4 SPS

REYES,
VS BPI
FAMILY
SAVINGS
BANK,
INC. GR
Nos.
149841
March 31,
2006

FACTS:
On March
24, 1995,
the Reyes
spouses
executed a
real estate mortgage on their property
in Iloilo City in favor of respondent
BPI Family Savings Bank, Inc. (BPI-
FSB) to secure a P15,000,000 loan of
Transbuilders Resources and
Development Corporation (Transbuilders).When Transbuilders failed to pay its
P15,000,000 loan within the stipulated period of one year, the bank restructured the loan
through a promissory note executed by Transbuilders in its favor.

Petitioners aver that they were not informed about the restructuring of
Transbuilders’ loan. In fact, when they learned of the new loan agreement sometime in
December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage and
the return of their certificate of title to the mortgaged property. They claimed that the new
loan novated the loan agreement of March 24, 1995. Because the novation was without
their knowledge and consent, they were allegedly released from their obligation under the
mortgage

ISSUE: Whether or not there was a novation of the mortgage loan contract between
petitioners and BPI-FSB that would result in the extinguishment of petitioners’ liability to
the bank.

HELD: There was no novation of the March 24, 1995 contract. There is no clear intent of
the parties to make the new contract completely supersede and abolish the old
loan/mortgage contract. The established rule is that novation is never presumed. Novation
will not be allowed unless it is clearly shown by express agreement, or by acts of equal
import.

The mortgage contract between the petitioners and the respondent BPI does not limit the
obligation or loan for which it may stand to the loan agreement between Transbuilders
and BPI, dated March 24, 1995, considering that under the terms of that contract, the
intent of all the parties, including the petitioners, to secure future indebtedness is
apparent. On the whole, the contract of loan/mortgage dated March 24, 1995, appears to
include even the new loan agreement between Transbuilders and BPI, entered into on
June 28, 1996.

As Article 1292 of Civil Code provides 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.

The cancellation of the old obligation by the new one is a necessary element of novation
which may be effected either expressly or impliedly. While there is really no hard and fast
rule to determine what might constitute sufficient change resulting in novation, the
touchstone, however, is irreconcilable incompatibility between the old and the new
obligations.
5 ONG V BOGNALBAL GR No. 149140 September 12, 2006

FACTS: On January 2, 1995, Architect Ernesto Bognalbal (E.B. Bognalbal Construction)

was hired by petitioner, Victoria Ong, for the construction of her boutique on a contract
price of P200,000 but subject to change in respect to economic factors and change of
order. The agreement was to complete the work within 45 days and payment shall be
made every two weeks based on the accomplishment of work value. The project started
on Jan. 19, 1995. Petitioner wanted a change of order within 3 days from vinyl tiles to
kenzo flooring on April 22, 1995. Kenzo flooring took time to construct because of the
curing process and additional costs shall be incurred. The rushed work of kenzo flooring
was not acceptable to petitioner Victoria Ong. She refused to pay the 4th billing. Demand
of respondent Bognalbal for petitioner Ong to pay for the kenzo flooring was made on or
before April 24, 1995. Petitioner Victoria Ong didn’t pay, respondent Bognalbal
abandoned the kenzo flooring job on April 25, 1995. Ong claimed a defense that the
contract was novated when the respondent agreed to finish the flooring before the 4th
billing shall be paid. She contended that this obligation was not fulfilled hence payment
is not due. Petitioner Ong hired another contractor, she incurred P 78,000 and additional
damages, and the completion of the kenzo flooring was delayed for 82 days.

ISSUE: Whether or not there is novation.

HELD: No. It has been held that novation is never presumed. It must be shown by
express agreement of the parties or by acts of equivalent import. In this case, the evidence
shows that there has been no novation of the contract. Bognalbal even sent demand letters
to Ong. It is impossible that he agreed to a novation.
6 CINCO V. CA GR No. 151903 October 9, 2009

FACTS: Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from
respondent, Maasin Traders Lending Corporation (MTLC). The loan was evidenced by
the promissory note, and secured by a real estate mortgage over the spouses Cinco’s land
and 4-storey building. To pay the loan in favor of MTLC, the spouses Cinco applied for a
loan with the Philippine National Bank (PNB), and offered the same properties they
previously mortgage to MTLC. The PNB approved the load application for 1.3 Million;
the release was, however, conditioned on the cancellation of the mortgage in favor of
MTLC. Manuel went to Ester Servacio (Ester), MTLC’s President to inform her that
there was money with PNB for Payment of his loan. Manuel executed a Special Power of
Attorney (SPA) authorizing Ester to collect the proceeds of the loan. Ester went to the
PNB to inquire, the second time around, about the proceeds. The bank officer confirmed
the existence of such loan, but they required Ester to first sign a deed of
release/cancellation of the mortgage before they could release the proceeds of the loan to
her. Outraged, Ester refused the deed and did not collect the 1.3 Million. Ester instituted
foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an action for
specific performance, damages, and preliminary injunction.

ISSUE: Whether or not the act of the spouses Cinco amounted to payment.

HELD: No. 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. In short, a refusal without just cause is not
equivalent to payment; to have the effect of payment and the consequent extinguishment
of the obligation to pay, the law requires the companion acts of tender of payment and
consignation. When a creditor refuses the debtor’s tender of payment, the law allows the
consignation of the thing or the sum due. Tender and consignation have the effect of
payment, as by consignation, the thing due is deposited and placed at the disposal of the
judicial authorities for the creditor to collect. Nonetheless, the SPA stood as an authority
to collect the proceeds of the already-approved PNB loan that, upon receipt by Ester,
would have constituted as payment of the MTLC loan. The Court agrees with Manuel
that Ester’s refusal of the payment was without basis. Under these circumstances, though
no completed tender of payment and consignation took place sufficient to constitute
payment, the spouses Go Cinco duly established that they have legitimately secured a
means of paying off their loan with MTLC; they were only prevented from doing so by
the unjust refusal of Ester to accept the proceeds of the PNB loan through her refusal to
execute the release of the mortgage on the properties mortgaged to MTLC. The spouses
Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that
cannot have legal effect. Since payment was available and was unjustifiably refused,
justice and equity demand that the spouses Go Cinco be freed from the obligation to pay
interest on the outstanding.
7 ADELFA V CA GR No. 111238 January 25, 1995

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

ISSUE: Whether or not there was a valid suspension of payment.

HELD: Yes. Art. 1590. Should the vendee be disturbed in the possession or ownership of
the thing acquired, or should he have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the payment of the price. In this
case, petitioner was justified in suspending payment of the balance of the purchase price
by reason of the aforesaid vindicatory action filed against it. The assurance made by
private respondents that petitioner did not have to worry about the case because it was
pure and simple harassment is not the kind of guaranty contemplated under the exceptive
clause in Article 1590 wherein the vendor is bound to make payment even with the
existence of a vindicatory action if the vendee should give a security for the return of the
price.
8 RAMOS V. CA G.R. No. 119872 July 7, 1997

FACTS: Petitioner is the owner of factory space in Quezon City. On September 30, 1988,
she entered into a contract of lease with private respondents.

The contract of lease contained the following stipulations:

1(2) The Lessee agrees that on the 5th year, the Lessee shall change the principal
Yakal posts into reinforced concrete posts, all the way from the base on the ground up to
the roofing holding or supporting the main trusses of the galvanized roofing at the
expense of the Lessee and no expense whatsoever to the Owner-Lessor. Failure of the
Lessee to comply with this term will automatically terminate or cancel this contract.
1(3) In case of inflation or devaluation of the Philippine Peso, the monthly rental
will automatically increase or decrease depending on the devaluation or inflation rate of
the pesos to a dollar.
12. The monthly rental shall be paid every first week of the month. In case of
delay in the payment of monthly rental, the Lessee will pay a penalty of 20% per annum
for every month of delay; this contract is terminated if the delay reaches 3 months.
20. The Lessee agrees that on the 5th year, the Lessee shall change the roofing
and the three posts located at the back part of the lease premises into reinforced concrete
post all the way from the base on the ground up to the roofing holding or supporting the
main trusses of the galvanized roofing at the expense of the Lessee and no expense
whatsoever to the Lessor.

On May 24, 1994, petitioner filed a complaint for ejectment before the MeTC Quezon
City, alleging failure by respondents to comply with their undertakings under the contract
of lease without any valid or justifiable reason.

ISSUE: Whether or not the petitioner has the right to rescind the lease contract?

HELD: This is a petition for review on certiorari of the resolution of the Court of
Appeals, dismissing the appeal of petitioner from the decision of the Regional Trial
Court, Branch 93, of Quezon City and affirming the decision of the Metropolitan Trial
Court Quezon City.

MeTC rejected private respondent’s defense that they were not able to comply with the
requirement to replace wooden posts with concrete ones because petitioners son forbade
them to do so. The court held that since petitioners son was not a party to the contract,
only petitioners waiver could excuse private respondents from complying with their
obligation under the lease contract. As regards the failure of private respondents to pay
the rents for more than three months, the lower court rejected private respondents claim
that the petitioners son refused to accept payment because even if this was true, private
respondents had a remedy of consigning the rentals in court. For these reasons, the MeTC
upheld petitioner’s right to rescind the contract even in the absence of judicial
pronouncement.

With respect to the alleged failure of private respondents to pay increased rent because of
inflation or devaluation of the Philippine peso, the RTC held that there had been no
official declaration of inflation or devaluation of the Philippine peso. The RTC added that
since the contract between the parties already provided for an annual increase in the rent
over a period of ten years and for penalty of twenty (20) per cent per annum for every
month of delay in.

The second violation alleged private respondent’s failure to pay the rent for three
consecutive months was likewise proven. But, as petitioner correctly points out, under the
contract of lease (par. 12) the monthly rental was due on the first week of the month so
that, inasmuch as the rent for May 1994 was due in the first week of May, private
respondents failure to pay then, plus their previous default in payment of the rent for
March and April 1994, made them altogether in arrears for three consecutive
months. Pursuant to the contract, the failure to pay the rent for three consecutive months
resulted in the termination of the lease.

Because of these violations of the lease contract by private respondents there is ground,
based on Art. 1673(3) of the Civil Code, for their ejectment.

But petitioner’s last contention that private respondents failed to pay increased rent
despite supervening inflation or devaluation of the Philippine peso is untenable. The
provision of Art. 1250 requires for its application a declaration of inflation by the Central
Bank. Without such declaration creditors cannot demand an increase of what is due them.
9 MOBIL OIL PHILIPPINES, INC. AND MOBIL PHILIPPINES, INC., V. THE
HON. COURT OF APPEALS, PETROLEUM DISTRIBUTORS AND SERVICES
CORPORATION AND CONRADO LIMCACO G.R. No. 103072 August 20, 1993

FACTS: Private respondent Conrado Limcaco and Petroleum Distributors and Services
Corporation ("Distributors") operated a gasoline and service station under the dealership
agreement with petitioner Mobil Oil Philippines, Inc. ("Mobil Oil").

In the course of its transactions with Mobil Oil, Distributors noted various discrepancies
of a substantial nature in the statements of account which Mobil Oil prepared.
Distributors accordingly asked periodically for a reconciliation of its account from Mobil
Oil.

Effective 1 September 1983, Caltex Phils. took over Mobil Oil's Philippine business
("Mobil Phil."). Distributors pressed Mobil Oil for an early reconciliation of its remaining
outstanding accounts; Distributors wanted to start its relationship with Caltex Phils. with
a clean slate. They executed instead an agreement on 20 September 1983 containing the
following stipulations, among others:

The parties, Mr. CONRADO LIMCACO, for himself and/or Petroleum Distributors and
Services Corporation and Mobil Oil Philippines, Inc. and Mobil Philippines, Inc.,
represented by DIETER FOCK, hereby agree as follows:

1. CONRADO LIMCACO accepts the amount of P310,738.30 as the tentative

balance of his account with Mobil Oil Philippines, Inc.

2. MOBIL OIL PHILIPPINES, INC. undertakes, applying its best efforts, to present
within a period of thirty (30) days, an updated statement of account showing Mr.
Limcaco's balance as of closing of August 31, 1983 supported with appropriate
documents. It is understood, however, that if such updated statement supported by
appropriate documents is not presented to Mr. Limcaco or his duly authorized
representative within said period of sixty (60) days (sic), the payment of P310,738.30
shall be considered final and full payment of all accounts of Petroleum Distributors &
Service Corporation and/or Mr. Limcaco.

3. CONRADO LIMCACO hereby remits and Mobil Oil Philippines, Inc., hereby
accepts the amount of P310,738.30 as payment on account in consideration of which
Mobil returns to Mr. Limcaco the of Petroleum Distributors & Services Corporation.

Mr. Limcaco paid the sum of P310,738.30 to Mobil Oil on the same date the agreement
was executed.

On 7 December 1983, however, Mobil Phils. presented to Mr. Limcaco and Distributors
what was said to be an updated reconciliation of accounts showing P363,859.63, due
from private respondents, but without the corresponding supporting documents. In reply,
private respondents stated that petitioners' failure to produce the appropriate supporting
documents within the stipulated period operated as a contractual waiver of the latter's
claim against the former. The payment of P310,738.30 on 20 September 1983 discharged
in full all accounts due to petitioners.

Petitioners Mobil Oil and Mobil Phils. instituted a collection suit with prayer for
preliminary attachment against private respondent Distributors and Conrado Limcaco in
the Regional Trial Court ("RTC") of Makati.

Another civil action between the same parties was pending before the RTC of Pasay. This
Civil suit was a petition for declaratory relief instituted by private respondent Distributors
and Limcaco against petitioners.

Judgment was rendered, declaring that, respondents [petitioners herein] have waived any
and all further claims against petitioners [respondents herein] on the accounts in question
in view of respondents' failure to comply with their undertaking to submit an updated
statement of account accompanied by supporting documents within the stipulated period
of sixty (60) days and that the petitioner's payment of P310,738.30 to respondents, under
the circumstances, amounted to a full and final payment and settlement of all its and/or
Conrado Limcaco's obligations with respondents.

In the Collection suit before the Makati RTC, the RTC of Makati on 11 July 1984 issued a
writ and various properties of respondent Distributors were garnished or attached (e. g.
bank accounts, heavy equipment and other personal property). However, the RTC of
Makati dissolved the writ of attachment upon motion of private respondents.

Distributors and Limcaco filed in due course their "Answer with Counterclaim." The
Answer raised affimative defenses (principally, litis pendentia and extinguishment or
waiver of petitioners' claims) to support relief from the claim of petitioners; their
counterclaim was for damages arising by reason of allegedly wrongful issuance and
enforcement of the writ of preliminary attachment and for attorney's fees.

On 7 March 1988, petitioners Mobil Oil and Mobil Philippines filed an "Opposition to
Defendants' Motion to Set Dated 21 September 1987." Petitioners there contended that
the trial court no longer had authority to hear any application for damages at that point in
time because the judgment dismissing Civil Case No. 6023 had become final and
executory.

Acting petitioners' motion, the RTC of Makati, this time through another presiding judge,
Honorable Jose C. de la Rama, granted petitioners' motion in an Order dated 4 July 1988
which declares that it has lost jurisdiction to continue further proceedings on defendants'
(respondents herein) counterclaims. All previous orders and pre-trial settings are here
SET ASIDE.

Hence, this Petition for Review.

ISSUE: Whether or not the private respondents can make counterclaims for wrongful
issuance of attachment?

HELD: Yes, a provision of the Rules of Court which addresses the specific kind of
counterclaim here involved: Section 20 of Rule 57, which provides as follows:

Sec. 20. Claim for damages on account of illegal attachment. — If the judgment on the
action be in favor of the party against whom attachment is issued, he may recover, upon
the bond given or deposit made by the attaching creditor, any damages resulting from the
attachment. Such damages may be awarded only upon application and after proper
hearing, and shall be included in the final judgment. The application must be filed before
the trial or before appeal is perfected or before the judgment becomes executory, with due
notice to the attaching creditor and his surety or sureties, setting forth the facts showing
his right to damages and the amount thereof.

In this case, both the Makati RTC and then Intermediate Appellate Court have already
held that petitioners were not entitled to the writ of preliminary attachment that they had
sought and obtained in the Collection case before the RTC of Makati. Private respondents
are, therefore, entitled as a matter of fairness to prove the extent or amount of such
damages. Private respondents complied with the requirements of the procedural law
hearing upon this matter. Upon the other hand, petitioners' substantial rights have not
been adversely effected at all.
10 BALDOMERO INCIONG, JR. VS CA GR No. 96405 June 26, 1996

FACTS: In February 1983, Rene Naybe took out a loan from Philippine Bank of
Communications (PBC) in the amount of P50k. For that he executed a promissory note in
the same amount. Naybe was able to convince Baldomero Inciong, Jr. and Gregorio
Pantanosas to co-sign with him as co-makers. The promissory note went due and it was
left unpaid. PBC demanded payment from the three but still no payment was made. PBC
then sue the three but PBC later released Pantanosas from its obligations. Naybe left for
Saudi Arabia hence can’t be issued summons and the complaint against him was
subsequently dropped. Inciong was left to face the suit. He argued that that since the
complaint against Naybe was dropped, and that Pantanosas was released from his
obligations, he too should have been released.

ISSUE: Whether or not Inciong should be held liable.

HELD: Yes. Inciong is considering himself as a guarantor in the promissory note. And he
was basing his argument based on Article 2080 of the Civil Code which provides that
guarantors are released from their obligations if the creditors shall release their debtors. It
is to be noted however that Inciong did not sign the promissory note as a guarantor. He
signed it as a solidary co-maker.

A guarantor who bounds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. There is a difference between a solidary co-
debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to
pay the debt before the property of the principal debtor has been exhausted, retains all the
other rights, actions and benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed upon him.

Because the promissory note involved in this case expressly states that the three
signatories therein are jointly and severally liable, any one, some or all of them may be
proceeded against for the entire obligation. The choice is left to the solidary creditor
(PBC) to determine against whom he will enforce collection. Consequently, the dismissal
of the case against Pontanosas may not be deemed as having discharged Inciong from
liability as well. As regards Naybe, suffice it to say that the court never acquired
jurisdiction over him. Inciong, therefore, may only have recourse against his co-makers,
as provided by law.
11 PALMARES VS CA` GR No. 126490 March 31, 1998

FACTS: Private respondent M.B. Lending Corporation extended a loan to the spouses
Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount
of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate
of 6% per annum to be computed every 30 days from the date thereof.

On four occasions after the execution of the promissory note and even after the loan
matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00,
thereby leaving a balance of P13,700.00. No payments were made after the last payment
on September 26, 1991. Consequently, on the basis of petitioner's solidary liability under
the promissory note, respondent corporation filed a complaint 3 against petitioner
Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly
by reason of the insolvency of the latter.

ISSUES: Where a party signs a promissory note as a co-maker and binds herself to be
jointly and severally liable with the principal debtor in case the latter defaults in the
payment of the loan, is such undertaking of the former deemed to be that of a surety as an
insurer of the debt, or of a guarantor who warrants the solvency of the debtor? Or WON
Palmares is liable

HELD: Yes. If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is
called a suretyship.

A surety is bound equally and absolutely with the principal, and as such is deemed an
original promisor and debtor from the beginning. This is because in suretyship there is
but one contract, and the surety is bound by the same agreement which binds the
principal. In essence, the contract of a surety starts with the agreement, which is precisely
the situation obtaining in this case before the Court.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulation shall control. In the case at bar, petitioner expressly bound herself to be
jointly and severally or solidarily liable with the principal maker of the note. The terms of
the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety.
12 STRONGHOLD INSURANCE COMPANY, INC. VS REPUBLIC-ASAHI
GLASS CORP. GR No. 147561 June 22, 2006

FACTS: On May 24, 1989, Republic-Asahi Glass Corporation entered into a contract
with Jose D. Santos, Jr. the proprietor of JDS Construction , for the construction of
roadways and a drainage system in Republic-Asahi’s compound in Barrio Pinagbuhatan,
Pasig City, where respondent was to pay JDS the amount of P5,300,000.00, which has
to be completed within 240 days starting May 8, 198. To guarantee of its undertakings,
JDS, shall post a performance bond of P795,000.00 which JDS executed jointly and
severally with Stronghold Insurance.

On May 23, 1989, the bond was given as down payment. The two billings dated
August 14, 1989 and September 15, 1989, for the total amount of P274,621.01 accounted
for only 7.301% of the work supposed to be undertaken by JDS under the terms of the
contract. JDS was notified to its alleged alarmingly slow pace of the construction.

On November 24, 1989, dissatisfied with the progress of the work the responded
rescinded the contract pursuant to Article XIII of said contract, and wrote a letter to JDS
informing the latter of such rescission.

On January 6, 1990, respondent sent a letter to SICI filing its claim under the
bond for not less than P795,000.00. Then, on March 22, 1991, again sent another letter
reiterating its demand for payment. Both letters allegedly went unheeded.

Respondent then filed a complaint against JDS and SICI. It sought from JDS
payment of P3,256,874.00 representing the additional expenses incurred by respondent
for the completion of the project using another contractor, and from JDS and SICI, jointly
and severally, payment of P750,000.00 as damages in accordance with the performance
bond; exemplary damages in the amount of P100,000.00 and attorney’s fees in the
amount of at least P100,000.00.

On July 10, 1991, petitioner SICI filed its answer, alleging that the respondent’s money
claims against petitioner and JDS have been extinguished by the death of Jose D. Santos,
Jr.

The claim for the forfeiture of the performance bond in the amount of
P795,000.00 had no factual and legal basis, as payment of said bond was conditioned on
the payment of damages. Respondent can no longer prove its claim for damages in view
of the death of Santos. SICI was not informed by respondent of the death of Santos. SICI
was not informed by respondent of the unilateral rescission of its contract with JDS, thus
SICI was deprived of its right to protect its interests as surety under the performance
bond, and therefore it was released from all liability.

On August 16, 1991, the lower court issued an order dismissing the complaint of
respondent against JDS and SICI, on the ground that the claim against JDS did not
survive the death of its sole proprietor, Jose D. Santos, Jr.

On September 4, 1991, respondent filed a Motion for Reconsideration.

ISSUE: Whether or not that the death of the respondent JDS extinguishes it’s surety’s
liability?

HELD: As a general rule, the death of either the creditor or the debtor does not
extinguish the obligation. Obligations are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of the parties, or the nature of the
obligation. Only obligations that are personal or are identified with the persons
themselves are extinguished by death.
 In the present case, whatever monetary liabilities or obligations Santos had under
his contracts with respondent were not intransmissible by their nature, by stipulation, or
by provision of law. Hence, his death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his estate. Consequently, petitioner as
surety cannot use his death to escape its monetary obligation under its performance bond.

The surety’s obligation is not an original and direct one for the performance of his own
act, but merely accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or promisee of the principal is said to be
direct, primary and absolute; in other words, he is directly and equally bound with the
principal.
13 ORIENTAL V. ABETO GR No. L-4239 October 10, 1934

FACTS: In civil case No. 35897 of the Court of First Instance of Manila, the herein
petitioner sought to recover from Gregorio Bugayong, Vicente Rosario and the herein
respondent Alejo Mabanag a certain sum of money, interest, penalty and costs. After trial,
judgment was rendered ordering Bugayong alone to pay the sum of P5,742.73 with legal
interest thereon from August 15, 1929, plus the costs, and absolving Mabanag and
Rosario from the complaint. Appeal was taken therefrom and the case was docketed in
this court as case No. 37624. After the same had been submitted for decision, judgment
was rendered as follows: On the whole case we believe that P1,000 should be awarded
appellant for attorney’s fees and that judgment should be entered against all the
defendants and appellees in the sum of P5,742.73, with legal interest from the 15th of
August, 1929, until paid, together with the sum of P1,000 as attorney’s fees, and the costs
in both instances. In the judgment of this court, notice of which was served by the clerk
on the trial court, notice of which was served by the clerk on the trial court and the
parties, it is simply stated that judgment be entered against all the defendants and
appellees in the sum of P5,742.73, with legal interest from the 15th of August, 1929, until
paid, together with the sum of P1,000 as attorney’s fees, and costs, but it does not specify
the kind of obligation imposed upon the defendants in connection with the payment or the
manner in which said payment should be made by them. In other words, the judgment
failed to state whether or not the defendants should pay said sums jointly and severally.

ISSUE: Whether or not the parties are solidarily liable?

HELD: No. It is already a well-established doctrine in this jurisdiction that, when it is

not provided in a judgment that the defendants are liable to pay jointly and severally a
certain sum of money, none of them may be compelled to satisfy in full said judgment.
And applying said doctrine to the case under consideration, it follows that the respondent
Mabanag is not in fact liable to satisfy in full the amount of the judgment rendered
against him and the other two co-defendants. It is of no consequence that, under the
written contract of suretyship executed by the parties, the obligation contracted by the
sureties was joint and several in character. The final judgment, which superseded the
action brought for the enforcement of said contract, declared the obligation to be merely
joint, and the same cannot be executed otherwise.
14 BORROMEO V. CA GR No. L-22962 September 28, 1972

FACTS: Respondent Jose A Villamor was a distributor of lumber belonging to Mr. Miller
who was the agent of the Insular Lumber Company in Cebu City. Defendant usually
borrowed from his friend and former classmate-petitioner Canuto O. Borromeo several
amounts of money. On one occasion, with some pressing obligation to Mr. Miller,
defendant borrowed a large sum of money from Borromeo for which he mortgaged his
land and house in Cebu City. Mr. Miller filed a civil action against the defendant and
attached his properties including those mortgaged to plaintiff, inasmuch as the deed of
mortgage in favor of plaintiff could not be registered as it was not properly drawn up.
Plaintiff then pressed for settlement of his obligation, but defendant instead offered to
execute a document of future payment. Liquidation was made and defendant was found
to have owed plaintiff the sum of PhP7220.00, for which defendant signed a promissory
therefor on November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay ‘as soon as I have money.’ The note further stipulates that the defendant would waive
the right of prescription as prescribed in the Civil Code of Procedure. Plaintiff did not
collect within the 1st ten years since defendant did not have any property attached to his
name. However after the second World War, plaintiff then pressed on his demands. The
RTC granted his motion but the CA reversed the ruling claiming that said period was
contrary to law?

ISSUE: Is said period stipulated in the contract valid?

HELD: The CA erred in its decision. It should be noted that the wordings in said
contracts should not instantly nullify the intent of the parties. The intent of the parties is
clear – that an extension of time be granted to respondent for payment of his debts.

In effect, the first 10 years should not be considered in the prescription of the contract and
that the next ten years is granted from which the counting of the period should begin.
15 VICTORIAS PLANTERS V. VICTORIAS MILLING CO. INC. GR No. L-6648
July 25, 1955

FACTS: From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros
Occidental, executed identical milling contracts, under which the sugar central "North
Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the
Manapla and Cadiz districts. The sugarcane planters of Manapla and Cadiz, Negros
Occidental had executed a contract whereby Ossorio was given a period up to December
31, 1916 within which to make a study of and decide whether he would construct a sugar
central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and
setting forth the mutual obligations and undertakings of such central and the planters and
the terms and conditions under which the sugar cane produced by said planters would be
milled in the event of the construction of such sugar central by Ossorio. Such central was
in fact constructed by said Ossorio in Manapla, Negros Occidental, through the North
Negros Sugar Co., Inc., where after the standard form of milling contracts were
executed.The parties cannot stipulate as to the milling contracts executed by the planters
by Victorias, Negros Occidental, other than as follows: 1) a number of them executed
such milling contracts with the North Negros Sugar Co., Inc.; 2) while a number of them
executed milling contracts with the Victorias Milling Co., Inc., which was likewise
organized by Miguel J. Ossorio and which had constructed another Central at Victorias,
Negros Occidental. Thus, after the war, all the sugar cane produced by the planters of
petitioner associations, in Manapla, Cadiz, as well as in Victorias, who held milling
contracts, were milled in only one central, that of the respondent corporation at Victorias.
Beginning with the year 1948, and in the following years, when the planters-members of
the North Negros Planters Association, Inc. considered that the stipulated 30-year period
of their milling contracts executed in the year 1918 had already expired and terminated in
the crop year 1947-1948, and the planters-members of the Victorias Planters Association,
Inc. likewise considered the stipulated 30-year period of their milling contracts, as having
likewise expired and terminated in the crop year 1948-1949, under the pertinent
provisions of the standard milling contract. Notwithstanding the repeated representations
made by the herein petitioners with the respondent corporation, the herein respondent has
refused and still refuses to accede to the same, contending that under the provisions of the
milling contract.

ISSUE: Whether or not the trial court erred in rendering its disputed decision, favoring
the petitioner.

HELD: The fact that the contracts make reference to "first milling" does not make the
period of thirty (30) years one of thirty (30) milling years. The term "first milling" used in
the contracts under consideration was for the purpose of reckoning the thirty-year period
stipulated therein. Even if the thirty-year period provided for in the contracts be construed
as milling years, the deduction or extension of six (6) years would not be justified. At
most on the last year of the thirty-year period stipulated in the contracts the delivery of
sugar cane could be extended up to a time when all the amount of sugar cane raised and
harvested should have been delivered to the appellant's mill as agreed upon. Further, the
parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure,
war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed
suspended during said period, does not mean that the happening of any of those events
stops the running of the period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that time — the planters from delivering
sugar cane and the central from milling it. In order that the central, the herein appellant,
may be entitled to demand from the other parties the fulfillment of their part in the
contracts, the latter must have been able to perform it but failed or refused to do so and
not when they were prevented by force majeure such as war. To require the planters to
deliver the sugar cane which they failed to deliver during the four (4) years of the
Japanese occupation and the two (2) years after liberation when the mill was being rebuilt
is to demand from the obligors the fulfillment of an obligation which was impossible of
performance at the time it became due.
16 CENTRAL BANK OF THE PHILIPPINES V. CA GR No. L-45710 October 3,
1985

FACTS: On April 28, 1965 Island Savings Bank approved a loan of P80,000 in favor of
Sulpicio Tolentino. As a security for the loan, the latter executed a real estate mortgage of
his 100-ha property. The approved loan application called for P80,000 loan, repayable in
semi-annual installments for a period of 3 years, with 12% interest pa. As a mere partial
release of P17,000 at 12% interest for the loan was made by ISB, and Tolentino issued a
promissory note in favor of the bank for the said rate. An advance interest for the P80,000
loan amounting to P4,800 covering 6-month period was deducted to the P17,000. The
interest was returned on July 23, 1965, after being informed by ISB that there was no
fund yet available for the release of the remaining balance of P63,000. On August 13,
1965, the Monetary Board, after finding that the ISB was suffering liquidity problems,
failing to put up the required capital to restore its insolvency, issued a resolution which
prohibits the bank from issuing new loans and investments. Subsequently, on August 1,
1968, in view of the non-payment of the P17,000 covered by the promissory note, ISB
filed an application for extrajudicial foreclosure of the real estate mortgage of the 100-ha
land of Tolentino. Tolentino filed a petition with the CFI for injunction, specific
performance or rescission and damages with preliminary injunction, alleging that ISB
failed to give the remaining balance of P63,000 plus the 12% interest. And if the said
balance cannot be fulfilled, that the mortgage be rescinded. The trial court issued a TRO
enjoining ISB from proceeding with the foreclosure. Likewise, it seeks Tolentino to pay
the P17,000 plus the legal interest towards ISB as it finds the specific performance
unmeritorious. On appeal by Tolentino, the CA modified the CFI decision annd ruled in
favor of Tolentino.

ISSUE:

1. Whether or not the Island Savings Bank can fully foreclose the mortgaged land of
Tolentino.
2. Whether or not there was default in both parties.

HELD:

1. No, Island Savings Bank cannot fully foreclose the land of Tolentino. But it can
only foreclose up to the equivalent of the P17,000 that it had released to
Tolentino. The reason for which is that Tolentino issued a promissory note for the
amount the bank has given him. The Court ruled that if Tolentino did not issue a
PN, then he would not be liable to pay the amount to the bank since the bank was
also in default in delivering the remaining balance of P63,000 of the loan.
2. Yes, the reason of ISB that it can no longer provide for the P63,000 because of the
Monetary Board’s resolution is untenable. Iti only prohibits ISB’s issuance of new
loans and nowhere it prohibit the release of the balance of the loans previously
lent. Likewise, since Tolentino has issued a promissory note in favor of the bank,
and failed to pay the amount of the note, he is also liable for default in payment of
his obligations.
17 SPS SAN FRANCISCO V. DEAC CONSTRUCTION GR No. 171312 February
4, 2008
18 DE LUNA V. ABRIGO GR No. 57445 January 18, 1990

FACTS: De Luna donated a portion of a 75 sq. m. lot to the Luzonian University

Foundation. The donation was embodied in a Deed of Donation Intervivos and was
subject to certain terms and conditions. In case of violation or non-compliance, the
property would automatically revert to the donor. When the Foundation failed to comply
with the conditions, de Luna “revived” the said donation by executing a Revival of
Donation Intervivos with the following terms and conditions:

1) The Donee shall construct on the land and at its expense a Chapel, Nursery, and
Kindergarten School to be named after St. Veronica
2) Construction shall start immediately and must be at least 70% completed three years
from the date of the Deed unless the Donor grants extensions
3) Automatic reversion in case of violation

The Foundation accepted and the donation was registered and annotated in the TCT. By a
Deed of Segregation, the foundation was issued a TCT for area the lot donated while the
remaining area was retained by the De Luna.

The children and only heirs of the late De Luna (died after the donation) filed a complaint
with the RTC for the cancellation of the donation on the ground that the terms were
violated. The Foundation defended itself by saying that it had partially and substantially
complied with the conditions and that the donor granted it an indefinite extension of time
to complete construction.

The RTC dismissed the petition on the ground of prescription (for being filed after 4
years). The heirs did not file an MR and went straight to the SC.

ISSUE: Whether the action prescribes in 4 years (based on art. 764 NCC-judicial decree
of revocation of the donation) or in 10 years (based on art. 1144 –enforcement of a
written contract)

RULING: 10 years. The donation subject of this case is one with an onerous cause.

Under the old Civil Code, it is a settled rule that donations with an onerous cause are
governed not by the law on donations but by the rules on contract. On the matter of
prescription of actions for the revocation of onerous donation, it was held that the general
rules on prescription apply. The same rules apply under the New Civil Code as provided
in Article 733 thereof which provides:

Donations with an onerous cause shall be governed by the rules on contracts, and
remuneratory donations by the provisions of the present Title as regards that portion
which exceeds the value of the burden imposed.

It is true that under Article 764 of the New Civil Code, actions for the revocation of a
donation must be brought within four (4) years from the non-compliance of the
conditions of the donation. However, said article does not apply to onerous donations in
view of the specific provision of Article 733 providing that onerous donations are
governed by the rules on contracts. The rules on prescription and not the rules on
donation applies in the case at bar.
19 UNLAD RESOURCES DEV. CORP. V. RENATA DRAGON ET. AL. GR No.
149348 July 20, 2008
20 NEWTON JISON V. CA GR No. L-45349 August 15, 1988

FACTS: This is an instant petition for review of the decision of the Court of Appeals.
Petitioners entered into a Contract to Sell with private respondent, Robert O. Phillips &
Sons. Inc., whereby the latter agreed to sell to the former a lot for the agreed price of
P55,000.00, with interest at 8% per annum, payable on an instalment basis. Pursuant to
the contract, petitioners paid private respondents a down payment of P11,000.00 and a
monthly installment of P533.85. Due to the failure of petitioners to build a house as
provided in the contract, the stipulated penalty of P5.00 per square meter was imposed to
the effect that the monthly amortization was increased to P707.24.
There were months that petitioners failed to pay the monthly installments due on said
dates although petitioners subsequently paid the amounts due and these were accepted by
private respondent. Petitioners tendered payment for all the installments already due but
the tender was refused.

ISSUES: The principal issue in this case is the legality of the rescission of the contract
and the forfeiture of the payments already made by petitioners.

HELD: In this case, private respondent has denied that rescission is justified and has
resorted to judicial action. We hold that resolution by petitioners of the contract was
ineffective and inoperative against private respondent for lack of notice of resolution.
There is no denying that in the instant case the resolution or rescission of the Contract to
Sell was valid.

Neither can it be said that the cancellation of the contract was ineffective for failure of
private respondents to give petitioners notice thereof as petitioners were informed by
private respondent that the contract was cancelled. The Court gives weight to the fact that
although petitioners have been delinquent in paying their amortizations several times to
the prejudice of private respondent, with the cancellation of the contract the possession of
the lot reverts to private respondent who is free to resell it to another party.

The Court's decision to reduce the amount forfeited finds support in the Civil Code. As
stated in paragraph 3 of the contract, in case the contract is cancelled, the amount already
paid shall be forfeited in favor of the vendor as liquidated damages. The Code provides
that liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable [Art. 2227.]

Further, in obligation with a penal clause, the judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly complied with by the debtor
21 ANASTASIO MATEOS V. FELIX LOPEZ G.R. No. 2391. April 28, 1906

FACTS: The complaint prays for judgment in the sum of 15,000 pesos as damages for
the breach of a contract which it is alleged the defendant has broken. The contract was for
the sale of 1,000 head of horned cattle for 31.50 pesos per head, upon the condition that
they were to be taken by the plaintiff from the defendant's stock farm in the town of
Mangarin, on the Island of Mindoro within six months from January 1, 1904.
Furthermore, the defendant is undertook not to sell to any other person or permit the
withdrawal of cattle from his stock farm until the entire 1,000 head sold .to the plaintiff
had been withdrawn within the time specified in the contract. The plaintiff furthermore
states that he has delivered to the defendant the sum of 200 pesos on account of the total
consideration for the sale.

It is alleged in the complaint that the defendant, violating the terms of the contract, has
sold 1,000 head of cattle from his stock farm at Mangarin to Jose Fernandez & Co., and
has refused and continues to refuse to permit the plaintiff to take possession of the cattle
which have been sold to him.

The court below rendered judgment against the defendant and in favor of the plaintiff in
the sum of 10,000 pesos, Mexican currency, as damages and for the return of the 200
pesos paid on account of the consideration for the sale; these sums, according to the
decision, being equivalent to P9,272.72, Philippine currency.

The defendant denied the allegations of the complaint, and set up as a defense that,
although he had certain dealings with the plaintiff concerning a sale to the latter of 1,000
head of cattle at 31.50 pesos a head, it was agreed between them that the contract was to
be reduced to writing, to be executed on or before the 1st of February, 1904, and that at
the time of its execution the plaintiff was to deliver to him the sum of 5,000 pesos as an
advance on account of the 31,500 pesos, which was the total consideration for the sale of
the 1,000 head of cattle contracted for; that the plaintiff did not comply with this
condition and was not seen again by the defendant, although he made frequent attempts
to find him from the month of December, 1903, at which time the agreement referred was
entered into, until about a month after January 1,1904. In short, the defendant contends
that the contract was not broken by him but by the plaintiff.

ISSUE: Whether or not the plaintiff could recover damages from the defendant for the
alleged breach of contract.

RULING: According to the opinion which we have formed of the case we believe that
the plaintiff did not perform the undertaking to which he was bound by virtue of the
agreements contained in the contract, consequently he is not entitled to insist upon its
performance by the defendant or to recover damages by reason of its breach. The right to
rescind is implied in reciprocal obligations in case one of the parties bound fails to
perform his undertaking. (Article 1124, Civil Code.) The judgment of the lower court is
reversed and the complaint dismissed. No judgment for costs will be given in either
instance. In view of the offer made by the defendant in his answer, he is ordered to return
to the plaintiff the 200 pesos received by him on account of the selling price of the cattle
contracted for. So ordered.
22 UNIVERSAL FOOD CORPORATION VS. CA GR No. L-29155 May 13, 1970

FACTS: This is a petition for certiorari by the UFC against the CA decision of
February 13, 1968 declaring the BILL OF ASSIGNMENT rescinded, ordering UFC to
return to Magdalo Francisco his Mafran sauce trademark and to pay his monthly salary of
P300.00 from Dec. 1, 1960 until the return to him of said trademark and formula.
In 1938, plaintiff Magdalo V. Francisco, Sr. discovered a formula for the
manufacture of a food seasoning (sauce) derived from banana fruits popularly known as
MAFRAN sauce. It was used commercially since 1942, and in the same year plaintiff
registered his trademark in his name as owner and inventor with the Bureau of Patents. In
1960, said plaintiff secured the financial assistance of Tirso T. Reyes who formed with
other defendant Universal Food Corporation leading to the execution on May 11, 1960 of
the aforequoted "Bill of Assignment" (Exhibit A or 1). On May 31, 1960, Magdalo
Francisco entered into contract with UFC stipulating that he be the Chief Chemist and
Second Vice-President of UFC and shall have absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the chemicals
used in the preparation of said Mafran sauce and that said positions are permanent in
nature. Magdalo Francisco kept the formula of the Mafran sauce secret to
himself. Thereafter, however, due to the alleged scarcity and high prices of raw materials,
on November 28, 1960, UFC issued a Memorandum duly approved by the President and
General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be
retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be
stopped for the time being until the corporation should resume its operation.

ISSUES:

1. Was the Bill of Assignment really one that involves transfer of the formula for
Mafran sauce itself?
2. Was petitioner’s contention that Magdalo Francisco is not entitled to rescission
valid?

RULING:

1. No. The SC had the following reasons: 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 show
that what was transferred was only the use.
2. No. This was a case of reciprocal obligation. Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder was subordinated to
anything other than the culpable breach of his obligations by the
defendant. Hence, the reparation of damages for the breach was purely
secondary. Simply put, unlike Art. 1383, Art. 1191 allows both the rescission and
the payment for damages. Rescission is not given to the party as a last resort,
hence, it is not subsidiary in nature.
23. SEVA VS. BERWIN GR No. L-24321 January 11, 1926

FACTS: Plaintiff Agustin Seva agreed to purchase the electric light plant of the
defendant corporation Alfred Berwin and Company. There was no stipulated price for the
sale and purchase of the property yet. The defendant was required to give the plaintiff
free access to all of its original records, and with that as basis, the parties could then
make a reasonable effort to arrive at an amicable agreement as to the price of the
property. The plaintiff was requested to go into the company's office to see and inspect
the vouchers, books, statements and records of the company, with the end in view of
trying to arrive at the cost of the electric light plant, but he refused to do so without legal
reason or excuse to perform. The plaintiff brought this action for an alleged failure of the
defendant to convey the property to him and for a specific performance of the contract.
On the other hand, the defendant alleges that it has complied with all the terms and
provisions of the contract, but the plaintiff has failed and refused to comply with his
obligations set out in the said contract. The lower court rendered judgment in favor of the
plaintiff. Hence, this appeal.

Issue:
Whether or not the plaintiff is entitled to insist upon the performance of the
obligation considering that he was the one who did not perform his part of the agreement.

Ruling:
No, the party who did not perform his part of the agreement has no right to insist
upon the performance of the other party.
Under the rule of exceptio non adimpleti contractus, the party who has not
performed his part of the agreement is not entitled to sue. Where the plaintiff is the party
who did not perform the undertaking which he was bound to perform by the terms of the
contract, he is not entitled to insist upon its performance by the defendant, or recover
damages by reason of his own breach.
In this case, Agustin Seva refused to comply with his obligation which is to see
and inspect the vouchers, books, statements and records of the company in order to
ascertain the cost of the property. Thus, he has no right to compel Alfred Berwin and
Company to convey the property to him. The judgment of the lower court is reversed, and
the complaint dismissed.
24. BRICKTOWN DEV. CORP. V. AMOR TIERRA DEV. CORP. GR No. 112182
December 12, 1994

FACTS: Bricktown Development Corporation, represented by its President and co-

petitioner Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor Tierra
Development Corporation, represented in these acts by its Vice-President, Moises G.
Petilla, covering a total of 96 residential lots at the Multinational Village Subdivision, La
Huerta, Parañaque, Metro Manila.

The total price of P21,639,875.00 was stipulated to be paid by private respondent in such
amounts and maturity dates, as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75
on 30 June 1981; P4,729,906.25 on 31 December 1981; and the balance of
P11,500,000.00 to be paid by means of an assumption by private respondent of petitioner
corporation's mortgage liability to the Philippine Savings Bank or, alternately, to be made
payable in cash. On date, March 31, 1981, the parties executed a Supplemental
Agreement, providing that private respondent would additionally pay to petitioner
corporation the amounts of P55,364.68, or 21% interest on the balance of down payment
for the period from 31 March to 30 June 1981, and of P390,369.37 representing interest
paid by petitioner corporation to the Philippine Savings Bank in updating the bank loan
for the period from 01 February to 31 March 1981.

Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21.
However, the parties continued to negotiate for a possible modification of their
agreement, but nothing conclusive happened. And on October 12, 1981, petitioner’s
counsel sent private respondent a “Notice of Cancellation of Contract” because of the
latter’s failure to pay the agreed amount.

Several months later, private respondent’s counsel, demanded the refund of private
respondent's various payments to petitioner corporation, allegedly "amounting to
P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a
cash payment, to assign to private respondent an equivalent number of unencumbered
lots at the same price fixed in the contracts. When the demand was not heeded, Amor
Tierra filed an action with the court a quo which rendered a decision in its favor. The
decision of the lower court was affirmed in toto by the Court of Appeals. Hence, this
petition.

ISSUE: Whether or not the contract was properly rescinded.

RULING: Yes, the contract between Bricktown and Amor Tierra was validly rescinded.

Under a contract to sell, the non-payment of the purchase price renders the contract
ineffective and without force and effect. It is not a breach of contract but merely an event
that prevents the seller from conveying title to the purchaser. Article 1191 presupposes an
obligation already extant. Thus, a cause of action for specific performance does not arise.

In this case, the contract between Bricktown and Amor Tierra was validly rescinded
because of the failure of the latter to pay the agreed amounts stipulated in the contract on
the proper date even after the sixty-day grace period.
25. SSS vs. Moonwalk Dev. and Housing Corp. GR. No. 73345 April 7, 1993

FACTS: Plaintiff approved the application of Moonwalk for a loan amounting to 30M.
Out of the 30M, 9,595,000 was released to Moonwalk. An amendment was made on the
Deed of First Mortgage providing for the restructuring of the payment for the released
amount of 9,595,000. Additional releases amounting to 2,659,700 were made. Total
releases amounted 12,254,700. Moonwalk made a total payment of P23, 657,901.84 to
SSS for the loan principal of P12, 254,700.00 released to it. The last payment made by
Moonwalk in the amount of P15, 004,905.74 were based on the Statement of Account
prepared by plaintiff SSS for defendant. After settlement of account, Real Estate
Mortgage on the properties of Moonwalk was released. Later on, SSS demanded payment
of penalty on the ground that it committed an honest mistake in releasing the defendant.
SSS alleges that Moonwalk failed to pay the 12% penalty clause for failure to pay the
amortizations on time. On the other hand, the defendant’s counsel told SSS that it had
already completely paid its obligation. RTC and CA dismissed the complaint of SSS,
hence, this petition.

ISSUE: Whether or not the penalty is still demandable after the extinguishment of the
principal obligation.

RULING: No, because the obligation was already extinguished by the payment by
Moonwalk of its indebtedness to SSS and by the latter’s act of cancelling the real estate
mortgages executed in its favor by defendant moonwalk.

Penal clause is an accessory obligation which the parties attach to a principal obligation
for the purpose of insuring the performance thereof by imposing on the debtor a special
presentation in case the obligation is not fulfilled or is irregularly or inadequately
fulfilled. Accessory obligation is dependent for its existence on the existence of a
principal obligation.

In the present case, the principal obligation is the loan between the parties. The accessory
obligation of a penal clause is to enforce the main obligation of payment of the loan. If
therefore the principal obligation does not exist the penalty being accessory cannot exist.
27. RCBC vs. CA GR No. 133107 March 25, 1999

FACTS: Private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc.
for which he made a down payment, the balance of which is to be paid in 24 equal
monthly installments. He then issued 24 postdated checks in the amount due for every
month. To secure the balance, private respondent executed a promissory note and a
contract of Chattel Mortgage over the vehicle in favor of Toyota Shaw. The contract of
Chattel Mortgage provided for an acceleration clause stating that if there be default on the
part of the mortgagor to pay any of the installments, the whole amount remaining shall
become due.

Toyota Shaw then assigned all its rights and interest in the Chattel Mortgage to petitioner
Rizal Commercial Banking Corporation (RCBC). The problem arose when one check
was not signed by the private respondent. On the theory that the respondent defaulted in
his payments, petitioner demanded the payment of the debt including liquidated damages.
Atty. Lustre refused, prompting RCBC to file an action for replevin and damages before
the Regional Trial Court of Pasay City. After trial, the RTC rendered a decision in favor
of the private respondent, and held that he was not in default. The Court of Appeals
affirmed the decision of the lower court.

ISSUE: Whether or not private respondent should be held in default.

HELD: No, the private respondent should not be held in default.

Article 1170 of the Civil Code states that “those who in the performance of their
obligation are guilty of delay are liable for damages.” The delay in the performance must
be malicious or negligent.

In this case, there was no imputation, much less evidence, that private respondent acted
with malice or negligence in failing to sign the check. The Supreme Court agreed with
the Court of Appeals that such omission was mere inadvertence on the part of private
respondent.
28 SICAM ET. AL. v. JORGE GR No. 159617 August 8, 2007

FACTS: It appears that on different dates from September to October 1987, Lulu V.
Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure a loan in
the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever
cash and jewelry were found inside the pawnshop vault.

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of
the loss of her jewelry due to the robbery incident in the pawnshop.

On November 2, 1987, respondent Lulu then wrote a letter[4] to petitioner Sicam

expressing 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
November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a
complaint against petitioner Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as... attorney's fees.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the
pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc.
that petitioner corporation had exercised due care and diligence in the safekeeping of the
articles pledged with it and could not be made liable for an event that is fortuitous.

The RTC held that petitioner Sicam could not be made personally liable for a claim
arising out of a... corporate transaction;... petitioner corporation could not be held liable
for the loss of the pawned jewelry since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession of the corporation was occasioned
by armed robbery; that... robbery is a fortuitous event which exempts the victim from
liability for the loss, citing the case of Austria v. Court of Appeals;

CA reversed the RTC... the CA applied the doctrine of piercing the veil of corporate
entity reasoning that respondents were misled into thinking that they were dealing with
the pawnshop owned by petitioner Sicam as all the... pawnshop tickets issued to them
bear the words "Agencia de R.C. Sicam"; and that there was no indication on the
pawnshop tickets that it was the petitioner corporation that owned the pawnshop which
explained why respondents had to amend their complaint impleading... petitioner
corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it
should take steps to secure and protect the pledged items and should take steps to insure
itself against the loss of articles which are entrusted to its custody as it derives earnings
from the... pawnshop trade which petitioners failed to do;

ISSUES: Whether petitioners are liable for the loss of the pawned articles in their
possession.

HELD: Petitioners are guilty of concurrent or contributory negligence as provided in

Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable
for damages.
Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the
diligence required of them under the Civil Code.

Principles:

Article 1174 of the Civil Code provides:

Art. 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.

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. [23]

The burden of proving that the loss was due to a fortuitous event rests on him who
invokes it.[24] 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. [25]

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the
creditor shall take care of the thing pledged with the diligence of a good father of a
family. This means that petitioners must take care of the pawns the way a prudent person
would as to his... own property.
29 AGCAOILI V. GSIS G.R. No. L-30056 August 30, 1988

FACTS: Petitioner was awarded the house by GSIS on the condition that he should
reside on it immediately. As the house is uninhabitable, petitioner vacated the area after 1
day and refused to pay further installments until respondent make it habitable.
Respondent cancelled the award.

ISSUE: Whether or not the petitioner incurred delay in fulfilling his obligations

HELD: In reciprocal obligations, a party incurs delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. Respondent
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.
30 SAGRADA ORDEN VS NACOCO GR No. L-3756 June 30, 1952

FACTS: The land in question belongs to plaintiff Sagrada Orden in whose name the title
was registered before the war

On January 4, 1943, during the Japanese military occupation, the land was acquired by a
Japanese corporation by the name of Taiwan Tekkosho

After liberation on April 4, 1946, the Alien Property Custodian of the United States of
America took possession, control, and custody of the property pursuant to the Trading
with the Enemy Act

The property was occupied by the Copra Export Management Company under a
custodian agreement with US Alien Property Custodian. When it vacated the property, it
was occupied by defendant National Coconut Corporation

The plaintiff made claim to the said property before the Alien Property Custodian. Alien
Property Custodian denied such claim

It bought an action in court which resulted to the cancellation of the title issued in the
name of Taiwan Tekkosho which was executed under threats, duress, and intimidation;
reissuance of the title in favor of the plaintiff; cancellation of the claims, rights, title,
interest of the Alien property Custodian; and occupant National Coconut Corporation’s
ejection from the property. A right was also vested to the plaintiff to recover from the
defendants rentals for its occupation of the land from the date it vacated.

Defendant contests the rental claims on the defense that it occupied the property in good
faith and under no obligation to pay rentals.

ISSUE: Whether or not the defendant is obliged to pay rentals to the plaintiff

HELD: No. Nacoco is not liable to pay rentals prior the judgment. If defendant-appellant
is liable at all, its obligations, must arise from any of the four sources of obligations,
namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil
Code.) Defendant-appellant is not guilty of any offense at all, because it entered the
premises and occupied it with the permission of the entity which had the legal control and
administration thereof, the Alien Property Administration. Neither was there any
negligence on its part.