioner Citizens Surety
(Citizens) issued 2 surety bonds to guarantee compliance
of Pascual with its obligation. In consideration of the
surety bonds, Pascual in his personal capacity and as
attorney in fact of his wife Nicasia Sarmiento, and in
behalf of Pascual Enterprises executed 2 indemnity
agreements in favor of Citizens wherein he obligated
himself and the Enterprises to indemnify Citizens
whatever payments, advances and damages it may suffer
as a result of the surety bonds.
In addition, Enterprises were required to put up
collateral security so it assigned by virtue of a deed of
assignment a stock of lumber worth 400,000php. A
second real estate mortgage was also executed in favor of
Citizens as security but such was subsequently cancelled.
Enterprises failed to pay for its obligation and Citizens
had to pay Singer 144,000php. Enterprises was able to
pay Citizens 55,600php but failed to pay the rest.
Enterprises filed a claim for sum of money against the
estate of Nicasia Sarmiento. Pasual opposed such claim
stating that the deed of assignment extinguished the
indemnity agreements. The CFI ruled in favor of the
Enterprises and ordered Pascual as administrator to pay.
On appeal to the CA however, the CA reversed the CFI
stating that by virtue of the execution of the deed of
assignment wherein the ownership of the lumber was
transferred to Citizens, it amounted to a dacion en pago
under Article 1245 of the Civil Code.
ISSUE: Was the deed of assignment a dacion en pago?
RULING: No. On the face of the deed of assignment,
there seems to be a complete conveyance of the stocks of
lumber to Citizens. However, the circumstances
surrounding the assignment disproves this. The Court
cited Sy vs. CA stating that if the terms of a contract are
clear, the literal meaning of the stipulations shall control
except when the words appear contrary to the evident
intention of the parties. In that situation the intent of the
parties shall prevail.
In this case, the assignment could not have been a dacion
en pago because as correctly stated by the dissenting
opinions of the CA decision, at the time the assignment
was done, there was no obligation yet to be extinguished
because Citizens had not yet advanced or paid anything
yet by virtue of the surety bonds.
Moreover, the subsequent acts of Pascual show that the
deed was merely a security and not an absolute
assignment. Pascual paying partial payments of
55,600php shows that the assignment was merely a
security. If the assignment was absolute, there would
have been no reason for subsequent payments because it
extinguished the obligation. Also, the execution of a
second real estate mortgage, although it was later
cancelled, after the execution of the deed of assignment
shows further that there still exists an obligation on the
indemnity agreements.
However, the case against the estate of Nicasia Sarmiento
should still be dismissed because Citizens is more than
adequately protected. It should have collected the
remaining balance of 88,400php from the sales of the
lumber and returned the excess to Pascual. Citizens is
also not entitled to attorney’s fees and interest because it
had the means to recoup its investment but instead chose
to litigate therefore it should bear the burden.
______________________________________
_______________
SOCO VS. MILITANTE
Nature: Case for illegal detainer
Ponente: Guerrero
Date: June 28, 1983
DOCTRINE: The following are requirements for a valid
consignation:
1. That there was a debt due
2. That the consignation of the obligation had been
made because the creditor to whom tender of
payment was made refused to accept it or
because he was absent or incapacitated or
because several persons claimed to be entitled to
receive the amount due
3. That previous notice of the consignation had
been given to the person interested in the
performance of the obligation
4. That the amount due was placed at the disposal
of the Court
5. That after the consignation had been made the
person interested was notified thereof.
FACTS:
Relevant Provision of Law: Articles 1249, 1256-1261
of the Civil Code
Article 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derived from the original obligation shall
be held in the abeyance. (1170)
Article 1256. If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following
cases:
(1) When the creditor is absent or unknown, or does not appear at the
place of payment;
(2) When he is incapacitated to receive the payment at the time it is
due;
(3) When, without just cause, he refuses to give a receipt;
Page 79 of 112
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(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
Article 1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons interested
in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment. (1177)
Article 1258. Consignation shall be made by depositing the things due
at the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the announcement of
the consignation in other cases.
The consignation having been made, the interested parties shall also
be notified thereof. (1178)
Article 1259. The expenses of consignation, when properly made, shall
be charged against the creditor. (1179)
Article 1260. Once the consignation has been duly made, the debtor
may ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor
may withdraw the thing or the sum deposited, allowing the obligation
to remain in force. (1180)
Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every
preference which he may have over the thing. The co-debtors,
guarantors and sureties shall be released. (1181a)
Soco as lessor and Francisco as lessee entered into a
contract of lease on January 17, 1973 wherein Soco leased
her commercial building and lot in Cebu to Francisco for
period of 10 years renewable for another 10 at the option
of the lessee in consideration for 800php per month.
Francisco started paying Soco by checks when Soco
stopped sending her collector and when sometimes the
collector failed to issue receipts. She issued checks under
Commercial Bank and Trust Company (Comtrust) and
Soco duly received them because she admits that
Francisco has been paying religiously prior to May 1977.
Soco subsequently through her lawyer sent a letter to
Francisco asking him to vacate the premises for alleged
non-payment starting from May 1977. Soco alleged that
she had sent her daughter and salesgirl to collect the
rental payments but Francisco refused to pay. Francisco
also through his lawyer answered that she had been
paying through Comtrust and that the checks were
deposited with the Clerk of the Court of Cebu City. He
argues that Soco refused to accept the checks when he
sent it through the messengerial services of FAR
Corporation so he ordered Comtrust to consign it with the
clerk. Despite this explanation, Soco still filed a case for
illegal detainer on January 8, 1979.
Francisco alleges that Soco had been trying to find ways
to terminate their lease contract because she found out
that Francisco had been subleasing the same property to
NACIDA for 3,000php a month which is a lot higher that
what Francisco is paying Soco.
The City Court ruled that there was no valid consignation
because there was no showing that the letter delivered by
the FAR Corporation contained cash money, check,
money order or any other form of note of value therefore
there was no valid tender of payment. The City Court
further stated that assuming that there was tender, there
was no evidence presented to establish actual deposit
with the clerk and that he notified Soco after such deposit.
The Court ordered Francisco to pay and vacate the
premises and to pay damages.
On appeal to the CFI however, it reversed the decision of
the City Court stating that there was substantial
compliance in the requisites for a valid consignation and
ruled in favor of Francisco thereby dismissing the case of
illegal detainer against him. Hence this case.
ISSUE: Was there a valid consignation in this case?
RULING: No. At the outset, the SC clearly and
unequivocally stated that the essential requisites of a
valid consignation must be complied with fully and
strictly in accordance with the law, specifically Articles
1256-1261 of the Civil Code. The SC stated that the
language of the provisions which use the words “shall”
and “must” readily show that strict compliance is
mandatory.
Next, the SC looked on the jurisprudence regarding the
matter. The Court in the case of Jose Ponce de Leon vs.
Santiago Syjuco laid down the requirements for a valid
consignation mainly:
1. That there was a debt due
2. That the consignation of the obligation had been
made because the creditor to whom tender of
payment was made refused to accept it or
because he was absent or incapacitated or
because several persons claimed to be entitled to
receive the amount due
3. That previous notice of the consignation had
been given to the person interested in the
performance of the obligation
4. That the amount due was placed at the disposal
of the Court
5. That after the consignation had been made the
person interested was notified thereof.
Failure in any of these requirements is enough ground to
render the consignation ineffective.
Moreover, the Court stressed that In order to be valid, the
tender of payment must be made in lawful currency.
While payment in check by the debtor may be acceptable
as valid, if no prompt objection to said payment is made
the fact that in previous years payment in check was
accepted does not place its creditor in estoppel from
requiring the debtor to pay his obligation in cash. Thus,
the tender of a check to pay for an obligation is not a valid
tender of payment thereof.
Tender of payment must be distinguished from
consignation. Tender is the antecedent of consignation,
that is, an act preparatory to the consignation, which is
the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while
Page 80 of 112
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consignation is necessarily judicial, and the priority of the
first is the attempt to make a private settlement before FACTS:
proceeding to the solemnities of consignation. Relevant Provision of Law: None used

The SC reviewed the evidence presented by Francisco on
which the CFI concluded that there was substantial
compliance and the SC found that the CFI’s conclusion is
manifestly wrong and based on misapprehension of facts.
Such evidence scrutinized were mainly:
1. Exhibit 10 – Letter of Atty. Abarintos dated June
9, 1977
2. Exhibit 12 – Letter of Atty. Abarintos dated July
6, 1977
3. Exhibit 14 – Answer of Francisco in a related civil
case for reformation of the contract of lease (not
related to consignation)
4. Exhibit 1 – Letter of Atty. Menchavez dated
November 28, 1977
SC ruled that each of the letters at most may prove valid
tender of payment for a specific month but failed to prove
the other requirements mainly previous notice and notice
after the consignation. Exhibit 14 was held to be self-
serving.
Francisco tried to prove valid tender and first notice by
proving his monthly requests to his bank to write a check
for the rentals. However, the arrangement specifically
stated that the bank would issue the checks but it was still
the job of Francisco to pick it up and tender it to Soco.
This case is a motion for reconsideration of a previous
case wherein petitioner Lauro Immaculata represented
by his wife Amparo Velasco tried to annul a judgment and
deed of sale with reconveyance of property in favor of
Juanita Victoria (one of the respondents, Navarro is the
judge who issued the judgment). The SC upheld the deed
of sale. However, in the decision, they failed to take into
consideration the alternative prayer of the petitioner to
allow legal redemption in case the validity of the deed of
sale is upheld.
Therefore, the SC granted the reconsideration. However,
the respondents argue against legal redemption stating
that the offer to redeem was not sincere since it was not
accompanied by consignation of the amount in Court.
ISSUE: Does legal redemption require consignation to
preserve the right?
RULING: No. First, the SC stated that although the sale
was done in December 1969, the deed of conveyance was
only executed on February 3, 1974. So the offer to redeem
made on March 24, 1975 was clearly within the 5 year
period allowed by the Public Land Act. This shows that
the period is counted not from the date of the sale, but on
the date of formal conveyance.

Francisco also failed to prove notice after consignation. The SC ruled that the right to redeem is a right and not an
The testimony of Bank Comptroller clearly stated that obligation, therefore, there is no consignation required to
after he deposited the check with the clerk, he did not preserve the right to redeem. Therefore, the petitioner is
send any notice to Soco. allowed to redeem the property.

Last, there was no proof of actual deposit with the clerk

because no receipts issued by the clerk were presented in
evidence. Francisco tried to prove actual deposit by virtue
of the debt memorandums of the bank wherein it shows
a monthly debit to his account. But the SC brushed this
aside stating that such memorandums are merely
internal banking practices or office procedures which are
not binding on third parties.

For failure to prove valid consignation, therefore in effect

there was no valid payment for certain months, Francisco
as lessee has violated the terms of the contract and may
be judicially ejected.
______________________________________
_______________

IMMACULATA VS. NAVARRO

Nature: Motion for consideration on issue of legal

redemption
Ponente: Paras
Date: April 15, 1988

DOCTRINE: The right to redeem is a right, not an

obligation, therefore, there is no consignation required to
preserve the right to redeem.

Page 81 of 112
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2. Loss of the thing due or impossibility of
performance
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not extinguish
the obligation, and he shall be responsible for damages.
The same rule applies when the nature of the obligation
requires the assumption of risk. (1182a)
Article 1263. In an obligation to deliver a generic thing,
the loss or destruction of anything of the same kind does
not extinguish the obligation. (n)
Article 1264. The courts shall determine whether,
under the circumstances, the partial loss of the object of
the obligation is so important as to extinguish the
obligation. (n)
Article 1265. Whenever the thing is lost in the
possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the
contrary, and without prejudice to the provisions of
article 1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity.
(1183a)
Article 1266. The debtor in obligations to do shall also
be released when the prestation becomes legally or
physically impossible without the fault of the obligor.
(1184a)
Article 1267. When the service has become so difficult
as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in
whole or in part. (n)
Article 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the debtor
shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused without justification to accept
it. (1185)
Article 1269. The obligation having been extinguished
by the loss of the thing, the creditor shall have all the
rights of action which the debtor may have against third
persons by reason of the loss. (1186)
Article 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in
case of the improvement, loss or deterioration of the
thing during the pendency of the condition:
(1) If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes,
or goes out of commerce, or disappears in such a
way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault
of the debtor, the impairment is to be borne by
the creditor;
(4) If it deteriorates through the fault of the
debtor, the creditor may choose between the
rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by
time, the improvement shall inure to the benefit
of the creditor;
(6) If it is improved at the expense of the debtor,
he shall have no other right than that granted to
the usufructuary. (1122)
Article 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, were inevitable. (1105a)
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Article 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, the debtor
shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should
receive it, the latter refused without justification to accept
it. (1185)
Article 1942. The bailee is liable for the loss of the thing,
even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose
different from that for which it has been loaned;
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case
of a fortuitous event;
(4) If he lends or leases the thing to a third
person, who is not a member of his household;
(5) If, being able to save either the thing
borrowed or his own thing, he chose to save the
latter. (1744a and 1745)
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Article 1979. The depositary is liable for the loss of the
thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's
permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he
himself may have been authorized to use the
same. (n)
Article 2147. The officious manager shall be liable for
any fortuitous event:
(1) If he undertakes risky operations which the
owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of
the owner;
(3) If he fails to return the property or business
after demand by the owner;
(4) If he assumed the management in bad faith.
(1891a)
Article 2159. Whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is
involved, or shall be liable for fruits received or which
should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or
impairment of the thing from any cause, and for damages
to the person who delivered the thing, until it is
recovered. (1896a)
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PEOPLE VS. FRANKLIN
Nature: Appeal by surety company of forfeiture of bail
bond and denial of petition for reduction of bail
Ponente: Dizon
Date: June 7, 1971
DOCTRINE: Article 1266 of the Civil Code does not
apply to a surety upon a bail bond because 1266 speaks of
a debtor-creditor relationship which is not present
between a bail bond surety and the State.
FACTS:
Relevant Provision of Law: Article 1266 of the Civil
Code
Article 1266. The debtor in obligations to do shall also be released when
the prestation becomes legally or physically impossible without the
fault of the obligor.
An information was filed with the Justice of the Peace
Court of Angeles, Pampanga against Natividad Franklin
for the crime of estafa. She was released from custody
upon a bail bond posted by the Asian Surety & Insurance
Company (Company) in the amount of 2,000php.
The CFI set her arraignment on July 14, 1962 but
Franklin failed to appear. The Company filed a motion to
postpone the arraignment to July 28 but still Franklin
failed to appear. Her arrest was ordered and the Court
required the Company to show cause why the bail bond
should not be forfeited.
On September 25, 1962, the Court granted the Company
a period of 30 days to produce the accused and warned
them that failure to do so would cause the forfeiture of the
bond. On October 25, 1962, the Company filed another
Motion for Extension for another 30 days but still failed
to produce the accused.
Subsequently, the Company filed a motion to reduce bail
stating that the reason why it cannot surrender the
accused is that the Government allowed the accused to
leave the country for the US on February 27, 1962. Such
motion was denied, and the subsequent MR also denied.
The Company appeals its case using as basis Article 1266
of the Civil Code. It argues that it should be released from
liability because it became impossible to produce the
accused because of the negligence of the Government in
issuing a passport to Franklin thus enabling her to leave.
ISSUE: Should the Company be absolved from liability?
RULING: No. The SC ruled that Article 1266 is
inapplicable because it refers to a situation where there is
a debtor-creditor relationship which is absent in the
relationship of a bail bond surety and the State.
The Court also noted the difference between an ordinary
surety (those sureties on ordinary bonds or commercial
contracts) and a bail bond surety. Citing the case of US vs.
Bonoan, the Court stated that a bail bond surety may
discharge themselves from liability by surrendering their
principal while an ordinary surety can only be released by
payment of the debt or performance of the act stipulated.
Moreover, citing the case of Uy Tuising, the Court stated
that it is the responsibility of the bail bond surety to keep
the principal from leaving the jurisdiction because in the
eyes of the law, the bail bond surety becomes the legal
custodian and jailer of the accused. The Court stated that
the Company should have informed the DFA and other
government agencies of the fact that Franklin was facing
a criminal charge. She would not have been issued a
passport if the Company had done this, according to the
Court.
Page 83 of 112
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LAGUNA VS. MANABAT
Nature: Action for sum of money for rentals
Ponente: Makasiar
Date: August 29, 1974
DOCTRINE: Article 1680 of the Civil Code is not a
general provision that can be applied to leases of all
kinds. Moreover, even if it were held to apply to this case,
increase in operating costs is not an unforeseen fortuitous
event that can excuse them from obligation.
FACTS:
Relevant Provision of Law: Article 1680 of the Civil
Code
Article 1680. The lessee shall have no right to a reduction of the rent on
account of the sterility of the land leased, or by reason of the loss of
fruits due to ordinary fortuitous events; but he shall have such right in
case of the loss of more than one-half of the fruits through
extraordinary and unforeseen fortuitous events, save always when
there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which the contracting parties could not have
reasonably foreseen. (1575)
On January 20, 1956, the Binan Transportation Company
(BITC) leased to the Laguna Tayabas Bus Company
(LTBC) its certificates of public convenience over the its
Manila-Binan, Manila-Canlubang, And Sta. Rosa-Manila
lines for 2,50ophp per month. It also leased to Batangas
Transportation Company (BATC) its certificates over its
life Manila-Batangas Wharf and an international truck
for 5 years renewable for another 5. The Public Service
Commission provisionally approved the lease contracts
on the same date on the condition that the lessees should
operate the lines in accordance with the prescribed time
schedule and was subject to modification or cancellation
and to whatever decision might be rendered in the case.
Subsequently, the BITC was declared insolvent and
Francisco Manabat was appointed as its assignee. From
the time of declaration of insolvency, the defendants paid
the rentals to Manabat. However, beginning January
1958, notwithstanding demands, defendants failed to pay
rentals despite assurances they gave Manabat. The
defendants also deducted the amount of 1,862.92 without
authorization from the rent they paid for August 1957
because their workers went on strike. Manabat also
opposed such unauthorized deduction as the agreement
states that the deduction can only be made if the lessor’s
workers or officers went on strike and not the lessees.
Additionally, such deduction gave undue preference to
LTBC and BATC in the insolvency proceedings.
On February 18, 1958, the LTBC and BATC filed with the
Public Service Commission a petition for authority to
suspend the operation of the lines citing increase in costs
of procuring spare parts abroad, reduction of dollar
allocation, and the lack of passenger traffic which leads to
financial losses. They asked that they be allowed to
suspend operations until operating expenses went back
to normal levels.
Manabat and others opposed the petition stating that it
will impair the obligation of contracts and the fact that
the PSC does not have authority to interpret contracts.
The PSC brushed aside their oppositions stating that they
were not interpreting the lease contracts but were merely
exercising its regulatory power over the leased contract.
While proceedings in the PSC were going on, Manabat
filed an action against the LTBC and BATC in the CFI of
Laguna for the recovery of 42,500php in accrued rentals
and the unauthorized deduction. Meanwhile , the PSC
granted the petition of LTBC and BATC and granted them
authority to suspend their operations.
In the CFI, LTBC and BATC pointed to the authority to
suspend and argued that the rentals should be reduced
because the lease is suspended during that period. They
argued further that when the BITC became insolvent, the
lease lost force and the rentals paid after were by mistake
and should be returned to them.
The CFI ruled in favor of BITC and ordered that LTBC
and BATC pay for accrued rentals even for the months
where the suspension was effective, as well as to pay for
the unauthorized deduction, and the rentals that may
accrue after the suspension is lifted as well as interest. On
appeal to the CA, the CA affirmed the CFI.
On appeal to the SC, LTBC and BATC basically stated that
it was wrong for the CA to completely disregard the fact
that they could not enjoy the thing leased during the time
of suspension and therefore the rentals should be
reduced. However, the SC denied such for lack of merit.
One day before the resolution of the SC became final,
LTBC and BATC filed a motion to admit amended
petition stating that there is another authority for the
reduction of rentals which is Article 1680 of the Civil
Code and the case of Reyes vs. Caltex.
ISSUE: Should the rentals be reduced pursuant to
Article 1680 of the Civil Code?
RULING: No. The Court ruled that Article 1680 is a
special provision for leases of rural lands. If it was the
intention of the lawmakers to make it applicable to
ordinary leases, they would have placed the article among
the general provisions on lease. Even if it were a general
rule on leases, it would still not extend to petitioners
because the requisite is that the loss of the fruits of leased
property must be an “extraordinary and unforeseen
fortuitous event.” The alleged causes for suspension were
the high prices of spare parts and gasoline and the
reduction of dollar allocations were already existing when
the contracts of lease were executed. Therefore, the cause
of inability of petitioners cannot be ascribed to fortuitous
events but to their voluntary desistance.
Absent the requisite of fortuitous event, Article 1680
militates strongly against their plea as evidenced by the
Article’s opening statement. No reduction can be
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sustained by the suspension based on mere speculation
that operating will yield no profits.
The SC also took note of the fact that despite the
suspension, there is still benefit to the lessees. Because
the suspension would only cover the operation of the
lessees, but it does not cover the obligation of the lessor
not to operate or own certificates covering the same lines.
Because petitioners LBTC and BATC still have their own
certificates covering the same lines which are not covered
by the suspension, the public would have no choice except
to patronize them.
The cited case by petitioners actually does not help their
case because in Reyes vs. Caltex, the plea for equitable
reduction was denied.
“Where a person by his contract charges himself with an obligation
possible to be performed, he must perform it, unless the performance
is rendered impossible by the act of God, by the law, or by the other
party, it being the rule that in case the party desires to be excused from
the performance in the event of contingencies arising, it is his duty to
provide therefor in his contract. Hence, performance is not excused by
subsequent inability to perform, by unforeseen difficulties, by unusual
or unexpected expenses, by danger, by inevitable accident, by breaking
of machinery, by strikes, by sickness, by failure of a party to avail
himself of the benefits to be had under the contract, by weather
conditions, by financial stringency or by stagnation of business.
Neither is performance excused by the fact that the contract turns out
to be hard and improvident, unprofitable, or impracticable, ill-
advised, or even foolish, or less profitable, unexpectedly burdensome.
Since, by the lease, the lessee was to have the advantage of casual
profits of the leased premises, he should run the hazard of casual losses
during the term and not lay the whole burden upon the lessor."
Lastly, the Court noted that the conduct of petitioners
were not according to fair play and justice. They promised
Manabat that they would pay rentals. But when they
found an opportunity to excuse themselves, they reneged
on this promise. Moreover, the Court is of the opinion
that the petition for suspension is malicious because they
did not ask their own certificates to be suspended, only
those they leased. If the reasons for the suspension were
true, why should they not petition their own certificates
to be suspended as well. It becomes clear that the petition
for suspension was a scheme to lessen their operating
costs for greater profit.
OCCENA VS. JABSON
Nature: Appeal from the decision of the CA allowing
modification of contract
Ponente: Teehankee
Date: October 29, 1976
DOCTRINE: Article 1267 of the Civil Code allows the
release of the obligor when the service has become so
difficult as to be manifestly beyond the contemplation of
the parties. But such Article does not authorize the Courts
to modify or alter the terms and conditions of the
contract.
FACTS:
Relevant Provision of Law: Article 1267 of the Civil
Code
Article 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part. (n)
Tropical Homes Inc. (Tropical) filed a complaint in the
CFI of Rizal for modification of the terms and conditions
of its subdivision contract with petitioners who are
landowners in Davao City. Tropical alleged:
“That due to the increase in price of oil and its derivatives and
the concomitant worldwide spiralling of prices, which are not
within the control of plaintiff, of all commodities including
basis raw materials required for such development work, the
cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest
contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and
factors which formed the original basis of said contract, Annex
'A', have been totally changed; 'That further performance by
the plaintiff under the contract.
That further performance by the plaintiff under the
contract,Annex 'S', will result in situation where defendants
would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of
subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such
situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial
concepts of good faith, fairness and equity which should
pervade all human relations.”
Tropical sought to change, based on the reasons cited, the
provision which granted the landowners 40% of all cash
receipts from the sale of subdivision lots. The CFI and CA
ruled in favor of Tropical citing Article 1267 as basis. (but
the decision did not state how such provision should be
modified)
Petitioners appeal to the SC stating that the CFI and CA
were erroneous in the application of 1267 and that
Tropical has no cause of action.
ISSUE: Can the Courts modify or alter the contract when
it has become so difficult as to be manifestly beyond the
contemplation of parties?
RULING: No. The SC stated that the CFI and the CA
would have been correct in applying Article 1267 if the
complaint of Tropical sought to have itself be excused
from complying with the obligation. However, what
Tropical seeks here is not release but that the Court
modify the terms and conditions of the Contract which
the Article does not authorize the Court to do so. His
complaint for modification has no basis in law and
therefore does not state a cause of action.
Procedural: SC stated that the general rule is that the
denial of a motion to dismiss is interlocutory and should
not be corrected by certiorari but by appeal in due course.
But this case falls under the exception that an appeal
would not prove to be a speedy and adequate remedy.
Page 85 of 112
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3. Condonation or remission of
debt
Article 1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
One and the other kind shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation. (1187)
Article 1271. The delivery of a private document
evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which
the former had against the latter.
If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt. (1188)
Article 1272. Whenever the private document in which
the debt appears is found in the possession of the debtor,
it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
Article 1273. The renunciation of the principal debt
shall extinguish the accessory obligations; but the waiver
of the latter shall leave the former in force. (1190)
Article 1274. It is presumed that the accessory
obligation of pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found in the
possession of the debtor, or of a third person who owns
the thing. (1191a)
Article 748. The donation of a movable may be made
orally or in writing.
An oral donation requires the simultaneous delivery of
the thing or of the document representing the right
donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be
made in writing. Otherwise, the donation shall be void.
(632a)
Article 749. In order that the donation of an immovable
may be valid, it must be made in a public document,
specifying therein the property donated and the value of
the charges which the donee must satisfy.
The acceptance may be made in the same deed of
donation or in a separate public document, but it shall not
take effect unless it is done during the lifetime of the
donor.
If the acceptance is made in a separate instrument, the
donor shall be notified thereof in an authentic form, and
this step shall be noted in both instruments. (633)
4. Confusion or merger of rights
Article 1275. The obligation is extinguished from the
time the characters of creditor and debtor are merged in
the same person. (1192a)
Article 1276. Merger which takes place in the person of
the principal debtor or creditor benefits the guarantors.
Confusion which takes place in the person of any of the
latter does not extinguish the obligation. (1193)
Article 1277. Confusion does not extinguish a joint
obligation except as regards the share corresponding to
the creditor or debtor in whom the two characters concur.
(1194)
Article 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to
them. (1143)
Article 1217. Payment made by one of the solidary
debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose
which offer to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the
interest for the payment already made. If the payment is
made before the debt is due, no interest for the
intervening period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-debtors,
in proportion to the debt of each. (1145a)
5. Compensation
Article 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of
each other. (1195)
Article 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor. (1196)
Article 1280. Notwithstanding the provisions of the
preceding article, the guarantor may set up compensation
as regards what the creditor may owe the principal
debtor. (1197)
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Article 1281. Compensation may be total or partial.
When the two debts are of the same amount, there is a
total compensation. (n)
Article 1282. The parties may agree upon the
compensation of debts which are not yet due. (n)
Article 1283. If one of the parties to a suit over an
obligation has a claim for damages against the other, the
former may set it off by proving his right to said damages
and the amount thereof. (n)
Article 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other
before they are judicially rescinded or avoided. (n)
Article 1285. The debtor who has consented to the
assignment of rights made by a creditor in favor of a third
person, cannot set up against the assignee the
compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at
the time he gave his consent, that he reserved his right to
the compensation.
If the creditor communicated the cession to him but the
debtor did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the
debtor, he may set up the compensation of all credits
prior to the same and also later ones until he had
knowledge of the assignment. (1198a)
Article 1286. Compensation takes place by operation of
law, even though the debts may be payable at different
places, but there shall be an indemnity for expenses of
exchange or transportation to the place of payment.
(1199a)
Article 1287. Compensation shall not be proper when
one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor
who has a claim for support due by gratuitous title,
without prejudice to the provisions of paragraph 2 of
article 301. (1200a)
Article 1288. Neither shall there be compensation if one
of the debts consists in civil liability arising from a penal
offense. (n)
Article 1289. If a person should have against him
several debts which are susceptible of compensation, the
rules on the application of payments shall apply to the
order of the compensation. (1201)
Article 1290. When all the requisites mentioned in
article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and
debtors are not aware of the compensation. (1202a)
Article 1243. Payment made to the creditor by the
debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
Article 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to
them. (1143)
Kinds of compensation—
a. legal
b. conventional;
facultative
c. judicial
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BPI VS. CA
Nature: Action to recover a sum of money
Ponente: Azcuna
Date: January 25, 2007
DOCTRINE: Legal compensation may take place when
all the requisites in Article 1279 are present. But when
done maliciously by a bank, even if it is entitled to set off,
it can be liable for damages.
FACTS:
Relevant Provision of Law: Article 1278 and 1279 of
the Civil Code
Article 1278. Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. (1195)
Article 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor. (1196)
A.A. Salazar Construction and Engineering, which was
later substituted by Anabelle A. Salazar as the real party
in interest, filed a case for a sum of money against
amounting to 267,707.70php BPI in the RTC of Pasig
City. The case stemmed from the claim of Julio R.
Templonuevo who demanded from BPI the amount
representing the aggregate value of 3 checks which were
payable to JRT Construction which belonged to
Templonuevo but which were allegedly maliciously
deposited by Salazar to her own personal account.
Because of Templonuevo’s claim, BPI froze account No.
0201-0588-48 of AA Salazar and Construction instead of
Page 87 of 112
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Salazar’s personal account where the checks were
deposited because the account was already closed. BPI
guaranteed Salazar that her company’s account would
not be touched until the matter was settled, but 2 weeks
after, BPI debited the amount from her account.
The CFI and the CA both ruled in favor of Salazar and
ordered BPI to return the amount to Salazar because they
believed Salazar was entitled to the checks
notwithstanding the lack of endorsement by the payee,
JRT Construction, because of an internal arrangement
between JRT and Salazar with the acquiescence and
knowledge of BPI. The CFI and the CA took note of the
fact that BPI honored the checks and deposited them in
Salazar’s account 3 separate instances. Both Courts
explained that the only probable reason why a bank
would deposit in 3 separate instances a check without the
endorsement of the payee is that it had knowledge of the
internal arrangement between JRT and Salazar. Lastly,
they also took note of the fact that Templonuevo only
claimed the amount a year after the last check was
deposited, which according to both Courts, show the
existence of the internal arrangement because of the
lapse of time.
For BPI’s part, it simply admits to the mistake of
depositing the check to Salazar’s account and defends the
act of debiting by citing Articles 1278 and 1279 of the Civil
Code and its right to set off.
ISSUE: Did BPI had the right to set off?
RULING: Yes. However, it is still liable for damages for
its failure to act judiciously in its exercise of its right. The
SC stated that the CFI and the CA were wrong in holding
that the Salazar had sufficiently proven that she was
entitled to the checks. The Court stated that transferees
who are neither payees or indorsees do not have any
presumption in their favor. Transferees in this situation
do not enjoy the presumption of ownership in favor of
holders since they are neither payees nor indorsees of
such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in
itself conclusively establish either the right of the
possessor to receive payment, or of the right of one who
has made payment to be discharged from liability. Thus,
something more than mere possession by persons who
are not payees or indorsers of the instrument is necessary
to authorize payment to them in the absence of any other
facts from which the authority to receive payment may be
inferred.
The Court also stated that the presumption stated in
Section 131(s) of the Rules of Court cannot inure to the
benefit of Salazar because it assumes that there has been
a valid transfer which in the case of checks which are
order instruments, require both delivery and
endorsement.
Regarding the right to set off, the SC cited the case of
Associated Bank vs. Tan. The right of set-off was
explained in Associated Bank v. Tan which states that
abank generally has a right of set-off over the deposits
therein for the payment of any withdrawals on the part of
a depositor. The right of a collecting bank to debit a
client's account for the value of a dishonored check that
has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil
Code provides that fixed, savings, and current deposits of
money in banks and similar institutions shall be governed
by the provisions concerning simple loan. Hence, the
relationship between banks and depositors is one of
creditor and debtor, thus legal compensation may take
place once the requirements set forth in Article 1279 have
been complied with.
However, the bank is still liable for damages because it is
in a business affected with public interest and therefore
they should treat the accounts of their customers with
meticulous care. To begin with, it was the bank’s
negligence which allowed Salazar to deposit 3 checks at 3
separate instances without endorsement. Moreover, the
bank assured Salazar that it would not touch the account
of Salazar’s company pending the resolution of the
dispute with Templonuevo. But contrary to their
assurances, in less than 2 weeks, the bank already debited
the account of her company. This led to damages suffered
by Salazar because she had already issued checks drawn
on her company’s account. The debiting of BPI contrary
to their assurances caused her checks to bounce causing
her embarrassment and damage to her standing in the
business community. Therefore, she is still entitled to
damages, but she is not entitled to the return of the
money that BPI debited.
GAN TIONCO v. COURT OF APPEALS
Nature: Ejectment Case
Ponente: Makalintal, J.
Date: May 21, 1969
DOCTRINE: Attorney’s Fees can be the proper subject
of legal compensation because it is the litigant, not his
counsel, who is the judgment creditor and who may
enforce the judgment by execution. Such credit,
therefore, may properly be the subject of legal
compensation
FACTS:
Art. 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of
each other. (1195)
Art. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
Page 88 of 112
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(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
Ong Wan Sieng was a tenant in certain premises owned
by Gan Tion.
In 1961 Gan Tion filed an ejectment case against the
former, alleging non-payment of rents for August and
September of that year, at P180 a month, or P360
altogether. Ong Wang Sen denied the allegation and said
that the agreed monthly rental was only P160, which he
had offered to pay but he was refused by the plaintiff.
Gan Tion won in the municipal trial court but upon
appeal, was reversed by the CFI. Gan Tion was ordered
to pay the defendant the sum of P500 as attorney's fees.
That judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan
Sieng that he was increasing the rent to P180 a month,
effective November 1st, and at the same time demanded
the rents in arrears at the old rate in the aggregate
amount of P4,320.00, corresponding to a period from
August 1961 to October 1963.
In the meantime, over Gan Tion's opposition, Ong Wan
Sieng was able to obtain a writ of execution of the
judgment for attorney's fees in his favor. Gan Tion went
on certiorari to the Court of Appeals, where he pleaded
legal compensation, claiming that Ong Wan Sieng was
indebted to him in the sum of P4,320 for unpaid rents.
The appellate court accepted the petition but eventually
decided for the respondent Ong, holding that Ong is
indebted to the petitioner for unpaid rentals in an
amount of more than P4,000.00," the sum of P500 could
not be the subject of legal compensation, it being a "trust
fund for the benefit of the lawyer, which would have to be
turned over by the client to his counsel."
Appellate Court: The requisites of legal compensation,
namely, that the parties must be creditors and debtors of
each other in their own right (Art. 1278, Civil Code) and
that each one of them must be bound principally and at
the same time be a principal creditor of the other (Art.
1279), are not present in the instant case, since the real
creditor with respect to the sum of P500 was the
defendant's counsel.
ISSUE: WON there has been legal compensation
between petitioner Gan Tion and respondent Ong Wan
Sieng.
Or WON legal compensation can occur between a
judgment debt and a judgment awarding attorney’s fees
RULING: The award is made in favor of the litigant, not
of his counsel, and is justified by way of indemnity for
damages recoverable by the former in the cases
enumerated in Article 2208 of the Civil Code. It is the
litigant, not his counsel, who is the judgment creditor and
who may enforce the judgment by execution. Such credit,
therefore, may properly be the subject of legal
compensation. Quite obviously it would be unjust to
compel petitioner to pay his debt for P500 when
admittedly his creditor is indebted to him for more than
P4,000.
______________________________________
_______________
PHILIPPINE NATIONAL BANK v. GLORIA G.
VDA. DE ONG ACERO, ARNOLFO ONG ACERO
& SOLEDAD ONG ACERO CHUA
Nature: Action to enforce executory judgment
Ponente: Narvasa, J.
Date: February 27, 1987
FACTS:
Depositor Isabela Wood Construction & Development
Corporation opened a Savings Account with PNB in the
amount of 2 million. The Aceros are judgment creditors
of Isabela Corporation, who seek to enforce against said
savings account the final and executory judgment
rendered in their favor.
The partial judgment ordered payment by ISABELA to
the ACEROS of the amount of P1,532,000.07. Notice of
garnisment was served on the PNB on January 9, 1980,
pursuant to the writ of execution dated December 23,
1979. This was followed by an Order issued on February
15, 1980 directing PNB to hand over this amount of
P1,532,000.07 to the sheriff for delivery, in turn, to the
ACEROS. This partial judgment was made final plus
interest.
Meanwhile, PNB's claim to the two-million-peso deposit
in question is made to rest on an agreement between it
and ISABELA in virtue of which, according to PNB: (1)
the deposit was made by ISABELA as "collateral" in
connection with its indebtedness to PNB as to which it
(ISABELA) had assumed certain contractual
undertakings; and (2) in the event of ISABELA's failure
to fulfill those undertakings, PNB was empowered to
apply the deposit to the payment of that indebtedness.
This agreement concerned a Letter of Credit issued in
favor of a German company from whom Isabela bought
35 trucks. Since Isabela failed to deliver to PNB by way
of mortgage its Paranaque property, and secure consent
of Metropolitan Bank and Homeowners Savings and
Loan Association to secure a 2nd mortgage, and
considering that the obligation of defendant corporation
to PNB have been due and unsettled, PNB applied the
amount of P 2,102804.11 in defendant's savings account
of PNB.
With this basis, PNB intervened in the action between the
Aceros and Isabela. PNB claims that since ISABELA was
at some point in time both its debtor and creditor-
ISABELA's deposit being deemed a loan to it (PNB)-there
had occurred a mutual set-off between them, which
effectively precluded the ACEROS' recourse to that
deposit.
Page 89 of 112
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The Trial Court ruled in favor of PNB. But, the
Intermediate Appellate Court ruled in favor of the Aceros.
ISSUE:
(1) WON legal compensation can take place
between PNB and Isabela
RULING: Article 1278 of the Civil Code does indeed
provide that "Compensation shall take when two persons,
in their own right, are creditors and debtors of each other.
" Also true is that compensation may transpire by
operation of law, as when all the requisites therefor, set
out in Article 1279, are present. Nonetheless, these legal
provisions can not apply to PNB's advantage under the
circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is
the factual finding of the IAC, by which upon firmly
established rules even this Court is bound, that it has not
proven by competent evidence that it is a creditor of
ISABELA. The only evidence present by PNB towards this
end consists of two (2) documents marked in its behalf as
Exhibits 1 and 2, But as the IAC has cogently observed,
these documents do not prove any indebtedness of
ISABELA to PNB. All they do prove is that a letter of
credit might have been opened for ISABELA by PNB, but
not that the credit was ever availed of (by ISABELA's
foreign correspondent MAN, or that the goods thereby
covered were in fact shipped, and received by ISABELA.
The Failure is fatal to its claim.
(2) WON 2M Deposit applied as collateral can be
subject to voluntary compensation
RULING:
Petitioner: PNB has however deposited an alternative
theory, which is that the P2M deposit had been assigned
to it by ISABELA as "collateral," although not by way of
pledge; that ISABELA had explicitly authorized it to apply
the P2M deposit in payment of its indebtedness; and that
PNB had in fact applied the deposit to the payment of
ISABELA's debt on February 26, 1980, in concept of
voluntary compensation.
Supreme Court: This second, alternative theory, is as
untenable as the first.
In the first place, there being no indebtedness to PNB on
ISABELA's part, there is in consequence no occasion to
speak of any mutual set-off, or compensation, whether it
be legal, i.e., which automatically occurs by operation of
law, or voluntary, i.e., which can only take place by
agreement of the parties.
In the second place, the documents indicated by PNB as
constitutive of the claimed assignment do not in truth
make out any such transaction. While the Credit
Agreement declares it to be ISABELA's intention to
"assign to the BANK the proceeds of its contract with the
Department of Public Works for the construction of
Nagapit Suspension Bridge (Substructure) in Cagayan,"
it does not appear that that intention was adhered to,
much less carried out.
Even if it be assumed that such an assignment had indeed
been made, and PNB had been really authorized to apply
the P2M deposit to the satisfaction of ISABELA's
indebtedness to it, nevertheless, since the record reveals
that the application was attempted to be made by PNB
only on February 26, 1980, that essayed application was
ineffectual and futile because at that time, the deposit was
already in custodia legis, notice of garnishment thereof
having been served on PNB on January 9, 1980 (pursuant
to the writ of execution issued by the Court of First
Instance on December 23, 1979 for the enforcement of
the partial judgment in the ACEROS' favor rendered on
November 18,1979).
___________________________________
_____________
ENGRACIO FRANCIA V. IAC
Nature: Complaint to annul sale
Ponente: Gutierrez
Date: June 28, 1988
DOCTRINE: The Court had consistently ruled that
there can be no off-setting of taxes against the claims that
the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than
the tax being collected.
FACTS: Engracio Francia is the registered owner of a
residential lot, 328 square meters, and a two-story house
built upon it situated at Barrio San Isidro, now District of
Sta. Clara, Pasay City, Metro Manila.
On October 15, 1977, a 125 square meter portion of
Francia's property was expropriated by the Republic of
the Philippines for the sum of P4,116.00 representing the
estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his
real estate taxes.
Thus, on December 5, 1977, his property was sold at
public auction pursuant to Section 73 of Presidential
Decree No. 464 known as the Real Property Tax Code in
order to satisfy a tax delinquency of P2,400.00. Ho
Fernandez was the highest bidder for the property.
On March 20, 1979, Francia filed a complaint to annul the
auction sale. He later amended his complaint on January
24, 1980. The petitioner seeks to set aside the auction sale
of his property which took place on December 5, 1977,
and to allow him to recover a 203 square meter lot which
was sold at public auction to Ho Fernandez and ordered
titled in the latter's name. He further averred that his tax
delinquency of P2,400.00 has been extinguished by legal
compensation since the government owed him P4, 116.00
when a portion of his land was expropriated.
Page 90 of 112
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The lower court rendered a decision in favor Fernandez The petition for review was dismissed.
which was affirmed by the Intermediate Appellate Court. ___________________________________
Fernandez appealed to the court. _____________

ISSUE: Whether or not the tax delinquency of Francia REPUBLIC, in behalf of the RICE AND CORN
has been extinguished by legal compensation. ADMINISTRATION v. HON. WALFRIDO DE LOS
ANGELES
RULING: There is no legal basis for the contention. By
legal compensation, obligations of persons, who in their Nature: Complaint to annul sale
own right are reciprocally debtors and creditors of each Ponente: Concepcion, J.
other, are extinguished (Art. 1278, Civil Code). The Date: June 25, 1980
circumstances of the case do not satisfy the requirements
provided by Article 1279, to wit: (1) that each one of the DOCTRINE: Proof of the liquidation of a claim, in order
obligors be bound principally and that he be at the same that there be compensation of debts, is proper if such
time a principal creditor of the other; (2) that the two claim is disputed. But, if the claim is undisputed, as in the
debts be due. case at bar, the statement is sufficient and no other proof
may be required.
The Court had consistently ruled that there can be no off-
setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government. In addition, a taxpayer cannot
refuse to pay his tax when called upon by the collector
because he has a claim against the governmental body not
included in the tax levy.

There are also other factors which compelled the Court to

rule against the petitioner. The tax was due to the city
government while the expropriation was effected by the
national government. Moreover, the amount of P4,116.00
paid by the national government for the 125 square meter
portion of his lot was deposited with the Philippine
National Bank long before the sale at public auction of his
remaining property. Notice of the deposit dated
September 28, 1977 was received by the petitioner on
September 30, 1977. The petitioner admitted in his
testimony that he knew about the P4,116.00 deposited
with the bank but he did not withdraw it. It would have
been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus
aborting the sale at public auction.

And finally, even if we are inclined to give relief to the

petitioner on equitable grounds, there are no strong
considerations of substantial justice in his favor. Mr.
Francia failed to pay his taxes for 14 years from 1963 up
to the date of the auction sale. He claims to have pocketed
the notice of sale without reading it which, if true, is still
an act of inexplicable negligence. He did not withdraw
from the expropriation payment deposited with the
Philippine National Bank an amount sufficient to pay for
the back taxes. The petitioner did not pay attention to
another notice sent by the City Treasurer on November 3,
1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad
faith or collusion in the purchase of the property by Mr.
Fernandez. The petitioner has no standing to invoke
equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.

Page 91 of 112
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FACTS:
On Oct 29, 1964 spouses Petra and Benjamin Farin
obtained a loan from Marcelo Steel Corporation in the
amount of P600k, with a real estate mortgage on a parcel
of land in Quezon City as security. Mortgagee Marcelo
Steel requested for extrajudicial foreclosure which the
sheriff advertised and scheduled. Spouses Farin filed
petition for prohibition against the sheriff and
mortgagee.
Acting upon petition, Hon. De los Angeles issued an order
commanding the Sheriff from proceeding with the public
auction sale.
While the above case was pending, Petra Farin lease
portions of the "Doña Petra Building situated on the
mortgaged premises, to the Rice and Corn
Administration, (RCA).
On December 9, 1967, Marcelo Steel filed a motion
praying that RCA to channel its rental payments to
Marcelo Steel, by invoking paragraph 5 of mortgage
consent. Respondent judge de los Angeles issued assailed
order granting said motion.
The RCA filed a motion for the reconsideration of said
order, praying that it be excluded therefrom, for the
reasons that (a) the rents due Petra Farin had been
assigned by her, with the conformity with the RCA, to
Vidal A. Tan; (b) Petra Farin has an outstanding
obligation with the RCA in the amount of P263,062.40,
representing rice shortages incurred by her as a bonded
warehouse under contract with the RCA, which should be
compensated with the rents due and may be due; and (c)
RCA was never given an opportunity to be heard on these
matters
RTC denied said motion and said that he records does not
show any proof that the plaintiff, Petra Farin, is indebted
to the aforesaid movant, RCA, as allegedly in the said
motion and assuming that the herein plaintiff is really
indebted to the RCA, the records further does not show
that a case has been filed against her for the payment of
such obligation, and therefore, there is no apparent legal
ground to hold the payment of the rentals due the
plaintiff.
On August 28, 1968, the RCA filed a motion to vacate the
orders directing the RCA to pay rentals to Marcelo Steel
Corporation, reiterating therein the grounds alleged in its
motion for reconsideration dated January 19, 1968, and
in its second motion for reconsideration dated April 17,
1968, which has remained unacted upon. In said motion,
the RCA emphasized that it is not a party to the case; that
it had been denied due process for lack of notice and the
right to be heard; that compensation took place by
operation of law pursuant to Art. 1286 of the Civil Code
without the need of a case against Petra R. Farin, or a
decision rendered against her for the payment of such
obligation. Motion was denied, and so RCA filed petition
for review.
ISSUE: WON RCA can validly claim that compensation
of debts had taken place, even if no case had been filed.
RULING:
Insofar as it recognized the right of the herein private
respondent, Marcelo Steel Corporation, to collect and
receive rentals from the lessees of the Doña Petra
Building, the order of December 23, 1967 was within the
competence of the respondent Judge, since the lessor-
mortgagor, Petra Farin, had empowered the said
corporation to collect and receive any interest, dividend,
rents, profits or other income or benefit produced by or
derived from the mortgaged property under the terms of
the real estate mortgage contract executed by them.
The respondent Judge also erred in denying the claim of
the RCA that compensation of debts had taken place
allegedly because "The records does not show any proof
that the plaintiff is indebted to the aforesaid movant,
RCA, as alleged in the said motion and assuming that the
herein plaintiff is really indebted to the RCA, the records
further does not show that a case has been filed against
her, or a decision has been rendered against her for the
payment of such obligation."
Proof of the liquidation of a claim, in order that there be
compensation of debts, is proper if such claim is disputed.
But, if the claim is undisputed, as in the case at bar, the
statement is sufficient and no other proof may be
required.
In the instant case, the claim of the RCA that Petra R.
Farin has an outstanding obligation to the RCA in the
amount of P263,062.40 which should be compensated
against the rents already due or may be due, was raised
by the RCA in its motion for the reconsideration of the
order of December 23, 1967.
A copy of said motion was duly furnished counsel for
Petra R. Farin and although the said Petra R. Farin
subsequently filed a similar motion for the
reconsideration of the order of December 23, 1967, she
did not dispute nor deny such claim
Neither did the Marcelo Steel Corporation dispute such
claim of compensation in its opposition to the motion for
the reconsideration of the order of December 23, 1967.
The silence of Petra R. Farin, order of December 23, 1967.
although the declaration is such as naturally one to call
for action or comment if not true, could be taken as an
admission of the existence and validity of such a claim.
Therefore, since the claim of the RCA is undisputed, proof
of its liquidation is not necessary. At any rate, if the
record is bereft of the proof mentioned by the respondent
Judge of first instance, it is because the respondent Judge
did not call for the submission of such proof. Had the
respondent Judge issued an order calling for proof, the
RCA would have presented sufficient evidence to the
satisfaction of the court.
Aquino concurs: I concur in the result and on the
understanding that the trial court should hold a hearing
to determine the merits of the claim of petitioner RCA
Page 92 of 112
1938
that it is entitled to retain the rentals by way of
compensation.
Petition of RCA granted.
___________________________________
_____________
LORETO J. SOLINAP v. HON. AMELIA K. DEL
ROSARIO, as Presiding Judge of Branch IV,
Court of First Instance of Iloilo, SPOUSES
JUANITO and HARDEVI R. LUTERO, and THE
PROVINCIAL SHERIFF OF ILOILO
Nature: Complaint to annul sale
Ponente: Escolin, J.
Date: July 25, 1983
DOCTRINE: Compensation cannot take place where
one's claim against the other is still the subject of court
litigation. It is a requirement, for compensation to take
place, that the amount involved be certain and
liquidated."
FACTS:
The spouses Tiburcio Lutero and Asuncion Magalona,
owners of the Hacienda Tambal, leased the said hacienda
to petitioner Loreto Solinap for 10 years for the stipulated
rental of P50,000.00 a year.
It was further agreed in the lease contract that
P25,000.00 from the rental should be paid by Solinap to
the PNB to amortize the indebtedness of the spouses
Lutero.
When Tiburcio Lutero died, his heirs instituted the
testate estate proceedings. On the basis of an order,
respondents Juanito Lutero [grandson and heir of the
late Tiburcio] and his wife Hardivi R. Lutero paid the
PNB the sum of P25,000.00 as partial settlement of the
deceased's obligations. Spouses Lutero filed a motion
seeking reimbursement from the petitioner. They argued
that the said amount should have been paid by petitioner
to the PNB, as stipulated in the lease contract.
Before the motion could be resolved, petitioner Solinap a
separate action against the spouses Lutero for collection
of P71,000.00 they borrowed from the petitioner. The
spouses answered and pleaded a counterclaim against
petitioner for P125,000.00 representing unpaid rentals
on Hacienda Tambal and that petitioners purchased one-
half of Hacienda Tambal.
The respondent judge issued an order granting the
spouses’ motion for reimbursement from petitioner of
the sum of P25,000.00, plus interest. Petitioner filed a
petition for certiorari before this Court, assailing the
above order, which the Court Dismissed.
Respondent Luteros then filed a Motion for Execution of
the payment for reimbursement. Thereafter the
Petitioner Solinap filed with the respondent court a
motion raising that the amount payable to Luteros should
be compensated against the latter's indebtedness to
Solinap amounting to P7 1,000.00.
This motion was denied by respondent judge on the
ground that "the claim of Loreto Solinap against spouses
was yet to be liquidated and determined, such that the
requirement in Article 1279 of the New Civil Code that
both debts are liquidated for compensation to take place
has not been established by the oppositor Loreto Solinap.
Petitioner filed a motion for reconsideration of this order,
but the same was denied. Hence, this petition.
ISSUE: WON the obligation of petitioner to private
respondents may be compensated or set-off against the
amount sought to be recovered in an action for a sum of
money filed by the former against the latter
RULING:
The petition is devoid of merit.
Petitioner: Judge erred in not declaring the mutual
obligations of the parties extinguished to the extent of
their respective amounts. He relies on Article 1278 of the
Civil Code to the effect that compensation shall take place
when two persons, in their own right, are creditors and
debtors of each other.
Supreme Court: The argument fails to consider Article
1279 of the Civil Code which provides that compensation
can take place only if both obligations are liquidated.
In the case at bar, the petitioner's claim against the
respondent Luteros in Civil Case No. 12379 is still
pending determination by the court. While it is not for the
Court to pass upon the merits of the plaintiffs' cause of
action in that case, it appears that the claim asserted
therein is disputed by the Luteros on both factual and
legal grounds. More, the counterclaim interposed by
them, if ultimately found to be meritorious, can defeat
petitioner's demand. Upon this premise, his claim in that
case cannot be categorized as liquidated credit which may
properly be set-off against his obligation.
As this Court ruled in Mialhe vs. Halili, “Compensation
cannot take place where one's claim against the other is
still the subject of court litigation. It is a requirement, for
compensation to take place, that the amount involved be
certain and liquidated."
WHEREFORE, the petition is dismissed, with costs
against petitioner.
Abad Concurring: Petition is frivolous, and petitioner
should be assessed treble costs.
______________________________________
_______________
FRANCISCO SYCIP, JR., v. COURT OF APPEALS
Nature: Estafa Case
Ponente: Relova, J.
Page 93 of 112
1938
Date: January 31, 1985
DOCTRINE: Compensation takes place only when two
persons in their own right are creditors and debtors of
each other, and that each one of the obligors is bound
principally and is at the same time a principal creditor of
the other.
not dismissing the appeal considering that the latter is
not legally the aggrieved party.
This contention is untenable. Compensation cannot take
place in this case since the evidence shows that Jose K.
Lapuz is only an agent of Albert Smith and/or Dr. Dwight
Dill.

FACTS: Compensation takes place only when two persons in their

Jose Lapuz received from Albert Smith in Manila 2000
shares of stock from Republic Flour Mills in the name of
Dwight Dill who had left for Honolulu, with the
understanding that Lapuz was supposed to sell the shares
of stock, the value out of which he would get a
commission. Lapuz made it clear that he did not own the
shares. He was approached by defendant Sycip who
assured him he could sell it for a good price. Thereafter,
Jose K. Lapuz received a letter from the Sycip, informing
him that "1,758 shares has been sold for a net amount of
P29,000.00," but that the transaction could not be
concluded until they received the Power of Attorney duly
executed by Dwight Dill, appointing a person to endorse
the certificate of stock and a resolution from Biochemical
Research Laboratory authorizing transfer of certificate.
Lapuz signed his conformity to such document. Power of
attorney only authorized sale of 1758 shares.
Jose K. Lapuz managed to sell 758 shares, the sum of
which was remitted to Albert Smith.
The accused-appellant sold and paid for the other 500
shares of stock, for the payment of which Jose K. Lapuz
issued in his favor a receipt, dated June 9, 1961
The draft for P8,000.00, "the full value of the 500 shares'
mentioned in the letter of the accused-appellant was
dishonored by the bank, for lack of funds. Jose K. Lapuz
then "discovered from the bookkeeper that he got the
money and he pocketed it already, so he started hunting
for Mr. Sycip. When he found the accused-appellant, the
latter gave him a check in the amount of P5,000.00,
issued by his daughter on July 12, 1961. This also was
dishonored by the bank for lack of sufficient funds to
cover it.
When Jose K. Lapuz sent a wire to him, telling him that
he would "file estafa case (in the) fiscals office ... against
him' unless he raise [the] balance left eight thousand" the
accused-appellant answered him by sending a wire,
"P5,000 remitted ask boy check Equitable. But "the check
was never made good," so Jose K. Lapuz testified. He had
to pay Albert Smith the value of the 500 shares of stock."
own right are creditors and debtors of each other, and
that each one of the obligors is bound principally and is
at the same time a principal creditor of the other.
Moreover, as correctly pointed out by the trial court,
Lapuz did not consent to the off-setting of his obligation
with petitioner's obligation to pay for the 500 shares.
(2) WON the Court of Appeals denied him due
process when they refused his prayer that the
appealed case be heard.
RULING: It is discretionary on its part whether or not
to set a case for oral argument. If it desires to hear the
parties on the issues involved, motu propio or upon
petition of the parties, it may require contending parties
to be heard on oral arguments. Stated differently, if the
Court of Appeals chooses not to hear the case, the Justices
composing the division may just deliberate on the case,
evaluate the recorded evidence on hand and then decide
it. Accused-appellant need not be present in the court
during its deliberation or even during the hearing of the
appeal before the appellate court; it will not be heard in
the manner or type of hearing contemplated by the rules
for inferior or trial courts.
___________________________________
_____________

The Trial Court convicted Sycip of Estafa which the Court

of Appeals Affirmed.

ISSUE:

(1) WON legal compensation can take place

RULING:
Petitioner contends that respondent Court of Appeals
erred in not applying the provisions on compensation or
setting-off debts under Articles 1278 and 1279 of the New
Civil Code, despite evidence showing that Jose K. Lapuz
still owed him an amount of more than P5,000.00 and in

Page 94 of 112
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CIA MARITIMA V. COURT OF APPEALS
Nature: Complaint to recover attorney’s fees
Ponente: Mendoza, J.
Date: November 16, 1999
DOCTRINE: Generally, the amount of attorney's fees
due is that stipulated in the retainer agreement which is
conclusive as to the amount of the lawyer's
compensation. In the absence thereof, the amount of
attorney's fees is fixed on the basis of quantum meruit,
i.e., the reasonable worth of his services. In determining
the amount of attorney's fees, the following factors are
considered: (1) the time spent and extent of services
rendered; (2) the novelty and difficulty of the questions
involved; (3) the importance of the subject matter; (4) the
skill demanded; (5) the probability of losing other
employment as a result of the acceptance of the proffered
case; (6) the amount involved in the controversy and the
benefits resulting to the client; (7) the certainty of
compensation; (8) the character of employment; and (9)
the professional standing of the lawyer.
FACTS:
Maritime Company of the Philippines was sued by
Genstar Container Corporation before the Regional Trial
Court, Branch 31, Manila. On November 29, 1985, it was
ordered to pay Genstar Container Corporation, judgment
debt and attorney’s fees.
As a result, properties of petitioners Compania Maritima,
Inc., El Varadero de Manila, and Mindanao Terminal and
Brokerage Services at Sangley Point, Cavite, were levied
upon in execution.
Petitioners Compania Maritima, Inc., El Varadero de
Manila, and Mindanao Terminal and Brokerage Services
engaged the services of private respondent, Atty.
Exequiel S. Consulta for (3) cases.
The cases were eventually resolved in this wise: (1) in
Civil Case No. 85-30134, the trial court dismissed the
third-party claim and motion for the issuance of a writ of
preliminary injunction filed by Atty. Consulta; (2) after
Atty. Consulta filed the complaint with the Tanodbayan
in TBP Case No. 86-03662, petitioners transferred the
handling of the case to another lawyer; and (3) Civil Case
No. 86-37196 was eventually dismissed on motion of both
parties, but only after the trial court's denial of the motion
to dismiss filed by Genstar Container Corporation was
upheld on appeal by both the Court of Appeals and the
Supreme Court.
For the three cases Atty. Consulta billed them amounts
which petitioners did not fully pay.
Because of the failure of corporate petitioners to pay the
balance of his attorney's fees, Atty. Consulta brought suit
against petitioners in the Regional Trial Court, Branch
94, Quezon City. The Trial Court and Court of Appeals
ruled in his favor, granting him an award of (1) 2.5 M (2)
20 k (3) 20 K for the three cases. Petitioners appealed.
ISSUE: WON the amount of attorney's fees awarded to
the private respondent by the court a quo and affirmed by
the Honorable Court is reasonable.
RULING:
The issue in this case concerns attorney's fees in the
ordinary concept. Generally, the amount of attorney's
fees due is that stipulated in the retainer agreement
which is conclusive as to the amount of the lawyer's
compensation. In the absence thereof, the amount of
attorney's fees is fixed on the basis of quantum meruit,
i.e., the reasonable worth of his services. In determining
the amount of attorney's fees, the following factors are
considered: (1) the time spent and extent of services
rendered; (2) the novelty and difficulty of the questions
involved; (3) the importance of the subject matter; (4) the
skill demanded; (5) the probability of losing other
employment as a result of the acceptance of the proffered
case; (6) the amount involved in the controversy and the
benefits resulting to the client; (7) the certainty of
compensation; (8) the character of employment; and (9)
the professional standing of the lawyer.
Both the Court of Appeals and the trial court approved
attorney's fees in the total amounts of P50,000.00 and
P30,000.00 for the services of Atty. Consulta in Civil
Case No. 85-30134 and TBP Case No. 86-03662,
respectively. Based on the above criteria, we think said
amounts are reasonable, , although the third-party claim
and motion for the issuance of a writ of preliminary
injunction filed by Atty. Consulta in Civil Case No. 85-
30134 was dismissed by the trial court, while TBP Case
No. 86-03662 was given by petitioners to another lawyer
after Atty. Consulta had filed the complaint. On the other
hand, although the order of the trial court in Civil Case
No. 86-37196 granting the motion to dismiss filed by both
parties did not state the grounds therefor, it is reasonable
to infer that petitioners agreed thereto in consideration
of some advantage.
Hence, the rulings of the Court of Appeals and the trial
court that, because of the complexity of the issues
involved and the work done by counsel, the amount of
P2,550,000.00 was reasonable for Atty. Consulta's
services.
In addition, the value of the properties involved was
considerable. As already stated, to satisfy the judgment in
favor of Genstar Container Corporation in Civil Case No.
85-30134, properties of petitioners worth
P51,000,000.00 were sold at public auction. Only
P1,235,000.00 was realized from the sale and petitioners
were in danger of losing their properties. As the appellate
court pointed out, Atty. Consulta rendered professional
services not only in the trial court but in the Court of
Appeals and in this Court. There is no question that
through his efforts, properties owned by petitioners were
saved from execution.
In the present case, the Court of Appeals affirmed the
factual conclusions of the trial court that: (1) the issues in
Civil Case No. 86-03662, including the appeals taken
Page 95 of 112
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therefrom to the Court of Appeals and the Supreme
Court, were quite complex; (2) the pleadings filed by Atty.
Consulta were well-researched; and (3) as a result of Atty.
Consulta's efforts, the adv
erse parties were induced to agree to the dismissal of the
case.
Note: Other Issues about Piercing Corporate Fiction.
______________________________________
_______________
MINDANAO PORTLAND CEMENT v. COURT OF
APPEALS
Nature: Complaint to annul sale
Ponente: Teehankee, J.
Date: February 28, 1983
DOCTRINE: Trial Court should not defeat the
compensation or set-off of the two (2) obligations of the
corporations to each other which had already
extinguished both debts by operation of law, by virtue of
two separate cases filed in the same court.
FACTS:
On January 3, 1978, one Atty. Casiano P. Laquihon, in
behalf of third-party defendant Pacweld Steel
Corporation (Pacweld for short) as the latter's attorney,
filed a 'motion to direct payment of attorney's fee to
counsel'addressed to Mindanao Portland Cement
Corporation (MPCC for short), (himself ), invoking in his
motion the fact that in the decision of the court of Sept.
14, 1976, MPCC was adjudged to pay Pacweld the sum of
P10,000.00 as attorney's fees
On March 14, 1978, MPCC filed an opposition to Atty.
Laquihon's motion, stating, as grounds therefor, that said
amount is set-off by a like sum of P10,000.00 which it
MPCC has collectible in its favor from Pacweld also by
way of attorney's fees which MPCC recovered from the
same CFI in an another case.
On June 26, 1978 the court issued the order appealed
from and despite MPCCs motion for reconsideration of
said order, citing the law applicable and Supreme Court
decisions denied the same in its order of August 28, 1978
also subject matter of this appeal.
RULING:
It is clear from the record that both corporations,
petitioner Mindanao Portland Cement Corporation
(appellant) and respondent Pacweld Steel Corporation
(appellee), were creditors and debtors of each other, their
debts to each other consisting in final and executory
judgments of the Court of First Instance in two (2)
separate cases, ordering the payment to each other of the
sum of P10,000.00 by way of attorney's fees. The two (2)
obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law and
extinguished both debts to the concurrent amount of
P10,000.00, pursuant to the provisions of Arts. 1278,
1279 and 1290 of the Civil Code, since all the requisites
provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are
not aware of the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting
Atty. Laquihon's motion for amendment of the judgment
of September 14, 1976 against Mindanao Portland
Cement Corporation so as to make the award therein of
P10,000.00 as attorney's fees payable directly to himself
as counsel of Pacweld Steel Corporation instead of
payable directly to said corporation as provided in the
judgment, which had become final and executory long
before the issuance of said "amendatory" order was a void
alteration of judgment. It was a substantial change or
amendment beyond the trial court's jurisdiction and
authority and it could not defeat the compensation or set-
off of the two (2) obligations of the corporations to each
other which had already extinguished both debts by
operation of law.
___________________________________
_____________
THE INTERNATIONAL CORPORATE BANK INC.
v. THE IMMEDIATE APPELLATE COURT
Nature: Complaint for recovery of money market
placements
Ponente: Paras, J. ;
Date: June 30, 1988
DOCTRINE: Compensation is not proper where the
claim of the person asserting the set-off against the other
is not clear nor liquidated; compensation cannot extend
to unliquidated, disputed claim arising from breach of
contract.
FACTS:
Private respondent secured from petitioner's
predecessors-in-interest, the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital
Corp., a loan in the amount of P50,000,000.00. To
secure this loan, private respondent mortgaged her real
properties in Quiapo, Manila and in San Rafael, Bulacan,
which she claimed have a total market value of
P110,000,000.00. Of this loan, only the amount of
P20,000,000.00 was approved for release. The same
amount was applied to pay her other obligations to
petitioner, bank charges and fees. Thus, private
respondent's claim that she did not receive anything from
the approved loan.
Private respondent then made a money market
placement with Atrium. But she allegedly failed to pay her
mortgaged indebtedness to the bank so that the latter
refused to pay the proceeds of the money market
placement on maturity but applied the amount instead to
the deficiency in the proceeds of the auction sale of the
mortgaged properties. With Atrium as the only bidder,
the properties were sold for 20,000,000. Petitioner ICB
now claims that private respondent still owed them 6.81
M.
Page 96 of 112
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Private respondent filed a complaint with the trial court
against petitioner for annulment of the sheriff's sale of
the mortgaged properties, for the release to her of the
balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83
representing the proceeds of her money market
investment and for damages.
Petitioner denies private respondent's allegations and
asserts among others, that it has the right to apply or set
off private respondent's money market claim of
P1,062,063.83. Petitioner thus interposes counterclaims
for the recovery of P5,763,741.23, representing the
balance of its deficiency claim after deducting the
proceeds of the money market placement, and for
damages.
During trial, private respondent filed a motion to order
petitioner to release in her favor the sum of
P1,062,063.83, representing the proceeds of the money
market placement. petitioner filed an opposition thereto,
claiming that the proceeds of the money market
investment had already been applied to partly satisfy its
deficiency claim.
Trial Court ruled in favor of private respondent
ISSUE: WON there can be legal compensation in the
case at bar, involving money market interests and a
mortgage loan deficiency.
RULING:
Petitioner: After foreclosing the mortgage, there is still
due from private respondent as deficiency the amount of
P6.81 million against which it has the right to apply or set
off private respondent's money market claim of
P1,062,063.83.
Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. (Art.
1278, Civil Code). "When all the requisites mentioned in
Art. 1279 of the Civil Code are present, compensation
takes effect by operation of law, even without the consent
or knowledge of the debtors." (Art. 1290, Civil Code).
Article 1279 of the Civil Code requires among others, that
in order that legal compensation shall take place, "the two
debts be due" and "they be liquidated and demandable."
Compensation is not proper where the claim of the
person asserting the set-off against the other is not clear
nor liquidated; compensation cannot extend to
unliquidated, disputed claim arising from breach of
contract.
There can be no doubt that petitioner is indebted to
private respondent in the amount of P1,062,063.83
representing the proceeds of her money market
investment. This is admitted. But whether private
respondent is indebted to petitioner in the amount of
P6.81 million representing the deficiency balance after
the foreclosure of the mortgage executed to secure the
loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking
place.
6. Novation
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
creditor. (1203)
Article 1292. In order that an obligation may be
extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point
incompatible with each other. (1204)
Article 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be made
even without the knowledge or against the will of the
latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237. (1205a)
Article 1294. If the substitution is without the
knowledge or against the will of the debtor, the new
debtor's insolvency or non-fulfillment of the obligations
shall not give rise to any liability on the part of the
original debtor. (n)
Article 1295. The insolvency of the new debtor, who has
been proposed by the original debtor and accepted by the
creditor, shall not revive the action of the latter against
the original obligor, except when said insolvency was
already existing and of public knowledge, or known to the
debtor, when the delegated his debt. (1206a)
Article 1296. When the principal obligation is
extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit
third persons who did not give their consent. (1207)
Article 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that the
former relation should be extinguished in any event. (n)
Article 1298. The novation is void if the original
obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates
acts which are voidable. (1208a)
Article 1299. If the original obligation was subject to a
suspensive or resolutory condition, the new obligation
shall be under the same condition, unless it is otherwise
stipulated. (n)
Article 1300. Subrogation of a third person in the rights
of the creditor is either legal or conventional. The former
is not presumed, except in cases expressly mentioned in
this Code; the latter must be clearly established in order
that it may take effect. (1209a)
Article 1301. Conventional subrogation of a third
person requires the consent of the original parties and of
the third person. (n)
Article 1302. It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of
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the obligation pays, without prejudice to the
effects of confusion as to the latter's share.
(1210a)
Article 1303. Subrogation transfers to the persons
subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third
person, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation.
(1212a)
Article 1304. A creditor, to whom partial payment has
been made, may exercise his right for the remainder, and
he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of
the same credit. (1213)
Article 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the
others for the share in the obligation corresponding to
them. (1143)
Kinds of novation
a. As to its nature
i. Subjective or
personal
ii. Objective or
real
b. As to its form
i. Express
ii. Implied
SALAZAR V. J.Y BROTHERS MARKETING GROUP
Nature: Action to declare that a novation existed and
thus petitioner is not liable as indorser to the respondent.
Ponente: PERALTA, J.
Date:OCTOBER 20, 2010
DOCTRINE: For extinctive novation to existsthe
following requisites must be fulfilled: (1) a previous valid
obligation, (2) an agreement of all parties concerned to a
new contract, (3) the extinguishment of the old
obligation, and (4) the birth of a valid new obligation.
FACTS:Respondent is a corporation engaged in the
business of selling sugar, rice and other commodities.
The petitioner, Anamer Salazar, a freelance sales agent,
was approached by Isagani Calleja and Jess Kallos, if she
knew a supplier of rice. Answering in the positive,
petitioner accompanied the two to the respondent. As a
consequence, Salazar with Calleja and Kallos procured
from J. Y. Bros. 300 cavans of rice worth P214,000.00.
As payment, Salazar negotiated and indorsed to J.Y. Bros.
Prudential Bank Check issued by Nena Jaucian Timario
in the amount of P214,000.00 with the assurance that the
check is good as cash. On that assurance, J.Y. Bros. parted
with 300 cavans of rice to Salazar. However, upon
presentment, the check was dishonored due to “closed
account.”
Informed of the dishonor of the check, Calleja, Kallos and
Salazar delivered to J.Y. Bros. a replacement cross Solid
Bank Check again issued by Nena Jaucian Timario in the
amount of P214,000.00 but which, just the same,
bounced due to insufficient funds. When despite the
demand letter Salazar failed to settle the amount due J.Y.
Bros., the latter charged Salazar and Timario with the
crime of estafa. The petitioner was acquitted but was
ordered to pay the respondent the sum of P214,000.
Petitioner appealed and was allowed to present evidence
regarding the civil aspect of the case.
RTC dismissed the civil aspect of the criminal case as
against the petitioner on the ground that after the
Prudential Bank check was dishonored, it was replaced by
a Solid Bank check which, however, was also
subsequently dishonored; that since the Solid Bank check
was a crossed check, which meant that such check was
only for deposit in payee’s account, a condition that
rendered such check non-negotiable, the substitution of
a non-negotiable Solid Bank check for a negotiable
Prudential Bank check was an essential change which had
the effect of discharging from the obligation whoever
may be the endorser of the negotiable check. The RTC
concluded that the absence of negotiability rendered
nugatory the obligation arising from the technical act of
indorsing a check and, thus, had the effect of novation;
and that the ultimate effect of such substitution was to
extinguish the obligation arising from the issuance of the
Prudential Bank check. CA reversed the RTC stating that
the petitioner was considered an indorser of the checks
paid to respondent and considered her as an
accommodation indorser, who was liable on the
instrument to a holder for value, notwithstanding that
such holder at the time of the taking of the instrument
knew her only to be an accommodation party.
ISSUE: W/N the issuance of a crossed check after the
first negotiable check produced the effect of novation and
thus making the petitioner incur no civil liability.
HELD: No, there was no novation intended by the
parties in this case and thus there is no novation
and the petitioner is still liable as an indorser of
the check.Novation is done by the substitution or
change of the obligation by a subsequent one which
extinguishes the first, either by changing the object or
principal conditions, or by substituting the person of the
debtor, or by subrogating a third person in the rights of
the creditor. Novation may either be extinctive or
modificatory, much being dependent on the nature of the
change and the intention of the parties. Extinctive
novation is never presumed; there must be an
express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate
their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied
novation necessitates that the incompatibility between
the old and new obligation be total on every point such
that the old obligation is completely superceded by the
new one. The test of incompatibility is whether they can
stand together, each one having an independent
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existence; if they cannot and are irreconcilable, the
subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects
of, first, extinguishing an existing obligation and, second,
creating a new one in its stead. This kind of novation
presupposes a confluence of four essential requisites: (1)
a previous valid obligation, (2) an agreement of all parties
concerned to a new contract, (3) the extinguishment of
the old obligation, and (4) the birth of a valid new
obligation. Novation is merely modificatory where the
change brought about by any subsequent agreement is
merely incidental to the main obligation (e.g., a change in
interest rates or an extension of time to pay; in this
instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or
supplant some but not all of its provisions.)
In this case, respondent’s acceptance of the Solid Bank
check, which replaced the dishonored Prudential Bank
check, did not result to novation as there was no express
agreement to establish that petitioner was already
discharged from his liability to pay respondent the
amount of P214,000.00 as payment for the 300 bags of
rice. In fact, when the Solid Bank check was delivered to
respondent, the same was also indorsed by petitioner
which shows petitioner’s recognition of the existing
obligation to respondent to pay P214,000.00 subject of
the replaced Prudential Bank check.
Moreover, respondent’s acceptance of the Solid Bank
check did not result to any incompatibility, since the two
checks − Prudential and Solid Bank checks − were
precisely for the purpose of paying the amount of
P214,000.00, i.e., the credit obtained from the purchase
of the 300 bags of rice from respondent. Indeed, there
was no substantial change in the object or principal
condition of the obligation of petitioner as the indorser of
the check to pay the amount of P214,000.00. It would
appear that respondent accepted the Solid Bank check to
give petitioner the chance to pay her obligation.
The argument of the petitioner that the acceptance of the
Solid Bank check, a non-negotiable check being a crossed
check, which replaced the dishonored Prudential Bank
check, a negotiable check, is a new obligation in lieu of the
old obligation arising from the issuance of the Prudential
Bank check, since there was an essential change in the
circumstance of each check, was shot down by the court.
Taking judicial cognizance of the practice that a check
with two parallel lines in the upper left hand corner
means that it could only be deposited and could not be
converted into cash. Thus, the effect of crossing a check
relates to the mode of payment, meaning that the drawer
had intended the check for deposit only by the rightful
person, i.e., the payee named therein.The change in
the mode of paying the obligation was not a
change in any of the objects or principal
condition of the contract for novation to take
place.
METROPOLITAN BANK V. RURAL BANK OF GERONA
INC.
Nature: Appeal on certiorari questioning the CA re: the
need to include Central Bank as a necessary party.
Ponente: BRION, J.
Date: July 5, 2010
DOCTRINE: When a third person not interested in the
obligation, pays with the express or tacit approval of the
debtor there is a presumed legal subrogation and when
such occurs the party who is subrogated is no longer
required as a necessary party.
FACTS: Rural Bank of Gerona, Inc. (RBG), and the
Central Bank of the Philippines (Central Bank) entered
into an agreement providing that RBG shall facilitate the
loan applications of farmers-borrowers under the Central
Bank-International Bank for Reconstruction and
Development’s (IBRD’s) 4th Rural Credit Project. The
agreement required RBG to open a separate bank account
where the IBRD loan proceeds shall be deposited. The
RBG accordingly opened a special savings account with
Metrobank’s Tarlac Branch. As the depository bank of
RBG, Metrobank was designated to receive the credit
advice released by the Central Bank representing the
proceeds of the IBRD loan of the farmers-borrowers;
Metrobank, in turn, credited the proceeds to RBG’s
special savings account for the latter’s release to the
farmers-borrowers.
Three loans applications were granted and accordingly a
deposit was made in Metrobank’s demand deposit
account. One for P178,653 in favor of Dominador de
Jesus, another for Basilio Panopio in the amount of
P189,052.00, and finally Ponciano Lagman’s loan
application for P220,000.00. RBG withdrew all the
deposits except for Lagman’s loan from which it only
withdrew 75,375.
A month later Central Bank issued debit advices,
reversing all the approved IBRD loans. The Central Bank
implemented the reversal by debiting from Metrobank’s
demand deposit account the amount corresponding to all
three IBRD loans.
Upon receipt of the debit advices, Metrobank, in turn,
debited the following amounts from RBG’s special
savings account: P189,052.00, P115,000.00, and
P8,000.41. Metrobank, however, claimed that these
amounts were insufficient to cover all the credit advices
that were reversed by the Central Bank. It demanded
payment from RBG which could make partial payments.
As of October 17, 1979, Metrobank claimed that RBG had
an outstanding balance of P334,220.00. To collect this
amount, it filed a complaint for collection of sum of
money against RBG before the RTC. RTC ruled for the
petitioner stating that legal subrogation occurred.
On appeal, the CA noted that this was not a case of legal
subrogation under Article 1302 of the Civil Code.
Nevertheless, the CA recognized that Metrobank had a
right to be reimbursed of the amount it had paid and
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failed to recover, as it suffered loss in an agreement that
involved only the Central Bank and the RBG. It clarified,
however, that a determination still had to be made on
who should reimburse Metrobank. Noting that no
evidence exists why the Central Bank reversed the credit
advices it had previously confirmed, the CA declared that
the Central Bank should be impleaded as a necessary
party so it could shed light on the IBRD loan reversals.
Thus, the CA set aside the RTC decision, and remanded
the case to the trial court for further proceedings after the
Central Bank is impleaded as a necessary party. After the
CA denied its motion for reconsideration, Metrobank
filed the present petition for review on certiorari.
ISSUE: W/N there was a legal subrogation and W/N
Central Bank is a necessary party
HELD: Yes, there was legal subrogation and
because of such Central Bank is no longer a
necessary party. The Terms and Conditions of the
IBRD 4th Rural Credit Project executed by the Central
Bank and the RBG shows that the farmers-borrowers to
whom credits have been extended, are primarily liable for
the payment of the borrowed amounts. The loans were
extended through the RBG which also took care of the
collection and of the remittance of the collection to the
Central Bank. RBG, however, was not a mere conduit
and collector. While the farmers-borrowers were the
principal debtors, RBG assumed liability under the
Project Terms and Conditions by solidarily binding itself
with the principal debtors to fulfill the obligation.
If RBG delays in remitting the amounts due, the Central
Bank imposed a 14% per annum penalty rate on RBG
until the amount is actually remitted. The Central Bank
was further authorized to deduct the amount due from
RBG’s demand deposit reserve should the latter become
delinquent in payment.
Based on these arrangements, the Central Bank’s
immediate recourse, therefore should have been against
the farmers-borrowers and the RBG; thus, it erred
when it deducted the amounts covered by the
debit advices from Metrobank’s demand deposit
account. Under the Project Terms and Conditions,
Metrobank had no responsibility over the proceeds of the
IBRD loans other than serving as a conduit for their
transfer from the Central Bank to the RBG once credit
advice has been issued. Thus, the agreement governed
only the parties involved – the Central Bank and the RBG.
Metrobank was simply an outsider to the agreement.
Article 1302 of the Civil Code which provides “It is
presumed that there is legal subrogation:
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
Metrobank as a third party to the Central Bank-RBG
agreement, had no interest except as a conduit, and was
not legally answerable for the IBRD loans. Despite this,
it was Metrobank’s demand deposit account, instead of
RBG’s, which the Central Bank proceeded against, on the
assumption perhaps that this was the most convenient
means of recovering the cancelled loans. That
Metrobank’s payment was involuntarily made does not
change the reality that it was Metrobank which effectively
answered for RBG’s obligations.
Was there express or tacit approval by RBG of the
payment enforced against Metrobank? After Metrobank
received the Central Bank’s debit advices in November
1978, it (Metrobank) accordingly debited the amounts it
could from RBG’s special savings account without any
objection from RBG. RBG’s President and Manager, Dr.
Aquiles Abellar, even wrote Metrobank, on August 14,
1979, with proposals regarding possible means of settling
the amounts debited by Central Bank from Metrobank’s
demand deposit account. These instances are all
indicative of RBG’s approval of Metrobank’s payment of
the IBRD loans. That RBG’s tacit approval came after
payment had been made does not completely negate the
legal subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation
transfers to the person subrogated the credit with all the
rights thereto appertaining, either against the debtor or
against third persons. As the entity against which the
collection was enforced, Metrobank was subrogated to
the rights of Central Bank and has a cause of action to
recover from RBG the amounts it paid to the Central
Bank, plus 14% per annum interest.
Impleading the Central Bank as a party is completely
unnecessary. CA erroneously believed that the Central
Bank’s presence is necessary “in order x x x to shed light
on the matter of reversals made by it concerning the loan
applications of the end users and to have a complete
determination or settlement of the claim.” In so far as
Metrobank is concerned, however, the Central Bank’s
presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place;
Metrobank’s interest is simply to collect the amounts it
paid the Central Bank. Whatever cause of action RBG
may have against the Central Bank for the unexplained
reversals and any undue deductions is for RBG to
ventilate as a third-party claim; if it has not done so at
this point, then the matter should be dealt with in a
separate case that should not in any way further delay the
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disposition of the present case that had been pending
before the courts since 1980.
FUA LU V. YAP
Nature:
Ponente: N/A
Date: July 30, 1943
DOCTRINE: Even if a subsequent obligation does not
expressly can cancel the old obligation, if it is
incompatible with the former, there is an implied
novation by reason of incompatibility.
FACTS: Plaintiff obtained a judgment against defendant
and was ordered to pay P1,538.04 with legal interest. A
parcel of land was levied upon by the sheriff. However, it
was agreed that the defendants would execute a mortgage
in favor of the plaintiffs and that the obligation would be
reduced to P1,200 payable in four installments of P300.
It was also agree that that in case the defendants
defaulted in the payment of any of the installments, they
would pay ten per cent of the unpaid balance as attorney's
fees plus the costs of the action to be brought by the
petitioner by reason of such default, and the further
amount of P338, representing the discount conceded to
the defendants.
As a result of the agreement thus reached by the parties,
the sale of the land advertised by the provincial sheriff did
not take place. However, pursuant to an alias writ of
execution issued by the Court of First instance of manila
the provincial sheriff, without publishing a new notice,
sold said land at a public auction to the plaintiff for
P1,923.32. The provincial sheriff executed a final deed in
favor of the plaintiff. On August 29, 1939, the plaintiff
instituted the present action in the Court of First Instance
of Sorsogon against the appellants in view of their refusal
to recognize plaintiff’s title and to vacate the land. The
defendants relied on the legal defenses that their
obligation under the judgment in civil case No. 42125 was
novated by the mortgage executed by them in favor of the
1
Morran, J dissents: The majority sustained appellants'
theory upon two grounds: (1) that their liability under the
judgment has been extinguished by the agreement and that
accordingly there was legally no judgment to execute; and (2)
that the auction sale was void not only because the judgment
sought to be executed has been extinguished but also
because there was no publication thereof as required by law.
The first ground is contrary to a doctrine laid down by this
Court in a previous case. In Zapanta vs. De Rotaeche, plaintiff
obtained judgment against defendant for a sum of money.
Thereafter, the parties entered into an agreement by virtue
of which the obligation under the judgment was to be paid in
installments and that, upon default of defendant to comply
with the terms of one agreement, plaintiff shall be at liberty
to enter suit against him. Defendant defaulted and plaintiff
sued out a writ of execution to recover the balance due upon
the judgment credit and by virtue thereof defendant's
property was levied upon and sold at public auction. Here, as
plaintiff and that the sheriffs sale was void for lack of
necessary publication. These contentions were overruled
by the lower court which rendered judgment declaring
the plaintiff to be the owner of the land and ordering the
appellants to deliver the same to him, without special
pronouncement as to costs. The defendants seek the
reversal of this judgment.
ISSUE: W/N there was a novation entered into by the
parties to make the purchase of the land by the plaintiff
invalid.
HELD: Yes, there is a novation and thus the
liability under the prior obligation has been
extinguished. The judgment in the civil case had been
extinguished by the settlement evidenced by the
mortgage executed. Although said mortgage did not
expressly cancel the old obligation, this was impliedly
novated by reason of incompatibly resulting from the fact
that, whereas the judgment was for P1,538.04 payable at
one time, did not provide for attorney's fees, and was not
secured, the new obligation is or P1,200 payable in
installments, stipulated for attorney's fees, and is secured
by a mortgage. The plaintiff, however, argues that the
later agreement merely extended the time of payment
and did not take away his concurrent right to have the
judgment executed. This could not have been the purpose
for executive the mortgage, because it was therein recited
that the defendants promised to pay P1,200 to the
plaintiffs as a settlement of the judgment in the civil case
No. 42125 .
Moreover, the sheriff's sale in favor of the plaintiff is void
because no notice thereof was published other than that
which appeared in the Mamera Press regarding the sale
to be held on the prior auction sale. 1
in the Zapanta case, there was an agreement providing for
the manner of payment of the obligation under the
judgment. In both cases plaintiff has by express stipulation,
the option to enter an independent suit against defendant
should the latter fail to comply with the terms of the
settlement. If, in the Zapante case plaintiff alternative right
to execute the judgment has been upheld. I perceive no
cogent reason why plaintiff in the instant case would be
denied a like option to merely execute the judgment and be
compelled, instead, to enter an independent suit on the
terms of the settlement The spirit of the new Rules which
frowns upon multiplicity of suits lends additional argument
against the majority view.
The majority maintains that here there is an implied novation
by "reason of incompatibility resulting from the fact that,
whereas the judgment was for P1,538.04 payable at one
time, did not provide for attorney's fees, and was not
secured, the new obligation is for P1,200 payable in
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MILLAR V. CA
Nature: Certiorari seeking to reverse the CA’s decision if
recognizing a novation.
Ponente: CASTRO, J.
Date: April 30, 1971
DOCTRINE: The defense of implied novation requires
clear and convincing proof of complete incompatibility
between the two obligations. The law requires no specific
form for an effective novation by implication. The test is
whether the two obligations can stand together. If they
cannot, incompatibility arises, and the second obligation
novates the first. If they can stand together, no
incompatibility results and novation does not take place.
FACTS: Petitioner obtained a favorable judgment from
the Court of First Instance of Manila, ordering
respondent to pay him the sum of P1,746.98 with interest
at 12% per annum from the date of the filing of the
complaint, the sum of P400 as attorney's fees, and the
costs of suit. From the said judgment, the respondent
appealed to the Court of Appeals which, however,
dismissed the appeal.
Subsequently, after remand by the Court of Appeals of the
case, the petitioner moved ex parte in the court of origin
for the issuance of the corresponding writ of execution to
enforce the judgment. Acting upon the motion, the lower
court issued the writ of execution applied for, on the basis
of which the sheriff of Manila seized the respondent's
Willy's Ford jeep .
The respondent, however, pleaded with the petitioner to
release the jeep under an arrangement whereby the
respondent, to secure the payment of the judgement debt,
agreed to mortgage the vehicle in favor of the petitioner.
The petitioner agreed to the arrangement; thus, the
parties, executed a chattel mortgage on the jeep,
stipulating, that “This mortgage is given as security for
the payment to the said EUSEBIO S. MILLAR,
mortgagee, of the judgment and other incidental
expenses in Civil Case No. 27116 of the Court of First
Instance of Manila against Antonio P. Gabriel,
MORTGAGOR, in the amount of ONE THOUSAND
SEVEN HUNDRED (P1,700.00) PESOS, Philippine
currency, which MORTGAGOR agrees to pay as follows:
March 31, 1957 — EIGHT HUNDRED FIFTY (P850)
PESOS;
April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00)
PESOS.”
installments, stipulates for attorney's fees, and is secured by
a mortgage." With respect to the amount, it should be noted
that, "while the obligation under the judgment was reduced
to P1,200, there was, however, a stipulation to the effect
that the discount would be recoverable in the event of
appellants' default to comply with the terms of the
agreement. And as to attorney's fees and the security by way
of mortgage, the stipulation therefor contained in the
agreement is of no moment, for it is merely incidental to, and
Upon failure of the respondent to pay the first installment
due on March 31, 1957, the petitioner obtained an alias
writ of execution. This writ which the sheriff served on
the respondent only on May 30, 1957 — after the lapse of
the entire period stipulated in the chattel mortgage for
the respondent to comply with his obligation — was
returned unsatisfied.
So on July 17, 1957 and on various dates thereafter, the
lower court, at the instance of the petitioner, issued
several alias writs, which writs the sheriff also returned
unsatisfied. On September 20, 1961, the petitioner
obtained a fifth alias writ of execution. Pursuant to this
last writ, the sheriff levied on certain personal properties
belonging to the respondent, and then scheduled them
for execution sale.
However, the respondent filed an urgent motion for the
suspension of the execution sale on the ground of
payment of the judgment obligation. The lower court,
ordered the suspension of the execution sole to afford the
respondent the opportunity to prove his allegation of
payment of the judgment debt. After hearing, the lower
court, issued an order reiterating the P1,700 debt and
costs of execution. The lower court ruled that no novation
had taken place, and that the parties had executed the
chattel mortgage only "to secure or get better security for
the judgment.
The respondent duly appealed the aforesaid order to the
Court of Appeals, which set aside the order of holding that
the subsequent agreement of the parties impliedly
novated the judgment obligation in civil case 27116.
ISSUE: W/N there was novation when the respondent
pleaded to release the jeep from execution and a new
means of payment was agreed upon.
HELD: No, the CA erred in its appreciation the
circumstances. The appellate court stated that the
following circumstances sufficiently demonstrate the
incompatibility between the judgment debt and the
obligation embodied in the deed of chattel mortgage,
warranting a conclusion of implied novation:
1. Whereas the judgment orders the respondent to
pay the petitioner the sum of P1,746.98 with interest at
12% per annum from the filing of the complaint, plus the
amount of P400 and the costs of suit, the deed of chattel
anticipatory of, a suit which appellee may choose to take
against appellants. Far, therefore, from extinguishing the
obligation under the judgment, the agreement ratifies it and
provides merely a new method and more time for the
judgment debtor to satisfy it. If the judgment debtor fail to
comply with the terms of the agreement, the judgment
creditor shall be deemed remitted to his original rights under
the judgment which he may choose to execute or enter,
instead, a separate suit on the terms of the settlement.
Page 102 of 112
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mortgage limits the principal obligation of the
respondent to P1,700;
2. Whereas the judgment mentions no specific
mode of payment of the amount due to the petitioner, the
deed of chattel mortgage stipulates payment of the sum
of P1,700 in two equal installments;
3. Whereas the judgment makes no mention of
damages, the deed of chattel mortgage obligates the
respondent to pay liquidated damages in the amount of
P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the
chattel mortgage, which may be foreclosed extrajudicially
in case of default, secured the obligation.
The SC shot it down stating with regards to “1.” that in the
case at bar, the mere reduction of the amount due in no
sense constitutes a sufficient indictum of incompatibility,
especially in the light of (a) the explanation by the
petitioner that the reduced indebtedness was the result of
the partial payments made by the respondent before the
execution of the chattel mortgage agreement and (b) the
latter's admissions bearing thereon.
At best, the deed of chattel mortgage simply specified
exactly how much the respondent still owed the
petitioner by virtue of the judgment in civil case 27116.
The parties apparently in their desire to avoid any future
confusion as to the amounts already paid and as to the
sum still due, decoded to state with specificity in the deed
of chattel mortgage only the balance of the judgment debt
properly collectible from the respondent. All told,
therefore, the first circumstance fails to satisfy the test of
substantial and complete incompatibility between the
judgment debt and the pecuniary liability of the
respondent under the chattel mortgage agreement.
With regards to the 3rd circumstance the SC stated that
the discrepancy between the amount of P400 and tile
sum of P300 fixed as attorney's fees in the judgment and
the deed of chattel mortgage, respectively, is explained by
the petitioner, thus: the partial payments made by the
2
BARREDO, J concurs stating that it was unmistakably the
intent of the parties that the said mortgage be merely a
"security for the payment to the said Eusebio Millar,
mortgagee, of the judgment and other incidental expenses in
Civil Case No. 27116 of the Court of First Instance of Manila
against Antonio P. Gabriel, mortgagor," to be paid in the
amount and manner therein stated. If this can in any sense in
which the parties must be held to have newly bound
themselves. In other words, by their explicit covenant, the
respondent before the execution of the chattel mortgage
agreement were applied in satisfaction of part of the
judgment debt and of part of the attorney's fee fixed in
the judgment, thereby reducing both amounts.
Lastly with regards to the 2nd and 4th the courts stated that
there was no substantial incompatibility between the
mortgage obligation and the judgment liability of the
respondent sufficient to justify a conclusion of implied
novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel
mortgage serves only to provide an express and specific
method for its extinguishment — payment in two equal
installments. The chattel mortgage simply gave the
respondent a method and more time to enable him to
fully satisfy the judgment indebtedness. The chattel
mortgage agreement in no manner introduced any
substantial modification or alteration of the judgment.
Instead of extinguishing the obligation of the respondent
arising from the judgment, the deed of chattel mortgage
expressly ratified and confirmed the existence of the
same, amplifying only the mode and period for
compliance by the respondent.
The Court of Appeals also considered the terms of the
deed of chattel mortgage incompatible with the judgment
because the chattel mortgage secured the obligation
under the deed, whereas the obligation under the
judgment was unsecured. The petitioner argues that the
deed of chattel agreement clearly shows that the parties
agreed upon the chattel mortgage solely to secure, not the
payment of the reduced amount as fixed in the aforesaid
deed, but the payment of the judgment obligation and
other incidental expenses in civil case 27116.
The unmistakable terms of the deed of chattel mortgage
reveal that the parties constituted the chattel mortgage
purposely to secure the satisfaction of the then existing
liability of the respondent arising from the judgment
against him in civil case 27116. As a security for the
payment of the judgment obligation, the chattel mortgage
agreement effectuated no substantial alteration in the
liability of the respondent.2
SANDICO V. PIGUING
parties contemplated the chattel mortgage to be a security
for the payment of the judgment and not the payment itself
thereof. Such being the case, and it appearing that
respondent Gabriel has not paid the judgment remains
unimpaired in its full existence and vigor, and the resort to
the execution thereof thru the ordinary procedure of a writ
of execution by the petitioner is an election to which every
mortgage creditor is entitled when he decides to abandon his
security.
Page 103 of 112
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Nature: Certiorari seeking to set aside the order of the
respondent judge setting the aside the writ of executions.
Ponente: CASTRO, J.
Date: November 29, 1971
DOCTRINE: For novation to exist there must be a
substitution or modification of an obligation by another
or an extinguishment of one obligation in the creation of
another.
FACTS: Petitioners (the spouses Carlos Sandico and
Enrica Timbol, and Teopisto P. Timbol, administrator of
the estate of the late Sixta Paras) obtained a judgment in
their favor against Desiderio Paras (hereinafter referred
to as the respondent) in an action for easement and
damages in the CFI of Pampanga. On appeal, the Court of
Appeals affirmed and modified the judgment,
condemning the respondent to recognize the easement
which is held binding as to him; sentencing him to pay
plaintiffs the sums of P5,000.00 actual, and P500.00
exemplary damages, and P500.00 attorney's fees; plus
costs in both instances.
Petitioners then moved for the issuance of a writ of
execution to enforce the appellate court's judgment
which had acquired finality. Acting upon the motion, the
court a quo issued a writ of execution.
Meanwhile the petitioners and the respondent reached a
settlement, finally agreeing to the reduction of the money
judgment from P6,000 to P4,000. Thus, the respondent,
paid the petitioners the sum of P3,000 and P1,000 in two
separate payments as evidenced by a receipt issued by the
petitioners' counsel. “P1,000.00, RECEIVED from Mr.
Desiderio Paras the sum of ONE THOUSAND PESOS
(P1,000.00), Philippine Currency, in full satisfaction of
the money judgment rendered against him in Civil Case
No. 1554 of the Court of First Instance of Pampanga, it
being understood that the portion of the final judgment
rendered in the said case ordering him to reconstruct the
irrigation canal in question shall be complied with by him
immediately.”
Subsequently, the petitioners sent the respondent a letter
demanding compliance by the latter with the portion of
the judgment in civil case 1554 relative to the
reconstruction and reopening of the irrigation canal.
Upon failure and refusal of the respondent to rebuild and
reopen the irrigation canal, the petitioners, filed with the
respondent judge, a motion to declare the said private
respondent in contempt of court. Opposing the motion,
the respondent alleged recognition by him of the
existence of the easement and compliance with the
appellate court's judgment, stating that he had dug a
canal in its former place, measuring about one and-a-half
feet deep, for the petitioners' use.
The respondent judge issued an order denying the
petitioners' motion to declare the respondents in
contempt of court, ruling that “it appears from the
dispositive part of the decision that the defendant was
only ordered to recognize the easement which is held
binding as to him and to pay the plaintiffs the sums
P5,000.00 of actual, and P500.00 exemplary damages.”
Apparently, it is clear from the dispositive part of the
decision that there is nothing to show that the defendant
was ordered to reconstruct the canal.
The petitioners moved for issuance of an alias writ of
execution to enforce the judgement of the Court of
Appeals. This motion the respondent judge granted.
Tespondent moved to set aside the said alias writ, alleging
full satisfaction of the judgment per agreement of the
parties when the petitioner received the sum of P4, as
evidenced by the receipt.
The respondent judge then issued an order directing the
provincial sheriff to suspend the execution of the alias
writ until further orders. The respondent judge issued an
order calling, and directing the quashal of the alias writ
of execution. The respondent judge stated in her order
that the agreement of the parties "novated" the money
judgment provided for in the decision of the Court of
Appeals, ruling that the said decision.
ISSUES: (1) W/N the respondent judge correctly
constructed the judgment of the Court of Appeals as not
requiring the respondent to reconstruct and reopen the
irrigation canal
(2) W/N the payment of the P4,000 novated the
obligation of the respondent
HELD: (1) Yes, although the dispositive portion
of the appellate court's judgment omitted any
directive to the respondent to reconstruct and
reopen the irrigation canal, the Court of Appeals'
order requiring recognition of the easement on
the part of the said respondent suffices to make
him aware of his obligation under the judgment.
The reconstruction and reopening of the irrigation canal
may be done by same other person designated by the
court, at the cost of the respondent. In fact, the
respondent in his attempt to rebuild the irrigation canal,
contracted the services of one Gerardo Salenga.
Accordingly, in conformity with the appellate court's
judgment as further mutually interpreted by the parties
themselves, the court a quo, because of the failure and
refusal of the respondent to restore the irrigation canal to
its former condition and to reopen it, should have
appointed some other person to do the reconstruction,
charging the expenses therefor to the said respondent.
Consequently, the respondent judge, when she granted
the motion of the respondent to set aside the alias writ of
execution and issued the order recalling and quashing the
said alias writ, acted correctly. Courts have jurisdiction to
entertain motions to quash previously issued writs of
execution because courts have the inherent power, for the
Page 104 of 112
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advancement of justice, to correct the errors of their
ministerial officers and to control their own processes.
(2) No, there is no new or modified obligation
that arose out of the payment by the respondent
of the reduced amount of P4,000 and substitute
the monetary liability for P6,000. Additionally, to
sustain novation necessitates that the same be so
declared in unequivocal terms — clearly and
unmistakably shown by the express agreement of the
parties or by acts of equivalent import — or that there is
complete and substantial incompatibility between the
two obligations. Novation results in two stipulations —
one to extinguish an existing obligation, the other to
substitute a new one in its place. Fundamental it is that
novation effects a substitution or modification of an
obligation by another or an extinguishment of one
obligation in the creation of another.
The receipt neither expressly nor impliedly declares that
the reduction of the money judgment was conditioned on
the respondent's reconstruction and reopening of the
irrigation canal. The receipt merely embodies the
recognition by the respondent of his obligation to
reconstruct the irrigation canal. And the receipt simply
requires the respondent to comply with such obligation
"immediately." The obligation of the respondent remains
as a portion of the Court of Appeals' judgment. In fact, the
petitioners themselves, in their letter dated November 5,
1964, sent to the respondent, demanding that the latter
reconstruct the irrigation canal immediately, referred to
the same not as a condition but as "the portion of the
judgment" in civil case 1594.
NATIONAL POWER CORPORATION V DAYRIT
Nature: Petition to set aside the Order, of the
respondent judge on the allegation that the questioned
Order was issued with grave abuse of discretion.
Ponente: ABAD SANTOS, J.
Date: November 25, 1983
DOCTRINE: Novation is never presumed; it must be
explicitly stated or there must be manifest
incompatibility between the old and the new obligations
in every aspect.
FACTS: DANIEL E. ROXAS, doing business under the
name and style of United Veterans Security Agency and
Foreign Boats Watchmen, sued the NATIONAL POWER
CORPORATION (NPC) and two of its officers in Iligan
City. The purpose of the suit was to compel the NPC to
restore the contract of Roxas for security services which
the former had terminated.
After several incidents, the litigants entered into a
Compromise Agreement asked the Court to approve it.
Accordingly, a decision was rendered allowing the parties
to enter into a compromise agreement instead of going
through trial. The agreement stated that:
1. The defendant National Power Corporation shall
pay to plaintiff the sum of P7,277.45, representing the
amount due to plaintiff for the services of one of plaintiff's
supervisors;
2. The defendant shall pay plaintiff the value of the
line materials which were stolen but recovered, by
plaintiff's agency which value is to be determined after a
joint inventory by the representatives of both parties;
3. The parties shall continue with the contract of
security services under the same terms and conditions as
the previous contract effective upon the signing thereof;
4. The parties waive all their respective claims and
counterclaims in favor of each other;
5. The parties agree to faithfully comply with the
foregoing agreement.
The judgment was not implemented. Later on, the NPC
executed another contract for security services with
Josette L. Roxas whose relationship to Daniel is not
shown. At any rate Daniel has owned the contract. The
NPC refused to implement the new contract for which
reason Daniel filed a Motion for Execution .
Acting on the motion the Court, considering that the
decision was based on a Compromise Agreement entered
into by and between the parties which decidedly, become
final and executory, is inclined to grant said action.
The NPC assails the Order on the ground that it directs
execution of a contract which had been novated. Upon the
other hand, Roxas claims that said contract was executed
precisely to implement the compromise agreement for
which reason there was no novation.
ISSUES: W/N the subsequent contract of NPC with
Josette L. Roxas constituted a novation.
HELD: No, there is no novation in this case. It is
elementary that novation is never presumed; it must be
explicitly stated or there must be manifest
incompatibility between the old and the new obligations
in every aspect. Thus the Civil Code provides:
Art. 1292. In order that an obligation may be extinguished
by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible
with each other.
In the case at bar there is nothing in the May 14, 1982,
agreement which supports the petitioner's contention.
There is neither explicit novation nor incompatibility on
every point between the "old" and the "new" agreements.
Page 105 of 112
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INTEGRATED CONSTRUCTION V. RELOVA
Nature: Mandamus to compel the respondent judge to
grant the writ of execution.
Ponente: PARAS, J.
Date: December 29, 1986
DOCTRINE: When a novation is subject to a suspensive
condition, failure to comply with the said condition
reverts the parties to their original rights.
FACTS: Petitioners sued the respondent Metropolitan
Waterworks and Sewerage System (MWSS), formerly the
National Waterworks and Sewerage Authority
(NAWASA), in the Court of First Instance of Manila for
breach of contract. Meanwhile, the parties submitted the
case to arbitration.
The Arbitration Board, after extensive hearings, rendered
its decision-award Respondent Judge confirmed the
Award and the same has long since become final and
executory.
The decision-award ordered MWSS to pay petitioners
P15,518,383.61-less P2,329,433.41, to be set aside as a
trust fund to pay creditors of the joint venture in
connection with the projector a net award of
P13,188,950.20 with interest thereon from the filing of
the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS
some discounts in consideration of an early payment of
the award. Thus, on September 21, 1972, MWSS adopted
Board Resolution No. 132-72, embodying the terms and
conditions of their agreement. MWSS sent a letter-
agreement to petitioners, quoting Board Resolution No.
13272, granting MWSS some discounts from the amount
payable under the decision award (consisting of certain
reductions in interests, in the net principal award and in
the trust fund), provided that MWSS would pay the
judgment, less the said discounts, within fifteen days
therefrom.
Upon MWSS' request, the petitioners signed their
"Conforme" to the said letter-agreement, and extended
the period to pay the judgment less the discounts
aforesaid to October 31, 1972. MWSS, however, paid only
on December 22, 1972, the amount stated in the decision
but less the reductions provided for in the October 2, 1972
letter-agreement.
Three years thereafter, or on June, 1975, after the last
balance of the trust fund had been released and used to
satisfy creditors' claims, the petitioners filed a motion for
execution in said civil case against MWSS for the balance
due under the decision-award. Respondent MWSS
opposed execution setting forth the defenses of payment
and estoppel.
Respondent judge denied the motion for execution on the
ground that the parties had novated the award by their
subsequent letter-agreement. Petitioners moved for
reconsideration but respondent judge denied the same.
Hence, this Petition for Mandamus, alleging that
respondent judge unlawfully refused to comply with his
mandatory duty-to order the execution of the unsatisfied
portion of the final and executory award.
ISSUES: W/N the subsequent contract of NPC with
Josette L. Roxas constituted a novation.
HELD: No, while the tenor of the subsequent
letter-agreement in a sense novates the judgment
award there being a shortening of the period
within which to pay is expressly acknowledged.
14th whereas clause of MWSS' Resolution No.
132-72, (p. 23, Rollo) which states: “WHEREAS, all
the foregoing benefits and advantages secured by the
MWSS out of said conferences were accepted by the Joint
Venture provided that the remaining net amount payable
to the Joint Venture will be paid by the MWSS within
fifteen (15) days after the official release of this resolution
and a written CONFORME to be signed by the Joint
Venture”
MWSS' failure to pay within the stipulated period
removed the very cause and reason for the agreement,
rendering some ineffective. Petitioners, therefore, were
remitted to their original rights under the judgment
award.
The placing of MWSS under the control and management
of the Secretary of National Defense thru Letter of
Instruction No. 2, dated September 22, 1972 was not an
unforeseen supervening factor because when MWSS
forwarded the letter-agreement to the petitioners, the
MWSS was already aware of LOI No. 2.
MWSS' contention that the stipulated period was
intended to pressure MWSS officials to process the
voucher is untenable. As aforestated, it is apparent from
the terms of the agreement that the 15-day period was
intended to be a suspensive condition. MWSS,
admittedly, was aware of this, as shown by the internal
memorandum of a responsible MWSS official, stating
that necessary steps should be taken to effect payment
within 15 days, for otherwise, MWSS would forego the
advantages of the discount. "
As to whether or not petitioners are now in estoppel to
question the subsequent agreement, suffice it to state that
petitioners never acknowledged full payment; on the
contrary, petitioners refused MWSS' request for a
conforme or quitclaim.
Accordingly, the award is still subject to execution by
mere motion, which may be availed of as a matter of right
any time within (5) years from entry of final judgment in
accordance with Section 5, Rule 39 of the Rules of Court.
Page 106 of 112
1938
COCHINGYAN, JR. and JOSE K. VILLANUEVA, v. R &
B SURETY AND INSURANCE COMPANY, INC.
Nature: Appeal to the SC
Ponente: FELICIANO, J.
Date: June 30, 1987
DOCTRINE: If objective novation is to take place, it is
imperative that the new obligation expressly declare that
the old obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the old
one. Novation is never presumed: it must be established
either by the discharge of the old debt by the express
terms of the new agreement or by the acts of the parties
whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be
clearly discernible.
FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO)
applied for and was granted an increase in its line of
credit from P400,000.00 to P800,000.00 (the "Principal
Obligation"), with the Philippine National Bank (PNB).
To secure PNB's approval, PAGRICO had to give a good
and sufficient bond in the amount of P400,000.00,
representing the increment in its line of credit, to secure
its faithful compliance with the terms and conditions
under which its line of credit was increased. In
compliance with this requirement, PAGRICO submitted
Surety Bond No. 4765, issued by the respondent R & B
Surety and Insurance Co., Inc. (R & B Surety") in the
specified amount in favor of the PNB. Under the terms of
the Surety Bond, PAGRICO and R & B Surety bound
themselves jointly and severally to comply with the
"terms and conditions of the advance line [of credit]
established by the [PNB]." PNB had the right under the
Surety Bond to proceed directly against R & B Surety
"without the necessity of first exhausting the assets" of
the principal obligor, PAGRICO. The Surety Bond also
provided that R & B Surety's liability was not to be limited
to the principal sum of P400,000.00, but would also
include "accrued interest" on the said amount "plus all
expenses, charges or other legal costs incident to
collection of the obligation [of R & B Surety]" under the
Surety Bond.
In consideration of R & B Surety's issuance of the Surety
Bond, two Identical indemnity agreements were entered
into with R & B Surety: (a) one agreement was executed
by the Catholic Church Mart (CCM) and by petitioner
Joseph Cochingyan, Jr, the latter signed not only as
President of CCM but also in his personal and individual
capacity; and (b) another agreement was executed by
PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K.
Villanueva and Liu Tua Ben Mr. Villanueva signed both
as Manager of PAGRICO and in his personal and
individual capacity; Mr. Liu signed both as President of
PACOCO and in his individual and personal capacity.
Under both indemnity agreements, the indemnitors
bound themselves jointly and severally to R & B Surety to
pay an annual premium of P5,103.05 and "for the faithful
compliance of the terms and conditions set forth in said
SURETY BOND for a period beginning ... until the same
is CANCELLED and/or DISCHARGED."
When PAGRICO failed to comply with its Principal
Obligation to the PNB, the PNB demanded payment from
R & B Surety of the sum of P400,000.00, the full amount
of the Principal Obligation. R & B Surety made a series of
payments to PNB by virtue of that demand totalling
P70,000.00 evidenced by detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to
petitioners Joseph Cochingyan, Jr. and Jose K.
Villanueva for reimbursement of the payments made by
it to the PNB and for a discharge of its liability to the PNB
under the Surety Bond. When petitioners failed to heed
its demands, R & B Surety brought suit against Joseph
Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben.
Petitioner Joseph Cochingyan, Jr. maintained that the
Indemnity Agreement he executed in favor of R & B
Surety: (i) did not express the true intent of the parties
thereto in that he had been asked by R & B Surety to
execute the Indemnity Agreement merely in order to
make it appear that R & B Surety had complied with the
requirements of the PNB that credit lines be secured; (ii)
was executed so that R & B Surety could show that it was
complying with the regulations of the Insurance
Commission concerning bonding companies; (iii) that R
& B Surety had assured him that the execution of the
agreement was a mere formality and that he was to be
considered a stranger to the transaction between the PNB
and R & B Surety; and (iv) that R & B Surety was estopped
from enforcing the Indemnity Agreement as against him.
Petitioner Jose K. Villanueva claimed in his answer that.
(i) he had executed the Indemnity Agreement in favor of
R & B Surety only "for accommodation purposes" and
that it did not express their true intention; (ii) that the
Principal Obligation of PAGRICO to the PNB secured by
the Surety Bond had already been assumed by CCM by
virtue of a Trust Agreement entered into with the PNB,
where CCM represented by Joseph Cochingyan, Jr.
undertook to pay the Principal Obligation of PAGRICO to
the PNB; (iii) that his obligation under the Indemnity
Agreement was thereby extinguished by novation arising
from the change of debtor under the Principal Obligation;
and (iv) that the filing of the complaint was premature,
considering that R & B Surety filed the case against him
as indemnitor although the PNB had not yet proceeded
against R & B Surety to enforce the latter's liability under
the Surety Bond.
Petitioner Cochingyan, however, did not present any
evidence at all to support his asserted defenses. Petitioner
Villanueva did not submit any evidence either on his
"accommodation" defense. The trial court was therefore
constrained to decide the case on the basis alone of the
terms of the Trust Agreement and other documents
submitted in evidence.
Judgment was rendered ordering the defendants Joseph
Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and
Page 107 of 112
1938
severally, unto the plaintiff the sum of 400,000,00,
representing the total amount of their liability on Surety
Bond No. 4765, and interest at the rate of 6% per annum
on the premium amounts.
judgment was rendered: (a) ordering the defendants
Joseph Cochingyan, Jr. and Jose K. Villanueva to pay,
jointly and severally, unto the plaintiff the sum of
400,000,00, representing the total amount of their
liability on Surety Bond No. 4765, and interest at the rate
of 6% per annum on the premium amounts. (b) ordering
said defendants to pay, jointly and severally, unto the
plaintiff the sum of P20,412.00 as the unpaid premiums
for Surety Bond No. 4765, with legal interest thereon
from the filing of plaintiff's complaint on August 1, 1968
until fully paid, and the further sum of P4,000.00 as and
for attorney's fees and expenses of litigation which this
Court deems just and equitable.
Not satisfied with the decision of the trial court, the
petitioners took this appeal to the Court of Appeals
which, as already noted, certified the case to us as one
raising only questions of law.
ISSUES: W/N the Trust Agreement had extinguished,
by novation, the obligation of R & B Surety to the PNB
under the Surety Bond which, in turn, extinguished the
obligations of the petitioners under the Indemnity
Agreements
HELD: No, the Surety Bond and their respective
obligations under the Indemnity Agreements
were not extinguished by novation brought about
by the subsequent execution of the Trust
Agreement. Novation is the extinguishment of an
obligation by the substitution or change of the obligation
by a subsequent one which terminates it, either by
changing its object or principal conditions, or by
substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.
Novation through a change of the object or principal
conditions of an existing obligation is referred to as
objective (or real) novation. Novation by the change of
either the person of the debtor or of the creditor is
described as subjective (or personal) novation. Novation
may also be both objective and subjective (mixed) at the
same time. In both objective and subjective novation, a
dual purpose is achieved-an obligation is extinguished
and a new one is created in lieu thereof.
If objective novation is to take place, it is imperative that
the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the old
one. Novation is never presumed: it must be established
either by the discharge of the old debt by the express
terms of the new agreement or by the acts of the parties
whose intention to dissolve the old obligation as a
consideration of the emergence of the new one must be
clearly discernible.
Again, if subjective novation by a change in the person of
the debtor is to occur, it is not enough that the juridical
relation between the parties to the original contract is
extended to a third person. It is essential that the old
debtor be released from the obligation, and the third
person or new debtor take his place in the new relation.
If the old debtor is not released, no novation occurs and
the third person who has assumed the obligation of the
debtor becomes merely a co-debtor or surety or a co-
surety.
Applying the above principles to the instant case, it is at
once evident that the Trust Agreement does not expressly
terminate the obligation of R & B Surety under the Surety
Bond. On the contrary, the Trust Agreement expressly
provides for the continuing subsistence of that obligation
by stipulating that "[the Trust Agreement] shall not in
any manner release" R & B Surety from its obligation
under the Surety Bond.
Neither can the petitioners anchor their defense on
implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of
complete incompatibility between the old and the new
obligation (and nothing else) would sustain a finding of
novation by implication. 9 But where, as in this case, the
parties to the new obligation expressly recognize the
continuing existence and validity of the old one, where, in
other words, the parties expressly negated the lapsing of
the old obligation, there can be no novation. The issue of
implied novation is not reached at all.
What the trust agreement did was, at most, merely to
bring in another person or persons-the Trustor[s]-to
assume the same obligation that R & B Surety was bound
to perform under the Surety Bond. It is not unusual in
business for a stranger to a contract to assume obligations
thereunder; a contract of suretyship or guarantee is the
classical example. The precise legal effect is the increase
of the number of persons liable to the obligee, and not the
extinguishment of the liability of the first debtor. Thus,
in Magdalena Estates vs. Rodriguez, it was held that:
[t]he mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to
assume the obligation, when there is no agreement that
the first debtor shall be released from responsibility, does
not constitute a novation, and the creditor can still
enforce the obligation against the original debtor.
Page 108 of 112
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In the present case it was noted that the Trustor under
the Trust Agreement, the CCM, was already previously
bound to R & B Surety under its Indemnity Agreement.
Under the Trust Agreement, the Trustor also became
directly liable to the PNB. So far as the PNB was
concerned, the effect of the Trust Agreement was that
where there had been only two, there would now be three
obligors directly and solidarily bound in favor of the PNB:
PAGRICO, R & B Surety and the Trustor. And the PNB
could proceed against any of the three, in any order or
sequence. Clearly, PNB never intended to release, and
never did release, R & B Surety. Thus, R & B Surety, which
was not a party to the Trust Agreement, could not have
intended to release any of its own indemnitors simply
because one of those indemnitors, the Trustor under the
Trust Agreement, became also directly liable to the PNB.
The Surety Bond was not novated by the Trust
Agreement. Both agreements can co-exist. The
Trust Agreement merely furnished to PNB
another party obligor to the Principal Obligation
in addition to PAGRICO and R & B Surety.
SPOUSES BALILA v. IAC
Nature: Petition for review of certiorari
Ponente: PARAS, J.
Date: October 29, 1987
DOCTRINE: The decisions of lower courts may be
novated, if such is the intention of the parties
FACTS: There was an amicable settlement between
petitioners and private respondents as defendants and
plaintiffs in a Civil Case, which was approved by the trial
court and made as the basis of its Decision ordering the
parties to comply strictly with the terms and conditions
embodied in said amicable settlement. The salient points
therein show that defendants admitted "having sold
under a pacto de retro sale the parcels of land described
in the complaint in the amount of P84,000.00" and that
they "hereby promise to pay the said amount within the
period of four (4) months but not later than May 15,1981."
On December 30, 1981 or more than seven months after
the last day for making payments, defendants redeemed
from plaintiff Guadalupe (one of the private respondents
herein) Lot No. 52 with an area of 294 sq.m. covered by
TCT 101352 which was one of the three parcels of land
described in the complaint by paying the amount of
P20,000.00.
On August 4, 1982, plaintiff filed a motion for a hearing
on the consolidation of title over the remaining two (2)
parcels of land namely Lot 965 and Lot 16 alleging that
the court's decision dated December 11, 1980 remained
unenforced for no payment of the total obligation due
from defendants. Defendants opposed said motion
alleging that they had made partial payments of their
obligation through plaintiff's attorney in fact and son,
Waldo del Castillo, as well as to the Sheriff. On April 26,
1983, the lower court issued the questioned order
affirming consolidation.
On June 8, 1983, while the Order of the lower court had
not yet been enforced, defendants paid plaintiff
Guadalupe Vda. del Castillo by tendering the amount of
P28,800.00 to her son Waldo del Castillo (one of the
private respondents herein) thus leaving an unpaid
balance of P35,200.00. A Certification dated June 8,
1983, (Annex D, Rollo, page 31) and signed by Waldo
shows that defendants were given a period of 45 days
from date or up to July 23, 1983 within which to pay the
balance. Said Certification supported defendants' motion
for reconsideration and supplemental motion for
reconsideration of the Order reconsolidation of title,
which motions were both denied by the lower court,
prompting defendants to file a petition for certiorari,
prohibition and mandamus with pre injunction petition
with the Intermediate Appellate Court to seeking to annul
and set aside the assailed Order dated April 26, 1983 and
the Order denying their motion for reconsideration. After
due consideration of the records of the case, the appellate
tribunal sustained the lower court, hence the present
petition for certiorari.
ISSUES: W/N the judgment by compromise was
novated by the subsequent act of the parties.
HELD: Yes, it was novated and amended by the
subsequent mutual agreements and actions of
petitioners and private respondents. The root of all
the issues raised before Us is that judgment by
compromise rendered by the lower court based on the
terms of the amicable settlement of the contending
parties. Such agreement not being contrary to law, good
morals or public policy was approved by the lower court
and therefore binds the parties who are enjoined to
comply therewith.
However, the records show that petitioners made partial
payments to private respondent Waldo del Castillo after
May 15, 1981 or the last day for making payments,
redeeming Lot No. 52 as earlier stated. (Annex "A,"
Petition).
There is no question that petitioners tendered several
payments to Waldo del Castillo even after redeeming lot
No. 52. A total of these payments reveals that petitioners
share. fulIy paid the amount stated in the judgment by
com promise. The only issue is whether Waldo del
Castillo was a person duly authorized by his mother
Guadalupe Vda. de del Castillo, as her attorney-in-fact to
represent her in transactions involving the properties in
question. We believe that he was so authorized in the
same way that the appellate court took cognizance of such
fact as embodied in its assailed decision.
Page 109 of 112
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It may be mentioned that on May 25,1981, Guadalupe
Vda. de Del Castillo, represented by her attorney in fact
Waldo Castillo, filed a complaint for consolidation of
ownership against the same petitioners herein before the
Court of First Instance of Pangasinan, docketed as Civil
Case No. U-3650, the allegations of which are Identical to
the complaint filed in Civil Case No. U-3501 of the same
court. This case U-3650 was, however, dismissed in an
Order dated May 27, 1983, in view of the order of
consolidation issued in Civil Case No. U-350 1.
The fact therefore remains that the amount of
P84,000.00 payable on or before May 15, 1981 decreed
by the trial court in its judgment by compromise was
novated and amended by the subsequent mutual
agreements and actions of petitioners and private
respondents. Petitioners paid the aforestated amount on
an insatalment basis and they were given by private
respondents no less than eight extensions of time pay
their obligation. These transactions took place during the
pendency of the motion for reconsideration of the Order
of the trial court dated April 26, 1983 in Civil Case No. U-
3501, during the pendency of the petition for certiorari in
AC-G.R. SP-01307 before the Intermediate Appellate
Court and after the filing of the petition before us. This
answers the claim of the respondents on the failure of the
petitioners to present evidences or proofs of payment in
the lower court and the appellate court.
As early as Molina vs. De la Riva the principle has been
laid down that, when, after judgment has become final,
facts and circumstances transpire which render its
execution impossible or unjust, the interested party may
ask the court to modify or alter the judgment to
harmonize the same with justice and the facts.
For this reason in Amor vs. Judge Jose, it was ruled that:
The Court cannot refuse to issue a writ of execution upon
a final and executory judgment, or quash it, or order its
stay, for, as a general rule, parties will not be allowed,
after final judgment, to object to the execution by raising
new issues of fact or of law, except when there had been a
change in the situation of the parties which makes such
execution in- equitable; or when it appears that the
controversy has never been submitted to the judgment of
the court, or when it appears that the writ of execution
has been improvidently issued, or that it is defective in
substance, or issued against the wrong party or that
judgment debt has been paid or otherwise satisfied or
when the writ has been issued without authority.
What was done by respondent Judge in setting aside the
writ of execution in Civil Case No. 5111 finds support in
the applicable authorities. There is this relevant excerpt
in Barretto v. Lopez this Court speaking through the then
Chief Justice Paras: "Allegating that the respondent judge
of the municipal court had acted in excess of her
jurisdiction and with grave abuse of discretion in issuing
the writ of execution of December 15, 1947, the petitioner
has filed the present petition for certiorari and
prohibition for the purpose of having said writ of
execution annulled. Said petition is meritorious. The
agreement filed by the parties in the ejectment case
created as between them new rights and obligations
which naturally superseded the judgment of the
municipal court." In Santos v. Acuna, it was contended
that a lower court decision was novated by the
subsequent agreement of the parties. Implicit in this
Court's ruling is that such a plea would merit approval if
indeed that was what the parties intended.
BALILA v. IAC
Nature: Petition for certiorari to review the decision of
the IAC regarding the consolidation of ownership over
parcels of land in the name of private respondents
Ponente: Paras, J.
Date: October 29, 1987
DOCTRINE: Subsequent mutual agreements and
actions of the plaintiffs and the defendants will result in
the novation of and amended to the order of the court in
its judgment of compromise.
FACTS:
Relevant Provision of Law:
No provision of law cited
Petitioners sold parcels of land to respondents under a
pacto de retro sale. Petitioners failed to repurchase
within the agreed period. A civil case was filed by
respondents against petitioners. However, an amicable
settlement was reached between the parties and was
approved by the trial court and was made as the basis of
the court’s decision. In the amicable settlement, the
period of payment was extended to May 15, 1981.
Unfortunately, petitioners failed to pay within the
extended period. It was only on December 30, 1981,
that petitioners offered to redeem the property. On
August 4, 1982, respondents filed a case for the
consolidation of ownership over the parcels of land. The
court ordered the consolidation, which was eventually
appealed to the IAC. The IAC affirmed the trial court.
Petitioners then elevated the case to the SC.
While the case was pending before the IAC and the SC,
however, petitioners made partial payments to
respondent Vda. de Del Castillo’s son and attorney in
fact, Waldo del Castillo, which the latter received and
accepted.
Petitioners contend that these partial payments were
subsequent mutual agreements of the parties which
novated the agreement in the amicable settlement from
Page 110 of 112
1938
which the trial court’s decision was based, so that the
period of payment was further extended beyond the
period in the trial court decision.
ISSUE:
WON subsequent mutual agreements between the
parties novated the prior agreement which was made the
basis of the trial court decision, so that the period of
payment was further extended.
RULING:
YES. The payment period in the trial court’s
judgment by compromise was novated and
amended by the subsequent mutual agreements
and actions of the parties.
The fact therefore remains that the amount of
P84,000.00 payable on or before May 15, 1981 decreed
by the trial court in its judgment by compromise was
novated and amended by the subsequent mutual
agreements and actions of petitioners and private
respondents.
De Los Santos v Rodriguez:
When, after judgment has become final, facts and
circumstances transpire which render its execution
impossible or unjust, the interested party may ask the
court to modify or alter the judgment to harmonize the
same with justice and the facts.
Dormitorio v Fernandez:
The agreement filed by the parties in the ejectment case
created as between them new rights and obligations
which naturally superseded the judgment of the
municipal court. In Santos v. Acuna, it was contended
that a lower court decision was novated by the
subsequent agreement of the parties. Implicit in this
Court's ruling is that such a plea would merit approval if
indeed that was what the parties intended.
PEOPLE’S BANK v. SYVEL’S
Nature: Appeal from the decision of the CFI; originally,
action for foreclosure of chattel mortgage
Ponente: Paras, J.
Date: August 11, 1968
DOCTRINE: It is elementary that novation is never
presumed; it must be explicitly stated or there must be
manifest incompatibility between the old and the new
obligations in every aspect.
FACTS:
Relevant Provisions of Law:
No provision of law cited
The plaintiff-appellee bank granted the defendant-
appellant corporation a credit commercial line, secured
by a chattel mortgage on the corporation’s stocks of
goods, personal properties and other materials. The
appellant drew advances on the credit line. However,
the appellant failed to make payments in accordance
with the terms and conditions agreed upon in the credit
line. The appellee started to foreclose extrajudicially the
chattel mortgage, and a case was eventually filed in
court. The appellant proposed to have the case settled
amicably and requested to dismiss the case to avoid the
impairment of the corporation’s goodwill. Appellant
offered to execute a real estate mortgage on real
property, and this was executed in favor of appellee. In
the contract of real estate mortgage, it was stipulated
that the chattel mortgage shall remain in full force and
shall not be impaired by the real estate mortgage.
A motion to dismiss was prepared by the appellee,
following the agreement to dismiss the case, but
appellant did not want to agree with such dismissal
since it would mean that the counterclaim of appellant
against the appellee would also be dismissed. Trial
proceeded.
The trial court ruled in favor of appellee, and ordered
the payment of the debt by the appellant to the appellee.
If appellant failed to pay, then the chattel mortgaged
would be foreclosed.
ISSUE:
WON there was a novation of the contract so that the
chattel mortgage has been replaced by the real estate
mortgage
RULING:
NO. The real estate mortgage is merely a new
additional security to the chattel mortgage
previously entered into by the parties.
Novation takes place when the object or principal
condition of an obligation is changed or altered. It is
elementary that novation is never presumed; it must be
explicitly stated or there must be manifest
incompatibility between the old and the new obligations
in every aspect.
In the case at bar, there is nothing in the Real Estate
Mortgage which supports appellants’ submission. The
contract on its face does not show the existence of an
explicit novation nor incompatibility on every point
between the “old” and the “new” agreements as the
second contract evidently indicates that the same was
executed as new additional security to the chattel
mortgage previously entered into by the parties.
Moreover, records show that in the real estate mortgage,
appellants agreed that the chattel mortgage “shall
remain in full force and shall not be impaired by this
(real estate) mortgage.”
It is clear, therefore, that a novation was not intended.
The real estate mortgage was evidently taken as
additional security for the performance of the contract.
RODRIGUEZ v. REYES
Page 111 of 112
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Nature: Original action in the Supreme Court.
Certiorari with preliminary injunction. Sale of
properties at public auction, where properties
mortgaged.
Ponente: Reyes, J.B.L., J.
Date: January 30, 1971
DOCTRINE: The mere fact that the purchaser of an
immovable has notice that the required realty is
encumbered with a mortgage does not render him liable
for the payment of the debt guaranteed by the mortgage,
in the absence of stipulation or condition that he is to
assume payment of the mortgage debt. Here, the
purchaser does not obligate himself to replace the
debtor in the principal obligation, and he could not do
so in law without the creditor’s consent, as explicitly
provided in Art. 1293
FACTS:
Relevant Provisions of Law:
Article 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be made
even without the knowledge or against the will of the
latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237. (1205a)
immovable has notice that the required realty is
encumbered with a mortgage does not render him liable
for the payment of the debt guaranteed by the mortgage,
in the absence of stipulation or condition that he is to
assume payment of the mortgage debt.
By buying the property with notice that it was
mortgaged, respondent Dualan only undertook either to
pay or else allow the land’s being sold if the mortgage
creditor could not or did no obtain payment from the
principal debtor when the debt matured. Nothing else.
Certainly the buyer did not obligate himself to replace
the debtor in the principal obligation, and he could not
do so in law without the creditor’s consent, under Art.
1293.
The obligation to discharge the mortgage indebtedness,
therefore, remained on the shoulders of the original
debtors and their heirs, petitioners herein, since the
record is devoid of any evidence of contrary intent.

Petitioners filed a complaint against respondent, their

brother, for the partition of properties held in common.
During the pre-trial conference, the co-owners (siblings)
agreed to have the property in litigation sold at public
auction to the highest bidder. At that time, the property
was mortgaged to the DBP. An auction sale was held,
where respondent Dualan was the highest bidder. When
the petitioners moved for the approval of the sale,
respondents (brother and highest bidder) commented
that court should order that the property sold is free
from all liens and encumbrances, including the
mortgage to DBP.

Petitioners contend that the doctrine of caveat emptor

should apply, so that since the highest bidder bought the
property at his own peril, with knowledge of the
encumbrance, he should assume payment of the
indebtedness secured thereby.

ISSUE:
WON, by virtue of the auction sale, the highest bidder
assumed the mortgage indebtedness, so that there is a
novation substituting the highest bidder in place of the
original debtor.

RULING:
NO. A buyer cannot be obligate himself to
replace the debtor in the principal obligation
without the creditor’s consent.

We find the stand of petitioners-appellants to be

unmeritorious and untenable. The maxim “caveat
emptor” applies only to execution sales, and this was not
one such. The mere fact that the purchaser of an
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